UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant To Section 13 Or 15(d)of The Securities Exchange
Act Of 1934 For The Fiscal Year December 31, 2000.
Or
[ ] Transition Report Pursuant To Section 13 Or 15 (D) Of The Securities
Exchange Act Of 1934
For the Transition Period from ___________ to ________________
Commission file number 333-83851
Greenville First Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
South Carolina 58-2459561
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(State of Incorporation) (I.R.S. Employer Identification No.)
112 Haywood Road
Greenville , S.C. 29607
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(Address of principal executive offices) (Zip Code)
864-679-9000
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(Telephone Number)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's loss for its most recent fiscal year was $661,553. As of
March 15, 2001, 1,150,000 shares of Common Stock were issued and outstanding.
The estimated aggregate market value of the Common Stock held by
non-affiliates of the Company on March 15, 2001 is $8,086,396. This calculation
is based upon an estimate of the fair market value of the Common Stock of $9.25
per share, which was the price of the last trade of which management is aware
prior to this date.
Transitional Small Business Disclosure Format. (Check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Company's Proxy Statement for the 2001 Annual Meeting of Shareholders
ITEM 1. DESCRIPTION OF BUSINESS
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to:
o significant increases in competitive pressure in the banking and
financial services industries;
o changes in the interest rate environment which could reduce anticipated
or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
GENERAL
Greenville First Bancshares, Inc., was incorporated to operate as a bank
holding company pursuant to the Federal Bank Holding Company Act of 1956 and the
South Carolina Banking and Branching Efficiency Act, and to purchase 100% of the
issued and outstanding stock of Greenville First Bank, an association organized
under the laws of the United States, to conduct a general banking business in
Greenville, South Carolina.
On October 26, 1999 we commenced our initial public offering and completed
the sale of 1,100,000 shares of our common stock at $10 per share and on
November 30, 1999, we sold 50,000 additional shares pursuant to the
underwriters' over-allotment option for a total of 1,150,000 shares of common
stock. The offering raised $10,646,700 net of underwriting discounts and
commissions. Our directors and executive officers purchased 266,900 shares of
common stock in this offering. Upon purchase of these shares, we issued stock
warrants to the organizers to purchase up to an additional 129,950 shares of
common stock. The warrants, which are represented by separate warrant
agreements, vest ratably over a three year period beginning on January 10, 2001
and will be exercisable in whole or part during the ten year period following
the grant date.
On January 10, 2000, we opened the bank. Of the net proceeds from the
offering, we used $9,500,000 to capitalize the bank. The bank's funds were
applied primarily to provide funds for the bank's investments and lending
operations, for leasing our temporary and permanent facilities, for furnishing
and equipping the bank, and for other general corporate purposes.
MARKETING FOCUS
The bank is the first independent bank organized in the City of Greenville
in over ten years. Because there are few locally owned banks left in Greenville,
we believe we offer a unique banking alternative for the market by offering
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a higher level of customer service and a management team more focused on the
needs of the community than most of our competitors. We believe that this
approach will be enthusiastically supported by the community. The bank uses the
theme "Welcome to Hometown Banking," and it actively promotes it in our target
market. While the bank has the ability to offer a breadth of products similar to
large banks, we emphasize the client relationship. We believe that the proposed
community focus of the bank will succeed in this market, and that the area will
react favorably to the bank's emphasis on service to small businesses,
individuals, and professional concerns. We plan to take advantage of existing
contacts and relationships with individuals and companies in this area to more
effectively market the services of the bank.
LOCATION AND SERVICE AREA
Our primary service area consists of Greenville County, South Carolina.
We expect initially to draw a large percentage of our business from the central
portion of Greenville County, within a ten mile radius of our main office. This
principal service area is bounded by Rutherford Road to the north, Poinsett
Highway to the west, Mauldin Road and Butler Road to the south, and Highway 14
and Batesville Road to the east. Included in this area is the highest per capita
income tract in the county. Our expansion plans include the development of two
"service centers" located along the periphery of our service area. These service
centers will extend the market reach of our bank, and they will increase our
personal service delivery capabilities to all of our customers.
LENDING ACTIVITIES
GENERAL. We emphasize a range of lending services, including real
estate, commercial, and equity- line consumer loans to individuals and small- to
medium-sized businesses and professional firms that are located in or conduct a
substantial portion of their business in the bank's market area. We compete for
these loans with competitors who are well established in the Greenville County
area and have greater resources and lending limits. As a result, we may have to
charge lower interest rates to attract borrowers.
LOAN APPROVAL AND REVIEW. The bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds an individual officer's lending authority, the loan
request will be considered and approved by an officer with a higher lending
limit or the officers' loan committee. The officers' loan committee has lending
limits, and any loans in excess of this lending limit will be approved by the
directors' loan committee. The bank does not make any loans to any director,
officer, or employee of the bank unless the loan is approved by the board of
directors of the bank and is made on terms not more favorable to such person
than would be available to a person not affiliated with the bank. The bank
generally adheres to Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation guidelines in its mortgage loan review process, but may
alter this policy in the future. The bank currently intends to sell its mortgage
loans into the secondary market, but may choose to hold them in the portfolio in
the future.
LENDING LIMITS. The bank's lending activities are subject to a variety
of lending limits imposed by federal law. In general, the bank is subject to a
legal limit on loans to a single borrower equal to 15% of the bank's capital and
unimpaired surplus. Different limits may apply in certain circumstances based on
the type of loan or the nature of the borrower, including the borrower's
relationship to the bank. These limits will increase or decrease as the bank's
capital increases or decreases. Based upon the capitalization of the bank with
$9.5 million, the bank has a self-imposed loan limit of $1.2 million, which
represents approximately 100% of our legal lending limit at December 31, 2000.
However, these limits will drop as we expect to incur losses, and therefore have
less capital, in the first several years of operations. Unless the bank is able
to sell participations in its loans to other financial institutions, the bank
will not be able to meet all of the lending needs of loan customers requiring
aggregate extensions of credit above these limits.
REAL ESTATE AND MORTGAGE LOANS. We estimate that loans secured by first
or second mortgages on real estate will make up at least 50% of the bank's loan
portfolio. These loans will generally fall into one of three categories:
commercial real estate loans, construction and development loans, or residential
real estate loans. Each of these categories is discussed in more detail below,
including their specific risks. Home equity loans are not included because they
are classified as consumer loans, which are discussed below. Interest rates for
all categories may be fixed or adjustable, and will more likely be fixed for
shorter-term loans. The bank will generally charge an origination fee for each
loan.
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Real estate loans are subject to the same general risks as other loans.
They are particularly sensitive to fluctuations in the value of real estate,
which is generally the underlying security for real estate loans. Fluctuations
in the value of real estate, as well as other factors arising after a loan has
been made, could negatively affect a borrower's cash flow, creditworthiness, and
ability to repay the loan.
We have the ability to originate real estate loans for sale into the
secondary market. We can limit our interest rate and credit risk on these loans
by locking the interest rate for each loan with the secondary investor and
receiving the investor's underwriting approval prior to originating the loan.
o COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans
generally have terms of five years or less, although payments may
be structured on a longer amortization basis. We evaluate each
borrower on an individual basis and attempt to determine its
business risks and credit profile. We attempt to reduce credit
risk in the commercial real estate portfolio by emphasizing loans
on owner-occupied office and retail buildings where the
loan-to-value ratio, established by independent appraisals, does
not exceed 80%. We also generally require that debtor cash flow
exceed 115% of monthly debt service obligations. We typically
review all of the personal financial statements of the principal
owners and require their personal guarantees. These reviews
generally reveal secondary sources of payment and liquidity to
support a loan request.
o CONSTRUCTION AND DEVELOPMENT REAL ESTATE LOANS. We offer
adjustable and fixed rate residential and commercial construction
loans to builders and developers and to consumers who wish to
build their own home. The term of construction and development
loans generally are limited to eighteen months, although payments
may be structured on a longer amortization basis. Most loans
mature and require payment in full upon the sale of the property.
Construction and development loans generally carry a higher degree
of risk than long term financing of existing properties. Repayment
depends on the ultimate completion of the project and usually on
the sale of the property. Specific risks include:
o cost overruns;
o mismanaged construction;
o inferior or improper construction techniques;
o economic changes or downturns during construction;
o a downturn in the real estate market;
o rising interest rates which may prevent sale of the
property; and
o failure to sell completed projects in a timely
manner.
We attempt to reduce risk by obtaining personal guarantees where
possible, and by keeping the loan-to-value ratio of the completed project below
specified percentages. We also reduce risk by selling participations in larger
loans to other institutions when possible.
o RESIDENTIAL REAL ESTATE LOANS. Residential real estate loans
generally have longer terms up to 30 years. We offer fixed and
adjustable rate mortgages. We have limited credit risk on these
loans as most are sold to third parties soon after closing.
COMMERCIAL LOANS. The bank makes loans for commercial purposes in
various lines of businesses. Commercial loans are generally considered to have
greater risk than first or second mortgages on real estate because they may be
unsecured, or if they are secured, the value of the security may be difficult to
assess and more likely to decrease than real estate.
We offer small business loans utilizing government enhancements such as
the Small Business Administration's 7(a) program and SBA's 504 programs. These
loans typically are partially guaranteed by the government, which helps to
reduce the bank's risk. Government guarantees of SBA loans do not exceed 80% of
the loan value and are generally less.
The well established banks in the Greenville County area make
proportionately more loans to medium to large-sized businesses than we can. Many
of the bank's commercial loans are made to small- to medium-sized businesses
which may be less able to withstand competitive, economic, and financial
conditions than larger borrowers.
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CONSUMER LOANS. The bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment
loans and revolving lines of credit. Installment loans typically carry balances
of less than $50,000 and be amortized over periods up to 60 months. Consumer
loans are offered with a single maturity basis where a specific source of
repayment is available. Revolving loan products typically require monthly
payments of interest and a portion of the principal. Consumer loans are
generally considered to have greater risk than first or second mortgages on real
estate because they may be unsecured, or if they are secured, the value of the
security may be difficult to assess and more likely to decrease than real
estate.
We also offer home equity loans. Our underwriting criteria for and the
risks associated with home equity loans and lines of credit will generally be
the same as those for first mortgage loans. Home equity lines of credit
typically have terms of 15 years or less, typically carry balances less than
$125,000, and may extend up to 100% of the available equity of each property.
DEPOSIT SERVICES
We offer a full range of deposit services that are typically available
in most banks and savings and loan associations, including checking accounts,
commercial accounts, savings accounts, and other time deposits of various types,
ranging from daily money market accounts to longer-term certificates of deposit.
The transaction accounts and time certificates are tailored to our primary
market area at rates competitive to those offered in the Greenville County area.
In addition, we offer certain retirement account services, such as IRAs. We
solicit these accounts from individuals, businesses, associations,
organizations, and governmental authorities.
OTHER BANKING SERVICES
The bank offers other bank services including safe deposit boxes,
traveler's checks, direct deposit, U.S. Savings Bonds, and banking by mail. The
bank to is associated with the Honor, Cirrus, and Master-Money ATM networks,
which are available to its customers throughout the country. We believe that by
being associated with a shared network of ATMs, we are better able to serve our
customers and are able to attract customers who are accustomed to the
convenience of using ATMs, although we do not believe that maintaining this
association is critical to our success. We began offering Internet services in
the second quarter of 2000. We do not expect the bank to exercise trust powers
during its first year of operation.
MARKET SHARE
As of June 30, 2000, total deposits in the bank's primary service area
were almost $5.7 billion, which represented a 6.5% deposit growth rate from
1999. At June 30, 2000 the bank represented .55% of the market. Our plan over
the next five years is to grow our deposit base to $175 million. Of course, we
cannot be sure that these deposit growth rates will continue, or that we will
accomplish this objective.
EMPLOYEES
As of March 15, 2001, the bank has 21 employees and the company has no
full-time employees.
SUPERVISION AND REGULATION
Both the company and the bank are subject to extensive state and
federal banking laws and regulations which impose specific requirements or
restrictions on and provide for general regulatory oversight of virtually all
aspects of operations. These laws and regulations are generally intended to
protect depositors, not shareholders. The following summary is qualified by
reference to the statutory and regulatory provisions discussed. Changes in
applicable laws or regulations may have a material effect on our business and
prospects. Beginning with the enactment of the Financial Institution Report
Recovery and Enforcement Act in 1989 and following with the FDIC Improvement Act
in 1991, numerous additional regulatory requirements have been placed on the
national banking industry in the past several years, and additional changes have
been proposed. Our operations may be affected by legislative changes and the
policies of various regulatory authorities. We cannot predict the effect that
fiscal or monetary policies, economic control, or new federal or state
legislation may have on our business and earnings in the future.
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GRAMM-LEACH-BLILEY ACT
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act is intended, in part, to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis. Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time, other changes are proposed to laws affecting the national
banking industry, and these changes could have a material effect on our business
and prospects.
The Act also contains provisions regarding consumer privacy. These
provisions require financial institutions to disclose their policy for
collecting and protecting confidential information. Customers generally may
prevent financial institutions from sharing personal financial information with
nonaffiliated third parties except for third parties that market an
institution's own products and services. Additionally, financial institutions
generally may not disclose consumer account numbers to any nonaffiliated third
party for use in telemarketing, direct mail marketing, or other marketing to the
consumer.
GREENVILLE FIRST BANCSHARES, INC.
We own the outstanding capital stock of the bank, and therefore we are
considered to be a bank holding company under the federal Bank Holding Company
Act of 1956 and the South Carolina Banking and Branching Efficiency Act.
THE BANK HOLDING COMPANY ACT. Under the Bank Holding Company Act, we
are subject to periodic examination by the Federal Reserve and required to file
periodic reports of its operations and any additional information that the
Federal Reserve may require. Our activities at the bank and holding company
level are limited to:
o banking and managing or controlling banks;
o furnishing services to or performing services for its
subsidiaries; and
o engaging in other activities that the Federal Reserve determines
to be so closely related to banking and managing or controlling
banks as to be a proper incident thereto.
INVESTMENTS, CONTROL, AND ACTIVITIES. With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:
o acquiring substantially all the assets of any bank;
o acquiring direct or indirect ownership or control of any voting
shares of any bank if after the acquisition it would own or
control more than 5% of the voting shares of such bank (unless it
o already owns or controls the majority of such shares); or
merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of a bank holding company. Control is rebuttably presumed to exist if
a person acquires 10% or more, but less than 25%, of any class of voting
securities and either the company has registered securities under Section 12 of
the Securities Exchange Act of 1934 or no other person owns a greater percentage
of that class of voting securities immediately after the transaction. Our common
stock is registered under the Securities Exchange Act of 1934. The regulations
provide a procedure for challenge of the rebuttable control presumption.
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Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined by regulation to be proper incidents to the
business of a bank holding company include:
o making or servicing loans and certain types of leases;
o engaging in certain insurance and discount brokerage activities;
o performing certain data processing services;
o acting in certain circumstances as a fiduciary or investment or
financial adviser;
o owning savings associations; and
o making investments in certain corporations or projects designed
primarily to promote community welfare.
The Federal Reserve Board imposes certain capital requirements on the
company under the Bank Holding Company Act, including a minimum leverage ratio
and a minimum ratio of "qualifying" capital to risk-weighted assets. These
requirements are described below under "Capital Regulations." Subject to its
capital requirements and certain other restrictions, we are able to borrow money
to make a capital contribution to the bank, and these loans may be repaid from
dividends paid from the bank to the company. Our ability to pay dividends will
be subject to regulatory restrictions as described below in "Greenville First
Bank - Dividends." We are also able to raise capital for contribution to the
bank by issuing securities without having to receive regulatory approval,
subject to compliance with federal and state securities laws.
SOURCE OF STRENGTH; CROSS-GUARANTEE. In accordance with Federal Reserve
Board policy, we are expected to act as a source of financial strength to the
bank and to commit resources to support the bank in circumstances in which we
might not otherwise do so. Under the Bank Holding Company Act, the Federal
Reserve Board may require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary, other than a nonbank subsidiary of a
bank, upon the Federal Reserve Board's determination that such activity or
control constitutes a serious risk to the financial soundness or stability of
any subsidiary depository institution of the bank holding company. Further,
federal bank regulatory authorities have additional discretion to require a bank
holding company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
SOUTH CAROLINA STATE REGULATION. As a South Carolina bank holding
company under the South Carolina Banking and Branching Efficiency Act, we are
subject to limitations on sale or merger and to regulation by the South Carolina
Board of Financial Institutions. Prior to acquiring the capital stock of a
national bank, we are not required to obtain the approval of the Board, but we
must notify them at least 15 days prior to doing so. We must receive the Board's
approval prior to engaging in the acquisition of a South Carolina state
chartered bank or another South Carolina bank holding company.
GREENVILLE FIRST BANK
The bank operates as a national banking association incorporated under
the laws of the United States and subject to examination by the Office of the
Comptroller of the Currency. Deposits in the bank are insured by the FDIC up to
a maximum amount, which is generally $100,000 per depositor subject to
aggregation rules.
The Office of the Comptroller of the Currency and the FDIC regulate or
monitor virtually all areas of the bank's operations, including:
o security devices and procedures;
o adequacy of capitalization and loss reserves;
o loans;
o investments;
o borrowings;
o deposits;
o mergers;
o issuances of securities;
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o payment of dividends;
o interest rates payable on deposits;
o interest rates or fees chargeable on loans;
o establishment of branches;
o corporate reorganizations;
o maintenance of books and records; and
o adequacy of staff training to carry on safe lending and deposit
gathering practices.
The Office of the Comptroller of the Currency requires the bank to
maintain specified capital ratios and imposes limitations on the bank's
aggregate investment in real estate, bank premises, and furniture and fixtures.
The Office of the Comptroller of the Currency requires the bank to prepare
quarterly reports on the bank's financial condition and to conduct an annual
audit of its financial affairs in compliance with its minimum standards and
procedures.
Under the FDIC Improvement Act, all insured institutions must undergo
regular on site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and their state
supervisor when applicable. The FDIC Improvement Act directs the FDIC to develop
a method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition or any other report of any insured depository institution. The FDIC
Improvement Act also requires the federal banking regulatory agencies to
prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating, among other things, to the
following:
o internal controls;
o information systems and audit systems;
o loan documentation;
o credit underwriting;
o interest rate risk exposure; and
o asset quality.
National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Office of the Comptroller of the Currency or the
Federal Reserve Board to be troubled institutions must give the Office of the
Comptroller of the Currency or the Federal Reserve Board thirty days' prior
notice of the appointment of any senior executive officer or director. Within
the 30 day period, the Office of the Comptroller of the Currency or the Federal
Reserve Board, as the case may be, may approve or disapprove any such
appointment.
DEPOSIT INSURANCE. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund and Savings Association Insurance Fund are
maintained for commercial banks and savings associations with insurance premiums
from the industry used to offset losses from insurance payouts when banks and
thrifts fail. In 1993, the FDIC adopted a rule which establishes a risk-based
deposit insurance premium system for all insured depository institutions. Under
this system, until mid-1995 depository institutions paid to Bank Insurance Fund
or Savings Association Insurance Fund from $0.23 to $0.31 per $100 of insured
deposits depending on its capital levels and risk profile, as determined by its
primary federal regulator on a semiannual basis. Once the Bank Insurance Fund
reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually eliminating premiums for
well-capitalized banks, with a minimum semiannual assessment of $1,000. However,
in 1996 Congress enacted the Deposit Insurance Funds Act of 1996, which
eliminated even this minimum assessment. It also separated the Financial
Corporation assessment to service the interest on its bond obligations. The
amount assessed on individual institutions, including the bank, by Financial
Corporation assessment is in addition to the amount paid for deposit insurance
according to the risk-related assessment rate schedule. Increases in deposit
insurance premiums or changes in risk classification will increase the bank's
cost of funds, and we may not be able to pass these costs on to our customers.
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TRANSACTIONS WITH AFFILIATES AND INSIDERS. The bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.
The bank is subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging in
certain transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable to such institution or
its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies. The bank is subject to certain restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of credit (i) must be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features.
DIVIDENDS. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the Office of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
BRANCHING. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current South Carolina law, the bank may open
branch offices throughout South Carolina with the prior approval of the Office
of the Comptroller of the Currency. In addition, with prior regulatory approval,
the bank is able to acquire existing banking operations in South Carolina.
Furthermore, federal legislation has been passed which permits interstate
branching. The new law permits out-of-state acquisitions by bank holding
companies, interstate branching by banks if allowed by state law, and interstate
merging by banks.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank.
OTHER REGULATIONS. Interest and other charges collected or contracted
for by the bank are subject to state usury laws and federal laws concerning
interest rates. The bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
o the federal Truth-In-Lending Act, governing disclosures of credit
terms to consumer borrowers;
o the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;
o the Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
o the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
o the Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
o the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws.
9
The deposit operations of the bank also are subject to:
o the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial
records; and
o the Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve Board to implement that act, which governs automatic
deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
CAPITAL REGULATIONS. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not
received any notice indicating that either the company or the bank is subject to
higher capital requirements. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1
capital includes common shareholders' equity, qualifying perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries,
but excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred stock
not included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
The FDIC Improvement Act established a new capital-based regulatory
scheme designed to promote early intervention for troubled banks which requires
the FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To qualify as a "well capitalized" institution, a
bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based capital ratio of no less than 10%, and
the bank must not be under any order or directive from the appropriate
regulatory agency to meet and maintain a specific capital level. Initially, we
will qualify as "well capitalized."
Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:
o submit a capital restoration plan;
o raise additional capital;
o restrict their growth, deposit interest rates, and other activities;
10
o improve their management;
o eliminate management fees; or
o divest themselves of all or a part of their operations.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institutions'
performance under their capital restoration plans.
These capital guidelines can affect us in several ways. If we grow at a
rapid pace, our capital may be depleted too quickly, and a capital infusion from
the holding company may be necessary which could impact our ability to pay
dividends. Our capital levels currently are more than adequate; however, rapid
growth, poor loan portfolio performance, poor earnings performance, or a
combination of these factors could change our capital position in a relatively
short period of time.
Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
ENFORCEMENT POWERS. The Financial Institution Report Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties." Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institution's affairs. These practices can include the failure of an institution
to timely file required reports or the filing of false or misleading information
or the submission of inaccurate reports. Civil penalties may be as high as
$1,000,000 a day for such violations. Criminal penalties for some financial
institution crimes have been increased to 20 years. In addition, regulators are
provided with greater flexibility to commence enforcement actions against
institutions and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance. Furthermore, banking agencies'
power to issue cease-and-desist orders were expanded. Such orders may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnification or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
EFFECT OF GOVERNMENTAL MONETARY POLICIES. Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Bank's monetary policies
have had, and are likely to continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board have major effects
upon the levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.
11
ITEM 2. DESCRIPTION OF PROPERTY
Our main office facility opened on January 16, 2001 at 112 Haywood
Road, Greenville, South Carolina. We intend to lease the main office for
approximately $25,000 per month for 20 years. The facility is located at the
corner of Haywood Road and Halton Road in downtown Greenville. The bank is
leasing approximately 11,600 square feet of the building. The building is a full
service banking facility with three drive-though banking stations and an
automatic teller machine. We had previously operated our headquarters and a
full-service branch in a temporary facility that was located on the same site as
the permanent facility since January 10, 1999, the date the bank opened for
business.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since our public offering on October 26, 1999, our common stock has
been quoted on the OTC Bulletin Board under the symbol "GVBK." However, trading
and quotations in our common stock have been limited and sporadic and we do not
believe that there is a publicly established trading market in the common stock.
The price of the last trade of which we are aware is $9.25 per share, but we
have not determined that this trade was the result of arm's length negotiations
between the parties and we can provide no assurance this price reflects the
market value of our common stock. Our articles of incorporation authorize us to
issue up to 10,000,000 shares of common stock, of which 1,150,000 shares, for a
total of $11,500,000, were sold in the initial public offering and are
outstanding as of March 15, 2001. We have 46 shareholders of record. To date, we
have not paid cash dividends on our common stock. We currently intend to retain
earnings to support operations and finance expansion and therefore do not
anticipate paying cash dividends in the foreseeable future.
All of our outstanding shares of common stock are entitled to share
equally in dividends from funds legally available when, and if, declared by the
board of directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
GENERAL
The following is a discussion of the our financial condition as of
December 31, 2000 and the results of operations for the three months and year
ended December 31, 2000. These comments should be read in conjunction with our
condensed consolidated financial statements and accompanying footnotes appearing
in this report.
Until January 10, 2000, our principal activities related to our
organization, the conducting of our initial public offering, the pursuit of
approvals from the OCC for our application to charter the bank, the pursuit of
approvals from the FDIC for our application for insurance of the deposits of the
bank, hiring the appropriate personnel and implementing operating procedures. We
received approval from both the FDIC and the OCC on January 7, 2000. The bank
opened for business on January 10, 2000.
We completed our stock offering on November 30, 1999, upon the issuance
of 1,150,000 shares for a total of $11.5 million. We initially capitalized the
bank with $8.5 million of the proceeds from the stock offering. On April 18,
2000, we increased our investment in the bank by $1.0 million utilizing proceeds
from the initial offering. We do not currently anticipate raising additional
capital.
12
FINANCIAL CONDITION
At December 31, 2000, we had total assets of $61.4 million, consisting
principally of $46.0 million in loans, $13.3 million in investments and $931
thousand in cash and due from banks. Liabilities at December 31, 2000 totaled
$52.0 million, consisting principally of $50.0 million in deposits. At December
31, 2000, shareholders' equity was $9.5 million.
At December 31, 2000, the bank's loan portfolio consisted primarily of
$21.4 million of commercial real estate loans, $ 9.3 million of commercial
business loans, and $16.0 million of consumer and home equity loans. At December
31, 2000, there were no non-performing loans. At December 31, 2000, the bank's
allowance for loan losses was $600 thousand. Management believes that the
reserve for loan losses is adequate to absorb possible loan losses in the
portfolio. Management bases its belief on its consideration of a number of
factors, including internal credit ratings and assumptions about future events,
which assumptions may or may not be accurate. There can be no assurance that
loan losses in future periods will not exceed the allowance for loan losses or
that additional allocations will not be required. At December 31, 2000 the bank
had $50.0 million in deposits. The $50.0 million in deposits consisted primarily
of $6.0 million in personal checking, $3.7 million in business checking, $27.6
million in certificates of deposit and $12.7 million of money market accounts of
which 66% are business accounts.
RESULTS OF OPERATIONS
We incurred a net loss of $662 thousand for the year ended December 31,
2000. The net loss for the three months ended December 31, 2000 was $110
thousand compared to net losses of $112 thousand, $166 thousand and $274
thousand for the three-month periods ended September 30, 2000, June 30, 2000 and
March 31, 2000, respectively. Included in the net losses are non-cash expenses
for provision for loan losses. The provision for loan losses for the year ended
December 31, 2000 was $600 thousand. The provision for the fourth quarter was
$170 thousand, which was $20 thousand higher than the provision for the third
quarter. Net interest income for the year ended December 31, 2000 was $1.6
million. Net interest income continues to increase each quarter. This increase
resulted primarily from growth in both earning assets and interest bearing
deposits. Net interest income was $574 thousand for the fourth quarter. This is
an increase of $103 thousand compared to the third quarter. Interest income for
the year ended December 31, 2000 was $3.1 million of which $1.2 million or 38.8%
relates to the three months ended December 31, 2000. Interest expense for the
year ended December 31, 2000 was $1.5 million of which $650 thousand or 42.7%
relates to the fourth quarter of 2000.
As a result of growth in interest earning assets and interest bearing
deposits, net interest income for the fourth quarter was $514 thousand or 35.3%
of the net interest income for the year ended December 31, 2000. During the same
three-month period, general and administrative expenses were $503 thousand that
represents only 28.2% of the total for the year. The bank has been able to
increase net interest income each quarter while general and administrative
expenses have remained relatively unchanged. During the fourth quarter of the
year 2000, the net interest income exceeded the general and administrative
expenses by $71 thousand.
The bank incurred general and administrative expenses of $1.8 million
for the year ended December 31, 2000. The related expense for the fourth quarter
of the year 2000 was $503 thousand compared to $455 thousand for the three
months ended September 30, 2000. Salaries and benefits represented 55.6% for the
total expense for the year ended December 31, 2000. Salaries and benefits were
$991 thousand for the year 2000 and $229 thousand for the fourth quarter of
2000. Another significant expense was $284 thousand for occupancy cost for year
2000. This expense was $74 thousand in the fourth quarter compared to $70 for
the third quarter of 2000. The bank anticipates that both compensation and
occupancy expense will increase in the first quarter of 2001 as a result of both
hiring additional personnel and moving into the bank's new main office. The bank
plans to increase both its loan and deposit relationships to support the growth
in additional personnel and other costs. However no assurance can be given that
the growth in the first quarter will be adequate to cover the additional costs.
In the second quarter of 2000 we recorded an income tax benefit of $74
thousand related to the future value of our current operating losses. No
provision or benefit was recorded in the third of fourth quarters of the year
2000.
13
NET INTEREST INCOME
Net interest income, the largest component of our income, was $1.6
million for the year ended December 31, 2000. Interest income for the year was
$3.1 million and includes $2.3 million on loans and $780 thousand on investments
and federal funds sold. Interest expense related to deposit accounts was $1.5
million for the year ended December 31, 2000.
Our earning assets to deposit spread for the year ended December 31,
2000 was 3.18% and was 3.27% for the three months ended December 31, 2000. The
bank's net yield on earning assets was 4.41% for the year ended December 31,
2000 compared to 4.18% for the three months ended December 31, 2000. The net
yield on earning assets is calculated as net interest income divided by
year-to-date average earning assets.
AVERAGE BALANCES, YIELDS AND RATES
Average loans and investments for the year 2000 were $23.8 million and
$13.0 million, respectively. The average loans during the three months ended
December 31, 2000 increased by $11.9 million while average investments declined
by $530 thousand. The average loans were $40.9 million for the quarter ended
December 31, 2000, while average investments were $13.2 million. The average
yields on loans and investments for the three months ended December 31, 2000
were 9.72% and 6.63%, respectively. The average yields on loans and investments
for the year ended December 31, 2000 were 9.74% and 6.39%, respectively.
The average balance of deposits for the year ended December 31, 2000
was $28.2 million, while the average balance for the fourth quarter was $46.6
million. This represents a $12.3 million or 35.7% increase compared to the
average for the third quarter of the year 2000. The weighted average rate on
deposits for the year ended December 31, 2000 was 5.38% and was 5.69% for the
fourth quarter of the year 2000.
The following table sets forth, for the year ended December 31, 2000,
information related to our average balance sheet and average yields on assets
and average costs of liabilities. We derived these yields by dividing income or
expense by the average balance of the corresponding assets or liabilities. We
derived average balances from the daily balances throughout the periods
indicated. Because the bank did not open until January 10, 2000, we have omitted
similar data for 1999.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
For the year ended
December 31, 2000
(Dollars in thousands)
-------------------------
Average Income/ Yield/
Balance Expense Rate
------- ------- ------
Federal funds sold 6,059 388 6.40%
Investment securities 6,934 442 6.37%
Loans 23,798 2,318 9.74%
------ -----
Total earning assets 36,791 3,148 8.56%
====== -----
Deposits 28,230 1,524 5.38%
====== -----
Net interest spread 3.18%
Net interest income/margin 1,624 4.41%
=====
14
In pricing deposits, we considered our liquidity needs, the direction
and levels of interest rates and local market conditions. As such, higher rates
have been paid initially to attract deposits.
RATE/VOLUME ANALYSIS
Net interest income can be analyzed in terms of the impact of changing
rates and changing volume. As this was the first period of operations for the
bank, all interest income and expense is attributable to volume and therefore we
have omitted the table analyzing the changes in net interest income as it would
not be meaningful.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which we monitor and
control the mix and maturities of our 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 to minimize potentially adverse impacts on earnings from changes in
market interest rates. The bank's asset/liability management committee ("ALCO")
monitors and considers methods of managing exposure to interest rate risk. The
ALCO consists of members of senior management of the bank. The ALCO is charged
with the responsibility to maintain the level of interest rate sensitivity of
the bank's interest sensitive assets and liabilities within Board-approved
limits.
Our primary sources of liquidity are a stable base of deposits,
scheduled repayments on our loans, and interest and maturities on our
investments. All of our securities have been classified as available-for-sale.
If necessary, we might sell a portion of our investment securities in connection
with the management of our interest sensitivity gap or to manage our liquidity.
We may also utilize our cash and due from banks and federal funds sold to meet
liquidity needs. Additionally, we have a federal fund purchased line of credit
with our correspondent bank in the amount of $2.8 million, on which no
borrowings have been drawn, that can be utilized if needed. We also have
collateral that would support in excess of $4.0 million of advances from the
Federal Home Loan Bank. We believe that our liquidity and ability to manage
assets will be sufficient to meet our cash requirements over the near future.
The principal monitoring technique we employ is the measurement of our
interest sensitivity "gap," which is the positive or negative dollar difference
between assets and liabilities that are subject to interest rate repricing
within a given period of time. Interest rate sensitivity can be managed by
repricing assets or liabilities, selling securities available-for-sale,
replacing an asset or liability at maturity, or adjusting the interest rate
during the life of an asset or liability. Managing the amount of assets and
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
We generally would benefit from increasing market rates of interest when we have
an asset-sensitive gap position and generally would benefit from decreasing
market rates of interest when we are liability-sensitive.
Because the bank has only been open since Janaury 10, 2000 and
maintained a higher than normal level of short-term liquidity the bank is asset
sensitive during the first three months, but is only 2.7% liability sensitive at
the one-year mark. Our gap analysis is not a precise indicator of our interest
sensitivity position. The analysis presents only a static view of the timing of
maturities and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. For
example, rates paid on a substantial portion of core deposits may change
contractually within a relatively short time frame, but those rates are viewed
by management as significantly less interest-sensitive than market-based rates
such as those paid on non-core deposits. Net interest income may be impacted by
other significant factors in a given interest rate environment, including
changes in the volume and mix of earning assets and interest-bearing
liabilities.
INTEREST RATE SENSITIVITY ANALYSIS
The following table presents our rate sensitivity at each of the time
intervals indicated as of December 31, 2000. The table may not be indicative of
our rate sensitivity position at other points in time. In addition, the table's
maturity distribution may differ from the contractual maturities of the earning
assets and interest bearing liabilities presented due to consideration of
prepayment speeds under various interest rate change scenarios in the
application of the interest rate sensitivity methods described above.
15
Within After three but After one but After
three within twelve within five five
months months years years Total
------ ------ ----- ----- -----
(Dollars in thousands)
Interest-earning assets:
Federal funds sold $ 3,920 $ --- $ --- $ --- $ 3,920
Investment securities 2,996 2,862 3,191 296 9,345
Loans 32,183 816 12,975 651 46,625
------- --- ------- --- ------
Total earning assets $ 39,099 $ 3,678 $ 16,166 $ 947 $ 59,890
Interest-bearing liabilities:
Money market and NOW $ 19,251 $ --- $ --- $ --- $ 19,251
Regular savings 80 --- --- --- 80
Time deposits 8,040 16,995 2,550 --- 27,585
------ ------ ------ ------ -------
Total interest-bearing
liabilities $ 27,371 $ 16,995 $ 2,550 $ --- $ 46,916
Period gap $ 11,728 $ (13,317) $ 13,616 $ 347 $ 12,974
Cumulative gap $ 11,728 $ (1,589) $ 12,027 $12,974 $ 12,974
Ratio of cumulative gap to
total earning assets 19.58% (2.65)% 20.08% 21.66%
LOAN PORTFOLIO
Since loans typically provide higher interest yields than do other
types of interest earning assets, it is our intent to channel a substantial
percentage of our earning assets into the loan portfolio. Average loans were
$23.8 million for the year 2000. Total loans outstanding at December 31, 2000
were $46.6 million before allowance for loan losses.
The following table summarizes the composition of the loan portfolio at
December 31, 2000.
Amount Percent of Total
(Dollars in thousands)
Commercial business $ 9,239 19.88%
Real estate:
Residential 7,163 15.36%
Non-residential 13,995 30.02%
Construction 13,377 28.69%
Consumer and other 2,821 6.05%
--------------- ---------
Total Loans $ 46,625 100.00%
Allowance for loan losses (600)
----------------
Total net loans $ 46,025
16
Management attempts to maintain a relatively diversified loan portfolio
to help reduce the risk inherent in concentration of collateral. Due to the
short time the portfolio has existed, the current mix of loans may not be
indicative of the ongoing portfolio mix.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The information in the following table is based on the contractual
maturities of individual loans, including loans which may be subject to renewal
at their contractual maturity. Renewal of such loans is subject to review and
credit approval, as well as modification of terms upon their maturity. Actual
repayments of loans may differ from maturities reflected below because borrowers
have the right to prepay obligations with or without prepayment penalties.
The following table summarizes the loan maturity distribution, by type,
and related interest rate characteristics at December 31, 2000 (Dollars in
thousands):
After one but
One year Within five After
or less Years Five years Total
--------- ------------- ------------ ------
Commercial Business $ 3,458 $ 5,769 $ 42 $ 9,269
Real estate:
Residential 1,390 12,605 - 13,995
Non-residential 1,767 10,513 1,097 13,377
Construction 3,364 3,331 468 7,163
------------- ------------- -------------- -------------
6,521 17,175 1,607 34,535
Consumer and other 1,853 918 50 2,821
------------- ------------- -------------- -------------
Total loans $ 11,832 $ 33,136 $ 1,657 $ 46,625
Loan maturing after one year with:
Fixed interest rates $ 13,648
Floating interest rates $ 21,145
INVESTMENT PORTFOLIO
At December 31, 2000, the investment securities portfolio represented
approximately 15.2% of our earning assets at $9.3 million. We were invested in
U.S. Government agency securities and mortgage-backed securities with a fair
value of $9.0 million and an amortized cost of $9.3 million, with an unrealized
gain of $37 thousand. At December 31, 2000, the bank was required to own $255
thousand and $41 thousand in the stock of the Federal Reserve Bank and The
Federal Home Loan Bank, respectively.
Contractual maturities and yields on our investments (all available for
sale) at December 31, 2000 are shown in the following table. Expected maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands).
17
After one but
Within Withhin Five Over
One year Yield Years Yield Five years Yield Total Yield
-------- ----- ------------- ----- ---------- ----- -----
U.S. Government agencies $ 2,992 6.38% $ 4,419 7.00% 1,000 7.00% $ 8,411 6.78%
Mortgage-backed securities --- --- 638 6.32% --- --- 638 6.32%
-------------------- ------------------------ --------------------- ----------------------
Total $ 2,992 6.38% $ 5,056 6.92% $ 1,000 7.00% $ 9,049 6.75%
At December 31, 2000, short-term investments comprised 6.3% of total
earning assets at $3.9 million. These funds were invested in federal funds sold
on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Our primary source of funds for loans and investments is our deposits.
Average total deposits were $28.2 million and average interest-bearing deposits
were $25.1 million in 2000. The following is a table of deposits by category at
year-end.
Amount
(in thousands) Percent
------------- -------
Demand deposit accounts $ 3,088 6.18%
NOW accounts 6,637 13.28%
Money market accounts 12,613 25.23%
Savings accounts 80 .16%
Time deposits less than $100,000 14,446 28.89%
Time deposits of $100,000 or more 13,130 26.26%
------- ------
Total deposits $ 49,994 100.00%
======= =======
Core deposits, which exclude time deposits of $100,000 or more, provide
a relatively stable funding source for our loan portfolio and other earning
assets. Our core deposits were $37.7 million at December 31, 2000. Our
loan-to-deposit ratio was 92.1% at year-end. The maturity distribution of our
time deposits of $100,000 or more at December 31, 2000 is as follows (Dollars in
thousands):
Three months or less $ 4,413
Over three through twelve months 7,717
Over twelve months 1,000
---------
Total $ 13,130
=========
SHORT-TERM BORROWINGS
As of December 31, 2000, we had no outstanding balances under
short-term borrowings.
RETURN ON EQUITY AND ASSETS
The following table shows the return on average assets (net income
divided by average total assets), return on average equity (net income divided
by average equity), and equity to assets ratio (average equity divided by
average total assets) for 2000. Since our inception, we have not paid cash
dividends.
18
Return on average assets -1.6%
Return on average equity -6.8%
Equity to assets ratio 15.4%
CAPITAL RESOURCES
Total shareholders' equity amounted to $9.5 million at December 31, 2000.
This is compared to $10.1 million at December 31, 1999. The decrease resulted
primarily from the $662 thousand loss from operations for the year ended
December 31, 2000.
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet epxosures, adjusted
for risk weights ranging from 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because we had less than
$150 million in assets, we are not currently subject to these guidelines.
However, the bank falls under these rules as set per bank regulatory agencies.
Under the capital adequacy guidelines, capital is classified into two
tiers. These guidelines require an institution to maintain a certain level of
Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of
common stockholders' equity, excluding the unrealized gain or loss on securities
available for sale, minus certain intangible assets. In determining the amount
of risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight factor of 0% to 100% based on the risks believed
inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus
the general reserve for loan losses subject to certain limitations. The bank is
also required to maintain capital at a minimum level based on total average
assets, which is known as the Tier 1 leverage ratio.
The following table sets forth the company's and the bank's various
capital ratios at December 31, 2000. We are both subject to various regulatory
capital requirements administered by the federal banking agencies. At December
31, 2000, we were in compliance with each of the applicable regulatory capital
requirements.
The The
Company Bank
------- ----
Total risk-based capital 20.5% 18.0%
Tier 1 risk-based capital 19.3% 16.8%
Leverage capital 16.9% 14.7%
We believe that capital is sufficient to fund the activities of the bank in
its initial stages of operation and that the rate of asset growth will not
negatively impact the capital base. As of December 31, 2000, there were no
significant firm commitments outstanding for capital expenditures. However, the
bank plans to lease its permanent main office building beginning in the first
quarter of the year 2001.
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring our sources and uses of funds
in order to meet our day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
fairly predictable and subject to a high degree of control at the time the
investment decisions are made. However, net deposit inflows and outflows are far
less predictable and are not subject to nearly the same degree of control.
At December 31, 2000, our liquid assets, consisting of cash and due
from banks and federal funds sold, amounted to $4.9 million, representing 7.9%
of total assets. Investment securities amounted to $9.3 million, representing
15.2% of total assets; these securities provide a secondary source of liquidity
since they can be converted into cash in a timely manner. Our ability to
maintain and expand our deposit base and borrowing capabilities also serves as a
source of liquidity.
19
We plan to meet our future cash needs through the liquidation of
temporary investments, maturities of loans and investment securities, and
generation of deposits. In addition, the bank maintains a federal funds
purchased line of credit with a correspondent bank in the amount of $2.8
million. The bank is also a member of the Federal Home Loan Bank of Atlanta from
which application for borrowings can be made for leverage purposes, if so
desired. Management believes that its existing stable base of core deposits
along with continued growth in this deposit base will enable us to successfully
meets our long term liquidity needs.
IMPACT OF INFLATION AND CHANGING PRICES
The effect of relative purchasing power over time due to inflation has
not been taken into effect in our financial statements. Rather, the statements
have been prepared on an historical cost basis in accordance with generally
accepted accounting principles.
Since most of the assets and liabilities of a financial institution are
monetary in nature, the effect of changes in interest rates will have a more
significant impact on our performance than will the effect of changing prices
and inflation in general. Interest rates may generally increase as the rate of
inflation increases, although not necessarily in the same magnitude.
ACCOUNTING AND FINANCIAL REPORTING ISSUES
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133", establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position, and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or a firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net investment
in a foreign corporation. SFAS 137 amends SFAS 133 to delay the required
adoption date by one year. SFAS 138 amends SFAS 133 to address a limited number
of issues causing implementation difficulties. This statement is effective for
fiscal quarters in fiscal years beginning after June 15, 2000. We adopted this
statement January 1, 2001, with no expected material impact on our financial
statements.
INDUSTRY DEVELOPMENTS
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. We cannot predict whether any of these
proposals will be adopted, or if adopted, how these proposals would affect us.
20
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 22, 1999 (INCEPTION)
THROUGH DECEMBER 31, 2000
Report of Independent Public Accountant..................................F-2
Consolidated Balance Sheets..............................................F-3
Consolidated Statements of Operations....................................F-4
Consolidated Statements of Stockholder's Equity..........................F-5
Statements of Cash Flows.................................................F-6
Notes to Consolidated Financial Statements.........................F-7- F-20
GREENVILLE FIRST BANCSHARES, INC.
AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 2000 AND 1999
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY as of December 31, 2000 and
1999 and the related consolidated statements of operations, stockholders' equity
and cash flows for the year ended December 31, 2000 and for the period from
February 22, 1999 (inception) to December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audits 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
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY as of December 31, 2000 and
1999 and the results of their operations and their cash flows for the year ended
December 31, 2000 and for the period from February 22, 1999 to December 31, 1999
in conformity with accounting principles generally accepted in the United States
of America.
February 9, 2001
Greenville, South Carolina
F-2
GREENVILLE FIRST BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------------
2000 1999
---- ----
ASSETS
Cash and due from banks $ 931,372 $ 5,856
Federal funds sold 3,920,000 1,460,000
Investment securities available for sale 9,048,718 8,317,872
Other investments, at cost 295,800 -
Loans, net 46,025,027 -
Accrued interest 541,820 246,773
Property and equipment 616,621 111,192
Deferred taxes 25,553 -
Other assets 23,277 -
---------------- ---------------
Total assets $ 61,428,188 $ 10,141,693
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 49,994,429 $ -
Officialchecks outstanding 1,165,123 -
Accrued interest payable 558,194 -
Accounts payable 9,068 11,322
Accrued expenses 226,394 18,000
---------------- ---------------
Total liabilities 51,953,208 29,322
---------------- ---------------
COMMITMENTS AND CONTINGENCIES - NOTE 9
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares
authorized, no shares issued - -
Common stock, par value $.01 per share, 10,000,000 shares
authorized, 1,150,000 issued 11,500 11,500
Additional paid-in capital 10,635,200 10,635,200
Unrealized gain on securities available for sale 24,162 -
Retained deficit (1,195,882) (534,329)
----------------- ---------------
Total stockholders' equity 9,474,980 10,112,371
---------------- ---------------
Total liabilities and stockholders' equity $ 61,428,188 $ 10,141,693
================ ===============
See notes to consolidated financial statements that are an integral part of
these statements.
F-3
GREENVILLE FIRST BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM
FOR THE YEAR FEBRUARY 22, 1999
ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
2000 1999
-------------- -------------------
INTEREST INCOME
Loans $ 2,318,261 $ -
Investment securities 441,655 92,676
Federal funds sold 388,337 -
----------------- --------------------
Total interest income 3,148,253 92,676
Interest expense 1,523,618 12,049
----------------- --------------------
Net interest income before provision for loan losses 1,624,635 80,627
Provision for loan losses 600,000 -
----------------- --------------------
Net interest income after provision for loan losses 1,024,635 80,627
----------------- --------------------
NONINTEREST INCOME
Loan fee income 12,565 -
Service fees on deposit accounts 36,173 -
Other income 9,610 -
----------------- --------------------
Total other income 58,348 -
----------------- --------------------
NONINTEREST EXPENSES
Salariesand benefits 990,844 336,877
Professional fees 148,157 120,014
Marketing 45,650 32,371
Insurance 22,303 10,960
Occupancy 283,562 13,001
Other outside services 104,552 -
Telephone 19,946 6,737
Other 167,522 94,996
----------------- --------------------
Total expenses 1,782,536 614,956
----------------- --------------------
Loss before provision for income taxes (699,553) (534,329)
INCOME TAX BENEFIT 38,000 -
----------------- --------------------
NET LOSS $ (661,553) $ (534,329)
================= ====================
BASIC NET LOSS PER SHARE $ (.58) $ (.46)
================= ====================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,150,000 1,150,000
See notes to consolidated financial statements that are an integral part of
these statements.
F-4
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMU-
LATED
OTHER TOTAL
ADDITIONAL COMPRE- STOCK-
COMMON STOCK PAID-IN HENSIVE RETAINED HOLDERS'
SHARES AMOUNT CAPITAL INCOME DEFICIT EQUITY
------------- --------- --------------------------------------------------------------
PROCEEDS FROM THE SALE OF STOCK
(NET OF OFFERING EXPENSES OF $853,300) 1,150,000 $ 11,500 $ 10,635,200 $ - $ - $10,646,700
NET LOSS - - - - (534,329) (543,329)
BALANCE, DECEMBER 31, 1999 1,150,000 11,500 $ 10,635,200 $ - $ (534,329) $10,112,371
NET LOSS - - - - (661,553) (661,553)
COMPREHENSIVE LOSS, NET OF TAX
UNREALIZED HOLDING GAIN ON SECURITIES
AVAILABLE FOR SALE - - - 24,162 - 24,162
COMPREHENSIVE LOSS - - - - - (637,391)
BALANCE, DECEMBER 31, 2000 1,150,000 $ 11,500 $ 10,635,200 $24,162 $(1,195,882) $ 9,474,980
========= =========== ============ ======= =========== ============
See notes to consolidated financial statements that are an integral part of
these statements.
F-5
GREENVILLE FIRST BANCSHARES, INC.AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE PERIOD
FROM
FEBRUARY 22,
1999
FOR THE YEAR (INCEPTION)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2000 1999
------------- ---------------
OPERATING ACTIVITIES
Net loss $ (661,553) $ (534,329)
Adjustments to reconcile net loss to cash
provided by (used for) operating activities:
Provision for loan losses 600,000 -
Depreciation and other amortization 66,112 -
Accretion and amortization of securities
discounts and premium, net (27,790) -
Increase in other assets, net (356,324) -
Increase in other liabilities, net 1,929,457 29,322
----------------- ---------------
Net cash provided by (used for) operating activities 1,549,902 (505,007)
----------------- ---------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from:
Origination of loans, net (46,625,027) -
Purchase property and equipment (571,541) (111,192)
Purchase of securities available for sale (11,961,752) (18,464,645)
Payments and maturity of securities
available for sale 10,999,505 9,900,000
----------------- ---------------
Net cash used for investing activities (48,158,815) (8,675,837)
----------------- ---------------
FINANCING ACTIVITIES
Increase in deposits, net 49,994,429 -
Proceeds from sale of stock - 10,646,700
Proceeds from borrowings on line of credit 400,000
Repayment of borrowings on line of credit (400,000)
----------------- ---------------
Net cash provided by financing activities 49,994,429 10,646,700
----------------- ---------------
Net increase in cash 3,385,516 1,465,856
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,465,856 -
----------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,851,372 $ 1,465,856
================= ===============
SUPPLEMENTAL INFORMATION
CASH PAID FOR
Interest paid $ 965,424 $ -
================= ===============
Income taxes paid - -
================= ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTION
Unrealized gain on securities, net of income taxes $ 24,162 $ -
================= ===============
See notes to consolidated financial statements that are an integral
part of these statements.
F-6
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
GREENVILLE FIRST BANCSHARES, INC. (the "Company") is a South Carolina
corporation organized for the purpose of owning and controlling all of the
capital stock of GREENVILLE FIRST BANK (the "Bank"). The Bank is a national bank
under the laws of the United States located in Greenville County, South
Carolina. The Company received approval to begin banking operations from both
the Federal Deposit Insurance Corporation ("FDIC") and the Office of the
Comptroller of the Currency ("OCC") on January 7, 2000. The Bank began
operations on January 10, 2000.
On October 26, 1999, the Company sold 1,100,000 shares of its common stock
at $10 per share and on November 30, 1999 sold 50,000 additional shares for a
total of 1,150,000 shares. The offering raised $10,646,700 net of underwriting
discounts, commissions and offering expenses. The directors and executive
officers of the Company purchased 266,900 shares of common stock at $10 per
share, for a total of $2,669,000. The Company used $9.5 million of the proceeds
to capitalize the Bank.
The following is a description of the more significant accounting and
reporting policies which the Company follows in preparing and presenting
consolidated financial statements.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Greenville First Bank (the
"Bank"). In consolidation all significant intercompany items and transactions
have been eliminated. The accounting and reporting policies conform to
generally accepted accounting principles and to general practices in the
banking industry. The company uses the accrual basis of accounting.
ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amount of income and expenses during the reporting periods. Actual
results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Bank makes loans to individuals and businesses in and around "Upstate"
South Carolina for various personal and commercial purposes. The Bank has a
diversified loan portfolio and the borrowers' ability to repay their loans is
not dependent upon any specific economic sector.
INVESTMENT SECURITIES
The Company accounts for investment securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities". The
statement requires investments in equity and debt securities to be classified
into three categories:
F-7
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
1. Available for sale securities: These are securities that are not
classified as either held to maturity or as trading securities. These
securities are reported at fair market value. Unrealized gains and losses
are reported, net of income taxes, as separate components of
stockholders' equity (accumulated other comprehensive income (loss).
2. Held to maturity securities: These are investment securities that the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of premiums and
the accretion of discounts. The Company has no held to maturity
securities.
3. Trading securities: These are securities that are bought and held
principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement. The Company has
no trading securities.
Gains or losses on dispositions of investment securities are based on the
differences between the net proceeds and the adjusted carrying amount of the
securities sold, using the specific identification method. Premiums and
discounts are amortized or accrued into interest income by a method that
approximates a level yield.
LOANS, INTEREST AND FEE INCOME ON LOANS
Loans are stated at the principal balance outstanding. Unamortized net loan
fees and the allowance for possible loan losses are deducted from total loans
in the balance sheet. Interest income is recognized over the term of the loan
based on the principal amount outstanding. The net of loan origination fees
received and direct costs incurred in the origination of loans is deferred
and amortized to interest income over the contractual life of the loans
adjusted for actual principal prepayments using a method approximating the
interest method.
Loans are generally placed on non-accrual status when principal or interest
becomes ninety days past due, or when payment in full is not anticipated.
When a loan is placed on non-accrual status, interest accrued but not
received is generally reversed against interest income. If collectibility is
in doubt, cash receipts on non-accrual loans are not recorded as interest
income, but are used to reduce principal.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to operating expenses reflects
the amount deemed appropriate by management to establish an adequate reserve
to meet the present and foreseeable risk characteristics of the current loan
portfolio. Management's judgement is based on periodic and regular evaluation
of individual loans, the overall risk characteristics of the various
portfolio segments, past experience with losses and prevailing and
anticipated economic conditions. Loans that are determined to be
uncollectable are charged against the allowance. Provisions for possible loan
losses and recoveries on loans previously charged off are added to the
allowance.
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all lenders value loans at the loan's fair value if it is probable that
the lender will be unable to collect all amounts due according to the terms
of the loan agreement. Fair value may be determined based upon the present
value of expected cash flows, market price of the loan, if available, or
value of the underlying collateral. Expected cash flows are required to be
discounted at the loan's effective interest rate.
Under SFAS No. 114 when the ultimate collectibility of an impaired loan's
principal is in doubt, wholly or partially, all cash receipts are applied to
principal. Once the reported principal balance has been reduced to zero,
future cash receipts are applied to interest income, to the extent that any
interest has been foregone. Further cash receipts are recorded as recoveries
of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a trouble
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with the
terms of the restructured loan agreement. Interest income is recognized on
these loans using the accrual method of accounting.
F-8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
NON-PERFORMING ASSETS
Non-performing assets include real estate acquired through foreclosure or
deed taken in lieu of foreclosure, and loans on non-accrual status. Loans are
placed on non-accrual status when, in the opinion of management, the
collection of additional interest is questionable. Thereafter no interest is
taken into income unless received in cash or until such time as the borrower
demonstrates the ability to pay principal and interest.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major repairs are charged to
operations, while major improvements are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives of
the related assets. Upon retirement, sale, or other disposition of property
and equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
ORGANIZATION COSTS
Organization costs include incorporation, legal and consulting fees incurred
in connection with establishing the Company. In accordance with Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities,"
organization costs are expensed when incurred.
INCOME TAXES
The financial statements have been prepared on the accrual basis. When income
and expenses are recognized in different periods for financial reporting
purposes versus for purposes of computing income taxes currently payable,
deferred taxes are provided on such temporary differences. The Company
accounts for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes". Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences of events that have been
recognized in the consolidated financial statements or tax return. Deferred
tax assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary differences
are expected to be realized or settled.
ADVERTISING AND PUBLIC RELATIONS EXPENSE
Advertising, promotional and other business development costs are generally
expenses as incurred. External costs incurred in producing media advertising
are expensed the first time the advertising takes place. External costs
relating to direct mailing costs are expensed in the period in which the
direct mailings are sent.
BASIC NET LOSS PER COMMON SHARE
Basic net loss per common share is computed on the basis of the weighted
average number of common shares outstanding in accordance with SFAS No. 128,
"Earnings per Share". For purposes of calculating net loss per share, the
stock was assumed to be outstanding all of 1999. The treasury stock method is
used to compute the effect of stock options on the weighted average number of
common shares outstanding for the diluted method. No dilution occurs under
the treasury stock method as the exercise price of stock options equals or
exceeds the market value of the stock.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents are defined
as those amounts included in the balance sheet captions "Cash and Due From
Banks and Federal Funds Sold." Cash and cash equivalents have an original
maturity of three months or less.
RECLASSIFICATIONS
Certain amounts, previously reported, have been reclassified to state all
periods on a comparable basis which had no effect on stockholders' equity or
net income.
F-9
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
RISKS AND UNCERTAINTIES
In the normal course of its business the Company encounters two significant
types of risks: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company
is subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or on different bases,
than its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results from borrower's inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of collateral underlying loans receivable and the
valuation of real estate held by the Company.
The Company is subject to the regulations of various governmental agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies,
which may subject it to further changes with respect to asset valuations,
amounts of required loss allowances and operating restrictions resulting from
the regulators' judgments based on information available to them at the time
of their examination.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." All
derivatives are to be measured at fair market value and recognized in the
balance sheet as assets and liabilities. SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" was issued in
June 2000 and amends the accounting and reporting standards of SFAS No. 133
for certain derivative instruments and hedging activities. The two statements
are to be adopted concurrently and are effective for fiscal years and
quarters beginning after June 15, 2000. The company does not currently use
derivative instruments. Therefore, the adoption of SFAS No. 133 and SFAS No.
138 did not have a material impact on the presentation of the Company's
financial results or financial position.
Other accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances, computed
by applying prescribed percentages to its various types of deposits, either at
the bank or on deposit with the Federal Reserve Bank. At December 31, 2000 and
1999 these required reserves were met by vault cash.
NOTE 3 - FEDERAL FUNDS SOLD
Bank cash reserves (Note 2) in excess of the required amount may be
lent to other banks on a daily basis. At December 31, 2000 and 1999 federal
funds sold amounted to $3,920,000 and $1,460,000.
NOTE 4 - INVESTMENT SECURITIES
The amortized costs and fair value of investment securities available
for sale are as follows:
DECEMBER 31, 2000
----------------------------
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ------ ------- -------
Federal agencies $8,372,194 $ 38,089 $ - $ 8,410,283
Mortgage-backed 639,915 - 1,480 638,435
---------- --------- -------- -----------
Total securities $9,012,109 $ 38,089 $ 1,480 $ 9,048,718
========== ========= ======== ===========
F-10
NOTE 4 - INVESTMENT SECURITIES, CONTINUED
At December 31, 1999, the Company owned federal agencies with a cost
and fair market value of $8,317,872.
Other investments at December 31, 2000 include Federal Reserve Bank
stock with cost of $255,000 and Federal Home Loan Bank stock with cost of
$40,800.
The Bank is required to own stock in the Federal Reserve Bank and
Federal Home Loan Bank as a member institution. No ready market exists for the
stock and it has no quoted market value. However, redemption of the stock has
historically been at par value.
The amortized costs and fair values of investment securities at
December 31, 2000, by contractual maturity, are shown in the following chart.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
AMORTIZED FAIR
COST VALUE
Due in less than one year $ 2,990,779 $ 2,991,975
Due after one through three years 3,016,415 3,036,188
Due after three through five years 2,004,915 2,020,555
Due after five through ten years 1,000,000 1,000,000
-------------- --------------
Total investment securities $ 9,012,109 $ 9,048,718
============== ==============
No investment securities were sold in 2000 or 1999. Accordingly, no
gains or losses were recorded. At December 31, 2000 $5,544,800 of securities
were pledged as collateral for public funds. At December 31, 1999, there were no
securities pledged as collateral for public funds.
NOTE 5 - LOANS
The composition of net loans by major loan category as follows:
DECEMBER 31,
-----------
2000
----
Commercial $ 22,646,855
Real estate - construction 7,162,759
Real estate - mortgage 13,994,086
Consumer 2,821,327
Loans, gross 46,625,027
Less allowance for possible loan losses (600,000)
------------------
Loans, net $ 46,025,027
==================
At December 31, 1999, the Bank had no loans. At December 31, 2000,
there were no nonaccruing loans and no impaired loans. Variable and fixed rate
loans totaled $31,923,745 and $14,701,282 at December 31, 2000.
NOTE 6 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is available to absorb future
loan charge-offs. The allowance is increased by provisions charged to operating
expenses and by recoveries of loans which were previously written-off. The
allowance is decreased by the aggregate loan balances, if any, which were deemed
uncollectible during the year.
Activity within the allowance for possible loan losses account
follows:
F-11
NOTE 6 - ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
FOR THE PERIODS ENDED
DECEMBER 31,
2000 1999
Balance, beginning of year $ - $ -
Recoveries of loans previously charged against the allowance - -
Provision for loan losses 600,000 -
Loans charged against the allowance - -
----------------- ---------------
Balance, end of year $ 600,000 $ -
================= ===============
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Components of property and equipment included in the consolidated
balance sheets are as follows:
DECEMBER 31,
2000 1999
Leasehold improvements $ 146,232 $ -
Furniture and equipment 440,476 93,664
Software 96,025 17,528
682,733 111,192
Accumulated depreciation (66,112) -
--------------- ---------------
Total property and equipment $ 616,621 $ 111,192
=============== ===============
Leasehold improvements and furniture and fixtures include items for
the Company's main office. The Company occupied its main office on January 16,
2001. The office is leased for twenty years (see note 9).
Depreciation expense for the year ended December 31, 2000 amounted to
$66,112. No depreciation expense was recorded in 1999. Depreciation is charged
to operations over the estimated useful lives of the assets. The estimated
useful lives and methods of depreciation for the principal items follow:
TYPE OF ASSET LIFE IN YEARS DEPRECIATION METHOD
Software and computer equipment 3 Straight-line
Furniture and equipment 5 to 7 Straight-line
Buildings and improvements 5 to 40 Straight-line
NOTE 8 - DEPOSITS
The following is a detail of the deposit accounts:
DECEMBER 31,
2000
------------
Non-interest bearing $ 3,087,715
Interest bearing:
NOW accounts 6,637,257
Money market accounts 12,613,368
Savings 79,572
Time, less than $100,000 14,446,620
Time, $100,000 and over 13,129,897
-----------------
Total deposits $ 49,994,429
=================
F-12
NOTE 8 - DEPOSITS, CONTINUED
The Bank had no deposits at December 31, 1999.
Interest expense on time deposits greater than $100,000 was $360,130
in 2000.
At December 31, 2000 the scheduled maturities of certificates of
deposit are as follows:
2001 $ 24,883,711
2002 1,847,342
2003 410,000
2004 and thereafter 435,464
-----------------
$ 27,576,517
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an employment agreement with its
president and chief executive officer that includes a three year compensation
term, annual bonus, incentive program, stock option plan and a one-year
non-compete agreement upon termination.
The Company has also entered into a thirty-six month operating lease
on an automobile that is used by the Company's president and chief executive
officer. The monthly payments are $620. At December 31, 2000, twenty-one lease
payments remained.
The Company has entered into an agreement with a data processor with
a remaining term of four years to provide ATM services, item processing and
general ledger processing. Components of this contract include monthly charges
of approximately $7,500.
The Bank may become party to litigation and claims in the normal
course of business. As of December 31, 2000, there is no litigation pending.
The Bank has a twenty-year lease on its main office building that
begins in January 2001. The monthly rent for the first year is $23,521. The
lease provides for annual lease rate escalations based on cost of living
adjustments.
Future minimum lease payments under this operating lease is
summarized as follows:
For the year ended December 31,
2001 $ 282,252
2002 289,174
2003 296,303
2004 303,646
2005 311,210
Thereafter* 5,715,450
-----------------
$ 7,198,035
*Amount is estimated based on an increase of 2.49 percent per year.
Actual lease will be adjusted annually by the cost of living index as stated in
the Consumer Price Index.
NOTE 10 - UNUSED LINES OF CREDIT
At December 31, 2000, the Bank had an unused line of credit to
purchase federal funds of $2.8 million. These lines of credit are available on a
one to seven day basis for general corporate purposes of the Bank. All of the
lenders have reserved the right to withdraw these lines at their option. The
Bank had a second line of credit with the Federal Home Loan Bank to borrow
funds, subject to a pledge of qualified collateral. The Bank has collateral that
would support approximately $4,000,000 in borrowings.
F-13
NOTE 11 - INCOME TAXES
A income tax benefit of $38,000 was recorded in 2000 and reflects the
value of net operating losses available for offset against future taxable
income. The resulting deferred tax asset at December 31, 2000, was partially
offset by $12,447 of a deferred tax liability that relates to an unrealized gain
on securities available for sale, which has been recorded directly to
stockholders' equity. Net operating losses available to offset future taxable
income expire in 2015. The resulting net deferred tax asset is presented with
other assets in the consolidated balance sheets.
NOTE 12 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies with which they
are affiliated, are customers of and have banking transactions with the Bank in
the ordinary course of business. These loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers for the year ended December 31, 2000 is as
follows:
Balance, beginning of year $ -
New loans 479,768
Less loan payments (119,587)
---------------
Balance, end of year $ 360,181
===============
Deposits by officers and directors and their related interests at
December 31, 2000, were $171,926.
There were no loans to or deposits by officers and directors and their related
interests at December 31, 1999. The Bank has a lease on its main office building
with a director of the bank beginning in 2001. The lease is for twenty years,
with a $23,521 monthly payment for the first year. The bank is of the opinion
that the lease payments represent a market cost that could have been obtained in
an "arms length" transaction.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
In the ordinary course of business, and to meet the financing needs
of its customers, the Company is a party to various financial instruments with
off balance sheet risk. These financial instruments, which include commitments
to extend credit and standby letters of credit, involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheets. The contract amount of those instruments reflects the extent
of involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amounts of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any material condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. At December 31, 2000, unfunded
commitments to extend credit were $18,431,819, of which $5,529,546 is at fixed
rates and $12,902,273 is at variable rates. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral varies but may
include accounts receivable, inventory, property, plant and equipment, and
commercial and residential real estate.
At December 31, 2000, there was a $234,063 commitment under a letter
of credit. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. Collateral
varies but may include accounts receivable, inventory, equipment, marketable
securities and property. Since most of the letters of credit are expected to
expire without being drawn upon, they do not necessarily represent future cash
requirements.
F-14
NOTE 14 - EMPLOYEE BENEFIT PLAN
On January 1, 2000, the Company adopted the Greenville First
Bancshares, Inc. Profit Sharing and 401(k) Plan for the benefit of all eligible
employees. The Company contributes to the Plan annually upon approval by the
Board of Directors. Contributions made to the Plan in 2000 amounted to $74,500.
No contributions were made to the Plan in 1999.
NOTE 15 - STOCK OPTIONS AND WARRANTS
On March 21, 2000, the Company adopted a stock option plan for the
benefit of the directors, officers and employees. The Board may grant up to
172,500 options at an option price per share not less than the fair market value
on the date of grant. The options granted to officers and employees vest either
at 20 percent over four years or 25 percent over five years and expire 10 years
from the grant date. The Company has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the stock option plan. Had
compensation cost been determined based on the fair value at the grant date for
the above stock option awards consistent with the provisions of SFAS No. 123,
the Company's net income (loss) and net income (loss) per common share would
have changed to the pro forma amounts indicated below:
FOR THE PERIODS ENDED
DECEMBER 31,
---------------------------
2000 1999
---- ----
Net loss
As reported $ (661,553) $ (534,329)
Pro forma (695,213) (534,329)
Basic net loss per common share
As reported (.58) (.46)
Pro forma (.60) (.46)
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option pricing model and the minimum value method
allowed by SFAS 123. The risk free interest rate used was 5.90 percent, the
expected option life was 4 to 5 years and the assumed dividend rate was zero.
A summary of the status of the plan as of December 31, 2000, and
changes during the year ending is presented below:
2000
-------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding at beginning of year - $ -
Granted 97,000 10.00
Exercised - -
Forfeited or expired - -
-------- ---------------
Outstanding at end of year 97,000 $ 10.00
======== ===============
Options exercisable at year-end - -
======== ===============
Shares available for grant 75,500
========
Upon completion of the 1999 stock offering, the Company issued
warrants to each of its organizers to purchase up to an additional 129,950
shares of common stock at $10 per share. These options vest over a three year
period and expire on October 27, 2009.
NOTE 16 - DIVIDENDS
There are no current plans to initiate payment of cash dividends and
future dividend policy will depend on the Bank's and the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Company's Board of Directors. The Bank is restricted in its ability to
pay dividends under the national banking laws and regulations of the OCC.
Generally, these restrictions require the Bank to pay dividends derived solely
from net profits. Moreover, OCC prior approval is required if dividends declared
in any calendar year exceed the Bank's net profit for that year combined with
its retained net profits for the preceding two years.
F-15
NOTE 17 - COMMON STOCK AND LOSS PER SHARE
SFAS No. 128, "Earnings per Share" requires that the Company present
basic and diluted net income (loss) per common share. The assumed conversion of
stock options and warrants can create a difference between basic and diluted net
income (loss) per common share. Since all stock options and warrants were
considered to be anti-dilutive, the weighted average number of common shares
outstanding for both basic net loss per share and diluted net loss per common
share is the same and diluted loss per share is not presented. Loss per share is
calculated by dividing net income by the weighted average number of common
shares outstanding for each period presented. The weighted average number of
common shares outstanding for basic net loss per common share was 1,150,000
shares in 2000 and 1999.
NOTE 18 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as of December 31, 2000,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, the most recent notification of the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Bank's actual capital amounts and ratios
and minimum regulatory amounts and ratios are presented as follows:
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ADEQUACY PURPOSES ACTION PROVISIONS MINIMUM
ACTUAL MINIMUM AMOUNT
AMOUNT RATIO AMOUNT RATIO (AMOUNTS IN $000) RATIO
------ ----- ------ ----- ------------------ -----
AS OF DECEMBER 31, 2000
Total Capital (to risk weighted
assets) $ 8,815 18.0% $ 3,918 8.0% $ 4,903 10.0%
Tier 1 Capital (to risk weighted
assets) 8,215 16.8 1,961 4.0 2,941 6.0
Tier 1 Capital (to average assets) 8,215 14.7 2,241 4.0 2,802 5.0
F-16
NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA
FOLLOWING IS A SUMMARY OF OPERATIONS BY QUARTER FOR THE YEAR ENDED DECEMBER 31,
2000:
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ------------ --------------- -----------
TOTAL
-----
Interest income $ 335,957 $ 642,027 $ 945,654 $ 1,224,615 $ 3,148,253
Interest expense 116,533 282,112 474,541 650,432 1,523,618
-------------- ------------ --------------- -------------- --------------
Net interest income 219,424 359,915 471,113 574,183 1,624,635
PROVISION FOR LOAN LOSS 100,000 180,000 150,000 170,000 600,000
Noninterest income 2,362 9,490 21,567 24,929 58,348
Noninterest expenses 395,905 428,906 454,995 502,730 1,782,536
------------- ------------ --------------- -------------- --------------
Loss before provision for
income taxes (274,119) (239,501) (112,315) (73,618) (699,553)
Income tax (benefit) expense - (74,000) - 36,000 (38,000)
------------- ------------ --------------- -------------- --------------
Net loss $ (274,119) $ (165,501) $ (112,315) $ (109,618) $ (661,553)
============= ============ =============== ============== ==============
Basic net loss per share $ (0.24) $ (0.14) $ (0.10) $ (0.10) $ (.58)
============= ============ =============== ============== =============
Weighted average number of
common shares outstanding 1,150,000 1,150,000 1,150,000 1,150,000 1,150,000
============= ============ =============== ============== ==============
Selected quarterly financial data for 1999 has not been presented because
the Company had no bank operations.
F-17
NOTE 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
balance sheets, when it is practical to estimate the fair value. SFAS No. 107
defines a financial instrument as cash, evidence of an ownership interest in an
entity or contractual obligations which require the exchange of cash or other
financial instruments. Certain items are specifically excluded from the
disclosure requirements, including the Company's common stock, premises and
equipment and other assets and liabilities.
Fair value approximates carrying value for the following financial
instruments due to the short-term nature of the instrument: cash and due from
banks and federal funds sold.
Securities are valued using quoted fair market prices. Fair value for the
Company's off-balance sheet financial instruments is based on the discounted
present value of the estimated future cash flows.
Fair value for variable rate loans that reprice frequently and for loans
that mature in less than one year is based on the carrying value. Fair value for
fixed rate mortgage loans, personal loans and all other loans (primarily
commercial) maturing after one year is based on the discounted present value of
the estimated future cash flows. Discount rates used in these computations
approximate the rates currently offered for similar loans of comparable terms
and credit quality.
Fair value for demand deposit accounts and interest-bearing accounts with
no fixed maturity date is equal to the carrying value. Certificate of deposit
accounts maturing within one year are valued at their carrying value. The fair
value of certificate of deposit accounts after one year are estimated by
discounting cash flows from expected maturities using current interest rates on
similar instruments.
The Company has used management's best estimate of fair value based on
the above assumptions. Thus, the fair values presented may not be the amounts
which could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair value
presented.
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31,
2000 1999
------------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
FINANCIAL ASSETS:
Cash and due from banks $ 931,372 $ 931,372 $ 5,856 $ 5,856
Federal funds sold 3,920,000 3,920,000 1,460,000 1,460,000
Investment securities 9,344,518 9,344,518 8,317,872 8,317,872
Other Investments 295,800 295,800 - -
Loans, net 46,025,027 46,300,000 - -
FINANCIAL LIABILITIES:
Deposits 49,994,429 50,018,000 - -
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
Commitments to extend credit 18,431,819 18,431,819 - -
Standby letters of credit 234,063 234,063 - -
F-18
NOTE 21 - PARENT COMPANY FINANCIAL INFORMATION
Following is condensed financial information of Greenville First Bancshares,
Inc. (parent company only):
During 2000, the Company capitalized the Bank with $8,500,000 and
transferred all remaining assets, including losses incurred through December 31,
2000 totaling $490,670 to the Bank subsidiary.
CONDENSED BALANCE SHEETS
DECEMBER 31,
2000 1999
---- ----
ASSETS
Cash and cash equivalents $ 1,235,733 $ 5,856
Investment in Bank subsidiary 8,239,247 -
Securities available for sale - 9,777,872
Other assets - 357,965
---------------- ---------------
Total assets $ 9,474,980 $ 10,141,693
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ - $ 29,322
Stockholders' equity 9,474,980 10,112,371
--------------- ---------------
Total liabilities and stockholders' equity $ 9,474,980 $ 10,141,693
=============== ===============
CONDENSED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED
DECEMBER 31,
2000 1999
---- ----
REVENUES
Interest income $ 116,205 $ 92,676
EXPENSES
Salaries and benefits - 336,877
Professional fees - 120,014
Other expenses 2,173 170,114
---------------- --------------
Total expenses 2,173 627,005
---------------- --------------
Income (loss) before equity in undistributed
net loss of Bank subsidiary 114,032 (534,329)
Equity in undistributed net loss of Bank subsidiary (775,585) -
---------------- ---------------
Net loss $ (661,553) $ (534,329)
================ ===============
F-19
NOTE 21 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED
DECEMBER 31,
-------------------------
2000 1999
------- ----
OPERATING ACTIVITIES
Net loss $ (661,553) $ (534,329)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Equity in undistributed net loss of
the bank subsidiary 775,585 -
(Decrease) increase in accounts payable (29,322) 29,322
Decrease in other assets 357,965 -
--------------- ---------------
Net cash provided by (used for) operating activities 442,675 (505,007)
--------------- ---------------
INVESTING ACTIVITIES
Transfer of securities available for sale to bank subsidiary 8,317,872 -
Purchase of securities available for sale - (18,464,645)
Maturity of investment securities - 9,900,000
Purchase of property and equipment - (111,192)
--------------- ---------------
Net cash provided by (used for) investing activities 8,317,872 (8,675,837)
--------------- ---------------
FINANCING ACTIVITIES
Proceeds from borrowing on line of credit - 400,000
Repayment of borrowing on line of credit - (400,000)
Proceeds from sale of stock - 10,646,700
Investment in Bank subsidiary (8,990,670) -
--------------- ---------------
Net cash provided by (used for) financing activities (8,990,670) 10,646,700
--------------- ---------------
Net increase in cash and cash equivalents (230,123) 1,465,856
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,465,856 -
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,235,733 $ 1,465,856
=============== ===============
F-20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE
EXCHANGE ACT
In response to this Item, the information contained on pages 3 through
5 of our Proxy Statement for the Annual Meeting of Shareholders to be held on
May 15, 2001 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
In response to this Item, the information contained on page 6 of our
Proxy Statement for the Annual Meeting of Shareholders to be held on May15, 2001
is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this Item, the information contained on page 8 of our
Proxy Statement for the Annual Meeting of Shareholders to be held on May 15,
2001 is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this Item, the information contained on page 10 of our
Proxy Statement for the Annual Meeting of Shareholders to be held on May 15,
2001 is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1.1 Form of Underwriting Agreement between Greenville First Bancshares and
Wachovia Securities (incorporated by reference to Exhibit 1.1 of the
Registration Statement on Form SB-2, File No. 333-83851).
3.1. Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2, File No.
333-83851).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2, File No. 333-83851).
4.1. See Exhibits 3.1 and 3.2 for provisions in Greenville First
Bancshares's Articles of Incorporation and Bylaws defining the rights
of holders of the common stock (incorporated by reference to Exhibit
4.1 of the Registration Statement on Form SB-2, File No. 333-83851).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-83851).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of
the Registration Statement on Form SB-2, File No. 333-83851).
10.1. Employment Agreement dated July 27, 1999 between Greenville First
Bancshares and Art Seaver (incorporated by reference to Exhibit 10.1 of
the Registration Statement on Form SB-2, File No. 333-83851).
10.2. Lease Agreement incorporated by reference between Greenville First Bank
and Halton Properties, LLC, formerly Cothran Properties, LLC
(incorporated by reference to Exhibit 10.2 of Form 10-k filed on March
28, 2000).
10.3 Data Processing Services Agreement dated June 28, 1999 between
Greenville First Bancshares and the Intercept Group (incorporated by
reference to Exhibit 10.3 of the Registration Statement on Form SB-2,
File No. 333-83851).
21
10.4 Form of Stock Warrant Agreement (incorporated by reference to Exhibit
10.4 of the Registration Statement on Form SB-2, File No. 333-83851).
10.5 Promissory Note dated February 22, 1999 from Greenville First
Bancshares, Inc. in favor of John J. Meindl, Jr. (incorporated by
reference to Exhibit 10.5 of the Registration Statement on Form SB-2,
File No. 333-83851).
10.6 Standard Form of Agreement between Greenville First Bancshares, Inc.
and AMI Architects (incorporated by reference to Exhibit 10.2 of Form
10-k filed on March 28, 2000).
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the fourth quarter of
1999.
22
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GREENVILLE FIRST BANCSHARES, INC.
Date: March 28, 2001 By: /s/ R. Arthur Seaver, Jr.
-------------------- -----------------------------------
R. Arthur Seaver, Jr.
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Arthur Seaver, Jr., his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-KSB,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that attorney-in-fact and agent, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James M. Austin
--------------------------------
James M. Austin, III Chief Financial Officer, March 28, 2001
Principal Financial and
Accounting Officer
/s/ Andrew B. Cajka
--------------------------------
Andrew B. Cajka Director March 28, 2001
/s/ Mark A. Cothran
--------------------------------
Mark A. Cothran Director March 28, 2001
/s/ Leighton M. Cubbage
--------------------------------
Leighton M. Cubbage Director March 28, 2001
/s/ David G. Ellison
--------------------------------
David G. Ellison Director March 28, 2001
/s/ Anne S. Ellefson
--------------------------------
Anne S. Ellefson Director March 28, 2001
/s/ Tecumseh Hooper
--------------------------------
Tecumseh Hooper, Jr. Director March 28, 2001
/s/ Rudolph G. Johnstone
-------------------------------- .
Rudolph G. Johnstone, III, M.D. Director March 28, 2001
23
/s/ Keith J. Marrero
--------------------------------
Keith J. Marrero Director March 28, 2001
/s/ James B. Orders
--------------------------------
James B. Orders, III Director, Chairman March 28, 2001
/s/ William B. Sturgis
--------------------------------
William B. Sturgis Director March 28, 2001
/s/ R. Arthur Seaver
--------------------------------
R. Arthur Seaver, Jr. Director, Chief Executive March 28, 2001
Officer and President
(PRINCIPAL EXECUTIVE OFFICER)
/s/ Fred Gilmer
--------------------------------
Fred Gilmer, Jr. Director, Senior Vice- March 28, 2001
President
24
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
1.1 Form of Underwriting Agreement between Greenville First Bancshares and
Wachovia Securities (incorporated by reference to Exhibit 1.1 of the
Registration Statement on Form SB-2, File No. 333-83851).
3.1. Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2, File No.
333-83851).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2, File No. 333-83851).
4.1. See Exhibits 3.1 and 3.2 for provisions in Greenville First
Bancshares's Articles of Incorporation and Bylaws defining the rights
of holders of the common stock (incorporated by reference to Exhibit
4.1 of the Registration Statement on Form SB-2, File No. 333-83851).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-83851).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of
the Registration Statement on Form SB-2, File No. 333-83851).
10.1. Employment Agreement dated July 27, 1999 between Greenville First
Bancshares and Art Seaver (incorporated by reference to Exhibit 10.1 of
the Registration Statement on Form SB-2, File No. 333-83851).
10.2. Lease Agreement between Greenville First Bank and Halton Properties,
LLC, formerly Cothran Properties, LLC (incorporated by reference to
Exhibit 10.2 of Form 10-k filed on March 28, 2000).
10.3 Data Processing Services Agreement dated June 28, 1999 between
Greenville First Bancshares and the Intercept Group (incorporated by
reference to Exhibit 10.3 of the Registration Statement on Form SB-2,
File No. 333-83851).
10.4 Form of Stock Warrant Agreement (incorporated by reference to Exhibit
10.4 of the Registration Statement on Form SB-2, File No. 333-83851).
10.5 Promissory Note dated February 22, 1999 from Greenville First
Bancshares, Inc. in favor of John J. Meindl, Jr. (incorporated by
reference to Exhibit 10.5 of the Registration Statement on Form SB-2,
File No. 333-83851).
10.7 Standard Form of Agreement between Greenville First Bancshares, Inc.
and AMI Architects (incorporated by reference to Exhibit 10.2 of Form
10-k filed on March 28, 2000).
25