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 June 30, 2017

 

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) 402-7821

(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, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth 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)

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act.  [  ]

 

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 July 31, 2017, 16,964,015 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 JUNE 30, 2017

TABLE OF CONTENTS

 

PART I – Financial Information

 

Page

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

Consolidated Statements of Financial Condition – June 30, 2017 and December 31, 2016

4

 

Consolidated Statements of Changes in Shareowners’ Equity – Six Months Ended June 30, 2017 and 2016

7

 

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2017 and 2016

8

 

Notes to Consolidated Financial Statements

9

 

 

 

Item 2.

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

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

45

 

 

 

Item 4.

Controls and Procedures

45

 

 

 

PART II – Other Information

 

 

 

Item 1.

Legal Proceedings

45

 

 

 

Item 1A.

Risk Factors

45

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 3.

Defaults Upon Senior Securities

45

 

 

 

Item 4.

Mine Safety Disclosure

45

 

 

 

Item 5.

Other Information

45

 

 

 

Item 6.

Exhibits

45

 

 

 

Signatures

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

           

  

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, 2016 (the “2016 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)

 

 

 

 

 

 

June 30,

 

December 31,

(Dollars in Thousands)

2017

 

2016

ASSETS

 

 

 

 

 

Cash and Due From Banks

$

72,801

 

$

48,268

Federal Funds Sold and Interest Bearing Deposits

 

162,377

 

 

247,779

 

 

Total Cash and Cash Equivalents

 

235,178

 

 

296,047

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale, at fair value

 

529,686

 

 

522,734

Investment Securities, Held to Maturity, at amortized cost (fair value of $156,510 and $176,746)

 

157,074

 

 

177,365

 

 

Total Investment Securities

 

686,760

 

 

700,099

 

 

 

 

 

 

 

 

Loans Held For Sale

 

8,213

 

 

10,886

 

 

 

 

 

 

 

 

Loans, Net of Unearned Income

 

1,621,196

 

 

1,561,289

 

Allowance for Loan Losses

 

(13,242)

 

 

(13,431)

 

 

Loans, Net

 

1,607,954

 

 

1,547,858

 

 

 

 

 

 

 

 

Premises and Equipment, net

 

92,495

 

 

95,476

Goodwill

 

84,811

 

 

84,811

Other Real Estate Owned

 

7,968

 

 

10,638

Other Assets

 

91,464

 

 

99,382

 

 

Total Assets

$

2,814,843

 

$

2,845,197

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest Bearing Deposits

$

842,314

 

$

791,182

 

Interest Bearing Deposits

 

1,529,619

 

 

1,621,104

 

 

Total Deposits

 

2,371,933

 

 

2,412,286

 

 

 

 

 

 

 

 

Short-Term Borrowings

 

6,105

 

 

12,749

Subordinated Notes Payable

 

52,887

 

 

52,887

Other Long-Term Borrowings

 

15,631

 

 

14,881

Other Liabilities

 

86,774

 

 

77,226

 

 

Total Liabilities

 

2,533,330

 

 

2,570,029

 

 

 

 

 

 

 

 

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; 16,964,015 and 16,844,698 shares

 

 

 

 

issued and outstanding at June 30, 2017 and December 31, 2016, respectively

 

170

 

 

168

Additional Paid-In Capital

 

35,522

 

 

34,188

Retained Earnings

 

271,646

 

 

267,037

Accumulated Other Comprehensive Loss, net of tax

 

(25,825)

 

 

(26,225)

Total Shareowners’ Equity

 

281,513

 

 

275,168

Total Liabilities and Shareowners' Equity

$

2,814,843

 

$

2,845,197

 

 

 

 

 

 

 

 

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 June 30,

 

Six Months Ended June 30,

(Dollars in Thousands, Except Per Share Data)

2017

 

2016

 

2017

 

2016

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Loans, including Fees

$

18,720

 

$

18,105

 

$

36,725

 

$

36,150

Investment Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

1,899

 

 

1,539

 

 

3,682

 

 

2,959

 

Tax Exempt

 

270

 

 

212

 

 

529

 

 

429

Federal Funds Sold and Interest Bearing Deposits

 

533

 

 

318

 

 

1,026

 

 

680

Total Interest Income

 

21,422

 

 

20,174

 

 

41,962

 

 

40,218

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

388

 

 

211

 

 

669

 

 

432

Short-Term Borrowings

 

17

 

 

38

 

 

62

 

 

48

Subordinated Notes Payable

 

404

 

 

343

 

 

783

 

 

730

Other Long-Term Borrowings

 

117

 

 

206

 

 

216

 

 

422

Total Interest Expense

 

926

 

 

798

 

 

1,730

 

 

1,632

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

20,496

 

 

19,376

 

 

40,232

 

 

38,586

Provision for Loan Losses

 

589

 

 

(97)

 

 

899

 

 

355

Net Interest Income After Provision For Loan Losses

 

19,907

 

 

19,473

 

 

39,333

 

 

38,231

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Deposit Fees

 

5,052

 

 

5,321

 

 

10,142

 

 

10,721

Bank Card Fees

 

2,870

 

 

2,855

 

 

5,673

 

 

5,708

Wealth Management Fees

 

2,073

 

 

1,690

 

 

3,915

 

 

3,482

Mortgage Banking Fees

 

1,556

 

 

1,267

 

 

2,864

 

 

2,297

Other

 

1,584

 

 

4,082

 

 

3,259

 

 

5,684

Total Noninterest Income

 

13,135

 

 

15,215

 

 

25,853

 

 

27,892

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

16,292

 

 

16,051

 

 

32,788

 

 

32,292

Occupancy, net

 

4,555

 

 

4,584

 

 

8,936

 

 

9,043

Other Real Estate Owned, net

 

315

 

 

1,060

 

 

898

 

 

2,485

Other

 

6,759

 

 

7,007

 

 

13,221

 

 

13,812

Total Noninterest Expense

 

27,921

 

 

28,702

 

 

55,843

 

 

57,632

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

5,121

 

 

5,986

 

 

9,343

 

 

8,491

Income Tax Expense

 

1,560

 

 

2,056

 

 

3,038

 

 

2,914

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

$

3,561

 

$

3,930

 

$

6,305

 

$

5,577

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME PER SHARE

$

0.21

 

$

0.22

 

$

0.37

 

$

0.32

DILUTED NET INCOME PER SHARE

$

0.21

 

$

0.22

 

$

0.37

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Common Basic Shares Outstanding

 

16,955

 

 

17,144

 

 

16,937

 

 

17,173

Average Common Diluted Shares Outstanding

 

17,016

 

 

17,196

 

 

16,993

 

 

17,215

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

(Dollars in Thousands)

2017

 

2016

 

2017

 

2016

NET INCOME

$

3,561

 

$

3,930

 

$

6,305

 

$

5,577

 

Other comprehensive income, before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

110

 

 

908

 

 

615

 

 

2,692

 

 

Amortization of unrealized losses on securities transferred from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available for sale to held to maturity

 

18

 

 

20

 

 

38

 

 

39

 

 

Total Investment Securities

 

128

 

 

928

 

 

653

 

 

2,731

 

Other comprehensive income, before tax

 

128

 

 

928

 

 

653

 

 

2,731

 

 

Deferred tax expense related to other comprehensive income

 

49

 

 

358

 

 

253

 

 

1,053

 

Other comprehensive income, net of tax

 

79

 

 

570

 

 

400

 

 

1,678

TOTAL COMPREHENSIVE INCOME

$

3,640

 

$

4,500

 

$

6,705

 

7,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2016

17,156,919

 

$

172

 

$

38,256

 

$

258,181

 

$

(22,257)

 

$

274,352

Net Income

-

 

 

-

 

 

-

 

 

5,577

 

 

-

 

 

5,577

Other Comprehensive Income, net of tax

-

 

 

-

 

 

-

 

 

-

 

 

1,678

 

 

1,678

Cash Dividends ($0.0800 per share)

-

 

 

-

 

 

-

 

 

(1,378)

 

 

-

 

 

(1,378)

Repurchase of Common Stock

(435,461)

 

 

(4)

 

 

(6,308)

 

 

-

 

 

-

 

 

(6,312)

Stock Based Compensation

-

 

 

-

 

 

495

 

 

-

 

 

-

 

 

495

Impact of Transactions Under Compensation Plans, net

82,141

 

 

-

 

 

412

 

 

-

 

 

-

 

 

412

Balance, June 30, 2016

16,803,599

 

$

168

 

$

32,855

 

$

262,380

 

$

(20,579)

 

$

274,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2017

16,844,698

 

$

168

 

$

34,188

 

$

267,037

 

$

(26,225)

 

$

275,168

Net Income

-

 

 

-

 

 

-

 

 

6,305

 

 

-

 

 

6,305

Other Comprehensive Income, net of tax

-

 

 

-

 

 

-

 

 

-

 

 

400

 

 

400

Cash Dividends ($0.1000 per share)

-

 

 

-

 

 

-

 

 

(1,696)

 

 

-

 

 

(1,696)

Stock Based Compensation

-

 

 

-

 

 

869

 

 

-

 

 

-

 

 

869

Impact of Transactions Under Compensation Plans, net

119,317

 

 

2

 

 

465

 

 

-

 

 

-

 

 

467

Balance, June 30, 2017

16,964,015

 

$

170

 

$

35,522

 

$

271,646

 

$

(25,825)

 

$

281,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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) 

 

 

 

 

 

 

 

Six Months Ended June 30,

(Dollars in Thousands

2017

 

2016

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net Income

$

6,305

 

$

5,577

Adjustments to Reconcile Net Income to

 

 

 

 

 

   Cash Provided by Operating Activities:

 

 

 

 

 

      Provision for Loan Losses

 

899

 

 

355

      Depreciation

 

3,352

 

 

3,435

      Amortization of Premiums, Discounts, and Fees, net

 

3,279

 

 

3,037

      Gain on Partial Retirement of Trust Preferred Securities

 

-

 

 

(2,487)

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

 

2,673

 

 

(414)

      Stock Compensation

 

869

 

 

495

      Net Tax Benefit From Stock-Based Compensation

 

(223)

 

 

-

      Deferred Income Taxes

 

944

 

 

3,586

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

 

695

 

 

1,980

      Loss on Disposal of Premises and Equipment

 

260

 

 

92

      Net Decrease (Increase) in Other Assets

 

7,026

 

 

(6,679)

      Net Increase in Other Liabilities

 

9,948

 

 

10,787

Net Cash Provided By Operating Activities

 

36,027

 

 

19,764

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

      Purchases

 

(28,298)

 

 

(28,588)

      Payments, Maturities, and Calls

 

48,096

 

 

11,513

Securities Available for Sale:

 

 

 

 

 

      Purchases

 

(87,273)

 

 

(90,322)

      Payments, Maturities, and Calls

 

77,973

 

 

55,619

Purchases of Loans Held for Investment

 

(35,499)

 

 

-

Net Increase in Loans

 

(26,101)

 

 

(31,218)

Proceeds From Sales of Other Real Estate Owned

 

3,393

 

 

5,107

Purchases of Premises and Equipment

 

(1,534)

 

 

(2,021)

Net Cash Used In Investing Activities

 

(49,243)

 

 

(79,910)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net (Decrease) Increase in Deposits

 

(40,353)

 

 

21,957

Net Decrease in Short-Term Borrowings

 

(3,644)

 

 

(51,886)

Redemption of Subordinated Notes

 

-

 

 

(7,500)

Repayment of Other Long-Term Borrowings

 

(2,250)

 

 

(1,427)

Dividends Paid

 

(1,696)

 

 

(1,378)

Payments to Repurchase Common Stock

 

-

 

 

(6,312)

Issuance of Common Stock Under Compensation Plans

 

290

 

 

272

Net Cash Used In Financing Activities

 

(47,653)

 

 

(46,274)

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(60,869)

 

 

(106,420)

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

296,047

 

 

378,905

Cash and Cash Equivalents at End of Period

$

235,178

 

$

272,485

 

 

 

 

 

 

Supplemental Cash Flow Disclosures:

 

 

 

 

 

   Interest Paid

$

1,748

 

$

1,630

   Income Taxes Paid (Refunded)

$

4,024

 

$

(375)

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

   Loans and Premises Transferred to Other Real Estate Owned

$

1,685

 

$

2,419

   Transfer of Current Portion of Long-Term Borrowings

$

-

 

$

437

 

 

 

 

 

 

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, 2016 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, 2016.

 

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:

 

June 30, 2017

 

 

December 31, 2016

 

Amortized

Unrealized

Unrealized

Market

Amortized

Unrealized

Unrealized

Market

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gain

 

Losses

 

Value

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

277,718

 

$

55

 

$

808

 

$

276,965

 

$

286,867

 

$

262

 

$

851

 

$

286,278

U.S. Government Agency

 

142,400

 

 

774

 

 

280

 

 

142,894

 

 

131,489

 

 

495

 

 

344

 

 

131,640

States and Political Subdivisions

 

99,899

 

 

155

 

 

76

 

 

99,978

 

 

95,197

 

 

23

 

 

381

 

 

94,839

Mortgage-Backed Securities

 

1,246

 

 

116

 

 

-

 

 

1,362

 

 

1,312

 

 

118

 

 

-

 

 

1,430

Equity Securities(1)

 

8,487

 

 

-

 

 

-

 

 

8,487

 

 

8,547

 

 

-

 

 

-

 

 

8,547

Total

$

529,750

 

$

1,100

 

$

1,164

 

$

529,686

 

$

523,412

 

$

898

 

$

1,576

 

$

522,734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

83,246

 

$

1

 

$

166

 

$

83,081

 

$

119,131

 

$

107

 

$

81

 

$

119,157

States and Political Subdivisions

 

7,351

 

 

25

 

 

2

 

 

7,374

 

 

8,175

 

 

1

 

 

38

 

 

8,138

Mortgage-Backed Securities

 

66,477

 

 

71

 

 

493

 

 

66,055

 

 

50,059

 

 

29

 

 

637

 

 

49,451

Total

$

157,074

 

$

97

 

$

661

 

$

156,510

 

$

177,365

 

$

137

 

$

756

 

$

176,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investment Securities

$

686,824

 

$

1,197

 

$

1,825

 

$

686,196

 

$

700,777

 

$

1,035

 

$

2,332

 

$

699,480

 

(1)     Includes Federal Home Loan Bank, Federal Reserve Bank, and FNBB, Inc. stock recorded at cost of $3.2 million, $4.8 million, and $0.5 million, respectively, at June 30, 2017 and $3.3 million, $4.8 million, and $0.5 million, respectively, at December 31, 2016.

 

Securities with an amortized cost of $249.4 million and $332.7 million at June 30, 2017 and December 31, 2016, 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.

 

As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain stock in the Federal Reserve Bank of Atlanta based on a specified ratio relative to the Bank’s capital.  Federal Reserve Bank stock is carried at cost and may be sold back to the Federal Reserve Bank at its carrying value.

 

Maturity Distribution.  At June 30, 2017, 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

(Dollars in Thousands)

Amortized Cost

 

Market Value

 

Amortized Cost

 

Market Value

Due in one year or less

$

164,458

 

$

164,400

 

$

48,640

 

$

48,584

Due after one through five years

 

252,755

 

 

251,947

 

 

41,957

 

 

41,871

Mortgage-Backed Securities

 

1,246

 

 

1,362

 

 

66,477

 

 

66,055

U.S. Government Agency

 

102,804

 

 

103,490

 

 

-

 

 

-

Equity Securities

 

8,487

 

 

8,487

 

 

-

 

 

-

Total

$

529,750

 

$

529,686

 

$

157,074

 

$

156,510

10


 

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

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

221,874

 

$

808

 

$

-

 

$

-

 

$

221,874

 

$

808

U.S. Government Agency

 

46,260

 

 

201

 

 

9,608

 

 

79

 

 

55,868

 

 

280

States and Political Subdivisions

 

37,984

 

 

69

 

 

1,063

 

 

7

 

 

39,047

 

 

76

Mortgage-Backed Securities

 

-

 

 

-

 

 

3

 

 

-

 

 

3

 

 

-

Total

 

306,118

 

 

1,078

 

 

10,674

 

 

86

 

 

316,792

 

 

1,164

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

78,091

 

 

166

 

  

-

 

 

-

 

  

78,091

 

 

166

States and Political Subdivisions

 

1,065

 

 

2

 

 

-

 

 

-

 

 

1,065

 

 

2

Mortgage-Backed Securities

 

34,840

 

 

441

 

 

4,067

 

 

52

 

 

38,907

 

 

493

Total

$

113,996

 

$

609

 

$

4,067

 

$

52

 

$

118,063

 

$

661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

116,704

 

$

851

 

$

-

 

$

-

 

$

116,704

 

$

851

U.S. Government Agency

 

48,520

 

 

310

 

 

6,699

 

 

34

 

 

55,219

 

 

344

States and Political Subdivisions

 

81,521

 

 

380

 

 

294

 

 

1

 

 

81,815

 

 

381

Mortgage-Backed Securities

 

3

 

 

-

 

 

-

 

 

-

 

 

3

 

 

-

Total

 

246,748

 

 

1,541

 

 

6,993

 

 

35

 

 

253,741

 

 

1,576

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

35,210

 

 

81

 

 

-

 

 

-

 

 

35,210

 

 

81

States and Political Subdivisions

 

7,491

 

 

38

 

 

-

 

 

-

 

 

7,491

 

 

38

Mortgage-Backed Securities

 

36,710

 

 

599

 

 

4,010

 

 

38

 

 

40,720

 

 

637

Total

$

79,411

 

$

718

 

$

4,010

 

$

38

 

$

83,421

 

$

756

 

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. 

 

11


 

At June 30, 2017, there were 281 positions (combined Available-for-Sale and Held-to-Maturity) with an unrealized loss totaling $1.8 million. Included were 142 positions comprised of Ginnie Mae mortgage-backed securities (54), U.S. Treasuries (61), and SBA securities (27) with an unrealized loss totaling $1.5 million. Each of these positions carries 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 142 positions, there were 13 GNMA positions and six SBA positions in an unrealized loss position for longer than 12 months, with unrealized losses of $52,000 and $15,000, respectively. There were 25 agency positions with an unrealized loss of $0.2 million. Two of these 25 positions were in an unrealized loss position for longer than 12 months, and have unrealized losses of $64,000.  The remaining 114 positions in an unrealized loss position were municipal bonds that were pre-refunded, or rated “AA-“or better, with unrealized losses of $78,000. Of these 114 positions, three were in an unrealized loss position greater than 12 months, with an unrealized loss of $7,000. 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 June 30, 2017.

 

NOTE 3 – LOANS, NET

 

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

 

(Dollars in Thousands)

June 30, 2017

 

December 31, 2016

Commercial, Financial and Agricultural

$

213,544

 

$

216,404

Real Estate – Construction

 

67,331

 

 

58,443

Real Estate – Commercial Mortgage

 

519,140

 

 

503,978

Real Estate – Residential(1)

 

319,129

 

 

281,509

Real Estate – Home Equity

 

230,995

 

 

236,512

Consumer

 

271,057

 

 

264,443

 

Loans, Net of Unearned Income

$

1,621,196

 

$

1,561,289

             

 

(1)     Includes loans in process with outstanding balances of $18.6 million and $9.6 million at June 30, 2017 and December 31, 2016, respectively.  

 

Net deferred costs included in loans were $0.7 million at June 30, 2017 and $0.5 million at December 31, 2016.

 

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.

 

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.

 

 

June 30, 2017

 

December 31, 2016

(Dollars in Thousands)

Nonaccrual

 

90 + Days

 

Nonaccrual

 

90 + Days

Commercial, Financial and Agricultural

$

455

 

$

-

 

$

468

 

$

-

Real Estate – Construction

 

363

 

 

-

 

 

311

 

 

-

Real Estate – Commercial Mortgage

 

2,984

 

 

-

 

 

3,410

 

 

-

Real Estate – Residential

 

2,485

 

 

-

 

 

2,330

 

 

-

Real Estate – Home Equity

 

1,496

 

 

-

 

 

1,774

 

 

-

Consumer

 

183

 

 

-

 

 

240

 

 

-

Total Nonaccrual Loans

$

7,966

 

$

-

 

$

8,533

 

$

-

 

12


 

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(1)

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

54

 

$

51

 

$

-

 

$

105

 

$

212,984

 

$

213,544

Real Estate – Construction

 

435

 

 

-

 

 

-

 

 

435

 

 

66,533

 

 

67,331

Real Estate – Commercial Mortgage

 

262

 

 

28

 

 

-

 

 

290

 

 

515,866

 

 

519,140

Real Estate – Residential

 

262

 

 

585

 

 

-

 

 

847

 

 

315,797

 

 

319,129

Real Estate – Home Equity

 

757

 

 

40

 

 

-

 

 

797

 

 

228,702

 

 

230,995

Consumer

 

1,002

 

 

313

 

 

-

 

 

1,315

 

 

269,559

 

 

271,057

Total Past Due Loans

$

2,772

 

$

1,017

 

$

-

 

$

3,789

 

$

1,609,441

 

$

1,621,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

209

 

$

48

 

$

-

 

$

257

 

$

215,679

 

$

216,404

Real Estate – Construction

 

949

 

 

282

 

 

-

 

 

1,231

 

 

56,901

 

 

58,443

Real Estate – Commercial Mortgage

 

835

 

 

1

 

 

-

 

 

836

 

 

499,732

 

 

503,978

Real Estate – Residential

 

1,199

 

 

490

 

 

-

 

 

1,689

 

 

277,490

 

 

281,509

Real Estate – Home Equity

 

577

 

 

51

 

 

-

 

 

628

 

 

234,110

 

 

236,512

Consumer

 

1,516