Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. COMMUNITY CAPITAL CORP /SC/ (832847) 10-Q published on Aug 05, 2011 at 12:05 pm
Reporting Period: Jun 29, 2011
A number of tables are included to assist in the description of these measures. For example, the “Average Balances” table shows the average balance for the three months ended June 30, 2011 and 2010 and for the six months ended June 30, 2011 and 2010 of each category of assets and liabilities, as well as the yield earned or the rate paid with respect to each category. A review of this table show’s that our loans typically provide higher interest yields than do other types of interest-bearing assets, which is why we intend to channel a substantial percentage of our earning assets into our loan portfolio. We also track the sensitivity of the various categories of assets and liabilities to changes in interest rates, and a table is included for explanation. Finally, a number of tables are included that provide detail about our investment securities, loans, deposits and other borrowings.
For the foreseeable future, we do not intend to declare cash dividends. We intend to retain earnings to grow our business and strengthen our capital base. Future dividends are subject to the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, cash requirements, and general business conditions. Our 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 it is permitted to pay. In addition, the Written Agreement prohibits us and CapitalBank from declaring or paying dividends, without the prior written approval of the Federal Reserve Bank of Richmond and the S.C. Board, respectively. Furthermore, neither us nor CapitalBank may declare or pay a cash dividend on any of its capital stock if we are insolvent or if the payment of the dividend would render us as insolvent or unable to pay our obligations as they become due in the ordinary course of business.
In October 2009, the Federal Reserve Bank of Richmond conducted its safety and soundness examination of CapitalBank. Since receiving the Federal Reserve Bank of Richmond’s report of examination in October 2009, which was based on CapitalBank’s financial statements as of June 30, 2009 and loan data as of September 15, 2009, CapitalBank has been actively addressing the concerns raised in the report and as a result has improved its financial condition materially since the examination date. Although CapitalBank has materially improved its financial condition since the Federal Reserve Bank of Richmond’s October 2009 examination and remained well capitalized as of June 30, 2010, we entered into the Written Agreement with the Federal Reserve Bank of Richmond and the S.C. Board on July 28, 2010 to ensure that certain requirements imposed by the Federal Reserve Bank of Richmond are fully addressed by CapitalBank.
When an asset is classified as non-performing, it is CapitalBank’s policy to perform an impairment analysis to determine its fair market value. Depending on the size of the transaction, CapitalBank uses appraisals (for transactions greater than $250,000) or internal evaluations (for transactions less than or equal to $250,000) to determine fair market value as soon as practical after the asset has been identified as non-performing. When performing an internal evaluation, comparable sales, tax assessed value, physical condition of the asset, surrounding neighborhood conditions and/or broker opinions may be used to further support the internal evaluation. In the case of third party appraisals, each appraisal’s assumptions and conclusions of value are reviewed in CapitalBank’s credit administration department and adjustments may be made to CapitalBank's loan loss allowance as deemed necessary to reflect any diminuition in the fair market value of the asset.
We classify loans as TDRs when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. We only restructure loans for borrowers in financial difficulty that have designed a viable business plan to fully pay off all obligations, including outstanding debt, interest and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. With respect to restructured loans, we grant concessions by (1) reduction of the stated interest rate for the remaining original life of the debt, or (2) extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk. We do not generally grant concessions through forgiveness of principal or accrued interest. Restructured loans where a concession has been granted through extension of the maturity date generally include extension of payments in an interest only period, extension of payments with capitalized interest and extension of payments through a forbearance agreement. These extended payment terms are also combined with a reduction of the stated interest rate in certain cases. Success in restructuring loans has been mixed but it has proven to be a useful tool in certain situations to protect collateral values and allow certain borrowers additional time to execute upon defined business plans. In situations where a TDR is unsuccessful and the borrower is unable to follow through with terms of the restricted agreement, the loan is placed on nonaccrual status and continues to be written down to the underlying collateral value. Our policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance. That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms; continued accrual of interest at the restructured interest rate is likely. If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward. Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status. We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms. If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status. To date, we have not restored any nonaccrual loan classified as a TDR to accrual status.