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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 March 31, 2019

 

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 April 30, 2019, 16,812,485 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 MARCH 31, 2019

TABLE OF CONTENTS

 

PART I – Financial Information

 

Page

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

Consolidated Statements of Financial Condition – March 31, 2019 and December 31, 2018

4

 

Consolidated Statements of Income – Three Months Ended March 31, 2019 and 2018

5

 

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2019 and 2018

6

 

Consolidated Statements of Changes in Shareowners’ Equity – Three Months Ended March 31, 2019 and 2018

7

 

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018

8

 

Notes to Consolidated Financial Statements

9

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

43

 

 

 

Item 4.

Controls and Procedures

43

 

 

 

PART II – Other Information

 

 

 

Item 1.

Legal Proceedings

43

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 3.

Defaults Upon Senior Securities

43

 

 

 

Item 4.

Mine Safety Disclosure

43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

44

 

 

 

Signatures

 

45

 

 

 

 

 

 

 

 

 

 

 

           

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, 2018 (the “2018 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 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 reserve, deferred tax asset valuation and pension plan;

·          changes in accounting principles, policies, practices or guidelines, including the effects of forthcoming Current Expected Credit Losses (“CECL”) accounting implementation;

·          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 subject to our 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;

·          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)

 

 

 

 

 

 

March 31,

 

December 31,

(Dollars in Thousands)

2019

 

2018

ASSETS

 

 

 

 

 

Cash and Due From Banks

$

49,501

 

$

62,032

Federal Funds Sold and Interest Bearing Deposits

 

304,213

 

 

213,968

 

 

Total Cash and Cash Equivalents

 

353,714

 

 

276,000

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale, at fair value

 

429,016

 

 

446,157

Investment Securities, Held to Maturity, at amortized cost (fair value of $225,317 and $214,413)

 

226,179

 

 

217,320

 

 

Total Investment Securities

 

655,195

 

 

663,477

 

 

 

 

 

 

 

 

Loans Held For Sale

 

4,557

 

 

6,869

 

 

 

 

 

 

 

 

Loans, Net of Unearned Income

 

1,797,105

 

 

1,774,225

 

Allowance for Loan Losses

 

(14,120)

 

 

(14,210)

 

 

Loans, Net

 

1,782,985

 

 

1,760,015

 

 

 

 

 

 

 

 

Premises and Equipment, net

 

86,846

 

 

87,190

Goodwill

 

84,811

 

 

84,811

Other Real Estate Owned

 

1,902

 

 

2,229

Other Assets

 

82,041

 

 

78,592

 

 

Total Assets

$

3,052,051

 

$

2,959,183

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest Bearing Deposits

$

995,853

 

$

947,858

 

Interest Bearing Deposits

 

1,621,441

 

 

1,583,998

 

 

Total Deposits

 

2,617,294

 

 

2,531,856

 

 

 

 

 

 

 

 

Short-Term Borrowings

 

8,983

 

 

13,541

Subordinated Notes Payable

 

52,887

 

 

52,887

Other Long-Term Borrowings

 

7,661

 

 

8,568

Other Liabilities

 

56,240

 

 

49,744

 

 

Total Liabilities

 

2,743,065

 

 

2,656,596

 

 

 

 

 

 

 

 

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; 16,812,460 and 16,747,571 shares

 

 

 

 

issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

168

 

 

167

Additional Paid-In Capital

 

31,929

 

 

31,058

Retained Earnings

 

304,763

 

 

300,177

Accumulated Other Comprehensive Loss, net of tax

 

(27,874)

 

 

(28,815)

Total Shareowners’ Equity

 

308,986

 

 

302,587

Total Liabilities and Shareowners' Equity

$

3,052,051

 

$

2,959,183

 

 

 

 

 

 

 

 

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 March 31,

(Dollars in Thousands, Except Per Share Data)

2019

 

2018

INTEREST INCOME

 

 

 

 

 

Loans, including Fees

$

22,616

 

$

19,535

Investment Securities:

 

 

 

 

 

 

Taxable Securities

 

3,387

 

 

2,523

 

Tax Exempt Securities

 

126

 

 

239

Federal Funds Sold and Interest Bearing Deposits

 

1,593

 

 

917

 

 

Total Interest Income

 

27,722

 

 

23,214

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

Deposits

 

2,099

 

 

868

Short-Term Borrowings

 

35

 

 

8

Subordinated Notes Payable

 

608

 

 

475

Other Long-Term Borrowings

 

72

 

 

100

 

Total Interest Expense

 

2,814

 

 

1,451

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

24,908

 

 

21,763

Provision for Loan Losses

 

767

 

 

745

Net Interest Income After Provision For Loan Losses

 

24,141

 

 

21,018

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

Deposit Fees

 

4,775

 

 

4,872

Bank Card Fees

 

2,855

 

 

2,811

Wealth Management Fees

 

2,323

 

 

2,173

Mortgage Banking Fees

 

993

 

 

1,057

Other

 

1,606

 

 

1,564

Total Noninterest Income

 

12,552

 

 

12,477

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

Compensation

 

16,349

 

 

15,911

Occupancy, net

 

4,509

 

 

4,551

Other Real Estate Owned, net

 

363

 

 

626

Other

 

6,977

 

 

6,818

Total Noninterest Expense

 

28,198

 

 

27,906

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

8,495

 

 

5,589

Income Tax Expense (Benefit)

 

2,059

 

 

(184)

 

 

 

 

 

 

 

 

NET INCOME

$

6,436

 

$

5,773

 

 

 

 

 

 

 

 

BASIC NET INCOME PER SHARE

$

0.38

 

$

0.34

DILUTED NET INCOME PER SHARE

$

0.38

 

$

0.34

 

 

 

 

 

 

 

 

Average Basic Shares Outstanding

 

16,791

 

 

17,028

Average Diluted Shares Outstanding

 

16,819

 

 

17,073

 

 

 

 

 

 

 

 

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

 

 

 

 

March 31,

(Dollars in Thousands)

2019

 

2018

NET INCOME

$

6,436

 

$

5,773

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

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

 

1,250

 

 

(1,488)

 

 

Amortization of unrealized losses on securities transferred from available for sale to held to maturity

 

12

 

 

15

 

 

Total Investment Securities

 

1,262

 

 

(1,473)

 

Other comprehensive income (loss), before tax

 

1,262

 

 

(1,473)

 

Deferred tax expense (benefit) related to other comprehensive income

 

321

 

 

(373)

 

Other comprehensive income (loss), net of tax

 

941

 

 

(1,100)

TOTAL COMPREHENSIVE INCOME

$

7,377

 

$

4,673

 

 

 

 

 

 

 

 

 

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, 2018

16,988,951

 

$

170

 

$

36,674

 

$

279,410

 

$

(32,044)

 

$

284,210

Net Income

-

 

 

-

 

 

-

 

 

5,773

 

 

-

 

 

5,773

Other Comprehensive Loss, net of tax

-

 

 

-

 

 

-

 

 

-

 

 

(1,100)

 

 

(1,100)

Cash Dividends ($0.0700 per share)

-

 

 

-

 

 

-

 

 

(1,193)

 

 

-

 

 

(1,193)

Stock Based Compensation

-

 

 

-

 

 

331

 

 

-

 

 

-

 

 

331

Impact of Transactions Under Compensation Plans, net

55,115

 

 

1

 

 

338

 

 

-

 

 

-

 

 

339

Balance, March 31, 2018

17,044,066

 

$

171

 

$

37,343

 

$

283,990

 

$

(33,144)

 

$

288,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

16,747,571

 

$

167

 

$

31,058

 

$

300,177

 

$

(28,815)

 

$

302,587

Net Income

-

 

 

-

 

 

-

 

 

6,436

 

 

-

 

 

6,436

Other Comprehensive Income, net of tax

-

 

 

-

 

 

-

 

 

-

 

 

941

 

 

941

Cash Dividends ($0.1100 per share)

-

 

 

-

 

 

-

 

 

(1,850)

 

 

-

 

 

(1,850)

Stock Based Compensation

-

 

 

-

 

 

499

 

 

-

 

 

-

 

 

499

Impact of Transactions Under Compensation Plans, net

64,889

 

 

1

 

 

372

 

 

-

 

 

-

 

 

373

Balance, March 31, 2019

16,812,460

 

$

168

 

$

31,929

 

$

304,763

 

$

(27,874)

 

$

308,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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) 

 

 

 

 

 

 

 

Three Months Ended March 31,

(Dollars in Thousands)

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net Income

$

6,436

 

$

5,773

Adjustments to Reconcile Net Income to

 

 

 

 

 

   Cash Provided by Operating Activities:

 

 

 

 

 

      Provision for Loan Losses

 

767

 

 

745

      Depreciation

 

1,612

 

 

1,605

      Amortization of Premiums, Discounts and Fees, net

 

1,234

 

 

1,723

      Originations of Loans Held-for-Sale

 

(38,698)

 

 

(39,137)

      Proceeds From Sales of Loans Held-for-Sale

 

42,003

 

 

40,166

      Net Gain From Sales of Loans Held-for-Sale

 

(993)

 

 

(1,057)

      Stock Compensation

 

499

 

 

331

      Net Tax Benefit From Stock-Based Compensation

 

(14)

 

 

(41)

      Deferred Income Taxes

 

321

 

 

1,407

      Net Change in Operating Leases

 

23

 

 

-

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

 

215

 

 

554

      Net Increase in Other Assets

 

(4,854)

 

 

(6,173)

      Net Increase (Decrease) in Other Liabilities

 

6,689

 

 

(3,706)

Net Cash Provided By Operating Activities

 

15,240

 

 

2,190

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

      Purchases

 

(18,167)

 

 

(35,953)

      Payments, Maturities, and Calls

 

8,953

 

 

26,696

Securities Available for Sale:

 

 

 

 

 

      Purchases

 

(13,370)

 

 

(49,749)

      Payments, Maturities, and Calls

 

30,784

 

 

55,221

Purchases of Loans Held for Investment

 

(14,706)

 

 

(3,965)

Net Increase in Loans

 

(9,461)

 

 

(5,514)

Proceeds from Insurance Claims on Premises

 

790

 

 

-

Proceeds From Sales of Other Real Estate Owned

 

639

 

 

364

Purchases of Premises and Equipment

 

(1,268)

 

 

(847)

Net Cash Used In Investing Activities

 

(15,806)

 

 

(13,747)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net Increase in Deposits

 

85,438

 

 

29,007

Net Decrease in Short-Term Borrowings

 

(4,918)

 

 

(2,587)

Repayment of Other Long-Term Borrowings

 

(547)

 

 

(634)

Dividends Paid

 

(1,850)

 

 

(1,193)

Issuance of Common Stock Under Compensation Plans

 

157

 

 

147

Net Cash Provided By In Financing Activities

 

78,280

 

 

24,740

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

77,714

 

 

13,183

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

276,000

 

 

285,442

Cash and Cash Equivalents at End of Period

$

353,714

 

$

298,625

 

 

 

 

 

 

Supplemental Cash Flow Disclosures:

 

 

 

 

 

   Interest Paid

$

2,813

 

$

1,451

   Income Taxes Paid

$

-

 

$

-

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

   Loans Transferred to Other Real Estate Owned

$

527

 

$

307

   Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities(1)

$

1,992

 

$

-

 

 

 

 

 

 

(1)Initial amount recorded upon implementation on January 1, 2019.

 

 

 

 

 

 

 

 

 

 

 

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, 2018 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, 2018.

 

Accounting Changes

 

Leases.   Accounting Standards Update ("ASU") 2016-02 requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.  ASU 2016-02 was effective for the Company on January 1, 2019.  ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients.  The Company elected to apply the modified retrospective transition approach as of the beginning of the period of adoption and has not restated comparative periods.  The following practical expedients provided under ASU 2016-02 were not reassessed: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial and direct costs of any existing leases.  The Company did not elect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by the accounting guidance). 

 

The Company’s operating leases related primarily to banking office locations.  As a result of implementing ASU 2016-02, the Company recognized operating lease right-of-use (“ROU”) assets of $2.0 million and operating lease liabilities of $2.8 million on January 1, 2019, with no significant impact on its consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model.  The difference between the lease assets and the lease liabilities of $0.8 million was prepaid rent, which was reclassified to lease assets.  The ROU asset and lease liability are recorded in other assets and other liabilities, respectively, in the consolidated statement of financial condition.  See Note 5 – Leases for additional information.

 

9


 

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:

 

March 31, 2019

 

 

December 31, 2018

 

Amortized

Unrealized

Unrealized

Market

Amortized

Unrealized

Unrealized

Market

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gain

 

Losses

 

Value

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

254,265

 

$

364

 

$

1,688

 

$

252,941

 

$

264,298

 

$

167

 

$

2,616

 

$

261,849

U.S. Government Agency

 

133,566

 

 

495

 

 

468

 

 

133,593

 

 

133,201

 

 

520

 

 

515

 

 

133,206

States and Political Subdivisions

 

33,900

 

 

3

 

 

47

 

 

33,856

 

 

42,509

 

 

-

 

 

144

 

 

42,365

Mortgage-Backed Securities

 

736

 

 

43

 

 

-

 

 

779

 

 

903

 

 

40

 

 

-

 

 

943

Equity Securities(1)

 

7,847

 

 

-

 

 

-

 

 

7,847

 

 

7,794

 

 

-

 

 

-

 

 

7,794

Total

$

430,314

 

$

905

 

$

2,203

 

$

429,016

 

$

448,705

 

$

727

 

$

3,275

 

$

446,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

35,076

 

$

-

 

$

311

 

$

34,765

 

$

35,088

 

$

-

 

$

477

 

$

34,611

States and Political Subdivisions

 

5,960

 

 

-

 

 

10

 

 

5,950

 

 

6,512

 

 

-

 

 

26

 

 

6,486

Mortgage-Backed Securities

 

185,143

 

 

668

 

 

1,209

 

 

184,602

 

 

175,720

 

 

220

 

 

2,624

 

 

173,316

Total

$

226,179

 

$

668

 

$

1,530

 

$

225,317

 

$

217,320

 

$

220

 

$

3,127

 

$

214,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investment Securities

$

656,493

 

$

1,573

 

$

3,733

 

$

654,333

 

$

666,025

 

$

947

 

$

6,402

 

$

660,570

 

(1)     Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded at cost of $3.1 million, $4.8 million, respectively, at March 31, 2019 and includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $3.0 million and $4.8 million, respectively, at December 31, 2018.

 

Securities with an amortized cost of $368.1 million and $319.6 million at March 31, 2019 and December 31, 2018, 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 March 31, 2019, 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

$

131,777

 

$

131,011

 

$

20,620

 

$

20,516

Due after one year through five years

 

172,196

 

 

171,513

 

 

20,416

 

 

20,199

Mortgage-Backed Securities

 

736

 

 

779

 

 

185,143

 

 

184,602

U.S. Government Agency

 

117,758

 

 

117,866

 

 

-

 

 

-

Equity Securities

 

7,847

 

 

7,847

 

 

-

 

 

-

Total

$

430,314

 

$

429,016

 

$

226,179

 

$

225,317

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

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

-

 

$

-

 

$

197,921

 

$

1,688

 

$

197,921

 

$

1,688

U.S. Government Agency

 

35,901

 

 

238

 

 

39,054

 

 

230

 

 

74,955

 

 

468

States and Political Subdivisions

 

4,148

 

 

1

 

 

22,769

 

 

46

 

 

26,917

 

 

47

Mortgage-Backed Securities

 

9

 

 

-

 

 

-

 

 

-

 

 

9

 

 

-

Total

 

40,058

 

 

239

 

 

259,744

 

 

1,964

 

 

299,802

 

 

2,203

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

-

 

 

-

 

  

34,766

 

 

311

 

  

34,766

 

 

311

States and Political Subdivisions

 

203

 

 

-

 

 

5,747

 

 

10

 

 

5,950

 

 

10

Mortgage-Backed Securities

 

10,210

 

 

82

 

 

85,679

 

 

1,127

 

 

95,889

 

 

1,209

Total

$

10,413

 

$

82

 

$

126,192

 

$

1,448

 

$

136,605

 

$

1,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

$

28,420

 

$

80

 

$

193,501

 

$

2,536

 

$

221,921

 

$

2,616

U.S. Government Agency

 

53,237

 

 

271

 

 

28,735

 

 

244

 

 

81,972

 

 

515

States and Political Subdivisions

 

8,243

 

 

12

 

 

31,417

 

 

132

 

 

39,660

 

 

144

Mortgage-Backed Securities

 

10

 

 

-

 

 

-

 

 

-

 

 

10

 

 

-

Total

 

89,910

 

 

363

 

 

253,653

 

 

2,912

 

 

343,563

 

 

3,275

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Treasury

 

-

 

 

-

 

 

34,612

 

 

477

 

 

34,612

 

 

477

States and Political Subdivisions

 

204

 

 

-

 

 

6,281

 

 

26

 

 

6,485

 

 

26

Mortgage-Backed Securities

 

51,327

 

 

389

 

 

84,705

 

 

2,235

 

 

136,032

 

 

2,624

Total

$

51,531

 

$

389

 

$

125,598

 

$

2,738

 

$

177,129

 

$

3,127

 

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 March 31, 2019, there were 414 positions (combined AFS and HTM) with unrealized losses totaling $3.7 million.  48 of these positions were U.S. government treasury securities guaranteed by the U.S. government.  265 of these positions were U.S. government agency and mortgage-backed securities issued by U.S. government sponsored entities.  The remaining 101 positions were municipal securities. Because the declines in the market value of these securities were 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 did not consider these investments to be other-than-temporarily impaired at March 31, 2019.

11


 

NOTE 3 – LOANS, NET

 

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

 

(Dollars in Thousands)

March 31, 2019

 

December 31, 2018

Commercial, Financial and Agricultural

$

238,942

 

$

233,689

Real Estate – Construction

 

87,123

 

 

89,527

Real Estate – Commercial Mortgage

 

615,129

 

 

602,061

Real Estate – Residential(1)

 

349,004

 

 

342,215

Real Estate – Home Equity

 

209,194

 

 

210,111

Consumer(2)

 

297,713

 

 

296,622

 

Loans, Net of Unearned Income

$

1,797,105

 

$

1,774,225

             

 

(1)     Includes loans in process with outstanding balances of $10.3 million and $9.2 million at March 31, 2019 and December 31, 2018, respectively.

(2)     Includes overdraft balances of $1.4 million and $1.6 million at March 31, 2019 and December 31, 2018, respectively.  

 

Net deferred costs included in loans were $1.7 million at March 31, 2019 and $1.5 million at December 31, 2018.

 

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.

 

 

March 31, 2019

 

December 31, 2018

(Dollars in Thousands)

Nonaccrual

 

90 + Days

 

Nonaccrual

 

90 + Days

Commercial, Financial and Agricultural

$

223

 

$

-

 

$

267

 

$

-

Real Estate – Construction

 

323

 

 

-

 

 

722

 

 

-

Real Estate – Commercial Mortgage

 

1,976

 

 

-

 

 

2,860

 

 

-

Real Estate – Residential

 

1,341

 

 

-

 

 

2,119

 

 

-

Real Estate – Home Equity

 

1,033

 

 

-

 

 

584

 

 

-

Consumer

 

151

 

 

-

 

 

320

 

 

-

Total Nonaccrual Loans

$

5,047

 

$

-

 

$

6,872

 

$

-

 

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 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)

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

509

 

$

128

 

$

-

 

$

637

 

$

238,082

 

$

238,942

Real Estate – Construction

 

59

 

 

-

 

 

-

 

 

59

 

 

86,741

 

 

87,123

Real Estate – Commercial Mortgage

 

1,235

 

 

340

 

 

-

 

 

1,575

 

 

611,578

 

 

615,129

Real Estate – Residential

 

560

 

 

100

 

 

-

 

 

660

 

 

347,003

 

 

349,004

Real Estate – Home Equity

 

415

 

 

48

 

 

-

 

 

463

 

 

207,698

 

 

209,194

Consumer

 

1,065

 

 

223

 

 

-

 

 

1,288

 

 

296,274

 

 

297,713

Total Past Due Loans

$

3,843

 

$

839

 

$

-

 

$

4,682

 

$

1,787,376

 

$

1,797,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, Financial and Agricultural

$

104

 

$

58

 

$

-

 

$

162

 

$

233,260

 

$

233,689

Real Estate – Construction

 

489

 

 

-

 

 

-

 

 

489

 

 

88,316

 

 

89,527

Real Estate – Commercial Mortgage

 

124

 

 

-

 

 

-

 

 

124

 

 

599,077

 

 

602,061

Real Estate – Residential

 

745

 

 

627

 

 

-

 

 

1,372

 

 

338,724

 

 

342,215

Real Estate – Home Equity

 

512

 

 

124

 

 

-

 

 

636

 

 

208,891

 

 

210,111

Consumer

 

1,661

 

 

313

 

 

-

 

 

1,974

 

 

294,328

 

 

296,622

Total Past Due Loans

$

3,635

 

$

1,122

 

$

-

 

$

4,757

 

$

1,762,596

 

$

1,774,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Total Loans include nonaccrual loans of $5.0 million and $6.9 million at March 31, 2019 and December 31, 2018, respectively.

 

Allowance for Loan LossesThe allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of incurred losses within the existing portfolio of loans.  Loans are charged-off to the allowance when losses are deemed to be probable and reasonably quantifiable. 

 

The following table details the activity in the allowance for loan losses by portfolio class.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

  

 

 

Commercial,

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial,

 

Real Estate

 

Commercial

 

Real Estate

 

Real Estate

 

 

 

 

 

 

(Dollars in Thousands)

Agricultural

 

Construction

 

Mortgage

 

Residential

 

Home Equity

 

Consumer

 

Total

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$

1,434

 

$

280

 

$

4,181

 

$

3,400

 

$

2,301

 

$

2,614

 

$

14,210

 

Provision for Loan Losses

 

217

 

 

101

 

 

(103)

 

 

6

 

 

(20)

 

 

566

 

 

767

 

Charge-Offs

 

(95)

 

 

-

 

 

(155)

 

 

(264)

 

 

(52)

 

 

(795)

 

 

(1,361)

 

Recoveries

 

74

 

 

-

 

 

70

 

 

44

 

 

32

 

 

284

 

 

504

 

Net Charge-Offs

 

(21)

 

 

-

 

 

(85)

 

 

(220)

 

 

(20)

 

 

(511)

 

 

(857)

Ending Balance

$

1,630

 

$

381

 

$

3,993

 

$

3,186

 

$

2,261

 

$

2,669

 

$

14,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018