-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gav383NfB3rSMOkxz5HeDUlDyOOzVVvzeBeupufSugnuI8iHhQ1TY3ZY+LhHJwJ2 bdc9mUJUHos59sciW3jLXQ== 0000950168-99-001040.txt : 19990402 0000950168-99-001040.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950168-99-001040 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY CAPITAL CORP /SC/ CENTRAL INDEX KEY: 0000832847 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 570866395 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18460 FILM NUMBER: 99582960 BUSINESS ADDRESS: STREET 1: 109 MONTAGUE AVE STREET 2: P O BOX 218 CITY: GREENWOOD STATE: SC ZIP: 29648 BUSINESS PHONE: 8649418200 MAIL ADDRESS: STREET 1: 109 MONTAGUE ST STREET 2: P O BOX 218 CITY: GREENWOOD STATE: SC ZIP: 29648 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY CAPITAL CORP /SC/ DATE OF NAME CHANGE: 19940707 FORMER COMPANY: FORMER CONFORMED NAME: GREENWOOD NATIONAL BANCORPORATION DATE OF NAME CHANGE: 19920703 10-K 1 COMMUNITY CAPITAL CORP. 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1998 Commission file number: 0-18460 COMMUNITY CAPITAL CORPORATION (Exact name of Registrant as specified in its charter) South Carolina 57-0866395 - -------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 109 Montague Avenue Greenwood, South Carolina 29646 - -------------------------------- -------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (864) 941-8200 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of Each Exchange Title of Each Class On Which Reported - ------------------- ----------------- Common Stock, par value $1.00 per share American Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant on March 15, 1999 was approximately $27.5 million based upon the last sale price reported for such date on the American Stock Exchange. On that date, the number of shares outstanding of the Registrant's common stock, $1.00 par value, was $3,102,529 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement in connection with its 1999 Annual Meeting of Stockholders (Part III). PART I ITEM 1. BUSINESS. GENERAL Community Capital Corporation (the "Company") is a multi-bank holding company headquartered in Greenwood, South Carolina. The Company was incorporated under the laws of the State of South Carolina on April 8, 1988 as a holding company for Greenwood Bank & Trust (the "Greenwood Bank") which opened in 1989. The Company was formed principally in response to perceived opportunities resulting from takeovers of several South Carolina-based banks by large southeastern regional bank holding companies. In many cases, when these consolidations occur, local boards of directors are dissolved and local management is relocated or terminated. The Company believes this situation creates favorable opportunities for new community banks with local management and local directors. Management believes that such banks can be successful in attracting individuals and small to medium-sized businesses as customers who wish to conduct business with a locally owned and managed institution that demonstrates an active interest in their business and personal financial affairs. In 1994, the Company made the strategic decision to expand beyond the Greenwood County area by creating an organization of independently managed community banks that serve their respective local markets but which share a common vision and benefit from the strength, resources and economies of a larger institution. In 1995, the Company opened Clemson Bank & Trust (the "Clemson Bank") in Clemson, South Carolina. In 1997, the Company opened the Bank of Barnwell County (the "Barnwell Bank"), TheBank (formerly the Bank of Belton, the "Belton Bank") and the Bank of Newberry County (the "Newberry Bank," and collectively with the Barnwell Bank and the Belton Bank, the "New Banks"). Each of these five community banks (collectively, the "Banks") operates as a wholly-owned subsidiary of the Company and engages in a general commercial banking business, emphasizing the banking needs of individuals and small to medium-sized businesses in each Bank's primary service area. The Belton Bank, the Barnwell Bank, the Greenwood Bank and the Newberry Bank are state chartered Federal Reserve member banks, while the Clemson Bank is a state chartered nonmember bank. The Company formed Community Trust Services Company in the fourth quarter of 1997 as a wholly-owned subsidiary to perform trust services for the Banks. The name of this subsidiary was changed to Community Trust Company in 1998. RECENT BRANCH ACQUISITIONS On June 15, 1998, the Belton Bank acquired certain assets and deposits associated with two branches from Carolina First Bank ("Carolina First") in Anderson County, South Carolina, and the Clemson Bank acquired certain assets and deposits associated with a Carolina First branch located in Abbeville County, South Carolina. MARKET AREAS The Greenwood Bank has two banking locations in Greenwood, South Carolina; the Clemson Bank has two banking locations in Clemson and Abbeville, South Carolina; the Barnwell Bank has five banking locations in Aiken, Barnwell and Orangeburg Counties, South Carolina; the Belton Bank has three banking locations in Belton and Honea Path, South Carolina; and the Newberry Bank has one banking location in Newberry, South Carolina. The following table sets forth certain information concerning the Banks at December 31, 1998:
NUMBER OF TOTAL TOTAL TOTAL BANK LOCATIONS ASSETS LOANS DEPOSITS - ---- --------- ------ ----- -------- (DOLLARS IN THOUSANDS) Barnwell Bank................................... 5 $ 76,763 $ 35,663 $ 68,169 Belton Bank..................................... 3 65,556 21,090 55,834 Clemson Bank.................................... 2 38,051 22,229 28,829 Greenwood Bank.................................. 2 115,088 85,888 89,126 Newberry Bank................................... 1 26,082 10,198 19,854
Each Bank offers a full range of commercial banking services, including checking and savings accounts, NOW accounts, IRA accounts, and other savings and time deposits of various types ranging from money markets to long-term certificates of deposit. The Banks also offer a full range of consumer credit and short-term and intermediate-term commercial and personal loans. Each Bank conducts residential mortgage loan origination activities pursuant to which mortgage loans are sold to investors in the secondary markets. Servicing of such loans is not retained by the Banks. The Banks also offer trust and related fiduciary services which are administered by the Company's wholly-owned subsidiary, Community Trust Company. Discount securities brokerage services are available through a third-party brokerage service which has contracted with Community Financial Services, Inc., a wholly-owned subsidiary of the Greenwood Bank. The Company performs data processing functions for the Banks upon terms that the managements of the Banks believe is competitive with those offered by unaffiliated third-party service bureaus. The Company also administers certain operating functions for the Banks where cost savings can be achieved. Included in such operations are regulatory compliance, personnel, and internal audit functions. The Company's costs associated with the performance of such services are allocated between the Banks based on each Bank's total accounts and/or total assets. LENDING ACTIVITIES GENERAL. Through the Banks, the Company offers a range of lending services, including real estate, consumer, and commercial loans, to individuals and small business and other organizations that are located in or conduct a substantial portion of their business in the Banks' market areas. The Company's total loans at December 31, 1998, were $172.5 million, or 58.45% of total earning assets. The interest rates charged on loans vary with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, availability of funds, and government regulations. The Company has no foreign loans or loans for highly leveraged transactions. The Company's primary focus has been on commercial and installment lending to individuals and small to medium-sized businesses in its market areas, as well as residential mortgage loans. These loans totaled approximately $113.6 million, and constituted approximately 65.83% of the Company's loan portfolio, at December 31, 1998. The following table sets forth the composition of the Company's loan portfolio for each of the five years in the period ended December 31, 1998. LOAN COMPOSITION (DOLLARS IN THOUSANDS)
DECEMBER 31, ------------------------------------------------------------ 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Commercial, financial and agricultural 24.19% 21.12% 19.05% 24.19% 16.80% Real estate: Construction 11.68 13.42 12.37 8.61 18.71 Mortgage: Residential 29.62 35.62 39.13 27.48 30.93 Commercial(1) 26.57 22.45 21.87 21.81 15.46 Consumer and other 7.94 7.39 7.58 17.91 18.10 ----------- ----------- ----------- ----------- ----------- Total loans 100.00% 100.00% 100.00% 100.00% 100.00% =========== =========== =========== =========== =========== Total loans (dollars) $ 50,565 $ 63,204 $ 80,546 $ 149,127 $ 172,545 =========== =========== =========== =========== ===========
- ---------- (1) The majority of these loans are made to operating businesses where real property has been taken as additional collateral. LOAN APPROVAL. Certain credit risks are inherent in the loan making process. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectibility. The Company attempts to minimize loan losses through various means and uses standardized underwriting criteria. These means include the use of policies and procedures including officer and customer lending limits, and loans in excess of certain limits must be approved by the Board of Directors of the relevant Banks. 2 LOAN REVIEW. The Company has a continuous loan review process designed to promote early identification of credit quality problems. All loan officers are charged with the responsibility of reviewing all past due loans in their respective portfolios. Each of the Banks establishes watch lists of potential problem loans. DEPOSITS The principal sources of funds for the Banks are core deposits, consisting of demand deposits, interest-bearing transaction accounts, money market accounts, saving deposits, and certificates of deposit. Transaction accounts include checking and negotiable order of withdrawal (NOW) accounts which customers use for cash management and which provide the Banks with a source of fee income and cross-marketing opportunities, as well as a low-cost source of funds. Time and savings accounts also provide a relatively stable source of funding. The largest source of funds for the Banks is certificates of deposit. Certificates of deposit in excess of $100,000 are held primarily by customers in the Banks' market areas. Deposit rates are set weekly by senior management of each of the Banks, subject to approval by management of the Company. Management believes that the rates the Banks offer are competitive with other institutions in the Banks' market areas. COMPETITION Banks generally compete with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. South Carolina law permits statewide branching by banks and savings institutions, and many financial institutions in the state have branch networks. Consequently, commercial banking in South Carolina is highly competitive. South Carolina law also permits regional interstate banking whereby bank holding companies in certain southeastern states are allowed to acquire depository institutions within South Carolina. Many large banking organizations currently operate in the respective market areas of the Banks, several of which are controlled by out-of-state ownership. In addition, competition between commercial banks and thrift institutions (savings institutions and credit unions) has been intensified significantly by the elimination of many previous distinctions between the various types of financial institutions and the expanded powers and increased activity of thrift institutions in areas of banking which previously had been the sole domain of commercial banks. Recent legislation, together with other regulatory changes by the primary regulators of the various financial institutions, has resulted in the almost total elimination of practical distinctions between a commercial bank and a thrift institution. Consequently, competition among financial institutions of all types is largely unlimited with respect to legal ability and authority to provide most financial services. Furthermore, as a consequence of legislation recently enacted by the United States Congress, out-of-state banks not previously allowed to operate in South Carolina will be allowed to commence operations and compete in the Banks' primary service areas if the South Carolina legislature does not elect to limit the reach of such federal legislation within South Carolina. See "Government Supervision and Regulation -- Interstate Banking." Each of the Banks faces increased competition from both federally-chartered and state-chartered financial and thrift institutions, as well as credit unions, consumer finance companies, insurance companies and other institutions in the Banks' respective market areas. Some of these competitors are not subject to the same degree of regulation and restriction imposed upon the Banks. Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than the Banks and offer certain services that the Banks do not currently provide. In addition, many of these competitors have numerous branch offices located throughout the extended market areas of the Banks that the Company believes may provide these competitors with an advantage in geographic convenience that the Banks do not have at present. Such competitors may also be in a position to make more effective use of media advertising, support services, and electronic technology than can the Banks. Currently there are two other commercial banks and one credit union operating in the Barnwell Bank's primary service areas; four other commercial banks, and no credit unions operating in the Belton Bank's primary service area; three other commercial banks, one savings institution, and one credit union operating in the Clemson Bank's primary service area; seven other commercial banks, one savings institution, and four credit unions operating in the Greenwood Bank's primary service area; and six other commercial banks, one savings institution, and one credit union operating in the Newberry Bank's primary service area. 3 EMPLOYEES The Company currently has 24 full-time employees and one part-time employee, the Barnwell Bank has 38 full-time employees and four part-time employees, the Belton Bank has 16 full-time employees and five part-time employees, the Clemson Bank has 14 full-time employees and two part-time employees, the Greenwood Bank has 40 full-time employees and one part-time employee, and the Newberry Bank has nine full-time employees and one part-time employee. Community Trust Company has three full-time employees. GOVERNMENT SUPERVISION AND REGULATION GENERAL The Company and the Banks are subject to an extensive collection of state and federal banking laws and regulations which impose specific requirements and restrictions on, and provide for general regulatory oversight with respect to, virtually all aspects of the Company's and the Banks' operations. The Company and the Banks are also affected by government monetary policy and by regulatory measures affecting the banking industry in general. The actions of the Federal Reserve System affect the money supply and, in general, the Banks' lending abilities in increasing or decreasing the cost and availability of funds to the Banks. Additionally, the Federal Reserve System regulates the availability of bank credit in order to combat recession and curb inflationary pressures in the economy by open market operations in United States government securities, changes in the discount rate on member bank borrowings, changes in the reserve requirements against bank deposits and limitations on interest rates which banks may pay on time and savings deposits. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") have significantly changed the commercial banking industry through, among other things, revising and limiting the types and amounts of investment authority, significantly increasing minimum regulatory capital requirements, and broadening the scope and power of federal bank and thrift regulators over financial institutions and affiliated persons in order to protect the deposit insurance funds and depositors. These laws, and the resulting implementing regulations, have subjected the Banks and the Company to extensive regulation, supervision and examination by the Federal Reserve System and the FDIC. This change has resulted in increased administrative, professional and compensation expenses in complying with a substantially increased number of new regulations and policies. The regulatory structure created by these laws gives the regulatory authorities extensive authority in connection with their supervisory and enforcement activities and examination policies. The following is a brief summary of certain statutes, rules and regulations affecting the Company and the Banks. This summary is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of the Company and the Banks. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Company and the Banks. THE COMPANY The Company is a bank holding company within the meaning of the Federal Bank Holding Company Act of 1956, as amended (the "BHCA"), and the South Carolina Banking and Branching Efficiency Act of 1996, as amended (the "South Carolina Act"). The Company is registered with both the Federal Reserve System and the South Carolina State Board of Financial Institutions (the "State Board"). The Company is required to file with both of these agencies annual reports and other information regarding its business operations and those of its subsidiaries. It is also subject to the supervision of, and to regular examinations by, these agencies. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before (i) it or any of its subsidiaries (other than a bank) acquires substantially all of the assets of any bank, (ii) it acquires ownership or control of any voting shares of any bank if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank, or (iii) it merges or consolidates with any other bank holding company. Under the South Carolina Act, it is unlawful without the prior approval of the State Board for any South Carolina bank holding company (i) to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank or any other bank holding company, (ii) to acquire all or substantially all of the assets of a bank or any other bank holding company, or (iii) to merge or consolidate with any other bank holding company. The BHCA and the Federal Change in Bank Control Act, together with regulations promulgated by the Federal Reserve Board, require that, depending on the particular circumstances, either the Federal Reserve Board's approval must be 4 obtained or notice must be furnished to the Federal Reserve Board and not disapproved prior to any person or company acquiring control of a bank holding company, such as the Company, subject to certain exemptions for certain transactions. Under the BHCA, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in, nonbanking activities, unless the Federal Reserve Board, by order or regulation, has found those activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the Federal Reserve Board has determined by regulation to be proper incidents to the business of a bank holding company include making or servicing loans and certain types of leases, engaging in certain insurance and discount brokerage activities, performing certain data processing services, acting in certain circumstances as a fiduciary or investment or financial adviser, owning savings associations and making investments in certain corporations or projects designed primarily to promote community welfare. The Company is also restricted in its activities by the provisions of the Glass-Steagall Act of 1933, which prohibits the Company from owning subsidiaries that are engaged principally in the issue, flotation, underwriting, public sale or distribution of securities. The regulatory requirements to which the Company is subject also set forth various conditions regarding the eligibility and qualifications of its directors and officers. THE BANKS The operations of the Barnwell Bank, the Belton Bank, the Greenwood Bank and the Newberry Bank are subject to various statutory requirements and rules and regulations promulgated and enforced primarily by the State Board, the Federal Reserve System, and the FDIC. As a South Carolina-chartered banking corporation with FDIC deposit insurance, the Clemson Bank is also subject to various statutory requirements and rules and regulations promulgated and enforced primarily by the State Board and the FDIC. The State Board and the FDIC regulate or monitor all areas of the Bank's operations, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuances of securities, payment of dividends, interest rates payable on deposits, interest rates or fees chargeable on loans, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. The Federal Reserve System and the FDIC also require the Banks to maintain certain capital ratios (see "Federal Capital Regulations"), and the provisions of the Federal Reserve Act require the Barnwell Bank, the Belton Bank, the Greenwood Bank and the Newberry Bank to observe certain restrictions on any extensions of credit to the Company, or with certain exceptions, other affiliates, on investments in the stock or other securities of other banks, and on the taking of such stock or securities as collateral on loans to any borrower. In addition, the Banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, or the providing of any property or service. The regulatory requirements to which the Banks are subject also set forth various conditions regarding the eligibility and qualification of their directors and officers. DIVIDENDS Although the Company is not presently subject to any direct legal or regulatory restrictions on dividends (other than the South Carolina state business corporation law requirements that dividends may be paid only if such payment would not render the Company insolvent or unable to meet its obligations as they come due), the Company's ability to pay cash dividends will depend primarily upon the amount of dividends paid by each of the Banks and any other subsequently acquired entities. The Banks are subject to regulatory restrictions on the payment of dividends, including the prohibition of payment of dividends from each Bank's capital. All dividends of the Banks must be paid out of the respective undivided profits then on hand, after deducting expenses, including losses and bad debts. In addition, as a member of the Federal Reserve System, each of the Barnwell Bank, the Belton Bank, the Greenwood Bank and the Newberry Bank is prohibited from declaring a dividend on its shares of common stock until its surplus equals its stated capital, unless there has been transferred to surplus no less than one-tenth of such bank's net profits of the preceding two consecutive half-year periods (in the case of an annual dividend) and the approval of the Federal Reserve Board is required if the total of all dividends declared by any of the Barnwell Bank, the Belton Bank, the Greenwood Bank or the Newberry Bank in any calendar year exceeds the total of its net profits for that year combined with that Bank's retained net profits for the preceding two years, less any required transfers to surplus. The Banks are subject to various other federal and state regulatory restrictions on the payment of dividends, including receipt of the approval of the South Carolina Commissioner of Banking prior to paying dividends to the Company. 5 FIRREA FIRREA has had a significant impact on the operations of all financial institutions, including the Banks. FIRREA, among other things, abolished the Federal Savings and Loan Insurance Corporation and established two new insurance funds under the jurisdiction of the FDIC: the Savings Association Fund and the Bank Insurance Fund (see "FDIC Regulations"). FIRREA also imposed, with certain exceptions, a "cross guaranty" on the part of commonly controlled depository institutions such as the Banks. Under this provision, if one depository institution subsidiary of a multi-bank holding company fails or requires FDIC assistance, the FDIC may assess a commonly controlled depository institution for the estimated losses suffered by the FDIC. Consequently, each of the Banks is subject to assessment by the FDIC related to any loss suffered by the FDIC arising out of the operations of the other Banks. The FDIC's claim is junior to the claims of nonaffiliated depositors, holders of secured liabilities, general creditors and subordinated creditors but is superior to the claims of shareholders. FDIC REGULATIONS The FDIC establishes rates for the payment of premiums by federally insured banks and thrifts for deposit insurance. Deposits in the Banks are insured by the FDIC up to a maximum amount (generally $100,000 per depositor, subject to aggregation rules), and the FDIC maintains an insurance fund for commercial banks with insurance premiums from the industry used to offset losses from insurance payouts when banks fail. The Banks pay premiums to the FDIC on their deposits. In 1993, the FDIC adopted a rule which establishes a risk-based deposit insurance premium system for all insured depository institutions, including the Banks. Under the 1993 rule, a depository institution pays to the FDIC a premium of from $0.00 to $0.31 per $100 of insured deposits depending on its capital levels and risk profile, as determined by its primary federal regulator on a semi-annual basis. During 1998, each Bank's assessment rate was $500 per quarter for insured deposits. FEDERAL CAPITAL REGULATIONS In an effort to achieve a measure of capital adequacy that is more sensitive to the individual risk profiles of financial institutions, pursuant to the provisions of the FDICIA, the Federal Reserve Board, the FDIC, and other federal banking agencies have adopted risk-based capital adequacy guidelines for banking organizations insured by the FDIC, including each of the Banks. These guidelines redefine traditional capital ratios to take into account assessments of risks related to each balance sheet category, as well as off-balance sheet financing activities. The guidelines define a two-tier capital framework. Tier 1 capital consists of common and qualifying preferred shareholders' equity, excluding the unrealized gain (loss) on available-for-sale securities, less goodwill and other adjustments. Tier 2 capital consists of mandatory convertible, subordinated and other qualifying term debt, preferred stock not qualifying for Tier 1, and the allowance for credit losses up to 1.25% of risk-weighted assets. Under the guidelines, institutions must maintain a specified minimum ratio of "qualifying" capital to risk-weighted assets. At least 50% of an institution's qualifying capital must be "core" or "Tier 1" capital, and the balance may be "supplementary" or "Tier 2" capital. The guidelines imposed on the Company and the Banks include a minimum leverage ratio standard of capital adequacy. The leverage standard requires top-rated institutions to maintain a minimum Tier 1 capital to assets ratio of 3%, with institutions receiving less than the highest rating required to maintain a minimum ratio of 4% or greater, based upon their particular circumstances and risk profiles. As of December 31, 1998, the guidelines required achievement of a minimum ratio of total capital to risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4%. Each of the Company's and the Banks' leverage and risk-based capital ratios at December 31, 1998, exceeded their respective fully phased-in minimum requirements. OTHER REGULATIONS Interest and certain other charges collected or contracted for by the Banks are subject to state usury laws and certain federal laws concerning interest rates. The Banks' loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers, the Community Reinvestment Act of 1977 requiring financial institutions to meet their obligations to provide for the total credit needs of the communities they serve, including investing their assets in loans to low- and moderate-income borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable public officials to determine whether a financial institution is fulfilling its obligations to help meet the housing needs of the community it serves, the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit, the Fair Credit Reporting Act governing the manner in which consumer 6 debts may be collected by collection agencies, and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the Banks also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services. INTERSTATE BANKING On September 29, 1994, the federal government enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "1994 Act"). The provisions of the 1994 Act became effective on September 29, 1995, at which time eligible bank holding companies in any state were permitted, with Federal Reserve Board approval, to acquire banking organizations in any other state. As such, all existing regional compacts and substantially all existing regional limitations on interstate acquisitions of banking organizations have been eliminated. The 1994 Act also removed substantially all of the existing prohibitions on interstate branching by banks. Since June 1, 1997, a bank operating in any state has been entitled to establish one or more branches within any other state without, as formerly required, the establishment of a separate banking structure within the other state. Interstate branching was allowed earlier than the automatic phase-in date of June 1, 1997, as long as the legislatures of both states involved had adopted statutes expressly permitting such branching to take place at an earlier date. On May 7, 1996, South Carolina adopted the South Carolina Act which became effective on July 1, 1996. The South Carolina Act permits the acquisition of South Carolina banks and bank holding companies by, and mergers with, out-of-state banks and bank holding companies with the prior approval of the State Board. The South Carolina Act also permits South Carolina state banks, with prior approval of the State Board, to operate branches outside the State of South Carolina. Although the 1994 Act has the potential to increase the number of competitors in the marketplace of each of the Banks, the Company cannot predict the actual impact of such legislation on the competitive position of the Banks. ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain of the statements contained in this PART I, Item 1 (Business) and in PART II, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this Annual Report on Form 10-K that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Although the Company's management believes that their expectations of future performance are based on reasonable assumptions within the bounds of their knowledge of their business and operations, there can be no assurance that actual results will not differ materially from their expectations. Factors which could cause actual results to differ from expectations include, among other things, the challenges, costs and complications associated with the continued development of the New Banks as start-up operations with no history of operating profits; the ability of the Company to effectively integrate and staff the operations of the New Banks as well as the operations allocated to the base of deposits acquired in connection with branch acquisitions; the ability of the Company to retain and deploy in a timely manner the cash associated with branch acquisitions into assets with satisfactory yields and credit risk profiles; the potential that loan charge-offs may exceed the allowance for loan losses or that such allowance will be increased as a result of factors beyond the control of the Company; the Company's dependence on senior management; competition from existing financial institutions operating in the Company's market areas as well as the entry into such areas of new competitors with greater resources, broader branch networks and more comprehensive services; the potential adverse impact on net income of rapidly declining interest rates; adverse changes in the general economic conditions in the geographic markets served by the Company; the challenges and uncertainties in the implementation of the Company's expansion and development strategies; the potential negative effects of future legislation affecting financial institutions; and other factors described in this report and in other reports filed by the Company with the Securities and Exchange Commission. 7 ITEM 2. PROPERTIES. The Company operates out of an approximately 12,500 square foot building located on approximately one acre of land owned by the Company in Greenwood, South Carolina. The Greenwood Bank operates out of an approximately 8,100 square foot building located on approximately one acre of land owned by the Greenwood Bank in Greenwood, South Carolina. The Greenwood Bank also operates a branch location in Greenwood on land the Greenwood Bank leases from a director of the Company and the Greenwood Bank. The Barnwell Bank operates out of an approximately 2,900 square foot building located on a quarter acre parcel owned by the Barnwell Bank in Barnwell, South Carolina. The Barnwell Bank also operates five branches located in Aiken, Barnwell and Orangeburg Counties in South Carolina. Of the five branch banking locations of the Barnwell Bank, one is leased from a third party and four are owned by the Barnwell Bank. The Belton Bank operates out of an approximately 1600 square foot building located on approximately five areas of land in Belton, South Carolina. The land is owned by the Belton Bank and the building is leased by the Belton Bank from the Company. The Belton Bank also operates two branches located on land owned by the Company and leased to the Belton Bank in Anderson County, South Carolina. The Clemson Bank operates out of an approximately 9,100 square foot building located on approximately one and one-half acres of land owned by the Clemson Bank in Clemson, South Carolina. The Clemson Bank also operates a branch located on land owned by the Company and leased to the Clemson Bank in Abbeville County, South Carolina. The Newberry Bank operates out of an approximately 2,000 square foot building located on approximately two acres of land in Newberry, South Carolina. The land is owned by the Newberry Bank and the building is leased from an unrelated third party. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The common stock of the Company (the "Common Stock") commenced trading on the American Stock Exchange on February 11, 1997 under the symbol "CYL". Although prior to such listing the Common Stock was quoted on the OTC Bulletin Board, trading and quotations of the Common Stock were limited and sporadic. Management is not aware of the prices at which all shares of Common Stock traded prior to its listing on the American Stock Exchange. The range of prices known to management prior to February 11, 1997 were $11.00 to $15.00 in 1997. The table below reflects the high and low sales price per share for the Common Stock reported on the American Stock Exchange for the periods indicated.
YEAR QUARTER HIGH LOW 1998 Fourth. . . . . . . . . . . . . . . . .$ 12.12 $ 9.50 . Third. . . . . . . . . . . . . . . . . . 16.37 10.12 Second . . . . . . . . . . . . . . . . . . . 18.75 15.75 First. . . . . . . . . . . . . . . . . . 18.87 14.50 8 1997 Fourth $ 15.00 $ 13.75 Third 14.75 12.00 Second 12.88 11.12 First (from February 11, 1997) 12.25 11.00
As of March 15, 1999, there were 3,102,529 shares of Common Stock outstanding held by approximately 1,290 shareholders of record. The Company has not declared or distributed any cash dividends to its shareholders since its organization in 1988, and it is not likely that any cash dividends will be declared in the near term. The Board of Directors of the Company intends to follow a policy of retaining any earnings to provide funds to operate and expand the business of the Company and the Banks for the foreseeable future. The future dividend policy of the Company is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, financial condition, cash requirements, and general business conditions. The Company's ability to distribute cash dividends will depend entirely upon the Banks' abilities to distribute dividends to the Company. As state banks, the Banks are subject to legal limitations on the amount of dividends each is permitted to pay. In particular, the Banks must receive the approval of the State Board prior to paying dividends to the Company. Furthermore, neither the Banks nor the Company may declare or pay a cash dividend on any of their capital stock if they are insolvent or if the payment of the dividend would render them insolvent or unable to pay their obligations as they become due in the ordinary course of business. See "Government Supervision and Regulation -- Dividends." During the fiscal year ended December 31, 1998, the Company sold an aggregate of 18,425 shares of Common Stock to its employee stock ownership plan without registration under the Securities Act of 1933, as amended (the "1933 Act"). The following sets forth the dates and amounts of such sales:
DATE SHARES PROCEEDS ---- ------ -------- January 1, 1998 925 $ 13,875 February 1, 1998 1,867 29,909 March 1, 1998 971 17,478 April 1, 1998 948 17,419 May 1, 1998 1,091 18,808 June 1, 1998 3,265 55,505 July 1, 1998 1,102 16,794 August 1, 1998 1,596 22,144 September 1, 1998 2,128 21,875 November 1, 1998 3,056 31,048 December 1, 1998 1,476 16,236
In each case, all of the shares were sold at the quoted market price at the time of sale and were issued pursuant to the exemption from registration contained in Section 4(2) of the 1933 Act as a transaction, not involving a general solicitation, in which the purchaser was purchasing for investment. The Company believes that the purchaser was given and had access to detailed financial and other information with respect to the Company and possessed requisite financial sophistication . The Company did not sell any other equity securities during the fiscal year ended December 31, 1998 which were not registered under the 1933 Act. 9 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for the five years ended December 31, 1998 are derived from the consolidated financial statements and other data of the Company. The consolidated financial statements for the years ended December 31, 1994 through 1998, were audited by Tourville, Simpson & Henderson, L.L.P. independent auditors. The selected consolidated financial data should be read in conjunction with the consolidated financial statements of the Company, including the accompanying notes, included elsewhere herein.
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994 ------------ ----------- ------------ ----------- ------------ INCOME STATEMENT DATA: Interest income $ 21,043 $ 14,443 $ 8,201 $ 6,217 $ 4,403 Interest expense 11,198 7,172 4,006 2,948 1,693 ------------ ----------- ------------ ----------- ------------ Net interest income 9,845 7,271 4,195 3,269 2,710 Provision for loan losses 1,836 608 187 112 14 ------------ ----------- ------------ ----------- ------------ Net interest income after provision for loan losses 8,009 6,663 4,008 3,157 2,696 Net securities gains (losses) 220 (1) 17 (22) (79) Noninterest income 2,797 1,572 1,122 729 530 Noninterest expense 10,228 7,248 4,141 3,069 2,261 ------------ ----------- ------------ ----------- ------------ Income before income taxes 798 986 1,006 795 886 Applicable income taxes 34 220 300 261 301 ------------ ----------- ------------ ----------- ------------ Net income $ 764 $ 766 $ 706 $ 534 $ 585 ============ =========== ============ =========== ============ BALANCE SHEET DATA: Assets $ 321,031 $ 248,861 $ 115,959 $ 96,100 $ 65,071 Earning assets 295,213 227,372 106,770 89,233 59,269 Securities (1) 120,695 77,480 25,479 23,699 8,704 Loans (2) 172,545 149,127 80,546 63,204 50,565 Allowance for loan losses 2,399 1,531 837 671 581 Deposits 260,120 186,861 89,862 73,138 49,146 Federal Home Loan Bank advances 9,434 16,350 4,889 6,244 5,925 Shareholders' equity 33,430 31,928 13,556 12,932 6,079 PER SHARE DATA (3): Basic earnings per share $ .25 $ 0.27 $ 0.55 $ 0.55 $ 0.90 Diluted earnings per share .24 0.26 0.52 0.50 0.86 Book value (period end) (4) 10.81 10.47 10.59 10.17 9.16 Tangible book value (period end) (4) 9.01 9.45 10.55 10.13 9.12 SELECTED RATIOS: Return on average assets .27% 0.40% 0.67% 0.68% 0.97% Return on average equity 2.33 2.68 5.41 5.69 10.17 Net interest margin (5) 3.76 4.16 4.29 4.49 4.78 Efficiency (6) 80.90 81.96 77.28 76.78 69.81 Allowance for loan losses to loans 1.39 1.03 1.04 1.06 1.15 Net charge-offs to average loans .62 0.15 0.03 0.03 - Nonperforming assets to period end loans and foreclosed property (2) (7) .85 0.63 0.23 0.02 0.04 Average equity to average assets 11.48 14.92 12.37 11.99 9.46 Leverage (4.00% required minimum) 8.89 12.08 11.62 13.21 9.42 Tier 1 risk-based capital ratio 13.78 17.65 15.58 18.46 11.04 Total risk-based capital ratio 15.00 18.61 16.54 19.41 12.09 Average loans to average deposits 69.65 76.78 88.06 93.03 98.21
- -------------- 1) Securities held to maturity are stated at amortized cost, and securities available for sale are stated at fair value. 2) Loans are stated net of unearned income, before allowance for loan losses. 3) All share and per share data have been adjusted to reflect the 5% Common Stock dividends in April 1994, August 1995, May 1996 and September 1998. 4) Excludes the effect of any outstanding stock options. 5) Net interest income dividend by average earning assets. 6) Noninterest expense divided by the sum of net interest income and noninterest income, net of gains and losses on sales of assets. 7) Nonperforming loans and nonperforming assets do not include loans past due 90 days or more that are still accruing interest. 10 QUARTERLY OPERATING RESULTS
1998 Quarter ended 1997 Quarter ended --------------------------------------- -------------------------------------- (Dollars in thousands except per share) Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 --------- --------- --------- --------- -------- --------- --------- --------- Net interest income $ 2,731 $ 2,502 $ 2,373 $ 2,239 $ 2,127 $ 2,005 $ 1,875 $ 1,264 Provision for loan losses 904 339 286 307 276 108 136 88 Noninterest income 606 934 850 627 487 417 404 263 Noninterest expense 3,018 2,650 2,450 2,110 2,184 2,093 1,773 1,198 Net income (283) 339 396 312 138 200 269 159 Basic earnings per share (.09) .11 .13 .10 0.05 0.07 0.08 0.07 Diluted earnings per share (.09) .11 .12 .10 0.05 0.06 0.08 0.07
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BASIS OF PRESENTATION THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE PRECEDING "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THE FINANCIAL INFORMATION PROVIDED BELOW HAS BEEN ROUNDED IN ORDER TO SIMPLIFY ITS PRESENTATION. HOWEVER, THE RATIOS AND PERCENTAGES PROVIDED BELOW ARE CALCULATED USING THE DETAILED FINANCIAL INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. GENERAL Community Capital Corporation is a bank holding company headquartered in Greenwood, South Carolina which operated through two community banks through 1996 and in 1997 acquired three de novo community banks (collectively, the "Banks") in non-metropolitan markets in the State of South Carolina and formed a subsidiary to perform trust services for its banking subsidiaries. The Company pursues a community banking business which is characterized by personalized service and local decision-making and emphasizes the banking needs of individuals and small to medium-sized businesses. The Company was formed in 1988 to serve as a holding company for the Greenwood National Bank, now Greenwood Bank & Trust (the "Greenwood Bank"), principally in response to perceived opportunities resulting from takeovers of several South Carolina-based banks by large southeastern regional bank holding companies. In many cases, when these consolidations occur, local boards of directors are dissolved and local management is relocated or terminated. The Company believes this situation creates favorable opportunities for new community banks with local management and local directors. Management believes that such banks can be successful in attracting individuals and small to medium-sized businesses as customers who wish to conduct business with a locally owned and managed institution that demonstrates an active interest in their business and personal financial affairs. In 1994, the Company made the strategic decision to expand beyond the Greenwood County area by creating an organization of independently managed community banks that serve their respective local markets but which share a common vision and benefit from the strength, resources, and economies of a larger institution. In June 1995, the Company opened Clemson Bank & Trust (the "Clemson Bank") in Clemson, South Carolina. During 1996, the Company made the decision to acquire and capitalize three de novo banks which were being organized in Barnwell, Belton, and Newberry, South Carolina. In February 1997, Bank of Barnwell County (the "Barnwell Bank") opened as a subsidiary of the Company. Similarly, in March 1997, TheBank (formerly the Bank of Belton, the "Belton Bank") opened, and, in July 1997, The Bank of Newberry County (the "Newberry Bank") opened. The Company also formed a separate trust organization in 1997 known as Community Trust Services, Inc. In 1998, the Company changed the name from Community Trust Services, Inc. to Community Trust Company. On April 7, 1997, the Barnwell Bank acquired net loans (including accrued interest receivable) of approximately $14.9 million and premises and equipment of approximately $2.0 million and assumed deposits (including accrued interest payable) of approximately $55.1 million of five branches located in Aiken, Barnwell and Orangeburg Counties, South Carolina from Carolina First Bank (the "Carolina First Branches in 1997"). In connection with the purchase of the Carolina First Branches, the Barnwell Bank paid a premium of $2.5 million which is being amortized over a fifteen-year period on a straight-line basis. The Barnwell Bank, the Belton Bank, and the Newberry Bank are hereafter referred to collectively as the "New Banks". 11 To capitalize the New Banks, the Company sold 1,665,000 shares of its common stock (the "Offering") resulting in net proceeds of $16.9 million. Of the net proceeds, the Company used $7.2 million to capitalize the Barnwell Bank, $3.5 million to capitalize the Belton Bank, and $3.3 million to capitalize the Newberry Bank. In accordance with the agreements with the organizers of the New Banks and subject to the New Banks being opened, the Company agreed to include organizational and preopening costs in the initial capitalization of the New Banks. The goodwill associated with the acquisitions totaled $826,000 and is being amortized over a five-year period on a straight-line basis. On February 25, 1998, the Clemson Bank and the Belton Bank entered into Purchase and Assumption Agreements with Carolina First Bank to acquire certain assets and deposits associated with three branch offices of Carolina First Bank. On June 15, 1998, the Clemson Bank acquired net loans (including accrued interest receivable) of approximately $580,000 and assumed deposits (including accrued interest payable) of approximately $4.7 million of a Carolina First Branch in Abbeville County, South Carolina. Also on June 15, 1998 the Belton Bank acquired net loans (including accrued interest receivable) of approximately $1.6 million and assumed deposits (including accrued interest payable) of approximately $38.7 million of two branches in Anderson County, South Carolina. The parent company also purchased premises and equipment of approximately $637,000 during the branch acquisitions. In connection with these Carolina First Branches, the Clemson Bank paid a premium of $324,000 and the Belton Bank paid a premium of $2.4 million, both of which are being amortized over a fifteen-year period on a straight-line basis. The branch acquisitions for the Clemson Bank and Belton Bank are hereafter referred to collectively as the "Carolina First Branches in 1998". To maintain the minimum capital requirements for the Carolina First Branch acquisitions in 1998 at the Belton Bank, the Company injected $4.8 million additional capital. To fund this capitalization, the Company used a combination of dividends and loans from its subsidiaries, a loan from a third party, and utilization of liquid assets of the parent company. The Clemson Bank's current capital structure was able to support the acquisition with no capital infusion by the Company. As a one-bank holding company for the Greenwood Bank, the Company grew from approximately $21.5 million in assets, $11.7 million in loans, $16.6 million in deposits, and $4.6 million in shareholders' equity at December 31, 1989, to approximately $65.1 million in assets, $50.6 million in loans, $49.1 million in deposits, and $6.1 million in shareholders' equity at December 31, 1994. The opening of the Clemson Bank in June 1995 resulted in a year-over-year decrease of the Company's earnings per share for the year ended December 31, 1995. The Clemson Bank became profitable in September 1996, and at December 31, 1996, the Company had approximately $116.0 million in assets, $80.5 million in loans, $89.9 million in deposits, and $13.6 million in shareholders' equity. Due to the acquisitions of the New Banks, the net proceeds from the Offering and the 1997 and 1998 Carolina First Branch acquisitions, the Company has grown to $321.0 million in assets, $172.5 million in loans, $260.1 million in deposits, and $33.4 million in shareholders' equity at December 31, 1998. During 1998, the Company experienced dilution of its return on equity and earnings per share due to the continuing expenses incurred in connection with the acquisition and opening of the New Banks, and losses incurred by the Barnwell Bank, the Newberry Bank, and Community Trust Company. Tangible book value per share was also negatively affected by the intangibles associated with the acquisition of the Carolina First Branches in 1997 and 1998, and the New Banks. The Company believes that the dilution of earnings per share, return on equity, and tangible book value per share will be outweighed by the long-term benefits and shareholder value the Company expects to derive from the purchase of the New Banks and the acquisition of the Carolina First Branches in 1997 and 1998. However, there can be no assurance that the Company will be able to achieve these goals. 12 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997 Net interest income increased $2.6 million, or 35.4%, to $9.8 million in 1998 from $7.3 million in 1997. The increase in net interest income was due primarily to an increase in average earning assets. Average earning assets increased $87.3 million, or 49.9%, due to the growth of the New Banks and the acquisition of the Carolina First Branches in 1998. The Company's net interest spread and net interest margin were 3.14% and 3.76%, respectively, in 1998 compared to 3.35% and 4.16% in 1997. The decreases in the net interest spread and net interest margin were primarily the result of the growth in the volume of investment securities, traditionally lower yielding assets than loans, as a percentage of average earning assets. The net cash received from the acquisition of the Carolina First Branches in 1998 was invested in debt securities until the Company is able to shift the funds to loans to achieve the Company's targeted loan-to-deposit ratio and maximize earnings. The provision for loan losses was $1,836,000 in 1998 compared to $608,000 in 1997. The increase in the provision was primarily the result of significant loan problems at the Barnwell Bank which caused it to record a provision for loan losses of $1,278,000 in 1998. Management feels that it has taken the appropriate actions to correct the problem loan situation at the Barnwell Bank. The Company's allowance for loan losses was 1.39% of total loans outstanding at December 31, 1998. In addition, the provision was funded to match the growth in the loan portfolio from the growth of the New Banks and the Banks' efforts to maintain their respective allowances for loan losses at levels sufficient to cover known and inherent losses in their loan portfolios. Noninterest income increased $1.4 million, or 92.0%, to $3.0 million in 1998 from $1.6 million in 1997, which was primarily attributable to increased service charges on deposit accounts and increased fees from mortgage loan originations. The increase in service charges on deposit accounts was attributable to the increase in the number of deposit accounts from the growth of the New Banks. Income from the origination of mortgage loans was $613,000 in 1998 compared to $271,000 in 1997. The Company also recognized gains on sales of securities of $220,000 in 1998 compared to losses on sales of securities of $1,000 in 1997. Other income for the year ended December 31, 1998 also included $130,000 from the sale of the Greenwood Bank's Ninety Six branch. Noninterest expense increased $3.0 million, or 41.1%, to $10.2 million in 1998 from $7.2 million in 1997. The primary component of noninterest expense is salaries and benefits, which increased $1.4 million, or 40.8%, to $4.7 million in 1998 from $3.3 million in 1997. The increase is attributable to an increase in the number of employees due to the growth of the New Banks and to staff the Carolina First Branches acquired in 1998 and 1997. Other categories of expenses increased due to the growth of the New Banks and the acquisition of the Carolina First Branches in 1998. Net occupancy expense was $703,000 in 1998 compared to $479,000 in 1997, and furniture and equipment expense was $1,129,000 in 1998 compared to $771,000 in 1997. The Company recorded amortization of intangible assets related to the Carolina First Branch acquisitions of $443,000 in 1998 compared to $246,000 in 1997. The Company's efficiency ratio was 80.90% in 1998 compared to 81.96% in 1997. Net income decreased $2,000, or .3%, to $764,000 in 1998 from $766,000 in 1997. The decrease in net income was due primarily to the significant increase in the provision for loan losses and increase in other expenses. Return on average assets during 1998 was 0.27% compared to 0.40% during 1997, and return on average equity was 2.33% during 1998 compared to 2.68% during 1997. 13 YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEAR ENDED DECEMBER 31, 1996 Net interest income increased $3.1 million, or 73.3%, to $7.3 million in 1997 from $4.2 million in 1996. The increase in net interest income was due primarily to an increase in average earning assets. Average earning assets increased $77.1 million, or 78.9%, due to investable proceeds from the Offering, the acquisition and opening of the New Banks, and the acquisition of the Carolina First Branches in 1997. The Company's net interest spread and net interest margin were 3.35% and 4.16%, respectively, in 1997 compared to 3.44% and 4.29% in 1996. The decreases in the net interest spread and net interest margin were primarily the result of the growth in the volume of investment securities, traditionally lower yielding assets than loans, as a percentage of average earning assets. Proceeds from the Offering and net cash received from the acquisition of the Carolina First Branches in 1997 were invested in debt securities until the Company is able to shift the funds to loans to achieve the Company's targeted loan-to-deposit ratio and maximize earnings. The provision for loan losses was $608,000 in 1997 compared to $187,000 in 1996. The increase in the provision was primarily the result of the growth in the loan portfolio from the acquisition and opening of the New Banks and the Banks' efforts to maintain their respective allowances for loan losses at levels sufficient to cover known and inherent losses in their loan portfolios. Noninterest income increased $432,000, or 37.9%, to $1.6 million in 1997 from $1.1 million in 1996, primarily attributable to increased service charges on deposit accounts and increased fees from mortgage loan originations. The increase in service charges on deposit accounts was attributable to the increase in the number of deposit accounts from acquisitions during the year and the growth of the New Banks. Due to the continued low mortgage lending rates, the Company was able to originate mortgage loans for qualified borrowers and sell them to investors under pre-existing commitments or originate loans which the Company did not fund. Income from the origination of mortgage loans was $271,000 in 1997 compared to $207,000 in 1996. Noninterest expense increased $3.1 million, or 75.0%, to $7.2 million in 1997 from $4.1 million in 1996. The primary component of noninterest expense is salaries and benefits, which increased $1.4 million, or 69.8%, to $3.3 million in 1997 from $2.0 million in 1996. The increase is attributable to an increase in the number of employees due to the acquisitions of the New Banks and the creation of Community Trust Company, which provides trust services for the Banks, during 1997. Other categories of expenses increased due to the acquisitions of the New Banks and the Carolina First Branches in 1997. Net occupancy expense was $479,000 in 1997 compared to $287,000 in 1996, and furniture and equipment expense was $771,000 in 1997 compared to $305,000 in 1996. The Company recorded amortization of intangible assets related to the acquisitions of $246,000 in 1997 compared to only $14,000 in 1996. The Company's efficiency ratio was 81.96% in 1997 compared to 77.28% in 1996. Net income increased $60,000, or 8.5%, to $766,000 in 1997 from $706,000 in 1996. The increase in net income was due primarily to increases in net interest income due to asset growth from acquisitions. Return on average assets during 1997 was 0.40% compared to 0.67% during 1996, and return on average equity was 2.68% during 1997 compared to 5.41% during 1996. 14 NET INTEREST INCOME GENERAL. The largest component of the Company's net income is its net interest income, which is the difference between the income earned on assets and interest paid on deposits and borrowings used to support such assets. Net interest income is determined by the yields earned on the Company's interest-earning assets and the rates paid on its interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities and the degree of mismatch and the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities. Net interest income divided by average interest-earning assets represents the Company's net interest margin. AVERAGE BALANCES, INCOME, EXPENSES AND RATES. The following tables set forth, for the periods indicated, certain information related to the sCompany's average balance sheet and its average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from the daily balances throughout the periods indicated.
Average Balances, Income and Expenses and Rates Year ended December 31, 1998 1997 1996 --------------------------------------------------------------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate --------- ---------- ------- --------- ------- ------ --------- -------- -------- Assets: Earning Assets Loans (1) $ 161,695 $ 14,942 9.24% $ 113,080 $ 10,604 9.38% $ 71,298 $ 6,622 9.29% Securities, taxable (2) 76,287 4,798 6.29 45,871 3,026 6.60 17,195 1,112 6.47 Securities, nontaxable 15,171 751 4.95 9,056 441 4.87 5,993 290 4.84 Nonmarketable equity 4,085 216 5.29 2,751 133 4.83 1,724 87 5.05 securities Funds sold and other 4,864 336 6.91 4,074 239 5.87 1,538 90 5.85 ----------- ------- --------- ------- -------- ------- Total 262,102 21,043 8.03 174,832 14,443 8.26 97,748 8,201 8.39 earning assets ----------- ------- --------- ------- -------- ------- Cash and due from banks 7,168 5,231 3,080 Premises and equipment 8,288 6,883 3,408 Other assets 9,746 5,818 2,052 Allowance for loan losses (1,912) (1,134) (746) ----------- ---------- ---------- Total assets $ 285,392 $ 191,630 $ 105,542 =========== ========== ========== Liabilities: Interest-Bearing Liabilities Interest-bearing transaction accounts $ 64,836 $ 2,241 3.46% $ 22,482 $ 547 2.43% $ 7,719 $ 151 1.96% Savings deposits 21,118 847 4.01 30,659 1,335 4.35 21,175 928 4.38 Time deposits 124,871 7,040 5.64 78,572 4,443 5.65 41,476 2,346 5.66 Other short-term 3,534 227 6.42 5,326 318 5.97 5,070 283 5.58 borrowings Federal Home Loan Bank advances 13,132 760 5.79 8,968 529 5.90 5,436 298 5.48 Long-term debt 1,530 83 5.42 - - - - - - ----------- ------- --------- ------- -------- ------- Total interest-bear- ing liabilities 229,021 11,198 4.89 146,007 7,172 4.91 80,876 4,006 4.95 ----------- ------- --------- ------- -------- ------- Demand deposits 21,338 15,567 10,591 Accrued interest and other liabilities 2,204 1,471 1,015 Shareholders' equity 32,829 28,585 13,060 ----------- ---------- ---------- Total liabilities and shareholders' equity $ 285,392 $ 191,630 $ 105,542 =========== ========== ========== Net interest spread 3.14% 3.35% 3.44% Net interest income $ 9,845 $ 7,271 $ 4,195 ========== ========== ========= Net interest margin 3.76% 4.16% 4.29%
(1) The effect of loans in nonaccrual status and fees collected is not significant to the computations. All loans and deposits are domestic. (2) Average investment securities exclude the valuation allowance on securities available for sale. 15 ANALYSIS OF CHANGES IN NET INTEREST INCOME. The following tables set forth the effect which the varying levels of earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income from 1998 to 1997 and 1997 to 1996.
ANALYSIS OF CHANGES IN NET INTEREST INCOME YEAR ENDED DECEMBER 31, 1998 Compared With 1997 1997 Compared With 1996 ----------------------------------------------------------------------- Variance Due to Variance Due to (Dollars in thousands) Volume (1) Rate (1) Total Volume (1) Rate (1) Total ----------- ----------- ---------- ----------- ----------- --------- Earning Assets Loans $ 4,494 $ (156) $ 4,338 $ 3,917 $ 65 $ 3,982 Securities, taxable 1,919 (147) 1,772 1,892 22 1,914 Securities, nontaxable 303 7 310 149 2 151 Nonmarketable equity 70 13 83 50 (4) 46 securities Funds sold and other 51 46 97 149 - 149 -------- ------- -------- ---------- ------ -------- Total interest income 6,837 (237) 6,600 6,157 85 6,242 -------- ------- -------- ---------- ------ -------- Interest-Bearing Liabilities Interest-bearing deposits: Interest-bearing transaction 1,385 309 1,694 351 45 396 accounts Savings and market rate (389) (99) (488) 413 (6) 407 investments Certificates and other time deposits 2,610 (13) 2,597 2,098 (1) 2,097 -------- ------- -------- ---------- ------ -------- Total interest-bearing 3,606 197 3,803 2,862 38 2,900 deposits Other short-term borrowings (114) 23 (91) 14 21 35 Federal Home Loan Bank 241 (10) 231 207 24 231 advances Long-term debt 83 - 83 - - - -------- ------- -------- ---------- ------ -------- Total interest expense 3,816 210 4,026 3,083 83 3,166 -------- ------- ------- ----------- ------ -------- Net interest income $ 3,021 $ (447) $ 2,574 $ 3,074 $ 2 $ 3,076 ======== ======= ======== ========== ====== ========
(1) Volume-rate changes have been allocated to each category based on the percentage of the total change. INTEREST SENSITIVITY. The Company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income. The principal monitoring technique employed by the Company is the measurement of the Company's interest sensitivity "gap", which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available for sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in this same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. 16 The following table sets forth the Company's interest rate sensitivity at December 31, 1998.
INTEREST SENSITIVITY ANALYSIS After One After Three Greater Than Within Through Through One Year One Three Twelve Within or Non- DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) Month Months Months One Year sensitive Total ------------ ---------- ---------- ---------- ---------- ---------- ASSETS Earning Assets Loans (1) $ 69,765 13,162 28,058 110,985 60,212 171,197 Securities - 100 20,425 20,525 100,170 120,695 Funds sold and other 1,973 - - 1,973 - 1,973 ------------ ---------- ---------- ---------- ---------- ---------- Total earning assets 71,738 13,262 48,483 133,483 160,382 293,865 ------------ ---------- ---------- ---------- ---------- ---------- LIABILITIES Interest-bearing liabilities Interest-bearing deposits Demand deposits 76,015 - - 76,015 - 76,015 Savings deposits 25,202 - - 25,202 25,202 Time deposits 14,337 21,564 87,063 122,964 12,448 135,412 ------------ ---------- ---------- ---------- ---------- ---------- Total interest- 115,554 21,564 87,063 224,181 12,488 236,629 bearing deposits Other short-term borrowings 11,802 - - 11,802 - 11,802 Federal Home Loan Bank advances - 1,400 - 1,400 8,034 9,434 Long-term debt - - - - 2,925 2,925 ------------ ---------- ---------- ---------- ---------- ---------- Total interest-bearing 127,356 22,964 87,063 237,383 23,407 260,790 liabilities ------------ ---------- ---------- ---------- ---------- ---------- Period gap $ (55,618) $ (9,702) $ (38,580) $(103,900) $ 136,975 ============ ========== ========== ========== ========== Cumulative gap $ (55,618) $ (65,320) $(103,900) $(103,900) $ 33,075 ============ ========== ========== ========== ========== Ratio of cumulative gap to total earning assets (18.93)% (22.23)% (35.36)% (35.36)% 11.26%
(1) Excludes nonaccrual loans. The above table reflects the balances of interest-earning assets and interest-bearing liabilities at the earlier of their repricing or maturity dates. Overnight federal funds are reflected at the earliest pricing interval due to the immediately available nature of the instruments. Debt securities are reflected at each instrument's ultimate maturity date. Scheduled payment amounts of fixed rate amortizing loans are reflected at each scheduled payment date. Scheduled payment amounts of variable rate amortizing loans are reflected at each scheduled payment date until the loan may be repriced contractually; the unamortized balance is reflected at that point. Interest-bearing liabilities with no contractual maturity, such as savings deposits and interest-bearing transaction accounts, are reflected in the earliest repricing period due to contractual arrangements which give the Company the opportunity to vary the rates paid on those deposits within a thirty-day or shorter period. Fixed rate time deposits, principally certificates of deposit, are reflected at their contractual maturity date. The Company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when it is liability-sensitive. The Company is liability sensitive over the one month, three month, and one year time frames. However, the Company's gap analysis is not a precise indicator of its interest sensitivity position. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by management as significantly less interest-sensitive than market-based rates such as those paid on non-core deposits. Accordingly, management believes a liability-sensitive gap position is not as indicative of the Company's true interest sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities. 17 PROVISION AND ALLOWANCE FOR LOAN LOSSES GENERAL. The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem credits. On a quarterly basis, each Bank's Board of Directors reviews and approves the appropriate level for that Bank's allowance for loan losses based upon management's recommendations, the results of the internal monitoring and reporting system, analysis of economic conditions in its markets, and a review of historical statistical data for both the Company and other financial institutions. Additions to the allowance for loan losses, which are expensed as the provision for loan losses on the Company's income statement, are made periodically to maintain the allowance at an appropriate level based on management's analysis of the potential risk in the loan portfolio. Loan losses and recoveries are charged or credited directly to the allowance. The amount of the provision is a function of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, the amount of loan losses actually charged against the reserve during a given period, and current and anticipated economic conditions. The Company's allowance for loan losses is based upon judgments and assumptions of risk elements in the portfolio, future economic conditions and other factors affecting borrowers. The process includes identification and analysis of loss potential in various portfolio segments utilizing a credit risk grading process and specific reviews and evaluations of significant problem credits. In addition, management monitors the overall portfolio quality through observable trends in delinquency, charge-offs, and general and economic conditions in the service area. The adequacy of the allowance for loan losses and the effectiveness of the Company's monitoring and analysis system are also reviewed periodically by the banking regulators and the Company's independent auditors. Based on present information and an ongoing evaluation, management considers the allowance for loan losses to be adequate to meet presently known and inherent risks in the loan portfolio. Management's judgment as to the adequacy of the allowance is based upon a number of assumptions about future events which it believes to be reasonable but which may or may not be valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. The Company does not allocate the allowance for loan losses to specific categories of loans but evaluates the adequacy on an overall portfolio basis utilizing a risk grading system. The following table sets forth certain information with respect to the Company's allowance for loan losses and the composition of charge-offs and recoveries for each of the last five years.
ALLOWANCE FOR LOAN LOSSES YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994 ---------- ---------- ---------- ----------- ----------- Total loans outstanding at end of period, net of unearned income $ 172,545 $ 149,127 $ 80,546 $ 63,204 $ 50,565 ========== ========== ========== ====================== Average loans outstanding, net of unearned income $ 161,695 $ 113,080 $ 71,298 $ 55,018 $ 46,305 ========== ========== ========== ====================== Balance of allowance for loan losses at beginning of $ 1,531 $ 837 $ 671 $ 581 $ 567 period Allowance for loan losses from acquisitions 38 255 - - - Loan losses: Commercial, financial and agricultural 135 92 - 18 - Real estate - mortgage 43 9 - - - Consumer 885 68 21 4 4 ---------- ---------- ---------- ---------------------- Total loan losses 1,063 169 21 22 4 ---------- ---------- ---------- ---------------------- Recoveries of previous loan losses: Commercial, financial and agricultural - - - - - Real estate - mortgage - - - - - Consumer 57 - - - 4 ---------- ---------- ---------- ---------------------- Total recoveries 57 - - - 4 ---------- ---------- ---------- ---------------------- Net loan losses 1,006 169 21 22 - Provision for loan losses 1,836 608 187 112 14 Balance of allowance for loan losses at end of ---------- ---------- ---------- ---------------------- period $ 2,399 $ 1,531 $ 837 $ 671 $ 581 ========== ========== ========== ====================== Allowance for loan losses to period end loans 1.39% 1.03% 1.04% 1.06% 1.15% Net charge-offs to average loans .62 0.15 0.04 0.03 -
18 NONPERFORMING ASSETS. The following table sets forth the Company's nonperforming assets for the dates indicated.
NONPERFORMING ASSETS DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994 -------- -------- -------- -------- --------- Nonaccrual loans $1,348 $ 678 $ 186 $ 13 $ 3 Restructured or impaired loans - - - - - ------- ------ ------- ------ ------ Total nonperforming loans 1,348 678 186 13 3 Other real estate owned - 262 - - 19 ------- ------ ------- ------ ------ Total nonperforming assets $1,348 $ 940 $ 186 $ 13 $ 22 ======= ====== ======= ====== ====== Loans 90 days or more past due and still accruing $ 112 $ 84 $ 54 $ 60 $ 39 interest Nonperforming assets to period end loans and foreclosed property .78% 0.63% 0.23% 0.02% 0.04%
Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that the collection of interest is doubtful. A delinquent loan is generally placed in nonaccrual status when it becomes 90 days or more past due. When a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from current earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. When a problem loan is finally resolved, there may ultimately be an actual writedown or charge-off of the principal balance of the loan which would necessitate additional charges to earnings. For all periods presented, the additional interest income, which would have been recognized into earnings if the Company's nonaccrual loans had been current in accordance with their original terms, is immaterial. Total nonperforming assets increased $408,000 to $1.3 million at December 31, 1998, from $940,000 at December 31, 1997. This increase was primarily due to nonaccrual loans at the Greenwood Bank totaling $1.2 million at December 31, 1998. Two loans in nonaccrual status totaling approximately $450,000 were to one customer of the Greenwood Bank. Nonperforming assets were 0.78% of total loans and foreclosed property at December 31, 1998. The allowance for loan losses to period end nonperforming assets was 177.97% at December 31, 1998. POTENTIAL PROBLEM LOANS. At December 31, 1998, through their internal review mechanisms, the Banks had identified $7.8 million of criticized loans and $4.8 million of classified loans. The results of this internal review process are the primary determining factor in management's assessment of the adequacy of the allowance for loan losses. The Company's Barnwell Bank incurred significant loan losses in 1998 that were primarily attributable to a large number of small-dollar consumer loans that originated during the fourth quarter of 1997 and the beginning of 1998. When the loan problem first surfaced, certain loan personnel and administrative changes were made to correct the situation. However, the magnitude of the problem was not fully realized until the fourth quarter when an extensive examination was made of the Barnwell Bank's complete loan portfolio. As a result of this examination the loan loss provision for the Barnwell Bank was increased to $806,542 for the fourth quarter and to $1,278,000 for the year which increased its allowance for loan losses to 2.14% of total loans outstanding at December 31, 1998. Near the end of the year a new senior lender was hired by the Barnwell Bank. While management feels that it has taken the necessary actions to correct the problem loan situation at the Barnwell Bank, the internal review process has identified a number of criticized and classified loans that still exist at December 31, 1998. Of the Company's $7.8 million criticized loans and $4.8 million classified loans, $4.1 million and $1.3 million were identified at the Barnwell Bank, respectively. 19 NONINTEREST INCOME AND EXPENSE NONINTEREST INCOME. The largest component of noninterest income is service charges on deposit accounts, which totaled $1.3 million in 1998, a 49.6% increase over the 1997 level of $842,000. The increase in service charges and other noninterest income was primarily attributable to an increase in the customer base due to the growth of the New Banks and the acquisition of the Carolina First Branches in 1997 and 1998. The following table sets forth, for the periods indicated, the principal components of noninterest income:
NONINTEREST INCOME YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 -------------------------------- Service charges on deposit accounts $ 1,260 $ 842 $ 515 Residential mortgage origination fees 613 271 207 Securities gains (losses) 220 (1) 17 Fees from sales of mutual funds 104 54 132 Income from fiduciary activities 133 37 34 Other 687 368 234 -------------------------------- Total noninterest income $ 3,017 $ 1,571 $ 1,139 ================================
NONINTEREST EXPENSE. Salaries and employee benefits increased $1.4 million, or 40.8%, to $4.7 million in 1998 from $3.3 million in 1997, primarily as a result of an increase in the number of employees in order to staff the growth of the New Banks and to staff the Carolina First Branches acquired in 1998. The growth of the New Banks, and the acquisition of the Carolina First Branches in 1997 and 1998 also resulted in increases in all other categories of noninterest expense. The Company is amortizing the intangible assets associated with the acquisitions over periods ranging from five to fifteen years. During 1998, the Company recorded amortization expense of $443,000 compared to $246,000 in 1997. The factors above resulted in increases in net occupancy expense, furniture and equipment expense, and other operating expenses. The Company's efficiency ratio, which is noninterest expense as a percentage of the total of net interest income plus noninterest income, net of gains and losses on the sale of assets, was 80.90% in 1998 compared to 81.96% in 1997 and 77.28% in 1996. The following table sets forth, for the periods indicated, the primary components of noninterest expense:
NONINTEREST EXPENSE YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 ---------- ---------- ---------- Salaries and employee benefits $ 4,688 $ 3,329 $ 1,960 Net occupancy expense 703 479 287 Furniture and equipment expense 1,129 771 305 Director and committee fees 182 124 114 Amortization of intangibles 443 246 14 Data processing and supplies 135 151 176 Mortgage loan department expense 191 94 80 Banking assessments 58 44 3 Professional fees 360 205 132 Postage and freight 278 200 117 Supplies 367 451 228 Credit card expenses 139 120 94 Telephone expenses 364 214 74 Other 1,191 820 557 ---------- ---------- ---------- Total noninterest expense $ 10,228 $ 7,248 $ 4,141 ========== ========== ========== Efficiency ratio 80.90% 81.96% 77.28%
INCOME TAXES. The Company's income tax expense was $34,000, a decrease of $186,000 from the 1997 amount of $220,000. The decrease is partially attributable to a decrease in income before taxes of $188,000 when compared to 1997 and the positive effect of the $310,000 increase in nontaxable income. In addition, the amount of nontaxable income from securities offset the majority of income before taxes. Nontaxable securities income was $751,000 for the year ended December 31, 1998, as compared to $441,000 for the year ended December 31, 1997. 20 EARNING ASSETS LOANS. Loans are the largest category of earning assets and typically provide higher yields than the other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control and counterbalance. Loans averaged $161.7 million in 1998 compared to $113.1 million in 1997, an increase of $48.6 million, or 43.0%. At December 31, 1998, total loans were $172.5 million compared to $149.1 million at December 31, 1997. The increase in loans during 1998 was primarily due to the continued growth in the new markets created by the acquisition of the New Banks and the purchase of approximately $2.1 million in loans from the Carolina First Branches acquired in 1998 by the Belton Bank and the Clemson Bank. The Banks have also actively sought opportunities to participate in loans originated by other financial institutions. The following table sets forth the composition of the loan portfolio by category at the dates indicated and highlights the Company's general emphasis on mortgage lending.
COMPOSITION OF LOAN PORTFOLIO DECEMBER 31, 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------------- Percent Percent Percent Percent Percent Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total (Dollars in thousands) ------- -------- ------- --------- ------ -------- -------- -------- ------- -------- Commercial, financial and agricultural $28,991 16.80% $ 36,079 24.19% $15,348 19.05% $ 13,349 21.12 % $12,231 24.19% Real estate Construction 32,284 18.71 12,838 8.61 9,962 12.37 8,483 13.42 5,906 11.68 Mortgage-residential 53,375 30.93 40,977 27.48 31,519 39.13 22,515 35.62 14,978 29.62 Mortgage- nonresidential 26,658 15.46 32,518 21.81 17,616 21.87 14,190 22.45 13,436 26.57 Consumer 29,784 17.26 25,747 17.27 5,947 7.38 4,591 7.27 3,953 7.82 Other 1,453 .84 968 0.64 154 0.20 76 0.12 61 0.12 ------- ------- -------- ------- ------- ------- --------- ------ -------- ------ Total loans 172,545 100.00% 149,127 100.00% 80,546 100.00 % 63,204 100.00% 50,565 100.0% ======= ======= ======= ====== ====== Allowance for loan (2,399) (1,531) (837) (671) (581) losses -------- --------- -------- --------- -------- Net loans 170,146 $147,596 $79,709 $ 62,533 $49,984 ======== ========= ======== ========= ========
The principal component of the Company's loan portfolio is real estate mortgage loans. At December 31, 1998, this category totaled $80.0 million and represented 46.4% of the total loan portfolio, compared to $73.5 million, or 49.3%, at December 31, 1997. In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. It is common practice for financial institutions in the Company's market areas to obtain a security interest in real estate, whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Real estate construction loans increased $19.4 million, or 151.5%, to $32.3 million at December 31, 1998, from $12.8 million at December 31, 1997. Residential mortgage loans, which is the largest category of the Company's loans, increased $12.4 million, or 30.3%, to $53.4 million at December 31, 1998, from $41.0 million at December 31, 1997. Residential real estate loans consist of first and second mortgages on single or multi-family residential dwellings. Nonresidential mortgage loans, which include commercial loans and other loans secured by multi-family properties and farmland, decreased $5.9 million, or 18.0%, to $26.7 million at December 31, 1998, from $32.5 million at December 31, 1997. The overall increase in real estate lending was attributable to the new markets in the local communities of the New Banks, the continued demand for residential and commercial real estate loans in the Greenwood market, and loan growth at the Clemson Bank. The Banks have been able to compete favorably for residential mortgage loans with other financial institutions by offering fixed rate products having three and five year call provisions. Commercial, financial and agricultural loans decreased $7.1 million, or 19.6%, to $29.0 million at December 31, 1998, from $36.1 million at December 31, 1997. This decrease was primarily attributable to the Company's focus on mortgage and construction lending opportunities. Consumer loans increased $4.0 million, or 15.7%, to $29.8 million at December 31, 1998, from $25.7 million at December 31, 1997. The growth in consumer loans is primarily attributable to overall growth in the Company's loan portfolio due to new markets created by the New Banks. 21 LOANS. The Company's loan portfolio reflects the diversity of its markets. The home office and the branch office of the Greenwood Bank are located in Greenwood County, South Carolina. The economy of Greenwood contains elements of medium and light manufacturing, higher education, regional healthcare, and distribution facilities. The Clemson Bank moved into its permanent facility in Clemson, South Carolina during 1997. Due to its proximity to a major interstate highway and Clemson University, a state-supported university, management expects the area to remain stable with continued growth. The Belton Bank and the Barnwell Bank are in more rural areas and will have a higher concentration of consumer loans with fewer opportunities for commercial lending. The Newberry Bank is located in Newberry County, South Carolina and is in close proximity to an interstate highway. The diversity of the economy creates opportunities for all types of lending. The Company does not engage in foreign lending. The repayment of loans in the loan portfolio as they mature is also a source of liquidity for the Company. The following table sets forth the Company's loans maturing within specified intervals at December 31, 1998. LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
Over One Year One Year Through Over Five DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) or Less Five Years Total ---------- ------------ --------- -------- Commercial, financial and agricultural $ 14,373 $12,805 $ 1,813 $ 28,991 Real estate 28,857 49,786 33,674 112,317 Consumer and other 8,424 19,387 3,426 31,237 Loans maturing after one year with: Fixed interest rates $ 85,559 Floating interest rates 35,332 ----------- $ 120,891 ===========
The information presented in the above table is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity and repricing structure of the loan portfolio shown in the above table. INVESTMENT SECURITIES. The investment securities portfolio is a significant component of the Company's total earning assets. Total securities averaged $95.5 million in 1998, compared to $57.7 million in 1997 and $24.9 million in 1996. At December 31, 1998, the total securities portfolio was $120.7 million. Securities designated as available for sale totaled $115.2 million and were recorded at estimated fair market value, and securities designated as held to maturity totaled $650,000 and were recorded at amortized cost. The securities portfolio also includes nonmarketable equity securities totaling $4.8 million which are carried at cost because they are not readily marketable or have no quoted market value. These include investments in Federal Reserve Bank stock, Federal Home Loan Bank stock and the stock of four unrelated financial institutions. The increase in the portfolio during 1998 was primarily due to the investment of proceeds from the Clemson and Belton Banks' Carolina First Branch acquisitions in debt securities. The following table sets forth the book value of the securities held by the Company at the dates indicated.
BOOK VALUE OF SECURITIES DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 -------------------------------- U.S. Treasury $ 597 $ 13,467 $ 6,420 U.S. government agencies 64,517 46,236 11,150 State, county and municipal securities 20,656 13,573 5,367 Mortgage-backed securities 28,993 273 343 Nonmarketable equity securities 4,823 3,224 2,199 -------------------------------- Total securities $ 119,586 $ 76,773 $ 25,479 ================================
22 The following table sets forth the scheduled maturities and average yields of securities held at December 31, 1998.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS After One But After Five But (Dollars in thousands) Within One Within Five Within Ten DECEMBER 31, 1998 Year Years Years After Ten Years ----------------- ----------------- ----------------- ------------------- Amount Yield Amount Yield Amount Yield Amount Yield ----------------- ----------------- ----------------- ------------------- U.S. Treasury $ - -% $ 614 6.49% $ - -% $ - - % U.S. government agencies 5,514 5.61 48,103 5.83 9,291 6.28 1,997 7.01 State and political subdivisions (2) 172 7.34 3,741 6.64 3,464 7.58 13,898 7.65 ---------- ---------- ---------- ---------- Total (1) $ 5,686 5.66% $ 52,458 5.97% $ 12,755 6.63% $ 15,895 7.57 % ========== ========== ========== ==========
(1) Excludes mortgage-backed securities totaling $29.0 million with a yield of 5.94% and nonmarketable equity securities. (2) The yield on state and political subdivisions is presented on a tax equivalent basis using a federal income tax rate of 34%. Other attributes of the securities portfolio, including yields and maturities, are discussed above in "---Net Interest Income--- Interest Sensitivity." SHORT-TERM INVESTMENTS. Short-term investments, which consist primarily of federal funds sold and interest-bearing deposits with other banks, averaged $4.9 million in 1998, compared to $4.1 million in 1997 and $1.5 million in 1996. At December 31, 1998, short-term investments totaled $2.0 million. These funds are a source of the Banks' liquidity. Federal funds are generally invested in an earning capacity on an overnight basis. DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES Average interest-bearing liabilities increased $83.0 million, or 56.9%, to $229.0 million in 1998, from $146.0 million in 1997. Average interest-bearing deposits increased $79.1 million, or 60.1%, to $210.8 million in 1998, from $131.7 million in 1997. These increases resulted from increases in most categories of interest-bearing liabilities, primarily as a result of the approximately $43.7 million of deposits transferred upon the Carolina First Branch acquisitions in 1998 to the Clemson and Belton Banks. DEPOSITS. Average total deposits increased $84.9 million, or 57.6%, to $232.2 million during 1998, from $147.3 million during 1997. At December 31, 1998, total deposits were $260.1 million compared to $186.9 million a year earlier, an increase of 39.2%. The following table sets forth the deposits of the Company by category at the dates indicated.
DEPOSITS DECEMBER 31 1998 1997 1996 1995 1994 ------------------- ------------------ ---------------- ----------------- ----------------- (Dollars in Percent Percent Percent Percent Percent thousands) of of of of of Amount Deposits Amount Deposits Amount Deposits Amount Deposits Amount Deposits ---------- -------- -------- -------- -------- ------- --------- -------- ------- --------- Demand deposit accounts $ 23,491 9.03% $19,460 10.41% $12,226 13.61% $ 9,447 12.92 % $ 6,968 14.18% NOW accounts 45,854 17.63 30,562 16.36 8,296 9.23 8,028 10.98 7,158 14.56 Money market accounts 30,161 11.60 20,812 11.14 14,035 15.62 9,498 12.98 4,815 9.80 Savings accounts 25,202 9.69 15,127 8.09 8,681 9.66 7,922 10.83 6,818 13.87 Time deposits less than $100,000 104,491 40.17 73,827 39.51 34,745 38.66 26,161 35.77 15,893 32.34 Time deposits of $100,000 or over 30,921 11.88 27,073 14.49 11,879 13.22 12,082 16.52 7,494 15.25 ---------- -------- ------- -------- ------- ------- -------- ------- ------- -------- Total deposits $ 260,120 100.00% $186,861 100.00% $89,862 100.00 % $ 73,138 100.00 % $49,146 100.00% ========== ======== ======= ======== ======= ======= ======== ======= ======= ========
Core deposits, which exclude certificates of deposit of $100,000 or more, provide a relatively stable funding source for the Company's loan portfolio and other earning assets. The Company's core deposits increased $69.4 million in 1998 due to the branch acquisitions. 23 Deposits, and particularly core deposits, have historically been the Company's primary source of funding and have enabled the Company to meet successfully both its short-term and long-term liquidity needs. Management anticipates that such deposits will continue to be the Company's primary source of funding in the future. The Company's loan-to-deposit ratio was 66.3% at December 31, 1998, 79.8% at the end of 1997, and averaged 69.7% during 1998. The maturity distribution of the Company's time deposits over $100,000 at December 31, 1998, is set forth in the following table.
Maturities of Certificates of Deposit of $100,000 or More After Three After Six Within Through Through After Three Six Twelve Twelve Months Months Months Months Total ----------- ------------ ----------- ----------- ----------- Certificates of deposit of $100,000 or more $ 9,938 $ 7,945 $ 10,341 $ 2,697 $ 30,921
Approximately 32.1% of the Company's time deposits over $100,000 had scheduled maturities within three months and 57.8% had maturities within six months. Large certificate of deposit customers tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits. Some financial institutions partially fund their balance sheets using large certificates of deposit obtained through brokers. These brokered deposits are generally expensive and are unreliable as long-term funding sources. Accordingly, the Company does not solicit brokered deposits. BORROWED FUNDS. Borrowed funds consist primarily of short-term borrowings in the form of federal funds purchased from correspondent banks, securities sold under agreements to repurchase, and advances from the Federal Home Loan Bank. Average short-term borrowings were $16.7 million in 1998, an increase of $2.4 million from 1997. Average Federal Home Loan Bank advances during 1998 were $13.1 million compared to $9.0 million during 1997, an increase of $4.1 million. Advances from the Federal Home Loan Bank are collateralized by $9.6 million of debt securities of U.S. Government agencies, one-to-four family residential mortgage loans, and the Company's investment in Federal Home Loan Bank stock. At December 31, 1998, borrowings from the Federal Home Loan Bank were $9.4 million compared to $16.4 million a year earlier. Although management expects to continue using short-term borrowing and Federal Home Loan Bank advances as secondary funding sources, core deposits will continue to be the Company's primary funding source. Of the $9.4 million advances from the Federal Home Loan Bank outstanding at December 31, 1998, $8.0 million will mature after one year. LONG-TERM DEBT. Long-term debt consists of borrowings obtained to infuse capital into the Belton Bank in order to maintain the minimum capital ratios as a result of the Belton Bank's purchase of two Carolina First Branches in 1998. The average balance of the long-term debt was $1.5 million in 1998. Long-term debt totaled $2.9 million at December 31, 1998. The debt is collateralized by the stock of the subsidiary banks and bears interest at a simple interest rate per annum equal to the London Interbank Offered rate plus 200 basis points. Interest is payable on a quarterly basis, commencing December 31, 1998. Principal payments are due in ten equal installments, beginning on the third anniversary of the note, with the final balance due on December 21, 2010. CAPITAL The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital of the Company consists of common shareholders' equity, excluding the unrealized gain(loss) on available-for-sale securities, minus intangible assets. The Company's Tier 2 capital consists of the allowance for loan losses subject to certain limitations. A bank holding company's qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital. The holding company and banking subsidiaries are also required to maintain capital at a minimum level based on average total assets (as defined), which is known as the leverage ratio. Only the strongest bank holding companies and banks are allowed to maintain capital at the minimum requirement. All others are subject to maintaining ratios 1% to 2% above the minimum. 24 The Company exceeded the Federal Reserve's fully phased-in regulatory capital ratios at December 31, 1998, 1997 and 1996, as set forth in the following table.
ANALYSIS OF CAPITAL DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 ---------- ---------- ---------- Tier 1 capital $ 27,142 $ 28,341 $ 13,474 Tier 2 capital 2,399 1,531 837 ---------- ---------- ---------- Total qualifying capital $ 29,541 $ 29,872 $ 14,311 ========== ========== ========== Risk-adjusted total assets (including off-balance sheet exposures) $ 196,968 $ 160,538 $ 86,512 ========== ========== ========== Tier 1 risk-based capital ratio 13.78% 17.65% 15.58% Total risk-based capital ratio 15.00 18.61 16.54 Tier 1 leverage ratio 8.89 12.08 11.62
Each of the Banks is required to maintain risk-based and leverage ratios similar to those required for the Company. Each of the Banks exceeded these regulatory capital ratios at December 31, 1998, as set forth in the following table.
BANK CAPITAL RATIOS Tier 1 Total Risk- Risk- Tier 1 December 31, 1998 Based Based Leverage ---------- ---------- ---------- The Greenwood Bank 10.77% 11.84% 8.47% The Clemson Bank 15.56 16.71 10.74 The Barnwell Bank 12.82 14.14 7.87 The Belton Bank 23.25 22.29 9.12 The Newberry Bank 23.03 24.08 11.25
The Banks are expected to maintain capital ratios that exceed their regulatory minimum requirements. The Company has verbally committed to the state Commissioner of Banking to maintain the percentage of Tier 1 capital (as defined by the commissioner) to total assets at the New Banks at a minimum of 8.00%. The Tier 1 leverage ratio for the Barnwell Bank was 7.87% at December 31, 1998, below the minimum of 8.00%. Management has committed to the state Commissioner of Banking to take the necessary steps to have this ratio at 8.00% by March 31, 1999. The Clemson Bank and the Belton Bank acquired three Carolina First Branches in 1998. The purchase of the branches and the intangible assets resulting from the purchase lowered the capital ratios of the two banks. The Company infused additional capital of approximately $4.8 million into the Belton Bank after the acquisitions. Although the capital ratios of the Clemson Bank decreased, they remained well above the minimum ratios. See "Liquidity Management and Capital Resources" for additional information. LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES Liquidity management involves monitoring the Company's sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Liquidity management is made more complex because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control. 25 Net proceeds from the Offering and cash received upon the acquisition of the Carolina First Branches in 1997 and 1998 improved the overall liquidity of the Company. The funds were primarily invested in securities which the Company has designated as available for sale. As a result, the Company's loans-to-assets ratio and loans-to-funds ratio decreased. The loans-to-assets ratio at December 31, 1998 was 53.7% compared to 59.9% at December 31, 1997, and the loans-to-funds ratio at December 31, 1998 was 60.7% compared to 69.3% at December 31, 1997. The amount of advances from the Federal Home Loan Bank were approximately $9.4 million at December 31, 1998 compared to $16.3 million at December 31, 1997. Management expects to continue using these advances as a source of funding. The Company obtained borrowings from an unrelated financial institution in 1998 to purchase the three branches from Carolina First. At December 31, 1998, total long-term debt was $2.9 million. Additionally, the Company has approximately $19.5 million of unused lines of credit for federal funds purchases. The Company also has approximately $115.2 million of securities available for sale as a source of liquidity. The Company depends on dividends from the Banks as its primary source of liquidity. The ability of the Banks to pay dividends is subject to general regulatory restrictions which may, but are not expected to, have a material impact on the liquidity available to the Company. Generally, banks are not allowed to pay dividends unless the retained earnings are in a positive position. Accordingly, management does not expect the New Banks to be able to pay cash in the form of dividends to its parent company in the near future. The Company does not plan to pay cash dividends for the near term. The Company has paid stock dividends in April 1994, August 1995, May 1996, and September 1998 and may do so in the future. The net proceeds of the Offering were adequate for the initial capitalization of each New Bank and for capital injections at the Barnwell Bank and the Greenwood Bank to comply with capital requirements of the State Board resulting from the growth of the banks. The State Board could require the Company to increase the capitalization of any of the banks. In such event, the Company would likely fund the increased capitalization through the dividends from the Banks (to the extent available), through loans from the Company's banking subsidiaries (subject to regulatory limits and regulatory approval) or through loans from third parties (subject to obtaining regulatory approval). ACCOUNTING RULE CHANGES DERIVATIVES AND HEDGING ACTIVITIES. In June 1998, the Financial Accounting Standards Board released Statement of Financial Account Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair values. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company and its subsidiary banks generally do not purchase derivative instruments or enter into hedging activities. This statement is effective for fiscal years beginning after June 15, 1999. IMPACT OF INFLATION Unlike most industrial companies, the assets and liabilities of financial institutions such as the Company and its subsidiaries are primarily monetary in nature. Therefore, interest rates have a more significant effect on the Company's performance than do the effects of changes in the general rate of inflation and change in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. As discussed previously, management seeks to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation. INDUSTRY DEVELOPMENTS In February 1998, the Supreme Court ruled that a federal credit union must limit its membership to employees of the company that sponsors it. Banking leaders throughout the country have argued that credit unions have an unfair competitive advantage because they do not pay income taxes and are not subject to the same level of regulatory oversight. The Supreme Court ruling applies only to federal credit unions. State-chartered credit unions were not directly affected by the ruling. The lower courts will determine whether current members who are not employed by the credit union sponsor will be forced to close their accounts. Management does not expect the ruling to have an immediate affect on the financial position or results of operations of the Company. The effects on future periods has not yet been determined. 26 THE YEAR 2000 ISSUES. Some computers, software, and other equipment include programming codes in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce results if "00" is interpreted to mean 1900, rather than 2000. These problems are widely expected to increase in frequency and severity as the year 2000 approaches and are commonly referred to as the "Year 2000 Problem". ASSESSMENT. The Year 2000 Problem could affect computers, software, and other equipment that the Company uses. Accordingly, the Company has completed a review of its internal computer programs and systems to determine whether they will be Year 2000 compliant in a timely manner. However, while the Company does not expect the cost of these efforts to be material to its financial position or any year's operating results, there can be no assurance to this effect. INTERNAL INFRASTRUCTURE. The Company utilizes an in-house data processing system for most of its accounting functions. The Company believes that it has identified substantially all of the major computers, software applications, and related equipment used in connection with its internal operations that must be modified, upgraded, or replaced to minimize the possibility of a material disruption of its business. Management has completed upgrading and is in the process of testing the systems for year 2000 compliance. Management believes that the testing of its systems should be completed by March 31, 1999. The Company also has a number of personal computers, most of which are considered to be Year 2000 compliant. Management has spent approximately $320,000 to get all of its systems Year 2000 compliant. The Company does not believe that the cost related to these efforts will be material to its business, financial condition, or operating results. SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers and related systems, the operation of the Company's office and facilities equipment, such as fax machines, photocopiers, telephone switches, security systems, and other devices, may be affected by the Year 2000 Problem. The Company has completed its assessment of the potential effect of, and the costs of remediating, the Year 2000 Problem on this equipment. The Company estimates that its total cost of completing any required modifications, upgrades, or replacements of these internal systems will not have a material effect on its business, financial condition, or operating results. SUPPLIERS AND OTHER THIRD PARTIES. The Company has been gathering information from and has initiated communications with its suppliers and other third parties to identify and, to the extent possible, resolve issues involving the Year 2000 Problem. However, the Company has limited or no control over the actions of its suppliers and others. Therefore, while the Company expects that it will be able to resolve any significant Year 2000 Problems with its own system, it cannot guarantee that its suppliers or others will resolve any or all Year 2000 Problems with their systems before the occurrence of a material disruption to their businesses. Any failure of these suppliers or others to resolve Year 2000 Problems with their systems in a timely manner could have a material adverse effect on the Company's business, financial condition, or operating results. CUSTOMERS. The Company believes that the largest Year 2000 Problem exposure to most banks is the preparedness of the customers of the banks. Management is addressing with its customers the possible consequences of not being prepared for Year 2000. Should large borrowers not sufficiently address this issue, the Company may experience an increase in loan defaults. The amount of potential loss from this issue is not quantifiable. Management is attempting to reduce this exposure by educating its customers. The Company has implemented a comprehensive Year 2000 credit review policy for all existing loans that exceed $100,000 as well as an underwriting policy for all new loan requests. At present, the Company's review indicates that the Company's exposure to credit risks associated with Year 2000 is considered to be low. The Company's credit review procedures will continue to include these policies throughout 1999. 27 MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company expects to identify and resolve all Year 2000 Problems that could materially adversely affect its business, financial condition, or operating results. However, the Company believes that it is not possible to determine with complete certainty that all Year 2000 Problems affecting it have been identified or corrected. The number of devices that could be affected and the interactions among these devices are simply too numerous. In addition, the Company cannot accurately predict how many failures related to the Year 2000 Problem will occur with its suppliers, customers, or other third parties or the severity, duration, or financial consequences of such failures. As a result, the Company expects that it could possibly suffer the following consequences: A number of operational inconveniences and inefficiencies for the Company, its service providers, or its customers that may divert the Company's time and attention and financial and human resources from its ordinary business activities; and System malfunctions that may require significant efforts by the Company or its service providers or customers to prevent or alleviate material business disruptions. CONTINGENCY PLANS. The Company is in the process of developing contingency plans to be implemented as part of its efforts to identify and correct Year 2000 Problems affecting its internal systems. The Company's Business Resumption Contingency Plan is expected to be completed by June 30, 1999. Depending on the systems affected, these plans include (a) accelerated replacement of affected equipment or software; (b) short term use of backup equipment and software; (c) increased work hours for the Company's personnel or use of contract personnel to correct on an accelerated schedule any Year 2000 Problems which arise; and (d) other similar approaches. If the Company is required to implement any of these contingency plans, these plans could have a material adverse effect on its business, financial condition, or operating results. 28 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable, as the Company qualifies as a "small business issuer" under Regulation S-B promulgated by the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements identified in Item 14 of this Report on Form 10-K are included herein beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Information called for by PART III (Items 10, 11, 12 and 13) of this Report on Form 10-K has been omitted as the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year ended December 31, 1998 a definitive Proxy Statement pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934. Such information will be set forth in such Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1)-(2) Financial Statements and Schedules: The consolidated financial statements and schedules of the Company identified in the accompanying Index to Financial Statements at page F-1 herein are filed as part of this Report on Form 10-K. (3) Exhibits: The accompanying Exhibit Index on page E-1 sets forth the exhibits that are filed as part of this Report on Form 10-K. (b) Reports on Form 8-K: None. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Community Capital Corporation, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMMUNITY CAPITAL CORPORATION Dated: March 27, 1999 By: /s/ WILLIAM G. STEVENS ------------------------------------------ William G. Stevens President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ WILLIAM G. STEVENS President (Principal March 27, 1999 - --------------------------- Executive Officer) and William G. Stevens Director /s/ JAMES H. STARK Chief Financial March 27, 1999 - --------------------------- Officer (Principal James H. Stark Financial and Accounting Officer) and Secretary * Assistant March 27, 1999 - --------------------------- Secretary and Patricia C. Edmonds Director * Director March 27, 1999 - --------------------------- David P. Allred, M.D. * Director March 27, 1999 - --------------------------- Earl H. Bergen * Director March 27, 1999 - --------------------------- Robert C. Coleman Director March 27, 1999 - --------------------------- John W. Drummond * Director March 27, 1999 - --------------------------- James M. Horton * Director March 27, 1999 - --------------------------- Hazel B. Hughes 30 * Director March 27, 1999 - --------------------------- Wayne Q. Justesen, Jr. * Director March 27, 1999 - --------------------------- Clinton C. Lemon, Jr. * Director March 27, 1999 - --------------------------- James A. Lollis * Director March 27, 1999 - --------------------------- Thomas C. Lynch, Jr. * Director March 27, 1999 - --------------------------- H. Edward Munnerlyn * Director March 27, 1999 - --------------------------- George B. Park * Director March 27, 1999 - --------------------------- Joseph H. Patrick, Jr. * Director March 27, 1999 - --------------------------- Donna W. Robinson * Director March 27, 1999 - --------------------------- George D. Rodgers * Director March 27, 1999 - --------------------------- Charles J. Rogers Director March 27, 1999 - --------------------------- Thomas F. Skelton Director March 27, 1999 - --------------------------- William F. Steadman Director March 27, 1999 - --------------------------- Lex D. Walters *By: /s/ WILLIAM G. STEVENS March 27, 1999 - --------------------------- (William G. Stevens) (As Attorney-in-Fact for each of the persons indicated) 31 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION 3.1 * Articles of Incorporation of Registrant. 3.2 * Articles of Amendment to Articles of Incorporation of Registrant (re: Change of Name). 3.3 * Bylaws of Registrant. 4.1** Form of Common Stock Certificate. (The rights of security holders of the Registrant are set forth in the Registrant's Articles of Incorporation and Bylaws included as Exhibits 3.1 and 3.3, respectively.) 10.3 * Registrant's Executive Supplemental Income Plan (Summary) and form of Executive Supplemental Income Agreement. 10.4 * Registrant's Management Incentive Compensation Plans (Summary). 10.5 * Lease Agreement dated July 8, 1994 between John W. Drummond and the Registrant. 10.6 ** Lease Agreement With Options dated June 11, 1996 between Robert C. Coleman and the Registrant. 10.18 1997 Stock Incentive Plan, as amended.(Incorporated by reference to Registrant's Definitive Proxy Statement for Annual Meeting of Shareholders held on May 26, 1999.) 21.1 Subsidiaries of the Registrant. 24.1 Directors' Powers of Attorney. 27.1 Financial Data Schedule.
- ------------------ * Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant's Form 10-K for the fiscal year ended December 31, 1995. ** Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant's Registration Statement on Form S-2 initially filed on December 20, 1996 (File No. 333-18457). E-1 EX-13 2 EXHIBIT 13 -- FINANCIAL TO ANNUAL REPORT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COMMUNITY CAPITAL CORPORATION
Report of Independent Accountants............................................F-2 Consolidated Balance Sheets at December 31, 1998 and 1997....................F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996...............................................................F-4 Consolidated Statements of Comprehensive Income for the Years ended December 31, 1998, 1997 and 1996............................................F-5 Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 1998, 1997 and 1996................................F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.....................................................F-7 Notes to Consolidated Financial Statements...................................F-8
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Community Capital Corporation Greenwood, South Carolina We have audited the accompanying consolidated balance sheets of Community Capital Corporation and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Community Capital Corporation and Subsidiaries as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Tourville, Simpson & Henderson, L.L.P. - --------------------------------------------- Tourville, Simpson & Henderson, L.L.P. Columbia, South Carolina January 20, 1999 (except for Note 16, as to which the date is January 27, 1999) F-2 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
ASSETS December 31, ------------ 1998 1997 ---- ---- Cash and cash equivalents: Cash and due from banks $ 8,354 $ 7,347 Interest-bearing deposit accounts 693 415 Federal funds sold 1,280 350 ----------- ----------- Total cash and cash equivalents 10,327 8,112 ----------- ----------- Securities: Available for sale 115,222 73,581 Held to maturity (market value at December 31, 1998 and 1997 was $650 and $675, respectively) 650 675 Nonmarketable equity securities 4,823 3,224 ----------- ----------- Total securities 120,695 77,480 ----------- ----------- Loans receivable 172,545 149,127 Less allowance for loan losses (2,399) (1,531) ----------- ------------ Loans, net 170,146 147,596 ----------- ----------- Premises and equipment, net 8,907 8,293 Accrued interest receivable 2,553 2,381 Intangible assets 5,557 3,119 Other assets 2,846 1,880 ----------- ----------- Total assets $ 321,031 $ 248,861 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Non-interest bearing $ 23,491 $ 19,460 Interest bearing 236,629 167,401 ----------- ----------- Total deposits 260,120 186,861 Federal funds purchased and securities sold under agreements to repurchase 11,802 11,943 Advances from the Federal Home Loan Bank 9,434 16,350 Long-term debt 2,925 - Accrued interest payable 1,661 1,351 Other liabilities 1,659 428 ----------- ----------- Total liabilities 287,601 216,933 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock, $1 par value; 10,000,000 shares authorized; 3,092,268 and 2,905,303 shares issued and outstanding at December 31, 1998 and 1997, respectively 3,092 2,905 Capital surplus 29,598 27,492 Accumulated other comprehensive income 732 467 Retained earnings 8 1,064 ----------- ----------- Total shareholders' equity 33,430 31,928 ----------- ----------- Total liabilities and shareholders' equity $ 321,031 $ 248,861 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-3 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except for per share data)
Year ended December 31, ----------------------- 1998 1997 1996 ---- ---- ---- INTEREST INCOME: Loans, including fees $ 14,942 $ 10,604 $ 6,622 Securities, taxable 4,798 3,026 1,112 Securities, nontaxable 751 441 290 Dividends 216 133 87 Federal funds sold and other 336 239 90 ----------- ----------- ----------- Total interest income 21,043 14,443 8,201 ----------- ----------- ----------- INTEREST EXPENSE: Deposits 10,128 6,325 3,425 Advances from the Federal Home Loan Bank 760 529 298 Federal funds purchased and securities sold under agreements to repurchase 227 318 283 Long term debt 83 - - ----------- ----------- ----------- Total interest expense 11,198 7,172 4,006 ----------- ----------- ----------- NET INTEREST INCOME 9,845 7,271 4,195 Loan loss provision 1,836 608 187 ----------- ----------- ----------- NET INTEREST INCOME AFTER LOAN LOSS PROVISION 8,009 6,663 4,008 ----------- ----------- ----------- OTHER INCOME: Service charges on deposit accounts 1,260 842 515 Gain (loss) on sales of securities available for sale 220 (1) 17 Residential mortgage origination fees 613 271 207 Commissions from sales of mutual funds 104 54 132 Income from fiduciary activities 133 37 34 Other income 687 368 234 ----------- ----------- ----------- Total other income 3,017 1,571 1,139 ----------- ----------- ----------- OTHER EXPENSE: Salaries and employee benefits 4,688 3,329 1,960 Net occupancy expense 703 479 287 Amortization of intangible assets 443 246 14 Furniture and equipment expense 1,129 771 305 Other operating expense 3,265 2,423 1,575 ----------- ----------- ----------- Total other expense 10,228 7,248 4,141 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 798 986 1,006 Income tax provision 34 220 300 ----------- ----------- ----------- NET INCOME $ 764 $ 766 $ 706 =========== =========== =========== BASIC EARNINGS PER SHARE $ 0.25 $ 0.27 $ 0.55 DILUTED EARNINGS PER SHARE 0.24 0.26 0.52
The accompanying notes are an integral part of the consolidated financial statements. F-4 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands)
Year ended December 31, ----------------------- 1998 1997 1996 ---- ---- ---- NET INCOME $ 764 $ 766 $ 706 ----------- ----------- ----------- Other comprehensive income, net of tax: Unrealized gains (losses) on securities during the period 410 431 (132) Less: reclassification adjustment for gains included in net income (145) 1 (11) ---------- ----------- ---------- Other comprehensive income (loss) 265 432 (143) ---------- ----------- ---------- COMPREHENSIVE INCOME $ 1,029 $ 1,198 $ 563 ========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-5 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in thousands)
Accumulated Common Stock Other ------------------ Capital Comprehensive Retained Shares Amount Surplus Income Earnings Total ------ ------ ------- ------ -------- ----- DECEMBER 31, 1995 1,153,060 $ 1,153 $ 11,254 $ 178 $ 347 $ 12,932 Stock options exercised 8,558 9 60 - - 69 5% stock dividend 57,491 57 690 - (755) (8) Other comprehensive income - - - (143) - (143) Net income - - - - 706 706 --------- ---------- ---------- ---------- ---------- ----------- DECEMBER 31, 1996 1,219,109 1,219 12,004 35 298 13,556 Net proceeds of stock offering 1,665,000 1,665 15,281 - - 16,946 Sales of stock to ESOP 14,519 14 166 - - 180 Stock options exercised 6,675 7 41 - - 48 Other comprehensive income - - - 432 - 432 Net income - - - - 766 766 --------- ---------- ---------- ---------- ---------- ----------- DECEMBER 31, 1997 2,905,303 2,905 27,492 467 1,064 31,928 Sales of stock to ESOP 18,425 18 243 - - 261 Stock options exercised 21,914 22 195 - - 217 5% stock dividend 146,626 147 1,668 - (1,820) (5) Other comprehensive income - - - 265 - 265 Net income - - - - 764 764 --------- ---------- ---------- ---------- ---------- ----------- DECEMBER 31, 1998 3,092,268 $ 3,092 $ 29,598 $ 732 $ 8 $ 33,430 ========= ========== ========== ========== ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-6 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Year ended December 31, ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997 1996 ---- ---- ---- Net income $ 764 $ 766 $ 706 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,519 1,092 460 Provision for loan losses 1,836 608 187 Deferred income tax benefit (324) (93) (56) Amortization less accretion on securities 54 31 51 Amortization of deferred loan fees and costs, net 397 216 134 (Gain) loss on sale of securities available for sale (220) 1 (17) Proceeds from sales of residential mortgages 23,262 9,810 8,768 Disbursements for residential mortgages held for sale (22,155) (10,022) (8,684) Increase in interest receivable (156) (1,096) (172) Increase (decrease) in interest payable (36) 431 9 (Gain)loss on disposal of premises and equipment 21 (6) 32 Gain on sale of branch (130) - - Increase in other assets (299) (87) (333) Increase in other liabilities 521 18 105 ----------- ------------ ------------ Net cash provided by operating activities 5,054 1,669 1,190 ----------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in loans made to customers (23,752) (55,759) (17,581) Proceeds from sales of securities available for sale 36,726 3,996 4,512 Proceeds from maturities of securities available for sale 34,866 10,588 3,603 Purchases of securities available for sale (112,665) (64,267) (9,205) Proceeds from maturities of securities held to maturity 25 - - Purchases of securities held to maturity - (675) - Purchases of nonmarketable equity securities (1,599) (1,025) (947) Purchases of premises and equipment (1,743) (3,030) (1,713) Proceeds from disposals of premises and equipment 814 26 309 Acquisition of branches 38,423 35,761 - Net cash outflow from sale of branch (2,049) - - ----------- ------------ ------------ Net cash used by investing activities (30,954) (74,385) (21,022) ----------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand and savings deposits 27,664 18,372 8,343 Net increase in certificates of deposit 4,110 24,034 8,381 Proceeds from advances from the Federal Home Loan Bank 8,049 18,100 700 Repayments of advances from the Federal Home Loan Bank (14,965) (6,639) (2,054) Proceeds from advances from long-term debt 3,425 - - Repayments of advances from long-term debt (500) - - Proceeds from issuance of common stock - 16,946 - Proceeds from exercise of stock options 217 48 69 Proceeds from stock sales to employee benefit plan 261 180 - Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements (141) 5,160 3,749 Cash paid in lieu of fractional shares (5) - (8) ----------- ------------ ------------ Net cash provided by financing activities 28,115 76,201 19,180 ----------- ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,215 3,485 (652) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,112 4,627 5,279 ----------- ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,327 $ 8,112 $ 4,627 =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-7 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION - The accompanying consolidated financial statements include the accounts of Community Capital Corporation (the "Company"), and its wholly-owned subsidiaries, Greenwood Bank & Trust (the "Greenwood Bank"), Clemson Bank & Trust (the "Clemson Bank"), Bank of Barnwell County (the "Barnwell Bank"), TheBank (formerly The Bank of Belton, the "Belton Bank"), and The Bank of Newberry County (the "Newberry Bank"), collectively referred to as the "Banks", and Community Trust Company. The Barnwell Bank, the Belton Bank, and the Newberry Bank (the "New Banks") were acquired and opened as subsidiaries by the Company in February, March, and July 1997, respectively. The Clemson Bank commenced operations in June 1995. These acquisitions were accounted for as purchases and are reflected in the Company's financial position and results of operations from the dates of acquisition. The Company and its subsidiaries provide a full range of financial services in their respective communities and geographic markets in South Carolina including accepting deposits, IRA plans, selling mutual funds, trust services, origination of home mortgage loans, and secured and unsecured loans for small businesses and individuals. The accounting and reporting policies of the Company reflect industry practices and conform to generally accepted accounting principles in all material respects. All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES - In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, including valuation allowances for impaired loans, the carrying amount of real estate acquired in connection with foreclosures or in satisfaction of loans, and the assumptions used in computing the fair value of stock options granted and the pro forma disclosures required by Statement of Financial Accounting Standards (SFAS) No. 123. Management must also make estimates in determining the estimated useful lives and methods for depreciating premises and equipment. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Banks' allowances for losses on loans and foreclosed real estate. Such agencies may require the Banks to recognize additions to the allowances based on their judgements about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans and foreclosed real estate may change materially in the near term. SECURITIES AVAILABLE FOR SALE - Securities available for sale by the Company are carried at amortized cost and adjusted to estimated market value by recording the aggregate unrealized gain or loss in a valuation account. Management does not actively trade securities classified as available for sale. Reductions in market value considered by management to be other than temporary are reported as a realized loss and a reduction in the cost basis in the security. Generally, amortization of premiums and accretion of discounts are charged or credited to earnings on a straight-line basis over the life of the securities. The adjusted cost basis of securities available for sale is determined by specific identification and is used in computing the gain or loss from a sales transaction. SECURITIES HELD TO MATURITY - Securities held to maturity are those securities which management has the intent and the Company has the ability to hold until maturity. Securities held to maturity are carried at cost and adjusted for amortization of premiums and accretion of discounts, both computed by the straight-line method. Reductions in market value considered by management to be other than temporary are reported as a realized loss and a reduction in the cost basis of the security. NONMARKETABLE EQUITY SECURITIES - Nonmarketable equity securities include the costs of the Banks' investments in the stock of the Federal Reserve Bank and the Federal Home Loan Bank. The stocks have no quoted market value and no ready market exists. Investment in Federal Reserve Bank stock is required for state-chartered member banks. Investment in Federal Home Loan Bank stock is a condition of borrowing from the Federal Home Loan Bank, and the stock is pledged to secure the borrowings. At December 31, 1998 and 1997, the investment in Federal Reserve Bank stock was $598,300 and $349,500, respectively. At December 31, 1998 and 1997, the investment in Federal Home Loan Bank stock was $2,099,110 and $1,544,200, respectively. F-8 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) The Company has invested in the stock of four unrelated financial institutions. The Company owns less than five percent of the outstanding shares of each institution, and the stocks either have no quoted market value or are not readily marketable. At December 31, 1998 and 1997, the investments in the stock of the unrelated financial institutions, at cost, were $2,125,462 and $1,330,025, respectively. LOANS - Loans are recorded at their unpaid principal balance. Direct loan origination costs and loan origination fees are deferred and amortized over the lives of the loans as an adjustment to yield. Unamortized net deferred loans costs included in loans at December 31, 1998 and 1997 were $290,000 and $265,000, respectively. Impaired loans are measured based on the present value of discounted expected cash flows. When it is determined that a loan is impaired, a direct charge to bad debt expense is made for the difference between the net present value of expected future cash flows based on the contractual rate and the Company's recorded investment in the related loan. The corresponding entry is to a related valuation account. Interest is discontinued on impaired loans when management determines that a borrower may be unable to meet payments as they become due. Interest income is computed using the simple interest method and is recorded in the period earned. When serious doubt exists as to the collectibility of a loan or a loan is 90 days past due, the accrual of interest income is generally discontinued unless the estimated net realizable value of the collateral is sufficient to assure collection of the principal balance and accrued interest. When interest accruals are discontinued, unpaid accrued interest is reversed and charged against current year income. ALLOWANCE FOR LOAN LOSSES - Management provides for losses on loans through specific and general charges to operations and credits such charges to the allowance for loan losses. Specific provision for losses is determined for identified loans based upon estimates of the excess of the loan's carrying value over the net realizable value of the underlying collateral. General provision for loan losses is estimated by management based upon factors including industry loss experience for similar lending categories, actual loss experience, delinquency trends as well as prevailing and anticipated economic conditions. While management uses the best information available to make evaluations, future adjustment to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. Delinquent loans are charged against the allowance at the time they are determined to be uncollectible. Recoveries are added to the allowance. RESIDENTIAL MORTGAGES HELD FOR SALE - The Banks' mortgage activities are comprised of accepting residential mortgage loan applications, qualifying borrowers to standards established by investors, funding residential mortgages and selling mortgages to investors under pre-existing commitments. Funded residential mortgages held temporarily for sale to investors are recorded at cost which approximates the market value (See Note 7). Application and origination fees collected by the Banks are recognized as income upon sale to the investor. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less accumulated depreciation. Gain or loss on retirement of premises and equipment is recognized in the statements of operations when incurred. Expenditures for maintenance and repairs are charged to expense; betterments and improvements are capitalized. Depreciation charges are computed principally on the straight-line method over the estimated useful lives as follows: building and improvements - 40 years; furniture, fixtures and equipment - 3 to 15 years. OTHER REAL ESTATE OWNED - Other real estate owned includes real estate acquired through foreclosure and loans accounted for as in-substance foreclosures. Collateral is considered foreclosed in-substance when the borrower has little or no equity in the fair value of the collateral, proceeds for repayment of the debt can be expected to come only from the sale of the collateral and it is doubtful that the borrower can rebuild equity or otherwise repay the loan in the foreseeable future. Other real estate owned is carried at the lower of cost (principal balance at the date of foreclosure) or fair value minus estimated costs to sell. Any write-downs at the date of acquisition are charged to the allowance for possible loan losses. Expenses to maintain such assets, subsequent changes in the valuation allowance, and gains and losses on disposal are included in other expenses. INTANGIBLE ASSETS - Intangible assets consist of goodwill and core deposit premiums resulting from the acquisition of the New Banks and the Carolina First Branch acquisitions in 1998 and 1997. The core deposit premiums are being amortized over fifteen years using the straight-line method, and goodwill is being amortized over five years using the straight-line method. F-9 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) STOCK-BASED COMPENSATION - SFAS 123, "Accounting for Stock-Based Compensation", issued in October 1995, allows a company to either adopt the fair value method or continue using the intrinsic valuation method presented under Accounting Principles Board ("APB") Opinion 25 to account for stock-based compensation. The fair value method recommended in SFAS 123 requires compensation cost to be measured at the grant date based on the value of the award and to be recognized over the service period. The intrinsic value method measures compensation cost based on the excess, if any, of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock. The Company has elected to continue using APB Opinion 25 to account for stock options granted and has disclosed in the footnotes pro forma net income and earnings per share information as if the fair value method had been used. INCOME TAXES - The income tax provision is the sum of amounts currently payable to taxing authorities and the net changes in income taxes payable or refundable in future years. Income taxes deferred to future years are determined utilizing a liability approach. This method gives consideration to the future tax consequences associated with differences between the financial accounting and tax bases of certain assets and liabilities, principally the allowance for loan losses and depreciable premises and equipment. CASH FLOW INFORMATION - For purposes of reporting cash flows, the Company considers certain highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents include amounts due from depository institutions and federal funds sold. Generally, federal funds are sold for one-day periods. The following summarizes supplemental cash flow information for 1998, 1997, and 1996:
1998 1997 1996 ---- ---- ---- (Dollars in thousands) Cash paid for interest $ 10,888 $ 6,775 $ 4,007 Cash paid for income taxes 281 341 290 Supplemental noncash investing and financing activities: Foreclosures on loans - 262 - Transfer from retained earnings to common stock and capital surplus to record stock dividends 1,815 - 747 Change in unrealized gain or loss on securities available for sale, net of tax 265 432 (143)
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business, the Banks have entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements and letters of credit. These financial instruments are recorded in the financial statements when they become payable by the customer. CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of loans receivable, securities, federal funds sold and amounts due from banks. Management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions. Although the Company's loan portfolio is diversified, a substantial portion of its borrowers' ability to honor the terms of their loans is dependent on business and economic conditions in each Bank's local community. Management does not believe credit risk is associated with obligations of the United States, its agencies or its corporations. The Company places its deposits and correspondent accounts with and sells its federal funds to high credit quality institutions. By policy, time deposits are limited to amounts insured by the FDIC. Management believes credit risk associated with correspondent accounts is not significant. PER-SHARE DATA - Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding for the period excluding the effects of any dilutive potential common shares. Diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The dilutive effect of options outstanding under the Company's stock option plan is reflected in diluted earnings per share by the application of the treasury stock method. Share and per-share data have been restated to reflect the 5% stock dividends issued in September 1998 and May 1996. F-10 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) COMMON STOCK OWNED BY THE EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - ESOP purchases and redemptions of the Company's common stock are at estimated fair value. Dividends on ESOP shares are charged to retained earnings. All shares held by the ESOP are treated as outstanding for purposes of computing earnings per share. RECLASSIFICATIONS - Certain captions and amounts in the 1997 and 1996 consolidated financial statements were reclassified to conform with the 1998 presentation. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS - SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", which became effective on a prospective basis beginning January 1, 1997, establishes criteria based on legal control to determine whether a transfer of a financial asset is a sale or a secured borrowing. A sale is recognized when the Company relinquishes control over a financial asset and is compensated for such asset. The difference between the net proceeds received and the carrying amount of the financial asset being sold or securitized is recognized as a gain or loss on sale. In general, transactions which were recorded as sales under prior accounting standards will continue to receive sales treatment under SFAS 125. NOTE 2 - ADOPTION OF ACCOUNTING PRINCIPLE: As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting comprehensive income. Comprehensive income includes net income and other comprehensive income which is defined as non-owner related transactions in equity. Prior periods have been reclassified to reflect the application of the provisions of SFAS 130. The following tables set forth the amounts of other comprehensive income included in equity along with the related tax effects for the years ended December 31, 1998, 1997, and 1996.
Pre-tax (Expense) Net of tax FOR THE YEAR ENDED DECEMBER 31, 1998: Amount Benefit Amount ------ ------- ------ (Dollars in thousands) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period $ 622 $ (212) $ 410 Less: reclassification adjustment for gains realized in net income (220) 75 (145) ----------- ------------ ------------ Net unrealized gains (losses) on securities 402 (137) 265 ----------- ------------ ------------ Other comprehensive income $ 402 $ (137) $ 265 =========== ============ ============ Pre-tax (Expense) Net of tax FOR THE YEAR ENDED DECEMBER 31, 1997: Amount Benefit Amount ------ ------- ------ Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period $ 649 $ (218) $ 431 Plus: reclassification adjustment for losses realized in net income 1 - 1 ----------- ------------ ------------ Net unrealized gains (losses) on securities 650 (218) 432 ----------- ------------ ------------ Other comprehensive income $ 650 $ (218) $ 432 =========== ============ ============ Pre-tax (Expense) Net of tax FOR THE YEAR ENDED DECEMBER 31, 1996: Amount Benefit Amount ------ ------- ------ Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period $ (207) $ 75 $ (132) Less: reclassification adjustment for gains realized in net income (17) 6 (11) ----------- ------------ ------------ Net unrealized gains (losses) on securities (224) 81 (143) ----------- ------------ ------------ Other comprehensive income $ (224) $ 81 $ (143) =========== ============ ============
F-11 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - BRANCH ACQUISITIONS: On February 25, 1998, the Belton Bank and the Clemson Bank each entered into Purchase and Assumption Agreements to acquire certain assets and deposits associated with three branch offices of Carolina First Bank. On June 15, 1998, the Clemson Bank acquired a branch located in Abbeville County, South Carolina which had approximately $4,700,000 in deposits and $580,000 in loans, and the Belton Bank acquired two branches in Anderson County, South Carolina which had approximately $39,000,000 in deposits and $1,600,000 in loans. At the closing, and subject to the terms of the Purchase and Assumption Agreements, the Belton Bank and the Clemson Bank paid Carolina First Bank a premium of 6.50% on the assumed deposits other than certificates of deposit greater than or equal to $100,000. The assets acquired and the liabilities assumed were recorded at fair value. The premium is being amortized over fifteen years on a straight-line basis. In order to maintain the minimum capital requirements of the Belton Bank, the Company injected $4,775,000 in additional capital. To fund this capitalization, the Company used a combination of dividends from its subsidiaries, loans from the subsidiary banks, loans from a third party (see Note 12), and utilization of liquid assets of the parent. The Clemson Bank's current capital structure was able to support the acquisition with no capital infusion by the Company. The principal assets acquired and liabilities assumed in the purchase are summarized as follows: Amount ------ (Dollars in thousands) Loans, including accrued interest receivable $ 2,197 Allowance for loan losses from acquisition (38) Premises and equipment 636 Intangible core deposit premiums 2,807 Deposits, including accrued interest payable (44,015) Other, net (10) ----------- Cash received for net liabilities assumed $ (38,423) =========== The Company has not presented proforma financial information because the Carolina First Branches do not constitute a business, and income statement information was either not available or incomplete. NOTE 4 - DISPOSITION OF BRANCH: The Greenwood Bank sold the office located in Ninety Six, South Carolina to The Palmetto Bank of Laurens, South Carolina. The transaction was completed in April 1998 and consisted of the sale of deposits only, on which the Greenwood Bank received a 6% premium and the assumption by The Palmetto Bank of a ground lease. The total deposits were approximately $2.2 million and resulted in a corresponding reduction of assets by the Greenwood Bank. The loans, equipment, and building were retained by the Greenwood Bank. The $130,000 gain from the sale of the branch is included in other income in the statements of operations. NOTE 5 - RESTRICTIONS ON CASH AND DUE FROM BANKS: The Banks are required to maintain average reserve balances computed as a percentage of deposits. At December 31, 1998, the required cash reserves were satisfied by vault cash on hand and amounts due from correspondent banks. F-12 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INVESTMENT SECURITIES: Securities available for sale at December 31, 1998 and 1997 consist of the following:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- DECEMBER 31, 1998 (Dollars in thousands) U.S. Treasury securities $ 597 $ 17 $ - $ 614 Securities of other U.S. Government agencies and corporations 64,517 393 5 64,905 Obligations of states and local government 20,006 643 24 20,625 Mortgage-backed securities 28,993 135 50 29,078 ---------- ---------- ---------- ---------- Total securities available for sale $ 114,113 $ 1,188 $ 79 $ 115,222 ========== ========== ========== ========== DECEMBER 31, 1997 U.S. Treasury securities $ 13,467 $ 121 $ 1 $ 13,587 Securities of other U.S. Government agencies and corporations 46,236 290 12 46,514 Obligations of states and local government 12,898 315 11 13,202 Mortgage-backed securities 273 5 - 278 ---------- ---------- ---------- ---------- Total securities available for sale $ 72,874 $ 731 $ 24 $ 73,581 ========== ========== ========== ==========
Securities held to maturity as of December 31, 1998 and 1997 consist of the following:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- DECEMBER 31, 1998 (Dollars in thousands) Obligations of states and local governments $ 650 $ - $ - $ 650 ========== ========== ========== ========== DECEMBER 31, 1997 Obligations of states and local governments $ 675 $ - $ - $ 675 ========== ========== ========== ==========
The following table summarizes the maturities of securities available for sale and held to maturity as of December 31, 1998, based on the contractual maturities. Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
Securities Securities Available for Sale Held to Maturity ------------------ ---------------- Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value ---- ---------- ---- ---------- (Dollars in thousands) Due in one year or less 5,670 5,685 - - Due after one year but within five years 52,095 52,458 - - Due after five years but within ten years 12,473 12,755 - - Due after ten years 14,881 15,246 650 650 Mortgage-backed securities 28,994 29,078 - - ----------- ----------- ----------- ----------- Total $ 114,113 $ 115,222 $ 650 $ 650 =========== =========== =========== ===========
F-13 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INVESTMENT SECURITIES: (CONTINUED) Proceeds from sales of securities available for sale during 1998, 1997 and 1996 were $36,726,000, $3,996,000 and $4,512,000, respectively, resulting in gross realized gains of $220,000, $0 and $18,000 along with gross realized losses of $0, $1,000 and $1,000, respectively. There were no sales of securities held to maturity in 1998, 1997 or 1996. At December 31, 1998 and 1997, securities having an amortized cost of approximately $26,216,000 and $34,878,000, respectively, and an estimated market value of $26,589,000 and $34,613,000, respectively, were pledged as collateral for short-term borrowings and advances from the Federal Home Loan Bank (see Note 11), to secure public and trust deposits, and for other purposes as required and permitted by law. NOTE 7 - LOANS RECEIVABLE: Loans receivable at December 31, 1998 and 1997, are summarized as follows:
1998 1997 ---- ---- (Dollars in thousands) Commercial and agricultural $ 28,991 $ 33,479 Real estate 95,033 71,950 Home equity 17,284 14,383 Consumer - installment 27,753 24,318 Consumer - credit card and checking 2,031 1,429 Loans to financial institutions - 2,600 Residential mortgages held for sale and other 1,453 968 ----------- ----------- Total loans $ 172,545 $ 149,127 =========== ===========
At December 31, 1998, 1997 and 1996, the Banks had sold participations in loans aggregating $11,467,000, $9,528,000, and $2,879,000, respectively, to other financial institutions on a nonrecourse basis. Collections on loan participations and remittances to participating institutions conform to customary banking practices. The Banks accept residential mortgage loan applications and fund loans of qualified borrowers (see Note 1). Funded loans are sold without recourse to investors at face value under the terms of pre-existing commitments. The Banks do not sell residential mortgages having market or interest rate risk. The Banks do not service residential mortgage loans for the benefit of others. At December 31, 1998 and 1997, the Banks had pledged approximately $2,868,028 and $3,983,000, respectively, of loans on residential real estate as collateral for advances from the Federal Home Loan Bank (see Note 11). Loans are defined as impaired when "based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement". All loans are subject to this criteria except for: "smaller-balance homogeneous loans that are collectively evaluated for impairment" and loans "measured at fair value or at the lower of cost or fair value". The Company considers its consumer installment portfolio, credit cards and home equity lines as meeting this criteria. Therefore, the real estate and commercial loan portfolios are primarily subject to possible impairment. The Company identifies impaired loans through its normal internal loan review process. Loans on the Company's problem loan watch list are considered potentially impaired loans. These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected. Loans are not considered impaired if a minimal delay occurs and all amounts due including accrued interest at the contractual interest rate for the period of delay are expected to be collected. At December 31, 1998 and 1997, management reviewed its problem loan watch list and determined that no impairment on loans existed that would have a material effect on the Company's consolidated financial statements. At December 31, 1998 and 1997, the Company had nonaccrual loans of approximately $1,348,000 and $678,000, respectively, for which impairment had not been recognized. F-14 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - LOANS RECEIVABLE: (CONTINUED) An analysis of the allowance for loan losses for the years ended December 31, 1998, 1997 and 1996, is as follows:
1998 1997 1996 ---- ---- ---- (Dollars in thousands) Balance, beginning of year $ 1,531 $ 837 $ 671 Provision for loan losses 1,836 608 187 Loans charged off (1,063) (169) (21) Recoveries 57 - - Reserves related to acquisitions 38 255 - ----------- ----------- ----------- Balance, end of year $ 2,399 $ 1,531 $ 837 =========== =========== ===========
In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk. These financial instruments are commitments to extend credit and letters of credit and have elements of risk in excess of the amount recognized in the balance sheet. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company's exposure to credit loss in the event of non-performance by the other party to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Letters of credit are conditional commitments issued to guarantee a customer's performance to a third party and have essentially the same credit risk as other lending facilities. The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments. At December 31, 1998 and 1997, the Company had unfunded commitments, including standby letters of credit, of $29,138,000 and $26,528,000, of which $11,027,000 and $9,085,000, respectively, were unsecured. At December 31, 1998, the Company was not committed to lend additional funds to borrowers having loans in nonaccrual status. NOTE 8 - PREMISES AND EQUIPMENT: Premises and equipment at December 31, 1998 and 1997, consists of the following:
1998 1997 ---- ---- (Dollars in thousands) Land $ 1,394 $ 1,287 Buildings and leasehold improvements 5,559 5,340 Furniture and equipment 4,575 3,657 ----------- ----------- Total 11,528 10,284 Less, accumulated depreciation 2,621 1,991 ----------- ----------- Net premises and equipment $ 8,907 $ 8,293 =========== ===========
During 1998 and 1997, the Company capitalized approximately $2,000 and $34,000, respectively, of interest on the construction of a building. F-15 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - INTANGIBLE ASSETS: Intangible assets, net of accumulated amortization, at December 31, 1998 and 1997 are summarized as follows:
1998 1997 ---- ---- (Dollars in thousands) Core deposit premium $ 4,973 $ 2,429 Goodwill 584 690 ----------- ----------- $ 5,557 $ 3,119 =========== ===========
NOTE 10 - DEPOSITS: The following is a summary of deposit accounts as of December 31, 1998 and 1997:
1998 1997 ---- ---- (Dollars in thousands) Non-interest bearing demand deposits $ 23,491 $ 19,460 Interest bearing demand deposits 45,854 30,562 Money market accounts 30,161 20,812 Savings accounts 25,202 15,127 Certificates of deposit and other time deposits 135,412 100,900 ----------- ----------- Total deposits $ 260,120 $ 186,861 =========== ===========
At December 31, 1998 and 1997, certificates of deposit of $100,000 or more totaled approximately $30,921,000 and $27,073,000, respectively. Interest expense on these deposits was approximately $1,636,000, $1,093,000 and $665,000 in 1998, 1997 and 1996, respectively. As of December 31, 1997, brokered deposits totaled approximately $292,000. There were no brokered deposits at December 31, 1998. Scheduled maturities of certificates of deposit and other time deposits as of December 31, 1998 were as follows: Maturing in Amount ----------- ------ (Dollars in thousands) 1999 $ 122,964 2000 7,126 2001 4,588 2002 288 2003 446 ----------- Total $ 135,412 =========== F-16 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - ADVANCES FROM THE FEDERAL HOME LOAN BANK: Advances from the Federal Home Loan Bank consist of the following at December 31, 1998: Description Interest Rate Balance - ----------- ------------- ------- (Dollars in thousands) Adjustable rate advances maturing: March 23, 2000 5.29% $ 800 Fixed rate advances maturing: January 22, 1999 5.66% 1,400 September 25, 2000 6.38% 600 January 30, 2001 5.85% 1,000 Convertible advances maturing: March 26, 2008 5.51% 1,500 September 22, 2003 4.70% 3,000 September 24, 2002 5.66% 1,000 Principal Reducing Credit maturing: February 3, 2003 5.97% 134 ----------- Total $ 9,434 =========== Scheduled principal reductions of Federal Home Loan Bank advances are as follows: (Dollars in thousands) 1999 $ 1,400 2000 1,400 2001 1,000 2002 1,000 2003 3,134 After five years 1,500 ----------- Total $ 9,434 =========== As collateral, the Company has pledged first mortgage loans on one to four family residential loans aggregating $2,868,028 (see Note 7) and debt securities aggregating $9,576,000 (see Note 6) at December 31, 1998. In addition, the Company's Federal Home Loan Bank stock is pledged to secure the borrowings. Certain advances are subject to prepayment penalties. NOTE 12 - LONG-TERM DEBT: During 1998, the Company borrowed funds from an unrelated financial institution to use for capital infusions into the Belton Bank in order to maintain minimum capital requirements due to an increase in the asset base resulting from the purchase of two branch offices of Carolina First Bank. The Company can borrow up to $5,000,000 under the terms of the agreement. The promissory note is collateralized by the stock of the subsidiary banks and bears interest at a simple interest rate per annum equal to the one month London Interbank Offered Rate plus 200 basis points. Interest is payable on a quarterly basis, commencing December 31, 1998. Principal payments are due in ten equal installments, beginning on the third anniversary of the note, with the final balance due on December 21, 2010. Scheduled principal reductions of the long-term debt are as follows: Amount ------ (Dollars in thousands) 2001 $ 293 2002 293 2003 293 After five years 2,046 ----------- $ 2,925 =========== The loan agreement contains certain covenants relating to equity and capital ratios of the subsidiary banks. The Company was in substantial compliance with all covenants at December 31, 1998. F-17 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - SHAREHOLDERS' EQUITY: The Company declared 5% stock dividends for shareholders of record on September 30, 1998 and May 1, 1996. Amounts equal to the estimated fair market value of the additional shares issued have been charged to retained earnings and credited to common stock and capital surplus. Dividends representing fractional shares were paid in cash. The Company also sold 18,425 and 14,519 shares of its common stock to its employee stock ownership plan throughout 1998 and 1997, respectively, based on the quoted market price at the time of sale. On February 14, 1997, the Company sold, through an underwritten public offering, 1,465,000 shares of its common stock at a public offering price of $11.00 per share. On March 18, 1997, an additional 200,000 common shares were sold, also at a public offering price of $11.00 per share, pursuant to an underwriters over-allotment provision. The Company temporarily invested the $16,946,000 net proceeds from the offering in debt securities issued by the U.S. Treasury and U.S. Government agencies and corporations and subsequently used $7,200,000 to acquire and capitalize the Barnwell Bank, $3,500,000 to acquire and capitalize the Belton Bank, and $3,300,000 to acquire and capitalize the Newberry Bank. The Company has also used the net proceeds for general corporate purposes and additional capital for the Banks, as needed. At December 31, 1998 and 1997, the Company had authorized 2,000,000 shares of a special class of stock, par value $1.00 per share, the rights and preferences of which were to be designated as the Board of Directors should determine. At December 31, 1998 and 1997, no shares of the undesignated stock had been issued or were outstanding. NOTE 14 - LEASES: Land used as the site for the Ninety Six branch of the Greenwood Bank was leased from a director during 1996, 1997 and for several months in 1998 before the branch was sold. The Company's obligation under this lease was transferred to the purchasing bank at the time of the sale. The Company also leases part of a building and land as a branch banking location from a director. The operating lease has an initial ten-year term which expires July 31, 2006 and is renewable, at the Company's option, for four five-year terms at an increased monthly rental. The lease requires monthly payments of $3,500 with an increase to $3,850 per month during the last five years of the initial lease term. Rent expense under these operating lease agreements was $35,000, $50,000, and $24,000 for the years ended December 31, 1998, 1997, and 1996, respectively. Future obligations over the primary terms of the remaining long-term lease as of December 31, 1998 are as follows: Amount ------ (Dollars in thousands) 1999 $ 42 2000 42 2001 44 2002 46 2003 46 After five years 119 ----------- Total $ 339 =========== F-18 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - LEASES: (CONTINUED) The Company entered into a lease agreement on May 26, 1998 for certain data processing equipment. The rental term is for sixty-four months with no payments due until January 1, 1999. The lease provides for the lessee to pay certain maintenance costs. Assets recorded under capital leases and included in premises and equipment are as follows at December 31, 1998: Amount ------ (Dollars in thousands) Equipment $ 555 Less, accumulated amortization 35 ----------- Net assets under capital leases $ 520 =========== The present value of future minimum capital lease payments is as follows at December 31, 1998: Amount ------ (Dollars in thousands) 1999 $ 150 2000 150 2001 150 2002 150 2003 150 ----------- Total payments 750 ----------- Less, amount representing interest 100 Less, amount representing maintenance 144 ----------- Total obligation $ 506 =========== NOTE 15 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS: The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of the Company's and the Banks' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and the Banks' capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum ratios (set forth in the table below) of Tier 1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%. Tier 1 capital of the Company and the Banks consists of common shareholders' equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. Total capital for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2 capital. The Company and the Banks are also required to maintain capital at a minimum level based on average assets (as defined), which is known as the leverage ratio. Only the strongest institutions are allowed to maintain capital at the minimum requirement. All others are subject to maintaining ratios 1% to 2% above the minimum. As of the most recent regulatory examination, the Banks were deemed well-capitalized under the regulatory framework for prompt corrective action. To be categorized well capitalized, the Banks must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events that management believes have changed the Banks' categories. F-19 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS: (CONTINUED) The following table summarizes the capital ratios and the regulatory minimum requirements of the Banks at December 31, 1998 and 1997.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio -------- ------ -------- ------ -------- ------ DECEMBER 31, 1998 THE COMPANY Total capital (to risk weighted assets) $ 29,541 15.00% $ 15,757 8.00% $ N/A - % Tier 1 capital (to risk weighted assets) 27,142 13.78 7,879 4.00 N/A - Tier 1 capital (to average assets) 27,142 8.89 12,208 4.00 N/A - THE GREENWOOD BANK Total capital (to risk weighted assets) 10,481 11.84 7,081 8.00 8,852 10.00 Tier 1 capital (to risk weighted assets) 9,529 10.77 3,541 4.00 5,311 6.00 Tier 1 capital (to average assets) 9,529 8.47 4,498 4.00 5,623 5.00 THE CLEMSON BANK Total capital (to risk weighted assets) 4,427 16.71 2,119 8.00 2,648 10.00 Tier 1 capital (to risk weighted assets) 4,122 15.56 1,059 4.00 1,589 6.00 Tier 1 capital (to average assets) 4,122 10.74 1,535 4.00 1,919 5.00 THE BARNWELL BANK Total capital (to risk weighted assets) 6,338 14.14 3,587 8.00 4,483 10.00 Tier 1 capital (to risk weighted assets) 5,746 12.82 1,793 4.00 2,690 6.00 Tier 1 capital (to average assets) 5,746 7.87 2,921 4.00 3,652 5.00 THE BELTON BANK Total capital (to risk weighted assets) 5,988 22.29 2,061 8.00 2,576 10.00 Tier 1 capital (to risk weighted assets) 5,743 23.25 1,030 4.00 1,546 6.00 Tier 1 capital (to average assets) 5,743 9.12 2,519 4.00 3,149 5.00 THE NEWBERRY BANK Total capital (to risk weighted assets) 3,019 24.08 1,003 8.00 1,254 10.00 Tier 1 capital (to risk weighted assets) 2,887 23.03 502 4.00 752 6.00 Tier 1 capital (to average assets) 2,887 11.25 1,026 4.00 1,283 5.00
F-20 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS: (CONTINUED)
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio -------- ------ -------- ------ -------- ------ DECEMBER 31, 1997 THE COMPANY Total capital (to risk weighted assets) $ 29,872 18.61% $ 12,843 8.00% $ N/A - % Tier 1 capital (to risk weighted assets) 28,341 17.65 6,422 4.00 N/A - Tier 1 capital (to average assets) 28,341 12.08 9,387 4.00 N/A - THE GREENWOOD BANK Total capital (to risk weighted assets) 9,389 11.71 6,417 8.00 8,021 10.00 Tier 1 capital (to risk weighted assets) 8,631 10.76 3,208 4.00 4,813 6.00 Tier 1 capital (to average assets) 8,631 8.16 4,230 4.00 5,288 5.00 THE CLEMSON BANK Total capital (to risk weighted assets) 3,684 19.72 1,495 8.00 1,868 10.00 Tier 1 capital (to risk weighted assets) 3,463 18.53 747 4.00 1,121 6.00 Tier 1 capital (to average assets) 3,463 12.22 1,133 4.00 1,417 5.00 THE BARNWELL BANK Total capital (to risk weighted assets) 6,349 13.85 3,666 8.00 4,583 10.00 Tier 1 capital (to risk weighted assets) 5,971 13.03 1,833 4.00 2,750 6.00 Tier 1 capital (to average assets) 5,971 8.19 2,917 4.00 3,646 5.00 THE BELTON BANK Total capital (to risk weighted assets) 3,318 35.97 738 8.00 922 10.00 Tier 1 capital (to risk weighted assets) 3,207 34.77 369 4.00 553 6.00 Tier 1 capital (to average assets) 3,207 22.00 583 4.00 729 5.00 THE NEWBERRY BANK Total capital (to risk weighted assets) 2,982 38.68 618 8.00 773 10.00 Tier 1 capital (to risk weighted assets) 2,918 37.76 309 4.00 464 6.00 Tier 1 capital (to average assets) 2,918 18.90 618 4.00 772 5.00
NOTE 16 - STOCK COMPENSATION PLANS: On May 27, 1998, the Company terminated its Employee Incentive Stock Option Plan (the "1988 Plan") and its Incentive and Nonstatutory Stock Option Plan (the "Stock Plan"). These Plans were replaced by the 1997 Stock Incentive Plan effective January 1, 1998. Outstanding options issued under the former Plans will be honored in accordance with the terms and conditions in effect at the time they were granted, except that they are not subject to reissuance. At December 31, 1998, there were 509,734 options outstanding that had been issued under the terminated Plans. The 1997 Stock Incentive Plan provides for the granting of statutory incentive stock options within the meaning of Section 422 of the Internal Revenue Code as well as nonstatutory stock options, stock appreciation rights, or restricted stock of up to 600,000 shares (as amended January 27, 1999), adjusted for stock dividends of the Company's common stock, to officers, employees, and directors of and consultants for the Company. The Board voted to amend the number of shares available for grant from 2,000,000 to 600,000 in January 1999. Awards may be granted for a term of up to ten years from the effective date of grant. Under this Plan the Company's Board of Directors has sole discretion as to the exercise date of any awards granted. The per-share exercise price of incentive stock options may not be less than the fair market value of a share of common stock on the date the option is granted. The per-share exercise price of nonqualified stock options may not be less than 50% of the fair market value of a share on the effective date of grant. Any options that expire unexercised or are canceled become available for issuance. No awards may be made after January 27, 2008. F-21 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - STOCK COMPENSATION PLANS: (CONTINUED) On June 24, 1998, the Company granted 139,230 options pursuant to the terms of the Company's 1997 Stock Incentive Plan. The options are exercisable one year from the date of grant at a price of $15.83 per share and expire June 24, 2003. As of December 31, 1998, there were 464,918 options available for issuance under this Plan. As discussed in Note 1, the Company will continue to apply APB Opinion 25 and related Interpretations in accounting for its stock compensation plans. Accordingly, no compensation cost has been recognized for any options issued by the Company. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1998 1997 1996 ---- ---- ---- (Dollars in thousands, except for per share data) Net Income: As reported $ 764 $ 766 $ 706 Pro forma 267 187 418 Basic earnings per share: As reported $ 0.25 $ 0.27 $ 0.55 Pro forma 0.09 0.07 0.33 Diluted earnings per share: As reported $ 0.24 $ 0.26 $ 0.52 Pro forma 0.08 0.07 0.30 In calculating the pro forma disclosures, the fair value of options granted is estimated as of the date granted using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield of 0 percent for all years; expected volatility of 24, 22, and 28 percent; risk-free interest rates of 5.52, 6.55 and 6.71 percent; and expected lives of 5.0, 5.0 and 5.6 years. The weighted-average fair value of options, calculated using the Black-Scholes option pricing model, granted during 1998, 1997 and 1996 is $5.41, $4.05, and $4.44, respectively. A summary of the status of the Company's stock option plans as of December 31, 1998, 1997 and 1996 and changes during the years ending on those dates is presented below: (all amounts have been restated to reflect stock dividends paid in 1998 and 1996)
1998 1997 1996 --------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year 546,528 $ 9.67 478,535 $ 9.26 347,215 $ 8.33 Granted 139,230 15.83 77,963 11.90 146,895 11.37 Exercised (23,010) 9.42 (7,009) 6.76 (9,170) 7.51 Canceled (17,932) 12.60 (2,961) 10.19 (6,405) 10.18 ------- -------- -------- Outstanding at end of year 644,816 10.92 546,528 9.67 478,535 9.26 ======= ======= =======
Options exercisable at December 31, 1998, 1997 and 1996 were 509,734, 469,614 and 334,318, respectively. F-22 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - STOCK COMPENSATION PLANS: (CONTINUED) The following table summarizes information about the stock options outstanding under the Company's plan at December 31, 1998:
Weighted Average ---------------- Range of Exercise Prices Options Remaining Exercise Outstanding Life Price ----------- ---- ----- EXERCISABLE: $ 8.23 284,639 4.9 years $ 8.23 10.15 to 10.48 73,055 6.8 10.41 11.79 to 11.90 152,040 2.9 11.84 ----------- Total exercisable 509,734 4.6 9.62 NOT EXERCISABLE: 15.83 135,082 4.5 15.83 ----------- Total outstanding 644,816 4.6 10.92 ===========
NOTE 17 - RELATED PARTY TRANSACTIONS: Certain parties (primarily directors, executive officers, principal shareholders and their associates) were loan customers and had other transactions in the normal course of business with the Company. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than normal risk of collectibility. Total loans and commitments outstanding to related parties at December 31, 1998 and 1997, were $15,676,000 and $12,848,000, respectively. During 1998, $11,803,000 of new loans were made to related parties and repayments totaled $8,975,000. During 1998, 1997, and 1996, the Company paid $35,000, $50,000, and $24,000, respectively, to two directors under operating leases. (see Note 14). In 1998, the Company sold real estate to a director that was purchased from this same director in 1997 for a future branch location. The sales price was the same as the original purchase price. The Company purchases various types of insurance from agencies that belong to several directors. Amounts paid for insurance premiums were $119,000 and $39,000 in 1998 and 1997, respectively. During 1998, the Company purchased real estate for a future branch location from a partnership in which a director owned a one-third interest. The amount paid for the property was $300,000. NOTE 18 - COMMITMENTS AND CONTINGENCIES: In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company. NOTE 19 - RESTRICTION ON SUBSIDIARY DIVIDENDS: The ability of the Company to pay cash dividends to shareholders is dependent upon receiving cash in the form of dividends from its subsidiaries. However, certain restrictions exist regarding the ability of the Banks to transfer funds in the form of cash dividends, loans or advances to the Company. The prior approval of the Commissioner of Banking is required, and dividends are payable only from the retained earnings of the Banks. Generally, the Commissioner of Banking does not allow dividends to be paid by new banks until earnings have been sufficient to recoup start up losses or if retained earnings have a deficit balance. Accordingly, the New Banks can not pay dividends in the near future. F-23 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 - EARNINGS PER SHARE: Net income per share - basic is computed by dividing net income by the weighted average number of common shares outstanding. Net income per share - diluted is computed by dividing net income by the weighted average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. Dilutive common share equivalents include common shares issuable upon exercise of outstanding stock options. Unallocated common shares held by the Employee Stock Ownership Plan are excluded from the weighted average number of common shares outstanding.
For the Year Ended December 31, ------------------------------- 1998 1997 1996 ---- ---- ---- NET INCOME PER SHARE - BASIC COMPUTATION: (Dollars in thousands, except share data) Net income available to common shareholders $ 764 $ 766 $ 706 ========= ======== ======== Average common shares outstanding - basic 3,078,083 2,807,902 1,278,933 ========= ========= ========= Net income per share - basic $ 0.25 $ 0.27 $ 0.55 ============ =========== =========== NET INCOME PER SHARE - DILUTED COMPUTATION: Net income available to common shareholders $ 764 $ 766 $ 706 ========= ======== ======== Average common shares outstanding - basic 3,078,083 2,807,902 1,278,933 Incremental shares from assumed conversions: Stock options 172,121 110,560 80,136 Unallocated ESOP shares - - - --------- -------- -------- Average common shares outstanding - diluted 3,250,204 2,918,462 1,359,069 --------- --------- --------- Net income per share - diluted $ 0.24 $ 0.26 $ 0.52 ============ =========== ===========
The above computation of diluted earnings per share does not include the following options that were outstanding at year-end since their exercise price was greater than the average market price of the common shares:
December 31 ----------- 1998 1997 1996 ---- ---- ---- Number of options 135,081 - 96,968 Weighted average of these options outstanding during the year 71,456 - 60,604 Weighted average exercise price $15.84 - $ 11.79
F-24 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - INCOME TAXES: Income tax expense for the years ended December 31, 1998, 1997 and 1996 consists of the following:
1998 1997 1996 ------------ ----------- ----------- Currently payable: (Dollars in thousands) Federal $ 271 $ 279 $ 305 State 87 34 51 --------- -------- -------- 358 313 356 --------- -------- -------- Change in deferred income taxes: Federal (107) 123 (104) State (80) 2 (33) --------- -------- -------- (187) 125 (137) --------- -------- -------- Income tax expense $ 171 $ 438 $ 219 ========= ======== ======== Income tax expense is allocated as follows: To continuing operations $ 34 $ 220 $ 300 To shareholders' equity 137 218 (81) --------- -------- --------- $ 171 $ 438 $ 219 ========= ======== ========
The Company's deferred tax accounts as of December 31, 1998 and 1997 are as follows:
1998 1997 ---- ---- (Dollars in thousands) Deferred tax assets $ 950 $ 528 Deferred tax liabilities $ 643 $ 408 Valuation allowance $ 0 $ 0
The principal sources of temporary differences in 1998, 1997 and 1996, and the related deferred tax effects are as follows:
1998 1997 1996 ---- ---- ---- (Dollars in thousands) Provision for bad debts $ (344) $ (154) $ (45) Tax depreciation in excess of book depreciation 88 9 6 Net operating losses (47) (12) (21) Deferred loan costs 10 61 13 Other, net (31) 3 (9) --------- -------- -------- Temporary differences attributable to continuing operations (324) (93) (56) Change in valuation allowance - - - --------- -------- -------- Deferred tax expense (benefit) attributable to continuing operations (324) (93) (56) Deferred tax expense (benefit) attributable to shareholders' equity 137 218 (81) --------- ------- -------- Change in deferred income taxes $ (187) $ 125 $ (137) ========= ======== ========
A reconciliation of the income tax provision and the amount computed by applying the Federal statutory rate of 34% to income before income taxes follows:
1998 1997 1996 ------------ ---------- ---------- (Dollars in thousands) Income tax at the statutory rate $ 271 $ 335 $ 342 State income tax, net of federal benefit 7 11 10 Tax exempt interest income (264) (158) (84) Disallowed interest expense 46 30 17 Officers' life insurance 7 (8) 12 Other, net (33) 10 3 --------- -------- -------- Income tax provision $ 34 $ 220 $ 300 ========= ======== ========
F-25 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - OTHER OPERATING EXPENSES: Other operating expenses for the years ended December 31, 1998, 1997 and 1996 are summarized below:
1998 1997 1996 ----------- ---------- ---------- (Dollars in thousands) Banking and ATM supplies $ 528 $ 451 $ 228 Directors' fees 182 124 114 Mortgage loan department expenses 191 94 80 Data processing and supplies 135 151 176 Postage and freight 278 200 117 Professional fees 360 205 132 Credit card expenses 139 120 94 Telephone expenses 364 214 74 Other 1,088 864 560 --------- -------- -------- Total $ 3,265 $ 2,423 $ 1,575 ========= ======== ========
NOTE 23 - RETIREMENT AND BENEFIT PLANS: The Company sponsors a voluntary nonleveraged employee stock ownership plan (ESOP) as part of a 401(k) savings plan covering substantially all full-time employees. The Company matches 75 cents per dollar, up to a maximum of 6% of employee compensation. Company contributions to the savings plan were $141,000, $103,000 and $33,000 in 1998, 1997 and 1996, respectively. The Company's policy is to fund amounts accrued. At December 31, 1998, the savings plan owned 58,556 shares of the Company's common stock purchased at an average cost of $11.51 per share adjusted for the effects of stock dividends. The estimated value of shares held at December 31, 1998 was $537,111. The Company has a Directors' Incentive Compensation Plan and an Officers' Incentive Compensation Plan which provide that portions of directors' fees and certain officers' cash awards, respectively, will be determined based upon various performance measures of the Greenwood Bank and the Clemson Bank. For the years ended December 31, 1998, 1997 and 1996, awards under the directors' plan were $62,000, $52,000 and $56,000, respectively, and awards under the officers' plan were $125,000, $126,000 and $123,000, respectively. The Company has an Executive Supplemental Compensation Plan which provides certain officers with salary continuation benefits upon retirement. The plan also provides for benefits in the event of early retirement, death or substantial change of control of the Company. For the years ended December 31, 1998, 1997 and 1996, salary continuation expense included in salaries and employee benefits was $35,000, $30,000 and $24,000, respectively. In connection with the Executive Supplemental Compensation Plan, life insurance contracts were purchased on the officers. Insurance premiums of $82,210 were paid in the year ended December 31, 1998. Insurance premiums of $192,000 were paid in each of the years ended December 31, 1997 and 1996. The cash surrender value of the insurance contracts is included in other assets. During 1998, certain officers opted out of the Executive Supplemental Compensation Plan. Under a new agreement, split-dollar life insurance policies were obtained on the lives of these officers. The officers are entitled to all of the benefits of these policies, with the exception of the premiums paid by the Company. There was no expense associated with this plan in 1998. Insurance premiums of $318,000 were paid in the year ended December 31, 1998. NOTE 24 - UNUSED LINES OF CREDIT: As of December 31, 1998, the Banks had unused lines of credit to purchase federal funds from unrelated banks totaling $19,500,000. These lines of credit are available on a one to fourteen day basis for general corporate purposes. The lenders have reserved the right not to renew their respective lines. F-26 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 - FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of a financial instrument is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. The following methods and assumptions were used to estimate the fair value of significant financial instruments: CASH AND DUE FROM BANKS - The carrying amount is a reasonable estimate of fair value. FEDERAL FUNDS SOLD - Federal funds sold are for a term of one day, and the carrying amount approximates the fair value. INVESTMENT SECURITIES - The fair values of securities held to maturity are based on quoted market prices or dealer quotes. For securities available for sale, fair value equals the carrying amount which is the quoted market price. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Cost is a reasonable estimate of fair value for nonmarketable equity securities because no quoted market prices are available and the securities are not readily marketable. The carrying amount is adjusted for any permanent declines in value. LOANS - For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk and credit card receivables, fair values are based on the carrying amounts. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to the borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS - The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date. The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - The carrying amount is a reasonable estimate of fair value because these instruments typically have terms of one day. ADVANCES FROM THE FEDERAL HOME LOAN BANK - The carrying amounts of variable rate borrowings are reasonable estimates of fair value because they can be repriced frequently. The fair values of fixed rate borrowings are estimated using a discounted cash flow calculation that applies the Company's current borrowing rate from the FHLB. LONG-TERM DEBT - The fair value of the Company's variable rate long-term debt is estimated at the carrying amount because the interest rate reprices with changes in the leader's prime rate, and management is not aware of any significant changes in the credit risk. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The contractual amount is a reasonable estimate of fair value for the instruments because commitments to extend credit and standby letters of credit are issued on a short-term or floating rate basis. F-27 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 - FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED) The carrying values and estimated fair values of the Company's financial instruments as of December 31, 1998 and 1997 are as follows:
December 31, 1998 December 31, 1997 ----------------- ----------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- (Dollars in thousands) Financial Assets: Cash and due from banks $ 9,047 $ 9,047 $ 7,762 $ 7.762 Federal funds sold 1,280 1,280 350 350 Securities available for sale 115,222 115,222 73,581 73,581 Securities held to maturity 650 650 675 675 Nonmarketable equity securities 4,823 4,823 3,224 3,224 Loans 172,545 173,070 149,127 148,913 Allowance for loan losses (2,399) (2,399) (1,531) (1,531) FINANCIAL LIABILITIES: Demand deposit, interest-bearing transaction, and savings accounts $ 124,708 $ 124,708 $ 85,961 $ 85,961 Certificates of deposit and other time deposits 135,412 136,271 100,900 101,123 Federal funds purchased and securities sold under agreements to repurchase 11,802 11,802 11,943 11,943 Advances from Federal Home Loan Bank 9,434 9,454 16,350 16,353 Long-term debt 2,925 2,925 - -
Notional Estimated Notional Estimated Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Commitments to extend credit $ 28,498 $ 28,498 $ 25,831 $ 25,831 Standby letters of credit 640 640 697 697
NOTE 26 - THE YEAR 2000 The Company has conducted a comprehensive review of its computer hardware and software systems to identify those systems that could be affected by the Year 2000 issue. The Year 2000 problem is the result of computer programs being written using two digits rather that four to represent the applicable year. Any of the Company's software systems that have date-sensitive routines or hardware that has imbedded chips with date-sensitive algorithms may recognize a date of "00" as the year 1900 rather than 2000. This could result in a major system failure or errors and miscalculations in processing information. The Company presently believes that, with modifications to existing hardware and software and replacing non-compliant systems with Year 2000 compliant systems, the Year 2000 problem will not pose significant operational problems for the Company's computer systems as so modified and converted. However, management cannot guarantee with any certainty the effect that the Year 2000 will ultimately have on the Company or its operations. F-28 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): Condensed financial statements for Community Capital Corporation (Parent Company Only) for the years ended December 31, 1998 and 1997 follow: BALANCE SHEETS
December 31, ------------ 1998 1997 ---- ---- ASSETS (Dollars in thousands) Cash and cash equivalents $ 75 $ 460 Investment in subsidiaries 35,174 28,739 Securities available for sale - 505 Nonmarketable equity securities 1,152 1,152 Premises and equipment, net 2,568 1,604 Other assets 557 465 ---------- ---------- Total assets $ 39,526 $ 32,925 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable to subsidiaries $ 2,522 $ 811 Long-term debt 2,925 - Other liabilities 649 186 ---------- ---------- Total liabilities 6,096 997 ---------- ---------- Common stock 3,092 2,905 Capital surplus 29,598 27,492 Unrealized gain on securities available for sale, net 732 467 Retained earnings 8 1,064 ---------- ---------- Total shareholders' equity 33,430 31,928 ---------- ---------- Total liabilities and shareholders' equity $ 39,526 $ 32,925 ========== ==========
F-29 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): (CONTINUED) STATEMENTS OF OPERATIONS
Year ended December 31, ----------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Income: Interest income on securities available for sale $ 15 $ 75 $ 5 Dividend income from equity securities 30 26 19 Data processing and other fees from subsidiaries 2,434 1,949 953 Other income 68 145 143 ----------- ----------- ----------- Total income 2,547 2,195 1,120 ----------- ----------- ----------- Expenses: Salaries 1,158 805 668 Net occupancy expense 53 95 117 Furniture and equipment expense 484 407 196 Interest expense 274 87 47 Other operating expenses 1,170 814 473 ----------- ----------- ----------- Total expenses 3,139 2,208 1,501 ----------- ----------- ----------- Loss before income taxes and equity in undistributed earnings of subsidiaries (592) (13) (381) Income tax benefit 216 5 125 ----------- ----------- ----------- Loss before equity in undistributed earnings of subsidiaries (376) (8) (256) Equity in undistributed earnings of subsidiaries 1,140 774 962 ----------- ----------- ----------- Net income $ 764 $ 766 $ 706 ============ =========== ============
F-30 COMMUNITY CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY): (CONTINUED) STATEMENTS OF CASH FLOWS
Year ended December 31, ----------------------- 1998 1997 1996 ---- ---- ---- Operating activities: (Dollars in thousands) Net income $ 764 $ 766 $ 706 Adjustments to reconcile net income to net cash provided (used) by operating activities: Equity in undistributed earnings of subsidiaries (1,140) (774) (962) Depreciation and amortization 431 267 256 Deferred taxes (42) 4 31 Net accretion on securities - (47) - Increase in other liabilities 421 138 48 (Increase) decrease in other assets (232) 182 (676) ----------- ----------- ----------- Net cash provided (used) by operating activities 202 536 (597) ----------- ----------- ----------- Investing activities: Purchases of premises and equipment, net (1,378) (571) (603) Proceeds from disposal of premises and equipment 70 - - Purchases of securities available for sale - (7,252) - Proceeds from sales of securities available for sale 499 - 1,000 Proceeds from maturities of securities available for sale - 6,800 - Net investment in subsidiaries (4,887) (16,250) - Purchase of equity securities - (25) (824) ----------- ------------ ------------ Net cash used by investing activities (5,696) (17,298) (427) ----------- ------------ ------------ Financing activities: Proceeds from the exercise of stock options 217 48 69 Proceeds from sales of stock to retirement plan 261 180 - Cash paid in lieu of fractional shares (5) - (8) Proceeds from issuance of common stock - 16,946 - Proceeds of borrowings from subsidiaries 2,656 - 870 Repayments on borrowings from subsidiaries (945) (56) (3) Proceeds from advances of long-term debt 3,425 - - Repayments of advances of long-term debt (500) - - ----------- ----------- ----------- Net cash provided by financing activities 5,109 17,118 928 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (385) 356 (96) Cash and cash equivalents, beginning of year 460 104 200 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 75 $ 460 $ 104 =========== =========== ===========
Supplemental schedule of non-cash investing and financing activities: In 1998 and 1996, the Company declared 5% stock dividends and transferred $1,815,000 and $747,000, respectively, from retained earnings to common stock and capital surplus in the amounts of $147,000 and $57,000, respectively, and $1,668,000 and $690,000, respectively. NOTE 28 - RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board released Statement of Financial Account Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair values. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company and its subsidiary banks generally do not purchase derivative instruments or enter into hedging activities. This statement is effective for fiscal years beginning after June 15, 1999. F-31 EX-21 3 EXHIBIT 21 -- SUBSIDIARIES OF COMMUNITY CAPITAL EXHIBIT 21.1 SUBSIDIARIES OF COMMUNITY CAPITAL CORPORATION OTHER NAMES SUBSIDIARY STATE OF INCORPORATION DOING BUSINESS UNDER - ---------- ---------------------- -------------------- THE BANK OF BARNWELL COUNTY....... SOUTH CAROLINA NONE THEBANK........................... SOUTH CAROLINA NONE CLEMSON BANK & TRUST.............. SOUTH CAROLINA NONE GREENWOOD BANK & TRUST............ SOUTH CAROLINA NONE THE BANK OF NEWBERRY COUNTY....... SOUTH CAROLINA NONE COMMUNITY TRUST COMPANY........... SOUTH CAROLINA NONE SUBSIDIARY OF GREENWOOD BANK & TRUST COMMUNITY FINANCIAL SERVICES, INC. ................. SOUTH CAROLINA NONE EX-24 4 EXHIBIT 24.1 -- POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ PATRICIA C. EDMONDS ------------------------- Print Name: Patricia C. Edmonds EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ DAVID P. ALLRED, M.D. ------------------------- Print Name: David P. Allred, M.D. EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ EARL H. BERGEN ------------------------- Print Name: Earl H. Bergen EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ ROBERT C. COLEMAN ------------------------- Print Name: Robert C. Coleman EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ JAMES M. HORTON ------------------------- Print Name: James M. Horton, M.D. EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ HAZEL B.HUGHES ------------------------- Print Name: Hazel B. Hughes EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ WAYNE Q. JUSTESEN, JR. ------------------------- Print Name: Wayne Q. Justesen, Jr. EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ CLINTON C. LEMON, JR. ------------------------- Print Name: Clinton C. Lemon, Jr. EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ JAMES A. LOLLIS ------------------------- Print Name: James A. Lollis EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ THOMAS C. LYNCH, JR. ------------------------- Print Name: Thomas C. Lynch, Jr. EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ H. EDWARD MUNNERLYN ------------------------- Print Name: H. Edward Munnerlyn EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ GEORGE B. PARK ------------------------- Print Name: George B. Park EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ JOSEPH H. PATRICK, JR. ------------------------- Print Name: Joseph H. Patrick, Jr. EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ DONNA W. ROBINSON ------------------------- Print Name: Donna W. Robinson EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ GEORGE D. RODGERS ------------------------- Print Name: George D. Rodgers EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director of COMMUNITY CAPITAL CORPORATION, a South Carolina corporation (hereinafter referred to as the "Company"), does hereby constitute and appoint William G. Stevens, with full power of substitution, his true and lawful attorney and agent, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules, regulations and requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the filing under the Act of the Company's Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1998, including all amendments thereto (the "Form 10-K"), and including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer and/or director of the Company to the Form 10-K filed with the Commission and to any instrument or document filed as a part of, as an exhibit to, or in connection with said Form 10-K; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents, this 24th day of March, 1999. Signature: /S/ CHARLES J. ROGERS ------------------------- Print Name: Charles J. Rogers EX-27 5 EXHIBIT 27 -- FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the consolidated balance sheets of Community Capital Corporation and Subsidiaries as of December 31, 1998, and the related statements of operations, shareholders' equity and cash flows, and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 8,354,000 683,000 1,280,000 0 115,222,000 650,000 650,000 172,545,000 2,399,000 321,031,000 260,120,000 13,202,000 3,320,000 10,959,000 0 0 3,092,000 30,338,000 321,031,000 14,942,000 5,765,000 336,000 21,043,000 10,128,000 11,198,000 9,845,000 1,836,000 220,000 10,228,000 798,000 798,000 0 0 764,000 0.25 0.24 3.76 1,348,000 112,000 0 4,800,000 1,531,000 1,063,000 57,000 2,399,000 2,399,000 0 0
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