SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) For the fiscal year ended December 31,
2001
or
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from ________ to ________
Commission file no. 000-26061
NEW COMMERCE BANCORP
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(Name of Small Business Issuer in Its Charter)
South Carolina 58-2403844
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
501 New Commerce Court
Greenville, South Carolina 29607
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(Address of Principal Executive Offices) (Zip Code)
(864) 297-6333
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
-- --
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's loss for its most recent fiscal year was $187,957. As of
December 31, 2001, 1,000,000 shares of Common Stock were issued and outstanding.
The aggregate market value of the Common Stock held by non-affiliates
(shareholders holding less than 5% of the Common Stock, excluding directors and
executive officers) of the company on March 11, 2002 is $5,590,040. This
calculation is based upon an estimate of the fair market value of the Common
Stock of $8.00 per share, which was the price of the last trade of which
management is aware prior to this date. There is not an active trading market
for the Common Stock and it is not possible to identify precisely the market
value of the Common Stock.
Transitional Small Business Disclosure Format. (Check one): Yes No X
-- --
DOCUMENTS INCORPORATED BY REFERENCE
Company's Proxy Statement for the 2002 Annual Meeting of Shareholders - Part II
and 2001 Annual Report - Part III.
Item 1. Description of Business
This Report contains statements, which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors, which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to:
o significant increases in competitive pressure in the banking and
financial services industries;
o changes in the interest rate environment which could reduce
anticipated or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our
filings with the Securities and Exchange Commission.
General
New Commerce BanCorp was incorporated to operate as a bank holding
company pursuant to the Federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act, and to purchase 100% of the
issued and outstanding stock of New Commerce Bank, an association organized
under the laws of the United States, to conduct a general banking business in
the Golden Strip area of Greenville, South Carolina.
Since our inception as a South Carolina corporation on July 22, 1998
through May 17, 1999, we engaged in organizational and pre-opening activities
necessary to obtain regulatory approvals and to prepare our subsidiary, New
Commerce Bank, to commence business as a financial institution. The bank opened
for business on May 17, 1999 and engages in commercial banking business from our
main office located at 501 New Commerce Court, in Greenville, South Carolina
(Greenville County). New Commerce Bank is primarily engaged in the business of
accepting demand deposits and savings insured by the Federal Deposit Insurance
Corporation, and providing commercial, consumer and mortagage loans to the
general public.
We completed our stock offering on June 30, 1999, and sold the maximum
of 800,000 shares of our common stock at $10 per share. We raised $7,774,550 in
the offering representing, $8,000,000 in proceeds, less sales agent commissions
of $144,195 and stock offering expenses of $81,255. This amount was in addition
to the $2,000,000 previously raised through the sale of 200,000 shares of our
common stock sold to our organizers at $10 per share. We capitalized the bank
with $8,250,000 of the net proceeds of the offering and the sale of the
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shares to the organizers. The remaining net offering proceeds were used to pay
organization expenses of the company and are being used to provide general
working capital, including additional future capital for investment in our bank,
if needed.
The bank engages in a commercial banking business from our main office
located at 501 New Commerce Court, in Greenville, South Carolina (Greenville
County) and from our branch location at 1 Five Forks Plaza Court in
Simpsonville, South Carolina. The bank is a full service commercial bank without
trust powers. We offer a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, certificates of deposit, commercial
loans, real estate loans, home equity loans and consumer/installment loans. In
addition, we provide such consumer services as U.S. Savings Bonds, travelers
checks, cashiers checks, safe deposit boxes, bank by mail services, direct
deposit, credit cards and automated teller machines.
Marketing Focus
The bank draws a large percentage of its business from the cities of
Simpsonville, Mauldin, and Fountain Inn (the Golden Strip), and the
unincorporated areas of Enoree and Southside, which are located in the
southeastern portion of Greenville County. This area is known locally as the
"Golden Strip" and is bound by Interstate 85 to the north, Highway 25 to the
west, Laurens County to the south, and Spartanburg County to the east. The
Golden Strip's median household income, household growth, and population growth
trends have consistently outpaced the rest of Greenville County and the State of
South Carolina.
The bank targets its products and services to meet the needs of the
area's customer base and is a full-service bank, initially focusing on providing
small- to middle-market business loans, residential mortgages, and consumer
loans to these customers. We expect that more than 75% of our bank's customer
base will be derived from businesses and residents located in our primary
service area. The primary service area represents a diverse market with a
growing population and economy.
Location and Service Area
While the bank does not compete with large institutions for the primary
banking relationships of large corporations, it does compete for niches in this
business and for the consumer business of their employees. It also focuses on
small to medium-sized businesses and their employees. This includes retail,
service, and wholesale distribution, manufacturing, and international
businesses. The bank is active in providing residential mortgages, acquisition
and development financing for subdivisions, and construction and permanent
financing for commercial real estate, particularly owner occupied property.
Deposits
Our bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, commercial accounts, savings accounts, and other time deposits of
various types, ranging from daily money market accounts to longer-term
certificates of deposit. The transaction accounts and time certificates are
tailored to our principal market area at rates competitive to those offered in
the Greenville County area. In addition, we offer certain retirement account
services, such as individual retirement accounts. We solicit these accounts from
individuals, businesses, associations, organizations, and governmental
authorities.
Lending Activities
General. The bank emphasizes a range of lending services, including
real estate, commercial, and consumer loans to individuals and small-to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in its market area.
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Real Estate Loans. Approximately 60% of our loan portfolio consists of
loans that are secured by first or second mortgages on real estate. These loans
generally fall into three categories: commercial real estate loans, construction
and development loans, and residential real estate loans. Each of these
categories is discussed in more detail below, including their specific risks.
Home equity lines are not included because they are classified as consumer
loans, which are discussed below. Interest rates for all categories may be fixed
or adjustable, and will more likely be fixed for shorter-term loans. We may
charge an origination fee for each loan.
The principal economic risk associated with the categories of
anticipated loans, including real estate loans, is the cash flow capability and
creditworthiness of our borrowers. The risks associated with real estate loans
vary with many economic factors, including employment levels and fluctuations in
the value of real estate.
Commercial Real Estate Loans. Commercial real estate loans will
generally have terms of three to seven years, although payments may be
structured on a longer amortization basis. Risks associated with commercial real
estate loans include the general risk of the failure of each commercial
borrower, which is different for each type of business and commercial entity. We
evaluate each business on an individual basis and attempt to determine its
business risks and credit profile. Our bank attempts to reduce credit risk in
the commercial real estate portfolio by emphasizing loans on owner-occupied
office and retail buildings where the loan-to-loan-value ratio, established by
independent appraisals, does not exceed 85%. We generally require that debtor
cash flow exceeds 120% of monthly debt service obligations. The bank typically
reviews the personal financial statements of the principal owners and requires
their personal guarantees. One purpose of these reviews is to reveal secondary
sources of repayment and liquidity to support a loan request.
Construction and Development Real Estate Loans. We offer
adjustable and fixed rate residential and commercial construction loans to
builders and developers and to consumers who wish to build their own home. The
terms of construction and development loans are generally limited to eighteen
months, although payments may be structured on a longer amortization basis. Most
loans mature and require payment in full upon the sale of the property.
Construction and development loans generally carry a higher degree of risk than
long term financing of existing properties. Repayment depends on the ultimate
completion of the project and usually on the sale of the property. Risks
include:
o cost overruns,
o mismanaged construction,
o inferior or improper construction techniques,
o economic changes or downturns during construction,
o a downturn in the real estate market,
o rising interest rates which may prevent sale of the property, and
o failure to sell completed projects in a timely manner.
The bank attempts to reduce risk by obtaining personal guarantees where
possible, and by keeping the loan to value ratio of the completed project below
specified percentages. We also reduce the risk by selling participations in
larger loans to other institutions when possible.
Residential Real Estate Loans. Residential real estate loans generally
have longer terms up to 30 years. The bank offers fixed and adjustable rate
mortgages. We do not expect any credit risk on these loans as they are
underwritten through a third party agent without any recourse against the bank.
Commercial Loans. The bank makes loans for commercial purposes in
various lines of businesses. Equipment loans are typically for a term of five
years or less at fixed or variable rates, with the loan fully amortized over the
term and secured by the financed equipment and with a loan-to-value ratio of 80%
or less. Working capital loans typically have terms not exceeding one year and
are usually secured by accounts receivable, inventory, or personal guarantees of
the principals of the business. For loans secured by accounts receivable or
inventory, principal is typically repaid as the assets securing the loan are
converted into cash, and in other cases
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principal is typically due at maturity. Trade letters of credit, standby letters
of credit, and foreign exchange are handled through a correspondent bank as
agent for our bank.
Consumer Loans. The bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
revolving lines of credit such as credit cards. Installment loans typically
carry balances of less than $50,000 and are amortized over periods up to 60
months. Consumer loans may be offered on a single maturity basis where a
specific source of repayment is available. Revolving loan products will
typically require monthly payments of interest and a portion of the principal.
The principal economic risk associated with consumer loans is the
creditworthiness and cash flow of our borrowers. The principal competition for
consumer loans is the established banks in the Greenville County area.
We also offer home equity lines. The underwriting criteria for and the
risks associated with home equity lines will generally be the same as those for
first mortgage loans. Home equity lines of credit will typically have terms of
15 years or less, will typically carry balances less than $125,000, and may
extend up to 100% of the available equity of each property.
Credit Administration. As part of its regular examination process, the
Office of the Comptroller of the Currency reviews our capital adequacy, asset
quality, management and board supervision, and other matters. See the discussion
below under "Supervision and Regulation - New Commerce Bank." Our risk
management systems enable us to generate reports of past due loans, risk rating,
documentation, and policy exceptions. In addition, we have a board/oversight
compliance committee to supervise administration of our loan portfolio, and we
conduct internal peer reviews of our loan files. We also use an outside
consulting firm to review our loan portfolio for safety and soundness and
compliance. This consultant reports directly to our board/oversight compliance
committee.
Loan Approval and Review. The bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds that individual officer's lending authority, the
loan request will be considered and approved by an officer with a higher lending
limit or the officers' loan committee. Our bank has established individual loan
officer lending limits, and any loan in excess of this lending limit will be
approved by the directors' loan committee. The bank will not make any loans to
any director, officer, or employee of the bank unless the loan is made on terms
not more favorable to such person than would be available to a person not
affiliated with us.
Lending Limits. Our bank's lending activities are subject to a variety
of lending limits imposed by federal law. While differing limits apply in
certain circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to the bank), in general the bank
internally limits loan exposure to any borrower at $500,000. This limit will
increase or decrease as our bank's capital increases or decreases. Unless the
bank is able to sell participations in its loans to other financial
institutions, the bank will not be able to meet all of the lending needs of loan
customers requiring aggregate extensions of credit above these limits.
Other Banking Services
Other bank services include commercial cash management services,
commercial courier services, business manager receivables based lending program
and extended hours of operation. In addition, we provide services such as an 800
number, 24-hour telephone voice response system, drive up ATMs, strategically
placed cash dispenser locations, safe deposit boxes, travelers checks, direct
deposit of payroll and social security checks, and automatic drafts for various
accounts. The bank is associated with the STAR and Cirrus ATM networks that may
be used by our customers throughout Greenville County and other regions. The
bank waives the foreign ATM charge on customer withdrawals of $50 or more from
other bank ATM's. The bank also offers a debit card, VISA credit card services,
and merchant bankcards through a correspondent bank.
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Competition
Competition in our bank's primary service area is intense. As of June
200, there were approximately 32 banking offices representing 14 financial
institutions operating in the Golden Strip (including Woodruff Road bank
branches) holding approximately $768 million in deposits.
Financial institutions primarily compete with one another for deposits.
In turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. We are competing with financial institutions
which have much greater financial resources than we have, and which may be able
to offer more and unique services and possibly better terms to their customers.
However, we believe that we are attracting sufficient deposits to enable us
to compete effectively with other area financial institutions. The bank believes
it has the advantage of being locally owned and managed, enabling it to benefit
from the high visibility and excellent business contacts of its organizers.
Employees
As of March 11, 2002, we had 17 full-time employees and 1 part-time
employee operating out of our main facility in Greenville and our branch
facility in Simpsonville.
Supervision and Regulation
Both holding companies and national banks are extensively regulated
under both federal and state law. The following is a brief summary of banking
statutes and rules and regulations that affect New Commerce BanCorp and New
Commerce Bank. These laws and regulations are generally intended to protect
depositors, not shareholders. These regulations are very complex, and we refer
you to the particular statutes, and regulatory provisions for a thorough
understanding.
Gramm-Leach-Bliley Act
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act is intended, in part, to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis. Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time other changes are proposed to laws affecting the banking
industry, and these changes could have a material effect on our business and
prospects.
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market an institution's own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing, or
other marketing to the consumer.
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New Commerce BanCorp
Because it owns the outstanding capital stock of the bank, New Commerce
BanCorp is a bank holding company under the federal Bank Holding Company Act of
1956 and the South Carolina Banking and Branching Efficiency Act.
The Bank Holding Company Act. Under the Bank Holding Company Act, New
Commerce BanCorp is subject to periodic examination by the Federal Reserve and
required to file periodic reports of its operations and any additional
information that the Federal Reserve may require. Our activities at the bank and
holding company level are limited to:
o banking and managing or controlling banks;
o furnishing services to or performing services for its subsidiaries;
and
o engaging in other activities that the Federal Reserve
determines to be so closely related to banking and managing or
controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:
o acquiring substantially all the assets of any bank;
o acquiring direct or indirect ownership or control of
any voting shares of any bank if after the acquisition it
would own or control more than 5% of the voting shares of such
bank (unless it already owns or controls the majority of such
shares); or
o merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person acquires 10% or more, but less than 25%, of any class of voting
securities and either New Commerce BanCorp has registered securities under
Section 12 of the Securities Exchange Act of 1934 or no other person owns a
greater percentage of that class of voting securities immediately after the
transaction. New Commerce BanCorp's common stock is registered under the
Securities Exchange Act of 1934. The regulations provide a procedure for
challenge of the rebuttable control presumption.
Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined by regulation to be proper incidents to the
business of a bank holding company include:
o making or servicing loans and certain types of leases;
o engaging in certain insurance and discount brokerage activities;
o performing certain data processing services;
o acting in certain circumstances as a fiduciary or investment or
financial adviser;
o owning savings associations; and
o making investments in certain corporations or projects designed
primarily to promote community welfare.
The Federal Reserve Board imposes certain capital requirements on New
Commerce BanCorp under the Bank Holding Company Act, including a minimum
leverage ratio and a minimum ratio of "qualifying" capital to risk-weighted
assets. These requirements are described below under "Capital Regulations."
Subject to its capital
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requirements and certain other restrictions, New Commerce BanCorp is able to
borrow money to make a capital contribution to the bank, and these loans may be
repaid from dividends paid from the bank to New Commerce BanCorp. Our ability to
pay dividends will be subject to regulatory restrictions as described below in
"The Bank - Dividends." New Commerce BanCorp is also able to raise capital for
contribution to the bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, New Commerce BanCorp is expected to act as a source of financial
strength to the bank and to commit resources to support the bank in
circumstances in which New Commerce BanCorp might not otherwise do so. Under the
Bank Holding Company Act, the Federal Reserve Board may require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary,
other than a nonbank subsidiary of a bank, upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
South Carolina State Regulation. As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. Prior to acquiring the capital stock of a national bank,
we are not required to obtain the approval of the Board, but we must notify them
at least 15 days prior to doing so. We must receive the Board's approval prior
to engaging in the acquisition of banking or nonbanking institutions or assets,
and we must file periodic reports with respect to our financial condition and
operations, management, and intercompany relationships between New Commerce
BanCorp and its subsidiaries.
New Commerce Bank
The bank operates as a national banking association incorporated under
the laws of the United States and subject to examination by the Office of the
Comptroller of the Currency. Deposits in the bank are insured by the FDIC up to
a maximum amount, which is generally $100,000 per depositor subject to the
aggregation rule.
The Office of the Comptroller of the Currency and the FDIC regulate or
monitor virtually all areas of the bank's operations, including
o security devices and procedures;
o adequacy of capitalization and loss reserves;
o loans;
o investments;
o borrowings;
o deposits;
o mergers;
o issuances of securities;
o payment of dividends;
o interest rates payable on deposits;
o interest rates or fees chargeable on loans;
o establishment of branches;
o corporate reorganizations;
o maintenance of books and records; and
o adequacy of staff training to carry on safe lending and deposit
gathering practices.
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The Office of the Comptroller of the Currency requires the bank to
maintain specified capital ratios and imposes limitations on the bank's
aggregate investment in real estate, bank premises, and furniture and fixtures.
The Office of the Comptroller of the Currency also requires the bank to prepare
quarterly reports on the bank's financial condition and to conduct an annual
audit of its financial affairs in compliance with its minimum standards and
procedures.
Under the FDIC Improvement Act, all insured institutions must undergo
regular on site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and state
supervisor when applicable. The FDIC Improvement Act directs the FDIC to develop
a method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition or any other report of any insured depository institution. The FDIC
Improvement Act also requires the federal banking regulatory agencies to
prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating, among other things, to the
following:
o internal controls;
o information systems and audit systems;
o loan documentation;
o credit underwriting;
o interest rate risk exposure; and
o asset quality.
National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Office of the Comptroller of the Currency or the
Federal Reserve Board to be troubled institutions must give the Office of the
Comptroller of the Currency or the Federal Reserve Board 30 days prior notice of
the appointment of any senior executive officer or director. Within the 30 day
period, the Office of the Comptroller of the Currency or the Federal Reserve
Board, as the case may be, may approve or disapprove any such appointment.
Deposit Insurance. The FDIC has adopted a risk-based assessment system
for determining an insured depository institutions' insurance assessment rate.
The system that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. An institution is
placed into one of three capital categories: (1) well capitalized; (2)
adequately capitalized; or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subgroups, based on the FDIC's
determination of the institution's financial condition and the risk posed to the
deposit insurance funds. Assessments range from 0 to 27 cents per $100 of
deposits, depending on the institution's capital group and supervisory subgroup.
In addition, the FDIC imposes assessments to help pay off the $780 million in
annual interest payments on the $8 billion Financing Corporation bonds issued in
the late 1980s as part of the government rescue of the thrift industry.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Transactions With Affiliates and Insiders. The bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.
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The bank is also be subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibits an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with nonaffiliated companies. The bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
Dividends. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the Office of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
Branching. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current South Carolina law, the bank may open
branch offices throughout South Carolina with the prior approval of the Office
of the Comptroller of the Currency. In addition, with prior regulatory approval,
the bank will be able to acquire existing banking operations in South Carolina.
Furthermore, federal legislation permits interstate branching, including
out-of-state acquisitions by bank holding companies, interstate branching by
banks if allowed by state law, and interstate merging by banks. South Carolina
law, with limited exceptions, currently permits branching across state lines
through interstate mergers.
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency, shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank. Under the Gramm-Leach-Bliley Act, banks with
aggregate assets of not more than $250 million will be subject to a Community
Reinvestment Act examination only once every 60 months if the bank receives an
outstanding rating, once every 48 months if it receives a satisfactory rating,
and as needed if the rating is less than satisfactory. Additionally, under the
Gramm-Leach-Bliley Act, banks are required to publicly disclose the terms of
various Community Reinvestment Act-related agreements.
Other Regulations. Interest and other charges collected or contracted
for by the bank are subject to state usury laws and federal laws concerning
interest rates. The bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
o the federal Truth-In-Lending Act, governing disclosures of credit
terms to consumer borrowers;
o the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution is
fulfilling its obligation to help meet the housing needs of
the community it serves;
o the Equal Credit Opportunity Act, prohibiting discrimination on
the basis of race, creed or other prohibited factors in extending
credit;
o the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
10
o the Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and
o the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws.
The deposit operations of the bank also are subject to:
o the Right to Financial Privacy Act, which imposes a duty
to maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas
of financial records; and
o the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve Board to implement that act, which governs
automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking services.
Capital Regulations. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not
received any notice indicating that either New Commerce BanCorp or New Commerce
Bank is subject to higher capital requirements. The current guidelines require
all bank holding companies and federally-regulated banks to maintain a minimum
risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
The FDIC Improvement Act established a new capital-based regulatory
scheme designed to promote early intervention for troubled banks, which requires
the FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To qualify as a "well capitalized" institution, a
bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based
11
capital ratio of no less than 10%, and the bank must not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific
capital level. Currently, we qualify as "well capitalized."
Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:
o submit a capital restoration plan;
o raise additional capital;
o restrict their growth, deposit interest rates,
and other activities;
o improve their management;
o eliminate management fees; or
o divest themselves of all or a part of their operations.
These capital guidelines can affect us in several ways. If we grow at a
rapid pace, our capital may be depleted too quickly, and a capital infusion from
our holding company may be necessary which could impact our ability to pay
dividends. Our capital levels currently are adequate; however, rapid growth,
poor loan portfolio performance, poor earnings performance, or a combination of
these factors could change our capital position in a relatively short period of
time. If we fail to meet these capital requirements, our bank would be required
to develop and file a plan with the Office of the Comptroller of the Currency
describing the means and a schedule for achieving the minimum capital
requirements. In addition, our bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless our bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time. Bank holding companies controlling financial institutions can be called
upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
Enforcement Powers. The Financial Institution Reform Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties." Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institution's affairs. These practices can include the failure of an institution
to timely file required reports or the filing of false or misleading information
or the submission of inaccurate reports. Civil penalties may be as high as
$1,000,000 a day for such violations. Criminal penalties for some financial
institution crimes have been increased to twenty years. In addition, regulators
are provided with greater flexibility to commence enforcement actions against
institutions and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance. Furthermore, banking agencies'
power to issue cease-and-desist orders were expanded. Such orders may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
Effect of Governmental Monetary Policies. Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Bank's monetary policies
have had, and are likely to continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board have major effects
upon the levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the
12
reserve requirements against member bank deposits. It is not possible to predict
the nature or impact of future changes in monetary and fiscal policies.
Proposed Legislation and Regulatory Action. New regulations and
statutes are regularly proposed that contain wide-ranging proposals for altering
the structures, regulations, and competitive relationships of the nation's
financial institutions. We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may be
affected by any new regulation or statute.
Item 2. Description of Property
The headquarters for the Company and the Bank are located at 501 New
Commerce Court, at Butler Road and I-385, in Greenville, South Carolina. This
12,089 square foot facility, situated on approximately 2 acres, was completed in
May 2000 at a cost of approximately $1.5 million and is owned by the Bank. This
facility houses a full-service branch as well as the Company's administrative
and operations staff. The Bank's first branch was opened in June 2000 at the
intersection of Woodruff and Batesville Roads (1 Five Forks Plaza Court) in
Simpsonville, South Carolina. This 3,050 square foot facility is situated on
approximately 1 acre and is owned by the Bank. The branch was completed at a
cost of approximately $595,000. In October 1999, the Company purchased a
building at 111 North Main Street in Mauldin, South Carolina for $403,000 to be
used for future expansion. In April 2001, we leased the building for a 5 -year
lease term.
Item 3. Legal Proceedings.
We are not a party to, nor is any of our property subject to, any
material legal proceedings, other than routine litigation incidental to our
business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
Item 5. Market for Common Equity and Related Stockholder Matters.
In response to this Item, the information contained on page 34 of the
company's Annual Report to Shareholders for the year ended December 31, 2001 is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Results of Operation
In response to this Item, the information contained on pages 3 through
15 of the company's Annual Report to Shareholders for the year ended December
31, 2001 is incorporated herein by reference.
Item 7. Financial Statements
In response to this Item, the information contained on pages 16 through
32 of the company's Annual Report to Shareholders for the year ended December
31, 2001 is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
13
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
In response to this Item, the information contained on page 12 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 24, 2002 is incorporated herein by reference.
Item 10. Executive Compensation
In response to this Item, the information contained on pages 7 through
9 of the company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 24, 2002 is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
In response to this Item, the information contained on page 10 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 24, 2002 is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
In response to this Item, the information contained on page 12 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 24, 2002 is incorporated herein by reference.
Item 13. Exhibits, List and Reports on Form 8-K
(a) The following documents are filed as part of this report:
3.1. Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2, File No.
333-70589).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2, File No. 333-70589).
4.1. See Exhibits 3.1 and 3.2 for provisions in New Commerce BanCorp's
Articles of Incorporation and Bylaws defining the rights of holders of
the common stock (incorporated by reference to Exhibits 3.1 and 3.2 of
the Registration Statement on Form SB-2, File No. 333-70589).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-70589).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of
the Registration Statement on Form SB-2, File No. 333-70589).
10.1 Employment Agreement dated August 1, 1998 between New Commerce BanCorp
and James D. Stewart (incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.1A Separation Agreement dated October 9, 2001 between New Commerce BanCorp
and James D. Stewart.
10.2 Data Processing Services Agreement and Contract Modification dated
December 1, 1998 between New Commerce BanCorp and Jack Henry &
Associates, Inc. (incorporated by reference to Exhibit 10.7 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.3 Form of Stock Warrant Agreement for Warrants issued in 1999
(incorporated by reference to Exhibit 10.8 of the Registration
Statement on Form SB-2, File No. 333-70589).
14
10.4 Employment Agreement dated January 29,1999 between New Commerce BanCorp
and Paula S. King (incorporated by reference to Exhibit 10.9 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.5 New Commerce BanCorp 1999 Stock Incentive Plan (incorporated by
reference to Exhibit 10.10 of the Form 10-K for the year ended December
31, 1999, File No. 333-70589).
13.1. The Company's 2001 Annual Report
21.1. Subsidiaries of the Company
(b) Reports on Form 8-K
The company did not file any reports on Form 8-K during the fourth
quarter of 2001.
15
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW COMMERCE BANCORP
Date: March 12, 2002 By: /s/ Frank W. Wingate
------------------ ---------------------------------------
Frank W. Wingate
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Frank W. Wingate, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard W. Bailey
- ------------------------------------
Richard W. Bailey Director 03/12/02
-----------------
/s/ Timothy A. Brett
- ------------------------------------
Timothy A. Brett Director 03/12/02
-----------------
/s/ Marshall J. Collins, Jr.
- ------------------------------------
Marshall J. Collins, Jr. Director 03/12/02
-----------------
/s/ Ralph S. Crawley
- ------------------------------------
Ralph S. Crawley Director 03/12/02
-----------------
/s/ G. Mitchell Gault
- ------------------------------------
G. Mitchell Gault Director 03/12/02
-----------------
16
Signature Title Date
- --------- ----- ----
/s/ Tommy D. Greer
- ------------------------------------
Tommy D. Greer Director 03/12/02
-----------------
/s/ Bobby L. Johnson
- ------------------------------------
Bobby L. Johnson Director 03/12/02
-----------------
/s/ Robert T. Kellett
- ------------------------------------
Robert T. Kellett Director 03/12/02
-----------------
/s/ Dennis O. Raines
- ------------------------------------
Dennis O. Raines Director 03/12/02
-----------------
/s/ Frank W. Wingate Director 03/12/02
- ------------------------------------ -----------------
Frank W. Wingate
/s/ Paula S. King Principal Accounting 03/12/02
- ------------------------------------ -----------------
Paula S. King Officer and Chief Financial
Officer
17
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1. Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2, File No.
333-70589).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2, File No. 333-70589).
4.1. See Exhibits 3.1 and 3.2 for provisions in New Commerce BanCorp's
Articles of Incorporation and Bylaws defining the rights of holders of
the common stock (incorporated by reference to Exhibits 3.1 and 3.2 of
the Registration Statement on Form SB-2, File No. 333-70589).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-70589).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of
the Registration Statement on Form SB-2, File No. 333-70589).
10.1 Employment Agreement dated August 1, 1998 between New Commerce BanCorp
and James D. Stewart (incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form SB-2, File No. 333- 70589).
10.1A Separation Agreement dated October 9, 2001 between New Commerce BanCorp
and James D. Stewart.
10.2 Data Processing Services Agreement and Contract Modification dated
December 1, 1998 between New Commerce BanCorp and Jack Henry &
Associates, Inc. (incorporated by reference to Exhibit 10.7 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.3 Form of Stock Warrant Agreement for Warrants issued in 1999
(incorporated by reference to Exhibit 10.8 of the Registration
Statement on Form SB-2, File No. 333-70589).
10.4 Employment Agreement dated January 29,1999 between New Commerce BanCorp
and Paula S. King (incorporated by reference to Exhibit 10.9 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.5 New Commerce BanCorp 1999 Stock Incentive Plan (incorporated by
reference to Exhibit 10.10 of the Form 10-K for the year ended December
31, 1999, File No. 333-70589).
13.1. The Company's 2001 Annual Report
21.1. Subsidiaries of the Company
18
Exhibit 13
New Commerce BanCorp 2001 Annual Report
Exhibit 21
Subsidiaries of the Company
New Commerce Bank