annual report 2007
Every day, Capital City Bank associates
strive to make a difference in every life
we touch. We share every need, every
goal and every dream of our friends,
partners and colleagues. The relationships
we build with the young professional who
just landed her first job, the business owner
looking to expand his company or the
client saving for her future, inspire us to
always put our clients first and offer the
best products and services available.
Capital City Bank Group | 2007 Annual Report | Page 1
Bradford Lewis
As a life-long Capital City Bank
client, Bradford knows the value of
strong relationships with his bankers.
He recently came to Capital City
to secure a loan to develop The
Alliance Center — a 73,000-
square-foot, mixed-use commercial
building — in the heart of downtown
Tallahassee. With this loan, Capital
City joins Super Holdings, LLC, Red
Brick Partners and the Downtown
District Community Redevelopment
Area in efforts to grow Tallahassee’s
thriving downtown area.
Ever y
Is important. Capital City
bankers work closely with our
clients to determine their short-
and long-term financial goals
and develop solutions to help
achieve them. This means
focusing on the details, making
wise decisions and getting it
right the first time — because
their success is our success.
Bradford Lewis of Super Holdings, LLC
(second from left), meets with (left to
right) Tom Allen, Tom Proctor, Jr. and
Collins Proctor from Red Brick Partners
on the future site of The Alliance Center
in downtown Tallahassee.
Capital City Bank Group | 2007 Annual Report | Page 2/3
Ever y
Is influential. Capital City Bank associates stand apart because of
the enthusiasm, creativity and innovative ideas they bring to their
work every day. Their devotion to a common goal of success
for our clients, partners and Company is evident in every exchange
of ideas, every interaction with clients and every act of service
to their communities.
Charles Davis is known for his quick-thinking, solutions-driven approach to client service. He is just one of the
more than 1,100 associates who positively influence the operations of Capital City Bank.
Page 4/5 | Capital City Bank Group | 2007 Annual Report
Charles Davis
Charles has been a member of
the Capital City team for more
than 20 years. This year, his
dedication, integrity, honesty and
compassion were recognized
with the Godfrey Smith Award.
Charles’ loyalty and commitment
to his clients, colleagues and
community represent the spirit of
every Capital City Bank associate.
Glenda Thornton
As a Leon County Community
Board Member, Glenda was
eager to increase her support
of Capital City Bank by
purchasing stock when the
Company went public more
than a decade ago.
Ever y
Is integral to our business. Participation by our shareowners not
only supports the vision and mission of Capital City Bank, but is
essential to the longevity of our Company and its strength as we
grow over time.
Our shareowners have many faces — they are our clients, our
board members, our business partners, our associates and even
our competitors — but every one is critical to our success
because they offer more than financial support and guidance;
they are members of the Capital City team.
Capital City Bank Group | 2007 Annual Report | Page 6/7
Ever y
Capital City Bank leaders and
community partners understand
how important our efforts are to
the growth of the communities we
serve. Every community deserves
the chance to make the most of
its location, natural resources
and economic potential.
Left to Right: Executive Vice President Bill Colledge and Johanna White inspect the future 10-acre site of
Port St. Joe Port Authority operations with Allen Cox, Chairman of the Board of the Port Authority, and
Tommy Pitts, Executive Director of the Port Authority — both members of our Gulf County Community Board.
Page 8/9 | Capital City Bank Group | 2007 Annual Report
Johanna White
As Gulf County president,
Johanna and her community
board were instrumental in
securing a $7 million loan for
the Port St. Joe Port Authority to
purchase land for developing
one of only 14 deepwater
ports in Florida.
Millie Smith
Millie’s personal banker was
Julian V. Smith, former president
of Industrial Bank before con-
solidating into Capital City
Bank. Whenever Millie called
on him, Julian provided special
attention that helped her endure
any personal or financial diffi-
culty she faced. Because of
Julian’s attentions, he became
more than Millie’s banker.
He became her friend.
Ever y
Ever y
Every time Capital City Bank associates interact
with even one of our more than 250,000 clients,
we have an opportunity to make an impression
that will last a lifetime. Whether in person, over the
phone or through online banking, our clients have
come to expect focused, individual attention to
meet their specific needs. Years ago, Millie Smith
forged a relationship with an associate that left
an indelible mark on her life — and her financial
future. Her story is like so many others who have
come to call Capital City Bank their bank for life.
Capital City Bank Group | 2007 Annual Report | Page 10/11
Ever yone
Counts
Everyone Counts at CCBG
Our relationships with clients, business partners
and associates are the inspiration for every-
thing we do and for striving to do business
better than anyone else. We measure success
by the strength of our greatest asset — personal
relationships with the people who make up
the Capital City family. And in this family,
everyone counts.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
“Capital City is well
capitalized, which gives
us both the strength
and flexibility to take
advantage of those
opportunities that
naturally arise in a
difficult environment.”
to Our Shareowners:
Capital City had another solid year, despite a very challenging operating environment in 2007. Earnings for the year
totaled $29.7 million or $1.66 per diluted share, as compared to $33.3 million or $1.79 per diluted share in 2006.
The results produced a return on assets of 1.18% and return on equity of 9.68%. We continued focusing on our clients
and meeting their needs during these challenging times, and as a result we are now in a position of strength which will
serve us well in 2008 and enable us to capitalize on the growth and opportunities in our markets in Florida, Georgia,
and Alabama.
I believe our associates set us apart from the competition and we continue to invest in them, and in turn, our future. We
focused our internal efforts on reshaping our organization with a renewed focus on sales and service.
Due to a declining economy, in part driven by a slowdown in housing and real estate markets, 2007 financial results
were down, compared to 2006. Though our performance is a reflection of the industry as a whole, Capital City had
a number of milestone events during 2007.
While many banks in our industry are scrambling to raise capital, we repurchased a total of 1,404,364 shares of our
stock, returning more than $43 million to our shareowners in addition to a dividend in excess of $12 million. Although we
experienced margin compression in 2007, we were able to take advantage of our strong core deposit funding base and
stratify rate structures to minimize the impact of the Federal Reserve’s three rate reductions (100 basis points) during the year.
Our low-cost core funding base, driven in part by our strategy and incredible service and sales efforts, continued to
afford Capital City an enviable competitive advantage with regard to the management of our net interest margin, which
was 5.10% for 2007. Our loan loss provision for the year of $6.2 million was higher than in 2006 and mirrors the
overall decline in real estate markets we serve. We believe credit quality throughout our portfolio is sound and there are
no significant concentrations in any particular borrower segment. Credit quality remains our number one strategic objective,
and continued risk assessment is of utmost importance as we move into 2008.
Noninterest income, which grew 6.7% in 2007, represents more than 34% of our operating revenue and compares very
favorably with our peer group at 21%. We constantly look for ways to enhance and diversify our revenue sources and
continue to make significant strides in this area.
One of the most encouraging highlights of 2007 was the improvement in managing our operating expenses. Efforts to
better control operating expenses that began in 2006 paid dividends in 2007, as evidenced by a meager .35%
increase in noninterest expense over 2006.
As I write this letter, the daily reports on the economy are pretty discouraging. From where I sit, I am more encouraged.
The markets Capital City serves are not immune to economic slowdowns, but have been and are weathering the storm
better than what I hear on the nightly news or read in the daily newspaper. The major economic engines driving the
majority of Capital City markets are education, healthcare and government. These engines continue to provide eco-
nomic diversity and stability. While the upturn in the economy is likely to be jagged as the economy improves, I believe
the sun will shine in 2009. Capital City is well capitalized, which gives us both the strength and flexibility to take advan-
tage of those opportunities that naturally arise in a difficult environment. We remain committed to our clients, associates,
shareowners, communities and the future of Capital City.
As always, I welcome your comments and questions.
Capital City Bank—more than your bank, your banker.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Capital City Bank Group | 2007 Annual Report | Page 14/15
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
Basic Average Common Shares Outstanding
Diluted Average Common Shares Outstanding
2007
2006
$
29,683
12,823
1,934,850
2,183,528
2,507,217
1,990,446
306,617
$
33,265
12,322
2,029,397
2,258,277
2,581,078
2,034,931
317,336
17,909,396
17,911,587
18,584,519
18,609,839
35000
30000
Per Share:
Basic Net Income
Diluted Net Income
Cash Dividends Declared
Diluted Book Value
20000
25000
10000
15000
Ratios:
Return on Average Assets
Return on Average Equity
Equity to Assets, Year-End
Dividend Payout
Net Interest Margin(1)
5000
0
02
03
04
05
06
07
2.0
1.5
1.0
0.5
0.0
1.5
$
1.2
0.9
0.6
0.3
02
03
04
05
06
07
0.0
02
03
$
1.66
1.66
0.710
17.03
1.18%
9.68
11.19
42.77
5.25
04
05
06
07
15
12
1.79
1.79
0.663
17.01
9
6
1.29%
10.48
12.15
37.01
5.35
3
0
Percent
Change
(10.8)%
4.1
(4.7)
(3.3)
(2.9)
(2.2)
(3.4)
(3.6)
(3.8)
(7.3)
(7.3)
7.2
0.1
02
03
04
05
06
07
(1) Taxable-Equivalent Net Interest Income Divided by Average Earning Assets
$33.3
$30.3
$29.4
$29.7
$25.2
$23.1
$1.74
$1.79
$1.66
$1.66
$1.52
$1.39
1.46
1.40
1.34
1.29
1.22
1.18
12.85
13.31
12.82
10.56
10.48
9.68
’02
’03
’04
’05
’06
’07
’02
’03
’04
’05
’06
’07
’02
’03
’04
’05
’06
’07
’02
’03
’04
’05
’06
’07
Net Income
(in millions)
Diluted Earnings
per Share
Return on Assets
(in percent)
Return on Equity
(in percent)
Page 16/17 | Capital City Bank Group | 2007 Annual Report
Capital Cit y Bank
• Atlanta
Waynesboro
Macon
Dublin
East Dublin
West Point
Valley
• Montgomery
A L A B A M A
• Mobile
Chipley
Chattahoochee
• Tifton
G E O R G I A
Cairo
Whigham
Thomasville
02
03
04
05
06
07
Quincy
• Panama City
Crawfordville
Port St. Joe
3000
2500
2000
1500
1000
500
0
02
03
04
05
06
07
2500
2000
1500
1000
500
0
CCBG
Corporate
Headquarters
Tallahassee
$2.6
$2.5
$2.5
$2.0
$2.0
$2.0
$2.0
$1.8
$1.7
$1.6
$1.4
$1.4
’02
’03
’04
’05
’06
’07
’02
’03
’04
’05
’06
’07
Average Assets
(in billions)
Average Deposits
(in billions)
Havana
Monticello
Madison
• Jacksonville
Perry
Branford
High Springs
Cross City
Newberry
Bell
Fanning Springs
Cedar Key
Jonesville
Trenton
Bronson
Chiefland
Williston
Starke
Keystone Heights
Alachua
Gainesville
Hastings
Palatka
Inglis
Crystal River
Spring Hill
Port Richey
Citrus Springs
Inverness
Floral City
• Orlando
• Tampa
F L O R I D A
Capital Cit y Bank Group
Visionary leadership is essential for any team to
be influential in its industry and its community. At
Capital City Bank, we have 15 outstanding senior
managers whose personal relationships with clients,
shareowners, business partners, government and
civic leaders, and associates help guide every
decision and make them effective leaders. Our
executives also lead by example through their
exemplary work ethic, commitment to excellence
in their roles within the Company and extensive
civic engagement in the communities we serve.
Management Team: Front Row, Left to Right: Dale Thompson, Credit Administration; Flecia Braswell, Chief Brand Officer; Kim
Davis, Chief Financial Officer; Randy Briley, Corporate & Professional Banking; Karen Love, Residential Mortgage Lending; Beth
Corum, Chief People Officer; Back Row, Left to Right: Bill Moor, Capital City Banc Investments; Tom Barron, President, Capital City
Bank; Randy Pople, Capital City Trust Company; Cindy Pyburn, Capital City Services Company; Mitch Englert, Community Banking;
Ed Canup, Commercial Real Estate; Bill Smith, Chairman, President and Chief Executive Officer; Bill Colledge, MetroCommunity
Banking; Eddie West, Sales Leadership
Capital City Bank Group | 2007 Annual Report | Page 18/19
Board of
Left to Right: Frederick Carroll, III, Managing Partner, Carroll and Company, CPAs; John K. Humphress, Partner, Wadsworth, Humphress,
Hollar & Konrad, PA; Cader B. Cox, III, CEO, Riverview Plantation, Inc.; Lina S. Knox, Community Volunteer; McGrath Keen, Jr.,
Private Investor; Thomas A. Barron, President, Capital City Bank; Ruth Knox, Attorney/President, Wesleyan College; William G.
Smith, Jr., Chairman, President and Chief Executive Officer, Capital City Bank Group, Inc.; DuBose Ausley, Attorney, Ausley &
McMullen, PA; J. Everitt Drew, President, SouthGroup Equities, Inc.; Dr. Henry L. Lewis, III, Dean, Florida A&M University College
of Pharmacy
Page 20 | Capital City Bank Group | 2007 Annual Report
Ever y
Touch,
TimeEver y
Form 10-K
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, 2007
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) 402-7000
(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. [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on
June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $320,596,761 (based on
the closing sales price of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director
and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
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 29, 2008
17,169,096 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 24, 2008, are incorporated by reference in Part III.
1
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2007 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
4
14
20
20
20
20
20
22
23
50
52
89
89
91
91
91
91
92
92
93
95
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 Accountant 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:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
the frequency and magnitude of foreclosure of our loans;
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
the accuracy of our financial statement estimates and assumptions, including the estimate for our loan loss provision;
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 effects of harsh weather conditions, including hurricanes;
inflation, interest rate, market and monetary fluctuations;
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 70 full-service banking locations in Florida, Georgia, and Alabama.
CCB operates these banking locations.
At December 31, 2007, we had total consolidated assets of approximately $2.6 billion, total deposits of approximately $2.1 billion
and shareowners’ equity was approximately $292.7 million. Our financial condition and results of operations are more fully
discussed in our consolidated financial statements.
CCBG’s principal asset is the capital stock of the Bank. CCB accounted for approximately 100% of consolidated assets at
December 31, 2007, and approximately 100% of consolidated net income for the year ended December 31, 2007. 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 CCB, 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 us
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 1,097 (full-time equivalent) associates at February 29, 2008. Page 22 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 residential mortgage (ARM) loans. As of
December 31, 2007, approximately 16% of the Bank’s loan portfolio consisted of residential ARM loans. A portion of our
loans originated are sold into the secondary market.
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) 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.
4
(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.
(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 Capital City Bank Direct automated phone 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 (the “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 29,
2008, the Services Company is providing computer services to eight correspondent banks, which have relationships with CCB.
Trust Services and Asset Management
Capital City Trust Company (the “Trust Company”) 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 the Trust Company 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 $781.0 million as of December 31, 2007, with total assets under administration exceeding
$854.0 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 FINRA 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 an affiliate of INVEST Financial Corporation.
Expansion of Business
Since 1984, we have completed 15 acquisitions totaling approximately $1.6 billion in deposits within existing and new markets.
In addition, since 2003, we have opened 10 new offices to improve service and product delivery within our markets. Plans are
currently being developed for two new office openings in 2008, including one on Macon, Georgia and one in Palatka, Florida
(replacement office).
We plan to continue our expansion, emphasizing a combination of growth in existing markets and acquisitions. The restructuring
in late 2007 of our community banking sales and service model will result in the more tactical focus on certain higher growth
metro markets, including Macon, Tallahassee, Gainesville, and Hernando/Pasco. 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 and mortgage banking.
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 $738.3 million, or
34.5%, of our consolidated deposits at December 31, 2007.
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
Putnam County
St. Johns County(2)
Suwannee County
Taylor County
Wakulla County(3)
Washington County
Georgia(4)
Bibb County
Burke County
Grady County
Laurens County
Troup County
Alabama
Chambers County
Market Share as of June 30,(1)
2006
2005
2007
4.7%
47.6%
3.0%
2.0%
22.9%
61.0%
33.6%
11.7%
1.2%
22.8%
16.2%
33.0%
13.1%
0.2%
11.1%
1.2%
7.7%
30.1%
2.6%
13.8%
2.5%
7.8%
18.7%
19.2%
6.2%
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%
12.3%
1.5 %
11.8%
28.6%
2.9%
17.4%
2.9%
9.2%
20.0%
23.8%
8.2%
6.5%
4.7%
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%
12.3%
2.0 %
7.5%
27.9%
--
20.3%
2.8%
9.3%
19.7%
33.1%
7.5%
3.9%
(1) Obtained from the June 30, 2007 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.
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
13
3
16
12
3
4
3
6
13
2
14
3
6
25
6
22
5
3
4
5
11
5
5
10
10
5
65
3
49
29
4
6
6
9
41
2
83
13
6
114
16
63
8
4
9
5
55
10
8
19
24
10
Data obtained from the June 30, 2007 FDIC/OTS Summary of Deposits Report.
Seasonality
We believe our commercial banking operations are not generally seasonal in nature. Public deposits tend to increase with tax
collections in the second and fourth quarters and decline with spending thereafter.
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. As a result, we are subject to supervisory regulation and examination by the Federal
Reserve. The Gramm-Leach-Bliley Act, the Bank Holding Company Act, 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 Bank Holding Company Act
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 by
regulation or order 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 Bank Holding Company Act and the Change in Bank Control Act, together
with the applicable regulations, 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 or as we will refer to as 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.
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 Office of Financial Regulation. 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
Office of Financial Regulation. 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. Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extending
credit, to other services or products offered by the holding company or its affiliates, such as deposit products.
Capital; Dividends; Source of Strength. The Federal Reserve imposes certain capital requirements on bank holding companies
under the Bank Holding Company Act, 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 bank 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 Office of Financial Regulation. The Florida Office of Financial Regulation 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 fund.
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 Office of Financial
Regulation, 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 Office of Financial Regulation 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 on March 31, 2006. The deposit accounts of the Bank are currently insured
by the Deposit Insurance Fund 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 Deposit Insurance Fund.
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.
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 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, which we refer to as
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 Federal Reserve Act and its corresponding regulations (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 Federal Reserve Act. 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
Federal Reserve Act 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 Community Reinvestment Act and its corresponding regulations 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
Community Reinvestment Act. The Federal Reserve considers a bank’s Community Reinvestment Act rating 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 Community Reinvestment Act 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. CCB received a satisfactory rating on its most recent Community Reinvestment Act assessment.
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.
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.
11
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.
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.
On July 19, 2007, the Federal Reserve and the other federal financial regulatory agencies issued an interagency policy on the
application of section 8(s) of the Federal Deposit Insurance Act. This provision generally requires each federal banking agency to
issue an order to cease and desist when a bank is in violation of the requirement to establish and maintain a Bank Secrecy
Act/anti-money laundering (BSA/AML) compliance program. The policy statement provides that, in addition to the
circumstances where the agencies will issue a cease and desist order in compliance with section 8(s), they may take other actions
as appropriate for other types of BSA/AML program concerns or for violations of other BSA requirements. The policy statement
also does not address the independent authority of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network
to take enforcement action for violations of the BSA.
Securities Activities. On September 19, 2007, the SEC adopted Regulation R, which implements the bank broker-dealer
exceptions enacted in the Gramm-Leach-Bliley Act. Regulation R affects the way the Bank’s employees 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 broadens 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 to accept orders for
securities transactions from employee plan accounts, individual retirement plan accounts, and other similar accounts. Banks are
expected to comply on the first day of their fiscal year beginning on or after September 1, 2008.
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.
Fair and Accurate Credit Transaction Act of 2003. The Fair and Accurate Credit Transaction Act of 2003, which amended the
Fair Credit Reporting Act, enhances consumers’ ability to combat identity theft, increases the accuracy of consumer reports,
allows consumers to exercise greater control over the type and amount of marketing solicitations they receive, restricts the use and
disclosure of sensitive medical information, and establishes uniform national standards in the regulation of consumer reporting.
On October 31, 2007, the Federal Reserve and the other federal financial regulatory agencies together with the U.S. Department of
the Treasury and the Federal Trade Commission issued final regulations (Red Flag Regulations) enacting Sections 114 and 315 of
the Fair and Accurate Credit Transaction Act of 2003. The Red Flag Regulations require the Bank to have identity theft policies
and programs in place by no later than November 1, 2008. The Red Flag Regulations require the surviving bank subsidiary to
develop and implement an identity theft protection program for combating identity theft in connection with new and existing
consumer accounts and other accounts for which there is a reasonably foreseeable risk of identity theft.
Consumer Laws and Regulations. 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 Check Clearing for the 21st Century 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.
12
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, and 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 2006 and will do the same for 2007.
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
The continuation of current market conditions could adversely impact our business.
Over the past 12 months, a combination of rising interest rates and softening real estate prices throughout the United States, but
particularly Florida, culminated in an industry-wide increase in borrowers unable to make their mortgage payments and increased
foreclosure rates. Lenders in certain sections of the housing and mortgage markets were forced to close or limit their operations.
In response, financial institutions have tightened their underwriting standards, limiting the availability of sources of credit and
liquidity. These conditions have already impacted the demand for our products by clients and by secondary market participants.
If these negative market conditions become more widespread or continue for a prolonged period our earnings and capital could be
negatively impacted.
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 collectability 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 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,
2007, approximately 33.1% and 35.5% of our $1.9 billion loan portfolio was secured by commercial real estate and residential
real estate, respectively. As of this same date, approximately 7.4% was secured by property under construction.
A major change in the real estate market, such as deterioration in the value of 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, we may be unable to 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.
14
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, be 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.
If our nonperforming loans continue to increase, our earnings will suffer.
At December 31, 2007, our non-performing loans (which consist of non-accrual loans) totaled $25.1 million, or 1.31% of the total
loan portfolio, which is an increase of $17.1 million, or 212% over non-performing loans at December 31, 2006. At December
31, 2007, our nonperforming assets (which include foreclosed real estate) were $28.2 million, or 1.08% of total assets. In
addition, the Bank had approximately $28.2 million in accruing loans that were 30-89 days delinquent as of December 31, 2007.
Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual
loans or real estate owned. In addition, if our estimate for the recorded allowance for loan losses proves to be incorrect and our
allowance is inadequate, we will have to increase the allowance accordingly. In addition, the resolution of non-performing assets
requires the active involvement of management, which can distract them from more profitable activity.
We may incur losses if we are unable to successfully manage interest rate risk.
Our profitability depends largely 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 re-pricing of these loans due to the interest rate caps.
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, 2007, 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.
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. 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.
16
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.
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.
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 because of providing certain services, which could adversely affect our results of
operations.
We are exposed to operational risk because 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 because of noncompliance with
applicable laws and regulatory requirements that could have an adverse affect on our reputation.
17
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 Office of Financial Regulation, the
Federal Reserve, and the FDIC. As a member of the Federal Home Loan Bank, the Bank must also comply with applicable
regulations of the Federal Housing Finance Board and the Federal Home Loan Bank. 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.
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,
2007 was approximately 39,385 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 insiders who own more than 5% of our common stock, directors, and executive officers, beneficially owned approximately
42.97% of the outstanding shares of our stock as of February 29, 2008. 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 a bank
holding company under the Bank Holding Company Act. As a result, we are subject to supervisory regulation and examination by
the Federal Reserve. The Gramm-Leach-Bliley Act, the Bank Holding Company Act, 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.
18
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.
19
Item 1B. Unresolved Staff Comments
None.
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 $118,000, to be adjusted for
inflation in future years.
As of February 29, 2008, the Bank had 70 banking locations. Of the 70 locations, the Bank leases the land, buildings, or both at
14 locations and owns the land and buildings at the remaining 56.
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. We had a total of 1,750 shareowners of record as of February
29, 2008.
2007
2006
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
$ 34.00 $ 36.40 $
24.60
28.22
.1850
27.69
31.20
.1750
33.69 $
29.12
31.34
.1750
35.91 $
29.79
33.30
.1750
35.98 $ 33.25 $ 35.39 $
30.14 29.87 29.51
35.30 31.10 30.20
.1625
.1625
.1750
37.97
33.79
35.55
.1625
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 "Capital; Dividends; Sources of Strength" in the Business section on page 9, in the Management's
Discussion and Analysis of Financial Condition and Operating Results on page 44 and Note 15 in the Notes to Consolidated
Financial Statements. These restrictions may limit our ability to pay dividends to our shareowners. As of February 29, 2008,
we do not believe these restrictions will impair our ability to declare and pay our routine and customary dividends.
20
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.
Total number
of shares
purchased
Average
price paid
per share
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
69,338
222,004
164,481
$29.44
26.86
29.72
455,823
$28.28
1,905,716
2,119,720
2,284,201
2,284,201
766,159
552,155
387,674
387,674
Period
October 1, 2007 to
October 31, 2007
November 1, 2007 to
November 30, 2007
December 1, 2007 to
December 31, 2007
Total
(1) This balance represents the number of shares that were repurchased through the Capital City Bank Group, Inc. Share
Repurchase Program (the “Program”), which was approved on March 30, 2000, and modified by our Board on January 24,
2002, March 22, 2007, and November 11, 2007 under which we were authorized to repurchase up to 2,671,875 shares of our
common stock. The Program is flexible and shares are acquired from the public markets and other sources using free cash
flow. There is no predetermined expiration date for the Program. No shares are repurchased outside of the Program. In
November 2007, 8,000 shares were purchased by an affiliated purchaser that was outside of 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, 2002 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
Capital City Bank Group, Inc.
NASDAQ Composite
SNL Bank $1B-$5B Index
225
200
175
150
125
100
e
u
l
a
V
x
e
d
n
I
75
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
Index
Capital City Bank Group, Inc.
NASDAQ Composite
SNL $1B-$5B Bank Index
12/31/02
$ 100.00
100.00
100.00
12/31/03
$ 149.36
150.01
135.99
12/31/04
$ 138.15
162.89
167.83
12/31/05
$ 144.18
165.13
164.97
12/31/06
$ 151.39
180.85
190.90
12/31/07
$ 123.89
198.60
139.06
Period Ending
21
Item 6. Selected Financial Data
(Dollars in Thousands, Except Per Share Data)(1) (3)
2007
For the Years Ended December 31,
2004
2005
2006
2003
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
$
$
$
165,323 $
112,241
6,163
29,683
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
1.66 $
1.66
.710
17.03
1.18%
9.68
5.25
42.77
11.19
1.79 $
1.79
.663
17.01
1.29%
10.48
5.35
37.01
12.15
1.66 $
1.66
.619
16.39
1.74 $
1.74
.584
14.51
1.22%
10.56
5.09
37.35
11.65
1.46%
13.31
4.88
33.62
10.86
1.53
1.52
.525
15.27
1.40%
12.82
5.01
34.51
10.98
18,066 $
0.95%
28,163
1.47
71.92
0.27
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
$ 1,934,850 $ 2,029,397 $ 1,968,289 $ 1,538,744 $ 1,318,080
1,624,680
2,187,672
1,804,895
2,486,733
1,431,808
1,954,888
-
50,717
55,594
70,216
196,588
286,712
2,183,528 2,258,277
2,507,217 2,581,078
1,990,446 2,034,931
62,887
57,260
317,336
1,789,843
2,006,745
1,599,201
5,155
59,462
220,731
62,887
37,936
306,617
$ 1,915,850 $ 1,999,721 $ 2,067,494 $ 1,828,825 $ 1,341,632
1,648,818
2,299,677
1,846,502
2,625,462
1,474,205
2,079,346
62,887
-
46,475
69,630
202,809
305,776
2,272,829 2,270,410
2,616,327 2,597,910
2,142,344 2,081,654
62,887
43,083
315,770
2,113,571
2,364,013
1,894,886
30,928
68,453
256,800
62,887
26,731
292,675
Other Data:
Basic Average Shares Outstanding
Diluted Average Shares Outstanding
Shareowners of Record(2)
Banking Locations(2)
Full-Time Equivalent Associates(2)
17,909,396 18,584,519
17,911,587 18,609,839
1,805
69
1,056
1,750
70
1,097
18,263,855
18,281,243
1,716
69
1,013
16,805,696
16,810,926
1,598
60
926
16,528,109
16,563,986
1,512
57
795
(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.
(3) The consolidated financial statements reflect the acquisitions of Quincy State Bank on March 19, 2004, Farmers and
Merchants Bank of Dublin on October 15, 2004, and First Alachua Banking Corporation on May 20, 2005.
22
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 included in the Annual Report on Form 10-K. 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." The following information should provide a better understanding
of the major factors and trends that affect our earnings performance and financial condition, and how our performance during
2007 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
ratio, 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 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 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 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 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 merger expenses
Operating net noninterest expense as a percent of average assets
For the Years Ended December 31,
2005
2006
2007
68.46%
68.87%
70.13%
(3.67)%
(3.45)%
(3.36)%
64.79%
65.42%
66.77%
For the Years Ended December 31,
2005
2006
2007
2.44%
2.56%
2.50%
(0.24)%
(0.24)%
(0.13)%
2.20%
2.32%
2.37%
23
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 we are the parent of our wholly-owned subsidiary,
Capital City Bank (the "Bank" or "CCB"). The Bank offers a broad array of products and services through a total of 70 full-service
offices located in Florida, Georgia, and Alabama. The Bank also has a two mortgage lending offices located in Florida and one
additional Georgia community. The Bank offers commercial and retail banking services, as well as trust and asset management,
merchant services, retail securities brokerage and data processing services.
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference
between the interest 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, retail securities brokerage fees, mortgage banking
revenues, merchant service fees, 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 maintain 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 with a dedicated President for each market, and community 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.
Our long-term vision is to continue 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. Five markets have been identified, four in Florida and one in Georgia, in which management will proactively
pursue expansion opportunities. These markets include Alachua, Marion, Hernando, and Pasco counties in Florida and the
western panhandle in Florida and Bibb and surrounding counties in central Georgia. We continue to evaluate de novo expansion
opportunities in attractive new markets in the event that acquisition opportunities are not feasible. Expansion opportunities that
will be evaluated include asset management and mortgage banking.
Recent Acquisition. 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.
24
FINANCIAL OVERVIEW
A summary overview of our financial performance for 2007 versus 2006 is provided below.
2007 Financial Performance Highlights –
(cid:131)
2007 earnings of $29.7 million, or $1.66 per diluted share, decreases of 10.8% and 7.3%, respectively, over 2006.
(cid:131) Decline in earnings was attributable to lower net interest income and a higher loan loss provision, partially offset by an
increase in noninterest income.
(cid:131) Tax equivalent net interest income fell 5.2% over 2006 due to higher interest expense driven by higher average rates and an
unfavorable shift in deposit mix as clients sought higher yielding deposit products, and a $75.0 million reduction in the
level of average earning assets.
(cid:131) Net interest margin percentage declined 10 basis points from 2006 driven by both a higher cost of funds and an increase in
foregone interest income associated with a higher level of nonperforming assets.
(cid:131) Noninterest income grew 6.7% over 2006 due primarily to higher deposit fees, data processing fees, and card fees.
(cid:131) Noninterest expense was very well controlled during the year and increased only .35% from 2006, including a litigation
reserve accrual of $1.9 million related to lawsuits filed against Visa U.S.A.
(cid:131) Loan loss provision increased $4.2 million from 2006 due to a higher level of net charge-offs ($5.3 million, or .27% of
average loans in 2007) and a higher level of required reserves reflective of the current credit environment that has been
impacted by a slowdown in housing and real estate markets. At year-end 2007, the allowance for loan losses was .95% of
outstanding loans and provided coverage of 72% of nonperforming loans.
(cid:131) Share repurchase activity continued in 2007 with 1,404,364 shares being repurchased during the year. We remain well-
capitalized with a risk based capital ratio of 14.05%.
25
RESULTS OF OPERATIONS
Net income for 2007 totaled $29.7 million ($1.66 per diluted share) compared to $33.3 million ($1.79 per diluted share) in 2006
and $30.3 million ($1.66 per diluted share) in 2005. Earnings per share reflect the repurchase of 1,404,364 common shares during
2007 and 164,596 common shares during 2006.
The earnings decline in 2007 of $3.6 million, or $0.13 per diluted share, reflects lower operating revenues (defined as the total of
net interest income and noninterest income) of $3.2 million, an increase in the loan loss provision of $4.2 million, and slightly
higher noninterest expense of $0.4 million, partially offset by lower income taxes of $4.2 million.
The growth in earnings for 2006 of $3.0 million, or $0.13 per diluted share, was primarily attributable to growth in operating
revenue 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 increase in revenues and expenses is partially attributable to
our acquisition of the First National Bank of Alachua in May 2005.
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
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,
2006
2007
2005
$
$
$
$
165,323 $
2,420
167,743
53,082
114,661
6,163
2,420
106,078
59,300
121,992
43,386
13,703
29,683 $
1.66 $
1.66 $
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
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
26
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. We provide an analysis of our net interest income, including
average yields and rates in Tables 2 and 3. We provide this information 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 2007, our taxable equivalent net interest income decreased $6.3 million, or 5.2%. This follows an increase of $9.7 million, or
8.8%, in 2006, and an increase of $23.9 million, or 27.4%, in 2005. The decrease in our taxable equivalent net interest income in
2007 resulted from an increase in interest expense driven by higher average rates, an unfavorable shift in our deposit mix as
clients sought higher yielding deposit products, and a $75 million reduction in the level of average earning assets.
For the year 2007, taxable equivalent interest income was constant compared to 2006 at $167.7 million, and increased $26.4
million, or 18.7%, in 2006 over 2005. Taxable equivalent interest income was favorably impacted by the higher rate environment
in 2007 as compared to 2006, resulting in higher yields on our earning assets during 2007, but the higher yields were offset by a
net decrease in average earning assets of $74.7 million and an increase in foregone interest income attributable to the rising level
of nonperforming assets, which increased from $8.7 million at year-end 2006 to $28.2 million at year-end 2007. The higher rate
environment during 2007 produced a 26 basis point improvement in the yield on earning assets, which increased from 7.42% in
2006 to 7.68% for 2007. This compares to a 96 basis point improvement in 2006 over 2005. As shown in Table 3, increases to
interest income in the investment securities portfolio and funds sold where offset by a decline in the loan portfolio attributable to a
$94.5 million decline in average loans during 2007. Interest income is expected to decline during 2008, reflecting the lower
interest rate environment stemming from reductions in the Federal Reserve’s target rate during the fourth quarter and the impact
of foregone interest income associated with the current level of nonperforming assets.
Interest expense increased $6.3 million, or 13.5%, over 2006, and $16.7 million, or 55.5%, in 2006 over 2005. The increase was a
result of higher average interest rates in 2007 and an unfavorable shift in the deposit mix as clients sought higher yielding deposit
products. Interest expense on other long–term borrowings declined from the prior year attributable to maturing FHLB advances
which were not renewed or replaced during the year. The average rate paid on interest bearing liabilities in 2007 increased 39
basis points compared to 2006, reflecting the factors mentioned above. Interest expense is expected to trend downward in 2008
driven by the lower rate environment, offset partially by a continued shift to higher yielding deposits.
Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on interest
bearing liabilities) decreased 13 basis points in 2007 compared to 2006 and increased 11 basis points in 2006 compared to 2005.
The decrease in 2007 was primarily attributable to the higher rates paid on deposits.
Our net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets) was
5.25% in 2007, compared to 5.35% in 2006 and 5.09% in 2005. In 2007, the decline was a result of a 36 basis point increase in
our cost of funds, partially offset by a 26 basis point increase in the earning asset yield.
During the last four months of 2007, the Federal Reserve reduced the federal funds rate by 100 basis points. Additionally, Capital
City Bank was the beneficiary of some large balance deposit transfers from the Florida State Board of Administration’s Local
Government Investment Pool. These new deposits took the form of negotiated public deposits and resulted in a significant
increase (in excess of $200 million) in the bank’s NOW accounts late in the fourth quarter. Both of these events impacted net
interest income and the net interest margin percentage during the fourth quarter. Overall, by aggressively lowering deposit
interest rates, management believes we have been fairly successful in neutralizing the impact of the Federal Reserve’s interest rate
reductions. While the higher cost public funds have been priced to produce a positive interest rate spread and will add to net
interest income, the margin is thin, and therefore, due to the volume of these new deposits, there will be an adverse impact on our
net interest margin percentage going forward. A further discussion of both of these events can be found in the sections entitled
"Financial Condition" and “Results of Operations – Fourth Quarter 2007.”
27
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 Interest Bearing Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Total Interest Bearing Liabilities
Noninterest Bearing Deposits
Other Liabilities
TOTAL LIABILITIES
SHAREOWNERS' EQUITY
TOTAL SHAREOWNERS' EQUITY
2007
2006
2005
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest Rate
$ 1,934,850 $ 155,434
4,949
4,447
2,913
167,743
103,840
84,849
59,989
2,183,528
86,692
(17,535)
254,532
$ 2,507,217
10,748
13,667
279
19,993
44,687
2,871
3,730
1,794
53,082
$
$557,060 $
397,193
119,700
474,728
1,548,681
66,397
62,887
37,936
1,715,901
441,765
42,934
2,200,600
8.03% $
4.76
5.24
4.79
7.68%
$
1.93% $
3.44
0.23
4.21
2.89%
4.31
5.93
4.73
3.09%
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
157,227
4,851
3,588
2,039
167,705
7.75% $
4.31
4.81
4.81
7.42%
1,968,289 $ 133,665
4,250
2,369
991
2,187,672 141,275
142,406
49,252
27,725
6.79%
2.98
4.81
3.53
6.46%
$
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
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
2,868
4,337
292
13,637
21,134
2,854
2,981
3,094
30,063
.67%
1.57
0.19
2.48
1.50%
2.92
5.88
4.41
1.85%
306,617
317,336
286,712
TOTAL LIABILITIES & EQUITY
$ 2,507,217
$
2,581,078
$
2,486,733
Interest Rate Spread
Net Interest Income
Net Interest Margin(3)
$ 114,661
4.59%
5.25%
$
120,948
4.72%
5.35%
$ 111,212
4.61%
5.09%
(1)
(2)
(3)
Average balances include nonaccrual loans. Interest income includes loan fees of $3.0 million, $3.8 million, and $3.1 million in 2007, 2006, and 2005, 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.
28
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
2007 Changes From 2006
Due to Average
Rate
Volume
Total
2006 Changes From 2005
Due to Average
Total Volume
Rate
$
(1,792) $ (7,465) $
5,673
$ 23,562 $
5,760 $
17,802
99
858
873
(350)
491
883
449
367
(10)
601
1,219
1,048
(689)
1,220
444
1,290
(1)
604
Total
38
(6,441)
6,479
26,430
6,735
19,695
Interest Bearing Liabilities:
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
3,090
1,979
2
2,364
(204)
5
(911)
567
850
(29)
(1,131)
(424)
0
(913)
2,523
1,129
31
3,495
220
5
2
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
Total
6,325
(1,080)
7,405
16,694
515
16,179
Changes in Net Interest Income
$
(6,287) $ (5,361) $
(926) $
9,736 $
6,220 $
3,516
(1)
(2)
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.
29
Provision for Loan Losses
The provision for loan losses was $6.2 million in 2007, compared to $2.0 million in 2006 and $2.5 million in 2005. The increase
for 2007 was attributable to an increase in net charge-offs and a higher level of required reserves reflective of the current credit
environment that has been impacted by a slowdown in housing and real estate markets. The lower loan loss provision in 2006
generally reflected a lower level of net charge-offs. The loan loss provision in 2005 was positively 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 acquisitions.
Net charge-offs for 2007 totaled $5.3 million, or .27% of average loans for the year compared to $2.1 million, or .11% for 2006
and $2.5 million, or .13% for 2005. At December 31, 2007, the allowance for loan losses totaled $18.1 million compared to $17.2
million in 2006 and $17.4 million in 2005. At year-end 2007, the allowance represented .95% of total loans and provided
coverage of 72% 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.
Noninterest Income
Noninterest income increased $3.7 million, or 6.7% and $6.4 million or 13.0%, in 2007 and 2006, respectively compared to the
immediately preceding year. In both periods all categories enjoyed appreciable gains with the exception of mortgage banking,
which has been adversely impacted by the slowdown in residential housing market.
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
Gain/(Loss) on Sale/Call of Investment Securities
Mortgage Banking Revenues
Merchant Fees(1)
Interchange Fees(1)
ATM/Debit Card Fees(1)
Other
Total Noninterest Income
(1) Together called “Bank Card Fees”
For the Years Ended December 31,
2006
2007
2005
$
$
26,130 $
3,133
4,700
2,510
14
2,596
7,257
3,757
2,692
6,511
59,300 $
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
Various significant components of noninterest income are discussed in more detail below.
Service Charges on Deposit Accounts. Deposit service charge fees increased $1.5 million, or 6.1%, in 2007, compared to an
increase of $3.9 million, or 18.7%, in 2006. 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 fees in both years was due to higher overdraft and nonsufficient funds ("NSF") fees reflecting higher activity levels,
partially attributable to the growth in our "Absolutely Free” checking account product, and improved fee collection efforts. The
improvement in fees for 2006 also reflects growth in deposit accounts attributable to the First National Bank of Alachua
acquisition.
Asset Management Fees. In 2007, asset management fees increased $100,000, or 2.2%, versus an increase of $181,000, or 4.1%,
in 2006. At year-end 2007, assets under management totaled $781.3 million, reflecting net growth of $27.8 million, or 3.7% over
2006. At year-end 2006, assets under management totaled $753.5 million, reflecting net growth of $60.5 million, or 8.7% over
2005. The increase in 2007 primarily reflects growth in new business, while the improvement in 2006 reflects both new business
growth and improved asset returns.
Mortgage Banking Revenues. In 2007, mortgage banking revenues decreased $639,000, or 19.8%, compared to a decrease of
$838,000, or 20.6% in 2006. The decline in both years reflects lower production due to the slower housing market. We generally
sell all fixed rate residential loan production into the secondary market. Market conditions, the level of interest rates, and the
percent of fixed rate production have significant impacts on our mortgage banking revenues.
30
Bank Card Fees. Card fees (including merchant service fees, interchange fees, and ATM/debit card fees) increased $1.1 million,
or 8.7% in 2007, compared to an increase of $2.0 million, or 18.7% in 2006. Merchant services fees increased $279,000, or 4.0%
in 2007 compared to $805,000, or 13.0% in 2006. 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 $651,000, or 21.0% in 2007
compared to $866,000, or 38.7% in 2006, and ATM/debit card fees improved $173,000, or 6.8% in 2007 compared to $313,000,
or 14.2% in 2006. The higher interchange and ATM/debit card fees for both periods reflect an increase in our card base primarily
associated with growth in transaction deposit accounts.
Noninterest income as a percent of average assets was 2.37% in 2007, compared to 2.15% in 2006, and 1.98% in 2005. Higher
deposit fees and card fees drove the improvement in 2006 and 2007. Noninterest income as a percent of taxable equivalent
operating revenues was 34.1% in 2007, up from 31.5% in 2006 reflecting growth in noninterest income and a slight reduction in
the level of operating revenues.
Noninterest Expense
Noninterest expense grew by $424,000, or 0.35%, over 2006, including a $1.9 million litigation reserve recorded in the fourth
quarter of 2007. Compensation expense reflects reduced expense levels for performance based incentive plans and lower pension
expense. Lower expense for courier also contributed positively. A pre-tax charge of $1.9 million was recorded during the fourth
quarter of 2007 to establish a litigation reserve related to Visa U.S.A.’s “covered” litigation. The reserve is based on Capital City
Bank’s proportionate membership interest in Visa U.S.A. and represents a contingent liability to cover potential settlement costs
associated with various lawsuits filed against Visa U.S.A. This litigation reserve is discussed in more detail below.
Noninterest expense increased $11.8 million, or 10.7%, in 2006 due to higher expense for compensation, occupancy, intangible
amortization, and interchange fees. The increase reflects a full twelve months of expenses for the operations of First National
Bank of Alachua, which was acquired in May 2005.
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,
2006
2007
2005
$ 49,206 $
11,073
60,279
9,347
9,890
19,237
1,739
3,855
1,994
3,742
1,470
2,124
2,373
1,565
5,834
-
6,118
641
11,021
42,476
46,604 $
14,251
60,855
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
40,978
12,709
53,687
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
Total Noninterest Expense
$
121,992 $
121,568 $
109,814
31
Compensation. Salaries and associate benefits expense decreased $577,000, or 0.95% from 2006 primarily attributable to lower
expense for pension ($1.4 million) and stock based compensation ($2.0 million). A $2.6 million, or 6.0% increase in associate
salaries partially offset these declines. Pension expense declined as a result of large contributions and strong investment returns
on pension plan assets over the past three years, and an increase in the weighted-average discount rate from 2006 to 2007. The
lower expense for stock based compensation is reflective of performance goals not being met during 2007.
In 2006, salaries and benefits increased $7.2 million, or 13.4%, over 2005. The increase in compensation was driven by higher
expense for associate salaries ($5.4 million), payroll taxes ($300,000), associate insurance ($329,000), pension plan ($378,000),
and stock-based compensation ($705,000). The increase in associate salaries and payroll tax expense reflects the addition of First
National Bank of Alachua associates in May 2005, annual merit/market based raises for associates, and lower realized loan cost.
Realized loan cost reflects the impact of Statement of Financial Accounting Standards (“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 in 2006 reduced the amount of
this offset. 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 earnings performance milestones.
Occupancy. Occupancy expense (including furniture, fixtures and equipment) decreased by $69,000, or 0.36% in 2007, compared
to a $2.0 million, or 11.8% increase in 2006. For 2007, we realized a decrease in depreciation (furniture, fixtures, and equipment)
expense of $472,000 and maintenance and repairs (buildings) expense of $254,000. Partially offsetting these declines were
increases in maintenance and repairs (furniture, fixtures, and equipment) expense of $273,000 and software license expense of
$230,000. The reduction in depreciation (furniture, fixtures, and equipment) was due to several large capital assets that became
fully depreciated during 2007. The lower expense for maintenance and repairs (buildings) reflects management’s efforts to better
manage this expense. The increase in expense for maintenance and repairs (furniture, fixtures, and equipment) primarily reflects
the cost of new/replacement telecommunications and network cabling associated with the implementation of voice over IP and
remote office capture technology during 2007. The increase in software license expense primarily reflects the purchase of certain
technology aimed at improving our sales monitoring, operational procedures, and budgeting/planning efforts.
The increase in 2006 was due to higher expense for depreciation ($895,000), maintenance and repairs - for our buildings as well
as furniture, fixtures, and equipment ($276,000), utilities ($343,000), maintenance agreements ($364,000), and building insurance
($143,000). The increase in depreciation is due to the addition of First National Bank of Alachua offices as well as renovations.
An increase in our general maintenance expense associated with banking offices, core processing/networking systems and ATMs
drove the increase in maintenance and repairs. Utility expense increased due to a mid-year rate hike and the addition of First
National Bank of Alachua in May 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/replacement offices, office renovations, and an insurance premium increase drove the increase in building insurance.
Other. Other noninterest expense increased $1.3 million, or 3.7%, in 2007, compared to $2.5 million, or 6.5% in 2006. The
increase in 2007 was primarily attributable to a pre-tax charge of $1.9 million, which was recorded in the fourth quarter of 2007 to
establish a litigation reserve. The Bank is a member of Visa U.S.A. and this reserve was established in connection with lawsuits
filed against Visa U.S.A., which is generally referred to as the “Covered” litigation. We currently anticipate that our proportional
share of the proceeds of Visa’s planned IPO will more than offset any liabilities related to our pro-rata share of the “Covered”
litigation. The nature and circumstances regarding this charge, which is expected to be reversed upon consummation of Visa
Inc.’s planned IPO, is explained in Form 8-Ks filed with the SEC on January 10, 2008 and January 22, 2008.
The increase in 2006 was attributable primarily to higher expense for: (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 due 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 First National
Bank of Alachua 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 and training expense.
The operating net noninterest expense ratio (defined as noninterest income minus noninterest expense, net of intangible
amortization and merger expenses, as a percent of average assets) was 2.27% in 2007 compared to 2.32% in 2006, and 2.20% in
2005. Our operating efficiency ratio (expressed as noninterest expense, net of intangible amortization and merger expenses, as a
percent of taxable equivalent net interest income plus noninterest income) was 66.8%, 65.4%, and 64.8% in 2007, 2006 and 2005,
respectively. During 2007, we took steps to strengthen our expense control procedures, including enhancement of current expense
policies, creation of an expense control committee to focus on identifying cost savings strategies, and improve accountability for
expense management across our various divisions – these efforts will continue and are now part of our strategic planning process.
The increase in the operating efficiency ratio during 2007 is reflective of a lower level of operating revenues (tax equivalent net
interest income plus noninterest income).
32
Income Taxes
The consolidated provision for federal and state income taxes was $13.7 million in 2007, compared to $17.9 million in 2006, and
$16.6 million in 2005. Lower taxable income drove the decline in the tax provision for 2007. The increases in 2006 and 2005
were 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 31.6% in 2007, 35.0% in 2006, and 35.4% in 2005. These rates differ from the combined federal and
state statutory tax rates due primarily to tax-exempt income on loans and securities. The 2007 effective tax rate was positively
impacted by a higher level of tax-free loan income and a fourth quarter true-up of our deferred tax liabilities which resulted in a
net reduction in our income tax provision of $937,000.
FINANCIAL CONDITION
Average assets totaled $2.5 billion, a decrease of $73.9 million, or 2.9%, in 2007 versus the comparable period in 2006. Average
earning assets for 2007 were $2.2 billion, representing a decrease of $74.7 million, or 3.3%, over 2006. A decline in average
loans of $94.5 million, or 4.7%, partially offset by an increase to average funds sold of $8.1 million, or 43.3% were the reasons for
the earning asset decrease in 2007. 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 decreased $94.5 million, or 4.7%, over the comparable period in 2006. Loans as a percent of average earning
assets declined to 88.6% in 2007, down from the 2006 level of 90.0%. Our loan has declined due to a high level of principal pay-
downs and loan pay-offs, including the pay-off of several larger commercial loans, and a slowing of lending activity. Minimal
growth during 2007 was experienced in the consumer portfolio, primarily in auto finance and home equity lines of credit.
Average loans during the fourth quarter of 2007 increased slightly from the linked quarter attributable to a slowing in loan pay-
offs.
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
2006 to
2007
Change
Percentage
Of Total
Change
Components of
Average Earning Assets
2005
2006
2007
(12,244)
(15,711)
(29,417)
(38,282)
1,107
(94,547)
(8,552)
10,215
1,663
(16.0)%
(21.0)%
(39.0)%
(51.0)%
1.0%
(126.00)%
9.5%
7.3%
29.2%
31.5%
11.2%
88.7%
9.7%
7.8%
29.5%
32.2%
10.7%
89.9%
9.5%
6.9%
31.4%
31.3%
10.9%
90.0%
(12.0)%
14.0%
2.0%
4.8%
3.8%
8.6%
5.0%
3.2%
8.2%
6.5%
2.3%
8.8%
Funds Sold
18,135
24.0%
2.7%
1.9%
1.2%
Total Earning Assets
$ (74,749)
100.0%
100.0%
100.0%
100.0%
33
Our average loan-to-deposit ratio decreased to 97.2% in 2007 from 99.7% in 2006. This compares to an average loan-to-deposit
ratio in 2005 of 100.7%. The lower loan-to-deposit ratios reflect declining loan balances, which until the fourth quarter of 2007,
have declined for seven straight quarters.
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, 2007, based upon maturities. As a percent of the total portfolio, loans with fixed interest rates
represent 36.4% as of December 31, 2007, versus 35.7% at December 31, 2006.
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
$
2007
208,864 $
142,248
634,920
680,800
249,018
2003
160,048
89,149
391,250
467,790
233,395
$ 1,915,850 $ 1,999,721 $ 2,067,494 $ 1,828,825 $ 1,341,632
2004
206,474 $
140,190
655,426
600,375
226,360
2006
229,327 $
179,072
643,885
709,735
237,702
As of December 31,
2005
218,434 $
160,914
718,741
723,336
246,069
Maturity Periods
Over One
Through
Five Years
Over
Five
Years
One Year
or Less
Total
$ 83,469 $ 93,283 $ 32,112 $ 208,864
1,457,968
249,018
$ 491,680 $ 526,888 $ 897,282 $ 1,915,850
377,077
31,134
855,897
9,273
224,994
208,611
Loans with Fixed Rates
Loans with Floating or Adjustable Rates
Total
$
$
321,011 $
170,669
491,680 $
346,198 $
180,690
526,888 $
31,206 $
866,076
897,282 $
698,415
1,217,435
1,915,850
(1) Demand loans and overdrafts are reported in the category of one year or less.
34
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. A loan is
deemed impaired when, based on current information and events, it is probable that the company will not be able to collect all
amounts due (principal and interest payments), according to the contractual terms of the loan agreement. All loan relationships
that exceed $100,000 are reviewed for impairment. The evaluation is based on current financial condition of the borrower or
current payment status of the loan.
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 various homogenous loan pools, including commercial, commercial real estate, construction, residential
1-4 family, home equity, and consumer. General reserves are assigned based on historical loan loss ratios (by pool) and are
adjusted for various internal and external environmental factors unique to each loan pool.
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. The unallocated portion of the allowance is monitored on a regular basis and
adjusted based on management’s determination of estimation risk. Table 7 analyzes the activity in the allowance over the past
five years.
The allowance for loan losses was $18.1 million at December 31, 2007 and $17.2 million at December 31, 2006. As a percent of
total loans (net of overdrafts), the allowance was 0.95% in 2007 and 0.86% in 2006. The allowance for loan losses reflects
management’s current estimate 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, 2007 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 Farmers and Merchants Bank of Dublin in late 2004. Additionally, First National Bank of
Alachua was acquired during 2005, which pushed total reserves higher.
35
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
2007
For the Years Ended December 31,
2004
2005
2006
2003
$
17,217 $
-
-
17,410 $
-
-
16,037 $
1,385
-
12,429 $
5,713
(800)
12,495
-
-
1,462
166
709
1,429
3,451
7,217
174
-
14
36
1,679
1,903
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
Net Charge-Offs
5,314
2,152
2,519
3,446
3,502
Provision for Loan Losses
6,163
1,959
2,507
2,141
3,436
Balance at End of Year
$
18,066 $
17,217 $
17,410 $
16,037 $
12,429
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
.27%
.11%
.13 %
.22%
.27%
.94%
.86%
.84 %
.88%
.93%
3.40x
8.00x
6.91x
4.65x
3.55x
(1) Reflects recapture of reserves allocated to the credit card portfolio sold in August 2004.
36
Table 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2007
2006
2005
2004
2003
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Allowance
Amount
(Dollars in Thousands)
Allowance
Amount
Commercial, Financial and
Agricultural
Real Estate:
Construction
Commercial
Residential
Consumer
Not Allocated
$
$3,106
10.9%
$
3,900
11.5% $
3,663
10.6%
$
4,341
11.3% $
2,824
11.9%
3,117
4,372
3,733
2,790
948
7.4
33.1
35.6
13.0
-
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
-
Total
$
$18,066
100.0% $
17,217
100.0% $
17,410
100.0% $
16,037
100.0% $
12,429
100.0%
37
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 $17.1 million, or 212%, from a level of $8.0 million at December 31, 2006. During 2007, we
added loans totaling approximately $39.8 million to non-accruing status, while removing loans totaling $22.7 million. Of the
$22.7 million removed, $2.3 million consisted of principal reductions and loan payoffs, $4.6 million represented loans transferred
to other real estate, $14.3 million consisted of loans brought current and returned to an accrual status, and $1.5 million was
charged off. The increase in nonaccrual loans is partly attributable to the addition of three large loan relationships to nonaccrual
status during the fourth quarter of 2007. Two of the aforementioned loans totaling $4.8 million are to borrowers employed in the
real estate market and the other loan relationship totaling $5.9 million consists of loans to a commercial business. The make-up of
nonaccrual loans (by loan type) at year-end was as follows (in millions): commercial - $0.6, construction - $6.5, commercial real
estate - $11.4, and residential real estate - $6.6. Management has allocated specific reserves to absorb anticipated losses on these
nonperforming loans.
We review loans for potential impairment on a quarterly basis. A loan is deemed impaired when, based on current information
and events, it is probable that the company will not be able to collect all amounts due (principal and interest payments), according
to the contractual terms of the loan agreement. 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 $36.6 million in loans considered
impaired at December 31, 2007. We have established specific reserves for these loans in the amount of $4.7 million.
Table 9
RISK ELEMENT ASSETS
(Dollars in Thousands)
Nonaccruing Loans
Restructured
Total Nonperforming Loans
Other Real Estate Owned
Total Nonperforming Assets
2007
2006
As of December 31,
2005
2004
2003
$
$
25,119 $
-
25,119
3,043
28,162 $
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
Past Due 90 Days or More
416
135
309 $
605 $
328
Nonperforming Loans/Loans
Nonperforming Assets/Loans Plus Other Real Estate
Nonperforming Assets/Capital(1)
1.31%
1.47%
9.06%
.40%
.44%
.25%
.27%
.25%
.29%
.17%
.54%
2.62%
1.72%
1.93%
3.39%
Allowance/Nonperforming Loans
71.92%
214.09%
331.11%
345.18%
529.80%
(1) For computation of this percentage, "Capital" refers to shareowners' equity plus the allowance for loan losses.
We recognize interest on non-accrual loans only when payments are received. We apply cash payments collected on non-accrual
loans against the principal balance or recognize it as interest income based upon management’s expectations as to the ultimate
collectability 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 $922,000 of interest income for the year ended December 31, 2007.
Other real estate totaled $3.0 million at December 31, 2007, versus $689,000 at December 31, 2006. 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 2007, we added properties totaling $3.5 million, and partially or completely liquidated properties totaling $1.1 million,
resulting in a net increase in other real estate of approximately $2.4 million.
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 $10.2 million at December 31, 2007,
compared to $11.8 million at year-end 2006.
Loans past due 90 days or more and still on accrual status totaled $416,000 at year-end, up from $135,000 at the previous year-
end.
38
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 (76.1%) secured by real estate, the primary types of real estate collateral are commercial
properties and 1-4 family residential properties. At December 31, 2007, commercial real estate mortgage loans and residential
real estate mortgage loans accounted for 33.1% 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, 2007, 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 2007, our average investment portfolio increased $1.7 million, or 0.9%, from 2006 and decreased $4.6 million, or 2.4%, from 2005
to 2006. As a percentage of average earning assets, the investment portfolio represented 8.6% in 2007, compared to 8.3% in 2006. In
2007, the increase in the average balance of the investment portfolio was primarily due to the reinvestment of a portion of the interest
earned on these investments. In 2006, the decline in the average balance of the investment portfolio was primarily due to the timing
of reinvesting maturities. In 2008, we will closely monitor liquidity levels to assess the need to purchase additional investments.
In 2007, average taxable investments decreased $8.6 million, or 7.6%, while tax-exempt investments increased $10.2 million, or
13.7%. We changed the mix because tax-exempt securities offered a more attractive spread compared to taxable securities during the
year. Management will continue to purchase "bank qualified" 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, 2007, 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, 2007, 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, 2007, shareowners' equity included a net unrealized gain in the investment
portfolio of $0.4 million, compared to a net unrealized loss of $0.8 million at December 31, 2006. 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, 2007 and 2006 was 1.63 and 1.75 years, respectively. See Table 10 for a
breakdown of maturities by investment type.
The weighted average taxable equivalent yield of the investment portfolio at December 31, 2007 was 5.08%, versus 4.72% in 2006.
The higher rates for the first three quarters allowed purchases of securities with yields higher than those of maturing bonds. The fed
rate cuts will have an unfavorable impact on investment income in 2008. The quality of the municipal portfolio at year-end is
depicted on page 41. 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, 2007. Due diligence is
continually performed on the investment portfolio, namely the municipal bonds. Special attention is given to municipal bond
insurers to ensure diversification, and the strength of the bonds’ underlying rating is being considered in any new purchases. Our
mortgage bank security portfolio is high quality and has no subprime market exposure.
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.
39
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
$
36,441 $
25,264
-
-
61,705
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
25,675
64,339
-
-
90,014
4,125
15,043
7,166
-
26,334
-
-
1,000
11,307
12,307
2007
Market
Value
Weighted(1)
Average
Yield
As of December 31,
2006
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
2005
Market
Value
Weighted(1)
Average
Yield
36,570
25,493
-
-
62,063
25,697
64,304
-
-
90,001
4,117
15,070
7,100
-
26,287
-
-
1,061
11,307
12,368
4.62% $
4.46
-
-
4.56%
17,329 $
56,388
-
-
73,717
5.19
5.38
-
-
5.32%
4.23
4.89
5.21
-
4.87%
-
-
5.00
5.90
5.90
31,438
52,183
-
-
83,621
3,568
14,942
4,734
-
23,244
-
-
-
12,648
12,648
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
4.21
5.25
-
-
4.86
5.37
4.58
5.02
-
4.79
-
-
-
5.78
5.78
58,032 $
24,296
1,970
-
84,298
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
4.66
4.11
6.53
-
4.34
3.97
4.12
5.09
-
4.38
-
-
-
4.75
4.75
TOTAL INVESTMENT SECURITIES
$
190,360 $
190,719
5.08% $
193,230 $
191,894
4.72% $
172,971 $
171,019
3.57%
(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.
40
AVERAGE MATURITY
(In Years)
U.S. Governments
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities
TOTAL
As of December 31,
2006
1.76
1.39
3.05
-
1.75
2007
1.09
1.48
3.47
-
1.63
2005
1.01
1.31
5.05
-
1.65
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody's Rating
AAA
AA-1
AA-2
AA-3
AA
Not Rated(1)
Total
Amortized Cost
$
84,041
-
-
-
-
5,973
90,014
Percentage
93.36%
-
-
-
-
6.64
100.00%
$
(1) All of the securities not rated by Moody's are rated "AA" or higher by S&P.
Deposits and Funds Purchased
In 2007, average total deposits of $1.99 billion decreased $44.5 million, or 2.2%, over the comparable year. Our noninterest
bearing deposits and certificates of deposit declined $62.9 million and $32.5 million, respectively. Savings balances declined by
$14.3 million from the prior year. Average noninterest bearing deposits as a percent of average total deposits declined from
24.8% in 2006 to 22.2% in 2007, which is partially attributable to the natural disintermediation that occurs in a higher rate
environment as clients seek higher yielding deposit products. 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. Partially offsetting the declines above were increases in NOW and money
market deposits reflecting growth in our interest bearing “Absolutely Free” checking accounts and our negotiated rate deposit
products.
Compared to the linked third quarter of 2007, average deposits increased $62.6 million, or 3.2% due to a significant increase in
the level of public funds, a portion of which is attributable to normal seasonal activity, while the balance is due to changing
market conditions. During the fourth quarter, several local government entities, which are clients, transferred significant balances
from the State Board of Administration's Local Government Investment Pool to the Bank. These balances are reflected in our
NOW account deposits, which increased, based on monthly averages, from $521 million in September to $719 million in
December. While this growth added to our net interest income, public funds are generally higher cost deposits, which drove our
average cost of funds up and thereby lowered our net interest margin percentage for the quarter. Although these deposits are
higher rate negotiated deposits, the changing market conditions offer an excellent opportunity to further cultivate these
relationships and take advantage of both lending and asset management opportunities. As is normal with seasonal deposits,
management expects deposit levels to decline during the first quarter of 2008.
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 $12.3 million, or 15.6%. The
decrease is attributable to a $15.8 million decrease in other borrowings primarily attributable to maturities of FHLB advances, and
a $0.8 million decrease in funds purchased, partially offset by a $4.3 million increase in repurchase agreements. See Note 8 in the
Notes to Consolidated Financial Statements for further information on short-term borrowings.
41
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits
NOW Accounts
Money Market Accounts
Savings
Time Deposits
Total Deposits
2006 to
2007
Change
$ (62,922)
38,389
26,936
(14,333)
(32,555)
$ (44,485)
2007
Components of
Total Deposits
2006
Percentage
of Total
Change
(141.4) % 22.2 % 24.8 %
28.0
20.0
6.0
23.9
86.3
60.6
(32.2)
(73.2)
100.0 % 100.0 % 100.0 % 100.0 %
2005
27.9 %
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, 2007
(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
$
34,043
31,235
52,823
11,656
129,757
$
Percent
26.24 %
24.07
40.71
8.98
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 2007 with $166.6 million in liquidity, an increase of $87.5 million from the previous year-end. On a year-to-date
average basis, liquidity increased $18.1 million from 2006. The increase in average liquidity was primarily the result of the
decline in loans partially offset by the decline in deposits and the repurchase of $43 million in our common stock during the year.
The higher level of liquidity at year-end was a result of the aforementioned deposit growth experienced during the fourth quarter
of 2007.
Borrowings
At December 31, 2007, we had $38.7 million in borrowings outstanding to the Federal Home Loan Bank of Atlanta ("FHLB")
consisting of 32 notes. Seven notes totaling $12.2 million are classified as short-term borrowings with the remaining notes
classified as long-term borrowings with maturities ranging from 2009 to 2023. The interest rates are fixed and the weighted
average rate at December 31, 2007 was 4.70%. Required cash payments (including principal reductions and maturities) for the
FHLB advances are detailed in Table 13. Approximately $28.6 million of the aforementioned FHLB debt is related to match-term
funding for loans originated by the Bank. During 2007, we obtained one advance from the FHLB for $1.7 million with a fixed
rate of 5.31% and maturing in 2014. 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.
42
Table 13
CONTRACTUAL CASH OBLIGATIONS
Table 13 sets forth certain information about contractual cash obligations at December 31, 2007.
(Dollars in Thousands)
Federal Home Loan Bank Advances
Subordinated Notes Payable
Operating Lease Obligations
Time Deposit Maturities
Liability for Unrecognized Tax Benefits
Total Contractual Cash Obligations
< 1 Yr
Payments Due By Period
1 – 3 Yrs 3 – 5 Yrs > 5 Years
$
14,604 $
-
1,425
408,041
95
$
424,165 $
5,493 $
-
2,318
57,101
179
65,091 $
5,157 $
-
1,398
2,231
1,502
10,288 $
13,403 $
62,887
5,700
-
2,031
84,021 $
Total
38,657
62,887
10,841
467,373
3,807
583,565
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 in 2004. 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 First National Bank of Alachua acquisition in 2005.
We anticipate that our capital expenditures will approximate $20.0 million over the next twelve months. These capital
expenditures are expected to consist primarily of new office construction, 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 11.19%,
12.15%, and 11.65%, in 2007, 2006, and 2005, respectively. Management believes its strong capital base not only offers
protection against adverse developments that may arise during the course of an economic downturn, but it also places the
company in a position to take advantage of opportunities that arise, including investments, acquisitions, and/or stock purchases.
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 I Capital. As of December 31, 2007, we
exceeded these capital guidelines with a total risk-based capital ratio of 14.05% and a Tier 1 ratio of 13.05%, compared to 14.95%
and 14.00%, respectively, in 2006. 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 I 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 I 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, 2007, we had a leverage ratio of 10.41% compared to 11.30% in 2006.
The slight decreases in capital ratios at December 31, 2007 reflect both balance sheet growth and the repurchase of $43.0 million
in CCBG common stock during 2007.
Shareowners' equity as of December 31, for each of the last three years is presented below:
(Dollars in Thousands)
Common Stock
Additional Paid-in Capital
Retained Earnings
Subtotal
Accumulated Other Comprehensive (Loss), Net of Tax
Total Shareowners' Equity
$
2007
2006
2005
172
38,243
260,325
298,740
(6,065)
292,675 $
185
80,654
243,242
324,081
(8,311)
315,770 $
186
83,304
223,532
307,022
(1,246)
305,776
43
At December 31, 2007, our common stock had a book value of $17.03 per diluted share compared to $17.01 in 2006. Book value
is impacted by the net unrealized gains and losses on investment securities available-for-sale. At December 31, 2007, the net
unrealized gain was $.4 million compared to a net unrealized loss of $.8 million in 2006. 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, 2007, the net pension liability reflected in other comprehensive income was $6.3 million compared to $7.5
million at December 31, 2006.
Our Board of Directors has authorized the repurchase of up to 2,671,875 shares of our outstanding common stock. The purchases
are made in the open market or in privately negotiated transactions. Through December 31, 2007, we have repurchased a total of
2,284,201 shares at an average purchase price of $26.05 per share. During 2007, we repurchased 1,404,364 shares at an average
purchase price of $30.75.
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 2007, we issued 32,799 shares, valued at approximately $1.2 million under this plan
related to the 2006 financial performance goal. No shares were earned under this plan in 2007.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2007,
35,659 shares, valued at approximately $1.1 million (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 $.7100 per share in 2007. For the first through the third quarters of 2007 we declared and
paid a dividend of $.1750 per share. The dividend was raised 5.7% in the fourth quarter of 2007 from $.1750 per share to $.1850
per share. We paid dividends of $.6625 per share in 2006 and $.6185 per share in 2005. The dividend payout ratio was 42.77%,
37.01%, and 37.35% for 2007, 2006 and 2005, respectively. Total cash dividends declared per share in 2007 represented a 4.1%
increase over 2006. 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, 2007, we had $437.8 million in commitments to extend credit and $17.4 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee
the performance of a client to a third party. We use the same credit policies in establishing commitments and issuing letters of
credit as we do for on-balance sheet instruments.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments
require funding in excess of historical levels, management believes current liquidity, available advances from the FHLB and
investment security maturities provide a sufficient source of funds to meet these commitments.
44
Fourth Quarter, 2007 Financial Results
For the fourth quarter, earnings totaled $7.7 million, or $.44 per diluted share compared to $7.2 million, or $.41 per diluted share,
in the previous quarter. A favorable variance in operating revenues of $1.0 million was partially offset by unfavorable variances
in the loan loss provision of $147,000 and noninterest expense of $1.7 million. The increase in operating revenues reflects higher
noninterest income of $1.4 million, partially offset by lower net interest income of $365,000, while the increase in operating
expenses reflects the recognition of a $1.9 million litigation reserve associated with our membership in Visa U.S.A. We also
trued-up our deferred tax liabilities which favorably impacted tax expense by $937,000 in the fourth quarter.
For the fourth quarter, tax equivalent net interest income decreased $321,000, or 1.1%, compared to the previous quarter driven
primarily by the loss of interest income associated with a higher level of non-performing assets. The net interest margin decreased
17 basis points to 5.10% for the quarter reflecting a higher level of nonperforming assets and a shift in the mix of our interest
bearing deposits. The earning asset yield declined 25 basis points to 7.50% due primarily to a 20 basis point decline in the loan
yield and a 75 basis point reduction in the yield on short-term (over-night) investments, reflecting rate reductions by the Federal
Reserve totaling 100 basis points between September 18th and December 11th; and an increasing level of nonperforming assets
during the quarter. Approximately 6 basis points of the 25 basis point reduction in yield are attributable to a higher level of non-
performing assets. The average cost of funds declined eight basis points reflecting a reduction of average rates paid in response to
the Federal Reserve’s rate cuts; however, a significant portion of this benefit was offset by the influx of higher costs public funds
as noted below.
The provision for loan losses increased $147,000 over the third quarter to $1.7 million. The reserve as a percentage of total loans
(net of overdrafts) was .95% at both the end of the fourth quarter and third quarter. For the fourth quarter, net charge-offs totaled
$1.6 million, or .34% of average loans compared to $1.0 million, or .21% for previous quarter with consumer loans accounting for
$486,000, or 88% of the increase.
Noninterest income for the fourth quarter of $15.8 million was $1.4 million, or 9.6% higher than the previous quarter. Higher
deposit service fees ($870,000), data processing fees ($77,000), and bankcard fees ($105,000) drove the improvement for the
quarter. Miscellaneous income also increased for the quarter driven by gains realized on the sale of a banking office ($540,000)
and the sale of shares of Mastercard ($149,000). These favorable variances were partially offset by a reduction in mortgage
banking revenues ($217,000) and asset management fees ($100,000).
Noninterest expense for the fourth quarter increased $1.7 million, or 5.7% over the prior quarter due to a contingency loss accrual
in the amount of $1.9 million ($1.2 million after-tax or $.07 per share) related to the company’s membership in the Visa U.S.A.
network. Excluding the impact of the aforementioned loss accrual and a variance in pension expense ($0.2 million in pension
expense was recorded in the fourth quarter as compared to approximately $1.7 million per quarter in prior quarters), core
operating expenses increased $1.3 million due primarily to higher salary expense ($587,000) and advertising expense ($275,000).
Salary expense increased due to the true-up of performance based incentive accruals, slightly higher base salary expense, and a
lower credit offset to salary expense from FASB 91 loan cost. The increase in advertising expense is due to an increase in
Absolutely-Free Checking advertising costs driven by the addition of a new office, and a planned brand recognition advertising
campaign that began in the second half of the year.
For the quarter, earning assets averaged $2.191 billion, up from $2.145 billion in the third quarter. The increase is primarily
attributable to an increase in deposits, which is discussed in more detail below. Average loans for the fourth quarter increased
$0.8 million to $1.908 billion, which represents the first quarterly increase in two years. The increase in tax-free loans ($4.9
million) is a seasonal variation which typically decreases in the following quarter.
At month-end December, nonperforming assets totaled $28.2 million compared to $14.1 million at the previous quarter-end. The
level of non-accrual loans increased $12.7 million during the quarter to $25.1 million. There was a significant level of activity in
the non-accrual loan category for the quarter, but a majority of the increase can be attributed to three large loan relationships
totaling $10.7 million. Two of these loans totaling $4.8 million are to borrowers in the real estate market and the other loan
relationship totaling $5.9 million consists of loans to a commercial business. Other real estate owned increased by $1.4 million.
The nonperforming asset ratio and nonperforming loans coverage ratio were 1.47% and 71.9% at quarter-end compared to .74%
and 145.5%, respectively, at the end of the third quarter reflecting a rising level of nonperforming loans during the quarter.
Average deposits for the quarter increased $62.6 million, or 3.2% from the third quarter due primarily to an increase in NOW
accounts ($82.6), partially offset by a reduction in DDA accounts ($16.1 million). On a period-end basis, negotiated NOW
accounts increased $211 million, or 114%, from $185 million at the end of September to $396 million at the end of December.
While a portion of the increase is normal seasonal activity, a majority of this increase reflects the movement from the State Board
of Administration’s Local Government Investment Pool, which encountered issues regarding the quality of its investments and
began to suffer large withdrawals and eventually had to freeze the fund on November 29, 2007. CCB has been a beneficiary of
this movement of funds to banks. Generally, these are expensive deposits priced at a spread below the Fed funds rate. Although
profitable, the margin on these deposits is thin. As noted above, this influx of higher cost deposits had a significant impact on our
cost of funds and, therefore, our net interest margin percentage.
45
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
we evaluate the allowance quarterly 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, 2007. Impairment testing requires
management to make significant judgments and estimates relating to the fair value of its reporting unit. 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 2007 was 6.00%. The estimated impact
to 2007 pension expense of a 25 basis point increase or decrease in the discount rate would have been a decrease of approximately
$293,000 and an increase of approximately $306,000, respectively. We anticipate using a 6.25% discount rate in 2008.
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 2007 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 $159,000 decrease or increase, respectively. We anticipate using a
rate of return on plan assets for 2008 of 8.0%.
The assumed rate of annual compensation increases of 5.50% in 2007 is based on expected trends in salaries and the employee
base. This assumption is not expected to change materially in 2008.
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.
46
Recent Accounting Pronouncements
Statement of Financial Accounting Standards (“SFAS”)
SFAS No. 141, “Business Combinations (Revised 2007).” SFAS 141R replaces SFAS 141, “Business Combinations,” and applies
to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141R requires an
acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in
the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair
value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a
reasonable doubt. This fair value approach replaces the cost-allocation process required under SFAS 141 whereby the cost of an
acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS 141R
requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and
liabilities assumed, as was previously the case under SFAS 141. Under SFAS 141R, the requirements of SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities,” would have to be met in order to accrue for a restructuring plan in purchase
accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not
likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be
subject to the probable and estimable recognition criteria of SFAS 5, “Accounting for Contingencies.” SFAS 141R is effective
for business combinations closing on or after January 1, 2009. We are in the process of reviewing the impact of SFAS 141R.
SFAS No. 154, “Accounting Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.”
SFAS 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting
principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. Previously, most
changes in accounting principle were recognized by including the cumulative effect of changing to the new accounting principle
in net income of the period of the change. SFAS 154 carries forward the guidance in APB Opinion 20 “Accounting Changes,”
requiring justification of a change in accounting principle on the basis of preferability. SFAS 154 also carries forward without
change the guidance contained in APB Opinion 20, for reporting the correction of an error in previously issued financial
statements and for a change in an accounting estimate. The adoption of SFAS 154 on January 1, 2006 did not significantly impact
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 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 recognized the funded status of our defined benefit pension plan in our
financial statements for the year ended December 31, 2006.
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates.
Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent
reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, (ii) is irrevocable
(unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. SFAS 159 is
effective for us on January 1, 2008 and is not expected to have a significant impact on our financial statements.
SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51.”
SFAS 160 amends Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements,” to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies
that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the
consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other
requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both
the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective on
January 1, 2009 and is not expected to have a significant impact on our financial statements.
47
Financial Accounting Standards Board Interpretations
In July 2006, the FASB issued FIN 48 which 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 became effective for us in the
first quarter of 2007 and did not have a material impact on our financial statements.
Emerging Issues Task Force
In March 2007, the FASB ratified the consensus the Emerging Issues Task Force (“EITF”) reached regarding EITF Issue No. 06-
10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“Issue 06-10”), which provides
accounting guidance for postretirement benefits related to collateral assignment split-dollar life insurance arrangements, whereby
the employee owns and controls the insurance policies. The consensus concludes that an employer should recognize a liability for
the postretirement benefit in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions” (“Statement 106”) or Accounting Principles Board Opinion No. 12 (“APB 12”), as well as recognize an asset based on
the substance of the arrangement with the employee. Issue 06-10 is effective for fiscal years beginning after December 15, 2007
with early application permitted. We are in the process of reviewing the potential impact of Issue 06-10.
In September 2006, the FASB ratified the consensus the EITF reached regarding EITF Issue No. 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“Issue 06-4”),
which provides accounting guidance for postretirement benefits related to endorsement split-dollar life insurance arrangements,
whereby the employer owns and controls the insurance policies. The consensus concludes that an employer should recognize a
liability for the postretirement benefit in accordance with Statement 106 or APB 12. In addition, the consensus states that an
employer should also recognize an asset based on the substance of the arrangement with the employee. Issue 06-4 is effective for
fiscal years beginning after December 15, 2007 with early application permitted. We are in the process of reviewing the potential
impact of Issue 06-4.
In September 2006, the FASB ratified the consensus the EITF reached regarding EITF Issue No. 06-5, “Accounting for Purchases
of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance.” FASB Technical Bulletin No. 85-4 requires that the amount that could be realized
under the insurance contract as of the date of the statement of financial position should be reported as an asset. Since the issuance
of FASB Technical Bulletin No. 85-4, there has been diversity in practice in the calculation of the amount that could be realized
under insurance contracts. Issue No. 06-5 concludes that we should consider any additional amounts (e.g., cash stabilization
reserves and deferred acquisition cost taxes) included in the contractual terms of the insurance policy other than the cash surrender
value in determining the amount that could be realized in accordance with FASB Technical Bulletin No. 85-4. We adopted this
standard in the first quarter of 2007 and it did not have a significant impact on our financial statements.
48
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.
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
49
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 2007 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 declining rates to have an unfavorable 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."
50
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)
Year 1
Year 2
As of December 31, 2007
Year 4
Year 5
Year 3
Beyond
Total
Fair Value(5)
$ 306,159 $ 145,265
8.11%
134,999
7.69%
6.76%
1,047,020
7.75%
$ 99,036
8.05%
65,503
7.70%
$ 39,048
8.48%
8,884
7.89%
$ 23,130
8.56%
6,687
8.05%
$ 22,374
6.68%
17,725
8.14%
96,458
3.58%
2,287
5.12%
49,810
3.96%
-
-
33,051
3.72%
-
-
4,271
4.60%
-
-
2022
5.15%
-
-
2,279
5.27%
-
-
$ 635,012
7.44%
1,280,818
7.75%
187,891
3.76%
2,287
5.12%
$ 664,241
1,336,486
187,891
2,287
166,260
4.24%
-
-
$ 1,618,184 $ 330,074
7.31%
4.27%
-
-
$ 197,590
7.21%
-
-
$ 52,203
8.06%
-
-
$ 31,839
8.23%
-
-
$ 42,378
7.21%
166,260
4.24%
$ 2,272,268
5.16%
166,260
$ 2,357,165
Fixed Rate Deposits
Average Interest Rate
Floating Rate Deposits
Average Interest Rate
$ 409,537
4.31%
1,240,914
2.25%
$ 43,005
4.22%
-
-
$ 11,476
3.99%
-
-
$ 2,619
4.05%
-
-
$ 2,073
3.96%
-
-
$ 158
4.91%
-
-
$ 468,868
4.29%
1,240,914
2.25%
$ 420,251
1,240,914
Other Interest Bearing
Liabilities
Fixed Rate Debt
Floating Rate Debt
Average Interest Rate
2,977
4.82%
52,553
3.71%
Total Financial Liabilities $ 1,705,981
2.80%
Average Interest Rate
Average interest Rate
3,368
4.84%
31,506
2.99%
$ 77,879
2.54%
3,120
4.89%
31,959
6.07%
$ 46,555
5.48%
3,077
4.97%
6.07%
$ 5,696
4.55%
3,233
4.97%
-
-
$ 5,306
4.57%
10,956
4.90%
-
-
$ 11,114
4.90%
26,731
4.90%
116,018
3.35%
$ 1,852,531
2.88%
28,284
116,393
$ 1,805,842
(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.
51
Item 8. Financial Statements and Supplementary Data
Table 15
QUARTERLY FINANCIAL DATA (Unaudited)
(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
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:
Return on Assets
Return on Equity
Net Interest Margin (FTE)
Efficiency Ratio
2007
2006
Fourth
Third
Second
First
Fourth
Third
Second
First
$
40,786 $
13,241
27,545
1,699
41,299 $
13,389
27,910
1,552
41,724 $
13,263
28,461
1,675
41,514
13,189
28,325
1,237
$
$
$
25,846
15,823
31,614
10,055
2,391
7,664 $
28,196 $
0.44 $
0.44
0.185
17.03
34.00
24.60
28.22
26,358
14,431
29,919
10,870
3,699
7,171 $
28,517 $
0.41 $
0.41
0.175
16.95
36.40
27.69
31.20
26,786
15,084
29,897
27,088
13,962
30,562
11,973
4,082
7,891 $
29,050 $
10,488
3,531
6,957
28,898
0.43 $
0.43
0.175
16.87
33.69
29.12
31.34
0.38
0.38
0.175
16.97
35.91
29.79
33.30
$
1,908,069 $
2,191,230
2,519,682
2,016,736
299,342
1,907,235 $
2,144,737
2,467,703
1,954,160
301,536
1,944,969 $
2,187,236
2,511,252
1,987,418
309,352
1,980,224
2,211,560
2,530,790
2,003,726
316,484
$
$
$
$
$
42,600 $
13,003
29,597
460
29,137
14,385
29,984
13,538
4,688
8,850 $
30,152 $
0.48 $
0.48
0.175
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 $
0.47 $
0.47
0.163
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 $
0.44 $
0.44
0.163
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
0.40
0.40
0.163
16.65
37.97
33.79
35.55
2,003,719 $ 2,025,112 $
2,238,066
2,557,357
2,028,453
323,903
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
17,444
17,445
17,709
17,719
18,089
18,089
18,409
18,420
18,525
18,569
18,530
18,565
18,633
18,653
18,652
18,665
1.21%
10.16%
5.10%
68.51%
1.15%
9.44%
5.27%
66.27%
1.26%
10.23%
5.33%
64.44%
1.11%
8.91%
5.29%
67.90%
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%
52
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
54 Reports of Independent Registered Public Accounting Firms
56 Consolidated Statements of Financial Condition
57
Consolidated Statements of Income
58 Consolidated Statements of Changes in Shareowners' Equity
59 Consolidated Statements of Cash Flows
60 Notes to Consolidated Financial Statements
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Capital City Bank Group, Inc.
We have audited the accompanying consolidated statement of financial condition of Capital City Bank Group, Inc. and subsidiary
as of December 31, 2007, and the related consolidated statements of income, changes in shareowners’ equity, and cash flows for
the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements 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 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 audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Capital City Bank Group, Inc. and subsidiary at December 31, 2007 and the consolidated results of their operations and their
cash flows for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Capital City Bank Group, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 13, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 13, 2008
54
Report of Independent Registered Public Accounting Firm
The Board of Directors
Capital City Bank Group, Inc.:
We have audited the accompanying consolidated statement of financial condition of Capital City Bank Group, Inc. and subsidiary
(the Company) as of December 31, 2006 and the related consolidated statements of income, changes in shareowners’ equity and
cash flows for the years ended December 31, 2006 and 2005. 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 the results of their operations and their cash flows
for the years ended December 31, 2006 and 2005, 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.
/s/ KPMG LLP
Orlando, Florida
March 14, 2007
Certified Public Accountants
55
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
ASSETS
Cash and Due From Banks
Federal 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; 17,182,553 and 18,518,398
shares issued and outstanding at December 31, 2007 and December 31, 2006, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners' Equity
Total Liabilities and Shareowners' Equity
As of December 31,
2007
2006
$
93,437 $
166,260
259,697
98,769
78,795
177,564
190,719
191,894
1,915,850
(18,066)
1,897,784
98,612
84,811
13,757
70,947
2,616,327 $
1,999,721
(17,217)
1,982,504
86,538
84,811
19,591
55,008
2,597,910
$
$
432,659 $
1,709,685
2,142,344
53,131
62,887
26,731
38,559
2,323,652
490,014
1,591,640
2,081,654
65,023
62,887
43,083
29,493
2,282,140
-
-
172
38,243
260,325
(6,065)
292,675
2,616,327 $
185
80,654
243,242
(8,311)
315,770
2,597,910
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
56
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
Securities Transactions
Mortgage Banking Revenues
Bank Card Fees
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,
2006
2005
2007
$ 154,567 $
156,666 $
133,268
574
3,628
2,894
747
2,913
165,323
44,687
2,871
3,730
1,794
53,082
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
112,241
6,163
119,136
1,959
109,990
2,507
106,078
117,177
107,483
26,130
3,133
4,700
14
2,596
13,706
9,021
59,300
60,279
9,347
9,890
5,834
-
36,642
121,992
43,386
13,703
24,620
2,723
4,600
(4)
3,235
12,602
7,801
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
10,619
6,729
49,198
53,687
8,293
8,970
5,440
438
32,986
109,814
46,867
16,586
$
$
$
29,683 $
33,265 $
30,281
1.66 $
1.66 $
1.79 $
1.79 $
17,909
17,912
18,585
18,610
1.66
1.66
18,264
18,281
(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.
57
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except Per Share Data)(1)
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
$
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)
Total Comprehensive Income
Establish Pension Liability upon adoption of SFAS No.
158 (net of tax)
Cash Dividends ($.663 per share)
Stock Performance Plan Compensation
Issuance of Common Stock
Repurchase of Common Stock
Balance, December 31, 2006
Comprehensive Income:
Net Income
Net Change in Unrealized Loss On Available-for-
Sale Securities (net of tax)
Net Change in Funded Status of Defined Pension
Plan and SERP Plan (net of tax)
Total Comprehensive Income
Miscellaneous – Other
Cash Dividends ($.710 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
-
-
33,677
-
-
1,673
1,035
(5,358)
-
(12,322)
-
-
-
(7,477)
-
-
-
-
(7,477)
(12,322)
1,673
1,036
(5,360)
185
80,654 243,242
(8,311)
315,770
-
-
-
-
-
-
-
1
(14)
-
-
-
-
-
-
265
571
(43,247)
29,683
-
-
-
-
-
223
(12,823)
-
-
-
1,080
1,166
-
-
-
-
-
-
31,929
223
(12,823)
265
572
(43,261)
Balance, December 31, 2007
$
172 $
38,243 $ 260,325 $
(6,065) $
292,675
(1)
All share, per share, and shareowners' equity 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.
58
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
(Gain)Loss on Securities Transactions
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 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 From 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
(Decrease) 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 Financing Activities
For the Years Ended December 31,
2006
2007
2005
$
29,683 $
33,265 $
30,281
6,163
6,338
279
5,834
(14)
(158,390)
162,835
(2,596)
265
1,328
(12,894)
8,115
46,946
(56,289)
-
58,894
74,058
-
(18,613)
203
58,253
60,690
(12,263)
-
(10,618)
(5,363)
(12,823)
(43,261)
572
(23,066)
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)
NET CHANGE IN CASH AND CASH EQUIVALENTS
82,133
11,205
4,814
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
177,564
259,697 $
166,359
177,564 $
161,545
166,359
$
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
$
$
$
$
$
$
44,510
8,463
12,431
3,494
-
-
$
$
$
$
$
$
36,509
9,688
16,797
1,018
1,233
7,477
$
$
$
$
$
$
19,964
8,754
15,923
2,689
-
-
Issuance of Common Stock as Non-Cash Compensation
$
1,160 $
711 $
339
Transfer of Current Portion of Long-Term Borrowings
to Short-Term Borrowings
$
12,318
$
13,061
$
20,043
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
59
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, loss
contingencies, 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. The Company is required to maintain average reserve balances with the Federal Reserve Bank based upon a percentage of
deposits. The average amounts of these reserve balances for the years ended December 31, 2007 and 2006 were $25.8 million and
$18.7 million, respectively.
60
Investment Securities
Investment securities available-for-sale is carried at fair value and represents 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. In estimating other-than-temporary
impairment losses, management considers, (i) the length of time and the extent to which the fair value has been less than cost,
(ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for anticipated recovery in fair value. 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 income
component of shareowners' equity until realized. Accretion and amortization are recognized on the effective yield method over
the life of the securities.
Loans
Loans are stated at the principal amount outstanding, net of unearned income. Interest income is 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 or 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
collectability 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 probable and 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. The Company has the ability and intent to sell these loans and they are classified as loans
held for sale and carried at the lower of cost or estimated fair value. At December 31, 2007 and December 31, 2006, the Company
had $2.8 million and $4.2 million, respectively, in loans classified as held for sale which were committed to be purchased by third
party investors. 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 with servicing released 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 three components: (i) specific valuation allowances established for probable
losses on specific loans deemed impaired; (ii) valuation allowances calculated for specific homogenous loan pools based on, but
not limited to, historical loan loss experience, current economic conditions, levels of past due loans, and levels of problem loans;
(iv) an unallocated allowance that reflects management’s determination of estimation risk.
61
Long-Lived Assets
Premises and equipment is 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. Additions, renovations and leasehold improvements to premises are capitalized and
depreciated over the lesser of the useful life or the remaining lease term. 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.
Goodwill
Statement of Financial Accounting Standards 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 goodwill reporting unit. As of December 31, 2007, the Company performed its annual
impairment review and concluded that no impairment adjustment was necessary.
Foreclosed Assets
Assets acquired through or instead of loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value
less estimated selling costs when acquired. Costs after acquisition are generally expensed. If the fair value of the asset declines, a
write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the
future because of changes in economic conditions. Foreclosed assets are included in other assets in the accompanying
consolidated balance sheets and totaled $3.0 million and $0.7 million at December 31, 2007 and 2006.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Income Taxes
The Company files a consolidated federal income tax return and each subsidiary files a separate state income tax return.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount that is expected to be realized. Deferred tax assets are recognized for net operating losses that
expires beginning in 2022 because the benefit is more likely than not to be realized.
The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), as of January 1, 2007.
A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax
benefit is recorded. The adoption had no material affect on the Company’s financial statements.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
62
Earnings Per Common Share
Basic earnings per common share is based on net income divided by the weighted-average number of common shares outstanding
during the period excluding non-vested stock. Diluted earnings per common share include the dilutive effect of stock options and
non-vested stock awards granted using the treasury stock method. A reconciliation of the weighted-average shares used in
calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per
common share for the reported periods is provided in Note 13 — Earnings Per Share.
Comprehensive Income
Comprehensive income includes all changes in shareowners’ equity during a period, except those resulting from transactions with
shareholders. Besides net income, other components of the Company’s comprehensive income include the after tax effect of
changes in the net unrealized gain/loss on securities available for sale and changes in the funded status of defined benefit and
SERP plans. Comprehensive income is reported in the accompanying consolidated statements of changes in shareowners’ equity.
In the Company’s 2006 Form 10-K, a SFAS 158 transition adjustment in the amount of $(7,477), net of tax, was recognized as a
component of 2006 Comprehensive Income in the Consolidated Statements of Changes in Shareowners’ Equity and in Note 21 –
Comprehensive Income. This adjustment was misapplied as a component of 2006 Comprehensive Income. The table below
reflects the misapplication of this adjustment at December 31, 2006.
Statements of Changes in Stockholders’
Equity - Comprehensive Income
Note 21 – Comprehensive Income – Net
Other Comprehensive Gain (Loss)
$
$
26,200
(7,065)
$
$
7,477
7,477
$
$
33,677
412
As Reported
Misapplied
As Revised
The Company has corrected the Comprehensive Income presentation in the appropriate schedules within the 2007 Form 10-K.
These corrections did not have an affect on the Consolidated Statements of Financial Condition or Consolidated Statements of
Income.
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 No. 123R, "Share-Based Payment (Revised 2004)" ("SFAS 123R").
See Note 11 – Stock-Based Compensation for additional information.
63
Recent Accounting Pronouncements
Statement of Financial Accounting Standards (“SFAS’)
SFAS No. 141, “Business Combinations (Revised 2007).” SFAS 141R replaces SFAS 141, “Business Combinations,” and applies
to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141R requires an
acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in
the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair
value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a
reasonable doubt. This fair value approach replaces the cost-allocation process required under SFAS 141 whereby the cost of an
acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS 141R
requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and
liabilities assumed, as was previously the case under SFAS 141. Under SFAS 141R, the requirements of SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities,” would have to be met in order to accrue for a restructuring plan in purchase
accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not
likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be
subject to the probable and estimable recognition criteria of SFAS 5, “Accounting for Contingencies.” SFAS 141R is effective for
business combinations closing on or after January 1, 2009. The Company is in the process of reviewing the impact of SFAS
141R.
SFAS No. 154, “Accounting Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.”
SFAS 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting
principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. Previously, most
changes in accounting principle were recognized by including the cumulative effect of changing to the new accounting principle
in net income of the period of the change. SFAS 154 carries forward the guidance in APB Opinion 20 “Accounting Changes,”
requiring justification of a change in accounting principle on the basis of preferability. SFAS 154 also carries forward without
change the guidance contained in APB Opinion 20, for reporting the correction of an error in previously issued financial
statements and for a change in an accounting estimate. The adoption of SFAS 154 on January 1, 2006 did not significantly impact
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 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. The Company recognized the funded status of their defined benefit pension plan
in the financial statements for the year ended December 31, 2006.
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates.
Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent
reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, (ii) is irrevocable
(unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. SFAS 159 is
effective January 1, 2008 and is not expected to have a significant impact on the Company’s financial statements.
SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51.”
SFAS 160 amends Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements,” to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies
that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the
consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other
requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both
the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective on
January 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.
64
Financial Accounting Standards Board Interpretations
In July 2006, the FASB issued FIN 48 which 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 de-recognition, 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 became effective in the first
quarter of 2007 and did not have a material impact on the Company’s financial statements.
Emerging Issues Task Force
In March 2007, the FASB ratified the consensus the Emerging Issues Task Force (“EITF”) reached regarding EITF Issue No. 06-
10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“Issue 06-10”), which provides
accounting guidance for postretirement benefits related to collateral assignment split-dollar life insurance arrangements, whereby
the employee owns and controls the insurance policies. The consensus concludes that an employer should recognize a liability for
the postretirement benefit in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions” (“Statement 106”) or Accounting Principles Board Opinion No. 12 (“APB 12”), as well as recognize an asset based on
the substance of the arrangement with the employee. Issue 06-10 is effective for fiscal years beginning after December 15, 2007
with early application permitted. The Company is in the process of reviewing the potential impact of Issue 06-10.
In September 2006, the FASB ratified the consensus the EITF reached regarding EITF Issue No. 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“Issue 06-4”),
which provides accounting guidance for postretirement benefits related to endorsement split-dollar life insurance arrangements,
whereby the employer owns and controls the insurance policies. The consensus concludes that an employer should recognize a
liability for the postretirement benefit in accordance with Statement 106 or APB 12. In addition, the consensus states that an
employer should also recognize an asset based on the substance of the arrangement with the employee. Issue 06-4 is effective for
fiscal years beginning after December 15, 2007 with early application permitted. The Company is in the process of reviewing the
potential impact of Issue 06-4.
In September 2006, the FASB ratified the consensus the EITF reached regarding EITF Issue No. 06-5, “Accounting for Purchases
of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance.” FASB Technical Bulletin No. 85-4 requires that the amount that could be realized
under the insurance contract as of the date of the statement of financial position should be reported as an asset. Since the issuance
of FASB Technical Bulletin No. 85-4, there has been diversity in practice in the calculation of the amount that could be realized
under insurance contracts. Issue No. 06-5 concludes that the Company should consider any additional amounts (e.g., cash
stabilization reserves and deferred acquisition cost taxes) included in the contractual terms of the insurance policy other than the
cash surrender value in determining the amount that could be realized in accordance with FASB Technical Bulletin No. 85-4. The
Company adopted this standard in the first quarter of 2007 with no significant impact on their 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.
65
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
66
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
2007
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
$
$
16,216 $
45,489
90,014
26,334
12,307
97 $
295
164
85
61
190,360 $ 702 $
- $
34
177
132
0
343 $
16,313
45,750
90,001
26,287
12,368
190,719
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
2006
$
$
12,098 $
61,619
83,621
23,244
12,648
193,230 $
16 $
37
16
23
-
92 $
49 $
593
415
371
-
1,428 $
12,065
61,063
83,222
22,896
12,648
191,894
(1)
Includes FHLB and FRB stock recorded at cost of $6.5 million and $4.8 million, respectively, at December 31, 2007 and
$7.8 million and $4.8 million, respectively, at December 31, 2006.
Securities with an amortized cost of $77.2 million and $87.6 million at December 31, 2007 and 2006, 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 of $6.5 million 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 or call of investment securities and the gross realized gains and losses from the
sale or call of such securities for each of the last three years are as follows:
(Dollars in Thousands)
Year
2007
2006
2005
$
$
$
Total
Proceeds
Gross
Realized Gains
Gross
Realized Losses
53,011 $
283 $
35,142 $
14 $
- $
9 $
-
4
-
Maturity Distribution. As of December 31, 2007, 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
$
$
66,240
104,647
8,166
11,307
$ 190,360
66,384
104,867
8,161
11,307
190,719
$
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.
67
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, 2007
Greater Than
12 Months
Total
Market
Value
$
12,258 $
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
- $
- $
- $
12,258 $
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies and
Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Total Investment Securities
$
39,278
70,701
14,058
136,295 $
16
147
4
167 $
6,471
13,924
10,376
30,771 $
18
30
128
176 $
45,749
84,625
24,434
167,066 $
Less Than
12 months
December 31, 2006
Greater Than
12 Months
Total
-
34
177
132
343
(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 $
49
30,242
30,087
13,560
73,889 $
421
196
370
987 $
59,550
76,663
22,716
170,994 $
593
415
371
1,428
At December 31, 2007, the Company had securities of $190.4 million with net unrealized gains of $.4 million on these securities.
Of the total, $136.3 million with unrealized losses of $0.2 million have been in a loss position for less than 12 months and $30.8
million, with unrealized losses of $.2 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 principal will be collected as anticipated.
Of the total, $58.0 million, or 34.7%, is 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, 2007. As of December
31, 2007, $24.4 million, or 14.6% are mortgage-backed securities that are obligations of U.S. Government sponsored entities. 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 $84.6 million, or 50.7%, 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, 2007.
68
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
$
2007
208,864
142,248
634,920
485,608
192,428
2,764
249,018
1,915,850
$
$
2006
229,327
179,072
643,885
531,968
173,597
4,170
237,702
1,999,721
Net deferred fees included in loans at December 31, 2007 and December 31, 2006 were $1.6 million and $1.5 million,
respectively.
(1) Includes loans in process with outstanding balances of $7.4 million and $11.5 million for 2007 and 2006, 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 (76.1%) consists of loans secured by real estate, the primary types of
collateral being commercial properties and residential properties. At December 31, 2007, commercial real estate mortgage loans
and residential real estate mortgage loans accounted for 33.1% and 35.5% of the loan portfolio, respectively. As of December 31,
2007, 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 $25.1 million and $8.0 million, at December 31, 2007 and 2006,
respectively. There were no restructured loans at December 31, 2007 or 2006. 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 collectability 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 $922,000,
$483,000, and $186,000 higher for the years ended December 31, 2007, 2006, and 2005, respectively. Accruing loans past due
more than 90 days totaled $416,000 at December 31, 2007 and $135,000 at December 31, 2006.
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
Provision for Loan Losses
Recoveries on Loans Previously Charged-Off
Loans Charged-Off
Balance, End of Year
2007
17,217 $
-
6,163
1,903
(7,217)
18,066 $
$
$
2006
2005
17,410 $
-
1,959
1,830
(3,982)
17,217 $
16,037
1,385
2,507
1,724
(4,243)
17,410
69
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
2007
2006
Valuation
Balance
Valuation
Allowance
Valuation
Balance
Valuation
Allowance
$
21,615 $
15,019
4,702 $
-
6,085 $
4,574
2,255
-
(Dollars in Thousands)
Average Recorded Investment in Impaired Loans
2007
2006
2005
$
23,922 $
12,782 $
9,786
Interest Income on Impaired Loans
Recognized
Collected in Cash
$
761 $
761
398 $
398
218
218
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 $98.6 million and $104.4 million at December 31, 2007 and December 31, 2006,
respectively. Intangible assets at December 31, were as follows:
2007
2006
(Dollars in Thousands)
Core Deposits Intangibles
Goodwill
Customer Relationship Intangible
Non-Compete Agreement
Total Intangible Assets
$
$
Accumulated
Amortization
Gross
Amount
47,176 $ 34,598 $
-
688
537
134,391 $ 35,823 $
84,811
1,867
537
Gross
Amount
Accumulated
Amortization
28,955
-
497
537
29,989
47,176 $
84,811
1,867
537
134,391 $
Net Core Deposit Intangibles. As of December 31, 2007 and December 31, 2006, the Company had net core deposit intangibles
of $12.6 million and $18.2 million, respectively. Amortization expense for the twelve months of 2007, 2006 and 2005 was $5.6
million, $5.6 million, and $5.0 million, respectively. The estimated annual amortization expense (in millions) for the next five
years is expected to be approximately $5.5, $3.9, $3.9, $2.4, and $0.6 per year.
Goodwill. As of December 31, 2007 and December 31, 2006, 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,
2007, the Company performed its annual impairment review and concluded that no impairment adjustment was necessary.
Other. As of December 31, 2007, the Company had a client relationship intangible, net of accumulated amortization, of $1.2
million. This intangible was booked as a result of the March 2004 acquisition of trust client relationships from Synovus Trust
Company. Amortization expense for 2007 was $191,000. Estimated annual amortization expense is $191,000 based on use of a
10-year useful life. The Company also had a non-compete intangible during 2006 which became fully amortized at the end of
2006. 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.
70
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
2007
2006
22,722 $
90,335
55,783
168,840
(70,228)
98,612 $
22,597
78,676
52,129
153,402
(66,864)
86,538
$
$
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
2007
2006
$
$
744,093 $
386,619
111,600
467,373
1,709,685 $
599,433
384,568
125,500
482,139
1,591,640
At December 31, 2007 and 2006, $5.6 million and $3.1 million, respectively, in overdrawn deposit accounts were reclassified as
loans.
Deposits from certain directors, executive officers, and their related interests totaled $47.6 million and $30.7 million at December
31, 2007 and 2006, respectively.
Time deposits in denominations of $100,000 or more totaled $129.7 million and $135.0 million at December 31, 2007 and
December 31, 2006, respectively.
At December 31, 2007, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2008
2009
2010
2011
2012 and thereafter
Total
$
$
408,041
43,277
11,205
2,619
2,231
467,373
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
2007
2006
2005
$
$
10,748 $
13,666
280
13,990
6,003
44,687 $
7,658 $
11,687
278
12,087
5,543
37,253 $
2,868
4,337
292
9,247
4,390
21,134
71
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2007
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
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
Federal
Funds
Purchased
Securities
Sold Under
Repurchase
Agreements
Other
Short-Term
Borrowings
$
$
$
7,550 $
26,400
15,812
4.89%
2.47%
11,950 $
39,225
16,645
4.82%
4.61%
11,925 $
26,825
31,644
3.36%
3.88%
32,806 $
47,047
38,683
4.11%
3.32%
38,022 $
55,321
34,335
3.79%
3.79%
38,702 $
65,206
39,784
2.30%
3.21%
12,775(1)
13,664
11,902
4.17%
4.29%
15,051(1)
34,738
27,720
3.47%
3.90%
32,346
67,122
26,435
3.32%
3.48%
(1)
Includes FHLB debt and TT&L (client tax deposits) balance of $12.2 million and $0.6 million, respectively at December 31,
2007 and $13.0 million and $2.0 million, respectively at December 31, 2006.
72
Note 9
LONG-TERM BORROWINGS
Federal Home Loan Bank Notes. At December 31, Federal Home Loan Bank advances included:
(Dollars in Thousands)
2007
2006
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
55,464
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%(1)
Due on June 13, 2008, fixed rate of 5.40%(1)
Due on September 8, 2008, fixed rate of 4.32%(1)
Due on November 10, 2008, fixed rate of 4.12%(1)
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 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 26, 2014, fixed rate of 5.79%
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%
-
-
-
21
72
10,000
2,105
302
695
524
542
499
692
85
1,660
727
1,131
1,641
505
386
2,726
1,016
265
589
665
819
728
1,735
516
3,364
541
1,401
-
776
1,033
896
Total Outstanding
$
38,657 $
(1) $12.2 million is classified as short-term borrowings.
The contractual maturities of FHLB debt for the five years subsequent to December 31, 2007, are as follows:
(Dollars in Thousands)
2008
2009
2010
2011
2012
2013 and thereafter
Total
$
$
14,604 (1)
2,465
3,028
2,322
2,835
13,403
38,657
(1) $12.2 million is classified as short-term borrowings.
73
The FHLB 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 FHLB advances is paid on a monthly basis.
Repurchase Agreements - Term. At December 31, the Company maintained one long-term repurchase agreement for $0.3 million
collateralized by bank-owned securities. The agreement has a stated maturity of January 2009. 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 I Capital of Capital City Bank Group, Inc. as allowed by Federal Reserve guidelines.
74
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
2007
2006
2005
$
$
13,603 $
280
(32)
(148)
13,703 $
14,780 $
1,527
1,384
230
17,921 $
15,114
1,290
156
26
16,586
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
2007
2006
2005
$
15,185 $
17,915 $
(1,630)
86
62
13,703 $
(1,334)
1,142
198
17,921 $
$
16,403
(1,054)
856
381
16,586
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, 2007
and 2006 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
Interest on Nonperforming Loans
State Net Operating Loss Carry Forwards
Intangible Assets
Core Deposit Intangible
Contingency Reserve
Accrued Expense
Leases
Other
Total Deferred Tax Assets
Deferred Tax Liabilities attributable to:
Depreciation on Premises and Equipment
Deferred Loan Fees and Costs
Unrealized Gains on Investment Securities
Intangible Assets
Accrued Pension/SERP
Securities Accretion
Market Value on Loans Held for Sale
Other
Total Deferred Tax Liabilities
Net Deferred Tax Assets
2007
2006
7,110 $
510
-
3,964
603
511
95
1,360
746
611
464
517
16,491 $
3,290 $
3,887
113
1,619
4,669
25
59
68
13,730
2,761 $
6,659
700
503
4,795
170
399
70
278
-
612
449
386
15,021
4,434
2,550
-
1,319
2,321
25
122
223
10,994
4,027
$
$
$
$
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. At year-end 2007, the Company had state net operating loss carry-forwards of approximately $14.0
million which expire at various dates from 2022 through 2027.
75
Changes in net deferred income tax assets were:
(Dollars in Thousands)
Balance at Beginning of Year
2007
2006
$
4,027 $
Change in Accounting Method – Adoption of SFAS No. 158 and SAB No. 108
Income Tax Expense From Change in Pension Liability
-
(830)
380
5,463
-
Income Tax Expense From Change in Unrealized Losses on Available-for-Sale
Securities
Deferred Income Tax Expense on Continuing Operations
(616)
(202)
180
(1,614)
Balance at End of Year
$
2,761 $
4,027
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Income Tax Uncertainties" ("FIN 48"), on
January 1, 2007. There was no material effect on its financial condition or results of operations as a result of implementing FIN
48. The Company had unrecognized tax benefits at January 1, 2007 and December 31, 2007 of $2.0 million and $3.3 million,
respectively, of which $2.2 million would increase income from continuing operations, and thus impact the Company’s effective
tax rate, if ultimately recognized into income.
A reconciliation of the beginning and ending unrecognized tax benefit is as follows:
(Dollars in Thousands)
Balance at January 1, 2007
Addition Based on Tax Positions Related to Prior Years
Addition Based on Tax Positions Related to Current Years
$
Balance at December 31, 2007
$
2007
2,021
252
981
3,254
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective
federal or state income tax accounts. The total amount of interest and penalties recorded in the income statement for the year
ended December 31, 2007 was $409,000, and the amount accrued for penalties and interest at December 31, 2007 was $553,000.
The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various returns in states
where the Company is doing business. The Company is no longer subject to U.S. federal or state tax examinations for years
before 2004. No material change to the Company’s unrecognized tax positions is expected over the next 12 months.
76
Note 11
STOCK-BASED COMPENSATION
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 “Share-Based Payment” (Revised). The Company continues to include
the cost of its share-based compensation plans in net income under the fair value method.
As of December 31, 2007, the Company had four stock-based compensation plans, consisting of the 2005 Associate Incentive
Plan ("AIP"), the 2005 Associate Stock Purchase Plan ("ASPP"), the 2005 Director Stock Purchase Plan ("DSPP"), and the 2011
Incentive Plan (“2011 Plan”). Total compensation expense associated with these plans for years 2005 through 2007 was
approximately $0.8 million, $1.2 million, and $0.2 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 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 performance shares, payable in the form of restricted stock,
on an annual basis. Annual awards are tied to an internally established annual earnings target. The grant-date fair value of an
annual compensation award is approximately $1.5 million. In addition, each plan participant is eligible to receive from the
Company a tax supplement bonus equal to 31% of the stock award value at the time of issuance. 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. A total of 32,799 shares were
issued under this plan during the first quarter of 2007 related to the 2006 award.
The Company did not recognize any expense for the year 2007 related to the Incentive Plan as the Company’s performance did
not achieve the earnings performance goal. The Company recognized expense of $1.1 million in 2006 for the Incentive Plan.
Under a substantially similar predecessor plan, the Company recognized expense of $0.6 million in 2005. A total of 875,000
shares of common stock have been reserved for issuance under the AIP. To date, the Company has issued 60,892 shares of
common stock under the AIP.
Executive Stock Option Agreement. In 2006 and 2005, under the provisions of the AIP, the Company's Board of Directors
approved stock option agreements for a key executive officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG).
Similar stock option agreements were approved in 2004 and 2003. 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 2006 and 2005 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 expenses in 2005 through 2007 of approximately
$193,000, $205,000, and $125,000, respectively, related to the 2004 and 2003 agreements. In 2007, the Company replaced its
practice of entering into a stock option arrangement by establishing a Performance Share Unit Plan under the provisions of the
AIP that allows the executive to earn shares based on the compound annual growth rate in diluted earnings per share over a three-
year period. The details of this program for the executive are outlined in a Form 8-K filing dated January 31, 2007. No expense
related to this plan was recognized in 2007 as results fell short of the earnings performance goal.
A summary of the status of the Company’s option shares as of December 31, 2007 is presented below:
Options
Outstanding at January 1, 2007
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2007
Exercisable at December 31, 2007
Shares
60,384
-
-
-
60,384
47,720
$
$
$
Weighted-Average
Weighted-Average
Exercise Price
32.79
-
-
-
32.79
32.79
$
$
$
77
Remaining
Contractual Term
7.9
-
-
-
6.9
6.9
Aggregate
Intrinsic Value
151,355
-
-
-
-
-
$
$
$
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 30,866 shares have been issued since the
inception of the DSPP. For 2007, the Company issued 12,128 shares under the DSPP and recognized approximately $33,000 in
expense related to this plan. For 2006, the Company issued 12,149 shares and recognized approximately $37,000 in expense
related to the DSPP. For 2005, the Company issued 6,589 shares and recognized approximately $26,000 in expense under the
DSPP.
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 59,812 shares have been
issued since inception of the ASPP. For 2007, the Company issued 23,531 shares under the ASPP and recognized approximately
$102,000 in expense related to this plan. For 2006, the Company issued 19,435 shares and recognized approximately $90,000 in
expense related to the ASPP. For 2005, the Company issued 16,846 shares and recognized approximately $90,000 in expense
under the ASPP.
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of each of the purchase rights granted
under the ASPP Plan was $5.82 for 2007. For 2006 and 2005, the weighted average fair value purchase right granted was $5.65
and $5.77, 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)
2007
2006
2005
2.1%
25.5%
4.8%
0.5
1.9%
23.5%
4.5%
0.5
1.9%
28.0%
2.6%
0.5
2011Incentive Plan. The Company's 2011 Incentive Plan was adopted by the Company in January 2004 and provides each
associate an award (cash, equity or combination cash/equity) of $2,010 if the Company achieves a certain internally established
earnings target. Under the 2011 Incentive Plan, the associate is required to be employed by the Company at the time the goal is
achieved. Associates not employed by the company (i.e. new associates) at the time of the grant, are provided a pro-rated award
amount depending on their length of service. The expense associated with the equity portion of this plan for the years 2005-2007
was approximately $131,000, $189,000, and $113,000, respectively. The expense for the cash portion of this plan for the same
periods was approximately $165,000, $234,000, and $113,000, respectively.
Subsequent Event (unaudited). On February 15, 2008, the Company issued a Form 8-K announcing it was terminating its 2011
initiative due to determination that the Company would not, based on current economic conditions, be able to achieve its earnings
growth goal. As a result, the Company terminated its 2011 Incentive Plan and approximately $440,000 in expense accrual related
to this incentive plan will be reversed in the first quarter of 2008. The Company plans to replace the 2011 Incentive Plan with a
new plan containing internal goals that are appropriate for the current market environment.
Note 12
EMPLOYEE BENEFIT PLANS
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 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.
78
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial (Gain)/Loss
Benefits Paid
Expenses Paid
Plan Change
Acquisitions
$
Projected Benefit Obligation at End of Year
$
2007
2006
2005
68,671 $
4,903
3,967
(1,420)
(5,759)
(244)
-
-
70,118 $
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
Accumulated Benefit Obligation at End of Year
$
51,256 $
49,335 $
45,645
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
Prepaid (Accrued) Benefit Cost
Amounts Recognized in the Consolidated Statements of Financial
Condition:
Other Assets
Other Liabilities
Amounts (Pre-Tax) Recognized in Accumulated Other Comprehensive
Income:
Net Actuarial Losses
Prior Service Cost
*Not Applicable due to adoption of SFAS No. 158 effective 12/31/2006
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
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
79
$
$
$
$
$
$
$
$
66,554 $
3,602
11,500
(5,759)
(244)
-
75,653 $
* $
*
*
* $
52,277 $
6,342
11,350
(3,267)
(149)
-
66,553 $
* $
*
*
* $
5,535 $
-
- $
2,117
8,622 $
1,611
9,601 $
1,912
41,125
1,737
10,500
(3,501)
(75)
2,491
52,277
(11,853)
14,823
1,302
4,272
*
*
*
*
4,903 $
3,967
(5,083)
301
-
1,039
5,127 $
4,930 $
3,622
(4,046)
215
-
1,598
6,319 $
4,352
3,410
(3,373)
215
11
1,324
5,939
6.25%
8.00%
5.50%
12/31/07
6.00%
8.00%
5.50%
12/31/06
5.75%
8.00%
5.50%
12/31/05
6.00%
8.00%
5.50%
5.75%
8.00%
5.50%
6.00%
8.00%
5.50%
Other Comprehensive Income. The estimated amounts (dollars in thousands) that will be amortized from accumulated other
comprehensive income into net periodic benefit cost in 2008 are as follows:
Actuarial Loss
Prior Service Cost
$
$
890
301
1,191
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 2007 and 2006, and the target asset allocation for 2008 are
as follows:
Equity Securities
Debt Securities
Real Estate
Cash Equivalent
Total
Target Allocation
2008
65%
30%
-
5%
100%
Percentage of Plan
Assets at Year-End(1)
2006
55%
18%
1%
26%
100%
2007
58%
27%
-
15%
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, 2007, expected benefit payments related to the Company's defined benefit
pension plan were as follows:
2008
2009
2010
2011
2012
2013 through 2017
$
$
3,803,091
3,776,819
3,715,534
4,563,901
5,547,476
36,465,818
57,872,639
Contributions. The following table details the amounts contributed to the pension plan in 2007 and 2006, and the expected
amount to be contributed in 2008.
Actual Contributions
2007
$ 11,500,000
2006
$ 11,350,000
(1) Estimate of 2008 maximum allowable contribution.
Expected
2008(1)
$ 10,000,000
80
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 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:
Unfunded Status
Unrecognized Net Actuarial Loss
Unrecognized Prior Service Cost
Accrued Benefit Cost
2007
2006
2005
4,018 $
83
208
(603)
-
3,706 $
3,878 $
123
230
62
(274)
4,019 $
3,601
133
207
(63)
-
3,878
2,603 $
2,252 $
2,295
* $
*
*
* $
* $
*
*
* $
(3,878)
734
388
(2,756)
$
$
$
$
$
Amounts Recognized in the Consolidated Statements of Financial
Condition:
Other Liabilities
$
3,706 $
4,019 $
$
$
$
3 $
44
608 $
52
83 $
208
7
8
306 $
123 $
230
61
100
514 $
*
*
*
133
207
61
77
478
6.25%
5.50%
6.00%
5.50%
5.75%
5.50%
12/31/07
12/31/06
12/31/05
6.00%
5.50%
5.75%
5.50%
6.00%
5.50%
Amounts (Pre-Tax) Recognized in Accumulated Other Comprehensive
Income:
Net Actuarial (Gain) Loss
Prior Service Cost
* Not Applicable due to adoption of SFAS No. 158 effective 12/31/2006
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Amortization of Prior Service Cost
Recognized Net Actuarial Loss
Net Periodic Benefit Cost
Assumptions:
Weighted-average used to determine the benefit obligations:
Discount Rate
Rate of Compensation Increase
Measurement Date
Weighted-average used to determine the net cost:
Discount Rate
Rate of Compensation Increase
81
Expected Benefit Payments. As of December 31, 2007, expected benefit payments related to the Company's SERP were as
follows:
2008
2009
2010
2011
2012
2013 through 2017
401(k) Plan
$
$
87,468
187,469
230,238
300,865
366,840
2,950,973
4,123,853
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
2007, 2006, and 2005, the Company made matching contributions of $299,000, $273,000 and $154,000, 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 in the open market.
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 2007, 2006 and 2005.
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:
2007
2006
2005
$
29,683 $
33,265 $
30,281
Denominator for Basic Earnings Per Share Weighted-Average Shares
Effects of Dilutive Securities Stock Compensation Plans
17,909,396
2,191
18,584,519
25,320
18,263,855
17,388
Denominator for Diluted Earnings Per Share Adjusted Weighted-
Average Shares and Assumed Conversions
17,911,587
18,609,839
18,281,243
Basic Earnings Per Share
Diluted Earnings per Share
$
$
1.66 $
1.79 $
1.66 $
1.79 $
1.66
1.66
82
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,
2007, 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, 2007 and December 31, 2006 are as follows:
(Dollars in Thousands)
As of December 31, 2007:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
As of December 31, 2006:
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
Amount
Ratio
$
261,172
260,720
13.05% $
13.05%
80,047
79,934
4.00%
4.00%
*
119,901
*
6.00%
281,125
278,787
14.05%
13.95%
160,094
159,868
8.00%
8.00%
*
199,835
*
10.00%
261,172
260,720
10.41%
10.42%
80,047
79,934
4.00%
4.00%
*
99,917
*
5.00%
$
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%
*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 2008, the bank subsidiary may declare dividends without regulatory approval of an amount
equal to the net profits of the Company’s subsidiary bank for 2008 up to the date of any such dividend declaration.
83
Note 16
RELATED PARTY INFORMATION
Related Party Loans. At December 31, 2007 and 2006, certain officers and directors were indebted to the Company’s bank
subsidiary in the aggregate amount of $9.1 million and $12.6 million, respectively. During 2007, $6.2 million in new loans were
made and repayments totaled $9.7 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
Interchange Service Fees
Telephone
Advertising
Printing & Supplies
(1) <1% of appropriate threshold.
2007
2006
2005
$
7,257 $
3,757
2,692
3,855
6,118
2,373
3,742
2,124(1)
6,978 $
3,105
2,519
3,402
6,010
2,323
4,285
2,472
6,174
2,239
2,206(1)
3,825
5,402
2,493
4,275
2,372
84
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, 2007, 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
$
$
437,806
17,385
(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 2007, $1.5 million in 2006, and
$1.3 million in 2005. Minimum lease payments under these leases due in each of the five years subsequent to December 31, 2007,
are as follows (in millions): 2008, $1.4; 2009, $1.3; 2010, $1.1; 2011, $1.0; 2012, $.4; thereafter, $5.7.
Contingencies. The Company is a party to lawsuits and claims arising out of the normal course of business. In management's
opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a
material effect on the consolidated results of operations, financial position, or cash flows of the Company.
Indemnification Obligation. The Company recorded a charge in its fourth quarter financial statements of approximately $1.9
million, or $0.07 per diluted common share to recognize a contingent liability related to the costs of the judgments and settlements
from certain Visa Inc. (“Visa”) related litigation (“Covered Litigation”). Visa U.S.A. believes that its member banks are required
to indemnify Visa U.S.A. for potential losses arising from certain Covered Litigation. The Company has been a Visa U.S.A.
member for a number of years.
Visa has stated in its filings with the SEC that Visa’s escrow account established with a portion of its IPO proceeds will be used to
pay the costs of the judgments and settlements from the Covered Litigation. Thus, provided that the escrow account has sufficient
funds, the liability recorded on the Company’s books would no longer be required and would be reversed.
85
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,
2007
2006
Carrying
Value
Estimated
Fair
Value
Carrying
Value
Estimated
Fair
Value
$
93,437 $
93,437 $
166,260
190,719
1,897,784
2,348,200 $
166,260
190,719
1,982,661
2,433,077 $
98,769 $
78,795
191,894
1,982,504
2,351,962 $
98,769
78,795
191,894
1,992,025
2,361,483
2,142,344 $
53,131
62,887
26,731
2,285,093 $
2,089,550 $
53,022
63,371
28,284
2,234,227 $
2,081,654 $
65,023
62,887
43,083
2,252,647 $
2,007,308
64,970
63,013
42,256
2,177,547
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.
86
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 Subordinated Notes Payable
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
2007
2006
2005
$
49,207 $
3,532
164
52,903
20,166 $
3,524
112
23,802
1,812
3,730
787
260
375
621
7,585
2,360
3,725
741
403
604
649
8,482
10,597
2,716
87
13,400
2,191
2,981
1,399
467
701
471
8,210
5,190
(2,060)
7,250
23,031
30,281
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
$
45,318
(1,429)
46,747
(17,064)
29,683 $
15,320
(1,835)
17,155
16,110
33,265 $
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; 17,182,553 and 18,518,398
shares issued and outstanding at December 31, 2007 and December 31, 2006, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners' Equity
Total Liabilities and Shareowners' Equity
2007
2006
958 $
357,093
2,826
360,877 $
8,921
373,278
1,550
383,749
62,887 $
5,315
68,202 $
62,887
5,092
67,979
-
-
172
38,243
260,325
(6,065)
292,675
360,877 $
185
80,654
243,242
(8,311)
315,770
383,749
$
$
$
$
$
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
87
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
$
2007
2006
2005
29,683 $
33,265 $
30,281
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:
Purchase of held-to-maturity and available-for-sale securities
CCBG Capital Trust I and CCBG Capital Trust II
Cash Paid for Acquisitions
Increase in Investment in Bank Subsidiary
Net Cash Used in Investing Activities
CASH FROM FINANCING ACTIVITIES:
Proceeds from Subordinated Notes
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
17,064
238
(152)
222
47,055
(16,110)
1,673
(670)
1,976
20,134
(1,000)
-
-
1,466
466
-
(12,823)
(43.233)
572
(55,484)
(7,963)
8,921
958 $
-
-
-
-
-
-
(12,322)
(5,360)
1,035
(16,647)
3,487
5,434
8,921 $
(23,031)
110
131
381
7,872
-
(959)
(29,953)
-
(30,912)
31,959
(11,397)
-
1,019
21,581
(1,459)
6,893
5,434
$
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:
(Dollars in Thousands)
Other Comprehensive Income (Loss):
Securities available for sale:
Change in net unrealized gain (loss), net of tax expense (benefit) of
$616, $202, and $(502)
Retirement plans:
Change in funded status of defined benefit pension plan and SERP
plan, net of tax expense of $830
Net Other Comprehensive Gain (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
2007
2006
2005
$
$
$
$
1,080 $
412 $
(893)
1,166
2,246 $
-
412 $
-
(893)
246 $
(6,311)
(6,065) $
(834) $
(7,477)
(8,311) $
(1,246)
-
(1,246)
88
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2007, 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,
2007, 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, 2007.
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.
Ernst & Young, LLP, an independent registered public accounting firm, has audited our consolidated financial statements as of
and for the year ended December 31, 2007, and opined as to the effectiveness of internal control over financial reporting as of
December 31, 2007, as stated in its attestation report, which is included herein on page 90.
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.
89
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Capital City Bank Group, Inc.
We have audited Capital City Bank Group, Inc.’s internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). 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
included in Management’s Report on the Effectiveness of Internal Control Over Financial Reporting under Item 9A. Our
responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, 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, Capital City Bank Group, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the
consolidated statement of financial condition of Capital City Bank Group, Inc. and subsidiary as of December 31, 2007, and the
related consolidated statements of income, changes in shareowners’ equity, and cash flows for the year ended December 31, 2007
of Capital City Bank Group, Inc. and our report dated March 13, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 13, 2008
90
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, 2008.
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, 2008.
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 as of December
31, 2007.
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
1,410,930(2)
-
60,384
-
-
$ 32.83
1,410,930
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 814,108 shares available for issuance under our 2005 Associate Incentive Plan, 533,938 shares available for
issuance under our 2005 Associate Stock Purchase Plan, and 62,884 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, 2008.
91
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, 2008.
Item 14. Principal Accountant 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, 2008.
92
PART IV
The following documents are filed as part of this report
1. Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Statements of Income for Fiscal Years 2007, 2006, and 2005
Consolidated Statements of Financial Condition at the end of Fiscal Years 2007 and 2006
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2007, 2006, and 2005
Consolidated Statements of Cash Flows for Fiscal Years 2007, 2006, and 2005
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.
Description of Exhibit
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
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 3.2 of the Registrant’s
Form 8-K (filed 11/30/07) (No. 0-13358).
See Exhibits 3.1, and 3.2 for provisions of Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, which define the rights of its shareowners.
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).
In accordance with Regulation S-K, Item 601(b)(4)(iii)(A) certain instruments defining the rights of
holders of long-term debt of Capital City Bank Group, Inc. not exceeding 10% of the total assets of
Capital City Bank Group, Inc. and its consolidated subsidiaries have been omitted; the Registrant
agrees to furnish a copy of any such instruments to the Commission upon request.
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).
93
10.4
10.5
10.6
10.7
11
14
21
23.1
23.2
31.1
31.2
32.1
32.2
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, 2007.**
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.**
Consent of KPMG LLP, 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.
94
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 17, 2008, 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 17, 2008 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)
95
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 17, 2008, 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.
96
Exhibit 21. Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2007.
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
97
Exhibit 23.1. Consent of Independent Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-18557, No. 033-60113,
No. 333-18543, No. 333-120242, No. 333-36693) and Form S-3D (No. 333-20683) of Capital City Bank Group, Inc. of our
reports dated March 13, 2008, with respect to the consolidated financial statements of Capital City Bank Group, Inc. and the
effectiveness of internal control over financial reporting of Capital City Bank Group, Inc., included in this Annual Report (Form
10-K) for the year ended December 31, 2007.
/s/ Ernst & Young, LLP
Birmingham, Alabama
March 13, 2008
98
Exhibit 23.2. 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
report dated March 14, 2007, with respect to the consolidated statement of financial condition of Capital City Bank Group, Inc.
and subsidiary (the Company) as of December 31, 2006 and the related consolidated statements of income, changes in
shareowners’ equity, and cash flows for the years ended December 31, 2006 and 2005, which report appears in the December 31,
2007, 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
99
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 17, 2008
100
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 17, 2008
101
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, 2007, 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 17, 2008
102
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, 2007, 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 17, 2008
103
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
CEO
Riverview Plantation Inc.
J. Everitt Drew
President
SouthGroup Equities, Inc.
John K. Humphress
Partner
Wadsworth, Humphress, Holler
& 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
MetroCommunity Banking
Bethany H. Corum
Executive Vice President and
Chief People Officer
Mitchell R. Englert
Executive Vice President
Karen H. Love
Executive Vice President
William L. Moor, Jr.
Executive Vice President
Randolph M. Pople
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
David Caldwell
Senior Vice President
Charles J. Davis
Senior Vice President
Judy Getts
Senior Vice President
Jeri Hunter
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
Michael Penney
Senior Vice President
Helen Proctor
Senior Vice President
John Rafferty
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
Brian Wimpling
Senior Vice President
Drew Ferguson, III
Chairman, West Point
Gerald B. Andrews, Jr.
President
Troup and Chambers Counties
Beverly Hickman-Black
President
Burke County
Clifton E. Bradley
President
Dixie, Gilchrist, Levy and
Suwannee Counties
Roy L. Carter
President
Washington County
Don L. Davis
President
Gainesville
Susan E. Everett
President
Taylor County
Amy Geiger
President
Wakulla County
W.W. Gunnels, Jr.
President
Jefferson and Madison Counties
Donald L. James
President
NW Alachua County
Stephen L. Jukes
President
Bibb County
C. Stephen Martin
President
Citrus County/Inglis
Terry McRae
President
Grady County
Jeffrey L. Oody
President
Bradford and Clay Counties
Stephen Stabler
President
Laurens County
James R. Suber
President
Gadsden County
Gregory J. Walker
President
Putnam County
Johanna White
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
Attorney
Lines, Hinson & Lines
S. Craig McMillan
President, Pat Thomas & Associates
Insurance, Inc.
John B. Mowell
Chairman
Mowell Financial Group, Inc.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Capital City Bank Group, Inc.
Ben H. Wilkinson, Jr.
Partner
Tallahassee Land Company
Officers, Directors and Community Boards
Fred M. Williams, Jr.
President
Williams Timber, Inc.
P. Graves Williams
President
Q. L. Enterprises, Inc.
SuBSiDiariES
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
Capital City Banc Investments
William L. Moor, Jr.
President
Capital City Services Company
Cynthia Y. Pyburn
President
Gregory Coursey
Sheriff of Burke County
William E. Edwards
Area Distribution Manager
Georgia Power Company
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
Charles K. Buafo, MD
Chief of Staff, 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
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 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.
Billy G. Lafferty
President/Owner
Total Rental Centers, 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.
E.W. Hinson, Jr.
Owner/President
Hinson Oil Company
Alma Littles, MD
Professor/Assoc. 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
Gordon Coburn
Retired
Carl A. Feddeler
President, CA Feddeler, Inc., Real Estate
Brokerage/Krysher-Delzer, Inc.
Michael J. Kierzynski
Certified Public Accountant
Kierzynski & Associates, CPAs, PA
Randolph Mazourek
Owner, ARM Appraisal Service, Inc.
Robert Memoli
Owner, Florida Luxury Realty, Inc.
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, P.A.
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, P.A.
Kevin M. Davis
REALTOR®,
Real Estate Investor, Blue Chip Realty
Erin Ennis
Vice President—Finance and
Administration
Residential Elevators, Inc.
Fincher W. Smith
Restaurant Owner, McFinch
Management, Co., K2 Urban
Corporation
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, P.A.
Robert Alan Hitchcock
President/CEO
Hitchcock & Sons, Inc.
Patricia A. Moser
President
Horizon Realty of Alachua, Inc.
Marilyn Bishop Shaw
Literarcy 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
Donald E. Holmes
Owner, Donald E. Holmes, P.A.
Mildred G. Horton
Retired, St. John’s Water
Management District
Roger C. Smith
Chairman, Prime Credit Corporation
Daniel A. Martinez
Retired, Georgia Pacific Corporation
Glenda L. Thornton
Partner, Foley & Lardner
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.
Randall S. Mathews
President/CEO
Mathews’ Moving & Storage, Inc., et al.
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.
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 Co.
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, P.A.
Troup/Chambers County
Community Board
Carter Brown
Real Estate Broker, Coldwell Banker
Spinks Brown Durand Realtors
Jerry Cash
Owner, Greene Super Drug
Thomas Ray Edwards
Owner, Valley Resale
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.
James T. Peel
Vice President of Engineering
and Operations
West Florida Electric Cooperative
Robert W. Snare, MD
Physician, Robert W. Snare, MD
Emeritus Board
Ashley P. Beggs
Ned P. Brafford
C. Bob Butler
Donald E. Grant
Sumpter James
Damon D. King
William W. Mahaffey
T. Baldwin Martin, Jr.
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
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 Office
375 Fob James Drive
Valley, AL 36854
334.756.8550
Shawmut Office
3503 20th Avenue
Valley, AL 36854
334.768.5410
FloriDa
Alachua County
Alachua Office
15000 Northwest 140th Street
Alachua, FL 32615
386.462.1041
Main Street Office
4000 North Main Street
Gainesville, FL 32609
352.375.6991
Millhopper Office
4040 Northwest 16th Boulevard
Gainesville, FL 32605
352.336.1041
Northwood Office
6360 Northwest 13th Street
Gainesville, FL 32653
352.371.1041
West Newberry Road Office
5200-A West Newberry Road
Gainesville, FL 32607
352.372.1336
High Springs Office
660 Northeast Santa Fe Boulevard
High Springs, FL 32643
386.454.5500
Jonesville Office
14009 West Newberry Road
Jonesville, FL 32669
352.331.2605
Newberry Office
24202 West Newberry Road,
Suite F
Newberry, FL 32669
352.472.9950
Gainesville Residential
Mortgage Lending
3760 NW 83rd Street, Suite 2
Gainesville, FL 32606
352.395.1330
Commercial Real Estate Lending
4041 NW 37th Place, Suite A
Gainesville, FL 32606
Bradford County
Starke Main Office
350 North Temple Avenue
Starke, FL 32091
904.964.7050
Citrus County
Crystal River Office
101 Southeast U.S. Hwy. 19
Crystal River, FL 34429
352.795.6100
Floral City Office
7697 South Florida Avenue
Floral City, FL 34436
352.344.1555
Inverness Office
1500 North U.S. Hwy. 41
Inverness, FL 34450
352.726.3200
Citrus Springs Office
10241 North Florida Avenue
Citrus Springs, FL 34434
352.465.0035
Clay County
Keystone Heights Office
500 Green Way
Keystone Heights, FL 32656
352.473.4952
Dixie County
Cross City Office
294 Northeast 210th Avenue
Cross City, FL 32628
352.498.5536
Gadsden County
Chattahoochee Office
316 West Washington Street
Chattahoochee, FL 32324
850.663.4355
Havana Office
102 South Main Street
Havana, FL 32333
850.539.5805
Quincy Office
4 East Washington Street
Quincy, FL 32351
850.875.1000
Gilchrist County
Bell Office
690 South U.S. Hwy. 129
Bell, FL 32619
352.463.7660
Fanning Springs Office
7240 U.S. Hwy. 19
Fanning Springs, FL 32693
352.463.6537
Trenton Office
109 West Wade Street
Trenton, FL 32693
352.463.2329
Gulf County
Port St. Joe Office
504 Monument Avenue
Port St. Joe, FL 32456
850.229.8282
Hernando County
Brooksville Office
7153 Broad Street
Brooksville, FL 34601
Suncoast Spring Hill
Drive Office
14302 Spring Hill Drive
Spring Hill, FL 34609
352.797.6700
Sunshine Grove Office
14001 Cortez Boulevard
Brooksville, FL 34613
352.596.7258
Jefferson County
Monticello Office
800 South Jefferson Street
Monticello, FL 32344
850.342.2515
Leon County
Apalachee Parkway Office
1801 Apalachee Parkway
Tallahassee, FL 32301
850.402.8500
Apalachee Parkway East Office
3513 Apalachee Parkway
Tallahassee, FL 32311
850.402.8300
Bradfordville Office
6691 Thomasville Road
Tallahassee, FL 32312
850.402.8080
Capital Circle Northwest Office
1456 Capital Circle Northwest
Tallahassee, FL 32303
850.402.8100
Centerville Road Office
2375 Centerville Road
Tallahassee, FL 32308
850.402.8110
Lake Jackson Office
3815 North Monroe Street
Tallahassee, FL 32303
850.402.8180
Mahan Office
3255 Mahan Drive
Tallahassee, FL 32308
850.402.8140
Main Office
217 North Monroe Street
Tallahassee, FL 32301
850.402.7700
Metropolitan Office
1301 Metropolitan Boulevard
Tallahassee, FL 32308
850.402.8000
North Monroe Office
2111 North Monroe Street
Tallahassee, FL 32303
850.402.7800
South Monroe Office
3404 South Monroe Street
Tallahassee, FL 32301
850.402.8400
Tharpe Office
1108 West Tharpe Street
Tallahassee, FL 32303
850.402.8370
Thomasville Road
3528 Thomasville Road
Tallahassee, FL 32308
850.402.8340
Tennessee Street Office
1828 West Tennessee Street
Tallahassee, FL 32304
850.402.8410
Westwood Plaza Office
2020 West Pensacola Street
Tallahassee, FL 32304
850.402.8330
Levy County
Bronson Office
140 East Hathaway
Bronson, FL 32621
352.486.2103
Cedar Key Office
390 2nd Street
Cedar Key, FL 32625
352.543.5174
Chiefland Office
2012 North Young Boulevard
Chiefland, FL 32626
352.493.2571
Inglis Office
95 West Highway 40
Inglis, FL 34449
352.447.2231
Williston Office
144 East Noble Avenue
Williston, FL 32696
352.528.5389
Madison County
Madison Office
343 West Base Street
Madison, FL 32340
850.973.4161
14302 Spring Hill Drive
Spring Hill, FL 34609
352.797.6705
600 Bellevue Avenue
Dublin, GA 31021
478.274.9805
410 W 10th Street
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
217 N. Monroe Street
Tallahassee, FL 32301
850.402.7750
455 Walnut Street
Macon, GA 31201
478.749.6725
14302 Spring Hill Drive
Spring Hill, FL 34609
352.797.6704
4 E. Washington Street
Quincy, FL 32351
850.875.5555
4041 N.W. 37th Place, Suite A
Gainesville, FL 32606
352.372.2384
Locations
Pasco County
Port Richey Office
10290 Regency Park Boulevard
Port Richey, FL 34668
727.842.8467
Putnam County
Palatka Main Office
200 Reid Street
Palatka, FL 32177
386.329.1150
Palatka West Office
4120 Crill Avenue
Palatka, FL 32177
386.329.1155
St. Johns County
Hastings Office
207 North Main Street
Hastings, FL 32145
904.692.1221
Suwannee County
Branford Office
814 Suwannee Avenue
Branford, FL 32008
386.935.1112
Taylor County
Perry Office
115 West Green Street
Perry, FL 32347
850.584.2057
Wakulla County
Crawfordville Office
2592 Crawfordville Highway
Crawfordville, FL 32327
850.926.6740
Washington County
Chipley Office
1242 Jackson Avenue
Chipley, FL 32428
850.638.0510
GEorGia
Bibb County
Macon Main Office
455 Walnut Street
Macon, GA 31201
478.749.6701
Macon Mall Office
3535 Mercer University
Center Drive
Macon, GA 31204
478.749.8021
Macon Northside Office
3710 Northside Drive
Macon, GA 31210
478.749.8071
Bass Road Office
1601 Bass Road
Macon, GA 31208
478.474.2110
Hartley Bridge Office
6200 Skipper Road
Macon, GA 31216
478.788.6260
Burke County
Waynesboro Office
615 Liberty Street
Waynesboro, GA 30830
706.437.2000
Waynesboro Drive-In
243 6th Street
Waynesboro, GA 30830
706.437.2017
Grady County
Cairo Main Office
420 North Broad Street
Cairo, GA 39828
229.377.3002
Cairo Drive-In
397 38th Blvd. Northeast
Cairo, GA 39828
229.377.3003
Whigham Office
126 East Broad Avenue
Whigham, GA 31797
229.762.4151
Laurens County
Dublin Main Office
600 Bellevue Avenue
Dublin, GA 31021
478.272.3100
Westgate Office
1957 Veterans Boulevard
Dublin, GA 31021
478.272.3100
East Dublin Office
220 Central Drive
East Dublin, GA 31027
478.272.3100
Thomas County
Thomasville Residential
Mortgage Lending
2024-D East Pinetree Boulevard
Thomasville, GA 31792
229.227.0824
Troup County
West Point Main Office
410 West 10th Street
West Point, GA 31833
706.645.2944
West Point Drive-In
1100 3rd Avenue
West Point, GA 31833
706.645.6227
SuBSiDiariES
Capital City Banc Investments
420 N. Broad Street
Cairo, GA 39828
229.378.8409
2012 N. Young Boulevard
Chiefland, FL 32626
352.490.9004
814 Suwannee Avenue
Branford, FL 32008
386.935.6868
1500 N. U.S. Hwy. 41
Inverness, FL 34450
352.726.3673
455 Walnut Street
Macon, GA 31201
478.749.6735
200 Reid Street
Palatka, FL 32177
386.312.9904
4 E. Washington Street
Quincy, FL 32351
850.875.5555
105 West Jefferson Street
Starke, FL 32091
904.964.7056
1801 Apalachee Parkway
Tallahassee, FL 32301
850.402.8502
6691 Thomasville Road
Tallahassee, FL 32312
850.906.5761
1301 Metropolitan Boulevard
Tallahassee, FL 32308
850.402.8028
217 N. Monroe Street
Tallahassee, FL 32301
850.402.7730
2111 N. Monroe Street
Tallahassee, FL 30303
850.402.7849
615 Liberty Street
Waynesboro, GA 30830
706.437.2006
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
Corporate & Professional
Edward Canup
Executive Vice President
Commercial Real Estate Lending
William D. Colledge
Executive Vice President
MetroCommunity Banking
Bethany H. Corum
Executive Vice President and
Chief People Officer
Shareholder Information
How to Communicate with
Capital City Bank Group, Inc.
Telephone: 850.402.7000
Mailing address: P.O. Box 11248,
Tallahassee, FL 32302
Internet address: www.ccbg.com
Direct automated: Tallahassee area
850.402.7500—toll free 888.671.0400
Direct client service center: Tallahassee area
850.402.7500—toll free 888.671.0400
Trust and Investment Management services:
850.402.7751
Corporate Headquarters
Capital City Bank Group, Inc.
217 North Monroe Street
Tallahassee, FL 32301
850.402.7000
Transfer Agent
American Stock Transfer & Trust Co.
59 Maiden Lane
Plaza Level
New York, NY 10038
800.937.5449
Mitchell R. Englert
Executive Vice President
Community Banking
Karen Love
Executive Vice President
Residential Lending
William L. Moor, Jr.
Executive Vice President
President, Capital City Banc Investments
Randolph M. Pople
Executive Vice President
President, Capital City Trust Company
Cynthia Pyburn
Executive Vice President
President, Capital City Services Company
Dale A. Thompson
Executive Vice President
Credit Administration
Edwin N. West, Jr.
Executive Vice President
Sales Leadership
Trading Symbol: CCBG
Exchange: NASDAQ
Independent Public Accountants
Ernst & Young LLP
Birmingham, AL
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.
850.402.7000
P.O. Box 11248
Tallahassee, FL 32302
Annual Meeting
April 24, 2008, 10:00 a.m.
University Center Club, Tallahassee, FL
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