UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________


Commission File Number: 0-13358
 
 
CCBG Logo
 


CAPITAL CITY BANK GROUP, INC.
(Exact name of registrant as specified in its charter)


Florida
 
59-2273542
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)


217 North Monroe Street, Tallahassee, Florida
 
32301
(Address of principal executive office)
 
(Zip Code)

(850) 402-7000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o   No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer”, “accelerated filer", and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
   
(Do not check if smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

At October 31, 2009, 17,032,340 shares of the Registrant's Common Stock, $.01 par value, were outstanding.



 
 

 

CAPITAL CITY BANK GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

PART I – Financial Information
 
Page
 
Item 1.
 
 
4
 
5
 
6
 
7
 
8
     
Item 2.
20
     
Item 3.
35
     
Item 4.
35
     
PART II – Other Information
   
 
Item 1.
35
     
Item 1A.
35
     
Item 2.
35
     
Item 3.
35
     
Item 4.
35
     
Item 5.
35
     
Item 6.
36
     
 
37
     
 
38


 
-2-
 


INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control.  The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target," "goal," and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties.  Our actual future results may differ materially from those set forth in our forward-looking statements.

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, the following sections of our Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”): (a) “Introductory Note” in Part I, Item 1. “Business”; (b) “Risk Factors” in Part I, Item 1A., as updated in our subsequent quarterly reports filed on Form 10-Q, and (c) “Introduction” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7. as well as:
 
§  
the frequency and magnitude of foreclosure of our loans;
§  
the adequacy of collateral underlying collateralized loans and our ability to resell the collateral if we foreclose on the loans;
§  
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
§  
the accuracy of our financial statement estimates and assumptions, including the estimate for our loan loss provision;
§  
the extent to which our nonperforming loans increase or decrease as a percentage of our total loan portfolio;
§  
the effects of federal and state banking laws on our ability to declare and pay dividends;
§  
our ability to integrate the business and operations of companies and banks that we have acquired, and those we may acquire in the future;
§  
our need and our ability to incur additional debt or equity financing;
§  
the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
§  
the effects of harsh weather conditions, including hurricanes;
§  
inflation, interest rate, market and monetary fluctuations;
§  
effect of changes in the stock market and other capital markets;
§  
legislative or regulatory changes;
§  
our ability to comply with the extensive laws and regulations to which we are subject;
§  
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
§  
changes in the securities and real estate markets;
§  
increased competition and its effect on pricing;
§  
technological changes;
§  
changes in monetary and fiscal policies of the U.S. Government;
§  
the effects of security breaches and computer viruses that may affect our computer systems;
§  
changes in consumer spending and saving habits;
§  
growth and profitability of our noninterest income;
§  
changes in accounting principles, policies, practices or guidelines;
§  
the limited trading activity of our common stock;
§  
the concentration of ownership of our common stock;
§  
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
§  
other risks described from time to time in our filings with the Securities and Exchange Commission; and
§  
our ability to manage the risks involved in the foregoing.

However, other factors besides those referenced also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.  Any forward-looking statements made by us or on our behalf speak only as of the date they are made.  We do not undertake to update any forward-looking statement, except as required by applicable law.


 
-3-

 

PART I.      FINANCIAL INFORMATION
Item 1.               CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

(Dollars In Thousands, Except Share Data)
 
September 30, 2009
   
December 31, 2008
 
ASSETS
           
Cash and Due From Banks
 
$
79,275
   
$
88,143
 
Federal Funds Sold and Interest Bearing Deposits
   
828
     
6,806
 
Total Cash and Cash Equivalents
   
80,103
     
94,949
 
                 
Investment Securities, Available-for-Sale
   
183,944
     
191,569
 
                 
Loans, Net of Unearned Interest
   
1,958,032
     
1,957,797
 
Allowance for Loan Losses
   
(45,401
)
   
(37,004
)
Loans, Net
   
1,912,631
     
1,920,793
 
                 
Premises and Equipment, Net
   
111,797
     
106,433
 
Goodwill
   
84,811
     
84,811
 
Other Intangible Assets
   
5,040
     
8,072
 
Other Assets
   
113,611
     
82,072
 
Total Assets
 
$
2,491,937
   
$
2,488,699
 
                 
LIABILITIES
               
Deposits:
               
Noninterest Bearing Deposits
 
$
397,943
   
$
419,696
 
Interest Bearing Deposits
   
1,552,047
     
1,572,478
 
Total Deposits
   
1,949,990
     
1,992,174
 
                 
Short-Term Borrowings
   
103,711
     
62,044
 
Subordinated Notes Payable
   
62,887
     
62,887
 
Other Long-Term Borrowings
   
50,665
     
51,470
 
Other Liabilities
   
56,269
     
41,294
 
Total Liabilities
   
2,223,522
     
2,209,869
 
                 
SHAREOWNERS' EQUITY
               
Preferred Stock, $.01 par value, 3,000,000 shares authorized;
no shares outstanding
   
-
     
-
 
Common Stock, $.01 par value, 90,000,000 shares authorized; 17,032,337 and 17,126,997 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively
   
170
     
171
 
Additional Paid-In Capital
   
36,065
     
36,783
 
Retained Earnings
   
253,104
     
262,890
 
Accumulated Other Comprehensive Loss, Net of Tax
   
(20,924
)
   
(21,014
)
Total Shareowners' Equity
   
268,415
     
278,830
 
Total Liabilities and Shareowners' Equity
 
$
2,491,937
   
$
2,488,699
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



 
-4-

 

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)

   
Three Months Ended
   
Nine Months Ended
   
(Dollars in Thousands, Except Per Share Data)
 
2009
   
2008
   
2009
   
2008
 
INTEREST INCOME
                       
Interest and Fees on Loans
 
$
                  29,463
   
$
                  32,435
   
$
88,742
   
$
101,112
 
Investment Securities:
                               
U.S. Treasuries
   
125
     
218
     
444
     
566
 
U.S. Government Agencies
   
440
     
588
     
1,471
     
2,014
 
States and Political Subdivisions
   
641
     
803
     
2,073
     
2,372
 
Other Securities
   
117
     
135
     
285
     
495
 
Federal Funds Sold
   
1
     
475
     
5
     
3,078
 
Total Interest Income
   
30,787
     
34,654
     
93,020
     
109,637
 
                                 
INTEREST EXPENSE
                               
                                 
Deposits
   
2,626
     
5,815
     
7,621
     
23,458
 
Short-Term Borrowings
   
113
     
230
     
             269
     
          1,047
 
Subordinated Notes Payable
   
936
     
936
     
2,794
     
2,798
 
Other Long-Term Borrowings
   
560
     
488
     
1,694
     
1,215
 
Total Interest Expense
   
4,235
     
7,469
     
12,378
     
28,518
 
                                 
NET INTEREST INCOME
   
26,552
     
27,185
     
80,642
     
81,119
 
Provision for Loan Losses
   
12,347
     
10,425
     
29,183
     
19,999
 
Net Interest Income After Provision For Loan Losses
   
14,205
     
16,760
     
51,459
     
61,120
 
                                 
NONINTEREST INCOME
                               
Service Charges on Deposit Accounts
   
7,099
     
7,110
     
20,959
     
20,935
 
Data Processing
   
914
     
873
     
2,680
     
2,498
 
Asset Management Fees
   
960
     
1,025
     
2,860
     
3,300
 
Securities Transactions
   
4
     
27
     
10
     
122
 
Mortgage Banking Fees
   
663
     
331
     
2,149
     
1,331
 
Bank Card Fees
   
2,398
     
2,431
     
7,940
     
10,300
 
Gain on Sale of Portion of Merchant Services Portfolio
   
-
     
6,250
     
-
     
6,250
 
Other
   
2,266
     
2,165
     
6,382
     
8,993
 
Total Noninterest Income
   
14,304
     
20,212
     
42,980
     
53,729
 
                                 
NONINTEREST EXPENSE
                               
Salaries and Associate Benefits
   
15,660
     
15,417
     
48,946
     
46,339
 
Occupancy, Net
   
2,455
     
2,373
     
7,340
     
7,226
 
Furniture and Equipment
   
2,193
     
2,369
     
6,835
     
         7,534
 
Intangible Amortization
   
1,011
     
1,459
     
3,032
     
4,376
 
Other
   
10,296
     
8,298
     
30,649
     
24,995
 
Total Noninterest Expense
   
31,615
     
29,916
     
96,802
     
90,470
 
                                 
INCOME BEFORE INCOME TAXES
   
(3,106)
     
7,056
     
(2,363)
     
24,379
 
Income Tax (Benefit) Expense
   
(1,618)
     
2,218
     
(2,299)
     
7,451
 
                                 
NET (LOSS) INCOME
 
$
(1,488)
   
$
4,838
   
$
(64)
   
$
16,928
 
                                 
Basic Net Income Per Share
 
$
(0.08)
   
$
0.29
   
$
0.00
   
$
0.99
 
Diluted Net Income Per Share
 
$
(0.08)
   
$
0.29
   
$
0.00
   
$
0.99
 
                                 
Average Basic Shares Outstanding
   
17,024,423
     
17,123,967
     
17,047,464
     
17,146,780
 
Average Diluted Shares Outstanding
   
17,024,908
     
17,127,949
     
17,048,030
     
17,149,392
 
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 
-5-

 


CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)

 
 
(Dollars In Thousands, Except Share Data)
Shares Outstanding
   
Common Stock
   
Additional
Paid-In Capital
 
Retained Earnings
   
Accumulated Other Comprehensive Income, Net of Taxes
 
Total
 
                               
Balance, December 31, 2008
17,126,997
 
$
 171
 
$
36,783
 
$
262,890
   
$
(21,014
)
$
278,830
 
Comprehensive Income:
                                   
Net Loss
-
   
-
   
-
   
(64)
     
-
   
(64)
 
Net Change in Unrealized Gain On
   Available-for-Sale Securities (net of tax)
-
   
-
   
-
   
-
     
90
   
90
 
Total Comprehensive Income
-
   
-
   
-
                 
26
 
Cash Dividends ($.570 per share)
-
   
-
   
-
   
(9,722
)
   
-
   
(9,722
)
Stock Performance Plan Compensation
-
   
-
   
(15
)
 
-
     
-
   
(15
)
Issuance of Common Stock
51,228
   
-
   
996
   
-
     
-
   
996
 
Repurchase of Common Stock
(145,888
)
 
(1
 
(1,560
)
 
-
     
-
   
(1,561
)
                                     
Balance, September 30, 2009
17,032,337
 
$
 170
 
$
36,065
 
$
253,10
   
$
(20,924
)
$
268,415
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


 
-6-

 

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)

(Dollars in Thousands)
 
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
 
$
(64
 
$
16,928
 
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
               
Provision for Loan Losses
   
         29,183
     
19,999
 
Depreciation
   
           5,015
     
5,173
 
Net Securities Amortization
   
           1,692
     
616
 
Amortization of Intangible Assets
   
           3,032
     
4,376
 
Gain on Sale of Portion of Merchant Services Portfolio
   
              -
     
(6,250
)
Proceeds From Sale of Portion of Merchant Services Portfolio
   
              -
     
6,250
 
Gain on Securities Transactions
   
              (10
)
   
(122
)
Origination of Loans Held-for-Sale
   
     (129,263
)
   
(87,612
)
Proceeds From Sales of Loans Held-for-Sale
   
       130,564
     
90,927
 
Net Gain From Sales of Loans Held-for-Sale
   
         (2,149
)
   
(1,331
)
Non-Cash Compensation
   
                   -
     
19
 
Increase in Deferred Income Taxes
   
           4,443
     
1,081
 
Net (Increase) Decrease in Other Assets
   
            (6,907
)
   
10,818
 
Net Increase (Decrease) in Other Liabilities
   
         17,929
     
(10,283
)
Net Cash Provided By Operating Activities
   
         53,465
     
50,589
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Securities Available-for-Sale:
               
Purchases
   
       (54,347
)
   
(75,528
)
Sales
   
           2,806
     
10,490
 
Payments, Maturities, and Calls
   
         57,687
     
61,504
 
Net Increase in Loans
   
       (52,470
   
(26,672
Purchase of Premises & Equipment
   
       (10,381
)
   
(11,368
)
Proceeds From Sales of Premises & Equipment
   
       2
     
-
 
Net Cash Used In Investing Activities
   
               (56,703
   
(41,574
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Decrease in Deposits
   
       (42,183
)
   
(179,561
)
Net Increase (Decrease) in Short-Term Borrowings
   
         41,385
     
(6,053
)
Increase in Other Long-Term Borrowings
   
                  2,666
     
28,526
 
Repayment of Other Long-Term Borrowings
   
         (3,189
)
   
(2,191
)
Dividends Paid
   
         (9,722
)
   
(9,370
)
Repurchase of Common Stock
   
         (1,561
)
   
(2,414
)
Issuance of Common Stock
   
         996
     
832
 
Net Cash Provided by Financing Activities
   
              (11,608
   
(170,231
)
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
   
(14,846
)
   
(161,216
)
                 
Cash and Cash Equivalents at Beginning of Period
   
94,949
     
259,697
 
Cash and Cash Equivalents at End of Period
 
$
80,103
   
$
98,481
 
                 
Supplemental Disclosure:
               
Interest Paid on Deposits
 
$
7,775
   
$
25,135
 
Interest Paid on Debt
 
$
4,763
   
$
5,040
 
Taxes Paid
 
$
5,667
   
$
14,027
 
Loans Transferred to Other Real Estate Owned
 
$
32,298
   
$
5,788
 
Issuance of Common Stock as Non-Cash Compensation
 
$
154
   
$
1
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 
-7-

 


CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-related services to individual and corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia, and Alabama.  The Company is subject to competition from other financial institutions, is subject to regulation by certain government agencies and undergoes periodic examinations by those regulatory authorities.

The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Regulation S-X.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  Prior period financial statements have been reformatted and amounts reclassified, as necessary, to conform with the current presentation.  The Company and its subsidiary follow accounting principles generally accepted in the United States (“GAAP”) and reporting practices applicable to the banking industry.  The principles that materially affect its financial position, results of operations and cash flows are set forth in the Notes to Consolidated Financial Statements which are included in the 2008 Form 10-K.

In the opinion of management, the consolidated financial statements contain all adjustments, which are those of a recurring nature, and disclosures necessary to present fairly the financial position of the Company as of September 30, 2009 and December 31, 2008, the results of operations for the three and nine months ended September 30, 2009 and 2008, and cash flows for the nine months ended September 30, 2009 and 2008.  The Company has evaluated subsequent events for potential recognition and/or disclosure through November 6, 2009, the date the consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and related market value of investment securities available-for-sale were as follows:

   
September 30, 2009
 
(Dollars in Thousands)
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Market Value
 
U.S. Treasury
 
$
22,318
   
$
274
   
$
-
   
$
22,592
 
U.S. Government Agencies
   
1,500
     
6
     
-
     
1,506
 
States and Political Subdivisions
   
107,266
     
            1,429
     
45
     
108,650
 
Residential Mortgage-Backed Securities
   
            36,848
     
               845
     
33
     
       37,660
 
Other Securities(1)
   
            13,536
     
               -
     
-
     
       13,536
 
Total Investment Securities
 
$
          181,468
   
$
           2,554
   
$
78
   
$
     183,944
 

   
December 31, 2008
 
(Dollars in Thousands)
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Market Value
 
U.S. Treasury
 
$
29,094
   
$
577
   
$
-
   
$
29,671
 
U.S. Government Agencies
   
7,091
     
180
     
-
     
7,271
 
States and Political Subdivisions
   
100,370
     
1,224
     
32
     
101,562
 
Residential Mortgage-Backed Securities
   
39,860
     
332
     
116
     
40,076
 
Other Securities(1)
   
12,882
     
107
     
-
     
12,989
 
Total Investment Securities
 
$
       189,297
   
$
            2,420
   
$
     148
   
$
  191,569
 

 (1)
Includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $7.7 million and $4.8 million, respectively, at September 30, 2009, and $7.0 million and $4.8 million, respectively, at December 31, 2008. Also, balance includes a bank preferred stock issue recorded at $1.0 million and $1.1 million at September 30, 2009 and December 31, 2008, respectively.


 
-8-

 

The Company’s subsidiary, Capital City Bank, as a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, is required to own capital stock in the FHLB of Atlanta based generally upon the balances of residential and commercial real estate loans, and FHLB advances.  FHLB stock of $7.7 million which is included in other securities is pledged to secure FHLB advances.  No ready market exists for this stock, and it has no quoted market value.  However, redemption of this stock has historically been at par value.

Maturity Distribution. As of September 30, 2009, the Company's investment securities had the following maturity distribution based on contractual maturities:

(Dollars in Thousands)
 
Amortized Cost
   
Market Value
 
Due in one year or less
 
$
                 72,007
   
$
                72,738
 
Due after one through five years
   
                 95,436
     
                97,169
 
Due after five through ten years
   
                   1,489
     
                  1,501
 
Due over ten years
   
                        -
     
                        -
 
No Maturity
   
                 12,536
     
                12,536
 
Total Investment Securities
 
$
181,468
   
$
183,944
 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

NOTE 3 - LOANS

The composition of the Company's loan portfolio was as follows:

(Dollars in Thousands)
 
September 30, 2009
   
December 31, 2008
 
Commercial, Financial and Agricultural
 
$
203,813
   
$
206,230
 
Real Estate-Construction
   
128,476
     
141,973
 
Real Estate-Commercial
   
704,595
     
656,959
 
Real Estate-Residential(1)
   
429,087
     
481,034
 
Real Estate-Home Equity
   
243,808
     
218,500
 
Real Estate-Loans Held-for-Sale
   
3,418
     
3,204
 
Consumer
   
244,835
     
249,897
 
Loans, Net of Unearned Interest
 
$
1,958,032
   
$
1,957,797
 

(1)
Includes loans in process with outstanding balances of $6.7 million and $13.9 million for September 30, 2009 and December 31, 2008, respectively.

Net deferred fees included in loans at September 30, 2009 and December 31, 2008 were $2.0 million and $1.9 million, respectively.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

An analysis of the changes in the allowance for loan losses for the nine month periods ended September 30 was as follows:

(Dollars in Thousands)
 
2009
   
2008
 
Balance, Beginning of Period
 
$
37,004
   
$
18,066
 
Provision for Loan Losses
   
29,183
     
19,999
 
Recoveries on Loans Previously Charged-Off
   
2,249
     
1,799
 
Loans Charged-Off
   
(23,035
)
   
(9,320
)
Balance, End of Period
 
$
45,401
   
$
30,544
 

Impaired Loans.  Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  Selected information pertaining to impaired loans is depicted in the table below:

   
September 30, 2009
   
December 31, 2008
 
 
(Dollars in Thousands)
 
Balance
   
Valuation Allowance
   
Balance
   
Valuation Allowance
 
Impaired Loans:
                       
With Related Valuation Allowance
 
$
95,506
   
$
22,395
   
$
68,705
   
$
15,901
 
Without Related Valuation Allowance
   
25,507
     
-
     
37,723
     
-
 
 
 
-9-

NOTE 5 - INTANGIBLE ASSETS

The Company had net intangible assets of $89.9 million and $92.9 million at September 30, 2009 and December 31, 2008, respectively.  Intangible assets were as follows:

   
September 30, 2009
   
December 31, 2008
 
 
(Dollars in Thousands)
 
Gross
Amount
   
Accumulated
Amortization
   
Gross
Amount
   
Accumulated
Amortization
 
Core Deposit Intangibles
 
$
47,176
   
$
42,980
   
$
47,176
   
$
40,092
 
Goodwill
   
84,811
     
-
     
84,811
     
-
 
Customer Relationship Intangible
   
1,867
     
1,023
     
1,867
     
879
 
Total Intangible Assets
 
$
133,854
   
$
44,003
   
$
133,854
   
$
40,971
 

Net Core Deposit Intangibles:  As of September 30, 2009 and December 31, 2008, the Company had net core deposit intangibles of $4.20 million and $7.1 million, respectively.  Amortization expense for the first nine months of 2009 and 2008 was approximately $2.9 million and $2.9 million, respectively.  Estimated annual amortization expense for 2009 is $3.8 million.

Goodwill:  As of September 30, 2009 and December 31, 2008, the Company had goodwill, net of accumulated amortization, of $84.8 million.  Goodwill is the Company's only intangible asset that is no longer subject to amortization under the provisions of Accounting Standards Codification (“ASC”) 350-20-35-1 (Formerly Statement of Financial Accounting Standards (“SFAS” No. 142)), “Goodwill and Other Intangible Assets.”

Other:  As of September 30, 2009 and December 31, 2008, the Company had a customer relationship intangible asset, net of accumulated amortization, of $0.8 million and $1.0 million, respectively.  This intangible asset was recorded as a result of the March 2004 acquisition of trust customer relationships from Synovus Trust Company.  Amortization expense for the first nine months of 2009 and 2008 was approximately $144,000.  Estimated annual amortization expense is approximately $191,000 based on use of a 10-year useful life.

NOTE 6 - DEPOSITS

The composition of the Company's interest bearing deposits at September 30, 2009 and December 31, 2008 was as follows:

(Dollars in Thousands)
 
September 30, 2009
   
December 31, 2008
 
NOW Accounts
 
$
687,679
   
$
758,976
 
Money Market Accounts
   
301,662
     
324,646
 
Savings Deposits
   
122,040
     
115,261
 
Other Time Deposits
   
440,666
     
373,595
 
Total Interest Bearing Deposits
 
$
1,552,047
   
$
1,572,478
 


 
-10-

 

NOTE 7 - STOCK-BASED COMPENSATION

The Company recognizes the cost of stock-based associate stock compensation in accordance with ASC-718-20-05-1 and ASC 718-50-05-01, (formerly SFAS No. 123R), "Share-Based Payment” (Revised) under the fair value method.

As of September 30, 2009, the Company had three stock-based compensation plans, consisting of the 2005 Associate Stock Incentive Plan ("ASIP"), the 2005 Associate Stock Purchase Plan ("ASPP"), and the 2005 Director Stock Purchase Plan ("DSPP").  Total compensation expense associated with these plans for the nine months ended September 30, 2009 and 2008 was $111,000 and $131,000, respectively.  The Company, under the terms and conditions of the ASIP, maintained a 2011 Incentive Plan, which was terminated in March 2008, and the Company reversed approximately $577,000 in related stock compensation expense in conjunction with the termination of the Company’s 2011 strategic initiative.

ASIP.  The Company's ASIP allows the Company's Board of Directors to award key associates various forms of equity-based incentive compensation.  Under the ASIP, all participants in this plan are eligible to earn an equity award, in the form of restricted stock.  The Company, under the terms and conditions of the ASIP, created the 2009 Incentive Plan (“2009 Plan”), which has an award  tied to an internally established earnings goal for 2009.  The grant-date fair value of the shares eligible to be awarded in 2009 is approximately $718,000.  In addition, each plan participant is eligible to receive from the Company a tax supplement bonus equal to 31% of the stock award value at the time of issuance.  A total of 53,795 shares are eligible for issuance.  There has been no expense recognized for the first nine months of 2009 as results fell short of the earnings performance goal.

A total of 875,000 shares of common stock have been reserved for issuance under the ASIP.  To date, the Company has issued a total of 67,022 shares of common stock under the ASIP.

Executive Stock Option Agreement.  Prior to 2007, the Company maintained a stock option arrangement for a key executive officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG).  The status of the options granted under this arrangement is detailed in the table provided below.  In 2007, the Company replaced its practice of entering into a stock option arrangement by establishing a Performance Share Unit Plan under the provisions of the ASIP that allows the executive to earn shares based on the compound annual growth rate in diluted earnings per share over a three-year period.  The details of this program for the executive are outlined in a Form 8-K filing dated January 31, 2007.  No expense related to this plan was recognized for the first six months of 2009 and 2008 as results fell short of the earnings performance goal.

A summary of the status of the Company’s option shares as of September 30, 2009 is presented below:

Options
 
Shares
   
Weighted-Average Exercise Price
   
Weighted-Average Remaining Term
   
Aggregate Intrinsic Value
 
Outstanding at January 1, 2009
    60,384     $ 32.79       5.9     $ -  
Granted
    -       -       -       -  
Exercised
    -       -       -       -  
Forfeited or expired
    -       -       -       -  
Outstanding at September 30, 2009
    60,384     $ 32.79       5.1     $ -  
Exercisable at September 30, 2009
    60,384     $ 32.79       5.1     $ -  

Compensation expense associated with the aforementioned option shares was fully recognized as of December 31, 2007. 

DSPP.  The Company's DSPP allows the directors to purchase the Company's common stock at a price equal to 90% of the closing price on the date of purchase.  Stock purchases under the DSPP are limited to the amount of the director’s annual cash compensation.  The DSPP has 93,750 shares reserved for issuance.  A total of 58,559 shares have been issued since the inception of the DSPP.  For the first nine months 2009, the Company recognized approximately $20,000 in expense related to this plan.  For the first nine months of 2008, the Company recognized approximately $25,521 in expense related to the DSPP.

ASPP.  Under the Company's ASPP, substantially all associates may purchase the Company's common stock through payroll deductions at a price equal to 90% of the lower of the fair market value at the beginning or end of each six-month offering period.  Stock purchases under the ASPP are limited to 10% of an associate's eligible compensation, up to a maximum of $25,000 (fair market value on each enrollment date) in any plan year.  Shares are issued at the beginning of the quarter following each six-month offering period.  The ASPP has 593,750 shares of common stock reserved for issuance.  A total of 111,586 shares have been issued since inception of the ASPP.  For the first nine months of 2009, the Company recognized approximately $76,000 in expense related to the ASPP plan compared to $82,000 in expense for the same period in 2008.  
 
-11-

 

NOTE 8 - EMPLOYEE BENEFIT PLANS

The Company has a defined benefit pension plan covering substantially all full-time and eligible part-time associates and a Supplemental Executive Retirement Plan (“SERP”) covering its executive officers.

The components of the net periodic benefit costs for the Company's qualified benefit pension plan were as follows:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(Dollars in Thousands)
 
2009
   
2008
   
2009
   
2008
 
                         
Discount Rate
   
6.00
%
   
6.25
%
   
6.00
%
   
6.25
%
Long-Term Rate of Return on Assets
   
8.00
%
   
8.00
%
   
8.00
%
   
8.00
%
                                 
Service Cost
 
$
1,398
   
$
1,279
   
$
4,194
   
$
3,837
 
Interest Cost
   
1,147
     
1,063
     
3,441
     
3,189
 
Expected Return on Plan Assets
   
(1,265
)
   
(1,253
)
   
(3,795
)
   
(3,759
)
Prior Service Cost Amortization
   
127
     
75
     
382
     
225
 
Net Loss Amortization
   
739
     
280
     
2,216
     
840
 
Net Periodic Benefit Cost
 
$
2,146
   
$
1,444
   
$
6,438
   
$
4,332
 

The components of the net periodic benefit costs for the Company's SERP were as follows:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(Dollars in Thousands)
 
2009
   
2008
   
2009
   
2008
 
                         
Discount Rate
   
6.00
%
   
6.25
%
   
6.00
%
   
6.25
%
                                 
Service Cost
 
$
5
   
$
22
   
$
15
   
$
66
 
Interest Cost
   
45
     
56
     
134
     
168
 
Prior Service Cost Amortization
   
45
     
2
     
135
     
6
 
Net Loss Amortization
   
(88)
     
1
     
(263)
     
3
 
Net Periodic Benefit Cost
 
$
7
   
$
81
   
$
21
   
$
243
 


NOTE 9 - COMMITMENTS AND CONTINGENCIES

Lending Commitments.  The Company is a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of its clients.  These financial instruments consist of commitments to extend credit and standby letters of credit.

The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance sheet instruments.  As of September 30, 2009, the amounts associated with the Company’s off-balance sheet obligations were as follows:

(Dollars in Millions)
 
Amount
 
Commitments to Extend Credit(1)
 
$
367
 
Standby Letters of Credit
 
$
14
 

(1)
Commitments include unfunded loans, revolving lines of credit, and other unused commitments.

Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
 
Contingencies.  The Company is a party to lawsuits and claims arising out of the normal course of business.  In management's opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on the consolidated results of operations, financial position, or cash flows of the Company.

-12-

Indemnification Obligation.  The Company is a member of the Visa U.S.A. network.  Visa U.S.A believes that its member banks are required to indemnify Visa U.S.A. for potential future settlement of certain litigation (the “Covered Litigation”).  The Company recorded a charge in its fourth quarter 2007 financial statements of approximately $1.9 million, or $0.07 per diluted common share, to recognize its proportionate contingent liability related to the costs of the judgments and settlements from the Covered Litigation.

The Company reversed a portion of the Covered Litigation accrual in the amount of approximately $1.1 million to account for the establishment of a litigation escrow account by Visa Inc., the parent company of Visa U.S.A., in conjunction with Visa’s initial public offering during the first quarter of 2008.  This escrow account was established to pay the costs of the judgments and settlements from the Covered Litigation.  Approximately $0.8 million remains accrued for the contingent liability related to remaining Covered Litigation.

In October 2008 and July 2009, Visa Inc. funded additional amounts of $1.1 billion and $700 million, respectively, into the litigation escrow account to fund the settlement of the Discover Financial Services litigation and additional pending litigation, which in effect reduced the exchange ratio for the Company’s Class B shares of Visa Inc.  While the Company could be required to separately fund its proportionate share of any Covered Litigation losses, it is expected that this litigation escrow account will be used to pay all or a substantial amount of the losses.

NOTE 10 - COMPREHENSIVE INCOME

FASB Topic ASC 220, “Comprehensive Income” (Formerly SFAS No. 130,) requires that certain transactions and other economic events that bypass the income statement be displayed as other comprehensive income.  Comprehensive income totaled $26,000 for the nine months ended September 30, 2009 and $17.0 million for the comparable period in 2008.  The Company’s comprehensive income consists of net income and changes in unrealized gains and losses on securities available-for-sale (net of income taxes) and changes in the pension liability (net of taxes).  The after-tax increase in net unrealized gains on securities totaled approximately $90,000 for the nine months ended September 30, 2009.  The after-tax increase in the net unrealized gains on securities totaled approximately $155,000 for the nine months ended September 30, 2008.  Reclassification adjustments consist only of realized gains and losses on sales of investment securities and were not material for the same comparable periods.  As of September 30, 2009, total accumulated other comprehensive income (net of taxes) totaled $20.9 million consisting of a pension liability of $22.5 million and an unrealized gain on investment securities of $1.6 million.  For the nine month period ended September 30, 2009, there was no change in the company’s pension liability as this liability is adjusted on an annual basis at December 31st.
 
NOTE 11 – FAIR VALUE MEASUREMENTS

The Company adopted the provisions of ASC 820-10 (Formerly SFAS No. 157), "Fair Value Measurements," for financial assets and financial liabilities effective January 1, 2008.  Subsequently, on January 1, 2009, the Company adopted ASC 820-10-15 (Formerly SFAS No. 157-2) "Effective Date of FASB Statement No. 157" for non-financial assets and non-financial liabilities.  ASC 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction.  Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.  The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis.  The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied.  Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  In that regard, ASC 820-10 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:

-13-

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value effective January 1, 2008.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value on a recurring basis utilizing Level 1, 2, or 3 inputs.  For these securities, the Company obtains fair value measurements from an independent pricing service or a model that uses, as inputs, observable market based parameters.  The fair value measurements consider observable data that may include quoted prices in active markets, or other inputs, including dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, and credit information and the bond's terms and conditions.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 
(Dollars in Thousands)
 
Level 1 Inputs
   
Level 2 Inputs
   
Level 3 Inputs(1)
   
Total
Fair Value
 
                         
Securities Available for Sale
  $ 26,085     $ 144,323     $ 1,000     $ 171,408  

(1)
Reflects one bank preferred stock issue of $1.0 million with fair value based on an internal valuation model.

Certain financial and non-financial assets measured at fair value on a nonrecurring basis are detailed below; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Financial and non-financial liabilities measured at fair value on a nonrecurring basis were not significant at September 30, 2009.

Impaired Loans.  On a non-recurring basis, certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the liquidation of collateral.  Collateral values are estimated using Level 2 inputs based on customized discounting criteria.  Impaired loans had a carrying value of $121.0 million, with a valuation allowance of $22.4 million, resulting in an additional provision for loan losses of $6.5 million for the nine month period ended September 30, 2009.

Loans Held for Sale.  Loans held for sale were $3.4 million as of September 30, 2009.  These loans are carried at the lower of cost or fair value and are adjusted to fair value on a non-recurring basis.  Fair value is based on observable markets rates for comparable loan products which is considered a Level 2 fair value measurement.

-14-

Other Real Estate Owned.  During the first nine months of 2009, certain foreclosed assets, upon initial recognition, were measured and reported at fair value through a charge-off to the allowance for possible loan losses based on the fair value of the foreclosed asset.  The fair value of the foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data.  Foreclosed assets measured at fair value upon initial recognition totaled $43.5 million during the nine months ended September 30, 2009.  In connection with the measurement and initial recognition of the foregoing foreclosed assets, the Company recognized gross charge-offs to the allowance for loan losses totaling $10.3 million.  In addition, the Company recognized subsequent losses totaling $2.5 million for foreclosed assets that were re-valued during the nine months ended September 30, 2009.  The carrying value of foreclosed assets was $33.4 million at September 30, 2009.

Effective January 1, 2008, the Company adopted the provisions of ASC 825-10 (Formerly SFAS No. 159), "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of ASC 320-10 (Formerly FASB Statement No. 115)." ASC 825-10 permits the Company to choose to measure eligible items at fair value at specified election dates.  Changes in fair value on items for which the fair value measurement option has been elected are reported in earnings at each subsequent reporting date.  The fair value option (i) is applied instrument by instrument, with certain exceptions, thus the Company may record identical financial assets and liabilities at fair value or by another measurement basis permitted under generally accepted accounting principles, (ii) is irrevocable (unless a new election date occurs), and (iii) is applied only to entire instruments and not to portions of instruments.  Adoption of ASC 825-on January 1, 2008 did not have a significant impact on the Company’s financial statements because the Company did not elect fair value measurement under ASC 825-10.

ASC 942-320-50 (Formerly SFAS 107), “Disclosures about Fair Value of Financial Instruments,” as amended, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.  A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the 2008 Form 10-K.

The Company’s financial instruments that have estimated fair values are presented below:
       
   
September 30, 2009
   
December 31, 2008
 
(Dollars in Thousands)
 
Carrying
Value
   
Estimated
Fair
Value
   
Carrying
Value
   
Estimated
Fair
Value
 
Financial Assets:
                       
Cash
 
$
79,275
   
$
79,275
   
$
88,143
   
$
88,143
 
Short-Term Investments
   
828
     
828
     
6,806
     
6,806
 
Investment Securities
   
183,944
     
183,944
     
191,569
     
191,569
 
Loans, Net of Allowance for Loan Losses
   
1,912,631
     
1,900,006
     
1,920,793
     
1,915,887
 
Total Financial Assets
 
$
2,176,678
   
$
2,164,053
   
$
2,207,311
   
$
2,202,405
 
                                 
Financial Liabilities:
                               
Deposits
 
$
1,949,990
   
$
1,868,873
   
$
1,992,174
   
$
1,960,361
 
Short-Term Borrowings
   
103,711
     
102,665
     
62,044
     
61,799
 
Subordinated Notes Payable
   
62,887
     
62,255
     
62,887
     
63,637
 
Long-Term Borrowings
   
50,665
     
53,110
     
51,470
     
57,457
 
Total Financial Liabilities
 
$
2,167,253
   
$
2,086,903
   
$
2,168,575
   
$
2,143,254
 

All non-financial instruments are excluded from the above table.  The disclosures also do not include certain intangible assets such as client relationships, deposit base intangibles and goodwill.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

NOTE 12 – NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Significant Accounting Policies, on July 1, 2009, the Accounting Standards Codification became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles applicable to all public and non-public non-governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the away companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

FASB ASC Topic 260, “Earnings Per Share.”  (Formerly FSP No. EITF 03-6-1) New authoritative accounting guidance under ASC Topic 260-10 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.  ASC Topic 260-10 became effective on January 1, 2009 and did not have a significant impact on the Company’s financial statements.
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FASB ASC Topic 320, “Investments - Debt and Equity Securities.” (Formerly SFAS 115-2 and SFAS 124-2)  New authoritative accounting guidance under ASC Topic 320,  (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Company adopted the provisions of the new authoritative accounting guidance under ASC Topic 320 during the second quarter of 2009. Adoption of the new guidance did not significantly impact the Company’s financial statements.
 
FASB ASC Topic 715, “Compensation - Retirement Benefits.” (Formerly FSP No. 132(R)-1) New authoritative accounting guidance under ASC Topic 715, “Compensation - Retirement Benefits,” provides guidance related to an employer’s disclosures about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC Topic 715, disclosures should provide users of financial statements with an understanding of how investment allocation decisions are made, the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The disclosures required by ASC Topic 715 will be included in the Company’s financial statements beginning with the financial statements for the year-ended December 31, 2009.

ASC Topic 805, “Business Combinations.”  (Formerly SFAS No. 141) On January 1, 2009, new authoritative accounting guidance under ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses.   ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquirer at fair value as of the acquisition date.  Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt.  This fair value approach replaces the cost-allocation process required under  previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value.   ASC Topic requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance.  Under ASC Topic 805, the requirements of ASC Topic 420, “Accounting for Costs Associated with Exit or Disposal Activities,” would have to be met in order to accrue for a restructuring plan in purchase accounting.  Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450, “Accounting for Contingencies.”   ASC Topic 805 is applicable to the Company’s accounting for business combinations closing on or after January 1, 2009.

FASB ASC Topic 810, “Consolidation.”  (Formerly SFAS No. 160) New authoritative accounting guidance under ASC Topic 810, “Consolidation,” amended prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. The new authoritative accounting guidance under ASC Topic 810 became effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s financial statements.

Further new authoritative accounting guidance under ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

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FASB ASC Topic 815, “Derivatives and Hedging.” (Formerly SFAS No. 161) New authoritative accounting guidance under ASC Topic 815, “Derivatives and Hedging,” amends prior guidance to amend and expand the disclosure requirements for derivatives and hedging activities to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, the new authoritative accounting guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The new authoritative accounting guidance under ASC Topic 815 became effective for the Company on January 1, 2009 and did not have an impact on the Company’s financial statements.

FASB ASC Topic 820, “Fair Value Measurements and Disclosures.”  (Formerly FSP ASC 820-10-4) New authoritative accounting guidance under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. The Company adopted the new authoritative accounting guidance under ASC Topic 820 during the second quarter of 2009 and it did not significantly impact the Company’s financial statements.
 
 Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative accounting guidance under ASC Topic 820 will be effective for the Company’s financial statements beginning October 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.
 
FASB ASC Topic 825 “Financial Instruments.”(Formerly SFAS 107-1 and APB 28-1) New authoritative accounting guidance under ASC Topic 825,”Financial Instruments,” requires an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at interim reporting periods. The new interim disclosures required under Topic 825 are included in Note 11 - Fair Value Measurements.
 
FASB ASC Topic 855, “Subsequent Events.”(Formerly SFAS No. 165) New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 became effective for the Company’s financial statements for periods ending after June 15, 2009 and did not have a significant impact on the Company’s financial statements.

FASB ASC Topic 860, “Transfers and Servicing.”(Formerly SFAS No. 166) New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

ASC Topic 105, “Generally Accepted Accounting Principles, (Formerly SFAS No. 168), establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants.  All guidance contained in the Codification carries an equal level of authority.  All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative.  ASC Topic 105 will be effective for the Company’s financial statements for the periods ending after September 15, 2009.


 
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QUARTERLY FINANCIAL DATA (UNAUDITED)
   
2009
   
2008
   
2007
 
 (Dollars in Thousands, Except Per Share Data)
 
Third
   
Second
   
First
   
Fourth
   
Third(1)
   
Second
   
First
   
Fourth
 
Summary of Operations:
                                               
Interest Income
  $ 30,787     $ 31,180     $ 31,053     $ 33,229     $ 34,654     $ 36,260     $ 38,723     $ 40,786  
Interest Expense
    4,235       4,085       4,058       5,482       7,469       8,785       12,264       13,241  
Net Interest Income
    27,552       27,095       26,995       27,747       27,185       27,475       26,459       27,545  
Provision for Loan Losses
    12,347       8,426       8,410       12,497       10,425       5,432       4,142       1,699  
Net Interest Income After
Provision for Loan Losses
    14,205       18,669       18,585       15,250       16,760       22,043       22,317       25,846  
Noninterest Income
    14,304       14,634       14,042       13,311       20,212       15,718       17,799       15,823  
Noninterest Expense
    31,615       32,930       32,257       31,002       29,916       30,756       29,798       31,614  
Income Before Provision for Income Taxes
    (3,106 )     373       370       (2,441 )     7,056       7,005       10,318       10,055  
Provision for Income Taxes
    (1,618 )     (401 )     (280 )     (738 )     2,218       2,195       3,038       2,391  
Net Income
  $ (1,488 )   $ 774     $ 650     $ (1,703 )   $ 4,838     $ 4,810     $ 7,280     $ 7,664  
Net Interest Income (FTE)
  $ 27,128     $ 27,679     $ 27,578     $ 28,387     $ 27,802     $ 28,081     $ 27,078     $ 28,196  
                                                                 
Per Common Share:
                                                               
Net Income Basic
  $ (0.08 )   $ 0.04     $ 0.04     $ (0.10 )   $ 0.29     $ 0.28     $ 0.42     $ 0.44  
Net Income Diluted
    (0.08 )     0.04       0.04       (0.10 )     0.29       0.28       0.42       0.44  
Dividends Declared
    0.190       0.190       0.190       0.190       0.185       0.185       0.185       0.185  
Diluted Book Value
    15.76       16.03       16.18       16.27       17.45       17.33       17.33       17.03  
Market Price:
                                                               
High
    17.10       17.35       27.31       33.32       34.50       30.19       29.99       34.00  
Low
    13.92       11.01       9.50       21.06       19.20       21.76       24.76       24.60  
Close
    14.20       16.85       11.46       27.24       31.35       21.76       29.00       28.22  
                                                                 
Selected Average
                                                               
Balances:
                                                               
Loans
  $ 1,964,984     $ 1,974,197     $ 1,964,086     $ 1,940,083     $ 1,915,008     $ 1,908,802     $ 1,909,574     $ 1,908,069  
Earning Assets
    2,157,362       2,175,281       2,166,237       2,150,841       2,207,670       2,303,971       2,301,463       2,191,230  
Assets
    2,497,969       2,506,352       2,486,925       2,463,318       2,528,638       2,634,771       2,646,474       2,519,682  
Deposits
    1,950,170       1,971,190       1,957,354       1,945,866       2,030,684       2,140,545       2,148,874       2,016,736  
Shareowners’ Equity
    275,027       277,114       281,634       302,227       303,595       300,890       296,804       299,342  
Common Equivalent Shares:
                                                               
Basic
    17,024       17,010