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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the fiscal year ended December 31, 1999
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OR
Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from ________ to ________
Commission file no. 33-86258
First Community Corporation
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(Name of Small Business Issuer in Its Charter)
South Carolina 57-1010751
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5455 Sunset Blvd., Lexington, South Carolina 29072
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(Address of Principal Executive Offices) (Zip Code)
(803) 951-2265
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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. [X]
The aggregate market value of the voting stock as of March 15, 2000,
held by non-affiliates of the registrant based on the average of the quoted bid
and ask as of March 15, 2000, was $15,895,400
The issuer's revenues for its most recent fiscal year were $6,645,416.
1,207,177 shares of the Issuer's common stock were issued and outstanding as of
March 15, 2000.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement for its April
26, 2000 Annual Meeting of Shareholders, are incorporated by reference into Part
III thereof.
Transitional Small Business Disclosure Format. (Check one): Yes No [X]
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PART I
ITEM 1. BUSINESS.
GENERAL
First Community Corporation 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 costs. The proceeds are being used to purchase properties and
construct and outfit three branches over a six to eighteen month period. The
estimated cost for the three branches was approximately $3.0 million. The
remaining proceeds are being 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, 1999, the company has opened
two of the new branches and will open the third branch office in Gilbert, South
Carolina during the first quarter of 2000. After opening the Gilbert office the
bank will have a total of five offices located in Lexington and Richland
Counties of South Carolina.
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 three branch offices located in the city of Forest Acres, town of
Irmo, and town of West Columbia located in Lexington and Richland Counties. See
Item II, "Description of Properties."
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 Counties which includes the
primary service areas for the existing four sites of the bank and the projected
site, 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, Blue 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.
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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 Star 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 currently exercise trust powers, but can begin to do
so with 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, 1999, there were fourteen
commercial banks operating approximately 137 offices and three thrifts with a
total of 7 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
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institutions in the 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 33 full-time employees and two part-time
employees. The company does not have any employees other than its officers, none
whom receive any additional remuneration for their services to the company.
SUPERVISION AND REGULATION
Both the company and the bank are subject to extensive state and
federal banking laws and regulations which impose specific requirements or
restrictions on and provide for general regulatory oversight of virtually all
aspects of operations. These laws and regulations are generally intended to
protect depositors, not shareholders. The following summary is qualified by
reference to the statutory and regulatory provisions discussed. Changes in
applicable laws or regulations may have a material effect on our business and
prospects. Beginning with the enactment of the Financial Institution Report
Recovery and Enforcement Act in 1989 and following with the FDIC Improvement Act
in 1991, numerous additional changes have been proposed. Our operations may be
affected by legislative changes and the policies of various regulatory
authorities. We cannot predict the effect that fiscal or monetary policies,
economic control, or new federal or state legislation may have on our business
and earnings in the future.
GRAMM-LEACH-BLILEY ACT
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, Previously know and the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complimentary" to financial activities.
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we fact from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time other changes are proposed to laws affecting the banking
industry, and these changes could have a material effect on our business and
prospects. We cannot predict the nature or the extent of the effect on our
business and earnings of fiscal or monetary policies, economic controls, or new
federal or state legislation.
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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 Banking and Branching Efficiency
Act (the "South Carolina Act").
Under the BHCA, the Company is subject to periodic examination by the
Federal Reserve and files periodic reports of its operations and such additional
information as the Federal Reserve may require. The Company's and the bank's
activities are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other
activities that the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i) acquiring
substantially all the assets of any bank, (ii) acquiring direct or indirect
ownership or control of any voting shares of any bank if after such acquisition
it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares), or (iii) merging or
consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities. The regulations
provide a procedure for challenge of the rebuttable control presumption.
Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, nonbanking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.
The Federal Reserve Board will impose certain capital requirements on
the company under the BHCA, including a minimum leverage ratio and a minimum
ratio of "qualifying" capital to risk-weighted assets. These requirements are
described below under "- Capital Regulations." Subject to its capital
requirements and certain other restrictions, the company is able to borrow money
to make a capital contribution to the bank, and such loans may be repaid from
dividends paid from the bank to the company (although the ability of the bank to
pay dividends will be subject to regulatory restrictions as described below in
"- The bank - Dividends"). The company is also able to raise capital for
contribution to the bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.
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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.
Subject to the implementation of changes contained in the
Gramm-Leach-Bliley Act, the company is also restricted in its activities by the
provisions of the Glass-Steagall Act, which prohibit the company from owning
subsidiaries that are engaged principally in the issue, flotation, underwriting,
public sale, or distribution of securities. The interpretation, scope, and
application of the provisions of the Glass-Steagall Act currently are being
considered and reviewed by regulators and legislators, and the interpretation
and application of those provisions have been challenged in the federal courts.
As a bank holding company registered under the South Carolina Act, the
company is subject to regulation by the South Carolina State Board of Financial
Institutions (the "South Carolina Board"). Consequently, the company must
receive the approval of the South Carolina Board prior to engaging in the
acquisitions of banking or nonbanking institutions or assets. The company must
also file with the South Carolina Board periodic reports with respect to its
financial condition and operations, management, and intercompany relationships
between the company and its subsidiaries.
The bank. The bank is operating as a national banking association
incorporated under the laws of the United States and subject to examination by
the OCC. Deposits in the bank are insured by the FDIC up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The OCC and
the FDIC regulate or monitor virtually all areas of the bank's operations,
including security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits, interest
rates or fees chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The OCC
requires the bank to maintain certain capital ratios and imposes limitations on
the bank's aggregate investment in real estate, bank premises, and furniture and
fixtures. The bank is required by the OCC to prepare quarterly reports on the
bank's financial condition and to conduct an annual audit of its financial
affairs in compliance with minimum standards and procedures prescribed by the
OCC.
Under FDICIA, all insured institutions must undergo regular on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates is assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
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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 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
is 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.
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A national bank may not pay dividends from its capital. All dividends
must be paid out of undivided profits then on hand, after deducting expenses,
including reserves for losses and bad debts. In addition, a national bank is
prohibited from declaring a dividend on its shares of common stock until its
surplus equals its stated capital, unless there has been transferred to surplus
no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends declared by a national bank
in any calendar year exceeds the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus.
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 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
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.
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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 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. Management anticipates that the
bank will maintain its status 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
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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 have been maintained at levels that 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 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 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. Furthermore, 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.
<PAGE> 11
RECENT LEGISLATIVE DEVELOPMENTS
From time to time, various bills are introduced in the United state
congress with respect to the regulation of financial institutions. Some of these
bills, like the Gramm-Leach-Bliley Act, could significantly change the
regulation of banks and the financial services industry. We cannot predict
whether any other proposals will be adopted or, what effect, current proposals,
like the Gramm-Leach-Bliley Act will have.
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.
ITEM 2. DESCRIPTION OF PROPERTY.
Lexington Property. The principal place of business of both the Company
and our 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.
Irmo Property. The bank also operates a branch office facility at 1030
Lake Murray Boulevard, Irmo, South Carolina 29063. The Irmo site is
approximately a 1.00 acre plot of land which was acquired at a cost of $449,000.
The banking facility is approximately 3,200 square feet with a total cost of
construction of approximately $630,000 including paving and landscaping
Cayce/West Columbia Property. The bank operates a branch office
facility at 506 Meeting Street, West Columbia, South Carolina 29169. The
Cayce/West Columbia site is approximately a 1.25 acre plot of land which was
acquired at a cost of $300,000. The banking facility is approximately 3,800
square feet with a total cost of construction of approximately $635,000
including paving and landscaping.
Gilbert Property. The company has acquired a lot in Gilbert, South
Carolina and is in the process of opening its fifth office at 4325 Augusta
Highway, Gilbert, South Carolina 29054. This facility will be approximately a
700 square foot modular unit located on an approximate one acre lot. The total
cost of the land and construction is approximately $205,000. The opening of this
office is planned for the first quarter of 2000.
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.
<PAGE> 12
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, 1999.
The stock is quoted on the OTC Bulletin Board under the trading symbol "FCCO."
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>
1999 High Low
---- ---- ---
<S> <C> <C>
First quarter $19.50 $16.50
Second quarter $19.25 $18.00
Third quarter $18.50 $17.00
Fourth quarter $17.75 $15.50
1998
----
Third quarter $17.00 $15.00
Fourth quarter $17.00 $15.00
</TABLE>
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 Bank 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 year combined with its retained net profits for the preceding two years
less any required transfers to surplus. At December 31, 1999, the bank has
$932,000 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.
<PAGE> 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of First Community Corporation, its directors or its
officers with respect to, among other things: (i) First Community Corporation's
financing plans, (ii) trends affecting First Community Corporation's financial
condition or results of operations; (iii) First Community Corporation's growth
strategy and operating strategy; (iv) the quality of our loan portfolio and (v)
the declaration and payment of dividends. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various factors
discussed herein and those factors discussed in detail in First Community
Corporation's filings with the Securities and Exchange Commission.
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 its first office located in
Lexington, South Carolina. On September 14, 1995 the company opened its second
office located in Forest Acres, South Carolina. During 1999 the company opened
two additional offices in Irmo and West Columbia, South Carolina and is in the
process of opening its fifth office in Gilbert, 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 its first quarterly
profit in the fourth quarter of 1996 and has been profitable for each subsequent
quarter through the fourth quarter of 1999. In 1998, the company made the
decision to raise additional capital through a secondary offering to be used for
branch expansion in its target markets of Lexington and Richland counties. In
July 1998 the company completed the offering which raised approximately $6.6
million in additional capital. During 1999, in accordance with its planned
expansion, the company opened one office in Irmo, South Carolina and a second in
West Columbia, South Carolina and is in the process of opening a third in
Gilbert, South Carolina. Upon opening the Gilbert location in the first quarter
of 2000 the company will have five locations in Richland and Lexington Counties.
The company intends to use remaining proceeds of the secondary offering to
support initial loan growth at each office and for other general corporate
purposes. 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 $94.9 million in
total assets, $52.3 million in loans, $77.0 million in deposits and $14.0
million in shareholders' equity at December 31, 1999. 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.
<PAGE> 14
RESULTS OF OPERATIONS
The Company's net income was $818,000, or $0.66 diluted earnings per
share, for the year ended December 31, 1999, as compared to a net income of
$847,000, or $0.87 diluted earnings per share, for the year ended December 31,
1998, and a loss of $251,000 or $0.36 diluted earnings per share for the year
ended December 31, 1997. The decrease in net income for 1999 as compared to 1998
resulted from two factors which included the cost associated with the opening of
two new branches as well as a higher tax rate for 1999. The 1998 tax rate was
affected by prior year net operating losses and was 6.6% of income before taxes
in 1998 compared to 34.8% in 1999. Net income in 1999 was also positively
affected by a $993,000 increase in net interest income. This increase resulted
from an increase in all categories of earning assets in 1999. Yields earned and
rates paid on the various components of the balance sheet during showed a modest
decrease in 1999 as compared to 1998. Earning assets averaged $84.3 million in
1999 as compared to $58.6 million in 1998. Non interest income increased from
$436,000 in 1998 to $481,000 in 1999 due to increased deposit service charges
and increases in fees related to non-deposit investment product sales. Non
interest expense increased to $2.7 million in 1999 as compared to $2.0 million
in 1998. This increase is primarily due to the cost associated with opening and
staffing two new branches during the year.
The increase in net income from 1997 to 1998 resulted primarily from an
$857,000 increase in net interest income. Increased net interest income resulted
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 during 1998, the Bank incurred approximately $50,000 of
cost associated with remediation and testing of systems for year 2000
compliance.
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 $3.7 million in 1999, $2.7 million in 1998,
and $1.8 million in 1997. Net interest spread, the difference between the yield
on earning assets and the rate paid on interest-bearing liabilities, was 3.50%
in 1999 as compared to 3.57% in 1998 and 3.55% in 1997. The reason for the
increase in net interest income between 1999 and 1998 was primarily due to the
$25.7 million increase in the level of earning assets between the two periods
and was slightly offset by a 21 basis point decrease in the net margin.
Similarly, 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 as well as an improvement in the net interest margin of
16 basis points. In 1999 loans represented 54.7% of earning
<PAGE> 15
assets as compared to 57.4% in 1998. Loans typically provide a higher yield
than other types of earning assets and thus one of the company's goals is to
grow the loan portfolio as a percentage of earning assets. The yield on earning
assets decreased from 7.81% in 1998 to 7.32% in 1999. The decrease was
primarily a result of the lower percentage of loans to earning assets as well
as a decrease in general market rates during the fourth quarter of 1998. Market
rates stayed lower throughout the first half of 1999. Although rates began to
rise in the latter part of 1999, the effects of these increases on the yield on
earning assets is not immediate. This decrease in yield on average earning
assets was partially offset by a decrease in the rate paid on interest-bearing
liabilities to 3.82% in 1999 to 4.25% in 1998. The increase in net interest
income in 1998 of $857,000 as compared to the prior year was a result of the
bank's earning assets increasing by $18.0 million during the two periods.
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.
AVERAGE BALANCES, INCOME, EXPENSES AND RATES
<TABLE>
<CAPTION>
(In thousands) Year ended December 31,
1999 1998 1997
------------------------ ------------------------- -------------------------
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 $46,064 $ 4,093 8.89% $33,641 $ 3,152 9.37% $23,192 $ 2,184 9.42%
Securities 29,917 1,660 5.55% 17,561 1,032 5.88% 13,239 782 5.91%
Federal funds sold and
purchased under agreement
to resell 8,284 411 4.96% 7,411 395 5.33% 4,193 228 5.44%
------- ------- ---- ------- ------- ---- ------- ------- ----
Total earning assets 84,265 6,164 7.32% 58,613 4,579 7.81% 40,624 3,194 7.86%
------- ---- ------- ---- ------- ----
Cash and due from banks 2,913 1,900 1,349
Premises and equipment 4,521 3,149 2,873
Other assets 882 452 351
Allowance for loan losses (624) (464) (284)
------- ------- -------
Total assets $91,957 $63,650 $44,913
======= ======= =======
LIABILITIES
Interest-bearing liabilities
Interest-bearing transaction accounts $10,168 81 0.80% $ 5,987 69 1.15% $ 4,393 61 1.39%
Money market accounts 10,773 441 4.09% 7,832 341 4.35% 4,740 213 4.49%
Savings deposits 8,633 298 3.45% 7,232 270 3.73% 6,264 240 3.83%
Time deposits 33,193 1,567 4.72% 21,045 1,101 5.23% 15,251 803 5.27%
Other short term borrowings 3,012 125 4.15% 3,121 139 4.45% 1,662 75 4.51%
------- ------- ---- ------- ------- ---- ------- ------- ----
Total interest-bearing liabilities 65,779 2,512 3.82% 45,217 1,920 4.25% 32,310 1,392 4.31%
------- ---- ------- ---- ------- ----
Demand deposits 11,770 8,260 6,440
Other liabilities 553 417 296
Shareholders' equity 13,855 9,756 5,867
------- ------- -------
Total liabilities and shareholders' equity $91,957 $63,650 $44,913
======= ======= =======
Net interest spread 3.50% 3.57% 3.55%
Net interest income/margin $ 3,652 4.33% $ 2,659 4.54% $ 1,802 4.44%
------- ------- -------
</TABLE>
(1) All loans and deposits are domestic. The Company had no nonaccrual
loans during the periods presented
<PAGE> 16
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)
1999 versus 1998 1998 versus 1997
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 $ 1,094 $ (152) $ 942 $ 979 $ (12) $ 967
Investment securities 682 (55) 627 254 (3) 251
Federal funds sold and securities purchased
under agreements to resell 39 (23) 16 171 (4) 167
------- ------
Total earning assets 1,855 (270) 1,585 1,405 (20) 1,385
------- ------
Interest-bearing liabilities
Interest-bearing transaction accounts 22 (10) 12 15 (6) 9
Money market accounts 119 (19) 100 134 (7) 127
Savings deposits 46 (18) 28 35 (7) 28
Time deposits 561 (95) 466 303 (4) 299
Other short term borrowings (5) (9) (14) 65 -- 65
------- -------
Total interest-bearing liabilities 760 (168) 592 548 20 528
------- -------
Net interest income $ 993 $ 857
======= =======
</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> 17
The following table illustrates the company's interest rate sensitivity
at December 31, 1999.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(In thousands)
December 31, 1999
------------------------------------------------------------------------------
After After Six Greater
Three Through Than One
Within Through Twelve Within Year or
Three Months Six Months Months One Year Nonsensitive Total
------------ ---------- ------ -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans $ 18,998 $ 2,669 $ 5,292 $ 26,959 $ 25,338 $ 52,297
Securities 6,723 951 2,051 9,725 20,997 30,722
Federal funds sold and securities
purchased under agreements to
resell 2,796 2,796 2,796
--------- --------- --------- --------- --------- ---------
Total earning assets 28,517 3,620 7,343 39,480 46,335 85,815
--------- --------- --------- --------- --------- ---------
Liabilities
Interest bearing liabilities
Interest bearing deposits
NOW Accounts 1,138 1,138 2,277 4,553 4,554 9,107
Money market accounts 15,166 15,166 15,166
Savings deposits 1,004 1,004 2,007 4,015 4,015 8,030
Time deposits 20,313 5,268 4,915 30,496 1,940 32,436
--------- --------- --------- --------- --------- ---------
Total interest-bearing deposits 37,621 7,410 9,199 54,230 10,509 64,739
Other short term borrowings 3,429 3,429 3,429
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 41,050 7,410 9,199 57,659 10,509 68,168
--------- --------- --------- --------- --------- ---------
Period gap $ (12,533) $ (3,790) $ (1,856) $ (18,179) $ 35,826 $ 17,647
Cumulative gap $ (12,533) $ (16,323) $ (18,179) $ (18,179) $ 17,647 $ 17,647
Ratio of cumulative gap to total
earning assets (14.6%) (19.0%) (21.2%) (21.2%) 20.6% 20.6%
</TABLE>
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 within one year. However, the
company's gap analysis is not a precise indicator of its interest sensitivity
position. The analysis presents only a static view of the timing of maturities
and repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. Net interest
income is also impacted by other significant factors, including changes in the
volume and mix of earning assets and interest-bearing liabilities.
Provision and Allowance for Loan Losses
The company has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem credits. Management's judgment as to the adequacy of the allowance is
based upon a number of 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.
<PAGE> 18
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, 1999 and 1998, the allowance for loan losses amounted to
$704,000 and $532,000, respectively. This represents 1.35% and 1.30% of
outstanding loans at December 31, 1999 and 1998, respectively. There were no
non-accrual, restructured or other non-performing loans at December 31, 1999,
1998 or 1997. In addition, there was $4,000 and $3,000 in loans delinquent
greater than 30 days at December 31, 1999 and 1998, respectively, and none were
delinquent greater than 30 days at December 31, 1997. The provision for loan
losses was $210,000, $179,000 and $194,000 for the years ended December 31,
1999, 1998 and 1997, respectively. The provision was made based on management's
assessment of general loan loss risk and asset quality.
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands) Year ended December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Average loans outstanding $46,064 $33,641 $23,192
======= ======= =======
Loans outstanding at period end $52,297 $40,819 $29,000
======= ======= =======
Total non-performing loans -- -- --
======= ======= =======
Beginning balance of allowance $ 532 $ 380 $ 201
Loans charged-off:
1-4 family residential mortgage -- -- --
Home equity -- -- --
Commercial 26 28 --
Leases -- 2 14
Installment & credit card 15 4 4
------- ------- -------
Total loans charged-off 41 34 18
------- ------- -------
Recoveries:
1-4 family residential mortgage -- -- --
Home equity -- -- --
Commercial 3 -- --
Leases -- 7 3
Installment & credit card -- -- --
------- ------- -------
Total recoveries 3 7 3
------- ------- -------
Net loans charged off 38 27 15
------- ------- -------
Provision for loan losses 210 179 194
------- ------- -------
Balance at period end $ 704 $ 532 $ 380
======= ======= =======
Net charge -offs to average loans 0.08% 0.08% 0.06%
Allowance as percent of total loans 1.35% 1.30% 1.31%
Non-performing loans as % of total loans -- -- --
Allowance as % of non-performing loans -- -- --
</TABLE>
<PAGE> 19
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, 1999, 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
commissions on sale of non-deposit investment products, bankcard fees,
commissions on check sales, safe deposit box rent, wire transfer and official
check fees. Noninterest income for the year ended December 31, 1999, was
$481,000 as compared to $436,000 for 1998. This increase is primarily a result
of the growth in deposit account balances and the related deposit account fees
as well as an increase in commissions on the sale of non-deposit investment
products. Deposit account fees amounted to $229,000 in 1999 as compared to
$205,000 in 1998. Commissions on the sale of non-deposit investment products
were $85,000 in 1999 as compared to $52,000 in 1998. These commissions
increased in 1999 as compared to 1998 due to more emphasis being placed on this
source of revenue in the most recent year. These increases were partially
offset by lower mortgage loan origination fees in 1999 as compared to 1998.
Mortgage loan origination fees amounted to $84,000 in 1999 as compared to
$119,000 in 1998. This decrease 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 1999. The company continues to place emphasis
on this source of revenue in an effort to increase mortgage loan fee income.
Noninterest income amounted to $262,000 in 1997. The substantial increase in
1998 as compared to 1997 is attributable to increased deposit account balances
and the related deposit account fees of $34,000, an increase in mortgage loan
origination fees of $78,000 and an increase in commissions on sale of
non-deposit investment products of $44,000. The company initiated its program
for the sale of non-deposit investment products during the first quarter of
1998.
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 $2,010,000 for the year ended December 31,
1998 to $2,669,000 for the year ended December 31, 1999. Salary and employee
benefits increased $328,000 in 1999 as compared to 1998. This increase results
primarily from the company's expansion focus in 1999 whereby two new branch
offices were opened and a third is under construction. The new branches opened
in 1999 added approximately nine full time equivalent positions within the
company. In addition, normal merit increases contributed to the increased
salary and employee benefit expense. The company also increased its matching
program to the existing 401(k) plan during 1999 whereby it matches 50% of the
employees
<PAGE> 20
contribution up to 6%. In 1998 the match was only up to 4%. Occupancy expense
increased from $118,000 in 1998 to $172,000 in 1999. This increase is directly
attributable to the increased expenses related to the two new offices opened in
1999. Equipment expense increased from $180,000 in 1998 to $235,000 in 1999.
This increase is primarily a result of increased depreciation and maintenance
expenses on equipment purchased for the new offices. Marketing and public
relations expense increased to $182,000 in 1999 as compared to $132,000 in
1998. This increase is attributable to planned budgeted increases in
advertising including more radio advertising as well as introducing the
company's first television advertisement spots. Other expense increased to
$692,000 in 1999 as compared to $518,000 in 1998. This increase is primarily
attributable to increases professional fees of $41,000, supplies of $30,000
postage of $16,000, telephone of $15,000, contributions of $11,000 and
correspondent charges of $9,000. Professional fees increased as a result of
fees paid to consultants for year 2000 validation testing. and assistance with
an evaluation of the company's data processing system. In addition the fees
paid for the bank's regulatory exam increased as it is based on asset size.
Supplies, postage, telephone, contributions and correspondent charges increased
due to the asset growth of the company as well as the addition of the two new
offices during 1999.
Noninterest expense increased from $1,619,000 in 1997 to $2,009,000 in
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 its existing 401(k) plan during
1998 in which it matched 50% of the employee contribution up to 4%. Equipment
expense increased from $144,000 in 1997 to $180,000 in 1998. This increase was
due to increased maintenance expense of approximately $28,000, the majority of
which related to remediation expense for computer software and hardware to
upgrade them to ensure that they were 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.
The following table sets forth for the periods indicated the primary components
of non-interest expense:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Salary and employee benefits $ 1,389 $ 1,061 $ 876
Occupancy 172 118 114
Equipment 235 180 144
Marketing and public relations 182 131 90
Data processing 156 149 96
Supplies 86 56 52
Telephone 39 25 22
Correspondent services 59 51 38
Insurance 49 39 32
Professional fees 83 42 36
Postage 49 33 22
Other 170 125 97
-------- -------- --------
$ 2,669 $ 2,010 $ 1,619
======== ======== ========
</TABLE>
<PAGE> 21
Income Tax Expense
Income taxes for 1999 were $436,000 as compared to $60,000 in 1998. During
1998 the company had a net operating loss carry forward of approximately
$733,000. 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. In 1998, the
Company eliminated the remaining valuation allowance in 1998 which reduced
income tax expense. 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. During 1997 the company had no income
tax expense primarily as a result of a reduction in a prior year valuation
allowance.
FINANCIAL POSITION
Total assets at December 31, 1999 were $94.9 million as compared to $73.2
million at December 31, 1998. Average earning assets increased to $84.3 million
during 1999 as compared to $58.6 million during 1998. Asset growth included a
net increase in loans of $11.5 million and a $7.9 million increase in
investment securities during 1999 as compared to 1998. Net property and
equipment increased by $1.7 million as a result of opening and equipping two
new offices during 1999. The growth in the various asset categories was funded
by an increase in deposit account balances of $21.0 million. During 1999 the
bank became a member of the Federal Home Loan Bank of Atlanta (FHLB Atlanta).
Membership in FHLB Atlanta provides the bank with an alternative funding
source. At December 31, 1999 the company had an advance in the amount of $1.5
million which is included in the caption other borrowed money. Shareholders'
equity totaled $14.0 million at December 31, 1999 as compared to $13.6 million
at December 31, 1998. This increase was primarily retained net income of
$818,000 during 1999.
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 60.9% of earning assets at
December 31, 1999. Associated with the higher loan yields are the inherent
credit and liquidity risks which management attempts to control and
counterbalance. However, the bank tries to achieve its asset mix goals without
sacrificing asset quality. Loans averaged $46.1 million during 1999, 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,
---------------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial & agricultural $ 10,833 20.7% $ 8,865 21.7% $ 7,148 24.6%
Real estate:
Construction 4,943 9.5% 3,873 9.5% 2,006 6.9%
Mortgage - residential 7,849 15.0% 6,538 16.0% 4,457 15.4%
Mortgage - commercial 20,140 38.5% 15,305 37.5% 10,454 36.1%
Consumer 8,532 16.3% 6,238 15.3% 4,935 17.0%
-------------------- -------------------- --------------------
Total gross loans 52,297 100.0% 40,819 100.0% 29,000 100.0%
======== ======= =======
Allowance for loan losses (704) (532) (380)
---------- ---------- ----------
Total net loans $ 51,593 $ 40,287 $ 28,620
========== ========== ==========
</TABLE>
<PAGE> 22
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
portfolio, at year-end 1999 and 1998, were commercial mortgage loans in the
amount of $20.1 million and $15.3 million, representing 38.5% and 37.5% of the
portfolio, respectively. Significant portions 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, 1999.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
(In thousands)
December 31, 1999
-------------------------------------------------------
Over One
One Year Year Through Over
or Less Five Years Five Years Total
---------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
Commercial, financial & agricultural $ 4,351 $ 6,167 $ 314 $ 10,832
Real estate - construction 2,846 2,097 -- 4,943
All other loan 11,121 20,202 5,197 36,522
-------- -------- -------- --------
$ 18,318 $ 28,466 $ 5,511 $ 52,297
======== ======== ======== ========
Loans maturing after one year with:
Fixed interest rates $ 28,432
Floating interest rates 5,545
--------
$ 33,977
========
</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 $29.9 million in 1999, as compared to $17.6 million in 1998. This
represents 35.5% and 30.0% of the average earning assets for the year ended
December 31, 1999 and 1998, 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, 1999, the weighted average
life of the portfolio was 2.82 years and the weighted average tax equivalent
yield was 5.74%. 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
<PAGE> 23
operating losses the company began investing in South Carolina state and local
government obligations with maturities of up to 15 years.
The following table shows, at carrying value, the scheduled maturities and
average yields of securities held.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS (1)
<TABLE>
<CAPTION>
(In thousands)
December 31, 1999
---------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
----------------- ----------------- -------------------------------------
Held-to-maturity: Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ------- -------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government agencies $ -- $ 999 6.17% $ 500 6.24% $ --
State and local government -- -- 1,282 6.32% 256 7.59%
-----------------------------------------------------------------------------------
Total investment securities held-to-
maturity -- 999 6.17% 1,782 6.30% 256 7.59%
-----------------------------------------------------------------------------------
Available-for-sale:
U.S. treasury 4,619 5.26% 3,709 5.45% -- --
U.S. government agencies 4,765 5.49% 9,712 5.93% 467 6.57% --
Mortgage-backed securities 268 5.54% 2,078 5.88% 1,478 5.79% --
Other -- -- -- 589 6.25%
-----------------------------------------------------------------------------------
Total investment securities
available-for-sale 9,652 5.38% 15,499 5.81% 1,945 5.98% 589 6.25%
-----------------------------------------------------------------------------------
Total investment securities $ 9,652 5.38% $ 16,498 5.83% $ 3,727 6.10% $ 845 6.66%
===================================================================================
</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 $8.3
million in 1999, as compared to $7.4 million in 1998. At December 31, 1999,
short-term investments totaled $2.8 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> 24
Deposits and Other Interest-Bearing Liabilities
Deposits. Average total deposits were $74.5 million during 1999, compared to
$50.4 million during 1998. Average interest-bearing deposits were $62.8 million
in 1999, as compared to $42.1 million in 1998.
The following table sets forth the deposits of the Company by category.
DEPOSITS
<TABLE>
<CAPTION>
(In thousands) December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- -----------------------
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts $ 12,232 15.9% $ 10,449 17.6% $ 7,554 17.9%
NOW accounts 9,113 11.9% 6,060 11.0% 6,063 14.4%
Money market accounts 15,160 19.7% 9,223 16.7% 5,957 14.1%
Savings accounts 8,030 10.4% 8,623 15.6% 6,053 14.3%
Time deposits less than $100,000 15,084 19.6% 13,595 24.6% 10,248 24.2%
Time deposits more than $100,000 17,352 22.5% 8,056 14.5% 6,372 15.1%
-------------------- -------------------- --------------------
$ 76,971 100.0% $ 56,006 100.0% $ 42,247 100.0%
==================== ==================== ====================
</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 $59.6 million and $47.3
million at December 31, 1999 and 1998, 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 is shown in
the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSIT OF $100,000 OR MORE
<TABLE>
<CAPTION>
(In thousands) December 31, 1999
----------------------------------------------------------------------
After Three After Six After
Within Three Through Through Twelve
Months Six Months Twelve Months Months Total
------------ ----------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
Certificates of deposit of
$100,000 or more $ 13,274 $ 1,559 $ 1,704 $ 815 $ 17,352
Other time deposits of
$100,000 or more -- -- -- -- --
-------- -------- -------- -------- --------
$ 13,274 $ 1,559 $ 1,704 $ 815 $ 17,352
======== ======== ======== ======== ========
</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 brokered deposits are generally expensive and
are unreliable as long-term funding sources.
Accordingly, the company does not accept brokered deposits.
<PAGE> 25
Borrowed funds. Borrowed funds consist primarily of short-term borrowings
in the form of securities sold under agreements to repurchase, the treasury tax
and loan note option and Federal Home Loan Bank advances. These borrowings
averaged $3.0 million and $3.1 million during 1999 and 1998, respectively. The
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. Repurchase agreements averaged $2.7 million and $3.0 million
during 1999 and 1998, respectively. During 1999 the bank became a member of the
Federal Home Loan Bank of Atlanta (FHLB Atlanta) and as such has access to
advances from the FHLB Atlanta for various terms and amounts. During 1999 the
bank entered into only one advance in the amount of $1.5 million which matures
on February 22, 2000 at a rate of 5.9%. The average outstanding balance of the
advance for 1999 was $177,000. The company also 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 1999 and 1998, was $109,000
and $120,000, respectively.
Capital
Total shareholders' equity as of December 31, 1999 was $14.0 million, an
increase of $400,000 or approximately 3.2% compared with shareholders' equity
of $13.6 million as of December 31, 1998. This increase was attributable to net
income for the year ended December 31, 1999 of $818,000 offset by a net
unrealized loss of $390,000 in the market value of investment securities
available-for-sale.
Under the capital guidelines of the OCC, the bank is currently required to
maintain a minimum risk-based total capital ratio of 8%, with at least 4% being
Tier 1 capital. Tier 1 capital consists of common shareholders' equity,
qualifying perpetual preferred stock, and minority interests in equity accounts
of consolidated subsidiaries, less goodwill. In addition, the bank must
maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at
least 3%, but this minimum ratio is increased by 100 to 200 basis points for
other than the highest-rated institutions. The company will be required by the
Federal Reserve to meet the same guidelines once its consolidated total assets
exceed $150 million.
The company and the bank exceeded their regulatory capital ratios, as set
forth in the following table.
ANALYSIS OF CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
--------------------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
THE BANK:
December 31, 1999
Risk Based Capital
Tier I $ 2,496 4.0% $ 11,105 17.8% $ 8,609 13.8%
Total Capital 4,992 8.0% 11,808 18.9% 6,816 10.9%
Tier I Leverage 2,814 3.0% 11,105 11.8% 8,291 8.8%
December 31, 1998
Tier I $ 1,959 4.00% $ 10,232 21.10% $ 8,373 17.1%
Total Capital 3,917 8.00% 10,864 22.19% 6,947 14.2%
Tier I Leverage 2,111 3.00% 10,232 14.68% 8,121 11.7%
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
--------------------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
THE COMPANY:
December 31, 1999
Risk Based Capital
Tier I $ 2,515 4.00% $ 14,387 22.8% $ 11,872 18.8%
Total Capital 5,031 8.00% 15,091 24.0% 10,060 16.0%
Tier I Leverage 2,884 3.00% 14,387 15.0% 11,503 12.0%
December 31, 1998
Risk Based Capital
Tier I $ 1,977 4.00% $ 13,560 27.4% $ 11,583 23.4%
Total Capital 3,954 8.00% 14,092 28.5% 10,138 20.5%
Tier I Leverage 2,188 3.00% 13,560 18.6% 11,372 15.6%
</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 original offering
period which closed on July 31, 1995 with net proceeds after offering expenses
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 with proceeds
after offering expenses of approximately $6.6 million. Approximately $4.1
million of the proceeds from this offering were used to provide additional
capital to the bank. The company is using the proceeds of the secondary
offering to support its continued growth. During 1999 the company opened two
office locations and will open the third in March 2000. Management believes
that the proceeds from the offering are sufficient to support its proposed
growth and expansion plans, including the establishment of the three new branch
offices and the operation of these branches until they become profitable.
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. Recently the bank became a member of the FHLB Atlanta and has the
ability to obtain advances for various periods of time. These advances will be
secured by securities pledged by the bank or assignment of specific loans
within the bank's portfolio.
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
<PAGE> 27
needed for operations. The company's funds sold position, its primary source of
liquidity, averaged $8.3 million during the year ended December 31, 1999, and
was $2.8 million at December 31, 1999. The company also maintains federal funds
purchased lines, in the amount of $4.5 million with several financial
institutions, although these have not been utilized in 1999. The FHLB Atlanta
has approved a $12.0 million line of credit which would be collateralized by a
pledge against specific investment securities. Management regularly reviews the
liquidity position of the company and has implemented internal policies which
establish guidelines for sources of asset based liquidity and limit the total
amount of purchased funds used to support the balance sheet and funding from
non core sources. Management believes that its existing stable base of core
deposits along with continued growth in this deposit base will enable the
company to meet its long term liquidity needs successfully.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the company and the bank are primarily monetary in nature.
Therefore, interest rates have a more significant effect on the company's
performance than do the effects of changes in the general rate of inflation and
change in prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT AUDITOR..................................................................................F-2
BALANCE SHEETS.................................................................................................F-3
STATEMENTS OF OPERATIONS.......................................................................................F-4
STATEMENTS OF COMPREHENSIVE INCOME.............................................................................F-5
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY...................................................................F-6
STATEMENTS OF CASH FLOWS.......................................................................................F-7
NOTES TO FINANCIAL STATEMENTS..................................................................................F-8
</TABLE>
<PAGE> 29
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, 1999 and 1998, and the related statements of
operations, statements of comprehensive income, changes in shareholders' equity
and cash flows for the three years ended December 31, 1999. 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 audits 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, 1999 and 1998 and the results of its operations and
its cash flows for the three years ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/Clifton D. Bodiford
Certified Public Accountant
Columbia, SC
January 14, 2000
<PAGE> 30
FIRST COMMUNITY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,397,667 $ 2,316,369
Federal funds sold and securities purchased under
agreements to resell 2,795,877 3,290,403
Investment securities - available for sale 27,685,091 19,899,891
Investment securities - held to maturity (market value of
$2,904,200 and $2,957,891 at December 31,
1999 and 1998, respectively) 3,036,993 2,942,760
Loans 52,297,124 40,819,405
Less, allowance for loan losses 703,993 532,025
------------ ------------
Net loans 51,593,131 40,287,380
Property, furniture and equipment - net 5,362,994 3,667,097
Other assets 1,017,146 747,676
------------ ------------
Total assets $ 94,888,899 $ 73,151,576
============ ============
LIABILITIES
Deposits:
Non-interest bearing demand $ 12,231,819 $ 10,449,284
NOW and money market accounts 24,273,370 15,283,002
Savings 8,029,741 8,622,546
Time deposits less than $100,000 15,084,459 13,595,144
Time deposits $100,000 and over 17,351,835 8,055,794
------------ ------------
Total deposits 76,971,224 56,005,770
Securities sold under agreements to repurchase 1,657,500 2,737,700
Other borrowed money 1,771,956 32,413
Other liabilities 447,497 763,349
------------ ------------
Total liabilities 80,848,177 59,539,232
------------ ------------
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 December 31, 1999 and 1998, respectively 1,207,177 1,207,177
Additional paid in capital 12,248,087 12,248,087
Retained earnings 932,192 114,029
Accumulated other comprehensive income (loss) (346,734) 43,051
------------ ------------
Total shareholders' equity 14,040,722 13,612,344
------------ ------------
Total liabilities and shareholders' equity $ 94,888,899 $ 73,151,576
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE> 31
FIRST COMMUNITY CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 4,093,322 $ 3,151,523 $ 2,184,512
Investment securities - available-for-sale 1,511,857 896,309 624,377
Investment securities - held-to-maturity 148,275 136,245 157,403
Federal funds sold and securities purchased
under resale agreements 401,675 394,742 227,747
Other 8,864 -- --
------------ ------------ ------------
Total interest income 6,163,993 4,578,819 3,194,039
------------ ------------ ------------
Interest expense:
Deposits 2,386,683 1,780,634 1,317,360
Securities sold under agreement to repurchase 110,375 134,800 70,007
Other borrowed money 14,784 4,117 4,490
------------ ------------ ------------
Total interest expense 2,511,842 1,919,551 1,391,857
------------ ------------ ------------
Net interest income 3,652,151 2,659,268 1,802,182
Provision for loan losses 210,000 179,000 193,860
------------ ------------ ------------
Net interest income after provision for loan losses 3,442,151 2,480,268 1,608,322
------------ ------------ ------------
Non-interest income:
Deposit service charges 228,503 205,236 170,863
Mortgage origination fees 84,247 118,608 41,428
Other 168,673 112,561 49,779
------------ ------------ ------------
Total non-interest income 481,423 436,405 262,070
------------ ------------ ------------
Non-interest expense:
Salaries and employee benefits 1,389,007 1,061,502 876,091
Occupancy 171,895 118,351 114,008
Equipment 234,869 179,982 143,661
Marketing and public relations 181,743 131,545 90,197
Other 691,570 518,436 395,259
------------ ------------ ------------
Total non-interest expense 2,669,084 2,009,816 1,619,216
------------ ------------ ------------
Net income before tax 1,254,490 906,857 251,176
Income taxes 436,327 59,924 --
------------ ------------ ------------
Net income $ 818,163 $ 846,933 $ 251,176
============ ============ ============
Basic earnings per common share $ 0.68 $ 0.90 $ 0.36
============ ============ ============
Diluted earnings per common share $ 0.66 $ 0.87 $ 0.36
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE> 32
FIRST COMMUNITY CORPORATION
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income $ 818,163 $ 846,933 $ 251,176
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) arising
during the period, net of tax
effect of ($217,661) $21,584 and
$1,598, for the years ended December
31, 1999, 1998 and 1997,
respectively (389,785) 40,208 65,571
------------ ------------ ------------
Comprehensive income $ 428,378 $ 887,141 $ 316,747
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE> 33
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, 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
Net income 818,163 818,163
Other comprehensive income, --
net of tax - unrealized gain on --
available-for-sale securities (389,785) (389,785)
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1999 1,207,177 $ 1,207,177 $ 12,248,087 $ 932,192 $ (346,734) $ 14,040,722
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE> 34
FIRST COMMUNITY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 818,163 $ 846,933 $ 251,176
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 220,527 132,100 135,703
Premium amortization (Discount accretion) (215,027) (52,721) (57,987)
Provision for loan losses 210,000 179,000 193,860
(Increase) decrease in other assets (51,809) (355,804) (83,623)
Increase in accounts payable (315,852) 367,286 171,112
------------ ------------ ------------
Net cash provided (used) in operating activities 666,002 1,116,794 610,241
------------ ------------ ------------
Cash flows form investing activities:
Purchase of investment securities available-for-sale (28,534,959) (20,792,496) (7,680,975)
Maturity/call of investment securities available-for-sale 20,365,747 12,615,958 5,125,910
Sale of investment securities available-for-sale -- -- 286,647
Purchase of investment securities held-to-maturity (502,640) (2,544,701) --
Maturity/call of investment securities held-to-maturity 400,000 1,500,000 700,000
Increase in loans (11,515,751) (11,846,594) (13,099,502)
Proceeds from sale of fixed assets -- -- 50,000
Purchase of property and equipment (1,916,424) (815,973) (624,787)
------------ ------------ ------------
Net cash used in investing activities (21,704,027) (21,883,806) (15,242,707)
------------ ------------ ------------
Cash flows from financing activities:
Increase in deposit accounts 20,965,454 13,060,238 11,345,908
Proceeds from sale of common stock -- 6,610,350 16,000
Increase (decrease) in securities sold under agreements to repurchase (1,080,200) 1,293,100 1,220,000
Decrease in other borrowings 1,739,543 (78,970) (188,176)
------------ ------------ ------------
Net cash provided from financing activities 21,624,797 20,884,718 12,393,732
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 586,772 117,706 (2,238,734)
Cash and cash equivalents at beginning
of period 5,606,772 5,489,066 7,727,799
------------ ------------ ------------
Cash and cash equivalents at end of period $ 6,193,544 $ 5,606,772 $ 5,489,065
============ ============ ============
Supplemental disclosure:
Cash paid during the period for:
Interest $ 2,502,192 $ 1,879,980 $ 1,280,508
Taxes $ 660,010 $ 2,420
Non-cash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale $ (607,446) $ 40,208 $ 65,571
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE> 35
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.
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.
F-8
<PAGE> 36
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 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 14.
F-9
<PAGE> 37
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, 1999:
U.S. Government agency securities $1,498,730 $ -- $ 53,830 $1,444,900
State and local government 1,528,263 -- 78,963 1,449,300
Other 10,000 -- -- 10,000
--------------------------------------------------------------------
$3,036,993 $ -- 132,793 $2,904,200
December 31, 1998: ====================================================================
U.S. Government agency securities $1,898,382 $ 12,010 $ -- $1,910,392
State and local government 1,034,378 3,121 1,037,499
Other 10,000 -- -- 10,000
--------------------------------------------------------------------
$2,942,760 $ 15,131 -- $2,957,891
====================================================================
</TABLE>
AVAILABLE-FOR-SALE:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1999:
US Treasury securities $ 8,374,787 $ 360 $ 46,764 $ 8,328,383
US Government agency securities 15,317,146 -- 373,301 14,943,845
Mortgage-backed securities 3,945,060 1,332 122,829 3,823,563
Other 589,300 -- -- 589,300
---------------------------------------------------------------------
$28,226,293 $ 1,692 $542,894 $27,685,091
=====================================================================
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
=====================================================================
</TABLE>
F-10
<PAGE> 38
The amortized cost and fair value of investment securities at
December 31, 1999, 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 $ -- $ -- $ 9,674,934 $ 9,653,105
Due after one year through five years 998,730 969,750 15,927,174 15,497,970
Due after five years through ten years 1,781,906 1,679,932 2,034,885 1,944,716
Due after ten years 256,357 254,518 589,300 589,300
-------------------------------------------------------------
$3,036,993 $ 2,904,200 $28,226,293 $27,685,091
=============================================================
</TABLE>
Securities with an amortized cost of $12,845,389 and fair value
of $12,728,743 at December 31, 1999, were pledged to secure
public deposits, demand notes due the U.S. Treasury and
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
$286,647. 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, 1999 and 1998.
Note 4 - LOANS
Loans summarized by category are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 10,832,314 $ 8,864,872
Real estate - construction 4,943,401 3,873,121
Real estate - mortgage
Commercial 20,138,266 15,305,403
Residential 7,849,613 6,538,421
Consumer 8,533,530 6,237,588
--------------------------------
$ 52,297,124 $ 40,819,405
================================
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of year $ 532,025 $ 380,120 $ 200,860
Provision for loan losses 210,000 179,000 193,860
Charged off loans (41,342) (33,980) (17,357)
Recoveries 3,310 6,885 2,757
-----------------------------------------------------
Balance at end of year $ 703,993 $ 532,025 $ 380,120
=====================================================
</TABLE>
Loans outstanding to Bank directors, executive officers and their
related business interests amounted to $3,978,456 and $3,483,610
at December 31, 1999 and 1998, respectively. Total loans made
during the year ended December 31, 1999 totalled $603,817 and
repayments totalled $108,971. 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.
F-11
<PAGE> 39
Note 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------------------------
<S> <C> <C>
Land $ 1,732,873 $ 952,774
Premises 3,006,799 1,742,438
Equipment 1,029,011 643,542
Construction in process 142,340 655,846
------------------------------------
5,911,023 3,994,600
Accumulated depreciation 548,029 327,503
------------------------------------
$ 5,362,994 $ 3,667,097
====================================
</TABLE>
Provision for depreciation included in operating expenses for the
years ended December 31, 1999, 1998, and 1997 amounted to
$220,527, $132,100 and $135,703, respectively.
Note 6 - DEPOSITS
At December 31, 1999, the scheduled maturities of Certificates of
Deposits are as follows:
<TABLE>
<S> <C>
2000 $ 30,495,789
2001 1,275,940
2002 598,585
2003 65,980
------------
$ 32,436,294
============
</TABLE>
Note 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER
BORROWED MONEY
Securities sold under agreements to repurchase generally mature
within one to four days from the transaction date. The weighted
average interest rate at December 31, 1999 and 1998, was 5.10%
and 4.52%, respectively. The maximum month-end balance during
1999 and 1998 was $3,403,600 and $4,973,500 respectively.
Other borrowed money at December 31, 1999 consisted of advances
from the Federal Home Loan Bank of Atlanta in the amount of
$1,500,000 which mature on February 22, 2000 at a weighted
average rate of 5.97% and are collateralized by FHLB stock owned
by the Bank and investment securities. Other borrowed money at
December 31, 1999 also consisted of $271,956 which was due under
the treasury tax and loan note option program.
F-12
<PAGE> 40
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 $259,129 has been offset by a valuation
allowance.
Income tax expense for the years ended December 31, 1999, 1998
and 1997 consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 357,426 $ 208,080 $ --
State 31,205 16,812 --
-----------------------------------------------------
388,631 224,892 --
-----------------------------------------------------
Deferred
Federal 43,697 86,271 85,141
State 3,999 7,890 7,789
-----------------------------------------------------
47,696 94,161 92,930
-----------------------------------------------------
Change in valuation allowance -- (259,129) (92,930)
-----------------------------------------------------
Income tax expense $ 436,327 $ 59,924 $ --
=====================================================
</TABLE>
A reconciliation from expected federal tax expense to effective
income tax expense for the periods indicated are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Expected federal income tax
expense (benefit) $ 426,526 $ 308,331 $ 85,399
State income tax net of federal
benefit 23,235 26,934 7,459
Tax exempt interest (15,336) -- --
Change in beginning of year
valuation allowance -- (259,129) (92,930)
Other 1,902 (16,212) 72
-----------------------------------------------------
$ 436,327 $ 59,924 $ --
=====================================================
</TABLE>
F-13
<PAGE> 41
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,
1999 1998
------------------------------
<S> <C> <C>
Assets:
Provision for bad debts $ 253,371 $ 191,480
Deferred pre-opening cost 16,600 45,068
Unrealized loss on securities available for sale 183,680 --
------------------------------
Deferred tax asset 453,651 236,548
------------------------------
Liabilities:
Cash basis accounting for tax purposes 79,044 9,110
Tax depreciation in excess of book depreciation 73,584 62,399
Unrealized gain on securities available for sale -- 23,838
------------------------------
Total deferred tax liabilities 152,628 95,347
------------------------------
Net deferred tax asset recognized $ 301,023 $ 141,201
==============================
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Note 9 -
Statement of Financial Accounting Standards No. 107, "Disclosure
about Fair Value of Financial Instruments" (SFAS 107), requires
the Company to disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are
set forth below.
Cash and short term investments - The carrying amount of these
financial instruments (cash and due from banks, federal funds
sold and securities purchased under agreements to resell)
approximate fair value. All mature within 90 days and do not
present unanticipated credit concerns.
Investment Securities - Fair values are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans - For certain categories of loans, such as variable rate
loans and other lines of credit, the carrying amount, 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.
F-14
<PAGE> 42
The carrying amount and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short term investments $ 6,193,544 $ 6,193,544 $ 5,606,772 $ 5,606,772
=====================================================================
Investment securities:
Held-to-maturity $ 3,036,993 $ 2,904,200 $ 2,942,760 $ 2,957,891
Available-for-sale 27,685,091 27,685,091 19,899,891 19,899,891
---------------------------------------------------------------------
Total investment securities $30,722,084 $30,589,291 $22,842,651 $22,857,782
=====================================================================
Loans
Adjustable rate $14,620,342 $14,620,342 $12,671,956 $12,671,956
Fixed rate 37,676,782 37,480,330 28,147,449 28,276,842
---------------------------------------------------------------------
Total loans 52,297,124 52,100,672 40,819,405 40,948,798
Allowance for loan losses 703,993 -- 532,025 --
---------------------------------------------------------------------
Net loans $51,593,131 $52,100,672 $40,287,380 $40,948,798
=====================================================================
Accrued interest receivable $ 637,967 $ 637,967 $ 528,710 $ 528,710
=====================================================================
Financial liabilities:
Deposits
Non-interest bearing demand $12,231,819 $12,231,819 $ 9,750,484 $ 9,750,484
NOW and money market accounts 24,273,370 24,273,370 15,283,002 15,283,002
Savings 8,029,741 8,029,741 8,622,546 8,622,546
Certificates of deposit 32,436,294 32,430,200 21,650,938 21,754,227
---------------------------------------------------------------------
Total deposits $76,971,224 $76,965,130 $55,306,970 $55,410,259
=====================================================================
Short term borrowings $ 3,429,456 $ 3,429,456 $ 3,468,913 $ 3,468,913
=====================================================================
Accrued interest payable $ 285,887 $ 285,887 $ 276,237 $ 276,237
=====================================================================
</TABLE>
Note 10 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF
CREDIT RISK
The Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments
to extend credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the
consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit is represented by the contractual amount of these
instruments. The Bank uses the same credit policies in making
commitments as for on-balance sheet instruments. At December 31,
1999, the Bank had commitments to extend credit of $11,248,000.
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.
F-15
<PAGE> 43
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, 1999, 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,
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Data processing $ 156,108 $ 149,043 $ 96,143
Supplies 85,628 55,695 52,063
Telephone 39,357 24,828 22,385
Correspondent services 59,099 50,564 38,097
Insurance 48,817 38,708 32,380
Postage 48,717 32,740 21,863
Professional fees 83,488 42,077 35,585
Other 170,356 124,781 96,743
-----------------------------------------------------
$ 691,570 $ 518,436 $ 395,259
=====================================================
</TABLE>
Note 12 - STOCK OPTIONS
The Company has adopted a Stock Option Plan under which an
aggregate of 181,000 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.
Options are exercisable for a period of ten years from date of
grant.
Stock option transactions for the years ended December 31, 1999,
1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
---------------------------
<S> <C> <C>
Outstanding January 1, 1997 88,000 $ 10.00
Granted -- --
Exercised (1,600) 10.00
Forfeited (2,400) 10.00
---------------------------
Outstanding December 31, 1997 84,000 10.00
---------------------------
Outstanding December 31, 1998 84,000 10.00
Granted 42,250 18.33
===========================
Outstanding December 31, 1999 126,250 12.79
===========================
Exercisable at December 31, 1999 80,800 $ 10.00
===========================
</TABLE>
F-16
<PAGE> 44
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,
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Net income, pro-forma $ 779,599 $ 832,106 $ 228,712
Basic earnings/loss per common share, pro-forma $ 0.65 $ 0.88 $ 0.33
Diluted earnings loss per common share, pro-forma $ 0.63 $ 0.86 $ 0.33
</TABLE>
The fair value of each grant was estimated using the Black-Sholes
option pricing model. The weighted average fair value of options
granted during 1999 was $6.65. The assumptions used in estimating
compensation cost on a pro-forma basis were; dividend yield of
0.9%, expected life of seven years, volatility of 26.59% and risk
free interest rate of 5.01%.
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,
1999, 1998 and 1997 the plan expense amounted to $39,547, $31,569
and $15,350, respectively. The Company matches 50% of an
employees contribution up to 6.00% of the participants
contribution.
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,
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Numerator (Included in basic and
diluted earnings per share) $ 818,163 $ 846,933 $ 251,176
========================================================
Denominator
Weighted average common shares outstanding for:
Basic earnings per share 1,207,177 942,725 689,015
Dilutive securities:
Stock options - Treasury
stock method 37,714 26,741 14,276
--------------------------------------------------------
Diluted earnings per share 1,244,891 969,466 703,291
========================================================
</TABLE>
The average market price used in calculating the assumed number
of shares issued for the years ended December 31, 1999, 1998 and
1997 was $17.80, $14.67 and $12.00, respectively.
F-17
<PAGE> 45
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, 1999, 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>
1999 1998
------------------------------------------------
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
First Community Corporation
Tier 1 Capital $14,387,456 22.88% $13,560,293 27.43%
Total Risked Based Capital 15,091,448 24.00% 14,092,378 28.51%
Tier 1 Leverage 14,387,456 14.97% 13,560,293 18.59%
First Community Bank, NA
Tier 1 Capital $11,104,860 17.80% $10,332,245 21.10%
Total Risked Based Capital 11,808,852 18.93% 10,864,270 22.19%
Tier 1 Leverage 11,104,860 11.84% 10,332,245 14.68%
</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, 1999, there was $932,192 in
retained net profits free of such restriction.
F-18
<PAGE> 46
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 1998
----------------------------------
<S> <C> <C>
Assets:
Cash on deposit $ 284,724 $ 277,200
Interest-bearing deposits with the Bank 675,701 648,489
Securities purchased under agreement to resell 595,877 1,310,402
Investment securities available-for-sale 1,719,140 1,000,000
Investment in Bank subsidiary 11,104,860 10,341,246
Other 27,709 6,092
----------------------------------
Total assets $14,408,011 $13,583,429
==================================
Liabilities:
Other 40,615 14,136
----------------------------------
Shareholders' equity 14,367,396 13,569,293
----------------------------------
Total liabilities and shareholders' equity $14,408,011 $13,583,429
==================================
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Income:
Interest income $ 151,210 $ 102,182 $ 39,445
Equity in undistributed earnings of subsidiary 763,613 826,051 252,386
Expenses:
Other 76,124 81,300 40,655
-----------------------------------------------------
Income before taxes 838,699 846,933 251,176
Income taxes 20,536 -- --
-----------------------------------------------------
Net Income $ 818,163 $ 846,933 $ 251,176
=====================================================
</TABLE>
F-19
<PAGE> 47
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Year ended December 31,
---------------------------------- ------------------------------------------------------
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 818,163 $ 846,933 $ 251,176
Adjustments to reconcile net income to net
cash used by operating activities
Increase in equity in undistributed earnings
of subsidiary (763,613) (826,051) (252,386)
Other-net 15,661 (5,629) 4,073
------------------------------------------------------
Net cash provided (used) by operating activities 70,211 15,253 2,863
------------------------------------------------------
Cash flows from investing activities:
Investment in subsidiary -- (4,268,850) --
(Purchase) maturity of investment security available-
for sale (750,000) (1,000,000) --
------------------------------------------------------
Net cash provided (used) by investing activities (750,000) (5,268,850) --
------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 6,610,350 16,000
------------------------------------------------------
Increase in cash and deposits with Bank (679,789) 1,356,753 18,863
Cash and cash equivalent, beginning of period 2,236,091 879,338 860,475
------------------------------------------------------
Cash and cash equivalent, end of period $1,556,302 $2,236,091 $ 879,338
======================================================
</TABLE>
F-20
<PAGE> 48
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 forth under "Election of
Director" on pages 2 through 4 of the Registrant's Proxy Statement filed in
connection with the 2000 Annual Meeting of Shareholders (the "2000 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 4 through 5 of the 2000 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 6 of the 2000
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 7 of the 2000 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:
<TABLE>
<S> <C>
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).
</TABLE>
<PAGE> 49
<TABLE>
<S> <C>
10.1 Employment Agreement dated June 1, 1994, by and
between Michael C. Crapps and the Company
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement No. 33-86258 on
Form S-1).*
10.2 Employment Agreement dated June 1, 1994, by and
between James C. Leventis and the Company
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-86258 on
Form S-1).*
10.3 Construction agreement dated January 11, 1996 by
and between the bank and Summerfield Associates,
Inc. To build permanent banking facility in
Lexington, S.C. (Incorporated by reference to the
Company's 1995 Annual Report on Form 10 KSB)
10.4 Contract of sale of real estate dated August 1,
1994 between First Community Bank (In
Organization) and Three Seventy-Eight Company,
Inc. (Incorporated by reference to the company's
registration statement no. 33-86258 on Form S-1).
10.5 Contract of sale of real estate dated July 28,
1994, between First Community Bank (In
Organization) and the Crescent Partnership
(Incorporated by reference to the Company's
registration statement no. 33-86258 on Form S-1).
10.6 First Community Corporation 1996 Stock Option
Plan. (Incorporated by reference to the Company's
1995 Annual Report on Form 10 KSB)
10.7 Construction Agreement dated November 7, 1996 by
and between the bank and Summerfield Associates,
Inc. to build a banking facility in Forest Acres,
South Carolina (Incorporated by reference to the
Company's 1996 Annual Report on Form 10 KSB).
10.8 First Community Corporation 1999 Stock Incentive
Plan (Incorporated by reference to the Company's
1998 Annual Report on Form 10 KSB)
21.1 Subsidiaries of the company.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
* 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, 1999.
<PAGE> 50
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 24, 2000 By: /s/ Michael C. Crapps
-------------------------
Michael C. Crapps
President and Chief Executive Officer
By: /s/ Joseph G. Sawyer
-------------------------
Joseph G. Sawyer
Senior Vice President
Chief Financial and Accounting Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Richard K. Bogan
- ---------------------------------
Richard K. Bogan Director March 24, 2000
/s/ William L. Boyd, III
- ---------------------------------
William L. Boyd, III Director March 24, 2000
/s/ Thomas C. Brown
- ---------------------------------
Thomas C. Brown Director March 24, 2000
/s/Chimin J. Chao
- ---------------------------------
Chimin J. Chao Director March 24, 2000
/s/ Robert G. Clawson
- ---------------------------------
Robert G. Clawson Director March 24, 2000
/s/ Michael C. Crapps Director, President and Chief Executive
- --------------------------------- Officer
Michael C. Crapps March 24, 2000
/s/ Hinton G. Davis
- ---------------------------------
Hinton G. Davis Director March 24, 2000
/s/ Anita B. Easter
- ---------------------------------
Anita B. Easter Director March 24, 2000
</TABLE>
<PAGE> 51
<TABLE>
<S> <C> <C>
/s/ O.A. Ethridge
- ---------------------------------
O.A. Ethridge Director March 24, 2000
/s/ George H. Fann, Jr.
- ---------------------------------
George H. Fann, Jr. Director March 24, 2000
/s/William A. Jordan
- ---------------------------------
William A. Jordan Director March 24, 2000
/s/ W. James Kitchens, Jr.
- ---------------------------------
W. James Kitchens, Jr. Director March 24, 2000
/s/ James C. Leventis
- ---------------------------------
James C. Leventis Director, Chairman of the Board and Secretary March 24, 2000
/s/ Broadus Thompson
- ---------------------------------
Broadus Thompson Director March 24, 2000
/s/ Angelo L. Tsiantis
- ---------------------------------
Angelo L. Tsiantis Director March 24, 2000
/s/Loretta R. Whitehead
- ---------------------------------
Loretta R. Whitehead Director March 24, 2000
/s/Mitchell M. Willoughby
- ---------------------------------
Mitchell M. Willoughby Director March 24, 2000
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
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).*
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
(Incorporated by reference to the Company's 1998
Annual Report on form 10 KSB)
21.1 Subsidiaries of the company.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
<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 TWELVE MONTHS ENDED DECEMBER 31, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,397,697
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,795,877
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,685,091
<INVESTMENTS-CARRYING> 3,036,993
<INVESTMENTS-MARKET> 2,904,200
<LOANS> 52,297,124
<ALLOWANCE> 703,993
<TOTAL-ASSETS> 94,888,899
<DEPOSITS> 76,971,224
<SHORT-TERM> 3,429,456
<LIABILITIES-OTHER> 447,497
<LONG-TERM> 0
0
0
<COMMON> 1,207,177
<OTHER-SE> 12,833,845
<TOTAL-LIABILITIES-AND-EQUITY> 94,888,899
<INTEREST-LOAN> 4,093,322
<INTEREST-INVEST> 1,660,132
<INTEREST-OTHER> 410,539
<INTEREST-TOTAL> 6,163,993
<INTEREST-DEPOSIT> 2,386,683
<INTEREST-EXPENSE> 2,511,842
<INTEREST-INCOME-NET> 3,652,151
<LOAN-LOSSES> 210,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,669,084
<INCOME-PRETAX> 1,254,490
<INCOME-PRE-EXTRAORDINARY> 818,163
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 818,163
<EPS-BASIC> .68
<EPS-DILUTED> .66
<YIELD-ACTUAL> 4.33
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 532,025
<CHARGE-OFFS> 41,342
<RECOVERIES> 3,310
<ALLOWANCE-CLOSE> 703,993
<ALLOWANCE-DOMESTIC> 703,993
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 703,993
</TABLE>
