PART
I
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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The
Company
General
Citizens
Bancshares Corporation (the “Company”) was incorporated as a Georgia business corporation in 1972 and became a bank
holding company by acquiring all of the common stock of Citizens Trust Bank (the “Bank”). The Company was organized
to facilitate the Bank’s ability to serve its customers’ requirements for financial services. The holding company
structure provides flexibility for expansion of the Company’s banking business through the possible acquisition of other
financial service institutions and the provision of additional banking-related services that the traditional commercial bank may
not provide under present laws. For example, banking regulations require that the Bank maintain a minimum ratio of capital to
assets. In the event that the Bank’s growth is such that this minimum ratio is not maintained, the Company may borrow funds,
subject to capital adequacy guidelines of the Federal Reserve, and contribute them to the capital of the Bank and otherwise raise
capital in a manner that is unavailable to the Bank under existing banking regulations.
Over the
years, the Company has completed several acquisitions. On January 30, 1998, the Company merged with First Southern Bancshares,
Inc., whose banking subsidiary, First Southern Bank simultaneously merged into the Bank. On March 10, 2000, the Company acquired
certain assets and all of the deposits of Mutual Federal Savings Bank, a failing bank, from the Federal Deposit Insurance Corporation.
On February 28, 2003, the Company acquired CFS Bancshares, Inc., a savings and loan holding company located in Birmingham,
Alabama, whose banking subsidiary, Citizens Federal Savings Bank, simultaneously merged into the Bank. This acquisition has resulted
in a significant expansion of the Company’s market area. On March 27, 2009, the Bank acquired the Lithonia, Georgia branch
of The Peoples Bank.
The Company
may make additional acquisitions in the future in the event that such acquisitions are deemed to be in the best interests of the
Company and its shareholders. Such acquisitions, if any, will be subject to certain regulatory approvals and requirements. See
“Business – Bank Holding Company Regulations.”
The
Bank
General
The Bank,
a state bank headquartered in Atlanta, Georgia, was organized in 1921 and is a member of the Federal Reserve System.
The Bank’s
home office is located at 75 Piedmont Avenue, N.E., Atlanta, Georgia 30303. In addition to its home office, the Bank operated
ten branch offices located in Atlanta, East Point, Lithonia, Decatur, Stone Mountain and Columbus, Georgia, and Birmingham and
Eutaw, Alabama at December 31, 2015. The corporate headquarters are located at 230 Peachtree Street, N.W., Suite 2700, Atlanta,
Georgia 30303. The Bank conducts a general commercial banking business that serves Fulton, DeKalb and Muscogee Counties, Georgia,
as well as Jefferson and Greene Counties, Alabama, acts as an issuing agent for U.S. savings bonds, travelers checks and cashiers
checks, and offers collection teller services. The Bank has no subsidiaries.
The Bank
does not engage in any line of business other than normal commercial banking activities. The Bank does not engage in any operations
in foreign countries nor is a material portion of the Bank’s revenues derived from customers in foreign countries. The business
of the Bank is not considered to be seasonal nor is the Bank’s business dependent on any industry.
The Bank’s
Primary Service Area
The Bank’s
primary service area consists of Fulton and DeKalb Counties, along with certain portions of Rockdale County; through its branch
in Columbus, the Bank also serves Muscogee County, Georgia, and through its branches in Birmingham and Eutaw, it serves Jefferson
and Greene Counties, Alabama. The primary focus of the Bank is the small business and commercial/service firms in the area plus
individuals and households who reside in or commute to the area. The majority of the Bank’s customers are drawn from the
described area.
Competition
The Bank
must compete for both deposit and loan customers with other financial institutions with greater resources than are available to
the Bank. Currently, there are numerous branches of national, regional, and local banks, as well as other types of entities offering
financial services, located in the Bank’s market area.
Deposits
The Bank
offers a wide range of commercial and consumer deposit accounts, including non-interest bearing checking accounts, money market
checking accounts (consumer and commercial), negotiable order of withdrawal (“NOW”) accounts, individual retirement
accounts, time certificates of deposit, sweep accounts, and regular savings accounts. The sources of deposits typically are residents,
local governments and businesses and their employees within the Bank’s market area, obtained through personal solicitation
by the Bank’s officers and directors, direct mail solicitation and advertisements published in the local media. The Bank
pays competitive interest rates on time and savings deposits and has a service charge fee schedule competitive with other financial
institutions in the Bank’s market area, covering such matters as maintenance fees on checking accounts, per item processing
fees on checking accounts, returned check charges and the like.
Loan
Portfolio
The Bank
engages in a full complement of lending activities, including consumer/installment loans, mortgage loans, home equity lines of
credit, construction loans, and commercial loans, with particular emphasis on small business loans. The Bank believes that the
origination of short-term fixed rate loans and loans tied to floating interest rates is the most desirable method of conducting
its lending activities.
Consumer
Loans
The Bank’s
consumer loans consist primarily of installment loans to individuals for personal, family, and household purposes, including loans
for automobiles, home improvements, and investments. This category of loans also includes loans secured by second mortgages on
the residences of borrowers.
Commercial
Lending
Commercial
lending is directed principally toward businesses whose demands for funds fall within the Bank’s legal lending limits and
which are existing deposit customers of the Bank. This category of loans includes loans made to individual, partnership, or corporate
borrowers and obtained for a variety of business purposes.
Investments
As of December
31, 2015, investment securities comprised approximately 32% of the Bank’s assets, with loans (net of loan loss reserves)
comprising 48% of assets. The Bank invests primarily in obligations of the United States, obligations guaranteed as to principal
and interest by the United States, government-sponsored enterprises securities, general obligation municipals and other taxable
securities.
Asset/Liability
Management
It is the
objective of the Bank to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing, and capital policies. Certain officers of the Bank are charged with
the responsibility for developing and monitoring policies and procedures that are designed to ensure acceptable composition of
the asset/liability mix. It is the overall philosophy of management to support asset growth primarily through the growth of core
deposits, which include deposits of all categories made by individuals, partnerships, and corporations. Management of the Bank
seeks to invest the largest portion of the Bank’s assets in consumer/installment, commercial and construction loans.
The Bank’s
asset/liability mix is monitored on a daily basis and a quarterly report reflecting the interest-sensitive assets and interest-sensitive
liabilities is prepared and presented to the Bank’s Board of Directors asset/liability committee during their meeting which
takes place every two months. The objective of this policy is to control interest-sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on the Bank’s earnings.
Correspondent
Banking
Correspondent
banking involves the provision of services by one bank to another bank that cannot provide that service for itself from an economic
or practical standpoint. The Bank purchases correspondent services offered by larger banks, including check collections, security
safekeeping, investment services, wire transfer services, coin and currency supplies, overline and liquidity loan participation,
and sales of loans to or participation with correspondent banks.
Employees
As of December
31, 2015, the Bank had 97 full-time equivalent employees (the Company has no employees who are not also employees of the Bank).
The Bank is not a party to any collective bargaining agreement and, in the opinion of management; the Bank enjoys excellent relations
with its employees.
Website
Address
Our corporate
website address is www.ctbconnect.com. From this website, select the “Investor Information” tab followed by selecting
“Annual Reports/Financial Statements”. Our filings with the Securities and Exchange Commission (SEC), including our
Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports are
available and accessible soon after we file them with the SEC.
Supervision
and Regulation
Both the
Company and the Bank are subject to extensive state and federal banking regulations that impose restrictions on and provide for
general regulatory oversight of their operations. These laws are generally intended to protect depositors and not shareholders.
Legislation and regulations authorized by legislation influence, among other things:
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how,
when and where we may expand geographically;
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into
what product or service market we may enter;
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how
we must manage our assets; and
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under
what circumstances money may or must flow between the parent bank holding company and
the subsidiary bank.
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The following
is a summary description of the relevant laws, rules, and regulations governing banks and holding companies. The descriptions
of, and references to, the statutes and regulations below are brief summaries and do not purport to be complete. The descriptions
are qualified in their entirety by reference to the specific statutes and regulations discussed.
The regulatory
and supervisory structure establishes a comprehensive framework of activities in which an institution can engage and is intended
primarily for the protection of depositors, the deposit insurance funds and the banking system as a whole, rather than for the
protection of shareholders or creditors. The regulatory structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment
of deposit insurance assessment fees, classification of assets and establishment of adequate loan loss reserves for regulatory
purposes.
Various
legislation is from time to time introduced in Congress and Georgia’s legislature, including proposals to overhaul the bank
regulatory system, expand the powers of depository institutions, and limit the investments that depository institutions may make
with insured funds. Such legislation may change applicable statutes and the operating environment in substantial and unpredictable
ways. We cannot determine the ultimate effect that future legislation or implementing regulations would have upon our financial
condition or upon our results of operations. As is further described below, the Dodd-Frank Wall Street Reform and Consumer Protection
Act (“Dodd-Frank Act”), has significantly changed the bank regulatory structure and may affect the lending, investment
and general operating activities of depository institutions and their holding companies.
The
Company
Since the
Company owns all of the capital stock of the Bank, it is a bank holding company under the federal Bank Holding Company Act of
1956. As a result, the Company is primarily subject to the supervision, examination, and reporting requirements of the Bank Holding
Company Act and the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As
a bank holding company located in Georgia, the Georgia Department of Banking and Finance (the “DBF”) also regulates
and monitors all significant aspects of our operations.
Acquisitions
of Banks
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The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve’s
prior approval before:
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Acquiring
direct or indirect ownership or control of any voting shares of any bank if, after the
acquisition, the bank holding company will directly or indirectly own or control more
than 5% of the bank’s voting shares;
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Acquiring
all or substantially all of the assets of any bank; or
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Merging
or consolidating with any other bank holding company.
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Additionally,
the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would result in
or tend to create a monopoly or, substantially lessen competition or otherwise function as a restraint of trade, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects
of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve’s
consideration of financial resources generally focuses on capital adequacy, which is discussed below.
Under the
Bank Holding Company Act, if adequately capitalized and adequately managed, the Company or any other bank holding company located
in Georgia may purchase a bank located outside of Georgia. Conversely, an adequately capitalized and adequately managed bank holding
company located outside of Georgia may purchase a bank located inside Georgia. In each case, however, restrictions may be placed
on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations
of deposits. For example, Georgia law prohibits a bank holding company from acquiring control of a financial institution until
the target financial institution has been incorporated for three years. Because the Bank has been incorporated for more than three
years, this limitation does not apply to the Bank or the Company.
Change
in Bank Control
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Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control
Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control”
of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class
of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10%
or more, but less than 25%, of any class of voting securities and either:
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the
bank holding company has registered securities under Section 12 of the Securities
Act of 1934, as amended; or
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no
other person owns a greater percentage of that class of voting securities immediately
after the transaction.
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Our common
stock is registered under Section 12 of the Securities Act of 1934, as amended. The regulations provide a procedure for challenge
of the rebuttable control presumption.
Permitted
Activities
. The Bank Holding Company Act has generally prohibited a bank holding company from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking
or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act have expanded the
permissible activities of a bank holding company that qualifies as a financial holding company. Under the regulations implementing
the Gramm-Leach-Bliley Act, a financial holding company may engage in additional activities that are financial in nature or incidental
or complementary to financial activity. Those activities include, among other activities, certain insurance and securities activities.
To qualify
to become a financial holding company, the Bank and any other depository institution subsidiary of the Company must be well capitalized
and well managed and must have a Community Reinvestment Act rating of at least “satisfactory.” Additionally, the Company
must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with
30 days’ written notice prior to engaging in a permitted financial activity. While the Company meets the qualification standards
applicable to financial holding companies, we have not elected to become a financial holding company at this time.
Support
of Subsidiary Institutions
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Under Federal Reserve policy, the Company is expected to act as a source of financial strength
for the Bank and to commit resources to support the Bank. In addition, pursuant to the Dodd-Frank Wall Street and Consumer Protection
Act (the “Dodd-Frank Act”), the federal banking regulators must require a bank holding company to serve as a source
of financial strength for any depository institution subsidiary. This support may be required at times when, without this Federal
Reserve policy, the Company might not be inclined to provide it. In addition, any capital loans made by the Company to the Bank
will be repaid only after its deposits and various other obligations are repaid in full. In the unlikely event of the Company’s
bankruptcy, any commitment by it to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
The Federal
Reserve Board may require a holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than
a non-bank subsidiary of a bank) upon the Federal Reserve Board’s determination that such activity or control constitutes
a serious risk to the financial soundness or stability of any subsidiary depository institution of the holding company. Further,
federal bank regulatory authorities have additional discretion to require a holding company to divest itself of any bank or non-bank
subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.
Under the
Federal Deposit Insurance Act, a holding company’s bank subsidiary can be required to indemnify, or cross-guarantee, the
FDIC against losses it incurs with respect to any other bank controlled by the holding company, which in effect will make the
holding company’s equity investments in healthy bank subsidiaries available to the FDIC to assist any failing or failed
bank subsidiary that the holding company may have.
Non-Bank
Subsidiary Examination and Enforcement
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As a result of the Dodd-Frank Act, all non-bank subsidiaries not currently regulated
by a state or federal agency will now be subject to examination by the Federal Reserve Board in the same manner and with the same
frequency as if its activities were conducted by the lead bank subsidiary. These examinations will consider the activities engaged
in by the non-bank subsidiary pose a material threat to the safety and soundness of its insured depository institution affiliates,
are subject to appropriate monitoring and control, and comply with applicable laws. Pursuant to this authority, the Federal Reserve
Board may also take enforcement action against non-bank subsidiaries.
The
Bank
Since the
Bank is a commercial bank chartered under the laws of the State of Georgia and is a Federal Reserve member bank, it is primarily
subject to the supervision, examination and reporting requirements of the DBF and the Federal Reserve Bank of Atlanta. The DBF
and the Federal Reserve Bank of Atlanta regularly examine the Bank’s operations and have the authority to approve or disapprove
mergers, the establishment of branches and similar corporate actions. Both regulatory agencies have the power to prevent the continuance
or development of unsafe or unsound banking practices or other violations of law. Additionally, the Bank’s deposits are
insured by the FDIC to the maximum extent provided by law. The Bank is also subject to numerous state and federal statutes and
regulations that affect its business, activities, and operations.
Branching
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Under current Georgia law, the Bank may open branch offices throughout Georgia with the prior approval of the DBF. In addition,
with prior regulatory approval, the Bank may acquire branches of existing banks located in Georgia. Prior to enactment of the
Dodd-Frank Act, the Bank and any other national or state-chartered bank were generally permitted to branch across state lines
by merging with banks in other states if allowed by the applicable states’ laws. Georgia law, with limited exceptions, permitted
branching across state lines through interstate mergers. However, interstate branching is now permitted for all national- and
state-chartered banks as a result of the Dodd-Frank Act, provided that a state bank chartered by the state in which the branch
is to be located would also be permitted to establish a branch.
Prompt
Corrective Action
. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective
action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have
established five capital categories in which all institutions are placed: Well Capitalized, Adequately Capitalized, Undercapitalized,
Significantly Undercapitalized and Critically Undercapitalized.
As a bank’s
capital condition deteriorates, federal banking regulators are required to take various mandatory supervisory actions and are
authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity
of the action depends upon the capital category in which the institution is placed.
As of December 31,
2015, the Bank was considered well-capitalized.
A “well-capitalized”
bank is one that exceeds all of its required capital requirements, which, prior to January 1, 2015, included maintaining a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a Tier 1 leverage ratio of at least
5%. Beginning on January 1, 2015, the capital requirements include maintaining a total risk-based capital ratio of at least
10%, a Tier 1 risk-based capital ratio of at least 8%, a common equity Tier 1 risk-based capital ratio of at least 4.5%, and a
Tier 1 leverage ratio of at least 5%. Generally, a classification as well capitalized will place a bank outside of the regulatory
zone for purposes of prompt corrective action. However, a well-capitalized bank may be reclassified as “adequately capitalized”
based on criteria other than capital, if the federal regulator determines that a bank is in an unsafe or unsound condition, or
is engaged in unsafe or unsound practices or has not adequately corrected a prior deficiency.
FDIC
Insurance Assessments.
The Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of
the FDIC up to the maximum amount permitted by law, which was permanently increased to $250,000 by the Dodd-Frank Act. The FDIC
uses the DIF to protect against the loss of insured deposits if an FDIC-insured bank or savings association fails. Pursuant to
the Dodd-Frank Act, the FDIC must take steps, as necessary, for the DIF reserve ratio to reach 1.35% of estimated insured deposits
by September 30, 2020. The Bank is thus subject to FDIC deposit premium assessments.
The FDIC
used a risk-based assessment system that assigns insured depository institutions to one of four risk categories based on three
primary sources of information: supervisory risk ratings for all institutions, financial ratios for most institutions, including
the Bank, and long-term debt issuer ratings for large institutions that have such ratings. For institutions assigned to the lowest
risk category, the annual assessment rate ranges between 7 and 16 cents per $100 of domestic deposits. For institutions assigned
to higher risk categories, assessment rates range from 17 to 77.5 cents per $100 of domestic deposits. These ranges reflect a
possible downward adjustment for unsecured debt outstanding and possible upward adjustments for secured liabilities and, in the
case of institutions outside the lowest risk category, brokered deposits.
The FDIC
also collects a deposit-based assessment from insured financial institutions on behalf of The Financing Corporation (“FICO”).
The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the Federal
Savings & Loan Insurance Corporation. The FICO assessment rate is set quarterly and in 2015 was 0.60 cents per $100 of assessable
deposits for each quarter (except for the third quarter in which it was 0.58 cents). The assessment rate has been dropped to 0.58
cents for the first quarter of 2016. These assessments will continue until the debt matures between 2017 and 2019.
The FDIC
may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition
imposed by the FDIC.
Allowance
for Loan and Lease Losses.
The Allowance for Loan and Lease Losses (the “ALLL”) represents one of the most
significant estimates in the Bank’s financial statements and regulatory reports. Because of its significance, the Bank has
developed a system by which it develops, maintains, and documents a comprehensive, systematic, and consistently applied process
for determining the amounts of the ALLL and the provision for loan and lease losses. The Interagency Policy Statement on the Allowance
for Loan and Lease Losses, issued on December 13, 2006, encourages all banks to ensure controls are in place to consistently determine
the ALLL in accordance with GAAP, the bank’s stated policies and procedures, management’s best judgment and relevant
supervisory guidance. Consistent with supervisory guidance, the Bank maintains a prudent and conservative, but not excessive,
ALLL, that is at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be
impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The Bank’s estimate
of credit losses reflects consideration of all significant factors that affect the collectability of the portfolio as of the evaluation
date. See “Management’s Discussion and Analysis – Critical Accounting Policies.”
Commercial
Real Estate Lending
. The Bank’s lending operations may be subject to enhanced scrutiny by federal banking regulators
based on its concentration of commercial real estate loans. On December 6, 2006, the federal banking regulators issued final guidance
to remind financial institutions of the risk posed by commercial real estate (“CRE”) lending concentrations. CRE loans
generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential
real property where the primary source of repayment is derived from rental income associated with the property.
The guidance
prescribes the following guidelines for its examiners to help identify institutions that are potentially exposed to significant
CRE risk and may warrant greater supervisory scrutiny:
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total
reported loans for construction, land development and other land represent 100% or more
of the institutions total capital, or
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total
commercial real estate loans represent 300% or more of the institution’s total
capital, and the outstanding balance of the institution’s commercial real estate
loan portfolio has increased by 50% or more.
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Enforcement
Powers
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The Financial Institution Reform Recovery and Enforcement Act (“FIRREA”) expanded and increased civil
and criminal penalties available for use by the federal regulatory agencies against depository institutions and certain “institution-affiliated
parties.” Institution-affiliated parties primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct
of the financial institution’s affairs. These practices can include the failure of an institution to timely file required
reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be as high
as $1,100,000 per day for such violations. Criminal penalties for some financial institution crimes have been increased to 20
years. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and
institution-affiliated parties.
Possible
enforcement actions include the termination of deposit insurance. Furthermore, banking agencies’ power to issue regulatory
orders were expanded. Such orders may, among other things, require affirmative action to correct any harm resulting from a violation
or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also
be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined
by the ordering agency to be appropriate. The Dodd-Frank Act increases regulatory oversight, supervision and examination of banks,
bank holding companies and their respective subsidiaries by the appropriate regulatory agency.
Community
Reinvestment Act
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The Community Reinvestment Act requires that, in connection with examinations of financial institutions
within their respective jurisdictions, the Federal Reserve or the FDIC shall evaluate the record of each financial institution
in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered
in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria
could impose additional requirements and limitations on the Bank. Additionally, we must publicly disclose the terms of various
Community Reinvestment Act-related agreements.
Consumer
Protection
The Bank
is also subject to consumer laws and regulations intended to protect consumers in transactions with depository institutions, as
well as other laws or regulations affecting customers of financial institutions generally. These laws and regulations include
but are not limited to:
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The
federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
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The
Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial institution
is fulfilling its obligation to help meet the housing needs of the community it serves;
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The
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed
or other prohibited factors in extending credit;
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The
Fair Credit Reporting Act of 1978, governing the use and provision of information to
credit reporting agencies, certain identity theft protections, and certain credit and
other disclosures;
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The
Fair Debt Collection Act, governing the manner in which consumer debts may be collected
by collection agencies;
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National
Flood Insurance Act and Flood Disaster Protection Act, requiring flood insurance to extend
or renew certain loans in flood plains;
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Real
Estate Settlement Procedures Act, requiring certain disclosures concerning loan closing
costs and escrows, and governing transfers of loan servicing and the amounts of escrows
in connection with loans secured by one-to-four family residential properties;
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Bank
Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT
Act”), imposing requirements and limitations on specific financial transactions
and account relationships, intended to guard against money laundering and terrorism financing;
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Sections
22(g) and 22(h) of the Federal Reserve Act which set lending restrictions and limitations
regarding loans and other extensions of credit made to executive officers, directors,
principal shareholders and other insiders;
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Soldiers’
and Sailors’ Civil Relief Act of 1940, as amended, governing the repayment terms
of, and property rights underlying, secured obligations of persons currently on active
duty with the United States military;
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Talent
Amendment in the 2007 Defense Authorization Act, establishing a 36% annual percentage
rate ceiling, which includes a variety of charges including late fees, for certain types
of consumer loans to military service members and their dependents; and
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The
rules and regulations of the various federal agencies charged with the responsibility
of implementing these federal laws.
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The
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative subpoenas
of financial records;
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The
Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement
that act, which governs automatic deposits to and withdrawals from deposit accounts and
customers’ rights and liabilities arising from the use of automated teller machines
and other electronic banking services;
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Truth-In-Savings
Act, requiring certain disclosures for consumer deposit accounts; and
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The
rules and regulations of the various federal banking regulators charged with the responsibility
of implementing these federal laws.
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Capital
Adequacy
Banks and
bank holding companies, as regulated institutions, are required to maintain minimum levels of capital. The Federal Reserve and
the FDIC have adopted minimum risk-based (Tier 1 capital, common equity Tier 1 capital (“CET1”) and total capital)
and leverage capital requirements as well as guidelines that define components of the calculation of capital and the level of
risk associated with various types of assets. Financial institutions are expected to maintain a level of capital commensurate
with the risk profile assigned to their assets in accordance with the guidelines.
In addition
to the minimum risk-based capital and leverage ratios, banking organizations must maintain a “capital conservation buffer”
consisting of CET1 in an amount equal to 2.5% of risk-weighted assets in order to avoid restrictions on their ability to make
capital distributions and to pay certain discretionary bonus payments to executive officers. In order to avoid those restrictions,
the capital conservation buffer effectively increases the minimum CET1 capital, Tier 1 capital, and total capital ratios for U.S.
banking organizations to 7.0%, 8.5%, and 10.5%, respectively. Banking organizations with capital levels that fall within the buffer
will be required to limit dividends, share repurchases or redemptions (unless replaced within the same calendar quarter by capital
instruments of equal or higher quality), and discretionary bonus payments. The capital conservation buffer is phased in over a
5-year period beginning January 1, 2016.
The following
table presents the risk-based and leverage capital requirements applicable to the Bank:
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Adequately
Capitalized
Requirement
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Well Capitalized
Requirement
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Well Capitalized
with Buffer, fully
phased in 2019
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Leverage
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4.0
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%
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5.0
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%
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5.0
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%
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CET1
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4.5
|
%
|
|
|
6.5
|
%
|
|
|
7.0
|
%
|
|
Tier 1
|
|
|
6.0
|
%
|
|
|
8.0
|
%
|
|
|
8.5
|
%
|
|
Total Capital
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
|
|
10.5
|
%
|
The Dodd-Frank
Act establishes certain regulatory capital deductions with respect to hybrid capital instruments, such as trust preferred securities,
that will effectively disallow the inclusion of such instruments in Tier 1 capital if such capital instrument is issued on
or after May 19, 2010. However, preferred shares issued to the U.S. Department of the Treasury (the “Treasury”) pursuant
to the TARP Capital Purchase Program (“TARP CPP”) or TARP Community Development Capital Initiative (“TARP CDCI”)
are permanently includable in Tier 1 capital.
The FDIC
also considers interest rate risk (arising when the interest rate sensitivity of the Bank’s assets does not match the sensitivity
of its liabilities or its off-balance-sheet position) in the evaluation of the bank’s capital adequacy. Banks with excessive
interest rate risk exposure are required to hold additional amounts of capital against their exposure to losses resulting from
that risk. Through the risk-weighting of assets, the regulators also require banks to incorporate market risk components into
their risk-based capital. Under these market risk requirements, capital is allocated to support the amount of market risk related
to a bank’s lending and trading activities.
The Bank’s
capital categories are determined solely for the purpose of applying the “prompt corrective action” rules described
above and they are not necessarily an accurate representation of its overall financial condition or prospects for other purposes.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including
issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits,
and certain other restrictions on its business. See “Prompt Corrective Action” above.
Payment
of Dividends
The Company
is a legal entity separate and distinct from the Bank. The principal source of the Company’s cash flow, including cash flow
to pay dividends to its shareholders, is dividends that the Bank pays to the Company, its sole shareholder. Statutory and regulatory
limitations apply to the Bank’s payment of dividends to the Company as well as to the Company’s payment of dividends
to its shareholders.
If, in the
opinion of the federal banking regulator, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal
banking regulator could require, after notice and a hearing, that it cease and desist from its practice. The federal banking agencies
have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be
an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become undercapitalized or if it is already undercapitalized.
Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
The Georgia
Department of Banking and Finance also regulates the Bank’s dividend payments and must approve dividend payments that would
exceed 50% of the Bank’s net income for the prior year or if (i) the bank’s ratio of equity capital to adjusted total
assets is less than 6%, or (ii) the bank’s adversely classified loans exceed 80% of its equity. Our payment of dividends
may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.
When the
Company received a capital investment from the United States Department of the Treasury in exchange for Preferred Stock under
the Troubled Assets Relief Program (“TARP”) Capital Purchase Program on March 6, 2009, which investment has since
been converted to an investment under the TARP CDCI, the Company became subject to additional limitations on the payment of dividends.
These limitations require, among other things, that for as long as the Preferred Stock is outstanding, no dividends may be declared
or paid on the Company’s common stock until all accrued and unpaid dividends on the Preferred Stock are fully paid. In addition,
the U.S. Treasury’s consent is required for any increase in dividends on common stock while the Preferred Stock is still
outstanding.
Furthermore,
the Federal Reserve Board clarified its guidance on dividend policies for bank holding companies through the publication of a
Supervisory Letter, dated February 24, 2009. As part of the letter, the Federal Reserve Board encouraged bank holding companies,
particularly those that had participated in the CPP, to consult with the Federal Reserve Board prior to dividend declarations
and redemption and repurchase decisions even when not explicitly required to do so by federal regulations. The Federal Reserve
Board has indicated that TARP recipients, such as the Company, should consider and communicate in advance to regulatory staff
how proposed dividends, capital repurchases, and capital redemptions are consistent with its obligation to eventually redeem the
securities held by the Treasury. This guidance is largely consistent with prior regulatory statements encouraging bank holding
companies to pay dividends out of net income and to avoid dividends that could adversely affect the capital needs or minimum regulatory
capital ratios of the bank holding company and its subsidiary bank.
Restrictions
on Transactions with Affiliates
The Company
and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount
of:
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|
·
|
loans
or extensions of credit to affiliates;
|
|
|
·
|
investment
in affiliates;
|
|
|
·
|
the
purchase of assets from affiliates, except for real and personal property exempted by
the Federal Reserve;
|
|
|
·
|
loans
or extensions of credit to third parties collateralized by the securities or obligations
of affiliates; and
|
|
|
·
|
any
guarantee, acceptance or letter of credit issued on behalf of an affiliate.
|
The total
amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and,
as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these
transactions, each of the above transactions must also meet specified collateral requirements. The Bank must also comply with
other provisions designed to avoid the taking of low-quality assets.
The Company
and the Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit
an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the
same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.
The Dodd-Frank
Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B, including an expansion of the
definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding
covered transactions must be maintained.
The Bank
is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their
related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal
risk of repayment or present other unfavorable features. Additionally, an insured depository institution is also prohibited from
engaging in asset purchases or sales transactions with its officers, directors or principal shareholders unless on market terms
and, if the transaction represents greater than 10% of the capital and surplus of the bank, it has been approved by a majority
of the disinterested directors.
Limitations
on Senior Executive Compensation
In June
of 2010, federal banking regulators issued guidance designed to help ensure that incentive compensation policies at banking organizations
do not encourage excessive risk-taking or undermined the safety and soundness of the organization. In connection with this guidance,
the regulatory agencies announced that they will review incentive compensation arrangements as part of the regular, risk-focused
supervisory process. Regulatory authorities may also take enforcement action against a banking organization if its incentive compensation
arrangement or related risk management, control, or governance processes pose a risk to the safety and soundness of the organization
and the organization is not taking prompt and effective measures to correct the deficiencies. To ensure that incentive compensation
arrangements do not undermine safety and soundness at insured depository institutions, the incentive compensation guidance sets
forth the following key principles:
|
|
·
|
Incentive
compensation arrangements should provide employees incentives that appropriately balance
risk and financial results in a manner that does not encourage employees to expose the
organization to imprudent risk;
|
|
|
·
|
Incentive
compensation arrangements should be compatible with effective controls and risk management;
and
|
|
|
·
|
Incentive
compensation arrangements should be supported by strong corporate governance, including
active and effective oversight by the board of directors.
|
Because
the Company received a capital investment from the United States Department of the Treasury under the TARP Capital Purchase Program
and now has a capital investment in the TARP Community Development Capital Initiative, the Company is subject to executive compensation
limitations. For example, the Company must meet the following standards:
|
|
·
|
Ensure
that senior executive incentive compensation packages do not encourage excessive risk;
|
|
|
·
|
Subject
senior executive compensation to “clawback” if the compensation was based
on inaccurate financial information or performance metrics;
|
|
|
·
|
Prohibit
any golden parachute payments to senior executive officers;
|
|
|
·
|
Agree
not to deduct more than $500,000 for a senior executive officer’s compensation;
and
|
|
|
·
|
Agree
not to pay any cash incentive bonus to the most highly compensated senior executive officer.
|
Financial
Regulatory Reform
On July
21, 2010, the President signed into law the Dodd-Frank Act, which contains a comprehensive set of provisions designed to govern
the practices and oversight of financial institutions and other participants in the financial markets. The Dodd-Frank Act made
extensive changes in the regulation of financial institutions and their holding companies. It required various federal agencies
to adopt a broad range of new rules and regulations, and to prepare numerous studies and reports for Congress. These studies could
potentially result in additional legislative or regulatory action.
Uncertainty
remains as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact on the financial services
industry as a whole or on ours and the Bank’s business, results of operations, and financial condition. Many aspects of
the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall
financial impact on the Company, its customers or the financial industry more generally. However, it is likely that the Dodd-Frank
Act will increase the regulatory burden, compliance costs and interest expense for the Company and Bank. Some of the rules that
have been adopted to comply with the Dodd-Frank Act’s mandates are discussed below.
Consumer
Financial Protection Bureau:
The Dodd-Frank Act centralized responsibility for consumer financial protection including implementing,
examining and enforcing compliance with federal consumer financial laws with Consumer Financial Protection Bureau (the “CFPB”).
Depository institutions with less than $10 billion in assets, such as our Bank, will be subject to rules promulgated by the CFPB
but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes.
UDAP
and UDAAP:
Recently, banking regulatory agencies have increasingly used a general consumer protection statute to address “unethical”
or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking
or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade
Commission Act—the primary federal law that prohibits unfair or deceptive acts or practices and unfair methods of competition
in or affecting commerce (“UDAP” or “FTC Act”). “Unjustified consumer injury” is the principal
focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance
with the UDAP law. However, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to “unfair, deceptive
or abusive acts or practices” (“UDAAP”), which has been delegated to the CFPB for supervision. The CFPB has
published its first Supervision and Examination Manual that addresses compliance with and the examination of UDAAP.
Mortgage
Reform:
The CFPB has adopted final rules implementing minimum standards for the origination of residential mortgages, including
standards regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay
variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan
term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions. In addition,
the Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified
mortgage” as defined by the CFPB.
Deposit
Insurance and Assessments:
The $250,000 limit for federal deposit insurance for noninterest-bearing demand transaction accounts
at all insured depository institutions was made permanent by the Dodd-Frank Act. The Dodd-Frank Act also changed the assessment
base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminated
the ceiling on the size of the Deposit Insurance Fund (“DIF”), and increased the floor on the size of the DIF, which
generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion.
Demand
Deposits:
The Dodd-Frank Act
repealed the federal prohibitions on the payment of interest on demand deposits, thereby
permitting depository institutions to pay interest on business transactions and other accounts.
Interchange
Fees:
The Federal Reserve has issued final rules limiting the amount of any debit card interchange fee that an issuer may
receive or charge with respect to electronic debit card transactions to be reasonable and proportional to the cost incurred by
the issuer with respect to the transaction.
Volcker
Rule:
On December 10, 2013, the federal regulators adopted final regulations to implement the proprietary trading and private
fund prohibitions of the Volcker Rule under the Dodd-Frank Act. Under the final regulations, which became effective on April 1,
2014, banking entities are generally prohibited, subject to significant exceptions from: (i) short-term proprietary trading as
principal in securities and other financial instruments, and (ii) sponsoring or acquiring or retaining an ownership interest in
private equity and hedge funds. The Federal Reserve has granted an extension for compliance with the Volcker Rule until July 21,
2016.
Proposed
Legislation and Regulatory Action
New regulations
and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive
relationships of financial institutions operating or doing business in the United States. We cannot predict whether or in what
form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation
or statute.
Effect
of Governmental Monetary Polices
Our earnings
are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.
The Federal Reserve Bank’s monetary policies have had, and are likely to continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation
or combat a recession. The monetary policies of the Federal Reserve affect the levels of bank loans, investments and deposits
through its control over the issuance of United States government securities, its regulation of the discount rate applicable to
member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact
of future changes in monetary and fiscal policies.
An investment
in the Company’s common stock involves a high degree of risk. If any of the following risks or other risks which have not
been identified or which we may believe are immaterial or unlikely, actually occur, our business, financial condition and results
of operations could be harmed. In such a case, the trading price of our common stock could decline, and you may lose all or part
of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially
from those discussed in these forward-looking statements.
Investors
should consider carefully the risks described below and the other information in this report before deciding to invest in the
Company’s common stock.
Our
allowance for loan losses may not be adequate to cover actual loan losses, which may require us to take a charge to our earnings
and adversely impact our financial condition and results of operations.
We maintain
an allowance for estimated loan losses that we believe is adequate for absorbing any probable losses in our loan portfolio. Management
determines the provision for loan losses based upon an analysis of general market conditions, credit quality of our loan portfolio,
and performance of our customers relative to their financial obligations with us. We employ an outside vendor specializing in
credit risk management to evaluate our loan portfolio for risk grading, which can result in changes in our allowance for estimated
loan losses. The amount of future losses is susceptible to changes in economic, operating, and other conditions, including changes
in interest rates that may be beyond our control and such losses may exceed the allowance for estimated loan losses. Although
management believes that the allowance for estimated loan losses is adequate to absorb any probable losses on existing loans that
may become uncollectible, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the
future. Significant increases to the provision for loan losses may be necessary if material adverse changes in general economic
conditions occur or the performance of our loan portfolio deteriorates. Additionally, federal banking regulators, as an integral
part of their supervisory function, periodically review the allowance for estimated loan losses. If these regulatory agencies
require us to increase the allowance for estimated loan losses, it would have a negative effect on our results of operations and
financial condition.
We
could suffer loan losses from a decline in credit quality.
We could
sustain losses if borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have
adopted underwriting and credit monitoring procedures and policies, including the establishment and review of the allowance for
credit losses that we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that
could materially adversely affect our results of operations.
If
the value of real estate in our core market were to decline materially, a significant portion of our loan portfolio could become
under-collateralized, which could have a material adverse effect on our business, financial condition and results of operations.
With most
of our loans concentrated in metro Atlanta, Georgia and Birmingham, Alabama, a decline in local economic conditions could adversely
affect the values of our real estate collateral.
Consequently, a decline in local economic conditions may have a greater effect
on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios
are geographically diverse.
In addition
to considering the financial strength and cash flow characteristics of borrowers, we often secure loans with real estate collateral.
The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and
may deteriorate in value during the time the credit is extended. Moreover, if economic conditions were to decline, the Company
may be required to further increase our loan loss provision, and may experience significantly higher delinquencies and credit
losses. An increase in our loan loss provision or increased credit losses would reduce earnings and adversely affect the Company’s
financial condition. Furthermore, to the extent that real estate collateral is obtained through foreclosure, the costs of holding
and marketing the real estate collateral, as well as the ultimate values obtained from disposition, could reduce the Company’s
earnings and adversely affect the Company’s financial condition.
The
amount of “other real estate owned” (“OREO”) may increase significantly, resulting in additional losses,
and costs and expenses that will negatively affect our operations.
At December
31, 2015, we had a total of $4,463,000 of OREO, reflecting a $205,000 decrease, or 4.40%, compared to 2014. This decrease in OREO
is primarily due to sales and write-downs of OREO market valuations which exceeded additions to OREO in 2015. While we do not
foresee it, the amount of OREO may increase in 2016. As the amount of OREO increases, our losses, and the costs and expenses to
maintain the real estate likewise will increase. Any additional increase in losses, and maintenance costs and expenses due to
OREO may have material adverse effects on our business, financial condition, and results of operations. Such effects may be particularly
pronounced in a market of reduced real estate values and excess inventory, which may make the disposition of OREO properties more
difficult, increase maintenance costs and expenses, and may reduce our ultimate realization from any OREO sales.
Future
impairment losses could be required on various investment securities, which may materially reduce the Company’s and the
Bank’s regulatory capital levels.
The
Company establishes fair value estimates of securities available-for-sale in accordance with generally accepted accounting principles.
The Company’s estimates can change from reporting period to reporting period, and we cannot provide any assurance that the
fair value estimates of our investment securities would be the realizable value in the event of a sale of the securities.
A
number of factors could cause the Company to conclude in one or more future reporting periods that any difference between the
fair value and the amortized cost of one or more of the securities that we own constitutes an other-than-temporary impairment.
These factors include, but are not limited to, an increase in the severity of the unrealized loss on a particular security, an
increase in the length of time unrealized losses continue without an improvement in value, a change in our intent or ability to
hold the security for a period of time sufficient to allow for the forecasted recovery, or changes in market conditions or industry
or issuer specific factors that would render us unable to forecast a full recovery in value, including adverse developments concerning
the financial condition of the companies in which we have invested.
In
addition, depending on various factors, including the fair values of other securities that we hold, we may be required to take
additional other-than-temporary impairment charges on other investment securities. Any other-than-temporary impairment charges
would negatively affect our regulatory capital levels, and may result in a change to our capitalization category, which could
limit certain corporate practices and could compel us to take specific actions.
Additional
growth or deterioration in the value of assets may require us to raise additional capital in the future, but that capital may
not be available when it is needed, which could adversely affect our financial condition and results of operations.
We are required
by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that
our current capital resources will satisfy our capital requirements for the foreseeable future. We may at some point, however,
need to raise additional capital to support our continued growth.
Our ability
to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control,
and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on
terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations could
be materially impaired.
Our
access to additional short term funding to meet our liquidity needs is limited.
We must
maintain, on a daily basis, sufficient funds to cover withdrawals from depositors’ accounts and to supply new borrowers
with funds. We routinely monitor asset and liability maturities in an attempt to match maturities to meet liquidity needs. To
meet our cash obligations, we rely on repayments as assets mature, keep cash on hand, maintain account balances with correspondent
banks, purchase and sell federal funds, purchase brokered deposits and maintain a line of credit with the Federal Reserve Bank
and the Federal Home Loan Bank. If we are unable to meet our liquidity needs through loan and other asset repayments and our cash
on hand, we may need to borrow additional funds. Our access to additional borrowed funds may be limited and we may be required
to pay above market rates for additional borrowed funds, which may adversely our results of operations.
Changes
in monetary policies may have an adverse effect on our business, financial condition and results of operations.
Our financial
condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve
Board. Actions by monetary and fiscal authorities, including the Federal Reserve Board, could have an adverse effect on our deposit
levels, loan demand or business and earnings.
Our
net interest income could be negatively affected by the Federal Reserve’s interest rate adjustments, as well as by competition
in our market area.
As a financial
institution, our earnings significantly depend on our net interest income, which is the difference between the interest income
that we earn on interest-earning assets, such as investment securities and loans, and the interest expense that we pay on interest-bearing
liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes resulting
from changes in the Federal Reserve’s fiscal and monetary policies, affects us more than non-financial institutions and
can have a significant effect on our net interest income and total income. Our assets and liabilities may react differently to
changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics
of the assets and liabilities. As a result, an increase or decrease in market interest rates could have material adverse effects
on our net interest margin and results of operations. Any reduction in our net interest income will negatively affect our business,
financial condition, liquidity, operating results, cash flows and, potentially, the price of our securities. In addition, we cannot
predict whether interest rates will continue to remain at present levels, or the timing of any anticipated changes. Changes in
interest rates may cause significant changes, up or down, in our net interest income. Depending on our portfolio of loans and
investments, our results of operations may be adversely affected by changes in interest rates. If there is a substantial increase
in interest rates, our investment portfolio is at risk of experiencing price declines that may negatively impact our total capital
position through changes in other comprehensive income.
We
are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations
on the conduct of our business, which limitations or restrictions could adversely affect our profitability.
As a bank
holding company, we are primarily regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”).
As a Federal Reserve member bank, our subsidiary bank is primarily regulated by the Federal Reserve Board and the State of Georgia
Department of Banking and Finance. Our compliance with Federal Reserve Board and Department of Banking and Finance regulations
is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions,
investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to
capital requirements of our regulators.
The laws
and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes
on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial
banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.
The Sarbanes-Oxley
Act of 2002, the related rules and regulations promulgated by the SEC that currently apply to us and the related exchange rules
and regulations, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. As
a result, we may experience greater compliance costs.
On July
21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act represented a significant overhaul of many aspects
of the regulation of the financial-services industry. Major elements in the Dodd-Frank Act include the following:
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·
|
The
establishment of the Financial Stability Oversight Counsel, which is responsible for
identifying and monitoring systemic risks posed by financial firms, activities, and practices.
|
|
|
·
|
Enhanced
supervision of large bank holding companies (i.e., those with over $50 billion in total
consolidated assets), with more stringent supervisory standards to be applied to them.
|
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|
·
|
The
creation of a special regime to allow for the orderly liquidation of systemically important
financial companies, including the establishment of an orderly liquidation fund.
|
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·
|
The
development of regulations to address derivatives markets, including clearing and exchange
trading requirements and a framework for regulating derivatives-market participants.
|
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|
·
|
Enhanced
supervision of credit-rating agencies through the Office of Credit Ratings within the
SEC.
|
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·
|
Increased
regulation of asset-backed securities, including a requirement that issuers of asset-backed
securities retain at least 5% of the risk of the asset-backed securities.
|
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|
·
|
The
establishment of the CFPB to serve as a dedicated consumer-protection regulatory body.
|
|
|
·
|
Amendments
to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage
originations, including originator compensation, minimum repayment standards, and prepayment
considerations.
|
The majority
of the provisions in the Dodd-Frank Act are aimed at financial institutions that are significantly larger than the Company or
the Bank. Nonetheless, there are provisions with which we must comply. Rules and regulations have been promulgated by the federal
agencies responsible for implementing and enforcing the provisions in the Dodd-Frank Act, and we must apply resources to ensure
that we are in compliance with all applicable provisions, which may adversely impact our earnings.
The
CFPB may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which
may directly impact the business operations of depository institutions offering consumer financial products or services including
the Bank.
The CFPB
has broad rulemaking authority to administer and carry out the purposes and objectives of the “Federal consumer financial
laws, and to prevent evasions thereof,” with respect to all financial institutions that offer financial products and services
to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider identifying
and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with
a consumer for a consumer financial product or service, or the offering of a consumer financial product or service (“UDAP
authority”). The potential reach of the CFPB’s broad rulemaking powers and UDAP authority on the operations of financial
institutions offering consumer financial products or services including the Bank is currently unknown.
The
Volcker Rule limits the permissible strategies for managing our investment portfolio.
Effective
December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section
619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to a transition period and certain exceptions,
the Volcker Rule restricts insured depository institutions and their affiliated companies from: (i) short-term proprietary trading
as principal in securities and other financial instruments, and (ii) sponsoring or acquiring or retaining an ownership interest
in private equity and hedge funds. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking
entities, including the Company, unless an exception applies. Although the Volcker Rule currently has no effect on our investment
portfolio, it could prohibit future investment strategies which could, in turn, negatively affect our earnings.
We
may be required to pay significantly higher FDIC premiums or remit special assessments that could adversely affect our earnings.
Market developments
in the recent economic downturn have significantly depleted the FDIC’s Deposit Insurance Fund (“DIF”) and reduced
its ratio of reserves to insured deposits. The FDIC’s assessment rates are intended to result in a reserve ratio of at least
1.15%. As of December 31, 2008, the ratio had fallen well below this floor. The FDIC is required to return the DIF to its
statutorily mandated minimum reserve ratio of 1.15 percent within eight years, and has undertaken several initiatives to satisfy
this requirement.
On September 30,
2009, the FDIC collected a one-time special assessment of five basis points of an institution’s assets minus tier 1
capital as of June 30, 2009. The amount of the special assessment could not exceed ten basis points times the institution’s
assessment base for the second quarter 2009. In addition, on November 12, 2009, the FDIC adopted a final rule that required nearly
all FDIC-insured depository institutions to prepay their DIF assessments for the fourth quarter of 2009 and for the next three
years. There can be no guarantee that continued pressures on the DIF will not result in additional special assessments being collected
by the FDIC in the future. If we are required to pay significantly higher premiums or additional special assessments in the future,
our earnings could be adversely affected. A downgrade in our regulatory condition could also cause our assessment to materially
increase. During 2015, the Company expensed $325,000 in FDIC premiums.
Another
economic downturn, especially one affecting our market areas, could adversely affect our financial condition, results of operations
or cash flows.
Our success
depends upon the growth in population, income levels, deposits and housing starts in our primary market areas. If the communities
in which we operate do not grow, or if prevailing economic conditions locally or nationally are unfavorable, our business may
not succeed. Unpredictable economic conditions may have an adverse effect on the quality of our loan portfolio and our financial
performance. Economic recession over a prolonged period or other economic problems in our market areas could have a material adverse
impact on the quality of the loan portfolio and the demand for our products and services. Future adverse changes in the economies
in our market areas may have a material adverse effect on our financial condition, results of operations or cash flows. Further,
the banking industry in Georgia and Alabama is affected by general economic conditions such as inflation, recession, unemployment
and other factors beyond our control. As a community bank, we are less able to spread the risk of unfavorable local economic conditions
than larger or more regional banks. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable
economic conditions in our primary market areas even if they do occur.
As
a community bank, we have different lending risks than larger banks.
We provide
services to our local communities. Our ability to diversify our economic risks is limited by our own local markets and economies.
We lend primarily to small to medium-sized businesses, and, to a lesser extent, individuals which may expose us to greater lending
risks than those of banks lending to larger, better-capitalized businesses with longer operating histories. We manage our credit
exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through loan approval
and review procedures. We have established an evaluation process designed to determine the adequacy of our allowance for loan
losses. While this evaluation process uses historical and other objective information, the classification of loans and the establishment
of loan losses is an estimate based on experience, judgment and expectations regarding our borrowers, the economies in which we
and our borrowers operate, as well as the judgment of our regulators. We cannot assure you that our loan loss reserves will be
sufficient to absorb future loan losses or prevent a material adverse effect on our business, financial condition, or results
of operations.
Competition
from other financial institutions may adversely affect our profitability.
The banking
business is highly competitive, and we experience strong competition from many other financial institutions. We compete with commercial
banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage
firms, insurance companies, money market funds and other financial institutions, which operate in our primary market areas and
elsewhere.
We compete
with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from
other existing financial institutions and from new residents. Many of our competitors are well-established and much larger financial
institutions. While we believe we can and do successfully compete with these other financial institutions in our markets, we may
face a competitive disadvantage as a result of our smaller size and lack of geographic diversification.
Although
we compete by concentrating our marketing efforts in our primary market areas with local advertisements, personal contacts and
greater flexibility in working with local customers, we can give no assurance that this strategy will be successful.
Our
plans for future expansion depend, in some instances, on factors beyond our control, and an unsuccessful attempt to achieve growth
could have a material adverse effect on our business, financial condition, results of operations and future prospects.
The investment
necessary for branch expansion may negatively impact our efficiency ratio. We may also seek to acquire other financial institutions,
or parts of those institutions, though we have no present plans in that regard. Expansion involves a number of risks, including:
|
|
·
|
the
time and costs of evaluating new markets, hiring experienced local management and opening
new offices;
|
|
|
·
|
the
time lags between these activities and the generation of sufficient assets and deposits
to support the costs of the expansion;
|
|
|
·
|
we
may not be able to finance an acquisition without diluting the interests of our existing
shareholders;
|
|
|
·
|
the
diversion of our management’s attention to the negotiation of a transaction may
detract from their business productivity;
|
|
|
·
|
we
may enter into new markets where we lack experience; and
|
|
|
·
|
we
may introduce new products and services with which we have no prior experience into our
business.
|
The
United States Department of the Treasury, as a holder of our preferred stock, has rights that are senior to those of our common
stockholders.
We have
supported our capital operations by issuing classes of preferred stock to the United States Department of the Treasury under the
Troubled Assets Relief Program Community Development Capital Initiative. As of December 31, 2015, we had outstanding preferred
stock issued to the Treasury totaling $11.8 million. The preferred stock has dividend rights that are senior to our common stock;
therefore, we must pay dividends on the preferred stock before we can pay any dividends on our common stock. In the event of our
bankruptcy, dissolution, or liquidation, the Treasury must be satisfied before we can make any distributions to our common stockholders.
Our recent results may not be indicative of our future results, and may not provide guidance to assess the risk of an investment
in our common stock.
Our
agreement with the United States Department of the Treasury under the Troubled Assets Relief Program Community Development Capital
Initiative (“TARP CDCI”) is subject to unilateral change by the Treasury, which could adversely affect our business,
financial condition, and results of operations.
Under the
TARP CDCI, the Treasury may unilaterally amend the terms of its agreement with us in order to comply with any changes in federal
law. We cannot predict the effects of any of these changes and of the associated amendments.
Our
ability to pay dividends is limited and we may be unable to pay future dividends. As a result, capital appreciation, if any, of
our common stock may be your sole opportunity for gains on your investment for the foreseeable future.
We make
no assurances that we will pay any dividends in the future. Any future determination relating to dividend policy will be made
at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements,
financial condition, future prospects, regulatory restrictions and other factors that our Board of Directors may deem relevant.
The holders of our common stock are entitled to receive dividends when, and if, declared by our Board of Directors out of funds
legally available for that purpose. As part of our consideration of whether to pay cash dividends, we intend to retain adequate
funds from future earnings to support the development and growth of our business. In addition, our ability to pay dividends is
restricted by federal policies and regulations. It is the policy of the Federal Reserve Board that bank holding companies should
pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention
is consistent with the organization’s expected future needs and financial condition. Further, our principal source of funds
to pay dividends is cash dividends that we receive from the bank.
In addition,
because we have participated in the United States Department of the Treasury’s Troubled Assets Relief Program Community
Development Capital Initiative (“TARP CDCI”), our ability to pay dividends on common stock is further limited. Specifically,
we may not pay dividends on common stock unless all dividends have been paid on the securities issued to the Treasury under the
TARP CDCI. The TARP CDCI also restricts our ability to increase the amount of dividends we may pay on common stock, which potentially
could impact the market value of our common stock.
The Emergency
Economic Stabilization Act of 2008 (“EESA”), the Dodd-Frank Reform Act or other governmental actions may not stabilize
the financial services industry.
The EESA,
which was signed into law on October 3, 2008, was intended to alleviate the financial crisis affecting the U.S. banking system.
A number of programs were developed and implemented under EESA. In addition, the Dodd-Frank Reform Act has overhauled many aspects
of the regulation of the financial industry. These laws, however, may not have the intended effect, and as a result, the condition
of the financial services industry could decline instead of improve. The failure of the EESA and the Dodd-Frank Reform Act to
permanently improve the condition of the U.S. banking system could significantly adversely affect our access to funding or capital,
the trading price of our stock, and other elements of our business, financial condition, and results of operations.
Our
recent results may not be indicative of our future results, and may not provide guidance to assess the risk of an investment in
our common stock.
We may not
be able to sustain our historical rate of growth or may not even be able to grow our business at all. Various factors, such as
economic conditions, regulatory and legislative considerations and competition, may impede or prohibit our ability to expand our
market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial
condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.
Confidential
customer information transmitted through the Bank’s online banking service is vulnerable to security breaches and computer
viruses, which could expose the Bank to litigation and adversely affect its reputation and ability to generate deposits.
The Bank
provides its customers with the ability to bank online. The secure transmission of confidential information over the Internet
is a critical element of online banking. The Bank’s network could be vulnerable to unauthorized access, computer viruses,
phishing schemes, and other security problems. The Bank may be required to spend significant capital and other resources to protect
against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
To the extent that the Bank’s activities or the activities of its clients involve the storage and transmission of confidential
information, security breaches and viruses could expose the Bank to claims, litigation and other possible liabilities. Any inability
to prevent security breaches or computer viruses could also cause existing clients to lose confidence in the Bank’s systems
and could adversely affect its reputation and its ability to generate deposits.
We rely
on other companies to provide key components of our business infrastructure.
Third party
vendors provide key components of our business infrastructure such as internet connections, network access and core application
processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by
these third parties, including as a result of their not providing us their services for any reason or their performing their services
poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business.
Replacing these third party vendors could also entail significant delay and expense.
|
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
There are
no written comments from the Commission staff regarding our periodic reports or current reports under the Act which remain unresolved.
|
|
ITEM
2.
|
DESCRIPTION
OF PROPERTIES
|
The Bank’s
main office building is located at 75 Piedmont Avenue, N.E., Atlanta, Georgia, which is leased. As of December 31, 2015, in addition
to its main office, the Bank also operated nine other branch offices: the office located at 2727 Panola Road, Lithonia, Georgia,
which is owned by the Bank; the office located at 965 M.L. King Jr. Drive, Atlanta, Georgia, which is owned by the bank; the office
located at 2840 East Point Street, East Point, Georgia, which is owned by the bank; the office located at Rockbridge Plaza, 5771
Rockbridge Road, Stone Mountain, Georgia, which is owned by the Bank; the office located at 3705 Cascade Road, Atlanta, Georgia,
which is owned by the bank; the office located at 3065 Stone Mountain Street, Lithonia, Georgia, which is owned by the Bank; the
office located at 3172 Macon Road, Columbus, Georgia, which is leased; the office located at 1700 Third Avenue North, Birmingham,
Alabama, which is owned by the Bank; and the office located at 213 Main Street, Eutaw, Alabama, which is owned by the Bank. The
Bank’s corporate headquarters are located in leased space at 230 Peachtree Street, N.W., Suite 2700, Atlanta, Georgia. In
the opinion of management, all of these properties are adequately insured.
Other than
normal commercial lending activities of the Bank, the Company generally does not invest in real estate, interests in real estate,
or securities of or interests in entities primarily engaged in real estate activities.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
The Company
and the Bank are involved in various claims and legal actions in the ordinary course of business. However, there are no other
material pending legal proceedings to which the Company or the Bank is a party or of which any of its properties are subject;
nor are there material proceedings known to the Company or the Bank to be contemplated by any governmental authority; nor are
there material proceedings known to us, pending or contemplated, in which any director, officer or affiliate or any principal
security holder, or any associate of any of the foregoing, is a party or has an interest adverse to the Company or the Bank.
|
|
ITEM 4.
|
MINE
SAFETY DISCLOSURE
|
Not
applicable
PART
II
|
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
|
The Company’s
common stock, $1.00 par value (“Common Stock”), is traded on the Over-The-Counter Bulletin Board, but there is limited
trading. The following table sets forth high and low bid information for the Common Stock for each of the quarters in which trading
has occurred since January 1, 2014. The prices set forth below reflect only information that has come to management’s
attention and do not include retail mark-ups, markdowns, or commissions and may not represent actual transactions.
|
Quarter
Ended:
|
|
High Bid
|
|
|
Low Bid
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
March
31, 2015
|
|
$
|
9.05
|
|
|
$
|
8.55
|
|
|
June 30, 2015
|
|
$
|
10.25
|
|
|
$
|
8.66
|
|
|
September 30, 2015
|
|
$
|
9.86
|
|
|
$
|
8.50
|
|
|
December 31, 2015
|
|
$
|
9.11
|
|
|
$
|
7.51
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
$
|
8.25
|
|
|
$
|
6.15
|
|
|
June 30, 2014
|
|
$
|
8.99
|
|
|
$
|
7.33
|
|
|
September 30, 2014
|
|
$
|
8.91
|
|
|
$
|
8.10
|
|
|
December 31, 2014
|
|
$
|
9.00
|
|
|
$
|
8.40
|
|
As
March 25, 2016, there were approximately 1,145 holders of record of Common Stock. The Company also has outstanding 90,000
shares of Non-Voting Common Stock, all of which is held by one shareholder.
The Company
paid an annual cash dividend of $0.08 per share in 2015 and 2014. The Company’s dividend policy in the future will depend
on the Bank’s earnings, capital requirements, financial condition, and other factors considered relevant by the Board of
Directors of the Company. See “Description of Business – Bank Regulation.”
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
This
information is not required since the Company qualifies as a smaller reporting company.
|
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
Company
Citizens
Bancshares Corporation (collectively with its subsidiary, the “Company”) is a holding company that provides a full
range of commercial banking services to individual and corporate customers through its wholly owned subsidiary, Citizens Trust
Bank (the “Bank”). The Bank operates under a state charter and serves its customers through its home office and six
full-service branches in metropolitan Atlanta, one full-service branch in Columbus, Georgia, one full-service branch in Birmingham,
Alabama, and one full-service branch in Eutaw, Alabama. All significant intercompany accounts and transactions have been eliminated
in consolidation.
The
following discussions of the Company’s financial condition and results of operations should be read in conjunction with
the Company’s consolidated financial statements and related notes, appearing in other sections of this Annual Report.
Forward
Looking Statements
In
addition to historical information, this Annual Report on Form 10-K may contain forward-looking statements. For this purpose,
any statements contained herein, including documents incorporated by reference, that are not statements of historical fact may
be deemed to be forward-looking statements. Also, statements that do not describe historical or current facts, including statements
about future levels of revenues, net interest margin, FDIC and other regulatory expense, and credit quality are forward-looking
statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Without limiting the foregoing,
these statements often include the words “believes,” “expects,” “anticipates,” “estimates,”
“intends,” “plans,” “targets,” “initiatives,” “potentially,” “probably,”
“projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,”
“should,” “would,” and “could” and similar expressions are intended to identify forward-looking
statements.
Forward-looking
statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such
statements. Forward-looking statements are based on current management expectations and, by their nature, are subject to risk
and uncertainties because of the possibility of changes in underlying factors and assumptions.
Factors
that could cause actual results to differ materially from those described in the forward-looking statements can be found in Item 1A
of Part I of this report and include risks discussed in this section of the Annual Report and in other periodic reports that we
file with the SEC. Those factors include: Our allowance for loan losses may not be adequate to cover actual loan losses, which
may require us to take a charge to our earnings and adversely impact our financial condition and results of operations; we could
suffer loan losses from a decline in credit quality; if the value of real estate in our core market were to decline materially,
a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on our
business, financial condition and results of operations; the amount of “other real estate owned” (“OREO”)
may increase significantly, resulting in additional losses, and costs and expenses that will negatively affect our operations;
future impairment losses could be required on various investment securities, which may materially reduce the Company’s and
the Bank’s regulatory capital levels; additional growth or deterioration in the value of assets may require us to raise
additional capital in the future, but that capital may not be available when it is needed, which could adversely affect our financial
condition and results of operations; our access to additional short term funding to meet our liquidity needs is limited; changes
in monetary policies may have an adverse effect on our business, financial condition and results of operations; our net interest
income could be negatively affected by the Federal Reserve’s interest rate adjustments, as well as by competition in our
market area; we are subject to extensive regulation that could limit or restrict our activities and impose financial requirements
or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability; the
CFPB may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which
may directly impact the business operations of depository institutions offering consumer financial products or services including
the Bank; the Volcker Rule limits the permissible strategies for managing our investment portfolio; we may be required to pay
significantly higher FDIC premiums or remit special assessments that could adversely affect our earnings; another economic downturn,
especially one affecting our market areas, could adversely affect our financial condition, results of operations or cash flows;
as a community bank, we have different lending risks than larger banks’ competition from other financial institutions may
adversely affect our profitability; our plans for future expansion depend, in some instances, on factors beyond our control, and
an unsuccessful attempt to achieve growth could have a material adverse effect on our business, financial condition, results of
operations and future prospects; the United States Department of the Treasury, as a holder of our preferred stock, has rights
that are senior to those of our common stockholders; our agreement with the United States Department of the Treasury under the
Troubled Assets Relief Program Community Development Capital Initiative (“TARP CDCI”) is subject to unilateral change
by the Treasury, which could adversely affect our business, financial condition, and results of operations; our ability to pay
dividends is limited and we may be unable to pay future dividends. As a result, capital appreciation, if any, of our common stock
may be your sole opportunity for gains on your investment for the foreseeable future; the Emergency Economic Stabilization Act
of 2008 (“EESA”), the Dodd-Frank Reform Act or other governmental actions may not stabilize the financial services
industry; our recent results may not be indicative of our future results, and may not provide guidance to assess the risk of an
investment in our common stock; confidential customer information transmitted through the Bank’s online banking service
is vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and adversely affect its reputation
and ability to generate deposits.
These
factors should be considered in evaluating the “forward-looking statements” and undue reliance should not be placed
on such statements. The Company undertakes no obligation to, nor does it intend to, update forward-looking statements to reflect
circumstances or events that occur after the date hereof or to reflect the occurrence of unanticipated events. All written or
oral forward-looking statements attributable to the Company are expressly qualified in the entirety by these cautionary statements.
Critical
Accounting Policies
Our
significant accounting policies are described in detail in Note 1, “Summary of Significant Accounting Policies,” to
the Consolidated Financial Statements and are integral to understanding the Management’s Discussion and Analysis of Financial
Condition and Results of Operations. We have identified certain accounting policies as being critical because (1) they require
our judgment about matters that are highly uncertain and (2) different estimates that could be reasonably applied would result
in materially different assessments with respect to ascertaining the valuation of assets, liabilities, commitments, and contingencies.
A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering
an asset, valuing an asset or liability, or reducing a liability. Our accounting and reporting policies are in accordance with
U.S. GAAP, and they conform to general practices within the financial services industry. We have established detailed policies
and control procedures that are intended to ensure these critical accounting estimates are well controlled and applied consistently
from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies
occurs in an appropriate manner.
In
response to the Securities and Exchange Commission’s (“SEC”) Release No. 33-8040, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, the Company has identified the following as the most critical accounting policies
upon which its financial status depends. The critical policies were determined by considering accounting policies that involve
the most complex or subjective decisions or assessments by the Company’s management. The Company’s most critical accounting
policies are:
Investment
Securities
—The Company classifies investments in one of three categories based on management’s intent upon purchase:
held to maturity securities which are reported at amortized cost, trading securities which are reported at fair value with unrealized
holding gains and losses included in earnings, and available for sale securities which are recorded at fair value with unrealized
holding gains and losses included as a component of accumulated other comprehensive income. The Company had no investment securities
classified as trading securities during 2015, 2014, or 2013.
Premiums
and discounts on available for sale and held to maturity securities are amortized or accreted using a method which approximates
a level yield. Amortization and accretion of premiums and discounts is presented within investment securities interest income
on the Consolidated Statements of Income.
Gains
and losses on sales of investment securities are recognized upon disposition, based on the adjusted cost of the specific security.
A decline in market value of any security below cost that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security. The determination of whether an other-than-temporary impairment has occurred
involves significant assumptions, estimates, changes in economic conditions and judgment by management. There was no other-than-temporary
impairment for securities recorded during 2015, 2014 or 2013.
Loans
Receivable and Allowance for Loan Losses
—Loans are reported at principal amounts outstanding less unearned income and
the allowance for loan losses. Interest income on loans is recognized on a level yield basis. Loan fees and certain direct origination
costs are deferred and amortized over the estimated terms of the loans using the level yield method. Premiums and discounts on
loans purchased are amortized and accreted using the level yield method over the estimated remaining life of the loan purchased.
The accretion and amortization of loan fees, origination costs, and premiums and discounts are presented as a component of loan
interest income on the Consolidated Statements of Income.
Management
considers a loan to be impaired when, based on current information and events, there is a potential that all amounts due according
to the contractual terms of the loan may not be collected. Impaired loans are measured based on the present value of expected
future cash flows, discounted at the loan’s effective interest rate, or at the loan’s observable market price, or
the fair value of the collateral if the loan is collateral dependent.
Loans
are generally placed on nonaccrual status when the full and timely collection of principal or interest becomes uncertain or the
loan becomes contractually in default for 90 days or more as to either principal or interest, unless the loan is well collateralized
and in the process of collection. When a loan is placed on nonaccrual status, current period accrued and uncollected interest
is charged-off against interest income on loans unless management believes the accrued interest is recoverable through the liquidation
of collateral. Interest income, if any, on impaired loans is recognized on the cash basis.
The
Company considers its accounting policies related to the allowance for loan losses to be critical, as these policies involve considerable
subjective judgment and estimation by management. The Company provides for estimated losses on loans receivable when any significant
and permanent decline in value occurs. The level of the allowance for loan losses reflects the Company’s continuing evaluation
of specific lending risks; loan loss experience; current loan portfolio quality; present economic, political, and regulatory conditions;
and unidentified losses inherent in the current loan portfolio. Additionally, these estimates for loan losses are based on individual
assets and their related cash flow forecasts, sales values, independent appraisals, the volatility of certain real estate markets,
and concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining necessary
provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used
to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan
losses is reviewed on a monthly basis by management and the Board of Directors. This assessment is made in the context of historical
losses as well as existing economic conditions, performance trends within specific portfolio segments, and individual concentrations
of credit.
Loans
are charged-off against the allowance when, in the opinion of management, such loans are deemed to be uncollectible and subsequent
recoveries are added to the allowance.
We
believe that the allowance for loan losses at December 31, 2015 is adequate to cover probable inherent losses in the loan portfolio.
However, underlying assumptions may be impacted in future periods by changes in economic conditions, the impact of regulatory
examinations, and the discovery of information with respect to borrowers which was not known to management at the time of the
issuance of the Company’s Consolidated Financial Statements. Therefore, our assumptions may or may not prove valid. Thus,
there can be no assurance that loan losses in future periods, including potential incremental losses resulting from the sale of
the commercial loans held for sale, will not exceed the current allowance for loan losses amount or that future increases in the
allowance for loan losses will not be required. Additionally, no assurance can be given that our ongoing evaluation of the loan
portfolio, in light of changing economic conditions and other relevant factors, will not require significant future additions
to the allowance for loan losses, thus adversely impacting the Company’s business, financial condition, results of operations,
and cash flows.
See
Item 1A. Risk Factors contained herein for discussion regarding the material risks and uncertainties that we believe impact our
allowance for loan losses.
Other
Real Estate Owned
—The value of other real estate owned represents another accounting estimate that depends heavily on
current economic conditions. Other real estate owned is carried at fair value less estimated selling costs, establishing a new
cost basis. Fair value of such real estate is reviewed regularly and write-downs are recorded when it is determined that the carrying
value of the real estate exceeds the fair value less estimated costs to sell. Write-downs resulting from the periodic reevaluation
of such properties, costs related to holding such properties, and gains and losses on the sale of other real estate owned are
charged against income. Costs relating to the development and improvement of such properties are capitalized.
The
fair value of properties in the other real estate owned portfolio is generally determined from appraisals obtained from independent
appraisers. We review the appraisal assumptions for reasonableness and may make adjustments when necessary to reflect current
market conditions. Such assumptions may not prove to be valid. Moreover, no assurance can be given that changing economic conditions
and other relevant factors impacting our foreclosed real estate portfolio will not cause actual occurrences to differ from underlying
assumptions thus adversely impacting our business, financial condition, results of operations, and cash flows.
Income
Taxes
—Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets
and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income tax expense in the period that includes the enactment date.
In
the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s
assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits
indicated by such assets is required. A valuation allowance is provided for the portion of a deferred tax asset when it is more
likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income,
and tax planning strategies.
A
description of the Company’s other accounting policies are summarized in Note 1, Summary of Significant Accounting Policies
in the Notes to the Consolidated Financial Statements.
Selected
Financial Data
The
following selected financial data for Citizens Bancshares Corporation and subsidiary should be read in conjunction with the Consolidated
Financial Statements and related Notes appearing in another section of this Annual Report.
|
|
|
Years ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(amounts in thousands, except per share
data and financial ratios)
|
|
|
Statement of income
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
12,068
|
|
|
$
|
12,529
|
|
|
$
|
12,863
|
|
|
Provision
for loan losses
|
|
$
|
100
|
|
|
$
|
75
|
|
|
$
|
425
|
|
|
Net
income
|
|
$
|
1,819
|
|
|
$
|
1,808
|
|
|
$
|
1,349
|
|
|
Net
income available to common shareholders
|
|
$
|
1,582
|
|
|
$
|
1,572
|
|
|
$
|
1,112
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share - basic
|
|
$
|
0.72
|
|
|
$
|
0.73
|
|
|
$
|
0.52
|
|
|
Book
value per common share
|
|
$
|
17.87
|
|
|
$
|
17.49
|
|
|
$
|
16.06
|
|
|
Cash
dividends paid per common share
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net of unearned income
|
|
$
|
186,961
|
|
|
$
|
191,038
|
|
|
$
|
185,276
|
|
|
Deposits
|
|
$
|
328,862
|
|
|
$
|
340,889
|
|
|
$
|
336,962
|
|
|
Advances
from Federal Home Loan Bank
|
|
$
|
5,235
|
|
|
$
|
254
|
|
|
$
|
273
|
|
|
Total
assets
|
|
$
|
388,620
|
|
|
$
|
395,639
|
|
|
$
|
387,733
|
|
|
Average
stockholders’ equity
|
|
$
|
49,962
|
|
|
$
|
48,063
|
|
|
$
|
47,773
|
|
|
Average
assets
|
|
$
|
394,287
|
|
|
$
|
404,274
|
|
|
$
|
398,063
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available
to common shareholders to average assets
|
|
|
0.40
|
%
|
|
|
0.39
|
%
|
|
|
0.28
|
%
|
|
Net income available
to common shareholders to average stockholders’ equity
|
|
|
3.17
|
%
|
|
|
3.27
|
%
|
|
|
2.33
|
%
|
|
Dividend payout ratio
per common share
|
|
|
10.89
|
%
|
|
|
10.93
|
%
|
|
|
15.45
|
%
|
|
Average stockholders’
equity to average assets
|
|
|
12.67
|
%
|
|
|
11.89
|
%
|
|
|
12.00
|
%
|
In
2015, the Company reported net income available to common shareholders of $1,582,000 compared to $1,572,000 in 2014, and a 42
percent increase over net income available to common shareholders of $1,112,000 reported in 2013. The year over year increase
in 2015 net income available to common shareholders is attributed primarily to the successful implementation of the Company’s
asset disposition plan that started in 2012 which has reduced the amount of nonperforming assets on the Company’s books
and its negative impact on earnings. The provision for loan losses was $100,000 compared to $75,000 in 2014 and declined by 77
percent or $325,000 compared to 2013 due to continued improvement in credit quality. Also, other real estate owned related expenses
decreased 57 percent or $507,000 during 2015 compared to 2014.
The
Company is a participant in the U.S. Department of the Treasury TARP CPP program and paid preferred dividends of $237,000 in 2015,
2014, and 2013. Basic and diluted earnings per common share were $0.72 and $0.71 for the year ended December 31, 2015, respectively.
Basic and diluted earnings per common share were $0.73 and $0.72 for 2014, respectively. For fiscal year 2013, basic and diluted
earnings per common share were $0.52 and $0.51, respectively.
The
Company has maintained its strong capital position during the financial crisis that has affected the banking system and financial
markets. The ratio of average stockholders’ equity to average assets is one measure used to determine capital strength.
The Company’s average stockholders’ equity to average assets ratio for 2015, 2014, and 2013 was 12.67%, 11.89% and
12.00%, respectively. The Company’s net income available to common shareholders to average stockholders’ equity (return
on equity), was 3.17%, 3.27% and 2.33% in 2015, 2014 and 2013, respectively.
The
following statistical information is provided for the Company for the years ended December 31, 2015, 2014 and 2013. The data is
presented using daily average balances. The data should be read in conjunction with the financial statements appearing elsewhere
in this Annual Report on Form 10-K. Some of the financial information provided has been rounded in order to simplify its
presentation. However, the ratios and percentages provided below are calculated using the detailed financial information contained
in the Financial Statements, the Notes thereto and the other financial data included elsewhere in this Annual Report (amounts
in thousands).
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
|
Balances
|
|
|
Expense
|
|
|
Rate
|
|
|
Balances
|
|
|
Expense
|
|
|
Rate
|
|
|
Balances
|
|
|
Expense
|
|
|
Rate
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
(a)
|
|
$
|
187,636
|
|
|
$
|
9,813
|
|
|
|
5.23
|
%
|
|
|
181,856
|
|
|
$
|
9,864
|
|
|
|
5.42
|
%
|
|
|
178,652
|
|
|
$
|
10,487
|
|
|
|
5.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
97,496
|
|
|
|
1,940
|
|
|
|
1.99
|
%
|
|
|
104,714
|
|
|
|
2,213
|
|
|
|
2.11
|
%
|
|
|
104,531
|
|
|
|
1,912
|
|
|
|
1.83
|
%
|
|
Tax-exempt
(b)
|
|
|
25,129
|
|
|
|
1,329
|
|
|
|
5.29
|
%
|
|
|
30,479
|
|
|
|
1,761
|
|
|
|
5.78
|
%
|
|
|
35,314
|
|
|
|
1,924
|
|
|
|
5.45
|
%
|
|
Federal funds sold
|
|
|
1,808
|
|
|
|
9
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
Interest bearing
deposits
|
|
|
50,680
|
|
|
|
128
|
|
|
|
0.25
|
%
|
|
|
50,229
|
|
|
|
123
|
|
|
|
0.24
|
%
|
|
|
38,348
|
|
|
|
97
|
|
|
|
0.25
|
%
|
|
Total interest-earning assets
|
|
|
362,749
|
|
|
$
|
13,219
|
|
|
|
3.64
|
%
|
|
|
367,278
|
|
|
$
|
13,961
|
|
|
|
3.80
|
%
|
|
|
356,845
|
|
|
$
|
14,420
|
|
|
|
4.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-interest earning assets
|
|
|
31,538
|
|
|
|
|
|
|
|
|
|
|
|
36,996
|
|
|
|
|
|
|
|
|
|
|
|
41,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
394,287
|
|
|
|
|
|
|
|
|
|
|
|
404,274
|
|
|
|
|
|
|
|
|
|
|
|
398,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand and savings
|
|
$
|
128,893
|
|
|
$
|
151
|
|
|
|
0.12
|
%
|
|
|
128,107
|
|
|
$
|
168
|
|
|
|
0.13
|
%
|
|
|
124,003
|
|
|
$
|
271
|
|
|
|
0.22
|
%
|
|
Time
|
|
|
122,601
|
|
|
|
549
|
|
|
|
0.45
|
%
|
|
|
139,845
|
|
|
|
665
|
|
|
|
0.48
|
%
|
|
|
146,831
|
|
|
|
632
|
|
|
|
0.43
|
%
|
|
Other borrowings
|
|
|
258
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
263
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
419
|
|
|
|
1
|
|
|
|
0.24
|
%
|
|
Total interest bearing liabilities
|
|
$
|
251,752
|
|
|
$
|
700
|
|
|
|
0.28
|
%
|
|
|
268,215
|
|
|
$
|
833
|
|
|
|
0.31
|
%
|
|
|
271,253
|
|
|
$
|
904
|
|
|
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities
|
|
|
92,573
|
|
|
|
|
|
|
|
|
|
|
|
87,996
|
|
|
|
|
|
|
|
|
|
|
|
79,037
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
(c)
|
|
|
49,962
|
|
|
|
|
|
|
|
|
|
|
|
48,063
|
|
|
|
|
|
|
|
|
|
|
|
47,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
|
$
|
394,287
|
|
|
|
|
|
|
|
|
|
|
|
404,274
|
|
|
|
|
|
|
|
|
|
|
|
398,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of interest-earning assets over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities
|
|
$
|
110,997
|
|
|
|
|
|
|
|
|
|
|
|
99,063
|
|
|
|
|
|
|
|
|
|
|
|
85,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities
|
|
|
144.09
|
%
|
|
|
|
|
|
|
|
|
|
|
136.93
|
%
|
|
|
|
|
|
|
|
|
|
|
131.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
12,519
|
|
|
|
|
|
|
|
|
|
|
$
|
13,128
|
|
|
|
|
|
|
|
|
|
|
$
|
13,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.36
|
%
|
|
|
|
|
|
|
|
|
|
|
3.49
|
%
|
|
|
|
|
|
|
|
|
|
|
3.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield
on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
3.57
|
%
|
|
|
|
|
|
|
|
|
|
|
3.79
|
%
|
|
(a)
|
Average loans are shown net of unearned income
and the allowance for loan losses. Nonperforming loans are also included.
|
|
|
|
|
(b)
|
Reflects taxable equivalent adjustments using a tax rate of 34%
to adjust interest on tax-exempt investment securities to a fully taxable basis, including the impact of the disallowed interest
expense related to carrying such tax-exempt securities.
|
|
|
|
|
(c)
|
Includes voting and non-voting common stock and preferred stock.
|
Average
Balance Sheets, Interest Rate, and Interest Differential (Continued)
The
following table sets forth, for the year ended December 31, 2015, a summary of the changes in interest earned and interest paid
resulting from changes in volume and changes in rates (amounts in thousands):
|
|
|
December 31,
|
|
|
Increase
|
|
|
Due to Change in
(a)
|
|
|
|
|
2015
|
|
|
2014
|
|
|
(decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
Interest earned on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net
|
|
$
|
9,813
|
|
|
$
|
9,864
|
|
|
$
|
(51
|
)
|
|
$
|
308
|
|
|
$
|
(359
|
)
|
|
Taxable investment
securities
|
|
|
1,940
|
|
|
|
2,213
|
|
|
|
(273
|
)
|
|
|
(148
|
)
|
|
|
(125
|
)
|
|
Tax-exempt investment
securities
(b)
|
|
|
1,329
|
|
|
|
1,761
|
|
|
|
(432
|
)
|
|
|
(296
|
)
|
|
|
(136
|
)
|
|
Federal funds sold
|
|
|
9
|
|
|
|
—
|
|
|
|
9
|
|
|
|
5
|
|
|
|
4
|
|
|
Interest
bearing deposits
|
|
|
128
|
|
|
|
123
|
|
|
|
5
|
|
|
|
1
|
|
|
|
4
|
|
|
Total
interest income
|
|
|
13,219
|
|
|
|
13,961
|
|
|
|
(742
|
)
|
|
|
(130
|
)
|
|
|
(612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings & interest-bearing
demand deposits
|
|
|
151
|
|
|
|
168
|
|
|
|
(17
|
)
|
|
|
1
|
|
|
|
(18
|
)
|
|
Time deposits
|
|
|
549
|
|
|
|
665
|
|
|
|
(116
|
)
|
|
|
(80
|
)
|
|
|
(36
|
)
|
|
Other
borrowed funds
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
interest expense
|
|
|
700
|
|
|
|
833
|
|
|
|
(133
|
)
|
|
|
(79
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
12,519
|
|
|
$
|
13,128
|
|
|
$
|
(609
|
)
|
|
$
|
(51
|
)
|
|
$
|
(558
|
)
|
|
|
(a)
|
The
change in interest due to both rate and volume has been allocated proportionately to
the volume and rate components.
|
|
|
(b)
|
Reflects
taxable equivalent adjustments using a tax rate of 34% to adjust interest on tax-exempt
investment securities to a fully taxable basis, including the impact of the disallowed
interest expense related to carrying such tax-exempt securities.
|
Average
Balance Sheets, Interest Rate, and Interest Differential (Continued)
The
following table sets forth, for the year ended December 31, 2014, a summary of the changes in interest earned and interest paid
resulting from changes in volume and changes in rates (amounts in thousands):
|
|
|
December 31,
|
|
|
Increase
|
|
|
Due to Change in
(a)
|
|
|
|
|
2014
|
|
|
2013
|
|
|
(decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
Interest earned on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net
|
|
$
|
9,864
|
|
|
$
|
10,487
|
|
|
$
|
(623
|
)
|
|
$
|
181
|
|
|
$
|
(804
|
)
|
|
Taxable investment
securities
|
|
|
2,213
|
|
|
|
1,912
|
|
|
|
301
|
|
|
|
4
|
|
|
|
297
|
|
|
Tax-exempt investment
securities
(b)
|
|
|
1,761
|
|
|
|
1,924
|
|
|
|
(163
|
)
|
|
|
(271
|
)
|
|
|
108
|
|
|
Interest
bearing deposits
|
|
|
123
|
|
|
|
97
|
|
|
|
26
|
|
|
|
30
|
|
|
|
(4
|
)
|
|
Total
interest income
|
|
|
13,961
|
|
|
|
14,420
|
|
|
|
(459
|
)
|
|
|
(56
|
)
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings & interest-bearing
demand deposits
|
|
|
168
|
|
|
|
271
|
|
|
|
(103
|
)
|
|
|
5
|
|
|
|
(108
|
)
|
|
Time deposits
|
|
|
665
|
|
|
|
632
|
|
|
|
33
|
|
|
|
(34
|
)
|
|
|
67
|
|
|
Other
borrowed funds
|
|
|
0
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
|
Total
interest expense
|
|
|
833
|
|
|
|
904
|
|
|
|
(71
|
)
|
|
|
(29
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
13,128
|
|
|
$
|
13,516
|
|
|
$
|
(388
|
)
|
|
$
|
(27
|
)
|
|
$
|
(361
|
)
|
|
(
a)
|
The change in interest
due to both rate and volume has been allocated proportionately to the volume and rate components.
|
|
(b)
|
Reflects
taxable equivalent adjustments using a tax rate of 34% to adjust interest on tax-exempt investment securities to a fully
taxable basis, including the impact of the disallowed interest expense related to carrying such tax-exempt
securities.
|
Financial
Condition
At
December 31, 2015, the Company had total assets of $388,620,000 which represents a decrease of $7,019,000 from last year. Total
assets primarily consisted of $123,258,000 in investment securities and $184,836,000 in net loans representing 32 percent and
48 percent, respectively, of total assets at December 31, 2015. For the same period last year, investment securities and net loans
represented 32 percent and 48 percent, respectively, of total assets.
Interest-bearing
deposits with banks decreased by $15,833,000 to $29,819,000 at December 31, 2015 compared to last year. The decrease in interest-bearing
deposits is primarily due to a $16,500,000 increase in federal funds sold. Interest-bearing deposits with banks primarily represent
funds maintained on deposit at the Federal Reserve Bank (FRB) and the Federal Home Loan Bank (FHLB). These funds fluctuate daily
and are used to manage the Company’s liquidity position. Investment securities available for sale decreased $3,353,000 to
$123,258,000 during the year. The Company monitors its short-term liquidity position daily and closely manages its overnight cash
positions in light of the current economic environment.
Loans
typically provide higher interest yields than other types of interest-earning assets and, therefore, continue to be the largest
component of the Company’s assets. Average loans, net for the years ended December 31, 2015 and 2014 were $187,636,000 and
$181,856,000, respectively. Loans, net outstanding at December 31, 2015 and 2014 were $184,837,000 and $188,739,000, respectively.
The decrease was primarily driven by a decrease of commercial real estate loans of $12,344,000, single-family residential of $844,000
and construction & development of $705,000; offset by an increase in commercial, financial and agriculture of $9,440,000,
and consumer loans of $376,000 during the year, coupled with a decline in the allowance for loan losses of $175,000. As with our
industry, we are experiencing the impact of a challenging lending environment and competitive pricing pressures. However, we continue
to cultivate new lending opportunities and invest in the resources needed to augment our lending operations to pursue quality
and profitable loan growth.
Cash
value of life insurance, a comprehensive compensation program for directors and certain senior managers of the Company, increased
by $8,000 to $10,090,000 at December 31, 2015. The increase is attributed to the earnings on the premiums paid over the life of
the insurance contract.
At
December 31, 2015, other real estate owned decreased by $205,000 to $4,463,000 compared to the year-end of 2014. The decrease
is due to sales of $964,000 and write-downs of $217,000 which exceeded the $976,000 in additions of foreclosed properties during
2015.
The
Company’s liabilities at December 31, 2015 totaled $338,244,000 and consisted primarily of $328,862,000 in deposits. Average
deposits for the years ended December 31, 2015 and 2014 were $339,464,000 and $351,489,000, respectively. Total deposits outstanding
at December 31, 2015 and 2014 were $328,862,000 and $340,889,000, respectively. FHLB advances at December 31, 2015 totaled $5,235,000
compared to $254,000 at December 31, 2014.
At
December 31, 2015, stockholders’ equity was $50,376,000, representing an increase of $810,000 over year-end 2014 primarily
due to a net income of $1,819,000 earned in 2015 offset by $741,000 in accumulated other comprehensive income (loss) as a result
of the increases in interest rates and their impact on the market value of the Company’s investments and other stockholders’
component of $409,000 primarily due to the payment of preferred and common stock dividends. As a result, book value per common
share increased to $17.87 at December 31, 2015 compared to $17.49 at December 31, 2014.
The
Company’s asset/liability management program, which monitors the Company’s interest rate sensitivity as well as volume
and mix changes in earning assets and interest bearing liabilities, may impact the growth of the Company’s balance sheet
as it seeks to maximize net interest income.
Investment
Portfolio
The
composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maximizing
portfolio yields commensurate with risk and liquidity considerations. The primary objectives of the Company’s investment
strategy are to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest
rate sensitivity position, while at the same time producing adequate levels of interest income.
The
carrying values of investment securities held to maturity and investment securities available for sale at the indicated dates
are presented below:
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Available for Sale:
|
|
(amounts in thousands)
|
|
|
State, county, and municipal securities
|
|
$
|
29,457
|
|
|
$
|
29,693
|
|
|
$
|
34,802
|
|
|
Mortgage-backed securities
|
|
|
91,800
|
|
|
|
86,915
|
|
|
|
96,267
|
|
|
Corporate securities
|
|
|
2,001
|
|
|
|
10,003
|
|
|
|
9,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
123,258
|
|
|
$
|
126,611
|
|
|
$
|
141,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Held to Maturity:
|
|
(amounts in thousands)
|
|
|
State, county, and municipal securities
|
|
$
|
—
|
|
|
$
|
240
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
—
|
|
|
$
|
240
|
|
|
$
|
240
|
|
Investment
securities comprised approximately 32 percent of the Company’s assets at December 31, 2015 and 2014. The investment portfolio
had a fair market value of $123,258,000 and an amortized cost of $123,366,000, resulting in a net unrealized loss of $107,000
at December 31, 2015. For the same period in 2014, the investment portfolio had a fair market value of $126,854,000 and an amortized
cost of $125,835,000, resulting in a net unrealized gain of $1,019,000.
Total
investments classified as available for sale had a fair value of $123,258,000 ($123,366,000 amortized cost) at December 31, 2015,
compared to a fair value of $126,611,000 ($125,595,000 amortized cost) at December 31, 2014. Investments classified as held to
maturity at December 31, 2014 had an amortized cost of $240,000 (estimated fair value of $243,000). There were no investments
classified as held to maturity at December 31, 2015.
The
following table shows the contractual maturities of all investment securities at December 31, 2015 and the weighted average yields
(on a fully taxable basis assuming a 34 percent tax rate) of such securities. Mortgage-backed securities are classified by their
contractual maturity; however, expected maturities may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties:
|
|
|
Maturing
|
|
|
|
|
Within 1 Year
|
|
|
Between 1 and 5 Years
|
|
|
Between 5 and 10 Years
|
|
|
After 10 Years
|
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Mortgage-backed securities
|
|
$
|
1,764
|
|
|
|
—
|
%
|
|
$
|
155,981
|
|
|
|
2.61
|
%
|
|
$
|
8,194,956
|
|
|
|
2.26
|
%
|
|
$
|
83,447,736
|
|
|
|
1.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal securities
|
|
|
200,602
|
|
|
|
3.97
|
%
|
|
|
5,225,595
|
|
|
|
5.70
|
%
|
|
|
23,824,007
|
|
|
|
5.13
|
%
|
|
|
206,988
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
2,000,592
|
|
|
|
2.34
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,202,958
|
|
|
|
|
|
|
$
|
5,381,576
|
|
|
|
|
|
|
$
|
32,018,963
|
|
|
|
|
|
|
$
|
83,654,724
|
|
|
|
|
|
Other
investments consist of Federal Home Loan Bank and Federal Reserve Bank stock, which are restricted and have no readily determined
market value. The Company is required to maintain an investment in the FHLB and FRB as part of its membership conditions. The
level of investment is determined by the amount of outstanding advances at the FHLB, and at the FRB it is 6 percent of the par
value of the bank’s common stock outstanding and paid-in-capital. These investments are carried at cost and increased by
$173,000 to $965,000 in 2015 compared to 2014.
Loans
The amounts
of loans outstanding at the indicated dates are shown in the following table according to the type of loan (amounts in thousands):
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Commercial, financial, and agricultural
|
|
$
|
42,748
|
|
|
$
|
33,308
|
|
|
$
|
20,292
|
|
|
$
|
23,510
|
|
|
$
|
22,706
|
|
|
Real estate - commercial
|
|
|
104,093
|
|
|
|
116,437
|
|
|
|
120,180
|
|
|
|
125,239
|
|
|
|
126,675
|
|
|
Real estate - residential
|
|
|
31,096
|
|
|
|
31,940
|
|
|
|
34,864
|
|
|
|
34,523
|
|
|
|
37,539
|
|
|
Real estate - construction
|
|
|
2,220
|
|
|
|
2,925
|
|
|
|
3,626
|
|
|
|
1,813
|
|
|
|
5,377
|
|
|
Installment
|
|
|
6,804
|
|
|
|
6,428
|
|
|
|
6,314
|
|
|
|
5,913
|
|
|
|
7,090
|
|
|
|
|
|
186,961
|
|
|
|
191,038
|
|
|
|
185,276
|
|
|
|
190,998
|
|
|
|
199,387
|
|
|
Allowance for loan losses
|
|
|
2,124
|
|
|
|
2,299
|
|
|
|
3,157
|
|
|
|
3,509
|
|
|
|
3,956
|
|
|
|
|
$
|
184,837
|
|
|
$
|
188,739
|
|
|
$
|
182,119
|
|
|
$
|
187,489
|
|
|
$
|
195,431
|
|
The
Company does not have any concentrations of loans exceeding 10% of total loans of which management is aware and which are not
otherwise disclosed as a category of loans in the table above or in other sections of this Annual Report on Form 10-K. A substantial
portion of the Company’s loan portfolio is secured by real estate in metropolitan Atlanta and Birmingham. The largest component
of loans in the Company’s loan portfolio is real estate mortgage loans. At December 31, 2015 and 2014, real estate
mortgage loans, which consist of first and second mortgages on single or multi-family residential dwellings, loans secured by
commercial and industrial real estate and other loans secured by multi-family properties, totaled $135.2 million and $148.4 million,
respectively and represented 72.3 percent and 77.7 percent, respectively of gross loans outstanding.
The
Company’s loans to area churches were approximately $42.0 million at December 31, 2015 and $41.9 million at 2014, respectively.
Loans to local area convenience stores totaled approximately $6.1 million and $7.3 million in 2015 and 2014, respectively. The
Company also has approximately $15.6 million and $21.3 million in loans to area hotels at December 31, 2015 and 2014, respectively.
These loans are generally secured by real estate. The balance of church, convenience store, and hotel loans represents the
accounting loss the Company could incur if any party to these loans failed completely to perform according to the terms of the
contract and the collateral proved to be of no value.
The
following table sets forth certain information at December 31, 2015, regarding the contractual maturities and interest rate sensitivity
of certain categories of the Company’s loans (amounts in thousands):
|
|
|
Due after
|
|
|
|
|
One year
or less
|
|
|
Between one
and five years
|
|
|
After
five years
|
|
|
Total
|
|
|
Commercial, financial, and agricultural
|
|
$
|
4,931
|
|
|
$
|
27,919
|
|
|
$
|
9,898
|
|
|
$
|
42,748
|
|
|
Real estate - commercial
|
|
|
54,198
|
|
|
|
48,084
|
|
|
|
1,811
|
|
|
|
104,093
|
|
|
Real estate - residential
|
|
|
5,801
|
|
|
|
7,536
|
|
|
|
17,759
|
|
|
|
31,096
|
|
|
Real estate - construction
|
|
|
1,076
|
|
|
|
1,144
|
|
|
|
—
|
|
|
|
2,220
|
|
|
Installment
|
|
|
3,122
|
|
|
|
3,320
|
|
|
|
362
|
|
|
|
6,804
|
|
|
|
|
$
|
69,128
|
|
|
$
|
88,003
|
|
|
$
|
29,830
|
|
|
$
|
186,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans due after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Having predetermined interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,563
|
|
|
Having floating interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,270
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,833
|
|
Actual
repayments of loans may differ from the contractual maturities reflected above because borrowers may have the right to prepay
obligations with or without prepayment penalties. Additionally, the refinancing of such loans or the potential delinquency of
such loans could also cause differences between the contractual maturities reflected above and the actual repayments of such loans.
Nonperforming
Assets
The
Company’s credit risk management system is defined by policies approved by the Board of Directors that govern the risk underwriting,
portfolio monitoring, and problem loan administration processes. Adherence to underwriting standards is managed through a multi-layered
credit approval process and after-the-fact review by credit risk management of loans approved by lenders. Through continuous review
by the credit risk manager, reviews of exception reports, and ongoing analysis of asset quality trends, compliance with underwriting
and loan monitoring policies is closely supervised. The administration of problem loans is driven by policies that require written
plans for resolution and periodic meetings with credit risk management to review progress. Credit risk management activities are
monitored by the Loan Committee of the Board, which meets monthly to review credit quality trends, new large credits, loans to
insiders, large problem credits, credit policy changes, and reports on independent credit reviews.
Nonperforming
assets include nonperforming loans and real estate acquired through foreclosure. Nonperforming loans consist of loans which are
past due with respect to principal or interest more than 90 days (“past-due loans”) or have been placed on nonaccrual
of interest status (“nonaccrual loans”). Generally, past-due loans and nonaccrual loans which are delinquent more
than 90 days will be charged off against the Company’s allowance for possible loan losses unless management determines that
the loan has sufficient collateral to allow for the recovery of unpaid principal and interest or reasonable prospects for the
resumption of principal and interest payments.
Accrual
of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal or
when loans become contractually in default for 90 days or more as to either interest or principal. The accrual of interest on
some loans, however, may continue even though they are 90 days past due if the loan is well secured, in the process of collection
and management deems it appropriate. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is
charged-off against interest income on loans unless management believes that the accrued interest is recoverable through the liquidation
of collateral.
The
U.S. economy continues to show signs of improvement which has had a positive impact on the Company’s nonperforming assets
as nonperforming balances declined in all categories for the third consecutive year. At December 31, 2015, total nonperforming
assets decreased by $1,384,000, or 16 percent to $7,479,000 compared to December 31, 2014, which declined by $5,661,000 or
39 percent compared to December 31, 2013. Nonperforming loans at December 31, 2015 were $3,016,000, a decrease of $1,179,000,
or 28 percent, and OREO declined by $205,000, or 4 percent, from December 31, 2014.
OREO
properties are actively marketed with the primary objective of liquidating the collateral at a level which most accurately approximates
fair value and allows recovery of as much of the unpaid principal balance as possible upon the sale of the property in a reasonable
period of time. Loan charge-offs were recorded prior to or upon foreclosure to write down the collateral to fair value less estimated
costs to sell. In 2015, the Company charged-off $603,000 of nonperforming loans and wrote down foreclosed assets by $217,000 to
their estimated fair value based on third party appraisal. In 2014, the Company charged-off $1,358,000 of nonperforming loans
and wrote down foreclosed assets by $526,000.
At
December 31, 2015, there were no loans greater than 90 days past due and still accruing interest. There was one (1) loan
greater than 90 days past due and still accruing interest at December 31, 2014. In addition there were 42 and 41 loans restructured
or otherwise impaired totaling $7,782,000 and $8,722,000 at December 31, 2015 and 2014, respectively. At December 31, 2015, 13
restructured loans totaling $2,497,000 and at December 31, 2014, 14 restructured loans totaling $2,883,000 are included in nonaccrual
loans in the table below.
The
Company is working aggressively to resolve and reduce nonperforming assets including restructuring loans, requesting additional
collateral, demanding payment from guarantors, sale of the loans if possible, or foreclosure and sale of the collateral.
The
table below presents a summary of the Company’s nonperforming assets:
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in thousands, except financial ratios)
|
|
|
Nonperforming assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured nonperforming loans (TDRs)
|
|
$
|
2,497
|
|
|
$
|
2,883
|
|
|
$
|
4,482
|
|
|
$
|
3,941
|
|
|
$
|
4,044
|
|
|
Other nonaccrual loans
|
|
|
519
|
|
|
|
1,277
|
|
|
|
2,638
|
|
|
|
6,854
|
|
|
|
8,908
|
|
|
Past-due loans of 90 days or more
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Nonperforming loans
|
|
|
3,016
|
|
|
|
4,195
|
|
|
|
7,120
|
|
|
|
10,795
|
|
|
|
12,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure
|
|
|
4,463
|
|
|
|
4,668
|
|
|
|
7,404
|
|
|
|
8,195
|
|
|
|
10,076
|
|
|
Total nonperforming assets
|
|
$
|
7,479
|
|
|
$
|
8,863
|
|
|
$
|
14,524
|
|
|
$
|
18,990
|
|
|
$
|
23,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to loans, net of unearned income
|
|
|
1.61
|
%
|
|
|
2.20
|
%
|
|
|
3.84
|
%
|
|
|
5.65
|
%
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to
loans, net of unearned income and real estate acquired through foreclosure
|
|
|
3.91
|
%
|
|
|
4.53
|
%
|
|
|
7.54
|
%
|
|
|
9.53
|
%
|
|
|
10.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets
|
|
|
1.92
|
%
|
|
|
2.24
|
%
|
|
|
3.75
|
%
|
|
|
4.80
|
%
|
|
|
5.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to nonperforming loans
|
|
|
70.42
|
%
|
|
|
54.80
|
%
|
|
|
44.34
|
%
|
|
|
32.51
|
%
|
|
|
30.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to nonperforming assets
|
|
|
28.40
|
%
|
|
|
25.94
|
%
|
|
|
21.74
|
%
|
|
|
18.48
|
%
|
|
|
17.18
|
%
|
TROUBLED
DEBT RESTRUCTURINGS
Loans to
be restructured are identified based on an assessment of the borrower’s credit status, which involves, but is not limited
to, a review of financial statements, payment delinquency, non-accrual status, and risk rating. Determining the borrower’s
credit status is a continual process that is performed by the Company’s staff with periodic participation from an independent
external loan review group.
Troubled
debt restructurings (“TDR”) generally occur when a borrower is experiencing, or is expected to experience, financial
difficulties in the near-term and it is probable that the Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The Company seeks to assist these borrowers by working with them to prevent further difficulties,
and ultimately to improve the likelihood of recovery on the loan while ensuring compliance with the Federal Financial Institutions
Examination Council (FFIEC) guidelines. To facilitate this process, a formal concessionary modification that would not otherwise
be considered may be granted resulting in classification of the loan as a TDR. All modifications are considered troubled debt
restructurings.
The modification
may include a change in the interest rate or the payment amount or a combination of both. Substantially all modifications completed
under a formal restructuring agreement are considered TDRs. Modifications can involve loans remaining on nonaccrual, moving to
nonaccrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. These restructurings
rarely result in the forgiveness of principal or interest.
With respect
to commercial TDRs, an analysis of the credit evaluation, in conjunction with an evaluation of the borrower’s performance
prior to the restructuring, are considered when evaluating the borrower’s ability to meet the restructured terms of the
loan agreement. Nonperforming commercial TDRs may be returned to accrual status based on a current, well-documented credit evaluation
of the borrower’s financial condition and prospects for repayment under the modified terms. This evaluation must include
consideration of the borrower’s sustained historical repayment performance for a reasonable period (generally a minimum
of six months) prior to the date on which the loan is returned to accrual status.
In connection
with consumer loan TDRs, a nonperforming loan will be returned to accruing status when current as to principal and interest and
upon a sustained historical repayment performance (generally a minimum of six months). At December 31, 2015 and December 31, 2014
all restructurings were classified as TDRs.
The following
table summarizes the Company’s TDRs and loans modifications (in thousands):
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Troubled Debt Restructured Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans still accruing
|
|
$
|
5,285
|
|
|
$
|
5,839
|
|
|
$
|
6,177
|
|
|
$
|
6,258
|
|
|
$
|
5,051
|
|
|
Restructured loans nonaccruing
|
|
|
2,497
|
|
|
|
2,883
|
|
|
|
4,482
|
|
|
|
3,941
|
|
|
|
4,044
|
|
|
Other Loan Modifications
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total restructured and modified loans
|
|
$
|
7,782
|
|
|
$
|
8,722
|
|
|
$
|
10,659
|
|
|
$
|
10,199
|
|
|
$
|
9,095
|
|
Troubled
debt restructured loans that have performed in accordance with the restructured terms of the agreement for one year and for which
an interest rate concession was not granted are removed from the TDR classification.
Potential
Problem Loans
Potential
problem loans
include loans or industries about which management has become aware of information
regarding possible
credit issues for borrowers within that industry that could potentially cause doubt about their ability to comply with current
repayment terms. At December 31, 2015 and 2014, the Company had identified
$1.5 million and $11.2 million, respectively,
of potential problem loans through its internal review procedures. The decline is primarily due to a $10.2 million decline in
total criticized or classified loans which excludes SBA guaranteed loans. The results of this internal review process are considered
in determining management’s assessment of the adequacy of the allowance for loan losses.
Provision
and Allowance for Loan Losses
The
allowance for loan losses represents management’s estimate of probable losses inherent in the loan portfolio. These estimates
for losses are based on individual assets and their cash flow forecasts, sales values, independent appraisals, the volatility
of certain real estate markets, and concern for disposing of real estate in distressed markets. For loans that are pooled for
purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency
analyses as prescribed under the accounting guidance.
Therefore,
the value used to determine the provision for losses is subject to the reasonableness of these estimates and management’s
judgment. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors.
On a semi-annual basis an independent review of the adequacy of allowance for loan losses is performed. This assessment is made
in the context of historical losses as well as existing economic conditions and individual concentrations of credit.
Reviews
of nonperforming loans, designed to identify potential charges to the reserve for possible loan losses, as well as to determine
the adequacy of the reserve, are made on a continuous basis during the year. These reviews are conducted by the responsible lending
officers, credit risk manager, a separate independent review process, and the internal audit division. They consider such factors
as trends in portfolio volume, quality, maturity, and composition; industry concentrations; lending policies; new products; adequacy
of collateral; historical loss experience; the status and amount of non-performing and past-due loans; specific known risks; and
current, as well as anticipated specific and general economic factors that may affect certain borrowers. The conclusions are reviewed
and approved by senior management. When a loan, or a portion thereof, is considered by management to be uncollectible, it is charged
against the reserve after receiving approval by the Board of Directors. Any recoveries on loans previously charged off are added
to the reserve.
The
provision for loan losses is the periodic cost of increasing the allowance or reserve for the estimated losses on loans in the
portfolio. A charge against operating earnings is necessary to maintain the allowance for loan losses at an adequate level as
determined by management. The provision is determined based on growth of the loan portfolio, the amount of net loans charged-off,
and management’s estimation of potential future loan losses based on an evaluation of loan portfolio risks, adequacy of
underlying collateral, and economic conditions. In addition, regulatory agencies, as an integral part of their examination process,
periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions
to the allowance based on their judgments about information available to them at the time of their examination.
Loans
are charged against the allowance when, in the opinion of management, such loans are deemed uncollectible and subsequent recoveries
are added to the allowance. In 2015, based on the Company’s evaluation, a provision for loan losses of $100,000 was charged
against operating earnings compared to $75,000 for the same period last year. There remains a continued improvement in the credit
quality of the Company’s loan portfolio as the overall economic condition continues to improve which has had a positive
impact on our core loan customers’ ability to meet their credit obligations as evidenced by the decrease in nonperforming
assets and nonperforming loans noted above. Foreclosures also decreased during the year totaling $976,000 for 2015 compared to
$1,201,000 for 2014.
The
Company’s allowance for loan losses was approximately $2,124,000 or 1.14 percent of loans receivable, net of unearned income
at December 31, 2015, and $2,299,000 or 1.20 percent of loans receivable, net of unearned income at December 31, 2014. Management
believes that the allowance for loan losses at December 31, 2015 is adequate to provide for potential loan losses given past experience
and the underlying strength of the loan portfolio.
The
following table summarizes loans, changes in the allowance for loan losses arising from loans charged off, recoveries on loans
previously charged off by loan category, and additions to the allowance which have been charged to operating expense:
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(Amounts in thousands, except financial ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
186,961
|
|
|
$
|
191,038
|
|
|
$
|
185,276
|
|
|
$
|
190,998
|
|
|
$
|
199,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans, net of
unearned income, discounts and the allowance for loan losses
|
|
$
|
187,636
|
|
|
$
|
181,856
|
|
|
$
|
178,652
|
|
|
$
|
191,862
|
|
|
$
|
192,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at the beginning of
period
|
|
$
|
2,299
|
|
|
$
|
3,157
|
|
|
$
|
3,509
|
|
|
$
|
3,956
|
|
|
$
|
4,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
—
|
|
|
|
9
|
|
|
|
22
|
|
|
|
21
|
|
|
|
262
|
|
|
Real estate - loans
|
|
|
406
|
|
|
|
1,167
|
|
|
|
1,294
|
|
|
|
2,899
|
|
|
|
3,824
|
|
|
Installment loans to individuals
|
|
|
197
|
|
|
|
182
|
|
|
|
169
|
|
|
|
149
|
|
|
|
216
|
|
|
Total loans charged-off
|
|
|
603
|
|
|
|
1,358
|
|
|
|
1,485
|
|
|
|
3,069
|
|
|
|
4,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
28
|
|
|
|
52
|
|
|
|
41
|
|
|
|
33
|
|
|
|
29
|
|
|
Real estate - loans
|
|
|
235
|
|
|
|
314
|
|
|
|
607
|
|
|
|
114
|
|
|
|
60
|
|
|
Installment loans to individuals
|
|
|
65
|
|
|
|
59
|
|
|
|
60
|
|
|
|
75
|
|
|
|
98
|
|
|
Total loans recovered
|
|
|
328
|
|
|
|
425
|
|
|
|
708
|
|
|
|
222
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
275
|
|
|
|
933
|
|
|
|
777
|
|
|
|
2,847
|
|
|
|
4,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to allowance for loan losses charged to operating expense
|
|
|
100
|
|
|
|
75
|
|
|
|
425
|
|
|
|
2,400
|
|
|
|
3,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at period end
|
|
$
|
2,124
|
|
|
$
|
2,299
|
|
|
$
|
3,157
|
|
|
$
|
3,509
|
|
|
$
|
3,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net loans charged-off to average loans, net of unearned income and the allowance for loan losses
|
|
|
0.15
|
%
|
|
|
0.51
|
%
|
|
|
0.43
|
%
|
|
|
1.48
|
%
|
|
|
2.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to loans, net of unearned income
|
|
|
1.14
|
%
|
|
|
1.20
|
%
|
|
|
1.70
|
%
|
|
|
1.84
|
%
|
|
|
1.98
|
%
|
The
following table presents the allocation of the allowance for loan losses. The allocation is based on an evaluation of
defined loan problems, historical ratios of loan losses, and other factors that may affect future loan losses in the
categories of loans shown (amount in thousands):
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
Amount
|
|
|
Percent of
Total Loans
|
|
|
Amount
|
|
|
Percent of
Total Loans
|
|
|
Amount
|
|
|
Percent of
Total Loans
|
|
|
Amount
|
|
|
Percent of
Total Loans
|
|
|
Amount
|
|
|
Percent of
Total Loans
|
|
|
Commercial, financial, and agricultural
|
|
$
|
342
|
|
|
|
23
|
%
|
|
$
|
415
|
|
|
|
17
|
%
|
|
$
|
384
|
|
|
|
11
|
%
|
|
$
|
433
|
|
|
|
12
|
%
|
|
$
|
394
|
|
|
|
11
|
%
|
|
Commercial Real Estate
|
|
|
1,170
|
|
|
|
56
|
%
|
|
|
1,366
|
|
|
|
61
|
%
|
|
|
1,721
|
|
|
|
65
|
%
|
|
|
1,853
|
|
|
|
66
|
%
|
|
|
2,206
|
|
|
|
64
|
%
|
|
Single-family Residential
|
|
|
435
|
|
|
|
17
|
%
|
|
|
254
|
|
|
|
17
|
%
|
|
|
731
|
|
|
|
19
|
%
|
|
|
803
|
|
|
|
18
|
%
|
|
|
696
|
|
|
|
19
|
%
|
|
Construction and Development
|
|
|
3
|
|
|
|
1
|
%
|
|
|
72
|
|
|
|
2
|
%
|
|
|
126
|
|
|
|
2
|
%
|
|
|
177
|
|
|
|
1
|
%
|
|
|
449
|
|
|
|
3
|
%
|
|
Consumer
|
|
|
174
|
|
|
|
3
|
%
|
|
|
192
|
|
|
|
3
|
%
|
|
|
195
|
|
|
|
3
|
%
|
|
|
243
|
|
|
|
3
|
%
|
|
|
211
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
2,124
|
|
|
|
100
|
%
|
|
$
|
2,299
|
|
|
|
100
|
%
|
|
$
|
3,157
|
|
|
|
100
|
%
|
|
$
|
3,509
|
|
|
|
100
|
%
|
|
$
|
3,956
|
|
|
|
100
|
%
|
Deposits
Deposits
are the Company’s primary source of funding loan growth. Total deposits at December 31, 2015 decreased by $12,027,000 or
3.53 percent, to $328,862,000. The decrease was primarily in time deposits. The bank has a stable core deposit base with a high
percentage of non-interest bearing deposits. Average noninterest-bearing deposits increased $4,577,000 or 5.20 percent, to $92,573,000
in 2015 compared to the $87,996,000 reported in 2014. Average interest-bearing deposits decreased by $16,458,000 to $251,494,000
in 2015 compared to 2014. As a result of the high level of core deposits, the bank maintained a net interest margin of 3.45 percent
on a tax equivalent basis compared to 3.57 percent reported last year.
In
addition, the Company participates in Certificate of Deposit Account Registry Services (“CDARS”), a program that allows
its customers the ability to benefit from full FDIC insurance on CD deposits greater than $250,000. At December 31, 2015 and 2014,
the Company had $21,020,000 and $24,789,000 in CDARS deposits, respectively. Participation in this program has enhanced the Company’s
ability to retain customers with CD deposits higher than the FDIC $250,000 insurance coverage.
Time
deposits that meet or exceed the FDIC Insurance limit of $250,000 were $35,020,000 and $47,478,000 at December 31, 2015 and 2014,
respectively.
The
maturities of time deposits of $100,000 or more are presented below as of December 31, 2015 (in thousands):
|
3 months or less
|
|
$
|
26,177
|
|
|
Over 3 months through 6 months
|
|
|
15,161
|
|
|
Over 6 months through 12 months
|
|
|
20,999
|
|
|
Over 12 months
|
|
|
24,577
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
86,914
|
|
For
additional information about the Company’s deposit maturities and composition, see Note 5, Deposits, in the Notes to Consolidated
Financial Statements.
Other
Borrowed Funds
While
the Company continues to emphasize funding earning asset growth through deposits, it relies on other borrowings as a supplemental
funding source and to manage its interest rate sensitivity. During 2015, the Company’s average borrowed funds decreased
by $5,000 to $258,000 from $263,000 in 2014. The average interest rate on other borrowings was zero percent in 2015 and 2014.
Other borrowings consist of Federal Reserve Bank discount window borrowings, short-term borrowings and Federal Home Loan Bank
(the “FHLB”) advances. The Bank had an average outstanding advance from the FHLB of $258,000 in 2015 and $263,000
in 2014. The maximum balance outstanding as of any month-end was $5,235,000 in 2015 and $272,000 in 2014. These advances are collateralized
by FHLB stock, a blanket lien on the Bank’s 1-4 and multi-family mortgages and certain commercial real estate loans and
investment securities.
For
additional information regarding the Company’s other borrowings, see Note 6, Other Borrowings, in the Notes to Consolidated
Financial Statements.
Disclosure
about Contractual Obligations and Commitments
The
following tables identify the Company’s aggregated information about contractual obligations and loan commitments at December
31, 2015.
|
|
|
Payments Due by Period
|
|
|
|
Contractual Obligations
|
|
Less than 1
year
|
|
|
1 - 3 years
|
|
|
3 - 5 years
|
|
|
After 5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
$
|
5,000,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
234,707
|
|
|
$
|
5,234,707
|
|
|
Operating leases
|
|
|
197,192
|
|
|
|
660,707
|
|
|
|
737,082
|
|
|
|
2,770,738
|
|
|
|
4,365,719
|
|
|
|
|
$
|
5,197,192
|
|
|
$
|
660,707
|
|
|
$
|
737,082
|
|
|
$
|
3,005,445
|
|
|
$
|
9,600,426
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
|
|
|
Other Commitments
|
|
Less than 1
year
|
|
|
1 - 3 years
|
|
|
3 - 5 years
|
|
|
After 5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
22,332,829
|
|
|
$
|
8,100,972
|
|
|
$
|
4,566,259
|
|
|
$
|
843,302
|
|
|
$
|
35,843,362
|
|
|
Commercial letters of credit
|
|
|
1,889,482
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,889,482
|
|
|
|
|
$
|
24,222,311
|
|
|
$
|
8,100,972
|
|
|
$
|
4,566,259
|
|
|
$
|
843,302
|
|
|
$
|
37,732,844
|
|
Liquidity
Management
Liquidity
is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional
funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day
cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to
meet their credit needs.
Without
proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would,
therefore, not be able to meet the needs of the communities it serves. Additionally, the Company requires cash for various operating
needs including: dividends to shareholders; business combinations; capital injections to its subsidiary; the servicing of debt;
and the payment of general corporate expenses.
Liquidity
is managed at two levels. The first is the liquidity of the parent company, which is the holding company that owns Citizens Trust
Bank, the banking subsidiary. The second is the liquidity of the banking subsidiary. The management of liquidity at both levels
is essential because the parent company and banking subsidiary each have different funding needs and sources, and each are subject
to certain regulatory guidelines and requirements. Through the Asset Liability Committee (“ALCO”), the CFO is responsible
for planning and executing the funding activities and strategy.
The
Company has access to various capital markets and on March 6, 2009, the Company issued 7,462 shares of a Fixed Rate Cumulative
Perpetual Preferred Stock, Series A, to the U.S. Department of the Treasury (“Treasury”) under the TARP Program for
an investment of $7,462,000. During the third quarter of 2010, the Company exchanged the outstanding 7,462 shares of Series A
Preferred Stock for 7,462 shares of Series B Preferred Stock. The Company also issued 4,379 shares of Series C Preferred Stock
to the Treasury for an investment of $4,379,000. However, the primary source of liquidity for the Company is dividends from its
bank subsidiary. The Georgia Department of Banking and Finance regulates the dividend payments and must approve dividend payments
that exceed 50 percent of the Bank’s prior year net income. The payment of dividends may also be affected or limited by
other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The Company does not anticipate
any liquidity requirements in the near future that it will not be able to meet.
Asset
and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Company’s
bank subsidiary customers, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive
liabilities so that the Company can earn a return that meets the investment requirements of its shareholders. Daily monitoring
of the sources and uses of funds is necessary to maintain an acceptable cash position that meets both requirements.
The
asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities
and, to a lesser extent, sales of investment securities available for sale. Other short-term investments such as federal funds
sold, securities purchased under agreements to resell and maturing interest bearing deposits with other banks, are additional
sources of liquidity funding.
The
liability portion of the balance sheet provides liquidity through various customers’ interest bearing and
noninterest bearing deposit accounts. Federal funds purchased, securities sold under agreements to repurchase and other
short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing
capacity. At December 31, 2015, the Company has a $76.1 million line of credit facility at the FHLB of which $25.2 million
was outstanding consisting of advances of $5,235,000 and a letter of credit to secure public deposits in the amount
of $20 million. The Company also had $23.5 million of borrowing capacity at the Federal Reserve Bank discount window and
an unsecured $4 million fed funds line of credit. These sources of liquidity are short-term in nature and are used as
necessary to fund asset growth and meet short-term liquidity needs.
Capital
Resources
Stockholders’
equity increased by $810,000 or 1.6 percent during 2015, primarily due to a net income of $1,819,000 earned in 2015 offset by
$741,000 in accumulated other comprehensive income (loss) as a result of the increases in interest rates and their impact on the
market value of the Company’s investments and other stockholders’ component of $409,000 primarily due to the payment
of preferred and common stock dividend.
The
annual dividend payout rate was $0.08 per common share in 2015 and 2014. The dividend payout ratio was 11 percent for 2015 and
2014. The Company intends to continue a dividend payout ratio that is competitive in the banking industry while maintaining an
adequate level of retained earnings to support continued growth. Because of our CDCI investment, we must receive the approval
of Treasury before increasing our dividend above $0.08 per common share.
A
strong capital position, which is vital to the continued profitability of the Company, also promotes depositor and investor confidence
and provides a solid foundation for the future growth of the organization. The Company has satisfied its capital requirements
principally through the retention of earnings. The ratio of average shareholders’ equity as a percentage of total average
assets is one measure used to determine capital strength. The Company continues to maintain a strong capital position as its ratio
of average stockholders’ equity to average assets was 12.67 percent for 2015 and 11.89 percent in 2014.
In
addition to the capital ratios mentioned above, banking industry regulators have defined minimum regulatory capital ratios that
the Company and the Bank are required to maintain. These risk-based capital guidelines take into consideration risk factors, as
defined by the regulators, associated with various categories of assets, both on and off of the balance sheet. The minimum guideline
for the ratio of total capital to risk-weighted assets is 8 percent. Total capital consists of two components, Tier 1 Capital
and Tier 2 Capital. Tier 1 Capital generally consists of common shareholders’ equity, minority interests in the equity accounts
of consolidated subsidiary, qualifying noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative
perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4 percent of
risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock and hybrid capital and a limited
amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100 percent of Tier 1 Capital. Also, the Federal
Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio
of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3 percent for bank holding companies
that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve’s risk-based
capital measure for market risk. All other bank holding companies, including the Company, generally are required to maintain a
leverage ratio of at least 4 percent.
At
December 31, 2015, the Company’s ratio of total capital to risk-weighted assets was 20 percent, our ratio of Tier 1 Capital
to risk-weighted assets was 20 percent, and our leverage ratio was 12 percent. The Company met all capital adequacy requirements
to which it is subject and is considered to be “well capitalized” under regulatory standards.
RESULTS
OF OPERATIONS
Net
Interest Income
Net
interest income is the difference between interest income earned on earning assets, primarily loans and investment securities,
and interest expense paid on interest-bearing deposits and other interest-bearing liabilities. This measure represents the largest
component of income for us. The net interest margin measures how effectively we manage the difference between the interest income
earned on earning assets and the interest expense paid for funds to support those assets. Fluctuations in interest rates as well
as volume and mix changes in earnings assets and interest-bearing liabilities can materially impact net interest income.
Net
interest income, on a fully tax-equivalent basis, accounted for 70 percent and 75 percent of total revenues on a fully tax-equivalent
basis in 2015 and 2014, respectively. Net interest income, on a fully tax-equivalent basis, accounted for 72 percent of total
revenues on a fully tax-equivalent basis in 2013. The level of such income is influenced primarily by changes in volume and mix
of earning assets, sources of noninterest income and sources of funding, and market rates of interest. The Company’s
Asset/Liability Management Committee (“ALCO”) is responsible for managing changes in net interest income and net worth
resulting from changes in interest rates based on acceptable limits established by the Board of Directors. The ALCO reviews economic
conditions, interest rate forecasts, demand for loans, the availability of deposits, current operating results, liquidity, capital,
and interest rate exposures. Based on such reviews, the ALCO formulates strategies that are intended to implement objectives set
forth in the asset/liability management policy to ensure it is properly positioned to react to changing interest rates and inflationary
trends.
The
following table represents the Company’s net interest income on a tax-equivalent basis to facilitate performance comparisons
among various taxable and tax-exempt assets. Interest income on tax-exempt investment securities was adjusted to reflect the income
on a tax-equivalent basis (considering the effect of the disallowed interest expense related to carrying these tax-exempt investment
securities) using a nominal tax rate of 34 percent for 2015, 2014, 2013 (amount in thousands).
|
|
|
Years ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
12,768
|
|
|
$
|
13,362
|
|
|
$
|
13,766
|
|
|
Tax-equivalent adjustment
|
|
|
451
|
|
|
|
599
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, tax-equivalent basis
|
|
|
13,219
|
|
|
|
13,961
|
|
|
|
14,420
|
|
|
Interest expense
|
|
|
(700
|
)
|
|
|
(833
|
)
|
|
|
(903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, tax equivalent basis
|
|
|
12,519
|
|
|
|
13,128
|
|
|
|
13,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(100
|
)
|
|
|
(75
|
)
|
|
|
(425
|
)
|
|
Noninterest income
|
|
|
4,601
|
|
|
|
4,441
|
|
|
|
4,481
|
|
|
Noninterest expense
|
|
|
(14,444
|
)
|
|
|
(14,952
|
)
|
|
|
(15,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,576
|
|
|
|
2,542
|
|
|
|
1,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(306
|
)
|
|
|
(134
|
)
|
|
|
151
|
|
|
Tax-equivalent adjustment
|
|
|
(451
|
)
|
|
|
(599
|
)
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense), tax-equivalent basis
|
|
|
(757
|
)
|
|
|
(733
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,819
|
|
|
$
|
1,809
|
|
|
$
|
1,349
|
|
Net
interest income on a tax-equivalent basis decreased $609,000 in 2015 compared to a decrease of $389,000 in 2014. The relationship
between the declining yields earned on interest earning assets in a low interest rate environment and the more gradual decline
in interest expenses has caused, and may continue to cause, net interest margin compression. Net interest margin compression may
also be impacted by continued deterioration of assets resulting in further interest income adjustments. As a result, the Company’s
net interest yield on a tax-equivalent basis in 2015 declined by 12 basis points to 3.45 percent from the 3.57 percent reported
in 2014. The net interest yield on a tax-equivalent basis was 3.79 percent in 2013.
Total
interest income on a tax equivalent basis decreased by $742,000 or 5 percent, in 2015 and $459,000, or 3 percent, in 2014. Overall,
interest income continues to be negatively impacted by the continued low interest rate environment as yields on interest earning
assets decreased to 3.64 percent in 2015 from 3.80 percent in 2014. Yields on interest earning assets were 4.04 percent in 2013.
Total
interest expense on a tax equivalent basis decreased by $133,000, or 16 percent, in 2015 and $70,000 or 8 percent in 2014 due
to the repricing of interest-bearing liabilities in a lower rate environment. In 2013, total interest expense on a tax equivalent
basis decreased by $149,000 or 14 percent.
Noninterest
Income
Noninterest
income consists of revenues generated from a broad range of financial services and activities, including deposit and service
fees, gains and losses realized from the sale of securities and assets, as well as various other components that comprise
other noninterest income. Noninterest income increased by $161,000, or 4 percent, to $4,601,000 in 2015 compared to
$4,440,000 in 2014. The increase is principally due to an increase in gains realized on the sale of securities of $421,000;
offset by a decline in the Bank Enterprise Award (BEA) income of $90,000 as well as declines in life insurance
income of $64,000 and service fees income of $101,000. The Company did not receive the Bank Enterprise Award (BEA) in
2013.
Service
charges on deposit accounts, the major component of noninterest income, decreased by $101,000 or 3.57 percent in 2015 and $326,000
or 10 percent in 2014. The decreases in service charges on deposit accounts are primarily due to a reduction in overdraft fees
and service charges on checking and savings accounts. In 2015, net overdraft fees totaled $1,554,000, a decrease of $68,000 compared
to the same period last year. The decrease in overdraft fees on a year over year basis reflects the change in customer behavior
from their increased awareness of overdraft fees. In 2014, net overdraft fees totaled $1,622,000, a decrease of $255,000 compared to 2013. Overdrafts fees, due to
their nature, fluctuate monthly based on the short-term loan needs of the customers.
The
Company had realized gains on the sale of securities of $421,000 and $244,000 in 2015 and 2013, respectively. In 2014, the Company
had no realized gains or loss on the sale of securities. As part of its asset/liability and tax strategies, the Company will reposition
its investment portfolio to manage its duration, its sensitivity to changing interest rates, deferred taxes and to improve liquidity.
In
2015 and 2014, the Company received $265,000 and $355,000, respectively, from the BEA Program for its increased lending, investment,
and service activities within economically distressed communities. The Company did not receive the BEA funding in 2013.
Other
operating income decreased by $10,000, or 1 percent compared to 2014. In 2014, other operating income increased by $224,000, or
44 percent compared to 2013. This increase was primarily due to a nonrecurring income item as the Company received $203,000 in
life insurance proceeds in 2014.
Provision
for Loan Losses
Provision
for loan losses increased by $25,000 or 33.3% to $100,000 in 2015 compared to 2014. There has been a continued improvement in
the credit quality of the Company’s loan portfolio as the overall economic condition continues to improve which has
had a positive impact on our core loan customers’ ability to meet their credit obligations.
The
allowance for loan losses was $2,124,000 and $2,299,000 at December 31, 2015 and 2014, respectively. The allowance for loan losses
to nonperforming loans was 70.42% and 54.80% at December 31, 2015 and 2014, respectively. The provision for loan losses and the
resulting allowance for loan losses are based on changes in the size and character of the Company’s loan portfolio, changes
in nonperforming and past due loans, the existing risk of individual loans, concentrations of loans to specific borrowers or industries,
and economic conditions. At December 31, 2015 the Company considered its allowance for loan losses to be adequate.
Noninterest
Expense
Noninterest
expense decreased by $508,000, or 3.40 percent, in 2015 compared to 2014 primarily due to a decrease in OREO related
expenses of $507,000 and other operating expenses of $370,000; offset by an increase in compensation expense of $415,000. In
2014, noninterest expense decreased by $769,000, or 5 percent, compared to 2013 primarily due to a decrease in OREO related
expenses of $227,000, FDIC insurance premiums of $204,000 and professional fees of $254,000.
Salaries
and employee benefits expense increased by $415,000, or 6 percent, in 2015 primarily due to hiring of new full time employees.
In 2014, salaries and employee benefits expense were flat decreasing by $37,000, or less than 1 percent.
Occupancy
and equipment expense includes depreciation expense and repairs and maintenance costs relating to the Company’s premises
and equipment. Occupancy and equipment expenses decreased by $47,000, or 2 percent, to $2,034,000 in 2015 compared to 2014, and
also decreased by $47,000 in 2014 to $2,081,000 compared to 2013.
Other
real estate related expenses decreased by $507,000, or 57 percent, to $387,000 compared to 2014. In 2014, other real estate related
expenses decreased by $227,000, or 20 percent, to $894,000 compared to 2013. In 2013, other real estate related expenses decreased
by $2,289,000, or 67 percent, to $1,121,000 compared to 2012. Write-downs of OREO were $217,000, $526,000, and $616,000 in 2015,
2014, and 2013, respectively. The Company realized a gain of $29,000 on the sale of foreclosed properties in 2015 compared to
losses of $89,000 in 2014, and $56,000 in 2013.
Income
Taxes
The
Company recorded a tax expense of $306,000 and $134,000 and a tax benefit of $151,000 for the years ended December 31,
2015, 2014 and 2013, respectively. The effective tax rate as a percentage of pretax income in 2015 was 14 percent. The
effective tax rate as a percentage of pretax income in 2014 was a benefit of 7 percent and as a percentage of pretax loss was
a benefit of 13 percent in 2013. The statutory federal rate was 34 percent during 2015, 2014 and 2013. The increase in
the effective tax rate in 2015 was primarily due to tax-exempt interest income from investment securities and life
insurance policies. For further information concerning the provision for income taxes, refer to Note 7, Income Taxes, in
the Notes to Consolidated Financial Statements.
|
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
This information
is not required since the Company qualifies as a smaller reporting company.
|
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The
following financial statements, notes thereon, and report of independent registered public accountant firm are included herein
beginning on page F-1:
Report
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2015 and 2014
Consolidated
Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated
Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013
Consolidated
Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes
to Consolidated Financial Statements
|
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
There have
been no changes or disagreements with the Company’s accountants in the last two fiscal years.
|
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, as of the end of the period covered by this Annual Report on Form 10-K,
our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls
and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring
that information required to be disclosed in our reports filed under the Exchange Act, such as this annual report, is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated
to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Our management,
including our principal executive officer and principal financial officer, does not expect that our Disclosure Controls will prevent
all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures
are effective to ensure that material information relating to the Company, including its consolidated subsidiary, that is required
to be included in its periodic filings with the Securities Exchange Commission, is timely made known to them.
Management’s
Report on Internal Control Over Financial Reporting
Our management
is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to
provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed
in accordance with appropriate management authorization, and accounting records are reliable for the preparation of financial
statements in accordance with generally accepted accounting principles.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. Management based this
assessment on criteria for effective internal control over financial reporting described in Internal Control—Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment
included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness
of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of
our Board of Directors.
Based on
this assessment, management believes that Citizens Bancshares Corporation maintained effective internal control over financial
reporting as of December 31, 2015.
This Annual
Report on Form 10-K does not include an attestation report of the Company’s independent public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company, as a smaller reporting
company, to provide only management’s report in this annual report.
Changes
in Internal Controls
There have
been no changes in our internal controls over financial reporting during our fourth fiscal quarter ended December 31, 2015 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
|
ITEM
9B.
|
OTHER INFORMATION
|
None
PART
III
|
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|
The responses
to this Item are included in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders, under the headings
“Election of Directors,” “Executive Officers,” “Beneficial Ownership of Common Stock,” “Information
About the Board and its Committees” and “Compliance With Section 16(a) of the Securities Exchange Act of 1934”
and are incorporated herein by reference.
The Company
has adopted a Code of Business Conduct and Ethics that applies to its senior management, including its principal executive, financial
and accounting officers. A copy may also be obtained, without charge, upon written request addressed to Citizens Bancshares Corporation,
230 Peachtree Street, N.W., Suite 2700, Atlanta, Georgia 30303, Attention: Corporate Secretary. The request may also be delivered
by fax to the Corporate Secretary at (404) 575-8311.
There have
been no material changes to the procedures by which shareholders may recommend nominees to the Company’s board of directors.
|
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The responses
to this Item are included in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders under the heading
“Executive Compensation” and “Election of Directors” and are incorporated herein by reference.
|
|
ITEM
12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
|
The responses
to this item are included in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders under the heading
“Beneficial Ownership of Common Stock” and are incorporated herein by reference.
The following
table sets forth information regarding our equity compensation plans under which shares of our common stock are authorized for
issuance. All data is presented as of December 31, 2015.
|
Equity
Compensation Plan Table
|
|
|
(a)
|
(b)
|
(c)
|
|
Plan
category
|
Number
of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number
of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
Equity
compensation plans approved by security holders
|
41,377
shares
|
$ 9.91
|
274,209
shares
|
|
Equity
compensation plans not approved by security holders
|
None
|
$
—
|
None
|
|
Total
|
41,377
|
$ 9.91
|
274,209
shares
|
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS,
AND
DIRECTOR INDEPENDENCE
|
The responses
to this Item are included in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders under the heading
“Certain Transactions” and “Director Independence” and are incorporated herein by reference.
|
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Information
relating to the fees paid to the Company’s independent accountants is set forth in the Company’s Proxy Statement for
the 2016 Annual Meeting of Shareholders under the heading “Accounting Matters” and are incorporated herein by reference.
Citizens Bancshares Corporation and Subsidiary
Consolidated Financial Statements as of
December 31, 2015 and 2014 and for Each of the
Three Years in the Period Ended December 31, 2015
citizens bancshares corporation
and subsidiarY
|
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
|
|
|
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2015 and 2014
|
F-3
|
|
|
|
|
Consolidated Statements of Income for the Years Ended December 31, 2015, 2014, and 2013
|
F-4
|
|
|
|
|
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, and 2013
|
F-5
|
|
|
|
|
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2015, 2014, and 2013
|
F-6
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
|
F-7-F-8
|
|
|
|
|
Notes to Consolidated Financial Statements
|
F-9-F-45
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Citizens Bancshares Corporation
Atlanta, Georgia
We have audited the accompanying consolidated
balance sheets of Citizens Bancshares Corporation and subsidiary (the “Company”) as of December 31, 2015 and 2014,
and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2015. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Citizens Bancshares Corporation
and subsidiary as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2015, in conformity with U. S. generally accepted accounting principles.
|
|
/s/ Elliott Davis Decosimo, LLC
|
|
Columbia, South Carolina
|
|
|
March 30, 2016
|
|
|
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
DECEMBER 31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
2015
|
|
|
2014
|
|
|
Cash and due from banks, including reserve requirements of $307,000 and $320,000 at December 31, 2015 and 2014, respectively
|
|
$
|
2,577,036
|
|
|
$
|
2,757,515
|
|
|
Federal funds sold
|
|
|
16,500,137
|
|
|
|
—
|
|
|
Interest-bearing deposits with banks
|
|
|
29,819,094
|
|
|
|
45,652,555
|
|
|
Certificates of deposit
|
|
|
900,000
|
|
|
|
350,000
|
|
|
Investment securities available for sale, at fair value (amortized cost of $123,365,548 and $125,594,822 at December 31, 2015 and 2014, respectively)
|
|
|
123,258,221
|
|
|
|
126,610,811
|
|
|
Investment securities held to maturity, at cost
(estimated fair value of $ - and $243,118 at December 31, 2015 and 2014, respectively)
|
|
|
—
|
|
|
|
240,000
|
|
|
Other investments
|
|
|
964,950
|
|
|
|
792,150
|
|
|
Loans receivable—net
|
|
|
184,836,417
|
|
|
|
188,739,072
|
|
|
Premises and equipment—net
|
|
|
6,136,025
|
|
|
|
6,395,433
|
|
|
Cash surrender value of life insurance
|
|
|
10,090,088
|
|
|
|
10,082,081
|
|
|
Other real estate owned
|
|
|
4,462,795
|
|
|
|
4,668,152
|
|
|
Other assets
|
|
|
9,075,002
|
|
|
|
9,351,480
|
|
|
|
|
$
|
388,619,765
|
|
|
$
|
395,639,249
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
88,542,570
|
|
|
$
|
83,817,581
|
|
|
Interest-bearing deposits
|
|
|
240,319,009
|
|
|
|
257,071,169
|
|
|
Total deposits
|
|
|
328,861,579
|
|
|
|
340,888,750
|
|
|
Accrued expenses and other liabilities
|
|
|
4,147,283
|
|
|
|
4,929,870
|
|
|
Advances from Federal Home Loan Bank
|
|
|
5,234,707
|
|
|
|
254,084
|
|
|
Total liabilities
|
|
|
338,243,569
|
|
|
|
346,072,704
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 9)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Preferred stock - No par value; 10,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
Series B, 7,462 shares issued and outstanding
|
|
|
7,462,000
|
|
|
|
7,462,000
|
|
|
Series C, 4,379 shares issued and outstanding
|
|
|
4,379,000
|
|
|
|
4,379,000
|
|
|
Common stock - $1 par value; 20,000,000 shares
authorized; 2,308,228 and 2,303,228 shares issued and outstanding at December 31, 2015 and 2014, respectively
|
|
|
2,308,228
|
|
|
|
2,303,228
|
|
|
Nonvoting common stock - $1 par value; 5,000,000 shares authorized; 90,000 shares issued and outstanding at December 31, 2015 and 2014
|
|
|
90,000
|
|
|
|
90,000
|
|
|
Nonvested restricted common stock
|
|
|
(146,798
|
)
|
|
|
(106,850
|
)
|
|
Additional paid-in capital
|
|
|
8,343,821
|
|
|
|
8,119,451
|
|
|
Retained earnings
|
|
|
29,940,699
|
|
|
|
28,530,676
|
|
|
Treasury stock, at cost, 241,454 and 235,938 shares at December 31, 2015 and 2014, respectively
|
|
|
(1,929,954
|
)
|
|
|
(1,881,551
|
)
|
|
Accumulated other comprehensive income (loss), net of income taxes
|
|
|
(70,800
|
)
|
|
|
670,591
|
|
|
Total stockholders’ equity
|
|
|
50,376,196
|
|
|
|
49,566,545
|
|
|
|
|
$
|
388,619,765
|
|
|
$
|
395,639,249
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014, AND 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
9,813,267
|
|
|
$
|
9,864,368
|
|
|
$
|
10,487,067
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
1,895,479
|
|
|
|
2,173,588
|
|
|
|
1,874,286
|
|
|
Tax-exempt
|
|
|
877,197
|
|
|
|
1,161,907
|
|
|
|
1,270,082
|
|
|
Dividends
|
|
|
44,846
|
|
|
|
39,582
|
|
|
|
37,771
|
|
|
Federal funds sold
|
|
|
8,767
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest-bearing deposits
|
|
|
128,377
|
|
|
|
122,998
|
|
|
|
96,753
|
|
|
Total interest income
|
|
|
12,767,933
|
|
|
|
13,362,443
|
|
|
|
13,765,959
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
699,778
|
|
|
|
833,359
|
|
|
|
902,663
|
|
|
Other borrowings
|
|
|
—
|
|
|
|
30
|
|
|
|
604
|
|
|
Total interest expense
|
|
|
699,778
|
|
|
|
833,389
|
|
|
|
903,267
|
|
|
Net interest income
|
|
|
12,068,155
|
|
|
|
12,529,054
|
|
|
|
12,862,692
|
|
|
Provision for loan losses
|
|
|
100,000
|
|
|
|
75,000
|
|
|
|
425,000
|
|
|
Net interest income after provision for loan losses
|
|
|
11,968,155
|
|
|
|
12,454,054
|
|
|
|
12,437,692
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
2,730,353
|
|
|
|
2,830,989
|
|
|
|
3,157,140
|
|
|
Gains on sales of securities
|
|
|
421,043
|
|
|
|
—
|
|
|
|
243,882
|
|
|
Bank owned life insurance
|
|
|
239,655
|
|
|
|
304,082
|
|
|
|
328,634
|
|
|
ATM surcharges
|
|
|
216,483
|
|
|
|
211,845
|
|
|
|
237,045
|
|
|
Grant income
|
|
|
265,496
|
|
|
|
355,000
|
|
|
|
—
|
|
|
Other operating income
|
|
|
728,027
|
|
|
|
738,495
|
|
|
|
514,418
|
|
|
Total noninterest income
|
|
|
4,601,057
|
|
|
|
4,440,411
|
|
|
|
4,481,119
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
6,882,462
|
|
|
|
6,467,504
|
|
|
|
6,504,634
|
|
|
Occupancy and equipment
|
|
|
2,034,147
|
|
|
|
2,080,517
|
|
|
|
2,127,026
|
|
|
Other real estate owned, net
|
|
|
387,274
|
|
|
|
893,948
|
|
|
|
1,120,540
|
|
|
Other operating expenses
|
|
|
5,140,322
|
|
|
|
5,510,175
|
|
|
|
5,968,644
|
|
|
Total noninterest expense
|
|
|
14,444,205
|
|
|
|
14,952,144
|
|
|
|
15,720,844
|
|
|
Income before income tax expense (benefit)
|
|
|
2,125,007
|
|
|
|
1,942,321
|
|
|
|
1,197,967
|
|
|
Income tax expense (benefit)
|
|
|
305,848
|
|
|
|
133,663
|
|
|
|
(150,806
|
)
|
|
Net income
|
|
|
1,819,159
|
|
|
|
1,808,658
|
|
|
|
1,348,773
|
|
|
Preferred dividends
|
|
|
236,820
|
|
|
|
236,820
|
|
|
|
236,820
|
|
|
Net income available to common stockholders
|
|
$
|
1,582,339
|
|
|
$
|
1,571,838
|
|
|
$
|
1,111,953
|
|
|
Net income per common share—basic
|
|
$
|
0.72
|
|
|
$
|
0.73
|
|
|
$
|
0.52
|
|
|
Net income per common share—diluted
|
|
$
|
0.71
|
|
|
$
|
0.72
|
|
|
$
|
0.51
|
|
|
Weighted average outstanding shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,186,610
|
|
|
|
2,166,818
|
|
|
|
2,152,780
|
|
|
Diluted
|
|
|
2,224,253
|
|
|
|
2,186,393
|
|
|
|
2,165,610
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Net Income
|
|
$
|
1,819,159
|
|
|
$
|
1,808,658
|
|
|
$
|
1,348,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on investment securities available for sale, net of tax of $(238,770) for 2015, $902,563 for 2014 and $(1,874,103) for 2013
|
|
|
(463,503
|
)
|
|
|
1,752,039
|
|
|
|
(3,637,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for
holding gains included in net income, net of tax of $143,155 for 2015, $ - for 2014, and $82,920 for 2013
|
|
|
(277,888
|
)
|
|
|
—
|
|
|
|
(160,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
(741,391
|
)
|
|
|
1,752,039
|
|
|
|
(3,798,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income (Loss)
|
|
$
|
1,077,768
|
|
|
$
|
3,560,697
|
|
|
$
|
(2,450,154
|
)
|
The accompanying notes are an integral part of these consolidated
financial statements.
CITIZENS BANCSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvoting
|
|
|
Restricted
|
|
|
Paid-in
|
|
|
Retained
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Treasury Stock
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance—December 31, 2012
|
|
|
11,841
|
|
|
$
|
11,841,000
|
|
|
|
2,250,364
|
|
|
$
|
2,250,364
|
|
|
|
90,000
|
|
|
$
|
90,000
|
|
|
$
|
(56,800
|
)
|
|
$
|
7,941,817
|
|
|
$
|
26,190,373
|
|
|
|
(220,525
|
)
|
|
$
|
(1,820,128
|
)
|
|
$
|
2,717,479
|
|
|
$
|
49,154,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,348,773
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,348,773
|
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,798,927
|
)
|
|
|
(3,798,927
|
)
|
|
Nonvested restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,571
|
|
|
|
(147,400
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(106,829
|
)
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,413
|
)
|
|
|
(61,423
|
)
|
|
|
—
|
|
|
|
(61,423
|
)
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
42,364
|
|
|
|
42,364
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138,293
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180,657
|
|
|
Dividends paid on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,820
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,820
|
)
|
|
Dividends paid on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(171,744
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(171,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2013
|
|
|
11,841
|
|
|
|
11,841,000
|
|
|
|
2,292,728
|
|
|
|
2,292,728
|
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
(16,229
|
)
|
|
|
7,932,710
|
|
|
|
27,130,582
|
|
|
|
(235,938
|
)
|
|
|
(1,881,551
|
)
|
|
|
(1,081,448
|
)
|
|
$
|
46,307,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,808,658
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,808,658
|
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,752,039
|
|
|
|
1,752,039
|
|
|
Nonvested restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(90,621
|
)
|
|
|
82,457
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,164
|
)
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500
|
|
|
|
10,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104,284
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
114,784
|
|
|
Dividends paid on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,820
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,820
|
)
|
|
Dividends paid on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(171,744
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(171,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2014
|
|
|
11,841
|
|
|
$
|
11,841,000
|
|
|
|
2,303,228
|
|
|
$
|
2,303,228
|
|
|
|
90,000
|
|
|
$
|
90,000
|
|
|
($
|
106,850
|
)
|
|
$
|
8,119,451
|
|
|
$
|
28,530,676
|
|
|
|
(235,938
|
)
|
|
$
|
(1,881,551
|
)
|
|
$
|
670,591
|
|
|
$
|
49,566,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,819,159
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,819,159
|
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(741,391
|
)
|
|
|
(741,391
|
)
|
|
Nonvested restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(39,948
|
)
|
|
|
38,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,648
|
)
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,516
|
)
|
|
|
(48,403
|
)
|
|
|
—
|
|
|
|
(48,403
|
)
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
186,070
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
191,070
|
|
|
Dividends paid on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,820
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,820
|
)
|
|
Dividends paid on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(172,316
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(172,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2015
|
|
|
11,841
|
|
|
$
|
11,841,000
|
|
|
|
2,308,228
|
|
|
$
|
2,308,228
|
|
|
|
90,000
|
|
|
$
|
90,000
|
|
|
($
|
146,798
|
)
|
|
$
|
8,343,821
|
|
|
$
|
29,940,699
|
|
|
|
(241,454
|
)
|
|
$
|
(1,929,954
|
)
|
|
($
|
70,800
|
)
|
|
$
|
50,376,196
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,819,159
|
|
|
$
|
1,808,658
|
|
|
$
|
1,348,773
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
100,000
|
|
|
|
75,000
|
|
|
|
425,000
|
|
|
Depreciation
|
|
|
551,278
|
|
|
|
547,150
|
|
|
|
615,694
|
|
|
Amortization and accretion—net
|
|
|
954,324
|
|
|
|
974,875
|
|
|
|
1,342,645
|
|
|
Provision (benefit) for deferred income taxes
|
|
|
406,781
|
|
|
|
167,446
|
|
|
|
(199,896
|
)
|
|
Gains on sales of securities
|
|
|
(421,043
|
)
|
|
|
—
|
|
|
|
(243,882
|
)
|
|
(Gain) loss on sale of other real estate owned
|
|
|
(28,506
|
)
|
|
|
89,116
|
|
|
|
56,143
|
|
|
Restricted stock based compensation plan
|
|
|
(1,648
|
)
|
|
|
(8,164
|
)
|
|
|
(106,829
|
)
|
|
Decrease (increase) in carrying value of other real estate owned
|
|
|
217,217
|
|
|
|
526,128
|
|
|
|
615,839
|
|
|
Increase in cash surrender value of life insurance
|
|
|
(239,656
|
)
|
|
|
(304,082
|
)
|
|
|
(328,634
|
)
|
|
Changes in assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in other assets
|
|
|
(220,293
|
)
|
|
|
(912,638
|
)
|
|
|
2,455,520
|
|
|
Change in accrued expenses and other liabilities
|
|
|
(782,586
|
)
|
|
|
740,356
|
|
|
|
(1,375,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
2,355,027
|
|
|
$
|
3,703,845
|
|
|
$
|
4,604,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in certificates of deposit
|
|
|
(550,000
|
)
|
|
|
—
|
|
|
|
(250,000
|
)
|
|
Proceeds from the sales, maturities and paydowns of securities available for sale
|
|
|
41,226,405
|
|
|
|
21,483,938
|
|
|
|
30,233,702
|
|
|
Proceeds from the maturities and paydowns of securities held to maturity
|
|
|
240,000
|
|
|
|
—
|
|
|
|
1,119,150
|
|
|
Purchases of securities available for sale
|
|
|
(39,106,269
|
)
|
|
|
(4,856,383
|
)
|
|
|
(47,766,287
|
)
|
|
Net change in other investments
|
|
|
(172,800
|
)
|
|
|
81,700
|
|
|
|
121,600
|
|
|
Net change in loans
|
|
|
2,874,070
|
|
|
|
(7,937,597
|
)
|
|
|
1,085,325
|
|
|
Purchases of premises and equipment
|
|
|
(291,870
|
)
|
|
|
(353,419
|
)
|
|
|
(248,719
|
)
|
|
Redemption of bank owned life insurance
|
|
|
2,231,649
|
|
|
|
185,960
|
|
|
|
—
|
|
|
Purchase of bank owned life insurance
|
|
|
(2,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from sale of other real estate owned
|
|
|
993,002
|
|
|
|
3,321,668
|
|
|
|
4,020,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
5,444,187
|
|
|
$
|
11,925,867
|
|
|
$
|
(11,685,105
|
)
|
Continued
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR
THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
$
|
(12,027,171
|
)
|
|
$
|
3,926,462
|
|
|
$
|
(3,631,155
|
)
|
|
Net increase (decrease) in Federal Home Loan Bank advances
|
|
|
4,980,623
|
|
|
|
(18,995
|
)
|
|
|
(18,618
|
)
|
|
Common stock dividend paid
|
|
|
(172,316
|
)
|
|
|
(171,744
|
)
|
|
|
(171,744
|
)
|
|
Preferred stock dividend paid
|
|
|
(236,820
|
)
|
|
|
(236,820
|
)
|
|
|
(236,820
|
)
|
|
Net purchase of treasury stock
|
|
|
(48,403
|
)
|
|
|
—
|
|
|
|
(61,423
|
)
|
|
Proceeds from issuance of common stock
|
|
|
191,070
|
|
|
|
114,784
|
|
|
|
180,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
(7,313,017
|
)
|
|
$
|
3,613,687
|
|
|
$
|
(3,939,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
486,197
|
|
|
$
|
19,243,399
|
|
|
$
|
(11,019,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
48,410,070
|
|
|
|
29,166,671
|
|
|
|
40,186,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
48,896,267
|
|
|
$
|
48,410,070
|
|
|
$
|
29,166,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
711,331
|
|
|
$
|
874,690
|
|
|
$
|
939,420
|
|
|
Income taxes
|
|
|
55,000
|
|
|
|
—
|
|
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure
|
|
|
976,356
|
|
|
|
1,200,627
|
|
|
|
3,901,588
|
|
|
Change in unrealized gain (loss) on investment securities available for sale—net of tax
|
|
|
(741,391
|
)
|
|
|
1,752,039
|
|
|
|
(3,798,927
|
)
|
The accompanying notes are an integral part of these consolidated
financial statements.
citizens
bancshares corporation and subsidiarY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2015 AND 2014 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2015
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Business
—Citizens
Bancshares Corporation and subsidiary (the “Company”) is a holding company that provides a full range of commercial
banking to individual and corporate customers in its primary market areas, metropolitan Atlanta and Columbus, Georgia, and Birmingham
and Eutaw, Alabama through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank operates under a
state charter and serves its customers through seven full-service branches in metropolitan Atlanta, one full-service branch in
Columbus, Georgia, one full-service branch in Birmingham, Alabama, and one full-service branch in Eutaw, Alabama. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
—The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America and with general practices within the banking industry. In preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual
results could differ significantly from those estimates. Material estimates common to the banking industry that are particularly
susceptible to significant change in the near term are the allowance for loan losses, the valuation of allowances associated with
the recognition of deferred tax assets and the value of foreclosed real estate and intangible assets.
Troubled Asset Relief
Program
—
On August 13, 2010, as part of the U.S. Department
of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Community Development Capital Initiative,
the Company entered into a Letter Agreement, and an Exchange Agreement–Standard Terms (“Exchange Agreement”),
with the Treasury, pursuant to which the Company agreed to exchange 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (“Series A Preferred Shares”), issued on March 6, 2009, pursuant to the Company’s participation
in the TARP Capital Purchase Program, for 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock,
Series B (“Series B Preferred Shares”), both of which have a liquidation preference of $1,000 (the “Exchange
Transaction”). No new monetary consideration was exchanged in connection with the Exchange Transaction. The Exchange Transaction
closed on August 13, 2010 (the “Closing Date”).
On September 17, 2010, the Company
issued 4,379 shares of its Series C Preferred Shares to the Treasury as part of its TARP Community Development Capital Initiative
for a total of 11,841 shares of Series B and C Preferred Shares issued to the Treasury. The issuance of the Series B and Series
C Preferred Shares was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
The Series B and Series C Preferred
Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 2% per annum for the first eight years after
the Closing Date and 9% per annum thereafter. The Company may, subject to consultation with the Federal Reserve Bank of Atlanta,
redeem the Series B and Series C Preferred Shares at any time for its aggregate liquidation amount plus any accrued and unpaid
dividends.
Cash and Cash Equivalents
—Cash
and cash equivalents include cash on hand and amounts due from banks, interest-bearing deposits with banks and federal funds sold.
The Federal Reserve Bank (the “FRB”) requires the Company to maintain a required cash reserve balance on deposit with
the FRB, based on the Company’s daily average balance with the FRB. This reserve requirement represents 3% of the Company’s
daily average demand deposit balance between $13.3 million and $89.0 million and 10% of the Company’s daily average demand
deposit balance above $89.0 million. The required reserve was satisfied by the Company’s vault cash.
Interest-bearing Deposits
with Banks
—Substantially all of the Company’s interest-bearing deposits with banks represent funds maintained
on deposit at the Federal Reserve Bank of Atlanta (the ‘FRB”) and the Federal Home Loan Bank of Atlanta (FHLB). These
funds fluctuate daily and are used to manage the Company’s liquidity and borrowing position. Funds can be withdrawn daily
from this account and accordingly, the carrying amount of this account is at cost which is deemed to be a reasonable estimate of
fair value.
Other Investments
—
Other investments consist of Federal Home Loan Bank stock and Federal Reserve Bank stock which are restricted and have no readily
determinable market value. These investments are carried at cost.
Investment Securities
—The
Company classifies investments in one of three categories based on management’s intent upon purchase: held to maturity securities
which are reported at amortized cost, trading securities which are reported at fair value with unrealized holding gains and losses
included in earnings, and available for sale securities which are recorded at fair value with unrealized holding gains and losses
included as a component of accumulated other comprehensive income (loss). The Company had no investment securities classified as
trading securities during 2015, 2014, or 2013.
Premiums and discounts on available
for sale and held to maturity securities are amortized or accreted using a method which approximates a level yield. Amortization
and accretion of premiums and discounts are presented within investment securities interest income on the Consolidated Statements
of Income.
Gains and losses on sales of
investment securities are recognized upon disposition, based on the adjusted cost of the specific security. A decline in market
value of any security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a
new cost basis for the security. The determination of whether an other-than-temporary impairment has occurred involves significant
assumptions, estimates, changes in economic conditions and judgment by management. There was no other-than-temporary impairment
for securities recorded during 2015, 2014 or 2013.
Loans Receivable and Allowance
for Loan Losses
—Loans are reported at principal amounts outstanding plus direct origination costs, net of loan fees
and any direct charge-offs. Interest income is recognized over the term of the loan based on the principal amount outstanding.
Loan fees and certain direct origination costs are deferred and amortized over the estimated terms of the loans using the level
yield method. Premiums and discounts on loans purchased are amortized and accreted using the level yield method over the estimated
remaining life of the loan purchased. The accretion and amortization of loan fees, origination costs, and premiums and discounts
are presented as a component of loan interest income on the Consolidated Statements of Income.
Management considers a loan
to be impaired when, based on current information and events, there is a potential that all amounts due according to the contractual
terms of the loan may not be collected. Impaired loans are measured based on the present value of expected future cash flows, discounted
at the loan’s effective interest rate, or at the loan’s observable market price, or the fair value of the collateral
if the loan is collateral dependent.
Loans are generally placed on
nonaccrual status when the full and timely collection of principal or interest becomes uncertain or the loan becomes contractually
in default for 90 days or more as to either principal or interest, unless the loan is well collateralized and in the process of
collection. When a loan is placed on nonaccrual status, current period accrued and uncollected interest is charged-off against
interest income on loans unless management believes the accrued interest is recoverable through the liquidation of collateral.
Loans are returned to accrual status when payment has been made according to the terms and conditions of the loan for a continuous
six month period.
The Company provides for estimated
losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based on
individual assets and their related cash flow forecasts, sales values, independent appraisals, the volatility of certain real estate
markets, and concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining
necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the
value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance
for loan losses is reviewed on a monthly basis by management and the Board of Directors. This assessment is made in the context
of historical losses as well as existing economic conditions, performance trends within specific portfolio segments, and individual
concentrations of credit.
Loans are charged-off against
the allowance when, in the opinion of management, such loans are deemed to be uncollectible and subsequent recoveries are added
to the allowance.
Troubled Debt Restructurings
—Loans
to be restructured are identified based on an assessment of the borrower’s credit status, which involves, but is not limited
to, a review of financial statements, payment delinquency, non-accrual status, and risk rating. Determining the borrower’s
credit status is a continual process that is performed by the Company’s staff with periodic participation from an independent
external loan review group.
Troubled debt restructurings (“TDR”)
generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and it is
probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement.
The Company seeks to assist these borrowers by working with them to prevent further difficulties, and ultimately to improve the
likelihood of recovery on the loan while ensuring compliance with the Federal Financial Institutions Examination Council (FFIEC)
guidelines. To facilitate this process, a formal concessionary modification that would not otherwise be considered may be granted
resulting in classification of the loan as a TDR.
The modification may include a
change in the interest rate or the payment amount or a combination of both. Substantially all modifications completed under a formal
restructuring agreement are considered TDRs. Modifications can involve loans remaining on nonaccrual, moving to nonaccrual, or
continuing on accruing status, depending on the individual facts and circumstances of the borrower. These restructurings rarely
result in the forgiveness of principal or interest. Nonperforming commercial TDRs may be returned to accrual status based on a
current, well-documented credit evaluation of the borrower’s financial condition and prospects for repayment under the modified
terms. This evaluation must include consideration of the borrower’s sustained historical repayment performance for a reasonable
period (generally a minimum of six months) prior to the date on which the loan is returned to accrual status.
With respect to commercial TDRs,
an analysis of the credit evaluation, in conjunction with an evaluation of the borrower’s performance prior to the restructuring,
are considered when evaluating the borrower’s ability to meet the restructured terms of the loan agreement. Nonperforming
commercial TDRs may be returned to accrual status based on a current, well-documented credit evaluation of the borrower’s
financial condition and prospects for repayment under the modified terms. This evaluation must include consideration of the borrower’s
sustained historical repayment performance for a reasonable period (generally a minimum of six months) prior to the date on which
the loan is returned to accrual status.
In connection with consumer
loan TDRs, a nonperforming loan will be returned to accruing status when current as to principal and interest and upon a sustained
historical repayment performance (generally a minimum of six months).
Premises and Equipment
—Premises
and equipment are stated at cost less accumulated depreciation which is computed using the straight-line method over the estimated
useful lives of the related assets. When assets are retired or otherwise disposed, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in earnings for the period. The costs of maintenance
and repairs, which do not improve or extend the useful life of the respective assets, are charged to earnings as incurred, whereas
significant renewals and improvements are capitalized. The range of estimated useful lives for premises and equipment is as follows:
|
Buildings and improvements
|
|
|
5-40 years
|
|
|
Furniture and equipment
|
|
|
3-10 years
|
|
Other Real Estate Owned
—Other
real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current
appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan
balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against
the allowance for loan losses. Any subsequent declines in value are charged to earnings. Transactions in other real estate owned
for the years ended December 31, 2015 and 2014 are summarized below:
|
|
|
Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Balance—beginning of year
|
|
$
|
4,668,152
|
|
|
$
|
7,404,437
|
|
|
Additions
|
|
|
976,356
|
|
|
|
1,200,627
|
|
|
Sales
|
|
|
(964,496
|
)
|
|
|
(3,410,784
|
)
|
|
Write downs
|
|
|
(217,217
|
)
|
|
|
(526,128
|
)
|
|
Balance—end of year
|
|
$
|
4,462,795
|
|
|
$
|
4,668,152
|
|
Intangible Assets
—Finite
lived intangible assets of the Company represent deposit assumption premiums recorded upon the purchase of certain assets and liabilities
from other financial institutions. Deposit assumption premiums are amortized over seven years, the estimated average lives of the
deposits acquired, using the straight-line method and are included within other assets on the Consolidated Balance Sheets.
The Company reviews the carrying
value of goodwill on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss
may have been incurred. An impairment charge is recognized if the carrying value of the reporting unit’s goodwill exceeds
its implied fair value.
The following table presents
information about our intangible assets:
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Unamortized intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
362,139
|
|
|
$
|
—
|
|
|
$
|
362,139
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
3,303,427
|
|
|
$
|
3,185,447
|
|
|
$
|
3,303,427
|
|
|
$
|
2,713,529
|
|
The following table presents information
about aggregate amortization expense for each of the three succeeding fiscal years as follows:
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Aggregate amortization expense of core deposit intangibles
|
|
$
|
471,918
|
|
|
$
|
471,918
|
|
|
$
|
471,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated aggregate amortization expense of core deposit intangibles for the year ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
117,980
|
|
|
|
|
|
|
|
|
|
|
2017 and thereafter
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Income Taxes
—Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense
in the period that includes the enactment date.
In the event the future tax
consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities
result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such
assets is required. A valuation allowance is provided for the portion of a deferred tax asset when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets,
management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.
Net Income Available to
Common Stockholders
—Basic net income per common share (“EPS”) is computed based on net income divided
by the weighted average number of common shares outstanding. Diluted EPS is computed based on net income available to common stockholders
divided by the weighted average number of common and potential common shares. The only potential common share equivalents are those
related to stock options and nonvested restricted stock grants. Common share equivalents which are anti-dilutive are excluded from
the calculation of diluted EPS.
Stock Based Compensation
—The
fair value of each stock option award is estimated on the date of grant using a Black-Scholes valuation model. Expected volatility
is based on the historical volatility of the Company’s stock, using daily price observations over the expected term of the
stock options. The expected term represents the period of time that stock options granted are expected to be outstanding and is
derived from historical data which is used to evaluate patterns such as stock option exercise and employee termination. The expected
dividend yield is based on recent dividend history. The risk-free interest rate is derived from the U.S. Treasury yield curve in
effect at the time of grant based on the expected life of the option.
There were no options granted in
2015, 2014, and 2013.
In 2013, 13,500 nonvested restricted
shares of common stock were issued to certain officers and the Chief Executive Officer (CEO) at a grant price of $6.30. The 2013
restricted common stock will vest 100% (Cliff vesting) on January 1, 2016.
In 2014, 11,885 nonvested restricted
shares of common stock were issued to certain officers and the Chief Executive Officer (CEO) at a grant price of $8.85. These restricted
common stock shares will vest 100% (Cliff vesting) on January 1, 2017. In addition, 11,450 nonvested shares of common stock were
issued to the Chief Executive Officer (CEO) at a grant price of $8.04 as a bonus. These restricted common stock shares will vest
100% (Cliff vesting) on March 23, 2016 and transferability is subject to TARP regulations pertaining to repayment of TARP funding
in 25 percent increments.
In 2015, 11,500 nonvested restricted shares of common
stock were issued to certain officers and the Chief Executive Officer (CEO) at a grant price of $9.10. These restricted common
stock shares will vest 100% (Cliff vesting) on January 1, 2018. In addition, 12,200 nonvested shares of common stock were issued
to the Chief Executive Officer (CEO) at a grant price of $8.75 as a bonus. These restricted common stock shares will vest 100%
(Cliff vesting) on February 18, 2017 and transferability is subject to TARP regulations pertaining to repayment of TARP funding
in 25 percent increments. Certain employees were issued a discretionary nonvested restricted shares of common stock of which 300
were at a grant price of $8.75 that vested 100% (Cliff vesting) on February 3, 2016, and 1,550 were at a grant price of $9.90 that
vests 100% (Cliff vesting) on April 15, 2016.
Recently Issued Accounting
Standards
—
In January 2014, the FASB amended Receivables
topic of the Accounting Standards Codification. The amendments are intended to resolve diversity in practice with respect to when
a creditor should reclassify a collateralized consumer mortgage loan to other real estate owned (OREO). In addition, the amendments
require a creditor reclassify a collateralized consumer mortgage loan to OREO upon obtaining legal title to the real estate collateral,
or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed
in lieu of foreclosure or similar legal agreement. The amendments were effective for the Company for annual periods, and interim
periods within those annual periods beginning after December 15, 2014, with early implementation of the guidance permitted. In
implementing this guidance, assets that are reclassified from real estate to loans are measured at the carrying value of the real
estate at the date of adoption. Assets reclassified from loans to real estate are measured at the lower of the net amount
of the loan receivable or the fair value of the real estate less costs to sell at the date of adoption. The Company applied the
amendments prospectively. These amendments did not have a material effect on the Company’s financial statements.
In May 2014, the FASB issued guidance to change the
recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize
revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives
or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15. The Company
will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect
on its financial statements.
In January 2015, the FASB issued
guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual
in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item
from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after
income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item.
The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The
Company will apply the guidance prospectively. The Company does not expect these amendments to have a material effect on its financial
statements.
In February 2015, the FASB issued
guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP.
Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all
its previous consolidation conclusions. The amendments will be effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the
guidance is applied as of the beginning of the annual period containing the adoption date. The Company does not expect these amendments
to have a material effect on its financial statements.
In June 2015, the FASB issued amendments
to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements
to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative
cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance.
Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does
not expect these amendments to have a material effect on its financial statements.
In August 2015, the FASB deferred
the effective date of ASU 2014-09,
Revenue from Contracts with Customers.
As a result of the deferral, the guidance in ASU
2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance
using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.
In November 2015, the FASB amended
the Income Taxes topic of the Accounting Standards Codification simplify the presentation of deferred income taxes by requiring
that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments
will be effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within
those annual periods, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company will
apply the guidance prospectively. The Company does not expect these amendments to have a material effect on its financial statements.
In January 2016, the FASB amended
the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December
15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect
adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities
without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption
of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.
In February 2016, the FASB issued
new guidance to change accounting for leases and that will generally require most leases to be recognized on the balance sheet.
The new lease standard only contains targeted changes to accounting by lessors, however, lessees will be required to recognize
most leases in their balance sheets as lease liabilities for lease payments and right-of-use assets representing the lessee’s
rights to use the underlying assets for the lease terms for lease arrangements longer than 12 months. Under this approach,
a lessee will account for most existing capital/finance leases as Type A leases and most existing operating leases as Type B leases.
Type A and Type B leases have unique accounting and disclosure requirements. Existing sale-leaseback guidance, including guidance
for real estate, will be replaced with a new model applicable to both lessees and lessors. The new guidance will be effective
for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2018. Early adoption is permitted
for all companies and organizations. Management is currently analyzing the impact of the adoption of this guidance on the
Company’s consolidated financial statements, including assessing changes that might be necessary to information technology
systems, processes and internal controls to capture new data and address changes in financial reporting.
Other accounting standards that
have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s
financial position, results of operations or cash flows.
Reclassifications
—Certain
prior year amounts have been reclassified to conform to the 2015 presentation. Such reclassifications had no impact on net income
or retained earnings as previously reported.
Investment securities available
for sale are summarized as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
At December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal securities
|
|
$
|
28,247,652
|
|
|
$
|
1,223,305
|
|
|
$
|
13,764
|
|
|
$
|
29,457,193
|
|
|
Mortgage-backed securities
|
|
|
93,117,896
|
|
|
|
64,860
|
|
|
|
1,382,320
|
|
|
|
91,800,436
|
|
|
Corporate securities
|
|
|
2,000,000
|
|
|
|
592
|
|
|
|
—
|
|
|
|
2,000,592
|
|
|
Totals
|
|
$
|
123,365,548
|
|
|
$
|
1,288,757
|
|
|
$
|
1,396,084
|
|
|
$
|
123,258,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal securities
|
|
$
|
28,179,407
|
|
|
$
|
1,513,824
|
|
|
|
—
|
|
|
$
|
29,693,231
|
|
|
Mortgage-backed securities
|
|
|
87,548,174
|
|
|
|
436,580
|
|
|
|
1,070,052
|
|
|
|
86,914,702
|
|
|
Corporate securities
|
|
|
9,867,241
|
|
|
|
135,637
|
|
|
|
—
|
|
|
|
10,002,878
|
|
|
Totals
|
|
$
|
125,594,822
|
|
|
$
|
2,086,041
|
|
|
$
|
1,070,052
|
|
|
$
|
126,610,811
|
|
Investment securities held to
maturity are summarized as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
At December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal securities
|
|
$
|
240,000
|
|
|
$
|
3,118
|
|
|
$
|
—
|
|
|
$
|
243,118
|
|
There were no securities held
to maturity at December 31, 2015.
The amortized costs and fair
values of investment securities at December 31, 2015, by contractual maturity, are shown below. Mortgage-backed securities are
classified by their contractual maturity, however, expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with and without call or prepayment penalties.
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
2,201,764
|
|
|
$
|
2,202,958
|
|
|
Due after one year through five years
|
|
|
5,233,907
|
|
|
|
5,381,576
|
|
|
Due after five years through ten years
|
|
|
31,068,097
|
|
|
|
32,018,963
|
|
|
Due after ten years
|
|
|
84,861,780
|
|
|
|
83,654,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,365,548
|
|
|
$
|
123,258,221
|
|
Proceeds from the sale of securities
were $19,292,000 and $2,268,000 in 2015, and 2013, respectively. There were no securities sold in 2014. Gross realized gains on
sales of securities were $421,043 and $243,882 in 2015, and 2013, respectively. There were no gross realized losses on sales of
securities in 2015 and 2013.
Investment securities with carrying
values of approximately $93,161,000 and $99,299,000 at December 31, 2015 and 2014, respectively, were pledged to secure public
funds on deposit and for other purposes as required by law, FHLB advances and a $23.5 million line of credit at the Federal Reserve
Bank discount window.
The following tables show investments’
gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have
been in a continuous unrealized loss position, at December 31, 2015 and December 31, 2014. Except as explicitly identified below,
all unrealized losses on investment securities are considered by management to be temporarily impaired given the credit ratings
on these investment securities and the short duration of the unrealized loss.
|
At December 31, 2015:
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a loss position for
|
|
|
Securities in a loss position for
|
|
|
|
|
|
|
|
|
|
less than twelve months
|
|
|
twelve months or more
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Fair value
|
|
|
losses
|
|
|
Fair value
|
|
|
losses
|
|
|
Fair value
|
|
|
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
2,587,274
|
|
|
$
|
(13,764
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,587,274
|
|
|
$
|
(13,764
|
)
|
|
Mortgage-backed securities
|
|
|
63,532,817
|
|
|
|
(722,276
|
)
|
|
|
21,332,785
|
|
|
|
(660,044
|
)
|
|
|
84,865,602
|
|
|
|
(1,382,320
|
)
|
|
Corporate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
66,120,091
|
|
|
$
|
(736,040
|
)
|
|
$
|
21,332,785
|
|
|
$
|
(660,044
|
)
|
|
$
|
87,452,876
|
|
|
$
|
(1,396,084
|
)
|
There were no held to maturity securities in an unrealized loss position at December 31, 2015 or 2014.
|
At December 31, 2014:
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a loss position for
|
|
|
Securities in a loss position for
|
|
|
|
|
|
|
|
|
|
|
less than twelve months
|
|
|
twelve months or more
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Fair value
|
|
|
losses
|
|
|
Fair value
|
|
|
losses
|
|
|
Fair value
|
|
|
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Mortgage-backed securities
|
|
|
15,383,833
|
|
|
|
(151,511
|
)
|
|
|
40,642,844
|
|
|
|
(918,541
|
)
|
|
|
56,026,677
|
|
|
|
(1,070,052
|
)
|
|
Corporate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
15,383,833
|
|
|
$
|
(151,511
|
)
|
|
$
|
40,642,844
|
|
|
$
|
(918,541
|
)
|
|
$
|
56,026,677
|
|
|
$
|
(1,070,052
|
)
|
Securities classified as
available for sale are recorded at fair market value and held to maturity securities are recorded at amortized cost. At December
31, 2015 and 2014, the Company had fifteen (15) and twenty-one (21) investment securities, respectively, that were in an unrealized
loss position for more than 12 months. The Company reviews these securities for other-than-temporary impairment on a quarterly
basis by monitoring their credit support and coverage, constant payment of the contractual principal and interest, loan to value
and delinquencies ratios.
We use prices from third party
pricing services and, to a lesser extent, indicative (non-binding) quotes from third party brokers, to measure fair value of our
investment securities. Fair values of the investment securities portfolio could decline in the future if the underlying performance
of the collateral for collateralized mortgage obligations or other securities deteriorates and the levels do not provide sufficient
protection for contractual principal and interest. As a result, there is risk that an other-than-temporary impairment may occur
in the future particularly in light of the current economic environment.
The Company does not intend
to sell these securities and it is more likely than not that the Company will not be required to sell those securities before recovery
of its amortized cost. The Company believes, based on industry analyst reports and credit ratings, that it will continue to receive
scheduled interest payments as well as the entire principal balance, and the deterioration in value is attributable to changes
in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.
The Company’s investment
portfolio consists principally of obligations of the United States, its agencies or its corporations and general obligation and
revenue municipal securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio.
The Company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. Management
believes credit risk associated with correspondent accounts is not significant.
|
|
3.
|
LOANS
RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
|
Loans outstanding, by classification,
are summarized as follows (amounts in thousands):
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Commercial, financial, and agricultural
|
|
$
|
42,748
|
|
|
$
|
33,308
|
|
|
Commercial Real Estate
|
|
|
104,093
|
|
|
|
116,437
|
|
|
Single-Family Residential
|
|
|
31,096
|
|
|
|
31,940
|
|
|
Construction and Development
|
|
|
2,220
|
|
|
|
2,925
|
|
|
Consumer
|
|
|
6,804
|
|
|
|
6,428
|
|
|
|
|
|
186,961
|
|
|
|
191,038
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
2,124
|
|
|
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable-net
|
|
$
|
184,837
|
|
|
$
|
188,739
|
|
Concentrations
—The
Company’s concentrations of credit risk are as follows:
A substantial portion of the
Company’s loan portfolio is collateralized by real estate in metropolitan Atlanta and Birmingham markets. Accordingly, the
ultimate collectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in market conditions
in the metropolitan Atlanta and Birmingham areas.
|
|
·
|
The Company’s loans to area churches were approximately $42.0 million and $41.9 million at
December 31, 2015 and 2014, respectively, which are generally secured by real estate.
|
|
|
·
|
The Company’s loans to area convenience stores were approximately $6.1 million and $7.3 million
at December 31, 2015 and 2014, respectively. Loans to convenience stores are generally secured by real estate.
|
|
|
·
|
The Company’s loans to area hotels were approximately $15.6 million and $21.3 million at
December 31, 2015 and 2014, respectively, which are generally secured by real estate.
|
Activity in the allowance for loan losses by portfolio segment is
summarized as follows (in thousands):
|
|
|
For the Year Ended December, 2015
|
|
|
|
|
|
|
|
Commercial
|
|
|
Single-family
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real Estate
|
|
|
Residential
|
|
|
Development
|
|
|
Consumer
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
415
|
|
|
$
|
1,366
|
|
|
$
|
254
|
|
|
$
|
72
|
|
|
$
|
192
|
|
|
$
|
2,299
|
|
|
Provision for loan losses
|
|
|
(101
|
)
|
|
|
(261
|
)
|
|
|
423
|
|
|
|
(75
|
)
|
|
|
114
|
|
|
|
100
|
|
|
Loans charged-off
|
|
|
—
|
|
|
|
(138
|
)
|
|
|
(268
|
)
|
|
|
—
|
|
|
|
(197
|
)
|
|
|
(603
|
)
|
|
Recoveries on loans charged-off
|
|
|
28
|
|
|
|
203
|
|
|
|
26
|
|
|
|
6
|
|
|
|
65
|
|
|
|
328
|
|
|
Ending Balance
|
|
$
|
342
|
|
|
$
|
1,170
|
|
|
$
|
435
|
|
|
$
|
3
|
|
|
$
|
174
|
|
|
$
|
2,124
|
|
|
|
|
For the Year Ended December, 2014
|
|
|
|
|
|
|
|
Commercial
|
|
|
Single-family
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real Estate
|
|
|
Residential
|
|
|
Development
|
|
|
Consumer
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
384
|
|
|
$
|
1,721
|
|
|
$
|
731
|
|
|
$
|
126
|
|
|
$
|
195
|
|
|
$
|
3,157
|
|
|
Provision for loan losses
|
|
|
(12
|
)
|
|
|
27
|
|
|
|
(129
|
)
|
|
|
69
|
|
|
|
120
|
|
|
|
75
|
|
|
Loans charged-off
|
|
|
(9
|
)
|
|
|
(562
|
)
|
|
|
(468
|
)
|
|
|
(137
|
)
|
|
|
(182
|
)
|
|
|
(1,358
|
)
|
|
Recoveries on loans charged-off
|
|
|
52
|
|
|
|
180
|
|
|
|
120
|
|
|
|
14
|
|
|
|
59
|
|
|
|
425
|
|
|
Ending Balance
|
|
$
|
415
|
|
|
$
|
1,366
|
|
|
$
|
254
|
|
|
$
|
72
|
|
|
$
|
192
|
|
|
$
|
2,299
|
|
|
|
|
For the Year Ended December, 2013
|
|
|
|
|
|
|
|
Commercial
|
|
|
Single-family
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real Estate
|
|
|
Residential
|
|
|
Development
|
|
|
Consumer
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
433
|
|
|
$
|
1,853
|
|
|
$
|
803
|
|
|
$
|
177
|
|
|
$
|
243
|
|
|
$
|
3,509
|
|
|
Provision for loan losses
|
|
|
(68
|
)
|
|
|
127
|
|
|
|
361
|
|
|
|
(56
|
)
|
|
|
61
|
|
|
|
425
|
|
|
Loans charged-off
|
|
|
(22
|
)
|
|
|
(710
|
)
|
|
|
(554
|
)
|
|
|
(30
|
)
|
|
|
(169
|
)
|
|
|
(1,485
|
)
|
|
Recoveries on loans charged-off
|
|
|
41
|
|
|
|
451
|
|
|
|
121
|
|
|
|
35
|
|
|
|
60
|
|
|
|
708
|
|
|
Ending Balance
|
|
$
|
384
|
|
|
$
|
1,721
|
|
|
$
|
731
|
|
|
$
|
126
|
|
|
$
|
195
|
|
|
$
|
3,157
|
|
Portions of the allowance for loan losses may be allocated for specific
loans or portfolio segments. However, the entire allowance for loan losses is available for any loan that, in the judgment of management,
should be charged-off.
In determining our allowance for loan losses,
we regularly review loans for specific reserves based on the appropriate impairment assessment methodology. Impaired loans are
measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or at
the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. At December 31,
2015 and 2014, substantially all of the total impaired loans were evaluated based on the fair value of the underlying collateral.
General reserves are determined using historical loss trends measured over a rolling four quarter average for consumer loans, and
a three year average loss factor for commercial loans which is applied to risk rated loans grouped by Federal Financial Examination
Council (“FFIEC”) call code. For commercial loans, the general reserves are calculated by applying the appropriate
historical loss factor to the loan pool. Impaired loans greater than a minimum threshold established by management are excluded
from this analysis. The sum of all such amounts determines our total allowance for loan losses.
The allocation of the allowance for loan losses by portfolio segment
was as follows (in thousands):
|
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Single-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
family
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real Estate
|
|
|
Residential
|
|
|
& Development
|
|
|
Consumer
|
|
|
Total
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
550
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
650
|
|
|
Total specific reserves
|
|
|
—
|
|
|
|
550
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
650
|
|
|
General reserves
|
|
|
342
|
|
|
|
620
|
|
|
|
335
|
|
|
|
3
|
|
|
|
174
|
|
|
|
1,474
|
|
|
Total
|
|
$
|
342
|
|
|
$
|
1,170
|
|
|
$
|
435
|
|
|
$
|
3
|
|
|
$
|
174
|
|
|
$
|
2,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
9,392
|
|
|
$
|
417
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,809
|
|
|
Loans collectively evaluated
for impairment
|
|
|
42,748
|
|
|
|
94,701
|
|
|
|
30,679
|
|
|
|
2,220
|
|
|
|
6,804
|
|
|
|
177,152
|
|
|
Total
|
|
$
|
42,748
|
|
|
$
|
104,093
|
|
|
$
|
31,096
|
|
|
$
|
2,220
|
|
|
$
|
6,804
|
|
|
$
|
186,961
|
|
|
|
|
At December 31,
2014
|
|
|
|
|
|
|
|
|
|
|
Single-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
family
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real Estate
|
|
|
Residential
|
|
|
& Development
|
|
|
Consumer
|
|
|
Total
|
|
|
Allowance for loan
losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
—
|
|
|
$
|
91
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
142
|
|
|
Total specific reserves
|
|
|
—
|
|
|
|
91
|
|
|
|
51
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142
|
|
|
General
reserves
|
|
|
415
|
|
|
|
1,275
|
|
|
|
203
|
|
|
|
72
|
|
|
|
192
|
|
|
|
2,157
|
|
|
Total
|
|
$
|
415
|
|
|
$
|
1,366
|
|
|
$
|
254
|
|
|
$
|
72
|
|
|
$
|
192
|
|
|
$
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
9,787
|
|
|
$
|
280
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
10,286
|
|
|
Loans
collectively evaluated for impairment
|
|
|
33,308
|
|
|
|
106,650
|
|
|
|
31,660
|
|
|
|
2,706
|
|
|
|
6,428
|
|
|
|
180,752
|
|
|
Total
|
|
$
|
33,308
|
|
|
$
|
116,437
|
|
|
$
|
31,940
|
|
|
$
|
2,925
|
|
|
$
|
6,428
|
|
|
$
|
191,038
|
|
The following table presents impaired loans by class of loan (in
thousands):
|
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans - With
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans - With Allowance
|
|
|
no Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Loan
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
Unpaid
|
|
|
Recorded
|
|
|
Losses
|
|
|
Unpaid
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Income
|
|
|
|
|
Principal
|
|
|
Investment
|
|
|
Allocated
|
|
|
Principal
|
|
|
Investment
|
|
|
Investment
|
|
|
Recognized
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
HELOC’s and equity
|
|
|
134
|
|
|
|
134
|
|
|
|
100
|
|
|
|
304
|
|
|
|
283
|
|
|
|
209
|
|
|
|
43
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,115
|
|
|
|
4,115
|
|
|
|
356
|
|
|
|
4,456
|
|
|
|
3,972
|
|
|
|
8,666
|
|
|
|
391
|
|
|
Non-owner occupied
|
|
|
691
|
|
|
|
691
|
|
|
|
194
|
|
|
|
667
|
|
|
|
614
|
|
|
|
1,679
|
|
|
|
193
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Construction and Development:
|
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Improved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer and Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Total
|
|
$
|
4,940
|
|
|
$
|
4,940
|
|
|
$
|
650
|
|
|
$
|
5,427
|
|
|
$
|
4,869
|
|
|
$
|
10,554
|
|
|
$
|
627
|
|
|
|
|
At December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans - With
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans - With Allowance
|
|
|
no Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Loan
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
Unpaid
|
|
|
Recorded
|
|
|
Losses
|
|
|
Unpaid
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Income
|
|
|
|
|
Principal
|
|
|
Investment
|
|
|
Allocated
|
|
|
Principal
|
|
|
Investment
|
|
|
Investment
|
|
|
Recognized
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
HELOC’s and equity
|
|
|
102
|
|
|
|
102
|
|
|
|
51
|
|
|
|
178
|
|
|
|
178
|
|
|
|
86
|
|
|
|
35
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
81
|
|
|
|
81
|
|
|
|
81
|
|
|
|
8,014
|
|
|
|
7,457
|
|
|
|
7,575
|
|
|
|
717
|
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,388
|
|
|
|
2,154
|
|
|
|
2,228
|
|
|
|
165
|
|
|
Multi-family
|
|
|
95
|
|
|
|
95
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
97
|
|
|
|
69
|
|
|
Construction and Development:
|
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
356
|
|
|
|
219
|
|
|
|
292
|
|
|
|
30
|
|
|
Improved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer and Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Total
|
|
$
|
278
|
|
|
$
|
278
|
|
|
$
|
142
|
|
|
$
|
10,936
|
|
|
$
|
10,008
|
|
|
$
|
10,278
|
|
|
$
|
1,016
|
|
The following table is an aging analysis of our loan portfolio (in
thousands):
|
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
30- 59
|
|
|
60- 89
|
|
|
Over 90
|
|
|
|
|
|
|
|
|
Total
|
|
|
> 90 Days
|
|
|
|
|
|
|
|
Days Past
|
|
|
Days Past
|
|
|
Days Past
|
|
|
Total
|
|
|
|
|
|
Loans
|
|
|
and
|
|
|
|
|
|
|
|
Due
|
|
|
Due
|
|
|
Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Receivable
|
|
|
Accruing
|
|
|
Nonaccrual
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,581
|
|
|
$
|
824
|
|
|
$
|
745
|
|
|
$
|
3,150
|
|
|
$
|
19,253
|
|
|
$
|
22,403
|
|
|
$
|
—
|
|
|
$
|
1,246
|
|
|
HELOC’s and equity
|
|
|
224
|
|
|
|
59
|
|
|
|
173
|
|
|
|
456
|
|
|
|
8,237
|
|
|
|
8,693
|
|
|
|
—
|
|
|
|
250
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
49
|
|
|
|
—
|
|
|
|
30
|
|
|
|
79
|
|
|
|
36,144
|
|
|
|
36,223
|
|
|
|
—
|
|
|
|
30
|
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,525
|
|
|
|
6,525
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
931
|
|
|
|
336
|
|
|
|
—
|
|
|
|
1,267
|
|
|
|
51,181
|
|
|
|
52,448
|
|
|
|
—
|
|
|
|
933
|
|
|
Non-owner occupied
|
|
|
441
|
|
|
|
691
|
|
|
|
—
|
|
|
|
1,132
|
|
|
|
45,684
|
|
|
|
46,816
|
|
|
|
—
|
|
|
|
551
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,829
|
|
|
|
4,829
|
|
|
|
—
|
|
|
|
—
|
|
|
Construction and Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,220
|
|
|
|
2,220
|
|
|
|
—
|
|
|
|
—
|
|
|
Improved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer and Other
|
|
|
29
|
|
|
|
41
|
|
|
|
6
|
|
|
|
76
|
|
|
|
6,728
|
|
|
|
6,804
|
|
|
|
—
|
|
|
|
6
|
|
|
Total
|
|
$
|
3,255
|
|
|
$
|
1,951
|
|
|
$
|
954
|
|
|
$
|
6,160
|
|
|
$
|
180,801
|
|
|
$
|
186,961
|
|
|
$
|
—
|
|
|
$
|
3,016
|
|
|
|
|
At December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
30- 59
|
|
|
60- 89
|
|
|
Over 90
|
|
|
|
|
|
|
|
|
Total
|
|
|
> 90 Days
|
|
|
|
|
|
|
|
Days Past
|
|
|
Days Past
|
|
|
Days Past
|
|
|
Total
|
|
|
|
|
|
Loans
|
|
|
and
|
|
|
|
|
|
|
|
Due
|
|
|
Due
|
|
|
Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Receivable
|
|
|
Accruing
|
|
|
Nonaccrual
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
2,273
|
|
|
$
|
1,190
|
|
|
$
|
1,036
|
|
|
$
|
4,499
|
|
|
$
|
19,960
|
|
|
$
|
24,459
|
|
|
$
|
35
|
|
|
$
|
1,513
|
|
|
HELOC’s and equity
|
|
|
60
|
|
|
|
550
|
|
|
|
184
|
|
|
|
794
|
|
|
|
6,687
|
|
|
|
7,481
|
|
|
|
—
|
|
|
|
286
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
—
|
|
|
|
187
|
|
|
|
—
|
|
|
|
187
|
|
|
|
28,232
|
|
|
|
28,419
|
|
|
|
—
|
|
|
|
—
|
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,889
|
|
|
|
4,889
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
767
|
|
|
|
—
|
|
|
|
228
|
|
|
|
995
|
|
|
|
59,065
|
|
|
|
60,060
|
|
|
|
—
|
|
|
|
1,222
|
|
|
Non-owner occupied
|
|
|
1,429
|
|
|
|
588
|
|
|
|
84
|
|
|
|
2,101
|
|
|
|
42,425
|
|
|
|
44,526
|
|
|
|
—
|
|
|
|
1,026
|
|
|
Multi-family
|
|
|
35
|
|
|
|
327
|
|
|
|
95
|
|
|
|
457
|
|
|
|
11,394
|
|
|
|
11,851
|
|
|
|
—
|
|
|
|
95
|
|
|
Construction and Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,759
|
|
|
|
2,759
|
|
|
|
—
|
|
|
|
—
|
|
|
Improved Land
|
|
|
103
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103
|
|
|
|
63
|
|
|
|
166
|
|
|
|
—
|
|
|
|
—
|
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer and Other
|
|
|
6
|
|
|
|
22
|
|
|
|
18
|
|
|
|
46
|
|
|
|
6,382
|
|
|
|
6,428
|
|
|
|
—
|
|
|
|
18
|
|
|
Total
|
|
$
|
4,673
|
|
|
$
|
2,864
|
|
|
$
|
1,645
|
|
|
$
|
9,182
|
|
|
$
|
181,856
|
|
|
$
|
191,038
|
|
|
$
|
35
|
|
|
$
|
4,160
|
|
Each of our portfolio segments and the classes
within those segments are subject to risks that could have an adverse impact on the credit quality of our loan and lease portfolio.
Management has identified the most significant risks as described below which are generally similar among our segments and classes.
While the list in not exhaustive, it provides a description of the risks that management has determined are the most significant.
Commercial, financial and agricultural
loans
—We centrally underwrite each of our commercial loans based primarily upon the customer’s ability to generate
the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We endeavor
to gain a complete understanding of our borrower’s businesses including the experience and background of the principals.
To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans, we
gain an understanding of the likely value of the collateral and what level of strength the collateral brings to the loan transaction.
To the extent that the principals or other parties provide personal guarantees, we analyze the relative financial strength and
liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions
such as general economic conditions within our markets, as well as risks that are specific to each transaction including demand
for products and services, personal events such as disability or change in marital status, and reductions in the value of our collateral.
Due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic
conditions of these areas.
Consumer
—The installment
loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational
vehicles and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially
volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.
Commercial Real Estate
—Real
estate commercial loans consist of loans secured by multifamily housing, commercial non-owner and owner occupied and other commercial
real estate loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes
the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result
in our customer having to provide rental rate concessions to achieve adequate occupancy rates. Commercial owner-occupied and other
commercial real estate loans are primarily dependent on the ability of our customers to achieve business results consistent with
those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s
business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis
consistent with the contractual terms may be at risk. These loans are primarily secured by real property and can include other
collateral such as personal guarantees, personal property, or business assets such as inventory or accounts receivable, it is possible
that the liquidation of the collateral will not fully satisfy the obligation. Also, due to the concentration of loans in the metro
Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.
Single-Family Residential
—
Real estate residential loans are to individuals and are secured by 1-4 family residential property. Significant and rapid
declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market
value of the collateral. Such a decline in values has led to unprecedented levels of foreclosures and losses during 2008-2012 within
the banking industry.
Construction and Development
—Real
estate construction loans are highly dependent on the supply and demand for residential and commercial real estate in the markets
we serve as well as the demand for newly constructed commercial space and residential homes and lots that our customers are developing.
Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment
of the outstanding loans more difficult for our customers. Real estate construction loans can experience delays in completion
and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely
result in foreclosure of partially completed and unmarketable collateral.
Risk categories
—The Company
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 experience, credit documentation, public information, and current economic
trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified
as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if
appropriately classified and impairment, if any. All other loan relationships greater than $750,000 are reviewed at least annually
to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past
due, the Company will evaluate the loan grade.
Loans excluded from the scope of the annual
review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes
aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification.
In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even
charged off. The Company uses the following definitions for risk ratings:
Special Mention
Loans classified
as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at
some future date.
Substandard
Loans classified
as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged,
if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized
by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful
Loans classified as
doubtful have all the weaknesses inherent in those classified as substandard, with the added 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 our loan portfolio by risk rating (in thousands):
|
|
|
At
December 31, 2015
|
|
|
|
|
Total
|
|
|
Pass
Credits
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Single-Family
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
mortgages
|
|
$
|
22,403
|
|
|
$
|
20,729
|
|
|
$
|
—
|
|
|
$
|
1,651
|
|
|
$
|
23
|
|
|
HELOC’s
and equity
|
|
|
8,693
|
|
|
|
8,004
|
|
|
|
66
|
|
|
|
547
|
|
|
|
76
|
|
|
Commercial,
financial, and agricultural:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
36,223
|
|
|
|
36,193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
Unsecured
|
|
|
6,525
|
|
|
|
6,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner
occupied
|
|
|
52,448
|
|
|
|
45,275
|
|
|
|
1,604
|
|
|
|
5,569
|
|
|
|
—
|
|
|
Non-owner
occupied
|
|
|
46,816
|
|
|
|
45,458
|
|
|
|
107
|
|
|
|
1,251
|
|
|
|
—
|
|
|
Multi-family
|
|
|
4,829
|
|
|
|
4,524
|
|
|
|
305
|
|
|
|
—
|
|
|
|
—
|
|
|
Construction
and Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,220
|
|
|
|
2,220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Improved
Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unimproved
Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer
|
|
|
6,804
|
|
|
|
6,749
|
|
|
|
—
|
|
|
|
16
|
|
|
|
39
|
|
|
Total
|
|
$
|
186,961
|
|
|
$
|
175,677
|
|
|
$
|
2,082
|
|
|
$
|
9,034
|
|
|
$
|
168
|
|
|
|
|
At December 31, 2014
|
|
|
|
|
Total
|
|
|
Pass Credits
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Single-Family Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
24,459
|
|
|
$
|
22,168
|
|
|
$
|
—
|
|
|
$
|
2,291
|
|
|
$
|
—
|
|
|
HELOC’s and equity
|
|
|
7,481
|
|
|
|
6,346
|
|
|
|
557
|
|
|
|
476
|
|
|
|
102
|
|
|
Commercial, financial, and agricultural:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
28,419
|
|
|
|
28,419
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unsecured
|
|
|
4,889
|
|
|
|
4,889
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
60,060
|
|
|
|
50,603
|
|
|
|
4,673
|
|
|
|
4,702
|
|
|
|
82
|
|
|
Non-owner occupied
|
|
|
44,526
|
|
|
|
37,750
|
|
|
|
4,805
|
|
|
|
1,971
|
|
|
|
—
|
|
|
Multi-family
|
|
|
11,851
|
|
|
|
10,353
|
|
|
|
1,368
|
|
|
|
130
|
|
|
|
—
|
|
|
Construction and Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,759
|
|
|
|
2,540
|
|
|
|
—
|
|
|
|
219
|
|
|
|
—
|
|
|
Improved Land
|
|
|
166
|
|
|
|
127
|
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer
|
|
|
6,428
|
|
|
|
6,392
|
|
|
|
5
|
|
|
|
13
|
|
|
|
18
|
|
|
Total
|
|
$
|
191,038
|
|
|
$
|
169,587
|
|
|
$
|
11,447
|
|
|
$
|
9,802
|
|
|
$
|
202
|
|
The
Bank identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance
methodology. Upon identifying those loans as TDRs, the Bank identified them as impaired under the guidance in ASC 310-10-35. The
amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans
newly identified as impaired. As of December 31, 2015, the Company did not identify any loans as TDRs under the amended guidance
for which the loan was previously measured under a general allowance methodology.
|
|
|
December 31, 2015
|
|
|
|
|
Number of
Loans
|
|
|
Pre-Modification
Recorded
Investment
|
|
|
Post-Modification
Recorded
Investment
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC’s and equity
|
|
|
5
|
|
|
$
|
445
|
|
|
$
|
445
|
|
|
Total
|
|
|
5
|
|
|
$
|
445
|
|
|
$
|
445
|
|
During
the year ended December 31, 2015, the Bank modified five (5) loans that were considered to be troubled debt restructurings. We
extended the terms and decreased the interest rate on all loans (dollar in thousands).
|
|
|
December 31, 2014
|
|
|
|
|
Number of
Loans
|
|
|
Pre-Modification
Recorded
Investment
|
|
|
Post-Modification
Recorded
Investment
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC’s and equity
|
|
|
2
|
|
|
$
|
90
|
|
|
$
|
94
|
|
|
Total
|
|
|
2
|
|
|
$
|
90
|
|
|
$
|
94
|
|
During
the year ended December 31, 2014, the Bank modified two (2) loans that were considered to be troubled debt restructurings. We
extended the terms and decreased the interest rate on both loans (dollar in thousands).
No
loans restructured in the twelve months prior to December 31, 2015 or 2014 went into default during the years ended December 31,
2015 or 2014.
In
the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults
in these restructurings by performing the usual process for all loans in determining the allowance for loan loss. The Company
considers a default as failure to comply with the restructured loan agreement. This would include the restructured loan being
past due greater than 90 days, failure to comply with financial covenants, or failure to maintain current insurance coverage or
real estate taxes after the loan restructured date.
|
|
4.
|
PREMISES
AND EQUIPMENT
|
Premises
and equipment are summarized as follows:
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Land
|
|
$
|
2,250,250
|
|
|
$
|
2,250,250
|
|
|
Buildings and improvements
|
|
|
7,789,226
|
|
|
|
7,692,420
|
|
|
Furniture and equipment
|
|
|
9,630,319
|
|
|
|
9,435,255
|
|
|
|
|
|
19,669,795
|
|
|
|
19,377,925
|
|
|
Less accumulated depreciation
|
|
|
13,533,770
|
|
|
|
12,982,492
|
|
|
|
|
$
|
6,136,025
|
|
|
$
|
6,395,433
|
|
Depreciation
expense amounted to $551,000, $547,000 and $616,000 for the years ended December 31, 2015, 2014, and 2013, respectively.
The
following is a summary of interest-bearing deposits:
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
NOW and money market accounts
|
|
$
|
89,469,976
|
|
|
$
|
84,620,492
|
|
|
Savings accounts
|
|
|
34,807,189
|
|
|
|
33,555,840
|
|
|
Time deposits of $100,000 or more
|
|
|
86,914,226
|
|
|
|
108,109,124
|
|
|
Other time deposits
|
|
|
29,127,618
|
|
|
|
30,785,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240,319,009
|
|
|
$
|
257,071,169
|
|
The
Company participates in the Certificate of Deposit Account Registry Services (“CDARS”), a program that allows its
customers the ability to benefit from the FDIC insurance coverage on their time deposits over the $250,000 limit. The Company
had $21,020,000 and $24,789,000 in CDARS deposits at December 31, 2015 and 2014, respectively.
Time
deposits that meet or exceed the FDIC Insurance limit of $250,000 were $35,020,000 and $47,478,000 as at December 31, 2015 and
2014, respectively.
At
December 31, 2015, maturities of time deposits are approximately as follows:
|
2016
|
|
$
|
82,233,470
|
|
|
2017
|
|
|
22,087,739
|
|
|
2018
|
|
|
8,814,472
|
|
|
2019
|
|
|
1,174,234
|
|
|
2020 and thereafter
|
|
|
1,731,929
|
|
|
|
|
$
|
116,041,844
|
|
Federal
Home Loan Bank Advances
— In August 2006, the Company received an Affordable Housing Program Award in the amount
of $400,000. The AHP is a principal reducing credit with an interest rate of zero, and at December 31, 2015 and 2014 had a remaining
balance of approximately $235,000 and $254,000, respectively. These
advances are collateralized
by FHLB stock, a blanket lien on the Bank’s 1-4 family mortgages, and certain commercial real estate loans and investment
securities. As of December 31, 2015 and 2014, total loans pledged as collateral were $27,033,000 and $31,727,000, respectively.
As
of December 31, 2015 and 2014, maturities of the Company’s Federal Home Loan Bank Advances are approximately as follows:
|
Maturity
|
|
|
Rate
|
|
|
2015
|
|
|
2014
|
|
|
December 2016
|
|
|
Variable (0.49% at December 31, 2015)
|
|
|
$
|
5,000,000
|
|
|
$
|
—
|
|
|
August-2026
(1)
|
|
|
N/A
|
|
|
|
234,707
|
|
|
|
254,084
|
|
|
|
|
|
|
|
|
$
|
5,234,707
|
|
|
$
|
254,084
|
|
(1)
$234,707 represents an Affordable Housing Program (AHP) award used to subsidize loans for homeownership or rental initiatives.
The AHP is a principal reducing credit, scheduled to mature on August 17, 2026 with an interest rate of zero.
At
December 31, 2015, the Company has a $76.1 million line of credit facility at the FHLB of which $25.2 million was
outstanding consisting of an advance of $5,235,000 and a letter of credit to secure public deposits in the amount of $20.0
million. The Company also had $23.5 million of borrowing capacity at the Federal Reserve Bank discount window and an unsecured
$4 million fed funds line of credit.
The
components of income tax expense consist of:
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense (benefit)
|
|
$
|
(100,933
|
)
|
|
$
|
(33,783
|
)
|
|
$
|
49,090
|
|
|
Deferred tax expense (benefit)
|
|
|
406,781
|
|
|
|
167,446
|
|
|
|
(199,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit)
|
|
$
|
305,848
|
|
|
$
|
133,663
|
|
|
$
|
(150,806
|
)
|
Income
tax expense for the years ended December 31, 2015, 2014, and 2013 differed from the amounts computed by applying the statutory
federal income tax rate of 34% to earnings before income taxes as follows:
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Income tax expense (benefit) at statutory rate
|
|
$
|
722,502
|
|
|
$
|
660,389
|
|
|
$
|
407,309
|
|
|
Tax-exempt interest income—net of disallowed interest expense
|
|
|
(295,367
|
)
|
|
|
(390,986
|
)
|
|
|
(515,458
|
)
|
|
Cash surrender value of life insurance income
|
|
|
(81,483
|
)
|
|
|
(172,759
|
)
|
|
|
(111,736
|
)
|
|
Other—net
|
|
|
(39,804
|
)
|
|
|
37,019
|
|
|
|
69,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)
|
|
$
|
305,848
|
|
|
$
|
133,663
|
|
|
$
|
(150,806
|
)
|
In
2015, the valuation allowance decreased by $176,778.
The
tax effects of temporary differences that give rise to significant amounts of deferred tax assets and deferred tax liabilities
are presented below:
|
|
|
2015
|
|
|
2014
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating losses and credits
|
|
$
|
2,975,497
|
|
|
$
|
3,344,993
|
|
|
Net unrealized loss on securities available for sale
|
|
|
36,528
|
|
|
|
—
|
|
|
Loans, principally due to difference in allowance for loan losses and deferred loan fees
|
|
|
602,622
|
|
|
|
564,662
|
|
|
Nonaccrual loan interest
|
|
|
14,884
|
|
|
|
44,495
|
|
|
Postretirement benefit accrual, deferred compensation
|
|
|
1,235,933
|
|
|
|
1,116,664
|
|
|
Other real estate owned
|
|
|
439,888
|
|
|
|
547,857
|
|
|
Other
|
|
|
474,988
|
|
|
|
704,429
|
|
|
Gross deferred tax asset
|
|
|
5,780,340
|
|
|
|
6,323,100
|
|
|
Valuation allowance
|
|
|
—
|
|
|
|
(176,778
|
)
|
|
Total deferred tax assets
|
|
|
5,780,340
|
|
|
|
6,146,322
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available for sale
|
|
|
—
|
|
|
|
345,400
|
|
|
Premises and equipment
|
|
|
157,906
|
|
|
|
138,158
|
|
|
Other
|
|
|
81,014
|
|
|
|
96,491
|
|
|
Total deferred tax liabilities
|
|
|
238,920
|
|
|
|
580,049
|
|
|
Net deferred tax assets
|
|
$
|
5,541,420
|
|
|
$
|
5,566,273
|
|
The
Company has, at December 31, 2015, net operating loss carryforwards of $6,309,647 for federal income tax purposes and $3,149,505
for state income tax purposes, which begin to expire in the year 2017. The Company also has certain state income tax credits of
$408,069 at December 31, 2015 which begin to expire in the year 2016. Due to the uncertainty relating to the realizability of
all the carryforwards and credits, management currently considers it more likely than not that all related deferred tax assets
will be realized; thus, no valuation allowance has been provided because there are no state tax carry forwards at December 31,
2015.
Tax
returns for 2012 and subsequent years are subject to examination by taxing authorities.
The
Company believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not
be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse
impact on the Company’s financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income
tax positions have been recorded.
Defined
Contribution Plan
—The Company sponsors a defined contribution 401(k) plan covering substantially all full-time employees.
Employee contributions are voluntary. The Company matches 50% of the employee contributions up to a maximum of 6% of compensation.
During the years ended December 31, 2015, 2014 and 2013, the Company recognized $93,000, $89,000 and $96,000, respectively, in
expenses related to this plan. The Bank previously had Post Retirement Benefit Plans that provide retirement benefits to certain
officers, board members, certain former officers and former board members. The Bank also has a Life Insurance Endorsement Method
Split Dollar Plan (“Split Dollar Life Insurance Plan”) for the same participants which provide death benefits for
their designated beneficiaries through an endorsement of a portion of the death benefit otherwise payable to the Bank. Under the
Post Retirement Benefit and Split Dollar Life Insurance Plans (“The Plans”), the Board purchased life insurance contracts
on certain participants. During 2008, the Bank discontinued participation in The Plans and converted certain key officers and
active board members into a defined Supplemental Retirement Benefit Plans (“SERP”) and certain key officers into a
Life Insurance Bonus Plan. Certain other participants were paid-out with eight participants remaining in The Plans.
The
increase in cash surrender value for the contracts on those participants remaining in the Post Retirement Benefit Plan, less the
Bank’s premiums, constitutes the Bank’s contribution to the Post Retirement Benefit Plans each year. In the event
the insurance contracts fail to produce positive returns, the Bank has no obligation to contribute to the Post Retirement Benefit
Plan. At December 31, 2015 and 2014, the cash surrender value of these insurance contracts was $10,090,000 and $10,082,000, respectively.
During
2009, the Company converted the Post Retirement Benefit Plan for its key officers and active Board members into the SERP. For
the SERP and the Post Retirement Benefit Plans, the Company recognized $287,000, $165,000, and $336,000 in 2015, 2014 and 2013,
respectively, in noninterest expenses. The Company recognized $240,000, $304,000, and $329,000 in 2015, 2014 and 2013, respectively,
in noninterest income related to the insurance contracts. Upon completion of the conversion, most key officers and active Board
members participating in the Split Dollar Life Insurance Plan surrendered their interest in the death benefit portion of the plan.
In exchange for relinquishing the postretirement death benefit, the Company implemented a Life Insurance Bonus Plan (“The
Bonus Plan”) for most key officers to provide death benefits for their designated beneficiaries. The Company pays the participating
officers an annual compensation amount to pay the annual premiums on the insurance policies. The Company incurred $63,000 in 2015
and $46,000 in both 2014 and 2013 for expenses related to the Bonus Plan.
|
|
9.
|
COMMITMENTS
AND CONTINGENCIES
|
Credit
Commitments and Commercial Letters
—The Company, in the normal course of business, is a party to financial instruments
with off-balance sheet risk used to meet the financing needs of its customers. These financial instruments include commitments
to extend credit and commercial letters of credit.
Commitments
to extend credit are agreements to lend to a customer as 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. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and residential
and commercial real estate. Commercial letters of credit are commitments issued by the Company to guarantee funding to a third
party on behalf of a customer. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement
the Company has in particular classes of financial instruments.
The
Company’s exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments
to extend credit and commercial letters of credit is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations related to off-balance sheet financial instruments
as it does for the financial instruments recorded in the Consolidated Balance Sheets.
|
|
|
Approximate
Contractual Amount
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Financial instruments whose contract amounts represent credit risk:
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
35,843,000
|
|
|
$
|
26,833,000
|
|
|
Commercial letters of credit
|
|
|
1,889,000
|
|
|
|
2,027,000
|
|
|
|
|
|
|
|
|
|
|
|
Leases
—The
Company leases its new corporate headquarters and a branch location at its prior corporate headquarters. The main office
lease commenced on November 1, 2015 and has a 12 years and 2 months term. The lease requires monthly payments starting at
$26,291 for the first year, increasing 3% per year thereafter. We received a twenty (20) month rent abatement at the lease
commencement date. The branch lease commenced on June 1, 2007 and has a 7 year term. The lease requires monthly payments of
$5,500 for four years and monthly lease payments of $6,000 for three years. The lease is renewable at the bank’s option
for two five year terms. In October 2013, the Company exercised its first option to renew the branch lease for five years.
The renewed lease requires monthly payments of $6,300 for three years and monthly lease payments of $6,772 for two years
commencing on June 1, 2014. In February 2016, we cancelled the lease at our prior corporate headquarters; however, we
continue to lease the branch at that location. As of December 31, 2015, future minimum lease payments under all noncancelable lease
agreements inclusive of sales tax and maintenance costs for the next five years and thereafter are as follows:
|
2016
|
|
$
|
197,192
|
|
|
2017
|
|
|
243,020
|
|
|
2018
|
|
|
417,687
|
|
|
2019
|
|
|
380,296
|
|
|
2020 and Thereafter
|
|
|
3,127,524
|
|
|
|
|
$
|
4,365,719
|
|
|
|
|
|
|
|
Rent
expense in 2015, 2014, and 2013 was approximately $561,000, $550,000, and $542,000, respectively.
Legal
— The Company and the Bank are involved in various claims and legal actions arising in the ordinary course of business. In the opinion
of management, based in part on the advice of counsel, the ultimate disposition of these matters will not have a material adverse
impact on the Company’s Consolidated Financial Statements.
The
Company has a Stock Incentive Plan which was approved in 1999. Under the 1999 Stock Incentive Plan, options are periodically granted
to employees at a price not less than fair market value of the shares at the date of grant (or less than 110% of the fair market
value if the participant owns more than 10% of the Company’s outstanding Common Stock). The term of the stock incentive
option may not exceed ten years from the date of grant; however, any stock incentive option granted to a participant who owns
more than 10% of the Common Stock will not be exercisable after the expiration of five (5) years after the date the option is
granted.
A
summary of the status of the Company’s stock options as of December 31, 2015, 2014, and 2013, and changes during the years
ended on those dates is presented below:
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
Shares
|
|
|
Average
Exercise
Price
|
|
|
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Shares
|
|
|
Average
Exercise
Price
|
|
|
Remaining
Contractual
Life
|
|
|
Shares
|
|
|
Average
Exercise
Price
|
|
|
Outstanding—beginning of year
|
|
|
49,277
|
|
|
$
|
10.47
|
|
|
|
2.18
|
|
|
|
|
|
|
|
49,277
|
|
|
$
|
10.47
|
|
|
|
3.18
|
|
|
|
89,877
|
|
|
$
|
10.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/Terminated
|
|
|
(7,900
|
)
|
|
$
|
13.41
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(40,600
|
)
|
|
|
10.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding—end of year
|
|
|
41,377
|
|
|
$
|
9.91
|
|
|
|
1.54
|
|
|
$
|
5,775
|
|
|
|
49,277
|
|
|
$
|
10.47
|
|
|
|
2.18
|
|
|
|
49,277
|
|
|
$
|
10.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end
|
|
|
41,377
|
|
|
$
|
9.91
|
|
|
|
1.54
|
|
|
$
|
5,775
|
|
|
|
49,277
|
|
|
$
|
10.47
|
|
|
|
2.18
|
|
|
|
49,277
|
|
|
$
|
10.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for grant
|
|
|
274,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266,309
|
|
|
|
|
|
|
|
|
|
|
|
266,309
|
|
|
|
|
|
There
was no compensation cost recognized during 2015, 2014, and 2013.
|
|
11.
|
NET
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
|
Basic
and diluted net income per common and potential common share has been calculated based on the weighted average number of shares
outstanding. Options with exercise prices lower than the average market price of the Company’s stock during the periods
are considered dilutive and are therefore included in the computation of diluted earnings per share. There were 16,500 options
that were dilutive in 2015 and none in 2014 or 2013. Options that are potentially dilutive are deemed not to be dilutive for 2015,
2014 and 2013 due to the exercise price of all options being greater than the average market price of the Company’s stock
during those years. As of December 31, 2015, 24,877 potentially dilutive options were outstanding. As of December 31, 2014 and
2013, there were 49,277 potentially dilutive options outstanding. The following schedule reconciles the numerators and denominator
of the basic and diluted net income per common and potential common share for the years ended December 31, 2015, 2014, and 2013.
|
|
|
Net Income
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share available to common stockholders
|
|
$
|
1,582,339
|
|
|
|
2,186,610
|
|
|
$
|
0.72
|
|
|
Nonvested restricted stock grant
|
|
|
—
|
|
|
|
21,143
|
|
|
|
(0.01
|
)
|
|
Effect of dilutive securities: options to purchase common shares
|
|
|
—
|
|
|
|
16,500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1,582,339
|
|
|
|
2,224,253
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share available to common stockholders
|
|
$
|
1,571,838
|
|
|
|
2,166,818
|
|
|
$
|
0.73
|
|
|
Nonvested restricted stock grant
|
|
|
—
|
|
|
|
19,575
|
|
|
|
(0.01
|
)
|
|
Effect of dilutive securities: options to purchase common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1,571,838
|
|
|
|
2,186,393
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share available to common stockholders
|
|
$
|
1,111,953
|
|
|
|
2,152,780
|
|
|
$
|
0.52
|
|
|
Nonvested restricted stock grant
|
|
|
—
|
|
|
|
12,830
|
|
|
|
(0.01
|
)
|
|
Effect of dilutive securities: options to purchase common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1,111,953
|
|
|
|
2,165,610
|
|
|
$
|
0.51
|
|
|
|
12.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The
Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis
for assets and liabilities that are elected to be accounted for under ASC guidance as well as certain assets and liabilities in
which fair value is the primary basis of accounting. Depending on the nature of the asset or liability, the Company uses various
valuation techniques and assumptions when estimating fair value, which are in accordance with the guidance for determining the
fair value of a financial asset when the market for that asset is not active.
In
accordance with ASC guidance, the Company applied the following fair value hierarchy:
Level
1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity
securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other highly liquid
investments that are actively traded in over-the-counter markets.
Level
2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are
traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model
with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This
category generally includes U.S. Government and agency mortgage-backed debt securities, certain derivative contracts and impaired
loans.
Level
3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires
significant management judgment or estimation. For example, this category generally includes certain private equity investments,
retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative
contracts.
Investment
Securities Available for Sale—Investment securities available for sale are recorded at fair value on a recurring basis.
Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured
using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted
for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities
include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers
or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued
by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed
securities in less liquid markets.
Other
Real Estate Owned— Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated
costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair
value less estimated costs to sell. The fair value of other real estate owned is generally based on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income
approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable
sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs
for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific
property or market.
Loans—The
Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and
an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made
in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired,
management determines the amount of the impairment. The fair value of impaired loans is estimated using one of several methods,
including the collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring a
specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment
in such loans. At December 31, 2015 and December 31, 2014, substantially all of the impaired loans were evaluated based upon
the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent
real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable
sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences
between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification
of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge
of a specific property or market. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
The
following tables present financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair
value for those specific financial instruments in which fair value has been elected. There were no financial liabilities measured
at fair value for the periods being reported (in thousands):
|
|
|
Fair Value Measurements at December 31, 2015
|
|
|
|
|
Assets
Measured at
Fair Value
|
|
|
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal securities
|
|
$
|
29,457
|
|
|
$
|
—
|
|
|
$
|
29,457
|
|
|
$
|
—
|
|
|
Mortgage-backed securities
|
|
|
91,800
|
|
|
|
—
|
|
|
|
91,800
|
|
|
|
—
|
|
|
Corporate securities
|
|
|
2,001
|
|
|
|
—
|
|
|
|
2,001
|
|
|
|
—
|
|
|
|
|
|
123,258
|
|
|
|
|
|
|
|
123,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
8,842
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,842
|
|
|
Single-family Residential
|
|
|
317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
317
|
|
|
Other real estate owned
|
|
|
4,463
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,463
|
|
|
|
|
|
13,622
|
|
|
|
|
|
|
|
|
|
|
|
13,622
|
|
|
|
|
Fair Value Measurements at December 31, 2014
|
|
|
|
|
Assets
Measured at
Fair Value
|
|
|
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal securities
|
|
$
|
29,693
|
|
|
$
|
—
|
|
|
$
|
29,693
|
|
|
$
|
—
|
|
|
Mortgage-backed securities
|
|
|
86,915
|
|
|
|
—
|
|
|
|
86,915
|
|
|
|
—
|
|
|
Corporate securities
|
|
|
10,003
|
|
|
|
—
|
|
|
|
10,003
|
|
|
|
—
|
|
|
|
|
|
126,611
|
|
|
|
|
|
|
|
126,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
9,696
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,696
|
|
|
Single-family Residential
|
|
|
229
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
Construction and Development
|
|
|
219
|
|
|
|
—
|
|
|
|
—
|
|
|
|
219
|
|
|
Other real estate owned
|
|
|
4,668
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,668
|
|
|
|
|
|
14,812
|
|
|
|
|
|
|
|
|
|
|
|
14,812
|
|
For
Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2015, the significant
unobservable inputs used in the fair value measurements were as follows (dollars in thousands):
|
Commercial Real Estate
|
|
$
|
8,842
|
|
|
|
Appraised Value
|
|
|
|
Negative adjustment for selling costs and changes in market conditions since appraisal
|
|
|
|
5%-20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family Residential
|
|
$
|
317
|
|
|
|
Appraised Value
|
|
|
|
Negative adjustment for selling costs and changes in market conditions since appraisal
|
|
|
|
5%-20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
4,463
|
|
|
|
Appraised Value
|
|
|
|
Negative adjustment for selling costs and changes in market conditions since appraisal
|
|
|
|
5%-20%
|
|
Following
are disclosures of fair value information about financial instruments, whether or not recognized on the balance sheet, for which
it is practicable to estimate that value. The assumptions used in the estimation of the fair values are based on estimates using
discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered an estimate
of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in the value of financial
instruments held by the Company since purchase, origination, or issuance.
Cash,
Due from Banks, Federal Funds Sold, Interest-Bearing Deposits with Banks and Certificates of Deposits
—Fair value
equals the carrying value of such assets due to their nature and is classified as Level 1.
Investment
Securities
—Fair value of investment securities is based on quoted market prices and is classified as Level 2.
Other
Investments
—The carrying amount of other investments approximates its fair value and is classified as Level 1.
Loans
—The
fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings resulting in a Level 3 classification. For variable rate loans, the carrying
amount is a reasonable estimate of fair value. The methods utilized to estimate the fair values of loans do not necessarily represent
an exit price. The carrying amount of related accrued interest receivable, due to its short-term nature, approximates its fair
value, is not significant and is not disclosed.
Cash
Surrender Value of Life Insurance
—Cash values of life insurance policies are carried at the value for which such
policies may be redeemed for cash and are classified as Level 1.
Deposits
—The
fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed rate certificates of deposit is estimated by discounting the future cash flows using the rates currently
offered for deposits of similar remaining maturities and is classified as Level 2.
Advances
from Federal Home Loan Bank
—The fair values of advances from the Federal Home Loan Bank are estimated by discounting
the future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms and
are classified as Level 2.
Commitments
to Extend Credit and Commercial Letters of Credit
—Because commitments to extend credit and commercial letters of
credit are made using variable rates, or are recently executed, the contract value is a reasonable estimate of fair value.
Limitations
—
Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s
entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s
financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments
without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered
financial instruments; for example, premises and equipment. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The
following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial
instruments as of December 31, 2015 (in thousands):
|
|
|
December 31, 2015
|
|
|
|
|
Carrying
|
|
|
Fair Value Measurements
|
|
|
|
|
Amount
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,577
|
|
|
$
|
2,577
|
|
|
$
|
2,577
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Federal funds sold
|
|
|
16,500
|
|
|
|
16,500
|
|
|
|
16,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest-bearing deposits with banks
|
|
|
29,819
|
|
|
|
29,819
|
|
|
|
29,819
|
|
|
|
—
|
|
|
|
—
|
|
|
Certificates of deposit
|
|
|
900
|
|
|
|
900
|
|
|
|
900
|
|
|
|
—
|
|
|
|
—
|
|
|
Investment securities
|
|
|
123,258
|
|
|
|
123,258
|
|
|
|
—
|
|
|
|
123,258
|
|
|
|
—
|
|
|
Other investments
|
|
|
965
|
|
|
|
965
|
|
|
|
965
|
|
|
|
—
|
|
|
|
—
|
|
|
Loans-net
|
|
|
184,837
|
|
|
|
183,929
|
|
|
|
—
|
|
|
|
—
|
|
|
|
183,929
|
|
|
Cash surrender value of life insurance
|
|
|
10,090
|
|
|
|
10,090
|
|
|
|
10,090
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
328,862
|
|
|
$
|
329,211
|
|
|
$
|
212,820
|
|
|
$
|
116,391
|
|
|
$
|
—
|
|
|
Advances from Federal Home Loan Bank
|
|
|
5,235
|
|
|
|
5,235
|
|
|
|
—
|
|
|
|
5,235
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance-sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
35,843
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial letters of credit
|
|
|
1,889
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying
values and estimated fair values of the Company’s financial instruments at December 31, 2014 are as follows (in thousands):
|
|
|
December 31, 2014
|
|
|
|
|
Carrying
|
|
|
Fair Value Measurements
|
|
|
|
|
Amount
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,758
|
|
|
$
|
2,758
|
|
|
$
|
2,758
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest-bearing deposits with banks
|
|
|
45,653
|
|
|
|
45,653
|
|
|
|
45,653
|
|
|
|
—
|
|
|
|
—
|
|
|
Certificates of deposit
|
|
|
350
|
|
|
|
350
|
|
|
|
350
|
|
|
|
—
|
|
|
|
—
|
|
|
Investment securities
|
|
|
126,851
|
|
|
|
126,854
|
|
|
|
—
|
|
|
|
126,854
|
|
|
|
—
|
|
|
Other investments
|
|
|
792
|
|
|
|
792
|
|
|
|
792
|
|
|
|
—
|
|
|
|
—
|
|
|
Loans-net
|
|
|
188,739
|
|
|
|
188,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
188,195
|
|
|
Cash surrender value of life insurance
|
|
|
10,082
|
|
|
|
10,082
|
|
|
|
10,082
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
340,889
|
|
|
$
|
341,719
|
|
|
$
|
201,994
|
|
|
$
|
139,725
|
|
|
$
|
—
|
|
|
Advances from Federal Home Loan Bank
|
|
|
254
|
|
|
|
254
|
|
|
|
—
|
|
|
|
254
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance-sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
26,883
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial letters of credit
|
|
|
2,027
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Adequacy
—
The Company and the Bank are subject to various regulatory capital requirements
administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification
are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and
of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2015, the Company meets
all capital adequacy requirements to which it is subject.
As
of December 31, 2015, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective
action. To be categorized as “well capitalized,” the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table.
The Company’s and the Bank’s actual capital amounts and ratios are also presented
in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provisions
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
49,786
|
|
|
|
20
|
%
|
|
$
|
19,546
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
50,528
|
|
|
|
21
|
%
|
|
|
19,179
|
|
|
|
8.0
|
%
|
|
$
|
23,974
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I common equity (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
47,662
|
|
|
|
20
|
%
|
|
|
10,995
|
|
|
|
4.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
48,404
|
|
|
|
20
|
%
|
|
|
10,788
|
|
|
|
4.5
|
%
|
|
|
10,788
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
47,662
|
|
|
|
20
|
%
|
|
|
9,773
|
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
48,404
|
|
|
|
20
|
%
|
|
|
9,589
|
|
|
|
4.0
|
%
|
|
|
19,179
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
47,662
|
|
|
|
12
|
%
|
|
|
15,367
|
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
48,404
|
|
|
|
13
|
%
|
|
|
15,343
|
|
|
|
4.0
|
%
|
|
|
19,179
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
45,943
|
|
|
|
19
|
%
|
|
$
|
18,854
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
45,500
|
|
|
|
19
|
%
|
|
|
18,822
|
|
|
|
8.0
|
%
|
|
$
|
23,527
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
43,644
|
|
|
|
19
|
%
|
|
|
9,427
|
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
43,201
|
|
|
|
18
|
%
|
|
|
9,411
|
|
|
|
4.0
|
%
|
|
|
14,116
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
43,644
|
|
|
|
11
|
%
|
|
|
15,779
|
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Bank
|
|
|
43,201
|
|
|
|
11
|
%
|
|
|
15,763
|
|
|
|
4.0
|
%
|
|
|
19,704
|
|
|
|
5.0
|
%
|
Dividend
Limitation
—The amount of dividends paid by the Bank to the Company or paid by the Company to its shareholders is
limited by various banking regulatory agencies. Any such dividends will be subject to maintenance of required capital levels.
The Georgia Department of Banking and Finance must approve dividend payments that would exceed 50% of the Bank’s net income
for the prior year to the Company.
When
the Company received a capital investment from the United States Department of the Treasury in exchange for Preferred Stock under
the Troubled Assets Relief Program (“TARP”) Capital Purchase Program on March 6, 2009, the Company became subject
to additional limitations on the payment of dividends. These limitations require, among other things, that for as long as the
Preferred Stock is outstanding, no dividends may be declared or paid on the Company’s common stock until all accrued and
unpaid dividends on the Preferred Stock are fully paid. In addition, the U.S. Treasury’s consent is required for any increase
in dividends on common stock before the third anniversary of issuance of the Preferred Stock.
The
Company paid dividends of $172,000 on its common stock in 2015, 2014 and 2013, respectively. The annual dividend payout rate was
$0.08 per common share in 2015 and 2014. In addition, the Company paid cash dividends totaling $237,000 in 2015, 2014 and 2013,
respectively, on its preferred stock issued to the Treasury.
Basel
III
—Effective January 1 2015, Basel III rules on the Company and the Bank became effective and the regulation now
also requires the Company to maintain a minimum amount and ratio of common equity Tier 1 capital to risk weighted assets and certain
requirements of the rule will be fully phased in 2019. We believe that the final rule will not have a material impact on our regulatory
capital ratios, business, financial condition, results of operations and cash flows.
|
|
14.
|
RELATED-PARTY
TRANSACTIONS
|
Certain
of the Company’s directors, officers, principal stockholders, and their associates were customers of, or had transactions
with, the Company or the Bank in the ordinary course of business during 2015 and 2014. Some of the Company’s directors are
directors, officers, trustees, or principal securities holders of corporations or other organizations that also were customers
of, or had transactions with, the Company or the Bank in the ordinary course of business during 2015 and 2014.
All
outstanding loans and other transactions with the Company’s directors, officers, and principal shareholders were made in
the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons and, when made, did not involve more than the normal risk of collectibility
or present other unfavorable features.
The
following table summarizes the activity in these loans during 2015 and 2014:
|
|
|
Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
11,971,312
|
|
|
$
|
14,522,184
|
|
|
New loans
|
|
|
438,528
|
|
|
|
2,841,922
|
|
|
Repayments
|
|
|
(6,610,768
|
)
|
|
|
(5,392,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance—end of year
|
|
$
|
5,799,072
|
|
|
$
|
11,971,312
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
by directors, executive officers of the Company, the Bank, and associates of such persons, totaled $5,683,639 and $5,645,426 at
December 31, 2015 and 2014, respectively.
|
|
15.
|
SUPPLEMENTARY
INCOME STATEMENT INFORMATION
|
Components
of other operating expenses in excess of 1% of total interest income and other income in any of the respective years are approximately
as follows:
|
|
|
For the years ended
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Professional services—legal
|
|
$
|
306,875
|
|
|
$
|
309,411
|
|
|
$
|
438,208
|
|
|
Professional services—other
|
|
|
490,553
|
|
|
|
598,451
|
|
|
|
723,505
|
|
|
Stationery and supplies
|
|
|
144,518
|
|
|
|
144,702
|
|
|
|
200,116
|
|
|
Data processing
|
|
|
711,753
|
|
|
|
695,863
|
|
|
|
664,240
|
|
|
Telephone
|
|
|
246,274
|
|
|
|
284,260
|
|
|
|
305,279
|
|
|
FDIC insurance premium
|
|
|
325,000
|
|
|
|
329,000
|
|
|
|
533,447
|
|
|
Amortization of core deposit intangible
|
|
|
471,918
|
|
|
|
471,918
|
|
|
|
471,918
|
|
|
Security and protection expense
|
|
|
368,565
|
|
|
|
394,980
|
|
|
|
389,614
|
|
|
Advertising and Marketing
|
|
|
148,702
|
|
|
|
126,082
|
|
|
|
154,389
|
|
|
Other benefit expenses
|
|
|
287,401
|
|
|
|
165,276
|
|
|
|
336,066
|
|
|
Other miscellaneous expenses
|
|
|
1,638,763
|
|
|
|
1,990,232
|
|
|
|
1,751,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,140,322
|
|
|
$
|
5,510,175
|
|
|
$
|
5,968,644
|
|
|
|
16.
|
CONDENSED
FINANCIAL INFORMATION OF CITIZENS BANCSHARES CORPORATION (PARENT ONLY)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Balance Sheets
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
31,898
|
|
|
$
|
119,075
|
|
|
Investment in Bank
|
|
|
49,692,045
|
|
|
|
49,123,228
|
|
|
Other assets
|
|
|
722,572
|
|
|
|
400,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,446,515
|
|
|
$
|
49,643,001
|
|
|
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
70,319
|
|
|
$
|
76,456
|
|
|
Stockholders’ equity
|
|
|
50,376,196
|
|
|
|
49,566,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,446,515
|
|
|
$
|
49,643,001
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiary
|
|
$
|
714,000
|
|
|
$
|
671,000
|
|
|
$
|
500,000
|
|
|
Other revenue
|
|
|
—
|
|
|
|
3,426
|
|
|
|
—
|
|
|
Total revenue
|
|
|
714,000
|
|
|
|
674,426
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
526,256
|
|
|
|
232,616
|
|
|
|
291,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit and equity in undistributed earnings of the
subsidiary
|
|
|
187,744
|
|
|
|
441,810
|
|
|
|
208,229
|
|
|
Income tax benefit
|
|
|
321,207
|
|
|
|
79,089
|
|
|
|
92,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in undistributed earnings of the subsidiary
|
|
|
508,951
|
|
|
|
520,899
|
|
|
|
300,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of the subsidiary
|
|
|
1,310,208
|
|
|
|
1,287,759
|
|
|
|
1,048,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,819,159
|
|
|
$
|
1,808,658
|
|
|
$
|
1,348,773
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,819,159
|
|
|
$
|
1,808,658
|
|
|
$
|
1,348,773
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of the subsidiary
|
|
|
(1,310,208
|
)
|
|
|
(1,287,759
|
)
|
|
|
(1,048,188
|
)
|
|
Restricted stock based compensation plan
|
|
|
(1,648
|
)
|
|
|
(8,164
|
)
|
|
|
(106,829
|
)
|
|
Change in other assets
|
|
|
(321,874
|
)
|
|
|
(79,089
|
)
|
|
|
(92,357
|
)
|
|
Change in other liabilities
|
|
|
(6,137
|
)
|
|
|
(30,628
|
)
|
|
|
(6,398
|
)
|
|
Net cash provided by operating activities
|
|
|
179,292
|
|
|
|
403,018
|
|
|
|
95,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividend paid
|
|
|
(172,316
|
)
|
|
|
(171,744
|
)
|
|
|
(171,744
|
)
|
|
Preferred stock dividend paid
|
|
|
(236,820
|
)
|
|
|
(236,820
|
)
|
|
|
(236,820
|
)
|
|
Net purchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(61,423
|
)
|
|
Proceeds from issuance of common stock
|
|
|
191,070
|
|
|
|
114,784
|
|
|
|
180,657
|
|
|
Purchase of treasury stock
|
|
|
(48,403
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Net cash used in financing activities
|
|
|
(266,469
|
)
|
|
|
(293,780
|
)
|
|
|
(289,330
|
)
|
|
Net change in cash
|
|
|
(87,177
|
)
|
|
|
109,238
|
|
|
|
(194,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
119,075
|
|
|
|
9,837
|
|
|
|
204,166
|
|
|
End of year
|
|
$
|
31,898
|
|
|
$
|
119,075
|
|
|
$
|
9,837
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
55,000
|
|
|
$
|
—
|
|
|
$
|
26,000
|
|
|
|
17.
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
The
following table presents the Company’s quarterly financial data for the years ended December 31, 2015 and 2014 (amounts
in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
2015
|
|
|
Second
Quarter
2015
|
|
|
Third
Quarter
2015
|
|
|
Fourth
Quarter
2015
|
|
|
Interest Income
|
|
$
|
3,174
|
|
|
$
|
3,164
|
|
|
$
|
3,367
|
|
|
$
|
3,063
|
|
|
Interest expense
|
|
|
184
|
|
|
|
179
|
|
|
|
172
|
|
|
|
165
|
|
|
Net Interest income
|
|
|
2,990
|
|
|
|
2,985
|
|
|
|
3,195
|
|
|
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
75
|
|
|
|
50
|
|
|
|
75
|
|
|
|
(100
|
)
|
|
Non-interest income
|
|
|
1,164
|
|
|
|
1,059
|
|
|
|
1,069
|
|
|
|
1,309
|
|
|
Non-interest expense
|
|
|
3,558
|
|
|
|
3,580
|
|
|
|
3,662
|
|
|
|
3,644
|
|
|
Income before income taxes
|
|
|
521
|
|
|
|
414
|
|
|
|
527
|
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
93
|
|
|
|
66
|
|
|
|
107
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
428
|
|
|
|
348
|
|
|
|
420
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
59
|
|
|
|
59
|
|
|
|
59
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
369
|
|
|
$
|
289
|
|
|
$
|
361
|
|
|
$
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.17
|
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - diluted
|
|
$
|
0.17
|
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
|
|
First
Quarter
2014
|
|
|
Second
Quarter
2014
|
|
|
Third
Quarter
2014
|
|
|
Fourth
Quarter
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
3,376
|
|
|
$
|
3,387
|
|
|
$
|
3,333
|
|
|
$
|
3,266
|
|
|
Interest expense
|
|
|
212
|
|
|
|
211
|
|
|
|
211
|
|
|
|
199
|
|
|
Net Interest income
|
|
|
3,164
|
|
|
|
3,176
|
|
|
|
3,122
|
|
|
|
3,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75
|
|
|
Non-interest income
|
|
|
979
|
|
|
|
1,017
|
|
|
|
990
|
|
|
|
1,454
|
|
|
Non-interest expense
|
|
|
3,644
|
|
|
|
3,623
|
|
|
|
3,758
|
|
|
|
3,927
|
|
|
Income before income taxes
|
|
|
499
|
|
|
|
570
|
|
|
|
354
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
83
|
|
|
|
97
|
|
|
|
(22
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
416
|
|
|
|
473
|
|
|
|
376
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
59
|
|
|
|
59
|
|
|
|
59
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
357
|
|
|
$
|
414
|
|
|
$
|
317
|
|
|
$
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
|
$
|
0.15
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - diluted
|
|
$
|
0.16
|
|
|
$
|
0.19
|
|
|
$
|
0.15
|
|
|
$
|
0.22
|
|
In preparing
these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial
statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or
filed with the Securities and Exchange Commission. In conjunction with applicable accounting standards, all material subsequent
events have been either recognized in the financial statements or disclosed in the notes to the financial statements.