Proud of Our Communities
2006 Annual Report
Company Profile
With 69 offices in Florida, Georgia and Alabama, our associates know what it takes to build successful
relationships. We provide a full range of banking services, including traditional deposit and credit services,
asset management, trust, mortgage banking, merchant services, bankcards, data processing and securities
brokerage services.
Proud of Our People
At Capital City Bank, it’s all about building relationships. Each year our associates develop new ideas and innovative concepts that
set us apart from our competitors. We are always thinking, strategizing and focusing on better ways to meet the needs of our clients
and the communities we serve.
A L A B A M A
G E O R G I A
F L O R I D A
Building for the Future
P R O J E C T 2 0 1 0 — T H E R O A D T O G R O W T H
69 Offices
in Florida, Georgia and Alabama
Capital City Bank Locations
Alabama
Chambers County
Valley
Florida
Alachua County
Alachua
Gainesville
High Springs
Jonesville
Newberry
Bradford County
Starke
Citrus County
Crystal River
Citrus Springs
Floral City
Inverness
Clay County
Keystone Heights
Dixie County
Cross City
Gadsen County
Chattahoochee
Havana
Quincy
Gilchrist County
Bell
Fanning Springs
Trenton
Gulf County
Port St. Joe
Hernando County
Spring Hill
Jefferson County
1.5
Monticello
Leon County
1.2
Tallahassee
Levy County
0.9
Bronson
Cedar Key
Chiefland
0.6
Inglis
Williston
0.3
2600
2275
1950
1625
1300
975
650
325
0
*Mortgage Lending Offices
2001
2003
2005
2002
2004
2006
0.0
2001
2002
2003
2004
2005
2006
Madison County
Madison
Pasco County
Port Richey
Putnam County
Palatka
St. Johns County
Hastings
Suwannee County
Branford
Taylor County
Perry
2100
Wakulla County
Crawfordville
Panacea*
1800
Georgia
Bibb County
Macon
Burke County
Waynesboro
Grady County
Cairo
Whigham
Laurens County
Dublin
East Dublin
Thomas County
Thomasville*
Troup County
West Point
Washington County
Chipley
1500
1200
900
600
300
0
2001
2002
2003
2004
2005
2006
Average Assets
(in millions)
Return on Assets
(in percent)
Average Deposits
(in millions)
2001
$1,704
2002
$1,727
2003
$1,805
2004
$2,007
2005
$2,487
2006
$2,581
2001
0.99
2002
1.34
2003
1.40
2004
1.46
2005
1.22
2006
1.29
2001
$1,443
2002
$1,425
2003
$1,432
2004
$1,599
2005
$1,955
2006
$2,035
Proud of Our Communities | Proud of Our People
1
2006
2005
Percent
Change
$ 33,265
$ 30,281
9.9%
12,322
2,029,397
2,258,277
2,581,078
2,034,931
317,336
1.80
11,397
1,968,289
2,187,672
2,486,733
1,954,888
8.1
3.1
3.2
3.8
4.1
286,712
10.7
18,584,519
18,609,839
1.35
18,263,855
18,281,243
$ 1.79
0.90
1.79
0.663
17.01
0.45
$ 1.66
1.66
0.619
16.39
1.8
1.8
7.8
7.8
7.1
3.8
Financial Highlights
(Dollars in Thousands, Except Per Share Data)
FOR THE YEAR:
Net Income
Cash Dividends Declared
Average Loans, Net of Unearned Interest
Average Earning Assets
Average Assets
Average Deposits
Average Equity
34000
29750
Basic Average Common Shares Outstanding
Diluted Average Common Shares Outstanding
10.8
25500
21250
PER SHARE:
17000
12750
Basic Net Income
Diluted Net Income
Cash Dividends Declared
8500
Diluted Book Value
4250
RATIOS:
0
Return on Average Assets
2001
2003
Return on Average Equity
2002
2004
2005
2006
Equity to Assets, Year-End
Dividend Payout
Net Interest Margin(1)
8.1
5.4
2.7
0.0
2001
2002
2003
2004
2005
2006
1.29%
0.00
2001
2002
10.48
12.15
37.01
5.35
2005
2006
1.22%
2004
2003
10.56
11.65
37.35
5.09
Net Income
(in millions)
Return on Equity
(in percent)
Diluted Earnings
per Share
(in dollars)
2001
$16.9
2002
$23.1
2003
$25.2
2004
$29.4
2005
$30.3
2006
$33.3
2001
10.00
2002
12.85
2003
12.82
2004
13.31
2005
10.56
2006
10.48
2001
$1.02
2002
$1.39
2003
$1.52
2004
$1.74
2005
$1.66
2006
$1.79
(1) Taxable-Equivalent Net Interest Income Divided by Average Earning Assets
2
Capital City Bank Group | 2006 Annual Report
Letter to Our Shareowners:
For more than 111 years, Capital City Associates have
earnings performance and contributed to a 21.9% lower
continued to add value to client banking relationships
loan loss provision for the year.
as we have grown with the communities where we live
Capital City Banc Investments strengthened its sales
and work. As we report another record year for Capital
force in 2006 and realized a 58.2% growth in revenues,
City Bank Group, the strong performance is proof our
a banner year for those hard-working investment rep-
commitment to relationship banking and desire to
resentatives. Capital City Trust Company grew assets
build a strong foundation for the future continues to
under management by 8.7% and fee revenue by 4.1%.
serve clients, shareowners, communities, and associ-
Both of these business lines are well-positioned to
ates well.
capitalize on a strong client referral system which
Once again, Capital City Bank Group achieved
perpetuates itself through satisfied clients.
record profitability for the year, reporting earnings
Capital City Services Company implemented several
of $33.3 million, or $1.79 per share. These amounts
initiatives aimed at improving client delivery and
reflect increases of 9.9% and 7.8%, respectively, com-
support systems. These dynamic associates provide a
pared to 2005. The results produced a return on assets
forward-looking focus that adds value to Capital City
of 1.29% and a return on equity of 10.48%. The dividend
clients and separates us from the competition.
was increased 7.7% to $.175 per quarter in the fourth
During 2006, we focused on strengthening the
quarter of 2006.
Capital City franchise by building on core competencies.
As I look back on 2006, there are several accomplish-
The development of new associate training programs
ments that stand out. The talented team of bankers in
and initiatives will continue to improve sales and
Community Banking, Commercial Real Estate, Business
service practices, adding value to client relationships.
Banking, Residential Real Estate, and Institutional
In addition, several profit enhancement initiatives
Banking helped achieve a 9.8% growth in operating
aimed at increasing noninterest income and improving
revenues for the year. The growth in operating revenues
operating efficiency were developed. These efforts will
reflects an 8.3% increase in net interest income and a
produce results this year.
13.0% increase in noninterest income. The net interest
2007 will offer challenges, but I have confidence in
margin improved 26 basis points to 5.35% and reflects
our team. I believe in what Capital City Bank Group
the emphasis on adding value to client banking rela-
and its associates represent: hard work, determination,
tionships and maintaining a competitive advantage with
and always doing the right thing. The right strategies
a strong core deposit funding source. A strong client
and talent are in place to improve organic growth,
referral system and the incremental fees generated
operate in a more efficient manner, take advantage of
from the highly successful Absolutely Free Checking
acquisition opportunities as they arise, and ultimately
products enhanced the growth in noninterest income.
meet our 2010 goal of $50 million in annual earnings.
Emphasis on credit quality continues to improve the
“The right strategies and
talent are in place to
improve organic growth,
operate in a more efficient
manner, take advantage of
acquisition opportunities
as they arise, and
ultimately meet our 2010
goal of $50 million in
annual earnings.”
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Our Management Team
Left to Right:
Tom Barron
President
Flecia Braswell
Executive Vice President and
Chief Brand Officer
Kim Davis
Executive Vice President and
Chief Financial Officer
Left to Right:
Randy Briley
Executive Vice President
Retail Credit
Dale Thompson
Executive Vice President
Business Banking
Ed Canup
Executive Vice President
Commercial Real Estate
Proud of Our Communities | Proud of Our People
5
Left to Right:
Eddie West
Executive Vice President
Community Banking
Noel Ellis
Executive Vice President
Credit Administration
Randy Pople
President
Capital City Trust Company
Left to Right:
Cindy Pyburn
President
Capital City Services
Company
Bill Colledge
Executive Vice President
Institutional Banking
Beth Corum
Executive Vice President and
Chief People Officer
Mitch Englert
Executive Vice President
Community Banking
6
Capital City Bank Group | 2006 Annual Report
Building on Our Strengths
For more than 111 years, the client
has been at the center of every
decision we make. We know our
clients and their needs, but most
importantly, we know how to make
their dreams come true.
Unlocking
Opportunities
As a cornerstone in the
communities we serve, we
realize how important our
leadership efforts are to
economic growth.
P R O J E C T 2 0 1 0 — B U I L D I N G F O R T H E F U T U R E
$70,600,000
Earning Asset Growth in 2006
Proud of Our Communities | Proud of Our People
9
Service with a Smile
As one of the largest financial
companies headquartered in
Florida, our associates work
tirelessly—sometimes behind
the scenes—to provide the
excellent service our clients
have come to know and expect.
State-of-the-art technology keeps Capital City Bank
ahead of the game. More than one million transactions
are processed daily by a highly dedicated team of
associates located at Capital City Services Company.
Connecting with Our Clients
P R O J E C T 2 0 1 0 — B U I L D I N G F O R T H E F U T U R E
1,200 Calls
answered daily by our friendly
and knowledgeable direct bankers.
10
Capital City Bank Group | 2006 Annual Report
Promoting Culture
The Capital City Bank Group Foundation provides local not-for-profit organizations the funds to build stronger communities through arts
and culture, education and health services.
Strengthening Our Bench
At Capital City Bank, we talk a lot about
our future. Associates serve as both
mentors and mentees within the bank
and in the community. They are becoming
the leaders of the future while making
the communities we call home a better
place to live.
Building Relationships
Proud of Our Communities | Proud of Our People
13
Developing Trust
Every day brings new opportunities to
make a difference in the lives of our
clients. They tell us about their dreams
and we listen. It’s up to us to see the big
picture and create solutions that will
make their dreams a reality.
Left: Capital City Associates are taking our products to
the streets and people are talking about what we have
to offer. Absolutely Free Checking is opening doors
for new clients and new accounts. Below: Whether it’s
opening a child’s first savings account or helping a
family purchase their first home, we want to be there
for all of their needs.
14
Capital City Bank Group | 2006 Annual Report
Driving Opportunity
Kia Is Coming to West Point
In just four short months, Community
President Drew Ferguson helped
secure an economic boom for the
city of West Point, Ga. In a historic
deal, Kia Autosports announced it
is coming to the United States and
plans to build an auto assembly
plant estimated at $1.2 billion.
Above: With the first U.S. plant anticipated to open
in 2009, the agreement promises approximately 2,500
new jobs. Right: Community President Drew Ferguson
drives up excitement about the economic future of
West Point in a Kia Sorento.
Our Board of Directors
Henry Lewis III, PharmD, RPH
John K. Humphress
Professor
Florida A&M University
College of Pharmacy
Frederick Carroll, III
Managing Partner
Carroll and Company, CPAs
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Capital City Bank Group, Inc.
Partner
Wadsworth, Humphress,
Hollar & Konrad, PA
Lina S. Knox
Community Volunteer
Thomas A. Barron
President
Capital City Bank
McGrath Keen, Jr.
Private Investor
Left to Right:
DuBose Ausley
Attorney
Ausley & McMullen, PA
J. Everitt Drew
President
SouthGroup Equities, Inc.
Ruth Knox
Attorney/President
Wesleyan College
Cader B. Cox, III
President
Riverview Plantation, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
(cid:58)
(cid:134)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
(Exact name of Registrant as specified in its charter)
Florida
(State of Incorporation)
0-13358
(Commission File Number)
59-2273542
(IRS Employer Identification No.)
217 North Monroe Street, Tallahassee, Florida
(Address of principal executive offices)
32301
(Zip Code)
(850) 671-0300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ]
No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
As of June 30, 2006, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $330,816,293
based on the closing sale price as reported on the National Association of Securities Dealers Automated Quotation System National Market
System.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.01 par value per share
Outstanding at February 28, 2007
18,388,831 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 24, 2007, are incorporated by reference in
Part III.
1
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2006 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
4
14
18
19
19
19
19
21
22
47
49
82
82
84
84
84
84
85
85
86
88
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Shareowner Matters, and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
2
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives,
goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based
on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,”
“estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking
statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual results to
differ materially from those in the forward-looking statements, include, without limitation:
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our ability to integrate the business and operations of companies and banks that we have acquired, and those we may
acquire in the future;
our need and our ability to incur additional debt or equity financing;
the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
the accuracy of our financial statement estimates and assumptions;
the effects of harsh weather conditions, including hurricanes;
inflation, interest rate, market and monetary fluctuations;
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
the frequency and magnitude of foreclosure of our loans;
effect of changes in the stock market and other capital markets;
legislative or regulatory changes;
our ability to comply with the extensive laws and regulations to which we are subject;
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
changes in the securities and real estate markets;
increased competition and its effect on pricing;
technological changes;
changes in monetary and fiscal policies of the U.S. Government;
the effects of security breaches and computer viruses that may affect our computer systems;
changes in consumer spending and saving habits;
growth and profitability of our noninterest income;
changes in accounting principles, policies, practices or guidelines;
the limited trading activity of our common stock;
the concentration of ownership of our common stock;
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our bylaws;
other risks described from time to time in our filings with the Securities and Exchange Commission; and
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in Item 1A Risk Factors or discussed in this Annual Report also could adversely affect
our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any
forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update
any forward-looking statement, except as required by applicable law.
3
PART I
Item 1. Business
General
Capital City Bank Group, Inc. (“CCBG”) is a financial holding company registered under the Gramm-Leach-Bliley Act of 1999
(“Gramm-Leach-Bliley Act”). CCBG was incorporated under Florida law on December 13, 1982, to acquire five national banks
and one state bank that all subsequently became part of CCBG’s bank subsidiary, Capital City Bank (“CCB” or the “Bank”). In
this report, the terms “Company”, “we”, “us”, or “our” mean CCBG and all subsidiaries included in our consolidated financial
statements.
We provide traditional deposit and credit services, asset management, trust, mortgage banking, merchant services, bank cards,
data processing, and securities brokerage services through 69 full-service banking locations in Florida, Georgia, and Alabama.
CCB operates these banking locations.
At December 31, 2006, our consolidated total assets were approximately $2.6 billion and shareowners’ equity was approximately
$316 million. CCBG’s principal asset is the capital stock of the Bank. CCB accounted for approximately 100% of consolidated
assets at December 31, 2006, and approximately 100% of consolidated net income for the year ended December 31, 2006. In
addition to our banking subsidiary, we have seven indirect subsidiaries, Capital City Trust Company, Capital City Mortgage
Company (inactive), Capital City Banc Investments, Inc., Capital City Services Company, First Insurance Agency of Grady
County, Inc., Southern Oaks, Inc., and FNB Financial Services, Inc., all of which are wholly-owned subsidiaries of Capital City
Bank, and two direct subsidiaries CCBG Capital Trust I and CCBG Capital Trust II, both wholly-owned subsidiaries of CCBG.
Dividends and management fees received from the Bank are our only source of income. Dividend payments by the Bank to CCBG
depend on the capitalization, earnings and projected growth of the Bank, and are limited by various regulatory restrictions. See
the section entitled “Regulatory Considerations” in this Item 1 and Note 15 in the Notes to Consolidated Financial Statements for
additional information. We had a total of 1,056 (full-time equivalent) associates at February 28, 2007. Page 21 contains other
financial and statistical information about us.
We have one reportable segment with the following principal services: Banking Services, Data Processing Services, Trust and
Asset Management Services, and Brokerage Services.
Banking Services
CCB is a Florida chartered full-service bank engaged in the commercial and retail banking business. Significant services offered
by the Bank include:
(cid:131) Business Banking – The Bank provides banking services to corporations and other business clients. Credit products are
available for a wide variety of general business purposes, including financing for commercial business properties,
equipment, inventories and accounts receivable, as well as commercial leasing and letters of credit. Treasury management
services and merchant credit card transaction processing services are also offered.
(cid:131) Commercial Real Estate Lending – The Bank provides a wide range of products to meet the financing needs of commercial
developers and investors, residential builders and developers, and community development.
(cid:131) Residential Real Estate Lending – The Bank provides products to help meet the home financing needs of consumers,
including conventional permanent and construction/permanent (fixed or adjustable rate) financing arrangements, and
FHA/VA loan products. The bank offers both fixed-rate and adjustable rate mortgages (“ARM”) loans. As of December
31, 2006, approximately 33% of the Bank’s loan portfolio consisted of ARM loans.
The Bank offers these products through its existing network of branch offices. Geographical expansion of the delivery of
this product line has occurred over the past three years through the opening of mortgage lending offices in Gainesville,
Florida (Alachua County), Panacea, Florida (Wakulla County), Steinhatchee, Florida (Taylor County), and Thomasville,
Georgia (Thomas County).
(cid:131) Retail Credit – The Bank provides a full range of loan products to meet the needs of consumers, including personal loans,
automobile loans, boat/RV loans, home equity loans, and credit card programs.
(cid:131)
Institutional Banking – The Bank provides banking services to meet the needs of state and local governments, public
schools and colleges, charities, membership and not-for-profit associations including customized checking and savings
accounts, cash management systems, tax-exempt loans, lines of credit, and term loans.
4
(cid:131) Retail Banking - The Bank provides a full range of consumer banking services, including checking accounts, savings
programs, automated teller machines (“ATMs”), debit/credit cards, night deposit services, safe deposit facilities, and
PC/Internet banking. Clients can use the “Star-Line” system to gain 24-hour access to their deposit and loan account
information, and transfer funds between linked accounts. The Bank is a member of the “Star” ATM Network that permits
banking clients to access cash at ATMs or point of sale merchants.
Data Processing Services
Capital City Services Company provides data processing services to financial institutions (including CCB), government agencies
and commercial clients located throughout North Florida and South Georgia. As of February 28, 2007, the Services Company is
providing computer services to seven correspondent banks, which have relationships with CCB.
Trust Services and Asset Management
Capital City Trust Company (“CCTC’) is the investment management arm of CCB. The Trust Company provides asset
management for individuals through agency, personal trust, IRAs and personal investment management accounts.
Administration of pension, profit sharing and 401(k) plans is a significant product line. Associations, endowments and other non-
profit entities hire CCTC to manage their investment portfolios. A staff of well-trained professionals serves individuals requiring
the services of a trustee, personal representative or a guardian. The market value of trust assets under discretionary management
exceeded $753 million as of December 31, 2006, with total assets under administration exceeding $823 million.
Brokerage Services
We offer access to retail investment products through Capital City Banc Investments, Inc., a wholly-owned subsidiary of CCB.
These products are offered through INVEST Financial Corporation, a member of NASD and SIPC. Non-deposit investment and
insurance products are: (1) not FDIC insured; (2) not deposits, obligations, or guaranteed by any bank; and (3) subject to
investment risk, including the possible loss of principal amount invested. Capital City Banc Investments, Inc. offers a full line of
retail securities products, including U.S. Government bonds, tax-free municipal bonds, stocks, mutual funds, unit investment
trusts, annuities, life insurance and long-term health care. We are not affiliated with INVEST Financial Corporation.
Expansion of Business
Since 1984, we have completed 15 acquisitions totaling $1.6 billion in deposits within existing and new markets. In addition,
since 2003, we opened six new offices - two in Tallahassee and one each in Crawfordville, Palatka (replacement office), Spring
Hill and Starke (replacement office) - to improve service and product delivery within these Florida markets. Plans are currently
being developed for new office sites in Macon, Georgia, Spring Hill, Florida, Brooksville, Florida, and Gainesville, Florida.
Pursuant to our “Project 2010” strategy, we plan to continue our expansion, emphasizing a combination of growth in existing
markets and acquisitions. Acquisitions will be focused on a three state area including Florida, Georgia, and Alabama with a
particular focus on acquiring banks and banking offices, which are $100 million to $400 million in asset size, located on the
outskirts of major metropolitan areas. We will evaluate de novo expansion opportunities in attractive new markets in the event
that acquisition opportunities are not feasible. Other expansion opportunities that will be evaluated include asset management,
insurance, and mortgage banking. We anticipate that slightly more than half of our future earnings growth will be generated
through growth in existing markets and slightly less than half through acquisitions.
Recent Acquisitions. On May 20, 2005, we completed our acquisition of First Alachua Banking Corporation (“FABC”),
headquartered in Alachua, Florida. FABC’s wholly-owned subsidiary, First National Bank of Alachua (“FNBA”) had $228.3
million in assets, seven offices located in Alachua County -- Gainesville (three), Alachua, High Springs, Jonesville, Newberry --
and an eighth office in Hastings, Florida, which is located in St. Johns County. FABC also had a mortgage lending office in
Gainesville and a financial services division. We issued 88.9456 shares of CCBG Common Stock and $2,847.04 in cash for each
of the 10,186 shares of FABC, resulting in the issuance of 906,000 shares of CCBG Common Stock and the payment of $29.0
million in cash for a total purchase price of approximately $58.0 million.
On October 15, 2004, we completed our acquisition of Farmers and Merchants Bank in Dublin, Georgia, a $395 million asset
institution with three offices in Laurens County. We issued 21.35 shares of CCBG Common Stock and $666.50 in cash for each
of the 50,000 shares of Farmers and Merchants Bank, resulting in the issuance of 1,067,500 shares of CCBG Common Stock and
the payment of $33.3 million in cash for a total purchase price of approximately $66.7 million.
On March 19, 2004, our subsidiary, CCB, completed its merger with Quincy State Bank, a former subsidiary of Synovus Financial
Corp. Quincy State Bank had $116.6 million in assets with one office in Quincy, Florida and one office in Havana, Florida. Both
markets adjoin Leon County, home to our Tallahassee headquarters. In addition, we acquired $208 million in trust and other
fiduciary assets of Synovus Trust Company, an affiliate of Quincy State Bank. The purchase price was $28.1 million in cash.
5
Competition
The banking business is rapidly changing. We operate in a highly competitive environment, especially with respect to services
and pricing. The on-going consolidation of the banking industry has altered and continues to significantly alter the competitive
environment within the Florida, Georgia, and Alabama markets. We believe this consolidation further enhances our competitive
position and opportunities in many of our markets. Our primary market area is 20 counties in Florida, five counties in Georgia
and one county in Alabama. In these markets, the Bank competes against a wide range of banking and nonbanking institutions
including savings and loan associations, credit unions, money market funds, mutual fund advisory companies, mortgage banking
companies, investment banking companies, finance companies and other types of financial institutions.
All of Florida’s major banking concerns have a presence in Leon County. CCB’s Leon County deposits totaled $694.1 million, or
33.3%, of our consolidated deposits at December 31, 2006.
The following table depicts our market share percentage within each respective county, based on total commercial bank deposits
within the county.
Florida
Alachua County(2)
Bradford County
Citrus County
Clay County
Dixie County
Gadsden County
Gilchrist County
Gulf County
Hernando County
Jefferson County
Leon County
Levy County
Madison County
Pasco County
St. Johns County(2)
Putnam County
Suwannee County
Taylor County
Wakulla County(3)
Washington County
Georgia(4)
Bibb County
Burke County
Grady County
Laurens County(5)
Troup County
Alabama
Chambers County
Market Share as of June 30,(1)
2005
2004
2006
5.6%
44.6%
3.3%
2.0%
20.8%
64.9%
47.1%
14.3%
1.5%
24.6%
18.0%
34.4%
14.9%
0.2%
1.5%
12.3%
11.8%
28.6%
2.9%
17.4%
2.9%
9.2%
20.0%
23.8%
8.2%
6.3%
42.6%
3.5%
2.2%
17.3%
68.0%
49.5%
19.8%
1.4%
24.4%
17.5%
33.8%
15.1%
0.3%
2.0
12.3%
7.5%
27.9%
--
20.3%
2.8%
9.3%
19.7%
33.1%
7.5%
4.7%
3.9%
--
37.1%
3.6%
2.4%
16.9%
77.7%
49.4%
22.1%
1.3%
24.0%
17.2%
34.1%
17.8%
0.4%
--
12.5%
7.7%
27.4%
--
20.0%
2.8%
10.3%
23.6%
41.8%
8.2%
4.4%
(1) Obtained from the June 30, 2006 FDIC/OTS Summary of Deposits Report.
(2) CCB entered market in May 2005.
(3) CCB entered market in December 2005.
(4) Does not include Thomas County where Capital City Bank maintains a residential mortgage lending office only.
(5) CCB entered market in October 2004.
6
The following table sets forth the number of commercial banks and offices, including our offices and our competitors' offices,
within each of the respective counties.
County
Florida
Alachua
Bradford
Citrus
Clay
Dixie
Gadsden
Gilchrist
Gulf
Hernando
Jefferson
Leon
Levy
Madison
Pasco
Putnam
St. Johns
Suwannee
Taylor
Wakulla
Washington
Georgia
Bibb
Burke
Grady
Laurens
Troup
Alabama
Chambers
Number of
Commercial Banks
Number of Commercial
Bank Offices
14
3
15
11
3
4
3
4
12
2
13
3
6
18
5
19
4
3
4
4
10
5
5
9
8
4
64
3
46
26
4
6
5
6
36
2
78
13
6
96
11
60
5
4
9
4
52
10
8
19
17
8
Data obtained from the June 30, 2006 FDIC/OTS Summary of Deposits Report.
7
REGULATORY CONSIDERATIONS
We must comply with state and federal banking laws and regulations that control virtually all aspects of our operations. These
laws and regulations generally aim to protect our depositors, not our shareowners or our creditors. Any changes in applicable laws
or regulations may materially affect our business and prospects. Such legislative or regulatory changes may also affect our
operations. The following description summarizes some of the laws and regulations to which we are subject. References to
applicable statutes and regulations are brief summaries, do not purport to be complete, and are qualified in their entirety by
reference to such statutes and regulations.
The Company
CCBG is registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) as a financial holding
company under the Gramm-Leach-Bliley Act and is registered with the Federal Reserve as a bank holding company under the
Bank Holding Company Act of 1956 (“BHCA”). As a result, we are subject to supervisory regulation and examination by the
Federal Reserve. The Gramm-Leach-Bliley Act, the BHCA, and other federal laws subject financial holding companies to
particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws and regulations.
Permitted Activities. The Gramm-Leach-Bliley Act, enacted on November 12, 1999, amended the BHCA by (i) allowing bank
holding companies that qualify as “financial holding companies” to engage in a broad range of financial and related activities; (ii)
allowing insurers and other financial service companies to acquire banks; (iii) removing restrictions that applied to bank holding
company ownership of securities firms and mutual fund advisory companies; and (iv) establishing the overall regulatory scheme
applicable to bank holding companies that also engage in insurance and securities operations. The general effect of the law was to
establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and
other financial service providers. Activities that are financial in nature are broadly defined to include not only banking, insurance,
and securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.
In contrast to financial holding companies, bank holding companies are limited to managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be a proper incident thereto. Except for the activities relating to
financial holding companies permissible under the Gramm-Leach-Bliley Act, these restrictions will apply to us. In determining
whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include
greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of
resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or
control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
Changes in Control. Subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or
company acquiring “control” of a bank or bank holding company. A conclusive presumption of control exists if an individual or
company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to
vote 25% or more of any class of voting securities of any insured depository institution. A rebuttable presumption of control exists
if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository
institution and either the institution has registered securities under Section 12 of the Securities Exchange Act of 1934 (the
“Exchange Act”), or no other person will own a greater percentage of that class of voting securities immediately after the
acquisition.
As a bank holding company, we are required to obtain prior approval from the Federal Reserve before (i) acquiring all or
substantially all of the assets of a bank or bank holding company, (ii) acquiring direct or indirect ownership or control of more
than 5% of the outstanding voting stock of any bank or bank holding company (unless we own a majority of such bank’s voting
shares), or (iii) merging or consolidating with any other bank or bank holding company. In determining whether to approve a
proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition,
the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis,
and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and
moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment
Act of 1977 (“CRA”).
8
Under Florida law, a person or entity proposing to directly or indirectly acquire control of a Florida bank must first obtain
permission from the Florida Department of Financial Services (the “Florida Department”). Florida statutes define “control” as
either (a) indirectly or directly owning, controlling or having power to vote 25% or more of the voting securities of a bank; (b)
controlling the election of a majority of directors of a bank; (c) owning, controlling, or having power to vote 10% or more of the
voting securities as well as directly or indirectly exercising a controlling influence over management or policies of a bank; or (d)
as determined by the Florida Department. These requirements will affect us because the Bank is chartered under Florida law and
changes in control of us are indirect changes in control of the Bank.
Tying. Financial holding companies and their affiliates are prohibited from tying the provision of certain services, such as
extending credit, to other services offered by the holding company or its affiliates.
Capital; Dividends; Source of Strength. The Federal Reserve imposes certain capital requirements on us under the BHCA,
including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are
described below under “Capital Regulations.” Subject to its capital requirements and certain other restrictions, we are able to
borrow money to make a capital contribution to the Bank, and such loans may be repaid from dividends paid from the Bank to us.
The ability of the Bank to pay dividends, however, will be subject to regulatory restrictions that are described below under
“Dividends.” We are also able to raise capital for contributions to the Bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities laws.
In accordance with Federal Reserve policy, we are expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances in which we might not otherwise do so. In furtherance of this policy, the Federal
Reserve may require a financial holding company to terminate any activity or relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious
risk to the financial soundness or stability of any subsidiary depository institution of the financial holding company. Further,
federal bank regulatory authorities have additional discretion to require a financial holding company to divest itself of any bank or
nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.
Capital City Bank
CCB is a banking institution that is chartered by and headquartered in the State of Florida, and it is subject to supervision and
regulation by the Florida Department. The Florida Department supervises and regulates all areas of the Bank’s operations
including, without limitation, the making of loans, the issuance of securities, the conduct of the Bank’s corporate affairs, the
satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of branches. The Bank is
also a member bank of the Federal Reserve System, which makes the Bank’s operations subject to broad federal regulation and
oversight by the Federal Reserve. In addition, the Bank’s deposit accounts are insured by the Federal Deposit Insurance
Corporation (“FDIC”) to the maximum extent permitted by law, and the FDIC has certain enforcement powers over the Bank.
As a state chartered banking institution in the State of Florida, the Bank is empowered by statute, subject to the limitations
contained in those statutes, to take and pay interest on savings and time deposits, to accept demand deposits, to make loans on
residential and other real estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities
and in debt obligations of banks and corporations and to provide various other banking services on behalf of the Bank’s clients.
Various consumer laws and regulations also affect the operations of the Bank, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit opportunity laws, and fair credit reporting. In addition, the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”) prohibits insured state chartered institutions from conducting activities as
principal that are not permitted for national banks. A bank, however, may engage in an otherwise prohibited activity if it meets its
minimum capital requirements and the FDIC determines that the activity does not present a significant risk to the deposit
insurance funds.
Reserves. The Federal Reserve requires all depository institutions to maintain reserves against some transaction accounts
(primarily NOW and Super NOW checking accounts). The balances maintained to meet the reserve requirements imposed by the
Federal Reserve may be used to satisfy liquidity requirements. An institution may borrow from the Federal Reserve Bank
“discount window” as a secondary source of funds, provided that the institution meets the Federal Reserve Bank’s credit
standards.
Dividends. The Bank is subject to legal limitations on the frequency and amount of dividends that can be paid to us. The Federal
Reserve may restrict the ability of the Bank to pay dividends if such payments would constitute an unsafe or unsound banking
practice. These regulations and restrictions may limit our ability to obtain funds from the Bank for our cash needs, including funds
for acquisitions and the payment of dividends, interest, and operating expenses.
9
In addition, Florida law also places certain restrictions on the declaration of dividends from state chartered banks to their holding
companies. Pursuant to Section 658.37 of the Florida Banking Code, the board of directors of state chartered banks, after charging
off bad debts, depreciation and other worthless assets, if any, and making provisions for reasonably anticipated future losses on
loans and other assets, may quarterly, semi-annually or annually declare a dividend of up to the aggregate net profits of that period
combined with the bank’s retained net profits for the preceding two years and, with the approval of the Florida Department,
declare a dividend from retained net profits which accrued prior to the preceding two years. Before declaring such dividends, 20%
of the net profits for the preceding period as is covered by the dividend must be transferred to the surplus fund of the bank until
this fund becomes equal to the amount of the bank’s common stock then issued and outstanding. A state chartered bank may not
declare any dividend if (i) its net income from the current year combined with the retained net income for the preceding two years
is a loss or (ii) the payment of such dividend would cause the capital account of the bank to fall below the minimum amount
required by law, regulation, order or any written agreement with the Florida Department or a federal regulatory agency.
Insurance of Accounts and Other Assessments. The FDIC merged the Bank Insurance Fund and the Savings Association
Insurance Fund to form the Deposit Insurance Fund (the “DIF”) on March 31, 2006. The deposit accounts of the Bank are
currently insured by the DIF generally up to a maximum of $100,000 per separately insured depositor, except for retirement
accounts, which are insured up to $250,000. The Bank pays its deposit insurance assessments to the DIF.
Effective January 1, 2007, the FDIC established a risk-based assessment system for determining the deposit insurance assessments
to be paid by insured depository institutions. Under the assessment system, the FDIC assigns an institution to one of four risk
categories, with the first category having two sub-categories based on the institution’s most recent supervisory and capital
evaluations, designed to measure risk. Assessment rates currently range from 0.05% of deposits for an institution in the highest
sub-category of the highest category to 0.43% of deposits for an institution in the lowest category. The FDIC is authorized to
raise the assessment rates as necessary to maintain the minimum required 1.25% reserve ratio of premiums held to deposits
insured. The FDIC allows the use of credits for assessments previously paid. We believe that we have credits that will offset
certain of these assessments during 2007.
In addition, all FDIC insured institutions are required to pay assessments to the FDIC at an annual rate of approximately 0.0122%
of insured deposits to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government
established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue until the
Financing Corporation bonds mature in 2017 through 2019.
Transactions With Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act (“FRA”) and Regulation W, the
authority of the Bank to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan
transactions with an “affiliate” generally must be collateralized and certain transactions between the Bank and its “affiliates”,
including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are
substantially the same, or at least as favorable to the Bank, as those prevailing for comparable nonaffiliated transactions. In
addition, the Bank generally may not purchase securities issued or underwritten by affiliates.
Loans to executive officers, directors or to any person who directly or indirectly, or acting through or in concert with one or more
persons, owns, controls or has the power to vote more than 10% of any class of voting securities of a bank (“10% Shareholders”),
or to any political or campaign committee the funds or services of which will benefit such executive officers, directors, or 10%
Shareholders or which is controlled by such executive officers, directors or 10% Shareholders, are subject to Sections 22(g) and
22(h) of the FRA and the regulations promulgated thereunder (Regulation O) and Section 13(k) of the Exchange Act relating to
the prohibition on personal loans to executives which exempts financial institutions in compliance with the insider lending
restrictions of Section 22(h) of the FRA. Among other things, these loans must be made on terms substantially the same as those
prevailing on transactions made to unaffiliated individuals and certain extensions of credit to such persons must first be approved
in advance by a disinterested majority of the entire board of directors. Section 22(h) of the FRA prohibits loans to any such
individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus
an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or
when the aggregate amount on all such extensions of credit outstanding to all such persons would exceed the bank’s unimpaired
capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which the Bank is permitted to extend credit to
executive officers.
Community Reinvestment Act. The CRA and the regulations issued thereunder are intended to encourage banks to help meet the
credit needs of their service area, including low and moderate income neighborhoods, consistent with the safe and sound
operations of the banks. These regulations provide for regulatory assessment of a bank’s record in meeting the needs of its service
area. Federal banking agencies are required to make public a rating of a bank’s performance under the CRA. The Federal Reserve
considers a bank’s CRA when the bank submits an application to establish branches, merge, or acquire the assets and assume the
liabilities of another bank. In the case of a financial holding company, the CRA performance record of all banks involved in the
merger or acquisition are reviewed in connection with the filing of an application to acquire ownership or control of shares or
assets of a bank or to merge with any other financial holding company. An unsatisfactory record can substantially delay or block
the transaction.
10
Capital Regulations. The Federal Reserve has adopted risk-based, capital adequacy guidelines for financial holding companies
and their subsidiary state-chartered banks that are members of the Federal Reserve System. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and financial holding
companies, to account for off-balance sheet exposure, to minimize disincentives for holding liquid assets and to achieve greater
consistency in evaluating the capital adequacy of major banks throughout the world. Under these guidelines assets and off-balance
sheet items are assigned to broad risk categories each with designated weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The current guidelines require all financial holding companies and federally regulated banks to maintain a minimum risk-based
total capital ratio equal to 8%, of which at least 4% must be Tier I Capital. Tier I Capital, which includes common stockholders’
equity, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock and trust preferred
securities, less certain goodwill items and other intangible assets, is required to equal at least 4% of risk-weighted assets. The
remainder (“Tier II Capital”) may consist of (i) an allowance for loan losses of up to 1.25% of risk-weighted assets, (ii) excess of
qualifying perpetual preferred stock, (iii) hybrid capital instruments, (iv) perpetual debt, (v) mandatory convertible securities, and
(vi) subordinated debt and intermediate-term preferred stock up to 50% of Tier I Capital. Total capital is the sum of Tier I and Tier
II Capital less reciprocal holdings of other banking organizations’ capital instruments, investments in unconsolidated subsidiaries
and any other deductions as determined by the appropriate regulator (determined on a case by case basis or as a matter of policy
after formal rule making).
In computing total risk-weighted assets, bank and financial holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. Most loans will be assigned to the 100% risk category, except for
performing first mortgage loans fully secured by 1- to 4-family and certain multi-family residential property, which carry a 50%
risk rating. Most investment securities (including, primarily, general obligation claims on states or other political subdivisions of
the United States) will be assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-
weight, and direct obligations of the U.S. Treasury or obligations backed by the full faith and credit of the U.S. Government,
which have a 0% risk-weight. In covering off-balance sheet items, direct credit substitutes, including general guarantees and
standby letters of credit backing financial obligations, are given a 100% conversion factor. Transaction-related contingencies such
as bid bonds, standby letters of credit backing non-financial obligations, and undrawn commitments (including commercial credit
lines with an initial maturity of more than one year) have a 50% conversion factor. Short-term commercial letters of credit are
converted at 20% and certain short-term unconditionally cancelable commitments have a 0% factor.
The federal bank regulatory authorities have also adopted regulations that supplement the risk-based guidelines. These regulations
generally require banks and financial holding companies to maintain a minimum level of Tier I Capital to total assets less
goodwill of 4% (the “leverage ratio”). The Federal Reserve permits a bank to maintain a minimum 3% leverage ratio if the bank
achieves a 1 rating under the CAMELS rating system in its most recent examination, as long as the bank is not experiencing or
anticipating significant growth. The CAMELS rating is a non-public system used by bank regulators to rate the strength and
weaknesses of financial institutions. The CAMELS rating is comprised of six categories: capital adequacy, asset quality,
management, earnings, liquidity, and sensitivity to market risk.
Banking organizations experiencing or anticipating significant growth, as well as those organizations which do not satisfy the
criteria described above, will be required to maintain a minimum leverage ratio ranging generally from 4% to 5%. The bank
regulators also continue to consider a “tangible Tier I leverage ratio” in evaluating proposals for expansion or new activities. The
tangible Tier I leverage ratio is the ratio of a banking organization’s Tier I Capital, less deductions for intangibles otherwise
includable in Tier I Capital, to total tangible assets.
Federal law and regulations establish a capital-based regulatory scheme designed to promote early intervention for troubled banks
and require the FDIC to choose the least expensive resolution of bank failures. The capital-based regulatory framework contains
five categories of compliance with regulatory capital requirements, including “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” To qualify as a “well-capitalized”
institution, a bank must have a leverage ratio of no less than 5%, a Tier I risk-based ratio of no less than 6%, and a total risk-based
capital ratio of no less than 10%, and the bank must not be under any order or directive from the appropriate regulatory agency to
meet and maintain a specific capital level. Generally, a financial institution must be “well capitalized” before the Federal Reserve
will approve an application by a financial holding company to acquire or merge with a bank or bank holding company.
11
Under the regulations, the applicable agency can treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is in an unsafe or unsound condition or is engaging in
an unsafe or unsound practice. The degree of regulatory scrutiny of a financial institution will increase, and the permissible
activities of the institution will decrease, as it moves downward through the capital categories. Institutions that fall into one of the
three undercapitalized categories may be required to (i) submit a capital restoration plan; (ii) raise additional capital; (iii) restrict
their growth, deposit interest rates, and other activities; (iv) improve their management; (v) eliminate management fees; or (vi)
divest themselves of all or a part of their operations. Financial holding companies controlling financial institutions can be called
upon to boost the institutions’ capital and to partially guarantee the institutions’ performance under their capital restoration plans.
It should be noted that the minimum ratios referred to above are merely guidelines and the bank regulators possess the
discretionary authority to require higher ratios.
We currently exceed the requirements contained in the applicable regulations, policies and directives pertaining to capital
adequacy, and are unaware of any material violation or alleged violation of these regulations, policies or directives.
Interstate Banking and Branching. The BHCA was amended by the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the “Interstate Banking Act”). The Interstate Banking Act provides that adequately capitalized and managed financial
holding companies are permitted to acquire banks in any state.
State laws prohibiting interstate banking or discriminating against out-of-state banks are preempted. States are not permitted to
enact laws opting out of this provision; however, states are allowed to adopt a minimum age restriction requiring that target banks
located within the state be in existence for a period of years, up to a maximum of five years, before such bank may be subject to
the Interstate Banking Act. The Interstate Banking Act establishes deposit caps which prohibit acquisitions that result in the
acquiring company controlling 30% or more of the deposits of insured banks and thrift institutions held in the state in which the
target maintains a branch or 10% or more of the deposits nationwide. States have the authority to waive the 30% deposit cap.
State-level deposit caps are not preempted as long as they do not discriminate against out-of-state companies, and the federal
deposit caps apply only to initial entry acquisitions.
The Interstate Banking Act also provides that adequately capitalized and managed banks are able to engage in interstate branching
by merging with banks in different states. Unlike the interstate banking provision discussed above, states were permitted to opt out
of the application of the interstate merger provision by enacting specific legislation.
Florida responded to the enactment of the Interstate Banking Act by enacting the Florida Interstate Branching Act (the “Florida
Branching Act”). The purpose of the Florida Branching Act was to permit interstate branching through merger transactions under
the Interstate Banking Act. Under the Florida Branching Act, with the prior approval of the Florida Department, a Florida bank
may establish, maintain and operate one or more branches in a state other than the State of Florida pursuant to a merger
transaction in which the Florida bank is the resulting bank. In addition, the Florida Branching Act provides that one or more
Florida banks may enter into a merger transaction with one or more out-of-state banks, and an out-of-state bank resulting from
such transaction may maintain and operate the branches of the Florida bank that participated in such merger. An out-of-state bank,
however, is not permitted to acquire a Florida bank in a merger transaction unless the Florida bank has been in existence and
continuously operated for more than three years.
Anti-money Laundering. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the “USA PATRIOT ACT”) was enacted in response to the terrorist attacks occurring on
September 11, 2001. The USA PATRIOT ACT is intended to strengthen the U.S. law enforcement and intelligence communities’
ability to work together to combat terrorism. Title III of the USA PATRIOT ACT, the International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001, amended the Bank Secrecy Act and adopted additional provisions that
increased the obligations of financial institutions, including the Bank, to identify their clients, watch for and report upon
suspicious transactions, respond to requests for information by federal banking and law enforcement agencies, and share
information with other financial institutions. In addition, the collected client identification information must be verified within a
reasonable time after a new account is opened through documentary or non-documentary methods. All new clients must be
screened against any Section 326 government lists of known or suspected terrorists within a reasonable time after opening an
account.
Securities Activities. The Financial Services Regulatory Relief Act of 2006 (“Regulatory Relief Act”) was signed into law on
October 13, 2006, which among other things, requires the Securities and Exchange Commission and the Federal Reserve, in
consultation with the other federal banking regulators, to jointly promulgate regulations to implement the bank broker-dealer
exceptions enacted in the Gramm-Leach-Bliley Act. On December 13, 2006, the SEC voted to propose Regulation R, which
would implement the bank broker-dealer exceptions. Regulation R is expected to impact the way Bank associates who are not
registered with the SEC may be compensated for referrals to a third-party broker-dealer for which the Bank has entered into a
networking arrangement. In addition, Regulation R will broaden the ability of the Bank to effect securities transactions in a
trustee or fiduciary capacity without registering as a broker, permit banks to effect certain sweep account transactions, and accept
orders for securities transactions from employee plan accounts, individual retirement plan accounts, and other similar accounts.
Banks would be expected to comply on the first day of their fiscal year beginning on or after June 30, 2008.
12
Privacy. Under the Gramm-Leach-Bliley Act, federal banking regulators adopted rules limiting the ability of banks and other
financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure
of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal
information to nonaffiliated third parties.
Consumer Laws and Regulations. The Check Clearing for the 21st Century Act, or “Check 21” as it is commonly known, became
effective in October 2004. Check 21 facilitates check collection through a new negotiable instrument called a “substitute check,”
which permits, but does not require, banks to replace original checks with substitute checks or information from the original check
and process check information electronically. Banks that do use substitute checks must comply with certain notice and recredit
rights. Check 21 cuts the time and cost involved in physically transporting paper items to reduce float (i.e., the time between the
deposit of a check in a bank and payment) especially in cases in which items were not already being delivered same-day or
overnight.
The Bank is also subject to other federal and state consumer laws and regulations that are designed to protect consumers in
transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth in Lending
Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Fair Credit Reporting
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement
Procedures Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in
which financial institutions must deal with clients when taking deposits or making loans to such clients. The Bank must comply
with the applicable provisions of these consumer protection laws and regulations as part of its ongoing client relations.
Future Legislative Developments
Various legislative acts are from time to time introduced in Congress and the Florida legislature. Such legislation may change
banking statutes and the environment in which our banking subsidiary and we operate in substantial and unpredictable ways. We
cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would
have upon our financial condition or results of operations or that of our banking subsidiary.
Effect of Governmental Monetary Policies
The commercial banking business in which the Bank engages is affected not only by general economic conditions, but also by the
monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at
the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’
deposits and assets of foreign branches and the imposition of and changes in reserve requirements against certain borrowings by
banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve. These monetary
policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits,
and this use may affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had
a significant effect on the operating results of commercial banks and are expected to do so in the future. The monetary policies of
the Federal Reserve are influenced by various factors, including inflation, unemployment, short-term and long-term changes in the
international trade balance and in the fiscal policies of the U.S. Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Bank cannot be predicted.
Income Taxes
We are subject to income taxes at the federal level and subject to state taxation based on the laws of each state in which we
operate. We file a consolidated federal tax return with a fiscal year ending on December 31. We have filed tax returns for each
state jurisdiction affected in 2005 and will do the same for 2006.
Website Access to Company's Reports
Our internet website is www.ccbg.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), and reports filed
pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The
information on our website is not incorporated by reference into this report.
13
Item 1A. Risk Factors
You should consider carefully the following risk factors before deciding whether to invest in our common stock. Our business,
including our operating results and financial condition, could be harmed by any of these risks. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business. The
trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In
assessing these risks you should also refer to the other information contained in our filings with the SEC, including our financial
statements and related notes.
Risks Related to Our Business
We may not be able to successfully manage our growth or implement our growth strategies, which may adversely affect
our results of operations and financial condition.
During the last five years, we have experienced significant growth, and a key aspect of our business strategy is our continued
growth and expansion. The goal of our primary business strategy known as Project 2010 is to increase our annual earnings to $50
million by 2010. Our ability to manage our growth successfully will depend on whether we can maintain capital levels adequate
to support our growth, maintain cost controls and asset quality and successfully integrate any businesses we acquire into our
organization.
Our earnings growth relies, at least in part, on strategic acquisitions. Our ability to grow through selective acquisitions of
financial institutions or branches will depend on successfully identifying, acquiring and integrating those institutions or branches.
We may be unable to identify attractive acquisition candidates, make acquisitions on favorable terms or successfully integrate any
acquired institutions or branches. In addition, we may fail to realize the growth opportunities and cost savings we anticipate to be
derived from our acquisitions. Growth through acquisitions causes us to take on additional risks such as the risks of unknown or
contingent liabilities, exposure to potential asset quality issues from acquired institutions, and the diversion of our management’s
time and attention from our existing business and operations. Finally, it is possible that during the integration process of our
acquisitions, we could lose key associates or the ability to maintain relationships with clients.
As we continue to implement our growth strategy by opening new offices or through strategic acquisitions, we expect to incur
increased personnel, occupancy and other operating expenses. In the case of new offices, we must absorb those higher expenses
while we begin to generate new deposits, and there is a further time lag involved in redeploying new deposits into attractively
priced loans and other higher yielding earning assets.
We may need additional capital resources in the future and these capital resources may not be available when needed or at
all.
We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments or for future
growth. Such financing may not be available to us on acceptable terms or at all.
We may incur losses if we are unable to successfully manage interest rate risk.
Our profitability depends to a large extent on the Bank’s net interest income, which is the difference between income on interest-
earning assets such as loans and investment securities, and expense on interest-bearing liabilities such as deposits and our
borrowings. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control
including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States
and other financial markets. Our net interest income may be reduced if: (i) more interest-earning assets than interest-bearing
liabilities reprice or mature during a time when interest rates are declining or (ii) more interest-bearing liabilities than interest-
earning assets reprice or mature during a time when interest rates are rising.
Changes in the difference between short- and long-term interest rates may also harm our business. For example, short-term
deposits may be used to fund longer-term loans. When differences between short-term and long-term interest rates shrink or
disappear, the spread between rates paid on deposits and received on loans could narrow significantly, decreasing our net interest
income.
If market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable rate loans,
thus reducing our net interest income because we may need to pay the higher rates on our deposits and borrowings while being
limited on the repricing of these loans due to the interest rate caps.
14
An inadequate allowance for loan losses would reduce our earnings.
We are exposed to the risk that our clients will be unable to repay their loans according to their terms and that any collateral
securing the payment of their loans will not be sufficient to assure full repayment. This will result in credit losses that are inherent
in the lending business. We evaluate the collectibility of our loan portfolio and provide an allowance for loan losses that we
believe is adequate based upon such factors as:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
the risk characteristics of various classifications of loans;
previous loan loss experience;
specific loans that have loss potential;
delinquency trends;
estimated fair market value of the collateral;
current economic conditions; and
geographic and industry loan concentrations.
If our estimate of credit losses inherent in the loan portfolio is incorrect, our earnings could be significantly and adversely affected
because our allowance may not be adequate. Additionally, we may experience losses in our loan portfolios or encounter adverse
trends that require us to significantly increase our allowance for loan losses in the future, which could also have an adverse affect
on our earnings.
Our loan portfolio includes loans with a higher risk of loss.
We originate commercial real estate loans, commercial loans, construction loans, consumer loans, and residential mortgage loans
primarily within our market area. Commercial real estate, commercial, construction, and consumer loans may expose a lender to
greater credit risk than loans secured by single-family residential real estate because the collateral securing these loans may not be
sold as easily as single-family residential real estate. In addition, commercial real estate, commercial and
construction/development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are
more susceptible to a risk of loss during a downturn in the business cycle. These loans also have greater credit risk than
residential real estate for the following reasons:
(cid:131) Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover
operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing
over a loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment
typically will depend on being able to either refinance the loan or timely sell the underlying property.
(cid:131) Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In
addition, the collateral securing the loans may depreciate over time, be difficult to appraise, illiquid, or fluctuate in value
based on the success of the business.
(cid:131) Construction Loans. The risk of loss is largely dependent on our initial estimate of whether the property’s value at
completion equals or exceeds the cost of property construction and the availability of take-out financing. During the
construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual
construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full
repayment when completed through a permanent loan or by seizure of collateral.
(cid:131) Consumer Loans. Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not
provide an adequate source of payment of the loan due to depreciation, damage, or loss.
Our concentration in loans secured by real estate may increase our credit losses, which would negatively affect our
financial results.
Due to the lack of diversified industry within the markets served by the Bank and the relatively close proximity of our geographic
markets, we have both geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the
nature of our markets, a significant portion of the portfolio has historically been secured with real estate. As of December 31,
2006, approximately 32.2% and 35.5% of our $2.0 billion loan portfolio was secured by commercial real estate and residential
real estate, respectively. As of this same date, approximately 9.0% was secured by property under construction.
A major change in the real estate market, such as a deterioration in the value of the collateral, or in the local or national economy,
could adversely affect our clients’ ability to repay their loans. In the event we are required to foreclose on a property securing one
of our mortgage loans or otherwise pursue our remedies in order to protect our investment, there can be no assurance that we will
recover funds in an amount equal to our projected return on our investment or in an amount sufficient to prevent a loss to us due to
prevailing economic conditions, real estate values and other factors associated with the ownership of real property. As a result,
the market value of the real estate or other collateral underlying our loans may not, at any given time, be sufficient to satisfy the
outstanding principal amount of the loans, and consequently, we would sustain loan losses.
15
An economic downturn in Florida and Georgia could hinder our ability to operate profitably and have an adverse impact
on our operations.
Our interest-earning assets are heavily concentrated in mortgage loans secured by properties located in Florida and Georgia. As of
December 31, 2006, substantially all of our loans secured by real estate are secured by properties located in Florida and Georgia.
The concentration of our loans in these areas subjects us to risk that a downturn in the economy or recession in those areas could
result in a decrease in loan originations and increases in delinquencies and foreclosures, which would more greatly affect us than
if our lending were more geographically diversified. In addition, since a large portion of our portfolio is secured by properties
located in Florida, the occurrence of a natural disaster, such as a hurricane, could result in a decline in loan originations, a decline
in the value or destruction of mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss on loans
originated by us in that state. We may suffer losses if there is a decline in the value of the properties underlying our mortgage
loans that would have an adverse impact on our operations.
Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the
underlying real estate, we may be subject to the increased costs associated with the ownership of real property, which
could result in reduced net income.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and
may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate.
The amount that we, as a mortgagee, may realize after a default, is dependent upon factors outside of our control, including, but
not limited to:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
general or local economic conditions;
neighborhood values;
interest rates;
real estate tax rates;
operating expenses of the mortgaged properties;
supply of and demand for rental units or properties;
ability to obtain and maintain adequate occupancy of the properties;
zoning laws;
governmental rules, regulations and fiscal policies; and
acts of God.
Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may
adversely affect the income from the real estate. Therefore, the cost of operating real property may exceed the rental income
earned from such property, and we may have to advance funds in order to protect our investment or we may be required to dispose
of the real property at a loss.
Confidential client information transmitted through our online banking service is vulnerable to security breaches and
computer viruses, which could expose us to litigation and adversely affect our reputation and our ability to generate
deposits.
We provide our clients the ability to bank online. The secure transmission of confidential information over the Internet is a
critical element of banking online. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes
and other security problems. We 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 our
activities or the activities of our clients involve the storage and transmission of confidential information, security breaches and
viruses could expose us 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 our systems and could adversely affect our reputation and our ability
to generate deposits.
16
We must comply with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Since September 11, 2001, banking regulators have intensified their focus on anti-money laundering and Bank Secrecy Act
compliance requirements, particularly the anti-money laundering provisions of the USA PATRIOT Act. There is also increased
scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with regulations,
guidelines and examination procedures in this area, we have been required to adopt new policies and procedures and to install new
systems. We cannot be certain that the policies, procedures and systems we have in place will permit us to fully comply with
these laws. Furthermore, financial institutions that we have already acquired or may acquire in the future may or may not have
had adequate policies, procedures and systems to fully comply with these laws. Whether our own policies, procedures and
systems are deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may
acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on
our ability to pay dividends and to obtain regulatory approvals necessary to proceed with certain aspects of our business plan,
including our acquisition plans.
Our controls and procedures may fail or be circumvented.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies and
procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide
only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls
and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our
business, results of operations and financial condition.
We are exposed to operational risk as a result of providing certain services, which could adversely affect our results of
operations.
We are exposed to operational risk as a result of providing various fee-based services including electronic banking, item
processing, data processing, correspondent banking, merchant services, and asset management. Operational risk is the risk of loss
resulting from errors related to transaction processing, breaches of the internal control system and compliance requirements, fraud
by employees or persons outside the company or business interruption due to system failures or other events. We continually
assess and monitor operational risk in our business lines and provide for disaster and business recovery planning including
geographical diversification of our facilities; however, the occurrence of various events including unforeseeable and
unpreventable events such as hurricanes or other natural disasters could still damage our physical facilities or our computer
systems or software, cause delay or disruptions to operational functions, impair our clients, vendors and counterparties and
negatively impact our results of operations. Operational risk also includes potential legal or regulatory actions that could arise as
a result of noncompliance with applicable laws and regulatory requirements which could have an adverse affect on our reputation.
Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.
We face vigorous competition from other banks and other financial institutions, including savings and loan associations, savings
banks, finance companies and credit unions for deposits, loans and other financial services in our market area. A number of these
banks and other financial institutions are significantly larger than we are and have substantially greater access to capital and other
resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. To a limited extent, we
also compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance
companies, insurance companies and governmental organizations which may offer more favorable financing than we can. Many
of our non-bank competitors are not subject to the same extensive regulations that govern us. As a result, these non-bank
competitors have advantages over us in providing certain services. This competition may reduce or limit our margins and our
market share and may adversely affect our results of operations and financial condition.
We are subject to extensive regulation that could restrict our activities and impose financial requirements or limitations on
the conduct of our business and limit our ability to receive dividends from the Bank.
The Bank is subject to extensive regulation, supervision and examination by the Florida Department of Financial Services, the
Federal Reserve, and the FDIC. As a member of the Federal Home Loan Bank (“FHLB”), the Bank must also comply with
applicable regulations of the Federal Housing Finance Board and the FHLB. Regulation by these agencies is intended primarily
for the protection of our depositors and the deposit insurance fund and not for the benefit of our shareowners. The Bank’s
activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities. A sufficient
claim against us under these laws could have a material adverse effect on our results. Please refer to the Section entitled
“Business – Regulatory Considerations” of this Report.
17
Risks Related to an Investment in Our Common Stock
Limited trading activity for shares of our common stock may contribute to price volatility.
While our common stock is listed and traded on The NASDAQ Global Select Market, there has been limited trading activity in
our common stock. The average daily trading volume of our common stock over the twelve-month period ending December 31,
2006 was approximately 20,449 shares. Due to the limited trading activity of our common stock, relativity small trades may have
a significant impact on the price of our common stock.
Our insiders have substantial control over matters requiring shareowner approval, including changes of control.
Our shareowners who own more than 5% of our common stock, directors, and executive officers, beneficially owned
approximately 46.4% of the outstanding shares of our stock as of December 31, 2006. Accordingly, these principal shareowners,
directors, and executive officers, if acting together, may be able to influence or control matters requiring approval by our
shareowners, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions.
They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to
your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our
company, could deprive our shareowners of an opportunity to receive a premium for their common stock as part of a sale of our
company and might ultimately affect the market price of our common stock.
Our Articles of Incorporation, Bylaws, and certain laws and regulations may prevent or delay transactions you might
favor, including a sale or merger of CCBG.
CCBG is registered with the Federal Reserve as a financial holding company under the Gramm-Leach-Bliley Act and is registered
with the Federal Reserve as a bank holding company under the BHCA. As a result, we are subject to supervisory regulation and
examination by the Federal Reserve. The Gramm-Leach-Bliley Act, the BHCA, and other federal laws subject financial holding
companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory
requirements and activities, including regulatory enforcement actions for violations of laws and regulations.
Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations and various other factors may make it more
difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is
possible, however, that you would want a takeover attempt to succeed because, for example, a potential buyer could offer a
premium over the then prevailing price of our common stock.
For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareowner action. The
ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender offer,
merger, proxy contest or otherwise. Additionally, our Articles of Incorporation and Bylaws divide our Board of Directors into
three classes, as nearly equal in size as possible, with staggered three-year terms. One class is elected each year. The
classification of our Board of Directors could make it more difficult for a company to acquire control of us. We are also subject to
certain provisions of the Florida Business Corporation Act and our Articles of Incorporation that relate to business combinations
with interested shareowners. Other provisions in our Articles of Incorporation or Bylaws that may discourage takeover attempts
or make them more difficult include:
(cid:131) Supermajority voting requirements to remove a director from office;
(cid:131) Provisions regarding the timing and content of shareowner proposals and nominations;
(cid:131) Supermajority voting requirements to amend Articles of Incorporation unless approval is received by a majority of
“disinterested directors”;
(cid:131) Absence of cumulative voting; and
(cid:131)
Inability for shareowners to take action by written consent.
Item 1B. Unresolved Staff Comments
None.
18
Item 2.
Properties
We are headquartered in Tallahassee, Florida. Our executive office is in the Capital City Bank building located on the corner of
Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by the Bank, but is located on land leased under
a long-term agreement.
The Bank's Parkway Office is located on land leased from the Smith Interests General Partnership L.L.P. in which several
directors and officers have an interest. The annual lease provides for payments of approximately $109,000, to be adjusted for
inflation in future years.
As of February 28, 2007, the Bank had 69 banking locations. Of the 69 locations, the Bank leases the land, buildings, or both at
14 locations and owns the land and buildings at the remaining 55.
Item 3.
Legal Proceedings
We are party to lawsuits and claims arising out of the normal course of business. In management's opinion, there are no known
pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on our
consolidated results of operations, financial position, or cash flows.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity, Related Shareowner Matters, and Issuer Purchases of Equity
Securities
Common Stock Market Prices and Dividends
Our common stock trades on the NASDAQ Global Select Market under the symbol "CCBG."
The following table presents the range of high and low closing sales prices reported on the NASDAQ Global Select Market and
cash dividends declared for each quarter during the past two years, as adjusted for our 5-for-4 stock split effective July 1, 2005.
We had a total of 1,805 shareowners of record as of February 28, 2007.
2006
2005
Fourth
Qtr.
Third
Qtr.
Second
Qtr.
First
Qtr.
Fourth
Qtr.
Third
Qtr.
Second
Qtr.
First
Qtr.
Common stock price:
High
Low
Close
Cash dividends declared per share
$ 35.98 $
30.14
35.30
.1750
33.25 $
29.87
31.10
.1625
35.39 $
29.51
30.20
.1625
37.97 $
33.79
35.55
.1625
39.33 $
33.21
34.29
.1625
38.72 $ 33.46 $
31.78 28.02
37.71 32.32
.1520
.1520
33.60
29.30
32.41
.1520
Future payment of dividends will be subject to determination and declaration by our Board of Directors. Florida law limits our
payment of dividends. There are also legal limits on the frequency and amount of dividends that CCB can pay us. See
subsection entitled "Dividends" in the Business section on page 9, in the Management's Discussion and Analysis of Financial
Condition and Operating Results on page 43 and Note 14 in the Notes to Consolidated Financial Statements. These
restrictions may limit our ability to pay dividends to our shareowners. As of February 28, 2007, we do not believe these
restrictions will impair our ability to declare and pay our routine and customary dividends.
19
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table contains information about all purchases made by or on behalf of us or any affiliated purchaser (as defined in
Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of our equity securities that is registered pursuant
to Section 12 of the Exchange Act.
Period
October 1, 2006 to October
31, 2006
November 1, 2006 to
November 30, 2006
December 1, 2006 to
December 31, 2006
Total number
of shares
purchased
Average
price paid
per share
-
11,581
4,139
-
$32.98
32.90
Total
15,720
$32.96
Total number of
shares purchased as
part of our share
repurchase program(1)
Maximum Number
of shares that
may yet be purchased
under our share
repurchase program
-
879,837
883,976
883,976
307,758
296,177
292,038
292,038
(1) This balance represents the number of shares that were repurchased through the Capital City Bank Group, Inc. Share
Repurchase Program, which was approved on March 30, 2000, and modified by our Board on January 24, 2002 (the
"Program") under which we were authorized to repurchase up to 1,171,875 shares of our common stock. The Program is
flexible and shares are acquired from the public markets and other sources with either free cash flow or borrowed funds.
There is no predetermined expiration date for the Program.
Performance Graph
This performance graph compares the cumulative total shareholder return on our common stock with the cumulative total
shareholder return of the NASDAQ Composite Index and the SNL Financial LC $1B-$5B Bank Index for the past five years. The
graph assumes that $100 was invested on December 31, 2001 in our common stock and each of the above indices, and that all
dividends were reinvested. The shareholder return shown below represents past performance and should not be considered
indicative of future performance.
Total Return Performance
300
250
200
150
100
u
al
V
x
e
d
n
I
50
12/31/01
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
Capital City Bank Group, Inc.
NASDAQ Composite
SNL $1B-$5B Bank Index
Index
Capital City Bank Group, Inc.
NASDAQ Composite
SNL $1B-$5B Bank Index
12/31/01
100.00
100.00
100.00
12/31/02
168.06
68.76
115.44
12/31/03
251.02
103.67
156.98
12/31/04 12/31/05
242.31
115.57
190.43
232.18
113.16
193.74
12/31/06
254.43
127.58
220.36
Period Ending
20
Item 6. Selected Financial Data
(Dollars in Thousands, Except Per Share Data)(1)
2006
For the Years Ended December 31,
2003
2004
2005
2002
Interest Income
Net Interest Income
Provision for Loan Losses
Net Income
Per Common Share:
Basic Net Income
Diluted Net Income
Cash Dividends Declared
Book Value
Key Performance Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin (FTE)
Dividend Pay-Out Ratio
Equity to Assets Ratio
Asset Quality:
Allowance for Loan Losses
Allowance for Loan Losses to Loans
Nonperforming Assets
Nonperforming Assets to Loans + ORE
Allowance to Nonperforming Loans
Net Charge-Offs to Average Loans
Averages for the Year:
Loans, Net
Earning Assets
Total Assets
Deposits
Subordinated Notes
Long-Term Borrowings
Shareowners' Equity
Year-End Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Subordinated Notes
Long-Term Borrowings
Shareowners' Equity
$
$
$
165,893 $
119,136
1,959
33,265
140,053 $
109,990
2,507
30,281
101,525 $
86,084
2,141
29,371
94,830 $
79,991
3,436
25,193
104,165
81,662
3,297
23,082
1.79 $
1.79
.663
17.01
1.29%
10.48
5.35
37.01
12.15
1.66 $
1.66
.619
16.39
1.22%
10.56
5.09
37.35
11.65
1.74 $
1.74
.584
14.51
1.53 $
1.52
.525
15.27
1.46%
13.31
4.88
33.62
10.86
1.40%
12.82
5.01
34.51
10.98
1.40
1.39
.402
14.08
1.34%
12.85
5.35
28.87
10.22
17,217 $
0.86%
8,731
0.44
214.09
0.11
17,410 $
0.84%
5,550
0.27
331.11
0.13
16,037 $
0.88%
5,271
0.29
345.18
0.22
12,429 $
0.93%
7,301
0.54
529.80
0.27
12,495
0.97%
3,843
0.30
497.72
0.23
$ 2,029,397 $ 1,968,289 $ 1,538,744 $ 1,318,080 $ 1,256,107
1,556,500
1,789,843
1,727,180
2,006,745
1,424,999
1,599,201
5,155
-
30,423
59,462
179,652
220,731
2,258,277 2,187,672
2,581,078 2,486,733
2,034,931 1,954,888
50,717
70,216
286,712
1,624,680
1,804,895
1,431,808
-
55,594
196,588
62,887
57,260
317,336
$ 1,999,721 $ 2,067,494 $ 1,828,825 $ 1,341,632 $ 1,285,221
1,636,472
2,113,571
1,824,771
2,364,013
1,434,200
1,894,886
30,928
-
71,745
68,453
186,531
256,800
2,270,410 2,299,677
2,597,910 2,625,462
2,081,654 2,079,346
62,887
69,630
305,776
1,648,818
1,846,502
1,474,205
-
46,475
202,809
62,887
43,083
315,770
Other Data:
Basic Average Shares Outstanding
Diluted Average Shares Outstanding
Shareowners of Record(2)
Banking Locations(2)
Full-Time Equivalent Associates(2)
18,584,519 18,263,855
18,609,839 18,281,243
1,716
69
1,013
1,805
69
1,056
16,805,696
16,810,926
1,598
60
926
16,528,109
16,563,986
1,512
57
795
16,531,606
16,592,944
1,457
54
781
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005, and the 5-for-4 stock
split effective June 13, 2003.
(2) As of the record date. The record date is on or about March 1st of the following year.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis ("MD&A") provides supplemental information, which sets forth the major factors that
have affected our financial condition and results of operations and should be read in conjunction with the Consolidated
Financial Statements and related notes. The MD&A is divided into subsections entitled "Business Overview," "Financial
Overview," "Results of Operations," "Financial Condition," "Liquidity and Capital Resources," "Off-Balance Sheet
Arrangements," and "Accounting Policies." Information therein should facilitate a better understanding of the major factors
and trends that affect our earnings performance and financial condition, and how our performance during 2006 compares with
prior years. Throughout this section, Capital City Bank Group, Inc., and its subsidiary, collectively, are referred to as
"CCBG," "Company," "we," "us," or "our."
In this MD&A, we present an operating efficiency ratio and an operating net noninterest expense as a percent of average
assets, both of which are not calculated based on accounting principles generally accepted in the United States ("GAAP"), but
that we believe provide important information regarding our results of operations. Our calculation of the operating efficiency
ratio is computed by dividing noninterest expense less intangible amortization and one-time merger expenses, by the sum of
tax equivalent net interest income and noninterest income. We calculate our operating net noninterest expense as a percent of
average assets by subtracting noninterest expense excluding intangible amortization and one-time merger expenses from
noninterest income. Management uses these non-GAAP measures as part of its assessment of its performance in managing
noninterest expenses. We believe that excluding intangible amortization and one-time merger expenses in our calculations
better reflect our periodic expenses and is more reflective of normalized operations.
Although we believe the above-mentioned non-GAAP financial measures enhance investors’ understanding of our business
and performance these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, there are
material limitations associated with the use of these non-GAAP financial measures such as the risks that readers of our
financial statements may disagree as to the appropriateness of items included or excluded in these measures and that our
measures may not be directly comparable to other companies that calculate these measures differently. Our management
compensates for these limitations by providing detailed reconciliations between GAAP information and the non-GAAP
financial measure as detailed below.
Reconciliation of operating efficiency ratio to efficiency ratio –
Efficiency ratio
Effect of intangible amortization and one-time merger expenses
Operating efficiency ratio
Reconciliation of operating net noninterest expense ratio –
Net noninterest expense as a percent of average assets
Effect of intangible amortization and one-time merger expenses
Operating net noninterest expense ratio
For the Years Ended December 31,
2004
2006
2005
64.73%
68.46%
68.87%
(3.17%)
(3.67)%
(3.45)%
61.56%
64.79%
65.42%
For the Years Ended December 31,
2004
2006
2005
1.93%
2.44%
2.56%
(0.22)%
(0.24)%
(0.24)%
1.71%
2.20%
2.32%
22
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto
included in this Annual Report on Form 10-K.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including this MD&A section, contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements
about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and
uncertainties and are subject to change based on various factors, many of which are beyond our control. The words "may,"
"could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target," "goal," and similar
expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements. Please see the Introductory Note and Item 1A Risk Factors
of this Annual Report for a discussion of factors that could cause our actual results to differ materially from those in the
forward-looking statements. However, other factors besides those listed in Item 1A Risk Factors or discussed in this Annual
Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all
potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are
made. We do not undertake to update any forward-looking statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Tallahassee, Florida and are the parent of our wholly-owned subsidiary,
Capital City Bank (the "Bank" or "CCB"). The Bank offers a broad array of products and services through a total of 69 full-
service offices located in Florida, Georgia, and Alabama. The Bank also has mortgage lending offices in three additional Florida
communities, and one Georgia community. The Bank offers commercial and retail banking services, as well as trust and asset
management, merchant services, securities brokerage and data processing services.
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference
between the interest received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities,
principally deposits and borrowings. Results of operations are also affected by the provision for loan losses, operating expenses
such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest income
such as service charges on deposit accounts, asset management and trust fees, mortgage banking revenues, merchant service fees,
brokerage and data processing revenues.
Our philosophy is to grow and prosper, building long-term relationships based on quality service, high ethical standards, and safe
and sound banking practices. We are a super-community bank in the relationship banking business with a locally oriented,
community-based focus, which is augmented by experienced, centralized support in select specialized areas. Our local market
orientation is reflected in our network of banking office locations, experienced community executives, and community advisory
boards which support our focus on responding to local banking needs. We strive to offer a broad array of sophisticated products
and to provide quality service by empowering associates to make decisions in their local markets.
Pursuant to our long-term strategic initiative, "Project 2010", we have continued our expansion, emphasizing a combination of
growth in existing markets and acquisitions. Acquisitions will continue to be focused on a three state area including Florida,
Georgia, and Alabama with a particular focus on financial institutions, which are $100 million to $400 million in asset size and
generally located on the outskirts of major metropolitan areas. We continue to evaluate de novo expansion opportunities in
attractive new markets in the event that acquisition opportunities are not feasible. Other expansion opportunities that will be
evaluated include asset management, insurance, and mortgage banking.
23
Recent Acquisitions. On May 20, 2005, we completed our merger with First Alachua Banking Corporation ("FABC"),
headquartered in Alachua, Florida. We issued approximately 906,000 shares of common stock and paid approximately $29.0
million in cash for a total purchase price of $58.0 million. FABC's wholly-owned subsidiary, First National Bank of Alachua, had
$228.3 million in assets at closing with seven offices in Alachua County and an eighth office in Hastings, Florida, which is in St.
Johns County.
On October 15, 2004, we completed our acquisition of Farmers and Merchants Bank ("FMB") in Dublin, Georgia, a $395 million
asset institution with three offices in Laurens County. We issued 21.35 shares and $666.50 in cash for each of the 50,000 shares of
Farmers and Merchants Bank, resulting in the issuance of 1,067,500 shares of our common stock and the payment of $33.3
million in cash for a total purchase price of approximately $66.7 million.
On March 19, 2004, our subsidiary, CCB, completed its merger with Quincy State Bank ("QSB"), a former subsidiary of Synovus
Financial Corp. QSB had $116.6 million in assets with one office in Quincy, Florida and one office in Havana, Florida. Both
markets adjoin Leon County, home to our Tallahassee headquarters. In addition, we acquired $208 million in trust and other
fiduciary assets from Synovus Trust Company, an affiliate of QSB. The purchase price was $28.1 million in cash.
Throughout this section, we refer to the acquisitions of FABC, FMB, and QSB as the "Recent Acquisitions."
FINANCIAL OVERVIEW
A summary overview of our financial performance for 2006 versus 2005 is provided below.
2006 Financial Performance Highlights –
(cid:131)
2006 earnings of $33.3 million, or $1.79 per diluted share, an increase of 9.9% and 7.8%, respectively, over 2005.
(cid:131) Growth in earnings was attributable to strong growth in operating revenues led by an 8.3% improvement in net interest
income and a 13.0% increase in noninterest income.
(cid:131) Tax equivalent net interest income grew 8.8% over 2005 due to growth in average earnings assets attributable to the FABC
acquisition and an improved net interest margin.
(cid:131) Net interest margin percentage improved 26 basis points over 2005 driven by higher earning asset yields and a slight
improvement in the earning asset mix.
(cid:131) Noninterest income grew 13.0% over 2005 due primarily to higher deposit fees, retail brokerage fees, and card processing
fees.
(cid:131) Strong credit quality continues to be a key driver in the Bank’s earnings performance. Net charge-offs totaled $2.1 million,
or .11% of average loans for 2006 compared to $2.5 million, or .13% in 2005. At year-end the allowance for loan losses
was .86% of outstanding loans and provided coverage of 214% of nonperforming loans.
(cid:131) We remain well-capitalized with a risk based capital ratio of 14.95%.
24
RESULTS OF OPERATIONS
Net income for 2006 totaled $33.3 million, or $1.79 per diluted share. This compares to $30.3 million or $1.66 per diluted share
in 2005, and $29.4 million, or $1.74 per diluted share in 2004. Results in 2006 reflect the acquisition of FABC in May 2005. Net
income in 2004 included a one-time, after-tax gain of $4.2 million, or $.25 per diluted share, from the sale of the Bank’s credit
card portfolio in August 2004.
The growth in earnings for 2006 of $3.0 million, or $.13 per diluted share, was primarily attributable to growth in operating
revenue (defined as the total of net interest income and noninterest income) of $15.5 million and a reduction in the loan loss
provision of $0.5 million, partially offset by an increase in noninterest expense of $11.8 million and income taxes of $1.3 million.
The increase in operating revenue was driven by an 8.3% increase in net interest income and a 13.0% increase in noninterest
income.
The growth in net interest income for 2006 reflects earning asset growth and an improved net interest margin. Higher deposit
service charge fees, retail brokerage fees, and card processing fees drove the increase in noninterest income. The lower loan loss
provision is reflective of a lower level of required reserves. The increase in noninterest expense is primarily attributable to higher
compensation and occupancy costs. The integration of the FABC acquisition was the primary reason for the increase in
compensation, and the addition of new banking offices, replacement offices, and renovations to existing properties drove the
increase in occupancy.
A condensed earnings summary for the last three years is presented in Table 1 below:
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share Data)(1)
Interest Income
Taxable Equivalent Adjustments
Total Interest Income (FTE)
Interest Expense
Net Interest Income (FTE)
Provision for Loan Losses
Taxable Equivalent Adjustments
Net Interest Income After Provision for Loan Losses
Noninterest Income
Gain on Sale of Credit Card Portfolios
Noninterest Expense
Income Before Income Taxes
Income Taxes
Net Income
Basic Net Income Per Share
Diluted Net Income Per Share
For the Years Ended December 31,
2005
2006
2004
$
$
$
$
165,893 $
1,812
167,705
46,757
120,948
1,959
1,812
117,177
55,577
-
121,568
51,186
17,921
33,265 $
1.79 $
1.79 $
140,053 $
1,222
141,275
30,063
111,212
2,507
1,222
107,483
49,198
-
109,814
46,867
16,586
30,281 $
1.66 $
1.66 $
101,525
1,207
102,732
15,441
87,291
2,141
1,207
83,943
43,372
7,181
89,226
45,270
15,899
29,371
1.74
1.74
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
Net Interest Income
Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by earning
assets, less interest expense paid on interest bearing liabilities. An analysis of our net interest income, including average yields
and rates, is presented in Tables 2 and 3. This information is presented on a "taxable equivalent" basis to reflect the tax-exempt
status of income earned on certain loans and investments, the majority of which are state and local government debt obligations.
In 2006, taxable equivalent net interest income increased $9.7 million, or 8.8%. This follows an increase of $23.9 million, or
27.4%, in 2005, and an increase of $5.9 million, or 7.2%, in 2004. The favorable impact in 2006 resulted from a $70.6 million, or
3.2%, growth in average earning assets and a 26 basis point improvement in the net interest margin percentage. These increases
reflect the integration of our acquisition of FABC, higher earning asset yields and a slight improvement in earning asset mix,
partially offset by higher funding cost. The increase in yields and funding costs are a result of the higher interest rate environment.
25
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars in
Thousands)
ASSETS
Loans, Net of Unearned Interest(1)(2)
Taxable Investment Securities
Tax-Exempt Investment Securities(2)
Funds Sold
Total Earning Assets
Cash & Due From Banks
Allowance for Loan Losses
Other Assets
TOTAL ASSETS
LIABILITIES
NOW Accounts
Money Market Accounts
Savings Accounts
Other Time Deposits
Total Int. Bearing Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Total Int. Bearing Liabilities
Noninterest Bearing Deposits
Other Liabilities
TOTAL LIABILITIES
2006
2005
2004
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest Rate
157,227
4,851
3,588
2,039
167,705
7.75% $
4.31%
4.81%
4.81%
7.42%
$
1.48% $
3.16%
0.21%
3.48%
2.43%
3.89%
5.92%
4.72%
2.70%
7,658
11,687
278
17,630
37,253
3,074
3,725
2,705
46,757
$ 2,029,397 $
112,392
74,634
41,854
2,258,277
100,237
(17,486)
240,050
$ 2,581,078
$
518,671 $
370,257
134,033
507,283
1,530,244
78,700
62,887
57,260
1,729,091
504,687
29,964
2,263,742
1,968,289 $
142,406
49,252
27,725
2,187,672
105,787
(17,081)
210,355
2,486,733
430,601 $
275,830
152,890
550,821
1,410,142
97,863
50,717
70,216
1,628,938
544,746
26,337
2,200,021
133,665
4,250
2,369
991
141,275
6.79% $
2.98%
4.81%
3.53%
6.46%
1,538,744 $
131,842
51,979
67,278
95,796
3,138
2,965
833
1,789,843 102,732
6.23%
2.38%
5.70%
1.24%
5.74%
$
.67% $
1.57%
0.19%
2.48%
1.50%
2.92%
5.88%
4.41%
1.85%
2,868
4,337
292
13,637
21,134
2,854
2,981
3,094
30,063
93,070
(13,846)
137,678
2,006,745
292,492 $
227,808
130,282
459,464
1,110,046
100,582
5,155
59,462
1,275,245
489,155
21,614
1,786,014
733
1,190
164
9,228
11,315
1,270
294
2,562
15,441
.25%
.52%
.13%
2.01%
1.02%
1.26%
5.71%
4.31%
1.21%
SHAREOWNERS' EQUITY
TOTAL SHAREOWNERS' EQUITY
317,336
286,712
220,731
TOTAL LIABILITIES & EQUITY
$ 2,581,078
$
2,486,733
$
2,006,745
Interest Rate Spread
Net Interest Income
Net Interest Margin(3)
$
120,948
4.72%
5.35%
$
111,212
4.61%
5.09%
$
87,291
4.53%
4.88%
(1)
(2)
(3)
Average balances include nonaccrual loans. Interest income includes loan fees of $3.8 million, $3.1 million, and $1.7 million in 2006, 2005, and 2004, respectively.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
Taxable equivalent net interest income divided by average earning assets.
26
Table 3
RATE/VOLUME ANALYSIS (1)
(Taxable Equivalent Basis - Dollars in Thousands)
Earning Assets:
Loans, Net of Unearned Interest (2)
Investment Securities:
Taxable
Tax-Exempt (2)
Funds Sold
2006 Changes From 2005
Due to Average
Rate
Volume
Total
2005 Changes From 2004
Due to Average
Total
Calendar (3) Volume
Rate
$ 23,562 $
5,760 $ 17,802
$ 37,870 $
(262) $
27,706 $
11,506
601
1,219
1,048
(689)
1,220
444
1,290
(1)
604
1,110
(597)
158
(3)
-
(2)
693
(156)
(488)
420
(441)
648
Total
26,430
6,735 19,695
38,541
(267)
27,125
11,683
Interest Bearing Liabilities:
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
4,790
7,350
(14)
3,993
221
744
(390)
586
1,485
(36)
(1,078)
(586)
715
(571)
4,204
5,865
22
5,071
807
29
181
2,134
3,148
128
4,408
1,585
2,687
532
(2)
(3)
(1)
(25)
(3)
(1)
(7)
347
251
28
1,840
83
2,609
465
1,789
2,900
101
2,593
1,505
79
74
Total
16,694
515 16,179
14,622
(42)
5,623
9,041
Changes in Net Interest Income
$
9,736 $
6,220 $
3,516
$ 23,919 $
(255) $
21,502 $
2,642
(1)
(2)
(3)
This table shows the change in taxable equivalent net interest income for comparative periods based on either changes in average volume or changes in average rates for earning assets and interest bearing liabilities. Changes which
are not solely due to volume changes or solely due to rate changes have been attributed to rate changes.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate to adjust interest on tax-exempt loans and securities to a taxable equivalent basis.
Reflects the difference in 365 day year (2005) versus 366 day year (2004).
27
For the year 2006, taxable equivalent interest income increased $26.4 million, or 18.7%, over 2005, and increased $38.5 million,
or 37.5%, in 2005 over 2004. Growth in 2006 was driven primarily by higher yields on earning assets and by the FABC
acquisition. Rising interest rates during the first six months, coupled with the re-pricing of existing earning assets were the
primary factors contributing to a 96 basis point improvement in the yield on earning assets, which increased from 6.46% in 2005
to 7.42% for 2006. This compares to a 72 basis point improvement in 2005 over 2004. As shown in Table 3, the loan portfolio
was a significant contributor to the increase in interest income. Growth in interest income is expected to slow significantly in
2007, reflecting the current interest rate environment and the slowdown in loan activity over recent quarters.
Interest expense increased $16.7 million, or 55.5%, over 2005, and $14.6 million, or 94.7%, in 2005 over 2004. Rising interest
rates and growth in interest bearing liabilities drove the increase in 2006. However, the impact of rising rates was partially offset
by a shift in mix, as certificates of deposit (generally a higher cost deposit product) declined relative to total deposits. Certificates
of deposit, as a percent of total average deposits, declined from 28.2% in 2005 to 24.9% in 2006. The average rate paid on
interest bearing liabilities in 2006 increased 85 basis points compared to 2005, reflecting both deposit competition and the Federal
Reserve's increases in the federal funds target rate. Interest expense is expected to trend upward in the upcoming year driven by
the higher rate environment and increasing competition for deposits.
Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on interest
bearing liabilities) increased 11 basis points in 2006 and increased 8 basis points in 2005. The increase in 2006 was primarily
attributable to the higher yields on earning assets.
Our net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets) was
5.35% in 2006, compared to 5.09% in 2005 and 4.88% in 2004. In 2006, the higher yields on earning assets (partially offset by
higher rates paid on interest bearing liabilities) resulted in a 26 basis point improvement in the margin.
During 2007, we anticipate some pressure on the net interest margin due to the increasing cost of deposits driven by the current
rate environment and market conditions, and the slowdown in loan activity, which we have experienced over the last several
quarters. A further discussion of our earning assets and funding sources can be found in the section entitled "Financial
Condition."
Provision for Loan Losses
The provision for loan losses was $2.0 million in 2006, compared to $2.5 million in 2005 and $2.1 million in 2004. As discussed
below, the analysis of our loan loss allowance resulted in a lower level of required reserves compared to 2005. The reduction in
required reserves was driven by a decline in specific reserves held for several large previously identified impaired loans that were
resolved during 2006. The loan loss provisions in both 2005 and 2004 were impacted by a re-assessment of the allowance for
loan losses to reflect the changing risk profile associated with the Bank’s sale of its credit card portfolio during the third quarter of
2004 and the integration of our 2004 and 2005 acquisitions.
Our net charge-offs continue to remain low as a percentage of our average loan portfolio. Net charge-offs for 2006 totaled $2.1
million, or .11% of average loans for the year compared to $2.5 million, or .13% for 2005 and $3.4 million, or .22% for 2004. At
December 31, 2006, the allowance for loan losses totaled $17.2 million compared to $17.4 million in 2005 and $16.0 million in
2004. At year-end 2006, the allowance represented .86% of total loans and provided coverage of 214% of nonperforming loans.
Management considers the allowance to be adequate based on the current level of nonperforming loans and the estimate of losses
inherent in the portfolio at year-end. See the section entitled "Financial Condition" and Tables 7 and 8 for further information
regarding the allowance for loan losses.
28
Noninterest Income
Noninterest income increased $6.4 million, or 13.0%, over 2005 primarily due to higher deposit fees, retail brokerage fees, and
card processing fees, which were slightly offset by the decrease in mortgage banking revenues.
In 2005, noninterest income (excluding the before-tax gain of $6.9 million on the sale of the Bank's credit card portfolio in August
2004) increased $5.5 million, or 12.6%, over 2004 primarily due to higher deposit service charge fees, asset management fees,
mortgage banking revenues, and merchant services fees.
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
Noninterest Income:
Service Charges on Deposit Accounts
Data Processing
Asset Management Fees
Retail Brokerage Fees
(Loss)/Gain on Sale of Investment Securities
Mortgage Banking Revenues
Merchant Services Fees
Interchange Fees
Gain on Sale of Credit Card Portfolios
ATM/Debit Card Fees
Other
Total Noninterest Income
For the Years Ended December 31,
2005
2006
2004
$
$
24,620 $
2,723
4,600
2,091
(4)
3,235
6,978
3,105
-
2,519
5,710
55,577 $
20,740 $
2,610
4,419
1,322
9
4,072
6,174
2,239
-
2,206
5,407
49,198 $
17,574
2,628
4,007
1,401
14
3,208
5,135
2,229
7,180
2,007
5,170
50,553
Various significant components of noninterest income are discussed in more detail below.
Service Charges on Deposit Accounts. Deposit service charge fees increased $3.9 million, or 18.7%, in 2006, compared to an
increase of $3.2 million, or 18.0%, in 2005. Deposit service charge revenues in any one year are dependent on the number of
accounts, primarily transaction accounts, the level of activity subject to service charges, and the collection rate. The increase in
deposit service charge fees in both 2006 and 2005 primarily reflects higher overdraft and nonsufficient funds ("NSF") fees due to
growth in deposit accounts attributable to Recent Acquisitions and our "Absolutely Free” checking products. Improved fee
collection efforts also contributed to the improvement in 2006.
Asset Management Fees. In 2006, asset management fees increased $181,000, or 4.1%, versus an increase of $412,000, or 10.3%,
in 2005. At year-end 2006, assets under management totaled $753.5 million, reflecting net growth of $60.5 million, or 8.7% over
2005. At year-end 2005, assets under management totaled $693.0 million, reflecting growth of $40.0 million, or 6.1% over 2004.
The increase in both years reflects growth in new business and improved asset returns.
Mortgage Banking Revenues. In 2006, mortgage banking revenues decreased $838,000, or 20.6%, compared to an increase of
$864,000, or 26.9% in 2005. The decline in 2006 reflects lower production reflective of a general slow-down in home purchase
and refinancing activity within Bank markets. The increase in 2005 reflects higher production over 2004 which was driven by
increased home purchase and construction activity in Bank markets and lower interest rates for residential real estate financing.
We generally sell all fixed rate residential loan production into the secondary market. The level of interest rates, origination
volume, and the percent of fixed rate production have significant impacts on our mortgage banking revenues.
Card Fees. Card processing fees (including merchant service fees, interchange fees, and ATM/debit card fees) increased $2.0
million, or 18.7% over 2005. Merchant services fees increased $805,000, or 13.0% in 2006 compared to a $1.0 million, or 20.2%
increase in 2005. The improvement in both periods is directly related to growth in merchant card transaction volume primarily
driven by growth in our client base. Interchange fees increased $866,000, or 38.7% compared to $10,000, or .45% in 2005, and
ATM/debit card fees increased $313,000, or 14.2% compared to $199,000, or 9.9% in 2005. The higher interchange and
ATM/debit card fees for both periods reflect an increase in our card base primarily associated with growth in deposit accounts.
Noninterest income as a percent of average assets was 2.15% in 2006, compared to 1.98% in 2005, and 2.52% in 2004. A higher
level of deposit fees drove the improvement from 2005 to 2006. The decline from 2004 to 2005 primarily reflects the impact of
the one-time gain on sale of the Bank's credit card portfolio in August 2004.
29
Noninterest Expense
Noninterest expense grew by $11.8 million, or 10.7%, over 2005. Higher expense for compensation, occupancy, intangible
amortization, and interchange fees were the primary reasons for the increase.
Noninterest expense increased $20.6 million, or 23.1%, in 2005 due to higher expense for compensation, occupancy, professional
fees, advertising, and intangible amortization.
The table below reflects the major components of noninterest expense.
(Dollars in Thousands)
Noninterest Expense:
Salaries
Associate Benefits
Total Compensation
Premises
Equipment
Total Occupancy
Legal Fees
Professional Fees
Processing Services
Advertising
Travel and Entertainment
Printing and Supplies
Telephone
Postage
Intangible Amortization
Merger Expense
Interchange Fees
Courier Service
Miscellaneous
Total Other
For the Years Ended December 31,
2005
2006
2004
$
46,604 $
14,251
60,855
40,978 $
12,709
53,687
9,395
9,911
19,306
1,734
3,402
1,863
4,285
1,664
2,472
2,323
1,145
6,085
-
6,010
1,307
9,117
41,407
8,293
8,970
17,263
1,827
3,825
1,481
4,275
1,414
2,372
2,493
1,195
5,440
438
5,402
1,360
7,342
38,864
33,968
10,377
44,345
7,074
8,393
15,467
1,301
2,858
997
2,001
1,023
1,854
2,048
1,007
3,824
550
4,741
1,143
6,067
29,414
Total Noninterest Expense
$
121,568 $
109,814 $
89,226
Compensation. Salaries and associate benefits expense increased $7.2 million, or 13.4% over 2005. For the year, we experienced
increases in associate salaries of $5.4 million, payroll tax expense of $300,000, associate insurance expense of $329,000, pension
plan expense of $378,000, and stock-based compensation of $705,000. The increase in associate salaries and payroll tax expense
reflects the addition of FABC associates, annual merit/market based raises for associates, and lower realized loan cost. Realized
loan cost reflects the impact of Statement of Financial Accounting Standard (“SFAS”) No. 91 "Accounting for Nonrefundable
Fees and Costs Associated with Acquiring Loans", which requires deferral and amortization of loan costs that are accounted for as
a credit offset to salary expense. The decrease in the number of loans originated reduced the amount of this offset as compared to
2005. The increase in expense for insurance and pension benefits is reflective of an increase in eligible participants. The higher
pension expense is also due to a lower discount rate used for the 2006 expense projection. Higher stock based compensation
reflects an increase in plan participants and higher target awards due to the adoption of our new Stock-based Incentive
Compensation Plan, which rewards our senior management team for meeting certain milestones toward our Project 2010 earnings
goal.
In 2005, compensation increased $9.3 million, or 21.1%, over 2004. The increase in compensation was driven by higher expense
for associate salaries, pension, and insurance benefits, primarily reflective of the integration of associates from acquisitions in late
2004 and mid-2005.
30
Occupancy. Occupancy expense (including furniture, fixtures and equipment) increased by $2.0 million, or 11.8%, in 2006,
compared to $1.8 million, or 11.6% in 2005. For 2006, we experienced increases in depreciation of $895,000, maintenance and
repairs (for our buildings as well as furniture, fixtures, and equipment) of $276,000, utilities of $343,000, maintenance agreements
of $364,000, and building insurance of $143,000. The increase in depreciation is related to the addition of FABC offices as well
as renovations. An increase in our general maintenance service expense associated with new and existing banking offices, core
processing/networking systems and ATM’s drove the increase in maintenance and repairs. Utility expense increased due to a
mid-year rate hike and the addition of FABC offices in mid-2005. The increase in expense for maintenance agreements is
primarily due to an increase in core processing and networking costs partially attributable to enhancement of our back-up and
recovery capabilities. The addition of new and replacement offices, renovations of existing offices, and an insurance premium
increase drove the increase in building insurance.
The increase in 2005 was driven by higher expense for depreciation, maintenance and repair, and property taxes, primarily
attributable to the increase in the number of banking offices, and higher expense for core processing and other software
maintenance agreements.
Other. Other noninterest expense increased $2.5 million, or 6.5%, in 2006, compared to $9.4 million, or 32.1% in 2005. The
increase in 2006 was primarily attributable to higher expense for the following categories: 1) processing services - $382,000, 2)
travel and entertainment - $250,000, 3) intangible amortization - $645,000, 4) interchange fees - $608,000, and 5) miscellaneous -
$1.4 million. The increase in processing services is due to the addition of core processing system applications and system upgrade
and enhancements. The higher expense for travel and entertainment is linked primarily to an increase in associate training and
company events during the year. The increase in intangible amortization reflects new core deposit amortization from the FABC
acquisition. The increase in interchange fees is due to increased merchant card transaction volume. Miscellaneous expense grew
due to increases in other losses, ATM/debit card production, associate hiring expense, and associate training expense.
The increase in 2005 was attributable primarily to: (1) higher legal expense of $526,000; (2) higher professional fees of $967,000;
(3) increased processing service cost of $484,000; (4) higher advertising costs of $2.3 million, related to our “Absolutely Free”
checking program; (5) increased printing and supply expense of $518,000; (6) higher intangible amortization of $1.6 million; (7)
increased interchange fees of $661,000; and (8) higher miscellaneous expense of $1.3 million.
The operating net noninterest expense ratio (defined as noninterest income minus noninterest expense, net of intangible
amortization and one-time merger expenses, as a percent of average assets) was 2.32% in 2006 compared to 2.20% in 2005, and
1.71% in 2004. Our operating efficiency ratio (expressed as noninterest expense, net of intangible amortization and one-time
merger expenses, as a percent of taxable equivalent net interest income plus noninterest income) was 65.4%, 64.8%, and 61.6% in
2006, 2005 and 2004, respectively. The increase in these operating ratios is due to the expense growth noted above. Management
has recently taken steps to strengthen our expense control procedures, including enhancement of current expense policies, creation
of an expense control committee, which will focus on identifying cost savings strategies, and implementation of a new software
system to improve accountability for expense management across our various divisions. Management believes it has been
successful in identifying in excess of $3.5 million in either new incremental revenue or cost savings. A portion of these profit
enhancement initiatives were implemented during the later half of 2006 while the remainder will be implemented during 2007.
Income Taxes
The consolidated provision for federal and state income taxes was $17.9 million in 2006, compared to $16.6 million in 2005, and
$15.9 million in 2004. The increase in all three years was due to higher taxable income driven by earnings growth. Lower tax-
exempt income also contributed to the increase in 2005.
The effective tax rate was 35.0% in 2006, 35.4% in 2005, and 35.1% in 2004. These rates differ from the combined federal and
state statutory tax rates due primarily to tax-exempt income on loans and securities.
31
FINANCIAL CONDITION
Our balance sheet reflects the acquisition of FABC in May 2005. Average assets totaled $2.6 billion, an increase of $94.3 million,
or 3.8%, in 2006 versus the comparable period in 2005. Average earning assets for 2006 were $2.3 billion, representing an
increase of $70.6 million, or 3.2%, over 2005. Growth in average loans of $61.1 million, or 3.1% and average funds sold of $14.1
million, or 51.0% were the reasons for the earning asset increase in 2006. Partially offsetting these increases was a decrease in
average investment securities of $4.6 million, or 2.4%. We discuss these variances in more detail below.
Table 2 provides information on average balances and rates, Table 3 provides an analysis of rate and volume variances, and Table
4 highlights the changing mix of our earning assets over the last three years.
Loans
Average loans increased $61.1 million, or 3.1%, over the comparable period in 2005. Loans as a percent of average earning assets
were 90.0% in both 2006 and 2005. Our loan growth reflects the acquisition of FABC in May 2005. A high level of principal
pay-downs and loan pay-offs, and a general slowdown in existing markets negatively impacted loan growth. The average loan
portfolio declined in each of the last four quarters and was down $59.1 million, or 2.9% from the fourth quarter of 2005 to the
fourth quarter of 2006.
Although management is continually evaluating alternative sources of revenue, lending is a major component of our business and
is key to our profitability. While we strive to identify opportunities to increase loans outstanding and enhance the portfolio's
overall contribution to earnings, we will only do so by adhering to sound lending principles applied in a prudent and consistent
manner. Thus, we will not relax our underwriting standards in order to achieve designated growth goals.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances – Dollars In Thousands)
Loans:
Commercial, Financial, and Agricultural
Real Estate – Construction
Real Estate – Commercial
Real Estate – Residential
Consumer
Total Loans
Investment Securities:
Taxable
Tax-Exempt
Total Securities
2005 to
2006
Change
Percentage
Of Total
Change
Components of
Average Earning Assets
2004
2005
2006
$ 11,642
23,811
(20,392)
42,022
4,025
61,108
(30,014)
25,382
(4,632)
16.0%
34.0%
(29.0%)
60.0%
6.0%
87.0%
(43.0%)
36.0%
(7.0%)
9.7%
7.8%
29.5%
32.2%
10.7%
89.9%
9.5%
6.9%
31.4%
31.3%
10.9%
90.0%
10.3%
6.2%
27.3%
29.1%
13.1%
86.0%
5.0%
3.2%
8.2%
6.5%
2.3%
8.8%
7.4%
2.9%
10.3%
Funds Sold
14,129
20.0%
1.9%
1.2%
3.7%
Total Earning Assets
$ 70,605
100.0%
100.0%
100.0%
100.0%
Our average loan-to-deposit ratio decreased to 99.7% in 2006 from 100.7% in 2005. This compares to an average loan-to-deposit
ratio in 2004 of 96.2%. The lower loan-to-deposit ratio in 2006 reflects strong deposit growth in relation to the loan growth. The
higher average loan-to-deposit ratio in 2005 reflects strong loan growth.
The composition of our loan portfolio at December 31, for each of the past five years is shown in Table 5. Table 6 arrays our total
loan portfolio as of December 31, 2006, based upon maturities. As a percent of the total portfolio, loans with fixed interest rates
represent 35.7% as of December 31, 2006, versus 34.9% at December 31, 2005.
32
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial
Real Estate - Residential
Consumer
Total Loans, Net of Unearned Interest
Table 6
LOAN MATURITIES
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate
Consumer(1)
Total
Loans with Fixed Rates
Loans with Floating or Adjustable Rates
Total
$
2006
229,327 $
179,072
643,885
709,735
237,702
2002
141,459
91,110
356,807
474,069
221,776
$ 1,999,721 $ 2,067,494 $ 1,828,825 $ 1,341,632 $ 1,285,221
2003
160,048 $
89,149
391,250
467,790
233,395
2005
218,434 $
160,914
718,741
723,336
246,069
As of December 31,
2004
206,474 $
140,190
655,426
600,375
226,360
Maturity Periods
Over One
Through
Five Years
Over
Five
Years
One Year
or Less
$
$
$
$
96,103
456,980
31,788
584,871
301,995
282,876
584,871
96,313
225,088
201,772
523,173
421,040
102,133
523,173
36,911
850,624
4,142
891,677
95,952
795,725
891,677
Total
229,327
1,532,692
237,702
1,999,721
818,987
1,180,734
1,999,721
(1) Demand loans and overdrafts are reported in the category of one year or less.
Allowance for Loan Losses
Management believes it maintains the allowance for loan losses at a level sufficient to provide for the estimated credit losses
inherent in the loan portfolio as of the balance sheet date. Credit losses arise from the borrowers’ inability or unwillingness to
repay, and from other risks inherent in the lending process including collateral risk, operations risk, concentration risk, and
economic risk. As such, all related risks of lending are considered when assessing the adequacy of the allowance. The allowance
for loan losses is established through a provision charged to expense. Loans are charged against the allowance when management
believes collection of the principal is unlikely. The allowance for loan losses is based on management's judgment of overall credit
quality. This is a significant estimate based on a detailed analysis of the loan portfolio. The balance can and will change based on
changes in the assessment of the portfolio's overall credit quality and other risk factors both internal and external to us.
Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. Loans that have been identified as
impaired are reviewed for adequacy of collateral, with a specific reserve assigned to those loans when necessary. Impaired loans
are defined as those in which the full collection of principal and interest in accordance with the contractual terms is improbable.
Impaired loans generally include those that are past due for 90 days or more and those classified as doubtful in accordance with
our risk rating system. Loans classified as doubtful have a high possibility of loss, but because of certain factors that may work to
strengthen the loan, its classification as a loss is deferred until a more exact status may be determined. Not all loans are
considered in the review for impairment; only loans that are for business purposes exceeding $25,000 are considered. The
evaluation is based on current financial condition of the borrower or current payment status of the loan.
33
The method used to assign a specific reserve depends on whether repayment of the loan is dependent on liquidation of collateral.
If repayment is dependent on the sale of collateral, the reserve is equivalent to the recorded investment in the loan less the fair
value of the collateral after estimated sales expenses. If repayment is not dependent on the sale of collateral, the reserve is
equivalent to the recorded investment in the loan less the estimated cash flows discounted using the loan’s effective interest rate.
The discounted value of the cash flows is based on the anticipated timing of the receipt of cash payments from the borrower. The
reserve allocations assigned to impaired loans are sensitive to the extent market conditions or the actual timing of cash receipts
change.
Once specific reserves have been assigned to impaired loans, general reserves are assigned to the remaining portfolio. General
reserves are assigned to commercial purpose loans of $100,000 or more that are not impaired and large groups of smaller-balance
homogenous loans, including commercial loans less than $100,000, consumer loans, and residential mortgage loans.
Commercial purpose loans exceeding $100,000 that are not impaired, but exhibit specific weaknesses are detailed in a monthly
Problem Loan Report. These loans are divided into seven different pools based on various risk characteristics and the underlying
value of collateral taken to secure specific loans within the pools. These classified loans are monitored for changes in risk ratings
that are assigned based on the Bank’s Asset Classification Policy, and for the ultimate disposition of the loan. The ultimate
disposition may include upgrades in risk ratings, payoff of the loan, or charge-off of the loan. This migration analysis results in a
loan loss ratio by loan pool of classified loans that is applied to the balance of the pool to determine general reserves for
specifically identified pools of problem loans. This charge-off ratio is adjusted for various environmental factors including past
due and nonperforming trends in the loan portfolio, the micro- and macro-economic outlook, and credit administration practices as
determined by independent parties.
General reserves are assigned to smaller balance homogenous loan pools, including commercial loans less than $100,000,
consumer loans, and residential mortgage loans based on calculated overall loan loss ratios for the past three years. The loan loss
ratios applied are adjusted for various environmental factors.
The allowance for loan losses is compared against the sum of the specific reserves assigned to impaired loans plus the general
reserves assigned to the remaining portfolio. Adjustments are made when appropriate. A most likely reserve value is determined
within the computed range of required calculated reserve, with the actual allowance for loan losses compared to the most likely
reserve value. The unallocated reserve is monitored on a regular basis and adjusted based on management’s determination of
estimation risk and other existing conditions that are not included in the allocated allowance determination. Table 7 analyzes the
activity in the allowance over the past five years.
The allowance for loan losses of $17.2 million at December 31, 2006 is similar to the allowance of $17.4 million at year-end
2005. As a percent of total loans, the allowance was .86% in 2006 and .84% in 2005. The allowance for loan losses reflects
management’s current estimation of the credit quality of our loan portfolio. While there can be no assurance that we will not
sustain loan losses in a particular period that are substantial in relation to the size of the allowance, management’s assessment of
the loan portfolio does not indicate a likelihood of this occurrence. It is management’s opinion that the allowance at December
31, 2006 is adequate to absorb losses inherent in the loan portfolio at year-end.
Table 8 provides an allocation of the allowance for loan losses to specific loan types for each of the past five years. The reserve
allocations, as calculated using the above methodology, are assigned to specific loan categories corresponding to the type
represented within the components discussed. There was a significant change in the reserve allocation in 2004 as noted by
reserves held for the consumer loan, commercial real estate, and commercial portfolios. The Bank's credit card portfolio, which
previously accounted for up to one-third of net loan losses annually, was sold in August 2004, thus reducing the reserves required
to support consumer loans. The large increase in 2004 for reserves held for commercial real estate and commercial loans was due
to the acquisition of loans from FMB in late 2004. Additionally, FABC was acquired during 2005, which pushed total reserves
higher.
34
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
Balance at Beginning of Year
Acquired Reserves
Reserve Reversal(1)
Charge-Offs:
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial
Real Estate - Residential
Consumer
Total Charge-Offs
Recoveries:
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial
Real Estate - Residential
Consumer
Total Recoveries
2006
For the Years Ended December 31,
2003
2004
2005
2002
$
17,410 $
-
-
16,037 $
1,385
-
12,429 $
5,713
(800)
12,495 $
-
-
12,096
-
-
841
-
346
280
2,516
3,983
246
-
17
11
1,557
1,831
1,287
-
255
321
2,380
4,243
180
-
3
37
1,504
1,724
873
-
48
191
3,946
5,058
81
-
14
188
1,329
1,612
426
-
91
228
3,794
4,539
142
-
-
18
877
1,037
818
-
-
175
3,279
4,272
136
-
20
37
1,181
1,374
Net Charge-Offs
2,152
2,519
3,446
3,502
2,898
Provision for Loan Losses
1,959
2,507
2,141
3,436
3,297
Balance at End of Year
$
17,217 $
17,410 $
16,037 $
12,429 $
12,495
Ratio of Net Charge-Offs to Average Loans
Outstanding
Allowance for Loan Losses as a Percent of Loans at
End of Year
Allowance for Loan Losses as a Multiple of Net
Charge-Offs
.11%
.13%
.22%
.27%
.23%
.86%
.84%
.88%
.93%
.97%
8.00x
6.91x
4.65x
3.55x
4.31x
(1) Reflects recapture of reserves allocated to the credit card portfolio sold in August 2004.
35
Table 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2006
2005
2004
2003
2002
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Allowance
Amount
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
(Dollars in Thousands)
Allowance
Amount
Commercial, Financial and
Agricultural
Real Estate:
Construction
Commercial
Residential
Consumer
Not Allocated
$
3,900
11.5% $
3,663
10.6% $
4,341
11.3% $
2,824
11.9% $
2,740
11.0%
745
5,996
1,050
3,081
2,445
9.0
32.2
35.5
11.8
-
762
6,352
1,019
3,105
2,509
7.8
34.7
35.0
11.9
-
578
6,296
705
2,966
1,151
7.7
35.8
32.8
12.4
-
313
2,831
853
4,169
1,439
6.6
29.2
34.9
17.4
-
348
2,559
1,021
4,210
1,617
7.1
27.8
36.9
17.2
-
Total
$
17,217
100.0% $
17,410
100.0% $
16,037
100.0% $
12,429
100.0% $
12,495
100.0%
36
Risk Element Assets
Risk element assets consist of nonaccrual loans, renegotiated loans, other real estate, loans past due 90 days or more, potential
problem loans and loan concentrations. Table 9 depicts certain categories of our risk element assets as of December 31 for each
of the last five years. We discuss potential problem loans and loan concentrations within the narrative portion of this section.
Our nonperforming loans increased $2.8 million, or 52.9%, from a level of $5.3 million at December 31, 2005, to $8.0 million at
December 31, 2006. During 2006 we added loans totaling approximately $13.0 million to non-accruing status, while removing
loans totaling $10.3 million. Of the $10.3 million removed, $3.1 million consisted of principal reductions and loan payoffs, $1.3
million represented loans transferred to other real estate, $5.3 million consisted of loans brought current and returned to an accrual
status, and $.6 million was charged off. The increase in nonaccrual loans is partly attributable to the addition of one large
commercial real estate loan to nonaccrual status during the fourth quarter of 2006 for which no material loss is expected. Where
appropriate, management has allocated specific reserves to absorb anticipated losses on nonperforming loans.
We review non-accrual loans exceeding $25,000 not secured by 1-4 family residential properties quarterly for impairment. A
loan is considered impaired when the full collection of principal and interest in accordance with the contractual terms is
improbable. When a loan is considered impaired, we review our exposure to credit loss. If credit loss is probable, a specific
reserve is allocated to absorb the anticipated loss. We had $10.7 million in loans considered impaired at December 31, 2006. The
anticipated loss in those impaired loans is $2.3 million.
Table 9
RISK ELEMENT ASSETS
(Dollars in Thousands)
Nonaccruing Loans
Restructured
Total Nonperforming Loans
Other Real Estate
Total Nonperforming Assets
2006
2005
As of December 31,
2004
2003
2002
$
$
8,042 $
-
8,042
689
8,731 $
5,258 $
-
5,258
292
5,550 $
4,646 $
-
4,646
625
5,271 $
2,346 $
-
2,346
4,955
7,301 $
2,510
-
2,510
1,333
3,843
Past Due 90 Days or More
135
309
605 $
328 $
2,453
Nonperforming Loans/Loans
Nonperforming Assets/Loans Plus Other Real Estate
Nonperforming Assets/Capital(1)
.40%
.44%
.25%
.27%
.25%
.29%
.17%
.54%
.20%
.30%
2.62%
1.72%
1.93%
3.39%
1.93%
Allowance/Nonperforming Loans
214.09%
331.11%
345.18%
529.80%
497.72%
(1) For computation of this percentage, "Capital" refers to shareowners' equity plus the allowance for loan losses.
We generally recognize interest on non-accrual loans only when received. We apply cash collected on non-accrual loans against
the principal balance or recognize it as interest income based upon management’s expectations as to the ultimate collectibility of
principal and interest in full. If interest on non-accruing loans had been recognized on a fully accruing basis, we would have
recorded an additional $483,000 of interest income for the year ended December 31, 2006.
Other real estate totaled $689,000 at December 31, 2006, versus $292,000 at December 31, 2005. This category includes property
owned by the Bank that was acquired either through foreclosure procedures or by receiving a deed in lieu of foreclosure. During
2006, we added properties totaling $1.3 million, and partially or completely liquidated properties totaling $903,000, resulting in a
net increase in other real estate of approximately $397,000.
37
Potential problem loans are defined as those loans which are now current but where management has doubt as to the borrower’s
ability to comply with present loan repayment terms. Potential problem loans totaled $11.8 million at December 31, 2006,
compared to $9.8 million at year-end 2005.
Loans past due 90 days or more and still on accrual status totaled $135,000 at year-end, down from $309,000 at the previous year-
end.
Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar
activities which cause them to be similarly impacted by economic or other conditions and such amount exceeds 10% of total
loans. Due to the lack of diversified industry within the markets served by the Bank and the relatively close proximity of the
markets, we have both geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the
nature of our markets, a significant portion of the portfolio has historically been secured with real estate.
While we have a majority of our loans (76.7%) secured by real estate, the primary types of real estate collateral are commercial
properties and 1-4 family residential properties. At December 31, 2006, commercial real estate mortgage loans and residential
real estate mortgage loans accounted for 32.2% and 35.5%, respectively, of the loan portfolio.
Our real estate loan portfolio, while subject to cyclical pressures, is not unusually speculative in nature and is originated at
amounts that are within or exceed regulatory guidelines for collateral values. Management anticipates no significant reduction in
the percentage of real estate loans to total loans outstanding.
Management is continually analyzing its loan portfolio in an effort to identify and resolve problem assets as quickly and
efficiently as possible. As of December 31, 2006, management believes it has identified and adequately reserved for such
problem assets. However, management recognizes that many factors can adversely impact various segments of our markets,
creating financial difficulties for certain borrowers. As such, management continues to focus its attention on promptly identifying
and providing for potential losses as they arise.
Investment Securities
In 2006, our average investment portfolio decreased $4.6 million, or 2.4%, from 2005 and increased $7.8 million, or 4.3%, from 2004
to 2005. As a percentage of average earning assets, the investment portfolio represented 8.3% in 2006, compared to 8.8% in 2005. In
2006, the average balance of our investment portfolio declined due to the timing of reinvesting investments that had matured. In
2005, the increase in the portfolio was due to additional securities obtained through an acquisition in late 2004, and the increase in
required holdings of Federal Home Loan Bank stock. Throughout 2007, we will closely monitor liquidity levels to assess the need to
purchase additional investments.
In 2006, average taxable investments decreased $30.0 million, or 21.1%, while tax-exempt investments increased $25.4 million, or
51.5%. This change in mix was attributable to the attractive spread offered by tax-exempt securities compared to taxable securities
during the year. Management will continue to purchase municipal issues when it considers the yield to be attractive and we can do so
without adversely impacting our tax position. As of December 31, 2006, we have the ability to purchase additional tax-exempt
securities without adverse tax consequences.
The investment portfolio is a significant component of our operations and, as such, it functions as a key element of liquidity and
asset/liability management. As of December 31, 2006, all securities are classified as available-for-sale. The classification of
securities as available-for-sale offers management full flexibility in managing our liquidity, and interest rate sensitivity without
adversely impacting our regulatory capital levels. Securities in the available-for-sale portfolio are recorded at fair value with
unrealized gains and losses associated with these securities recorded net of tax, in the accumulated other comprehensive loss
component of shareowners' equity. At December 31, 2006, shareowners' equity included a net unrealized loss in the investment
portfolio of $0.8 million, compared to a net unrealized loss of $1.2 million at December 31, 2005. It is neither management's intent
nor practice to participate in the trading of investment securities for the purpose of recognizing gains and therefore we do not
maintain a trading portfolio.
The average maturity of the total portfolio at December 31, 2006 and 2005 was 1.75 and 1.65 years, respectively. Table 10 below
provides a breakdown of maturities by investment type.
The weighted average taxable equivalent yield of our investment portfolio at December 31, 2006 was 4.72%, versus 3.57% in 2005.
The increase in yield was due to purchases of securities with yields higher than those of maturing bonds. Purchases of shorter-term
securities resulted in higher yields due to the yield curve being inverted for a majority of 2006. The quality of the municipal
portfolio at year-end is depicted on page 40. There were no investments in obligations, other than U.S. Governments, of any one
state, municipality, political subdivision or any other issuer that exceeded 10% of our shareowners' equity at December 31, 2006.
Table 10 and Note 2 in the Notes to Consolidated Financial Statements present a detailed analysis of our investment securities as
to type, maturity and yield.
38
Table 10
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars in Thousands)
U.S. GOVERNMENTS
Due in 1 year or less
Due over 1 year through 5 years
Due over 5 years through 10 years
Due over 10 years
TOTAL
Amortized
Cost
$
17,329 $
56,388
-
-
73,717
STATES & POLITICAL SUBDIVISIONS
Due in 1 year or less
Due over 1 year through 5 years
Due over 5 years through 10 years
Due over 10 years
TOTAL
MORTGAGE-BACKED SECURITIES(2)
Due in 1 year or less
Due over 1 year through 5 years
Due over 5 years through 10 years
Due over 10 years
TOTAL
OTHER SECURITIES
Due in 1 year or less
Due over 1 year through 5 years
Due over 5 years through 10 years
Due over 10 years(3)
TOTAL
31,438
52,183
-
-
83,621
3,568
14,942
4,734
-
23,244
-
-
-
12,648
12,648
2006
Market
Value
Weighted(1)
Average
Yield
As of December 31,
2005
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
2004
Market
Value
Weighted(1)
Average
Yield
17,150
55,978
-
-
73,128
31,300
51,922
-
-
83,222
3,571
14,732
4,593
-
22,896
-
-
-
12,648
12,648
3.45% $
4.64
-
-
4.36
58,032 $
24,296
1,970
-
84,298
4.21
5.25
-
-
4.86
5.37
4.58
5.02
-
4.79
-
-
-
5.78
5.78
21,097
32,130
384
-
53,611
339
14,958
5,651
-
20,948
-
-
-
14,114
14,114
57,621
23,662
1,948
-
83,231
21,048
31,702
393
-
53,143
337
14,685
5,509
-
20,531
-
-
-
14,114
14,114
2.30% $
3.52
3.57
-
2.68
48,553 $
66,863
7,684
-
123,100
48,327
66,204
7,589
-
122,120
4.66
4.11
6.53
-
4.34
3.97
4.12
5.09
-
4.38
-
-
-
4.75
4.75
27,916
21,076
897
-
49,889
489
22,719
3,085
-
26,293
-
-
-
11,514
11,514
28,090
21,200
916
-
50,206
493
22,839
3,068
-
26,400
-
-
-
11,514
11,514
2.08%
2.38
3.75
-
2.35
5.94
4.56
5.36
-
5.35
5.13
3.96
4.83
-
4.09
-
-
-
4.31
4.31
TOTAL INVESTMENT SECURITIES
$
193,230 $
191,894
4.72% $
172,971 $
171,019
3.57% $
210,796 $
210,240
3.38%
(1) Weighted average yields are calculated on the basis of the amortized cost of the security. The weighted average yields on tax-exempt obligations are computed on a taxable equivalent basis using a 35% tax rate.
(2)
(3)
Based on weighted average life.
Federal Home Loan Bank Stock and Federal Reserve Bank Stock are included in this category for weighted average yield, but do not have stated maturities.
39
AVERAGE MATURITY
(In Years)
U.S. Governments
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities
TOTAL
As of December 31,
2005
1.01
1.31
5.05
-
1.65
2004
1.54
1.32
2.67
-
1.63
2006
1.76
1.39
3.05
-
1.75
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody's Rating
AAA
AA-1
AA-2
AA-3
AA
Not Rated(1)
Total
Amortized Cost
$
77,122
0
500
501
20
4,983
83,126
Percentage
92.79%
0.00
.60
.60
.02
5.99
100.00%
$
(1) All of the securities not rated by Moody's are rated "A-" or higher by S&P.
Deposits and Funds Purchased
Average total deposits of $2.03 billion in 2006, increased $80.0 million, or 4.1%, from the prior year. Deposit growth for the year
was driven primarily by the integration of deposits from FABC, growth in balances related to "Absolutely Free Checking"
products, and our “Cash Power” money market product. Increases realized in NOW accounts ($88.1 million) and money market
account ($94.4 million) were partially offset by a reduction in DDA accounts ($40.1 million), savings accounts ($20.9 million),
and certificates of deposit ($43.5 million). Average noninterest bearing deposits as a percent of average total deposits declined
from 27.9% in 2005 to 24.8% in 2006. This was primarily a result of the growth in interest bearing "Absolutely Free Checking"
balances and “Cash Power” money market balances partly attributable to the higher interest rate environment. The decrease in
certificates of deposit reflects management’s strategy to manage the overall mix of deposits and not compete with higher rate
paying competitors for this funding source unless the relationship is profitable and warrants retention. In 2007, growth is
anticipated to continue in nonmaturity deposits primarily associated with our "Absolutely Free Checking" products, and our “Cash
Power” money market product.
Table 2 provides an analysis of our average deposits, by category, and average rates paid thereon for each of the last three years.
Table 11 reflects the shift in our deposit mix over the last three years and Table 12 provides a maturity distribution of time
deposits in denominations of $100,000 and over.
Average short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase, Federal
Home Loan Bank advances (maturing in less than one year), and other borrowings, decreased $19.2 million, or 19.6%. The
decrease is attributable to a $15.0 million decrease in federal funds purchased and a $5.4 million decrease in repurchase
agreements, partially offset by a $2.7 million increase in short-term Federal Home Loan Bank advances. See Note 8 in the Notes
to Consolidated Financial Statements for further information on short-term borrowings.
40
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits
NOW Accounts
Money Market Accounts
Savings
Time Deposits
Total Deposits
2005 to
2006
Change
$ (40,059)
88,070
94,427
(18,857)
(43,538)
80,043
$
Percentage
of Total
Change
Components of
Total Deposits
2005
2006
2004
(50.0) % 24.8 % 27.9 % 30.6 %
110.0
118.0
(23.6)
(54.4)
100.0 % 100.0 % 100.0 % 100.0 %
18.3
14.3
8.1
28.7
22.0
14.1
7.8
28.2
25.5
18.2
6.6
24.9
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
December 31, 2006
(Dollars in Thousands)
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Time Certificates of Deposit
$
40,910
28,448
44,515
21,107
134,980
$
Percent
30.31 %
21.08
32.98
15.63
100.00 %
Liquidity for a banking institution is the availability of funds to meet increased loan demand and excessive deposit withdrawals.
Management monitors our financial position in an effort to ensure we have ready access to sufficient liquid funds to meet normal
transaction requirements, can take advantage of investment opportunities and cover unforeseen liquidity demands. In addition to
core deposit growth, sources of funds available to meet liquidity demands include cash received through ordinary business
activities (e.g., collection of interest and fees), federal funds sold, loan and investment maturities, our bank lines of credit,
approved lines for the purchase of federal funds by CCB and Federal Home Loan Bank advances.
We ended 2006 with $78.8 million in liquidity, an increase of $17.6 million from the previous year-end. On a year-to-date
average basis, liquidity increased $14.1 million from 2005. The increase in average liquidity was primarily the result of the
aforementioned deposit growth.
Borrowings
At December 31, 2006, we had $55.5 million in borrowings outstanding to the Federal Home Loan Bank of Atlanta ("FHLB")
consisting of 35 notes. Three notes totaling $13.0 million are classified as short-term borrowings with the remaining notes
classified as long-term borrowings. The interest rates are fixed and the weighted average rate at December 31, 2006 was 4.57%.
Required annual principal reductions approximate $2.7 million, with the remaining balances due at maturity ranging from 2007 to
2024. During 2006, we obtained one advance from the FHLB totaling $3.2 million with a fixed rate of 5.25% and maturing in
2022. The FHLB notes are collateralized by a blanket floating lien on all 1-4 family residential mortgage loans, commercial real
estate mortgage loans, and home equity mortgage loans. See Note 9 in the Notes to Consolidated Financial Statements for
additional information on these borrowings.
41
Table 13
CONTRACTUAL CASH OBLIGATIONS
Table 13 sets forth certain information about contractual cash obligations at December 31, 2006.
(Dollars in Thousands)
Federal Home Loan Bank Advances
Subordinated Notes Payable
Operating Lease Obligations
Total Contractual Cash Obligations
1 Year
or Less
Payments Due By Period
4 - 5
Years
After
5 Years
1 - 3
Years
$
$
15,585 $
-
1,503
17,088 $
16,985 $
-
2,600
19,585 $
5,225 $
-
2,036
7,261 $
17,669 $
62,887
6,071
86,627 $
Total
55,464
62,887
12,210
130,561
We issued two junior subordinated deferrable interest notes to wholly owned Delaware statutory trusts. The first note for $30.9
million was issued to CCBG Capital Trust I in November 2004. The second note for $32.0 million was issued to CCBG Capital
Trust II in May 2005. See Note 9 in the Notes to Consolidated Financial Statements for additional information on these
borrowings. The interest payments for the CCBG Capital Trust I borrowing are due quarterly at a fixed rate of 5.71% for five
years, then adjustable annually to LIBOR plus a margin of 1.90%. This note matures on December 31, 2034. The proceeds of
this borrowing were used to partially fund the Farmers and Merchants Bank of Dublin acquisition. The interest payments for the
CCBG Capital Trust II borrowing are due quarterly at a fixed rate of 6.07% for five years, then adjustable quarterly to LIBOR
plus a margin of 1.80%. This note matures on June 15, 2035. The proceeds of this borrowing were used to partially fund the
FABC acquisition.
We anticipate that our capital expenditures will approximate $26.6 million over the next twelve months. These capital
expenditures are expected to consist primarily of several new offices in existing markets, office equipment and furniture, and
technology purchases. Management believes that these capital expenditures can be funded with existing resources internally
without impairing our ability to meet our on-going obligations.
Capital
We continue to maintain a strong capital position. The ratio of shareowners' equity to total assets at year-end was 12.15%,
11.65%, and 10.86%, in 2006, 2005, and 2004, respectively.
We are subject to risk-based capital guidelines that measure capital relative to risk weighted assets and off-balance sheet financial
instruments. Capital guidelines issued by the Federal Reserve Board require bank holding companies to have a minimum total
risk-based capital ratio of 8.00%, with at least half of the total capital in the form of Tier 1 capital. As of December 31, 2006, we
exceeded these capital guidelines with a total risk-based capital ratio of 14.95% and a Tier 1 ratio of 14.00%, compared to 13.56%
and 12.61%, respectively, in 2005. As allowed by Federal Reserve Board capital guidelines the trust preferred securities issued by
CCBG Capital Trust I and CCBG Capital Trust II are included as Tier 1 capital in our capital calculations previously noted. See
Note 9 in the Notes to Consolidated Financial Statements for additional information on our two trust preferred security offerings.
See Note 14 in the Notes to Consolidated Financial Statements for additional information as to our capital adequacy.
A tangible leverage ratio is also used in connection with the risk-based capital standards and is defined as Tier 1 capital divided by
average assets. The minimum leverage ratio under this standard is 3% for the highest-rated bank holding companies which are not
undertaking significant expansion programs. An additional 1% to 2% may be required for other companies, depending upon their
regulatory ratings and expansion plans. On December 31, 2006, we had a leverage ratio of 11.30% compared to 10.27% in 2005.
Shareowners' equity as of December 31, for each of the last three years is presented below:
Shareowners' Equity
(Dollars in Thousands)
Common Stock
Additional Paid-in Capital
Retained Earnings
Subtotal
Accumulated Other Comprehensive (Loss), Net of Tax
Total Shareowners' Equity
$
2006
2005
2004
185
80,654
243,242
324,081
(8,311)
315,770 $
186
83,304
223,532
307,022
(1,246)
305,776 $
177
52,328
204,648
257,153
(353)
256,800
42
At December 31, 2006, our common stock had a book value of $17.01 per diluted share compared to $16.39 in 2005. Book value
is impacted by the net unrealized gains and losses on investment securities available-for-sale. At December 31, 2006, the net
unrealized loss was $.8 million compared to a net unrealized loss of $1.2 million in 2005. Beginning in 2006, book value has
been impacted by the recording of our unfunded pension liability through other comprehensive income in accordance with SFAS
158. At December 31, 2006, the net pension liability reflected in other comprehensive income was $7.5 million.
Our Board of Directors has authorized the repurchase of up to 1,171,875 shares of our outstanding common stock. The purchases
are made in the open market or in privately negotiated transactions. Through December 31, 2006, we have repurchased a total of
879,837 shares at an average purchase price of $18.55 per share. During 2006, we repurchased 164,596 shares at an average
purchase price of $32.56.
We offer an Associate Incentive Plan under which certain associates are eligible to earn shares of our common stock based upon
achieving established performance goals. In 2006, we issued 19,643 shares, valued at approximately $644,290 under this plan.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2006,
31,584 shares, valued at approximately $969,000 (before 10% discount), were issued under these plans.
Dividends
Adequate capital and financial strength is paramount to our stability and the stability of our subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on our capital levels. When determining the level of dividends the
following factors are considered:
(cid:131) Compliance with state and federal laws and regulations;
(cid:131) Our capital position and our ability to meet our financial obligations;
(cid:131) Projected earnings and asset levels; and
(cid:131) The ability of the Bank and us to fund dividends.
Although we believe a consistent dividend payment is favorably viewed by the financial markets and our shareowners, our Board
of Directors will declare dividends only if we are considered to have adequate capital. Future capital requirements and corporate
plans are considered when the Board considers a dividend payment.
Dividends declared and paid totaled $.6625 per share in 2006. For the first through third quarters of 2006 we declared and paid a
dividend of $.1625 per share. The dividend was raised 7.7% in the fourth quarter of 2006 from $.1625 per share to $.1750 per
share. We paid dividends of $.6185 per share in 2005 and $.5840 per share in 2004. The dividend payout ratio was 37.01%,
37.35%, and 33.62% for 2006, 2005 and 2004, respectively. Total cash dividends declared per share in 2006 represented an 8.1%
increase over 2005. All share and per share data has been adjusted to reflect the five-for-four stock split effective July 1, 2005.
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently engage in the use of derivative instruments to hedge interest rate risks. However, we are a party to financial
instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our clients.
At December 31, 2006, we had $419.0 million in commitments to extend credit and $17.5 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee
the performance of a client to a third party. We use the same credit policies in establishing commitments and issuing letters of
credit as we do for on-balance sheet instruments.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments
require funding in excess of historical levels, management believes current liquidity, available lines of credit from the FHLB,
investment security maturities and our revolving credit facility provide a sufficient source of funds to meet these commitments.
43
ACCOUNTING POLICIES
Critical Accounting Policies
The consolidated financial statements and accompanying Notes to Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in the United States of America, which require us to make various estimates and
assumptions (see Note 1 in the Notes to Consolidated Financial Statements). We believe that, of our significant accounting
policies, the following may involve a higher degree of judgment and complexity.
Allowance for Loan Losses. The allowance for loan losses is established through a charge to the provision for loan losses.
Provisions are made to reserve for estimated losses in loan balances. The allowance for loan losses is a significant estimate and is
evaluated quarterly by us for adequacy. The use of different estimates or assumptions could produce a different required
allowance, and thereby a larger or smaller provision recognized as expense in any given reporting period. A further discussion of
the allowance for loan losses can be found in the section entitled "Allowance for Loan Losses" and Note 1 in the Notes to
Consolidated Financial Statements.
Intangible Assets. Intangible assets consist primarily of goodwill, core deposit assets, and other identifiable intangibles that were
recognized in connection with various acquisitions. Goodwill represents the excess of the cost of acquired businesses over the fair
market value of their identifiable net assets. We perform an impairment review on an annual basis to determine if there has been
impairment of our goodwill. We have determined that no impairment existed at December 31, 2006. Impairment testing requires
management to make significant judgments and estimates relating to the fair value of its identified reporting units. Significant
changes to these estimates may have a material impact on our reported results.
Core deposit assets represent the premium we paid for core deposits. Core deposit intangibles are amortized on the straight-line
method over various periods ranging from 5-10 years. Generally, core deposits refer to nonpublic, non-maturing deposits
including noninterest-bearing deposits, NOW, money market and savings. We make certain estimates relating to the useful life of
these assets, and rate of run-off based on the nature of the specific assets and the client bases acquired. If there is a reason to
believe there has been a permanent loss in value, management will assess these assets for impairment. Any changes in the
original estimates may materially affect reported earnings.
Pension Assumptions. We have a defined benefit pension plan for the benefit of substantially all of our associates. Our funding
policy with respect to the pension plan is to contribute amounts to the plan sufficient to meet minimum funding requirements as
set by law. Pension expense, reflected in the Consolidated Statements of Income in noninterest expense as "Salaries and
Associate Benefits," is determined by an external actuarial valuation based on assumptions that are evaluated annually as of
December 31, the measurement date for the pension obligation. The Consolidated Statements of Financial Condition reflect an
accrued pension benefit cost due to funding levels and unrecognized actuarial amounts. The most significant assumptions used in
calculating the pension obligation are the weighted-average discount rate used to determine the present value of the pension
obligation, the weighted-average expected long-term rate of return on plan assets, and the assumed rate of annual compensation
increases. These assumptions are re-evaluated annually with the external actuaries, taking into consideration both current market
conditions and anticipated long-term market conditions.
The weighted-average discount rate is determined by matching the anticipated Retirement Plan cash flows to a long-term
corporate Aa-rated bond index and solving for the underlying rate of return, which investing in such securities would generate.
This methodology is applied consistently from year-to-year. The discount rate utilized in 2006 was 5.75%. The estimated impact
to 2006 pension expense of a 25 basis point increase or decrease in the discount rate would have been a decrease of approximately
$291,000 and an increase of approximately $305,000, respectively. We anticipate using a 6.00% discount rate in 2007.
The weighted-average expected long-term rate of return on plan assets is determined based on the current and anticipated future
mix of assets in the plan. The assets currently consist of equity securities, U.S. Government and Government agency debt
securities, and other securities (typically temporary liquid funds awaiting investment). The weighted-average expected long-term
rate of return on plan assets utilized for 2006 was 8.0%. The estimated impact to pension expense of a 25 basis point increase or
decrease in the rate of return would have been an approximate $126,000 decrease or increase, respectively. We anticipate using a
rate of return on plan assets for 2007 of 8.0%.
The assumed rate of annual compensation increases of 5.50% in 2006 is based on expected trends in salaries and the employee
base. This assumption is not expected to change materially in 2007.
Detailed information on the pension plan, the actuarially determined disclosures, and the assumptions used are provided in Note
12 of the Notes to Consolidated Financial Statements.
44
Recent Accounting Pronouncements
Statement of Financial Accounting Standards
SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments." SFAS 155 amends SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS 155 (i) permits fair value re-measurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation, (ii) clarifies which interest-only strips and principal-only strips
are not subject to the requirements of SFAS 133, (iii) establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation, (iv) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives,
and (v) amends SFAS 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for us on
January 1, 2007, and is not expected to have a significant impact on our financial statements.
SFAS No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for us on
January 1, 2008 and is not expected to have a significant impact on our financial statements.
SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of Financial
Accounting Standards Board (“FASB”) Statements No. 87, 88 106, and 132(R)." SFAS 158 requires an employer to recognize
the over-funded or under-funded status of defined benefit postretirement plans as an asset or a liability in its statement of financial
position. The funded status is measured as the difference between plan assets at fair value and the benefit obligation (the
projected benefit obligation for pension plans or the accumulated benefit obligation for other postretirement benefit plans). An
employer is also required to measure the funded status of a plan as of the date of its year-end statement of financial position with
changes in the funded status recognized through comprehensive income. SFAS 158 also requires certain disclosures regarding the
effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of gains or losses, prior service costs
or credits, and the transition asset or obligation. We have recognized the funded status of our defined benefit pension plan in our
financial statements for the year ended December 31, 2006. See Note 12 to the Consolidated Financial Statements for additional
information regarding the impact of adopting this standard.
Financial Accounting Standards Board Interpretations
In July 2006, the FASB issued FASB Interpretation 48, "Accounting for Income Tax Uncertainties" ("FIN 48"). FIN 48 defines
the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority. The recently issued literature also provides guidance on the derecognition, measurement and
classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning
accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded
income tax uncertainties. The differences between the amounts recognized in the statements of financial position prior to the
adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to
the beginning balance of retained earnings. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is not
expected to have a significant impact on our financial statements.
SEC Staff Accounting Bulletin
Staff Accounting Bulletin (“SAB”) No. 108, "Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements." SAB 108 addresses how the effects of prior year uncorrected errors must
be considered in quantifying misstatements in the current year financial statements. The effects of prior year uncorrected errors
include the potential accumulation of improper amounts that may result in a material misstatement on the balance sheet or the
reversal of prior period errors in the current period that result in a material misstatement of the current period income statement
amounts. Adjustments to current or prior period financial statements would be required in the event that after application of
various approaches for assessing materiality of a misstatement in current period financial statements and consideration of all
relevant quantitative and qualitative factors, a misstatement is determined to be material. We adopted SAB 108 in December
2006 and analyzed the impact of prior uncorrected misstatements under the guidance set forth in the pronouncement.
Two techniques are used by companies in practice to accumulate and quantify misstatements — the “rollover” approach and the
“iron curtain” approach. The rollover approach, which is the approach we previously used, quantifies a misstatement based on the
amount of the error originating in the current year income statement. Thus, this approach ignores the effects of correcting the
portion of the current year balance sheet misstatement that originated in prior years. The iron curtain approach quantifies a
misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year,
irrespective of the misstatement’s year(s) of origination. Subsequent to adoption, SAB No. 108 requires registrants to begin
using both approaches to evaluate prior year misstatements.
45
Use of the rollover approach resulted in an accumulation of misstatements to our statements of financial condition that were
deemed immaterial to the financial statements because the amounts that originated in each year were quantitatively and
qualitatively immaterial. Under the iron curtain approach, the accumulation of misstatements, when aggregated, were deemed to
be material to our financial statements in the current reporting period.
We elected, as allowed under SAB 108, to reflect the effect of initially applying this guidance by adjusting the carrying amount of
the impacted accounts as of the beginning of 2006 and recording an offsetting adjustment to the opening balance of retained
earnings in 2006. We recorded a cumulative effect adjustment to decrease retained earnings by $1.2 million (after-tax) for the
adoption of SAB 108. We evaluated the impact of these adjustments on previous periods presented in the consolidated financial
statements, individually and in the aggregate, under the rollover method and concluded that they were immaterial to those periods’
consolidated financial statements.
The following table presents a description of the two adjustments included in the cumulative adjustment to retained earnings.
These adjustments were identified by us in the normal course of performing our internal control activities:
Adjustment
Description
Years Impacted
Operating
Leases
$
715,000
Establish deferred rent payable due
to difference in using straight-line
accounting method for operating
leases (required per SFAS 13) versus
cash-basis accounting
1990 - 2006
Supplies
$
518,000
Overstatement of prepaid supply
account due to improper recognition
of sales tax and freight charges when
supplies were used
1998 - 2006
Total
$
1,233,000
46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Overview
Market risk management arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk
management policies to monitor and limit exposure to market risk and do not participate in activities that give rise to significant
market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, policies are
in place that are designed to minimize structural interest rate risk.
Interest Rate Risk Management
The normal course of business activity exposes us to interest rate risk. Fluctuations in interest rates may result in changes in the
fair market value of our financial instruments, cash flows and net interest income. We seek to avoid fluctuations in our net
interest margin and to maximize net interest income within acceptable levels of risk through periods of changing interest rates.
Accordingly, our interest rate sensitivity and liquidity are monitored on an ongoing basis by our Asset and Liability Committee
("ALCO"), which oversees market risk management and establishes risk measures, limits and policy guidelines for managing the
amount of interest rate risk and its effects on net interest income and capital. A variety of measures are used to provide for a
comprehensive view of the magnitude of interest rate risk, the distribution of risk, the level of risk over time and the exposure to
changes in certain interest rate relationships.
ALCO continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. ALCO's objective is
to manage the impact of fluctuating market rates on net interest income within acceptable levels. In order to meet this objective,
management may adjust the rates charged/paid on loans/deposits or may shorten/lengthen the duration of assets or liabilities
within the parameters set by ALCO.
Our financial assets and liabilities are classified as other-than-trading. An analysis of the other-than-trading financial components
including the fair values, are presented in Table 14. This table presents our consolidated interest rate sensitivity position as of
year-end 2006 based upon certain assumptions as set forth in the Notes to the Table. The objective of interest rate sensitivity
analysis is to measure the impact on our net interest income due to fluctuations in interest rates. The asset and liability values
presented in Table 14 may not necessarily be indicative of our interest rate sensitivity over an extended period of time.
We expect rising rates to have a favorable impact on the net interest margin, subject to the magnitude and timeframe over which
the rate changes occur. However, as general interest rates rise or fall, other factors such as current market conditions and
competition may impact how we respond to changing rates and thus impact the magnitude of change in net interest income. Non-
maturity deposits offer management greater discretion as to the direction, timing, and magnitude of interest rate changes and can
have a material impact on our interest rate sensitivity. In addition, the relative level of interest rates as compared to the current
yields/rates of existing assets/liabilities can impact both the direction and magnitude of the change in net interest margin as rates
rise and fall from one period to the next.
Inflation
The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total
resources are invested in fixed assets such as property, plant and equipment.
Assets and liabilities of financial institutions are virtually all monetary in nature, and therefore are primarily impacted by interest
rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to
changes in the expected rate of inflation and to changes in monetary and fiscal policy. Net interest income and the interest rate
spread are good measures of our ability to react to changing interest rates and are discussed in further detail in the section entitled
"Results of Operations."
47
Table 14
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS (1)
Other Than Trading Portfolio
(Dollars in Thousands)
Loans
Fixed Rate
Average Interest Rate
Floating Rate(2)
Average Interest Rate
Investment Securities(3)
Fixed Rate
Average Interest Rate
Floating Rate
Average Interest Rate
Other Earning Assets
Floating Rate
Average Interest Rate
Total Financial Assets
Average Interest Rate
Deposits(4)
Fixed Rate Deposits
Average Interest Rate
Floating Rate Deposits
Average Interest Rate
Other Interest Bearing
Liabilities
Fixed Rate Debt
Average Interest Rate
Floating Rate Debt
Average Interest Rate
Total Financial Liabilities
Average interest Rate
Year 1
Year 2
As of December 31, 2006
Year 4
Year 3
Year 5
Beyond
Total
Fair Value(5)
$ 318,728 $ 154,370
7.68%
163,095
7.07%
6.55%
1,055,362
7.04%
$ 100,627
7.89%
94,883
7.66%
$ 46,290
7.83%
8,636
7.54%
$ 23,988
7.47%
5,861
7.90%
$ 17,314
6.69%
10,567
8.14%
$ 661,317
7.15%
1,338,404
7.11%
56,247
3.13%
1,035
5.21%
79,065
4.34%
-
-
40,900
4.10%
-
-
8,248
4.09%
-
-
4,767
4.25%
-
-
1,630
4.84%
-
-
190,859
3.93%
1,035
5.21%
$ 660,438
1,348,804
190,859
1,035
78,795
5.22%
-
-
$ 1,510,167 $ 396,530
6.77%
6.70%
-
-
$ 236,410
7.14%
-
-
$ 63,174
7.30%
-
-
$ 34,616
7.10%
-
-
$ 29,511
7.11%
78,795
5.22%
$ 2,270,409
6.78%
78,795
$ 2,279,930
$ 397,418
4.00%
1,108,495
2.35%
$ 57,172
4.10%
-
-
$ 20,695
4.26%
-
-
$ 5,713
3.94%
-
-
$ 2,147
4.17%
-
-
-
-
-
-
$ 483,145
4.02%
1,108,495
2.35%
$ 408,799
1,108,495
4,397
4.64%
65,023
4.22%
$ 1,575,333
2.85%
14,004
4.41%
-
-
$ 71,176
4.16%
3,218
4.77%
30,928
5.71%
$ 54,841
5.11%
2,970
4.90%
31,959
6.07%
$ 40,642
5.68%
2,915
4.98%
-
-
$ 5,062
4.63%
15,579
4.98%
-
-
$ 15,579
4.98%
43,083
4.74%
127,910
5.04%
$ 1,762,633
3.06%
42,256
127,983
$ 1,687,533
(1) Based upon expected cash flows unless otherwise indicated.
(2) Based upon a combination of expected maturities and re-pricing opportunities.
(3) Based upon contractual maturity, except for callable and floating rate securities, which are based on expected maturity and weighted average life, respectively.
(4) Savings, NOW and money market accounts can be re-priced at any time, therefore, all such balances are included as floating rate deposits. Time deposit balances are classified according to
maturity.
(5) Fair value of loans does not include a reduction for the allowance for loan losses.
48
Item 8. Financial Statements and Supplementary Data
Table 15
QUARTERLY FINANCIAL DATA
(Dollars in Thousands, Except Per Share
Data)
Summary of Operations:
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After
Provision for Loan Losses
Noninterest Income
Merger Expense
Noninterest Expense
Income Before Provision for Income
Taxes
Provision for Income Taxes
Net Income
Net Interest Income (FTE)
Per Common Share:
Net Income Basic
Net Income Diluted
Dividends Declared
Diluted Book Value
Market Price:
High
Low
Close
Selected Average
Balances:
Loans
Earning Assets
Assets
Deposits
Shareowners’ Equity
Common Equivalent Average Shares:
Basic
Diluted
Ratios:
ROA
ROE
Net Interest Margin (FTE)
Efficiency Ratio
2006
2005
Fourth
Third
Second
First
Fourth
Third
Second
First
$
$
$
$
42,600 $
13,003
29,597
460
29,137
14,385
-
29,984
13,538
4,688
8,850 $
30,152 $
.48 $
.48
.175
17.01
35.98
30.14
35.30
42,512 $
12,289
30,223
711
29,512
14,144
-
30,422
13,234
4,554
8,680 $
30,745 $
.47 $
.47
.163
17.18
33.25
29.87
31.10
41,369 $
11,182
30,187
121
30,066
14,003
-
31,070
12,999
4,684
8,315 $
30,591 $
.44 $
.44
.163
16.81
35.39
29.51
30.20
39,412
10,282
29,130
667
28,463
13,045
-
30,092
11,416
3,995
7,421
29,461
.40
.40
.163
16.65
37.97
33.79
35.55
$
2,003,719 $
2,238,066
2,557,357
2,028,453
323,903
2,025,112 $
2,241,158
2,560,155
2,023,523
318,041
2,040,656 $
2,278,817
2,603,090
2,047,755
315,794
2,048,642
2,275,667
2,604,458
2,040,248
311,461
$
$
$
$
$
38,780 $
9,470
29,310
1,333
36,889 $
7,885
29,004
376
27,977
12,974
24
29,318
28,628
13,123
180
28,429
11,609
4,150
7,459 $
29,652 $
13,142
4,565
8,577 $
29,329 $
.40 $
.40
.163
16.39
39.33
33.21
34.29
.46 $
.46
.152
16.17
38.72
31.78
37.71
33,910 $
6,788
27,122
388
26,734
12,041
234
26,362
12,179
4,311
7,868 $
27,396 $
.44 $
.44
.152
15.87
33.46
28.02
32.32
30,474
5,920
24,554
410
24,144
11,060
-
25,267
9,937
3,560
6,377
24,835
.36
.36
.152
14.69
33.60
29.30
32.41
2,062,775 $ 2,046,968 $
2,279,010
2,607,597
2,027,017
306,208
2,250,902
2,569,524
2,013,427
300,931
1,932,637 $
2,170,483
2,458,788
1,932,144
278,107
1,827,327
2,047,049
2,306,807
1,847,378
260,946
18,525
18,569
18,530
18,565
18,633
18,653
18,652
18,665
18,624
18,654
18,623
18,649
18,094
18,102
17,700
17,708
1.37%
10.84%
5.35%
63.99%
1.35%
10.83%
5.45%
64.35%
1.28%
10.56%
5.38%
66.23%
1.16%
9.66%
5.25%
67.20%
1.14%
9.67%
5.16%
65.22%
1.32%
11.31%
5.17%
63.60%
1.28%
11.35%
5.07%
63.56%
1.12%
9.91%
4.92%
67.06%
(1)
All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
49
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
51 Report of Independent Registered Public Accounting Firm
52 Consolidated Statements of Income
53 Consolidated Statements of Financial Condition
54 Consolidated Statements of Changes in Shareowners' Equity
55 Consolidated Statements of Cash Flows
56 Notes to Consolidated Financial Statements
50
Report of Independent Registered Public Accounting Firm
The Board of Directors
Capital City Bank Group, Inc.:
We have audited the accompanying consolidated statements of financial condition of Capital City Bank Group, Inc. and
subsidiary (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in
shareowners’ equity and cash flows for each of the years in the three-year period ended December 31, 2006. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes 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 Capital City Bank Group, Inc. and subsidiary as of December 31, 2006 and 2005, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123R, Share Based Payment, as of January 1, 2006, SFAS No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R, as of
December 31, 2006 and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements, as of January 1, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 14, 2007 expressed an unqualified opinion on management’s assessment of, and the effective
operation of, internal control over financial reporting.
/s/ KPMG LLP
Orlando, Florida
March 14, 2007
Certified Public Accountants
51
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)(1)
INTEREST INCOME
Interest and Fees on Loans
Investment Securities:
U.S. Treasury
U.S. Government Agencies and Corporations
States and Political Subdivisions
Other Securities
Funds Sold
Total Interest Income
INTEREST EXPENSE
Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Total Interest Expense
NET INTEREST INCOME
Provision for Loan Losses
Net Interest Income After
Provision for Loan Losses
NONINTEREST INCOME
Service Charges on Deposit Accounts
Data Processing
Asset Management Fees
(Loss)/Gain on Sale of Investment Securities
Mortgage Banking Revenues
Gain on the Sale of Credit Card Portfolios
Other
Total Noninterest Income
NONINTEREST EXPENSE
Salaries and Associate Benefits
Occupancy, Net
Furniture and Equipment
Intangible Amortization
Merger Expense
Other
Total Noninterest Expense
INCOME BEFORE INCOME TAXES
Income Taxes
NET INCOME
BASIC NET INCOME PER SHARE
DILUTED NET INCOME PER SHARE
Average Basic Common Shares Outstanding
Average Diluted Common Shares Outstanding
For the Years Ended December 31,
2005
2004
2006
$
156,666 $
133,268 $
95,607
453
3,605
2,337
793
2,039
165,893
37,253
3,075
3,725
2,704
46,757
412
3,223
1,545
614
991
140,053
21,134
2,854
2,981
3,094
30,063
119,136
1,959
109,990
2,507
759
2,111
1,944
271
833
101,525
11,315
1,270
294
2,562
15,441
86,084
2,141
117,177
107,483
83,943
24,620
2,723
4,600
(4)
3,235
-
20,403
55,577
60,855
9,395
9,911
6,085
-
35,322
121,568
51,186
17,921
20,740
2,610
4,419
9
4,072
-
17,348
49,198
53,687
8,293
8,970
5,440
438
32,986
109,814
46,867
16,586
17,574
2,628
4,007
14
3,208
7,181
15,941
50,553
44,345
7,074
8,393
3,824
550
25,040
89,226
45,270
15,899
$
$
$
33,265 $
30,281 $
29,371
1.79 $
1.79 $
1.66 $
1.66 $
18,585
18,610
18,264
18,281
1.74
1.74
16,806
16,811
(1)
All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
52
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)(1)
ASSETS
Cash and Due From Banks
Funds Sold and Interest Bearing Deposits
Total Cash and Cash Equivalents
Investment Securities, Available-for-Sale
Loans, Net of Unearned Interest
Allowance for Loan Losses
Loans, Net
Premises and Equipment, Net
Goodwill
Other Intangible Assets
Other Assets
Total Assets
LIABILITIES
Deposits:
Noninterest Bearing Deposits
Interest Bearing Deposits
Total Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Other Liabilities
Total Liabilities
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and
outstanding
Common Stock, $.01 par value; 90,000,000 shares authorized; 18,518,398 and 18,631,706
shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners' Equity
Commitments and Contingencies (See Note 18)
Total Liabilities and Shareowners' Equity
As of December 31,
2006
2005
$
$
98,769 $
78,795
177,564
191,894
1,999,721
(17,217)
1,982,504
86,538
84,811
19,591
55,008
2,597,910 $
$
490,014 $
1,591,640
2,081,654
65,023
62,887
43,083
29,493
2,282,140
105,195
61,164
166,359
171,019
2,067,494
(17,410)
2,050,084
73,818
84,829
25,622
53,731
2,625,462
559,492
1,519,854
2,079,346
82,973
62,887
69,630
24,850
2,319,686
-
-
185
80,654
243,242
(8,311)
315,770
186
83,304
223,532
(1,246)
305,776
$
2,597,910 $
2,625,462
(1)
All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
53
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except Per Share Data)(1)
Balance, December 31, 2003
Comprehensive Income:
Net Income
Net Change in Unrealized Loss On Available-for-
Sale Securities (net of tax)
Total Comprehensive Income
Cash Dividends ($.525 per share)
Stock Performance Plan Compensation
Issuance of Common Stock
Balance, December 31, 2004
Comprehensive Income:
Net Income
Net Change in Unrealized Loss On Available-for-
Sale Securities (net of tax)
Total Comprehensive Income
Cash Dividends ($.584 per share)
Stock Performance Plan Compensation
Issuance of Common Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income,
Net of Taxes
Total
$
165
$
16,124
185,134 $
1,386
$
202,809
-
-
-
-
-
12
-
29,371
-
-
-
193
36,011
-
-
(9,857)
-
-
(1,739)
-
-
-
-
27,632
(9,857)
193
36,023
177
52,328
204,648
(353)
256,800
-
-
-
-
-
9
-
30,281
-
-
-
968
30,008
-
-
(11,397)
-
-
(893)
-
-
-
-
29,388
(11,397)
968
30,017
Balance, December 31, 2005
186
83,304
223,532
(1,246)
305,776
Cumulative Effect Adjustment upon adoption of SAB
No. 108 (net of tax)
Balance (adjusted), December 31, 2005
Comprehensive Income:
Net Income
Net Change in Unrealized Loss On Available-for-
Sale Securities (net of tax)
Establish Pension Liability upon adoption of SFAS
No. 158 (net of tax)
Total Comprehensive Income
Cash Dividends ($.663 per share)
Stock Performance Plan Compensation
Issuance of Common Stock
Repurchase of Common Stock
-
186
-
83,304
(1,233)
222,299
-
(1,246)
(1,233)
304,543
-
-
-
-
-
-
1
(2)
-
-
33,265
-
412
-
-
-
1,673
1,035
(5,358)
-
-
(12,322)
-
-
-
(7,477)
-
-
-
-
-
26,200
(12,322)
1,673
1,036
(5,360)
Balance, December 31, 2006
$
185 $
80,654 $
243,242 $
(8,311) $
315,770
(1)
All share, per share, and shareowners' equity data have been adjusted to reflect the 5-for-4 stock split effective July 1,
2005, and the 5-for-4 stock split effective June 13, 2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
54
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Provision for Loan Losses
Depreciation
Net Securities Amortization
Amortization of Intangible Assets
Loss/(Gain) on Sale of Investment Securities
Origination of Loans Held-for-Sale
Proceeds From Sales of Loans Held-for-Sale
Net Gain From Sales of Loans Held-for Sale
Non-Cash Compensation
Deferred Income Taxes
Net Increase in Other Assets
Net Increase (Decrease) in Other Liabilities
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities Available-for-Sale:
Purchases
Sales
Payments, Maturities, and Calls
Net Decrease (Increase) in Loans
Net Cash Acquired (Used In) Acquisitions
Purchase of Premises & Equipment
Proceeds From Sales of Premises & Equipment
Net Cash Provided By (Used In) Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits
Net Decrease in Short-Term Borrowings
Proceeds from Subordinated Notes Payable
Increase in Other Long-Term Borrowings
Repayment of Other Long-Term Borrowings
Dividends Paid
Repurchase of Common Stock
Issuance of Common Stock
Net Cash (Used In) Provided By Financing Activities
For the Years Ended December 31,
2005
2006
2004
$
33,265 $
30,281 $
29,371
1,959
6,795
582
6,085
4
(190,945)
194,569
(3,235)
1,673
1,614
(11,327)
5,148
46,187
(102,628)
283
81,500
64,213
-
(20,145)
630
23,853
2,308
(31,412)
-
3,250
(16,335)
(12,322)
(5,360)
1,036
(58,835)
2,507
5,899
1,454
5,440
(9)
(219,171)
227,853
(4,072)
968
182
(11,839)
9,264
48,757
(45,717)
35,142
81,783
(127,715)
37,412
(18,336)
897
(36,534)
(17,125)
(33,085)
31,959
23,600
(2,380)
(11,397)
-
1,019
(7,409)
2,141
5,288
2,117
3,824
(14)
(181,068)
178,248
(3,208)
1,707
765
(4,210)
(3,182)
31,779
(88,028)
3,466
128,617
(127,115)
(31,743)
(5,576)
1,155
(119,224)
23,776
(33,559)
30,928
59,741
(41,815)
(9,857)
-
1,184
30,398
NET CHANGE IN CASH AND CASH EQUIVALENTS
11,205
4,814
(57,047)
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
166,359
177,564 $
161,545
166,359 $
218,592
161,545
$
SUPPLEMENTAL DISCLOSURES:
Interest Paid on Deposits
Interest Paid on Debt
Taxes Paid
Loans Transferred to Other Real Estate
Cumulative Effect Adjustment to Beginning Retained Earnings – SAB 108
Cumulative Effect Adjustment to Other Comprehensive Income to Record
Minimum Pension Liability – SFAS 158
Issuance of Common Stock as Non-Cash Compensation
Transfer of Current Portion of Long-Term Borrowings
to Short-Term Borrowings
$
$
$
$
$
$
$
36,509 $
19,964 $
9,688 $
8,754 $
16,797 $
15,923 $
1,018 $
1,233 $
7,477 $
711 $
2,689 $
- $
- $
339 $
10,661
4,066
12,606
1,351
-
-
1,707
$
13,061 $
20,043 $
16,002
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
55
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Capital City Bank Group, Inc. ("CCBG"), and its wholly-owned
subsidiary, Capital City Bank ("CCB" or the "Bank" and together with CCBG, the "Company"). All material inter-company
transactions and accounts have been eliminated.
The Company, which operates in a single reportable business segment comprised of commercial banking within the states of
Florida, Georgia, and Alabama, follows accounting principles generally accepted in the United States of America and reporting
practices applicable to the banking industry. The principles which materially affect the financial position, results of operations
and cash flows are summarized below.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a
voting interest entity or a variable interest entity under accounting principles generally accepted in the United States of America.
Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself
independently and provide the equity holders with the obligation to absorb losses, the right to receive residual returns and the right
to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a
majority of, the voting interest. As defined in applicable accounting standards, variable interest entities (VIEs) are entities that
lack one or more of the characteristics of a voting interest entity. A controlling financial interest in an entity is present when an
enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the entity’s expected losses,
receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial interest, known as
the primary beneficiary, consolidates the VIE. CCBG's wholly-owned subsidiaries, CCBG Capital Trust I (established November
1, 2004) and CCBG Capital Trust II (established May 24, 2005) are VIEs for which the Company is not the primary beneficiary.
Accordingly, the accounts of these entities are not included in the Company’s consolidated financial statements.
Certain items in prior financial statements have been reclassified to conform to the current presentation. All acquisitions during
the reported periods were accounted for using the purchase method. Accordingly, the operating results of the acquired companies
are included with the Company’s results of operations since their respective dates of acquisition.
On July 1, 2005, the Company executed a five-for-four stock split in the form of a 25% stock dividend, payable to shareowners
of record as of the close of business on June 17, 2005. All share, per share, and shareowners' equity data have been adjusted to
reflect the stock split.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these estimates. Material estimates that are particularly
susceptible to significant changes in the near-term relate to the determination of the allowance for loan losses, income taxes, and
valuation of goodwill and other intangibles and their respective analysis of impairment.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods and all other cash equivalents have a maturity of 90 days or
less.
Investment Securities
Investment securities available-for-sale are carried at fair value and represent securities that are available to meet liquidity and/or
other needs of the Company. Gains and losses are recognized and reported separately in the Consolidated Statements of Income
upon realization or when impairment of values is deemed to be other than temporary. Gains or losses are recognized using the
specific identification method. Unrealized holding gains and losses for securities available-for-sale are excluded from the
Consolidated Statements of Income and reported net of taxes in the accumulated other comprehensive (loss) income component of
shareowners' equity until realized. Accretion and amortization are recognized on the effective yield method over the life of the
securities.
56
Loans
Loans are stated at the principal amount outstanding, net of unearned income. Interest income is generally accrued on the effective
yield method based on outstanding balances. Fees charged to originate loans and direct loan origination costs are deferred and
amortized over the life of the loan as a yield adjustment. The Company defines loans as past due when one full payment is past
due or a contractual maturity is over 30 days late. The accrual of interest is generally suspended on loans more than 90 days past
due with respect to principal and interest. When a loan is placed on nonaccrual status, all previously accrued and uncollected
interest is reversed against current income. Interest income on nonaccrual loans is recognized on a cash basis when the ultimate
collectibility is no longer considered doubtful. Loans are returned to accrual status when the principal and interest amounts
contractually due are brought current and future payments are reasonably assured. Loans are charged-off (if unsecured) or
written-down (if secured) when losses are reasonably quantifiable.
Loans Held For Sale
Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. Additionally, certain other loans
are periodically identified to be sold. These loans are classified as loans held for sale and carried at the lower of cost or estimated
fair value. Fair value is determined on the basis of rates quoted in the respective secondary market for the type of loan held for
sale. Loans are generally sold at a premium or discount from the carrying amount of the loans. Such premium or discount is
recognized as mortgage banking revenue at the date of sale. Fixed commitments may be used at the time loans are originated or
identified for sale to mitigate interest rate risk. The fair value of fixed commitments to originate and sell loans held for sale is not
material.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents
management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance is
that amount considered adequate to absorb losses inherent in the loan portfolio based on management’s evaluation of credit risk as
of the balance sheet date.
The allowance for loan losses includes allowance allocations calculated in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS 118, and allowance
allocations calculated in accordance with SFAS 5, "Accounting for Contingencies." The level of the allowance reflects
management’s continuing evaluation of specific credit risks, loan loss experience, current loan portfolio quality, present economic
conditions and unidentified losses inherent in the current loan portfolio, as well as trends in the foregoing. This evaluation is
inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The Company’s allowance for loan losses consists of four elements: (i) specific valuation allowances established for probable
losses on specific loans deemed impaired; (ii) general valuation allowances calculated based on historical loan loss experience for
specifically identified problem loans and other loans with similar characteristics and trends; (iii) judgmental allowance reflective
of quantitative and qualitative risk factors both internal and external to the Company; and (iv) an unallocated allowance that
reflects management’s determination of estimation risk and other existing conditions that are not included in the allocated
allowance determination.
Long-Lived Assets
Premises and equipment are stated at cost less accumulated depreciation, computed on the straight-line method over the estimated
useful lives for each type of asset with premises being depreciated over a range of 10 to 40 years, and equipment being
depreciated over a range of 3 to 10 years. Major additions are capitalized and depreciated in the same manner. Repairs and
maintenance are charged to noninterest expense as incurred.
Intangible assets, other than goodwill, consist of core deposit intangible assets, and client relationship and non-compete assets that
were recognized in connection with various acquisitions. Core deposit intangible assets are amortized on the straight-line method
over various periods, with the majority being amortized over an average of 5 to 10 years. Other identifiable intangibles are
amortized on the straight-line method over their estimated useful lives.
Long-lived assets are evaluated for impairment if circumstances suggest that their carrying value may not be recoverable, by
comparing the carrying value to estimated undiscounted cash flows. If the asset is deemed impaired, an impairment charge is
recorded equal to the carrying value less the fair value.
57
Goodwill
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") prohibits
the Company from amortizing goodwill and requires the Company to identify reporting units to which the goodwill relates for
purposes of assessing potential impairment of goodwill on an annual basis, or more frequently, if events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable. In accordance with the guidelines in SFAS 142,
the Company determined it has one reporting unit with goodwill. As of December 31, 2006, the Company performed its annual
impairment review and concluded that no impairment adjustment was necessary.
Income Taxes
The Company files a consolidated federal income tax return and each subsidiary files a separate state income tax return.
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing
assets and liabilities on the Company’s consolidated statement of financial position 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 those
temporary differences 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 in the period that includes the enactment date.
Stock Based Compensation
On January 1, 2006, the Company changed its accounting policy related to stock-based compensation in connection with the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment (Revised 2004)" ("SFAS
123R"). See Note 11 – Stock-Based Compensation for additional information.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards
SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments." SFAS 155 amends SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS 155 (i) permits fair value re-measurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation, (ii) clarifies which interest-only strips and principal-only strips
are not subject to the requirements of SFAS 133, (iii) establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation, (iv) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives,
and (v) amends SFAS 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective on
January 1, 2007, and is not expected to have a significant impact on the Company’s financial statements.
SFAS No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective on
January 1, 2008 and is not expected to have a significant impact on the Company’s financial statements.
SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88 106, and 132(R)." SFAS 158 requires an employer to recognize the over-funded or under-funded status of
defined benefit postretirement plans as an asset or a liability in its statement of financial position. The funded status is measured
as the difference between plan assets at fair value and the benefit obligation (the projected benefit obligation for pension plans or
the accumulated benefit obligation for other postretirement benefit plans). An employer is also required to measure the funded
status of a plan as of the date of its year-end statement of financial position with changes in the funded status recognized through
comprehensive income. SFAS 158 also requires certain disclosures regarding the effects on net periodic benefit cost for the next
fiscal year that arise from delayed recognition of gains or losses, prior service costs or credits, and the transition asset or
obligation. The Company recognized the funded status of its defined benefit pension plan in its financial statements for the year
ended December 31, 2006. See Note 12 for additional discussion.
58
Financial Accounting Standards Board Interpretations
In July 2006, the FASB issued FASB Interpretation 48, "Accounting for Income Tax Uncertainties" ("FIN 48"). FIN 48 defines
the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority. The recently issued literature also provides guidance on the derecognition, measurement and
classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning
accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded
income tax uncertainties. The differences between the amounts recognized in the statements of financial position prior to the
adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to
the beginning balance of retained earnings. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is not
expected to have a significant impact on the Company’s financial statements.
SEC Staff Accounting Bulletin
Staff Accounting Bulletin (“SAB”) No. 108, "Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements." SAB 108 addresses how the effects of prior year uncorrected errors must
be considered in quantifying misstatements in the current year financial statements. The effects of prior year uncorrected errors
include the potential accumulation of improper amounts that may result in a material misstatement on the balance sheet or the
reversal of prior period errors in the current period that result in a material misstatement of the current period income statement
amounts. Adjustments to current or prior period financial statements would be required in the event that after application of
various approaches for assessing materiality of a misstatement in current period financial statements and consideration of all
relevant quantitative and qualitative factors, a misstatement is determined to be material. The Company adopted SAB 108 in
December 2006 and analyzed the impact of prior uncorrected misstatements under the guidance set forth in the pronouncement.
Two techniques are used by companies in practice to accumulate and quantify misstatements — the “rollover” approach and the
“iron curtain” approach. The rollover approach, which is the approach the Company previously used, quantifies a misstatement
based on the amount of the error originating in the current year income statement. Thus, this approach ignores the effects of
correcting the portion of the current year balance sheet misstatement that originated in prior years. The iron curtain approach
quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current
year, irrespective of the misstatement’s year(s) of origination. Subsequent to adoption, SAB No. 108 requires registrant’s to begin
using both approaches to evaluate prior year misstatements.
Use of the rollover approach by the Company resulted in an accumulation of misstatements to the Company’s statements of
financial condition that were deemed immaterial to the financial statements because the amounts that originated in each year were
quantitatively and qualitatively immaterial. Under the iron curtain approach, the accumulation of misstatements, when
aggregated, were deemed to be material to the Company’s financial statements in the current reporting period.
The Company elected, as allowed under SAB 108, to reflect the effect of initially applying this guidance by adjusting the carrying
amount of the impacted accounts as of the beginning of 2006 and recording an offsetting adjustment to the opening balance of
retained earnings in 2006. The Company recorded a cumulative effect adjustment to decrease retained earnings by $1.2 million
(after-tax) for the adoption of SAB 108. The Company evaluated the impact of these adjustments on previous periods presented
in the consolidated financial statements, individually and in the aggregate, under the rollover method and concluded that they were
immaterial to those periods’ consolidated financial statements.
The following table presents a description of the two adjustments included in the cumulative adjustment to retained earnings.
These adjustments were identified by management in the normal course of performing their internal control activities:
Adjustment
Description
Years Impacted
Operating
Leases
$
715,000
Establish deferred rent payable due
to difference in using straight-line
accounting for operating leases
(required per SFAS 13) versus cash-
basis accounting
1990 - 2006
Supplies
$
518,000
Overstatement of prepaid supply
account due to improper recognition
of sales tax and freight charges when
supplies were used
1998 - 2006
Total
$
1,233,000
59
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related market value of investment securities available-for-sale at
December 31, were as follows:
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies and Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities(1)
Total Investment Securities
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies and Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities(1)
Total Investment Securities
(1)
FHLB and FRB stock recorded at cost.
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
2006
$
$
$
$
12,098 $
61,619
83,621
23,244
12,648
193,230 $
49 $
593
415
371
-
1,428 $
12,065
61,063
83,222
22,896
12,648
191,894
16 $
37
16
23
-
92 $
2005
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
9,065 $
75,233
53,611
20,948
14,114
172,971 $
- $
-
44
35
-
79 $
50 $
1,017
512
452
-
2,031 $
9,015
74,216
53,143
20,531
14,114
171,019
Securities with an amortized cost of $87.6 million and $70.5 million at December 31, 2006 and 2005, respectively, were pledged
to secure public deposits and for other purposes.
The Company’s subsidiary, Capital City Bank, as a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, is required to
own capital stock in the FHLB of Atlanta based generally upon the balances of residential and commercial real estate loans, and
FHLB advances. FHLB stock, which is included in other securities, is pledged to secure FHLB advances. No ready market exists
for this stock, and it has no quoted market value. However, redemption of this stock has historically been at par value.
Investment Sales. The total proceeds from the sale of investment securities and the gross realized gains and losses from the sale of
such securities for each of the last three years are as follows:
(Dollars in Thousands)
Year
2006
2005
2004
$
$
$
Total
Proceeds
Gross
Realized Gains
Gross
Realized Losses
283 $
35,142 $
3,466 $
- $
9 $
17 $
4
-
3
Maturity Distribution. As of December 31, 2006, the Company's investment securities had the following maturity distribution
based on contractual maturities:
(Dollars in Thousands)
Due in one year or less
Due after one through five years
Due after five through ten years
No Maturity
Total Investment Securities
Amortized Cost Market Value
$
$
52,337
123,511
4,734
12,648
193,230
$
$
52,020
122,631
4,595
12,648
191,894
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
60
Other Than Temporarily Impaired Securities. Securities with unrealized losses at year-end not recognized in income by period of
time unrealized losses have existed are as follows:
Less Than
12 months
December 31, 2006
Greater Than
12 Months
Total
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies and
Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Total Investment Securities
$
Market
Value
$
12,065 $
29,308
46,576
9,156
97,105 $
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
49 $
172
219
1
441 $
- $
- $
12,065 $
30,242
30,087
13,560
73,889 $
421
196
370
987 $
59,550
76,663
22,716
170,994 $
49
593
415
371
1,428
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies and
Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Total Investment Securities
$
Less Than
12 months
December 31, 2005
Greater Than
12 Months
Total
Market
Value
$
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
- $
- $
9,015 $
50 $
9,015 $
50
7,907
34,640
7,680
50,227 $
98
348
179
625 $
66,309
10,926
9,741
95,991 $
919
164
273
1,406 $
74,216
45,566
17,421
146,218 $
1,017
512
452
2,031
At December 31, 2006, the Company had securities of $193.0 million with net unrealized losses of $1.3 million on these
securities. Of the total, $97.1 million with net unrealized losses of $0.4 million, have been in a loss position for less than 12
months and $74.0 million, with unrealized losses of $1.0 million, have been in a loss position for longer than 12 months. The
Company believes that these securities are only temporarily impaired and that the full principle will be collected as anticipated.
Of the total, $71.6 million, or 41.9%, are either a direct obligation of the U.S. Government or its agencies and are in a loss
position because they were acquired when the general level of interest rates was lower than that on December 31, 2006. As of
December 31, 2006, $22.7 million, or 13.3% are mortgage-backed securities that are guaranteed by the U.S. Government or its
agencies. The mortgage-backed securities are in a loss position due to either the lower interest rate at time of purchase or due to
accelerated prepayments driven by the low rate environment. The remaining $76.7 million, or 44.8%, of the securities in a loss
position are municipal bonds which all maintain satisfactory ratings by a credit rating agency. The municipal bonds are also in a
loss position due to the lower interest rate environment at the time of purchase.
Because the declines in the market value of these investments are attributable to changes in interest rates and not credit quality and
because the Company has the ability and intent to hold these investments until there is a recovery in fair value, which may be
maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2006.
61
Note 3
LOANS
Loan Portfolio Composition. At December 31, the composition of the Company's loan portfolio was as follows:
$
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate – Residential(1)
Real Estate - Home Equity
Real Estate - Loans Held-for-Sale
Consumer
Total Loans, Net of Unearned Interest
$
2006
229,327
179,072
643,885
531,968
173,597
4,170
237,702
1,999,721
$
$
2005
218,434
160,914
718,741
553,124
165,337
4,875
246,069
2,067,494
Net deferred fees included in loans at December 31, 2006 and December 31, 2005 were $1.5 million and $1.6 million,
respectively.
(1) Includes loans in process with outstanding balances of $11.5 million and $26.3 million for 2006 and 2005, respectively.
Concentrations of Credit. Substantially all of the Company's lending activity occurs within the states of Florida, Georgia, and
Alabama. A large majority of the Company's loan portfolio (76.6%) consists of loans secured by real estate, the primary types of
collateral being commercial properties and residential properties. At December 31, 2006, commercial real estate mortgage loans
and residential real estate mortgage loans accounted for 32.2% and 35.3% of the loan portfolio, respectively. As of December 31,
2006, there were no concentrations of loans related to any single borrower or industry in excess of 10% of total loans.
Nonperforming/Past Due Loans. Nonaccruing loans amounted to $8.0 million and $5.3 million, at December 31, 2006 and 2005,
respectively. There were no restructured loans at December 31, 2006 or 2005. Interest on nonaccrual loans is generally
recognized only when received. Cash collected on nonaccrual loans is applied against the principal balance or recognized as
interest income based upon management's expectations as to the ultimate collectibility of principal and interest in full. If interest
on nonaccruing loans had been recognized on a fully accruing basis, interest income recorded would have been $483,000,
$186,000, and $189,000 higher for the years ended December 31, 2006, 2005, and 2004, respectively. Accruing loans past due
more than 90 days totaled $135,000 at December 31, 2006 and $309,000 at December 31, 2005.
Note 4
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the years ended December 31, is as follows:
(Dollars in Thousands)
Balance, Beginning of Year
Acquired Reserves
Reserve Reversal(1)
Provision for Loan Losses
Recoveries on Loans Previously Charged-Off
Loans Charged-Off
Balance, End of Year
2006
2005
2004
$
$
17,410 $
-
-
1,959
1,830
(3,982)
17,217 $
16,037 $
1,385
-
2,507
1,724
(4,243)
17,410 $
12,429
5,713
(800)
2,141
1,612
(5,058)
16,037
(1) Reflects recapture of reserves allocated to the Bank's credit card portfolio, which was sold in August 2004.
62
Impaired Loans. Selected information pertaining to impaired loans, at December 31, is as follows:
(Dollars in Thousands)
Impaired Loans:
With Related Credit Allowance
Without Related Credit Allowance
2006
2005
Valuation
Balance
Valuation
Allowance
Valuation
Balance
Valuation
Allowance
$
6,085 $
4,574
2,255 $
-
5,612 $
1,658
2,915
-
(Dollars in Thousands)
Average Recorded Investment in Impaired Loans
2006
2005
2004
$
12,782 $
9,786 $
5,382
Interest Income on Impaired Loans
Recognized
Collected in Cash
$
398 $
398
218 $
218
140
120
Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded
investment is doubtful, at which time payments received are recorded as reduction of principal.
Note 5
INTANGIBLE ASSETS
The Company had intangible assets of $104.4 million and $110.5 million at December 31, 2006 and December 31, 2005,
respectively. Intangible assets at December 31, were as follows:
2006
2005
(Dollars in Thousands)
Core Deposits Intangibles
Goodwill
Customer Relationship Intangible
Non-Compete Agreement
Total Intangible Assets
Gross
Amount
Accumulated
Amortization
Gross
Amount
$
$
47,176 $
84,811
1,867
537
134,391 $
28,955 $
-
497
537
29,989 $
Accumulated
Amortization
23,312
-
305
287
23,904
47,176 $
84,829
1,867
483
134,355 $
Net Core Deposit Intangibles. As of December 31, 2006 and December 31, 2005, the Company had net core deposit intangibles
of $18.2 million and $23.9 million, respectively. Amortization expense for the twelve months of 2006, 2005 and 2004 was $5.6
million, $5.0 million, and $3.7 million, respectively. The estimated annual amortization expense (in millions) for the next five
years is expected to be approximately $5.7, $5.5, $3.9, $2.5, and $0.5 per year.
Goodwill. As of December 31, 2006 and December 31, 2005, the Company had goodwill of $84.8 million. Goodwill is the
Company's only intangible asset that is no longer subject to amortization under the provisions of SFAS 142. On December 31,
2006, the Company performed its annual impairment review and concluded that no impairment adjustment was necessary.
Other. As of December 31, 2006, the Company had a client relationship intangible, net of accumulated amortization, of $1.4
million. This intangible was booked as a result of the March 2004 acquisition of trust client relationships from Synovus Trust
Company. Amortization expense for 2006 was $192,000. Estimated annual amortization expense is $192,000 based on use of a
10-year useful life. The Company also had a non-compete intangible during the year which became fully amortized at the end of
the year. This intangible was booked as a result of the October 2004 acquisition of Farmers and Merchants Bank of Dublin.
Amortization expense for this intangible during 2006 was $250,000.
63
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31, was as follows:
(Dollars in Thousands)
Land
Buildings
Fixtures and Equipment
Total
Accumulated Depreciation
Premises and Equipment, Net
Note 7
DEPOSITS
2006
2005
$
$
22,597 $
78,676
52,129
153,402
(66,864)
86,538 $
16,503
69,924
46,293
132,720
(58,902)
73,818
Interest bearing deposits, by category, as of December 31, were as follows:
(Dollars in Thousands)
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits
Total
2006
2005
$
$
599,433 $
384,568
125,500
482,139
1,591,640 $
520,878
331,094
144,296
523,586
1,519,854
At December 31, 2006 and 2005, $3.1 million and $3.6 million, respectively, in overdrawn deposit accounts were reclassified as
loans.
Deposits from certain directors, executive officers, and their related interests totaled $30.7 million and $34.1 million at December
31, 2006 and 2005, respectively.
Time deposits in denominations of $100,000 or more totaled $135.0 million and $143.4 million at December 31, 2006 and 2005,
respectively.
At December 31, 2006, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2007
2008
2009
2010
2011 and thereafter
Total
$
$
396,507
56,790
20,955
5,452
2,435
482,139
Interest expense on deposits for the three years ended December 31, was as follows:
(Dollars in Thousands)
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits < $100,000
Time Deposits > $100,000
Total
2006
2005
2004
$
$
7,658 $
11,687
278
12,087
5,543
37,253 $
2,868 $
4,337
292
9,247
4,390
21,134 $
733
1,189
164
6,683
2,546
11,315
64
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2006
Balance at December 31,
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
2005
Balance at December 31,
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
2004
Balance at December 31,
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
Federal
Funds
Purchased
Securities
Sold Under
Repurchase
Agreements
Other
Short-Term
Borrowings
$
$
$
11,950 $
39,225
16,645
4.82%
4.61%
11,925 $
26,825
31,644
3.36%
3.88%
19,800 $
27,875
22,291
1.27%
1.97%
38,022 $
55,321
34,335
3.79%
3.79%
38,702 $
65,206
39,784
2.30%
3.21%
58,431 $
77,087
54,607
0.71%
1.12%
15,051 (1)
34,738
27,720
3.47%
3.90%
32,346
67,122
26,435
3.32%
3.48%
17,783
41,941
23,683
2.52%
3.19%
(1)
Includes FHLB debt of $13.0 million and TT&L (client tax deposits) balance of $2.0 million at December 31, 2006.
65
Note 9
LONG-TERM BORROWINGS
Federal Home Loan Bank Notes. At December 31, Federal Home Loan Bank advances included:
(Dollars in Thousands)
2006
2005
10
10,000
20,000
3,000
80
10,000
98
357
10,000
2,270
638
749
864
5,000
589
638
888
92
1,776
915
1,246
634
482
3,412
1,252
325
722
805
986
875
2,076
612
3,627
639
1,566
713
850
-
967
8,845
98,598
Due on February 15, 2006, fixed rate of 3.00%
Due on September 8, 2006, fixed rate of 4.28%
Due on September 11, 2006, fixed rate of 2.93%
Due on February 13, 2007, fixed rate of 3.05%(1)
Due on April 24, 2007, fixed rate of 7.30%(1)
Due on September 10, 2007, fixed rate of 4.29%(1)
Due on May 30, 2008, fixed rate of 2.50%
Due on June 13, 2008, fixed rate of 5.40%
Due on September 8, 2008, fixed rate of 4.32%
Due on November 10, 2008, fixed rate of 4.12%
Due on October 19, 2009, fixed rate of 3.69%
Due on November 10, 2010, fixed rate of 4.72%
Due on December 31, 2010, fixed rate of 3.85%
Due on April 4, 2011, fixed rate of 4.00%(2)
Due on December 18, 2012, fixed rate of 4.84%
Due on March 18, 2013, fixed rate of 6.37%
Due on June 17, 2013, fixed rate of 3.53%
Due on June 17, 2013, fixed rate of 3.85%
Due on June 17, 2013, fixed rate of 4.11%
Due on September 23, 2013, fixed rate of 5.64%
Due on January 27, 2014, fixed rate of 5.79%
Due on March 10, 2014, fixed rate of 4.21%
Due on May 27, 2014, fixed rate of 5.92%
Due on June 2, 2014, fixed rate of 4.52%
Due on July 20, 2016, fixed rate of 6.27%
Due on October 3, 2016, fixed rate of 5.41%
Due on October 31, 2016, fixed rate of 5.16%
Due on June 27, 2017, fixed rate of 5.53%
Due on October 31, 2017, fixed rate of 4.79%
Due on December 11, 2017, fixed rate of 4.78%
Due on February 26, 2018, fixed rate of 4.36%
Due on September 18, 2018, fixed rate of 5.15%
Due on November 5, 2018, fixed rate of 5.10%
Due on December 3, 2018, fixed rate of 4.87%
Due on December 17, 2018, fixed rate of 6.33%
Due on December 24, 2018, fixed rate of 6.29%
Due on February 16, 2021, fixed rate of 3.00%
Due on January 18, 2022, fixed rate of 5.25%
Due on May 30, 2023, fixed rate of 2.50%
Due on May 21, 2024, fixed rate of 5.94%
-
-
-
3,000
23
10,000
61
214
10,000
2,189
470
722
699
-
566
571
793
89
1,720
824
1,191
571
435
3,078
1,134
295
656
735
903
802
1,906
564
3,499
590
1,486
681
814
3,250
933
-
Total outstanding
$
55,464 $
(1) $13.0 million is classified as short-term borrowings.
(2) This advance was callable quarterly at the option of the FHLB.
The contractual maturities of FHLB debt for the five years succeeding December 31, 2006, are as follows:
(Dollars in Thousands)
2007
2008
2009
2010
2011
2012 and thereafter
Total
$
$
(1) $13.0 million is classified as short-term borrowings.
15,585 (1)
14,567
2,418
2,971
2,254
17,669
55,464
66
The Federal Home Loan Bank advances are collateralized by a blanket floating lien on all 1-4 family residential mortgage loans,
commercial real estate mortgage loans, and home equity mortgage loans. Interest on the Federal Home Loan Bank advances is
paid on a monthly basis.
Repurchase Agreements - Term. At December 31, the Company maintained three long-term repurchase agreements totaling $0.6
million collateralized by bank-owned securities. The agreements have maturities as follows (in millions): 2008-$0.4; 2009-$0.2.
Interest is payable upon maturity.
Junior Subordinated Deferrable Interest Notes. The Company has issued two junior subordinated deferrable interest notes to
wholly owned Delaware statutory trusts. The first note for $30.9 million was issued to CCBG Capital Trust I. The second note
for $32.0 million was issued to CCBG Capital Trust II. The two trusts are considered variable interest entities for which the
Company is not the primary beneficiary. Accordingly, the accounts of the trusts are not included in the Company’s consolidated
financial statements. See Note 1 - Summary of Significant Accounting Policies for additional information about the Company’s
consolidation policy. Details of the Company’s transaction with the two trusts are provided below.
In November 2004, CCBG Capital Trust I issued $30.0 million of trust preferred securities which represent beneficial interest in
the assets of the trust. The interest rate is fixed at 5.71% for a period of five years, then adjustable annually to LIBOR plus a
margin of 1.90%. The trust preferred securities will mature on December 31, 2034, and are redeemable upon approval of the
Federal Reserve in whole or in part at the option of the Company at any time after December 31, 2009 and in whole at any time
upon occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities
are payable quarterly on March 31, June 30, September 30, and December 31 of each year. CCBG Capital Trust I also issued
$928,000 of common equity securities to CCBG. The proceeds of the offering of trust preferred securities and common equity
securities were used to purchase a $30.9 million junior subordinated deferrable interest note issued by the Company, which has
terms substantially similar to the trust preferred securities.
In May 2005, CCBG Capital Trust II issued $31.0 million of trust preferred securities which represent beneficial interest in the
assets of the trust. The interest rate is fixed at 6.07% for a period of five years, then adjustable quarterly to LIBOR plus a margin
of 1.80%. The trust preferred securities will mature on June 15, 2035, and are redeemable upon approval of the Federal Reserve
in whole or in part at the option of the Company at any time after May 20, 2010 and in whole at any time upon occurrence of
certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable
quarterly on March 15, June 15, September 15, and December 15 of each year. CCBG Capital Trust II also issued $959,000 of
common equity securities to CCBG. The proceeds of the offering of trust preferred securities and common equity securities were
used to purchase a $32.0 million junior subordinated deferrable interest note issued by the Company, which has terms
substantially similar to the trust preferred securities.
The Company has the right to defer payments of interest on the two notes at any time or from time to time for a period of up to
twenty consecutive quarterly interest payment periods. Under the terms of each note, in the event that under certain circumstances
there is an event of default under the note or the Company has elected to defer interest on the note, the Company may not, with
certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock.
The Company is current on the interest payment obligations and has not executed the right to defer interest payments on the notes.
The Company has entered into agreements to guarantee the payments of distributions on the trust preferred securities and
payments of redemption of the trust preferred securities. Under these agreements, the Company also agrees, on a subordinated
basis, to pay expenses and liabilities of the two trusts other than those arising under the trust preferred securities. The obligations
of the Company under the two junior subordinated notes, the trust agreements establishing the two trusts, the guarantee and
agreement as to expenses and liabilities, in aggregate, constitute a full and conditional guarantee by the Company of the two trusts'
obligations under the two trust preferred security issuances.
Despite the fact that the accounts of CCBG Capital Trust I and CCBG Capital Trust II are not included in the Company’s
consolidated financial statements, the $30.0 million and $31.0 million, respectively, in trust preferred securities issued by these
subsidiary trusts are included in the Tier 1 capital of Capital City Bank Group, Inc. as allowed by Federal Reserve guidelines.
67
Note 10
INCOME TAXES
The provision for income taxes reflected in the statements of income is comprised of the following components:
(Dollars in Thousands)
Current:
Federal
State
Deferred:
Federal
State
Total
2006
2005
2004
$
$
14,780 $
1,527
1,384
230
17,921 $
15,114 $
1,290
156
26
16,586 $
13,753
1,381
656
109
15,899
Income taxes provided were different than the tax expense computed by applying the statutory federal income tax rate of 35% to
pre-tax income as a result of the following:
(Dollars in Thousands)
Tax Expense at Federal Statutory Rate
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income
State Taxes, Net of Federal Benefit
Other
Actual Tax Expense
2006
2005
2004
$
17,915 $
16,403 $
(1,334)
1,142
198
17,921 $
(1,054)
856
381
16,586 $
$
15,845
(992)
969
77
15,899
Deferred income tax liabilities and assets result from differences between assets and liabilities measured for financial reporting
purposes and for income tax return purposes. These assets and liabilities are measured using the enacted tax rates and laws that
are currently in effect. The net deferred tax asset and the temporary differences comprising that balance at December 31, 2006
and 2005 are as follows:
(Dollars in Thousands)
Deferred Tax Assets attributable to:
Allowance for Loan Losses
Associate Benefits
Unrealized Losses on Investment Securities
Accrued Pension/SERP
Market Value of Loans
Interest on Nonperforming Loans
Net Operating Loss Carry Forwards
Intangible Assets
Accrued Expense
Other
Total Deferred Tax Assets
Deferred Tax Liabilities attributable to:
Depreciation on Premises and Equipment
Deferred Loan Costs
Core Deposit Intangible Assets
Intangible Assets
Securities Accretion
Other
Total Deferred Tax Liabilities
Net Deferred Tax Assets
2006
2005
$
$
$
$
6,659 $
700
503
2,474
(122)
170
399
70
612
835
12,300 $
4,434 $
2,550
(278)
1,319
25
223
8,273
4,027 $
6,733
650
706
(133)
19
170
228
44
592
251
9,260
4,676
1,752
1,173
1,019
17
243
8,880
380
In the opinion of management, it is more likely than not that all of the deferred tax assets will be realized; therefore, a valuation
allowance is not required.
68
Changes in net deferred income tax assets were:
(Dollars in Thousands)
Balance at Beginning of Year
Purchase Accounting Acquisitions
2006
2005
$
380 $
-
Change in Accounting Method – Adoption of SFAS No. 158 and SAB No. 108
5,463
Income Tax (Expense) Benefit From Change in Unrealized Losses on
Available-for-Sale Securities
Deferred Income Tax Expense on Continuing Operations
(202)
(1,614)
Balance at End of Year
$
4,027 $
Note 11
STOCK-BASED COMPENSATION
2,463
(2,403)
-
502
(182)
380
In accordance with the Company’s adoption of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in the
first quarter of 2003, the cost related to stock-based associate compensation included in net income has been accounted for under
the fair value method in all reported periods.
On January 1, 2006, the Company adopted SFAS 123R. The Company continues to include the cost of its share-based
compensation plans in net income under the fair value method. The impact of SFAS 123R to the Company’s financial statements
upon adoption was not material.
As of December 31, 2006, the Company had three stock-based compensation plans, consisting of the 2005 Associate Incentive
Plan ("AIP"), the 2005 Associate Stock Purchase Plan ("ASPP"), and the 2005 Director Stock Purchase Plan ("DSPP"). Total
compensation expense associated with these plans for 2004-2006 was approximately $0.4 million, $0.8 million and $1.2 million,
respectively.
AIP. The Company's AIP allows the Company's Board of Directors to award key associates various forms of equity-based
incentive compensation. Under the AIP, the Company has adopted the Stock-Based Incentive Plan (the "Incentive Plan"),
effective January 1, 2006, which is a performance-based equity bonus plan for selected members of management, including all
executive officers. Under the Incentive Plan, all participants are eligible to earn an equity award, consisting of performance
shares, in each year of the five-year period ending December 31, 2010. Annual awards are tied to the annual earnings progression
necessary to achieve the Project 2010 goal of $50.0 million in annual net income. The grant-date fair value of an annual
compensation award is approximately $1.5 million. A total of 43,437 shares are eligible for issuance annually.
At the end of each calendar year, the Compensation Committee of the Company’s Board of Directors will confirm whether the
performance goals have been met prior to the payout of any awards. Any performance shares earned under the Incentive Plan will
be issued in the calendar quarter following the calendar year in which the shares were earned.
In accordance with the provisions of SFAS 123R, the Company recognized expense of approximately $1.1 million in 2006 related
to the Incentive Plan. Under a substantially similar predecessor plan, the Company recognized expense of $0.6 million in 2005
and $0.3 million in 2004. A total of 875,000 shares of common stock have been reserved for issuance under the AIP. To date, the
Company has issued 28,093 shares of common stock.
69
Executive Stock Option Agreement. In 2006, under the provisions of the AIP, the Company's Board of Directors approved a stock
option agreement for a key executive officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG). Similar stock option
agreements were approved in 2003-2005. These agreements grant a non-qualified stock option award upon achieving certain
annual earnings per share conditions set by the Board, subject to certain vesting requirements. The options granted under the
agreements have a term of ten years and vest at a rate of one-third on each of the first, second, and third anniversaries of the date
of grant. Under the 2004 and 2003 agreements, 37,246 and 23,138 options, respectively, were issued, none of which have been
exercised. The fair value of a 2004 option was $13.42, and the fair value of a 2003 option was $11.64. The exercise prices for the
2004 and 2003 options are $32.69 and $32.96, respectively. Under the 2005 and 2006 agreements, the earnings per share
conditions were not met; therefore, no expense was recognized related to these agreements. In accordance with the provisions of
SFAS 123R and SFAS 123, the Company recognized expense of approximately $205,000 and $193,000 for 2006 and 2005,
respectively, related to the 2004 and 2003 agreements.
A summary of the status of the Company’s option shares as of December 31, 2006 is presented below:
Options
Outstanding at January 1, 2006
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2006
Exercisable at December 31, 2006
Shares
60,384
-
-
-
60,384
27,840
$
$
$
Weighted-
Average
Exercise Price
32.79
-
-
-
32.79
32.79
$
$
$
Weighted-
Average
Remaining
Months To Vest
29.4
-
-
-
17.4
17.4
Aggregate
Intrinsic Value
88,161
-
-
-
151,355
68,497
$
$
$
As of December 31, there was $125,000 of total unrecognized compensation cost related to the non-vested option shares granted
under the 2004 agreement. That cost is expected to be recognized over the next 12 months.
DSPP. The Company's DSPP allows the directors to purchase the Company's common stock at a price equal to 90% of the
closing price on the date of purchase. Stock purchases under the DSPP are limited to the amount of the directors' annual retainer
and meeting fees. The DSPP has 93,750 shares reserved for issuance. A total of 18,738 shares have been issued since the
inception of the DSPP. For 2006, the Company issued 12,149 shares under the DSPP and recognized approximately $37,000 in
expense related to this plan. For 2005, the Company issued 6,589 shares and recognized approximately $26,000 in expense
related to the DSPP. For 2004, the Company issued 9,211 shares and recognized approximately $27,000 in expense under a
substantially similar predecessor plan.
ASPP. Under the Company's ASPP, substantially all associates may purchase the Company's common stock through payroll
deductions at a price equal to 90% of the lower of the fair market value at the beginning or end of each six-month offering period.
Stock purchases under the ASPP are limited to 10% of an associate's eligible compensation, up to a maximum of $25,000 (fair
market value on each enrollment date) in any plan year. Shares are issued at the beginning of the quarter following each six-
month offering period. The ASPP has 593,750 shares of common stock reserved for issuance. A total of 36,281 shares have been
issued since inception of the ASPP. For 2006, the Company issued 19,435 shares under the ASPP and recognized approximately
$90,000 in expense related to this plan. For 2005, the Company issued 16,846 shares and recognized approximately $90,000 in
expense related to the ASPP. For 2004, the Company issued 25,070 shares and recognized approximately $125,000 in expense
under a substantially similar predecessor plan.
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of the purchase rights granted under
the ASPP Plan was $5.65 for in 2006. For 2005 and 2004, the weighted average fair value of the purchase rights granted was
$5.77 and $5.90, respectively. In calculating compensation, the fair value of each stock purchase right was estimated on the date
of grant using the following weighted average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
2006
2005
2004
1.9%
23.5%
4.5%
0.5
1.9%
28.0%
2.6%
0.5
1.7%
30.0%
1.1%
0.5
70
Note 12
EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all full-time and eligible part-time associates and a
Supplemental Executive Retirement Plan (“SERP”) covering selected executive officers.
Adoption of SFAS 158
On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158 (“SFAS 158”). This
statement required the Company to recognize the funded status of its defined benefit pension and SERP plans in the December 31,
2006 consolidated statement of financial condition, with a corresponding adjustment to accumulated other comprehensive income,
net of tax. The adjustment to accumulated other comprehensive income at adoption represents the net unrecognized actuarial
losses, unrecognized prior service costs, and unrecognized transition obligation remaining from the initial adoption of SFAS
No. 87 (“SFAS 87”), “Employers’ Accounting for Pensions,” which was previously netted against the plans’ funded status in the
Company’s consolidated balance sheet pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as
net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial
gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be
recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of
net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of
SFAS 158.
The following table illustrates the incremental effect of adopting the provisions of SFAS 158 on the Company’s consolidated
statement of financial condition at December 31, 2006. The adoption of SFAS 158 had no impact on the Company’s consolidated
statement of income for the year ended December 31, 2006, or for any prior period presented, and it will not affect the Company’s
operating results in future periods.
Incremental Effect of Applying SFAS 158
On Individual Line Items of the Consolidated Statement of Financial Condition
(Dollars in Thousands)
Other Assets
Total Assets
Other Liabilities
Total Liabilities
Prior to
Adoption of
SFAS 158
Effect of
Adopting
SFAS 158
As Reported
at December 31,
2006
$
59,707
$
(4,699)
$
55,008
2,602,609
(4,699)
2,597,910
26,716
2,279,363
2,777
2,777
29,493
2,282,140
(7,477)
Accumulated Other Comprehensive Loss
-
(7,477)
Total Shareowners' Equity
$
323,247
$
(7,477)
$
315,770
Included in accumulated other comprehensive income at December 31, 2006 are the following amounts that have not yet been
recognized in net periodic cost: unrecognized prior service costs of $2.0 million ($1.2 million net of tax) and unrecognized
actuarial losses of $10.2 million ($6.3 million net of tax). The prior service cost and actuarial loss included in accumulated other
comprehensive income and expected to be recognized in net periodic pension cost during the year-ended December 31, 2007 is
$308,000 ($191,000 net of tax) and $1.1 million ($661,000 net of tax), respectively.
Pension Plan
The Company sponsors a noncontributory pension plan covering substantially all of its associates. Benefits under this plan
generally are based on the associate's years of service and compensation during the years immediately preceding retirement. The
Company's general funding policy is to contribute amounts deductible for federal income tax purposes.
The defined benefit pension plan for the Farmers and Merchants Bank of Dublin was merged into the Company's pension plan as
of December 31, 2005. The following table details on a consolidated basis the components of pension expense, the funded status
of the plan, amounts recognized in the Company's consolidated statements of financial condition, and major assumptions used to
determine these amounts.
71
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial Loss
Benefits Paid
Expenses Paid
Plan Change
Acquisitions
Projected Benefit Obligation at End of Year
Accumulated Benefit Obligation at End of Year
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year
Actual Return on Plan Assets
Employer Contributions
Benefits Paid
Expenses Paid
Acquisitions
Fair Value of Plan Assets at End of Year
Reconciliation of Funded Status:
Funded Status
Unrecognized Net Actuarial Losses
Unrecognized Prior Service Cost
Unrecognized Net Transition Obligation
Prepaid (Accrued) Benefit Cost
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of Prior Service Costs
Transition Obligation Recognition
Recognized Net Actuarial Loss
Net Periodic Benefit Cost
*Not Applicable due to adoption of SFAS No. 158
Assumptions:
Weighted-average used to determine benefit obligations:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
Measurement Date
Weighted-average used to determine net cost:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
$
$
$
$
$
2006
2005
2004
64,131 $
4,930
3,622
(1,421)
(3,267)
(149)
825
-
68,671 $
54,529 $
4,352
3,253
2,752
(3,501)
(75)
-
2,821
64,131 $
46,227
3,776
2,893
2,890
(1,092)
(165)
-
-
54,529
49,335 $
45,645 $
38,325
52,277 $
6,342
11,350
(3,267)
(149)
-
66,553 $
$
(2,117) $
*
*
-
* $
4,930 $
3,622
(4,046)
215
-
1,598
6,319 $
$
$
$
41,125 $
1,737
10,500
(3,501)
(75)
2,491
52,277 $
(11,853) $
14,823
1,302
-
4,272 $
4,352 $
3,410
(3,373)
215
11
1,324
5,939 $
34,784
2,710
4,888
(1,092)
(165)
-
41,125
(13,404)
11,676
1,517
-
(211)
3,776
2,893
(2,665)
215
1
1,163
5,383
6.00%
8.00%
5.50%
5.75%
8.00%
5.50%
12/31/06
12/31/05
6.00%
8.00%
5.50%
12/31/04
5.75%
8.00%
5.50%
6.00%
8.00%
5.50%
6.25%
8.00%
5.50%
72
Return on Plan Assets. The overall expected long-term rate of return on assets is a weighted-average expectation for the return on
plan assets. The Company considers historical performance and current benchmarks to arrive at expected long-term rates of
return in each asset category. The Company assumed that 65% of its portfolio would be invested in equity securities, with the
remainder invested in debt securities.
Plan Assets. The Company’s pension plan asset allocation at year-end 2006 and 2005, and the target asset allocation for 2007 are
as follows:
Equity Securities
Debt Securities
Real Estate
Cash Equivalent
Total
Target Allocation
2007
65%
30%
-
5%
100%
Percentage of Plan
Assets at Year-End(1)
2005
51%
23%
-
26%
100%
2006
55%
18%
1%
26%
100%
(1) Represents asset allocation at year-end which may differ from the average target allocation for the year due to the year-end
cash contribution to the plan.
The Company’s pension plan assets are overseen by the CCBG Retirement Committee. Capital City Trust Company acts as the
investment manager for the plan. The investment strategy is to maximize return on investments while minimizing risk. The
Company believes the best way to accomplish this goal is to take a conservative approach to its investment strategy by investing
in high-grade equity and debt securities.
Expected Benefit Payments. As of December 31, 2006, expected benefit payments related to the Company's defined benefit
pension plan were as follows:
2007
2008
2009
2010
2011
2012 through 2016
$
$
3,249,113
4,350,617
4,249,471
3,979,390
5,153,436
35,397,040
56,379,067
Contributions. The following table details the amounts contributed to the pension plan in 2006 and 2005, and the expected
amount to be contributed in 2007.
Actual Contributions
2006
$ 11,350,000
2005
$ 10,500,000
Expected
2007(1)
$ 10,000,000
(1) Estimate of 2007 maximum allowable contribution.
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan ("SERP") covering selected executive officers. Benefits under this
plan generally are based on the executive officer's years of service and compensation during the years immediately preceding
retirement. The Company recognized expense during 2006, 2005 and 2004 of approximately $514,000, $478,000, and $491,000,
respectively.
73
The following table details the components of the SERP’s periodic benefit cost, the funded status of the plan, amounts recognized
in the Company's consolidated statements of financial condition, and major assumptions used to determine these amounts.
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial (Gain) Loss
Plan Change
Projected Benefit Obligation at End of Year
Accumulated Benefit Obligation at End of Year
Reconciliation of Funded Status:
Funded Status
Unrecognized Net Actuarial Loss
Unrecognized Prior Service Cost
Accrued Benefit Cost
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Amortization of Prior Service Cost
Recognized Net Actuarial Loss (Gain)
Net Periodic Benefit Cost
*Not applicable due to adoption of SFAS No. 158
Assumptions:
Weighted-average used to determine the benefit obligations:
Discount Rate
Rate of Compensation Increase
Weighted-average used to determine the net cost:
Discount Rate
Rate of Compensation Increase
2006
2005
2004
$
$
$
3,878 $
123
230
62
(274)
4,019 $
3,601 $
133
207
(63)
-
3,878 $
1,880
147
198
1,376
-
3,601
2,252 $
2,295 $
1,894
$
(4,018) $
$
$
$
*
*
* $
123 $
230
61
100
514 $
6.00%
5.50%
5.75%
5.50%
(3,878) $
734
388
(2,756) $
(3,601)
874
449
(2,278)
133 $
207
61
77
478 $
5.75%
5.50%
6.00%
5.50%
147
198
62
84
491
6.00%
5.50%
6.25%
5.50%
Expected Benefit Payments. As of December 31, 2006, expected benefit payments related to the Company's SERP were as
follows:
2007
2008
2009
2010
2011
2012 through 2016
$
$
19,665
96,715
204,356
269,559
358,692
3,548,890
4,497,877
74
401(k) Plan
The Company has a 401(k) Plan which enables associates to defer a portion of their salary on a pre-tax basis. The plan covers
substantially all associates of the Company who meet minimum age requirements. The plan is designed to enable participants to
elect to have an amount from 1% to 15% of their compensation withheld in any plan year placed in the 401(k) Plan trust account.
Matching contributions from the Company are made up to 6% of the participant's compensation for eligible associates. During
2006, 2005, and 2004, the Company made matching contributions of $273,000, $154,000 and $66,000, respectively. The
participant may choose to invest their contributions into sixteen investment funds available to 401(k) participants, including the
Company’s common stock. A total of 50,000 shares of CCBG common stock have been reserved for issuance. These shares have
historically been purchased from the public markets.
Other Plans
The Company has a Dividend Reinvestment and Optional Stock Purchase Plan. A total of 250,000 shares have been reserved for
issuance. In recent years, shares for the Dividend Reinvestment and Optional Stock Purchase Plan have been acquired in the open
market and, thus, the Company did not issue any shares under this plan in 2006, 2005 and 2004.
Note 13
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in Thousands, Except Per Share Data)
Numerator:
Net Income
Denominator:
2006
2005
2004
$
33,265 $
30,281 $
29,371
Denominator for Basic Earnings Per Share Weighted-Average Shares
Effects of Dilutive Securities Stock Compensation Plans
18,584,519
25,320
18,263,855
17,388
16,805,696
5,230
Denominator for Diluted Earnings Per Share Adjusted Weighted-
Average Shares and Assumed Conversions
18,609,839
18,281,243
16,810,926
Basic Earnings Per Share
Diluted Earnings per Share
$
$
1.79 $
1.66 $
1.79 $
1.66 $
1.74
1.74
75
Note 14
CAPITAL
The Company is subject to various regulatory capital requirements which involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items. The Company's capital amounts and classification are subject to
qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require that the Company maintain amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. As of December 31, 2006,
the Company met all capital adequacy requirements to which it is subject.
A summary of actual, required, and capital levels necessary to be considered well-capitalized for Capital City Bank Group, Inc.
consolidated and its banking subsidiary, Capital City Bank, as of December 31, 2006 and December 31, 2005 are as follows:
(Dollars in Thousands)
As of December 31, 2006:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
As of December 31, 2005:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
Actual
Amount
Ratio
Required
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
$
280,679
273,425
14.00% $
13.66%
80,191
80,055
4.00%
4.00%
*
120,082
*
6.00%
299,783
290,642
14.95%
14.52%
160,382
160,109
8.00%
8.00%
*
200,137
*
10.00%
280,679
273,425
11.30%
11.03%
80,191
80,055
4.00%
4.00%
*
100,068
*
5.00%
$
257,572
252,096
12.61% $
12.36%
81,675
81,599
4.00%
4.00%
*
122,398
*
6.00%
276,869
269,506
13.56%
13.21%
163,349
163,198
8.00%
8.00%
*
203,997
*
10.00%
257,572
252,096
10.27%
10.07%
61,256
61,199
4.00%
4.00%
*
101,999
*
5.00%
*Not applicable to bank holding companies.
Note 15
DIVIDEND RESTRICTIONS
Substantially all the Company’s retained earnings are undistributed earnings of its banking subsidiary which are restricted by
various regulations administered by federal and state bank regulatory authorities.
The approval of the appropriate regulatory authority is required if the total of all dividends declared by a subsidiary bank in any
calendar year exceeds the bank’s net profits (as defined under Florida law) for that year combined with its retained net profits for
the preceding two calendar years. In 2007, the bank subsidiary may declare dividends without regulatory approval of $39.7
million plus an additional amount equal to the net profits of the Company’s subsidiary bank for 2007 up to the date of any such
dividend declaration.
76
Note 16
RELATED PARTY INFORMATION
DuBose Ausley, a Director of the Company, is employed by and is the former Chairman of Ausley & McMullen, the Company's
general counsel. Fees paid by the Company and its subsidiary for legal services, in aggregate, approximated $907,000, $813,000,
and $797,000 during 2006, 2005, and 2004, respectively.
Under a lease agreement expiring in 2024, the Bank leases land from a partnership in which several directors and officers have an
interest. The lease agreement with Smith Interests General Partnership L.L.P., provides for annual lease payments of
approximately $109,000, to be adjusted for inflation in future years. Amounts paid in 2004-2006 were $91,000, $109,000, and
$109,000, respectively.
At December 31, 2006 and 2005, certain officers and directors were indebted to the Company’s bank subsidiary in the aggregate
amount of $12.6 million and $17.7 million, respectively. During 2006, $17.9 million in new loans were made and repayments
totaled $23.0 million. In the opinion of management, these loans were made on similar terms as loans to other individuals of
comparable creditworthiness and were all current at year-end.
Note 17
SUPPLEMENTARY INFORMATION
Components of other noninterest income and noninterest expense in excess of 1% of the sum of total interest income and
noninterest income, which are not disclosed separately elsewhere, are presented below for each of the respective years.
(Dollars in Thousands)
Noninterest Income:
Merchant Fee Income
Interchange Commission Fees
ATM/Debit Card Fees
Noninterest Expense:
Professional Fees
Printing & Supplies
Interchange Service Fees
Telephone
Advertising
(1) <1% of appropriate threshold.
2006
2005
2004
$
6,978 $
3,105
2,519
6,174 $
2,239
2,206(1)
3,402
2,472
6,010
2,323
4,285
3,825
2,372
5,402
2,493
4,275
5,135
2,229
2,007(1)
2,858(1)
1,854
4,741
2,048
2,001(1)
77
Note 18
COMMITMENTS AND CONTINGENCIES
Lending Commitments. The Company is a party to financial instruments with off-balance sheet risks in the normal course of
business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and
standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented
by the contractual amount of those instruments. The Company uses the same credit policies in establishing commitments and
issuing letters of credit as it does for on-balance sheet instruments. As of December 31, 2006, the amounts associated with the
Company’s off-balance sheet obligations were as follows:
(Dollars in Thousands)
Commitments to Extend Credit(1)
Standby Letters of Credit
Amount
$
$
418,952
17,537
(1) Commitments include unfunded loans, revolving lines of credit, and other unused commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. In
general, management does not anticipate any material losses as a result of participating in these types of transactions. However,
any potential losses arising from such transactions are reserved for in the same manner as management reserves for its other
credit facilities.
For both on- and off-balance sheet financial instruments, the Company requires collateral to support such instruments when it is
deemed necessary. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies, but
may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; real estate; accounts
receivable; property, plant and equipment; and inventory.
Other Commitments. In the normal course of business, the Company enters into lease commitments which are classified as
operating leases. Rent expense incurred under these leases was approximately $1.5 million in 2006, $1.3 million in 2005, and
$1.3 million in 2004. Minimum lease payments under these leases due in each of the five years subsequent to December 31, 2006,
are as follows (in millions): 2007, $1.5; 2008, $1.4; 2009, $1.2; 2010, $1.0; 2011, $1.0; thereafter, $6.1.
Contingencies. The Company is a party to lawsuits and claims arising out of the normal course of business. In management's
opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a
material effect on the consolidated results of operations, financial position, or cash flows of the Company.
78
Note 19
FAIR VALUE OF FINANCIAL INSTRUMENTS
Many of the Company’s assets and liabilities are short-term financial instruments whose carrying values approximate fair value.
These items include Cash and Due From Banks, Interest Bearing Deposits with Other Banks, Federal Funds Sold, Federal Funds
Purchased, Securities Sold Under Repurchase Agreements, and Short-Term Borrowings. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other valuation techniques. The resulting fair values may
be significantly affected by the assumptions used, including the discount rates and estimates of future cash flows.
The methods and assumptions used to estimate the fair value of the Company’s other financial instruments are as follows:
Investment Securities - Fair values for investment securities are based on quoted market prices. If a quoted market price is not
available, fair value is estimated using market prices for similar securities.
Loans - The loan portfolio is segregated into categories and the fair value of each loan category is calculated using present value
techniques based upon projected cash flows and estimated discount rates. The calculated present values are then reduced by an
allocation of the allowance for loan losses against each respective loan category.
Deposits - The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market Accounts and Savings Accounts are
the amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using
present value techniques and rates currently offered for deposits of similar remaining maturities.
Subordinated Notes Payable - The fair value of each note is calculated using present value techniques, based upon projected cash
flows and estimated discount rates as well as rates being offered for similar obligations.
Long-Term Borrowings - The fair value of each note is calculated using present value techniques, based upon projected cash
flows and estimated discount rates as well as rates being offered for similar debt.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of commitments to extend credit is estimated using
the fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counterparties.
The fair value of these fees is not material.
The Company’s financial instruments that have estimated fair values are presented below:
(Dollars in Thousands)
Financial Assets:
Cash
Short-Term Investments
Investment Securities
Loans, Net of Allowance for Loan Losses
Total Financial Assets
Financial Liabilities:
Deposits
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
Total Financial Liabilities
At December 31,
2006
2005
Carrying
Value
Estimated
Fair
Value
Carrying
Value
Estimated
Fair
Value
$
$
$
$
98,769 $
78,795
191,894
1,982,504
2,351,962 $
98,769 $
78,795
191,894
1,992,025
2,361,483 $
105,195 $
61,164
171,019
2,050,084
2,387,462 $
2,081,654 $
65,023
62,887
43,083
2,252,647 $
2,007,308 $
64,970
63,013
42,256
2,177,547 $
2,079,346 $
82,973
62,887
69,630
2,294,836 $
105,195
61,164
171,019
2,044,954
2,382,332
1,953,576
82,748
63,049
69,295
2,168,668
Certain financial instruments and all non-financial instruments are excluded from the above table. The disclosures also do not
include certain intangible assets such as client relationships, deposit base intangibles and goodwill. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the Company.
79
Note 20
PARENT COMPANY FINANCIAL INFORMATION
The operating results of the parent company for the three years ended December 31, are shown below:
Parent Company Statements of Income
(Dollars in Thousands)
OPERATING INCOME
Income Received from Subsidiary Bank:
Dividends
Overhead Fees
Other Income
Total Operating Income
OPERATING EXPENSE
Salaries and Associate Benefits
Interest on Long-Term Borrowings
Interest on Subordinated Notes Payable
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
2006
2005
2004
$
20,166 $
3,524
112
23,802
10,597 $
2,716
87
13,400
2,360
-
3,725
741
403
604
649
8,482
2,191
-
2,981
1,399
467
701
471
8,210
12,716
3,232
2
15,950
2,257
33
294
895
286
468
480
4,713
11,237
(581)
11,818
17,553
29,371
Income Before Income Taxes and Equity in Undistributed Earnings of
Subsidiary Bank
Income Tax Benefit
Income Before Equity in Undistributed Earnings of Subsidiary Bank
Equity in Undistributed Earnings of Subsidiary Bank
Net Income
$
15,320
(1,835)
17,155
16,110
33,265 $
5,190
(2,060)
7,250
23,031
30,281 $
The following are condensed statements of financial condition of the parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands, Except Per Share Data)(1)
ASSETS
Cash and Due From Subsidiary Bank
Investment in Subsidiary Bank
Other Assets
Total Assets
LIABILITIES
Subordinated Notes Payable
Other Liabilities
Total Liabilities
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000 shares authorized; no shares issued and
outstanding
Common Stock, $.01 par value; 90,000,000
shares authorized; 18,518,398 and 18,631,706 shares issued and outstanding at December
31,2006 and December 31, 2005, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners' Equity
Total Liabilities and Shareowners' Equity
2006
2005
8,921 $
373,278
1,550
383,749 $
5,434
364,898
1,447
371,779
62,887 $
5,092
67,979 $
62,887
3,116
66,003
-
-
185
80,654
243,242
(8,311)
315,770
383,749 $
186
83,304
223,532
(1,246)
305,776
371,779
$
$
$
$
$
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
80
The cash flows for the parent company for the three years ended December 31, were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
$
2006
2005
2004
33,265 $
30,281 $
29,371
Activities:
Equity in Undistributed Earnings of Subsidiary Bank
Non-Cash Compensation
Increase in Other Assets
Increase in Other Liabilities
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Investment in:
CCBG Capital Trust I and CCBG Capital Trust II
Cash Paid for Acquisitions
Net Cash Used in Investing Activities
CASH FROM FINANCING ACTIVITIES:
Proceeds from Subordinated Notes
Increase in Other Long-Term Borrowings
Repayments of Long-Term Borrowings
Payment of Dividends
Repurchase of Common Stock
Issuance of Common Stock
Net Cash (Used in) Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash at Beginning of Period
Cash at End of Period
Note 21
COMPREHENSIVE INCOME
(16,110)
1,673
(670)
1,976
20,134
(23,031)
110
131
381
7,872
(17,553)
1,707
(189)
68
13,404
-
-
-
(959)
(29,953)
(30,912)
(928)
(35,688)
(36,616)
-
-
-
(12,322)
(5,360)
1,035
(16,647)
3,487
5,434
8,921 $
$
31,959
-
-
(11,397)
-
1,019
21,581
(1,459)
6,893
5,434 $
30,928
30,000
(30,000)
(9,857)
-
1,184
22,255
(957)
7,850
6,893
SFAS No. 130, "Reporting Comprehensive Income," requires that certain transactions and other economic events that bypass
the income statement be displayed as other comprehensive income (loss). Total comprehensive income is reported in the
accompanying statements of changes in shareowners’ equity. Information related to net comprehensive income (loss) is as
follows:
Other Comprehensive Income (Loss):
Securities available for sale:
Change in net unrealized gain/loss during period:
Change in funded status of defined benefit pension plan and SERP plan
(net of tax)
Net Other Comprehensive Loss
The components of accumulated other comprehensive income, net of tax, as
of year-end were as follows:
Net unrealized gain (loss) on securities available for sale
Net unfunded liability for defined benefit pension plan and SERP plan
2006
2005
2004
$
412 $
(893) $
(1,739)
(7,477)
(7,065) $
-
(893) $
-
(1,739)
(834) $
(7,477)
(8,311) $
(1,246) $
-
(1,246) $
(353)
-
(353)
$
$
$
81
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9 A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2006, the end of the period covered by this Annual
Report on Form 10-K, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that as of December 31,
2006, the end of the period covered by this Annual Report on Form 10-K, we maintained effective disclosure controls and
procedures.
Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and
maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation under the framework in Internal Control - Integrated Framework, our management has concluded we
maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934 Rule
13a-15(f), as of December 31, 2006.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of
its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other
financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity
with U.S. generally accepted accounting principles and include, as necessary, best estimates and judgments by management.
KPMG LLP, an independent registered public accounting firm, has audited our consolidated financial statements as of and for the
year ended December 31, 2006, and management's assessment as to the effectiveness of internal control over financial reporting as
of December 31, 2006, as stated in its attestation report, which is included herein on page 83.
Change in Internal Control. Our management, including the Chief Executive Officer and Chief Financial Officer, has reviewed
our internal control. There have been no significant changes in our internal control during our most recently completed fiscal
quarter, nor subsequent to the date of their evaluation, that could significantly affect our internal control over financial reporting.
82
Attestation Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors
Capital City Bank Group, Inc.:
We have audited management's assessment, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting, that Capital City Bank Group, Inc. maintained effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Capital City Bank Group, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of
the Company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
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.
In our opinion, management's assessment that Capital City Bank Group, Inc. maintained effective internal control over financial
reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, Capital City Bank Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of Capital City Bank Group, Inc. and subsidiary as of December 31, 2006 and 2005,
and the related consolidated statements of income, changes in shareowners’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2006, and our report dated March 14, 2007 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Orlando, Florida
March 14, 2007
Certified Public Accountants
83
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Incorporated herein by reference to the subsection entitled “Codes of Conduct and Ethics” under the section entitled “Corporate
Governance,” “Nominees for Election as Directors,” “Continuing Directors and Executive Officers,” “Share Ownership” and the
subsection entitled “Committees of the Board” under the section “Board and Committee Membership” in the Registrant’s Proxy
Statement relating to its Annual Meeting of Shareowners to be held April 24, 2007.
Item 11. Executive Compensation
Incorporated herein by reference to the sections entitled “Executive Compensation” and “Director Compensation” in the
Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 24, 2007.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowners Matters
Equity Compensation Plan Information
Our 2005 Associate Incentive Plan, 2005 Associate Stock Purchase Plan, and 2005 Director Stock Purchase Plan were approved
by our shareowners. The following table provides certain information regarding our equity compensation plans.
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a)
Weighted-average
exercise price
of outstanding options,
warrants and rights
(b)
Number of securities remaining
available
for future issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c)
60,384(1)
$32.83
1,479,388(2)
-
60,384
-
-
$ 32.83
1,479,388
Plan Category
Equity Compensation Plans
Approved by Securities
Holders
Equity Compensation Plans
Not Approved by Securities
Holders
Total
(1)
Includes 60,384 shares that may be issued upon exercise of outstanding options under the terminated 1996 Associate
Incentive Plan.
(2) Consists of 846,907 shares available for issuance under our 2005 Associate Incentive Plan, 557,469 shares available for
issuance under our 2005 Associate Stock Purchase Plan, and 75,012 shares available for issuance under our 2005 Director
Stock Purchase Plan. Of these plans, the only plan under which options may be granted in the future is our 2005 Associate
Incentive Plan.
For additional information about our equity compensation plans, see Stock Based Compensation in Note 11 in the Notes to the
Consolidated Financial Statements.
The other information required by Item 12 is incorporated herein by reference to the section entitled “Share Ownership” in the
Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 24, 2007.
84
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to the subsections entitled “Related Person Transaction Policy” and “Transactions With Related
Persons” under the section entitled “Executive Officers and Transactions with Related Persons” and the subsection entitled
“Independent Directors” under the section entitled “Corporate Governance” in the Registrant’s Proxy Statement relating to its
Annual Meeting of Shareowners to be held April 24, 2007.
Item 14. Principal Accounting Fees and Services
Incorporated herein by reference to the section entitled “Audit Fees and Related Matters” in the Registrant’s Proxy Statement
relating to its Annual Meeting of Shareowners to be held April 24, 2007.
85
PART IV
The following documents are filed as part of this report
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for Fiscal Years 2006, 2005, and 2004
Consolidated Statements of Financial Condition at the end of Fiscal Years 2006 and 2005
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2006, 2005, and 2004
Consolidated Statements of Cash Flows for Fiscal Years 2006, 2005, and 2004
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the
financial statements or the notes thereto.
3. Exhibits Required to be Filed by Item 601 of Regulation S-K
Reg. S-K
Exhibit
Table
Item No.
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
Description of Exhibit
Agreement and Plan of Merger, dated as of January 7, 2004, by and among Capital City Bank Group,
Inc., Capital City Bank, Synovus Financial Corp. and Quincy State Bank - incorporated herein by
reference to the Registrant’s Form 8-K (filed 1/13/04) (No. 0-13358).
Agreement and Plan of Merger, dated as of May 12, 2004, by and among Capital City Bank Group,
Inc., Capital City Bank, and Farmers and Merchants Bank - incorporated herein by reference to the
Registrant’s Form 10-Q/A (filed 8/10/04) (No. 0-13358).
Agreement and Plan of Merger, dated as of February 3, 2005, by and among Capital City Bank Group,
Inc., First Alachua Banking Corporation, and First National Bank of Alachua (the schedules and
exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) - incorporated herein by
reference to the Registrant’s Form 8-K (filed 2/9/05) (No. 0-13358).
Amended and Restated Articles of Incorporation - incorporated herein by reference to Exhibit 3 of the
Registrant’s 1996 Proxy Statement (filed 4/11/96) (No. 0-13358).
Amended and Restated Bylaws - incorporated herein by reference to Exhibit 3(b) of the Registrant’s
Form 10-Q (filed 1/13/97) (No. 0-13358).
Capital City Bank Group, Inc. 2005 Director Stock Purchase Plan - incorporated herein by reference to
Exhibit 4.3 of the Registrant’s Form S-8 (filed 11/5/04) (No. 333-120242).
Capital City Bank Group, Inc. 2005 Associate Stock Purchase Plan - incorporated herein by reference
to Exhibit 4.4 of the Registrant’s Form S-8 (filed 11/5/04) (No. 333-120242).
Capital City Bank Group, Inc. 2005 Associate Incentive Plan - incorporated herein by reference to
Exhibit 4.5 of the Registrant’s Form S-8 (filed 11/5/04) (No. 333-120242).
Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, dated as of
November 1, 2004 - incorporated herein by reference to Exhibit 4.1 of the Registrant’s Form 8-K (filed
11/4/04) (No. 0-13358).
Guarantee Agreement between the Registrant and Wilmington Trust Company, dated as of
November 1, 2004 - incorporated herein by reference to Exhibit 4.2 of the Registrant’s Form 8-K (filed
11/4/04) (No. 0-13358).
Amended and Restated Trust Agreement among the Registrant, Wilmington Trust Company and
certain Administrative Trustees, dated as of November 1, 2004 - incorporated herein by reference to
Exhibit 4.3 of the Registrant’s Form 8-K (filed 11/4/04) (No. 0-13358).
86
10.1
10.2
10.3
10.4
10.5
10.6
10.7
11
14
21
23
31.1
31.2
32.1
32.2
Capital City Bank Group, Inc. 1996 Dividend Reinvestment and Optional Stock Purchase Plan -
incorporated herein by reference to Exhibit 10 of the Registrant’s Form S-3 (filed 01/30/97) (No. 333-
20683).
Capital City Bank Group, Inc. Supplemental Executive Retirement Plan - incorporated herein by
reference to Exhibit 10(d) of the Registrant’s Form 10-K (filed 3/27/03) (No. 0-13358).
Capital City Bank Group, Inc. 401(k) Profit Sharing Plan – incorporated herein by reference to Exhibit
4.3 of Registrant’s Form S-8 (filed 09/30/97) (No. 333-36693).
2005 Stock Option Agreement by and between Capital City Bank Group, Inc. and William G. Smith,
Jr., dated March 24, 2005 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form
8-K (filed 3/31/05) (No. 0-13358).
2006 Stock Option Agreement by and between Capital City Bank Group, Inc. and William G. Smith,
Jr., dated March 23, 2006 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form
8-K (filed 3/29/06) (No. 0-13358).
Capital City Bank Group, Inc. Non-Employee Director Plan, as amended – incorporated herein by
reference to Exhibit 10.2 of the Registrant’s Form 8-K (filed 3/29/06) (No. 0-13358).
Form of Participant Agreement for the Capital City Bank Group, Inc. Long-Term Incentive Plan –
incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (filed 8/10/06) (No. 0-
13358).
Statement re Computation of Per Share Earnings.*
Capital City Bank Group, Inc. Code of Ethics for the Chief Financial Officer and Senior Financial
Officers - incorporated herein by reference to Exhibit 14 of the Registrant’s Form 8-K (filed 3/11/05)
(No. 0-13358).
Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2006.**
Consent of Independent Registered Public Accounting Firm.**
Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act
of 2002.**
Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act
of 2002.**
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
*
**
Information required to be presented in Exhibit 11 is provided in Note 13 to the consolidated financial statements under
Part II, Item 8 of this Form 10-K in accordance with the provisions of FASB Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share.
Filed electronically herewith.
87
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on March 15, 2007, on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 15, 2007 by the
following persons in the capacities indicated.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
88
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on March 15, 2007, on its behalf by the undersigned, thereunto duly authorized.
Directors:
/s/ Dubose Ausley
DuBose Ausley
/s/ Thomas A. Barron
Thomas A. Barron
/s/ Frederick Carroll, III
Frederick Carroll, III
/s/ Cader B. Cox, III
Cader B. Cox, III
/s/ J. Everitt Drew
J. Everitt Drew
/s/ John K. Humphress
John K. Humphress
/s/ L. McGrath Keen, Jr.
L. McGrath Keen, Jr.
/s/ Lina S. Knox
Lina S. Knox
/s/ Ruth A. Knox
Ruth A. Knox
/s/ Henry Lewis III
Henry Lewis III
/s/ William G. Smith, Jr.
William G. Smith, Jr.
89
Exhibit 21. Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2006.
Direct Subsidiaries:
Capital City Bank
CCBG Capital Trust I (Delaware)
CCBG Capital Trust II (Delaware)
Indirect Subsidiaries:
Capital City Banc Investments, Inc. (Florida)
Capital City Services Company (Florida)
Capital City Trust Company (Florida)
First Insurance Agency of Grady County, Inc. (Georgia)
FNB Financial Services, Inc. (Georgia)
Southern Oaks, Inc. (Delaware)
Capital City Mortgage Company (Florida) - Inactive
90
Exhibit 23. Consent of Independent Registered Public Accounting Firm
The Board of Directors
Capital City Bank Group, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-18557, No. 033-60113, No. 333-18543,
No. 333-120242, and No. 333-36693) on Form S-8 and No. 333-20683 on Form S-3D of Capital City Bank Group, Inc. of our
reports dated March 14, 2007, with respect to the consolidated statements of financial condition of Capital City Bank Group, Inc.
and subsidiary (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in
shareowners’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006, management’s
assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, and the effectiveness of
internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006, annual report
on Form 10-K of Capital City Bank Group, Inc.
Our report with respect to the consolidated financial statements of the Company refers to the Company’s adoption of the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment, as of January 1, 2006, SFAS
No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132R, as of December 31, 2006 and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements, as of January 1, 2006.
/s/ KPMG LLP
Orlando, Florida
March 14, 2007
Certified Public Accountants
91
Certification of CEO Pursuant to Securities Exchange Act
Rule 13a-14(a) / 15d-14(a) as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, William G. Smith, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Capital City Bank Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Date: March 15, 2007
92
Certification of CFO Pursuant to Securities Exchange Act
Rule 13a-14(a) / 15d-14(a) as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, J. Kimbrough Davis, certify that:
1. I have reviewed this annual report on Form 10-K of Capital City Bank Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: March 15, 2007
93
Certification of CEO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned certifies that (1) this Annual Report of Capital City Bank Group, Inc. (the “Company”) on Form 10-K for the year
ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully
complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and (2) the information
contained in this Report fairly presents, in all material respects, the financial condition of the Company and its results of operations
as of and for the periods covered therein.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Date: March 15, 2007
94
Certification of CEO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned certifies that (1) this Annual Report of Capital City Bank Group, Inc. (the “Company”) on Form 10-K for the year
ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully
complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and (2) the information
contained in this Report fairly presents, in all material respects, the financial condition of the Company and its results of operations
as of and for the periods covered therein.
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: March 15, 2007
95
Officers, Directors and Community Boards
CAPITAL CITY BANK
GROUP, INC.
Officers
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Thomas A. Barron
Treasurer
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Flecia Braswell
Executive Vice President and
Chief Brand Officer
Randall Sharpton
Senior Vice President
Directors
DuBose Ausley
Attorney
Ausley & McMullen, PA
Thomas A. Barron
President
Capital City Bank
Frederick Carroll, III
Managing Partner
Carroll and Company, CPAs
Cader B. Cox, III
President
Riverview Plantation, Inc.
J. Everitt Drew
President
SouthGroup Equities, Inc.
John K. Humphress
Partner
Wadsworth, Humphress, Hollar
& Konrad, PA
McGrath Keen, Jr.
Private Investor
Lina S. Knox
Community Volunteer
Ruth A. Knox
Attorney/President
Wesleyan College
Henry Lewis III, PharmD, RPH
Professor
Florida A&M University
College of Pharmacy
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Capital City Bank Group, Inc.
CAPITAL CITY BANK
Officers
William G. Smith, Jr.
Chairman of the Board
Thomas A. Barron
President
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Flecia Braswell
Executive Vice President and
Chief Brand Officer
Randolph K. Briley
Executive Vice President
Edward G. Canup
Executive Vice President
William D. Colledge
Executive Vice President
Bethany H. Corum
Executive Vice President and
Chief People Officer
Noel A. Ellis
Executive Vice President
Mitchell R. Englert
Executive Vice President
Karen H. Love
Executive Vice President
Cynthia Y. Pyburn
Executive Vice President
Dale A. Thompson
Executive Vice President
Edwin N. West, Jr.
Executive Vice President
William H. Brimacombe
Senior Vice President
Charles J. Davis
Senior Vice President
Judy Getts
Senior Vice President
John M. Hutchison
Senior Vice President, Compliance
Ray A. Johnson
Senior Vice President, Finance Executive
Jep Larkin
Senior Vice President, Controller
Robert K. Mayer
Senior Vice President
Richard C. McCollister
Senior Vice President
Walter McPherson
Senior Vice President
William L. Moor, Jr.
Senior Vice President
Michael Penney
Senior Vice President
Helen Proctor
Senior Vice President
Ruben Ramos
Senior Vice President
David Sanda
Senior Vice President
James Y. Scarboro
Senior Vice President
William P. Smith, Jr.
Senior Vice President
Mark W. Strickland
Senior Vice President
Emory F. Sullivan
Senior Vice President
Drew Ferguson, III
Chairman, West Point
Gerald B. Andrews, Jr.
Community President
Troup and Chambers Counties
Beverly Hickman-Black
Community President
Burke County
Clifton E. Bradley
Community President
Dixie, Gilchrist, Levy and
Suwannee Counties
Roy L. Carter
Community President
Washington County
Don L. Davis
Community President
Gainesville
Susan E. Everett
Community President
Taylor County
Amy Geiger
Community President
Wakulla County
W.W. Gunnels, Jr.
Community President
Jefferson and Madison Counties
Donald L. James
Community President
NW Alachua County
Stephen L. Jukes
Community President
Bibb County
C. Stephen Martin
Community President
Citrus County/Inglis
Terry McRae
Community President
Grady County
Jeffrey L. Oody
Community President
Bradford and Clay Counties
Samuel Shrieves
Community President
Hernando/Pasco Counties
Stephen Stabler
Community President
Laurens County
James R. Suber
Community President
Gadsden County
Gregory J. Walker
Community President
Putnam County
Johanna White
Community President
Gulf County
Directors
Daniel M. Ausley
Owner
MASK Development
Thomas A. Barron
President
Capital City Bank
Gregory V. Beauchamp
Attorney
Gregory V. Beauchamp, PA
Robert J. Beauchamp
Certified Public Accountant
Beauchamp & Edwards, PA
Donald T. Bennink
Dairy Farmer/Owner
North Florida Holsteins
Kenneth R. Hart
President
Ausley & McMullen, PA
E. Cantey Higdon
Investor
John B. Higdon
Investor
Higdon Investment Co.
Harold M. Knowles
Attorney/Managing Shareholder
Knowles & Randolph, PA
Blucher B. Lines
Partner
Lines, Hinson & Lines
S. Craig McMillan
President, Pat Thomas & Associates
Insurance, Inc.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Capital City Bank Group, Inc.
Ben H. Wilkinson, Jr.
Partner
Tallahassee Land Company
Fred M. Williams, Jr.
President
Williams Timber, Inc.
P. Graves Williams
President
Q. L. Enterprises, Inc.
Officers, Directors and Community Boards
SUBSIDIARIES
Capital City Banc Investments
William L. Moor, Jr.
President
Capital City Services Company
Cynthia Y. Pyburn
President
Randall H. Lashua
Senior Vice President
Mark Newman
Senior Vice President
Capital City Trust Company
Randolph M. Pople
President
Robert A. Barnett
Senior Vice President
R. David Maloy, Jr.
Senior Vice President
COMMUNITY BOARDS
Bibb County Community Board
Marilyn L. Ashmore
Museum of Aviation Foundation
Leonard Bevill
CEO/Co-owner
Macon Occupational Medicine
Charles K. Buafo, MD
Medical Center of Central Georgia
Dudley B. Christie, Jr., OD
Investor, Optometrist
Robert J. Cleveland, Jr.
President, Vantage Homes, Inc.
Guy B. Eberhardt, Sr.
President, Eberhardt Industries, Inc.
J. Milton Heard, IV
President, Hart’s Mortuary
T. Baldwin Martin, Jr.
Retired Attorney
Paul R. Nagle
United Way of Central Georgia, Inc.
Edmund E. Olson
President
Sports Towne/Macon Knights
James A. Upshaw, MD
Partner
Internal Medicine Associates, P.C.
Bradford/Clay Counties
Community Board
Steve Denmark
Owner, Denmark Furniture Store
Susan Faulkner-O’Neal
Owner, Faulkner Realty
William Marchese, DMD
Owner, Bradford Family Dentistry
John M. Miller
Owner/Publisher, Bradford County
Telegraph
Douglas E. Reddish
Partner, Reddish & White CPAs
Burke County Community Board
Rickie Blackburn
Owner, Delta Termite & Pest Control
Gregory Coursey
Sheriff of Burke County
William E. Edwards
Area Distribution Manager
Georgia Power Company
John Lee Fulcher
CPA/Owner, John L. Fulcher, CPA
William H. Harper, Jr.
Owner, Harper Consulting, Inc.
C.W. Hopper
Retired, Burke County Commission
Robert H. McKinney
Owner
McKinney Wholesale Company, Inc.
Bonnie Taylor
General Manager, The True Citizen
Citrus County Community Board
C.L. Calloway
District Manager
Withlacoochee River Electric
Cooperative, Inc.
Dolores H. Clark
President/Owner
R&R Clark Construction, Inc.
William M. Lyons
Semi-Retired, Real Estate
Alana F. Rich
Publisher
Nature Coast Visitors Guide
Magazine, Inc.
Gadsden County
Community Board
John N. Bert
Owner/Editor, Havana Herald,
Twin City News, and Havana
Publishing
John Shaw Curry
Retired Attorney
Michael Dooner
President
Southern Forestry Consultants
George Hackney
Owner/President
Hackney Nursery, Inc.
Harold J. Henderson, PhD
President
Henderson Care Centers, Inc.
E.W. Hinson, Jr.
Owner/President
Hinson Oil Company
Alma Littles, MD
Professor/Associate Dean for
Academic Affairs
FSU College of Medicine
Terrance L. Massey
President
Massey Drugs
William M. Maxwell
President
Maxwell & Suber Co.
Fount H. May, Jr.
President, May Nursery, Inc.
W. Dale Summerford
Tax Collector
Gadsden County
Bruce H. Thomas
President
Thomas Motor Cars
Pat M. Woodward, MD
Retired
Gainesville Community Board
Norma B. Adams
Realtor, Prudential Preferred Property
Alan A. Goldblatt, MD
President/CEO
Alan A. Goldblatt, MD, PA
William F. McDavid
Managing Shareholder/President
McDavid & Company, CPAs
Lee C. McGriff
President
McGriff Williams Insurance
Frank P. Saier
Vice President/Partner
Scruggs & Carmichael
Dempsey R. Sapp, Jr.
President/CEO
Florida Pest Control
Gilchrist County
Community Board
Theodore M. Burt
Attorney, Theodore M. Burt, PA
Howell E. Lancaster, Jr.
President, Lancaster Oil
Gary E. Rexroat
Physician’s Assistant
Chiefland Medical Center
Jimmie L. Troke
Co-Owner/REALTOR®,
Troke Realty, Inc.
Grady County Community Board
John P. Bell, Jr.
President/Owner, Bell Irrigation, Inc.
Jo Ann Butler
Owner, Joe McNair, Inc.
Phillip Drew
President, Drew Oil Company, Inc.
Michael L. Gainous
Owner, Triple L. Timber
Ken LeGette
President, Graco Fertilizer, Inc.
Sidney Pridgen
Owner, Center Drugs
Ray Prince
Owner, Prince Farms
Earl Stuckey
Owner/President, Stuckey
Construction, Inc.
John B. Wight, Jr.
Retired nursery owner
Reverend Sylvester Williams
Pastor, Beulah Missionary
Baptist Church
Gulf County Community Board
Mark H. Costin
Owner, St. Joe Ace Hardware
B. Phillip Earley
Owner/Operator, St. Joe Rental
J. Patrick Farrell, Jr.
Owner/REALTOR®, St. Joe Realty
Shirley Jenkins
Tax Collector, Gulf County
Paula R. Pickett
Director, Gulf County Tourist
Development Council
Tommy Pitts
Port Director, Port St. Joe Port Authority
Eugene Raffield
Vice President, Raffield Fisheries, Inc.
Clay Smallwood
President, St. Joe Timberland
Hernando/Pasco County
Community Board
David T. Alberson
Retired, Capital City Bank
George M. Allen, Jr.
Board of Trustees,
Hernando Health Care
David R. Carter
Attorney, Law Offices of
David R. Carter, PA
Carl A. Feddeler
President, CA Feddeler, Inc., Real Estate
Brokerage/Krysher-Delzer, Inc.
Michael J. Kierzynski
Certified Public Accountant
Kierzynski & Associates, PA
Deborah G. Kilgore
Retired
G. Frank Parker
Certified Public Accountant
Stone, Parker & Company, PA
Officers, Directors and Community Boards
Jefferson County
Community Board
Frank Blow
Owner
Fantasia Enterprises
Teresa Diane Freeman
President, Jefferson Builders Mart and
Hardware, Inc.
Brian T. Hayes
Attorney, Brian T. Hayes, PA
Felix R. Joyner
Owner, Joyner’s Travel Center
George W. Miller
Owner, Miller Accounting
Thomas B. Scott
Owner, Scott Septic Tank Service
Jerry P. Walton, Jr.
Managing Partner
Big Bend Timber Services, LLC
Leon County Community Board
Lawrence Carter, PhD
Associate Dean, Cooperative Extension
& Outreach, Florida A&M University
J. Marshall Conrad
Attorney, Ausley & McMullen, PA
Kevin M. Davis
REALTOR®,
Real Estate Investor, Blue Chip Realty
Erin Ennis
Investor
Fincher W. Smith
Restaurant Owner, McFinch
Management Co., K2 Urban
Corporation
Roger C. Smith
Chairman, Prime Credit Corporation
Glenda L. Thornton
Partner, Foley & Lardner LLP
Levy County Community Board
Sharon C. Brannan
Owner, Sharon C. Brannan, CPA, PA
Donald M. McCoy, Jr., DO
Physician, Nature Coast
Medical Group
Robert E. Mount, Jr., DDS
Owner, Robert E. Mount, Jr., DDS, PA
Madison County
Community Board
Henry N. Davis
President, Davis Enterprises
Frederick M. Norfleet, Sr.
Pharmacist/Investor
Pam Schoelles
President, Schoelles & Associates, Inc.
Lucas M. Waring
Owner, Lucas Waring Enterprises, Inc.
Odiorne Insurance Agency
Gary L. Williams
Owner, Williams Electric
NW Alachua County
Community Board
Jerry M. Smith
Chairman
NW Alachua County
Community Board
Ronald F. Andrews
President/Owner
Andrews Paving, Inc.
Gary D. Grunder
Attorney
Grunder & Petteway, PA
Robert Alan Hitchcock
President/CEO
Hitchcock & Sons, Inc.
Patricia A. Moser
President
Horizon Realty of Alachua, Inc.
Marilyn Bishop Shaw
Literacy Coach
Oak View Middle School
Putnam County
Community Board
Bruce A. Baldwin
CEO, Putnam Community
Medical Center
U.D. Floyd
Owner, U.D. Floyd Farms
Mildred G. Horton
Retired, St. John’s Water
Management District
Suwannee County
Community Board
Charles E. Hatch
President, Hatch Brothers Farms, Inc.
Charles D. Hurst
President, C & D Farms, Inc.
Brian L. McAdams, DVM
Co-Owner/President
McAdams Dairy Farm, Inc.
Robbie Suggs
Co-Owner, North Florida Bio-Med
Taylor County Community Board
James C. Bassett
President, Bassett Dairy Products, Inc.
Donald R. Everett, Sr.
President, Ware Oil & Supply Company
William R. Grant
President, Perry Auto Supply, Inc.
Carl Gross
President, CG Contractors, Inc.
Michael R. Lynn
President, Michael Lynn, Inc.
Grady C. Moore, Jr.
President, Grady C. Moore
Real Estate, Inc.
Joe R. Roberts, III
Chief Financial Officer, Roberts
Lumber Co. & RDS Manufacturing Co.
Michael S. Smith
Attorney, Smith, Smith & Moore, PA
Troup/Chambers County
Community Board
Carter Brown
Real Estate Broker, Coldwell Banker
Spinks Brown Durand Realtors
Daniel A. Martinez
Retired, Georgia Pacific Corporation
Randall S. Mathews
President/CEO
Mathews’ Moving & Storage, Inc., et al.
Jerry Cash
Owner, Greene Super Drug
Thomas Ray Edwards
Owner, Valley Resale
R. L. McLendon, Jr., PhD
President, St. Johns River
Community College
E. David Risch, MD
Orthopedic Surgeon
E. David Risch, MD, PA
Q. Irving Roberts
President/Owner, Roberts
Communications, Inc.
Communications Products, Inc./
Roberts Land & Timber Company, Inc.
Preston Breck Sloan
President, Beck Auto Sales, Inc.
A. Drew Ferguson, IV, DMD
Owner, A. Drew Ferguson, IV, DMD, PC
L. Foy Fisher, III
Vice President/Human Resources,
West Point Stevens
Edmund C. Glover
Chairman/CEO Batson Cook Company
William L. Nix
Attorney/Owner, Morrow & Nix
C. Y. Wood, Jr.
Editor/Publisher, Valley Times News
Wakulla County
Community Board
Tony C. Benton
President, Sperry & Associates
Traci B. Cash
CPA, Traci B. Cash CPA, LLC
Sonya Hall
Owner/Broker, Wakulla Realty, Inc. &
Wakulla Property Management
George Johnston
Realtor/Real estate development
consultant, Coastwise Realty, Inc.
Frances Casey Lowe
Attorney, Frances Casey Lowe, PA
Washington County
Community Board
James Edwin Davis
Owner, Davis Angus, Inc.
Margaret Gilmore
Secretary/Treasurer
Blackburn Properties, Inc.
Rebecca J. Harris
Branch Manager, Associated Land
Title Group, Inc.
Robert W. Snare, MD
Physician, Robert W. Snare, MD
Lamar L. Townsend
Owner, L. Townsend Mini Storage
Emeritus Board
Ashley P. Beggs
Ned P. Brafford
R. Spencer Burress
C. Bob Butler
Donald E. Grant
Sumpter James
Damon D. King
William W. Mahaffey
James T. McNeill
Payne H. Midyette, Jr.
G. Ulmer Miller
John L. Miller
M. William Miller
Harold Mills
John T. Mitchell, Sr.
William L. Moor
John B. Mowell
Millard J. Noblin
James M. Pafford
John H. Parker, Jr., MD
Wesley Ramsey
Jack G. Rich
Rodney L. Scarboro
George A. Stephens
Giles C. Toole, Jr.
Mary M. Whatley
Earlene U. Wheeler
Warren Winkler
Locations
ALABAMA
Chambers County
Fob James
375 Fob James Dr.
Valley, AL 36854
334.756.8550
Shawmut
3503 20th Ave.
Valley, AL 36854
334.768.5410
FLORIDA
Alachua County
Alachua
15000 NW 140th St.
Alachua, FL 32615
386.462.1041
High Springs
660 NE Santa Fe Blvd.
High Springs, FL 32643
386.454.5500
Jonesville
14009 W. Newberry Rd.
Newberry, FL 32669
352.331.2605
Main Street
4000 N. Main St.
Gainesville, FL 32609
352.375.6991
Millhopper
4040 NW 16th Blvd.
Gainesville, FL 32605
352.336.1041
Newberry
24202 W. Newberry Rd., Suite F
Newberry, FL 32669
352.472.9950
Northwood
6360 NW 13th St.
Gainesville, FL 32653
352.371.1041
Gainesville Residential
Mortgage Lending
3760 NW 83rd St., Suite #2
Gainesville, FL 32606
352.395.1330
Commerical Real Estate Lending
4041 NW 37th Place, Suite A
Gainesville, FL 32606
Bradford County
Starke
350 N. Temple Ave.
Starke, FL 32091
904.964.7050
Citrus County
Citrus Springs
10241 N. Florida Ave.
Citrus Springs, FL 34434
352.465.0035
Crystal River
101 SE US Hwy. 19
Crystal River, FL 34429
352.795.6100
Floral City
7697 S. Florida Ave.
Floral City, FL 34436
352.344.1555
Inverness
1500 N US Hwy. 41
Inverness, FL 34450
352.726.3200
Clay County
Keystone Heights
500 Green Way
Keystone Heights, FL 32656
352.473.4952
Dixie County
Cross City
294 NE 210th Ave.
Cross City, FL 32628
352.498.5536
Gadsden County
Chattahoochee
316 W. Washington St.
Chattahoochee, FL 32324
850.663.4355
Havana
102 S. Main St.
Havana, FL 32333
850.539.5805
Quincy
4 E. Washington St.
Quincy, FL 32351
850.875.1000
Gilchrist County
Bell
690 S. US 129
Bell, FL 32619
352.463.7660
Fanning Springs
7240 US Hwy. 19
Fanning Springs, FL 32693
352.463.6537
Trenton
109 W. Wade St.
Trenton, FL 32693
352.463.2329
Gulf County
Port St. Joe
504 Monument Ave.
Port St. Joe, FL 32456
850.229.8282
Hernando County
Mariner
7101 Mariner Blvd.
Spring Hill, FL 34609
352.597.2707
Suncoast Spring Hill
14302 Spring Hill Dr.
Spring Hill, FL 34609
352.797.6700
Jefferson County
Monticello
800 S. Jefferson St.
Monticello, FL 32344
850.671.0589
Leon County
Apalachee Parkway
1801 Apalachee Pkwy.
Tallahassee, FL 32301
850.671.0579
Apalachee Parkway East
3513 Apalachee Pkwy.
Tallahassee, FL 32311
850.942.3100
Bradfordville Road
6691 Thomasville Rd.
Tallahassee, FL 32312
850.906.5760
Capital Circle NW
1456 Capital Circle NW
Tallahassee, FL 32303
850.575.1705
Centerville Road
2375 Centerville Rd.
Tallahassee, FL 32308
850.671.0665
Human Resources
625 E. Tennessee St.
Suite 100
Tallahassee, FL 32308
850.402.2520
Lake Jackson
3815 N. Monroe St.
Tallahassee, FL 32303
850.671.0647
Mahan Drive
3255 Mahan Dr.
Tallahassee, FL 32308
850.671.0384
Main
217 N. Monroe St.
Tallahassee, FL 32301
850.671.0300
Metropolitan Blvd.
1301 Metropolitan Blvd.
Tallahassee, FL 32308
850.671.0570
North Monroe
2111 N. Monroe
Tallahassee, FL 30303
850.671.0655
South Monroe
3404 S. Monroe St.
Tallahassee, FL 32301
850.671.0625
Tharpe Street
1108 W. Tharpe St.
Tallahassee, FL 32303
850.671.0428
Thomasville Road
3528 Thomasville Rd.
Tallahassee, FL 32308
850.671.0650
West Tennessee
1828 W. Tennessee St.
Tallahassee, FL 32304
850.671.0430
Westwood
2020 W. Pensacola St.
Tallahassee, FL 32304
850.671.0445
Levy County
Bronson
140 E. Hathaway
Bronson, FL 32621
352.486.2103
Cedar Key
390 2nd St.
Cedar Key, FL 32626
352.543.5174
Chiefland
2012 N. Young Blvd.
Chiefland, FL 32626
352.493.2571
Inglis
95 Hwy. 40 West
Inglis, FL 34449
352.447.2231
Williston
144 E. Noble Ave.
Willison, FL 32696
352.528.5389
Madison County
Madison
343 W. Base St.
Madison, FL 32340
850.973.4161
2111 N. Monroe
Tallahassee, FL 30303
850.671.0419
615 Liberty St.
Waynesboro, GA 30830
706.437.2006
410 W. 10th St.
West Point, GA 31833
706.645.6262
Capital City Services Company
1860 Capital Circle NE
Tallahassee, FL 32308
850.671.0300
Capital City Trust Company
4041 NW 37th Place, Suite A
Gainesville, FL 32606
352.372.2384
455 Walnut St.
Macon, GA 31201
478.749.6701
4 E. Washington St.
Quincy, FL 32351
850.875.1000
14302 Spring Hill Dr.
Spring Hill, FL 34609
352.797.6704
217 N. Monroe St.
Tallahassee, FL 32301
850.671.0315
Locations
Pasco County
Port Richey
10290 Regency Park
Port Richey, FL 34668
727.842.8467
Putnam County
Palatka West
4120 Crill Ave.
N. Palatka, FL 32177
386.329.1155
Palatka
200 Reid St.
Palatka, FL 32177
386.329.1150
St. Johns County
Hastings
207 N. Main St.
Hastings, FL 32145
904.692.1221
Suwannee County
Branford
814 Suwannee Ave.
Branford, FL 32008
386.935.1112
Taylor County
Perry
115 W. Green St.
Perry, FL 32347
850.584.2057
Wakulla County
Crawfordville
2592 Crawfordville Hwy.
Crawfordville, FL 32327
850.926.6740
Wakulla Residential
Mortgage Lending
91 Coastal Hwy.
Panacea, FL 32346
850.638.0510
Washington County
Chipley
1242 Jackson Ave.
Chipley, FL 32428
850.638.0510
GEORGIA
Bibb County
Macon Bass Rd.
1601 Bass Rd.
Macon, GA 31208
Macon Main
455 Walnut St.
Macon, GA 31201
478.749.6701
Macon Mall
3535 Mercer University Dr.
Macon, GA 31204
478.749.8021
Macon Northside
3710 Northside Dr.
Macon, GA 31210
478.749.8071
Burke County
Waynesboro
615 Liberty St.
Waynesboro, GA 30830
706.437.2000
Waynesboro (Remote)
243 E. Sixth St.
Waynesboro, GA 30830
706.437.2017
Grady County
Cairo
420 N. Broad St.
Cairo, GA 39828
229.377.3002
Cairo (Remote)
397 38th Blvd., NE
Cairo, GA 39828
229.377.3003
Whigham
126 E. Broad Ave.
Whigham, GA 39897
229.762.4151
Laurens County
Dublin East
220 Central Dr.
Dublin, GA 31027
478.272.3100
Dublin Main
600 Bellevue Ave.
Dublin, GA 31021
478.272.3100
Dublin Westgate
1957 Veterans Blvd.
Dublin, GA 31021
478.272.3100
Thomas County
Thomasville Residential
Mortgage Lending
2024-D E. Pinetree Blvd.
Thomasville, GA 31757
229.227.0824
Troup County
West Point
410 W 10th St.
West Point, GA 31833
706.645.2944
West Point (Remote)
110 3rd Ave.
West Point, GA 31833
706.645.6227
SUBSIDIARIES
Capital City Banc Investments
420 N. Broad St.
Cairo, GA 39828
229.378.8409
2012 N. Young Blvd.
Chiefland, FL 32626
352.490.9004
294 NE 210th Ave.
Cross City, FL 32628
352.498.5442
600 Bellevue Ave.
Dublin, GA
1500 N. US Hwy. 41
Inverness, FL 34450
352.726.3673
455 Walnut St.
Macon, GA 31201
478.749.6735
200 Reid St.
Palatka, FL 32177
386.312.9904
4 E. Washington St.
Quincy, FL 32351
850.875.1000
710 Mariner Blvd.
Spring Hill, FL 34609
105 W. Jefferson St.
Starke, FL 32091
904.964.7056
1801 Apalachee Pkwy.
Tallahassee, FL 32301
850.671.0505
6691 Thomasville Rd.
Tallahassee, FL 32312
850.906.5760
1301 Metropolitan Blvd.
Tallahassee, FL 32308
850.671.0505
217 N. Monroe St.
Tallahassee, FL 32301
850.671.0450
Noel A. Ellis
Executive Vice President
Credit Administration
Mitchell R. Englert
Executive Vice President
Community Banking
Karen H. Love
Executive Vice President
Residential Lending
Randolph M. Pople
President
Capital City Trust Company
Cynthia Pyburn
Executive Vice President
President, Capital City Services Company
Dale A. Thompson
Executive Vice President
Business Banking
Edwin N. West, Jr.
Executive Vice President
Community Banking
Independent Public Accountants
KPMG LLP
Jacksonville, FL
General Counsel
Ausley & McMullen, PA
Tallahassee, FL
Investor Relations Contact
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
or Robert H. Smith, Vice President
Capital City Bank Group, Inc.
850.671.0300
P.O. Box 11248
Tallahassee, FL 32302
Annual Meeting
April 24, 2007, 10:00 a.m.
University Center Club, Tallahassee, FL
Management Team
William G. Smith, Jr.
Chairman, President and CEO
Capital City Bank Group, Inc.
Thomas A. Barron
President
Capital City Bank
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Flecia Braswell
Executive Vice President and
Chief Brand Officer
Randolph K. Briley
Executive Vice President
Retail Credit
Edward G. Canup
Executive Vice President
Commercial Real Estate Lending
William D. Colledge
Executive Vice President
Institutional Banking
Bethany H. Corum
Executive Vice President and
Chief People Officer
Shareholder Information
How to Communicate with
Capital City Bank Group, Inc.
Telephone: 850.671.0300
Mailing address: P.O. Box 11248,
Tallahassee, FL 32302
Internet address: www.ccbg.com
Direct automated: Tallahassee area
850.671.0400—toll free 888.671.0400
Direct client service center: Tallahassee area
850.671.0400—toll free 888.671.0400
Trust and Investment Management services:
850.671.0315
Corporate Headquarters
Capital City Bank Group, Inc.
217 North Monroe Street
Tallahassee, FL 32301
850.671.0300
Transfer Agent
American Stock Transfer & Trust Co.
59 Maiden Lane
Plaza Level
New York, NY 10038
800.937.5449
Trading Symbol: CCBG
Exchange: NASDAQ
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