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, 2019 (the “2019 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:
·
the magnitude and
duration of the COVID-19 pandemic and its impact on the global economy and
financial market conditions and our business, results of operations and
financial condition, including the impact of our participation in government
programs related to COVID-19;
·
our ability to
successfully manage interest rate risk, liquidity risk, and other risks
inherent to our industry;
·
legislative or
regulatory changes;
·
changes in monetary
and fiscal policies of the U.S. Government;
·
inflation, interest
rate, market and monetary fluctuations;
·
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;
·
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;
·
the effect of
corporate restructuring, acquisitions or dispositions, including the actual
restructuring and other related charges and the failure to achieve the expected
gains, revenue growth or expense savings from such corporate restructuring,
acquisitions or dispositions;
·
the effects of natural
disasters, harsh weather conditions (including hurricanes), widespread health
emergencies, military conflict, terrorism or other geopolitical events;
·
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.
PART I. FINANCIAL INFORMATION
|
Item 1.
|
|
|
|
|
|
|
|
|
CAPITAL CITY BANK GROUP,
INC.
|
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Dollars in Thousands)
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
|
Cash and Due From Banks
|
$
|
72,676
|
|
$
|
60,087
|
Federal Funds Sold and Interest Bearing Deposits
|
|
196,936
|
|
|
318,336
|
|
|
Total Cash and Cash Equivalents
|
|
269,612
|
|
|
378,423
|
|
|
|
|
|
|
|
|
Investment Securities, Available for Sale, at fair value
|
|
382,514
|
|
|
403,601
|
Investment Securities, Held to Maturity, (fair value of
$257,929 and $241,429)
|
|
251,792
|
|
|
239,539
|
|
|
Total Investment Securities
|
|
634,306
|
|
|
643,140
|
|
|
|
|
|
|
|
|
Loans Held For Sale, at fair value
|
|
82,598
|
|
|
9,509
|
|
|
|
|
|
|
|
|
Loans Held for Investment
|
|
1,862,387
|
|
|
1,835,929
|
|
Allowance for Credit Losses
|
|
(21,083)
|
|
|
(13,905)
|
|
|
Loans Held for Investment, Net
|
|
1,841,304
|
|
|
1,822,024
|
|
|
|
|
|
|
|
|
Premises and Equipment, Net
|
|
87,684
|
|
|
84,543
|
Goodwill
|
|
89,275
|
|
|
84,811
|
Other Real Estate Owned
|
|
1,463
|
|
|
953
|
Other Assets
|
|
80,281
|
|
|
65,550
|
|
|
Total Assets
|
$
|
3,086,523
|
|
$
|
3,088,953
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
Noninterest Bearing Deposits
|
$
|
1,066,607
|
|
$
|
1,044,699
|
|
Interest Bearing Deposits
|
|
1,478,978
|
|
|
1,600,755
|
|
|
Total Deposits
|
|
2,545,585
|
|
|
2,645,454
|
|
|
|
|
|
|
|
|
Short-Term Borrowings
|
|
76,516
|
|
|
6,404
|
Subordinated Notes Payable
|
|
52,887
|
|
|
52,887
|
Other Long-Term Borrowings
|
|
5,896
|
|
|
6,514
|
Other Liabilities
|
|
70,044
|
|
|
50,678
|
|
|
Total Liabilities
|
|
2,750,928
|
|
|
2,761,937
|
|
|
|
|
|
|
|
|
Temporary Equity
|
|
7,088
|
|
|
-
|
|
|
|
|
|
|
|
|
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; 16,811,781 and 16,771,544 shares
|
|
|
|
|
issued and outstanding at March 31, 2020 and December 31,
2019, respectively
|
|
168
|
|
|
168
|
Additional Paid-In Capital
|
|
32,100
|
|
|
32,092
|
Retained Earnings
|
|
321,772
|
|
|
322,937
|
Accumulated Other Comprehensive Loss, net of tax
|
|
(25,533)
|
|
|
(28,181)
|
Total Shareowners’ Equity
|
|
328,507
|
|
|
327,016
|
Total Liabilities and Shareowners' Equity
|
$
|
3,086,523
|
|
$
|
3,088,953
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
|
CAPITAL
CITY BANK GROUP, INC.
|
CONSOLIDATED STATEMENTS
OF INCOME
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
(Dollars in Thousands, Except Per Share Data)
|
2020
|
|
2019
|
INTEREST INCOME
|
|
|
|
|
|
Loans, including Fees
|
$
|
23,593
|
|
$
|
22,616
|
Investment Securities:
|
|
|
|
|
|
|
Taxable Securities
|
|
2,996
|
|
|
3,387
|
|
Tax Exempt Securities
|
|
19
|
|
|
126
|
Federal Funds Sold and Interest Bearing Deposits
|
|
757
|
|
|
1,593
|
|
|
Total Interest Income
|
|
27,365
|
|
|
27,722
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
Deposits
|
|
939
|
|
|
2,099
|
Short-Term Borrowings
|
|
132
|
|
|
35
|
Subordinated Notes Payable
|
|
471
|
|
|
608
|
Other Long-Term Borrowings
|
|
50
|
|
|
72
|
|
Total Interest Expense
|
|
1,592
|
|
|
2,814
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
25,773
|
|
|
24,908
|
Provision for Credit Losses
|
|
4,990
|
|
|
767
|
Net Interest Income After Provision For Credit
Losses
|
|
20,783
|
|
|
24,141
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
Deposit Fees
|
|
5,015
|
|
|
4,775
|
Bank Card Fees
|
|
3,051
|
|
|
2,855
|
Wealth Management Fees
|
|
2,604
|
|
|
2,323
|
Mortgage Banking Revenues
|
|
3,030
|
|
|
993
|
Other
|
|
1,778
|
|
|
1,606
|
Total Noninterest Income
|
|
15,478
|
|
|
12,552
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE
|
|
|
|
|
|
Compensation
|
|
19,736
|
|
|
16,349
|
Occupancy, Net
|
|
4,979
|
|
|
4,509
|
Other Real Estate Owned, Net
|
|
(798)
|
|
|
363
|
Other
|
|
7,052
|
|
|
6,977
|
Total Noninterest Expense
|
|
30,969
|
|
|
28,198
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
5,292
|
|
|
8,495
|
Income Tax Expense
|
|
1,282
|
|
|
2,059
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
4,010
|
|
|
6,436
|
Net Loss Attributable to Noncontrolling Interests
|
|
277
|
|
|
-
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
|
$
|
4,287
|
|
$
|
6,436
|
|
|
|
|
|
|
|
|
BASIC NET INCOME PER SHARE
|
$
|
0.26
|
|
$
|
0.38
|
DILUTED NET INCOME PER SHARE
|
$
|
0.25
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
Average Basic Shares Outstanding
|
|
16,808
|
|
|
16,791
|
Average Diluted Shares Outstanding
|
|
16,842
|
|
|
16,819
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
|
CAPITAL
CITY BANK GROUP, INC.
|
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
(Dollars in Thousands)
|
2020
|
|
2019
|
Net Income attributable to common shareowners
|
$
|
4,287
|
|
$
|
6,436
|
|
Other comprehensive income, before tax:
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss on securities
available for sale
|
|
3,538
|
|
|
1,250
|
|
|
Amortization of unrealized losses on securities
transferred from available for sale to held to maturity
|
|
9
|
|
|
12
|
|
|
Total Investment Securities
|
|
3,547
|
|
|
1,262
|
|
Other comprehensive income, before tax
|
|
3,547
|
|
|
1,262
|
|
Deferred tax expense related to other comprehensive
income
|
|
899
|
|
|
321
|
|
Other comprehensive income, net of tax
|
|
2,648
|
|
|
941
|
Total Comprehensive Income attributable to common
shareowners
|
|
6,935
|
|
|
7,377
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
|
CAPITAL CITY BANK GROUP, INC.
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
Comprehensive
|
|
|
|
(Dollars In Thousands,
|
Shares
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Loss,
|
|
|
|
Except Share Data)
|
Outstanding
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Net of Taxes
|
|
Total
|
Balance, January 1, 2020
|
16,771,544
|
|
$
|
168
|
|
$
|
32,092
|
|
$
|
322,937
|
|
$
|
(28,181)
|
|
$
|
327,016
|
Adoption of ASC 326 - See Note 1
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,095)
|
|
|
-
|
|
|
(3,095)
|
Net Income
|
-
|
|
|
-
|
|
|
-
|
|
|
4,287
|
|
|
-
|
|
|
4,287
|
Other Comprehensive Income, net of tax
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,648
|
|
|
2,648
|
Cash Dividends ($0.1400 per share)
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,357)
|
|
|
-
|
|
|
(2,357)
|
Repurchase of Common Stock
|
(33,074)
|
|
|
(1)
|
|
|
(707)
|
|
|
-
|
|
|
-
|
|
|
(708)
|
Stock Based Compensation
|
-
|
|
|
-
|
|
|
291
|
|
|
-
|
|
|
-
|
|
|
291
|
Stock Compensation Plan Transactions, net
|
73,311
|
|
|
1
|
|
|
424
|
|
|
-
|
|
|
-
|
|
|
425
|
Balance, March 31, 2020
|
16,811,781
|
|
$
|
168
|
|
$
|
32,100
|
|
$
|
321,772
|
|
$
|
(25,533)
|
|
$
|
328,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
Stock Compensation Plan Transactions, 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.
|
CAPITAL
CITY BANK GROUP, INC.
|
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
(Dollars in Thousands)
|
2020
|
|
2019
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net Income
|
$
|
4,287
|
|
$
|
6,436
|
Adjustments to Reconcile Net Income to
|
|
|
|
|
|
Cash Provided by Operating Activities:
|
|
|
|
|
|
Provision for Credit Losses
|
|
4,990
|
|
|
767
|
Depreciation
|
|
1,623
|
|
|
1,612
|
Amortization of Premiums, Discounts and Fees, net
|
|
1,643
|
|
|
1,234
|
Originations of Loans Held-for-Sale
|
|
(150,840)
|
|
|
(38,698)
|
Proceeds From Sales of Loans Held-for-Sale
|
|
80,781
|
|
|
42,003
|
Net Gain From Sales of Loans Held-for-Sale
|
|
(3,030)
|
|
|
(993)
|
Stock Compensation
|
|
291
|
|
|
499
|
Net Tax Benefit From Stock-Based Compensation
|
|
(84)
|
|
|
(14)
|
Deferred Income Taxes
|
|
(511)
|
|
|
321
|
Net Change in Operating Leases
|
|
192
|
|
|
23
|
Net (Gain) Loss on Sales and Write-Downs of Other
Real Estate Owned
|
|
(931)
|
|
|
215
|
Net Increase in Other Assets
|
|
(20,255)
|
|
|
(4,854)
|
Net Increase in Other Liabilities
|
|
26,646
|
|
|
6,689
|
Net Cash (Used In) Provided By Operating Activities
|
|
(55,198)
|
|
|
15,240
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
Purchases
|
|
(32,250)
|
|
|
(18,167)
|
Payments, Maturities, and Calls
|
|
19,370
|
|
|
8,953
|
Securities Available for Sale:
|
|
|
|
|
|
Purchases
|
|
(26,795)
|
|
|
(13,370)
|
Payments, Maturities, and Calls
|
|
50,347
|
|
|
30,784
|
Purchases of Loans Held for Investment
|
|
(2,756)
|
|
|
(14,706)
|
Net Increase in Loans Held for Investment
|
|
(22,191)
|
|
|
(9,461)
|
Net Cash Paid for Brand Acquisition
|
|
(2,405)
|
|
|
-
|
Proceeds from Insurance Claims on Premises
|
|
-
|
|
|
790
|
Proceeds From Sales of Other Real Estate Owned
|
|
1,155
|
|
|
639
|
Purchases of Premises and Equipment
|
|
(4,773)
|
|
|
(1,268)
|
Net Cash Used In Investing Activities
|
|
(20,298)
|
|
|
(15,806)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Net (Decrease) Increase in Deposits
|
|
(99,869)
|
|
|
85,438
|
Net Increase (Decrease) in Short-Term Borrowings
|
|
70,018
|
|
|
(4,918)
|
Repayment of Other Long-Term Borrowings
|
|
(524)
|
|
|
(547)
|
Dividends Paid
|
|
(2,357)
|
|
|
(1,850)
|
Payments to Repurchase Common Stock
|
|
(708)
|
|
|
-
|
Issuance of Common Stock Under Purchase Plans
|
|
125
|
|
|
157
|
Net Cash (Used In) Provided By Financing Activities
|
|
(33,315)
|
|
|
78,280
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
(108,811)
|
|
|
77,714
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
378,423
|
|
|
276,000
|
Cash and Cash Equivalents at End of Period
|
$
|
269,612
|
|
$
|
353,714
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
|
|
Interest Paid
|
$
|
1,562
|
|
$
|
2,813
|
|
|
|
|
|
|
Noncash Investing and Financing Activities:
|
|
|
|
|
|
Loans Transferred to Other Real Estate Owned
|
$
|
734
|
|
$
|
527
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
|
|
CAPITAL
CITY BANK GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS
AND BASIS OF PRESENTATION
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, 2019 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, 2019.
Business Combination. On March 1, 2020, CCB completed its acquisition of a 51% membership interest in Brand Mortgage Group, LLC (“Brand”) which is
now operated as Capital City Home Loans (“CCHL”). CCHL was consolidated into
CCBG’s financial statements effective March 1, 2020. Assets acquired totaled $52 million (consisting
primarily of loans held for sale) and liabilities assumed totaled $42 million (consisting
primarily of warehouse line borrowings). The primary purpose of the
acquisition was to gain access to an expanded residential mortgage product
line-up and investor base (including a mandatory delivery channel for loan
sales) and to generate other operational synergies and cost savings. CCB made
a $7.1 million cash payment for
its 51% membership interest and entered into a buyout agreement for the
remaining 49% noncontrolling interest
resulting in temporary equity with a fair value of $7.4 million. Goodwill totaling
$4.5 million was recorded in
connection with this acquisition. Factors that contributed to the purchase
price resulting in goodwill include Brand’s strong management team and
expertise in the mortgage industry, historical record of earnings, and
operational synergies created as part of the strategic alliance. At March 31,
2020, temporary equity totaled $7.1 million and reflected a $0.3 net loss for
March, 2020 attributable to noncontrolling interest.
Adoption of New Accounting Standard
On January 1, 2020, the Company adopted ASU 2016-13 Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which replaces the incurred loss methodology with an
expected loss methodology that is referred to as the current expected credit
loss (“CECL”) methodology. The measurement of expected credit losses under the
CECL methodology is applicable to financial assets measured at amortized cost,
including loan receivables and held-to-maturity debt securities. It also
applies to off-balance sheet credit exposures not accounted for as insurance
(loan commitments, standby letters of credit, financial guarantees, and other
similar instruments). In addition, ASC 326-30 provides a new credit loss model
for available-for-sale debt securities. The most significant change requires
credit losses to be presented as an allowance rather than as a write-down on
available-for-sale debt securities management does not intend to sell or
believes that it is not more likely than not they will be required to sell.
The Company adopted ASC 326 using the modified retrospective
method for all financial assets measured at amortized cost and off-balance
sheet credit exposures. Results for reporting periods beginning after January
1, 2020 are presented under ASC 326 while prior period amounts continue to be
reported in accordance with previously applicable GAAP. The adoption of ASC 326 (“CECL”) had an
impact of $4.0 million ($3.3 million
increase in the allowance for credit losses and $0.7 million increase in the
allowance for unfunded loan commitments (liability account)) that was offset by
a corresponding decrease in
retained earnings of $3.1 million and $0.9 million increase in
deferred tax assets. The increase in the allowance for credit losses required
under the ASC 326 generally reflected the impact of reserves calculated over
the life of loan, and more specifically higher reserves required for longer duration
loan portfolios, and the utilization of a longer historical look-back period in
the calculation of loan loss rates (loss given default). Upon analyzing the
debt security portfolios, the Company determined that no allowance was required
as these debt securities are government guaranteed treasuries or government
agency-backed securities for which the risk of loss was deemed minimal.
Further, certain municipal debt securities held by the Company have been
pre-refunded and secured by government guaranteed treasuries.
The following table illustrates the impact
of adopting ASC 326 on January 1, 2020.
|
|
As Reported
|
|
|
|
|
Impact of
|
|
|
Under
|
|
Pre-ASC 326
|
|
ASC 326
|
(Dollars in Thousands)
|
|
ASC 326
|
|
Adoption
|
|
Adoption
|
Loans:
|
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
|
|
2,163
|
|
|
1,675
|
|
|
488
|
Real Estate - Construction
|
|
|
672
|
|
|
370
|
|
|
302
|
Real Estate - Commercial Mortgage
|
|
|
4,874
|
|
|
3,416
|
|
|
1,458
|
Real Estate - Residential
|
|
|
4,371
|
|
|
3,128
|
|
|
1,243
|
Real Estate - Home Equity
|
|
|
2,598
|
|
|
2,224
|
|
|
374
|
Consumer, Other Loans and Overdrafts
|
|
|
2,496
|
|
|
3,092
|
|
|
(596)
|
Allowance for Credit Losses on Loans
|
|
|
17,174
|
|
|
13,905
|
|
|
3,269
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses on Off-Balance Sheet Credit
Exposures
|
|
$
|
815
|
|
$
|
157
|
|
$
|
658
|
Significant Accounting Policy Changes
Upon adoption of ASC 326, the Company revised certain accounting
policies for Investment Securities, Loans, and the Allowance for Credit Losses
as detailed below.
In addition, certain accounting policies were revised upon the
acquisition of Brand on March 1, 2020 and are also discussed in further detail
below under the Mortgage Banking Activities section.
Investment Securities
Investment securities are classified as
held-to-maturity and carried at amortized cost when the Company has the
positive intent and ability to hold them until maturity. Investment securities
not classified as held-to-maturity or trading securities are classified as
available-for-sale and carried at fair value. The Company determines the
appropriate classification of securities at the time of purchase. For
reporting and risk management purposes, we further segment investment
securities by the issuer of the security which correlates to its risk profile:
U.S. government treasury, U.S. government agency, state and political
subdivisions, and mortgage-backed securities. Certain equity securities with
limited marketability, such as stock in the Federal Reserve Bank and the
Federal Home Loan Bank, are classified as available-for-sale and carried at
cost.
Interest income includes amortization and
accretion of purchase premiums and discounts. Realized gains and losses are
derived from the amortized cost of the security sold. Gains and losses on the
sale of securities are recorded on the trade date and are determined using the
specific identification method. Securities
transferred from available-for-sale to held-to-maturity are recorded at
amortized cost plus or minus any unrealized gain or loss at the time of
transfer. Any existing unrecognized gain or loss continues to be reported in
accumulated other comprehensive income (net of tax) and amortized as an
adjustment to interest income over the remaining life of the security. Any
existing allowance for credit loss is reversed at the time of transfer.
Subsequent to transfer, the allowance for credit losses on the transferred
security is evaluated in accordance with the accounting policy for
held-to-maturity securities. Additionally, any allowance amounts reversed or
established as part of the transfer are presented on a gross basis in the consolidated
statement of income.
The accrual of interest is generally suspended on securities more
than 90 days past due with respect to principal or interest. When a
security is placed on nonaccrual status, all previously accrued and uncollected
interest is reversed against current income and thus not included in the
estimate of credit losses.
Credit losses and changes thereto, are established as an allowance
for credit loss through a provision for credit loss expense. Losses are
charged against the allowance when management believes the uncollectibility of
an available-for-sale security is confirmed or when either of the criteria
regarding intent or requirement to sell is met.
Certain debt securities in the Company’s investment portfolio were
issued by a U.S. government entity or agency and are either explicitly or
implicitly guaranteed by the U.S. government. The Company considers the long
history of no credit losses on these securities indicates that the expectation
of nonpayment of the amortized cost basis is zero, even if the U.S. government
were to technically default. Further, certain municipal securities held by the
Company have been pre-refunded and secured by government guaranteed
treasuries. Therefore, for the aforementioned securities, the Company does not
assess or record expected credit losses due to the zero loss assumption.
Impairment - Available-for-Sale Securities.
Unrealized gains on available-for-sale
securities are excluded from earnings and reported, net of tax, in other
comprehensive income (“OCI”). For available-for-sale securities that are in an
unrealized loss position, the Company first assesses whether it intends to
sell, or whether it is more likely than not it will be required to sell the
security before recovery of its amortized cost basis. If either of the
criteria regarding intent or requirement to sell is met, the security’s
amortized cost basis is written down to fair value through income. For
available-for-sale securities that do not meet the aforementioned criteria or
have a zero loss assumption, the Company evaluates whether the decline in fair
value has resulted from credit losses or other factors. In making this
assessment, management considers the extent to which fair value is less than
amortized cost, any changes to the rating of the security by a rating agency, and
adverse conditions specifically related to the security, among other factors.
If the assessment indicates that a credit loss exists, the present value of
cash flows to be collected from the security are compared to the amortized cost
basis of the security. If the present value of cash flows expected to be
collected is less than the amortized cost basis, a credit loss exists and an
allowance for credit losses is recorded through a provision for credit loss
expense, limited by the amount that fair value is less than the amortized cost
basis. Any impairment that has not been recorded through an allowance for
credit losses is recognized in other comprehensive income.
Allowance for Credit Losses - Held-to-Maturity Securities.
Management measures expected credit losses on each individual
held-to-maturity debt security that has not been deemed to have a zero
assumption. Each security that is not deemed to have zero credit losses is
individually measured based on net realizable value, or the difference between
the discounted value of the expected cash flows, based on the original
effective rate, and the recorded amortized basis of the security. To the
extent a shortfall is related to credit loss, an allowance for credit loss is
recorded through a provision for credit loss expense. Any shortfall related to
other noncredit-related factors is recognized in other comprehensive income.
Loans
Loans are stated at amortized cost which
includes the principal amount outstanding, net premiums and discounts, and net
deferred loan fees and costs. Accrued interest receivable on loans is reported
in other assets and is not included in the amortized cost basis of loans.
Interest income is accrued on the effective yield method based on outstanding
principal balances, and includes loan late fees. Fees charged to
originate loans and direct loan origination costs are deferred and amortized
over the life of the loan as a yield adjustment.
The Company defines loans as past due when
one full payment is past due or a contractual maturity is over 30 days
late. The accrual of interest is generally suspended on loans more
than 90 days past due with respect to principal or interest. When a
loan is placed on nonaccrual status, all previously accrued and uncollected
interest is reversed against current income and thus a policy election has been
made to not include in the estimate of credit losses. Interest
income on nonaccrual loans is recognized when the ultimate collectability is no
longer considered 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.
Loan charge-offs on commercial and
investor real estate loans are recorded when the facts and circumstances of the
individual loan confirm the loan is not fully collectible and the loss is
reasonably quantifiable. Factors considered in making these determinations are
the borrower’s and any guarantor’s ability and willingness to pay, the status
of the account in bankruptcy court (if applicable), and collateral value.
Charge-off decisions for consumer loans are dictated by the Federal Financial
Institutions Examination Council’s (FFIEC) Uniform Retail Credit Classification
and Account Management Policy which establishes standards for the
classification and treatment of consumer loans, which generally require
charge-off after 120 days of delinquency.
The Company has adopted comprehensive lending policies,
underwriting standards and loan review procedures designed to maximize loan
income within an acceptable level of risk. Reporting systems are used to
monitor loan originations, loan ratings, concentrations, loan delinquencies,
nonperforming and potential problem loans, and other credit quality metrics.
The ongoing review of loan portfolio quality and trends by Management and the
Credit Risk Oversight Committee support the process for estimating the
allowance for credit losses.
Allowance for Credit Losses
The allowance for credit losses is a
valuation account that is deducted from the loans’ amortized cost basis to
present the net amount expected to be collected on the loans. The allowance
for credit losses is adjusted by a credit loss provision which is reported in
earnings, and reduced by the charge-off of loan amounts, net of recoveries.
Loans are charged off against the allowance when management believes the
uncollectibility of a loan balance in confirmed. Expected recoveries do not
exceed the aggregate of amounts previously charged-off and expected to be
charged-off. Expected credit loss inherent in non-cancellable off-balance
sheet credit exposures is accounted for as a separate liability included in
other liabilities.
Management estimates the allowance balance
using relevant available information, from internal and external sources,
relating to past events, current conditions, and reasonable and supportable
forecasts. Historical loan default and loss experience provides the basis for
the estimation of expected credit losses. Adjustments to historical loss
information incorporate management’s view of current conditions and
forecasts.
The methodology for estimating the amount of credit losses
reported in the allowance for credit losses has two basic components: first, an
asset-specific component involving loans that do not share risk characteristics
and the measurement of expected credit losses for such individual loans; and
second, a pooled component for expected credit losses for pools of loans that
share similar risk characteristics.
Loans That Do Not Share Risk Characteristics (Individually
Analyzed)
Loans that do not share similar risk characteristics are evaluated
on an individual basis. Loans deemed to be collateral dependent have differing
risk characteristics and are individually analyzed to estimate the expected
credit loss. A loan is collateral dependent when the borrower is experiencing
financial difficulty and repayment of the loan is dependent on the liquidation
and sale of the underlying collateral. For collateral dependent loans where
foreclosure is probable, the expected credit loss is measured based on the
difference between the fair value of the collateral (less selling cost) and the
amortized cost basis of the asset. For collateral dependent loans where
foreclosure is not probable, the Company has elected the practical expedient
allowed by ASC 326-20 to measure the expected credit loss under the same
approach as those loans where foreclosure is probable. For loans with balances
greater than $250,000 the fair value of the collateral is obtained through
independent appraisal of the underlying collateral. For loans with balances
less than $250,000, the Company has made a policy election to measure expected
loss for these individual loans utilizing loss rates for similar loan types.
The aforementioned measurement criteria are applied for collateral dependent
troubled debt restructurings.
Loans That Share Similar Risk
Characteristics (Pooled Loans)
The general steps in determining expected
credit losses for the pooled loan component of the allowance are as follows:
·
Segment loans into
pools according to similar risk characteristics
·
Develop historical
loss rates for each loan pool segment
·
Incorporate the impact
of forecasts
·
Incorporate the impact
of other qualitative factors
·
Calculate and review
pool specific allowance for credit loss estimate
Methodology –
A discounted cash flow (“DCF”) methodology is utilized to
calculate expected cash flows for the life of each individual loan. The
discounted present value of expected cash flow is then compared to the loan’s
amortized cost basis to determine the credit loss estimate. Individual loan
results are aggregated at the pool level in determining total reserves for each
loan pool.
The primary inputs used to calculate expected cash flows include
historical loss rates which reflect probability of default (“PD”) and loss
given default (“LGD”), and prepayment rates. The historical look-back period
is a key factor in the calculation of the PD rate and is based on management’s
assessment of current and forecasted conditions and may vary by loan pool.
Loans subject to the Company’s risk rating process are further sub-segmented by
risk rating in the calculation of PD rates. LGD rates generally reflect the
historical average net loss rate by loan pool. Expected cash flows are further
adjusted to incorporate the impact of loan prepayments which will vary by loan
segment and interest rate conditions. In general, prepayment rates are based
on observed prepayment rates occurring in the loan portfolio and consideration
of forecasted interest rates.
Forecast Factors –
In developing loss rates, adjustments are made to incorporate the
impact of forecasted conditions. Certain assumptions are also applied,
including the length of the forecast and reversion periods. The forecast
period is the period within which management is able to make a reasonable and
supportable assessment of future conditions. The reversion period is the
period beyond which management believes it can develop a reasonable and supportable
forecast, and bridges the gap between the forecast period and the use of
historical default and loss rates. The remainder period reflects the remaining
life of the loan. The length of the forecast and reversion periods are
periodically evaluated and based on management’s assessment of current and
forecasted conditions and may vary by loan pool. For purposes of developing a
reasonable and supportable assessment of future conditions, management utilizes
established industry and economic data points and sources, including the
Federal Open Market Committee forecast, with the forecasted unemployment rate
being a significant factor. PD rates for the forecast period will be adjusted
accordingly based on management’s assessment of future conditions. PD rates
for the remainder period will reflect the historical mean PD rate. Reversion
period PD rates reflect the difference between forecast and remainder period PD
rates closed using a straight-line adjustment over the reversion period.
Qualitative
Factors –
Loss rates are further adjusted to account
for other risk factors that impact loan defaults and losses. These basis point
adjustments are based on management’s assessment of trends and conditions that
impact credit risk and resulting loan losses, more specifically internal and
external factors that are independent of and not reflected in the quantitative
loss rate calculations. Risk factors management considers in this assessment
include trends in underwriting standards, nature/volume/terms of loan originations,
past due loans, loan review systems, collateral valuations, concentrations,
legal/regulatory/political conditions, and the unforeseen impact of natural
disasters.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual
period in which it is exposed to credit risk through a contractual obligation
to extend credit, unless that obligation is unconditionally cancellable by the
Company. The allowance for credit losses on off-balance sheet credit exposures
is adjusted as a provision for credit loss expense and is recorded in other
liabilities. The estimate includes consideration of the likelihood that
funding will occur and an estimate of expected credit losses on commitments
expected to be funded over its estimated life and applies the same estimated
loss rate as determined for current outstanding loan balances by segment.
Off-balance sheet credit exposures are identified and classified in the same
categories as the allowance for credit losses with similar risk characteristics
that have been previously mentioned.
Mortgage Banking Activities
Mortgage Loans Held for Sale and Revenue
Recognition
Mortgage loans held for sale are carried
at fair value under the fair value option with changes in fair value recorded
in gain on sale of mortgage loans held for sale on the statement of operations.
The fair value of mortgage loans held for sale committed to investors is
calculated using observable market information such as the investor commitment,
assignment of trade (AOT) or other mandatory delivery commitment prices. The Company
bases loans committed to Agency investors based on the Agency’s quoted mortgage
backed security (MBS) prices. The fair value of mortgage loans held for sale
not committed to investors is based on quoted best execution secondary market
prices. If no such quoted price exists, the fair value is determined using
quoted prices for a similar asset or assets, such as MBS prices, adjusted for
the specific attributes of that loan, which would be used by other market
participants.
Gains and losses from the sale of mortgage loans held for sale are
recognized based upon the difference between the sales proceeds and carrying
value of the related loans upon sale and are recorded in gain on sale of
mortgage loans held for sale on the statement of operations. Sales proceeds
reflect the cash received from investors through the sale of the loan and
servicing release premium. If the related mortgage servicing right (MSR) is
sold servicing retained, the MSR addition is recorded in gain on sale of
mortgage loans held for sale on the statement of operations. Gain on sale of
mortgage loans held for sale also includes the unrealized gains and losses
associated with the changes in the fair value of mortgage loans held for sale,
and the realized and unrealized gains and losses from derivative instruments.
Mortgage loans held for sale are considered sold when the Company
surrenders control over the financial assets. Control is considered to have
been surrendered when the transferred assets have been isolated from the
Company, beyond the reach of the Company and its creditors; the purchaser
obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets; and the Company
does not maintain effective control over the transferred assets through either
an agreement that both entitles and obligates the Company to repurchase or
redeem the transferred assets before their maturity or the ability to
unilaterally cause the holder to return specific assets. The Company typically
considers the above criteria to have been met upon acceptance and receipt of
sales proceeds from the purchaser.
Derivative Instruments
The Company holds and issues derivative
financial instruments such as interest rate lock commitments (IRLCs) and other forward
sale commitments. IRLCs are subject to price risk primarily related to
fluctuations in market interest rates. To hedge the interest rate risk on
certain IRLCs, the Company uses forward sale commitments, such as
to-be-announced securities (TBAs) or mandatory delivery commitments with
investors. Management expects these forward sale commitments to experience
changes in fair value opposite to the changes in fair value of the IRLCs
thereby reducing earnings volatility. Forward sale commitments are also used to
hedge the interest rate risk on mortgage loans held for sale that are not
committed to investors and still subject to price risk. If the mandatory
delivery commitments are not fulfilled, the Company pays a pair-off fee. Best
effort forward sale commitments are also executed with investors, whereby
certain loans are locked with a borrower and simultaneously committed to an
investor at a fixed price. If the best effort IRLC does not fund, there is no
obligation to fulfill the investor commitment.
The Company considers various factors and
strategies in determining what portion of the IRLCs and uncommitted mortgage
loans held for sale to economically hedge. All derivative instruments are recognized
as other assets or other liabilities on the balance sheet at their fair value.
Changes in the fair value of the derivative instruments are recognized in gain
on sale of mortgage loans held for sale on the statement of operations in the
period in which they occur. Gains and losses resulting from the pairing-out of
forward sale commitments are recognized in gain on sale of mortgage loans held for
sale on the statement of operations. The Company accounts for all derivative
instruments as free-standing derivative instruments and does not designate any
for hedge accounting.
Mortgage Servicing Rights (“MSRs”) and Revenue Recognition
The Company sells residential mortgage
loans in the secondary market and may retain the right to service the loans
sold. Upon sale, an MSR asset is capitalized, which represents the then current
fair value of future net cash flows expected to be realized for performing
servicing activities. As the Company has not elected to subsequently measure
any class of servicing assets under the fair value measurement method, the
Company follows the amortization method. MSRs are amortized to noninterest
income (other income) in proportion to and over the period of estimated net
servicing income, and assessed for impairment at each reporting date. MSRs are
carried at the lower of the initial capitalized amount, net of accumulated
amortization, or estimated fair value, and included in other assets, net, on
the consolidated statements of financial condition.
The Company periodically evaluates its
MSRs asset for impairment. Impairment is assessed based on fair value at each
reporting date using estimated prepayment speeds of the underlying mortgage
loans serviced and stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest rate). As mortgage
interest rates fall, prepayment speeds are usually faster and the value of the
MSRs asset generally decreases, requiring additional valuation reserve.
Conversely, as mortgage interest rates rise, prepayment speeds are usually
slower and the value of the MSRs asset generally increases, requiring less
valuation reserve. A valuation allowance is established, through a charge to
earnings, to the extent the amortized cost of the MSRs exceeds the estimated
fair value by stratification. If it is later determined that all or a portion
of the temporary impairment no longer exists for a stratification, the
valuation is reduced through a recovery to earnings. An other-than-temporary
impairment (i.e., recoverability is considered remote when considering interest
rates and loan pay off activity) is recognized as a write-down of the MSRs
asset and the related valuation allowance (to the extent a valuation allowance
is available) and then against earnings. A direct write-down permanently
reduces the carrying value of the MSRs asset and valuation allowance,
precluding subsequent recoveries.
Accounting Standards Updates
ASU 2019-12, "Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies
the accounting for income taxes by eliminating certain exceptions to the
guidance in ASC 740 related to the approach for intraperiod tax allocation when
there is a loss from continuing operations or a gain from other items and the
general methodology for calculating income taxes in an interim period when a
year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also
simplifies aspects of the accounting for franchise taxes and enacted changes in
tax laws or rates and clarifies the accounting for transactions that result in
a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the
Company January 1, 2021 and is not expected to have a material impact on the
Company’s consolidated financial statements.
ASU 2020-01, "Investments - Equity Securities
(Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815). ASU 2020-01 clarifies the interaction of the
accounting for equity securities under Topic 321 and investments accounted for
under the equity method of accounting in Topic 323 and the accounting for
certain forward contracts and purchased options accounted for under Topic 815. ASU
2020-01 is effective for the Company on January 1, 2021 and is not expected to
have a material impact on the Company’s consolidated financial statements.
ASU 2020-02, "Financial Instruments - Credit
Losses (Topic 326) and Leases (Topic 842)". ASU 2020-02 incorporates SEC
SAB 119 (updated from SAB 102) into the Accounting Standards Codification (the
"Codification") by aligning SEC recommended policies and procedures
with ASC 326. ASU 2020-02 was effective on January 1, 2020 and had no material
impact on the Company’s documentation requirements.
ASU 2020-03, "Codification Improvements to
Financial Instruments". ASU 2020-03 revised a wide variety of topics in the
Codification with the intent to make the Codification easier to understand and
apply by eliminating inconsistencies and providing clarifications. ASU 2020-03
was effective immediately upon its release in March 2020 and did not have a
material impact on the Company’s consolidated financial statements.
ASU 2020-04, "Reference
Rate Reform (Topic 848). ASU 2020-04 provides optional expedients and exceptions for applying
GAAP to loan and lease agreements, derivative contracts, and other transactions
affected by the anticipated transition away from LIBOR toward new interest rate
benchmarks. For transactions that are modified because of reference rate reform
and that meet certain scope guidance (i) modifications of loan agreements
should be accounted for by prospectively adjusting the effective interest rate
and the modification will be considered "minor" so that any existing
unamortized origination fees/costs would carry forward and continue to be
amortized and (ii) modifications of lease agreements should be accounted for as
a continuation of the existing agreement with no reassessments of the lease
classification and the discount rate or re-measurements of lease payments that
otherwise would be required for modifications not accounted for as separate
contracts. ASU 2020-04 also provides numerous optional expedients for
derivative accounting. ASU 2020-04 is effective March 12, 2020 through December
31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications
as of January 1, 2020, or prospectively from a date within an interim period
that includes or is subsequent to March 12, 2020, up to the date that the
financial statements are available to be issued. Once elected for a Topic or an
Industry Subtopic within the Codification, the amendments in this ASU must be
applied prospectively for all eligible contract modifications for that Topic or
Industry Subtopic. We anticipate this ASU will simplify any modifications we
execute between the selected start date (yet to be determined) and December 31,
2022 that are directly related to LIBOR transition by allowing prospective
recognition of the continuation of the contract, rather than extinguishment of
the old contract resulting in writing off unamortized fees/costs. We are
evaluating the impacts of this ASU and have not yet determined if the LIBOR
transition and this ASU will have material effects on the Company’s business
operations and consolidated financial statements.
NOTE 2 – INVESTMENT SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Portfolio Composition. The following table summarizes the
amortized cost and related market value of investment securities
|
available-for-sale and securities held-to-maturity and
the corresponding amounts of gross unrealized gains and losses.
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Amortized
|
Unrealized
|
Unrealized
|
Market
|
Amortized
|
Unrealized
|
Unrealized
|
Market
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Cost
|
|
Gain
|
|
Losses
|
|
Value
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Treasury
|
$
|
198,640
|
|
$
|
2,874
|
|
$
|
-
|
|
$
|
201,514
|
|
$
|
231,996
|
|
$
|
849
|
|
$
|
67
|
|
$
|
232,778
|
U.S. Government Agency
|
|
164,070
|
|
|
1,955
|
|
|
131
|
|
|
165,894
|
|
|
155,706
|
|
|
697
|
|
|
325
|
|
|
156,078
|
States and Political Subdivisions
|
|
6,664
|
|
|
8
|
|
|
-
|
|
|
6,672
|
|
|
6,310
|
|
|
9
|
|
|
-
|
|
|
6,319
|
Mortgage-Backed Securities
|
|
581
|
|
|
75
|
|
|
-
|
|
|
656
|
|
|
693
|
|
|
80
|
|
|
-
|
|
|
773
|
Equity Securities(1)
|
|
7,778
|
|
|
-
|
|
|
-
|
|
|
7,778
|
|
|
7,653
|
|
|
-
|
|
|
-
|
|
|
7,653
|
Total
|
$
|
377,733
|
|
$
|
4,912
|
|
$
|
131
|
|
$
|
382,514
|
|
$
|
402,358
|
|
$
|
1,635
|
|
$
|
392
|
|
$
|
403,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Treasury
|
$
|
20,027
|
|
$
|
184
|
|
$
|
-
|
|
$
|
20,211
|
|
$
|
20,036
|
|
$
|
15
|
|
$
|
9
|
|
$
|
20,042
|
States and Political Subdivisions
|
|
340
|
|
|
-
|
|
|
-
|
|
|
340
|
|
|
1,376
|
|
|
-
|
|
|
-
|
|
|
1,376
|
Mortgage-Backed Securities
|
|
231,425
|
|
|
5,953
|
|
|
-
|
|
|
237,378
|
|
|
218,127
|
|
|
2,064
|
|
|
180
|
|
|
220,011
|
Total
|
$
|
251,792
|
|
$
|
6,137
|
|
$
|
-
|
|
$
|
257,929
|
|
$
|
239,539
|
|
$
|
2,079
|
|
$
|
189
|
|
$
|
241,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities
|
$
|
629,525
|
|
$
|
11,049
|
|
$
|
131
|
|
$
|
640,443
|
|
$
|
641,897
|
|
$
|
3,714
|
|
$
|
581
|
|
$
|
645,030
|
(1) Includes Federal Home Loan Bank and Federal
Reserve Bank stock, recorded at cost of $3.0 million, $4.8 million,
respectively, at March 31, 2020 and includes Federal Home Loan Bank and Federal
Reserve Bank stock recorded at cost of $2.9 million and $4.8 million,
respectively, at December 31, 2019.
Securities with an amortized cost of $295.5 million and $353.8 million at March 31, 2020
and December 31, 2019, 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, 2020, 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
|
$
|
131,848
|
|
$
|
132,886
|
|
$
|
20,367
|
|
$
|
20,551
|
Due after one year through five years
|
|
73,456
|
|
|
75,300
|
|
|
-
|
|
|
-
|
Mortgage-Backed Securities
|
|
581
|
|
|
656
|
|
|
231,425
|
|
|
237,378
|
U.S. Government Agency
|
|
164,070
|
|
|
165,894
|
|
|
-
|
|
|
-
|
Equity Securities
|
|
7,778
|
|
|
7,778
|
|
|
-
|
|
|
-
|
Total
|
$
|
377,733
|
|
$
|
382,514
|
|
$
|
251,792
|
|
$
|
257,929
|
Unrealized Losses on Investment Securities. The following table summarizes the available for sale 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, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency
|
|
22,589
|
|
|
108
|
|
|
6,736
|
|
|
23
|
|
|
29,325
|
|
|
131
|
Total
|
|
22,589
|
|
|
108
|
|
|
6,736
|
|
|
23
|
|
|
29,325
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Treasury
|
$
|
9,955
|
|
$
|
-
|
|
$
|
93,310
|
|
$
|
67
|
|
$
|
103,265
|
|
$
|
67
|
U.S. Government Agency
|
|
36,361
|
|
|
244
|
|
|
17,364
|
|
|
81
|
|
|
53,725
|
|
|
325
|
States and Political Subdivisions
|
|
578
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
578
|
|
|
-
|
Mortgage-Backed Securities
|
|
8
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8
|
|
|
-
|
Total
|
|
46,902
|
|
|
244
|
|
|
110,674
|
|
|
148
|
|
|
157,576
|
|
|
392
|
At March 31, 2020, there were 42 positions (combined AFS and HTM) with unrealized
losses totaling $0.1 million. 41 of these positions were U.S. government
agency and mortgage-backed securities issued by U.S. government sponsored
entities. The remaining position was one municipal security. 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 had the ability and intent to hold these
investments until there is a recovery in fair value, which may be at maturity,
the Company did not record any allowance for
credit losses on any investment securities at March 31, 2020. Additionally, none of the AFS or HTM
securities held by the Company were past due or in nonaccrual status at March
31, 2020.
Credit Quality Indicators
The Company monitors the credit quality of
its investment securities through various risk management procedures, including
the monitoring of credit ratings. A majority of the debt securities in the
Company’s investment portfolio were issued by a U.S. government entity or
agency and are either explicitly or implicitly guaranteed by the U.S.
government. The Company considers the long history of no credit losses on
these securities indicates that the expectation of nonpayment of the amortized
cost basis is zero, even if the U.S. government were to technically default.
Further, certain municipal securities held by the Company have been
pre-refunded and secured by government guaranteed treasuries. Therefore, for
the aforementioned securities, the Company does not assess or record expected
credit losses due to the zero loss assumption. The Company monitors the credit
quality of its municipal securities portfolio via credit ratings which are updated
on a quarterly basis. On a quarterly basis, municipal securities in an
unrealized loss position are evaluated to determine if the loss is attributable
to credit related factors and if an allowance for credit loss is needed.
NOTE
3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio Composition. The composition of the loan portfolio
was as follows:
(Dollars in Thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Commercial, Financial and Agricultural
|
$
|
249,020
|
|
$
|
255,365
|
Real Estate – Construction
|
|
122,595
|
|
|
115,018
|
Real Estate – Commercial Mortgage
|
|
656,084
|
|
|
625,556
|
Real Estate – Residential(1)
|
|
360,730
|
|
|
361,450
|
Real Estate – Home Equity
|
|
196,443
|
|
|
197,360
|
Consumer(2)
|
|
277,515
|
|
|
281,180
|
|
Loans, Net of Unearned Income
|
$
|
1,862,387
|
|
$
|
1,835,929
|
|
|
|
|
|
|
|
(1) Includes loans in process with outstanding balances of $7.3
million and $8.3 million at March 31, 2020 and December 31, 2019, respectively.
(2) Includes
overdraft balances of $1.5 million and $1.6 million at March 31, 2020 and
December 31, 2019, respectively.
Net deferred costs, which include premiums on purchased loans, included
in loans were $1.8 million at March 31, 2020 and December 31, 2019.
Accrued interest receivable on loans which
is excluded from amortized cost totaled $5.7 million at March 31, 2020
and $5.5 million at December 31,
2019, and is reported separately in Other Assets.
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.
Loan Purchases. The Company will periodically purchase newly originated 1-4 family
real estate secured adjustable rate loans from Capital City Home Loans, a
related party effective on March 1, 2020 (see Note 1). Loan purchases totaled
$1.5 million for the three month
period ended March 31, 2020, and were not credit impaired.
Allowance for Credit Losses. The
methodology for estimating the amount of credit losses reported in the
allowance for credit losses (“ACL”) has two basic components: first, an
asset-specific component involving loans that do not share risk characteristics
and the measurement of expected credit losses for such individual loans; and
second, a pooled component for expected credit losses for pools of loans that
share similar risk characteristics. This methodology is discussed further in
Note 1 – Business and Basis of Presentation/Significant Accounting Policies.
The following table
details the activity in the allowance for credit losses by portfolio segment.
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, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
$
|
1,675
|
|
$
|
370
|
|
$
|
3,416
|
|
$
|
3,128
|
|
$
|
2,224
|
|
$
|
3,092
|
|
$
|
13,905
|
|
Impact of Adopting ASC 326
|
|
488
|
|
|
302
|
|
|
1,458
|
|
|
1,243
|
|
|
374
|
|
|
(596)
|
|
|
3,269
|
|
Provision for Credit Losses
|
|
406
|
|
|
567
|
|
|
774
|
|
|
1,704
|
|
|
101
|
|
|
1,438
|
|
|
4,990
|
|
Charge-Offs
|
|
(362)
|
|
|
-
|
|
|
(11)
|
|
|
(110)
|
|
|
(31)
|
|
|
(1,566)
|
|
|
(2,080)
|
|
Recoveries
|
|
40
|
|
|
-
|
|
|
191
|
|
|
40
|
|
|
33
|
|
|
695
|
|
|
999
|
|
Net Charge-Offs
|
|
(322)
|
|
|
-
|
|
|
180
|
|
|
(70)
|
|
|
2
|
|
|
(871)
|
|
|
(1,081)
|
Ending Balance
|
$
|
2,247
|
|
$
|
1,239
|
|
$
|
5,828
|
|
$
|
6,005
|
|
$
|
2,701
|
|
$
|
3,063
|
|
$
|
21,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
$
|
1,434
|
|
$
|
280
|
|
$
|
4,181
|
|
$
|
3,400
|
|
$
|
2,301
|
|
$
|
2,614
|
|
$
|
14,210
|
|
Provision for Credit 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2020, we adopted ASC 326 and recorded a pre-tax
cumulative effect transition adjustment of $3.3 million. The adoption of ASC
326 is discussed further in Note 1 – Business and Basis of
Presentation/Accounting Standards Updates. For the first three months ended
March, 31, 2020, the provision for credit losses totaled $5.0 million and net
loan charge-offs totaled $1.1 million. The additional $3.9 million increase in the
allowance for credit losses was attributable to an expected decline in economic
conditions, primarily a higher rate of unemployment due to the COVID-19
pandemic and its effect on rates of default. Three unemployment rate forecast
scenarios were utilized to estimate probability of default and were weighted
based on management’s estimate of probability. The mitigating impact of the
unprecedented fiscal stimulus, including direct payments to individuals,
increased unemployment benefits, as well as various government sponsored loan
programs, was also considered.
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 amortized
cost basis of loans in nonaccrual status and loans past due over 90 days and
still on accrual by class of loans.
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
Nonaccrual
|
|
|
|
|
|
|
|
Nonaccrual
|
|
|
|
|
Total
|
|
With No
|
|
90 + Days
|
|
Total
|
|
With No
|
|
90 + Days
|
(Dollars in Thousands)
|
Nonaccrual
|
|
ACL
|
|
Still Accruing
|
|
Nonaccrual
|
|
ACL
|
|
Still Accruing
|
Commercial, Financial and Agricultural
|
$
|
358
|
|
$
|
-
|
|
$
|
-
|
|
$
|
446
|
|
$
|
-
|
|
$
|
-
|
Real Estate – Commercial Mortgage
|
|
1,332
|
|
|
676
|
|
|
-
|
|
|
1,434
|
|
|
958
|
|
|
-
|
Real Estate – Residential
|
|
2,214
|
|
|
1,656
|
|
|
-
|
|
|
1,392
|
|
|
227
|
|
|
-
|
Real Estate – Home Equity
|
|
692
|
|
|
-
|
|
|
-
|
|
|
797
|
|
|
-
|
|
|
-
|
Consumer
|
|
278
|
|
|
-
|
|
|
-
|
|
|
403
|
|
|
-
|
|
|
-
|
Total Nonaccrual Loans
|
$
|
4,874
|
|
$
|
2,332
|
|
$
|
-
|
|
$
|
4,472
|
|
$
|
1,185
|
|
$
|
-
|
The Company recognized $29,000
of interest income
on nonaccrual loans for the three months ended March 31, 2020.
Collateral Dependent Loans.
The following table presents the amortized cost basis of
collateral-dependent loans at March 31, 2020.
|
March 31, 2020
|
|
Real Estate
|
|
Non Real Estate
|
(Dollars in Thousands)
|
Secured
|
|
Secured
|
Commercial, Financial and Agricultural
|
$
|
46
|
|
$
|
-
|
Real Estate - Commercial Mortgage
|
|
4,481
|
|
|
-
|
Real Estate - Residential
|
|
2,373
|
|
|
-
|
Real Estate - Home Equity
|
|
489
|
|
|
-
|
Consumer
|
|
-
|
|
|
-
|
Total
|
$
|
7,389
|
|
$
|
-
|
A loan is collateral dependent when the borrower is experiencing
financial difficulty and repayment of the loan is dependent on the sale or
operation of the underlying collateral.
The Bank’s collateral dependent loan portfolio is comprised
primarily of real estate secured loans, collateralized by either residential or
commercial collateral types. The loans are carried at fair value based on
current values determined by either independent appraisals or internal
evaluations, adjusted for selling costs or other amounts to be deducted when
estimating expected net sales proceeds.
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 amortized cost basis 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, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
$
|
495
|
|
$
|
454
|
|
$
|
-
|
|
$
|
949
|
|
$
|
247,713
|
|
$
|
249,020
|
Real Estate – Construction
|
|
530
|
|
|
-
|
|
|
-
|
|
|
530
|
|
|
122,065
|
|
|
122,595
|
Real Estate – Commercial Mortgage
|
|
233
|
|
|
631
|
|
|
-
|
|
|
864
|
|
|
653,888
|
|
|
656,084
|
Real Estate – Residential
|
|
562
|
|
|
-
|
|
|
-
|
|
|
562
|
|
|
357,954
|
|
|
360,730
|
Real Estate – Home Equity
|
|
459
|
|
|
-
|
|
|
-
|
|
|
459
|
|
|
195,292
|
|
|
196,443
|
Consumer
|
|
1,557
|
|
|
156
|
|
|
-
|
|
|
1,713
|
|
|
275,524
|
|
|
277,515
|
Total Loans
|
$
|
3,836
|
|
$
|
1,241
|
|
$
|
-
|
|
$
|
5,077
|
|
$
|
1,852,436
|
|
$
|
1,862,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
$
|
489
|
|
$
|
191
|
|
$
|
-
|
|
$
|
680
|
|
$
|
254,239
|
|
$
|
255,365
|
Real Estate – Construction
|
|
300
|
|
|
10
|
|
|
-
|
|
|
310
|
|
|
114,708
|
|
|
115,018
|
Real Estate – Commercial Mortgage
|
|
148
|
|
|
84
|
|
|
-
|
|
|
232
|
|
|
623,890
|
|
|
625,556
|
Real Estate – Residential
|
|
629
|
|
|
196
|
|
|
-
|
|
|
825
|
|
|
359,233
|
|
|
361,450
|
Real Estate – Home Equity
|
|
155
|
|
|
20
|
|
|
-
|
|
|
175
|
|
|
196,388
|
|
|
197,360
|
Consumer
|
|
2,000
|
|
|
649
|
|
|
-
|
|
|
2,649
|
|
|
278,128
|
|
|
281,180
|
Total Loans
|
$
|
3,721
|
|
$
|
1,150
|
|
$
|
-
|
|
$
|
4,871
|
|
$
|
1,826,586
|
|
$
|
1,835,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Total Loans include nonaccrual loans of $4.9 million and
$4.5 million at March 31, 2020 and December 31, 2019, respectively.
|
Residential Real Estate Loans In Process
of Foreclosure. At March
31, 2020 and December 31, 2019, the Company had $0.6 million in 1-4 family
residential real estate loans for which formal foreclosure proceedings were in
process.
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 make concessions including the extension
of the loan term, a principal moratorium, a reduction in the interest rate, or
a combination thereof. 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. A TDR classification can be removed if the borrower’s financial
condition improves such that the borrower is no longer in financial difficulty,
the loan has not had any forgiveness of principal or interest, and the loan is
subsequently refinanced or restructured at market terms and qualifies as a new
loan.
At March 31, 2020, the Company had $16.9 million in TDRs, of which $15.9 million were performing in
accordance with the modified terms. At December 31, 2019 the Company had $17.6 million in TDRs, of which $16.9 million were performing in
accordance with modified terms. For TDRs, the Company estimated $0.8 million and $1.5 million of loan loss
reserves at March 31, 2020 and December 31, 2019, respectively.
The modifications made to TDRs involved
either an extension of the loan term, a principal moratorium, a reduction in
the interest rate, or a combination thereof. For the three months ended March
31, 2020, there was one loan modified with a recorded investment of $0.2 million. For the three
months ended March 31, 2019, there were two loans modified with a recorded
investment of $0.1 million. The financial impact
of these modifications was not material.
For the three months ended March 31, 2020,
there were two loans totaling $0.1 million classified as TDRs,
for which there was a payment default and the loans were modified within the
twelve months prior to default. For the three months ended March 31, 2019,
there were no loans classified as TDRs, for which there was a payment default
and the loans were modified within twelve months prior.
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 review and approve these policies and procedures on a regular basis
(at least annually).
Reporting systems are used 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 types 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/permanent 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. Construction loans are generally based
upon estimates of costs and value associated with the completed project.
Collateral values are determined based upon third party appraisals and
evaluations. Loan to value ratios at origination are governed by established
policy guidelines. The disbursement of funds for construction loans is made in
relation to the progress of the project and as such these loans are closely
monitored by on-site inspections.
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.
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 and 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 below 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.
Performing/Nonperforming – Loans within certain homogenous loan
pools (home equity and consumer) are not individually reviewed, but are
monitored for credit quality via the aging status of the loan and by payment
activity. The performing or nonperforming status is updated on an on-going
basis dependent upon improvement and deterioration in credit quality.
The following table summarizes gross
loans held for investment by years of origination and internally assigned
credit risk ratings (refer to Credit Risk Management section
for detail on risk rating system).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans by
Origination Year
|
|
Revolving
|
|
|
|
(Dollars in Thousands)
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Loans
|
|
Total
|
As of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, Financial, Agriculture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
15,540
|
|
$
|
59,938
|
|
$
|
56,515
|
|
$
|
22,991
|
|
$
|
19,601
|
|
$
|
16,357
|
|
$
|
57,074
|
|
$
|
248,016
|
Special Mention
|
|
-
|
|
|
4
|
|
|
61
|
|
|
17
|
|
|
-
|
|
|
65
|
|
|
-
|
|
|
147
|
Substandard
|
|
-
|
|
|
-
|
|
|
456
|
|
|
310
|
|
|
59
|
|
|
27
|
|
|
5
|
|
|
857
|
Total
|
$
|
15,540
|
|
$
|
59,942
|
|
$
|
57,032
|
|
$
|
23,318
|
|
$
|
19,660
|
|
$
|
16,449
|
|
$
|
57,079
|
|
$
|
249,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
10,866
|
|
$
|
73,609
|
|
$
|
24,500
|
|
$
|
9,548
|
|
$
|
-
|
|
$
|
104
|
|
$
|
3,968
|
|
$
|
122,595
|
Total
|
$
|
10,866
|
|
$
|
73,609
|
|
$
|
24,500
|
|
$
|
9,548
|
|
$
|
-
|
|
$
|
104
|
|
$
|
3,968
|
|
$
|
122,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Commercial Mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
48,981
|
|
$
|
126,785
|
|
$
|
145,264
|
|
$
|
107,176
|
|
$
|
54,565
|
|
$
|
121,379
|
|
$
|
25,938
|
|
$
|
630,088
|
Special Mention
|
|
6,782
|
|
|
199
|
|
|
5,139
|
|
|
216
|
|
|
-
|
|
|
6,819
|
|
|
-
|
|
|
19,155
|
Substandard
|
|
155
|
|
|
434
|
|
|
305
|
|
|
2,384
|
|
|
32
|
|
|
3,037
|
|
|
494
|
|
|
6,841
|
Total
|
$
|
55,918
|
|
$
|
127,418
|
|
$
|
150,708
|
|
$
|
109,776
|
|
$
|
54,597
|
|
$
|
131,235
|
|
$
|
26,432
|
|
$
|
656,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
24,620
|
|
$
|
91,383
|
|
$
|
67,070
|
|
$
|
52,706
|
|
$
|
25,740
|
|
$
|
83,396
|
|
$
|
8,215
|
|
$
|
353,130
|
Special Mention
|
|
143
|
|
|
27
|
|
|
128
|
|
|
180
|
|
|
96
|
|
|
350
|
|
|
-
|
|
|
924
|
Substandard
|
|
-
|
|
|
1,134
|
|
|
1,123
|
|
|
566
|
|
|
727
|
|
|
3,126
|
|
|
-
|
|
|
6,676
|
Total
|
$
|
24,763
|
|
$
|
92,544
|
|
$
|
68,321
|
|
$
|
53,452
|
|
$
|
26,563
|
|
$
|
86,872
|
|
$
|
8,215
|
|
$
|
360,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Home Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
$
|
72
|
|
$
|
405
|
|
$
|
278
|
|
$
|
867
|
|
$
|
206
|
|
$
|
3,001
|
|
$
|
190,922
|
|
$
|
195,751
|
Nonperforming
|
|
-
|
|
|
-
|
|
|
25
|
|
|
-
|
|
|
-
|
|
|
49
|
|
|
618
|
|
|
692
|
Total
|
$
|
72
|
|
$
|
405
|
|
$
|
303
|
|
$
|
867
|
|
$
|
206
|
|
$
|
3,050
|
|
$
|
191,540
|
|
$
|
196,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
$
|
26,670
|
|
$
|
98,981
|
|
$
|
76,080
|
|
$
|
40,469
|
|
$
|
20,286
|
|
$
|
9,047
|
|
$
|
5,704
|
|
$
|
277,237
|
Nonperforming
|
|
-
|
|
|
59
|
|
|
23
|
|
|
103
|
|
|
54
|
|
|
28
|
|
|
11
|
|
|
278
|
Total
|
$
|
26,670
|
|
$
|
99,040
|
|
$
|
76,103
|
|
$
|
40,572
|
|
$
|
20,340
|
|
$
|
9,075
|
|
$
|
5,715
|
|
$
|
277,515
|
NOTE 4 – MORTGAGE BANKING
ACTIVITIES
Pursuant to the Brand acquisition
on March 1, 2020, the Company’s mortgage banking activities at its subsidiary
Capital City Homes Loans have expanded to include mandatory delivery loan
sales, forward sales contracts used to manage residential loan pipeline price
risk, utilization of warehouse lines to fund secondary market residential loan
closings, and residential mortgage servicing. Information provided below
reflects CCHL activities post acquisition for the period March 1, 2020 to March
31, 2020 and CCB legacy residential real estate activities for the period
January 1, 2020 to March 1, 2020.
Residential Mortgage Loan
Production
The Company originates,
markets, and services conventional and government-sponsored residential
mortgage loans. Generally, conforming fixed rate residential mortgage loans
are held for sale in the secondary market and non-conforming and
adjustable-rate residential mortgage loans may be held for investment. The
volume of residential mortgage loans originated for sale and secondary market
prices are the primary drivers of origination revenue.
Residential mortgage loan
commitments are generally outstanding for 30 to 90 days, which represents the
typical period from commitment to originate a residential mortgage loan to when
the closed loan is sold to an investor. Residential mortgage loan commitments
are subject to both credit and price risk. Credit risk is managed through
underwriting policies and procedures, including collateral requirements, which
are generally accepted by the secondary loan markets. Price risk is primarily
related to interest rate fluctuations and is partially managed through forward
sales of residential mortgage-backed securities (primarily to-be announced
securities, or TBAs) or mandatory delivery commitments with investors.
The unpaid
principal balance of residential mortgage loans held for sale, notional amounts
of derivative contracts related to residential mortgage loan commitments and
forward contract sales and their related fair values are set- forth below.
|
|
March 31, 2020
|
|
|
Unpaid Principal
|
|
|
|
(Dollars in Thousands)
|
|
Balance/Notional
|
|
Fair Value
|
Residential Mortgage Loans Held for Sale
|
|
$
|
80,535
|
|
$
|
82,598
|
Residential Mortgage Loan Commitments ("IRLCs")(1)
|
|
|
131,007
|
|
|
3,898
|
Forward Sales Contracts(2)
|
|
|
115,500
|
|
|
(2,628)
|
|
|
|
|
|
$
|
83,868
|
|
|
|
|
|
|
|
(1)Recorded in other assets at fair value
|
|
|
|
|
|
|
(2)Recorded in other liabilities at fair
value
|
|
|
|
|
|
|
Residential mortgage loans held for sale that were 90
days or more outstanding totaled $0.5
million at March 31,
2020. These loans were not impaired and no credit loss has been recorded.
Mortgage banking revenue was
as follows:
|
|
Three Months Ended March
31,
|
(Dollars in Thousands)
|
|
2020
|
Net Realized Gains on Sales of Mortgage Loans
|
|
$
|
3,407
|
Net Change in Unrealized Gain on Mortgage Loans Held for
Sale
|
|
|
738
|
Net Change in the Fair Value of Mortgage Loan Commitments
(IRLCs)
|
|
|
1,655
|
Net Change in the Fair Value of Forward Sales Contracts
|
|
|
(1,394)
|
Pair-Offs on Net Settlement of Forward Sales Contracts
|
|
|
(1,376)
|
Total Mortgage Banking Revenues
|
|
$
|
3,030
|
Residential Mortgage Servicing
The Company may retain the right to
service residential mortgage loans sold. The unpaid principal balance of loans
serviced for others is the primary driver of servicing revenue.
The following
represents a summary of mortgage servicing rights.
(Dollars in Thousands)
|
|
March 31, 2020
|
Number of Residential Mortgage Loans Serviced for Others
|
|
|
627
|
Outstanding Principal Balance of Residential Mortgage
Loans Serviced for Others
|
|
$
|
165,274
|
Weighted Average Interest Rate
|
|
|
4.56%
|
Remaining Contractual Term (in months)
|
|
|
316
|
Conforming conventional loans serviced by the Company are sold to
FNMA on a non-recourse basis, whereby foreclosure losses are generally the
responsibility of FNMA and not the Company. The government loans serviced by
the Company are secured through GNMA, whereby the Company is insured against
loss by the Federal Housing Administration or partially guaranteed against loss
by the Veterans Administration. At March 31, 2020, the servicing portfolio
balance consisted of the following loan types: FNMA (8%), GNMA (23%), and private investor (69%). FNMA and private
investor loans are structured as actual/actual payment remittance.
Activity in the capitalized mortgage servicing rights for the
period ended March 31, 2020 was as follows:
(Dollars in Thousands)
|
|
Beginning Balance
|
$
|
910
|
Additions due to loans sold with servicing retained
|
|
25
|
Deletions and amortization
|
|
(25)
|
Ending Balance
|
$
|
910
|
The fair value of capitalized mortgage servicing rights at March
31, 2020 was $1.1 million. The Company did not record any permanent impairment
losses for the period March 1, 2020 to March 31, 2020.
At March 31, 2020, the key unobservable inputs used in determining
the fair value of the Company’s mortgage servicing rights were as follows:
|
Minimum
|
|
|
Maximum
|
Discount Rates
|
|
11.00%
|
|
|
15.00%
|
Annual prepayment speeds
|
|
13.20%
|
|
|
25.26%
|
Cost of Servicing (basis points)
|
|
90
|
|
|
110
|
Changes in residential
mortgage interest rates directly affect the prepayment speeds used in valuing
the Company’s mortgage servicing rights. A separate third party model is used
to estimate prepayment speeds based on interest rates, housing turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant factors.
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and maser
repurchase agreements with various financial institutions at March 31, 2020.
|
Amounts
|
(Dollars in Thousands)
|
Outstanding
|
$25 million warehouse line of credit agreement expiring
October 2020. Interest is at LIBOR plus 2.25%, with a floor rate of 3.50%.
A cash pledge deposit of $0.1 million is required by the lender.
|
$
|
17,572
|
|
|
|
$50 million master repurchase agreement without defined
expiration. Interest is at the LIBOR plus 2.24% to 3.00%. A cash pledge
deposit of $0.5 million is required by the lender.
|
|
19,286
|
|
|
|
$50 million warehouse line of credit agreement expiring
in September 2020. Interest is at the LIBOR plus 2.25%
|
|
36,498
|
|
|
|
|
$
|
73,356
|
Warehouse line borrowings are classified
as short-term borrowings. At March 31, 2020, the Company had mortgage loans
held for sale pledged as collateral under the above warehouse lines of credit
and master repurchase agreements. The above agreements also contain covenants
which include certain financial requirements, including maintenance of minimum
tangible net worth, minimum liquid assets, maximum debt to net worth ratio and
positive net income, as defined in the agreements. The Company was in
compliance with all significant debt covenants at March 31, 2020.
The Company intends to renew the warehouse
lines of credit and master repurchase agreements when they mature.
NOTE 5 – LEASES
Operating
leases in which the Company is the lessee are recorded as operating lease right
of use (“ROU”) assets and operating liabilities, included in other assets and
liabilities, respectively, on its consolidated statement of financial
condition.
Operating
lease ROU assets represent the Company’s right to use an underlying asset
during the lease term and operating lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. ROU assets and
operating lease liabilities are recognized at lease commencement based on the
present value of the remaining lease payments using a discount rate that
represents the Company’s incremental borrowing rate at the lease commencement
date. Operating lease expense, which is comprised of amortization of the ROU
asset and the implicit interest accreted on the operating lease liability, is recognized
on a straight-line basis over the lease term, and is recorded in occupancy
expense in the consolidated statements of income.
The
Company’s operating leases primarily relate to banking offices with remaining
lease terms from 1 to 30 years. The Company’s
leases are not complex and do not contain residual value guarantees, variable
lease payments, or significant assumptions or judgments made in applying the
requirements of Topic 842. Operating
leases with an initial term of 12 months or less are not recorded on the
balance sheet and the related lease expense is recognized on a straight-line
basis over the lease term.
At March 31, 2020, the operating lease ROU assets and liabilities were $6.7 million and $7.6 million,
respectively. The Company does not have any finance leases or any significant
lessor agreements.
The table below summarizes our lease expense and other information
related to the Company’s operating leases:
|
Three Months Ended March
31,
|
(Dollars in Thousands)
|
2020
|
|
2019
|
Operating lease expense
|
$
|
156
|
|
$
|
81
|
Short-term lease expense
|
|
79
|
|
|
35
|
Total lease expense
|
$
|
235
|
|
$
|
116
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
Cash paid for amounts included in the measurement of
lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
160
|
|
$
|
83
|
Right-of-use assets obtained in exchange for new
operating lease liabilities
|
|
5,092
|
|
|
1,928
|
|
|
|
|
|
|
Weighted-average remaining lease term — operating leases
(in years)
|
|
15.4
|
|
|
7.4
|
Weighted-average discount rate — operating leases
|
|
2.4%
|
|
|
2.9%
|
The table below summarizes the maturity of remaining
lease liabilities:
|
|
|
|
|
|
(Dollars in Thousands)
|
March 31, 2020
|
2020
|
$
|
909
|
2021
|
|
1,193
|
2022
|
|
1,044
|
2023
|
|
672
|
2024
|
|
630
|
2025 and thereafter
|
|
4,840
|
Total
|
$
|
9,288
|
Less: Interest
|
|
(1,667)
|
Present Value of Lease liability
|
$
|
7,621
|
At March 31, 2020, the Company had additional operating lease
payments for a banking office (to be constructed) that have not yet commenced
of $1.9 million based on the initial
contract term of 15 years. Payments
for the banking office are expected to commence after the construction period
ends, which is expected to occur during the third quarter of 2021.
A related party is the lessor in an operating lease with the
Company. The Company’s minimum payment is $0.2 million annually through
2024, for an aggregate remaining obligation of $0.9 million at March 31, 2020.
NOTE
6 - EMPLOYEE BENEFIT PLANS
The Company
has a defined benefit pension plan covering substantially all full-time and
eligible part-time associates and a Supplemental Executive Retirement Plan
(“SERP”) covering its executive officers. The defined benefit plan was amended
in December 2019 to remove plan eligibility for new associates hired after
December 31, 2019.
The components of the net periodic benefit
cost for the Company's qualified benefit pension plan were as follows:
|
Three Months Ended March
31,
|
(Dollars in Thousands)
|
2020
|
|
2019
|
Service Cost
|
$
|
1,457
|
|
$
|
1,529
|
Interest Cost
|
|
1,411
|
|
|
1,545
|
Expected Return on Plan Assets
|
|
(2,748)
|
|
|
(2,382)
|
Prior Service Cost Amortization
|
|
4
|
|
|
4
|
Net Loss Amortization
|
|
1,011
|
|
|
965
|
Special Termination Charge
|
|
61
|
|
|
-
|
Net Periodic Benefit Cost
|
$
|
1,196
|
|
$
|
1,661
|
|
|
|
|
|
|
Discount Rate Used for Benefit Cost
|
|
3.53%
|
|
|
4.43%
|
Long-term Rate of Return on Assets
|
|
7.00%
|
|
|
7.25%
|
The components of the net periodic benefit cost for the
Company's SERP were as follows:
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
(Dollars in Thousands)
|
2020
|
|
2019
|
Interest Cost
|
$
|
72
|
|
$
|
87
|
Net Loss Amortization
|
|
247
|
|
|
190
|
Net Periodic Benefit Cost
|
$
|
319
|
|
$
|
277
|
|
|
|
|
|
|
Discount Rate Used for Benefit Cost
|
|
3.16%
|
|
|
4.23%
|
The service cost component of net periodic benefit cost is
reflected in compensation expense in the accompanying statements of income. The
other components of net periodic cost are included in “other” within the noninterest
expense category in the statements of income.
NOTE 7 - COMMITMENTS AND
CONTINGENCIES
Lending Commitments. The Company is a party to
financial instruments with off-balance sheet risks in the normal course of
business to meet the financing needs of its clients. These financial
instruments consist of commitments to extend credit and standby letters of
credit.
The
Company’s maximum exposure to credit loss under standby letters of credit and
commitments to extend credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in
establishing commitments and issuing letters of credit as it does for
on-balance sheet instruments. The amounts associated with the Company’s
off-balance sheet obligations were as follows:
|
March 31, 2020
|
|
December 31, 2019
|
(Dollars in Thousands)
|
Fixed
|
|
Variable
|
|
Total
|
|
Fixed
|
|
Variable
|
|
Total
|
Commitments to Extend Credit (1)
|
$
|
102,660
|
|
$
|
481,270
|
|
$
|
583,930
|
|
$
|
114,903
|
|
$
|
404,345
|
|
$
|
519,248
|
Standby Letters of Credit
|
|
6,087
|
|
|
-
|
|
|
6,087
|
|
|
5,783
|
|
|
-
|
|
|
5,783
|
Total
|
$
|
108,747
|
|
$
|
481,270
|
|
$
|
590,017
|
|
$
|
120,686
|
|
$
|
404,345
|
|
$
|
525,031
|
(1) Commitments include unfunded loans,
revolving lines of credit, and off-balance sheet residential loan commitments.
Commitments to extend credit are
agreements to lend to a client so long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.
Standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of a client to a
third party. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities. In
general, management does not anticipate any material losses as a result of
participating in these types of transactions. However, any potential
losses arising from such transactions are reserved for in the same manner as
management reserves for its other credit facilities.
For both on- and off-balance sheet
financial instruments, the Company requires collateral to support such
instruments when it is deemed necessary. The Company evaluates each
client’s creditworthiness on a case-by-case basis. The amount of
collateral obtained upon extension of credit is based on management’s credit
evaluation of the counterparty. Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury securities;
other marketable securities; real estate; accounts receivable; property, plant
and equipment; and inventory.
The allowance for credit losses for off-balance
sheet credit commitments that are not unconditionally cancellable by the bank
totaled $1.0 million at March 31, 2020
and $0.2 million at December 31, 2019. The allowance is adjusted as a
provision for credit loss expense and is recorded in other liabilities. The allowance
was increased by $0.7 million on January 1, 2020 upon the adoption of ASC 326
and by $0.1 million through a provision
for credit loss expense for the three months period ended March 31, 2020.
Contingencies. The
Company is a party to lawsuits and claims arising out of the normal course of
business. In management's opinion, there are no known pending claims
or litigation, the outcome of which would, individually or in the aggregate,
have a material effect on the consolidated results of operations, financial
position, or cash flows of the Company.
Indemnification Obligation. The Company is a member of the Visa
U.S.A. network. Visa U.S.A member banks are required to indemnify the Visa
U.S.A. network for potential future settlement of certain litigation (the
“Covered Litigation”) that relates to several antitrust lawsuits challenging
the practices of Visa and MasterCard International. In 2008, the Company, as a
member of the Visa U.S.A. network, obtained Class B shares of Visa, Inc. upon
its initial public offering. Since its initial public offering, Visa, Inc. has
funded a litigation reserve for the Covered Litigation resulting in a reduction
in the Class B shares held by the Company. During the first quarter of 2011,
the Company sold its remaining Class B shares. Associated with this sale, the
Company entered into a swap contract with the purchaser of the shares that
requires a payment to the counterparty in the event that Visa, Inc. makes
subsequent revisions to the conversion ratio for its Class B shares.
Fixed charges included in the swap liability
are payable quarterly until the litigation reserve is fully liquidated and at
which time the aforementioned swap contract will be terminated. Quarterly
fixed payments approximate $155,000. Conversion ratio
payments and ongoing fixed quarterly charges are reflected in earnings in the
period incurred.
NOTE 8 – FAIR VALUE
MEASUREMENTS
The fair value of an asset or
liability is the price that would be received to sell that asset or paid to
transfer that liability in an orderly transaction occurring in the principal
market (or most advantageous market in the absence of a principal market) for
such asset or liability. In estimating fair value, the Company utilizes
valuation techniques that are consistent with the market approach, the income
approach and/or the cost approach. Such valuation techniques are consistently
applied. Inputs to valuation techniques include the assumptions that market
participants would use in pricing an asset or liability. ASC Topic 820
establishes a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
-
Level 1 Inputs - Unadjusted quoted prices
in active markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement date.
-
Level 2 Inputs - Inputs other than quoted
prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. These might include quoted
prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not
active, inputs other than quoted prices that are observable for the asset
or liability (such as interest rates, volatilities, prepayment speeds,
credit risks, etc.) or inputs that are derived principally from, or
corroborated, by market data by correlation or other means.
-
Level 3 Inputs - Unobservable inputs for determining
the fair values of assets or liabilities that reflect an entity's own
assumptions about the assumptions that market participants would use in
pricing the assets or liabilities.
Assets and Liabilities
Measured at Fair Value on a Recurring Basis
Securities Available for Sale. U.S. Treasury securities are
reported at fair value utilizing Level 1 inputs. Other securities classified
as available for sale are reported at fair value utilizing Level 2 inputs. For
these securities, the Company obtains fair value measurements from an
independent pricing service. The fair value measurements consider observable
data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, credit
information and the bond’s terms and conditions, among other things.
In general, the Company does not purchase securities
that have a complicated structure. The Company’s entire portfolio consists of
traditional investments, nearly all of which are U.S. Treasury obligations,
federal agency bullet or mortgage pass-through securities, or general
obligation or revenue-based municipal bonds. Pricing for such instruments is
easily obtained. At least annually, the Company will validate prices supplied
by the independent pricing service by comparing them to prices obtained from an
independent third-party source.
Loans Held for Sale. The fair value of residential mortgage loans
held for sale based on Level 2 inputs is determined, when possible, using
either quoted secondary-market prices or investor commitments. If no such
quoted price exists, the fair value is determined using quoted prices for a
similar asset or assets, adjusted for the specific attributes of that loan,
which would be used by other market participants. The Company has elected the
fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments. The fair values of interest
rate lock commitments (“IRLCs”) are derived by valuation models incorporating
market pricing for instruments with similar characteristics, commonly referred
to as best execution pricing, or investor commitment prices for best effort
IRLCs have unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated
costs to originate the loans, and the pull-through rate, and are therefore
classified as Level 3 within the fair value hierarchy. The fair value of
forward sale commitments is based on observable market pricing for similar
instruments and are therefore classified as Level 2 within the fair value
hierarchy.
Fair Value Swap. The Company entered into a stand-alone derivative
contract with the purchaser of its Visa Class B shares. The valuation
represents the amount due and payable to the counterparty based upon the
revised share conversion rate, if any, during the period.
A
summary of fair values for assets and liabilities consisted of the following:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair
|
(Dollars in Thousands)
|
Inputs
|
|
Inputs
|
|
Inputs
|
|
Value
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Treasury
|
$
|
201,514
|
|
$
|
-
|
|
$
|
-
|
|
$
|
201,514
|
|
U.S. Government Agency
|
|
-
|
|
|
165,894
|
|
|
-
|
|
|
165,894
|
|
States and Political Subdivisions
|
|
-
|
|
|
6,672
|
|
|
-
|
|
|
6,672
|
|
Mortgage-Backed Securities
|
|
-
|
|
|
656
|
|
|
-
|
|
|
656
|
|
Equity Securities
|
|
-
|
|
|
7,778
|
|
|
-
|
|
|
7,778
|
|
Loans Held for Sale
|
|
-
|
|
|
82,598
|
|
|
-
|
|
|
82,598
|
|
Mortgage Banking Derivative Asset
|
|
-
|
|
|
-
|
|
|
3,898
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Derivative Liability
|
|
-
|
|
|
2,628
|
|
|
-
|
|
|
2,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Treasury
|
$
|
232,778
|
|
$
|
-
|
|
$
|
-
|
|
$
|
232,778
|
|
U.S. Government Agency
|
|
-
|
|
|
156,078
|
|
|
-
|
|
|
156,078
|
|
States and Political Subdivisions
|
|
-
|
|
|
6,319
|
|
|
-
|
|
|
6,319
|
|
Mortgage-Backed Securities
|
|
-
|
|
|
773
|
|
|
-
|
|
|
773
|
|
Equity Securities
|
|
-
|
|
|
7,653
|
|
|
-
|
|
|
7,653
|
Mortgage Banking Activities. The Company had changes in
the fair value of Level 1 and Level 2 assets and liabilities measured on a
recurring basis for the period from March 1, 2020 to March 31, 2020. These
changes totaled $0.7 million for residential
mortgage loans held for sale and ($1.4
million) related to
its mortgage banking derivative liability.
The Company had Level 3
issuances and transfers of $1.2 million and $1.8 million, respectively, for
the period from March 1, 2020 to March 31, 2020 related to mortgage banking
activities. Issuances represent the lock-date market value of IRLCs issued to
borrowers during the period, net of estimated pull-through and costs to
originate. IRLCs transferred out of Level 3 represent IRLCs that were funded
and moved to mortgage loans held for sale, at fair value.
Assets Measured at Fair Value
on a Non-Recurring Basis
Certain assets are measured at fair value on a
non-recurring basis (i.e., the assets are not measured at fair value on an
ongoing basis but are subject to fair value adjustments in certain
circumstances). An example would be assets exhibiting evidence of impairment.
The following is a description of valuation methodologies used for assets
measured on a non-recurring basis.
Collateral Dependent Loans. Impairment for collateral
dependent loans is measured using the fair value of the collateral less selling
costs. The fair value of collateral is determined by an independent valuation
or professional appraisal in conformance with banking regulations. Collateral
values are estimated using Level 3 inputs due to the volatility in the real
estate market, and the judgment and estimation involved in the real estate
appraisal process. Impaired loans are reviewed and evaluated on at least a
quarterly basis for additional impairment and adjusted accordingly. Valuation
techniques are consistent with those techniques applied in prior periods. Collateral-dependent
loans had a carrying value of $7.3 million with a valuation
allowance of $0.3 million at March 31, 2020
and $6.6 million and $0.5 million, respectively, at
December 31, 2019.
Other Real Estate Owned. During the first three
months of 2020, certain foreclosed assets, upon initial recognition, were
measured and reported at fair value through a charge-off to the allowance for
loan losses based on the fair value of the foreclosed asset less estimated cost
to sell. The fair value of the foreclosed asset is determined by an
independent valuation or professional appraisal in conformance with banking
regulations. On an ongoing basis, we obtain updated appraisals on foreclosed
assets and realize valuation adjustments as necessary. The fair value of
foreclosed assets is estimated using Level 3 inputs due to the judgment and
estimation involved in the real estate valuation process.
Mortgage
Servicing Rights.
Residential mortgage
loan servicing rights are evaluated for impairment at each reporting period based
upon the fair value of the rights as compared to the carrying amount. Fair value
is determined by a third party valuation model using estimated prepayment
speeds of the underlying mortgage loans serviced and stratifications based on
the risk characteristics of the underlying loans (predominantly loan type and
note interest rate). The fair value is estimated using Level 3 inputs,
including a discount rate, weighted average prepayment speed, and the cost of
loan servicing. Further detail on the key inputs utilized are provided in Note
4 – Mortgage Banking Activities. At March 31, 2020, there was no valuation
allowance for loan servicing rights.
Assets
and Liabilities Disclosed at Fair Value
The Company is required to
disclose the estimated fair value of financial instruments, both assets and
liabilities, for which it is practical to estimate fair value and the following
is a description of valuation methodologies used for those assets and liabilities.
Cash and Short-Term
Investments. The
carrying amount of cash and short-term investments is used to approximate fair
value, given the short time frame to maturity and as such assets do not present
unanticipated credit concerns.
Securities Held to Maturity. Securities held to maturity
are valued in accordance with the methodology previously noted in this footnote
under the caption “Assets and Liabilities Measured at Fair Value on a Recurring
Basis – Securities Available for Sale”.
Loans. The
loan portfolio is segregated into categories and the fair value of each loan
category is calculated using present value techniques based upon projected cash
flows, estimated discount rates, and incorporates a liquidity discount to meet
the objective of “exit price” valuation.
Deposits. The fair value of Noninterest Bearing
Deposits, NOW Accounts, Money Market Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated using present value techniques and
rates currently offered for deposits of similar remaining maturities.
Subordinated Notes Payable. The fair value of each note is calculated
using present value techniques, based upon projected cash flows and estimated
discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings. The fair value of each note is
calculated using present value techniques, based upon projected cash flows and
estimated discount rates as well as rates being offered for similar debt.
A summary of estimated fair
values of significant financial instruments consisted of the following:
|
|
March 31, 2020
|
|
|
Carrying
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
(Dollars in Thousands)
|
|
Value
|
|
Inputs
|
|
Inputs
|
|
Inputs
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
72,676
|
|
$
|
72,676
|
|
$
|
-
|
|
$
|
-
|
Short-Term Investments
|
|
|
196,936
|
|
|
196,936
|
|
|
-
|
|
|
-
|
Investment Securities, Available for Sale
|
|
|
382,514
|
|
|
201,514
|
|
|
181,000
|
|
|
-
|
Investment Securities, Held to Maturity
|
|
|
251,792
|
|
|
20,211
|
|
|
237,718
|
|
|
-
|
Equity Securities(1)
|
|
|
3,588
|
|
|
-
|
|
|
3,588
|
|
|
-
|
Loans Held for Sale
|
|
|
82,598
|
|
|
-
|
|
|
82,598
|
|
|
-
|
Loans, Net of Allowance for Credit Losses
|
|
|
1,841,304
|
|
|
-
|
|
|
-
|
|
|
1,842,002
|
Mortgage Banking Derivative Asset
|
|
|
3,898
|
|
|
-
|
|
|
-
|
|
|
3,898
|
Mortgage Servicing Rights
|
|
|
910
|
|
|
-
|
|
|
-
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,545,585
|
|
$
|
-
|
|
$
|
2,577,836
|
|
$
|
-
|
Short-Term Borrowings
|
|
|
76,516
|
|
|
-
|
|
|
76,516
|
|
|
-
|
Subordinated Notes Payable
|
|
|
52,887
|
|
|
-
|
|
|
45,268
|
|
|
-
|
Long-Term Borrowings
|
|
|
5,896
|
|
|
-
|
|
|
6,077
|
|
|
-
|
Mortgage Banking Derivative Liability
|
|
|
2,628
|
|
|
-
|
|
|
2,628
|
|
|
-
|
|
|
December 31, 2019
|
|
|
Carrying
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
(Dollars in Thousands)
|
|
Value
|
|
Inputs
|
|
Inputs
|
|
Inputs
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
60,087
|
|
$
|
60,087
|
|
$
|
-
|
|
$
|
-
|
Short-Term Investments
|
|
|
318,336
|
|
|
318,336
|
|
|
-
|
|
|
-
|
Investment Securities, Available for Sale
|
|
|
403,601
|
|
|
232,778
|
|
|
170,823
|
|
|
-
|
Investment Securities, Held to Maturity
|
|
|
239,539
|
|
|
20,042
|
|
|
221,387
|
|
|
-
|
Loans Held for Sale
|
|
|
9,509
|
|
|
-
|
|
|
9,509
|
|
|
-
|
Equity Securities(1)
|
|
|
3,591
|
|
|
-
|
|
|
3,591
|
|
|
-
|
Loans, Net of Allowance for Credit Losses
|
|
|
1,822,024
|
|
|
-
|
|
|
-
|
|
|
1,804,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,645,454
|
|
$
|
-
|
|
$
|
2,644,430
|
|
$
|
-
|
Short-Term Borrowings
|
|
|
6,404
|
|
|
-
|
|
|
6,404
|
|
|
-
|
Subordinated Notes Payable
|
|
|
52,887
|
|
|
-
|
|
|
40,280
|
|
|
-
|
Long-Term Borrowings
|
|
|
6,514
|
|
|
-
|
|
|
6,623
|
|
|
-
|
(1) Not readily marketable securities - reflected in other assets.
All non-financial instruments are excluded
from the above table. The disclosures also do not include goodwill. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Company.
NOTE 9 – OTHER COMPREHENSIVE INCOME
The amounts allocated to other comprehensive income are presented
in the table below. Reclassification adjustments related to securities held
for sale are included in net gain (loss) on securities transactions in the
accompanying consolidated statements of comprehensive income. For the periods
presented, reclassifications adjustments related to securities held for sale
was not material.
|
|
|
Before
|
|
Tax
|
|
Net of
|
|
|
|
Tax
|
|
(Expense)
|
|
Tax
|
(Dollars in Thousands)
|
Amount
|
|
Benefit
|
|
Amount
|
March 31, 2020
|
|
|
|
|
|
|
|
|
Investment Securities:
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss on securities
available for sale
|
$
|
3,538
|
|
$
|
(897)
|
|
$
|
2,641
|
Amortization of losses on securities transferred from
available for sale to held to
|
|
|
|
|
|
|
|
|
|
maturity
|
|
9
|
|
|
(2)
|
|
|
7
|
|
|
Total Other Comprehensive Income
|
$
|
3,547
|
|
$
|
(899)
|
|
$
|
2,648
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
Investment Securities:
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss on securities
available for sale
|
$
|
1,250
|
|
$
|
(317)
|
|
$
|
933
|
Amortization of losses on securities transferred from
available for sale to held to
|
|
|
|
|
|
|
|
|
|
maturity
|
|
12
|
|
|
(4)
|
|
|
8
|
|
|
Total Other Comprehensive Income
|
$
|
1,262
|
|
$
|
(321)
|
|
$
|
941
|
Accumulated other comprehensive loss was comprised of the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Securities
|
|
|
|
|
Other
|
|
Available
|
|
Retirement
|
|
Comprehensive
|
(Dollars in Thousands)
|
for Sale
|
|
Plans
|
|
Loss
|
Balance as of January 1, 2020
|
$
|
864
|
|
$
|
(29,045)
|
|
$
|
(28,181)
|
Other comprehensive income during the period
|
|
2,648
|
|
|
-
|
|
|
2,648
|
Balance as of March 31, 2020
|
$
|
3,512
|
|
$
|
(29,045)
|
|
$
|
(25,533)
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019
|
$
|
(2,008)
|
|
$
|
(26,807)
|
|
$
|
(28,815)
|
Other comprehensive income during the period
|
|
941
|
|
|
-
|
|
|
941
|
Balance as of March 31, 2019
|
$
|
(1,067)
|
|
$
|
(26,807)
|
|
$
|
(27,874)
|
Item
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis ("MD&A")
provides supplemental information, which sets forth the major factors that have
affected our financial condition and results of operations and should be read
in conjunction with the Consolidated Financial Statements and related notes.
The following information should provide a better understanding of the major
factors and trends that affect our earnings performance and financial condition,
and how our performance during 2020 compares with prior years. Throughout this
section, Capital City Bank Group, Inc., and subsidiaries, collectively, is
referred to as "CCBG," "Company," "we,"
"us," or "our."
CAUTION CONCERNING FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A
section, 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. Please see the Introductory
Note and Item 1A. Risk Factors of our 2019 Report on Form 10-K, as updated in our
subsequent quarterly reports filed on Form 10-Q, and in our other filings made
from time to time with the SEC after the date of this report.
However, other factors besides those listed in our Quarterly
Report or in our Annual Report 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.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Tallahassee,
Florida, and we are the parent of our wholly owned subsidiary, Capital City
Bank (the "Bank" or "CCB"). The Bank offers a broad array
of products and services through a total of 57 full-service offices located in
Florida, Georgia, and Alabama. The Bank offers commercial and retail banking
services, as well as trust and asset management, and retail securities
brokerage. We offer residential mortgage banking services through Capital City
Home Loans.
Our profitability, like most financial institutions, is dependent
to a large extent upon net interest income, which is the difference between the
interest and fees received on earning assets, such as loans and securities, and
the interest paid on interest-bearing liabilities, principally deposits and
borrowings. Results of operations are also affected by the provision for credit
losses, noninterest income such as deposit fees, wealth management fees,
mortgage banking fees and bank card fees, and operating expenses such as
salaries and employee benefits, occupancy and other operating expenses,
including income taxes.
A detailed discussion regarding the economic conditions in our
markets and our long-term strategic objectives is included as part of the
MD&A section of our 2019 Form 10-K.
Strategic Alliance. On March 1, 2020, CCB completed its
acquisition of a 51% membership interest in Brand Mortgage Group, LLC (“Brand”)
which is now operated as a Capital City Home Loans (“CCHL”). CCHL was consolidated
into CCBG’s financial statements effective March 1, 2020. See Note 1 –
Business Combination in the Consolidated Financial Statements. The primary
purpose of the strategic alliance with Brand was to gain access to an expanded
residential mortgage product line-up, investor base (including mandatory
delivery channel for loan sales) and to generate other operational synergies
and cost savings.
RESPONSE
TO COVID-19 PANDEMIC
In March 2020, the outbreak of the novel
Coronavirus Disease 2019 ("COVID-19") was recognized as a pandemic by
the World Health Organization. The spread of COVID-19 has created a global
public health crisis that has resulted in unprecedented uncertainty, volatility
and disruption in financial markets and in governmental, commercial and
consumer activity in the United States and globally, including the markets that
we serve. Governmental responses to the pandemic have included orders closing
businesses not deemed essential and directing individuals to restrict their
movements, observe social distancing, and shelter in place. These actions,
together with responses to the pandemic by businesses and individuals, have resulted
in rapid decreases in commercial and consumer activity, temporary closures of
many businesses that have led to a loss of revenues and a rapid increase in
unemployment, material decreases in oil and gas prices and in business
valuations, disrupted global supply chains, market downturns and volatility,
changes in consumer behavior related to pandemic fears, related emergency
response legislation, monetary stimulus, and an expectation that Federal
Reserve policy will maintain a low interest rate environment for the
foreseeable future.
We have taken deliberate actions to ensure that we have the
balance sheet strength to serve our clients and communities, including a strong
liquidity position and the build of reserves supported by a strong capital
position. Our business and consumer clients are experiencing varying degrees
of financial distress, which is expected to increase in coming months. In
order to protect the health of our clients and associates and comply with
applicable government directives, we have modified our business practices as
noted below. We will continue to closely monitor this pandemic and respond
with needed changes as this situation evolves. We discuss the potential
impacts on our financial performance in more detail throughout parts of the
MD&A section.
Clients
· Implemented business continuity plans to
help ensure that clients have adequate access to banking services while at the
same time working to protect clients through heightened safety procedures
· We have chosen to participate in the CARES
Act Paycheck Protection Program that provides government guaranteed and
forgivable loans to our clients. We have obtained Small Business
Administration (“SBA”) loan approvals of approximately $135 million for the first
phase of funding and $50 million for the second phase of funding.
· Implemented a loan extension program to
support eligible clients and communities throughout this period of uncertainty
· Announced temporary closure of banking
office lobbies (operating drive-thru only) – focused on the enhanced digital
banking experience
Associates
· Heightened safety procedures, including
social-distancing and work-at-home arrangements for associates with
positions/responsibilities enabling them to work remotely
· Increased hourly wage for non-exempt
associates for a period of time
· Increased paid time off for affected
associates for a period of time
· Enhanced medical benefits in the near short-term
NON-GAAP FINANCIAL MEASURES
We present a tangible common equity ratio and a tangible book
value per diluted share that, in each case, removes the effect of goodwill resulting from merger and
acquisition activity. We believe these measures are useful to investors because
it allows investors to more easily compare our capital adequacy to other companies in the industry, although
the manner in which we calculate non-GAAP financial measures may differ from
that of other companies reporting non-GAAP measures with similar names. The
GAAP to non-GAAP reconciliation for each quarter presented on page 36 is provided
below.
|
|
2020
|
|
2019
|
|
2018
|
(Dollars in Thousands, except per share data)
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
Shareowners' Equity (GAAP)
|
|
$
|
328,507
|
|
$
|
327,016
|
|
$
|
321,562
|
|
$
|
314,595
|
|
$
|
308,986
|
|
$
|
302,587
|
|
$
|
298,016
|
|
$
|
293,571
|
Less: Goodwill (GAAP)
|
|
|
89,275
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
Tangible Shareowners' Equity (non-GAAP)
|
A
|
|
239,232
|
|
|
242,205
|
|
|
236,751
|
|
|
229,784
|
|
|
224,175
|
|
|
217,776
|
|
|
213,205
|
|
|
208,760
|
Total Assets (GAAP)
|
|
|
3,086,523
|
|
|
3,088,953
|
|
|
2,934,513
|
|
|
3,017,654
|
|
|
3,052,051
|
|
|
2,959,183
|
|
|
2,819,190
|
|
|
2,880,278
|
Less: Goodwill (GAAP)
|
|
|
89,275
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
|
|
84,811
|
Tangible Assets (non-GAAP)
|
B
|
$
|
2,997,248
|
|
$
|
3,004,142
|
|
$
|
2,849,702
|
|
$
|
2,932,843
|
|
$
|
2,967,240
|
|
$
|
2,874,372
|
|
$
|
2,734,379
|
|
$
|
2,795,467
|
Tangible Common Equity Ratio (non-GAAP)
|
A/B
|
|
7.98%
|
|
|
8.06%
|
|
|
8.31%
|
|
|
7.83%
|
|
|
7.56%
|
|
|
7.58%
|
|
|
7.80%
|
|
|
7.47%
|
Actual Diluted Shares Outstanding (GAAP)
|
C
|
|
16,845,462
|
|
|
16,855,161
|
|
|
16,797,241
|
|
|
16,773,449
|
|
|
16,840,496
|
|
|
16,808,542
|
|
|
17,127,846
|
|
|
17,114,380
|
Diluted Tangible Book Value (non-GAAP)
|
A/C
|
|
14.20
|
|
|
14.37
|
|
|
14.09
|
|
|
13.70
|
|
|
13.31
|
|
|
12.96
|
|
|
12.45
|
|
|
12.20
|
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except
|
2020
|
|
2019
|
|
2018
|
Per Share Data)
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
$
|
27,365
|
|
|
$
|
28,008
|
|
|
$
|
28,441
|
|
|
$
|
28,665
|
|
|
$
|
27,722
|
|
|
$
|
26,370
|
|
|
$
|
25,392
|
|
|
$
|
24,419
|
|
|
Interest Expense
|
|
1,592
|
|
|
|
1,754
|
|
|
|
2,244
|
|
|
|
2,681
|
|
|
|
2,814
|
|
|
|
2,022
|
|
|
|
1,769
|
|
|
|
1,649
|
|
|
Net Interest Income
|
|
25,773
|
|
|
|
26,254
|
|
|
|
26,197
|
|
|
|
25,984
|
|
|
|
24,908
|
|
|
|
24,348
|
|
|
|
23,623
|
|
|
|
22,770
|
|
|
Provision for Credit Losses
|
|
4,990
|
|
|
|
(162)
|
|
|
|
776
|
|
|
|
646
|
|
|
|
767
|
|
|
|
457
|
|
|
|
904
|
|
|
|
815
|
|
|
Net Interest Income After
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit Losses
|
|
20,783
|
|
|
|
26,416
|
|
|
|
25,421
|
|
|
|
25,338
|
|
|
|
24,141
|
|
|
|
23,891
|
|
|
|
22,719
|
|
|
|
21,955
|
|
|
Noninterest Income
|
|
15,478
|
|
|
|
13,828
|
|
|
|
13,903
|
|
|
|
12,770
|
|
|
|
12,552
|
|
|
|
13,238
|
|
|
|
13,308
|
|
|
|
12,542
|
|
|
Noninterest Expense
|
|
30,969
|
|
|
|
29,142
|
|
|
|
27,873
|
|
|
|
28,396
|
|
|
|
28,198
|
|
|
|
26,505
|
|
|
|
28,699
|
|
|
|
28,393
|
|
|
Income Before Income Taxes
|
|
5,292
|
|
|
|
11,102
|
|
|
|
11,451
|
|
|
|
9,712
|
|
|
|
8,495
|
|
|
|
10,624
|
|
|
|
7,328
|
|
|
|
6,104
|
|
|
Income Tax Expense(2)
|
|
1,282
|
|
|
|
2,537
|
|
|
|
2,970
|
|
|
|
2,387
|
|
|
|
2,059
|
|
|
|
2,166
|
|
|
|
1,338
|
|
|
|
101
|
|
|
Net Loss Attributable to NCI
|
|
277
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net Income Attributable to CCBG
|
|
4,287
|
|
|
|
8,565
|
|
|
|
8,481
|
|
|
|
7,325
|
|
|
|
6,436
|
|
|
|
8,458
|
|
|
|
5,990
|
|
|
|
6,003
|
|
|
Net Interest Income (FTE)
|
$
|
25,877
|
|
|
$
|
26,378
|
|
|
$
|
26,333
|
|
|
$
|
26,116
|
|
|
$
|
25,042
|
|
|
$
|
24,513
|
|
|
$
|
23,785
|
|
|
$
|
22,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Basic
|
$
|
0.26
|
|
|
$
|
0.51
|
|
|
$
|
0.51
|
|
|
$
|
0.44
|
|
|
$
|
0.38
|
|
|
$
|
0.50
|
|
|
$
|
0.35
|
|
|
$
|
0.35
|
|
|
Net Income Diluted
|
|
0.25
|
|
|
|
0.51
|
|
|
|
0.50
|
|
|
|
0.44
|
|
|
|
0.38
|
|
|
|
0.50
|
|
|
|
0.35
|
|
|
|
0.35
|
|
|
Cash Dividends Declared
|
|
0.14
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
0.11
|
|
|
|
0.11
|
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.07
|
|
|
Diluted Book Value
|
|
19.50
|
|
|
|
19.40
|
|
|
|
19.14
|
|
|
|
18.76
|
|
|
|
18.35
|
|
|
|
18.00
|
|
|
|
17.40
|
|
|
|
17.15
|
|
|
Diluted Tangible Book Value(1)
|
|
14.20
|
|
|
|
14.37
|
|
|
|
14.09
|
|
|
|
13.70
|
|
|
|
13.31
|
|
|
|
12.96
|
|
|
|
12.45
|
|
|
|
12.20
|
|
|
Market Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
30.62
|
|
|
|
30.95
|
|
|
|
28.00
|
|
|
|
25.00
|
|
|
|
25.87
|
|
|
|
26.95
|
|
|
|
25.91
|
|
|
|
25.99
|
|
|
Low
|
|
15.61
|
|
|
|
25.75
|
|
|
|
23.70
|
|
|
|
21.57
|
|
|
|
21.04
|
|
|
|
19.92
|
|
|
|
23.19
|
|
|
|
22.28
|
|
|
Close
|
|
20.12
|
|
|
|
30.50
|
|
|
|
27.45
|
|
|
|
24.85
|
|
|
|
21.78
|
|
|
|
23.21
|
|
|
|
23.34
|
|
|
|
23.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Net
|
$
|
1,882,703
|
|
|
$
|
1,846,190
|
|
|
$
|
1,837,548
|
|
|
$
|
1,823,311
|
|
|
$
|
1,780,406
|
|
|
$
|
1,785,570
|
|
|
$
|
1,747,093
|
|
|
$
|
1,691,287
|
|
|
Earning Assets
|
|
2,751,880
|
|
|
|
2,694,700
|
|
|
|
2,670,081
|
|
|
|
2,719,217
|
|
|
|
2,704,802
|
|
|
|
2,554,482
|
|
|
|
2,535,292
|
|
|
|
2,566,006
|
|
|
Total Assets
|
|
3,038,788
|
|
|
|
2,982,204
|
|
|
|
2,959,310
|
|
|
|
3,010,662
|
|
|
|
2,996,511
|
|
|
|
2,849,245
|
|
|
|
2,826,924
|
|
|
|
2,861,104
|
|
|
Deposits
|
|
2,552,690
|
|
|
|
2,524,951
|
|
|
|
2,495,755
|
|
|
|
2,565,431
|
|
|
|
2,564,715
|
|
|
|
2,412,375
|
|
|
|
2,392,272
|
|
|
|
2,431,956
|
|
|
Shareowners’ Equity
|
|
331,891
|
|
|
|
326,904
|
|
|
|
320,273
|
|
|
|
313,599
|
|
|
|
307,262
|
|
|
|
302,196
|
|
|
|
297,757
|
|
|
|
291,806
|
|
|
Common Equivalent Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
16,808
|
|
|
|
16,750
|
|
|
|
16,747
|
|
|
|
16,791
|
|
|
|
16,791
|
|
|
|
16,989
|
|
|
|
17,056
|
|
|
|
17,045
|
|
|
Diluted
|
|
16,842
|
|
|
|
16,834
|
|
|
|
16,795
|
|
|
|
16,818
|
|
|
|
16,819
|
|
|
|
17,050
|
|
|
|
17,125
|
|
|
|
17,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets
|
|
0.57
|
%
|
|
|
1.14
|
%
|
|
|
1.14
|
%
|
|
|
0.98
|
%
|
|
|
0.87
|
%
|
|
|
1.18
|
%
|
|
|
0.84
|
%
|
|
|
0.84
|
%
|
|
Return on Average Equity
|
|
5.20
|
|
|
|
10.39
|
|
|
|
10.51
|
|
|
|
9.37
|
|
|
|
8.49
|
|
|
|
11.10
|
|
|
|
7.98
|
|
|
|
8.25
|
|
|
Net Interest Margin (FTE)
|
|
3.78
|
|
|
|
3.89
|
|
|
|
3.92
|
|
|
|
3.85
|
|
|
|
3.75
|
|
|
|
3.81
|
|
|
|
3.72
|
|
|
|
3.58
|
|
|
Noninterest Income as % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue
|
|
37.52
|
|
|
|
34.50
|
|
|
|
34.67
|
|
|
|
32.95
|
|
|
|
33.51
|
|
|
|
35.22
|
|
|
|
36.04
|
|
|
|
35.52
|
|
|
Efficiency Ratio
|
|
74.89
|
|
|
|
72.48
|
|
|
|
69.27
|
|
|
|
73.02
|
|
|
|
75.01
|
|
|
|
70.21
|
|
|
|
77.37
|
|
|
|
80.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses
|
$
|
21,083
|
|
|
$
|
13,905
|
|
|
$
|
14,319
|
|
|
$
|
14,593
|
|
|
$
|
14,120
|
|
|
$
|
14,210
|
|
|
$
|
14,219
|
|
|
$
|
13,563
|
|
|
Allowance for Credit Losses to Loans
|
1.13
|
%
|
|
|
0.75
|
%
|
|
|
0.78
|
%
|
|
|
0.79
|
%
|
|
|
0.78
|
%
|
|
|
0.80
|
%
|
|
|
0.80
|
%
|
|
|
0.78
|
%
|
|
Nonperforming Assets (“NPAs”)
|
|
6,337
|
|
|
|
5,425
|
|
|
|
5,454
|
|
|
|
6,632
|
|
|
|
6,949
|
|
|
|
9,101
|
|
|
|
9,587
|
|
|
|
9,114
|
|
|
NPAs to Total Assets
|
|
0.21
|
|
|
|
0.18
|
|
|
|
0.19
|
|
|
|
0.22
|
|
|
|
0.23
|
|
|
|
0.31
|
|
|
|
0.34
|
|
|
|
0.32
|
|
|
NPAs to Loans plus OREO
|
|
0.34
|
|
|
|
0.29
|
|
|
|
0.30
|
|
|
|
0.36
|
|
|
|
0.39
|
|
|
|
0.51
|
|
|
|
0.54
|
|
|
|
0.52
|
|
|
Allowance to Non-Performing Loans
|
432.61
|
|
|
|
310.99
|
|
|
|
290.55
|
|
|
|
259.55
|
|
|
|
279.77
|
|
|
|
206.79
|
|
|
|
207.06
|
|
|
|
236.25
|
|
|
Net Charge-Offs to Average Loans
|
0.23
|
|
|
|
0.05
|
|
|
|
0.23
|
|
|
|
0.04
|
|
|
|
0.20
|
|
|
|
0.10
|
|
|
|
0.06
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital
|
|
16.12
|
%
|
|
|
17.16
|
%
|
|
|
16.83
|
%
|
|
|
16.36
|
%
|
|
|
16.34
|
%
|
|
|
16.36
|
%
|
|
|
16.17
|
%
|
|
|
16.25
|
%
|
|
Total Capital
|
|
17.19
|
|
|
|
17.90
|
|
|
|
17.59
|
|
|
|
17.13
|
|
|
|
17.09
|
|
|
|
17.13
|
|
|
|
16.94
|
|
|
|
17.00
|
|
|
Common Equity Tier 1
|
|
13.55
|
|
|
|
14.47
|
|
|
|
14.13
|
|
|
|
13.67
|
|
|
|
13.62
|
|
|
|
13.58
|
|
|
|
13.43
|
|
|
|
13.46
|
|
|
Leverage
|
|
10.81
|
|
|
|
11.25
|
|
|
|
11.09
|
|
|
|
10.64
|
|
|
|
10.53
|
|
|
|
10.89
|
|
|
|
10.99
|
|
|
|
10.69
|
|
|
Tangible Common Equity(1)
|
|
7.98
|
|
|
|
8.06
|
|
|
|
8.31
|
|
|
|
7.83
|
|
|
|
7.56
|
|
|
|
7.58
|
|
|
|
7.80
|
|
|
|
7.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Non-GAAP financial measure. See non-GAAP
reconciliation on page 35.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)Includes $0.4 million and $1.4 million
income tax benefit in the third and second quarter of 2018, respectively, for
2017 plan year pension plan contributions made in 2018.
|
|
|
|
|
|
|
|
|
FINANCIAL OVERVIEW
Results of Operations
Performance Summary. Net income of $4.3 million, or $0.25
per diluted share, for the first quarter of 2020 compared to net income of $8.6
million, or $0.51 per diluted share, for the fourth quarter of 2019 and net
income of $6.4 million, or $0.38 per diluted share, for the first quarter of
2019. Compared to the prior periods, the decline in net income for the first
quarter of 2020 reflected a build in credit loss reserves in response to the
potential effects of the COVID-19 pandemic (discussed further below).
Net Interest Income. Taxable equivalent net interest income for the first quarter of
2020 was $25.9 million compared to $26.4 million for the fourth quarter of 2019
and $25.0 million for the first quarter of 2019. The decrease compared to the fourth quarter
of 2019 reflected lower rates earned on overnight funds, investment securities
and variable rate loans driven by the aggregate 150bp FED rate reduction during
the first quarter of 2020. The increase compared to the first quarter of 2019 reflected
loan growth and a reduction in the cost of our negotiated rate deposits,
partially offset by lower rates on our earning assets.
Provision and Allowance for Credit Losses. The provision for credit losses for the
first quarter of 2020 was $5.0 million, which exceeded net loan charge-offs of
$1.1 million. The increase in the provision reflected a build in reserves due
to deteriorating economic conditions related to COVID-19. At March 31, 2020,
the allowance for credit losses of $21.1 million represented 1.13% of
outstanding loans (excluding HFS loans) and provided coverage of 433% of
nonperforming loans. The adoption of ASC 326 (“CECL”) on January 1, 2020 resulted
in a $3.3 million increase in the allowance for credit losses.
Noninterest Income. Noninterest income for the first quarter of 2020 totaled $15.5
million, an increase of $1.7 million, or 11.9%, over the fourth quarter of 2019
and a $2.9 million, or 23.3%,
increase over the first quarter of 2019. The increase over both prior periods was primarily attributable to
higher mortgage banking revenues, which reflected the strategic alliance with Brand
on March 1, 2020 (discussed further below). Higher deposit fees also
contributed to the increase in both periods and bank card fees contributed to
the increase over the first quarter of 2019.
Noninterest Expense. Noninterest expense for the first quarter of 2020 totaled $31.0
million, an increase of $1.8 million, or 6.3%, over the fourth quarter of 2019
and $2.8 million, or 9.8%, over the first quarter of 2019. The increase over
the fourth quarter of 2019 was primarily attributable to higher compensation
expense and occupancy expense, partially offset by lower other real estate
owned (“ORE0”) expense. The increase in compensation and occupancy expense was
primarily due to the aforementioned integration of Brand. The reduction in ORE
expense reflected a $1.0 million gain on the sale of a banking office. The
same aforementioned factors were the primary drivers in the variance compared
to the first quarter of 2019.
Impact of Capital City Home Loans (CCHL). For the month of March, CCHL’s mortgage
banking operations impacted our noninterest income and noninterest expense, and
thus, the period over period comparison due to the late quarter closing.
Overall, CCHL operations for the month of March had a nominal negative impact
on our net income for the first quarter of 2020. Excluding CCHL, our noninterest
income totaled $13.3 million and noninterest expense totaled $28.0 million for
the first quarter of 2020. We provide further detail below on the impact of
CCHL’s operations on select noninterest income and expense categories as well
as a discussion of trends realized by CCB.
Financial Condition
Earning Assets. Average earning assets were $2.752 billion for the first quarter of 2020,
an increase of $57.2 million, or 2.1%, over the fourth quarter of 2020, and an
increase of $47.1 million, or 1.7%, over the first quarter of 2019. The
increase over the fourth quarter of 2019 was primarily driven by higher deposit
balances which funded growth in the loan and investment portfolios. The change
in the earning asset mix compared to the first quarter of 2019 reflected higher
loan balances that were funded with overnight funds and investment balances.
The Brand acquisition on March 1st increased average earning assets
by $29 million for the first quarter of 2020.
Loans. Average loans (excluding held for sale
(“HFS”) loans) increased $13.7 million, or 0.8%, compared to the fourth quarter
of 2019 and $74.8 million, or 4.2% compared to the first quarter of 2019. Period
end loan balances increased $26.5 million, or 1.4% over the fourth quarter of
2019 and $65.3 million, or 3.6% over the first quarter of 2019.
Deposits.
Average total deposits increased $27.7 million, or 1.1%, over the fourth
quarter of 2019, and decreased $12.0 million, or 0.5%, from the first quarter
of 2019. The increase compared to the fourth quarter of 2019 reflected
increases in negotiated NOW public fund deposits and savings accounts. The
decrease compared to the first quarter of 2019 was primarily due to declines in
certificates of deposit, money market accounts, and one large, non-public
negotiated account, which were partially offset by increases in noninterest
bearing accounts and savings accounts.
Credit Quality. Nonperforming assets totaled $6.3
million at March 31, 2020, an increase of $0.9 million, or 16.8%, over December
31, 2019 and a decrease of $0.6 million, or 8.8%, from March 31, 2019.
Nonperforming assets represented 0.21% of total assets at March 31, 2020
compared to 0.18% at December 31, 2019 and 0.23% at March 31, 2019.
Capital. At
March 31, 2020, we were well-capitalized with a total risk-based capital ratio
of 17.19% and a tangible common equity ratio (a non-GAAP financial measure) of 7.98%
compared to 17.90% and 8.06%, respectively, at December 31, 2019 and 17.09% and
7.56%, respectively, at March 31, 2019. At March 31, 2020, all of our
regulatory capital ratios exceeded the threshold to be well-capitalized under
the Basel III capital standards.
RESULTS
OF OPERATIONS
Net
Income
For
the first quarter of 2020, we realized net income of $4.3 million, or $0.25 per
diluted share, compared to net income of $8.6 million, or $0.51 per diluted
share, for the fourth quarter of 2019, and $6.4 million, or $0.38 per diluted
share, for the first quarter of 2019.
Net
income for the first quarter of 2020 included a $5.0 million provision
for credit losses, which exceeded net loan charge-offs of $1.1 million. The
higher provision reflected a build in reserves due to deteriorating economic
conditions related to the COVID-19 pandemic.
Compared to the fourth quarter of 2019,
the $5.8 million decrease in operating profit was attributable to a $5.2
million increase in the provision for credit losses, higher noninterest expense
of $1.8 million, and lower net interest income of $0.5 million, partially
offset by higher noninterest income of $1.7 million.
Compared to the first quarter of 2019, the
$3.2 million decrease in operating profit reflected a $4.2 million increase in
the provision for credit losses and higher noninterest expense of $2.8 million,
partially offset by higher noninterest income of $2.9 million and net interest
income of $0.9 million.
A condensed
earnings summary of each major component of our financial performance is
provided below:
|
|
Three Months Ended
|
(Dollars in Thousands, except per share data)
|
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Interest Income
|
|
$
|
27,365
|
|
$
|
28,008
|
|
$
|
27,722
|
Taxable Equivalent Adjustments
|
|
|
104
|
|
|
124
|
|
|
134
|
Total Interest Income (FTE)
|
|
|
27,469
|
|
|
28,132
|
|
|
27,856
|
Interest Expense
|
|
|
1,592
|
|
|
1,754
|
|
|
2,814
|
Net Interest Income (FTE)
|
|
|
25,877
|
|
|
26,378
|
|
|
25,042
|
Provision for Credit Losses
|
|
|
4,990
|
|
|
(162)
|
|
|
767
|
Taxable Equivalent Adjustments
|
|
|
104
|
|
|
124
|
|
|
134
|
Net Interest Income After Provision for Credit Losses
|
|
|
20,783
|
|
|
26,416
|
|
|
24,141
|
Noninterest Income
|
|
|
15,478
|
|
|
13,828
|
|
|
12,552
|
Noninterest Expense
|
|
|
30,969
|
|
|
29,142
|
|
|
28,198
|
Income Before Income Taxes
|
|
|
5,292
|
|
|
11,102
|
|
|
8,495
|
Income Tax Expense
|
|
|
1,282
|
|
|
2,537
|
|
|
2,059
|
Net Loss Attributable to Noncontrolling Interests
|
|
|
277
|
|
|
-
|
|
|
-
|
Net Income Attributable to Common Shareowners
|
|
$
|
4,287
|
|
$
|
8,565
|
|
$
|
6,436
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income Per Share
|
|
$
|
0.26
|
|
$
|
0.51
|
|
$
|
0.38
|
Diluted Net Income Per Share
|
|
$
|
0.25
|
|
$
|
0.51
|
|
$
|
0.38
|
Net Interest
Income
Net interest income represents our single largest source of
earnings and is equal to interest income and fees generated by earning assets
less interest expense paid on interest bearing liabilities. This
information is provided on a "taxable equivalent" basis to reflect
the tax-exempt status of income earned on certain loans and state and local
government debt obligations. We provide an analysis of our net interest income
including average yields and rates in Table I on page 50.
Tax-equivalent net interest income for the
first quarter of 2020 was $25.9 million compared to $26.4 million for the
fourth quarter of 2019 and $25.0 million for the first quarter of 2019. The
decrease in tax-equivalent net interest income compared to the fourth quarter of
2019 reflected lower rates earned on overnight funds, investment securities and
variable rate loans, partially offset by a lower cost on our negotiated rate
deposits. The increase in tax-equivalent net interest income compared to the
first quarter of 2019 was primarily due to loan growth and a reduction in the
cost of our negotiated rate deposits, partially offset by lower rates on our
earning assets.
Our net interest margin for the first quarter of 2020 was 3.78%, a
decrease of 11 basis points compared to the fourth quarter of 2019 and an
increase of three basis points over the first quarter of 2019. The decrease in
margin compared to the fourth quarter of 2019 was attributable to lower rates
on our variable and adjustable rate earning assets. The increase in the margin
compared to the first quarter of 2019 was due to a 19 basis point reduction in
our cost of funds, partially offset by a 16 basis point reduction in yield on
earning assets.
The federal funds target rate ended the first quarter of 2020 at a
range of 0.00%-0.25%, after two unscheduled FED cuts during the quarter
totaling 150 basis points. These rate decreases have resulted in lower
repricing of our variable and adjustable rate earning assets and will put
pressure on our net interest margin. We continue to prudently manage our
deposit mix and overall cost of funds, which were 23 basis points for the first
quarter of 2020 compared to 26 basis points for the fourth quarter of 2019. In
response to the FED rate cuts in the first quarter of 2020, we lowered our
rates for our negotiable rate deposit accounts to buffer the effect.
We expect the significant decline in rates late in the first
quarter of 2020 related to the FEDs emergency actions will put pressure on net interest
income until rates normalize. Interest and fee income related to the SBA
Payment Protection Program (See Loans below) will partially offset the effect
of lower rates. Further, we will adjust deposit rates as needed to partially
offset the effect.
Due to highly competitive fixed-rate loan pricing in our markets,
we continue to review our loan pricing and make adjustments where we believe
appropriate and prudent.
Provision
for Credit Losses
The provision for credit loss expense for
the first quarter of 2020 was $5.0 million compared to negative provision of $0.2
million for the fourth quarter of 2019 and provision expense of $0.8 million
for the first quarter of 2019. The increase in the provision over prior periods
reflected a build in reserves due to deteriorating economic conditions related
to the COVID-19 pandemic. We further discuss the various factors that impacted
our provision expense for the first quarter of 2020 in the Note 3 – Loans Held
for Investment and Allowance for Credit Losses in the Consolidated Financial
Statements.
Charge-off activity for the respective periods is set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(Dollars in Thousands, except per share data)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
CHARGE-OFFS
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
$
|
362
|
|
|
$
|
149
|
|
|
$
|
95
|
|
Real Estate - Construction
|
|
-
|
|
|
|
58
|
|
|
|
-
|
|
Real Estate - Commercial Mortgage
|
|
11
|
|
|
|
33
|
|
|
|
155
|
|
Real Estate - Residential
|
|
110
|
|
|
|
27
|
|
|
|
264
|
|
Real Estate - Home Equity
|
|
31
|
|
|
|
-
|
|
|
|
52
|
|
Consumer(1)
|
|
1,566
|
|
|
|
819
|
|
|
|
795
|
|
Total Charge-offs
|
$
|
2,080
|
|
|
$
|
1,086
|
|
|
$
|
1,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECOVERIES
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
$
|
40
|
|
|
$
|
127
|
|
|
$
|
74
|
|
Real Estate - Construction
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real Estate - Commercial Mortgage
|
|
191
|
|
|
|
266
|
|
|
|
70
|
|
Real Estate - Residential
|
|
40
|
|
|
|
116
|
|
|
|
44
|
|
Real Estate - Home Equity
|
|
33
|
|
|
|
25
|
|
|
|
32
|
|
Consumer(1)
|
|
695
|
|
|
|
300
|
|
|
|
284
|
|
Total Recoveries
|
$
|
999
|
|
|
$
|
834
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs
|
$
|
1,081
|
|
|
$
|
252
|
|
|
$
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs (Annualized) as a percent of Average
Loans
|
|
0.23
|
%
|
|
|
0.05
|
%
|
|
|
0.20
|
%
|
|
Outstanding, Net of Unearned Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes overdrafts. Prior to the first quarter 2020,
overdraft losses were reflected in noninterest income (deposit fees)
|
|
Noninterest
Income
Noninterest income for the first quarter of 2020
totaled $15.5 million compared to $13.8 million for the fourth quarter of 2019
and $12.6 million for the first quarter of 2019. CCHL’s mortgage banking
operations impacted our noninterest income (mortgage banking fees) for the
first quarter of 2020, and thus, the period over comparison due to the late
quarter closing. Excluding CCHL, our noninterest income totaled $13.3 million
for the first quarter of 2020.
Wealth management and bank card fees were
negatively affected in the first quarter of 2020 by the COVID-19 pandemic.
Market volatility at March 31st had an unfavorable impact on wealth
management fees and slower consumer spending negatively impacted our bank card
fees. Compared to fourth quarter of 2019, wealth management fees decreased by
$0.2 million, or 5.7%, and bank card fees declined by $0.1 million, or 2.6%. Compared
to the first quarter of 2019, we realized solid improvement in deposit fees of
$0.2 million, or 5.0%, bank card fees of $0.2 million, or 6.7%, and wealth
management fees of $0.3 million, or 12.1%.
Noninterest income represented 37.5% of operating revenues (net
interest income plus noninterest income) for the first quarter of 2020 compared
to 34.5% for the fourth quarter of 2019 and 33.5% for the first quarter of
2019.
The table below reflects the major components of
noninterest income.
|
|
Three Months Ended
|
(Dollars in Thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Deposit Fees
|
$
|
5,015
|
|
$
|
4,980
|
|
$
|
4,775
|
Bank Card Fees
|
|
3,051
|
|
|
3,131
|
|
|
2,855
|
Wealth Management Fees
|
|
2,604
|
|
|
2,761
|
|
|
2,323
|
Mortgage Banking Revenues
|
|
3,030
|
|
|
1,542
|
|
|
993
|
Other
|
|
1,778
|
|
|
1,414
|
|
|
1,606
|
Total Noninterest Income
|
$
|
15,478
|
|
$
|
13,828
|
|
$
|
12,552
|
Significant
components of noninterest income are discussed in more detail below.
Deposit Fees. Deposit fees for the first quarter
of 2020 totaled $5.0 million, comparable to the fourth quarter of 2019 and an increase
of $0.2 million, or 5.0%, over the first quarter of 2019. The increase over
the first quarter of 2019 reflected higher overdraft fees.
Bank Card Fees. Bank card fees for the first quarter of 2020
totaled $3.1 million, comparable to the fourth quarter of 2019 and an increase
of $0.2 million, or 6.9%, over the first quarter of 2019. The increase over
the first quarter of 2019 reflected various initiatives aimed at growing our
bank card revenues, including a checking account acquisition initiative that
began in early 2019 and periodic debit and credit card promotions.
Wealth Management Fees. Wealth management fees, which include both trust fees (i.e.,
managed accounts and trusts/estates) and retail brokerage fees (i.e.,
investment, insurance products, and retirement accounts), totaled $2.6 million
for the first quarter of 2020, a decrease of $0.2 million, or 5.7%, from the
fourth quarter of 2019 and an increase of $0.3 million, or 12.1%, over the
first quarter of 2019. The decrease compared to the fourth quarter of 2019
reflected lower trust fees attributable to a decrease in assets under
management driven by market volatility at March 31st on which
quarterly client fees are based. The increase over the first quarter of 2019
reflected higher retail brokerage fees which was attributable to account
acquisition and higher trading activity in existing accounts. At March 31,
2020, total assets under management were approximately $1.561 billion compared
to $1.774 billion at December 31, 2019 and $1.675 billion at March 31, 2019.
The reduction in assets under management from both prior periods reflected the
decline in stock market values due primarily to COVID-19 and its anticipated
impact on the economy going forward.
Mortgage Banking Revenues. Mortgage banking revenues totaled $3.0 million for the first
quarter of 2020, an increase of $1.5 million, or 96.5%, over the fourth quarter
of 2019 and $2.0 million, or 205.1% over the first quarter of 2019. The increase
over both prior periods was primarily attributable to aforementioned strategic
alliance with CCHL that began on March 1, 2020.
Noninterest
Expense
Noninterest expense for the first quarter of 2020
totaled $31.0 million compared to $29.1 million for the fourth quarter of 2019
and $28.2 million for the first quarter of 2019. CCHL’s mortgage banking
operations impacted our noninterest expense for the first quarter of 2020, and
thus, the period over comparison due to the late quarter closing. Excluding
CCHL, our noninterest expense totaled $28.0 million for the first quarter of
2020. In the first quarter of 2020, we realized lower OREO expense
attributable to a $1.0 million gain from the sale of a banking office. Expense
variances versus prior periods including the impact of CCHL’s operations on
select expense categories for the first quarter of 2020 are discussed in
further detail below.
The table below reflects the major components of
noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(Dollars in Thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Salaries
|
$
|
15,730
|
|
$
|
13,374
|
|
$
|
12,285
|
Associate Benefits
|
|
4,006
|
|
|
3,989
|
|
|
4,064
|
|
Total Compensation
|
|
19,736
|
|
|
17,363
|
|
|
16,349
|
|
|
|
|
|
|
|
|
|
|
Premises
|
|
2,383
|
|
|
2,228
|
|
|
2,061
|
Equipment
|
|
2,596
|
|
|
2,452
|
|
|
2,448
|
|
Total Occupancy
|
|
4,979
|
|
|
4,680
|
|
|
4,509
|
|
|
|
|
|
|
|
|
|
|
Legal Fees
|
|
468
|
|
|
546
|
|
|
376
|
Professional Fees
|
|
1,121
|
|
|
1,229
|
|
|
972
|
Processing Services
|
|
1,582
|
|
|
1,245
|
|
|
1,478
|
Advertising
|
|
584
|
|
|
386
|
|
|
497
|
Travel and Entertainment
|
|
317
|
|
|
282
|
|
|
204
|
Printing and Supplies
|
|
200
|
|
|
166
|
|
|
173
|
Telephone
|
|
610
|
|
|
693
|
|
|
680
|
Postage
|
|
186
|
|
|
173
|
|
|
169
|
Insurance - Other
|
|
296
|
|
|
205
|
|
|
391
|
Other Real Estate Owned, net
|
|
(798)
|
|
|
102
|
|
|
363
|
Miscellaneous
|
|
1,688
|
|
|
2,072
|
|
|
2,037
|
|
Total Other
|
|
6,254
|
|
|
7,099
|
|
|
7,340
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest Expense
|
$
|
30,969
|
|
$
|
29,142
|
|
$
|
28,198
|
Significant components of noninterest expense are
discussed in more detail below.
Compensation. Compensation expense totaled $19.7
million for the first quarter of 2020, an increase of $2.4 million, or 13.7%,
over the fourth quarter of 2019 and $3.4 million, or 20.7%, over the first quarter
of 2019. The increases were due to the aforementioned integration of CCHL which
drove $2.3 million of the increase over both prior periods, primarily reflective
of commissions paid to mortgage loan officers and to a lesser extent base
salary and benefit expense for CCHL operational personnel. Higher base salary
expense (primarily related to merit raises) and cash incentive expense at CCB contributed
to the increase over the first quarter of 2019.
Occupancy.
Occupancy expense (including premises and equipment) totaled $5.0 million for
the first quarter of 2020, an increase of $0.3 million, or 6.4%, over the fourth
quarter of 2019 and $0.5 million, or 10.4%, over the first quarter of 2019.
The increases were influenced by the aforementioned integration of CCHL which
drove $0.2 million of the increase over both prior periods, primarily related
to lease expense for loan production offices. Higher maintenance and repairs
expense at CCB contributed to the increase over the first quarter of 2019.
Other. Other noninterest expense totaled $6.3 million for
the first quarter of 2020, a decrease of $0.8 million, or 11.9%, from the
fourth quarter of 2019 and $1.1 million, or 14.8%, from the first quarter of
2019. The decrease from both prior periods was primarily due to lower OREO
expense driven by a $1.0 million gain from the sale of a banking office in the
first quarter of 2020.
Our operating efficiency ratio (expressed as
noninterest expense as a percent of the sum of taxable-equivalent net interest
income plus noninterest income) was 74.89% for the first quarter of 2020
compared to 72.48% for the fourth quarter of 2019 and 75.01% for the first quarter
of 2019. The increase compared to the fourth quarter of 2019 reflected the
increase in noninterest expense related to the aforementioned integration of
CCHL in March of 2020. As this entity begins to scale its operations, we
expect our efficiency ratio to improve.
Income
Taxes
We realized income tax expense of $1.3 million (effective rate
24%) for the first quarter of 2020 compared to $2.5 million (effective rate
23%) for the fourth quarter of 2019 and $2.1 million (effective rate 24%) for
the first quarter of 2019. Absent discrete items, we expect our annual effective
tax rate to approximate 24%.
FINANCIAL
CONDITION
Average earning assets were $2.752 billion
for the first quarter of 2020, an increase of $57.2 million, or 2.1%, over the
fourth quarter of 2019, and an increase of $47.1 million, or 1.7%, over the
first quarter of 2019. The increase in average earning assets over the fourth
quarter of 2019 was primarily driven by higher deposit balances which funded
growth in the loan and investment portfolios. The change in the earning asset
mix compared to the first quarter 2019 reflected higher loan balances that were
funded with overnight funds and investment balances. The Brand acquisition on March 1st
increased average earning assets by $29 million for the first quarter of 2020.
Investment Securities
In the first quarter of 2020, our average investment portfolio increased
$14.4 million, or 2.3%, over the fourth quarter of 2019 and decreased $23.9
million, or 3.6%, from the first quarter of 2019. Securities in our investment
portfolio represented 23.1% of our average earning assets for the first quarter
of 2020 compared to 23.0% for the fourth quarter of 2019, and 24.4% for the first
quarter of 2019. For the remainder of 2020, we will continue to closely
monitor liquidity levels and the interest rate environment to determine the
extent to which investment cash flow may be reinvested into securities.
The investment portfolio is a significant component of our
operations and, as such, it functions as a key element of liquidity and
asset/liability management. Two types of classifications are approved for
investment securities which are Available-for-Sale (“AFS”) and Held-to-Maturity
(“HTM”). During the first quarter of 2020, we purchased securities under both
the AFS and HTM designations. At March 31, 2020, $377.7 million, or 60.0%, of
our investment portfolio was classified as AFS, and $251.8 million, or 40.0%,
classified as HTM. The average maturity of our total portfolio at March 31,
2020 was 2.20 years compared to 2.11 years and 2.10 years at December 31, 2019
and March 31, 2019, respectively.
We determine the classification of a security at the
time of acquisition based on how the purchase will affect our asset/liability
strategy and future business plans and opportunities. We consider multiple
factors in determining classification, including regulatory capital
requirements, volatility in earnings or other comprehensive income, and
liquidity needs. Securities in the AFS portfolio are recorded at fair value
with unrealized gains and losses associated with these securities recorded net
of tax, in the accumulated other comprehensive income component of shareowners’
equity. HTM securities are acquired or owned with the intent of holding them
to maturity. HTM investments are measured at amortized cost. We do not trade,
nor do we presently intend to begin trading investment securities for the
purpose of recognizing gains and therefore we do not maintain a trading
portfolio.
At March 31, 2020 there were 42 positions (combined AFS and HTM)
with unrealized losses totaling $0.1 million. GNMA mortgage-backed securities,
U.S. treasury securities, and SBA investments carry the full faith and credit
guarantee of the U.S. government and are 0% risk-weighted assets for regulatory
capital purposes. Further, we consider the long history of no credit losses on
these securities indicates that the expectation of nonpayment of the amortized
cost basis is zero, even if the U.S. government were to technically default.
Loans
Average loans (excluding held for sale (“HFS”) loans) increased
$13.7 million, or 0.8% compared to the fourth quarter of 2019 and $74.8
million, or 4.2%, compared to the first quarter of 2019. Average HFS loans
increased $22.8 million and $27.5 million over the same respective periods and
reflected the integration of CCHL. The increase (excluding HFS loans)
reflected growth in all loan types except commercial, institutional, and
HELOCs. The increase compared to the first quarter of 2019 reflected growth in
all loan types, except institutional and HELOCs. Loan demand from the SBA
Paycheck Protection Program (“PPP”) has been extremely strong, and as of May 5,
2020, the Company has obtained approximately 1,100 SBA loan approvals totaling $135
million for the first phase of funding and 1,000 loan approvals totaling $50
million for the second phase of funding. The majority, if not all of these
loans are expected to be funded from our current on balance sheet liquidity.
Without compromising our credit standards, changing our
underwriting standards, or taking on inordinate interest rate risk, we continue
to closely monitor our markets and make minor rate adjustments as necessary.
Credit Quality
Nonperforming assets
(nonaccrual loans and OREO) totaled $6.3 million at March 31, 2020, a $0.9
million increase over December 31, 2019 and a $0.6 million decrease from March
31, 2019. Nonaccrual loans totaled $4.9 million at March 31, 2020, a $0.4
million increase over December 31, 2019 and a $0.2 million decrease from March
31, 2019. Gross additions to nonaccrual status totaled $3.6 million for the
first quarter of 2020 compared to $3.0 million for the fourth quarter of 2019
and $2.5 million for the first quarter of 2019. The balance of OREO totaled $1.5
million at March 31, 2020, an increase of $0.5 million over December 31, 2019 and
a decrease of $0.4 million from March 31, 2019. For the first quarter of 2020,
we added properties totaling $0.7 million, sold properties totaling $0.2
million, and recorded valuation adjustments totaling $0.1 million.
Nonperforming assets represented 0.21% of total assets at March 31, 2020
compared to 0.18% at December 31, 2019 and 0.23% at March 31, 2019.
COVID-19 Exposure
We continue to analyze our loan portfolio for segments that might
be directly affected by the stressed economic and business conditions caused by
the pandemic. Certain at-risk segments total 11% of our loan balances at March
31, 2020, including hotel (3%), restaurant (1%), retail and shopping centers
(5%), stock secured (1%), and other (1%). The other segment includes churches,
non-profits, education, and recreational. To assist our clients, we have
allowed short term 60 to 90 day loan extensions for affected borrowers with a
majority being 60 day extensions. Through May 5, 2020, we have extended 2,100
loans totaling $310 million (17% of loan portfolio). Approximately 81% of
these loans were for commercial borrowers and 19% for consumer borrowers.
(Dollars in Thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Nonaccruing Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
$
|
358
|
|
|
$
|
446
|
|
|
$
|
223
|
|
|
Real Estate - Construction
|
|
-
|
|
|
|
-
|
|
|
|
323
|
|
|
Real Estate - Commercial Mortgage
|
|
1,332
|
|
|
|
1,434
|
|
|
|
1,976
|
|
|
Real Estate - Residential
|
|
2,213
|
|
|
|
1,392
|
|
|
|
1,341
|
|
|
Real Estate - Home Equity
|
|
692
|
|
|
|
797
|
|
|
|
1,033
|
|
|
Consumer
|
|
279
|
|
|
|
403
|
|
|
|
151
|
|
Total Nonaccruing Loans (“NALs”)(1)
|
$
|
4,874
|
|
|
$
|
4,472
|
|
|
$
|
5,047
|
|
Other Real Estate Owned
|
|
1,463
|
|
|
|
953
|
|
|
|
1,902
|
|
Total Nonperforming Assets (“NPAs”)
|
$
|
6,337
|
|
|
$
|
5,425
|
|
|
$
|
6,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due Loans 30 – 89 Days
|
$
|
5,077
|
|
|
$
|
4,871
|
|
|
$
|
4,682
|
|
Performing Troubled Debt Restructurings
|
$
|
15,934
|
|
|
$
|
16,888
|
|
|
$
|
20,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccruing Loans/Loans
|
|
0.26
|
%
|
|
|
0.24
|
%
|
|
|
0.28
|
%
|
Nonperforming Assets/Total Assets
|
|
0.21
|
|
|
|
0.18
|
|
|
|
0.23
|
|
Nonperforming Assets/Loans Plus OREO
|
|
0.34
|
|
|
|
0.29
|
|
|
|
0.39
|
|
Allowance/Nonaccruing Loans
|
|
432.61
|
|
|
|
310.99
|
|
|
|
279.77
|
|
(1) Nonaccrual
TDRs totaling $1.0 million, $0.7 million, and $1.4 million are included in NALs
for March 31, 2020, December 31, 2019 and March 31, 2019, respectively.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is
deducted from the loans’ amortized cost basis to present the net amount
expected to be collected on the loans. The allowance for credit losses is
adjusted by a credit loss provision which is reported in earnings, and reduced
by the charge-off of loan amounts, net of recoveries. Loans are charged off
against the allowance when management believes the uncollectibility of a loan
balance is confirmed. Expected recoveries do not exceed the aggregate of
amounts previously charged-off and expected to be charged-off. Expected credit
loss inherent in non-cancellable off-balance sheet credit exposures is provided
through the credit loss provision, but recorded as a separate liability
included in other liabilities.
Management estimates the allowance balance using relevant
available information, from internal and external sources, relating to past
events, current conditions, and reasonable and supportable forecasts.
Historical loan default and loss experience provides the basis for the
estimation of expected credit losses. Adjustments to historical loss
information incorporate management’s view of current conditions and forecasts.
Detailed information regarding the methodology for estimating the
amount reported in the allowance for credit losses is provided in Note 1 –
Business and Basis of Presentation/Allowance for Credit Losses in the
Consolidated Financial Statements.
At March 31, 2020, the
allowance for credit losses of $21.1 million represented 1.13% of outstanding
loans (excluding HFS loans) and provided coverage of 433% of nonperforming
loans compared to $13.9 million, or 0.75% and 311% of loans at December 31,
2019. The adoption of ASC 326 (“CECL”) on January 1, 2020 had an impact of
$4.0 million ($3.3 million increase in the allowance for credit losses and $0.7
million increase in the allowance for unfunded loan commitments (liability
account)). The $3.9 million build in the allowance for credit losses for the
first quarter of 2020 reflected a forecasted decline in economic conditions,
primarily a higher rate of unemployment due to the impact of the COVID-19
pandemic. At March 31, 2020, we had not realized significant deterioration in
our credit quality metrics primarily due to actions taken under a loan
extension program. We will continue to adjust our allowance as the effects of
the pandemic on our borrowers becomes more clear and in consideration of our ongoing
risk mitigation efforts as well as the effectiveness of the government’s
stimulus actions, including the SBA Paycheck Protection Program and the
Economic Impact Payments.
Deposits
Average total deposits were $2.553 billion for the first quarter
of 2020, an increase of $27.7 million, or 1.1%, over the fourth quarter of
2019, and a decrease of $12.0 million, or 0.5%, over the first quarter of
2019. The increase in average deposits compared to the fourth quarter of 2019
reflected increases in negotiated NOW public fund deposits and savings
accounts. The seasonal influx of negotiated public NOW accounts has most
likely peaked for this cycle, and is expected to gradually decline through the
fourth quarter of 2020. The decrease in average deposits compared to the first
quarter of 2019 was primarily due to declines in certificates of deposit, money
market accounts, and one large, non-public negotiated account, which were
partially offset by increases in noninterest bearing accounts and savings
accounts.
Deposit levels remain strong, and average core deposits grew over
last quarter. As a result of the Coronavirus Aid, Relief, and Economic
Security (CARES) Act, and our participation in the Paycheck Participation
Program (PPP) to support small businesses, the potential exists for our deposit
levels to be volatile over the coming quarters due to the government’s
distribution of economic impact payments and the funding of PPP loans.
We closely monitor and manage deposit levels as part of our
overall liquidity position and believe prudent pricing discipline remains the
key to managing our mix of deposits.
MARKET RISK AND INTEREST RATE SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview. Market
risk management arises from changes in interest rates, exchange rates,
commodity prices, and equity prices. We have risk management policies to
monitor and limit exposure to interest rate risk and do not participate in
activities that give rise to significant market risk involving exchange rates, commodity
prices, or equity prices. Our risk management policies are primarily designed
to minimize structural interest rate risk.
Interest Rate Risk Management. Our net income is largely dependent on net interest
income. Net interest income is susceptible to interest rate risk to the degree
that interest-bearing liabilities mature or re-price on a different basis than
interest-earning assets. When interest-bearing liabilities mature or re-price
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest
income. Similarly, when interest-earning assets mature or re-price more
quickly than interest-bearing liabilities, falling interest rates could result
in a decrease in net interest income. Net interest income is also affected by
changes in the portion of interest-earning assets that are funded by
interest-bearing liabilities rather than by other sources of funds, such as
noninterest-bearing deposits and shareowners’ equity.
We have established a comprehensive interest rate risk management
policy, which is administered by management’s Asset/Liability Management
Committee (“ALCO”). The policy establishes risk limits, which are quantitative
measures of the percentage change in net interest income (a measure of net
interest income at risk) and the fair value of equity capital (a measure of
economic value of equity (“EVE”) at risk) resulting from a hypothetical change
in interest rates for maturities from one day to 30 years. We measure the
potential adverse impacts that changing interest rates may have on our
short-term earnings, long-term value, and liquidity by employing simulation
analysis through the use of computer modeling. The simulation model is
designed to capture optionality factors such as call features and interest rate
caps and floors imbedded in investment and loan portfolio contracts. As with
any method of analyzing interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology that we use. When interest
rates change, actual movements in different categories of interest-earning
assets and interest-bearing liabilities, loan prepayments, and withdrawals of
time and other deposits, may deviate significantly from the assumptions that we
use in our modeling. Finally, the methodology does not measure or reflect the
impact that higher rates may have on variable and adjustable-rate loan clients’
ability to service their debts, or the impact of rate changes on demand for
loan and deposit products.
We prepare a current base case and several
alternative simulations at least once per quarter and present the analysis to ALCO,
with the risk metrics also reported to the Board of Directors. In addition,
more frequent forecasts may be produced when interest rates are particularly
uncertain or when other business conditions so dictate.
Our interest rate risk management goal is to maintain expected
changes in our net interest income and capital levels due to fluctuations in
market interest rates within acceptable limits. Management attempts to achieve
this goal by balancing, within policy limits, the volume of variable-rate
liabilities with a similar volume of variable-rate assets, by keeping the
average maturity of fixed-rate asset and liability contracts reasonably
matched, by maintaining our core deposits as a significant component of our
total funding sources and by adjusting rates to market conditions on a
continuing basis.
We test our balance sheet using varying interest rate shock
scenarios to analyze our interest rate risk. Average interest rates are shocked
by plus or minus 100, 200, 300, and 400 basis points (“bp”), although we may
elect not to use particular scenarios that we determined are impractical in a
current rate environment. It is management’s goal to structure the balance
sheet so that net interest earnings at risk over 12-month and 24-month periods,
and the economic value of equity at risk, do not exceed policy guidelines at
the various interest rate shock levels.
We augment our interest rate shock analysis with alternative
external interest rate scenarios on a quarterly basis. These alternative
interest rate scenarios may include non-parallel rate ramps.
Analysis. Measures of net interest income at risk produced by simulation
analysis are indicators of an institution’s short-term performance in
alternative rate environments. These measures are typically based upon a
relatively brief period and do not necessarily indicate the long-term prospects
or economic value of the institution.
ESTIMATED CHANGES IN NET INTEREST INCOME (1)
|
|
|
|
|
|
|
|
|
Percentage Change
(12-month shock)
|
+400 bp
|
+300 bp
|
+200 bp
|
+100 bp
|
-100 bp
|
|
|
|
|
|
|
Policy Limit
|
-15.0%
|
-12.5%
|
-10.0%
|
-7.5%
|
-7.5%
|
March 31, 2020
|
13.6%
|
9.7%
|
5.9%
|
2.7%
|
-2.1%
|
December 31, 2019
|
13.8%
|
10.3%
|
6.8%
|
3.4%
|
-6.2%
|
|
|
|
|
|
|
Percentage Change
(24-month shock)
|
+400 bp
|
+300 bp
|
+200 bp
|
+100 bp
|
-100 bp
|
|
|
|
|
|
|
Policy Limit
|
-17.5%
|
-15.0%
|
-12.5%
|
-10.0%
|
-10.0%
|
March 31, 2020
|
31.6%
|
21.8%
|
12.2%
|
3.3%
|
-8.4%
|
December 31, 2019
|
35.5%
|
26.4%
|
17.2%
|
8.2%
|
-13.4%
|
The Net Interest Income at Risk position indicates that in the short-term, all rising rate environments will positively
impact the net interest margin of the Company, while a declining rate
environment of 100 bp
will have a negative impact on the net interest margin. Compared to the prior
quarter-end, the 12-month and 24-month periods of Net Interest Income at Risk
positions became less favorable in the rising rate scenarios, and more
favorable in the falling rate scenario. The Net Interest Income position became more favorable in the down 100
bp scenario as index rates were so low, that they can’t adjust to the full 100
bp reduction in rates. The Net Interest Income position became less favorable
in rising rate scenarios due to the increased level of loans below their floors
that will lag as rates rise until floors are pierced.
All measures of Net Interest Income at Risk are within our
prescribed policy limits over the next 12-month and 24-month periods.
The measures of equity value at risk indicate our ongoing economic
value by considering the effects of changes in interest rates on all of our
cash flows, and discounting the cash flows to estimate the present value of
assets and liabilities. The difference between the aggregated discounted
values of the assets and liabilities is the economic value of equity, which, in
theory, approximates the fair value of our net assets.
ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY (1)
|
|
|
|
|
|
|
|
|
Changes in Interest
Rates
|
+400 bp
|
+300 bp
|
+200 bp
|
+100 bp
|
-100 bp
|
Policy Limit
|
-30.0%
|
-25.0%
|
-20.0%
|
-15.0%
|
-15.0%
|
March 31, 2020 (Base
Scenario)
|
56.1%
|
45.3%
|
32.5%
|
18.1%
|
-41.3%
|
December 31, 2019 (Base
Scenario)
|
37.5%
|
30.2%
|
21.7%
|
12.2%
|
-22.0%
|
|
|
|
|
|
|
March 31, 2020 (Alternate
Scenario)(2)
|
38.0%
|
28.5%
|
17.2%
|
4.5%
|
7.7%
|
December 31, 2019
(Alternate Scenario)
|
37.5%
|
30.2%
|
21.7%
|
12.2%
|
7.4%
|
(1) Down 200,
300, and 400 bp scenarios have been excluded due to the low interest rate
environment.
(2)
The calculation of EVE results in a negative value in the rates down 100 bp
scenario in the base case, as it assigns a negative value to our nonmaturity
deposits. Since we believe our nonmaturity deposits are highly valued core
franchise deposits, we run an alternate EVE calculation which caps the value of
our nonmaturity deposits at their book value, and results in an EVE of 7.7% in
the down 100 bp scenario, which is within policy guidelines.
At March 31, 2020, the economic value of
equity results are favorable in all rising rate environments and are within
prescribed tolerance levels with the exception of the rates down 100 bp
scenario, as we have limited ability to lower our deposit rates relative to the
decline in market rates. If we were to cap the value of our nonmaturity
deposits at their book value in the down 100 bp scenario, EVE would be within
the policy limit parameters for that scenario.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to
meet our cash needs. Our objective in managing our liquidity is to maintain
our ability to meet loan commitments, purchase securities or repay deposits and
other liabilities in accordance with their terms, without an adverse impact on
our current or future earnings. Our liquidity strategy is guided by policies
that are formulated and monitored by our ALCO and senior management, and which
take into account the marketability of assets, the sources and stability of
funding and the level of unfunded commitments. We regularly evaluate all of
our various funding sources with an emphasis on accessibility, stability,
reliability and cost-effectiveness. Our principal source of funding has been
our client deposits, supplemented by our short-term and long-term borrowings,
primarily from securities sold under repurchase agreements, federal funds
purchased and FHLB borrowings. We believe that the cash generated from
operations, our borrowing capacity and our access to capital resources are
sufficient to meet our future operating capital and funding requirements.
At March 31, 2020, we had the ability to generate $1.362 billion
in additional liquidity through all of our available resources (this excludes $197
million in overnight funds sold). In addition to the primary borrowing outlets
mentioned above, we also have the ability to generate liquidity by borrowing
from the Federal Reserve Discount Window and through brokered deposits. We
recognize the importance of maintaining liquidity and have developed a
Contingent Liquidity Plan, which addresses various liquidity stress levels and
our response and action based on the level of severity. We periodically test
our credit facilities for access to the funds, but also understand that as the
severity of the liquidity level increases that certain credit facilities may no
longer be available. We conduct a liquidity stress test on a quarterly basis
based on events that could potentially occur at the Bank and report results to
ALCO, our Market Risk Oversight Committee, Risk Oversight Committee, and the
Board of Directors. At March 31, 2020, we believe the liquidity available to
us was sufficient to meet our on-going needs and execute our business strategy.
We view our investment portfolio primarily as a source of
liquidity and have the option to pledge the portfolio as collateral for borrowings
or deposits, and/or sell selected securities. The portfolio consists of debt
issued by the U.S. Treasury, U.S. governmental and federal agencies, and
municipal governments. The weighted average life of the portfolio was
approximately 2.20 years at March 31, 2020, and the available for sale
portfolio had a net unrealized pre-tax gain of $4.8 million.
Our average overnight funds position (defined deposits with banks
plus FED funds sold less FED funds purchased) was $234.4 million in the first
quarter of 2020 compared to $228.1 million in the fourth quarter of 2019 and
$265.7 million in the first quarter of 2019. The increase in the average net
overnight funds compared to the fourth quarter of 2019 was driven by higher
deposit balances, primarily seasonally higher public fund balances. The
decrease in overnight funds compared to the first quarter of 2019 was driven by
loan growth. It is anticipated that current on balance sheet liquidity levels
will remain adequate to fund loans under the SBA PPP program in the coming
months due to our strong overnight funds sold position, in addition to cash
flow generated from the investment portfolio. However, if necessary,
short-term advances from the FHLB or FRB could be considered.
We expect our capital expenditures will be
approximately $7.0 million over the next 12 months, which will primarily
consist of office remodeling, office equipment/furniture, and technology
purchases. Management expects that these capital expenditures will be funded
with existing resources without impairing our ability to meet our on-going
obligations.
Borrowings
At March 31, 2020, short term borrowings totaled $76.5 million
compared to $6.4 million at December 31, 2019. The increase reflected the
addition of residential mortgage warehouse borrowings related to the Brand
acquisition. Amounts available under warehouse lines to fund the timing
difference between residential real estate loan closings and investor funding
totaled $125 million and had a balance of $73 million at March 31, 2020.
Additional detail on these borrowings is provided in Note 4 – Mortgage Banking
Activities in the Consolidated Financial Statements.
At March 31, 2020, fixed rate credit advances from the FHLB totaled
$4.7 million in outstanding debt consisting of eight notes. During the first three
months of 2020, the Bank made FHLB advance payments totaling approximately $0.7
million, which included an advance of $0.3 million that matured. No advances
paid off, and we did not obtain any new FHLB advances during this period. The
FHLB notes are collateralized by a blanket floating lien on all of our 1-4
family residential mortgage loans, commercial real estate mortgage loans, and
home equity mortgage loans.
We have issued two junior subordinated deferrable interest notes
to our wholly owned Delaware statutory trusts. The first note for $30.9
million was issued to CCBG Capital Trust I in November 2004, of which $10
million was retired in April 2016. The second note for $32.0 million was
issued to CCBG Capital Trust II in May 2005. The interest payment for the CCBG
Capital Trust I borrowing is due quarterly and adjusts quarterly to a variable
rate of three-month LIBOR plus a margin of 1.90%. This note matures on
December 31, 2034. The interest payment for the CCBG Capital Trust II
borrowing is due quarterly and adjusts quarterly to a variable rate of
three-month LIBOR plus a margin of 1.80%. This note matures on June 15, 2035.
The proceeds from these borrowings were used to partially fund acquisitions.
Under the terms of each junior subordinated deferrable interest note, in the
event of default or if we elect to defer interest on the note, we may not, with
certain exceptions, declare or pay dividends or make distributions on our
capital stock or purchase or acquire any of our capital stock. We are in the
process of evaluating the impact of the expected discontinuation of LIBOR in
2021 on our two junior subordinated deferrable interest notes.
CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our capital ratios are presented below. At March 31,
2020, our regulatory capital ratios exceeded the threshold to be designated
as “well-capitalized” under the Basel III capital
standards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
(Dollars in Thousands)
|
|
2020
|
|
2019
|
|
2019
|
Shareowner's Equity
|
|
$
|
328,507
|
|
|
$
|
327,016
|
|
|
$
|
308,986
|
|
Leverage Ratio
|
|
|
10.81
|
%
|
|
|
11.25
|
%
|
|
|
10.53
|
%
|
Tier 1 Capital Ratio
|
|
|
16.12
|
|
|
|
17.16
|
|
|
|
16.34
|
|
Total Risk Based Capital Ratio
|
|
|
17.19
|
|
|
|
17.90
|
|
|
|
17.09
|
|
Common Equity Tier 1 Capital Ratio
|
|
|
13.55
|
|
|
|
14.47
|
|
|
|
13.62
|
|
Tangible Common Equity Ratio(1)
|
|
|
7.98
|
%
|
|
|
8.06
|
%
|
|
|
7.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Non-GAAP financial measure. See non-GAAP reconciliation
on page 35.
|
Shareowners’ equity was $328.5 million at March 31, 2020 compared
to $327.0 million at December 31, 2019 and $309.0 million at March 31, 2019. For
the first three months of 2020, shareowners’ equity was positively impacted by
net income of $4.3 million, a $2.6 million increase in the unrealized gain on
investment securities, net
adjustments totaling $0.5 million related to transactions under our stock
compensation plans, and stock compensation accretion of $0.3 million. Shareowners’
equity was reduced by a $3.1 million (net of tax) adjustment to retained
earnings for the adoption of ASC 326 (“CECL”), common stock dividend of $2.4
million ($0.14 per share) and shares repurchases of $0.7 million (33,074
shares).
At March 31, 2020, our common stock had a book value of $19.46 per
diluted share compared to $19.40 at December 31, 2019 and $18.35 at March 31,
2019. Book value is impacted by the net after-tax unrealized gains and losses
on investment securities. At March 31, 2020, the net gain was $3.5 million
compared to a $0.9 million net gain at December 31, 2019 and a $1.1 million net
loss at March 31, 2019. Book value is also impacted by the recording of our
unfunded pension liability through other comprehensive income in accordance
with Accounting Standards Codification Topic 715. At March 31, 2020, the net
pension liability reflected in other comprehensive loss was $29.0 million
compared to $29.0 million at December 31, 2019 and $26.8 million at March 31,
2019.
In January 2019, our Board of
Directors authorized the repurchase of up to 750,000 shares of our outstanding
common stock through February 2024, which replaced our prior repurchase program
that was set to expire in February 2019. Repurchases may be made in the open
market or in privately negotiated transactions; however, we are not obligated
to repurchase any specified number of shares. For the first three months of 2020,
we repurchased 33,074 shares at an average price of $21.36 per share under the
plan. During 2019, we purchased 77,000 shares at an average price of $23.40.
OFF-BALANCE SHEET ARRANGEMENTS
We are a party to financial instruments with off-balance sheet
risks in the normal course of business to meet the financing needs of our
clients.
At March 31, 2020, we had $583.9 million in commitments to extend
credit and $6.4 million in standby letters of credit. Commitments to extend
credit are agreements to lend to a client so long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by us to guarantee
the performance of a client to a third party. We use the same credit policies
in establishing commitments and issuing letters of credit as we do for
on-balance sheet instruments.
If commitments arising from these financial instruments continue
to require funding at historical levels, management does not anticipate that
such funding will adversely impact our ability to meet our on-going
obligations. In the event these commitments require funding in excess of
historical levels, management believes current liquidity, advances available
from the FHLB and the Federal Reserve, and investment security maturities
provide a sufficient source of funds to meet these commitments.
Certain agreements provide that the commitments are
unconditionally cancellable by the bank and for those agreements no allowance
for credit losses has been recorded. We have recorded an allowance for credit
losses on loan commitments that are not unconditionally cancellable by the
bank, included in other liabilities on the consolidated statements of financial
condition of $1.0 million at March 31, 2020.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the
Consolidated Financial Statements included in our 2019 Form 10-K. The
preparation of our Consolidated Financial Statements in accordance with GAAP
and reporting practices applicable to the banking industry requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and to disclose contingent assets and
liabilities. Actual results could differ from those estimates.
We have identified accounting for (i) the allowance for credit
losses, (ii) valuation of goodwill, (iii) pension benefits, and (iv)
income taxes as our most critical accounting policies and estimates in that
they are important to the portrayal of our financial condition and results, and
they require our subjective and complex judgment as a result of the need to
make estimates about the effects of matters that are inherently uncertain.
These accounting policies, including the nature of the estimates and types of
assumptions used, are described throughout this Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, and
Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in our 2019 Form 10-K.
As discussed in Note 1 – Business and Basis of Presentation/Significant
Accounting Policies, our policies related to the allowance for credit losses changed
on January 1, 2020 in connection with the adoption of ASC 326. The amount of
the allowance for credit losses represents management's best estimate of
current expected credit losses considering available information, from internal
and external sources, relevant to assessing exposure to credit loss over the
contractual term of the instrument. Relevant available information includes
historical credit loss experience, current conditions and reasonable and
supportable forecasts. While historical credit loss experience provides the
basis for the estimation of expected credit losses, adjustments to historical
loss information may be made for differences in current portfolio-specific risk
characteristics, environmental conditions or other relevant factors. While
management utilizes its best judgment and information available, the ultimate
adequacy of our allowance accounts is dependent upon a variety of factors
beyond our control, including the performance of our portfolios, the economy,
changes in interest rates and the view of the regulatory authorities toward
classification of assets.
TABLE I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE BALANCES & INTEREST RATES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
March 31, 2019
|
|
Average
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Average
|
(Dollars in Thousands)
|
Balances
|
|
Interest
|
|
Rate
|
|
Balances
|
|
Interest
|
|
Rate
|
|
|
Balances
|
|
Interest
|
|
Rate
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Net of Unearned Income(1)(2)
|
$
|
1,882,703
|
|
$
|
23,692
|
|
5.06
|
%
|
|
$
|
1,846,190
|
|
$
|
23,958
|
|
5.15
|
%
|
|
$
|
1,780,406
|
|
$
|
22,718
|
|
5.18
|
%
|
Taxable Securities(2)
|
|
629,512
|
|
|
2,995
|
|
1.91
|
|
|
|
610,046
|
|
|
3,186
|
|
2.08
|
|
|
|
618,127
|
|
|
3,387
|
|
2.20
|
|
Tax-Exempt Securities
|
|
5,293
|
|
|
25
|
|
1.86
|
|
|
|
10,327
|
|
|
43
|
|
1.67
|
|
|
|
40,575
|
|
|
158
|
|
1.56
|
|
Funds Sold
|
|
234,372
|
|
|
757
|
|
1.30
|
|
|
|
228,137
|
|
|
945
|
|
1.64
|
|
|
|
265,694
|
|
|
1,593
|
|
2.43
|
|
Total Earning Assets
|
|
2,751,880
|
|
|
27,469
|
|
4.01
|
%
|
|
|
2,694,700
|
|
|
28,132
|
|
4.14
|
%
|
|
|
2,704,802
|
|
|
27,856
|
|
4.17
|
%
|
Cash & Due From Banks
|
|
56,958
|
|
|
|
|
|
|
|
|
53,174
|
|
|
|
|
|
|
|
|
53,848
|
|
|
|
|
|
|
Allowance For Loan Losses
|
|
(14,389)
|
|
|
|
|
|
|
|
|
(14,759)
|
|
|
|
|
|
|
|
|
(14,347)
|
|
|
|
|
|
|
Other Assets
|
|
244,339
|
|
|
|
|
|
|
|
|
249,089
|
|
|
|
|
|
|
|
|
252,208
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
3,038,788
|
|
|
|
|
|
|
|
$
|
2,982,204
|
|
|
|
|
|
|
|
$
|
2,996,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW Accounts
|
$
|
808,811
|
|
$
|
725
|
|
0.36
|
%
|
|
$
|
755,625
|
|
$
|
889
|
|
0.47
|
%
|
|
$
|
884,277
|
|
$
|
1,755
|
|
0.80
|
%
|
Money Market Accounts
|
|
212,211
|
|
|
117
|
|
0.22
|
|
|
|
227,479
|
|
|
170
|
|
0.30
|
|
|
|
239,516
|
|
|
247
|
|
0.42
|
|
Savings Accounts
|
|
379,237
|
|
|
46
|
|
0.05
|
|
|
|
372,518
|
|
|
46
|
|
0.05
|
|
|
|
364,783
|
|
|
44
|
|
0.05
|
|
Other Time Deposits
|
|
105,542
|
|
|
51
|
|
0.19
|
|
|
|
108,407
|
|
|
52
|
|
0.19
|
|
|
|
118,839
|
|
|
53
|
|
0.18
|
|
Total Interest Bearing Deposits
|
|
1,505,801
|
|
|
939
|
|
0.25
|
|
|
|
1,464,029
|
|
|
1,157
|
|
0.31
|
|
|
|
1,607,415
|
|
|
2,099
|
|
0.53
|
|
Short-Term Borrowings
|
|
32,915
|
|
|
132
|
|
1.61
|
|
|
|
7,448
|
|
|
16
|
|
0.87
|
|
|
|
11,378
|
|
|
35
|
|
1.26
|
|
Subordinated Notes Payable
|
|
52,887
|
|
|
471
|
|
3.52
|
|
|
|
52,887
|
|
|
525
|
|
3.88
|
|
|
|
52,887
|
|
|
608
|
|
4.60
|
|
Other Long-Term Borrowings
|
|
6,312
|
|
|
50
|
|
3.21
|
|
|
|
6,723
|
|
|
56
|
|
3.33
|
|
|
|
8,199
|
|
|
72
|
|
3.55
|
|
Total Interest Bearing Liabilities
|
|
1,597,915
|
|
|
1,592
|
|
0.40
|
%
|
|
|
1,531,087
|
|
|
1,754
|
|
0.45
|
%
|
|
|
1,679,879
|
|
|
2,814
|
|
0.68
|
%
|
Noninterest Bearing Deposits
|
|
1,046,889
|
|
|
|
|
|
|
|
|
1,060,922
|
|
|
|
|
|
|
|
|
957,300
|
|
|
|
|
|
|
Other Liabilities
|
|
59,587
|
|
|
|
|
|
|
|
|
63,291
|
|
|
|
|
|
|
|
|
52,070
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
2,704,391
|
|
|
|
|
|
|
|
|
2,655,300
|
|
|
|
|
|
|
|
|
2,689,249
|
|
|
|
|
|
|
Temporary Equity
|
|
2,506
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREOWNERS’ EQUITY
|
|
331,891
|
|
|
|
|
|
|
|
|
326,904
|
|
|
|
|
|
|
|
|
307,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREOWNERS’ EQUITY
|
$
|
3,038,788
|
|
|
|
|
|
|
|
$
|
2,982,204
|
|
|
|
|
|
|
|
$
|
2,996,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Spread
|
|
|
|
|
|
|
3.61
|
%
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
3.49
|
%
|
Net Interest Income
|
|
|
|
$
|
25,877
|
|
|
|
|
|
|
|
$
|
26,378
|
|
|
|
|
|
|
|
$
|
25,042
|
|
|
|
Net Interest Margin(3)
|
|
|
|
|
|
|
3.78
|
%
|
|
|
|
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Average Balances include nonaccrual loans.
|
(2)Interest income includes the effects of taxable equivalent
adjustments using a 21% tax rate.
|
|
|
|
(3)Taxable equivalent net interest income divided by average
earnings assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|