UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________TO_________
Commission File Number O-18460
COMMUNITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0866395
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
109 MONTAGUE AVENUE
GREENWOOD, SC 29646
(Address of principal executive
offices, including zip code)
(864) 941-8200
(Registrant's telephone number, including area code)
------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the date of this filing.
2,925,912 SHARES OF COMMON STOCK, $1.00 PAR VALUE
PAGE 1 OF 19
EXHIBIT INDEX ON PAGE 2
<PAGE>
COMMUNITY CAPITAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 ....................................... 3
Condensed Consolidated Statements of Income - Three months
ended March 31, 1998 and 1997................................... 4
Condensed Consolidated Statement of Changes in Shareholders'
Equity for the three months ended March 31, 1998............. 5
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997................................ 6
Notes to Condensed Consolidated Financial Statements........ 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. ............................. 10-16
Item 3 Quantitative and Qualitative Disclosures
About Market Risk........................................ 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................ 17
Item 6. Exhibits and Reports on Form 8-K ........................ 17
(a) Exhibits ............................................ 17-19
(b) Reports on Form 8-K ................................. 17
2
<PAGE>
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<S> <C>
Mar.31, 1998 Dec.31, 1997
------------------ ------------------
ASSETS: (Unaudited)
Cash and cash equivalents:
Cash and due from banks $ 8,581 $ 7,347
Interest-bearing deposit accounts 461 415
Federal funds sold 8,200 350
------------------ ------------------
Total cash and cash equivalents 17,242 8,112
------------------ ------------------
Securities:
Securities available-for-sale 74,235 73,581
Securities held-to-maturity (estimated fair value
of $675 at March 31, 1998 and December 31, 1997) 675 675
Nonmarketable equity securities 3,798 3,224
------------------ ------------------
Total securities 78,708 77,480
------------------ ------------------
Loans receivable 156,502 149,127
Less allowance for loan losses (1,780) (1,531)
------------------ ------------------
Loans, net 154,722 147,596
------------------ ------------------
Premises, furniture, and equipment, net 8,095 8,293
Intangible assets 3,036 3,119
Accrued interest receivable 2,487 2,381
Other assets 1,988 1,880
------------------ ------------------
Total assets $ 266,278 $ 248,861
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing $ 21,224 $ 19,460
Interest-bearing 188,742 167,401
------------------ ------------------
Total deposits 209,966 186,861
Federal funds purchased and securities
sold under agreements to repurchase 2,866 11,943
Advances from the Federal Home Loan Bank 18,849 16,350
Accrued interest payable 1,549 1,351
Other liabilities 610 428
------------------ ------------------
Total liabilities 233,840 216,933
------------------ ------------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 10,000,000 shares authorized; 2,925,912 and
2,905,303 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively 2,926 2,905
Capital surplus 27,698 27,492
Accumulated other comprehensive income 438 467
Retained earnings 1,376 1,064
------------------ ------------------
Total shareholders' equity 32,438 31,928
------------------ ------------------
Total liabilities and shareholders' equity $ 266,278 $ 248,861
================== ==================
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands except for per share data)
Three Months Ended March 31,
----------------------------------------
1998 1997
------------------ ------------------
Interest income:
Loans, including fees $ 3,471 $ 1,891
Securities, taxable 1,023 349
Securities, nontaxable 171 62
Other interest income 78 47
------------------ ------------------
4,743 2,349
------------------ ------------------
Interest expense:
Deposits 2,174 932
FHLB advances 257 85
Other interest expense 73 101
------------------ ------------------
2,504 1,118
------------------ ------------------
Net interest income 2,239 1,231
Provision for loan losses 307 88
------------------ ------------------
Net interest income after
provision for loan losses 1,932 1,143
------------------ ------------------
Other operating income:
Service charges on deposit accounts 245 138
Residential mortgage origination fees 130 51
Commissions from sales of mutual funds 60 6
Other income 192 101
------------------ ------------------
627 296
------------------ ------------------
Other operating expenses:
Salaries and benefits 972 583
Net occupancy expense 159 86
Amortization of intangible assets 83 10
Furniture and equipment expense 207 120
Other operating expenses 689 399
------------------ ------------------
2,110 1,198
------------------ ------------------
Income before taxes 449 241
Income tax provision 137 82
------------------ ------------------
Net income 312 159
------------------ ------------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
during the period (29) (126)
------------------ ------------------
Other comprehensive income (29) (126)
------------------ ------------------
Comprehensive income $ 283 $ 33
================== ==================
Basic net income per share $ 0.11 $ 0.08
Diluted net income per share $ 0.10 $ 0.08
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<S> <C>
Accumulated
Common Stock Other Total
-------------------- Capital Comprehensive Retained Shareholders
Shares Amount Surplus Income Earnings Equity
Balance,
December 31, 1997 2,905,303 $ 2,905 $ 27,492 $ 467 $ 1,064 31,928
Proceeds from sales
of stock to ESOP 4,711 5 74 79
Proceeds from
exercise of
stock options 15,898 16 132 148
Other comprehensive
income (29) (29)
Net income
for the period 312 312
-------------- -------------- -------------- -------------- -------
Balance,
March 31, 1998 2,925,912 $ 2,926 $ 27,698 $ 438 $ 1,376 $32,438
========= ======== ========= ========= ========= =======
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Three Months Ended
March 31,
1998 1997
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 312 $ 159
Adjustments to reconcile net income to
net cash (used) provided by operating activities:
Depreciation 217 144
Provision for possible loan losses 307 88
Amortization of intangible assets 83 10
Amortization less accretion on investments 6 8
Amortization of deferred loan costs 94 37
Disbursements for mortgages held for sale (6,548) (2,120)
Proceeds of sales of residential mortgages 5,100 2,048
Increase in interest receivable (106) (10)
Increase in interest payable 198 84
Increase in other assets (92) (92)
Increase in other liabilities 183 25
--------- ---------
Net cash (used) provided by operating activities (246) 381
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers (6,079) (7,828)
Purchases of securities available-for-sale (6,617) (11,113)
Sales of securities available-for-sale 1,012 501
Maturities of securities available-for-sale 4,899 1,016
Purchases of nonmarketable equity securities (574) (363)
Purchases of premises and equipment (19) (891)
--------- ---------
Net cash used by investing activities (7,378) (18,678)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of capital stock - 17,000
Proceeds from exercise of stock options 148 48
Proceeds from stock sales to employee benefit plan 79 43
Net increase in deposits accounts 23,105 5,072
Proceeds from FHLB borrowings 5,049 4,075
Repayments of FHLB borrowings (2,550) (2,949)
Net decrease in fed funds purchased and repos (9,077) (4,891)
--------- ---------
Net cash provided by financing activities 16,754 18,398
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,130 101
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,112 4,627
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,242 $ 4,728
========== ===========
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures which would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of March 31, 1998 and for the interim periods ended
March 31, 1998 and 1997 are unaudited and, in the opinion of management, include
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation. The financial information as of December 31, 1997 has
been derived from the audited financial statements as of that date. For further
information, refer to the financial statements and the notes included in the
Company's 1997 Annual Report.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<S> <C>
Three Months Ended
March 31
(Dollars in thousands) 1998 1997
----------------- ------------------
CASH PAID DURING THE PERIOD FOR:
Income taxes $ 13 $ 95
Interest 2,306 1,048
NONCASH INVESTING AND FINANCING ACTIVITIES:
Foreclosure on loans - 262
DETAILS OF ACQUISITIONS OF NEW BANKS:
Fixed assets acquired - 617
Intangible assets - 546
Organizational notes assumed - (1,163)
------------------ ------------------
Cash paid for acquisitions $ - $ 0
=================== ===================
</TABLE>
NOTE 3 - LONG-TERM DEBT
Advances from the Federal Home Loan Bank were $18,849,000 as of March 31, 1998.
Of this amount, the following have scheduled maturities greater than one year:
<TABLE>
<S> <C>
Maturing on Interest Rate Principal
----------- ------------- ---------
(Dollars in thousands)
5/23/2000 5.475% - variable $ 800
9/25/2000 6.38% - fixed 600
1/30/2001 5.85% - fixed 1,000
9/24/2002 5.66% - fixed, callable 9/24/99 1,000
2/03/2003 5.97% - fixed 149
3/26/2008 5.51% - fixed 1,500
------------------
Total long-term debt $ 5,049
==================
</TABLE>
NOTE 4 - SHAREHOLDERS' EQUITY
During the first quarter of 1998, there were 4,711 shares of stock sold to the
Employee Stock Ownership Plan at market prices in the amount of $79,000, and
there were 15,898 options exercised by the employees and directors of the
Company providing $148,000 of additional capital for the Company.
7
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share are as follows:
<TABLE>
<S> <C>
For the Quarter Ended March 31, 1998
-----------------------------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
------------------ ------------------ ---------------
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 312 2,915,996 $ 0.11
===============
EFFECT OF DILUTIVE SECURITIES
Stock options - 199,710
------------------ ------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 312 3,115,706 $ 0.10
================== ================== ===============
For the Quarter Ended March 31, 1997
------------------------------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
------------------ ------------------ ----------------
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 159 1,986,256 $ 0.08
===============
EFFECT OF DILUTIVE SECURITIES
Stock options - 72,518
------------------ ------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 159 2,058,774 $ 0.08
================== ================== ===============
</TABLE>
8
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTE 6 - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income. Comprehensive income
includes net income and other comprehensive income which is defined as non-owner
related transactions in equity. Prior periods have been reclassified to reflect
the application of the provisions of SFAS 130. The following table sets forth
the amounts of other comprehensive income included in equity along with the
related tax effect for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C>
For the Quarter Ended March 31, 1998
--------------------------------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
------------------ ------------------ ------------------
(Dollars in thousands)
Net unrealized gains (losses) on securities
available for sale arising in 1998 $ (46) $ 17 $ (29)
------------------ ------------------ ------------------
Other comprehensive income $ (46) $ 17 $ (29)
================== ================== ==================
For the Quarter Ended March 31, 1997
--------------------------------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
------------------ ------------------ ------------------
(Dollars in thousands)
Net unrealized gains (losses) on securities
available for sale arising in 1998 $ (191) $ 65 $ (126)
------------------ ------------------ ------------------
Other comprehensive income $ (191) $ 65 $ (126)
================== ================== ==================
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available for sale, net of the deferred tax effects.
9
<PAGE>
COMMUNITY CAPITAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the Company's financial condition as of March
31, 1998 compared to December 31, 1997, and the results of operations for the
three months ended March 31, 1998 compared to the three months ended March 31,
1997. These comments should be read in conjunction with the Company's condensed
consolidated financial statements and accompanying footnotes appearing in this
report.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three months ended March 31, 1998, net interest income, the major
component of the Company's net income, was $2,239,000 compared to $1,231,000 for
the same period of 1997, an increase of $1,008,000. The improvement was
attributable to an increase in the volume of average earning assets during the
period, particularly loans and investment activities, primarily due to the
increased number of banks in the Company. Net income has also benefitted from
the continued strong loan demand in the Greenwood market and steady growth in
all other banks in the Company. The average rates paid on interest-bearing
liabilities increased to 5.05% from 4.89% for the three-month periods ended
March 31, 1998 and 1997, respectively. The increase is primarily attributable to
the new banks, whose principle source of new funds has been certificates of
deposit which pay higher rates than either transaction or savings accounts and
to increased use of borrowings from the Federal Home Loan Bank to fund loan
growth at Greenwood Bank & Trust, Clemson Bank & Trust, and Bank of Barnwell
County.
The net interest spread and net interest margin were 3.34% and 3.96%,
respectively, for the three-month period ended March 31, 1998, compared to 3.43%
and 4.37% for the three-month period ended March 31, 1997.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings that
management feels is necessary to maintain the allowance for possible loan losses
at an adequate level. For the three months ended March 31, 1998 and 1997, the
provision was $307,000 and $88,000, respectively. The Greenwood and Barnwell
banks experienced increases in nonperforming loans for the period ended March
31, 1998. The Company's nonperforming loans totaled $938,000 compared to
$225,000 in 1997. As a result, the Greenwood and Barnwell banks provided
$223,000 of the $307,000 provision to cover loan growth and the increase
associated with the level of nonperforming loans. Based on present information,
management believes the allowance for loan losses is adequate at March 31, 1998
to meet presently known and inherent risks in the loan portfolio.
10
<PAGE>
COMMUNITY CAPITAL CORPORATION
NONINTEREST INCOME
Total noninterest income for the three months ended March 31, 1998 was $627,000,
an increase of $331,000, or 111.8% from the comparable period in 1997.
The increase was primarily due to an increase in service charges, residential
mortgage origination fees and commissions on sales of mutual funds and
annuities. Service charge income was $245,000 for the three-month period ended
March 31, 1998 compared to $138,000 for the comparable period of 1997.
Residential mortgage origination fees were $130,000 and commissions on sales of
mutual funds and annuities were $60,000 for the period compared to $51,000 and
$6,000 in 1997, respectively.
NONINTEREST EXPENSE
Total noninterest expense for the first three months of 1998 was $2,110,000, an
increase of $912,000, or 76.1%, when compared to the first three months of 1997.
The primary component of noninterest expense is salaries and benefits which was
$972,000 and $583,000 for the three months ended March 31, 1998 and 1997,
respectively. The $389,000 increase is the result of the operation of more banks
during 1998 compared to 1997. Furniture and equipment expense increased to
$207,000 from $120,000 due to an increase in depreciation charges on additional
equipment operating throughout the Company due to the new banks. Other operating
expenses also increased due to the growth of the Company through the opening of
the new banks.
INCOME TAXES
For the three months ended March 31, 1998 and 1997, the effective income tax
rate was 30.5% and 34.0%, respectively, and the income tax provision was
$137,000 and $82,000, respectively. The decrease in the effective tax rate was
due to an increase in tax-exempt income.
NET INCOME
The combination of the above factors resulted in net income of $312,000 for the
three months ended March 31, 1998 compared to $159,000 for the comparable period
in 1997.
The profitability of the Greenwood bank was supplemented by profits from the
Clemson, Belton and Barnwell banks for the three months ended March 31, 1998.
The Newberry bank and Community Trust Services Company experienced losses for
the quarter.
ASSETS AND LIABILITIES
During the first three months of 1998, total assets grew $17,417,000 or 7.0%
when compared to December 31, 1997. Much of the growth was attributable to an
increase in the deposit base of the banks which was $23,105,000 for the period.
The demand for quality loans in the Greenwood market remained strong and also
contributed to the growth of the asset base.
INVESTMENT SECURITIES
Investment securities increased $1,228,000 during the three-month period. The
increase is due to the investment of $654,000 in securities available for sale
and $574,000 in nonmarketable equity securities.
11
<PAGE>
COMMUNITY CAPITAL CORPORATION
LOANS
Loans receivable increased $7,375,000 or 4.95% since December 31, 1997. This
increase was primarily due to the continued strong loan demand in the Greenwood
market and growth at the new banks. Balances within the major loan receivable
categories as of March 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
March 31, December 31,
1998 1997
-------------------- --------------------
(Dollars in thousands)
Commercial and agricultural $ 29,396 $ 33,479
Real estate 80,292 71,950
Home equity 14,662 14,383
Consumer, installment 27,086 24,318
Consumer, credit card and checking 1,594 1,429
Loans to financial institutions 1,100 2,600
Residential mortgages held for sale
& other 2,372 968
-------------------- --------------------
$ 156,502 $ 149,127
==================== ====================
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements in the loan portfolio:
March 31,
---------------------------------------
1998 1997
---------------------------------------
Loans: (Dollars in thousands)
Nonaccrual loans $ 614 $ 135
Accruing loans more than 90
days past due $ 324 $ 90
Loans identified by the internal review mechanism:
Criticized $ 2,875 $ 2,712
Classified $ 3,467 $ 2,242
Activity in the Allowance for Loan Losses
is as follows: 1998 1997
---------------------------------------------
(Dollars in thousands)
Balance, January 1, $ 1,531 $ 837
Provision for loan losses for the period 307 88
Chargeoffs (65) -
Recoveries 7 -
-------------------- -------------------
Balance, end of period $ 1,780 $ 925
==================== ====================
Gross loans outstanding, end of period $ 156,502 $ 86,984
Allowance for loan losses to loans
outstanding 1.14% 1.06%
</TABLE>
12
<PAGE>
COMMUNITY CAPITAL CORPORATION
PREMISES AND EQUIPMENT
Equipment purchases during the first quarter of 1998 were $19,000 for all
institutions. The computer main frame will need upsizing during 1998 as new
accounts are added and there will be additional equipment purchases related to
this upgrade.
DEPOSITS
Total deposits increased $23,105,000 or 12.36% from December 31, 1997. Expressed
in percentages, noninterest-bearing deposits increased 9.1% and interest-bearing
deposits increased by 12.7%.
Balances within the major deposit categories as of March 31, 1998 and December
31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
March 31, December 31,
1998 1997
------------ ------------
(Dollars in thousands)
Noninterest-bearing demand deposits $ 21,224 $ 19,460
Interest-bearing demand deposits 35,014 30,562
Money market accounts 25,249 20,812
Savings deposits 16,745 15,127
Certificates of deposit 111,734 100,900
----------------- -----------------
$ 209,966 $ 186,861
================= =================
</TABLE>
LONG-TERM DEBT
Advances from the Federal Home Loan Bank were $18,849,000 as of March 31, 1998.
Of this amount, the following have scheduled maturities greater than one year:
Maturing on Interest Rate Principal
------------- ----------------- ---------
(Dollars in thousands)
5/23/2000 5.475% - variable $ 800
9/25/2000 6.38% - fixed 600
1/30/2001 5.85% - fixed 1,000
9/24/2002 5.66% - fixed, callable 9/24/99 1,000
2/03/2003 5.97% - fixed 149
3/26/2008 5.51% - fixed 1,500
----------
Total long-term debt $ 5,049
==========
SUBSEQUENT EVENTS
On February 25, 1998, the Belton Bank and the Clemson Bank each entered into
Purchase and Assumptions Agreements to acquire certain assets and deposits
associated with three branch offices of Carolina First Bank. The Clemson Bank
will acquire a branch located in Abbeville County, South Carolina which has
approximately $5,000,000 in deposits and $600,000 in loans (unaudited). The
Belton Bank will acquire two branches in Anderson County, South Carolina which
have approximately $39,000,000 in deposits and $1,500,000 in loans (unaudited).
13
<PAGE>
COMMUNITY CAPITAL CORPORATION
SUBSEQUENT EVENTS - Continued
At the closing, and subject to the terms of the Purchase and Assumption
Agreements, the Belton Bank and the Clemson Bank will pay Carolina First a
premium of 6.50% on the assumed Carolina First Bank's deposits other than
certificates of deposit greater than or equal to $100,000. The assets acquired
and the liabilities assumed will be recorded at fair value. The premium will be
amortized over fifteen years on a straight-line basis.
In order to maintain the minimum capital requirements of the Belton Bank, the
Company will have to inject additional capital. To fund this capitalization, the
Company anticipates a combination of dividends from its subsidiaries, loans from
the Banks, loans from a third party, and utilization of liquid assets of the
parent. The Clemson Bank's current capital structure will support the
acquisition with no capital infusion by the Company.
The Greenwood Bank sold the office located in Ninety Six, South Carolina to The
Palmetto Bank of Laurens, South Carolina. The transaction was completed in
April, 1998 and consisted of the sale of deposits only, on which the Greenwood
Bank received a 6% premium and the assumption by The Palmetto Bank of a ground
lease. The total deposits were approximately $2.2 million and resulted in a
corresponding reduction of assets by the Greenwood Bank. The loans, equipment,
and building were retained by the Greenwood Bank.
CAPITAL
Quantitative measures established by the federal banking agencies to ensure
capital adequacy require the Company and its banking subsidiaries to maintain
minimum ratios of Tier 1 and total capital as a percentage of assets and
off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%.
Tier 1 capital consists of common shareholders' equity, excluding the unrealized
gain or loss on securities available for sale, minus certain intangible assets.
Tier 2 capital consists of the allowance for loan losses subject to certain
limitations. Total capital for purposes of computing the capital ratios consists
of the sum of Tier 1 and Tier 2 capital. The regulatory minimum requirements are
4% for Tier 1 and 8% for total risk-based capital.
The Company and its banking subsidiaries are also required to maintain capital
at a minimum level based on total average assets, which is known as the leverage
ratio. Only the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above
the minimum.
The following table summarizes the capital ratios of the Company and its banking
subsidiaries and the regulatory minimum requirements at March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Tier 1 Total Tier 1
Risk Based Risk Based Leverage
Actual ratio:
Community Capital Corporation 16.33% 17.34% 11.51%
Greenwood Bank & Trust 10.81 11.81 8.18
Clemson Bank & Trust 17.32 18.36 14.32
The Bank of Barnwell County 13.22 14.27 7.92
The Bank of Belton 25.79 26.82 17.58
The Bank of Newberry County 26.27 27.07 16.12
Regulatory minimums:
For capital adequacy purposes 4.00 8.00 4.00
To be well-capitalized under
prompt action provisions 6.00 10.00 5.00
</TABLE>
14
<PAGE>
COMMUNITY CAPITAL CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity was increased by the $148,000 proceeds from the exercise of
stock options, the $79,000 proceeds from sales of stock to the Employee Stock
Ownership Plan, and net income of $312,000. Due to changes in the market rates
of interest, the fair value of the Company's securities available for sale
decreased which had the effect of decreasing shareholders' equity by $29,000 net
of the deferred tax effects for the three months ended March 31, 1998 when
compared to December 31, 1997.
For the near term, maturities and sales of securities available for sale are
expected to be a primary source of liquidity as the Company and its subsidiary
banks deploy these funds into loans to achieve the desired mix of assets and
liabilities. The Company also expects to build its deposit base in its new
markets. Short-term borrowings by the banks are not expected to be a primary
source of liquidity for the near term; however, the Company has approximately
$22,325,000 of unused lines of credit to purchase federal funds.
On February 25, 1998, the Belton Bank and the Clemson Bank each entered into
Purchase and Assumption Agreements to acquire certain assets and deposits
associated with three branch offices of Carolina First Bank. The purchase will
provide additional deposits to the company of approximately $44,000,000 and
loans of $2,100,000. The Clemson Bank will not require any additional capital to
absorb their increase in size while the Belton Bank will require approximately
$5,000,000 in additional capital requirements. Plans are to raise $2,200,000
internally through borrowings from the banks by the company, to borrow
$2,500,000 externally and the balance will come from the company's cash
reserves. The Greenwood Bank sold the deposits of the Ninety Six office to
Palmetto Bank of Laurens in April, 1998. Loans, equipment and buildings were
retained by the Greenwood Bank. The deposits were $2,200,000 for which the
Greenwood Bank received a 6% premium. The reduction of assets resulting from the
sale of these deposits improved the capital ratios for the Greenwood Bank.
REGULATORY MATTERS
The management of the Company is not aware of any current recommendations by
regulatory authorities which, if they were to be implemented, would have a
material effect on liquidity, capital resources, or operations.
THE YEAR 2000
During 1997, the Company commenced a year 2000 date conversion project to
address all necessary code changes, testing and implementation. Failure to
address the issue could result in computer applications which fail or create
erroneous results by or at the year 2000. Bank regulators have established
minimum guidelines for banks in addressing the year 2000 issue. The regulators
are monitoring the progress of banks in complying with these guidelines and have
the option of taking regulatory action for banks which have not made
satisfactory progress in addressing the year 2000 issue. The regulators have
recently examined the Company for the year 2000 compliance issues and have
reported that the Company currently is on schedule at this time to meet year
2000 requirements.
The Company is utilizing both internal and external resources to identify,
correct and test the systems for the year 2000 compliance. The Company has
contacted its primary processing vendors, and the vendors have developed plans
to address processing transactions in the year 2000. Management does not expect
the year 2000 compliance expense to have a material effect on the Company's
earnings.
15
<PAGE>
COMMUNITY CAPITAL CORPORATION
THE YEAR 2000 - Continued
Maintenance or modification costs will be expenses as incurred, while the costs
of new software will be capitalized over the software's useful life. While the
current mainframe is year 2000 compatible the Company plans to upgrade the
mainframe in order to meet the requirements generated by the growth of the
Company.
ACCOUNTING RULE CHANGES
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income. Comprehensive income
includes net income and other comprehensive income which is defined as non-owner
related transactions in equity. The Company reported comprehensive income in its
condensed consolidated financial statements as of March 31, 1998 and
reclassified prior periods to reflect the application of SFAS 130.
ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report on Form 10-Q that are not
historical facts are forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers of this report that such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from those expressed or implied by such forward-looking statements.
Although the Company's management believes that their expectations of future
performance are based on reasonable assumptions within the bounds of their
knowledge of their business and operations, there can be no assurance that
actual results will not differ materially from their expectations.
Factors which could cause actual results to differ from expectations include,
among other things, the challenges, costs and complications associated with the
continued development of the Company's recently acquired community bank
subsidiaries (the "New Banks") as start-up operations with no history of
operating profits; the ability of the Company to effectively integrate and staff
the operations of the New Banks as well as the operations allocated to the base
of deposits acquired in connection with branch acquisitions; the ability of the
Company to retain and deploy in a timely manner the cash associated with branch
acquisitions into assets with satisfactory yields and credit risk profiles; the
potential that loan charge-offs may exceed the allowance for loan losses or that
such allowance will be increased as a result of factors beyond the control of
the Company; the Company's dependence on senior management; competition from
existing financial institutions operating in the Company's market areas as well
as the entry into such areas of new competitors with greater resources, broader
branch networks and more comprehensive services; the potential adverse impact on
net income of rapidly declining interest rates; adverse changes in the general
economic conditions in the geographic markets served by the Company; the
challenges and uncertainties in the implementation of the Company's expansion
and development strategies; the potential negative effects of future legislation
affecting financial institutions; and other factors described in this report and
in other reports filed by the Company with the Securities and Exchange
Commission.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, as the Company qualifies as a "small business issuer" under
regulation S-B promulgated by the Securities and Exchange Commission.
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMMUNITY CAPITAL CORPORATION
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended March 31, 1998, the Company sold an aggregate of 4,711
shares of Common Stock to its Employee Stock Ownership Plan without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The following
sets forth the dates and amount of such sales:
Date Shares Proceeds
--------------- -------------------- -------------
January 7, 1998 925 $ 13,875
February 8, 1998 1,867 29,909
March 5, 1998 971 17,478
March 31, 1998 948 17,420
</TABLE>
In each case, all of the shares were sold at the quoted market price at the time
of sale and were issued pursuant to the exemption from registration contained in
Section 4(2) of the 1933 Act as a transaction, not involving a general
solicitation, in which the purchaser was purchasing for investment. The Company
believes that the purchaser was given and had access to detailed financial
information with respect to the Company and possessed requisite financial
sophistication. The Company did not sell any other equity securities during the
quarter ended March 31, 1998 which were not registered under the 1933 Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) The Company filed a report on Form 8-K on March 2, 1998,
reporting that two of its wholly-owned banks, The Bank of Belton
and Clemson Bank & Trust, announced on February 26, 1998, the
signing of definitive agreements for the acquisition of three of
Carolina First Bank's branch offices. The transactions are
expected to be closed during the second quarter of 1998, pending
regulatory approval and other conditions of closing. The report
on Form 8-K included, as an exhibit, a copy of the press release
announcing the agreements. No financial statements were filed
with that report.
Items 1, 3, 4, and 5 are not applicable.
17
<PAGE>
COMMUNITY CAPITAL CORPORATION
PART II - OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY CAPITAL CORPORATION
By:/s/ William G. Stevens
----------------------
William G. Stevens
President &
Chief Executive Officer
Date: May 13, 1998 By: /s/ James H. Stark
-----------------------
James H. Stark
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,581,000
<INT-BEARING-DEPOSITS> 461,000
<FED-FUNDS-SOLD> 8,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,235,000
<INVESTMENTS-CARRYING> 675,000
<INVESTMENTS-MARKET> 675,000
<LOANS> 156,502,000
<ALLOWANCE> 1,780,000
<TOTAL-ASSETS> 266,278,000
<DEPOSITS> 209,966,000
<SHORT-TERM> 16,666,000
<LIABILITIES-OTHER> 2,159,000
<LONG-TERM> 5,049,000
0
0
<COMMON> 2,926,000
<OTHER-SE> 29,512,000
<TOTAL-LIABILITIES-AND-EQUITY> 266,278,000
<INTEREST-LOAN> 3,471,000
<INTEREST-INVEST> 1,194,000
<INTEREST-OTHER> 78,000
<INTEREST-TOTAL> 4,743,000
<INTEREST-DEPOSIT> 2,174,000
<INTEREST-EXPENSE> 2,504,000
<INTEREST-INCOME-NET> 2,239,000
<LOAN-LOSSES> 307,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,110,000
<INCOME-PRETAX> 449,000
<INCOME-PRE-EXTRAORDINARY> 449,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
<YIELD-ACTUAL> 3.96
<LOANS-NON> 614,000
<LOANS-PAST> 324,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,467,000
<ALLOWANCE-OPEN> 1,531,000
<CHARGE-OFFS> 65,000
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<ALLOWANCE-CLOSE> 1,780,000
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