SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995 Commission File No. 0-17565
FIRST UNITED BANCORPORATION
(Exact name of Registrant as specified in its charter)
South Carolina 41-1440792
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
304 North Main Street, Anderson, South Carolina 29621
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code:
(864) 224-1112
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $1.67 Par Value
(Title of Class)
Indicate by checkmark 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 ninety (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 the
Form 10-K. [X]
The aggregate market value of the voting Common Stock, $1.67 par value, held by
non-affiliates of the Registrant on March 12, 1996 was approximately
$23,759,000. As of March 12, 1996, there were 2,326,804 shares of Registrant's
Common Stock, $1.67 par value, outstanding. For purposes of the foregoing
calculation only, all directors and executive officers of the Registrant have
been deemed affiliates.
Documents Incorporated by Reference
(1) Portions of the Registrant's 1995 Annual Report to Shareholders for the
fiscal year ended December 31, 1995 ("1995 Annual Report to Shareholders"), are
incorporated by reference into Part II hereof.
(2) Portions of the Registrant's definitive Proxy Statement for its April 23,
1996 Annual Meeting of Shareholders ("Proxy Statement") are incorporated by
reference into Part III hereof.
PART I
Item 1. Business
First United Bancorporation (the "Company") is a South Carolina
corporation which was organized in July 1987, to become a bank holding company.
The Company has three wholly-owned subsidiaries: Anderson National Bank,
Anderson, South Carolina, a national bank organized in 1984, Spartanburg
National Bank, Spartanburg, South Carolina, a national bank organized in 1988
(sometimes referred to herein as "the Banks"), and Quick Credit Corporation
("Quick Credit"), a consumer loan company organized in 1988.
The Company is in the process of organizing The Community Bank of
Greenville, National Association ("The Community Bank of Greenville") for the
purpose of conducting banking business in the Greenville, South Carolina area.
The organizers of The Community Bank of Greenville have received preliminary
approval of the bank's charter from the Office of the Comptroller of the
Currency and approval of insurance of its deposits, subject to compliance with
certain conditions, from the Federal Deposit Insurance Corporation. The Company
has received approvals from the Board of Governors of the Federal Reserve System
and the South Carolina State Board of Financial Institutions, subject to
compliance with certain conditions, to acquire 100% of the stock of the new
bank. Upon completion of the bank's organization and compliance with all
regulatory conditions, the Company intends to use funds borrowed pursuant to a
line of credit to acquire 100% of the stock of The Community Bank of Greenville.
Although the discussion set forth herein assumes that the organization of The
Community Bank of Greenville will be completed, and that the bank will open for
business, there can be no assurances to that effect.
The Company engages in no significant operations other than the
ownership of its three subsidiaries. The Company conducts its business from six
banking offices and twenty-two consumer finance offices located throughout South
Carolina.
General Business
Some of the major services which the Company provides through its
banking subsidiaries include checking, NOW accounts, savings and other time
deposits of various types, alternative investment products such as annuities and
mutual funds, loans for business, agriculture, real estate, personal use, home
improvement and automobiles, credit cards, letters of credit, home equity lines
of credit, safe deposit boxes, bank money orders, wire transfer service and use
of ATM facilities. 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. The
Company also provides small consumer loans of up to $1,000 through its consumer
finance company subsidiary, Quick Credit. There are no material seasonal factors
that would have an adverse effect on the Company. The Company does not have
foreign loans.
Territory Served and Competition
Anderson National Bank serves its customers from two locations in the
City of Anderson, South Carolina, one location in Pelzer, South Carolina, and
one location in Williamston, South Carolina. Anderson is located approximately
25 miles southwest of Greenville, South Carolina, in the fast growing Interstate
- - 85 corridor between Charlotte, North Carolina and Atlanta, Georgia. The town
of Pelzer, South Carolina is located approximately 17 miles northeast of
Anderson. The town of Williamston, South Carolina is located approximately 16
miles northeast of Anderson.
Spartanburg National Bank serves its customers from two locations in
Spartanburg, South Carolina. Spartanburg is located approximately 30 miles
northeast of Greenville and, like Anderson, is located in the fast growing
Interstate - 85 corridor between Charlotte and Atlanta.
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Quick Credit serves its customers from locations in Anderson,
Greenville, Greenwood, Laurens, Seneca, Easley, Florence, Spartanburg, Marion,
Sumter, Cayce, Kingstree, Orangeburg, North Charleston, Abbeville, Newberry,
Hartsville, Rock Hill, Gaffney, Aiken, Camden and Columbia, South Carolina.
When organized, The Community Bank of Greenville will serve customers
from a single location in Greenville, South Carolina. Greenville is located
between Anderson and Spartanburg and is also in the Interstate-85 corridor
between Charlotte and Atlanta.
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 Anderson, South Carolina, Anderson National
Bank's customer base has been primarily derived from Anderson County, South
Carolina. Spartanburg National Bank's primary service area is Spartanburg
County, South Carolina. The Community Bank of Greenville's primary service area
is expected to be Greenville County, South Carolina. Anderson National Bank and
Spartanburg National Bank compete with several major banks which dominate the
commercial banking industry in their service areas and in South Carolina
generally. In addition, Anderson National Bank and Spartanburg National Bank
compete with savings institutions and credit unions. In Anderson county, there
are 40 competitor bank branches, 17 savings institution branches and 9 credit
union branches. In Spartanburg County there are 55 competitor bank branches, 13
savings institution branches and 7 credit union branches. Anderson National Bank
has approximately 5% of the deposits in Anderson County and Spartanburg National
Bank has approximately 4% of the deposits in Spartanburg County. Several
competitor institutions have substantially greater resources and higher lending
limits than Anderson National Bank and Spartanburg National Bank and they
perform certain functions for their customers, including trust services and
investment banking services, which neither Anderson National Bank nor
Spartanburg National Bank is equipped to offer directly. Anderson National Bank
and Spartanburg National Bank, however, offer some of these services through
correspondent banks. In addition to commercial banks, savings institutions and
credit unions, Anderson National Bank and Spartanburg National Bank 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. Various of these nonbank competitors are
not subject to the same regulatory restrictions as the Company and its
subsidiaries and many have substantially greater resources than the Company.
When organized, The Community Bank of Greenville is expected to face similar
competition to the competition faced by Anderson National Bank and Spartanburg
National Bank.
Competition among consumer finance companies is not generally as
intense as that among banks. Most consumer finance companies are allowed only
one outstanding loan per customer, and the amounts of such loans are restricted
by state law according to the type of license granted by the South Carolina
State Board of Financial Institutions. Numerous other finance companies which
offer similar types of loans are located in the areas served by Quick Credit.
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 enterprise 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, fees for services performed and interest on advances and
loans.
Employees
As of December 31, 1995, the Company had 188 full-time employees and 11
part-time employees. The Company considers its relationship with its employees
to be good. The employee benefit programs the Company provides include group
life, health and dental insurance, paid vacation, sick leave, educational
opportunities, a stock option plan for officers and key employees, a split
dollar life insurance plan for executive officers, a contributory deferred
compensation plan, and a 401K plan for employees.
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Supervision and Regulation
Bank holding companies and banks are extensively regulated under
federal and state law. 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 its
subsidiaries.
Bank Holding Company Regulation
The Company is registered as a "bank holding company" with the Board of
Governors of the Federal Reserve System ("Federal Reserve"), and is subject to
supervision by the Federal Reserve under the Bank Holding Company Act ("BHC
Act"). The Company is required to file with the Federal Reserve periodic reports
and such additional information as the Federal Reserve may require pursuant to
the BHC Act. The Federal Reserve examines the Company, and may examine the
subsidiary Banks and Quick Credit.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC Act
prohibits a bank holding company from acquiring direct or indirect ownership or
control of voting shares of any company which is not a bank or bank holding
company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve has determined by regulation or order to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The Company is also registered under the bank holding company laws of
South Carolina. Accordingly, the Company is subject to regulation and
supervision by the South Carolina State Board of Financial Institutions (the
"State Board").
A registered South Carolina bank holding company must provide the State
Board with information with respect to the financial condition, operations,
management and inter-company relationships of the holding company and its
subsidiaries. The State Board also may require such other information as is
necessary to keep itself informed about whether the provisions of South Carolina
law and the regulations and orders issued thereunder by the State Board have
been complied with, and the State Board may examine any bank holding company and
its subsidiaries.
Under the South Carolina Bank Holding Company Act (the "SCBHCA"), it is
unlawful without the prior approval of the State Board for any South Carolina
bank holding company (i) to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank or any other bank holding company,
(ii) to acquire all or substantially all of the assets of a bank or any other
bank holding company, or (iii) to merge or consolidate with any other bank
holding company.
As stated above, the Company is a legal entity separate and distinct
from the subsidiary Banks and its other subsidiary. Various legal limitations
place restrictions on the ability of the subsidiary Banks to lend or otherwise
supply funds to the Company or its non-bank subsidiaries. The Company, Anderson
National Bank and Spartanburg National Bank are, and The Community Bank of
Greenville will be, subject to Section 23A of the Federal Reserve Act. Section
23A defines "covered transactions", which include extensions of credit, and
limits a bank's covered transactions with any affiliate to 10% of such bank's
capital and surplus. All covered transactions with all affiliates cannot in the
aggregate exceed 20% of a bank's capital and surplus. All covered and exempt
transactions between a bank and its affiliates must be on terms and conditions
consistent with safe and sound banking practices, and banks and their
subsidiaries are prohibited from purchasing low-quality assets from the bank's
affiliates. Finally, Section 23A requires that all of a bank's extensions of
credit to an affiliate be appropriately secured by acceptable collateral,
generally United States government or agency securities. The Company, Anderson
National Bank and Spartanburg
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National Bank also are, and The Community Bank of Greenville will be, subject to
Section 23B of the Federal Reserve Act, which generally limits covered and other
transactions among affiliates to terms and circumstances, including credit
standards, that are substantially the same or at least as favorable to a bank
holding company, a bank or a subsidiary of either as prevailing at the time for
transactions with unaffiliated companies.
In July 1994, South Carolina enacted legislation which effectively
provides that, after June 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the State Board and compliance with certain
other conditions, including that the effect of the transaction not lessen
competition and that the laws of the state in which the out-of-state bank
holding company filing the applications has its principal place of business
permit South Carolina bank holding companies to acquire banks and bank holding
companies in that state. Although such legislation may increase takeover
activity in South Carolina, the Company does not believe that such legislation
will have a material impact on its competitive position. However, no assurance
of such fact may be given.
Congress recently enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, which will increase the ability of bank
holding companies and banks to operate across state lines. Under the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994, the existing
restrictions on interstate acquisitions of banks by bank holding companies will
be repealed one year following enactment, such that the Company and any other
bank holding company located in South Carolina would be able to acquire a bank
located in any other state, and a bank holding company located outside South
Carolina could acquire any South Carolina-based bank, in either case subject to
certain deposit percentage and other restrictions. The legislation also provides
that, unless an individual state elects beforehand either (i) to accelerate the
effective date or (ii) to prohibit out-of-state banks from operating interstate
branches within its territory, on or after June 1, 1997, adequately capitalized
and managed bank holding companies will be able to consolidate their multistate
bank operations into a single bank subsidiary and to branch interstate through
acquisitions. De novo branching by an out-of-state bank would be permitted only
if it is expressly permitted by the laws of the host state. The authority of a
bank to establish and operate branches within a state will continue to be
subject to applicable state branching laws. The Company believes that this
legislation may result in increased takeover activity of South Carolina
financial institutions by out-of-state financial institutions. However, the
Company does not presently anticipate that such legislation will have a material
impact on its operations or future plans.
Obligations of Holding Company to its Subsidiary Banks
Under the policy of the Federal Reserve, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("1991 Banking Law"), to
avoid receivership of its insured depository institution subsidiary, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all applicable capital
standards as of the time the institution fails to comply with such capital
restoration plan. Under the BHCA, the Federal Reserve has the authority to
require a bank holding company to terminate any activity or to relinquish
control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon
the Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act, as amended ("FDIA"), require insured depository institutions
under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated by either the Savings Association Insurance Fund or the Bank
Insurance Fund of the FDIC as a result of the default of a commonly controlled
insured depository institution or for any assistance provided by
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the FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Banks.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the Office of the Comptroller of the Currency
("OCC") is authorized to require payment of the deficiency by assessment upon
the bank's shareholders', pro rata, and to the extent necessary, if any such
assessment is not paid by any shareholder after three months notice, to sell the
stock of such shareholder to make good the deficiency.
Capital Adequacy
The various federal bank regulators, including the Federal Reserve and
the OCC, have adopted risk-based capital requirements for assessing bank holding
company and bank capital adequacy. These standards define what qualifies as
capital and establish minimum capital standards in relation to assets and
off-balance sheet exposures, as adjusted for credit risks. Capital is classified
into two tiers. For bank holding companies, Tier 1 or "core" capital consists
primarily of common shareholders' equity, perpetual preferred stock (subject to
certain limitations) and minority interests in the common equity accounts of
consolidated subsidiaries, and is reduced by goodwill and certain investments in
other corporations ("Tier 1 Capital"). Tier 2 capital consists of the allowance
for possible loan losses (subject to certain limitations), and certain
subordinated debt, "hybrid capital instruments", subordinated and perpetual debt
and intermediate term and other preferred stock ("Tier 2 Capital"). A minimum
ratio of total capital to risk- weighted assets of 8.00% is required and Tier 1
capital must be at least 50% of total capital. The Federal Reserve also has
adopted a minimum leverage ratio of Tier 1 Capital to total assets (not
risk-weighted) of 3%. The 3% Tier 1 Capital to total assets ratio constitutes
the leverage standard for bank holding companies and national banks, and will be
used in conjunction with the risk-based ratio in determining the overall capital
adequacy of banking organizations.
The Federal Reserve and the OCC have emphasized that the foregoing
standards are supervisory minimums and that an institution would be permitted to
maintain such levels of capital only if it had a composite rating of "1" under
the regulatory rating systems for bank holding companies and banks. All other
bank holding companies are required to maintain a leverage ratio of 3% plus at
least 1% to 2% of additional capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital less all intangibles, to total assets, less all
intangibles. The Federal Reserve has not advised the Company of any specific
minimum leverage ratio applicable to it. As of December 31, 1995, the Company,
Anderson National Bank and Spartanburg National Bank have leverage ratios of
8.23%; 7.86%; and 7.01% respectively, and total risk adjusted capital ratios of
12.73%; 12.72%; 11.09%, respectively.
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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 OCC 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 of the
two preceding years, less any required transfers to surplus or a fund for the
retirement of any preferred stock. OCC 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.
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 OCC, 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 OCC 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.
In 1995, Anderson National Bank paid dividends of $726,000 to the
Company. Spartanburg National Bank paid no dividends in 1995.
Bank Regulation
Anderson National Bank and Spartanburg National Bank are, and The
Community Bank of Greenville will be, subject to supervision and examination by
the OCC. The OCC regulates and monitors all areas of the Banks' operations,
including loans, mortgages, issuance of securities, capital adequacy, payment of
dividends, and establishment of branches. Interest and certain other charges
collected or contracted for by the Banks are also subject also to state usury
laws and certain federal laws concerning interest rates. Anderson National Bank
and Spartanburg National Bank are members of the Federal Reserve System, and
their deposits are insured by the FDIC up to the maximum permitted by law. Upon
completion if its organization, The Community Bank of Greenville will also be a
member of the Federal Reserve System and its deposits will be insured by the
FDIC up to the maximum permitted by law.
Under present law, the Banks currently may establish and operate
branches throughout the State of South Carolina, subject to the maintenance of
adequate capital for each branch and the receipt of OCC approval.
Insurance of Deposits
As FDIC-insured institutions, the Banks are subject to insurance
assessments imposed by the FDIC. Under current law, the insurance assessment to
be paid by FDIC-insured institutions shall be as specified in a schedule
required to be issued by the FDIC that specifies, at semi-annual intervals,
target reserve ratios designed to increase the FDIC insurance fund's reserve
ratio to 1.25% of estimated insured deposits (or such higher ratio as the FDIC
may determine in accordance with the statute) in 15 years. Further, the FDIC is
authorized to impose one or more special assessments in any amount deemed
necessary to enable repayment of amounts borrowed by the FDIC from the United
States Department of the Treasury.
Effective January 1, 1996, the FDIC implemented a risk-based assessment
schedule, having assessments ranging from 0.00% to 0.27% of an institution's
average assessment base with a minimum annual assessment of
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$2,000 per institution. The actual assessment to be paid by each FDIC-insured
institution is based on the institution's assessment risk classification, which
is determined based on whether the institution is considered "well capitalized,"
"adequately capitalized" or "undercapitalized", as such terms have been defined
in applicable federal regulations adopted to implement the prompt corrective
action provisions of FDICIA, and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory concerns.
Under uniform regulations defining such capital levels issued by each of the
federal banking agencies, a bank is considered "well capitalized" if it has (i)
a total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater, and
(iv) is not subject to any order or written directive to meet and maintain a
specific capital level for any capital measure. An "adequately capitalized" bank
is defined as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater, and (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a
composite CAMEL rating of 1). A bank is considered "undercapitalized" if it has
(i) a total risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based
capital ratio of less than 4%, or (iii) a leverage ratio of less than 4% (or 3%
in the case of a bank with a composite CAMEL rating of 1). As a result of the
current provisions of federal law, the assessment rates on deposits could
increase over present levels. Based on the current financial condition and
capital levels of the Banks, the Company does not expect that the current FDIC
risk-based assessment schedule will have a material adverse effect on the Banks'
earnings. The Banks' risk-based insurance assessments currently are each set at
the minimum $2,000 annual assessment.
Legislation
In 1989 and again in 1991, Congress enacted comprehensive legislation
affecting the commercial banking and thrift industries: the Financial
Institutions Reform, Recovery and Enforcement Act (FIRREA") and the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). FIRREA, among
other things, abolished the Federal Savings and Loan Insurance Corporation and
established two new insurance funds under the jurisdiction of the FDIC: the Bank
Insurance Fund ("BIF"), which insures most commercial banks, including Anderson
National Bank and Spartanburg National Bank, and the Savings Association
Insurance Fund ("SAIF"), which insures most thrift institutions. The Company
expects that The Community Bank of Greenville, N.A. will be insured by the BIF.
FIRREA permitted bank holding companies to acquire savings associations
subject to appropriate regulatory approvals. The entities acquired may be
operated as separate savings associations, converted into banks or, if certain
conditions are satisfied, merged into existing bank affiliates.
FIRREA also imposed, with certain limited exceptions, a
"cross-guarantee" on the part of commonly controlled depository institutions, as
discussed above under "Obligations of Holding Company to its Subsidiary Banks."
FDICIA supplements the federal banking agencies' broad powers to take
corrective action to resolve problems of insured depository institutions,
generally authorizing earlier intervention in the affairs of a particular
institution and imposing express requirements that are tied to the institution's
level of capital. If a depository institution fails to meet regulatory capital
requirements specified in FDICIA, regulatory agencies can require submission and
funding of a capital restoration plan by the institution, place limits on its
activities, require the raising of additional capital and, ultimately, require
the appointment of a conservator or receiver for the institution. Where a
capital restoration plan is required, the regulatory agency may require a bank
holding company to guarantee as a condition of approval of the plan the lower of
5% of an undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements. If the controlling bank holding company fails
to fulfill its obligations with respect to such a plan and files (or has filed
against it) a petition under the federal Bankruptcy Code, the claim would be
entitled to a priority in such bankruptcy proceeding over third party creditors
of the bank holding company.
FDICIA required each federal banking agency, including the Federal
Reserve, to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-
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family mortgages. The Federal Reserve, the FDIC and the OCC have issued a joint
rule amending the capital standards to specify that the banking agencies will
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 also issued for comment a proposed joint
policy statement that describes 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. The banking agencies have also indicated that, through a
subsequent rulemaking process, they intend to issue a proposed rule that would
establish an explicit capital charge for interest rate risk based on the level
of a bank's measured interest rate risk exposure.
The Federal Reserve, the FDIC, the OCC and the Office of Thrift
Supervision have also issued a joint rule amending the risk-based capital
guidelines to take account of concentration of credit risk and the risk of
non-traditional activities. The rule amends each agency's risk-based capital
standards by explicitly identifying concentration of credit risk and the risk
arising from other sources, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy.
FDICIA also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
FDICIA also required each of the federal banking agencies to develop
regulations addressing certain safety and soundness standards for insured
depository institutions and depository institution holding companies, including
operational and managerial standards, asset quality, earnings and stock
valuation standards, as well as compensation standards (but not dollar levels of
compensation). On September 23, 1994, the Riegle Community Development and
Regulatory Improvement Act of 1994 amended the 1991 Banking Law to authorize the
agencies to establish safety and soundness standards by regulation or by
guideline. Accordingly, the federal banking agencies have recently issued
Interagency Guidelines Establishing Standards for Safety and Soundness, which
set forth general operational and managerial standards in the areas of internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. The Guidelines also prohibit payment of excessive compensation as
an unsafe and unsound practice. Compensation is defined as excessive if it is
unreasonable or disproportionate to the services actually performed. Bank
holding companies are not subject to the Guidelines. The Guidelines contemplate
that each federal agency will determine compliance with these standards through
the examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. The Company
does not expect the Guidelines to materially change current operations of the
Banks.
Enforcement Policies and Actions
FIRREA significantly increased the enforcement powers of the OCC, the
Federal Reserve and the other federal depository institution regulators, and
authorizes the imposition of civil money penalties of from $5,000 per day up to
$1,000,000 per day for violations of federal banking laws and regulations.
Persons who are affiliated with depository institutions and are found to have
violated federal banking laws and regulations can be removed from any office
held in such institution and banned for life from participating in the affairs
of such an institution. The banking regulators have not hesitated to use the new
enforcement authorities provided them under FIRREA.
Community Reinvestment Act
The Banks are subject to the requirements of the Community Reinvestment
Act (the "CRA"). The CRA requires that financial institutions have 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
efforts in meeting the community credit needs are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating
9
mergers, acquisitions and applications to open a branch or facility. Both Banks
received ratings of satisfactory in their most recent evaluations.
The federal banking agencies, including the OCC, have recently issued a
joint rule that changes the method of evaluating an institution's CRA
performance. The new rule evaluates institutions based on their actual
performance (rather than efforts) in meeting community credit needs. Subject to
certain exceptions, the OCC assesses the CRA performance of a bank by applying
lending, investment and service tests. The lending test evaluates a bank's
record of helping to meet the credit needs of its assessment area through its
lending activities by considering a bank's home mortgage, small business, small
farm, community development, and consumer lending. The investment test evaluates
a bank's record of helping to meet the credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or regional area that includes the bank's assessment area. The service
test evaluates a bank's record of helping to meet the credit needs of its
assessment area by analyzing both the availability and effectiveness of a bank's
systems for delivering retail banking services and the extent and innovativeness
of its community development services. The OCC assigns a rating to a bank of
"outstanding," satisfactory," "needs to improve," or "substantial noncompliance"
based on the bank's performance under the lending, investment and service tests.
To evaluate compliance with the tests, subject to certain exceptions, banks will
be required to collect and report to the OCC extensive demographic and loan
data.
For banks with total assets of less than $250 million that are
affiliates of a holding company with banking and thrift assets of less than $1
billion, such as the Banks and Company, the OCC evaluates the bank's record of
helping to meet the credit needs of its assessment area pursuant to the
following criteria: (1) the bank's loan-to-deposit ratio, adjusted for seasonal
variation and, as appropriate, other lending-related activities, such as loan
originations for sale to the secondary markets, community development loans, or
qualified investments; (2) the percentage of loans and, as appropriate, other
lending-related activities located in the bank's assessment area; (3) the bank's
record of lending to and, as appropriate, engaging in other lending-related
activities for borrowers of different income levels and businesses and farms of
different sizes; (4) the geographic distribution of the bank's loans; and (5)
the bank's record of taking action, if warranted, in response to written
complaints about its performance in helping to meet credit needs in its
assessment area. Small banks may also elect to be assessed under the generally
applicable standards of the rule, but to do so a small bank must collect and
report extensive data.
A bank may also submit a strategic plan to the OCC and be evaluated on
its performance under the plan.
Other Laws and Regulations
Interest and certain other charges collected or contracted for by the
Banks are subject to state usury laws and certain federal laws concerning
interest rates. The Banks' operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, CRA requiring
financial institutions to meet their obligations to provide for the total credit
needs of the communities they serve, including investing their assets in loans
to low- and moderate-income borrowers, the Home Mortgage Disclosure Act of 1975
requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves, the Equal
Credit Opportunity Act prohibiting discrimination on the basis of race, creed or
other prohibited factors in extending credit, the Fair Credit Reporting Act of
1978 governing the use and provision of information to credit reporting
agencies, the Fair Debt Collection Act governing the manner in which consumer
debts may be collected by collection agencies, and the rules and regulations of
the various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations of the Banks also are subject to the
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve to implement that act, 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.
10
From time to time, bills are pending before the United States Congress
which contain wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to prohibit banks and bank holding companies from conducting
certain types of activities, to subject banks to increased disclosure and
reporting requirements, to alter the statutory separation of commercial and
investment banking, and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or to the extent to which the
business of the Company and its subsidiaries may be affected thereby.
Fiscal and Monetary Policy
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of the Company will be subject to the influence of
economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve regulates the supply of money through
various means, including open-market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits. The nature and timing of any
changes in such policies and their impact on the Company cannot be predicted.
Consumer Finance Regulation
The Company's consumer finance subsidiary, Quick Credit, is supervised
by the State Board of Financial Institutions. Quick Credit is required to file
annual reports with, and is subject to annual examinations by the State Board of
Financial Institutions. Quick Credit must comply with all federal and state
regulations pertaining to extensions of credit. South Carolina law limits
consumer finance companies to one outstanding loan per customer, and places
limitations on the interest rates charged by such companies.
Item 2. Properties
The Company's principal executive offices are located in a building in
the downtown area of Anderson, South Carolina, and contain approximately 17,700
square feet of space. The building is owned by Anderson National Bank and is
occupied exclusively by the Company and Anderson National Bank.
Anderson National Bank maintains three branch offices; one in Anderson
containing 5,800 square feet of space, which is owned by the bank; another
office in the town of Pelzer, South Carolina, containing approximately 2,000
square feet of space, which is leased by the bank, and another office in the
town of Williamston, South Carolina, containing approximately 1,300 square feet
of space, which is leased by the bank.
Spartanburg National Bank has a main office and a branch facility both
located in Spartanburg, South Carolina with square footage of 8,800 and 3,300,
respectively. Both are owned by Spartanburg National Bank and occupied
exclusively by Spartanburg National Bank.
Quick Credit Corporation maintains offices in Anderson, Greenville,
Greenwood, Laurens, Seneca, Easley, Florence, Spartanburg, Marion, Sumter,
Cayce, Kingstree, Orangeburg, North Charleston, Abbeville, Newberry, Hartsville,
Rock Hill, Gaffney, Aiken, Camden, and Columbia, South Carolina. The combined
square footage of these twenty-two offices is approximately 29,000 square feet.
All offices are leased with the terms of the various leases expiring in years
1996 through 2001.
The Company has purchased a lot at 211 Patewood Drive, Greenville,
South Carolina 29616, on which it is building the offices for The Community Bank
of Greenville. Upon completion of the bank's organization, the
11
Company plans to convey the lot and building to the bank at the Company's cost.
The building will contain approximately 6,800 square feet of space and will be
occupied exclusively by The Community Bank of Greenville.
Item 3. Legal proceedings
Although the Company is from time to time a party to various legal
proceedings arising out of the ordinary course of business, management believes
there is no proceeding threatened or pending against the Company that could
result in a materially adverse change in the business or financial condition of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders in the fourth
quarter of the Company's fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Common Stock of the Company began trading on the Nasdaq National Market
segment of the Nasdaq Stock Market under the trading symbol FUSC on February 8,
1995. From June 16, 1994 through February 7, 1995, the Company's stock was
traded on the Nasdaq Small Cap segment of the Nasdaq Stock Market. Prior to the
listing on Nasdaq there was no established public trading market for the
Company's stock. The following table sets forth the high and low bid quotations
for the common stock for the indicated 1994 periods, adjusted for the three for
two stock split on November 22, 1994, and the high and low actual trade ranges
for the common stock for the 1995 periods. The source of the quotations is the
National Association of Securities Dealers, Inc. monthly statistical reports.
1994 1995
---- ----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- -------- -------- -------- -------- --------
High --- $7.66 $8.00 $8.50 $11.88 $14.00 $15.50 $18.25
Low --- 6.66 7.66 8.32 8.50 10.50 12.75 14.25
As of December 31, 1995, First United Bancorporation had approximately 600
shareholders of record. Two 5% stock dividends were paid in 1995. The Company
paid an initial cash dividend of $.03 per share on January 13, 1995 to
shareholders of record as of December, 1994 and paid quarterly cash dividends of
$.03 per share for the four quarters in 1995. Future cash dividends will be
determined by the Company's Board of Directors in light of circumstances
existing from time to time, including the Company's growth, profitability,
financial condition, results of operations and other factors deemed relevant by
the Company's Board of Directors. See Item 1. Business - Payment of Dividends
and Note 14 of the Notes to Consolidated Financial Statements for information
about limits on payment of dividends by the Company's subsidiaries.
Item 6. Selected Financial Data
12
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected consolidated financial
data concerning the Company. The selected consolidated financial data has been
derived from consolidated financial statements which have been audited. This
information should be read in conjunction with Management's Discussion and
Analysis of Results of Operations and Financial Condition and is qualified in
its entirety by reference to the more detailed consolidated financial statements
and the notes thereto contained elsewhere in this report (in thousands, except
per share data).
Years Ended December 31,
INCOME STATEMENT DATA: 1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Interest income............................. $ 14,932 $ 13,438 $ 13,280 $ 15,545 $ 19,666
Interest expense............................ 8,080 5,755 4,525 4,769 7,038
Net interest income before
provision for loan losses.............. 6,852 7,683 8,755 10,776 12,628
Provision for loan losses................... 2,515 391 282 397 779
Net interest income......................... 4,337 7,292 8,473 10,379 11,849
Non-interest income ........................ 1,049 1,362 2,019 1,738 1,883
Non-interest expense ....................... 5,902 7,037 8,032 8,957 10,028
Income (loss) before income taxes........... (516) 1,617 2,460 3,160 3,704
Provision for income
taxes (benefit)........................ (171) 579 850 1,082 1,291
Cumulative effect of change in
accounting method...................... - - (56) - -
Net income (loss) .......................... $ (345) $ 1,038 $ 1,666 $ 2,078 $ 2,413
PER SHARE DATA:
Net income (loss) per common share:(2)
Primary ............................. $ (0.15) 0.46 $ 0.73 0.89 0.99
Fully diluted.......................... (0.15) 0.46 0.73 0.89 0.98
Average common shares outstanding (ooo's) (2)
Primary ......................... 2,278 2,278 2,278 2,326 2,435
Fully diluted.......................... 2,278 2,278 2,278 2,326 2,450
Cash dividends declared per common
share (1)............................. $ - - - 0.03 0.12
OTHER DATA:
Return on average assets.................... (.24)% .71% 1.13% 1.32% 1.36%
Return on average shareholders'
equity .............................. (3.58) 10.44 14.83 15.92 15.72
Average equity to assets ratio.............. 6.83 6.86 7.63 8.27 8.62
At December 31,
BALANCE SHEET DATA: 1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Securities held to maturity................. $ 24,374 $ 17,796 $ 9,528 $ 9,233 $ 9,481
Securities available for sale............... - 13,359 23,227 22,081 19,032
Net loans .............................. 101,645 90,007 100,488 117,896 145,674
Total assets .............................. 146,040 143,449 150,038 165,203 194,414
Deposits .............................. 128,736 123,752 127,424 137,666 160,381
Total liabilities........................... 136,617 132,991 137,752 151,612 178,007
Total shareholders' equity.................. 9,423 10,458 12,286 13,591 16,407
- - - - - -
(1) The Company declared an initial $.03 per share dividend in the fourth
quarter of 1994 and declared dividends of .03 per share per quarter in
1995. Prior to 1994 the Company had not declared any cash dividends.
(2) Per share data has been adjusted to reflect the payment of 5% stock
dividends in 1992 and 1993, the 10% stock dividend and the three for two
stock split in 1994, and the two 5% stock dividends in 1995.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis is provided to afford the Company's
shareholders a concise understanding of the major elements of the Company's
results of operations, financial condition, liquidity and capital resources. The
following discussion should be read in conjunction with the consolidated
financial statements, related notes included elsewhere herein and the Company's
1995 Form l0-K.
Discussion of Changes in Financial Condition
Total assets increased $29,211,000, or 17.7%, from December 31, 1994 to
December 31, 1995. Total loans, the largest single category of assets, increased
$28,154,000, or 23.5%, during the period ended December 31, 1995, largely as a
result of an increase in the amount of outstanding loans at the Company's
banking subsidiaries. Total loans outstanding at December 31, 1995 for
Spartanburg National Bank amounted to $73,689,000, a $17,751,000, or 31.7%,
increase over the $55,938,000 reported at December 31, 1994. Anderson National
Bank, which experienced a 24.3% increase in its outstanding loans for the year
ended December 31, 1994, continued to experience strong loan growth during 1995
as total outstanding loans, net of inter-company loans, increased $8,205,000, or
14.9%, to $63,134,000 at December 31, 1995. Quick Credit Corporation, which
added five additional offices during 1995, increased its outstanding loans
$2,198,000, or 24.5%, to $11,171,000 at December 31, 1995
The Company's securities portfolios, collectively, at amortized cost,
decreased $3,716,000, or 11.5%, for the period ended December 31, 1995, largely
as a result of maturities in the portfolios. Funds generated from maturing
securities during the period were used to help fund the loan portfolios of the
banking subsidiaries. Cash and due from banks increased $1,767,000, or 38.5%, to
$6,353,000 at December 31, 1995, as a result of an increase in the amount of
uncollected funds at the quarter end. Federal funds sold increased $520,000, or
11.4%, to $5,100,000 at December 31, 1995, as excess short term operating funds
of the Company were invested in this category of earning assets.
Premises, furniture and equipment increased $1,916,000, or 52.2%, during
1995. $1,216,000, or 63.5%, of this increase is attributable to the purchase by
the Company of a piece of property on which it is constructing the main office
of its new bank subsidiary and the related construction costs of that facility
through December 31, 1995. The remaining increase is largely attributable to
$453,000 in renovations costs associated with the renovations made by Anderson
National Bank to its main office facilities during 1995, and the purchase of a
piece of property by Spartanburg National Bank on which it will construct its
second branch facility during 1996 which totaled $211,000. The Company expects
to incur additional fixed asset costs of approximately $750,000 in connection
with the Greenville bank subsidiary during 1996, and expects to incur fixed
asset costs of approximately $600,000 in connection with the construction of the
new branch facility for Spartanburg National Bank in 1996.
Other real estate owned amounted to $74,000 at December 31, 1995 and
December 31, 1994. Management continues to pursue liquidation of this one piece
of property.
Total liabilities increased $26,395,000, or 17.4%, in 1995 largely as a
result of a $22,715,000, or 16.5%, increase in total deposits and increases in
the various categories of borrowed funds.
Time deposits of $100,000 or more, comprised largely of certificates of
deposit and representing 14.9% of total deposits at December 31, 1995, increased
$7,210,000, or 43.3%, from December 31, 1994, to $23,855,000 at December 31,
1995. The increase in time deposits of $100,000 or more resulted from increased
emphasis being placed on this funding alternative at both Anderson National Bank
and Spartanburg National Bank. Such deposits are potentially volatile and
significant repricing could result in a loss of a significant portion thereof.
Both banking subsidiaries also experienced an increase in other time deposits,
comprised mainly of certificates of deposit of less than $100,000, and NOW
accounts during the period as a result of an increase in the rates paid for
these types of accounts and renewed marketing efforts for these types of
deposits.
14
Securities Sold Under Agreements to Repurchase, comprised largely of
overnight repurchase agreements, decreased $202,000 or 6.1%, from December 31,
1994 to December 31, 1995 as a result of decreases in temporary year-end
investments of funds by customers of the Company's banking subsidiaries. Federal
Home Loan Bank borrowings increased $1,960,000, or 206.3%, during 1995 as a
result of $2,000,000 in additional short-term borrowings by Spartanburg National
Bank, which proceeds were used to help fund the loan growth experienced by this
subsidiary in 1995. Obligations under capital leases declined $152,000, or
87.9%, during 1995 largely as a result of the early termination of leases
relating to the Company's data processing equipment, which was purchased and
ultimately sold during the second quarter of 1995. Other borrowed funds,
comprised of various types of borrowings by Quick Credit Corporation from
unaffiliated third parties, Federal funds purchased and borrowings by the parent
company from a third party lender, collectively, increased $1,620,000, or 20.6%.
Of the $1,620,000 increase, $970,000 is attributable to additional borrowings by
Quick Credit Corporation with the remaining $650,000 being attributable to
borrowings by the parent company. At December 31, 1995 the Company had no
Federal funds purchased as the $150,000 balance outstanding at December 31, 1994
was repaid during 1995.
Shareholders' equity increased $2,816,000 from December 31, 1994 to
December 31, 1995 as a result of net earnings in 1995 of $2,413,000, a decrease
in the amount of unrealized losses, net of income taxes, on the Company's
"available for sale" securities portfolio of $577,000, and the exercise of stock
options under the Company's Employee Stock Option Plans in the amount of
$98,000. These increases were partially offset by the payment of cash dividends
and cash-in-lieu of stock on the Company's 5% stock dividends in June and
October of 1995, collectively, totaling $272,000.
Results of Operations
The following discussion relates to the results of operations for the
year ended December 31, 1995 compared with the year ended December 31, 1994, and
the year ended December 31, 1994 compared with the year ended December 31, 1993.
1995 compared with 1994
General
The Company's consolidated operations for twelve-months ended December
31, 1995 resulted in net income of $2,413,000, a 16.1% increase over the
$2,078,000 in net income recorded in 1994. The increase in consolidated earnings
for 1995 is attributable to a $1,852,000, or 17.2%, increase in the Company's
consolidated net interest income resulting largely from an increase in
consolidated loan interest income of $4,171,000, or 30.9%, at the Company's
three subsidiaries. For the year ended December 31, 1995, the Company recorded
and absorbed expenses, net of income tax benefits, totaling $116,000 which were
associated with the formation and organization of its new bank subsidiary, The
Community Bank of Greenville. The Company's management expects to incur and
absorb additional organizational expenses and early operating losses, net of
income tax benefits, of approximately $350,000 during 1996 associated with its
new bank subsidiary.
Anderson National Bank recorded net earnings of $1,120,000 for the
year-ended December 31, 1995, a $287,000, or 34.5%, increase over the $833,000
recorded in 1994. The increase in earnings for this subsidiary resulted
primarily from an increase in this subsidiary's net interest income of $361,000,
or 9.5%, and a negative provision for loan losses of $150,000 recorded in 1995
as a result of the continued improvement in the quality of this subsidiary's
loan portfolio.
Spartanburg National Bank recorded net earnings of $892,000 for the
year-ended December 31,1995, a $125,000, or 16.3%, increase over the $767,000
recorded in 1994. The increase in earnings for this subsidiary resulted from an
increase in net interest income of $546,000, or 16.7%. The increase in net
interest income for this subsidiary is attributable to an increase in loan
interest income of $1,607,000, or 34.2%. The increase in revenues derived from
Spartanburg National Bank's loan portfolio resulted from an increase in the
volume of outstanding loans in 1995 coupled with an increase in loan yields.
The Company's consumer finance subsidiary, Quick Credit Corporation,
recorded net earnings of $546,000 for the year- ended December 31, 1995, a
$24,000, or 4.6%, increase over the $522,000 recorded for 1994. Although this
subsidiary experienced an increase in its net interest income of $929,000, or
25.1%, and experienced an increase in other income items of $44,000 or 15.0%, in
1995, the effects of these increases were almost entirely offset by an increase
in the provision for loan losses of $381,000, or 109.8% (see "Provision and
Allowance for Loan Losses, Loan Loss Experience").
15
Interest Income, Interest Expense and Net Interest Income
Net interest income, the major component of the Company's income, is the
amount by which interest and fees on interest-earning assets exceed the interest
paid on interest-bearing deposits and other interest-bearing funds. The
Company's net interest income increased 17.2% to $12,628,000 for the year-ended
December 31, 1995 compared to $10,776,000 for the year-ended December 31, 1994.
The increase is attributable to an increase in interest income on loans
resulting from an increase in the volume of outstanding loans at each of the
Company's subsidiaries during 1995, coupled with an increase in loan yields on
the Company's banking subsidiaries' loan portfolios resulting from increases in
the prime lending rate during the early part of 1995.
The Company's total interest income increased $4,121,000, or 26.5%, to
$19,666,000 in 1995 compared to $15,545,000 for 1994. The increase is largely
attributable to a $4,171,000, or 30.9%, increase in loan interest income
resulting from a $23,285,000, or 21.2%, increase in the volume of average
outstanding loans in 1995 coupled with an increase in the average yield on loans
in 1995 of 13.1% over 1994. The average yield on loans for 1995 was 13.88%
compared to 12.27% for 1994.
Average balances on securities and federal funds sold, collectively,
decreased by $2,983,000, or 8.3%, in 1995 over 1994. As a result of the decrease
in the volume of these categories of earning assets, interest income associated
with these two categories, collectively, decreased $50,000.
Interest expense on deposits increased $1,793,000, or 44.0%, to
$5,871,000 in 1995 compared to $4,078,000 for 1994. The increase is attributable
to increases in the Company's costs of interest-bearing deposits resulting from
increases in market interest rates in 1995 and an increase of $11,062,000, or
9.6%, in the volume of average interest-bearing deposits for 1995. The weighted
average cost of interest-bearing deposits for 1995 was 4.64% compared to 3.53%
for 1994.
Although average balances on Securities Sold Under Repurchase Agreements
decreased $266,000, or 7.6%, in 1995 when compared to 1994, interest expense on
this category of interest-bearing liabilities increased $50,000, or 42.4%, as a
result of higher market rates of interest paid during 1995. Interest expense
incurred by the Company's banking subsidiaries on average borrowings of
$3,081,000 from the Federal Home Loan Bank of Atlanta for 1995 amounted to
$211,000. The Company's banking subsidiaries had nominal Federal Home Loan Bank
of Atlanta borrowings during 1994 with interest expense for 1994 amounting to
$29,000. Interest expense on the various categories of other interest-bearing
liabilities, which includes Capitalized Leases, Subordinated Debt, Federal Funds
Purchased and Other Borrowed Funds, collectively, increased $189,000, or 34.7%,
in 1995 when compared to 1994. The increase in interest expense associated with
these other interest-bearing liabilities is attributable largely to an increase
in the volume of average borrowings by Quick Credit Corporation, primarily from
a third party lender, coupled with an increase in the rate paid for these funds
in 1995 as a result of increases in the prime lending rate during 1995. Interest
paid by Quick Credit Corporation on borrowings from unaffiliated third parties
amounted to $768,000 in 1995 compared to $523,000 in 1994, an increase of
$245,000, or 46.9%.
Provision and Allowance for Loan Losses
The net provision for loan losses was $779,000 in 1995 compared to
$397,000 in 1994, a $382,000, or 96.2% increase. This increase is attributable
to increases in the provisions made by Spartanburg National Bank and Quick
Credit Corporation in 1995 when compared to 1994. The increase made by
Spartanburg National Bank was a result of the significant loan growth
experienced by this subsidiary during 1995. Spartanburg National Bank made
provisions of $201,000 in 1995 compared to $50,000 in 1994. Quick Credit
Corporation made provisions of $728,000 in 1995 compared to $347,000 in 1994, an
increase of $381,000, or 109.8%. The increase in Quick Credit Corporation's
provision in 1995 resulted from an increase in the number and volume of loans
charged off and an increase in the volume of outstanding loans during 1995 (see
"Provision and Allowance for Loan Losses, Loan Loss Experience"). Anderson
National Bank recorded a negative provision for loan losses in 1995 of $150,000
as a result of continued improvement in the overall quality of its loan
portfolio. Anderson National Bank made no provisions in 1994.
16
At December 31, 1995, the allowance for loan losses as a percentage of
outstanding loans was 1.57% compared to 1.62% at December 31, 1994. The purpose
of the Company's allowance for loan losses is to absorb loan losses that occur
in the loan portfolios of its subsidiaries. Management determines the adequacy
of the allowance quarterly and considers a variety of factors in establishing
the 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: (1) previously classified loans deemed less
than 100% collectible, (2) loans reflecting a recurring delinquent status, (3)
past-due loans on which interest is not being collected in accordance with the
terms of the loan, and loans the terms of which have been modified by reducing
the interest rates or deferring interest, (4) excessive loan renewals or payment
extensions, (5) general and local economic conditions, (6) risk in consumer
credit products, (7) subjective considerations as a result of internal
discussions with the Company's loan officers, (8) known loan deteriorations
and/or concentrations of credit, (9) historical loss experience based on volume
and types of loans, (10) trends in portfolio volume, maturity and composition,
(11) projected collateral values, (12) off balance sheet risk, and (13) depth
and experience of the Company's existing lending staff. 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. In addition, the allowance for loan losses is subject
to periodic examination by various regulatory authorities and may be subject to
adjustments based upon information available to them at the time of their
examination.
At December 31, 1995 the Company had $241,000 in non-accrual loans,
which are considered impaired loans, $271,000 in loans past due 90 days or more
and still accruing interest and $74,000 in OREO, compared to $281,000, $144,000,
and $74,000, respectively, at December 31, 1994. Loans on non-accrual amounted
to 0.17% of total loans at December 31, 1995, compared to 0.23% at December 31,
1994. At December 31, 1995 and 1994 the Company did not have a material amount
of restructured loans.
In the cases of all 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 loans, even though such loans 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 fair value less estimated selling costs. Estimated
fair value is based upon the assumption of a sale in the normal course of
business and not on a quick liquidation or distress basis. Estimated fair value
is established by independent appraisal at the time acquisition is completed.
Management believes that other real estate owned at December 31, 1995 will not
require significant write-downs in future accounting periods.
17
Other Income
Total consolidated other income increased $145,000, or 8.3%, in 1995.
The increase in 1995 resulted primarily from an increase of $55,000, or 7.5%, in
service charges and fees on deposit accounts at the Company's banking
subsidiaries, an increase in commissions received on the sale of credit related
insurance by Quick Credit Corporation of $59,000, or 26.0%, as a result of the
increase in the volume of loans at this subsidiary during 1995 and refunds of
FDIC premiums at the Company's banking subsidiaries, which totaled $85,000 in
1995. The Company experienced a decline in fee income generated from the sale of
alternative investment products (mutual funds and annuities) of $30,000, or
27.8%, during 1995 as a result of a decrease in the volume of sales of these
types of products. The Company's mortgage lending activities, which had been
sluggish during the first six months of 1995, rebounded during the second half
of 1995 and as a result, fee income generated by this activity for 1995 amounted
to $199,000, a 17.1% increase over the $170,000 generated in 1994. During 1995,
the Company recorded gains on the sale of Other Real Estate Owned of $25,000
compared to gains on the sale of Other Real Estate Owned in 1994 of $52,000. The
Company also recorded gains on the sale of SBA loans during 1995 of $64,000
compared to $61,000 recorded in 1994.
Other Expenses
Total other expenses increased $1,071,000, or 12.0%, in 1995 over 1994.
Salaries, wages and benefits, the largest category of other expenses, increased
$701,000, or 13.9%, in 1995 over 1994. Of the increase in personnel expense,
$321,000, or 45.8%, resulted from additions to the staff of Quick Credit
Corporation associated with the opening of five new offices in 1995 and
approximately 12.6% of the increase in personnel expenses resulted from
personnel expenses associated with the formation of the Company's proposed new
bank subsidiary. The remaining increase in personnel expenses is attributable to
increases in personnel expenses at the Company's two banking subsidiaries.
Occupancy expense increased $68,000, or 12.1%, in 1995 over 1994 largely
as a result of expenses associated with the five new additional offices for
Quick Credit Corporation established during 1995.
Furniture and equipment expense decreased $104,000, or 14.8%, in 1995
over 1994 largely as a result of a decline in depreciation expense associated
with the Company's data processing equipment which was sold during the second
quarter of 1995.
Other operating expenses, the second largest category of other expenses,
increased $302,000, or 9.1%, in 1995. This increase is largely the result of
costs associated with the additional offices of Quick Credit Corporation opened
in 1995, higher expenses associated with growth at the Company's banking
subsidiaries and costs associated with the outsourcing of the Company's data
processing function.
Income Taxes
As a result of increased income before income taxes, the Company
incurred income tax expense of $1,291,000 for an effective tax rate of 34.9% in
1995 compared to income tax expense of $1,082,000 and an effective tax rate of
34.2% in 1994.
18
1994 compared with 1993
General
The consolidated Company's operations during 1994 resulted in net income
of $2,078,000, a 24.7% increase over the $1,666,000 in net income recorded for
1993. The improvement in earnings from 1993 levels is primarily attributable to
an increase in loan interest income of $2,415,000, or 21.8%, which resulted in a
$2,021,000, or 23.1%, increase in the Company's net interest income.
Anderson National Bank recorded net earnings of $833,000 for 1994,
compared to $655,000 for 1993, a 27.2% increase. The improvement in earnings for
this subsidiary resulted primarily from an increase of $527,000, or 13.0%, in
interest income on loans as a result of the strong loan growth experienced by
this subsidiary during 1994.
Spartanburg National Bank recorded net earnings of $767,000 in 1994,
compared to $553,000 for 1993, a 38.7% increase . The increase in earnings for
this subsidiary resulted from an increase in interest income on loans of
$717,000, or 18.0%, which in turn resulted in a $546,000, or 20.0%, increase in
this subsidiary's net interest income. The increase in revenues derived from
Spartanburg National Bank's loan portfolio resulted from an increase in the
volume of outstanding loans in 1994 coupled with an increase in loan yields as a
result of increases in the prime lending rate during 1994.
Quick Credit Corporation recorded net earnings of $522,000 for 1994, an
8.1% increase over the $483,000 recorded in 1993. The increase in earnings for
this subsidiary resulted from an increase in interest income on loans resulting
from an increase in the volume of outstanding loans in 1994 when compared to
1993 and an increase in other income, primarily commissions received from the
sale of credit related insurance, on the larger volume of outstanding loans in
1994.
Net Interest Income
Net interest income, the major component of the Company's income, is the
amount by which interest and fees on earning assets exceed the interest paid on
deposits and other funds. The Company's net interest income increased
$2,021,000, or 23.1% to $10,776,000 for the year ended December 31, 1994
compared to net interest income of $8,755,000 for the year ended December 31,
1993. The increase is the result of an increase in interest income on loans
resulting from an increase in the volume of outstanding loans in 1994 coupled
with an increase in loan yields on the Company's variable rate loan portfolios
resulting from increases in the prime lending rate during 1994.
Interest income increased $2,265,000, or 17.1%, to $15,545,000 in 1994
compared to $13,280,000 in 1993. As previously disclosed, this increase was
primarily the result of a $2,415,000, or 21.8%, increase in loan interest income
resulting from a $14,750,000, or 15.5%, increase in the volume of average
outstanding loans in 1994 coupled with an increase in loan yields on the
Company's variable rate loan portfolios resulting from increases in the prime
lending rate during 1994. The average yield on loans for 1994 was 12.27%
compared to 11.64% for 1993.
Average balances on securities and federal funds sold, collectively,
decreased by $3,862,000, or 9.7%, in 1994 when compared to 1993, as funds from
these earning assets were used to help fund the increase in loans during 1994.
As a result, interest income on these categories of earning assets,
collectively, decreased $150,000, or 6.8%.
Interest expense on deposits increased $28,000, or 0.7%, to $4,078,000
in 1994 compared to $4,050,000 in 1993. Although average interest bearing
deposits increased $3,274,000, or 2.9%, during 1994, interest expense on the
Company's deposits increased only slightly as a result of the continued decline
in market interest rates experienced during 1993 and into the early part of 1994
and a corresponding mismatch of repricing opportunities associated with
certificates of deposit. Although short term market interest rates increased
sharply during the second half of 1994, the rates paid on interest-bearing
deposits did not increase at the same rate or at the same time as rates earned
on interest earning assets, largely as a result of mismatched repricing
opportunities associated with certificates of deposit. The weighted average cost
of interest bearing deposits for 1994 was 3.53% compared to 3.61% in 1993. The
Company expects its cost of deposits to increase as certificates of deposit
reprice to higher market interest rates.
19
Interest expense on the various categories of interest bearing
liabilities, excluding interest bearing deposits, collectively, increased
$216,000, or 45.5%, as a result of higher levels of average balances associated
with these categories of interest-bearing liabilities during 1994 coupled with
higher rates of interest on these types of interest bearing liabilities. Average
balances for these categories of interest bearing liabilities increased
$2,599,000, or 35.2%, in 1994 over 1993 average balances. The weighted average
cost, collectively, for these interest-bearing liabilities was 6.91% in 1994
compared to 6.42% in 1993.
Provision and Allowance for Loan Losses
The provision for loan losses was $397,000 in 1994 compared to $282,000
in 1993, a $115,000, or 40.8% increase. The increase is attributable to an
increased provision of $158,000, or 83.6% increase over the 1993 provision, made
by Quick Credit Corporation as a result of an increase in the volume of
outstanding loans in 1994. Anderson National Bank made provisions of $10,000 in
1993, but made no provision in 1994. Spartanburg National Bank made provisions
of $50,000 in 1994 compared to $83,000 in 1993.
At December 31, 1994, the allowance for loan losses as a percentage of
outstanding loans was 1.62% compared to 1.65% at December 31, 1993. The purpose
of the Company's allowance for loan losses is to absorb loan losses that occur
in the loan portfolios of its subsidiaries. Management determined the adequacy
of the allowance quarterly and considered a variety of factors in establishing a
level of the allowance for losses and the related provision, which was charged
to expense. Factors considered in determining the adequacy of the reserve for
loan losses included: (1) previously classified loans deemed less than 100%
collectible, (2) loans reflecting a recurring delinquent status, (3) past-due
loans on which interest is not being collected in accordance with the terms of
the loan, and loans whose terms have been modified by reducing the interest
rates or deferring interest, (4) excessive loan renewals or payment extensions,
(5) general and local economic conditions, (6) risk in consumer credit products,
(7) subjective considerations as a result of internal discussions with the
Company's loan officers, (8) known loan deteriorations and/or concentrations of
credit, (9) historical loss experience based on volume and types of loans, (10)
trends in portfolio volume, maturity and composition, (11) projected collateral
values, (12) off balance sheet risk, and (13) depth and experience of the
Company's existing lending staff. By considering the above factors, management
attempts to determine the amount of reserves necessary to provide for potential
losses in the loan portfolio, 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 industry trends. In addition, the allowance
for loan losses is subject to periodic examination by various regulatory
authorities and may be subject to adjustments based upon information available
to them at the time of their examination.
At December 31, 1994 the Company had $281,000 in non-accrual loans,
which are considered impaired loans, $144,000 in loans past due 90 days or more
and still accruing interest and $74,000 in OREO, compared to $804,000, $84,000,
and $427,000, respectively, at December 31, 1993. Loans on non-accrual amounted
to 0.23% of total loans at December 31, 1994, compared to 0.79% at December 31,
1993. At December 31, 1994 and December 31, 1993 the Company did not have a
material amount of restructured loans.
In the cases of all 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 credits, even though such credits 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.
20
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 distress 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, 1994
will not require significant write-downs in future accounting periods.
Other Income
Total consolidated other income decreased $281,000, or 13.9%, in 1994,
largely as a result of a $396,000, or 56.8%, decline in fee income generated,
collectively, from the sale of alternative investment products and mortgage
lending activities in 1994. As a result of increases in long-term mortgage
interest rates and a slow down in home mortgage refinancing in 1994, fee income
from the Company's mortgage lending activities declined 65.7%, or $325,000, to
$170,000 in 1994 compared to $495,000 in 1993. Simultaneously, fee income
generated from the sale of alternative investment products (mutual funds and
annuities), which amounted to $131,000 in 1994, declined $71,000, or 35.1%, from
the $202,000 recorded in 1993. The large decreases in these other income items
in 1994 were partially offset by increases in service fee income generated by
the Company's banking subsidiaries and increases in commissions received by
Quick Credit Corporation from the sale of credit related insurance.
Anderson National Bank, which recorded $95,000 in net gains on the sale
of other real estate in 1993, experienced a $225,000, or 17.2%, decline in total
other income in 1994. The decrease was largely the result of the non-recurring
nature of income associated with the gains on the sale of other real estate such
as that experienced in 1993 and decreases in fee income generated from the sale
of alternative investment products and mortgage lending activities.
Spartanburg National Bank experienced a $170,000, or 23.8%, decline in
total other income in 1994 as a result of a $178,000, or 77.4%, decline in fees
generated from its mortgage lending activities.
Quick Credit Corporation experienced an $85,000, or 40.7%, increase in
other income in 1994 largely as a result of an increase of $68,000, or 42.8%, in
commissions received from the sale of credit related insurance resulting from a
larger number of outstanding loans in 1994.
Other Expenses
Total other expenses increased $925,000, or 11.5%, in 1994 over 1993
other expenses. Salaries, wages and benefits, the largest category of total
other expenses, increased $662,000, or 15.1%, in 1994 over 1993. This increase
resulted largely from additional staff required by Quick Credit Corporation
associated with five new offices opened since the third quarter of 1993 and
increases in the cost of employee benefit programs, largely health care
coverage.
Occupancy expense and furniture and equipment expenses, collectively,
increased $73,000, or 6.1%, in 1994 over 1993 largely as a result of the new
Quick Credit offices.
Other miscellaneous operating expenses, the second largest category of
total other expenses, increased $190,000, or 7.8%, in 1994 over 1993. This
increase was also largely the result of costs associated with the five
additional offices of Quick Credit Corporation opened since the third quarter of
1993.
Income Taxes
As a result of increased income before income taxes, the Company
incurred income tax expense of $1,082,000 in 1994 compared to income tax expense
of $850,000 for 1993, a 27.3% increase.
The Company adopted SFAS No. 109, "Accounting for Income Taxes" which
superseded SFAS No. 96, "Accounting for Income Taxes" in the first quarter of
1993 on a prospective basis (see Accounting and Reporting Matters). As a result
of adopting SFAS No. 109 the Company recorded a $56,000 reduction in income tax
liability in 1993 which resulted in an extraordinary item on the Company's
income statement for the year ended December 31, 1993.
21
Net Interest Income
Net interest income, the difference between the interest earned on earning
assets and the interest paid for funds acquired to support those assets, is the
principal source of the Company's operating income. Net interest income was
$8,755,000, $10,776,000 and $12,628,000 for 1993, 1994 and 1995, respectively.
The Company's average interest rate spread, the difference between the average
interest rate earned on interest-earning assets and the average interest rate
paid on interest-bearing liabilities, has increased in recent years because of
the Company's balance sheet structure and the trend towards lower rates. Changes
in prior regulations have allowed commercial banks new accounts such as NOW
accounts, Super NOW accounts and money market deposit accounts. These accounts,
which are not subject to interest rate ceilings, have enabled banks to attract
deposits which were previously in money market accounts of non-bank financial
institutions. The result of these new accounts is a continuation of the trend
toward higher costs of deposits. The Company believes it has emphasized proper
management of interest rate spreads to offset the higher costs of deposits. The
Company manages interest rate spreads by monitoring the maturity of assets and
related liabilities, interest rates, risk exposure, liquidity, funding sources
and capital resources. The objective of such monitoring is to maximize net
interest income over an extended period of time while maintaining associated
risk within prescribed policy limits. The average interest rate spread was 6.04%
in 1993, 6.84% in 1994 and 6.82% in 1995. The following table presents the
average balance sheets, the average yield and the interest earned on
interest-earning assets, and the average rate and the interest paid on
interest-bearing liabilities of the Company for the last three fiscal years.
22
Average Balances and Net Interest Income Analysis
(dollars in thousands)
Year Ended December 31,
1993
Interest
Average Income/ Average
Balances Expense Rate/Yield
Assets:
Cash and due from banks - demand ........................ $ 5,984 $ - - %
Net loans (1)............................................ 95,296 11,089 11.64
Taxable securities....................................... 28,687 1,747 6.09
Non-taxable investment securities(4)..................... 4,199 222 5.29
Federal funds sold and securities
purchased under agreements
to resell ............................................ 6,992 222 3.18
Bank premises and equipment, net ........................ 3,682 - -
Other assets ............................................ 3,837 - -
Allowance for loan losses ............................... (1,552) - -
---------- --------- ----
Total assets ..................................... 147,125 - -
---------- --------- ----
Total interest-earning assets..................... $ 135,174 $ 13,280 9.82%
========== ========= ====
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits......................... $ 19,753 $ 495 2.51%
Non-interest-bearing demand deposits..................... 14,836 - -
Savings deposits......................................... 24,390 700 2.87
Time deposits............................................ 68,023 2,855 4.20
Securities sold under agreements to
repurchase and federal funds
purchased............................................. 2,666 79 2.96
Capitalized lease payable................................ 491 42 8.55
Commercial paper ........................................ 100 6 6.00
Notes payable............................................ 3,733 318 8.52
Subordinated notes....................................... 400 30 7.50
Other liabilities........................................ 1,498 - -
Shareholders' equity .................................... 11,235 - -
---------- ---------- ----
Total liabilities and
shareholders' equity .......................... $ 147,125 - -
========== ---------- ----
Total interest-bearing
liabilities ................................... $ 119,556 $ 4,525 3.78%
========== ========== ====
Excess of interest-earning assets
over interest-bearing liabilities.............. $ 15,618
==========
Net interest income............................... $ 8,755
==========
Interest rate spread (2) ......................... 6.04 %
Net yield on earning assets (3)................... 6.48 %
- - - - - - - - - - -
(1) Non-accruing loans have been included in the average balances.
(2) The interest rate spread is the interest-earning assets rate minus the
interest-bearing liabilities rate.
(3) Net yield on total earning assets is computed by dividing net interest
income by total average interest-earning assets.
(4) Yields on non-taxable investment securities have not been adjusted to
arrive at a tax equivalent rate as the adjustment would be immaterial.
23
Average Balances and Net Interest Income Analysis
(dollars in thousands)
At
Year Ended December 31, Year-end
----------------------- --------
1994 1995 1995
---- ---- ----
Interest Interest
Average Income/ Average Average Income/ Average
Balances Expense Rate/Yield Balances Expense Rate/Yield Rate
-------- ------- ---------- -------- ------- ---------- ----
$ 7,211 $ - - % $ 6,052 $ - -% -%
110,046 13,504 12.27 133,331 17,675 13.26 13.88
26,496 1,558 5.88 24,892 1,535 6.17 6.30
4,890 245 5.01 5,262 261 4.96 4.81
4,630 238 5.14 2,879 195 6.77 5.55
3,740 - - 4,645 - - -
2,544 - - 3,042 - - -
(1,796) - - (2,096) - - -
---------- --------- ----- ------------ --------- -----
157,761 - - 178,007 - - -
---------- --------- ----- ------------ --------- ----- ----
$ 146,062 $ 15,545 10.64% $ 166,364 $ 19,666 11.82% 12.4%
========== ========= ===== ============ ========= ===== ====
$ 22,678 $ 529 2.33% $ 23,099 $ 574 2.48% 2.46%
17,727 - - 20,102 - - -
23,971 699 2.92 23,218 785 3.38 3.74
68,791 2,850 4.14 80,185 4,512 5.63 5.90
3,486 118 3.38 3,220 178 5.53 4.94
287 23 8.01 49 4 8.16 7.00
83 5 6.02 - - - -
5,733 515 8.98 10,404 945 9.09 9.42
400 30 7.50 446 40 8.97 8.99
1,555 - - 1,934 - - -
13,050 - - 15,350 - - -
---------- --------- ---- ------------ -------- ---- ----
157,761 - - 178,007 - - -
---------- --------- ---- ------------ -------- ---- ----
$ 125,429 $ 4,769 3.80% $ 140,621 $ 7,038 5.00% 5.27%
========== ========= ==== ============ ======== ==== ====
$ 20,633 $ 25,743
========== ============
$ 10,776 6.84 % $ 12,628 6.82% 7.13%
========= 7.38 % ========= 7.59%
24
Net interest income is affected by changes in the average rate earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities. In addition, net interest income is affected by changes in the
volume of interest-earning assets and interest-bearing liabilities. The
following table sets forth the dollar amount of increase in interest income and
interest expense resulting from changes in the volume of interest-earning assets
and interest-bearing liabilities and from changes in yields and rates.
Volume and Rate Variance Analysis
(dollars in thousands)
1993 compared with 1994 1994 compared with 1995
----------------------- -----------------------
Volume (1) Rate (1) Total Volume(1) Rate(1) Total
---------- -------- ----- --------- ------- -----
Net loans (2) ................................. $ 1,789 $ 626 $ 2,415 $ 3,020 $ 1,151 $ 4,171
Investment securities.......................... (76) (90) (166) (101) 94 (7)
Federal funds sold and interest-earning
deposits ................................. (19) 35 16 (295) 252 (43)
------- -------- --------- --------- --------- ---------
Interest income ..................... 1,694 571 2,265 2,624 1,497 4,121
------- -------- --------- --------- --------- ---------
Interest-bearing deposits...................... 116 (88) 28 419 1,374 1,793
Other borrowings............................... 177 39 216 323 153 476
------- -------- --------- --------- --------- ---------
Interest expense .................... 293 (49) 244 742 1,527 2,269
------- -------- --------- --------- --------- ---------
Net interest income.................. $ 1,401 $ 620 $ 2,021 $ 1,882 $ (30) $ 1,852
======= ======== ========= ========= ========= =========
(1) The rate/volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of rate or volume variance to the sum of the two absolute variances.
(2) Non-accruing loans have been included.
Interest Rate Sensitivity and Asset/Liability Management
An important aspect of achieving satisfactory levels of net income is
the management of the composition and maturities of rate sensitive assets and
liabilities in order to optimize net interest income as interest rates earned on
assets and paid on liabilities fluctuate from time to time.
The interest sensitivity gap is the difference between total interest
sensitive assets and liabilities in a given time period. The objective of
interest sensitivity management is to maintain reasonably stable growth in net
interest income despite changes in market interest rates by maintaining the
proper mix of interest sensitive assets and liabilities. Management seeks to
maintain a general equilibrium between interest sensitive assets and liabilities
in order to insulate net interest income from significant adverse changes in
market rates.
25
The following table sets forth the Company's interest sensitivity position as of
December 31, 1995.
Interest Sensitivity Analysis
(dollars in thousands)
Total
Sensitive Over 12
Within Months or
One Year Non-sensitive Total
-------- ------------- -----
Interest earning assets:
Federal funds sold................................. $ 5,100 $ - $ 5,100
Securities (1)..................................... 11,162 17,453 28,615
Loans receivable (2)............................... 78,532 69,462 147,994
----------- ---------- ----------
Interest-earning assets ........................... 94,794 86,915 181,709
----------- ---------- ----------
Interest bearing liabilities:
Deposits........................................... 128,905 10,527 139,432
Securities sold under repurchase agreements........ 3,096 - 3,096
Other borrowed funds............................... 11,191 1,210 12,401
----------- ---------- ----------
Interest-bearing liabilities ...................... 143,192 11,737 154,929
----------- ---------- ----------
Interest sensitivity gap........................... $ (48,398) $ 75,178 $ 26,780
=========== ========== ==========
Interest sensitivity ratio......................... .51
===========
(1) Amortized cost
(2) Non-accrual loans have been included.
At December 31, 1995, approximately 52% of the Company's
interest-earning assets repriced or matured within one year compared to
approximately 92% of interest-bearing 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.
Both of the Company's banking subsidiaries have 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
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
factors in a given interest rate environment, including the spread between the
prime rate and the incremental borrowing cost and the volume and mix of earning
asset growth. Accordingly, both of the Company's banking subsidiaries use an
asset/liability simulation model which quantifies balance sheet and earnings
variations under different interest rate environments to measure and manage
interest rate risk.
Quick Credit considers liquidity and interest rate risk in pricing its
loans which are funded through retained earnings and borrowings under an
existing line of credit with an unaffiliated bank.
26
Securities Portfolio
The following table shows maturities of securities available for sale and
held to maturity at amortized cost held by the Company at December 31, 1995, and
the weighted average yields.
Securities Portfolio Maturity Schedule
(dollars in thousands)
After After
One Year Five Years
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------- ---------- --------- ---------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury securities......... $ 1,542 5.39% $ 2,549 6.33% $ - -% $ - - %
U.S. Government agencies......... 1,395 6.72 9,893 5.88 898 6.28 6,040 7.06
State, county and municipal (1).. 636 6.86 4,069 7.08 727 9.30 100 10.14
Federal Reserve stock and other.. - - - - - - 766 6.71
------- ---- -------- ---- ------- ---- ------- -----
$ 3,573 6.21% $ 16,511 6.28% $ 1,625 7.63% $ 6,906 7.07%
======== ==== ======== ==== ======= ==== ======= =====
(1) Yields have been adjusted to a tax equivalent basis assuming a 34% Federal
Tax Rate.
See note 4 of the Notes to Consolidated Financial Statements for the
composition of the securities portfolio. The weighted average yields shown
previously are calculated on the basis of cost and effective yields for the
scheduled maturity of each security. At December 31, 1995, the market value of
the Company's securities portfolios was $85,000 greater than its amortized cost,
the average maturity of the securities portfolios was 7 years and 4 months, and
the average adjusted tax equivalent yield on such portfolios was 6.52%. Certain
securities contain call provisions which could decrease their anticipated
maturity. Certain securities also contain rate adjustment provisions which could
either increase or decrease their yields.
Decisions involving securities are based upon management's expectations
for interest rate movements, overall market conditions, the composition and
structure of the balance sheet, and computer-based simulations of the financial
impacts of alternative rate/maturity scenarios. The Company does not purchase or
hold securities for trading purposes. However, certain securities may be sold
prior to their maturity. Such securities available for sale, at amortized cost,
amounted to $19,134,000 at December 31, 1995 and are classified as available for
sale and recorded on the Company's balance sheet at market value of $19,032,000.
27
Loan Portfolio
The Company's management believes the loan portfolio is adequately
diversified. The amount of loans outstanding at the indicated dates are shown in
the following table according to the type of loan.
Loan Portfolio Composition
(dollars in thousands)
December 31,
------------
1994 1995
---- ----
Commercial, financial and agricultural........................... $ 18,469 $ 25,684
Real estate-construction and land development ................... 5,040 9,111
Real estate-mortgage (1)......................................... 71,282 84,418
Installment loans to individuals and other loans................. 25,049 28,781
----------- -----------
Total ................................................... $ 119,840 $ 147,994
=========== ===========
(1) Includes loans secured by real estate and mortgage loans presently held for
sale.
28
Historically, the Company has maintained a large portfolio of
installment loans to consumers. The Company has no foreign loans and few
agricultural loans. Anderson National Bank's and Spartanburg National Bank's
mortgage loan departments package mortgage loans for sale to others, but do not
generally service such loans. At December 31, 1995, the Company had $1,398,000
in mortgage loans held for resale to others which are carried at lower of cost
or market value. 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.
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. These loans may be made on either a secured or
unsecured basis. When taken, collateral 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. As of December 31, 1995, approximately $6,454,000 or 25%
of commercial, financial and agricultural loans were unsecured. A significant
portion of the installment loans to individuals are secured by automobiles and
other personal effects. Also included in net installment loans to individuals
are $8.6 million and $11.2 million at December 31, 1994 and 1995, respectively,
of high rate consumer finance loans which have been originated by the Company's
subsidiary, Quick Credit Corporation. These loans generally carry higher risk of
nonpayment than the other categories of loans, but the increased risk is
substantially offset by the smaller amounts of such loans and higher rates
charged thereon as well as a higher allocation of the allowance for loan losses.
The following table sets forth the maturity distribution of the Company's
gross loans by type, as of December 31, 1995, as well as the type of interest
rate requirement on such loans.
Loan Portfolio Maturity Schedule
(dollars in thousands)
December 31, 1995
-----------------
One Year One to Five Years
Or Less Five Years or More Total
------- ---------- ------- -----
Commercial, financial and agricultural......... $ 18,250 $ 6,799 $ 635 $ 25,684
Real estate-construction and land
development................................ 6,854 2,257 - 9,111
Real estate-mortgage .......................... 36,793 39,784 7,841 84,418
Installment loans to individuals............... 16,635 10,486 1,660 28,781
---------- ---------- ---------- -----------
Total ................................... $ 78,532 $ 59,326 $ 10,136 $ 147,994
========== ========== ========== ===========
Predetermined rate, maturing................... $ 23,730 $ 54,573 $ 5,389 $ 83,692
Variable rate, maturing........................ $ 54,802 $ 4,753 $ 4,747 $ 64,302
Provision and Allowance for Loan Losses, Loan Loss Experience
The purpose of the allowance for loan losses is to absorb loan losses
that occur in the loan portfolio. Management considers a variety of factors in
establishing a level of allowance for losses and the related provision, which is
charged to expense (see "Results of Operations Provision and Allowance for Loan
Losses").
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
portfolio and also reflects the consideration of the amount of high rate/higher
risk loans held by the Company's consumer finance subsidiary, Quick Credit
Corporation.
29
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 which 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
is 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 which must be charged off
and to assess the risk characteristics of the portfolio in the aggregate. 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 ("Comptroller"), as part of its routine
examination process of various national banks, including Anderson National Bank
and Spartanburg National Bank, may require additions to the allowance for loan
losses based upon information available to them at the time of their
examination.
On December 31, 1995, the allowance for loan losses was $2,320,000, or
$376,000, (19.3%), higher than one year earlier. The ratio of the allowance for
loan losses to net loans outstanding was 1.57% at December 31, 1995 compared to
1.62% at December 31, 1994. See "Results of Operations". During 1995, the
Company experienced net charge-offs of $411,000, or 0.31% of average loans,
compared to net charge-offs of $162,000, or 0.15% of average loans, in 1994.
Installment loan net charge-offs were $495,000 in 1995 versus $222,000 in 1994.
Commercial loan net charge-offs were $50,000 in 1995 compared to net recoveries
of $69,000 in 1994. Real estate loan net recoveries were $134,000 in 1995
compared to net charge-offs of $9,000 in 1994.
The Company made net provisions for loan losses of $282,000, $397,000
and $779,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
In fiscal 1993, Anderson National Bank recorded a provision for loan
losses of $10,000. In fiscal 1994, Anderson National Bank made no provisions for
loan losses. In fiscal 1995, Anderson National Bank recorded a negative
provision for loan losses of $150,000 because of continued improvement in the
quality of its loan portfolio. In fiscal 1993, 1994 and 1995, Anderson National
Bank recorded net recoveries of $128,000, $80,000 and $107,000, respectively.
In fiscal 1993, 1994 and 1995, Spartanburg National Bank recorded a
provision for loan losses of $82,000, $50,000 and $201,000, respectively. The
significant increase for 1995 is a result of the 31.7% loan growth experienced
by Spartanburg National Bank in 1995. In fiscal 1993, 1994 and 1995, Spartanburg
National Bank experienced net charge-offs of $13,000, $1,000 and $19,000,
respectively.
In fiscal 1993, 1994 and 1995, Quick Credit Corporation recorded
provisions for loan losses of $189,000, $347,000 and $728,000, respectively. In
fiscal 1993, 1994 and 1995, Quick Credit Corporation experienced net charge-offs
of $97,000, $241,000 and $499,000, respectively. The significant increase in net
charge-offs and related increase in this subsidiary's provision is believed by
management to be an industry-wide trend. Quick Credit Corporation's customers
are generally in the low-to-moderate income group of borrowers. Over the past
several years there has been a proliferation of small consumer loan companies
and other consumer debt providers competing for pieces of this segment of the
consumer debt market. It is not unusual for customers of Quick Credit
Corporation simultaneously to have loans outstanding at several other small loan
companies which results in some customers incurring more debt than they can
service. As a result of the increased charge-offs experienced in 1995 and
because management expects this subsidiary's loan loss reserve and resulting
provisions to track more closely 1995 losses, Quick Credit Corporation has
increased its loan loss reserve as a percentage of outstanding loans, net of
unearned income, from 4.1% at December 31, 1994 to 5.4% at December 31, 1995. In
addition, the Company has reviewed its loan criteria and has tightened slightly
its underwriting standards. Management expects this subsidiary to experience
similar levels of defaults in 1996.
First United has a full-time internal loan review officer to perform
periodic evaluations of the Company's loan portfolios including all materially
classified loans. The Company's management believes they have in place the
personnel to adequately monitor its loan portfolios.
Management continues to monitor closely 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 table sets forth the allocation of the allowance by
category at December 31, 1994 and 1995.
Allocation of Allowance for Loan Losses
(dollars in thousands)
December 31,
------------
1994 1995
---- ----
% of % of
Amount Category Amount Category
------ -------- ------ --------
Commercial, financial and agricultural ........... $ 334 1.8% $ 509 2.1%
Real Estate:
Construction and land development............. 56 1.1 84 0.9
Mortgage ..................................... 978 1.4 922 1.1
Installment loans to individuals and other loans. 576 2.1 805 2.6
-------- --- --------- ---
Total..................................... $ 1,944 1.6% $ 2,320 1.6%
======== === ========= ===
30
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.
Summary of Loan Loss Experience
(dollars in thousands)
December 31,
------------
1993 1994 1995
---- ---- ----
Total loans outstanding at the end of period, net of
unearned income....................................... $ 102,182 $ 119,840 $ 147,994
=========== =========== ==========
Average amount of loans outstanding, net of
unearned income....................................... $ 95,296 $ 110,046 $ 133,331
=========== =========== ==========
Balance of allowance for loan losses at beginning
of year .............................................. $ 1,369 $ 1,694 $ 1,944
----------- ----------- ----------
Loans charged-off:
Commercial, financial and agricultural................ $ 49 $ - $ 72
Real estate-construction.............................. - - -
Real estate-mortgage ................................. - 23 5
Installment loans to individuals ..................... 241 311 568
----------- ----------- ----------
Total charge-offs ............................ 290 334 645
----------- ----------- ----------
Recoveries of loans previously charged off:
Commercial, financial and agricultural ............... 165 69 22
Real estate-construction.............................. 25 2 69
Real estate-mortgage.................................. 2 12 70
Installment loans to individuals...................... 116 89 73
----------- ----------- ----------
Total recoveries.............................. 308 172 234
----------- ----------- ----------
Net charge-offs (recoveries)................. (18) 162 411
----------- ----------- ----------
Additions to allowance from mergers and absorptions....... 25 15 8
Additions to allowance charged to expense (net)........... 282 397 779
----------- ----------- ----------
Balance of allowance for loan losses at end of period..... $ 1,694 $ 1,944 $ 2,320
=========== =========== ==========
Ratios:
Net charge-offs (recoveries) during year to average
loans outstanding during year..................... (.02)% .15% .31%
Net charge-offs (recoveries) to loans at end of year.. (.02) .14 .28
Allowance for loan losses to average loans............ 1.78 1.76 1.74
Allowance for loan losses to loans at end of year..... 1.66 1.62 1.57
Net charge-offs (recoveries) to allowance
for loan losses .................................. (1.06) 8.33 17.72
Net charge-offs (recoveries) to provision
for loan losses .................................. (6.38) 40.80 52.76
Management considers the allowance for loan losses adequate to cover
possible losses on the loans outstanding at December 31, 1995. In the opinion of
management, there are no material risks or significant loan concentrations, and
the allowance for loan losses is adequate to absorb anticipated loan losses in
the present loan portfolios. 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 would be
sizable in relationship to the amount reserved or that subsequent evaluation of
the loan portfolio, in light of conditions and factors then prevailing, will not
require significant 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.
Non-accrual and Potential Problem Loans
The Company had approximately $281,000 and $241,000 in non-accrual
loans, which are considered impaired loans, at December 31, 1994 and 1995,
respectively. Assuming the non-accrual loans performed in accordance with their
original terms and had been outstanding for the entire year, interest income on
these loans would have amounted to approximately $56,000 and $40,000 for 1994
and 1995, respectively. The amount of income recognized on these loans during
1995 and 1994 was not material. As of December 31, 1994 and 1995, past due loans
over 90 days amounted to $144,000 and $271,000, respectively, and constituted
approximately 0.12% of total loans at December 31, 1994 and approximately 0.32%
of total loans at December 31, 1995. At December 31, 1994 and 1995, the Company
did not have a material amount of restructured loans.
A loan is placed on non-accrual status when, in management's judgment,
the collection of interest receivable on such loan appears doubtful, generally
when the loan is past due 90 days or more. Interest receivable that had been
accrued in the prior year and is subsequently determined to have doubtful
collectibility is charged to the allowance for loan losses. Payments of interest
on loans which are classified as non-accrual are recognized as received. In some
cases, when borrowers are experiencing financial difficulties, loans may be
restructured to provide terms significantly below the original contractual
terms.
Management of each banking subsidiary maintains a list of potential
problem loans. The problem loan list also includes all loans on non-accrual
status and all loans that are past due 90 days or more and still accruing
interest. A loan is added to the list when management becomes aware of
information about possible credit problems of borrowers that causes doubts as to
the ability of such borrowers to comply with the current loan repayment terms.
The total amount of loans outstanding at December 31, 1995 determined to be
problem loans was $1,488,000 ($717,000 at Spartanburg National Bank and $771,000
at Anderson National Bank). This compares with $2.7 million of loans determined
to be problem loans at December 31, 1994. This amount does not represent
management's estimate of potential losses since the majority of such loans are
secured by real estate or other collateral. Management believes that the
allowance for loan losses as of December 31, 1995, was adequate to absorb any
losses with respect to the non-performing loans and problem loans as of such
date.
At December 31, 1995 and 1994, the Company had approximately $74,000 of
real estate acquired through foreclosure. The Company has recorded real estate
acquired through foreclosure at the lower of cost or estimated fair value less
estimated selling costs. Estimated fair value is based upon the assumption of a
sale in the normal course of business and not on a quick liquidation or distress
basis. Estimated fair value is established by independent appraisal at the time
acquisition is completed.
31
Deposits
The average amount of deposits of the Company for the years ended December
31, 1994 and 1995, are summarized below.
Average Deposits
(dollars in thousands)
Year Ended
December 31,
------------
1994 1995
---- ----
Average Average Average Average
Amount Rate Paid Amount Rate Paid
------ --------- ------ ---------
Interest-bearing demand deposits................. $ 22,678 2.33% $23,099 2.48%
Non-interest bearing demand deposits
and drafts .................................. 17,727 - 20,102 -
Savings deposits and money market accounts....... 23,971 2.92 23,218 3.38
Time deposits .................................. 68,791 4.14 80,185 5.63
-------- ---- -------- ----
Total deposits.......................... $133,167 3.06% $146,604 4.00%
======== ==== ======== ====
The Company has a large, stable base of time deposits, principally
certificates of deposit and individual retirement accounts obtained primarily
from customers in South Carolina. The Company does not purchase brokered
deposits.
As of December 31, 1995, the Company held approximately $23,855,000 in
certificates of deposit of $100,000 or more with approximately $8,394,000
maturing within three months, approximately $13,653,000 maturing in three months
through twelve months, and approximately $1,808,000 maturing in over twelve
months. Acquisitions of time deposits of $100,000 and over are in large part a
function of the rates a financial institution is willing to negotiate and, as
such, these deposits have many of the characteristics of shorter-term purchased
funds.
Return on Equity and Assets
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share) and equity to assets ratio (average equity divided by average total
assets) for each period indicated.
Return on Equity and Assets
Year Ended
December 31,
------------
1994 1995
---- ----
Return on average assets .............................................. 1.32% 1.36%
Return on average shareholders' equity................................. 15.92 15.72
Equity to assets ratio................................................. 8.27 8.62
Dividend payout ratio.................................................. 3.03(1) 12.12
(1) The Company declared its first cash dividend in the fourth quarter of 1994.
32
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 Anderson National Bank
and Spartanburg National Bank) 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. Spartanburg National Bank and Anderson National Bank are
also members of the Federal Home Loan Bank System and have the ability to borrow
both short and longer term funds on a secured basis. At December 31, 1995
Anderson National Bank had $360,000 in long-term borrowings from the Federal
Home Loan Bank of Atlanta. At December 31, 1995 Spartanburg National Bank had
$2,000,000 in short-term borrowings and $550,000 in long-term borrowings from
the Federal Home Loan Bank of Atlanta.
First United Bancorporation, the parent holding company, has limited
liquidity needs. First United requires liquidity to pay limited operating
expenses and dividends, and to service its debt. In addition, First United has
two lines of credit with third party lenders totaling $6,100,000, of which
$5,450,000 was available at December 31, 1995. One of these lines is a
$6,000,000 line of credit with an unaffiliated third party lender to be used for
general corporate purposes and allows for interest to be paid on a quarterly
basis for a period of up to five (5) years if certain criteria are met. At the
end of (5) years, or sooner if the Company desires, the line of credit can be
converted to a term loan with quarterly interest payments and annual principal
reductions required over a period of five (5) years. The line of credit bears
interest at a variable rate. The Company intends to utilize $4,500,000 of this
line of credit to capitalize its proposed new bank subsidiary, The Community
Bank of Greenville. At December 31, 1995, $650,000 was outstanding under this
line of credit and $5,350,000 was available. Further sources of liquidity for
First United include management fees which are paid by all of its subsidiaries
and dividends from its subsidiaries.
At December 31, 1995 the Company's consumer finance subsidiary, Quick
Credit Corporation, had debt outstanding of $800,000 in the form of subordinated
debt and $8,020,000 outstanding under a line of credit totaling $10,000,000 with
a third party lender .
Management believes its liquidity sources are adequate to meet its
operating needs and does not know of any trends, other than those previously
discussed, 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 a prior public stock offering in 1988.
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 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. Neither of the Company's
subsidiary banks have been notified that they must maintain capital levels above
regulatory minimums. The Company's leverage capital ratio was 8.23% at December
31, 1995, compared to 8.35% at December 31, 1994. The leverage capital ratios
for Anderson National Bank and Spartanburg National Bank were 7.86% and 7.01%,
respectively at December 31, 1995, compared to 8.29% and 7.54%, respectively, at
December 31, 1994. The decrease in the leverage capital ratio for Anderson
National Bank during the period ending December 31, 1995 resulted largely from
the payment of $726,000 in dividends to the parent Company in 1995. The decrease
in the leverage capital ratios for Spartanburg National Bank and the
consolidated company is attributable to growth experienced since December 31,
1994.
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 8.00%, with at least 4% being "Tier 1" capital. Tier 1
capital consists principally of common stockholders' equity, noncumulative
preferred stock, qualifying perpetual preferred stock, and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and certain other
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
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 12.73% and its Tier 1 capital to risk weighted assets ratio
was 11.48% at December 31, 1995, compared to 13.78% and 12.25%, respectively, at
December 31, 1994. The risk-based capital ratios for Anderson National Bank and
Spartanburg National Bank were 12.72% and 11.09%, respectively, at December 31,
1995 compared to 13.80% and 12.34%, respectively, at December 31, 1994. Their
Tier 1 capital to risk weighted assets ratios were 11.47% and 9.88%,
respectively, at December 31, 1995 compared to 12.55% and 10.12%, respectively,
at December 31, 1994. The decline in Anderson National Bank's risk-based and
Tier 1 capital to risk weighted assets ratios from year-end 1994 levels resulted
largely from the payment of $726,000 in dividends to the parent company during
the period ending December 31, 1995. The decrease in Spartanburg National Bank's
and the consolidated company's risk-based and Tier 1 capital to risk weighted
assets ratios from year-end 1994 levels is a result of growth experienced during
1995.
The Company has plans to open a new subsidiary bank in the city of
Greenville, South Carolina during the second quarter of 1996 to be named The
Community Bank of Greenville. The new bank has received the required approval of
the Comptroller of the Currency, the FDIC, the Federal Reserve Board and the
South Carolina Board of Financial Institutions. The Company will capitalize this
new bank subsidiary with $4.5 million of capital. Such capital will come from
proceeds available under the line of credit with an unaffiliated third-party
lender which has committed to lend the Company up to $6 million.
Spartanburg National Bank has plans to construct a new branch facility
during 1996 in the Boiling Springs area of Spartanburg County, South Carolina.
Spartanburg National Bank purchased a piece of property in late 1995 for
$211,000 on which it intends to locate this new facility. The necessary
regulatory approval for this new branch was obtained in 1995. Spartanburg
National Bank expects to incur approximately $600,000 in additional fixed assets
costs in 1996 with this facility.
Effect of Inflation and Changing Prices
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles 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 than does the effect of inflation. Interest rates do
not necessarily change in the same magnitude as the prices of goods and
services.
33
While the effect of inflation on banks is normally not as significant as
is its influence on those businesses which 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.
Accounting and Reporting Matters
The FASB adopted SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments" in December, 1991. This statement extends existing fair value
disclosure practices for some instruments by requiring entities to disclose the
fair value of financial instruments, both assets and liabilities, recognized and
not recognized in the statement of financial position, for which it is
practicable to estimate fair value. The statement was adopted by the Company on
December 31, 1995. The effect on the Company is increased disclosure
requirements.
In October 1994, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments".
The statement requires disclosures about the amounts, nature, and terms of
derivative financial instruments. The statement amends SFAS 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments". The statement was adopted by the Company on December 31,
1995.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." The statement
is applicable to all creditors and to all loans, uncollateralized as well as
collateralized, except large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment, loans that are measured at fair value
or at the lower of cost or fair value, leases and debt securities. It also
applies to all loans that are restructured in a troubled debt restructuring
involving a modification of terms. In October 1994, the FASB issued SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." This statement amends SFAS 114 to allow a creditor to use existing
methods for recognizing interest income on impaired loans and eliminates the
income recognition provisions in SFAS 114. SFAS 118 also requires disclosure of
certain information about the recorded investment in impaired loans and how the
creditor recognizes interest income related to impaired loans.
SFAS 114 requires that impaired loans that are within its scope be
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral-dependent. The Statement was adopted by the Company on January 1,
1995.
On May 31, 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values - other than those accounted for under the
equity method or as investments in consolidated subsidiaries - and all
investments in debt securities. The Company classifies investments, under SFAS
115, into three categories as follows: (1) Held to Maturity Securities - debt
securities that the enterprise has the positive intent and ability to hold to
maturity, which are reported at amortized cost; (2) Trading Securities - debt
and equity securities that are bought and held principally for the purpose of
selling them in the near term, which are reported at fair value, with unrealized
gains and losses included in earnings; and (3) Available for Sale Securities
debt and equity securities not classified as either held to maturity securities
or trading securities, which are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity (net of tax effects). Gain or loss on the sale of
securities is based on the specific identification method.
The Company adopted SFAS 115 effective as of the end of 1993. At that
time, the effect of the adoption of SFAS 115 was an increase in stockholders'
equity of $164,000, which is the amount by which market values of investments
and mortgage-backed securities available for sale, net of income taxes, exceeded
carrying amounts. The Company has no trading securities.
The Company designates securities as held to maturity or available for
sale at the purchase date. Unrealized losses on securities available for sale
reflecting a decline in value judged to be other than temporary, are charge to
income in the Consolidated Statements of Income.
In 1995, the FASB adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of". SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. SFAS No. 121 is effective for financial statements
for fiscal years beginning after December 15, 1995. SFAS No. 121 is not expected
to have a material impact on the financial statements of the Company.
In May, 1995, the FASB adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS No. 122 requires
that a mortgage banking enterprise recognize as a separate asset rights to
service mortgage loans for others, however the servicing rights are acquired.
SFAS No. 122 also requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on fair value of
those rights. SFAS No. 122 is effective prospectively in fiscal years beginning
after December 15, 1995, and applies to transactions in which a company sells or
securitizes mortgage loans with servicing rights retained and to impairment
evaluations of amounts capitalized as mortgage servicing rights, including those
purchased before the adoption of this statement. Earlier application is
encouraged. Based on the current amount of servicing retained by the Company's
banking subsidiaries, this statement is not expected to have a material impact
on the financial statements of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a new method of accounting
for stock-based arrangements by measuring the value of a stock compensation
award by the fair value method versus the intrinsic method as currently is used
under the provisions of Opinion 25. If entities do not adopt the fair value
method of accounting for stock-based compensation, they will be required to
disclose in the footnotes pro forma net income and earnings per share
information as if the fair value based method had been adopted. The disclosure
requirements of SFAS No. 123 are effective for financial statements with fiscal
years beginning after December 15, 1995. SFAS No. 123 will have minimal impact
on the Company.
Item 8. Financial Statements and Supplementary Data
34
Independent Auditors' Report
The Board of Directors
First United Bancorporation:
We have audited the consolidated balance sheets of First United Bancorporation
and subsidiaries (the "Company") as of December 31, 1994 and 1995 and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
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 the Company at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in note 2 of the Notes to Consolidated Financial Statements, in
1993 the Company changed its method of accounting for income taxes and
accounting for certain investments in debt and equity securities.
/s/ KMPG Peat Marwick LLP
Greenville, South Carolina
January 23, 1996
35
FIRST UNITED BANCORPORATION
Consolidated Balance Sheets
December 31, 1994 and 1995
Assets 1994 1995
------ ---- ----
(In thousands)
Cash and due from banks $ 4,586 $ 6,353
Federal funds sold 4,580 5,100
Securities held to maturity (market value of $9,103 and
$9,668, respectively) 9,233 9,481
Securities available for sale (amortized cost of $23,098 and
$19,134, respectively) 22,081 19,032
Loans, net 117,896 145,674
Premises and equipment, net 3,672 5,588
Other real estate owned, net 74 74
Other assets 3,081 3,112
--------- ----------
Total assets $ 165,203 $ 194,414
========= ==========
Liabilities and Shareholders' Equity
Deposits:
Demand $ 20,434 $ 20,949
NOW accounts 22,431 24,710
Savings and money market 24,296 25,420
Certificates of deposit greater than $100,000 16,645 23,855
Certificates of deposit less than $100,000 and other
time deposits 53,860 65,447
--------- ---------
Total deposits 137,666 160,381
Securities sold under repurchase agreements 3,298 3,096
Federal Home Loan Bank advances 950 2,910
Other borrowed funds 7,850 9,470
Obligation under capital lease 173 21
Other liabilities 1,675 2,129
--------- --------
Total liabilities 151,612 178,007
--------- ---------
Shareholders' equity:
Common stock, $1.67 par value; 15,000,000 shares
authorized; shares issued and outstanding -
2,082,591 in 1994 and 2,314,882 in 1995 3,471 3,859
Additional paid-in capital 8,309 11,269
Retained earnings 2,452 1,343
Unrealized loss on securities available for
sale, net of income taxes (641) (64)
--------- ---------
Total shareholders' equity 13,591 16,407
--------- ---------
Commitments and contingencies
Total liabilities and shareholders' equity $ 165,203 $ 194,414
========== ==========
See accompanying notes to consolidated financial statements.
36
FIRST UNITED BANCORPORATION
Consolidated Statements of Income
Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995
---- ---- ----
(In thousands, except per share data)
Interest income:
Interest and fees on loans $ 11,089 $ 13,504 $ 17,675
Interest on federal funds sold 222 238 195
Interest on securities:
Taxable 1,747 1,558 1,535
Nontaxable 222 245 261
----------- ----------- ------------
13,280 15,545 19,666
----------- ----------- ------------
Interest expense:
Interest on deposits 4,050 4,078 5,871
Interest on securities sold under repurchase agreements 79 118 168
Interest on FHLB advances and other borrowed funds 396 573 999
----------- ----------- ------------
4,525 4,769 7,038
----------- ----------- ------------
Net interest income 8,755 10,776 12,628
Provision for loan losses 282 397 779
----------- ----------- ------------
Net interest income after provision for loan losses 8,473 10,379 11,849
----------- ----------- ------------
Other income:
Service charges on deposit accounts and other fees 659 734 789
Other 1,360 1,004 1,094
----------- ----------- ------------
2,019 1,738 1,883
----------- ----------- ------------
Other expenses:
Salaries, wages and benefits 4,399 5,061 5,762
Net occupancy expenses 521 563 631
Other operating expenses 3,112 3,333 3,635
----------- ----------- ------------
8,032 8,957 10,028
----------- ----------- ------------
Income before provision for income taxes and cumulative effect
of a change in accounting method 2,460 3,160 3,704
Income taxes 850 1,082 1,291
----------- ----------- ------------
Income before cumulative effect of a change in accounting
method 1,610 2,078 2,413
Cumulative effect of a change in accounting method for income taxes 56 - -
----------- ----------- ------------
Net income $ 1,666 $ 2,078 $ 2,413
=========== =========== ============
Net income per common share before cumulative effect
of change in accounting method for income taxes $ 0.71 $ 0.89 $ 0.99
Cumulative effect of change in accounting method for
income taxes $ 0.02 $ - $ -
----------- ----------- ------------
Net income per common share:
Primary $ 0.73 $ 0.89 $ 0.99
Fully diluted 0.73 0.89 0.98
Average common shares outstanding:
Primary 2,278 2,326 2,435
Fully diluted 2,278 2,326 2,450
Cash dividends declared per common share $ - $ .03 $ .12
See accompanying notes to consolidated financial statements.
37
FIRST UNITED BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 1993, 1994 and 1995
Unrealized
Gain (Loss)
on Securities
Additional Available Total
Common stock Paid-in Retained for Shareholders'
Shares Amount Capital Earnings Sale, Net Equity
------ ------ ------- -------- --------- ------
(In thousands)
Balance at December 31, 1992 1,790 $ 2,983 $ 6,838 $ 637 $ - $ 10,458
Issuance of 89,062 shares of
common stock relating to
5% stock dividend 89 148 441 (591) - (2)
Net income - - - 1,666 - 1,666
Net unrealized gain on
securities available for sale - - - - 164 164
----- -------- --------- ------- ------ --------
Balance at December 31, 1993 1,879 3,131 7,279 1,712 164 12,286
Issuance of 187,447 shares of
common stock relating to
10% stock dividend 187 313 958 (1,274) - (3)
Cash in lieu of fractional
shares on 3 for 2 stock split - - - (2) - (2)
Cash dividends declared, $.03
per share - - - (62) - (62)
Employee stock options
exercised 17 27 72 - - 99
Net income - - - 2,078 - 2,078
Change in net unrealized gain
(loss) on securities available
for sale - - - - (805) (805)
----- ---------- --------- ------- ------ -------
Balance at December 31, 1994 2,083 3,471 8,309 2,452 (641) 13,591
Issuance of 104,155 shares of
common stock relating to
5% stock dividend 104 174 1,194 (1,371) - (3)
Issuance of 110,201 shares of
common stock relating to
5% stock dividend 110 184 1,698 (1,887) - (5)
Cash dividends declared, $.12
per share - - - (264) - (264)
Employee stock options
exercised 18 30 68 - - 98
Net Income - - - 2,413 - 2,413
Change in net unrealized loss on
securities available for sale - - - - 577 577
----- ---------- ---------- --------- ------- ---------
Balance at December 31, 1995 2,315 $ 3,859 $ 11,269 $ 1,343 $ (64) $ 16,407
===== ========== ========== ========= ======= =========
See accompanying notes to consolidated financial statements.
38
FIRST UNITED BANCORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 1,666 $ 2,078 $ 2,413
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 282 397 779
Depreciation and amortization 604 675 654
Deferred income taxes (200) (65) (238)
Decrease (increase) in other assets, net 519 (130) (242)
Increase (decrease) in other liabilities 199 337 454
-------- -------- ---------
Net cash provided by operating activities 3,070 3,292 3,820
-------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities (5,340) (8,989) (4,251)
Proceeds from sales and maturities of investment
securities 3,904 9,153 7,967
Net increase in loans (10,763) (17,805) (28,557)
Net additions to premises and equipment (710) (446) (2,459)
-------- -------- ---------
Net cash used by investing
activities (12,909) (18,087) (27,300)
--------- --------- ---------
Cash flows from financing activities:
Net increase in deposits 2,798 10,242 22,715
Proceeds from other borrowed funds 1,725 2,125 27,821
Proceeds from Federal Home Loan Bank advances - 950 1,960
Net increase (decrease) in securities sold under
repurchase agreements 265 421 (202)
Principal repayments on other borrowed funds and
obligation under capital lease (226) (215) (26,353)
Proceeds from exercise of stock options - 99 98
Cash paid for dividends and fractional shares - (67) (272)
-------- -------- ---------
Net cash provided by financing
activities 4,562 13,555 25,767
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (5,277) (1,240) 2,287
Cash and cash equivalents, beginning of year 15,683 10,406 9,166
-------- -------- ---------
Cash and cash equivalents, end of year $ 10,406 $ 9,166 $ 11,453
======== ======== =========
Supplemental information:
Cash paid during the year for:
Interest $ 4,554 $ 4,658 $ 6,451
Income taxes 1,071 1,057 1,048
Supplemental schedule of non-cash transactions:
Transfer from loans receivable to other real estate $ 121 $ 15 $ -
Unrealized gain (loss) on securities available for sale 164 (641) (64)
See accompanying notes to consolidated financial statements.
39
FIRST UNITED BANCORPORATION
Notes to Consolidated Financial Statements
(1) Corporate Background and Organization
First United Bancorporation (the "Company") is a bank holding company
organized in July 1987 to become the holding company for Anderson National
Bank (the "Anderson Bank"). The Company is incorporated under the laws of
the State of South Carolina and registered under the Bank Holding Company
Act of 1956, as amended.
The Company formed a second banking subsidiary, Spartanburg National Bank
(the "Spartanburg Bank"), which commenced operations on September 1, 1988.
The Company capitalized the Spartanburg Bank and purchased all of the
Spartanburg Bank's initial issuance of stock with the proceeds of a public
offering. The Spartanburg Bank is located in Spartanburg, South Carolina
and provides a full range of banking services. The Anderson Bank and the
Spartanburg Bank are sometimes hereinafter collectively referred to as the
"Banks."
The Company organized another subsidiary, Quick Credit Corporation ("Quick
Credit"), a consumer finance company, which commenced operations in
February 1988. At December 31, 1995, Quick Credit had 22 offices, all
located in South Carolina.
The Company is in the process of forming a third banking subsidiary,
Community Bank of Greenville National Association, and has received all
regulatory approval. This new bank is expected to begin operations in the
second quarter of 1996.
(2) Summary of Significant Accounting Policies
The following is a description of the more significant accounting and
reporting policies which the Company follows in preparing and presenting
its consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. In
consolidation all significant intercompany accounts and transactions
have been eliminated.
(b) Cash and Cash Equivalents
The Company includes cash on hand, cash items in transit to
depository institutions, cash balances in the depository
institutions, certificates of deposit with less than three months
original maturity, and federal funds sold as cash and cash
equivalents in its consolidated statements of cash flows.
(c) Investment Securities
Each Bank maintained liquid assets in excess of the amount required
by regulations during all periods included in these consolidated
financial statements. Liquid assets consist principally of cash,
short-term interest-bearing deposits, federal funds sold and
investment securities.
40
(2) Summary of Significant Accounting Policies, Continued
On May 31, 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities
("SFAS 115"). SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair
values - other than those accounted for under the equity method or as
investments in consolidated subsidiaries and all investments in debt
securities. The Company classifies investments, under SFAS 115, into
three categories as follows: (1) Held to Maturity Securities - debt
securities that the enterprise has the positive intent and ability to
hold to maturity, which are reported at amortized cost; (2) Trading
Securities - debt and equity securities that are bought and held
principally for the purpose of selling them in the near term, which
are reported at fair value, with unrealized gains and losses included
in earnings; and (3) Available for Sale Securities debt and equity
securities not classified as either held to maturity securities or
trading securities, which are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate
component of stockholders' equity (net of tax effects). Gain or loss
on the sale of securities available for sale is based on the specific
identification method.
The Company adopted SFAS 115 effective as of the end of 1993. At that
time, the effect of the adoption of SFAS 115 was an increase in
stockholders' equity of $164,000, which is the amount by which market
values of investments and mortgage-backed securities available for
sale, net of income taxes, exceeded carrying amounts. At December 31,
1995 the effect is a decrease in stockholders' equity of $64,000, net
of income taxes. The Company has no trading securities.
The Company designates securities as held to maturity or available
for sale at the purchase date. Unrealized losses on securities
available for sale reflecting a decline in value judged to be other
than temporary, are charge to income in the Consolidated Statements
of Income.
(d) Interest Income on Loans Receivable
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. Loans are generally placed
on non-accrual when they are ninety days delinquent.
The Banks recognize interest on non-discounted loans using the simple
interest method on daily balances of the principal amounts
outstanding. Unearned income on loans made by Quick Credit is carried
as a reduction of the respective loan balances and is recognized in
income using the sum-of-the-months-digits (rule of 78's) method. Due
to the short-term maturities of Quick Credit's loans, this method
approximates a level yield.
(e) Allowance for Loan Losses
Each Bank provides for loan losses through an allowance and all
recoveries are credited to the allowance. Additions to the allowance
for loan losses are provided by charges to operations based on
various factors which, in management's judgment, deserve current
recognition in estimating possible losses. Such factors considered by
management include the market value of the underlying collateral,
growth and composition of the loan portfolios, the relationship of
the allowance for loan losses to outstanding loans, loss experience,
delinquency trends and economic conditions. Management evaluates the
carrying value of loans periodically and the allowance is adjusted
accordingly. While management uses the best information available to
make evaluations, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the
assumptions used in making the evaluations. In addition, the
allowance for loan losses is subject to periodic evaluation by
various regulatory authorities and may be subject to adjustments
based upon information that is available to them at the time of their
examination.
41
(2) Summary of Significant Accounting Policies, Continued
(f) Other Real Estate Owned
Other real estate owned represents real estate acquired through
foreclosure and is recorded at the lower of cost or fair value less
anticipated costs to sell.
(g) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated primarily using the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are being amortized over the shorter of the
life of the asset or the lease.
(h) Income Taxes
The Company files a consolidated federal income tax return. Separate
state tax returns are filed for Anderson National Bank and
Spartanburg National Bank. First United Corporation and Quick Credit
file a consolidated state income tax return.
In 1992, the FASB issued SFAS No. 109, Accounting for Incomes Taxes
("SFAS 109"). Under SFAS 109, deferred tax liabilities are
recognized on all taxable temporary differences (reversing
differences where tax deductions initially exceed financial
statement expense, or income is reported for financial statement
purposes prior to being reported for tax purposes). In addition,
deferred tax assets are recognized on all deductible temporary
differences (reversing differences where financial statement expense
initially exceeds tax deductions, or income is reported for tax
purposes prior to being reported for financial statement purposes)
and operating loss and tax credit carryforwards. Valuation
allowances are established to reduce deferred tax assets if it is
determined to be "more likely than not" that all or some portion of
the potential deferred tax assets will not be realized. Under SFAS
109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
The Company adopted SFAS 109 as of January 1, 1993. The cumulative
effect of the adoption of SFAS 109 was an increase of $56,000 in net
income for 1993, and a corresponding increase in the net deferred tax
asset. Prior years' consolidated financial statements were not
restated in connection with the adoption of SFAS 109.
(i) Per Share Data
Primary earnings per share is computed by dividing net income by the
weighted average number of shares of common stock and dilutive common
stock equivalents outstanding during the period. Fully diluted
earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, with common stock equivalents
calculated based on the ending market price, if higher than the
average market price. Common stock equivalents consist of common
stock options and are computed using the treasury stock method. The
weighted average number of shares outstanding during the period for
primary and fully diluted earnings per share was adjusted to
retroactively reflect all stock dividends.
42
(2) Summary of Significant Accounting Policies, Continued
(j) Fair Value of Financial Instruments
The financial statements include disclosure of fair value information
about financial instruments, whether or not recognized on the balance
sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the financial instrument. As the
fair value of certain financial instruments and all nonfinancial
instruments are not presented, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
(k) Use of Estimates in the Preparation of Financial Statements
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 liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(l) Reclassifications
Certain minor amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to conform with 1995 presentations.
These reclassifications had no impact on shareholders' equity or net
income as previously reported.
(3) Cash and Due from Banks
Anderson National Bank and Spartanburg National Bank are required by
regulation to maintain varying cash reserve balances with the Federal
Reserve System. The average amount of the cash reserve balance required
for Anderson National Bank for the years ended December 31, 1994 and 1995
was $553,000 and $563,000, respectively. At December 31, 1994 and 1995,
the calculated cash reserve required was $542,000 and $564,000,
respectively. The average amount of the cash reserve balance required for
Spartanburg National Bank for the years ended December 31, 1994 and 1995
was $341,000 and $351,000, respectively. At December 31, 1994 and 1995,
the calculated cash reserve required was $367,000 and $358,000,
respectively.
(4) Investment Securities
The amortized cost and market value of securities held to maturity at
December 31 are as follows (dollars in thousands):
1994 1995
----------------------------------------------- ------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
U.S. Treasury
Securities $ 696 $ - $ 9 $ 687 $ 1,441 $ 15 $ - $ 1,456
State, county
and municipal 5,370 35 112 5,293 5,533 108 - 5,641
Mortgage-backed
securities 3,167 16 60 3,123 2,507 64 - 2,571
---------- ---------- --------- ---------- --------- ---------- -------- ---------
$ 9,233 $ 51 $ 181 $ 9,103 $ 9,481 $ 187 $ - $ 9,668
========== ========== ========= ========== ========= ========== ======== =========
43
(4) Investment Securities, Continued
The amortized cost and market values of securities available for sale at
December 31 are as follows (dollars in thousands):
1994 1995
----------------------------------------------- -----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
U.S. Treasury
securities $ 4,552 $ - $ 94 $ 4,458 $ 2,650 $ 24 $ - $ 2,674
U.S. Government
agencies 11,938 7 568 11,377 10,478 - 131 10,347
Mortgage-backed
securities 5,887 - 362 5,525 5,240 5 - 5,245
Other securities 721 - - 721 766 - - 766
---------- ---------- --------- ---------- --------- ---------- -------- -----------
$ 23,098 $ 7 $ 1,024 $ 22,081 $ 19,134 $ 29 $ 131 $ 19,032
========== ========== ========= ========== ========= ========== ======== ===========
Included in mortgage-backed securities at December 31, 1994 and 1995 are
(in thousands):
1994 1995
----------------------- ---------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Five year balloon $ 967 $ 942 $ 735 $ 745
Seven year balloon 717 711 776 790
Adjustable rate 5,887 5,525 5,240 5,245
Fixed rate, principally with
maturities greater
than ten years 1,483 1,470 996 1,036
---------- ---------- ---------- ------------
$ 9,054 $ 8,648 $ 7,747 $ 7,816
========== ========== ========== ============
44
The amortized cost and estimated market value of securities at December
31, 1995, by contractual maturity, are shown below (dollars in thousands):
Available for Sale Held to Maturity
-------------------------- -----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
One year or less $ 1,797 $ 1,760 $ 1,776 $ 1,786
After one year through
five years 10,802 10,761 5,709 5,787
After 5 years through
10 years 535 506 1,090 1,136
After 10 years 6,000 6,005 906 959
---------- ---------- ---------- ------------
Total $ 19,134 $ 19,032 $ 9,481 $ 9,668
========== ========== ========== ============
There were no sales of securities in 1994. In 1995 the Company sold
$896,000 in securities out of its available for sale portfolio.
Investment securities with carrying amounts of approximately $12,118,000
and $17,669,000 at December 31, 1994 and 1995, respectively, were pledged
to secure public deposits and securities sold under repurchase agreements
and for other purposes required or permitted by law.
45
(5) Loans Receivable, Net
Loans receivable, net, at December 31 are summarized as follows (dollars
in thousands):
1994 1995
---- ----
Commercial loans $ 18,469 $ 25,684
Real estate - mortgage loans 71,282 84,418
Real estate - construction and land development loans 5,040 9,111
Consumer loans 25,049 28,781
---------- ----------
Total loans 119,840 147,994
Less: Allowance for loan losses (1,944) (2,320)
---------- ----------
Loans receivable, net $ 117,896 $ 145,674
========== ==========
Loans on which the accrual of interest has been discontinued amounted to
$281,000 and $241,000 at December 31, 1994 and 1995, respectively. If
interest on these loans had been accrued, such income on these loans would
have approximated $56,000 and $40,000 for the years ended December 31,
1994 and 1995, respectively.
Changes in the allowance for loan losses for the years ended December 31
were as follows (dollars in thousands):
1993 1994 1995
---- ---- ----
Balance, beginning of year $ 1,369 $ 1,694 $ 1,944
Provision for loan losses 282 397 779
Loans charged-off (290) (334) (645)
Recoveries 308 172 234
Allowance allocated to purchased loans 25 15 8
-------- -------- ---------
Balance, end of year $ 1,694 $ 1,944 $ 2,320
======== ======== =========
At December 31, 1995, the majority of the loan portfolio is secured by
collateral located in the State of South Carolina and there were no
significant concentrations of loans in any type of industry, type of
property or to one borrower.
At December 31, 1995, the Company has $1,398,000 in mortgage loans held
for sale which are recorded at the lower of their cost or market value.
On January 1, 1995, the Company adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan." SFAS 114 requires that impaired loans
and certain restructured loans be measured at the present value of
expected future cash flows, discounted at the loan's effective interest
rate, at the loan's observable market price, or at the fair value of the
collateral if the loan is collateral dependent. A specific reserve is set
up for each impaired loan.
Also on January 1, 1995, the Company adopted SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
SFAS 118 amends SFAS 114 in the areas of disclosure requirements and
methods for recognizing interest income on an impaired loan.
At December 31, 1995, loans totaling $241,000 were considered to be
impaired under SFAS 114. The related impairment allowance at December 31,
1995 was $0. The average impaired loans during 1995 was $205,000.
46
(6) Premises and Equipment
Premises and equipment at December 31 are as follows (dollars in
thousands):
Estimated
useful
lives 1994 1995
----- ---- ----
Land - $ 833 $ 1,818
Buildings and leasehold improvements 15-30 years 2,527 3,423
Furniture, fixtures and equipment 2-8 years 2,769 2,622
Vehicles 3 years 223 260
6,352 8,123
Accumulated depreciation (2,680) (2,535)
-------- ---------
$ 3,672 $ 5,588
======== =========
(7) Deposits
Deposits outstanding by type of account and weighted average rate are
summarized as follows (dollars in thousands):
December 31,
------------------------------------------------
1994 1995
---- ----
Balance Rate Balance Rate
------- ---- ------- ----
Demand accounts:
Non-interest-bearing $ 20,434 - % $ 20,949 - %
Interest-bearing demand
deposits 22,431 2.48 24,710 2.46
Savings and money market 24,296 3.07 25,420 3.74
---------- ---- --------- ----
67,161 1.93 71,079 2.22
---------- ---- --------- ----
Certificate accounts:
Jumbo 16,645 4.94 23,855 6.09
Other 53,860 4.61 65,447 5.83
---------- ---- --------- ----
70,505 4.69 89,302 5.90
---------- ---- --------- ----
Total deposits $ 137,666 3.34% $ 160,381 4.28%
========== ==== ========= ====
Certificate accounts by maturity at December 31 consist of the following
(dollars in thousands):
1994 1995
---- ----
Maturing in first succeeding year $ 61,473 $ 78,775
Maturing in second through fifth
succeeding years 9,032 10,527
-------- --------
$ 70,505 $ 89,302
======== ========
47
(7) Deposits, Continued
Interest expense by type of deposit for the years ended December 31 is
summarized as follows (dollars in thousands):
1993 1994 1995
---- ---- ----
Interest-bearing demand deposits $ 495 $ 529 $ 574
Savings and money market 700 699 785
Certificates 2,855 2,850 4,512
-------- -------- ---------
$ 4,050 $ 4,078 $ 5,871
======== ======== =========
(8) Long-term Debt
Other Borrowed Funds
Other borrowed funds at December 31 are summarized as follows (dollars in
thousands):
1994 1995
---- ----
Federal funds purchased due January 1, 1995 $ 150 $ -
Line of credit payable to a commercial bank due May
1997, bearing an interest rate ranging from 8.5% to
10% in 1994 and 9.75% to 10.5% in 1995 (a) 6,450 8,020
Line of credit payable to a commercial bank, bearing
an interest rate ranging from 8.5% to 9.0% (b) - 650
Subordinated debentures due December 1999,
interest payable quarterly at 7.5% in 1994 and 9.0%
in 1995 400 400
Subordinated debentures due June 1998, interest
payable quarterly at 10.25% - 300
Subordinated debenture due October 1996, interest
payable monthly at 9.75% - 100
Unsecured notes due within one year, bearing
interest rates ranging from 7.5% to 9.75% 850 -
------- --------
$ 7,850 $ 9,470
======= ========
(a) During 1994, the Company's subsidiary, Quick Credit, entered into a
$10,000,000 line of credit with a commercial bank secured by Quick
Credit's loans receivable of which $6,450,000 and $8,020,000 was
outstanding at December 31, 1994 and 1995, respectively. The line
expires May 1997. The line of credit allows Quick Credit to borrow
based upon a borrowing formula and requires Quick Credit to maintain
certain minimum net worth levels and debt to equity levels.
48
(8) Long-term Debt, Continued
(b) In May, 1995 the Company entered into a combination revolving line of
credit/term loan agreement with a commercial bank secured by the common
stock of both subsidiary banks in the amount of $5,000,000. The line of
credit was increased to $6,000,000 in December, 1995. The revolving line
of credit expires in May, 1999, but may be extended for two additional one
year periods of time if certain covenants are met but not to exceed a
final expiration date of May, 2001. The revolving line bears interest at a
variable rate and requires quarterly interest payments. At the expiration
of the revolving line of credit the Company can convert the balance
outstanding under the revolving line to a term loan at a fixed rate or
variable rate of interest, at the Company's discretion, for a period of up
to five years, but not to exceed a final expiration date of May, 2006 with
quarterly interest and equal principal payments required. At December 31,
1995, $650,000 was outstanding under the revolving line of credit. The
lines of credit and term loan agreement require the Company and its
banking subsidiaries to maintain certain minimum net worth levels, cash
flow ratios and earnings levels.
Federal Home Loan Bank Advances
The Company's banking subsidiaries have outstanding borrowings from the
Federal Home Loan Bank of Atlanta totaling $2,910,000, collectively. These
advances accrue interest at rates ranging from 6.30% to 7.91%. Advances to
Anderson National Bank totaled $360,000 at December 31, 1995 and are being
amortized over 10 years with $20,000 semi-annual payments required through
August, 2004. These advances are secured by certain of Anderson National
Bank's securities. Advances to Spartanburg National Bank totaled
$2,550,000 at December 31, 1995. Of these advances, $550,000 are due in
October, 1999 and $2,000,000 of these advances are due in $1,000,000
increments in February and March of 1996, respectively. These advances are
secured by certain of Spartanburg National Bank's securities and by a
blanket lien on Spartanburg National Bank's first mortgage real estate
loans.
Other
The Company also has a line of credit facility with an unrelated
commercial bank which is unsecured and provides that the Company may
borrow up to $100,000, all of which is available at December 31, 1995.
Borrowings under this credit facility bear interest at the prime rate.
(9) Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements, payable within one year and
collateralized by investment securities, at December 31, are summarized as
follows (dollars in thousands):
1993 1994 1995
---- ---- ----
Balance at December 31 $ 2,877 $ 3,298 $ 3,096
-- --------- -------- --------
Weighted average interest rate
at December 31 2.53% 3.78% 4.94%
-- --------- -------- ----
Maximum amount outstanding at
any month end during the year $ 4,119 $ 4,599 $ 4,068
--------- -------- --------
Average monthly balance outstanding
during the year $ 2,666 $ 3,486 $ 3,220
--------- -------- --------
Average interest during the year 2.96% 3.38% 4.94%
--------- -------- ----
49
(10) Commitments, Contingencies and Off-Balance Sheet Risk
The Company has entered into a number of noncancellable operating and
capital lease agreements, primarily for land, buildings and equipment for
operations. Many of these leases contain renewal options and escalation
clauses, and in some instances, the annual rent will be renegotiated upon
lease renewal. In addition, the Company pays maintenance, property taxes
and insurance on certain leased properties.
At December 31, 1995, minimum rental commitments based on the remaining
noncancellable lease terms without consideration of renewal options are
summarized as follows (dollars in thousands):
Capital Operating
------- ---------
1996 $ 22 $ 178
1997 - 141
1998 - 110
1999 - 43
2000 - 15
2001 and thereafter - 8
-------- -------
Total minimum obligation 22 $ 495
=======
Less amounts representing interest at approximately 7% (1)
--------
Present value of net minimum obligation
at December 31, 1995 $ 21
========
During 1993, 1994 and 1995, the Company paid rent expense, collectively,
of $172,400, $166,600, and $179,800, respectively.
Commitments to extend credit are agreements to lend to customers as long
as there is no violation of any condition established in the contract.
These commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of these
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Each customer's credit worthiness is evaluated on a case-by-case basis and
collateral is obtained if deemed necessary. At December 31, 1995, the
Banks had commitments to extend credit of approximately $26,906,000. This
amount includes unused credit card and home mortgage equity lines.
Standby letters of credit are commitments issued by the Banks to guarantee
the performance of a customer to a third party. The Banks had
approximately $1,390,000 in outstanding standby letters of credit at
December 31, 1995.
The Banks are parties to financial instruments with off-balance sheet risk
in the normal course of business to meet the financial needs of their
customers and to reduce their own exposure to fluctuations in interest
rates. Theses financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the Consolidated Balance Sheets. The contract amount
of these instruments reflects the extent of involvement that the Banks
have in classes of financial instruments.
The Banks use the same credit policies in making commitments to extend
credit and in issuing standby letters of credit that are used for
on-balance sheet instruments. The Company's exposure to credit loss for
commitments to extend credit and standby letters of credit in the event of
the other party's nonperformance is represented by the contract amount of
the instrument and is essentially the same as that involved in extensions
of loans with collateral being obtained if deemed necessary.
50
(11) Income Taxes
Income tax expense (benefit) for the years ended December 31 is as follows
(dollars in thousands):
1993 1994 1995
---- ---- ----
Current tax provision:
Federal $ 972 $ 1,032 $ 1,383
State 78 115 146
-------- -------- --------
1,050 1,147 1,529
-------- -------- --------
Deferred tax provision (benefit):
Federal (194) (62) (218)
State (6) (3) (20)
-------- -------- --------
(200) (65) (238)
-------- -------- --------
Total tax provision $ 850 $ 1,082 $ 1,291
======== ======== ========
The Company's effective tax rate varies from the Federal statutory tax
rate of 34%. The reasons for the differences are as follows (dollars in
thousands):
1993 1994 1995
---- ---- ----
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Computed "expected"
tax expense $ 836 34.0% $1,074 34.0% $ 1,259 34.0%
Effect of:
State income tax,
net of federal
benefit 47 1.9 74 2.3 83 2.2
Tax-exempt interest
income (71) (2.9) (77) (2.4) (74) (2.0)
Other, net 38 1.6 11 0.3 23 .7
------ ---- ----- ---- -------- ----
$ 850 34.6% $1,082 34.2% $ 1,291 34.9%
====== ==== ====== ==== ======== ====
As discussed in note 2, the Company adopted SFAS 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes
of $56,000 was determined as of January 1, 1993 and has been reported
separately in the consolidated statement of income for the year ended
December 31, 1993.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, are presented below (dollars in thousands):
1994 1995
---- ----
Deferred tax assets:
Loan loss reserves $ 335 $ 465
Deferred compensation 152 208
Unrealized investment security losses 376 33
Other 66 100
---- -----
Total gross deferred tax assets 929 806
---- -----
51
(11) Income Taxes, Continued
1994 1995
---- ----
Deferred tax liabilities:
Fixed asset basis for financial reporting purposes
in excess of tax basis $ 20 $ 42
Tax over book accrued expenses 51 -
Other 2 13
---- ----
Total gross deferred tax liabilities 73 55
---- ----
Net deferred tax asset $856 $751
==== ====
A portion of the change in the net deferred tax asset relates to
unrealized gains and losses on securities available for sale. The related
current period deferred tax charge of $343,000 has been recorded directly
to shareholders' equity. The balance of the change in the net deferred tax
asset results from the current period deferred tax benefit of $238,000.
The net deferred tax asset is included in other assets in the accompanying
consolidated balance sheets.
The valuation allowance for deferred tax assets as of January 1, 1994 and
1995 was zero. The net change in the total valuation allowance for the
years ended December 31, 1994 and 1995 was zero. No valuation allowance
has been established as it is management's contention that realization of
the deferred tax asset is more likely than not due primarily to refundable
taxes in carryback periods and conservative estimates of future taxable
income.
The Company's income tax returns for 1992 and subsequent years are subject
to review by the taxing authorities.
(12) Shareholders' Equity
On October 15, 1993 the Company's Board of Directors declared a five
percent stock dividend. On May 2, 1994 the Board declared a ten percent
stock dividend. On May 22, 1995 and October 22, 1995 the Company's Board
of Directors declared additional five percent stock dividends.
Accordingly, outstanding shares of common stock were increased and a
transfer representing the fair market value of additional shares issued
was made from retained earnings to common stock at par value, cash for
payment of fractional shares and the balance to additional paid-in
capital.
On October 25, 1994, the Board of Directors declared a three-for-two stock
split payable to stockholders of record as of November 8, 1994. The
distribution date was November 22, 1994 with fractional shares paid in
cash based on the adjusted market value of the stock at the distribution
date. The weighted average shares outstanding and earnings per share
amounts for the prior years have been restated to reflect the stock split
and the various stock dividends.
(13) Stock Options
In 1987, the Company adopted a stock option plan (the "1987 Plan") which
provides for granting key employees options to purchase the Company's
common stock at an option price equal to fair market value at the date of
grant. Option prices and number of shares have been adjusted for the stock
dividends and split discussed in note 12. The Company reserved 178,318
shares for issuance pursuant to the 1987 Plan. Options vest in four
increments of 25% each on the first four anniversaries of the date of
grant and can be exercised within ten years of the date of grant.
52
(13) Stock Options, Continued
At December 31, 1995, under the 1987 Plan options to purchase 176,365
shares were outstanding, 1,953 shares were available for grant and 164,346
shares were exercisable. Stock option activity to date is as follows:
Outstanding Exercisable
----------- -----------
Granted at $6.01 per share in 1987 33,166 33,166
Granted at $5.46 per share in 1987 43,156 43,156
Granted at $5.46 per share in 1988 42,176 42,176
Granted at $5.46 per share in 1989 7,371 7,371
Granted at $5.46 per share in 1990 3,317 3,317
Granted at $4.49 per share in 1991 14,040 14,040
Granted at $4.22 per share in 1992 26,772 19,528
Granted at $5.50 per share in 1994 6,367 1,592
------- -------
176,365 164,346
======= =======
During 1994, options to purchase 14,229 shares were exercised at an
average price of $7.01 per share. During 1995, options to purchase 18,237
shares were exercised at an average price of $5.40 per share. Prior to
1994, no stock options were exercised.
In 1994, the Company adopted an additional stock option plan (the "1994
Plan"). The Company reserved 176,513 shares for issuance pursuant to the
Plan. Options vest in four increments of 25% each on the first four
anniversaries of the date of grant and can be exercised within ten years
from the date of the grant.
At December 31, 1995, under the 1994 Plan, options to purchase 59,684
options were outstanding, 116,829 were available for grant, and 6,942 were
exercisable. Stock option activity to date is as follows:
Outstanding Exercisable
----------- -----------
Granted at $5.50 in 1994 11,051 2,046
Granted at $5.59 in 1994 11,369 2,140
Granted at $7.71 in 1994 11,025 2,756
Granted at $10.43 per share in 1995 26,239 -
------ ------
59,684 6,942
====== =====
(14) Restrictions on Subsidiary Dividends, Loans or Advances
The dividends that may be paid by the Banks to the Company are subject to
legal limitations and regulatory capital requirements. Prior approval of
the Comptroller of the Currency is required if the total of all dividends
declared by a national bank in any calendar year exceeds that Bank's net
profits (as defined) for that year combined with its retained net profits
(as defined) for the two preceding calendar years. During 1994 and 1995,
dividends were declared by Anderson National Bank. No dividends have been
declared by Spartanburg National Bank.
Under Federal Reserve Board regulations, the amounts of loans or advances
from the banking subsidiaries to the Company are also restricted.
53
(15) Other Operating Expenses
Other operating expenses for the years ended December 31 are as follows
(dollars in thousands):
1993 1994 1995
---- ---- ----
Data processing expense $ 306 $ 309 $ 251
Printing, stationery and supplies 191 241 220
Depreciation on premises and equipment 462 599 543
Legal and professional fees 187 168 217
Advertising 298 306 340
Regulatory assessments 376 358 314
Postage 143 158 181
Other 1,149 1,194 1,569
-------- -------- -----
$ 3,112 $ 3,333 $ 3,635
======== ======== =========
(16) Employee Benefits
Effective April 1, 1989, the Company adopted a tax deferred savings plan
(the "Plan") under Section 401(k) of the Internal Revenue Code (IRC) which
covers substantially all of the Company's employees. The Plan provides for
voluntary contributions up to a maximum of 15% of an employee's gross
earnings or the maximum permitted by the IRC, whichever is lower. The
Company matches the participants' contributions up to a maximum of 3% of
an employee's salary. Participants are fully vested in both their
contributions and the Company's contributions at all times. The Company's
contributions to the Plan were $55,309, $91,075 and $91,383 in 1993, 1994
and 1995, respectively.
Effective January 1, 1989, the Company established a deferred compensation
plan for its directors and certain executive officers whereby the
director/officer may elect to defer fees/salaries. Amounts deferred under
this plan accrue interest at the Banks' prime rate plus 1%. The
accompanying consolidated financial statements include $103,000, $109,600
and $117,467 of compensation expense deferred in 1993, 1994 and 1995,
respectively. The deferred compensation plan is funded with life insurance
policies which are payable to the Company in the event of the employee's
death and which will accumulate a cash value approximating the amount of
deferred compensation over time until the employee's retirement. The
deferred compensation liability was $576,836 and $608,635 as of December
31, 1994 and 1995, respectively.
54
(17) Capital Requirements and Regulatory (unaudited)
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. 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 8.00%, with at
least 4% being "Tier 1" capital. Tier 1 capital consists principally of
common stockholders' equity, noncumulative preferred stock, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and certain other 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 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
12.73% and its Tier 1 capital to risk weighted assets ratio was 11.48% at
December 31, 1995, compared to 13.78% and 12.25%, respectively, at
December 31, 1994. The risk-based capital ratios for Anderson National
Bank and Spartanburg National Bank were 12.72% and 11.09%, respectively,
at December 31, 1995 compared to 13.80% and 12.34%, respectively, at
December 31, 1994. Their Tier 1 capital to risk weighted assets ratios
were 11.47% and 9.88%, respectively, at December 31, 1995 compared to
12.55% and 10.12%, respectively, at December 31, 1994. The decline in
Anderson National Bank's risk-based and Tier 1 capital to risk weighted
assets ratios from year-end 1994 levels resulted largely from the payment
of $726,000 in dividends to the parent company during the period ending
December 31, 1995. The decrease in Spartanburg National Bank's and the
consolidated company's risk-based and Tier 1 capital to risk weighted
assets ratios from year-end 1994 levels is a result of growth experienced
during 1995.
(18) Related Party Transactions
In the ordinary course of business, the Company's banking subsidiaries
make loans to their directors and officers and their related interests.
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more
than the normal risk of collectibility. Activity in related party loans is
as follows (dollars in thousands):
1994 1995
---- ----
Outstanding loans at beginning of year $ 1,456 $ 2,702
Loans originated 1,785 1,319
Principal collected on loans (539) (1,127)
--------- --------
Outstanding loans at end of year $ 2,702 $ 2,894
========= ========
In September 1988, Anderson National Bank entered into a noncancellable
operating lease for a branch facility with a partnership in which an
officer of the Company is a partner. The lease has a remaining term of
approximately four years, provides for various renewal options and
requires monthly rental payments of $2,000.
In March 1990, the Anderson Bank entered into a noncancellable operating
lease for a branch facility with a director of the Company. The lease has
a remaining term of approximately four months, provides for various
renewal options and requires monthly rental payments of $500. At the end
of the initial term, the lease is expected to be renewed.
55
(19) Condensed Financial Information
Condensed financial information for First United Bancorporation (parent
company) is as follows (in thousands):
Balance Sheet Data:
December 31,
------------
1994 1995
---- ----
Assets
Cash $ 61 $ 18
Investment in subsidiaries 13,171 15,273
Due from subsidiaries 477 1,194
Premises and other assets 173 1,322
--------- ---------
Total assets $ 13,882 $ 17,807
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Other borrowed funds $ - $ 1,170
Other liabilities 291 230
--------- ---------
Total liabilities 291 1,400
Shareholders' equity 13,591 16,407
--------- ---------
Total liabilities and shareholders' equity $ 13,882 $ 17,807
========= =========
Income Statement Data:
Years ended December 31,
------------------------
1993 1994 1995
---- ---- ----
Interest income $ 1 $ 12 $ 75
Interest expense (6) (5) (42)
-------- -------- --------
Net interest income (expense) (5) 7 33
Dividend income from subsidiaries 200 250 1,017
Other income 865 961 1,281
Other expenses (922) (1,035) (1,359)
-------- -------- ---------
143 176 939
-------- -------- ---------
Income before income tax expense
and equity in undistributed earnings
of subsidiaries 138 183 972
Income tax benefit 36 23 17
Equity in undistributed earnings
of subsidiaries 1,492 1,872 1,424
-------- -------- ---------
Net income $ 1,666 $ 2,078 $ 2,413
======== ======== =========
56
(19) Condensed Financial Information, Continued
Year ended December 31,
-----------------------
1993 1994 1995
---- ---- ----
Cash Flow Data:
Cash flows from operating activities:
Net income $ 1,666 $ 2,078 $ 2,413
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Equity in undistributed earnings
of subsidiaries (1,492) (1,872) (1,424)
--------- -------- ------
Other, net (248) (47) (1,485)
Net cash provided (used) by
operating activities (74) 159 (496)
--------- -------- ----
Cash flows from investing activities -
(Increase) decrease in due from subsidiaries 152 (303) (717)
--------- -------- ----
Cash flows provided by financing activities -
Net increase in other
borrowed funds - 100 1,170
--------- -------- -----
Net increase (decrease) in cash 78 (44) (43)
Cash, beginning of year 27 105 61
--------- -------- --
Cash, end of year $ 105 $ 61 $ 18
========= ======== =========
Cash paid during the year for:
Interest $ 6 $ 2 $ 36
Taxes $ 923 $ 947 $ 1,391
(20) 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 statement of financial position, when it is practicable to estimate
the fair value. SFAS 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 and Preferred stock, premises and equipment, and certain
other assets and liabilities.
Fair value approximates book value for the following financial instruments
due to the short-term nature of the instrument: cash and due from banks,
federal funds sold, securities sold under repurchase agreements, and other
short-term borrowings.
Fair value for variable rate loans that reprice frequently is based on the
carrying value. Fair value for mortgage loans, consumer loans and all
other loans (primarily commercial and industrial loans) 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.
57
(20) Fair Value of Financial Instruments, Continued
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 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. Investment securities are
valued using quoted market prices.
At December 31, 1995, the Banks had outstanding standby letters of credit,
documentary letters of credit and commitments to extend credit. These
off-balance sheet financial instruments are based on fees currently
charged for similar instruments or on the estimated cost to terminate them
or otherwise settle the obligations with the counterparties at the
reporting date. At December 31, 1995 the carrying amounts approximated the
fair values of these off-balance sheet financial instruments.
The Company has used management's best estimate 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 values presented.
The estimated fair values of the Company's financial instruments at
December 31 were as follows:
1995
------------------------
Carrying Fair
Amount Value
------ -----
(In thousands)
Financial assets:
Cash and due from banks $ 6,353 $ 6,353
Federal funds sold 5,100 5,100
Securities held to maturity 9,481 9,668
Securities available for sale 19,032 19,032
Loans, net 145,674 145,935
Financial liabilities:
Demand deposits, NOW accounts,
savings accounts and money
market accounts 71,079 71,079
Certificates of Deposit 89,302 89,673
Securities sold under repurchase agreements 3,096 3,096
Federal Home Loan Bank advances 2,910 2,910
Other borrowed funds 9,470 9,470
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
Not applicable.
58
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is set forth under the heading
"MANAGEMENT" on pages 4 through 7 of the definitive proxy materials of the
Company filed in connection with its 1996 Annual Meeting of the Shareholders,
which information is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is set forth under the heading
"EXECUTIVE COMPENSATION" on pages 7 through 11 of the definitive proxy materials
of the Company filed in connection with its 1996 Annual Meeting of Shareholders,
which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is set forth under the heading
"PRINCIPAL SHAREHOLDERS" on pages 2 and 3 of the definitive proxy materials of
the Company filed in connection with its 1996 Annual Meeting of Shareholders,
which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth under the heading
"CERTAIN TRANSACTIONS" on page 11 of the definitive proxy materials of the
Company filed in connection with its 1996 Annual Meeting of Shareholders, which
information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
The following consolidated financial statements and report of independent
auditors of the Company, are included in Item 8 hereof.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1994 and 1995
Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules are included in the consolidated financial
statements referenced in Item 14(a)1 above
3. Exhibits
3.1 - Articles of Incorporation of the Registrant (incorporated by
reference to exhibits filed with the Registrant's Registration
Statement on Form S-4 under the Securities Act of 1933, File No.
33-16600).
3.1.1 - Articles of Amendment to the Articles of Incorporation of the
Registrant (incorporated by reference to
59
exhibits filed with the Registrant's Annual Report on Form 10-K for
the Year Ended December 31, 1989, File No. 0-17565).
3.1.2 - Articles of Amendment to the Articles of Incorporation of the
Registrant, filed May 6, 1994 (incorporated by reference to exhibits
filed with the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1994).
3.1.3. - Articles of Amendment to Articles of Incorporation of the Registrant,
filed November 28, 1994 (incorporated by reference to exhibits filed
with the Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1994).
3.2 - Bylaws of the Registrant (incorporated by reference to exhibits filed
with the Registrant's Registration Statement on Form S-4 under the
Securities Act of 1933, File No. 33-16600).
10.1 - Registrant's 1987 Stock Option Plan (incorporated by reference to
exhibits filed with the Registrant's Registration Statement on Form S-8
under the Securities Act of 1933, File No. 33-23193).
10.1.1 - Registrant's 1994 Stock Option Plan (incorporated by reference to
exhibits filed with the Registrant's Registration Statement on Form S-8
under the Securities Act of 1933, File No. 33-94282).
10.2 - Summary Plan Description and Employee Savings Plan and Trust
(incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1989, File
No. 0-17565).
10.3 - Executive Security Plan (incorporated by reference to exhibits filed
with the Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1989, File No. 0-17565).
10.4 - Split Dollar Agreement between Anderson National Bank and Mason Y.
Garrett (incorporated by reference to exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended December 31,
1989, File No. 0-17565).
10.5 - Split Dollar Agreement between Anderson National Bank and William B.
West (incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1989, File
No. 0-17565).
10.6 - Split Dollar Agreement between Spartanburg National Bank and James G.
Bagnal, III (incorporated by reference to exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended December 31,
1989, File No. 0-17565).
10.7 - Split dollar agreement between Anderson National Bank and Ronald K.
Earnest. (incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended December 31,
1993)
10.8 - Employment contract between the Registrant and James G. Bagnal, III
(incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1993).
10.9 - Employment contract between the Registrant and Ronald K. Earnest
(incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1993).
60
10.10 - Employment contract between the Registrant and William B. West
(incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1993).
10.11 - Credit Agreement and First Modification between Registrant and Bank
South, N.A, Atlanta, GA, dated as of May 16, 1995 (incorporated by
reference to the exhibits filed with the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1995).
10.12 - Second Modification, dated as of September 25, 1995, to Credit
Agreement between Registrant and Bank South, N.A., Atlanta, GA., dated
as of May 16, 1995 (incorporated by reference to the exhibits filed
with the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995).
10.13 - Third Modification, dated as of December 5, 1995, to Credit Agreement
between Registrant and Bank South, N.A., Atlanta, GA., dated as of May
16, 1995.
10.14 - Employment Contract between the Registrant and Frank W. Wingate,
dated May 15, 1995.
21. - List of Subsidiaries (incorporated by reference to exhibits filed
with the Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1988, File No. 0-17565).
23. - Consent of KPMG Peat Marwick LLP
27. - Financial Data Schedule.
The exhibits listed above will be furnished to any security holder upon
written request for such exhibit to Mr. William B. West, Secretary, First United
Bancorporation, 304 North Main Street, Anderson, South Carolina 29621. The
Registrant will charge a fee of $.20 per page for photocopying such exhibit.
(b) No Current Reports on Form 8-K were filed during the fourth quarter of
1995.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Anderson, State of South Carolina, on the 25th day of March, 1996.
FIRST UNITED BANCORPORATION
BY /s/Mason Y. Garrett
Mason Y. Garrett
President and Chief Executive 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/ Mason Y. Garrett President, Chief March 25, 1996
Mason Y. Garrett Executive Officer
and Director
/s/ William B. West Vice President March 25, 1996
William B. West (Principal Financial and
Accounting Officer) and
Director
/s/ James G. Bagnal, III Director March 25, 1996
James G. Bagnal, III
Director
Irvin L. Cauthen
/s/ Robert E. DeLapp, Jr. Director March 25, 1996
Robert E. DeLapp, Jr.
/s/ Ronald K. Earnest Director March 25, 1996
Ronald K. Earnest
Director
J. Berry Garrett
/s/ Randolph V. Hayes Director March 25, 1996
Randolph V. Hayes
/s/ J. Donald King
J. Donald King Director March 25, 1996
62
/s/ T. Ree McCoy, Jr. Director March 25, 1996
T. Ree McCoy, Jr.
G. Weston Nalley Director
/s/ Robert V. Pinson Director March 25, 1996
Robert V. Pinson
/s/Donald C. Roberts, M. D. Director March 25, 1996
Donald C. Roberts, M.D.
/s/ Milton A. Smith Director March 25, 1996
Milton A. Smith
/s/ Harold P. Threlkeld Director March 25, 1996
Harold P. Threlkeld
63
INDEX TO EXHIBITS
Description
3.1 - Articles of Incorporation of the Registrant (incorporated by Previously Filed
reference to exhibits filed with the Registrant's Registration
Statement on Form S-4 under the Securities Act of 1933, File
No. 33-16600)
3.1.1 - Articles of Amendment to the Articles of Incorporation of the Previously Filed
Registrant (incorporated by reference to exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1989, File No. 0-17565).
3.1.2 - Articles of Amendment to the Articles of Incorporation of the Previously Filed
Registrant, filed May 6, 1994 (incorporated by reference to
exhibits filed with the Registrant's Annual Report on Form 10-K
for the Year Ended December 31, 1994).
3.1.3 - Articles of Amendment to the Articles of Incorporation of the Previously Filed
Registrant, filed November 28, 1994 (incorporated by reference
to exhibits filed with the Registrant's Annual Report on Form
10-K for the Year Ended December 31, 1994).
3.2 - Bylaws of the Registrant (incorporated by reference to exhibits Previously Filed
filed with the Registrant's Registration Statement on Form S-4
under the Securities Act of 1933, File No. 33-16600)
10.1 - Registrant's 1987 Stock Option Plan (incorporated by reference Previously Filed
to exhibits filed with the Registrant's Registration Statement on
Form S-8 under the Securities Act of 1933, File No. 33-23193)
10.1.1 - Registrant's 1994 Stock Option Plan (incorporated by reference Previously Filed
to exhibits filed with the Registrant's Registration Statement on
Form S-8 under the Securities Act of 1933, File No. 33-94282).
10.2 - Summary Plan Description and Employee Savings Plan and Previously Filed
Trust (incorporated by reference to exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1989, File No. 0-17565).
10.3 - Executive Security Plan (incorporated by reference to exhibits Previously Filed
filed with the Registrant's Annual Report on Form 10-K for the
Year Ended December 31, 1989, File No. 0-17565).
10.4 - Split Dollar Agreement between Anderson National Bank and Previously Filed
Mason Y. Garrett (incorporated by reference to exhibits filed
with the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1989, File No. 0-17565)
64
INDEX TO EXHIBITS
Description
10.5 - Split Dollar Agreement between Anderson National Bank and Previously Filed
William B. West (incorporated by reference to exhibits filed
with the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1989, File No. 0-17565)
10.6 - Split Dollar Agreement between Spartanburg National Bank and Previously Filed
James G. Bagnal, III (incorporated by reference to exhibits filed
with the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1989, File No. 0-17565).
10.7 - Split dollar agreement between Anderson National Bank and Previously Filed
Ronald K. Earnest (incorporated by reference to the exhibits
filed with the Registrant's Annual Report on Form 10-K for the
Year Ended December 31, 1993).
10.8 - Employment contract between the Registrant and James G. Previously Filed
Bagnal, III (incorporated by reference to the exhibits filed with
the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1993).
10.9 - Employment contract between the Registrant and Ronald K. Previously Filed
Earnest (incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1993).
10.10 - Employment contract between the Registrant and William B. Previously Filed
West (incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1993).
10.11 - Credit Agreement and First Modification between Registrant and Previously Filed
Bank, South, N.A., Atlanta, GA, dated as of May 16, 1995
(incorporated by reference to the exhibits filed with the
Registrant's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1995).
10.12 - Second Modification, dated as of September 25, 1995, to Credit Previously Filed
Agreement between Registrant and Bank South, N.A., Atlanta,
GA., dated as of May 16, 1995 (incorporated by reference to the
exhibits filed with the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1995).
10.13 - Third Modification, dated as of December 5, 1995, to Credit Attached
Agreement between Registrant and Bank South, N.A., Atlanta,
GA., dates as of May 16, 1995.
65
10.14 - Employment Contract between the Registrant and Frank W. Attached
Wingate, dated May 15, 1995.
21. - List of Subsidiaries (incorporated by reference to exhibits filed Previously Filed
with the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1988, File No. 0-17565).
23. - Consent of KPMG Peat Marwick LLP Attached
27. - Financial Data Schedule Attached
66