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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
Commission file number: 0-18460
COMMUNITY CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
South Carolina 57-0866395
- ------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1402-C Highway 72 West
Greenwood, South Carolina 29649
- ------------------------------------- ------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (864) 941-8200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Reported
- ------------------- -----------------
Common Stock, par value $1.00 per share American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant on March 15, 2000 was approximately $19.2 million based upon the
last sale price reported for such date on the American Stock Exchange. On that
date, the number of shares outstanding of the Registrant's common stock, $1.00
par value, was 3,084,956.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its 2000 Annual
Meeting of Stockholders (Part III).
PART I
ITEM 1. BUSINESS.
GENERAL
Community Capital Corporation (the "Company") is a multi-bank holding company
headquartered in Greenwood, South Carolina. The Company was incorporated under
the laws of the State of South Carolina on April 8, 1988 as a holding company
for Greenwood Bank & Trust (the "Greenwood Bank") which opened in 1989.
The Company was formed principally in response to perceived opportunities
resulting from takeovers of several South Carolina-based banks by large
southeastern regional bank holding companies. In many cases, when these
consolidations occur, local boards of directors are dissolved and local
management is relocated or terminated. The Company believes this situation
creates favorable opportunities for new community banks with local management
and local directors. Management believes that such banks can be successful in
attracting individuals and small to medium-sized businesses as customers who
wish to conduct business with a locally owned and managed institution that
demonstrates an active interest in their business and personal financial
affairs.
In 1994, the Company made the strategic decision to expand beyond the Greenwood
County area by creating an organization of independently managed community banks
that serve their respective local markets, but which share a common vision and
benefit from the strength, resources and economies of a larger institution. In
1995, the Company opened Clemson Bank & Trust in Clemson, South Carolina (the
"Clemson Bank"). In 1997, the Company opened Community Bank & Trust in Barnwell,
South Carolina (formerly the Bank of Barnwell County, the "Barnwell Bank"),
TheBank in Belton, South Carolina (formerly the Bank of Belton, the "Belton
Bank"), and Mid State Bank in Newberry, South Carolina (formerly the Bank of
Newberry County, the "Newberry Bank"). Each of these five community banks
(collectively, the "Banks") operates as a wholly-owned subsidiary of the Company
and engages in a general commercial banking business, emphasizing the banking
needs of individuals and small to medium-sized businesses in each Bank's primary
service area. Each of the Banks is a state chartered Federal Reserve member
bank.
The Company formed Community Trust Services Company in the fourth quarter of
1997 as a wholly-owned subsidiary to perform trust services for the Banks. The
name of this subsidiary was changed to Community Trust Company in 1998.
MARKET AREAS
The Greenwood Bank has three banking locations in Greenwood, South Carolina. The
Clemson Bank has two banking locations in Clemson and Abbeville, South Carolina.
The Barnwell Bank has five banking locations in Aiken, Barnwell and Orangeburg
Counties, South Carolina. The Belton Bank has three banking locations in Belton
and Honea Path, South Carolina. The Newberry Bank has one banking location in
Newberry, South Carolina and two loan production offices in Lexington and Saluda
Counties, South Carolina.
The following table sets forth certain information concerning the Banks at
December 31, 1999:
NUMBER OF TOTAL TOTAL TOTAL
BANK LOCATIONS ASSETS LOANS DEPOSITS
- ---- --------- ------ ----- --------
(DOLLARS IN THOUSANDS)
Barnwell Bank 5 $ 73,434 $ 36,363 $ 56,918
Belton Bank 3 81,240 38,514 56,321
Clemson Bank 2 44,197 28,795 31,576
Greenwood Bank 3 122,566 97,517 90,787
Newberry Bank 3 36,227 20,395 22,254
Each Bank offers a full range of commercial banking services, including checking
and savings accounts, NOW accounts, IRA accounts, and other savings and time
deposits of various types ranging from money markets to long-term certificates
of deposit. The Banks also offer a full range of consumer credit and short-term
and intermediate-term commercial and personal loans. Each Bank conducts
residential mortgage loan origination activities pursuant to which mortgage
loans are sold to investors in the secondary markets. Servicing of such loans is
not retained by the Banks. The Banks also offer trust and related fiduciary
services which are administered by the Company's wholly-owned subsidiary,
Community Trust Company. Discount securities brokerage services are available
through a third-party
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brokerage service which has contracted with Community Financial Services, Inc.,
a wholly-owned subsidiary of the Greenwood Bank.
The Company performs data processing functions for the Banks upon terms that the
managements of the Banks believe is competitive with those offered by
unaffiliated third-party service bureaus. The Company also administers certain
operating functions for the Banks where cost savings can be achieved. Included
in such operations are regulatory compliance, personnel, and internal audit
functions. The Company's costs associated with the performance of such services
are allocated between the Banks based on each Bank's total accounts and/or total
assets.
LENDING ACTIVITIES
GENERAL. Through the Banks, the Company offers a range of lending services,
including real estate, consumer, and commercial loans, to individuals and small
business and other organizations that are located in or conduct a substantial
portion of their business in the Banks' market areas. The Company's total loans
at December 31, 1999, were $219 million, or 66.69% of total earning assets. The
interest rates charged on loans vary with the degree of risk, maturity, and
amount of the loan, and are further subject to competitive pressures,
availability of funds, and government regulations. The Company has no foreign
loans or loans for highly leveraged transactions.
The Company's primary focus has been on commercial and installment lending to
individuals and small to medium-sized businesses in its market areas, as well as
residential mortgage loans. These loans totaled approximately $132.0 million,
and constituted approximately 60.24% of the Company's loan portfolio, at
December 31, 1999.
The following table sets forth the composition of the Company's loan portfolio
for each of the five years in the period ended December 31, 1999.
LOAN COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- -------
Commercial, financial and agricultural 21.12% 19.05% 24.19% 16.80% 13.58%
Real estate:
Construction 13.42 12.37 8.61 13.72 13.09
Mortgage:
Residential 35.62 39.13 27.48 30.51 30.17
Commercial(1) 22.45 21.87 21.81 20.87 26.67
Consumer and other 7.39 7.58 17.91 18.10 16.49
-------- -------- --------- --------- ---------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ========= ========= =========
Total loans (dollars) $ 63,204 $ 80,546 $ 149,127 $ 172,545 $ 219,054
======== ======== ========= ========= =========
(1) The majority of these loans are made to operating businesses where real
property has been taken as additional collateral.
LOAN APPROVAL. Certain credit risks are inherent in the loan making process.
These include prepayment risks, risks resulting from uncertainties in the future
value of collateral, risks resulting from changes in economic and industry
conditions, and risks inherent in dealing with individual borrowers. In
particular, longer maturities increase the risk that economic conditions will
change and adversely affect collectibility. The Company attempts to minimize
loan losses through various means and uses standardized underwriting criteria.
These means include the use of policies and procedures including officer and
customer lending limits, and loans in excess of certain limits must be approved
by the Board of Directors of the relevant Banks.
LOAN REVIEW. The Company has a continuous loan review process designed to
promote early identification of credit quality problems. All loan officers are
charged with the responsibility of reviewing all past due loans in their
respective portfolios. Each of the Banks establishes watch lists of potential
problem loans.
DEPOSITS
The principal sources of funds for the Banks are core deposits, consisting of
demand deposits, interest-bearing transaction accounts, money market accounts,
saving deposits, and certificates of deposit. Transaction accounts include
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checking and negotiable order of withdrawal (NOW) accounts which customers use
for cash management and which provide the Banks with a source of fee income and
cross-marketing opportunities, as well as a low-cost source of funds. Time and
savings accounts also provide a relatively stable source of funding. The largest
source of funds for the Banks is certificates of deposit. Certificates of
deposit in excess of $100,000 are held primarily by customers in the Banks'
market areas. Deposit rates are set weekly by senior management of each of the
Banks, subject to approval by management of the Company. Management believes
that the rates the Banks offer are competitive with other institutions in the
Banks' market areas.
COMPETITION
Banks generally compete with other financial institutions through the selection
of banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and the personal manner in which services are offered. South
Carolina law permits statewide branching by banks and savings institutions, and
many financial institutions in the state have branch networks. Consequently,
commercial banking in South Carolina is highly competitive. South Carolina law
also permits regional interstate banking whereby out-of-state banks and bank
holding companies are allowed to acquire and merge with South Carolina banks and
bank holding companies, as long as the South Carolina State Board of Financial
Institutions gives prior approval for the acquisition or merger. Many large
banking organizations currently operate in the respective market areas of the
Banks, several of which are controlled by out-of-state ownership. In addition,
competition between commercial banks and thrift institutions (savings
institutions and credit unions) has been intensified significantly by the
elimination of many previous distinctions between the various types of financial
institutions and the expanded powers and increased activity of thrift
institutions in areas of banking which previously had been the sole domain of
commercial banks. Recent legislation, together with other regulatory changes by
the primary regulators of the various financial institutions, has resulted in
the almost total elimination of practical distinctions between a commercial bank
and a thrift institution. Consequently, competition among financial institutions
of all types is largely unlimited with respect to legal ability and authority to
provide most financial services. See "Government Supervision and Regulation."
Each of the Banks faces increased competition from both federally-chartered and
state-chartered financial and thrift institutions, as well as credit unions,
consumer finance companies, insurance companies and other institutions in the
Banks' respective market areas. Some of these competitors are not subject to the
same degree of regulation and restriction imposed upon the Banks. Many of these
competitors also have broader geographic markets and substantially greater
resources and lending limits than the Banks and offer certain services that the
Banks do not currently provide. In addition, many of these competitors have
numerous branch offices located throughout the extended market areas of the
Banks that the Company believes may provide these competitors with an advantage
in geographic convenience that the Banks do not have at present. Such
competitors may also be in a position to make more effective use of media
advertising, support services, and electronic technology than can the Banks.
EMPLOYEES
The Company currently has 31 full-time employees and eight part-time employees,
the Barnwell Bank has 35 full-time employees and three part-time employees, the
Belton Bank has 18 full-time employees and five part-time employees, the Clemson
Bank has 16 full-time employees and one part-time employee, the Greenwood Bank
has 42 full-time employees and two part-time employees, and the Newberry Bank
has 13 full-time employees and one part-time employee. Community Trust Company
has one full-time employee and one part-time employee.
GOVERNMENT SUPERVISION AND REGULATION
GENERAL
The Company and the Banks are subject to an extensive collection of state and
federal banking laws and regulations which impose specific requirements and
restrictions on, and provide for general regulatory oversight with respect to,
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virtually all aspects of the Company's and the Banks' operations. These
regulations are generally intended to provide protections for the Banks'
depositors and borrowers, rather than for shareholders of the Company. The
Company and the Banks are also affected by government monetary policy and by
regulatory measures affecting the banking industry in general. The actions of
the Federal Reserve System affect the money supply and, in general, the Banks'
lending abilities in increasing or decreasing the cost and availability of funds
to the Banks. Additionally, the Federal Reserve System regulates the
availability of bank credit in order to combat recession and curb inflationary
pressures in the economy by open market operations in United States government
securities, changes in the discount rate on member bank borrowings, changes in
the reserve requirements against bank deposits and limitations on interest rates
which banks may pay on time and savings deposits.
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Banks. This summary is qualified in its entirety
by reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of the statutes or
regulations applicable to the business of the Company and the Banks. Any change
in applicable laws or regulations may have a material adverse effect on the
business and prospects of the Company and the Banks.
THE COMPANY
The Company is a bank holding company within the meaning of the Federal Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the South Carolina
Banking and Branching Efficiency Act of 1996, as amended (the "South Carolina
Act"). The Company is registered with both the Federal Reserve System and the
South Carolina State Board of Financial Institutions (the "State Board"). The
Company is required to file with both of these agencies annual reports and other
information regarding its business operations and those of its subsidiaries. It
is also subject to the supervision of, and to regular examinations by, these
agencies. The regulatory requirements to which the Company is subject also set
forth various conditions regarding the eligibility and qualifications of its
directors and officers.
The BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve Board before (i) it or any of its subsidiaries (other than a
bank) acquires substantially all of the assets of any bank, (ii) it acquires
ownership or control of any voting shares of any bank if after such acquisition
it would own or control, directly or indirectly, more than 5% of the voting
shares of such bank, or (iii) it merges or consolidates with any other bank
holding company. Under the South Carolina Act, it is unlawful without the prior
approval of the State Board for any South Carolina bank holding company (i) to
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank or any other bank holding company, (ii) to acquire all or
substantially all of the assets of a bank or any other bank holding company, or
(iii) to merge or consolidate with any other bank holding company.
The BHCA and the Federal Change in Bank Control Act, together with regulations
promulgated by the Federal Reserve Board, require that, depending on the
particular circumstances, either the Federal Reserve Board's approval must be
obtained or notice must be furnished to the Federal Reserve Board and not
disapproved prior to any person or company acquiring control of a bank holding
company, such as the Company, subject to certain exemptions for certain
transactions.
Under the BHCA, a bank holding company is generally prohibited from engaging in,
or acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in, nonbanking activities, unless the Federal Reserve Board,
by order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve Board has determined by
regulation to be proper incidents to the business of a bank holding company
include making or servicing loans and certain types of leases, engaging in
certain insurance and discount brokerage activities, performing certain data
processing services, acting in certain circumstances as a fiduciary or
investment or financial adviser, owning savings associations and making
investments in certain corporations or projects designed primarily to promote
community welfare.
In determining whether an activity is so closely related to banking as to be
permissible for bank holding companies, the Federal Reserve Board is required to
consider whether the performance of the particular activities by a bank holding
company or its subsidiaries can reasonably be expected to produce benefits to
the public such as greater convenience, increased competition and gains in
efficiency that outweigh possible adverse effects such as undue concentration of
resources, decreased or unfair competition, conflicts of interests and unsound
banking practices. Generally, bank holding companies are required to obtain
prior approval of the Federal Reserve Board to engage in any new activity not
previously approved by the Federal Reserve Board. Despite prior approval, the
Federal Reserve Board may order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that the holding company's
continued ownership, activity or control constitutes a serious risk to the
financial safety, soundness or stability of any of its bank subsidiaries.
The BHCA and the Federal Change in Bank Control Act, together with regulations
promulgated by the Federal Reserve Board, require that, depending on the
particular circumstances, either the Federal Reserve Board's approval must be
obtained or notice must be furnished to the Federal Reserve Board and not
disapproved prior to any person or company acquiring control of a bank holding
company, such as the Company, subject to certain exemptions. Control is
conclusively presumed to exist when an individual or company acquires 25 percent
or more of any class of voting securities of the bank holding company. Control
is rebuttably presumed to exist if a person acquires 10 percent or more, but
less than 25 percent, of any class of voting securities and either the bank
holding company has registered securities under Section 12 of the Securities
Exchange Act of 1934 or no other person owns a greater percentage of that class
of voting securities immediately after the transaction.
The Federal Reserve Board, pursuant to regulation and published policy
statements, has maintained that a bank holding company must serve as a source of
financial strength to its subsidiary banks. In adhering to the Federal Reserve
Board policy, the Company may be required to provide financial support to a
subsidiary bank at a time when, absent such Federal Reserve Board policy, the
Company may not deem it advisable to provide such assistance. Under the BHCA,
the Federal Reserve Board may also require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Board's determination that the
activity or control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the bank holding company.
Further, federal bank regulatory authorities have additional discretion to
require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition.
THE BANKS
The Banks are subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the State Board, the Federal
Reserve System, and the FDIC. The State Board and the FDIC regulate or monitor
all areas of the Banks' operations, including security devices and procedures,
adequacy of capitalization and loss reserves, loans, investments, borrowings,
deposits, mergers, issuances of securities, payment of dividends, interest rates
payable
4
on deposits, interest rates or fees chargeable on loans, establishment of
branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices.
The Federal Reserve System and the FDIC also require the Banks to maintain
certain capital ratios (see "Federal Capital Regulations"), and the provisions
of the Federal Reserve Act require the Banks to observe certain restrictions on
any extensions of credit to the Company, or with certain exceptions, other
affiliates, on investments in the stock or other securities of other banks, and
on the taking of such stock or securities as collateral on loans to any
borrower. In addition, the Banks are prohibited from engaging in certain
"tie-in" or "tying" arrangements in connection with any extension of credit, or
the providing of any property or service. Tying is generally defined as any
arrangement in which a bank requires a customer who wants one service, such as
credit, to buy other products or services from the bank or its affiliates as a
condition of receiving the first service. The regulatory requirements to which
the Banks are subject also set forth various conditions regarding the
eligibility and qualification of their directors and officers.
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DIVIDENDS
Although the Company is not presently subject to any direct legal or regulatory
restrictions on dividends (other than the South Carolina state business
corporation law requirements that dividends may be paid only if such payment
would not render the Company insolvent or unable to meet its obligations as they
come due), the Company's ability to pay cash dividends will depend primarily
upon the amount of dividends paid by each of the Banks and any other
subsequently acquired entities. The Banks are subject to regulatory restrictions
on the payment of dividends, including the prohibition of payment of dividends
from each Bank's capital. All dividends of the Banks must be paid out of the
respective undivided profits then on hand, after deducting expenses, including
losses and bad debts. In addition, as a member of the Federal Reserve System,
each of the Banks is prohibited from declaring a dividend on its shares of
common stock until its surplus equals its stated capital, unless there has been
transferred to surplus no less than one-tenth of such bank's net profits of the
preceding two consecutive half-year periods (in the case of an annual dividend)
and the approval of the Federal Reserve Board is required if the total of all
dividends declared by any of the Banks in any calendar year exceeds the total of
its net profits for that year combined with that Bank's retained net profits for
the preceding two years, less any required transfers to surplus. The Banks are
subject to various other federal and state regulatory restrictions on the
payment of dividends, including receipt of the approval of the South Carolina
Commissioner of Banking prior to paying dividends to the Company.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") established two insurance funds under the jurisdiction of the FDIC:
the Savings Association Fund and the Bank Insurance Fund (see "FDIC
Regulations"). FIRREA also imposed, with certain exceptions, a "cross guaranty"
on the part of commonly controlled depository institutions such as the Banks.
Under this provision, if one depository institution subsidiary of a multi-bank
holding company fails or requires FDIC assistance, the FDIC may assess a
commonly controlled depository institution for the estimated losses suffered by
the FDIC. Consequently, each of the Banks is subject to assessment by the FDIC
related to any loss suffered by the FDIC arising out of the operations of the
other Banks. The FDIC's claim is junior to the claims of nonaffiliated
depositors, holders of secured liabilities, general creditors and subordinated
creditors but is superior to the claims of shareholders.
FDIC REGULATIONS
The FDIC establishes rates for the payment of premiums by federally insured
banks and thrifts for deposit insurance. Deposits in the Banks are insured by
the FDIC up to a maximum amount (generally $100,000 per depositor, subject to
aggregation rules), and the FDIC maintains an insurance fund for commercial
banks with insurance premiums from the industry used to offset losses from
insurance payouts when banks fail. The Banks pay premiums to the FDIC on their
deposits. Under FDIC rules, a depository institution pays to the FDIC a premium
of from $0.00 to $0.31 per $100 of insured deposits depending on its capital
levels and risk profile, as determined by its primary federal regulator on a
semi-annual basis. During 1998, each Bank's assessment rate was $500 per quarter
for insured deposits.
FEDERAL CAPITAL REGULATIONS
In an effort to achieve a measure of capital adequacy that is more sensitive to
the individual risk profiles of financial institutions, the Federal Reserve
Board, the FDIC, and other federal banking agencies have adopted risk-based
capital adequacy guidelines for banking organizations insured by the FDIC,
including each of the Banks. The capital adequacy guidelines issued by the
Federal Reserve Board are applied to bank holding companies, such as the
Company, on a consolidated basis with the banks owned by the holding company.
These guidelines redefine traditional capital ratios to take into account
assessments of risks related to each balance sheet category, as well as
off-balance sheet financing activities. The guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholders' equity, excluding the unrealized gain (loss) on available-for-sale
securities, less goodwill and other adjustments. Tier 2 capital consists of
mandatory convertible, subordinated and other qualifying term debt, preferred
stock not qualifying for Tier 1, and a limited allowance for credit losses up to
a designated percentage of risk-weighted assets. Under the guidelines,
institutions must maintain a specified minimum ratio of "qualifying" capital to
risk-weighted assets. At least 50% of an institution's qualifying capital must
be "core" or "Tier 1" capital, and the balance may be "supplementary" or "Tier
2" capital. The guidelines imposed on the Company and the Banks include a
minimum leverage ratio standard of capital adequacy. The leverage standard
requires top-rated institutions to maintain a minimum Tier 1 capital to assets
ratio of 3%, with institutions receiving less than the highest rating required
to maintain a minimum ratio of 4% or greater, based upon their particular
circumstances and risk profiles. Each of the Company's
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and the Banks' leverage and risk-based capital ratios at December 31, 1999,
exceeded their respective fully phased-in minimum requirements.
OTHER REGULATIONS
Interest and certain other charges collected or contracted for by the Banks are
subject to state usury laws and certain federal laws concerning interest rates.
The Banks' loan operations are also subject to certain federal laws applicable
to credit transactions, such as the federal Truth-In-Lending Act governing
disclosures of credit terms to consumer borrowers, the Community Reinvestment
Act of 1977 requiring financial institutions to meet their obligations to
provide for the total credit needs of the communities they serve, including
investing their assets in loans to low- and moderate-income borrowers, the Home
Mortgage Disclosure Act of 1975 requiring financial institutions to provide
information to enable public officials to determine whether a financial
institution is fulfilling its obligations to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act governing the manner in which consumer debts may be
collected by collection agencies, and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Banks also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that Act,
which govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
INTERSTATE AND INTRASTATE BANKING AND BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "1994 Act"), eligible bank holding companies in any state are permitted,
with Federal Reserve Board approval, to acquire banking organizations in any
other state. As such, all existing regional compacts and substantially all
regional limitations on interstate acquisitions of banking organizations have
been eliminated. The 1994 Act also removed substantially all of the existing
prohibitions on interstate branching by banks. A bank operating in any state is
now entitled to establish one or more branches within any other state without,
as formerly required, the establishment of a separate banking structure within
the other state.
The South Carolina Act permits the acquisition of South Carolina banks and bank
holding companies by, and mergers with, out-of-state banks and bank holding
companies with the prior approval of the State Board. The South Carolina Act
also permits South Carolina state banks, with prior approval of the State Board,
to operate branches outside the State of South Carolina. Although the 1994 Act
has the potential to increase the number of competitors in the marketplace of
each of the Banks, the Company cannot predict the actual impact of such
legislation on the competitive position of the Banks.
GRAMM-LEACH BLILEY ACT
The Gramm-Leach-Bliley Act (popularly referred to as the Financial Services
Modernization Act of 1999 prior to enactment) (the "GLB Act") became effective
March 11, 2000. The GLB Act accomplished a variety of purposes, including
facilitating the affiliation among banks, securities firms, and insurance
companies and providing privacy protections for customers. Specifically, the GLB
Act (a) amends the Banking Act of 1933 (the Glass-Steagall Act) to repeal the
prohibitions against affiliation of any Federal Reserve member bank, such as the
Banks, with an entity engaged principally in securities activities, and to
repeal the prohibitions against simultaneous service by any officer, director,
or employee of a securities firm as an officer, director, or employee of any
member bank; (b) 1.amends the BHCA to permit bank holding companies to own
shares in non-banking organizations whose activities have been determined by the
Federal Reserve System to be permissible for bank holding companies; (c)
2.30creates a new type of bank, wholesale financial institutions (also referred
to as "woofies"), which are regulated by the BHCA and are not able to accept
insured deposits, potentially giving holding companies with woofies greater
flexibility to engage in non-financial investments; (d) subject to specified
exemptions, pre-empts state anti-affiliation laws restricting transactions among
insured depository institutions, wholesale financial institutions, insurance
concerns, and national banks; (e) 4.amends the BHCA and the Federal Deposit
Insurance Act to mandate public meetings concerning proposed large bank mergers
and acquisitions; (f)amends the Electronic Fund Transfer Act to mandate certain
fee disclosures related to electronic fund transfer services; and (g) imposes
certain obligations on financial institutions to protect the privacy and
confidentiality of customer nonpublic personal information, including the
requirements that financial institutions establish standards for safeguards to
protect privacy and confidentiality, provide the standards to customers at the
time of establishing the customer relationship and annually during the
continuation of the relationship, condition disclosure
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of the private information to nonaffiliated third parties on the giving of
specific disclosures to consumers and giving consumers the opportunity to
prevent such disclosure to third parties.
Although the GLB Act has the potential to mix commerce and banking and increase
the Company's and the Banks' abilities to diversify into a variety of areas, the
Company cannot predict the actual impact of such legislation on the Company or
the Banks.
ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this PART I, Item 1 (Business) and in
PART II, Item 7 (Management's Discussion and Analysis of Financial Condition and
Results of Operations) 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 Annual
Report on Form 10-K 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 Banks; the ability of the Company to effectively
integrate and staff the operations of Banks as well as the operations allocated
to the base of deposits acquired in connection with branch acquisitions; the
ability of the Company to retain and deploy in a timely manner the cash
associated with branch acquisitions into assets with satisfactory yields and
credit risk profiles; the potential that loan charge-offs may exceed the
allowance for loan losses or that such allowance will be increased as a result
of factors beyond the control of the Company; the Company's dependence on senior
management; competition from existing financial institutions operating in the
Company's market areas as well as the entry into such areas of new competitors
with greater resources, broader branch networks and more comprehensive services;
the potential adverse impact on net income of rapidly declining interest rates;
adverse changes in the general economic conditions in the geographic markets
served by the Company; the challenges and uncertainties in the implementation of
the Company's expansion and development strategies; the potential negative
effects of future legislation affecting financial institutions; and other
factors described in this report and in other reports filed by the Company with
the Securities and Exchange Commission.
ITEM 2. PROPERTIES.
The Company operates out of an approximately 3,000 square foot building located
on approximately one acre of land leased from a third party in Greenwood, South
Carolina.
The Greenwood Bank operates out of an approximately 8,100 square foot building
located on approximately one acre of land owned by the Greenwood Bank in
Greenwood, South Carolina. The Greenwood Bank also operates two branch locations
in Greenwood, one of which is located on land owned by the Greenwood Bank and
the other of which is located on land the Greenwood Bank leases from a director
of the Company and the Greenwood Bank.
The Barnwell Bank operates out of an approximately 11,000 square foot building
located on a quarter acre parcel owned by the Barnwell Bank in Barnwell, South
Carolina. The Barnwell Bank also operates four branches located in Aiken,
Barnwell and Orangeburg Counties in South Carolina. Of the four branch banking
locations, one is leased from a third party and three are owned by the Barnwell
Bank.
The Belton Bank operates out of an approximately 1600 square foot building
located on approximately five acres of land in Belton, South Carolina. The land
is owned by the Belton Bank and the building is leased by the Belton Bank from
the Company. The Belton Bank also operates two branches located on land owned by
the Company and leased to the Belton Bank in Anderson County, South Carolina.
The Belton Bank recently purchased land and a building in Anderson, South
Carolina to be used for possible future expansion.
The Clemson Bank operates out of an approximately 9,100 square foot building
located on approximately one and one-half acres of land owned by the Clemson
Bank in Clemson, South Carolina. The Clemson Bank also operates a branch located
on land owned by the Company and leased to the Clemson Bank in Abbeville County,
South Carolina.
8
The Newberry Bank operates out of an approximately 7,500 square foot building
located on approximately two acres of land owned by the Newberry Bank in
Newberry, South Carolina. The Newberry Bank also operates loan production
offices in Lexington and Saluda Counties, South Carolina, both of which are
leased from third parties.
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of the Banks are parties to legal proceedings which have
arisen in the ordinary course of their respective businesses. None of these
proceedings is expected to have a material effect on the consolidated financial
condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The common stock of the Company (the "Common Stock") is listed for trading on
the American Stock Exchange under the symbol "CYL". The table below reflects the
high and low sales price per share for the Common Stock reported on the American
Stock Exchange for the periods indicated.
YEAR QUARTER HIGH LOW
1999 Fourth........$ 10.37 $ 6.87
Third......... 10.00 8.25
Second........ 11.00 9.12
First......... 10.62 9.25
1998 Fourth........$ 12.12 $ 9.50
Third......... 16.37 10.12
Second........ 18.75 15.75
First......... 18.87 14.50
As of March 15, 2000, there were 3,084,956 shares of Common Stock outstanding
held by approximately 1,249 shareholders of record.
The Company has not declared or distributed any cash dividends to its
shareholders since its organization in 1988, and it is not likely that any cash
dividends will be declared in the near term. The Board of Directors of the
Company intends to follow a policy of retaining any earnings to provide funds to
operate and expand the business of the Company and the Banks for the foreseeable
future. The future dividend policy of the Company is subject to the discretion
of the Board of Directors and will depend upon a number of factors, including
future earnings, financial condition, cash requirements, and general business
conditions. The Company's ability to distribute cash dividends will depend
entirely upon the Banks' abilities to distribute dividends to the Company. As
state banks, the Banks are subject to legal limitations on the amount of
dividends each is permitted to pay. In particular, the Banks must receive the
approval of the State Board prior to paying dividends to the Company.
Furthermore, neither the Banks nor the Company may declare or pay a cash
dividend on any of their capital stock if they are insolvent or if the payment
of the dividend would render them insolvent or unable to pay their obligations
as they become due in the ordinary course of business. See "Government
Supervision and Regulation -- Dividends."
During the fiscal year ended December 31, 1999, the Company sold an aggregate of
27,871 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 amounts of such sales:
DATE SHARES PROCEEDS
---- ------ --------
January 4, 1999 2,018 $19,171
February 2, 1999 3,292 30,418
March 1, 1999 2,279 22,517
April 5, 1999 2,157 19,974
9
May 11, 1999 3,566 32,379
June 7, 1999 1,966 20,397
July 7, 1999 1,855 18,550
August 5, 1999 2,164 20,558
September 2, 1999 2,192 20,002
October 6, 1999 2,289 19,457
November 3, 1999 2,154 17,501
December 14, 1999 1,939 15,512
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 and
other information with respect to the Company and possessed requisite financial
sophistication . The Company did not sell any other equity securities during the
fiscal year ended December 31, 1999 which were not registered under the 1933
Act.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the five years ended
December 31, 1999 are derived from the consolidated financial statements and
other data of the Company. The consolidated financial statements for the years
ended December 31, 1995 through 1999, were audited by Tourville, Simpson &
Caskey, L.L.P., independent auditors. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements of the
Company, including the accompanying notes, included elsewhere herein.
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Interest income $ 23,199 $ 21,043 $ 14,443 $ 8,201 $ 6,217
Interest expense 11,850 11,198 7,172 4,006 2,948
Net interest income 11,349 9,845 7,271 4,195 3,269
Provision for loan losses 1,037 1,836 608 187 112
Net interest income after provision for
loan losses 10,312 8,009 6,663 4,008 3,157
Net securities gains (losses) 175 220 (1) 17 (22)
Noninterest income 3,005 2,797 1,572 1,122 729
Noninterest expense 12,014 10,228 7,248 4,141 3,069
Income before income taxes 1,478 798 986 1,006 795
Applicable income taxes 150 34 220 300 261
Net income $ 1,328 $ 764 $ 766 $ 706 $ 534
BALANCE SHEET DATA:
Assets $ 359,668 $ 321,031 $ 248,861 $ 115,959 $ 96,100
Earning assets 328,478 295,213 227,372 106,770 89,233
Securities (1) 108,926 120,695 77,480 25,479 23,699
Loans (2) 219,054 172,545 149,127 80,546 63,204
Allowance for loan losses 2,557 2,399 1,531 837 671
Deposits 257,247 260,120 186,861 89,862 73,138
Federal Home Loan Bank advances 20,729 9,434 16,350 4,889 6,244
Shareholders' equity 31,218 33,430 31,928 13,556 12,932
PER SHARE DATA (3):
Basic earnings per share $ 0.43 $ 0.25 $ 0.27 $ 0.55 $ 0.55
Diluted earnings per share 0.43 0.24 0.26 0.52 0.50
Book value (period end) (4) 10.00 10.81 10.47 10.59 10.17
Tangible book value (period end) (4) 8.30 9.01 9.45 10.55 10.13
SELECTED RATIOS:
Return on average assets 0.40% 0.27% 0.40% 0.67% 0.68%
Return on average equity 4.12 2.33 2.68 5.41 5.69
Net interest margin (5) 3.74 3.76 4.16 4.29 4.49
Efficiency (6) 83.70 80.90 81.96 77.28 76.78
Allowance for loan losses to loans 1.17 1.39 1.03 1.04 1.06
Net charge-offs to average loans 0.47 0.62 0.15 0.03 0.03
Nonperforming assets to period end loans and
foreclosed property (2) (7) 0.56 0.78 0.63 0.23 0.02
Average equity to average assets 9.72 11.48 14.92 12.37 11.99
Leverage (4.00% required minimum) 8.37 8.89 12.08 11.62 13.21
Tier 1 risk-based capital ratio 11.85 13.78 17.65 15.58 18.46
Total risk-based capital ratio 12.90 15.00 18.61 16.54 19.41
Average loans to average deposits 72.97 69.65 76.78 88.06 93.03
- --------------
1) Securities held to maturity are stated at amortized cost, and securities
available for sale are stated at fair value.
2) Loans are stated before the allowance for loan losses.
3) All share and per share data have been adjusted to reflect the 5% Common
Stock dividends in April 1994, August 1995, May 1996 and September 1998.
4) Excludes the effect of any outstanding stock options.
5) Net interest income dividend by average earning assets.
6) Noninterest expense divided by the sum of net interest income and
noninterest income, net of gains and losses on sales of assets.
11
7) Nonperforming loans and nonperforming assets do not include loans past due
90 days or more that are still accruing interest.
QUARTERLY OPERATING RESULTS
1999 Quarter ended 1998 Quarter ended
------------------------------------------------ -----------------------------------------------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE) Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
----------- ------------ ----------- ----------- ---------- ------------ ----------- -----------
Net interest income $ 3,151 $ 2,883 $ 2,726 $ 2,589 $ 2,731 $ 2,502 $ 2,373 $ 2,239
Provision for loan losses 351 177 235 274 904 339 286 307
Noninterest income 665 697 981 837 606 934 850 627
Noninterest expense 3,177 2,968 3,061 2,808 3,018 2,650 2,450 2,110
Net income 265 380 364 319 (283) 339 396 312
Basic earnings per share .09 .12 .12 .10 (.09) .11 .13 .10
Diluted earnings per share .09 .12 .12 .10 (.09) .11 .12 .10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE PRECEDING
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES
THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.
THE FINANCIAL INFORMATION PROVIDED BELOW HAS BEEN ROUNDED IN ORDER TO SIMPLIFY
ITS PRESENTATION. HOWEVER, THE RATIOS AND PERCENTAGES PROVIDED BELOW ARE
CALCULATED USING THE DETAILED FINANCIAL INFORMATION CONTAINED IN THE FINANCIAL
STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN
THIS ANNUAL REPORT.
GENERAL
Community Capital Corporation is a bank holding company headquartered in
Greenwood, South Carolina which operates through five community banks
(collectively, the "subsidiary banks") in non-metropolitan markets in the State
of South Carolina and through a subsidiary which performs trust services for its
subsidiary banks. The Company pursues a community banking business which is
characterized by personalized service and local decision-making and emphasizes
the banking needs of individuals and small to medium-sized businesses.
The Company was formed in 1988 to serve as a holding company for the Greenwood
National Bank, now Greenwood Bank & Trust (the "Greenwood Bank"), principally in
response to perceived opportunities resulting from takeovers of several South
Carolina-based banks by large southeastern regional bank holding companies. In
many cases, when these consolidations occur, local boards of directors are
dissolved and local management is relocated or terminated. The Company believes
this situation creates favorable opportunities for new community banks with
local management and local directors. Management believes that such banks can be
successful in attracting individuals and small to medium-sized businesses as
customers who wish to conduct business with a locally owned and managed
institution that demonstrates an active interest in their business and personal
financial affairs.
In 1994, the Company made the strategic decision to expand beyond the Greenwood
County area by creating an organization of independently managed community banks
that serve their respective local markets but which share a common vision and
benefit from the strength, resources, and economies of a larger institution. In
June 1995, the Company opened Clemson Bank & Trust (the "Clemson Bank") in
Clemson, South Carolina. During 1996, the Company made the decision to acquire
and capitalize three de novo banks which were being organized in Barnwell,
Belton, and Newberry, South Carolina. In February 1997, Community Bank & Trust
(formerly Bank of Barnwell County, the "Barnwell Bank") opened as a subsidiary
of the Company. Similarly, in March 1997, TheBank (formerly the Bank of Belton,
the "Belton Bank") opened, and, in July 1997, Mid State Bank (formerly The Bank
of Newberry County the "Newberry Bank") opened. The Company also formed a
separate trust organization in 1997 known as Community Trust Services, Inc. In
1998, the Company changed the name from Community Trust Services, Inc., to
Community Trust Company.
On February 25, 1998, the Clemson Bank and the Belton Bank entered into Purchase
and Assumption Agreements with Carolina First Bank to acquire certain assets and
deposits associated with three branch offices of Carolina First Bank. On June
15, 1998, the Clemson Bank acquired net loans (including accrued interest
receivable) of approximately $580,000 and assumed deposits (including accrued
interest payable) of approximately $4.7 million of a Carolina First Branch in
Abbeville County, South Carolina. Also on June 15, 1998 the Belton Bank acquired
net loans (including accrued interest receivable) of approximately $1.6 million
and assumed deposits (including accrued interest payable) of approximately $38.7
million of two branches in Anderson County, South Carolina. The parent company
also purchased premises and equipment of approximately $637,000 during the
branch acquisitions. In connection with these Carolina First
12
Branches, the Clemson Bank paid a premium of $324,000 and the Belton Bank paid a
premium of $2.4 million, both of which are being amortized over a fifteen-year
period on a straight-line basis.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net interest income increased $1.5 million, or 15.3%, to $11.3 million in 1999
from $9.8 million in 1998. The increase in net interest income was due primarily
to an increase in average earning assets. Average earning assets increased $41.4
million, or 15.81%, due to the growth of the subsidiary banks in 1999.
The Company's net interest spread and net interest margin were 3.28% and 3.74%,
respectively, in 1999 compared to 3.14% and 3.76% in 1998. The increase in the
net interest spread was primarily the result of the decrease in yields on
interest-bearing liabilities used to fund loans and securities. Yields on
interest-bearing liabilities decreased from 4.89% in 1998 to 4.36% in 1999. The
net interest margin decreased slightly from 3.76% in 1998 to 3.74% in 1999. The
overall decrease in yields on earning assets contributed to this decrease.
The provision for loan losses was $1,037,000 in 1999 compared to $1,836,000 in
1998. The significant amount charged to the provision in 1998 was primarily the
result of significant loan problems at the Barnwell Bank. Management feels that
it has taken the appropriate actions to correct the problem loan situation at
the Barnwell Bank. The Company's allowance for loan losses was 1.17% of total
loans outstanding at December 31, 1999. In addition, the provision was funded to
match the growth in the loan portfolio from the growth of the subsidiary banks
and the subsidiary banks' efforts to maintain their respective allowances for
loan losses at levels sufficient to cover known and inherent losses in their
loan portfolios.
Noninterest income increased $163,000, or 5.40%, to $3.2 million in 1999 from
$3.0 million in 1998, which was primarily attributable to increased service
charges on deposit accounts and increased fees from mortgage loan originations.
The increase in service charges on deposit accounts was attributable to the
increase in the number of deposit accounts from the growth of the subsidiary
banks. Income from the origination of mortgage loans was $672,000 in 1999
compared to $613,000 in 1998. Other income for the year ended December 31, 1998
also included $130,000 from the sale of the Greenwood Bank's Ninety Six branch.
Noninterest expense increased $1.8 million, or 17.5%, to $12.0 million in 1999
from $10.2 million in 1998. The primary component of noninterest expense is
salaries and employee benefits, which increased $1.0 million, or 21.4%, to $5.7
million in 1999 from $4.7 million in 1998. The increase is attributable to an
increase in the number of employees due to the growth of the subsidiary banks
and annual pay raises. Other categories of expenses increased due to the growth
of the subsidiary banks from a full year of operation relating to the
acquisition of the Carolina First Branches in 1998. Net occupancy expense was
$819,000 in 1999 compared to $703,000 in 1998, and furniture and equipment
expense was $1,385,000 in 1999 compared to $1,129,000 in 1998. The Company
recorded amortization of intangible assets related to acquisitions of $537,000
in 1999 compared to $443,000 in 1998. The Company's efficiency ratio was 83.70%
in 1999 compared to 80.90% in 1998.
Net income increased $564,000, or 73.82%, to $1,328,000 in 1999 from $764,000 in
1998. Basic earnings per share were $.43 in 1999, compared to $.25 in 1998.
Diluted earnings per share were $.43 in 1999, compared to $.24 in 1998. Return
on average assets during 1999 was .40% compared to 0.27% during 1998, and return
on average equity was 4.12% during 1999 compared to 2.33% during 1998.
13
YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net interest income increased $2.6 million, or 35.4%, to $9.8 million in 1998
from $7.3 million in 1997. The increase in net interest income was due primarily
to an increase in average earning assets. Average earning assets increased $87.3
million, or 49.9%, due to the growth of the Barnwell Bank, the Belton Bank, and
the Newberry Bank (the "New Banks") and the acquisition of the Carolina First
Branches in 1998.
The Company's net interest spread and net interest margin were 3.14% and 3.76%,
respectively, in 1998 compared to 3.35% and 4.16% in 1997. The decreases in the
net interest spread and net interest margin were primarily the result of the
growth in the volume of investment securities, traditionally lower yielding
assets than loans, as a percentage of average earning assets. The net cash
received from the acquisition of the Carolina First Branches in 1998 was
invested in debt securities until the Company is able to shift the funds to
loans to achieve the Company's targeted loan-to-deposit ratio and maximize
earnings.
The provision for loan losses was $1,836,000 in 1998 compared to $608,000 in
1997. The increase in the provision was primarily the result of significant loan
problems at the Barnwell Bank which caused it to record a provision for loan
losses of $1,278,000 in 1998. Management feels that it has taken the appropriate
actions to correct the problem loan situation at the Barnwell Bank. The
Company's allowance for loan losses was 1.39% of total loans outstanding at
December 31, 1998. In addition, the provision was funded to match the growth in
the loan portfolio from the growth of the New Banks and the subsidiary banks'
efforts to maintain their respective allowances for loan losses at levels
sufficient to cover known and inherent losses in their loan portfolios.
Noninterest income increased $1.4 million, or 92.0%, to $3.0 million in 1998
from $1.6 million in 1997, which was primarily attributable to increased service
charges on deposit accounts and increased fees from mortgage loan originations.
The increase in service charges on deposit accounts was attributable to the
increase in the number of deposit accounts from the growth of the New Banks.
Income from the origination of mortgage loans was $613,000 in 1998 compared to
$271,000 in 1997. The Company also recognized gains on sales of securities of
$220,000 in 1998 compared to losses on sales of securities of $1,000 in 1997.
Other income for the year ended December 31, 1998 also included $130,000 from
the sale of the Greenwood Bank's Ninety Six branch.
Noninterest expense increased $3.0 million, or 41.1%, to $10.2 million in 1998
from $7.2 million in 1997. The primary component of noninterest expense is
salaries and employee benefits, which increased $1.4 million, or 40.8%, to $4.7
million in 1998 from $3.3 million in 1997. The increase is attributable to an
increase in the number of employees due to the growth of the New Banks and to
staff the Carolina First Branches acquired in 1998 and 1997. Other categories of
expenses increased due to the growth of the New Banks and the acquisition of the
Carolina First Branches in 1998. Net occupancy expense was $703,000 in 1998
compared to $479,000 in 1997, and furniture and equipment expense was $1,129,000
in 1998 compared to $771,000 in 1997. The Company recorded amortization of
intangible assets related to the Carolina First Branch acquisitions of $443,000
in 1998 compared to $246,000 in 1997. The Company's efficiency ratio was 80.90%
in 1998 compared to 81.96% in 1997.
Net income decreased $2,000, or .3%, to $764,000 in 1998 from $766,000 in 1997.
The decrease in net income was due primarily to the significant increase in the
provision for loan losses and increase in other expenses. Return on average
assets during 1998 was 0.27% compared to 0.40% during 1997, and return on
average equity was 2.33% during 1998 compared to 2.68% during 1997.
14
NET INTEREST INCOME
GENERAL. The largest component of the Company's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the yields earned on the Company's interest-earning assets and
the rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents the Company's net interest margin.
AVERAGE BALANCES, INCOME, EXPENSES AND RATES. The following tables set forth,
for the periods indicated, certain information related to the Company's average
balance sheet and its average yields on assets and average costs of liabilities.
Such yields are derived by dividing income or expense by the average balance of
the corresponding assets or liabilities. Average balances have been derived from
the daily balances throughout the periods indicated.
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
YEAR ENDED DECEMBER 31, 1999 1998 1997
------------------------------ ------------------------------- -----------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
ASSETS:
Earning Assets
Loans (1) $ 188,672 $ 16,613 8.81% $ 161,695 $ 14,942 9.24% $ 113,080 $ 10,604 9.38%
Securities, taxable (2) 84,913 5,037 5.93 76,287 4,798 6.29 45,871 3,026 6.60
Securities, nontaxable 24,505 1,220 4.98 15,171 751 4.95 9,056 441 4.87
Nonmarketable equity securities 4,758 295 6.20 4,085 216 5.29 2,751 133 4.83
Federal funds sold and other 696 34 4.89 4,864 336 6.91 4,074 239 5.87
Total earning assets 303,544 23,199 7.64 262,102 21,043 8.03 174,832 14,443 8.26
Cash and due from banks 8,117 7,168 5,231
Premises and equipment 10,835 8,288 6,883
Other assets 11,711 9,746 5,818
Allowance for loan losses (2,509) (1,912) (1,134)
Total assets $ 331,698 $ 285,392 $ 191,630
LIABILITIES:
Interest-Bearing Liabilities
Interest-bearing transaction
accounts $ 81,210 2,373 2.92% $ 64,836 $ 2,241 3.46% $ 22,482 $ 547 2.43%
Savings deposits 26,658 954 3.58 21,118 847 4.01 30,659 1,335 4.35
Time deposits 125,596 6,375 5.08 124,871 7,040 5.64 78,572 4,443 5.65
Other short-term borrowings 20,454 1,169 5.72 3,534 227 6.42 5,326 318 5.97
Federal Home Loan Bank
advances 16,108 865 5.37 13,132 760 5.79 8,968 529 5.90
Long-term debt 1,588 114 7.18 1,530 83 5.42 - - -
Total interest-bear-
ing liabilities 271,614 11,850 4.36 229,021 11,198 4.89 146,007 7,172 4.91
Demand deposits 25,101 21,338 15,567
Accrued interest and other
liabilities 2,752 2,204 1,471
Shareholders' equity 32,231 32,829 28,585
Total liabilities and
shareholders' equity $ 331,698 $ 285,392 $ 191,630
Net interest spread 3.28% 3.14% 3.35%
Net interest income $ 11,349 $ 9,845 $ 7,271
Net interest margin 3.74% 3.76% 4.16%
(1) The effect of loans in nonaccrual status and fees collected is not
significant to the computations. All loans and deposits are domestic.
(2) Average investment securities exclude the valuation allowance on securities
available for sale.
15
ANALYSIS OF CHANGES IN NET INTEREST INCOME. The following tables set forth the
effect which the varying levels of earning assets and interest-bearing
liabilities and the applicable rates have had on changes in net interest income
from 1999 to 1998 and 1998 to 1997.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH 1998 1998 COMPARED WITH 1997
------------------------------------------- ----------------------------------------
VARIANCE DUE TO VARIANCE DUE TO
(DOLLARS IN THOUSANDS) VOLUME (1) RATE (1) TOTAL VOLUME (1) RATE (1) TOTAL
------------- ------------- ------------- ------------- -------------- -----------
EARNING ASSETS
Loans $ 2,401 (730) 1,671 $ 4,494 $ (156) $ 4,338
Securities, taxable 522 (283) 239 1,919 (147) 1,772
Securities, nontaxable 465 4 469 303 7 310
Nonmarketable equity securities 39 40 79 70 13 83
Federal funds sold and other (225) (77) (302) 51 46 97
Total interest income 3,202 (1,046) 2,156 6,837 (237) 6,600
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing transaction accounts 511 (379) 132 1,385 309 1,694
Savings and market rate investments 205 (98) 107 (389) (99) (488)
Time deposits 41 (706) (665) 2,610 (13) 2,597
Total interest-bearing deposits 757 (1,183) (426) 3,606 197 3,803
Other short-term borrowings 970 (28) 942 (114) 23 (91)
Federal Home Loan Bank advances 163 (58) 105 241 (10) 231
Long-term debt 3 28 31 83 - 83
Total interest expense 1,893 (1,241) 652 3,816 210 4,026
Net interest income $ 1,309 195 1,504 $ 3,021 $ (447) $ 2,574
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
INTEREST SENSITIVITY. The Company monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by the Company is the measurement of the
Company's interest sensitivity "gap", which is the positive or negative dollar
difference between assets and liabilities that are subject to interest rate
repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities available for
sale, replacing an asset or liability at maturity, or adjusting the interest
rate during the life of an asset or liability. Managing the amount of assets and
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
16
The following table sets forth the Company's interest rate sensitivity at
December 31, 1999.
INTEREST SENSITIVITY ANALYSIS
AFTER ONE AFTER THREE GREATER THAN
WITHIN THROUGH THROUGH ONE YEAR
ONE THREE TWELVE WITHIN OR NON-
DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) MONTH MONTHS MONTHS ONE YEAR SENSITIVE TOTAL
-------------- ------------- ------------- ------------- ------------- -----------
ASSETS
Earning Assets
Loans (1) $ 62,090 $ 7,309 $ 25,612 $ 95,011 $ 122,820 $ 217,831
Securities - 200 399 599 108,327 108,926
Federal funds sold and other 498 - - 498 - 498
Total earning assets 62,588 7,509 26,011 96,108 231,147 327,255
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Demand deposits 45,739 - - 45,739 - 45,739
Savings deposits 64,882 - - 64,882 - 64,882
Time deposits 9,258 23,558 74,577 107,393 11,811 119,204
Total interest-bearing deposits 119,879 23,558 74,577 218,014 11,811 229,825
Other short-term borrowings 46,493 - - 46,493 - 46,493
Federal Home Loan Bank advances - 800 7,600 8,400 12,329 20,729
Long-term debt - 500 - 500 1,075 1,575
Total interest-bearing liabilities 166,372 24,858 82,177 273,407 25,215 298,622
Period gap $ (103,784) $ (17,349) $ (56,166) $ (177,299) $ 205,932
Cumulative gap $ (103,784) $ (121,133) $ (177,299) $ (177,299) $ 28,633
Ratio of cumulative gap to total earning assets (31.71)% (37.01)% (54.18)% (54.18)% 8.75%
(1) Excludes nonaccrual loans.
The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds are reflected at the earliest pricing interval
due to the immediately available nature of the instruments. Debt securities are
reflected at each instrument's ultimate maturity date. Scheduled payment amounts
of fixed rate amortizing loans are reflected at each scheduled payment date.
Scheduled payment amounts of variable rate amortizing loans are reflected at
each scheduled payment date until the loan may be repriced contractually; the
unamortized balance is reflected at that point. Interest-bearing liabilities
with no contractual maturity, such as savings deposits and interest-bearing
transaction accounts, are reflected in the earliest repricing period due to
contractual arrangements which give the Company the opportunity to vary the
rates paid on those deposits within a thirty-day or shorter period. Fixed rate
time deposits, principally certificates of deposit, are reflected at their
contractual maturity date.
The Company generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap position and generally would benefit from
decreasing market rates of interest when it is liability-sensitive. The Company
is liability sensitive over the one month, three month, and one year time
frames. However, the Company's gap analysis is not a precise indicator of its
interest sensitivity position. The analysis presents only a static view of the
timing of maturities and repricing opportunities, without taking into
consideration that changes in interest rates do not affect all assets and
liabilities equally. For example, rates paid on a substantial portion of core
deposits may change contractually within a relatively short time frame, but
those rates are viewed by management as significantly less interest-sensitive
than market-based rates such as those paid on non-core deposits. Accordingly,
management believes a liability-sensitive gap position is not as indicative of
the Company's true interest sensitivity as it would be for an organization which
depends to a greater extent on purchased funds to support earning assets. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
17
PROVISION AND ALLOWANCE FOR LOAN LOSSES
GENERAL. The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. On a quarterly basis, each subsidiary bank's Board of
Directors reviews and approves the appropriate level for that subsidiary bank's
allowance for loan losses based upon management's recommendations, the results
of the internal monitoring and reporting system, analysis of economic conditions
in its markets, and a review of historical statistical data for both the Company
and other financial institutions.
Additions to the allowance for loan losses, which are expensed as the provision
for loan losses on the Company's income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk in the loan portfolio. Loan losses and recoveries are charged
or credited directly to the allowance. The amount of the provision is a function
of the level of loans outstanding, the level of nonperforming loans, historical
loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions.
The Company's allowance for loan losses is based upon judgments and assumptions
of risk elements in the portfolio, future economic conditions and other factors
affecting borrowers. The process includes identification and analysis of loss
potential in various portfolio segments utilizing a credit risk grading process
and specific reviews and evaluations of significant problem credits. In
addition, management monitors the overall portfolio quality through observable
trends in delinquency, charge-offs, and general and economic conditions in the
service area. The adequacy of the allowance for loan losses and the
effectiveness of the Company's monitoring and analysis system are also reviewed
periodically by the banking regulators and the Company's independent auditors.
Based on present information and an ongoing evaluation, management considers the
allowance for loan losses to be adequate to meet presently known and inherent
risks in the loan portfolio. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable but which may or may not be valid. Thus, there can be
no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required. The Company does not allocate the allowance for loan
losses to specific categories of loans but evaluates the adequacy on an overall
portfolio basis utilizing a risk grading system.
The following table sets forth certain information with respect to the Company's
allowance for loan losses and the composition of charge-offs and recoveries for
each of the last five years.
ALLOWANCE FOR LOAN LOSSES
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
------------- ------------ ------------- ------------ -------------
Total loans outstanding at end of period, net of unearned
income $ 219,054 $ 172,545 $ 149,127 $ 80,546 $ 63,204
Average loans outstanding, net of unearned income $ 188,672 $ 161,695 $ 113,080 $ 71,298 $ 55,018
Balance of allowance for loan losses at beginning of period $ 2,399 $ 1,531 $ 837 $ 671 $ 581
Allowance for loan losses from acquisitions - 38 255 - -
Loan losses:
Commercial, financial and agricultural 287 135 92 - 18
Real estate - mortgage 306 43 9 - -
Consumer 449 885 68 21 4
Total loan losses 1,042 1,063 169 21 22
Recoveries of previous loan losses:
Commercial, financial and agricultural - - - - -
Real estate - mortgage 17 - - - -
Consumer 146 57 - - -
Total recoveries 163 57 - - -
Net loan losses 879 1,006 169 21 22
Provision for loan losses 1,037 1,836 608 187 112
Balance of allowance for loan losses at end of period $ 2,557 $ 2,399 $ 1,531 $ 837 $ 671
Allowance for loan losses to period end loans 1.17% 1.39% 1.03% 1.04% 1.06%
Net charge-offs to average loans 0.47 0.62 0.15 0.03 0.03
18
NONPERFORMING ASSETS. The following table sets forth the Company's nonperforming
assets for the dates indicated.
NONPERFORMING ASSETS
DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
------------- ------------ ------------ ------------- ------------
Nonaccrual loans $ 1,223 $ 1,348 $ 678 $ 186 $ 13
Restructured or impaired loans - - - - -
Total nonperforming loans 1,223 1,348 678 186 13
Other real estate owned - - 262 - -
Total nonperforming assets $ 1,223 $ 1,348 $ 940 $ 186 $ 13
Loans 90 days or more past due and still accruing interest $ 109 $ 112 $ 84 $ 54 $ 60
Nonperforming assets to period end loans and
foreclosed property 0.56% 0.78% 0.63% 0.23% 0.02%
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. When a loan is placed in nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from current earnings as a reduction of reported interest income.
No additional interest is accrued on the loan balance until the collection of
both principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which would
have been recognized into earnings if the Company's nonaccrual loans had been
current in accordance with their original terms, is immaterial.
Total nonperforming assets decreased to $1.2 million at December 31, 1999, from
$1.3 million at December 31, 1998. This amount consists primarily of nonaccrual
loans at the Greenwood Bank which totaled $1.1 million at December 31, 1999.
Fourteen loans comprised this total at the Greenwood Bank. Nonperforming assets
were .56% of total loans and foreclosed property at December 31, 1999. The
allowance for loan losses to period end nonperforming assets was 209.59% at
December 31, 1999.
POTENTIAL PROBLEM LOANS. At December 31, 1999, through their internal review
mechanisms, the subsidiary banks had identified $5.3 million of criticized loans
and $3.4 million of classified loans. The results of this internal review
process are the primary determining factor in management's assessment of the
adequacy of the allowance for loan losses.
The Company's Barnwell Bank incurred significant loan losses in 1998 and 1999
that were primarily attributable to a large number of small-dollar consumer
loans that originated during the fourth quarter of 1997 and the beginning of
1998. When the loan problem first surfaced, certain loan personnel and
administrative changes were made to correct the situation. However, the
magnitude of the problem was not fully realized until the fourth quarter of 1998
when an extensive examination was made of the Barnwell Bank's complete loan
portfolio. As a result of this examination the loan loss provision for the
Barnwell Bank was increased to $806,542 for the fourth quarter of 1998 and to
$1,278,000 for the year which increased its allowance for loan losses to 2.14%
of total loans outstanding at December 31, 1998. In 1999, the Barnwell Bank
added $306,000 to the provision for loan losses and charged off $537,568 in
nonperforming loans. While management feels that it has taken the necessary
actions to correct the problem loan situation at the Barnwell Bank, the internal
review process has identified a number of criticized and classified loans that
still existed at December 31, 1999. Of the Company's $5.3 million of criticized
loans and $3.4 million of classified loans, $793,454 and $2.4 million were
identified at the Barnwell Bank, respectively.
The Greenwood Bank also incurred significant losses in 1999. The Greenwood Bank
charged off $451,568 in nonperforming loans. The Greenwood Bank added $363,000
to its provision for loan loss, bringing the allowance for loan losses to total
loans to .90%. The Greenwood Bank will continue to deal with nonperforming loans
in the coming year as well. At December 31, 1999, the internal review process
had identified $2.0 million in criticized loans and $1.9 million in classified
loans.
Management is committed to addressing potential problem loans at all subsidiary
banks.
19
NONINTEREST INCOME AND EXPENSE
NONINTEREST INCOME. The largest component of noninterest income is service
charges on deposit accounts, which totaled $1.5 million in 1999, a 20.1%
increase over the 1998 level of $1.3 million. The increase in service charges
was primarily attributable to an increase in the customer base due to the growth
of the subsidiary banks in 1999.
The following table sets forth, for the periods indicated, the principal
components of noninterest income:
NONINTEREST INCOME
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997
------------ ------------- ------------
Service charges on deposit accounts $ 1,513 $ 1,260 $ 842
Residential mortgage origination fees 672 613 271
Securities gains (losses) 175 220 (1)
Commissions from sales of mutual funds 54 104 54
Income from fiduciary activities 98 133 37
Other income 668 687 368
Total noninterest income $ 3,180 $ 3,017 $ 1,571
NONINTEREST EXPENSE. Salaries and employee benefits increased $1.0 million, or
21.4%, to $5.7 million in 1999 from $4.7 million in 1998, primarily as a result
of an increase in the number of employees in order to staff the growth of the
subsidiary banks and for annual pay raises. The growth of the subsidiary banks
also resulted in increases in all other categories of noninterest expense. The
Company is amortizing the intangible assets associated with its acquisitions
over periods ranging from five to fifteen years. During 1999, the Company
recorded amortization expense of $537,000 compared to $443,000 in 1998. The
factors above resulted in increases in net occupancy expense, furniture and
equipment expense, and other operating expenses. The Company's efficiency ratio,
which is noninterest expense as a percentage of the total of net interest income
plus noninterest income, net of gains and losses on the sale of assets, was
83.70% in 1999 compared to 80.90% in 1998 and 81.96% in 1997.
The following table sets forth, for the periods indicated, the primary
components of noninterest expense:
NONINTEREST EXPENSE
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997
----------- ------------- ------------
Salaries and employee benefits $ 5,690 $ 4,688 $ 3,329
Net occupancy expense 819 703 479
Furniture and equipment expense 1,385 1,129 771
Director and committee fees 76 182 124
Amortization of intangible assets 537 443 246
Data processing and supplies 205 135 151
Mortgage loan department expense 247 191 94
Banking assessments 77 58 44
Professional fees 432 360 205
Postage and freight 312 278 200
Supplies 391 367 451
Credit card expenses 188 139 120
Telephone expenses 307 364 214
Other 1,348 1,191 820
Total noninterest expense $ 12,014 $ 10,228 $ 7,248
Efficiency ratio 83.70% 80.90% 81.96%
INCOME TAXES. The Company's income tax expense was $150,000, an increase of
$116,000 from the 1998 amount of $34,000. The increase is primarily attributable
to an increase in income before taxes of $680,000 when compared to 1998.
However, the amount of nontaxable income from securities offset the majority of
income before taxes. Nontaxable securities income was $1,220,000 for the year
ended December 31, 1999, as compared to $751,000 for the year ended December 31,
1998.
20
EARNING ASSETS
LOANS. Loans are the largest category of earning assets and typically provide
higher yields than the other types of earning assets. Associated with the higher
loan yields are the inherent credit and liquidity risks which management
attempts to control and counterbalance. Loans averaged $188.7 million in 1999
compared to $161.7 million in 1998, an increase of $27.0 million, or 16.68%. At
December 31, 1999, total loans were $219.1 million compared to $172.5 million at
December 31, 1998.
The increase in loans during 1999 was primarily due to the continued growth in
the new markets created by the subsidiary banks. The subsidiary banks have also
sought opportunities to participate in loans originated by other financial
institutions. The following table sets forth the composition of the loan
portfolio by category at the dates indicated and highlights the Company's
general emphasis on mortgage lending.
COMPOSITION OF LOAN PORTFOLIO
DECEMBER 31, 1999 1998 1997 1996 1995
-------------------- ------------------ ----------------- ----------------- ------------------
Percent Percent Percent Percent Percent
(DOLLARS IN THOUSANDS) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
--------- -------- ------ -------- ------ -------- ------ -------- ------ --------
Commercial, financial and
agricultural $ 29,740 13.58% $ 28,991 16.80% $ 36,079 24.19% $ 15,348 19.05 % $ 13,349 21.12%
Real estate
Construction 28,664 13.09 23,665 13.72 12,838 8.61 9,962 12.37 8,483 13.42
Mortgage-residential 66,092 30.17 52,635 30.51 40,977 27.48 31,519 39.13 22,515 35.62
Mortgage-
nonresidential 58,419 26.67 36,017 20.87 32,518 21.81 17,616 21.87 14,190 22.45
Consumer 32,256 14.73 29,784 17.26 25,747 17.27 5,947 7.38 4,591 7.27
Other 3,883 1.76 1,453 .84 968 0.64 154 0.20 76 0.12
Total loans 219,054 100.00% 172,545 100.00% 149,127 100.00 % 80,546 100.00 % 63,204 100.00%
Allowance for loan losses (2,557) (2,399) (1,531) (837) (671)
Net loans $ 216,497 $170,146 $147,596 $ 79,709 $ 62,533
The principal component of the Company's loan portfolio is real estate mortgage
loans. At December 31, 1999, this category totaled $124.5 million and
represented 56.8% of the total loan portfolio, compared to $88.7 million, or
51.4%, at December 31, 1998.
In the context of this discussion, a "real estate mortgage loan" is defined as
any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. It is common practice for financial
institutions in the Company's market areas to obtain a security interest in real
estate, whenever possible, in addition to any other available collateral. This
collateral is taken to reinforce the likelihood of the ultimate repayment of the
loan and tends to increase the magnitude of the real estate loan portfolio
component.
Real estate construction loans increased $5.0 million, or 21.1%, to $28.7
million at December 31, 1999, from $23.7 million at December 31, 1998.
Residential mortgage loans, which is the largest category of the Company's
loans, increased $13.5 million, or 25.6%, to $66.1 million at December 31, 1999,
from $52.6 million at December 31, 1998. Residential real estate loans consist
of first and second mortgages on single or multi-family residential dwellings.
Nonresidential mortgage loans, which include commercial loans and other loans
secured by multi-family properties and farmland, increased $22.4 million, or
62.2%, to $58.4 million at December 31, 1999, from $36.0 million at December 31,
1998. The overall increase in real estate lending was attributable to the new
markets in the local communities of the subsidiary banks and the continued
demand for residential and commercial real estate loans in those markets. The
subsidiary banks have been able to compete favorably for residential mortgage
loans with other financial institutions by offering fixed rate products having
three and five year call provisions.
Commercial, financial and agricultural loans increased $749,000, or 2.6%, to
$29.7 million at December 31, 1999, from $29.0 million at December 31, 1998.
This small increase was primarily attributable to the Company's focus on
mortgage and construction lending opportunities.
Consumer loans increased $2.5 million, or 8.3%, to $32.3 million at December 31,
1999, from $29.8 million at December 31, 1998. The growth in consumer loans is
primarily attributable to overall growth in the Company's loan portfolio due to
new markets created by the subsidiary banks.
21
LOANS. The Company's loan portfolio reflects the diversity of its markets. The
home office and the branch offices of the Greenwood Bank are located in
Greenwood County, South Carolina. The economy of Greenwood contains elements of
medium and light manufacturing, higher education, regional health care, and
distribution facilities. The Clemson Bank has offices in Clemson and Calhoun
Falls, South Carolina. Due to its proximity to a major interstate highway and
Clemson University, a state-supported university, management expects the area to
remain stable with continued growth. The Belton Bank and the Barnwell Bank are
in more rural areas and will have a higher concentration of consumer loans with
fewer opportunities for commercial lending. The Newberry Bank is located in
Newberry County, South Carolina and is in close proximity to an interstate
highway. The diversity of the economy creates opportunities for all types of
lending. The Company does not engage in foreign lending.
The repayment of loans in the loan portfolio as they mature is also a source of
liquidity for the Company. The following table sets forth the Company's loans
maturing within specified intervals at December 31, 1999.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
Over One Year
----------------------------------------------------
One Year Through Over Five
DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) or Less Five Years Years Total
------------ ----------- ------------- ------------
Commercial, financial and agricultural $ 19,729 $ 9,212 $ 799 $ 29,740
Real estate 64,686 65,409 23,080 153,175
Consumer and other 10,596 24,494 1,049 36,139
95,011 99,115 24,928 219,054
Loans maturing after one year with:
Fixed interest rates $ 68,804
Floating interest rates 55,239
$124,043
=========
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio shown in the above table.
INVESTMENT SECURITIES. The investment securities portfolio is a significant
component of the Company's total earning assets. Total securities averaged
$114.2 million in 1999, compared to $95.5 million in 1998 and $57.7 million in
1997. At December 31, 1999, the total securities portfolio was $108.9 million.
Securities designated as available for sale totaled $103.4 million and were
recorded at estimated fair market value, and securities designated as held to
maturity totaled $620,000 and were recorded at amortized cost. The securities
portfolio also includes nonmarketable equity securities totaling $4.9 million
which are carried at cost because they are not readily marketable or have no
quoted market value. These include investments in Federal Reserve Bank stock,
Federal Home Loan Bank stock and the stock of four unrelated financial
institutions.
The following table sets forth the book value of the securities held by the
Company at the dates indicated.
BOOK VALUE OF SECURITIES
DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997
--------- -------- --------
U.S. Treasury $ 599 $ 597 $ 13,467
U.S. Government agencies 51,421 64,517 46,236
State, county and municipal securities 26,704 20,656 13,573
Mortgage-backed securities 29,513 28,993 273
Nonmarketable equity securities 4,935 4,823 3,224
Total securities $113,172 $119,586 $ 76,773
========= ========= =========
22
The following table sets forth the scheduled maturities and average yields of
securities held at December 31, 1999.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
After One But After Five But
(DOLLARS IN THOUSANDS) Within One Within Five Within Ten
DECEMBER 31, 1999 Year Years Years After Ten Years
--------------------- -------------------- -------------------- --------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------------------- -------------------- --------------------- --------------------
U.S. Treasury $ 601 6.47% $ - -% $ - -% $ - -%
U.S. Government agencies - - 37,061 5.57 11,784 6.15 919 7.00
State and political subdivisions (2) - - 1,779 5.92 2,829 7.22 20,717 6.96
Total (1) $ 601 6.47% $ 38,840 5.61% $ 14,613 6.24% $ 21,636 6.97%
====== ========= ========= =========
(1) Excludes mortgage-backed securities totaling $28.3 million with a yield of
6.2% and nonmarketable equity securities.
(2) The yield on state and political subdivisions is presented on a tax
equivalent basis using a federal income tax rate of 34%.
Other attributes of the securities portfolio, including yields and maturities,
are discussed above in "---Net Interest Income--- Interest Sensitivity."
SHORT-TERM INVESTMENTS. Short-term investments, which consist primarily of
federal funds sold and interest-bearing deposits with other banks, averaged
$696,000 in 1999, compared to $4.9 million in 1998 and $4.1 million in 1997. At
December 31, 1999, short-term investments totaled $498,000. These funds are a
source of the Banks' liquidity. Federal funds are generally invested in an
earning capacity on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $42.6 million, or 18.60%, to
$271.6 million in 1999, from $229.0 million in 1998. Average interest-bearing
deposits increased $22.6 million, or 10.74%, to $233.4 million in 1999, from
$210.8 million in 1998. These increases resulted from increases in most
categories of interest-bearing liabilities.
DEPOSITS. Average total deposits increased $26.4 million, or 11.37%, to $258.6
million during 1999, from $232.2 million during 1998. At December 31, 1999,
total deposits were $257.2 million compared to $260.1 million a year earlier, a
decrease of 1.1%.
The following table sets forth the deposits of the Company by category at the
dates indicated.
DEPOSITS
DECEMBER 31 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) Percent Percent Percent Percent Percent
of of of of of
Amount Deposits Amount Deposits Amount Deposits Amount Deposits Amount Deposits
---------------------------------------------------------------------------------------------------------
Demand deposit
accounts $ 27,422 10.66% $ 23,491 9.03% $ 19,460 10.41% $12,226 13.61% $ 9,447 12.92%
NOW accounts 45,560 17.71 45,854 17.63 30,562 16.36 8,296 9.23 8,028 10.98
Money market
accounts 38,419 14.93 30,161 11.60 20,812 11.14 14,035 15.62 9,498 12.98
Savings accounts 26,642 10.36 25,202 9.69 15,127 8.09 8,681 9.66 7,922 10.83
Time deposits less
than $100,000 91,671 35.64 104,491 40.17 73,827 39.51 34,745 38.66 26,161 35.77
Time deposits of
$100,000 or over 27,533 10.70 30,921 11.88 27,073 14.49 11,879 13.22 12,082 16.52
Total deposits $ 257,247 100.00% $ 260,120 100.00% $186,861 100.00% $89,862 100.00% $73,138 100.00%
======== ======== ======== ======== ========
0 1
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for the Company's loan portfolio and
other earning assets. The Company's core deposits increased $515,000 to $229.7
million at December 31, 1999.
23
Deposits, and particularly core deposits, have historically been the Company's
primary source of funding and have enabled the Company to meet successfully both
its short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be the Company's primary source of funding in the
future. The Company's loan-to-deposit ratio was 85.2% at December 31, 1999,
66.3% at the end of 1998, and averaged 73.0% during 1999. The maturity
distribution of the Company's time deposits over $100,000 at December 31, 1999,
is set forth in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
After Three After Six
Within Through Through After
Three Six Twelve Twelve
Months Months Months Months Total
--------- ---------- ---------- --------- --------
Certificates of deposit of $100,000 or more $ 8,048 $ 7,899 $ 8,858 $ 2,728 $ 27,533
Approximately 29.23% of the Company's time deposits over $100,000 had scheduled
maturities within three months and 57.92% had maturities within six months.
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheets using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, the Company does not
solicit brokered deposits.
BORROWED FUNDS. Borrowed funds consist of short-term borrowings and advances
from the Federal Home Loan Bank. Short-term borrowings are primarily federal
funds purchased from correspondent banks and securities sold under agreements to
repurchase.
Average short-term borrowings were $20.5 million in 1999, an increase of $16.9
million from 1998. Federal funds purchased from correspondent banks averaged
$16.4 million in 1999. At December 31, 1999 federal funds purchased totaled $9.3
million. Securities sold under agreements to repurchase averaged $4.1 million in
1999. At December 31, 1999, securities sold under agreements to repurchase
totaled $37.2 million.
Average Federal Home Loan Bank advances during 1999 were $16.1 million compared
to $13.1 million during 1998, an increase of $3.0 million. Advances from the
Federal Home Loan Bank are collateralized by debt securities of U.S. Government
agencies, one-to-four family residential mortgage loans, and the Company's
investment in Federal Home Loan Bank stock. At December 31, 1999, borrowings
from the Federal Home Loan Bank were $20.7 million compared to $9.4 million a
year earlier. Although management expects to continue using short-term borrowing
and Federal Home Loan Bank advances as secondary funding sources, core deposits
will continue to be the Company's primary funding source. Of the $20.7 million
advances from the Federal Home Loan Bank outstanding at December 31, 1999, $12.3
million will mature after one year.
LONG-TERM DEBT. Long-term debt consists of borrowings obtained from two
unrelated financial institutions to infuse capital into the Belton Bank in order
to maintain the minimum capital ratios as a result of the Belton Bank's purchase
of two Carolina First Branches in 1998 and for other general construction of
branches. The average balance of the long-term debt was $1.6 million in 1999.
Long-term debt totaled $1.6 million at December 31, 1999. Debt with one
institution consists of a $5.0 million line of credit, is collateralized by the
stock of the subsidiary banks, and bears interest at a simple interest rate per
annum equal to the London Interbank Offered rate plus 200 basis points. Interest
is payable on a quarterly basis. The line of credit is scheduled to mature on
December 31, 2002. Debt also consists of $500,000 borrowed for the construction
of branch offices and bears interest at a variable rate of .75% below the prime
rate published in the Wall Street Journal. This debt is unsecured and is due on
February 10, 2000.
CAPITAL
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk weights ranging from 0% to 100%. Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital of the Company consists of common
shareholders' equity, excluding the unrealized gain(loss) on available-for-sale
securities, minus intangible assets. The Company's Tier 2 capital consists of
the allowance for loan losses subject to certain limitations. A bank holding
company's qualifying capital base for purposes of its risk-based capital ratio
consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum
requirements are 4% for Tier 1 and 8% for total risk-based capital.
The holding company and subsidiary banks are also required to maintain capital
at a minimum level based on average total assets (as defined), which is known as
the leverage ratio. Only the strongest bank holding companies and banks are
allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
24
The Company exceeded the Federal Reserve's fully phased-in regulatory capital
ratios at December 31, 1999, 1998 and 1997, as set forth in the following table.
ANALYSIS OF CAPITAL
DECEMBER 31, (DOLLARS IN THOUSANDS) 1999 1998 1997
----------- ------------- ------------
Tier 1 capital $ 29,000 $ 27,142 $ 28,341
Tier 2 capital 2,557 2,399 1,531
Total qualifying capital $ 31,557 $ 29,541 $ 29,872
Risk-adjusted total assets (including off-balance sheet exposures) $244,648 $196,968 $160,538
Tier 1 risk-based capital ratio 11.85% 13.78% 17.65 %
Total risk-based capital ratio 12.90 15.00 18.61
Tier 1 leverage ratio 8.37 8.89 12.08
Each of the subsidiary banks is required to maintain risk-based and leverage
ratios similar to those required for the Company. Each of the subsidiary banks
exceeded these regulatory capital ratios at December 31, 1999, as set forth in
the following table.
BANK CAPITAL RATIOS
TIER 1 TOTAL
RISK- RISK- TIER 1
DECEMBER 31, 1999 BASED BASED LEVERAGE
----------- ------------- ------------
The Greenwood Bank 9.30% 10.15% 7.29 %
The Clemson Bank 11.74 12.84 8.32
The Barnwell Bank 12.83 13.96 8.23
The Belton Bank 15.58 16.65 9.02
The Newberry Bank 12.83 13.79 9.14
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity management involves monitoring the Company's sources and uses of funds
in order to meet its day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Without proper liquidity management, the Company would
not be able to perform the primary function of a financial intermediary and
would, therefore, not be able to meet the needs of the communities it serves.
Liquidity management is made more complex because different balance sheet
components are subject to varying degrees of management control. For example,
the timing of maturities of the investment portfolio is very predictable and
subject to a high degree of control at the time investment decisions are made.
However, net deposit inflows and outflows are far less predictable and are not
subject to nearly the same degree of control.
The Company's loans-to-assets ratio and loans-to-funds ratio increased from 1998
to 1999. The loans-to-assets ratio at December 31, 1999 was 60.9% compared to
53.7% at December 31, 1998, and the loans-to-funds ratio at December 31, 1999
was 67.2% compared to 60.7% at December 31, 1998. The amount of advances from
the Federal Home Loan Bank were approximately $20.7 million at December 31, 1999
compared to $9.4 million at December 31, 1998. Management expects to continue
using these advances as a source of funding. The Company obtained borrowings
from unrelated financial institutions in 1998 to purchase the branches and for
other corporate purposes. At December 31, 1999, total long-term debt was $1.6
million, compared to $2.9 million at December 31, 1998. Additionally, the
Company has approximately $23.9 million of unused lines of credit for federal
funds purchases. The Company also has approximately $103.4 million of securities
available for sale as a source of liquidity.
The Company depends on dividends from the subsidiary banks as its primary source
of liquidity. The ability of the subsidiary banks to pay dividends is subject to
general regulatory restrictions which may, but are not expected to, have a
material impact on the liquidity available to the Company. Generally, banks are
not allowed to pay dividends unless the retained earnings are in a positive
position. Accordingly, several subsidiary banks may not be able to pay cash in
the form of dividends to its parent company in the near future. The Company does
not plan to pay cash dividends for the near term. The Company has paid stock
dividends in April 1994, August 1995, May 1996, and September 1998 and may do so
in the future.
25
ACCOUNTING RULE CHANGES
In February 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits." SFAS 132 amends SFAS 87, 88, and
106 and revises employer's disclosures about pensions and other post-retirement
benefit plans. It does not change the measurement or recognition of those plans.
At December 31, 1999, the Company was not affected by this Statement.
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair values. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company generally does not
purchase derivative instruments or enter into hedging activities. This Statement
was effective for fiscal years beginning after June 15, 1999, but was amended by
SFAS 137.
The Company was not affected by Financial Accounting Standards Board Statements
134, 135 or 136.
In 1999, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." As stated, this Statement delays the effective date for the
implementation of SFAS 133.
This Statement is effective for fiscal years beginning after June 15, 2000.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company and its subsidiaries are primarily monetary in
nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. As discussed previously, management seeks to manage the relationships
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.
INDUSTRY DEVELOPMENTS
On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton in
November 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also creates a new "financial holding company" under
the Bank Holding Company Act, which will permit holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities. The Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, the Act may have the result
of increasing the amount of competition that the Company faces from larger
institutions and other types of companies. In fact, it is not possible to
predict the full effect that the Act will have on the Company.
From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. The Company cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect the
Company.
26
ITEM 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements identified in Item 14 of this Report on Form 10-K are
included herein beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Information called for by PART III (Items 10, 11, 12 and 13) of this Report on
Form 10-K has been omitted as the Company intends to file with the Securities
and Exchange Commission not later than 120 days after the close of its fiscal
year ended December 31, 1999 a definitive Proxy Statement pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934. Such information will
be set forth in such Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedules:
The consolidated financial statements and schedules of the Company
identified in the accompanying Index to Financial Statements at page
F-1 herein are filed as part of this Report on Form 10-K.
(3) Exhibits:
The accompanying Exhibit Index on page E-1 sets forth the exhibits
that are filed as part of this Report on Form 10-K.
(b) Reports on Form 8-K:
None.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Community Capital Corporation, has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMUNITY CAPITAL CORPORATION
Dated: March 27, 2000 By: /s/ WILLIAM G. STEVENS
---------------------------
William G. Stevens
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ WILLIAM G. STEVENS President (Principal Executive March 27, 2000
- ------------------------------
William G. Stevens Officer) and Director
/s/ JAMES H. STARK Chief Financial Officer (Principal March 27, 2000
- ------------------------------ Financial and Accounting Officer) and
James H. Stark Secretary
* Assistant Secretary and Director March 27, 2000
- ------------------------------
Patricia C. Edmonds
* Director March 27, 2000
- ------------------------------
David P. Allred
* Director March 27, 2000
- ------------------------------
Earl H. Bergen
* Director March 27, 2000
- ------------------------------
Harold Clinkscales, Jr.
* Director March 27, 2000
- ------------------------------
Robert C. Coleman
* Director March 27, 2000
- ------------------------------
John W. Drummond
* Director March 27, 2000
- ------------------------------
James M. Horton
* Director March 27, 2000
- ------------------------------
Wayne Q. Justesen, Jr.
28
* Director March 27, 2000
- ------------------------------
Clinton C. Lemon, Jr.
* Director March 27, 2000
- ------------------------------
Miles Loadholt
* Director March 27, 2000
- ------------------------------
Thomas C. Lynch, Jr.
* Director March 27, 2000
- ------------------------------
H. Edward Munnerlyn
* Director March 27, 2000
- ------------------------------
George B. Park
* Director March 27, 2000
- ------------------------------
Joseph H. Patrick, Jr.
* Director March 27, 2000
- ------------------------------
William W. Riser, Jr.
* Director March 27, 2000
- ------------------------------
George D. Rodgers
* Director March 27, 2000
- ------------------------------
Charles J. Rogers
* Director March 27, 2000
- ------------------------------
Thomas E. Skelton
March 27, 2000
* Director
- ------------------------------
Lex D. Walters
*By: /s/ WILLIAM G. STEVENS March 27, 2000
--------------------------
(William G. Stevens) (As
Attorney-in-Fact for each
of the persons indicated)
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY CAPITAL CORPORATION
Report of Independent Accountants............................................F-2
Consolidated Balance Sheets at December 31, 1999 and 1998....................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997...........................................F-4
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the Years ended December 31, 1999,
1998 and 1997..............................................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997...........................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Community Capital Corporation
Greenwood, South Carolina
We have audited the accompanying consolidated balance sheets of Community
Capital Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in shareholders' equity
and comprehensive income, and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Community Capital
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ TOURVILLE, SIMPSON & CASKEY, L.L.P.
Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
February 10, 2000
F-2
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS December 31,
--------------------------
1999 1998
--------- ---------
Cash and cash equivalents:
Cash and due from banks $ 8,224 $ 8,354
Interest-bearing deposit accounts 488 693
Federal funds sold 10 1,280
--------- ---------
Total cash and cash equivalents 8,722 10,327
--------- ---------
Securities:
Available for sale 103,371 115,222
Held to maturity (market value at December 31, 1999
and 1998 was $620 and $650, respectively) 620 650
Nonmarketable equity securities 4,935 4,823
--------- ---------
Total securities 108,926 120,695
--------- ---------
Loans receivable 219,054 172,545
Less allowance for loan losses (2,557) (2,399)
--------- ---------
Loans, net 216,497 170,146
--------- ---------
Premises and equipment, net 12,532 8,907
Accrued interest receivable 2,800 2,553
Intangible assets 5,020 5,557
Cash surrender value of life insurance 1,302 1,025
Other assets 3,869 1,821
--------- ---------
Total assets $ 359,668 $ 321,031
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 27,422 $ 23,491
Interest bearing 229,825 236,629
--------- ---------
Total deposits 257,247 260,120
Federal funds purchased and securities sold under agreements to repurchase 46,493 11,802
Advances from the Federal Home Loan Bank 20,729 9,434
Long-term debt 1,575 2,925
Accrued interest payable 1,298 1,661
Other liabilities 1,108 1,659
--------- ---------
Total liabilities 328,450 287,601
--------- ---------
Commitments and contingencies (Notes 4, 12 & 16)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized; 3,122,811 and
3,092,268 shares issued and outstanding at
December 31, 1999 and 1998, respectively 3,123 3,092
Capital surplus 29,846 29,598
Accumulated other comprehensive income (loss) (2,802) 732
Retained earnings 1,336 8
Treasury stock, at cost (1999 - 30,405 shares) (285) --
--------- ---------
Total shareholders' equity 31,218 33,430
--------- ---------
Total liabilities and shareholders' equity $ 359,668 $ 321,031
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share data)
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
INTEREST INCOME:
Loans, including fees $ 16,613 $ 14,942 $ 10,604
Securities, taxable 5,037 4,798 3,026
Securities, nontaxable 1,220 751 441
Dividends 295 216 133
Federal funds sold and other 34 336 239
-------- -------- --------
Total interest income 23,199 21,043 14,443
-------- -------- --------
INTEREST EXPENSE:
Deposits 9,702 10,128 6,325
Advances from the Federal Home Loan Bank 865 760 529
Federal funds purchased and securities sold under
agreements to repurchase 1,169 227 318
Long term debt 114 83 --
-------- -------- --------
Total interest expense 11,850 11,198 7,172
-------- -------- --------
NET INTEREST INCOME 11,349 9,845 7,271
Loan loss provision 1,037 1,836 608
-------- -------- --------
NET INTEREST INCOME AFTER LOAN LOSS PROVISION 10,312 8,009 6,663
-------- -------- --------
OTHER INCOME:
Service charges on deposit accounts 1,513 1,260 842
Gain (loss) on sales of securities available for sale 175 220 (1)
Residential mortgage origination fees 672 613 271
Commissions from sales of mutual funds 54 104 54
Income from fiduciary activities 98 133 37
Other income 668 687 368
-------- -------- --------
Total other income 3,180 3,017 1,571
-------- -------- --------
OTHER EXPENSE:
Salaries and employee benefits 5,690 4,688 3,329
Net occupancy expense 819
703 479
Amortization of intangible assets 537 443 246
Furniture and equipment expense 1,385 1,129 771
Other operating expense 3,583 3,265 2,423
-------- -------- --------
Total other expense 12,014 10,228 7,248
-------- -------- --------
INCOME BEFORE INCOME TAXES 1,478 798 986
Income tax provision 150 34 220
-------- -------- --------
NET INCOME $ 1,328 $ 764 $ 766
======== ======== ========
BASIC EARNINGS PER SHARE $ 0.43 $ 0.25 $ 0.27
DILUTED EARNINGS PER SHARE 0.43 0.24 0.26
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Dollars in thousands)
Accumulated
Common Stock Other
---------------------- Capital Comprehensive Retained Treasury
Shares Amount Surplus Income Earnings Stock Total
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1996 1,219,109 $ 1,219 $ 12,004 $ 35 $ 298 $ -- $ 13,556
Net income -- -- -- -- 766 -- 766
Other comprehensive
income, net of tax -- -- -- 432 -- -- 432
---------
Comprehensive income -- -- -- -- -- -- 1,198
---------
Net proceeds of stock
offering 1,665,000 1,665 15,281 -- -- -- 16,946
Sales of stock to ESOP 14,519 14 166 -- -- -- 180
Stock options exercised 6,675 7 41 -- -- -- 48
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1997 2,905,303 2,905 27,492 467 1,064 -- 31,928
Net income -- -- -- -- 764 -- 764
Other comprehensive
income, net of tax -- -- -- 265 -- -- 265
---------
Comprehensive income -- -- -- -- -- -- 1,029
---------
Sales of stock to ESOP 18,425 18 243 -- -- -- 261
Stock options exercised 21,914 22 195 -- -- -- 217
5% stock dividend 146,626 147 1,668 -- (1,820) -- (5)
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1998 3,092,268 3,092 29,598 732 8 -- 33,430
Net income -- -- -- -- 1,328 -- 1,328
Other comprehensive
income, net of tax -- -- -- (3,534) -- -- (3,534)
---------
Comprehensive income -- -- -- -- -- -- (2,206)
---------
Sales of stock to ESOP 27,871 28 229 -- -- -- 257
Stock options exercised 2,672 3 19 -- -- -- 22
Purchase of treasury stock
(30,405 shares) -- -- -- -- -- (285) (285)
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1999 3,122,811 $ 3,123 $ 29,846 $ (2,802) $ 1,336 $ (285) $ 31,218
========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year ended December 31,
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
--------- --------- ---------
Net income $ 1,328 $ 764 $ 766
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,749 1,519 1,092
Provision for loan losses 1,037 1,836 608
Deferred income tax benefit (234) (324) (93)
Amortization less accretion on securities 132 54 31
Amortization of deferred loan fees and costs, net 153 397 216
Net (gain) loss on sale of securities available for sale (175) (220) 1
Proceeds from sales of residential mortgages 26,435 23,262 9,810
Disbursements for residential mortgages held for sale (27,452) (22,155) (10,022)
Increase in interest receivable (247) (156) (1,096)
Increase (decrease) in interest payable (363) (36) 431
(Gain)loss on disposal of premises and equipment -- 21 (6)
Gain on sale of branch -- (130) --
Increase in other assets (475) (299) (87)
(Decrease) increase in other liabilities (551) 521 18
--------- --------- ---------
Net cash provided by operating activities 1,337 5,054 1,669
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans made to customers (46,524) (23,752) (55,759)
Proceeds from sales of securities available for sale 28,718 36,726 3,996
Proceeds from maturities of securities available for sale 12,969 34,866 10,588
Purchases of securities available for sale (35,148) (112,665) (64,267)
Proceeds from maturities of securities held to maturity 30 25 --
Purchases of securities held to maturity -- -- (675)
Proceeds from sale of nonmarketable equity securities 633 -- --
Purchases of nonmarketable equity securities (745) (1,599) (1,025)
Purchases of premises and equipment (4,632) (1,743) (3,030)
Proceeds from disposals of premises and equipment -- 814 26
Acquisition of branches -- 38,423 35,761
Net cash outflow from sale of branch -- (2,049) --
--------- --------- ---------
Net cash used by investing activities (44,699) (30,954) (74,385)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 13,335 27,664 18,372
Net (decrease) increase in certificates of deposit (16,208) 4,110 24,034
Proceeds from advances from the Federal Home Loan Bank 18,800 8,049 18,100
Repayments of advances from the Federal Home Loan Bank (7,505) (14,965) (6,639)
Proceeds from advances from long-term debt 2,125 3,425 --
Repayments of advances from long-term debt (3,475) (500) --
Proceeds from issuance of common stock -- -- 16,946
Proceeds from exercise of stock options 22 217 48
Proceeds from stock sales to employee benefit plan 257 261 180
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements 34,691 (141) 5,160
Cash paid in lieu of fractional shares -- (5) --
Purchase of treasury stock (285) -- --
--------- --------- ---------
Net cash provided by financing activities 41,757 28,115 76,201
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,605) 2,215 3,485
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,327 8,112 4,627
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,722 $ 10,327 $ 8,112
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Community Capital Corporation (the "Company"), and its
wholly-owned subsidiaries, Greenwood Bank & Trust (the "Greenwood Bank"),
Clemson Bank & Trust (the "Clemson Bank"), Community Bank & Trust (formerly Bank
of Barnwell County, the "Barnwell Bank"), TheBank (formerly The Bank of Belton,
the "Belton Bank"), and Mid State Bank (formerly The Bank of Newberry County,
the "Newberry Bank"), collectively referred to as the "subsidiary banks", and
Community Trust Company.
The Company and its subsidiaries provide a full range of financial services in
their respective communities and geographic markets in South Carolina including
accepting deposits, IRA plans, selling mutual funds, trust services, origination
of home mortgage loans, and secured and unsecured loans for small businesses and
individuals.
The accounting and reporting policies of the Company reflect industry practices
and conform to generally accepted accounting principles in all material
respects. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES - In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, including
valuation allowances for impaired loans, the carrying amount of real estate
acquired in connection with foreclosures or in satisfaction of loans, and the
assumptions used in computing the fair value of stock options granted and the
pro forma disclosures required by Statement of Financial Accounting Standards
("SFAS") No. 123. Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowance may be necessary based
on changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the subsidiary
banks' allowances for losses on loans and foreclosed real estate. Such agencies
may require the subsidiary banks to recognize additions to the allowances based
on their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.
SECURITIES AVAILABLE FOR SALE - Securities available for sale by the Company are
carried at amortized cost and adjusted to estimated fair value by recording the
aggregate unrealized gain or loss in a valuation account. Management does not
actively trade securities classified as available for sale. Reductions in fair
value considered by management to be other than temporary are reported as a
realized loss and a reduction in the cost basis in the security. Generally,
amortization of premiums and accretion of discounts are charged or credited to
earnings on a straight-line basis over the life of the securities. The adjusted
cost basis of securities available for sale is determined by specific
identification and is used in computing the gain or loss from a sales
transaction.
SECURITIES HELD TO MATURITY - Securities held to maturity are those securities
which management has the intent and the Company has the ability to hold until
maturity. Securities held to maturity are carried at cost and adjusted for
amortization of premiums and accretion of discounts, both computed by the
straight-line method. Reductions in fair value considered by management to be
other than temporary are reported as a realized loss and a reduction in the cost
basis of the security.
NONMARKETABLE EQUITY SECURITIES - Nonmarketable equity securities include the
costs of the subsidiary banks' investments in the stock of the Federal Reserve
Bank and the Federal Home Loan Bank. The stocks have no quoted market value and
no ready market exists. Investment in Federal Reserve Bank stock is required for
state-chartered member banks. Investment in Federal Home Loan Bank stock is a
condition of borrowing from the Federal Home Loan Bank, and the stock is pledged
to secure the borrowings. At December 31, 1999 and 1998, the investment in
Federal Reserve Bank stock was $843,300 and $598,300, respectively. At December
31, 1999 and 1998, the investment in Federal Home Loan Bank stock was $1,466,500
and $2,099,110, respectively.
F-7
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company has invested in the stock of four unrelated financial institutions.
The Company owns less than five percent of the outstanding shares of each
institution, and the stocks either have no quoted market value or are not
readily marketable. At December 31, 1999 and 1998, the investments in the stock
of the unrelated financial institutions, at cost, was $2,125,462. The Company
also invested in a financial services company in 1999 that offers internet
banking. The Company's investment in the stock of this institution was $500,000
at December 31, 1999.
LOANS - Loans are recorded at their unpaid principal balance. Direct loan
origination costs and loan origination fees are deferred and amortized over the
lives of the loans as an adjustment to yield. Unamortized net deferred loans
costs included in loans at December 31, 1999 and 1998 were $237,000 and
$290,000, respectively.
Impaired loans are measured based on the present value of discounted expected
cash flows. When it is determined that a loan is impaired, a direct charge to
bad debt expense is made for the difference between the net present value of
expected future cash flows based on the contractual rate and the Company's
recorded investment in the related loan. The corresponding entry is to a related
valuation account. Interest is discontinued on impaired loans when management
determines that a borrower may be unable to meet payments as they become due.
Interest income is computed using the simple interest method and is recorded in
the period earned. When serious doubt exists as to the collectibility of a loan
or a loan is 90 days past due, the accrual of interest income is generally
discontinued unless the estimated net realizable value of the collateral is
sufficient to assure collection of the principal balance and accrued interest.
When interest accruals are discontinued, unpaid accrued interest is reversed and
charged against current year income.
ALLOWANCE FOR LOAN LOSSES - Management provides for losses on loans through
specific and general charges to operations and credits such charges to the
allowance for loan losses. Specific provision for losses is determined for
identified loans based upon estimates of the excess of the loan's carrying value
over the net realizable value of the underlying collateral. General provision
for loan losses is estimated by management based upon factors including industry
loss experience for similar lending categories, actual loss experience,
delinquency trends as well as prevailing and anticipated economic conditions.
While management uses the best information available to make evaluations, future
adjustment to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluation. Delinquent
loans are charged against the allowance at the time they are determined to be
uncollectible. Recoveries are added to the allowance.
RESIDENTIAL MORTGAGES HELD FOR SALE - The subsidiary banks' mortgage activities
are comprised of accepting residential mortgage loan applications, qualifying
borrowers to standards established by investors, funding residential mortgages
and selling mortgages to investors under pre-existing commitments. Funded
residential mortgages held temporarily for sale to investors are recorded at
cost which approximates the market value. Application and origination fees
collected by the subsidiary banks are recognized as income upon sale to the
investor.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. Gain or loss on retirement of premises and equipment
is recognized in the statements of operations when incurred. Expenditures for
maintenance and repairs are charged to expense; betterments and improvements are
capitalized. Depreciation charges are computed principally on the straight-line
method over the estimated useful lives as follows: building and improvements -
40 years; furniture, fixtures and equipment - 3 to 15 years.
OTHER REAL ESTATE OWNED - Other real estate owned includes real estate acquired
through foreclosure and loans accounted for as in-substance foreclosures.
Collateral is considered foreclosed in-substance when the borrower has little or
no equity in the fair value of the collateral, proceeds for repayment of the
debt can be expected to come only from the sale of the collateral and it is
doubtful that the borrower can rebuild equity or otherwise repay the loan in the
foreseeable future. Other real estate owned is carried at the lower of cost
(principal balance at the date of foreclosure) or fair value minus estimated
costs to sell. Any write-downs at the date of acquisition are charged to the
allowance for possible loan losses. Expenses to maintain such assets, subsequent
changes in the valuation allowance, and gains and losses on disposal are
included in other expenses.
INTANGIBLE ASSETS - Intangible assets consist of goodwill and core deposit
premiums resulting from the Company's acquisitions. The core deposit premiums
are being amortized over fifteen years using the straight-line method, and
goodwill is being amortized over five years using the straight-line method.
F-8
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK-BASED COMPENSATION - SFAS 123, "Accounting for Stock-Based Compensation",
issued in October 1995, allows a company to either adopt the fair value method
or continue using the intrinsic valuation method presented under Accounting
Principles Board ("APB") Opinion 25 to account for stock-based compensation. The
fair value method recommended in SFAS 123 requires compensation cost to be
measured at the grant date based on the value of the award and to be recognized
over the service period. The intrinsic value method measures compensation cost
based on the excess, if any, of the quoted market price of the stock at the
grant date over the amount an employee must pay to acquire the stock. The
Company has elected to continue using APB Opinion 25 to account for stock
options granted and has disclosed in the footnotes pro forma net income and
earnings per share information as if the fair value method had been used.
INCOME TAXES - The income tax provision is the sum of amounts currently payable
to taxing authorities and the net changes in income taxes payable or refundable
in future years. Income taxes deferred to future years are determined utilizing
a liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting and
tax bases of certain assets and liabilities, principally the allowance for loan
losses and depreciable premises and equipment.
CASH FLOW INFORMATION - For purposes of reporting cash flows, the Company
considers certain highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash equivalents include amounts
due from depository institutions, interest-bearing deposit accounts and federal
funds sold. Generally, federal funds are sold for one-day periods.
The following summarizes supplemental cash flow information for 1999, 1998, and
1997:
1999 1998 1997
----------------------------------
(Dollars in thousands)
Cash paid for interest $ 12,213 $ 10,888 $ 6,775
Cash paid for income taxes 434 281 341
Supplemental noncash investing and financing activities:
Foreclosures on loans -- -- 262
Transfer from retained earnings to common stock and capital
surplus to record stock dividends -- 1,815 --
Change in unrealized gain or loss on securities available
for sale, net of tax (3,534) 265 432
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business,
the subsidiary banks have entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under credit card
arrangements and letters of credit. These financial instruments are recorded in
the financial statements when they become payable by the customer.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of loans
receivable, securities, federal funds sold and amounts due from banks.
Management is not aware of any concentrations of loans to classes of borrowers
or industries that would be similarly affected by economic conditions. Although
the Company's loan portfolio is diversified, a substantial portion of its
borrowers' ability to honor the terms of their loans is dependent on business
and economic conditions in each subsidiary bank's local community. Management
does not believe credit risk is associated with obligations of the United
States, its agencies or its corporations. The Company places its deposits and
correspondent accounts with and sells its federal funds to high credit quality
institutions. By policy, time deposits are limited to amounts insured by the
FDIC. Management believes credit risk associated with correspondent accounts is
not significant.
PER-SHARE DATA - Basic earnings per share is computed by dividing net income by
the weighted-average number of shares outstanding for the period excluding the
effects of any dilutive potential common shares. Diluted earnings per share is
similar to the computation of basic earnings per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The dilutive effect of options outstanding under the Company's stock
option plan is reflected in diluted earnings per share by the application of the
treasury stock method.
Share and per-share data have been restated to reflect the 5% stock dividends
issued in September 1998.
F-9
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COMPREHENSIVE INCOME - The Company adopted SFAS 130, REPORTING COMPREHENSIVE
INCOME, as of January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of
the equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS 130 had no effect on
the Company's net income or stockholders' equity.
The components of other comprehensive income and related tax effects are as
follows:
Year ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
(Dollars in thousands)
Unrealized holding gains (losses) on
available-for-sale securities $(5,530) $ 622 $ 649
Reclassification adjustment for losses
(gains) realized in income (175) (220) 1
------- ------- -------
Net unrealized gains (losses) (5,355) 402 650
Tax effect 1,821 (137) (218)
------- ------- -------
Net-of-tax amount $(3,534) $ 265 $ 432
======= ======= =======
COMMON STOCK OWNED BY THE EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - ESOP purchases
and redemptions of the Company's common stock are at estimated fair value.
Dividends on ESOP shares are charged to retained earnings. All shares held by
the ESOP are treated as outstanding for purposes of computing earnings per
share.
RECLASSIFICATIONS - Certain captions and amounts in the 1998 and 1997
consolidated financial statements were reclassified to conform with the 1999
presentation.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS - A sale is
recognized when the Company relinquishes control over a financial asset and is
compensated for such asset. The difference between the net proceeds received and
the carrying amount of the financial asset being sold or securitized is
recognized as a gain or loss on the sale.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS:
The subsidiary banks are required to maintain average reserve balances computed
as a percentage of deposits. At December 31, 1999, the required cash reserves
were satisfied by vault cash on hand and amounts due from correspondent banks.
F-10
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES:
Securities available for sale at December 31, 1999 and 1998 consisted of the
following:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
DECEMBER 31, 1999 (Dollars in thousands)
U.S. Treasury securities $ 599 $ 2 $ -- $ 601
Securities of other U.S. Government
agencies and corporations 51,421 -- 1,657 49,764
Obligations of states and local governments 26,084 84 1,463 24,705
Mortgage-backed securities 29,513 -- 1,212 28,301
-------- -------- -------- --------
Total securities available for sale $107,617 $ 86 $ 4,332 $103,371
======== ======== ======== ========
DECEMBER 31, 1998
U.S. Treasury securities $ 597 $ 17 $ -- $ 614
Securities of other U.S. Government
agencies and corporations 64,517 393 5 64,905
Obligations of states and local governments 20,006 643 24 20,625
Mortgage-backed securities 28,993 135 50 29,078
-------- -------- -------- --------
Total securities available for sale $114,113 $ 1,188 $ 79 $115,222
======== ======== ======== ========
Securities held to maturity as of December 31, 1999 and 1998 consisted of the
following:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
DECEMBER 31, 1999 (Dollars in thousands)
Obligations of states and local governments $ 620 $ -- $ -- $ 620
======== ======== ======== ========
DECEMBER 31, 1998
Obligations of states and local governments $ 650 $ -- $ -- $ 650
======== ======== ======== ========
The following table summarizes the maturities of securities available for sale
and held to maturity as of December 31, 1999, based on the contractual
maturities. Actual maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without
penalty.
Securities Securities
Available for Sale Held to Maturity
-------------------- ---------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
-------- -------- -------- --------
(Dollars in thousands)
Due in one year or less $ 599 $ 601 $ -- $ --
Due after one year but within five years 39,937 38,840 -- --
Due after five years but within ten years 15,080 14,613 -- --
Due after ten years 22,488 21,016 620 620
Mortgage-backed securities 29,513 28,301 -- --
-------- -------- -------- --------
Total $107,617 $103,371 $ 620 $ 620
======== ======== ======== ========
F-11
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES: (CONTINUED)
Proceeds from sales of securities available for sale during 1999, 1998 and 1997
were $28,718,000, $36,726,000 and $3,996,000, respectively, resulting in gross
realized gains of $176,000, $220,000 and $0 along with gross realized losses of
$1,000, $0 and $1,000, respectively. There were no sales of securities held to
maturity in 1999, 1998 or 1997.
At December 31, 1999 and 1998, securities having an amortized cost of
approximately $64,635,709 and $26,216,000, respectively, and an estimated market
value of $62,292,086 and $26,589,000, respectively, were pledged as collateral
for short-term borrowings and advances from the Federal Home Loan Bank (see Note
9), to secure public and trust deposits, and for other purposes as required and
permitted by law.
NOTE 4 - LOANS RECEIVABLE:
Loans receivable at December 31, 1999 and 1998, are summarized as follows:
1999 1998
-------- --------
(Dollars in thousands)
Commercial and agricultural $ 29,740 $ 28,991
Real estate 135,957 95,033
Home equity 17,218 17,284
Consumer - installment 30,084 27,753
Consumer - credit card and checking 2,172 2,031
Residential mortgages held for sale and other 3,883 1,453
-------- --------
Total loans $219,054 $172,545
======== ========
At December 31, 1999, 1998 and 1997, the subsidiary banks had sold
participations in loans aggregating $14,819,000, $11,467,000, and $9,528,000,
respectively, to other financial institutions on a nonrecourse basis.
Collections on loan participations and remittances to participating institutions
conform to customary banking practices.
The subsidiary banks accept residential mortgage loan applications and fund
loans of qualified borrowers (see Note 1). Funded loans are sold without
recourse to investors at face value under the terms of pre-existing commitments.
The subsidiary banks do not sell residential mortgages having market or interest
rate risk. The subsidiary banks do not service residential mortgage loans for
the benefit of others.
At December 31, 1999 and 1998, the subsidiary banks had pledged approximately
$4,718,000 and $2,868,000, respectively, of loans on residential real estate as
collateral for advances from the Federal Home Loan Bank (see Note 9).
Loans are defined as impaired when "based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement." All loans are subject to this
criteria except for: "smaller-balance homogeneous loans that are collectively
evaluated for impairment" and loans "measured at fair value or at the lower of
cost or fair value." The Company considers its consumer installment portfolio,
credit cards and home equity lines as meeting this criteria. Therefore, the real
estate and commercial loan portfolios are primarily subject to possible
impairment.
The Company identifies impaired loans through its normal internal loan review
process. Loans on the Company's problem loan watch list are considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding principal and interest are expected to be collected. Loans are not
considered impaired if a minimal delay occurs and all amounts due including
accrued interest at the contractual interest rate for the period of delay are
expected to be collected. At December 31, 1999 and 1998, management reviewed its
problem loan watch list and determined that no impairment on loans existed that
would have a material effect on the Company's consolidated financial statements.
At December 31, 1999 and 1998, the Company had nonaccrual loans of approximately
$1,223,000 and $1,348,000, respectively, for which impairment had not been
recognized.
F-12
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS RECEIVABLE: (CONTINUED)
An analysis of the allowance for loan losses for the years ended December 31,
1999, 1998 and 1997, is as follows:
1999 1998 1997
------- ------- -------
(Dollars in thousands)
Balance, beginning of year $ 2,399 $ 1,531 $ 837
Provision for loan losses 1,037 1,836 608
Loans charged off (1,042) (1,063) (169)
Recoveries 163 57 --
Reserves related to acquisitions -- 38 255
------- ------- -------
Balance, end of year $ 2,557 $ 2,399 $ 1,531
======= ======= =======
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments are
commitments to extend credit, commitments under credit card arrangements and
letters of credit and have elements of risk in excess of the amount recognized
in the balance sheet. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. A commitment involves, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The Company's exposure to credit
loss in the event of non-performance by the other party to the instrument is
represented by the contractual notional amount of the instrument. Since certain
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Letters of credit are conditional commitments issued to guarantee a customer's
performance to a third party and have essentially the same credit risk as other
lending facilities. The Company uses the same credit policies in making
commitments to extend credit as it does for on-balance-sheet instruments.
At December 31, 1999 and 1998, the Company had unfunded commitments, including
standby letters of credit, of $44,658,000 and $29,138,000, of which $16,421,000
and $11,027,000, respectively, were unsecured. At December 31, 1999, the Company
was not committed to lend additional funds to borrowers having loans in
nonaccrual status.
NOTE 5- PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1999 and 1998, consisted of the
following:
1999 1998
------- -------
(Dollars in thousands)
Land $ 1,963 $ 1,394
Buildings and leasehold improvements 8,458 5,559
Furniture and equipment 5,739 4,575
------- -------
Total 16,160 11,528
Less, accumulated depreciation 3,628 2,621
------- -------
Net premises and equipment $12,532 $ 8,907
======= =======
During 1999 and 1998, the Company capitalized approximately $62,000 and $2,000,
respectively, of interest on the construction of buildings.
NOTE 6 - INTANGIBLE ASSETS:
Intangible assets, net of accumulated amortization, at December 31, 1999 and
1998 are summarized as follows:
1999 1998
------ ------
(Dollars in thousands)
Core deposit premium $4,615 $4,973
Goodwill 405 584
------ ------
$5,020 $5,557
====== ======
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-13
NOTE 7 - DEPOSITS:
The following is a summary of deposit accounts as of December 31, 1999 and 1998:
1999 1998
-------- --------
(Dollars in thousands)
Non-interest bearing demand deposits $ 27,422 $ 23,491
Interest bearing demand deposits 45,560 45,854
Money market accounts 38,419 30,161
Savings accounts 26,642 25,202
Certificates of deposit and other time deposits 119,204 135,412
-------- --------
Total deposits $257,247 $260,120
======== ========
At December 31, 1999 and 1998, certificates of deposit of $100,000 or more
totaled approximately $27,533,000 and $30,921,000, respectively. Interest
expense on these deposits was approximately $1,428,000, $1,636,000 and
$1,093,000 in 1999, 1998 and 1997, respectively.
Scheduled maturities of certificates of deposit and other time deposits as of
December 31, 1999 were as follows:
Maturing in Amount
----------- ------
(Dollars in thousands)
2000 $107,393
2001 6,643
2002 4,167
2003 737
2004 264
--------
Total $119,204
========
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
The Company has securities sold under agreements to repurchase which generally
mature within one day. At December 31, 1999 the securities sold under agreements
to repurchase totaled $37,286,294. At December 31, 1999, the amortized cost and
estimated fair value of securities pledged to collateralize the repurchase
agreements were $39,638,766 and $38,328,027, respectively. The securities
underlying the agreements are held by a third-party custodian.
NOTE 9 - ADVANCES FROM THE FEDERAL HOME LOAN BANK:
Advances from the Federal Home Loan Bank consisted of the following at December
31, 1999:
Description Interest Rate Balance
- ----------- ------------- ---------
(Dollars in thousands)
Adjustable rate advances maturing:
March 23, 2000 5.95% $ 800
Fixed rate advances maturing:
June 2, 2000 5.64% 7,000
September 25, 2000 6.38% 600
January 30, 2001 5.85% 1,000
Convertible advances maturing:
September 22, 2003 4.70% 3,000
March 26, 2008 5.51% 1,500
September 30, 2009 5.07% 3,800
September 30, 2009 5.07% 2,000
Principal Reducing Credit maturing:
February 3, 2003 5.97% 104
February 2, 2009 4.95% 925
-------
Total $20,729
=======
F-14
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - ADVANCES FROM THE FEDERAL HOME LOAN BANK: (CONTINUED)
Scheduled principal reductions of Federal Home Loan Bank advances are as
follows:
(Dollars in thousands)
2000 $ 8,400
2001 1,000
2002 -
2003 3,104
2004 -
After five years 8,225
--------
Total $ 20,729
========
As collateral, the Company has pledged first mortgage loans on one to four
family residential loans aggregating $4,718,000 (see Note 4) and debt securities
aggregating $8,247,416 (see Note 3) at December 31, 1999. In addition, the
Company's Federal Home Loan Bank stock is pledged to secure the borrowings.
Certain advances are subject to prepayment penalties.
NOTE 10 - 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 interest rate per annum equal to the one month London Interbank Offered
Rate plus 200 basis points. Interest is payable on a quarterly basis, commencing
December 31, 1998. 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.
On February 10, 1999, the Company borrowed $500,000 from an unrelated financial
institution to fund the construction of branch offices and for other general
corporate purposes. The note bears interest at a variable rate of .75% below the
prime rate. Interest is payable monthly and the principal balance is due on
February 10, 2000. This debt is unsecured.
Scheduled principal reductions of the long-term debt are as follows:
Amount
------
(Dollars in thousands)
2000 $ 500
2001 -
2002 158
2003 158
2004 158
After five years 601
------
$1,575
======
The loan agreement for the line of credit contains certain covenants relating to
equity and capital ratios of the subsidiary banks. The Company was in
substantial compliance with all covenants at December 31, 1999.
NOTE 11 - SHAREHOLDERS' EQUITY:
On November 24, 1999, the Company approved a stock repurchase plan whereby the
Company could repurchase up to 5% of its outstanding shares of common stock at a
maximum price of $10.00 per share. As of December 31, 1999, the Company had
purchased 30,405 shares at a cost of $285,000.
The Company declared a 5% stock dividends for shareholders of record on
September 30, 1998. Amounts equal to the estimated fair market value of the
additional shares issued have been charged to retained earnings and credited to
common stock and capital surplus. Dividends representing fractional shares were
paid in cash.
F-15
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SHAREHOLDERS' EQUITY: (CONTINUED)
The Company sold 27,871 and 18,425 shares of its common stock to its employee
stock ownership plan throughout 1999 and 1998, respectively, based on the quoted
market price at the time of sale.
At December 31, 1999 and 1998, the Company had authorized 2,000,000 shares of a
special class of stock, par value $1.00 per share, the rights and preferences of
which were to be designated as the Board of Directors should determine. At
December 31, 1999 and 1998, no shares of the undesignated stock had been issued
or were outstanding.
NOTE 12 - LEASES:
The Company leases part of a building and land as a branch banking location from
a director. The operating lease has an initial ten-year term which expires July
31, 2006 and is renewable, at the Company's option, for four five-year terms at
an increased monthly rental. The lease requires monthly payments of $3,500 with
an increase to $3,850 per month during the last five years of the initial lease
term.
Rent expense under this operating lease agreement was $42,000 for each of the
years ended December 31, 1999, 1998, and 1997, respectively. Future obligations
over the primary terms of the remaining long-term lease as of December 31, 1999
are as follows:
Amount
------
(Dollars in thousands)
2000 $ 42
2001 44
2002 46
2003 46
2004 46
After five years 74
----
Total $298
====
The Company entered into a lease agreement for certain data processing
equipment. The rental term is for sixty-four months and provides for the lessee
to pay certain maintenance costs.
Assets recorded under capital leases and included in premises and equipment were
as follows at December 31, 1999:
Amount
------
(Dollars in thousands)
Equipment $555
Less, accumulated amortization 69
----
Net assets under capital leases $486
====
The present value of future minimum capital lease payments was as follows at
December 31, 1999:
Amount
------
(Dollars in thousands)
2000 $ 150
2001 150
2002 150
2003 150
-----
Total payments 600
-----
Less, amount representing interest 66
Less, amount representing maintenance 115
-----
Total obligation $ 419
=====
F-16
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS:
The Company and the subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the subsidiary banks must meet specific capital guidelines that
involve quantitative measures of the Company's and the subsidiary banks' assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and the subsidiary banks' capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the subsidiary banks to maintain minimum ratios (set
forth in the table below) 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 of the Company and the subsidiary banks 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 Company and the subsidiary banks are also required to maintain capital at a
minimum level based on average assets (as defined), which is known as the
leverage ratio. Only the strongest institutions are allowed to maintain capital
at the minimum requirement of 3%. All others are subject to maintaining ratios
1% to 2% above the minimum.
As of the most recent regulatory examination, the subsidiary banks were deemed
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized well capitalized, the subsidiary banks must maintain total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table below. There are no conditions or events that management believes have
changed the subsidiary banks' categories.
F-17
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS: (CONTINUED)
The following tables summarize the capital ratios and the regulatory minimum
requirements of the Company and the Banks at December 31, 1999 and 1998.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes
------------------ ------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ------- --------- ------- --------- ------
DECEMBER 31, 1999
THE COMPANY
Total capital (to risk weighted assets) $31,557 12.90% $19,572 8.00% $ N/A - %
Tier 1 capital (to risk weighted assets) 29,000 11.85 9,786 4.00 N/A -
Tier 1 capital (to average assets) 29,000 8.37 13,866 4.00 N/A -
THE GREENWOOD BANK
Total capital (to risk weighted assets) 10,408 10.15 8,201 8.00 10,251 10.00
Tier 1 capital (to risk weighted assets) 9,535 9.30 4,101 4.00 6,151 6.00
Tier 1 capital (to average assets) 9,535 7.29 5,235 4.00 6,544 5.00
THE CLEMSON BANK
Total capital (to risk weighted assets) 4,244 12.84 2,644 8.00 3,305 10.00
Tier 1 capital (to risk weighted assets) 3,881 11.74 1,322 4.00 1,983 6.00
Tier 1 capital (to average assets) 3,881 8.32 1,866 4.00 2,333 5.00
THE BARNWELL BANK
Total capital (to risk weighted assets) 6,338 13.96 3,632 8.00 4,541 10.00
Tier 1 capital (to risk weighted assets) 5,825 12.83 1,816 4.00 2,724 6.00
Tier 1 capital (to average assets) 5,825 8.23 2,831 4.00 3,538 5.00
THE BELTON BANK
Total capital (to risk weighted assets) 6,569 16.65 3,156 8.00 3,946 10.00
Tier 1 capital (to risk weighted assets) 6,149 15.58 1,578 4.00 2,367 6.00
Tier 1 capital (to average assets) 6,149 9.02 2,728 4.00 3,410 5.00
THE NEWBERRY BANK
Total capital (to risk weighted assets) 3,208 13.79 1,861 8.00 2,326 10.00
Tier 1 capital (to risk weighted assets) 2,985 12.83 930 4.00 1,396 6.00
Tier 1 capital (to average assets) 2,985 9.14 1,306 4.00 1,633 5.00
F-18
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS: (CONTINUED)
To Be Well
For Capital Capitalized Under
Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ----------------------------------------------
- ---------------------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ------- --------- ------- -------- ------
DECEMBER 31, 1998
THE COMPANY
Total capital (to risk weighted assets) $29,541 15.00% $ 15,757 8.00% $ N/A - %
Tier 1 capital (to risk weighted assets) 27,142 13.78 7,879 4.00 N/A -
Tier 1 capital (to average assets) 27,142 8.89 12,208 4.00 N/A -
THE GREENWOOD BANK
Total capital (to risk weighted assets) 10,481 11.84 7,081 8.00 8,852 10.00
Tier 1 capital (to risk weighted assets) 9,529 10.77 3,541 4.00 5,311 6.00
Tier 1 capital (to average assets) 9,529 8.47 4,498 4.00 5,623 5.00
THE CLEMSON BANK
Total capital (to risk weighted assets) 4,427 16.71 2,119 8.00 2,648 10.00
Tier 1 capital (to risk weighted assets) 4,122 15.56 1,059 4.00 1,589 6.00
Tier 1 capital (to average assets) 4,122 10.74 1,535 4.00 1,919 5.00
THE BARNWELL BANK
Total capital (to risk weighted assets) 6,338 14.14 3,587 8.00 4,483 10.00
Tier 1 capital (to risk weighted assets) 5,746 12.82 1,793 4.00 2,690 6.00
Tier 1 capital (to average assets) 5,746 7.87 2,921 4.00 3,652 5.00
THE BELTON BANK
Total capital (to risk weighted assets) 5,988 22.29 2,061 8.00 2,576 10.00
Tier 1 capital (to risk weighted assets) 5,743 23.25 1,030 4.00 1,546 6.00
Tier 1 capital (to average assets) 5,743 9.12 2,519 4.00 3,149 5.00
THE NEWBERRY BANK
Total capital (to risk weighted assets) 3,019 24.08 1,003 8.00 1,254 10.00
Tier 1 capital (to risk weighted assets) 2,887 23.03 502 4.00 752 6.00
Tier 1 capital (to average assets) 2,887 11.25 1,026 4.00 1,283 5.00
NOTE 14 - STOCK COMPENSATION PLANS:
On May 27, 1998, the Company terminated its Employee Incentive Stock Option Plan
(the "1988 Plan") and its Incentive and Nonstatutory Stock Option Plan (the
"Stock Plan"). These Plans were replaced by the 1997 Stock Incentive Plan
effective January 1, 1998. Outstanding options issued under the former Plans
will be honored in accordance with the terms and conditions in effect at the
time they were granted, except that they are not subject to reissuance. At
December 31, 1999, there were 476,258 options outstanding that had been issued
under the terminated Plans.
The 1997 Stock Incentive Plan provides for the granting of statutory incentive
stock options within the meaning of Section 422 of the Internal Revenue Code as
well as nonstatutory stock options, stock appreciation rights, or restricted
stock of up to 600,000 shares (as amended January 27, 1999), adjusted for stock
dividends of the Company's common stock, to officers, employees, and directors
of and consultants for the Company. The Board voted to amend the number of
shares available for grant from 2,000,000 to 600,000 in January 1999. Awards may
be granted for a term of up to ten years from the effective date of grant. Under
this Plan the Company's Board of Directors has sole discretion as to the
exercise date of any awards granted. The per-share exercise price of incentive
stock options may not be less than the fair market value of a share of common
stock on the date the option is granted. The per-share exercise price of
nonqualified stock options may not be less than 50% of the fair market value of
a share on the effective date of grant. Any options that expire unexercised or
are canceled become available for issuance. No awards may be made after January
27, 2008.
F-19
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK COMPENSATION PLANS: (CONTINUED)
On May 26, 1999, the Company granted 143,450 options pursuant to the terms of
the Company's 1997 Stock Incentive Plan. The options are exercisable one year
from the date of grant at a price of $10.38 per share and expire May 26, 2004.
As of December 31, 1999, there were 341,119 options available for issuance under
this Plan.
As discussed in Note 1, the Company continues to apply APB Opinion 25 and
related Interpretations in accounting for its stock compensation plans.
Accordingly, no compensation cost has been recognized for any options issued by
the Company. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
1999 1998 1997
---- ---- ----
(Dollars in thousands, except for per share data)
Net Income:
As reported $ 1,328 $ 764 $ 766
Pro forma 704 267 187
Basic earnings per share:
As reported $ 0.43 $ 0.25 $ 0.27
Pro forma 0.23 0.09 0.07
Diluted earnings per share:
As reported $ 0.43 $ 0.24 $ 0.26
Pro forma 0.23 0.08 0.07
In calculating the pro forma disclosures, the fair value of options granted is
estimated as of the date granted using the Black-Scholes option pricing model
with the following weighted-average assumptions used for grants in 1999, 1998
and 1997, respectively: dividend yield of 0 percent for all years; expected
volatility of 23, 24, and 22 percent; risk-free interest rates of 5.56, 5.52 and
6.55 percent; and expected lives of 5.0, 5.0 and 5.6 years.
The weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1999, 1998 and 1997 is $3.36, $5.41, and
$4.05, respectively.
A summary of the status of the Company's stock option plans as of December 31,
1999, 1998 and 1997 and changes during the years ending on those dates is
presented below:
1999 1998 1997
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at
beginning of year 644,816 $10.92 546,528 $ 9.67 478,535 $ 9.26
Granted 143,450 10.38 139,230 15.83 77,963 11.90
Exercised (2,672) 8.23 (23,010) 9.42 (7,009) 6.76
Canceled (50,455) 11.52 (17,932) 12.60 (2,961) 10.19
-------- --------- --------
Outstanding at
end of year 735,139 10.78 644,816 10.92 546,528 9.67
======== ======= =======
Options exercisable at December 31, 1999, 1998 and 1997 were 599,264, 509,734
and 469,614, respectively.
F-20
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK COMPENSATION PLANS: (CONTINUED)
The following table summarizes information about the stock options outstanding
under the Company's plan at December 31, 1999:
Weighted Average
------------------------
Options Remaining Exercise
Range of Exercise Prices Outstanding Life Price
- ------------------------ ----------- ----------- ---------
EXERCISABLE:
$ 8.23 268,386 3.97 years $ 8.23
10.15 to 10.48 70,741 5.94 10.42
11.79 to 11.90 137,130 1.89 11.84
15.83 123,007 3.48 15.83
-------
Total exercisable 599,264 3.63 10.87
NOT EXERCISABLE:
10.38 135,875 4.41 10.38
-------
Total outstanding 735,139 3.77 10.78
=======
NOTE 15 - RELATED PARTY TRANSACTIONS:
Certain parties (primarily directors, executive officers, principal shareholders
and their associates) were loan customers and had other transactions in the
normal course of business with the Company. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and
generally do not involve more than normal risk of collectibility. Total loans
and commitments outstanding to related parties at December 31, 1999 and 1998,
were $17,875,000 and $15,676,000, respectively. During 1999, $8,252,000 of new
loans were made to related parties and repayments totaled $6,053,000.
During 1999, the Company paid $42,000 to a director under an operating lease. In
1998 and 1997, the Company paid $35,000, and $50,000, respectively, to two
directors under operating leases. (see Note 12).
The Company purchases various types of insurance from agencies that belong to
several directors. Amounts paid for insurance premiums were $63,000, $61,000 and
$39,000 in 1999, 1998 and 1997, respectively.
NOTE 16 - COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated financial condition of the Company.
NOTE 17 - RESTRICTION ON SUBSIDIARY DIVIDENDS:
The ability of the Company to pay cash dividends to shareholders is dependent
upon receiving cash in the form of dividends from its subsidiaries. However,
certain restrictions exist regarding the ability of the Banks to transfer funds
in the form of cash dividends, loans or advances to the Company. Dividends are
payable only from the retained earnings of the Banks. Generally, the
Commissioner of Banking does not allow dividends to be paid by new banks until
earnings have been sufficient to recoup start up losses or if retained earnings
have a deficit balance. Accordingly, several subsidiary banks can not pay
dividends in the near future.
F-21
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - EARNINGS PER SHARE:
Net income per share - basic is computed by dividing net income by the weighted
average number of common shares outstanding. Net income per share - diluted is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive common share equivalents using the treasury stock
method. Dilutive common share equivalents include common shares issuable upon
exercise of outstanding stock options. Unallocated common shares held by the
Employee Stock Ownership Plan are excluded from the weighted average number of
common shares outstanding.
For the Year Ended December 31,
-----------------------------------------
1999 1998 1997
---------- ---------- ----------
NET INCOME PER SHARE - BASIC COMPUTATION: (Dollars in thousands, except share data)
Net income available to common shareholders $ 1,328 $ 764 $ 766
========== ========== ==========
Average common shares outstanding - basic 3,109,152 3,078,083 2,807,902
========== ========== ==========
Net income per share - basic $ 0.43 $ 0.25 $ 0.27
========== ========== ==========
NET INCOME PER SHARE - DILUTED COMPUTATION:
Net income available to common shareholders $ 1,328 $ 764 $ 766
========== ========== ==========
Average common shares outstanding - basic 3,109,152 3,078,083 2,807,902
Incremental shares from assumed conversions:
Stock options 34,670 172,121 110,560
Unallocated ESOP shares -- -- --
---------- ---------- ----------
Average common shares outstanding - diluted 3,143,822 3,250,204 2,918,462
========== ========== ==========
Net income per share - diluted $ 0.43 $ 0.24 $ 0.26
========== ========== ==========
The above computation of diluted earnings per share does not include the
following options that were outstanding at year-end since their exercise price
was greater than the average market price of the common shares:
December 31
---------------------------------
1999 1998 1997
--------- --------- -------
Number of options 466,745 135,081 --
Weighted average of these options outstanding during the year 409,146 71,456 --
Weighted average exercise price $ 12.59 $ 15.84 $ --
F-22
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - INCOME TAXES:
Income tax expense for the years ended December 31, 1999, 1998 and 1997
consisted of the following:
1999 1998 1997
-------- -------- -------
Currently payable: (Dollars in thousands)
Federal $ 302 $ 271 $ 279
State 82 87 34
------- ------- -------
384 358 313
------- ------- -------
Change in deferred income taxes:
Federal (1,816) (107) 123
State (239) (80) 2
------- ------- -------
(2,055) (187) 125
------- ------- -------
Income tax expense $(1,671) $ 171 $ 438
======= ======= =======
Income tax expense is allocated as follows:
To continuing operations $ 150 $ 34 $ 220
To shareholders' equity (1,821) 137 218
------- ------- -------
$(1,671) $ 171 $ 438
======= ======= =======
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
------- ------- -------
Deferred tax assets: (Dollars in thousands)
Allowance for loan losses $ 785 $ 776 $ 432
Net operating loss carryforward 118 99 52
Deferred compensation 125 65 34
Available-for-sale securities 1,444 -- --
Alternative minimum tax credit carryforward 158 -- --
------- ------- -------
Total deferred tax assets 2,630 940 518
------- ------- -------
Deferred tax liabilities:
Accumulated depreciation 159 126 38
Available-for-sale securities -- 377 240
Loan fees and costs 91 112 102
FHLB stock dividends 18 18 18
------- ------- -------
Total deferred tax liabilities 268 633 398
------- ------- -------
Net deferred tax asset $ 2,362 $ 307 $ 120
======= ======= =======
A reconciliation of the income tax provision and the amount computed by applying
the Federal statutory rate of 34% to income before income taxes follows:
1999 1998 1997
------- ------- -------
(Dollars in thousands)
Income tax at the statutory rate $ 452 $ 271 $ 335
State income tax, net of federal benefit 28 7 11
Tax exempt interest income (428) (264) (158)
Disallowed interest expense 64 46 30
Other, net 34 (26) 2
------- ------- -------
Income tax provision $ 150 $ 34 $ 220
======= ======= =======
F-23
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - OTHER OPERATING EXPENSE:
Other operating expense for the years ended December 31, 1999, 1998 and 1997 are
summarized below:
1999 1998 1997
------- ------- -------
(Dollars in thousands)
Banking and ATM supplies $ 587 $ 528 $ 451
Directors' fees 76 182 124
Mortgage loan department expenses 247 191 94
Data processing and supplies 205 135 151
Postage and freight 312 278 200
Professional fees 432 360 205
Credit card expenses 188 139 120
Telephone expenses 307 364 214
Other 1,229 1,088 864
------- ------- -------
Total $ 3,583 $ 3,265 $ 2,423
======= ======= =======
NOTE 21 - RETIREMENT AND BENEFIT PLANS:
The Company sponsors a voluntary nonleveraged employee stock ownership plan
(ESOP) as part of a 401(k) savings plan covering substantially all full-time
employees. The Company matches 75 cents per dollar, up to a maximum of 6% of
employee compensation. Company contributions to the savings plan were $172,000,
$141,000 and $103,000 in 1999, 1998 and 1997, respectively. The Company's policy
is to fund amounts accrued. At December 31, 1999 and 1998, the savings plan
owned 84,409 and 58,556 shares of the Company's common stock purchased at an
average cost of $10.75 and $11.51 per share, respectively, adjusted for the
effects of stock dividends. The estimated value of shares held at December 31,
1999 and 1998 was $717,477 and $537,111, respectively.
The Company has a Directors' Incentive Compensation Plan and an Officers'
Incentive Compensation Plan which provide that portions of directors' fees and
certain officers' cash awards, respectively, will be determined based upon
various performance measures of the Greenwood Bank and the Clemson Bank. For the
years ended December 31, 1998 and 1997, awards under the directors' plan were
$62,000 and $52,000, respectively, and awards under the officers' plan were
$125,000 and $126,000, respectively. There were no incentive payments made in
1999.
The Company has an Executive Supplemental Compensation Plan which provides
certain officers with salary continuation benefits upon retirement. The plan
also provides for benefits in the event of early retirement, death or
substantial change of control of the Company. For the years ended December 31,
1999, 1998 and 1997, salary continuation expense included in salaries and
employee benefits was $133,289, $77,807 and $24,000, respectively. In connection
with the Executive Supplemental Compensation Plan, life insurance contracts were
purchased on the officers. Insurance premiums of $0, $82,210 and $192,000 were
paid in each of the years ended December 31, 1999, 1998 and 1997. The cash
surrender value of the insurance contracts is included in other assets.
During 1998, certain officers opted out of the Executive Supplemental
Compensation Plan. Under a new agreement, split-dollar life insurance policies
were obtained on the lives of these officers. The officers are entitled to all
of the benefits of these policies, with the exception of the premiums paid by
the Company. There was no expense associated with this plan in 1999 or 1998.
Insurance premiums of $318,000 were paid in the years ended December 31, 1999
and 1998.
NOTE 22 - UNUSED LINES OF CREDIT:
As of December 31, 1999, the subsidiary banks had unused lines of credit to
purchase federal funds from unrelated banks totaling $23,920,000. These lines of
credit are available on a one to fourteen day basis for general corporate
purposes. The lenders have reserved the right not to renew their respective
lines.
F-24
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of a financial instrument is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.
The following methods and assumptions were used to estimate the fair value of
significant financial instruments:
CASH AND DUE FROM BANKS AND INTEREST-BEARING DEPOSIT ACCOUNTS - The carrying
amount is a reasonable estimate of fair value.
FEDERAL FUNDS SOLD - Federal funds sold are for a term of one day, and the
carrying amount approximates the fair value.
INVESTMENT SECURITIES - The fair values of securities held to maturity are based
on quoted market prices or dealer quotes. For securities available for sale,
fair value equals the carrying amount which is the quoted market price. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable securities.
Cost is a reasonable estimate of fair value for nonmarketable equity securities
because no quoted market prices are available and the securities are not readily
marketable. The carrying amount is adjusted for any permanent declines in value.
LOANS - For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk and credit
card receivables, fair values are based on the carrying amounts. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to the borrowers with
similar credit ratings and for the same remaining maturities.
CASH SURRENDER VALUE OF LIFE INSURANCE - The carrying amount is a reasonable
estimate of fair value.
DEPOSITS - The fair value of demand deposits, savings, and money market accounts
is the amount payable on demand at the reporting date. The fair values of
certificates of deposit are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - The
carrying amount is a reasonable estimate of fair value because these instruments
typically have terms of one day.
ADVANCES FROM THE FEDERAL HOME LOAN BANK - The carrying amounts of variable rate
borrowings are reasonable estimates of fair value because they can be repriced
frequently. The fair values of fixed rate borrowings are estimated using a
discounted cash flow calculation that applies the Company's current borrowing
rate from the Federal Home Loan Bank.
LONG-TERM DEBT - The fair value of the Company's variable rate long-term debt is
estimated at the carrying amount because the interest rate reprices with changes
in the leader's prime rate, and management is not aware of any significant
changes in the credit risk.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - The contractual amount is a reasonable
estimate of fair value for the instruments because commitments to extend credit
and standby letters of credit are issued on a short-term or floating rate basis.
Commitments to extend credit include commitments under credit card arrangements.
F-25
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1999 and 1998 are as follows:
December 31, 1999 December 31, 1998
----------------- -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial Assets: (Dollars in thousands)
Cash and due from banks $ 8,712 $ 8,712 $ 9,047 $ 9,047
Federal funds sold 10 10 1,280 1,280
Securities available for sale 103,371 103,371 115,222 115,222
Securities held to maturity 620 620 650 650
Nonmarketable equity securities 4,935 4,935 4,823 4,823
Cash surrender value of life insurance 1,302 1,302 1,025 1,025
Loans 219,054 217,718 172,545 173,070
Allowance for loan losses (2,557) (2,557) (2,399) (2,399)
FINANCIAL LIABILITIES:
Demand deposit, interest-bearing transaction,
and savings accounts $ 138,043 $ 138,043 $ 124,708 $ 124,708
Certificates of deposit and other time deposits 119,204 119,801 135,412 136,271
Federal funds purchased and securities
sold under agreements to repurchase 46,493 46,493 11,802 11,802
Advances from the Federal Home Loan Bank 20,729 20,705 9,434 9,454
Long-term debt 1,575 1,575 2,925 2,925
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit $44,387 $44,387 $28,498 $28,498
Standby letters of credit 271 271 640 640
F-26
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY):
Condensed financial statements for Community Capital Corporation (Parent Company
Only) for the years ended December 31, 1999 and 1998 follow:
BALANCE SHEETS
December 31,
------------
1999 1998
---- ----
ASSETS (Dollars in thousands)
Cash and cash equivalents $ -- $ 75
Investment in subsidiaries 31,331 35,174
Nonmarketable equity securities 1,652 1,152
Premises and equipment, net 2,411 2,568
Other assets 853 557
-------- --------
Total assets $ 36,247 $ 39,526
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable to subsidiaries $ 2,529 $ 2,522
Long-term debt 1,575 2,925
Other liabilities 925 649
-------- --------
Total liabilities 5,029 6,096
-------- --------
Common stock 3,123 3,092
Capital surplus 29,846 29,598
Accumulated other comprehensive income (loss) (2,802) 732
Retained earnings 1,336 8
Treasury stock (285) --
-------- --------
Total shareholders' equity 31,218 33,430
-------- --------
Total liabilities and shareholders' equity $ 36,247 $ 39,526
======== ========
F-27
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): (CONTINUED)
STATEMENTS OF OPERATIONS
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Income:
Interest income on securities available for sale $ -- $ 15 $ 75
Dividend income from subsidiaries 1,600 500 --
Dividend income from equity securities 46 30 26
Data processing and other fees from subsidiaries 3,735 2,434 1,949
Other income 75 68 145
------- ------- -------
Total income 5,456 3,047 2,195
------- ------- -------
Expenses:
Salaries 1,419 1,158 805
Net occupancy expense 38 53 95
Furniture and equipment expense 538 484 407
Interest expense 346 274 87
Other operating expenses 1,263 1,170 814
------- ------- -------
Total expenses 3,604 3,139 2,208
------- ------- -------
Income (loss) before income taxes and equity in
undistributed earnings and (losses) of subsidiaries 1,852 (92) (13)
Income tax expense (benefit) 114 (216) (5)
------- ------- -------
Income (loss) before equity in undistributed earnings of subsidiaries 1,738 124 (8)
Equity in undistributed earnings and (losses) of subsidiaries (410) 640 774
------- ------- -------
Net income $ 1,328 $ 764 $ 766
======= ======= =======
F-28
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): (CONTINUED)
STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Operating activities: (Dollars in thousands)
Net income $ 1,328 $ 764 $ 766
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries 410 (640) (774)
Depreciation and amortization 503 431 267
Deferred taxes (6) (42) 4
Net accretion on securities -- -- (47)
Increase in other liabilities 276 421 138
Decrease (increase) in other assets (443) (232) 182
-------- -------- --------
Net cash provided by operating activities 2,068 702 536
-------- -------- --------
Investing activities:
Purchases of premises and equipment, net (193) (1,378) (571)
Proceeds from disposal of premises and equipment -- 70 --
Purchases of securities available for sale -- -- (7,252)
Proceeds from sales of securities available for sale -- 499 --
Proceeds from maturities of securities available for sale -- -- 6,800
Net investment in subsidiaries (101) (5,387) (16,250)
Purchases of equity securities (500) -- (25)
-------- -------- --------
Net cash provided (used) by investing activities (794) (6,196) (17,298)
-------- -------- --------
Financing activities:
Proceeds from the exercise of stock options 22 217 48
Proceeds from sales of stock to retirement plan 257 261 180
Cash paid in lieu of fractional shares -- (5) --
Proceeds from issuance of common stock -- -- 16,946
Proceeds of borrowings from subsidiaries 241 2,656 --
Repayments on borrowings from subsidiaries (234) (945) (56)
Proceeds from advances of long-term debt 2,125 3,425 --
Repayments of advances of long-term debt (3,475) (500) --
Purchase of treasury stock (285) -- --
-------- -------- --------
Net cash (used) provided by financing activities (1,349) 5,109 17,118
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (75) (385) (356)
Cash and cash equivalents, beginning of year 75 460 104
-------- -------- --------
Cash and cash equivalents, end of year $ -- $ 75 $ 460
======== ======== ========
Supplemental schedule of non-cash investing and financing activities: In 1998,
the Company declared a 5% stock dividend and transferred $1,815,000 from
retained earnings to common stock and capital surplus in the amounts of $147,000
and $1,668,000, respectively.
F-29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 * Articles of Incorporation of Registrant.
3.2 * Articles of Amendment to Articles of Incorporation of Registrant
(re: Change of Name).
3.3 * Bylaws of Registrant.
4.1 ** Form of Common Stock Certificate. (The rights of security holders
of the Registrant are set forth in the Registrant's Articles of
Incorporation and Bylaws included as Exhibits 3.1 and 3.3,
respectively.)
10.3 * Registrant's Executive Supplemental Income Plan (Summary) and form of
Executive Supplemental Income Agreement.
10.4 * Registrant's Management Incentive Compensation Plans (Summary).
10.5 * Lease Agreement dated July 8, 1994 between John W. Drummond and the
Registrant.
10.6 ** Lease Agreement With Options dated June 11, 1996 between Robert C.
Coleman and the Registrant.
10.18 1997 Stock Incentive Plan, as amended.(Incorporated by reference to
Registrant's Definitive Proxy Statement for Annual Meeting of
Shareholders held on May 26, 1999.)
21.1 Subsidiaries of the Registrant.
24.1 Directors' Powers of Attorney.
27.1 Financial Data Schedule.
______________
* Incorporated by reference to the Exhibit of the same number
filed in connection with the Registrant's Form 10-K for the
fiscal year ended December 31, 1995.
** Incorporated by reference to the Exhibit of the same number
filed in connection with the Registrant's Registration
Statement on Form S-2 initially filed on December 20, 1996
(File No. 333-18457).
E-1