Back to GetFilings.com
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
-----
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from _________to_________
Commission File Number 0-18460
COMMUNITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0866395
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1402C Highway 72 West
Greenwood, SC 29649
(Address of principal executive
offices, including zip code)
(864) 941-8200
(Registrant's telephone number, including area code)
____________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO __
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
3,846,648 shares of common stock, $1.00 par value as of July 23, 2002
COMMUNITY CAPITAL CORPORATION
Index
PART I. FINANCIAL INFORMATION Page No.
- -----------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 30, 2002 and December 31, 2001 ............................ 3
Condensed Consolidated Statements of Operations --
Six months ended June 30, 2002 and 2001 and three months ended June 30, 2002 and 2001 ................. 4
Condensed Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income --
Six months ended June 30, 2002 and 2001 ............................................................... 5
Condensed Consolidated Statements of Cash Flows -- Six months ended June 30, 2002 and 2001 .............. 6
Notes to Condensed Consolidated Financial Statements .................................................... 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 11-16
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders ..................................................... 17
Item 6. Exhibits and Reports on Form 8-K ........................................................................ 17
(a) Exhibits ............................................................................................ 17
(b) Reports on Form 8-K ................................................................................. 17
2
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands) June 30, 2002 December 31, 2001
------------- -----------------
Assets (Unaudited)
Cash and cash equivalents:
Cash and due from banks $ 7,970 $ 9,275
Interest-bearing deposit accounts 88 16
------------- ---------------
Total cash and cash equivalents 8,058 9,291
------------- ---------------
Securities:
Securities available-for-sale 53,879 56,851
Securities held-to-maturity (estimated fair value of $550,000
at June 30, 2002 and December 31, 2001) 550 550
Nonmarketable equity securities 5,405 5,405
------------- ---------------
Total securities 59,834 62,806
------------- ---------------
Loans receivable 278,716 251,947
Less allowance for loan losses (4,347) (4,103)
------------- ---------------
Loans, net 274,369 247,844
Premises and equipment, net 10,146 10,372
Accrued interest receivable 1,856 2,008
Intangible assets 4,125 4,338
Cash surrender value of life insurance 2,263 2,212
Other assets 2,347 1,811
------------- ---------------
Total assets $ 362,998 $ 340,682
============= ===============
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 27,404 $ 25,083
Interest-bearing 235,519 233,247
------------- ---------------
Total deposits 262,923 258,330
Federal funds purchased and securities sold
under agreements to repurchase 23,437 7,464
Advances from the Federal Home Loan Bank 31,205 31,270
Obligations under capital leases 839 940
Accrued interest payable 730 1,052
------------- ---------------
Other liabilities 956 2,353
------------- ---------------
Total liabilities 320,090 301,409
------------- ---------------
Shareholders' Equity
Common stock, $1.00 par value; 10,000,000 shares authorized,
3,840,860 and 3,559,309 shares issued and outstanding
at June 30, 2002 and December 31, 2001, respectively 3,841 3,559
Capital surplus 34,610 32,548
Retained earnings 6,997 4,933
Accumulated other comprehensive income 787 168
Treasury stock at cost; 306,937 shares at June 30, 2002
and 189,024 shares December 31, 2001 (3,327) (1,935)
------------- ---------------
42,908 39,273
------------- ---------------
Total liabilities and shareholders' equity $ 362,998 $ 340,682
============= ===============
See notes to condensed consolidated financial statements.
3
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
(Dollars in thousands) June 30, June 30,
----------------------------------- --------------------------------
2002 2001 2002 2001
---------------- --------------- -------------- --------------
Interest income:
Loans, including fees $ 9,563 $ 12,207 $ 4,792 $ 5,773
Investment securities:
Taxable 814 1,895 394 858
Tax-exempt 612 638 305 313
Nonmarketable equity securities 106 141 53 66
Other interest income 4 25 2 15
--------- --------- --------- --------
Total 11,099 14,906 5,546 7,025
--------- --------- --------- --------
Interest expense:
Deposits 2,738 6,727 1,306 3,075
Federal Home Loan Bank advances 966 974 485 487
Other interest expense 195 523 121 197
--------- --------- --------- --------
Total 3,899 8,224 1,912 3,759
--------- --------- --------- --------
Net interest income 7,200 6,682 3,634 3,266
Provision for loan losses 323 500 213 400
--------- --------- --------- --------
Net interest income after provision for loan losses 6,877 6,182 3,421 2,866
--------- --------- --------- --------
Other operating income:
Service charges on deposit accounts 1,249 941 658 418
Residential mortgage origination fees 330 406 135 249
Commissions from sales of mutual funds 25 13 13 8
Income from fiduciary activities 121 57 62 33
Gain on sales of securities available-for-sale 106 - - -
Gain on sale of branches - 5,791 - 5,791
Other operating income 271 350 137 167
--------- --------- --------- --------
Total 2,102 7,558 1,005 6,666
--------- --------- --------- --------
Other operating expenses:
Salaries and employee benefits 3,110 3,505 1,561 1,683
Net occupancy expense 685 661 225 444
Amortization of intangible assets 212 2,220 104 2,052
Furniture and equipment expense 152 569 193 158
Other operating expenses 1,647 2,075 786 1,185
--------- --------- --------- --------
Total 5,806 9,030 2,869 5,522
--------- --------- --------- --------
Income before income taxes 3,173 4,710 1,557 4,010
Income tax provision 870 1,498 408 1,348
--------- --------- --------- --------
Net income $ 2,303 $ 3,212 $ 1,149 $ 2,662
========= ========= ========= ========
Basic net income per share $ 0.68 $ 0.94 $ 0.34 $ 0.78
Diluted net income per share $ 0.64 $ 0.92 $ 0.32 $ 0.74
See notes to condensed consolidated financial statements.
4
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
for the six months ended June 30, 2002 and 2001
(Unaudited)
Accumulated
Other
Common Stock Capital Retained Comprehensive Treasury
------------------
(Dollars in thousands) Shares Amount Surplus Earnings Income Stock Total
------ ------ ------- -------- ------ ----- -----
Balance, December 31, 2000 3,300,395 $ 3,300 $ 30,826 $ 1,984 $ (578) $ (388) $ 35,144
Net income 3,212 3,212
Other comprehensive
income, net of tax 735 735
--------
Comprehensive income 3,947
--------
Exercise of stock options 20,406 20 100 120
5% stock dividend 164,388 165 1,167 (1,313) (19) -
Payment of fractional shares (6) (6)
--------- -------- -------- ---------- ----------- --------- --------
Balance, June 30, 2001 3,485,189 $ 3,485 $ 32,093 $ 3,877 $ 157 $ (407) $ 39,205
========= ======== ======== ========== =========== ========= ========
Balance, December 31, 2001 3,559,309 $ 3,559 $ 32,548 $ 4,933 $ 168 $ (1,935) $ 39,273
Net income 2,303 2,303
Other comprehensive
income, net of tax 619 619
--------
Comprehensive income 2,922
--------
Exercise of stock options 281,551 282 2,062 2,344
Purchase of treasury stock
(117,913 shares) (1,392) (1,392)
$0.07 per share cash dividend (239) (239)
--------- -------- -------- ---------- ----------- --------- --------
Balance, June 30, 2002 3,840,860 $ 3,841 $ 34,610 $ 6,997 $ 787 $ (3,327) $ 42,908
========= ======== ======== ========== =========== ========= ========
See notes to condensed consolidated financial statements.
5
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
---------------------------------
(Dollars in thousands) 2002 2001
------------ -----------
Cash flows from operating activities:
Net income $ 2,303 $ 3,212
Adjustments to reconcile net income to net cash (used) provided
by operating activities:
Depreciation 489 823
Provision for possible loan losses 323 500
Amortization of intangible assets 213 2,220
Amortization less accretion on investments 19 58
Amortization of deferred loan costs 174 237
Gains on sales of securities available-for-sale (106) -
Gain on sale of fixed assets - -
Gain on sale of other real estate (1) -
Gain on sale of branches - (5,791)
Gain on sale of premises and equipment - (17)
Disbursements for mortgages held for sale (11,077) (15,725)
Proceeds of sales of residential mortgages 13,528 15,194
Decrease in interest receivable 152 632
Decrease in interest payable (322) (320)
Increase decrease in other assets (548) (142)
Increase (decrease) in other liabilities (1,498) 900
----------- -----------
Net cash provided by operating activities 3,649 1,781
----------- -----------
Cash flows from investing activities:
Net increase in loans to customers (29,958) (10,105)
Purchases of securities available-for-sale (7,730) (250)
Proceeds from maturities of securities available-for-sale 6,594 25,905
Proceeds from sales of securities available-for-sale 5,134 -
Proceeds from sales of premises and equipment 30 70
Proceeds from sales of other real estate 127 -
Purchases of non-marketable equity securities - (247)
Purchases of premises and equipment (293) (315)
Sale of branches - (8,406)
----------- -----------
Net cash provided (used) by investing activities (26,096) 6,652
----------- -----------
Cash flows from financing activities:
Net increase in deposit accounts 4,593 4,320
Net increase (decrease) in federal funds purchased and repos 15,973 (1,437)
Repayments of other borrowings - (3,345)
Repayments of Federal Home Loan Bank borrowings (65) (1,065)
Dividends paid (239) -
Proceeds from exercise of stock options 2,344 120
Payment for fractional shares of stock - (6)
Purchase of treasury stock (1,392) -
----------- -----------
Net cash provided (used) by financing activities 21,214 (1,413)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,233) 7,020
Cash and cash equivalents, beginning of period 9,291 9,335
----------- -----------
Cash and cash equivalents, end of period $ 8,058 $ 16,355
=========== ===========
See notes to condensed consolidated financial statements.
6
COMMUNITY CAPITAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures that would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of June 30, 2002 and for the interim periods ended June
30, 2002 and 2001 are unaudited and include all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation. The
financial information as of December 31, 2001 has been derived from the audited
financial statements as of that date. For further information, refer to the
financial statements and the notes included in our 2001 Annual Report.
Note 2 - Supplemental Cash Flow Information
(Dollars in thousands) Six Months Ended June 30,
----------------------------
2002 2001
----------- -----------
Cash paid during the period for:
Income taxes $ 2,554 $ 560
Interest 4,221 8,544
Noncash investing and financing activities:
Foreclosures on loans $ 485 $ 140
Details of the sale of branches:
Deposits, including accrued interest payable less premium $ - $ (61,309)
Premises and equipment - 3,568
Loans, including accrued interest receivable - 49,346
Other, net - (11)
----------- -----------
Cash paid for net liabilities sold $ - $ 8,406
=========== ===========
Note 3 - Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta to us were $31,205,000 as of
June 30, 2002. Of this amount, the following have scheduled maturities greater
than one year:
Maturing on Interest Rate Principal
- --------------------------------- ----------------------------------- -------------
(Dollars in thousands)
03/17/05 6.60% - fixed $ 5,000
10/13/05 5.84% - fixed, callable 07/15/02 3,000
03/26/08 5.51% - fixed, callable 03/26/03 1,500
02/02/09 4.95% - fixed 675
03/17/10 5.92% - fixed, callable 09/17/02 5,000
03/30/10 6.02% - fixed, callable 09/30/02 2,000
03/30/10 6.02% - fixed, callable 09/30/02 4,000
--------
$ 21,175
========
7
COMMUNITY CAPITAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Shareholders' Equity
During the first six months of 2002, there were no shares sold to the Employee
Stock Ownership Plan. We purchased 117,913 shares of treasury stock at an
average price of $11.81. There were 281,551 options exercised by the employees
and directors of the Company with total proceeds of $2,344,000 at an average
exercise price of $8.33. On January 16, 2002, the Board of Directors declared a
cash dividend of $0.03 per share, which was paid to shareholders on March 8,
2002. On April 17, 2002, the Board of Directors declared a cash dividend of
$0.04 per share. This was our fourth consecutive quarterly cash dividend and was
paid on June 7, 2002.
Note 5 - Earnings Per Share
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share for the six and three month periods ended June 30,
2002 and 2001 are as follows:
Six Months Ended June 30, 2002
------------------------------------------------
(Dollars in thousands, except per share) Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
Basic earnings per share
Income available to common shareholders $ 2,303 3,369,352 $ 0.68
========
Effect of dilutive securities
Stock options
- 231,039
--------- ---------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 2,303 3,600,391 $ 0.64
========= ========= ========
Six Months Ended June 30, 2001
------------------------------------------------
(Dollars in thousands, except per share) Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
Basic earnings per share
Income available to common shareholders $ 3,212 3,420,760 $ 0.94
========
Effect of dilutive securities
Stock options - 90,490
--------- ---------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 3,212 3,511,250 $ 0.92
========= ========= ========
8
COMMUNITY CAPITAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Earnings Per Share - (continued)
Three Months Ended June 30, 2002
--------------------------------------------------------
(Dollars in thousands, except per share) Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------ ----------------
Basic earnings per share
Income available to common shareholders $ 1,149 3,427,062 $ 0.34
==========
Effect of dilutive securities
Stock options - 219,805
---------- ---------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 1,149 3,646,867 $ 0.32
========== ========= ==========
Three Months Ended June 30, 2001
--------------------------------------------------------
(Dollars in thousands, except per share) Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------ ----------------
Basic earnings per share
Income available to common shareholders $ 2,662 3,422,477 $ 0.78
==========
Effect of dilutive securities
Stock options - 171,509
---------- ---------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 2,662 3,593,986 $ 0.74
========== ========= ==========
Note 6 - Comprehensive Income
The following tables set forth the amounts of other comprehensive income
included in equity along with the related tax effects for the six and three
month periods ended June 30, 2002 and 2001:
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
---------------- ------------------ ------------------
For the Six Months Ended June 30, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 1,045 $ (354) $ 691
Less: reclassification adjustment for gains realized in net
income (106) 34 (72)
---------- ---------- ----------
Net unrealized gains (losses) on securities 939 (320) 619
---------- ---------- ----------
Other comprehensive income $ 939 $ (320) $ 619
========== ========== ==========
9
COMMUNITY CAPITAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 - Comprehensive Income - (continued)
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
-------------- -------------- --------------
For the Six Months Ended June 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 1,115 $ (380) $ 735
Less: reclassification adjustment for gains realized in net income - - -
---------- ---------- ----------
Net unrealized gains (losses) on securities 1,115 (380) 735
---------- ---------- ----------
Other comprehensive income $ 1,115 $ (380) $ 735
========== ========== ==========
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
------------ -------------- --------------
For the Three Months Ended June 30, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 994 $ (338) $ 656
Less: reclassification adjustment for gains realized in net income - - -
---------- ---------- ----------
Net unrealized gains (losses) on securities 994 (338) 656
---------- ---------- ----------
Other comprehensive income $ 994 $ (338) $ 656
========== ========== ==========
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
------------ -------------- --------------
For the Three Months Ended June 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ (95) $ 32 $ (63)
Less: reclassification adjustment for gains realized in net income - - -
---------- ---------- ----------
Net unrealized gains (losses) on securities (95) 32 (63)
---------- ---------- ----------
Other comprehensive income $ (95) $ 32 $ (63)
========== ========== ==========
10
COMMUNITY CAPITAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of our financial condition as of June 30, 2002
compared to December 31, 2001 and the results of operations for the six and
three months ended June 30, 2002 compared to the six and three months ended June
30, 2001. These comments should be read in conjunction with our condensed
consolidated financial statements and accompanying footnotes appearing in this
report.
Results of Operations
Net Interest Income
For the six months ended June 30, 2002, net interest income, the major component
of our net income, was $7,200,000 compared to $6,682,000 for the same period of
2001, an increase of $518,000 or 7.75%. For the three months ended June 30,
2002, net interest income was $3,634,000 compared to $3,266,000 for the
comparable period of 2001. The improvements in the 2002 periods were primarily
attributable to the increase in the volume of loans and the increase in net
interest margin to a lesser extent. The average rate realized on
interest-earning assets decreased to 7.07% from 8.22%, while the average rate
paid on interest-bearing liabilities decreased to 2.83% from 4.47% for the six
month periods ended June 30, 2002 and 2001, respectively.
The tax-effected net interest spread and net interest margin were 4.24% and
4.64%, respectively, for the six-month period ended June 30, 2002, compared to
3.75% and 3.84% for the six month period ended June 30, 2001.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that
management believes is necessary to maintain the allowance for possible loan
losses at an adequate level. For the six months ended June 30, 2002, the
provision charged to expense was $323,000, as compared to $500,000 for the same
period in 2001. For the quarter ended June 30, 2002 and 2001, the provision
charged to expense was $213,000 and $400,000, respectively. Our nonperforming
loans totaled $1,584,000 at June 30, 2002 compared to $1,692,000 at June 30,
2001. Criticized and classified loans have increased from $13,697,000 at June
30, 2001 to $16,209,000 at June 30, 2002, primarily because of the recent
declining economy.
There are risks inherent in making all loans, including risks with respect to
the period of time over which loans may be repaid, risks resulting from changes
in economic and industry conditions, risks inherent in dealing with individual
borrowers, and, in the case of a collateralized loan, risks resulting from
uncertainties about the future value of the collateral. We maintain an allowance
for loan losses based on, among other things, historical experience, an
evaluation of economic conditions, and regular reviews of delinquencies and loan
portfolio quality. Our judgment about the adequacy of the allowance is based
upon a number of assumptions about future events, which we believe to be
reasonable, but which may not prove to be accurate. Thus, there is a risk that
charge-offs in future periods could exceed the allowance for loan losses or that
substantial additional increases in the allowance for loan losses could be
required. Additions to the allowance for loan losses would result in a decrease
of our net income and, possibly, our capital. Based on present information, we
believe the allowance for loan losses is adequate at June 30, 2002 to meet
presently known and inherent risks in the loan portfolio.
Noninterest Income
Total noninterest income for the six months ended June 30, 2002 was $2,102,000,
a decrease of $5,456,000, or 72.19% compared to $7,558,000 for the six months
ended June 30, 2001. Total noninterest income for the quarter ended June 30,
2002 decreased $5,661,000, or 84.92% to $1,005,000, compared to June 30, 2001.
The primary reason for the significant decrease was due to the fact that we
realized a gain of $5,791,000 on the sale of branches during the three months
ended June 30, 2001.
Service charge income increased $308,000, or 32.73% from the six months ended
June 30, 2001 to the six months ended June 30, 2002 and $240,000, or 57.42% from
the three months ended June 30, 2001 to the three months June 30, 2002. This
increase is primarily from our new overdraft protection product that allows all
customers a limited dollar amount of overdrafts on their deposit accounts for a
fee.
Residential mortgage origination fees decreased $76,000, or 18.72% from $406,000
to $330,000 for the six months ended June 30, 2002, compared to the six months
ended June 30, 2001 and decreased $114,000, or 45.78% from $249,000 to $135,000
for the three months ended June 30, 2002, compared to the three months ended
June 30, 2001. Mortgage originations have declined as rates have leveled off and
fewer customers are refinancing their mortgages.
Other operating income decreased $79,000 from the six months ended June 30, 2001
to the six months ended June 30, 2002 and $30,000 from the three months ended
June 30, 2001 to the three months ended June 30, 2002.
The income from fiduciary activities increased $64,000, or 112.28% from the six
month period ended June 30, 2001 to the six month period ended June 30, 2002,
and $29,000, or 87.88% from the three month period ended June 30, 2001 to the
three month period ended June 30, 2002. Commissions from the sales of mutual
funds increased $12,000, or 92.31% from the six months ended June 30, 2001 to
the six months ended June 30, 2002 and $5,000, or 62.50% for the three months
ended June 30, 2001 to the three months ended June 30, 2002. We have begun an
aggressive marketing campaign to increase revenues in our Wealth Management
area.
11
COMMUNITY CAPITAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Noninterest Expense
Total noninterest expense for the first six months of 2002 was $5,806,000, a
decrease of $3,224,000, or 35.70%, when compared to the first six months of
2001. For the quarter ended June 30, 2002, noninterest expense was $2,869,000, a
decrease of $2,653,000, or 48.04%, over the comparable period of 2001. The
primary reason for the decrease was due to the $1,916,000 write off of
intangible assets as a result of the sale of the branches in the second quarter
of 2001.
The primary component of noninterest expense is salaries and benefits, which
were $3,110,000 and $3,505,000 for the six months ended June 30, 2002 and 2001,
respectively and $1,561,000 and $1,683,000 for the three months ending June 30,
2002 and 2001, respectively. Net occupancy expense increased $24,000 for the six
month period ending June 30, 2002, an increase of 3.63% over the related period
in 2001.
Income Taxes
For the six months ended June 30, 2002 and 2001, the effective income tax rate
was 27.42% and 31.80%, respectively, and the income tax provision was $870,000
and $1,498,000, respectively. For the quarter ended June 30, 2002, the effective
tax rate was 26.20% compared to 33.62% for the second quarter of 2001. The
decreases in the effective tax rate were due to a decrease in income before
taxes, primarily as a result of the gain realized on the sale of branches during
the second quarter of 2001.
Net Income
The combination of the above factors resulted in net income of $2,303,000 for
the six months ended June 30, 2002 compared to $3,212,000 for the comparable
period in 2001, a decrease of 28.30%. For the quarter ended June 30, 2002, net
income was $1,149,000, a decrease of $1,513,000 when compared to the second
quarter of 2001, a decreased of 56.84%. As discussed earlier, the sale of
branches during the second quarter of 2001 was the primary reason for the
significant decrease in income reported for the 2002 periods.
Assets and Liabilities
During the first six months of 2002, total assets increased $22,316,000, or
6.55%, when compared to December 31, 2001. We experienced an increase of 10.62%
in the loan area during the first six months of 2002; however, this growth was
offset by a decrease in securities of $2,972,000 from December 31, 2001 to June
30, 2002. Proceeds from maturities of securities were used to fund loan growth.
On the liability side, total deposits increased $4,593,000, or 1.78%, to $
262,923,000 at June 30, 2002. Payments for income taxes of $2,554,000 were the
primary reason for the reduction of other liabilities by $1,397,000 or 59.37%
from $2,353,000 at December 31, 2001 to $956,000 at June 30, 2002. This tax
liability was accrued in 2001 primarily for the gain on the sale of the
branches.
Investment Securities
Investment securities decreased $2,972,000, or 4.73% to $59,834,000 at June 30,
2002. The decrease was solely due to a decrease in securities
available-for-sale. Proceeds from the maturities of securities were used to fund
loan growth.
Loans
Loans receivable increased $26,769,000, or 10.62%, since December 31, 2001 to
$278,716,000 at June 30, 2002. Balances within the major loan receivable
categories as of June 30, 2002 and December 31, 2001 are as follows:
(Dollars in thousands) June 30, 2002 December 31, 2001
------------- -----------------
Commercial and agricultural $ 27,723 $ 33,395
Real estate 209,475 177,821
Home equity 20,607 18,939
Consumer, installment 14,390 16,915
Consumer, credit card and checking 2,203 1,312
Residential mortgages held for sale & other 4,318 3,565
------------- ----------------
$ 278,716 $ 251,947
============= ================
12
COMMUNITY CAPITAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
(Dollars in thousands) June 30, 2002 December 31, 2001
-------------- -----------------
Loans:
Nonaccrual loans $ 624 $ 1,567
Accruing loans more than 90 days past due 960 -
------------ ---------------
1,584 1,567
============ ===============
Of the $1,567,000 in nonaccrual loans as of December 31, 2001, a $500,000 loan
has been reclassified as accruing because we expect to recover all principal and
interest from the sale of collateral. Also, a loan for $573,000 at December 31,
2001 has been written off in part with the remainder transferred to other real
estate.
Activity in the Allowance for Loan Losses is as follows:
(Dollars in thousands) June 30,
-------------------------------------
2002 2001
-------------- -------------
Balance, January 1, $ 4,103 $ 3,060
Provision for loan losses for the period 323 500
Chargeoffs (145) (249)
Recoveries 66 56
-------------- -------------
Balance, end of period $ 4,347 $ 3,367
============== =============
Gross loans outstanding, end of period $ 278,716 $ 241,638
Allowance for loan losses to loans outstanding 1.56% 1.39%
Premises and Equipment
Purchases of fixed assets during the first six months of 2002 totaled $293,000
for the Company. Of this amount, $165,000 was during the second quarter of 2002.
Total fixed assets, net of depreciation, decreased $226,000 during the first six
months of 2002.
Deposits
Total deposits increased $4,593,000, or 1.78%, from December 31, 2001 to
$262,923,000 at June 30, 2002. Expressed in percentages, noninterest-bearing
deposits increased 9.25% and interest bearing deposits increased 0.97%.
Balances within the major deposit categories as of June 30, 2002 and December
31, 2001 are as follows:
(Dollars in thousands) June 30, 2002 December 31, 2001
------------- -----------------
Noninterest-bearing demand deposits $ 27,404 $ 25,083
Interest-bearing demand deposits 34,458 32,503
Money market accounts 53,376 61,863
Savings deposits 28,413 26,653
Certificates of deposit 119,272 112,228
------------- -----------------
$ 262,923 $ 258,330
============= =================
13
COMMUNITY CAPITAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta to us were $31,205,000 as of
June 30, 2002. Of this amount, the following have scheduled maturities greater
than one year:
Maturing on Interest Rate Principal
------------------------ -------------------------------------- ------------
(Dollars in thousands)
03/17/05 6.60% - fixed 5,000
10/13/05 5.84% - fixed, callable 07/15/02 3,000
03/26/08 5.51% - fixed, callable 03/26/03 1,500
02/02/09 4.95% - fixed 675
03/17/10 5.92% - fixed, callable 09/17/02 5,000
03/30/10 6.02% - fixed, callable 09/30/02 2,000
03/30/10 6.02% - fixed, callable 09/30/02 4,000
--------
$ 21,175
========
Capital
Quantitative measures established by the federal banking agencies to ensure
capital adequacy require us to maintain minimum ratios of Tier 1 and total
capital as a percentage of assets and off-balance-sheet exposures, adjusted for
risk weights ranging from 0% to 100%. Tier 1 capital consists of common
shareholders' equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. Tier 2 capital consists of
the allowance for loan losses subject to certain limitations. Total capital for
purposes of computing the capital ratios consists of the sum of Tier 1 and Tier
2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for
total risk-based capital.
We are also required to maintain capital at a minimum level based on total
average assets, which is known as the leverage ratio. Only the strongest banks
are allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios at least 1% to 2% above the minimum.
The following table summarizes our capital ratios and the regulatory minimum
requirements at June 30, 2002:
Tier 1 Total Tier 1
Risk-based Risk-based Leverage
---------- ---------- --------
Actual ratio:
Community Capital Corporation 14.51% 15.77% 10.85%
CapitalBank 12.61% 13.86% 9.42%
Regulatory minimums:
For capital adequacy purposes 4.00% 8.00% 4.00%
To be well-capitalized under prompt action provisions 6.00% 10.00% 5.00%
14
COMMUNITY CAPITAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Liquidity and Capital Resources
Shareholders' equity was increased by the $2,344,000 proceeds from the exercise
of stock options and net income of $2,303,000. Due to changes in the market
rates of interest, the fair value of our securities available-for-sale
increased, which had the effect of increasing shareholders' equity by $619,000
net of the deferred taxes for the six months ended June 30, 2002 when compared
to December 31, 2001. Total equity was also reduced by cash dividends paid
during the six months ended June 30, 2002 which totaled $239,000.
For the near term, maturities and sales of securities available-for-sale are
expected to be a primary source of liquidity as we deploy these funds into loans
to achieve the desired mix of assets and liabilities. We also expect to build
our deposit base. Advances from the Federal Home Loan Bank and the Bankers Bank
will also continue to serve as a funding source, at least for the near future.
We have the ability to receive an additional $28,665,000 in advances under the
terms of our agreement with the Federal Home Loan Bank. Short-term borrowings by
the bank are not expected to be a primary source of liquidity for the near term;
however, we have approximately $37,572,000 of unused lines of credit to purchase
federal funds.
Off-Balance Sheet Risk
Through the operations of our Bank, we have made contractual commitments to
extend credit in the ordinary course of our business activities. These
commitments are legally binding agreements to lend money to our customers at
predetermined interest rates for a specified period of time. At June 30, 2002,
we had issued commitments to extend credit of $45,524,000 and standby letters of
credit of $781,000 through various types of commercial lending arrangements.
Approximately $20,785,000 of these commitments to extend credit had variable
rates.
The following table sets forth the length of time until maturity for unused
commitments to extend credit and standby letters of credit at June 30, 2002.
After One After Three
Within Through Through Within Greater
One Three Twelve One Than
(Dollars in thousands) Month Months Months Year One Year Total
---------- ------------- ------------- ---------- ----------- ---------
Unused commitments to
extend credit $ 756 $ 1,761 $ 18,093 $20,610 $ 24,914 $ 45,524
Standby letters of credit - 25 753 778 3 781
------ -------- --------- ------- -------- --------
Totals $ 756 $ 1,786 $ 18,846 $21,388 $ 24,917 $ 46,305
We evaluate each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by us upon extension of
credit, is based on our credit evaluation of the borrower. Collateral varies but
may include accounts receivable, inventory, property, plant and equipment,
commercial and residential real estate.
Critical Accounting Policies
We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States in the preparation
of our financial statements. Our significant accounting policies are described
in the footnotes to the consolidated financial statements at December 31, 2001
as filed on our annual report on Form 10-K. Certain accounting policies involve
significant judgments and assumptions by us which have a material impact on the
carrying value of certain assets and liabilities. We consider these accounting
policies to be critical accounting policies. The judgments and assumptions we
use are based on historical experience and other factors, which we believe to be
reasonable under the circumstances. Because of the nature of the judgments and
assumptions we make, actual results could differ from these judgments and
estimates which could have a material impact on our carrying values of assets
and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that
requires the most significant judgments and estimates used in preparation of our
consolidated financial statements. Refer to the portion of this discussion that
addresses our allowance for loan losses for a description of our processes and
methodology for determining our allowance for loan losses.
15
COMMUNITY CAPITAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Regulatory Matters
We are not aware of any current recommendations by regulatory authorities,
which, if they were to be implemented, would have a material effect on
liquidity, capital resources, or operations.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this report on Form 10-Q that are not
historical facts are forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. We caution
readers of this report that such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of us to be materially different from those
expressed or implied by such forward-looking statements. Although we believe
that our expectations of future performance is based on reasonable assumptions
within the bounds of our knowledge of our business and operations, there can be
no assurance that actual results will not differ materially from our
expectations.
Factors which could cause actual results to differ from expectations include,
among other things: (1) the challenges, costs and complications associated with
the continued development of our branches; (2) the potential that loan
charge-offs may exceed the allowance for loan losses or that such allowance will
be increased as a result of factors beyond the control of us; (3) our dependence
on senior management; (4) competition from existing financial institutions
operating in our market areas as well as the entry into such areas of new
competitors with greater resources, broader branch networks and more
comprehensive services; (5) adverse conditions in the stock market, the public
debt market, and other capital markets (including changes in interest rate
conditions); (6) changes in deposit rates, the net interest margin, and funding
sources; (7) inflation, interest rate, and market fluctuations; (8) risks
inherent in making loans including repayment risks and value of collateral; (9)
the strength of the United States economy in general and the strength of the
local economies in which we conduct operations may be different than expected
resulting in, among other things, a deterioration in credit quality or a reduced
demand for credit, including the resultant effect on our loan portfolio and
allowance for loan losses; (10) fluctuations in consumer spending and saving
habits; (11) the demand for our products and services; (12) technological
changes; (13) the challenges and uncertainties in the implementation of our
expansion and development strategies; (14) the ability to increase market share;
(15) the adequacy of expense projections and estimates of impairment loss; (16)
the impact of changes in accounting policies by the Securities and Exchange
Commission; (17) unanticipated regulatory or judicial proceedings; (18) the
potential negative effects of future legislation affecting financial
institutions (including without limitation laws concerning taxes, banking,
securities, and insurance); (19) the effects of, and changes in, trade, monetary
and fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (20) the impact on our business, as
well as on the risks set forth above, of various domestic or international
military or terrorist activities or conflicts; (21) other factors described in
this report and in other reports filed by the company with the Securities and
Exchange Commission; and (22) our success at managing the risks involved in the
foregoing.
16
COMMUNITY CAPITAL CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 2002, we held our Annual Meeting of Shareholders for the purpose of
(a) electing members to the board of directors, and (b) ratifying the
appointment of Tourville, Simpson & Caskey, L.L.P. as our independent auditors
for the fiscal year ending December 31, 2002. Six members were up for election
for three-year terms, and one director was up for election for a one-year term.
Each of the nominees for director received the number of affirmative votes of
shareholders required for such nominee's election in accordance with our Bylaws,
and Tourville, Simpson & Caskey, L.L.P. received the requisite number of
affirmative votes required for approval pursuant to our Bylaws. Of the 3,633,046
outstanding shares, 2,624,658 shares were either voted in person or by proxy for
the two matters presented for shareholders' approval. The following table
summarizes the number of votes cast for, against, or withheld as to either
matter:
Election of Directors
For Withheld
Patricia C. Edmonds 2,612,197 12,461
H. Edward Munnerlyn 2,613,924 10,734
Miles Loadholt 2,612,040 12,618
Joe H. Patrick, Jr. 2,613,924 10,734
Thomas C. Lynch, Jr. 2,613,191 11,467
Lex D. Walters, PhD 2,613,798 10,860
William W. Riser, Jr. 2,612,156 12,502
Ratification of Auditors
For Against Withheld
2,615,445 8,270 943
There were no broker non-votes for either matter.
Item 6. Exhibits And Reports on Form 8-K
(a) Exhibits
Not applicable
(b) Reports on Form 8-K. The following reports were filed on Form 8-K during
the quarter ended June 30, 2002.
The Company filed a Form 8-K on June 20, 2002 regarding an article
published by The State Newspaper relating to Community Capital Corporation
and its expansion efforts.
Items 1, 2, 3, and 5 are not applicable.
17
COMMUNITY CAPITAL CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ WILLIAM G. STEVENS
---------------------------------------
William G. Stevens
President & Chief Executive Officer
Date: August 13, 2002 By: /s/ R. WESLEY BREWER
---------------------------------------
R. Wesley Brewer
Chief Financial Officer
18