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 2014 compares with prior years. Throughout this section,
Capital City Bank Group, Inc., and subsidiaries, collectively, are referred to as "CCBG," "Company," "we," "us," or "our."
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
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 2013 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
SECafter 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 bank 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 63 full-service offices located in Florida, Georgia, and Alabama. The Bank offers commercial and retail banking services, as well as trust and asset management, retail securities brokerage and data processing services. 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 loan losses, operating expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest income such as deposit fees, wealth management fees, mortgage banking fees, bank card fees, and data processing fees.
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 2013 Form 10-K. 25
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2014 2013 2012 (Dollars in Thousands, Except Per Share Data) First Fourth Third Second First Fourth Third Second Summary of Operations: Interest Income
$ 19,236 $ 20,076 $ 20,250 $ 20,698 $ 21,128 $ 21,787 $ 22,326 $ 22,437Interest Expense 950 1,080 1,050 1,103 1,183 1,232 1,295 1,372 Net Interest Income 18,286 18,996 19,200 19,595 19,945 20,555 21,031 21,065 Provision for Loan Losses 359 397 555 1,450 1,070 2,766 2,864 5,743 Net Interest Income After Provision for Loan Losses 17,927 18,599 18,645 18,145 18,875 17,789 18,167 15,322 Noninterest Income 12,785 13,825 14,026 13,731 13,528 13,915 13,416 13,719 Noninterest Expense 28,366 29,647 30,153 30,464 31,140 29,265 30,042 32,106 Income (Loss) Before Income Taxes 2,346 2,777 2,518 1,412 1,263 2,439 1,541 (3,065 ) Income Tax (Benefit) Expense (1,405 ) 5
927 569 424 564 420 (1,339 ) Net Income (Loss)
$ 3,751 $ 2,772 $ 1,591 $ 843 $ 839 $ 1,875 $ 1,121 $ (1,726 )Net Interest Income (FTE) $ 18,424 $ 19,141 $ 19,355 $ 19,744 $ 20,079 $ 20,697 $ 21,179 $ 21,219Per Common Share: Net Income (Loss) Basic $ 0.22 $ 0.16 $ 0.09 $ 0.05 $ 0.05 $ 0.11 $ 0.07 $ (0.10 )
Net Income (Loss) Diluted 0.22 0.16
0.09 0.05 0.05 0.11 0.07 (0.10 ) Cash Dividends Declared 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Diluted Book Value 16.02 15.85 14.44 14.36 14.35 14.31 14.54 14.48 Market Price: High 14.59 12.69 13.08 12.64 12.54 11.91 10.96 8.73 Low 11.56 11.33 11.06 10.12 10.95 9.04 7.00 6.35 Close 13.28 11.77 11.78 11.53 12.35 11.37 10.64 7.37 Selected Average Balances: Loans, Net
$ 1,395,506 $ 1,414,909$
2,201,390 2,206,694 2,240,889 2,178,946 2,209,166 2,262,847 Total Assets
2,598,307 2,553,653 2,558,395 2,564,528 2,598,680 2,534,011 2,566,239 2,624,417 Deposits 2,124,960 2,050,870
2,059,498 2,067,647 2,102,967 2,051,099 2,075,482 2,135,653 Shareowners' Equity
251,617 250,485 249,557 253,017 251,746
Common Equivalent Average Shares: Basic 17,399 17,341 17,336 17,319 17,302 17,229 17,215 17,192 Diluted 17,439 17,423 17,396 17,355 17,309 17,256 17,228 17,192 Performance Ratios: Return on Average Assets 0.59 % 0.43 % 0.25 % 0.13 % 0.13 % 0.29 % 0.17 % (0.26 )% Return on Average Equity 5.44 4.33 2.51 1.35 1.36 2.95 1.77 (2.75 ) Net Interest Margin (FTE) 3.29 3.45 3.49 3.59 3.64 3.78 3.82
Noninterest Income as % of Operating Revenue 42.05 43.85 42.82 41.68 40.62 40.81 39.31
Efficiency Ratio 91.02 90.22 90.42 91.07 92.67 84.68 86.89
Asset Quality: Allowance for Loan Losses
$ 29,929Allowance for Loan Losses to Loans 1.57 % 1.65 % 1.75 % 1.89 % 1.90 % 1.93 % 1.97 % 1.93 % Nonperforming Assets ("NPAs") 78,594 85,035 94,700 96,653 103,869 117,648 127,247 132,829 NPAs to Total Assets 2.98 3.26 3.77 3.77 3.99 4.47 5.10 5.02 NPAs to Loans plus ORE 5.42 5.87 6.38 6.44 6.81 7.47 8.02 8.23 Allowance to Non-Performing Loans 63.98 62.48 60.00 65.66 61.17 45.42 40.80 40.03 Net Charge-Offs to Average Loans 0.39 0.65 0.78 0.54 0.66 1.00 0.66 1.80 Capital Ratios: Tier I Capital 16.85 % 16.56 % 15.60 % 15.36 % 14.95 % 14.35 % 14.43 % 14.17 % Total Capital 18.22 17.94 16.97 16.73 16.32 15.72 15.80 15.54 Tangible Capital 7.66 7.58 6.84 6.64 6.49 6.35 6.86 6.40 Leverage 10.47 10.46 10.16 10.07 9.81 9.90 9.83 9.60 26 FINANCIAL OVERVIEW
A summary overview of our financial performance is provided below.
Results of Operations º Net income of
$3.8 million, or $0.22per diluted share for the first quarter of 2014 compared to net income of $2.8 million, or $0.16per diluted share in the fourth quarter of 2013, and net income of $0.8
quarter 2014 earnings were favorably impacted by a tax benefit of
$2.2 million, or $0.13per share related to an adjustment to our reserve for uncertain tax positions. º Total credit costs (loan loss provision plus other real estate owned
("OREO") expenses) were
the quarters ended
respectively. Slower problem loan migration, lower loan losses, and
improved credit metrics have resulted in a normalized loan loss provision.
Continued progress in disposing of OREO properties and firming of property
values in our real estate markets has favorably impacted our level of OREO
º Tax equivalent net interest income for the first quarter of 2014 totaled
2013 and a
The decrease compared to both prior periods was due to a reduction in loan
income primarily attributable to declining loan balances and unfavorable
asset repricing, partially offset by a reduction in interest expense and a
lower level of foregone interest on loans.
º Noninterest income for the first quarter of 2014 totaled
primarily attributable to lower deposit and wealth management fees.
Compared to the same prior year period, noninterest income decreased
million, or 5.5%, attributable to lower mortgage banking and deposit fees.
º Noninterest expense (excluding OREO expense) for the first quarter of 2014
quarter of 2013 and
The decrease compared to both periods was driven primarily by lower pension
FDICinsurance fees. Lower legal fees also contributed to the decrease from the same prior year period. Financial Condition º Average earning assets totaled $2.268 billionfor the first quarter of 2014, an increase of $62.0 million, or 2.8%, over the fourth quarter of 2013, and $27.4 million, or 1.2%, over the first quarter of 2012. The
increase compared to both prior periods primarily reflects a higher level
of deposits resulting from a seasonal influx of public funds and noninterest bearing deposits.
º Average loans decreased
payoffs, normal amortization and problem loan resolutions outpaced new
production. Our loan pipelines are growing at a slow pace mirroring the
slow recovery in our markets, however we did realize growth in end of
period loan balances for the first quarter of 2014 reflective of increased
production as well as a lower level of payoffs.
º Average deposit balances were
an increase of
funds balances partially offset by lower certificate of deposit balances
drove the increase compared to the fourth quarter of 2013, while the
increase over the first quarter of 2013 reflects higher noninterest bearing
deposits and savings accounts, partially offset by lower certificate of deposit balances.
º Nonperforming assets totaled
Nonperforming assets represented 2.98% of total assets at
compared to 3.26% at
December 31, 2013and 3.99% at March 31, 2013.
º As of
ratio of 18.22% and a tangible common equity ratio of 7.66% compared to
17.94% and 7.58%, respectively, at
March 31, 2013. 27 RESULTS OF OPERATIONS Net Income For the first quarter of 2014, we realized net income of $3.8 million, or $0.22per diluted share compared to net income of $2.8 million, or $0.16per diluted share for the fourth quarter of 2013, and net income of $0.8 million, or $0.05per diluted share for the first quarter of 2013. Compared to the fourth quarter of 2013, performance reflects lower noninterest expense of $1.3 millionand income taxes of $1.4 million, partially offset by lower net interest income of $0.7 millionand noninterest income of $1.0 million. Compared to the first quarter of 2013, the increase in earnings was due to lower noninterest expense of $2.8 million, a lower loan loss provision of $0.7 million, and a reduction in income taxes of $1.8 million, partially offset by lower net interest income of $1.6 millionand noninterest income of $0.7 million.
A condensed earnings summary of each major component of our financial performance is provided below:
Three Months Ended March 31, December 31, March 31, (Dollars in Thousands, except per share data) 2014 2013
$ 19,236 $ 20,076 $ 21,128Taxable Equivalent Adjustments 138 145
134 Total Interest Income (FTE) 19,374 20,221 21,262 Interest Expense 950 1,080 1,183 Net Interest Income (FTE) 18,424 19,141 20,079 Provision for Loan Losses 359 397 1,070
Taxable Equivalent Adjustments 138 145 134 Net Interest Income After Provision for Loan Losses 17,927 18,599 18,875 Noninterest Income 12,785 13,825 13,528 Noninterest Expense 28,366 29,647 31,140 Income Before Income Taxes 2,346 2,777 1,263 Income Tax (Benefit) Expense (1,405 ) 5 424 Net Income
$ 3,751 $ 2,772 $ 839Basic Net Income Per Share $ 0.22 $ 0.16 $ 0.05Diluted Net Income Per Share $ 0.22 $ 0.16 $ 0.05Net 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 investments, the majority of which are 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 39. Tax equivalent net interest income for the first quarter of 2014 was
$18.4 millioncompared to $19.1 millionfor the fourth quarter of 2013 and $20.1 millionfor the first quarter of 2013. The decrease in tax equivalent net interest income compared to the prior periods was due to a reduction in loan income primarily attributable to declining loan balances and continued unfavorable asset repricing, partially offset by a reduction in interest expense. The lower interest expense is attributable to favorable repricing on FHLB advances and certificates of deposit, which reflected both lower balances and favorable repricing. The decline in the loan portfolio, coupled with the low rate environment continues to put downward pressure on our net interest income. The loan portfolio yield has been declining because the average rate on new loans is lower than the loans being paid off and the existing adjustable rate loans are repricing lower. Lowering our cost of funds, to the extent we can, and continuing to shift the mix of our deposits will help to partially mitigate the unfavorable impact of weak loan demand and repricing, although any further impact is expected to be minimal. The net interest margin for the first quarter of 2014 was 3.29%, a decrease of 16 basis points from the fourth quarter of 2013 and a decline of 35 basis points from the first quarter of 2013. The shift in interest earning asset mix primarily attributable to the declining loan portfolio, coupled with the low rate environment continues to put pressure on our net interest income. Additionally, as compared to the fourth quarter of 2013, 10 of the 16 basis point decline in the margin was attributable to the higher level of earning assets during the first quarter of 2014, which is attributable to the seasonal influx of public funds. 28 Historically low interest rates (essentially setting a floor on deposit repricing), foregone interest, unfavorable asset repricing without the flexibility to significantly adjust deposit rates and core deposit growth (which has strengthened our liquidity position, but contributed to an unfavorable shift in our earning asset mix), have all placed pressure on our net interest margin. Our current strategy, which is consistent with our historical strategy, is to not accept greater interest rate risk by reaching further out the curve for yield, particularly given the fact that short term rates are at historical lows. We continue to maintain short duration portfolios on both sides of the balance sheet and believe we are well positioned to respond to changing market conditions. Over time, this strategy has historically produced fairly consistent outcomes and a net interest margin that is significantly above peer comparisons. Given the unfavorable asset repricing and low rate environment, we anticipate continued pressure on the margin in 2014. Provision for Loan Losses The provision for loan losses for the first quarter of 2014 was $0.4 millioncompared to $0.4 millionfor the fourth quarter of 2013 and $1.1 millionfor the first quarter of 2013. The lower level of provision reflects favorable problem loan migration, lower loan losses, and continued improvement in key credit metrics. Net charge-offs for the first quarter of 2014 totaled $1.3 million, or 0.39% (annualized), of average loans compared to $2.3 million, or 0.65% (annualized), for the fourth quarter of 2012 and $2.4 million, or 0.66% (annualized), for the first quarter of 2013. At March 31, 2014, the allowance for loan losses of $22.1 millionwas 1.57% of outstanding loans (net of overdrafts) and provided coverage of 64% of nonperforming loans compared to 1.65% and 62%, respectively, at December 31, 2013, and 1.90% and 61%, respectively, at March 31, 2013.
Charge-off activity for the respective periods is set forth below:
(Dollars in Thousands, except per
March 31, share data) 2014 December 31, 2013 2013 CHARGE-OFFS Commercial, Financial and Agricultural
$ 11$ 337 $ 154Real Estate - Construction - 72 610
Real Estate - Commercial Mortgage 594
676 1,043 Real Estate - Residential 731 921 683 Real Estate - Home Equity 403 362 113 Consumer 405 430 296 Total Charge-offs 2,144 2,798 2,899 RECOVERIES Commercial, Financial and Agricultural 75 33 51 Real Estate - Construction 4 - -
Real Estate - Commercial Mortgage 27
14 38 Real Estate - Residential 395 179 96 Real Estate - Home Equity 11 39 18 Consumer 288 221 262 Total Recoveries 800 486 465 Net Charge-offs
$ 1,344$ 2,312 $ 2,434Net Charge-offs (Annualized) as a 0.39 % 0.65 % 0.66 % Percent of Average Loans Outstanding, Net of Overdrafts 29 Noninterest Income Noninterest income for the first quarter of 2014 totaled $12.8 million, a decrease of $1.0 million, or 7.5%, from the fourth quarter of 2013 reflective of lower deposit fees of $0.5 million, wealth management fees of $0.3 million, data processing fees of $0.1 million, and other income of $0.1 million. Compared to the first quarter of 2013, noninterest income decreased $0.7 million, or 5.5%, attributable to a $0.4 millionreduction in mortgage banking fees and a $0.3 milliondecline in deposit fees. Noninterest income represented 42.05% of operating revenues in the first quarter of 2014 compared to 43.85% in the fourth quarter of 2013 and 40.62% in the first quarter of 2013. The increase over the first quarter of 2013 reflects lower
net interest income.
The table below reflects the major components of noninterest income.
Three Months Ended March 31, December 31, March 31, (Dollars in Thousands) 2014 2013 2013 Deposit Fees
$ 5,869 $ 6,398 $ 6,165Bank Card Fees 2,707 2,656 2,661 Wealth Management Fees 1,918 2,233 1,915 Mortgage Banking Fees 625 654 1,043 Data Processing Fees 541 689 653 Securities Transactions - 3 - Other 1,125 1,192 1,091 Total Noninterest Income $ 12,785 $ 13,825 $ 13,528
Significant components of noninterest income are discussed in more detail below.
Deposit Fees. Deposit fees decreased
$529,000, or 8.3%, from the fourth quarter of 2013 and $296,000, or 4.8%, from the first quarter of 2013. The decline from the fourth quarter of 2013 was primarily due to an expected lower utilization of our overdraft protection service during the first quarter as clients receive tax refunds, and to a lesser extent, two fewer processing days in the first quarter of 2014. Compared to the first quarter of 2013, the decline was due to a lower level of overdraft fees generally reflective of improved financial management by our clients. Bank Card Fees. Bank card fees (including interchange fees and ATM/debit card fees) increased $52,000, or 1.9%, over the fourth quarter of 2013 and $47,000, or 1.8%, over the first quarter of 2013. The increase over both prior periods reflects higher card spend volume by our clients. Wealth Management Fees. Wealth management fees include both trust fees (i.e., managed accounts, trusts/estates, and retirement plans) and retail brokerage fees (i.e., investment and insurance products) and totaled $1.9 millionfor the first quarter of 2014, a decrease of $315,000, or 14.1%, from the fourth quarter of 2013 and an increase of $3,000, or 0.2%, over the first quarter of 2013. The decrease from the fourth quarter of 2013 reflects lower retail brokerage fees of $197,000and trust fees of $118,000. Compared to the fourth quarter of 2013, the decrease in retail brokerage fees was primarily attributable to a lower level of account activity by our clients as well as a decline in new retail investment product sales, which were very strong in the prior quarter. The reduction in trust fees was due to higher fee collections during the fourth quarter for accounts that are billed on an annual basis. At March 31, 2014, total assets under management were approximately $1.238 billioncompared to $1.259 billionat December 31, 2013and $1.143 billionat March 31, 2013. Mortgage Banking Fees. Mortgage banking fees decreased $29,000, or 4.4%, from the fourth quarter of 2013 and $417,000, or 40.0%, from the first quarter of 2013. The decrease compared to the first quarter of 2013 was attributable to a lower level of refinancing activity in our markets attributable to the higher interest rate environment. The mix of new loan production between home purchase and refinance for the first quarter of 2014 was 81%/19% compared to 50%/50%
for the first quarter of 2013.
Data Processing Fees. Data processing fees decreased by
$148,000, or 21.5%, from the fourth quarter of 2013 and $112,000, or 17.2%, from the first quarter of 2013. The decrease from both prior periods was attributable to lower fees from a government processing contract for which processing activity is gradually declining due to the client's migration to a new processor in the second quarter of 2014. 30 Noninterest Expense
Noninterest expense for the first quarter of 2014 totaled
$28.4 million, a decrease of $1.3 million, or 4.3%, from the fourth quarter of 2013. The decrease compared to the fourth quarter of 2013 reflects lower compensation expense of $0.8 million, a $0.4 milliondecrease in other expense and a $0.1 millionincrease in occupancy expense. Compared to the first quarter of 2013, noninterest expense decreased $2.8 million, or 8.9%, attributable to lower compensation expense of $1.0 million, OREO expense of $1.4 million, occupancy expense of $0.1 million, and other expense (excluding OREO expense) of $0.3 million. Expense management is an important part of our culture and strategic focus and we will continue to review and evaluate opportunities to optimize our operations, reduce operating costs and manage our discretionary expenses.
The table below reflects the major components of noninterest expense.
Three Months Ended March 31, December 31, March 31, (Dollars in Thousands) 2014 2013 2013 Salaries
$ 12,531 $ 12,101 $ 12,346Associate Benefits 3,250 4,482 4,393 Total Compensation 15,781 16,583 16,739 Premises 2,132 2,151 2,265 Equipment 2,166 2,198 2,153 Total Occupancy 4,298 4,349 4,418 Legal Fees 781 867 1,001 Professional Fees 1,066 975 1,137 Processing Services 1,472 1,497 1,127 Advertising 318 407 322 Travel and Entertainment 173 215 194 Printing and Supplies 274 232 249 Telephone 480 468 492 Postage 305 314 314 Insurance - Other 731 1,037 1,040 Intangible Amortization 32 48 68 Other Real Estate Owned 1,399 1,251 2,824 Miscellaneous 1,256 1,404 1,215 Total Other 8,287 8,715 9,983 Total Noninterest Expense $ 28,366 $ 29,647 $ 31,140
Significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled
$15.8 millionfor the first quarter of 2014, a decrease of $802,000, or 4.8%, from the fourth quarter of 2013 due to lower associate benefit expense of $1.2 millionthat was partially offset by higher salary expense of $400,000. The decline in associate benefit expense reflects a $1.2 millionreduction in pension plan expense attributable to the utilization of a higher discount rate in 2014 for determining plan liabilities which reflects an increase in long-term bond interest rates. The increase in salary expense was due to higher payroll taxes of $0.2 millionand unemployment taxes of $0.2 million. The increase in payroll taxes reflects the reset of social security taxes and the increase in unemployment taxes is attributable to timing as a large portion of the annual premium is paid in the first quarter. Compared to the first quarter of 2013, total compensation expense decreased $958,000, or 5.7%, attributable to lower associate benefit expense of $1.1 millionthat was partially offset by higher salary expense of $186,000. The reduction in associate benefit expense was due to the favorable adjustment in our pension plan discount rate assumption previously noted. Higher performance compensation (cash incentives) drove the slight increase in salary expense. Occupancy. Occupancy expense (including premises and equipment) totaled $4.3 millionfor the first quarter of 2014, a decrease of $51,000, or 1.2%, from the fourth quarter of 2013 driven by lower expense for furniture/equipment repairs and maintenance. Compared to the first quarter of 2013, occupancy expense decreased $120,000, or 2.7%, attributable to lower premises expense, primarily lower building maintenance, banking office lease costs, and lower property
taxes. 31 Other. Other noninterest expense decreased
$428,000, or 4.9%, from the fourth quarter of 2013 and $271,000, or 2.7%, from the first quarter of 2013. The decrease compared to the fourth quarter of 2013 was primarily due to lower FDICinsurance fees of $306,000and miscellaneous expense of $148,000. The decline in FDICinsurance fees was attributable to our improved financial condition and the reduction in miscellaneous expense was attributable to a non-recurring impairment adjustment to a security that was recognized in the fourth quarter of 2013. The decrease compared to the first quarter of 2013 was attributable to lower legal fees of $220,000, professional fees of $71,000, and FDICinsurance fees of $309,000, partially offset by higher processing service fees of $345,000. A lower level of legal support needed for problem loan collection drove the reduction in legal fees. The decrease in professional fees was due to lower fees paid for consulting and other professional service engagements. The lower level of FDICinsurance fees was attributable to the aforementioned improvement in our financial condition. The higher level of processing fees reflects the outsourcing of our items processing system during the first quarter of 2013. While increasing the level of expense for processing services, our decision to outsource our items processing system enabled us to reduce expense in other areas such as compensation, printing/supplies, and postage. Our operating efficiency ratio (expressed as noninterest expense as a percent of the sum of taxable-equivalent net interest income plus noninterest income) was 91.02% for the first quarter of 2014 compared to 90.22% for the fourth quarter of 2013 and 92.67% for the first quarter of 2013. The improvement in this metric compared to the first quarter of 2013 was driven by a decline in operating expenses which outpaced the decrease in operating revenues (net interest income plus noninterest income). Income Taxes We realized an income tax benefit of $1.4 millionin the first quarter of 2014 compared to income tax expense of $5,000and $0.4 millionfor the fourth and first quarters of 2013, respectively. The first quarter was favorably impacted by a $2.2 millionstate tax benefit attributable to an adjustment in our reserve for uncertain tax positions associated with prior year matters. A similar adjustment in the amount of $0.9 millionwas realized in the fourth quarter of 2013. During 2014, we do not anticipate any further adjustments of this nature and, therefore, expect our effective income tax rate for the full year to be higher than the effective tax rate for the first quarter of 2014. FINANCIAL CONDITION Average assets totaled approximately $2.598 billionfor the first quarter of 2014, an increase of $44.7 million, or 1.8%, from the fourth quarter of 2013, and a decrease of $373,000, or 0.01%, from the first quarter of 2013. Average earning assets were $2.268 billionfor the first quarter of 2014, an increase of $62.0 million, or 2.8%, from the fourth quarter of 2013, and an increase of $27.4 million, or 1.2%, over the first quarter of 2013. We discuss these variances in more detail below. Investment SecuritiesIn the first quarter of 2014, our average investment portfolio increased $25.7 million, or 6.8%, from the fourth quarter of 2013 and increased $109.4 million, or 37.0%, from the first quarter of 2013. As a percentage of average earning assets, the investment portfolio represented 17.9% in the first quarter of 2014, compared to 17.2% in the fourth quarter of 2013 and 13.2% in the first quarter of 2013. The increase in the average balance of the investment portfolio when compared to both periods resulted from strategically increasing our purchases to offset a portion of the decline in the loan portfolio. For the remainder of 2014, we will continue to closely monitor liquidity levels and pledging requirements to assess the need to purchase additional investments, as well as look for new investment products that are prudent relative to our risk profile and the Bank's overall investment strategy. 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-for-Maturity ("HTM"). During the first quarter of 2014, securities were purchased under both the AFS and HTM designations. As of March 31, 2014, $220.8 million, or 53.6% of the investment portfolio was classified as AFS, with the remaining $191.0 millionclassified as HTM.
At acquisition, the classification of the security will be determined based on how the purchase will affect our asset/liability strategy and future business plans and opportunities. Such decisions will be weighed against multiple factors, 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 (loss) component of shareowners' equity. Securities that are HTM will be acquired or owned with the intent of holding them to maturity (final payment date). HTM investments are measured at amortized cost. It is neither management's current intent nor practice to participate in the trading of investment securities for the purpose of recognizing gains and therefore we do not maintain a trading portfolio. At
March 31, 2014, the investment portfolio contained a net pre-tax unrealized gain in the AFS portfolio of $0.3 millioncompared to $0.3 millionat December 31, 2013and $0.9 million March 31, 2013. At March 31, 2014, there were approximately 123 positions (combined AFS and HTM) with unrealized losses totaling $1.17 million. Of the 123 positions, 93 were Ginnie Maemortgage-backed securities (GNMA), U.S. Treasuries, or SBA securities, all of which carry the full faith and credit guarantee of the U.S. Government. The remaining 30 positions were 20 municipal bonds that are pre-refunded, or rated "AA-"or better, and ten U.S. Government Agencypositions. Three of the municipal bond positions have been in an unrealized loss position for longer than 12 months, and have an unrealized loss of $15,000. None of the securities with unrealized losses are considered to be impaired and all are expected to mature at par
or better. 32 The average maturity of the total portfolio at
March 31, 2014was 2.08 years compared to 1.95 years and 1.70 years at December 31, 2013and March 31, 2013, respectively. Purchases of U.S. Treasuries and government agencies out to three years were added in 2013 and the first quarter of 2014, which extended the average life of the investment portfolio. Loans
Average loans declined (a portion of which is attributable to problem loan resolutions) by
$19.4 million, or 1.4%, from the end of the fourth quarter of 2013 and $100.9 million, or 6.7%, from the end of the first quarter of 2013. Most loan categories have experienced declines with the reduction primarily in the commercial real estate category. Without compromising our credit standards or taking on inordinate interest rate risk, we have modified several lending programs in our business and commercial real estate areas to try to mitigate the significant impact that consumer and business deleveraging is having on our portfolio. On a linked quarter basis, period-end loans increased $7.4 million, which was the first time since the second quarter of 2009 we have experienced quarter over quarter growth. Loan categories posting growth included commercial and industrial, construction and auto finance. The quarter over quarter growth reflects both an increase in production (which has increased in four of the last five quarters) as well
as lower payoffs.
The resolution of problem loans, which includes loan charge-offs and loans transferred to OREO, totaled
$3.4 millionfor the first quarter of 2014, compared to $6.3 millionfrom the fourth quarter of 2013, and $15.9 million
from the first quarter of 2013. The problem loan resolutions are based on "as of" balances, not averages. Nonperforming Assets
Nonperforming assets (nonaccrual loans and other real estate owned "OREO") totaled
$78.6 millionat the end of the first quarter of 2014, a decrease of $6.4 million(8%) from the fourth quarter of 2013 and $25.3 million(24%) from the first quarter of 2013. Nonaccrual loans totaled $34.6 millionat the end of the first quarter of 2014, a decrease of $2.4 millionand $10.9 million, respectively, from the same prior year periods. Nonaccrual loan gross additions in the first quarter of 2014 totaled $7.5 millioncompared to $14.5 millionand $7.7 millionfor the fourth quarter of 2013 and first quarter of 2013, respectively. The balance of OREO totaled $44.0 millionat the end of the first quarter of 2014, a decrease of $4.0 millionand $14.4 million, respectively, from the fourth quarter of 2013 and first quarter of 2013. For the first quarter of 2014, we added properties totaling $1.3 million, sold properties totaling $4.6 million, and recorded valuation adjustments totaling $0.7 million. Nonperforming assets represented 2.98% of total assets at March 31, 2014compared to 3.26% at December 31, 2013and 3.99% at March 31, 2013. March 31, December 31, March 31, (Dollars in Thousands) 2014 2013 2013 Nonaccruing Loans:
Commercial, Financial and Agricultural
Real Estate - Construction 581 426
Real Estate - Commercial Mortgage 23,013 25,227
26,707 Real Estate - Residential 6,892 6,440 10,665 Real Estate - Home Equity 3,373 4,084 4,685 Consumer 548 599 592
Total Nonperforming Loans ("NPLs")(1)
Total Nonperforming Assets ("NPAs")
Past Due Loans 30 - 89 Days
$ 4,902 $ 7,746 $ 9,274Past Due Loans 90 Days or More (accruing) - -
Performing Troubled Debt Restructurings 46,249 44,764
Nonperforming Loans/Loans 2.46 % 2.64 % 3.10 % Nonperforming Assets/Total Assets 2.98 3.26
Nonperforming Assets/Loans Plus OREO 5.42 5.87
6.81 Allowance/Nonperforming Loans 63.98 % 62.48 % 61.17 %
(1) Nonperforming TDRs are included in the Nonaccrual/NPL totals
33 Activity within our nonperforming asset portfolio is provided in the table below. Three Months Ended March 31, (Dollars in Thousands) 2014 2013 NPA Beginning Balance:
$ 85,035 $ 117,648Change in Nonaccrual Loans: Beginning Balance 36,964 64,222 Additions 7,498 7,723 Charge-Offs (1,862 ) (2,725 ) Transferred to OREO (1,276 ) (12,897 ) Paid Off/Payments (2,627 ) (3,600 ) Restored to Accrual (4,139 ) (7,275 ) Ending Balance 34,558 45,448 Change in OREO: Beginning Balance 48,071 53,426 Additions 1,290 12,979 Valuation Write-downs (730 ) (1,145 ) Sales (4,595 ) (6,740 ) Other - (99 ) Ending Balance 44,036 58,421 NPA Net Change (6,441 ) (13,779 ) NPA Ending Balance $ 78,594 $ 103,869
Activity within our TDR portfolio is provided in the table below.
Three Months Ended March 31, (Dollars in Thousands) 2014 2013 TDR Beginning Balance:
$ 55,770 $ 57,353Additions 1,810 5,014 Charge-Offs (98 ) - Paid Off/Payments (513 ) (637 ) Defaults (4,431 ) (304 ) TDR Ending Balance $ 52,538 $ 61,426Allowance for Loan Losses We maintain an allowance for loan losses at a level that management believes to be sufficient to provide for probable losses inherent in the loan portfolio as of the balance sheet date. Credit losses arise from borrowers' inability or unwillingness to repay, and from other risks inherent in the lending process, including collateral risk, operations risk, concentration risk and economic risk. All related risks of lending are considered when assessing the adequacy of the loan loss reserve. The allowance for loan losses is established through a provision charged to expense. Loans are charged against the allowance when management believes collection of the principal is unlikely. The allowance for loan losses is based on management's judgment of overall loan quality. This is a significant estimate based on a detailed analysis of the loan portfolio. The balance can and will change based on changes in the assessment of the loan portfolio's overall credit quality.We evaluate the adequacy of the allowance for loan losses on a quarterly basis. The allowance for loan losses was $22.1 millionat March 31, 2014compared to $23.1 millionat December 31, 2013and $27.8 millionat March 31, 2013. The allowance for loan losses was 1.57% of outstanding loans and provided coverage of 64% of nonperforming loans at March 31, 2014compared to 1.65% and 62%, respectively, at December 31, 2013and 1.90% and 61%, respectively, at March 31, 2013. The reduction in the allowance from the same prior year period was attributable to a lower level of impaired loan reserves and to a lesser extent a reduction in general reserves. The decrease in impaired loan reserves was driven by a lower level of impaired loans reflecting reduced inflow and successful resolutions as well as lower loss content. The decrease in general reserves reflects slower problem loan migration, lower loan loss experience, as well as continued improvement in credit metrics. It is management's opinion that the allowance at March 31, 2014is adequate to absorb losses inherent in the loan portfolio at quarter-end. 34 Deposits Average total deposits were $2.125 billionfor the first quarter of 2014, an increase of $74.1 million, or 3.6%, over the fourth quarter of 2013 and higher by $22.0 million, or 1.1%, from the first quarter of 2013. The increase in deposits when compared to the fourth quarter of 2013 resulted primarily from the higher level of public funds, partially offset by a reduction in certificates of deposit. When compared to the first quarter of 2013, the increase was a result of higher levels of noninterest bearing and savings accounts, partially offset by lower public funds and certificates of deposit accounts. Deposit levels remain strong and our mix of deposits continues to improve as higher cost certificates of deposit are replaced with lower rate non-maturity deposits and noninterest bearing demand accounts. On average for the first quarter of 2014, noninterest bearing deposits comprised 30.4% of our total deposits compared to certificates of deposits, which only represented 10.1% of deposits. This compares to 28.5% and 11.3%, respectively, for the first quarter of 2013. Prudent pricing discipline will continue to be the key to managing our mix of deposits. Therefore, we do not attempt to compete with higher rate paying competitors for 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 market risk and do not participate in activities that give rise to significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our policies are 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 limits of risk, 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 captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by us. 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 assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on 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 three alternative simulations, at least once per quarter, and report the analysis 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 avoid unacceptable variations in net interest income and capital levels due to fluctuations in market rates. Management attempts to achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-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 pricing rates to market conditions on a continuing basis. The balance sheet is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by plus or minus 100, 200, and 300 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 a 12-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate
shock levels. 35 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, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES IN NET INTEREST INCOME (1)
Changes in Interest Rates +300 bp +200 bp +100 bp -100 bp
Policy Limit -10.0% -7.5% -5.0% -5.0% March 31, 2014 11.6% 11.0% 7.6% -1.8% December 31, 2013 11.0% 10.7% 7.4% -1.8%
The Net Interest Income at Risk position was slightly more favorable at the end of the first quarter of 2014, when compared to the prior quarter-end, for all up rate scenarios. The favorable change from the prior quarter end reflects higher levels of repricing assets, primarily loans and investments, due to an increase in public fund deposits. All measures of net interest income at risk are within our prescribed policy limits.
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 these 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 +300 bp +200 bp +100 bp -100 bp
Policy Limit -12.5% -10.0% -7.5% -7.5% March 31, 2014 1.4% 4.4% 4.4% -6.4% December 31, 2013 0.8% 3.8% 4.0% -5.9% As of
March 31, 2014, the improvement in the economic value of equity in all up rate scenarios versus the base case was more favorable than it was as of December 31, 2013. This favorable variance is primarily attributable to the overall change in market interest rates during the first quarter of 2014. In both periods, in the up 300 bp scenario (relative to the up 200 and 100 bp scenarios), the level of improvement in the economic value of equity declined. This is attributable to the varied assumptions on the non-maturity deposits. Based on historical data, interest rates on non-maturity deposits were increased in escalating increments in the rising rate scenarios, with the up 300 bp scenario being the most aggressive. All measures of economic value of equity were within our prescribed policy limits.
(1) Down 200 and 300 basis point scenarios have been excluded due to the current
historically low interest rate environment.
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. As of
March 31, 2014, we had the ability to generate approximately $686.0 millionin additional liquidity through all of our available resources. In addition to 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. Management recognizes the importance of maintaining liquidity and has developed a Contingency 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. A liquidity stress test is completed on a quarterly basis based on events that could potentially occur at the Bank with results reported to ALCO, our Market Risk and Oversight Committee, and the Board of Directors. The liquidity available to us is considered sufficient to meet our ongoing needs. 36 We view our investment portfolio 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 agencies, and municipal governments. The weighted average life of the portfolio is approximately 2.08 years and as of March 31, 2014and had a net unrealized pre-tax gain of $0.3 millionin the available-for-sale portfolio. Our average overnight funds sold position (defined as funds sold plus interest bearing deposits with other banks less funds purchased) of $467.3 millionduring the first quarter of 2014 compared to an average net overnight funds sold position of $411.6 millionin the prior quarter and an average overnight funds sold position of $448.4 millionin the first quarter of 2013. The higher balance when compared to the linked quarter reflects higher average public funds deposits and a decrease in the loan portfolio. The higher average balance when compared to the first quarter of 2013 resulted from higher average noninterest bearing and savings accounts, and a decrease in the loan portfolio.
Capital expenditures are expected to approximate
March 31, 2014, advances from the FHLB consisted of $35.3 millionin outstanding debt consisting of 38 notes. During the first quarter of 2014, the Bank made FHLB advance payments totaling approximately $6.8 million, which includes paying off six advances totaling $5.9 million. No additional FHLB advances were obtained. 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 Delawarestatutory trusts. The first note for $30.9 millionwas issued to CCBG Capital Trust I in November 2004. The second note for $32.0 millionwas 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 LIBORplus 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 annually to a variable rate of LIBORplus a margin of 1.80%. This note matures on June 15, 2035. The proceeds of these borrowings were used to partially fund acquisitions. Under the terms of each trust preferred securities 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. During the fourth quarter of 2013, the informal board resolutions, which required us to obtain approval from the Federal Reserve prior to making interest payments on the two securities, were rescinded. All deferred accrued interest was paid and brought current at year-end 2013 and is current as of March 31, 2014. Capital
Equity capital was
$279.9 millionas of March 31, 2014, compared to $276.4 millionas of December 31, 2013and $248.6 millionas of March 31, 2013. Our leverage ratio was 10.47%, 10.46%, and 9.81%, respectively, and our tangible capital ratio was 7.66%, 7.58%, and 6.49%, respectively, for the same periods. Our risk-adjusted capital ratio of 18.22% at March 31, 2014, exceeds the 10% threshold to be designated as "well-capitalized" under the risk-based regulatory guidelines. During the first three months of 2014, shareowners' equity increased $3.5 million, or 5.0%, on an annualized basis. During this same period, shareowners' equity was positively impacted by net income of $3.8 millionand stock compensation accretion of $0.3 million. Shareowners' equity was reduced by a common stock dividend of $0.3 millionand net adjustments totaling $0.3 millionrelated to transactions under our stock compensation plans. At March 31, 2014, our common stock had a book value of $16.02per diluted share compared to $15.85at December 31, 2013and $14.35at March 31, 2013. Book value is impacted by changes in the amount of our net unrealized gain or loss on investment securities available-for-sale and changes to the amount of our unfunded pension liability both of which are recorded through other comprehensive income. At March 31, 2014, the net unrealized loss on investment securities available for sale was $0.1 millionand the amount of our unfunded pension liability was $8.4 million. In February 2014, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our outstanding common stock. 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. Under a predecessor plan, we repurchased a total of 2,520,130 shares at an average purchase price of $25.19per share. We did not repurchase any shares during 2013 or 2014. 37
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently engage in the use of derivative instruments to hedge interest rate risks. However, 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.
March 31, 2014, we had $273.0 millionin commitments to extend credit and $10.8 millionin 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 its ability to meet 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. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2013 Form 10-K. The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in
the United States("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 loan and lease losses, (ii) valuation of goodwill and other intangible assets, and (iii) pension benefits 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 2013 Form 10-K. 38 TABLE I
AVERAGE BALANCES & INTEREST RATES
Three Months Ended March 31, 2014 December 31, 2013 March 31, 2013
(Taxable Equivalent Basis - Average Average Average Average Average
Dollars in Thousands) Balance Interest Rate
Balance Interest Rate Balance Interest
Loans, Net of Unearned Income(1)(2)
$ 1,395,506 $ 18,1615.28 % $ 1,414,909 $ 19,1215.36 % $ 1,496,432 $ 20,228
Taxable InvestmentSecurities 290,942 703 0.88 255,298 608 0.86 215,087 590 1.10 Tax-Exempt InvestmentSecurities(2) 114,542 219 0.74 124,501 233 0.74 80,946 174 0.86 Funds Sold 467,330 291 0.25 411,578 259 0.25 448,424 270 0.24
Total Earning Assets 2,268,320 19,374 3.46 %
2,206,286 20,221 3.64 % 2,240,889 21,262
3.85 % Cash & Due From Banks 48,084 48,519 50,679 Allowance for Loan Losses (23,210 )
(25,612 ) (30,467 ) Other Assets 305,113 324,460 337,579 TOTAL ASSETS
$ 2,598,307 $ 2,553,653 $ 2,598,680LIABILITIES NOW Accounts $ 770,302 $ 1040.05 % $ 697,468 $ 950.05 % $ 788,660 $ 1560.08 %
Money Market Accounts 274,015 48 0.07
279,608 50 0.07 282,847 54 0.08 Savings Accounts 218,825 26 0.05 211,761 27 0.05 193,033 23 0.05 Other Time Deposits 215,291 130 0.24 224,500 142 0.25 238,441 181 0.31 Total Interest Bearing Deposits 1,478,433 308 0.08 % 1,413,337 314 0.09 % 1,502,981 414 0.11 % Short-Term Borrowings 46,343 20 0.18 58,126 46 0.31 55,255 82
Subordinated Notes Payable 62,887 331 2.10 62,887 400 2.49 62,887 339
Other Long-Term Borrowings 37,055 291 3.18 39,676 320 3.19 42,898 348
Total Interest Bearing Liabilities 1,624,718 950 0.24 %
1,574,026 1,080 0.27 % 1,664,021 1,183
0.29 % Noninterest Bearing Deposits 646,527
637,533 599,986 Other Liabilities 47,333 88,095 85,116 TOTAL LIABILITIES 2,318,578 2,299,654 2,349,123 SHAREOWNERS' EQUITY TOTAL SHAREOWNERS' EQUITY 279,729 253,999 249,557 TOTAL LIABILITIES & EQUITY
$ 2,598,307 $ 2,553,653 $ 2,598,680Interest Rate Spread 3.23 % 3.36 % 3.56 % Net Interest Income $ 18,424 $ 19,141 $ 20,079Net Interest Margin(3) 3.29 % 3.45 % 3.64 %
(1) Average balances include nonaccrual loans. Interest income for the periods in
this table includes loan fees of
(2) Interest income includes the effects of taxable equivalent adjustments using
a 35% tax rate.
(3) Taxable equivalent net interest income divided by average earning assets.