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Section 1: 10-Q (FORM 10-Q)

UNITED STATES

 

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, 2018

 

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, 2018, 17,055,664 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, 2018

TABLE OF CONTENTS

 

PART I – Financial Information

 

Page

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

Consolidated Statements of Financial Condition – June 30, 2018 and December 31, 2017

4

 

Consolidated Statements of Changes in Shareowners’ Equity – Six Months Ended June 30, 2018 and 2017

7

 

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2018 and 2017

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

46

 

 

 

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, 2017 (the “2017 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, 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)

2018

 

2017

ASSETS

 

 

 

 

 

Cash and Due From Banks

$

56,573

 

$

58,419

Federal Funds Sold and Interest Bearing Deposits

 

107,066

 

 

227,023

 

 

Total Cash and Cash Equivalents

 

163,639

 

 

285,442

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale, at fair value

 

493,662

 

 

480,911

Investment Securities, Held to Maturity, at amortized cost (fair value of $233,179 and $215,007)

 

236,764

 

 

216,679

 

 

Total Investment Securities

 

730,426

 

 

697,590

 

 

 

 

 

 

 

 

Loans Held For Sale

 

8,246

 

 

4,817

 

 

 

 

 

 

 

 

Loans, Net of Unearned Income

 

1,724,475

 

 

1,653,492

 

Allowance for Loan Losses

 

(13,563)

 

 

(13,307)

 

 

Loans, Net

 

1,710,912

 

 

1,640,185

 

 

 

 

 

 

 

 

Premises and Equipment, net

 

90,000

 

 

91,698

Goodwill

 

84,811

 

 

84,811

Other Real Estate Owned

 

3,373

 

 

3,941

Other Assets

 

88,871

 

 

90,310

 

 

Total Assets

$

2,880,278

 

$

2,898,794

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest Bearing Deposits

$

937,241

 

$

874,583

 

Interest Bearing Deposits

 

1,521,949

 

 

1,595,294

 

 

Total Deposits

 

2,459,190

 

 

2,469,877

 

 

 

 

 

 

 

 

Short-Term Borrowings

 

7,021

 

 

7,480

Subordinated Notes Payable

 

52,887

 

 

52,887

Other Long-Term Borrowings

 

12,897

 

 

13,967

Other Liabilities

 

54,712

 

 

70,373

 

 

Total Liabilities

 

2,586,707

 

 

2,614,584

 

 

 

 

 

 

 

 

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; 17,055,664 and 16,988,951 shares

 

 

 

 

issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

171

 

 

170

Additional Paid-In Capital

 

37,932

 

 

36,674

Retained Earnings

 

288,800

 

 

279,410

Accumulated Other Comprehensive Loss, net of tax

 

(33,332)

 

 

(32,044)

Total Shareowners’ Equity

 

293,571

 

 

284,210

Total Liabilities and Shareowners' Equity

$

2,880,278

 

$

2,898,794

 

 

 

 

 

 

 

 

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)

2018

 

2017

 

2018

 

2017

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Loans, including Fees

$

20,533

 

$

18,720

 

$

40,068

 

$

36,725

Investment Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

2,944

 

 

1,899

 

 

5,467

 

 

3,682

 

Tax Exempt

 

212

 

 

270

 

 

451

 

 

529

Federal Funds Sold and Interest Bearing Deposits

 

730

 

 

533

 

 

1,647

 

 

1,026

Total Interest Income

 

24,419

 

 

21,422

 

 

47,633

 

 

41,962

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

995

 

 

388

 

 

1,863

 

 

669

Short-Term Borrowings

 

8

 

 

17

 

 

16

 

 

62

Subordinated Notes Payable

 

552

 

 

404

 

 

1,027

 

 

783

Other Long-Term Borrowings

 

94

 

 

117

 

 

194

 

 

216

Total Interest Expense

 

1,649

 

 

926

 

 

3,100

 

 

1,730

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

22,770

 

 

20,496

 

 

44,533

 

 

40,232

Provision for Loan Losses

 

815

 

 

589

 

 

1,560

 

 

899

Net Interest Income After Provision For Loan Losses

 

21,955

 

 

19,907

 

 

42,973

 

 

39,333

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Deposit Fees

 

4,842

 

 

5,052

 

 

9,714

 

 

10,142

Bank Card Fees

 

2,909

 

 

2,870

 

 

5,720

 

 

5,673

Wealth Management Fees

 

2,037

 

 

2,073

 

 

4,210

 

 

3,915

Mortgage Banking Fees

 

1,206

 

 

1,556

 

 

2,263

 

 

2,864

Other

 

1,548

 

 

1,584

 

 

3,112

 

 

3,259

Total Noninterest Income

 

12,542

 

 

13,135

 

 

25,019

 

 

25,853

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

15,797

 

 

15,641

 

 

31,708

 

 

31,500

Occupancy, net

 

4,503

 

 

4,555

 

 

9,054

 

 

8,936

Other Real Estate Owned, net

 

248

 

 

315

 

 

874

 

 

898

Other

 

7,845

 

 

7,410

 

 

14,663

 

 

14,509

Total Noninterest Expense

 

28,393

 

 

27,921

 

 

56,299

 

 

55,843

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

6,104

 

 

5,121

 

 

11,693

 

 

9,343

Income Tax Expense (Benefit)

 

101

 

 

1,560

 

 

(83)

 

 

3,038

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

$

6,003

 

$

3,561

 

$

11,776

 

$

6,305

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME PER SHARE

$

0.35

 

$

0.21

 

$

0.69

 

$

0.37

DILUTED NET INCOME PER SHARE

$

0.35

 

$

0.21

 

$

0.69

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Common Basic Shares Outstanding

 

17,045

 

 

16,955

 

 

17,037

 

 

16,937

Average Common Diluted Shares Outstanding

 

17,104

 

 

17,016

 

 

17,089

 

 

16,993

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

2018

 

2017

 

2018

 

2017

NET INCOME

$

6,003

 

$

3,561

 

$

11,776

 

$

6,305

Other comprehensive income, before tax:

 

 

 

 

 

 

 

 

 

 

 

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

 

(265)

 

 

110

 

 

(1,752)

 

 

615

Amortization of unrealized losses on securities transferred from

 

 

 

 

 

 

 

 

 

 

 

available for sale to held to maturity

 

14

 

 

18

 

 

28

 

 

38

Total Investment Securities

 

(251)

 

 

128

 

 

(1,724)

 

 

653

Other comprehensive (loss) income, before tax

 

(251)

 

 

128

 

 

(1,724)

 

 

653

Deferred tax (benefit) expense related to other comprehensive income

 

(63)

 

 

49

 

 

(436)

 

 

253

Other comprehensive (loss) income, net of tax

 

(188)

 

 

79

 

 

(1,288)

 

 

400

TOTAL COMPREHENSIVE INCOME

$

5,815

 

$

3,640

 

$

10,488

 

6,705

 

 

 

 

 

 

 

 

 

 

 

 

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, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2018

16,988,951

 

$

170

 

$

36,674

 

$

279,410

 

$

(32,044)

 

$

284,210

Net Income

-

 

 

-

 

 

-

 

 

11,776

 

 

-

 

 

11,776

Other Comprehensive Income, net of tax

-

 

 

-

 

 

-

 

 

-

 

 

(1,288)

 

 

(1,288)

Cash Dividends ($0.1400 per share)

-

 

 

-

 

 

-

 

 

(2,386)

 

 

-

 

 

(2,386)

Stock Based Compensation

-

 

 

-

 

 

655

 

 

-

 

 

-

 

 

655

Impact of Transactions Under Compensation Plans, net

66,713

 

 

1

 

 

603

 

 

-

 

 

-

 

 

604

Balance, June 30, 2018

17,055,664

 

$

171

 

$

37,932

 

$

288,800

 

$

(33,332)

 

$

293,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

2018

 

2017

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net Income

$

11,776

 

$

6,305

Adjustments to Reconcile Net Income to

 

 

 

 

 

   Cash Provided by Operating Activities:

 

 

 

 

 

      Provision for Loan Losses

 

1,560

 

 

899

      Depreciation

 

3,218

 

 

3,352

      Amortization of Premiums, Discounts, and Fees, net

 

3,495

 

 

3,279

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

 

(3,429)

 

 

2,673

      Stock Compensation

 

655

 

 

869

      Net Tax Benefit From Stock-Based Compensation

 

(41)

 

 

(223)

      Deferred Income Taxes

 

2,156

 

 

944

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

 

693

 

 

695

      Loss on Disposal of Premises and Equipment

 

-

 

 

260

      Net Decrease in Other Assets

 

541

 

 

7,026

      Net (Decrease) Increase in Other Liabilities

 

(15,468)

 

 

9,948

Net Cash Provided By Operating Activities

 

5,156

 

 

36,027

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

      Purchases

 

(84,617)

 

 

(28,298)

      Payments, Maturities, and Calls

 

63,724

 

 

48,096

Securities Available for Sale:

 

 

 

 

 

      Purchases

 

(102,974)

 

 

(87,273)

      Payments, Maturities, and Calls

 

84,991

 

 

77,973

Purchases of Loans Held for Investment

 

(16,106)

 

 

(35,499)

Net Increase in Loans

 

(56,981)

 

 

(26,101)

Proceeds From Sales of Other Real Estate Owned

 

715

 

 

3,393

Purchases of Premises and Equipment

 

(1,520)

 

 

(1,534)

Net Cash Used In Investing Activities

 

(112,768)

 

 

(49,243)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net Decrease in Deposits

 

(10,687)

 

 

(40,353)

Net Decrease in Short-Term Borrowings

 

(459)

 

 

(3,644)

Repayment of Other Long-Term Borrowings

 

(1,070)

 

 

(2,250)

Dividends Paid

 

(2,386)

 

 

(1,696)

Issuance of Common Stock Under Compensation Plans

 

411

 

 

290

Net Cash Used In Financing Activities

 

(14,191)

 

 

(47,653)

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(121,803)

 

 

(60,869)

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

285,442

 

 

296,047

Cash and Cash Equivalents at End of Period

$

163,639

 

$

235,178

 

 

 

 

 

 

Supplemental Cash Flow Disclosures:

 

 

 

 

 

   Interest Paid

$

3,103

 

$

1,748

   Income Taxes Paid

$

101

 

$

4,024

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

   Loans Transferred to Other Real Estate Owned

$

840

 

$

1,685

 

 

 

 

 

 

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”).  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, 2017 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, 2017.

 

Accounting Changes

 

Revenue Recognition.   Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

 

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, and investment securities, and revenue related to the sale of residential mortgages in the secondary market, as these activities are subject to other GAAP discussed elsewhere within our disclosures.  Descriptions of the major revenue-generating activities that are within the scope of ASC 606, which are presented in the accompanying statements of income as components of non-interest income are as follows:

 

Deposit Fees - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue.  Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed.  Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

 

Wealth Management - trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth management clients as consideration for managing the client’s assets. Trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when the Company’s performance obligation is completed each month or quarter, which is the time that payment is received. Also, retail brokerage fees are received from a third party broker-dealer, for which the Company acts as an agent, as part of a revenue-sharing agreement for fees earned from customers that are referred to the third party.  These fees are for transactional and advisory services and are paid by the third party on a monthly basis and recognized ratably throughout the quarter as the Company’s performance obligation is satisfied.

 

Bank Card Fees – bank card related fees primarily includes interchange income from client use of consumer and business debit cards.  Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network.  Interchange fees are set by the credit card associations and are based on cardholder purchase volumes.  The Company records interchange income as transactions occur.

 

9


 

Gains and Losses from the Sale of Bank Owned Property – the performance obligation in the sale of other real estate owned typically will be the delivery of control over the property to the buyer.  If the Company is not providing the financing of the sale, the transaction price is typically identified in the purchase and sale agreement.  However, if the Company provides seller financing, the Company must determine a transaction price, depending on if the sale contract is at market terms and taking into account the credit risk inherent in the arrangement. 

 

Other non-interest income primarily includes items such as mortgage banking fees (gains from the sale of residential mortgage loans held for sale), bank-owned life insurance, and safe deposit box fees none of which are subject to the requirements of ASC 606.

 

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affects the determination of the amount and timing of revenue from the above-described contracts with clients.

 

The Company has applied ASC 606 using the modified retrospective approach effective on January 1, 2018 to all existing contracts with clients covered under the scope of the standard.  The Company did not have an aggregate effect of modification resulting from adoption of ASC 606, and no financial statement line items were affected by this change in accounting standard.  

 

Equity Securities. Beginning January 1, 2018, upon adoption of ASU 2016-01, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income. For periods prior to January 1, 2018, equity securities were classified as available-for-sale and stated at fair value with unrealized gains and losses reported as a separate component of AOCI, net of tax.  Equity securities without readily determinable fair values are recorded at cost less any impairment, if any.  Upon adoption, the Company reclassified one security in the amount of $0.8 million to other assets in accordance with this accounting standard.

 

Employee Benefit Plans. Accounting Standards Update (“ASU”) 2017-07, Compensation – Retirement Benefits (Topic 715) requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. In accordance with this accounting standard, the Company reclassified the non-service cost components of its net periodic benefit cost to other noninterest expense in the accompanying statements of income (See Note 5 – Employee Benefit Plans). Prior year amounts were retrospectively adjusted in accordance with the accounting standard.  The effects on the statements of income were as follows:

 

Period Presented

Line Item

(Dollars in Thousands)

Compensation

Other Expense

Three Months Ended June 30, 2018

($457)

$457

Three Months Ended June 30, 2017

($651)

$651

Six Months Ended June 30, 2018

($914)

$914

Six Months Ended June 30, 2017

($1,288)

$1,288

  

 

10


 

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, 2018

 

 

December 31, 2017

 

Amortized

Unrealized

Unrealized

Market

Amortized

Unrealized

Unrealized

Market

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gain

 

Losses

 

Value

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

262,471

 

$

12

 

$

3,745

 

$

258,738

 

$

237,505

 

$

-

 

$

2,164

 

$

235,341

U.S. Government Agency

 

159,906

 

 

656

 

 

653

 

 

159,909

 

 

144,324

 

 

727

 

 

407

 

 

144,644

States and Political Subdivisions

 

66,348

 

 

1

 

 

218

 

 

66,131

 

 

91,533

 

 

2

 

 

378

 

 

91,157

Mortgage-Backed Securities

 

940

 

 

58

 

 

-

 

 

998

 

 

1,102

 

 

83

 

 

-

 

 

1,185

Equity Securities(1)

 

7,886

 

 

-

 

 

-

 

 

7,886

 

 

8,584

 

 

-

 

 

-

 

 

8,584

Total

$

497,551

 

$

727

 

$

4,616

 

$

493,662

 

$

483,048

 

$

812

 

$

2,949

 

$

480,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

50,124

 

$

-

 

$

668

 

$

49,456

 

$

98,256

 

$

-

 

$

441

 

$

97,815

States and Political Subdivisions

 

6,621

 

 

-

 

 

32

 

 

6,589

 

 

6,996

 

 

-

 

 

41

 

 

6,955

Mortgage-Backed Securities

 

180,019

 

 

165

 

 

3,050

 

 

177,134

 

 

111,427

 

 

22

 

 

1,212

 

 

110,237

Total

$

236,764

 

$

165

 

$

3,750

 

$

233,179

 

$

216,679

 

$

22

 

$

1,694

 

$

215,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investment Securities

$

734,315

 

$

892

 

$

8,366

 

$

726,841

 

$

699,727

 

$

834

 

$

4,643

 

$

695,918

 

(1)     Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded at cost of $3.1 million, $4.8 million, respectively, at June 30, 2018 and includes Federal Home Loan Bank, Federal Reserve Bank and FNBB Inc. stock recorded at cost of $3.1 million, $4.8 million, and $0.8 million, respectively, at December 31, 2017.  The FNBB, Inc. equity investment was reclassified to other assets at March 31, 2018 in accordance with ASU 2016-01, which was adopted prospectively as allowed by the standard.

 

Securities with an amortized cost of $247.1 million and $328.1 million at June 30, 2018 and December 31, 2017, respectively, were pledged to secure public deposits and for other purposes.

 

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.

 

Maturity Distribution.  At June 30, 2018, 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

$

92,474

 

$

92,106

 

$

16,635

 

$

16,617

Due after one year through five years

 

264,809

 

 

260,934

 

 

40,110

 

 

39,428

Mortgage-Backed Securities

 

940

 

 

998

 

 

180,019

 

 

177,134

U.S. Government Agency

 

131,442

 

 

131,738

 

 

-

 

 

-

Equity Securities

 

7,886

 

 

7,886

 

 

-

 

 

-

Total

$

497,551

 

$

493,662

 

$

236,764

 

$

233,179

11


 

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, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

146,449

 

$

2,127

 

$

97,386

 

$

1,618

 

$

243,835

 

$

3,745

U.S. Government Agency

 

67,628

 

 

377

 

 

25,212

 

 

276

 

 

92,840

 

 

653

States and Political Subdivisions

 

54,511

 

 

176

 

 

5,079

 

 

42

 

 

59,590

 

 

218

Mortgage-Backed Securities

 

2

 

 

-

 

 

-

 

 

-

 

 

2

 

 

-

Total

 

268,590

 

 

2,680

 

 

127,677

 

 

1,936

 

 

396,267

 

 

4,616

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

24,574

 

 

489

 

  

24,882

 

 

179

 

  

49,456

 

 

668

States and Political Subdivisions

 

6,093

 

 

25

 

 

496

 

 

7

 

 

6,589

 

 

32

Mortgage-Backed Securities

 

108,323

 

 

1,742

 

 

29,894

 

 

1,308

 

 

138,217

 

 

3,050

Total

$

138,990

 

$

2,256

 

$

55,272

 

$

1,494

 

$

194,262

 

$

3,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

155,443

 

$

963

 

$

79,900

 

$

1,201

 

$

235,343

 

$

2,164

U.S. Government Agency

 

45,737

 

 

150

 

 

25,757

 

 

257

 

 

71,494

 

 

407

States and Political Subdivisions

 

82,999

 

 

320

 

 

5,549

 

 

58

 

 

88,548

 

 

378

Mortgage-Backed Securities

 

2

 

 

-

 

 

-

 

 

-

 

 

2

 

 

-

Total

 

284,181

 

 

1,433

 

 

111,206

 

 

1,516

 

 

395,387

 

 

2,949

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

77,861

 

 

298

 

 

14,939

 

 

143

 

 

92,800

 

 

441

States and Political Subdivisions

 

6,955

 

 

41

 

 

-

 

 

-

 

 

6,955

 

 

41

Mortgage-Backed Securities

 

56,030

 

 

469

 

 

30,216

 

 

743

 

 

86,246

 

 

1,212

Total

$

140,846

 

$

808

 

$

45,155

 

$

886

 

$

186,001

 

$

1,694

 

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  available-for-sale (“AFS”) and held-to-maturity (“HTM”) 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 June 30, 2018, there were 535 positions (combined AFS and HTM) with unrealized losses totaling $8.4 million. 61 of these positions were U.S. government treasury securities guaranteed by the U.S. government. 276 of these positions were U.S. government agency and mortgage-backed securities issued by U.S. government sponsored entities, with the remaining 198 positions being municipal securities. Because the declines in the market value of these securities 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, 2018.

12


 

NOTE 3 – LOANS, NET

 

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

 

(Dollars in Thousands)

June 30, 2018

 

December 31, 2017

Commercial, Financial and Agricultural

$

222,406

 

$

218,166

Real Estate – Construction

 

88,169

 

 

77,966

Real Estate – Commercial Mortgage

 

575,993

 

 

535,707

Real Estate – Residential(1)

 

331,944

 

 

311,906

Real Estate – Home Equity

 

218,851

 

 

229,513

Consumer(2)

 

287,112

 

 

280,234

 

Loans, Net of Unearned Income

$

1,724,475

 

$

1,653,492

             

 

(1)     Includes loans in process with outstanding balances of $15.9 million and $9.1 million at June 30, 2018 and December 31, 2017, respectively.  

(2)     Includes overdraft balances of $1.5 million and $1.6 million at June 30, 2018 and December 31, 2017, respectively.  

 

Net deferred costs included in loans were $1.5 million at June 30, 2018 and $1.5 million at December 31, 2017.

 

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 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, 2018

 

December 31, 2017

(Dollars in Thousands)

Nonaccrual

 

90 + Days

 

Nonaccrual

 

90 + Days

Commercial, Financial and Agricultural

$

455

 

$

-

 

$

629

 

$

-

Real Estate – Construction

 

609

 

 

-

 

 

297

 

 

-

Real Estate – Commercial Mortgage

 

2,181

 

 

-

 

 

2,370

 

 

-

Real Estate – Residential

 

1,543

 

 

-

 

 

1,938

 

 

-

Real Estate – Home Equity

 

910

 

 

-

 

 

1,748

 

 

-

Consumer

 

43

 

 

-

 

 

177

 

 

36

Total Nonaccrual Loans

$

5,741

 

$

-

 

$

7,159

 

$

36

 

13


 

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 accruing 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, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

204

 

$

113

 

$

-

 

$

317

 

$

221,634

 

$

222,406

Real Estate – Construction

 

62

 

 

-

 

 

-

 

 

62

 

 

87,498

 

 

88,169

Real Estate – Commercial Mortgage

 

483

 

 

189

 

 

-

 

 

672

 

 

573,140

 

 

575,993

Real Estate – Residential

 

495

 

 

391

 

 

-

 

 

886

 

 

329,515

 

 

331,944

Real Estate – Home Equity

 

255

 

 

-

 

 

-

 

 

255

 

 

217,686

 

 

218,851

Consumer

 

1,009

 

 

271

 

 

-

 

 

1,280

 

 

285,789

 

 

287,112

Total Past Due Loans

$

2,508

 

$

964

 

$

-

 

$

3,472

 

$

1,715,262

 

$

1,724,475