2013
Annual Report
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www.ccbg.com
0324_cov.indd 1
3/6/14 12:37 PM
Annual Shareowners’
Meeting
April 29, 2014
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 bank holding 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 63 full-service
offices and 71 ATMs in Florida, Georgia and Alabama. For
more information about Capital City Bank Group, Inc., visit
www.ccbg.com.
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3/6/14 12:37 PM
Financial Highlights
Dollars in Thousands, Except Per Share Data
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 Capital
Balance Sheet Data
Average Loans
Average Earning Assets
Average Total Assets
2013
2012
2011
$ 6,045
$ 108
$ 4,897
$ 0.35
$ 0.01
0.35
0.01
$ 0.29
0.29
15.85
14.31
14.68
0.24%
2.40%
3.54%
0.00%
0.04%
3.81%
0.19%
1.86%
4.18%
17.94%
15.72%
15.32%
10.46%
7.58%
9.90%
6.35%
10.26%
6.51%
$ 1,450,806 $ 1,556,565
$ 1,686,995
2,213,686
2,229,621
2,221,317
2,568,662
2,590,173
2,583,197
Average Non-Interest Bearing Deposits
631,117
610,915
567,987
Average Total Deposits
2,070,073
2,105,672
2,081,583
Average Shareowners’ Equity
251,427
252,960
263,048
A Letter to Our Shareowners
Dear Fellow Shareowner,
Over the last few years, I have talked about bracing against the headwinds and laying the groundwork so when the
economy turned positive, Capital City would be ready to capitalize. As I write this letter, I am pleased to report the
economy has improved, as evidenced by falling unemployment numbers, growing revenues at the state government
level and stabilizing real estate prices. It is no longer about making preparations. Now is the time to capitalize on the
momentum we’ve built. Our discipline and hard work during the economic downturn will pay dividends.
For Capital City Bank Group, it was a good year punctuated by an even stronger finish. Earnings in the fourth quarter
rose to $0.16 per share, our best performance in a single quarter since 2008. Earnings per share were $0.35 in 2013
compared to $0.01 in 2012.
Historically low interest rates coupled with soft
loan demand meant that lower credit costs would
need to carry us in 2013, and they did. Year over
year, nonperforming assets declined $33 million, or
28%, and credit costs, including ORE expenses,
fell $14.6 million, or 53%. Additionally, higher levels
of client activity and improving asset values drove
our wealth management revenues up by 14%. The
evolution of our industry demands that we operate
more efficiently, and we have embraced a number of
initiatives that will lower our operating costs in 2014
and beyond.
Over the last six years we have produced a
Our strong capital base,
respectable earnings and
ample liquidity have us
primed and ready to capitalize
on the opportunities of a
recovering economy.
cumulative net profit of $22 million, which has helped protect our strong capital base. At year end, our tangible capital
ratio stood at 7.58% – up from 6.35% at the end of 2012. Throughout the financial crisis, we remained committed to
bringing long-term value to our shareowners. Guided by that obligation, we endured the economic downturn without
taking TARP or raising additional capital, thereby avoiding any dilution of our shareowners.
I am proud of how Capital City has weathered the storm. We resisted the temptation to reach for short-term earnings,
thereby preserving the Capital City Bank way of doing business. Though loan demand was not what we had hoped
for, we took what the markets would give us, continued to call on clients and prospects and refused to compromise
our underwriting standards. Additionally, we chose to sell bank-owned real estate acquired from troubled borrowers
on a retail basis rather than rely on wholesalers to dispose of these assets. This approach takes longer, but we
believe produces a better financial outcome for our shareowners. To date, that strategy has worked, and I see no
need to change course. Our strong capital base, respectable earnings and ample liquidity have us primed and ready
to capitalize on the opportunities of a recovering economy.
As existing real estate inventory continues to sell, we expect to see development return along with the opportunities
that accompany it. Loan growth will remain a key focus as we watch for demand to return, but we are prepared to
wait for the right relationships rather than compromise our sound risk-management practices.
The industry continues to evolve, as do our clients’ wants, needs and preferences. Reacting to these changes
and staying relevant for a new generation of clients will be a priority for us now and in the future. Over the last few
years, we have introduced a number of new technologies to address changing demands, and the response thus far
confirms we have made the right decisions. Online chat has grown exponentially – a 210% increase in 2013, alone –
our online account openings total 2.5 times the average for a single physical office, and we had the highest adoption
rate I can recall with any new product when we introduced Mobile Deposit in Q3 of last year. More and more of our
web traffic is originating from tablets and smartphones, reinforcing the notion that consumers are looking to bank on
their terms.
I believe traditional banking methods have their place and will remain an important part of the Capital City Bank
strategy, but technology has changed what consumers expect from their banking tools. As clients continue to
seek greater convenience and flexibility, it is our responsibility to understand these expectations and ensure we are
providing the quality of products and services our clients demand. Just a few months ago, we launched an Express
Banking pilot in Tallahassee. We incorporated innovative new technology to bring that convenience and flexibility into
the physical office setting. The drive-in is equipped with Smart ATMs, which are capable of accepting both cash and
check deposits and are available 24/7. Virtual Banking Machines in the lobby and drive-in help expedite the service
experience by allowing clients to interact face-to-face with a banker in our Client Service Center for assistance with
a wide range of needs. The initial response is encouraging, and we anticipate rolling out more of this technology in
select markets this year.
I have said all along that navigating this cycle would be bumpy. The road back has not been an easy ride. Our clients,
our communities and our competitors have all been hit hard, but I am energized by our 2013 results and optimistic as
we move into 2014.
As always, I thank you for your continued support and welcome your comments and questions.
Your Banker,
Our Leaders
BOARD OF DIRECTORS
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
Serving Since 1982
DuBose Ausley
Attorney
Ausley & McMullen, PA
Serving Since 1982
Thomas A. Barron
President
Capital City Bank
Serving Since 1982
Allan G. Bense
Partner
GAC Contractors
Serving Since 2013
Frederick Carroll, III
Managing Partner
Carroll and Company, CPAs
Serving Since 2003
Lina S. Knox
Community Volunteer
Serving Since 1998
Dr. Henry Lewis III
Interim Provost and Vice President
for Academic Affairs
American University of Health
Sciences
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
SENIOR MANAGEMENT TEAM
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
35 years of service
Thomas A. Barron
President
Capital City Bank
39 years of service
J. Kimbrough Davis
Chief Financial Officer
32 years of service
Thomas W. Allen
Residential Mortgage
5 years of service
Edward G. Canup
Commercial Banking
30 years of service
William L. Moor, Jr.
Wealth Management
26 years of service
Bethany H. Corum
Capital City Services Company
7 years of service
B. Randall Sharpton
Internal Audit
34 years of service
Mitchell R. Englert
Community Banking
40 years of service
Brooke W. Hallock
Marketing
9 years of service
Dale A. Thompson
Credit Administration
34 years of service
Edwin N. West, Jr.
Community Banking
Leon County
15 years of service
UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
WASHINGTON, DC 20549
____________________
____________________
FORM 10-K
FORM 10-K
(cid:58)
(cid:58)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
For the fiscal year ended December 31, 2013
OR
OR
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
For the transition period from ____________ to ____________
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
Florida
Florida
(State of Incorporation)
(State of Incorporation)
0-13358
0-13358
(Commission File Number)
(Commission File Number)
59-2273542
59-2273542
(IRS Employer Identification No.)
(IRS Employer Identification No.)
217 North Monroe Street, Tallahassee, Florida
217 North Monroe Street, Tallahassee, Florida
(Address of principal executive offices)
(Address of principal executive offices)
32301
32301
(Zip Code)
(Zip Code)
(850) 671-0300
(850) 671-0300
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Title of Each Class
Common Stock, $0.01 par value
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
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:134) No (cid:95)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:95)
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:134) No (cid:95)
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:134) No (cid:95)
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
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
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:95) No (cid:134)
to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
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
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:95) No (cid:134)
for such shorter period that the registrant was required to submit and post such files). Yes (cid:95) No (cid:134)
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
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
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:134)
10-K or any amendment to this Form 10-K. (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
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
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:134) Accelerated filer (cid:95) Non-accelerated filer (cid:134) Smaller reporting company (cid:134)
Large accelerated filer (cid:134) Accelerated filer (cid:95) Non-accelerated filer (cid:134) Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
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, 2013,
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, 2013,
the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $120,914,224(based on the closing
the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $120,914,224(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
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
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.
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.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Class
Common Stock, $0.01 par value per share
Common Stock, $0.01 par value per share
Outstanding at February 28, 2014
Outstanding at February 28, 2014
17,412,900
17,412,900
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 29, 2014, are incorporated by reference in Part III.
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 29, 2014, are incorporated by reference in Part III.
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2013 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business ................................................................................................................................................
Risk Factors ..........................................................................................................................................
Unresolved Staff Comments .................................................................................................................
Properties ..............................................................................................................................................
Legal Proceedings .................................................................................................................................
Mine Safety Disclosure .........................................................................................................................
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Shareowner Matters, and Issuer Purchases of
Equity Securities ...................................................................................................................................
Selected Financial Data ........................................................................................................................
Item 6.
Management's Discussion and Analysis of Financial Condition and Results of Operations ................
Item 7.
Quantitative and Qualitative Disclosure About Market Risk ................................................................
Item 7A.
Financial Statements and Supplementary Data .....................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............
Item 9A. Controls and Procedures .......................................................................................................................
Other Information .................................................................................................................................
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers, and Corporate Governance ...................................................................
Executive Compensation ......................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Shareowner
Matters ..................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence ......................................
Principal Accountant Fees and Services ...............................................................................................
PART IV
3
20
30
30
30
30
30
32
33
63
63
107
107
107
109
109
109
110
110
Exhibits and Financial Statement Schedules ........................................................................................
Item 15.
Signatures ......................................................................................................................................................................
110
112
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:120)
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legislative or regulatory changes, including the Dodd-Frank Act and Basel III;
our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;
the effects of security breaches and computer viruses that may affect our computer systems;
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;
the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
our need and our ability to incur additional debt or equity financing;
the effects of the health and soundness of other financial institutions;
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;
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 63 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, 2013, we had total consolidated assets of approximately $2.612 billion, total deposits of approximately
$2.136 billion and shareowners’ equity was approximately $276.4 million. Our total assets at year-end 2012 were $2.634
billion and for year-end 2011 totaled $2.641 billion. Total revenue (interest income plus noninterest income) and net income
for the last three fiscal years were $138.6 million and $6.0 million, respectively for 2013, $144.9 million and $0.1 million,
respectively for 2012, and $158.3 million and $4.9 million, respectively for 2011. Our financial condition and results of
operations are more fully discussed in our management discussion and analysis on page 32 and our consolidated financial
statements on page 72.
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 13 in the Notes to Consolidated
Financial Statements for a discussion of the restrictions. We had a total of 927 associates at March 1, 2014. Item 6 contains
other financial and statistical information about us.
Subsidiaries of CCBG
CCBG’s principal asset is the capital stock of the CCB, our wholly owned banking subsidiary, which accounted for
approximately 100% of consolidated assets at December 31, 2013, and approximately 100% of consolidated net income for
the year ended December 31, 2013. 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 Company), Trust and Asset Management Services (Capital City Trust Company), and Brokerage Services
(Capital City Banc Investments, Inc.). Revenues from each of these principal services for the year ended 2013 totaled
approximately 91.9%, 2.0%, 3.0%, and 3.1% of our total revenue, respectively. In 2012 and 2011, 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:120) 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:120) 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:120) 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:120) 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:120)
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:120) 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, online 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, IRA, 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 $634.9 million as of
December 31, 2013, with total assets under administration exceeding $730.0 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 guarantees 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,
2014, the Services Company is providing data processing services to five correspondent banks which have relationships with
CCB.
Regulatory Matter
In late December 2013, the informal board resolutions adopted by the Company’s Board of Directors in February 2010, at the
request of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), were rescinded. In addition, the
informal board resolutions previously adopted by the Bank’s Board of Directors in April 2012, at the request of the Federal
Reserve, were also rescinded in late December 2013. These sets of informal board resolutions had restricted the Bank’s
ability to declare or pay dividends to the Company and had restricted the Company’s ability to incur any new debt or
refinance existing debt, declare any dividends on its common stock, make payments on its trust preferred securities, and
redeem shares of its common stock. By rescinding both sets of informal board resolutions, the Company and the Bank are no
longer operating under these restrictions. In late December 2013, the Company paid the holders of its trust preferred
securities all previously deferred interest.
Underwriting Standards
A core goal of CCB is to support the communities in which it operates. The Bank seeks loans from within its primary market
area, which is defined as the counties in which the Bank’s offices are located. The Bank will originate loans within its
secondary market 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 market 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 market 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 four 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. Adjustable rate mortgage (“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.
5
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. Open-ended equity loans typically have an interest only ten year draw period followed by a five
year repayment period of 0.75% of principal balance monthly and balloon payment at maturity. As of December 31, 2013,
approximately 84% 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 58% of the Bank’s $227.9 million
residential home equity loan portfolio consisted of first lien mortgages at December 31, 2013. Policy guidelines include the
following:
(cid:120)
(cid:120)
(cid:120)
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.
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.
The Consumer Financial Protection Bureau finalized its ability to repay (“ATR”) rule as well as its qualified mortgage rule in
January 2013 (with clarifications adopted in July 2013). The ATR rule applies to residential mortgage loan applications
received after January 14, 2014. The scope of the rule specifically applies to loans securing 1-4 unit dwellings and includes
purchases, refinances and home equity loans for principal or second homes. Under the ATR rules, a lender may not make a
residential mortgage loan unless the lender makes a reasonable and good faith determination that is based on verified,
documented information at or before consummation that the borrower has a reasonable ability to repay. The eight
underwriting factors that must be considered and verified include the following: (1) income and assets: (2) employment
status; (3) monthly payment of loan; (4) monthly payment of any simultaneous loan secured by the same property; (5)
monthly payment for other mortgage-related obligations like property taxes and insurance; (6) current debt obligations; (7)
monthly debt to income ratio; and (8) credit history (although eight factors are delineated, the ATR rule does not dictate that
a lender follow a particular underwriting model). Liability for violations of the ATR rule include actual damages, statutory
damages and court costs and attorneys’ fees.
Additionally, the Consumer Financial Protection Bureau published regulations required by the Wall Street Reform and
Consumer Protection Act of 2010 (“Dodd-Frank”)related to “qualified mortgages,” which are mortgages for which there is a
presumption that the lender has satisfied the ATR rules. Pursuant to Dodd-Frank, qualified mortgages (“QMs”) must have
certain product-feature prerequisites and affordability underwriting requirements. Generally, to meet the QM test, the lender
must calculate the monthly payments based on the highest payment that will apply in the first five years and the consumer
must have a total debt-to-income ratio that is less than or equal to 43%. The QM rule provides a safe harbor to the ATR
rules for lenders that make loans that satisfy the definition of a QM and are not higher priced. The Bank expects to originate
non-qualified mortgages under certain predefined internal and investor underwriting parameters to be sold to either
secondary market investors or held in the Bank’s loan portfolio.
6
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
approximately $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, 2013, there were four 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 $34.7 million, two of which were classified as special mention.
In the normal course of business, the Bank does not extend additional credit to a client who has had a loan charged-off or has
a loan 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.
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.
7
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 other cases, we may modify a loan because of 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, generally six months.
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 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, (which may allow for faster than normal foreclosure
proceeding). For the Bank, there have been very few delays in foreclosure due to documentation weaknesses and they are
immaterial to the overall process.
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 Credit
Committee.
8
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
three of five 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 8.80% market share in the Florida counties and 6.09% 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.
Over the last several years, our growth has been below historical norms. Average loans have declined from $1.935 billion in
2007 to $1.400 billion in 2013. Additionally, as a result of the credit cycle and the overall regulatory environment, we have
not pursued additional acquisitions. We are making significant progress toward reducing our level of nonperforming assets,
but they remain elevated at 3.26% of total assets at December 31, 2013. Our elevated levels of nonperforming assets
combined with lower net interest margins have led to significantly lower earnings for the past six years compared to earnings
realized in 2006 and 2007.
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 through acquisitions. We have long understood that our core deposit
funding base is the 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.
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 intends to 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 in those markets are not feasible. Other
expansion opportunities that will be evaluated include asset management, mortgage banking, and insurance. 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.
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
9
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. In 2013, 24 financial institutions failed in the U.S., including 3 in Georgia
and 2 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 2014; however, we expect to continue to see less bank failures. We believe that the larger financial institutions
acquiring 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 $765.3 million, or 35.8% of our consolidated deposits at
December 31, 2013.
The table below depicts our market share percentage within each county, based on commercial bank deposits within the
county.
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
Market Share as of
June 30,(1)
2012
2011
2013
4.5%
51.8%
3.6%
1.8%
15.1%
70.2%
40.8%
14.0%
1.9%
19.8%
15.3%
27.8%
9.0%
0.1%
18.9%
0.9%
6.8%
21.8%
13.6%
13.8%
3.8%
12.7%
14.6%
9.0%
5.1%
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%
Chambers ..................................................................................
(1) Obtained from the June 30, 2013 FDIC Summary of Deposits Report.
8.1%
7.7%
10
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%
6.8%
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 .......................................................................................................
Data obtained from the June 30, 2013 FDIC Summary of Deposits Report.
Seasonality
Number of
Commercial
Banks
Number of
Commercial
Bank
Offices
17
3
13
13
4
3
4
3
14
2
17
2
6
23
6
21
5
3
3
6
10
5
5
10
10
6
64
3
48
30
5
4
7
5
40
2
82
11
6
110
13
61
8
4
5
6
51
10
8
20
24
9
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.
11
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.
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.
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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% of 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% 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
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 CCBG 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, 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 bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture
may aid the depository institution’s financial condition.
We suspended payments of dividends to our shareowners in December 2011. On February 27, 2014, our board of directors
declared a cash dividend of $0.02 per common share, payable on March 24, 2014 to shareowners of record as of the close of
business on March 10, 2014.
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
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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.
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, 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
CCB pays its 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.
Under the current assessment system, the FDIC assigns an institution to one of four categories designed to measure risk, with
the first category having two sub-categories based on the institution’s most recent supervisory and capital evaluations. 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.
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.
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Under the Federal Deposit Insurance Act, or FDIA, the FDIC may terminate deposit insurance upon a finding that the
institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Transactions With Affiliates
Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of 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. The federal banking regulators have issued final rules
that are effective January 1, 2015 for community banks. These final rules are major changes to the current general risk-based
capital rule and are designed to substantially conform with the Basel III international standards.
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
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Capital. Total capital is the sum of Tier I and Tier II Capital less reciprocal holdings of other banking organizations’ capital
instruments, investments in unconsolidated subsidiaries and any other deductions as determined by the appropriate regulator
(determined on a case by case basis or as a matter of policy after formal rule making).
In computing total risk-weighted assets, bank and 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.
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As of December 31, 2013, 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.
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, 2013:
Tier I Capital:
CCBG .................................................................... $256,338 16.56% $ 62,058
CCB ....................................................................... 256,554 16.59% 61,992
Amount
Amount
Ratio
4.00%
4.00% $ 92,988
N/A N/A
6.00%
Total Capital:
CCBG .................................................................... 277,618 17.94% 124,116
CCB ....................................................................... 275,927 17.85% 123,984
8.00%
N/A N/A
8.00% 154,980 10.00%
Tier I Leverage:
CCBG .................................................................... 256,338 10.46% 98,029
CCB ....................................................................... 256,554 10.48% 97,931
4.00%
4.00% 122,414
N/A N/A
5.00%
In July 2013, the Federal Reserve Board released its final rules which will implement in the United States the Basel III
regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-
Frank Act. Under the final rule, minimum requirements will increase for both the quality and quantity of capital held by
banking organizations. In this respect, the final rule implements strict eligibility criteria for regulatory capital instruments and
improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international
Basel framework, the rule includes a new minimum ratio of Common Equity Tier I Capital to Risk-Weighted Assets of 4.5%
and a Common Equity Tier I Capital conservation buffer of 2.5% of risk-weighted assets. The conservation buffer will be
phased in from 2016 through 2019. The rule also, among other things, raises the minimum ratio of Tier I Capital to Risk-
Weighted Assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.
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 time, 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, established deposit
17
caps which prohibit acquisitions that result in the acquiring company controlling 30% or more of the deposits of insured
banks and thrift institutions held in the state in which the target maintains a branch or 10% or more of the deposits
nationwide. States have the authority to waive the 30% deposit cap. State-level deposit caps are not preempted as long as they
do not discriminate against out-of-state companies, and the federal deposit caps apply only to initial-entry acquisitions.
Under the Dodd-Frank Act, national banks and state banks are able to establish branches in any state if that state would
permit the establishment of the branch by a state bank chartered in that state. Florida law permits a state bank to establish a
branch of the bank anywhere in the state. Accordingly, under the Dodd-Frank Act, a bank with its headquarters outside the
State of Florida may establish branches anywhere within Florida.
Anti-money Laundering
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (“USA PATRIOT Act”), provides the federal government with additional powers to address terrorist threats through
enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-
money laundering requirements. By way of amendments to the Bank Secrecy Act (“BSA”), the USA PATRIOT Act puts in
place measures intended to encourage information sharing among bank regulatory and law enforcement agencies. In addition,
certain provisions of the USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions.
Among other requirements, the USA PATRIOT Act and the related Federal Reserve regulations require banks to establish
anti-money laundering programs that include, at a minimum:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 designed 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 Federal Home Loan Bank (“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
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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 0.12%
(or 12 basis points), which is subject to annual adjustments, of the CCB’s total assets at the end of each calendar year (with a
dollar cap of $20 million), plus 4.5% of its outstanding advances (borrowings) from the FHLB of Atlanta under the activity-
based stock ownership requirement. As of December 31, 2013, 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.
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 Credit 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
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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.
We may incur losses if we are unable to successfully manage interest rate risk.
Risks Related to Our Business
Our profitability depends to a large extent on Capital City 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 is likely to continue 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 reducing our net interest income.
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 traditional fixed rate fully amortizing 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:120) 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 the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a
balloon payment typically will depend on the borrower’s ability to either refinance the loan or timely sell the
underlying property. As of December 31, 2013, commercial mortgage loans comprised approximately 38.1% of our
total loan portfolio.
(cid:120) 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, 2013, commercial loans comprised approximately
9.0% of our total loan portfolio.
(cid:120) 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, 2013, construction loans comprised approximately 2.6% of our total loan portfolio.
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(cid:120) 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, 2013, vacant land loans
comprised approximately 6.2% of our total loan portfolio.
(cid:120) HELOCS. Our open-ended home equity loans have an interest-only draw period followed by a five year repayment
period of 0.75% of the principal balance monthly and a balloon payment at maturity. Upon the commencement of
the repayment period, the monthly payment can increase significantly, thus, there is a heightened risk that the
borrower will be unable to pay the increased payment. Further, these loans also involve greater risk because they are
generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s
ability to make a balloon payment may depend on the borrower’s ability to either refinance the loan or timely sell
the underlying property.
(cid:120) 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,
2013, consumer loans comprised approximately 11.2% of our total loan portfolio.
The increased risks associated with these types of loans result in a correspondingly higher probability of default on such
loans (as compared to fixed rated fully amortizing 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.
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.
An impairment in the carrying value of our goodwill could negatively impact our earnings and shareowners’ equity.
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
less than 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 5 in the Notes to
Consolidated Financial Statements for additional discussion. As of December 31, 2013, 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:
(cid:120)
(cid:120)
the risk characteristics of various classifications of loans;
previous loan loss experience;
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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, 2013, the Bank’s allowance for loan losses was $23.1 million, which represented approximately 1.65%
of its total amount of loans. The Bank had $37.0 million in nonaccruing loans as of December 31, 2013. The allowance is
based on management’s reasonable estimate and may not prove sufficient to cover future loan losses. Although management
uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with
respect to the Bank’s 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, 2013, our nonperforming loans totaled $37.0 million, or 2.64% of the total loan portfolio, representing a
decrease of $27.3 million from December 31, 2012. At December 31, 2013, our nonperforming assets (which include other
real estate owned) were $85.0 million, or 3.26% of total assets. In addition, the Bank had approximately $7.7 million in
accruing loans that were greater than 30 days delinquent as of December 31, 2013. 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.
Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own
the underlying real estate, we may be subject to the increased costs associated with the ownership of real property,
which could result in reduced net income.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment
and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real
estate.
The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including,
but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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.
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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
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.
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 our activities. 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.
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 capital ratios above the minimum required by law. Such financing may not be available to us on acceptable terms or
at all. Furthermore, our Articles of Incorporation do not provide shareowners with preemptive rights and such securities 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.
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. The Dodd-Frank Act contains numerous provisions that affect all banks and bank holding
companies. Many of these provisions 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 and may affect our ability to compete long-term with larger competitors.
24
The new Basel III Capital Standards may have an adverse effect on us.
In July 2013, the Federal Reserve Board released its final rules which will implement in the United States the Basel III
regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-
Frank Act. Under the final rule, minimum requirements will increase for both the quality and quantity of capital held by
banking organizations. Consistent with the international Basel framework, the rule includes a new minimum ratio of
Common Equity Tier I Capital to Risk-Weighted Assets of 4.5% and a Common Equity Tier I Capital conservation buffer of
2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also, among other things, raises
the minimum ratio of Tier I Capital to Risk-Weighted Assets from 4% to 6% and includes a minimum leverage ratio of 4%
for all banking organizations. We must begin transitioning to the new rules effective January 1, 2015. The impact of the new
capital rules is likely to require us to maintain higher levels of capital, which will lower our return on equity.
Compliance with the Consumer Financial Protection Bureau’s ability-to-repay rule safe-harbor could adversely
impact our growth or profitability.
The Consumer Financial Protection Bureau has issued a rule, effective as of January 14, 2014, designed to clarify for lenders
how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a
borrower’s ability to repay a mortgage. Loans that satisfy the “qualified mortgage” safe-harbor will be presumed to have
complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified
mortgage” loan must not contain certain specified features, including but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for
prime loans);
interest-only payments;
negative-amortization; and
terms longer than 30 years.
Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders
must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and
underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years,
taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on
qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could
make it more expensive and/or time consuming to make these loans, which could adversely impact our growth or
profitability.
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 we
pay on amounts used to fund assets, such as deposits, 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 30% of our deposits were noninterest- bearing as of December 31, 2013.
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 two years, the impact may not have been realized yet
because of the current zero interest rate policy environment.
We are subject to extensive regulation that could restrict our activities and impose financial requirements or
limitations on the conduct of our business.
25
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. 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. Many of these
regulations are 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.
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 instituted 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, 2013, approximately 79.1% 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, 2013, 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 these areas subjects
us to risk that a downturn in the economy or recession in these 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
26
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.
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, 2013, approximately 38.1% and 38.4% of our $1.400 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.
The fair value of our investments could decline which would cause a reduction in shareowners’ equity.
A large portion of our investment securities portfolio as of December 31, 2013 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. 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 February 27, 2014, our Board of Directors declared a cash dividend of $0.02 per common share, payable on March 24,
2014 to shareowners of record as of the close of business on March 10, 2014. This was the first dividend declared since we
announced the suspension of our quarterly dividend on our common stock on December 14, 2011. Declarations of any future
dividends will be contingent on our ability to earn sufficient profits and to remain adequately capitalized. In addition, due to
our contractual obligations with the holders of the trust preferred securities, if we defer the payment of accrued interest owed
to the holders of the trust preferred securities, we may not make dividend payments to our shareowners.
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
27
of Financial Regulation and Federal Reserve, declare a dividend from retained net income which accrued prior to the
preceding two years. Thus, our ability to fund future dividends may be restricted by state law.
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,
2013 was approximately 21,708 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 us and our business. 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 39% of the outstanding shares
of our common stock as of December 31, 2013. Our principal shareowners include the Estate of Robert H. Smith, who was
the brother of William G. Smith, Jr., our Chairman, President and Chief Executive Officer, which beneficially owns 17.8% of
our shares. William G. Smith, Jr. beneficially owns 21.8% of our shares. In addition, 2S Partnership beneficially owns 6.0%
of our shares, however, its shares were historically deemed to be beneficially owned by Messrs. Smith and Smith. Together,
Mr. Smith and the Estate of Robert H. Smith beneficially own approximately 33% 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.
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
28
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:120) Supermajority voting requirements to remove a director from office;
(cid:120) Provisions regarding the timing and content of shareowner proposals and nominations;
(cid:120) Supermajority voting requirements to amend Articles of Incorporation unless approval is received by a majority of
“disinterested directors”;
(cid:120) Absence of cumulative voting; and
(cid:120)
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.
29
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, 2014, the Bank had 63 full-service banking locations. Of the 63 locations, the Bank leases the land,
buildings, or both at 7 locations and owns the land and buildings at the remaining 56.
Item 3.
Legal Proceedings
We are party to lawsuits and claims arising out of the normal course of business. In management's opinion, there are no
known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on
our consolidated results of operations, financial position, or cash flows.
Item 4.
Mine Safety Disclosures.
Not applicable.
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.” We had a total of 1,651
shareowners of record as of February 28, 2014.
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.
2013
2012
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High .............................................. $ 12.69 $ 13.08 $ 12.64 $ 12.54 $ 11.91 $ 10.96 $
9.04
Low ............................................... 11.33
7.00
11.37 10.64
Close ............................................. 11.77
0.00
0.00
0.00
Cash dividends per share ..............
11.06
11.78
0.00
10.12
11.53
0.00
10.95
12.35
0.00
8.73 $
6.35
7.37
0.00
9.91
7.32
7.45
0.00
Florida law and Federal regulations impose restrictions on our ability to pay dividends and limitations on the amount of
dividends that the Bank can pay annually to us. See Item 1. “Capital; Dividends; Sources of Strength” and “Dividends” in the
Business section on page 14 and the section entitled “Liquidity and Capital Resources – Dividends” -- in Management's
Discussion and Analysis of Financial Condition and Operating Results on page 56 and Note 13 in the Notes to Consolidated
Financial Statements. On February 27, 2014, our board of directors declared a cash dividend of $0.02 per common share,
payable on March 24, 2014 to shareowners of record as of the close of business on March 10, 2014.
30
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, 2008 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 ..................................
12/31/08
12/31/09
12/31/10
12/31/11 12/31/12
Period Ending
39.71 $
47.27 $
170.38 200.63
91.37
74.10
12/31/13
48.94
281.22
132.87
100.00 $
100.00
100.00
53.92 $
145.36
71.68
50.97 $
171.74
81.25
31
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
Interest Income ................................................... $
Net Interest Income ............................................
Provision for Loan Losses ..................................
Noninterest Income .............................................
Noninterest Expense ...........................................
Net Income (Loss) ..............................................
2013
82,152 $
77,736
3,472
56,416
122,710
6,045
2012
89,680 $
84,312
16,166
55,185
124,559
108
$
2011
99,459 $
91,922
18,996
58,848
126,248
4,897
2010
110,495
97,533
23,824
56,825
133,916
(413)
2009
122,776
105,934
40,017
57,391
132,115
(3,471)
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 ...............................................
0.35 $
0.35
—
15.85
0.01 $
0.01
—
14.31
0.29 $
0.29
0.30
14.68
$
(0.02)
(0.02)
0.49
15.15
0.24%
2.40
3.54
0.00%
0.04
3.81
0.19%
1.86
4.18
(0.02)%
(0.16)
4.32
42.25
91.09
39.66
88.72
39.13
83.24
36.81
85.95
(0.20)
(0.20)
0.76
15.72
(0.14)%
(1.26)
4.96
35.14
79.78
23,095 $
1.65%
85,035
3.26
5.87
62.48
0.66
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%
123,637
4.72
6.81
53.94
1.77
43,999
2.30%
122,408
4.52
6.27
51.00
1.66
16.56%
17.94
7.58
10.46
10.58
NM
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
Averages for the Year:
Loans, Net........................................................... $ 1,450,806 $
2,213,686
Earning Assets ....................................................
2,568,662
Total Assets ........................................................
2,070,073
Deposits ..............................................................
251,427
Shareowners' Equity ...........................................
1,556,565 $
2,229,621
2,590,173
2,105,672
252,960
1,686,995 $ 1,829,193
2,294,282
2,221,317
2,644,731
2,583,197
2,192,323
2,081,583
264,679
263,048
Year-End Balances:
Loans, Net........................................................... $ 1,399,669 $
2,274,019
Earning Assets ....................................................
2,611,903
Total Assets ........................................................
2,136,248
Deposits ..............................................................
276,400
Shareowners' Equity ...........................................
1,521,302 $
2,261,781
2,633,984
2,144,996
246,889
1,628,683 $ 1,758,671
2,269,185
2,266,193
2,622,053
2,641,312
2,103,976
2,172,519
259,019
251,942
Other Data:
Basic Average Shares Outstanding ..................... 17,324,759 17,204,559 17,139,558 17,075,867
Diluted Average Shares Outstanding .................. 17,399,355 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
1,651
63
891
$
$
1,961,990
2,184,232
2,516,815
1,992,429
275,545
1,915,940
2,369,029
2,708,324
2,258,234
267,899
17,043,964
17,044,711
1,778
70
1,006
(1) As of record date. The record date is on or about March 1st of the following year.
NM – Not Meaningful
32
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, 2013 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 2013 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 63 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 interest 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.
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.
33
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
three of five markets in Georgia, we rank within the top four banks in terms of market share. Furthermore, in the counties in
which we operate, we maintain an average 8.80% market share in the Florida counties and 6.09% 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 recent 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.
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 intends to 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, mortgage banking, and insurance. 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.
EXECUTIVE OVERVIEW
2013 was a turnaround year for our Company as we reported net income of $6.0 million compared to $0.1 million in 2012.
The growth in net income on an operating basis reflects lower credit-related costs and, to a lesser extent, higher noninterest
income that was partially offset by reduction in net interest income. Below are summary highlights that impacted our
performance for the year:
(cid:120) Significant decline in loan loss provision ($12.7 million) reflective of lower loan losses and favorable loan migration
(cid:120) Solid growth in noninterest income ($1.2 million) driven by wealth management
(cid:120) Reduction in operating expenses ($1.8 million) reflective of lower OREO costs and strong expense control
(cid:120) Lower net interest income ($6.6 million) primarily attributable to declining loan balances
Our credit quality metrics improved noticeably in 2013 reflective of a significant decline in the level of our nonperforming
assets driven by both strong OREO sales as well as reduced problem loan inflows. We continue to believe that our
disciplined approach to capturing the maximum value possible when disposing of our problem assets is in the best long-term
interest of our shareowners and 2013 helped to further validate that approach.
We continued to realize an unfavorable change in our earning asset mix during 2013 due to reduction in our loan balances
which has resulted in a high level of liquidity and an unfavorable impact on earnings. Loan growth remains challenging as
our markets continued a relatively slow recovery in 2013. Efforts to stabilize our loan portfolio balances were ongoing during
2013 as we implemented new loan programs aimed at driving growth in business segments that are showing greater loan
demand, including business and indirect auto lending.
34
Our capital ratios improved noticeably year-over-year due to earnings retention, but more significantly due to a favorable
adjustment in the pension component of our other comprehensive income, which increased our tangible capital ratio by 123
basis points to 7.58% at year-end 2013.
While we have allocated significant resources to problem asset resolution in recent years, we have also been intensely
focused on our business and our changing industry. Development and implementation of strategies aimed at improving the
capacity and efficiency of our loan and deposit delivery channels positions us to capitalize on loan growth opportunities as
conditions in our markets improve as well as further enhance our core deposit franchise.
During 2014, efforts to further reduce our nonperforming assets and stabilize our loan portfolio balances will remain our key
focus as well as continuation of efforts to diversify and enhance our noninterest income revenue stream and reduce core
operating expenses.
Key components of our 2013 financial performance are summarized below:
Results of Operations
(cid:120) For 2013, taxable equivalent net interest income decreased $6.6 million, or 7.8%, to $78.3 million driven by declines
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 3.54% in 2013 was 27 basis points lower than the 3.81%
recorded in 2012. In 2013, compared to 2012, the yield on interest earning assets declined 31 basis points and was
partially offset by a decline in the cost of funds of 4 basis points.
(cid:120) We recorded a loan loss provision of $3.5 million for 2013 compared to $16.2 million in 2012, which reflected
favorable problem loan migration, lower loan losses, and overall improvement in key credit metrics. OREO costs
declined for the second consecutive year totaling $9.5 million in 2013 and $11.4 million in 2012 attributable to
lower carrying costs and a reduced level of valuation adjustments reflecting improved real estate valuations in our
markets.
(cid:120) For 2013, noninterest income totaled $56.4 million, a $1.2 million, or 2.2%, increase over 2012 attributable to
higher wealth management fees of $1.0 million and other income of $0.9 million, partially offset by lower deposit
fees of $0.5 million and mortgage banking fees of $0.1 million. Growth in new accounts and higher trading activity
by our clients drove the increase in wealth management fees. Other income increased due to higher gains from the
sale of OREO properties. Lower overdraft fees drove the reduction in deposit fees.
(cid:120) For 2013, noninterest expense totaled $122.7 million, a $1.8 million, or 1.5%, decrease from 2012 attributable to a
decline in other expense of $3.0 million and occupancy expense of $0.7 million that was partially offset by higher
compensation of $1.9 million. Lower OREO expense drove the reduction in other expense with lower legal fees,
professional fees, and miscellaneous expense also contributing to a lesser extent. Declines were realized in most of
the occupancy expense categories and generally reflect stronger cost controls and other cost reduction initiatives.
The increase in compensation expense was attributable to an increase in associate benefit expense of $2.2 million,
reflective of higher pension plan expense of $1.0 million and stock compensation expense of $0.9 million, partially
offset by a $0.3 million reduction in salary expense.
Financial Condition
(cid:120) Average assets totaled approximately $2.569 billion for 2013, a decrease of $21.5 million, or 0.8%, from 2012.
Year-over-year, average short-term investments and investment securities increased $38.6 million and $51.2 million,
respectively, while average loans declined $105.8 million. The unfavorable shift in our mix of earning assets reflects
slow recovery of loan demand in our markets and reduction in loan balances. We continue to maintain a strong
liquidity position as evidenced by average funds sold of approximately $423.0 million for the year.
(cid:120) Average total deposits for 2013 were $2.070 billion, a decrease of $35.6 million, or 1.7%, from 2012. Decreases in
NOW accounts and certificates of deposit were partially offset by increases in noninterest-bearing deposits, money
market accounts, and savings accounts.
(cid:120) At year-end 2013, our nonperforming assets totaled $85.0 million, a decrease of $32.7 million from year-end 2012.
Nonaccrual loans totaled $37.0 million at year-end 2012, a decrease of $27.2 million from year-end 2012, reflective
of loan resolutions which outpaced gross additions. Nonaccrual loan additions slowed again for the second
consecutive year, by $17 million, or 28%. The balance of OREO totaled $48.1 million at year-end 2013, a decrease
35
of $5.3 million from year-end 2012. We continued to experience progress during 2013 in our efforts to dispose of
OREO selling properties totaling $25.9 million compared to $28.2 million in 2012.
(cid:120) Our allowance for loan losses at year-end 2013 was $23.1 million (1.65% of loans) and provided coverage of 62%
of nonperforming loans compared to $29.2 million (1.93% of loans) and 45% of nonperforming loans at year-end
2012. Net charge-offs for 2013 totaled $9.5 million, or 0.66% of average loans compared to $18.0 million, or 1.16%
in 2012, reflective of lower residential and commercial real estate loan charge-offs. Since 2008, we have recorded a
cumulative loan loss provision totaling $135.0 million, or 7.1% of beginning loans and have recognized cumulative
net charge-offs of $129.6 million, or 6.8%.
(cid:120) Shareowners’ equity increased by $29.5 million from $246.9 million at December 31, 2012 to $276.4 million at
December 31, 2013, primarily attributable to an actuarial gain reducing our pension liability. We continue to
maintain a strong capital base as evidenced by a risk-based capital ratio of 17.94% and a tangible common equity
ratio of 7.58% at year-end 2013 compared to 15.72% and 6.35%, respectively, at year-end 2012.
RESULTS OF OPERATIONS
For 2013, we realized net income of $6.0 million, or $0.35 per diluted share compared to $0.1 million, or $0.01 per diluted
share, in 2011, and $4.9 million, or $0.29 per diluted share in 2011.
The increase in earnings for 2013 reflects a lower loan loss provision of $12.7 million, higher noninterest income of $1.2
million, and lower noninterest expense of $1.8 million, partially offset by a reduction in net interest income of $6.6 million
and higher income taxes of $3.2 million.
The decline in earnings for 2012 as compared to 2011 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).
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 ....................................................................
Income (Loss) Before Income Taxes ...........................................
Income Tax Expense (Benefit) ....................................................
Net Income .................................................................................. $
2013
2012
2011
82,152 $
583
82,735
4,416
78,319
3,472
583
74,264
56,416
122,710
7,970
1,925
6,045 $
89,680 $
616
90,296
5,368
84,928
16,166
616
68,146
55,185
124,559
(1,228)
(1,336)
108 $
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
Basic Net Income Per Share ........................................................ $
Diluted Net Income Per Share ..................................................... $
0.35 $
0.35 $
0.01 $
0.01 $
36
Net Interest Income
Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by
earning assets, less interest expense paid on interest bearing liabilities. We provide an analysis of our net interest income,
including average yields and rates in Tables 2 and 3 below. 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 2013, our taxable equivalent net interest income decreased $6.6 million, or 7.8%. This follows a decrease of $7.9 million,
or 8.5%, in 2012, and a decrease of $6.1 million, or 6.2%, in 2011. The decrease in our taxable equivalent net interest
income in these 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 2013, taxable equivalent interest income declined $7.6 million, or 8.4%, from 2012, $10.1 million, or 10.0% in 2012
from 2011, and $11.6 million, or 10.3%, in 2011 from 2010. 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 interest
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 31 basis point decline in the yield on interest earning assets, which decreased from 4.05% in 2012
to 3.74% for 2013. This compares to a 47 basis point decline in 2012 over 2011.
Interest expense decreased $952,000, or 17.7%, from 2012, and $2.2 million, or 28.8%, in 2012 over 2011. 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 5 basis points
from 2012, and declined 12 basis points in 2012 from 2011, reflecting the factors mentioned above.
Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on
interest bearing liabilities) decreased 26 basis points in 2013 compared to 2012 and declined 35 basis points in 2012
compared to 2011. The decrease in both years was primarily attributable to the adverse impact of lower rates and a change in
the mix of interest 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 3.54% in 2013 was 27 basis points lower than the 3.81% recorded in 2012 and was 37 basis points lower in 2012 than the
4.18% reported in 2011. In 2013, compared to 2012, the yield on earning assets declined 31 basis points and was partially
offset by a decline in the cost of funds of 4 basis points. The earning asset yield decline of 47 basis points in 2012 over 2011
was partially offset by a reduction in the cost of funds by 10 basis points.
The shift in our earning asset mix and continued unfavorable asset repricing resulted in a net interest margin of 3.45% for the
fourth quarter of 2013, which represents a decline of 33 basis points over the fourth quarter of 2012. The decline in interest
earning assets primarily attributable to the loan portfolio, coupled with the low rate environment continues to put pressure on
our net interest income.
As experienced in 2012 and again throughout 2013, 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, which is consistent with our historical
strategy, is to not accept greater interest rate risk by reaching further out the curve for yield, particularly given the fact that
37
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 2014.
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
2013
2012
2011
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
ASSETS
Loans, Net of Unearned Income(1)(2) ....................... $ 1,450,806 $78,484 5.41% $1,556,565 $85,780 5.51% $ 1,686,995 $ 95,520
3,320
Taxable Investment Securities ................................ 232,173 2,344 0.94
Tax-Exempt Investment Securities(2) ...................... 108,042
996
830 0.76
548
Funds Sold ............................................................... 422,665 1,077 0.25
223,429 2,912 1.27
658 1.00
946 0.25
243,059
62,497
228,766
65,560
384,067
Total Earning Assets ............................................... 2,213,686 82,735 3.74% 2,229,621 90,296 4.05% 2,221,317 100,384
49,978
Cash & Due From Banks ........................................
Allowance for Loan Losses .....................................
(28,167)
Other Assets ............................................................ 333,165
48,823
(32,066)
345,123
48,924
(30,959)
342,587
5.66%
1.38
1.59
0.24
4.52%
TOTAL ASSETS .................................................... $ 2,568,662
$2,590,173
$ 2,583,197
LIABILITIES
NOW Accounts ....................................................... $ 719,493 $
Money Market Accounts ......................................... 284,245
Savings Accounts .................................................... 203,864
Other Time Deposits ............................................... 231,354
634 0.08% $ 748,774 $
482 0.07% $ 771,617 $
282,271
255 0.09
280,165
211 0.07
151,801
175,712
101 0.05
87 0.05
330,750
267,263 1,132 0.42
637 0.28
Total Interest Bearing Deposits ............................... 1,438,956 1,431 0.10% 1,494,757 2,108 0.14% 1,513,596
68,061
Short-Term Borrowings ..........................................
62,887
Subordinated Notes Payable ...................................
47,841
Other Long-Term Borrowings ................................
196 0.38
52,178
62,887 1,477 2.31
41,513 1,587 3.82
235 0.44
53,922
62,887 1,420 2.23
41,077 1,330 3.24
Total Interest Bearing Liabilities ............................ 1,596,842 4,416 0.28% 1,651,335 5,368 0.33% 1,692,385
567,987
Noninterest Bearing Deposits ................................. 631,117
59,777
89,276
Other Liabilities .......................................................
610,915
74,963
TOTAL LIABILITIES ............................................ 2,317,235
2,337,213
2,320,149
SHAREOWNERS' EQUITY
TOTAL SHAREOWNERS' EQUITY .................... 251,427
252,960
263,048
TOTAL LIABILITIES & EQUITY ........................ $ 2,568,662
$2,590,173
$ 2,583,197
890
437
73
2,547
3,947
305
1,380
1,905
7,537
0.12%
0.15
0.05
0.77
0.26%
0.45
2.16
3.98
0.45%
Interest Rate Spread ................................................
Net Interest Income .................................................
3.46%
3.72%
$78,319
$84,928
$ 92,847
Net Interest Margin(3) ..............................................
3.54%
3.81%
4.07%
4.18%
(1)
(2)
(3)
Average balances include nonaccrual loans. Interest income includes loan fees of $1.6 million, $1.6 million, and $1.5 million in 2013, 2012, and 2011,
respectively.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
Taxable equivalent net interest income divided by average earning assets.
38
Table 3
RATE/VOLUME ANALYSIS(1)
2013 vs. 2012
Increase (Decrease) Due to Change In
Volume
Rate
2012 vs. 2011
Increase (Decrease) Due to Change In
Calendar Volume Rate
Total
(Taxable Equivalent Basis - Dollars in Thousands) Total
Earnings Assets:
Loans, Net of Unearned Interest(2) ........................ $
Investment Securities:
Taxable .................................................................
Tax-Exempt(2) .......................................................
Funds Sold ............................................................
Total .....................................................................
(568)
172
131
(7,561)
(7,296) $
(5,828) $
(1,468) $ (9,740) $
262 $ (7,610) $ (2,392)
114
519
95
(5,100)
(682)
(347)
36
(408)
(338)
398
(2,461) (10,088)
9
3
1
(236)
(181)
(390)
49
(138)
535
275 (7,207) (3,156)
Interest Bearing Liabilities:
NOW Accounts.....................................................
Money Market Accounts ......................................
Savings Accounts .................................................
Time Deposits .......................................................
Short-Term Borrowings ........................................
Subordinated Notes Payable .................................
Other Long-Term Borrowings ..............................
Total .....................................................................
(152)
(44)
14
(495)
39
(57)
(257)
(952)
(34)
4
14
(152)
7
—
(13)
(174)
(118)
(48)
—
(343)
32
(57)
(244)
(778)
(256)
(182)
(368)
109
3
(180)
(3)
1
2
12
14 —
(935)
(487)
7
2
(112)
1
93
4 —
(251)
5
(72)
(732) (1,458)
21
(1,415)
(109)
97
(318)
(2,169)
Changes in Net Interest Income ............................ $
(6,609) $
(4,926) $
(1,683) $ (7,919) $
254 $ (6,475) $ (1,698)
(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 interest 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 $3.5 million in 2013 compared to $16.2 million in 2012 and $19.0 million in 2011. The
decline in the provision for 2013 and 2012 reflects favorable problem loan migration, lower loan losses, and overall
improvement in key credit metrics. We discuss these trends in further detail below under Risk Element Assets and Allowance
for Loan Losses.
Noninterest Income
Noninterest income totaled $56.4 million in 2013, $55.2 million in 2012, and $58.8 million in 2011. For 2013, the $1.2
million, or 2.2%, increase over 2012 reflects higher wealth management fees of $1.0 million and other income of $0.9
million, partially offset by lower deposit fees of $0.5 million and mortgage banking fees of $0.1 million.
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.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 42.2% in 2013,
39.7% in 2012, and 39.1% in 2011. The increase in this metric for 2013 and 2012 reflects a reduction in net interest income,
which was previously discussed in detail under Net Interest Income.
39
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
Deposit Fees .............................................................................. $
Bank Card Fees ..........................................................................
Wealth Management Fees ..........................................................
Securities Transactions ..............................................................
Mortgage Banking Fees .............................................................
Data Processing Fees .................................................................
Other ..........................................................................................
Total Noninterest Income .......................................................... $
2013
2012
2011
25,254 $
10,786
8,179
3
3,534
2,674
5,986
56,416 $
25,792 $
10,783
7,181
—
3,600
2,713
5,116
55,185 $
25,451
10,141
7,615
—
2,675
3,230
9,736
58,848
Various significant components of noninterest income are discussed in more detail below.
Deposit Fees. For 2013, deposit service charge fees totaled $25.3 million, compared to $25.8 million in 2012 and $25.5
million in 2011. The $0.5 million, or 2.1%, decrease in 2013 compared to 2012 reflects a lower level of overdraft fees,
partially offset by higher business account analysis fees. The $0.3 million, or 1.3%, increase in 2012 compared to 2011 was
driven by a lower level of charged-off checking accounts and improved fee collection experience.
Bank Card Fees. Bank card fees totaled $10.8 million in 2013 compared to $10.8 million in 2012 and $10.1 million in 2011.
Bank card fees were essentially flat in 2013 compared to 2012 due to a reduction in the interchange rate for PIN based
transactions. The $0.6 million, or 6.3%, increase in 2012 compared to 2011 reflects higher card utilization as well as an
increase in the number of active cards due to an increase in transaction accounts.
Wealth Management Fees. Wealth management fees include both trust fees (i.e., managed accounts, trusts/estates, and
retirement plans) and retail brokerage fees (i.e., investment and insurance products) totaled $8.2 million in 2013 compared to
$7.2 million in 2012 and $7.6 million in 2011. The $1.0 million, or 13.9%, increase in 2013 compared to 2012 reflects a $1.2
million increase in retail brokerage fees partially offset by a $0.1 million decrease in trust fees. The growth in retail brokerage
fees was driven by higher trading activity by our clients and new account growth. The slight decline in trust fees reflects a
decline in trust assets under management primarily attributable to account distributions. The $0.4 million, or 5.7%, decrease
in 2012 compared to 2011 was due to lower trust fees of $0.3 million and retail brokerage fees of $0.1 million. The reduction
in trust fees was driven by lower asset values for managed accounts as well as a decline in estate management fees. The slight
decline in retail brokerage fees was attributable to lower trading activity by our clients. At December 31, 2013, total assets
under management were approximately $1.259 billion compared to $1.124 billion at December 31, 2012 and $1.142 billion
at December 31, 2011.
Mortgage Banking Fees. Mortgage banking fees totaled $3.5 million in 2013 compared to $3.6 million in 2012 and $2.7
million in 2011. The $0.1 million, or 1.8%, decrease in 2013 compared to 2012 primarily reflects a slowdown in refinance
activity that was substantially offset by a higher margin realized for sold loans. The $0.9 million, or 34.6%, increase in 2012
compared to 2011 was attributable to increased home purchase activity in our markets and an increase in refinancing activity
due to the lower rate environment. Refinancing activity represented 32% of our loan production in 2013 compared to 39%
and 30% for 2012 and 2011, respectively. 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.
Data Processing Fees. For 2013 and 2012, data processing fees totaled $2.7 million compared to $3.2 million in 2011. The
decrease in 2012 was 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. This processing contract has historically been subject to renewal every three years, but has been renewed on
a one-year basis since 2012 due to the agency’s migration to a new processor set to be fully implemented by mid-2014. Thus,
we expect our data processing fees to significantly decline in 2014.
Other. Other noninterest income totaled $6.0 million in 2013 compared to $5.1 million and $9.7 million, respectively, for
2012 and 2011. The increase in 2013 compared to 2012 was due to a higher level of gains from the sale of OREO properties
as well as higher bonus income received from our debit card processor reflecting renegotiation of our processing agreement.
The decrease realized in 2012 reflects the impact of a $3.2 million gain from the sale of our Visa stock in 2011 as well as a
lower level of gains from the sale of OREO properties.
40
Noninterest Expense
Noninterest expense totaled $122.7 million in 2013 compared to $124.6 million in 2012 and $126.2 million in 2011. For
2013, the $1.8 million, or 1.5%, decrease was attributable to a decline in other expense of $3.0 million and occupancy
expense of $0.7 million that was partially offset by higher compensation of $1.9 million. Lower OREO expense drove the
reduction in other expense due to lower carrying costs and valuation adjustments reflecting improving property values in our
markets. Lower legal fees, professional fees, and miscellaneous expense also contributed to the reduction in other expense.
Declines were realized in most of the occupancy expense categories and were generally driven by stronger cost controls and
other cost reduction initiatives. The increase in compensation expense was attributable to an increase in associate benefit
expense of $2.2 million, reflective of higher pension plan expense of $1.0 million and stock compensation expense of $0.9
million, partially offset by a $0.3 million reduction in salary expense.
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 higher 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 plan
expense, partially offset by a reduction in salary expense of $1.5 million.
Our operating efficiency ratio (expressed as noninterest expense as a percent of taxable equivalent net interest income plus
noninterest income) was 91.09%, 88.72% and 83.24% in 2013, 2012 and 2011, respectively. A reduction in net interest
income as well as an elevated level of OREO expense, FDIC insurance fees, and pension costs was the primary reasons for
the elevated efficiency ratio for all periods. Our 2011 operating efficiency ratio reflects the favorable impact of the $3.2
million pre-tax gain from the sale of our Visa stock.
Expense management is an important part of our culture and strategic focus and we will continue to review and evaluate
opportunities to optimize our operations, reduce operating costs and manage our discretionary expenses.
The table below reflects the major components of noninterest expense.
(Dollars in Thousands)
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 Expense .......................................................................
2013
2012
2011
48,584 $
17,543
66,127
48,925 $
15,317
64,242
8,863
8,468
17,331
3,663
4,304
5,396
1,719
870
994
1,891
1,309
4,144
210
9,539
5,213
39,252
9,152
8,903
18,055
4,303
4,882
3,967
1,815
839
1,154
1,896
1,595
4,104
431
11,428
5,848
42,262
50,417
13,225
63,642
9,713
8,558
18,271
4,106
3,832
3,708
2,471
898
1,321
1,895
1,780
4,474
675
12,586
6,589
44,335
Total Noninterest Expense .............................................................. $
122,710 $
124,559 $
126,248
41
Various significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled $66.1 million in 2013, $64.2 million in 2012, and $63.6 million in 2011. The
$1.9 million, or 2.9%, increase in 2013 was due to higher associate benefit expense of $2.2 million partially offset by lower
salary expense of $0.3 million. The increase in associate benefit expense reflects higher expense for our pension plans of $1.0
million primarily driven by the lower discount rate used for computing plan cost. Higher stock compensation expense of $0.9
million also contributed to the increase reflecting an improvement in company performance. The reduction in salary expense
was driven by a reduction in base salary expense of $0.8 million attributable to further reduction in associate headcount that
was partially offset by higher cash basis performance pay.
For 2012, the $0.6 million, or 0.9%, increase over 2011 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.
Occupancy. Occupancy expense (including premises and equipment) totaled $17.3 million for 2013, $18.1 million for 2012,
and $18.3 million for 2011. For 2013, the $0.7 million, or 4.0%, decline from 2012 was attributable to a reduction in
premises expense of $0.3 million and FF&E expense of $0.4 million. The decrease in premises expense was primarily driven
by lower lease and utility expense. During 2012 and 2013, we did not renew leases on two banking offices. An internal
energy efficiency program initiated in early 2013 drove the reduction in utility costs. The decrease in FF&E expense reflects
lower depreciation expense reflecting full depreciation of our item processing system as well as lower expense for
maintenance agreements. For 2012, the $0.2 million, or 1.2%, decrease from 2011 reflects lower premises expense of $0.5
million 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.
Other. Other noninterest expense totaled $39.3 million in 2013, $42.3 million in 2012, and $44.3 million in 2011. The $3.0
million, or 7.1%, decrease in 2013 reflects lower expense for OREO properties of $1.9 million, legal fees of $0.6 million,
professional fees of $0.6 million, postage of $0.3 million, printing/supplies of $0.2 million, intangible amortization of $0.2
million, and miscellaneous expense of $0.6 million, partially offset by higher processing services of $1.4 million. OREO
expense decreased due to lower property carrying costs and a reduction in losses from the sale of properties reflecting
improving property values in our markets. Lower legal costs to support collection/foreclosure activity and borrower
bankruptcy proceedings drove the decline in legal fees. Professional fees decreased due to a reduction in cost for performing
our goodwill analysis during the year as well as lower internal audits costs and real estate appraisal costs. The decline in
postage costs reflects our initiative to migrate our clients to e-statements and we expect to continue this trend into 2014.
Printing and supplies expense decreased due to stronger cost controls. Full amortization of our remaining core deposit
intangible drove the decline in intangible amortization expense. The reduction in miscellaneous expense was attributable to
the reclassification of our debit card processing costs to the processing services expense category. Processing services
expense increased primarily due to the outsourcing of our item processing system in early 2013 and to a lesser extent the
aforementioned reclassification of debit card processing costs. While increasing the level of expense for processing services,
our decision to outsource our items processing system enable us to reduce expense in other areas such as compensation,
printing/supplies, and postage.
For 2012, the $2.1 million, or 4.7%, decrease from 2011 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.
42
Income Taxes
For 2013, we realized income tax expense of $1.9 million (effective tax rate of 24.2%) compared to an income tax benefit of
$1.3 million (effective tax rate of 108.7%) in 2012 and income tax expense of $0.6 million (effective tax rate of 11.4%) in
2011. The increase in the tax provision for 2013 was driven by higher operating profits. The reduction in the tax provision for
2012 was primarily attributable to lower book operating profit. The tax provisions for all periods were favorably affected by
the resolution of tax contingencies totaling approximately $0.8 million, $0.3 million and $0.2 million, respectively.
FINANCIAL CONDITION
Average assets totaled approximately $2.569 billion for the year 2013, a decrease of $21.5 million, or 0.8%, over
2012. Average interest earning assets were approximately $2.214 billion, representing a decrease of $15.9 million, or 0.7%,
over 2012. Year-over-year, average short-term investments and investment securities increased $38.6 million and $51.2
million, respectively, while average loans declined $105.8 million. We discuss these variances in more detail below.
Table 2 provides information on average balances and rates, Table 3 provides an analysis of rate and volume variances and
Table 4 highlights the changing mix of our interest earning assets over the last three years.
Loans
In 2013, average loans decreased $105.8 million, or 6.8%, compared to $130.4 million, or 7.7%, in 2012. Loans as a percent
of average earning assets declined to 65.5% in 2013, down from the 2012 and 2011 levels of 69.8% and 75.9%,
respectively. The loan portfolio experienced continued runoff throughout 2013 driven by declines in all portfolios. The
largest declines over the past two years were experienced primarily in the commercial real estate and residential real estate
categories. Our core loan portfolio continues to be impacted by normal amortization and a higher level of payoffs and pay
downs that have continued to outpace 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
2013, loan resolutions (gross charge-offs plus loans transferred to OREO) accounted for $36.7 million, or 30%, of the net
reduction in total loans of $121.6 million (based on “as of” balances). Since the end of 2008, loan resolutions have accounted
for $337 million, or approximately 60% of the net reduction in the portfolio of $558.1 million.
New loan production for 2013 was higher than 2012 as our efforts to stimulate new loan growth are ongoing. Without
compromising our credit standards or taking on inordinate interest rate risk, we have modified several lending programs in
our business and commercial real estate areas to try and mitigate the significant impact that consumer and business
deleveraging is having on our portfolio.
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, 2013, we originated roughly 5,730
residential real estate loans totaling approximately $911 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.
43
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances – Dollars In Thousands)
Loans:
2012 to
2013
Change
Percentage
Total
Change
Components of
Average Earning Assets
2012
2013
2011
Commercial, Financial, and Agricultural .................. $
Real Estate – Construction ........................................
Real Estate – Commercial Mortgage .........................
Real Estate – Residential ...........................................
Real Estate – Home Equity .......................................
Consumer ..................................................................
Total Loans ............................................................ $
(4,862)
2,124
(33,859)
(42,286)
(8,529)
(18,347)
(105,759)
(31.0)%
13.0
(212.0)
(265.0)
(53.0)
(115.0)
(663.0)%
6.0%
1.8
27.5
16.3
10.8
7.5
5.8%
1.9
26.2
14.5
10.5
6.8
65.7% 69.9%
6.6%
1.4
29.6
18.3
11.1
8.8
75.8%
Investment Securities:
Taxable ...................................................................... $
Tax-Exempt ...............................................................
Total Securities ......................................................
8,744
42,482
51,226
55.0%
266.0
321.0
10.5% 10.0%
4.9
15.4
2.9
12.9
11.0%
2.9
13.9
Funds Sold ....................................................................
38,598
242.0
18.9
17.2
10.3
Total Earning Assets .............................................. $
(15,935)
100.0%
100.0% 100.0% 100.0%
Our average loan-to-deposit ratio decreased to 70.1% in 2013 from 73.9% in 2012. 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, 2013, based upon maturities. As a percent of the total portfolio, loans with fixed
interest rates represent 32.4% as of December 31, 2013, versus 32.0% at December 31, 2012.
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
2009
189,061
mmercial, Financial and Agricultural ............. $
Real Estate – Construction(1) ........................
111,249
716,791
Real Estate – Commercial Mortgage ...........
Real Estate – Residential(1) ..........................
416,469
246,722
Real Estate – Home Equity ..........................
Consumer .....................................................
235,648
Total Loans, Net of Unearned Income ......... $ 1,399,669 $ 1,521,302 $ 1,628,683 $ 1,758,671 $ 1,915,940
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
2013
126,607 $
36,187
533,871
315,582
227,922
159,500
2010
157,394 $
43,239
671,702
430,541
251,565
204,230
(1) Includes Loans Held For Sale
44
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
62,560
19,342
83,680
41,204
742
15,748
223,276
Loans with Fixed Rates.......................................... $
Loans with Floating or Adjustable Rates ...............
Total ....................................................................... $
97,589
125,687
223,276
Maturity Periods
Over One
Through
Five Years
44,605
10,405
96,038
35,799
27,884
89,637
304,368
231,539
72,829
304,368
$
$
$
$
$
$
$
$
Over
Five
Years
19,442
6,440
354,153
238,579
199,296
54,115
872,025
123,980
748,045
872,025
$
$
$
$
Total
126,607
36,187
533,871
315,582
227,922
159,500
1,399,669
453,108
946,561
1,399,669
(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 $85.0 million at year-end 2013 compared to $117.7 million at
year-end 2012. Nonaccrual loans totaled $37.0 million at year-end 2013, a decrease of $27.2 million from year-end 2012,
reflective of loan resolutions (charge-offs, transfer of loans to OREO, and payments) and loans restored to an accrual status,
which outpaced gross additions. Gross additions declined by $17 million and $45 million in 2013 and 2012, respectively. The
balance of OREO totaled $48.1 million at year-end 2013, a decrease of $5.3 million from year-end 2012. We continued to
experience progress during 2013 in our efforts to dispose of OREO selling properties totaling $25.9 million compared to
$28.2 million in 2012. Nonperforming assets represented 3.26% of total assets at December 31, 2013 compared to 4.47% at
December 31, 2012.
We continue to allocate significant resources to reduce our level of nonperforming assets and mitigate losses and we realized
continued progress during 2013.
45
Table 7
RISK ELEMENT ASSETS
(Dollars in Thousands)
Nonaccruing Loans:
2013
2012
2011
2010
2009
2,729
188
Commercial, Financial and Agricultural ..............
20,797
426
Real Estate – Construction ...................................
29,042
Real Estate – Commercial Mortgage .................... 25,227
26,599
6,440
Real Estate – Residential ......................................
5,280
4,084
Real Estate – Home Equity ..................................
1,827
599
Consumer .............................................................
Total Nonperforming Loans (“NPLs”)(1) ................. $ 36,964 $
86,274
Other Real Estate Owned ......................................... 48,071
36,134
Total Nonperforming Assets (“NPAs”) ................... $ 85,035 $ 117,648 $ 137,623 $ 123,637 $ 122,408
36,501
7,746 $
Past Due Loans 30 – 89 Days .................................. $
—
Past Due Loans 90 Days or More (accruing) ...........
—
21,644
Performing Troubled Debt Restructurings ............... $ 44,764 $
1,059
755
1,907
334
26,874
42,820
30,189
25,671
4,803
4,283
868
1,160
75,023 $ 65,700 $
57,937
62,600
1,069
4,071
41,045
13,429
4,034
574
64,222 $
53,426
19,425 $ 24,193 $
159
37,675 $ 21,649 $
9,934 $
—
47,474 $
224
Nonperforming Loans/Loans ...................................
2.64%
4.50%
Nonperforming Assets/Total Assets ........................
3.26
4.52
Nonperforming Assets/Loans Plus OREO ...............
5.87
6.27
Allowance/Nonperforming Loans ...........................
62.48%
51.00%
(1) Nonaccrual TDRs totaling $11.0 million and $9.9 million are included in nonaccrual/NPL totals for December 31, 2013
4.61%
5.21
8.14
41.37%
4.22%
4.47
7.47
45.42%
3.74%
4.72
6.81
53.94%
and December 31, 2012, 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(1) .................................................................................................................
Valuation Write-downs ..............................................................................................
Sales ...........................................................................................................................
Other ..........................................................................................................................
Ending Balance ..............................................................................................................
2013
2012
117,648 $
137,623
64,222
44,070
(11,523)
(23,355)
(18,311)
(18,139)
36,964
53,426
24,488
(3,592)
(25,940)
(311)
48,071
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
(19,975)
117,648
NPA Net Change ..........................................................................................................
NPA Ending Balance ..................................................................................................... $
(32,613)
85,035 $
(1) The difference in OREO additions and nonaccrual loans transferred to OREO represents loans migrating to OREO
status that were not in a nonaccrual status in a prior period.
46
Nonaccrual Loans. Nonaccrual loans totaled $37.0 million at year-end 2013, a decrease of $27.2 million from year-end 2012.
Gross additions to nonaccrual status during 2013 totaled $44.1 million compared to $61.1 million in 2012. 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
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 2013 had been recognized on a fully accruing basis, we would have
recorded an additional $3.4 million of interest income for the year ended December 31, 2013.
Nonaccrual loans secured by vacant land totaled $7.7 million at year-end 2013 compared to $11.9 million at year-end 2012,
$7.9 million at year-end 2011, $18.7 million at year-end 2010, $38.0 million at year-end 2009, and $51.3 million at year-end
2008. Of the $7.7 million in these loans at year-end 2013, approximately 33% 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 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 $48.1 million at December 31, 2013 versus $53.4 million at December 31, 2012. During 2013, we added
properties totaling $24.5 million and partially or completely liquidated properties totaling $26.3 million. Revaluation
adjustments for other real estate owned properties during 2013 totaled $3.6 million and were charged to noninterest expense
when realized. For 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.
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 ................................................................................................................. $
2013
2012
29,821 $
3,964
12,702
1,584
48,071 $
37,063
6,484
8,200
1,679
53,426
Troubled Debt Restructurings. TDRs are loans on which, due to the deterioration in the borrower’s financial condition, the
original terms have been modified and deemed a concession to the borrower. From time to time we 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 2013 totaled $55.8 million compared to $57.4 million at year-end 2012. Accruing
TDRs make up approximately $44.8 million, or 80%, of our TDR portfolio at year-end 2013 of which $2.6 million was over
30 days past due. The weighted average rate for the loans within the accruing TDR portfolio is 5.3%. During 2013, we
modified 50 loan contracts totaling approximately $12.8 million of which two loan contracts totaling $0.1 million have
defaulted. Our TDR default rate (default balance as a percentage of average TDRs) during 2013 and 2012 was 10% and 24%,
respectively.
47
The composition of our TDR portfolio as of December 31 is provided in the table below.
Accruing
2013
Nonaccruing(1)
Accruing
(Dollars in Thousands)
Commercial, Financial and Agricultural .................. $
Real Estate – Construction .......................................
Real Estate – Commercial Mortgage .......................
Real Estate – Residential .........................................
Real Estate – Home Equity ......................................
Consumer .................................................................
Total TDRs .............................................................. $
1,511 $
156
24,735
16,441
1,576
345
44,764 $
— $
—
10,308
458
241
—
11,007 $
2012
Nonaccruing(1)
508
—
8,425
936
—
10
9,879
1,462 $
161
29,870
13,824
1,587
570
47,474 $
(1) Nonaccruing TDRs are included in nonaccrual/NPL totals and NPA/NPL ratio calculations.
Activity within our TDR portfolio is provided in the table below.
(Dollars in Thousands)
TDR Beginning Balance: ............................................................................................... $
Additions ....................................................................................................................
Charge-Offs ................................................................................................................
Paid Off/Payments .....................................................................................................
Removal Due to Change in TDR Status .....................................................................
Defaults ......................................................................................................................
TDR Ending Balance ..................................................................................................... $
2013
2012
57,353 $
12,742
(1,018)
(5,725)
(1,632)
(5,950)
55,770 $
50,651
27,186
(2,036)
(3,173)
(2,284)
(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 2013 totaled $7.7 million compared to $9.9 million at year-end 2012. We have
realized a reduction in past due loans for the past two years reflecting a slowdown in problem loan inflow as well as
continued progress in loan resolution outcomes.
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, 2013, we had $7.4
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 $9.5 million at December 31, 2012. 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 79% at year-end 2013 and 80% at year-end 2012. The primary types of real estate collateral
are commercial properties and 1-4 family residential properties. At December 31, 2013, commercial real estate and
residential real estate mortgage loans (including home equity loans) accounted for 38.1% and 41.4%, 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.
Investor
Real Estate
2013
Owner Occupied
Real Estate
Investor
Real Estate
2012
Owner Occupied
Real Estate
—
65.0%
65.0%
11.1%
23.9%
35.0%
Vacant Land, Construction, and Land Development ....
Improved Property ........................................................
Total Real Estate Loans ................................................
10.0%
23.2%
33.2%
—
66.8%
66.8%
48
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, we have worked to reduce our exposure to the
higher risk land/construction category through pro-active workouts, appropriate charge-offs, or foreclosure. Approximately
69% of the land/construction category was secured by residential real estate at year-end 2013.
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.
Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The allowance consists of two
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.
Table 9 analyzes the activity in the allowance over the past five years.
For 2013, our net charge-offs totaled $9.5 million, or 0.66%, of average loans, compared to $18.0 million, or 1.16%, for
2012, and $23.4 million, or 1.39%, for 2011. Reductions in residential and commercial real estate loan charge-offs of $5.9
million and $2.4 million, respectively, drove the year over year decline in net charge-offs in 2013. Since 2008, we have
recorded a cumulative loan loss provision totaling $135.0 million, or 7.1%, of beginning loans and have recognized
cumulative net charge-offs of $129.6 million, or 6.8%. 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.
At year-end 2013, the allowance for loan losses of $23.1 million was 1.65% of outstanding loans (net of overdrafts) and
provided coverage of 62% of nonperforming loans compared to 1.93% and 45%, respectively, at year-end 2012, and 1.91%
and 41%, respectively, at the end of 2011.
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.
49
The reduction in the allowance for loan losses from December 31, 2012 to December 31, 2013 was primarily attributable to a
decline in impaired loan reserves and to a lesser extent a reduction in general reserves. The reduction in impaired loan
reserves was driven by a lower level of impaired loans reflecting reduced inflow and successful resolutions as well as lower
loss content. The decrease in general reserves reflects slower problem loan migration, lower loan loss experience, as well as
continued improvement in credit metrics. In 2013, we incorporated subjective factors of estimation risk into each loan
category which eliminated the unallocated portion of the allowance. The reduction in the allowance for loan losses from
December 31, 2011 to December 31, 2012 was attributable to a lower level of general reserves reflecting slower problem loan
migration, lower loan loss experience, and improved credit metrics. It is management’s opinion that the allowance at
December 31, 2013 is adequate to absorb probable losses inherent in the loan portfolio at year-end.
Table 9
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
Balance at Beginning of Year ............................................................. $29,167 $31,035 $ 35,436 $ 43,999 $37,004
Reclassification of Reserve for Unfunded Loan Commitments to
2010
2012
2009
2011
2013
Other Liabilities .............................................................................. — — — —
392
Charge-Offs:
822 1,843 2,118 2,590
748
Commercial, Financial and Agricultural .............................................
Real Estate – Construction .................................................................. 1,070
114 5,877 8,031
629
Real Estate – Commercial ................................................................... 3,651 6,031 6,713 8,762 4,417
Real Estate – Residential .................................................................... 3,835 9,719 11,870 12,168 13,491
Real Estate – Home Equity ................................................................. 1,159 2,896 2,727 3,087 1,632
Consumer ............................................................................................ 1,751 2,125 2,924 3,502 5,912
Total Charge-Offs ............................................................................... 12,214 22,222 26,191 35,514 36,073
Recoveries:
290
209
387
567
Commercial, Financial and Agricultural .............................................
43
1
14
540
Real Estate – Construction ..................................................................
363
682
251
53
Real Estate – Commercial ...................................................................
838 1,291
478
525
Real Estate – Residential ....................................................................
5
214
399
294
Real Estate – Home Equity .................................................................
Consumer ............................................................................................
965 1,483 1,450 1,548 1,753
Total Recoveries ................................................................................. 2,670 4,188 2,794 3,127 3,443
370
8
261
385
555
Net Charge-Offs .................................................................................. 9,544 18,034 23,397 32,387 32,630
Provision for Loan Losses .................................................................. 3,472 16,166 18,996 23,824 40,017
Balance at End of Year ....................................................................... $23,095 $29,167 $ 31,035 $ 35,436 $43,999
Ratio of Net Charge-Offs to Average Loans Outstanding ..................
0.66%
1.16% 1.39% 1.77%
1.66%
Allowance for Loan Losses as a Percent of Loans at End of Year .....
1.65%
1.93% 1.91% 2.01%
2.30%
Allowance for Loan Losses as a Multiple of Net Charge-Offs ...........
2.42x
1.62x 1.33x 1.09x
1.35x
50
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5
Investment Securities
In 2013, our average investment portfolio increased $51.2 million, or 17.7%, from 2012 and decreased $16.6 million, or
5.4%, from 2011 to 2012. As a percentage of average earning assets, the investment portfolio represented 15.4% in 2013,
compared to 13.0% in 2012. In 2013, the increase in the average balance of the investment portfolio resulted from
strategically growing investment purchases to offset a portion of the decline in the loan portfolio. 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 2014, we will continue to 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.
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. Two types of classifications are approved for investment securities which are Available-for-
Sale (“AFS”) and Held-for-Maturity (“HTM”). In 2013, securities were purchased under both the AFS and HTM
designations. As of December 31, 2013, $241.5 million, or 62.2% of the investment portfolio was classified as AFS, with the
remaining $147.0 million classified as HTM.
In 2013, average taxable investments increased $8.7 million, or 3.9%, while tax-exempt investments increased $42.5 million,
or 64.8%. Taxable investments increased slightly as part of our overall investment strategy in 2013. Short-term yields
improved during the year making these investments more attractive. Average balances of tax-exempt investments increased
considerably as high quality non-taxable securities were more readily available in 2013. Management will continue to
purchase municipal issues as they become available and when it considers the yield to be attractive.
At acquisition, the classification of the security will be determined based on how the purchase will affect the company’s
asset/liability strategy and future business plans and opportunities. Such decisions will be weighed against multiple factors,
including regulatory capital requirements, volatility in earnings or other comprehensive income, and liquidity needs.
Securities in the AFS 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. Securities that
are HTM will be acquired or owned with the intent of holding them to maturity (final payment date). HTM investments are
measured at amortized cost. It is neither management’s current 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.
At December 31, 2013, the investment portfolio maintained a net pre-tax unrealized gain of $0.3 million in the AFS portfolio
compared to a net pre-tax unrealized gain of $0.9 million at December 31, 2012. At the end of 2013, there were 119
positions (combined AFS and HTM) with unrealized losses totaling $1.75 million. Of the 119 positions, 89 were Ginnie Mae
mortgage-backed securities (GNMA), U.S. Treasuries, or SBA securities, all of which carry the full faith and credit guarantee
of the U.S. Government. SBA securities float monthly or quarterly to the prime rate and are uncapped. Seven of the SBA
positions have been in an unrealized loss position for longer than 12 months, and have an unrealized loss of $21,000. There
were 24 municipal bonds in an unrealized loss position that were pre-refunded, or rated “AA-”or better. One position was in
an unrealized loss position for longer than 12 months, and has an unrealized loss of $12,000. The remaining six securities are
Federal Farm Credit agency bonds, none of which have been in an unrealized loss position for longer than 12 months. None
of the positions with unrealized losses are considered impaired, and are expected to mature at par or better. Excluded from
these figures at December 31, 2012 is an unrealized loss on a preferred stock investment of $0.6 million that was carried at a
zero book value. We realized the $0.6 million in additional impairment on this security during 2013.
The average maturity of the total portfolio at December 31, 2013 and 2012 was 1.95 and 1.57 years, respectively.
Balances in all asset classes increased compared to last year with the exception of GNMA mortgage-backed securities.
Purchases of U.S. Treasuries and government agencies out to three years were added in 2013 which extended the average life
of the investment portfolio. See Table 11 for a breakdown of maturities by investment type.
The weighted average taxable equivalent yield of the investment portfolio at December 31, 2013 was 0.94% versus 1.13% in
2012. This lower yield was a result of the proceeds from maturing bonds being invested at lower market rates during
2013. 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,
2013. New investments continue to be made selectively into short-duration, high quality bonds.
52
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Deposits and Funds Purchased
Average total deposits for the year were $2.070 billion; a decrease of $35.6 million, or 1.7%, compared to the same period in
2012 and deposits increased $24.1 million, or 1.2%, from 2011 to 2012. Decreases in NOW accounts and certificates of
deposit were partially offset by increases in noninterest bearing deposits, money market accounts, and savings accounts. The
increase occurring from 2011 to 2012 was attributable to increases in noninterest bearing deposits, NOW accounts, and
savings accounts, which were partially offset by declines in certificates of deposit.
Average total deposits were $2.051 billion for the fourth quarter of 2013, a decrease of $8.6 million, or 0.4%, from the third
quarter of 2013. The decrease in deposits when compared to the linked quarter of 2013 resulted primarily from the reduction
in noninterest bearing demand accounts and money market accounts, partially offset by higher public funds and savings
accounts.
The seasonal inflow of public funds started in the fourth quarter of 2013 and will continue through the first quarter of 2014.
This is anticipated to increase the overnight funds position during the first quarter. 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. Our strategy is to manage the mix of our deposits rather than compete on rate, which enables us to maintain an
exceptionally low cost of funds – 19 basis points in the fourth quarter and 20 basis points for the year 2013.
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, 2013.
Average short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase,
FHLB advances (maturing in less than one year), and other borrowings, increased $1.7 million, or 3.3% in 2013. The higher
balance is attributable to increases in repurchase agreements of $0.8 million and reclassification of FHLB advances from
long-term to short-term of $0.9 million. See Note 7 in the Notes to Consolidated Financial Statements for further information
on short-term borrowings.
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
2013 to
2012
(Average Balances - Dollars in Thousands) Change
Noninterest Bearing Deposits ...................... $
NOW Accounts ............................................
Money Market Accounts .............................
Savings.........................................................
Time Deposits ..............................................
Total Deposits .............................................. $
20,202
(52,124)
4,080
28,152
(35,909)
(35,599)
Percentage
of Total
Change
Components of
Total Deposits
2012
2013
56.7%
(146.4)
11.5
79.1
(100.9)
100.0%
30.5%
34.8
13.7
9.8
11.2
100.0%
29.0 %
36.6
13.3
8.3
12.8
100.0 %
Table 13
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
2013
(Dollars in Thousands)
Three months or less .................................................................................................. $
Over three through six months ...................................................................................
Over six through twelve months ................................................................................
Over twelve months ...................................................................................................
Total ........................................................................................................................... $
Time Certificates
of Deposit
20,704
15,354
19,427
5,261
60,746
54
2011
27.3%
36.0
13.6
7.3
15.8
100.0%
Percent
34.1%
25.3
32.0
8.6
100.0%
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”), our
Enterprise Risk Oversight Committee (“EROC”) 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.
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.
55
ESTIMATED CHANGES IN NET INTEREST INCOME(1)
Changes in Interest Rates
Policy Limit
December 31, 2013
December 31, 2012
+300 bp
-10.0%
11.0%
8.3%
+200 bp
-7.5%
10.7%
8.4%
+100 bp
-5.0%
7.4%
6.0%
-100 bp
-5.0%
-1.8%
-0.9%
The Net Interest Income at Risk position improved for the month ended December 2013, when compared to the same period
in 2012 for all rising rate scenarios. Our largest exposure is when rates rise +300 basis points, with a measure of +11.0%,
which remains within our policy limit of -10.0%. The year-over-year favorable variance is primarily attributable to higher
levels of overnight funds and investments, partially offset by a lower performing loan portfolio and higher interest-bearing
deposit balances, primarily in public funds. 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
Policy Limit
December 31, 2013
December 31, 2012
+300 bp
-12.5%
0.8%
3.6%
+200 bp
-10.0%
3.8%
6.6%
+100 bp
-7.5%
4.0%
6.2%
-100 bp
-7.5%
-5.9%
-4.7%
As of December 2013, the improvement in the economic value of equity in all rate scenarios was less favorable than it was as
of December 2012. This unfavorable variance is primarily attributable to the overall changes in market interest rates during
2013. 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 fund 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,
2013 and 2012, 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.
As of December 31, 2013, we have the ability to generate $623.0 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 quarterly based on events that could potentially occur at the Bank with the
results reported to ALCO, MROC, EROC and the Board of Directors. The liquidity available to us is considered sufficient to
meet our ongoing needs.
56
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 1.95 years and as of year-end had a net
unrealized pre-tax gain of $0.3 million.
Our average overnight funds (defined as funds sold plus interest bearing deposits with other banks less funds purchased)
position was $411.6 million during the fourth quarter of 2013 compared to an average net overnight funds sold position of
$412.1 million in the prior quarter and an average overnight funds sold position of $366.0 million in the fourth quarter of
2012. The lower balance when compared to the third quarter of 2013 primarily reflects the decline in deposits. Additionally,
a shift in earning asset mix continued to occur due to growth in the investment portfolio while the loan portfolio declined.
The increase when compared to the fourth quarter of 2012 reflects the declining loan portfolio, partially offset by an increase
in the investment portfolio.
Economic uncertainty and deleveraging by our clients continues to generate a historically high level of liquidity, which,
given the current operating environment, is difficult to profitably deploy without taking inordinate risks. Where practical, we
are working to lower the level of overnight funds by adding to our investment portfolio with short-duration securities and
reducing deposit balances. We continue to use a fully insured money market account which is offered by a third party and can
serve as an alternative investment for some of our higher balance depositors while at the same time allowing us to maintain
the account relationship. Until such time that attractive investment alternatives arise, we will continue to execute these
strategies as well as seek other initiatives in an effort to lower our overnight fund balances.
Capital expenditures are expected to approximate $5.0 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 ongoing obligations.
Borrowings
At December 31, 2013, advances from the FHLB consisted of $42.1 million in outstanding debt consisting of 40 notes. In
2013, the Bank made FHLB advance payments totaling $12.9 million, which includes paying off ten advances. One new
FHLB advance was obtained totaling $1.3 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. During the fourth quarter of 2013, the informal board resolutions, which required us to
obtain approval from the Federal Reserve prior to making interest payments on the two securities, were rescinded. As of
December 31, 2013, all deferred accrued interest was paid and brought current.
57
Table 14
CONTRACTUAL CASH OBLIGATIONS
Table 14 sets forth certain information about contractual cash obligations at December 31, 2013.
(Dollars in Thousands)
Federal Home Loan Bank Advances ........... $
Subordinated Notes Payable ........................
Operating Lease Obligations .......................
Time Deposit Maturities ..............................
Liability for Unrecognized Tax Benefits .....
Total Contractual Cash Obligations ............. $
< 1 Yr
> 1 – 3 Yrs > 3 – 5 Yrs
> 5 Years
Total
6,985 $
—
509
189,596
1,188
198,278 $
15,741 $
—
1,431
26,026
1,609
44,807 $
12,499 $
—
856
2,675
1,234
17,264 $
6,827 $
62,887
2,808
1,625
—
74,147 $
42,052
62,887
5,604
219,922
4,031
334,496
Payments Due By Period
Capital
Shareowners’ equity totaled $276.4 million at December 31, 2013 compared to $246.9 million at December 31, 2012. During
2013, shareowners’ equity was positively impacted by net income of $6.0 million, the issuance of stock totaling
approximately $1.2 million, stock compensation expense of $1.3 million, and a $21.7 million decrease in the accumulated
other comprehensive loss for our pension plan. A $0.7 million increase in our net unrealized loss 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 ................................................................ $
2013
2012
2011
174 $
41,152
243,614
284,940
(8,540)
276,400 $
172 $
38,707
237,569
276,448
(29,559)
246,889 $
172
37,838
237,461
275,471
(23,529)
251,942
We continue to maintain a strong capital position. The ratio of shareowners' equity to total assets at year-end was 10.58%,
9.37%, and 9.54%, in 2013, 2012, and 2011, respectively. Management believes our strong capital base has offered
protection during the course of the 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,
2013, we exceeded these capital guidelines with a total risk-based capital ratio of 17.94% and a Tier I capital ratio of 16.56%,
compared to 15.72% and 14.35%, respectively, in 2012. 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. The federal banking regulators issued new capital rules that become effective January 1, 2015 for
community banks. These final rules include major changes to the current general risk-based capital rules. Refer to the
Regulatory Considerations – Capital Regulations section for a detailed discussion of the new requirements. Upon
implementation of the new capital standards, we believe that we will maintain our well-capitalized designation.
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, 2013, we had a leverage ratio of 10.46% compared to 9.90%
in 2012.
58
At December 31, 2013, our common stock had a book value of $15.85 per diluted share compared to $14.31 in 2012. Book
value is impacted by the net unrealized gains and losses on investment securities available-for-sale. At December 31, 2013,
the net unrealized loss was $0.1 million compared to a $0.6 million unrealized gain in 2012. 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, 2013, the net pension liability reflected in other comprehensive income
was $8.4 million compared to $30.1 million at December 31, 2012. The decrease in our unfunded pension liability was
primarily due to an actuarial gain realized in 2013 that reduced our pension liability.
In February 2014, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our outstanding common
stock. Repurchases may be made in the open market or in privately negotiated transactions. Under a predecessor plan, we
repurchased a total of 2,520,130 shares at an average purchase price of $25.19 per share. During 2013 and 2012, we did not
repurchase any shares.
We offer an Associate Incentive Plan under which certain associates are eligible to earn equity-based awards based upon
achieving established performance goals. In 2013, 66,137 shares were earned under this plan of which 3,100 were issued in
2013 and 63,037 were issued in January 2014. In 2012, 31,270 shares were earned under this plan of which 2,800 were issued
in 2012 and 28,470 were issued in February 2013.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2013,
128,516 shares, valued at approximately $1.1 million (before 10% discount), were issued under these plans. In 2012, we
issued 69,242 shares, valued at approximately $0.6 million (before 10% discount).
Dividends
Adequate capital and financial strength is paramount to our stability and the stability of our subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on our capital levels. When determining the level of dividends the
following factors are considered:
(cid:120) Compliance with state and federal laws and regulations;
(cid:120) Our capital position and our ability to meet our financial obligations;
(cid:120) Projected earnings and asset levels; and
(cid:120) The ability of the Bank and us to fund dividends.
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, 2013, we had $271.3 million in commitments to extend credit and $11.0 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.
59
If commitments arising from these financial instruments continue to require funding at historical levels, management does
not anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these
commitments require funding in excess of historical levels, management believes current liquidity, investment security
maturities, available advances from the FHLB and Federal Reserve Bank provide a sufficient source of funds to meet these
commitments.
FOURTH QUARTER 2013 – FINANCIAL RESULTS
Results of Operations
We realized net income of $2.8 million, or $0.16 per diluted share, for the fourth quarter of 2013, compared to net income of
$1.6 million, or $0.09 per diluted share for the third quarter of 2013. The improvement in earnings reflects a lower loan loss
provision of $0.2 million, an increase in noninterest income of $0.4 million, and lower income taxes of $0.9 million, partially
offset by lower net interest income of $0.2 million and higher noninterest expense of $0.1 million.
Tax equivalent net interest income for the fourth quarter of 2013 was $19.2 million compared to $19.4 million for the third
quarter of 2013. The decrease in tax equivalent net interest income was due to a reduction in loan income, primarily
attributable to declining loan balances and unfavorable asset repricing, partially offset by a lower level of foregone interest on
loans and higher loan fees. The net interest margin for the fourth quarter of 2013 was 3.45%, a decrease of four basis points
from the third quarter of 2013 attributable to the shift in our earning asset mix and unfavorable asset repricing.
The provision for loan losses for the fourth quarter of 2013 was $0.4 million compared to $0.6 million in the third quarter of
2013. Continued favorable problem loan migration, reduced loan losses, and further improvement in key credit metrics drove
the lower level of provision. Net charge-offs for the fourth quarter of 2013 totaled $2.3 million, or 0.65% (annualized), of
average loans compared to $2.8 million, or 0.78% (annualized), for the third quarter of 2013.
Noninterest income for the fourth quarter of 2013 totaled $14.7 million, an increase of $0.4 million, or 2.6%, over the third
quarter of 2013. The increase reflects higher other income of $0.6 million and an increase in wealth management fees of $0.1
million, partially offset by lower mortgage banking fees of $0.2 million and deposit fees of $0.1 million. The increase in
other income was driven by gains from the sale of OREO properties and the increase in wealth management fees was
primarily due to improved account values for managed accounts on which fees are based. Mortgage banking fees declined
due to a reduction in refinancing volume, which is attributable to the higher rate environment. The reduction in deposit fees
was attributable to a slightly lower level of overdraft fees.
Noninterest expense for the fourth quarter of 2013 totaled $30.5 million, an increase of $0.1 million, or 0.2%, over the third
quarter of 2013 attributable to higher compensation expense of $0.4 million, partially offset by lower other expense of $0.3
million. The increase in compensation was attributable to higher pension plan expense of $0.3 million and stock
compensation expense of $0.1 million. The reduction in other expense was due to lower professional fees of $0.2 million and
advertising fees of $0.1 million. The higher level of pension expense reflects a cumulative adjustment made in the third
quarter to reduce year-to-date pension expense to reflect the final numbers as provided by our actuaries. Stock compensation
expense increased due to a higher level of performance for our stock award plans. The reduction in professional fees reflects
a decrease in internal audit fees and consulting engagement fees. Higher costs in the third quarter due to the roll-out of our
mobile remote deposit capture product drove the favorable variance in advertising fees.
We realized income tax expense of $5,000 in the fourth quarter of 2013 compared to $0.9 million for the third quarter of
2013. The resolution of certain tax contingencies in the fourth quarter of 2013 favorably impacted income tax expense.
Discussion of Financial Condition
Average earning assets were $2.206 billion for the fourth quarter of 2013, an increase of $4.9 million, or 0.2%, from the third
quarter of 2013. The change in earning assets reflects an increase in short-term borrowings and a decline in other assets,
partially offset by problem loan resolutions and lower deposits.
Average loans were $1.415 billion for the fourth quarter of 2013, a $21.1 million, or 1.5%, decrease from the third quarter of
2013. Our core loan portfolio continues to be impacted by normal amortization and payoffs that have outpaced our new loan
production.
60
Nonperforming assets (nonaccrual loans and OREO) totaled $85.0 million at December 31, 2013 compared to $94.7 million
at September 30, 2013. Nonaccrual loans totaled $37.0 million at December 31, 2013, a decrease of $4.7 million from the
third quarter of 2013. Nonaccrual loan additions totaled $14.5 million in the fourth quarter of 2013 compared to $11.0 million
in the third quarter of 2013. The balance of OREO totaled $48.1 million at December 31, 2013, a decrease of $4.9 million
from the third quarter of 2013. For the fourth quarter of 2013 we added properties totaling $3.5 million, sold properties
totaling $7.4 million, recorded valuation adjustments totaling $0.8 million, and realized miscellaneous reductions totaling
$0.2 million. Nonperforming assets represented 3.26% of total assets at December 31, 2013 compared to 3.77% at September
30, 2013.
Average total deposits were $2.051 billion for the fourth quarter of 2013, a decrease of $8.6 million, or 0.4%, from the third
quarter of 2013. The decrease in deposits resulted primarily from the reduction in noninterest bearing demand accounts and
money market accounts, partially offset by higher public funds and savings accounts. The seasonal inflow of public funds
started in the fourth quarter of 2013 and historically continues through the first quarter of 2014. This is anticipated to increase
the overnight funds position during the first quarter. Average borrowings increased by $7.1 million primarily as a result of
higher repurchase agreement balances, partially offset by FHLB advance payoffs/amortization.
Equity capital was $276.4 million as of December 31, 2013, compared to $251.2 million as of September 30, 2013. Our
leverage ratio was 10.46% and 10.16% for these periods. Further, our risk-adjusted capital ratio of 17.94% at December 31,
2013 and significantly exceeds the 10.0% threshold to be designated as “well-capitalized” under the risk-based regulatory
guidelines. At December 31, 2013, our tangible common equity ratio was 7.58%, compared to 6.84% at September 30, 2013.
The increase in our tangible common equity ratio in the fourth quarter of 2013 was due to earnings and a favorable
adjustment in the pension component of our other comprehensive income. The favorable adjustment in the pension
component reflects (1) an increase in the plan discount rate, which drives a reduction in pension liabilities, and (2) an
increase in the market value of plan assets.
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 two components: (i) specific reserves established for probable losses on
impaired loans; (ii) general reserves for non-homogenous loans not deemed impaired and 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.
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 $1.1 million.
61
Intangible Assets. Intangible assets consist of goodwill and other identifiable intangible assets, including customer
relationship intangible related to the acquisition of trust accounts. Core deposit intangibles that were previously recognized in
connection with various acquisitions have been fully amortized. 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.
We evaluate goodwill for impairment on an annual basis, using a two-step process. Step One compares the estimated fair
value of the reporting unit to its carrying amount. We have determined that we have one reporting unit which consists of the
Company as a whole, thus the carrying amount of the reporting unit is the net book value of the Company, including
goodwill. If the carrying amount of the reporting unit exceeds its 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.
Given the Company’s net book value exceeded its market capitalization as of the annual impairment testing date, we
proceeded with Step One of the annual goodwill impairment test. We first estimated the fair value of the reporting unit
utilizing a market approach that was supplemented with a reconciliation of the resulting equity value of the Company with
our market capitalization. The market approach consisted of two methodologies, including a guideline company valuation
(“GLC”) and a guideline transaction valuation (“GLT”), weighted accordingly, to determine the overall equity valuation. For
both valuation methods a book and tangible book multiple was developed to determine a market value of equity on a
controlling basis. A control premium was then applied to the minority value to calculate a Step One value indication for the
Company. For the GLC and GLT methods, the multiples resulted from a study of comparable companies and transactions,
respectively, and were validated accordingly. The control premium utilized was also supported by market research and
analysis. Based on the valuation developed as part of Step One, the estimated fair value of our reporting unit exceeded the
carrying value of goodwill and therefore, no Step Two was required. For Step One of the impairment testing, change in
economic conditions and observable bank purchase transactions can impact the outcome of the market valuation approach. In
preparing the foregoing fair value estimates, management, among other things, consulted an independent advisor.
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 2013 was 4.25%. The
estimated impact to 2013 pension expense of a 25 basis point increase or decrease in the discount rate would have been a
decrease and increase of approximately $838,000 and $904,000, respectively. We anticipate using a 5.00% discount rate in
2014.
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 2013 was 8.0%. The estimated impact to 2013 pension expense of a 25
basis point increase or decrease in the rate of return would have been an approximate $230,000 increase or decrease,
respectively. We anticipate using a rate of return on plan assets for 2014 of 7.5%.
The assumed rate of annual compensation increases of 3.75% in 2013 reflected expected trends in salaries and the employee
base. We anticipate using a compensation increase of 3.25% for 2014 reflecting current market trends.
62
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 2014. 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.
Item 8.
Financial Statements and Supplementary Data
63
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6
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
66
67
68
69
70
71
72
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareowners’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
65
Report of Independent Registered 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, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, changes in
shareowners' equity, and cash flows for each of the three years in the period ended December 31, 2013. 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, 2013 and 2012, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2013, 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, 2013, based on criteria
established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 7, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 7, 2014
66
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
ASSETS
Cash and Due From Banks ............................................................................................... $
Federal Funds Sold and Interest Bearing Deposits ...........................................................
Total Cash and Cash Equivalents ..................................................................................
Investment Securities, Available for Sale, at fair value ....................................................
Investment Securities, Held to Maturity, at amortized cost (fair value of $146,961) .......
Total Investment Securities ..............................................................................................
Loans Held For Sale .........................................................................................................
Loans, Net of Unearned Income .......................................................................................
Allowance for Loan Losses ...........................................................................................
Loans, Net ..................................................................................................................
Premises and Equipment, Net ...........................................................................................
Goodwill ...........................................................................................................................
Other Intangible Assets .....................................................................................................
Other Real Estate Owned ..................................................................................................
Other Assets ......................................................................................................................
Total Assets ................................................................................................................... $
As of December 31,
2013
2012
55,209 $
474,719
529,928
66,238
443,494
509,732
251,420
148,211
399,631
11,065
1,388,604
(23,095)
1,365,509
103,385
84,811
32
48,071
69,471
2,611,903 $
296,985
—
296,985
14,189
1,507,113
(29,167)
1,477,946
107,092
84,811
242
53,426
89,561
2,633,984
LIABILITIES
Deposits:
Noninterest Bearing Deposits ........................................................................................ $
Interest Bearing Deposits ..............................................................................................
Total Deposits ............................................................................................................
641,463 $
1,494,785
2,136,248
609,235
1,535,761
2,144,996
Short-Term Borrowings ....................................................................................................
Subordinated Notes Payable .............................................................................................
Other Long-Term Borrowings ..........................................................................................
Other Liabilities ................................................................................................................
Total Liabilities .............................................................................................................
51,321
62,887
38,043
47,004
2,335,503
47,435
62,887
46,859
84,918
2,387,095
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; 17,360,960 and
17,232,380 shares issued and outstanding at December 31, 2013 and December 31,
2012, respectively .........................................................................................................
Additional Paid-In Capital ................................................................................................
Retained Earnings .............................................................................................................
Accumulated Other Comprehensive Loss, Net of Tax .....................................................
Total Shareowners’ Equity ...............................................................................................
Total Liabilities and Shareowners' Equity ........................................................................ $
174
41,152
243,614
(8,540)
276,400
2,611,903 $
172
38,707
237,569
(29,559)
246,889
2,633,984
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
67
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2012
2013
2011
78,184 $
85,394 $
94,944
(Dollars in Thousands, Except Per Share Data)
INTEREST INCOME
Loans, including Fees ......................................................................... $
Investment Securities:
Taxable Securities ...........................................................................
Tax Exempt Securities ....................................................................
Federal Funds Sold and Interest Bearing Deposits .............................
Total Interest Income ..........................................................................
INTEREST EXPENSE
Deposits ..............................................................................................
Short-Term Borrowings ......................................................................
Subordinated Notes Payable ...............................................................
Other Long-Term Borrowings ............................................................
Total Interest Expense ........................................................................
NET INTEREST INCOME .............................................................
Provision for Loan Losses ..................................................................
Net Interest Income After Provision for Loan Losses ........................
NONINTEREST INCOME
Deposit Fees .......................................................................................
Bank Card Fees ...................................................................................
Wealth Management Fees ...................................................................
Mortgage Banking Fees ......................................................................
Data Processing Fees ..........................................................................
Securities Transactions .......................................................................
Other ...................................................................................................
Total Noninterest Income ...................................................................
2,345
546
1,077
82,152
1,431
235
1,420
1,330
4,416
77,736
3,472
74,264
25,254
10,786
8,179
3,534
2,674
3
5,986
56,416
NONINTEREST EXPENSE
Compensation .....................................................................................
Occupancy, Net ...................................................................................
Intangible Amortization ......................................................................
Other Real Estate ................................................................................
Other ...................................................................................................
Total Noninterest Expense ..................................................................
66,127
17,331
210
9,539
29,503
122,710
INCOME (LOSS) BEFORE INCOME TAXES ................................
Income Tax Expense (Benefit) ...........................................................
7,970
1,925
2,912
428
946
89,680
2,108
196
1,477
1,587
5,368
84,312
16,166
68,146
25,792
10,783
7,181
3,600
2,713
—
5,116
55,185
64,242
18,055
431
11,428
30,403
124,559
(1,228)
(1,336)
3,321
647
547
99,459
3,947
305
1,380
1,905
7,537
91,922
18,996
72,926
25,451
10,141
7,615
2,675
3,230
—
9,736
58,848
63,642
18,271
675
12,586
31,074
126,248
5,526
629
NET INCOME .................................................................................. $
6,045 $
108 $
4,897
BASIC NET INCOME PER SHARE ............................................. $
DILUTED NET INCOMEPER SHARE......................................... $
0.35 $
0.35 $
0.01 $
0.01 $
Average Basic Common Shares Outstanding .....................................
Average Diluted Common Shares Outstanding ..................................
17,325
17,399
17,205
17,220
0.29
0.29
17,140
17,140
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
68
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
NET INCOME ........................................................................................... $
Other comprehensive income (loss), before tax:
Investment Securities:
Change in net unrealized gain on securities available for sale ..............
Unrealized losses on securities transferred from available for sale to
For the Years Ended December 31,
2012
2013
2011
6,045 $
108 $
4,897
(1,252)
(786)
held to maturity .................................................................................
(523)
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity .................................................
Reclassification adjustment for net gain included in net income ..........
Reclassification adjustment for impairment loss realized in net
25
3
income ...............................................................................................
Total Investment Securities ...........................................................
600
(1,147)
—
—
—
—
(786)
600
—
—
—
—
600
Benefit Plans:
Reclassification adjustment for amortization of prior service cost .......
Reclassification adjustment for amortization of net loss .....................
Current year actuarial gain (loss) ..........................................................
Total Benefit Plans ........................................................................
Other comprehensive income (loss), before tax: .....................................
Deferred tax (expense) benefit related to other comprehensive income ......
Other comprehensive income (loss), net of tax........................................
TOTAL COMPREHENSIVE INCOME (LOSS) ................................... $
504
4,079
30,784
35,367
34,220
(13,201)
21,019
27,064 $
548
3,021
(12,587)
(9,018)
(9,804)
3,774
(6,030)
(5,922) $
643
1,810
(15,763)
(13,310)
(12,710)
4,932
(7,778)
(2,881)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
69
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
Shares
Outstanding
Common
Stock
(Dollars in Thousands, Except Per Share Data)
Balance, January 1, 2011 .................................. 17,100,081 $
Net Income .......................................................
Other Comprehensive Loss, Net of Tax ...........
Cash Dividends ($.3000 per share) ...................
Issuance of Common Stock ..............................
60,193
Balance, December 31, 2011 ............................ 17,160,274
Net Income .......................................................
Other Comprehensive Loss, Net of Tax ...........
Stock Compensation Expense ...........................
Issuance of Common Stock ..............................
Balance, December 31, 2012 ............................ 17,232,380
Net Income .......................................................
Other Comprehensive Income, Net of Tax .......
Stock Compensation Expense ...........................
Issuance of Common Stock ..............................
128,580
Balance, December 31, 2013 ............................ 17,360,960 $
—
—
—
1
—
—
—
72,106 —
171 $ 36,920 $237,679 $
4,897
—
—
—
(5,115)
—
—
918
237,461
172 37,838
108
—
—
—
—
262
—
607
237,569
172 38,707
6,045
—
—
—
—
1,296
—
1,149
174 $ 41,152 $243,614 $
—
—
—
2
—
(6,030)
—
—
—
(7,778)
—
—
(15,751) $259,019
4,897
(7,778)
(5,115)
919
(23,529) 251,942
108
(6,030)
262
607
(29,559) 246,889
6,045
21,019 21,019
1,296
1,151
(8,540) $276,400
—
—
—
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
70
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ....................................................................................................... $
Adjustments to Reconcile Net Income to Cash Provided by Operating
Activities:
Provision for Loan Losses ........................................................................
Depreciation ..............................................................................................
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 ......................................................................
Deferred Income Taxes .............................................................................
Loss on Sales and Write-Downs of Other Real Estate Owned ..................
Net Decrease (Increase) in Other Assets ...................................................
Net (Decrease) Increase in Other Liabilities .............................................
Net Cash Provided By Operating Activities .............................................
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases ..................................................................................................
Payments, Maturities, and Calls ................................................................
Securities Available for Sale:
Purchases ..................................................................................................
Sales ..........................................................................................................
Payments, Maturities, and Calls ................................................................
Net Decrease in Loans ......................................................................................
Proceeds From Sales of Other Real Estate Owned ...........................................
Proceeds From Sale of Premises & Equipment ................................................
Purchases of Premises and Equipment..............................................................
Net Cash (Used In) Provided By Investing Activities ......................................
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits .................................................................
Net Decrease in Short-Term Borrowings ..........................................................
Proceeds from Other Long-Term Borrowings ..................................................
Repayment of Other Long-Term Borrowings ...................................................
Dividends Paid ..................................................................................................
Issuance of Common Stock ..............................................................................
Net Cash (Used In) Provided By Financing Activities .....................................
For the Years Ended December 31,
2012
2013
2011
6,045 $
108 $
4,897
3,472
6,396
4,756
210
(3)
600
3,124
1,296
1,805
4,573
5,087
(2,547)
34,814
(95,946)
9,768
(149,111)
7,506
118,142
84,969
25,270
—
(2,689)
(2,091)
(8,748)
(542)
1,303
(5,691)
—
1,151
(12,527)
16,166
6,759
3,358
431
—
—
7,036
262
(2,805)
6,314
5,665
13,393
56,687
—
—
(141,863)
805
146,862
59,751
25,636
25
(2,885)
88,331
(27,523)
(3,121)
12,591
(3,154)
—
607
(20,600)
18,996
6,770
3,726
675
—
—
(9,654)
—
(2,919)
6,351
(4,163)
12,844
37,523
—
—
(81,984)
—
81,405
78,889
26,424
—
(2,405)
102,329
68,543
(49,556)
789
(6,284)
(5,142)
919
9,269
NET INCREASE IN CASH AND CASH EQUIVALENTS........................
20,196
124,418
149,121
Cash and Cash Equivalents at Beginning of Year .............................................
Cash and Cash Equivalents at End of Year ....................................................... $
509,732
529,928 $
385,314
509,732 $
236,193
385,314
Supplemental Cash Flow Disclosures:
Interest Paid .............................................................................................. $
Income Taxes Paid, Net of Refunds Received .......................................... $
6,012 $
(3,202) $
6,662 $
(3,799) $
Noncash Investing and Financing Activities:
Transfer of Securities Available for Sale to Held to Maturity .................. $
Loans Transferred to Other Real Estate Owned ........................................ $
Transfer of Current Portion of Long-Term Borrowings ............................ $
62,488 $
24,488 $
4,428 $
— $
22,777 $
7,184 $
8,176
1,601
—
37,438
—
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
71
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 previously reported amounts have been reclassified to conform to the current year’s 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 filed with the United States Securities and Exchange Commission.
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
72
percentage of deposits. The average amounts of these required reserve balances for the years ended December 31, 2013 and
2012 were $17.6 million and $24.3 million, respectively.
Investment Securities
Securities are classified as held to maturity and carried at amortized cost when the Company has the positive intent and
ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and
carried at fair value, with the unrealized holding gains and losses reported as a component of other comprehensive income,
net of tax. The Company determines the appropriate classification of securities at the time of purchase. Securities with
limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost.
Securities transferred from available for sale to held to maturity are recorded at fair value at the time of transfer. The
respective gain or loss is reclassified as a separate component of other comprehensive income and amortized as an adjustment
to interest income over the remaining life of the security.
Interest income includes amortization of purchase premiums and discounts. Realized gains and losses are derived from the
amortized cost of the security sold. Declines in the fair value of held-to-maturity and available-for-sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-
temporary impairment losses, the Company considers, among other things, (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 any anticipated
recovery in fair value.
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, which generally require charge-off after
120 days of delinquency.
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
73
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 and ASC Topic 450 - Contingencies. The level of the allowance reflects management’s continuing evaluation of
specific credit risks, loan loss experience, current loan portfolio quality, present economic conditions and unidentified losses
inherent in the current loan portfolio, as well as trends in the foregoing. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revision as more information becomes available.
The Company’s allowance for loan losses consists of two components: (i) specific reserves established for probable losses on
impaired loans; and (ii) general reserve for non-homogenous loans not deemed impaired and 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.
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. At December 31, 2013, all of the Company’s core
deposit intangible assets were fully amortized.
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 5 – 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. Subsequent declines in the fair value of the asset and gains (losses) on sales are 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.
74
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.
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 fair value of the options. Compensation cost is
recognized over the requisite service period, generally defined as the vesting period.
NEW AUTHORITATIVE ACCOUNTING GUIDANCE
ASU 2013-02 “Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income.” ASU 2013-02 requires an entity to separately present the amount reclassified out of accumulated
other comprehensive income (“AOCI”) for each component of AOCI and to disclose, for each affected line item in the
income statement, the amount of AOCI that has been reclassified into that line item. If the reclassification doesn't go directly
to an income statement line it is acceptable to cross reference that amount to another footnote that provides the required
disclosure. ASU 2013-02 became effective for the Company on January 1, 2013 and did not have a significant impact on the
Company’s financial statements.
75
ASU 2014-01 “Investments – Equity Method and Joint Ventures (Topic 323) – Accounting for Investments in Qualified
Affordable Housing Projects.” ASU 2014-01 provides guidance related to the accounting for investments in qualified
affordable housing projects. The guidance allows the holder of low income housing tax credit (“LIHTC”) investments to
apply a proportional amortization method that would recognize the cost of the investment as a part of income tax expense,
provided that the investment meets certain criteria. The guidance is silent regarding statement of financial position
classification, although it would not be appropriate to classify the investment as a deferred tax asset. The decision to apply
the proportional amortization method is an accounting policy election. Entities may also elect to continue to account for these
investments using the equity method. The guidance will be applied retrospectively and is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The Company does not
believe this pronouncement will have a significant impact on its financial statements.
ASU 2014-04 “Receivables – Troubled Debt Restructurings by Creditors (Topic 310-40) – Reclassification of Residential
Real Estate Collateralized Consumer Loans Upon Foreclosure.”ASU 2014-04 provides guidance regarding the
reclassification of residential real estate collateralized consumer mortgage loans upon foreclosures. The guidance requires
reclassification of a consumer mortgage loan to other real estate owned upon obtaining legal title to the residential property,
which could occur either through foreclosure or through a deed in lieu of foreclosure or similar legal agreement. The
existence of a borrower redemption right will not prevent the lender from reclassifying a loan to real estate once the lender
obtains legal title to the property. In addition, entities are required to disclose the amount of foreclosed residential real estate
properties and the recorded investment in residential real estate mortgage loans in the process of foreclosure on both an
interim and annual basis. The guidance may be applied prospectively or on a modified retrospective basis in fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2014. Early adoption is permitted. The Company is in
the process of reviewing the potential impact the adoption of this guidance will have to its financial statements.
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related market value of investment securities at December 31 were
as follows:
2013
2012
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
Amortized
Cost
Unrealized
Gain
Unrealized
Losses
Market
Value
Available for Sale
U.S. Government Treasury ........ $ 71,791 $
U.S. Government Agency ..........
75,275
States and Political
Subdivisions ..........................
91,605
2,583
Mortgage-Backed Securities ......
Other Securities(1) ......................
9,893
Total .......................................... $ 251,147 $
Held to Maturity
U.S. Government Treasury ........ $ 43,533 $
U.S. Government Agency ..........
15,794
States and Political
33,216
Subdivisions ..........................
Mortgage-Backed Securities ......
55,668
Total .......................................... $ 148,211 $
82 $
127
167
212
—
588 $
84 $
38
53
12
187 $
40 $ 71,833 $
75,146
256
96,745 $
51,468
504 $
221
— $ 97,249
51,664
25
91,753
2,795
9,893
79,818
19
56,217
—
—
11,811
315 $ 251,420 $ 296,059 $
124
805
—
1,654 $
79,879
63
56,982
40
600
11,211
728 $ 296,985
38 $ 43,579 $
15,810
22
33,265
4
1,373
54,307
1,437 $ 146,961 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
—
—
—
—
—
Total Investment Securities ....... $ 399,358 $
775 $
1,752 $ 398,381 $ 296,059 $
1,654 $
728 $ 296,985
(1)
Includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $5.0 million and $4.8 million,
respectively, at December 31, 2013 and $6.4 million and $4.8 million, respectively, at December 31, 2012.
76
During the third quarter of 2013, the Company transferred certain securities from available for sale to held to maturity.
Transfers of securities into the held to maturity categories from available for sale are made at fair value on the date of the
transfer. The securities had an aggregate fair value of $63.0 million with an aggregate net unrealized loss of $523,000 on the
date of the transfer. The net unamortized, unrealized loss on the transferred securities included in accumulated other
comprehensive income in the accompanying balance sheet as of December 31, 2013 totaled $498,000. This amount will be
amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an
adjustment of the yield on those securities.
Securities with an amortized cost of $258.5 million and $152.3 million at December 31, 2013 and December 31, 2012,
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 of investment securities and the gross realized gains and losses from the
sale of such securities for each of the last three years are as follows:
(Dollars in Thousands)
Total
Proceeds
$
$
7,506
805
—
$
$
Gross
Realized
Gains
Gross
Realized
Losses
3
—
—
$
$
—
—
—
Year
2013
2012
2011
Maturity Distribution. As of December 31, 2013, 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 .............................................................
U.S. Government Agency ........................................
Mortgage-Backed Securities ....................................
Total ......................................................................... $
Available for Sale
Held to Maturity
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
97,227
81,107
9,893
60,337
2,583
251,147
$
$
97,361
81,172
9,893
60,199
2,795
251,420
$
$
13,980
78,563
—
—
55,668
148,211
$
$
14,003
78,651
—
—
54,307
146,961
77
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
Greater Than
12 Months
Total
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
(Dollars in Thousands)
2013
Available for Sale
U.S. Government Treasury ................................... $24,924 $
U.S. Government Agency ..................................... 40,944
States and Political Subdivisions .......................... 4,101
Total ...................................................................... 69,969
40 $ — $
235 4,842
511
282 5,353
7
— $24,924 $
21 45,786
12 4,612
33 75,322
40
256
19
315
Held to Maturity
U.S. Government Treasury ................................... 10,054
U.S. Government Agency ..................................... 5,676
States and Political Subdivisions .......................... 3,316
Mortgage-Backed Securities ................................. 44,031
Total ...................................................................... $63,077 $
38 —
22 —
4 —
1,373 —
1,437 $ — $
— 10,054
— 5,676
— 3,316
— 44,031
— $63,077 $
38
22
4
1,373
1,437
2012
Available for Sale
U.S. Government Agency ..................................... $ 8,464 $
States and Political Subdivisions .......................... 30,302
Mortgage-Backed Securities ................................. 3,921
Other Securities .................................................... —
Total ...................................................................... $42,687 $
790 $
23 $
55 5,028
15 1,624
600
93 $ 8,042 $
—
2 $ 9,254 $
8 35,330
25 5,545
600
600
635 $50,729 $
25
63
40
600
728
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.
Approximately $5.4 million of investment securities, with an unrealized loss of approximately $33,000, have been in a loss
position for greater than 12 months. These debt securities are in a loss position because they were acquired when the general
level of interest rates was lower than that on December 31, 2013. The Company believes that the unrealized losses in these
debt 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, 2013.
78
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 .............................................................................. $
2013
126,607 $
31,012
533,871
309,692
227,922
159,500
1,388,604 $
2012
139,850
37,512
613,625
321,986
236,263
157,877
1,507,113
(1)
Includes loans in process with outstanding balances of $6.8 million and $11.9 million for 2013 and 2012, respectively.
Net deferred fees included in loans were $1.5 million and $1.6 million at December 31, 2013 and December 31, 2012,
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:
2013
2012
(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
188
426
25,227
6,440
4,084
599
36,964
90 + Days
—
—
—
—
—
—
—
Nonaccrual
1,069
4,071
41,045
13,429
4,034
574
64,222
$
$
90 + Days
—
—
—
—
—
—
—
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”).
79
The following table presents the aging of the recorded investment in past due loans by class of loans at December 31,
30-59
DPD
60-89
DPD
90 +
DPD
Total
Current
Total
Loans
(Dollars in Thousands)
2013
358 $ 126,062 $ 126,607
Commercial, Financial and Agricultural ................. $
31,012
30,587
Real Estate – Construction ...................................... — — — —
533,871
Real Estate – Commercial Mortgage ...................... 1,548
672 — 2,220 506,424
309,692
Real Estate – Residential ........................................ 1,647 1,090 — 2,737 300,514
227,922
212 — 1,060 222,778
848
Real Estate – Home Equity .....................................
Consumer ................................................................ 1,127
159,500
244 — 1,371 157,529
Total Past Due Loans .............................................. $ 5,428 $ 2,318 $ — $ 7,746 $1,343,894 $1,388,604
100 $ — $
258 $
Total
Past
Due
2012
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
236,263
487 — 1,198 231,031
711
Real Estate – Home Equity .....................................
Consumer ................................................................ 1,693
157,877
392 — 2,085 155,218
Total Past Due Loans .............................................. $ 6,959 $ 2,975 $ — $ 9,934 $1,432,957 $1,507,113
314 $ — $
302 $
375 — —
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,
2013 and 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb
losses in other categories.
(Dollars in Thousands)
2013
Beginning Balance ...........
Provision for Loan
Losses ......................
Charge-Offs .................
Recoveries ...................
Net Charge-Offs ..........
Ending Balance ................
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 ................
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real
Estate
Home
Equity Consumer Unallocated Total
$
1,253 $
2,856 $
11,081 $
8,678 $ 2,945 $
1,327 $
1,027 $ 29,167
(15 )
(748 )
209
(539 )
699 $
(207)
(1,070)
1
(1,069)
1,580 $
(83)
(3,651)
363
(3,288)
7,710 $
971
3,392
(3,835) (1,159)
294
838
(865)
(2,997)
9,073 $ 3,051 $
441
(1,751)
965
(786)
982 $
(1,027)
3,472
— (12,214)
2,670
—
(9,544)
—
— $ 23,095
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 $
4,588 3,050
(9,719) (2,896)
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 2,383
(11,870) (2,727)
214
(11,392) (2,513)
12,518 $ 2,392 $
478
749
(2,924)
1,450
(1,474)
1,887 $
(96) 18,996
— (26,191)
—
2,794
— (23,397)
911 $ 31,035
$
$
$
$
$
80
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.
(Dollars in Thousands)
2013
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment...................
Loans Collectively
Evaluated for
Impairment...................
Ending Balance ....................
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 ....................
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real
Estate
Home
Equity Consumer Unallocated Total
$
75 $
66 $
4,336 $
2,047 $
682 $
23 $
— $ 7,229
624
699 $
1,514
1,580 $
3,374
7,710 $
7,026 2,369
9,073 $ 3,051 $
959
982 $
— 15,866
— $ 23,095
$
$
210 $
714 $
6,641 $
2,778 $
546 $
32 $
— $ 10,921
1,043
1,253 $
2,142
2,856 $
4,440
11,081 $
5,900 2,399
8,678 $ 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 2,153
12,518 $ 2,392 $
1,861
1,887 $
911 19,861
911 $ 31,035
$
81
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)
2013
Individually Evaluated
for Impairment ........... $
1,580 $
557 $
49,973 $
20,470 $
3,359 $
355 $
— $
76,294
Collectively Evaluated
for Impairment ...........
Total .............................. $
2012
Individually Evaluated
125,027
126,607 $
30,455
31,012 $
483,898
533,871 $
224,563 159,145
289,222
309,692 $ 227,922 $ 159,500 $
— 1,312,310
— $1,388,604
for Impairment ........... $
2,325 $
4,232 $
74,650 $
23,030 $
3,858 $
687 $
— $ 108,782
Collectively Evaluated
for Impairment ...........
Total .............................. $
2011
Individually Evaluated
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
for Impairment ........... $
1,653 $
511 $
65,624 $
36,324 $
3,527 $
143 $
— $ 107,782
Collectively Evaluated
for Impairment ...........
Total .............................. $
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
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.
The following table presents loans individually evaluated for impairment by class of loans at December 31:
(Dollars in Thousands)
2013
Commercial, Financial and Agricultural .................. $
Real Estate – Construction .......................................
Real Estate – Commercial Mortgage .......................
Real Estate– Residential ..........................................
Real Estate – Home Equity ......................................
Consumer .................................................................
Total ......................................................................... $
2012
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
443
—
19,860
4,330
646
90
25,369
527
—
22,594
2,635
890
123
26,769
$
$
$
$
1,137
557
30,113
16,140
2,713
265
50,925
1,797
4,232
52,056
20,395
2,968
565
82,013
$
$
$
$
75
66
4,336
2,047
682
23
7,229
210
714
6,641
2,778
546
32
10,921
1,580
557
49,973
20,470
3,359
355
76,294
2,325
4,232
74,650
23,030
3,858
687
108,782
$
$
$
$
82
The following table summarizes the average recorded investment and interest income recognized for 2013, 2012, and 2011
by class of impaired loans:
2013
2012
2011
Average
Recorded
Investment
Total
Interest
(Dollars in Thousands)
Income
62
140 $
Commercial, Financial and Agricultural ............... $
36
7
Real Estate – Construction ....................................
70,701 2,113 50,706 1,285
60,043 2,062
Real Estate – Commercial Mortgage ....................
667
28,680
860
21,238
Real Estate– Residential .......................................
61
3,540
72
4,037
Real Estate – Home Equity ...................................
Consumer ..............................................................
3
229
10
501
Total ...................................................................... $ 89,861 $ 3,151 $ 109,611 $ 3,215 $ 87,856 $ 2,114
853 30,988
2,743
95
90
3
Average
Recorded
Investment
Average
Recorded
Investment
Total
Interest
Income
Total
Interest
Income
2,018 $
4,443
1,554 $
1,775
2,861 $
1,181
81 $
70
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.
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. Construction loans are generally based upon estimates of costs and value associated with the completed project.
Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are
governed by established policy guidelines. The disbursement of funds for construction loans is made in relation to the
progress of the project and as such these loans are closely monitored by on-site inspections.
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.
83
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.
The following table presents the risk category of loans by segment at December 31:
(Dollars in Thousands)
2013
Special Mention ....................................................... $
Substandard .............................................................
Doubtful ...................................................................
Total Criticized Loans ............................................. $
2012
Special Mention ....................................................... $
Substandard .............................................................
Doubtful ...................................................................
Total Criticized Loans ............................................. $
Commercial,
Financial,
Agriculture
Real Estate
Consumer
Total
Criticized
Loans
3,656
4,243
—
7,899
4,380
10,863
158
15,401
$
$
$
$
45,870
108,990
900
155,760
54,938
177,277
1,515
233,730
$
$
$
$
115
1,496
—
1,611
142
1,624
—
1,766
$
$
$
$
49,641
114,729
900
165,270
59,460
189,764
1,673
250,897
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 make concessions including the extension of the loan term, a principal
moratorium, a reduction in the interest rate, or a combination thereof. 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.
84
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
$
2013
Nonaccruing
—
—
10,308
458
241
—
11,007
$
1,511
156
24,735
16,441
1,576
345
44,764
Accruing
$
2012
Nonaccruing
508
—
8,425
936
—
10
9,879
$
1,462
161
29,870
13,824
1,587
570
47,474
$
$
Loans classified as TDRs during 2013, 2012, and 2011 are presented in the table below. The modifications made during the
reporting period involved either an extension of the loan term, a principal moratorium, a reduction in the interest rate, or a
combination thereof. The financial impact of these modifications was not material.
2013
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 TDRs ...................................................
Number of
Contracts
Number of
Contracts
Number of
Contracts
Recorded
Investment(1)
337
—
9,653
2,073
587
93
12,743
4 $
—
13
18
9
6
50 $
Recorded
Investment(1)
1,857
976
16,011
6,955
731
656
27,186
12 $
6
54
68
19
60
219 $
Recorded
Investment(1)
547
3,752
16,311
15,487
660
23
36,780
7 $
5
46
79
9
2
148 $
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
Loans classified as TDRs during 2013, 2012, and 2011 that have subsequently defaulted during the twelve months ended
December 31, 2013, 2012 and 2011 are presented in the table below.
2013
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 TDRs ...................................................
Number of
Contracts
Number of
Contracts
Number of
Contracts
Recorded
Investment(1)
—
—
73
—
50
—
123
— $
—
1
—
1
—
2 $
Recorded
Investment(1)
—
713
1,001
1,906
—
2
3,622
— $
4
3
7
—
1
15 $
Recorded
Investment(1)
218
2,327
5,221
1,424
—
—
9,190
2 $
1
12
7
—
—
22 $
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
Note 4
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 ........................................................................................ $
2013
2012
24,522 $
112,706
57,498
194,726
(91,341)
103,385 $
24,404
113,693
57,112
195,209
(88,117)
107,092
85
NOTE 5 - INTANGIBLE ASSETS
The Company had net intangible assets of $84.8 million and $85.1 million at December 31, 2013 and December 31, 2012,
respectively. Intangible assets were as follows:
(Dollars in Thousands)
Core Deposit Intangibles ......................................... $
Goodwill ..................................................................
Customer Relationship Intangible............................
Total Intangible Assets ......................................... $
2013
2012
Gross
Amount
47,176
84,811
1,867
133,854
Accumulated
Amortization
47,176
$
—
1,835
49,011
$
$
$
Gross
Amount
47,176
84,811
1,867
133,854
Accumulated
Amortization
47,157
$
—
1,644
48,801
$
Net Core Deposit Intangibles: As of December 31, 2013, the Company’s core deposit intangibles were fully amortized.
Amortization expense for the twelve months of 2013, 2012, and 2011 was $19,000, 200,000, and $500,000, respectively.
Goodwill: As of December 31, 2013 and December 31, 2012, 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.
As of December 31, 2013, the Company’s net book value, including goodwill, exceeded its market capitalization, and as
such, the Company performed goodwill impairment testing. The Step One test indicated that the carrying amount (including
goodwill) of the Company’s reporting unit was less than its estimated fair value, therefore, no impairment was recorded. The
Company will continue to evaluate goodwill for impairment as defined by ASC Topic 350.
Other: As of December 31, 2013 and December 31, 2012, the Company had a customer relationship intangible asset, net of
accumulated amortization, of $32,000 and $223,000, respectively. This intangible asset was recorded as a result of the
acquisition of trust customer relationships. Annual amortization expense during 2013, 2012, and 2011 was approximately
$191,000. The Company’s customer relationship intangible asset will be fully amortized by February 2014.
Note 6
DEPOSITS
The composition of the Company's interest bearing deposits at December 31 was follows:
(Dollars in Thousands)
NOW Accounts ............................................................................................................ $
Money Market Accounts .............................................................................................
Savings Deposits ..........................................................................................................
Other Time Deposits ....................................................................................................
Total Interest Bearing Deposits ................................................................................ $
2013
794,746 $
268,449
211,668
219,922
1,494,785 $
2012
842,435
267,766
184,541
241,019
1,535,761
At December 31, 2013 and 2012, $2.8 million and $7.1 million, respectively, in overdrawn deposit accounts were reclassified
as loans.
Time deposits in denominations of $100,000 or more totaled $60.7 million and $63.1 million at December 31, 2013 and
December 31, 2012, respectively.
86
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2014 ............................................................................. $
2015 .............................................................................
2016 .............................................................................
2017 .............................................................................
2018 and thereafter ......................................................
Total ............................................................................. $
2013
189,596
19,548
6,478
2,675
1,625
219,922
Interest expense on deposits for the three years ended December 31, was as follows:
(Dollars in Thousands)
NOW Accounts ..................................................................................... $
Money Market Accounts ......................................................................
Savings Deposits ...................................................................................
Time Deposits < $100,000 ....................................................................
Time Deposits > $100,000 ....................................................................
Total ...................................................................................................... $
2013
2012
2011
483 $
211
100
505
132
1,431 $
634 $
255
87
912
220
2,108 $
890
437
73
1,958
589
3,947
Note 7
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2013
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 ..................................
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 ..................................
Federal
Funds
Purchased
Securities
Sold Under
Repurchase
Agreements(1)
Other
Short-Term
Borrowings
— $
—
11
0.76%
— %
— $
—
—
— %
— %
47,312 $
55,261
48,337
0.05%
0.05%
40,639 $
62,458
47,485
0.05%
0.05%
4,009(2)
8,929
5,573
3.79%
3.25%
6,796(2)
6,991
4,679
3.68%
3.69%
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 ..................................
(1) Balances are fully collateralized by government treasury or agency securities held in the Company’s investment
43,372 $
75,525
58,973
0.09%
0.05%
— $
7,575
1,213
0.03%
— %
—
11,222
7,875
3.17%
— %
portfolio.
(2) Comprised of FHLB debt.
87
Note 8
LONG-TERM BORROWINGS
Federal Home Loan Bank Advances. FHLB advances totaled $38.0 million at December 31, 2013 and $46.9 million at
December 31, 2012. The advances mature at varying dates from 2014 through 2025 and had a weighted-average rate of
3.20% and 3.38% at December 31, 2013 and 2012, 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)
2014 ............................................................................. $
2015 .............................................................................
2016 .............................................................................
2017 .............................................................................
2018 .............................................................................
2019 and thereafter ......................................................
Total ............................................................................. $
2013
2,976
6,222
2,938
6,581
7,780
11,546
38,043
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. In accordance with restrictions adopted by the Company’s Board of Directors at the request of
the Federal Reserve, the Company deferred the interest payments on the notes in the first quarter of 2012. The Company
continued the accrual of interest on the notes in accordance with their contractual obligations. In December 2013, the
Company’s Board of Directors rescinded the resolutions restricting the payment of interest of the notes and the accrued and
unpaid interest on the notes in the amount of $2.8 million was paid in full.
88
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.
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:
Federal ...........................................................................................
State ...............................................................................................
Valuation Allowance .....................................................................
Total .................................................................................................. $
2013
2012
2011
(75) $
195
120
1,189 $
280
1,469
1,650
99
56
1,805
1,575
294
56
1,925 $
(1,260)
(1,597)
52
(2,805)
(71)
(1,317)
52
(1,336) $
3,124
424
3,548
(1,828)
(1,350)
259
(2,919)
1,296
(926)
259
629
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 Positions ...................................
State Taxes, Net of Federal Benefit ......................................................
Other .....................................................................................................
Change in Valuation Allowance ...........................................................
Increase Deferred Tax Liability for Equity Investment ........................
Actual Tax Expense .............................................................................. $
2013
2012
2011
2,790 $
(430) $
1,934
(385)
(777)
191
50
56
—
1,925 $
(402)
(347)
(856)
199
52
448
(1,336) $
(612)
(168)
(602)
(182)
259
—
629
89
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, 2013 and 2012 are as follows:
(Dollars in Thousands)
Deferred Tax Assets Attributable to:
Allowance for Loan Losses ........................................................................................... $
Accrued Pension/SERP..................................................................................................
State Net Operating Loss and Tax Credit Carry-Forwards ............................................
Other Real Estate Owned ...............................................................................................
Other ..............................................................................................................................
Total Deferred Tax Assets ............................................................................................. $
Deferred Tax Liabilities Attributable to:
Depreciation on Premises and Equipment ..................................................................... $
Deferred Loan Fees and Costs .......................................................................................
Intangible Assets ............................................................................................................
Accrued Pension/SERP..................................................................................................
Other ..............................................................................................................................
Total Deferred Tax Liabilities .......................................................................................
Valuation Allowance .....................................................................................................
Net Deferred Tax Asset ................................................................................................. $
2013
2012
8,910 $
5,284
4,906
9,459
5,304
33,863 $
6,322 $
2,446
3,419
—
526
12,713
1,226
19,924 $
11,253
18,927
5,002
9,869
7,100
52,151
7,117
2,864
3,119
1,870
1,082
16,052
1,170
34,929
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 2013. This valuation allowance at year-end 2013 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 2013. At year-end 2013, the Company had state
loss and tax credit carry-forwards of approximately $4.9 million, which expire at various dates from 2014 through 2032, and
federal and tax credit carry-forwards of approximately $0.3 million that never expire.
The Company had unrecognized tax benefits at December 31, 2013, 2012, and 2011 of $3.2 million, $4.2 million, and $4.6
million, respectively, of which $2.1 million would increase income from continuing operations, and thus impact the
Company’s effective tax rate, if ultimately recognized into income.
A reconciliation of the beginning and ending unrecognized tax benefit is as follows:
(Dollars in Thousands)
Balance at January 1, ........................................................................ $
Additions Based on Tax Positions Related to Current Year .............
Decrease Due to Lapse in Statue of Limitations ...............................
Balance at December 31 ................................................................... $
2013
2012
2011
4,209 $
—
(981)
3,228 $
4,577 $
508
(876)
4,209 $
4,770
522
(715)
4,577
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
taxes for the years ended December 31, 2013, 2012, and 2011 were $139,000, $108,000, and $43,000, respectively. The
amounts accrued for interest and penalties at December 31, 2013 and 2012 were $0.8 million and $0.9 million respectively.
The Company expects a $3.2 million decrease in the amount of unrecognized tax benefits in the next 12 months due to the
resolution of certain tax contingencies.
90
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 2010.
Note 10
STOCK-BASED COMPENSATION
As of December 31, 2013, 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 2011 through 2013 was
$0.1 million, $0.5 million, and $1.4 million, respectively.
AIP. The AIP allows the Company's Board of Directors to award key associates various forms of equity-based incentive
compensation. Under the 2011 AIP there were 875,000 shares reserved for issuance. In 2013, the Company, pursuant to the
terms and conditions of the AIP, created the 2013 Incentive Plan (“2013 Plan”), under which all participants in the 2013 Plan
were eligible to earn performance shares. Awards under the 2013 Plan were tied to internally established earnings goals. At
base level targets, the grant-date fair value of the shares eligible to be awarded in 2013 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. For 2013, a total of 56,326 shares were eligible for issuance, but additional shares could
be earned if performance exceeded established goals. A total of 63,037 shares were earned for 2013 reflective of goal
achievement that exceeded the base level targets. The Company recognized expense of $965,000 and $255,000 for 2013 and
2012, respectively. There was no expense for this plan in 2011.
Executive Long-Term Incentive Plan (“LTIP”). 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.
The Company recognized $0.3 million in expense for 2013 under the executive’s LTIP. There was no expense for years 2012
and 2011.
A summary of the status of the Company’s option shares is presented below:
Options
Outstanding at January 1, 2013 ................................
Granted ....................................................................
Exercised .................................................................
Forfeited or expired .................................................
Outstanding at December 31, 2013 ..........................
Exercisable at December 31, 2013 ...........................
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
$
$
$
1.9
—
—
—
0.9
0.9
$
$
$
—
—
—
—
—
—
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 2013, the Company
issued 13,348 shares under the DSPP and recognized approximately $15,000 in expense related to this plan. For 2012, the
Company issued 25,864 shares and recognized approximately $21,000 in expense related to the DSPP. For 2011, the
Company issued 21,872 shares and recognized approximately $23,000 in expense under the DSPP.
91
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. Under the 2011 ASPP there were 593,750 shares of
common stock reserved for issuance. For 2013, 31,597 shares were acquired under the ASPP and approximately $69,000 in
expense was recognized related to this plan. For 2012, 75,257 shares were acquired and approximately $119,000 in expense
was recognized related to the ASPP. For 2011, 38,210 shares were acquired and approximately $72,000 in expense was
recognized 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 $2.21 for 2013. For 2012 and 2011, the weighted average fair value purchase right granted was
$1.61 and $1.74, 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
— %
32.0%
0.1%
0.5
3.5%
31.0%
0.2%
0.5
2013
2012
2011
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.
92
2011
$
97,393
6,027
5,243
9,430
(1,846)
(245)
171
$ 116,173
$
$
$
$
$
$
84,658
277
5,000
(1,846)
(245)
87,844
28,330
94,121
6,027
5,243
(6,555)
462
2,223
7,400
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.
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year ....................................................... $ 134,950 $ 116,173
6,397
Service Cost ...................................................................................................
5,587
Interest Cost ...................................................................................................
14,156
Actuarial (Gain)Loss .....................................................................................
(7,138)
Benefits Paid ..................................................................................................
(225)
Expenses Paid ................................................................................................
Plan Amendment ...........................................................................................
—
Projected Benefit Obligation at End of Year ................................................. $ 115,285 $ 134,950
6,999
5,566
(18,965)
(12,946)
(319)
—
2013
2012
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 ...................................................... $ 103,842 $
94,164 $
17,943
5,000
(12,946)
(319)
87,844
8,683
5,000
(7,138)
(225)
94,164
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities ............................................................................................. $
11,442 $
40,786
Accumulated Benefit Obligation at End of Year ........................................... $
98,796 $ 110,985
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 .............................................................................. $
Weighted-Average Assumptions Used to Determine Benefit Obligation:
5.00%
Discount Rate ................................................................................................
Rate of Compensation Increase .....................................................................
3.25%
Measurement Date ......................................................................................... 12/31/13
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate ................................................................................................
Expected Return on Plan Assets ....................................................................
Rate of Compensation Increase .....................................................................
6,999 $
5,566
(7,371)
317
4,316
9,827 $
4.25%
8.00%
3.75%
6,397
5,587
(6,793)
359
3,390
8,940
4.25%
3.75%
12/31/12
5.00%
4.00%
12/31/11
5.00%
8.00%
4.00%
5.55%
8.00%
4.25%
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial (Gain) Loss .............................................................................. $
Prior Service Cost ..........................................................................................
Deferred Tax Expense (Benefit) ....................................................................
Other Comprehensive (Gain) Loss, net of tax ............................................... $
(33,850) $
(317)
13,180
(20,987) $
8,875
(359)
(3,285)
5,231
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Losses ...................................................................................... $
Prior Service Cost ..........................................................................................
Deferred Tax Benefit .....................................................................................
Accumulated Other Comprehensive Loss, net of tax ..................................... $
13,947 $
1,383
(5,914)
9,416 $
47,800
1,700
(19,097)
30,403
$
$
$
$
13,690
(496)
(5,090)
8,104
38,924
2,060
(15,812)
25,172
93
The Company expects to recognize $1.3 million of the net actuarial loss and $0.3 million of the prior service cost reflected in
accumulated other comprehensive income at December 31, 2013 as a component of net periodic benefit cost during 2014.
Plan Assets. The Company’s pension plan asset allocation at year-end 2013 and 2012, and the target asset allocation for 2014
are as follows:
Target Allocation
2014
Percentage of Plan
Assets at Year-End(1)
2013
2012
Equity Securities ...................................................................
Debt Securities ......................................................................
Cash and Cash Equivalents ...................................................
Total ..................................................................................
77%
20%
3%
100%
72%
23%
5%
100%
61%
29%
10%
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:
2013
2012
U.S. Government Treasury ....................................................................................... $
Common Stocks .......................................................................................................
Mutual Funds ...........................................................................................................
Cash and Cash Equivalents ......................................................................................
768 $
21,564
70,993
5,571
2,143
16,799
58,480
7,819
Level 2:
U.S. Government Agency ........................................................................................
4,946
8,923
Total Fair Value of Plan Assets ............................................................................ $
103,842 $
94,164
Expected Benefit Payments. As of December 31, expected benefit payments related to the defined benefit pension plan were
as follows:
(Dollars in Thousands)
2014 ............................................................................. $
2015 .............................................................................
2016 .............................................................................
2017 .............................................................................
2018 .............................................................................
2019 through 2023 .......................................................
Total ............................................................................. $
2013
6,495
7,536
6,998
7,347
8,701
44,814
81,891
94
Contributions. The following table details the amounts contributed to the pension plan in 2013 and 2012, and the expected
amount to be contributed in 2014.
(Dollars in Thousands)
Actual Contributions .................................................................... $
(1) For 2014, the Company will have the option to make a cash contribution to the plan or utilize pre-funding balances.
(2) For the 2012 plan year, the Company made two separate $5.0 million contributions, one during the 2013 calendar year
and one during the 2012 calendar year. As of December 31, 2013, no contributions were made for the 2013 plan year.
5,000 $
5,000
2012(2)
2013(2)
Expected Range
of Contribution
2014(1)
$5,000 - $10,000
95
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 .............................................. $
2013
2012
2011
3,492 $
—
137
(1,250)
—
2,379 $
3,030 $
—
140
322
—
3,492 $
3,001
—
147
(151)
33
3,030
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities .......................................................................................... $
Accumulated Benefit Obligation at End of Year ........................................ $
2,379 $
2,379 $
3,492 $
3,492 $
3,030
3,030
Components of Net Periodic Benefit Costs:
Service Cost ................................................................................................ $
Interest Cost ................................................................................................
Amortization of Prior Service Cost.............................................................
Net Gain Amortization................................................................................
Net Periodic Benefit Cost ........................................................................... $
— $
137
187
(237)
87 $
— $
140
189
(369)
(40) $
—
147
180
(413)
(86)
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate .............................................................................................
Rate of Compensation Increase ..................................................................
Measurement Date ......................................................................................
5.00%
3.25%
12/31/13
4.25%
3.75%
12/31/12
5.00%
4.00%
12/31/11
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate .............................................................................................
Rate of Compensation Increase ..................................................................
4.25%
3.75%
5.00%
4.00%
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial (Gain)Loss ............................................................................ $
Prior Service Cost .......................................................................................
Deferred Tax Expense (Benefit) .................................................................
Other Comprehensive (Gain) Loss, net of tax ............................................ $
(1,013) $
(187)
463
(737) $
691 $
(189)
(194)
308 $
5.50%
4.25%
263
(147)
(45)
71
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Gain ...................................................................................... $
Prior Service Cost .......................................................................................
Defined Tax Liability .................................................................................
Accumulated Other Comprehensive Gain, net of tax ................................. $
(1,812) $
171
633
(1,008) $
(799) $
358
170
(271) $
(1,490)
547
364
(579)
The Company expects to recognize approximately $0.7 million of the net actuarial gain and $0.2 million of the prior service
cost reflected in accumulated other comprehensive income at December 31, 2013 as a component of net periodic benefit cost
during 2014.
96
Expected Benefit Payments. As of December 31, 2013, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2014 ............................................................................. $
2015 .............................................................................
2016 .............................................................................
2017 .............................................................................
2018 .............................................................................
2019 through 2023 .......................................................
Total ............................................................................. $
496
563
293
109
90
82
1,633
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 2013, 2012, and 2011, 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 2013, 2012 and 2011.
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 .................................................................................................. $
2013
2012
2011
6,045 $
108 $
4,897
Denominator:
Denominator for Basic Earnings Per Share Weighted-Average Shares .......
Effects of Dilutive Securities Stock Compensation Plans ...........................
17,325
74
17,205
15
17,140
—
Denominator for Diluted Earnings Per Share Adjusted Weighted-Average
Shares and Assumed Conversions ............................................................
17,399
17,220
17,140
Basic Earnings Per Share ............................................................................. $
0.35 $
0.01 $
Diluted Earnings Per Share .......................................................................... $
0.35 $
0.01 $
0.29
0.29
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 2013, 2012 and 2011 because they were anti-dilutive.
Note 13
REGULATORY MATTERS
Regulatory Capital Requirements. 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
97
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, 2013 and 2012, that the Company and the Bank meet all capital adequacy requirements to which they are
subject.
As of December 31, 2013, 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, 2013 and 2012 are
also presented in the table.
Required
For Capital
Adequacy Purposes
Amount Ratio
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
Amount Ratio
Actual
(Dollars in Thousands)
2013
Tier I Capital:
CCBG .................................................................... $256,338 16.56% $ 62,058
CCB ....................................................................... 256,554 16.59% 61,992
Amount Ratio
4.00%
*
4.00% $ 92,988
*
6.00%
Total Capital:
CCBG .................................................................... 277,618 17.94% 124,116
CCB ....................................................................... 275,927 17.85% 123,984
8.00%
*
8.00% 154,980 10.00%
*
Tier I Leverage:
CCBG .................................................................... 256,338 10.46% 98,029
CCB ....................................................................... 256,554 10.48% 97,931
4.00%
*
4.00% 122,414
*
5.00%
2012
Tier I Capital:
CCBG .................................................................... $239,520 14.35% $ 67,104
CCB ....................................................................... 239,955 14.39% 67,045
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
* Not applicable to bank holding companies.
9.90% 96,824
9.93% 96,694
*
4.00%
4.00% 120,868
*
5.00%
Dividend Restrictions. In the ordinary course of business, the Company is dependent upon dividends from its banking
subsidiary to provide funds for the payment of dividends to shareowners and to provide for other cash requirements. Banking
regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of
dividends declared would cause the regulatory capital of the Company’s banking subsidiary to fall below specified minimum
levels. Approval is also required if dividends declared exceed the net profits of the banking subsidiary for that year combined
with the retained net profits for proceeding two years. In 2014, the bank subsidiary may declare dividends without regulatory
approval of $4.5 million plus an additional amount equal to net profits of the Company’s subsidiary bank for 2014 up to the
date of any such dividend declaration.
98
Note 14
OTHER COMPREHENSIVE INCOME (LOSS)
FASB Topic ASC 220, “Comprehensive Income” 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.
The following table summarizes the tax effects for each component of other comprehensive income (loss):
(Dollars in Thousands)
2013
Investment Securities:
Change in net unrealized (gain) loss ................................................... $
Unrealized losses on securities transferred from available for
Before
Tax Amount
Tax
(Expense)
Benefit
Net of
Tax Amount
(1,252) $
483 $
sale to held to maturity .............................................................
(523)
Amortization of losses on securities transferred from available
for sale to held to maturity ......................................................
Reclassification adjustment for net gain included in net
income ......................................................................................
Reclassification adjustment for impairment loss realized in net
income ......................................................................................
Total Investment Securities ..................................................
Benefit Plans:
Reclassification adjustment for amortization of prior service
cost ...........................................................................................
Reclassification adjustment for amortization of net loss .............
Current year actuarial gain ...........................................................
Total Benefit Plans ...............................................................
25
3
600
(1,147)
504
4,079
30,784
35,367
202
(10)
(1)
(232)
442
(194)
(1,574)
(11,875)
(13,643)
Total Other Comprehensive Income ............................................ $
34,220 $
(13,201) $
(769)
(321)
15
2
368
(705)
310
2,505
18,909
21,724
21,019
2012
Investment Securities:
Change in net unrealized (gain) loss ................................................... $
Total Investment Securities ..................................................
Benefit Plans:
(786) $
(786)
295 $
295
(491)
(491)
Reclassification adjustment for amortization of prior service
cost ...........................................................................................
Reclassification adjustment for amortization of net loss .............
Current year actuarial loss ...........................................................
Total Benefit Plans ...............................................................
548
3,021
(12,587)
(9,018)
(211)
(1,165)
4,855
3,479
Total Other Comprehensive Loss ................................................ $
(9,804) $
3,774 $
337
1,856
(7,732)
(5,539)
(6,030)
2011
Investment Securities:
Change in net unrealized (gain) loss ................................................... $
Total Investment Securities ..................................................
Benefit Plans:
600 $
600
(203) $
(203)
397
397
Reclassification adjustment for amortization of prior service
cost ...........................................................................................
Reclassification adjustment for amortization of net loss .............
Current year actuarial loss ...........................................................
Total Benefit Plans ...............................................................
643
1,810
(15,763)
(13,310)
(248)
(698)
6,081
5,135
Total Other Comprehensive Loss ................................................ $
(12,710) $
4,932 $
395
1,112
(9,682)
(8,175)
(7,778)
99
Accumulated other comprehensive loss was comprised of the following components:
(Dollars in Thousands)
Balance as of January 1, 2013 ................................................. $
Other comprehensive (loss) income during the period ..............
Balance as of December 31, 2013 ............................................ $
Balance as of January 1, 2012 ................................................. $
Other comprehensive loss during the period ..............................
Balance as of December 31, 2012 ............................................ $
Balance as of January 1, 2011 ................................................. $
Other comprehensive income (loss) during the period ..............
Balance as of December 31, 2011 ............................................ $
Note 15
RELATED PARTY TRANSACTIONS
Securities
Available for
Sale
Retirement
Plans
Accumulated
Other
Comprehensive
Loss
573 $
(705)
(132) $
1,064 $
(491)
573 $
667 $
397
1,064 $
(30,132) $
21,724
(8,408) $
(24,593) $
(5,539)
(30,132) $
(16,418) $
(8,175)
(24,593) $
(29,559)
21,019
(8,540)
(23,529)
(6,030)
(29,559)
(15,751)
(7,778)
(23,529)
At December 31, 2013 and 2012, certain officers and directors were indebted to the Company’s bank subsidiary in the
aggregate amount of $18.3 million and $19.8 million, respectively. During 2013, $35.0 million in new loans were made and
repayments totaled $36.5 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 $24.0 million and $18.6 million at
December 31, 2013 and 2012, 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)
Maintenance and Repairs – Bldg. ................................................... $
Utilities ...........................................................................................
Maintenance Agreements - FF&E ..................................................
Legal Fees .......................................................................................
Professional Fees ............................................................................
Telephone .......................................................................................
Advertising .....................................................................................
Processing Services ........................................................................
Insurance – Other ............................................................................
Postage ............................................................................................
Other ...............................................................................................
Total ................................................................................................ $
2013
2012
2011
1,889 $
1,513
2,837
3,663
4,304
1,891
1,719
5,396
4,144
1,309(1)
838
29,503 $
1,866 $
1,609
3,220
4,303
4,882
1,896
1,815
3,967
4,104
1,595
1,146
30,403 $
2,167
1,764
3,114
4,106
3,832
1,895
2,471
3,708
4,474
1,780
1,763
31,074
(1) Amount less than 1% for the current year but was greater than 1% for prior year(s).
100
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
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)
Total
Commitments to Extend Credit(1) .......................... $ 36,927 $234,342 $271,269 $ 48,618 $245,087 $293,705
Standby Letters of Credit ....................................... 10,979 — 10,979 11,249 — 11,249
Total ................................................................... $ 47,906 $234,342 $282,248 $ 59,867 $245,087 $304,954
Fixed
Fixed
Total
2013
Variable
2012
Variable
(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 $0.7 million in 2013, $0.6 million in 2012,
and $0.6 million in 2011. Minimum lease payments under these leases due in each of the five years subsequent to December
31, 2013, are as follows (dollars in millions): 2014, $0.5; 2015, $0.5; 2016, $0.5; 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.
101
In December 2013, a settlement agreement was approved by the court in resolution of the aforementioned Covered Litigation
matter. Visa’s share of the settlement is to be paid from the litigation reserve account. Based on the aforementioned
settlement agreement, 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 until the litigation reserve is fully liquidated and at which
time the aforementioned swap contract will be terminated. Quarterly payments during 2013 averaged approximately $30,000.
Conversion ratio payments and ongoing fixed quarterly charges are reflected in earnings in the period incurred.
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:120) 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.
(cid:120) 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.
(cid:120) 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 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.
102
A summary of fair values for assets and liabilities recorded at fair value at December 31 consisted of the following:
(Dollars in Thousands)
2013
Securities Available for Sale:
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
U.S. Government Treasury ................................... $
U.S. Government Agency ....................................
States and Political Subdivisions ..........................
Mortgage-Backed Securities ................................
Other Securities ....................................................
71,833
—
—
—
—
2012
Securities Available for Sale:
U.S. Government Treasury ................................... $
U.S. Government Agency ....................................
State and Political Subdivisions ...........................
Mortgage-Backed Securities ................................
Other Securities ....................................................
97,249
—
—
—
—
$
$
$
$
—
75,146
91,753
2,795
9,893
—
51,664
79,879
56,982
11,211
$
$
—
—
—
—
—
—
—
—
—
—
71,833
75,146
91,753
2,795
9,893
97,249
51,664
79,879
56,982
11,211
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. Impairment for collateral dependent loans is measured using the fair value of the collateral less selling costs.
The fair value of collateral is determined by an independent valuation or professional appraisal in conformance with banking
regulations. Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market, and the
judgment and estimation involved in the real estate appraisal process. Impaired loans 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 collateral dependent loans had a carrying value of $31.5 million with a valuation allowance
of $3.1 million at December 31, 2013 and $61.3 million and $6.8 million, respectively, at December 31, 2012.
Loans Held for Sale. 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.
Other Real Estate Owned. During 2013, 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 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 judgment
and estimation involved in the real estate valuation process. Foreclosed assets measured at fair value upon initial recognition
totaled $24.5 million for the year ended December 31, 2013. The Company disposed of $25.9 million in foreclosed assets,
recognized subsequent write-downs totaling $3.6 million for properties that were re-valued, and realized miscellaneous
adjustments totaling $0.3 million for the year ended December 31 2013. The valuation allowance associated with foreclosed
real estate was $11.0 million at December 31, 2013 and $9.6 million at December 31, 2012.
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.
103
Securities Held to Maturity. Securities held to maturity are valued in accordance with the methodology previously noted in
this footnote under the caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for
Sale”.
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
Level 3
Inputs
2013
(Dollars in Thousands)
ASSETS:
Cash ......................................................................... $
Short-Term Investments ..........................................
Investment Securities, Available for Sale ................
Investment Securities, Held to Maturity ..................
Loans Held for Sale .................................................
Loans, Net of Allowance for Loan Losses ...............
55,209
474,719
251,420
148,211
11,065
1,365,509
LIABILITIES:
Deposits ................................................................... $
Short-Term Borrowings ...........................................
Subordinated Notes Payable ....................................
Long-Term Borrowings ...........................................
2,136,248
51,321
62,887
38,043
(Dollars in Thousands)
ASSETS:
Cash ......................................................................... $
Short-Term Investments ..........................................
Investment Securities, Available for Sale ................
Loans Held for Sale .................................................
Loans, Net of Allowance for Loan Losses ...............
Carrying
Value
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
$
$
$
$
$
$
55,209
474,719
71,833
43,579
—
—
—
—
—
—
—
—
179,587
103,382
11,065
2,136,737
50,754
62,886
39,450
2012
Level 1
Inputs
Level 2
Inputs
66,238
443,494
97,249
—
—
—
—
—
—
$
$
—
—
199,736
14,189
—
2,145,547
46,503
62,896
50,003
$
$
$
$
—
—
—
—
1,265,827
—
—
—
—
Level 3
Inputs
—
—
—
—
1,370,056
—
—
—
—
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.
104
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 ........................................................................................................
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; 17,360,960 and
17,232,380 shares issued and outstanding at December 31, 2013 and December
31, 2012, respectively ..........................................................................................
Additional Paid-In Capital .......................................................................................
Retained Earnings ....................................................................................................
Accumulated Other Comprehensive Loss, Net of Tax ............................................
Total Shareowners' Equity .......................................................................................
Total Liabilities and Shareowners’ Equity ............................................................... $
2013
2012
6,209 $
337,809
3,347
347,365 $
62,887 $
8,078
70,965
174
41,152
243,614
(8,540)
276,400
347,365 $
7,061
309,114
3,435
319,610
62,887
9,834
72,721
—
172
38,707
237,569
(29,559)
246,889
319,610
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:
Overhead Fees ........................................................................... $
Other Income .............................................................................
Total Operating Income .............................................................
OPERATING EXPENSE
Salaries and Associate Benefits .................................................
Interest on Subordinated Notes Payable ....................................
Professional Fees .......................................................................
Advertising ................................................................................
Legal Fees ..................................................................................
Other ..........................................................................................
Total Operating Expense ...........................................................
Loss Before Income Taxes and Equity in Undistributed
Earnings of Subsidiary Bank ................................................
Income Tax Benefit ...................................................................
Loss Before Equity in Undistributed Earnings of Subsidiary
Bank .....................................................................................
Equity in Undistributed Earnings of Subsidiary Bank ...............
Net Income ................................................................................ $
105
2013
2012
2011
4,417 $
208
4,625
4,536 $
130
4,666
3,130
1,419
1,491
142
245
1,117
7,544
(2,919)
(1,036)
(1,883)
7,928
6,045 $
2,059
1,477
1,781
140
332
478
6,267
(1,601)
(10)
(1,591)
1,699
108 $
3,364
48
3,412
1,974
1,380
1,251
135
249
440
5,429
(2,017)
(666)
(1,351)
6,248
4,897
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................................................ $
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities: .........................................................
Equity in Undistributed Earnings of Subsidiary Bank ...............
Stock-Based Compensation .......................................................
Decrease (Increase) in Other Assets ..........................................
(Decrease) Increase in Other Liabilities.....................................
Net Cash (Used In) Provided by Operating Activities ...............
CASH FROM FINANCING ACTIVITIES:
Payment of Dividends ................................................................
Issuance of Common Stock .......................................................
Net Cash Provided By (Used In) in Financing Activities ..........
2013
2012
2011
6,045 $
108
$
4,897
(7,928)
1,296
339
(1,755)
(2,003)
—
1,151
1,151
(1,699)
262
(491)
2,005
185
—
607
607
(6,248)
—
(324)
1,181
(494)
(5,142)
919
(4,223)
(4,717)
10,986
6,269
Net (Decrease) Increase in Cash ................................................
Cash at Beginning of Year .........................................................
Cash at End of Year ................................................................... $
(852)
7,061
6,209 $
792
6,269
7,061
$
106
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, 2013, 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, 2013, 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 in 1992. 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, 2013.
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, 2013, and opined as to the effectiveness of internal control over
financial reporting as of December 31, 2013, as stated in its attestation report, which is included herein on page 108.
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.
107
Report of Independent Registered 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, 2013, based on
criteria established in Internal Control—Integrated Framework (1992) 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, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the 2013 consolidated financial statements of Capital City Bank Group, Inc. and our report dated March 7, 2014 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 7, 2014
108
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,” “Proposal No. 1 - 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
29, 2014.
Item 11.
Executive Compensation
Incorporated herein by reference to the sections entitled “Compensation Discussion and Analysis,” “Compensation
Committee Report,” “Compensation Committee Interlocks and Insider Participation,” and “Executive Compensation” in the
Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 29, 2014.
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
1,391,156(2)
—
1,391,156
Plan Category
Equity Compensation Plans Approved by Securities
Holders ...........................................................................
Equity Compensation Plans Not Approved by Securities
Holders ...........................................................................
Total ..................................................................................
(1)
Includes 60,384 shares that may be issued upon exercise of outstanding options under the terminated 2005 Associate
Incentive Plan.
(2) Consists of 846,530 shares available for issuance under our 2011 Associate Incentive Plan, 446,950 shares available for
issuance under our 2011 Associate Stock Purchase Plan, and 97,676 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 29, 2014.
109
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 29, 2014.
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 29, 2014.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
The following documents are filed as part of this report
1. Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at the End of Fiscal Years 2013 and 2012
Consolidated Statements of Operations for Fiscal Years 2013, 2012, and 2011
Consolidated Statements of Comprehensive Income for Fiscal Years 2013, 2012, and 2011
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2013, 2012,and 2011
Consolidated Statements of Cash Flows for Fiscal Years 2013, 2012, and 2011
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(cid:3)
(cid:3)(cid: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 the Registrant’s shareowners.
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).(cid:3)
110
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
4.5
10.1
10.2
10.3
10.4
10.5
10.6
11
14
21
23.1
31.1
31.2
32.1
32.2
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, 2013.**
Consent of Independent Registered Public Accounting Firm.**
Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of
2002.**
Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of
2002.**
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
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.
111
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on March 7, 2014, on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 7, 2014 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)
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on March 7, 2014, on its behalf by the undersigned, thereunto duly authorized.
Directors:
/s/ DuBose Ausley
DuBose Ausley
/s/ Thomas A. Barron
Thomas A. Barron
/s/ Allan G. Bense
Allan G. Bense
/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.
113
Exhibit Index
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
(cid:3)(cid:3)
3.1
3.2
4.1
4.2
4.3
4.4(cid:3)
4.5
10.1
10.2
10.3
10.4
10.5
10.6
11
14
21
23.1
31.1
31.2
32.1
32.2
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 the Registrant’s shareowners.
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).(cid:3)
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, 2013.**
Consent of Independent Registered Public Accounting Firm.**
Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of
2002.**
Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of
2002.**
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
101.INS XBRL Instance Document**
114
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
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.
115
Exhibit 21. Capital City Bank Group, Inc. Subsidiaries, as of December 31, 2013.
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
116
Exhibit 23.1
Consent of Independent Registered 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 7, 2014 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, 2013.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 7, 2014
117
Exhibit 31.1
Certification of CEO Pursuant to Securities Exchange Act
Rule 13a-14(a) / 15d-14(a) as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, William G. Smith, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Capital City Bank Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
Date: March 7, 2014
118
Exhibit 31.2
Certification of CFO Pursuant to Securities Exchange Act
Rule 13a-14(a) / 15d-14(a) as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, J. Kimbrough Davis, certify that:
1. I have reviewed this annual report on Form 10-K of Capital City Bank Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
Date: March 7, 2014
119
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, 2013, as filed with the Securities and Exchange Commission on the date hereof (this “Report”),
fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and (2) the
information contained in this Report fairly presents, in all material respects, the financial condition of the Company and its
results of operations as of and for the periods covered therein.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
Date: March 7, 2014
120
Exhibit 32.2
Certification of CFO 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, 2013, as filed with the Securities and Exchange Commission on the date hereof (this “Report”),
fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and (2) the
information contained in this Report fairly presents, in all material respects, the financial condition of the Company and its
results of operations as of and for the periods covered therein.
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
Date: March 7, 2014
121
Annual Shareowners’
Meeting
April 29, 2014
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 bank holding 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 63 full-service
offices and 71 ATMs in Florida, Georgia and Alabama. For
more information about Capital City Bank Group, Inc., visit
www.ccbg.com.
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2013
Annual Report
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0
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www.ccbg.com
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