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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2000
Commission file number: 0-18460
COMMUNITY CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
South Carolina 57-0866395
- ---------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1402-C Highway 72 West
Greenwood, South Carolina 29649
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 941-8200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Reported
- ---------------------------------- ------------------------------
Common Stock, par value $1.00 per share American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 15, 2001 was approximately $23.9 million based upon the last
sale price reported for such date on the American Stock Exchange. On that date,
the number of shares outstanding of the Registrant's common stock, $1.00 par
value, was 3,256,815.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its 2001 Annual
Meeting of Stockholders (Part III).
PART I
Item 1. Business.
General
Community Capital Corporation (the "Company") is a bank holding company
headquartered in Greenwood, South Carolina. The Company was incorporated under
the laws of the State of South Carolina on April 8, 1988 as a holding company
for Greenwood Bank & Trust (the "Greenwood Bank") which opened in 1989.
The Company was formed principally in response to perceived opportunities
resulting from takeovers of several South Carolina-based banks by large
southeastern regional bank holding companies. In many cases, when these
consolidations occur, local boards of directors are dissolved and local
management is relocated or terminated. The Company believes this situation
creates favorable opportunities for new community banks with local management
and local directors. Management believes that such banks can be successful in
attracting individuals and small to medium-sized businesses as customers who
wish to conduct business with a locally owned and managed institution that
demonstrates an active interest in their business and personal financial
affairs.
In 1994, the Company made the strategic decision to expand beyond the Greenwood
County area by creating an organization of independently managed community banks
that serve their respective local markets, but which share a common vision and
benefit from the strength, resources and economies of a larger institution. In
1995, the Company opened Clemson Bank & Trust in Clemson, South Carolina (the
"Clemson Bank"). In 1997, the Company opened Community Bank & Trust in Barnwell,
South Carolina (formerly the Bank of Barnwell County, the "Barnwell Bank"),
TheBank in Belton, South Carolina (formerly the Bank of Belton, the "Belton
Bank"), and Mid State Bank in Newberry, South Carolina (formerly the Bank of
Newberry County, the "Newberry Bank"). During 2000, each of these five community
banks (collectively, the "Banks") operated as a wholly-owned subsidiary of the
Company and engaged in a general commercial banking business, emphasizing the
banking needs of individuals and small to medium-sized businesses in each Bank's
primary service area. Each of the Banks was a state chartered Federal Reserve
member bank. On January 1, 2001, the Company merged the five Banks into one bank
known as CapitalBank.
Market Areas
At December 31, 2000, the Greenwood Bank had three banking locations in
Greenwood, South Carolina; the Clemson Bank had two banking locations in Clemson
and Abbeville, South Carolina; the Barnwell Bank had five banking locations in
Aiken, Barnwell and Orangeburg Counties, South Carolina; the Belton Bank had
four banking locations in Belton, Honea Path and Anderson, South Carolina; and
the Newberry Bank has three banking locations in Newberry and Saluda Counties,
South Carolina. As of January 1, 2001, all seventeen such locations operate as
banking locations of CapitalBank.
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The following table sets forth certain information concerning the Banks at
December 31, 2000:
Number of Total Total Total
Bank Locations Assets Loans Deposits
- ---- --------- ------ ----- --------
(Dollars in thousands)
Barnwell Bank.............5 $89,252 $ 54,058 $ 70,206
Belton Bank...............4 82,882 41,543 62,921
Clemson Bank..............2 41,308 23,628 32,348
Greenwood Bank............3 130,256 104,828 98,535
Newberry Bank.............3 83,721 58,762 72,090
CapitalBank offers a full range of commercial banking services, including
checking and savings accounts, NOW accounts, IRA accounts, and other savings and
time deposits of various types ranging from money markets to long-term
certificates of deposit. CapitalBank also offers a full range of consumer credit
and short- term and intermediate-term commercial and personal loans. CapitalBank
conducts residential mortgage loan origination activities pursuant to which
mortgage loans are sold to investors in the secondary markets. Servicing of such
loans is not retained by CapitalBank.
CapitalBank also offers trust and related fiduciary services. Discount
securities brokerage services are available through a third-party brokerage
service which has contracted with CapitalBank.
The Company performs data processing functions for CapitalBank upon terms that
the management of CapitalBank believes are competitive with those offered by
unaffiliated third-party service bureaus. The Company also administers certain
operating functions for CapitalBank where cost savings can be achieved. Included
in such operations are regulatory compliance, personnel, and internal audit
functions. During 2000, the Company's costs associated with the performance of
such services were allocated between the Banks based on each Bank's total
accounts and/or total assets.
Lending Activities
General. Through CapitalBank, the Company offers a range of lending services,
including real estate, consumer, and commercial loans, to individuals and small
business and other organizations that are located in or conduct a substantial
portion of their business in CapitalBank's market areas. The Company's total
loans at December 31, 2000, were $280 million, or 72.68% of total earning
assets. The interest rates charged on loans vary with the degree of risk,
maturity, and amount of the loan, and are further subject to competitive
pressures, availability of funds, and government regulations. The Company has no
foreign loans or loans for highly leveraged transactions.
The Company's primary focus has been on commercial and installment lending to
individuals and small to medium-sized businesses in its market areas, as well as
residential mortgage loans. These loans totaled approximately $200 million, and
constituted approximately 71.28% of the Company's loan portfolio, at December
31, 2000.
The following table sets forth the composition of the Company's loan portfolio
for each of the five years in the period ended December 31, 2000.
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Loan Composition
(Dollars in thousands)
December 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
Commercial, financial and agricultural 18.54% 13.58% 16.80% 24.19% 19.05%
Real estate:
Construction 7.27 13.09 13.72 8.61 12.37
Mortgage:
Residential 39.89 30.17 30.51 27.48 39.13
Commercial (1) 21.45 26.67 20.87 21.81 21.87
Consumer and other 12.85 16.49 18.10 17.91 7.58
----------------------------------------------------------------------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ==========
Total loans (dollars) $ 280,506 $ 219,054 $ 172,545 $ 149,127 $ 80,546
(1) The majority of these loans are made to operating businesses where real
property has been taken as additional collateral.
Loan Approval. Certain credit risks are inherent in the loan making process.
These include prepayment risks, risks resulting from uncertainties in the future
value of collateral, risks resulting from changes in economic and industry
conditions, and risks inherent in dealing with individual borrowers. In
particular, longer maturities increase the risk that economic conditions will
change and adversely affect collectibility. The Company attempts to minimize
loan losses through various means and uses standardized underwriting criteria.
During 2000, these means included the use of policies and procedures including
officer and customer lending limits, and loans in excess of certain limits must
be approved by the Board of Directors of the relevant Banks.
Loan Review. The Company has a continuous loan review process designed to
promote early identification of credit quality problems. All loan officers are
charged with the responsibility of reviewing all past due loans in their
respective portfolios. CapitalBank establishes watch lists of potential problem
loans.
Deposits
The principal sources of funds for CapitalBank are core deposits, consisting of
demand deposits, interest- bearing transaction accounts, money market accounts,
saving deposits, and certificates of deposit. Transaction accounts include
checking and negotiable order of withdrawal (NOW) accounts which customers use
for cash management and which provide CapitalBank with a source of fee income
and cross-marketing opportunities, as well as a low-cost source of funds. Time
and savings accounts also provide a relatively stable source of funding. The
largest source of funds for CapitalBank is certificates of deposit. Certificates
of deposit in excess of $100,000 are held primarily by customers in
CapitalBank's market areas. Deposit rates are set weekly by senior management of
CapitalBank, subject to approval by management of the Company. Management
believes that the rates CapitalBank offers are competitive with other
institutions in CapitalBank's market areas.
Competition
CapitalBank generally competes with other financial institutions through the
selection of banking products and services offered, the pricing of services, the
level of service provided, the convenience and availability of services, and the
degree of expertise and the personal manner in which services are offered. South
Carolina law permits statewide branching by banks and savings institutions, and
many financial institutions in the state have branch networks. Consequently,
commercial banking in South Carolina is highly competitive. South Carolina law
also permits regional interstate banking whereby out-of-state banks and bank
holding companies are allowed to acquire and merge with South Carolina banks and
bank holding companies, as long as the
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South Carolina State Board of Financial Institutions gives prior approval for
the acquisition or merger. Many large banking organizations currently operate in
the market areas of CapitalBank, several of which are controlled by out-of-state
ownership. In addition, competition between commercial banks and thrift
institutions (savings institutions and credit unions) has been intensified
significantly by the elimination of many previous distinctions between the
various types of financial institutions and the expanded powers and increased
activity of thrift institutions in areas of banking which previously had been
the sole domain of commercial banks. Recent legislation, together with other
regulatory changes by the primary regulators of the various financial
institutions, has resulted in the almost total elimination of practical
distinctions between a commercial bank and a thrift institution. Consequently,
competition among financial institutions of all types is largely unlimited with
respect to legal ability and authority to provide most financial services. See
"Government Supervision and Regulation."
CapitalBank faces increased competition from both federally-chartered and
state-chartered financial and thrift institutions, as well as credit unions,
consumer finance companies, insurance companies and other institutions in
CapitalBank's market areas. Some of these competitors are not subject to the
same degree of regulation and restriction imposed upon CapitalBank. Many of
these competitors also have broader geographic markets and substantially greater
resources and lending limits than CapitalBank and offer certain services that
CapitalBank does not currently provide. In addition, many of these competitors
have numerous branch offices located throughout the extended market areas of
CapitalBank that the Company believes may provide these competitors with an
advantage in geographic convenience that CapitalBank does not have at present.
Such competitors may also be in a position to make more effective use of media
advertising, support services, and electronic technology than can CapitalBank.
Employees
The Company and CapitalBank currently have in the aggregate 176 full-time
employees and 24 part-time employees.
Government Supervision and Regulation
General
The Company and CapitalBank are subject to an extensive collection of state and
federal banking laws and regulations which impose specific requirements and
restrictions on, and provide for general regulatory oversight with respect to,
virtually all aspects of the Company's and CapitalBank's operations. These
regulations are generally intended to provide protections for CapitalBank's
depositors and borrowers, rather than for shareholders of the Company. The
Company and CapitalBank are also affected by government monetary policy and by
regulatory measures affecting the banking industry in general. The actions of
the Federal Reserve System affect the money supply and, in general,
CapitalBank's lending abilities in increasing or decreasing the cost and
availability of funds to CapitalBank. Additionally, the Federal Reserve System
regulates the availability of bank credit in order to combat recession and curb
inflationary pressures in the economy by open market operations in United States
government securities, changes in the discount rate on member bank borrowings,
changes in the reserve requirements against bank deposits and limitations on
interest rates which banks may pay on time and savings deposits.
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and CapitalBank. This summary is qualified in its entirety
by reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of the statutes or
regulations applicable to the business of the Company and CapitalBank. Any
change in applicable laws or regulations may have a material adverse effect on
the business and prospects of the Company and CapitalBank.
5
The Company
The Company is a bank holding company within the meaning of the Federal Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the South Carolina
Banking and Branching Efficiency Act of 1996, as amended (the "South Carolina
Act"). The Company is registered with both the Federal Reserve System and the
South Carolina State Board of Financial Institutions (the "State Board"). The
Company is required to file with both of these agencies annual reports and other
information regarding its business operations and those of its subsidiaries. It
is also subject to the supervision of, and to regular examinations by, these
agencies. The regulatory requirements to which the Company is subject also set
forth various conditions regarding the eligibility and qualifications of its
directors and officers.
The BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve Board before (i) it or any of its subsidiaries (other than a
bank) acquires substantially all of the assets of any bank, (ii) it acquires
ownership or control of any voting shares of any bank if after such acquisition
it would own or control, directly or indirectly, more than 5% of the voting
shares of such bank, or (iii) it merges or consolidates with any other bank
holding company. Under the South Carolina Act, it is unlawful without the prior
approval of the State Board for any South Carolina bank holding company (i) to
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank or any other bank holding company, (ii) to acquire all or
substantially all of the assets of a bank or any other bank holding company, or
(iii) to merge or consolidate with any other bank holding company.
The BHCA and the Federal Change in Bank Control Act, together with regulations
promulgated by the Federal Reserve Board, require that, depending on the
particular circumstances, either the Federal Reserve Board's approval must be
obtained or notice must be furnished to the Federal Reserve Board and not
disapproved prior to any person or company acquiring control of a bank holding
company, such as the Company, subject to certain exemptions for certain
transactions.
Under the BHCA, a bank holding company is generally prohibited from engaging in,
or acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in, nonbanking activities, unless the Federal Reserve Board,
by order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve Board has determined by
regulation to be proper incidents to the business of a bank holding company
include making or servicing loans and certain types of leases, engaging in
certain insurance and discount brokerage activities, performing certain data
processing services, acting in certain circumstances as a fiduciary or
investment or financial adviser, owning savings associations and making
investments in certain corporations or projects designed primarily to promote
community welfare.
In determining whether an activity is so closely related to banking as to be
permissible for bank holding companies, the Federal Reserve Board is required to
consider whether the performance of the particular activities by a bank holding
company or its subsidiaries can reasonably be expected to produce benefits to
the public such as greater convenience, increased competition and gains in
efficiency that outweigh possible adverse effects such as undue concentration of
resources, decreased or unfair competition, conflicts of interests and unsound
banking practices. Generally, bank holding companies are required to obtain
prior approval of the Federal Reserve Board to engage in any new activity not
previously approved by the Federal Reserve Board. Despite prior approval, the
Federal Reserve Board may order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that the holding company's
continued ownership, activity or control constitutes a serious risk to the
financial safety, soundness or stability of any of its bank subsidiaries.
The BHCA and the Federal Change in Bank Control Act, together with regulations
promulgated by the Federal Reserve Board, require that, depending on the
particular circumstances, either the Federal Reserve Board's approval must be
obtained or notice must be furnished to the Federal Reserve Board and not
6
disapproved prior to any person or company acquiring control of a bank holding
company, such as the Company, subject to certain exemptions. Control is
conclusively presumed to exist when an individual or company acquires 25 percent
or more of any class of voting securities of the bank holding company. Control
is rebuttably presumed to exist if a person acquires 10 percent or more, but
less than 25 percent, of any class of voting securities and either the bank
holding company has registered securities under Section 12 of the Securities
Exchange Act of 1934 or no other person owns a greater percentage of that class
of voting securities immediately after the transaction.
The Federal Reserve Board, pursuant to regulation and published policy
statements, has maintained that a bank holding company must serve as a source of
financial strength to its subsidiary banks. In adhering to the Federal Reserve
Board policy, the Company may be required to provide financial support to a
subsidiary bank at a time when, absent such Federal Reserve Board policy, the
Company may not deem it advisable to provide such assistance. Under the BHCA,
the Federal Reserve Board may also require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Board's determination that the
activity or control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the bank holding company.
Further, federal bank regulatory authorities have additional discretion to
require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition.
CapitalBank
CapitalBank is subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the State Board, the Federal
Reserve System, and the FDIC. The State Board and the FDIC regulate or monitor
all areas of CapitalBank's operations, including security devices and
procedures, adequacy of capitalization and loss reserves, loans, investments,
borrowings, deposits, mergers, issuances of securities, payment of dividends,
interest rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, corporate reorganizations, maintenance of books and
records, and adequacy of staff training to carry on safe lending and deposit
gathering practices.
The Federal Reserve System and the FDIC also require CapitalBank to maintain
certain capital ratios (see "Federal Capital Regulations"), and the provisions
of the Federal Reserve Act require CapitalBank to observe certain restrictions
on any extensions of credit to the Company, or with certain exceptions, other
affiliates, on investments in the stock or other securities of other banks, and
on the taking of such stock or securities as collateral on loans to any
borrower. In addition, CapitalBank is prohibited from engaging in certain
"tie-in" or "tying" arrangements in connection with any extension of credit, or
the providing of any property or service. Tying is generally defined as any
arrangement in which a bank requires a customer who wants one service, such as
credit, to buy other products or services from the bank or its affiliates as a
condition of receiving the first service. The regulatory requirements to which
CapitalBank is subject also set forth various conditions regarding the
eligibility and qualification of their directors and officers.
Dividends
Although the Company is not presently subject to any direct legal or regulatory
restrictions on dividends (other than the South Carolina state business
corporation law requirements that dividends may be paid only if such payment
would not render the Company insolvent or unable to meet its obligations as they
come due), the Company's ability to pay cash dividends will depend primarily
upon the amount of dividends paid by CapitalBank and any other subsequently
acquired entities. CapitalBank is subject to regulatory restrictions on the
payment of dividends, including the prohibition of payment of dividends from
CapitalBank's capital. All dividends of CapitalBank must be paid out of the
respective undivided profits then on hand, after deducting expenses, including
losses and bad debts. In addition, as a member of the Federal Reserve System,
CapitalBank is prohibited from declaring a dividend on its shares of common
stock until its surplus equals
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its stated capital, unless there has been transferred to surplus no less than
one-tenth of such bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend) and the approval of the Federal
Reserve Board is required if the total of all dividends declared by any
CapitalBank in any calendar year exceeds the total of its net profits for that
year combined with that Bank's retained net profits for the preceding two years,
less any required transfers to surplus. CapitalBank is subject to various other
federal and state regulatory restrictions on the payment of dividends.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") established two insurance funds under the jurisdiction of the FDIC:
the Savings Association Fund and the Bank Insurance Fund (see "FDIC
Regulations"). FIRREA also imposed, with certain exceptions, a "cross guaranty"
on the part of commonly controlled depository institutions such as the Banks.
Under this provision, if one depository institution subsidiary of a multi-bank
holding company fails or requires FDIC assistance, the FDIC may assess a
commonly controlled depository institution for the estimated losses suffered by
the FDIC. The FDIC's claim is junior to the claims of nonaffiliated depositors,
holders of secured liabilities, general creditors and subordinated creditors but
is superior to the claims of shareholders.
FDIC Regulations
The FDIC establishes rates for the payment of premiums by federally insured
banks and thrifts for deposit insurance. Deposits in CapitalBank are insured by
the FDIC up to a maximum amount (generally $100,000 per depositor, subject to
aggregation rules), and the FDIC maintains an insurance fund for commercial
banks with insurance premiums from the industry used to offset losses from
insurance payouts when banks fail. CapitalBank pays premiums to the FDIC on
their deposits. Under FDIC rules, a depository institution pays to the FDIC a
premium of from $0.00 to $0.31 per $100 of insured deposits depending on its
capital levels and risk profile, as determined by its primary federal regulator
on a semi-annual basis. During 2000, each Bank's assessment rate was $500 per
quarter for insured deposits.
Federal Capital Regulations
In an effort to achieve a measure of capital adequacy that is more sensitive to
the individual risk profiles of financial institutions, the Federal Reserve
Board, the FDIC, and other federal banking agencies have adopted risk-based
capital adequacy guidelines for banking organizations insured by the FDIC,
including CapitalBank. The capital adequacy guidelines issued by the Federal
Reserve Board are applied to bank holding companies, such as the Company, on a
consolidated basis with the banks owned by the holding company. These guidelines
redefine traditional capital ratios to take into account assessments of risks
related to each balance sheet category, as well as off-balance sheet financing
activities. The guidelines define a two-tier capital framework. Tier 1 capital
consists of common and qualifying preferred shareholders' equity, excluding the
unrealized gain (loss) on available-for-sale securities, less goodwill and other
adjustments. Tier 2 capital consists of mandatory convertible, subordinated and
other qualifying term debt, preferred stock not qualifying for Tier 1, and a
limited allowance for credit losses up to a designated percentage of
risk-weighted assets. Under the guidelines, institutions must maintain a
specified minimum ratio of "qualifying" capital to risk- weighted assets. At
least 50% of an institution's qualifying capital must be "core" or "Tier 1"
capital, and the balance may be "supplementary" or "Tier 2" capital. The
guidelines imposed on the Company and CapitalBank include a minimum leverage
ratio standard of capital adequacy. The leverage standard requires top-rated
institutions to maintain a minimum Tier 1 capital to assets ratio of 3%, with
institutions receiving less than the highest rating required to maintain a
minimum ratio of 4% or greater, based upon their particular circumstances and
risk profiles. Each of the Company's and the Banks' leverage and risk-based
capital ratios at December 31, 2000, exceeded their respective fully phased-in
minimum requirements.
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Other Regulations
Interest and certain other charges collected or contracted for by CapitalBank is
subject to state usury laws and certain federal laws concerning interest rates.
CapitalBank's loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Community
Reinvestment Act of 1977 requiring financial institutions to meet their
obligations to provide for the total credit needs of the communities they serve,
including investing their assets in loans to low- and moderate-income borrowers,
the Home Mortgage Disclosure Act of 1975 requiring financial institutions to
provide information to enable public officials to determine whether a financial
institution is fulfilling its obligations to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act governing the manner in which consumer debts may be
collected by collection agencies, and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of CapitalBank also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that Act,
which govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Interstate and Intrastate Banking and Branching
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "1994 Act"), eligible bank holding companies in any state are permitted,
with Federal Reserve Board approval, to acquire banking organizations in any
other state. As such, all existing regional compacts and substantially all
regional limitations on interstate acquisitions of banking organizations have
been eliminated. The 1994 Act also removed substantially all of the existing
prohibitions on interstate branching by banks. A bank operating in any state is
now entitled to establish one or more branches within any other state without,
as formerly required, the establishment of a separate banking structure within
the other state. The South Carolina Act permits the acquisition of South
Carolina banks and bank holding companies by, and mergers with, out-of- state
banks and bank holding companies with the prior approval of the State Board. The
South Carolina Act also permits South Carolina state banks, with prior approval
of the State Board, to operate branches outside the State of South Carolina.
Although the 1994 Act has the potential to increase the number of competitors in
the marketplace of CapitalBank, Company cannot predict the actual impact of such
legislation on the competitive position of CapitalBank.
Gramm-Leach Bliley Act
The Gramm-Leach-Bliley Act (popularly referred to as the Financial Services
Modernization Act of 1999 prior to enactment) (the "GLB Act") became effective
March 11, 2000. The GLB Act accomplished a variety of purposes, including
facilitating the affiliation among banks, securities firms, and insurance
companies and providing privacy protections for customers. Specifically, the GLB
Act (a) amends the Banking Act of 1933 (the Glass-Steagall Act) to repeal the
prohibitions against affiliation of any Federal Reserve member bank, such as
CapitalBank, with an entity engaged principally in securities activities, and to
repeal the prohibitions against simultaneous service by any officer, director,
or employee of a securities firm as an officer, director, or employee of any
member bank; (b) amends the BHCA to permit bank holding companies to own shares
in non-banking organizations whose activities have been determined by the
Federal Reserve System to be permissible for bank holding companies; (c) creates
a new type of bank, wholesale financial institutions (also referred to as
"woofies"), which are regulated by the BHCA and are not able to accept insured
deposits, potentially giving holding companies with woofies greater flexibility
to engage in non-financial investments; (d) subject to specified exemptions,
pre-empts state anti-affiliation laws restricting transactions among insured
depository institutions, wholesale financial institutions, insurance concerns,
and national banks; (e) amends
9
the BHCA and the Federal Deposit Insurance Act to mandate public meetings
concerning proposed large bank mergers and acquisitions; (f)amends the
Electronic Fund Transfer Act to mandate certain fee disclosures related to
electronic fund transfer services; and (g) imposes certain obligations on
financial institutions to protect the privacy and confidentiality of customer
nonpublic personal information, including the requirements that financial
institutions establish standards for safeguards to protect privacy and
confidentiality, provide the standards to customers at the time of establishing
the customer relationship and annually during the continuation of the
relationship, condition disclosure of the private information to nonaffiliated
third parties on the giving of specific disclosures to consumers and giving
consumers the opportunity to prevent such disclosure to third parties.
Although the GLB Act has the potential to mix commerce and banking and increase
the Company's and CapitalBank's abilities to diversify into a variety of areas,
the Company cannot predict the actual impact of such legislation on the Company
or CapitalBank.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 1 (Business) and in
PART II, Item 7 (Management's Discussion and Analysis of Financial Condition and
Results of Operations) that are not historical facts are forward-looking
statements subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. The Company cautions readers of this Annual
Report on Form 10-K that such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from those expressed or implied by such forward-looking statements. Although the
Company's management believes that their expectations of future performance are
based on reasonable assumptions within the bounds of their knowledge of their
business and operations, there can be no assurance that actual results will not
differ materially from their expectations.
Factors which could cause actual results to differ from expectations include,
among other things, the challenges, costs and complications associated with the
continued development of CapitalBank; the ability of the Company to effectively
integrate and staff the operations of CapitalBank as well as the operations
allocated to the base of deposits acquired in connection with branch
acquisitions; the ability of the Company to retain and deploy in a timely manner
the cash associated with branch acquisitions into assets with satisfactory
yields and credit risk profiles; the potential that loan charge-offs may exceed
the allowance for loan losses or that such allowance will be increased as a
result of factors beyond the control of the Company; the Company's dependence on
senior management; competition from existing financial institutions operating in
the Company's market areas as well as the entry into such areas of new
competitors with greater resources, broader branch networks and more
comprehensive services; the potential adverse impact on net income of rapidly
declining interest rates; adverse changes in the general economic conditions in
the geographic markets served by the Company; the challenges and uncertainties
in the implementation of the Company's expansion and development strategies; the
potential negative effects of future legislation affecting financial
institutions; and other factors described in this report and in other reports
filed by the Company with the Securities and Exchange Commission.
Item 2. Properties.
The Company operates out of an approximately 3,000 square foot building located
on approximately one acre of land leased from a third party in Greenwood, South
Carolina.
At December 31, 2000, the Greenwood Bank operated out of an approximately 8,100
square foot building located on approximately one acre of land owned by the
Greenwood Bank in Greenwood, South Carolina. At December 31, 2000, the Greenwood
Bank also operated two branch locations in Greenwood, one of which is located on
land owned by the Greenwood Bank and the other of which is located on land the
Greenwood
10
Bank leased from a director of the Company and the Greenwood Bank. All such
properties have been operated as locations of CapitalBank after the consummation
of the merger of the Banks into CapitalBank as of January 1, 2001.
At December 31, 2000, the Barnwell Bank operated out of an approximately 11,000
square foot building located on a quarter acre parcel owned by the Barnwell Bank
in Barnwell, South Carolina, and operated four branches located in Aiken,
Barnwell and Orangeburg Counties in South Carolina. Of the four branch
locations, one is leased from a third party and three are owned by the Barnwell
Bank. All such properties have been operated as locations of CapitalBank after
the consummation of the merger of the Banks into CapitalBank as of January 1,
2001.
At December 31, 2000, the Belton Bank operated out of an approximately 1600
square foot building located on approximately five acres of land in Belton,
South Carolina. At December 31, 2000, the land is owned by the Belton Bank and
the building is leased by the Belton Bank from the Company. At December 31,
2000, the Belton Bank also operated three branches, two of which are located on
land owned by the Company and leased to the Belton Bank in Anderson County,
South Carolina, and one that is owned by the Belton Bank. All such properties
have been operated as locations of CapitalBank after the consummation of the
merger of the Banks into CapitalBank as of January 1, 2001.
At December 31, 2000, the Clemson Bank operated out of an approximately 9,100
square foot building located on approximately one and one-half acres of land
owned by the Clemson Bank in Clemson, South Carolina. At December 31, 2000, the
Clemson Bank also operated a branch located on land owned by the Company and
leased to the Clemson Bank in Abbeville County, South Carolina. All such
properties have been operated as locations of CapitalBank after the consummation
of the merger of the Banks into CapitalBank as of January 1, 2001.
At December 31, 2000, the Newberry Bank operated out of an approximately 7,500
square foot building located on approximately two acres of land owned by the
Newberry Bank in Newberry, South Carolina, and also operated branches in
Newberry and Saluda Counties, South Carolina, both of which are owned by the
Newberry Bank. All such properties have been operated as locations of
CapitalBank after the consummation of the merger of the Banks into CapitalBank
as of January 1, 2001.
Item 3. Legal Proceedings.
The Company and CapitalBank are parties to legal proceedings which have arisen
in the ordinary course of their respective businesses. None of these proceedings
is expected to have a material effect on the consolidated financial condition of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The common stock of the Company (the "Common Stock") is listed for trading on
the American Stock Exchange under the symbol "CYL". The following table reflects
the high and low sales price per share for the Common Stock reported on the
American Stock Exchange for the periods indicated.
11
Year Quarter High Low
2000 Fourth.................................... $ 6.88 $ 4.75
Third..................................... 7.25 6.06
Second.................................... 7.50 6.00
First..................................... 8.75 6.00
1999 Fourth.................................... $ 10.37 $ 6.87
Third..................................... 10.00 8.25
Second.................................... 11.00 9.12
First..................................... 10.62 9.25
As of March 15, 2001, there were 3,256,815 shares of Common Stock outstanding
held by approximately 1,205 shareholders of record.
The Company has not declared or distributed any cash dividends to its
shareholders since its organization in 1988, and it is not likely that any cash
dividends will be declared in the near term. The Board of Directors of the
Company intends to follow a policy of retaining any earnings to provide funds to
operate and expand the business of the Company and CapitalBank for the
foreseeable future. The future dividend policy of the Company is subject to the
discretion of the Board of Directors and will depend upon a number of factors,
including future earnings, financial condition, cash requirements, and general
business conditions. The Company's ability to distribute cash dividends will
depend entirely upon CapitalBank's ability to distribute dividends to the
Company. As a state bank, CapitalBank is subject to legal limitations on the
amount of dividends each is permitted to pay. In particular, CapitalBank must
receive the approval of the State Board prior to paying dividends to the
Company. Furthermore, neither CapitalBank nor the Company may declare or pay a
cash dividend on any of their capital stock if they are insolvent or if the
payment of the dividend would render them insolvent or unable to pay their
obligations as they become due in the ordinary course of business. See
"Government Supervision and Regulation -- Dividends."
During the fiscal year ended December 31, 2000, the Company sold an aggregate of
21,447 shares of Common Stock to its employee stock ownership plan without
registration under the Securities Act of 1933, as amended (the "1933 Act"). The
following sets forth the dates and amounts of such sales:
Date Shares Proceeds
---- ------ --------
January 20, 2000 1,574 $ 12,789
January 31, 2000 373 3,024
March 8, 2000 1,703 12,134
June 22, 2000 6,032 40,152
June 25, 2000 3,001 19,882
October 18, 2000 8,764 54,775
In each case, all of the shares were sold at the quoted market price at the time
of sale and were issued pursuant to the exemption from registration contained in
Section 4(2) of the 1933 Act as a transaction, not involving a general
solicitation, in which the purchaser was purchasing for investment. The Company
believes that the purchaser was given and had access to detailed financial and
other information with respect to the Company and possessed requisite financial
sophistication . The Company did not sell any other equity securities during the
fiscal year ended December 31, 2000 which were not registered under the 1933
Act.
12
Item 6. Selected Financial Data
The following selected consolidated financial data for the five years ended
December 31, 2000 are derived from the consolidated financial statements and
other data of the Company. The consolidated financial statements for the years
ended December 31, 1996 through 2000, were audited by Tourville, Simpson &
Caskey, L.L.P., independent auditors. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements of the
Company, including the accompanying notes, included elsewhere herein.
Year Ended December 31, 2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share)
Income Statement Data:
Interest income $ 29,722 $ 23,199 $ 21,043 $ 14,443 $ 8,201
Interest expense 16,636 11,850 11,198 7,172 4,006
--------- --------- --------- --------- ---------
Net interest income 13,086 11,349 9,845 7,271 4,195
Provision for loan losses 471 1,037 1,836 608 187
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses 12,615 10,312 8,009 6,663 4,008
Net securities gains (losses) -- 175 220 (1) 17
Noninterest income 3,303 3,005 2,797 1,572 1,122
Noninterest expense 13,976 12,014 10,228 7,248 4,141
--------- --------- --------- --------- ---------
Income before income taxes 1,942 1,478 798 986 1,006
Income tax expense 290 150 34 220 300
--------- --------- --------- --------- ---------
Net income $ 1,652 $ 1,328 $ 764 $ 766 $ 706
========= ========= ========= ========= =========
Balance Sheet Data:
Assets $ 422,250 $ 359,668 $ 321,031 $ 248,861 $ 115,959
Earning assets 387,146 328,478 295,213 227,372 106,770
Securities (1) 106,041 108,926 120,695 77,480 25,479
Loans (2) 280,506 219,054 172,545 149,127 80,546
Allowance for loan losses 3,060 2,557 2,399 1,531 837
Deposits 336,312 257,247 260,120 186,861 89,862
Federal Home Loan Bank advances 32,399 20,729 9,434 16,350 4,889
Shareholders' equity 35,144 31,218 33,430 31,928 13,556
Per Share Data (3):
Basic earnings per share $ 0.51 $ 0.41 $ 0.24 $ 0.26 $ 0.55
Diluted earnings per share 0.51 0.41 0.23 0.26 0.51
Book value (period end) (4) 10.79 10.10 10.81 10.47 10.59
Tangible book value (period end) (4) 8.71 8.48 9.01 9.45 10.55
Performance Ratios:
Return on average assets 0.41% 0.40% 0.27% 0.40% 0.67%
Return on average equity 4.57 3.90 2.33 2.68 5.41
Net interest margin (5) 3.59 3.72 3.76 4.16 4.29
Efficiency (6) 86.06 83.70 80.90 81.96 77.28
Allowance for loan losses to loans 1.09 1.17 1.39 1.03 1.04
Net charge-offs to average loans 0.12 0.47 0.62 0.15 0.03
Nonperforming assets to period end loans (2) (7) 0.25 0.56 0.78 0.63 0.23
Capital and Liquidity Ratios:
Average equity to average assets 9.07 9.72 11.47 14.92 12.37
Leverage (4.00% required minimum) 7.02 8.37 8.89 12.08 11.62
Tier 1 risk-based capital ratio 10.05 11.85 13.78 17.65 15.58
Total risk-based capital ratio 11.12 12.90 15.00 18.61 16.54
Average loans to average deposits 86.0 72.97 69.65 76.78 88.06
- ----------
1. Securities held-to-maturity are stated at amortized cost, and securities
available-for-sale are stated at fair value.
2. Loans are stated before the allowance for loan losses.
3. All share and per-share data have been adjusted to reflect the 5% common
stock dividends in May 1996, September 1998 and June 2000.
4. Excludes the effect of any outstanding stock options.
5. Net interest income dividend by average earning assets.
6. Noninterest expense divided by the sum of net interest income and
noninterest income, net of gains and losses on sales of assets.
7. Nonperforming loans and nonperforming assets do not include loans past due
90 days or more that are still accruing interest.
13
Quarterly Operating Results
(Dollars in thousands 2000 Quarter ended 1999 Quarter ended
except per share) ---------------------------------- ----------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
------ ------ ------ ------ ------ ------ ------ ------
Net interest income $3,587 $3,360 $3,105 $3,034 $3,151 $2,883 $2,726 $2,589
Provision for loan losses 195 15 84 177 351 177 235 274
Noninterest income 569 871 988 875 665 697 981 837
Noninterest expense 3,569 3,628 3,454 3,325 3,177 2,968 3,061 2,808
Net income 333 483 464 372 265 380 364 319
Basic earnings per share 0.11 0.15 0.15 0.10 0.09 0.11 0.11 0.10
Diluted earnings per share 0.11 0.15 0.15 0.10 0.09 0.11 0.11 0.10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Basis of Presentation
The following discussion should be read in conjunction with the preceding
"Selected Financial Data" and the Company's Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Annual Report.
The financial information provided below has been rounded in order to simplify
its presentation. However, the ratios and percentages provided below are
calculated using the detailed financial information contained in the Financial
Statements, the Notes thereto and the other financial data included elsewhere in
this Annual Report.
General
Community Capital Corporation is a bank holding company headquartered in
Greenwood, South Carolina, which at December 31, 2000 operated through five
community banks (collectively, the "subsidiary banks") in nonmetropolitan
markets in the State of South Carolina. The Company pursues a community banking
business, which is characterized by personalized service and local
decision-making and emphasizes the banking needs of individuals and small to
medium-sized businesses.
The Company was formed in 1988 to serve as a holding company for Greenwood
National Bank, which later changed its name to Greenwood Bank & Trust (the
"Greenwood Bank"). In 1994 the Company made the decision to expand beyond
Greenwood County by creating an organization of independent banks in four
additional markets. In June 1995, the Company opened Clemson Bank and Trust (the
"Clemson Bank") in Clemson, South Carolina. In 1996 and 1997, the Company opened
Community Bank and Trust (the "Barnwell Bank"), TheBank (the "Belton Bank"), and
Mid State Bank (the "Newberry Bank"). The Company formed a separate trust
organization in 1997 known as Community Trust Company. In May 2000, Community
Trust Company was sold. During 1997 and 1998, the Company also acquired several
Carolina First branches.
During 2000, the Newberry Bank entered into Purchase and Assumption Agreements
with Carolina First Bank and Anchor Bank to acquire certain assets and deposits
associated with a branch of each bank. On June 25, 2000, the Newberry Bank
acquired net loans (including accrued interest receivable) of approximately
$19,000 and assumed deposits (including accrued interest payable) of
approximately $7.3 million of a Carolina First Branch in Newberry County, South
Carolina. Also, on July 3, 2000, the Newberry Bank acquired net loans (including
accrued interest receivable) of approximately $22.5 million and assumed deposits
(including accrued interest payable) of approximately $32.0 million of a branch
in Saluda County, South Carolina. The Newberry Bank also purchased premises and
equipment of approximately $951,000 as part of the branch acquisitions. In
connection with these branches, the Newberry Bank paid a premium of $2.4 million
which is being amortized over a fifteen-year period on a straight-line basis.
On January 1, 2001, the Company merged the five subsidiary banks into one bank
charter known as CapitalBank. The Company made the decision to restructure the
organization into one bank in order to improve operational efficiencies, provide
new opportunities for employees, and improve service to customers. Customers
will receive the benefit of being able to transact business at any of
CapitalBank's branches, through the ATM network, and through the internet
banking products. Additionally, management believes that the new centralized
credit function will provide additional controlled decisions while streamlining
the credit process. Centralized deposit pricing will support management's
strategy from market to market. It is believed that the name recognition will be
enhanced.
14
On January 29, 2001, CapitalBank, the new bank subsidiary, announced that it had
signed a definitive agreement with Enterprise Bank of South Carolina to sell its
five branch offices located in Barnwell, Blackville, Williston, Springfield and
Salley, South Carolina. This transaction is expected to close in the second
quarter of 2001, pending regulatory approval and satisfaction of other
conditions of closing.
Results of Operations
Year ended December 31, 2000, compared with year ended December 31, 1999
Net interest income increased $1.8 million, or 15.3%, to $13.1 million in 2000
from $11.3 million in 1999. The increase in net interest income was due
primarily to an increase in average earning assets. Average earning assets
increased $59.0 million, or 19.32%, due to the growth of the subsidiary banks in
2000.
The Company's net interest spread and net interest margin were 3.13% and 3.59%,
respectively, in 2000 compared to 3.24% and 3.72% in 1999. The decrease in the
net interest spread was primarily the result of the increase in yields on
interest-bearing liabilities used to fund loans and securities. Yields on
interest-bearing liabilities increased from 4.36% in 1999 to 5.03% in 2000. The
net interest margin decreased from 3.72% in 1999 to 3.59% in 2000.
The provision for loan losses was $471,000 in 2000 compared to $1.0 million in
1999. The higher amount charged to the provision in 1999 was primarily to fund
potential problem loans at the Greenwood and Barnwell Banks. The Company's
allowance for loan losses was 1.09% of total loans outstanding at December 31,
2000. In addition, the provision was funded to match the growth in the loan
portfolio from the growth of the subsidiary banks and the subsidiary banks'
efforts to maintain their respective allowances for loan losses at levels
sufficient to cover known and inherent losses in their loan portfolios.
Noninterest income increased $123,000, or 3.9%, to $3.3 million in 2000 from
$3.2 million in 1999, which was primarily attributable to increased service
charges on deposit accounts and an increase in other operating income. The
increase in service charges on deposit accounts was attributable to the increase
in the number of deposit accounts from the growth of the subsidiary banks. Other
operating income increased $42,000 or 6.29% to $710,000 in 2000. Noninterest
income in 1999 included $175,000 from the gain on sales of securities
available-for-sale, compared to no gains in 2000. Noninterest income for the
year ended December 31, 2000 included $150,000 from the gain on the sale of
Community Trust Company.
Noninterest expense increased $2.0 million, or 16.3%, to $14.0 million in 2000
from $12.0 million in 1999. The primary component of noninterest expense is
salaries and employee benefits, which increased $1.1 million, or 19.3%, to $6.8
million in 2000 from $5.7 million in 1999. The increase is attributable to an
increase in the number of employees due to the growth of the subsidiary banks
and annual pay raises. Other categories of expenses increased due to the growth
of the subsidiary banks and from the acquisition of the two branches in 2000.
Net occupancy expense was $880,000 in 2000 compared to $819,000 in 1999, and
furniture and equipment expense was $1.6 million in 2000 compared to $1.2
million in 1999. The Company recorded amortization of intangible assets related
to acquisitions of $612,000 in 2000 compared to $537,000 in 1999. The Company's
efficiency ratio was 86.06% in 2000 compared to 83.70% in 1999.
Net income increased $324,000, or 24.40%, to $1.7 million in 2000 from $1.3
million in 1999. Basic earnings per share was $0.51 in 2000, compared to $0.41
in 1999. Diluted earnings per share was $0.51 in 2000, compared to $0.41 in
1999. Return on average assets during 2000 was 0.41% compared to 0.40% during
1999, and return on average equity was 4.57% during 2000 compared to 4.12%
during 1999.
15
Year ended December 31, 1999, compared with year ended December 31, 1998
Net interest income increased $1.5 million, or 15.3%, to $11.3 million in 1999
from $9.8 million in 1998. The increase in net interest income was due primarily
to an increase in average earning assets. Average earning assets increased $43.3
million, or 16.52%, due to the growth of the subsidiary banks in 1999.
The Company's net interest spread and net interest margin were 3.24% and 3.72%,
respectively, in 1999 compared to 3.14% and 3.76% in 1998. The increase in the
net interest spread was primarily the result of the decrease in yields on
interest-bearing liabilities used to fund loans and securities. Yields on
interest-bearing liabilities decreased from 4.89% in 1998 to 4.36% in 1999. The
net interest margin decreased slightly from 3.76% in 1998 to 3.72% in 1999. The
overall decrease in yields on earning assets contributed to this decrease.
The provision for loan losses was $1.0 million in 1999 compared to $1.8 million
in 1998. The significant amount charged to the provision in 1998 was primarily
the result of significant loan problems at the Barnwell Bank. The Company's
allowance for loan losses was 1.17% of total loans outstanding at December 31,
1999. In addition, the provision was funded to match the growth in the loan
portfolio from the growth of the subsidiary banks and the subsidiary banks'
efforts to maintain their respective allowances for loan losses at levels
sufficient to cover known and inherent losses in their loan portfolios.
Noninterest income increased $163,000, or 5.40%, to $3.2 million in 1999 from
$3.0 million in 1998, which was primarily attributable to increased service
charges on deposit accounts and increased fees from mortgage loan originations.
The increase in service charges on deposit accounts was attributable to the
increase in the number of deposit accounts from the growth of the subsidiary
banks. Income from the origination of mortgage loans was $672,000 in 1999
compared to $613,000 in 1998. Other income for the year ended December 31, 1998
also included $130,000 from the sale of the Greenwood Bank's Ninety Six branch.
Noninterest expense increased $1.8 million, or 17.5%, to $12.0 million in 1999
from $10.2 million in 1998. The primary component of noninterest expense is
salaries and employee benefits, which increased $1.0 million, or 21.4%, to $5.7
million in 1999 from $4.7 million in 1998. The increase is attributable to an
increase in the number of employees due to the growth of the subsidiary banks
and annual pay raises. Other categories of expenses increased due to the growth
of the subsidiary banks from a full year of operation relating to the
acquisition of the Carolina First Branches in 1998. Net occupancy expense was
$819,000 in 1999 compared to $703,000 in 1998. The Company recorded amortization
of intangible assets related to acquisitions of $537,000 in 1999 compared to
$443,000 in 1998. The Company's efficiency ratio was 83.70% in 1999 compared to
80.90% in 1998.
Net income increased $564,000, or 73.82%, to $1.3 million in 1999 from $764,000
in 1998. Basic earnings per share were $0.41 in 1999, compared to $0.24 in 1998.
Diluted earnings per share were $0.41 in 1999, compared to $.23 in 1998. Return
on average assets during 1999 was 0.40% compared to 0.27% during 1998, and
return on average equity was 4.12% during 1999 compared to 2.33% during 1998.
Net Interest Income
General. The largest component of the Company's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the yields earned on the Company's interest-earning assets and
the rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents the Company's net interest margin.
16
Average Balances, Income and Expenses and Rates
Year ended December 31, 2000 1999 1998
--------------------------- ---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------- --------- ------ --------- --------- ------ --------- --------- -------
Assets:
Earning Assets:
Loans (1) $ 254,064 $ 23,501 9.25% $ 188,672 $ 16,613 8.81%$ 161,695 $ 14,942 9.24%
Securities, taxable (2) 78,246 4,593 5.87 86,761 5,037 5.81 76,287 4,798 6.29
Securities, nontaxable 26,671 1,314 4.93 24,505 1,220 4.98 15,171 751 4.95
Nonmarketable equity
securities 5,329 308 5.78 4,758 295 6.20 4,085 216 5.29
Federal funds sold and other 87 6 6.90 696 34 4.89 4,864 336 6.91
--------- --------- --------- --------- --------- ---------
Total earning assets 364,397 29,722 8.16 305,392 23,199 7.60 262,102 21,043 8.03
--------- --------- --------- --------- --------- ---------
Cash and due from banks 9,728 8,117 7,168
Premises and equipment 14,024 10,835 8,288
Other assets 13,109 11,711 9,746
Allowance for loan losses (2,814) (2,509) (1,912)
--------- --------- ---------
Total assets $ 398,444 $ 333,546 $ 285,392
========= ========= =========
Liabilities:
Interest-Bearing Liabilities:
Interest-bearing transaction
accounts $ 101,225 3,553 3.51% $ 81,210 2,373 2.92%$ 64,836 2,241 3.46%
Savings deposits 29,051 1,096 3.77 26,658 954 3.58 21,118 847 4.01
Time deposits 136,144 7,878 5.79 125,596 6,375 5.08 124,871 7,040 5.64
Other short-term borrowings 27,675 1,772 6.40 20,928 1,169 5.59 3,534 227 6.42
Federal Home Loan Bank
advances 31,943 1,931 6.05 16,108 865 5.37 13,132 760 5.79
Long-term debt 3,299 286 8.67 1,114 80 7.18 1,530 71 4.64
Obligations under capital leases 1,239 120 9.69 463 34 7.34 160 12 7.50
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities 330,576 16,636 5.03 272,077 11,850 4.36 229,181 11,198 4.89
--------- --------- --------- --------- --------- ---------
Demand deposits 28,925 25,101 21,338
Accrued interest and other
liabilities 2,813 2,289 2,044
Shareholders' equity 36,130 34,079 32,829
--------- --------- ---------
Total liabilities and
shareholders' equity $ 398,444 $ 333,546 $ 285,392
========= ========= =========
Net interest spread 3.13% 3.24% 3.14%
Net interest income $ 13,086 $ 11,349 $ 9,845
========= ========= ========
Net interest margin 3.59% 3.72% 3.76%
(1) The effect of loans in nonaccrual status and fees collected is not
significant to the computations. All loans and deposits are domestic.
(2) Average investment securities exclude the valuation allowance on securities
available-for-sale.
17
Average Balances, Income, Expenses, and Rates. The previous table sets forth,
for the periods indicated, certain information related to the Company's average
balance sheet and its average yields on assets and average costs of liabilities.
Such yields are derived by dividing income or expense by the average balance of
the corresponding assets or liabilities. Average balances have been derived from
the daily balances throughout the periods indicated.
Analysis of Changes in Net Interest Income. The following table sets forth the
effect which the varying levels of earning assets and interest-bearing
liabilities and the applicable rates have had on changes in net interest income
from 2000 to 1999 and 1999 to 1998.
Analysis of Changes in Net Interest Income
2000 Compared With 1999 1999 Compared With 1998
------------------------------- --------------------------------
Variance Due to Variance Due to
(Dollars in thousands) Volume (1) Rate (1) Total Volume (1) Rate (1) Total
------- ------- ------- ------- ------- -------
Earning Assets
Loans $ 6,012 $ 876 $ 6,888 $ 2,401 $ (730) $ 1,671
Securities, taxable (499) 55 (444) 626 (387) 239
Securities, nontaxable 107 (13) 94 465 4 469
Nonmarketable equity securities 34 (21) 13 39 40 79
Federal funds sold and other (38) 10 (28) (225) (77) (302)
------- ------- ------- ------- ------- -------
Total interest income 5,616 907 6,523 3,306 (1,150) 2,156
------- ------- ------- ------- ------- -------
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts 650 530 1,180 511 (379) 132
Savings and market rate investments 88 54 142 205 (98) 107
Time deposits 563 940 1,503 41 (706) (665)
------- ------- ------- ------- ------- -------
Total interest-bearing deposits 1,301 1,524 2,825 757 (1,183) (426)
Other short-term borrowings 494 188 603 976 (34) 942
Federal Home Loan Bank advances 945 121 1,066 163 (58) 105
Long-term debt 186 20 206 (23) 32 9
Obligations under capital leases 72 14 86 22 -- 22
------- ------- ------- ------- ------- -------
Total interest expense 2,919 1,867 4,786 1,895 (1,243) 652
------- ------- ------- ------- ------- -------
Net interest income $ 2,697 $ (960) $ 1,737 $ 1,411 $ 93 $ 1,504
======= ======= ======= ======= ======= =======
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
Interest Sensitivity. The Company monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by the Company is the measurement of the
Company's interest sensitivity "gap," which is the positive or negative dollar
difference between assets and liabilities that are subject to interest rate
repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing in the same time interval helps to hedge the
risk and minimize the impact on net interest income of rising or falling
interest rates.
18
The following table sets forth the Company's interest rate sensitivity at
December 31, 2000.
Interest Sensitivity Analysis
Greater
After One After Three Than One
Within Through Through Within Year or
December 31, 2000 One Three Twelve One Non-
(Dollars in thousands) Month Months Months Year Sensitive Total
------- ------- ------- -------- -------- -------
Assets
Earning Assets
Loans (1) $ 78,628 $ 15,562 $ 45,091 $ 139,281 $ 140,588 $ 279,869
Securities -- -- 7,210 7,210 98,831 106,041
Federal funds sold and other 599 -- -- 599 -- 599
------- ------- ------- -------- -------- -------
Total earning assets 79,227 15,562 52,301 147,090 239,419 386,509
------- ------- ------- -------- -------- -------
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits 53,949 -- -- 53,949 -- 53,949
Savings deposits 88,886 -- -- 88,886 -- 88,886
Time deposits 25,568 29,881 80,681 136,130 25,150 161,280
------- ------- ------- -------- ------- -------
Total interest-bearing deposits 168,403 29,881 80,681 278,965 25,150 304,115
Other short-term borrowings 8,837 -- -- 8,837 -- 8,837
Federal Home Loan Bank advances 1,000 -- -- 1,000 31,399 32,399
Long-term debt -- -- -- -- 4,845 4,845
Obligations under capital leases 31 61 276 368 753 1,121
-------- ------- ------- -------- ------- -------
Total interest-bearing liabilities 178,271 29,942 80,957 289,170 62,147 351,317
-------- ------- ------- -------- ------- -------
Period gap $ (99,044) $ (14,380) $ (28,656) $(142,080) $ 177,272
========= ========= ========= ========== ========
Cumulative gap $ (99,044) $(113,424) $(142,080) $(142,080) $ 35,192
========= ========== ========== ========== ========
Ratio of cumulative gap to total earning assets (25.63)% (29.35)% (36.76)% (36.76)% 9.11%
(1) Excludes nonaccrual loans.
The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds are reflected at the earliest pricing interval
due to the immediately available nature of the instruments. Debt securities are
reflected at each instrument's ultimate maturity date. Scheduled payment amounts
of fixed rate amortizing loans are reflected at each scheduled payment date.
Scheduled payment amounts of variable rate amortizing loans are reflected at
each scheduled payment date until the loan may be repriced contractually; the
unamortized balance is reflected at that point. Interest-bearing liabilities
with no contractual maturity, such as savings deposits and interest-bearing
transaction accounts, are reflected in the earliest repricing period due to
contractual arrangements which give the Company the opportunity to vary the
rates paid on those deposits within a thirty-day or shorter period. Fixed rate
time deposits, principally certificates of deposit, are reflected at their
contractual maturity date.
19
The Company generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap position and generally would benefit from
decreasing market rates of interest when it is liability sensitive. The Company
is liability sensitive over the one month, three month, and one year time
frames. However, the Company's gap analysis is not a precise indicator of its
interest sensitivity position. The analysis presents only a static view of the
timing of maturities and repricing opportunities, without taking into
consideration that changes in interest rates do not affect all assets and
liabilities equally. For example, rates paid on a substantial portion of core
deposits may change contractually within a relatively short time frame, but
those rates are viewed by management as significantly less interest-sensitive
than market-based rates such as those paid on non-core deposits. Accordingly,
management believes a liability-sensitive gap position is not as indicative of
the Company's true interest sensitivity as it would be for an organization which
depends to a greater extent on purchased funds to support earning assets. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
Provision and Allowance for Loan Losses
General. The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. On a quarterly basis, each subsidiary bank's Board of
Directors reviews and approves the appropriate level for that subsidiary bank's
allowance for loan losses based upon management's recommendations, the results
of the internal monitoring and reporting system, analysis of economic conditions
in its markets, and a review of historical statistical data for both the Company
and other financial institutions.
Additions to the allowance for loan losses, which are expensed as the provision
for loan losses on the Company's income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk in the loan portfolio. Loan losses and recoveries are charged
or credited directly to the allowance. The amount of the provision is a function
of the level of loans outstanding, the level of nonperforming loans, historical
loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions.
The Company's allowance for loan losses is based upon judgments and assumptions
of risk elements in the portfolio, future economic conditions, and other factors
affecting borrowers. The process includes identification and analysis of loss
potential in various portfolio segments utilizing a credit risk grading process
and specific reviews and evaluations of significant problem credits. In
addition, management monitors the overall portfolio quality through observable
trends in delinquency, chargeoffs, and general and economic conditions in the
service area. The adequacy of the allowance for loan losses and the
effectiveness of the Company's monitoring and analysis system are also reviewed
periodically by the banking regulators and the Company's independent auditors.
Based on present information and an ongoing evaluation, management considers the
allowance for loan losses to be adequate to meet presently known and inherent
risks in the loan portfolio. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable but which may or may not be valid. Thus, there can be
no assurance that chargeoffs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required. The Company does not allocate the allowance for loan losses to
specific categories of loans but evaluates the adequacy on an overall portfolio
basis utilizing a risk grading system.
20
The following table sets forth certain information with respect to the Company's
allowance for loan losses and the composition of chargeoffs and recoveries for
each of the last five years.
Allowance for Loan Losses
Year Ended December 31,
(Dollars in thousands) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Total loans outstanding at end of period $280,506 $219,054 $172,545 $149,127 $ 80,546
======== ======== ======== ======== ========
Average loans outstanding $254,064 $188,672 $161,695 $113,080 $ 71,298
======== ======== ======== ======== ========
Balance of allowance for loan losses at beginning
of period $ 2,557 $ 2,399 $ 1,531 $ 837 $ 671
Allowance for loan losses from acquisitions 335 -- 38 255 --
Loan losses:
Commercial, financial and agricultural 113 287 135 92 --
Real estate - mortgage 122 306 43 9 --
Consumer 305 449 885 68 21
-------- -------- -------- -------- --------
Total loan losses 540 1,042 1,063 169 21
-------- -------- -------- -------- --------
Recoveries of previous loan losses:
Commercial, financial and agricultural 73 -- -- -- --
Real estate - mortgage 14 17 -- -- --
Consumer 150 146 57 -- --
-------- -------- -------- -------- --------
Total recoveries 237 163 57 -- --
-------- -------- -------- -------- --------
Net loan losses 303 879 1,006 169 21
Provision for loan losses 471 1,037 1,836 608 187
-------- -------- -------- -------- --------
Balance of allowance for loan losses at end of period $ 3,060 $ 2,557 $ 2,399 $ 1,531 $ 837
======== ======== ======== ======== =====
Allowance for loan losses to period end loans 1.09 % 1.17 % 1.39 % 1.03 % 1.04 %
Net chargeoffs to average loans 0.12 0.47 0.62 0.15 0.03
Nonperforming Assets. The following table sets forth the Company's nonperforming
assets for the dates indicated.
Nonperforming Assets
December 31,
----------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Nonaccrual loans $ 637 $1,223 $1,348 $ 678 $ 186
Restructured or impaired loans -- -- -- -- --
------ ------ ------ ------ ------
Total nonperforming loans $ 637 $1,223 $1,348 $ 678 $ 186
Other real estate owned 58 -- -- 262 --
------ ------ ------ ------ ------
Total nonperforming assets $ 695 $1,223 $1,348 $ 940 $ 186
====== ====== ====== ====== ======
Loans 90 days or more past due and still
accruing interest $ 164 $ 109 $ 112 $ 84 $ 54
Nonperforming assets to period end loans 0.25% 0.56% 0.78% 0.63% 0.23%
21
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. When a loan is placed in nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from current earnings as a reduction of reported interest income.
No additional interest is accrued on the loan balance until the collection of
both principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual write-down or chargeoff of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which would
have been recognized into earnings if the Company's nonaccrual loans had been
current in accordance with their original terms, is immaterial.
Total nonperforming assets decreased to $695,000 at December 31, 2000, from $1.2
million at December 31, 1999. This amount consists primarily of nonaccrual loans
at the Greenwood Bank which totaled $467,000 at December 31, 2000. Nonperforming
assets were 0.25% of total loans at December 31, 2000. The allowance for loan
losses to period end nonperforming assets was 440.3% at December 31, 2000.
Potential Problem Loans. At December 31, 2000, through their internal review
mechanisms, the subsidiary banks had identified $6.5 million of criticized loans
and $3.4 million of classified loans. The results of this internal review
process are the primary determining factor in management's assessment of the
adequacy of the allowance for loan losses.
The Company's criticized loans increased from $5.3 million at December 31, 1999
to $6.5 million at December 31, 2000. Total classified loans remained unchanged
from December 31, 1999, totaling $3.4 million at December 31, 2000.
The majority of the Company's criticized and classified loans were at the
Greenwood Bank. As of December 31, 2000, the Greenwood Bank had $3.8 million in
criticized loans and $1.3 million in classified loans. Net charges offs at the
Greenwood Bank were $120,000 in 2000 and the charge to the provision for loan
losses was $145,000. While the majority of potential problem loans are at the
Greenwood Bank, the loan portfolio at the Greenwood Bank is significantly larger
than the other subsidiary banks, comprising approximately 37.4% of the Company's
total loans.
While criticized and classified loans decreased significantly at the Barnwell
Bank, they increased at the Clemson and Belton Banks. At December 31, 2000, the
Clemson Bank identified criticized and classified loans totaling $803,000 and
$590,000, respectively, and the Belton Bank identified $626,000 and $831,000
criticized and classified loans, respectively.
Management is committed to addressing potential problem loans at all subsidiary
banks.
Noninterest Income and Expense
Noninterest Income. The largest component of noninterest income is service
charges on deposit accounts, which totaled $1.7 million in 2000, a 12.8%
increase over the 1999 level of $1.5 million. The increase in service charges
was primarily attributable to an increase in the customer base due to the growth
of the subsidiary banks in 2000.
22
The following table sets forth, for the periods indicated, the principal
components of noninterest income:
Noninterest Income
Year Ended December 31,
------------------------
(Dollars in thousands) 2000 1999 1998
------ ------ ------
Service charges on deposit accounts $1,706 $1,513 $1,260
Residential mortgage origination fees 503 672 613
Securities gains -- 175 220
Commissions from sales of mutual funds 105 54 104
Income from fiduciary activities 129 98 133
Gain on sale of Community Trust Company 150 -- --
Other income 710 668 687
------ ------ ------
Total noninterest income $3,303 $3,180 $3,017
====== ====== ======
Noninterest Expense. Salaries and employee benefits increased $1.1 million, or
19.3%, to $6.8 million in 2000 from $5.7 million in 1999, primarily as a result
of an increase in the number of employees in order to staff the growth of the
subsidiary banks and for annual pay raises. The growth of the subsidiary banks
also resulted in increases in all other categories of noninterest expense. The
Company is amortizing the intangible assets associated with its acquisitions
over periods ranging from five to fifteen years. During 2000, the Company
recorded amortization expense of $612,000 compared to $537,000 in 1999. The
factors above resulted in increases in net occupancy expense, furniture and
equipment expense, and other operating expenses. The Company's efficiency ratio,
which is noninterest expense as a percentage of the total of net interest income
plus noninterest income, net of gains and losses on the sale of assets, was
86.06% in 2000 compared to 83.70% in 1999 and 80.90% in 1998.
The following table sets forth, for the periods indicated, the primary
components of noninterest expense:
Noninterest Expense
Year Ended December 31,
-----------------------------
(Dollars in thousands) 2000 1999 1998
------- ------- -------
Salaries and employee benefits $ 6,787 $ 5,690 $ 4,688
Net occupancy expense 880 819 703
Furniture and equipment expense 1,631 1,178 1,129
Amortization of intangible assets 612 537 443
Director and committee fees 202 76 182
Data processing and supplies 361 205 135
Mortgage loan department expenses 130 247 191
Banking assessments 131 77 58
Professional fees and services 476 432 360
Postage and freight 380 312 278
Supplies 419 391 367
Credit card expenses 201 188 139
Telephone expenses 402 307 364
Other 1,364 1,555 1,191
------- ------- -------
Total noninterest expense $13,976 $12,014 $10,228
======= ======= =======
Efficiency ratio 86.06% 83.70% 80.90%
23
Income Taxes. The Company's income tax expense was $290,000, an increase of
$140,000 from the 1999 amount of $150,000. The increase is primarily
attributable to an increase in income before taxes of $464,000 when compared to
1999. However, the amount of nontaxable income from securities comprised a
significant amount of income before taxes. Nontaxable securities income was $1.3
million for the year ended December 31, 2000, compared to $1.2 million for the
year ended December 31, 1999.
Earning Assets
Loans. Loans are the largest category of earning assets and typically provide
higher yields than the other types of earning assets. Associated with the higher
yields are the inherent credit and liquidity risks which management attempts to
control and counterbalance. Loans averaged $254.1 million in 2000 compared to
$188.7 million in 1999, an increase of $65.4 million, or 34.66%. At December 31,
2000, total loans were $280.5 million compared to $219.1 million at December 31,
1999.
The increase in loans during 2000 was primarily due to the continued growth in
the new markets created by the subsidiary banks. The subsidiary banks have also
sought opportunities to participate in loans originated by other financial
institutions. The following table sets forth the composition of the loan
portfolio by category at the dates indicated and highlights the Company's
general emphasis on mortgage lending.
Composition of Loan Portfolio
December 31, 2000 1999 1998 1997 1996
------------------- ------------------- --------------------- ---------------------- --------------------
Percent of Percent of Percent of Percent of Percent of
(Dollars in thousands) Amount Total Amount Total Amount Total Amount Total Amount Total
------- ------ ------- ------ ------- ------ ------- ------ ------ ------
Commercial and
industrial $ 52,005 18.54% $ 29,740 13.58% $ 28,991 16.80% $ 36,079 24.19% $ 15,348 19.05%
Real estate
Construction 20,393 7.27 28,664 13.09 23,665 13.72 12,838 8.61 9,962 12.37
Mortgage-residential 111,897 39.89 66,092 30.17 52,635 30.51 40,977 27.48 31,519 39.13
Mortgage-
nonresidential 60,159 21.45 58,419 26.67 36,017 20.87 32,518 21.81 17,616 21.87
Consumer 33,721 12.02 32,256 14.73 29,784 17.26 25,747 17.27 5,947 7.38
Other 2,331 0.83 3,883 1.76 1,453 0.84 968 0.64 154 0.20
------- ------ ------- ------ ------- ------ ------- ------ ------ ------
Total loans 280,506 100.00% 219,054 100.00% 172,545 100.00% 149,127 100.00% 80,546 100.00%
======= ======= ======= ======= =======
Allowance for
loan losses (3,060) (2,557) (2,399) (1,531) (837)
--------- -------- -------- --------- ---------
Net loans $ 277,446 $216,497 $170,146 $147,596 $ 79,709
========= ======== ======== ========= =========
The principal component of the Company's loan portfolio is real estate mortgage
loans. At December 31, 2000, this category totaled $172.1 million and
represented 61.3% of the total loan portfolio, compared to $124.5 million, or
56.8%, at December 31, 1999.
In the context of this discussion, a "real estate mortgage loan" is defined as
any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. It is common practice for financial
institutions in the Company's market areas to obtain a security interest in real
estate, whenever possible, in addition to any other available collateral. This
collateral is taken to reinforce the likelihood of the ultimate repayment of the
loan and tends to increase the magnitude of the real estate loan portfolio
component.
24
Real estate construction loans decreased $8.3 million, or 28.9%, to $20.4
million at December 31, 2000, from $28.7 million at December 31, 1999.
Residential mortgage loans, which is the largest category of the Company's
loans, increased $45.8 million, or 69.3%, to $111.9 million at December 31,
2000, from $66.1 million at December 31, 1999. Residential real estate loans
consist of first and second mortgages on single or multi-family residential
dwellings. Nonresidential mortgage loans, which include commercial loans and
other loans secured by multi-family properties and farmland, increased $1.7
million, or 3.0%, to $60.2 million at December 31, 2000, from $58.4 million at
December 31, 1999. The overall increase in real estate lending was attributable
to the new markets in the local communities of the subsidiary banks and the
continued demand for residential and commercial real estate loans in those
markets. The subsidiary banks have been able to compete favorably for
residential mortgage loans with other financial institutions by offering fixed
rate products having three and five year call provisions.
Commercial and industrial loans increased $22.3 million, or 74.9%, to $52.0
million at December 31, 2000, from $29.7 million at December 31, 1999. This
increase was attributable to the subsidiary bank's continued growth in their
respective markets and the realization of higher yields on commercial loans.
Consumer loans increased $1.4 million, or 4.5%, to $33.7 million at December 31,
2000, from $32.3 million at December 31, 1999. The growth in consumer loans is
primarily attributable to overall growth in the Company's loan portfolio due to
new markets created by the subsidiary banks.
The Company's loan portfolio reflects the diversity of its markets. The home
office and the branch offices of the Greenwood Bank are located in Greenwood
County, South Carolina. The economy of Greenwood contains elements of medium and
light manufacturing, higher education, regional health care, and distribution
facilities. The Clemson Bank has offices in Clemson and Calhoun Falls, South
Carolina. Due to its proximity to a major interstate highway and Clemson
University, a state-supported university, management expects the area to remain
stable with continued growth. The Belton Bank and the Barnwell Bank are in more
rural areas and have a higher concentration of consumer loans with fewer
opportunities for commercial lending. The Newberry Bank's main office and
Prosperity branch are located in Newberry County, South Carolina and are in
close proximity to an interstate highway. The Newberry Bank also has a branch
office in Saluda County. The diversity of the economy creates opportunities for
all types of lending. The Company does not engage in foreign lending.
The repayment of loans in the loan portfolio as they mature is also a source of
liquidity for the Company. The following table sets forth the Company's loans
maturing within specified intervals at December 31, 2000.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
Over
One Year
December 31, 2000 One Year or Through Over Five
(Dollars in thousands) Less Five Years Years Total
-------- -------- -------- --------
Commercial and industrial $ 25,808 $ 23,660 $ 2,537 $ 52,005
Real estate 95,560 75,927 20,962 192,449
Consumer and other 17,913 15,031 3,108 36,052
-------- -------- -------- --------
$139,281 $114,618 $ 26,607 $280,506
-------- -------- -------- --------
Loans maturing after one year with:
Fixed interest rates $ 136,659
Floating interest rates 4,566
---------
$ 141,225
=========
25
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio shown in the above table.
Investment Securities. The investment securities portfolio is a significant
component of the Company's total earning assets. Total securities averaged
$110.2 million in 2000, compared to $116.0 million in 1999 and $95.5 million in
1998. At December 31, 2000, the total securities portfolio was $106.0 million.
Securities designated as available-for-sale totaled $100 million and were
recorded at estimated fair value, and securities designated as held-to-maturity
totaled $590,000 and were recorded at amortized cost. The securities portfolio
also includes nonmarketable equity securities totaling $5.5 million which are
carried at cost because they are not readily marketable or have no quoted market
value. These include investments in Federal Reserve Bank stock, Federal Home
Loan Bank stock, the stock of four unrelated financial institutions, and the
stock of a financial services company that offers internet banking.
The following table sets forth the book value of the securities held by the
Company at the dates indicated.
Book Value of Securities
December 31, 2000 1999 1998
------- ------- ------
(Dollars in thousands)
U.S. Treasury securities $ -- $ 599 $ 597
U.S. Government agencies and corporations 50,544 51,421 64,517
State, county, and municipal securities 26,611 26,704 20,656
------- ------- ------
77,155 78,724 85,770
Mortgage-backed securities 24,262 29,513 28,993
Nonmarketable equity securities 5,500 4,935 4,823
------- ------- ------
Total securities $106,917 $113,172 $119,586
======== ======== ========
The following table sets forth the scheduled maturities and average yields of
securities held at December 31, 2000.
Investment Securities Maturity Distribution and Yields
After One But After Five But
December 31, 2000 Within One Year Within Five Years Within Ten Years Over Ten Years
----------------- ----------------- ---------------- ------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ ------- ------ ------- ------- ------- ------
U.S. Government agencies $ 6,710 5.09 % $33,989 5.75 % $ 8,361 6.04 % $ 958 7.00 %
Obligations of state and
local governments (2) 500 6.06 1,240 6.06 4,335 7.17 20,528 6.88
------- ------- ------- -------
Total securities (1) $ 7,210 5.15 % $35,229 5.77 % $12,696 6.42 % $21,486 6.88 %
======= ======= ======= =======
(1) Excludes mortgage-backed securities totaling $23.9 million with a yield of
6.2% and nonmarketable equity securities.
(2) The yield on state and local governments is presented on a tax equivalent
basis using a federal income tax rate of 34%.
Other attributes of the securities portfolio, including yields and maturities,
are discussed above in "--Net Interest Income-- Interest Sensitivity."
26
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold and interest-bearing deposits with other banks, averaged
$87,000 in 2000, compared to $696,000 in 1999 and $4.9 million in 1998. At
December 31, 2000, short-term investments totaled $599,000. These funds are a
source of the Banks' liquidity. Federal funds are generally invested in an
earning capacity on an overnight basis.
Deposits and Other Interest-Bearing Liabilities
Average interest-bearing liabilities increased $58.6 million, or 21.50%, to
$330.6 million in 2000, from $272.0 million in 1999. Average interest-bearing
deposits increased $33.0 million, or 14.12%, to $266.4 million in 2000, from
$233.4 million in 1999. These increases resulted from increases in all
categories of interest-bearing liabilities.
Deposits. Average total deposits increased $36.7 million, or 14.22%, to $295.3
million during 2000, from $258.6 million during 1999. At December 31, 2000,
total deposits were $336.3 million compared to $257.2 million a year earlier, an
increase of 30.7%.
The following table sets forth the deposits of the Company by category at the
dates indicated.
Deposits
December 31, 2000 1999 1998 1997 1996
--------------------- --------------------- --------------------- ---------------------- ----------------------
(Dollars in Percent of Percent of Percent of Percent of Percent of
thousands) Amount Deposits Amount Deposits Amount Deposits Amount Deposits Amount Deposits
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Demand deposit
accounts $ 32,197 9.57% $ 27,422 10.66% $ 23,491 9.03% $ 19,460 10.41% $ 12,226 13.61%
NOW accounts 53,949 16.04 45,560 17.71 45,854 17.63 30,562 16.36 8,296 9.23
Money market
accounts 58,343 17.35 38,419 14.93 30,161 11.60 20,812 11.14 14,035 15.62
Savings accounts 30,543 9.08 26,642 10.36 25,202 9.69 15,127 8.09 8,681 9.66
Time deposits
less than
$100,000 114,454 34.03 91,671 35.64 104,491 40.17 73,827 39.51 34,745 38.66
Time deposits
of $100,000
or over 46,826 13.93 27,533 10.70 30,921 11.88 27,073 14.49 11,879 13.22
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total deposits $336,312 100.00% $257,247 100.00% $260,120 100.00% $186,861 100.00% $ 89,862 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for the Company's loan portfolio and
other earning assets. The Company's core deposits increased $56.5 million to
$286.2 million at December 31, 2000.
Deposits, and particularly core deposits, have historically been the Company's
primary source of funding and have enabled the Company to meet successfully both
its short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be the Company's primary source of funding in the
future. The Company's loan-to-deposit ratio was 83.4% at December 31, 2000,
85.2% at the end of 1999, and averaged 86.5% during 2000. The maturity
distribution of the Company's time deposits over $100,000 at December 31, 2000,
is set forth in the following table.
27
Maturities of Certificates of Deposit of $100,000 or More
After Six
After Three Through
Within Three Through Six Twelve After Twelve
(Dollars in thousands) Months Months Months Months Total
-------- ------- -------- ------- --------
Certificates of deposit of $100,000 or more $ 21,129 $ 8,129 $ 10,127 $ 7,441 $ 46,826
Approximately 45.12% of the Company's time deposits over $100,000 had scheduled
maturities within three months and 62.48% had maturities within six months.
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheets using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, the Company does not
solicit brokered deposits.
Borrowed Funds. Borrowed funds consist of short-term borrowings and advances
from the Federal Home Loan Bank. Short-term borrowings are primarily federal
funds purchased from correspondent banks and securities sold under agreements to
repurchase.
Average short-term borrowings were $29.2 million in 2000, an increase of $8.2
million from 1999. Federal funds purchased from correspondent banks averaged
$21.4 million in 2000. At December 31, 2000, federal funds purchased totaled
$8.0 million. Securities sold under agreements to repurchase averaged $7.8
million in 2000. At December 31, 2000, securities sold under agreements to
repurchase totaled $4.2 m