-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qj4krpfq/HXl33REzPeCwlTQV9GDVQ5HBe90NBkdwLYv4j081UP9UwOyMVkEGt8I e4gM2mkq8VOvs5dPp0KHFg== 0000948520-00-000012.txt : 20000314 0000948520-00-000012.hdr.sgml : 20000314 ACCESSION NUMBER: 0000948520-00-000012 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLES BANCORPORATION INC /SC/ CENTRAL INDEX KEY: 0000885542 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 570951843 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20616 FILM NUMBER: 567579 BUSINESS ADDRESS: STREET 1: 1800 E MAIN STREET STREET 2: P O BOX 1989 CITY: EASLEY STATE: SC ZIP: 29640 BUSINESS PHONE: 8038592265 MAIL ADDRESS: STREET 1: 1800 E MAIN ST STREET 2: P O BOX 1989 CITY: EASLEY STATE: SC ZIP: 29642 10-K405 1 1999 FORM 10-K United States SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 25049 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ Commission File No. 000-20616 --------- Peoples Bancorporation, Inc. (Exact name of Registrant as specified in its charter) South Carolina 57-0951843 -------------- ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1814 East Main Street, Easley, South Carolina 29640 (Address of Principal Executive Offices, Including Zip Code) Registrant's Telephone Number, Including Area Code: (864) 859-2265 Securities Registered Pursuant to Section 12 (b) of the Securities Exchange Act of 1934: None Securities Registered Pursuant to Section 12 (g) of the Securities Exchange Act of 1934: Common Stock, $1.67 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the Registrant (2,253,320 shares) on March 1, 2000 was approximately $42,813,000. As of such date, no organized trading market existed for the common stock of the Registrant. For the purpose of this response, officers, directors and holders of 5% or more of the Registrant's common stock are considered affiliates of the Registrant at that date. The number of shares outstanding of the Registrant's common stock, as of March 1, 2000: 2,988,402 shares of $1.67 par value common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders - Part III PART I ITEM 1. BUSINESS Forward Looking Statements From time to time, Peoples Bancorporation, Inc. (the "Company") may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performances, development and results of the Company's business include, but are not limited to, the following: risks from changes in economic and industry conditions; changes in interest rates; risks inherent in making loans including repayment risks and value of collateral; dependence on senior management; and recently-enacted or proposed legislation. Statements contained in this filing regarding the demand for Peoples Bancorporation's products and services, changing economic conditions, interest rates, consumer spending and numerous other factors may be forward-looking statements and are subject to uncertainties and risks. The Company Peoples Bancorporation, Inc. was incorporated under South Carolina law on March 6, 1992, for the purpose of becoming a bank holding company by acquiring all of the common stock of The Peoples National Bank, Easley, South Carolina. The Company commenced operations on July 1, 1992 upon effectiveness of the acquisition of The Peoples National Bank. The company has three wholly-owned subsidiaries: The Peoples National Bank, Easley, South Carolina, a national bank which commenced business operations in August 1986; Bank of Anderson, National Association, Anderson, South Carolina, a national bank which commenced business operations in September 1998; and, Seneca National Bank, Seneca, South Carolina, a national bank which commenced business operations in February 1999 (sometimes referred to herein as "the Banks"). The Company engages in no significant operations other than the ownership of its three subsidiaries and the support thereof. The Company conducts its business from six banking offices located in the Upstate Area of South Carolina. The principal offices of the Company are located at 1814 East Main Street, Easley, South Carolina 29640. The Company's telephone number is (864) 859-2265. The principal office of The Peoples National Bank is located at 1800 East Main Street, Easley, South Carolina 29640. The principal office of Bank of Anderson, National Association is located at 201 East Greenville Street, Anderson, South Carolina 29621, and the principal office of Seneca National Bank is located at 201 Bypass 123, Seneca, South Carolina 29678. 2 General Business Some of the major services which the Company provides through its banking subsidiaries include checking accounts; NOW accounts; savings and other time deposits of various types; daily repurchase agreements; alternative investment products such as annuities, mutual funds, stocks and bonds; loans for business, agriculture, real estate, personal uses, home improvement and automobiles; credit cards; letters of credit; home equity lines of credit; an accounts receivable financing program; safe deposit boxes; bank money orders; wire transfer services; and use of ATM facilities. The Banks do not have trust powers. The Company has no material concentration of deposits from any single customer or group of customers. No significant portion of its loans is concentrated within a single industry or group of related industries and the Company does not have any foreign loans. There are no material seasonal factors that would have an adverse effect on the Company. As a bank holding company, the Company is a legal entity separate and distinct from its subsidiaries. The Company coordinates the financial resources of the consolidated enterprises and maintains financial, operational and administrative systems that allow centralized evaluation of subsidiary operations and coordination of selected policies and activities. The Company's operating revenues and net income are derived primarily from its subsidiaries through dividends and fees for services performed. Territory Served and Competition The Peoples National Bank serves its customers from four locations; two offices in the city of Easley and one office in the city of Pickens, South Carolina which are located in Pickens County, and one office in the unincorporated community of Powdersville, South Carolina which is located in the northeast section of Anderson County, South Carolina. Easley, South Carolina is located approximately 10 miles west of Greenville, South Carolina. Pickens, South Carolina is located approximately 8 miles north of Easley, and Powdersville, South Carolina is located approximately 12 miles southeast of Easley. Bank of Anderson, National Association, serves its customers from one location in the City of Anderson, South Carolina. Anderson is located approximately 25 miles southwest of Greenville, South Carolina and approximately 25 miles south of Easley in Anderson County. Seneca National Bank serves its customers from one location in the City of Seneca, South Carolina. Seneca is located approximately 30 miles northwest of Easley, South Carolina in Oconee County, South Carolina. Each subsidiary bank of the Company is an independent bank, and, therefore, each bank is responsible for developing and maintaining its own customers and accounts. Located in Easley, South Carolina, The Peoples National Bank's customer base has been primarily derived from Pickens County, South 3 Carolina and the northwest section of Anderson County, South Carolina. Bank of Anderson's primary service area is Anderson County, South Carolina, more particularly, the City of Anderson. Seneca National Bank derives most of its customer base from the City of Seneca and surrounding Oconee County, South Carolina. The Banks compete with several major banks, which dominate the commercial banking industry in their service areas and in South Carolina generally. In addition, the Banks compete with savings institutions and credit unions. In Pickens County, there are twenty-two (22) competitor bank branches, six (6) savings institution branches, and three (3) credit union branches. In Anderson County there are twenty-six (26) competitor bank branches, five (5) savings institution branches and seven (7) credit union branches. In Oconee County, there are thirteen (13) competitor bank branches, six (6) savings institution branch and one (1) credit union branch. The Peoples National Bank has approximately 10.5% of the FDIC insured deposits in Pickens County. The Peoples National Bank and Bank of Anderson, combined, have approximately 5.7% of the FDIC insured deposits in Anderson County. Seneca National Bank has approximately 1.7% of the FDIC insured deposits in Oconee County. Many competitor institutions have substantially greater resources and higher lending limits than the Banks and they perform certain functions for their customers, including trust services and investment banking services, which none of the Banks is equipped to offer directly. However, the Banks do offer some of these services through correspondent banks. In addition to commercial banks, savings institutions and credit unions, the Banks compete for deposits and loans with other financial intermediaries and investment alternatives, including, but not limited to mortgage companies, captive finance companies, money market mutual funds, brokerage firms, governmental and corporation bonds and other securities. Several of these non-bank competitors are not subject to the same regulatory restrictions as the Company and its subsidiaries and many have substantially greater resources than the Company. The extent to which other types of financial institutions compete with commercial banks has increased significantly within the past few years as a result of federal and state legislation that has, in several respects, deregulated financial institutions. The full impact of existing legislation and subsequent laws that deregulate the financial services industry cannot be fully assessed or predicted. 4 DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDER'S EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following is a presentation of the average consolidated balance sheets of the Company for the years ended December 31, 1999, 1998 and 1997. This presentation includes all major categories of interest-earning assets and interest-bearing liabilities:
AVERAGE CONSOLIDATED BALANCE SHEETS (dollars in thousands) For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- Assets ........................................................ $ 6,617 $ 4,870 $ 3,271 Cash and Due from Banks Taxable Securities ............................................ 34,308 25,093 18,023 Tax-Exempt Securities ......................................... 4,265 4,358 4,819 Federal Funds Sold ............................................ 14,414 11,126 4,513 Gross Loans ................................................... 119,623 79,181 73,955 Less: Loan Loss Reserve ...................................... 1,378 1,027 856 -------- -------- -------- Net Loans ..................................................... 118,245 78,154 73,099 -------- -------- -------- Other Assets .................................................. 9,156 6,055 4,034 -------- -------- -------- Total Assets .................................................. $187,005 $129,656 $107,759 ======== ======== ======== Liabilities and Shareholders' Equity Noninterest-bearing Deposits .................................. $ 20,798 $ 13,884 $ 10,791 Interest-bearing Deposits: Interest Checking ......................................... 21,739 14,214 12,544 Savings Deposits .......................................... 4,879 4,336 4,034 Money Market .............................................. 24,823 18,353 9,770 Certificates of Deposit ................................... 65,406 49,577 44,734 Individual Retirement Accounts ............................ 9,370 6,944 5,434 -------- -------- -------- Total Interest-bearing Deposits ............................... 126,217 93,424 76,516 -------- -------- -------- Short-term Borrowings ......................................... 12,309 4,638 4,696 Long-term Borrowings .......................................... 3,308 2,002 5,753 Other Liabilities ............................................. 1,093 1,101 908 -------- -------- -------- Total Liabilities ......................................... 163,725 115,049 98,664 -------- -------- -------- Common Stock .................................................. 4,737 3,426 2,695 Surplus ....................................................... 17,183 9,076 4,399 Undivided Profits ............................................. 1,360 2,105 2,001 -------- -------- -------- Total Shareholders' Equity ................................ 23,280 14,607 9,095 -------- -------- -------- Total Liabilities and Shareholders Equity ..................... $187,005 $129,656 $107,759 ======== ======== ========
5 The following is a presentation of an analysis of the net interest earnings of the Company for the years ended December 31, 1999, 1998 and 1997 with respect to each major category of interest-earning assets and each major category of interest-bearing liabilities:
Year Ended December 31, 1999 (dollars in thousands) Average Interest Average Assets Amount Earned/Paid Yield/Rate ------ ----------- ---------- Securities - Taxable .............................................. $ 34,308 $ 1,969 5.74% Tax-Exempt ........................................... 4,265 214 7.64%* Federal Funds Sold ................................................ 14,414 783 5.43% Gross Loans ....................................................... 119,623 10,611 8.87% -------- -------- Total Earning Assets .......................................... $172,610 $ 13,577 7.93%* ======== ======== Liabilities Interest Checking ................................................. $ 21,739 $ 456 2.10% Savings Deposits .................................................. 4,879 87 1.78% Money Market ...................................................... 24,823 986 3.98% Certificates of Deposit ........................................... 65,406 3,404 5.20% Individual Retirement Accounts .................................... 9,370 494 5.28% -------- -------- 126,217 5,427 Short-term Borrowings ............................................. 12,309 521 4.22% Long-term Borrowings .............................................. 3,308 174 5.26% -------- -------- Total Interest-bearing Liabilities ............................ $141,834 $ 6,122 4.32% ======== ======== Excess of interest-earning assets over interest-bearing liabilities ............................... $ 30,776 ======== Net interest income ............................................... $ 7,455 ======== Interest rate spread .............................................. 3.61%* Net yield on earning assets ....................................... 4.38%*
* Calculated on a fully taxable equivalent basis using a federal tax rate of 34%. For purposes of these analyses, non-accruing loans are included in the average balances. Loan fees included in interest earned are not material to the presentation. Net yield on interest earning assets is calculated by dividing net interest earnings by total interest earning assets. 6
Year Ended December 31, 1998 (dollars in thousands) Average Interest Average Assets Amount Earned/Paid Yield/Rate ------ ----------- ---------- Securities - Taxable .............................................. $ 25,093 $ 1,430 5.70% Tax-Exempt ........................................... 4,358 229 7.96%* Federal Funds Sold ................................................ 11,126 678 6.09% Gross Loans ....................................................... 79,181 7,506 9.48% -------- -------- Total Earning Assets .......................................... $119,758 $ 9,843 8.32%* ======== ======== Liabilities Interest Checking ................................................. $ 14,214 $ 277 1.95% Savings Deposits .................................................. 4,336 89 2.05% Money Market ...................................................... 18,353 770 4.20% Certificates of Deposit ........................................... 49,577 2,701 5.45% Individual Retirement Accounts .................................... 6,944 380 5.49% -------- ------- 93,424 4,217 4.51% Short-term Borrowings ............................................. 4,638 186 4.01% Long-term Borrowings .............................................. 2,002 113 5.64% -------- ------- Total Interest-bearing Liabilities ............................ $100,064 $ 4,516 4.51% ======== ======= Excess of interest-earning assets over interest-bearing liabilities ............................... $ 19,694 ======== Net interest income ............................................... $ 5,327 ======== Interest rate spread .............................................. 3.81%* Net yield on earning assets ....................................... 4.55%*
* Calculated on a fully taxable equivalent basis using a federal tax rate of 34%. For purposes of these analyses, non-accruing loans are included in the average balances. Loan fees included in interest earned are not material to the presentation. Net yield on interest earning assets is calculated by dividing net interest earnings by total interest earning assets. 7
Year Ended December 31, 1997 (dollars in thousands) Average Interest Average Assets Amount Earned/Paid Yield/Rate ------ ----------- ---------- Securities - Taxable .............................................. $ 18,023 $ 1,122 6.23% Tax-Exempt ........................................... 4,819 245 7.70%* Federal Funds Sold ................................................ 4,512 245 5.43% Net Loans ......................................................... 73,955 6,639 9.08% -------- ------- Total Earning Assets .......................................... $101,309 $ 8,251 8.27% ======== ======= Liabilities Interest Checking ................................................. $ 12,545 $ 311 2.48% Savings Deposits .................................................. 4,034 92 2.30% Money Market ...................................................... 9,770 393 4.02% Certificates of Deposit ........................................... 44,733 2,459 5.50% Individual Retirement Accounts .................................... 5,434 307 5.66% -------- ------- 76,516 3,562 4.66% Short-term Borrowings ............................................. 4,696 146 3.10% Long-term Borrowings .............................................. 5,754 345 6.00% -------- ------- Total Interest-bearing Liabilities ............................ $ 86,966 $ 4,053 4.66% ======== ======= Excess of interest-earning assets over interest-bearing liabilities ............................... $ 14,343 ======== Net interest income ............................................... $ 4,198 ======== Interest rate spread .............................................. 3.94%* Net yield on earning assets ....................................... 4.27%*
* Calculated on a fully taxable equivalent basis using a federal tax rate of 34%. For purposes of these analyses, non-accruing loans are included in the average balances. Loan fees included in interest earned are not material to the presentation. Net yield on interest earning assets is calculated by dividing net interest earnings by total interest earning assets. RATE/VOLUME ANALYSIS OF NET INTEREST INCOME The effect of changes in average balances (volume) and rates on interest income, interest expense and net interest income, for the periods indicated, is shown below. The effect of a change in average balance has been determined by applying the average rate in the earlier period to the change in average balance in the later period, as compared with the earlier period. The effect of a change in the average rate has been determined by applying the average balance in the earlier period to the change in the average rate in the later period, as compared with the earlier period. Changes resulting from average balance/rate variances are included in changes resulting from volume. 8
Year Ended December 31, 1999 compared to 1998 (dollars in thousands) Increase (Decrease) Due to Volume Rate Change ------ ---- ------ Interest earned on: Securities Taxable .................................................. $ 529 $ 10 $ 539 Tax-Exempt ............................................... (5) (10) (15) Federal Funds Sold ............................................ 184 (79) 105 Net Loans ..................................................... 3,715 (610) 3,105 ------- ------- ------- Total Interest Income ......................................... 4,423 (689) 3,734 ------- ------- ------- Interest paid on: Interest Checking ........................................ 160 19 179 Savings Deposits ......................................... 10 (12) (2) Money Market ............................................. 259 (43) 216 Certificates of Deposit .................................. 828 (126) 702 Individual Retirement Accounts ........................... 129 (14) 115 ------- ------- ------- 1,386 (176) 1,210 Short-term Borrowings ......................................... 325 10 335 Long-term Borrowings .......................................... 69 (8) 61 ------- ------- ------- Total Interest Expense ........................................ 1,780 (174) 1,606 ------- ------- ------- Change in Net Interest Income ................................. $ 2,643 $ (515) $ 2,128 ======= ======= =======
As reflected in the table above, the increase in 1999 net interest income of $2,128,000 was primarily due to the changes in volume. On the interest income side, substantially all the $3,734,000 increase was related to the volume growth in the loan and investment portfolios. On the deposit side, substantially all the $1,606,000 increase in interest expense was due to the large volume of interest-bearing deposit accounts coupled with additional interest expense associated with both long-term and short term borrowings. 9
Year Ended December 31, 1998 compared to 1997 (dollars in thousands) Increase (Decrease) Due to Volume Rate Change ------ ---- ------ Interest earned on: Securities Taxable .................................................. $ 409 $ (102) $ 307 Tax-Exempt ............................................... (24) 8 (16) Federal Funds Sold ............................................ 407 26 433 Net Loans ..................................................... 617 251 868 ------- ------- ------- Total Interest Income ......................................... 1,409 183 1,592 ------- ------- ------- Interest paid on: Interest Checking ........................................ 38 (71) (33) Savings Deposits ......................................... 6 (10) (4) Money Market ............................................. 361 16 377 Certificates of Deposit .................................. 264 (22) 242 Individual Retirement Accounts ........................... 83 (10) 73 ------- ------- ------- 752 (97) 655 Short-term Borrowings ......................................... (2) 42 40 Long-term Borrowings .......................................... (210) (22) (232) ------- ------- ------- Total Interest Expense ........................................ 540 (77) 463 ------- ------- ------- Change in Net Interest Income ................................. $ 869 $ 260 $ 1,129 ======= ======= =======
As reflected in the table above, most of the increase in 1998 net interest income of $1,129,000 was due to the change in volume. Substantially all the $1,592,000 increase in interest income was related to the volume growth in the loan portfolios with the balance equally distributed between the investment portfolio and federal funds sold. During 1998, the Company sold $12,025,000 in common stock that immediately contributed to the increase in federal funds sold and investments. In reviewing the Company's deposits, substantially all the $463,000 increase in interest expense was due to the increases in Money Market accounts and Certificates of Deposits. Bank of Anderson, N. A. opened in early September 1998 with a special Certificate of Deposit and Money Market campaign, which contributed to the increase in their volume. LOAN PORTFOLIO The Company engages, through the Banks, in a full complement of lending activities, including commercial, consumer, installment and real estate loans. Commercial lending is directed principally towards businesses whose demands for funds fall within each Bank's legal lending limits and which are potential deposit customers of the Banks. This category of loans includes loans made to individuals, partnerships or corporate borrowers, and which are obtained for a variety of business purposes. Particular emphasis is placed on loans to 10 small and medium-sized businesses. The Company's commercial loans are spread throughout a variety of industries, with no industry or group of related industries accounting for a significant portion of the commercial loan portfolio. Commercial loans are made on either a secured or unsecured basis. When taken, security consists of liens on inventories, receivables, equipment, and furniture and fixtures. Unsecured commercial loans are generally short-term with emphasis on repayment strengths and low debt to worth ratios. At December 31, 1999, approximately $10,792,000, or 42%, of commercial loans were unsecured compared to approximately $3,844,000 or 28% at December 31, 1998. The Company's real estate loans are primarily construction loans and loans secured by real estate, both commercial and residential, located within the Company's trade areas. The Company does not actively pursue long-term, fixed rate mortgage loans for retention in its loan portfolio. The Banks have mortgage loan originators who originate and package loans that are pre-sold at origination to third parties and are classified as loans held for sale for reporting purposes. In 1999, the Company originated $75,720,000, and sold $69,058,000 in mortgage loans held for sale. The Banks' direct consumer loans consist primarily of secured installment loans to individuals for personal, family and household purposes, including automobile loans to individuals, and pre-approved lines of credit. Management believes the loan portfolio is adequately diversified. There are no foreign loans and few agricultural loans. The following table presents various categories of loans contained in the Company's loan portfolio and the total amount of all loans at December 31, 1999, 1998, 1997, 1996 and 1995.
Loan Portfolio Composition (dollars in thousands) December 31, Type of Loan 1999 1998 1997 1996 1995 - ------------ ---- ---- ---- ---- ---- Commercial and Industrial .......................... $ 25,677 $ 13,812 $ 11,031 $ 7,296 $ 7,811 Real Estate ........................................ 101,277 62,099 55,291 47,644 40,102 Consumer Loans ..................................... 14,963 12,106 10,527 11,225 9,093 Mortgage loans held for sale ....................... 6,662 0 0 0 0 -------- -------- -------- -------- -------- Subtotal ...................................... 148,579 88,017 76,849 66,165 57,006 Less allowance for loan losses .................. 1,581 1,093 987 761 670 -------- -------- -------- -------- -------- Net Loans .......................................... $146,998 $ 86,924 $ 75,862 $ 65,404 $ 56,336 ======== ======== ======== ======== ========
11 The following is a presentation of an analysis of maturities of loans as of December 31, 1999:
Loan Maturity and Interest Sensitivity (dollars in thousands) Due After 1 Due in 1 Year up to Due after Type of Loans Year or less 5 years 5 years Total - ------------- ------------ ------- ------- ---- Commercial and Industrial .......................... $ 9,659 $ 9,733 $ 6,285 $ 25,677 Real Estate ........................................ 31,897 52,321 17,059 101,277 Consumer Loans ..................................... 5,629 5,672 3,662 14,963 Mortgage Loans Held for Sale ....................... 6,662 0 0 6,662 -------- -------- -------- -------- Total .......................................... $ 53,847 $ 67,726 $ 27,006 $148,579
All loans are recorded according to original terms, and demand loans, overdrafts, mortgage loans held for sale and loans having no stated repayment terms or maturity are reported as due in one year or less. At December 31, 1999, the amount of loans due after one year with predetermined interest rates totaled approximately $76,279,000 while the amount of loans due after one year with floating interest rates totaled approximately $18,453,000. The following table presents information on non-performing loans and real estate acquired in settlement of loans:
December 31, Non-performing Assets 1999 1998 1997 1996 1995 - --------------------- ---- ---- ---- ---- ---- (dollar in thousands) Non-performing loans: Non-accrual loans ........................... $ 628 $ 617 $ 757 $ 398 $ 158 Past due 90 days or more .................... 0 0 142 123 347 Other restructured loans .................... 150 8 10 0 0 ------ ------ ------ ------ ------ Total non-performing loans .................... $ 778 $ 625 $ 909 $ 411 $ 505 Real estate acquired in settlement of loans ......................... 219 101 125 197 197 ------ ------ ------ ------ ------ Total non-performing assets ................... $ 997 $ 726 $1,034 $ 608 $ 702 ====== ====== ====== ====== ====== Non-performing assets as a percentage of loans and other real estate ........................... 0.67% 0.82% 1.34% 0.92% 1.23% Allowance for loan losses as a percentage of non- performing loans ............................ 252% 177% 130% 146% 133%
Accrual of interest is discontinued on a loan when management of the Company determines, after consideration of economic and business factors affecting collection efforts, that collection of interest is doubtful. 12 With respect to the loans accounted for on a non-accrual basis and restructured loans, the gross interest income that would have been recorded if the loans had been current in accordance with their original terms and outstanding throughout the period or since origination amounts to $60,000 for the year ended December 31, 1999. The amount of interest on those loans that was included in net income for 1999 amounts to $30,000. As of December 31, 1999, there were no loans classified for regulatory purposes as doubtful, substandard or special mention that have not been disclosed above, which (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or (ii) represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. The Company accounts for impaired loans in accordance with SFAS No. 114 "Accounting by Creditors for Impairment of a Loan." SFAS No. 114, as amended by SFAS No. 118, requires that impaired loans be measured based on the present value of expected future cash flows or the underlying collateral values as defined in the pronouncement. The Company includes the provision of SFAS No.114, if any, in the allowance for loan losses. When the ultimate collectability of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to principal then to interest. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries on any amounts previously charged off. At December 31, 1999 and 1998, the recorded investment in loans for which impairment was recognized was $0 and $0, respectively. PROVISION AND ALLOWANCE FOR LOAN LOSSES, LOAN LOSS EXPERIENCE The purpose of the Company's allowance for loan losses is to absorb loan losses that occur in the loan portfolios of its bank subsidiaries. Management determines the adequacy of the allowance quarterly and considers a variety of factors in establishing a level of the allowance for losses and the related provision, which is charged to expense. Factors considered in determining the adequacy of the reserve for loan losses include: historical loan losses experienced by the Company, current economic conditions affecting a borrower's ability to repay, the volume of outstanding loans, the trends in delinquent, non-accruing and potential problem loans, and the quality of collateral securing non-performing and problem loans. By considering the above factors, management attempts to determine the amount of reserves necessary to provide for potential losses in the loan portfolios of its subsidiaries, however, the amount of reserves may change in response to changes in the financial condition of larger borrowers, changes in the Company's local economies and expected industry trends. 13 The allowance for loan losses represents management's estimate of an amount adequate in relation to the risk of future losses inherent in the loan portfolios of its bank subsidiaries. While it is the Company's policy to charge-off in the current period loans in which a loss is considered probable, there are additional risks of future losses that cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy, industry trends, and conditions affecting individual borrowers, management's judgment of the allowance is necessarily approximate and imprecise. The Company and its bank subsidiaries are also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of peer companies identified by the regulatory agencies. In assessing the adequacy of the allowance, management relies predominantly on its ongoing review of the loan portfolio, which is undertaken both to ascertain whether there are probable losses that must be charged off and to assess the risk characteristics of the portfolio in the aggregate. The Company utilizes the services of an outside consultant to perform quality reviews of its loan portfolio. The review considers the judgments of management and also those of bank regulatory agencies that review the loan portfolio as part of their regular examination process. The Comptroller of the Currency, as part of its routine examination process of various national banks, including the Banks, may require additions to the allowance for loan losses based upon the regulators' credit evaluations differing from those of management. The Company's management believes they have in place the controls and personnel to adequately monitor its loan portfolios. On December 31, 1999, the allowance for loan losses was $1,581,000, or 1.06% of gross outstanding loans compared to $1,093,000, or 1.24% of gross outstanding loans at December 31, 1998. During fiscal 1999, the Company experienced net charge-offs of $83,000, or 0.07% of average loans, compared to net charge-offs of $88,000, or 0.11% of average loans in fiscal 1998. Consumer loan net charge-offs were $35,000 in 1999 compared to net charge-offs of $5,000 in 1998. Commercial loan net recoveries were $2,000 in 1999 compared to net charge-offs of $27,000 in 1998. Mortgage loan net charge-offs were $50,000 in 1999 compared to net charge-offs of $56,000 in 1998. The Company made provisions for loan losses of $571,000 in fiscal 1999 compared to $194,000 for fiscal 1998. In fiscal 1999 and 1998, The Peoples National Bank made provisions for loan losses of $204,000 and $101,000, respectively. In fiscal 1999 and 1998, The Peoples National Bank recorded net charge-offs of $83,000 and $88,000, respectively. In fiscal 1999, Bank of Anderson made provisions for loan losses of $219,000 compared to $93,000 in 1998 as it continued to establish its allowance for loan losses. Seneca National Bank, which commenced operations in February of 1999, made provisions for loan losses of $148,000 in 1999 as it began to establish its allowance for loan losses. Bank of Anderson and Seneca National Bank did not record any charge-offs in 1999 or 1998. 14 Management continues to closely monitor the levels of non-performing and potential problem loans and will address the weaknesses in these credits to enhance the amount of ultimate collection or recovery on these assets. Should increases in the overall level of non-performing and potential problem loans accelerate from the current trend, management will adjust the methodology for determining the allowance for loan losses and will increase the provision and allowance for loan losses. This would likely decrease net income. The following tables set forth the allocation of the allowance for loan losses based on the percentage of total loans in each category at December 31, 1999, 1998, 1997, 1996 and 1995. Management does not segregate the allowance by category and the entire allowance is available to absorb losses from all categories.
Composition of Allowance for Loan Losses (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Commercial and industrial ..................... $ 286 $ 172 $ 142 $ 84 $ 92 Real Estate ................................... 1,128 771 710 548 471 Consumer ...................................... 167 150 135 129 107 ------ ------ ------ ------ ------ Total .................................... $1,581 $1,093 $ 987 $ 761 $ 670 ====== ====== ====== ====== ====== Percentage of Loans in Category 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Commercial and industrial ..................... 18.09% 15.69% 14.35% 11.04% 13.70% Real Estate ................................... 71.36% 70.55% 71.95% 71.97% 70.35% Consumer ...................................... 10.55% 13.75% 13.70% 16.99% 15.95% ----- ----- ----- ----- ----- Total .................................... 100.00% 100.00% 100.00% 100.00% 100.00% ====== ====== ====== ====== ======
The following table summarizes loan balances of the Company at the end of each period and averages for each period, changes in the allowance arising from charge-offs and recoveries by category and additions to the allowance which have been charged to expense. 15
Summary of Loan Loss Experience (dollars in thousands) Years Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Balance at beginning of year ................................ $1,093 $ 987 $ 761 $ 670 $ 619 Charge-offs: Commercial and industrial ............................... 15 30 32 43 2 Real estate ............................................. 50 56 8 2 29 Consumer ................................................ 80 53 86 148 60 ------ ------ ------ ------ ------ 145 139 126 193 91 Recoveries: Commercial and industrial ............................... 17 3 11 10 14 Real estate ............................................. 0 0 5 1 2 Consumer ................................................ 45 48 15 13 18 ------ ------ ------ ------ ------ 62 51 28 24 34 ------ ------ ------ ------ ------ Net Charge-offs .............................................. 83 88 98 169 57 Provision for loan losses .................................... 571 194 324 260 108 ------ ------ ------ ------ ------ Balance at end of year ....................................... $1,581 $1,093 $ 987 $ 761 $ 670 ====== ====== ====== ====== ====== Asset Quality Ratios: - -------------------- Years Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Net charge-offs to average loans ................... 0.07% 0.11% 0.13% 0.28% 0.11% outstanding during the year Net charge-offs to total loans ..................... 0.06% 0.10% 0.13% 0.26% 0.10% outstanding at end of year Allowance for loan losses to ....................... 1.32% 1.38% 1.33% 1.26% 1.23% average loans Allowance for loan losses to ....................... 1.06% 1.24% 1.29% 1.15% 1.17% total loans Net charge-offs to allowance for ................... 5.25% 8.07% 9.93% 22.33% 8.16% loan losses Net charge-offs to provision for ................... 14.54% 45.40% 30.21% 65.00% 53.36% loan losses
The allowance for loan losses is increased by direct charges to operating expense. Losses on loans are charged against the allowance in the period in which management determines it is more likely than not such loans have become uncollectable. Recoveries of previously charged-off loans are credited to the allowance. Management considers the allowance for loan losses adequate to cover inherent losses on the loans outstanding at December 31, 1999. In the opinion of management, there are no material risks or significant loan concentrations in the present portfolio. It must be emphasized, however, that the determination of the allowance for loan losses using the Company's procedures and methods rests upon various judgments and assumptions about future economic conditions and other factors affecting loans. No assurance can be given that the Company will not in any particular period sustain loan losses which are sizable in relation to the amount reserved or that subsequent evaluation of the loan portfolio, in light of conditions and factors then prevailing, will not require significant 16 changes in the allowance for loan losses or future charges to earnings. The allowance for loan losses is also subject to review and approval by various regulatory agencies through their periodic examinations of the Company's subsidiaries. Such examinations could result in required changes to the allowance for loan losses. INVESTMENTS The Company invests primarily in obligations of the United States or obligations guaranteed as to principal and interest by the United States, other taxable securities and in certain obligations of states and municipalities. The Banks enter into Federal funds transactions with their principal correspondent banks and usually act as net sellers of such funds. The sale of Federal funds amounts to a short-term loan from one bank to another bank. The following table summarizes the book and market values of investment securities held by the Company at December 31, 1999, 1998 and 1997.
Securities Composition (dollars in thousands) 1999 1998 1997 ---- ---- ---- Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value ---- ----- ---- ----- ---- ----- AVAILABLE FOR SALE Obligations of U.S. Treasury and other U.S. Government agencies ............... $30,957 $30,184 $31,087 $31,014 $18,606 $18,560 State and Political Subdivisions ............... 0 0 125 126 1,048 1,055 Other Securities ............................... 1,025 1,025 831 831 696 705 ------- ------- ------- ------- ------- ------- Total Available for Sale ....................... $31,982 $31,209 $32,043 $31,971 $20,350 $20,320 ------- ------- ------- ------- ------- ------- HELD FOR INVESTMENT State and Political Subdivisions ............... $ 4,445 $ 4,438 $ 4,129 $ 4,265 $ 3,852 $ 3,954 ------- ------- ------- ------- ------- ------- Total Held for Investment ...................... $ 4,445 $ 4,438 $ 4,129 $ 4,265 $ 3,852 $ 3,954 ------- ------- ------- ------- ------- ------- Total ................................. $36,427 $35,647 $36,172 $36,236 $24,202 $24,274 ======= ======= ======= ======= ======= =======
The Company accounts for investments in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments classified as available for sale are carried at market value. Unrealized holding gains or losses are reported as a component of shareholder's equity net of deferred income taxes in comprehensive income. Securities classified as held for investment are carried at cost, adjusted for the amortization of premiums and the accretion of discounts. In order to qualify as held for investment, the Company must have the ability to hold the securities to maturity. The Company has no trading securities. At December 31, 1999, the Company's total investment portfolio classified as available for sale had a book value of $31,982,000 and a market value of $31,209,000 for an unrealized net loss of $773,000. 17 The following table indicates the respective maturities and weighted average yields of securities as of December 31, 1999:
Securities Maturity Schedule (dollars in thousands) Amortized Weighted Cost Average Yield ---- ------------- AVAILABLE FOR SALE Obligations of U.S. Treasury and other Government agencies: 0-1 Year ........................................................................ $ 1,399 5.89% 1-5 Years ....................................................................... 23,503 6.01% 5-10 Years ...................................................................... 3,197 6.21% Greater than 10 Years ........................................................... 2,858 5.89% Other Securities No stated maturity .............................................................. 1,025 7.16% ------- $31,982 5.99% ======= HELD FOR INVESTMENT State and political subdivisions: 0-1 Year ........................................................................ $ 684 8.67%* 1-5 Years ....................................................................... 2,050 7.69%* 5-10 Years ...................................................................... 1,611 6.78%* Greater than 10 Years ........................................................... 100 6.74%* ------- Total .................................................................. $ 4,445 7.50%* =======
*Calculated on a fully taxable equivalent basis using a federal tax rate of 34%. DEPOSITS The Company offers a full range of interest-bearing and noninterest-bearing accounts, including commercial and retail checking accounts, negotiable orders of withdrawal ("NOW") accounts, public funds accounts, money market accounts, individual retirement accounts, including Keogh plans with stated maturities, regular interest-bearing statement savings accounts and certificates of deposit with fixed rates and a range of maturity date options. The sources of deposits are residents, businesses and employees of businesses within the Company's market areas obtained through the personal solicitation of the Company's officers and directors, direct mail solicitations and advertisements published in the local media. The Company pays competitive interest rates on interest checking, savings, money market, time and individual retirement accounts. In addition, the Banks have implemented a service charge fee schedule competitive with other financial institutions in the Banks' market areas, covering such matters as maintenance fees on checking accounts, per item processing fees on checking accounts, returned check charges and the like. The Company's average deposits in 1999 were $147,015,000, compared to $107,308,000 the prior year, an increase of $39,707,000, or 37%. The increase in average deposits in 1999 is largely attributable to new deposits generated by Bank of Anderson and Seneca National Bank. 18 Average noninterest-bearing deposits increased approximately $6,914,000, or 50%, in 1999, average interest-bearing checking accounts increased $7,525,000,or 53%, average money market accounts increased $6,470,000,or 35%, average certificates of deposit increased $15,829,000, or 32%, and individual retirement accounts increased $2,426,000, or 35%. The significant growth in all deposit categories is attributable to new deposits generated by Bank of Anderson and Seneca National Bank in 1999, coupled with continued internal deposit growth at The Peoples National Bank. Competition for deposit accounts is primarily based on the interest rates paid, service charge structure, location convenience and other services offered. The following table presents, for the years ended December 31, 1999, 1998 and 1997, the average amount of and average rate paid on each of the following deposit categories:
Deposit Category Average Amount Average Rate Paid - ---------------- -------------- ----------------- (dollars in thousands) 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- Noninterest-bearing Deposits ................... $20,798 $13,884 $10,791 Interest-bearing Deposits Interest Checking .......................... 21,739 14,214 12,544 2.10% 1.95% 2.48% Savings Deposits ........................... 4,879 4,336 4,034 1.78% 2.05% 2.30% Money Market ............................... 24,823 18,353 9,770 3.98% 4.20% 4.02% Certificates of Deposit .................... 65,406 49,577 44,734 5.20% 5.45% 5.50% Individual Retirement Accounts ............. 9,370 6,944 5,434 5.28% 5.49% 5.66%
The Company's core deposit base consists of consumer time deposits less than $100,000, savings accounts, NOW accounts, money market accounts and checking accounts. Although such core deposits are becoming increasingly interest sensitive for both the Company and the industry as a whole, such core deposits continue to provide the Company with a large and stable source of funds. Core deposits as a percentage of average total deposits averaged approximately 80% in 1999 compared to approximately 83% in 1998. The Company closely monitors its reliance on certificates of deposits greater than $100,000, which are generally considered less stable and less reliable than core deposits. The Company does not accept brokered deposits. The following table indicates amounts outstanding of time certificates of deposit of $100,000 or more and respective maturities as of December 31, 1999: Time Certificates of Deposit ---------- (dollars in thousands) 3 months or less .................. $ 19,061 4-6 months ........................ 12,954 7-12 months ....................... 4,226 Over 12 months .................... 1,767 ------------------- Total .................... $ 38,008 =================== 19 RETURN ON EQUITY AND ASSETS Returns on average consolidated assets and average consolidated equity for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ---- ---- ---- Return on average assets ............................................ 0.74% 0.96% 1.21% Return on average equity ............................................ 5.91% 8.71% 14.34% Average equity to average assets ratio .............................. 12.45% 11.27% 8.44% Dividend payout ratio ............................................... 28.95% 24.09% 16.06%
SHORT-TERM BORROWINGS The following table summarizes the Company's short-term borrowings for the years ended December 31, 1999, 1998 and 1997. These borrowings consist of federal funds purchased and securities sold under agreements to repurchase, which generally mature on a one-business-day basis.
1999 1998 1997 ---- ---- ---- Balance at year end ........................................... $15,434,000 $ 5,980,000 $ 4,434,000 Rate at year end .............................................. 4.93% 2.90% 3.10% Maximum amount outstanding at any month end ................... $16,595,000 $ 5,980,000 $ 4,955,000 Average amount outstanding during the year .................... $12,803,000 $ 4,575,000 $ 4,687,000 Average rate paid during the year ............................. 4.07% 3.30% 3.10%
MARKET RISK - INTEREST RATE SENSITIVITY Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to a change in interest rates, exchange rate and equity prices. The Company's primary risk is interest rate risk. The primary objective of Asset/Liability Management at the Company is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining the proper balance of rate sensitive earning assets and rate sensitive earning liabilities. The relationship of rate sensitive earning assets to rate sensitive liabilities, is the principal factor in projecting the effect that fluctuating interest rates will have on future net interest income. Rate sensitive assets and interest-bearing liabilities are those that can be repriced to current market rates within a relatively short time period. Management monitors the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but places particular emphasis on the first year. At December 31, 1999, approximately 45% of the Company's interest-earning assets repriced or matured within one year compared to approximately 96% of interest-bearing liabilities. The following table shows the Company's rate sensitive position at December 31, 1999, as measured by gap analysis (the difference between the earning asset and interest-bearing liability amounts scheduled to be repriced to current market rates in subsequent periods). Over the next 12 months 20 approximately $72 million more interest-bearing liabilities than earning assets can be repriced to current market rates at least once. As a result, the one-year cumulative gap (the ratio of rate sensitive assets to rate sensitive liabilities) at December 31, 1999, was 56%, indicating a "liability sensitive" position. The following table sets forth the Company's interest sensitivity position as of December 31, 1999. Interest Sensitivity Analysis (dollars in thousands)
Within 3 4-12 Over 5 Months months 1-5 years Years Total ------ ------ --------- ----- ----- INTEREST-EARNING ASSETS: Federal Funds Sold ................................ $ 9,200 $ 0 $ 0 $ 0 $ 9,200 Investment Securities ............................. 388 1,790 26,143 8,106 36,427 Interest Bearing Deposits in Other Banks .......... 5,047 0 0 0 5,047 Loans ............................................. 63,631 10,461 59,801 14,686 148,579 -------- -------- -------- -------- -------- Total Interest-Earning Assets ....................... $ 78,266 $ 12,251 $ 85,944 $ 22,792 $199,253 -------- -------- -------- -------- -------- INTEREST-BEARING LIABILITIES: Interest Checking ............................... 0 24,295 0 0 24,295 Savings Deposits ................................ 0 4,822 0 0 4,822 Money Market .................................... 26,808 0 0 0 26,808 Time Deposits ................................... 34,103 52,141 6,519 135 92,898 Other Borrowings ................................ 20,434 0 0 0 20,434 -------- -------- -------- -------- -------- Total Interest-Bearing Liabilities .................. $ 81,345 $ 81,258 $ 6,519 $ 135 $169,257 -------- -------- -------- -------- -------- Interest sensitive gap .............................. $ (3,079) $(69,007) $ 79,425 $ 22,657 Cumulative interest sensitive gap ................... $ (3,079) $(72,086) $ 7,339 $ 29,996 RSA/RSL ............................................. 96% 15% Cumulative RSA/RSL .................................. 96% 56%
RSA - rate sensitive assets; RSL - rate sensitive liabilities Asset/liability management is the process by which the Company monitors and controls the mix and maturities of its assets and liabilities. The essential purposes of asset/liability management are to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by individuals, partnerships and corporations. Management of the Company seeks to invest the largest portion of its assets in commercial, consumer and real estate loans. Each of the Company's banking subsidiaries has established an Asset/Liability Management Committee. These committees use a variety of tools to analyze interest rate sensitivity, including a static gap presentation and a simulation model. A "static gap" presentation reflects the difference between total interest-sensitive assets and liabilities within certain time periods. While the static gap is a widely used measure of interest sensitivity, it is 21 not, in management's opinion, a true indicator of a company's sensitivity position. It presents a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of savings and core time deposits may contractually change within a relatively short time frame, but those rates are significantly less interest-sensitive than market based rates such as those paid on non-core deposits. Accordingly, a liability sensitive gap position is not as indicative of a company's true interest sensitivity as would be the case for an organization which depends to a greater extent on purchased funds to support earning assets. Net interest income would also be impacted by other significant incremental borrowing cost and the volume and mix of earning asset growth. Accordingly, the Company's banking subsidiaries also use an asset/liability simulation model that estimates balance sheet and earnings variations under different interest rate environments to measure and manage interest rate risk. It is the responsibility of the Committees to establish parameters for various interest risk measures, to set strategies to control interest rate risk within those parameters, to maintain adequate and stable net interest income, and to direct the implementation of tactics to facilitate achieving its objectives. Management is not aware of any known events or uncertainties that will have or are reasonably likely to have a material effect on the Company's liquidity, capital resources or results of operations. Management is not aware of any current recommendations by the regulatory authorities, which if they were to be implemented, would have a material effect on the Company's liquidity, capital resources or results of operations. LIQUIDITY Liquidity management involves meeting the cash flow requirements of the Company. The Company's liquidity position is primarily dependent upon its need to respond to short-term demand for funds caused by withdrawals from deposit accounts and upon the liquidity of its assets. The Company's primary liquidity sources include cash and due from banks, federal funds sold and "securities available for sale". In addition, the Company (through the Banks) has the ability, on a short-term basis, to borrow funds from the Federal Reserve System and to purchase federal funds from other financial institutions. The Banks are also members of the Federal Home Loan Bank System and have the ability to borrow both short and long term funds on a secured basis. At December 31, 1999, The Peoples National Bank had $5,000,000 in long-term borrowings from the Federal Home Loan Bank of Atlanta. At December 31, 1999, The Peoples National Bank had unused borrowing capacity from the Federal Home Loan Bank of Atlanta of $18,000,000. The Company's other two bank subsidiaries, Bank of Anderson, N. A. and Seneca National Bank have established lines of credit with the Federal Home Loan Bank totaling ten percent (10%) of each respective bank's total assets. At December 31, 1999, the Banks', in aggregate, had unused federal funds lines of credit totaling $10,800,000 with correspondent banks. 22 Peoples Bancorporation, Inc., the parent holding company, has limited liquidity needs. Peoples Bancorporation requires liquidity to pay limited operating expenses and dividends. The parent company's liquidity needs are fulfilled through management fees assessed each subsidiary bank and from dividends passed up to the parent company from The Peoples National Bank. The Company plans to meet its future cash needs through the liquidation of temporary investments, maturities or sales of loans and investment securities and generation of deposits. Company management believes its liquidity sources are adequate to meet its operating needs and does not know of any trends that may result in the Company's liquidity materially increasing or decreasing. CAPITAL ADEQUACY and RESOURCES The capital needs of the Company have been met through the retention of earnings and from the proceeds of prior public stock offerings. For bank holding companies with total assets of more than $150 million, such as the Company, capital adequacy is generally evaluated based upon the capital of its banking subsidiaries. Generally, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") expects bank holding companies to operate above minimum capital levels. The Office of the Comptroller of the Currency ("Comptroller") regulations establish the minimum leverage capital ratio requirement for national banks at 3% in the case of a national bank that has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other national banks are expected to maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the Comptroller reserves the right to require higher capital ratios in individual banks on a case-by-case basis when, in its judgment, additional capital is warranted by a deterioration of financial condition or when high levels of risk otherwise exist. The Banks have not been notified that they must maintain capital levels above regulatory minimums. The Company's leverage capital ratio was 11.05% at December 31, 1999 compared to 14.87% at December 31, 1998. The leverage capital ratio for The Peoples National Bank was 7.87% at December 31, 1999 compared to 7.60% at December 31, 1998. Bank of Anderson's leverage capital ratio was 12.61% at December 31, 1999 compared to 25.05% at December 31, 1998. Seneca National Bank's leverage capital ratio was 20.19% at December 31, 1999. The decreases in the Company's and Bank of Anderson's leverage capital ratios resulted from growth experienced during 1999. The Federal Reserve Board has adopted a risk-based capital rule which requires bank holding companies to have qualifying capital to risk-weighted assets of at least 8%, with at least 4% being "Tier 1" capital. Tier 1 capital consists principally of common stockholders' equity, non-cumulative preferred stock, qualifying perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain intangible assets. "Tier 2" (or supplementary) capital consists of general loan loss reserves (subject to certain limitations), certain types of preferred stock and subordinated debt, and certain hybrid capital instruments and other debt 23 securities such as equity commitment notes. A bank holding company's qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital components, provided that the maximum amount of Tier 2 capital that may be treated as qualifying capital is limited to 100% of Tier 1 capital. The Comptroller imposes a similar standard on national banks. The regulatory agencies expect national banks and bank holding companies to operate above minimum risk-based capital levels. The Company's risk-based capital ratio was 16.23% and its Tier 1 capital to risk weighted assets ratio was 15.22% at December 31, 1999, compared to 23.97% and 22.86%, respectively, at December 31, 1998. The Peoples National Bank's risk-based capital ratio was 11.73% and its Tier 1 capital to risk weighted assets ratio was 10.75% at December 31, 1999, compared to 13.16% and 11.96%, respectively, at December 31, 1998. Bank of Anderson's risk-based capital ratio was 19.21% and its Tier 1 capital to risk weighted assets ratio was 18.10% at December 31, 1999 compared to 43.40% and 42.48%, respectively at December 31, 1998. Seneca National Bank's risk-based capital ratio was 26.62% and its Tier 1 capital to risk weighted assets ratio was 25.46% at December 31, 1999. The decreases in the Company's, The Peoples National Bank's and Bank of Anderson's risk-based capital ratios and their Tier 1 capital to risk weighted assets ratios in 1999 resulted from growth experienced during 1999. (See "Item 7, Notes to Consolidated Financial Statements). During 1998 the Company successfully completed the sale of 925,000 shares of its common stock through two public stock offerings. From these two stock offerings the company raised $12,025,000 in additional capital. $4,500,000 of this additional capital was used to initially capitalize Bank of Anderson, National Association in September of 1998 and $3,500,000 was used to initially capitalize Seneca National Bank in February 1999. In January 1999, the Company injected $1,000,000 in additional capital in The Peoples National Bank and $1,000,000 in additional capital in Bank of Anderson, N. A. to provide for future growth of these two subsidiaries. The remaining funds from the two stock offerings are being held at the parent company level for future operating needs. PAYMENT of DIVIDENDS If a national bank's surplus fund equals the amount of its capital stock, the directors may declare quarterly, semi-annual or annual dividends out of the bank's net profits, after deduction of losses and bad debts. If the surplus fund does not equal the amount of capital stock, a dividend may not be paid until one-tenth of the bank's net profits of the preceding half year, in the case of quarterly or semi-annual dividends, or the preceding two years, in the case of an annual dividend, are transferred to the surplus fund. The approval of the Comptroller is required if the total of all dividends declared by a national bank in any calendar year will exceed the total of its retained net profits of that year combined with its retained net profits for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The Comptroller's regulations provide that provisions for possible credit losses cannot be added back to net income and charge-offs cannot be deducted from net income in calculating the level of net profits available for the payment of dividends. 24 The payment of dividends by the Banks may also be affected or limited by other factors, such as the requirements to maintain adequate capital above regulatory guidelines. In addition, if, in the opinion of the Comptroller, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), the Comptroller may require, after notice and hearing, that such bank cease and desist from such practice. The Comptroller has indicated that paying dividends that deplete a national bank's capital base to an inadequate level would be an unsafe and unsound banking practice. The Federal Reserve, the Comptroller and the FDIC have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. In 1999, The Peoples National Bank paid dividends of $398,079 to the Company compared to $299,598 in 1998. Bank of Anderson paid no dividends in 1999 or 1998. Seneca National Bank paid no dividends in 1999. MONETARY POLICIES and EFFECT OF INFLATION The earnings of bank holding companies are affected by the policies of regulatory authorities, including the Board of Governors of the Federal Reserve System, in connection with its regulation of the money supply. Various methods employed by the Federal Reserve Board include open market operations in U. S. Government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The consolidated financial statements have been prepared in accordance with generally accepted accounting principals which require the measurement of financial position and results of operations in terms of historical dollars, without consideration of changes in the relative purchasing power over time due to inflation. Unlike most other industries, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant effect on a financial institution's performance that does the effect of inflation. Interest rates do not necessarily change in the same magnitude as the prices of goods and services. While the effect of inflation on banks is normally not as significant as is its influence on those businesses that have large investments in plant and inventories, it does have an effect. During periods of high inflation, there are normally corresponding increases in the money supply, and banks will normally experience above average growth in assets, loans and deposits. Also, general increases in the prices of goods and services will result in increased operating expenses. 25 CORRESPONDENT BANKING Correspondent banking involves the provision of services by one bank to another bank, which cannot provide that service for itself from an economic, regulatory or practical standpoint. The Banks purchase correspondent services offered by larger banks, including check collections, purchase of Federal Funds, security safekeeping, investment services, over-line and liquidity loan participations and sales of loans to or participations with correspondent banks. The Banks sell loan participations to correspondent banks with respect to loans that exceed the Banks' lending limits. Managements of the Banks have established correspondent relationships with Wachovia Bank, N. A., Charlotte, North Carolina, The Bankers Bank, Atlanta, Georgia and First Tennessee Bank, N. A., Memphis, Tennessee. As compensation for services provided by a correspondent, the Banks maintain certain balances with such correspondents in non-interest bearing accounts. DATA PROCESSING The Company has a data processing department, which performs a full range of data processing services for the Banks. Such services include an automated general ledger, deposit accounting, loan accounting and data processing. YEAR 2000 During 1998, the Company established a Year 2000 Project Team whose responsibilities were to identify all computer systems utilized by the Company and to ensure that those systems would not be affected by the problem that was commonly called the "Year 2000 Problem". As a result of the team's efforts, the Company did not experience any problems from the "Year 2000 Problem". The Company's expenses in preparing for the Year 2000 Problem in 1999 were not material. SUPERVISION AND REGULATION The Company and the Banks operate in a highly regulated environment, and their business activities are governed by statute, regulation and administrative policies. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to such statutes and regulations. Any change in applicable law or regulation may have a material effect on the business of the Company and the Banks. As discussed below under the caption "Recent Legislation", Congress has recently adopted extensive changes in the laws governing the financial services industry. Among the changes adopted are creation of the financial holding company, a new type of bank holding company with powers that greatly exceed 26 those of standard holding companies, and creation of the financial subsidiary, a subsidiary that can be used by national banks to engage in many, though not all, of the same activities in which a financial holding company may engage. The legislation also establishes the concept of functional regulation whereby the various financial activities in which financial institutions engage are overseen by the regulator with the relevant regulatory experience. Neither the Company nor the Banks has yet made a decision as to how to adapt the new legislation to its use. Accordingly, the following discussion relates to the supervisory and regulatory provisions that apply to the Company and the Banks as they currently operate. The business activities of the Company and Banks are closely supervised by a number of federal regulatory agencies, including the Federal Reserve Board, the Comptroller of the Currency (the "Comptroller") and the Federal Deposit Insurance Corporation (the "FDIC"). The Company is regulated by the Federal Reserve Board under the Federal Bank Holding Company Act of 1956, as amended, which requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring more than 5% of the voting shares of any bank or all or substantially all of the assets of a bank, and before merging or consolidating with another bank holding company. The Federal Reserve Board (pursuant to regulation and published policy statements) has maintained that a bank holding company must serve as a source of financial strength to its subsidiary banks. In adhering to the Federal Reserve Board policy the Company may be required to provide financial support to a subsidiary bank at a time when, absent such Federal Reserve Board policy, the Company may not deem it advisable to provide such assistance. Under the Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994, the Company, and any other adequately capitalized bank holding company located in South Carolina can acquire a bank located in any other state, and a bank holding company located outside South Carolina can acquire any South Carolina-based bank, in either case subject to certain deposit percentages and other restrictions. The legislation also provides that in any state that has not previously elected to prohibit out-of-state banks from operating interstate branches within its territory, adequately capitalized and managed bank holding companies can consolidate their multi-state bank operations into a single bank subsidiary and branch interstate through acquisitions. De novo branching by an out-of-state bank is permitted only if the laws of the host state expressly permit it. The authority of a bank to establish, and operate branches within a state continue to be subject to applicable state branching laws. South Carolina law was amended effective July 1, 1996, to permit such interstate branching, but not de novo branching by an out-of-state bank. The Riegel-Neal Act, together with legislation adopted in South Carolina, resulted in a number of South Carolina banks being acquired by large out-of-state bank holding companies. Size gives the larger banks certain advantages in competing for business from larger corporations. These advantages include higher lending limits and the ability to offer services in other areas of South Carolina and the region. As a result, the Company does not generally attempt to compete for the banking relationships of large corporations, but 27 concentrates its efforts on small to medium-sized businesses and on individuals. The Company believes it has competed effectively in this market segment by offering quality, personal service. A bank holding company is generally prohibited from acquiring control of any company that is not a bank and from engaging in any business other than the business of banking or managing and controlling banks. However, there are certain activities which have been identified by the Federal Reserve Board to be so closely related to banking as to be a proper incident thereto thus permissible for bank holding companies, including the following activities: acting as an investment or financial advisor to subsidiaries and certain outside companies; leasing personal and real property or acting as a broker with respect thereto; providing management consulting advice to nonaffiliated banks and non-bank depository institutions; operating collection agencies and credit bureaus; acting as a futures commission merchant; providing data processing and data transmission services; acting as an insurance agent or underwriter with respect to limited types of insurance; performing real estate appraisals; arranging commercial real estate equity financing; providing securities brokerage services; and underwriting and dealing in obligation of the United States, the states and their political subdivisions. As discussed below under "Recent Legislation", a bank holding company that meets certain requirements may now qualify as a financial holding company and thereby significantly increase the variety of services it may provide and the investments it may make. The Company also is subject to limited regulation by the South Carolina State Board of Financial Institutions (the "State Board"). Consequently, the Company must give notice to, or receive the approval of, the State Board pursuant to applicable law and regulations prior to engaging in the acquisition of banking or non-banking institutions or assets. The Company also may be required to file with the State Board periodic reports with respect to its financial condition and operation, management and inter-company relations between the Company and its subsidiaries. As national banks, the Banks are subject to supervision by the Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board. With respect to expansion, the Banks may establish branch offices anywhere within the State of South Carolina. In addition, the Banks are subject to various other state and federal laws and regulations, including state usury laws, laws relating to fiduciaries, consumer credit and laws relating to branch banking. The Banks' loan operations are subject to certain federal consumer credit laws and regulations promulgated thereunder, including, but not limited to; the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to provide certain information concerning their mortgage lending; the Equal Credit Opportunity Act and the Fair Housing Act, prohibiting discrimination on the basis of certain prohibited factors in extending credit; the Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; the Bank Secrecy Act, dealing with, among other things, the reporting of certain currency transactions; and the Fair Debt 28 Collection Act, governing the manner in which consumer debts may be collected by collection agencies. The deposit operations of the Banks are subject to the Truth in Savings Act, requiring certain disclosures about rates paid on savings accounts; the Expedited Funds Availability Act, which deals with disclosure of the availability of funds deposited in accounts and the collection and return of checks by banks; the Right to Financial Privacy Act, which imposes a duty to maintain certain confidentiality of consumer financial records and the Electronic Funds Transfer Act and regulations promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services. The Banks are subject to the requirements of the Community Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. Each financial institution's actual performance in meeting community credit needs is evaluated as part of the examination process, and also is considered in evaluating mergers, acquisitions and applications to open a branch or facility. Loans and extensions of credit by national banks are subject to legal lending limitations. Under federal law, a national bank may grant unsecured loans and extensions of credit in an amount up to 15% of its unimpaired capital and surplus to any person. In addition, a national bank may grant loans and extensions of credit to a single person up to 10% of its unimpaired capital and surplus, provided that the transactions are fully secured by readily marketable collateral having a market value determined by reliable and continuously available price quotations. This 10% limitation is separate from, and in addition to, the 15% limitation for unsecured loans. Loans and extensions of credit may exceed the general lending limits if they qualify under one of several exceptions. Such exceptions include, among others, certain loans or extensions of credit arising from the discount of commercial or business paper, the purchase of banker's acceptances, loans secured by documents of title, loans secured by U. S. obligations and loans to or guaranteed by the federal government. Both the Company and the Banks are subject to regulatory capital requirements imposed by the Federal Reserve Board and the Comptroller (see "CAPITAL ADEQUACY and RESOURCES"). Failure to meet capital guidelines could subject the Banks to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. However, management of the Company is unable to predict whether and when higher capital requirements would be imposed and, if so, at what levels and on what schedule. 29 A joint rule promulgated by the Federal Reserve Board, the FDIC and the Comptroller provides that the banking agencies must include in their evaluations of a bank's capital adequacy an assessment of the exposure to declines in the economic value of the bank's capital due to changes in interest rates. The agencies have issued statements that describe the process the banking agencies will use to measure and assess the exposure of a bank's net economic value to changes in interest rates. Another joint rule promulgated by the financial institution regulators further provides that the risk-based capital guidelines must take account of concentration of credit risk and the risk of non-traditional activities. The rule explicitly identifies concentration of credit risk and the risk arising from other sources, as well as an institution's overall capital adequacy. The Company is a legal entity separate and distinct from the Banks. Most of the revenues of the Company are expected to continue to result from dividends paid to the Company by the Banks. There are statutory and regulatory requirements applicable to the payment of dividends by subsidiary banks as well as by the Company to its shareholders. Each national banking association is required by the federal law to obtain the prior approval of the OCC for the payment of dividends if the total of all dividends declared by the board of directors of such bank in any year will exceed the total of (i) such bank's retained net income (as defined and interpreted by regulation) for that year to date plus, (ii) the retained net income (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. In addition, national banks can only pay dividends to the extent that retained net income (including the portion transferred to surplus) exceeds losses. The payment of dividends by the Company and the Banks may also be affected or limited by other factors, such as the requirements to maintain adequate capital above regulatory guidelines. In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the Banks, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The OCC has indicated that paying dividends that deplete a national bank's capital base to an inadequate level would be an unsafe and unsound banking practice. The Federal Reserve, the OCC and the FDIC have issued policy statements which provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. As national banks, the Banks are subject to examinations and reviews by the Comptroller. The examinations are typically completed on-site and are subject to off-site review as well. The Banks also submit to the FDIC quarterly reports of condition, as well as such additional reports as may be required by the national banking laws. 30 The Banks are required to pay semiannual assessments to the FDIC. Since January 1997, the assessments imposed on all FDIC deposits for deposit insurance has an effective rate ranging from 0 to 27 basis points per $100 of insured deposits, depending on the institution's capital position and other supervisory factors. However, because legislation enacted in 1996 requires that both SAIF-insured and BIF-insured deposits pay a pro rata portion of the interest due on the obligations issued by the Financing Corporation ("FICO"), the FDIC is currently assessing BIF-insured deposits an additional 1.26 basis points per $100 of deposits, and SAIF-insured deposits an additional 6.30 basis points per $100 of deposits, to cover those obligations. The FICO assessment will continue to be adjusted quarterly to reflect changes in the assessment bases of the respective funds based on quarterly Call Report and Thrift Financial Report submissions. As a bank holding company, the Company is required to file with the Federal Reserve Board an annual report of its operations at the end of each fiscal year and such additional information as the Federal Reserve Board may require pursuant to the Act. The Federal Reserve Board may also make examination of the Company and any subsidiaries. The scope of regulation and permissible activities of the Company and the Banks are subject to change by future federal and state legislation. Recent Legislation On November 12, 1999, the President signed the Gramm-Leach-Bliley Act, which makes it easier for affiliations between banks, securities firms and insurance companies to take place. The Act removes Depression-era barriers that had separated banks and securities firms, and seeks to protect the privacy of consumers' financial information. Most of the provisions of the Act require the applicable regulators to adopt regulations in order to implement these provisions. Under provisions of the new legislation, which are effective March 11, 2000, banks, securities firms and insurance companies are able to structure new affiliations through a holding company structure or through a financial subsidiary. The legislation creates a new type of bank holding company called a "financial holding company" which has powers much more extensive than those of standard holding companies. These expanded powers include authority to engage in "financial activities," which are activities that are (1) financial in nature; (2) identical to activities that are financial in nature; or (3) complimentary to a financial activity and that do not impose a safety and soundness risk. Significantly, the permitted financial activities for financial holding companies include authority to engage in merchant banking and insurance activities, including insurance portfolio investing. A bank holding company can qualify as a financial holding company and expand the services it offers only if all of its subsidiary depository institutions are well-managed, well-capitalized and have received a rating of "satisfactory" on their last Community Reinvestment Act examination. 31 The legislation also creates another new type of entity called a "financial subsidiary." A financial subsidiary may be used by a national bank or a group of national banks to engage in many of the same activities permitted for a financial holding company, though several of these activities, including real estate development or investment, insurance or annuity underwriting, insurance portfolio investing and merchant banking, are reserved for financial holding companies. A bank's investment in a financial subsidiary affects the way in which the bank calculates its regulatory capital, and the assets and liabilities of financial subsidiaries may not be consolidated with those of the bank. The bank must also be certain that its risk management procedures are adequate to protect it from financial and operational risks created both by itself and by any financial subsidiary. Further, the bank must establish policies to maintain the separate corporate identities of the bank and its financial subsidiary and to prevent each from becoming liable for the obligations of the other. The Act also establishes the concept of "functional supervision," meaning that similar activities should be regulated by the same regulator. Accordingly, the Act spells out the regulatory authority of the bank regulatory agencies, the Securities and Exchange Commission and state insurance regulators so that each type of activity is supervised by a regulator with corresponding expertise. The Federal Reserve Board is intended to be an umbrella supervisor with the authority to require a bank holding company or financial holding company or any subsidiary of either to file reports as to its financial condition, risk management systems, transactions with depository institution subsidiaries and affiliates, and compliance with any federal law that it has authority to enforce. Although the Act reaffirms that states are the regulators for insurance activities of all persons, including federally chartered banks, the Act prohibits states from preventing depository institutions and their affiliates from conducting insurance activities. The Act also establishes a minimum federal standard of privacy to protect the confidentiality of a consumer's personal financial information and gives the consumer the power to choose how personal financial information may be used by financial institutions. The privacy provisions of the Act will not go into effect until after adoption of implementing regulations by various federal agencies. The Company anticipates that the Act and the regulations which are to be adopted pursuant to the Act will be likely to create new opportunities for it to offer expanded services to customers in the future, though the Company has not yet determined what the nature of the expanded services might be or when the Company might find it feasible to offer them. The Company further expects that the Act will increase competition from larger financial institutions that are currently more capable than the Company of taking advantage of the opportunity to provide a broader range of services. However, the Company continues to believe that its commitment to providing high quality, personalized service to customers will permit it to remain competitive in its market area. 32 EMPLOYEES The Company and the Banks presently employ eighty-seven (87) full-time and twelve (12) part-time persons. Management believes that its employee relations are good. ITEM 2. PROPERTIES The Company's corporate office is located at 1814 East Main Street in Easley, South Carolina. The property consists of a two-story brick building containing approximately 6,624 square feet on 0.566 acres of land owned by the Company. This building houses the Company's centralized operational support functions, including data processing, central operations, accounting and financial reporting, human resources, audit and compliance and purchasing. The main office of The Peoples National Bank is located at 1800 East Main Street in Easley, South Carolina. The property consists of a two-story brick building of approximately 10,412 square feet, which is constructed on 1.75 acres of land owned by The Peoples National Bank. Improvements include a three-lane drive through teller installation, vault, night deposit and safe deposit facilities and a drive through automated teller machine. The Peoples National Bank owns and operates three branch facilities: one in Powdersville, South Carolina located approximately seven miles east of the Bank's main office containing approximately 2,096 square feet in a one-story brick building situated on 0.812 acres of land; a second branch office in Pickens, South Carolina located approximately ten miles west of the Bank's main office containing approximately 6,688 square feet in a two-story building on 0.925 acres of land; and a third office in Easley located approximately 4 miles west of the Bank's main office containing approximately 3,523 square feet in a one and one-half story building situated on l.077 acres of land.. All branch facilities have improvements including drive through teller installations, drive-through automated teller machines, a vault, a night depository and safe deposit facilities. Bank of Anderson, National Association operates out of one location in Anderson, South Carolina. The two-story building contains approximately 6,992 square feet and is situated on 1.935 acres of land owned by Bank of Anderson in Anderson, South Carolina. Seneca National Bank operates out of a two-story brick building containing approximately 6,688 square feet situated on 1.097 acres of land in Seneca, South Carolina which is owned by Seneca National Bank. All locations of the Company and the Banks are considered suitable and adequate for their intended purposes. Management believes that insurance coverage on the foregoing properties is adequate. 33 ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company or the Banks are a party or of which any of their properties are subject; nor are there material proceedings known to the Company to be contemplated by any governmental authority; nor are there material proceedings known to the Company, pending or contemplated, in which any director, officer or affiliate or any principal security holder of the Company, or any associate of any of the foregoing, is a party or has an interest adverse to the Company or the Banks. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter ended December 31, 1999 to a vote of security holders of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS During the period covered by this report and to date, there has been no established trading market for the Company's stock. The following table summarizes the range of high and low prices for the Company's Common Stock of which management has knowledge for each quarterly period over the last two years (prices have been adjusted to reflect the 5% stock dividend issued January 14, 2000): Sales Price of the Company's Common Stock Quarter Ended Low High March 31, 1998 $ 11.76 $ 11.76 June 30, 1998 $ 11.76 $ 11.76 September 30, 1998 $ 11.76 $ 11.76 December 31, 1998 $ 11.76 $ 14.25 March 31, 1999 $ 14.25 $ 14.25 June 30, 1999 $ 16.15 $ 16.15 September 30, 1999 $ 17.10 $ 17.10 December 31, 1999 $ 18.05 $ 18.05 As of March 1, 1999, the number of holders of record of the Company's common stock was 1,110. During 1999 the Company paid four quarterly cash dividends. Cash dividends of $0.035 per common share were declared by the Company's Board of Directors on each of March 8, 1999, June 14, 1999, September 13, 1999 and 34 December 13, 1999. In addition, on each of July 13, 1992, July 12, 1993, November 14, 1994, November 13, 1995, October 15, 1996, October 14, 1997, November 9, 1998 and December 13, 1999 the Company declared 5% stock dividends to shareholders. It is the policy of the Board of Directors of the Company to reinvest earnings for such a period of time as is necessary to ensure the success of the operations of the Company and of the Banks. Future dividends will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors of the Company (see Item 1, "PAYMENT of DIVIDENDS"). ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY (All mounts, except per share data, in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- INCOME STATEMENT DATA Net interest income ......................... $ 7,455 $ 5,327 $ 4,583 $ 4,022 $ 3,560 Provision for loan losses ................... 571 194 325 260 108 Other operating income ...................... 1,768 1,224 757 591 512 Other operating expenses .................... 6,534 4,475 3,072 2,751 2,700 Net income .................................. 1,375 1,261 1,304 1,065 854 PER SHARE DATA * Net income per common share - Basic .................................... $ 0.46 $ 0.54 $ 0.70 $ 0.58 $ 0.49 Cash dividends declared ..................... $ 0.14 $ 0.14 $ 0.12 $ 0.12 $ 0.10 BALANCE SHEET DATA Total Assets ................................ $213,913 $151,671 $113,417 $ 99,723 $ 84,162 Total Deposits .............................. 168,776 120,100 96,190 80,194 71,173 Total Loans (Net) ........................... 146,998 86,924 75,862 65,404 56,336 Investment Securities ....................... 35,654 36,100 24,173 19,087 18,776 Total Earning Assets ........................ 196,899 141,004 105,592 94,989 78,901 Shareholders' Equity ........................ 23,346 22,471 9,510 8,378 7,531 OTHER DATA Return on average assets .................... 0.74% 0.96% 1.21% 1.21% 1.05% Return on average equity .................... 5.91% 8.71% 14.34% 13.30% 12.64%
* Per share data has been restated to reflect 5% stock dividends in 1995, 1996, 1997, 1998 and 1999 and the two-for-one stock split in 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion is intended to assist in understanding the financial condition and results of operation of the Company and should be read in conjunction with the consolidated financial statements of the Company included herein. 35 DISCUSSION OF CHANGES IN FINANCIAL CONDITION Total assets increased $62,242,000, or 41.0%, from $151,671,000 at December 31, 1998 to $213,913,000 at December 31, 1999. The Company experienced significant loan growth during 1999 as total outstanding loans, the largest single category of assets, increased $60,562,000, or 68.8%, to $148,579,000 at December 31, 1999 as a result of an increase in the amount of outstanding loans at the Company's three bank subsidiaries. Total loans outstanding at December 31, 1999 for The Peoples National Bank amounted to $110,270,000, a $30,081,000, or 37.5%, increase over the $80,189,000 reported at December 31, 1998. Total loans outstanding at December 31, 1999 for Bank of Anderson amounted to $25,986,000, a $18,158,000, or 232.0% increase over the $7,828,000 reported at December 31, 1998. Total loans outstanding at December 31, 1999 for Seneca National Bank, which commenced operations in February 1999, amounted to $12,323,000. Premises and equipment increased $2,043,000, or 41.5%, during the period ending December 31, 1999. This increase is largely attributable to building and equipment costs associated with the main office of Seneca National Bank which was occupied in February 1999, the main office of Bank of Anderson which was occupied in April of 1999, and building and equipment costs associated with a new branch facility for The Peoples National Bank which officially opened for business in November 1999. The Company's securities portfolios, collectively, at amortized cost, remained relatively stable for 1999 when compared to 1998. Cash and due from bank's balances increased $3,094,000, or 90.7%, to $6,507,000 at December 31, 1999. The increase was largely the result of a build up in cash in anticipation of additional currency needs by the Banks' customers as a result of Y2K concerns and additional uncollected funds in correspondent bank accounts at year-end resulting from a larger deposit base. $5,047,000 in interest-bearing deposits in other banks is primarily due to a $5,000,000 Certificate of Deposit purchased from the Federal Home Loan Bank of Atlanta. The amount of Federal funds sold at December 31, 1999 was $9,200,000, a decrease of $8,780,000, or 95.4%, from the amount sold at December 31,1998. The decrease in Federal funds sold was largely attributable to the increase in loans experienced by the Banks in 1999 coupled with the increase in cash on hand held by the Banks in anticipation of possible Y2K currency needs. Accrued interest receivable, comprised largely of accrued interest on the Company's loans, increased $622,000, or 67.5%, to $1,544,000 at December 31, 1999. The significant increase resulted from the increase in outstanding loans experienced by the Company in 1999. Other assets, comprised largely of cash surrender value on life insurance policies on key executives, prepaid expenses, other real estate owned and deferred income taxes, increased $588,000, or 41.8%, to $1,994,000 at December 31, 1999. This increase is largely attributable to an increase of 36 $118,000 in other real estate owned to $219,000 at December 31, 1999, an increase in the cash surrender value of life insurance policies of approximately $56,000, an increase in the amount of prepaid expenses of approximately $115,000 and an increase in the amount of deferred income taxes associated with recording the Company's available for sale securities at market value in accordance with FASB #115. Total liabilities increased $61,367,000, or 47.5%, to $190,567,000 at December 31, 1999 largely as a result of a $48,676,000, or 40.5%, increase in total deposits at the Company's bank subsidiaries. Of the $48,676,000 increase in total deposits, $19,344,000, or 39.7%, is attributable to new deposits generated by Bank of Anderson, N. A. and $13,951,000, or 28.7%, is attributable to new deposits generated by Seneca National Bank. The remaining increase resulted from continued growth in deposits at The Peoples National Bank. The majority of the deposit growth during 1999 was in interest-bearing deposits, largely certificates of deposit and interest-bearing transaction accounts. Other interest-bearing liabilities, comprised of securities sold under repurchase agreements and Federal Home Loan Bank borrowings, increased $9,454,000 and $3,000,000, respectively during 1999 from December 31, 1998 levels. The $9,454,000 or 158.1% increase in securities sold under repurchase agreements is largely attributable to monies temporarily placed with the Company by two local municipalities from bond issues during 1999. The $3,000,000 increase in Federal Home Loan Bank borrowings resulted from the Company's decision to borrow additional funds to take advantage of an interest rate arbitrage. Shareholders' equity increased $875,000, or 3.9%, from December 31, 1998 to December 31, 1999 as a result of net earnings for the period of $1,375,000 and the exercise of stock options under the Company's Stock Option Plans in the amount of $368,000. These additions to shareholders equity were partially offset by the declaration and payment of cash dividends in 1999 and an increase in the amount of net unrealized losses on the Company's "available for sale" securities portfolio of $462,000 during the period. EARNINGS PERFORMANCE 1999 Compared to 1998 Overview The consolidated Company's operations for the twelve-months ended December 31, 1999 resulted in net income of $1,375,000, or $0.46 per basic share ($0.44 per diluted share), compared to $1,261,000, or $0.54 per basic share ($0.51 per diluted share) for the twelve-months ended December 31, 1998. The increase in the Company's net income of $114,000, or 9.0%, for 1999 resulted largely from a significant increase in total interest income, largely from loans, coupled with a significant increase in non-interest income during 1999. The decreases in basic and diluted earnings per share in 1999 are attributable 37 to an increase in the number of outstanding shares of common stock as a result of the two public stock offerings completed in the third quarter of 1998. 1999's results were significantly affected by early operating losses of both Bank of Anderson, N. A., which commenced operations in September 1998, and Seneca National Bank, which commenced operations in February 1999. For the twelve-months ended December 31, 1999, Bank of Anderson recorded net losses of $158,000 and Seneca National Bank recorded net losses of $204,000. The Peoples National Bank recorded net profits of $1,718,000 in 1999, an increase of $50,000, or 3.0%, over 1998 net profits. Interest Income, Interest Expense and Net Interest Income Net interest income, before provision for loan losses, the major component of the Company's income, is the amount by which interest and fees on interest-earning assets exceeds the interest paid on interest-bearing deposits and other interest-bearing funds. The Company's net interest income increased $2,128,000, or 40.0%, to $7,455,000 for the year-ended December 31, 1999 compared to $5,327,000 for the year-ended December 31, 1998. The increase is largely attributable to an increase in interest income on loans of $3,105,000 or 41.4%, resulting from an increase in the volume of outstanding loans during 1999 coupled with an increase in interest income on taxable investment securities of $539,000 or 37.7%, resulting from an increase in the volume of average outstanding securities in 1999. The Company's total interest income increased $3,734,000, or 38.0%, to $13,577,000 in 1999 compared to $9,843,000 for 1998. As previously disclosed, the increase is largely attributable to an increase in loan interest income of $3,105,000 coupled with an increase in interest income on taxable investment securities resulting from an increase in the average outstanding volume of these categories of interest-earning assets in 1999 when compared to 1998. Total interest expense increased $1,606,000, or 35.6% to $6,122,000 in 1999 compared to $4,516,000 for 1998. This increase is attributable to an increase of $1,210,000, or 28.7 %, on interest-bearing deposit accounts, an increase of $335,000, or 180.1%, on securities sold under repurchase agreements, and an increase of $61,000, or 54.0%, on borrowings from the Federal Home Loan Bank. The increases in the amount of interest paid on these categories of interest-bearing liability accounts in 1999 is largely attributable to an increase in the volume of outstanding balances in these types of accounts in 1999 when compared to 1998. Provision and Allowance for Loan Losses The Company's provision for loan losses was $571,000 in 1999 compared to $194,000 for 1998, a $377,000, or 194.3% increase. This increase is attributable to the significant increase in the volume of outstanding loans during 1999 when compared to 1998. The Peoples National Bank made provisions for loan losses of $204,000 in 1999 compared to $101,000 in 1998. Bank of Anderson made provisions for loan losses of $219,000 in 1999 compared to $93,000 in 1998 as it continued to establish its allowance for loan losses. Seneca National Bank, which commenced operations in February 1999, made provisions for loan 38 losses of $148,000 in 1999 as it began to establish its allowance for loan losses. During fiscal 1999, the Company experienced net charge-offs of $83,000, or 0.07% of average outstanding loans, compared to net charge-offs of $88,000, or 0.11% of average outstanding loans in fiscal 1998. All net charge-offs for 1999 and 1998 are attributable to loans charged off at The Peoples National Bank. At December 31, 1999, the allowance for loan losses as a percentage of outstanding loans was 1.06% compared to 1.24% at December 31, 1998. At December 31, 1999 the Company had $628,000 in non-accrual loans, one $150,000 restructured loan, no loans past due 90 days or more and still accruing interest and $219,000 in other real estate owned, compared to $617,000, $8,000, $0 and $101,000, respectively at December 31, 1998. Non-performing assets as a percentage of loans and other real estate owned were 0.42% and 0.74% at December 31, 1999 and 1998, respectively. In the cases of non-performing loans, management of the Company has reviewed the carrying value of any underlying collateral. In those cases where the collateral value may be less than the carrying value of the loan the Company has taken specific write-downs to the loan, even though such loan may still be performing. Management of the Company does not believe it has any non-accrual loan, which, individually, could materially impact the reserve for loan losses or long term future operating results of the Company. The Company records real estate acquired through foreclosure at the lower of cost or estimated market value less estimated selling costs. Estimated market value is based upon the assumption of a sale in the normal course of business and not on a quick liquidation or distressed basis. Estimated market value is established by independent appraisal at the time acquisition is completed. Management believes that other real estate owned at December 31, 1999 will not require significant write-downs in future accounting periods and therefore, will not have a significant effect on the Company's future operations. Other Income Total consolidated other income, including securities transactions, increased $544,000, or 44.4% in 1999. This increase is largely attributable to an increase of $297,000 in origination and service release fees on mortgage loans generated by the Company in 1999 coupled with an increase of $167,000 in service charge income on deposit accounts resulting from a larger deposit base. During 1999, the Company recorded gains on the sale of other real estate of $9,000 compared to none in 1998. The Company did not record any gains or losses on the sale of securities in either of 1999 or 1998. 39 Other Expenses Total non-interest or other expenses increased $2,059,000, or 46.0%, to $6,534,000 in 1999 compared to $4,475,000 in 1998. The significant increase in overall non-interest expense is indicative of a significantly larger scale of operations for the Company. Salaries and benefits, the largest component of non-interest expense, increased $1,247,000, or 49.3% to $3,779,000 in 1999 compared to $2,532,000 in 1998. The large increase in salaries and benefits for the comparative periods is primarily attributable to the addition of several key employees at the parent company level in the second half of 1998, the staffing of Bank of Anderson in the third quarter of 1998, the staffing of Seneca National Bank in the first quarter of 1999, additional staffing associated with the Company's mortgage lending activities during 1999 and additional staffing and normal salary increases at The Peoples National Bank. Occupancy expense increased $93,000, or 45.4%, to $298,000 in 1999 compared to $205,000 in 1998. The increase in occupancy expense for the two comparative periods is attributable to an increase in depreciation, maintenance expenses and utilities associated with the new facilities for Bank of Anderson, Seneca National Bank, the Company's new corporate headquarters occupied during the fourth quarter of 1998 and the new branch facility of The Peoples National Bank occupied during the fourth quarter of 1999. Equipment expense increased $201,000, or 56.0%, to $560,000 in 1999 compared to $359,000 in 1998. The increase for the comparative periods is attributable to increases in depreciation and maintenance expense associated with the Company's Wide Area Network installed in 1998, and new equipment for Bank of Anderson, Seneca National Bank, the Company's new corporate headquarters and the new branch facility for The Peoples National Bank. Miscellaneous other operating expense increased $518,000, or 37.6%, to $1,897,000 in 1999 compared to $1,374,000 in 1998. The increase in miscellaneous other operating expenses is primarily attributable to increases in marketing and advertising expenses for all three of the Company's banking subsidiaries, additional printing and supplies expense, telephone expense and other expenses associated with Bank of Anderson, Seneca National Bank and the new branch facility of The Peoples National Bank. 40 1998 Compared to 1997 Overview The Company reported net income of $1,261,000 in 1998 a $43,000, or 3.4%, decrease from $1,304,000 reported for fiscal 1997. Basic and diluted net income per common share was $0.54 and $0.51, respectively for 1998 compared to $0.70 and $0.66, respectively, for 1997. The decrease in net income and the corresponding decrease in earnings per common share were attributable to pre-opening and early operating losses associated with Bank of Anderson, N. A. which commenced operations in September 1998, pre-opening expenses associated with the formation of Seneca National Bank, which commenced operations in February 1999, and the addition of several key management positions at the parent-company level. The disproportionate decrease in earnings per common share is due to issuance of a large number of shares of new common stock in the third quarter of 1998. Interest Income, Interest Expense and Net Interest Income Net interest income before provision for loan losses increased $744,000, or 16.3%, in 1998 to $5,327,000 compared to $4,583,000 in fiscal 1997. Net interest income after the provision for loan losses increased $875,000 or 20.5%, in 1998, to $5,133,000 compared to $4,258,000 in 1997. The increase in net interest income before provision for loan losses is primarily attributable to an increase in the volume of earning assets coupled with a decrease in the rates paid on interest-bearing liabilities in 1998 compared to 1997. This represents a 4.55% net interest margin in 1998 compared to a 4.27% net interest margin in 1997. The increase in net interest income after provision for loan losses is attributable to an increase in the volume of earning assets, a decrease in the rates paid on interest-bearing liabilities coupled with a decrease in the provision for loan losses in 1998 when compared to 1997. Provision and Allowance for Loan Losses The allowance for loan losses for the consolidated company at December 31, 1998 was $1,093,000, or 1.24% of outstanding loans, compared to $987,000, or 1.28% of outstanding loans, at December 31, 1997. The allowance for loan losses for The Peoples National Bank was $1,000,000, or 1.25% of outstanding loans, at December 31, 1998, compared to $987,000, or 1.28% of outstanding loans, at December 31, 1997. At December 31, 1998, the allowance for loan losses for Bank of Anderson, N. A. was $93,000, or 1.19% of outstanding loans. The provision for loan losses for the consolidated company charged to operations during 1998 was $194,000 compared to $325,000 in 1997. During 1998, The Peoples National Bank made provision for loan losses of $102,000 compared to $324,000 in 1997. During 1998, Bank of Anderson, N. A. began establishing its allowance for loan losses and made provisions for loan losses of $93,000. In 1998, The Peoples National Bank recorded net charge-offs of $88,000, or 0.10% of total loans outstanding compared to net charge-offs of $98,000, or 0.13% of total outstanding loans in 1997. Bank of Anderson, N. A. had no losses in its loan portfolio in 1998. 41 Other Income Non-interest income, including securities transactions, increased $467,000, or 61.8%, to $1,224,000 in 1998 compared to $757,000 in 1997. A $327,000 increase in origination fees on mortgage loans, an increase of $74,000 in fees generated from the sale of alternative investment products and an increase of $44,000 in service charge income on deposit accounts were the main contributors to the overall increase in non-interest income in 1998. In 1997 the Company recorded gains on the sale of other real estate and investment securities of $35,000 and $3,000, respectively. There were no such gains recorded on these two items in 1998. Other Expenses Total non-interest expense increased $1,403,000, or 45.7%, to $4,475,000 in 1998 compared to $3,072,000 in 1997. Salaries and benefits, the largest component of total non-interest expense, increased $783,000, or 44.8%, in 1998 compared to 1997. This large increase is primarily attributable to the addition of several key employees at the parent company level, the staffing of Bank of Anderson, N. A., partial staffing for Seneca National Bank and normal salary increases at Peoples National Bank and the parent company level. The Company also experienced large percentage increases in most other categories of non-interest expense items in 1998 resulting from the Company's continuing growth, the opening of Bank of Anderson, N. A. in September and organizational expenses associated with Seneca National Bank. Most notable were a $86,000, or 31.5%, increase in furniture and equipment expenses, a $46,000, or 39.7%, increase in marketing and advertising expense, a $44,000, or 65.7%, increase in bank paid loan costs, a $28,000, or 45.3%, increase in legal and professional fees, a $46,000, or 109.1%, increase in telephone expense, a $55,000, or 118.1%, increase in printing and supplies expense and $43,000 in Y2K computer related expenses. ITEM 7A QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to page 20 through page 22 "Market Risk - Interest Rate Sensitivity" included in Business under Item 1 of this Annual Report on Form 10-K. 42 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements are filed with this report: - - Independent Auditor's Report. - - Consolidated Balance Sheets as of December 31, 1999 and 1998. - - Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997. - - Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 - - Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997. - - Notes to Financial Statements. 43 PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES REPORT ON CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 44 ELLIOTT, DAVIS & COMPANY, L.L.P. Certified Public Accountants REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors Peoples Bancorporation, Inc. Easley, South Carolina We have audited the accompanying consolidated balance sheets of Peoples Bancorporation, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peoples Bancorporation, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Elliott, Davis & Company, LLP January 27, 2000 45 PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands except share information)
December 31, 1999 1998 ---- ---- ASSETS CASH AND DUE FROM BANKS ............................................................................ $ 6,507 $ 3,413 INTEREST - BEARING DEPOSITS IN OTHER BANKS ......................................................... 5,047 - FEDERAL FUNDS SOLD ................................................................................. 9,200 17,980 SECURITIES Available for sale .............................................................................. 31,209 31,971 Held for investment (fair value $4,438 and $4,265) .............................................. 4,445 4,129 LOANS - less allowance for loan losses of $1,581 and $1,093 ........................................ 140,336 86,924 LOANS HELD FOR SALE ................................................................................ 6,662 - PREMISES AND EQUIPMENT, net of accumulated depreciation ............................................ 6,969 4,926 ACCRUED INTEREST RECEIVABLE ........................................................................ 1,544 922 OTHER ASSETS ....................................................................................... 1,994 1,406 --------- --------- $ 213,913 $ 151,671 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS Noninterest-bearing ............................................................................. $ 19,953 $ 14,991 Interest-bearing ................................................................................ 148,823 105,109 --------- --------- Total deposits ................................................................................ 168,776 120,100 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS ........................................................ 15,434 5,980 NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................................................ 5,000 2,000 ACCRUED INTEREST PAYABLE ........................................................................... 1,154 867 OTHER LIABILITIES .................................................................................. 203 253 --------- --------- Total liabilities ............................................................................. 190,567 129,200 --------- --------- COMMITMENTS AND CONTINGENCIES - Notes 11 and 12 SHAREHOLDERS' EQUITY Common stock - 10,000,000 shares authorized; $1.67 par value per share; 2,987,627 shares and 2,764,016 shares outstanding .................................. 4,989 4,616 Additional paid-in capital ...................................................................... 18,867 17,092 Retained earnings ............................................................................... - 811 Accumulated other comprehensive income .......................................................... (510) (48) --------- --------- 23,346 22,471 --------- --------- $ 213,913 $ 151,671 ========= =========
The accompanying notes are an integral part of these consolidated financial statements 46 PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except share information)
For the years ended December 31, --------------------------------- 1999 1998 1997 ---- ---- ---- INTEREST INCOME Interest and fees on loans ................................................... $10,611 $ 7,506 $ 7,024 Interest on securities Taxable .................................................................... 1,969 1,430 1,122 Tax-exempt ................................................................. 214 229 245 Interest on federal funds sold ............................................... 783 678 245 ------- ------- ------- Total interest income ................................................... 13,577 9,843 8,636 ------- ------- ------- INTEREST EXPENSE Interest on deposits ......................................................... 5,427 4,217 3,562 Interest on federal funds purchased and securities sold under repurchase agreements ................................................ 521 186 146 Interest on notes payable Federal Home Loan Bank ............................. 174 113 345 ------- ------- ------- Total interest expense .................................................. 6,122 4,516 4,053 ------- ------- ------- Net interest income ..................................................... 7,455 5,327 4,583 PROVISION FOR LOAN LOSSES ....................................................... 571 194 325 ------- ------- ------- Net interest income after provision for loan losses ..................... 6,884 5,133 4,258 ------- ------- ------- NON-INTEREST INCOME Service fees and other income ................................................ 1,768 1,224 754 Gain on sale of securities available for sale ................................ - - 3 ------- ------- ------- 1,768 1,224 757 ------- ------- ------- NON-INTEREST EXPENSES Salaries and benefits ........................................................ 3,779 2,532 1,749 Occupancy .................................................................... 298 205 186 Equipment .................................................................... 560 359 273 Marketing and advertising .................................................... 270 164 118 Communications ............................................................... 177 89 42 Other operating expenses ..................................................... 1,450 1,126 704 ------- ------- ------- 6,534 4,475 3,072 ------- ------- ------- Income before income taxes .............................................. 2,118 1,882 1,943 PROVISION FOR INCOME TAXES ...................................................... 743 621 639 ------- ------- ------- Net income .............................................................. $ 1,375 $ 1,261 $ 1,304 ======= ======= ======= BASIC NET INCOME PER COMMON SHARE ............................................... $ .46 $ .54 $ .70 ======= ======= ======= DILUTED NET INCOME PER COMMON SHARE ............................................. $ .44 $ .51 $ .66 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 47 PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended December 31, 1999, 1998 and 1997 (Amounts in thousands except share information)
Accumu- lated other Total Common stock Additional compre- share- ------------ paid-in Retained hensive holders' Shares Amount capital earnings income equity ------ ------ ------- -------- ------ ------ BALANCE, DECEMBER 31, 1996 .................................... 800,071 $ 2,664 $ 4,233 $ 1,506 $ (25) $ 8,378 --------- Net income ................................................. - - - 1,304 - 1,304 Other comprehensive income, net of tax: Unrealized holding gains on securities available for sale ..................................... - - - - 9 9 Less reclassification adjustments for gains included in net income ....................... - - - - (3) (3) --------- Comprehensive income ....................................... - - - - - 1,310 Stock dividend (5%) ........................................ 39,954 133 906 (1,039) - - Cash in lieu of fractional shares on stock dividend ........ - - - (6) - (6) Cash dividends ($.25 per share) ............................ - - - (203) - (203) Proceeds from stock options exercised ..................... 3,600 12 19 - - 31 Two-for-one stock split .................................... 843,625 9 - (9) - - --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1997 .................................... 1,687,250 2,818 5,158 1,553 (19) 9,510 --------- Net income ................................................. - - - 1,261 - 1,261 Other comprehensive income, net of tax: Unrealized holding losses on securities available for sale ..................................... - - - - (29) (29) Less reclassification adjustments for gains included in net income ........................... - - - - - - --------- Comprehensive income ....................................... - - - - - 1,232 Stock dividend (5%) ........................................ 130,733 218 1,481 (1,699) - - Cash in lieu of fractional shares on stock dividend ..................................... - - - (4) - (4) Cash dividends ($.14 per share) ............................ - - - (300) - (300) Proceeds from stock options exercised ...................... 21,033 35 49 - - 84 Proceeds from sale of stock net of issuance costs ........................................ 925,000 1,545 10,404 - - 11,949 --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1998 .................................... 2,764,016 4,616 17,092 811 (48) 22,471 --------- Net income ................................................. - - - 1,375 - 1,375 Other comprehensive income, net of tax: Unrealized holding losses on securities available for sale ..................................... - - - - (462) (462) Less reclassification adjustments for gains included in net income ....................... - - - - - - --------- Comprehensive income ....................................... - - - - - 913 Stock dividend (5%) ........................................ 141,857 237 1,543 (1,780) - - Cash in lieu of fractional shares on stock dividend ......................................... - - - (8) - (8) Cash dividends ($.14 per share) ............................ - - - (398) - (398) Proceeds from stock options exercised ...................... 81,754 136 232 - - 368 --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1999 .................................... 2,987,627 $ 4,989 $ 18,867 $ - $ (510) $ 23,346 ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 48 PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands except share information)
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income ......................................................................... $ 1,375 $ 1,260 $ 1,304 Adjustments to reconcile net income to net cash provided by operating activities Gain on sale of premises and equipment ........................................... (13) (10) (26) Provision for loan losses ........................................................ 571 194 325 Provision for deferred income taxes .............................................. (79) (159) (80) Depreciation ..................................................................... 464 247 208 Net amortization of premiums and accretion of discounts on securities ............ 195 76 51 Origination of mortgage loans held for sale ...................................... (75,720) - - Sale of mortgage loans held for sale ............................................. 69,058 - - Increase in accrued interest receivable .......................................... (622) (43) (149) (Increase) decrease in other assets .............................................. (724) 43 (951) Increase in accrued interest payable ............................................. 287 6 185 Increase (decrease) in other liabilities ......................................... (58) (138) 238 -------- -------- -------- Net cash provided by (used for) operating activities ........................ (5,266) 1,476 1,105 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities held for investment ........................................ (327) (708) (550) Purchases of securities available for sale ......................................... (10,383) (37,416) (18,551) Proceeds from the maturity of securities available for sale ........................ 7,405 16,252 5,607 Proceeds from the sale and call of securities available for sale ................... 3,060 9,900 8,368 Net increase in loans .............................................................. (53,899) (11,256) (10,782) Proceeds from the sale of premises and equipment ................................... 43 82 39 Purchase of premises and equipment ................................................. (2,373) (2,570) (1,040) -------- -------- -------- Net cash used for investing activities ...................................... (56,474) (25,716) (16,909) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits ........................................................... 48,684 23,910 15,994 Net decrease in federal funds purchased ............................................ - - (1,000) Net increase in securities sold under repurchase agreements ........................ 9,454 1,546 507 Net increase (decrease) in notes payable to Federal Home Loan Bank ................. 3,000 (31) (3,367) Proceeds from the sale of stock and exercise of stock options ...................... 369 12,032 31 Cash dividends paid ................................................................ (398) (299) (203) Cash in lieu of fractional shares on stock dividends ............................... (8) (4) (6) -------- -------- -------- Net cash provided by financing activities ................................... 61,101 37,154 11,956 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ........................ (639) 12,914 (3,848) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .......................................... 21,393 8,479 12,327 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR ................................................ $ 20,754 $ 21,393 $ 8,479 ======== ======== ======== CASH PAID FOR Interest ........................................................................... $ 5,835 $ 4,510 $ 3,868 ======== ======== ======== Income taxes ....................................................................... $ 836 $ 648 $ 720 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 49 PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES Principles of consolidation and nature of operations The consolidated financial statements include the accounts of Peoples Bancorporation, Inc. (the "Company") and its wholly-owned subsidiaries, The Peoples National Bank, Bank of Anderson, N.A., and Seneca National Bank (collectively referred to as the "Banks"). The Company formed Bank of Anderson, N.A. and Seneca National Bank during 1998 with the proceeds, net of issuance costs, from two stock offerings totaling $11,948,814. The capital from the offerings was invested $5.5 million in Bank of Anderson, $3.5 million in Seneca National Bank and $1 million in The Peoples National Bank. Bank of Anderson, N. A. and Seneca National Bank commenced operations in the fourth quarter of 1998 and the first quarter of 1999, respectively. All significant intercompany balances and transactions have been eliminated. The Banks operate under national bank charters and provide full banking services to customers. The Banks are subject to regulation by the Office of the Comptroller of the Currency. The Company is subject to regulation by the Federal Reserve Board. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of interest and noninterest income and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of credit risk The Banks make loans to individuals and small businesses located primarily in upstate South Carolina for various personal and commercial purposes. The Banks have diversified loan portfolios and borrowers' abilities to repay loans is not dependent upon any specific economic sector. Securities The Company accounts for securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Debt securities are classified upon purchase as available for sale, held for investment or trading. Such assets classified as available for sale are carried at fair value. Unrealized holding gains or losses are reported as a component of shareholders' equity (accumulated other comprehensive income) net of deferred income taxes. Securities classified as held for investment are carried at cost, adjusted for the amortization of premiums and the accretion of discounts. To qualify as held for investment, the Company must have the ability and intent to hold the securities to maturity. Trading securities are carried at market value. The Company has no trading securities. Gains or losses on dispositions of securities are based on the difference between the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method. Loans and allowance for loan losses Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Interest is calculated using the simple interest method on daily balances of the principal amounts outstanding. An allowance for loan losses is established through a provision for loan losses charged to operations. Loans are charged against the allowance when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based on evaluations of the collectibility of loans and prior loan loss experience; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. (Continued) 50 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued Loans and allowance for loan losses, continued The Company accounts for impaired loans in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". This standard requires that all creditors value loans at the loan's fair value if it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. Fair value may be determined based upon the present value of expected cash flows, market price of the loan, if available, or value of the underlying collateral. Expected cash flows are required to be discounted at the loan's effective interest rate. SFAS No. 114 was amended by SFAS No. 118 to allow a creditor to use existing methods for recognizing interest income on an impaired loan and by requiring additional disclosures about how a creditor recognizes interest income on an impaired loan. Under SFAS No. 114, when the ultimate collectibility of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to principal then to interest income. Once the reported principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off. A loan is also considered impaired if its terms are modified in a troubled debt restructuring. For these accruing impaired loans, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting. Premises and equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Additions to premises and equipment and major replacements or betterments are added at cost. Maintenance and repairs and minor replacements are charged to expense when incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Income taxes The provision for income taxes includes deferred taxes on temporary differences between the recognition of certain income and expense items for tax and financial statement purposes. Income taxes are computed on the liability method as described in SFAS No. 109, "Accounting for Income Taxes". Statements of cash flows In accordance with the provisions of SFAS No. 95, "Statement of Cash Flows", the Company considers cash and cash equivalents to be those amounts included in the balance sheet captions "Cash and Due From Banks", "Interest-bearing deposits in other banks" and "Federal Funds Sold". Comprehensive income In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Under this statement, the Company is required to classify items of "other comprehensive income" by their nature in the financial statements and display the balance of comprehensive income separately in the equity section of a balance sheet. Statement 130 is effective for both interim and annual periods beginning after December 15, 1997. Comparative financial statements provided for earlier periods were required to be reclassified to reflect the provisions of the statement. The adoption of SFAS No. 130 had no effect on the Company's net income or shareholders' equity. Reclassifications Certain prior year amounts have been reclassified to conform with the current presentation. These reclassifications have no effect on previously reported net income. (Continued) 51 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued Risk and Uncertainties In the normal course of its business the Company encounters two significant types of risk: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets. Credit risk is the risk of default on the Company's loan portfolio that results from borrowers' inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable, the valuation of real estate held by the Company, and the valuation of loans held for sale and mortgage-backed securities available for sale. The Company is subject to the regulations of various government agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions resulting from the regulators' judgments based on information available to them at the time of their examination. Recently issued accounting standards In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS No. 131 requires that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way that the operating segments were determined and other items. The Statement is effective for the fiscal years beginning after December 15, 1997. The Company's subsidiaries have similar characteristics that allow them to be aggregated into one operating segment. Accordingly, the adoption of SFAS No. 131 had no effect on its financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." All derivatives are to be measured at fair value and recognized in the balance sheets as assets or liabilities. This statement's effective date was delayed by SFAS No. 137 and is effective for fiscal years and quarters beginning after June 15, 2000. Because the Company does not use derivative instruments or transactions at this time, management does not expect that this standard will have a significant effect on financial statements of the Company. NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS The Banks are required to maintain average reserve balances with the Federal Reserve Bank based upon a percentage of deposits. The average amounts of these reserve balances at December 31, 1999 and 1998 were approximately $512,300 and $701,000, respectively. 52 NOTE 3 - SECURITIES Securities are summarized as follows as of December 31 (tabular amounts in thousands):
1999 ---- Amortized Unrealized holding Fair cost Gain Loss value ---- ---- ---- ----- SECURITIES AVAILABLE FOR SALE: U. S. TREASURY SECURITIES Maturing after one but within five years ................. $ 249 $ - $ 2 $ 247 ------- ------- ------- ------- OBLIGATIONS OF OTHER U. S. GOVERNMENT AGENCIES AND CORPORATIONS Maturing within one year ................................. 1,399 - 9 1,390 Maturing after one but within five years ................. 23,254 - 582 22,672 Maturing after five but within ten years ................. 3,197 - 115 3,082 Maturing after ten years ................................. 2,858 - 65 2,793 ------- ------- ------- ------- 30,708 - 771 29,937 ------- ------- ------- ------- OTHER - RESTRICTED Federal Reserve Bank Stock ............................... 397 - - 397 Federal Home Loan Bank Stock ............................. 573 - - 573 Bankers Bank Stock ....................................... 55 - - 55 ------- ------- ------- ------- 1,025 - - 1,025 ------- ------- ------- ------- Total securities available for sale .................. $31,982 $ - $ 773 $31,209 ======= ======= ======= ======= SECURITIES HELD FOR INVESTMENT: OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS Maturing within one year ................................. $ 684 $ 2 $ - $ 686 Maturing after one but within five years ................. 2,050 16 - 2,066 Maturing after five but within ten years ................. 1,611 - 15 1,596 Maturing after ten years ................................. 100 - 10 90 ------- ------- ------- ------- Total securities held for investment ................. $ 4,445 $ 18 $ 25 $ 4,438 ======= ======= ======= ======= 1998 ---- Amortized Unrealized holding Fair cost Gain Loss value ---- ---- ---- ----- SECURITIES AVAILABLE FOR SALE: U. S. TREASURY SECURITIES Maturing within one year ................................. $ 100 $ 1 $ - $ 101 ------- ------- ------- ------- OBLIGATIONS OF OTHER U. S. GOVERNMENT AGENCIES AND CORPORATIONS Maturing within one year ................................. 2,705 - 14 2,691 Maturing after one but within five years ................. 14,477 19 - 14,496 Maturing after five but within ten years ................. 5,465 - 18 5,447 Maturing after ten years ................................. 8,340 - 61 8,279 ------- ------- ------- ------- 30,987 19 93 30,913 ------- ------- ------- -------
53 NOTE 3 - SECURITIES, Continued
1998 ---- Amortized Unrealized holding Fair cost Gain Loss value ---- ---- ---- ----- OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS Maturing within one year ................................. $ 125 $ 1 $ - $ 126 ------- ------- ------- ------- OTHER - RESTRICTED Federal Reserve Bank Stock ............................... 243 - - 243 Federal Home Loan Bank Stock ............................. 533 - - 533 Bankers Bank Stock ....................................... 55 - - 55 ------- ------- ------- ------- 831 - - 831 ------- ------- ------- ------- Total securities available for sale .................. $32,043 $ 21 $ 93 $31,971 ======= ======= ======= ======= SECURITIES HELD FOR INVESTMENT: OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS Maturing after one but within five years ................. $ 2,410 $ 70 $ - $ 2,480 Maturing after five but within ten years ................. 1,719 66 - 1,785 ------- ------- ------- ------- Total securities held for investment ................. $ 4,129 $ 136 $ - $ 4,265 ======= ======= ======= =======
Securities with carrying amounts of $25,578,000 and $12,684,000 at December 31, 1999 and 1998, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are summarized as follows (tabular amounts in thousands):
December 31, 1999 1998 ---- ---- Commercial and industrial - not secured by real estate ....................................... $ 25,677 $ 13,812 Commercial and industrial - secured by real estate ........................................... 32,248 19,501 Residential real estate - mortgage ........................................................... 43,015 39,533 Residential real estate - construction ....................................................... 26,013 3,065 Loans to individuals for household, family and other personal expenditures ................... 14,964 12,106 -------- -------- 141,917 88,017 Less allowance for loan losses ............................................................... 1,581 1,093 -------- -------- $140,336 $ 86,924 ======== ========
Changes in the allowance for loan losses were as follows:
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- BALANCE, BEGINNING OF YEAR ....................................... $ 1,093 $ 987 $ 760 Provision for loan losses ...................................... 571 194 325 Loans charged off, net of recoveries ........................... (83) (88) (98) ------- ------- ------- BALANCE, END OF YEAR ............................................. $ 1,581 $ 1,093 $ 987 ======= ======= =======
(Continued) 54 NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued At December 31, 1999 and 1998 nonaccrual loans amounted to $628,000 and $649,561, respectively. Foregone interest income was approximately $59,600, $59,500 and $65,200 on nonaccrual loans for 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998, there were no impaired loans. NOTE 5 - PREMISES AND EQUIPMENT The principal categories and estimated useful lives of premises and equipment are summarized below (tabular amounts in thousands):
Estimated December 31, ------------------------------------- useful lives 1999 1998 --------------- ----------- ---------- Land ............................................................ - $ 1,498 $ 1,370 Building and improvements ....................................... 15 - 40 years 4,323 1,426 Furniture, fixtures and equipment ............................... 3 - 10 years 3,223 2,251 -------------- -------------- 9,044 5,047 Less accumulated depreciation ................................... 2,094 1,678 -------------- -------------- 6,950 3,369 Construction in process ......................................... 19 1,557 -------------- -------------- $ 6,969 $ 4,926 ============== ==============
Depreciation expense of approximately $464,000, $247,000 and $208,000 for 1999, 1998 and 1997, respectively, is included in occupancy and equipment expenses in the accompanying consolidated statements of income. At December 31, 1998, construction in process included costs incurred to date for building construction and equipment purchases for the Company's new operations center and for the main offices of Seneca National Bank and Bank of Anderson, N.A. These facilities were placed in service in 1999 upon completion. NOTE 6 - DEPOSITS The amounts and scheduled maturities of deposits are as follows (tabular amounts in thousands):
December 31, 1999 1998 ---- ---- Time certificates maturing Within one year .............................................................................. $101,372 $ 53,093 After one but within two years ............................................................... 5,466 4,369 After two but within three years ............................................................. 755 1,420 After three but within four years ............................................................ 197 480 After four years ............................................................................. 237 311 -------- -------- 108,027 59,673 Transaction and savings accounts ............................................................... 60,749 60,427 -------- -------- $168,776 $120,100 ======== ========
Certificates of deposit in excess of $100,000 totaled approximately $38,008,000 and $25,161,000, at December 31, 1999 and 1998, respectively. Interest expense on certificates of deposit in excess of $100,000 was approximately $1,396,000 in 1999, $986,000 in 1998 and $880,000 in 1997. 55 NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Securities sold under repurchase agreements are summarized as follows (tabular amounts in thousands):
December 31, 1999 1998 ---- ---- U. S. Government securities with an amortized cost of $14,807,000 ($14,409,000 fair value) and $4,729,215 ($4,720,518 fair value) at December 31, 1999 and 1998, respectively, collateralize the agreements ....................... $15,434 $ 5,980 ======= =======
The Banks enter into sales of securities under agreements to repurchase. These obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The dollar amount of securities underlying the agreements remains in the asset accounts. The securities underlying the agreements are book entry securities maintained by a safekeeping agent. The weighted average interest rate of these agreements was 4.07 percent and 3.30 percent at December 31, 1999 and 1998, respectively. Securities sold under agreements to repurchase averaged $12,803,000 and $4,575,000 during 1999 and 1998, respectively. The maximum amounts outstanding at any month-end were $16,595,000 and $5,980,000 during 1999 and 1998, respectively. NOTE 8 - NOTES PAYABLE TO FEDERAL HOME LOAN BANK (FHLB) The Peoples National Bank had various notes payable aggregating $5,000,000 and $2,000,000 at December 31, 1999 and 1998, respectively, to the FHLB. Additional borrowings under similar terms are available by pledging additional collateral and purchasing additional stock in the FHLB. Interest rates on these borrowings ranged from 4.95 percent at December 31, 1999 and 5.10 percent and 5.75 percent at December 31, 1998. The notes are collateralized by mortgage loans aggregating approximately $20,265,000 and $12,962,000 at December 31, 1999 and 1998, respectively. The note payable at December 31, 1999 was called in the first quarter of 2000. NOTE 9 - UNUSED LINES OF CREDIT The Banks have unused short-term lines of credit to purchase Federal Funds from unrelated banks totaling $10,800,000 at December 31, 1999. These lines of credit are available on a one to seven day basis for general corporate purposes. The Peoples National Bank has the ability to borrow an additional $18,000,000 from the FHLB as of December 31, 1999. The borrowings are available by pledging collateral and purchasing additional stock in the FHLB. NOTE 10 - INCOME TAXES Provision for income taxes consists of the following:
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- Current tax provision Federal ........................................................ $ 759 $ 711 $ 657 State .......................................................... 63 69 62 ----- ----- ----- Total current taxes ........................................ 822 780 719 Deferred tax benefit ............................................. (79) (159) (80) ----- ----- ----- Provision for income taxes ................................. $ 743 $ 621 $ 639 ===== ===== =====
(Continued) 56 NOTE 10 - INCOME TAXES, Continued Income taxes are different from the tax expense computed by applying the statutory federal income tax rate of 34 percent to income before income taxes. The reasons for these differences are as follows:
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- Tax expense at statutory rate .......................................... $ 720 $ 640 $ 661 Increase (decrease) in taxes resulting from: State income taxes net of federal benefit ............................ 63 45 41 Tax-exempt interest .................................................. (65) (63) (77) Other ................................................................ 25 (1) 14 ----- ----- ----- Provision for income taxes ......................................... $ 743 $ 621 $ 639 ===== ===== =====
Deferred tax assets (liabilities) result from temporary differences in the recognition of revenue and expenses for tax and financial statement purposes. The sources and the cumulative tax effect of temporary differences are as follows:
December 31, ------------ 1999 1998 ---- ---- Allowance for loan losses ................................................................. $ 538 $ 372 Deferral of loan origination fees and costs ............................................... (33) (47) Tax depreciation in excess of book depreciation ........................................... (130) (97) Adjustments from the accrual to the cash basis of accounting .............................. - (11) Unrealized holding losses on securities available for sale ................................ 263 25 Tax deferral of business start-up costs ................................................... 43 55 Other ..................................................................................... (45) 22 ----- ----- 636 319 Valuation allowance ....................................................................... (135) (135) ----- ----- $ 501 $ 184 ===== =====
Net deferred tax assets are included in other assets. NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Banks are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Banks have in particular classes of financial instruments. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments.
Financial instruments whose contract amounts December 31, represent credit risk (amounts in thousands) ------------ 1999 1998 ---- ---- Commitments to extend credit ........................................... $39,052 $24,255 Standby letters of credit .............................................. 5,054 1,920
(Continued) 57 NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, Continued Commitments to extend credit are agreements to lend as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained by the Banks upon extension of credit is based on management's credit evaluation. NOTE 12 - LEGAL CONTINGENCIES The Company has, from time to time, various lawsuits and claims arising from the conduct of its business. Such items are not expected to have any material adverse effect on the financial position or results of operations of the Company. NOTE 13 - RELATED PARTY TRANSACTIONS At December 31, 1999 and 1998, certain officers, directors, employees, related parties and companies in which they have 10 percent or more beneficial ownership, were indebted to the Banks in the aggregate amount of $4,365,000 and $2,943,000, respectively. During 1999, $2,915,000 of new loans were made to this group and repayments of $1,493,000 were received. NOTE 14 - COMMON STOCK AND EARNINGS PER SHARE SFAS No. 128, "Earnings per Share" requires that the Company present basic and diluted net income per common share. The assumed conversion of stock options creates the difference between basic and diluted net income per common share. Income per share is calculated by dividing net income by the weighted average number of common shares outstanding for each period presented. The weighted average number of common shares outstanding for basic net income per common share was 2,985,000 in 1999, 2,329,000 in 1998 and 1,859,000 in 1997. The weighted average number of common shares outstanding for diluted net income per common share was 3,095,000 in 1999, 2,447,000 in 1998 and 1,973,000 in 1997. The Company declared or issued five percent common stock dividends in 1999, 1998 and 1997. The Company also issued a two-for-one stock split in 1997. Net income per common share in prior years has been restated to reflect these transactions. NOTE 15 - RESTRICTION OF DIVIDENDS The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Banks. Federal banking regulations restrict the amount of dividends that can be paid and such dividends are payable only from the retained earnings of the Banks. At December 31, 1999 the Banks' retained earnings were approximately $1,788,000. 58 NOTE 16 - STOCK OPTION COMPENSATION PLANS The Company has a stock option compensation plan through which the Board of Directors may grant stock options to officers and employees to purchase common stock of the Company at prices not less than 100 percent of the fair value of the stock on the date of grant. The outstanding options become exercisable in various increments beginning on the date of grant and expiring five to ten years from the date of grant. The Company also has a directors' stock option plan through which non-employee directors of the Company shall be granted options to purchase 500 shares of common stock for each year served on the board to a maximum of 5,000 options per director. The option price shall not be less than 100 percent of the fair value of the stock on the grant date. The outstanding options become exercisable on the grant date and expire at the earlier of the end of the director's term or ten years from the grant date. The Company applies Accounting Principles Board (APB) Opinion 25 and related Interpretations in accounting for the plans. Accordingly, no compensation cost has been charged to operations. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plans consistent with the accounting method available under SFAS No. 123, "Accounting for Stock - Based Compensation", the Company's net income and net income per common share would have been reduced to the pro forma amounts indicated below:
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- Net income (in thousands) As reported ............................................... $ 1,375 $ 1,261 $ 1,304 Pro forma ................................................. 1,337 1,229 1,278 Basic net income per common share As reported ............................................... $ .46 $ .54 $ .70 Pro forma ................................................ .45 .52 .68 Diluted net income per common share As reported ............................................... $ .44 $ .51 $ .66 Pro forma ................................................. .43 .50 .65
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants in 1999, 1998 and 1997: dividend yields from $.25 to $.15 per share, expected volatility from 5 to 15 percent, risk-free interest rates from 6.50 to 4.75 percent and expected life of 10 years. A summary of the status of the plans as of December 31, 1999 and 1998, and changes during the years ending on those dates is presented below (all shares have been adjusted for stock dividends and the 1997 stock split):
1999 1998 1997 ---- ---- ---- Weighted Weighted Weighted average average average Shares exercise price Shares exercise price Shares exercise price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year ...................... 285,387 $ 4.09 276,559 $ 5.33 198,073 $ 4.35 Granted .......................... 4,725 14.25 33,075 11.76 86,821 7.73 Exercised ........................ (85,842) 4.28 (22,524) 3.88 (8,335) 3.55 Forfeited or expired ............. (347) 4.49 (1,723) 4.49 - - -------- ------- ------- Outstanding at end of year ......................... 203,923 $ 7.33 285,387 $ 4.09 276,559 $ 5.33 ======= ======= =======
(Continued) 59 NOTE 16 - STOCK OPTION COMPENSATION PLANS, Continued
1999 1998 1997 ---- ---- ---- Options exercisable at year-end ..................................... 178,341 246,712 235,755 Weighted - average fair value of options granted during the year ......................................... $ 14.25 $ 11.76 $ 7.73 Shares available for grant .......................................... 268,141 272,519 278,253
The following table summarizes information at December 31, 1999:
Options outstanding Options exercisable ------------------- ------------------- Weighted average Weighted Weighted Range of remaining average average exercise Number contractual exercise Number exercise prices outstanding life price exercisable price ------ ----------- ---- ----- ----------- ----- $3.71 5,913 less than 1 year $ 3.71 5,913 $ 3.71 $4.94 - $4.49 73,387 5.5 years 4.69 66,658 4.69 $7.75 86,823 7.7 years 7.75 86,823 7.75 $11.76 33,075 8.2 years 11.76 14,222 11.76 $14.25 4,725 9.2 years 14.25 4,725 14.25 ---------- ----------- 203,923 178,341 ========== ===========
NOTE 17 - EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) retirement plan for all eligible employees. Upon ongoing approval of the Board of Directors, the Company matches employee contributions equal to fifty percent of the first four percent of such contributions, subject to certain adjustments and limitations. Contributions to the plan of $58,447, $33,088 and $32,861 were charged to operations during 1999, 1998 and 1997, respectively. Supplemental benefits have been approved by the Board of Directors for certain executive officers of The Peoples National Bank. These benefits are not qualified under the Internal Revenue Code and they are not funded. However, certain funding is provided informally and indirectly by life insurance policies. NOTE 18 - REGULATORY MATTERS The Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Banks' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors. (Continued) 60 NOTE 18 - REGULATORY MATTERS, Continued Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 1999, that the Banks meet all capital adequacy requirements to which they are subject. As of December 31, 1999, the most recent notification from the Office of the Comptroller of the Currency categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Banks' categories. The Banks' actual capital amounts and ratios and minimum regulatory amounts and ratios are presented as follows:
To be well capitalized under For capital prompt corrective adequacy purposes action provisions ----------------- ----------------- Actual Minimum Minimum ------ ------- ------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (amounts in thousands) The Peoples National Bank: As of December 31, 1999 Total Capital (to risk-weighted assets) .......... $13,448 11.73% $ 9,172 8.00% $11,465 10.00% Tier I Capital (to risk-weighted assets) ......... 12,327 10.75 4,587 4.00 6,880 6.00 Tier I Capital (to average assets) ............... 12,327 7.87 6,265 4.00 7,832 5.00 As of December 31, 1998 Total Capital (to risk-weighted assets) .......... $11,008 13.16% $ 6,692 8.00% $ 8,365 10.00% Tier I Capital (to risk-weighted assets) ......... 10,008 11.96 3,347 4.00 5,021 6.00 Tier I Capital (to average assets) ............... 10,008 7.60 5,267 4.00 6,584 5.00 Bank of Anderson, N.A.: As of December 31, 1999 Total Capital (to risk-weighted assets) .......... $ 5,413 19.21% $ 2,254 8.00% $ 2,818 10.00% Tier I Capital (to risk-weighted assets) ......... 5,101 18.10 1,127 4.00 1,691 6.00 Tier I Capital (to average assets) ............... 5,101 12.61 1,618 4.00 2,023 5.00 As of December 31, 1998 Total Capital (to risk-weighted assets) .......... $ 4,352 43.40% $ 802 8.00% $ 1,003 10.00% Tier I Capital (to risk-weighted assets) ......... 4,259 42.48 401 4.00 602 6.00 Tier I Capital (to average assets) ............... 4,259 25.05 680 4.00 850 5.00 Seneca National Bank: As of December 31, 1999 Total Capital (to risk-weighted assets) .......... $ 3,396 26.62% $ 1,021 8.00% $ 1,276 10.00% Tier I Capital (to risk-weighted assets) ......... 3,248 25.46 510 4.00 765 6.00 Tier I Capital (to average assets) ............... 3,248 20.19 643 4.00 804 5.00
61 NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosure of fair value information, whether or not recognized in the balance sheets, when it is practical to estimate the fair value. SFAS No. 107 defines a financial instrument as cash, evidence of an ownership interest in an entity or contractual obligations which require the exchange of cash or other financial instruments. Certain items are specifically excluded from the disclosure requirements, including the Company's common stock, premises and equipment and other assets and liabilities. Fair value approximates carrying value for the following financial instruments due to the short-term nature of the instrument: cash and due from banks, interest-bearing deposits in other banks and federal funds sold. Securities are valued using quoted fair market prices. Fair value for the Company's off-balance sheet financial instruments is based on the discounted present value of the estimated future cash flows. Fair value for variable rate loans that reprice frequently, loans held for sale and for loans that mature in less than one year is based on the carrying value. Fair value for fixed rate mortgage loans, personal loans and all other loans (primarily commercial) maturing after one year is based on the discounted present value of the estimated future cash flows. Discount rates used in these computations approximate the rates currently offered for similar loans of comparable terms and credit quality. Fair value for demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying value. Certificate of deposit accounts and securities sold under repurchase agreements maturing within one year are valued at their carrying value. The fair value of certificate of deposit accounts and securities sold under repurchase agreements maturing after one year are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments. Fair value for long-term debt is based on discounted cash flows using the Company's current incremental borrowing rate. Discount rates used in these computations approximate rates currently offered for similar borrowings of comparable terms and credit quality. The Company has used management's best estimate of fair value based on the above assumptions. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses which would be incurred in an actual sale or settlement are not taken into consideration in the fair value presented. The estimated fair values of the Company's financial instruments are as follows (amounts in thousands):
December 31, ------------ 1999 1998 ---- ---- Carrying Fair Carrying Fair amount value amount value ------ ----- ------ ----- Financial Assets: Cash and due from banks ...................................... $ 6,507 $ 6,507 $ 3,413 $ 3,413 Interest-bearing deposits in other banks ..................... 5,047 5,047 - - Federal funds sold ........................................... 9,200 9,200 17,980 17,980 Securities available for sale ................................ 31,209 31,209 31,971 31,971 Securities held for investment ............................... 4,445 4,438 4,129 4,265 Loans ........................................................ 141,917 141,605 88,017 88,302 Financial Liabilities: Deposits ..................................................... 168,776 168,437 120,100 120,444 Securities sold under repurchase agreements .................. 15,434 15,434 5,980 5,980 Notes payable to Federal Home Loan Bank ...................... 5,000 5,000 2,000 2,000
(Continued) 62 NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
December 31, ------------ 1999 1998 ---- ---- Carrying Fair Carrying Fair amount value amount value ------ ----- ------ ----- Financial Instruments with Off-Balance Sheet Risk: Commitments to extend credit ..................................... 39,052 39,052 24,255 24,255 Standby letters of credit ........................................ 5,054 5,054 1,920 1,920
NOTE 20 - CONDENSED FINANCIAL INFORMATION Following is condensed financial information of Peoples Bancorporation, Inc. (parent company only) (amounts in thousands): CONDENSED BALANCE SHEETS
December 31, ------------ 1999 1998 ---- ---- ASSETS Cash ......................................................................... $ 2,305 $ 6,031 Due from subsidiaries ........................................................ 450 294 Investment in bank subsidiaries .............................................. 20,168 14,219 Premises and equipment ....................................................... 767 2,125 Other assets ................................................................. 79 172 ------- ------- $23,769 $22,841 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Due to subsidiaries .......................................................... $ 186 $ 268 Other liabilities ............................................................ 237 102 Shareholders' equity ......................................................... 23,346 22,471 ------- ------- $23,769 $22,841 ======= =======
CONDENSED STATEMENTS OF INCOME
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- INCOME Fees and dividends from subsidiaries .............................. $1,841 $ 522 $ 204 Other income ...................................................... 6 23 - ------ ------ ------ 1,847 545 204 ------ ------ ------ EXPENSES Salaries and benefits ............................................. 964 295 - Occupancy ......................................................... 56 18 - Equipment ......................................................... 104 28 - Other operating ................................................... 293 73 4 ------ ------ ------ 1,417 414 4
(Continued) 63 NOTE 20 - CONDENSED FINANCIAL INFORMATION, Continued
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- EQUITY IN UNDISTRIBUTED NET INCOME OF BANK SUBSIDIARIES ........................................................ 958 1,054 1,104 ------- ------- ------- Income before income taxes ...................................... 1,388 1,185 1,304 INCOME TAX EXPENSE (BENEFIT) .......................................... 13 (76) - ------- ------- ------- Net income ...................................................... $ 1,375 $ 1,261 $ 1,304 ======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- OPERATING ACTIVITIES Net income ................................................................. $ 1,375 $ 1,261 $ 1,304 Adjustments to reconcile net income to net cash provided by (used for) operating activities Equity in undistributed net income of bank subsidiaries ................ (958) (1,054) (1,104) Depreciation ........................................................... 32 16 - Amortization ........................................................... 4 3 4 Decrease (increase) in other assets .................................... 56 (410) - Increase in other liabilities .......................................... 127 57 - -------- -------- -------- Net cash provided by (used for) operating activities ................ 636 (127) 204 -------- -------- -------- INVESTING ACTIVITIES Investment in bank subsidiaries ............................................ (5,609) (4,500) (31) Purchase of premises and equipment ......................................... 1,358 (1,238) (479) -------- -------- -------- Net cash used for investing activities .............................. (4,251) (5,738) (510) -------- -------- -------- FINANCING ACTIVITIES Proceeds from the sale of stock and exercise of stock options .............. 369 12,033 31 Cash dividends ............................................................. (398) (304) (203) Repayment of advances from subsidiaries .................................... (82) - - -------- -------- -------- Net cash provided by (used for) financing activities ................ (111) 11,729 (172) -------- -------- -------- Net change in cash .................................................. (3,726) 5,864 (478) CASH, BEGINNING OF YEAR ...................................................... 6,031 167 644 -------- -------- -------- CASH, END OF YEAR ............................................................ $ 2,305 $ 6,031 $ 166 ======== ======== ========
64 NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited condensed financial data by quarter for 1999 and 1998 is as follows (amounts, except per share data, in thousands):
Quarter ended ------------- 1999 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Interest income ........................................ $ 2,890 $ 3,130 $ 3,605 $ 3,952 Interest expense ....................................... 1,220 1,376 1,648 1,878 ---------- ---------- ---------- ---------- Net interest income ................................ 1,670 1,754 1,957 2,074 Provision for loan losses .............................. 119 171 250 31 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses ....................... 1,551 1,583 1,707 2,043 Non-interest income .................................... 368 383 479 538 Non-interest expenses .................................. 1,487 1,592 1,641 1,814 ---------- ---------- ---------- ---------- Income before income taxes ......................... 432 374 545 767 Provision for income taxes ............................. 147 127 187 282 ---------- ---------- ---------- ---------- Net income ......................................... $ 285 $ 247 $ 358 $ 485 ========== ========== ========== ========== Basic net income per common share (1) .................. $ .10 $ .08 $ .12 $ .16 ========== ========== ========== ========== Diluted net income per common share (1) ................ $ .09 $ .08 $ .12 $ .16 ========== ========== ========== ========== Basic weighted average shares outstanding (1) .................................... 2,982,491 2,983,996 2,983,946 2,984,974 ========== ========== ========== ========== Diluted weighted average shares outstanding (1) .................................... 3,081,043 3,202,414 3,092,702 3,095,226 ========== ========== ========== ========== Quarter ended ------------- 1998 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Interest income ....................................... $ 2,254 $ 2,373 $ 2,489 $ 2,737 Interest expense ...................................... 1,083 1,115 1,111 1,207 ----------- ----------- ----------- ----------- Net interest income ............................... 1,171 1,258 1,378 1,520 Provision for loan losses ............................. (3) 5 152 40 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses ...................... 1,174 1,253 1,226 1,480 Non-interest income ................................... 255 288 309 372 Non-interest expenses ................................. 896 947 1,181 1,451 ----------- ----------- ----------- ----------- Income before income taxes ........................ 533 594 354 401 Provision for income taxes ............................ 176 196 114 135 ----------- ----------- ----------- ----------- Net income ........................................ $ 357 $ 398 $ 240 $ 266 =========== =========== =========== =========== Basic net income per common share (1) ................. $ .18 $ .19 $ .08 $ .10 =========== =========== =========== =========== Diluted net income per common share (1) ............... $ .17 $ .18 $ .08 $ .10 =========== =========== =========== =========== Basic weighted average shares outstanding (1) ................................... 1,866,544 1,990,420 2,681,331 2,329,295 =========== =========== =========== =========== Diluted weighted average shares outstanding (1) ................................... 2,009,196 2,087,820 2,827,558 2,446,801 =========== =========== =========== ===========
(1) Per share data has been restated to reflect 5 percent stock dividend declared in 1999. 65 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no occurrence requiring a response to this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "ELECTION OF DIRECTORS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy Statement to be used in conjunction with the 2000 Annual Meeting of Shareholders (the "Proxy Statement"), which was filed within 120 days of the Company's fiscal year end, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "EXECUTIVE COMPENSATION" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "CERTAIN TRANSACTIONS" in the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Schedules The following consolidated financial statements and report of independent auditors of Peoples Bancorporation, Inc. and subsidiaries are included in item 8 of this Annual Report on Form 10-K: Report of Independent Auditors 66 Consolidated Statements of Condition - December 31, 1999 and 1998 Consolidated Statements of Income - Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1999. 1998 and 1997 Notes to Consolidated Financial Statements - December 31, 1999 (a) (3) Listing of Exhibits: Exhibit No. Description of Exhibit 3 (i) Articles of Incorporation as amended (incorporated by reference to the Registrant's Registration Statement on Form 8-A). 3(ii) Bylaws (incorporated by reference to the Registrant's Registration Statement on Form 8-A). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibits to Registrant's Registration Statement on Form S-4 (Number 33-46649)). 10.2 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan (incorporated by reference to Exhibits to Registrant's Registration Statement on Form SB-1 (Number 33-78602)). 10.3 Non-competition, Severance and Employment Agreement entered into between the Company and Robert E. Dye. Incorporated by reference to Exhibit 10.5 of Peoples Bancorporation, Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 1995. Commission File no. 33-78607. 10.4 Non-competition, Severance and Employment Agreement entered into between the Company and R. Riggie Ridgeway. Incorporated by reference to Exhibit 10.6 of Peoples Bancorporation, Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 1995. Commission File No. 33-78607. 10.5 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock Option Plan (incorporated by reference to exhibits to Registrant's Form 10-KSB for the year ended December 31, 1997). 10.6 Salary Continuation Agreement between The Peoples National Bank and Robert E. Dye, Sr., dated July 7, 1998 (incorporated by reference to Exhibits to Registrant's Form 10-KSB for the year ended December 31, 1998). 67 10.7 Salary Continuation Agreement between The Peoples National Bank and Ralph R. Ridgeway, dated July 7, 1998 (incorporated by reference to Exhibits to Registrant's Form 10-KSB for the year ended December 31, 1998). 10.8 Non-competition, Severance and Employment Agreement entered into between the Company and each of William B. West, David C. King and F. Davis Arnette, Jr. 21. Subsidiaries of the Registrant 27. Financial Data Schedule (a) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999. 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Peoples Bancorporation, Inc. s/Robert E. Dye Dated: February 29, 2000 By: -------------------------------- Robert E. Dye Chairman of the Board, President and Chief Executive Officer s/William B. West Dated: February 29, 2000 By: -------------------------------- William B. West Senior Vice President (Principal Financial and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- s/Garnet A. Barnes - ---------------------------- Director February 29, 2000 Garnet A. Barnes s/William A. Carr - ---------------------------- Director February 29, 2000 William A. Carr s/Charles E. Dalton - ---------------------------- Director February 29, 2000 Charles E. Dalton s/Robert E. Dye - ---------------------------- President, Chief February 29, 2000 Robert E. Dye Executive Officer And Director s/Robert E. Dye, Jr. - ---------------------------- Director February 29, 2000 Robert E. Dye, Jr. s/W. Rutledge Galloway - ---------------------------- Director February 29, 2000 W. Rutledge Galloway s/E. Smyth McKissick, III - ---------------------------- Director February 29, 2000 E. Smyth McKissick, III s/Eugene W. Merritt, Jr. - ---------------------------- Director February 29, 2000 Eugene W. Merritt, Jr. s/George B. Nalley, Jr. - ---------------------------- Director February 29, 2000 George B. Nalley, Jr. s/R. Riggie Ridgeway - ---------------------------- Secretary, February 29, 2000 R. Riggie Ridgeway Treasurer and Director s/Nell W. Smith - ---------------------------- Director February 29, 2000 Nell W. Smith s/A. J. Thompson, Jr., M. D. - ---------------------------- Director February 29, 2000 A. J. Thompson, Jr., M. D.
69 EXHIBIT INDEX Exhibit No. Description of Exhibit 3 (i) Articles of Incorporation as amended (incorporated by reference to the Registrant's Registration Statement on Form 8-A). 3(ii) Bylaws (incorporated by reference to the Registrant's Registration Statement on Form 8-A). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibits to Registrant's Registration Statement on Form S-4 (Number 33-46649)). 10.2 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan (incorporated by reference to Exhibits to Registrant's Registration Statement on Form SB-1 (Number 33-78602)). 10.3 Noncompetition, Severance and Employment Agreement entered into between the Company and Robert E. Dye (incorporated by reference to Exhibit 10.5 of Peoples Bancorporation, Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 1995. Commission File no. 33-78607.) 10.4 Noncompetition, Severance and Employment Agreement entered into between the Company and R. Riggie Ridgeway (incorporated by reference to Exhibit 10.6 of Peoples Bancorporation, Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 1995. Commission File No. 33-78607.) 10.5 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock Option Plan (incorporated by reference to exhibits to Registrant's Form 10-KSB for the year ended December 31, 1997). 10.6 Salary Continuation Agreement between The Peoples National Bank and Robert E. Dye, Sr., dated July 7, 1998 (incorporated by reference to Exhibits to Registrant's Form 10-KSB for the year ended December 31, 1998). 10.7 Salary Continuation Agreement between The Peoples National Bank and Ralph R. Ridgeway, dated July 7, 1998 (incorporated by reference to Exhibits to Registrant's Form 10-KSB for the year ended December 31, 1998). 10.8 Non-competition, Severance and Employment Agreement entered into between the Company and each of William B. West, David C. King and F. Davis Arnette, Jr. 21. Subsidiaries of the Registrant 27. Financial Data Schedule EX-10.8 2 NONCOMPETITION, SEVERANCE AND EMPLOYMENT AGREEMENT NONCOMPETITION, SEVERANCE AND EMPLOYMENT AGREEMENT This Noncompetition, Severance and Employment Agreement (this "Agreement") is made and entered into as of this 19th day of October, 1999 by and between [Executive], an individual (the "Executive"), and Peoples Bancorporation, a South Carolina corporation and financial institution holding company headquartered in Easley, South Carolina (the "company"). As used herein, the term "Company" shall include the Company and any and all of its subsidiaries where the context so applies. W I T N E S S E T H WHEREAS the Board of Directors believes that the Executive has been instrumental in the success of the Company since his employment in 1998; WHEREAS the company desires to continue to employ the Executive as [Position] of the Company and in such other capacities as the Executive is currently employed as of the date hereof; WHEREAS the Executive is willing to accept the employment contemplated herein under the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. Subject to the terms and conditions hereof, the Company hereby employs the Executive and Executive hereby accepts such employment as a [Position] of the Company having such duties and responsibilities as set forth in Section 3 below. 2. Definitions. For purposes of this Agreement, the following terms shall have the meanings specified below. "Change in Control" shall mean: (i) the acquisition, directly or indirectly, by any Person within any twelve month period of securities of the Company representing an aggregate of 20% or more of the combined voting power of the Company's then outstanding securities; or 1 (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (A) a merger, consolidation or other business combination of the Company with any other Person or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least 67% of the outstanding common stock (on a fully diluted basis) of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (B) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and, in order to implement the purposes of this Agreement as set forth above, adopts a resolution that such event or circumstance constitutes a change in Control for the purposes of this Agreement. "Cause" shall mean (i) fraud, gross negligence, dereliction of duties, intentional material damage to the property or business of the Company, or the commission of a felony; or (ii) the ineligibility of the Executive to perform his duties because of a ruling, directive or other action by any agency of the United States or any state of the United States having regulatory authority over the Corporation. "Confidential Information" shall mean all business and other information relating to the business of the Company, including without limitation, technical or nontechnical data, programs, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 2 "Disability" or "Disabled" shall mean the Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a fulltime basis for a period of six (6) months. "Involuntary Termination" shall mean the termination of Executive's employment by the Executive following a Change in Control which, in the sole judgment of the Executive, is due to (i) a change of the Executive's responsibilities, position (including status as [Position] of the Company, its successor or ultimate parent entity, office, title, reporting relationships or working conditions), authority or duties (including changes resulting from the assignment to the Executive of any duties inconsistent with his positions, duties or responsibilities as in effect immediately prior to the Change in Control); or (ii) a change in the terms or status (including the rolling three year termination date) of this Agreement; or (iii) a reduction in the Executive's compensation or benefits; or (iv) a forced relocation of the Executive outside the Upper State of South Carolina area; or (v) a significant increase in the Executive's travel requirements. "Person" shall mean any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. "Voluntary Termination" shall mean the termination by Executive of Executive's employment following a Change in Control which is not the result of any of clauses (i) through (v) set forth in the definition of Involuntary Termination above. 3. Duties. During the term hereof, the Executive shall have such duties and authority as are typical of a [Position] of a company such as the one being contracted with, and employee will, so long as he is an employee of, he will devote his full time, attention and energies to the diligent performance of his duties. Executive shall not, without the written consent of the Company, at any time during the Term hereof (i) accept employment with, or render services of a business, professional or commercial nature to, any Person other than the Company, (ii) engage in any venture or activity which the Company may in good faith consider to be competitive with or adverse to the business of the Company or of any affiliate of the Company, whether alone, as a partner, or as an officer, director, employee or shareholder or otherwise, except that the ownership of not more than 5% of the stock or other equity interest of any publicly traded corporation or other entity shall not be deemed a violation of this Section, or (iii) the Company may in good faith consider to interfere with Executive's performance of his duties hereunder. 4. Term. Unless earlier terminated as provided herein, the Executive's employment hereunder shall be for a rolling term of three years (the "Term") commencing on the date hereof, with compensation to be effective as of October 19, 1999. 3 This Agreement shall be deemed to extend each day for an additional day automatically and without any action on behalf of either party hereto; provided, however, that either party may, by notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the three years following the date of such notice, and this Agreement shall terminate upon the expiration of such Term. If no such notice is given and this Agreement is terminated pursuant to Section 5 hereof, for the purposes of calculating any amounts payable to the Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be three years from the date of such termination. 5. Termination. This Agreement may be terminated as follows: 5.1 The Company. The Company shall have the right to terminate Executive's employment hereunder at any time during the Term hereof (i) for Cause, (ii) if the Executive becomes Disabled, (iii) upon the Executive's death. 5.1.1 If the Company terminated Executive's employment under this Agreement pursuant to clauses (i) through (iii) of Section 5.1, the Company's obligations hereunder shall cease as of the date of termination; provided, however, if Executive is terminated for Cause after a change in Control, then such termination shall be treated as a Voluntary Termination as contemplated in Section 5.2 below. 5.1.2 If the Company terminates Executive other than pursuant to clauses (i) through (iii) of Section 5.1 and there has been a Change in Control, Executive shall be entitled to receive immediately as severance upon such termination, the compensation and benefits provided in Section 6 hereof that would otherwise be payable over the three years subsequent to such termination. For purposes of determining compensation which is not fixed (such as bonus), the annual amount of such unfixed compensation shall be deemed to be the equal to the average of such compensation over the three year period immediately prior to the termination. 5.1.3 If the Company terminates Executive other than pursuant to clauses (i) through (iii) of Section 5.1 and in the absence of a Change in Control, Executive shall be entitled to receive immediately as severance upon such termination, the compensation and benefits provided in Section 6 hereof for the remaining Term of this Agreement. 5.1.4 In the event of such termination other than pursuant to clauses (i) through (iii) of Section 5.1, (A) all rights of Executive pursuant to awards of share grants or options granted by the Company shall be deemed to have vested and shall be released from all conditions and restrictions, except for restrictions on transfer pursuant to the Securities Act of 1933, as amended, and (B) the Executive shall be deemed to be credited with service with the Company for such remaining Term for the purposes of the Company's benefit plans. 5.2 By Executive. Executive shall have the right to terminate his employment hereunder if (i) the Company materially breaches this Agreement and such breach is not cured within 30 days after written notice of such breach is given by Executive to the Company; (ii) there is a Voluntary Termination; or (iii) there is an Involuntary Termination. 4 5.2.1 If Executive terminates his employment other than pursuant to clauses (i) through (iii) of Section 5.2, the Company's obligations under this Agreement shall cease as of the date of such termination and Executive shall be subject to the noncompetition provisions set forth in Section 9 hereof. 5.2.2 If Executive terminates his employment hereunder pursuant to any clauses (i) or (iii) of Section 5.2, Executive shall be entitled to receive immediately as severance the compensation and benefits provided in Section 6 hereof that would otherwise be payable over the three years subsequent to such termination. For purposes of determining compensation which is not fixed (such as a bonus), the annual amount of such unfixed compensation over the three year period immediately prior to the termination. 5.2.3 If Executive terminates his employment pursuant to clause (ii) of Section 5.2, Executive shall be entitled to receive immediately as severance the compensation and benefits provided in Sections 6 hereof for one year following the date of his Voluntary Termination. For purposes of determining compensation which is not fixed (such as a bonus), the annual amount of such unfixed compensation shall be deemed to be equal to the average of such compensation over the three year period immediately prior to the termination. 5.2.4 In addition, in the event of such termination pursuant to any of clauses (i) through (iii) of this Section 5.2, (A) all rights of Executive pursuant to awards of share grants or options granted by the Company shall be deemed to have vested and shall be released from all conditions and restrictions, except for restrictions on transfer pursuant to the Securities Act of 1933, as amended, and (B) the Executive shall be deemed to be credited with service with the Company for such remaining Term for the purposes of the Company's benefit plans. 6. Compensation. In consideration of Executive's services and covenants hereunder, Company shall pay to Executive the compensation and benefits described below (which compensation shall be paid in accordance with the normal compensation practices of the Company and shall be subject to such deductions and withholdings as are required by law or policies of the Company in effect from time to time, provided that his salary pursuant to Section 6.1 shall be payable not less frequently than monthly); 5 6.1 Annual Salary. During the Term hereof, the Company shall pay to Executive a salary at the rate of [ $ ] per annum. Executive's salary will be reviewed by the Board of Directors of the Company at the beginning of each of its fiscal years and, in the sole discretion of the Board of Directors, may be increased for such year. Salary continuation and/or life insurance plans in existence at the time of the change in control will also be kept in force for the benefit of the executive and/or his heirs for life. 6.2 Annual Incentive Bonus. During the Term hereof, the Board of Directors may pay to Executive an annual incentive cash bonus in accordance with the terms of the Short Term Incentive Compensation Plan. 6.3 Other Benefits. Executive shall be entitled to share in any other executive officer/employee benefits generally provided by the Company to its most highly ranking executives (including but not limited to the following; major medical and dental insurance, short and long term disability insurance, bonus plans, etc.) for so long as the Company provides such benefits. The Company also agrees to provide Executive with a Company-paid, full-sized automobile, reasonable club dues for one area country club of their choice and two business clubs. Executive shall also be entitled to participate in all other benefits accorded general Company executive officers and/or employees. 7. Excess Parachute Payments. It is the intention of the parties hereto that the severance payments and other compensation provided for herein are reasonable compensation for Executive's services to the Company and shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder. In the event that the Company on the date of a Change of Control determine that the payments provided for herein constitute "excess parachute payments", then the compensation payable hereunder shall be reduced to the point that such compensation shall not qualify as "excess parachute payments". 8. Confidentiality. Executive acknowledges that, prior to and during the term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and goodwill. Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Upon the termination or expiration of this employment hereunder, the Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control and all of the Company's equipment and other materials in his possession or control. 6 9. Noncompetition. In the event that Executive's employment with the Company is terminated before a Change in Control voluntarily by the Executive or by the Board of Directors pursuant to clause (i) of Section 5.1, then Executive shall not, for a period of one year following such termination of employment (i) become employed by any insured depository institution which conducts business activities in Pickens County; (ii) attempt to interfere with any business relationship of the Company, including without limitation, employee and customer relationships; or (iii) or otherwise compete against the Company, directly or indirectly, either as principal, agent, employee, owner (if the percentage of ownership exceeds 10% of the entity). In the event that Executive's employment is terminated for any reason following a Change in Control (whether by the Company or Executive), it is expressly acknowledged that there shall be no limitation on any activity of Executive, including direct competition with the Company or its successor, and Company shall not be entitled to injunctive relief with respect to any such activities of Executive. 10. Assignment. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of Company. 11. Notices. All notices, requests, demands, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail postage prepaid: To the Company: Peoples Bancorporation Post Office Box 1989 Easley, South Carolina 29641 Attn: Chairman of the Board To Executive: [Executive's name and address] 7 Any party may change the address to which notices, requests, demands, and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or convenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Remedies. The Executive acknowledges that if he breaches or threatens to breach his covenants and agreements in this Agreement, such actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Agreement, the Company shall be entitled to injunctive relief, in addition to any other rights or remedies of the Company. In the event that Executive is reasonably required to engage legal counsel to enforce his rights hereunder against the Company, Executive shall be entitled to receive from the Company his reasonable attorney's fees and costs; provided that Executive shall not be entitled to receive those fees and costs related to matters, if any, which were the subject of litigation and with respect to which a judgment is rendered against Executive. 14. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 15. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by other parties hereto. 16. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of South Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE -------------------------- --------------------------- BY: Chairman of the Board 8 APPENDIX A TO EXHIBIT 10.8 Name of Executive Position Salary - ----------------- -------- ------ William B. West Senior Vice President and CFO $95,000 David C. King Subsidiary President $90,000 F. Davis Arnette, Jr. Subsidiary Presndent $90,000 EX-21 3 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT The Peoples National Bank, Easley, South Carolina Bank of Anderson, National Association, Anderson, South Carolina Seneca National Bank, Seneca, South Carolina EX-27 4 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1999 and the Consolidated Statement of Income for the year Ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1999 DEC-31-1999 3,546 148,823 9,200 0 31,209 4,445 4,438 148,579 1,581 213,913 168,776 15,434 203 5,000 0 0 4,989 18,357 213,913 10,611 2,966 0 13,577 5,427 6,122 7,455 571 0 6,534 2,118 2,118 0 0 1,375 0.46 0.44 4.36 628 0 150 0 1,093 145 62 1,581 1,581 0 0
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