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, 2016

 

OR

 

[  ]        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 

 

CCB Group logo 

(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 [  ]

 

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 [X] No [  ]

 

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 [  ]

Accelerated filer [X]

Non-accelerated filer [  ]

Smaller reporting company [  ]

 

 

(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 [  ] No [X]

 

At October 31, 2016, 16,807,081 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, 2016

TABLE OF CONTENTS

 

PART I – Financial Information

 

Page

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

Consolidated Statements of Financial Condition – September 30, 2016 and December 31, 2015

4

 

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2016 and 2015

    5

 

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2016 and 2015

6

 

Consolidated Statements of Changes in Shareowners’ Equity – Nine Months Ended September 30, 2016 and 2015

7

 

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2016 and 2015

8

 

Notes to Consolidated Financial Statements

9

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

44

 

 

 

Item 4.

Controls and Procedures

44

 

 

 

PART II – Other Information

 

 

 

Item 1.

Legal Proceedings

44

 

 

 

Item 1A.

Risk Factors

44

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

Item 4.

Mine Safety Disclosure

44

 

 

 

Item 5.

Other Information

44

 

 

 

Item 6.

Exhibits

44

 

 

 

Signatures

 

46

 

 

 

 

 

 

 

 

 

 

 

           

  

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 and the following sections of our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 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:

·         our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;

·         legislative or regulatory changes, including the Dodd-Frank Act, Basel III, and the ability to repay and qualified mortgage standards;

·         the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;

·         the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss provision, deferred tax asset valuation and pension plan;

·         the frequency and magnitude of foreclosure of our loans;

·         the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

·         the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

·         our ability to declare and pay dividends, the payment of which is now subject to our compliance with heightened capital requirements;

·         changes in the securities and real estate markets;

·         changes in monetary and fiscal policies of the U.S. Government;

·         inflation, interest rate, market and monetary fluctuations;

·         the effects of harsh weather conditions, including hurricanes, and man-made disasters;

·         our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate;

·         the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

·         increased competition and its effect on pricing;

·         technological changes;

·         negative publicity and the impact on our reputation;

·         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 listed in Item 1A Risk Factors or discussed in this Form 10-Q 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.

 

 

 

 

 

 

 

 

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

September 30,

 

December 31,

(Dollars in Thousands)

2016

 

2015

ASSETS

 

 

 

 

 

Cash and Due From Banks

$

79,608

 

$

51,288

Federal Funds Sold and Interest Bearing Deposits

 

144,576

 

 

327,617

 

 

Total Cash and Cash Equivalents

 

224,184

 

 

378,905

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale, at fair value

 

500,139

 

 

451,028

Investment Securities, Held to Maturity, at amortized cost (fair value of $190,829 and $187,407)

 

189,928

 

 

187,892

 

 

Total Investment Securities

 

690,067

 

 

638,920

 

 

 

 

 

 

 

 

Loans Held For Sale

 

10,510

 

 

11,632

 

 

 

 

 

 

 

 

Loans, Net of Unearned Income

 

1,557,512

 

 

1,492,275

 

Allowance for Loan Losses

 

(13,744)

 

 

(13,953)

 

 

Loans, Net

 

1,543,768

 

 

1,478,322

 

 

 

 

 

 

 

 

Premises and Equipment, Net

 

96,499

 

 

98,819

Goodwill

 

84,811

 

 

84,811

Other Real Estate Owned

 

12,738

 

 

19,290

Other Assets

 

90,577

 

 

87,161

 

 

Total Assets

$

2,753,154

 

$

2,797,860

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest Bearing Deposits

$

801,671

 

$

758,283

 

Interest Bearing Deposits

 

1,513,436

 

 

1,544,566

 

 

Total Deposits

 

2,315,107

 

 

2,302,849

 

 

 

 

 

 

 

 

Short-Term Borrowings

 

12,113

 

 

61,058

Subordinated Notes Payable

 

52,887

 

 

62,887

Other Long-Term Borrowings

 

21,368

 

 

28,265

Other Liabilities

 

75,055

 

 

68,449

 

 

Total Liabilities

 

2,476,530

 

 

2,523,508

 

 

 

 

 

 

 

 

SHAREOWNERS’ EQUITY

 

 

 

 

 

Preferred Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and outstanding

 

-

 

 

-

Common Stock, $.01 par value; 90,000,000 shares authorized; 16,807,078 and 17,156,919 shares

 

 

 

 

issued and outstanding at September 30, 2016 and December 31, 2015 respectively

 

168

 

 

172

Additional Paid-In Capital

 

33,152

 

 

38,256

Retained Earnings

 

264,581

 

 

258,181

Accumulated Other Comprehensive Loss, Net of Tax

 

(21,277)

 

 

(22,257)

Total Shareowners’ Equity

 

276,624

 

 

274,352

Total Liabilities and Shareowners' Equity

$

2,753,154

 

$

2,797,860

 

 

 

 

 

 

 

 

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

4


 

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(Dollars in Thousands, Except Per Share Data)

2016

 

2015

 

2016

 

2015

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Loans, including Fees

$

18,046

 

$

18,214

 

$

54,196

 

$

54,308

Investment Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

1,633

 

 

1,347

 

 

4,591

 

 

3,858

 

Tax Exempt

 

213

 

 

193

 

 

643

 

 

427

Federal Funds Sold and Interest Bearing Deposits

 

212

 

 

123

 

 

892

 

 

463

Total Interest Income

 

20,104

 

 

19,877

 

 

60,322

 

 

59,056

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

223

 

 

220

 

 

655

 

 

725

Short-Term Borrowings

 

43

 

 

14

 

 

91

 

 

50

Subordinated Notes Payable

 

341

 

 

344

 

 

1,071

 

 

1,014

Other Long-Term Borrowings

 

177

 

 

233

 

 

599

 

 

710

Total Interest Expense

 

784

 

 

811

 

 

2,416

 

 

2,499

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

19,320

 

 

19,066

 

 

57,906

 

 

56,557

Provision for Loan Losses

 

-

 

 

413

 

 

355

 

 

1,081

Net Interest Income After Provision For Loan Losses

 

19,320

 

 

18,653

 

 

57,551

 

 

55,476

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Deposit Fees

 

5,373

 

 

5,721

 

 

16,094

 

 

16,944

Bank Card Fees

 

2,759

 

 

2,826

 

 

8,467

 

 

8,412

Wealth Management Fees

 

1,774

 

 

1,818

 

 

5,256

 

 

5,640

Mortgage Banking Fees

 

1,503

 

 

1,306

 

 

3,800

 

 

3,496

Data Processing Fees

 

360

 

 

400

 

 

1,042

 

 

1,137

Other

 

1,242

 

 

1,157

 

 

6,244

 

 

5,241

Total Noninterest Income

 

13,011

 

 

13,228

 

 

40,903

 

 

40,870

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

15,993

 

 

16,653

 

 

48,285

 

 

49,581

Occupancy, net

 

4,734

 

 

4,446

 

 

13,777

 

 

13,100

Other Real Estate Owned, net

 

821

 

 

1,302

 

 

3,306

 

 

3,730

Other

 

6,474

 

 

6,763

 

 

20,286

 

 

20,582

Total Noninterest Expense

 

28,022

 

 

29,164

 

 

85,654

 

 

86,993

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

4,309

 

 

2,717

 

 

12,800

 

 

9,353

Income Tax Expense

 

1,436

 

 

1,034

 

 

4,350

 

 

2,839

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

$

2,873

 

$

1,683

 

$

8,450

 

$

6,514

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME PER SHARE

$

0.18

 

$

0.10

 

$

0.50

 

$

0.38

DILUTED NET INCOME PER SHARE

$

0.17

 

$

0.09

 

$

0.49

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Common Basic Shares Outstanding

 

16,804

 

 

17,150

 

 

17,049

 

 

17,317

Average Common Diluted Shares Outstanding

 

16,871

 

 

17,229

 

 

17,100

 

 

17,379

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


 

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (Unaudited) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

(Dollars in Thousands)

2016

 

2015

 

2016

 

2015

NET INCOME

$

2,873

 

$

1,683

 

$

8,450

 

$

6,514

 

Other comprehensive (loss) income, before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss on securities available for sale

 

(1,158)

 

 

533

 

 

1,535

 

 

1,562

 

 

Amortization of unrealized losses on securities transferred from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available for sale to held to maturity

 

21

 

 

21

 

 

60

 

 

56

 

 

Total Investment Securities

 

(1,137)

 

 

554

 

 

1,595

 

 

1,618

 

Other comprehensive (loss) income, before tax

 

(1,137)

 

 

554

 

 

1,595

 

 

1,618

 

 

Deferred tax (benefit) expense related to other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) income

 

(439)

 

 

214

 

 

615

 

 

624

 

Other comprehensive (loss) income, net of tax

 

(698)

 

 

340

 

 

980

 

 

994

TOTAL COMPREHENSIVE INCOME

$

2,175

 

$

2,023

 

$

9,430

 

7,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

6


 

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

 

 

Shares

 

Common

 

Additional

 

Retained

 

Loss, Net of

 

 

 

(Dollars In Thousands, Except Share Data)

Outstanding

 

Stock

 

Paid-In Capital

 

Earnings

 

Taxes

 

Total

Balance, January 1, 2015

17,447,223

 

$

174

 

$

42,569

 

$

251,306

 

$

(21,509)

 

$

272,540

Net Income

-

 

 

-

 

 

-

 

 

6,514

 

 

-

 

 

6,514

Other Comprehensive Income, Net of Tax

-

 

 

-

 

 

-

 

 

-

 

 

994

 

 

994

Cash Dividends ($0.0900 per share)

-

 

 

-

 

 

-

 

 

(1,555)

 

 

-

 

 

(1,555)

Repurchase of Common Stock

(405,228)

 

 

(4)

 

 

(5,978)

 

 

-

 

 

-

 

 

(5,982)

Stock Based Compensation

-

 

 

-

 

 

783

 

 

-

 

 

-

 

 

783

Impact of Transactions Under Compensation Plans, net

102,406

 

 

1

 

 

364

 

 

-

 

 

-

 

 

365

Balance, September 30, 2015

17,144,401

 

$

171

 

$

37,738

 

$

256,265

 

$

(20,515)

 

$

273,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2016

17,156,919

 

$

172

 

$

38,256

 

$

258,181

 

$

(22,257)

 

$

274,352

Net Income

-

 

 

-

 

 

-

 

 

8,450

 

 

-

 

 

8,450

Other Comprehensive Income, Net of Tax

-

 

 

-

 

 

-

 

 

-

 

 

980

 

 

980

Cash Dividends ($0.1200 per share)

-

 

 

-

 

 

-

 

 

(2,050)

 

 

-

 

 

(2,050)

Repurchase of Common Stock

(435,461)

 

 

(4)

 

 

(6,308)

 

 

-

 

 

-

 

 

(6,312)

Stock Based Compensation

-

 

 

-

 

 

743

 

 

-

 

 

-

 

 

743

Impact of Transactions Under Compensation Plans, net

85,620

 

 

-

 

 

461

 

 

-

 

 

-

 

 

461

Balance, September 30, 2016

16,807,078

 

$

168

 

$

33,152

 

$

264,581

 

$

(21,277)

 

$

276,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

7


 

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited) 

 

 

 

 

 

 

 

Nine Months Ended September 30,

(Dollars in Thousands

2016

 

2015

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net Income

$

8,450

 

$

6,514

Adjustments to Reconcile Net Income to

 

 

 

 

 

   Cash Provided by Operating Activities:

 

 

 

 

 

      Provision for Loan Losses

 

355

 

 

1,081

      Depreciation

 

5,198

 

 

4,908

      Amortization of Premiums, Discounts, and Fees, net

 

4,642

 

 

3,677

      Impairment Loss on Security

 

-

 

 

90

      Gain on Retirement of Trust Preferred Securities

 

(2,487)

 

 

-

      Net Decrease (Increase) in Loans Held-for-Sale

 

1,122

 

 

(272)

      Stock Compensation

 

743

 

 

783

      Deferred Income Taxes

 

3,087

 

 

2,882

      Loss on Sales and Write-Downs of Other Real Estate Owned

 

2,523

 

 

2,138

      Loss on Disposal of Premises and Equipment

 

131

 

 

20

      Net (Increase) Decrease in Other Assets

 

(6,610)

 

 

1,347

      Net Increase in Other Liabilities

 

6,733

 

 

4,792

      Net Cash Provided By Operating Activities

 

23,887

 

 

27,960

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

      Purchases

 

(40,320)

 

 

(65,190)

      Payments, Maturities, and Calls

 

37,495

 

 

33,859

Securities Available for Sale:

 

 

 

 

 

      Purchases

 

(125,975)

 

 

(167,438)

      Payments, Maturities, and Calls

 

74,450

 

 

63,278

Net Increase in Loans

 

(68,775)

 

 

(51,385)

Proceeds From Sales of Other Real Estate Owned

 

7,338

 

 

12,122

Purchases of Premises and Equipment

 

(3,696)

 

 

(2,400)

Net Cash Used In Investing Activities

 

(119,483)

 

 

(177,154)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net Increase (Decrease) in Deposits

 

12,258

 

 

(31,811)

Net (Decrease) Increase in Short-Term Borrowings

 

(50,023)

 

 

15,930

Redemption of Subordinated Notes

 

(7,500)

 

 

-

Repayment of Other Long-Term Borrowings

 

(5,819)

 

 

(2,055)

Dividends Paid

 

(2,050)

 

 

(1,555)

Payments to Repurchase Common Stock

 

(6,312)

 

 

(5,982)

Issuance of Common Stock Under Compensation Plans

 

321

 

 

315

Net Cash Used In Financing Activities

 

(59,125)

 

 

(25,158)

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(154,721)

 

 

(174,352)

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

378,905

 

 

385,056

Cash and Cash Equivalents at End of Period

$

224,184

 

$

210,704

 

 

 

 

 

 

Supplemental Cash Flow Disclosures:

 

 

 

 

 

   Interest Paid

$

2,422

 

$

2,511

   Income Taxes (Refunded) Paid

$

(355)

 

$

1,593

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

   Loans and Premises Transferred to Other Real Estate Owned

$

3,309

 

$

4,073

   Transfer of Current Portion of Long-Term Borrowings

$

1,078

 

$

-

 

 

 

 

 

 

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

 

8


 

CAPITAL CITY BANK GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 -  SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations.  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.

 

Basis of Presentation.  The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of CCBG and its wholly-owned subsidiary, Capital City Bank (“CCB” or the “Bank” and together with the Company).  All material inter-company transactions and accounts have been eliminated.  Certain previously reported amounts have been reclassified to conform to the current year’s presentation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. 

 

The consolidated statement of financial condition at December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

 

NOTE 2 – INVESTMENT SECURITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Portfolio Composition. The amortized cost and related market value of investment securities available-for-sale and

held-to-maturity were as follows:

 

September 30, 2016

 

 

December 31, 2015

 

Amortized

 

Unrealized

 

Unrealized

 

Market

 

Amortized

 

Unrealized

 

Unrealized

 

Market

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gain

 

Losses

 

Value

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

272,656

 

$

1,029

 

$

-

 

$

273,685

 

$

250,458

 

$

101

 

$

213

 

$

250,346

U.S. Government Agency

 

129,150

 

 

569

 

 

203

 

 

129,516

 

 

101,730

 

 

357

 

 

263

 

 

101,824

States and Political Subdivisions

 

86,490

 

 

189

 

 

45

 

 

86,634

 

 

88,358

 

 

103

 

 

99

 

 

88,362

Mortgage-Backed Securities

 

1,340

 

 

142

 

 

-

 

 

1,482

 

 

1,742

 

 

159

 

 

-

 

 

1,901

Equity Securities(1)

 

8,822

 

 

-

 

 

-

 

 

8,822

 

 

8,595

 

 

-

 

 

-

 

 

8,595

Total

$

498,458

 

$

1,929

 

$

248

 

$

500,139

 

$

450,883

 

$

720

 

$

575

 

$

451,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

129,323

 

$

530

 

$

-

 

$

129,853

 

$

134,554

 

$

45

 

$

160

 

$

134,439

U.S. Government Agency

 

1,904

 

 

1

 

 

-

 

 

1,905

 

 

10,043

 

 

7

 

 

5

 

 

10,045

States and Political Subdivisions

 

9,983

 

 

69

 

 

1

 

 

10,051

 

 

15,693

 

 

38

 

 

7

 

 

15,724

Mortgage-Backed Securities

 

48,718

 

 

366

 

 

64

 

 

49,020

 

 

27,602

 

 

4

 

 

407

 

 

27,199

Total

$

189,928

 

$

966

 

$

65

 

$

190,829

 

$

187,892

 

$

94

 

$

579

 

$

187,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investment Securities

$

688,386

 

$

2,895

 

$

313

 

$

690,968

 

$

638,775

 

$

814

 

$

1,154

 

$

638,435

 

(1)     Includes Federal Home Loan Bank, Federal Reserve Bank, and FNBB, Inc. stock recorded at cost of $3.5 million, $4.8 million, and $0.5 million, respectively, at September 30, 2016 and $3.6 million, $4.8 million, and $0.2 million, respectively, at December 31, 2015.

 

Securities with an amortized cost of $222.9 million and $370.1 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes.

 

9


 

The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB based generally upon the balances of residential and commercial real estate loans, and FHLB advances.  FHLB stock which is included in equity 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, 2016, the Company's investment securities had the following maturity distribution based on contractual maturity.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.  Mortgage-backed securities and certain amortizing U.S. government agency securities are shown separately because they are not due at a certain maturity date.

 

 

Available for Sale

 

Held to Maturity

 

Amortized

 

Market

 

Amortized

 

Market

(Dollars in Thousands)

Cost

 

Value

 

Cost

 

Value

Due in one year or less

$

146,612

 

$

146,872

 

$

60,424

 

$

60,503

Due after one through five years

 

252,653

 

 

253,644

 

 

80,786

 

 

81,305

Mortgage-Backed Securities

 

1,340

 

 

1,482

 

 

48,718

 

 

49,021

U.S. Government Agency

 

89,031

 

 

89,319

 

 

-

 

 

-

Equity Securities

 

8,822

 

 

8,822

 

 

-

 

 

-

Total

$

498,458

 

$

500,139

 

$

189,928

 

$

190,829

 

Unrealized Losses on Investment Securities.   The following table summarizes the investment securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position:

 

 

Less Than

 

Greater Than

 

 

 

 

 

 

 

12 Months

 

12 Months

 

Total

 

Market

 

Unrealized

 

Market

 

Unrealized

 

Market

 

Unrealized

(Dollars in Thousands)

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Agency

$

36,793

 

$

153

 

$

10,123

 

$

50

 

$

46,916

 

$

203

States and Political Subdivisions

 

28,831

 

 

44

 

 

298

 

 

1

 

 

29,129

 

 

45

Total

 

65,624

 

 

197

 

 

10,421

 

 

51

 

 

76,045

 

 

248

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and Political Subdivisions

 

1,252

 

 

1

 

 

-

 

 

-

 

 

1,252

 

 

1

Mortgage-Backed Securities

 

2,095

 

 

5

 

 

7,120

 

 

59

 

 

9,215

 

 

64

Total

$

3,347

 

$

6

 

$

7,120

 

$

59

 

$

10,467

 

$

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

150,061

 

$

213

 

$

-

 

$

-

 

$

150,061

 

$

213

U.S. Government Agency

 

43,508

 

 

200

 

 

9,644

 

 

63

 

 

53,152

 

 

263

States and Political Subdivisions

 

39,608

 

 

86

 

 

5,066

 

 

13

 

 

44,674

 

 

99

Total

 

233,177

 

 

499

 

 

14,710

 

 

76

 

 

247,887

 

 

575

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

92,339

 

 

160

 

 

-

 

 

-

 

 

92,339

 

 

160

U.S. Government Agency

 

5,006

 

 

5

 

 

-

 

 

-

 

 

5,006

 

 

5

States and Political Subdivisions

 

3,791

 

 

7

 

 

-

 

 

-

 

 

3,791

 

 

7

Mortgage-Backed Securities

 

13,267

 

 

185

 

 

11,889

 

 

222

 

 

22,156

 

 

407

Total

$

114,403

 

$

357

 

$

11,889

 

$

222

 

$

126,292

 

$

579

 

10


 

Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation.  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.  In estimating other-than-temporary impairment losses, the Company considers, (i) whether it has decided to sell the security, (ii) whether it is more likely than not that the Company will have to sell the security before its market value recovers, and (iii) whether the present value of expected cash flows is sufficient to recover the entire amortized cost basis.  When assessing a security’s expected cash flows, the Company considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost and (ii) the financial condition and near-term prospects of the issuer.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory issues, and analysts’ reports. 

 

At September 30, 2016, there were 165 positions (combined Available-for-Sale and Held-to-Maturity) with an unrealized loss totaling $0.3 million. Of the 165 positions, 69 were Ginnie Mae mortgage-backed securities (GNMA), U.S. Treasuries, or SBA securities, all of which carry the full faith and credit guarantee of the U.S. Government. SBA securities float monthly or quarterly to the prime rate and are uncapped. Of these 69 positions, there were 20 GNMA positions and 24 SBA positions in an unrealized loss position for longer than 12 months.  Six agency positions were in an unrealized loss position. There were 90 municipal bonds in an unrealized loss position that were pre-refunded, or rated “AA-“or better. These debt securities are in a loss position because they were acquired when the general level of interest rates was lower than that on September 30, 2016.  The Company believes that the unrealized losses in these debt securities are temporary in nature and that the full principal will be collected as anticipated.  Because the declines in the market value of these investments are attributable to changes in interest rates and not credit quality and because the Company has the present ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2016.

 

NOTE 3 – LOANS, NET

 

Loan Portfolio Composition.  The composition of the loan portfolio was as follows:

 

(Dollars in Thousands)

September 30, 2016

 

December 31, 2015

Commercial, Financial and Agricultural

$

223,278

 

$

179,816

Real Estate – Construction

 

54,107

 

 

46,484

Real Estate – Commercial Mortgage

 

497,775

 

 

499,813

Real Estate – Residential(1)

 

287,068

 

 

290,585

Real Estate – Home Equity

 

235,433

 

 

233,901

Consumer

 

259,851

 

 

241,676

 

Loans, Net of Unearned Income

$

1,557,512

 

$

1,492,275

             

 

(1)     Includes loans in process with outstanding balances of $11.8 million and $8.5 million at September 30, 2016 and December 31, 2015, respectively.  

 

Net deferred costs included in loans were $0.4 million at September 30, 2016 and net deferred fees included in loans were $0.5 million at December 31, 2015.

 

The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate mortgage loans, and home equity loans to support available borrowing capacity at the FHLB of Atlanta and has pledged a blanket floating lien on all consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal Reserve Bank of Atlanta.

11


 

Nonaccrual Loans.  Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful.  Loans are returned to accrual status when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.

 

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans.

 

 

September 30, 2016

 

December 31, 2015

(Dollars in Thousands)

Nonaccrual

 

90 + Days

 

Nonaccrual

 

90 + Days

Commercial, Financial and Agricultural

$

362

 

$

-

 

$

96

 

$

-

Real Estate – Construction

 

121

 

 

-

 

 

97

 

 

-

Real Estate – Commercial Mortgage

 

4,736

 

 

-

 

 

4,191

 

 

-

Real Estate – Residential

 

2,254

 

 

-

 

 

4,739

 

 

-

Real Estate – Home Equity

 

958

 

 

-

 

 

1,017

 

 

-

Consumer

 

183

 

 

-

 

 

165

 

 

-

Total Nonaccrual Loans

$

8,614

 

$

-

 

$

10,305

 

$

-

 

Loan Portfolio Aging.  A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days past due (“DPD”).

 

The following table presents the aging of the recorded investment in past due loans by class of loans.

  

 

30-59

 

60-89

 

90 +

 

Total

 

Total

 

Total

(Dollars in Thousands)

DPD

 

DPD

 

DPD

 

Past Due

 

Current

 

Loans

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

59

 

$

307

 

$

-

 

$

366

 

$

222,550

 

$

223,278

Real Estate – Construction

 

-

 

 

-

 

 

-

 

 

-

 

 

53,986

 

 

54,107

Real Estate – Commercial Mortgage

 

1,581

 

 

148

 

 

-

 

 

1,729

 

 

491,310

 

 

497,775

Real Estate – Residential

 

472

 

 

448

 

 

-

 

 

920

 

 

283,894

 

 

287,068

Real Estate – Home Equity

 

446

 

 

697

 

 

-

 

 

1,143

 

 

233,332

 

 

235,433

Consumer

 

1,231

 

 

278

 

 

-

 

 

1,509

 

 

258,159

 

 

259,851

Total Past Due Loans

$

3,789

 

$

1,878

 

$

-

 

$

5,667

 

$

1,543,231

 

$

1,557,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

153

 

$

18

 

$

-

 

$

171

 

$

179,549

 

$

179,816

Real Estate – Construction

 

690

 

 

-

 

 

-

 

 

690

 

 

45,697

 

 

46,484

Real Estate – Commercial Mortgage

 

754

 

 

1,229

 

 

-

 

 

1,983

 

 

493,639

 

 

499,813

Real Estate – Residential

 

567

 

 

347

 

 

-