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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
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 of (I.R.S. Employer
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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES __ NO X
-
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
3,485,484 shares of common stock, $1.00 par value, as of April 30, 2003
COMMUNITY CAPITAL CORPORATION
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2003 and December 31, 2002 .................... 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 2003 and 2002 .................................................... 4
Condensed Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income -
Three months ended March 31, 2003 and 2002 .................................................... 5
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2003 and 2002 .................................................... 6
Notes to Condensed Consolidated Financial Statements ............................................ 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............ 10-17
Item 3. Quantitative and Qualitative Disclosure About Market Risk ........................................ 17
Item 4. Controls and Procedures .......................................................................... 18-19
PART II. OTHER INFORMATION
Item 5. Other Information ................................................................................ 20
Item 6. Exhibits and Reports on Form 8-K ................................................................. 20
(a) Exhibits .................................................................................... 20
(b) Reports on Form 8-K ......................................................................... 20
2
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Balance Sheets
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
March 31, December 31,
(Dollars in thousands) 2003 2002
---------------- --------------
Assets (Unaudited)
Cash and cash equivalents:
Cash and due from banks 9,961 $ 9,648
Interest-bearing deposit accounts 77 39
---------------- --------------
Total cash and cash equivalents 10,038 9,687
---------------- --------------
Securities:
Securities available-for-sale 47,356 50,096
Securities held-to-maturity (estimated fair value of $510
at March 31, 2003 and $550 at December 31, 2002) 510 550
Nonmarketable equity securities 5,387 5,166
---------------- --------------
Total securities 53,253 55,812
---------------- --------------
Loans held for sale 2,909 2,684
Loans receivable 300,284 288,842
Less allowance for loan losses (4,332) (4,282)
---------------- --------------
Loans, net 295,952 284,560
Premises and equipment, net 9,729 9,850
Accrued interest receivable 1,722 1,907
Intangible assets 3,907 3,992
Cash surrender value of life insurance 10,391 10,289
Other assets 1,731 1,984
---------------- --------------
Total assets $ 389,632 $ 380,765
================ ==============
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 32,062 $ 29,422
Interest-bearing 253,315 247,139
---------------- --------------
Total deposits 285,377 276,561
Federal funds purchased and securities sold
under agreements to repurchase 25,617 25,850
Advances from the Federal Home Loan Bank 31,100 31,140
Obligations under capital leases 679 733
Accrued interest payable 536 649
Other liabilities 1,004 1,424
---------------- --------------
Total liabilities 344,313 336,357
---------------- --------------
Shareholders' Equity
Common stock, $1.00 par value; 10,000,000 shares authorized, 3,924,200 and
3,860,790 shares issued and outstanding at March 31, 2003 and December 31,
2002, respectively 3,924 3,861
Capital surplus 35,206 34,754
Accumulated other comprehensive income 1,369 989
Retained earnings 9,937 8,947
Treasury stock at cost; 434,792 shares at March 31, 2003
and 367,875 shares December 31, 2002 (5,117) (4,143)
---------------- --------------
Total shareholders' equity 45,319 44,408
---------------- --------------
Total liabilities and shareholders' equity $ 389,632 $ 380,765
================ ==============
See notes to condensed consolidated financial statements.
3
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
(Dollars in thousands) March 31,
---------------------
2003 2002
-------- --------
Interest income:
Loans, including fees $ 4,705 $ 4,771
Investment securities:
Taxable 270 420
Tax-exempt 298 307
Nonmarketable equity securities 54 53
Other interest income 1 2
------- --------
Total 5,328 5,553
------- --------
Interest expense:
Deposits 1,176 1,432
Federal Home Loan Bank advances 458 481
Other interest expense 133 74
------- --------
Total 1,767 1,987
------- --------
Net interest income 3,561 3,566
Provision for loan losses 106 110
------- --------
Net interest income after provision for loan losses 3,455 3,456
------- --------
Noninterest income:
Service charges on deposit accounts 562 591
Residential mortgage origination fees 238 195
Commissions from sales of mutual funds 24 12
Income from fiduciary activities 82 59
Gain on sales of nonmarketable equity securities 39 -
Gain on sales of securities available-for-sale - 106
Other operating income 254 134
------- --------
Total 1,199 1,097
------- --------
Noninterest expenses:
Salaries and employee benefits 1,697 1,549
Net occupancy expense 266 223
Amortization of intangible assets 85 108
Furniture and equipment expense 167 196
Other operating expenses 859 861
------- --------
Total 3,074 2,937
------- --------
Income before income taxes 1,580 1,616
Income tax provision 380 462
------- --------
Net income $ 1,200 $ 1,154
======= ========
Basic net income per share $ 0.34 $ 0.35
Diluted net income per share $ 0.33 $ 0.33
See notes to condensed consolidated financial statements.
4
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Statements of Changes in Shareholders'
Equity and Comprehensive Income for the three months
ended March 31, 2003 and 2002
(Unaudited)
Accumulated
Other
(Dollars in thousands) Common Stock Capital Retained Comprehensive Treasury
--------------
Shares Amount Surplus Earnings Income Stock Total
-------- -------- --------- ---------- -------- ------- -------
Balance,
December 31, 2001 3,559,309 3,559 32,548 4,933 168 (1,935) 39,273
Net income 1,154 1,154
Other
comprehensive
income, net of tax (37) (37)
----
Comprehensive
Income 1,117
Exercise of stock options 77,318 77 517 594
Purchase of treasury stock
(107,013 shares) (1,251) (1,251)
$0.03 per share cash
dividend (100) (100)
--------- ------- ------- -------- -------- -------- --------
Balance,
March 31, 2002 3,636,627 $ 3,636 $33,065 $ 5,987 $ 131 $ (3,186) $ 39,633
========= ======= ======= ======== ======== ======== ========
Balance,
December 31, 2002 3,860,790 3,861 34,754 8,947 989 (4,143) 44,408
Net income 1,200 1,200
Other
comprehensive
income, net of tax 380 380
---
Comprehensive
income 1,580
Exercise of stock options 63,410 63 452 515
Purchase of treasury stock
(66,917 shares) (974) (974)
$0.06 per share cash
dividend (210) (210)
--------- ------- ------- -------- -------- -------- --------
Balance,
March 31, 2003 3,924,200 $ 3,924 $35,206 $ 9,937 $ 1,369 $ (5,117) $ 45,319
========= ======= ======= ======== ======== ======== ========
See notes to condensed consolidated financial statements.
5
COMMUNITY CAPITAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
(Dollars in thousands) March 31,
------------------------------
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 1,200 $ 1,154
Adjustments to reconcile net income to net cash (used) provided
by operating activities:
Depreciation 219 255
Provision for possible loan losses 106 110
Amortization of intangible assets 85 108
Amortization less accretion on investments 8 10
Amortization of deferred loan costs 75 88
Gains on sales of securities available-for-sale - (106)
Gains on sales of nonmarketable equity securities (39) -
Loss on sale of other real estate 28 (1)
Disbursements for mortgages held for sale (10,826) -
Proceeds of sales of residential mortgages 10,601 3,860
(Increase) decrease in interest receivable 185 87
Increase (decrease) in interest payable (113) (263)
(Increase) decrease in other assets (102) (162)
Increase (decrease) in other liabilities (474) (1,450)
------------- -------------
Net cash provided by operating activities 953 3,690
------------- -------------
Cash flows from investing activities:
Net increase in loans to customers (11,573) (14,319)
Purchases of securities available-for-sale (2,999) (5,130)
Proceeds from maturities of securities available-for-sale 6,307 2,576
Proceeds from sales of securities available-for-sale - 5,134
Proceeds from paydowns of securities held-to-maturity 40 -
Purchases of nonmarketable equity securities (246) -
Proceeds from sales of nonmarketable equity securities 64 -
Proceeds from sales of premises and equipment - 20
Proceeds from sales of other real estate 29 61
Purchases of premises and equipment (98) (128)
------------- -------------
Net cash provided (used) by investing activities (8,476) (11,786)
------------- -------------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts 8,816 (2,073)
Net increase (decrease) in federal funds purchased and repos (233) 9,594
Advances from Federal Home Loan Bank 10,000 -
Repayments of Federal Home Loan Bank borrowings (10,040) (40)
Dividends paid (210) (100)
Proceeds from exercise of stock options 515 594
Purchase of treasury stock (974) (1,251)
------------- -------------
Net cash provided (used) by financing activities 7,874 6,724
------------- -------------
Net increase (decrease) in cash and cash equivalents 351 (1,372)
Cash and cash equivalents, beginning of period 9,687 9,291
------------- -------------
Cash and cash equivalents, end of period $ 10,038 $ 7,919
============= =============
See notes to condensed consolidated financial statements.
6
COMMUNITY CAPITAL CORPORATION
Note 1 - Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures, which would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of March 31, 2003 and for the interim periods ended
March 31, 2003 and 2002 are unaudited and, in the opinion of management, include
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation. The financial information as of December 31, 2002 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
2002 Annual Report.
Note 2 - Supplemental Cash Flow Information
(Dollars in thousands) Three Months Ended March 31,
2003 2002
---------- ----------
Cash paid during the period for:
Income taxes $ 3 $ 1,584
Interest 1,653 2,250
Note 3 - Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta to us were $ 31,100,000 as
of March 31, 2003. 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, callable 06/16/03 $ 5,000
10/13/05 5.84% - fixed, callable 07/15/03 3,000
03/26/08 5.51% - fixed 1,500
02/02/09 4.95% - fixed 600
03/17/10 5.92% - fixed, callable 06/16/03 5,000
03/30/10 6.02% - fixed, callable 06/30/03 2,000
03/30/10 6.02% - fixed, callable 06/30/03 4,000
03/14/13 1.15% - fixed, callable 03/12/04 10,000
--------------
$ 31,100
==============
Note 4 - Shareholders' Equity
We purchased 66,917 shares of treasury stock at an average price of $14.56 per
share. There were 63,410 options exercised by our employees and directors with
total proceeds of $515,000 at an average price of $8.12. On January 15, 2003,
the Board of Directors declared a cash dividend of $0.06 per share, which was
paid to shareholders on March 7, 2003.
7
COMMUNITY CAPITAL CORPORATION
Note 5 - Stock-Based Compensation
We have a stock-based employee compensation plan which is accounted for under
the recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all stock options granted under these plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share
as if we had applied the fair value recognition provisions of Financial
Accounting Standards Board ("FASB") SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
(Dollars in thousands, Three Months ended March 31,
except for per share data) ------------------------------
2003 2002
----------- -----------
Net income, as reported $ 1,200 $ 1,154
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects (77) (139)
----------- -----------
Pro forma net income $ 1,123 $ 1,015
=========== ===========
Earnings per share:
Basic - as reported $ 0.34 $ 0.35
=========== ===========
Basic - pro forma $ 0.32 $ 0.31
=========== ===========
Diluted - as reported $ 0.33 $ 0.33
=========== ===========
Diluted - pro forma $ 0.31 $ 0.29
=========== ===========
8
COMMUNITY CAPITAL CORPORATION
Note 6 - Earnings Per Share
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share are as follows:
(Dollars in thousands, except per share) Three Months Ended March 31, 2003
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ -------------- ----------
Basic earnings per share
Income available to common shareholders $ 1,200 3,499,327 $ 0.34
==========
Effect of dilutive securities
Stock options - 182,927
------------ -----------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 1,200 3,682,254 $ 0.33
============ =========== ==========
(Dollars in thousands, except per share) Three Months Ended March 31, 2002
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -----------
Basic earnings per share
Income available to common shareholders $ 1,154 3,311,001 $ 0.35
===========
Effect of dilutive securities
Stock options - 228,172
------------- ------------
Diluted earnings per share
Income available to common shareholders $ 1,154 3,539,173 $ 0.33
============ ============ ===========
plus assumed conversions
9
COMMUNITY CAPITAL CORPORATION
Note 7 - Comprehensive Income
The following tables set forth the amounts of other comprehensive income
included in equity along with the related tax effects are as follows:
Three Months Ended March 31, 2003
----------------------------------------------
(Dollars in thousands, except per share) Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------------- -------------- --------------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 576 $ (196) $ 380
Less: reclassification adjustment for gains realized
in net income - - -
------------- -------------- --------------
Net unrealized gains (losses) on securities 576 (196) 380
------------- -------------- --------------
Other comprehensive income $ 576 $ (196) $ 380
============= ============== ==============
Three Months Ended March 31, 2002
----------------------------------------------
Pre-tax (Expense) Net-of-tax
(Dollars in thousands, except per share) Amount Benefit Amount
------------- ------------- --------------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 51 $ (16) $ 35
Less: reclassification adjustment for gains realized
in net income (106) 34 (72)
------------- ------------- --------------
Net unrealized gains (losses) on securities (55) 18 (37)
------------- ------------- --------------
Other comprehensive income $ (55) $ 18 $ (37)
============= ============= ==============
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 March 31, 2003
compared to December 31, 2002 and the results of operations for the three months
ended March 31, 2003 compared to the three months ended March 31, 2002. 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 three months ended March 31, 2003, net interest income, the major
component of our net income, was $3,561,000 compared to $3,566,000 for the same
period of 2002, a decrease of $5,000 or 0.14%. The average rate realized on
interest-earning assets decreased to 6.31% from 7.26%, while the average rate
paid on interest-bearing liabilities decreased to 2.33% from 2.95% for the three
month periods ended March 31, 2003 and 2002, respectively.
The net interest spread and net interest margin were 3.98% and 4.27%,
respectively, for the three month period ended March 31, 2003, compared to 4.31%
and 4.72% for the three month period ended March 31, 2002.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that we feel
is necessary to maintain the allowance for loan losses at an adequate level. For
the three months ended March 31, 2003 and 2002, the provision was $106,000 and
$110,000, respectively. Our nonperforming loans totaled $2,141,000 at March 31,
2003 compared to $1,735,000 at March 31, 2002. Criticized and classified loans
have decreased from $19,509,000 at March 31, 2002 to $13,134,000 at March 31,
2003. During the twelve month period ending March 31, 2003, loans increased
$39,117,000, or 14.98%, and combined these numbers reflect the improvement in
the overall loan portfolio. The allowance for loan losses was 1.44% of total
loans at March 31, 2003, as compared to 1.60% at March 31, 2002. Based on
present information, we believe the allowance for loan losses is adequate at
March 31, 2003 to meet presently known and inherent risks in the loan portfolio.
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 March 31, 2003 to meet
presently known and inherent risks in the loan portfolio.
Noninterest Income
Total noninterest income for the three months ended March 31, 2003 was
$1,199,000, an increase of $102,000 compared to $1,097,000 for the three months
ended March 31, 2002.
Service charges on deposit accounts decreased $29,000 or 4.91% from $591,000 for
the three months ended March 31, 2002 to $562,000 for the three months ended
March 31, 2003. We also experienced an increase in residential mortgage
origination fees as low residential mortgage rates continued the encouragement
of home refinancing. Residential mortgage origination fees increased $43,000 or
22.05% from $195,000 to $238,000 for the three months ended March 31, 2003,
compared to the three months ended March 31, 2002. Other operating income
increased $120,000 from the three months ended March 31, 2002 to the three
months ended March 31, 2003, which is partially due to income realized on BOLI
(bank owned life insurance) that was purchased in August, 2002.
11
COMMUNITY CAPITAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, (Continued)
The income from fiduciary activities increased 38.98% from $59,000 during the
three months ended March 31, 2002 to $82,000 during the three months ended March
31, 2003. We also experienced an increase in the sale of mutual funds.
Commissions from sales of mutual funds increased $12,000 from the three months
ending March 31, 2002 to $24,000 during the three months ending March 31, 2003.
We also realized a gain on the sale of nonmarketable equity securities of
$39,000 during the three months ending March 31, 2003, while we recognized a
gain on the sale of securities available for sale of $106,000 during the three
months ending March 31, 2002.
Noninterest Expense
Total noninterest expense for the first three months of 2003 was $3,074,000, an
increase of $137,000, or 4.66%, when compared to the first three months of 2002.
The primary component of noninterest expense is salaries and benefits, which
were $1,697,000 and $1,549,000 for the three months ended March 31, 2003 and
2002, respectively. This increase of $148,000 or 9.55% is due to staff increases
from the opening of new branches. The amortization of intangible assets
decreased $23,000 or 21.29% to $85,000 for the three months ended March 31, 2003
from $108,000 for the same period in 2002.
Income Taxes
For the three months ended March 31, 2003 and 2002, the effective income tax
rate was 24.05% and 28.59%, respectively, and the income tax provision was
$380,000 and $462,000, respectively.
Net Income
The combination of the above factors resulted in net income of $1,200,000 for
the three months ended March 31, 2003 compared to $1,154,000 for the comparable
period in 2002. This was an increase of $46,000 or 3.99% over the prior year.
Assets and Liabilities
During the first three months of 2003, total assets increased $8,867,000, or
2.33%, when compared to December 31, 2002. We experienced growth of 3.96% in the
loan area during the first three months of 2003. However, this growth was offset
by a decrease in securities of $2,559,000 from December 31, 2002 to March 31,
2003. Proceeds from maturities of securities were used to fund loan growth. On
the liability side, total deposits increased $8,816,000, or 3.19%, to
$285,377,000 at March 31, 2003.
Investment Securities
Investment securities decreased $2,559,000 or 4.59% during the three month
period ended March 31, 2003. The decrease was attributable to securities
available-for-sale, securities held to maturity and nonmarketable equity
securities. Proceeds from the sales and maturities of securities were used to
fund the loan growth.
12
COMMUNITY CAPITAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, (Continued)
Loans
Loans receivable increased $11,442,000, or 3.96%, since December 31, 2002. The
largest increase was in real estate loans which increased $5,464,000 or 2.49% to
$225,285,000 at March 31, 2003. Balances within the major loan receivable
categories as of March 31, 2003 and December 31, 2002 are as follows:
(Dollars in thousands) March 31, 2003 December 31, 2002
---------------- ------------------
Commercial and agricultural $ 32,650 $ 30,092
Real estate 225,285 219,821
Home equity 22,224 21,095
Consumer, installment 18,856 16,323
Consumer, credit card and checking 1,269 1,511
---------------- ------------------
$ 300,284 $ 288,842
================ ==================
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
(Dollars in thousands) March 31,
---------------------
2003 2002
-------- --------
Loans:
Nonaccrual loans $ 1,801 $ 1,488
Accruing loans more than 90 days past due $ 340 $ 247
Loans identified by the internal review mechanism, including nonaccrual loans
and accruing loans more than 90 days past due:
Criticized $ 4,688 $ 9,081
Classified $ 8,446 $ 10,428
Activity in the Allowance for Loan Losses is as follows:
(Dollars in thousands) March 31,
----------------------
2003 2002
-------- ---------
Balance, January 1, $ 4,282 $ 4,103
Provision for loan losses for the period 106 110
Charge-offs (77) (51)
Recoveries 21 21
-------- --------
Balance, end of period $ 4,332 $ 4,183
======== ========
Gross loans outstanding, end of period $300,284 $262,288
Allowance for loan losses to loans outstanding 1.44% 1.59%
13
COMMUNITY CAPITAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, (Continued)
Premises and Equipment
Purchases of fixed assets during the first quarter of 2003 totaled $98,000.
Total fixed assets, net of depreciation, decreased $121,000 during the first
three months of 2003.
Deposits
Total deposits increased $8,816,000, or 3.19%, from $276,561,000 at December 31,
2002 to $285,377,000 at March 31, 2003. Expressed in percentages,
noninterest-bearing deposits increased 8.97% from $29,422,000 at December 31,
2002 to $32,062,000 at March 31, 2003 and interest-bearing deposits increased
2.50% from $247,139,000 at December 31, 2002 to $253,315,000 at March 31, 2003.
Balances within the major deposit categories as of March 31, 2003 and December
31, 2002 are as follows:
March 31, December 31,
(Dollars in thousands) 2003 2002
------------- -------------
Noninterest-bearing demand deposits $ 32,062 $ 29,422
Interest-bearing demand deposits 47,440 36,121
Money market accounts 59,429 66,295
Savings deposits 28,879 27,948
Certificates of deposit 117,567 116,775
------------- -------------
$ 285,377 $ 276,561
============= =============
Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta to us were $31,100,000 as of
March 31, 2003. 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, callable 06/16/03 $ 5,000
10/13/05 5.84% - fixed, callable 07/15/03 3,000
03/26/08 5.51% - fixed 1,500
02/02/09 4.95% - fixed 600
03/17/10 5.92% - fixed, callable 06/16/03 5,000
03/30/10 6.02% - fixed, callable 06/30/03 2,000
03/30/10 6.02% - fixed, callable 06/30/03 4,000
03/14/10 1.15% - fixed, callable 03/12/04 10,000
-------------
$ 31,100
=============
14
COMMUNITY CAPITAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, (Continued)
Capital
Quantitative measures established by the federal banking agencies to ensure
capital adequacy require the Company and the bank 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.
The Company and the bank are also required to maintain capital at a minimum
level based on total average assets, which is known as the leverage ratio. Only
the strongest banks are allowed to maintain capital at the minimum requirement
of 3%. All others are subject to maintaining ratios at least 1% to 2% above the
minimum.
The following table summarizes the capital ratios of the Company and the Bank
and the regulatory minimum requirements at March 31, 2003:
Tier 1 Total Tier 1
Risk-based Risk-based Leverage
-------------- ------------ -------------
Actual ratio:
Community Capital Corporation 13.89% 15.14% 10.56%
CapitalBank 12.74% 13.99% 9.73%
Regulatory minimums:
For capital adequacy purposes 4.00% 8.00% 4.00%
To be well-capitalized under prompt action provisions 6.00% 10.00% 5.00%
Liquidity and Capital Resources
Shareholders' equity was increased by the $515,000 proceeds from the exercise of
stock options and net income of $1,200,000. 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 $380,000, net of the
deferred taxes, for the three months ended March 31, 2003 when compared to
December 31, 2002. Total equity was also reduced by cash dividends paid which
totaled $210,000.
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 $65,936,000 in advances under the
term of out agreement with the Federal Home Loan Bank. Short-term borrowings by
CapitalBank are not expected to be a primary source of liquidity for the near
term; however, we have approximately $30,712,000 of unused lines of credit to
purchase federal funds.
15
COMMUNITY CAPITAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, (Continued)
Off-Balance Sheet Risk
Through the operations of CapitalBank, 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 March 31, 2003,
we had issued commitments to extend credit of $51,469,000 and standby letters of
credit of $1,199,000 through various types of commercial lending arrangements.
Approximately $21,313,000 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 March 31, 2003.
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 $ 1,791 $ 1,830 $ 17,557 $ 21,178 $ 30,291 $ 51,469
Standby letters of credit 357 10 633 1,000 199 1,199
------- ---------- --------- -------- -------- --------
Totals $ 2,148 $ 1,840 $ 18,190 $ 22,178 $ 30,490 $ 52,668
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 that 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, 2002
as filed on our annual report on Form 10-K. Certain accounting policies involve
significant judgments and assumptions by us that 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.
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.
16
COMMUNITY CAPITAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, (Continued)
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, market, and monetary 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 timely development
and acceptance of products and services, including products and services offered
through alternative delivery channels such as the Internet; (21) 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; (22) other factors
described in this report and in other reports we have filed with the Securities
and Exchange Commission; and (23) our success at managing the risks involved in
the foregoing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
Our market risk arises principally from interest rate risk inherent in our
lending, deposit, and borrowing activities. Management actively monitors and
manages its interest rate risk exposure. In addition to other risks which we
manage in the normal course of business, such as credit quality and liquidity,
management considers interest rate risk to be a significant market risk that
could potentially have a material effect on our financial condition and results
of operations. The information contained in the section captioned "Management's
Interest Income" is incorporated herein by reference. Other types of market
risks, such as foreign currency risk and commodity price risk, do not arise in
the normal course of our business activities.
17
COMMUNITY CAPITAL CORPORATION
Item 4. Controls and Procedures
Quarterly evaluation of the company's Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" (Disclosure Controls), and its "internal
controls and procedures for financial reporting" (Internal Controls). This
evaluation (the "Controls Evaluation") was done under the supervision and with
the participation of management, including our Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"). Rules adopted by the SEC require that in
this section of the Quarterly Report we present the conclusions of the CEO and
the CFO about the effectiveness of our Disclosure Controls and Internal Controls
based on and as of the date of the Controls Evaluation.
CEO and CFO Certifications. Appearing immediately following the Signatures
section of this Quarterly Report there is a form of Certification. The form of
Certification is required in accord with Section 302 of the Sarbanes-Oxley Act
of 2002 (the "Section 302 Certification"). This section of the Quarterly Report
that you are currently reading is the information concerning the Controls
Evaluation referred to in the Section 302 Certifications, and this information
should be read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.
Disclosure Controls and Internal Controls. Disclosure Controls are procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 (the
"Exchange Act"), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure Controls are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure. Internal Controls are procedures that are designed with the
objective of providing reasonable assurance that (1) our transactions are
properly authorized; (2) our assets are safeguarded against unauthorized or
improper use; and (3) our transactions are properly recorded and reported, all
to permit the preparation of our financial statements in conformity with
generally accepted accounting principles.
Limitations on the Effectiveness of Controls. The company's management,
including the CEO and CFO, does not expect that our Disclosure Controls or our
Internal Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
18
COMMUNITY CAPITAL CORPORATION
Item 4. Controls and Procedures, (Continued)
Scope of the Controls Evaluation. The CEO/CFO evaluation of our Disclosure
Controls and our Internal Controls included a review of the controls' objectives
and design, the controls' implementation by the company and the effect of the
controls on the information generated for use in this Quarterly Report. In the
course of the Controls Evaluation, we sought to identify data errors, controls
problems or acts of fraud and to confirm that appropriate corrective action,
including process improvements, were being undertaken. This type of evaluation
will be done on a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual
Report on Form 10-K. Our Internal Controls are also evaluated on an ongoing
basis by other personnel in our company and by our independent auditors in
connection with their audit and review activities. The overall goals of these
various evaluation activities are to monitor our Disclosure Controls and our
Internal Controls and to make modifications as necessary; our intent in this
regard is that the Disclosure Controls and the Internal Controls will be
maintained as dynamic systems that change (including with improvements and
corrections) as conditions warrant.
Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in the company's
Internal Controls, or whether the company had identified any acts of fraud
involving personnel who have a significant role in the company's Internal
Controls. This information was important both for the Controls Evaluation
generally and because items 5 and 6 in the Section 302 Certifications of the CEO
and CFO require that the CEO and CFO disclose that information to our Board's
Audit Committee and to our independent auditors and to report on related matters
in this section of the Quarterly Report. In the professional auditing
literature, "significant deficiencies" are referred to as "reportable
conditions"; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize and report financial data in
the financial statements. A "material weakness" is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions. We also
sought to deal with other controls matters in the Controls Evaluation, and in
each case if a problem was identified, we considered what revision, improvement
and/or correction to make in accord with our on-going procedures.
(b) In accord with SEC requirements, the CEO and CFO note that, since the date
of the Controls Evaluation to the date of this Quarterly Report, there have
been no significant changes in Internal Controls or in other factors that
could significantly affect Internal Controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Conclusions. Based upon the Controls Evaluation, our CEO and CFO have concluded
that, subject to the limitations noted above, our Disclosure Controls are
effective to ensure that material information relating to the company is made
known to management, including the CEO and CFO, particularly during the period
when our periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented in conformity with generally accepted accounting principles.
19
COMMUNITY CAPITAL CORPORATION
Part II. Other Information
Item 5. Other Information
On January 15, 2003 the Company declared a cash dividend on each outstanding
share of the Company's common stock, par value $1.00 per share (the "Common
Stock"), in the amount of $0.06 per share of Common Stock, which dividend was
paid on March 7, 2003, to holders of record as of the close of business on
February 14, 2003.
Item 6. Exhibits And Reports on Form 8-K
(a) Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. The following reports were filed on Form 8-K during the
quarter ended March 31, 2003.
The Company filed: (1) a Form 8-K on January 7, 2003 regarding the
resignation of Tourville, Simpson, and Caskey, LLP as the company's
certifying accountant and the engagement of Elliott Davis, LLC, certified
public accountants, to audit the company's financial statements for the year
ending December 31, 2002; and (2) a Form 8-K on March 25, 2003 regarding the
approval of a stock buyback program contemplating Rule 10b5-1 of the
Securities Exchange Act of 1934, which is a continuation of the stock
repurchase program begun in November 2002.
Items 1, 2, 3, and 4 of Part II are not applicable.
20
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: May 14, 2003 By: /s/ R. WESLEY BREWER
--------------------
R. Wesley Brewer
Chief Financial Officer
21
COMMUNITY CAPITAL CORPORATION
CERTIFICATION
I, William G. Stevens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community Capital
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report the Evaluation Date; and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of (the "Evaluation Date");
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ WILLIAM G. STEVENS
--------------------------
William G. Stevens
President & Chief Executive Officer
22