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, 1996
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.)
109 Montague Avenue
Greenwood, South Carolina 29646
- ----------------------------------------------- --------------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (864) 941-8200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, par value $1.00 per share
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 21, 1997 was approximately $30,352,921 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 2,894,708.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its 1997 Annual
Meeting of Stockholders (Part III).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. IN
EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD CONSIDER THE VARIOUS
FACTORS IDENTIFIED HEREIN, AS WELL AS MATTERS SET FORTH IN "RISK FACTORS"
CONTAINED IN THAT CERTAIN REGISTRATION STATEMENT ON FORM S-2, AS AMENDED,
ORIGINALLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20,
1996 (FILE NO. 333-18457), WHICH COULD CAUSE ACTUAL EVENTS, PERFORMANCE OR
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH STATEMENTS.
ITEM 1. BUSINESS.
GENERAL
Community Capital Corporation (the "Company") is a bank holding company
incorporated under the laws of the State of South Carolina on April 8, 1988.
Until May 26, 1994, the Company operated under the name Greenwood National
Bancorporation. The Company is based in Greenwood, South Carolina, and during
the fiscal year ended December 31, 1996 substantially all of its operations were
conducted through two wholly-owned subsidiaries, Greenwood Bank & Trust (the
"Greenwood Bank"), and Clemson Bank & Trust (the "Clemson Bank"). (The Greenwood
Bank and the Clemson Bank are referred to collectively herein as the "Banks".)
The Greenwood Bank and the Clemson Bank engage in a general commercial banking
business, emphasizing the banking needs of individuals and small to medium-sized
businesses in their respective primary service areas of Greenwood County and
Clemson County, South Carolina.
FORMATION OF NEW BANKS
On February 28, 1997, The Bank of Barnwell County (the "Barnwell Bank")
was formed as an additional wholly-owned subsidiary of the Company. At that
time, the Company acquired all of the common stock of the Barnwell Bank using
$7.5 million of the proceeds from the Company's public offering of common stock
on Registration Statement Form S-2 initially filed with the Securities and
Exchange Commission on December 20, 1996 (the "Offering').
The Company, the Barnwell Bank, and Carolina First Bank ("Carolina
First") entered into a Purchase and Assumption Agreement dated January 21, 1997
(the "Agreement") for the acquisition by the Barnwell Bank from Carolina First
of certain assets and the assumption of certain liabilities (the "Acquisition")
relating to five bank branches owned by Carolina First which are located in the
communities of Barnwell, Blackville, Salley, Springfield, and Williston, South
Carolina (the "Carolina First Branches"). The Company anticipates that the
Acquisition will close during the first quarter of 1997. At the closing, and
subject to the terms of the Agreement, the Barnwell Bank is expected to assume
certain deposits and assets associated with such Carolina First Branches and pay
Carolina First a premium of 5.25% on the assumed deposits other than
certificates of deposit with a balance in excess of $100,000. In addition, the
Agreement contemplates that the Barnwell Bank will acquire certain loans
associated with such Carolina First Branches, as well as the real property owned
or leased by Carolina First for operation of such branches and related
furniture, equipment, and other fixed operating assets. The closing of the
Acquisition is contingent upon receipt by the parties of all necessary
regulatory approvals, including approval of the South Carolina State Board of
Financial Institutions. There can be no assurance that the Company and the
Barnwell Bank will obtain such approvals.
The Company is in the process of acquiring two additional de novo banks
which are being formed in Belton and Newberry, South Carolina. The Company
intends to open The Bank of Belton (In Organization) (the "Belton Bank") and The
Bank of Newberry County (In Organization) (the "Newberry Bank") in traditional
de novo fashion by capitalizing the Banks and seeking local deposits to fund
loan growth. The Company anticipates that the Belton Bank will open during the
first quarter of 1997, and the Newberry Bank will open during the second quarter
of 1997.
1
MARKET AREAS
The Greenwood Bank, a state chartered Federal Reserve member bank, has
three banking locations, two of which are located in Greenwood, South Carolina,
and the other located in Ninety Six, South Carolina. The Clemson Bank, a state
chartered nonmember bank, has one banking location located in Clemson, South
Carolina.
The following table sets forth certain information concerning the
Greenwood Bank and the Clemson Bank at December 31, 1996:
NUMBER OF TOTAL TOTAL TOTAL
BANK LOCATIONS ASSETS LOANS DEPOSITS
(DOLLARS IN THOUSANDS)
Greenwood Bank............. 3 $96,729 $69,347 $76,960
Clemson Bank............... 1 17,597 12,066 13,429
Each Bank offers a full range of commercial banking services, including
checking and savings accounts, NOW accounts, IRA accounts, and other
savings and time deposits of various types ranging from money markets to
long-term certificates of deposit. The Banks also offer a full range of
consumer credit and short-term and intermediate-term commercial and
personal loans. Each Bank conducts residential mortgage loan origination
activities pursuant to which mortgage loans are sold to investors in the
secondary markets. Servicing of such loans is not retained by the Banks.
The Greenwood Bank also offers trust and related fiduciary services.
Discount securities brokerage services are available through a third-party
brokerage service which has contracted with Community Financial Services,
Inc., a wholly-owned subsidiary of the Greenwood Bank.
The Company performs data processing functions for the Banks upon terms
that the managements of both Banks believe is competitive with those offered
by unaffiliated third-party service bureaus. The Company also administers
certain operating functions for the Banks where cost savings can be achieved.
Included in such operations are regulatory compliance, personnel, and internal
audit functions. The Company's costs associated with the performance of such
services are allocated between the Banks based on each Bank's total assets.
LENDING ACTIVITIES
GENERAL. Through the Banks, the Company offers a range of lending services,
including real estate, consumer, and commercial loans, to individuals and small
business and other organizations that are located in or conduct a substantial
portion of their business in the Banks' market areas. The Company's total loans
at December 31, 1996, were $80.5 million, or 77.1% 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, money
market rates, 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
$70.4 million, and constituted approximately 87.4% of the Company's loan
portfolio, at December 31, 1996.
2
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, 1996.
LOAN COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Commercial, financial and agricultural...................... 25.90% 23.94% 24.19% 21.12% 19.05%
Real estate:
Construction............................................. 6.48 25.89 11.68 13.42 12.37
Mortgage:
Residential........................................... 32.32 25.22 29.62 35.62 39.13
Commercial(1)......................................... 27.79 16.81 26.57 22.45 21.87
Consumer and other.......................................... 7.51 8.14 7.94 7.39 7.58
---- ---- ---- ---- ----
Total loans........................................ 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ========= ======
Total loans (dollars).............................. $34,493 $44,634 $50,565 $63,204 $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 making loan. These
include prepayment risks, risks resulting from uncertainties in the future value
of collateral, risks resulting from changes in economic and industry conditions,
and risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility. The Company attempts to minimize loan losses through
various means and uses standardized underwriting criteria. These means include
the use of policies and procedures including officer and customer lending
limits, and loans in excess of certain limits must be approved by the Board of
Directors of the relevant Banks.
LOAN REVIEW. The company has a continuous loan review process designed
to promote early identification of credit quality problems. All loan officers
are charged with the responsibility of reviewing all past due loans in their
respective portfolios. Each of the Banks establishes watch lists of potential
problem loans.
DEPOSITS
The principal sources of funds for the Banks are core deposits,
consisting of demand deposits, interest-bearing transaction accounts, money
market accounts, saving deposits, and certificates of deposit. Transaction
accounts include checking and negotiable order of withdrawal (NOW) accounts
which customers use for cash management and which provide the Banks with a
source of fee income and cross-marketing opportunities, as well as a low-cost
source of funds. Time and savings accounts also provide a relatively stable
source of funding. The largest source of funds for the Banks is certificates of
deposit. Certificates of deposit in excess of $100,000 are held primarily by
customers in the Banks' market areas. Deposit rates are set weekly by senior
management of each of the Banks, subject to approval by management of the
Company. Management believes that the rates the Banks offer are competitive with
other institutions in the Banks' market areas.
COMPETITION
Banks generally compete with other financial institutions through the
selection of banking products and services offered, the pricing of services, the
level of service provided, the convenience and availability of services, and the
degree of expertise and the personal manner in which services are offered. South
Carolina law permits statewide branching by banks and savings institutions, and
many financial institutions in the state have branch networks. Consequently,
commercial banking in South Carolina is highly competitive. South Carolina law
also permits regional interstate banking whereby bank holding companies in
certain southeastern states are allowed to acquire depository institutions
within South Carolina. Many large banking organizations currently operate in the
respective market areas of the Banks, several of which are controlled by
out-of-state ownership. In addition, competition between commercial banks and
thrift institutions (savings institutions and credit unions) has been
intensified significantly by the elimination
3
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. Furthermore, as a consequence of legislation
recently enacted by the United States Congress, out-of-state banks not
previously allowed to operate in South Carolina will be allowed to commence
operations and compete in the Banks' primary service areas if the South Carolina
legislature does not elect to limit the reach of such federal legislation within
South Carolina. See "Government Supervision and Regulation -- Interstate
Banking."
Each of the Banks faces increased competition from both
federally-chartered and state-chartered financial and thrift institutions, as
well as credit unions, consumer finance companies, insurance companies and other
institutions in the Banks' respective market areas. Some of these competitors
are not subject to the same degree of regulation and restriction imposed upon
the Banks. Many of these competitors also have broader geographic markets and
substantially greater resources and lending limits than the Banks and offer
certain services such as trust banking that the Banks, other than the Greenwood
Bank, do not currently provide. In addition, many of these competitors have
numerous branch offices located throughout the extended market areas of the
Banks that the Company believes may provide these competitors with an advantage
in geographic convenience that the Banks do not have at present. Such
competitors may also be in a position to make more effective use of media
advertising, support services, and electronic technology than can the Banks.
Currently there are five other commercial banks, two savings
institutions, and seven credit unions operating in the Greenwood Bank's primary
service area, and six other commercial banks, no savings institutions, and one
credit union operating in the Clemson Bank's primary service area. Currently
there are two other commercial banks, one savings institution, and one credit
union operating in the Barnwell Bank's primary service area.
EMPLOYEES
The Company currently has seventeen full-time employees and two
part-time employees. The Greenwood Bank employs thirty-six full-time employees
and four part-time employee. The Clemson Bank employs seven full-time employees
and one part-time employee. The Barnwell Bank employs nine full-time employees
and no part-time employees.
GOVERNMENT SUPERVISION AND REGULATION
GENERAL
The Company and the Banks are subject to an extensive collection of
state and federal banking laws and regulations which impose specific
requirements and restrictions on, and provide for general regulatory oversight
with respect to, virtually all aspects of the Company's and the Banks'
operations. The Company and the Banks are also affected by government monetary
policy and by regulatory measures affecting the banking industry in general. The
actions of the Federal Reserve System affect the money supply and, in general,
the Banks' lending abilities in increasing or decreasing the cost and
availability of funds to the Banks. Additionally, the Federal Reserve System
regulates the availability of bank credit in order to combat recession and curb
inflationary pressures in the economy by open market operations in United States
government securities, changes in the discount rate on member bank borrowings,
changes in the reserve requirements against bank deposits and limitations on
interest rates which banks may pay on time and savings deposits.
During 1989 and 1991, the United States Congress enacted two major
pieces of banking legislation: The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). FIRREA and FDICIA have significantly changed
the commercial banking industry through, among other things, revising and
limiting the types and amounts of investment authority, significantly increasing
minimum regulatory capital requirements, and broadening the scope and power of
federal bank and thrift regulators over financial institutions and affiliated
persons in order to protect the deposit insurance funds
4
and depositors. These laws, and the resulting implementing regulations,
have subjected the Banks and the Company to extensive regulation, supervision
and examination by the FDIC. This change has resulted in increased
administrative, professional and compensation expenses in complying with a
substantially increased number of new regulations and policies. The regulatory
structure created by these laws gives the regulatory authorities extensive
authority in connection with their supervisory and enforcement activities and
examination policies.
The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Banks. This summary is qualified in
its entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of the Company and the Banks.
Any change in applicable laws or regulations may have a material adverse effect
on the business and prospects of the Company and the Banks.
THE COMPANY
The Company is a bank holding company within the meaning of the Federal
Bank Holding Company Act of 1956, as amended (the "BHCA"), and the South
Carolina Banking and Branching Efficiency Act of 1996, as amended (the "South
Carolina Act"). The Company is registered with both the Federal Reserve System
and the 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 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 South Carolina 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. The Company is also restricted in its activities by the
provisions of the Glass-Steagall Act of 1933, which prohibits the Company from
owning subsidiaries that are engaged principally in the issue, flotation,
underwriting, public sale or distribution of securities. 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 BANKS
The operations of the Greenwood Bank are subject to various statutory
requirements and rules and regulations promulgated and enforced primarily by the
South Carolina State Board of Financial Institutions (the "State Board"), the
Federal Reserve System, and the FDIC. As a South Carolina-chartered banking
corporation with FDIC deposit insurance, the Clemson Bank is also subject to
various statutory requirements and rules and regulations promulgated and
enforced primarily by the State Board and the FDIC. The State Board and the FDIC
regulate or monitor all areas
5
of the Banks', respective 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 and FDIC also require the Banks to maintain certain
capital ratios (see "Federal Capital Regulations"), and the provisions of the
Federal Reserve Act require the Greenwood Bank to observe certain restrictions
on any extensions of credit to the Company, or with certain exceptions, other
affiliates, on investments in the stock or other securities of other banks, and
on the taking of such stock or securities as collateral on loans to any
borrower. In addition, the Banks are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, or the providing of any
property or service. The regulatory requirements to which the Banks are subject
also set forth various conditions regarding the eligibility and qualification of
its of 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
entirely upon the amount of dividends paid by each of the Banks and any other
subsequently acquired entities. The Banks are subject to regulatory restrictions
on the payment of dividends, including the prohibition of payment of dividends
from each Bank's capital. All dividends of the Banks must be paid out of the
respective undivided profits then on hand, after deducting expenses, including
losses and bad debts. In addition, as a member of the Federal Reserve System,
the Greenwood Bank is prohibited from declaring a dividend on its shares of
common stock until its surplus equals its stated capital, unless there has been
transferred to surplus no less than one-tenth of such bank's net profits of the
preceding two consecutive half-year periods (in the case of an annual dividend)
and the approval of the Federal Reserve Board is required if the total of all
dividends declared by the Greenwood Bank in any calendar year exceeds the total
of its net profits for that year combined with the Greenwood Bank's retained net
profits for the preceding two years, less any required transfers to surplus. The
Banks are subject to various other federal and state regulatory restrictions on
the payment of dividends, including receipt of the approval of the South
Carolina Commissioner of Banking prior to paying dividends to the Company.
FIRREA
FIRREA was enacted on August 9, 1989, and has had a significant impact
on the operations of all financial institutions, including the Banks. FIRREA,
among other things, abolished the Federal Savings and Loan Insurance Corporation
and established two new insurance funds under the jurisdiction of the FDIC: the
Savings Association Fund and the Bank Insurance Fund (see "FDIC Regulations").
FIRREA also imposed, with certain exceptions, a "cross guaranty" on the part of
commonly controlled depository institutions such as the Banks. Under this
provision, if one depository institution subsidiary of a multi-bank holding
company fails or requires FDIC assistance, the FDIC may assess a commonly
controlled depository institution for the estimated losses suffered by the FDIC.
Consequently, each of the Banks is subject to assessment by the FDIC related to
any loss suffered by the FDIC arising out of the operations of the other Bank.
The FDIC's claim is junior to the claims of nonaffiliated depositors, holders of
secured liabilities, general creditors and subordinated creditors but is
superior to the claims of shareholders.
FDIC REGULATIONS
The FDIC establishes rates for the payment of premiums by federally
insured banks and thrifts for deposit insurance. Deposits in the Banks are
insured by the FDIC up to a maximum amount (generally $100,000 per depositor,
subject to aggregation rules), and the FDIC maintains an insurance fund for
commercial banks with insurance premiums from the industry used to offset losses
from insurance payouts when banks fail. The Banks pay premiums to the FDIC on
their deposits. In 1993, the FDIC adopted a rule which establishes a risk-based
deposit insurance premium system for all insured depository institutions,
including the Banks. Under the 1993 rule, a depository institution pays to the
FDIC a premium of from $0.00 to $0.31 per $100 of insured deposits depending on
6
its capital levels and risk profile, as determined by its primary federal
regulator on a semi-annual basis. During 1996, 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, pursuant to
the provisions of the FDICIA, the Federal Reserve Board, the FDIC, and other
federal banking agencies have adopted risk-based capital adequacy guidelines for
banking organizations insured by the FDIC, including each of the Banks. 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, 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 the allowance for credit losses up to 1.25% or
risk-weighted assets. Under the guidelines, institutions must maintain a
specified minimum ratio of "qualifying" capital to risk-weighted assets. At
least 50% of an institution's qualifying capital must be "core" or "Tier 1"
capital, and the balance may be "supplementary" or "Tier 2" capital. The
guidelines imposed on the Company and the Banks include a minimum leverage ratio
standard of capital adequacy. The leverage standard requires top-rated
institutions to maintain a minimum Tier 1 capital to assets ratio of 3%, with
institutions receiving less than the highest rating required to maintain a
minimum ratio of 4% or greater, based upon their particular circumstances and
risk profiles. As of December 31, 1995, the guidelines require achievement of a
minimum ratio of total capital to risk-weighted assets of 8% and a minimum ratio
of Tier 1 capital to risk-weighted assets of 4%.
Each of the Company's and Bank's leverage and risk-based capital ratios
at December 31, 1996, exceeded their respective fully phased-in minimum
requirements.
OTHER REGULATIONS
Interest and certain other charges collected or contracted for by the
Banks are subject to state usury laws and certain federal laws concerning
interest rates. The Banks' loan operations are also subject to certain federal
laws applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Community
Reinvestment Act of 1977 requiring financial institutions to meet their
obligations to provide for the total credit needs of the communities they serve,
including investing their assets in loans to low- and moderate-income borrowers,
the Home Mortgage Disclosure Act of 1975 requiring financial institutions to
provide information to enable public officials to determine whether a financial
institution is fulfilling its obligations to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act governing the manner in which consumer debts may be
collected by collection agencies, and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Banks also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that Act,
which govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
INTERSTATE BANKING
On September 29, 1994, the federal government enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "1994 Act"). The
provisions of the 1994 Act became effective on September 29, 1995, at which time
eligible bank holding companies in any state were permitted, with Federal
Reserve Board approval, to acquire banking organizations in any other state. As
such, all existing regional compacts and substantially all existing 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. On and after June 1, 1997, a bank
operating in any state may establish one or more branches within any other state
7
without, as currently required, the establishment of a separate banking
structure within the other state. Interstate branching is allowed earlier than
the automatic phase-in date of June 1, 1997, as long as the legislatures of both
states involved have adopted statutes expressly permitting such branching to
take place at an earlier date.
On May 7, 1996, South Carolina adopted the South Carolina Act which
became effective on July 1, 1996. The South Carolina Act permits the acquisition
of South Carolina banks and bank holding companies by, and mergers with,
out-of-state banks and bank holding companies with the prior approval of the
State Board. The South Carolina Act also permits South Carolina state banks,
with prior approval of the State Board, to operate branches outside the State of
South Carolina. Although the 1994 Act has the potential to increase the number
of competitors in the marketplace of each of the Banks, the Company cannot
predict the actual impact of such legislation on the competitive position of the
Banks.
ITEM 2. PROPERTIES.
The Company and the Greenwood Bank own approximately two acres of land
comprised of several parcels in Greenwood, South Carolina. The Company's
executive offices are located in the Greenwood Bank's approximately 8,200 square
foot headquarters building at 109 Montague Street, Greenwood, South Carolina on
land owned by the Greenwood Bank. The Greenwood Bank also operates a branch
location of approximately 2,400 square feet on Greenwood's Highway 72 by-pass.
The land and building housing this branch are leased by the Greenwood Bank from
Robert C. Coleman, a director of the Company and the Greenwood Bank. The Company
has also leased approximately two-thirds of an acre of land in Ninety-Six, South
Carolina from John W. Drummond, a director of the Company and the Greenwood
Bank. The Greenwood Bank owns an approximately 715 square foot building located
on such leased land.
The Clemson Bank operates out of an approximately 1,568 square foot
building located on approximately one and one-half areas of land at 528 Old
Greenville Highway in Clemson, South Carolina. The land and building are owned
by the Clemson Bank.
The Barnwell Bank operates out of an approximately 6,000 square foot
building located on approximately .137 areas of land at 1810 Main Street in
Barnwell, South Carolina. The land and building are owned in part by Miles
Loadholt, a director of the Barnwell Bank.
ITEM 3. LEGAL PROCEEDINGS.
None.
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") commenced trading
on the American Stock Exchange on February 11, 1997 under the symbol "CYL".
Although prior to such listing the Common Stock was quoted on the OTC Bulletin
Board, trading and quotations of the Common Stock were limited and sporadic.
Management is not aware of the prices at which all shares of Common Stock have
traded.
The Company did not sell any equity securities during the fiscal year
ended December 31, 1996 which were not registered under the Securities Act of
1933. As of March 21, 1997, there were 2,894,708 shares of Common Stock
outstanding held by approximately 1,427 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
8
Company intends to follow a policy of retaining any earnings to provide funds to
operate and expand the business of the Company and the Banks for the foreseeable
future. The future dividend policy of the Company is subject to the discretion
of the Board of Directors and will depend upon a number of factors, including
future earnings, financial condition, cash requirements, and general business
conditions. The Company's ability to distribute cash dividends will depend
entirely upon the Banks' abilities to distribute dividends to the Company. As
state banks, the Banks are subject to legal limitations on the amount of
dividends each is permitted to pay. In particular, the Banks must receive the
approval of the State Board prior to paying dividends to the Company.
Furthermore, neither the Banks nor the Company may declare or pay a cash
dividend on any of their capital stock if they are insolvent or if the payment
of the dividend would render them insolvent or unable to pay their obligations
as they become due in the ordinary course of business. See "Government
Supervision and Regulation -- Dividends."
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data for the five years
ended December 31, 1996 are derived from the consolidated financial statements
and other data of the Company. The consolidated financial statements for the
year ended December 31, 1992 through 1996, were audited by Tourville, Simpson &
Henderson, 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.
9
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Interest income................................................$ 3,315 $ 3,794 $ 4,430 $ 6,147 $ 8,114
Interest expense............................................... 1,642 1,600 1,693 2,948 4,006
----- ----- ----- ----- -----
Net interest income............................................ 1,673 2,194 2,647 3,199 4,108
Provision for loan losses...................................... 227 80 14 112 187
--- -- -- --- ---
Net interest income after provision for loan losses............ 1,446 2,114 2,633 3,087 3,921
Net securities gains (losses).................................. 21 22 (79) (22) 17
Noninterest income............................................. 610 754 593 799 1,209
Noninterest expense............................................ 1,787 2,121 2,261 3,069 4,141
----- ----- ----- ----- -----
Income before income taxes, extraordinary credit and
accounting change 290 769 886 795 1,006
Applicable income taxes........................................ 103 256 301 261 300
--- --- --- --- -----
Income before extraordinary credit and accounting change....... 187 513 585 534 706
Extraordinary credit........................................... 102 -- -- -- --
Accounting change.............................................. -- 47 -- -- --
--- --- --- --- ---
Net income.....................................................$ 289 $ 560 $ 585 $ 534 $ 706
========= ========= ========= ============ ============
BALANCE SHEET DATA:
Assets.........................................................$ 49,281 $58,970 $ 65,071 $ 96,100 $115,959
Earning assets................................................. 44,636 53,891 58,182 87,980 104,526
Securities (1)................................................. 7,466 7,949 7,617 22,446 23,280
Loans (2)...................................................... 34,493 44,634 50,565 63,204 80,546
Allowance for loan losses...................................... 500 567 581 671 837
Deposits....................................................... 40,970 45,992 49,146 73,138 89,862
Federal Home Loan Bank advances................................ 2,627 6,756 5,925 6,244 4,889
Shareholders' equity........................................... 4,844 5,420 6,079 12,932 13,556
WEIGHTED AVERAGE SHARES OUTSTANDING (3)........................... 745,272 745,645 804,822 1,070,135 1,356,626
PER SHARE DATA (3):
Net income (3).................................................$ 0.39 $ 0.75 $ 0.80 $ 0.55 $ 0.54
Book value (period end) (4).................................... 7.89 8.80 9.62 10.68 11.12
Tangible book value (period end) (4)........................... 7.73 8.71 9.58 10.64 11.08
PERFORMANCE RATIOS:
Return on average assets....................................... 0.66% 1.03% 0.97% 0.68% 0.67%
Return on average equity....................................... 6.15 10.94 10.17 5.69 5.41
Net interest margin (5)........................................ 4.17 4.39 4.78 4.49 4.28
Efficiency (6)................................................. 78.31 71.95 69.81 76.78 77.28
ASSET QUALITY RATIOS:
Allowance for loan losses to period end loans (2).............. 1.45% 1.27% 1.15% 1.06% 1.04%
Net charge-offs to average loans............................... 0.18 ,0.03 -- 0.03 0.03
Nonperforming assets to period end loans and
foreclosed property (2)(7)................................ 0.52 0.40 0.04 0.02 0.23
CAPITAL AND LIQUIDITY RATIOS:
Average equity to average assets............................... 10.69% 9.39% 9.46% 11.99% 12.37%
Leverage (4.00% required minimum).............................. 9.62 9.10 9.42 13.21 11.62
Risk-based capital
Tier 1...................................................... 12.17 10.89 11.04 18.46 15.58
Total....................................................... 13.46 12.04 12.09 19.41 16.54
Average loans to average deposits.............................. 88.21 90.52 98.21 93.03 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 net of unearned income, before allowance for loan losses.
(3) All share and per share data have been adjusted to reflect the 5% Common
Stock dividends in September 1993, April 1994, August 1995, and May 1996.
Net income per share is computed using the weighted average number of
outstanding shares of Common Stock and dilutive common stock equivalents
from stock options (using treasury stock method).
(4) Excludes the effect of any outstanding stock options.
(5) Net interest income divided 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.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS IS INTENDED TO ASSIST THE READER
IN UNDERSTANDING THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY AND THE BANKS. THIS COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE RELATED NOTES AND THE
OTHER STATISTICAL INFORMATION SET FORTH ELSEWHERE IN THIS REPORT ON FORM 10-K.
THE FINANCIAL INFORMATION PROVIDED BELOW HAS BEEN ROUNDED IN ORDER TO SIMPLIFY
ITS PRESENTATION. THE RATIOS AND PERCENTAGES PROVIDED BELOW, HOWEVER, ARE
CALCULATED USING THE DETAILED FINANCIAL INFORMATION CONTAINED IN THE FINANCIAL
STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA SET FORTH ELSEWHERE
HEREIN.
GENERAL
The Company is a bank holding company headquartered in Greenwood, South
Carolina which during fiscal year ended December 31, 1996 operated through two
community banks in non-metropolitan markets in the State of South Carolina. The
Company was formed in 1988 to serve as a holding company for the Greenwood Bank.
In June 1995, the Company opened the Clemson Bank in Clemson, 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.
As a one-bank holding company for the Greenwood Bank, the Company grew
from $21.5 million in assets, $11.7 million in loans, $16.6 million in deposits,
and $4.6 million in shareholders' equity at December 31, 1989, to $65.1 million
in assets, $50.6 million in loans, $49.1 million in deposits, and $6.1 million
in shareholders' equity at December 31, 1994. The opening of the Clemson Bank in
June 1995 resulted in a year-over-year decrease in the Company's earnings per
share for the year ended December 31, 1995, due to substantial start-up
expenditures, as well as the time and expense required to attract customers,
deposits, and earning assets. The Clemson Bank achieved profitability in
September 1996, and at December 31, 1996, the Company had $116.0 million in
assets, $80.5 million in loans, $89.9 million in deposits, and $13.6 million in
shareholders' equity.
Management has emphasized maintaining strong asset quality through a
credit underwriting and review system which includes both bank level and
centralized controls. Over the five-year period ended December 31, 1996, the
Company had an average net charge-off ratio of 0.05%. At December 31, 1996,
nonperforming assets as a percentage of total loans was 0.23%.
Net income for the year ended December 31, 1996 was negatively affected
by expenditures associated with the development and organization of the Barnwell
Bank, the Belton Bank, and the Newberry Bank (collectively, the "New Banks").
Management also expects that net income for the year ending December 31, 1997
will be negatively affected by losses expected from the Belton Bank and Newberry
Bank while these New Banks are achieving their critical mass and generating
customers, deposits, and earning assets. Due to the acquisition of certain
deposits and assets associated with the Carolina First Branches, management
anticipates that the Barnwell Bank will be profitable for the year ending
December 31, 1997; however, there can be no assurance that the Barnwell Bank
will be profitable.
In the near term, the Company expects that, as a result of the
increased number of shares of Common Stock after the Offering, the expenses
incurred in connection with the acquisition of the New Banks, and the losses
expected from the Belton Bank and Newberry Bank, the Company will experience a
dilution of its return on equity and earnings per share. In addition, tangible
book will be negatively affected by the intangibles associated with the
acquisition of the Carolina First Branches. The Company believes that the
dilution of earnings per share, return on equity, and tangible book value per
share will be outweighed by the long-term benefits and shareholder value the
Company expects to derive from the purchase of the New Banks and the acquisition
of the Carolina First Branches. However, there can be no assurance that the
Company will be able to achieve these goals.
11
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996, COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net interest income increased $909,000, or 28.4%, to $4.1 million in
1996 from $3.2 million in 1995. The increase in net interest income was due
primarily to an increase in average earning assets. Average earning assets
increased $24.8 million, or 34.8%, primarily as a result of the opening of the
Clemson Bank in June 1995, the opening of a new Greenwood Bank branch in
February 1995, and the continuing growth of the Greenwood Bank.
The Company's net interest spread and net interest margin were 3.50%
and 4.28%, respectively, in 1996 as compared to 3.72% and 4.49% in 1995. The
decrease in the net interest spread and the net interest margin was primarily
the result of the growth in the volume of investment securities, traditionally
lower yielding assets than loans, as a percentage of average earning assets in
order to improve liquidity and lower the loans-to-assets ratio.
The provision for loan losses was $187,000 in 1996 compared to $112,000
in 1995. The increase in the provision was primarily the result of general
growth in the Company's loan portfolio. The Company experienced net charge-offs
of $21,000 in 1996, resulting in a ratio of net charge-offs to average loans of
0.03%.
Noninterest income increased $449,000, or 57.8%, to $1.2 million in
1996 from $777,000 in 1995, primarily attributable to increased service charges
on deposit accounts, increased fees from mortgage loan originations, and
increased commissions on sales of mutual funds. In 1996, the Company's mortgage
loan origination fees increased due to the decrease in mortgage lending rates.
During 1996, the Company originated $8.7 million of mortgage loans held for sale
compared to $4.8 million in 1995, resulting in a $92,000 increase in residential
mortgage origination fees to $207,000 in 1996 from $115,000 in 1995.
Noninterest expense increased $1.1 million, or 34.9%, to $4.1 million
in 1996 from $3.1 million in 1995. The primary component of noninterest expense
is salaries and benefits, which increased $549,000, or 38.9%, to $2.0 million in
1996 from $1.4 million in 1995. The increase is primarily attributable to an
increase in the number of employees due to the opening in 1995 of the Clemson
Bank and the Greenwood Bank's trust and mutual funds departments. The Company
has also hired additional employees in anticipation of opening the New Banks.
Net occupancy expense for 1996 was $287,000, an increase of $105,000 compared to
$182,000 in 1995, and furniture and equipment expense increased $65,000 to
$305,000 in 1996 from $240,000 in 1995. The increase is attributable to
increased depreciation charges due to the purchase of a new operations center
during the first quarter of 1996 and the upgrade and acquisition of computer
equipment during 1995 and 1996. Management believes that these investments have
positioned the Company for the acquisition of the New Banks. The Company's
efficiency ratio in 1996 was 77.28%, compared to 76.78% in 1995.
Net income increased $172,000, or 32.2%, to $706,000 in 1996 from
$534,000 in 1995. The increase in net income was due primarily to increases in
net interest income and noninterest income. Return on average assets during 1996
was 0.67% compared to 0.68% during 1995, and return on average equity was 5.41%
during 1996 compared to 5.69% during 1995.
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net interest income increased $552,000, or 20.9%, to $3.2 million in
1995 from $2.6 million in 1994. The increase in net interest income was due
primarily to an increase in average earning assets. Average earning assets
increased $15.8 million, or 28.7%, primarily as a result of the opening of the
Clemson Bank in June 1995 and the opening of a new Greenwood Bank branch in
February 1995.
The Company's net interest spread and net interest margin were 3.72%
and 4.49%, respectively, in 1995, as compared to 4.32% and 4.78% in 1994. These
key ratios were affected by higher costs of deposits due to rising short-term
interest rates and increased competition for deposits in the Bank's market
areas. These ratios were also affected by strategies to improve liquidity and
reduce the loans-to-funds and loans-to-assets ratios. The provision for loan
losses was $112,000 in 1995, compared to $14,000 in 1994. The increase in the
provision was primarily the
12
result of general growth in the Company's loan portfolio. The Company
experienced net charge-offs of $21,000 in 1995, resulting in a ratio of net
charge-offs to average loans of 0.03%.
Noninterest income increased $264,000, or 51.3%, to $777,000 in 1995
from $514,000 in 1994, primarily attributable to increased service charges on
deposit accounts and commissions on sales of mutual funds by the Greenwood
Bank's mutual funds department which was established in 1995.
Noninterest expense increased $808,000, or 35.7%, to $3.1 million in
1995 from $2.3 million in 1994. The primary component of noninterest expense is
salaries and benefits, which increased $303,000, or 27.3%, in 1995 compared to
1994. The increase is attributable to an increase in the employee base due to
the opening of the Clemson Bank and the opening of the Greenwood Bank's trust
and mutual funds departments. The total of net occupancy expense and furniture
and equipment expense increased $185,000, or 78.1%, to $422,000 in 1995, from
$237,000 in 1994. This increase is attributable to an increase in depreciation
expense resulting from additions to premises and equipment in preparation for
opening the Clemson Bank and a new Greenwood Bank branch. The Company's
efficiency ratio in 1995 was 76.78%, compared to 69.81% in 1994.
Net income decreased $51,000, or 8.7%, to $534,000 in 1995 from
$585,000 in 1994. The decrease in net income was due to the increase in
noninterest expense associated primarily with the organization of the Clemson
Bank. Return on average assets during 1995 was 0.68% compared to 0.97% during
1994, and return on average equity was 5.69% during 1995 compared to 10.17%
during 1994. The decrease in return on average equity was attributable to the
issuance of 520,422 additional shares of Common Stock in connection with the
capitalization of the Clemson Bank.
NET INTEREST INCOME
GENERAL. The largest component of the Company's net income is its net
interest income, which is the difference between the income earned on assets and
interest paid on deposits and borrowings used to support such assets. Net
interest income is determined by the yields earned on the Company's
interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the degree of mismatch and the maturity and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
Net interest income divided by average interest-earning assets represents the
Company's net interest margin.
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES. The following 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.
13
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
YEAR ENDED DECEMBER 31,
1994 1995 1996
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
(DOLLARS IN THOUSANDS)
ASSETS:
Earning Assets
Loans (1)...........................$46,305 $3,909 8.44% $ 55,018 $ 5,146 9.35% $ 71,298 $6,622 9.29%
Investment securities (2)........... 7,801 383 4.91 14,419 894 6.21 23,188 1,402 6.05
Funds sold and other................ 1,238 48 3.88 1,777 107 6.02 1,538 90 5.85
----- -- ----- --- ----- ---- --
Total earning assets............. 55,344 4,340 7.84 71,214 6,147 8.63 96,024 8,114 8.45
------ ----- ------ ----- ------ -----
Cash and due from banks............. 2,006 2,758 3,080
Premises and equipment.............. 1,760 2,288 3,408
Other assets........................ 2,053 2,646 3,776
Allowance for loan losses........... (569) (601) (746)
---- ----
Total assets..................... $60,594 $ 78,305 $105,542
====== ======= =======
LIABILITIES:
Interest-Bearing Liabilities
Interest-bearing transaction accounts.$ 5,597 103 1.84 $ 6,136 113 1.84 $ 7,719 151 1.96
Savings deposits.................... 11,805 324 2.74 14,693 590 4.02 21,175 928 4.38
Time deposits....................... 23,518 937 3.98 30,053 1,719 5.72 41,476 2,346 5.66
Other short-term borrowings......... 683 31 4.54 2,479 145 5.73 5,070 283 5.58
Federal Home Loan Bank advances..... 6,501 298 4.58 6,655 381 5.73 5,436 298 5.48
----- --- ----- --- ------ ----
Total interest-bearing
liabilities................... 48,104 1,693 3.52 60,016 2,948 4.91 80,876 4,006 4.95
------- ----- ------ ----- ------ -----
Demand deposits..................... 6,228 8,258 10,591
Accrued interest and
other liabilities............. 530 643 1,015
Shareholders' equity................ 5,732 9,388 13,060
Total liabilities and
shareholders' equity....... $60,594 $78,305 $105,542
Net interest spread................. 4.32% 3.72% 3.50%
Net interest income................. $2,647 $3,199 $4,108
====== ===== =====
Net interest margin................. 4.78% 4.49% 4.28%
(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 include the valuation allowance on
securities available for sale.
14
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 1994 to 1995 and 1995 to 1996.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
YEAR ENDED DECEMBER 31,
1995 COMPARED WITH 1994 1996 COMPARED WITH 1995
VARIANCE DUE TO VARIANCE DUE TO
VOLUME (1) RATE (1) TOTAL VOLUME RATE TOTAL
------ --- ---- --- ----- ------ ---- -----
(DOLLARS IN THOUSANDS)
EARNING ASSETS
Loans......................................... $ 787 $ 450 $1,237 $1,512 $ (36) $1,476
Investment securities......................... 389 122 511 532 (24) 508
Funds sold and other.......................... 32 27 59 (14) (3) (17)
--- -- -- --- -- -----
Total interest income...................... 1,208 599 1,807 2,030 (63) 1,967
----- --- ----- ----- --- -----
Interest-Bearing Liabilities
INTEREST-BEARING DEPOSITS:
Interest-bearing transaction accounts......... 10 -- 10 31 7 38
Savings and market rate investments........... 92 174 266 280 58 338
Certificates and other time deposits.......... 304 478 782 646 (19) 627
--- --- --- --- --- ---
Total interest-bearing deposits............ 406 652 1,058 957 46 1,003
Other short-term borrowings................... 103 11 114 145 (7) 138
Federal Home Loan Bank advances............... 7 76 83 (68) (15) (83)
-- -- -- --- --- -----
Total interest expense..................... 516 739 1,255 1,034 24 1,058
--- ----- ----- ----- --- -----
Net interest income........................ $ 692 $(140) $ 552 $ 996 $ (87) $ 909
======= ===== ======= ======= ==== ======
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
INTEREST SENSITIVITY. The Company monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. The principal monitoring technique employed by the Company is the
measurement of the Company's interest sensitivity "gap," which is the positive
or negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. Interest rate sensitivity
can be managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing in this same time interval helps to hedge
the risk and minimize the impact on net interest income of rising or falling
interest rates.
15
The following table sets forth the Company's interest rate sensitivity
at December 31, 1996.
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1996
-----------------------------------------------------------------------------
AFTER ONE AFTER THREE GREATER THAN
WITHIN THROUGH THROUGH WITHIN ONE YEAR OR
ONE MONTH THREE MONTHS TWELVE MONTHS ONE YEAR NONSENSITIVE TOTAL
--------- ------------ ------------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
ASSETS
Earning Assets
Loans (1)........................ $ 35,146 $ 7,008 $ 12,747 $ 54,901 $25,459 $80,360
Securities (2)................... 502 1,010 1,027 2,539 20,741 23,280
Funds sold and other............. 700 -- -- 700 -- 700
--- -- -- --- -- ---
Total earning assets.......... 36,348 8,018 13,774 58,140 46,200 104,340
------ ----- ------ ------ ------ -------
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Demand deposits............... 8,296 -- -- 8,296 -- 8,296
Savings deposits.............. 22,716 -- -- 22,716 -- 22,716
Time deposits................. 11,494 6,527 23,807 41,828 4,796 46,624
------ ----- ------ ------ ----- ------
Total interest-bearing
deposits................ 42,506 6,527 23,807 72,840 4,796 77,636
------ ----- ------ ------ ----- ------
Other short-term borrowings...... 6,783 -- -- 6,783 -- 6,783
Federal Home Loan Bank advances.. 2,600 1,674 465 4,739 150 4,889
----- ----- --- ----- ---
Total interest-bearing
liabilities............ 51,889 8,201 24,272 84,362 4,946 89,308
------ ----- ------ ------ ----- ------
Period gap.......................... $(15,541) $ (183) $(10,498) $(26,222) $41,254
======== ========== ======== ======== =======
Cumulative gap...................... $(15,541) $ (15,724) $(26,222) $(26,222) $15,032
======== ========== ======== ======== =======
Ratio of cumulative gap to total earning
assets.............................. (14.89)% (15.07)% (25.13)% (25.13)% 14.41%
(1) Excludes nonaccrual loans.
(2) Excludes investment in the Federal Home Loan Bank and Federal Reserve Bank
stock and other nonmarketable equity securities included in other assets
totaling approximately $2.2 million.
The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds are reflected at the earliest pricing interval
due to the immediately available nature of the instruments. Debt securities are
reflected at each instrument's ultimate maturity date. Scheduled payment amounts
of fixed rate amortizing loans are reflected at each scheduled payment date.
Scheduled payment amounts of variable rate amortizing loans are reflected at
each scheduled payment date until the loan may be repriced contractually; the
unamortized balance is reflected at that point. Interest-bearing liabilities
with no contractual maturity, such as savings deposits and interest-bearing
transaction accounts, are reflected in the earliest repricing period due to
contractual arrangements which give the Company the opportunity to vary the
rates paid on those deposits within a thirty-day or shorter period. Fixed rate
time deposits, principally certificates of deposit, are reflected at their
contractual maturity date.
The Company generally would benefit from increasing market rates of
interest when it has an asset-sensitive gap position and generally would benefit
from decreasing market rates of interest when it is liability-sensitive. The
Company is liability sensitive over the one month, three month, and one year
time frames. However, the Company's gap analysis is not a precise indicator of
its interest sensitivity position. The analysis presents only a static view of
the timing of maturities and repricing opportunities, without taking into
consideration that changes in interest rates do not affect all assets and
liabilities equally. For example, rates paid on a substantial portion of core
deposits may change contractually within a relatively short time frame, but
those rates are viewed by management as significantly less interest-sensitive
than market-based rates such as those paid on non-core deposits. Accordingly,
management believes a liability-sensitive gap position is not as indicative of
the Company's true interest sensitivity as it would be for an organization which
depends to a greater extent on purchased funds to support earning assets. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
16
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 Bank's
Board of Directors reviews and approves the appropriate level for that Bank's
allowance for loan losses based upon management's recommendations, the results
of the internal monitoring and reporting system, analysis of economic conditions
in its markets, and a review of historical statistical data for both the Company
and other financial institutions.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount of
the provision is a function of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period, and current and
anticipated economic conditions.
The Company's allowance for loan losses is based upon judgments and
assumptions of risk elements in the portfolio, future economic conditions and
other factors affecting borrowers. The process includes identification and
analysis of loss potential in various portfolio segments utilizing a credit risk
grading process and specific reviews and evaluations of significant problem
credits. In addition, management monitors the overall portfolio quality through
observable trends in delinquency, charge-offs, and general and economic
conditions in the service area. The adequacy of the allowance for loan losses
and the effectiveness of the Company's monitoring and analysis system are also
reviewed periodically by the banking regulators and the Company's independent
auditors.
Based on present information and an ongoing evaluation, management
considers the allowance for loan losses to be adequate to meet presently known
and inherent risks in the loan portfolio. Management's judgment as to the
adequacy of the allowance is based upon a number of assumptions about future
events which it believes to be reasonable but which may or may not be valid.
Thus, there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases in the
allowance for loan losses will not be required. The Company does not allocate
the allowance for loan losses to specific categories of loans but evaluates the
adequacy on an overall portfolio basis utilizing a risk grading system. See
"Potential Problem Loans."
The following table sets forth certain information with respect to the
Company's allowance for loan losses and the composition of charge-offs and
recoveries for each of the last five years.
ALLOWANCE FOR LOAN LOSSES
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Total loans outstanding at end of period, net of unearned income. $34,493 $44,634 $50,565 $63,204 $80,546
Average loans outstanding, net of unearned income............. $32,190 $39,641 $46,305 $55,018 $71,298
Balance of allowance for loan losses at beginning of period... $ 331 $ 500 $ 567 $ 581 $ 671
Loan losses:
Commercial, financial and agricultural..................... 48 5 -- 17 --
Real estate -- mortgage.................................... -- -- -- -- --
Consumer................................................... 10 12 4 4 21
-- -- -- -- --
Total loan losses....................................... 58 17 4 21 21
-- -- -- -- --
Recoveries of previous loan losses:
Commercial, financial and agricultural..................... -- -- -- -- --
Real estate -- mortgage.................................... -- -- -- -- --
Consumer................................................... -- 4 4 -- --
-- -- -- -- --
Total recoveries........................................ -- 4 4 -- --
-- -- -- -- --
Net loan losses............................................... 58 13 -- 21 21
Provision for loan losses..................................... 227 80 14 112 187
--- -- -- --- ---
Balance of allowance for loan losses at end of period......... $ 500 $ 567 $ 581 $ 671 $ 837
======== ========= ======== ======== ========
Allowance for loan losses to period end loans................. 1.45% 1.27% 1.15% 1.06% 1.04%
Net charge-offs to average loans.............................. 0.18 0.03 -- 0.03 0.03
17
NONPERFORMING ASSETS. The following table sets forth the Company's
nonperforming assets for the dates indicated.
NONPERFORMING ASSETS
DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Nonaccrual loans....................................... $ 85 $179 $ 3 $ 13 $186
Restructured or impaired loans......................... -- -- -- -- --
-- -- -- -- --
Total nonperforming loans......................... 85 179 3 13 186
Other real estate owned................................ 97 -- 19 -- --
-- -- -- -- --
Total nonperforming assets........................ $182 $179 $ 22 $ 13 $186
==== ==== ===== ===== ====
Loans 90 days or more past due and still
accruing interest................................... $ -- $ -- $ 39 $ 60 $ 54
Nonperforming assets to period end loans and
foreclosed property................................. 0.52% 0.40% 0.04% 0.02% 0.23%
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 earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which would
have been recognized into earnings if the Company's nonaccrual loans had been
current in accordance with their original terms, is immaterial.
Total nonperforming assets increased $173,000 to $186,000 at December
31, 1996, from $13,000 at December 31, 1995. This increase was primarily due to
a $122,000 loan collateralized by a second mortgage that was placed in
nonaccrual status in January 1996. Nonperforming assets were 0.23% of total
loans and foreclosed property at December 31, 1996. The allowance for loan
losses to period end nonperforming assets was 450.00% at December 31, 1996.
POTENTIAL PROBLEM LOANS. At December 31, 1996, through their internal
review mechanisms the Banks had identified $985,000 of criticized loans and
$2.6 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. See "Provision and Allowance for Loan Losses."
NONINTEREST INCOME AND EXPENSE
NONINTEREST INCOME. The largest component of noninterest income is
service charges on deposit accounts, which totaled $515,000 in 1996, a 31.0%
increase over the 1995 level of $393,000. The increase in other noninterest
income was primarily due to the growth of the Greenwood Bank and increased fee
income from the origination of residential mortgage loans and from sales of
mutual funds by the mutual funds department which was formed in 1995.
18
The following table sets forth, for the periods indicated, the
principal components of noninterest income:
NONINTEREST INCOME
YEAR ENDED DECEMBER 31,
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
Service charges on deposit accounts............................................... $305 $393 $ 515
Residential mortgage origination fees............................................. 114 115 207
Securities gains (losses)......................................................... (79) (22) 17
Fees from sales of mutual funds................................................... -- 49 132
Other............................................................................. 174 242 355
--- ---
Total noninterest income.......................................................... $514 $777 $1,226
==== ==== ======
NONINTEREST EXPENSE. The following table sets forth, for the periods
indicated, the primary components of noninterest expense:
NONINTEREST EXPENSE
YEAR ENDED DECEMBER 31,
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
Salaries and employee benefits........................... $1,108 $1,411 $1,960
Net occupancy expense.................................... 116 182 287
Furniture and equipment expense.......................... 121 240 305
Director and committee fees.............................. 90 72 114
Amortization of intangibles and other assets............. 31 33 14
Data processing and supplies............................. 37 110 176
Mortgage loan department expense......................... 40 44 80
Banking assessments...................................... 109 59 3
Professional fees........................................ 92 116 132
Postage and freight and carriers......................... 51 90 117
Supplies................................................. 96 186 228
Credit card expenses..................................... 44 65 94
Other.................................................... 326 461 631
--- --- ---
Total noninterest expense.......................... $2,261 $3,069 $4,141
====== ====== ======
Efficiency ratio......................................... 69.81% 76.78% 77.28%
Salaries and employee benefits increased $549,000, or 38.9%, to $2.0
million in 1996 from $1.4 million in 1995, primarily as a result of an increase
in the number of employees due to the opening in 1995 of the Clemson Bank, a
Greenwood Bank branch office, and the Greenwood Bank's trust and mutual funds
departments. The Company has also hired new employees in anticipation of opening
the New Banks. In addition, the Company continued to upgrade its data processing
operations in order to service both the Greenwood Bank and the Clemson Bank, as
well as to position the Company to pursue its strategy of forming a network of
independently managed community banks. In December 1994, the Company installed a
new mainframe-based computer system. In 1996, the Company purchased a separate
facility to use for data processing and bookkeeping. The Company also purchased
imaging equipment and software that will allow the Banks to provide better
service to their customers and assist employees in performing their day-to-day
duties. The Company is amortizing the cost of the imaging equipment and software
and the computer over five years. The factors above, combined with an increase
in the cost of computer supplies, resulted in increases in net occupancy
expense, furniture and equipment expense, and data processing and supplies
expense. 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 77.28% in 1996 compared to 76.78% in
1995 and 69.81% in 1994.
19
EARNING ASSETS
LOANS. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $71.3 million
in 1996 compared to $55.0 million in 1995, an increase of $16.3 million, or
29.6%. At December 31, 1996, total loans were $80.5 million, compared to $63.2
million at December 31, 1995.
The increase in loans during 1996 was primarily due to the continued
demand for real estate loans in the Greenwood market, the loan growth at the
Clemson Bank, and an increase in the Greenwood Bank's customer base resulting
from the purchase of a local financial institution by an out-of-state competitor
and the closing or sale of local branches by large regional banks. 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,
1992 1993 1994 1995 1996
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
(DOLLARS IN THOUSANDS)
Commercial, financial and
agricultural........... $ 8,933 25.90% $10,684 23.94% $12,231 24.19% $13,349 21.12% $15,348 19.05%
Real estate
Construction........... 2,236 6.48 11,556 25.89 5,906 11.68 8,483 13.42 9,962 12.37
Mortgage -- residential. 11,148 32.32 11,258 25.22 14,978 29.62 22,515 35.62 31,519 39.13
Mortgage -- nonresidential. 9,586 27.79 7,504 16.81 13,436 26.57 14,190 22.45 17,616 21.87
Consumer.................. 2,535 7.35 3,585 8.03 3,953 7.82 4,591 7.27 5,947 7.38
Other..................... 55 0.16 47 0.11 61 0.12 76 0.12 154 0.20
------ ------- ------ ------ ------ ----- ------ ------ ------ -----
Total loans............ 34,493 100.00% 44,634 100.00% 50,565 100.00% 63,204 100.00% 80,546 100.00
======= ====== ====== ====== ======
Allowance for loan losses. (500) (567) (581) (671) (837)
------- ------- ------ ------- -------
Net loans.............. $33,993 $44,067 $49,984 $62,533 $79,709
======= ======= ======= ======= =======
The principal component of the Company's loan portfolio is real estate
mortgage loans. At December 31, 1996, this category totaled $49.1 million and
represented 61.0% of the total loan portfolio, compared to $36.7 million, or
58.1%, at December 31, 1995.
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.
Residential mortgage loans, which is the largest category of the
Company's loans, increased $9.0 million, or 40.0%, to $31.5 million at December
31, 1996, from $22.5 million at December 31, 1995. 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 and is the second
largest category of the Company's loans, increased $3.4 million, or 24.1%, to
$17.6 million at December 31, 1996, from $14.2 million at December 31, 1995. The
increase in real estate lending was attributable to the continued demand for
residential and commercial real estate loans in the Greenwood market, the
Company's ability to attract new customers from a local competitor that was
acquired by an out-of-state bank in 1996 and from local branch offices of large
regional banks that were closed during the year, continued increases in
residential construction lending, and loan growth at the Clemson Bank, which had
$7.8 million in real estate loans as of December 31, 1996 compared to $4.2
million as of December 31, 1995. The 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. Generally, the
Banks limit their loan-to-value ratios to 80%.
20
Commercial, financial and agricultural loans increased $2.0 million, or
15.0%, to $15.3 million at December 31, 1996, from $13.3 million at December 31,
1995. This increase was primarily attributable to the continued economic
development in Greenwood County and the growth of the Clemson Bank.
Consumer loans increased $1.4 million, or 29.5%, to $5.9 million at
December 31, 1996, from $4.6 million at December 31, 1995. The growth in
consumer loans is primarily attributable to overall growth in the Company's loan
portfolio.
The Company's loan portfolio reflects the diversity of its markets. The
home office and 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 healthcare, and distribution
facilities. The Clemson Bank office is currently located in a temporary facility
in Clemson, 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. Outside the incorporated city
limits of Greenwood and Clemson, the economy includes manufacturing,
agriculture, timber, and recreational activities. 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, 1996.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1996
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
(DOLLARS IN THOUSANDS)
Commercial, financial and agricultural....................... $11,503 $ 3,845 $ -- $15,348
Real estate.................................................. 35,642 22,578 877 59,097
Consumer and other........................................... 4,351 1,655 95 6,101
Loans maturing after one year with:
Fixed interest rates........................................................................... $26,135
Floating interest rates........................................................................ 2,915
.................................................................................................. $29,050
=======
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 on the above
table.
INVESTMENT SECURITIES. The investment securities portfolio is a
significant component of the Company's total earning assets. Total securities
averaged $23.2 million in 1996, compared to $14.4 million in 1995 and $7.8
million in 1994. At December 31, 1996, the total securities portfolio was $23.3
million, and all securities were designated as available-for-sale and were
recorded at estimated fair market value. The increase in the portfolio during
1996 was primarily due to strategies implemented by management in 1995 and
maintained in 1996 to improve liquidity and lower the loans-to-assets ratio.
21
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,
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
U.S. Treasury............................................................... $4,889 $ 5,952 $ 6,420
U.S. government agencies.................................................... 1,044 11,546 11,150
State, county and municipal securities...................................... 1,684 4,550 5,367
Mortgage-backed securities.................................................. -- 398 343
Total securities...................................................... $7,617 $ 22,446 $23,280
====== ======== =======
The following table sets forth the scheduled maturities and average
yields of securities held at December 31, 1996.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
DECEMBER 31, 1996
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE WITHIN FIVE WITHIN TEN
YEARS YEAR YEARS AFTER TEN YEARS
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
(DOLLARS IN THOUSANDS)
U.S. Treasury............................ $1,605 6.52% $ 4,815 6.00% $ -- --% $ -- --%
U.S. government agencies................. -- -- 5,127 6.24 6,023 6.79
State and political subdivisions......... 934 4.32 902 4.50 1,105 4.72 2,426 5.00
Total (1).......................... $2,539 5.71% $ 10,844 6.00% $ 7,128 6.47% $2,426 5.00%
====== ======== ========= ======
(1) Excludes mortgage-backed securities totaling $343,000 with a yield of 6.91%.
Other attributes of the securities portfolio, including yields and
maturities, are discussed above in " -- Net Interest Income -- Interest
Sensitivity."
SHORT-TERM INVESTMENTS. Short-term investments, which consist primarily
of federal funds sold and interest-bearing deposits with other banks, averaged
$1.5 million in 1996, compared to $1.8 million in 1995 and $1.2 million in 1994.
At December 31, 1996, short-term investments totaled $700,000. These funds are a
primary source of the Banks' liquidity and are generally invested in an earning
capacity on an overnight basis.
22
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $20.9 million, or 34.8%,
to $80.9 million in 1996, from $60.0 million in 1995. Average interest-bearing
deposits increased $19.5 million, or 38.3%, to $70.4 million in 1996, from $50.9
million in 1995. These increases resulted from increases in most categories of
interest-bearing liabilities, primarily as a result of the opening of the
Clemson Bank and the Greenwood Bank branch. The Company has also been able to
attract new accounts from former South Carolina-based banks that have been
acquired by large southeastern regional bank holding companies and from local
branches of regional banks which have been closed or sold.
DEPOSITS. Average total deposits increased $21.8 million, or 36.9%, to
$81.0 million during 1996, from $59.1 million during 1995. At December 31, 1996,
total deposits were $89.9 million compared to $73.1 million a year earlier, an
increase of 22.9%.
The following table sets forth the deposits of the Company by category
at the dates indicated.
DEPOSITS
DECEMBER 31,
-------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- --------------- ----------------- --------------- ---------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSIT
-------- -------- ------- -------- ------ -------- -------- -------- ------ -------
(DOLLARS IN THOUSANDS)
Demand deposit accounts.. $ 4,620 11.28% $ 4,974 10.81% $ 6,968 14.18% $ 9,447 12.92% $12,226 13.61%
NOW accounts............. 5,161 12.60 5,050 10.98 7,158 14.56 8,028 10.98 8,296 9.23
Money market accounts.... 6,179 15.08 5,679 12.35 4,815 9.80 9,498 12.98 14,035 15.62
Savings accounts......... 5,009 12.22 6,360 13.83 6,818 13.87 7,922 10.83 8,681 9.66
Time deposits less than..
$100,000.............. 14,193 34.64 15,503 33.71 15,893 32.34 26,161 35.77 34,745 38.66
Time deposits of $100,000
or over............... 5,808 14.18 8,426 18.32 7,494 15.25 12,082 16.52 11,879 13.22
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total deposits.... $40,970 100.00% $45,992 100.00% $49,146 100.00% $73,138 100.00% $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 $16.8
million in 1996, primarily as a result of the opening of the Clemson Bank and a
Greenwood Bank branch in Ninety Six, South Carolina and deposit runoff from a
locally-owned financial institution which was acquired by an out-of-state
regional bank. Management also believes the Company's focus on quality service
has contributed to the growth.
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 89.6% at
December 31, 1996, and 86.4% at the end of 1995, and the ratio averaged 88.1%
during 1996. The maturity distribution of the Company's time deposits over
$100,000 at December 31, 1996, is set forth in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
DECEMBER 31, 1996
AFTER THREE AFTER SIX
WITHIN THREE THROUGH THROUGH AFTER TWELVE
MONTHS SIX MONTHS TWELVE MONTHS MONTHS TOTAL
(DOLLARS IN THOUSANDS)
Certificates of deposit of $100,000 or more.... $4,517 $2,772 $3,785 $805 $11,879
====== ====== ====== ==== =======
23
Approximately 38.0% of the Company's time deposits over $100,000 had
scheduled maturities within three months and more than 60.0% 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 primarily of short-term
borrowings in the form of federal funds purchased from correspondent banks,
securities sold under agreements to repurchase, and advances from the Federal
Home Loan Bank.
Average short-term borrowings were $5.1 million in 1996, an increase
of $2.6 million from 1995. The increase is primarily due to the Company's
increased use of repurchase agreements with an unrelated financial institution.
Average borrowings under this agreement were $2.8 million in 1996 compared to
$226,000 in 1995. Average Federal Home Loan Bank advances during 1996 were $5.4
million compared to $6.7 million during 1995, a decrease of $1.3 million.
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.
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. The Federal Reserve guidelines contain an
exemption from the capital requirements for bank holding companies with less
than $150 million in consolidated assets. Prior to the Offering, the Company has
had less than $150 million in assets and, consequently, has not been subject to
these rules. Following the Offering and the Acquisition, however, the Company
expects to have in excess of $150 million, in which case the Federal Reserve's
requirements will apply to the Company. Tier 1 capital of the Company consists
of common shareholders' equity, excluding the unrealized gain (loss) on
available-for-sale securities, minus certain intangible assets. The Company's
Tier 2 capital consists of general reserve 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 banking subsidiaries are also required to
maintain capital at a minimum level based on total assets, which is known as the
leverage ratio. Only the strongest bank holding companies and banks are allowed
to maintain capital at the minimum requirement. All others are subject to
maintaining ratios 100 to 200 basis points above the minimum. The Company
exceeded the Federal Reserve's fully phased-in regulatory capital ratios at
December 31, 1994, 1995 and 1996, as set forth in the following table.
ANALYSIS OF CAPITAL
DECEMBER 31,
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
Tier 1 capital .......................... $ 6,131 $12,693 $13,474
Tier 2 capital .......................... 580 671 837
------- ------- -------
Total qualifying capital ............. $ 6,711 $13,364 $14,311
------- ------- -------
Risk-adjusted total assets (including
off-balance sheet exposures) ......... $55,516 $68,743 $86,512
======= ======= =======
Tier 1 risk-based capital ratio ......... 11.04% 18.46% 15.58%
Total risk-based capital ratio .......... 12.09 19.41 16.54
Tier 1 leverage ratio ................... 9.42 13.21 11.62
24
Each of the Banks is required to maintain risk-based and leverage
ratios similar to those required for the Company. Each of the Banks exceeded
these regulatory capital ratios at December 31, 1996, as set forth in the
following table.
BANK CAPITAL RATIOS
DECEMBER 31, 1996
TIER 1 TOTAL TIER 1
RISK-BASED RISK-BASED LEVERAGE
Greenwood Bank..................... 9.97% 10.91% 7.34%
Clemson Bank....................... 30.76 32.01 23.60
Following the purchase of the New Banks and the assumption of certain
deposits and the purchase of certain assets and loans associated with the
Carolina First Branches, and assuming net proceeds of $14.9 million from the
Offering, the Company's Tier 1 leverage ratio will increase from 11.62% to
13.88% and its tangible book value per share will decrease from $11.08 to $9.42,
and the capital ratios of the Banks will not be affected.
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.
During 1995, management implemented strategies to decrease the
loans-to-assets and loans-to-funds ratios. The Company continues to operate
within the recommendations of the Board of Directors with a loans-to-assets
ratio of 69.5% and a loans-to-funds ratio of 79.3% as of December 31, 1996.
Although the amount of advances from the FHLB has decreased approximately $1.4
million from the December 31, 1995 balance of approximately $6.2 million,
management expects to continue using these advances as a source of funding.
Additionally, the Company has approximately $9.3 million of unused lines of
credit for federal funds purchases and a $5.0 million line of credit from
another financial institution. The Company also has approximately $23.3 million
of securities available for sale as a secondary source of liquidity.
The Company depends on dividends from the Banks as its primary source
of liquidity. The ability of the Banks to pay dividends is subject to general
regulatory restrictions which may, but are not expected to, have a material
negative impact on the liquidity available to the Company. The Company does not
plan to pay cash dividends for the near term. The Company has paid stock
dividends in September 1993, April 1994, August 1995, and May 1996 and may do so
in the future.
The Company financed the formation of the Greenwood Bank and the
Company's initial operations with the proceeds of a $5.0 million offering of
Common Stock in 1988, of which $4.0 million was used to capitalize the Greenwood
Bank. In addition, the Company raised approximately $6.25 million through an
offering of Common Stock in 1995. The Company used $4.5 million of the proceeds
of this offering to capitalize the Clemson Bank and used the balance to purchase
computer and other equipment, to open a new branch in Ninety Six, South
Carolina, and for general working capital. The Company intends to use the net
proceeds of the Offering to capitalize each of the New Banks. The Company
anticipates that the net proceeds of the Offering will be adequate for the
capitalization of each New Bank and the Company's capital needs for the
foreseeable future. However, the State Board could require the Company to
increase the capitalization of any of the Banks. In such event, the Company
would likely fund the increased capitalization through the use of any remaining
net proceeds of the Offering, from dividends from the Banks (to the extent
available),
25
or through loans from third parties (subject to obtaining regulatory
approval). See "Government Supervision and Regulation -- Dividends."
ACCOUNTING RULE CHANGES
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") 123, "Accounting for Stock-Based Compensation," effective for
transactions entered into in fiscal years that begin after December 15, 1995.
SFAS 123 recommends that companies account for stock compensation on a fair
value based method which 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. As an alternative, companies may continue to record compensation cost
based on the excess, if any, of the quoted market price of the stock at the
grant date (or other measurement date) over the amount an employee must pay to
acquire the stock. However, if a company elects this method, it must include in
the financial statements certain disclosures which reflect pro forma amounts as
if the fair value method had been used. As permitted by SFAS 123, the Company
continued its current method of accounting for stock options with pro forma
amounts for 1995 and 1996 disclosed in the 1996 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. See "
- -- Net Interest Income -- Interest Sensitivity".
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations. See "Government Supervision and Regulation -- General."
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements identified in Item 14 of this Report on Form
10-K are included herein on pages F-1 through F-28.
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, 1996 a definitive Proxy Statement pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934. Such
information will be set forth in such Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedules:
The consolidated financial statements and schedules of the Company
identified in the accompanying Index to Financial Statements at page
F-1 herein are filed as part of this Report on Form 10-K.
(3) Exhibits:
The accompanying Exhibit Index on page E-1 sets forth the exhibits
that are filed as part of this Report on Form 10-K.
(b) Reports on Form 8-K:
None.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Community Capital Corporation, has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMUNITY CAPITAL CORPORATION
Dated: March 24, 1997 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, Greenwood National Bancorporation, and in the capacities and on the
dates indicated.
Signature Title Date
/s/ WILLIAM G. STEVENS President (Principal March 24, 1997
- ------------------- Executive Officer) and
William G. Stevens Director
/s/ JAMES H. STARK Chief Financial March 24, 1997
- ------------------- Officer (Principal
James H. Stark Financial and
Accounting Officer) and
Secretary
* Assistant Secretary and March 24, 1997
- ------------------- Director
Patricia C. Edmonds
* Director March 24, 1997
- --------------------
David P. Allred, M.D.
* Director March 24, 1997
- ---------------------
Robert C. Coleman
* Director March 24, 1997
- ---------------------
John W. Drummond
* Director March 24, 1997
- ---------------------
Wayne Q. Justesen, Jr.
28
* Director March 24, 1997
- ---------------------
Clinton C. Lemon, Jr.
* Director March 24, 1997
- ---------------------
Thomas C. Lynch, Jr.
* Director March 24, 1997
- ---------------------
Marshall L. Martin, Jr.
* Director March 24, 1997
- ---------------------
H. Edward Munnerlyn
* Director March 24, 1997
- ---------------------
George B. Park
* Director March 24, 1997
- ---------------------
Joseph H. Patrick, Jr.
* Director March 24, 1997
- ---------------------
Donna W. Robinson
* Director March 24, 1997
- ---------------------
George D. Rodgers
* Director March 24, 1997
- ---------------------
Charles J. Rogers
* Director March 24, 1997
- ---------------------
Thomas F. Skelton
* Director March 24, 1997
- ---------------------
Lex D. Walters
*By: /s/ WILLIAM G. STEVENS March 24, 1997
-----------------------
(William G. Stevens) (As
Attorney-in-Fact for each
of the persons indicated)
29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 * Articles of Incorporation of Registrant.
3.2 * Articles of Amendment to Articles of Incorporation of Registrant (re: Change of Name).
3.3 * Bylaws of Registrant.
4.1 ** Form of Common Stock Certificate. (The rights of security holders of the Registrant are set forth
in the Registrant's Articles of Incorporation and Bylaws included as Exhibits 3.1 and 3.3,
respectively.)
10.1 * Registrant's Stock Option Plan for employees (1988).
10.2 *** Registrant's Incentive Stock Option and Nonstatutory Stock Option Plan (1993) as Amended and
Restated through April 15, 1996. (Incorporated by reference to Registrant's Definitive Proxy
Statement for Annual Meeting of Shareholders held on May 20, 1996)
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.
10.7 ** Bank Development Agreement dated May 15, 1996 between the Registrant and the organizers of The Bank
of Belton (In Organization).
10.8 ** Bank Development Agreement dated September 9, 1996 between the Registrant and the organizers of The
Bank of Newberry County (In Organization).
10.9 ** Bank Development Agreement dated November 18, 1996 between the Registrant and the organizers of The
Bank of Barnwell County (In Organization).
10.10 ** Line of Credit dated June 5, 1996 between Greenwood Bank & Trust
and the Belton Bank Group, a partnership of the organizers of The
Bank of Belton (In Organization).
10.11 ** Line of Credit dated September 4, 1996 between Greenwood Bank &
Trust and the Newberry Bank Group, a partnership of the organizers of
The Bank of Newberry County (In Organization).
10.12 ** Line of Credit dated October 21, 1996 between Greenwood Bank &
Trust and the Barnwell Bank Group, a partnership of the organizers of
The Bank of Barnwell County (In Organization).
10.13 *** Employment Contract dated November 19, 1987 between Greenwood National Bank and William G. Stevens.
(Incorporated by reference to Exhibit 10.7 to Registrant's Form 10-K for the fiscal year ended
December 31, 1995)
10.14 *** Employment and Option Agreement dated November 21, 1994 between
Donna W. Robinson and the Registrant. (Incorporated by reference to
Exhibit 10.8 to Registrant's Form 10-K for the fiscal year ended
December 31, 1995)
10.15 ** Employment and Option Agreement dated December 5, 1996 between James A. Lollis and the Registrant.
10.16 ** Employment and Option Agreement dated December 5, 1996 between William F. Steadman and the
Registrant.
10.17 ** Employment and Option Agreement dated December 5, 1996 between Marshall L. Martin, Jr. and the
Registrant.
10.18 ** Purchase and Assumption Agreement dated January 21, 1997 among Carolina First Bank, The Bank of
Barnwell County (In Organization) and the Registrant.
11.1 Statement of Computation of Per Share Earnings.
21.1 ** Subsidiaries of the Registrant.
24.1 Directors' Powers of Attorney.
27.1 Financial Data Schedule.
* Incorporated by reference to the Exhibit of the same number filed in
connection with the Registrant's Form 10-K for the fiscal year ended
December 31, 1995.
** Incorporated by reference to the Exhibit of the same number filed in
connection with the Registrant's Registration Statement on Form S-2
initially filed on December 20, 1996 (File No.
333-18457).
*** Incorporated by reference.
E-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY CAPITAL CORPORATION
Report of Independent Accounts.................................................................................F-2
Consolidated Balance Sheets at December 31, 1995 and 1996......................................................F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996.....................F-4
Consolidated Statements of Shareholders' Equity for the Years ended December 31, 1994, 1995 and 1996...........F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.....................F-6
Notes to Consolidated Financial Statements.....................................................................F-7
F1
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Community Capital Corporation
Greenwood, South Carolina
We have audited the accompanying consolidated balance sheets of
Community Capital Corporation and Subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community Capital Corporation and Subsidiaries as of December 31, 1995 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
TOURVILLE, SIMPSON & HENDERSON
January 10, 1997
(except for Note 12, as to which
the date is January 23, 1997)
Columbia, South Carolina
F2
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS December 31,
1995 1996
Cash and cash equivalents:
Cash and due from banks........................................................ $ 2,949 $ 3,927
Federal funds sold............................................................. 2,330 700
-------------- -------------
Total cash and cash equivalents.......................................... 5,279 4,627
Securities available for sale.................................................... 22,446 23,280
Loans receivable................................................................. 63,204 80,546
Less allowance for loan losses................................................. (671) (837)
-------------- -------------
Loans, net................................................................... 62,533 79,709
Premises and equipment, net...................................................... 2,531 3,523
Accrued interest receivable...................................................... 942 1,114
Other assets..................................................................... 2,369 3,706
-------------- -------------
Total assets............................................................. $ 96,100 $ 115,959
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing........................................................... $ 9,447 $ 12,226
Interest bearing............................................................... 63,691 77,636
-------------- -------------
Total deposits........................................................... 73,138 89,862
Federal funds purchased.......................................................... 2,034 783
Securities sold under agreements to repurchase................................... 1,000 6,000
Advances from the Federal Home Loan Bank......................................... 6,244 4,889
Accrued interest payable......................................................... 453 462
Other liabilities................................................................ 299 407
-------------- -------------
Total liabilities........................................................ 83,168 102,403
-------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized; 1,153,060 and
1,219,109 shares issued and outstanding at
December 31, 1995 and 1996, respectively....................................... 1,153 1,219
Capital surplus.................................................................. 11,254 12,004
Unrealized gain on securities available for sale, net............................ 178 35
Retained earnings ............................................................... 347 298
-------------- -------------
Total shareholders' equity............................................... 12,932 13,556
-------------- -------------
Total liabilities and shareholders' equity............................... $ 96,100 $ 115,959
============== =============
The accompanying notes are an integral part of the consolidated
financial statements.
F3
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share data)
Year ended December 31,
1994 1995 1996
-------------- -------------- -------------
INTEREST INCOME:
Loans, including fees........................................ $ 3,909 $ 5,146 $ 6,622
Securities, taxable.......................................... 301 723 1,112
Securities, nontaxable....................................... 82 171 290
Federal funds sold and other................................. 48 107 90
-------------- -------------- -------------
Total interest income.................................. 4,340 6,147 8,114
-------------- -------------- -------------
INTEREST EXPENSE:
Deposits..................................................... 1,364 2,422 3,425
Advances from the Federal Home Loan Bank..................... 298 381 298
Securities sold under agreements to repurchase............... - 13 157
Federal funds purchased and other............................ 31 132 126
-------------- -------------- -------------
Total interest expense................................. 1,693 2,948 4,006
-------------- -------------- -------------
NET INTEREST INCOME............................................ 2,647 3,199 4,108
Loan loss provision............................................ 14 112 187
-------------- -------------- -------------
NET INTEREST INCOME AFTER LOAN
LOSS PROVISION.............................................. 2,633 3,087 3,921
-------------- -------------- -------------
OTHER INCOME:
Service charges on deposit accounts.......................... 306 393 515
Gain (loss) on sales of securities available for sale........ (79) (22) 17
Residential mortgage origination fees........................ 113 115 207
Commissions from sales of mutual funds....................... - 49 132
Other income................................................. 174 242 355
-------------- -------------- -------------
Total other income..................................... 514 777 1,226
-------------- -------------- -------------
OTHER EXPENSE:
Salaries and employee benefits............................... 1,108 1,411 1,960
Net occupancy expense........................................ 116 182 287
Furniture and equipment expense.............................. 121 240 305
Other operating expense...................................... 916 1,236 1,589
-------------- -------------- -------------
Total other expense.................................... 2,261 3,069 4,141
-------------- -------------- -------------
INCOME BEFORE INCOME TAXES..................................... 886 795 1,006
Income tax provision........................................... 301 261 300
-------------- -------------- -------------
NET INCOME..................................................... $ 585 $ 534 $ 706
============== ============== =============
PRIMARY AND FULLY DILUTED NET INCOME
PER SHARE:.................................................. $ 0.80 $ 0.55 $ 0.54
AVERAGE COMMON SHARES AND EQUIVALENTS
OUTSTANDING ................................................ 804,822 1,070,135 1,356,626
The accompanying notes are an integral part of the consolidated
financial statements.
F4
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Unrealized
Gain (loss) on
Securities
Common Stock Capital Available Retained
Shares Amount Surplus for Sale, net Earnings Total
BALANCE,
DECEMBER 31, 1993........ 532,109 $ 532 $ 4,725 $ - $ 162 $ 5,419
Sales of stock to ESOP...... 14,294 14 140 - - 154
Adoption of accounting
principle................. - - - (4) - (4)
5% stock dividend........... 26,599 27 246 - (275) (2)
Change in fair value
for the period............ - - - (73) - (73)
Net income.................. - - - - 585 585
---------- ------------ ------------ ------------- ------------ -------------
BALANCE,
DECEMBER 31, 1994......... 573,002 573 5,111 (77) 472 6,079
Net proceeds of stock
offering.................. 520,422 520 5,490 - - 6,010
Sales of stock to ESOP .... 4,741 5 51 - - 56
Stock options exercised..... 300 - 2 - - 2
5% stock dividend........... 54,595 55 600 - (659) (4)
Change in fair value
for the period............ - - - 255 - 255
Net income.................. - - - - 534 534
---------- ------------ ------------ ------------- ------------ -------------
BALANCE,
DECEMBER 31, 1995......... 1,153,060 1,153 11,254 178 347 12,932
Stock options exercised..... 8,558 9 60 - - 69
5% stock dividend........... 57,491 57 690 - (755) (8)
Change in fair value
for the period............ - - - (143) - (143)
Net income ................. - - - - 706 706
---------- ------------ ------------ ------------- ------------ -------------
BALANCE,
DECEMBER 31, 1996......... 1,219,109 $ 1,219 $ 12,004 $ 35 $ 298 $ 13,556
========== ============ ============ ============= ============ =============
The accompanying notes are an integral part of the consolidated
financial statements.
F5
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year ended December 31,
1994 1995 1996
--------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 585 $ 534 $ 706
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................. 210 324 460
Provision for loan losses................................. 14 112 187
Deferred income tax benefit............................... - (43) (56)
Amortization less accretion on securities................. 45 46 51
Amortization of deferred loan fees and costs, net......... 103 84 134
(Gain) loss on sale of securities available for sale...... 79 22 (17)
Proceeds from sales of residential mortgages.............. 5,814 4,651 8,768
Disbursements for residential mortgages held for sale..... (5,572) (4,814) (8,684)
Increase in interest receivable........................... (119) (426) (172)
Increase in interest payable.............................. 17 180 9
Loss on disposal of premises and equipment................ - - 32
Increase in other assets.................................. (551) (267) (333)
Increase (decrease) in other liabilities.................. (76) 38 105
-------------- --------------- --------------
Net cash provided by operating activities................ 549 441 1,190
-------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans made to customers..................... (6,295) (12,582) (17,581)
Net decrease in deposits in other banks..................... 200 - -
Proceeds from sales of securities available for sale........ 4,928 1,975 4,512
Proceeds from maturities of securities available for sale... 38 1,527 3,603
Purchases of securities available for sale.................. (4,484) (15,209) (9,205)
Proceeds from maturities of securities held to maturity..... 461 100 -
Purchases of securities held to maturity.................... (853) (2,891) -
Purchases of non-marketable equity securities............... - (166) (947)
Proceeds from sale of other real estate owned............... - 20 -
Purchases of premises and equipment......................... (184) (997) (1,713)
Proceeds from disposals of premises and equipment........... - - 309
-------------- --------------- --------------
Net cash used by investing activities.................... (6,189) (28,223) (21,022)
-------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits................. 3,696 9,136 8,343
Net increase (decrease) in certificates of deposit.......... (542) 14,856 8,381
Proceeds of advances from the Federal Home Loan Bank........ 117 1,900 700
Repayments of advances from the Federal Home Loan Bank...... (948) (1,582) (2,054)
Proceeds from issuance of common stock...................... - 6,010 -
Proceeds from exercise of stock options..................... - 2 69
Proceeds from stock sales to employee benefit plan.......... 154 56 -
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements.............. 3,178 (352) 3,749
Cash paid in lieu of fractional shares...................... (2) (4) (8)
-------------- --------------- --------------
Net cash provided by financing activities................ 5,653 30,022 19,180
-------------- --------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... 13 2,240 (652)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR ................................................... 3,026 3,039 5,279
-------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR........................ $ 3,039 $ 5,279 $ 4,627
============== =============== ==============
The accompanying notes are an integral part of the consolidated
financial statements.
F6
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial
statements include the accounts of Community Capital Corporation (the
"Company"), and its wholly-owned subsidiaries, Greenwood Bank & Trust (the
"Greenwood Bank") and Clemson Bank & Trust (the "Clemson Bank" and together with
the Greenwood Bank, the "Banks"). The Clemson Bank began operations on June 22,
1995 (See Note 10). The principal business activity of the Company and its
subsidiaries is to provide banking services to domestic markets, principally
Greenwood County and Pickens County, South Carolina. The Company provides data
processing and other services to the Banks. In consolidation, fees charged for
these services and all other intercompany items 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
No. 123 (See Notes 2 and 13). 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 Banks' allowances for losses on loans and foreclosed real estate. Such
agencies may require the Banks to recognize additions to the allowances based on
their judgements 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 - All debt securities have been
designated available for sale by the Company and are carried at amortized cost
and adjusted to estimated market 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 market 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.
LOANS - Loans are stated at their unpaid principal balance. 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.
Impairment of a loan is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or fair value
of the collateral if the loan is collateral dependent. When management
determines that a loan is impaired, the difference between the Company's
investment in the related loan and the present value of the expected future cash
flows, or the fair value of the collateral, is charged to bad debt expense with
a corresponding entry to a valuation account. The accrual of interest is
discontinued on an impaired loan when management determines that the borrower
may be unable to meet payments as they become due.
F7
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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 (See Note 5). Application and
origination fees collected by the 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...................... 7-40 years
Furniture, fixtures and equipment.............. 5-10 years
OTHER REAL ESTATE OWNED - Other real estate owned includes real estate
acquired through foreclosure and loans accounted for as in-substance
foreclosures. Collateral is considered foreclosed in-substance when the borrower
has little or no equity in the fair value of the collateral, proceeds for
repayment of the debt can be expected to come only from the sale of the
collateral and it is doubtful that the borrower can rebuild equity or otherwise
repay the loan in the foreseeable future. Other real estate owned is carried at
the lower of cost (fair value 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.
INVESTMENTS IN EQUITY SECURITIES - Other assets include the costs of
the 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, 1995 and 1996, the investment in Federal Reserve
Bank stock was $127,000 and $150,000, respectively. At December 31, 1995 and
1996, the investment in Federal Home Loan Bank stock was $772,000 and $822,000,
respectively. Dividends received on Federal Reserve Bank stock and Federal Home
Loan Bank stock are included in other income.
The Company's investments in the stock of three unrelated financial
institutions are also included in other assets at cost. 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, 1995 and 1996, the investments in the stock of the unrelated financial
institutions were $353,000 and $1,227,000, respectively. Dividends received are
included in other income.
F8
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LOAN FEES AND COSTS - Loan origination and commitment fees and certain
direct loan origination costs are deferred and are being amortized to income
over the contractual lives of commercial and installment loans, adjusted for
prepayments, using the level yield method. Net deferred fees and costs
associated with the origination of home equity lines of credit are being
amortized to income over the contractual life of the lending agreement using the
straight-line method.
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 and federal funds sold.
Generally, federal funds sold are purchased for one-day periods.
During 1994, 1995 and 1996, the Company paid $1,676,000, $2,768,000 and
$4,007,000, respectively, for interest. In 1994, 1995 and 1996, the Company made
tax payments of $512,000, $331,000 and $290,000, respectively.
Supplemental noncash investing and financing activities are as follows:
In 1994, 1995 and 1996, the Company declared 5% stock dividends and
transferred $273,000, $655,000 and $747,000 from retained earnings (net of cash
paid for fractional shares) to common stock and capital surplus in the amounts
of $27,000, $55,000 and $57,000, respectively, and $246,000, $600,000 and
$690,000, respectively.
Changes in the valuation account of securities available for sale,
including the deferred tax effects, are considered noncash transactions for
purposes of the statement of cash flows and are presented in detail in the notes
to the financial statements.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of
business, the Banks have entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under credit card
arrangements and letters of credit. These financial instruments are recorded in
the financial statements when they become payable by the customer.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
loans receivable, securities, federal funds sold and amounts due from banks.
Management is not aware of any concentrations of loans to classes of borrowers
or industries that would be similarly affected by economic conditions. Although
the Company's loan portfolio is diversified, a substantial portion of its
borrowers' ability to honor the terms of their loans is dependent on business
and economic conditions in Greenwood and Pickens Counties and surrounding areas.
Management does not believe credit risk is associated with obligations of the
United States, its agencies or its corporations. The Company places its deposits
and correspondent accounts with and sells its federal funds to high credit
quality institutions. By policy, time deposits are limited to amounts insured by
the FDIC. Management believes credit risk associated with correspondent accounts
is not significant.
F9
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PER SHARE AMOUNTS - Net income per share is computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period using the treasury stock method
modified for the 20% limitation. The weighted average common shares outstanding
were 804,822, 1,070,135, and 1,356,626, during 1994, 1995 and 1996,
respectively. Retroactive recognition has been given for the effect of all stock
dividends.
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 as determined by independent valuations. Dividends on ESOP shares are
charged to retained earnings. All shares held by the ESOP are treated as
outstanding for purposes of computing earnings per share.
RECLASSIFICATIONS - Furniture and equipment expense, which was included
in net occupancy expense in the 1994 and 1995 financial statements, has been
segregated to conform with the 1996 presentation. Certain other captions and
amounts in the 1994 and 1995 consolidated financial statements were reclassified
to conform with the 1996 presentation.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE:
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-based Compensation", effective for transactions entered into in fiscal
years that begin after December 15, 1995. SFAS 123 recommends that companies
account for stock compensation on a fair value based method which 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. As an alternative, companies
may continue to record compensation cost based on the excess, if any, of the
quoted market price of the stock at the grant date (or other measurement date)
over the amount an employee must pay to acquire the stock (APB Opinion No. 25).
However, if a company elects this method, it must include in the financial
statements certain disclosures which reflect pro forma amounts as if the fair
value method had been used. As permitted by SFAS 123, the Company has elected to
continue its current method of accounting for stock options with pro forma
amounts disclosed in the financial statements. The pro forma disclosures for the
Company include the effects of all awards granted after December 31, 1994 as
required by SFAS 123 (See Note 13).
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANKS:
The Banks are required to maintain average reserve balances computed as
a percentage of deposits. At December 31, 1996, the required cash reserves were
satisfied by vault cash on hand and amounts due from correspondent banks.
F10
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT SECURITIES:
Securities available for sale at December 31, 1995 and 1996 consist of
the following:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
DECEMBER 31, 1995: (Dollars in thousands)
U.S. Treasury securities............................ $ 5,897 $ 55 $ - $ 5,952
Securities of other U.S. Government
agencies and corporations......................... 11,435 117 6 11,546
Obligations of states and local government.......... 4,439 111 - 4,550
Mortgage-backed securities.......................... 394 4 - 398
------------ ------------- ------------ ------------
Total investment securities.................. $ 22,165 $ 287 $ 6 $ 22,446
============ ============= ============ ============
DECEMBER 31, 1996:
U.S. Treasury securities............................ $ 6,395 $ 25 $ - $ 6,420
Securities of other U.S. Government
agencies and corporations......................... 11,170 27 47 11,150
Obligations of states and local government.......... 5,321 73 27 5,367
Mortgage-backed securities.......................... 337 6 - 343
------------ ------------- ------------ ------------
Total investment securities.................. $ 23,223 $ 131 $ 74 $ 23,280
============ ============= ============ ============
The following table summarizes the maturities of securities available
for sale as of December 31, 1996, 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. There were no
securities designated held to maturity at December 31, 1995 or 1996.
Amortized Estimated
Cost Fair Value
(Dollars in thousands)
Due in one year or less....................... $ 2,530 $ 2,539
Due after one year but within five years...... 10,825 10,844
Due after five years but within ten years..... 7,122 7,128
Due after ten years........................... 2,409 2,426
Mortgage-backed securities.................... 337 343
-------- --------
Total.................................... $ 23,223 $ 23,280
======== ========
Proceeds from sales of securities available for sale during 1994, 1995
and 1996 were $4,928,000, $1,975,000 and $4,512,000, respectively, resulting in
gross realized gains of $0, $0 and $18,000 along with gross realized losses of
$79,000, $22,000 and $1,000, respectively. There were no sales of securities
held to maturity in 1994, 1995 or 1996.
At December 31, 1995 and 1996, securities having an amortized cost of
approximately $13,822,000 and $18,310,000, respectively, and an estimated market
value of $14,018,000 and $18,392,000, respectively, were pledged as collateral
for short-term borrowings and advances from the Federal Home Loan Bank (See Note
9), to secure public and trust deposits, and for other purposes as required and
permitted by law.
F11
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LOANS RECEIVABLE:
Loans receivable at December 31, 1995 and 1996, are summarized as
follows:
1995 1996
(Dollars in thousands)
Commercial and agricultural....................$ 13,349 $ 15,348
Real estate.................................... 38,296 49,639
Home equity.................................... 6,593 9,243
Consumer - installment......................... 3,722 4,592
Consumer - credit card and checking............ 869 1,355
Residential mortgages held for sale and other.. 375 369
-------- --------
Total loans...............................$ 63,204 $ 80,546
======== ========
At December 31, 1995 and 1996, the Banks had sold participations in
loans aggregating $5,595,000 and $2,879,000, respectively, to other financial
institutions on a nonrecourse basis. Collections on loan participations and
remittances to participating institutions conform to customary banking
practices.
The 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 Banks
do not sell residential mortgages having market or interest rate risk. The Banks
do not service residential mortgage loans for the benefit of others.
At December 31, 1995 and 1996, the Banks had pledged approximately
$6,864,000 and $6,294,000, respectively, of loans on residential real estate as
collateral for advances from the Federal Home Loan Bank (See Note 9).
The Company adopted SFAS 114, "Accounting by Creditors for the
Impairment of a Loan", and SFAS 118, "Accounting By Creditors for Impairment of
a Loan - Income Recognition and Disclosures" as of January 1, 1995. These
statements identify how creditors should measure and account for impaired loans.
Under SFAS 114 and 118, impairment of loans should be measured at the present
value of the expected future cash flows discounted at the loan's effective
interest rate or at fair value of the collateral if the loan is collateral
dependent.
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 affected
by these Statements.
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, 1995 and 1996, 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, 1995 and 1996, the Company had nonaccrual loans of
approximately $13,000 and $186,000, respectively, for which impairment had not
been recognized. The additional interest income which would
F12
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LOANS RECEIVABLE: (CONTINUED)
have been recognized into earnings if the Company's nonaccrual loans had been
current in accordance with their original terms is immaterial for all years
presented.
An analysis of the allowance for loan losses for the years ended
December 31, 1994, 1995 and 1996, is as follows:
1994 1995 1996
------- ------- -------
(Dollars in thousands)
Balance, beginning of year.. $ 567 $ 580 $ 671
Provision for loan losses... 14 112 187
Loans charged off........... (5) (21) (21)
Recoveries.................. 4 - -
------- ------- -------
Balance, end of year........ $ 580 $ 671 $ 837
======= ======= =======
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 and letters of credit and have elements of risk in
excess of the amount recognized in the balance sheet. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
A commitment involves, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets. The
Company's exposure to credit loss in the event of non-performance by the other
party to the instrument is represented by the contractual notional amount of the
instrument. Since certain commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. Letters of credit are conditional commitments issued to guarantee
a customer's performance to a third party and have essentially the same credit
risk as other lending facilities. The Company uses the same credit policies in
making commitments to extend credit as it does for on-balance-sheet instruments.
At December 31, 1995 and 1996, the Company had unfunded commitments,
including standby letters of credit, of $11,786,000 and $16,334,000, of which
$2,393,000 and $3,692,000, respectively, were unsecured. At December 31, 1996,
the Company was not committed to lend additional funds to borrowers owing
nonaccrual loans.
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1995 and 1996, consists of the
following:
1995 1996
-------- -------
(Dollars in thousands)
Land.......................................$ 465 $ 501
Buildings and lease hold improvements...... 1,577 1,963
Furniture and equipment.................... 1,600 1,916
Construction in progress................... - 443
-------- -------
Total................................. 3,642 4,823
Less, accumulated depreciation............. 1,111 1,300
-------- -------
Net premises and equipment............$ 2,531 $ 3,523
======== =======
F13
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PREMISES AND EQUIPMENT: (CONTINUED)
The Clemson Bank has a contract for the construction of its permanent
facility. During 1996, approximately $10,000 of interest was capitalized on the
construction. As of December 31, 1996, management estimates the cost to complete
the building to range from $600,000 to $800,000.
NOTE 7 - DEPOSITS:
The following is a summary of deposit accounts as of December 31, 1995
and 1996:
1995 1996
(Dollars in thousands)
Non-interest bearing demand deposits... $ 9,447 $ 12,226
Interest-bearing demand deposits....... 8,028 8,296
Money market accounts.................. 9,498 14,035
Savings accounts....................... 7,922 8,681
Certificates of deposit................ 38,243 46,624
------------- -------------
Total deposits.................. $ 73,138 $ 89,862
============= =============
At December 31, 1995 and 1996, certificates of deposit of $100,000 or
more totaled approximately $12,082,000 and $11,879,000, respectively. Interest
expense on these deposits was approximately $259,000, $471,000 and $665,000 in
1994, 1995 and 1996, respectively.
As of December 31, 1995 and 1996, brokered deposits totaled
approximately $985,000 and $1,380,000, respectively. Brokered deposits are not
expected to be a long-term source of funds for the Company.
F14
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SHORT-TERM BORROWINGS:
Securities sold under agreements to repurchase generally mature within
one to fourteen days from the transaction date. During 1996, the daily average
of securities sold under agreements to repurchase was $2,830,000, and the
maximum amount outstanding at any month end was $7,000,000. The purchaser-seller
provides safekeeping services for the Company and maintains possession of the
securities.
As of December 31, 1996, the amortized cost and market value of the
securities underlying the agreement were $7,406,000 and $7,430,000,
respectively.
NOTE 9 - ADVANCES FROM THE FEDERAL HOME LOAN BANK:
Advances from the Federal Home Loan Bank consisted of the following at
December 31, 1996:
Interest
Description Rate Balance
(Dollars in thousands)
Adjustable rate advances maturing:
January 29, 1997...................................................... 5.53% $ 700
March 23, 1997........................................................ 5.67% 1,100
April 24, 1997........................................................ 5.61% 1,500
Fixed rate advances maturing:
January 29, 1997...................................................... 5.45% 400
March 5, 1997......................................................... 5.31% 340
May 27, 1997.......................................................... 6.34% 7
August 27, 1997....................................................... 4.49% 692
March 24, 1998........................................................ 7.37% 150
--------------
Total.............................................................. $ 4,889
==============
Scheduled principal reductions of Federal Home Loan Bank advances are
as follows:
1997................................................................................... $ 4,739
1998................................................................................... 150
-------------
Total........................................................................... $ 4,889
=============
As collateral, the Company has pledged first mortgage loans on one to
four family residential loans aggregating $6,294,000 (See Note 5) and debt
securities aggregating $1,755,000 (See Note 4) at December 31, 1996. In
addition, the Company's Federal Home Loan Bank stock, which is included in other
assets (See Note 1), is pledged to secure the borrowings. Certain advances are
subject to prepayment penalties.
NOTE 10 - SHAREHOLDERS' EQUITY:
On December 20, 1996, the Company filed a registration statement with
the Securities and Exchange Commission for the purpose of registering up to
1,684,750 shares of its common stock to be sold in a public offering. The
offering is expected to be completed during the first quarter of 1997. The
proceeds from the offering will be used to acquire three banks organizing in
Barnwell, Belton, and Newberry (See Note 12).
F15
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHAREHOLDERS' EQUITY:
Pursuant to a prospectus dated February 27, 1995, the Company completed
a public offering of 520,422 shares of its common stock, resulting in net
proceeds (after deducting issuance cost) of $6,010,000. On June 22, 1995, the
Company acquired all of the common stock of the Clemson Bank for $4,500,000.
Immediately upon being chartered as a state bank on June 22, 1995, the Clemson
Bank assumed ownership of its organizational partnership's assets and
liabilities.
The Company declared 5% stock dividends for stockholders of record on
April 1, 1994, August 1, 1995, and May 1, 1996. Accordingly, amounts equal to
the estimated fair market value of the additional shares issued have been
charged to retained earnings and credited to common stock and capital surplus.
Dividends representing fractional shares were paid in cash.
The Company has authorized 2,000,000 shares of a special class of
stock, par value $1.00 per share, the rights and preferences of which are to be
designated as the Board of Directors may determine. At December 31, 1996, no
shares of the undesignated stock had been issued or were outstanding.
NOTE 11 - CAPITAL REQUIREMENTS:
The 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 Banks must meet
specific capital guidelines that involve quantitative measures of the Banks'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and classifications
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Banks to maintain minimum ratios of Tier 1 and total
capital as a percentage of assets and off-balance-sheet exposures, adjusted for
risk weights ranging from 0% to 100%. Tier 1 capital of the Banks consists of
common shareholders' equity, excluding the unrealized gain or loss on securities
available for sale, minus certain intangible assets. The Banks' Tier 2 capital
consists of the allowance for loan losses subject to certain limitations. Total
capital for purposes of computing the capital ratios consists of the sum of Tier
1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and
8% for total risk-based capital.
The Banks are also required to maintain capital at a minimum level
based on total assets, which is known as the leverage ratio. Only the strongest
banks are allowed to maintain capital at the minimum requirement of 3%. All
others are subject to maintaining ratios 1% to 2% above the minimum.
As of December 31, 1996, the most recent notifications from each Bank's
primary regulator categorized the Banks as well-capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events that
management believes have changed the Banks' categories.
F16
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL REQUIREMENTS: (CONTINUED)
The following table summarizes the capital ratios of the Banks and the
regulatory minimum requirements at December 31, 1996.
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
Actual ratios:
Greenwood Bank 9.97% 10.91% 7.34%
Clemson Bank 30.76 32.01 23.60
Regulatory minimum:
For capital adequacy purposes 4.00 8.00 4.00
To be well capitalized under prompt corrective
action provisions 6.00 10.00 5.00
The Federal Reserve Board has similar requirements for bank holding
companies. The Company is currently not subject to these requirements because
the Federal Reserve guidelines contain an exemption for bank holding companies
with less than $150,000,000 in consolidated assets.
NOTE 12 - ACQUISITION OF NEW BANKS AND BRANCHES:
The Company is in the process of acquiring three de novo community
banks in Barnwell, Belton, and Newberry (collectively the "New Banks"), which
are non-metropolitan markets in South Carolina. The Company intends to open the
banks in Belton and Newberry in traditional de novo fashion by capitalizing the
banks and seeking local deposits to fund loan growth.
In contrast, the Company intends for the bank in Barnwell (the
"Barnwell Bank"), after opening, to acquire certain deposits and assets
associated with five branches located in Aiken, Barnwell, and Orangeburg
Counties, South Carolina from Carolina First Bank ("Carolina First"). The
Company, the Barnwell Bank, and Carolina First have entered into a Purchase and
Assumption Agreement dated January 21, 1997 (the "Agreement") for the
acquisition by the Barnwell Bank of the branches. The Company anticipates that
the acquisition of the branches will close during the first quarter of 1997. At
the closing, and subject to the terms of the Agreement, the Barnwell Bank will
pay Carolina First a premium of 5.25% on the assumed Carolina First deposits
other than certificates of deposit greater than or equal to $100,000. The
acquisition will be accounted for as a purchase. The assets acquired and the
liabilities assumed will be recorded at Carolina First's respective book values
if not materially different from fair value. The premium will be amortized over
a fifteen-year period on a straight-line basis. The following table presents the
book value of the subject assets and liabilities of the five branches as of
December 31, 1995 and 1996 per unaudited information obtained from Carolina
First.
F17
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ACQUISITION OF NEW BANKS AND BRANCHES: (CONTINUED)
December 31,
1995 1996
(Dollars in thousands)
Assets:
Loans.........................................$ 18,583 $ 15,152
Premises and equipment........................ 1,894 1,892
Accrued interest receivable................... 301 238
Liabilities:
Deposits:
Noninterest bearing........................ 3,793 4,936
CD's greater than or equal to $100,000..... 6,741 6,255
Other interest bearing deposits............ 42,188 42,517
-------- --------
Total deposits........................ 52,722 53,708
-------- --------
Accrued interest payable...................... 524 554
To capitalize the New Banks, the Company plans to sell up to 1,684,750
shares of its common stock. Of the expected net proceeds, the Company intends to
use $7,000,000 to capitalize the Barnwell Bank, $3,500,000 to capitalize the
bank in Belton, and $3,300,000 to capitalize the bank in Newberry. In accordance
with the agreements with the organizers of the New Banks and subject to the New
Banks being opened, the Company has agreed to include organizational and
preopening costs in the initial capitalization of the New Banks. The total of
the organizational and preopening costs is expected to range from $600,000 to
$900,000 and will be amortized over a five-year period on a straight-line basis.
The opening of the New Banks and the acquisition of the common stock of
the New Banks by the Company are subject to various regulatory approvals.
NOTE 13 - STOCK COMPENSATION PLANS:
The Company has two stock option plans, an Employee Incentive Stock
Option Plan (the "1988 Plan") and an Incentive and Nonstatutory Stock Option
Plan (the "Stock Plan"), which are described below. As discussed in Note 2, the
Company will continue to apply APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for either the 1988 Plan or the Stock Plan. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1995 1996
(Dollars in thousands, except for per share data)
Net Income:
As reported..................................$ 534 $ 706
Pro forma.................................... 460 418
Primary and fully diluted earnings per share:
As reported..................................$ 0.55 $ 0.54
Pro forma.................................... 0.43 0.33
F18
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCK COMPENSATION PLANS: (CONTINUED)
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
1995 and 1996, respectively (there were no options granted under the 1988 Plan
during 1996): dividend yield of 0 percent for all years; expected volatility of
24 and 28 percent; risk-free interest rates of 6.9 percent in 1995 for the 1988
Plan options and 7.33 and 6.71 percent for the Stock Plan options; and expected
lives of 4 years in 1995 for the 1988 Plan options and 8.5 and 5.6 years for the
Stock Plan options. Pro forma disclosure is not required for 1994. (See Note 2)
EMPLOYEE INCENTIVE STOCK OPTION PLAN - Adopted in 1988, this plan
provides for the granting of options to purchase up to 47,648 shares, adjusted
for stock dividends of the Company's common stock, to officers and other
eligible employees of the Company and Greenwood Bank & Trust. The per-share
exercise price of the options may not be less than the fair market value of a
share of common stock on the date the option is granted. Options become
exercisable one year after the date of grant and can be exercised within five
years from the date of grant. Any options that expire unexercised or are
canceled become available for issuance.
INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN - During 1993 the Company
approved the terms of the Company's Incentive Stock Option and Nonstatutory
Stock Option Plan which received shareholders approval on May 16, 1994. The
Stock 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 and stock appreciation rights. Stock options and stock
appreciation rights are issuable only to employees and directors of the Company
and its subsidiaries. The per-share exercise price of incentive stock options
granted under the Stock Plan may not be less than the fair market value of a
share on the date of grant, nor can the exercise date of any option granted be
less than one year from the date of grant. Any options that expire unexercised
or are canceled become available for issuance. Options granted generally become
exercisable after one year and expire five to ten years from the date of grant.
On May 20, 1996, the shareholders approved an amendment to the Stock Plan
increasing the number of options that may be granted to 525,000, adjusted for
the effects of the stock dividend in 1996.
A summary of the status of the Company's stock option plans as of
December 31, 1994, 1995 and 1996 and changes during the years ending on those
dates is presented below: (all amounts have been restated to reflect stock
dividends paid in 1994, 1995 and 1996):
1994 1995 1996
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Price Exercise Price
Shares Shares Shares
Outstanding at
beginning of year... 36,179 $7.96 305,369 $ 8.57 330,681 $ 8.75
Granted............. 277,624 8.64 31,698 10.78 139,900 11.94
Exercised........... - - (315) 8.64 (8,733) 7.89
Canceled............ (8,434) 8.38 (6,071) 10.19 (6,100) 10.69
--------- ---------- -----------
Outstanding at end
of year............. 305,369 8.57 330,681 8.75 455,748 9.72
========= ========== ===========
Options exercisable at December 31, 1994, 1995 and 1996 were 297,674,
300,309 and 318,398, respectively.
The weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1995 and 1996 is $4.60 and
$4.66, respectively.
F19
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCK COMPENSATION PLANS: (CONTINUED)
The following table summarizes information about the stock options
outstanding under the Company's two plans at December 31, 1996.
Options Outstanding Options Exercisable
Weighted-average
Range of Number Remaining Contractual Weighted-average Number Weighted-average
Exercise Prices Outstanding life Exercise Price Exercisable Exercise Price
-------------- ----------- ---- ------------- ----------- -------------
$ 7.10 to $ 8.64 290,243 6.5 years $ 8.58 290,243 $ 8.58
10.66 to 12.38 165,505 6.3 11.73 28,155 10.79
-------
455,748 6.4 9.72 318,398 8.77
======= ============
NOTE 14 - RELATED PARTY TRANSACTIONS:
Certain parties (primarily directors, executive officers, principal
shareholders and their associates) were loan customers and had other
transactions in the normal course of business with the Company. Related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and generally do not involve more than normal risk of
collectibility. Total loans and commitments outstanding to related parties at
December 31, 1995 and 1996, were $2,876,000 and $4,012,000, respectively. During
1996, $2,787,000 of new loans were made to related parties and repayments
totaled $1,651,000.
The Company conducts branch banking activities from two locations which
are leased from two directors under long-term leases. Land used as the site for
a branch banking location is leased from a director under a five-year operating
lease ending July 31, 1999. The Company can purchase the land at any time during
the term of the lease for $90,000.
During 1996, the Company began leasing 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 these operating lease agreements was $2,000, $5,300,
and $24,000 for the years ended December 31, 1994, 1995, and 1996, respectively.
Future obligations over the primary terms of these long-term leases as of
December 31, 1996 are as follows:
(Dollars in thousands)
1997............................... $ 50
1998............................... 52
1999............................... 48
2000............................... 42
2001............................... 44
After five years................... 212
----------
Total................... $ 448
==========
F20
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - RELATED PARTY TRANSACTIONS: (CONTINUED)
There were no unpaid amounts outstanding at December 31, 1996.
NOTE 15 - COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS:
In the ordinary course of business, the Company or its subsidiaries
may, from time to time, become a party to legal claims and disputes. At December
31, 1996, management is not aware of any pending or threatened litigation, or
unasserted claims that could result in losses, if any, that would be material to
the consolidated financial statements.
NOTE 16 - 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 banking
subsidiaries. However, certain restrictions exist regarding the ability of the
subsidiaries to transfer funds in the form of cash dividends, loans or advances
to the Company. The prior approval of the Commissioner of Banking is required
and dividends are payable only from the undivided profits of the banking
subsidiaries. At December 31, 1996, the Greenwood Bank's undivided profits were
$2,099,000, and the deficit balance in the Clemson Bank's undivided profits was
$346,000.
NOTE 17 - INCOME TAXES:
Income tax expense for the years ended December 31, 1994, 1995 and 1996
consists of the following:
1994 1995 1996
----------- --------- -------
Currently payable: (Dollars in thousands)
Federal...................................... $ 272 $ 269 $ 305
State........................................ 29 35 51
--------- -------- ---------
301 304 356
--------- -------- ---------
Change in deferred income taxes:
Federal (40) 101 (104)
State (2) - (33)
--------- -------- -------
(42) 101 (137)
--------- -------- --------
Income tax expense........................ $ 259 $ 405 $ 219
========= ======== =========
Income tax expense is allocated as follows:
To continuing operations..................... $ 301 $ 261 $ 300
To shareholders' equity...................... (42) 144 (81)
--------- ------- --------
$ 259 $ 405 $ 219
========= ======== =========
F21
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - INCOME TAXES: (CONTINUED)
The Company's deferred tax accounts as of December 31, 1995 and 1996
are as follows:
1995 1996
---- ----
(Dollars in thousands)
Deferred tax assets............................ $ 298 $ 348
Deferred tax liabilities....................... $ 190 $ 103
Valuation allowance............................ $ 0 $ 0
The principal sources of temporary differences in 1994, 1995 and 1996,
and the related deferred tax effects are as follows:
1994 1995 1996
------------ ---------- ---------
(Dollars in thousands)
Provision for bad debts....................................... $ (5) $ (39) $ (45)
Tax depreciation in excess of book depreciation............... 3 8 6
Net operating losses.......................................... - (9) (21)
Other, net.................................................... 2 (3) 4
--------- ------- --------
Temporary differences attributable to continuing operations - (43) (56)
Change in valuation allowance................................. - - -
--------- ------- --------
Deferred tax expense (benefit) attributable to continuing
operations................................................ - (43) (56)
Deferred tax expense (benefit) attributable to shareholders'
equity.................................................... (42) 144 (81)
--------- ------- ---------
Change in deferred income taxes........................... $ (42) $ 101 $ (137)
========== ======== ==========
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:
1994 1995 1996
-------- ------- -----
(Dollars in thousands)
Income tax at the statutory rate............ $ 301 $ 270 $ 342
State income tax, net of federal benefit.... 16 10 10
Tax exempt interest income.................. (19) (46) (84)
Disallowed interest expense................. 4 6 17
Officers' life insurance.................... 6 (1) 12
Other, net.................................. (7) 22 3
------ ----- ------
Income tax provision.................... $ 301 $ 261 $ 300
====== ===== ======
F22
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - OTHER OPERATING EXPENSES:
Other operating expenses for the years ended December 31, 1994, 1995
and 1996 are summarized below:
1994 1995 1996
-------- ------- ------
(Dollars in thousands)
Federal deposit insurance assessment...................$ 109 $ 59 $ 3
Banking and ATM supplies............................... 96 186 228
Directors' fees........................................ 90 72 114
Mortgage loan department expenses...................... 40 44 80
Amortization of organizational costs and other assets.. 31 33 14
Data processing and supplies........................... 37 110 176
Postage and freight.................................... 51 90 117
Professional fees...................................... 92 116 132
Credit card expenses................................... 44 65 94
Other.................................................. 326 461 631
------ ------ ------
Total...........................................$ 916 $1,236 $1,589
====== ====== ======
NOTE 19 - 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 50 cents per dollar, up to a maximum of
3% of employee compensation. Company contributions to the savings plan were
$19,000, $23,000 and $33,000 in 1994, 1995 and 1996, respectively. The Company's
policy is to fund amounts accrued. At December 31, 1996, the savings plan owned
21,118 shares of the Company's common stock purchased at an average cost of
$9.92 per share adjusted for the effects of stock dividends. The estimated value
of shares held at December 31, 1996 was $211,000.
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. For the years ended
December 31, 1994, 1995 and 1996, awards under the directors' plan were $42,000,
$27,000 and $56,000, respectively, and awards under the officers' plan were
$84,000, $58,000 and $123,000, respectively.
The Company has an Executive Supplemental Compensation Plan which
provides certain officers with salary continuation benefits upon retirement. The
plan also provides for benefits in the event of early retirement, death or
substantial change of control of the Company. For the years ended December 31,
1994, 1995 and 1996, salary continuation expense included in salaries and
employee benefits was $12,000, $20,000 and $24,000, respectively. In connection
with the Executive Supplemental Compensation Plan, life insurance contracts were
purchased on the officers. Insurance premiums of $192,000 were paid in each of
the three years ended December 31, 1996, of which $168,000, $181,000 and
$187,000 were capitalized in 1994, 1995, and 1996, respectively, to reflect the
increase in the cash surrender value of the insurance contracts.
NOTE 20 - UNUSED LINES OF CREDIT:
As of December 31, 1996, the Banks had unused lines of credit to
purchase federal funds from unrelated banks totaling $9,250,000. 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.
F23
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - UNUSED LINES OF CREDIT: (CONTINUED)
The Company has a $5,000,000 line of credit with The Bankers Bank for
general operating purposes. This line is collateralized by the Company's
investments in the Greenwood Bank and the Clemson Bank. As of December 31, 1996,
there were no amounts payable on this line.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, the Financial Accounting Standards Board issued SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments." SFAS 107
extends the existing fair value disclosure practices for some instruments by
requiring all entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the balance sheet, for
which it is practicable to estimate fair value.
The fair value of a financial instrument is the amount at which the
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 - 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 marketable 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.
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.
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 FHLB.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The fair value of commitments
to extend credit and standby letters of credit is estimated using the fees
currently charged to enter into similar agreements taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. The contractual amount is a reasonable estimate of
F24
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
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.
The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1995 and 1996 are as follows:
December 31, 1995 December 31, 1996
---------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
FINANCIAL ASSETS: (Dollars in thousands)
Cash and due from banks...................... $ 2,949 $ 2,949 $ 3,927 $ 3,927
Federal funds sold........................... 2,330 2,330 700 700
Securities available for sale................ 22,446 22,446 23,280 23,280
Loans ....................................... 63,204 63,017 80,546 80,478
Allowance for loan losses.................... (671) (671) (837) (837)
FINANCIAL LIABILITIES:
Demand deposit, interest-bearing transaction,
and savings accounts....................... $ 34,894 $ 34,894 $ 43,238 $ 43,238
Certificates of deposit...................... 38,243 38,371 46,624 46,729
Federal funds purchased and securities
sold under agreements to repurchase........ 3,034 3,034 6,783 6,783
Advances from Federal Home Loan Bank......... 6,244 6,227 4,889 4,880
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: (Dollars in thousands)
Commitments to extend credit................. $ 11,649 $ 11,649 $ 15,658 $ 15,658
Standby letters of credit.................... 137 137 676 676
F25
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY):
Condensed financial statements for Community Capital Corporation
(Parent Company Only) for the years ended December 31, 1995 and 1996 follow:
BALANCE SHEETS
1995 1996
---- -------
Assets
(Dollars in thousands)
Cash and cash equivalents............................... $ 200 $ 104
Investment in subsidiaries.............................. 10,467 11,288
Securities available for sale........................... 1,002 -
Premises and equipment, net............................. 897 1,300
Other assets............................................ 366 1,779
---------- --------
Total assets....................................... $ 12,932 $ 14,471
========== =========
Liabilities and Shareholders' Equity
Notes payable to subsidiaries........................... $ - $ 867
Other liabilities....................................... - 48
---------- ---------
Total liabilities.................................. - 915
---------- --------
Common stock............................................ 1,153 1,219
Capital surplus......................................... 11,254 12,004
Unrealized gain on securities available for sale, net... 178 35
Retained earnings ...................................... 347 298
---------- --------
Total shareholders' equity......................... 12,932 13,556
---------- --------
Total liabilities and shareholders' equity......... $ 12,932 $ 14,471
========== =========
F26
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): (CONTINUED)
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1995 1996
(Dollars in thousands)
Income:
Interest income on securities available for sale............. $ - $ 27 $ 5
Data processing and other fees from subsidiaries............. - - 953
Other income................................................. 19 93 162
-------------- -------------- -------------
Total income............................................ 19 120 1,120
-------------- -------------- -------------
Expenses:
Salaries..................................................... 12 20 668
Net occupancy expense........................................ - 67 117
Furniture and equipment expense.............................. - - 196
Interest expense............................................. - 8 47
Other operating expenses..................................... 90 89 473
-------------- -------------- -------------
Total expenses.......................................... 102 184 1,501
-------------- -------------- -------------
Loss before income taxes, and equity in
undistributed earnings of subsidiaries....................... (83) (64) (381)
Income tax benefit............................................. 35 26 125
-------------- -------------- -------------
Loss before equity in undistributed earnings of subsidiaries... (48) (38) (256)
Equity in undistributed earnings of subsidiaries............... 633 572 962
-------------- -------------- -------------
Net income .................................................... $ 585 $ 534 $ 706
============== ============== =============
COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): (CONTINUED)
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1995 1996
------ ---- ----
Operating activities: (Dollars in thousands)
Net income................................................... $ 585 $ 534 $ 706
Adjustments to reconcile net income to
net cash used by operating activities:
Equity in undistributed earnings of subsidiaries......... (633) (572) (962)
Depreciation and amortization............................ 27 52 256
Deferred tax benefit..................................... (35) (10) 31
Increase (decrease) in other liabilities................. (3) - 48
Increase in other assets................................. (58) (58) (676)
-------------- -------------- -------------
Net cash used by operating activities........... (117) (54) (597)
-------------- -------------- -------------
Investing activities:
Purchases of premises and equipment, net..................... (78) (437) (603)
Purchases of securities available for sale................... - (1,000) -
Proceeds from sales of securities available for sale......... - - 1,000
Net investment in Clemson Bank............................... - (4,385) -
Purchase of equity securities................................ - - (824)
-------------- -------------- --------------
Net cash used by investing activities............ (78) (5,822) (427)
--------------- -------------- --------------
Financing activities:
Proceeds from the exercise of stock options.................. - 2 69
Proceeds from sales of stock to retirement plan.............. 154 56 -
Cash paid in lieu of fractional shares....................... (2) (4) (8)
Proceeds from issuance of common stock....................... - 6,010 -
Proceeds of borrowings from subsidiaries..................... - - 870
Repayments on borrowings from subsidiaries................... - - (3)
-------------- -------------- -------------
Net cash provided by financing activities........ 152 6,064 928
-------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents........... (43) 188 (96)
Cash and cash equivalents, beginning of year................... 55 12 200
-------------- -------------- -------------
Cash and cash equivalents, end of year......................... $ 12 $ 200 $ 104
============== ============== =============
Supplemental schedule of non-cash investing and financing activities:
In 1994, 1995 and 1996, the Company declared 5% stock dividends and
transferred $273,000, $655,000 and $747,000, respectively, from retained
earnings to common stock and capital surplus in the amounts of $27,000, $55,000
and $57,000, respectively, and $246,000, $600,000 and $690,000, respectively.
F28