Back to GetFilings.com
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, 2000
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 executive offices) (Zip Code)
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, 2001 was approximately $23.9 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 3,256,815.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its 2001 Annual
Meeting of Stockholders (Part III).
PART I
Item 1. Business.
General
Community Capital Corporation (the "Company") is a 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"). During 2000, each of these five community
banks (collectively, the "Banks") operated as a wholly-owned subsidiary of the
Company and engaged 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 was a state chartered Federal Reserve
member bank. On January 1, 2001, the Company merged the five Banks into one bank
known as CapitalBank.
Market Areas
At December 31, 2000, the Greenwood Bank had three banking locations in
Greenwood, South Carolina; the Clemson Bank had two banking locations in Clemson
and Abbeville, South Carolina; the Barnwell Bank had five banking locations in
Aiken, Barnwell and Orangeburg Counties, South Carolina; the Belton Bank had
four banking locations in Belton, Honea Path and Anderson, South Carolina; and
the Newberry Bank has three banking locations in Newberry and Saluda Counties,
South Carolina. As of January 1, 2001, all seventeen such locations operate as
banking locations of CapitalBank.
2
The following table sets forth certain information concerning the Banks at
December 31, 2000:
Number of Total Total Total
Bank Locations Assets Loans Deposits
- ---- --------- ------ ----- --------
(Dollars in thousands)
Barnwell Bank.............5 $89,252 $ 54,058 $ 70,206
Belton Bank...............4 82,882 41,543 62,921
Clemson Bank..............2 41,308 23,628 32,348
Greenwood Bank............3 130,256 104,828 98,535
Newberry Bank.............3 83,721 58,762 72,090
CapitalBank 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. CapitalBank also offers a full range of consumer credit
and short- term and intermediate-term commercial and personal loans. CapitalBank
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 CapitalBank.
CapitalBank also offers trust and related fiduciary services. Discount
securities brokerage services are available through a third-party brokerage
service which has contracted with CapitalBank.
The Company performs data processing functions for CapitalBank upon terms that
the management of CapitalBank believes are competitive with those offered by
unaffiliated third-party service bureaus. The Company also administers certain
operating functions for CapitalBank where cost savings can be achieved. Included
in such operations are regulatory compliance, personnel, and internal audit
functions. During 2000, the Company's costs associated with the performance of
such services were allocated between the Banks based on each Bank's total
accounts and/or total assets.
Lending Activities
General. Through CapitalBank, 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 CapitalBank's market areas. The Company's total
loans at December 31, 2000, were $280 million, or 72.68% 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 $200 million, and
constituted approximately 71.28% of the Company's loan portfolio, at December
31, 2000.
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, 2000.
3
Loan Composition
(Dollars in thousands)
December 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
Commercial, financial and agricultural 18.54% 13.58% 16.80% 24.19% 19.05%
Real estate:
Construction 7.27 13.09 13.72 8.61 12.37
Mortgage:
Residential 39.89 30.17 30.51 27.48 39.13
Commercial (1) 21.45 26.67 20.87 21.81 21.87
Consumer and other 12.85 16.49 18.10 17.91 7.58
----------------------------------------------------------------------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ==========
Total loans (dollars) $ 280,506 $ 219,054 $ 172,545 $ 149,127 $ 80,546
(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.
During 2000, these means included 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. CapitalBank establishes watch lists of potential problem
loans.
Deposits
The principal sources of funds for CapitalBank are core deposits, consisting of
demand deposits, interest- bearing transaction accounts, money market accounts,
saving deposits, and certificates of deposit. Transaction accounts include
checking and negotiable order of withdrawal (NOW) accounts which customers use
for cash management and which provide CapitalBank 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 CapitalBank is certificates of deposit. Certificates
of deposit in excess of $100,000 are held primarily by customers in
CapitalBank's market areas. Deposit rates are set weekly by senior management of
CapitalBank, subject to approval by management of the Company. Management
believes that the rates CapitalBank offers are competitive with other
institutions in CapitalBank's market areas.
Competition
CapitalBank generally competes 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
4
South Carolina State Board of Financial Institutions gives prior approval for
the acquisition or merger. Many large banking organizations currently operate in
the market areas of CapitalBank, 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."
CapitalBank 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
CapitalBank's market areas. Some of these competitors are not subject to the
same degree of regulation and restriction imposed upon CapitalBank. Many of
these competitors also have broader geographic markets and substantially greater
resources and lending limits than CapitalBank and offer certain services that
CapitalBank does not currently provide. In addition, many of these competitors
have numerous branch offices located throughout the extended market areas of
CapitalBank that the Company believes may provide these competitors with an
advantage in geographic convenience that CapitalBank does 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 CapitalBank.
Employees
The Company and CapitalBank currently have in the aggregate 176 full-time
employees and 24 part-time employees.
Government Supervision and Regulation
General
The Company and CapitalBank 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,
virtually all aspects of the Company's and CapitalBank's operations. These
regulations are generally intended to provide protections for CapitalBank's
depositors and borrowers, rather than for shareholders of the Company. The
Company and CapitalBank 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,
CapitalBank's lending abilities in increasing or decreasing the cost and
availability of funds to CapitalBank. 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 CapitalBank. 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 CapitalBank. Any
change in applicable laws or regulations may have a material adverse effect on
the business and prospects of the Company and CapitalBank.
5
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
6
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.
CapitalBank
CapitalBank is 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 CapitalBank's 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 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 CapitalBank to maintain
certain capital ratios (see "Federal Capital Regulations"), and the provisions
of the Federal Reserve Act require CapitalBank 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, CapitalBank is 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
CapitalBank is subject also set forth various conditions regarding the
eligibility and qualification of their directors and officers.
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 CapitalBank and any other subsequently
acquired entities. CapitalBank is subject to regulatory restrictions on the
payment of dividends, including the prohibition of payment of dividends from
CapitalBank's capital. All dividends of CapitalBank 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,
CapitalBank is prohibited from declaring a dividend on its shares of common
stock until its surplus equals
7
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
CapitalBank 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. CapitalBank is subject to various other
federal and state regulatory restrictions on the payment of dividends.
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. 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 CapitalBank 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. CapitalBank pays 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 2000, 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 CapitalBank. 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 CapitalBank 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 and the Banks' leverage and risk-based
capital ratios at December 31, 2000, exceeded their respective fully phased-in
minimum requirements.
8
Other Regulations
Interest and certain other charges collected or contracted for by CapitalBank is
subject to state usury laws and certain federal laws concerning interest rates.
CapitalBank's 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 CapitalBank 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 CapitalBank, Company cannot predict the actual impact of such
legislation on the competitive position of CapitalBank.
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
CapitalBank, 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) 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) creates
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) amends
9
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 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 CapitalBank's abilities to diversify into a variety of areas,
the Company cannot predict the actual impact of such legislation on the Company
or CapitalBank.
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 CapitalBank; the ability of the Company to effectively
integrate and staff the operations of CapitalBank 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.
At December 31, 2000, the Greenwood Bank operated 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. At December 31, 2000, the Greenwood
Bank also operated 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
10
Bank leased from a director of the Company and the Greenwood Bank. All such
properties have been operated as locations of CapitalBank after the consummation
of the merger of the Banks into CapitalBank as of January 1, 2001.
At December 31, 2000, the Barnwell Bank operated out of an approximately 11,000
square foot building located on a quarter acre parcel owned by the Barnwell Bank
in Barnwell, South Carolina, and operated four branches located in Aiken,
Barnwell and Orangeburg Counties in South Carolina. Of the four branch
locations, one is leased from a third party and three are owned by the Barnwell
Bank. All such properties have been operated as locations of CapitalBank after
the consummation of the merger of the Banks into CapitalBank as of January 1,
2001.
At December 31, 2000, the Belton Bank operated out of an approximately 1600
square foot building located on approximately five acres of land in Belton,
South Carolina. At December 31, 2000, the land is owned by the Belton Bank and
the building is leased by the Belton Bank from the Company. At December 31,
2000, the Belton Bank also operated three branches, two of which are located on
land owned by the Company and leased to the Belton Bank in Anderson County,
South Carolina, and one that is owned by the Belton Bank. All such properties
have been operated as locations of CapitalBank after the consummation of the
merger of the Banks into CapitalBank as of January 1, 2001.
At December 31, 2000, the Clemson Bank operated 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. At December 31, 2000, the
Clemson Bank also operated a branch located on land owned by the Company and
leased to the Clemson Bank in Abbeville County, South Carolina. All such
properties have been operated as locations of CapitalBank after the consummation
of the merger of the Banks into CapitalBank as of January 1, 2001.
At December 31, 2000, the Newberry Bank operated 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, and also operated branches in
Newberry and Saluda Counties, South Carolina, both of which are owned by the
Newberry Bank. All such properties have been operated as locations of
CapitalBank after the consummation of the merger of the Banks into CapitalBank
as of January 1, 2001.
Item 3. Legal Proceedings.
The Company and CapitalBank 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 following table reflects
the high and low sales price per share for the Common Stock reported on the
American Stock Exchange for the periods indicated.
11
Year Quarter High Low
2000 Fourth.................................... $ 6.88 $ 4.75
Third..................................... 7.25 6.06
Second.................................... 7.50 6.00
First..................................... 8.75 6.00
1999 Fourth.................................... $ 10.37 $ 6.87
Third..................................... 10.00 8.25
Second.................................... 11.00 9.12
First..................................... 10.62 9.25
As of March 15, 2001, there were 3,256,815 shares of Common Stock outstanding
held by approximately 1,205 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 CapitalBank 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 CapitalBank's ability to distribute dividends to the
Company. As a state bank, CapitalBank is subject to legal limitations on the
amount of dividends each is permitted to pay. In particular, CapitalBank must
receive the approval of the State Board prior to paying dividends to the
Company. Furthermore, neither CapitalBank 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, 2000, the Company sold an aggregate of
21,447 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 20, 2000 1,574 $ 12,789
January 31, 2000 373 3,024
March 8, 2000 1,703 12,134
June 22, 2000 6,032 40,152
June 25, 2000 3,001 19,882
October 18, 2000 8,764 54,775
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, 2000 which were not registered under the 1933
Act.
12
Item 6. Selected Financial Data
The following selected consolidated financial data for the five years ended
December 31, 2000 are derived from the consolidated financial statements and
other data of the Company. The consolidated financial statements for the years
ended December 31, 1996 through 2000, 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, 2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share)
Income Statement Data:
Interest income $ 29,722 $ 23,199 $ 21,043 $ 14,443 $ 8,201
Interest expense 16,636 11,850 11,198 7,172 4,006
--------- --------- --------- --------- ---------
Net interest income 13,086 11,349 9,845 7,271 4,195
Provision for loan losses 471 1,037 1,836 608 187
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses 12,615 10,312 8,009 6,663 4,008
Net securities gains (losses) -- 175 220 (1) 17
Noninterest income 3,303 3,005 2,797 1,572 1,122
Noninterest expense 13,976 12,014 10,228 7,248 4,141
--------- --------- --------- --------- ---------
Income before income taxes 1,942 1,478 798 986 1,006
Income tax expense 290 150 34 220 300
--------- --------- --------- --------- ---------
Net income $ 1,652 $ 1,328 $ 764 $ 766 $ 706
========= ========= ========= ========= =========
Balance Sheet Data:
Assets $ 422,250 $ 359,668 $ 321,031 $ 248,861 $ 115,959
Earning assets 387,146 328,478 295,213 227,372 106,770
Securities (1) 106,041 108,926 120,695 77,480 25,479
Loans (2) 280,506 219,054 172,545 149,127 80,546
Allowance for loan losses 3,060 2,557 2,399 1,531 837
Deposits 336,312 257,247 260,120 186,861 89,862
Federal Home Loan Bank advances 32,399 20,729 9,434 16,350 4,889
Shareholders' equity 35,144 31,218 33,430 31,928 13,556
Per Share Data (3):
Basic earnings per share $ 0.51 $ 0.41 $ 0.24 $ 0.26 $ 0.55
Diluted earnings per share 0.51 0.41 0.23 0.26 0.51
Book value (period end) (4) 10.79 10.10 10.81 10.47 10.59
Tangible book value (period end) (4) 8.71 8.48 9.01 9.45 10.55
Performance Ratios:
Return on average assets 0.41% 0.40% 0.27% 0.40% 0.67%
Return on average equity 4.57 3.90 2.33 2.68 5.41
Net interest margin (5) 3.59 3.72 3.76 4.16 4.29
Efficiency (6) 86.06 83.70 80.90 81.96 77.28
Allowance for loan losses to loans 1.09 1.17 1.39 1.03 1.04
Net charge-offs to average loans 0.12 0.47 0.62 0.15 0.03
Nonperforming assets to period end loans (2) (7) 0.25 0.56 0.78 0.63 0.23
Capital and Liquidity Ratios:
Average equity to average assets 9.07 9.72 11.47 14.92 12.37
Leverage (4.00% required minimum) 7.02 8.37 8.89 12.08 11.62
Tier 1 risk-based capital ratio 10.05 11.85 13.78 17.65 15.58
Total risk-based capital ratio 11.12 12.90 15.00 18.61 16.54
Average loans to average deposits 86.0 72.97 69.65 76.78 88.06
- ----------
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 May 1996, September 1998 and June 2000.
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.
7. Nonperforming loans and nonperforming assets do not include loans past due
90 days or more that are still accruing interest.
13
Quarterly Operating Results
(Dollars in thousands 2000 Quarter ended 1999 Quarter ended
except per share) ---------------------------------- ----------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
------ ------ ------ ------ ------ ------ ------ ------
Net interest income $3,587 $3,360 $3,105 $3,034 $3,151 $2,883 $2,726 $2,589
Provision for loan losses 195 15 84 177 351 177 235 274
Noninterest income 569 871 988 875 665 697 981 837
Noninterest expense 3,569 3,628 3,454 3,325 3,177 2,968 3,061 2,808
Net income 333 483 464 372 265 380 364 319
Basic earnings per share 0.11 0.15 0.15 0.10 0.09 0.11 0.11 0.10
Diluted earnings per share 0.11 0.15 0.15 0.10 0.09 0.11 0.11 0.10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Basis of Presentation
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 at December 31, 2000 operated through five
community banks (collectively, the "subsidiary banks") in nonmetropolitan
markets in the State of South Carolina. 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 Greenwood
National Bank, which later changed its name to Greenwood Bank & Trust (the
"Greenwood Bank"). In 1994 the Company made the decision to expand beyond
Greenwood County by creating an organization of independent banks in four
additional markets. In June 1995, the Company opened Clemson Bank and Trust (the
"Clemson Bank") in Clemson, South Carolina. In 1996 and 1997, the Company opened
Community Bank and Trust (the "Barnwell Bank"), TheBank (the "Belton Bank"), and
Mid State Bank (the "Newberry Bank"). The Company formed a separate trust
organization in 1997 known as Community Trust Company. In May 2000, Community
Trust Company was sold. During 1997 and 1998, the Company also acquired several
Carolina First branches.
During 2000, the Newberry Bank entered into Purchase and Assumption Agreements
with Carolina First Bank and Anchor Bank to acquire certain assets and deposits
associated with a branch of each bank. On June 25, 2000, the Newberry Bank
acquired net loans (including accrued interest receivable) of approximately
$19,000 and assumed deposits (including accrued interest payable) of
approximately $7.3 million of a Carolina First Branch in Newberry County, South
Carolina. Also, on July 3, 2000, the Newberry Bank acquired net loans (including
accrued interest receivable) of approximately $22.5 million and assumed deposits
(including accrued interest payable) of approximately $32.0 million of a branch
in Saluda County, South Carolina. The Newberry Bank also purchased premises and
equipment of approximately $951,000 as part of the branch acquisitions. In
connection with these branches, the Newberry Bank paid a premium of $2.4 million
which is being amortized over a fifteen-year period on a straight-line basis.
On January 1, 2001, the Company merged the five subsidiary banks into one bank
charter known as CapitalBank. The Company made the decision to restructure the
organization into one bank in order to improve operational efficiencies, provide
new opportunities for employees, and improve service to customers. Customers
will receive the benefit of being able to transact business at any of
CapitalBank's branches, through the ATM network, and through the internet
banking products. Additionally, management believes that the new centralized
credit function will provide additional controlled decisions while streamlining
the credit process. Centralized deposit pricing will support management's
strategy from market to market. It is believed that the name recognition will be
enhanced.
14
On January 29, 2001, CapitalBank, the new bank subsidiary, announced that it had
signed a definitive agreement with Enterprise Bank of South Carolina to sell its
five branch offices located in Barnwell, Blackville, Williston, Springfield and
Salley, South Carolina. This transaction is expected to close in the second
quarter of 2001, pending regulatory approval and satisfaction of other
conditions of closing.
Results of Operations
Year ended December 31, 2000, compared with year ended December 31, 1999
Net interest income increased $1.8 million, or 15.3%, to $13.1 million in 2000
from $11.3 million in 1999. The increase in net interest income was due
primarily to an increase in average earning assets. Average earning assets
increased $59.0 million, or 19.32%, due to the growth of the subsidiary banks in
2000.
The Company's net interest spread and net interest margin were 3.13% and 3.59%,
respectively, in 2000 compared to 3.24% and 3.72% in 1999. The decrease in the
net interest spread was primarily the result of the increase in yields on
interest-bearing liabilities used to fund loans and securities. Yields on
interest-bearing liabilities increased from 4.36% in 1999 to 5.03% in 2000. The
net interest margin decreased from 3.72% in 1999 to 3.59% in 2000.
The provision for loan losses was $471,000 in 2000 compared to $1.0 million in
1999. The higher amount charged to the provision in 1999 was primarily to fund
potential problem loans at the Greenwood and Barnwell Banks. The Company's
allowance for loan losses was 1.09% of total loans outstanding at December 31,
2000. 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 $123,000, or 3.9%, to $3.3 million in 2000 from
$3.2 million in 1999, which was primarily attributable to increased service
charges on deposit accounts and an increase in other operating income. 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. Other
operating income increased $42,000 or 6.29% to $710,000 in 2000. Noninterest
income in 1999 included $175,000 from the gain on sales of securities
available-for-sale, compared to no gains in 2000. Noninterest income for the
year ended December 31, 2000 included $150,000 from the gain on the sale of
Community Trust Company.
Noninterest expense increased $2.0 million, or 16.3%, to $14.0 million in 2000
from $12.0 million in 1999. The primary component of noninterest expense is
salaries and employee benefits, which increased $1.1 million, or 19.3%, to $6.8
million in 2000 from $5.7 million in 1999. 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 and from the acquisition of the two branches in 2000.
Net occupancy expense was $880,000 in 2000 compared to $819,000 in 1999, and
furniture and equipment expense was $1.6 million in 2000 compared to $1.2
million in 1999. The Company recorded amortization of intangible assets related
to acquisitions of $612,000 in 2000 compared to $537,000 in 1999. The Company's
efficiency ratio was 86.06% in 2000 compared to 83.70% in 1999.
Net income increased $324,000, or 24.40%, to $1.7 million in 2000 from $1.3
million in 1999. Basic earnings per share was $0.51 in 2000, compared to $0.41
in 1999. Diluted earnings per share was $0.51 in 2000, compared to $0.41 in
1999. Return on average assets during 2000 was 0.41% compared to 0.40% during
1999, and return on average equity was 4.57% during 2000 compared to 4.12%
during 1999.
15
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 $43.3
million, or 16.52%, due to the growth of the subsidiary banks in 1999.
The Company's net interest spread and net interest margin were 3.24% and 3.72%,
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 3.72% in 1999. The
overall decrease in yields on earning assets contributed to this decrease.
The provision for loan losses was $1.0 million in 1999 compared to $1.8 million
in 1998. The significant amount charged to the provision in 1998 was primarily
the result of significant loan problems 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. 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 $1.3 million in 1999 from $764,000
in 1998. Basic earnings per share were $0.41 in 1999, compared to $0.24 in 1998.
Diluted earnings per share were $0.41 in 1999, compared to $.23 in 1998. Return
on average assets during 1999 was 0.40% compared to 0.27% during 1998, and
return on average equity was 4.12% during 1999 compared to 2.33% during 1998.
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.
16
Average Balances, Income and Expenses and Rates
Year ended December 31, 2000 1999 1998
--------------------------- ---------------------------- ----------------------------
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) $ 254,064 $ 23,501 9.25% $ 188,672 $ 16,613 8.81%$ 161,695 $ 14,942 9.24%
Securities, taxable (2) 78,246 4,593 5.87 86,761 5,037 5.81 76,287 4,798 6.29
Securities, nontaxable 26,671 1,314 4.93 24,505 1,220 4.98 15,171 751 4.95
Nonmarketable equity
securities 5,329 308 5.78 4,758 295 6.20 4,085 216 5.29
Federal funds sold and other 87 6 6.90 696 34 4.89 4,864 336 6.91
--------- --------- --------- --------- --------- ---------
Total earning assets 364,397 29,722 8.16 305,392 23,199 7.60 262,102 21,043 8.03
--------- --------- --------- --------- --------- ---------
Cash and due from banks 9,728 8,117 7,168
Premises and equipment 14,024 10,835 8,288
Other assets 13,109 11,711 9,746
Allowance for loan losses (2,814) (2,509) (1,912)
--------- --------- ---------
Total assets $ 398,444 $ 333,546 $ 285,392
========= ========= =========
Liabilities:
Interest-Bearing Liabilities:
Interest-bearing transaction
accounts $ 101,225 3,553 3.51% $ 81,210 2,373 2.92%$ 64,836 2,241 3.46%
Savings deposits 29,051 1,096 3.77 26,658 954 3.58 21,118 847 4.01
Time deposits 136,144 7,878 5.79 125,596 6,375 5.08 124,871 7,040 5.64
Other short-term borrowings 27,675 1,772 6.40 20,928 1,169 5.59 3,534 227 6.42
Federal Home Loan Bank
advances 31,943 1,931 6.05 16,108 865 5.37 13,132 760 5.79
Long-term debt 3,299 286 8.67 1,114 80 7.18 1,530 71 4.64
Obligations under capital leases 1,239 120 9.69 463 34 7.34 160 12 7.50
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities 330,576 16,636 5.03 272,077 11,850 4.36 229,181 11,198 4.89
--------- --------- --------- --------- --------- ---------
Demand deposits 28,925 25,101 21,338
Accrued interest and other
liabilities 2,813 2,289 2,044
Shareholders' equity 36,130 34,079 32,829
--------- --------- ---------
Total liabilities and
shareholders' equity $ 398,444 $ 333,546 $ 285,392
========= ========= =========
Net interest spread 3.13% 3.24% 3.14%
Net interest income $ 13,086 $ 11,349 $ 9,845
========= ========= ========
Net interest margin 3.59% 3.72% 3.76%
(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.
17
Average Balances, Income, Expenses, and Rates. The previous table sets 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.
Analysis of Changes in Net Interest Income. The following table sets 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 2000 to 1999 and 1999 to 1998.
Analysis of Changes in Net Interest Income
2000 Compared With 1999 1999 Compared With 1998
------------------------------- --------------------------------
Variance Due to Variance Due to
(Dollars in thousands) Volume (1) Rate (1) Total Volume (1) Rate (1) Total
------- ------- ------- ------- ------- -------
Earning Assets
Loans $ 6,012 $ 876 $ 6,888 $ 2,401 $ (730) $ 1,671
Securities, taxable (499) 55 (444) 626 (387) 239
Securities, nontaxable 107 (13) 94 465 4 469
Nonmarketable equity securities 34 (21) 13 39 40 79
Federal funds sold and other (38) 10 (28) (225) (77) (302)
------- ------- ------- ------- ------- -------
Total interest income 5,616 907 6,523 3,306 (1,150) 2,156
------- ------- ------- ------- ------- -------
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts 650 530 1,180 511 (379) 132
Savings and market rate investments 88 54 142 205 (98) 107
Time deposits 563 940 1,503 41 (706) (665)
------- ------- ------- ------- ------- -------
Total interest-bearing deposits 1,301 1,524 2,825 757 (1,183) (426)
Other short-term borrowings 494 188 603 976 (34) 942
Federal Home Loan Bank advances 945 121 1,066 163 (58) 105
Long-term debt 186 20 206 (23) 32 9
Obligations under capital leases 72 14 86 22 -- 22
------- ------- ------- ------- ------- -------
Total interest expense 2,919 1,867 4,786 1,895 (1,243) 652
------- ------- ------- ------- ------- -------
Net interest income $ 2,697 $ (960) $ 1,737 $ 1,411 $ 93 $ 1,504
======= ======= ======= ======= ======= =======
(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 the same time interval helps to hedge the
risk and minimize the impact on net interest income of rising or falling
interest rates.
18
The following table sets forth the Company's interest rate sensitivity at
December 31, 2000.
Interest Sensitivity Analysis
Greater
After One After Three Than One
Within Through Through Within Year or
December 31, 2000 One Three Twelve One Non-
(Dollars in thousands) Month Months Months Year Sensitive Total
------- ------- ------- -------- -------- -------
Assets
Earning Assets
Loans (1) $ 78,628 $ 15,562 $ 45,091 $ 139,281 $ 140,588 $ 279,869
Securities -- -- 7,210 7,210 98,831 106,041
Federal funds sold and other 599 -- -- 599 -- 599
------- ------- ------- -------- -------- -------
Total earning assets 79,227 15,562 52,301 147,090 239,419 386,509
------- ------- ------- -------- -------- -------
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits 53,949 -- -- 53,949 -- 53,949
Savings deposits 88,886 -- -- 88,886 -- 88,886
Time deposits 25,568 29,881 80,681 136,130 25,150 161,280
------- ------- ------- -------- ------- -------
Total interest-bearing deposits 168,403 29,881 80,681 278,965 25,150 304,115
Other short-term borrowings 8,837 -- -- 8,837 -- 8,837
Federal Home Loan Bank advances 1,000 -- -- 1,000 31,399 32,399
Long-term debt -- -- -- -- 4,845 4,845
Obligations under capital leases 31 61 276 368 753 1,121
-------- ------- ------- -------- ------- -------
Total interest-bearing liabilities 178,271 29,942 80,957 289,170 62,147 351,317
-------- ------- ------- -------- ------- -------
Period gap $ (99,044) $ (14,380) $ (28,656) $(142,080) $ 177,272
========= ========= ========= ========== ========
Cumulative gap $ (99,044) $(113,424) $(142,080) $(142,080) $ 35,192
========= ========== ========== ========== ========
Ratio of cumulative gap to total earning assets (25.63)% (29.35)% (36.76)% (36.76)% 9.11%
(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.
19
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.
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, chargeoffs, 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 chargeoffs 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.
20
The following table sets forth certain information with respect to the Company's
allowance for loan losses and the composition of chargeoffs and recoveries for
each of the last five years.
Allowance for Loan Losses
Year Ended December 31,
(Dollars in thousands) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Total loans outstanding at end of period $280,506 $219,054 $172,545 $149,127 $ 80,546
======== ======== ======== ======== ========
Average loans outstanding $254,064 $188,672 $161,695 $113,080 $ 71,298
======== ======== ======== ======== ========
Balance of allowance for loan losses at beginning
of period $ 2,557 $ 2,399 $ 1,531 $ 837 $ 671
Allowance for loan losses from acquisitions 335 -- 38 255 --
Loan losses:
Commercial, financial and agricultural 113 287 135 92 --
Real estate - mortgage 122 306 43 9 --
Consumer 305 449 885 68 21
-------- -------- -------- -------- --------
Total loan losses 540 1,042 1,063 169 21
-------- -------- -------- -------- --------
Recoveries of previous loan losses:
Commercial, financial and agricultural 73 -- -- -- --
Real estate - mortgage 14 17 -- -- --
Consumer 150 146 57 -- --
-------- -------- -------- -------- --------
Total recoveries 237 163 57 -- --
-------- -------- -------- -------- --------
Net loan losses 303 879 1,006 169 21
Provision for loan losses 471 1,037 1,836 608 187
-------- -------- -------- -------- --------
Balance of allowance for loan losses at end of period $ 3,060 $ 2,557 $ 2,399 $ 1,531 $ 837
======== ======== ======== ======== =====
Allowance for loan losses to period end loans 1.09 % 1.17 % 1.39 % 1.03 % 1.04 %
Net chargeoffs to average loans 0.12 0.47 0.62 0.15 0.03
Nonperforming Assets. The following table sets forth the Company's nonperforming
assets for the dates indicated.
Nonperforming Assets
December 31,
----------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Nonaccrual loans $ 637 $1,223 $1,348 $ 678 $ 186
Restructured or impaired loans -- -- -- -- --
------ ------ ------ ------ ------
Total nonperforming loans $ 637 $1,223 $1,348 $ 678 $ 186
Other real estate owned 58 -- -- 262 --
------ ------ ------ ------ ------
Total nonperforming assets $ 695 $1,223 $1,348 $ 940 $ 186
====== ====== ====== ====== ======
Loans 90 days or more past due and still
accruing interest $ 164 $ 109 $ 112 $ 84 $ 54
Nonperforming assets to period end loans 0.25% 0.56% 0.78% 0.63% 0.23%
21
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 write-down or chargeoff 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 $695,000 at December 31, 2000, from $1.2
million at December 31, 1999. This amount consists primarily of nonaccrual loans
at the Greenwood Bank which totaled $467,000 at December 31, 2000. Nonperforming
assets were 0.25% of total loans at December 31, 2000. The allowance for loan
losses to period end nonperforming assets was 440.3% at December 31, 2000.
Potential Problem Loans. At December 31, 2000, through their internal review
mechanisms, the subsidiary banks had identified $6.5 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 criticized loans increased from $5.3 million at December 31, 1999
to $6.5 million at December 31, 2000. Total classified loans remained unchanged
from December 31, 1999, totaling $3.4 million at December 31, 2000.
The majority of the Company's criticized and classified loans were at the
Greenwood Bank. As of December 31, 2000, the Greenwood Bank had $3.8 million in
criticized loans and $1.3 million in classified loans. Net charges offs at the
Greenwood Bank were $120,000 in 2000 and the charge to the provision for loan
losses was $145,000. While the majority of potential problem loans are at the
Greenwood Bank, the loan portfolio at the Greenwood Bank is significantly larger
than the other subsidiary banks, comprising approximately 37.4% of the Company's
total loans.
While criticized and classified loans decreased significantly at the Barnwell
Bank, they increased at the Clemson and Belton Banks. At December 31, 2000, the
Clemson Bank identified criticized and classified loans totaling $803,000 and
$590,000, respectively, and the Belton Bank identified $626,000 and $831,000
criticized and classified loans, respectively.
Management is committed to addressing potential problem loans at all subsidiary
banks.
Noninterest Income and Expense
Noninterest Income. The largest component of noninterest income is service
charges on deposit accounts, which totaled $1.7 million in 2000, a 12.8%
increase over the 1999 level of $1.5 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 2000.
22
The following table sets forth, for the periods indicated, the principal
components of noninterest income:
Noninterest Income
Year Ended December 31,
------------------------
(Dollars in thousands) 2000 1999 1998
------ ------ ------
Service charges on deposit accounts $1,706 $1,513 $1,260
Residential mortgage origination fees 503 672 613
Securities gains -- 175 220
Commissions from sales of mutual funds 105 54 104
Income from fiduciary activities 129 98 133
Gain on sale of Community Trust Company 150 -- --
Other income 710 668 687
------ ------ ------
Total noninterest income $3,303 $3,180 $3,017
====== ====== ======
Noninterest Expense. Salaries and employee benefits increased $1.1 million, or
19.3%, to $6.8 million in 2000 from $5.7 million in 1999, 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 2000, the Company
recorded amortization expense of $612,000 compared to $537,000 in 1999. 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
86.06% in 2000 compared to 83.70% in 1999 and 80.90% in 1998.
The following table sets forth, for the periods indicated, the primary
components of noninterest expense:
Noninterest Expense
Year Ended December 31,
-----------------------------
(Dollars in thousands) 2000 1999 1998
------- ------- -------
Salaries and employee benefits $ 6,787 $ 5,690 $ 4,688
Net occupancy expense 880 819 703
Furniture and equipment expense 1,631 1,178 1,129
Amortization of intangible assets 612 537 443
Director and committee fees 202 76 182
Data processing and supplies 361 205 135
Mortgage loan department expenses 130 247 191
Banking assessments 131 77 58
Professional fees and services 476 432 360
Postage and freight 380 312 278
Supplies 419 391 367
Credit card expenses 201 188 139
Telephone expenses 402 307 364
Other 1,364 1,555 1,191
------- ------- -------
Total noninterest expense $13,976 $12,014 $10,228
======= ======= =======
Efficiency ratio 86.06% 83.70% 80.90%
23
Income Taxes. The Company's income tax expense was $290,000, an increase of
$140,000 from the 1999 amount of $150,000. The increase is primarily
attributable to an increase in income before taxes of $464,000 when compared to
1999. However, the amount of nontaxable income from securities comprised a
significant amount of income before taxes. Nontaxable securities income was $1.3
million for the year ended December 31, 2000, compared to $1.2 million for the
year ended December 31, 1999.
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
yields are the inherent credit and liquidity risks which management attempts to
control and counterbalance. Loans averaged $254.1 million in 2000 compared to
$188.7 million in 1999, an increase of $65.4 million, or 34.66%. At December 31,
2000, total loans were $280.5 million compared to $219.1 million at December 31,
1999.
The increase in loans during 2000 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, 2000 1999 1998 1997 1996
------------------- ------------------- --------------------- ---------------------- --------------------
Percent of Percent of Percent of Percent of Percent of
(Dollars in thousands) Amount Total Amount Total Amount Total Amount Total Amount Total
------- ------ ------- ------ ------- ------ ------- ------ ------ ------
Commercial and
industrial $ 52,005 18.54% $ 29,740 13.58% $ 28,991 16.80% $ 36,079 24.19% $ 15,348 19.05%
Real estate
Construction 20,393 7.27 28,664 13.09 23,665 13.72 12,838 8.61 9,962 12.37
Mortgage-residential 111,897 39.89 66,092 30.17 52,635 30.51 40,977 27.48 31,519 39.13
Mortgage-
nonresidential 60,159 21.45 58,419 26.67 36,017 20.87 32,518 21.81 17,616 21.87
Consumer 33,721 12.02 32,256 14.73 29,784 17.26 25,747 17.27 5,947 7.38
Other 2,331 0.83 3,883 1.76 1,453 0.84 968 0.64 154 0.20
------- ------ ------- ------ ------- ------ ------- ------ ------ ------
Total loans 280,506 100.00% 219,054 100.00% 172,545 100.00% 149,127 100.00% 80,546 100.00%
======= ======= ======= ======= =======
Allowance for
loan losses (3,060) (2,557) (2,399) (1,531) (837)
--------- -------- -------- --------- ---------
Net loans $ 277,446 $216,497 $170,146 $147,596 $ 79,709
========= ======== ======== ========= =========
The principal component of the Company's loan portfolio is real estate mortgage
loans. At December 31, 2000, this category totaled $172.1 million and
represented 61.3% of the total loan portfolio, compared to $124.5 million, or
56.8%, at December 31, 1999.
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.
24
Real estate construction loans decreased $8.3 million, or 28.9%, to $20.4
million at December 31, 2000, from $28.7 million at December 31, 1999.
Residential mortgage loans, which is the largest category of the Company's
loans, increased $45.8 million, or 69.3%, to $111.9 million at December 31,
2000, from $66.1 million at December 31, 1999. 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 $1.7
million, or 3.0%, to $60.2 million at December 31, 2000, from $58.4 million at
December 31, 1999. 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 and industrial loans increased $22.3 million, or 74.9%, to $52.0
million at December 31, 2000, from $29.7 million at December 31, 1999. This
increase was attributable to the subsidiary bank's continued growth in their
respective markets and the realization of higher yields on commercial loans.
Consumer loans increased $1.4 million, or 4.5%, to $33.7 million at December 31,
2000, from $32.3 million at December 31, 1999. 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.
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 have a higher concentration of consumer loans with fewer
opportunities for commercial lending. The Newberry Bank's main office and
Prosperity branch are located in Newberry County, South Carolina and are in
close proximity to an interstate highway. The Newberry Bank also has a branch
office in Saluda County. 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, 2000.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
Over
One Year
December 31, 2000 One Year or Through Over Five
(Dollars in thousands) Less Five Years Years Total
-------- -------- -------- --------
Commercial and industrial $ 25,808 $ 23,660 $ 2,537 $ 52,005
Real estate 95,560 75,927 20,962 192,449
Consumer and other 17,913 15,031 3,108 36,052
-------- -------- -------- --------
$139,281 $114,618 $ 26,607 $280,506
-------- -------- -------- --------
Loans maturing after one year with:
Fixed interest rates $ 136,659
Floating interest rates 4,566
---------
$ 141,225
=========
25
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
$110.2 million in 2000, compared to $116.0 million in 1999 and $95.5 million in
1998. At December 31, 2000, the total securities portfolio was $106.0 million.
Securities designated as available-for-sale totaled $100 million and were
recorded at estimated fair value, and securities designated as held-to-maturity
totaled $590,000 and were recorded at amortized cost. The securities portfolio
also includes nonmarketable equity securities totaling $5.5 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, the stock of four unrelated financial institutions, and the
stock of a financial services company that offers internet banking.
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, 2000 1999 1998
------- ------- ------
(Dollars in thousands)
U.S. Treasury securities $ -- $ 599 $ 597
U.S. Government agencies and corporations 50,544 51,421 64,517
State, county, and municipal securities 26,611 26,704 20,656
------- ------- ------
77,155 78,724 85,770
Mortgage-backed securities 24,262 29,513 28,993
Nonmarketable equity securities 5,500 4,935 4,823
------- ------- ------
Total securities $106,917 $113,172 $119,586
======== ======== ========
The following table sets forth the scheduled maturities and average yields of
securities held at December 31, 2000.
Investment Securities Maturity Distribution and Yields
After One But After Five But
December 31, 2000 Within One Year Within Five Years Within Ten Years Over Ten Years
----------------- ----------------- ---------------- ------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ ------- ------ ------- ------- ------- ------
U.S. Government agencies $ 6,710 5.09 % $33,989 5.75 % $ 8,361 6.04 % $ 958 7.00 %
Obligations of state and
local governments (2) 500 6.06 1,240 6.06 4,335 7.17 20,528 6.88
------- ------- ------- -------
Total securities (1) $ 7,210 5.15 % $35,229 5.77 % $12,696 6.42 % $21,486 6.88 %
======= ======= ======= =======
(1) Excludes mortgage-backed securities totaling $23.9 million with a yield of
6.2% and nonmarketable equity securities.
(2) The yield on state and local governments 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."
26
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold and interest-bearing deposits with other banks, averaged
$87,000 in 2000, compared to $696,000 in 1999 and $4.9 million in 1998. At
December 31, 2000, short-term investments totaled $599,000. 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 $58.6 million, or 21.50%, to
$330.6 million in 2000, from $272.0 million in 1999. Average interest-bearing
deposits increased $33.0 million, or 14.12%, to $266.4 million in 2000, from
$233.4 million in 1999. These increases resulted from increases in all
categories of interest-bearing liabilities.
Deposits. Average total deposits increased $36.7 million, or 14.22%, to $295.3
million during 2000, from $258.6 million during 1999. At December 31, 2000,
total deposits were $336.3 million compared to $257.2 million a year earlier, an
increase of 30.7%.
The following table sets forth the deposits of the Company by category at the
dates indicated.
Deposits
December 31, 2000 1999 1998 1997 1996
--------------------- --------------------- --------------------- ---------------------- ----------------------
(Dollars in Percent of Percent of Percent of Percent of Percent of
thousands) Amount Deposits Amount Deposits Amount Deposits Amount Deposits Amount Deposits
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Demand deposit
accounts $ 32,197 9.57% $ 27,422 10.66% $ 23,491 9.03% $ 19,460 10.41% $ 12,226 13.61%
NOW accounts 53,949 16.04 45,560 17.71 45,854 17.63 30,562 16.36 8,296 9.23
Money market
accounts 58,343 17.35 38,419 14.93 30,161 11.60 20,812 11.14 14,035 15.62
Savings accounts 30,543 9.08 26,642 10.36 25,202 9.69 15,127 8.09 8,681 9.66
Time deposits
less than
$100,000 114,454 34.03 91,671 35.64 104,491 40.17 73,827 39.51 34,745 38.66
Time deposits
of $100,000
or over 46,826 13.93 27,533 10.70 30,921 11.88 27,073 14.49 11,879 13.22
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total deposits $336,312 100.00% $257,247 100.00% $260,120 100.00% $186,861 100.00% $ 89,862 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
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 $56.5 million to
$286.2 million at December 31, 2000.
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 83.4% at December 31, 2000,
85.2% at the end of 1999, and averaged 86.5% during 2000. The maturity
distribution of the Company's time deposits over $100,000 at December 31, 2000,
is set forth in the following table.
27
Maturities of Certificates of Deposit of $100,000 or More
After Six
After Three Through
Within Three Through Six Twelve After Twelve
(Dollars in thousands) Months Months Months Months Total
-------- ------- -------- ------- --------
Certificates of deposit of $100,000 or more $ 21,129 $ 8,129 $ 10,127 $ 7,441 $ 46,826
Approximately 45.12% of the Company's time deposits over $100,000 had scheduled
maturities within three months and 62.48% 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 $29.2 million in 2000, an increase of $8.2
million from 1999. Federal funds purchased from correspondent banks averaged
$21.4 million in 2000. At December 31, 2000, federal funds purchased totaled
$8.0 million. Securities sold under agreements to repurchase averaged $7.8
million in 2000. At December 31, 2000, securities sold under agreements to
repurchase totaled $4.2 million.
Average Federal Home Loan Bank advances during 2000 were $31.9 million compared
to $16.1 million during 1999, an increase of $15.8 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, 2000, borrowings
from the Federal Home Loan Bank were $32.4 million compared to $20.7 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 $32.4 million
advances from the Federal Home Loan Bank outstanding at December 31, 2000, $31.4
million will mature after one year.
Long-term Debt. Long-term debt consists of borrowings obtained from an unrelated
financial institution 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 Bank branches in 1998 and to infuse capital into the Newberry
Bank for its branch acquisitions in 2000. The average balance of the long-term
debt was $3.3 million in 2000. Long-term debt totaled $4.8 million at December
31, 2000. Debt with one institution consists of a $8.0 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 one-month London Interbank Offered
rate plus 200 basis points. Interest is payable on a quarterly basis. The line
of credit is scheduled to mature on June 30, 2002. Debt also consists of
$500,000 borrowed from an unrelated financial institution for the construction
of branch offices and bears interest at a variable rate of .75% below the
highest prime rate published in the Wall Street Journal. This debt is unsecured
and is due on February 10, 2001.
28
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.
The Company exceeded the Federal Reserve's fully phased-in regulatory capital
ratios at December 31, 2000, 1999 and 1998, as set forth in the following table.
Analysis of Capital
December 31, 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Tier 1 capital $ 28,943 $ 29,000 $ 27,142
Tier 2 capital 3,060 2,557 2,399
-------- -------- --------
Total qualifying capital $ 32,003 $ 31,557 $ 29,541
======== ======== ========
Risk-adjusted total assets
(including off-balance-sheet exposures) $287,856 $244,648 $196,968
======== ======== ========
Tier 1 risk-based capital ratio 10.05% 11.85% 13.78%
Total risk-based capital ratio 11.12% 12.90% 15.00%
Tier 1 leverage ratio 7.02% 8.37% 8.89%
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, 2000, as set forth in
the following table.
Bank Capital Ratios
Tier 1 Risk- Total Risk- Tier 1
December 31, 2000 Based Based Leverage
------------ ----------- ---------
The Greenwood Bank 9.71% 10.63% 7.68%
The Clemson Bank 14.49% 15.74% 9.78%
The Barnwell Bank 10.51% 11.80% 7.40%
The Belton Bank 15.54% 16.63% 7.86%
The Newberry Bank 9.34% 10.40% 7.05%
29
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 1999
to 2000. The loans-to-assets ratio at December 31, 2000 was 66.4% compared to
60.9% at December 31, 1999, and the loans-to-funds ratio at December 31, 2000
was 73.4% compared to 67.2% at December 31, 1999. The amount of advances from
the Federal Home Loan Bank were approximately $32.4 million at December 31, 2000
compared to $20.7 million at December 31, 1999. Management expects to continue
using these advances as a source of funding. The Company obtained borrowings
from unrelated financial institutions in 1998 and 2000 to purchase branches and
for other corporate purposes. At December 31, 2000, total long-term debt was
$4.8 million, compared to $1.6 million at December 31, 1999. Additionally, the
Company has approximately $63.3 million of unused lines of credit for federal
funds purchases. The Company also has approximately $100.0 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, September 1998, June 30, 2000
and may do so in the future.
Accounting Rule Changes
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for fiscal years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments embedded in other
contracts, and requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure them at fair value. The accounting
for changes in the fair value of a derivative depends on how the derivative is
used and how the derivative is designated. The Company adopted SFAS No. 133 on
July 1, 2000. The adoption of SFAS No. 133 did not have a material impact on the
consolidated financial statements.
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.
30
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 2000. 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.
31
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, 2000 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:
The Company filed a Form 8-K on January 4, 2001 which reported that as of
January 1, 2001, four of the wholly-owned subsidiaries of the Company, Clemson
Bank & Trust, TheBank, Community Bank & Trust and Mid State Bank, merged with
and into a fifth wholly-owned subsidiary, Greenwood Bank & Trust. Immediately
after the merger, Greenwood Bank & Trust changed its name to CapitalBank.
32
The Company filed a Form 8-K on January 30, 2001 which reported that
CapitalBank, a wholly-owned subsidiary of the Company, signed a definitive
agreement with Enterprise Bank of South Carolina ("Enterprise Bank") concerning
the acquisition by Enterprise Bank of CapitalBank's five branch offices located
in Barnwell, Blackville, Williston, Springfield and Salley, South Carolina. The
transaction is expected to close in the second quarter of 2001, pending
regulatory approval and satisfaction of other conditions of closing.
33
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, 2001 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, 2001
- ------------------------------------- Officer) and Director
William G. Stevens
/s/ R. WESLEY BREWER Chief Financial Officer (Principal March 27, 2001
- ------------------------------------- Financial and Accounting Officer) and
R. Wesley Brewer Secretary
* Assistant Secretary and Director March 27, 2001
- -------------------------------------
Patricia C. Edmonds
* Director March 27, 2001
- -------------------------------------
David P. Allred
* Director March 27, 2001
- -------------------------------------
Earl H. Bergen
* Director March 27, 2001
- -------------------------------------
Harold Clinkscales, Jr.
* Director March 27, 2001
- -------------------------------------
Robert C. Coleman
* Director March 27, 2001
- -------------------------------------
John W. Drummond
34
* Director March 27, 2001
- -------------------------------------
Wayne Q. Justesen, Jr.
* Director March 27, 2001
- -------------------------------------
B. Marshall Keys
* Director March 27, 2001
- -------------------------------------
Clinton C. Lemon, Jr.
* Director March 27, 2001
- -------------------------------------
Miles Loadholt
* Director March 27, 2001
- -------------------------------------
Thomas C. Lynch, Jr.
* Director March 27, 2001
- -------------------------------------
H. Edward Munnerlyn
* Director March 27, 2001
- -------------------------------------
George B. Park
* Director March 27, 2001
- -------------------------------------
Joseph H. Patrick, Jr.
* Director March 27, 2001
- -------------------------------------
William W. Riser, Jr.
* Director March 27, 2001
- -------------------------------------
George D. Rodgers
* Director March 27, 2001
- -------------------------------------
Charles J. Rogers
* Director March 27, 2001
- -------------------------------------
Thomas E. Skelton
* Director March 27, 2001
- -------------------------------------
Lex D. Walters
*By: /s/ WILLIAM G. STEVENS March 27, 2001
------------------------------
(William G. Stevens) (As
Attorney-in-Fact for each
of the persons indicated)
35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY CAPITAL CORPORATION
Page
Independent Accountants' Report.................................................................................F-2
Consolidated Balance Sheets.....................................................................................F-3
Consolidated Statements of Income...............................................................................F-4
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income.............................F-5
Consolidated Statements of Cash Flows...........................................................................F-6
Notes to Consolidated Financial Statements......................................................................F-7
TOURVILLE, SIMPSON & CASKEY, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
POST OFFICE BOX 1769
COLUMBIA, SOUTH CAROLINA 29202
TELEPHONE (803) 252-3000
FAX (803) 252-2226
WILLIAM E. TOURVILLE, CPA MEMBER AICPA SEC AND
HARRIET S. SIMPSON, CPA, CISA, CDP PRIVATE COMPANIES
R. JASON CASKEY, CPA PRACTICE SECTIONS
------------
JOHN T. DRAWDY, JR., CPA
TIMOTHY R. ALFORD, CPA
DAVID J. WATKINS II, CPA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Community Capital Corporation
Greenwood, South Carolina
We have audited the accompanying consolidated balance sheets of Community
Capital Corporation as of December 31, 2000 and 1999, 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, 2000. 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 as of December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with generally accepted accounting
principles.
Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
March 22, 2001
F-2
COMMUNITY CAPITAL CORPORATION
Consolidated Balance Sheets
December 31, 2000 and 1999
(Dollars in thousands) 2000 1999
----- ----
Assets:
Cash and cash equivalents:
Cash and due from banks $ 8,736 $ 8,224
Interest-bearing deposit accounts 599 488
Federal funds sold - 10
------------ ------------
Total cash and cash equivalents 9,335 8,722
------------ ------------
Investment securities:
Securities available-for-sale 99,951 103,371
Securities held-to-maturity (estimated fair value of $590 and $620
at December 31, 2000 and 1999, respectively) 590 620
Nonmarketable equity securities 5,500 4,935
------------ ------------
Total investment securities 106,041 108,926
------------ ------------
Loans receivable 280,506 219,054
Less allowance for loan losses (3,060) (2,557)
------------ ------------
Loans, net 277,446 216,497
------------ ------------
Premises and equipment, net 14,958 12,532
Accrued interest receivable 3,555 2,800
Intangible assets 6,778 5,020
Cash surrender value of life insurance 1,801 1,421
Other assets 2,336 3,750
------------ ------------
Total assets $ 422,250 $ 359,668
============ ============
Liabilities:
Deposits:
Noninterest-bearing transaction accounts $ 32,197 $ 27,422
Interest-bearing transaction accounts 304,115 229,825
------------ ------------
Total deposits 336,312 257,247
------------ ------------
Federal funds purchased and securities sold under agreements to repurchase 8,837 46,493
Advances from the Federal Home Loan Bank 32,399 20,729
Long-term debt 4,845 1,575
Obligations under capital leases 1,121 419
Accrued interest payable 2,465 1,298
Other liabilities 1,127 689
------------ ------------
Total liabilities 387,106 328,450
------------ ------------
(Commitments and contingencies - Notes 6, 14, 18 and 26)
Shareholders' equity:
Common stock, $1.00 par value; 10,000,000 shares authorized; 3,300,395 and
3,122,811 shares issued and outstanding at December 31,
2000 and 1999, respectively 3,300 3,123
Capital surplus 30,826 29,846
Accumulated other comprehensive income (loss) (578) (2,802)
Retained earnings 1,984 1,336
Treasury stock, at cost (2000 - 43,580 shares, 1999 - 31,925 shares) (388) (285)
------------ ------------
Total shareholders' equity 35,144 31,218
------------ ------------
Total liabilities and shareholders' equity $ 422,250 $ 359,668
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
COMMUNITY CAPITAL CORPORATION
Consolidated Statements of Operations
for the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share data) 2000 1999 1998
----------- ----------- -----------
Interest income:
Loans, including fees $ 23,501 $ 16,613 $ 14,942
Investment securities:
Taxable 4,593 5,037 4,798
Tax-exempt 1,314 1,220 751
Nonmarketable equity securities 308 295 216
Federal funds sold 6 34 336
------------ ------------ -----------
Total interest income 29,722 23,199 21,043
------------ ------------ -----------
Interest expense:
Deposits 12,527 9,702 10,128
Advances from the Federal Home Loan Bank 1,931 865 760
Federal funds purchased and securities sold
under agreements to repurchase 1,772 1,169 227
Long-term debt 286 80 71
Obligations under capital leases 120 34 12
------------ ------------ -----------
Total interest expense 16,636 11,850 11,198
------------ ------------ -----------
Net interest income 13,086 11,349 9,845
Provision for loan losses 471 1,037 1,836
------------ ------------ -----------
Net interest income after provision for loan losses 12,615 10,312 8,009
------------ ------------ -----------
Other operating income:
Service charges on deposit accounts 1,706 1,513 1,260
Gain on sales of securities available-for-sale - 175 220
Residential mortgage origination fees 503 672 613
Commissions from sales of mutual funds 105 54 104
Income from fiduciary activities 129 98 133
Gain on sale of Community Trust Company 150 - -
Other operating income 710 668 687
------------ ------------ -----------
Total operating income 3,303 3,180 3,017
------------ ------------ -----------
Other operating expenses:
Salaries and employee benefits 6,787 5,690 4,688
Net occupancy expense 880 819 703
Amortization of intangible assets 612 537 443
Furniture and equipment expense 1,631 1,178 1,129
Other operating expenses 4,066 3,790 3,265
------------ ------------ -----------
Total operating expenses 13,976 12,014 10,228
------------ ------------ -----------
Income before income taxes 1,942 1,478 798
Income tax expense 290 150 34
------------ ------------ -----------
Net income $ 1,652 $ 1,328 $ 764
============ ============ ===========
Earnings per share:
Basic earnings per share $ 0.51 $ 0.41 $ 0.24
Diluted earnings per share 0.51 0.41 0.23
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
COMMUNITY CAPITAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
for the years ended December 31, 2000, 1999 and 1998
Accumulated
(Dollars in thousands) Common Stock Other
-------------- Capital Comprehensive Retained Treasury
Shares Amount Surplus Income Earnings Stock Total
------ ------ ------- ------------- -------- -------- -----
Balance,
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 effects 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)
---------- -------- --------- ------ -------- ------ ---------
Balance,
December 31, 1998 3,092,268 3,092 29,598 732 8 33,430
Net income 1,328 1,328
Other comprehensive income
(loss), net of tax effects (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 (31,925 shares) (285) (285)
---------- -------- --------- ------ -------- ------ ---------
Balance,
December 31, 1999 3,122,811 3,123 29,846 (2,802) 1,336 (285) 31,218
Net income 1,652 1,652
Other comprehensive
income, net of tax effects 2,224 2,224
Comprehensive income 3,876
---------
Sales of stock to ESOP 21,447 21 122 143
5% stock dividend 156,137 156 858 (1,004) (14) (4)
Purchase of treasury
stock (11,655 shares) (89) (89)
---------- -------- --------- ------ -------- ------ ---------
Balance,
December 31, 2000 3,300,395 $ 3,300 $ 30,826 $ (578) $ 1,984 $ (388) $ 35,144
========== ======== ========= ====== ======== ======= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
COMMUNITY CAPITAL CORPORATION
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands) 2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net income $ 1,652 $ 1,328 $ 764
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,638 1,749 1,519
Provision for possible loan losses 471 1,037 1,836
Deferred income tax provision (benefit) (180) (234) (324)
Amortization of intangible assets 612 537 444
Premium amortization less accretion on securities 152 132 54
Amortization of deferred loan costs and fees, net (163) (153) (397)
Net gain on sales or calls of securities available-for-sale - (175) (220)
Proceeds of sales of residential mortgages 15,567 26,435 23,262
Disbursements for residential mortgages held-for-sale (16,425) (27,452) (22,155)
Increase in interest receivable (563) (247) (156)
Increase (decrease) in interest payable 727 (363) (36)
Loss (gain) on sale of premises and equipment (34) - 21
Loss (gain) on sale of other real estate (2) - -
Loss (gain) on sale of branch - - (130)
Increase in other assets (284) (1,012) (743)
Increase (decrease) in other liabilities 1,132 (551) 521
-------- -------- --------
Net cash provided by operating activities 4,300 1,031 4,260
-------- -------- --------
Cash flows from investing activities:
Net increase in loans made to customers (39,013) (46,218) (22,958)
Proceeds from sales of securities available-for-sale - 28,718 36,726
Proceeds from maturities of securities available-for-sale 6,638 12,969 34,866
Purchases of securities available-for-sale - (35,148) (112,665)
Proceeds from maturities of securities held-to-maturity 30 30 25
Proceeds from sale of nonmarketable equity securities - 633 -
Purchase of nonmarketable equity securities (581) (745) (1,599)
Proceeds from sales of nonmarketable equity securities 16 - -
Purchase of premises and equipment (3,146) (4,632) (1,743)
Proceeds from sales of premises and equipment 363 - 814
Proceeds from sales of other real estate 574 - -
Proceeds from the sale of Community Trust Company 150 - -
Acquisition of branches 13,570 - 38,423
Net cash outflow from sale of branch - - (2,049)
-------- -------- --------
Net cash used by investing activities (21,399) (44,393) (30,160)
-------- -------- --------
Cash flows from financing activities:
Net increase in demand and savings accounts 23,562 13,335 27,664
Net increase (decrease) in time deposits 19,773 (16,208) 4,110
Proceeds from advances from the Federal Home Loan Bank 37,600 18,800 8,049
Repayments of Federal Home Loan Bank advances (25,930) (7,505) (14,965)
Proceeds from advances from long-term debt 7,770 2,125 3,425
Repayments of advances from long-term debt (4,500) (3,475) (500)
Proceeds from exercise of stock options - 22 217
Proceeds from stock sales to employee benefit plan 143 257 261
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase (40,613) 34,691 (141)
Cash paid in lieu of fractional shares (4) - (5)
Purchase of treasury stock (89) (285) -
-------- -------- --------
Net cash provided by financing activities 17,712 41,757 28,115
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 613 (1,605) 2,215
Cash and cash equivalents, beginning of period 8,722 10,327 8,112
-------- -------- --------
Cash and cash equivalents, end of period $ 9,335 $ 8,722 $ 10,327
======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
COMMUNITY CAPITAL CORPORATION
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 (the "Barnwell
Bank"), TheBank (the "Belton Bank"), and Mid State Bank (the "Newberry Bank"),
collectively referred to as the "subsidiary banks." Trust and other financial
services are available through the Greenwood Bank.
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.
F-7
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
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, 2000 and 1999, the investment in
Federal Reserve Bank stock was $826,600 and $843,300, respectively. At December
31, 2000 and 1999, the investment in Federal Home Loan Bank stock was $2,047,700
and $1,466,500, respectively.
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, 2000 and 1999, the investments in the stock
of the unrelated financial institutions, at cost, were $2,125,462. The Company
also invested in a financial services company that offers internet banking. The
Company's investment in the stock of this institution was $500,000 at December
31, 2000 and 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, 2000 and 1999 were $218,000 and
$237,000, 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.
F-8
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
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.
Stock-Based Compensation - SFAS 123, "Accounting for Stock-Based Compensation,"
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 2000, 1999, and
1998:
(Dollars in thousands) 2000 1999 1998
-------- -------- --------
Cash paid for interest $ 15,469 $ 12,213 $ 10,888
Cash paid for income taxes 346 434 281
Supplemental noncash investing and financing activities:
Foreclosures on loans 577 -- --
Transfer from retained earnings to common stock and
capital surplus to record stock dividends 1,014 -- 1,815
Change in unrealized gain or loss on securities available
for sale, net of tax 2,224 (3,534) 265
F-9
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
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
Federal Deposit Insurance Corporation. 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 June 2000 and September 1998.
Comprehensive Income - 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 components of other comprehensive income and related tax effects are as
follows:
Year Ended December 31,
-----------------------------
(Dollars in thousands) 2000 1999 1998
------- ------- -------
Unrealized holding gains (losses) on available-for-sale
securities $ 3,370 $ 5,180 $ 622
Reclassification adjustment for (gains) losses realized in
income -- (175) (220)
------- ------- -------
Net unrealized gains (losses) on securities 3,370 5,005 402
Tax effect (1,146) 1,821 (137)
------- ------- -------
Net-of-tax amount $ 2,224 $ 6,826 $ 265
======= ======= =======
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.
Off-Balance-Sheet Financial Instruments - In the ordinary course of business,
the Company enters into off-balance-sheet financial instruments consisting of
commitments to extend credit and letters of credit. These financial instruments
are recorded in the financial statements when they become payable by the
customer.
F-10
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
Recent Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for fiscal years
beginning after June 15, 2000. This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities, including
certain derivative instruments embedded in other contracts, and requires that an
entity recognize all derivatives as assets or liabilities in the balance sheet
and measure them at fair value. The accounting for changes in the fair value of
a derivative depends on how the derivative is used and how the derivative is
designated. The Company adopted SFAS No. 133 on July 1, 2000. The adoption of
SFAS No. 133 did not have a material impact on the consolidated financial
statements.
Reclassifications - Certain captions and amounts in the 1999 and 1998 financial
statements were reclassified to conform with the 2000 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 - ACQUISITION OF BRANCHES
- --------------------------------
Prosperity - On March 31, 2000, Mid State Bank entered into a Purchase and
Assumption Agreement to acquire certain assets and deposits associated with a
branch office of Carolina First Bank. At the close of business on June 25, 2000,
Mid State Bank acquired the deposits of a branch located in Newberry County,
South Carolina, which had approximately $7,260,433 in deposits (unaudited).
At the closing, and subject to the terms of the Purchase and Assumption
Agreement, Mid State Bank paid Carolina First a premium of 3.00% on the assumed
Carolina First Bank's deposits other than certificates of deposit greater than
or equal to $100,000. The assets acquired and the liabilities assumed were
recorded at fair value. The premium is being amortized over fifteen years on a
straight-line basis.
Saluda - On May 9, 2000, Mid State Bank entered into a Purchase and Assumption
Agreement to acquire certain assets and deposits associated with a branch office
of Anchor Bank. At the close of business on July 3, 2000, Mid State Bank
acquired the deposits of a branch located in Saluda County, South Carolina,
which had approximately $31,867,000 in deposits (unaudited).
At the closing, and subject to the terms of the Purchase and Assumption
Agreement, Mid State Bank paid Anchor Bank a premium of 8.00% on the assumed
Anchor Bank's deposits other than certificates of deposit greater than or equal
to $100,000. The assets acquired and the liabilities assumed were recorded at
fair value. The premium is being amortized over fifteen years on a straight-line
basis.
The principal assets acquired and liabilities assumed in the two purchases are
summarized as follows:
(Dollars in thousands)
Loans, including accrued interest receivable $ 22,489
Premises and equipment 1,041
Intangible core deposit premiums 2,371
Other, net (344)
Deposits, including accrued interest payable (39,127)
--------
Cash received for net liabilities assumed $ 13,570
========
F-11
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 2 - ACQUISITION OF BRANCHES (continued)
- --------------------------------
The Company has not presented pro forma financial information because neither
the Anchor Bank branch nor the Carolina First Bank branch constitute a business,
and income statement information was either not available or incomplete.
NOTE 3 - SALE OF SUBSIDIARY
- ---------------------------
The Company sold Community Trust Company, its trust subsidiary, to an individual
investor during the second quarter of 2000.
The Company recognized a $150,000 gain from the sale of Community Trust Company
which is included in the statements of operations.
NOTE 4 - 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, 2000, the required cash reserves
were satisfied by vault cash on hand and amounts due from correspondent banks.
NOTE 5 - INVESTMENT SECURITIES
- ------------------------------
Securities available-for-sale at December 31, 2000 and 1999 consisted of the
following:
Gross Unrealized
Amortized ------------------- Estimated Fair
(Dollars in thousands) Cost Gains Losses Value
-------- -------- -------- --------
December 31, 2000
U.S. Government agencies and corporations $ 50,544 $ 2 $ 528 $ 50,018
Obligations of state and local governments 26,021 298 306 26,013
-------- -------- -------- --------
76,565 300 834 76,031
Mortgage-backed securities 24,262 5 347 23,920
-------- -------- -------- --------
Total $100,827 $ 305 $ 1,181 $ 99,951
======== ======== ======== ========
December 31, 1999
U.S. Treasury securities $ 599 $ 2 $ -- $ 601
U.S. Government agencies and corporations 51,421 -- 1,657 49,764
Obligations of state and local governments 26,084 84 1,463 24,705
-------- -------- -------- --------
78,104 86 3,120 75,070
Mortgage-backed securities 29,513 -- 1,212 28,301
-------- -------- -------- --------
Total $107,617 $ 86 $ 4,332 $103,371
======== ======== ======== ========
F-12
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 5 - INVESTMENT SECURITIES (continued)
- ------------------------------
Securities held-to-maturity as of December 31, 2000 and 1999 consisted of the
following:
Gross Unrealized
(Dollars in thousands) Amortized ----------------- Estimated Fair
December 31, 2000 Cost Gains Losses Value
---------- ------ ------ -------------
Obligations of state and local governments $590 $-- $-- $590
==== === === ====
December 31, 1999
Obligations of state and local governments $620 $-- $-- $620
==== === === ====
The following table summarizes the maturities of securities available-for-sale
and held-to-maturity as of December 31, 2000, 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 Fair Amortized Estimated Fair
(Dollars in thousands) Cost Value Cost Value
-------- -------- -------- --------
Due in one year or less $ 7,258 $ 7,210 $ -- $ --
Due after one year but within five years 35,573 35,229
Due after five years but within ten years 12,653 12,696 -- --
Due after ten years 21,081 20,896 590 590
-------- -------- -------- --------
76,565 76,031 590 590
Mortgage-backed securities 24,262 23,920 -- --
-------- -------- -------- --------
Total $100,827 $ 99,951 $ 590 $ 590
======== ======== ======== ========
There were no sales of securities in 2000. Proceeds from sales of securities
available-for-sale during 1999 and 1998 were $28,718,000 and $36,726,000,
respectively, resulting in gross realized gains of $176,000 and $220,000 along
with gross realized losses of $1,000 and $0, respectively. There were no sales
of securities held-to-maturity in 2000, 1999 or 1998.
At December 31, 2000 and 1999, securities having an amortized cost of
approximately $80,009,953 and $64,635,709, respectively, and an estimated fair
value of $79,350,365 and $62,292,086, respectively, were pledged as collateral
for short-term borrowings and advances from the Federal Home Loan Bank (see Note
11), to secure public and trust deposits, and for other purposes as required and
permitted by law.
F-13
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 6 - LOANS RECEIVABLE
- -------------------------
Loans receivable at December 31, 2000 and 1999, are summarized as follows:
(Dollars in thousands)
2000 1999
-------- --------
Commercial and industrial $ 52,005 $ 29,740
Real estate 171,502 135,957
Home equity 20,947 17,218
Consumer - installment 32,243 30,084
Consumer - credit card and checking 1,478 2,172
Residential mortgages held-for-sale and other 2,331 3,883
-------- --------
Total gross loans $280,506 $219,054
======== ========
At December 31, 2000, 1999, and 1998, the subsidiary banks had sold
participations in loans aggregating $39,689,000, $14,819,000, and $11,467,000,
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, 2000 and 1999, the subsidiary banks had pledged approximately
$14,132,000 and $4,718,000, respectively, of loans on residential real estate as
collateral for advances from the Federal Home Loan Bank (see Note 11).
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, 2000 and 1999, 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, 2000 and 1999, the Company had nonaccrual loans of approximately
$637,000 and $1,223,000, respectively, for which impairment had not been
recognized.
F-14
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 6 - LOANS RECEIVABLE (continued)
- -------------------------
An analysis of the allowance for loan losses for the years ended December 31,
2000, 1999, and 1998, is as follows:
(Dollars in thousands)
2000 1999 1998
------- ------- -------
Balance, beginning of year $ 2,557 $ 2,399 $ 1,531
Provision charged to operations 471 1,037 1,836
Recoveries on loans previously charged-off 237 163 57
Loans charged-off (540) (1,042) (1,063)
Reserves related to acquisitions 335 -- 38
------- ------- -------
Balance, end of year $ 3,060 $ 2,557 $ 2,399
======= ======= =======
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 nonperformance 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, 2000 and 1999, the Company had unfunded commitments, including
standby letters of credit, of $49,342,000 and $44,658,000, of which $8,027,000
and $16,421,000, respectively, were unsecured. At December 31, 2000, the Company
was not committed to lend additional funds to borrowers having loans in
nonaccrual status.
NOTE 7- PREMISES AND EQUIPMENT
- ------------------------------
Premises and equipment at December 31, 2000 and 1999, consisted of the
following:
(Dollars in thousands) 2000 1999
------- -------
Land $ 2,477 $ 1,963
Building and land improvements 9,665 8,458
Furniture and equipment 7,429 5,739
------- -------
Total 19,571 16,160
Less, accumulated depreciation 4,613 3,628
------- -------
Premises and equipment, net $14,958 $12,532
======= =======
During 2000 and 1999, the Company capitalized approximately $8,000 and $62,000,
respectively, of interest on the construction of buildings.
F-15
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 8 - INTANGIBLE ASSETS
- --------------------------
Intangible assets, net of accumulated amortization, at December 31, 2000 and
1999 are summarized as follows:
(Dollars in thousands) 2000 1999
------ ------
Core deposit premium $6,548 $4,615
Goodwill 230 405
------ ------
$6,778 $5,020
====== ======
NOTE 9 - DEPOSITS
- -----------------
The following is a summary of deposit accounts as of December 31, 2000 and 1999:
(Dollars in thousands) 2000 1999
-------- --------
Noninterest-bearing demand deposits $ 32,197 $ 27,422
Interest-bearing demand deposits 53,949 45,560
Money market accounts 58,343 38,419
Savings 30,543 26,642
Certificates of deposit and other time deposits 161,280 119,204
-------- --------
Total deposits $336,312 $257,247
======== ========
At December 31, 2000 and 1999, certificates of deposit of $100,000 or more
totaled approximately $46,826,000 and $27,533,000, respectively. Interest
expense on these deposits was approximately $2,133,000, $1,428,000 and
$1,636,000 in 2000, 1999, and 1998, respectively.
Scheduled maturities of certificates of deposit and other time deposits as of
December 31, 2000 were as follows:
(Dollars in thousands)
Maturing In Amount
- ------------ ---------
2001 $ 136,130
2002 20,756
2003 2,833
2004 816
2005 745
---------
Total $ 161,280
=========
NOTE 10 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
- --------------------------------------------------------
The Company had securities sold under agreements to repurchase which generally
mature within one day. At December 31, 2000, the securities sold under
agreements to repurchase totaled $4,150,415. At December 31, 2000, the amortized
cost and estimated fair value of securities pledged to collateralize the
repurchase agreements were $5,345,717 and $5,287,770, respectively. The
securities underlying the agreements are held by a third-party custodian.
F-16
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 11 - ADVANCES FROM THE FEDERAL HOME LOAN BANK
- --------------------------------------------------
Advances from the Federal Home Loan Bank consisted of the following at December
31, 2000:
(Dollars in thousands)
Description Interest Rate Balance
- ----------- ------------- -------
Fixed rate advances maturing:
January 30, 2001 5.85% $ 1,000
Convertible advances maturing:
March 17, 2003 6.41% 10,000
March 17, 2005 6.60% 5,000
October 13, 2005 5.84% 3,000
March 26, 2008 5.51% 1,500
March 17, 2010 5.92% 5,000
March 30, 2010 6.02% 2,000
March 30, 2010 6.02% 4,000
Principal Reducing Credit maturing:
February 3, 2003 5.97% 74
February 2, 2009 4.95% 825
-------
Total $32,399
=======
Scheduled principal reductions of Federal Home Loan Bank advances are as
follows:
(Dollars in thousands) Amount
------
2001 $ 1,000
2002 -
2003 10,074
2004 -
2005 8,000
After five years 13,325
------
Total $ 32,399
========
As collateral, the Company has pledged first mortgage loans on one to four
family residential loans aggregating $14,132,000 (see Note 6) and debt
securities aggregating $4,464,641 (see Note 5) at December 31, 2000. In
addition, the Company's Federal Home Loan Bank stock is pledged to secure the
borrowings. Certain advances are subject to prepayment penalties.
F-17
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 12 - 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. This note was modified on
September 30, 2000. The Company can now borrow up to $8,000,000 under the terms
of the agreement. The Company borrowed an additional $4,000,000 of the credit
line during 2000 to use as a capital infusion for the Newberry Bank in order to
maintain minimum capital requirements due to an increase in the asset base
resulting from the purchase of The Anchor Bank and Carolina First Bank branches
in Saluda and Prosperity, respectively. The promissory note is collateralized by
the stock of the subsidiary banks and bears interest at a simple rate per annum
equal to the one-month London Interbank Offered rate plus 200 basis points.
Interest is payable on a quarterly basis; principal payments are due in ten
equal installments, beginning on June 30, 2003, with the final balance due on
June 30, 2012. The principal balance is $4,345,000 as of December 31, 2000, with
scheduled principal reductions as follows:
(Dollars in thousands) Amount
--------
2003 435
2004 435
2005 435
After five years 3,040
-------
Total $ 4,345
=======
During 1999, the Company borrowed $500,000 from another unrelated financial
institution. This note was renewed in the first quarter of 2000. These funds are
being used for various projects including the construction of branch offices
throughout the Company. Interest is payable quarterly at a variable rate of
0.75% below the highest prime rate published in the Wall Street Journal. The
outstanding principal balance plus any accrued interest is payable on February
10, 2001.
NOTE 13 - SHAREHOLDERS' EQUITY
- ------------------------------
The Company declared a 5% stock dividend for shareholders of record on June 30,
2000 and September 30, 1998. Amounts equal to the estimated fair 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. Net income per share, average shares outstanding, treasury shares,
employee stock ownership plan shares, and stock option plan shares have been
adjusted to reflect the stock distribution for all periods presented.
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, 2000, the Company had
purchased 43,580 shares at a cost of $388,000.
The Company sold 22,081 and 29,265 shares of its common stock to its employee
stock ownership plan throughout 2000 and 1999, respectively, based on the quoted
market price at the time of sale.
At December 31, 2000 and 1999, 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, 2000 and 1999, no shares of the undesignated stock had been issued
or were outstanding.
F-18
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 14 - 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, 2000, 1999, and 1998. Future obligations over the
primary terms of the remaining long-term lease as of December 31, 2000 are as
follows:
(Dollars in thousands) Amount
------
2001 $ 44
2002 46
2003 46
2004 46
2005 46
-----
Total $ 228
=====
The Company restructured two lease agreements for certain data processing
equipment. Both rental terms are for sixty months and provide 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, 2000:
(Dollars in thousands) Amount
------
Equipment $ 1,502
Less, accumulated amortization 317
-------
Net assets under capital leases $ 1,185
=======
The future minimum capital lease payments were as follows at December 31, 2000:
(Dollars in thousands) Amount
-------
2001 $ 387
2002 387
2003 387
2004 387
2005 387
-------
Total payments 1,935
-------
Less, amount representing interest 320
Less, amount representing maintenance 494
-------
Total obligations under capital leases $ 1,121
=======
F-19
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 15 - 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-20
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 15 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS (continued)
- -----------------------------------------------------
The following tables summarize the capital ratios and the regulatory minimum
requirements of the Company and the subsidiary banks at December 31, 2000 and
1999.
To Be Well-
(Dollars in thousands) Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ----------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ----- --------- ------ ------ -----
December 31, 2000
The Company
Total capital (to risk-weighted assets) $ 32,003 11.12% $ 23,028 8.00% $ - N/A
Tier 1 capital (to risk-weighted assets) 28,943 10.05% 11,514 4.00% - N/A
Tier 1 capital (to average assets) 28,943 7.02% 16,482 4.00% - N/A
The Greenwood Bank
Total capital (to risk-weighted assets) $ 10,443 10.63% $ 7,862 8.00% $ 9,828 10.00%
Tier 1 capital (to risk-weighted assets) 9,546 9.71% 3,931 4.00% 5,897 6.00%
Tier 1 capital (to average assets) 9,546 7.68% 4,974 4.00% 6,217 5.00%
The Clemson Bank
Total capital (to risk-weighted assets) $ 4,293 15.74% $ 2,182 8.00% $ 2,727 10.00%
Tier 1 capital (to risk-weighted assets) 3,952 14.49% 1,091 4.00% 1,636 6.00%
Tier 1 capital (to average assets) 3,952 9.78% 1,616 4.00% 2,020 5.00%
The Barnwell Bank
Total capital (to risk-weighted assets) $ 7,318 11.80% $ 4,962 8.00% $ 6,203 10.00%
Tier 1 capital (to risk-weighted assets) 6,517 10.51% 2,481 4.00% 3,722 6.00%
Tier 1 capital (to average assets) 6,517 7.40% 3,522 4.00% 4,402 5.00%
The Belton Bank
Total capital (to risk-weighted assets) $ 6,759 16.63% $ 3,251 8.00% $ 4,064 10.00%
Tier 1 capital (to risk-weighted assets) 6,317 15.54% 1,626 4.00% 2,438 6.00%
Tier 1 capital (to average assets) 6,317 7.86% 3,216 4.00% 4,020 5.00%
The Newberry Bank
Total capital (to risk-weighted assets) $ 6,169 10.40% $ 4,745 8.00% $ 5,931 10.00%
Tier 1 capital (to risk-weighted assets) 5,540 9.34% 2,372 4.00% 3,558 6.00%
Tier 1 capital (to average assets) 5,540 7.05% 3,143 4.00% 3,929 5.00%
F-21
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 15 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS (continued)
- -----------------------------------------------------
To Be Well-
(Dollars in thousands) Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ ---------------------- -----------------------
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 9.32% 1,866 4.00% 2,082 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%
NOTE 16 - 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, 2000, there were 489,584 options outstanding that had been issued
under the terminated Plans.
F-22
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 16 - STOCK COMPENSATION PLANS (continued)
- ----------------------------------
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 2,100,000 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 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 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.
On May 24, 2000, the Company granted 158,708 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 $6.19 per-share and expire May 24, 2005. As
of December 31, 2000, there were 220,344 options available for issuance under
this Plan.
As discussed in Note 1, the Company continues to apply APB Opinion 25 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:
(Dollars in thousands, except for per share data) 2000 1999 1998
------- ------- -----
Net income:
As reported $ 1,652 $ 1,328 $ 764
Pro forma 1,274 704 267
Basic earnings per share:
As reported $ 0.51 $ 0.41 $ 0.24
Pro forma 0.39 0.22 0.09
Diluted earnings per share:
As reported $ 0.51 $ 0.41 $ 0.23
Pro forma 0.39 0.22 0.08
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 2000, 1999,
and 1998, respectively: dividend yield of 0 percent for all years; expected
volatility of 22, 23, and 24 percent; risk-free interest rates of 6.71, 5.56 and
5.52 percent; and expected lives of five years for all periods.
The weighted-average fair value of options, calculated using the Black-Scholes
option-pricing model, granted during 2000, 1999, and 1998 is $2.13, $3.36, and
$5.41, respectively.
F-23
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 16 - STOCK COMPENSATION PLANS (continued)
- ----------------------------------
A summary of the status of the Company's stock option plans as of December 31,
2000, 1999, and 1998 and changes during the years ended on those dates is
presented below:
2000 1999 1998
-------------------------- ------------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
(Dollars in thousands Exercise Exercise Exercise
except for per share data) Shares Price Shares Price Shares Price
------- ------ ------- ------ ------- -----
Outstanding
at beginning of year 771,896 $ 10.27 677,057 $ 10.40 573,855 $ 9.21
Granted 158,708 6.19 150,623 9.89 146,192 15.08
Exercised - - (2,806) 7.84 (24,161) 8.97
Cancelled (31,364) 10.30 (52,978) 10.97 (18,829) 12.00
-------- -------- --------
Outstanding
at ending of year 899,240 $ 9.55 771,896 $ 10.27 677,057 $ 10.40
======== ======== ========
Options exercisable at December 31, 2000, 1999, and 1998 were 747,038, 629,227
and 535,221, respectively.
The following table summarizes information about the stock options outstanding
under the Company's plan at December 31, 2000:
Weighted Average
-----------------------------------------------------
Options Remaining Exercise
Range of Exercise Prices Outstanding Life (years) Price
- ------------------------ --------------- --------------- -----------
Exercisable:
$ 7.84 281,805 2.97 $ 7.84
9.87 to 9.98 202,442 4.10 9.91
11.23 to 11.33 139,933 0.82 11.84
15.08 122,858 2.48 15.83
---------------
Total exercisable 747,038 2.79 10.24
Not Exercisable:
$ 6.19 152,202 4.40 6.19
---------------
Total outstanding 899,240 3.06 9.55
===============
F-24
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 17 - RELATED PARTY TRANSACTIONS
- ------------------------------------
Certain parties (primarily certain directors and executive officers, their
immediate families and business interests) 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, 2000 and 1999, were $18,809,000 and $17,875,000, respectively.
During 2000, $7,638,000 of new loans were made to related parties and repayments
totaled $6,704,000.
During 2000, 1999, and 1998, the Company paid $42,000 to a director under an
operating lease. See Note 14.
The Company purchases various types of insurance from agencies that belong to
several directors. Amounts paid for insurance premiums were $75,000, $63,000 and
$61,000 in 2000, 1999, and 1998, respectively.
NOTE 18 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company was not a party as a defendant in any litigation at December 31,
2000. Management and legal counsel are not aware of any pending or threatened
litigation, or unasserted claims or assessments that could result in losses, if
any, that would be material to the financial statements.
NOTE 19 - 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 subsidiary 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 subsidiary 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
could not pay dividends at December 31, 2000.
F-25
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 20 - 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,
------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998
---------- ---------- ----------
Net income per share - basic computation:
Net income available to common shareholders $ 1,652 $ 1,328 $ 764
========== ========== ==========
Average common shares outstanding - basic 3,245,618 3,155,789 3,124,254
========== ========== ==========
Net income per share - basic $ 0.51 $ 0.41 $ 0.24
========== ========== ==========
Net income per share - diluted computation:
Net income available to common shareholders $ 1,652 $ 1,328 $ 764
========== ========== ==========
Average common shares outstanding - basic 3,245,618 3,155,789 3,124,254
Incremental shares from assumed conversions:
Stock options 6,299 35,190 174,703
Unallocated ESOP shares -- -- --
---------- ---------- ----------
Average common shares outstanding - diluted 3,251,917 3,190,979 3,298,957
========== ========== ==========
Net income per share - diluted $ 0.51 $ 0.41 $ 0.23
========== ========== ==========
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:
2000 1999 1998
------- ------- -------
Number of options 747,038 490,082 141,835
Weighted-average of these options outstanding
during the year 737,039 429,603 75,029
Weighted-average exercise price $ 10.24 $ 11.99 $ 15.09
F-26
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 21 - INCOME TAXES
- ----------------------
Income tax expense for the years ended December 31, 2000, 1999, and 1998
consisted of the following:
(Dollars in thousands) 2000 1999 1998
------- ------- -------
Currently payable:
Federal $ 385 $ 302 $ 271
State 85 82 87
------- ------- -------
Total current 470 384 358
------- ------- -------
Change in deferred income taxes:
Federal 859 (1,816) (107)
State 107 (239) (80)
------- ------- -------
Total deferred 966 (2,055) (187)
------- ------- -------
Income tax expense $ 1,436 $(1,671) $ 171
======= ======= =======
Income tax expense is allocated as follows:
To continuing operations $ 290 $ 150 $ 34
To shareholders' equity 1,146 (1,821) 137
------- ------- -------
Income tax expense $ 1,436 $(1,671) $ 171
======= ======= =======
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 2000 and 1999 were as follows:
(Dollars in thousands) 2000 1999
------ ------
Deferred tax assets:
Allowance for loan losses $ 817 $ 785
Net operating loss carryforward - state 109 118
Deferred compensation 149 125
Available-for-sale securities 298 1,444
Alternative minimum tax credit carryforward 225 158
------ ------
Total deferred tax assets 1,598 2,630
------ ------
Deferred tax liabilities:
Accumulated depreciation 100 159
Loan fees and costs 84 91
Federal Home Loan Bank stock dividends 18 18
------ ------
Total deferred tax liabilities 202 268
------ ------
Net deferred tax asset recognized $1,396 $2,362
====== ======
Deferred tax assets represent the future tax benefit of deductible differences
and, if it is more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. Management has determined that it is more likely than not
that the entire deferred tax asset at December 31, 2000 will be realized, and
accordingly, has not established a valuation allowance.
F-27
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 21 - INCOME TAXES (continued)
- ----------------------
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:
(Dollars in thousands) 2000 1999 1998
----- ----- -----
Income tax at the statutory rate $ 661 $ 452 $ 271
State income tax, net of federal income tax benefit 51 28 7
Tax-exempt interest income (474) (428) (264)
Disallowed interest expense 96 64 46
Other, net (44) 34 (26)
----- ----- -----
Income tax expense $ 290 $ 150 $ 34
===== ===== =====
NOTE 22 - OTHER OPERATING EXPENSES
- ----------------------------------
Other operating expenses for the years ended December 31, 2000, 1999, and 1998
are summarized below:
(Dollars in thousands) 2000 1999 1998
------ ------ ------
Banking and ATM supplies $ 630 $ 587 $ 528
Directors' fees 202 76 182
Mortgage loan department expenses 130 247 191
Data processing and supplies 361 205 135
Postage and freight 380 312 278
Professional fees 476 432 360
Credit card expenses 201 188 139
Telephone expenses 402 307 364
Other 1,284 1,436 1,088
------ ------ ------
Total $4,066 $3,790 $3,265
====== ====== ======
NOTE 23 - 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 $185,000,
$172,000, and $141,000 in 2000, 1999, and 1998, respectively. The Company's
policy is to fund amounts accrued. At December 31, 2000 and 1999, the savings
plan owned 108,802 and 88,630 shares of the Company's common stock purchased at
an average cost of $6.67 and $10.24 per share, respectively, adjusted for the
effects of stock dividends. The estimated value of shares held at December 31,
2000 and 1999 was $591,611 and $717,477, 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, 2000 and 1998, awards under the directors' plan were
$17,000 and $62,000, respectively, and awards under the officers' plan were
$83,000 and $125,000, respectively. There were no incentive payments made in
1999.
F-28
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 23 - RETIREMENT AND BENEFIT PLANS (continued)
- --------------------------------------
The Company has an Executive Supplemental Compensation Plan that 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,
2000, 1999, and 1998, salary continuation expense included in salaries and
employee benefits was $28,165, $133,289, and $77,807, respectively. In
connection with the Executive Supplemental Compensation Plan, life insurance
contracts were purchased on the officers. Insurance premiums of $82,210 were
paid in the year ended December 31, 1998.
During 1999, 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 2000 or 1999.
Insurance premiums of $318,000 were paid in the years ended December 31, 2000
and 1999.
NOTE 24 - UNUSED LINES OF CREDIT
- --------------------------------
As of December 31, 2000, the subsidiary banks had unused lines of credit to
purchase federal funds from unrelated banks totaling $63,300,000. 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.
NOTE 25 - 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.
F-29
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 25 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
- ---------------------------------------------
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.
Accrued Interest Receivable and Payable - The carrying value of these
instruments is a reasonable estimate of fair value.
F-30
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 25 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
- ---------------------------------------------
The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 2000 and 1999 are as follows:
2000 1999
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Financial Assets: Amount Fair Value Amount Fair Value
--------- --------- --------- ---------
Cash and due from banks $ 8,736 $ 8,736 $ 8,712 $ 8,712
Interest-bearing deposit accounts 599 599 488 488
Federal funds sold -- -- 10 10
Securities available-for-sale 99,951 99,951 103,371 103,371
Securities held-to-maturity 590 590 620 620
Nonmarketable equity securities 5,500 5,500 4,935 4,935
Cash surrender value of life insurance 1,801 1,801 1,421 1,421
Loans 280,506 279,090 219,054 217,718
Allowance for loan losses (3,060) (3,060) (2,557) (2,557)
Accrued interest receivable 3,555 3,555 2,800 2,800
Financial Liabilities:
Demand deposit, interest-bearing
transaction, and savings accounts $ 175,032 $ 175,032 $ 138,043 $ 138,043
Certificates of deposit and other time deposits 161,280 161,869 119,204 119,801
Federal funds purchased and securities
sold under agreements to repurchase 8,837 8,837 46,493 46,493
Advances from the Federal Home Loan Bank 32,399 32,200 20,729 20,705
Long-term debt 4,845 4,845 1,575 1,575
Accrued interest payable 2,465 2,465 1,298 1,298
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
--------- --------- --------- ---------
Off-Balance Sheet Financial Instruments:
Commitments to extend credit $48,987 $48,987 $44,387 $44,387
Standby letters of credit 355 355 271 271
NOTE 26 - SUBSEQUENT EVENTS
- ---------------------------
On January 1, 2001, the Company merged all of its subsidiaries into one
organization called CapitalBank. The corporate restructuring was accounted for
as if it were a pooling of interests.
On January 29, 2001, CapitalBank, the newly formed subsidiary of the Company,
announced that it signed a definitive agreement with Enterprise Bank of South
Carolina concerning the sale of five branches in Barnwell, Blackville,
Williston, Springfield, and Salley, South Carolina. The five branches had
deposits totaling approximately $70 million at December 31, 2000. The
transaction is expected to be completed during the second quarter of 2001,
pending regulatory approval and certain other conditions of closing.
F-31
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 27 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY)
- -------------------------------------------------------------
Condensed financial statements for Community Capital Corporation (Parent Company
Only) as of December 31, 2000 and 1999 follow:
Balance Sheets
December 31, 2000 and 1999
(Dollars in thousands) 2000 1999
-------- --------
Assets
Cash and cash equivalents $ 21 $ --
Investment in banking subsidiaries 38,184 31,331
Nonmarketable equity securities 1,652 1,652
Premises and equipment, net 3,125 2,411
Other assets 730 853
-------- --------
Total assets $ 43,712 $ 36,247
======== ========
Liabilities and Shareholders' Equity
Notes payable to subsidiaries $ 2,312 $ 2,529
Long-term debt 4,845 1,575
Other liabilities 1,411 925
-------- --------
Total liabilities 8,568 5,029
-------- --------
Common stock 3,300 3,123
Capital surplus 30,826 29,846
Retained earnings 1,984 1,336
Accumulated other comprehensive income (loss) (578) (2,802)
Treasury stock (388) (285)
-------- --------
Total shareholders' equity 35,144 31,218
-------- --------
Total liabilities and shareholders' equity $ 43,712 $ 36,247
======== ========
F-32
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 27 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY) (continued)
- -------------------------------------------------------------
Statements of Operations
For the Years Ended December 31, 2000, 1999, and 1998
(Dollars in thousands) 2000 1999 1998
------- ------- -------
Income:
Interest income on securities available-for-sale $ -- $ -- $ 15
Dividend income from subsidiaries 2,275 1,600 500
Dividend income from equity securities 31 46 30
Data processing and other fees from subsidiaries 3,695 3,735 2,434
Other interest income 11 75 68
------- ------- -------
Total income 6,012 5,456 3,047
------- ------- -------
Expenses:
Salaries 1,729 1,419 1,158
Net occupancy expense 80 38 53
Furniture and equipment expense 784 538 484
Interest expense 645 346 274
Other operating expenses 1,567 1,263 1,170
------- ------- -------
Total expense 4,805 3,604 3,139
------- ------- -------
Income (loss) before income taxes and equity in
undistributed earnings and (losses) of subsidiaries 1,207 1,852 (92)
Income tax expense (benefit) (370) 114 (216)
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries 1,577 1,738 124
Equity in undistributed earnings and (losses) of subsidiaries 75 (410) 640
------- ------- -------
Net income $ 1,652 $ 1,328 $ 764
======= ======= =======
F-33
COMMUNITY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 27 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY) (continued)
- -------------------------------------------------------------
Statements of Cash Flows
For the Years Ended December 31, 2000, 1999, and 1998
(Dollars in thousands) 2000 1999 1998
------- ------- -------
Operating activities:
Net income $ 1,652 $ 1,328 $ 764
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of banking subsidiaries (75) 410 (640)
Depreciation and amortization expense 684 503 431
Deferred taxes (66) (6) (42)
Increase in other liabilities 486 276 421
(Increase) decrease in other assets 41 (443) (232)
------- ------- -------
Net cash provided by operating activities 2,722 2,068 702
------- ------- -------
Investing activities:
Purchase of premises and equipment, net (1,371) (193) (1,378)
Proceeds from sales of premises and equipment 121 -- 70
Proceeds from sales of securities available-for-sale -- -- 499
Net investment in subsidiaries (4,554) (101) (5,387)
Purchase of nonmarketable equity securities -- (500) --
------- ------- -------
Net cash used by investing activities (5,804) (794) (6,196)
------- ------- -------
Financing activities:
Proceeds from exercise of stock options -- 22 217
Proceeds from stock sales to employee benefit plan 142 257 261
Cash paid in lieu of fractional shares (3) -- (5)
Proceeds of borrowings from subsidiaries 1 241 2,656
Repayments on borrowings from subsidiaries (218) (234) (945)
Proceeds from advances from long-term debt 7,770 2,125 3,425
Repayments of advances from long-term debt (4,500) (3,475) (500)
Purchase of treasury stock (89) (285) --
------- ------- -------
Net cash provided (used) by financing activities 3,103 (1,349) 5,109
------- ------- -------
Net increase (decrease) in cash and cash equivalents 21 (75) (385)
Cash and cash equivalents, beginning of period -- 75 460
------- ------- -------
Cash and cash equivalents, end of period $ 21 $ -- $ 75
======= ======= =======
Supplemental schedule of noncash investing and financing activities: In 2000 and
1998, the Company declared 5% stock dividends. For the 2000 stock dividend, the
Company transferred $1,000,000 from retained earnings and $14,000 from treasury
stock to common stock and capital surplus in the amounts of $156,000 and
$858,000, respectively. In 1998, the Company 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-34
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.)
10.19 Employment Agreement dated June 30, 2000 between Community
Capital Corporation and Ralph Wesley Brewer. (Incorporated by
reference to the Exhibit of the same number filed in
connection with the Registrant's Form 10-Q for the quarter
ended June 30, 2000 and filed on August 14, 2000.
21.1 Subsidiaries of the Registrant.
24.1 Directors' Powers of Attorney.
- --------------------------
* 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