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 SEPTEMBER 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.)
1402C HIGHWAY 72 WEST
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.
3,116,429 SHARES OF COMMON STOCK, $1.00 PAR VALUE
PAGE 1 OF 23
EXHIBIT INDEX ON PAGE 2
<PAGE>
COMMUNITY CAPITAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1999
and December 31, 1998 ............................................ 3
Condensed Consolidated Statements of Operations - Nine months
and three months ended September 30, 1999 and 1998................ 4
Condensed Consolidated Statements of Comprehensive Income -
Nine months and three months ended September 30, 1999 and 1998.... 5
Condensed Consolidated Statement of Changes in Shareholders'
Equity - Nine months ended September 30, 1999..................... 6
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 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
Item 3. Quantitative and Qualitative Disclosures
About Market Risk................................................. 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................... 21
Item 6. Exhibits and Reports on Form 8-K.................................. 21
(a) Exhibits...................................................... 21
27. Financial Data Schedule................................... 23
(b) Reports on Form 8-K........................................... 21
2
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Sept. 30, 1999 Dec. 31, 1998
------------------ ------------------
ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 6,124 $ 8,354
Interest-bearing deposit accounts 529 693
Federal funds sold - 1,280
------------------ ------------------
Total cash and cash equivalents 6,653 10,327
------------------ ------------------
Securities:
Securities available-for-sale 105,124 115,222
Securities held-to-maturity (estimated fair value
of $650 at September 30, 1999 and December 31, 1998) 650 650
Nonmarketable equity securities 4,936 4,823
------------------ ------------------
Total securities 110,710 120,695
------------------ ------------------
Loans receivable 203,330 172,545
Less allowance for loan losses 2,585 2,399
------------------ ------------------
Loans, net 200,745 170,146
------------------ ------------------
Premises, furniture, and equipment, net 11,851 8,907
Intangible assets 5,155 5,557
Accrued interest receivable 2,829 2,553
Other assets 4,786 2,846
------------------ ------------------
Total assets $ 342,729 $ 321,031
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing $ 24,332 $ 23,491
Interest-bearing 231,205 236,629
------------------ ------------------
Total deposits 255,537 260,120
Federal funds purchased and securities
sold under agreements to repurchase 31,138 11,802
Advances from the Federal Home Loan Bank 20,754 9,434
Long-term debt 1,300 2,925
Accured interest payable 1,383 1,661
Other liabilities 1,286 1,659
------------------ ------------------
Total liabilities 311,398 287,601
------------------ ------------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 10,000,000 shares authorized; 3,116,429 and
3,092,268 shares issued and outstanding at September 30, 1999
and December 31, 1998, respectively 3,116 3,092
Capital surplus 29,800 29,598
Accumulated other comprehensive income (2,656) 732
Retained earnings 1,071 8
------------------ ------------------
Total shareholders' equity 31,331 33,430
------------------ ------------------
Total liabilities and shareholders' equity $ 342,729 $ 321,031
================== ==================
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except for per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------- -------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- ---------------
Interest income:
<S> <C> <C> <C> <C>
Loans, including fees $ 11,970 $ 11,091 $ 4,245 $ 3,917
Securities, taxable 3,832 3,440 1,245 1,371
Securities, nontaxable 891 535 329 190
Other interest income 245 289 47 100
-------------- -------------- -------------- ---------------
16,938 15,355 5,866 5,578
-------------- -------------- -------------- ---------------
Interest expense:
Deposits 7,292 7,420 2,398 2,855
FHLB advances 476 627 186 138
Other interest expense 794 194 399 83
-------------- -------------- -------------- ---------------
8,562 8,241 2,983 3,076
-------------- -------------- -------------- ---------------
Net interest income 8,376 7,114 2,883 2,502
Provision for loan losses 686 932 177 339
-------------- -------------- -------------- ---------------
Net interest income after provision
for loan losses 7,690 6,182 2,706 2,163
-------------- -------------- -------------- ---------------
Other operating income:
Service charges on deposit accounts 1,076 903 373 336
Residential mortgage origination fees 540 436 132 134
Commissions from sales of mutual funds 38 89 14 12
Fees for trust services 76 96 29 63
Gain on sales of securities 175 220 - 201
Gain on sale of branch - 130 - -
Other income 432 537 149 188
-------------- -------------- -------------- ---------------
2,337 2,411 697 934
-------------- -------------- -------------- ---------------
Other operating expenses:
Salaries and benefits 4,245 3,355 1,385 1,251
Net occupancy expense 511 498 192 176
Amortization of intangible assets 402 309 136 134
Furniture and equipment expense 861 663 310 230
Other operating expenses 2,818 2,385 945 859
-------------- -------------- -------------- ---------------
8,837 7,210 2,968 2,650
-------------- -------------- -------------- ---------------
Income before taxes 1,190 1,383 435 447
Income tax provision 127 336 55 108
-------------- -------------- -------------- ---------------
Net income $ 1,063 $ 1,047 $ 380 $ 339
-------------- -------------- -------------- ---------------
Basic net income per share $ .34 $ .34 $ .12 $ .11
Diluted net income per share $ .34 $ .32 $ .12 $ .11
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- -------------------------------
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income $ 1,063 $ 1,047 $ 380 $ 339
-------------- -------------- ------------- --------------
Other comprehensive income, net of tax:
Unrealized gains (losses)
on securities during
the period (3,273) 237 (669) 230
Less: reclassification
adjustment for gains
included in net income (115) (151) - (138)
-------------- -------------- ------------- --------------
Other comprehensive income (3,388) 86 (669) 92
-------------- -------------- ------------- --------------
Comprehensive income $ (2,325) $ 1,133 $ (289) $ 431
============== ============== ============= ==============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(Dollars in thousands)
Accumulated
Other Total
Common Stock Capital Comprehensive Retained Shareholders'
Shares Amount Surplus Income Earnings Equity
-------------- -------------- -------------- -------------- -------------- ---------------
Balance,
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1998 3,092,268 $ 3,092 $ 29,598 $ 732 $ 8 $ 33,430
Proceeds from sales
of stock to ESOP 21,489 21 183 204
Proceeds from
exercise of
stock options 2,672 3 19 22
Other comprehensive
income (3,388) (3,388)
Net income
for the period 1,063 1,063
-------------- -------------- -------------- -------------- -------------- ---------------
Balance,
Sept. 30, 1999 3,116,429 $ 3,116 $ 29,800 $ (2,656) $ 1,071 $ 31,331
============== ============== ============== ============== ============== ===============
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine Months Ended
Sept. 30,
1999 1998
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,071 $ 1,047
Adjustments to reconcile net income to Net cash (used) provided by operating
activities:
Depreciation 865 641
Provision for possible loan losses 686 932
Amortization of intangible assets 402 309
Amortization less accretion on investments 142 64
Amortization of deferred loan costs 271 196
Gain on sales of securities available-for-sale (175) (220)
Gain on sale of branch - (130)
Loss on sales of premises and equipment 1 22
Disbursements for mortgages held for sale (12,039) (16,983)
Proceeds of sales of residential mortgages 9,093 16,395
Increase in interest receivable (276) (605)
Increase(decrease) in interest payable (278) 240
Increase in other assets (222) (976)
Increase in other liabilities (373) 720
------------- --------------
Net cash provided (used) by operating activities (832) 1,652
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers (28,610) (18,795)
Purchases of securities available-for-sale (44,057) (95,218)
Sales of securities available-for-sale 37,650 37,711
Maturities of securities available-for-sale 11,404 22,699
Purchases of nonmarketable equity securities (113) (1,488)
Purchases of premises and equipment (3,800) (861)
Proceeds from sales of premises and equipment 10 731
Acquisition of branches - 38,423
Net cash outflow from sale of branch - (2,049)
------------- --------------
Net cash used by investing activities (27,516) (18,847)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 22 272
Proceeds from stock sales to ESOP 204 159
Stock dividend fractional shares paid in cash - (5)
Net increase(decrease) in deposit accounts (4,583) 32,286
Proceeds from FHLB borrowings 18,800 8,049
Repayments of FHLB borrowings (7,480) (14,965)
Proceeds from other borrowings 1,400 3,275
Repayment of other borrowings (3,025) (500)
Net increase (decrease) in fed funds purchased and repos 19,336 (2,749)
------------- --------------
Net cash provided by financing activities 24,674 25,822
------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (3,674) 8,627
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,327 8,112
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,653 $ 16,739
============= ==============
</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 September 30, 1999 and for the interim periods ended
September 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 Mid State Bank, formerly 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
Nine Months Ended
September 30
--------------------------------
1999 1998
---------- -----------
(Dollars in thousands)
CASH PAID DURING THE PERIOD FOR:
Income taxes $ 258 $ 203
Interest 8,840 8,001
NOTE 3 - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Atlanta to the banking subsidiaries
were $20,754,000 as of September 30, 1999. Of this amount, the following have
scheduled maturities greater than one year:
Maturing on Interest Rate Principal
----------- -------------------------- ------------------
(Dollars in thousands)
5/23/2000 5.55% - variable $ 800
9/25/2000 6.38% - fixed 600
1/30/2001 5.85% - fixed 1,000
2/03/2003 5.97% - fixed 104
9/22/2003 4.70% - fixed 3,000
3/26/2008 5.51% - fixed 1,500
2/02/2009 4.95% - fixed 950
9/30/2009 5.07% - fixed 5,800
------------------
Total $ 13,754
==================
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 annual 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 September 30, 1999 to $800,000, with scheduled
principal reductions as follows:
Amount
------------------
(Dollars in thousands)
2001 $ 80
2002 80
2003 80
After five years 560
------------------
$ 800
==================
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 nine months of 1999, there were 21,489 shares of stock sold to
the Employee Stock Ownership Plan at market prices in the amount of $204,000,
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 nine- and three-month periods ended September
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended Sept. 30, 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 $ 1,063 3,106,750 $ .34
=====================
EFFECT OF DILUTIVE SECURITIES
Stock options - 2,238
------------------ -------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 1,063 3,108,988 $ .34
================== =================== =====================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - EARNINGS PER SHARE - CONTINUED
For the Nine Months Ended Sept. 30, 1998
----------------------------------------------------------------
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 $ 1,047 3,074,183 $ .34
=====================
EFFECT OF DILUTIVE SECURITIES
Stock options - 185,893
------------------ -------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 1,047 3,260,076 $ .32
================== =================== =====================
<CAPTION>
For the Three Months Ended Sept. 30, 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 $ 380 3,113,916 $ .12
=====================
EFFECT OF DILUTIVE SECURITIES
Stock options - -
------------------ -------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 380 3,113,916 $ .12
================== =================== =====================
<CAPTION>
For the Three Months Ended Sept. 30, 1998
----------------------------------------------------------------
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 $ 339 3,085,485 $ .11
=====================
EFFECT OF DILUTIVE SECURITIES
Stock options - 138,711
------------------ -------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 339 3,224,196 $ .11
================== =================== =====================
</TABLE>
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 nine and
three-month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
(Dollars in thousands) Pre-tax (Expense) Net of tax
FOR THE NINE MONTHS ENDED SEPT. 30, 1999: Amount Benefit Amount
------------------ ------------------ ---------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (4,959) $ 1,686 $ (3,273)
Less: reclassification adjustment for
gains realized in net income (175) 60 (115)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities (5,134) 1,746 (3,388)
------------------ ------------------ ---------------
Other comprehensive income $ (5,134) $ 1,746 $ (3,388)
================== ================== ===============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - COMPREHENSIVE INCOME - CONTINUED
(Dollars in thousands) Pre-tax (Expense) Net of tax
FOR THE NINE MONTHS ENDED SEPT. 30, 1998: Amount Benefit Amount
------------------ ------------------ ---------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ 359 $ (122) $ 237
Less: reclassification adjustment for
gains realized in net income (220) 69 (151)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities 139 (53) 86
------------------ ------------------ ---------------
Other comprehensive income $ 139 $ (53) $ 86
================== ================== ===============
FOR THE THREE MONTHS ENDED SEPT. 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (1,014) $ 345 $ (669)
Less: reclassification adjustment for
gains realized in net income - - -
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities (1,014) 345 (669)
------------------ ------------------ ---------------
Other comprehensive income $ (1,014) $ 345 $ (669)
================== ================== ===============
FOR THE THREE MONTHS ENDED SEPT. 30, 1998:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ 348 $ (118) $ 230
Less: reclassification adjustment for
gains realized in net income (201) 63 (138)
------------------ ------------------ ---------------
Net unrealized gains (losses) on
securities 147 (55) 92
------------------ ------------------ ---------------
Other comprehensive income $ 147 $ (55) $ 92
================== ================== ===============
</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
September 30, 1999 compared to December 31, 1998, and the results of operations
for the three and nine months ended September 30, 1999 compared to the three and
nine months ended September 30, 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 nine months ended September 30, 1999, net interest income, the major
component of the Company's net income, was $8,376,000 compared to $7,114,000 for
the same period of 1998, an increase of $1,262,000. For the three months ended
September 30, 1999, net interest income was $2,883,000 compared to $2,502,000
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. Interest income for the nine
months ended September 30, 1999 was $16,938,000, compared to $15,355,000 for the
same period in 1998. This represents an increase of $1,583,000 or 10.31% over
the same period a year ago. While average deposits have increased since December
31, 1998, the rates paid on these deposits have decreased. Interest expense on
deposit accounts decreased from $7,420,000 for the nine months ended September
30, 1998 to $7,292,000 for the nine months ended September 30, 1999. The average
rate paid on interest-bearing liabilities decreased to 4.32% from 4.97% for the
nine-month periods ended September 30, 1999 and 1998, respectively.
The net interest spread and net interest margin were 3.40% and 3.20%,
respectively, for the nine-month period ended September 30, 1999, compared to
3.80% and 3.52% for the nine-month period ended September 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 nine months ended September 30, 1999 and 1998, the provision was
$686,000 and $932,000, respectively. For the three months ended September 30,
1999 and 1998, the provision for loan losses was $177,000 and $339,000,
respectively.
The provision for loan losses for the nine and three months ended September 30,
1999 was significantly lower than for the same two periods in 1998. It was
during the third quarter of 1998 that management increased its reserve to
address the nonperforming loan problems at the Barnwell Bank.
Nonperforming loans and potential problem loans identified by the internal
review process are both higher than when compared to the same period a year ago.
However, many of these loans are the same loans identified at this point in 1998
as potential problem loans. At September 30, 1999, nonperforming loans were
$1,224,000 at the Greenwood Bank and $168,000 at the Barnwell Bank. The majority
of loans identified as potential problems by the internal review process at
September 30, 1999 were also at the Greenwood Bank and the Barnwell Bank. These
loans totaled $4,302,000 at the Greenwood Bank and $3,576,000 at the Barnwell
Bank.
12
<PAGE>
COMMUNITY CAPITAL CORPORATION
PROVISION AND ALLOWANCE FOR LOAN LOSSES - CONTINUED
Based on present information, management believes the allowance for loan losses
is adequate at September 30, 1999 to meet presently known and inherent risks in
the loan portfolio.
NONINTEREST INCOME
Total noninterest income for the nine months ended September 30, 1999 was
$2,337,000, a decrease of $74,000 when compared to $2,441,000 for the nine
months ended September 30, 1998. Total noninterest income for the quarter ended
September 30, 1999 was $697,000, or 25.37% lower than the same period a year
ago.
One of the reasons for the decrease in the nine month period ending September
30, 1999 as compared to the same period in 1998 was due to the gain on the sale
of a branch totaling $130,000 which was included in the 1998 amounts. While
service charges on deposit accounts and origination fees on residential
mortgages increased in the nine months ending September 30, 1999, all other
sources of noninterest income decreased. Service charges on deposit accounts
were $1,076,000 for the nine months ending September 30, 1999, compared to
$903,000 for the same period a year ago. A partial offset to this increase was a
decrease in other income, which decreased from $537,000 for the nine months
ending September 30, 1998 to $432,000 for the nine months ending September 30,
1999.
The primary reason for the decrease in noninterest income for the three months
ended September 30, 1999 as compared to the same period in 1998 was due to the
gain on sales of securities of $201,000 included in 1998. No securities were
sold during the three months ended September 30, 1999. While all other sources
of noninterest income decreased other than service charges on deposit accounts
and commissions from sales of mutual funds, the decreases were not significant.
NONINTEREST EXPENSE
Total noninterest expense for the first nine months of 1999 was $8,837,000, an
increase of $1,627,000, or 22.57%, when compared to the first nine months of
1998. For the quarter ended September 30, 1999, noninterest expense was
$2,968,000, an increase of $318,000, or 12.00%, over the comparable period of
1998.
The primary component of noninterest expense is salaries and benefits which was
$4,245,000 and $3,355,000 for the nine months ended September 30, 1999 and 1998,
respectively and $1,385,000 and, $1,251,000 for the three months ending
September 30, 1999 and 1998, respectively. The increases are partially a result
of the three additional branches acquired in 1998 being in operation for the
full nine months. Furniture and equipment expense also increased to $861,000 for
the nine-month period from $663,000 due to an increase in depreciation charges
on additional equipment in use throughout the Company. Net occupancy expense,
amortization of intangible assets, and other operating expenses also increased
due to the growth of the Company and the purchase of additional branches in
1998.
INCOME TAXES
For the nine months ended September 30, 1999 and 1998, the effective income tax
rate was 10.7% and 24.3%, respectively, and the income tax provision was
$127,000 and $336,000, respectively. For the quarter ended September 30, 1999,
the effective tax rate was 12.6% compared to 24.2% for the third 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>
COMMUNITY CAPITAL CORPORATION
NET INCOME
The combination of the above factors resulted in net income of $1,063,000 for
the nine months ended September 30, 1999 compared to $1,047,000 for the
comparable period in 1998. For the quarter ended September 30, 1999, net income
was $380,000, an increase of $41,000 when compared to the third quarter of 1998.
The Company's profit continues to be derived mainly from the Greenwood and
Clemson Banks for the nine months ended September 30, 1999. However, all
subsidiaries were profitable with the exception of the Barnwell Bank and the
Trust Company.
ASSETS AND LIABILITIES
During the first nine months of 1999, total assets increased $21,698,000 or
6.8%, when compared to December 31, 1998. A significant portion of the growth
occurred at the Clemson Bank. Total assets at the Clemson Bank increased
$7,964,000 or 20.93% to $46,015,000 at September 30, 1999. All other bank
subsidiaries, with the exception of the Barnwell Bank, continued to grow in
1999. Total assets at the Barnwell Bank decreased from $76,763,000 at December
31, 1998 to $70,606,000 at September 30, 1999. Total deposits of the Company
decreased from December 31, 1998 to $255,537,000 at September 30, 1999. The most
significant decrease in deposits occurred at the Barnwell Bank. Deposits at that
Bank decreased from $68,169,000 at December 31, 1998 to $55,429,000 at September
30, 1999. An increase in advances from the Federal Home Loan Bank occurred
during the third quarter of 1999. In order to fund the continued loan growth,
the Greenwood, Clemson and Newberry banks used advances from the Federal Home
Loan Bank for such purposes.
INVESTMENT SECURITIES
Investment securities decreased from $120,695,000 at December 31, 1998 to
$110,710,000 at September 30, 1999. The decrease was primarily due to a decrease
in securities available for sale from $115,222,000 at December 31, 1998 to
$105,124,000 at September 30, 1999. The Company has recognized a gain on the
sale of approximately $37,000,000 of securities consisting of U.S. government
agencies and certain municipal securities. Proceeds from the sale were used to
fund loans due to a decrease in deposits as a funding source.
LOANS
Loans receivable increased $30,785,000, or 17.9%, since December 31, 1998. This
increase was primarily due to loan growth at the Greenwood Bank and the Belton
Bank. Balances within the major loan receivable categories as of September 30,
1999 and December 31, 1998 are as follows:
September 30, December 31,
(Dollars in thousands) 1999 1998
--------------- -------------
Commercial and agricultural $ 29,487 $ 28,991
Real estate 121,472 95,033
Home equity 16,370 17,284
Consumer, installment 29,212 27,753
Consumer, credit card and checking 2,226 2,031
Residential mortgages held for sale & other 4,563 1,453
--------------- -------------
$ 203,330 $ 172,545
=============== =============
14
<PAGE>
COMMUNITY CAPITAL CORPORATION
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements in the loan portfolio:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1999 1998
-------------------- --------------------
Loans: (Dollars in thousands)
<S> <C> <C>
Nonaccrual loans $ 1,392 $ 685
Accruing loans more than 90 days past due $ 114 $ 185
Loans identified by the internal review mechanism, including
nonaccrual loans and accruing loans more than 90 days past due:
Criticized $ 4,155 $ 4,012
Classified $ 5,130 $ 4,718
Activity in the Allowance for Loan Losses is as follows: Nine Months Ended Sept. 30,
---------------------------------------------
1999 1998
-------------------- --------------------
(Dollars in thousands)
Balance, January 1, $ 2,399 $ 1,531
Provision for loan losses for the period 686 932
Chargeoffs (613) (410)
Recoveries 113 23
Reserves related to acquisitions - 38
-------------------- --------------------
Balance, end of period $ 2,585 $ 2,114
==================== ====================
Gross loans outstanding, end of period $ 203,330 $ 170,103
Allowance for loan losses to loans outstanding 1.27% 1.24%
</TABLE>
PREMISES AND EQUIPMENT
Purchases of fixed assets during the first nine months of 1999 totaled
$3,800,000 for all institutions. Of this amount, $1,426,000 of these purchases
were in the third 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 $4,583,000 or 1.8% from December 31, 1998. Expressed in
percentages, noninterest-bearing deposits increased 3.6% and interest-bearing
deposits decreased by 2.3%.
Balances within the major deposit categories as of September 30, 1999 and
December 31, 1998 are as follows:
September 30, December 31,
1999 1998
-------------- --------------
(Dollars in thousands)
Noninterest-bearing demand deposits $ 24,332 $ 23,491
Interest-bearing demand deposits 43,699 45,854
Money market accounts 37,250 30,161
Savings deposits 27,509 25,202
Certificates of deposit 122,747 135,412
-------------- --------------
$ 255,537 $ 260,120
============== ==============
15
<PAGE>
COMMUNITY CAPITAL CORPORATION
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Atlanta to the banking subsidiaries
were $20,754,000 as of September 30, 1999. Of this amount, the following have
scheduled maturities greater than one year:
Maturing on Interest Rate Principal
------------ -------------------------- ----------------
(Dollars in thousands)
5/23/2000 5.55% - variable $ 800
9/25/2000 6.38% - fixed 600
1/30/2001 5.85% - fixed 1,000
2/03/2003 5.97% - fixed 104
9/22/2003 4.70% - fixed 3,000
3/26/2008 5.51% - fixed 1,500
2/02/2009 4.95% - fixed 950
9/30/2009 5.07% - fixed 5,800
------------------
Total $ 13,754
==================
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 annual 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 September 30, 1999 to $800,000, with scheduled
principal reductions as follows:
Amount
------------------
(Dollars in thousands)
2001 $ 80
2002 80
2003 80
After five years 560
------------------
$ 800
==================
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.
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.
16
<PAGE>
COMMUNITY CAPITAL CORPORATION
CAPITAL - CONTINUED
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 September 30, 1999:
Tier 1 Total Tier 1
Risk Based Risk Based Leverage
---------- ---------- ---------
Actual ratio:
Community Capital Corporation 12.56% 13.69% 8.77%
Greenwood Bank & Trust 9.81 10.80 8.11
Clemson Bank & Trust 12.00 13.03 9.00
Community Bank & Trust 12.84 13.86 8.18
TheBank 17.20 18.27 8.85
Mid State Bank 16.12 17.06 10.49
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
Since December 31, 1998 shareholders' equity was increased by the $22,000
proceeds from the exercise of stock options, the $204,000 proceeds from sales of
stock to the Employee Stock Ownership Plan, and net income of $1,063,000.
However, shareholders' equity was affected significantly by a negative change in
the fair market value of the securities available for sale in the amount of
$3,388,000.
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
$870,000 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".
17
<PAGE>
COMMUNITY CAPITAL CORPORATION
THE YEAR 2000 - CONTINUED
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 $700,000 to get all of its
systems Year 2000 compliant. Additional costs are expected to total $10,000. 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.
19
<PAGE>
COMMUNITY CAPITAL CORPORATION
ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS - CONTINUED
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; the ability of the Company to retain and
deploy in a timely manner the cash associated with branch acquisitions into
assets with satisfactory yields and credit risk profiles; the potential that
loan charge-offs may exceed the allowance for loan losses or that such allowance
will be increased as a result of factors beyond the control of the Company; the
Company's dependence on senior management; competition from existing financial
institutions operating in the Company's market areas as well as the entry into
such areas of new competitors with greater resources, broader branch networks
and more comprehensive services; the potential adverse impact on net income of
rapidly declining interest rates; adverse changes in the general economic
conditions in the geographic markets served by the Company; the challenges and
uncertainties in the implementation of the Company's expansion and development
strategies; the potential negative effects of future legislation affecting
financial institutions; and other factors described in this report and in other
reports filed by the Company with the Securities and Exchange Commission.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, as the Company qualifies as a "small business issuer" under
regulation S-B promulgated by the Securities and Exchange Commission.
20
<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 September 30, 1999, the Company sold an aggregate of
6,211 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
----------------- ------ ----------
July 7, 1999 1,855 $ 18,550
August 5, 1999 2,164 20,558
September 2, 1999 2,192 20,002
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 September 30, 1999 which were not registered under the 1933 Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Form 8-K - None filed during the third quarter of 1999.
Items 1, 3, 4, and 5 are not applicable.
21
<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: _________, 1999 By:______________________________________
James H. Stark
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,653,000
<INT-BEARING-DEPOSITS> 529,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,124,000
<INVESTMENTS-CARRYING> 650,000
<INVESTMENTS-MARKET> 650,000
<LOANS> 203,330,000
<ALLOWANCE> 2,585,000
<TOTAL-ASSETS> 342,729,000
<DEPOSITS> 255,537,000
<SHORT-TERM> 38,138,000
<LIABILITIES-OTHER> 2,669,000
<LONG-TERM> 15,054,000
0
0
<COMMON> 3,116,000
<OTHER-SE> 28,215,000
<TOTAL-LIABILITIES-AND-EQUITY> 342,729,000
<INTEREST-LOAN> 11,970,000
<INTEREST-INVEST> 4,723,000
<INTEREST-OTHER> 245,000
<INTEREST-TOTAL> 16,938,000
<INTEREST-DEPOSIT> 7,292,000
<INTEREST-EXPENSE> 8,562,000
<INTEREST-INCOME-NET> 8,376,000
<LOAN-LOSSES> 686,000
<SECURITIES-GAINS> 175,000
<EXPENSE-OTHER> 8,837,000
<INCOME-PRETAX> 1,190,000
<INCOME-PRE-EXTRAORDINARY> 1,190,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063,000
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 3.80
<LOANS-NON> 1,392,000
<LOANS-PAST> 114,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,130,000
<ALLOWANCE-OPEN> 2,399,000
<CHARGE-OFFS> 613,000
<RECOVERIES> 113,000
<ALLOWANCE-CLOSE> 2,585,000
<ALLOWANCE-DOMESTIC> 2,585,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
