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, 1999
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 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.)
302A 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.
3,102,529 SHARES OF COMMON STOCK, $1.00 PAR VALUE
<PAGE>
COMMUNITY CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1999
and December 31, 1998........................................................ 3
Condensed Consolidated Statements of Income - Three months
ended March 31, 1999 and 1998................................................ 4
Condensed Consolidated Statements of Comprehensive Income -
Three months ended March 31, 1999 and 1998.................................. 5
Condensed Consolidated Statement of Changes in Shareholders'
Equity for the three months ended March 31, 1999............................. 6
Condensed Consolidated Statements of Cash Flows - Three
months ended March 31, 1999 and 1998......................................... 7
Notes to Condensed Consolidated Financial Statements...........................8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................11-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................................................ 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................ 19
Item 6. Exhibits and Reports on Form 8-K...................................................... 19
(a) Exhibits..................................................................19-21
(b) Reports on Form 8-K........................................................ 19
</TABLE>
2
<PAGE>
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
Mar.31, 1999 Dec.31, 1998
--------------- ---------------
ASSETS: (Unaudited)
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 6,943 $ 8,354
Interest-bearing deposit accounts 245 693
Federal funds sold - 1,280
--------------- ---------------
Total cash and cash equivalents 7,188 10,327
--------------- ---------------
Securities:
Securities available-for-sale 112,434 115,222
Securities held-to-maturity (estimated fair value
of $650 at March 31, 1999 and December 31, 1998) 650 650
Nonmarketable equity securities 4,970 4,823
--------------- ---------------
Total securities 118,054 120,695
--------------- ---------------
Loans receivable 176,498 172,545
Less allowance for loan losses (2,468) (2,399)
--------------- ---------------
Loans, net 174,030 170,146
--------------- ---------------
Premises, furniture, and equipment, net 9,731 8,907
Intangible assets 5,425 5,557
Accrued interest receivable 2,694 2,553
Other assets 2,764 2,846
--------------- ---------------
Total assets $ 319,886 $ 321,031
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing $ 25,272 $ 23,491
Interest-bearing 233,128 236,629
--------------- ---------------
Total deposits 258,400 260,120
Federal funds purchased and securities
sold under agreements to repurchase 10,601 11,802
Advances from the Federal Home Loan Bank 14,019 9,434
Long-term debt 1,475 2,925
Accrued interest payable 1,528 1,661
Other liabilities 788 1,659
--------------- ---------------
Total liabilities 286,811 287,601
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 10,000,000 shares authorized; 3,102,529 and
3,092,268 shares issued and outstanding at March 31, 1999
and December 31, 1998, respectively 3,102 3,092
Capital surplus 29,682 29,598
Accumulated other comprehensive income (36) 732
Retained earnings 327 8
--------------- ---------------
Total shareholders' equity 33,075 33,430
--------------- ---------------
Total liabilities and shareholders' equity $ 319,886 $ 321,031
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
--------------- ---------------
Interest income:
<S> <C> <C>
Loans, including fees $ 3,805 $ 3,471
Securities, taxable 1,342 1,023
Securities, nontaxable 258 171
Other interest income 6 78
--------------- ---------------
5,411 4,743
--------------- ---------------
Interest expense:
Deposits 2,501 2,174
FHLB advances 168 257
Other interest expense 153 73
--------------- ---------------
2,822 2,504
--------------- ---------------
Net interest income 2,589 2,239
Provision for loan losses 274 307
--------------- ---------------
Net interest income after
provision for loan losses 2,315 1,932
--------------- ---------------
Other operating income:
Service charges on deposit accounts 337 245
Residential mortgage origination fees 181 130
Commissions from sales of mutual funds 7 46
Fees for trust services 44 14
Gain on sales of securities 7 -
Other income 261 192
--------------- ---------------
837 627
--------------- ---------------
Other operating expenses:
Salaries and benefits 1,377 972
Net occupancy expense 160 159
Amortization of intangible assets 132 83
Furniture and equipment expense 275 207
Other operating expenses 864 689
--------------- ---------------
2,808 2,110
--------------- ---------------
Income before taxes 344 449
Income tax provision 25 137
--------------- ---------------
Net income $ 319 $ 312
=============== ===============
Basic net income per share $ 0.10 $ 0.11
Diluted net income per share $ 0.10 $ 0.10
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Net income $ 319 $ 312
--------------- ---------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
during the period (763) (29)
Less: reclassification adjustment for gains
included in net income (5) -
--------------- ---------------
Other comprehensive income (768) (29)
--------------- ---------------
Comprehensive income $ (449) $ 283
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
--------------------- Capital Comprehensive Retained Shareholders'
Shares Amount Surplus Income Earnings Equity
------ ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 3,092,268 $ 3,092 $ 29,598 $ 732 $ 8 $ 33,430
Proceeds from sales
of stock to ESOP 7,589 7 65 72
Proceeds from
exercise of
stock options 2,672 3 19 22
Other comprehensive
income (768) (768)
Net income
for the period 319 319
----------- ----------- ------------ ----------- ------------ -------------
Balance,
March 31, 1999 3,102,529 $ 3,102 $ 29,682 $ (36) $ 327 $ 33,075
=========== =========== ============ =========== ============ =============
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 319 $ 312
Adjustments to reconcile net income to
net cash (used) provided by operating activities:
Depreciation 224 217
Provision for possible loan losses 274 307
Amortization of intangible assets 132 83
Amortization less accretion on investments 46 6
Amortization of deferred loan costs 89 94
Gain on sale of securities available for sale (7) -
Disbursements for mortgages held for sale (9,309) (6,548)
Proceeds of sales of residential mortgages 6,566 5,100
Increase in interest receivable (141) (106)
Increase (decrease) in interest payable (133) 198
Loss on disposal of premises and equipment 1 -
Increase (decrease) in other assets 478 (92)
(Increase) decrease in other liabilities (871) 183
--------------- ---------------
Net cash (used) provided by operating activities (2,332) (246)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers (1,504) (6,079)
Purchases of securities available-for-sale (9,825) (6,617)
Sales of securities available-for-sale 5,005 1,012
Maturities of securities available-for-sale 6,405 4,899
Purchases of nonmarketable equity securities (147) (574)
Purchases of premises and equipment (1,056) (19)
Proceeds from sales of premises and equipment 7 -
--------------- ---------------
Net cash used by investing activities (1,115) (7,378)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 22 148
Proceeds from stock sales to employee benefit plan 72 79
Net increase (decrease) in deposits accounts (1,720) 23,105
Proceeds from FHLB borrowings 6,000 5,049
Repayments of FHLB borrowings (1,415) (2,550)
Proceeds from other borrowings 650 -
Repayments of other borrowings (2,100) -
Net decrease in fed funds purchased and repos (1,201) (9,077)
--------------- ---------------
Net cash provided by financing activities 308 16,754
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,139) 9,130
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,327 8,112
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,188 $ 17,242
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements
7
<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, 1999 and for the interim periods ended
March 31, 1999 and 1998 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, 1998 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 1998 Annual Report.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------------
(Dollars in thousands) 1999 1998
- ---------------------- --------------- ---------------
CASH PAID DURING THE PERIOD FOR:
<S> <C> <C>
Income taxes $ 83 $ 13
Interest 2,960 2,306
</TABLE>
NOTE 3 - ADVANCES FROM THE FEDERAL HOME LOAN BANK
- -------------------------------------------------
Advances from the Federal Home Loan Bank were $14,019,000 as of March 31, 1999.
Of this amount, the following have scheduled maturities greater than one year:
<TABLE>
<CAPTION>
Maturing on Interest Rate Principal
----------- ---------------------------------- ---------------
(Dollars in thousands)
<S> <C> <C>
5/23/2000 5.04% - 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 5.96% - fixed 119
9/22/2003 4.70% - fixed, callable 9/22/00 3,000
3/26/2008 5.51% - fixed, callable 3/26/03 1,500
2/02/2009 5.44% - fixed 1,000
---------------
Total advances $ 9,019
===============
</TABLE>
NOTE 4 - LONG-TERM DEBT
- -----------------------
During 1998, the Company borrowed funds from an unrelated financial institution
to use for capital infusions into the Belton Bank in order to maintain minimum
capital requirements due to an increase in the asset base resulting from the
purchase of two branch offices of Carolina First Bank. The Company can borrow up
to $5,000,000 under the terms of the agreement. The promissory note is
collateralized by the stock of the subsidiary banks and bears interest at a
simple rate per annum equal to the one month London Interbank Offered Rate plus
200 basis points. Interest is payable on a quarterly basis; principal payments
are due in ten equal installments, beginning on the third anniversary of the
note, with the final balance due on December 21, 2010. Early reductions have
reduced the principal balance at March 31, 1999 to $975,000, with scheduled
principal reductions as follows:
Amount
---------------------
(Dollars in thousands)
2001 $ 98
2002 98
2003 98
After five years 681
---------------
$ 975
===============
8
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTE 4 - LONG-TERM DEBT - Continued
- -----------------------------------
During the first quarter of 1999, the parent company borrowed $500,000 from
another unrelated financial institution. These funds will be used for various
projects including the construction of branch offices throughout the Company.
Interest is payable quarterly at a variable rate of 0.75% below the highest
prime rate published in the Wall Street Journal. The outstanding principal
balance plus any accrued interest is payable on February 10, 2000.
NOTE 5 - SHAREHOLDERS' EQUITY
- -----------------------------
During the first quarter of 1999, there were 7,589 shares of stock sold to the
Employee Stock Ownership Plan at market prices in the amount of $72,000, and
there were 2,672 options exercised by the employees and directors of the Company
providing $22,000 of additional capital for the Company.
NOTE 6 - EARNINGS PER SHARE
- ---------------------------
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999
-------------------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
--------------- --------------- ---------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 319 3,099,149 $ 0.10
===============
EFFECT OF DILUTIVE SECURITIES
Stock options - 6,751
--------------- ---------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 319 3,105,900 $ 0.10
=============== =============== ===============
For the Three Months 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
=============== =============== ===============
</TABLE>
9
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTE 7 - COMPREHENSIVE INCOME
- -----------------------------
On 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, 1999 and 1998:
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1999
-------------------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (1,157) $ 394 $ (763)
Less: reclassification adjustment for
gains realized in net income (7) 2 (5)
--------------- --------------- ---------------
Net unrealized gains (losses) on securities (1,164) 396 (768)
--------------- --------------- ---------------
Other comprehensive income $ (1,164) $ 396 $ (768)
=============== =============== ===============
For the Quarter Ended March 31, 1998
-------------------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
--------------- --------------- ---------------
(Dollars in thousands)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (46) $ 17 $ (29)
Less: reclassification adjustment for
gains realized in net income - - -
--------------- --------------- ---------------
Net unrealized gains (losses) on securities (46) 17 (29)
--------------- --------------- ---------------
Other comprehensive income $ (46) $ 17 $ (29)
=============== =============== ===============
</TABLE>
10
<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, 1999 compared to December 31, 1998, and the results of operations for the
three months ended March 31, 1999 compared to the three months ended March 31,
1998. 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, 1999, net interest income, the major
component of the Company's net income, was $2,589,000 compared to $2,239,000 for
the same period of 1998, an increase of $350,000. The improvement was
attributable to an increase in the volume of average earning assets during the
period, particularly loans and investment activities, which was enough to cover
a 17 basis-point drop in the interest rate spread. Net income has also
benefitted from the continued strong loan demand in the Greenwood market and
steady growth in most other banks in the Company. The average rates paid on
interest-bearing liabilities decreased to 4.41% from 5.05% for the three-month
periods ended March 31, 1999 and 1998, respectively, with declines in all
categories.
The net interest spread and net interest margin were 3.17% and 3.63%,
respectively, for the three-month period ended March 31, 1999, compared to 3.34%
and 3.96% for the three-month period ended March 31, 1998.
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, 1999 and 1998, the
provision was $274,000 and $307,000, respectively. The Greenwood and Barnwell
banks experienced significant increases in nonperforming loans for the period
ended March 31, 1999 when compared to the same period in 1998. The Company's
nonperforming loans totaled $1,506,000 compared to $938,000 at March 31, 1998.
As a result, together the Greenwood and Barnwell banks provided $255,000 of the
total $274,000 provision to cover loan growth and the increase in risk
associated with the level of nonperforming loans. Based on present information,
management believes the allowance for loan losses is adequate at March 31, 1999
to meet presently known and inherent risks in the loan portfolio.
NONINTEREST INCOME
- ------------------
Total noninterest income for the three months ended March 31, 1999 was $837,000,
an increase of $210,000, or 33.5% from the comparable period in 1998.
The increase was primarily due to an increase in service charges on deposit
accounts and residential mortgage origination fees. Service charge income was
$337,000 for the three-month period ended March 31, 1999 compared to $245,000
for the comparable period in 1998. Residential mortgage origination fees were
$181,000 compared to $130,000 in 1998, respectively.
11
<PAGE>
COMMUNITY CAPITAL CORPORATION
NONINTEREST EXPENSE
- -------------------
Total noninterest expense for the first three months of 1999 was $2,808,000, an
increase of $698,000, or 33.1%, when compared to the first three months of 1998.
The primary component of noninterest expense is salaries and benefits which was
$1,377,000 and $972,000 for the three months ended March 31, 1999 and 1998,
respectively. The $405,000 increase is the result of the additional staff for
three Carolina First branches acquired in the second quarter of 1998 and normal
pay raises. Furniture and equipment expense increased to $275,000 from $207,000
due to an increase in depreciation charges on additional equipment operating
throughout the Company. Other operating expenses also increased significantly,
rising $175,000, or 25.4%, over the comparable 1998 period.
INCOME TAXES
- ------------
For the three months ended March 31, 1999 and 1998, the effective income tax
rate was 7.27% and 30.5%, respectively, and the income tax provision was $25,000
and $137,000, respectively. The decrease in the effective tax rate was due to an
increase in the amount of nontaxable income from securities, which offset the
majority of income before taxes.
NET INCOME
- ----------
The combination of the above factors resulted in net income of $319,000 for the
three months ended March 31, 1999 compared to $312,000 for the comparable period
in 1998.
The profitability of the Greenwood bank was supplemented by profits from the
Clemson, Belton and Newberry banks for the three months ended March 31, 1999.
The Barnwell Bank and Community Trust Company experienced losses for the
quarter.
ASSETS AND LIABILITIES
- ----------------------
During the first three months of 1999, total assets decreased $1,145,000, or
0.4%, when compared to December 31, 1998. The Company experienced growth in the
loan area of 2.3% during the first three months of 1999. However, this growth
was offset primarily by a decrease in securities available-for-sale and federal
funds sold. On the liability side, total deposits decreased $1,720,000 or .7% to
$258,400,000 at March 31, 1999. The shrinkage of the Company was primarily
attributable to a shrinkage at the Barnwell Bank. Total assets decreased
$3,183,000 from December 31, 1998 to $73,581,000 at March 31, 1999 at the
Barnwell Bank.
INVESTMENT SECURITIES
- ---------------------
Investment securities decreased $2,641,000 to $118,054,000 at March 31, 1999.
The decrease is primarily due to the reduction of $2,788,000 in securities
available for sale. As deposits of the Company decreased, certain securities
that matured were not reinvested in any type of investment security.
LOANS
- -----
Loans receivable increased $3,953,000, or 2.29%, since December 31, 1998. This
increase was primarily due to the continued strong loan demand in the Greenwood
market and growth at several of the other banks. Balances within the major loan
receivable categories as of March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -------------
(Dollars in thousands)
<S> <C> <C>
Commercial and agricultural $ 33,217 $ 28,991
Real estate 93,645 95,033
Home equity 16,419 17,284
Consumer, installment 27,065 27,753
Consumer, credit card and checking 1,876 2,031
Residential mortgages held for sale 4,276 1,453
---------------- ----------------
$ 176,498 $ 172,545
================ ================
</TABLE>
12
<PAGE>
COMMUNITY CAPITAL CORPORATION
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements in the loan portfolio:
<TABLE>
<CAPTION>
March 31,
------------------------------------
1999 1998
--------------- -----------------
Loans: (Dollars in thousands)
<S> <C> <C>
Nonaccrual loans $ 1,416 $ 614
Accruing loans more than 90
days past due $ 90 $ 324
Loans identified by the internal review
mechanism, including nonaccrual loans
and accruing loans more than 90 days past due:
Criticized $ 7,127 $ 2,875
Classified $ 5,342 $ 3,467
Activity in the Allowance for Loan Losses
is as follows:
1999 1998
---------------- ----------------
(Dollars in thousands)
Balance, January 1, $ 2,399 $ 1,531
Provision for loan losses for the period 274 307
Chargeoffs (266) (65)
Recoveries 61 7
---------------- ----------------
Balance, end of period $ 2,468 $ 1,780
================ ================
Gross loans outstanding, end of period $ 176,498 $ 156,502
Allowance for loan losses to loans
outstanding 1.40% 1.14%
</TABLE>
PREMISES AND EQUIPMENT
Premises and equipment purchased during the first quarter of 1999 totaled
$1,056,000 for all institutions. This total includes the construction of a main
office for the Barnwell Bank and the Newberry Bank. Also the Greenwood Bank is
constructing a branch office scheduled to open in July.
DEPOSITS
Total deposits decreased $1,720,000, or 0.66%, from December 31, 1998. Expressed
in percentages, noninterest-bearing deposits increased 7.58% and
interest-bearing deposits decreased by 1.48%.
Balances within the major deposit categories as of March 31, 1999 and December
31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ----------------
(Dollars in thousands)
<S> <C> <C>
Noninterest-bearing demand deposits $ 25,272 $ 23,491
Interest-bearing demand deposits 45,180 45,854
Money market accounts 32,537 30,161
Savings deposits 26,360 25,202
Certificates of deposit 129,051 135,412
---------------- ----------------
$ 258,400 $ 260,120
================ ================
</TABLE>
13
<PAGE>
COMMUNITY CAPITAL CORPORATION
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank were $14,019,000 as of March 31, 1999.
Of this amount, the following have scheduled maturities greater than one year:
<TABLE>
<CAPTION>
Maturing on Interest Rate Principal
----------- ------------------------------ ---------
(Dollars in thousands)
<S> <C> <C>
5/23/2000 5.04% - 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 5.96% - fixed 119
9/22/2003 4.70% - fixed, callable 9/22/00 3,000
3/26/2008 5.51% - fixed, callable 3/26/03 1,500
2/02/2009 5.44% - fixed 1,000
------
Total advances $9,019
======
</TABLE>
LONG-TERM DEBT
- --------------
During 1998, the Company borrowed funds from an unrelated financial institution
to use for capital infusions into the Belton Bank in order to maintain minimum
capital requirements due to an increase in the asset base resulting from the
purchase of two branch offices of Carolina First Bank. The Company can borrow up
to $5,000,000 under the terms of the agreement. The promissory note is
collateralized by the stock of the subsidiary banks and bears interest at a
simple rate per annum equal to the one month London Interbank Offered Rate plus
200 basis points. Interest is payable on a quarterly basis; principal payments
are due in ten equal installments, beginning on the third anniversary of the
note, with the final balance due on December 21, 2010. Early reductions have
reduced the principal balance at March 31, 1999 to $975,000, with scheduled
principal reductions as follows:
Amount
------
(Dollars in thousands)
2001 $ 98
2002 98
2003 98
After five years 681
----------------
$ 975
================
During the first quarter of 1999, the parent company borrowed $500,000 from
another unrelated financial institution. Interest is payable quarterly at a
variable rate of 0.75% below the highest prime rate published in the Wall Street
Journal. The outstanding principal balance plus any accrued interest is payable
on February 10, 2000.
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.
14
<PAGE>
COMMUNITY CAPITAL CORPORATION
CAPITAL - Continued
- -------
The following table summarizes the capital ratios of the Company and its banking
subsidiaries and the regulatory minimum requirements at March 31, 1999:
<TABLE>
<CAPTION>
Tier 1 Total Tier 1
Risk Based Risk Based Leverage
---------- ---------- --------
<S> <C> <C> <C>
Actual ratio:
Community Capital Corporation 13.71% 14.93% 8.82%
Greenwood Bank & Trust 9.72 10.78 7.72
Clemson Bank & Trust 13.29 14.47 9.68
The Bank of Barnwell County 13.18 13.99 7.84
TheBank 22.18 23.11 9.24
The Bank of Newberry County 22.01 23.05 11.11
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>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Shareholders' equity was increased by the $22,000 proceeds from the exercise of
stock options, the $72,000 proceeds from sales of stock to the Employee Stock
Ownership Plan, and net income of $319,000. 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 $768,000
net of the deferred tax effects for the three months ended March 31, 1999 when
compared to December 31, 1998.
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
$17,272,000 of unused lines of credit to purchase federal funds.
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
- -------------
ISSUES. Some computers, software, and other equipment include the programming
codes in which calendar year data is abbreviated to only two digits. As a result
of this design decision, some of these systems could fail to operate or fail to
produce results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches and are commonly referred to as the "Year 2000 Problem".
ASSESSMENT. The Year 2000 Problem could affect computers, software, and other
equipment that the Company uses. Accordingly, the Company has completed a review
of its internal computer programs and systems to determine whether they will be
Year 2000 compliant in a timely manner. However, while the Company does not
expect the cost of these efforts to be material to its financial position or any
year's operating results, there can be no assurance to this effect.
15
<PAGE>
COMMUNITY CAPITAL CORPORATION
THE YEAR 2000 - Continued
- -------------
INTERNAL INFRASTRUCTURE. The Company utilizes an in-house data processing system
for most of its accounting functions. The Company believes that it has
identified substantially all of the major computers, software applications, and
related equipment used in connection with its internal operations that must be
modified, upgraded, or replaced to minimize the possibility of a material
disruption of its business. Management has completed upgrading and is in the
process of testing the systems for year 2000 compliance. The Company did not
complete the testing of all mission-critical systems as of March 31, 1999. While
the testing of the in-house data processing system was completed at the data
processing center, the testing was not completed between the data processing
center and subsidiary banks. Management believes that the testing of its systems
should be completed by June 30, 1999. The Company also has a number of personal
computers, most of which are considered to be Year 2000 compliant. Management
has spent approximately $380,000 to get all of its systems Year 2000 compliant.
Additional costs are expected to total $180,000. The Company does not believe
that the cost related to these efforts will be material to its business,
financial condition, or operating results.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers and
related systems, the operation of the Company's office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems, and
other devices, may be affected by the Year 2000 Problem. The Company has
completed its assessment of the potential effect of, and the costs of
remediating, the Year 2000 Problem on this equipment. The Company estimates that
its total cost of completing any required modifications, upgrades, or
replacements of these internal systems will not have a material effect on its
business, financial condition, or operating results.
SUPPLIERS AND OTHER THIRD PARTIES. The Company has been gathering information
from and has initiated communications with its suppliers and other third parties
to identify and, to the extent possible, resolve issues involving the Year 2000
Problem. However, the Company has limited or no control over the actions of its
suppliers and others. Therefore, while the Company expects that it will be able
to resolve any significant Year 2000 Problems with its own system, it cannot
guarantee that its suppliers or others will resolve any or all Year 2000
Problems with their systems before the occurrence of a material disruption to
their businesses. Any failure of these suppliers or others to resolve Year 2000
Problems with their systems in a timely manner could have a material adverse
effect on the Company's business, financial condition, or operating results.
CUSTOMERS. The Company believes that the largest Year 2000 Problem exposure to
most banks is the preparedness of the customers of the banks. Management is
addressing with its customers the possible consequences of not being prepared
for Year 2000. Should large borrowers not sufficiently address this issue, the
Company may experience an increase in loan defaults. The amount of potential
loss from this issue is not quantifiable. Management is attempting to reduce
this exposure by educating its customers. The Company has implemented a
comprehensive Year 2000 credit review policy for all existing loans that exceed
$100,000 as well as an underwriting policy for all new loan requests. At
present, the Company's review indicates that the Company's exposure to credit
risks associated with Year 2000 is considered to be low. The Company's credit
review procedures will continue to include these policies throughout 1999.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company expects to identify
and resolve all Year 2000 Problems that could materially adversely affect its
business, financial condition, or operating results. However, the Company
believes that it is not possible to determine with complete certainty that all
Year 2000 Problems affecting it have been identified or corrected. The number of
devices that could be affected and the interactions among these devices are
simply too numerous. In addition, the Company cannot accurately predict how many
failures related to the Year 2000 Problem will occur with its suppliers,
customers, or other third parties or the severity, duration, or financial
consequences of such failures. As a result, the Company expects that it could
possibly suffer the following consequences:
16
<PAGE>
COMMUNITY CAPITAL CORPORATION
THE YEAR 2000 - Continued
- -------------
* A number of operational inconveniences and inefficiencies for
the Company, its service providers, or its customers that may
divert the Company's time and attention and financial and human
resources from its ordinary business activities; and
* System malfunctions that may require significant efforts by the
Company or its service providers or customers to prevent or
alleviate material business disruptions.
CONTINGENCY PLANS. The Company is in the process of developing contingency plans
to be implemented as part of its efforts to identify and correct Year 2000
Problems affecting its internal systems. The Company's Business Resumption
Contingency Plan is expected to be completed by June 30, 1999. Depending on the
systems affected, these plans include (a) accelerated replacement of affected
equipment or software; (b) short term use of backup equipment and software; (c)
increased work hours for the Company's personnel or use of contract personnel to
correct on an accelerated schedule any Year 2000 Problems which arise; and (d)
other similar approaches. If the Company is required to implement any of these
contingency plans, these plans could have a material adverse effect on its
business, financial condition, or operating results.
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.
17
<PAGE>
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, 1999, the Company sold an aggregate of 7,589
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 4, 1999 2,018 $ 19,171
February 2, 1999 3,292 30,418
March 1, 1999 2,279 22,517
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, 1999 which were not registered under the 1933 Act.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(1) Exhibits
27. Financial Data Schedule
Items 1, 3, 4, and 5 are not applicable.
18
<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:
-------------------------------------
William G.Stevens
President & Chief Executive Officer
Date: May 14, 1999 By:
-------------------------------------
James H. Stark
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,943,000
<INT-BEARING-DEPOSITS> 245,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 112,434,000
<INVESTMENTS-CARRYING> 650,000
<INVESTMENTS-MARKET> 650,000
<LOANS> 176,498,000
<ALLOWANCE> 2,468,000
<TOTAL-ASSETS> 319,886,000
<DEPOSITS> 258,400,000
<SHORT-TERM> 15,601,000
<LIABILITIES-OTHER> 2,316,000
<LONG-TERM> 10,494,000
0
0
<COMMON> 3,102,000
<OTHER-SE> 29,973,000
<TOTAL-LIABILITIES-AND-EQUITY> 319,886,000
<INTEREST-LOAN> 3,805,000
<INTEREST-INVEST> 1,600,000
<INTEREST-OTHER> 6,000
<INTEREST-TOTAL> 5,411,000
<INTEREST-DEPOSIT> 2,501,000
<INTEREST-EXPENSE> 2,822,000
<INTEREST-INCOME-NET> 2,589,000
<LOAN-LOSSES> 274,000
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 2,808,000
<INCOME-PRETAX> 344,000
<INCOME-PRE-EXTRAORDINARY> 344,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 319,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<YIELD-ACTUAL> 3.63
<LOANS-NON> 1,416,000
<LOANS-PAST> 90,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,342,000
<ALLOWANCE-OPEN> 2,399,000
<CHARGE-OFFS> 266,000
<RECOVERIES> 61,000
<ALLOWANCE-CLOSE> 2,468,000
<ALLOWANCE-DOMESTIC> 2,468,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
