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XNAS:CCBG Capital City Bank Group, Inc. Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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 • FORM 10Q 03-31-2012  • EXHIBIT 31.1  • EXHIBIT 31.2  • EXHIBIT 32.1  • EXHIBIT 32.2  • EXHIBIT  • EXHIBIT  • EXHIBIT  • EXHIBIT  • EXHIBIT  • EXHIBIT  
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, 2012

OR

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

For the transition period from ____________ to ____________

 
Commission File Number: 0-13358
 
CCBG LOGO
 
 
(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

At April 30, 2012, 17,191,090 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, 2012
TABLE OF CONTENTS

PART I – Financial Information
Page
 
Item 1.
Consolidated Financial Statements (Unaudited)
  
 
Consolidated Statements of Financial Condition – March 31, 2012 and December 31, 2011
4
 
Consolidated Statements of Operations and Comprehensive Income – Three Months Ended March 31, 2012 and 2011
5
 
Consolidated Statement of Changes in Shareowners’ Equity – Three Months Ended March 31, 2012
6
 
Consolidated Statements of Cash Flow – Three Months Ended March 31, 2012 and 2011
7
 
Notes to Consolidated Financial Statements
8
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
24
     
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
40
     
Item 4.
Controls and Procedures
40
     
PART II – Other Information
  
 
Item 1.
Legal Proceedings
40
     
Item 1A.
Risk Factors
40
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
40
     
Item 3.
Defaults Upon Senior Securities
40
     
Item 4.
Mine Safety Disclosure
40
     
Item 5.
Other Information
40
     
Item 6.
Exhibits
41
     
Signatures
  
42
     
     
     


 
- 2 -
 


INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements

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

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

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, the following sections of our Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 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 need and our ability to incur additional debt or equity financing;
§  
the accuracy of our financial statement estimates and assumptions, including the estimate for our loan loss provision;
§  
continued depression of the market value of the Company that could result in an impairment of goodwill;
§  
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;
§  
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;
§  
the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
§  
restrictions on our operations, including the inability to pay dividends without our regulators’ consent;
§  
the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit Insurance Fund assessments;
§  
our ability to declare and pay dividends;
§  
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;
§  
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;
§  
the effects of security breaches and computer viruses that may affect our computer systems;
§  
changes in consumer spending and saving habits;
§  
growth and profitability of our noninterest income;
§  
changes in accounting principles, policies, practices or guidelines;
§  
the limited trading activity of our common stock;
§  
the concentration of ownership of our common stock;
§  
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
§  
other risks described from time to time in our filings with the Securities and Exchange Commission; and
§  
our ability to manage the risks involved in the foregoing.

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


 
- 3 -
 

PART I.      FINANCIAL INFORMATION
Item 1.        CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

   
Unaudited
        
(Dollars In Thousands, Except Share Data)
  
March 31, 2012
    
December 31, 2011
  
ASSETS
            
Cash and Due From Banks
  
$
50,567
    
$
54,953
  
Federal Funds Sold and Interest Bearing Deposits
    
418,678
      
330,361
  
Total Cash and Cash Equivalents
    
469,245
      
385,314
  
                 
Investment Securities, Available-for-Sale
    
284,490
      
307,149
  
                 
Loans, Net of Unearned Income
    
1,578,884
      
1,628,683
  
Allowance for Loan Losses
    
(31,217
)
    
(31,035
)
Loans, Net
    
1,547,667
      
1,597,648
  
                 
Premises and Equipment, Net
    
111,408
      
110,991
  
Goodwill
    
84,811
      
84,811
  
Other Intangible Assets
    
565
      
673
  
Other Real Estate Owned
    
58,100
      
62,600
  
Other Assets
    
103,992
      
92,126
  
Total Assets
  
$
2,660,278
    
$
2,641,312
  
                 
LIABILITIES
                
Deposits:
                
Noninterest Bearing Deposits
  
$
605,774
    
$
618,317
  
Interest Bearing Deposits
    
1,579,930
      
1,554,202
  
Total Deposits
    
2,185,704
      
2,172,519
  
                 
Short-Term Borrowings
    
42,188
      
43,372
  
Subordinated Notes Payable
    
62,887
      
62,887
  
Other Long-Term Borrowings
    
42,826
      
44,606
  
Other Liabilities
    
75,876
      
65,986
  
Total Liabilities
    
2,409,481
      
2,389,370
  
                 
SHAREOWNERS' EQUITY
                
Preferred Stock, $.01 par value, 3,000,000 shares authorized; no shares outstanding
    
-
      
-
  
Common Stock, $.01 par value, 90,000,000 shares authorized; 17,182,090 and 17,160,274 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
    
172
      
172
  
Additional Paid-In Capital
    
38,101
      
37,838
  
Retained Earnings
    
236,299
      
237,461
  
Accumulated Other Comprehensive Loss, Net of Tax
    
(23,775
)
    
(23,529
)
Total Shareowners' Equity
    
250,797
      
251,942
  
Total Liabilities and Shareowners' Equity
  
$
2,660,278
    
$
2,641,312
  

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



 
- 4 -
 

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (Unaudited)

   
Three Months Ended March 31,
  
(Dollars in Thousands, Except Per Share Data)
  
2012
  
2011
  
INTEREST INCOME
          
Interest and Fees on Loans
  
$
22,005
  
$
23,947
  
Taxable Exempt Securities
    
794
    
852
  
Tax Exempt Securities
    
106
    
219
  
Federal Funds Sold
    
225
    
171
  
Total Interest Income
    
23,130
    
25,189
  
INTEREST EXPENSE
              
Deposits
    
643
    
1,258
  
Short-Term Borrowings
    
8
    
111
  
Subordinated Notes Payable
    
382
    
340
  
Other Long-Term Borrowings
    
436
    
494
  
Total Interest Expense
    
1,469
    
2,203
  
NET INTEREST INCOME
    
21,661
    
22,986
  
Provision for Loan Losses
    
4,793
    
4,133
  
Net Interest Income After Provision For Loan Losses
    
16,868
    
18,853
  
NONINTEREST INCOME
              
Service Charges on Deposit Accounts
    
6,309
    
5,983
  
Data Processing
    
675
    
974
  
Asset Management Fees
    
1,015
    
1,080
  
Retail Brokerage Fees
    
758
    
729
  
Mortgage Banking Fees
    
848
    
617
  
Bank Card Fees
    
2,771
    
2,496
  
Gain on Sale of Visa Stock
    
-
    
3,172
  
Other
    
1,210
    
1,283
  
Total Noninterest Income
    
13,586
    
16,334
  
NONINTEREST EXPENSE
              
Salaries and Associate Benefits
    
16,843
    
16,577
  
Occupancy, Net
    
2,266
    
2,396
  
Furniture and Equipment
    
2,201
    
2,226
  
Intangible Amortization
    
108
    
353
  
Other Real Estate
    
3,513
    
3,677
  
Other
    
7,666
    
8,102
  
Total Noninterest Expense
    
32,597
    
33,331
  
               
(LOSS) INCOME BEFORE INCOME TAXES
    
(2,143
)
    
1,856
  
Income Tax (Benefit) Expense
    
(981
)
    
546
  
               
NET (LOSS) INCOME
  
$
(1,162
)
$
1,310
  
               
BASIC NET (LOSS) INCOME PER SHARE
  
$
(0.07
)
$
0.08
  
DILUTED NET (LOSS) INCOME PER SHARE
  
$
(0.07
)
$
0.08
  
               
Average Basic Shares Outstanding
    
17,181,333
    
17,121,602
  
Average Diluted Shares Outstanding
    
17,181,333
    
17,130,118
  
               
Other Comprehensive (Loss) Income:
              
  Change in Net Unrealized Gain On
  Available-For-Sale Securities (net of  tax)
    
(246
)
  
34
  
Total Comprehensive (Loss) Income
  
$
(1,408
)
$
1,344
  
               
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 
- 5 -
 

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

 
 
(Dollars In Thousands, Except Share Data)
  
Shares Outstanding
    
Common Stock
    
Additional
Paid-In Capital
  
Retained Earnings
    
Accumulated Other Comprehensive Loss, Net of Taxes
    
Total
                                   
Balance, January 1, 2012
  
17,160,274
  
$
172
  
$
37,838
  
$
237,461
    
$
(23,529
)
  
$
251,942
  
Comprehensive Income:
                                        
Net Loss
        
-
    
-
    
(1,162
) 
    
-
      
(1,162
) 
Change in Net Unrealized Gain on Available-for-Sale Securities (net of tax benefit of $150)
        
-
    
-
    
-
      
(246
) 
    
(246
) 
Total Comprehensive Loss
        
-
    
-
    
-
      
-
      
(1,408
) 
Stock Performance Plan Compensation
        
-
    
56
    
-
      
-
      
56
  
Issuance of Common Stock
  
21,816
    
-
    
207
    
-
      
-
      
207
  
Balance, March 31, 2012
  
17,182,090
  
$
172
  
$
38,101
  
$
236,299
    
$
(23,775
)
  
$
250,797
  

 
 
(Dollars In Thousands, Except Share Data)
  
Shares Outstanding
    
Common Stock
    
Additional
Paid-In Capital
  
Retained Earnings
    
Accumulated Other Comprehensive Loss, Net of Taxes
    
Total
                                   
Balance, January 1, 2011
  
17,100,081
  
$
171
  
$
36,920
  
$
237,679
    
$
(15,751
)
  
$
259,019
  
Comprehensive Income:
                                        
Net Income
        
-
    
-
    
1,310
      
-
      
1,310
  
Change in Net Unrealized Gain on Available-for-Sale Securities (net of tax expense of $25)
        
-
    
-
    
-
      
34
      
34
  
Total Comprehensive Income
        
-
    
-
    
-
      
-
      
1,344
  
Cash Dividends ($0.10 per share)
        
-
    
-
    
(1,713
)
    
-
      
(1,173
)
Stock Performance Plan Compensation
        
-
    
215
    
-
      
-
      
215
  
Issuance of Common Stock
  
27,155
    
-
    
413
    
-
      
-
      
413
  
Balance, March 31, 2011
  
17,127,236
  
$
171
  
$
37,548
  
$
237,276
    
$
(15,717
)
  
$
259,278
  

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

 
- 6 -
 

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)

   
Three Months Ended March 31,
  
(Dollars in Thousands)
  
2012
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net (Loss) Income
  
$
(1,162
) 
  
$
1,310
  
Adjustments to Reconcile Net (Loss) Income to
Cash Provided by Operating Activities:
                
Provision for Loan Losses
    
4,793
      
         4,133
  
Depreciation
    
1,669
      
           1,753
  
Amortization of Premiums, Discounts, and Fees (net)
    
827
      
           1,023
  
Amortization of Intangible Assets
    
108
      
          353
  
Net Decrease in Loans Held-for-Sale
    
7,664
      
4,081
  
Stock-Based Compensation
    
56
      
                   215
  
Deferred Income Taxes
    
277
      
          918
  
Loss on Sales and Write-Downs of Other Real Estate Owned
    
2,097
      
2,672
  
Net (Increase) Decrease in Other Assets
    
(11,993
)
    
        745
  
Net Increase in Other Liabilities
    
9,890
      
3,440
  
Net Cash Provided By Operating Activities
    
14,226
      
         20,643
  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Securities Available-for-Sale:
                
Purchases
    
(18,986
)
    
       (24,677
)
Sales
    
805
      
           -
  
Payments, Maturities, and Calls
    
39,586
      
         22,090
  
Net Decrease in Loans
    
33,479
      
       25,020
  
Proceeds From Sales of Other Real Estate Owned
    
6,479
      
8,979
  
Purchases of Premises and Equipment
    
(2,086
)
    
       (315
)
Net Cash Provided By In Investing Activities
    
59,277
      
               31,097
  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Net Increase in Deposits
    
13,185
      
       43,071
  
Net Decrease in Short-Term Borrowings
    
(2,731
)
    
         (6,278
) 
Increase in Other Long-Term Borrowings
    
560
      
                  790
  
Repayment of Other Long-Term Borrowings
    
(793
)
    
         (841
)
Dividends Paid
    
-
      
         (1,713
)
Issuance of Common Stock
    
207
      
         413
  
Net Cash Provided by Financing Activities
    
10,428
      
              35,442
  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    
83,931
      
87,182
  
                 
Cash and Cash Equivalents at Beginning of Period
    
385,314
      
236,193
  
Cash and Cash Equivalents at End of Period
  
$
469,245
    
$
323,375
  
                 
Supplemental Disclosure:
                
Loans Transferred to Other Real Estate Owned
   $
4,076
     $
9,078
  
Transfer of Current Portion of Long-Term Borrowings
  
$
1,547
    
$
-
  

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

 
- 7 -
 


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

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

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.

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.  Operating results for the three-month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The consolidated statement of financial condition at December 31, 2011 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, 2011.

NOTE 2 - INVESTMENT SECURITIES

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

 
March 31, 2012
  
(Dollars in Thousands)
Amortized
Cost
    
Unrealized
Gains
    
Unrealized
Losses
    
Market
Value
  
U.S. Treasury
$
143,726
    
$
1,093
    
$
-
    
$
144,819
  
U.S. Government Agency
  
22,715
      
45
      
35
      
22,725
  
States and Political Subdivisions
  
58,323
      
164
      
28
      
58,459
  
Mortgage-Backed Securities
  
46,453
      
739
      
62
      
47,130
  
Other Securities(1)
  
11,957
      
-
      
600
      
11,357
  
Total Investment Securities
$
283,174
    
$
2,041
    
$
725
    
$
284,490
  

 
December 31, 2011
  
(Dollars in Thousands)
Amortized
Cost
    
Unrealized
Gains
    
Unrealized
Losses
    
Market
Value
  
U.S. Treasury
$
168,001
    
$
1,463
    
$
-
    
$
169,464
  
U.S. Government Agency
  
14,758
      
27
      
48
      
14,737
  
States and Political Subdivisions
  
58,946
      
186
      
38
      
59,094
  
Mortgage-Backed Securities
  
51,775
      
809
      
87
      
52,497
  
Other Securities(1)
  
11,957
      
-
      
600
      
11,357
  
Total Investment Securities
$
305,437
    
$
2,485
    
$
773
    
$
307,149
  

 (1)
Includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $6.5 million and $4.8 million, respectively, at March 31, 2012 and December 31, 2011.
 
 

 
- 8 -
 

Securities with an amortized cost of $153.8 million and $102.1 million at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public deposits and for other purposes.

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

Maturity Distribution. As of March 31, 2012, the Company's investment securities had the following maturity distribution based on contractual maturities:

(Dollars in Thousands)
  
Amortized Cost
    
Market Value
  
Due in one year or less
  
$
118,346
    
$
118,646
  
Due after one through five years
    
151,800
      
153,329
  
Due after five through ten years
    
1,071
      
1,158
  
Due over ten years
    
                        -
      
                        -
  
No Maturity
    
11,957
      
11,357
  
Total Investment Securities
  
$
283,174
    
$
284,490
  

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

Other Than Temporarily Impaired 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:

     
March 31, 2012
      
 
Less Than
12 Months
  
Greater Than
12 Months
  
Total
  
(Dollars in Thousands)
Market
Value
  
Unrealized
Losses
  
Market
Value
  
Unrealized
Losses
  
Market
Value
  
Unrealized
Losses
  
U.S. Treasury
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
    U.S. Government Agency
    
9,210
      
35
      
-
      
-
      
9,210
      
35
  
    States and Political Subdivisions
    
12,687
      
28
      
-
      
-
      
12,687
      
28
  
    Mortgage-Backed Securities 
    
7,309
      
55
      
1,412
      
7
      
8,721
      
62
  
    Other Securities
    
-
      
-
      
600
      
600
      
600
      
600
  
    Total Investment Securities
  
$
29,206
    
$
118
    
$
2,012
    
$
607
    
$
31,218
    
$
725
  

     
December 31, 2011
      
 
Less Than
12 Months
  
Greater Than
12 Months
  
Total
  
(Dollars in Thousands)
Market
Value
  
Unrealized
Losses
  
Market
Value
  
Unrealized
Losses
  
Market
Value
  
Unrealized
Losses
  
U.U.S. Treasury
  
$
9,698
    
$
48
    
$
-
    
$
-
    
$
9,698
    
$
48
  
    U.S. Government Agency
    
-
      
-
      
-
      
-
      
-
      
-
  
    States and Political Subdivisions
    
14,597
      
38
      
-
      
-
      
14,597
      
38
  
    Mortgage-Backed Securities 
    
11,612
      
87
      
37
      
-
      
11,649
      
87
  
    Other Securities
    
-
      
-
      
600
      
600
      
600
      
600
  
    Total Investment Securities
  
$
35,907
    
$
173
    
$
637
    
$
600
    
$
36,544
    
$
773
  

Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to: 1) the length of time and the extent to which the fair value has been less than amortized cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.  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.

 
- 9 -
 
 
At March 31, 2012, the Company had securities of $283.2 million with net pre-tax unrealized gains of $1.3 million on these securities, of which $31.2 million have unrealized losses totaling $0.7 million.  Approximately $0.1 million of these securities have been in a loss position for less than 12 months.  These securities are primarily in a loss position because they were acquired when the general level of interest rates was lower than that on March 31, 2012.  The Company believes that the losses in these securities are temporary in nature and that the full principal will be collected as anticipated.  Because the declines in the market value of these investments are attributable to changes in interest rates and not credit quality and because the Company has the 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 March 31, 2012.  One preferred bank stock issue for $0.6 million has been in a loss position for greater than 12 months.  The Company continues to closely monitor the fair value of this security as the subject bank continues to experience negative operating trends.

NOTE 3 – LOANS, NET

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

(Dollars in Thousands)
  
March 31, 2012
    
December 31, 2011
  
Commercial, Financial and Agricultural
  
$
132,119
    
$
130,879
  
Real Estate-Construction
    
30,238
      
18,892
  
Real Estate-Commercial Mortgage
    
624,528
      
639,140
  
Real Estate-Residential(1)
    
361,433
      
385,621
  
Real Estate-Home Equity
    
240,800
      
244,263
  
Real Estate-Loans Held-for-Sale
    
13,561
      
21,225
  
Consumer
    
176,205
      
188,663
  
Loans, Net of Unearned Income
  
$
1,578,884
    
$
1,628,683
  

(1)  
Includes loans in process with outstanding balances of $6.6 million and $12.5 million for March 31, 2012 and December 31, 2011, respectively.

Net deferred fees included in loans were $1.6 million at March 31, 2012 and December 31, 2011, respectively.

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:

 
(Dollars in Thousands)
  
30-59
DPD
    
60-89
DPD
    
Over 90
DPD
    
Total
Past Due
    
Total
Current
    
Total
Loans
  
March 31, 2012
                                    
Commercial, Financial and Agricultural
   $ 596     $ 32     $ -     $ 628     $ 130,683     $ 132,119  
Real Estate - Construction
     310       -       -       310       33,302       34,554  
Real Estate - Commercial Mortgage
     1,640       13       -       1,653       580,594       624,528  
Real Estate -  Residential
     3,238       471       12       3,721       334,957       364,123  
Real Estate - Home Equity
     879       245       13       1,137       235,565       240,800  
Consumer
     1,459       310       -       1,769       180,445       182,760  
Total Past Due Loans
   $ 8,122     $ 1,071     $ 25     $ 9,218     $ 1,495,546     $ 1,578,884  

 
(Dollars in Thousands)
  
30-59
DPD
    
60-89
DPD
    
Over 90
DPD
    
Total
Past Due
    
Total
Current
    
Total
Loans
  
December 31, 2011
                                    
Commercial, Financial and Agricultural
   $ 307     $ 49     $ 46     $ 402     $ 129,722     $ 130,879  
Real Estate - Construction
     -       -       -       -       26,034       26,367  
Real Estate - Commercial Mortgage
     3,070       646       -       3,716       592,604       639,140  
Real Estate -  Residential
     7,983       3,031       58       11,072       350,133       386,877  
Real Estate - Home Equity
     1,139       500       95       1,734       238,246       244,263  
Consumer
     2,355       345       25       2,725       197,272       201,157  
Total Past Due Loans
   $ 14,854     $ 4,571     $ 224     $ 19,649     $ 1,534,011     $ 1,628,683  



 
- 10 -
 

Nonaccrual Loans.  Loans are generally placed on non-accrual 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, 2012
  
December 31, 2011
(Dollars in Thousands)
Nonaccrual
  
Over 90 Days
  
Nonaccrual
  
Over 90 Days
Commercial, Financial and Agricultural
$
808
  
$
-
  
$
755
  
$
46
Real Estate - Construction
  
943
    
-
    
334
    
-
Real Estate - Commercial Mortgage
  
46,886
    
-
    
42,820
    
-
Real Estate -  Residential
  
25,445
    
12
    
25,671
    
58
Real Estate - Home Equity
  
4,098
    
13
    
4,283
    
95
Consumer
  
546
    
-
    
1,160
    
25
Total Nonaccrual Loans
$
78,726
  
$
25
  
$
75,023
  
$
224

Impaired Loans.  Loans are deemed to be impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due (principal and interest payments), according to the contractual terms of the loan agreement.  Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

The following table presents loans individually evaluated for impairment by class of loans:
 
(Dollars in Thousands)
  
Unpaid Principal Balance
    
Recorded Investment With No Allowance
    
 
Recorded Investment With Allowance
    
 
 
Related Allowance
  
March 31, 2012:
                        
Commercial, Financial and Agricultural
  
$
1,809
    
$
1,000
    
$
809
    
$
241
  
Real Estate - Construction
    
1,266
      
82
      
1,184
      
123
  
Real Estate - Commercial Mortgage
    
69,898
      
33,982
      
35,916
      
5,543
  
Real Estate -  Residential
    
33,826
      
5,868
      
27,958
      
4,789
  
Real Estate - Home Equity
    
3,355
      
652
      
2,703
      
580
  
Consumer
    
46
      
15
      
31
      
26
  
Total 
  
$
110,200 
    
$
41,599
    
$
68,601 
    
$
11,302 
  
                                 
December 31, 2011:
                                
Commercial, Financial and Agricultural
  
$
1,653
    
$
671
    
$
982
    
$
311
  
Real Estate - Construction
    
511
      
-
      
511
      
68
  
Real Estate - Commercial Mortgage
    
65,624
      
19,987
      
45,637
      
5,828
  
Real Estate -  Residential
    
36,324
      
6,897
      
29,427
      
4,702
  
Real Estate - Home Equity
    
3,527
      
645
      
2,882
      
239
  
Consumer
    
143
      
90
      
53
      
26
  
Total
  
$
107,782 
    
$
28,290 
    
$
79,492 
    
$
11,174 
  

 
 
- 11 -
 
 
The following table summarizes the average recorded investment and interest income recognized by class of impaired loans:

   
Three Months Ended March 31,
  
   
2012
    
2011
  
 
(Dollars in Thousands)
  
Average Recorded Investment
    
Total
Interest Income
    
Average Recorded Investment
    
 Total
Interest Income
  
                         
Commercial, Financial and Agricultural
  
$
1,731
    
$
20
    
$
1,540
    
$
34
  
Real Estate - Construction
    
889
      
4
      
2,561
      
8
  
Real Estate - Commercial Mortgage
    
67,761
      
481
      
46,064
      
315
  
Real Estate -  Residential
    
35,075
      
235
      
34,757
      
288
  
Real Estate - Home Equity
    
3,441
      
25
      
3,308
      
26
  
Consumer
    
95
      
4
      
141
      
14
  
Total
  
$
108,992
    
$
769
    
$
88,371
    
$
685
  

Troubled Debt Restructurings (“TDRs”).  TDRs are loans in which the borrower is experiencing financial difficulty and the Company has granted an economic concession to the borrower that it would not otherwise consider.  In these instances, as part of a work-out alternative, the Company will defer cash payments required as part of the loan agreement through either a principal moratorium or extension of the loan term.  The impact of the TDR modifications and defaults are factored into the allowance for loan losses on a loan-by-loan basis as all TDRs are, by definition, impaired loans.  Thus, specific reserves are established based upon the results of either a discounted cash flow analysis or the underlying collateral value, if the loan is deemed to be collateral dependent. 

The following table presents loans classified as TDRs:

   
March 31, 2012
    
December 31, 2011
(Dollars in Thousands)
  
Accruing
    
Nonaccruing
    
Accruing
     Nonaccruing
 
Commercial, Financial and Agricultural
   $ 956     $ 200     $ 694     $ -
Real Estate - Construction
     323       -       178       -
Real Estate - Commercial Mortgage
     21,199       11,382       20,062       12,029
Real Estate -  Residential
     13,977       1,192       15,553       947
Real Estate - Home Equity
     897       -       1,161       -
Consumer
     21       -       27       -
Total TDRs
   $ 37,373     $ 12,774     $ 37,675     $ 12,976

Loans classified as TDRs during the three months ended March 31, 2012 are presented in the table below.  The modifications made during the reporting period involved either an extension of the loan term or a principal moratorium and the financial impact of these modifications was not material.
       
(Dollars in Thousands)
  
Number of Contracts
    
Pre-Modified
Recorded
Investment
    
Post-Modified
Recorded
Investment
  
Commercial, Financial and Agricultural
    
4
    
$
656
    
$
660
  
Real Estate - Construction
    
-
      
-
      
 -
  
Real Estate – Commercial Mortgage
    
13
      
 4,565
      
 4,695
  
Real Estate - Residential
    
8
      
 859
      
 909
  
Real Estate - Home Equity
    
-
      
-
      
 -
  
Consumer
    
-
      
-
      
 -
  
Total TDRs
    
25
    
$
6,080
    
$
6,264
  
 
 
 
- 12 -
 

 
Loans modified as TDRs within the previous 12 months that have subsequently defaulted during the three months ended March 31, 2012 are presented in the table below.

(Dollars in Thousands)
 
Number of
Contracts
  
Post-Modified
Recorded
Investment
  
Commercial, Financial and Agricultural
-
  
$
-
  
Real Estate - Construction
-
    
-
  
Real Estate – Commercial Mortgage
3
    
1,562
  
Real Estate - Residential
7
    
1,038
  
Real Estate - Home Equity
1
    
157
  
Consumer
-
    
-
  
Total TDRs
11
  
$
2,757
  

Credit Risk Management.  The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures designed to maximize loan income within an acceptable level of risk.  Management and the Board of Directors reviews and approves these policies and procedures on a regular basis (at least annually).

Reporting systems have been implemented to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.  Management and the Credit Risk Oversight Committee periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies.  In addition, total borrower exposure limits are established and concentration risk is monitored.  As part of this process, the overall composition of the portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type, geographic area, or other relevant classifications of loans.  Specific segments of the loan portfolio are monitored and reported to the Board on a quarterly basis and have strategic plans in place to supplement Board approved credit policies governing exposure limits and underwriting standards.  Detailed below are the categories of loans within the Company’s loan portfolio and risk characteristics unique to each.

Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral and personal or other guarantees.  Lending policy establishes debt service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing debt.  The majority of these loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, or equipment.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy guidelines.

Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines and construction/perm loans made to individuals and investors to finance the acquisition, development, construction or rehabilitation of real property.  These loans are primarily made based on identified cash flows of the borrower or project and generally secured by the property being financed, including 1-4 family residential properties and commercial properties that are either owner-occupied or investment in nature.  These properties may include either vacant or improved property.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy guidelines.

Real Estate Commercial Mortgage – Loans in this category consists of commercial mortgage loans secured by property that is either owner-occupied or investment in nature.  These loans are primarily made based on identified cash flows of the borrower or project with consideration given to underlying real estate collateral and personal guarantees.  Lending policy establishes debt service coverage ratios and loan to value ratios specific to the property type.  Collateral values are determined based upon third party appraisals and evaluations.

Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current income, employment status, current assets, and other financial resources, credit history, and the value of the collateral.  Collateral consists of mortgage liens on 1-4 family residential properties.  Collateral values are determined based upon third party appraisals and evaluations.  The Company does not originate sub-prime loans.

Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally secured by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes.  Borrower qualifications include favorable credit history combined with supportive income and debt ratio requirements and combined loan to value ratios within established policy guidelines.  Collateral values are determined based upon third party appraisals and evaluations.
 

 
 
- 13 -
 
 
Consumer Loans – This loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft lines of credit.  The majority of the consumer loan portfolio consists of indirect and direct automobile loans.  Lending policy establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income and receipt of credit reports.

Credit Quality Indicators.  As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment performance, credit documentation, and current economic/market trends, among other factors.  Risk ratings are assigned to each loan and revised as needed through established monitoring procedures for individual loan relationships over a predetermined amount and review of smaller balance homogenous loan pools.  The Company uses the definitions noted below for categorizing and managing its criticized loans.  Loans categorized as “Pass” do not meet the criteria set forth for the Special Mention, Substandard, or Doubtful categories and are not considered criticized.

Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected, could cause future problems.  Loans in this category may not meet required underwriting criteria and have no mitigating factors.  More than the ordinary amount of attention is warranted for these loans.

Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy. These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the borrower.  The possibility of loss is much more evident and above average supervision is required for these loans.

Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following table presents the risk category of loans by segment:
 
 
 
(Dollars in Thousands)
  
Commercial, Financial, Agriculture
    
 
Real Estate
    
 
Consumer
    
 
Total
  
March 31, 2012
                        
Special Mention
   $ 9,835     $ 48,931     $ 54     $ 58,820  
Substandard
     10,300       207,959       1,037       219,296  
Doubtful
     37       6,221       -       6,258  
Total Criticized Loans
   $ 20,172     $ 263,111     $ 1,091     $ 284,374  

 (Dollars in Thousands)
  
Commercial, Financial, Agriculture
    
 
Real Estate
    
 
Consumer
    
 
Total
  
December 31, 2011
                        
Special Mention
   $ 4,883     $ 43,787     $ 79     $ 48,749  
Substandard
     9,804       202,734       1,699       214,237  
Doubtful
     111       7,763       -       7,874  
Total Criticized Loans
   $ 14,798     $ 254,284     $ 1,778     $ 270,860  



 
- 14 -
 
 
Allowance for Loan Losses.  The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable 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 for the three months ended March 31, 2012 and 2011.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 
(Dollars in Thousands)
Commercial,
 Financial, Agricultural
 
Real Estate Construction
Real Estate
 Commercial Mortgage
Real Estate Residential
Real Estate
Home Equity
 
 
Consumer
 
 
Unallocated
 
 
Total
March 31, 2012
                                                  
Beginning Balance
  
$
1,534
  
$
1,133
  
$
10,660
  
$
12,518
  
$
2,392
  
$
1,887
  
$
911
  
$
31,035
  
Provision for Loan Losses
    
158
    
628
    
1,166
    
1,511
    
1,207
    
41
    
82
    
4,793
  
Charge-Offs
    
(268
)
  
-
    
(1,532
)
  
(1,967
)
  
(892
)
  
(732
)
  
-
    
(5,391
)
Recoveries
    
69
    
-
    
138
    
163
    
18
    
392
    
-
    
780
  
Net Charge-Offs
    
(199
)
  
-
    
(1,394
)
  
(1,804
)
  
(874
)
  
(340
)
        
(4,611
)
Ending Balance
  
$
1,493
  
$
1,761
  
$
10,432
  
$
12,225
  
$
2,725
  
$
1,588
  
$
993
  
$
31,217
  
                                                   
Period-end amount allocated to:
                                                  
Loans Individually Evaluated for Impairment
  
$
241
  
$
123
  
$
5,543
  
$
4,789
  
$
580
  
$
26
  
$
-
  
$
11,302
  
Loans Collectively Evaluated for Impairment
    
1,252
    
1,638
    
4,889
    
7,436
    
2,145
    
1,562
    
993
    
19,915
  
Ending Balance
  
$
1,493
  
$
1,761
  
$
10,432
  
$
12,225
  
$
2,725
  
$
1,588
  
$
993
  
$
31,217
  
                                                   
March 31, 2011
                                                  
Beginning Balance
  
$
1,544
  
$
2,060
  
$
8,645
  
$
17,046
  
$
2,522
  
$
2,612
  
$
1,007
  
$
35,436
  
Provision for Loan Losses
    
553
    
(566
)
  
1,810
    
1,887
    
1,065
    
(554)
    
(62
)
  
4,133
  
Charge-Offs
    
(721
)
  
-
    
(430
)
  
(3,456
)
  
(989
)
  
(620
)
  
-
    
(6,216
)
Recoveries
    
63
    
9
    
12
    
60
    
36
    
340
    
-
    
520
  
Net Charge-Offs
    
(658
)
  
9
    
(418
)
  
(3,396
)
  
(953
)
  
(280
)
  
-
    
(5,696
)
Ending Balance
  
$
1,439
  
$
1,503
  
$
10,037
  
$
15,537
  
$
2,634
  
$
1,778
  
$
945
  
$
33,873
  
                                                   
Period-end amount allocated to:
                                                  
Loans Individually Evaluated for Impairment
  
$
174
  
$
481
  
$
5,508
  
$
7,165
  
$
1,212
  
$
58
  
$
-
  
$
14,598
  
Loans Collectively Evaluated for Impairment
    
1,265
    
1,022
    
4,529
    
8,372
    
1,422
    
1,720
    
945
    
19,275
  
Ending Balance
  
$
1,439
  
$
1,503
  
$
10,037
  
$
15,537
  
$
2,634
  
$
1,778
  
$
945
  
$
33,873
  
                                                   

 
 
- 15 -
 
 
The Company’s recorded investment in loans related to each balance in the allowance for loan losses by portfolio class and disaggregated on the basis of the Company’s impairment methodology was as follows:

(Dollars in Thousands)
      
Commercial,
 Financial,
Agricultural
      
 
Real Estate Construction
      
Real Estate
  Commercial Mortgage
      
 
Real Estate
 Residential
      
 
Real Estate
 Home Equity
      
 
 
Consumer
      
 
 
Unallocated
      
 
 
Total
  
March 31, 2012
                                                  
Individually Evaluated for Impairment
  
$
1,809
  
$
1,266
  
$
69,898
  
$
33,826
  
$
3,355
  
$
46
  
$
-
  
$
110,200
  
Collectively Evaluated for Impairment
    
130,310
    
33,288
    
554,630
    
330,298
    
237,445
    
182,713
    
-
    
1,468,684
  
Total
  
$
132,119
  
$
34,554
  
$
624,528
  
$
364,124
  
$
240,800
  
$
182,759
  
$
-
  
$
1,578,884
  
                                                   
March 31, 2011
                                                  
Individually Evaluated for Impairment
  
$
1,397
  
$
2,589
  
$
49,758
  
$
31,734
  
$
3,338
  
$
138
  
$
-
  
$
88,954
  
Collectively Evaluated for Impairment
    
152,563
    
33,025
    
618,825
    
377,568