www.ccbg.com
2010
annual report
about
capital city bank group, inc.
Capital City Bank Group, Inc. (NASDAQ: CCBG) is one of the largest publicly traded financial services companies headquartered
in Florida and has approximately $2.6 billion in assets. The Company provides a full range of banking services, including traditional
deposit and credit services, asset management, trust, mortgage banking, merchant services, bankcards, data processing and securities
brokerage services. The Company’s bank subsidiary, Capital City Bank, was founded in 1895 and now has 70 banking offices and 79
ATMs in Florida, Georgia and Alabama. For more information about Capital City Bank Group, Inc., visit www.ccbg.com.
letter to our
shareowners
Dear Fellow Shareowners,
By almost every account, 2010 was a challenging year. Our country has endured one of the most difficult economic cycles of our
lifetimes and, as an industry, we have been battered by unprecedented failures and an avalanche of new, transformative regulations.
However, with challenge comes opportunity, and the payoff can be great for those strong enough to seize it. Capital City Bank is
strong and well-positioned to capitalize on opportunities as our markets begin to recover. I am proud of the progress we made in 2010
and our incredible team of associates.
As competitors faltered in our markets, Capital City capitalized on the stability and strength of our brand. We rose to the challenge
and continued our leadership position with deposit market share increasing in 15 of 21 markets. We proved our bankers have the
discipline, experience and knowledge to meet our clients’ needs in all operating environments. The message is out: Capital City Bank is
here to serve our clients and communities today, tomorrow and in the years to come.
We ended the year in a position of strength with three profitable
quarters, high levels of liquidity and a strong net interest margin.
What may be the most compelling story is our impressive core
deposit growth. Despite the slow economy, Capital City increased
deposits by $154 million as our clients continued to place a high
degree of confidence in us. Additionally, our sound financial footing
enabled Capital City not to take TARP or raise additional capital. The strength of our capital position entering this cycle has enabled
us to execute our business strategy without diluting the ownership interest of our existing shareowners – an accomplishment we are
very proud of.
“ We stayed true to our style of
banking, never compromising
our core values.”
The year also proved to be a true test of our commitment to the client, the brand and the value of relationship banking. We could
not alter the economy, but we could control who we are, what we do and how we do it. We stayed true to our style of banking, never
compromising our core values.
Much of the credit for a successful 2010 goes to our talented and dedicated team of more than 1,000 associates who exemplify
our relationship style of banking in every client interaction. In our communities, day-in and day-out, our associates are building
relationships that keep our clients coming back and delivering on our brand promise without exception. We live by our philosophy,
“More than your bank. Your banker.”
Our associates are up to the challenges we face in 2011. Capital City directors have been incredibly supportive and I am grateful for
their leadership and wisdom. Going forward, our challenge is clear: to continue the momentum we built in 2010, by reducing problem
assets, achieving our budget goals and growing our enviable core deposit base.
As always, I welcome your comments and questions.
Your banker,
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
2010 Annual Report ➊
financial
highlights
Dollars in Thousands, Except Per Share Data
2010
2009
2008
2007
2006
For the Years Ended December 31,
Interest Income
Net Interest Income
Provision for Loan Losses
Net (Loss) Income
Per Common Share:
Basic Net (Loss) Income
Diluted Net (Loss) Income
Cash Dividends Declared
Book Value
Performance Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin (FTE)
Noninterest Income as % of Operating Revenues
Efficiency Ratio
Asset Quality:
$
$
$
110,495
$
97,533
23,824
(413)
$
(0.02)
$
(0.02)
0.49
15.15
(0.02)%
(0.16)
4.32
36.81
84.23
122,776
105,934
40,017
(3,471)
(0.20)
(0.20)
0.76
15.72
(0.14)%
(1.26)
4.96
35.14
77.33
142,866
108,866
32,496
15,225
$
165,323
$
165,893
112,241
6,163
29,683
119,136
1,959
33,265
$
0.89
0.89
0.74
16.27
0.59%
5.06
4.96
38.11
64.91
$
1.66
1.66
0.71
17.03
1.18%
9.68
5.25
34.57
66.77
1.79
1.79
0.66
17.01
1.29%
10.48
5.35
31.81
65.42
Allowance for Loan Losses
$
35,436
$
43,999
$
37,004
$
18,066
$
17,217
Allowance for Loan Losses to Loans
2.01%
Nonperforming Assets
Nonperforming Assets to Loans + ORE
Allowance to Nonperforming Loans
Net Charge-Offs to Average Loans
Capital Ratios:
Tier 1 Capital Ratio
Total Capital Ratio
Tangible Capital Ratio
Leverage Ratio
Equity to Assets Ratio
Averages for the Year:
Loans, Net
Earning Assets
Total Assets
Deposits
Shareowners’ Equity
Year-End Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Shareowners’ Equity
Other Data:
Basic Average Shares Outstanding
Diluted Average Shares Outstanding
Shareowners of Record (1)
Banking Locations (1)
Full-Time Equivalent Associates(1)
145,286
8.00
40.57
1.35
13.14%
14.50
6.82
9.97
9.88
2.30%
144,052
7.38
40.77
1.66
1.89%
107,842
5.48
37.52
0.71
0.95%
28,163
1.47
71.92
0.27
0.86%
8,731
0.44
214.09
0.11
12.76%
13.34%
13.05%
14.00%
14.11
6.84
10.39
9.89
14.69
7.76
11.51
11.20
14.05
7.71
10.83
11.19
14.95
8.48
11.30
12.15
$
1,829,193
$
1,961,990
$
1,918,417
$
1,934,850
$
2,029,397
2,294,282
2,644,731
2,192,323
264,679
2,184,232
2,516,815
1,992,429
275,545
2,240,649
2,567,905
2,066,065
300,890
2,183,528
2,507,217
1,990,446
306,617
2,258,277
2,581,078
2,034,931
317,336
$
1,758,671
$
1,915,940
$
1,957,797
$
1,915,850
$
1,999,721
2,269,185
2,622,053
2,103,976
259,019
2,369,029
2,708,324
2,258,234
267,899
17,075,867
17,076,724
17,043,964
17,044,711
1,768
70
975
1,778
70
1,006
2,156,172
2,488,699
1,992,174
278,830
17,141,454
17,146,914
1,756
68
1,042
2,272,829
2,616,327
2,142,344
292,675
2,270,410
2,597,910
2,081,654
315,770
17,909,396
17,911,587
18,584,519
18,609,839
1,750
70
1,097
1,805
69
1,056
(1) As of record date. The record date is on or about March 1 of the following year.
➋ 2010 Annual Report
our
leaders
board of directors
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
Serving Since 1982
DuBose Ausley
Attorney
Ausley & McMullen, PA
Serving Since 1982
Thomas A. Barron
President
Capital City Bank
Serving Since 1982
Frederick Carroll, III
Managing Partner
Carroll and Company, CPAs
Serving Since 2003
Cader B. Cox, III
Chief Executive Officer
Riverview Plantation, Inc.
Serving Since 1994
J. Everitt Drew
President
SouthGroup Equities, Inc.
Serving Since 2003
John K. Humphress
Partner
Wadsworth, Humphress,
Hollar & Konrad, PA
Serving Since 1998
McGrath Keen, Jr.
Private Investor
Serving Since 2004
Lina S. Knox
Community Volunteer
Serving Since 1998
Dr. Henry L. Lewis III
President
Florida Memorial University
Serving Since 2003
senior management team
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
32 years of service
Thomas A. Barron
President
Capital City Bank
36 years of service
J. Kimbrough Davis
Chief Financial Officer
29 years of servicee
Edward G. Canup
Commercial Banking
27 years of service
William D. Colledge
MetroCommunity Banking
22 years of service
Bethany H. Corum
Chief People Officer
4 years of service
Mitchell R. Englert
Community Banking
37 years of service
Brooke W. Hallock
Chief Brand Officer
6 years of service
Karen H. Love
Residential Mortgage Lending
16 years of service
William L. Moor, Jr.
Capital City Banc Investments
23 years of service
Randolph M. Pople
Capital City Trust Company
20 years of service
Cynthia Y. Pyburn
Capital City Services Company
29 years of service
Dale A. Thompson
Credit Administration
31 years of service
Edwin N. West, Jr.
Leon County President
32 years of service
2010 Annual Report ➌
our
locations
➍ 2010 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-K
(cid:58)
(cid:134)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
(Exact name of Registrant as specified in its charter)
Florida
(State of Incorporation)
0-13358
(Commission File Number)
59-2273542
(IRS Employer Identification No.)
217 North Monroe Street, Tallahassee, Florida
(Address of principal executive offices)
32301
(Zip Code)
(850) 671-0300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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, 2010, the last
business day of the registrant’s most recently completed second fiscal quarter, was approximately $121,336,071 (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 28, 2011
17,120,089 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 26, 2011, are incorporated by reference in Part III.
1
PAGE
4
18
26
26
26
26
26
28
29
57
58
98
98
98
100
100
100
100
100
101
103
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2010 ON FORM 10-K
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
[Removed and Reserved]
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
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Signatures
Exhibits and Financial Statement Schedules
2
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives,
goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based
on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,”
“estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking
statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual
results to differ materially from those in the forward-looking statements, include, without limitation:
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(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)
(cid:131)
(cid:131)
(cid:131)
legislative or regulatory changes, including the Dodd-Frank Act;
the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
the accuracy of our financial statement estimates and assumptions, including the estimate for our loan loss provision;
the frequency and magnitude of foreclosure of our loans;
continued depression of the market value of the Company that could result in an impairment of goodwill;
restrictions on our operations, including the inability to pay dividends without our regulators’ consent;
the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit
Insurance Fund assessments;
our ability to declare and pay dividends;
changes in the securities and real estate markets;
changes in monetary and fiscal policies of the U.S. Government;
inflation, interest rate, market and monetary fluctuations;
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
our need and our ability to incur additional debt or equity financing;
the effects of harsh weather conditions, including hurricanes, and man-made disasters;
our ability to comply with the extensive laws and regulations to which we are subject;
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
increased competition and its effect on pricing;
technological changes;
negative publicity and the impact on our reputation;
the effects of security breaches and computer viruses that may affect our computer systems;
changes in consumer spending and saving habits;
growth and profitability of our noninterest income;
changes in accounting principles, policies, practices or guidelines;
the limited trading activity of our common stock;
the concentration of ownership of our common stock;
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
our ability to integrate the business and operations of companies and banks that we have acquired, and those we may
acquire in the future;
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
Item 1. Business
General
PART I
About Us
Capital City Bank Group, Inc. (“CCBG”) is a bank holding company headquartered in Tallahassee, Florida. 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, 2010, we had total consolidated assets of approximately $2.622 billion, total deposits of approximately $2.104
billion and shareowners’ equity was approximately $259.0 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, 2010, and approximately 100% of consolidated net income for the year ended December 31, 2010. 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. We also have two
direct wholly-owned subsidiaries of CCBG, CCBG Capital Trust I and CCBG Capital Trust II.
Dividends and management fees received from the Bank are our primary 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 975 (full-time equivalent) associates at March 1, 2011. Page 28 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.
Regulatory Matter
In February 2010, the Board of Directors of the Bank and the Board of Directors of CCBG agreed to approve certain board
resolutions requested by the Federal Reserve (the “Federal Reserve Resolutions”). From a regulatory perspective, this is an
informal, nonpublic agreement; however, in the interest of full disclosure, we are summarizing the main obligations of the Federal
Reserve Resolutions. The Federal Reserve Resolutions require the Bank and CCBG to take actions to address areas of concern
and to provide periodic reports to the Federal Reserve. For the Bank, these actions include, among other things, requiring the
Bank to receive approval from the Federal Reserve prior to declaring or paying dividends and requiring the preparation of a
written capital plan that demonstrates the Bank’s ability to remain “well capitalized”. Without the prior approval of the Federal
Reserve, CCBG agreed to not (i) incur any new debt or refinance existing debt; (ii) declare any dividends on any class of stock or
make any payments on its trust preferred securities; (iii) reduce its capital position by redeeming shares of stock; or (iv) make any
payment that would reduce capital outside of normal and routine operating expenses.
As of February 28, 2011, we believe we have sufficient cash to fund shareowner dividends for 2011 should the Board choose to
declare and pay a quarterly dividend. Even if we have sufficient cash to pay dividends, we must seek approval from the Federal
Reserve to pay dividends to our shareowners and may not receive the required approvals. We will continue to evaluate the
payment of dividends on a quarterly basis and consult with our regulators concerning matters relating to our overall dividend
policy. As a result of our evaluations, we reduced our quarterly dividend from $0.19 per share to $0.10 per share in May 2010.
An inability to obtain regulatory approval, earn the dividend in future quarters, or maintain sufficient cash balances to pay the
dividend, may result in further reduction or elimination of the dividend.
4
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)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(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. We also provide
treasury management services, and, through a marketing alliance with Elavon, Inc., merchant credit card transaction
processing services.
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. Credit products
are available to facilitate the purchase of land and/or build structures for business use and for investors who are
developing residential or commercial property.
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. A
portion of our loans originated are sold into the secondary market. The Bank offers these products through its existing
network of banking offices. We do not originate subprime residential real estate loans.
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.
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.
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,
PC/Internet banking, and mobile banking. Clients can use Capital City Bank Direct which offers both a “live” call center
between the hours of 8 a.m. to 6 p.m. five days a week, and an automated phone system offering 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 in North Florida and South Georgia. As of February 28, 2011, the
Services Company is providing data processing services to seven correspondent banks, which have relationships with CCB.
Effective March 2011, two of our correspondent bank clients will be acquired and will migrate to another processor.
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. Additionally, 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 $744 million as of December 31, 2010, with total assets under
administration exceeding $823 million.
Brokerage Services
We offer access to retail investment products through Capital City Banc Investments, Inc., a wholly-owned subsidiary of CCB.
These products are offered through INVEST Financial Corporation, a member of 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
Our philosophy is to grow and prosper, building long-term client 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
5
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.
We have sought to build a franchise in small to medium sized, less competitive markets, located on the outskirts of the larger
metropolitan markets where we are positioned as a market leader. Many of our markets are on the outskirts of these larger
markets in close proximity to major interstate thoroughfares such as Interstates I-10 and I-75. Our three largest markets are
Tallahassee (Leon-Florida), Gainesville (Alachua-Florida), and Macon (Bibb-Georgia). As of June 30, 2010, in 14 of 20 counties
where we have banking offices in Florida and 3 of 5 counties where we have banking offices in Georgia, we rank within the top 4
banks in terms of market share. Furthermore, in the counties in which we operate, we collectively maintain an 8.35% market
share in the Florida counties and 5.71% in the Georgia counties, suggesting that there is significant opportunity to grow market
share within these geographic areas. The major employers in these markets are state and local governments, healthcare providers,
education institutions, and small businesses. While we realize that the markets in our footprint do not provide for a level of
potential growth that the larger metropolitan markets may provide, our markets do provide good growth dynamics and have
historically grown in excess of the national average. We strive to provide value added services to our clients by being their
banker, not just a bank. This element of our strategy enables us to distinguish Capital City Bank Group from its competitors and
was memorialized during 2009 and 2010 in our “More Than Your Bank, Your Banker” advertising campaign.
Our long-term vision is to profitably expand our franchise through a combination of organic growth in existing markets and
acquisitions. We have long understood that our core deposit funding base is a predominant driver in our profitability and overall
franchise and have focused extensively on this component of our organic growth efforts in recent years. While we have not been
an active acquirer of banks since 2005, this component of our strategy is still in place and we continue to evaluate opportunities
and perform due diligence related to potential transactions. During the period 2005-2008, unreasonable pricing expectations
prevented us from consummating an acquisition. Since 2008, economic conditions and lack of visibility into credit quality of
potential targets have kept us out of the acquisition market. We have conducted due diligence on potential targets since 2008,
including FDIC assisted transactions opportunities, but to date we have not chosen to pursue an FDIC assisted transaction because
we have not identified an opportunity that fit into our strategy from both a financial and strategic perspective. High risk and
volatile funding sources within these institutions as well as the diversion of our management’s attention to the acquired problem
assets were also factors that have caused us to not aggressively pursue these opportunities.
Potential acquisition growth will continue to be focused on Florida, Georgia, and Alabama with a particular focus on financial
institutions located on the outskirts of major metropolitan areas within a geographic circle, which borders on, but does not include
the cities of Tampa, Orlando, Jacksonville, Atlanta, and Mobile. 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, the western panhandle of Florida, and Bibb and surrounding counties in central Georgia.
We will also continue to evaluate de novo expansion opportunities in attractive new markets in the event that acquisition
opportunities are not feasible. Other expansion opportunities that will be evaluated include asset management and mortgage
banking. Embedded in our acquisition strategy is our desire to partner with institutions that are culturally similar, have
experienced management, and possess either established market presence or have potential for improved profitability through
growth, economies of scale, or expanded services. These target institutions will maintain an asset size from $100 million to $400
million. Our ability to expand, however, may be restricted by the Federal Reserve Resolutions (See Item 1. Business-About Us-
Regulatory Matter).
Competition
We operate in a highly competitive environment, especially with respect to services and pricing. In addition, the banking business
is experiencing enormous changes. In 2009, 140 financial institutions failed in the U.S., including 25 in Georgia and 14 in
Florida. In 2010, 157 financial institutions failed in the U.S., including 21 in Georgia and 29 in Florida. Nearly all of the failed
banks were community banks. The assets and deposits of many of these failed community banks were acquired mostly by larger
financial institutions, and we expect significant consolidation to continue during 2011. 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
$793.2 million, or 37.7% of our consolidated deposits at December 31, 2010.
6
The following table depicts our market share percentage within each respective county, based on total commercial bank deposits
within the county.
Market Share as of June 30,(1)
2009
2008
2010
Florida
Alachua County
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
Suwannee County
Taylor County
Wakulla County
Washington County
Georgia
Bibb County
Burke County
Grady County
Laurens County
Troup County
Alabama
Chambers County
(1) Obtained from the June 30, 2010 FDIC/OTS Summary of Deposits Report.
4.8%
50.3%
2.9%
1.8%
21.3%
59.1%
39.2%
8.3%
2.0%
19.5%
16.9%
28.6%
10.2%
0.3%
14.9%
0.9%
6.7%
30.7%
5.3%
13.8%
3.3%
6.9%
16.1%
10.9%
7.2%
3.9%
51.3%
2.7%
1.7%
23.4%
55.1%
39.5%
7.7%
1.6%
18.3%
15.9%
27.9%
10.1%
0.2%
14.0%
0.8%
6.6%
30.7%
3.8%
14.2%
2.6%
7.7%
16.2%
12.7%
5.9%
4.6%
50.1%
3.1%
1.9%
23.4%
55.7%
37.8%
9.1%
1.2%
21.9%
17.6%
31.7%
12.1%
0.2%
19.7%
1.1%
7.2%
31.1%
5.5%
17.0%
2.1%
7.4%
16.7%
16.2%
5.6%
5.7%
6.6%
7.3%
7
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
15
3
14
15
4
4
4
5
14
2
19
3
6
25
6
23
5
3
4
6
11
5
5
10
11
5
65
3
49
33
5
6
8
8
42
2
95
12
6
119
16
66
8
4
7
6
56
10
8
20
26
10
Data obtained from the June 30, 2010 FDIC/OTS Summary of Deposits Report.
Seasonality
We believe our commercial banking operations are not generally seasonal in nature; however, public deposits tend to increase
with tax collections in the fourth quarter and decline with spending thereafter.
8
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 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (
the “Dodd-Frank Act”). The Dodd-Frank Act will have a broad impact on the financial services industry, including significant
regulatory and compliance changes including, among other things, (i) enhanced resolution authority of troubled and failing banks
and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv)
changes to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to
improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the
Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new
and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Federal Reserve, the Office of
the Comptroller of the Currency, and the FDIC. A summary of certain provisions of the Dodd-Frank Act is set forth below, along
with information set forth in applicable sections of this “Regulatory Considerations” section.
(cid:131)
(cid:131)
Increased Capital Standards and Enhanced Supervision. The federal banking agencies are required to establish
minimum leverage and risk-based capital requirements for banks and bank holding companies. These new standards will
be no lower than current regulatory capital and leverage standards applicable to insured depository institutions and may,
in fact, be higher when established by the agencies. The Dodd-Frank Act also increases regulatory oversight, supervision
and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory
agency.
The Consumer Financial Protection Bureau. The Dodd-Frank Act creates the Consumer Financial Protection Bureau
within the Federal Reserve. The Bureau is tasked with establishing and implementing rules and regulations under certain
federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and
services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank
consumers. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are
more stringent than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce
consumer protection rules adopted by the Bureau against state-chartered institutions.
(cid:131) Deposit Insurance. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits.
Amendments to the Federal Deposit Insurance Act also revise the assessment base against which an insured depository
institution’s deposit insurance premiums paid to the Deposit Insurance Fund (“DIF”) will be calculated. Under the
amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total
assets less its average tangible equity during the assessment period. Additionally, the Dodd-Frank Act makes changes to
the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the
estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository
institutions when the reserve ratio exceeds certain thresholds. The Dodd-Frank Act also repeals the federal prohibition on
the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business
transaction accounts.
Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under
Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and
increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.
Transactions with Insiders. Insider transaction limitations are expanded through the strengthening on loan restrictions to
insiders and the expansion of the types of transactions subject to the various limits, including derivative transactions,
repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are
also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on
market terms and, in certain circumstances, approved by the institution’s board of directors.
Enhanced Lending Limits. The Dodd-Frank Act strengthens the existing limits on a depository institution’s credit
exposure to one borrower. Current banking law limits a depository institution’s ability to extend credit to one person (or
group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these
restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending
and borrowing transactions.
Compensation Practices. The Dodd-Frank Act provides that the appropriate federal regulators must establish standards
prohibiting as an unsafe and unsound practice any compensation plan of a bank holding company or other “covered
financial institution” that provides an insider or other employee with “excessive compensation” or could lead to a
material financial loss to such firm. In June 2010, prior to the Dodd-Frank Act, the bank regulatory agencies
promulgated the Interagency Guidance on Sound Incentive Compensation Policies, which requires that financial
institutions establish metrics for measuring the impact of activities to achieve incentive compensation with the related
(cid:131)
(cid:131)
(cid:131)
(cid:131)
9
risk to the financial institution of such behavior. Together, the Dodd-Frank Act and the recent guidance on compensation
may impact the current compensation policies at the Banks.
(cid:131) Holding Company Capital Levels. The Dodd-Frank Act requires bank regulators to establish minimum capital levels for
holding companies that are at least of the same nature as those applicable to financial institutions. All trust preferred
securities, or TRUPs, issued by bank or thrift holding companies after May 19, 2010 will be counted as Tier II Capital.
We expect that many of the requirements called for in the Dodd-Frank Act will be implemented over time, and most will be
subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which
the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full
extent of the impact such requirements will have on financial institutions’ operations is unclear. The changes resulting from the
Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices,
impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These
changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in
order to comply with new statutory and regulatory requirements.
The Company
We are registered with the Board of Governors of the Federal Reserve System as a bank holding company under the Bank
Holding Company Act of 1956 or BHCA. As a result, we are subject to supervisory regulation and examination by the Federal
Reserve. The Gramm-Leach-Bliley Act, the BHCA, and other federal laws subject bank 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 revised the U.S. banking system 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 were 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. Except for the activities relating to
financial holding companies permissible under the Gramm-Leach-Bliley Act, these restrictions apply to us. In determining
whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include
greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of
resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or
control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
Changes in Control. Subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with 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. Our common stock is registered under Section 12 of the Exchange Act.
The Federal Reserve Board maintains a policy statement on minority equity investments in banks and bank holding companies,
that permits investors to (1) acquire up to 33 percent of the total equity of a target bank or bank holding company, subject to
certain conditions, including (but not limited to) that the investing firm does not acquire 15 percent or more of any class of voting
securities, and (2) designate at least one director, without triggering the various regulatory requirements associated with control.
10
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 that 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.
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 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 (other than traditional banking products) offered by the holding company or its affiliates.
Capital; Dividends; Source of Strength. The Federal Reserve imposes certain capital requirements on bank holding companies
under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These
requirements are described below under “Capital Regulations.” Subject to its capital requirements and certain other restrictions,
including the need to seek prior approval from the Federal Reserve in accordance with the Federal Reserve Resolutions, we are
generally 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.
In accordance with state and federal regulations, the ability of the Bank to pay dividends is subject to prior approval by the Florida
Office of Financial Regulation and the Federal Reserve Bank, and is further governed by the recently issued Federal Reserve
Resolutions, which require us to receive approval from the Federal Reserve prior to paying a dividend. Subject to compliance
with federal and state securities laws, and without the need to seek regulatory approval, CCBG may raise capital for contributions
to the Bank by issuing securities.
In accordance with Federal Reserve policy, which has been codified by the Dodd-Frank Act, 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 carrying out this policy, the Federal Reserve may require a bank 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 bank 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.
Consistent with its policy that bank holding companies should serve as a source of financial strength for their subsidiary banks,
the Federal Reserve issued Supervisory Letter SR 09-4, which provides guidance on the declaration and payment of dividends,
capital redemptions, and capital repurchases by bank holding companies. Supervisory Letter SR 09-4 provides that, as a general
matter, a bank holding company should eliminate, defer, or significantly reduce its dividends if: (1) the bank holding company’s
net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient
to fully fund the dividends; (2) the bank holding company’s prospective rate of earnings retention is not consistent with the bank
holding company’s capital needs and overall current and prospective financial condition; or (3) the bank holding company will not
meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Failure to do so could result in a supervisory
finding that the bank holding company is operating in an unsafe and unsound manner.
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.
11
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. In accordance with the recently issued Federal Reserve Resolutions, the Bank must receive approval from the Federal
Reserve before declaring or paying any dividends. These regulations and restrictions may severely 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.
In addition, Federal Reserve regulations and Florida law also places certain restrictions on the declaration of dividends from state
chartered banks to their holding companies. Pursuant to the Federal Reserve’s Regulation H and Florida Financial Institutions
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 and Federal Reserve, 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.
The Bank’s aggregate net profits for the past two years is significantly less than the dividends declared and paid to CCBG over
that same period. As a result, the Bank must seek approval from its regulators to issue and declare any further dividends to
CCBG. The Bank may not receive the required approvals. Without such approvals, we would not have sufficient cash to continue
to pay dividends on shares of our common stock or our trust preferred securities after December 31, 2011. Even if we have
sufficient cash to pay the dividend, we must seek prior Federal Reserve approval before paying any dividends.
Insurance of Accounts and Other Assessments. We pay our deposit insurance assessments to the Deposit Insurance Fund, which is
determined through a risk-based assessment system. Our deposit accounts are currently insured by the Deposit Insurance Fund
generally up to a maximum of $250,000 per separately insured depositor.
In addition, in November 2008, the FDIC issued a final rule under its Transaction Account Guarantee Program (“TAGP”),
pursuant to which the FDIC fully guarantees all non-interest bearing transaction deposit accounts, including all personal and
business checking deposit accounts that do not earn interest, lawyer trust accounts where interest does not accrue to the account
owner (IOLTA), and NOW accounts with interest rates no higher than 0.50% until June 30, 2010 and 0.25% beginning July 1,
2010. Thus, under TAGP, all money in these accounts is fully insured by the FDIC regardless of dollar amount. This second
increase to coverage was originally in effect through December 31, 2009, but was extended until June 30, 2010, and then again
until December 31, 2010, unless we elected to “opt out” of participating, which we did not do. The Dodd-Frank Act extended full
deposit coverage for non-interest bearing transaction accounts for two years beginning on December 31, 2010, and all financial
institutions are required to participate in this extended program.
Under the current 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. Total base
assessment rates currently range from 0.07% of deposits for an institution in the highest sub-category of the highest category to
0.775% of deposits for an institution in the lowest category. On May 22, 2009, the FDIC imposed a special assessment of five
basis points on each FDIC-insured depository institution’s assets, minus its Tier I capital, as of June 30, 2009. This special
assessment was collected on September 30, 2009. Finally, on November 12, 2009, the FDIC adopted a new rule requiring insured
institutions to prepay on December 30, 2009, estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all
12
of 2010, 2011, and 2012. We prepaid an assessment of $11.5 million, which incorporated a uniform 3.00 basis point increase
effective January 1, 2011.
In addition, all FDIC insured institutions are required to pay assessments to the FDIC at an annual rate of approximately one basis
point 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.
Under the Federal Deposit Insurance Act, or FDIA, the FDIC may terminate deposit insurance upon a finding that the institution
has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.
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 those executive officers,
directors, or 10% Shareholders or which is controlled by those executive officers, directors or 10% Shareholders, are subject to
restrictions on loans and extensions of credit. The restrictions are found in 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, which relates to the prohibition on
personal loans to executives and exempt 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 those 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 of those
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 of the extensions of credit outstanding to all of these 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 bank 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 bank holding company. An unsatisfactory record can substantially delay or block the transaction. The Bank
received a “satisfactory” rating on its most recent Community Reinvestment Act assessment.
Capital Regulations. The Federal Reserve has adopted risk-based, capital adequacy guidelines for bank 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 bank 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 bank 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 shareholders’
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).
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In computing total risk-weighted assets, bank and bank 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 bank 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 Capital 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 bank 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. Bank holding companies controlling financial institutions can be called upon
to boost the institutions’ capital and to partially guarantee the institutions’ performance under their capital restoration plans.
It should be noted that the minimum ratios referred to above are merely guidelines and the banking regulators possess the
discretionary authority to require higher ratios.
As of December 31, 2010, we exceeded the requirements contained in the applicable regulations, policies and directives pertaining
to capital adequacy to be classified as “well capitalized” and are unaware of any material violation or alleged violation of these
regulations, policies or directives. Rapid growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change our capital position in a relatively short period of time, making additional capital
infusions necessary.
Prompt Corrective Action. Immediately upon becoming undercapitalized, a depository institution becomes subject to the
provisions of Section 38 of the FDIA, which: (a) restrict payment of capital distributions and management fees; (b) require that
the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (c) require
submission of a capital restoration plan; (d) restrict the growth of the institution’s assets; and (e) require prior approval of certain
expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the
institution at the least possible long term cost to the deposit insurance fund, subject in certain cases to specified procedures. These
discretionary supervisory actions include: (a) requiring the institution to raise additional capital; (b) restricting transactions with
affiliates; (c) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (d) any other
14
supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be
taken with respect to significantly undercapitalized and critically undercapitalized institutions.
Basel III. On December 17, 2009, the Basel Committee, proposed significant changes to bank capital and liquidity regulation,
including revisions to the definitions of Tier I Capital and Tier II Capital applicable to Basel III.
Although we will not be directly subject to Basel III, the short-term and long-term impact of the new Basel III capital standards
and the forthcoming new capital rules to be proposed for non-Basel III U.S. banks is uncertain. As a result of the recent
deterioration in the global credit markets and the potential impact of increased liquidity risk and interest rate risk, it is unclear
what the short-term impact of the implementation of Basel III may be or what impact a pending alternative standardized approach
to Basel III option for non-Basel III U.S. banks may have on the cost and availability of different types of credit and the potential
compliance costs of implementing the new capital standards.
On September 12, 2010, the oversight body of the Basel Committee announced a package of reforms which will increase existing
capital requirements substantially over the next four years. These capital reforms were endorsed by the G20 at the summit held in
Seoul, South Korea in November 2010. The implementation of Basel III and the extent Basel III will apply to us is uncertain.
Other than the increased capital level requirements, one critical concern to us is whether our trust preferred securities will continue
to count as Tier 1 capital. We will continue to monitor the implementation process.
Interstate Banking and Branching. The Interstate Banking Act provides that adequately capitalized and managed financial and
bank holding companies are permitted to acquire banks in any state. State laws prohibiting interstate banking or discriminating
against out-of-state banks are preempted. States are not permitted to enact laws opting out of this provision; however, states are
allowed to adopt a minimum age restriction requiring that target banks located within the state be in existence for a period of
years, up to a maximum of five years, before a bank may be subject to the Interstate Banking Act. The Interstate Banking Act, as
amended by the Dodd-Frank Act, establishes deposit caps which prohibit acquisitions that result in the acquiring company
controlling 30% or more of the deposits of insured banks and thrift institutions held in the state in which the target maintains a
branch or 10% or more of the deposits nationwide. States have the authority to waive the 30% deposit cap. State-level deposit
caps are not preempted as long as they do not discriminate against out-of-state companies, and the federal deposit caps apply only
to initial entry acquisitions.
Under the Dodd-Frank Act, national banks and state banks are able to establish branches in any state if that state would permit the
establishment of the branch by a state bank chartered in that state. Florida law permits a state bank to establish a branch of the
bank anywhere in the state. Accordingly, under the Dodd-Frank Act, a bank with its headquarters outside the State of Florida may
establish branches anywhere within Florida.
Anti-money Laundering. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), provides the federal government with additional powers to address
terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and
broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act (“BSA”), the USA PATRIOT
Act puts in place measures intended to encourage information sharing among bank regulatory and law enforcement agencies. In
addition, certain provisions of the USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions.
Among other requirements, the USA PATRIOT Act and the related Federal Reserve regulations require banks to establish anti-
money laundering programs that include, at a minimum:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
internal policies, procedures and controls designed to implement and maintain the savings association’s compliance with
all of the requirements of the USA PATRIOT Act, the BSA and related laws and regulations;
systems and procedures for monitoring and reporting of suspicious transactions and activities;
a designated compliance officer;
employee training;
an independent audit function to test the anti-money laundering program;
procedures to verify the identity of each customer upon the opening of accounts; and
heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.
Additionally, the USA PATRIOT Act requires each financial institution to develop a customer identification program (“CIP”) as
part of our anti-money laundering program. The key components of the CIP are identification, verification, government list
comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to determine the true identity
and anticipated account activity of each customer. To make this determination, among other things, the financial institution must
collect certain information from customers at the time they enter into the customer relationship with the financial institution. This
information must be verified within a reasonable time through documentary and non-documentary methods. Furthermore, all
customers must be screened against any CIP-related government lists of known or suspected terrorists. We and our affiliates have
adopted policies, procedures and controls to comply with the BSA and the USA PATRIOT Act, and we engage in very few
transactions of any kind with foreign financial institutions or foreign persons.
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Regulatory Enforcement Authority. Federal and state banking law grants substantial enforcement powers to federal and state
banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue
cease and desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties.
In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with
regulatory authorities.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Atlanta, which is one of 12 regional Federal Home
Loan Banks. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily
from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB system. It
makes advances to members in accordance with policies and procedures established by the board of trustees of the FHLB.
As a member of the FHLB of Atlanta, the Bank is required to own capital stock in the FHLB in an amount at least equal to 0.18%
(or 18 basis points) of the Bank’s total assets at the end of each calendar year, plus 4.5% of its outstanding advances (borrowings)
from the FHLB of Atlanta under the activity-based stock ownership requirement. On December 31, 2009, the Bank was in
compliance with this requirement.
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.
Overdraft Fee Regulation. Effective July 1, 2010, a new federal banking rule under the Electronic Fund Transfer Act prohibited
financial institutions from charging consumers fees for paying overdrafts on automated teller machines (“ATM”) and one-time
debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those type of transactions. If a
consumer does not opt in, any ATM transaction or debit that overdraws the consumer’s account will be denied. Overdrafts on the
payment of checks and regular electronic bill payments are not covered by this new rule. Before opting in, the consumer must be
provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the
consumer’s choices. Financial institutions must provide consumers who do not opt in with the same account terms, conditions
and features (including pricing) that they provide to consumers who do opt in.
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 Credit Card Accountability, Responsibility, and Disclosure Act
(CARD), the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure
Act, the Fair and Accurate Transaction Act, the Mortgage Disclosure Improvement Act, and the Real Estate Settlement
Procedures Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in
which financial institutions must deal with clients when taking deposits or making loans to such clients. The Bank must comply
with the applicable provisions of these consumer protection laws and regulations as part of its ongoing client relations.
Future Legislative Developments
Various legislative acts are from time to time introduced in Congress and the Florida legislature. This 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.
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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.
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) of the Exchange Act,
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.
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Item 1A. Risk Factors
An investment in our common stock contains a high degree of risk. 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.
An inadequate allowance for loan losses would reduce our earnings.
Risks Related to Our Business
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.
As of December 31, 2010, the Bank’s allowance for loan losses was $35.4 million, which represented approximately 2.01% of its
total amount of loans. The Bank had $65.7 million in non-accruing loans as of December 31, 2010. The allowance may not prove
sufficient to cover future loan losses. Although management uses the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the
assumptions used or adverse developments arise with respect to the Bank’s non-performing or performing loans. In addition,
regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such
agencies may require us to recognize additional losses based on their judgments about information available to them at the time of
their examination. Accordingly, the allowance for loan losses may not be adequate to cover loan losses or significant increases to
the allowance may be required in the future if economic conditions should worsen. Material additions to the Bank’s allowance for
loan losses would adversely impact our net income and capital.
If our nonperforming assets continue to increase, our earnings will suffer.
At December 31, 2010, our non-performing loans (which consist of non-accrual loans and troubled debt restructurings) totaled
$87.3 million, or 5.0% of the total loan portfolio, which is an increase of $62.2 million over non-performing loans at December
31, 2007. At December 31, 2010, our nonperforming assets (which include foreclosed real estate) were $145.3 million, or 5.5%
of total assets. In addition, the Bank had approximately $24.2 million in accruing loans that were 30-89 days delinquent as of
December 31, 2010. 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 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.
Our loan portfolio includes loans with a higher risk of loss.
We originate commercial real estate loans, commercial loans, construction loans, vacant land loans, consumer loans, and
residential mortgage loans primarily within our market area. Commercial real estate, commercial, construction, vacant land, 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, these loan types 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 historically had greater credit risk than other loans 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.
18
(cid:131)
(cid:131)
(cid:131)
(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.
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, sale of the property, or by seizure of collateral.
Vacant Land Loans. Because vacant or unimproved land is generally held by the borrower for investment purposes or
future use, payments on loans secured by vacant or unimproved land will typically rank lower in priority to the borrower
than a loan the borrower may have on their primary residence or business. These loans are susceptible to adverse
conditions in the real estate market and local economy.
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.
We may need additional capital resources in the future and these capital resources may not be available on acceptable
terms or at all. If we do raise additional capital, your ownership could be diluted.
We may need to incur additional debt or equity financing in the future to maintain required minimum capital ratios, make strategic
acquisitions or investments, or for future growth. Such financing may not be available to us on acceptable terms or at all. Prior to
issuing new or refinancing existing debt, we must request approval from the Federal Reserve.
Further, our Articles of Incorporation do not provide shareowners with preemptive rights and such shares may be offered to
investors other than shareowners at the discretion of the Board. If we do sell additional shares of common stock to raise capital,
the sale could reduce market price per share of common stock and dilute your ownership interest and such dilution could be
substantial.
We may incur losses if we are unable to successfully manage interest rate risk.
Our profitability depends to a large extent on the Bank’s net interest income, which is the difference between income on interest-
earning assets such as loans and investment securities, and expense on interest-bearing liabilities such as deposits and 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, as has occurred in the current zero interest rate policy environment, 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,
thereby limiting the incremental income generated by those loans in any one year.
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)
general or local economic conditions;
environmental cleanup liability;
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;
19
(cid:131)
(cid:131)
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 have incurred net losses for 2009 and 2010 and may incur further losses.
We incurred net losses of $0.4 million and $3.5 million for the years ended December 31, 2010 and December 31, 2009,
respectively. We may incur further losses, especially in light of economic conditions that continue to adversely affect our
borrowers and us.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, and other sources, could have a
substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities on terms
that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in
general. Factors that could negatively impact our access to liquidity sources include a decrease in the level of our business
activity as a result of a downturn in the markets in which our loans are concentrated, adverse regulatory action against us, or our
inability to attract and retain deposits. Our ability to borrow could be impaired by factors that are not specific to us, such a
disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in
light of recent turmoil faced by banking organizations and the unstable credit markets. CCBG’s ability to borrow requires prior
approval from the Federal Reserve.
An impairment in the carrying value of our goodwill could negatively impact our earnings and capital.
Goodwill is initially recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more
frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. Given the current
economic environment and conditions in the financial markets, including the sustained trading price of our common stock at
below book value, we could be required to evaluate the recoverability of goodwill prior to our normal annual assessment if we
experience disruption in our business, unexpected significant declines in our operating results, or sustained market capitalization
declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future. These non-
cash impairment charges could adversely affect our results of operations in future periods, and could also significantly impact
certain financial ratios and limit our ability to obtain financing or raise capital in the future. A goodwill impairment charge does
not adversely affect the calculation of our risk based and tangible capital ratios. Please see Note 5 in the Notes to Consolidated
Financial Statements for additional discussion. As of December 31, 2010, we had $84.8 million in goodwill, which represented
approximately 3.2% of our total assets.
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.
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.
20
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.
Risks Related to Regulation and Legislation
Recently enacted legislation, particularly the Dodd-Frank Act, could materially and adversely affect us.
From time to time, the U.S. Congress and state legislatures consider changing laws and enact new laws to further regulate the
financial services industry. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, or the Dodd-Frank Act, into law. The Dodd-Frank Act will result in sweeping changes in the regulation of
financial institutions. As discussed in the section entitled “Business-Regulatory Considerations” of this Report, the Dodd-Frank
Act contains numerous provisions that will affect all banks and bank holding companies. The Dodd-Frank Act includes provisions
that, among other things:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
change the assessment base for federal deposit insurance from the amount of insured deposits to total consolidated assets
less average tangible capital, eliminate the ceiling on the size of the federal deposit insurance fund, and increase the floor
of the size of the federal deposit insurance fund;
repeal the federal prohibitions on the payment of interest on demand deposits, thereby generally permitting the payment
of interest on all deposit accounts;
centralize responsibility for promulgating regulations under and enforcing federal consumer financial protection laws in a
new bureau of consumer financial protection;
require the FDIC to seek to make its capital requirements for banks countercyclical;
implement corporate governance revisions, including with regard to executive compensation and proxy access by
shareholders, that apply to all public companies, not just financial institutions;
establish new rules and restrictions regarding the origination of mortgages; and
permit the Federal Reserve to prescribe regulations regarding interchange transaction fees, and limit them to an amount
reasonable and proportional to the cost incurred by the issuer for the transaction in question.
Many of these and other provisions in the Dodd-Frank Act remain subject to regulatory rule-making and implementation, the
effects of which are not yet known. Although we cannot predict the specific impact and long-term effects that the Dodd-Frank Act
and the regulations promulgated thereunder will have on us and our prospects, our target markets and the financial industry more
generally, we believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to impose additional
administrative burdens that will obligate us to incur additional expenses.
We may be required to pay significantly higher FDIC deposit insurance premiums and assessments in the future.
Recent insured depository institution failures, as well as deterioration in banking and economic conditions, have significantly
increased the loss provisions of the FDIC, resulting in a decline in the designated reserve ratio of the Deposit Insurance Fund to
historical lows. The FDIC recently increased the designated reserve ratio from 1.25 to 2.00. In addition, the deposit insurance limit
on FDIC deposit insurance coverage generally has increased to $250,000, which may result in even larger losses to the Deposit
Insurance Fund. These developments have caused an increase to our assessments, and the FDIC may be required to make
additional increases to the assessment rates and levy additional special assessments on us. Higher assessments increase our non-
interest expense.
21
Since 2009, our average assessment rates, which also include our assessment for participating in the FDIC’s Transaction Account
Guarantee Program, increased from 15 basis points to 21 basis points. Additionally, on May 22, 2009, the FDIC announced a
final rule imposing a special 5 basis point emergency assessment as of June 30, 2009, payable September 30, 2009, based on
assets minus Tier I Capital at June 30, 2009, but the amount of the assessment was capped at 10.00 basis points of domestic
deposits. Finally, on November 12, 2009, the FDIC adopted a new rule requiring insured institutions to prepay on December 30,
2009, estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. We prepaid
an assessment of $11.5 million, which incorporated a uniform 3.00 basis point increase effective January 1, 2011.
These higher FDIC assessment rates and special assessments have had and will continue to have an adverse impact on our results
of operations. Our total FDIC insurance related cost was $6.3 million for the year ended December 31, 2010 compared to $0.8
million for the year ended December 31, 2008. We are unable to predict the impact in future periods, including whether and when
additional special assessments will occur.
Higher insurance premiums and assessments increase our costs and may limit our ability to pursue certain business opportunities.
We also may be required to pay even higher FDIC premiums than the recently increased level, because financial institution
failures resulting from the depressed market conditions have depleted and may continue to deplete the deposit insurance fund and
reduce its ratio of reserves to insured deposits.
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. Our compliance with these industry regulations is costly and restricts certain of our activities,
including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on
deposits, access to capital and brokered deposits and locations of banking offices. In addition, please see “Item 1. Business–
About Us–Regulatory Matter” for a discussion regarding the Federal Reserve Resolutions. If we are unable to meet these
regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.
The Bank must also meet regulatory capital requirements imposed by our regulators. An inability to meet these capital
requirements would result in numerous mandatory supervisory actions and additional regulatory restrictions, and could have a
negative impact on our financial condition, liquidity and results of operations.
In addition to the regulations of 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 Agency and the
Federal Home Loan Bank.
The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities. In
addition, the Dodd-Frank Act imposes significant additional regulation on our operations. Regulation by all of these agencies is
intended primarily for the protection of our depositors and the Deposit Insurance Fund and not for the benefit of our shareowners.
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.
Florida financial institutions, such as the Bank, face a higher risk of noncompliance and enforcement actions 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 compliance with the rules enforced by the Office of Foreign Assets Control (“OFAC”). Since 2004, federal banking
regulators and examiners have been extremely aggressive in their supervision and examination of financial institutions located in
the State of Florida with respect to the institution’s Bank Secrecy Act/Anti-Money Laundering compliance. Consequently,
numerous formal enforcement actions have been issued against financial institutions.
In order to comply with regulations, guidelines and examination procedures in this area, the Bank has been required to adopt new
policies and procedures and to install new systems. If the Bank’s policies, procedures and systems are deemed deficient or the
policies, procedures and systems of the financial institutions that it has already acquired or may acquire in the future are deficient,
the Bank would be subject to liability, including fines and regulatory actions such as restrictions on its ability to pay dividends and
the necessity to obtain regulatory approvals to proceed with certain aspects of its business plan, including its acquisition plans. In
addition, because the Bank operates in Florida, we expect that the Bank will face a higher risk of noncompliance and enforcement
action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
22
Risks Related to Market Events
Our loan portfolio is heavily concentrated in mortgage loans secured by properties in Florida and Georgia.
Our interest-earning assets are heavily concentrated in mortgage loans secured by real estate, particularly real estate located in
Florida and Georgia. As of December 31, 2010, approximately 79% of our loans had real estate as a primary, secondary, or
tertiary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of
default by the borrower; however, the value of the collateral may decline during the time the credit is extended. If we are required
to liquidate the collateral securing a loan during a period of reduced real estate values, such as in today’s market, to satisfy the
debt, our earnings and capital could be adversely affected.
Additionally, as of December 31, 2010, substantially all of our loans secured by real estate are secured by commercial and
residential properties located in Northern Florida and Middle Georgia. The concentration of our loans in this area subjects us to
risk that a downturn in the economy or recession in those areas, such as the one the areas are currently experiencing, 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 and Georgia, the occurrence of a natural disaster, such as a hurricane, or a man-made disaster 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. We may suffer further losses due to the decline in the value of the properties
underlying our mortgage loans, which would have an adverse impact on our operations.
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,
2010, approximately 38.2% and 38.8% of our $1.759 billion loan portfolio was secured by commercial real estate and residential
real estate (including home equity loans), respectively. As of this same date, approximately 2.5% was secured by property under
construction.
The current downturn in the real estate market, the deterioration in the value of collateral, and the local and national economic
recessions, have adversely affected our clients’ ability to repay their loans. If these conditions persist, or get worse, our clients’
ability to repay their loans will be further eroded. 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.
Future economic growth in our Florida market area is likely to be slower compared to previous years.
The State of Florida’s population growth has historically exceeded national averages. Consequently, the state has experienced
substantial growth in population, new business formation, and public works spending. Due to the moderation of economic growth
and migration into our market area and the downturn in the real estate market, management believes that growth in our market
area will be restrained in the near term. We have experienced an overall slowdown in the origination of residential mortgage
loans recently due to the slowing in residential real estate sales activity in our markets. A decrease in existing and new home sales
decreases lending opportunities and negatively affects our income. Additionally, if property values continue to decline, this could
lead to additional valuation adjustments on our loan portfolios.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, counterparty,
lending, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial institutions, or
the financial services industry generally, could lead to market-wide liquidity problems, losses of depositor, creditor or
counterparty confidence and could result in losses or defaults by us or by other institutions. We could experience increases in
assets as a result of other banks’ difficulties or failure, which would increase the level of capital required to support the
incremental growth.
The fair value of our investments could decline.
Our investment securities portfolio as of December 31, 2010 has been designated as available-for-sale pursuant to U.S. generally
accepted accounting principles relating to accounting for investments. Such principles require that unrealized gains and losses in
23
the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in shareowners’
equity (net of tax) as accumulated other comprehensive income/loss. At December 31, 2010, we maintained all of our investment
securities in the available-for-sale classification.
Shareowners’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments. The fair value of our
investment portfolio may decline, causing a corresponding decline in shareowners’ equity.
Management believes that several factors will affect the fair values of our investment portfolio. These include, but are not limited
to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or
expectations of inflation and the slope of the interest rate yield curve (the yield curve refers to the differences between shorter-
term and longer-term interest rates; a positively sloped yield curve means shorter-term rates are lower than longer-term rates).
These and other factors may impact specific categories of the portfolio differently, and we cannot predict the effect these factors
may have on any specific category.
Concerns of clients over deposit insurance may cause a decrease in our deposits.
With increased concerns about bank failures, clients are increasingly concerned about the extent to which their deposits are
insured by the FDIC. Clients may withdraw deposits from the Bank in an effort to ensure that the amount that they have on
deposit at the Bank is fully insured. Decreases in deposits may adversely affect our funding costs and net income.
Risks Related to an Investment in Our Common Stock
Our ability to declare and pay dividends is subject to our regulators’ approval and restrictions under the terms of the
trust preferred securities.
Under applicable statutes and regulations, the Bank’s board of directors, 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 and pay dividends to CCBG 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 and
Federal Reserve, declare a dividend from retained net profits which accrued prior to the preceding two years.
The Bank’s aggregate net profits for the past two years is significantly less than the dividends declared and paid to CCBG over
that same period. In addition, pursuant to the Federal Reserve Resolutions, the Bank must request approval from the Federal
Reserve prior to paying any dividends to us. The Bank may not receive the required approvals. Without such approvals, we
would not have sufficient cash to continue to pay dividends on shares of our common stock after December 31, 2011. Even if we
have sufficient cash to pay the dividend, we must seek prior Federal Reserve approval before paying any dividends.
Dividends paid by the Bank to CCBG also provide cash flow used to service the interest payments on our trust preferred
securities. Under the Federal Reserve Resolutions, the Bank must receive approval from the Federal Reserve prior to paying
dividends to CCBG, and CCBG must receive approval from the Federal Reserve prior to making distributions (interest payments)
on our trust preferred securities. Under the terms of the trust preferred securities notes, we may elect to defer interest payments on
the notes for up to five years; however, during such deferment (or if we default) we would be restricted from declaring or paying
dividends on our shares of common stock.
Thus, holders of our common stock should understand that future dividends could be further reduced or eliminated. In addition, if
we suspend or curtail our dividends, the price of our shares of common stock may decline.
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,
2010 was approximately 31,174 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.
Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact
on its market price.
The trading market for our common stock will depend in part on the research and reports that securities analysts publish about our
business and our Company. We do not have any control over these securities analysts and they may not initiate coverage or
continue to cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may
adversely affect its market price. If we are covered by securities analysts, and our common stock is the subject of an unfavorable
report, our stock price would likely decline. If one or more of these analysts ceases to cover our Company or fails to publish
regular reports on us, we could lose visibility in the financial markets, which may cause our stock price or trading volume to
decline.
24
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
41.4% of the outstanding shares of our stock as of February 28, 2011. 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 bank holding company under the BHCA. As a result, we are subject to
supervisory regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley Act, the BHCA, and other federal laws
subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of
supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.
Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations and various other factors may make it more
difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is
possible, however, that you would want a takeover attempt to succeed because, for example, a potential buyer could offer a
premium over the then prevailing price of our common stock.
For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareowner action. The
ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender offer,
merger, proxy contest or otherwise. Additionally, our Articles of Incorporation and Bylaws divide our Board of Directors into
three classes, as nearly equal in size as possible, with staggered three-year terms. One class is elected each year. The
classification of our Board of Directors could make it more difficult for a company to acquire control of us. We are also subject to
certain provisions of the Florida Business Corporation Act and our Articles of Incorporation that relate to business combinations
with interested shareowners. Other provisions in our Articles of Incorporation or Bylaws that may discourage takeover attempts
or make them more difficult include:
(cid:131)
(cid:131)
(cid:131)
Supermajority voting requirements to remove a director from office;
Provisions regarding the timing and content of shareowner proposals and nominations;
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.
Your shares of common stock are not an insured deposit.
The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other
government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your
entire investment.
25
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.
As of February 28, 2011, the Bank had 70 banking locations. Of the 70 locations, the Bank leases the land, buildings, or both at 9
locations and owns the land and buildings at the remaining 61.
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.
Reserved
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 1,768 shareowners of record as of March 1,
2011.
2010
2009
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High
Low
Close
Cash dividends declared per
share
$
14.19 $
11.56
12.60
14.24 $
10.76
12.14
18.25 $
12.36
12.38
14.61 $
11.57
14.25
14.34 $
11.00
13.84
17.10 $
13.92
14.20
17.35 $
11.01
16.85
27.31
9.50
11.46
0.10
0.10
0.10
0.19
0.19
0.19
0.19
0.19
Future payment of dividends will be subject to determination and declaration by our Board of Directors. Florida law limits the
amount of dividends that the Bank can pay annually to us. In addition, the Bank must seek approval from our regulators prior to
paying any dividends to us. If these approvals are not received, our ability to pay dividends to our shareowners is severely
limited. Furthermore, in accordance with the Federal Reserve Resolutions, we must seek regulatory approval from the Federal
Reserve before paying any dividends to our shareowners. See subsection entitled "Capital; Dividends; Sources of Strength" and
“Dividends” in the Business section on page 11 and the section entitled “Liquidity and Capital Resources – Dividends” -- in
Management's Discussion and Analysis of Financial Condition and Operating Results on page 53 and Note 15 in the Notes to
Consolidated Financial Statements.
26
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, 2005 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.
Index
Capital City Bank Group, Inc.
NASDAQ Composite
SNL $1B-$5B Bank Index
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
$
100.00 $
100.00
100.00
105.00 $
110.39
115.72
85.93 $
122.15
84.29
85.37 $
73.32
69.91
46.03 $
106.57
50.11
12/31/10
43.52
125.91
56.81
Period Ending
27
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data
2010
For the Years Ended December 31,
2008
2009
2007
Interest Income
Net Interest Income
Provision for Loan Losses
Net (Loss) Income
Per Common Share:
Basic Net (Loss) Income
Diluted Net (Loss) Income
Cash Dividends Declared
Book Value
Performance Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin (FTE)
Noninterest Income as % of Operating Revenues
Efficiency 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
Capital Ratios:
Tier 1 Capital Ratio
Total Capital Ratio
Tangible Capital Ratio
Leverage Ratio
Equity to Assets Ratio
Dividend Pay-Out Ratio
Averages for the Year:
Loans, Net
Earning Assets
Total Assets
Deposits
Shareowners' Equity
Year-End Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Shareowners' Equity
Other Data:
Basic Average Shares Outstanding
Diluted Average Shares Outstanding
Shareowners of Record(1)
Banking Locations(1)
Full-Time Equivalent Associates(1)
$
$ 110,495
97,533
23,824
(413)
$
122,776
105,934
40,017
(3,471)
142,866
108,866
32,496
15,225
$ (0.02) $
(0.02)
0.49
15.15
(0.20) $
(0.20)
0.76
15.72
0.89
0.89
0.74
16.27
$
$
$
$
165,323
112,241
6,163
29,683
1.66
1.66
0.71
17.03
(0.02)%
(0.16)
4.32
36.81
84.23
(0.14)%
(1.26)
4.96
35.14
77.33
0.59%
5.06
4.96
38.11
64.91
1.18%
9.68
5.25
34.57
66.77
$
35,436
$
2.01%
43,999
$
2.30%
37,004
$
1.89%
18,066
$
0.95%
145,286
8.00
40.57
1.35
144,052
7.38
40.77
1.66
107,842
5.48
37.52
0.71
28,163
1.47
71.92
0.27
13.24%
14.59
6.82
10.10
9.88
NM
12.76%
14.11
6.84
10.39
9.89
NM
13.34%
14.69
7.76
11.51
11.20
83.71
13.05%
14.05
7.71
10.83
11.19
42.77
2006
165,893
119,136
1,959
33,265
1.79
1.79
0.66
17.01
1.29%
10.48
5.35
31.81
65.42
17,217
0.86%
8,731
0.44
214.09
0.11
14.00%
14.95
8.48
11.30
12.15
37.01
$ 1,829,193
2,294,282
2,644,731
2,192,323
264,679
$ 1,961,990
2,184,232
2,516,815
1,992,429
275,545
$ 1,918,417
2,240,649
2,567,905
2,066,065
300,890
$ 1,934,850
2,183,528
2,507,217
1,990,446
306,617
$ 2,029,397
2,258,277
2,581,078
2,034,931
317,336
$ 1,758,671
2,269,185
2,622,053
2,103,976
259,019
$ 1,915,940
2,369,029
2,708,324
2,258,234
267,899
$ 1,957,797
2,156,172
2,488,699
1,992,174
278,830
$ 1,915,850
2,272,829
2,616,327
2,142,344
292,675
$ 1,999,721
2,270,410
2,597,910
2,081,654
315,770
17,075,867
17,076,724
1,768
70
975
17,043,964
17,044,711
1,778
70
1,006
17,141,454
17,146,914
1,756
68
1,042
17,909,396
17,911,587
1,750
70
1,097
18,584,519
18,609,839
1,805
69
1,056
(1) As of record date. The record date is on or about March 1st of the following year.
NM – Not Meaningful
28
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," "Executive Overview," "Results of Operations," "Financial Condition," "Liquidity and Capital Resources,"
"Off-Balance Sheet Arrangements," “Fourth Quarter, 2010 Financial Results,” 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 2010 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 which is not calculated based on accounting principles generally accepted
in the United States ("GAAP"), but that we believe provides 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. Management uses this non-GAAP measure 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 measure enhances investors’ understanding of our business and
performance this non-GAAP financial measure should not be considered an alternative to GAAP. In addition, there are material
limitations associated with the use of this non-GAAP financial measure such as the risks that readers of our financial statements
may disagree as to the appropriateness of items included or excluded in this measure and that our measure may not be directly
comparable to other companies that calculate this measure differently. Our management compensates for this limitation by
providing a detailed reconciliation 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
For the Years Ended December 31,
2009
2008
2010
79.77 %
85.95%
68.09%
(2.44 )%
(1.72)%
(3.19)%
77.33 %
84.23%
64.91%
29
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
Our Business
We are a bank holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly-owned subsidiary,
Capital City Bank (the "Bank" or "CCB"). The Bank offers a broad array of products and services through a total of 70 full-
service offices located in Florida, Georgia, and Alabama. The Bank offers commercial and retail banking services, as well as trust
and asset management, retail securities brokerage and data processing services.
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference
between the interest 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
fees, bank card fees, and data processing fees.
Much of our lending operations are within the State of Florida, which has been particularly hard hit in the current economic
recession. Evidence of the economic downturn in Florida is particularly reflected in current unemployment statistics and
realization of real estate property devaluation. According to the U.S. Department of Labor, the Florida unemployment rate
(seasonally adjusted) at December 2010 increased to 12.0% from 11.8% at the end of 2009 and 7.6% at the end of 2008. While
our Florida markets have generally realized an unemployment rate below the Florida rate, they have been adversely impacted as
evidenced by layoffs and business closings, as well as wealth reduction due to depressed markets. Real estate property valuations
have also been depressed during the economic downturn as evidenced by our higher level of problem assets and credit related
costs. An extended continuation of the recession in Florida would likely exacerbate the adverse effects of these difficult market
conditions on our clients, which may have a negative impact on our financial results.
Strategic Review
Our philosophy is to grow and prosper, building long-term client 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.
We have sought to build a franchise in small-to medium-sized, less competitive markets, located on the outskirts of the larger
metropolitan markets where we are positioned as a market leader. Many of our markets are on the outskirts of these larger
markets in close proximity to major interstate thoroughfares such as Interstates I-10 and I-75. Our three largest markets are
Tallahassee (Leon-Florida), Gainesville (Alachua-Florida), and Macon (Bibb-Georgia). In 14 of 20 markets in Florida and 3 of 5
markets in Georgia, we rank within the top 4 in terms of market share. Furthermore, in the counties in which we operate, we
maintain an average 8.35% market share in the Florida counties and 5.71% in the Georgia counties, suggesting that there is
significant opportunity to grow market share within these geographic areas. The major employers in these markets are state and
local governments, healthcare providers, education institutions, and small businesses. While we realize that the markets in our
footprint do not provide for a level of potential growth that the larger metropolitan markets may provide, our markets do provide
30
good growth dynamics and have historically grown in excess of the national average. We strive to provide value added services to
our clients by being their banker, not just a bank. This element of our strategy enables us to distinguish Capital City Bank Group
from our competitors and was memorialized during 2009 and 2010 in our “More Than Your Bank, Your Banker” advertising
campaign.
Our long-term vision is to profitably expand our franchise through a combination of organic growth in existing markets and
acquisitions. We have long understood that our core deposit funding base is a predominant driver in our profitability and overall
franchise value and have focused extensively on this component of our organic growth efforts in recent years. While we have not
been an active acquirer of banks since 2005, this component of our strategy is still in place and we continue to evaluate
opportunities and perform due diligence related to potential transactions. During the period 2005-2008, unreasonable pricing
expectations prevented us from consummating an acquisition. Since 2008, economic conditions and lack of visibility into credit
quality of potential targets have kept us out of the acquisition market. We have conducted due diligence on potential targets
during this time, including FDIC assisted transactions opportunities, but to date we have not chosen to pursue an FDIC assisted
transaction because we have not identified an opportunity that fit into our strategy from both a financial and strategic perspective.
High risk and volatile funding sources within these institutions as well as diversion of our management’s attention were also
factors that have caused us to not aggressively pursue these opportunities.
Potential acquisition growth will continue to be focused on Florida, Georgia, and Alabama with a particular focus on financial
institutions located on the outskirts of larger, 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, the western panhandle of Florida, and Bibb and surrounding counties in central Georgia.
We will also continue to evaluate de novo expansion opportunities in attractive new markets in the event that acquisition
opportunities are not feasible. Other expansion opportunities that will be evaluated include asset management and mortgage
banking. Embedded in our acquisition strategy is our desire to partner with institutions that are culturally similar, have
experienced management, and possess either established market presence or have potential for improved profitability through
growth, economies of scale, or expanded services. Generally, these target institutions will range in asset size from $100 million to
$400 million. Our ability to expand, however, may be restricted by the Federal Reserve Resolutions (See Item 1. Business-About
Us-Regulatory Matter).
EXECUTIVE OVERVIEW
Continuation of a difficult economic environment again impacted our earnings for 2010 as we realized a net loss of $0.4 million,
or $0.02 per diluted share compared to a net loss of $3.5 million, or $0.20 per diluted share for 2009. Despite the challenging
operating environment, we continue to operate from a position of strength as evidenced by our solid capital and liquidity positions
and the fact that we were not a TARP participant and have not raised capital. During 2010, we were focused on reducing our
problem assets and stabilizing overall loan portfolio quality, managing our funding mix, controlling operating costs, and
enhancing our risk management practices. These efforts gained traction by mid-year resulting in improved performance and
encouraging operating trends. We also implemented several initiatives to position the business for growth as the economy and
industry emerge from the recession.
Regulatory and financial reform was a focal point during 2010 and is likely to result in significant changes to the financial
services industry. The ultimate impact to us and the financial services industry remains largely to be determined, but we believe
that it will be manageable. Furthermore, while we expect the competitive landscape to change as a result of these reforms, we
believe we are well positioned to capitalize on both organic and acquisition related growth opportunities.
We see 2011 as challenging as the economy continues to be sluggish, loan demand remains soft, and unemployment levels remain
elevated. We believe that the strong foundation we have created coupled with our client-focused execution, strength of our
position within our markets, and efforts to improve our operating efficiency, positions us well for the future.
Key components of our 2010 financial performance are summarized below:
Results of Operations
(cid:120)
For 2010, tax equivalent net interest income declined $9.3 million, or 8.5%, to $99.0 million due to a reduction in loan
balances, lower earning asset yields, and higher level of foregone interest and lower loan fees, partially offset by a lower
cost of funds for deposits. Our net interest margin of 4.32% for 2010 was 64 basis points lower than 2009 reflecting an
unfavorable shift in the mix of our earning assets and lower yields. Throughout the year, we managed our deposit mix and
pricing to offset the lower earning asset yields and began deploying excess liquidity into the higher yielding investment
portfolio.
31
(cid:120) We recorded a loan loss provision of $23.8 million for 2010 compared to $40.0 million in 2009 reflecting a lower level of
impaired loans, a slowing of problem loan inflow, and other stabilizing trends within our loan portfolio. Costs related to
our other real estate owned (“OREO”) properties were a significant driver of our performance in 2010 and totaled $14.9
million versus $7.6 million in 2009, which reflects an increase in properties owned, their related carrying costs, and
periodic valuation write-downs.
(cid:120)
For the full year 2010, noninterest income declined $0.6 million, or 1.0%, from 2009 primarily attributable to lower deposit
fees of $1.6 million. The reduction in deposit fees reflects a lower level of overdraft fees attributable to current economic
conditions and a higher level of consumer awareness, which has impacted consumer and business spending habits, as well
as the recent implementation of new rules under Regulation E. Overall, the impact of Regulation E was not as significant
as expected.
(cid:120) Noninterest expense increased $1.8 million, or 1.4% in 2010 due primarily to higher expense for OREO properties of $7.3
million and FDIC insurance costs of $1.2 million, which was partially offset by lower expense for compensation of $2.3
million, printing and supplies of $0.4 million, advertising of $0.4 million, intangible amortization expense of $1.4 million,
professional fees of $0.2 million, interchange fees of $1.0 million, and the impact of reversing our Visa litigation reserve of
$0.8 million.
Financial Condition
(cid:120) Average earning assets for 2010 were approximately $2.294 billion, representing an increase of $110.0 million, or 5.0%,
over 2009 funded by deposit growth of $199.9 million, or 10.0%, reflecting our efforts to further build our core deposit
franchise. The overall mix of earning assets changed year over year as loan balances declined by $132.8 million
attributable to soft loan demand and the impact of loans migrating to OREO status as well as loan charge-offs.
(cid:120) We maintained a strong funds sold position during 2010 due to average deposit growth of approximately $200.0 million for
the year and the impact of soft loan demand and loan portfolio run-off. A portion of our funds sold position was deployed
into the investment portfolio during the second half of the year.
(cid:120) Nonperforming assets totaled $145.3 million at year-end 2010, slightly higher than our year-end 2009 total of $144.1
million. During the year, nonperforming assets reached a high of $153.7 million at the end of the first quarter, and declined
gradually for the remainder of the year reflecting our significant resources allocated to resolution efforts as well as
improvement in market activity.
(cid:120) Our allowance for loan losses at year-end 2010 was $35.4 million (2.01% of loans) and provided coverage of 41% of
nonperforming loans compared to $44.0 million (2.30% of loans) and 41% of nonperforming loans at year-end 2009.
(cid:120)
Shareowners’ equity declined by $8.9 million from $267.9 million at December 31, 2009 to $259.0 million at December
31, 2010. We continue to maintain a strong capital base as evidenced by a risk based capital ratio of 14.59% and a tangible
common equity ratio of 6.82% compared to 14.11% and 6.84%, respectively, at year-end 2009. Despite challenging market
conditions, we paid cash dividends totaling $8.4 million, or $0.49 per share, in 2010.
32
RESULTS OF OPERATIONS
For 2010, we realized a net loss of $0.4 million, or $0.02 per diluted share compared to a net loss of $3.5 million, or $0.20 per
diluted share, in 2009, and net income of $15.2 million, or $0.89 per diluted share in 2008.
The improvement in earnings for 2010 was due to a lower loan loss provision of $16.2 million, partially offset by an $8.4 million
reduction in net interest income, lower noninterest income of $0.6 million, higher noninterest expense of $1.8 million, as well as a
lower income tax benefit of $2.3 million.
For 2009, the decline in earnings compared to 2008 reflects a higher loan loss provision of $7.5 million, lower net interest income
of $2.9 million, lower noninterest income of $9.6 million, and higher noninterest expense of $10.6 million, partially offset by a
lower income tax provision of $12.0 million. 2008 earnings included a $6.25 million pre-tax gain from the sale of our merchant
services portfolio and a $2.4 million pre-tax gain from the redemption of Visa, Inc. shares related to its initial public offering.
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)
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
(Loss) Income Before Income Taxes
Income Tax (Benefit) Expense
Net (Loss) Income
Basic Net (Loss) Income Per Share
Diluted Net (Loss) Income Per Share
Net Interest Income
For the Years Ended December 31,
2008
2009
2010
142,866
122,776 $
110,495 $
2,482
1,447
2,296
145,348
125,072
111,942
34,000
16,842
12,962
111,348
108,230
98,980
32,496
40,017
23,824
2,482
2,296
1,447
76,370
65,917
73,709
67,040
57,391
56,825
121,472
133,916
132,115
21,938
(3,382)
6,713
(2,969)
15,225
(413) $
(8,807)
(5,336)
(3,471) $
(0.02) $
(0.02) $
(0.20) $
(0.20) $
0.89
0.89
$
$
$
$
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 2010, our taxable equivalent net interest income decreased $9.3 million, or 8.5%. This follows a decrease of $3.1 million, or
2.8%, in 2009, and a decrease of $3.3 million, or 2.9%, in 2008. The decrease in our taxable equivalent net interest income in
2010 resulted from a reduction in loans outstanding, lower earning assets yields reflecting unfavorable asset repricing, higher
foregone interest and lower loan fees, partially offset by the lower costs of funds for deposits.
For the year 2010, taxable equivalent interest income declined $13.2 million, or 10.5% from 2009 and $20.3 million, or 13.9% in
2009 over 2008. As compared to 2009, taxable equivalent interest income was impacted by the reduction in loans outstanding,
lower earning assets yields reflecting unfavorable asset repricing, higher foregone interest and lower loan fees.
These factors produced an 85 basis point decline in the yield on earning assets, which decreased from 5.73% in 2009 to 4.88% for
2010. This compares to a 75 basis point decline in 2009 over 2008.
Interest expense decreased $3.9 million, or 23.0% from 2009, and $17.2 million, or 50.0% in 2009 over 2008. The decline in
interest expense in 2010 resulted from a reduction in the rates on certificates of deposit which were significantly reduced in all
markets, as well as a net reduction in the rates for our variable rate subordinated notes. The reduction in 2009 from 2008 was
primarily a result of lower rates in all deposit products.
33
The average rate paid on interest bearing liabilities decreased 21 and 75 basis points compared to 2009 and 2008, respectively,
reflecting the factors mentioned above.
Strong deposit growth experienced in the latter half of 2009 and the first half of 2010 improved our liquidity position, but has also
adversely impacted our margin in the short term as a significant portion of this growth is currently invested in overnight funds.
Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on interest
bearing liabilities) decreased 59 basis points in 2010 compared to 2009 and increased 17 basis points in 2009 compared to 2008.
The decrease in 2010 was primarily attributable to the adverse impact of lower rates and higher foregone interest which more than
offset the repricing of our deposit base.
Our net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets) of
4.32% in 2010 was 64 basis points lower than the 4.96% recorded in both 2009 and 2008, respectively. In 2010, compared to
2009, the yield on earning assets declined 85 basis points and was partially offset by a decline in the cost of funds of 21 basis
points resulting in the year-over-year change in margin.
Continued pressure on asset repricing and an unfavorable shift in our earning asset mix resulted in a net interest margin of 4.41%
for the fourth quarter of 2010, which represents a decline of 18 basis points over the fourth quarter of 2009. Although down from
the fourth quarter of 2009, the net interest margin improved three basis points from the linked quarter, which marked the third
consecutive quarterly improvement in the net interest margin.
Throughout 2009 and 2010, historically low interest rates (essentially setting a floor on deposit repricing), foregone interest, lower
loan fees, unfavorable asset repricing without the flexibility to significantly adjust deposit rates and core deposit growth (which
has strengthened our liquidity position, but contributed to an unfavorable shift in our earning asset mix), have all placed pressure
on our net interest margin. Our current strategy as well as historically, is to not accept greater interest rate risk by reaching further
out the curve for yield, particularly given the fact that short term rates are at historical lows. We continue to maintain short
duration portfolios on both sides of the balance sheet and believe we are well positioned to respond to changing market
conditions. Over time, this strategy has produced fairly consistent outcomes and a net interest margin that is significantly above
peer comparisons. Given the unfavorable asset repricing and low rate environment, we anticipate continued pressure on the
margin during 2011.
34
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6
3
Provision for Loan Losses
The provision for loan losses was $23.8 million in 2010, compared to $40.0 million in 2009 and $32.5 million in 2008. The
decline in the provision for 2010 reflects lower impaired loan reserves as well as other stabilizing trends within the loan portfolio,
including improved loan delinquency trends, slowing of problem loan inflow, and a reduction in our problem loan portfolio. The
balance of our impaired loans declined for the last three quarters in 2010 and totaled $87.8 million at year-end 2010 compared to
$112.0 million at year-end 2009. Inflow into the impaired loan category slowed significantly year over year.
The increase in the provision for 2009 was attributable to a higher level of impaired loan reserves reflective of growth in the level
of nonperforming loans due to weaker economic and real estate market conditions. Activity within our real estate markets slowed
significantly in 2008 which resulted in declining property values, particularly vacant residential land. Higher unemployment
drove higher default and loss rates within our residential real estate and consumer loan portfolios, which significantly impacted
the 2009 and 2008 loan loss provisions.
Noninterest Income
Noninterest income totaled $56.8 million in 2010, $57.4 million in 2009, and $67.0 million in 2008. For 2010, the $0.6 million
decline was driven by lower deposit fees of $1.6 million and other income of $0.9 million, partially offset by higher asset
management fees of $0.3 million, mortgage banking fees of $0.2 million, retail brokerage fees of $0.2 million, and bank card fees
totaling $1.3 million.
For 2009, the $9.6 million decrease was primarily due to one-time transactions in 2008, including a $6.25 million pre-tax gain
from the sale of our merchant services portfolio and a $2.4 million pre-tax gain from the redemption of Visa shares. The sale of
our merchant services portfolio resulted in the retention of one client who we continued to process for until mid-2010. Merchant
fees declined by $1.2 million in 2010 and $3.2 million in 2009 reflecting the aforementioned sale. The processing costs related to
servicing our merchant portfolio were also substantially reduced during this same time period resulting in minimal impact on our
net income for all respective years. We discuss this matter further below.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 36.8% in 2010,
35.1% in 2009, and 38.1% in 2008. The improvement in this metric for 2010 was driven by the lower level of net interest income
in relation to total operating revenues. The decline in this metric for 2009 was primarily attributable to the two aforementioned
gains totaling $8.65 million.
For 2011, we expect our data processing fees will be reduced due to the loss of two client banks that were taken into receivership
by the FDIC during the later part of 2010. We anticipate that the conversion of these two clients to a new processor will take
place early in the second quarter of 2011 and that the annualized impact on our noninterest income will approximate $1.2 million.
In addition, we expect our bank card fees to be negatively impacted once final rules are completed regarding the regulation of
interchange fees by the Federal Reserve. We continue to monitor the proposed rulemaking regarding interchange fees, but cannot
ascertain its impact on our bank card fees at this time. We discuss both of these matters in further detail below.
The table below reflects the major components of noninterest income.
For the Years Ended December 31,
2008
2009
2010
$
$
26,500 $
3,610
4,235
2,820
8
2,948
5,077
-
4,123
7,504
56,825 $
28,142 $
3,628
3,925
2,655
10
2,699
4,432
-
3,515
8,385
57,391 $
27,742
3,435
4,235
2,399
125
1,623
4,165
6,250
2,988
14,078
67,040
(Dollars in Thousands)
Noninterest Income:
Service Charges on Deposit Accounts
Data Processing Fees
Asset Management Fees
Retail Brokerage Fees
Securities Transactions
Mortgage Banking Fees
Interchange Fees(1)
Gain on Sale of Portion of Merchant Services Portfolio
ATM/Debit Card Fees(1)
Other
Total Noninterest Income
(1) Together called “Bank Card Fees”
37
Various significant components of noninterest income are discussed in more detail below.
Service Charges on Deposit Accounts. For 2010, deposit service charge fees totaled $26.5 million, a decline of $1.6 million, or
5.8%, from 2009 attributable to a lower level of overdraft fees partially offset by a lower level of overdraft charge-offs. The
reduction in overdraft fees is reflective of current economic conditions and a higher level of consumer awareness that has both
impacted consumer and business spending habits. The implementation of new rules under Regulation E, which regulate our
ability to post one-time debit card/ATM transactions for clients who have not opted in to our overdraft protection service, also
contributed to the unfavorable variance in overdraft fees. While the new overdraft rules set forth in Regulation E did reduce our
recurring revenues from our overdraft protection products, the impact was mitigated due to a higher than expected opt-in rate
reflecting the value of this service to our client base. We project the annual impact attributable to the implementation of
Regulation E to be nominal and in the range of a 2%-4% deviation from our historical norm for total annual overdraft fees of
$21.4 million, $23.6 million, and $23.5 million, for 2010, 2009, and 2008, respectively. We do not expect the trend noted in 2010
related to the reduced level of overdraft charge-offs to continue at the level realized in the current year. In 2009, the $400,000, or
1.4%, increase in deposit service charge fees primarily reflects a lower level of overdraft charge-offs relative to 2008.
Data Processing Fees. In 2010, data processing fees declined by $18,000, or 0.5%, compared to an increase of $193,000, or
5.6%, for 2009. Lower processing volume for a large state government item processing contract was the primary reason for the
decline. During 2010, we maintained processing arrangements with seven banks and five government agencies. One of the
government agency clients represents approximately 28% of our total data processing fees revenue. We have performed item
processing for this agency for approximately 30 years – the processing contract is generally subject to renewal every three years.
During the fourth quarter of 2010, we received notification that two of our bank clients were taken into receivership by the FDIC.
We anticipate that these two clients will migrate to a new processor early in the second quarter of 2011 and that the annualized
impact on our data processing fees will approximate $1.2 million.
Asset Management Fees. In 2010, asset management fees increased by $310,000, or 7.9%, versus a decline of $310,000, or 7.3%,
in 2009. At year-end 2010, assets under management totaled $744.9 million, reflecting an increase of $38.1 million, or 5.4% from
2009. At year-end 2009, assets under management totaled $706.8 million, reflecting a decline of $42.1 million, or 6.3% from
2008. The increase in fees for 2010 is due to higher asset valuations for managed accounts – fees for these accounts are based on
a percentage of asset value. The decline in 2009 reflects lower asset valuations for managed accounts and to a lesser extent a
lower level of estate management fees.
Retail Brokerage Fees. Fees from the sale of retail investment and insurance products increased $165,000, or 5.9%, in 2010
compared to $256,000, or 10.7%, in 2009. The increase for both periods reflects higher trading volume as well as more active
financial planning by our clients due to more stable market conditions. Retail brokerage fees are significantly impacted by both
market conditions and investor sentiment.
Mortgage Banking Revenues. Mortgage banking fees increased $249,000, or 8.4% in 2010 and $1.1 million, or 66.3% in 2009.
The increase for 2010 was driven by a higher level of new loan production as well as an increase in FHA loan production which
provides a greater profit margin. A higher level of refinancing activity was the primary reason for the increase in 2009. Both
2009 and 2010 loan production benefited from favorable personal income tax incentives for first-time home buyers. We generally
sell all fixed rate residential loan production into the secondary market. Market conditions, housing activity, the level of interest
rates, and the percent of our fixed rate production have significant impacts on our mortgage banking fees.
Gain on the Sale of Merchant Services Portfolio. On July 31, 2008, we sold a portion of the Bank’s merchant services portfolio
resulting in a pre-tax gain of $6.25 million. We retained one merchant account which continued to be serviced by the Bank until
mid-2010.
Bank Card Fees. Bank card fees (including interchange fees and ATM/debit card fees) increased $1.3 million, or 13.6%, in 2010
and $794,000, or 11.1% in 2009. The increase for 2010 reflects the impact of a new client reward program implemented in early
2010 and higher card activation and utilization from our business debit card product. A higher level of foreign ATM fees related
to a fee change in early 2010 also contributed to the favorable variance in 2010. The increase in 2009 was primarily driven by
increased card activation and utilization of our business debit card product and an increase in the number of cards issued to new
transaction account clients. Legislation passed in 2010 under the Dodd-Frank Act is expected to impact interchange rates related
to debit cards once final regulations are passed by the Federal Reserve. While we expect this to potentially reduce the level of our
recurring bank card fees, there are many factors to review and consider in determining its prospective impact on us as well as how
we will respond to these changes. At this time, the impact cannot be ascertained, but in response we have begun a review of
potential changes to our deposit account product and fee structure to mitigate its potential negative impact.
Other. Other noninterest income decreased $0.9 million, or 10.5%, in 2010 and $5.7 million, or 40.4% in 2009. The decline for
both periods reflects a reduction in merchant fees due to the sale of our merchant services portfolio in August 2008. Merchant
fees totaled $1.1 million in 2010, $2.4 million in 2009, and $5.5 million in 2008. After the sale of the portfolio, we continued to
service one of our larger remaining clients until mid-2010 at which time this client migrated to another processor. The reduction
in this revenue source is substantially offset by a reduction in processing costs which is reflected in noninterest expense
(interchange fees) – the prospective impact on net income due to the sale of the merchant portfolio is not material. For 2008,
38
other income reflects the impact of a $2.4 million pre-tax gain from the redemption of our Visa shares related to its initial public
offering.
Noninterest Expense
Noninterest expense totaled $133.9 million in 2010 compared to $132.1 million in 2009 and $121.5 million in 2008. For 2010,
the $1.8 million increase reflects higher expense for OREO properties of $7.3 million and FDIC insurance fees of $1.2 million,
that was partially offset by lower expense for compensation of $2.3 million, printing and supplies of $0.4 million, advertising of
$0.4 million, intangible amortization expense of $1.4 million, professional fees of $0.2 million, and interchange fees of $1.0
million. Noninterest expense for 2010 also reflects the reversal of our remaining Visa litigation reserve which totaled
approximately $0.8 million, which had the effect of reducing noninterest expense.
For 2009, the $10.6 million increase was primarily due to higher legal fees of $1.7 million, OREO expenses of $5.7 million,
pension expense of $2.8 million, and FDIC insurance fees of $3.8 million. The variance for 2009 was also impacted by the
reversal of $1.1 million of our Visa litigation reserve. These increases were partially offset by lower intangible amortization of
$1.6 million and interchange fees of $2.6 million.
For 2010 and 2009, we realized an elevated level of costs related to the management and resolution of problem assets and we
expect an elevated level of costs to continue in 2011. These costs are primarily related to legal fees to support the collection of
loans and OREO properties, OREO carrying costs and valuation write-downs. In addition, our FDIC insurance fees have been
elevated reflective of revisions to the rate structure over the past two years by the FDIC and an increase in total deposit base. We
continue to review and evaluate opportunities to offset the impact of these increased costs and to improve our overall efficiency
ratio.
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
FDIC Insurance Fees
Intangible Amortization
Interchange Fees
Other Real Estate Owned
Miscellaneous
Total Other
For the Years Ended December 31,
2009
2008
2010
$
50,102 $
12,653
62,755
10,010
8,929
18,939
4,301
4,338
3,651
2,905
958
1,455
2,059
1,650
6,324
2,682
955
14,922
6,022
52,222
50,494 $
14,573
65,067
9,798
9,096
18,894
3,975
4,501
3,591
3,285
1,123
1,882
2,227
1,711
5,167
4,042
1,929
7,577
7,144
48,154
50,581
11,250
61,831
9,729
9,902
19,631
2,240
4,083
3,921
3,609
1,390
1,977
2,522
1,743
1,304
5,685
4,577
1,306
5,653
40,010
Total Noninterest Expense
$
133,916 $
132,115 $
121,472
Various significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled $62.8 million in 2010, $65.1 million in 2009, and $61.8 million in 2008. The $2.3
million reduction in 2010 was driven by lower associate benefit expense of $1.9 million attributable to a decline in pension
expense reflecting improved plan asset returns. Lower associate salary expense of $392,000 also contributed to the decrease and
primarily reflects a reduction in associate headcount. The $3.2 million increase in 2009 was due to higher associate benefit
expense of $3.3 million reflective of higher expense for our pension plan due to a loss in market value for pension plan assets.
39
Occupancy. Occupancy expense (including premises and equipment) totaled $18.9 million for 2010, $18.9 million for 2009, and
$19.6 million for 2009. For 2010, depreciation expense for buildings increased by $471,000 related to building projects including
the construction of a new building for our wealth management line of business, and the construction of two new retail offices that
will replace offices previously leased in our Macon and Palatka markets. The increase in depreciation was essentially offset by
lower lease expense of $206,000 reflecting the ending of the aforementioned leases as well as a $101,000 reduction in
depreciation for furniture, fixtures, and equipment (“FF&E”) and lower software license expense of $88,000. The reduction in
FF&E depreciation and software license expense reflects full amortization and depreciation of several software licenses and
system components related to our end-user and network system environments. In 2009, the $737,000, or 3.8% decrease was
primarily due to a reduction in depreciation and maintenance expense for FF&E. The decreases reflect the full depreciation of
several larger technology systems and an overall effort to improve the management and control of these expenditures.
Other. Other noninterest expense increased $4.1 million, or 8.4%, in 2010 and $8.1 million, or 20.4%, in 2009. The increase for
both periods was driven by higher expense for OREO properties which increased by $7.3 million and $6.3 million, respectively,
for each period as well as higher FDIC insurance fees of $1.7 million and $3.8 million, respectively. Higher legal fees also
contributed to the unfavorable variances for each period in the amounts of $326,000 and $1.7 million, respectively. The higher
level of OREO expenses in both periods reflects growth in OREO properties under management and associated carrying costs as
well as valuation write-downs. We expect our OREO expenses to remain elevated in 2011 as problem loans work through our
asset resolution process. We have realized a higher level of FDIC insurance fees in the past two years reflective of an increase in
premium rates mandated by the FDIC as well as higher deposit balances. A special assessment by the FDIC also impacted our
FDIC insurance costs in 2009. We expect that our FDIC insurance costs will be reduced in 2011 as a result of recent changes to
the FDIC’s rate structure and assessment base. Partially offsetting these unfavorable variances were declines in intangible
amortization expense of $1.4 million for 2010 and $1.6 million for 2009 reflecting the full amortization of core deposit intangibles
recorded during 2004 and 2005. For both 2010 and 2009, other noninterest expense was impacted by a reduction in interchange
fees due to the sale of our merchant services portfolio in August 2008. Interchange fees reflect the cost of processing our
merchant portfolio and totaled $955,000 in 2010, $1.9 million in 2009, and $4.6 million in 2008. After the sale of the portfolio,
we continued to service one of our larger clients until mid-2010 at which time this client migrated to another processor. The
reduction in this expense was more than offset by a decline in merchant fee revenue which is reflected in noninterest income. As
previously mentioned, the impact on operating profit for all periods due to the sale of our merchant portfolio was not material.
The reversal of our Visa litigation reserves in 2010 and 2008 totaling $0.8 million and $1.1 million, respectively, also had a
favorable impacted on other noninterest expense. Additionally, management implemented initiatives to better manage
controllable expenses, which resulted in favorable year-over-year variances in categories such as marketing, travel and
entertainment, printing and supplies, telephone, and postage.
Our operating efficiency ratio (expressed as noninterest expense, net of intangible amortization, as a percent of taxable equivalent
net interest income plus noninterest income) was 84.23%, 77.33%, and 64.91% in 2010, 2009 and 2008, respectively. A
significant decline in taxable equivalent net interest income negatively impacted this metric in 2010. For 2009, a lower level of
operating revenues (tax equivalent net interest income plus noninterest income) contributed to the decline in the operating
efficiency ratio versus 2008. In addition, the above metric for 2008 reflects the impact of the $6.25 million gain from the sale of
our merchant services portfolio, the $2.4 million gain from the redemption of Visa shares, and the $1.1 million reversal of Visa
litigation reserve.
As part of our strategic planning process, we continue to review and enhance our expense control procedures, including the
implementation of a vendor contract review process in 2009, which accrued cost savings benefits in 2009 and 2010, as well as
ongoing review of our organizational structure, delivery systems, and workflow processes.
Income Taxes
For 2010, we realized a tax benefit of $3.0 million (effective tax rate of 87.8%) compared to a tax benefit of $5.3 million
(effective tax rate of 60.6%) for 2009 and tax expense of $6.7 million (effective tax rate of 30.6%) in 2008. For all periods, we
had substantial tax exempt income which favorably impacted our tax provision. For 2010 and 2009, we also realized a lower level
of pre-tax income at our bank subsidiary due to higher credit related costs, primarily loan loss provision and OREO costs, which
favorably impacted our tax provision. The tax provision for 2010 was also affected by the recognition of a tax contingency
totaling approximately $440,000.
40
FINANCIAL CONDITION
Average assets totaled approximately $2.645 billion for the year 2010, an increase of $127.9 million, or 5.1%, over 2009.
Average earning assets were approximately $2.294 billion, representing an increase of $110.0 million, or 5.0%, over 2009. The
increase in average earning assets was funded by deposit growth and a reduction in our cash and due from banks position, partially
offset by a reduction in short-term borrowings and the resolution of problem loans (gross charge-offs and transfers to other real
estate). Year over year, average short term investments increased $215.7 million and investment securities increased $27.1
million, while average loans declined $132.8 million. 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
In 2010, average loans decreased $132.8 million, or 6.8%, as compared to 2009. Loans as a percent of average earning assets
declined to 79.7% in 2010, down from the 2009 level of 89.8%. The loan portfolio experienced runoff throughout the year driven
by declines in the commercial, construction, consumer and real estate portfolios. The home equity loan balance was higher year
over year primarily due to increased line utilization by existing borrowers. All portfolios continue to be impacted by weak loan
demand attributable to the sluggish economy. In addition to lower production and normal amortization and payoffs, the reduction
in the portfolio is also attributable to gross charge-offs and the transfer of loans to the other real estate owned category.
Our bankers continue to try to reach clients who are interested in moving or expanding their banking relationships. 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 and, where appropriate, have adjusted our standards to reflect
risks inherent in the current economic environment.
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
Real Estate – Home Equity
Consumer
Total Loans
Investment Securities:
Taxable
Tax-Exempt
Total Securities
2009 to
2010
Change
Percentage
Total
Change
Components of
Average Earning Assets
2009
2008
2010
$
$
$
(34,847)
(75,255)
7,190
(18,208)
14,405
(26,083)
(132,798)
(32.0)%
(68.0)
7.0
(17.0)
13.0
(25.0)
(122.0)%
7.2%
2.8
30.3
19.1
10.8
9.5
79.7%
42,430
(15,331)
27,099
39.0%
(14.0)
25.0
5.5%
4.0
9.5
9.1%
6.4
31.5
31.6
31.5
11.2
89.8%
3.8%
4.9
8.7
8.8%
6.6
28.0
31.1
28.0
11.1
85.6%
4.2%
4.3
8.5
5.9
Funds Sold
215,748
197.0
10.8
1.5
Total Earning Assets
$
110,049
100.0%
100.0%
100.0%
100.0%
Our average loan-to-deposit ratio decreased to 83.4% in 2010 from 98.5% in 2009. The lower loan-to-deposit ratio reflects both
the decline in average loan balances, and growth in average deposits.
The composition of our loan portfolio at December 31st for each of the past five years is shown in Table 5. Table 6 arrays our
total loan portfolio as of December 31, 2010, based upon maturities. As a percent of the total portfolio, loans with fixed interest
rates represent 34.0% as of December 31, 2010, versus 34.6% at December 31, 2009.
41
$
2010
157,394
43,239
671,702
430,541
251,565
204,230
$ 1,758,671
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate – Commercial Mortgage
Real Estate - Residential
Real Estate – Home Equity
Consumer
Total Loans, Net of Unearned Interest
Table 6
LOAN MATURITIES
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer(1)
Total
Loans with Fixed Rates
Loans with Floating or Adjustable Rates
Total
$
As of December 31,
2008
206,230 $
141,973
656,959
484,238
218,500
249,897
2006
229,327
179,072
643,885
536,138
173,597
237,702
$ 1,915,940 $ 1,957,797 $ 1,915,850 $ 1,999,721
2007
208,864 $
142,248
634,920
488,372
192,428
249,018
2009
189,061 $
111,249
716,791
416,469
246,722
235,648
Maturity Periods
One Year
or Less
$ 66,834 $
39,641
142,279
91,589
829
22,158
363,330 $
$
Over One
Through
Five Years
Over
Five
Years
Total
144,181
63,188 $
43,240
888
684,914
116,998
430,541
56,251
251,565
7,977
145,544
204,230
390,846 $ 1,004,495 $ 1,758,671
14,159 $
2,711
425,637
282,701
242,759
36,528
$
$
136,751 $
226,579
363,330 $
597,135
157,592 $
302,792 $
88,054
846,903 1,161,536
390,846 $ 1,004,495 $ 1,758,671
(1) Demand loans and overdrafts are reported in the category of one year or less.
Risk Element Assets
Risk element assets consist of nonaccrual loans, troubled debt restructurings, past due loans, other real estate owned, potential
problem loans and loan concentrations. Table 7 depicts certain categories of our risk element assets as of December 31st for each
of the last five years.
At year-end 2010, our nonperforming assets (including nonaccrual loans, troubled debt restructurings, and other real estate
owned) totaled $145.3 million, an increase of $1.2 million from year-end 2009. Year over year, the slight increase in total
nonperforming assets reflects a $20.6 million decline in the nonaccrual loan balance, as loans were resolved or transferred to
OREO, which increased $21.8 million. During the year, nonperforming assets reached a high of $153.7 million at the end of the
first quarter, and declined gradually for the remainder of the year reflecting our significant resources allocated to problem asset
resolution efforts as well as improvement in market activity. Year over year, we also realized a slowing of loan defaults and
inflow to the nonaccrual loan category. At year-end, nonperforming assets represented 8.00% of loans and OREO compared to
7.38% at year-end 2009. The change in this ratio from the prior year-end reflects a decline in our loan portfolio balances.
During 2010, we implemented a number of measures and allocated significant resources to reduce our level of nonperforming
assets and mitigate losses. While the absolute level of nonperforming assets remains elevated at year-end 2010, favorable trends
were evident for the second half of the year. During the second half of 2010, we realized an increased pace of OREO dispositions
as well as a slowing of problem loan inflow, which is reflected in improved delinquency trends and a reduced level of loans within
our problem loan portfolio. Trends within our problem loan portfolio will continue to be impacted by the pace of the economic
recovery, consumer and investor confidence, and activity within our markets. In addition, we expect that the protracted real estate
recovery will have a significant impact on the pace of migration within our problem loan portfolio and nonperforming asset
resolution and/or disposal, therefore, making it difficult to predict period to period changes in the level of our nonperforming
assets.
42
Table 7
RISK ELEMENT ASSETS
(Dollars in Thousands)
2010
2009
2008
2007
2006
As of December 31,
Nonaccruing Loans
Troubled Debt Restructurings
Total Nonperforming Loans
Other Real Estate Owned
Total Nonperforming Assets
Past Due Loans 30 – 89 Days
Past Due Loans 90 Days or More (accruing)
$
$
$
65,700
$
21,649
87,349
57,937
145,286 $
86,274 $
21,644
107,918
36,134
144,052 $
96,876 $
1,744
98,620
9,222
107,842 $
24,193
36,501
37,343
25,119 $
-
25,119
3,043
28,162 $
28,157
159 $
- $
88 $
416 $
8,042
-
8,042
689
8,731
20,917
135
Nonperforming Loans/Loans
Nonperforming Assets/Loans Plus Other Real Estate
Nonperforming Assets/Capital(1)
Allowance/Nonperforming Loans
4.97%
8.00
49.34
40.57%
5.63%
7.38
46.19
40.77%
5.04%
5.48
34.15
37.52%
1.31%
1.47
9.06
71.92% 214.09%
0.40%
0.44
2.62
(1) For computation of this percentage, "Capital" refers to shareowners' equity plus the allowance for loan losses.
Nonaccrual Loans. Nonaccrual loans totaled $65.7 million at year-end 2010, a decline of $20.6 million from year-end 2009.
During 2010, we realized a much lower level of loan defaults and a slowing of inflow into the nonaccrual loan category.
Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management
deems the collectability of the principal and/or interest to be doubtful. Once a loan is placed in nonaccrual status, all previously
accrued and uncollected interest is reversed against interest income. Interest income on nonaccrual loans is recognized 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 or when future payments are reasonably assured. If interest on our loans classified
as nonaccrual during 2010 had been recognized on a fully accruing basis, we would have recorded an additional $7.8 million of
interest income for the year ended December 31, 2010.
The composition of our nonaccrual loan portfolio as of December 31 is provided in the table below.
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total Nonaccrual Loans
$
$
2010
2009
1,059 $
1,907
26,874
30,189
4,803
868
65,700 $
2,729
20,797
29,042
26,599
5,280
1,827
86,274
Vacant land loans (residential and commercial) of $18.7 million (approximately 170 borrowing relationships) represented
approximately 28% of our nonaccrual loan balance at year-end 2010, which is a decline from $38.0 million, or 44%, at the end of
2009 and $51.3 million, or 53% at year-end 2008. This declining trend reflects the migration of these loans through the resolution
process as well as the slowdown in loan defaults for the remaining portion of this portfolio class. Of the $18.7 million in these
loans as of year-end, a large majority (76%) are in the residential real estate loan category.
Troubled Debt Restructurings (“TDR’s”). TDR’s are loans on which, due to the deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven. We do
not maintain a formal loan modification program, but from time to time our lenders will modify a loan as a workout alternative.
Most of these instances involve a principal moratorium or extension of the loan term. Loans classified as TDR’s totaled $21.6
million at year-end 2010 and 2009. During 2010, we modified 144 loan contracts totaling approximately $32.0 million of which
21 loan contracts totaling $5.5 million have defaulted. Modified loans are subject to an underwriting evaluation as well as our
policies governing accrual/nonaccrual evaluation consistent with all other loans of the same product type. Loans classified as
TDR’s that perform according to the restructured terms for a period of time (minimum of six months) may be removed from the
TDR classification. As of year-end 2010, all of our TDR’s were on accruing status of which $3.2 million (13 loans) were over 30
days past due.
43
The composition of our TDR portfolio as of December 31 is provided in the table below.
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total TDR’s
$
$
2010
2009
768 $
660
10,635
8,884
648
54
21,649 $
469
3,357
9,179
8,438
166
35
21,644
Other Real Estate Owned (“OREO”). OREO represents property acquired as the result of borrower defaults on loans or by
receiving a deed in lieu of foreclosure. OREO is recorded at the lower of cost or estimated fair value, less estimated selling costs,
at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for possible loan losses. On an
ongoing basis, properties are either revalued internally or by a third party appraiser as required by applicable regulations.
Subsequent declines in value are reflected as other noninterest expense. Carrying costs related to maintaining the OREO
properties are expensed as incurred and are also reflected as other noninterest expense.
OREO totaled $57.9 million at December 31, 2010 versus $36.1 million at December 31, 2009. During 2010, we added properties
totaling $49.2 million and partially or completely liquidated properties totaling $18.1 million. Revaluation adjustments for other
real estate owned properties during 2010 totaled $9.3 million and were charged to noninterest expense when realized.
The composition of our OREO portfolio as of December 31 is provided in the table below.
(Dollars in Thousands)
Lots/Land
Residential 1-4
Commercial Building
Other
Total OREO
$
$
2010
2009
33,923 $
14,092
8,209
1,713
57,937 $
27,258
7,065
1,534
277
36,134
Potential Problem Loans. 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. At December 31, 2010, we had $23.0 million in
loans of this type which are not included in either of the nonaccrual, troubled debt restructurings or 90 day past due loan
categories compared to $28.0 million at year-end 2009. The year over year decline reflects a slowdown in the additions to our
potential problem loan pool during the second half of 2010. Management monitors these loans closely and reviews their
performance on a regular basis.
Loan Concentrations. 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 (79.4%) secured by real estate, the primary types of real estate collateral are commercial
properties and 1-4 family residential properties. At December 31, 2010, commercial real estate and residential real estate
mortgage loans (including home equity loans) accounted for 38.2% and 38.8%, respectively, of the total loan portfolio.
Furthermore, approximately 9.7% of our loan portfolio is secured by loans with vacant land as the primary collateral. These loans
include both improved and unimproved land and are comprised of loans to individuals as well as builders/developers with a
majority of the collateral (approximately 76%) zoned as residential property.
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. Loan losses 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 loan portfolio's overall credit quality and other risk factors both internal and
external to us.
44
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 classified loan
relationships that exceed $100,000 are reviewed for impairment. The evaluation to determine if a loan is impaired is based on the
repayment capacity 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 for 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 loan pool and
internal risk rating) and are adjusted for various internal and external risk factors unique to each loan pool.
The unallocated portion of the allowance is monitored on a regular basis and adjusted based on management’s determination of
estimation risk. Table 8 analyzes the activity in the allowance over the past five years.
For 2010, our net charge-offs totaled $32.4 million, or 1.77% of average loans, compared to $32.6 million, or 1.66% for 2009, and
$13.6 million, or 0.71% for 2008. Over the last twelve quarters, we have recorded a cumulative loan loss provision totaling $96.3
million, or 5.0% of beginning loans and have recognized cumulative net charge-offs of $78.6 million, or 4.1%. At year-end 2010,
the allowance for loan losses of $35.4 million was 2.01% of outstanding loans (net of overdrafts) and provided coverage of 41%
of nonperforming loans compared to 2.30% and 41%, respectively, at the end of 2009, and 1.89% and 38% at the end of 2008.
Due to the protracted recovery of the economy and our real estate markets, particularly the residential sector, we expect that our
net loan charge-offs will remain above historical levels. Over the past twelve quarters, approximately $42.0 million of our gross
loan losses were related to loans secured by vacant land, primarily residential real estate property. Our exposure to vacant
residential land continues to decline as we resolve these relationships through foreclosure or develop work out strategies. At year-
end 2010, we maintained reserves allocated to this portfolio of approximately $7.7 million, or 40% of these loans that were
classified as impaired loans.
Table 9 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. The allowance allocated to our real estate construction loan category reflects a
significant year over year decline which primarily reflects the resolution of several of these problem loan relationships as well as a
higher level of loan run-off in this category and the reclassification of approximately $10.0 million in loans to the residential real
estate loan category due to moving to a permanent, term repayment schedule..
The allowance for loan losses was $35.4 million at December 31, 2010 and $44.0 million at December 31, 2009. The allowance
for loan losses was 2.01% of outstanding loans (net of overdrafts) and provided coverage of 41% of nonperforming loans at year-
end 2010 compared to 2.30% and 41% at year-end 2009. Year over year reduction in the level of impaired loans as well as other
stabilizing trends within the loan portfolio, including improved loan delinquency trends and a reduced level of potential problem
loans, as well as a reduction in the volume of loan defaults resulted in a lower level of allowance at year-end 2010. It is
management’s opinion that the allowance at December 31, 2010 is adequate to absorb losses inherent in the loan portfolio at year-
end.
45
Table 8
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
2010
For the Years Ended December 31,
2007
2008
2009
2006
$
Balance at Beginning of Year
Reclassification of Unfunded Reserve to Other Liability
43,999
$
-
37,004
$
392
18,066 $
-
17,217 $
-
17,410
-
Charge-Offs:
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total Charge-Offs
Recoveries:
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total Recoveries
2,118
5,877
8,762
12,168
3,087
3,502
36,514
2,590
8,031
4,417
13,491
1,632
5,912
36,073
1,649
2,581
1,499
3,787
267
6,192
15,975
370
8
261
385
555
567
540
53
525
5
1,548
3,127
1,753
3,443
331
4
15
161
1
1,905
2,417
1,462
166
709
407
1,022
3,451
7,217
174
-
14
34
2
1,679
1,903
841
-
346
260
20
2,516
3,983
246
-
17
11
-
1,557
1,831
Net Charge-Offs
32,387
32,630
13,558
5,314
2,152
Provision for Loan Losses
23,824
40,017
32,496
6,163
1,959
Balance at End of Year
$
35,436 $
43,999 $
37,004 $
18,066 $
17,217
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
1.77%
1.66%
0.71%
0.27%
0.11%
2.01%
2.30%
1.89%
0.94%
0.86%
1.09x
1.35x
2.73x
3.40x
8.00x
46
Table 9
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2010
2009
2008
2007
2006
(Dollars in
Thousands)
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Allow-
ance
Amount
Commercial,
Financial and
Agricultural $
1,544
8.9% $
2,409
9.9% $ 2,401
10.5% $
3,106
10.9%
$
3,900
11.5%
Real Estate:
Construction
Commercial
Residential
2,060
8,645
17,046
2.5 12,117
38.2
8,751
24.5 14,159
8,973
5.8
37.4
6,022
21.7 12,489
Home Equity
Consumer
Not Allocated
2,522
2,612
1,007
14.3
11.6
-
2,201
3,457
905
12.9
12.3
-
1,091
5,055
973
7.3
33.6
24.7
11.2
12.8
-
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
-
Total
$ 35,436 100.0% $ 43,999 100.0% $ 37,004 100.0% $ 18,066 100.0% $ 17,217
100.0%
Investment Securities
In 2010, our average investment portfolio increased $27.1 million, or 14.3%, from 2009 and decreased $0.8 million, or 0.4%, from
2008 to 2009. As a percentage of average earning assets, the investment portfolio represented 9.4% in 2010, compared to 8.7% in
2009. In 2010, the increase in the average balance of the investment portfolio was primarily attributable to an investment strategy to
deploy a portion of the Bank’s liquidity, in addition to purchasing securities for pledging deposits which transitioned from accounts
that were guaranteed by the FDIC into products requiring pledging. In 2009, the decrease in the average balance of the investment
portfolio was a result of lower pledging requirements for public deposits attributable to the FDIC Transaction Account Guarantee
Program. In 2011, we will closely monitor liquidity levels and pledging requirements to assess the need to purchase additional
investments.
In 2010, average taxable investments increased $42.4 million, or 50.7%, while tax-exempt investments decreased $15.3 million, or
14.5%. The mix changed as high quality tax-exempt securities were in limited supply during 2010 resulting in a portion of the
proceeds from maturing tax-exempt securities being invested in taxable securities (primarily treasuries). Management will continue to
purchase municipal issues as they become available and when it considers the yield to be attractive.
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, 2010, all securities are classified as available-for-sale which offers management
full flexibility in managing our liquidity and interest rate sensitivity without adversely impacting our regulatory capital levels. 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. 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 income
(loss) component of shareowners' equity. At December 31, 2010, the investment portfolio maintained a net pre-tax unrealized gain
of $1.1 million compared to a net pre-tax unrealized gain of $1.3 million at December 31, 2009. At the end of 2010, 39 of our
investment securities had an unrealized loss totaling $0.7 million and have been in a loss position for less than 12 months. These
securities consist of US Treasuries, mortgage-backed securities, and municipal bonds that are in a loss position because they were
acquired when the general level of interest rates was lower than that on December 31, 2010. One security, a preferred bank stock
issue had an unrealized loss of $0.6 million that has been in a loss position for more than 12 months. For 2010, we realized $0.1
million in other than temporary impairment through earnings for this security.
The average maturity of the total portfolio at December 31, 2010 and 2009 was 1.89 and 1.13 years, respectively. The maturity
extension was a result of purchases of $140 million in US Treasuries with maturities of 2-3 years and $ $38 million in CMO’s with
an average life of approximately 3.2 years. See Table 10 for a breakdown of maturities by investment type.
47
The weighted average taxable equivalent yield of the investment portfolio at December 31, 2010 was 1.59%, versus 3.43% in 2009.
This lower yield was a result of matured bonds being invested at lower market rates during 2010. Our bond portfolio contained 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, 2010. New investments are being made selectively into high quality
bonds.
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.
Table 10
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
2010
As of December 31,
2009
2008
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
$
9,050 $
9,091
1.64% $
11,034 $
11,111
2.04% $
18,695 $
19,033
3.54%
(Dollars in Thousands)
U.S. GOVERNMENTS
Due in 1 year or less
Due over 1 year through 5
years
151,863 153,060
0.96
11,236
11,333
1.53
17,490
17,909
1.98
Due over 5 years through 10
years
Due over 10 years
TOTAL
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
TOTAL INVESTMENT
SECURITIES
-
-
-
-
160,913 162,151
-
-
1.00
-
-
22,270
-
-
22,444
-
-
1.78
-
-
36,185
-
-
36,942
-
-
2.79
52,987
53,189
1.97
58,987
59,477
3.90
39,277
39,581
5.02
26,003
26,110
1.54
47,468
48,073
2.49
61,093
61,981
-
-
78,990
-
-
79,299
-
-
1.84
-
-
-
-
106,455 107,550
-
-
3.28
-
-
-
-
100,370 101,562
4.55
-
-
4.74
7,377
7,488
3.85
8,400
8,506
3.91
1,258
1,267
3.84
31,717
32,034
2.70
24,742
25,398
4.01
30,803
30,907
4.44
17,005
-
56,099
16,695
-
56,217
-
-
-
-
-
12,664
12,664
-
12,064
12,064
2.27
-
2.72
-
-
-
2.58
2.58
233
-
33,375
239
-
34,143
-
-
-
-
-
12,536
12,536
-
12,536
12,536
4.44
-
3.99
-
-
-
6.18
6.18
1,420
6,379
39,860
1,426
6,476
40,076
-
-
-
-
1,000
11,882
12,882
1,107
11,882
12,989
5.29
5.38
3.74
-
-
5.00
5.94
5.87
$ 308,666 $ 309,731
1.59% $
174,636 $ 176,673
3.43% $ 189,297 $ 191,569
4.26%
(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) Based on weighted average life.
(3) 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.
48
AVERAGE MATURITY
(In Years)
U.S. Governments
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities
TOTAL
Deposits and Funds Purchased
As of December 31,
2009
2010
2008
1.77
0.85
3.68
-
1.89
0.95
0.96
1.82
-
1.13
1.15
1.56
4.98
-
2.24
Average total deposits for the year were $2.192 billion, an increase of $199.9 million, or 10.0%, compared to the same period in
2009. All deposit categories experienced year over year growth except certificate of deposits. Noninterest bearing deposits were
higher, fueled by the growth of the Absolutely Free Checking (“AFC”) products, which continue to be successful as both balances
and the number of accounts increased. Growth in public deposits resulted in higher NOW accounts as the success of the
Guarantee NOW product resulted in new relationships and higher balances with existing clients. Savings accounts experienced
steady growth from the retail base for the second straight year. The decline in certificates of deposits partially offset these
favorable variances as the portfolio experienced run-off during the second half of 2010. The run-off was attributable to
reductions in the number of single relationship, higher yielding certificates of deposit.
The lower year-to-date average for 2009, compared to the same period in 2008, reflects a decline in both money market and
NOW account balances. During the first half of 2009, money market balances declined in most markets. Partially offsetting the
first half decline was the introduction of a money market promotion during the third quarter in select markets, which resulted in
new account relationships and higher balances from existing clients. The decline in NOW account balances was primarily
attributable to lower average public fund balances during the year.
We continue to pursue prudent pricing discipline and to manage the mix of our deposits. Therefore, we are not attempting to
compete on price with higher rate paying competitors for these deposits.
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 (“FHLB”) advances (maturing in less than one year), and other borrowings, decreased $51.4 million, or 64.9%
in 2010. The decrease is attributable to a $35.4 million decrease in funds purchased, a decline in repurchase agreements of $14.5
million and a $1.5 million decrease in other borrowings primarily attributable to maturities of FHLB advances. The year-over-
year decline in federal funds purchased resulted from higher deposits balances mentioned above while the repurchase agreement
decrease was attributable to several large clients migrating to NOW accounts with the government guarantee. At year-end 2010,
several large clients transferred balances back to repurchase agreements from the guarantee NOW product as the government’s
guarantee program relative to interest bearing deposits expired on December 31, 2010. See Note 8 in the Notes to Consolidated
Financial Statements for further information on short-term borrowings.
Strategically, we continue to focus on the value of our deposit franchise, which produces a strong base of core deposits with
minimal reliance on wholesale funding.
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits
NOW Accounts
Money Market Accounts
Savings
Time Deposits
Total Deposits
2009 to
2010
Change
Percentage
of Total
Change
$
$
44,080
151,966
255
10,363
(6,770)
199,894
22.1%
76.0
0.1
5.2
(3.4)
100.0%
Components of
Total Deposits
2010
21.1%
39.4
14.6
6.0
18.9
100.0%
2009 2008
21.0% 19.7%
35.7
16.1
6.1
21.1
100.0% 100.0%
36.0
18.1
5.6
20.6
49
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
Market Risk and Interest Rate Sensitivity
December 31, 2010
Time Certificates of
Deposit
Percent
$
$
38,933
30,647
48,556
12,951
131,087
29.7%
23.4
37.0
9.9
100.0%
Overview. Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk
management policies to monitor and limit exposure to market risk and do not participate in activities that give rise to significant
market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our
policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management. Our net income is largely dependent on net interest income. Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets.
When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or
reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. Net
interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities
rather than by other sources of funds, such as noninterest-bearing deposits and shareowners’ equity.
We have established a comprehensive interest rate risk management policy, which is administered by management’s Asset
Liability Management Committee (ALCO). The policy establishes limits of risk, which are quantitative measures of the
percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure
of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for maturities from one day to
30 years. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term
value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures
optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As
with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology
used by us. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing
liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the
model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’
ability to service their debts, or the impact of rate changes on demand for loan and deposit products.
We prepare a current base case and three alternative simulations, at least once a quarter, and report the analysis to ALCO, our
Market Risk Oversight Committee (“MROC”) and the Board of Directors. In addition, more frequent forecasts may be produced
when interest rates are particularly uncertain or when other business conditions so dictate.
Our interest rate risk management goal is to avoid unacceptable variations in net interest income and capital levels due to
fluctuations in market rates. Management attempts to achieve this goal by balancing, within policy limits, the volume of floating-
rate liabilities with a similar volume of floating-rate assets, by keeping the average maturity of fixed-rate asset and liability
contracts reasonably matched, by maintaining a pool of administered core deposits, and by adjusting pricing rates to market
conditions on a continuing basis.
The balance sheet is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk. Average
interest rates are shocked by plus or minus 100, 200, and 300 basis points (“bp”), although we may elect not to use particular
scenarios that we determined are impractical in a current rate environment. It is management’s goal to structure the balance sheet
so that net interest earnings at risk over a 12-month period and the economic value of equity at risk do not exceed policy
guidelines at the various interest rate shock levels.
We augment our quarterly interest rate shock analysis with alternative external interest rate scenarios on a monthly basis. These
alternative interest rate scenarios may include non-parallel rate ramps.
Analysis. Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term
performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year.
They do not necessarily indicate the long-term prospects or economic value of the institution.
50
ESTIMATED CHANGES IN NET INTEREST INCOME (1)
Changes in Interest Rates
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
December 31, 2010
December 31, 2009
+/-10.0%
-9.7%
-6.1%
+/-7.5%
-5.5%
-3.4%
+/-5.0%
-1.9%
-0.8%
+/-5.0%
-1.0%
0.7%
The Net Interest Income at Risk position declined for the month of December 2010, when compared to the same period in 2009,
for all rate scenarios. Our largest exposure is at the +300 basis point (“bp”) level, with a measure of -9.7%, which is still within
our policy limit of -10.0%. The year-over-year variance is attributable to several key assumption changes, and deploying
overnight funds into fixed-termed investments with greater than one year maturities. All measures of net interest income at risk
are within our prescribed policy limits.
The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates on
all of our cash flows, and discounting the cash flows to estimate the present value of assets and liabilities. The difference between
these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value
of our net assets.
ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY (1)
Changes in Interest Rates
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
December 31, 2010
December 31, 2009
+/-12.5%
-1.2%
-4.3%
+/-10.0%
2.4%
0.4%
+/-7.5%
3.5%
2.7%
+/-7.5%
-6.6%
-7.0%
Our risk profile, as measured by EVE, improved for the month of December 2010, when compared to the same period in 2009, for
both the “down rate” and “up rate” scenarios. The favorable variance between periods is attributable to the changes in several key
assumptions, as previously mentioned above in the Net Interest Income at Risk section, in addition to increases in the FHLB
curve, resulting in improved non-maturity deposit values. When comparing the up 300 scenario to the up 100 and 200 scenarios,
the EVE measurement declines to -1.2% which is primarily attributable to the varied assumptions on the non-maturity deposits in
the rising rate scenarios. Based on historical data, interest rates on non-maturity deposits are increased at varied percentages in the
rising rate scenarios, with the up 300 scenario being the most aggressive. All measures of economic value of equity are within our
prescribed policy limits.
(1) Down 200 and 300 rate scenarios have been excluded due to the current historically low interest rate environment.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their
terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated
and monitored by our Asset Liability Committee (ALCO) and senior management, and which take into account the marketability
of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various
funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. For the years ended December 31,
2010 and 2009, our principal source of funding has been our client deposits, supplemented by our short-term and long-term
borrowings, primarily from securities sold under repurchase agreements, federal funds purchased and FHLB borrowings. We
believe that the cash generated from operations, our borrowing capacity and our access to capital resources are sufficient to meet
our future operating capital and funding requirements.
As of December 31, 2010, we have the ability to generate $705 million in additional liquidity through all of our available
resources. In addition to the primary borrowing outlets mentioned above, we also have the ability to generate liquidity by
borrowing from the Federal Reserve Discount Window and through brokered deposits. Management recognizes the importance of
maintaining liquidity and has developed a Contingent Liquidity Plan, which addresses various liquidity stress levels and our
response and action based on the level of severity. We periodically test our credit facilities for access to the funds, but also
understand that as the severity of the liquidity level increases certain credit facilities may no longer be available. A liquidity stress
test is completed on a quarterly basis based on events that could potentially occur at the Bank with the results reported to ALCO,
our Market Risk Oversight Committee and the Board of Directors. The liquidity available to us is considered sufficient to meet
our ongoing needs.
51
We view our investment portfolio as a liquidity source and have the option to pledge the portfolio as collateral for borrowings or
deposits, and/or sell selected securities. The portfolio consists of debt issued by the U.S. Treasury, U.S. governmental agencies,
and municipal governments. The weighted average life of the portfolio is approximately two years and as of year-end had a net
unrealized pre-tax gain of $1.71 million.
Our average liquidity (defined as funds sold plus interest bearing deposits with other banks less funds purchased) for the fourth
quarter of 2010 reflects a net overnight funds sold position of $164.9 million compared to an average net overnight funds sold
position of $246.9 million in the third quarter of 2010 and an average net overnight funds sold position of $101.1 million during
the fourth quarter of 2009. The unfavorable variance of $82.0 million in the funds position compared to the linked quarter is
primarily attributable to increases in the investment portfolio and lower deposit balances partially offset by net reductions in the
loan portfolios. The favorable variance from the fourth quarter of 2009 reflects increases in deposit balances and net reductions in
the loan portfolios partially offset by increases in the investment portfolio and decreases in fed funds purchased.
Capital expenditures are expected to approximate $5.0 million over the next 12 months, which consist primarily of banking office
remodeling, ATM replacements, furniture and fixtures, and technology purchases. Management believes that these capital
expenditures will be funded with existing resources without impairing our ability to meet our on-going obligations.
Borrowings
At December 31, 2010, advances from the FHLB consisted of $60.1 million in outstanding debt consisting of 50 notes. In 2010,
the Bank made FHLB advance payments totaling approximately $3.3 million, paid off one advance for $0.6 million, and obtained
ten new FHLB advances totaling $14.0 million. The FHLB notes are collateralized by a blanket floating lien on all of our 1-4
family residential mortgage loans, commercial real estate mortgage loans, and home equity mortgage loans.
Table 13
CONTRACTUAL CASH OBLIGATIONS
Table 13 sets forth certain information about contractual cash obligations at December 31, 2010.
(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
$
$
10,000 $
-
582
321,547
966
333,095 $
16,887 $
-
1,057
46,136
2,379
66,459 $
12,728 $
-
749
4,583
1,907
19,967 $
20,486 $
62,887
4,352
-
611
88,336 $
Total
60,101
62,887
6,740
372,266
5,863
507,857
We have 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 payment for the CCBG Capital Trust I borrowing is due quarterly and adjusts quarterly to a variable rate
of LIBOR plus a margin of 1.90%. This note matures on December 31, 2034. The interest payment for the CCBG Capital Trust
II borrowing is due quarterly and will adjust annually to a variable rate of LIBOR plus a margin of 1.80%. This note matures on
June 15, 2035. The proceeds of these borrowings were used to partially fund acquisitions.
In accordance with the Federal Reserve Resolutions, CCBG must receive approval from the Federal Reserve prior to incurring
new debt, refinancing existing debt, or making interest payments on its trust preferred securities. Under the terms of each trust
preferred securities note, in the event of default or if we elect to defer interest on the note, we may not, with certain exceptions,
declare or pay dividends or make distributions on our capital stock or purchase or acquire any of our capital stock.
Capital
We continue to maintain a strong capital position. The ratio of shareowners' equity to total assets at year-end was 9.88%, 9.89%,
and 11.20%, in 2010, 2009, and 2008, respectively. Management believes its strong capital base has offered protection during the
course of the current economic downturn. In addition, to date we have not initiated a capital raise and were not a TARP
participant.
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, 2010, we
exceeded these capital guidelines with a total risk-based capital ratio of 14.59% and a Tier 1 ratio of 13.24%, compared to 14.11%
and 12.76%, respectively, in 2009. 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
52
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 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. A higher standard may be required for other companies, depending upon their
regulatory ratings and expansion plans. On December 31, 2010, we had a leverage ratio of 10.10% compared to 10.39% in 2009.
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
2010
2009
2008
171
36,920
237,679
274,770
(15,751)
259,019 $
170
36,099
246,460
282,729
(14,830)
267,899 $
171
36,783
262,890
299,844
(21,014)
278,830
$
At December 31, 2010, our common stock had a book value of $15.15 per diluted share compared to $15.72 in 2009. Book value
is impacted by the net unrealized gains and losses on investment securities available-for-sale. At December 31, 2010, the net
unrealized gain was $0.7 million compared to $0.6 million in 2009. Book value is impacted by the recording of our unfunded
pension liability through other comprehensive income in accordance with Accounting Standards Code Topic 715. At December
31, 2010, the net pension liability reflected in other comprehensive income was $16.4 million compared to $15.4 million at
December 31, 2009.
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. During the ten year period ended December 31, 2010, we
have repurchased a total of 2,520,130 shares at an average purchase price of $25.19 per share. During 2010, we did not
repurchase any shares. In 2009, we repurchased 145,888 shares at an average purchase price of $10.65 and in 2008 we
repurchased a total of 90,041 shares at an average purchase price of $26.77 per share. We must seek prior approval from the
Federal Reserve before repurchasing any additional shares of our common stock.
We offer an Associate Stock Incentive Plan under which certain associates are eligible to earn shares of our common stock based
upon achieving established performance goals. In 2010 and 2009, we issued no shares under this plan as the financial
performance goal for each year was not achieved.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2010,
63,638 shares, valued at approximately $720,000 (before 10% discount), were issued under these plans.
Dividends
Adequate capital and financial strength is paramount to our stability and the stability of our subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on our capital levels. When determining the level of dividends the
following factors are considered:
(cid:120) Compliance with state and federal laws and regulations;
(cid:120) Our capital position and our ability to meet our financial obligations;
(cid:120) Projected earnings and asset levels; and
(cid:120) 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 sufficient capital. Future capital requirements and corporate
plans are considered when the Board considers a dividend payment.
Dividends declared and paid totaled $.4900 per share in 2010. We paid dividends of $.7600 per share in 2009 and $.7450 per
share in 2008. Dividends declared per share were reduced in the second quarter of 2010 to realign the dividend yield rate with
historical norms given the reduction in our share price as well as to preserve capital given the uncertain economic conditions. For
2010 and 2009, our dividend payout ratio was not meaningful as our dividends exceeded our earnings by $8.8 million and $16.4
million, respectively, for each year. The dividend payout ratio was 83.71% for 2008.
State and federal regulations place certain restrictions on the payment of dividends by both CCBG and the Bank. The Bank’s
aggregate net profits for the past two years are significantly less than the dividends declared and paid to CCBG over that same
period. In addition, in accordance with the Federal Reserve Resolutions, the Bank must seek approval from the Federal Reserve
53
prior to declaring or paying a dividend. As a result, the Bank must obtain approval from its regulators to issue and declare any
further dividends to CCBG. The Bank may not receive the required approvals. As of December 31, 2010, we believe we have
sufficient cash to fund shareowner dividends in 2011 should the Board choose to declare and pay a quarterly dividend during the
year. Even if we have sufficient cash to pay dividends, we must seek approval from the Federal Reserve to pay dividends to our
shareowners and may not receive the required approvals. We will continue to evaluate our dividend quarterly and consult with
our regulators concerning matters relating to our overall dividend policy.
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."
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, 2010, we had $330.8 million in commitments to extend credit and $12.7 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 may 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, investment security maturities, available
advances from the FHLB and Federal Reserve Bank provide a sufficient source of funds to meet these commitments.
FOURTH QUARTER 2010 – FINANCIAL RESULTS
Results of Operations
Net income for the fourth quarter of 2010 totaled $1.9 million, or $0.12 per diluted share, compared to net income of $0.4 million,
or $0.02 per diluted share, for the third quarter of 2010. The improvement in earnings reflects a lower loan loss provision of $1.9
million and higher noninterest income of $1.3 million, partially offset by a $0.4 million decline in net interest income, higher
noninterest expense of $1.2 million, and a lower income tax benefit of $0.1 million. Earnings for the fourth quarter of 2010
include the reversal of our Visa related litigation reserve of $0.8 million.
Tax equivalent net interest income for the fourth quarter of 2010 was $24.6 million compared to $25.1 million for the third quarter
of 2010. The decrease of $0.5 million in tax equivalent net interest income on a linked quarter basis was due to a reduction in
loan income attributable to declining loan balances, and continued unfavorable asset re-pricing, partially offset by lower interest
expense and a continued decrease in foregone interest on nonaccrual loans. Lower interest expense reflects a reduction in deposit
rates primarily in certificates of deposit.
The net interest margin in the fourth quarter of 2010 was 4.41%, an increase of 3 basis points over the linked quarter reflective of
a 5 basis point reduction in the cost of funds, as the yield on earning assets declined 2 basis points. The lower cost of funds
resulted from a reduction in the rates on certificates of deposit which were significantly reduced in all markets, as well as a net
reduction in the rates for our variable rate subordinated notes.
The provision for loan losses for the fourth quarter of 2010 was $3.8 million compared to $5.7 million in the third quarter of 2010.
The decline in the provision reflects lower impaired loan reserves as well as other stabilizing trends within the loan portfolio,
including a lower level of past due loans and potential problem loans. The balance of our impaired loans has declined for three
consecutive quarters and totaled $87.8 million at year-end 2010 compared to $97.6 million at the end of the prior quarter. Net
charge-offs for the fourth quarter of 2010 totaled $6.1 million, or 1.35% of average loans, compared to $6.4 million, or 1.40%, in
the third quarter of 2010. At the end of the fourth quarter, the allowance for loan losses of $35.4 million was 2.01% of
54
outstanding loans (net of overdrafts) and provided coverage of 41% of nonperforming loans compared to 2.10% and 40%,
respectively, at the end of the third quarter of 2010.
Noninterest income for the fourth quarter of 2010 increased $1.3 million, or 9.6%, over the linked quarter attributable to higher
mortgage banking fees of $0.3 million and other income of $1.0 million. The increase in mortgage banking fees reflects increased
secondary market loan funding driven by increased home purchase activity in our markets and to a lesser extent a higher level of
loan refinance activity. Improved margin realized on secondary market loan sales also contributed to the improvement. Other
income increased due to gains realized from the sale of OREO properties and an increase in recoveries.
Noninterest expense for the fourth quarter of 2010 increased $1.2 million, or 3.6%, over the linked quarter primarily due to higher
expense for OREO properties of $1.4 million and an increase in advertising expense of $0.6 million, partially offset by the
reversal of our Visa litigation reserve of $0.8 million. The higher level of OREO expense primarily reflects higher carrying costs
realized during the current quarter. Higher advertising expense generally reflects an increased level of promotional activities
during the fourth quarter. The reversal of our remaining Visa litigation reserve of $0.8 million also contributed to the reduction.
We realized a tax benefit of $0.1 million in the fourth quarter of 2010 compared to a tax benefit of $0.2 million for the third
quarter of 2010. We have substantial tax exempt income as well as a lower level of pre-tax income at our bank subsidiary due to
higher loan loss provisions – both of these factors favorably impacted our tax provision for all of the aforementioned periods.
Recognition of a tax contingency during the fourth quarter also favorably impacted the tax provision by $0.4 million.
Financial Condition
Average earning assets were $2.218 billion for the fourth quarter of 2010, a decrease of $55.1 million, or 2.4% from the third
quarter of 2010. The decrease from the linked quarter is primarily attributable to a lower level of overnight funds of $79.7 million
(partially reflecting a reduction in deposits), and problem loan resolutions, which have the effect of lowering the loan portfolio as
loans are either charged off or transferred to the other real estate owned category.
The loan portfolio continues to be impacted by weak loan demand attributable to the sluggish economy, but not at the levels we
have experienced in recent quarters. In addition to lower production and normal amortization and payoffs, the reduction in the
portfolio is also attributable to gross charge-offs and the transfer of loans to the other real estate owned category. On a linked
quarter basis, problem loan resolutions accounted for $23.8 million, or 56%, of a net reduction in total period-end loans of $42.6
million.
Nonperforming assets (including nonaccrual loans, restructured loans and other real estate owned) totaled $145.3 million at the
end of the fourth quarter of 2010, a reduction of $8.4 million from our 2010 high of $153.7 million at the end of the first quarter.
Compared to the linked quarter, nonperforming assets declined by $0.4 million as nonaccrual loans declined by $8.5 million
reflective of loans migrating to the OREO category which realized a $6.7 million increase from the prior quarter. The restructured
loan balance increased by $1.4 million over the same period. At quarter-end, nonperforming assets represented 8.00% of loans
and OREO compared to 7.86% at the prior quarter-end. The change in this ratio reflects the impact of the aforementioned lower
loan portfolio balances.
Average total deposits were $2.116 billion for the fourth quarter, a decrease of $56.3 million, or 2.6%, from the third quarter of
2010. Deposit levels remain strong, but down slightly from the linked quarter, primarily attributable to lower money market
account, certificates of deposit balances, and a decline in public funds. Certificates of deposit declined primarily due to reductions
in the number of single relationship, higher yielding certificates of deposit with the Bank. Public funds balances have declined as
anticipated from the linked quarter reflecting seasonality within this deposit category. Money market balances declined as run-off
continued in our promotional deposits as rates on these deposits were lowered to standard board rates during the third quarter.
We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased) sold position of
$171.4 million during the fourth quarter of 2010 compared to an average net overnight funds sold position of $246.9 million in the
prior quarter. The lower balance when compared to the linked quarter primarily reflects the decline in deposits mentioned above
and the increase in the investment portfolio, partially offset by the lower loan portfolio. A portion of the funds sold position was
deployed into the investment portfolio during the third and fourth quarters of 2010. We will continue to evaluate deploying the
excess funds sold position into the investment portfolio during the first quarter of 2011.
55
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 a reserve established through a provision for loan losses charged to
expense, which represents management’s best estimate of probable losses within the existing portfolio of loans. 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 U.S. GAAP. 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 and market conditions, levels of past due loans, and levels of
problem loans; and (iii) an unallocated allowance that reflects management’s determination of estimation risk.
Intangible Assets. Intangible assets consist primarily of goodwill and other identifiable intangible assets (primarily core deposit
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 or
more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. Adverse changes
in the economic environment, declining operations, or other factors could result in a decline in the estimated implied fair value of
goodwill. If the estimated implied fair value of goodwill is less than the carrying amount, a loss would be recognized to reduce
the carrying amount to the estimated implied fair value.
For purposes of testing goodwill for impairment, we utilize both the income and market approaches to value our reporting unit.
The income approach consists of discounting long-term projected future cash flows, which are derived from internal forecasts and
economic and industry expectations. The projected future cash flows are discounted using a capital asset pricing model. The
market approach applies a market multiple, based on observed purchase transactions and/or an observed price/tangible book value
multiple for our peer group.
There are judgments and estimates used in the income approach for determining the estimated fair value of our reporting unit,
including the discount rate utilized, which can change based on changes in the business climate, and the internal forecasts used to
project cash flows, which are subject to change over short periods of time. In addition, current economic conditions and stress
within the banking industry can impact the outcome of the market valuation approach. An increase or decrease of one percentage
point in the discount rate utilized for the income approach would result in a decrease of $16.0 million and an increase of $20.0
million, respectively, in the fair value for our reporting unit. An increase or decrease of ten percent in the forecasted cash flows
utilized for the income approach would result in an increase and decrease of $19.0 million, respectively. An increase or decrease
of ten basis points in the price/tangible book value multiple utilized for the market approach would result in an increase and
decrease of $11.5 million, respectively. The aforementioned sensitivities would not result in goodwill impairment, but are
presented to reflect the variance in the fair value of our reporting unit to changes in these critical valuation factors.
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 the 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 our operating results.
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 Operations 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
56
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 defined pension 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 2010 was 5.75%. The
estimated impact to 2010 pension expense of a 25 basis point increase or decrease in the discount rate would have been a decrease
and increase of approximately $339,000 and $357,000, respectively. We anticipate using a 5.55% discount rate in 2011.
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 2010 was 8.0%. The estimated impact to 2010 pension expense of a 25 basis point
increase or decrease in the rate of return would have been an approximate $193,000 decrease or increase, respectively. We
anticipate using a rate of return on plan assets for 2011 of 8.0%.
The assumed rate of annual compensation increases of 4.50% in 2010 reflects expected trends in salaries and the employee
base. We anticipate using a compensation increase of 4.25% for 2011 reflecting current market trends.
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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board, the SEC, and other regulatory bodies have enacted new accounting pronouncements
and standards that either has impacted our results in prior years presented, or will likely impact our results in 2011. Please refer
to the Note 1 of the Notes to our Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See “Financial Condition - Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, above, which is incorporated herein by reference.
57
Item 8. Financial Statements and Supplementary Data
Table 14
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 (Loss) Before Income Taxes
Income Tax (Benefit) Expense
Net Income (Loss)
Net Interest Income (FTE)
Per Common Share:
Net Income (Loss) Basic
Net Income (Loss) Diluted
Dividends Declared
Diluted Book Value
Market Price:
High
Low
Close
2010
2009
Fourth
Third
Second
First
Fourth
Third
Second
First
$
26,831 $
2,473
24,358
3,783
27,576 $
2,792
24,784
5,668
27,934 $
3,565
24,369
3,633
28,154 $
4,132
24,022
10,740
29,756 $
4,464
25,292
10,834
20,575
14,735
33,540
19,116
13,449
32,363
20,736
14,674
34,629
13,282
13,967
33,384
14,458
14,411
35,313
30,787
4,235
26,552
12,347
14,205
14,304
31,615
$
31,180 $
4,085
27,095
8,426
18,669
14,634
32,930
$
$
$
1,770
(148)
$
1,918
24,654 $
202
(199)
401 $
25,116 $
781
50
$
731
24,738 $
(6,135)
(2,672 )
(3,463) $
24,473 $
(6,444 )
(3,037)
(3,407) $
25,845 $
(3,106 )
(1,618)
(1,488)
27,128
$
$
373
(401)
774 $
27,679 $
$
0.12
0.12
0.10
15.15
14.19
11.56
12.60
0.02 $
0.02
0.10
15.25
14.24
10.76
12.14
$
0.04
0.04
0.10
15.32
18.25
12.36
12.38
(0.20) $
(0.20)
0.19
15.34
(0.20) $
(0.20)
0.19
15.72
(0.08) $
(0.08)
0.19
15.76
0.04 $
0.04
0.19
16.03
14.61
11.57
14.25
14.34
11.00
13.84
17.10
13.92
14.20
17.35
11.01
16.85
31,053
4,058
26,995
8,410
18,585
14,042
32,257
370
(280 )
650
27,578
0.04
0.04
0.19
16.18
27.31
9.50
11.46
Selected Average Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Shareowners’ Equity
Common Equivalent Average Shares:
$ 1,782,916 $1,807,483 $
2,218,049 2,273,198
2,576,793 2,626,758
2,115,867 2,172,165
262,622 263,742
1,841,379 $1,886,367 $1,944,873 $
2,329,365 2,358,288
2,678,488
2,698,419
2,234,178 2,248,760
263,873 268,555
2,237,561
2,575,250
2,090,008
268,556
1,964,984
2,157,362
2,497,969
1,950,170
275,027
$1,974,197 $1,964,086
2,166,237
2,175,281
2,486,925
2,506,352
1,957,354
1,971,190
281,634
277,114
Basic
Diluted
17,095
17,096
17,087
17,088
17,063
17,074
17,057
17,070
17,034
17,035
17,024
17,025
17,010
17,010
17,109
17,131
Performance Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin (FTE)
Noninterest Income as % of Operating
Revenue
Efficiency Ratio
Asset Quality:
Allowance for Loan Losses
Allowance for Loan Losses to Loans
Nonperforming Assets
Nonperforming Assets to Loans +
ORE
Allowance to Non-Performing Loans
Net Charge-Offs to Average Loans
Capital Ratios:
Tier 1 Capital Ratio
Total Capital Ratio
Tangible Capital Ratio
Leverage Ratio
0.30%
2.90
4.41
0.06%
0.60
4.38
0.11%
1.11
4.26
(0.52)%
(5.23)
4.21
(0.52) %
(5.03)
4.59
(0.24)%
(2.15)
4.99
0.12%
1.12
5.11
0.11%
0.94
5.16
37.69
83.75
35.17
82.08
37.58
86.06
36.77
85.00
36.30
85.21
35.01
73.86
35.07
75.44
34.22
75.07
35,436
37,720
2.01%
2.10%
38,442
41,199
43,999
2.11%
2.23%
2.30%
45,401
41,782
2.32%
2.12%
40,172
2.04%
145,286
145,643
149,814
153,669
144,052
144,372
143,626
126,783
8.00
40.57
1.35
7.86
39.94
1.40
8.01
37.80
1.39
8.10
38.42
2.91
7.38
40.77
2.42
7.25
40.90
1.76
7.19
33.71
1.39
6.39
34.82
1.08
13.24%
14.59
6.82
10.10
12.93%
14.29
6.98
9.75
12.78%
14.14
6.80
9.58
12.81%
14.16
6.62
9.64
12.76%
14.11
6.84
10.39
12.76%
14.12
7.43
10.96
12.85%
14.20
7.47
11.07
13.09%
14.40
7.63
11.25
58
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
60
61
62
63
64
65
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Changes in Shareowners' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
59
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 statements of financial condition of Capital City Bank Group, Inc. as of
December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareowners' equity, and cash
flows for each of the three years in the period ended December 31, 2010. 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 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Capital City Bank Group, Inc. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2010, 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, 2010, 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 7, 2011 expressed an unqualified opinion thereon.
Birmingham, Alabama
March 7, 2011
/s/ Ernst & Young LLP
60
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; 17,100,081 and 17,036,407 shares
issued and outstanding at December 31, 2010 and December 31, 2009, 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,
2009
2010
35,410 $
57,877
$
200,783 276,416
334,293
236,193
309,731 176,673
1,758,671 1,915,940
(43,999)
1,723,235 1,871,941
(35,436)
84,811
1,348
115,356 115,439
84,811
4,030
151,379 121,137
$ 2,708,324
$ 2,622,053
$ 546,257 $ 427,791
1,557,719 1,830,443
2,103,976 2,258,234
92,928
62,887
50,101
53,142
2,363,034
35,841
62,887
49,380
34,083
2,440,425
-
-
171
36,920
170
36,099
237,679 246,460
(14,830)
259,019 267,899
$ 2,622,053 $ 2,708,324
(15,751)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
61
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
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 Fees
Asset Management Fees
Securities Transactions
Mortgage Banking Fees
Bank Card Fees
Gain on Sale of Portion of Merchant Services Portfolio
Other
Total Noninterest Income
NONINTEREST EXPENSE
Salaries and Associate Benefits
Occupancy, Net
Furniture and Equipment
Intangible Amortization
Other Real Estate
Other
Total Noninterest Expense
For the Years Ended December 31,
2010
2009
2008
$
105,710
$
117,324 $
132,682
1,083
1,285
1,517
313
587
110,495
8,645
159
2,008
2,150
12,962
97,533
23,824
73,709
26,500
3,610
4,235
8
2,948
9,200
-
10,324
56,825
62,755
10,010
8,929
2,682
14,922
34,618
133,916
547
1,827
2,672
324
82
122,776
747
2,562
3,185
581
3,109
142,866
10,585
291
3,730
2,236
16,842
27,306
1,157
3,735
1,802
34,000
105,934
40,017
65,917
108,866
32,496
76,370
28,142
3,628
3,925
10
2,699
10,306
-
8,681
57,391
27,742
3,435
4,235
125
1,623
12,701
6,250
10,929
67,040
65,067
9,798
9,096
4,042
7,577
36,535
132,115
61,831
9,729
9,902
5,685
1,306
33,019
121,472
(LOSS) INCOME BEFORE INCOME TAXES
Income Tax (Benefit) Expense
NET (LOSS) INCOME
BASIC NET (LOSS) INCOME PER SHARE
DILUTED NET (LOSS) INCOME PER SHARE
(3,382)
(2,969)
(8,807)
(5,336)
21,938
6,713
$
$
$
(413)
(0.02)
(0.02)
$
$
$
(3,471) $
(0.20) $
(0.20) $
15,225
0.89
0.89
Average Basic Common Shares Outstanding
Average Diluted Common Shares Outstanding
17,076
17,077
17,044
17,045
17,141
17,147
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
62
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T
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income
Adjustments to Reconcile Net (Loss) Income to Cash Provided by Operating
Activities:
Provision for Loan Losses
Depreciation
Net Securities Amortization
Amortization of Intangible Assets
Gain on Securities Transactions
Loss on Impaired Security
Origination of Loans Held-for-Sale
Proceeds From Sales of Loans Held-for-Sale
Net Gain From Sales of Loans Held-for Sale
Gain on Sale of Portion of Merchant Services Portfolio
Proceeds From Sale of Portion of Merchant Services Portfolio
Non-Cash Compensation
Net Decrease (Increase) in Deferred Income Taxes
Net Decrease (Increase) in Other Assets
Net Increase (Decrease) in Other Liabilities
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities Available-for-Sale:
Purchases
Sales
Payments, Maturities, and Calls
Net (Increase) Decrease in Loans
Purchase of Premises & Equipment
Proceeds From Sales of Premises & Equipment
Net Cash (Used In) Provided By Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in Deposits
Net Increase (Decrease) in Short-Term Borrowings
Increase (Decrease) in Other Long-Term Borrowings
Repayment of Other Long-Term Borrowings
Dividends Paid
Repurchase of Common Stock
Issuance of Common Stock
Net Cash (Used In) Provided by Financing Activities
For the Years Ended December 31,
2008
2009
2010
$
(413) $
(3,471) $
15,225
23,824
7,050
3,384
2,682
(8)
100
40,017
6,680
2,364
4,042
(10)
300
(143,479) (158,193)
148,288 156,865
(2,699)
-
-
-
2,911
5,929
(4,176)
50,559
(2,948)
-
-
-
1,898
16,457
19,059
75,894
32,496
6,798
990
5,685
(125)
-
(106,340)
108,218
(1,623)
(6,250)
6,250
62
(15,235)
(1,371)
2,200
46,980
(224,245)
505
86,935
73,775
(6,975)
7
(69,998)
(66,794)
2,806
75,295
(31,135)
(15,688)
2
(35,514)
(89,059)
10,490
78,767
(66,635)
(14,626)
6
(81,057)
(154,258) 266,061
(26,486)
2,029
(3,837)
(12,959)
(1,561)
1,052
(103,996) 224,299
57,088
2,478
(1,758)
(8,368)
-
822
(150,171)
8,925
30,600
(5,872)
(12,630)
(2,414)
891
(130,671)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(98,100) 239,344
(164,748)
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
SUPPLEMENTAL DISCLOSURES:
Interest Paid on Deposits
Interest Paid on Debt
Taxes Paid
Loans Transferred to Other Real Estate
Issuance of Common Stock as Non-Cash Compensation
Transfer of Current Portion of Long-Term Borrowings
334,293
94,949
236,193 $ 334,293 $
259,697
94,949
9,659 $
4,323
605
49,247
-
10,000 $
10,586 $
6,273
7,218
43,997
155
637 $
29,729
6,658
16,998
10,874
-
176
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64
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 a single reportable business segment that is 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. The Company has
evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements
included in this Annual Report on Form 10-K were issued.
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, pension expense,
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, 2010 and 2009 were $16.3 million and
$18.2 million, respectively.
Investment Securities
Investment securities available-for-sale are carried at fair value and represent securities that are available to meet liquidity and/or
other needs of the Company. Gains and losses are recognized and reported separately in the Consolidated Statements of
Operations 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 Operations 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.
65
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 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 or when 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, 2010 and December 31, 2009, the Company
had $6.3 million and $7.9 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 are generally 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 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 FASB ASC Topic 310 – Receivables
(formerly 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 ASC Topic 450 (formerly 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;
(iii) an unallocated allowance that reflects management’s determination of estimation risk.
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 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.
66
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. In accordance with
FASB ASC Topic 350, the Company determined it has one goodwill reporting unit. Goodwill is tested for impairment at least
annually or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of
the reporting unit below its carrying value. See Note 5 – Intangible Assets for additional information.
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. A subsequent decline in the fair value of the asset is reflected as noninterest expense.
Costs after acquisition are generally expensed. 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 $57.9 million and $36.1 million at December 31, 2010 and 2009.
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
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other comprehensive
income). 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 expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the
generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not
assured, the Company believes it is more likely than not that all of the deferred tax assets will be realized.
The Company files a consolidated federal income tax return and each subsidiary files a separate state income tax return.
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
shareowners. 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
supplemental executive retirement plans. Comprehensive income is reported in the accompanying Consolidated Statements of
Changes in Shareowners’ Equity.
Stock Based Compensation
Compensation cost is recognized for share based awards issued to employees, based on the fair value of these awards at the date
of grant. The market price of the Company’s common stock at the date of the grant is used for restricted stock awards. For stock
option awards, a Black-Scholes model is utilized to estimate the value of the options. Compensation cost is recognized over the
required service period, generally defined as the vesting period.
67
NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Accounting Standards Codification. On July 1, 2009, the Accounting Standards Codification became FASB’s officially
recognized source of authoritative U.S. generally accepted accounting principles applicable to all public and non-public non-
governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC
under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting
literature is considered non-authoritative. The switch to the ASC affects the away companies refer to U.S. GAAP in financial
statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the
content through the Topic, Subtopic, Section and Paragraph structure.
FASB ASC Topic 260, “Earnings Per Share.” (Formerly FSP No. EITF 03-6-1) New authoritative accounting guidance under
ASC Topic 260-10 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share
pursuant to the two-class method. ASC Topic 260-10 became effective on January 1, 2009 and did not have a significant impact
on the Company’s financial statements.
FASB ASC Topic 320, “Investments - Debt and Equity Securities.” (Formerly SFAS 115-2 and SFAS 124-2) New authoritative
accounting guidance under ASC Topic 320, (i) changes existing guidance for determining whether an impairment is other than
temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and
ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell
the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC
Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be
other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount
of the impairment related to other factors is recognized in other comprehensive income. The Company adopted the provisions of
the new authoritative accounting guidance under ASC Topic 320 during the second quarter of 2009. Adoption of the new
guidance did not significantly impact the Company’s financial statements.
FASB ASC Topic 715, “Compensation - Retirement Benefits.” (Formerly FSP No. 132(R)-1) New authoritative accounting
guidance under ASC Topic 715, “Compensation - Retirement Benefits,” provides guidance related to an employer’s disclosures
about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC Topic 715, disclosures should
provide users of financial statements with an understanding of how investment allocation decisions are made, the factors that are
pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation
techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable
inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The provisions of the new
authoritative accounting guidance under ASC Topic 715 became effective for the Company’s financial statements for the year-
ended December 31, 2009 and the required disclosures are reported in Note 12 – Employee Benefit Plans.
ASC Topic 805, “Business Combinations.” (Formerly SFAS No. 141) On January 1, 2009, new authoritative accounting guidance
under ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other
businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling interest in the acquirer 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 previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired
and liabilities assumed based on their estimated fair value. ASC Topic 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 prior
accounting guidance. Under ASC Topic 805, the requirements of ASC Topic 420, “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 ASC Topic 450, “Accounting for Contingencies.” ASC Topic 805 is applicable to the
Company’s accounting for business combinations closing on or after January 1, 2009. The provisions of the new authoritative
accounting guidance under ASC Topic 305 became effective during the first quarter of 2009. The new guidance did not
significantly impact the Company’s financial statements.
FASB ASC Topic 810, "Consolidation." New accounting guidance amended prior guidance to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance became
effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s financial statements.
FASB ASC Topic 815, “Derivatives and Hedging.” (Formerly SFAS No. 161) New authoritative accounting guidance under ASC
Topic 815, “Derivatives and Hedging,” amends prior guidance to amend and expand the disclosure requirements for derivatives
and hedging activities to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, the new
68
authoritative accounting guidance requires qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-
related contingent features in derivative agreements. The new authoritative accounting guidance under ASC Topic 815 became
effective for the Company on January 1, 2009 and did not have an impact on the Company’s financial statements.
FASB ASC Topic 820, "Fair Value Measurements and Disclosures." ASC Topic 820 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of ASC Topic 820 became effective for the Company on January 1, 2008 for financial assets and financial liabilities
and on January 1, 2009 for non-financial assets and non-financial liabilities. Additional new accounting guidance under ASC
Topic 820, which became effective during the first quarter of 2009, expanded certain disclosure requirements and affirmed that
the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an
orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in
market activity for an asset when the market for that asset is not active. ASU 2009-5, "Fair Value Measurements and Disclosures
(Topic 820)—Measuring Liabilities at Fair Value," which became effective during the fourth quarter of 2009, provided guidance
for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is
not available. See Note 19—Fair Value Measurements.
FASB ASC Topic 855, "Subsequent Events." New accounting guidance established general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.
This guidance became effective for the Company’s financial statements for periods ending after June 15, 2009 and did not have a
significant impact on the Company’s financial statements.
ASU No. 2009-16, “Transfers and Servicing (Topic 860) - Accounting for Transfers of Financial Assets.” The new authoritative
accounting guidance amends prior accounting guidance to enhance reporting about transfers of financial assets, including
securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new
authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements
for derecognizing financial assets. ASU 2009-16 also requires additional disclosures about all continuing involvements with
transferred financial assets including information about gains and losses resulting from transfers during the period. The new
authoritative accounting guidance under ASU 2009-16 became effective January 1, 2010 and did not have a significant impact on
the Company’s financial statements.
ASU No. 2009-17, “Consolidations (Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities.” ASU 2009-17 amends prior guidance to change how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company
is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to
direct the activities of the entity that most significantly impact the entity’s economic performance. ASU 2009-17 requires
additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk
exposure due to that involvement as well as its effect on the entity’s financial statements. ASU 2009-17 became effective
January 1, 2010 and did not have a significant impact on the Company’s financial statements.
Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving
Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements
including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the
reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with
significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy
are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross
presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value
measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would
generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) company’s should
provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair
value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures
related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the
fair value hierarchy will be required for the Company beginning January 1, 2011 and is not expected to have a significant impact
on the Company’s financial statements. The remaining disclosure requirements and clarifications made by ASU 2010-06 became
effective for the Company on January 1, 2010 and did not have a significant impact on the Company’s financial statements.
ASU No. 2010-11, "Derivatives and Hedging (Topic 815)—Scope Exception Related to Embedded Credit Derivatives." ASU
2010-11 clarifies that the only form of an embedded credit derivative that is exempt from embedded derivative bifurcation
requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have
contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account
for the embedded credit derivative feature. The provisions of ASU 2010-11 became effective for the Company on July 1, 2010
and did not have a significant impact on the Company’s financial statements.
69
ASU No. 2010-20, "Receivables (Topic 310)—Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses." ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users'
evaluation of (i) the nature of credit risk inherent in the entity's portfolio of financing receivables, (ii) how that risk is analyzed
and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for
credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a
systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a
disaggregation of portfolio segment. The required disclosures include, among other things, a roll-forward of the allowance for
credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators.
ASU 2010-20 became effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures
required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the
Company’s financial statements that include periods beginning on or after January 1, 2011. ASU 2011-01, "Receivables (Topic
310)—Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20," temporarily
deferred the effective date for disclosures related to troubled debt restructurings to coincide with the effective date of a proposed
accounting standards update related to troubled debt restructurings, which is currently expected to be effective for periods ending
after June 15, 2011. See Note 3—Loans.
ASU No. 2010-28, "Intangibles—Goodwill and Other (Topic 350)—When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts." ASU 2010-28 modifies Step 1 of the goodwill impairment test for
reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely
than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating
that an impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. ASU 2010-28 will be effective for the Company on January 1, 2011 and is
not expected have a significant impact on the Company’s financial statements.
ASU No. 2010-29, "Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma Information for Business
Combinations." ASU 2010-29 provides clarification regarding the acquisition date that should be used for reporting the pro forma
financial information disclosures required by Topic 805 when comparative financial statements are presented. ASU 2010-29 also
requires entities to provide a description of the nature and amount of material, nonrecurring pro forma adjustments that are
directly attributable to the business combination. ASU 2010-29 is effective for the Company prospectively for business
combinations occurring after December 31, 2010.
70
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related market value of investment securities available-for-sale at
December 31, 2010, 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
2010
Amortized
Cost
160,913 $
-
$
78,990
56,099
12,664
308,666 $
$
Unrealized
Gains
1,371 $
-
319
678
-
2,368 $
Unrealized
Losses
Market
Value
134 $ 162,150
-
79,300
56,217
12,064
309,731
-
9
560
600
1,303 $
Amortized
Cost
22,270 $
-
106,455
33,375
13,236
175,336 $
$
$
2009
Unrealized
Gains
Unrealized
Losses
Market
Value
174 $
-
1,166
798
-
2,138 $
- $ 22,444
-
-
107,550
71
34,143
30
12,536
700
176,673
801 $
(1)
Includes Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank stock recorded at cost of $7.2 million and $4.8
million, respectively, at December 31, 2010 and $7.7 million and $4.8 million, respectively, at December 31, 2009. No ready
market exists for these stocks, and they have no quoted market value. However, redemption of these stocks has historically
been at par value.
Securities with an amortized cost of $131.6 million and $62.9 million at December 31, 2010 and 2009, respectively, were pledged
to secure public deposits and for other purposes.
The Company’s subsidiary, Capital City Bank, as a member of the 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
$7.2 million which is included in other securities is pledged to secure FHLB advances.
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
2010
2009
2008
Total
Proceeds
Gross
Realized
Gains
Gross
Realized
Losses
$
$
$
3,640 $
5,316 $
30,517 $
8 $
10 $
126 $
-
-
(1)
Maturity Distribution. As of December 31, 2010, 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
Due over ten years
No Maturity
Total Investment Securities
Amortized Cost Market Value
$
69,414 $ 69,768
209,583 211,203
17,005 16,696
-
-
12,664 12,064
309,731
308,666 $
$
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.
71
Other Than Temporarily Impaired Securities. The following table summarizes the investment securities with unrealized losses at
December 31, 2010 and December 31, 2009 aggregated by major security type and length of time in a continuous unrealized loss
position:
Less Than
12 Months
December 31, 2010
Greater Than
12 Months
Total
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
Unrealized
Losses
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies and Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities
Total Investment Securities
$ 36,103 $
-
4,622
33,990
-
$ 74,715 $
134 $
-
9
560
-
703 $
- $
-
-
-
600
600 $
Market
Value
- $ 36,103 $
-
-
4,622
-
- 33,990
600
600
600 $ 75,315 $
134
-
9
560
600
1,303
Less Than
12 Months
December 31, 2009
Greater Than
12 Months
Total
(Dollars in Thousands)
U.S. Treasury
$
U.S. Government Agencies and Corporations
States and Political Subdivisions
Mortgage-Backed Securities
Other Securities
Total Investment Securities
$
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
- $
-
3,107
5,381
700
9,188 $
- $
-
71
30
700
801 $
- $
-
-
-
-
$
- $
-
-
-
-
$
- $
-
3,107
5,381
700
9,188 $
-
-
71
30
700
801
Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or
market concerns warrant such evaluation. Consideration is given to: 1) the length of time and the extent to which the fair value
has been less than amortized cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of
the Company to retain its investment in the issuer for a period of time sufficient to allow for recovery in the fair value above
amortized cost. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the
federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory and analysts’ report.
At December 31, 2010, the Company had securities of $308.7 million with net pre-tax unrealized gains of $1.1 million on these
securities, of which $75.3 million have unrealized losses totaling $1.3 million. Approximately $0.7 million of these securities
have been in a loss position for less than 12 months. These securities are primarily in a loss position because they were acquired
when the general level of interest rates was lower than that on December 31, 2010. The Company believes that the losses in these
securities are temporary in nature and that the full principal will be collected as anticipated. Because the declines in the market
value of these investments are attributable to changes in interest rates and not credit quality and because the Company has the
ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the Company does not
consider these investments to be other-than-temporarily impaired at December 31, 2010. One preferred bank stock issue for $0.6
million has been in a loss position for greater than 12 months. For 2010, the Company did realize $0.1 million in other than
temporary impairment through earnings for this security.
72
Note 3
LOANS
Loan Portfolio Composition. At December 31, the composition of the loan portfolio was as follows:
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction(2)
Real Estate - Commercial Mortgage(2)
Real Estate - Residential(1) (2)
Real Estate - Home Equity
Real Estate - Loans Held-for-Sale
Consumer
Total Loans, Net of Unearned Interest
2010
2009
157,394 $
43,239
671,702
424,229
251,565
6,312
204,230
1,758,671 $
189,061
111,249
716,791
408,578
246,722
7,891
235,648
1,915,940
$
$
Includes loans in process with outstanding balances of $10.0 million and $10.7 million for 2010 and 2009, respectively.
(1)
(2) During 2010, reclassified $10.0 million in construction loans to residential real estate category and $30.0 million in
commercial real estate loans to the residential real estate to better reflect the nature of the loans and their underlying
collateral.
Net deferred fees included in loans at December 31, 2010 and December 31, 2009 were $1.8 million and $2.0 million,
respectively.
Past Due Loans. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days
late.
The following table presents the aging of the recorded investment in past due loans as of December 31 by class of loans:
2010
(Dollars in Thousands)
Commercial, Financial and Agricultural $
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total Past Due Loans
$
30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Total
Current
Total
Loans
645 $
314
5,577
7,171
1,444
2,867
18,018 $
193 $
129
840
3,958
698
356
6,174 $
- $
-
-
120
39
-
159 $
157,394
155,497 $
838 $
43,239
40,890
443
671,702
638,411
6,417
430,541
389,103
11,249
251,565
244,579
2,182
3,223
204,230
200,139
24,352 $ 1,668,619 $ 1,758,671
2009
(Dollars in Thousands)
Commercial, Financial and Agricultural $
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total Past Due Loans
$
30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Total
Current
Total
Loans
2,402 $
4,382
6,887
7,941
3,152
4,622
29,386 $
598 $
-
946
3,872
795
906
7,117 $
- $
-
-
-
-
-
- $
189,061
183,332 $
3,000 $
111,249
86,070
4,382
716,791
679,916
7,833
416,469
378,057
11,813
246,722
237,495
3,947
5,528
235,648
228,292
36,503 $ 1,793,162 $ 1,915,940
Nonaccrual Loans. Loans are generally placed on non-accrual status if principal or interest payments become 90 days past due
and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status
when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.
73
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by
class of loans as of December 31:
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total Nonaccrual Loans
2010
Nonaccrual Over 90 Days
Nonaccrual
2009
Over 90 Days
$
$
1,059 $
1,907
26,874
30,189
4,803
868
65,700 $
- $
-
-
120
39
-
159 $
2,729 $
20,797
29,042
26,599
5,280
1,827
86,274 $
-
-
-
-
-
-
-
Credit Quality Indicators. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes
loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current
financial information, historical payment performance, credit documentation, and current economic/market trends, among other
factors. Risk ratings are assigned to each loan and revised as needed through established monitoring procedures for individual
loan relationships over a predetermined amount and review of smaller balance homogenous loan pools. The Company uses the
following definitions for the categorizing and managing its problem loans.
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected,
could cause future problems. Adverse economic or market conditions may negatively impact the borrower’s ability to repay.
Loans in this category may not meet required underwriting criteria and have no mitigating factors. More than the ordinary amount
of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the borrower.
The possibility of loss is much more evident and above average supervision is required for these loans.
Nonaccrual – Loans in this category are on nonaccrual status due to the borrower’s inability to meet the repayment terms and
where future capacity to repay is remote.
The following table presents the risk category of loans by segment as of December 31:
2010
(Dollars in Thousands)
Special Mention
Substandard
Nonaccrual
Total Loans
2009
(Dollars in Thousands)
Special Mention
Substandard
Nonaccrual
Total Loans
Commercial,
Financial,
Agriculture
Real Estate
$
Consumer
$
Total Loans
$
$
$
20,539
10,599
1,060
32,198 $
100,008
165,143
63,773
328,924 $
102
719
867
1,688 $
120,649
176,461
65,700
362,810
Commercial,
Financial,
Agriculture
Real Estate
Consumer
$
$
14,376 $
18,689
2,729
35,794 $
107,322 $
179,576
81,719
368,617 $
Total Loans
$
121,850
199,743
86,275
407,868
152
1,478
1,827
3,457 $
Concentrations of Credit. Substantially all of the Company's lending activity occurs within the states of Florida, Georgia, and
Alabama. As of December 31, 2010, there were no concentrations of loans related to any single borrower or industry (other than
real estate) in excess of 10% of total loans. A large majority of the Company's loan portfolio (79.4%) consists of loans secured by
real estate, the primary types of collateral being commercial properties and 1-4 family residential properties. At December 31,
2010, commercial real estate and residential real estate mortgage loans (including home equity loans) accounted for 38.2% and
38.8%, respectively, of the total loan portfolio.
74
Note 4
ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
(Dollars in Thousands)
Balance, Beginning of Year
Provision for Loan Losses
Recoveries on Loans Previously Charged-Off
Loans Charged-Off
Reclassification of Unfunded Reserve to Other Liability
Balance, End of Year
2010
2009
2008
$
$
43,999 $
23,824
3,127
(35,514)
-
$
35,436
37,004 $
40,017
3,442
(36,072)
(392)
43,999 $
18,066
32,496
2,417
(15,975)
-
37,004
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class
based on impairment method as of December 31, 2010:
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real Estate
Home
Equity
Consumer
Unallocated
Total
2010
(Dollars in Thousands)
Allowance Allocated to:
Loans Individually
Evaluated for Impairment $
Loans Collectively
Evaluated for Impairment
Total
$
Total Loans:
Individually Evaluated for
Impairment
Collectively Evaluated for
Impairment
Total
$
2009
(Dollars in Thousands)
Allowance Allocated to:
Loans Individually
Evaluated for Impairment $
Loans Collectively
Evaluated for Impairment
$
Total
252
$
413
$
4,640
$
7,965
$
1,389
$
71
$
-
$
14,730
1,292
1,544 $
1,647
2,060 $
4,005
8,645 $
9,081
17,046 $
1,133
2,522 $
2,541
2,612 $
1,007
1,007 $
20,706
35,436
1,685
$
2,533
$
42,369
$
37,779
$
3,278
$
144
$
-
$
87,788
155,709
40,706
629,333
392,762
$ 157,394 $ 43,239 $ 671,702 $ 430,541 $
248,287
251,565 $
204,086
204,230 $
- 1,670,883
- $1,758,671
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real Estate
Home
Equity
Consumer
Unallocated
Total
1,070 $
8,084 $
5,395 $
5,618 $
813 $
86 $
- $
21,066
1,339
2,409 $
4,032
12,116 $
3,356
8,751 $
8,541
14,159 $
1,388
2,201 $
3,372
3,458 $
905
905 $
22,933
43,999
Total Loans:
Individually Evaluated
for Impairment
Collectively Evaluated
for Impairment
Total
$
4,076 $
26,924 $
47,793 $
29,347 $
3,557 $
299 $
- $ 111,996
184,985
$ 189,061 $
84,324 668,998 387,122
111,248 $ 716,791 $ 416,469 $
243,165 235,350
246,722 $ 235,649 $
- 1,803,944
- $1,915,940
Impaired Loans. Loans are deemed to be impaired when, based on current information and events, it is probable that the company
will not be able to collect all amounts due (principal and interest payments), according to the contractual terms of the loan
agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are
considered troubled debt restructurings and classified as impaired. Interest income recognized on impaired loans was
approximately $1.4 million, $3.4 million, and $1.7 million for the years ended December 31, 2010, 2009, and 2008.
75
The following table presents loans individually evaluated for impairment by class of loans as of December 31:
Unpaid
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment With
Allowance
Related
Allowance
Average Recorded
Investment
$
$
$
$
1,684
2,533
42,370
37,780
3,278
143
87,788
$
$
4,076 $
26,924
47,793
29,347
3,557
299
111,996
$
389
-
9,030
3,295
375
-
13,089
1,473
1,413
19,207
4,391
1,423
9
27,916
$
$
$
$
1,295 $
2,533
33,340
34,485
2,903
143
74,699 $
252 $
413
4,640
7,965
1,389
71
14,730 $
2,603 $
25,511
28,586
24,956
2,134
290
84,080 $
1,070 $
8,084
5,395
5,618
813
86
21,066 $
2,768
5,801
48,820
41,958
3,087
172
102,606
3,033
31,426
43,789
38,683
3,630
405
120,966
(Dollars in Thousands)
2010:
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total
2009:
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer
Total
Note 5
INTANGIBLE ASSETS
The Company had intangible assets of $86.2 million and $88.8 million at December 31, 2010 and December 31, 2009,
respectively. Intangible assets at December 31, were as follows:
(Dollars in Thousands)
Core Deposits Intangibles
Goodwill
Customer Relationship Intangible
Total Intangible Assets
2010
2009
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
$
$
47,176 $
84,811
1,867
133,854 $
47,176 $
46,434 $
84,811
-
1,261
1,867
47,695 $ 133,854 $
43,943
-
1,070
45,013
Net Core Deposit Intangibles. As of December 31, 2010 and December 31, 2009, the Company had net core deposit intangibles
of $0.7 million and $3.2 million, respectively. Amortization expense for the 12 months of 2010, 2009 and 2008 was
approximately $2.6 million, $3.9 million, and $5.5 million, respectively. The estimated annual amortization expense for the next
two years is expected to be approximately $0.5 million and $0.2 million per year, respectively. All of our core deposit intangible
assets will be fully amortized in January 2013.
Goodwill. As of December 31, 2010 and December 31, 2009, the Company had goodwill of $84.8 million. Goodwill is tested for
impairment annually during the fourth quarter or more frequently if events or changes in circumstances indicate that the carrying
value of goodwill may not be recoverable. The Company’s goodwill impairment test is a two-step process. Step One compares
the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeds the estimated fair value, Step
Two is performed by comparing the fair value of the reporting unit’s implied goodwill to the carrying value of goodwill. If the
carrying value of the reporting unit’s goodwill exceeds the estimated fair value, an impairment charge is recorded equal to the
excess.
Because the book value of the Company’s equity exceeded its market capitalization for a major part of the third quarter of 2010,
the Company performed goodwill impairment testing during the third quarter of 2010. The results of this interim test indicated
that goodwill was not impaired. During the fourth quarter of 2010, the Company performed its annual goodwill impairment test.
The Step One test indicated that the carrying amount (including goodwill) of the Company’s reporting unit exceeded its estimated
fair value. The Step Two test indicated the estimated fair value of our reporting unit’s implied goodwill exceeded its carrying
amount. Based on the results of the Step Two analysis, the Company concluded that goodwill was not impaired as of December
31, 2010.
76
Other. As of December 31, 2010, the Company had a client relationship intangible, net of accumulated amortization, of $0.6
million. This intangible asset was booked as a result of the March 2004 acquisition of trust client relationships. Amortization
expense for 2010 was $0.2 million. Estimated annual amortization expense is $0.2 million based on use of a 10-year useful life.
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
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
2010
2009
24,439 $
115,031
57,414
196,884
(81,528)
115,356 $
24,408
111,649
54,493
190,550
(75,111)
115,439
2010
2009
770,149 $
275,416
139,888
372,266
1,557,719 $
899,649
373,105
122,370
435,319
1,830,443
$
$
$
$
At December 31, 2010 and 2009, $3.5 million and $2.1 million, respectively, in overdrawn deposit accounts were reclassified as
loans.
Deposits from certain directors, executive officers, and their related interests totaled $23.0 million and $33.6 million at December
31, 2010 and 2009 respectively.
Time deposits in denominations of $100,000 or more totaled $130.7 million and $154.1million at December 31, 2010 and
December 31, 2009, respectively.
At December 31, 2010, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2011
2012
2013
2014
2015 and thereafter
Total
Interest expense on deposits for the three years ended December 31, was as follows:
$
$
321,547
36,037
10,099
1,896
2,687
372,266
(Dollars in Thousands)
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits < $100,000
Time Deposits > $100,000
Total
2010
2009
2008
1,406 $
1,299
65
4,602
1,273
8,645 $
1,039 $
1,288
60
5,362
2,836
10,585 $
7,454
5,242
121
10,199
4,290
27,306
$
$
77
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2010
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
2009
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
2008
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(1)
Other
Short-Term
Borrowings
$
$
$
10,275 $
12,550
6,269
0.02%
0.01%
8,350 $
93,400
41,702
0.56%
0.01%
19,875 $
36,700
19,777
1.58%
0.56%
71,633 $
71,633
16,733
0.12%
0.10%
25,520 $
46,672
31,270
0.08%
0.18%
40,868 $
40,868
32,433
1.50%
0.11%
11,020(2)
11,792
4,861
2.84%
3.37%
1,972(2)
21,434
6,349
0.44%
2.79%
1,302(2)
14,087
8,971
3.93%
0.41%
(1) Balances are fully collateralized by government treasury or agency securities held in the Company’s investment portfolio.
(2)
Includes FHLB debt and client tax deposit balances of $10.0 million and $1.0 million, respectively at December 31, 2010,
$0.6 million and $1.4 million, respectively at December 31, 2009, and $0.1 million and $1.2 million, respectively at
December 31, 2008.
78
Note 9
LONG-TERM BORROWINGS
Federal Home Loan Bank Notes. At December 31, Federal Home Loan Bank advances included:
(Dollars in Thousands)
Due on November 10, 2010, fixed rate 4.72%(1)
Due on September 08, 2011, fixed rate 3.65%
Due on December 18, 2012, fixed rate 4.84%
Due on March 13, 2013, fixed rate 3.55%
Due on March 18, 2013, fixed rate 3.31%
Due on March 18, 2013, fixed rate 6.37%
Due on April 17, 2013, fixed rate 3.42%
Due on April 17, 2013, fixed rate 3.50%
Due on May 15, 2013, fixed rate 3.81%
Due on May 15, 2013, fixed rate 3.81%
Due on June 17, 2013, fixed rate 3.85%
Due on June 17, 2013, fixed rate 4.11%
Due on September 23, 2013, fixed rate 5.64%
Due on January 13, 2014, fixed rate 2.96%
Due on January 26, 2014, fixed rate 5.79%
Due on January 27, 2014, fixed rate 5.31%
Due on February 14, 2014, fixed rate 3.08%
Due on May 27, 2014, fixed rate 5.92%
Due on May 31, 2014, fixed rate 4.88%
Due on February 23, 2015, fixed rate 4.07%
Due on March 16, 2015, fixed rate 2.88%
Due on April 21, 2015, fixed rate 2.89%
Due on August 17, 2015, fixed rate 4.31%
Due on October 15, 2015, fixed rate 4.11%
Due on July 20, 2016, fixed rate 6.27%
Due on October 3, 2016, fixed rate 5.41%
Due on October 31, 2016, fixed rate 5.16%
Due on March 1, 2017, fixed rate 3.62%
Due on June 27, 2017, fixed rate 5.53%
Due on June 30, 2017, fixed rate 2.77%
Due on July 7, 2017, fixed rate 2.88%
Due on October 10, 2017, fixed rate 2.22%
Due on October 18, 2017, fixed rate 2.18%
Due on October 31, 2017, fixed rate 4.79%
Due on December 11, 2017, fixed rate 4.78%
Due on February 22, 2018, fixed rate 4.61%
Due on April 10, 2018, fixed rate 4.20%
Due on April 10, 2018, fixed rate 4.20%
Due on September 17, 2018, fixed rate 4.23%
Due on September 18, 2018, fixed rate 5.15%
Due on November 5, 2018, fixed rate 5.10%
Due on December 3, 2018, fixed rate 4.87%
Due on December 17, 2018, fixed rate 6.33%
Due on January 21, 2020, fixed rate 4.20%
Due on February 12, 2020, fixed rate 4.11%
Due on May 27, 2020, fixed rate 3.28%
Due on February 16, 2021, fixed rate 3.00%
Due on January 18, 2022, fixed rate 5.25%
Due on May 30, 2023, fixed rate 2.50%
Due on June 15, 2023, fixed rate 4.77%
Due on July 1, 2025, fixed rate 4.80%
Total Outstanding
$
2009
2010
-
10,000 (1)
634 (1)
10,000
491
1,154
388
335
1,057
1,644
944
1,089
78
1,529
509
1,600
996
1,497
1,066
279
1,968
712
-
-
541
714
779
205
456
-
525
-
-
-
-
653
583
1,386
1,196
993
2,896
420
3,072
442
1,214
-
-
-
693
915
817
450
3,095
60,101 $ 50,015
-
1,118
376
241
954
1,592
915
1,057
74
1,456
387
1,600
919
1,417
1,066
221
1,560
698
590
1,507
493
680
661
175
389
525
455
1,076
1,607
3,243
1,172
569
510
1,345
1,174
975
2,775
372
2,916
393
1,111
783
500
2,823
648
895
774
417
2,897
(1) $10.0 million is classified as short-term borrowings as of December 31, 2010 and $0.6 million classified as short-term
borrowings as of December 31, 2009.
79
Scheduled minimum future principal payments on FHLB advances at December 31, 2010 were as follows:
(Dollars in Thousands)
2011
2012
2013
2014
2015
2016 and thereafter
Total
$ 13,372 (1)
3,539
9,976
7,082
5,646
20,486
$ 60,101
$
(1) $10.0 million is classified as short-term borrowings.
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.
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 payments are due quarterly at LIBOR plus a margin of 1.90%, adjusted quarterly. 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 payments are due quarterly at LIBOR plus a margin of 1.80%, adjusted annually. 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,
however, pursuant to the Federal Reserve Resolutions, the Company must receive approval from the Federal Reserve before
making any payments, including interest, on the trust preferred securities.
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 unconditional 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.
80
Note 10
INCOME TAXES
The provision for income taxes reflected in the statements of operations is comprised of the following components:
(Dollars in Thousands)
Current:
Federal
State
Deferred:
Federal
State
Valuation Allowance
Total
2010
2009
2008
$
(5,392) $
525
3,990
(2,158)
66
2,340
417
$
(5,767)
(2,475)
149
$
(2,969) $
(5,336) $
11,730
510
(4,882)
(1,289)
644
6,713
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
Change in Reserve for Uncertain Tax Position
State Taxes, Net of Federal Benefit
Other
Change in Valuation Allowance
Actual Tax Expense
2010
2009
2008
$
(1,184) $
(3,083) $
7,678
(955)
127
(1,062)
39
66
(2,969) $
(1,533)
687
(1,337)
(219)
149
(5,336) $
(1,663)
-
(506)
560
644
6,713
$
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, 2010
and 2009 are as follows:
(Dollars in Thousands)
Deferred Tax Assets attributable to:
Allowance for Loan Losses
Associate Benefits
Accrued Pension/SERP
Interest on Nonperforming Loans
State Net Operating Loss Carry Forwards
Intangible Assets
Core Deposit Intangible
Contingency Reserve
Accrued Expense
Leases
Other Real Estate Owned
Other Than Temporary Impairment of Investment Securities
Other
Total Deferred Tax Assets
Deferred Tax Liabilities attributable to:
Depreciation on Premises and Equipment
Deferred Loan Fees and Costs
Net Unrealized Gains on Investment Securities
Intangible Assets
Accrued Pension/SERP
Securities Accretion
Market Value on Loans Held for Sale
Other
Total Deferred Tax Liabilities
Valuation Allowance
Net Deferred Tax Assets
81
2010
2009
13,671 $
297
10,313
807
3,541
173
3,195
52
466
407
7,052
231
777
40,982 $
6,411 $
4,127
677
2,519
4,256
2
72
1,560
19,624
859
20,499 $
16,975
297
9,685
2,971
1,786
147
3,144
373
458
433
4,136
-
614
41,019
4,492
4,413
749
2,219
6,850
9
28
-
18,760
793
21,466
$
$
$
$
In the opinion of management, it is more likely than not that all of the deferred tax assets, with the exception of the separate state
net operating loss carry-forward of the holding company, will be realized. Accordingly, a valuation allowance for the holding
company’s separate state net operating loss carry-forward was recorded in 2008, and increased for the holding company’s
additional state operating loss carry-forward generated in 2009 and 2010. At year-end 2010, the Company had state net operating
loss carry-forwards of approximately $88.0 million, which expire at various dates from 2022 through 2030. The Bank also has
state tax credit carry-forwards of approximately $0.5 million, which expire at various dates from 2011 through 2015.
Changes in net deferred income tax assets were:
(Dollars in Thousands)
Balance at Beginning of Year
Income Tax (Expense) Benefit From Change in Pension Liability
Income Tax Benefit From Change in Unrealized Losses on Available-for-Sale Securities
Income Tax Benefit From Changes in Other Temporary Impairment of Securities
Deferred Income Tax (Expense) Benefit on Continuing Operations
Balance at End of Year
$
$
2010
2009
$
21,466
628
72
231
(1,898)
$
20,499
17,768
(4,442)
47
-
8,093
21,466
The Company had unrecognized tax benefits at December 31, 2010, 2009, and 2008 of $4.8 million, $4.6 million, and $3.9
million, respectively, of which $3.1 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:
2010
(Dollars in Thousands)
Balance at January 1,
Additions Based on Tax Positions Related to Current Year
Decrease Due to Lapse in Statue of Limitations
Decrease Based on Tax Positions Related to Prior Year
Balance at December 31
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective
federal or state income taxes accounts. The total amounts of interest and penalties recorded in the income statement for the years
ended December 31, 2010, 2009, and 2008 were $9,000, $250,000, and $281,000, respectively. The amounts accrued for interest
and penalties at December 31, 2010, 2009, and 2008 were $1.1 million, $1.1 million, and $834,000, respectively.
4,589
611
(430)
-
4,770
3,916
673
-
-
4,589
3,254
914
-
(252)
3,916
2009
2008
$
$
$
$
$
$
No significant increases or decreases in the amounts of unrecognized tax benefits are expected in the next 12 months.
The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as file various returns in states where
its banking offices are located. The Company is no longer subject to U.S. federal or state tax examinations for years before
2007.
82
Note 11
STOCK-BASED COMPENSATION
The Company recognizes the cost of stock-based associate stock compensation in accordance with ASC-718-20-05-1 and ASC
718-50-05-01, (formerly SFAS No. 123R), "Share-Based Payment” (Revised) under the fair value method.
As of December 31, 2010, the Company had three stock-based compensation plans, consisting of the 2005 Associate Stock
Incentive Plan ("ASIP"), the 2005 Associate Stock Purchase Plan ("ASPP"), and the 2005 Director Stock Purchase Plan
("DSPP"). Total compensation expense associated with these plans for 2008 through 2010 was $0.3 million, $0.2 million, and
$0.1 million, respectively.
ASIP. The Company's ASIP allows the Company's Board of Directors to award key associates various forms of equity-based
incentive compensation. Under the ASIP, all participants in this plan are eligible to earn an equity award, in the form of
performance shares. The Company, under the terms and conditions of the ASIP, created the 2010 Incentive Plan (“2010 Plan”),
which has an award tied to an internally established earnings goal for 2010. The grant-date fair value of the shares eligible to be
awarded in 2010 is approximately $913,000. 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 58,648 shares are eligible for
issuance. For 2010 and 2009, the Company recognized no expense related to the ASIP as performance goals were not achieved.
A total of 875,000 shares of common stock have been reserved for issuance under the ASIP. To date, the Company has issued a
total of 67,022 shares of common stock under the ASIP.
Executive Stock Option Agreement. Prior to 2007, the Company maintained a stock option arrangement for a key executive
officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG). The status of the options granted under this arrangement
is detailed in the table provided below. 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 ASIP 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 for 2010, 2009, or 2008
as the results did not meet the earnings performance goal.
A summary of the status of the Company’s option shares as of December 31, 2010 is presented below:
Options
Outstanding at January 1, 2010
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
32.79 $
-
-
-
32.79 $
32.79 $
4.9 $
-
-
-
3.9 $
3.9 $
-
-
-
-
-
-
Shares
60,384 $
-
-
-
60,384 $
60,384 $
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 84,772 shares have been issued since the
inception of the DSPP. For 2010, the Company issued 22,152 shares under the DSPP and recognized approximately $26,000 in
expense related to this plan. For 2009, the Company issued 19,300 shares and recognized approximately $26,000 in expense
related to the DSPP. For 2008, the Company issued 12,454 shares and recognized approximately $30,000 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 153,072 shares have
been issued since inception of the ASPP. For 2010, the Company issued 41,486 shares under the ASPP and recognized
approximately $109,000 in expense related to this plan. For 2009, the Company issued 29,804 shares and recognized
approximately $144,000 in expense related to the ASPP. For 2008, the Company issued 21,970 shares and recognized
approximately $125,000 in expense under the ASPP.
83
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of each of the purchase rights granted
under the ASPP was $2.67 for 2010. For 2009 and 2008, the weighted average fair value purchase right granted was $5.97 and
$4.97, 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)
2010
2009
2008
4.4%
41.0%
0.2%
0.5
3.7%
67.5%
0.3%
0.5
3.0%
37.0%
2.6%
0.5
84
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 total years of service and average of the five highest consecutive years of compensation
during the ten years immediately preceding their departure. The Company's general funding policy is to contribute amounts
sufficient to meet minimum funding requirements as set by law and to ensure deductibility for federal income tax purposes.
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.
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial Loss/(Gain)
Benefits Paid
Expenses Paid
Plan Change(1)
Projected Benefit Obligation at End of Year
2010
2009
2008
5,201
79,607 $
83,749 $
$
70,118
5,691 5,593 5,351
4,733 4,588 4,482
(2,977) 4,038
(1,776) (2,829) (6,483)
(205) (233) (165)
2,266
79,607
-
97,393 $
-
83,749 $
$
Accumulated Benefit Obligation at End of Year
$
77,100 $
64,889 $
56,368
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year
Actual Gain/(Loss) Return on Plan Assets
Employer Contributions
Benefits Paid
Expenses Paid
Fair Value of Plan Assets at End of Year
8,246
66,363 $ 75,653
$ 79,547 $
7,092
(14,642)
- 8,000 12,000
(1,776) (2,829) (6,483)
(205) (233) (165)
66,363
$
84,658 $
79,547 $
Amounts Recognized in the Consolidated Statements of Financial Condition:
Other Assets
Other Liabilities
$
- $
12,735
- $
4,202
-
13,245
Amounts (Pre-Tax) Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Losses
Prior Service Cost
$
25,438 $
2,351
23,224 $
2,860
32,341
3,369
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of Prior Service Costs
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
(1) In 2008, the employee benefits plan was amended to include stock as plan
compensation.
85
$
$
5,691 $
4,733
(6,194)
509
2,088
6,827 $
5,593 $
4,588
(5,060)
509
2,954
8,584 $
5,351
4,482
(5,921)
509
882
5,303
5.55%
8.00%
4.25%
5.75%
8.00%
4.50%
12/31/10
12/31/09
6.00%
8.00%
5.50%
12/31/08
5.75%
8.00%
4.50%
6.00%
8.00%
5.50%
6.25%
8.00%
5.50%
Other Comprehensive Income. The estimated amounts that will be amortized from accumulated other comprehensive income into
net periodic benefit cost in 2011 are as follows:
(Dollars in Thousands)
Actuarial Loss
Prior Service Cost
Total
$
$
2,211
462
2,673
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 and/or cash equivalents.
Plan Assets. The Company’s pension plan asset allocation at year-end 2010 and 2009, and the target asset allocation for 2010 are
as follows:
Equity Securities
Debt Securities
Cash Equivalent
Total
Target
Allocation
2011
Percentage of Plan
Assets at Year-End(1)
2009
2010
65%
30%
5%
100%
50%
36%
14%
100%
45%
26%
29%
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.
The major categories of assets in the Company’s pension plan as of year-end is presented in the following table. Assets are
segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure
fair value (see Note 19 – Fair Value Measurements).
(Dollars in Thousands)
Level 1:
U.S. Treasury
Common Stocks
Mutual Funds
Cash and Cash Equivalents
Level 2:
U.S. Government Agencies and Corporations
Total Fair Value of Plan Assets
2010
2009
$
4,837 $
11,935
40,267
11,374
5,375
9,469
30,795
21,756
16,245
12,152
$
84,658 $
79,547
86
Expected Benefit Payments. As of December 31, 2010, expected benefit payments related to the defined benefit pension plan
were as follows:
(Dollars in Thousands)
2011
2012
2013
2014
2015
2016 through 2020
Total
$
$
4,060
4,941
5,675
6,711
8,551
42,044
71,982
Contributions. The following table details the amounts contributed to the pension plan in 2010 and 2009, and the expected
amount to be contributed in 2011.
(Dollars in Thousands)
Actual Contributions
2010(1)
$ -
2009
$ 8,000
Expected Range of
Contribution
2011(2)
$ -
(1) For 2010, the Company did not make a contribution to its pension plan due to adequacy of its funding level.
(2) For 2011, the Company anticipates that it will not have a minimum funding requirement – funding will be at management
discretion in consideration of 2011 plan experience.
87
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 same service and compensation as used for the pension plan, except the benefits are calculated
without regard to the limits set by the Internal Revenue Code on compensation and benefits. The net benefit payable from the
SERP is the difference between this gross benefit and the benefit payable by the pension plan.
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
Plan Change(1)
Projected Benefit Obligation at End of Year
Accumulated Benefit Obligation at End of Year
2010
2009
2008
3,174 $
-
150
(323)
-
3,001 $
5,033 $
20
178
(2,057)
-
3,174 $
3,706
31
287
(180)
1,190
5,034
2,996 $
2,889 $
2,899
$
$
$
Amounts Recognized in the Consolidated Statements of Financial Condition:
Other Liabilities
$ 3,001 $ 3,174 $
5,034
Amounts (Pre-Tax) Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Gain
Prior Service Cost
$
(1,753) $
694
(1,854) $
874
(148)
1,055
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Amortization of Prior Service Cost
Recognized Net Actuarial (Gain)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
$
$
- $
150
180
(424)
(94) $
20 $
178
180
31
287
180
(350) (36)
462
28 $
5.55%
4.25%
5.75%
4.50%
12/31/10
12/31/09
6.00%
5.50%
12/31/08
5.75%
4.50%
6.00%
5.50%
6.25%
5.50%
(1) In 2008, the SERP plan was amended to include stock as plan compensation.
88
Expected Benefit Payments. As of December 31, 2010, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2011
2012
2013
2014
2015
2016 through 2020
Total
401(k) Plan
$
$
266
289
277
310
353
591
2,086
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 of 50% from the Company are made up to 6% of the participant's compensation for eligible
associates. During 2010, 2009, and 2008, the Company made matching contributions of $0.4 million, $0.4 million, and $0.3
million, respectively. The participant may choose to invest their contributions into twenty-four investment options 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 2010, 2009 and 2008.
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 (Loss) Income
2010
2009
2008
$
(413) $
(3,471) $
15,225
Denominator:
Denominator for Basic Earnings Per Share Weighted-Average Shares
Effects of Dilutive Securities Stock Compensation Plans
17,075,867
857
17,043,964
747
17,141,454
5,460
Denominator for Diluted Earnings Per Share Adjusted Weighted-Average
Shares and Assumed Conversions
17,076,724
17,044,711
17,146,914
Basic (Loss) Earnings Per Share
Diluted (Loss) Earnings Per Share
$
$
(0.02) $
(0.20) $
(0.02) $
(0.20) $
0.89
0.89
Stock options for 23,138 and 37,246 shares of common stock related to awards earned in 2003 and 2004, respectively, were not
considered in computing diluted earnings per common share for 2010, 2009 and 2008 because they were anti-dilutive.
89
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,
2010, 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, 2010 and December 31, 2009 are as follows:
(Dollars in Thousands)
As of December 31, 2010:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
As of December 31, 2009:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
Actual
Amount
Ratio
Amount
Required
For Capital
Adequacy Purposes
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
Ratio Amount Ratio
$
249,619
240,270
13.24% $
12.77%
75,920
75,734
4.00%
4.00%
*
113,601
*
6.00%
275,231
263,937
14.59%
14.03%
151,840
151,469
8.00%
8.00%
*
189,336
*
10.00%
249,619
240,270
10.10%
9.74%
75,920
75,734
4.00%
4.00%
*
94,668
*
5.00%
$
257,108
238,433
12.76% $
11.86%
81,370
81,194
4.00%
4.00%
*
121,791
*
6.00%
284,423
263,806
14.11%
13.12%
162,740
162,388
8.00%
8.00%
*
202,985
*
10.00%
257,108
238,433
10.39%
9.66%
81,370
81,194
4.00%
4.00%
*
101,493
*
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) for that year combined with its retained net profits for the preceding two
calendar years. In addition, pursuant to the Federal Reserve Resolutions, the Bank must receive prior approval from the Federal
Reserve before declaring or paying any dividends. Under these guidelines and restrictions, the Bank must receive approval from
its regulators to issue and declare any further dividends to CCBG. In addition, CCBG must receive approval from the Federal
Reserve to pay any dividends to its shareowners.
90
Note 16
RELATED PARTY INFORMATION
At December 31, 2010 and 2009, certain officers and directors were indebted to the Company’s bank subsidiary in the aggregate
amount of $21.8 million and $23.2 million, respectively. During 2010, $27.0 million in new loans were made and repayments
totaled $28.4 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.
Under a lease agreement expiring in 2024, the Bank leases land from a partnership in which several directors and officers have an
interest. The lease agreement with Smith Interests General Partnership L.L.P. provides for annual lease payments of
approximately $136,000, to be adjusted for inflation in future years.
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
Retail Brokerage Fees
Noninterest Expense:
Maintenance Agreements - FF&E
Legal Fees
Professional Fees
Interchange Fees
Telephone
Advertising
Processing Services
FDIC Insurance Fees
Printing and Supplies
Other Real Estate Owned
(1) Less than 1% of the appropriate threshold.
Note 18
COMMITMENTS AND CONTINGENCIES
2010
2009
2008
$
$
1,118(1)
5,077
4,123
2,820
3,185
4,301
4,338
955(1)
2,059
2,905
3,651
6,324
1,455(1)
14,922
2,359
4,432
3,515
2,655
3,225
3,975
4,501
1,929
2,227
3,285
3,591
5,167
1,882
7,577
$
5,548
4,165
2,988
2,399
3,506
2,240
4,083
4,577
2,522
3,609
3,921
1,304(1)
1,977(1)
1,306(1)
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, 2010, 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
$
$
330,767
12,675
(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.
91
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 $1.2 million in 2010, $1.5 million in 2009, and
$1.5 million in 2008. Minimum lease payments under these leases due in each of the five years subsequent to December 31, 2010,
are as follows (dollars in millions): 2011, $0.6; 2012, $0.6; 2013, $0.5; 2014, $0.4; 2015, $0.4; thereafter, $4.3.
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 is a member of the Visa U.S.A. network. Visa U.S.A believes that its member banks
are required to indemnify Visa U.S.A. for potential future settlement of certain litigation (the “Covered Litigation”). The
Company recorded a charge in its fourth quarter 2007 financial statements of approximately $1.9 million, or $0.07 per diluted
common share, to recognize its proportionate contingent liability related to the costs of the judgments and settlements from the
Covered Litigation.
In the first quarter of 2008, Visa, Inc., the parent company of Visa U.S.A, in conjunction with its initial public offering,
established a litigation escrow account for the costs of from the Covered Litigation. Visa, Inc. has since funded the escrow
account in December 2008, July 2009, May 2010, and October 2010, in the amounts of $1.096 billion, $700 million, $500 million,
and $800 million, respectively, which in effect reduced the exchange ratio for the Company’s Class B shares of Visa Inc.
As a result of the aforementioned escrow account funding by Visa, Inc., the Company reversed the full amount of its original $1.9
million Covered Litigation accrual. While the Company could be required under the indemnification obligation to separately fund
its proportionate share of any Covered Litigation losses, it is expected that this litigation escrow account will be sufficient to pay
the full amount of the potential losses.
Note 19
FAIR VALUE MEASUREMENTS
The Company adopted the provisions of ASC 820-10 (Formerly SFAS No. 157), "Fair Value Measurements," for financial assets
and financial liabilities effective January 1, 2008. Subsequently, on January 1, 2009, the Company adopted ASC 820-10-15
(Formerly SFAS No. 157-2) "Effective Date of FASB Statement No. 157" for non-financial assets and non-financial liabilities.
ASC 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and
expands disclosures about fair value measurements.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the
liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous
market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the
asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the
market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions
involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal
market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the
cost approach. The market approach uses prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as
cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently
would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.
Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting
92
entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on
the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value hierarchy for valuation
inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or
corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions
about the assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of
such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the
Company’s financial assets and financial liabilities carried at fair value effective January 1, 2008.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair
value is based upon models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be
made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such
valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the
Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of
fair value at the reporting date.
Securities Available for Sale. Securities classified as available for sale are reported at fair value on a recurring basis utilizing
Level 1, 2, or 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service or
a model that uses, as inputs, observable market based parameters. The fair value measurements consider observable data that may
include quoted prices in active markets, or other inputs, including dealer quotes, market spreads, cash flows, the U.S. Treasury
yield curve, live trading levels, trade execution data, market consensus prepayment speeds, and credit information and the bond's
terms and conditions.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of
December 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
(Dollars in Thousands)
2010
Securities available for sale:
US Treasury
U.S. Government Agencies and Corporations
State and Political Subdivisions
Mortgage-Backed Securities
Other Securities
2009
Securities available for sale:
US Treasury
U.S. Government Agencies and Corporations
State and Political Subdivisions
Mortgage-Backed Securities
Other Securities
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
162,151 $
-
5,278
-
-
- $
-
74,022
56,217
12,064
22,444 $
-
3,709
-
-
- $
-
103,841
34,143
12,536
- $
-
-
-
-
- $
-
-
-
-
162,151
-
79,300
56,217
12,064
22,444
-
107,550
34,143
12,536
$
$
93
The following table reconciles the beginning and ending balances of available for sale securities measured at fair value on a
recurring basis using significant unobservable (Level 3) inputs:
(Dollars in Thousands)
Balance, Beginning of year
Change in unrealized gain included in other comprehensive income
Change in unrealized loss included in other comprehensive income
Other than temporary credit impairment realized in earnings
Balance, End of year
2010
2009
-
$
100
(100)
$
-
1,107
(107)
(700)
(300)
-
$
$
Certain financial and non-financial assets measured at fair value on a nonrecurring basis are detailed below; that is, the
instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances
(for example, when there is evidence of impairment). Financial and non-financial liabilities measured at fair value on a
nonrecurring basis were not significant at December 31, 2010.
Impaired Loans. On a non-recurring basis, certain impaired loans are reported at the fair value of the underlying collateral if
repayment is expected solely from the liquidation of collateral. The fair value of collateral is determined by an independent
valuation or professional appraisal in conformance with banking regulations. Collateral values are estimated using Level 3 inputs
due to the volatility in the real estate market, and the judgment and estimation involved in the real estate appraisal process.
Impaired loans had a carrying value of $87.8 million, with a valuation allowance of $14.7 million, at December 31, 2010
compared to $111.9 million and $21.1 million, respectively, at December 31, 2009.
Loans Held for Sale. Loans held for sale of $6.3 million, which are carried at the lower of cost or fair value, are adjusted to fair
value on a non-recurring basis. Fair value is based on observable markets rates for comparable loan products which is considered
a level 2 fair value measurement.
Other Real Estate Owned. During the 12 months of 2010, certain foreclosed assets, upon initial recognition, were measured and
reported at fair value through a charge-off to the allowance for possible loan losses based on the fair value of the foreclosed asset.
The fair value of the foreclosed asset is determined by an independent valuation or professional appraisal in conformance with
banking regulations. The fair value of foreclosed assets is estimated using Level 3 inputs due to the volatility of the real estate
market, and judgment and estimation involved in the real estate valuation process. Foreclosed assets measured at fair value upon
initial recognition totaled $49.2 million during the 12 months ended December 31, 2010. The Company disposed of $18.1 million
in foreclosed assets and recognized subsequent losses totaling $9.3 million for properties that were re-valued during the 12 months
ended December 31, 2010. The carrying value of foreclosed assets was $57.9 million at December 31, 2010.
Other 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:
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 that reflect the credit and interest rate risks inherent in
each loan category. 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.
94
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,
2010
2009
Carrying
Value
Estimated
Fair
Value
Carrying
Value
Estimated
Fair
Value
35,410 $
200,783
309,731
1,723,235
2,269,159 $
35,410 $
57,877 $
200,783
276,416
309,731
176,673
1,871,941
1,675,997
2,221,921 $ 2,382,907 $
57,877
276,416
176,673
1,851,699
2,362,665
2,103,976 $
92,928
62,887
50,101
2,309,892 $
2,105,568 $ 2,258,234 $
35,841
62,887
49,380
2,310,041 $ 2,406,342 $
89,287
62,884
52,302
2,258,899
34,209
62,569
51,509
2,407,186
$
$
$
$
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.
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 Operations
(Dollars in Thousands)
OPERATING INCOME
Income Received from Subsidiary Bank:
Dividends
Overhead Fees
Other Income
Total Operating Income
2010
2009
2008
$
- $
3,059
74
3,133
35,000 $
3,209
121
38,330
16,655
3,209
184
20,048
OPERATING EXPENSE
Salaries and Associate Benefits
Interest on Long-Term Debt
Interest on Subordinated Notes Payable
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
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 (Loss) Income
$
1,359
-
2,008
1,185
96
226
623
5,497
(2,364)
(771)
(1,593)
1,180
(413) $
1,694
-
3,730
999
202
176
813
7,614
30,716
(1,430)
32,146
(35,617)
(3,471) $
1,341
35
3,735
978
244
213
620
7,166
12,882
(737)
13,619
1,606
15,225
95
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)
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; 17,100,081 and 17,036,407 shares issued
and outstanding at December 31, 2010 and December 31, 2009, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners' Equity
Total Liabilities and Shareowners' Equity
The cash flows for the parent company for the three years ended December 31, were as follows:
Parent Company Statements of Cash Flows
2010
2009
$ 10,986 $ 20,425
314,874 314,946
2,265
$ 328,553 $ 337,636
2,693
$ 62,887 $ 62,887
6,850
69,737
6,647
69,534
-
-
171
170
36,920 36,099
237,679
246,460
(15,751) (14,830)
259,019 267,899
$ 328,553 $ 337,636
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating 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
$
2010
2009
2008
(413) $
(3,471) $
15,225
(1,180)
-
(97)
(203)
(1,893)
35,617
-
(528)
1,325
32,943
(1,606)
62
254
210
14,145
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Investment in:
Purchase of held-to-maturity and available-for-sale securities
Increase in Investment in Bank Subsidiary
Net Cash Used in Investing Activities
CASH FROM FINANCING ACTIVITIES:
Payment of Dividends
Repurchase of Common Stock
Issuance of Common Stock
Net Cash (Used in) Provided by Financing Activities
Net (Decrease) Increase in Cash
Cash at Beginning of Period
Cash at End of Period
-
-
-
-
-
-
-
-
-
(8,368)
-
822
(7,546)
(12,959)
(1,561)
1,052
(13,468)
(12,630)
(2,414)
891
(14,153)
(9,439)
20,425
10,986 $
19,475
950
20,425 $
$
(8)
958
950
96
Note 21
COMPREHENSIVE INCOME
FASB Topic ASC 220, “Comprehensive Income” (Formerly SFAS No. 130) requires that certain transactions and other
economic events that bypass the income statement be displayed as other comprehensive income. 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, net of tax expense of $41 and a tax benefit of
2010
2009
2008
$460 and net of tax expense of $683
$
79
$
(888) $
1,230
Retirement plans:
Change in funded status of defined benefit pension plan and SERP, net of tax
benefit of $627, net of tax expense $4,441, tax benefit of $10,613
Net Other Comprehensive (Loss) Gain
(1,000)
(921) $
7,072
6,184 $
(16,179)
(14,949)
$
The components of accumulated other comprehensive income, net of tax, as of year-
end were as follows:
Net unrealized gain on securities available for sale
Net unfunded liability for defined benefit pension plan and SERP
$
667 $
(16,418)
$ (15,751) $
588 $
(15,418)
(14,830) $
1,476
(22,490)
(21,014)
97
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, 2010, 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,
2010, 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, 2010.
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, 2010, and opined as to the effectiveness of internal control over financial reporting as of
December 31, 2010, as stated in its attestation report, which is included herein on page 99.
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 that materially affected, or is likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
98
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, 2010, 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 the accompanying Report of Management on Internal Control over Financial Reporting. 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, 2010, 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 statements of financial condition of Capital City Bank Group, Inc. as of December 31, 2010 and 2009, and the
related consolidated statements of operations, changes in shareowners’ equity, and cash flows for each of the three years in the
period ended December 31, 2010 of Capital City Bank Group, Inc. and our report dated March 7, 2011 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 7, 2011
99
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 26, 2011.
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 26, 2011.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowners Matters
Incorporated herein by reference to the sections entitled “Share Ownership” and “Equity Compensation Plan Information” in the
Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 26, 2011.
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 26, 2011.
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 26, 2011.
100
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report
1. Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at the End of Fiscal Years 2010 and 2009
Consolidated Statements of Operations for Fiscal Years 2010, 2009, and 2008
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2010, 2009, and 2008
Consolidated Statements of Cash Flows for Fiscal Years 2010, 2009, and 2008
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
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
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
shareholders.
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).
101
10.4
10.5
10.6
10.7
10.8
10.9
11
14
21
23.1
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).
Form of Participant Agreement for 2008 Stock-Based Incentive Plan – incorporated
herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K (filed 6/5/08) (No.
0-13358).
Form of Participant Agreement for 2009 Stock-Based Incentive Plan – incorporated
herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K (filed 6/30/09) (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 – incorporated herein by reference to
Exhibit 21 of the Registrant’s Form 10-K (filed 3/13/09) (No. 0-13358).
Consent of Independent Registered Public Accounting Firm.**
Certification of CEO pursuant to Securities and Exchange Act Section 302 of the
Sarbanes-Oxley Act of 2002.**
Certification of CFO pursuant to Securities and Exchange Act Section 302 of the
Sarbanes-Oxley Act of 2002.**
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.**
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.**
*
**
Information required to be presented in Exhibit 11 is provided in Note 13 to the consolidated financial
statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally
accepted accounting principles.
Filed electronically herewith.
102
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 7, 2011, 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 7,
2011 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)
103
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 7, 2011, 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/ Lina S. Knox
Lina S. Knox
/s/ Henry Lewis III
Henry Lewis III
/s/ William G. Smith, Jr.
William G. Smith, Jr.
104
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements of Capital City Bank
Group, Inc. of our reports dated March 7, 2011, 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) of Capital City Bank, Inc. for the year ended
December 31, 2010:
(cid:120) Registration Statement (Form S-8 No. 333-18557)
(cid:120) Registration Statement (Form S-8 No. 033-60113)
(cid:120) Registration Statement (Form S-8 No. 333-18543)
(cid:120) Registration Statement (Form S-8 No. 333-120242)
(cid:120) Registration Statement (Form S-8 No. 333-36693)
(cid:120) Registration Statement (Form S-3D No. 333-20683)
Birmingham, Alabama
March 7, 2011
/s/ Ernst & Young LLP
105
Exhibit 31.1
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 7, 2011
106
Exhibit 31.2
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 7, 2011
107
Exhibit 32.1
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, 2010, 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 7, 2011
108
Exhibit 32.2
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, 2010, 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 7, 2011
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about
capital city bank group, inc.
Capital City Bank Group, Inc. (NASDAQ: CCBG) is one of the largest publicly traded financial services companies headquartered
in Florida and has approximately $2.6 billion in assets. The Company provides a full range of banking services, including traditional
deposit and credit services, asset management, trust, mortgage banking, merchant services, bankcards, data processing and securities
brokerage services. The Company’s bank subsidiary, Capital City Bank, was founded in 1895 and now has 70 banking offices and 79
ATMs in Florida, Georgia and Alabama. For more information about Capital City Bank Group, Inc., visit www.ccbg.com.
www.ccbg.com
2010
annual report