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 JUNE 30, 1999
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.)
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.
3,110,218 SHARES OF COMMON STOCK, $1.00 PAR VALUE
<PAGE>
COMMUNITY CAPITAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 ....................................... 3
Condensed Consolidated Statements of Operations - Six months
and three months ended June 30, 1999 and 1998................ 4
Condensed Consolidated Statements of Comprehensive Income -
Six months and three months ended June 30, 1999 and 1998..... 5
Condensed Consolidated Statement of Changes in Shareholders'
Equity - Six months ended June 30, 1999...................... 6
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 1999 and 1998................................. 7
Notes to Condensed Consolidated Financial Statements......... 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. .............................. 12-20
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds................ 21
Item 4. Submission of Matters to a Vote of Security Holders...... 21
Item 6. Exhibits and Reports on Form 8-K ........................ 21
(a) Exhibits ............................................ 21-23
(b) Reports on Form 8-K ................................. 21
2
<PAGE>
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1999 Dec.31, 1998
------------- ------------
ASSETS: (UNAUDITED)
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 9,710 $ 8,354
Interest-bearing deposit accounts 300 693
Federal funds sold - 1,280
------------- -------------
Total cash and cash equivalents 10,010 10,327
------------- -------------
Securities:
Securities available-for-sale 108,671 115,222
Securities held-to-maturity (estimated fair value
of $650 at June 30, 1999 and December 31, 1998) 650 650
Nonmarketable equity securities 4,699 4,823
------------- -------------
Total securities 114,020 120,695
------------- -------------
Loans receivable 186,330 172,545
Less allowance for loan losses 2,486 2,399
------------- -------------
Loans, net 183,844 170,146
------------- -------------
Premises, furniture, and equipment, net 10,820 8,907
Intangible assets 5,291 5,557
Accrued interest receivable 2,454 2,553
Other assets 3,942 2,846
------------- -------------
Total assets $ 330,381 $ 321,031
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing $ 24,758 $ 23,491
Interest-bearing 228,762 236,629
------------- -------------
Total deposits 253,520 260,120
Federal funds purchased and securities
sold under agreements to repurchase 25,231 11,802
Advances from the Federal Home Loan Bank 15,994 9,434
Long-term debt 1,575 2,925
Accrued interest payable 1,464 1,661
Other liabilities 1,036 1,659
------------- -------------
Total liabilities 298,820 287,601
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 10,000,000 shares authorized; 3,110,218 and
3,092,268 shares issued and outstanding at June 30, 1999
and December 31, 1998, respectively 3,110 3,092
Capital surplus 29,747 29,598
Accumulated other comprehensive income (1,987) 732
Retained earnings 691 8
------------- -------------
Total shareholders' equity 31,561 33,430
------------- -------------
Total liabilities and shareholders' equity $ 330,381 $ 321,031
============= =============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans, including fees $ 7,725 $ 7,174 $ 3,920 $ 3,703
Securities, taxable 2,587 2,069 1,245 1,046
Securities, nontaxable 562 345 304 174
Other interest income 20 189 14 111
-------------- -------------- -------------- ---------------
10,894 9,777 5,483 5,034
-------------- -------------- -------------- ---------------
Interest expense:
Deposits 4,894 4,565 2,393 2,391
FHLB advances 290 489 122 232
Other interest expense 395 111 242 38
-------------- -------------- -------------- ---------------
5,579 5,165 2,757 2,661
-------------- -------------- -------------- ---------------
Net interest income 5,315 4,612 2,726 2,373
Provision for loan losses 509 593 235 286
-------------- -------------- -------------- ---------------
Net interest income after provision
for loan losses 4,806 4,019 2,491 2,087
-------------- -------------- -------------- ---------------
Other operating income:
Service charges on deposit accounts 703 567 366 322
Residential mortgage origination fees 408 302 227 172
Commissions from sales of mutual funds 24 77 17 32
Fees for trust services 47 33 3 20
Gain on sales of securities 175 19 168 19
Gain on sale of branch - 130 - 130
Other income 461 349 200 155
-------------- -------------- -------------- ---------------
1,818 1,477 981 850
-------------- -------------- -------------- ---------------
Other operating expenses:
Salaries and benefits 2,860 2,104 1,483 1,132
Net occupancy expense 319 322 159 163
Amortization of intangible assets 266 175 134 92
Furniture and equipment expense 551 433 276 226
Other expenses 1,873 1,526 1,009 837
-------------- -------------- -------------- ---------------
5,869 4,560 3,061 2,450
-------------- -------------- -------------- ---------------
Income before taxes 755 936 411 487
Income tax provision 72 228 47 91
-------------- -------------- -------------- ---------------
Net income $ 683 $ 708 $ 364 $ 396
============== ============== ============== ===============
Basic net income per share $ 0.22 $ 0.24 $ 0.12 $ 0.13
Diluted net income per share $ 0.22 $ 0.23 $ 0.12 $ 0.13
</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>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 683 $ 708 $ 364 $ 396
------ ------ ------ ------
Other comprehensive income, net of tax:
Unrealized gains (losses)
on securities during
the period (2,604) 7 (1,841) 36
Less: reclassification
adjustment for gains
included in net income (115) (13) (110) (13)
----- ---- ----- ----
Other comprehensive income (2,719) (6) (1,951) 23
----------- ---------- --------- --------
Comprehensive income $ (2,036) $ 702 $ (1,587) $ 419
============== ============ ========== ==========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock 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 15,278 15 130 145
Proceeds from
exercise of
stock options 2,672 3 19 22
Other comprehensive
income (2,719) (2,719)
Net income
for the period 683 683
-------------- ---------- ------------ ------------- ---------- -------------
Balance,
June 30, 1999 3,110,218 $ 3,110 $ 29,747 $ (1,987) $ 691 $ 31,561
============== =========== ============ ============= ========== =============
</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>
Six Months Ended
June 30,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 683 $ 708
Adjustments to reconcile net income to net cash
(used) provided by operating
activities:
Depreciation 453 426
Provision for possible loan losses 509 593
Amortization of intangible assets 266 175
Amortization less accretion on investments 108 16
Amortization of deferred loan costs 180 206
Gain on sales of securities available-for-sale (175) (19)
Gain on sale of branch - (130)
Loss on sales of premises and equipment 1 20
Disbursements for mortgages held for sale (7,236) (12,980)
Proceeds of sales of residential mortgages 10,247 12,542
(Increase) decrease in interest receivable 99 (192)
Increase (decrease) in interest payable (197) 69
(Increase) decrease in other assets 306 (228)
Increase (decrease)in other liabilities (623) 240
----------- -----------
Net cash (used) provided by operating activities 4,621 1,446
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers (17,398) (13,937)
Purchases of securities available-for-sale (33,237) (47,723)
Proceeds from sales of securities available-for-sale 26,993 3,531
Proceeds from maturities of securities available-for-sale 8,741 14,570
(Purchases) sales of nonmarketable equity securities 124 (574)
Purchases of premises and equipment (2,374) (442)
Proceeds from sales of premises and equipment 7 477
Acquisition of branches - 38,423
Net cash outflow from sale of branch - (2,049)
----------- -----------
Net cash used by investing activities (17,144) (7,724)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 22 211
Proceeds from stock sales to ESOP 145 153
Net increase (decrease) in deposit accounts (6,600) 27,445
Proceeds from FHLB borrowings 13,000 5,049
Repayments of FHLB borrowings (6,440) (5,550)
Proceeds from other borrowings 1,100 3,275
Repayments of other borrowings (2,450) -
Net increase (decrease) in fed funds purchased and repos 13,429 (10,498)
----------- -----------
Net cash provided by financing activities 12,206 20,085
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (317) 13,807
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,327 8,112
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,010 $ 21,919
=========== ===========
</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 June 30, 1999 and for the interim periods ended June
30, 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.
Community Capital Corporation (the Company) is a multi-bank holding company for
five subsidiary banks and a trust company. The subsidiary banks include:
Greenwood Bank & Trust (Greenwood Bank), Clemson Bank & Trust (Clemson Bank),
Community Bank & Trust, formerly Bank of Barnwell County (Barnwell Bank),
TheBank (Belton Bank), and The Bank of Newberry County (Newberry Bank).
Community Trust Company (Trust Company) is the subsidiary that provides trust
functions.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
Six Months Ended
June 30
--------------------
(Dollars in thousands) 1999 1998
- ---------------------- -------- ----------
CASH PAID DURING THE PERIOD FOR:
Income taxes $ 240 $ 127
Interest $ 5,776 $ 5,096
DETAILS OF ACQUISITIONS OF NEW BRANCHES:
Loans, including accrued interest receivable - 2,197
Allowance for loan losses from acquisition - (38)
Premises and equipment - 636
Intangible core deposit premiums - 2,807
Deposits, including accrued interest payable - (44,015)
Other, net - (10)
----------- ---------
Cash received for net liabilities assumed $ - $ (38,423)
=========== =========
NOTE 3 - ADVANCES FROM THE FEDERAL HOME LOAN BANK
- -------------------------------------------------
Advances from the Federal Home Loan Bank of Atlanta to the banking subsidiaries
were $15,994,000 as of June 30, 1999. Of this amount, the following have
scheduled maturities greater than one year:
Maturing on Interest Rate Principal
----------- ------------- ---------
(Dollars in thousands)
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 long-term debt $ 8,219
==========
8
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 1999 to $1,075,000, with scheduled
principal reductions as follows:
Amount
------
(Dollars in thousands)
2001 $ 108
2002 108
2003 108
After five years 751
---------
$ 1,075
===========
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 six months of 1999, there were 15,278 shares of stock sold to
the Employee Stock Ownership Plan at market prices in the amount of $145,000,
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 for the six- and three-month periods ended June 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
----------------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
BASIC EARNINGS PER SHARE
<S> <C> <C> <C>
Income available to common shareholders $ 683 3,103,108 $ 0.22
=======
EFFECT OF DILUTIVE SECURITIES
Stock options - 8,706
---------- -----------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 683 3,111,814 $ 0.22
========== =========== ==========
</TABLE>
9
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - EARNINGS PER SHARE - CONTINUED
- ---------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
--------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
BASIC EARNINGS PER SHARE ----------- ------------- ------
<S> <C> <C> <C>
Income available to common shareholders $ 708 2,922,937 $ 0.24
===========
EFFECT OF DILUTIVE SECURITIES
Stock options - 202,680
------------ ------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 708 3,125,617 $ 0.23
============ ============ ============
For the Three Months Ended June 30, 1999
----------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
BASIC EARNINGS PER SHARE ----------- ------------- ------
Income available to common shareholders $ 364 3,107,024 $ 0.12
=============
EFFECT OF DILUTIVE SECURITIES
Stock options - 11,202
------------ ------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 364 3,118,226 $ 0.12
============ ============ ============
For the Three Months Ended June 30, 1998
----------------------------------------
Income Shares Per-Share
(Dollars in thousands, except per share) (Numerator) (Denominator) Amount
BASIC EARNINGS PER SHARE ----------- ------------- ------
Income available to common shareholders $ 396 2,929,802 $ 0.13
=============
EFFECT OF DILUTIVE SECURITIES
Stock options - 213,470
---------- ----------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 396 3,143,272 $ 0.13
========== =========== ============
</TABLE>
10
<PAGE>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - COMPREHENSIVE INCOME
- -----------------------------
The following tables set forth the amounts of other comprehensive income
included in equity along with the related tax effects for the six and
three-month periods ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
(Dollars in thousands) Pre-tax (Expense) Net of tax
FOR THE SIX MONTHS ENDED JUNE 30, 1999: Amount Benefit Amount
Unrealized gains (losses) on securities: ------------------ ------------------ ---------------
Unrealized holding gains (losses)
<S> <C> <C> <C>
arising during the period $ (3,946) $ 1,342 $ (2,604)
Less: reclassification adjustment
for gains realized in net income (175) 60 (115)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities (4,121) 1,402 (2,719)
------------------ ------------------ ---------------
Other comprehensive income $ (4,121) $ 1,402 $ (2,719)
================== ================== ===============
FOR THE SIX MONTHS ENDED JUNE 30, 1998:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ 9 $ (2) $ 7
Less: reclassification adjustment for
gains realized in net income (19) 6 (13)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities (10) 4 (6)
------------------ ------------------ ---------------
Other comprehensive income $ (10) $ 4 $ (6)
================== ================== ===============
FOR THE THREE MONTHS ENDED JUNE 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (2,789) $ 948 $ (1,841)
Less: reclassification adjustment for
gains realized in net income (168) 58 (110)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities (2,957) 1,006 (1,951)
------------------ ------------------ ---------------
Other comprehensive income $ (2,957) $ 1,006 $ (1,951)
================== ================== ===============
FOR THE THREE MONTHS ENDED JUNE 30, 1998:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ 55 $ (19) $ 36
Less: reclassification adjustment for
gains realized in net income (19) 6 (13)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities 36 (13) 23
------------------ ------------------ ---------------
Other comprehensive income $ 36 $ (13) $ 23
================== ================== ===============
</TABLE>
11
<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 June
30, 1999 compared to December 31, 1998, and the results of operations for the
three and six months ended June 30, 1999 compared to the three and six months
ended June 30, 1998. These comments should be read in conjunction with the
Company's condensed consolidated financial statements and accompanying footnotes
appearing in this report.
Effective June 15, 1998, the Belton Bank and the Clemson Bank acquired certain
assets and assumed certain liabilities of three branch offices of Carolina First
Bank pursuant to the terms of Purchase and Assumption Agreements dated February
25, 1998 (the "Purchase of the Branches").
RESULTS OF OPERATIONS
- ---------------------
NET INTEREST INCOME
- -------------------
For the six months ended June 30, 1999, net interest income, the major component
of the Company's net income, was $5,315,000 compared to $4,612,000 for the same
period of 1998, an increase of $703,000. For the three months ended June 30,
1999, net interest income was $2,726,000 compared to $2,373,000 for the
comparable period of 1998. The improvements in the 1999 periods were
attributable to the increase in the volume of average earning assets,
particularly loans and investment securities. The average rate realized on
interest-earning assets decreased to 7.57% from 8.28%, while the average rate
paid on interest-bearing liabilities decreased to 4.32% from 4.99% for the
six-month periods ended June 30, 1999 and 1998, respectively.
The net interest spread and net interest margin were 3.25% and 3.69%,
respectively, for the six-month period ended June 30, 1999, compared to 3.29%
and 3.90% for the six-month period ended June 30, 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 six months ended June 30, 1999 and 1998, the
provision was $509,000 and $593,000, respectively. For the three months ended
June 30, 1999 and 1998, the provision for loan losses was $235,000 and $286,000,
respectively. The Greenwood and Barnwell Banks experienced slight increases in
nonperforming loans for the period ended June 30, 1999 when compared with the
same period in 1998. As a result, the Greenwood and Barnwell Banks provided
$414,000 of the $509,000 provision to cover loan growth and the increase in the
level of nonperforming loans. The Company's nonperforming loans totaled
$1,522,000 compared to $780,000 in 1998. Based on present information,
management believes the allowance for loan losses is adequate at June 30, 1999
to meet presently known and inherent risks in the loan portfolio.
12
<PAGE>
COMMUNITY CAPITAL CORPORATION
NONINTEREST INCOME
- ------------------
Total noninterest income for the six months ended June 30, 1999 was $1,818,000,
an increase of $341,000 compared to $1,477,000 for the six months ended June 30,
1998. Total noninterest income for the quarter ended June 30, 1999 was $981,000,
or 15.4% higher than the second quarter of 1998.
The increases for both the six and three-month periods ending June 30, 1999 were
due to significant increases in three areas: service charges on deposit
accounts; residential mortgage origination fees; and gains realized on the sale
of securities. Service charges on deposit accounts were $703,000 and $567,000
during the six months ending June 30, 1999 and 1998, respectively, and were
$366,000 and $322,000 for the three months ending June 30, 1999 and 1998,
respectively. The increases were primarily attributable to the increase in
average deposits throughout the Company. Mortgage origination fees increased
from $302,000 at June 30, 1998 to $408,000 at June 30, 1999, an increase of
35.1%, as low residential mortgage rates continued to encourage home
refinancings. The Company realized gains of $175,000 on the sale of securities
for the six-month period ended June 30, 1999, compared to gains of $19,000 for
the same period in 1998.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense for the first six months of 1999 was $5,869,000, an
increase of $1,309,000, or 28.70%, when compared to the first six months of
1998. For the quarter ended June 30, 1999, noninterest expense was $3,061,000,
an increase of $611,000, or 24.9%, over the comparable period of 1998.
The primary component of noninterest expense is salaries and benefits which was
$2,860,000 and $2,104,000 for the six months ended June 30, 1999 and 1998,
respectively and $1,483,000 and $1,132,000 for the three months ending June 30,
1999 and 1998, respectively. These increases are the result of the additional
staff for three Carolina First branches acquired in June 1998 and normal pay
raises. Furniture and equipment expense increased to $551,000 for the six-month
period ending June 30, 1999, a gain of 27.2% over the related period in 1998 due
primarily to depreciation charges realized on additional equipment operating
throughout the Company. Other expenses also increased, rising 22.7% to
$1,873,000 for the first six months of 1999.
INCOME TAXES
- ------------
For the six months ended June 30, 1999 and 1998, the effective income tax rate
was 9.5% and 24.4%, respectively, and the income tax provision was $72,000 and
$228,000, respectively. For the quarter ended June 30, 1999, the effective tax
rate was 11.4% compared to 18.7% for the second quarter of 1998. The decreases
in the effective tax rate were due to an increase in the amount of nontaxable
income from securities, which offset the majority of income before taxes.
13
<PAGE>
<PAGE>
COMMUNITY CAPITAL CORPORATION
NET INCOME
- ----------
The combination of the above factors resulted in net income of $683,000 for the
six months ended June 30, 1999 compared to $708,000 for the comparable period in
1998. For the quarter ended June 30, 1999, net income was $364,000, a decrease
of $32,000 when compared to the second quarter of 1998.
The Company reported profits at the Greenwood Bank, the Clemson Bank, the Belton
Bank and the Newberry Bank for the six months ended June 30, 1999. The Barnwell
Bank and the Trust Company experienced losses for the six months ended June 30,
1999.
ASSETS AND LIABILITIES
- ----------------------
During the first six months of 1999, total assets grew $9,350,000, or 2.9%, when
compared to December 31, 1998. The Company experienced growth of 8.0% in the
loan area during the first six months of 1999. However, this growth was
partially offset by a decrease in securities and federal funds sold. On the
liability side, total deposits decreased $6,600,000, or 2.5% to $253,520,000 at
June 30, 1999. The most significant decrease in deposit accounts occurred at the
Barnwell Bank, in an effort to maintain an adequate loan-to-deposit ratio.
INVESTMENT SECURITIES
- ---------------------
Investment securities decreased $6,675,000 during the six-month period. The
decrease was primarily due to a reduction of $6,551,000 in securities
available-for-sale. As deposits of the Company decreased, proceeds from the sale
of securities were used to fund the loan growth.
LOANS
- -----
Loans receivable increased $13,785,000, or 8.0%, since December 31, 1998. This
increase was due to loan growth at several of the Company's subsidiary banks,
primarily the Belton Bank. Balances within the major loan receivable categories
as of June 30, 1999 and December 31, 1998 are as follows:
June 30, December 31,
(Dollars in thousands) 1999 1998
----------------- -------------
Commercial and agricultural $ 31,759 $ 28,991
Real estate 106,056 95,033
Home equity 15,968 17,284
Consumer, installment 29,360 27,753
Consumer, credit card and checking 1,921 2,031
Residential mortgages held for sale & other 1,266 1,453
------------- --------------
$ 186,330 $ 172,545
============= ==============
14
<PAGE>
COMMUNITY CAPITAL CORPORATION
LOANS - CONTINUED
RISK ELEMENTS IN THE LOAN PORTFOLIO
- -----------------------------------
The following is a summary of risk elements in the loan portfolio:
June 30,
--------------------
1999 1998
---- ----
Loans: (Dollars in thousands)
Nonaccrual loans $ 1,469 $ 706
Accruing loans more than 90
days past due $ 53 $ 74
Loans identified by the internal review
mechanism, including nonaccrual loans and
accruing loans more than 90 days past due:
Criticized $ 7,033 $ 3,488
Classified $ 4,755 $ 3,793
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 509 593
Chargeoffs (510) (170)
Recoveries 88 10
Reserves related to acquisitions - 38
------------ -----------
Balance, end of period $ 2,486 $ 2,002
============ ===========
Gross loans outstanding, end of period $ 186,330 $ 165,312
Allowance for loan losses to loans
outstanding 1.33% 1.21%
PREMISES AND EQUIPMENT
- ----------------------
Purchases of fixed assets during the first six months of 1999 totaled $2,374,000
for all institutions. Of this amount, $1,318,000 of these purchases were in the
second quarter of 1999. These totals included the construction of a main office
for the Barnwell Bank and a branch office for the Greenwood Bank, both of which
opened in July. The total also included construction of a main office for the
Newberry Bank which is expected to be completed during the fourth quarter of
1999.
DEPOSITS
- --------
Total deposits decreased $6,600,000, or 2.5% from December 31, 1998. Expressed
in percentages, noninterest-bearing deposits increased 5.4%, while
interest-bearing deposits declined by 3.3%.
15
<PAGE>
COMMUNITY CAPITAL CORPORATION
DEPOSITS - CONTINUED
- --------
Balances within the major deposit categories as of June 30, 1999 and December
31, 1998 are as follows:
June 30, December 31,
1999 1998
------------- ----------------
(Dollars in thousands)
Noninterest-bearing demand deposits $ 24,758 $ 23,491
Interest-bearing demand deposits 44,687 45,854
Money market accounts 34,468 30,161
Savings deposits 27,093 25,202
Certificates of deposit 122,514 135,412
------------ -------------
$ 253,520 $ 260,120
============ =============
ADVANCES FROM THE FEDERAL HOME LOAN BANK
- ----------------------------------------
Advances from the Federal Home Loan Bank were $15,994,000 as of June 30, 1999.
Of this amount, the following have scheduled maturities greater than one year:
Maturing on Interest Rate Principal
----------- ------------- ---------
(Dollars in thousands)
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 $ 8,219
============
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 June 30, 1999 to $1,075,000, with scheduled
principal reductions as follows:
Amount
--------
(Dollars in thousands)
2001 $ 108
2002 108
2003 108
After five years 751
----------------
$ 1,075
================
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.
16
<PAGE>
COMMUNITY CAPITAL CORPORATION
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 at least 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 June 30, 1999:
Tier 1 Total Tier 1
Risk Based Risk Based Leverage
---------- ---------- --------
Actual ratio:
Community Capital Corporation 13.22% 14.39% 8.92%
Greenwood Bank & Trust 10.05 11.09 8.08
Clemson Bank & Trust 12.54 13.62 9.74
Community Bank & Trust 12.88 13.84 8.09
TheBank 19.23 20.16 9.00
The Bank of Newberry County 19.69 20.81 10.89
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
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Shareholders' equity was increased by the $22,000 proceeds from the exercise of
stock options, the $145,000 proceeds from sales of stock to the Employee Stock
Ownership Plan, and net income of $683,000. 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 $2,719,000
net of the deferred taxes for the six months ended June 30, 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
$21,455,000 of unused lines of credit to purchase federal funds.
17
<PAGE>
COMMUNITY CAPITAL CORPORATION
REGULATORY MATTERS
- ------------------
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.
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 testing of
all mission-critical systems the systems for year 2000 compliance. The Company
also has a number of personal computers, most of which are considered to be Year
2000 compliant. Management has spent approximately $580,000 to get all of its
systems Year 2000 compliant. Additional costs are expected to total $150,000.
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 gathered information from 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.
18
<PAGE>
COMMUNITY CAPITAL CORPORATION
THE YEAR 2000 - Continued
- -------------
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:
o 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
o 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 has developed contingency plans to be implemented
as part of its Year 2000 Plans. The Company's Business Resumption Contingency
Plan was completed as of June 30, 1999. 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.
19
<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 June 30, 1999, the Company sold an aggregate of 7,689
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
---- ------ --------
April 5, 1999 2,157 $ 19,974
May 11, 1999 3,566 32,379
June 7, 1999 1,966 20,397
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 June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
On May 26, 1999, the Company held its Annual Meeting of Shareholders for the
purpose of (a) electing eight members to the board of directors, and (b)
ratifying the appointment of Tourville, Simpson & Henderson, L.L.P. as the
Company's independent auditors for the fiscal year ending December 31, 1999.
Each of the nominees for director received the number of affirmative votes of
shareholders required for such nominee's election in accordance with the Bylaws
of the Company, and Tourville, Simpson & Henderson, L.L.P. received the
requisite number of affirmative votes required for approval pursuant to the
Bylaws of the Company. Of the 3,100,251 outstanding shares of the Company,
2,573,883 shares were either voted in person or by proxy for the two matters
presented for shareholders' approval.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
21. Subsidiaries of the Registrant
27. Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended June 30, 1999.
Items 1, 3, and 5 are not applicable.
20
<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: August ___, 1999 By:
---------------------------
James H. Stark
Chief Financial Officer
21
EXHIBIT 21
SUBSIDIARIES OF COMMUNITY CAPITAL CORPORATION
Other Names
Subsidiary State of Incorporation Doing Business Under
- ---------- ---------------------- --------------------
Clemson Bank & Trust South Carolina None
Community Bank & Trust South Carolina None
Community Trust Company South Carolina None
Greenwood Bank & Trust South Carolina None
The Bank of Newberry County South Carolina None
TheBank South Carolina None
SUBSIDIARY OF GREENWOOD BANK & TRUST
Community Financial Services, Inc. South Carolina None
22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,710,000
<INT-BEARING-DEPOSITS> 300,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,671,000
<INVESTMENTS-CARRYING> 650,000
<INVESTMENTS-MARKET> 650,000
<LOANS> 186,330,000
<ALLOWANCE> 2,486,000
<TOTAL-ASSETS> 330,381,000
<DEPOSITS> 253,520,000
<SHORT-TERM> 33,506,000
<LIABILITIES-OTHER> 2,500,000
<LONG-TERM> 9,294,000
0
0
<COMMON> 3,110,000
<OTHER-SE> 28,451,000
<TOTAL-LIABILITIES-AND-EQUITY> 330,381,000
<INTEREST-LOAN> 7,725,000
<INTEREST-INVEST> 3,149,000
<INTEREST-OTHER> 20,000
<INTEREST-TOTAL> 10,894,000
<INTEREST-DEPOSIT> 4,894,000
<INTEREST-EXPENSE> 5,579,000
<INTEREST-INCOME-NET> 5,315,000
<LOAN-LOSSES> 509,000
<SECURITIES-GAINS> 175,000
<EXPENSE-OTHER> 5,869,000
<INCOME-PRETAX> 755,000
<INCOME-PRE-EXTRAORDINARY> 755,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683,000
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 3.69
<LOANS-NON> 1,469,000
<LOANS-PAST> 53,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,755,000
<ALLOWANCE-OPEN> 2,399,000
<CHARGE-OFFS> 510,000
<RECOVERIES> 88,000
<ALLOWANCE-CLOSE> 2,486,000
<ALLOWANCE-DOMESTIC> 2,486,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
