annual shareowners’ meeting
april 23, 2013
Augustus B. Turnbull III Florida State Conference Center | 555 W. Pensacola St., Tallahassee, Florida | 10 a.m.
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 69 locations and 72
ATMs in Florida, Georgia and Alabama. For more information about Capital City Bank Group, Inc., visit
www.ccbg.com.
Financial
Highlights
For the Year:
Net Income:
Per Common Share Data:
Net Income - Basic
Net Income - Diluted
Book Value
Key Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin
Total Capital
Tier I Leverage
Tangible Common Equity
Balance Sheet Data:
Dollars in Thousands, Except Per Share Data
2012
2011
2010
$ 108
$ 4,897
$ (413)
$ 0.01
0.01
14.31
0.00%
0.04%
3.81%
15.72%
9.90%
6.35%
$ 0.29
0.29
14.68
0.19%
1.86%
4.18%
15.32%
10.26%
6.51%
$ (0.02)
(0.02)
15.15
(0.02%)
(0.16%)
4.32%
14.59%
10.10%
6.82%
Average Loans
$ 1,556,565
$ 1,686,995
$ 1,829,193
Average Earning Assets
2,229,621
2,221,317
2,294,282
Average Total Assets
2,590,173
2,583,197
2,644,731
Average Non-Interest Bearing Deposits
610,915
567,987
462,445
Average Total Deposits
2,105,672
2,081,583
2,192,323
Average Shareowners’ Equity
252,960
263,048
264,679
a letter to our
Shareowners
Dear Fellow Shareowners,
Capital City Bank Group had another profitable year in 2012, although not without challenges. Since the
beginning of this economic cycle, I have consistently said that progress would be choppy, and it has been.
We entered the year prepared for the inevitable rough spots and ready to face the headwinds with resolve
and good business sense. The latter half of 2012 showed positive signs that were not evident during the first
half. As we begin 2013, I am even more encouraged.
A strong second half, highlighted by solid results in the fourth quarter, contributed to our full-year results,
and improvement in several key economic indicators pointed toward positive changes to come. Residential
lending is a leading indicator of a recovering economy, and we began to see home prices stabilize and
residential lending pick up. Overall loan demand remained soft, but we saw loans decline at a slower pace
in the fourth quarter, reinforcing my belief that our markets continue to exhibit signs of recovery.
Our stock price increased 19% during 2012 and, through a concerted, enterprise-wide focus on credit
quality and operating expenses, we made noteworthy progress in both areas, positively impacting our
bottom line. Operating expenses for
the year were lower than in 2011, and
past dues and non-performing assets
declined by more than $9 million and
$20 million, respectively.
“ Our stock price increased 19% during
2012 and, through a concerted,
enterprise-wide focus on credit quality
and operating expenses, we made
noteworthy progress in both areas,
positively impacting our bottom line.”
The disposition of bank owned real
estate (ORE) has been a high priority
over the past several years. Our strategy
of emphasizing retail disposition,
rather than bulk sales, has continued to
generate positive results. This approach
takes longer but has produced a better outcome for shareowners. Driven by the tireless efforts of our
Commercial Real Estate and Special Assets teams, and supported by associates at all levels, sales of ORE
exceeded $8 million in the fourth quarter and topped $28 million for the year, exceeding our 2011 sales.
Great companies listen to their clients and react to changing needs. As the industry landscape, consumer
demographics, and client preferences evolve, we are presented an opportunity to do things differently
and we are prepared to respond. We constantly look at how we can streamline processes while enhancing
those value-added services that are selling points for a growing segment of clients who want more
convenience. Technologies like bank-to-bank transfer, the ability to chat online with our bankers, mobile
banking and opening accounts via our website are just a few endeavors to serve a new generation of clients.
I am proud of our talented team of associates. Much has been asked of them during this cycle, and they
have shown resiliency, dedication, perseverance and, above all, loyalty. They are a breed apart and deserve
our thanks.
I anticipate the choppiness in the economy and in our
markets will continue, but remain optimistic. Credit
quality and the disposition of ORE will continue to be
primary areas of focus, and I am confident the right
strategies and talent are in place. I believe in what
Capital City Bank Group and its associates represent:
hard work, determination and a commitment to do the
right thing. These are the ideals that guide our efforts
throughout the organization. I have every faith that our
talented team of associates will continue to promote
these objectives with the same enthusiasm they have
shown to date, and our collective commitment to
excellence will carry us forward through the challenges ahead.
“ I believe in what Capital
City Bank Group and its
associates represent: hard
work, determination and
a commitment to do the
right thing.”
As always, I thank you for your continued support and welcome your comments and questions.
Your banker,
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
Our Leaders
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
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
34 years of service
Thomas A. Barron
President
Capital City Bank
38 years of service
J. Kimbrough Davis
Chief Financial Officer
31 years of service
Tom W. Allen
Sales Leadership
4 years of service
BOARD OF DIRECTORS
Frederick Carroll, III
Managing Partner
Carroll and Company, CPAs
Serving Since 2003
Cader B. Cox, III
Chairman and Secretary
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 1994
Lina S. Knox
Community Volunteer
Serving Since 1998
Dr. Henry L. Lewis, III
Professor of Science
Florida Memorial University
Serving Since 2003
SeNIoR maNagemeNt team
Edward G. Canup
Commercial Banking
29 years of service
Karen H. Love
Residential Mortgage Lending
18 years of service
William D. Colledge
MetroCommunity Banking
24 years of service
William L. Moor, Jr.
Wealth Management
25 years of service
Bethany H. Corum
Capital City Services Company
6 years of service
B. Randall Sharpton
Internal Audit
33 years of service
Mitchell R. Englert
Community Banking
39 years of service
Brooke W. Hallock
Marketing
8 years of service
Dale A. Thompson
Credit Administration
33 years of service
Edwin N. West, Jr.
Community Banking
Leon County
14 years of service
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-K
(cid:58)(cid:3)(cid:3)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(cid:3)
For the fiscal year ended December 31, 2012
OR
(cid:134)(cid:3)(cid:3)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 (cid:133) No (cid:54)
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 (cid:133) No (cid:54)
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 (cid:54) No (cid:133)
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 (cid:54) No (cid:133)
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. (cid:133)
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 (cid:133)
Accelerated filer (cid:54)
Non-accelerated filer (cid:133)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:54)
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, 2012,
the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $75,752,530 (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 March 1, 2013
17,312,770
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 23, 2013, are incorporated by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2012 ON FORM 10-K
TABLE OF CONTENTS
PAGE
Business ...........................................................................................................................................
Risk Factors .....................................................................................................................................
Unresolved Staff Comments ............................................................................................................
Properties .........................................................................................................................................
Legal Proceedings ............................................................................................................................
Mine Safety Disclosure ...................................................................................................................
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
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 ..........
Quantitative and Qualitative Disclosure About Market Risk ...........................................................
Financial Statements and Supplementary Data ................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........
Controls and Procedures ..................................................................................................................
Other Information ............................................................................................................................
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
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 ..........................................................................................
Item 13.
Item 14.
PART IV
4
24
33
33
33
33
34
36
37
67
68
110
110
110
112
112
112
112
112
Item 15.
Signatures
Exhibits and Financial Statement Schedules ...................................................................................
.........................................................................................................................................................
113
115
1
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans,
objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject
to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to
identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual
results to differ materially from those in the forward-looking statements, include, without limitation:
(cid:121)
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our need and our ability to incur additional debt or equity financing;
the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss
provision and deferred tax asset valuation allowance;
continued depression of the market value of the Company that could result in an impairment of goodwill;
the frequency and magnitude of foreclosure of our loans;
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;
legislative or regulatory changes, including the Dodd-Frank Act and Basel III;
the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
restrictions on our operations, including the inability to pay dividends without our regulators’ consent;
the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit
Insurance Fund assessments;
our ability to declare and pay dividends;
changes in the securities and real estate markets;
changes in monetary and fiscal policies of the U.S. Government;
inflation, interest rate, market and monetary fluctuations;
the effects of harsh weather conditions, including hurricanes, and man-made disasters;
our ability to comply with the extensive laws and regulations to which we are subject;
our ability to comply with the laws of each jurisdiction where we operate;
the willingness of clients to accept third-party products and services rather than our products and services and vice
versa;
increased competition and its effect on pricing;
technological changes;
negative publicity and the impact on our reputation;
the effects of security breaches and computer viruses that may affect our computer systems;
changes in consumer spending and saving habits;
growth and profitability of our noninterest income;
changes in accounting principles, policies, practices or guidelines;
the limited trading activity of our common stock;
the concentration of ownership of our common stock;
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
other risks described from time to time in our filings with the Securities and Exchange Commission; and
our ability to manage the risks involved in the foregoing.
However, other factors besides those 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.
2
PART I
Item 1. Business
General
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 66 full-service banking locations in Florida, Georgia, and
Alabama. CCB operates these banking locations. The majority of our revenue, approximately 78%, is derived from our
Florida market areas while approximately 21% and 1% of our revenues are derived from our Georgia and Alabama market
areas, respectively.
At December 31, 2012, we had total consolidated assets of approximately $2.634 billion, total deposits of approximately
$2.145 billion and shareowners’ equity was approximately $246.9 million. Our total assets at year-end 2011 were $2.641
billion and for year-end 2010 totaled $2.622 billion. Total revenue (interest income plus noninterest income) and net income
(loss) for the last three fiscal years were $144.9 million and $0.1 million, respectively for 2012, $158.3 million and $4.9
million, respectively for 2011, and $167.3 million and ($0.4 million), respectively for 2010. Our financial condition and
results of operations are more fully discussed in our management discussion and analysis on page 37 and our consolidated
financial statements on page 71.
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 14 in the Notes to Consolidated
Financial Statements for additional restrictions. We had a total of 913 (full-time equivalent) associates at March 1, 2013.
Page 36 contains other financial and statistical information about us.
Subsidiaries of CCBG
CCBG’s principal asset is the capital stock of the Bank. CCB, our banking subsidiary, which accounted for approximately
100% of consolidated assets at December 31, 2012, and approximately 100% of consolidated net income for the year ended
December 31, 2012. In addition to our banking subsidiary, we have three primary indirect subsidiaries, Capital City Trust
Company, Capital City Banc Investments, Inc., and Capital City Services Company, 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, which were formed in connection with two issuances of trust preferred securities. The nature of our primary indirect
subsidiaries is provided below.
Operating Segment
We have one reportable segment with four principal services: Banking Services (CCB), Data Processing Services (Capital
City Services Co.), Trust and Asset Management Services (Capital City Trust Co.), and Brokerage Services (Capital City
Banc Investments). Revenues from each of these principal services for the year ended 2012 totaled approximately 93.1%,
1.9%, 2.9%, and 2.1% of our total revenue, respectively. In 2011 and 2010, Banking Services (CCB) revenue was
approximately 93.1% of our total revenue for each respective year.
3
Capital City Bank
CCB is a Florida-chartered full-service bank engaged in the commercial and retail banking business. Significant services
offered by the Bank include:
(cid:121) 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.
(cid:121) 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.
(cid:121) Residential Real Estate Lending – The Bank provides products to help meet the home financing needs of consumers,
including conventional permanent and construction/permanent (fixed, adjustable, or variable 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.
(cid:121) 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 through a marketing alliance with ELAN we offer
credit card programs.
(cid:121)
Institutional Banking – The Bank provides banking services to meet the needs of state and local governments, public
schools and colleges, charities, membership and not-for-profit associations including customized checking and
savings accounts, cash management systems, tax-exempt loans, lines of credit, and term loans.
(cid:121) 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 a “live”
call center between the hours of 8 a.m. to 6 p.m. Monday through Friday and from 9 a.m. to 12 noon on Saturday.
The call center can also be accessed via live chat through the internet. Bank Direct also offers an automated phone
system offering 24-hour access to client deposit and loan account information and transfer of 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.
Capital City Trust Company
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. The Trust Company also provides services for the administration of pension, profit sharing, and 401(k) plans.
Associations, endowments, and other nonprofit 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 $614.3 million as of
December 31, 2012, with total assets under administration exceeding $691.9 million.
Capital City Banc Investments, Inc.
Capital City Banc Investments, Inc. offers access to retail investment products through INVEST Financial Corporation, a
member of FINRA and SIPC. Non-deposit investment and insurance products are: (i) not FDIC insured; (ii) not deposits,
obligations, or guaranteed by any bank; and (iii) 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.
4
Capital City Services Company
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 March 1,
2013, the Services Company is providing data processing services to five correspondent banks, which have relationships with
CCB.
Regulatory Matter
Capital City Bank
As previously disclosed, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) conducted a regular
safety and soundness examination of CCB in October of 2011. In accordance with their findings from that examination, the
Federal Reserve requested that the CCB Board of Directors approve a board resolution addressing matters described below
(the “2012 Bank Resolution”). Because we had fully complied with the obligations of the board resolution adopted by the
CCB Board of Directors in February 2010 (the “Existing Bank Resolution”), the 2012 Bank Resolution superseded and
replaced the Existing Bank Resolution. From a regulatory perspective, the 2012 Bank Resolution, like the Existing Bank
Resolution, is an informal, nonpublic agreement, which is the mildest form of supervisory action used by the Federal Reserve
to correct problems or to request periodic reports addressing certain aspects of a member bank’s operations. No capital
directive was included in the 2012 Bank Resolution and, as was previously disclosed, CCB was not required to adjust its
allowance for loan losses as a result of the most recent examination.
The 2012 Bank Resolution required CCB to (i) obtain prior approval from the Federal Reserve and OFR before declaring or
paying dividends to CCBG; and (ii) validate its allowance for loan and lease losses (“ALLL”) methodology, including
revising its ALLL policy to clearly define roles and responsibilities and ensure that the validation process is independent of
the estimation process. As of December 31, 2012, we were fully compliant with the requirements under the 2012 Bank
Resolution.
Capital City Bank Group, Inc.
In February 2010, the Board of Directors of CCBG approved a board resolution requested by the Federal Reserve (the “2010
Holding Company Resolution”, and together with the 2012 Bank Resolution, the “Federal Reserve Resolutions”), which
remains in effect. Under the 2010 Holding Company Resolution, 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.
Status of Resolutions
While both CCB and CCBG continue to remain “well capitalized,” we do not expect the Federal Reserve Resolutions to be
rescinded until asset quality and the level of credit risk exposure improve.
Dividends and Trust Preferred Payments
On December 14, 2011, we announced the suspension of our quarterly dividend on our common stock. We believe that,
given our inability to earn our dividend since 2008, it was, and continues to be, prudent to preserve our capital at least until
the economic conditions in Florida and Georgia further improve. In addition, in consultation with the Federal Reserve, we
have agreed to defer the payment of interest on the Company’s trust preferred securities and to maintain the suspension of our
quarterly dividend on our common stock until asset quality and the level of credit risk exposure improve. We will, however,
continue the accrual of interest on the trust preferred securities in accordance with our contractual obligations. Furthermore,
due to our contractual obligations with the holders of the trust preferred securities, we may not make dividend payments to
our shareowners in the future until all accrued and unpaid interest owed to trust preferred securities holders is paid.
Therefore, we cannot pay dividends to our shareowners until we (i) obtain approval from our regulators to pay interest on our
trust preferred securities, (ii) pay all accrued and unpaid interest owed to holders of our trust preferred securities, and (iii)
obtain approval from our regulators to pay dividends to our shareowners. We remain committed to resuming dividend
payments to our shareowners and interest on our trust preferred securities as soon as conditions warrant, and subject to
approval from our regulators, which approval may not be granted until such time as CCB’s asset quality and the level of
credit risk exposure improve.
5
Underwriting Standards
A core goal of CCB is to support the communities in which it operates. The Bank seeks loans from within its primary trade
area, which is defined as the counties in which the Bank’s offices are located. The Bank will originate loans within its
secondary trade area, defined as adjacent counties to those in which the Bank has offices. There may also be occasions when
the Bank will have opportunities to make loans that are out of both the primary and secondary trade areas. These loans will
only be approved if the applicant is known to the Bank and applicant’s primary business is within our primary or secondary
trade area. Approval of all loans is subject to the Bank’s policies and standards described in more detail below.
The Bank has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management and
the Board of Directors reviews and approves these policies and procedures on a regular basis (at least annually).
Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan
delinquencies and nonperforming loans and potential problem loans. Bank management and the Credit Risk Oversight
Committee periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies.
In addition, total borrower exposure limits are established and concentration risk is monitored. As part of this process, the
overall composition of the portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan
type, geographic area, or other relevant classifications of loans. Specific segments of the portfolio are monitored and reported
to the Board on a quarterly basis (i.e., commercial real estate) and have strategic plans in place to supplement Board approved
credit policies governing exposure limits and underwriting standards. The Bank recognizes that exceptions to the below listed
policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines.
Residential Real Estate Loans
The Bank originates 1-4 family, owner-occupied residential real estate loans in its Residential Real Estate line of business.
The Bank’s policy is to underwrite these loans in accordance with secondary market guidelines in effect at the time of
origination, including loan-to-value (“LTV”) and documentation requirements. The Bank originates fixed-rate, adjustable-
rate and variable rate residential real estate loans. Over the past three years, the vast majority of residential loan originations
have been fixed-rate loans which are sold in the secondary market on a non-recourse basis with related servicing rights (i.e.,
the Bank does not service sold loans). These loans require private mortgage insurance (“PMI”) if the LTV exceeds 80%.
Some of the adjustable-rate residential real estate product is retained in the Bank’s loan portfolio and loans with LTV’s in
excess of 85% require PMI. ARM loans with an initial fixed interest rate period greater than three years are sold in the
secondary market on a non-recourse basis. The Bank verifies applicants’ income, obtains credit reports and independent real
estate appraisals in the underwriting process to ensure adequate collateral coverage and that loans are extended to individuals
with good credit and income sufficient to repay the loan. Underwriting documentation is maintained in accordance with
secondary market guidelines. The Bank has approved and funded two option ARM loans in the past, but no longer offers an
option ARM product. The Bank has never offered subprime loans. Since 2008, the Bank has not offered initial teaser rates on
ARM products maintained in the Bank’s portfolio. Prior to 2008, the Bank offered slightly discounted (1%) initial fixed
interest rates on ARM loans maintained in the Bank’s loan portfolio.
The Bank also originates 1-4 family, owner-occupied residential real estate loans throughout its banking office network.
These loans are generally not eligible for sale into the secondary market due to not meeting a specific secondary market
underwriting requirement. The product offering is a variable rate 3/1 ARM with a maximum term of 30 years and maximum
LTV of 80%. The Bank verifies applicants’ income, obtains credit reports and independent real estate appraisals in the
underwriting process to ensure adequate collateral coverage and that loans are extended to individuals with good credit and
income sufficient to repay the loan.
Residential real estate loans also include home equity lines of credit and home equity loans (“HELOCs”). The Bank’s home
equity portfolio includes revolving open-ended equity loans with interest-only or minimal monthly principal payments and
closed-end amortizing loans. As of December 31, 2012, approximately 82% of the residential home equity loan portfolio
consisted of the revolving open-ended product. Both equity loan products are available for both first mortgage and junior
liens. Approximately 61% of the Bank’s $236.3 million residential home equity loan portfolio consisted of first lien
mortgages at December 31, 2012. Policy guidelines include the following:
(cid:121)
(cid:121)
(cid:3)
(cid:121)
a maximum LTV of 80%, including the first mortgage amount; maximum total debt to income ratio of 40%;
minimum Beacon score of 630; not subject to PMI;
a maximum LTV of 90%, including the first mortgage amount; maximum total debt to income ratio of 30%;
minimum Beacon score of 700; not subject to PMI; and
a maximum LTV of 100%, including the first mortgage amount; maximum total debt to income ratio of 40%;
minimum Beacon score of 630; PMI required for full loan amount.
6
Interest rates may be fixed or adjustable. Adjustable-rate loans are tied to the Prime Rate with a typical margin of 1.0% or
more. Adjustable-rate loans are typically underwritten based upon an assumed rate of no lower than 8.0%, being higher if the
fully indexed rate is higher. Appraisals are normally required for all residential real estate loans, both those sold to the
secondary market and those maintained in the Bank’s loan portfolio. These appraisals are required to comply with regulatory
guidance concerning loans secured by primary residences and underwriting standards established for secondary market loan
sales. For home equity loans, a drive-by appraisal or tax assessment value may be used in instances where the loan exposure
is less than $250,000. A full appraisal is required for home equity loans with total exposure greater than $250,000.
Commercial Loans
The Bank’s policy sets forth guidelines for debt service coverage ratios, LTV ratios and documentation standards.
Commercial loans are primarily made based on identified cash flows of the borrower with consideration given to underlying
collateral and personal or other guarantees. The Bank’s policy establishes debt service coverage ratio limits that require a
borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing debt. The majority of
the Bank’s commercial loans are secured by the assets being financed or other business assets such as accounts receivable or
inventory. Many of the loans in the commercial portfolio have variable interest rates tied to the Prime Rate or U.S. Treasury
indices.
Commercial Real Estate Loans
The Bank’s policy sets forth guidelines for debt service coverage ratios, LTV ratios and documentation standards.
Commercial real estate loans are primarily made based on identified cash flows of the borrower with consideration given to
underlying real estate collateral and personal guarantees. The Bank’s policy establishes a maximum LTV specific to property
type (ranging from 65% for raw land up to 80% for improved properties) and minimum debt service coverage ratio limits that
require a borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing debt.
Commercial real estate loans may be fixed or variable-rate loans with interest rates tied to the Prime Rate or U.S. Treasury
indices.
Bank policy requires appraisals for loans in excess of $250,000 that are secured by real property. Appraisals are required to
be prepared by a state-licensed or state-certified appraiser (in accordance with the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 and other applicable regulatory guidelines).
Consumer Loans
The Bank’s consumer loan portfolio includes personal installment loans, direct and indirect automobile financing, and
overdraft lines of credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans. The
majority of the Bank’s consumer loans are short-term and have fixed rates of interest that are set giving consideration to
current market interest rates and the financial strength of the borrower. The Bank’s policy establishes maximum debt to
income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income and receipt of credit
reports.
Lending Limits and Extensions of Additional Credit
The Bank has established an internal lending limit of $10.0 million for the total aggregate amount of credit that will be
extended to a client and any related entities within its Board approved policies. This compares to our legal lending limit of
$76 million. In practice, the Bank seeks to maintain an internal lending limit of $7.5 million in order to maintain a well-
diversified loan portfolio. As of December 31, 2012, there were seven client relationships (including parties affiliated with
borrowers) with exposures (including both outstanding balances and amounts available to be drawn) with exposures
(including both outstanding balances and amounts available to be drawn) above the $7.5 million level with a cumulative loan
exposure of approximately $57.4 million, one of which was a substandard credit relationship.
In the normal course of business, the Bank does not extend additional credit to a client who has had a loan charged-off or is
classified as substandard. However, as part of the modification process with a troubled client, we may make an additional
loan to a borrower (or an advance under an existing loan agreement) as part of the workout process. This is not a normal
practice and is typically only undertaken when the client provides a credit enhancement as part of the agreement (i.e.,
additional collateral, new guarantor, etc.) that provides a material improvement to the loan structure. These types of
modifications are reviewed on a case-by-case basis due to their unique nature.
7
In addition, CCB limits the authority of its loan officers to originate, monitor, and collect on loans based on a number of
factors, including without limitation, the ability, attitudes, experience, market knowledge, and character of loan officers. All
of these factors are considered in assigning individual loan authorities, as well as determining the officer’s responsibilities.
Each CCB loan officer has been assigned a loan authority limit. Loans in excess of the officer’s authority are submitted to the
Bank’s centralized Credit Administration Department for underwriting and approval if the loan is within the department’s
approval limits or to the Bank’s Credit Committee if the loan exceeds the department’s approval limits. These limits have
been established in order to better manage credit risk and are based on aggregate debt with the client and related party
interests, as described above.
Loan Modification and Restructuring
In the normal course of business, CCB receives requests from its clients to renew, extend, refinance, or otherwise modify
their current loan obligations. In most cases, this may be the result of a balloon maturity that is typical in most commercial
loan agreements, a request to refinance to obtain current market rates of interest, competitive reasons, or the conversion of a
construction loan to a permanent financing structure at the completion or stabilization of the property. In these cases, the
request is held to the normal underwriting standards and pricing strategies as any other loan request, whether new or renewal.
In some cases, the modification may be due to a reduction in debt service capacity experienced by the client (i.e., potentially
troubled loan whereby the client may be experiencing financial difficulties). To maximize the collection of loan balances, we
evaluate troubled loans on a case-by-case basis to determine if a loan modification would be appropriate. We pursue loan
modifications when there is a reasonable chance that an appropriate modification would allow our client to continue servicing
the debt.
For loans secured by residential real estate, if the client demonstrates a loss of income such that the client cannot reasonably
support even a modified loan, we may pursue short sales or deed-in-lieu arrangements. For loans secured by income
producing commercial properties, we perform a rigorous and ongoing review that is systematic in nature. We review a
number of factors, including cash flow, loan structure, collateral value, and guarantees, to identify loans within our income
producing commercial loan portfolio that are most likely to experience distress. Based on our review of these factors and our
assessment of overall risk, we evaluate the benefits of proactively initiating discussions with our clients to improve a loan’s
risk profile.
In some cases, we may renegotiate terms of their loans so that they have a higher likelihood of continuing to perform. To
date, we have restructured loans in a variety of ways to help our clients service their debt and to mitigate the potential for
additional losses. The primary restructuring methods being offered to our residential clients are reductions in interest rates
and extensions in terms. For commercial loans, the primary restructuring method is the extensions of terms.
Accruing loans with modifications deemed to be economic concessions resulting from borrower difficulties are reported as
Troubled Debt Restructurings (“TDRs”). Nonaccruing loans that are modified and demonstrate a history of repayment
performance and a probability of future performance in accordance with their modified terms are reclassified to accruing
status, typically after a designated period of time.
Loans that are past due in principal or interest for more than 90 days are placed on nonaccrual status, unless the loan is well-
secured and in the process of collection. Bank policy dictates that all loans, whether current or delinquent, to such a past due
borrower or related entity be classified. CCB’s historic and current policy prohibits making additional loans to a borrower or
any related interest of a borrower who is on nonaccrual status or who is past due in principal or interest more than 90 days,
except under certain workout plans when the client provides a credit enhancement as part of the plan (i.e., additional
collateral, new guarantor, etc.) and if such extension of credit aids with loss mitigation. These types of modifications are
reviewed on a case-by-case basis due to their unique nature.
In some cases, when it is determined that the client does not have the capacity and/or desire to work with the Bank in order to
arrive at an amicable arrangement we will pursue foreclosure and/or other litigation. These proceedings are subject to the
laws of the states in which we operate, primarily Florida and Georgia. The majority of our legal proceedings are in Florida.
State law in Florida requires us to foreclose through a court proceeding. As part of our efforts to maximize our recovery, we
may temporarily delay foreclosure and seek judgments via lawsuit. This proceeding is typically undertaken in cases where we
have found commercial loan clients to be strategically working against the Bank or as a means for us to obtain the original
collateral and additional liens in an accelerated manner (i.e., may allow for a faster process than normal foreclosure
proceedings). There have been very few delays in foreclosure due to documentation weaknesses and they are immaterial to
the overall process.
8
Additionally, under certain circumstances, we may convert construction loans to commercial loans. The Bank’s policy
regarding residential construction loans (one-to-four family homes financed for home builders) is to only make such
construction loans to experienced local builders who have a successful track record with the Bank, and then only when the
construction will be in our market, as defined by policy. Each loan is typically made for a period of one year to allow for
construction and marketing. After such period, if the property has not been sold, the loan may be extended for an additional
six months. If after such extension the property has not been sold, the loan is typically put on an amortizing basis of no more
than 20 years. Exceptions to this policy are made when warranted and only after approval from the Bank’s central Credit
Committee.
The Bank’s policy regarding commercial construction loans (i.e., owner-occupied buildings, project-financing, or income-
producing properties) provides for a detailed underwriting and approval process, requires the use of Bank-approved
contractors, and delegates administration of the process to the Bank’s central Construction Loan Administration department.
These loans normally include an interest-only period (during the construction and stabilization period) and subsequent
conversion to a set amortization period depending on property type and policy limits following the construction and
stabilization period.
Expansion of Business
Our philosophy is to build 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 13 of 20 markets in Florida and 3
of 5 markets in Georgia, we rank within the top 4 banks in terms of market share. Furthermore, in the counties in which we
operate, we maintain an average 8.82% market share in the Florida counties and 6.26% in the Georgia counties, suggesting
that there is significant opportunity to grow market share within these geographic areas. The larger employers in many of our
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
distinguishes Capital City Bank from our competitors.
Over the last five years, our growth has slowed. Since 2007, our number of offices has declined by four. Average loans have
declined from $1.935 billion in 2007 to $1.557 billion in 2012. Additionally, as a result of the credit cycle and the overall
regulatory environment we have not pursued acquisitions. Nonperforming loan inflow has stabilized since 2009, but total
nonperforming assets remain elevated at 4.47% of total assets at December 31, 2012. The elevated nonperforming assets
combined with lower net interest margins have led to significantly lower earnings for the past five years compared to
earnings in 2006 and 2007.
While our growth has slowed, our long-term vision remains 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, acquisitions remain a
part of our strategy. During the period 2005 to 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. Furthermore, we would need to seek approval from the Federal Reserve to acquire any financial
institution, which approval will receive greater scrutiny until such time as CCB’s asset quality and credit risk exposure
improve.
9
As conditions improve, 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/Pasco counties in Florida, the western panhandle of Florida, and Bibb and
surrounding counties in central Georgia. Our focus on some of these markets may change as we continue to evaluate our
strategy and the impact the current economic cycle is having on any individual market. 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. We believe our ability
to expand, however, has been limited in the short-term due to our current level of credit risk exposure and the aforementioned
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. In 2011, 92
financial institutions failed in the U.S., including 23 in Georgia and 13 in Florida. In 2012, 51 financial institutions failed in
the U.S., including 10 in Georgia and 8 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 2013. We believe that the larger financial institutions acquiring failed banks in
our market areas are less familiar with the markets in which we operate and typically target a different client base. We
believe clients who bank at community banks tend to prefer the relationship style service of community banks compared to
larger banks. As a result, we believe the reduction of the number of community banks could further enhance our competitive
position and opportunities in many of our markets. Larger financial institutions, however, can benefit from economies of
scale. Therefore, these larger institutions may be able to offer banking products and services at more competitive prices than
us. Additionally, these larger financial institutions may offer financial products that we do not offer.
Our primary market area consists of 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 $996.9 million, or 42.2% of our consolidated deposits at
December 31, 2012.
10
The following table depicts our market share percentage within each respective county, based on total commercial bank
deposits within the county.
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
Market Share as of June 30,(1)
2012
2011
2010
4.5%
52.3%
3.3%
1.8%
18.5%
62.1%
42.1%
13.7%
1.9%
21.4%
16.5%
28.7%
9.7%
0.2%
18.0%
1.1%
6.9%
30.8%
11.7%
12.3%
3.5%
8.4%
17.4%
10.4%
7.2%
4.2 %
52.2 %
3.0 %
1.8 %
18.8 %
60.4 %
34.4 %
11.3 %
1.8 %
21.3 %
15.7 %
28.5 %
10.0 %
0.2 %
18.6 %
1.0 %
6.5 %
32.0 %
10.9 %
13.0 %
3.5 %
8.3 %
15.8 %
10.6 %
6.1 %
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%
Chambers County ..............................................................................
7.7%
6.8 %
5.7%
(1) Obtained from the June 30, 2012 FDIC Summary of Deposits Report.
11
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
65
3
48
32
5
6
4
7
42
2
93
12
6
116
15
60
8
4
5
6
53
10
8
20
25
9
17
3
14
14
4
4
4
3
14
2
18
3
6
25
6
21
5
3
3
6
10
5
5
10
10
6
Data obtained from the June 30, 2012 FDIC 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 and first quarters of each year and decline with spending thereafter.
12
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 necessarily our shareowners or our creditors. Any
changes in applicable laws or regulations may materially affect our business and prospects. Proposed 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.
Proposed Changes to Regulatory Capital Requirements
In June 2012, the federal banking agencies issued a series of proposed rules to conform U.S. regulatory capital rules with the
international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord referred to as
“Basel III”. The proposed revisions, if adopted, would establish new higher capital ratio requirements, narrow the definitions
of capital, impose new operating restrictions on banking organizations with insufficient capital buffers and increase the risk
weighting of certain assets. The proposed new capital requirements would apply to all banks, savings associations, bank
holding companies with more than $500 million in assets and all savings and loan holding companies regardless of asset
size. A summary of the proposed regulatory changes is set forth below.
(cid:121) New and Increased Capital Requirements. The proposed rules would establish a new capital measure called
“Common Equity Tier I Capital” consisting of common stock and related surplus, retained earnings, accumulated
other comprehensive income and, subject to certain adjustments, minority common equity interests in
subsidiaries. Unlike the current rules which exclude unrealized gains and losses on available-for-sale debt securities
from regulatory capital, the proposed rules would generally require accumulated other comprehensive income to
flow through to regulatory capital. Depository institutions and their holding companies would be required to
maintain Common Equity Tier I Capital equal to 4.5% of risk-weighted assets by 2015. Additionally, the proposed
regulations would increase the required ratio of Tier I Capital to risk-weighted assets from the current 4% to 6% by
2015. Tier I Capital would consist of Common Equity Tier I Capital plus Additional Tier I Capital which would
include non-cumulative perpetual preferred stock. Neither cumulative preferred stock (other than certain preferred
stock issued to the U.S. Treasury) nor trust preferred securities would qualify as Additional Tier I Capital but could
be included in Tier II Capital along with qualifying subordinated debt. The proposed regulations would also require
a minimum Tier I leverage ratio of 4% for all institutions. The minimum required ratio of total capital to risk-
weighted assets would remain at 8%.
(cid:121) Capital Buffer Requirement. In addition to increased capital requirements, depository institutions and their holding
companies would be required to maintain a capital buffer of at least 2.5% of risk-weighted assets over and above the
minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer would be
subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or
used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The
capital buffer requirement would be phased in over a four-year period beginning in 2016. The capital buffer
requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier I Capital,
8.5% Tier I Capital and 10.5% Total Capital on a fully phased-in basis.
(cid:121) Changes to Prompt Corrective Action Capital Categories. The Prompt Corrective Action rules would be amended
to incorporate a Common Equity Tier I Capital requirement and to raise the capital requirements for certain capital
categories. To be adequately capitalized for purposes of the prompt corrective action rules, a banking organization
would be required to have at least an 8% Total Risk-Based Capital Ratio, a 6% Tier I Risk-Based Capital Ratio, a
4.5% Common Equity Tier I Risk Based Capital Ratio and a 4% Tier I Leverage Ratio. To be well capitalized, a
banking organization would be required to have at least a 10% Total Risk-Based Capital Ratio, an 8% Tier I Risk-
Based Capital Ratio, a 6.5% Common Equity Tier I Risk-Based Capital Ratio and a 5% Tier I Leverage Ratio.
(cid:121) Additional Deductions from Capital. Banking organizations would be required to deduct goodwill and certain other
intangible assets, net of associated deferred tax liabilities, from Common Equity Tier I Capital. Deferred tax assets
arising from temporary timing differences that could not be realized through net operating loss (“NOL”) carrybacks
would continue to be deducted but deferred tax assets that could be realized through NOL carrybacks would not be
deducted but would be subject to 100% risk weighting. Defined benefit pension fund assets, net of any associated
deferred tax liability, would be deducted from Common Equity Tier I Capital unless the banking organization has
unrestricted and unfettered access to such assets. Reciprocal cross-holdings of capital instruments in any other
financial institutions would now be deducted from capital, not just holdings in other depository institutions. For this
13
purpose, financial institutions are broadly defined to include securities and commodities firms, hedge and private
equity funds and non-depository lenders. Banking organizations would also be required to deduct non-significant
investments (less than 10% of outstanding stock) in other financial institutions to the extent these exceed 10% of
Common Equity Tier I Capital subject to a 15% of Common Equity Tier I Capital cap. Greater than 10%
investments must be deducted if they exceed 10% of Common Equity Tier I Capital. If the aggregate amount of
certain items excluded from capital deduction due to a 10% threshold exceeds 17.65% of Common Equity Tier I
Capital, the excess must be deducted.
(cid:121) Changes in Risk-Weightings. The proposed rules would apply a 250% risk-weighting to mortgage servicing rights,
deferred tax assets that cannot be realized through NOL carrybacks and significant (greater than 10%) investments
in other financial institutions. The proposal also would also change the risk-weighting for residential mortgages and
would create a new 150% risk-weighting category for “high volatility commercial real estate loans” which are credit
facilities for the acquisition, construction or development of real property other than one- to four-family residential
properties or commercial real estate projects where: (i) the loan-to-value ratio is not in excess of interagency real
estate lending standards; and (ii) the borrower has contributed capital equal to not less than 15% of the real estate’s
“as completed” value before the loan was made.
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 continue to have a broad impact on the financial services industry as
a result of the significant regulatory and compliance changes including, among other things, (i) enhanced resolution authority
over 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:121) Minimum Capital Requirements and Enhanced Supervision. On June 14, 2011, the federal banking agencies
published a final rule regarding minimum leverage and risk-based capital requirements for banks and bank holding
companies consistent with the requirements of Section 171 of the Dodd-Frank Act. For a more detailed description
of the minimum capital requirements see “Regulatory Considerations – Capital City Bank – Capital Regulations”.
The Dodd-Frank Act also increased regulatory oversight, supervision and examination of banks, bank holding
companies and their respective subsidiaries by the appropriate regulatory agency.
(cid:121) Changes in Capital Treatment of Trust Preferred Securities. Dodd-Frank requires all trust preferred securities, or
TRUPs, issued by bank or thrift holding companies after May 19, 2010 to be counted as Tier II Capital (with an
exception for certain small bank holding companies). Bank holding companies with at least $15 billion in assets as
of December 31, 2009 will have five years to comply with this provision, and starting on January 1, 2013, these
holding companies will phase in the requirement by deducting one-third of TRUPs per year for the following three
years from Tier I Capital. TRUPs issued prior to May 19, 2010 by bank holding companies with less than $15 billion
in assets as of December 31, 2009 are exempt from these capital deductions entirely.
(cid:121) The Consumer Financial Protection Bureau (“Bureau”). The Dodd-Frank Act created the 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. Because this is an
entirely new agency, the impact on us is largely uncertain. However, any new regulatory requirements, or modified
interpretations of existing regulations, will affect our consumer business and operations, potentially resulting in
increased compliance costs.
14
(cid:121) 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. In December 2010, the FDIC
increased the designated reserve ratio to 2.0 percent.
(cid:121) Payment of Interest on Demand Deposits. On July 21, 2011 the Federal Reserve’s final rule repealing Regulation Q,
Prohibition Against Payment of Interest on Demand Deposits, became effective. Regulation Q was promulgated to
implement the statutory prohibition against payment of interest on demand deposits by institutions that are member
banks of the Federal Reserve set forth in Section 19(i) of the Federal Reserve Act. Section 627 of the Dodd-Frank
Act repealed Section 19(i) of the Federal Reserve Act effective July 21, 2011. The final rule implements the Dodd-
Frank Act’s repeal of Section 19(i). The final rule also repeals the Federal Reserve’s published interpretation of
Regulation Q and removes references to Regulation Q found in the Federal Reserve’s other regulations,
interpretations, and commentary.
(cid:121) 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. These requirements became effective on July 21, 2011.
(cid:121) Transactions with Insiders. Insider transaction limitations are expanded through the strengthening of 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. These requirements became effective on July 21, 2011.
(cid:121) Enhanced Lending Limits. The Dodd-Frank Act strengthened the previous limits on a depository institution’s credit
exposure to one borrower which limited 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 expanded the scope of these
restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities
lending and borrowing transactions.
(cid:121) 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 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 CCB.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the
new requirements called for have yet to be implemented and will likely 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, 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.
15
The Company
We are registered with the Board of Governors of the Federal Reserve as a bank holding company under the Bank Holding
Company Act of 1956. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The
Gramm-Leach-Bliley Act, the Bank Holding Company Act, and other federal laws subject 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 modernized 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 are broadly defined to include not only banking, insurance,
and securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary
activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system
generally.
In contrast to financial holding companies, bank holding companies are limited to managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by
regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. As
a bank holding company that has not elected to be a financial holding company, the restrictions will apply to us. In
determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible
benefits include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue
concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite
prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to
terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk
to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an
activity.
Changes in Control
Subject to certain exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with the
applicable regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior
to any person or company acquiring “control” of a bank or bank holding company. A conclusive presumption of control
exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an
insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A
rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of
voting securities of an insured depository institution and either the institution has registered securities under Section 12 of the
Securities Exchange Act of 1934 or as we will refer to as the Exchange Act, or no other person will own a greater percentage
of that class of voting securities immediately after the acquisition. 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 generally permits investors to (i) 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 (ii) designate at least one director, without triggering the various regulatory
requirements associated with control.
As a bank holding company, we are required to obtain prior approval from the Federal Reserve before (i) acquiring all or
substantially all of the assets of a bank or bank holding company, (ii) acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting stock of any bank or bank holding company (unless we own a majority of such
bank’s voting shares), or (iii) merging or consolidating with any other bank or bank holding company. In determining
whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the
16
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 also obtain
permission from the Florida Office of Financial Regulation. Florida statutes define “control” as either (i) indirectly or directly
owning, controlling or having power to vote 25% or more of the voting securities of a bank; (ii) controlling the election of a
majority of directors of a bank; (iii) 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 (iv) as determined by the
Florida Office of Financial Regulation. These requirements will affect us because CCB is chartered under Florida law and
changes in control of us are indirect changes in control of CCB.
Tying
Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extending
credit, to other services or products offered by the holding company or its affiliates, such as deposit products.
Capital; Dividends; Source of Strength
The Federal Reserve imposes certain capital requirements on bank holding companies under the Bank Holding Company
Act, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These
requirements are described below under “Capital Regulations.” Subject to its capital requirements and certain other
restrictions, including the need to seek prior approval from the Federal Reserve in accordance with the Holding Company
Resolution, we are generally able to borrow money to make a capital contribution to CCB, and such loans may be repaid
from dividends paid from CCB to us. We are also able to raise capital for contributions to CCB by issuing securities without
having to receive regulatory approval, subject to compliance with federal and state securities laws.
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 CCB and to commit resources to support CCB in circumstances in which we might not
otherwise do so. In furtherance of 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 financial holding company to divest itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institution’s financial condition.
We suspended payments of dividends to our shareowners in December 2011. In regard to CCB’s and CCBG’s ability to
declare and pay dividends and CCBG’s ability to borrow money, see the section entitled “Item 1 – Business – About Us –
Regulatory Matter.”
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 CCB’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of
CCB’s corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment
or closing of banking centers. CCB is also a member bank of the Federal Reserve System, which makes CCB’s operations
subject to broad federal regulation and oversight by the Federal Reserve. In addition, CCB’s deposit accounts are insured by
the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over CCB.
As a state-chartered banking institution in the State of Florida, CCB 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 for the benefit of
CCB’s customers. Various consumer laws and regulations also affect the operations of CCB, 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.
17
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
CCB 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 CCB to pay dividends if such payments would constitute an unsafe or unsound banking practice. In
addition, the Federal Reserve Resolutions impose restrictions on CCB’s ability to pay dividends. See “Item 1. Business –
About Us – Regulatory Matter.”
In addition, Florida law and Federal regulation also places restrictions on the declaration of dividends from state chartered
banks to their holding companies. Pursuant to the 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 (loss) from the current year combined with the retained net income (loss) for the preceding two years
aggregates a loss or (ii) the payment of such dividend would cause the capital account of the bank to fall below the minimum
amount required by law, regulation, order or any written agreement with the Florida Office of Financial Regulation or a
federal regulatory agency.
Insurance of Accounts and Other Assessments
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. Beginning in November 2008, the FDIC issued a final rule under its Transaction
Account Guarantee Program (“TAGP”), pursuant to which the FDIC fully guaranteed 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
0.25%. Thus, under TAGP, all money in these accounts was fully insured by the FDIC regardless of dollar amount. This
increase to coverage was originally in effect through December 31, 2009, but was extended several times until it expired on
December 31, 2012.
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 0.025% of deposits for an institution in the highest sub-category of the
highest category to 0.45% 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 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 six
tenths of a 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.
18
Transactions With Affiliates
Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of CCB 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 CCB 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 CCB, as those prevailing for comparable nonaffiliated transactions. In addition, CCB 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% Shareowners”, or to any political or campaign committee the funds or services of which will benefit those
executive officers, directors, or 10% Shareowners or which is controlled by those executive officers, directors or 10%
Shareowners, are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations
(Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to executives (which
exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act).
Among other things, these loans must be made on terms substantially the same as those prevailing on transactions made to
unaffiliated individuals and certain extensions of credit to 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 CCB’s
unimpaired capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which CCB 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 credit 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 banking centers, 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. CCB 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. As described above, the federal banking regulators
have issued proposed rules that, if adopted, would change these capital requirements to substantially conform with the Basel
III international standards. However, final rules have not yet been adopted and, therefore, the new heightened Basel III
capital requirements are not yet applicable. 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 certain 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
19
instruments, investments in unconsolidated subsidiaries and any other deductions as determined by the appropriate regulator
(determined on a case by case basis or as a matter of policy after formal rule making).
In computing total risk-weighted assets, bank and 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
average 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 nonpublic 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 not less than 5%, a Tier I Capital ratio of not less than 6%, and a
total risk-based capital ratio of not 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 bank regulators possess the discretionary authority to require higher capital ratios.
As of December 31, 2012, 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 (see table below). 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.
20
Actual
Required
For Capital
Adequacy Purposes
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Ratio
Amount
(Dollars in Thousands)
As of December 31, 2012:
Tier I Capital:
CCBG .................................................................... $239,520 14.35% $ 67,104
CCB ....................................................................... 239,955 14.39% 67,045
Amount
Amount
Ratio
4.00%
*
4.00% 100,567
*
6.00%
Total Capital:
CCBG .................................................................... 262,377 15.72% 134,207
CCB ....................................................................... 260,906 15.64% 134,089
8.00%
*
8.00% 167,612 10.00%
*
Tier I Leverage:
CCBG .................................................................... 239,520
CCB ....................................................................... 239,955
9.90% 96,824
9.93% 96,694
4.00%
*
4.00% 83,806
*
5.00%
Prompt Corrective Action.
Immediately upon becoming undercapitalized, a depository institution becomes subject to the provisions of Section 38 of the
FDIA, which: (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal
banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a
capital restoration plan; (iv) restrict the growth of the institution’s assets; and (v) 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: (i) requiring the institution to raise additional capital;
(ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing
purchaser; and (iv) any other 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.
Interstate Banking and Branching
The Bank Holding Company Act was amended by the Interstate Banking Act. 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.
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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:
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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.
Regulatory Enforcement Authority
Federal and state banking laws grant 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
CCB 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 loans to members (i.e.
advances) in accordance with policies and procedures established by the board of trustees of the FHLB.
As a member of the FHLB of Atlanta, CCB is required to own capital stock in the FHLB in an amount at least equal to 0.15%
(or 15 basis points), which is subject to annual adjustments, of the CCB’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, 2012, CCB 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.
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Overdraft Fee Regulation
The Electronic Fund Transfer Act prohibits 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
CCB is also subject to other federal and state consumer laws and regulations that are designed to protect consumers in
transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth in
Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Check
Clearing for the 21st Century Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Housing Act, the
Home Mortgage Disclosure Act, the Fair and Accurate Transactions 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 customers when taking deposits or making loans to
such customers. CCB must comply with the applicable provisions of these consumer protection laws and regulations as part
of its ongoing customer 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 CCB 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 banking centers 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
continue 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 CCB
cannot be predicted.
Income Taxes
We are subject to income taxes at the federal level and subject to state taxation based on the laws of each state in which we
operate. We file a consolidated federal tax return with a fiscal year ending on December 31.
Website Access to Company’s Reports
Our Internet website is www.ccbg.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), and reports filed
pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The
information on our website is not incorporated by reference into this report.
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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.
Risks Related to Our Business
Should our financial condition deteriorate, 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.
Should our financial condition deteriorate, we may need to incur additional debt or equity financing in the future to maintain
required minimum capital ratios. Such financing may not be available to us on acceptable terms or at all. Prior to issuing new
or refinancing existing debt, we must obtain approval from the Federal Reserve pursuant to the Federal Reserve Resolutions.
Furthermore, 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.
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 are required to consider the recoverability of goodwill each quarter (rather than a typical annual
assessment) and conduct a valuation analysis, if appropriate. Continued sustained decline in our market capitalization,
disruptions in our business, or unexpected declines in our operating results 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. Goodwill impairment is a non-cash charge, which
does not adversely affect the calculation of our risk based and tangible capital ratios. Please see Note 4 in the Notes to
Consolidated Financial Statements for additional discussion. As of December 31, 2012, we had $84.8 million in goodwill,
which represented approximately 3.2% of our total assets.
An inadequate allowance for loan losses would reduce our earnings.
We are exposed to the risk that our clients will be unable to repay their loans according to their terms and that any collateral
securing the payment of their loans will not be sufficient to assure full repayment. This will result in credit losses that are
inherent in the lending business. We evaluate the collectability of our loan portfolio and provide an allowance for loan losses
that we believe is adequate based upon such factors as:
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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, 2012, the Bank’s allowance for loan losses was $29.2 million, which represented approximately 1.93%
of its total amount of loans. The Bank had $64.2 million in nonaccruing loans as of December 31, 2012. 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
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differ substantially from the assumptions used or adverse developments arise with respect to the Bank’s nonperforming 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
in future periods, while having the effect of overstating our current period earnings.
If our nonperforming assets remain elevated, our earnings will suffer.
At December 31, 2012, our nonperforming loans totaled $64.2 million, or 4.22% of the total loan portfolio, representing a
decrease of $10.8 million from December 31, 2011. At December 31, 2012, our nonperforming assets (which include other
real estate owned) were $117.6 million, or 4.47% of total assets. In addition, the Bank had approximately $9.9 million in
accruing loans that were greater than 30 days delinquent as of December 31, 2012. Our nonperforming assets adversely affect
our net income in various ways. We do not record interest income on nonaccrual loans or real estate owned. In addition, if
our estimate for the recorded allowance for loan losses proves to be incorrect and our allowance is inadequate, we will have
to increase the allowance accordingly. In addition, the resolution of nonperforming 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 which could lead to higher loan losses and nonperforming
assets.
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:121) 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. As of December 31, 2012, commercial real estate loans, including multi-family loans, comprised
approximately 40.3% of our total loan portfolio.
(cid:121) 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. As of December 31, 2012, commercial loans comprised approximately
9.2% of our total loan portfolio.
(cid:121) 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. As of
December 31, 2012, construction loans comprised approximately 2.9% of our total loan portfolio.
(cid:121) 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. As of December 31, 2012, vacant land loans
comprised approximately 7.4% of our total loan portfolio.
(cid:121) 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. As of December 31,
2012, consumer loans comprised approximately 10.4% of our total loan portfolio.
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The increased risks associated with these types of loans result in a correspondingly higher probability of default on such
loans (as compared to single-family real estate loans). Loan defaults would likely increase our loan losses and nonperforming
assets and could adversely affect our allowance for loan losses.
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:
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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;
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.
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
26
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. Our
ability to borrow requires prior approval from the Federal Reserve.
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.
Risks Related to Regulation and Legislation
Recently enacted legislation, particularly the Dodd-Frank Act, could materially and adversely affect us by increasing
compliance costs, heightening our risk of noncompliance with applicable regulations, and changing the competitive
landscape in the banking industry.
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 has resulted in sweeping changes in the
regulation of financial institutions. As discussed in the section entitled “Business-Regulatory Considerations” in our 2012
Annual Report on Form 10-K, the Dodd-Frank Act contains numerous provisions that affect all banks and bank holding
companies. The Dodd-Frank Act includes provisions that, among other things:
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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;
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.
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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 and regulatory burdens that will obligate us to incur additional expenses and will adversely affect
our margins and profitability. We will also have a heightened risk of noncompliance with the additional regulations. Finally,
the impact of some of these new regulations is not known at this time and may affect our ability to compete long-term with
larger competitors.
The expiration of unlimited FDIC insurance on certain noninterest-bearing transaction accounts may increase our
interest expense and reduce our liquidity.
On December 31, 2012, unlimited FDIC insurance on certain noninterest-bearing transaction accounts under the Transaction
Account Guarantee program expired. Under this program, prior to its expiration, all funds in a noninterest-bearing transaction
account were insured in full by the FDIC from December 31, 2010, through December 31, 2012. This temporary unlimited
coverage was in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC’s
general deposit insurance rules.
The reduction in FDIC insurance on these noninterest-bearing transaction accounts to the standard $250,000 maximum may
cause depositors to move funds previously held in such noninterest-bearing accounts to interest-bearing accounts, which
could increase our costs of funds and negatively impact our results of operations, or may cause depositors to withdraw their
deposits and invest funds in investments perceived as being more secure, such as securities issued by the United States
Treasury. This could reduce our liquidity, or require us to pay higher interest rates to retain deposits and maintain our
liquidity and could adversely affect our earnings.
The Federal Reserve’s repeal of the prohibition against payment of interest on demand deposits (Regulation Q) may
increase competition for such deposits and ultimately increase interest expense.
A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid
by us on amounts used to fund assets and the interest rates and fees we receive on our interest-earning assets. Our interest-
earning assets include outstanding loans extended to our customers and securities held in our investment portfolio. We fund
assets using deposits and other borrowings. Our strategy is to manage the mix of our deposits rather than compete on rate. As
a result, approximately 28% of our deposits were non-interest bearing as of December 31, 2012.
On July 14, 2011, the Federal Reserve issued final rules to repeal Regulation Q, which had prohibited the payment of interest
on demand deposits by institutions that are member banks of the Federal Reserve System. The final rules implement Section
627 of the Dodd-Frank Act, which repealed Section 19(i) of the Federal Reserve Act in its entirety effective July 21, 2011.
As a result, banks and thrifts are now permitted to offer interest-bearing demand deposit accounts to commercial customers,
which were previously forbidden under Regulation Q. The repeal of Regulation Q may cause increased competition from
other financial institutions for these deposits. If we decide to pay interest on demand accounts, we would expect our interest
expense to increase. Although Regulation Q has been effective for over one year, the impact may not have been realized yet
because of the current zero interest rate policy environment.
We may be required to pay significantly higher FDIC deposit insurance premiums and assessments in the future
which would increase our operating costs.
Insured depository institution failures since 2008 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.
Since 2009, our assessment rates, which also include our assessment for participating in the FDIC’s Transaction Account
Guarantee Program, have increased significantly. 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.
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These higher FDIC assessment rates and special assessments have had and will continue to have an adverse impact on our
results of operations. Our FDIC insurance related cost was $3.3 million for the year ended December 31, 2012 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.
The Dodd-Frank Act also amended the Federal Deposit Insurance Act changing the base against which an insured depository
institution’s deposit insurance assessment is calculated. These amendments require the appropriate assessment base to be
calculated as the institution’s average consolidated total assets minus average tangible equity, rather than the institution’s
deposits. The FDIC’s implementing regulation for these amendments became effective for the quarter beginning April 1,
2011 and was reflected in invoices for assessments due September 30, 2011. These developments have caused, and may
cause in the future, 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 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 if there is an
increase in the number of financial institution bank failures again.
We are subject to extensive regulation that could restrict our activities and impose financial requirements or
limitations on the conduct of our business.
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. Our failure to comply with these laws and regulations, even if the failure follows good faith effort
or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties,
any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new
laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and
financial condition. Please refer to the Section entitled “Business – Regulatory Considerations” in this Report.
We may be subject to more stringent capital and liquidity requirements which would adversely affect our net income
and future growth.
The Dodd-Frank Act applies the same leverage and risk-based capital requirements that apply to insured depository
institutions to most bank holding companies, which, among other things, will change the way in which hybrid securities, such
as trust preferred securities, are treated for purposes of determining a bank holding company’s regulatory capital. On June 14,
2011, the federal banking agencies published a final rule regarding minimum leverage and risk-based capital requirements for
banks and bank holding companies consistent with the requirements of Section 171 of the Dodd-Frank Act. For a more
detailed description of the minimum capital requirements see “Regulatory Considerations – The Bank – Capital Regulations”.
The Dodd-Frank Act also increased regulatory oversight, supervision and examination of banks, bank holding companies and
their respective subsidiaries by the appropriate regulatory agency. These requirements, and any other new regulations, could
adversely affect our ability to pay dividends, or could require us to reduce business levels or to raise capital, including in
ways that may adversely affect our results of operations or financial condition.
29
In addition, on September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel
Committee on Banking Supervision, announced agreement on the calibration and phase-in arrangements for a strengthened
set of capital requirements, known as Basel III. On December 20, 2011, the Federal Reserve announced its intention to
implement substantially all of the Basel III rules which would generally be applicable to institutions with greater than $50
billion in assets. Banking regulators could implement additional changes to the capital adequacy standards applicable to us
and the Bank in the future.
As described in further detail above in the section captioned “Regulatory Considerations –Proposed Changes to Regulatory
Capital Requirements,” the federal banking regulators issued proposed rules that would create new and increased capital
requirements for depository institutions in the U.S. If these rules are adopted, we would be required to maintain higher
regulatory capital levels which could impact our operations, net income and our ability to grow. Furthermore, our failure to
comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us
which could restrict our future growth or operations.
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.
Risks Related to Market Events
Our loan portfolio is heavily concentrated in mortgage loans secured by properties in Florida and Georgia which
causes our risk of loss to be higher than if we had a more geographically diversified portfolio.
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, 2012, approximately 80% 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 to satisfy the debt, our
earnings and capital could be adversely affected.
Additionally, as of December 31, 2012, 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 from which these areas are currently
recovering, 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 results of
operations and financial condition.
Our concentration in loans secured by real estate may increase our credit losses, which would negatively affect our
financial results.
30
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, 2012, approximately 40% and 40% of our $1.521 billion loan portfolio was secured by
commercial real estate and residential real estate, respectively. As of this same date, approximately 3% was secured by
property under construction.
Recent economic and market conditions 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 decline
further, this could lead to additional valuation adjustments on our loan portfolios.
The fair value of our investments could decline which would cause a reduction in shareowners’ equity.
Our investment securities portfolio as of December 31, 2012 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 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, 2012, 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.
Risks Related to an Investment in Our Common Stock
We may be unable to pay dividends in the future.
On December 14, 2011, we announced the suspension of our quarterly dividend on our common stock. We believe that,
given our inability to fully earn our historical dividend since 2008, it was, and continues to be, prudent to preserve our capital
at least until the economic conditions in Florida and Georgia improve. In addition, in consultation with the Federal Reserve,
we have agreed to defer the payment of interest on the Company’s trust preferred securities and to maintain the suspension of
our quarterly dividend on our common stock until asset quality and the level of credit risk exposure improve. See “Item 1.
Business – About Us – Regulatory Matter.” Due to our contractual obligations with the holders of the trust preferred
securities, we may not make dividend payments to our shareowners in the future until all accrued and unpaid interest owed to
trust preferred securities holders is paid. Therefore, we cannot pay dividends to our shareowners until we (i) obtain approval
from our regulators to pay interest on our trust preferred securities, (ii) pay all accrued and unpaid interest owed to holders of
our trust preferred securities, and (iii) obtain approval from our regulators to pay dividends to our shareowners. We remain
committed to resuming dividend payments to our shareowners and interest on our trust preferred securities as soon as
conditions warrant, and subject to approval from our regulators, which approval may not be granted until such time as CCB’s
asset quality and the level of credit risk exposure further improve.
31
Further, 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 income of that
period combined with the Bank’s retained net income 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 income which accrued prior to the
preceding two years. Under the aforementioned guidelines and restrictions, the Bank cannot declare or pay dividends to
CCBG without the required approvals.
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 12-month period ending December 31,
2012 was approximately 26,622 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 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.
Our directors, executive officers, and principal shareowners, if acting together, have substantial control over all
matters requiring shareowner approval, including changes of control. Because Mr. William G. Smith, Jr. is a
principal shareowner and our Chairman, President, and Chief Executive Officer and Chairman of the Bank, he has
substantial control over all matters on a day to day basis.
Our directors, executive officers, and principal shareowners beneficially owned approximately 40% of the outstanding shares
of our common stock as of December 31, 2012. Our principal shareowners include Robert H. Smith who beneficially owns
20.2% of our shares and who is the brother of William G. Smith, Jr., our Chairman, President, and Chief Executive Officer.
William G. Smith, Jr. beneficially owns 21.8% of our shares. In addition, 2S Partnership beneficially owns 6.1% of our
shares, however, its shares are also deemed to be beneficially owned by Messrs. Smith and Smith. Together, Messrs. Smith
and Smith beneficially own approximately 36% of our shares.
Accordingly, these directors, executive officers, and principal shareowners, 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. In addition, because William G. Smith, Jr. is the Chairman, President, and
Chief Executive Officer of CCBG and Chairman of the Bank, he has substantial control over all matters on a day to day
basis, including the nomination and election of directors.
These directors, executive officers, and principal shareowners 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. You may also have difficulty changing management, the composition of the Board of
Directors, or the general direction of our Company.
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 Bank Holding Company Act (“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.
32
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:121) Supermajority voting requirements to remove a director from office;
(cid:121) Provisions regarding the timing and content of shareowner proposals and nominations;
(cid:121) Supermajority voting requirements to amend Articles of Incorporation unless approval is received by a majority of
“disinterested directors”;
(cid:121) Absence of cumulative voting; and
(cid:121)
Inability for shareowners to take action by written consent.
Shares of our common stock are not an insured deposit and may lose value.
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.
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, 2013, the Bank had 66 full service banking locations. Of the 66 locations, the Bank leases the land,
buildings, or both at 6 locations and owns the land and buildings at the remaining 60.
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. Mine Safety Disclosures.
Not applicable.
33
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 1,691 shareowners of record as of
March 1, 2013.
2012
2011
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High ............................................. $ 11.91 $
9.04
Low .............................................
11.37
Close ............................................
0.00
Cash dividends per share .............
10.96 $
7.00
10.64
0.00
8.73 $
6.35
7.37
0.00
9.91 $
7.32
7.45
0.00
11.11 $ 11.18 $ 13.12 $
9.94
9.81
9.43
10.26
10.38
9.55
0.10
0.10
0.00
13.80
11.87
12.68
0.10
Florida law and Federal regulations limit the amount of dividends that the Bank can pay annually to us. Pursuant to the
Federal Reserve Resolutions, without prior approval, CCBG is prohibited from paying dividends to shareowners and CCB is
prohibited from paying dividends to CCBG. In December 2011, we suspended dividend payments to our shareowners.
See Item 1. Business-About Us-Regulatory Matter. In addition, see further dividend restrictions in the subsection entitled
“Capital; Dividends; Sources of Strength” and “Dividends” in the Business section on page 18 and the section entitled
“Liquidity and Capital Resources – Dividends” -- in Management’s Discussion and Analysis of Financial Condition and
Operating Results on page 63 and Note 14 in the Notes to Consolidated Financial Statements.
34
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, 2007 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 .................................
12/31/07
12/31/08
12/31/09
12/31/10 12/31/11
Period Ending
50.64 $
39.45 $
103.08 102.26
61.46
67.39
12/31/12
46.97
120.42
75.78
100.00 $
100.00
100.00
99.35 $
60.02
82.94
53.57 $
87.24
59.45
35
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
2012
2011
2010
2009
2008
Interest Income ........................................................ $
Net Interest Income .................................................
Provision for Loan Losses .......................................
Noninterest Income ..................................................
Noninterest Expense ................................................
Net Income (Loss) ...................................................
89,680 $
84,312
16,166
55,185
124,559
108
99,459 $
91,922
18,996
58,848
126,248
4,897
$
110,495
97,533
23,824
56,825
133,916
(413)
$
122,776
105,934
40,017
57,391
132,115
(3,471)
142,866
108,866
32,496
67,040
121,472
15,225
Per Common Share:
Basic Net Income (Loss) ......................................... $
Diluted Net Income (Loss) ......................................
Cash Dividends Declared ........................................
Diluted 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 Assets ..............................
Nonperforming Assets to Loans + OREO ...............
Allowance to Nonperforming Loans .......................
Net Charge-Offs to Average Loans .........................
Capital Ratios:
Tier I Capital ............................................................
Total Capital ............................................................
Tangible Capital ......................................................
Leverage ..................................................................
Equity to Assets .......................................................
Dividend Pay-Out ....................................................
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 ................................................
0.01 $
0.01
0.00
14.31
0.00%
0.04
3.81
39.66
88.72
0.29 $
0.29
0.30
14.68
0.19%
1.86
4.18
39.13
83.24
$
(0.02)
(0.02)
0.49
15.15
(0.02)%
(0.16)
4.32
36.81
85.95
$
(0.20)
(0.20)
0.76
15.72
(0.14)%
(1.26)
4.96
35.14
79.78
29,167 $
1.93%
117,648
4.47
7.47
45.42
1.16
31,035 $
1.91%
137,623
5.21
8.14
41.37
1.39
35,436
$
2.01%
43,999
$
2.30%
123,637
4.72
6.81
53.94
1.77
122,408
4.52
6.27
51.00
1.66
14.35%
15.72
6.35
9.90
9.37
NM
13.96%
15.32
6.51
10.26
9.54
103.45
13.24%
14.59
6.82
10.10
9.88
NM
12.76%
14.11
6.84
10.39
9.89
NM
0.89
0.89
0.74
16.27
0.59%
5.06
4.96
38.11
68.10
37,004
1.89%
106,098
4.26
5.39
38.20
0.71
13.34%
14.69
7.76
11.51
11.20
83.71
1,556,565 $
2,229,621
2,590,173
2,105,672
252,960
1,686,995 $
2,221,317
2,583,197
2,081,583
263,048
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
1,521,302 $
2,261,781
2,633,984
2,144,996
246,889
1,628,683 $
2,266,193
2,641,312
2,172,519
251,492
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
$
$
1,918,417
2,240,649
2,567,905
2,066,065
300,890
1,957,797
2,156,172
2,488,699
1,992,174
278,830
Other Data:
Basic Average Shares Outstanding .......................... 17,204,559 17,139,558 17,075,867
Diluted Average Shares Outstanding ....................... 17,219,765 17,140,390 17,076,724
Shareowners of Record(1) .....................................
1,768
Banking Locations(1) ...........................................
70
Full-Time Equivalent Associates(1) .......................
975
1,701
70
959
1,691
66
913
17,043,964
17,044,711
1,778
70
1,006
17,141,454
17,146,914
1,756
68
1,042
(1)
As of record date. The record date is on or about March 1st of the following year.
NM – Not Meaningful
36
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, 2012 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 2012 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.”
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 66 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, approximately 78%, are within the State of Florida, which was particularly hard hit by the
economic downturn that began in 2007. Furthermore, approximately 80% of our loan portfolio has real estate as the primary
collateral, approximately 40% of which is secured by residential real estate. Evidence of the economic downturn in Florida is
particularly reflected in higher unemployment, lower housing values, increased bankruptcy filings, reduction in median
incomes, and overall wealth reduction due to continued depressed markets. Furthermore, a protracted low interest rate
environment has reduced asset yields. The aforementioned conditions have adversely affected our financial performance and
financial institutions statewide reflective of lower net interest income and higher levels of problem assets and credit-related
costs. While declining economic and market conditions have stabilized and improvement was seen in 2011 and 2012, the
pace of recovery has been slow with relatively soft economic growth expected in the near term.
37
Strategic Review
Our philosophy is to build 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 13 of 20 markets in Florida and 3
of 5 markets in Georgia, we rank within the top 4 banks in terms of market share. Furthermore, in the counties in which we
operate, we maintain an average 8.82% market share in the Florida counties and 6.26% in the Georgia counties, suggesting
that there is significant opportunity to grow market share within these geographic areas. The larger employers in many of our
markets are state and local governments, healthcare providers, educational 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
distinguishes Capital City Bank from our competitors.
While our growth is below historical norms, our long-term vision remains 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 of 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. Since 2005, unreasonable pricing expectations, economic conditions and the regulatory
environment have driven an enhanced focus on organic growth.
As conditions improve, 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/Pasco counties in Florida, the western panhandle of Florida, and Bibb and
surrounding counties in central Georgia. Our focus on some of these markets may change as we continue to evaluate our
strategy and the impact the current economic cycle is having on any individual market. 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. We believe our ability
to expand, however, has been limited in the short-term due to our current level of credit risk exposure and the Federal
Reserve Resolutions (See Item 1. Business-About Us-Regulatory Matter).
EXECUTIVE OVERVIEW
2012 overall was another challenging year for our Company as the economic recovery in Florida has progressed at a slow
rate as evidenced by continued sluggish loan demand and a still elevated level of nonperforming assets. Earnings
performance was unfavorably impacted by further reduction in loan portfolio balances, but lower credit-related costs helped
to partially offset the impact of lower net interest income resulting in a profitable year for the Company.
Earnings performance for the first half of 2012 was impacted by higher credit-related costs, most significantly, our loan loss
provision which was elevated due to an increase in impaired loans. For the second half of 2012, we realized many favorable
trends in our credit metrics driven by slower problem loan inflow and lower loss content in our problem loans resulting in a
lower level of loan loss provision. We also continued to realize progress in disposing of properties classified as other real
estate owned (“OREO”). Progress in reducing our operating costs also contributed to earnings for the second half of 2012.
38
During 2012, we continued to focus on core earnings drivers to better position us for the future. Strategic initiatives to
enhance noninterest income and reduce operating costs contributed to earnings in 2012 and will continue to do so in 2013.
Core deposit balances grew in 2012 affording us the ability to rely on less costly funding and deepen our banking
relationships through cross-sell of other bank products, both of which favorably impacted our earnings.
Our regulatory capital ratios improved year over year and remain well above the regulatory-defined levels required to be
considered “well capitalized”. We continued to carry a high level of liquidity in 2012 as a result of loan portfolio run-off and
deposit growth. Suspension of our common stock dividend continued in 2012 as we believe that a capital preservation
strategy in the near term is in the best interest of our shareowners as we continue to work through the protracted economic
recovery in Florida.
In 2013, we will continue to allocate significant resources to nonperforming asset resolution and improving credit quality and
believe our slow and steady approach is in the best long-term interest of our shareowners. We expect 2013 to be another year
of recovery, yet at a faster pace, as we continue to reduce our inventory of nonperforming assets. Improvement in the
efficiency and effectiveness of our product delivery channels and resource realignment in niche business lines was an area of
focus in 2012 and will likely impact revenues favorably in 2013.
Key components of our 2012 financial performance are summarized below:
Results of Operations
(cid:121)
For 2012, taxable equivalent net interest income decreased $7.9 million, or 8.5%, to $84.9 million driven by a
decline in loan income attributable to lower portfolio balances and unfavorable asset repricing, which was
partially offset by reductions in interest expense. Our net interest margin of 3.81% in 2012 was 37 basis points
lower than the 4.18% recorded in 2011, reflecting an unfavorable shift in the mix of our earning assets due lower
loan balances and continued downward pressure on yields reflective of the extended low rate environment. We
continue to manage our deposit mix to partially mitigate the unfavorable impact of weak loan demand and
repricing.
(cid:121) We recorded a loan loss provision of $16.2 million for 2012 compared to $19.0 million in 2011 reflecting a
slower problem loan migration, lower loan loss experience, and improved credit metrics. OREO costs continue to
be a significant driver of our performance and totaled $11.5 million in 2012 versus $12.7 million in 2011,
reflecting a decrease in the level of valuation write-downs.
(cid:121)
(cid:121)
For 2012, noninterest income totaled $55.2 million, a $3.6 million decrease from 2011 driven by a reduction in
other income, primarily attributable to a $3.2 million gain from the sale of our Visa stock recognized during 2011
and to a lesser extent a reduction in gains from the sale of other real estate properties. Lower data processing fees
and wealth management fees also contributed to the year over year decrease, but were partially offset by higher
deposit fees, mortgage banking fees, and bank card fees.
Noninterest expense totaled $124.6 million in 2012, a $1.7 million, or 1.3%, decrease from 2011 attributable to a
reduction in other expense, primarily lower OREO costs, partially offset by higher compensation expense. The
increase in compensation expense was attributable to an increase in associate benefit expense reflective of an
higher expense for our pension plans, but was partially offset by a reduction in salary expense attributable to a
reduction in headcount.
Financial Condition
(cid:121)
Average earning assets for 2012 were approximately $2.230 billion, an increase of $8.3 million, or 0.4%, over
2011 reflecting a $155.3 million increase in short term investments partially offset by a $16.6 million decline in
average investment securities and $130.4 million decrease in average loans. The unfavorable shift in our mix of
earning assets reflects slow recovery of loan demand in our markets and reduction in loan balances due to the
migration of loans to OREO status as well as loan charge-offs.
(cid:121) We continue to maintain a strong liquidity position as evidenced by average funds sold of approximately $384.0
million for the year.
39
(cid:121)
(cid:121)
(cid:121)
(cid:121)
Average deposit balances increased by $24.1 million, or 1.2%, in 2012, driven by growth in core deposit
categories, primarily noninterest bearing demand deposit accounts (“DDA”), NOW, and savings account
balances, partially offset by a decline in higher cost certificate of deposit balances. Maintenance of a strong core
deposit funding base has enabled us to manage the mix of our deposits to partially mitigate the impact of the
extended low interest rate environment on our earning asset yields.
At year-end 2012, our nonperforming assets totaled $117.7 million, a decrease of $19.9 million from year-end
2011. Nonaccrual loans totaled $64.2 million at year-end 2012, a $10.8 million decrease from year-end 2011,
attributable to loan resolutions which outpaced gross additions. Nonaccrual additions slowed significantly year
over year, by approximately $45 million. The balance of OREO totaled $53.4 million at year-end 2012, a
decrease of $9.2 million from year-end 2011. We continued to experience progress during 2012 in our efforts to
dispose of OREO selling properties totaling $28.2 million compared to $27.8 million in 2011.
Our allowance for loan losses at year-end 2012 was $29.2 million (1.93% of loans) and provided coverage of
45% of nonperforming loans compared to $31.0 million (1.91% of loans) and 41% of nonperforming loans at
year-end 2011. Net charge-offs for 2012 totaled $18.0 million, or 1.16% of total loans compared to $23.4
million, or 1.39%, in 2011 reflective of lower charge-offs for construction loans and residential real estate loans,
primarily vacant land. Over the last five years, we have recorded a cumulative loan loss provision totaling $131.5
million, or 6.9% of beginning loans and have recognized cumulative net charge-offs of $120.0 million, or 6.3%
of beginning loans.
Shareowners’ equity declined by $5.0 million from $251.9 million at December 31, 2011 to $246.9 million at
December 31, 2012 primarily due to an increase in the pension component of our other comprehensive income.
We continue to maintain a strong capital base as evidenced by a risk based capital ratio of 15.72% and a tangible
common equity ratio of 6.35% at year-end 2012 compared to 15.32% and 6.51%, respectively, at year-end 2011.
In late 2011, we suspended dividend payments to preserve our capital given lower earnings performance and the
slower economic recovery in our markets.
RESULTS OF OPERATIONS
For 2012, we realized net income of $0.1 million, or $0.01 per diluted share compared to net income of $4.9 million, or $0.29
per diluted share, in 2011, and a net loss of $0.4 million, or $0.02 per diluted share in 2010.
The decline in earnings was attributable to lower operating revenues of $11.3 million partially offset by a decrease in our loan
loss provision of $2.8 million, a decrease in noninterest expense of $1.7 million and a reduction in income taxes of $2.0
million. 2011 performance reflects the sale of our Visa Class B shares of stock (“Visa stock”), which resulted in a $2.6
million net gain ($3.2 million pre-tax included in noninterest income and a swap liability of $0.6 million included in
noninterest expense).
The improvement in earnings for 2011 as compared to 2010 reflected a decrease in our loan loss provision of $4.8 million, a
$2.0 million increase in noninterest income, and lower noninterest expense of $7.7 million, partially offset by a reduction in
net interest income of $5.6 million and higher income taxes of $3.6 million. The aforementioned gain from the sale of our
Visa stock also contributed to 2011 earnings.
40
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 Income (Loss) ................................................................. $
Basic Net Income (Loss) Per Share ....................................... $
Diluted Net Income (Loss) Per Share .................................... $
Net Interest Income
2012
2011
2010
89,680
616
90,296
5,368
84,928
16,166
616
68,146
55,185
124,559
(1,228)
(1,336)
108
0.01
0.01
$
$
$
$
99,459
925
100,384
7,537
92,847
18,996
925
72,926
58,848
126,248
5,526
629
4,897
0.29
0.29
$
$
$
$
110,495
1,447
111,942
12,962
98,980
23,824
1,447
73,709
56,825
133,916
(3,382)
(2,969)
(413)
(0.02)
(0.02)
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 2012, our taxable equivalent net interest income decreased $7.9 million, or 8.5%. This follows a decrease of $6.1 million,
or 6.2%, in 2011, and a decrease of $9.3 million, or 8.5%, in 2010. The decrease in our taxable equivalent net interest
income in all years was primarily driven by declines in loan income attributable to lower portfolio balances and unfavorable
asset repricing, which was partially offset by reductions in interest expense. The lower interest expense is primarily
attributable to declines in certificates of deposit balances and reflects favorable repricing in all interest bearing deposit
categories.
For the year 2012, taxable equivalent interest income declined $10.1 million, or 10.0%, from 2011 $11.6 million, or 10.3% in
2011 from 2010, and $13.1 million, or 10.5%, in 2010 from 2009. The decrease for all periods is specifically attributable to
both the shift in earning asset mix and lower yields. The declining loan portfolio has resulted in the higher yielding earning
assets being replaced with lower yielding federal funds or investment securities. Additionally, lower yields on new loan and
investment production and loan portfolio repricing continue to adversely affect net interest income.
These factors produced a 47 basis point decline in the yield on earning assets, which decreased from 4.52% in 2011 to 4.05%
for 2012. This compares to a 36 basis point decline in 2011 over 2010.
Interest expense decreased $2.2 million, or 28.8%, from 2011, and $5.4 million, or 41.9%, in 2011 over 2010. The lower
cost of funds when compared to both periods was a result of continued rate reductions on all deposit products except savings
accounts. The rate reductions on deposits reflect our response to a historically low interest rate environment and desire to
continue our focus on core banking relationships. The average rate paid on interest bearing liabilities decreased 12 and 25
basis points compared to 2011 and 2010, respectively, reflecting the factors mentioned above.
41
Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on
interest bearing liabilities) decreased 35 basis points in 2012 compared to 2011 and declined 12 basis points in 2011
compared to 2010. The decrease in both years was primarily attributable to the adverse impact of lower rates and a change in
the mix of earning assets, which more than offset the repricing of our deposit base.
The decline in the loan portfolio, coupled with the low rate environment continues to put downward pressure on our net
interest income. The loan portfolio yield has been declining because the average rate on new loans is lower than the loans
being paid off and the existing adjustable rate loans reprice lower. Lowering our cost of funds, to the extent we can, and
continuing to shift the mix of our deposits will help to partially mitigate the unfavorable impact of weak loan demand and
repricing, although any further impact is expected to be minimal.
Our net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets)
of 3.81% in 2012 was 37 basis points lower than the 4.18% recorded in 2011 and 14 basis points lower than the 4.32%
reported in 2010. In 2012, compared to 2011, the yield on earning assets declined 47 basis points and was partially offset by
a decline in the cost of funds of 10 basis points.
The continued asset repricing and an unfavorable shift in our earning asset mix resulted in a net interest margin of 3.78% for
the fourth quarter of 2012, which represents a decline of 39 basis points over the fourth quarter of 2011. The decline in
earning assets primarily attributable to the loan portfolio, coupled with the low rate environment continues to put pressure on
our net interest income. Lowering our costs of funds, to the extent we can, and continuing to shift the mix of our deposits
will help to partially mitigate the unfavorable impact of weak loan demand and repricing.
As experienced in 2011 and again throughout 2012, historically low interest rates (essentially setting a floor on deposit
repricing), foregone interest, 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 throughout 2013.
42
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis -
Dollars in Thousands)
ASSETS
Loans, Net of Unearned
2012
2011
2010
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Income(1)(2) .................... $1,556,565 $85,780 5.51% $1,686,995 $ 95,520 5.66% $1,829,193 $106,342
5.81%
Taxable Investment
Securities .......................... 223,429 2,912 1.27
243,059
3,320 1.38
126,078
2,681
2.12
Tax-Exempt Investment
Securities(2) .....................
65,560
Funds Sold ........................... 384,067
Total Earning Assets ............ 2,229,621 90,296 4.05%
Cash & Due From Banks .....
Allowance for Loan
658 1.00
946 0.25
48,924
90,352
62,497
228,766
248,659
2,221,317 100,384 4.52% 2,294,282
51,883
996 1.59
548 0.24
48,823
2,332
587
111,942
2.58
0.23
4.88%
Losses ..............................
(30,959 )
Other Assets ......................... 342,587
TOTAL ASSETS ................. $2,590,173
(32,066)
345,123
$2,583,197
(40,717)
339,283
$2,644,731
LIABILITIES
634 0.08% $ 748,774 $
NOW Accounts .................... $ 771,617 $
282,271
255 0.09
Money Market Accounts ..... 280,165
151,801
87 0.05
Savings Accounts ................. 175,712
Other Time Deposits ............ 267,263 1,132 0.42
330,750
Total Interest Bearing
890 0.12% $ 863,719 $
437 0.15
73 0.05
2,547 0.77
320,786
131,945
413,428
1,406
1,299
65
5,875
0.16%
0.41
0.05
1.42
Deposits ........................... 1,494,757 2,108 0.14%
Short-Term Borrowings .......
Subordinated Notes
52,178
196 0.38
1,513,596
68,061
3,947 0.26% 1,729,878
27,864
305 0.45
8,645
159
0.50%
0.57
Payable .............................
62,887 1,477 2.31
62,887
1,380 2.16
62,887
2,008
3.15
Other Long-Term
Borrowings .......................
41,513 1,587 3.82
47,841
1,905 3.98
51,767
2,150
4.15
Total Interest Bearing
Liabilities ......................... 1,651,335 5,368 0.33%
1,692,385
7,537 0.45% 1,872,396
12,962
0.69%
Noninterest Bearing
Deposits ........................... 610,915
Other Liabilities ...................
74,963
TOTAL LIABILITIES ........ 2,337,213
SHAREOWNERS’
EQUITY
TOTAL SHAREOWNERS’
567,987
59,777
2,320,149
462,445
45,211
2,380,052
EQUITY ........................... 252,960
263,048
264,679
TOTAL LIABILITIES &
EQUITY ........................... $2,590,173
$2,583,197
$2,644,731
Interest Rate Spread .............
Net Interest Income ..............
Net Interest Margin(3) .........
3.72%
4.07%
$84,928
$ 92,847
$ 98,980
3.81%
4.18%
4.19%
4.32%
(1) Average balances include nonaccrual loans. Interest income includes loan fees of $1.6 million, $1.5 million, and $1.5 million in 2012,
2011, and 2010, respectively.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
(2)
(3) Taxable equivalent net interest income divided by average earning assets.
43
Table 3
RATE/VOLUME ANALYSIS(1)
2012 vs. 2011
Increase (Decrease) Due to Change In
2011 vs. 2010
Increase (Decrease) Due to Change In
Total
(Taxable Equivalent Basis - Dollars in
Thousands)
Earnings Assets:
Loans, Net of Unearned Interest(2) ....... $ (9,740)
Investment Securities:
Taxable ................................................
Tax-Exempt(2) .....................................
Funds Sold ...........................................
(408)
(338)
398
Calendar Volume Rate
Total
Volume
Rate
262 (7,610) (2,392) $ (10,822 ) $ (8,181) $ (2,641)
9
3
1
(181)
49
535
(236)
(390)
(138)
640
(1,337 )
(39 )
1,908
(719)
(46)
(1,268)
(618)
7
Total ..................................................... (10,088)
275 (7,207) (3,156) (11,558 )
(7,038)
(4,520)
(256)
(182)
Interest Bearing Liabilities:
NOW Accounts ....................................
Money Market Accounts .....................
Savings Accounts .................................
Time Deposits ...................................... (1,415)
(109)
Short-Term Borrowings .......................
Subordinated Notes Payable ................
97
(318)
Long-Term Borrowings .......................
Total ..................................................... (2,169)
Changes in Net Interest Income ........... $ (7,919)
3
1
14 —
7
1
4
5
21
109
(368)
(3)
(180)
12
2
(487)
(935)
(112)
2
0
93
(72)
(251)
(732) (1,458)
(515 )
(862 )
8
(3,329 )
145
(628 )
(244 )
(5,425 )
(187)
(156)
10
(1,176)
135
—
(163)
(1,537)
(328)
(706)
(2)
(2,153)
10
(628)
(81)
(3,888)
(632)
254 (6,475) (1,698) $ (6,133 ) $ (5,501) $
(1) This table shows the change in taxable equivalent net interest income for comparative periods based on either changes
in average volume or changes in average rates for earning assets and interest bearing liabilities. Changes which are not
solely due to volume changes or solely due to rate changes have been attributed to rate changes.
(2)
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate to adjust interest on tax-
exempt loans and securities to a taxable equivalent basis.
Provision for Loan Losses
The provision for loan losses was $16.2 million in 2012 compared to $19.0 million in 2011 and $23.8 million in 2010.
Slower problem loan migration, lower loan loss experience, and improved credit metrics resulted in a lower level of loan loss
provision for 2012. We discuss these trends in further detail below under Risk Element Assets and Allowance for Loan
Losses.
The decline in the loan loss provision for 2011 compared to 2010 was primarily due to lower specific reserves required for
newly identified impaired loans. Early in the credit cycle during 2008 and 2009, we experienced a higher volume of impaired
loan additions related to higher risk borrowing activities, primarily construction and land development. We discuss this trend
in further detail below under Risk Element Assets and Allowance for Loan Losses.
Noninterest Income
Noninterest income totaled $55.2 million in 2012, $58.8 million in 2011, and $56.8 million in 2010. For 2012, the $3.6
million decrease from 2011 was driven by a reduction in other income of $4.6 million. The decline in other income was due
to a $3.2 million gain from the sale of our Visa stock recognized during 2011 and to a lesser extent a reduction in gains from
the sale of OREO properties. Lower data processing fees of $0.5 million and wealth management fees of $0.4 million also
contributed to the year over year decrease. The unfavorable variances were partially offset by higher deposit fees of $0.3
million, mortgage banking fees of $0.9 million and bank card fees of $0.6 million.
44
For 2011, the $2.0 million increase over 2010 was driven by a $2.2 million increase in other income. The increase in other
income reflects the aforementioned $3.2 million gain from the sale of our Visa stock during 2011 that was partially offset by
lower merchant fees of $1.1 million. Higher retail brokerage fees of $0.4 million and bank card fees of $0.9 million also
contributed to the year over year increase, but were partially offset by lower deposit fees of $1.0 million.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 39.6% in 2012,
39.0% in 2011, and 36.8% in 2010. The variance in this metric for 2012 and 2011 reflects the impact of the 2011 gain from
the sale of our Visa stock. This metric was also impacted by a lower level of net interest income in all respective years.
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
Noninterest Income:
Service Charges on Deposit Accounts ......................................... $
Data Processing Fees ...................................................................
Asset Management Fees(1) ..........................................................
Retail Brokerage Fees(1) ..............................................................
Securities Transactions ................................................................
Mortgage Banking Fees ...............................................................
Interchange Fees(2) ......................................................................
ATM/Debit Card Fees(2) .............................................................
Other ............................................................................................
Total Noninterest Income ............................................................ $
2012
2011
2010
25,792 $
2,713
4,155
3,026
—
3,600
6,451
4,332
5,116
55,185 $
25,451
3,230
4,364
3,251
—
2,675
5,622
4,519
9,736
58,848
$
$
26,500
3,610
4,235
2,820
8
2,948
5,077
4,123
7,504
56,825
(1) Together “Wealth Management Fees”
(2) Together “Bank Card Fees”
Various significant components of noninterest income are discussed in more detail below.
Service Charges on Deposit Accounts. For 2012, deposit service charge fees totaled $25.8 million, compared to $25.5 million
in 2011 and $26.5 million in 2010. The $0.3 million, or 1.3%, increase over 2011 was driven by a lower level of charged off
checking accounts and improved fee collection experience. The $1.0 million, or 4.0%, decline in 2011 compared to 2010 was
attributable to a lower level of overdraft fees, partially offset by a lower level of charged off checking accounts and refunded
service charges. For all respective years we have realized a lower level of overdraft fees due to reduced activity that reflects a
higher level of consumer awareness that has both impacted consumer and business spending habits, as well as new overdraft
rules under Regulation E that became effective in mid 2010.
Data Processing Fees. For 2012, data processing fees totaled $2.7 million, compared to $3.2 million in 2011 and $3.6 million
in 2010. The decreases in both 2012 and 2011 were due to a reduction in the number of banks that we provide processing
services to as two of our user banks were acquired and discontinued service in mid 2011. We currently maintain processing
arrangements with five banks and five government agencies. One of the government agency clients represents approximately
46% of our total data processing fees. We have performed item processing for this agency for approximately 30 years – the
processing contract has historically been subject to renewal every three years and was last renewed in 2012 for a one year
extension.
Asset Management Fees. For 2012, asset management fees totaled $4.2 million, compared to $4.4 million in 2011 and $4.2
million in 2010. At year-end 2012, assets under management totaled $614.3 million, reflecting a decrease of $46.3 million, or
7.0% from 2011. At year-end 2011, assets under management totaled $660.6 million, reflecting a decrease of $84.3 million,
or 11.3% from 2010. The decline in fees for 2012 was driven by lower asset values for managed accounts as well as a decline
in estate management fees. The higher level of fees for 2011 was due to revision of our fee schedule for all account types.
Fees charged on our asset management accounts are based on a percentage of asset value.
Retail Brokerage Fees. Fees from the sale of retail investment and insurance products totaled $3.0 million in 2012 compared
to $3.2 million in 2011 and $2.8 million for 2010. The decrease for 2012 is attributable to lower account activity by our
clients. The increase in 2011 reflects higher trade activity by existing clients as well as a higher level of new account
relationships.
45
Mortgage Banking Fees. Mortgage banking fees totaled $3.6 million in 2012 compared to $2.7 million in 2011 and $3.0
million in 2010. The $0.9 million, or 34.6%, increase for 2012 is attributable to increased home purchase activity in our
markets and an increase in refinancing activity due to the lower rate environment. The $0.3 million, or 9.3%, decrease in
2011 was due to a decline in loan production driven by lower home purchase activity in our Tallahassee market due to
lingering concerns about job and benefit reductions due to the state budget deficit. 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.
Bank Card Fees. Bank card fees (including interchange fees and ATM/debit card fees) totaled $10.8 million in 2012
compared to $10.1 million in 2011 and $9.2 million in 2010. The increase for both comparable periods reflects higher card
utilization as well as an increase in the number of active cards due to an increase in transaction accounts. Additionally, an
ATM fee increase contributed to the higher revenues in 2011.
Other. Other noninterest income totaled $5.1 million in 2012 compared to $9.7 million and $7.5 million, respectively, for
2011 and 2010. The variances for both 2012 and 2011 reflect the impact of a $3.2 million gain from the sale of our Visa stock
in 2011. A lower level of gains from the sale of other real estate properties contributed to the decrease in 2012. The increase
in 2011 reflects the sale of our Visa stock, partially offset by a reduction in merchant fees, which is attributable to the sale of
our merchant services portfolio and an expected reduction in this revenue source as we discontinued servicing our last
remaining client in mid-2010.
Noninterest Expense
Noninterest expense totaled $124.6 million in 2012 compared to $126.2 million in 2011 and $133.9 million in 2010. For
2012, the $1.7 million, or 1.3%, decrease was primarily attributable to a decline in other expense of $2.1 million and
occupancy expense of $0.2 million, partially offset by higher compensation expense of $0.6 million. The reduction in other
expense reflects lower OREO expense of $1.2 million, advertising expense of $0.7 million, FDIC insurance fees of $0.4
million, intangible amortization of $0.2 million, and miscellaneous expense of $0.7 million, partially offset by higher
professional fees of $1.1 million. Occupancy expense decreased due to lower expense for premises of $0.5 million, partially
offset by a reduction in furniture, fixtures, and equipment (“FF&E”) expense of $0.3 million. The $0.6 million increase in
compensation expense was attributable to higher expense for associate benefits of $2.1 million (primarily higher pension
expense), partially offset by a reduction in salary expense of $1.5 million.
For 2011, the $7.7 million, or 5.7%, decline from 2010 reflects lower other expense of $7.8 million and occupancy expense
of $0.8 million, partially offset by higher compensation expense of $0.9 million. The decline in other expense was driven by
lower expense for FDIC insurance fees of $1.9 million, intangible amortization of $2.0 million, and OREO properties of $2.2
million. Occupancy expense declined due to lower expense for premises of $0.4 million and FF&E of $0.4 million. The
increase in compensation expense reflects higher associate benefit expense of $0.6 million and salary expense of $0.3
million.
Our operating efficiency ratio (expressed as noninterest expense as a percent of taxable equivalent net interest income plus
noninterest income) was 88.72%, 83.24% and 85.95% in 2012, 2011 and 2010, respectively. Reduction in net interest
income, higher OREO expense, and an increase in FDIC insurance fees are the primary reasons for the elevated efficiency
ratio for all of the aforementioned periods. The improvement in this metric for 2011 was primarily due to the favorable
impact of the $3.2 million pre-tax gain from the sale of our Visa stock.
We expect to continue to realize an elevated level of costs related to the management and resolution of nonperforming assets,
but at a reduced level compared to prior years. These costs are primarily related to legal fees to support the collection of loans
and OREO properties, OREO carrying costs and valuation write-downs. We continue to review and evaluate opportunities to
optimize our operations and reduce operating costs as well as better manage our discretionary expenses.
46
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 ..................................................................................
Insurance – Other ..................................................................
Intangible Amortization ........................................................
Other Real Estate Owned ......................................................
Miscellaneous .......................................................................
Total Other ............................................................................
2012
2011
2010
$
48,925
15,317
64,242
9,074
8,903
17,977
4,303
4,882
3,967
1,815
839
1,154
1,896
1,595
4,104
431
11,506
5,848
42,340
$
50,417
13,225
63,642
9,622
8,558
18,180
4,106
3,832
3,708
2,471
898
1,321
1,895
1,780
4,474
675
12,677
6,589
44,426
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
14,922
6,977
52,222
Total Noninterest Expense .................................................... $
124,559
$
126,248
$
133,916
Various significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled $64.2 million in 2012, $63.6 million in 2011, and $62.8 million in 2010. The
$0.6 million, or 0.9%, increase in 2012 was due to higher associate benefit expense of $2.1 million partially offset by lower
salary expense of $1.5 million. The increase in associate benefit expense reflects higher expense for our defined benefit
pension plan of $1.6 million primarily driven by the lower discount rate used for computing plan cost. Higher stock
compensation expense of $0.4 million also contributed to the increase. The reduction in salary expense was driven by a
reduction in base salary expense of $1.1 million attributable to further reduction in associate headcount as well as a $0.7
million decline in performance pay, partially offset by lower realized loan cost of $0.2 million. Realized loan cost, which
reflects the deferral and amortization of loan costs, is accounted for as a credit offset to salary expense. A lower number of
loans originated during 2012 compared to the prior year reduced the amount of this credit offset.
For 2011, the $0.9 million, or 1.4%, increase was due to higher associate salary expense of $0.3 million and higher associate
benefit expense of $0.6 million. The increase in associate salaries reflects higher performance pay of $1.1 million and lower
realized loan cost of $0.3 million, partially offset by lower base salary expense of $1.1 million. The increase in performance
pay reflects an increased pay-out level for both associate and company incentive plans compared to the prior year. The
decrease in base salary expense reflects a reduction in associate headcount attributable to attrition. The increase in associate
benefit expense for 2011 was due to higher expense for our defined benefit pension plan primarily driven by the lower
discount rate used for computing plan cost.
Occupancy. Occupancy expense (including premises and equipment) totaled $18.0 million for 2012, $18.2 million for 2011,
and $18.9 million for 2010. For 2012, lower premises expense of $0.5 million was partially offset by higher FF&E expense
of $0.3 million. A reduction in building maintenance/repair costs as well as utility costs drove the decrease in premises
expense reflecting our efforts to re-negotiate vendor contracts and proactively manage our energy costs. The increase in
FF&E expense was attributable to higher network system costs. Occupancy expense for 2011 compared to 2010 was
favorably impacted by lower FF&E depreciation of $0.4 million, retail office leases of $0.5 million, and utility expense of
$0.1 million, partially offset by higher expense for premises depreciation of $0.1 million and software licenses of $0.1
million. The reduction in FF&E depreciation expense primarily reflects full depreciation of larger technology components of
both our mainframe and network systems. Utility expense declined due to energy management initiatives implemented during
2011 as well as lower utility rates in our Tallahassee market. The unfavorable variance in software license expense was
primarily due to the upgrade of our financial reporting system during 2011.
47
Other. Other noninterest expense totaled $42.3 million in 2012, $44.4 million in 2011, and $52.2 million in 2010. The $2.1
million, or 4.7%, decrease in 2012 was attributable to lower expense for OREO properties of $1.2 million, advertising
expense of $0.7 million, FDIC insurance fees of $0.4 million, intangible amortization of $0.2 million, and miscellaneous
expense of $0.7 million, partially offset by higher professional fees of $1.1 million. A lower level of valuation adjustments
drove the decline in expense for OREO properties. The reduction in advertising expense reflects a lower level of brand
promotional activities and improved control over public relations costs. FDIC insurance costs declined due to maintenance of
a lower assessment base during 2012. The decrease in intangible amortization expense reflects the full amortization of certain
core deposit intangibles related to past acquisitions. Lower expense for the Visa swap liability associated with the sale of our
Visa shares during 2011 drove the decline in miscellaneous expense. The increase in professional fees was primarily due to
higher consulting fees and external audit fees.
For 2011, the $7.8 million, or 14.9%, decline was primarily due to lower expense for OREO properties of $2.2 million,
intangible amortization of $2.0 million, and FDIC insurance fees of $1.9 million. Lower expense for professional fees of $0.5
million, advertising of $0.4 million, legal fees of $0.2 million, telephone of $0.2 million, and miscellaneous expense of $0.4
million also contributed to the favorable variance. The lower level of expense for OREO properties reflects a decline in the
level of valuation adjustments. Intangible amortization expense declined due to the full amortization of core deposit
intangibles related to several past acquisitions. The reduction in FDIC insurance fees reflects a lower rate due to changes to
the FDIC premium structure. Professional fees declined due to higher consulting fees paid in 2010 related to the review of
our vendor contracts. The reduction in advertising expense primarily reflects efficiencies gained in the promotion of our free
checking products. Lower fees paid for problem loan resolution support drove the favorable variance in legal fees. Telephone
expense declined primarily due to the renegotiation of certain telecom contracts during 2010. The reduction in miscellaneous
expense in 2011 was attributable to a decline in costs related to our merchant processing business that was sold in mid-2010.
Income Taxes
For 2012, we realized an income tax benefit of $1.3 million (effective tax rate of 108.7%) compared to income tax expense of
$0.6 million (effective tax rate of 11.4%) for 2011 and an income tax benefit of $3.0 million (effective tax rate of 87.8%) for
2010. The reduction in the tax provision for 2012 was primarily attributable to lower book operating profit while the increase
in 2011 was driven by higher book operating profit. The tax provisions for all periods were favorably affected by the
resolution of tax contingencies totaling approximately $0.3 million, $1.0 million and $0.4 million, respectively.
FINANCIAL CONDITION
Average assets totaled approximately $2.590 billion for the year 2012, an increase of $7.0 million, or .3%, over
2011. Average earning assets were approximately $2.230 billion, representing an increase of $8.3 million, or 0.4%, over
2011. Year over year, average short-term investments increased $155.3 million, while average investment securities and
average loans declined $16.6 million and $130.4 million, respectively. 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 2012, average loans decreased $130.4 million, or 7.7%, compared to $142.2 million, or 7.8%, in 2011. Loans as a percent
of average earning assets declined to 69.8% in 2012, down from the 2011 and 2010 levels of 75.9% and 79.7%,
respectively. The loan portfolio experienced continued runoff throughout 2012 driven by declines in all portfolios. The
largest declines over the past two years were experienced in the commercial real estate, residential, and auto finance
portfolios. Our core loan portfolio continues to be impacted by normal amortization and a higher level of payoffs that have
outpaced our new loan production. New loan production continues to be impacted by weak loan demand attributable to the
trend toward consumers and businesses deleveraging, the lack of consumer confidence, and a persistently 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. During 2012, loan
resolutions (gross charge-offs plus loans transferred to OREO) accounted for $45.0 million, or 42%, of the net reduction in
total loans of $107.4 million (based on “as of” balances). Since the end of 2008, loan resolutions have accounted for $300.3
million, or approximately 69% of the net reduction in the portfolio of $436.5 million.
Efforts to stimulate new loan growth remain ongoing and while we strive to identify opportunities to increase loans outstanding
and enhance our loan 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.
48
We originate mortgage loans secured by 1-4 family residential properties through our Residential Real Estate line of
business, a majority of which are fixed rate loans that are sold into the secondary market to third party purchasers on a best
efforts delivery basis with servicing released. A majority of our adjustable rate loan product is retained in our loan portfolio.
While the loans sold into the secondary market are without recourse, the purchase agreements require us to make certain
representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by
borrowers or other third parties. If it is determined that a loan was sold in breach of these representations or warranties, we
have the obligation to either repurchase the loan for the unpaid balance and related investor fees or make the purchaser whole
for the economic benefits of the loan. From January 1, 2008 through December 31, 2012, we originated 4,862 residential real
estate loans totaling approximately $768 million that were sold into the secondary market to investors. Of this amount, we
have been required to repurchase two loans for the principal amount of approximately $0.3 million. Additionally, since
January 1, 2008, we have been required to indemnify one investor in the amount of approximately $35,000.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances – Dollars In Thousands)
Loans:
Commercial, Financial, and Agricultural ... $
Real Estate – Construction .........................
Real Estate – Commercial Mortgage .........
Real Estate – Residential ...........................
Real Estate – Home Equity ........................
Consumer ...................................................
Total Loans .............................................. $
Investment Securities:
Taxable ...................................................... $
Tax-Exempt ...............................................
Total Securities ........................................
2011 to
2012
Change
Percentage
Total
Change
Components of
Average Earning Assets
2011
2010
2012
(14,030)
6,898
(43,452)
(44,715)
(6,938)
(28,193)
(130,430)
(169.0)%
83.0
(523.0)
(538.0)
(84.0)
(340.0)
(1,571.0)%
6.0%
1.8
27.5
16.3
10.8
7.5
69.9%
6.6%
1.4
29.6
18.3
11.1
8.8
75.8%
(19,630)
3,063
(16,567)
(236.0)%
37.0
(199.0)
10.0%
2.9
12.9
11.0%
2.9
13.9
7.2%
2.8
30.3
19.1
10.8
9.5
79.7%
5.5%
4.0
9.5
Funds Sold ...................................................
155,301
1,870.0
17.2
10.3
10.8
Total Earning Assets .............................. $
8,304
100.0%
100.0%
100.0%
100.0%
Our average loan-to-deposit ratio decreased to 73.9% in 2012 from 81.0% in 2011. 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, 2012, based upon maturities. As a percent of the total portfolio, loans with fixed
interest rates represent 32.0% as of December 31, 2012, versus 34.0% at December 31, 2011.
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
2008
206,230
Commercial, Financial and Agricultural .... $
Real Estate – Construction(1) .....................
141,973
656,959
Real Estate – Commercial Mortgage .........
Real Estate – Residential(1) .......................
484,238
218,500
Real Estate – Home Equity ........................
Consumer ...................................................
249,897
Total Loans, Net of Unearned Income ....... $ 1,521,302 $ 1,628,683 $ 1,758,671 $ 1,915,940 $ 1,957,797
2010
157,394 $
43,239
671,702
430,541
251,565
204,230
2009
189,061 $
111,249
716,791
416,469
246,722
235,648
2011
130,879 $
26,367
639,140
399,371
244,263
188,663
2012
139,850 $
43,740
613,625
329,947
236,263
157,877
(1)
Includes Loans Held For Sale
49
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 ........................................................................ $
One Year
or Less
66,397
37,849
119,926
44,483
820
21,852
291,327
Loans with Fixed Rates........................................... $
Loans with Floating or Adjustable Rates ................
Total ........................................................................ $
116,114
175,213
291,327
Maturity Periods
Over One
Through
Five Years
54,296
2,014
93,606
40,117
18,073
105,126
313,232
249,849
63,383
313,232
$
$
$
$
$
$
$
$
Over
Five
Years
19,157
3,877
400,093
245,347
217,370
30,899
916,743
122,848
793,895
916,743
$
$
$
$
Total
139,850
43,740
613,625
329,947
236,263
157,877
1,521,302
488,811
1,032,491
1,521,302
(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, OREO, TDRs, past due loans, 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. Activity within our nonperforming asset portfolio is provided below in Table 8.
Nonperforming assets (nonaccrual loans and OREO) totaled $117.7 million at year-end 2012 compared to $137.6 million at
year-end 2011. Nonaccrual loans totaled $64.2 million at year-end 2012, a decrease of $10.8 million from year-end 2011,
reflective of loan resolutions (charge-offs and transfer of loans to OREO) and loans restored to an accrual status, which
outpaced gross additions. Gross additions slowed significantly year over year, by approximately $45 million. The balance of
OREO totaled $53.4 million at year-end 2012, a decrease of $9.2 million from year-end 2011. We continued to experience
progress during 2012 in our efforts to dispose of OREO selling properties totaling $28.2 million compared to $27.8 million in
2011. Nonperforming assets represented 4.47% of total assets at December 31, 2012 compared to 5.21% at December 31,
2011.
Significant resources have been allocated to reduce our level of nonperforming assets and mitigate losses and noticeable
progress was realized during 2012. Further progress was also achieved in reducing our exposure to higher risk loans secured
by vacant land.
50
Table 7
RISK ELEMENT ASSETS
(Dollars in Thousands)
Nonaccruing Loans:
Commercial, Financial and Agricultural ...........
Real Estate – Construction ................................
Real Estate – Commercial Mortgage ................
Real Estate – Residential ..................................
Real Estate – Home Equity ...............................
Consumer ..........................................................
Total Nonperforming Loans (“NPLs”)(1) ............. $
Other Real Estate Owned ......................................
Total Nonperforming Assets (“NPAs”) ................ $
Past Due Loans 30 – 89 Days ............................... $
Past Due Loans 90 Days or More (accruing) ........
Performing Troubled Debt Restructurings ............ $
Nonperforming Loans/Loans ................................
Nonperforming Assets/Total Assets .....................
Nonperforming Assets/Loans Plus OREO ............
Allowance/Nonperforming Loans ........................
2012
2011
2010
2009
2008
1,069
4,071
41,045
13,429
4,034
574
64,222 $
53,426
117,648 $
9,934 $
—
47,474 $
4.22%
4.47
7.47
45.42%
755
334
42,820
25,671
4,283
1,160
75,023 $
62,600
137,623 $
19,425 $
224
37,675 $
4.61%
5.21
8.14
41.37%
1,059
1,907
26,874
30,189
4,803
868
65,700 $
57,937
123,637 $
24,193 $
159
21,649 $
3.74%
4.72
6.81
53.94%
1,579
2,729
21,611
20,797
29,749
29,042
38,182
26,599
3,846
5,280
1,909
1,827
86,274 $ 96,876
36,134
9,222
122,408 $ 106,098
36,501 $ 37,343
88
1,744
—
21,644 $
4.50%
4.52
6.27
51.00%
4.95%
4.26
5.39
38.20%
(1)
Nonaccrual TDRs totaling $9.9 million and $13.0 million are included in nonaccrual/NPL totals for December 31,
2012 and December 31, 2011, respectively.
Table 8
NONPERFORMING ASSET ACTIVITY
(Dollars in Thousands)
NPA Beginning Balance: ............................................................................................ $
Change in Nonaccrual Loans:
Beginning Balance .................................................................................................
Additions ...............................................................................................................
Charge-Offs ...........................................................................................................
Transferred to OREO .............................................................................................
Paid Off/Payments .................................................................................................
Restored to Accrual ...............................................................................................
Ending Balance ...........................................................................................................
Change in OREO:
Beginning Balance .................................................................................................
Additions ...............................................................................................................
Valuation Write-downs ..........................................................................................
Sales .......................................................................................................................
Other ......................................................................................................................
Ending Balance ...........................................................................................................
2012
137,623 $
2011
123,637
75,023
61,070
(19,716)
(19,765)
(15,826)
(16,564)
64,222
62,600
22,777
(3,336)
(28,183)
(432)
53,426
65,700
106,353
(24,263)
(35,721)
(11,523)
(25,523)
75,023
57,937
37,438
(4,666)
(27,816)
(293)
62,600
13,986
137,623
NPA Net Change .......................................................................................................
NPA Ending Balance .................................................................................................. $
(19,975)
117,648 $
Nonaccrual Loans. Nonaccrual loans totaled $64.2 million at year-end 2012, a decrease of $10.8 million from year-end 2011.
Gross additions to nonaccrual status slowed significantly during 2012 totaling $61.1 million compared to $106.4 million in
2011. A majority of the year over year decrease in nonaccrual loans was realized in the residential real estate category.
Generally, loans are placed on nonaccrual 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
51
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 2012 had been recognized on a fully accruing basis, we would have
recorded an additional $5.6 million of interest income for the year ended December 31, 2012.
Nonaccrual loans secured by vacant land loans totaled of $11.9 million at year-end 2012 compared to $7.9 million at the end
of 2011, $18.7 million at the end of 2010, $38.0 million at the end of 2009, and $51.3 million at year-end 2008. Of the $11.9
million in these loans at year-end 2012, approximately 60% were in the residential real estate loan category.
Other Real Estate Owned. 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 $53.4 million at December 31, 2012 versus $62.6 million at December 31, 2011. During 2012, we added
properties totaling $22.8 million and partially or completely liquidated properties totaling $28.7 million. Revaluation
adjustments for other real estate owned properties during 2012 totaled $3.3 million and were charged to noninterest expense
when realized. For 2011, we added properties totaling $37.4 million and partially or completely liquidated properties totaling
$28.1 million. Revaluation adjustments for other real estate owned properties during 2011 totaled $4.7 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 .............................................................................................................. $
2012
2011
37,063 $
6,484
8,200
1,679
53,426 $
38,866
10,403
11,143
2,188
62,600
Troubled Debt Restructurings. TDRs 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. From time to time our lenders will modify a loan as a workout
alternative. Most of these instances involve a principal moratorium, extension of the loan term, or interest rate reduction.
Loans classified as TDRs at year-end 2012 totaled $57.4 million compared to $50.7 million at year-end 2011. Accruing
TDRs make up approximately $47.5 million, or 83%, of our TDR portfolio at year-end 2012 of which $2.7 million was over
30 days past due. The weighted average rate for the loans within the accruing TDR portfolio is 5.4%. During 2012, we
modified 219 loan contracts totaling approximately $27.2 million of which 15 loan contracts totaling $3.6 million have
defaulted. The clarified TDR accounting guidance issued in 2011 resulted in an increase in the level of renewed classified
loans considered to be TDRs because the renewal interest rate was below market rates for similar credit risk profiles; as we
continue to work with our borrowers and take a course of action most advantageous to the Bank in the long-term, we expect
TDRs to remain elevated. 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.
The composition of our TDR portfolio as of December 31 is provided in the table below.
Accruing
2012
Nonaccruing(1)
Accruing
(Dollars in Thousands)
Commercial, Financial and Agricultural .................. $
Real Estate – Construction .......................................
Real Estate – Commercial ........................................
Real Estate – Residential .........................................
Real Estate – Home Equity ......................................
Consumer .................................................................
Total TDRs .............................................................. $
1,462 $
161
29,870
13,824
1,587
570
47,474 $
508 $
—
8,425
936
—
10
9,879 $
2011
Nonaccruing(1)
—
—
12,029
947
—
—
12,976
694 $
178
20,062
15,553
1,161
27
37,675 $
(1)
Nonaccruing TDRs are included in nonaccrual/NPL totals and NPA/NPL ratio calculations.
52
Activity within our TDR portfolio is provided in the table below.
(Dollars in Thousands)
TDR Beginning Balance: .................................................................................................................................... $
Additions ..........................................................................................................................................................
Charge-Offs ......................................................................................................................................................
Paid Off/Payments ............................................................................................................................................
Defaults .............................................................................................................................................................
TDR Ending Balance .......................................................................................................................................... $
2012
50,651
27,186
(2,036)
(5,457)
(12,991)
57,353
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 past due. Past due loans at year-end 2012 totaled $9.9 million compared to $19.6 million at year-end 2011. The
reduction in past due loans reflects a slowdown in problem loan inflow as well as improvement in loan resolution outcomes.
Prior to the beginning of the economic downturn, we tightened credit underwriting standards and strengthened our collection
risk management practices which have proven beneficial at this stage of the cycle.
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, 2012, we had $9.5
million in loans of this type which are not included in either of the nonaccrual, TDR or 90 day past due loan categories
compared to $18.0 million at December 31, 2011. 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 multiple 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 loan portfolio has historically been secured
with real estate, approximately 80% at year-end 2012 and year-end 2011. The primary types of real estate collateral are
commercial properties and 1-4 family residential properties. At December 31, 2012, commercial real estate and residential
real estate mortgage loans (including home equity loans) accounted for 40.3% and 40.1%, respectively, of the total loan
portfolio.
The following table summarizes our real estate loan portfolio as segregated by the type of property. Property type
concentrations are stated as a percentage of year-end total real estate loans.
Vacant Land, Construction, and Land Development .....................
Improved Property .........................................................................
Total Real Estate Loans .................................................................
2012
2011
Investor
Real Estate
11.1%
23.9%
35.0%
Owner
Occupied
Real Estate
—
65.0%
65.0%
Investor
Real Estate
12.2%
24.5%
36.7%
Owner
Occupied
Real Estate
—
63.3%
63.3%
A major portion of our real estate loan portfolio is centered in the owner occupied category which carries a lower risk of non-
collection than certain segments of the investor category. Beginning in 2008 and continuing through 2012, we have worked
to reduce our exposure to the higher risk land/construction category through pro-active work-outs, appropriate charge-offs, or
foreclosure. Approximately 68% of the land/construction category was secured by residential real estate at year-end 2012.
Allowance for Loan Losses
Management believes it maintains the allowance for loan losses at a level sufficient to provide for probable credit losses
inherent in the loan portfolio as of the balance sheet date. Credit losses arise from the borrowers’ inability or unwillingness to
repay, and from other risks inherent in the lending process including collateral risk, operations risk, concentration risk, and
economic risk. As such, all related risks of lending are considered when assessing the adequacy of the allowance. The
allowance for loan losses is established through a provision charged to expense. Loans are charged-off against the allowance
when losses are probable and reasonably quantifiable. 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 revisions to our assessment of the loan portfolio’s overall credit quality and other risk factors both
internal and external to us.
53
Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The allowance consists of three
components. The first component consists of amounts reserved for impaired loans. 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. Loans are monitored for potential impairment
through our ongoing loan review procedures and portfolio analysis. Classified loans and past due loans over a specific dollar
amount, and all troubled debt restructurings are individually evaluated for impairment.
The approach for assigning reserves for the impaired loans is determined by the dollar amount of the loan and loan type.
Impairment measurement for loans over a specific dollar are assigned on an individual loan basis with the amount reserved
dependent on whether repayment of the loan is dependent on the liquidation of collateral or from some other source of
repayment. 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 individually measured impaired loans are sensitive to the extent market conditions
or the actual timing of cash receipts change. Impairment reserves for smaller-balance loans under a specific dollar amount are
assigned on a pooled basis utilizing loss factors for impaired loans of a similar nature.
The second component is a general reserve on all loans other than those identified as impaired. 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 determined by loan pool and internal
risk rating that are adjusted for various internal and external risk factors unique to each loan pool.
The third component is the unallocated portion of the allowance which is monitored on a regular basis and adjusted based on
management’s determination of estimation risk. Table 9 analyzes the activity in the allowance over the past five years.
For 2012, our net charge-offs totaled $18.0 million, or 1.16%, of average loans, compared to $23.4 million, or 1.39%, for
2011, and $32.4 million, or 1.77%, for 2010. A $6.0 million reduction in construction loan charge-offs drove the year over
year decline in net charge-offs in 2012. Over the last five years, we have recorded a cumulative loan loss provision totaling
$131.5 million, or 6.9%, of beginning loans and have recognized cumulative net charge-offs of $120.0 million, or 6.3%.
Early in the economic cycle we realized an elevated level of loan losses within our real estate loan portfolio, specifically
residential construction loans and loans secured by residential vacant land. The level of losses within these portfolios
stabilized in 2011 having a favorable impact on our allowance for loan losses. During 2012, we realized further reduction in
losses within our residential vacant land portfolio. At year-end 2012, the allowance for loan losses of $29.2 million was
1.93% of outstanding loans (net of overdrafts) and provided coverage of 45% of nonperforming loans compared to 1.91%
and 41%, respectively, at year-end 2011, and 2.01% and 54%, respectively, at the end of 2010.
Table 10 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 reduction in the allowance for loan losses from December 31, 2011 to December 31, 2012 reflects a lower level of
general reserves attributable to slower problem loan migration, lower loan loss experience, and improved credit metrics. The
reduction in the allowance for loan losses from December 31, 2010 to December 31, 2011 primarily reflects a change in mix
for our impaired loan portfolio driven by a reduction in exposure to loans within the residential construction and vacant land
categories as well as overall lower loss content in our impaired loan portfolio. It is management’s opinion that the allowance
at December 31, 2012 is adequate to absorb losses inherent in the loan portfolio at year-end.
54
Table 9
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
2012
2011
2010
2009
2008
Balance at Beginning of Year ................................................ $ 31,035 $ 35,436 $ 43,999 $ 37,004 $18,066
Reclassification of Reserve for Unfunded Loan
Commitments to Other Liabilities .........................................
—
—
—
—
392
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 ....................................................................
822
629
6,031
9,719
2,896
2,125
22,222
1,843
114
6,713
11,870
2,727
2,924
26,191
2,118
5,877
8,762
12,168
3,087
3,502
35,514
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
290
43
682
1,291
399
1,483
4,188
387
14
251
478
214
1,450
2,794
370
8
261
385
555
1,548
3,127
567
540
53
525
5
1,753
3,443
331
4
15
161
1
1,905
2,417
Net Charge-Offs .....................................................................
18,034
23,397
32,387
32,630
13,558
Provision for Loan Losses .....................................................
16,166
18,996
23,824
40,017
32,496
Balance at End of Year .......................................................... $ 29,167 $ 31,035 $ 35,436 $ 43,999 $37,004
Ratio of Net Charge-Offs to Average Loans
Outstanding ............................................................................
1.16%
1.39%
1.77%
1.66%
0.71%
Allowance for Loan Losses as a Percent of Loans at
End of Year ............................................................................
1.93%
1.91%
2.01%
2.30%
1.89%
Allowance for Loan Losses as a Multiple of Net Charge-
Offs ........................................................................................
1.62x
1.33x
1.09x
1.35x
2.73x
55
Table 10
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2012
2011
2010
2009
2008
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Allowance
Amount
(Dollars in
Thousands)
Commercial,
Financial and
Agricultural ............. $
Real Estate:
Construction ........
1.6
Commercial ........ 11,081 40.3 10,660 39.2
8,678 21.7 12,518 24.5
Residential ..........
2,392 15.0
2,945 15.5
Home Equity .......
1,887 11.7
1,327 10.4
Consumer ................
911 —
1,027 —
Not Allocated ..........
2,856
1,253
9.2% $
1,133
1,534
2.9
8.0% $
1,544
8.9% $
2,409
9.9% $
2,401
10.5%
2,060
2.5
8,645 38.2
17,046 24.5
2,522 14.3
2,612 11.6
1,007 —
12,117
8,973
5.8
6,022
8,751 37.4
14,159 21.7 12,489
1,091
2,201 12.9
3,457 12.3
5,055
905 —
7.3
33.6
24.7
11.2
12.8
973 —
Total ........................ $ 29,167 100.0% $ 31,035 100.0% $ 35,436 100.0% $ 43,999 100.0% $ 37,004 100.0%
Investment Securities
In 2012, our average investment portfolio decreased $16.6 million, or 5.4%, from 2011 and increased $89.1 million, or
41.2%, from 2010 to 2011. As a percentage of average earning assets, the investment portfolio represented 13.0% in 2012,
compared to 13.8% in 2011. In 2012, the decrease in the average balance of the investment portfolio was a result of maturing
securities not being replaced due to a diminishing supply of desired securities. In 2011, as total net loans declined, a portion
of this liquidity was utilized for additional investments, resulting in both higher yields compared to overnight funds and a
larger percentage of earning assets. In 2013, we will closely monitor liquidity levels and pledging requirements to assess the
need to purchase additional investments, as well as look for new investment products that are prudent relative to our risk
profile and the Bank’s overall investment strategy.
In 2012, average taxable investments decreased $19.6 million, or 8.1%, while tax-exempt investments increased $3.1 million,
or 4.9%. The mix changed as high quality taxable securities (primarily US Treasuries) matured and were not replaced due to
the yield on desired maturities being very close to the overnight funds rate. Average balances of tax-exempt investments
increased, although the supply of these investments within our desired parameters remains limited. 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, 2012, 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, 2012, the investment
portfolio maintained a net pre-tax unrealized gain of $0.9 million compared to a net pre-tax unrealized gain of $1.7 million at
December 31, 2011. At the end of 2012, 141 of our investment securities had an unrealized loss totaling $0.7 million. These
securities consisted primarily of municipal bonds with minimal unrealized losses, but also included mortgage-backed
securities, SBA securities, and US Government agencies that are in a loss position because they were acquired when the
general level of interest rates for the respective product type was lower than that on December 31, 2012. There are 21
securities that have been in a loss position for more than 12 months whose aggregate loss is not material. These 21 securities
consist of 19 municipal bonds one SBA security and one Ginnie Mae mortgage-backed security. The other position is a
preferred bank stock issue which had an unrealized loss of $0.6 million. For 2012, we did not realize any additional other
than temporary impairment through earnings for this security.
The average maturity of the total portfolio at December 31, 2012 and 2011 was 1.57 and 1.39 years, respectively. US
Government agencies with maturities out to three years were added in 2012 which extended the average life of the investment
portfolio. See Table 11 for a breakdown of maturities by investment type.
56
The weighted average taxable equivalent yield of the investment portfolio at December 31, 2012 was 1.13% versus 1.30% in
2011. This lower yield was a result of the proceeds from maturing bonds being invested at lower market rates during
2012. 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,
2012. New investments continue to be made selectively into high quality bonds.
Table 11 and Note 2 in the Notes to Consolidated Financial Statements present a detailed analysis of our investment
securities as to type, maturity and yield at December 31.
Table 11
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
2012
2011
2010
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
(Dollars in Thousands)
U.S. GOVERNMENT
TREASURY
Due in 1 year or less .............. $ 59,728 $ 60,010
Due over 1 year to 5 years ..... 37,017 37,239
— —
Due over 5 years to 10 years ..
— —
Due over 10 years ..................
TOTAL .............................. 96,745 97,249
1.21% $ 100,306 $100,591
67,695 68,873
0.70
—
—
—
—
1.01 168,001 169,464
—
—
0.66% $
9,091
9,050 $
1.32 151,863 153,060
—
—
0.94 160,913 162,151
1.64%
0.96
— — —
— — —
1.00
U.S. GOVERNMENT AGENCY
— —
Due in 1 year or less ..............
Due over 1 year to 5 years ..... 51,468 51,664
— —
Due over 5 years to 10 years ..
— —
Due over 10 years ..................
TOTAL .............................. 54,468 51,664
—
0.71
—
—
0.71
STATES & POLITICAL
SUBDIVISIONS
—
—
14,758 14,737
—
—
14,758 14,737
—
—
—
1.22
—
—
1.22
— — —
— — —
— — —
— — —
— — —
Due in 1 year or less .............. 31,830 31,882
Due over 1 year to 5 years ..... 47,988 47,997
— —
Due over 5 years to 10 years ..
— —
Due over 10 years ..................
TOTAL .............................. 79,818 79,879
0.85
0.90
—
—
0.88
25,390 25,438
33,556 33,656
—
—
58,946 59,094
—
—
1.31 52,987 53,189
1.01 26,003 26,110
—
—
1.12 78,990 79,299
1.97
1.54
— — —
— — —
1.84
MORTGAGE-BACKED
SECURITIES(2)
Due in 1 year or less ..............
5,542
Due over 1 year to 5 years ..... 49,905 50,562
808
Due over 5 years to 10 years ..
878
— —
Due over 10 years ..................
TOTAL .............................. 56,217 56,982
5,504
0.35
1.57
5.50
—
1.53
OTHER SECURITIES
2,104
2,136
48,481 49,073
1,288
—
51,775 52,497
1,190
—
3.60
7,488
7,377
2.12 31,717 32,034
4.89 17,005 16,695
—
2.34 56,099 56,217
3.85
2.70
2.27
— — —
2.72
— —
Due in 1 year or less ..............
— —
Due over 1 year to 5 years .....
Due over 5 years to 10 years ..
— —
Due over 10 years(3) ............. 11,811 11,211
TOTAL .............................. 11,811 11,211
—
—
—
3.73
3.73
—
—
—
—
—
—
11,957 11,357
11,957 11.357
—
—
—
2.88 12,664 12,064
2.88 12,664 12,064
— — —
— — —
— — —
2.58
2.58
TOTAL INVESTMENT
SECURITIES ............................ $ 296,059 $296,985
1.13% $ 305,437 $307,149
1.30% $ 308,666 $309,731
1.59%
(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.
57
AVERAGE MATURITY
(In Years)
U.S. Government Treasury ......................................................................
U.S. Government Agency ........................................................................
States and Political Subdivisions .............................................................
Mortgage-Backed Securities ....................................................................
TOTAL ....................................................................................................
2012
2011
2010
0.86
2.85
1.20
2.16
1.57
1.07
3.13
1.24
2.70
1.39
1.77
—
0.85
3.68
1.89
Deposits and Funds Purchased
Average total deposits for the year were $2.106 billion, an increase of $24.1 million, or 1.2%, compared to the same period in
2011 and deposits decreased $110.7 million, or 5.1%, from 2010 to 2011. Increases in noninterest bearing deposits, NOW
accounts, and savings accounts were partially offset by declines in certificates of deposit. The decrease occurring from 2010
to 2011 was attributable to declines in NOW accounts, money market accounts and certificates of deposit partially offset by
increases in noninterest bearing deposits and savings accounts. Our mix of deposits continues to improve as higher cost
certificates of deposit are replaced with lower rate non-maturity deposits and noninterest bearing demand accounts. Prudent
pricing discipline will continue to be the key to managing our mix of deposits.
Average total deposits were $2.051 billion for the fourth quarter of 2012, a decline $24.4million, or 1.2%, from the linked
quarter. The decrease in deposits resulted from lower public funds, money markets and certificates of deposit, partially offset
by growth in noninterest bearing accounts and regular savings.
Table 2 provides an analysis of our average deposits, by category, and average rates paid thereon for each of the last three
years. Table 12 reflects the shift in our deposit mix over the last year and Table 13 provides a maturity distribution of time
deposits in denominations of $100,000 and over at December 31, 2012.
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 $15.9
million, or 23.3% in 2012. The decline is attributable to decreases in repurchase agreements of $11.5 million, other borrowed
funds of $3.2 million, and funds purchased of $1.2 million. The year-over-year decline in repurchase agreements was
primarily due to deposits migrating from repurchase agreements to noninterest bearing deposits in 2011 and 2012 due to the
unlimited FDIC coverage offered through the Transaction Account Guarantee Program which expired on December 31, 2012.
See Note 7 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 12
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits ...................... $
NOW Accounts ............................................
Money Market Accounts .............................
Savings.........................................................
Time Deposits ..............................................
Total Deposits .............................................. $
2011 to
2012
Change
Percentage
of Total
Change
Components of
Total Deposits
2011
2012
42,928
22,843
(2,106)
23,911
(63,487)
24,089
178.2%
94.8
(8.7)
99.3
(263.6)
100.0%
29.0%
36.6
13.3
8.3
12.8
100.0%
27.3 %
36.0
13.6
7.3
15.8
100.0 %
2010
21.1%
39.4
14.6
6.0
18.9
100.0%
58
Table 13
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
2012
(Dollars in Thousands)
Three months or less ......................................................................................................... $
Over three through six months ..........................................................................................
Over six through twelve months .......................................................................................
Over twelve months ..........................................................................................................
Total .................................................................................................................................. $
19,853
13,906
20,900
8,465
63,124
Percent
31.5%
22.0
33.1
13.4
100.0%
Time Certificates
of Deposit
Market Risk and Interest Rate Sensitivity
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 four alternative interest rate simulations (Down 100, Up 100, Up 200 and Up 300) basis
points, at least once per 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 managing the mix of our core deposits, and by adjusting our 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.
59
We augment our interest rate shock analysis with alternative external interest rate scenarios on a quarterly 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.
ESTIMATED CHANGES IN NET INTEREST INCOME (1)
Changes in Interest Rates
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
December 31, 2012
December 31, 2011
………………
…………...
…………...
+/-10.0%
.01%
-3.1%
+/-7.5%
2.0%
-0.5%
+/-5.0%
2.2%
0.9%
+/-5.0%
-0.9%
-0.4%
The Net Interest Income at Risk position improved for the month ended December 2012, when compared to the same period
in 2011, for all rising rate scenarios. Our largest exposure is when rates rise +300 basis points, with a measure of 0.01%,
which remains within our policy limit of -10.0%. The year-over-year favorable variance is primarily attributable to a higher
level of overnight funds coupled with a lower level of interest bearing deposits. 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, 2012
December 31, 2011
……………...
…………..
…………..
+/-12.5%
3.8%
4.0%
+/-10.0%
7.1%
7.8%
+/-7.5%
6.6%
7.3%
+/-7.5%
-4.7%
-4.9%
As of December 2012, the improvement in the economic value of equity in the “up rate” scenarios was slightly less favorable
than it was as of December 2011. This unfavorable variance is primarily attributable to the overall reduction in market
interest rates during 2012. In both years, in the up 300 basis point scenario (relative to the up 200 and 100 basis point
scenarios), the level of improvement in the economic value of equity declines. This is attributable to the varied assumptions
on the non-maturity deposits. Based on historical data, interest rates on non-maturity deposits are increased in escalating
increments 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 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,
2012 and 2011, our principal source of funding has been our clients’ 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.
60
As of December 31, 2012, we have the ability to generate $695.2 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.
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 1.57 years and as of year-end had a net
unrealized pre-tax gain of $0.9 million.
Our average liquidity (defined as funds sold plus interest bearing deposits with other banks less funds purchased) position
was $366.0 million during the fourth quarter of 2012 compared to an average net overnight funds sold position of $386.0
million in the prior quarter and an average overnight funds sold position of $191.8 million in the fourth quarter of 2011. The
lower balance when compared to the third quarter of 2012 reflects lower levels of public funds deposits partially offset by a
decrease in the loan portfolio. The higher balances when compared to the fourth quarter of 2011 reflect higher levels of
public funds and savings accounts, in addition to liquidity generated through the loan and investment portfolios as these
portfolios have declined period over period.
Capital expenditures are expected to approximate $4.0 million over the next 12 months, which consist primarily of 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, 2012, advances from the FHLB consisted of $53.7 million in outstanding debt consisting of 50 notes. In
2012, the Bank made FHLB advance payments totaling approximately $3.3 million, repaid two advances for $0.2 million,
and obtained five new FHLB advances totaling $12.6 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.
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 8 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. 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. As of February 2012, in consultation with the Federal Reserve, we elected to defer the
interest payments on the notes. We will, however, continue the accrual of the interest on the notes in accordance with our
contractual obligations.
In accordance with the Holding Company Resolution, 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.
61
Table 14
CONTRACTUAL CASH OBLIGATIONS
Table 14 sets forth certain information about contractual cash obligations at December 31, 2012.
(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 ............. $
Capital
< 1 Yr
> 1 – 3 Yrs
Payments Due By Period
> 3 – 5 Yrs
> 5 Years
10,378 $
—
586
200,965
1,289
213,218
$
16,862 $
—
1,200
35,382
1,996
55,440
$
15,485 $
—
786
2,438
1,358
20,067 $
10,930 $
62,887
3,179
2,234
508
79,738 $
Total
53,655
62,887
5,751
241,019
5,151
368,463
Shareowners’ equity totaled $246.9 million at December 31, 2012 compared to $251.9 million at December 31, 2011. During
2012, shareowners’ equity was positively impacted by net income of $0.1 million, the issuance of stock totaling
approximately $0.6 million, and stock compensation expense of $0.3 million. A $5.5 million increase in the accumulated
other comprehensive loss for our pension plan and a $0.5 million decrease in our net unrealized gain on securities reduced
shareowners’ equity.
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 .......................................................................... $
2012
2011
172 $
38,707
237,569
276,448
(29,559)
246,889 $
172 $
37,838
237,461
275,471
(23,529)
251,942 $
2010
171
36,920
237,679
274,770
(15,751)
259,019
We continue to maintain a strong capital position. The ratio of shareowners’ equity to total assets at year-end was 9.37%,
9.54%, and 9.88%, in 2012, 2011, and 2010, respectively. Management believes its strong capital base has offered protection
during the course of the current economic downturn.
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 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,
2012, we exceeded these capital guidelines with a total risk-based capital ratio of 15.72% and a Tier I capital ratio of 14.35%,
compared to 15.32% and 13.96%, respectively, in 2011. As allowed by Federal Reserve capital guidelines the trust preferred
securities issued by CCBG Capital Trust I and CCBG Capital Trust II are included as Tier I Capital in our capital calculations
previously noted. See Note 8 in the Notes to Consolidated Financial Statements for additional information on our two trust
preferred security offerings. See Note 13 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, 2012, we had a leverage ratio of 9.90% compared to 10.26%
in 2011.
At December 31, 2012, our common stock had a book value of $14.31 per diluted share compared to $14.68 in 2011. Book
value is impacted by the net unrealized gains and losses on investment securities available-for-sale. At December 31, 2012,
the net unrealized gain was $0.6 million compared to $1.1 million in 2011. Book value is also impacted by the recording of
our unfunded pension liability through other comprehensive income in accordance with Accounting Standards Codification
Topic 715. At December 31, 2012, the net pension liability reflected in other comprehensive income was $30.1 million
compared to $24.6 million at December 31, 2011. The increase in our unfunded pension liability was primarily driven by a
reduction in the discount rate used for computing the interest cost for our pension plan.
62
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. To date, we have repurchased a total of
2,520,130 shares at an average purchase price of $25.19 per share. During 2012 and 2011, we did not repurchase any shares.
We must seek prior approval from the Federal Reserve before repurchasing any additional shares of our common stock.
We offer an Associate Incentive Plan under which certain associates are eligible to earn equity based awards based upon
achieving established performance goals. In 2012, 31,270 shares were earned under this plan of which 2,800 were issued in
2012 and 28,470 will be issued in February, 2013. In 2011, no shares were earned or issued under this plan.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2012,
69,242 shares, valued at approximately $0.6 million (before 10% discount), were issued under these plans.
Dividends
Adequate capital and financial strength is paramount to our stability and the stability of our subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on our capital levels. When determining the level of dividends the
following factors are considered:
(cid:121)
(cid:121)
(cid:121)
(cid:121)
Compliance with state and federal laws and regulations;
Our capital position and our ability to meet our financial obligations;
Projected earnings and asset levels; and
The ability of the Bank and us to fund dividends.
For 2012, we paid no dividends in order to preserve capital given lower earnings performance and the uncertain economic
conditions. Dividends declared and paid totaled $0.30 per share in 2011 and $0.49 per share in 2010. See Item 1. Business-
About Us-Regulatory Matter. For 2011 and 2010, our dividend payout ratio was not meaningful as our dividends exceeded
our earnings.
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, 2012, we had $293.7 million in commitments to extend credit and $11.2 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.
63
FOURTH QUARTER 2012 – FINANCIAL RESULTS
Results of Operations
We realized net income of $1.9 million, or $0.11 per diluted share, for the fourth quarter of 2012, compared to net income of
$1.1 million, or $0.07 per diluted share, for the third quarter of 2012. The improvement in earnings reflects lower noninterest
expense of $0.7 million, a reduction in the loan loss provision of $0.1 million, and an increase in operating revenues of $0.1
million, partially offset by higher income taxes of $0.1 million.
Tax equivalent net interest income for the fourth quarter of 2012 was $20.7 million compared to $21.2 million for the third
quarter of 2012. Factors affecting net interest income relative to the third quarter of 2012 include a reduction in loan income
attributable to declining loan balances and unfavorable asset repricing. The net interest margin for the fourth quarter of 2012
was 3.78%, a decrease of 4 basis points from the third quarter of 2012. The decline in the margin was attributable to a shift in
our earning asset mix and unfavorable asset repricing, partially offset by a lower average cost of funds.
The provision for loan losses for the fourth quarter of 2012 was $2.8 million compared to $2.9 million in the third quarter of
2012. Slower problem loan migration, lower loan loss experience, and improved credit metrics resulted in a lower level of
loan loss provision for both the third and fourth quarters of 2012. Net charge-offs for the fourth quarter of 2012 totaled $3.8
million, or 1.00% of average loans, compared to $2.6 million, or 0.66%, in the third quarter of 2012.
Noninterest income for the fourth quarter of 2012 totaled $14.1 million, an increase of $0.5 million, or 4.0%, over the third
quarter of 2012. The increase over the third quarter of 2012 reflects higher deposit fees of $0.4 million and wealth
management fees (trust fees and retail brokerage fees) of $0.1 million. The increase in deposit fees reflects higher overdraft
fees, account maintenance fees and a lower level of charged off checking accounts. The higher level of trust fees reflects
higher benefit plan fees and estate fees while higher client trade activity drove the increase in retail brokerage fees.
Noninterest expense for the fourth quarter of 2012 totaled $29.5 million, a decrease of $0.7 million, or 2.4%, from the third
quarter of 2012. The decrease from the third quarter was driven by a decrease in OREO expense of $0.7 million, occupancy
expense of $0.2 million, and other expense of $0.1 million, partially offset by higher compensation expense of $0.3 million.
The reduction in OREO expense was driven by a lower level of valuation adjustments and to a lesser extent a reduction in
property carrying costs. Occupancy expense declined due to lower property tax expense and utilities expense. The reduction
in other expense reflects a decrease in printing and supplies due to lower usage and a lower level of operational losses. The
increase in compensation was attributable to higher pension plan expense and stock compensation expense partially offset by
lower expense for cash incentives.
We realized income tax expense of $0.6 million in the fourth quarter of 2012 compared to income tax expense of $0.4 million
for the third quarter of 2012. Income tax expense for the current quarter was favorably impacted by resolution of certain tax
contingencies.
Discussion of Financial Condition
Average earning assets were $2.179 billion for the fourth quarter of 2012, a decrease of $30.2 million, or 1.4%, from the third
quarter of 2012. As compared to the third quarter of 2012, the decline in average earning assets is attributable to a lower level
of overnight funds resulting from a seasonal decline in deposits and the resolution of problem loans. The shift in the mix of
earning assets continued as the loan portfolio declined when compared to the prior quarter.
We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds
purchased) sold position of $366.0 million during the fourth quarter of 2012 compared to an average net overnight
funds sold position of $386.0 million in the third quarter of 2012. The lower balance when compared to the third quarter of
2012 reflects lower levels of deposits, primarily public funds and certificates of deposit, partially offset by a decrease in the
loan portfolio.
When compared to the third quarter of 2012, average loans declined by $23.0 million. Our core loan portfolio continues to be
impacted by normal amortization and payoffs that have outpaced our new loan production. During 2012, new loan production
has been affected by a slow economic recovery, however, loan demand improved during the fourth quarter of 2012 and loan
contraction eased. The resolution of problem loans (which has the effect of lowering the loan portfolio as loans are either
charged off or transferred to OREO) drove a significant part of the overall decline for the quarter. When measured on a
period-end basis- , loan charge-offs and loans transferred to OREO accounted for $13.7 million of the $16.5 million net
reduction in total loans (net of overdrafts) during the fourth quarter of 2012.
64
Nonperforming assets (nonaccrual loans and OREO) totaled $117.7 million at December 31, 2012 compared to $127.2
million at September 30, 2012. Nonaccrual loans totaled $64.2 million at December 31, 2012, a decrease of $9.9 million from
September 30, 2012, reflective of loan resolutions (charge-offs and transfer of loans to OREO) and loans restored to an
accrual status, which outpaced gross additions. The balance of OREO totaled $53.4 million at December 31, 2012, a $0.2
million increase over September 30, 2012 reflecting additions of $8.7 million, sales of $8.1 million, and valuation
adjustments of $0.4 million. Nonperforming assets represented 4.47% of total assets at December 31, 2012 compared to
5.10% at September 30, 2012.
Average total deposits were $2.051 billion for the fourth quarter of 2012, a decrease of $24.4 million, or 1.2%, from the third
quarter of 2012. The decrease in deposits when compared to the third quarter of 2012 resulted from lower public funds,
money markets and certificates of deposit, partially offset by growth in noninterest bearing accounts and regular savings. The
seasonal low in public fund balances occurred during the fourth quarter and these balances are anticipated to increase through
the first quarter of 2013. Borrowings decreased by $9.1 million when compared to the third quarter of 2012 as a result of
lower balances in repurchase agreements.
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, loss experience, loan portfolio quality,
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 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.
Our financial results are affected by the changes in and the absolute level of the allowance for loan losses. This estimation
process is judgmental and requires an estimate of the loss severity rates that we apply to our unimpaired loan portfolio. In the
event that estimated loss severity rates for our unimpaired loan portfolio increased by 10%, the allowance for loan losses
would increase by approximately $1.0 million.
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 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. For Step
One, 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
65
a market multiple, based on observed purchase transactions and/or an observed price/tangible book value multiple for our
peer group. For purposes of performing Step Two, we perform a full purchase price allocation in the same manner as if a
business combination had occurred. As part of this process, we estimate the fair value of all of the assets and liabilities of the
reporting unit.
For Step One, there are judgments and estimates used in the income approach for determining the estimated fair value of our
reporting unit, including the discount rate and terminal growth rates 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, change in economic conditions and observable bank purchase transactions can impact the outcome of the market
valuation approach.
For Step Two, significant factors in the fair value of our implied goodwill include the fair values of our loan portfolio and our
core deposit intangible. At December 31, 2012, the fair value of our implied goodwill exceeded the carrying value of
goodwill by approximately $27 million. A decrease of approximately 18% in the loan discount would result in the carrying
value of our goodwill being equal to the implied goodwill value at December 31, 2012. An increase of approximately 109%
in the core deposit premium would result in the carrying value of our goodwill being equal to the implied goodwill value at
December 31, 2012.
Throughout 2012 we have evaluated our goodwill for possible impairment using a consistent methodology and will continue
this assessment process due to the decline in the market value of our stock to a level which is below book value. The
aforementioned factors can change from period to period and are presented to reflect the potential variance in the fair value of
our reporting unit and implied goodwill that could occur should there be 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, which is included in the Consolidated Statement of Comprehensive Income in
noninterest expense as “Compensation,” is determined by an external actuarial valuation based on assumptions that are
evaluated annually as of December 31, the measurement date for the pension obligation. The Consolidated Statements of
Financial Condition reflect an accrued pension benefit cost due to funding levels and unrecognized actuarial amounts. The
most significant assumptions used in calculating the pension obligation are the weighted-average discount rate used to
determine the present value of the pension obligation, the weighted-average expected long-term rate of return on plan assets,
and the assumed rate of annual compensation increases. These assumptions are re-evaluated annually with the external
actuaries, taking into consideration both current market conditions and anticipated long-term market conditions.
The weighted-average discount rate is determined by matching the anticipated 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 2012 was 5.00%. The
estimated impact to 2012 pension expense of a 25 basis point increase or decrease in the discount rate would have been a
decrease and increase of approximately $693,000 and $729,000, respectively. We anticipate using a 4.25% discount rate in
2013.
66
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 2012 was 8.0%. The estimated impact to 2012 pension expense of a 25
basis point increase or decrease in the rate of return would have been an approximate $212,000 increase or decrease,
respectively. We anticipate using a rate of return on plan assets for 2013 of 8.0%.
The assumed rate of annual compensation increases of 4.00% in 2012 reflects expected trends in salaries and the employee
base. We anticipate using a compensation increase of 3.75% for 2013 reflecting current market trends.
Detailed information on the pension plan, the actuarially determined disclosures, and the assumptions used are provided in
Note 11 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 have impacted our results in prior years presented, or will likely impact our
results in 2013. Please refer to 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.
67
Item 8. Financial Statements and Supplementary Data
Table 15
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in Thousands, Except Per
Share Data)
Summary of Operations:
2012
2011
Fourth
Third
Second
First
Fourth
Third
Second
First
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
21,787 $
1,232
20,555
2,766
22,326 $
1,295
21,031
2,864
17,789
14,118
29,468
18,167
13,575
30,201
$
$
22,437
1,372
21,065
5,743
15,322
13,906
32,293
23,130
1,469
21,661
4,793
16,868
13,586
32,597
23,912
1,515
22,397
7,600
14,797
13,873
31,103
$
24,891 $
1,791
23,100
3,718
25,467 $
2,028
23,439
3,545
19,382
14,193
30,647
19,894
14,448
31,167
25,189
2,203
22,986
4,133
18,853
16,334
33,331
Taxes............................................
2,439
1,541
(3,065)
(2,143)
(2,433)
2,928
3,175
1,856
Income Tax Expense
(Benefit) .......................................
Net Income (Loss) ........................... $
Net Interest Income (FTE) .............. $
564
1,875 $
20,697 $
420
1,121 $
21,179 $
(1,339)
(1,726)
21,219
Per Common Share:
Net Income (Loss) Basic ................. $
Net Income (Loss) Diluted ..............
Cash Dividends Declared ................
Diluted Book Value ........................
Market Price:
High ............................................
Low .............................................
Close ...........................................
0.11 $
0.11
0.00
14.31
11.91
9.04
11.37
0.07 $
0.07
0.00
14.54
10.96
7.00
10.64
(0.10)
(0.10)
0.00
14.48
8.73
6.35
7.37
Selected Average Balances:
Loans, Net ....................................... $1,518,280 $ 1,541,262 $ 1,570,827
Earning Assets ................................. 2,178,946 2,209,166 2,262,847
Total Assets ..................................... 2,534,011 2,566,239 2,624,417
Deposits ........................................... 2,051,099 2,075,482 2,135,653
252,644
Shareowners’ Equity ....................... 253,017 251,746
Common Equivalent Average
$
$
$
$
$
$
(981)
(1,162)
21,833
(0.07)
(0.07)
0.00
14.60
9.91
7.32
7.45
$
$
$
(1,898)
(535)
22,560
(0.03)
(0.03)
0.00
14.68
11.11
9.43
9.55
951
1,977 $
23,326 $
1,030
2,145 $
23,704 $
546
1,310
23,257
0.12 $
0.12
0.10
15.20
11.18
9.81
10.38
0.12 $
0.12
0.10
15.20
13.12
9.94
10.26
0.08
0.08
0.10
15.13
13.80
11.87
12.68
$ 1,596,480
2,268,307
2,636,907
2,161,388
254,447
$ 1,646,715
2,146,463
2,509,915
2,032,975
264,276
$ 1,667,720 $ 1,704,348 $ 1,730,330
2,202,927 2,258,931 2,278,602
2,563,251 2,618,287 2,643,017
2,061,913 2,107,301 2,125,379
261,603
263,902 262,371
Shares:
Basic ............................................
Diluted .........................................
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
17,229
17,256
17,215
17,228
17,192
17,192
17,181
17,181
17,160
17,161
17,152
17,167
17,127
17,139
17,122
17,130
0.29%
2.95
3.78
0.17%
1.77
3.82
(0.26)%
(2.75)
3.77
(0.18)%
(1.84)
3.87
(0.08)%
(0.80)
4.17
0.31%
2.97
4.20
0.33%
3.28
4.21
0.20%
2.03
4.14
40.81
84.68
39.31
86.89
39.88
91.18
38.64
92.04
38.34
85.37
38.14
81.69
38.13
81.72
41.54
84.19
29,167
30,222
29,929
31,217
31,035
29,658
31,080
33,873
Loans ...........................................
1.97%
Nonperforming Assets (“NPA’s”) .. 117,648 127,247
5.10
NPA’s to Total Assets .....................
NPA’S to Loans + ORE ..................
8.02
Allowance to Non-Performing
4.47
7.47
1.93%
1.93%
1.98%
1.91%
132,829
5.02
8.23
136,826
5.14
8.36
137,623
5.21
8.14
1.79%
1.84%
114,592 122,092
4.70
6.98
4.54
6.67
1.98%
129,318
4.86
7.31
Loans ...........................................
45.42
40.80
40.03
39.65
41.37
55.54
50.89
45.80
Net Charge-Offs to Average
Loans ...........................................
1.00
0.66
1.80
1.16
1.50
1.22
1.49
1.33
Capital Ratios:
Tier I Capital ...................................
Total Capital ....................................
Tangible Capital ..............................
Leverage ..........................................
14.35%
15.72
6.35
9.90
14.43%
15.80
6.86
9.83
14.17%
15.54
6.40
9.60
14.17%
15.54
6.42
9.71
13.96%
15.32
6.51
10.26
14.05%
15.41
7.19
10.20
13.83%
15.19
6.96
9.95
13.46%
14.82
6.73
9.74
68
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
70
71
72
73
74
75
Report of Independent Registered Certified Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareowners’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
69
Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Shareowners 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, 2012 and 2011, and the related consolidated statements of comprehensive income, changes in shareowners’
equity, and cash flows for each of the three years in the period ended December 31, 2012. 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, 2012 and 2011, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, 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 6, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tampa, Florida
March 6, 2013
70
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 .......................................................................................
As of December 31,
2012
2011
66,238 $
443,494
509,732
54,953
330,361
385,314
Investment Securities, Available-for-Sale ..............................................................................
296,985
307,149
Loans Held For Sale ...............................................................................................................
14,189
21,225
Loans, Net of Unearned Income .............................................................................................
Allowance for Loan Losses ..................................................................................................
Loans, Net ...........................................................................................................................
1,507,113 1,607,458
(31,035)
1,477,946 1,576,423
(29,167)
Premises and Equipment, Net .................................................................................................
Goodwill .................................................................................................................................
Other Intangible Assets ...........................................................................................................
Other Real Estate Owned ........................................................................................................
Other Assets ............................................................................................................................
Total Assets ........................................................................................................................ $
107,092
84,811
242
53,426
89,561
110,991
84,811
673
62,600
92,126
2,633,984 $ 2,641,312
LIABILITIES
Deposits:
Noninterest Bearing Deposits ............................................................................................... $
Interest Bearing Deposits ......................................................................................................
Total Deposits .....................................................................................................................
609,235 $
618,317
1,535,761 1,554,202
2,144,996 2,172,519
Short-Term Borrowings ..........................................................................................................
Subordinated Notes Payable ...................................................................................................
Other Long-Term Borrowings ................................................................................................
Other Liabilities ......................................................................................................................
Total Liabilities ...................................................................................................................
47,435
62,887
46,859
84,918
43,372
62,887
44,606
65,986
2,387,095 2,389,370
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; 17,232,380
and 17,160,274 shares issued and outstanding at December 31, 2012 and
December 31, 2011, respectively ............................................................................................
Additional Paid-In Capital ......................................................................................................
Retained Earnings ...................................................................................................................
Accumulated Other Comprehensive Loss, Net of Tax ...........................................................
Total Shareowners’ Equity .....................................................................................................
Total Liabilities and Shareowners’ Equity .............................................................................. $
—
—
172
38,707
237,569
(29,559)
246,889
172
37,838
237,461
(23,529)
251,942
2,633,984 $ 2,641,312
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
71
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands, Except Per Share Data)
INTEREST INCOME
Interest and Fees on Loans................................................................................................................. $
Investment Securities:
Taxable Securities ......................................................................................................................
Tax Exempt Securities ...............................................................................................................
Funds Sold .........................................................................................................................................
Total Interest Income .........................................................................................................................
2012
2011
2010
85,394 $
94,944 $ 105,710
2,912
428
946
89,680
3,321
647
547
99,459
2,681
1,517
587
110,495
For the Years Ended December 31,
INTEREST EXPENSE
Deposits .............................................................................................................................................
Short-Term Borrowings .....................................................................................................................
Subordinated Notes Payable ..............................................................................................................
Other Long-Term Borrowings ...........................................................................................................
Total Interest Expense .......................................................................................................................
2,108
196
1,477
1,587
5,368
3,947
305
1,380
1,905
7,537
NET INTEREST INCOME
Provision for Loan Losses .................................................................................................................
Net Interest Income After Provision for Loan Losses ........................................................................
84,312
16,166
68,146
91,922
18,996
72,926
NONINTEREST INCOME
Service Charges on Deposit Accounts ...............................................................................................
Data Processing Fees .........................................................................................................................
Asset Management Fees ....................................................................................................................
Retail Brokerage Fees ........................................................................................................................
Securities Transactions ......................................................................................................................
Mortgage Banking Fees .....................................................................................................................
Bank Card Fees ..................................................................................................................................
Other ..................................................................................................................................................
Total Noninterest Income ..................................................................................................................
25,792
2,713
4,155
3,026
—
3,600
10,783
5,116
55,185
25,451
3,230
4,364
3,251
—
2,675
10,141
9,736
58,848
8,645
159
2,008
2,150
12,962
97,533
23,824
73,709
26,500
3,610
4,235
2,820
8
2,948
9,200
7,504
56,825
NONINTEREST EXPENSE
Compensation ....................................................................................................................................
Occupancy, Net .................................................................................................................................
Furniture and Equipment ...................................................................................................................
Intangible Amortization .....................................................................................................................
Other Real Estate ...............................................................................................................................
Other ..................................................................................................................................................
Total Noninterest Expense .................................................................................................................
64,242
9,074
8,903
431
11,506
30,403
124,559
63,642
9,622
8,558
675
12,677
31,074
126,248
62,755
10,010
8,929
2,682
14,922
34,618
133,916
(LOSS) INCOME BEFORE INCOME TAXES ................................................................................
Income Tax (Benefit) Expense ..........................................................................................................
(1,228)
(1,336)
5,526
629
(3,382)
(2,969)
NET INCOME (LOSS) .................................................................................................................. $
108 $
4,897 $
(413)
BASIC NET INCOME (LOSS) PER SHARE ............................................................................... $
DILUTED NET INCOME (LOSS) PER SHARE ......................................................................... $
0.01 $
0.01 $
0.29 $
0.29 $
(0.02)
(0.02)
Components of Other Comprehensive Loss:
Change in Funded Status of Pension Plans, net of tax benefit of $3,479, $5,135, and $628 ......
Change in Net Unrealized Gain on Available-for-Sale Securities,
net of tax benefit (expense) of $295, ($203), and ($41) ............................................................. $
Total Other Comprehensive Loss ...................................................................................................... $
(5,539)
(8,175)
(1,000)
(491 ) $
(6,030) $
397 $
(7,778) $
79
(921)
TOTAL COMPREHENSIVE LOSS .............................................................................................. $
(5,922) $
(2,881) $
(1,334)
Average Basic Common Shares Outstanding .................................................................................... 17,205 17,140 17,076
Average Diluted Common Shares Outstanding .................................................................................
17,220
17,140
17,077
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
72
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
170 $ 36,099 $246,460 $
(14,830) $267,899
—
(413)
—
(413)
— —
79
79
— —
— —
—
(8,368)
821 —
36,920 237,679
(1,000)
—
—
—
(1,000)
(1,334)
(8,368)
822
(15,751) 259,019
—
4,897
—
4,897
— —
397
397
— —
— —
—
(5,115)
918 —
37,838 237,461
(8,175)
—
—
—
(8,175)
(2,881)
(5,115)
919
(23,529) 251,942
—
108
—
108
— —
(491)
(491)
Shares
Outstanding
17,036,407 $
Common
Stock
(Dollars in Thousands, Except Per Share Data)
Balance, January 1, 2010
Comprehensive Income:
Net Loss ...............................................................
Net Change in Unrealized Gain on Available-
for-Sale Securities (net of tax) .............................
Net Change in Funded Status of Pension Plans
(net of tax) .........................................................
Total Comprehensive Loss ..................................
Cash Dividends ($.4900 per share) ......................
Issuance of Common Stock .................................
63,674
Balance, December 31, 2010 ............................... 17,100,081
Comprehensive Income:
Net Income ..........................................................
Change in Unrealized Gain On Available-for-
Sale Securities (net of tax) ...................................
Change in Funded Status of Pension Plans
(net of tax) .........................................................
Total Comprehensive Loss ..................................
Cash Dividends ($.3000 per share) ......................
60,193
Issuance of Common Stock .................................
Balance, December 31, 2011 ............................... 17,160,274
Comprehensive Income:
Net Income ..........................................................
Change in Unrealized Gain On Available-for-
Sale Securities (net of tax) ...................................
Change in Funded Status of Pension Plans
(net of tax) .........................................................
Total Comprehensive Loss ..................................
Stock Compensation Expense ..............................
Issuance of Common Stock .................................
Balance, December 31, 2012 ............................... 17,232,380 $
—
—
—
—
—
1
171
—
—
—
—
—
1
172
—
—
—
—
—
72,106 —
— —
— —
262 —
607 —
172 $ 38,707 $237,569 $
(5,539)
—
—
—
(5,539)
(5,922)
262
607
(29,559) $246,889
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
73
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ....................................................................................................... $
Adjustments to Reconcile Net Income (Loss) to
2012
2011
2010
108 $
4,897 $
(413)
For the Years Ended December 31,
Cash Provided by Operating Activities:
Provision for Loan Losses ..................................................................................
Depreciation ........................................................................................................
Amortization of Premiums, Discounts, and Fees (net) .......................................
Amortization of Intangible Assets ......................................................................
Gain on Securities Transactions ..........................................................................
Loss on Impaired Security ..................................................................................
Net Decrease (Increase) in Loans Held-for-Sale ................................................
Stock-Based Compensation ................................................................................
Net Decrease (Increase) in Deferred Income Taxes............................................
Loss on Sales and Write-Downs of Other Real Estate Owned ...........................
Net Decrease (Increase) in Other Assets .............................................................
Net Increase in Other Liabilities .........................................................................
Net Cash Provided By Operating Activities ................................................................
16,166
6,759
3,358
431
—
—
7,036
262
(2,805)
6,314
5,665
13,393
56,687
18,996
6,770
3,726
675
—
—
(9,654)
—
(2,919)
6,351
(4,163)
12,844
37,523
23,824
7,050
3,350
2,682
(8)
100
395
—
1,898
10,144
(10,987)
19,060
57,095
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Available-for-Sale:
Purchases ..................................................................................................................
Sales .........................................................................................................................
Payments, Maturities, and Calls ...............................................................................
Net Decrease in Loans .............................................................................................
Proceeds From Sales of Other Real Estate Owned ......................................................
Proceeds From Sales of Premises & Equipment ......................................................
Purchases of Premises and Equipment ........................................................................
Net Cash Provided By (Used In) Investing Activities ..............................................
(141,863)
805
146,862
59,751
25,636
25
(2,885)
88,331
(81,984) (224,245)
505
86,935
75,274
17,300
7
(6,975)
(51,199)
—
81,405
78,889
26,424
—
(2,405)
102,329
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits ............................................................................
Net (Decrease) Increase in Short-Term Borrowings ....................................................
Increase in Other Long-Term Borrowings ...................................................................
Repayment of Other Long-Term Borrowings ..............................................................
Dividends Paid .............................................................................................................
Issuance of Common Stock .........................................................................................
Net Cash (Used In) Provided By Financing Activities ................................................
(27,523)
(3,121)
12,591
(3,154)
—
607
(20,600)
68,543 (154,258)
47,087
(49,556)
12,478
789
(1,757)
(6,284)
(8,368)
(5,142)
822
919
9,269 (103,996)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .........
124,418
149,121
(98,100)
Cash and Cash Equivalents at Beginning of Year .......................................................
Cash and Cash Equivalents at End of Year .................................................................. $
385,314
509,732 $
236,193 334,293
385,314 236,193
Supplemental Cash Flow Disclosures:
Interest Paid .............................................................................................................. $
Income Taxes Paid, Net of Refunds Received ......................................................... $
6,662 $
(3,799) $
8,176
1,601
13,982
(185)
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned ....................................................... $
Transfer of Current Portion of Long-Term Borrowings ........................................... $
22,777 $
7,184 $
37,438
—
49,247
10,000
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
74
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-related services to
individual and corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia,
and Alabama. The Company is subject to competition from other financial institutions, is subject to regulation by certain
government agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements 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 (“VIE’s”) 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 required reserve balances for the years ended December 31, 2012 and
2011 were $24.3 million and $16.1 million, respectively.
75
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 Comprehensive Income upon realization or when impairment of values is deemed to be other than temporary. In
estimating other-than-temporary impairment losses, management considers, (i) the length of time and the extent to which the
fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for anticipated recovery in
fair value. Gains or losses are recognized using the specific identification method. Unrealized holding gains and losses for
securities available-for-sale are excluded from the Consolidated Statements of Comprehensive Income and reported net of
taxes in the accumulated other comprehensive income component of shareowners’ equity until realized. Accretion and
amortization are recognized on the effective yield method over the life of the securities.
Loans 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. 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.
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.
Loan charge-offs on commercial and investor real estate loans are recorded when the facts and circumstances of the
individual loan confirm the loan is not fully collectible and the loss is reasonably quantifiable. Factors considered in making
these determinations are the borrower’s and any guarantor’s ability and willingness to pay, the status of the account in
bankruptcy court (if applicable), and collateral value. Charge-off decisions for consumer loans are dictated by the Federal
Financial Institutions Examination Council’s (FFEIC) Uniform Retail Credit Classification and Account Management Policy
which establishes standards for the classification and treatment of consumer loans.
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.
76
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.
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 to borrowers who are experiencing financial difficulties and whose loans were modified with concessions are
classified as troubled debt restructurings and measured for impairment. Loans to borrowers that have filed Chapter 7
bankruptcy, but continue to perform as agreed are classified as troubled debt restructurings and measured for impairment.
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.
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 4 – Intangible Assets for additional information.
Other Real Estate Owned
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. 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.
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.
Revenue Recognition
The Company recognizes revenue as it is earned based on contractual terms, as transactions occur, or as services are provided
and collectability is reasonably assured. Certain specific policies include the following:
Service Charges on Deposit Accounts. Service charges on deposit accounts are primarily overdraft and insufficient fund fees
and monthly transaction-based fees. These fees are recognized as earned or as transactions occur and services are provided.
Bank Card Fees. Bank card fees primarily includes interchange income from client use of consumer and business debit cards.
Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network. Interchange
fees are set by the credit card associations and are based on cardholder purchase volumes. The Company records interchange
income as transactions occur.
77
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.
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 12 — 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 Comprehensive Income and 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.
NEW AUTHORITATIVE ACCOUNTING GUIDANCE
ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. “ ASU 2011-05 amends
Topic 220, “Comprehensive Income,” to require that all non-owner changes in stockholders’ equity be presented in either a
single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally,
ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that
are reclassified from other comprehensive income to net income in the statement or statements where the components of net
income and the components of other comprehensive income are presented. The option to present components of other
comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 became
effective for the Company on January 1, 2012, however, certain provisions related to the presentation of reclassification
adjustments have been deferred by ASU 2011-12 “Comprehensive Income (Topic 220) - Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05,” as further discussed below. In connection with the application of ASU 2011-05,
the Company’s financial statements now include one continuous statement of comprehensive income.
ASU 2011-08, “Intangibles - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment.” ASU 2011-08 amends
Topic 350, “Intangibles – Goodwill and Other,” to give entities the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines
it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-
step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of
the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying
amount of the reporting unit. ASU 2011-08 became effective for the Company on January 1, 2012, and did not have a
significant impact on the Company’s financial statements.
78
ASU 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends
Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such
as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending
arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a
master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on
January 1, 2013, and is not expected to have a significant impact on the Company’s financial statements.
ASU 2011-12 “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”
ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the
FASB time to re-deliberate whether to require presentation of such adjustments on the face of the financial statements to
show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and
other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other
comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other
requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 became effective for the Company
on January 1, 2012, and did not have a significant impact on the Company’s financial statements.
ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.”
ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If,
after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived
intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative
impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment
loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible
assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08.
ASU 2012-02 is effective for the Company beginning January 1, 2013 (early adoption permitted) and is not expected to have
a significant impact on the Company’s financial statements.
ASU 2012-06 “Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the
Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB
Emerging Issues Task Force).” ASU 2012-06 clarifies the applicable guidance for subsequently measuring an
indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-
06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial
institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a
result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should
subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the
assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the
indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the
indemnified assets). ASU 2012-06 is effective for the Company beginning January 1, 2013 (early adoption permitted) and is
not expected to have a significant impact on the Company’s financial statements.
79
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related market value of investment securities available-for-sale at
December 31, were as follows:
(Dollars in Thousands)
U.S. Government Treasury ...................................... $
U.S. Government Agency ........................................
States and Political Subdivisions .............................
Mortgage-Backed Securities ....................................
Other Securities(1) ...................................................
Total Investment Securities ..................................... $
(Dollars in Thousands)
U.S. Government Treasury ........................................ $
U.S. Government Agency ..........................................
States and Political Subdivisions ...............................
Mortgage-Backed Securities ......................................
Other Securities(1) ......................................................
Total Investment Securities ....................................... $
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
2012
96,745
51,468
79,818
56,217
11,811
296,059
Amortized
Cost
168,001
14,758
58,946
51,775
11,957
305,437
$
$
$
$
504
221
124
805
—
1,654
$
$
2011
—
25
63
40
600
728
Unrealized
Gains
Unrealized
Losses
1,463
27
186
809
—
2,485
$
$
—
48
38
87
600
773
$
$
$
$
97,249
51,664
79,879
56,982
11,211
296,985
Market
Value
169,464
14,737
59,094
52,497
11,357
307,149
(1)
Includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $6.4 million and $4.8
million, respectively, at December 31, 2012 and $6.5 million and $4.8 million, respectively, at December 31, 2011.
Securities with an amortized cost of $152.3 million and $102.1 million at December 31, 2012 and December 31, 2011,
respectively, were pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB
based generally upon the balances of residential and commercial real estate loans, and FHLB advances. FHLB stock which
is included in other securities is pledged to secure FHLB advances. No ready market exists for this stock, and it has no
quoted market value; however, redemption of this stock has historically been at par value.
Investment Sales. The total proceeds from the sale 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
Total
Proceeds
Gross
Realized
Gains
Gross
Realized
Losses
2012
2011
2010
$
$
$
1,145
321
3,640
$
$
$
—
—
8
$
$
$
—
—
—
Maturity Distribution. As of December 31, 2012, the Company’s investment securities had the following maturity
distribution based on contractual maturity. Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations. Mortgage-backed securities and certain amortizing U.S. government agency
securities are shown separately since they are not due at a certain maturity date.
(Dollars in Thousands)
Due in one year or less ................................................................................................. $
Due after one through five years ..................................................................................
No Maturity .................................................................................................................
Mortgage-Backed Securities ........................................................................................
U.S. Government Agency ............................................................................................
Total Investment Securities ......................................................................................... $
Amortized Cost Market Value
91,892
100,220
11,211
56,982
36,680
296,985
91,558 $
99,980
11,811
56,217
36,493
296,059 $
80
Other Than Temporarily Impaired Securities. The following table summarizes the investment securities with unrealized
losses at December 31, aggregated by major security type and length of time in a continuous unrealized loss position:
Less Than
12 Months
2012
Greater Than
12 Months
Total
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
(Dollars in Thousands)
U.S. Government Treasury ................................... $ — $
U.S. Government Agency .....................................
8,464
States and Political Subdivisions .......................... 30,302
3,921
Mortgage-Backed Securities .................................
Other Securities ....................................................
—
Total Investment Securities .................................. $ 42,687 $
— $ — $
23
790
55 5,028
15 1,624
—
600
93 $ 8,042 $
— $ — $
2 9,254
8 35,330
25 5,545
600
600
635 $50,729 $
Unrealized
Losses
—
25
63
40
600
728
Less Than
12 Months
2011
Greater Than
12 Months
Total
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
(Dollars in Thousands)
9,698 $
U.S. Government Treasury ................................... $
U.S. Government Agency .....................................
—
States and Political Subdivisions .......................... 14,597
Mortgage-Backed Securities ................................. 11,612
Other Securities ....................................................
—
Total Investment Securities .................................. $ 35,907 $
48 $ — $
— —
38 —
37
87
600
—
637 $
173 $
— $ 9,698 $
— —
— 14,597
— 11,649
600
600
600 $ 36,544 $
Unrealized
Losses
48
—
38
87
600
773
Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic
or market concerns warrant such evaluation. Consideration is given to: 1) the length of time and the extent to which the fair
value has been less than amortized cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and
ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in cost. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the
federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory issues, and analysts’
reports.
At December 31, 2012, the Company had securities of $297.0 million with net pre-tax unrealized gains of $0.9 million on
these securities, of which $50.7 million have unrealized losses totaling $0.7 million. Approximately $42.7 million of these
securities, with an unrealized loss of $0.1 million, have been in a loss position for less than 12 months. Approximately $8.0
million of these securities, with an unrealized loss of approximately $0.6 million have been in a loss position for greater than
12 months. Approximately $7.4 million of these securities with an unrealized loss of $35,000 are in a loss position because
they were acquired when the general level of interest rates was lower than that on December 31, 2012. The Company
believes that the losses in these securities are temporary in nature and that the full principal will be collected as anticipated.
Because the declines in the market value of these investments are attributable to changes in interest rates and not credit
quality and because the Company has the present 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, 2012. One preferred bank stock issue for $0.6 million has also been in a loss position for greater than 12
months. The Company continues to closely monitor the fair value of this security as the subject bank continues to experience
negative operating trends.
81
NOTE 3 – LOANS, NET
Loan Portfolio Composition. The composition of the loan portfolio at December 31 was as follows:
(Dollars in Thousands)
Commercial, Financial and Agricultural ........................................................................ $
Real Estate – Construction .............................................................................................
Real Estate – Commercial Mortgage .............................................................................
Real Estate – Residential(1) ...........................................................................................
Real Estate – Home Equity ............................................................................................
Consumer .......................................................................................................................
Loans, Net of Unearned Income ............................................................................. $
2012
139,850 $
37,512
613,625
321,986
236,263
157,877
1,507,113 $
2011
130,879
18,892
639,140
385,621
244,263
188,663
1,607,458
(1)
Includes loans in process with outstanding balances of $11.9 million and $12.5 million for 2012 and 2011, respectively.
Net deferred fees included in loans were $1.6 million at December 31, 2012 and December 31, 2011, respectively.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate
mortgage loans, and home equity loans to support available borrowing capacity at the FHLB of Atlanta and has pledged a
blanket floating lien on all consumer loans, commercial loans, and construction loans to support available borrowing capacity
at the Federal Reserve Bank of Atlanta.
Nonaccrual Loans. Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due
and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual
status when the principal and interest amounts contractually due are brought current or when future payments are reasonably
assured.
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual
by class of loans at December 31:
2012
2011
(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 .......................................... $
Nonaccrual
1,069
4,071
41,045
13,429
4,034
574
64,222
90 + Days
—
—
—
—
—
—
—
Nonaccrual
755
334
42,820
25,671
4,283
1,160
75,023
$
$
90 + Days
46
—
—
58
95
25
224
Loan Portfolio Aging. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over
30 days past due (“DPD”).
The following table presents the aging of the recorded investment in past due loans by class of loans at December 31,
30-59
DPD
2012
(Dollars in Thousands)
616 $ 138,165 $ 139,850
Commercial, Financial and Agricultural ................ $
37,512
33,066
375
Real Estate – Construction .....................................
613,625
Real Estate – Commercial Mortgage ..................... 1,090
583 — 1,673 570,907
321,986
Real Estate – Residential ....................................... 2,788 1,199 — 3,987 304,570
487 — 1,198 231,031
Real Estate – Home Equity ....................................
236,263
711
157,877
392 — 2,085 155,218
Consumer ............................................................... 1,693
Total Past Due Loans ............................................. $ 6,959 $ 2,975 $ — $ 9,934 $ 1,432,957 $1,507,113
314 $ — $
302 $
375 — —
Total
Current
Total
Loans
60-89
DPD
90 +
DPD
Total
Past
Due
82
30-59
DPD
2011
(Dollars in Thousands)
Commercial, Financial and Agricultural ................ $
Real Estate – Construction ..................................... — — — —
Real Estate – Commercial Mortgage ..................... 3,070
Real Estate – Residential ....................................... 7,983 3,031
500
Real Estate – Home Equity .................................... 1,139
Consumer ............................................................... 2,355
345
Total Past Due Loans ............................................. $ 14,854 $ 4,571 $
402 $ 129,722 $ 130,879
18,892
18,558
639,140
646 — 3,716 592,604
385,621
58 11,072 348,878
244,263
95 1,734 238,246
25 2,725 184,778
188,663
224 $ 19,649 $ 1,512,786 $1,607,458
Total
Current
Total
Loans
60-89
DPD
90 +
DPD
307 $
49 $
46 $
Total
Past
Due
Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged
to expense, which represents management’s best estimate of probable losses within the existing portfolio of loans. Loans are
charged-off to the allowance when losses are deemed to be probable and reasonably quantifiable.
The following table details the activity in the allowance for loan losses by portfolio class for the years ended December 31,
2012 and 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb
losses in other categories.
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real
Estate
Home
Equity Consumer Unallocated Total
(Dollars in
Thousands)
2012
Beginning Balance .... $
Provision for
Loan Losses ...........
Charge-Offs ...........
Recoveries .............
Net Charge-Offs ....
Ending Balance ......... $
2011
Beginning Balance .... $
Provision for
Loan Losses ...........
Charge-Offs ...........
Recoveries .............
Net Charge-Offs ....
Ending Balance ......... $
2010
Beginning Balance .... $
Provision for
Loan Losses ...........
Charge-Offs ...........
Recoveries .............
Net Charge-Offs ....
Ending Balance ......... $
1,534 $
1,133 $
10,660 $
12,518 $ 2,392 $
1,887 $
911 $ 31,035
251
(822)
290
(532)
1,253 $
2,309
(629)
43
(586)
2,856 $
5,770
(6,031)
682
(5,349)
11,081 $
3,050
4,588
(2,896)
(9,719)
399
1,291
(8,428)
(2,497)
8,678 $ 2,945 $
82
(2,125)
1,483
(642)
1,327 $
116 16,166
— (22,222)
4,188
—
(18,034)
1,027 $ 29,167
1,544 $
2,060 $
8,645 $
17,046 $ 2,522 $
2,612 $
1,007 $ 35,436
1,446
(1,843)
387
(1,456)
1,534 $
(827)
(114)
14
(100)
1,133 $
8,477
(6,713)
251
(6,462)
10,660 $
6,864
(11,870)
2,383
(2,727)
214
(2,513)
12,518 $ 2,392 $
478
(11,392)
749
(2,924)
1,450
(1,474)
1,887 $
(96) 18,996
— (26,191)
—
2,794
— (23,397)
911 $ 31,035
2,409 $
12,117 $
8,751 $
14,159 $ 2,201 $
3,457 $
905 $ 43,999
883
(2,118)
370
(1,748)
1,544 $
(4,188)
(5,877)
8
(5,869)
2,060 $
8,395
(8,762)
261
(8,501)
8,645 $
14,670
(12,168)
2,853
(3,087)
555
(2,532)
17,046 $ 2,522 $
385
(11,783)
1,109
(3,502)
1,548
(1,954)
2,612 $
102 23,824
— (35,514)
—
3,127
— (32,387)
1,007 $ 35,436
83
The following table details the amount of the allowance for loan losses by portfolio class at December 31, disaggregated on
the basis of the Company’s impairment methodology.
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real
Estate
Home
Equity Consumer Unallocated Total
(Dollars in
Thousands)
2012
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment ........ $
Loans Collectively
Evaluated for
Impairment ........
Ending Balance ......... $
2011
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment ........ $
Loans Collectively
Evaluated for
Impairment ........
Ending Balance ......... $
2010
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment ........ $
Loans Collectively
Evaluated for
Impairment ........
Ending Balance ......... $
210 $
714 $
6,641 $
2,778 $
546 $
32 $
— $10,921
1,043
1,253 $
2,142
2,856 $
4,440
11,081 $
5,900
8,678 $
2,399
2,945 $
1,295
1,327 $
1,027 18,246
1,027 $29,167
311 $
68 $
5,828 $
4,702 $
239 $
26 $
— $11,174
1,223
1,534 $
1,065
1,133 $
4,832
10,660 $
7,816
12,518 $
2,153
2,392 $
1,861
1,887 $
911 19,861
911 $31,035
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 20,706
1,007 $35,436
84
The Company’s recorded investment in loans as of December 31 related to each balance in the allowance for loan losses by
portfolio class and disaggregated on the basis of the Company’s impairment methodology was as follows:
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real
Estate
Home
Equity Consumer Unallocated
Total
(Dollars in
Thousands)
2012
Individually
Evaluated for
Impairment ... $
Collectively
Evaluated for
Impairment ...
Total ................... $
2011
Individually
Evaluated for
Impairment ... $
Collectively
Evaluated for
Impairment ...
Total ................... $
2010
Individually
Evaluated for
Impairment ... $
Collectively
Evaluated for
Impairment ...
Total ................... $
2,325 $
4,232 $
74,650 $
23,030 $
3,858 $
687 $
— $ 108,782
137,525
139,850 $
33,280
37,512 $
538,975
613,625 $
298,956 232,405 157,190
321,986 $ 236,263 $ 157,877 $
—
1,398,331
— $1,507,113
1,653 $
511 $
65,624 $
36,324 $
3,527 $
143 $
— $ 107,782
129,226
130,879 $
18,381
18,892 $
573,516
639,140 $
349,297 240,736 188,520
385,621 $ 244,263 $ 188,663 $
—
1,499,676
— $1,607,458
1,685 $
2,533 $
42,369 $
37,779 $
3,278 $
144 $
— $
87,788
155,709
157,394 $
35,447
37,980 $
629,333
671,702 $
386,450 248,287 204,086
424,229 $ 251,565 $ 204,230 $
—
1,659,312
— $1,747,100
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.
85
The following table presents loans individually evaluated for impairment by class of loans at December 31:
(Dollars in Thousands)
2012
Commercial, Financial and Agricultural .................... $
Real Estate – Construction .........................................
Real Estate – Commercial Mortgage .........................
Real Estate – Residential ...........................................
Real Estate – Home Equity ........................................
Consumer ...................................................................
Total ........................................................................... $
2011
Commercial, Financial and Agricultural .................... $
Real Estate – Construction .........................................
Real Estate – Commercial Mortgage .........................
Real Estate – Residential ...........................................
Real Estate – Home Equity ........................................
Consumer ...................................................................
Total ........................................................................... $
Unpaid
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Related
Allowance
2,325
4,232
74,650
23,030
3,858
687
108,782
1,653
511
65,624
36,324
3,527
143
107,782
$
$
$
$
527
—
22,594
2,635
890
123
26,769
671
—
19,987
6,897
645
90
28,290
$
$
$
$
1,797
4,232
52,056
20,395
2,968
565
82,013
982
511
45,637
29,427
2,882
53
79,492
$
$
$
$
210
714
6,641
2,778
546
32
10,921
311
68
5,828
4,702
239
26
11,174
The following table summarizes the average recorded investment and interest income recognized for 2012, 2011, and 2010
by class of impaired loans:
2012
2011
2010
Average
Recorded
Investment
Total
Interest
(Dollars in Thousands)
Income
116
81 $
Commercial, Financial and Agricultural ............... $
76
70
Real Estate – Construction ....................................
50,706 1,285 48,820 1,648
70,701 2,113
Real Estate – Commercial Mortgage ....................
920
30,988
853
28,680
Real Estate – Residential ......................................
45
2,743
95
3,540
Real Estate – Home Equity ...................................
Consumer ..............................................................
9
90
3
229
Total ...................................................................... $ 109,611 $ 3,215 $ 87,856 $ 2,114 $ 102,606 $ 2,814
667 41,958
3,087
61
172
3
Average
Recorded
Investment
Average
Recorded
Investment
Total
Interest
Income
Total
Interest
Income
1,554 $
1,775
2,768 $
5,801
2,018 $
4,443
62 $
36
Credit Risk Management. The Company has adopted comprehensive lending policies, underwriting standards and loan
review procedures designed to maximize loan income within an acceptable level of risk. Management and the Board of
Directors review and approve these policies and procedures on a regular basis (at least annually).
Reporting systems have been implemented to monitor loan originations, loan quality, concentrations of credit, loan
delinquencies and nonperforming loans and potential problem loans. Management and the Credit Risk Oversight Committee
periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies. In addition,
total borrower exposure limits are established and concentration risk is monitored. As part of this process, the overall
composition of the portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type,
geographic area, or other relevant classifications of loans. Specific segments of the loan portfolio are monitored and reported
to the Board on a quarterly basis and have strategic plans in place to supplement Board approved credit policies governing
exposure limits and underwriting standards. Detailed below are the types of loans within the Company’s loan portfolio and
risk characteristics unique to each.
86
Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the
borrower with consideration given to underlying collateral and personal or other guarantees. Lending policy establishes debt
service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on
all new and existing debt. The majority of these loans are secured by the assets being financed or other business assets such
as accounts receivable, inventory, or equipment. Collateral values are determined based upon third party appraisals and
evaluations. Loan to value ratios at origination are governed by established policy guidelines.
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit
lines and construction/permanent loans made to individuals and investors to finance the acquisition, development,
construction or rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower
or project and generally secured by the property being financed, including 1-4 family residential properties and commercial
properties that are either owner-occupied or investment in nature. These properties may include either vacant or improved
property. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at
origination are governed by established policy guidelines.
Real Estate Commercial Mortgage – Loans in this category consists of commercial mortgage loans secured by property that
is either owner-occupied or investment in nature. These loans are primarily made based on identified cash flows of the
borrower or project with consideration given to underlying real estate collateral and personal guarantees. Lending policy
establishes debt service coverage ratios and loan to value ratios specific to the property type. Collateral values are determined
based upon third party appraisals and evaluations.
Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that
demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current income,
employment status, current assets, and other financial resources, credit history, and the value of the collateral. Collateral
consists of mortgage liens on 1-4 family residential properties. Collateral values are determined based upon third party
appraisals and evaluations. The Company does not originate sub-prime loans.
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally
secured by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes. Borrower qualifications
include favorable credit history combined with supportive income and debt ratio requirements and combined loan to value
ratios within established policy guidelines. Collateral values are determined based upon third party appraisals and
evaluations.
Consumer Loans – This loan portfolio includes personal installment loans, direct and indirect automobile financing, and
overdraft lines of credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans.
Lending policy establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification
of applicants’ income and receipt of credit reports.
Credit Quality Indicators. As part of the ongoing monitoring of the Company’s loan portfolio quality, management
categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such
as: current financial information, historical payment performance, credit documentation, and current economic/market trends,
among other factors. Risk ratings are assigned to each loan and revised as needed through established monitoring procedures
for individual loan relationships over a predetermined amount and review of smaller balance homogenous loan pools. The
Company uses the definitions noted below for categorizing and managing its criticized loans. Loans categorized as “Pass” do
not meet the criteria set forth for the Special Mention, Substandard, or Doubtful categories and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not
corrected, could cause future problems. Loans in this category may not meet required underwriting criteria and have no
mitigating factors. More than the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into
jeopardy. These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity
of the borrower. The possibility of loss is much more evident and above average supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions,
and values, highly questionable and improbable.
87
The following table presents the risk category of loans by segment at December 31:
2012
(Dollars in Thousands)
Special Mention ......................................................... $
Substandard ...............................................................
Doubtful .....................................................................
Total Criticized Loans ............................................... $
Commercial,
Financial,
Agriculture
4,380
10,863
158
15,401
Real Estate
54,938
177,277
1,515
233,730
$
$
2011
(Dollars in Thousands)
Special Mention ......................................................... $
Substandard ...............................................................
Doubtful .....................................................................
Total Criticized Loans ............................................... $
Commercial,
Financial,
Agriculture
4,883
9,804
111
14,798
Real Estate
43,787
202,734
7,763
254,284
$
$
Consumer
142
1,624
—
1,766
Total Loans
59,460
$
189,764
1,673
250,897
$
Consumer
79
1,699
—
1,778
Total Loans
48,749
$
214,237
7,874
270,860
$
$
$
$
$
Troubled Debt Restructurings (“TDRs”). TDRs are loans in which the borrower is experiencing financial difficulty and the
Company has granted an economic concession to the borrower that it would not otherwise consider. In these instances, as
part of a work-out alternative, the Company will defer cash payments required as part of the loan agreement through either a
principal moratorium or extension of the loan term. The impact of the TDR modifications and defaults are factored into the
allowance for loan losses on a loan-by-loan basis as all TDRs are, by definition, impaired loans. Thus, specific reserves are
established based upon the results of either a discounted cash flow analysis or the underlying collateral value, if the loan is
deemed to be collateral dependent. In the limited circumstances that a loan is removed from TDR classification it is the
Company’s policy to also remove it from the impaired loan category, but to continue to individually evaluate loan
impairment based on the contractual terms specified by the loan agreement.
The following table presents loans classified as TDRs at 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 TDRs ................................................................ $
Accruing
$
2012
Nonaccruing
508
—
8,425
936
—
10
9,879
$
1,462
161
29,870
13,824
1,587
570
47,474
Accruing
$
2011
Nonaccruing
—
—
12,029
947
—
—
12,976
$
694
178
20,062
15,553
1,161
27
37,675
$
$
Loans classified as TDRs during 2012 and 2011 are presented in the table below. The modifications made during the
reporting period involved either an extension of the loan term or a principal moratorium and the financial impact of these
modifications was not material.
(Dollars in Thousands)
Commercial, Financial and Agricultural .............
Real Estate – Construction ..................................
Real Estate – Commercial Mortgage ..................
Real Estate – Residential ....................................
Real Estate – Home Equity .................................
Consumer ............................................................
Total TDRs .........................................................
2012
Pre-
Modified
Recorded
Investment
Post-
Modified
Recorded
Investment
Number
of
Contracts
Number
of
Contracts
1,857
1,989 $
12 $
976
969
6
16,011
15,704
54
6,955
7,067
68
731
770
19
60
656
606
219 $ 27,105 $ 27,186
88
2011
Pre-
Modified
Recorded
Investment
Post-
Modified
Recorded
Investment
547
3,752
16,311
15,487
660
23
148 $ 36,356 $ 36,780
568 $
3,679
46 16,197
79 15,249
639
9
24
2
7 $
5
Loans modified as TDRs during 2012 and 2011 that have subsequently defaulted during the twelve months ended December
31, 2012 and 2011 are presented in the table below.
2012
2011
Post-
Modified
Recorded
Investment
—
713
1,001
1,906
—
2
3,622
$
$
Number of
Contracts
—
4
3
7
—
1
15
Number of
Contracts
2
1
12
7
—
—
22
Post-
Modified
Recorded
Investment
218
2,327
5,221
1,424
—
—
9,190
$
$
(Dollars in Thousands)
Commercial, Financial and Agricultural ....................
Real Estate – Construction .........................................
Real Estate – Commercial Mortgage .........................
Real Estate – Residential ...........................................
Real Estate – Home Equity ........................................
Consumer ...................................................................
Total TDRs ................................................................
NOTE 4 - INTANGIBLE ASSETS
The Company had net intangible assets of $85.1 million and $85.5 million at December 31, 2012 and December 31, 2011,
respectively. Intangible assets were as follows:
(Dollars in Thousands)
Core Deposit Intangibles ........................................... $
Goodwill ....................................................................
Customer Relationship Intangible..............................
Total Intangible Assets ......................................... $
2012
2011
Gross
Amount
47,176
84,811
1,867
133,854
Accumulated
Amortization
47,157
$
—
1,644
48,801
$
Gross
Amount
$
$
47,176
84,811
1,867
133,854
Accumulated
Amortization
46,918
$
—
1,452
48,370
$
Net Core Deposit Intangibles: As of December 31, 2012 and December 31, 2011, the Company had net core deposit
intangibles of $19,000 and $0.2 million, respectively. Amortization expense for the twelve months of 2012, 2011, and 2010
was approximately $0.2 million, $0.5 million, and $2.6 million, respectively. All of our core deposit intangibles will be fully
amortized in January 2013.
Goodwill: As of December 31, 2012 and December 31, 2011, the Company had goodwill, net of accumulated amortization,
of $84.8 million. Goodwill is tested for impairment on an annual basis, or more often if impairment indicators exist. A
goodwill impairment test consists of two steps. 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.
.
During the fourth quarter of 2012, 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, 2012.
Other: As of December 31, 2012 and December 31, 2011, the Company had a customer relationship intangible asset, net of
accumulated amortization, of $0.2 million and $0.4 million, respectively. This intangible asset was recorded as a result of the
acquisition of trust customer relationships. Amortization expense for the twelve months of 2012 and 2011 was
approximately $192,000. Estimated annual amortization expense is approximately $0.2 million based on use of a 10-year
useful life.
89
Note 5
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 ...................................................................................... $
2012
2011
24,404 $
113,693
57,112
195,209
(88,117)
107,092 $
24,491
115,211
57,066
196,768
(85,777)
110,991
Note 6
DEPOSITS
Interest bearing deposits, by category, as of December 31, were as follows:
(Dollars in Thousands)
NOW Accounts ............................................................................................................ $
Money Market Accounts .............................................................................................
Savings Accounts .........................................................................................................
Other Time Deposits ....................................................................................................
Total Interest Bearing Deposits .............................................................................. $
2012
842,435 $
267,766
184,541
241,019
1,535,761 $
2011
828,990
276,910
158,462
289,840
1,554,202
At December 31, 2012 and 2011, $7.1 million and $2.4 million, respectively, in overdrawn deposit accounts were reclassified
as loans.
Time deposits in denominations of $100,000 or more totaled $63.1 million and $85.7 million at December 31, 2012 and
December 31, 2011, respectively.
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2013 ............................................................................................................................................................... $
2014 ...............................................................................................................................................................
2015 ...............................................................................................................................................................
2016 ...............................................................................................................................................................
2017 and thereafter ........................................................................................................................................
Total ............................................................................................................................................................... $
2012
200,965
23,882
11,500
2,438
2,234
241,019
Interest expense on deposits for the three years ended December 31, was as follows:
(Dollars in Thousands)
NOW Accounts .......................................................................... $
Money Market Accounts ...........................................................
Savings Accounts .......................................................................
Time Deposits < $100,000 .........................................................
Time Deposits > $100,000 .........................................................
Total ........................................................................................... $
2012
2011
2010
634 $
255
87
912
220
2,108 $
890 $
437
73
1,958
589
3,947 $
1,406
1,299
65
4,602
1,273
8,645
90
Note 7
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2012
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 .........................
2011
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 .........................
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 .........................
Federal
Funds
Purchased
Securities
Sold Under
Repurchase
Agreements(1)
Other
Short-Term
Borrowings
$
$
$
—
—
—
— %
— %
—
7,575
1,213
0.03%
— %
10,275
12,550
6,269
0.02%
0.01%
$
$
$
40,639
62,458
47,485
0.05%
0.05%
43,372
75,525
58,973
0.09%
0.05%
71,633
71,633
16,733
0.12%
0.10%
6,796(2)
6,991
4,679
3.68%
3.69%
—
11,222
7,875
3.17%
— %
11,020(2)
11,792
4,861
2.84%
3.37%
(1)
(2)
Balances are fully collateralized by government treasury or agency securities held in the Company’s investment
portfolio.
Includes FHLB debt of $6.8 million at December 31, 2012 and FHLB debt and client tax deposit balances of $10.0
million and $1.0 million, respectively at December 31, 2010.
Note 8
LONG-TERM BORROWINGS
Federal Home Loan Bank Notes. FHLB advances totaled $46.9 million at December 31, 2012 and $44.6 million at
December 31, 2011. The advances mature at varying dates from 2013 through 2025 and had a weighted-average rate of
3.38% and 3.98% at December 31, 2012 and 2011, respectively. 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.
Scheduled minimum future principal payments on FHLB advances at December 31 were as follows:
(Dollars in Thousands)
2013 ................................................................................................................................................................. $
2014 .................................................................................................................................................................
2015 .................................................................................................................................................................
2016 .................................................................................................................................................................
2017 .................................................................................................................................................................
2018 and thereafter ..........................................................................................................................................
Total ................................................................................................................................................................. $
2012
3,582
7,661
6,252
2,949
7,786
18,629
46,859
91
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 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 similar to the trust preferred securities.
In May 2005, CCBG Capital Trust II issued $31.0 million of trust preferred securities which represent 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. As of February 2012, in consultation with the Federal Reserve, the Company elected to defer
the interest payments on the notes. The Company will, however, continue the accrual of interest on the notes in accordance
with their contractual obligations.
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.
92
Note 9
INCOME TAXES
The provision for income taxes reflected in the statements of comprehensive income is comprised of the following
components:
(Dollars in Thousands)
Current:
Federal ....................................................................................... $
State ...........................................................................................
Deferred:
Federal .......................................................................................
State ...........................................................................................
Valuation Allowance .................................................................
Total ........................................................................................... $
2012
2011
2010
1,189 $
280
(1,260)
(1,597)
52
(1,336) $
3,124 $
424
(1,828)
(1,350)
259
629 $
(5,392)
525
3,990
(2,158)
66
(2,969)
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 ................................................
Increase Deferred Tax Liability for Equity Investment .............
Actual Tax Expense ................................................................... $
2012
2011
2010
(430) $
1,934
$
(1,184)
(402)
(347)
(856)
199
52
448
(1,336) $
(612)
(168)
(602)
(182)
259
—
629
$
(955)
127
(1,062)
39
66
—
(2,969)
93
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, 2012 and 2011 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 and Tax Credit Carry-Forwards .....................................
Federal Capital Loss and Credit Carry-Forwards ...................................................
Intangible Assets .....................................................................................................
Core Deposit Intangible ..........................................................................................
Contingency Reserve ..............................................................................................
Accrued Expense ....................................................................................................
Leases .....................................................................................................................
Other Real Estate Owned ........................................................................................
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 Asset .......................................................................................... $
2012
2011
11,253 $
297
18,927
777
5,002
641
224
1,687
9
442
413
9,869
2,610
52,151 $
7,117 $
2,864
585
3,119
1,870
—
—
497
16,052
1,170
34,929 $
11,973
297
15,448
580
4,119
287
198
2,487
241
437
410
10,551
895
47,923
6,843
2,907
880
2,819
3,368
—
—
1,638
18,455
1,118
28,350
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 CCBG, the separate state net operating loss carry-forwards of an inactive subsidiary,
and certain of the Bank’s separate state tax credit carry-forwards, will be realized. Accordingly, a valuation allowance for
CCBG’s separate state net operating loss carry-forward was recorded in 2008 and increased for CCBG’s additional state
operating loss carry-forward generated in 2009 through 2012. This valuation allowance at year-end 2012 was $1.0 million. In
addition, a valuation allowance for the inactive subsidiary’s separate state net operating loss carry-forwards and for certain of
the Bank’s state tax credit carry-forwards totaled $0.2 million at year-end 2012. At year-end 2012, the Company had state
loss and tax credit carry-forwards of approximately of $5 million, which expire at various dates from 2013 through 2032, and
federal loss and tax credit carry-forwards of approximately $0.6 million, which begin to expire in 2015.
Changes in net deferred income tax assets were:
(Dollars in Thousands)
Balance at Beginning of Year .................................................................................... $
Income Tax Benefit From Change in Pension Liability .......................................
Income Tax Benefit (Expense) From Change in Unrealized Gains on
Available-for-Sale Securities ............................................................................
Deferred Income Tax Benefit on Continuing Operations .....................................
Balance at End of Year .............................................................................................. $
2012
2011
28,350 $
3,479
295
2,805
34,929 $
20,499
5,135
(203)
2,919
28,350
94
The Company had unrecognized tax benefits at December 31, 2012, 2011, and 2010 of $4.2 million, $4.6 million, and $4.8
million, respectively, of which $2.7 million would increase income from continuing operations, and thus impact the
Company’s effective tax rate, if ultimately recognized into income.
A reconciliation of the beginning and ending unrecognized tax benefit is as follows:
(Dollars in Thousands)
4,589
Balance at January 1, ............................................................................................ $
611
Additions Based on Tax Positions Related to Current Year ................................
Decrease Due to Lapse in Statue of Limitations ...................................................
(430)
Balance at December 31 ....................................................................................... $ 4,209 $ 4,577 $ 4,770
4,770 $
522
(715)
4,577 $
508
(876)
2011
2012
2010
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 – income
tax expense for the years ended December 31, 2012, 2011, and 2010 were $108,000, $(43,000), and $9,000, respectively. The
amounts accrued for interest and penalties at December 31, 2012 and 2011 were $0.9 million and $1.1 million respectively.
The Company anticipates a significant decrease in the amount of unrecognized tax benefits in the next 12 months due to a
lapse in the statute of limitations. The amount of the decrease is estimated to range from $0 to $1 million.
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 2009.
Note 10
STOCK-BASED COMPENSATION
As of December 31, 2012, the Company had three stock-based compensation plans, consisting of the 2011 Associate
Incentive Plan (“AIP”), the 2011 Associate Stock Purchase Plan (“ASPP”), and the 2011 Director Stock Purchase Plan
(“DSPP”). These plans, which were approved by the shareowners in April 2011, replaced substantially similar plans
approved by the shareowners in 2004. Total compensation expense associated with these plans for 2010 through 2012 was
$0.1 million, $0.1 million, and $0.5 million, respectively.
AIP. The Company’s AIP allows the Company’s Board of Directors to award key associates various forms of equity-based
incentive compensation. In 2012, the Company, pursuant to the terms and conditions of the AIP, created the 2012 Incentive
Plan (“2012 Plan”), under which all participants in the 2012 plan were eligible to earn performance shares. Awards under the
2012 Plan were tied to internally established earnings goals. The grant-date fair value of the shares eligible to be awarded in
2012 was approximately $0.7 million. In addition, each plan participant is eligible to receive from the Company a tax
supplement bonus equal to 31% of the stock award value at the time of issuance. A total of 78,598 shares were eligible for
issuance of which 28,470 were earned. For 2010 and 2011, the Company recognized no expense for the AIP.
Executive Stock Option Agreement. Prior to 2007, the Company maintained a stock option program 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 an annual
stock option arrangement by establishing a Performance Share Unit Plan under the provisions of the AIP that allows the
executive to earn shares based on the compound annual growth rate in diluted earnings per share over a three-year period. For
2010 through 2012, the Company recognized no expense related to this plan.
95
A summary of the status of the Company’s option shares is presented below:
Options
Outstanding at January 1, 2012 ................................
Granted ....................................................................
Exercised .................................................................
Forfeited or expired .................................................
Outstanding at December 31, 2012 ..........................
Exercisable at December 31, 2012 ...........................
Shares
60,384
—
—
—
60,384
60,384
$
$
$
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
32.79
—
—
—
32.79
32.79
$
$
$
2.9
—
—
—
1.9
1.9
$
$
$
—
—
—
—
—
—
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. Under the 2011 DSPP there were 150,000 shares reserved for issuance. For 2012, the Company
issued 25,864 shares under the DSPP and recognized approximately $21,000 in expense related to this plan. For 2011, the
Company issued 21,872 shares and recognized approximately $23,000 in expense related to the DSPP. In 2010, 22,152
shares were issued and approximately $26,000 in expense was recognized 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. Under the 2011 ASPP there were 593,750 shares of common stock reserved for
issuance. For 2012, the Company issued 43,378 shares under the ASPP and recognized approximately $119,000 in expense
related to this plan. For 2011, the Company issued 38,210 shares and recognized approximately $72,000 in expense related
to the ASPP. For 2010, the Company issued 41,486 shares and recognized approximately $109,000 in expense under the
ASPP.
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of each of the purchase rights
granted under the ASPP was $1.61 for 2012. For 2011 and 2010, the weighted average fair value purchase right granted was
$1.74 and $2.67, 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) ............................................................
— %
32.0%
0.1%
0.5
3.5%
31.0%
0.2%
0.5
4.4%
41.0%
0.2%
0.5
2012
2011
2010
Note 11
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 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 changes in benefit obligation, changes in plan assets, the funded status
of the plan, components of pension expense, amounts recognized in the Company’s consolidated statements of financial
condition, and major assumptions used to determine these amounts.
96
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year ..................................................... $
Service Cost .................................................................................................
Interest Cost .................................................................................................
Actuarial Loss ..............................................................................................
Benefits Paid ................................................................................................
Expenses Paid ..............................................................................................
Plan Amendment .........................................................................................
Projected Benefit Obligation at End of Year ............................................... $
116,173 $
6,397
5,587
14,156
(7,138)
(225)
—
134,950 $
97,393 $
6,027
5,243
9,430
(1,846)
(245)
171
116,173 $
2012
2011
2010
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year .......................................... $
Actual Return on Plan Assets ......................................................................
Employer Contributions ...............................................................................
Benefits Paid ................................................................................................
Expenses Paid ..............................................................................................
Fair Value of Plan Assets at End of Year .................................................... $
87,844 $
8,683
5,000
(7,138)
(225)
94,164 $
84,658 $
277
5,000
(1,846)
(245)
87,844 $
83,749
5,691
4,733
5,201
(1,776)
(205)
—
97,393
79,547
7,092
—
(1,776)
(205)
84,658
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities ........................................................................................... $
40,786 $
28,330 $
12,735
Accumulated Benefit Obligation at End of Year ......................................... $
110,985 $
94,121 $
77,100
Components of Net Periodic Benefit Costs:
Service Cost ................................................................................................. $
Interest Cost .................................................................................................
Expected Return on Plan Assets ..................................................................
Amortization of Prior Service Costs ............................................................
Net Loss Amortization .................................................................................
Net Periodic Benefit Cost ............................................................................ $
6,397 $
5,587
(6,793)
359
3,390
8,940 $
6,027 $
5,243
(6,555)
462
2,223
7,400 $
5,691
4,733
(6,194)
509
2,088
6,827
Weighted-Average Assumptions Used to Determine Benefit Obligation:
5.55%
Discount Rate ..............................................................................................
4.25%
Rate of Compensation Increase ...................................................................
Measurement Date ....................................................................................... 12/31/12 12/31/11 12/31/10
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate ..............................................................................................
Expected Return on Plan Assets ..................................................................
Rate of Compensation Increase ...................................................................
5.00%
8.00%
4.00%
5.55%
8.00%
4.25%
4.25%
3.75%
5.75%
8.00%
4.50%
5.00%
4.00%
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial Loss ....................................................................................... $
Prior Service Cost ........................................................................................
Deferred Tax Benefit ...................................................................................
Other Comprehensive Loss, net of tax ......................................................... $
8,876 $
(360)
(3,285)
5,231 $
13,486 $
(291)
(5,091)
8,104 $
2,215
(509)
(658)
1,048
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Losses .................................................................................... $
Prior Service Cost ........................................................................................
Deferred Tax Benefit ...................................................................................
Accumulated Other Comprehensive Loss, net of tax ................................... $
47,800 $
1,700
(19,097)
30,403 $
38,924 $
2,060
(15,812)
25,172 $
25,438
2,351
(10,721)
17,068
The Company expects to recognize approximately $4.6 million of the net actuarial loss reflected in accumulated other
comprehensive income at December 31, 2012 as a component of net periodic benefit cost during 2013.
97
Plan Assets. The Company’s pension plan asset allocation at year-end 2012 and 2011, and the target asset allocation for 2013
are as follows:
Target Allocation
2013
Percentage of Plan
Assets at Year-End(1)
2012
2011
Equity Securities ...................................................................
Debt Securities ......................................................................
Cash and Cash Equivalents ...................................................
Total ...............................................................................
65%
30%
5%
100%
61%
29%
10%
100%
51%
33%
16%
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 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 data and
economic/financial data to arrive at expected long-term rates of return for each asset category.
The major categories of assets in the Company’s pension plan as of December 31 are 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 18 – Fair Value Measurements).
(Dollars in Thousands)
Level 1:
U.S. Treasury .............................................................................................................. $
Common Stocks ..........................................................................................................
Mutual Funds ..............................................................................................................
Cash and Cash Equivalents .........................................................................................
2012
2011
2,143 $
16,799
58,480
7,819
4,039
14,084
44,382
12,287
Level 2:
U.S. Government Agencies and Corporations ............................................................
8,923
13,052
Total Fair Value of Plan Assets .............................................................................. $
94,164 $
87,844
Expected Benefit Payments. As of December 31, expected benefit payments related to the defined benefit pension plan were
as follows:
(Dollars in Thousands)
2013 .................................................................................................................................................................. $
2014 ..................................................................................................................................................................
2015 ..................................................................................................................................................................
2016 ..................................................................................................................................................................
2017 ..................................................................................................................................................................
2018 through 2022 ............................................................................................................................................
Total .................................................................................................................................................................. $
2012
6,782
8,255
9,920
8,400
8,436
51,254
93,047
Contributions. The following table details the amounts contributed to the pension plan in 2012 and 2011, and the expected
amount to be contributed in 2013.
(Dollars in Thousands)
Actual Contributions ...................................................................................... $
2012
2011
5,000 $
5,000
Expected Range of
Contribution
2013(1)
$5,000 - $8,000
(1) For 2013, the Company will have the option to make a cash contribution to the plan or utilize pre-funding balances.
98
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 on a consolidated basis the changes in benefit obligation, the funded status of the plan,
components of pension expense, 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) ..................................................................................
Plan Amendment .........................................................................................
Projected Benefit Obligation at End of Year ............................................... $
2012
2011
2010
3,030 $
—
140
322
—
3,492 $
3,001 $
—
147
(151)
33
3,030 $
3,174
—
150
(323)
—
3,001
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities ........................................................................................... $
Accumulated Benefit Obligation at End of Year ......................................... $
3,492 $
3,492 $
3,030 $
3,030 $
3,001
2,996
Components of Net Periodic Benefit Costs:
Service Cost ................................................................................................. $
Interest Cost .................................................................................................
Amortization of Prior Service Cost..............................................................
Net Gain Amortization.................................................................................
Net Periodic Benefit Cost ............................................................................ $
— $
140
189
(369)
(40) $
— $
147
180
(413)
(86) $
—
150
180
(424)
(94)
Weighted-Average Assumptions Used to Determine Benefit Obligation:
4.25%
Discount Rate ..............................................................................................
Rate of Compensation Increase ...................................................................
3.75%
Measurement Date ....................................................................................... 12/31/12
5.55%
4.25%
12/31/11 12/31/10
5.00%
4.00%
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate ..............................................................................................
Rate of Compensation Increase ...................................................................
5.00%
4.00%
5.50%
4.25%
5.75%
4.50%
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial Loss ....................................................................................... $
Prior Service Cost ........................................................................................
Deferred Tax (Benefit) Expense ..................................................................
Other Comprehensive Loss (Gain), net of tax ............................................. $
691 $
(189)
(194)
308 $
263 $
(147)
(45)
71 $
101
(180)
30
(49)
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Gain ....................................................................................... $
Prior Service Cost ........................................................................................
Defined Tax Liability ..................................................................................
Accumulated Other Comprehensive Gain, net of tax .................................. $
(799) $
358
170
(271) $
(1,490) $
547
364
(579) $
(1,753)
694
409
(650)
The Company expects to recognize approximately $0.1 million of the net actuarial gain reflected in accumulated other
comprehensive income at December 31, 2012 as a component of net periodic benefit cost during 2013.
99
Expected Benefit Payments. As of December 31, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2012 .................................................................................................................................................................. $
2013 ..................................................................................................................................................................
2014 ..................................................................................................................................................................
2015 ..................................................................................................................................................................
2016 ..................................................................................................................................................................
2017 through 2021 ............................................................................................................................................
Total ................................................................................................................................................................. $
2012
431
542
597
264
88
119
2,041
401(k) Plan
The Company has a 401(k) Plan which enables associates to defer a portion of their salary on a pre-tax basis. The plan
covers substantially all associates of the Company who meet minimum age requirements. The plan is designed to enable
participants to elect to have an amount from 1% to 15% of their compensation withheld in any plan year placed in the 401(k)
Plan trust account. Matching contributions of 50% from the Company are made up to 6% of the participant’s compensation
for eligible associates. During 2012, 2011, and 2010, the Company made matching contributions of $0.4 million for each
respective year. The participant may choose to invest their contributions into twenty-seven 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. Shares issued to participants 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 2012, 2011 and 2010.
Note 12
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars and Per Share Data in Thousands)
Numerator:
Net Income (Loss) .................................................................................................. $
2012
2011
2010
108 $
4,897 $
(413)
Denominator:
Denominator for Basic Earnings Per Share Weighted-Average Shares ..................
Effects of Dilutive Securities Stock Compensation Plans ......................................
17,205
15
17,140
—
17,076
—
Denominator for Diluted Earnings Per Share Adjusted Weighted-Average
Shares and Assumed Conversions .....................................................................
17,220
17,140 17,076
Basic Earnings Per Share ........................................................................................ $
0.01 $
0.29 $
(0.02)
Diluted Earnings Per Share ..................................................................................... $
0.01 $
0.29 $
(0.02)
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 2012, 2011 and 2010 because they were anti-dilutive.
100
Note 13
CAPITAL
The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and
Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of
December 31, 2012 and 2011, that the Company and the Bank meet all capital adequacy requirements to which they are
subject.
As of December 31, 2012, the most recent notification from the Federal Deposit Insurance Corporation categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk based and Tier 1 leverage ratios as set forth
in the following tables. There are not conditions or events since the notification that management believes have changed
the Bank’s category. The Company and Bank’s actual capital amounts and ratios as of December 31, 2012 and 2011 are
also presented in the table.
Actual
Required
For Capital
Adequacy Purposes
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
Amount Ratio
(Dollars in Thousands)
2012
Tier I Capital:
CCBG ................................................................... $239,520 14.35% $ 67,104
CCB ...................................................................... 239,955 14.39% 67,045
Amount Ratio Amount Ratio
*
4.00%
4.00% 100,567
*
6.00%
Total Capital:
CCBG ................................................................... 262,377 15.72% 134,207
CCB ...................................................................... 260,906 15.64% 134,089
*
8.00%
8.00% 167,612 10.00%
*
Tier I Leverage:
CCBG ................................................................... 239,520
CCB ...................................................................... 239,955
9.90% 96,824
9.93% 96,694
4.00%
*
4.00% 83,806
*
5.00%
2011
Tier I Capital:
CCBG ................................................................... $246,455 13.96% $ 70,964
CCB ...................................................................... 246,159 13.96% 70,904
*
4.00%
4.00% 106,356
*
6.00%
Total Capital:
CCBG ................................................................... 270,518 15.32% 141,928
CCB ...................................................................... 268,317 15.21% 141,809
*
8.00%
8.00% 177,261 10.00%
*
Tier I Leverage:
CCBG ................................................................... 246,455 10.26% 96,064
CCB ...................................................................... 246,159 10.26% 95,947
4.00%
*
4.00% 88,630
*
5.00%
* Not applicable to bank holding companies.
101
Note 14
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 its regulators to issue and declare any further dividends to CCBG. Moreover, CCBG must receive approval from the
Federal Reserve to pay any dividends to its shareowners.
Note 15
RELATED PARTY TRANSACTIONS
At December 31, 2012 and 2011, certain officers and directors were indebted to the Company’s bank subsidiary in the
aggregate amount of $19.8 million and $20.8 million, respectively. During 2012, $28.5 million in new loans were made and
repayments totaled $29.5 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.
Deposits from certain directors, executive officers, and their related interests totaled $18.6 million and $16.4 million at
December 31, 2012 and 2011, respectively.
Under a lease agreement expiring in 2024, the Bank leases land from a partnership in which several directors and officers
have an interest. The lease agreement with Smith Interests General Partnership L.L.P. provides for annual lease payments of
approximately $136,000, to be adjusted for inflation in future years.
Note 16
OTHER NONINTEREST EXPENSE
Components of other 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)
Other Noninterest Expense:
Utilities ............................................................................................... $
Maintenance Agreements - FF&E .....................................................
Legal Fees ...........................................................................................
Professional Fees ................................................................................
Telephone ...........................................................................................
Advertising
Processing Services ............................................................................
Insurance – Other ................................................................................
Printing and Supplies ..........................................................................
Postage ................................................................................................
Other ...................................................................................................
Total .................................................................................................... $
2012
2011
2010
1,609 $
3,220
4,303
4,882
1,896
1,815
3,967
4,104
1,154
1,595
1,858
30,403 $
1,764 $
3,114
4,106
3,832
1,895
2,471
3,708
4,474
1,321
1,780
2,609
31,074 $
1,882
3,185
4,301
4,338
2,059
2,905
3,651
6,324
1,455
1,650
2,868
34,618
Note 17
COMMITMENTS AND CONTINGENCIES
Lending Commitments. The Company is a party to financial instruments with off-balance sheet risks in the normal course of
business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and
standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing
102
commitments and issuing letters of credit as it does for on-balance sheet instruments. As of December 31, the amounts
associated with the Company’s off-balance sheet obligations were as follows:
(Dollars in Thousands)
Commitments to Extend Credit(1) ........................ $ 48,618 $245,087 $293,705 $ 38,432 $257,081 $295,513
Standby Letters of Credit ...................................... 11,249 — 11,249 10,920 — 10,920
Total ................................................................. $ 59,867 $245,087 $304,954 $ 49,352 $257,081 $306,433
Variable
Fixed
Fixed
Total
Total
2012
Variable
2011
(1)
Commitments include unfunded loans, revolving lines of credit, and other unused commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of
a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a
third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities. In general, management does not anticipate any material losses as a result of participating in these types of
transactions. However, any potential losses arising from such transactions are reserved for in the same manner as
management reserves for its other credit facilities.
For both on- and off-balance sheet financial instruments, the Company requires collateral to support such instruments when
it is deemed necessary. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of
collateral obtained upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held
varies, but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; real
estate; accounts receivable; property, plant and equipment; and inventory.
Other Commitments. In the normal course of business, the Company enters into lease commitments which are classified as
operating leases. Rent expense incurred under these leases was approximately $0.6 million in 2012, $0.6 million in 2011,
and $1.2 million in 2010. Minimum lease payments under these leases due in each of the five years subsequent to December
31, 2012, are as follows (dollars in millions): 2013, $0.6; 2014, $0.4; 2015, $0.4; 2016, $0.4; 2017, $0.4, thereafter, $4.0.
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 it for potential future settlement of certain litigation (the “Covered Litigation”) that relates to
several antitrust lawsuits challenging the practices of Visa and MasterCard International. In 2008, the Company, as a member
of the Visa U.S.A. network, obtained Class B shares of Visa, Inc. upon its initial public offering. Since its initial public
offering, Visa, Inc. has funded a litigation reserve for the Covered Litigation resulting in a reduction in the Class B shares
held by the Company. During the first quarter of 2011, the Company sold its remaining Class B shares resulting in a $3.2
million pre-tax gain. Associated with this sale, the Company entered into a swap contract with the purchaser of the shares that
requires a payment to the counterparty in the event that Visa, Inc. makes subsequent revisions to the conversion ratio for its
Class B shares. Further information on the swap contract is contained within Note 18 below.
In July 2012, Visa and MasterCard International entered into a memorandum of understanding to enter into a settlement
agreement to resolve the aforementioned Covered Litigation matter. Visa’s share of the claim is to be paid from the litigation
reserve account. Subsequent to the memorandum of understanding, Visa increased the litigation reserve by $150 million and
revised the conversion ratio for the Class B shares resulting in a $56,000 payment by the Company under the swap contract.
The Company does not expect to make any additional payments to the counterparty other than certain fixed charges included
in the liability, which are payable quarterly in the amount of approximately $25,000 until the settlement is finalized.
Conversion ratio payments and ongoing fixed quarterly charges are reflected in earnings in the period incurred.
103
Note 18
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an
orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for
such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to
valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC
Topic 820 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:
(cid:121)
(cid:121)
(cid:121)
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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale. U.S. Treasury securities and certain U.S. Government Agency securities are reported at fair
value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2
inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair
value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury
yield curve, live trading levels, trade execution data, credit information and the bond’s terms and conditions, among other
things.
In general, the Company does not purchase securities that have a complicated structure. The Company’s entire portfolio
consists of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-
through securities, or general obligation or revenue based municipal bonds. Pricing for such instruments is fairly generic and
is easily obtained. From time to time, the Company will validate, on a sample basis, prices supplied by the independent
pricing service by comparison to prices obtained from third-party sources or derived using internal models.
Fair Value Swap. The Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares.
The valuation represents an internally developed estimate of the exposure based upon probability-weighted potential Visa
litigation losses and related carrying cost obligations required under the contract.
104
A summary of fair values for assets and liabilities recorded at fair value at December 31 consisted of the following:
(Dollars in Thousands)
2012
ASSETS:
Securities available for sale:
U.S. Treasury .......................................................... $
U.S. Government Agency .......................................
States and Political Subdivisions ............................
Mortgage-Backed Securities ...................................
Other Securities ......................................................
LIABILITIES:
Fair Value Swap .......................................................
2011
Securities available for sale:
U.S. Treasury .......................................................... $
U.S. Government Agency .......................................
State and Political Subdivisions ..............................
Mortgage-Backed Securities ...................................
Other Securities ......................................................
LIABILITIES:
Fair Value Swap .......................................................
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
$
$
$
97,249
—
—
—
—
—
51,664
79,879
56,982
11,211
—
—
$
169,464
—
—
—
—
—
14,737
59,094
52,497
11,357
—
—
$
$
—
—
—
—
—
—
—
—
—
—
—
572
97,249
51,664
79,879
56,982
11,211
—
169,464
14,737
59,094
52,497
11,357
572
The Company transferred certain U.S. government agency securities from Level 1 to Level 2 as of December 31, 2012 and
2011. Management determined that the fair value methodology for these securities was more closely aligned to the definition
of Level 2 than Level 1. The balances of the U.S. government agency securities transferred from Level 1 to Level 2 as of
December 31, 2012 and 2011 were $36.7 million and $14.7 million, respectively.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of
impairment). The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Impaired Loans. Loan impairment is measured using the present value of expected cash flows or the fair value of the
collateral (less selling costs) if the loan is collateral dependent. 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. The inputs used in determining the present value of expected cash flows are not observable and therefore are
considered Level 3 inputs. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment
and adjusted accordingly. Valuation techniques are consistent with those techniques applied in prior periods. Impaired loans
had a carrying value of $108.8 million with a valuation allowance of $10.9 million at December 31, 2012 and $107.8 million
and $11.2 million, respectively, at December 31, 2011.
Loans Held for Sale. Loans held for sale were $14.2 million and $21.2 million as of December 31, 2012 and December 31,
2011, respectively. These loans are carried at the lower of cost or fair value and 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.
105
Other Real Estate Owned. During 2012, certain foreclosed assets, upon initial recognition, were measured and reported at fair
value through a charge-off to the allowance for loan losses based on the fair value of the foreclosed asset less estimated cost
to sell. The fair value of the foreclosed asset is determined by an independent valuation or professional appraisal in
conformance with banking regulations. On an ongoing basis, we will obtain updated appraisals on foreclosed assets and
realize valuation adjustments as necessary. 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 $22.8 million during the twelve months ended December 31,
2012. The Company disposed of $28.3 million in foreclosed assets, recognized subsequent write-downs totaling $3.3 million
for properties that were re-valued, and realized miscellaneous adjustments totaling $0.4 million during the twelve months
ended December 31 2012. The carrying value of foreclosed assets was $53.4 million at December 31, 2012 and $62.6 million
at December 31, 2011.
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it
is practical to estimate fair value and the following is a description of valuation methodologies used for those assets and
liabilities.
Cash and Short-Term Investments – The carrying amount of cash and short-term investments is used to approximate fair
value, given the short time frame to maturity and as such assets do not present unanticipated credit concerns.
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, interest rate, and
liquidity 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.
Short-Term and 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.
A summary of estimated fair values of significant financial instruments at December 31 consisted of the following:
Carrying
Value
Level 1
Inputs
Level 2
Inputs
2012
$
$
66,238
443,494
97,249
—
—
—
—
—
—
$
$
$
$
—
—
199,736
14,189
—
2,145,547
46,503
62,896
50,003
Level 3
Inputs
—
—
—
—
1,370,056
—
—
—
—
(Dollars in Thousands)
ASSETS:
Cash ......................................................................... $
Short-Term Investments ..........................................
Investment Securities ...............................................
Loans Held for Sale .................................................
Loans, Net of Allowance for Loan Losses ...............
66,238
443,494
296,985
14,189
1,477,946
LIABILITIES:
Deposits ................................................................... $
Short-Term Borrowings ...........................................
Subordinated Notes Payable ....................................
Long-Term Borrowings ...........................................
2,144,996
47,435
62,887
46,859
106
Carrying
Value
Level 1
Inputs
Level 2
Inputs
2011
(Dollars in Thousands)
ASSETS:
Cash ......................................................................... $
Short-Term Investments ..........................................
Investment Securities ...............................................
Loans Held for Sale .................................................
Loans, Net of Allowance for Loan Losses ...............
54,953
330,361
307,149
21,225
1,576,423
LIABILITIES:
Deposits ................................................................... $
Short-Term Borrowings ...........................................
Subordinated Notes Payable ....................................
Long-Term Borrowings ...........................................
2,172,519
43,372
62,887
44,606
$
$
54,953
330,361
169,464
—
—
—
—
—
—
$
$
$
$
—
—
137,685
21,225
—
2,173,331
42,021
62,858
47,770
Level 3
Inputs
—
—
—
—
1,464,588
—
—
—
—
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 19
PARENT COMPANY FINANCIAL INFORMATION
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 ..............................................................................................................
2012
2011
7,061 $
309,114
3,435
319,610 $
62,887 $
9,834
72,721
6,269
313,372
3,016
322,657
62,887
7,828
70,715
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; 17,232,380 and
17,160,274 shares issued and outstanding at December 31, 2012 and
December 31, 2011, respectively ...............................................................................
Additional Paid-In Capital .............................................................................................
Retained Earnings ..........................................................................................................
Accumulated Other Comprehensive Loss, Net of Tax ..................................................
Total Shareowners’ Equity ............................................................................................
Total Liabilities and Shareowners’ Equity ..................................................................... $
172
38,707
237,569
(29,559)
246,889
319,610 $
172
37,838
237,461
(23,529)
251,942
322,657
107
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 ..........................................................................................
2012
2011
2010
— $
4,536
130
4,666
— $
3,364
48
3,412
—
3,059
74
3,133
OPERATING EXPENSE
1,359
Salaries and Associate Benefits ..............................................................................
2,008
Interest on Subordinated Notes Payable .................................................................
1,185
Professional Fees ....................................................................................................
96
Advertising .............................................................................................................
226
Legal Fees ...............................................................................................................
Other .......................................................................................................................
623
Total Operating Expense ........................................................................................ 6,267 5,429 5,497
Loss Before Income Taxes and Equity in Undistributed Earnings of
2,059
1,477
1,781
140
332
478
1,974
1,380
1,251
135
249
440
Subsidiary Bank ..................................................................................................
Income Tax Benefit ................................................................................................
Loss Before Equity in Undistributed Earnings of Subsidiary Bank ........................
Equity in Undistributed Earnings of Subsidiary Bank ............................................
Net Income (Loss) .................................................................................................. $
(1,601)
(10)
(1,591)
1,699
108 $
(2,017)
(666)
(1,351)
6,248
4,897 $
(2,364)
(771)
(1,593)
1,180
(413)
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .................................................................................................. $
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
2012
2011
2010
108 $
4,897 $
(413)
Activities:
Equity in Undistributed Earnings of Subsidiary Bank ............................................
Stock-Based Compensation ....................................................................................
Increase in Other Assets .........................................................................................
Increase (Decrease) in Other Liabilities..................................................................
Net Cash Provided By (Used In) Operating Activities ...........................................
(1,699)
262
(491)
2,005
185
(6,248)
—
(324)
1,181
(494)
(1,180)
—
(97)
(203)
(1,893)
CASH FROM FINANCING ACTIVITIES:
Payment of Dividends .............................................................................................
Issuance of Common Stock ....................................................................................
Net Cash Provided By (Used In) in Financing Activities .......................................
—
607
607
(5,142)
919
(4,223)
(8,368)
822
(7,546)
Net Increase (Decrease) in Cash .............................................................................
(9,439)
Cash at Beginning of Year ...................................................................................... 6,269 10,986 20,425
10,986
Cash at End of Year ................................................................................................ $
7,061 $
(4,717)
6,269 $
792
108
Note 20
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 consolidated statements of comprehensive income and changes in shareowners’ equity. Information
related to net comprehensive income (loss) is as follows:
(Dollars in Thousands)
Other Comprehensive Loss:
Securities Available for Sale:
2012
2011
2010
Change in net unrealized gain, net of tax benefit of $295,
and a net of tax expense $203 and $41 ................................................... $
(491) $
397 $
79
Retirement Plans:
Change in funded status of defined benefit pension plan and SERP
plan, net of tax benefit $3,479, $5,135, and $628 ...................................
Net Other Comprehensive Loss ................................................................... $
(5,539)
(6,030) $
(8,175)
(7,778) $
(1,000)
(921)
The components of accumulated other comprehensive loss, net of tax, as of
year-end were as follows:
Net unrealized loss on securities available for sale ...................................... $
Net unfunded liability for defined benefit pension plan and SERP plan .....
Accumulated Other Comprehensive Loss .................................................... $
573 $
(30,132)
(29,559) $
1,064 $
(24,593)
(23,529) $
667
(16,418)
(15,751)
109
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, 2012, 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, 2012, 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, 2012.
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 certified public accounting firm, has audited our consolidated financial
statements as of and for the year ended December 31, 2012, and opined as to the effectiveness of internal control over
financial reporting as of December 31, 2012, as stated in its attestation report, which is included herein on page 111.
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.
110
Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Shareowners of
Capital City Bank Group, Inc.
We have audited Capital City Bank Group, Inc.’s internal control over financial reporting as of December 31, 2012, 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 Management’s Report 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, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the 2012 consolidated financial statements of Capital City Bank Group, Inc. and our report dated March 6, 2013 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Tampa, Florida
March 6, 2013
111
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 23, 2013.
Item 11. Executive Compensation
Incorporated herein by reference to the sections entitled “Executive Compensation” in the Registrant’s Proxy Statement
relating to its Annual Meeting of Shareowners to be held April 23, 2013.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowners
Matters
The 2011 Associate Incentive Plan, 2011 Associate Stock Purchase Plan, and 2011 Director Stock Purchase Plan were
approved by the Registrant’s shareowners. The following table provides certain information regarding the Registrant’s equity
compensation plans.
Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
60,384(1)
—
60,384
$ 32.79
—
$ 32.79
1,513,772(2)
—
1,513,772
Plan Category
Equity Compensation
Plans Approved by
Securities Holders
Equity Compensation
Plans Not Approved by
Securities Holders
Total
(1)
(2)
Includes 60,384 shares that may be issued upon exercise of outstanding options under the terminated 2005 Associate
Incentive Plan.
Consists of 872,200 shares available for issuance under our 2011 Associate Incentive Plan, 530,548 shares available
for issuance under our 2011 Associate Stock Purchase Plan, and 111,024 shares available for issuance under our
2011 Director Stock Purchase Plan. Of these plans, the only plan under which options may be granted in the future
is our 2011 Associate Incentive Plan.
The other information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the
section captioned “Share Ownership” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to
be held April 23, 2013.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to the subsections entitled “Procedures for Review, Approval, or Ratification of Related
Person Transactions” 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 23, 2013.
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 23, 2013.
112
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 Certified Public Accounting Firm
Consolidated Statements of Financial Condition at the End of Fiscal Years 2012 and 2011
Consolidated Statements of Comprehensive Income for Fiscal Years 2012, 2011, and 2010
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2012, 2011, and 2010
Consolidated Statements of Cash Flows for Fiscal Years 2012, 2011, and 2010
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. 2011 Director Stock Purchase Plan - incorporated herein by reference to
Exhibit 10.2 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
Capital City Bank Group, Inc. 2011 Associate Stock Purchase Plan - incorporated herein by reference to
Exhibit 10.1 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
Capital City Bank Group, Inc. 2011 Associate Incentive Plan - incorporated herein by reference to
Exhibit 10.3 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
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).
113
10.4
10.5
10.6
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).
Statement re Computation of Per Share Earnings.*
Capital City Bank Group, Inc. Code of Ethics for the Chief Financial Officer and Senior Financial
Officers - incorporated herein by reference to Exhibit 14 of the Registrant’s Form 8-K (filed 3/11/05)
(No. 0-13358).
Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2012.**
Consent of Independent Registered Certified 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.**
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
*
**
Information required to be presented in Exhibit 11 is provided in Note 12 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.
114
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 6, 2013, 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 6, 2013 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)
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 6, 2013, 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.
115
Exhibit Index
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
10.4
10.5
10.6
11
14
21
23.1
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. 2011 Director Stock Purchase Plan - incorporated herein by reference to
Exhibit 10.2 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
Capital City Bank Group, Inc. 2011 Associate Stock Purchase Plan - incorporated herein by reference to
Exhibit 10.1 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
Capital City Bank Group, Inc. 2011 Associate Incentive Plan - incorporated herein by reference to
Exhibit 10.3 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
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).
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).
Statement re Computation of Per Share Earnings.*
Capital City Bank Group, Inc. Code of Ethics for the Chief Financial Officer and Senior Financial
Officers - incorporated herein by reference to Exhibit 14 of the Registrant’s Form 8-K (filed 3/11/05)
(No. 0-13358).
Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2012.**
Consent of Independent Registered Certified Public Accounting Firm.**
116
31.1
31.2
32.1
32.2
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.**
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
*
**
Information required to be presented in Exhibit 11 is provided in Note 12 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.
117
Exhibit 21. Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2012.
Direct Subsidiaries:
Capital City Bank
CCBG Capital Trust I (Delaware)
CCBG Capital Trust II (Delaware)
Indirect Subsidiaries:
Capital City Banc Investments, Inc. (Florida)
Capital City Services Company (Florida)
Capital City Trust Company (Florida)
First Insurance Agency of Grady County, Inc. (Georgia)
FNB Financial Services, LLC (Florida)
Southeastern Oaks, LLC (Florida)
Capital City Mortgage Company (Florida) – Inactive
118
Exhibit 23.1
Consent of Independent Registered Certified Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements (Form S-3D No. 333-20683 and Form
S-8: Nos. 333-36693 and 333-174372) of Capital City Bank Group, Inc. of our reports dated March 6, 2013 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 Group, Inc. for
the year ended December 31, 2012.
/s/ Ernst & Young LLP
Tampa, Florida
March 6, 2013
119
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 6, 2013
120
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 6, 2013
121
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, 2012, 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 6, 2013
122
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, 2012, 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 6, 2013
123
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