Edgar Filing: CAPITAL CITY BANK GROUP INC

form10q_03312012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2012

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

For the transition period from ____________ to ____________

Commission File Number: 0-13358

(Exact name of registrant as specified in its charter)

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

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

(850) 402-7000

(Registrant's telephone number, including area code)

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

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

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

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

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

At April 30, 2012, 17,191,090 shares of the Registrant's Common Stock, $.01 par value, were outstanding.

CAPITAL CITY BANK GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2012

TABLE OF CONTENTS

PART I – Financial Information			Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition – March 31, 2012 and December 31, 2011			4
	Consolidated Statements of Operations and Comprehensive Income – Three Months Ended March 31, 2012 and 2011			5
	Consolidated Statement of Changes in Shareowners’ Equity – Three Months Ended March 31, 2012			6
	Consolidated Statements of Cash Flow – Three Months Ended March 31, 2012 and 2011			7
	Notes to Consolidated Financial Statements			8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			24

Item 3.	Quantitative and Qualitative Disclosure About Market Risk			40

Item 4.	Controls and Procedures			40

PART II – Other Information

Item 1.		Legal Proceedings	40

Item 1A.		Risk Factors	40

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.		Defaults Upon Senior Securities	40

Item 4.		Mine Safety Disclosure	40

Item 5.		Other Information	40

Item 6.		Exhibits	41

Signatures			42

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INTRODUCTORY NOTE

Caution Concerning Forward-Looking Statements

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

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

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, the following sections of our Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”): (a) “Introductory Note” in Part I, Item 1. “Business”; (b) “Risk Factors” in Part I, Item 1A., as updated in our subsequent quarterly reports filed on Form 10-Q, and (c) “Introduction” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7 as well as:

§	our need and our ability to incur additional debt or equity financing;

§	the accuracy of our financial statement estimates and assumptions, including the estimate for our loan loss provision;

§	continued depression of the market value of the Company that could result in an impairment of goodwill;

§	the frequency and magnitude of foreclosure of our loans;

§	the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

§	our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;

§	legislative or regulatory changes, including the Dodd-Frank Act;

§	the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

§	restrictions on our operations, including the inability to pay dividends without our regulators’ consent;

§	the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit Insurance Fund assessments;

§	our ability to declare and pay dividends;

§	changes in the securities and real estate markets;

§	changes in monetary and fiscal policies of the U.S. Government;

§	inflation, interest rate, market and monetary fluctuations;

§	the effects of harsh weather conditions, including hurricanes, and man-made disasters;

§	our ability to comply with the extensive laws and regulations to which we are subject;

§	the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

§	increased competition and its effect on pricing;

§	technological changes;

§	negative publicity and the impact on our reputation;

§	the effects of security breaches and computer viruses that may affect our computer systems;

§	changes in consumer spending and saving habits;

§	growth and profitability of our noninterest income;

§	changes in accounting principles, policies, practices or guidelines;

§	the limited trading activity of our common stock;

§	the concentration of ownership of our common stock;

§	anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;

§	other risks described from time to time in our filings with the Securities and Exchange Commission; and

§	our ability to manage the risks involved in the foregoing.

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

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PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	Unaudited
(Dollars In Thousands, Except Share Data)	March 31, 2012			December 31, 2011
ASSETS
Cash and Due From Banks	$	50,567		$	54,953
Federal Funds Sold and Interest Bearing Deposits		418,678			330,361
Total Cash and Cash Equivalents		469,245			385,314

Investment Securities, Available-for-Sale		284,490			307,149

Loans, Net of Unearned Income		1,578,884			1,628,683
Allowance for Loan Losses		(31,217	)		(31,035	)
Loans, Net		1,547,667			1,597,648

Premises and Equipment, Net		111,408			110,991
Goodwill		84,811			84,811
Other Intangible Assets		565			673
Other Real Estate Owned		58,100			62,600
Other Assets		103,992			92,126
Total Assets	$	2,660,278		$	2,641,312

LIABILITIES
Deposits:
Noninterest Bearing Deposits	$	605,774		$	618,317
Interest Bearing Deposits		1,579,930			1,554,202
Total Deposits		2,185,704			2,172,519

Short-Term Borrowings		42,188			43,372
Subordinated Notes Payable		62,887			62,887
Other Long-Term Borrowings		42,826			44,606
Other Liabilities		75,876			65,986
Total Liabilities		2,409,481			2,389,370

SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000 shares authorized; no shares outstanding		-			-
Common Stock, $.01 par value, 90,000,000 shares authorized; 17,182,090 and 17,160,274 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		172			172
Additional Paid-In Capital		38,101			37,838
Retained Earnings		236,299			237,461
Accumulated Other Comprehensive Loss, Net of Tax		(23,775	)		(23,529	)
Total Shareowners' Equity		250,797			251,942
Total Liabilities and Shareowners' Equity	$	2,660,278		$	2,641,312

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

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CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31,
(Dollars in Thousands, Except Per Share Data)	2012			2011
INTEREST INCOME
Interest and Fees on Loans	$	22,005		$	23,947
Taxable Exempt Securities		794			852
Tax Exempt Securities		106			219
Federal Funds Sold		225			171
Total Interest Income		23,130			25,189
INTEREST EXPENSE
Deposits		643			1,258
Short-Term Borrowings		8			111
Subordinated Notes Payable		382			340
Other Long-Term Borrowings		436			494
Total Interest Expense		1,469			2,203
NET INTEREST INCOME		21,661			22,986
Provision for Loan Losses		4,793			4,133
Net Interest Income After Provision For Loan Losses		16,868			18,853
NONINTEREST INCOME
Service Charges on Deposit Accounts		6,309			5,983
Data Processing		675			974
Asset Management Fees		1,015			1,080
Retail Brokerage Fees		758			729
Mortgage Banking Fees		848			617
Bank Card Fees		2,771			2,496
Gain on Sale of Visa Stock		-			3,172
Other		1,210			1,283
Total Noninterest Income		13,586			16,334
NONINTEREST EXPENSE
Salaries and Associate Benefits		16,843			16,577
Occupancy, Net		2,266			2,396
Furniture and Equipment		2,201			2,226
Intangible Amortization		108			353
Other Real Estate		3,513			3,677
Other		7,666			8,102
Total Noninterest Expense		32,597			33,331

(LOSS) INCOME BEFORE INCOME TAXES		(2,143	)		1,856
Income Tax (Benefit) Expense		(981	)		546

NET (LOSS) INCOME	$	(1,162	)	$	1,310

BASIC NET (LOSS) INCOME PER SHARE	$	(0.07	)	$	0.08
DILUTED NET (LOSS) INCOME PER SHARE	$	(0.07	)	$	0.08

Average Basic Shares Outstanding		17,181,333			17,121,602
Average Diluted Shares Outstanding		17,181,333			17,130,118

Other Comprehensive (Loss) Income:
Change in Net Unrealized Gain On Available-For-Sale Securities (net of tax)		(246	)		34
Total Comprehensive (Loss) Income	$	(1,408	)	$	1,344

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

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CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY

(Unaudited)

(Dollars In Thousands, Except Share Data)	Shares Outstanding		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss, Net of Taxes			Total

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

(Dollars In Thousands, Except Share Data)	Shares Outstanding		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss, Net of Taxes			Total

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

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

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CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
(Dollars in Thousands)	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income	$	(1,162	)	$	1,310
Adjustments to Reconcile Net (Loss) Income to Cash Provided by Operating Activities:
Provision for Loan Losses		4,793			4,133
Depreciation		1,669			1,753
Amortization of Premiums, Discounts, and Fees (net)		827			1,023
Amortization of Intangible Assets		108			353
Net Decrease in Loans Held-for-Sale		7,664			4,081
Stock-Based Compensation		56			215
Deferred Income Taxes		277			918
Loss on Sales and Write-Downs of Other Real Estate Owned		2,097			2,672
Net (Increase) Decrease in Other Assets		(11,993	)		745
Net Increase in Other Liabilities		9,890			3,440
Net Cash Provided By Operating Activities		14,226			20,643

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Available-for-Sale:
Purchases		(18,986	)		(24,677	)
Sales		805			-
Payments, Maturities, and Calls		39,586			22,090
Net Decrease in Loans		33,479			25,020
Proceeds From Sales of Other Real Estate Owned		6,479			8,979
Purchases of Premises and Equipment		(2,086	)		(315	)
Net Cash Provided By In Investing Activities		59,277			31,097

CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		13,185			43,071
Net Decrease in Short-Term Borrowings		(2,731	)		(6,278	)
Increase in Other Long-Term Borrowings		560			790
Repayment of Other Long-Term Borrowings		(793	)		(841	)
Dividends Paid		-			(1,713	)
Issuance of Common Stock		207			413
Net Cash Provided by Financing Activities		10,428			35,442

NET INCREASE IN CASH AND CASH EQUIVALENTS		83,931			87,182

Cash and Cash Equivalents at Beginning of Period		385,314			236,193
Cash and Cash Equivalents at End of Period	$	469,245		$	323,375

Supplemental Disclosure:
Loans Transferred to Other Real Estate Owned	$	4,076		$	9,078
Transfer of Current Portion of Long-Term Borrowings	$	1,547		$	-

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

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CAPITAL CITY BANK GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-related services to individual and corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia, and Alabama. The Company is subject to competition from other financial institutions, is subject to regulation by certain government agencies and undergoes periodic examinations by those regulatory authorities.

Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of CCBG, and its wholly-owned subsidiary, Capital City Bank (“CCB” or the “Bank” and together with the Company). All material inter-company transactions and accounts have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The consolidated statement of financial condition at December 31, 2011 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011.

NOTE 2 - INVESTMENT SECURITIES

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

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

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

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

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

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

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

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

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

Other Than Temporarily Impaired Securities. The following table summarizes the investment securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position:

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

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

Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to: 1) the length of time and the extent to which the fair value has been less than amortized cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory issues, and analysts’ reports.

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

NOTE 3 – LOANS, NET

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

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

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

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

Loan Portfolio Aging. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days past due (“DPD”).

The following table presents the aging of the recorded investment in past due loans by class of loans:

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

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

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Nonaccrual Loans. Loans are generally placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans:

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

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

The following table presents loans individually evaluated for impairment by class of loans:

(Dollars in Thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
March 31, 2012:
Commercial, Financial and Agricultural	$	1,809	$	1,000	$	809	$	241
Real Estate - Construction		1,266		82		1,184		123
Real Estate - Commercial Mortgage		69,898		33,982		35,916		5,543
Real Estate - Residential		33,826		5,868		27,958		4,789
Real Estate - Home Equity		3,355		652		2,703		580
Consumer		46		15		31		26
Total	$	110,200	$	41,599	$	68,601	$	11,302

December 31, 2011:
Commercial, Financial and Agricultural	$	1,653	$	671	$	982	$	311
Real Estate - Construction		511		-		511		68
Real Estate - Commercial Mortgage		65,624		19,987		45,637		5,828
Real Estate - Residential		36,324		6,897		29,427		4,702
Real Estate - Home Equity		3,527		645		2,882		239
Consumer		143		90		53		26
Total	$	107,782	$	28,290	$	79,492	$	11,174

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

	Three Months Ended March 31,
	2012				2011
(Dollars in Thousands)	Average Recorded Investment		Total Interest Income		Average Recorded Investment		Total Interest Income

Commercial, Financial and Agricultural	$	1,731	$	20	$	1,540	$	34
Real Estate - Construction		889		4		2,561		8
Real Estate - Commercial Mortgage		67,761		481		46,064		315
Real Estate - Residential		35,075		235		34,757		288
Real Estate - Home Equity		3,441		25		3,308		26
Consumer		95		4		141		14
Total	$	108,992	$	769	$	88,371	$	685

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

The following table presents loans classified as TDRs:

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

Loans classified as TDRs during the three months ended March 31, 2012 are presented in the table below. The modifications made during the reporting period involved either an extension of the loan term or a principal moratorium and the financial impact of these modifications was not material.


(Dollars in Thousands)	Number of Contracts		Pre-Modified Recorded Investment		Post-Modified Recorded Investment
Commercial, Financial and Agricultural		4	$	656	$	660
Real Estate - Construction		-		-		-
Real Estate – Commercial Mortgage		13		4,565		4,695
Real Estate - Residential		8		859		909
Real Estate - Home Equity		-		-		-
Consumer		-		-		-
Total TDRs		25	$	6,080	$	6,264

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following table presents the risk category of loans by segment:

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

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

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

The following table details the activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2012 and 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

(Dollars in Thousands)	Commercial, Financial, Agricultural			Real Estate Construction			Real Estate Commercial Mortgage			Real Estate Residential			Real Estate Home Equity			Consumer				Unallocated			Total
March 31, 2012
Beginning Balance		$	1,534		$	1,133		$	10,660		$	12,518		$	2,392			$	1,887		$	911		$	31,035
Provision for Loan Losses			158			628			1,166			1,511			1,207				41			82			4,793
Charge-Offs			(268	)		-			(1,532	)		(1,967	)		(892		)		(732	)		-			(5,391	)
Recoveries			69			-			138			163			18				392			-			780
Net Charge-Offs			(199	)		-			(1,394	)		(1,804	)		(874		)		(340	)					(4,611	)
Ending Balance		$	1,493		$	1,761		$	10,432		$	12,225		$	2,725			$	1,588		$	993		$	31,217

Period-end amount allocated to:
Loans Individually Evaluated for Impairment		$	241		$	123		$	5,543		$	4,789		$	580			$	26		$	-		$	11,302
Loans Collectively Evaluated for Impairment			1,252			1,638			4,889			7,436			2,145				1,562			993			19,915
Ending Balance		$	1,493		$	1,761		$	10,432		$	12,225		$	2,725			$	1,588		$	993		$	31,217

March 31, 2011
Beginning Balance		$	1,544		$	2,060		$	8,645		$	17,046		$	2,522			$	2,612		$	1,007		$	35,436
Provision for Loan Losses			553			(566	)		1,810			1,887			1,065				(554)			(62	)		4,133
Charge-Offs			(721	)		-			(430	)		(3,456	)		(989		)		(620	)		-			(6,216	)
Recoveries			63			9			12			60			36				340			-			520
Net Charge-Offs			(658	)		9			(418	)		(3,396	)		(953		)		(280	)		-			(5,696	)
Ending Balance		$	1,439		$	1,503		$	10,037		$	15,537		$	2,634			$	1,778		$	945		$	33,873

Period-end amount allocated to:
Loans Individually Evaluated for Impairment		$	174		$	481		$	5,508		$	7,165		$	1,212			$	58		$	-		$	14,598
Loans Collectively Evaluated for Impairment			1,265			1,022			4,529			8,372			1,422				1,720			945			19,275
Ending Balance		$	1,439		$	1,503		$	10,037		$	15,537		$	2,634			$	1,778		$	945		$	33,873

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

(Dollars in Thousands)		Commercial, Financial, Agricultural		Real Estate Construction		Real Estate Commercial Mortgage		Real Estate Residential		Real Estate Home Equity		Consumer		Unallocated		Total
March 31, 2012
Individually Evaluated for Impairment	$	1,809	$	1,266	$	69,898	$	33,826	$	3,355	$	46	$	-	$	110,200
Collectively Evaluated for Impairment		130,310		33,288		554,630		330,298		237,445		182,713		-		1,468,684
Total	$	132,119	$	34,554	$	624,528	$	364,124	$	240,800	$	182,759	$	-	$	1,578,884

March 31, 2011
Individually Evaluated for Impairment	$	1,397	$	2,589	$	49,758	$	31,734	$	3,338	$	138	$	-	$	88,954
Collectively Evaluated for Impairment		152,563		33,025		618,825		377,568		245,407		198,452		-		1,625,840
Total	$	153,960	$	35,614	$	668,583	$	409,302	$	248,745	$	198,590	$	-	$	1,714,794

NOTE 4 - INTANGIBLE ASSETS

The Company had net intangible assets of $85.4 million and $85.5 million at March 31, 2012 and December 31, 2011, respectively. Intangible assets were as follows:

	March 31, 2012				December 31, 2011
(Dollars in Thousands)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Core Deposit Intangibles	$	47,176	$	46,978	$	47,176	$	46,918
Goodwill		84,811		-		84,811		-
Customer Relationship Intangible		1,867		1,500		1,867		1,452
Total Intangible Assets	$	133,854	$	48,478	$