ANNUAL REPORT
2015
NEW LOCATION!
SHAREOWNERS’
ANNUAL MEETING
TUESDAY, APRIL 26, 2016 | 11 a.m.
Phillips Center for the Performing Arts
3201 Hull Road, Gainesville, Florida 32611
> 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 61 offices and 71 ATMs in
Florida, Georgia and Alabama. For more information about Capital City Bank Group,
Inc., visit www.ccbg.com.
DEAR FELLOW
SHAREOWNERS
> 2015 was a great year characterized by solid performance and invigorating growth. Encouraging trends that
emerged in 2014 were amplified as we moved deeper into 2015. As economies further stabilized and consumer
confidence continued to rise, we saw a return in loan demand, providing much-needed growth in this critical
area. From auto to home loans, we’ve seen renewed interest from borrowers, which has gone a long way toward
fortifying our portofolio with quality, performing loans that were in short supply during the crisis.
Moving other real estate (ORE) off the books was a high priority,
has risen to the top as a particular
and we stood by our retail disposition strategy throughout the
area of focus. We are contributing
cycle. It was not the easy way – or the quick way – but our results
additional resources and executing
show it was the right way to ensure a better financial outcome for
strategies
to help grow our
our shareowners.
presence and market share.
At year end, the Federal Reserve increased its target interest rate,
A final area of strategic focus is
hinting to their confidence in current economic conditions and
business
lending.
Becoming
moving us toward greater economic stability. We look forward to
the lender of choice for businesses in our markets is a valuable
the help increased rates will bring as we emerge from the economic
proposition for the Bank, but stepping into that preferred role
crisis and focus on rebuilding profitability.
requires us to be able to act swiftly and render lending decisions
Coming out of the cycle, returning to profitability and building
toward the future are critical priorities. In the first quarter of 2015,
more quickly than our competition. In 2015, we took our first steps
toward streamlining our credit-delivery platform and have seen
some early success. We expect that success to continue as we
we began an intensive strategic planning process and identified
further perfect our new process.
several areas of focus: reduce unnecessary expenses, increase
revenues and grow loans. We’ve got our best and brightest focused
As we look back on a great year, I am proud of our progress. I am
on this process, and many great projects are on the move. As a result
proud of our team and all the hard work that contributed to our
of this process, we have challenged numerous fundamentals of our
performance. I am proud of how we’ve pulled through the lean
business from front office to back-of-the-house. There are no sacred
times without compromising who we are and the standards we
cows. No process or practice is spared scrutiny, transformation or
value. And most of all, I am proud to have a team of bankers behind
elimination.
me willing to step out and innovate, do the hard work and make
the changes that will fortify our position in our markets now and in
We are making better use of our office space with Express Banking
the future.
and Smart ATM technology, which allows us to lower overhead
expenses without sacrificing our level of service. And we currently
As always, I thank you for your continued support and welcome
are in the process of rolling out eSign technology in all our offices,
your comments and questions.
which will remove time and cost from the system.
Your banker,
We also have identified some important opportunities and have
strategies in place to capitalize on them. Gainesville, with an
economic climate and demographic makeup similar to Tallahassee,
> 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
2015
2014
2013
$9,116
$9,260
$ 6,045
$0.53
0.53
15.93
0.34%
3.31%
3.31%
$ 0.53
$ 0.35
0.53
15.53
0.36%
3.27%
3.36%
0.35
15.85
0.24%
2.40%
3.54%
17.25%
17.76%
17.94%
10.65%
10.99%
10.46%
6.99%
7.38%
7.58%
$ 1,474,833
$ 1,414,000
$ 1,450,806
2,324,854
2,237,623
2,213,686
2,659,317
2,564,176
2,568,662
Average Non-Interest Bearing Deposits
715,883
671,188
631,117
Average Total Deposits
2,163,441
2,093,477
2,070,073
Average Shareowners’ Equity
275,144
283,079
251,427
> OUR LEADERS
Board of Directors
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
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
Tax Partner
Carroll and Company, CPAs
Serving Since 2003
Cader B. Cox, III
Chairman and Secretary
Riverview Plantation, Inc.
Serving Since 1994
J. Everitt Drew
President
SouthGroup Equities, Inc.
Serving Since 2003
John K. Humphress
Partner
Wadsworth, Humphress,
Hollar & Konrad, PA
Serving Since 1994
Lina S. Knox
Community Volunteer
Serving Since 1998
Dr. Henry Lewis, III
President
Tuskegee Homes, LLC
Serving Since 2003
John G. Sample, Jr.
Senior Vice President and Chief
Financial Officer
Atlantic American Corporation
Serving Since 2016
Senior Management Team
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
37 years of service
Thomas A. Barron
President
Capital City Bank
41 years of service
J. Kimbrough Davis
Chief Financial Officer
34 years of service
Thomas W. Allen
Residential Mortgage
7 years of service
Edward G. Canup
Commercial Banking
32 years of service
William L. Moor, Jr.
Wealth Management
28 years of service
Bethany H. Corum
Capital City Services Company
9 years of service
B. Randall Sharpton
Internal Audit
36 years of service
Mitchell R. Englert
Community Banking
42 years of service
Brooke W. Hallock
Marketing
11 years of service
Dale A. Thompson
Credit Administration
36 years of service
Edwin N. West, Jr.
Community Banking
Leon County
17 years of service
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
(Exact name of Registrant as specified in its charter)
Florida
(State of Incorporation)
0-13358
(Commission File Number)
59-2273542
(IRS Employer Identification No.)
217 North Monroe Street, Tallahassee, Florida
(Address of principal executive offices)
32301
(Zip Code)
(850) 671-0300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid: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 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)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes (cid: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
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:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
Large accelerated filer (cid:134)(cid:3)Accelerated filer (cid:95)(cid:3)Non-accelerated filer (cid:134)(cid:3)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)
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,
2015, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $159,934,867 (based on the
closing sales price of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director
and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.01 par value per share
Outstanding at February 29, 2016
17,221,651
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 26, 2016, are incorporated by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2015 ON FORM 10-K
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for the Registrant’s Common Equity, Related Shareowner Matters, and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
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
Exhibits and Financial Statement Schedules
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
PAGE
4
19
26
26
26
26
27
29
30
56
57
98
98
98
100
100
100
100
100
101
103
2
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans,
objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject
to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to
identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual
results to differ materially from those in the forward-looking statements, include, without limitation:
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;
legislative or regulatory changes, including the Dodd-Frank Act, Basel III, and the ability to repay and qualified
mortgage standards;
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to credit
or debit card products;
the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss
reserve and deferred tax asset valuation allowance;
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 ability to declare and pay dividends, the payment of which is now subject to our compliance with additional
capital requirements;
our need and our ability to incur additional debt or equity financing;
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, including the laws for 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.
3
PART I
Item 1. Business
General
About Us
Capital City Bank Group, Inc. (“CCBG”) is a financial 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 61 banking offices in Florida, Georgia, and Alabama
operated by CCB. The majority of our revenue, approximately 84%, is derived from our Florida market areas while
approximately 15% and 1% of our revenue is derived from our Georgia and Alabama market areas, respectively.
Below is a summary of our financial condition and results of operations for the past three years. Our financial condition and
results of operations are more fully discussed in our management discussion and analysis on page 30 and our consolidated
financial statements on page 58.
Dollars in millions
Year Ended
December 31,
2015 ...............................................
2014 ...............................................
2013 ...............................................
Assets
$ 2,797.9
2,627.2
2,611.9
Deposits
$
2,302.8
2,146.8
2,136.2
Shareowners’
Equity
$
274.4
272.5
276.4
$
Revenue(1)
133.7
130.8
137.3
$
Net Income
9.1
9.3
6.0
(1) Revenue represents interest income plus noninterest income.
Dividends and management fees received from the Bank are CCBG’s primary source of income. Dividend payments by the
Bank to CCBG depend on the capitalization, earnings and projected growth of the Bank, and are limited by various
regulatory restrictions, including, effective as of January 1, 2016, compliance with a minimum Common Equity Tier 1
Capital conservation buffer. See the section entitled “Regulatory Matters” in this Item 1 and Note 14 in the Notes to
Consolidated Financial Statements for a discussion of the restrictions.
We had a total of 894 associates at March 1, 2016. Item 6 contains other financial and statistical information about us.
Subsidiaries of CCBG
CCBG’s principal asset is the capital stock of CCB, our wholly owned banking subsidiary, which accounted for nearly 100%
of consolidated assets at December 31, 2015, and approximately 100% of consolidated net income for the year ended
December 31, 2015. In addition to our banking subsidiary, CCB has three primary wholly owned subsidiaries, Capital City
Trust Company, Capital City Banc Investments, Inc., and Capital City Services Company. The nature of these 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 2015 totaled
approximately 93.8%, 0.4%, 3.4%, and 2.4% of our total revenue, respectively. In 2014 and 2013, Banking Services (CCB)
revenue was approximately 92.8% and 91.9% of our total revenue for each respective year.
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:402) 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.
4
(cid:402) 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 purchase land and build structures for business use and for investors who are developing
residential or commercial property.
(cid:402) 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:402) 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:402)
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:402) 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”, “Plus” and “Presto” ATM Networks that permit 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 $728.4 million as of
December 31, 2015, with total assets under administration exceeding $819.8 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.
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,
2016, the Services Company is providing data processing services to three correspondent banks which have relationships
with CCB.
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, including
participation loans. These loans will only be approved if the applicant is known to the Bank, underwriting is consistent with
CCB criteria, and the applicant’s primary business is in or near our primary or secondary market area. Approval of all loans
is subject to the Bank’s policies and standards described in more detail below.
5
The Bank has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management and
the Bank’s Board of Directors reviews and approves these policies and procedures on a regular basis (at least annually).
Management has also implemented reporting systems designed to monitor loan originations, loan quality, concentrations of
credit, loan delinquencies, 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 Bank’s Board on a quarterly basis (i.e., commercial real estate) and the Bank has 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 five 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 generally does not service sold loans). Adjustable rate mortgage (“ARM”) loans with an initial fixed interest rate
period greater than five years are sold in the secondary market on a non-recourse basis.
The Bank also originates certain residential real estate loans throughout its banking office network that are generally not
eligible for sale into the secondary market due to not meeting a specific secondary market underwriting requirement. This
includes our variable rate 3/1 and 5/1 ARM loans which typically have a maximum term of 30 years and maximum LTV of
80%.
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, 2015,
approximately 63% of the Bank’s residential home equity loan portfolio consisted of first mortgages. 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.
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 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.
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 priced based on 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.
6
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 $81 million. In practice, the Bank seeks to maintain an internal lending limit of $7.5 million which we believe
helps us maintain a well-diversified loan portfolio.
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., a
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.
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 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). 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.
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. When evaluating
potential acquisition opportunities, we will continue to weigh the value of organic growth initiatives versus potential
acquisition returns and pursue the strategies that we believe provide the best overall return to our shareowners.
Potential acquisition opportunities 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 economic
conditions and demographics of 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.
7
Competition
We operate in a highly competitive environment, especially with respect to services and pricing. In addition, the banking
business is experiencing enormous changes. Since January 1, 2009, nearly 500 financial institutions have failed in the U.S.,
including 85 in Georgia and 70 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. We expect consolidation to
continue during 2016, but substantially through traditional merger and acquisition activity. 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 a further reduction of the number of community banks could continue to 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 banks, 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. Most of Florida’s major banking concerns
have a presence in Leon County, where the Bank has its main office. CCB’s Leon County deposits totaled $871.1 million, or
37.8% of our consolidated deposits at December 31, 2015.
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)
2014
2015
2013
4.7%
49.9%
3.5%
1.9%
15.8%
77.4%
45.5%
13.9%
1.9%
21.9%
13.2%
27.1%
13.2%
0.1%
19.6%
0.8%
8.2%
19.0%
14.8%
12.9%
3.4%
6.2%
14.1%
9.6%
6.1%
4.8%
51.5%
3.6%
2.0%
9.9%
77.4%
42.2%
14.0%
1.8%
22.1%
15.3%
28.0%
10.3%
0.1%
19.5%
0.9%
6.8%
22.0%
13.6%
13.6%
3.6%
6.8%
14.3%
9.1%
5.3%
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%
Chambers .....................................................................................................
8.6%
7.6%
8.1%
(1)
Obtained from the FDIC Summary of Deposits Report for the year indicated.
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, 2015 FDIC Summary of Deposits Report.
Seasonality
Number of
Commercial
Banks
Number of
Commercial
Bank Offices
17
3
12
13
4
2
4
3
13
2
18
2
4
21
6
21
5
3
3
6
11
5
5
10
10
6
64
3
42
32
5
3
6
5
39
2
78
11
4
102
12
62
8
4
4
6
51
10
8
20
23
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.
9
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 financial holding company under the Bank
Holding Company Act of 1956. As a result, we are subject to supervisory regulation and examination by the Federal Reserve.
The Gramm-Leach-Bliley Act, the Bank Holding Company Act, and other federal laws subject financial holding companies
to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws and regulations.
Permitted Activities
The Gramm-Leach-Bliley Act modernized the U.S. banking system by: (i) allowing bank holding companies that qualify as
“financial holding companies” such as CCBG 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. 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, which 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.
10
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 the total equity of a target bank or bank holding
company, subject to certain conditions, including (but not limited to) that the investing firm does not acquire 15% 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 financial 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
Financial 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 financial 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 financial holding company to terminate any
activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s
determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary
depository institution of the financial holding company. Further, federal bank regulatory authorities have additional discretion
to require a financial holding company to divest itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institution’s financial condition.
Capital City Bank
CCB is a banking institution that is chartered by and headquartered in the State of Florida, and it is subject to supervision and
regulation by the Florida Office of Financial Regulation. The Florida Office of Financial Regulation supervises and regulates
all areas of CCB’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of
CCB’s corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment
or closing of banking centers. CCB is also a member bank of the Federal Reserve System, which makes CCB’s operations
subject to broad federal regulation and oversight by the Federal Reserve. In addition, CCB’s deposit accounts are insured by
the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over CCB.
11
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 clients. 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 transaction accounts (noninterest bearing
and 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.
Additionally, effective as of January 1, 2016, financial institutions are be required to maintain a capital conservation buffer of
at least 0.625% of risk-weighted assets in order to avoid restrictions on capital distributions and other payments. If a financial
institution’s capital conservation buffer falls below the minimum requirement, its maximum payout amount for capital
distributions and discretionary payments declines to a set percentage of eligible retained income based on the size of the
buffer. See “Capital Regulations,” below for additional details on this new capital requirement.
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 risk 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.
12
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 bank branches, merge, or acquire the assets and assume the liabilities of another bank. In the case of a
financial holding company, the Community Reinvestment Act performance record of all banks involved in the merger or
acquisition are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of
a bank or to merge with any other bank or financial holding company. An unsatisfactory record can substantially delay or
block the transaction. CCB received a satisfactory rating on its most recent Community Reinvestment Act assessment.
Capital Regulations
The federal banking regulators have adopted risk-based, capital adequacy guidelines for financial holding companies and
their subsidiary state-chartered banks. The risk-based capital guidelines are designed to make regulatory capital requirements
more sensitive to differences in risk profiles among banks and financial holding companies, to account for off-balance sheet
exposure, to minimize disincentives for holding liquid assets and to achieve greater consistency in evaluating the capital
adequacy of major banks throughout the world. Under these guidelines, assets and off-balance sheet items are assigned to
broad risk categories each with designated weights. The resulting capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance sheet items.
13
The federal banking regulators adopted risk-based capital adequacy guidelines for U.S. banks. As described above, the
federal banking regulators have adopted final rules that became effective January 1, 2015 for community banks. These final
rules represent major changes to the prior general risk-based capital rule and are designed to substantially conform to the
Basel III international standards. The new risk-based capital guidelines are designed to make regulatory capital requirements
more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet
exposure, to minimize disincentives for holding liquid assets, and to achieve greater consistency in evaluating the capital
adequacy of major banks throughout the world. Under these guidelines, assets and off-balance sheet items are assigned to
broad risk categories each with designated weights. The resulting capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance sheet items.
Under the final rule, minimum requirements increased 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 1 Capital to Risk-Weighted Assets of 4.5%
and a Common Equity Tier 1 Capital conservation buffer of 2.5% of risk-weighted assets. The rule also, among other things,
raises the minimum ratio of Tier 1 Capital to Risk-Weighted Assets from 4% to 6% and includes a minimum leverage ratio of
4% for all banking organizations. The implementation of the capital conservation buffer began on January 1, 2016 at the
0.625% level and will be phased in over a three-year period (increasing by 0.625% on each subsequent January 1, until it
reaches 2.5% on January 1, 2019). If a financial institution’s capital conservation buffer falls below the minimum required
amount, its maximum payout amount for capital distributions and discretionary payments will be limited or prohibited based
on the size of the institution’s buffer. The types of payments subject to this limitation include dividends, share buybacks,
discretionary payments on Tier 1 instruments, and discretionary bonus payments.
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 nonfinancial 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 new capital regulations may also impact the treatment of accumulated other comprehensive income (“AOCI”) for
regulatory capital purposes. Under the new rules, AOCI would generally flow through to regulatory capital, however,
community banks and their holding companies may make a one-time irrevocable opt-out election to continue to treat AOCI
the same as under the old regulations for regulatory capital purposes. This election was required to be made on the first call
report or bank holding company annual report (on form FR Y-9C) filed after January 1, 2015. The Company chose the opt-
out election. Additionally, the new rules also permit community banks with less than $15 billion in total assets to continue to
count certain non-qualifying capital instruments issued prior to May 19, 2010, including trust preferred securities and
cumulative perpetual preferred stock, as Tier 1 capital (subject to a limit of 25% of tier 1 capital). However, non-qualifying
capital instruments issued on or after May 19, 2010 will not qualify for Tier 1 capital treatment.
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 under the new rules in effect as of January 1, 2015, a bank must have a leverage ratio of not less than
5%, a Tier 1 Common Equity ratio of not less than 6.5%, a Tier 1 Capital ratio of not less than 8%, 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.
14
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. It should be noted that the minimum
ratios referred to above are merely guidelines and the bank regulators possess the discretionary authority to require higher
capital ratios.
As of December 31, 2015, 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.
Required
For Capital
Adequacy
Purposes
Actual
To Be Well-
Capitalized
Under
Prompt
Corrective
Action
Provisions
(Dollars in thousands)
As of December 31, 2015:
Common Equity Tier 1 Capital:
CCBG ........................................................
CCB ...........................................................
Tier 1 Capital:
CCBG ........................................................
CCB ...........................................................
Total Capital:
CCBG ........................................................
CCB ...........................................................
Tier 1 Leverage:
CCBG ........................................................
CCB ...........................................................
Amount
Ratio
Amount
Ratio
Amount
Ratio
$ 215,075
266,138
12.84% $
15.93%
75,385
75,162
4.50%
*
4.50% 108,567
275,075
266,138
16.42%
15.93%
100,513
100,216
6.00%
*
6.00% 133,621
*
6.50%
*
8.00%
289,028
280,091
17.25%
16.77%
134,018
133,621
*
8.00%
8.00% 167,026
*
10.00%
275,075
266,138
10.65%
10.33%
103,342
103,095
4.00%
*
4.00% 128,869
*
5.00%
* Not applicable to bank holding companies.
Prompt Corrective Action
Immediately upon becoming undercapitalized, a depository institution becomes subject to the provisions of Section 38 of the
Federal Deposit Insurance Act, 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.
15
Interstate Banking and Branching
The Bank Holding Company Act, amended by 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. Also, the Dodd-Frank Act, added deposit caps which prohibit acquisitions that result
in the acquiring company controlling 30% or more of the deposits of insured banks and thrift institutions held in the state in
which the target maintains a branch or 10% or more of the deposits nationwide. States have the authority to waive the 30%
deposit cap. State-level deposit caps are not preempted as long as they do not discriminate against out-of-state companies,
and the federal deposit caps apply only to initial entry acquisitions.
Under the Dodd-Frank Act, national banks and state banks are able to establish branches in any state if that state would
permit the establishment of the branch by a state bank chartered in that state. Florida law permits a state bank to establish a
branch of the bank anywhere in the state. Accordingly, under the Dodd-Frank Act, a bank with its headquarters outside the
State of Florida may establish branches anywhere within the state.
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:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
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 client 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 its 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.
16
Federal Home Loan Bank System
CCB is a member of the Federal Home Loan Bank of Atlanta, which is one of 12 regional Federal Home Loan Banks. Each
FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds
deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB system. It makes loans
to members (i.e. advances) in accordance with policies and procedures established by the board of trustees of the FHLB.
As a member of the FHLB of Atlanta, CCB is required to own capital stock in the FHLB in an amount at least equal to 0.09%
(or 9 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 $15 million), plus 4.25% of its outstanding advances (borrowings) from the FHLB of Atlanta under the activity-
based stock ownership requirement. As of December 31, 2015, 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.
In addition, the Consumer Financial Protection Bureau issues regulations and standards under these federal consumer
protection laws that affect our consumer businesses. These include regulations setting “ability to repay” standards for
residential mortgage loans and mortgage loan servicing and originator compensation standards, which generally require
creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction
secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and
establishes certain protections from liability under this requirement for loans that meet the requirements of the “qualified
mortgage” safe harbor. In addition, on October 3, 2015, the new TILA-RESPA Integrated Disclosure (TRID) rules for
mortgage closings took effect for new loan applications. These new loan forms may have the effect of lengthening the time it
takes to approve mortgage loans in the short-term following implementation of the rule.
The Volcker Rule
Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, prohibits us from owning, sponsoring, or having
certain relationships with any hedge funds or private equity funds, subject to certain exemptions. The Volcker Rule directed
the federal banking, securities and commodities and futures regulatory agencies to undertake a coordinated rulemaking effort
to create rules implementing the Volcker Rule. The final interagency rules implementing the Volcker Rule, which were
issued in December 2013 and became effective on April 1, 2014, afford financial institutions a two-year conformance period
during which they can wind-down, sell, or otherwise conform their respective activities, investments and relationships to the
requirements of the Volcker Rule and its implementing regulations. We do not believe that the Volcker Rule or the final
interagency rules implementing the Volcker Rule will have a material impact on our investment activities since we do not
engage in transactions covered by the regulation.
17
Future Legislative Developments
Various legislative acts are from time to time introduced in Congress and the Florida legislature. This legislation may change
banking statutes and the environment in which our banking subsidiary and we operate in substantial and unpredictable ways.
We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect
thereto, would have upon our financial condition or results of operations or that of our banking subsidiary.
Effect of Governmental Monetary Policies
The commercial banking business in which CCB engages is affected not only by general economic conditions, but also by the
monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing
at the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’
deposits and assets of foreign banking centers and the imposition of and changes in reserve requirements against certain
borrowings by banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve.
These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans,
investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies
of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to
continue to do so in the future. The monetary policies of the Federal Reserve are influenced by various factors, including
inflation, unemployment, and short-term and long-term changes in the international trade balance and in the fiscal policies of
the U.S. Government. Future monetary policies and the effect of such policies on the future business and earnings of CCB
cannot be predicted.
Income Taxes
We are subject to income taxes at the federal level and subject to state taxation based on the laws of each state in which we
operate. We file a consolidated federal tax return with a fiscal year ending on December 31.
Website Access to Company’s Reports
Our Internet website is www.ccbg.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), and reports filed
pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The
information on our website is not incorporated by reference into this report.
18
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, federal funds target rate, 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-term and long-term interest rates may also harm our business. We generally use
short-term deposits to fund longer-term assets. When interest rates change, assets and liabilities with shorter terms reprice
more quickly than those with longer terms, which could have a material adverse effect on our net interest margin. If market
interest rates rise rapidly, interest rate adjustment caps may also limit increases in the interest rates on adjustable rate loans,
which could further reduce our net interest income. Additionally, we believe that due to the recent historical low interest rate
environment, the effects of the repeal of Regulation Q, which previously had prohibited the payment of interest on demand
deposits by member banks of the Federal Reserve System, has not been realized. The increased price competition for deposits
that may result upon the return to a historically normal interest rate environment could adversely affect net interest margins of
community banks.
Although we continually monitor interest rates and have a number of tools to manage our interest rate risk exposure, changes
in market assumptions regarding future interest rates could significantly impact our interest rate risk strategy, our financial
position and results of operations. If our interest rate risk management strategies are not appropriately monitored or executed,
these activities may not effectively mitigate our interest rate sensitivity or have the desired impact on our results of operations
or financial condition.
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:402) 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, 2015, commercial mortgage loans comprised approximately 33.2% of our total loan portfolio.
(cid:402) 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, 2015, commercial loans comprised approximately 12.0%
of our total loan portfolio.
19
(cid:402) 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, 2015, construction loans comprised approximately 3.2% of our total loan portfolio.
(cid:402) 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, 2015, vacant land loans comprised
approximately 4.4% of our total loan portfolio.
(cid:402) 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.
As of December 31, 2015, HELOCs comprised approximately 15.6% of our total loan portfolio.
(cid:402) Consumer Loans. Consumer loans (such as automobile loans and 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, 2015, consumer loans comprised approximately 16.1% of our total loan portfolio, with indirect auto loans
making up a majority of this portfolio at approximately 84% of the total balance.
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.
We process, maintain, and transmit confidential client information through our information technology systems, such
as our online banking service. Cybersecurity issues, such as security breaches and computer viruses, affecting our
information technology systems or fraud related to our credit or debit card products could disrupt our business,
result in the unintended disclosure or misuse of confidential or proprietary information, damage our reputation,
increase our costs, and cause losses.
We collect and store sensitive data, including our proprietary business information and that of our clients, and personally
identifiable information of our clients and employees, in our information technology systems. We also provide our clients the
ability to bank online. The secure processing, maintenance, and transmission of this information is critical to our operations.
Our network, or those of our clients, could be vulnerable to unauthorized access, computer viruses, phishing schemes and
other security problems. Financial institutions and companies engaged in data processing have increasingly reported breaches
in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to
obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause
other damage.
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. 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.
Additionally, fraud losses related to credit and debit cards have risen in recent years due in large part to growing and evolving
schemes to illegally use cards or steal consumer credit card information despite risk management practices employed by the
credit and debit card industry. Many issuers of debit and credit cards have suffered significant losses in recent years due to
the theft of cardholder data that has been illegally exploited for personal gain.
20
The potential for credit and debit card fraud against us or our clients and our third party service providers is a serious issue.
Credit card fraud is pervasive and the risks of cybercrime are complex and continue to evolve. In view of the recent high-
profile retail data breaches involving client personal and financial information, the potential impact on us and any exposure to
consumer losses and the cost of technology investments to improve security could cause losses to us or our clients, damage to
our brand, and an increase in our costs.
An inadequate allowance for loan losses would reduce our earnings.
We are exposed to the risk that our clients may be unable to repay their loans according to their terms and that any collateral
securing the payment of their loans may not be sufficient to assure full repayment. This could 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:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
the risk characteristics of various classifications of loans;
previous loan loss experience;
specific loans that have loss potential;
delinquency trends;
estimated fair market value of the collateral;
current economic conditions; and
geographic and industry loan concentrations.
As of December 31, 2015, the Bank’s allowance for loan losses was $14.0 million, which represented approximately 0.93% of
its total amount of loans. The Bank had $10.3 million in nonaccruing loans as of December 31, 2015. 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.
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:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
(cid:402)
general or local economic conditions;
environmental cleanup liability;
neighborhood values;
interest rates;
real estate tax rates;
operating expenses of the mortgaged properties;
supply of and demand for rental units or properties;
ability to obtain and maintain adequate occupancy of the properties;
zoning laws;
governmental rules, regulations and fiscal policies; and
acts of God.
Certain expenditures associated with the ownership of real estate, principally real estate taxes, insurance 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.
21
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet client
loan requests, client deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash
commitments under both normal operating conditions and other unpredictable circumstances causing industry or general
financial market stress. An inability to raise funds through deposits, borrowings, earnings and other sources, could have a
substantial negative effect on our liquidity. In particular, a majority of our liabilities during 2015 were checking accounts and
other liquid deposits, which are generally payable on demand or upon short notice, while by comparison, a substantial
majority of our assets were loans, which cannot generally be called or sold in the same time frame. Although we have
historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in
the future, especially if a large number of our depositors seek to withdraw their accounts, regardless of the reason. 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 failure to maintain
adequate liquidity could materially and adversely affect our business, results of operations or financial condition.
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.
Risks Related to Regulation and Legislation
We are subject to extensive regulation, including an unprecedented increase in new regulation, which could restrict
our activities and impose financial requirements or limitations on the conduct of our business.
Both CCBG and the Bank are subject to extensive regulation, supervision and examination by our regulators, including 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.
We are experiencing an unprecedented increase in regulations and supervision. Significant new legislation and regulations
affecting the financial services industry have been adopted or proposed in recent years, such as the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, into law. Congress and our regulators continue to
develop, propose and adopt rules and propose new regulatory initiatives, so the cumulative effect of all of the new legislation
and regulations on our business and operations remains uncertain.
We must also meet regulatory capital requirements imposed by our regulators. These capital requirements have increased as a
result of the implementation of the Basel III framework under Dodd-Frank and have required us to hold more capital and
reduce our leverage. 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.
22
The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit and other
activities. 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.
The new Basel III Capital Standards may have an adverse effect on us.
In 2013, the Federal Reserve Board released its final rules which 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 increased 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 1 Capital (“CET1”) to Risk-Weighted Assets (“RWA”) of 4.5% and a CET1 conservation buffer of 2.5% of RWA
(which will be phased in from 2016 through 2019) that apply to all supervised financial institutions. As of January 1, 2016,
the CET1conservation buffer requirement was 0.625%, which requires us to hold additional CET1 capital in excess of the
minimum required to meet the CET1 to RWA ratio requirement. The rule also, among other things, raised the minimum ratio
of Tier 1 Capital to RWA from 4% to 6% and included a minimum leverage ratio of 4% for all banking organizations. The
impact of the new capital rules requires us to maintain higher levels of capital, which we expect will lower our return on
equity. Additionally, if our CET1 to RWA ratio does not exceed the minimum required plus the additional CET1
conservation buffer, we may be restricted in our ability to pay dividends or make other distributions of capital to our
shareowners.
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 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 holds lenders accountable for ensuring a borrower’s
ability to repay a mortgage at the time the loan is originated. 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:402)
(cid:402)
(cid:402)
(cid:402)
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.
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.
23
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, 2015, approximately 72% 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, 2015, 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 could result in a decrease in loan originations and
increases in delinquencies and foreclosures, which would more greatly affect us than if our lending were more geographically
diversified. In addition, since a large portion of our portfolio is secured by properties located in Florida and Georgia, the
occurrence of a natural disaster, such as a hurricane, or a man-made disaster could result in a decline in loan originations, a
decline in the value or destruction of mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss
on loans originated by us. We may suffer further losses due to the decline in the value of the properties underlying our
mortgage loans, which would have an adverse impact on our results of operations and financial condition.
Our concentration in loans secured by real estate may increase our credit losses, which would negatively affect our
financial results.
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, 2015, approximately 33.2% and 35.6% of our $1.504 billion loan portfolio was secured by
commercial real estate and residential real estate, respectively. As of this same date, approximately 3.2% was secured by
property under construction.
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, 2015 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 in interest rates, 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 short-term and long-term interest rates; a positively sloped yield curve means short-term rates are lower
than long-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.
24
We may be unable to pay dividends in the future.
Risks Related to an Investment in Our Common Stock
In 2015, our Board of Directors declared four quarterly cash dividends. Declarations of any future dividends will be
contingent on our ability to earn sufficient profits and to remain well capitalized, including our ability to hold and generate
sufficient capital to comply with the new CET1 conservation buffer requirement. In addition, due to our contractual
obligations with the holders of our trust preferred securities, if we defer the payment of accrued interest owed to the holders
of our 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
of Financial Regulation and Federal Reserve, declare a dividend from retained net income which accrued prior to the
preceding two years. Additional state laws generally applicable to Florida corporations may also limit our ability to declare
and pay dividends. Thus, our ability to fund future dividends may be restricted by state and federal laws and regulations.
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 historically 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, 2015 was approximately 21,073 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 37% of the outstanding shares
of our common stock as of December 31, 2015. 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 21.9% of our shares. In addition, 2S Partnership beneficially owns 6.1%
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 34% 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.
25
Our Articles of Incorporation, Bylaws, and certain laws and regulations may prevent or delay transactions you might
favor, including a sale or merger of CCBG.
CCBG is registered with the Federal Reserve as a financial holding company under the 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 financial holding companies to particular restrictions on the types of
activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.
Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations and various other factors may make it more
difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is
possible, however, that you would want a takeover attempt to succeed because, for example, a potential buyer could offer a
premium over the then prevailing price of our common stock.
For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareowner action.
The ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender
offer, merger, proxy contest or otherwise. Additionally, our Articles of Incorporation and Bylaws divide our Board of
Directors into three classes, as nearly equal in size as possible, with staggered three-year terms. One class is elected each
year. The classification of our Board of Directors could make it more difficult for a company to acquire control of us. We are
also subject to certain provisions of the Florida Business Corporation Act and our Articles of Incorporation that relate to
business combinations with interested shareowners. Other provisions in our Articles of Incorporation or Bylaws that may
discourage takeover attempts or make them more difficult include:
(cid:402)
(cid:402)
(cid:402)
Supermajority voting requirements to remove a director from office;
Provisions regarding the timing and content of shareowner proposals and nominations;
Supermajority voting requirements to amend Articles of Incorporation unless approval is received by a majority of
“disinterested directors”;
(cid:402) Absence of cumulative voting; and
(cid:402)
Inability for shareowners to take action by written consent.
Shares of our common stock are not an insured deposit and may lose value.
The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other
government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of
your entire investment.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in Tallahassee, Florida. Our executive office is in the Capital City Bank building located on the corner
of Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by the Bank, but is located on land leased
under a long-term agreement.
As of February 29, 2016, the Bank had 61 banking offices. Of the 61 locations, the Bank leases the land, buildings, or both at
seven locations and owns the land and buildings at the remaining 54.
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 Disclosure.
Not applicable.
26
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 1,559
shareowners of record as of February 29, 2016.
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.
2015
2014
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High ..............................
Low ...............................
Close .............................
Cash dividends
per share ....................
$ 16.05
13.56
15.35
$ 15.75
14.39
14.92
$ 16.32
13.94
15.27
$ 16.33
13.16
16.25
$ 16.00
13.00
15.54
$ 14.98
13.26
13.54
$ 14.71
12.60
14.53
$ 14.59
11.56
13.28
0.04
0.03
0.03
0.03
0.03
0.02
0.02
0.02
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 11 and 12 and the section entitled “Liquidity and Capital Resources – Dividends” -- in
Management’s Discussion and Analysis of Financial Condition and Operating Results on page 51 and Note 14 in the Notes to
Consolidated Financial Statements.
27
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, 2010 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 .........
$
12/31/10
100.00
100.00
100.00
$
12/31/11
77.90
99.21
91.20
$
12/31/12
92.75
116.82
112.45
$
12/31/13
96.01
163.75
163.52
$
12/31/14
127.56
188.03
170.98
$
12/31/15
127.09
201.40
191.39
Period Ending
28
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 .............................................................
2015
2014
2013
2012
2011
79,658 $
76,351
1,594
54,091
115,273
9,116
78,221 $
74,641
1,905
52,536
114,358
9,260
82,152 $
77,736
3,472
55,111
121,405
6,045
89,680 $
84,312
16,166
54,569
123,943
108
99,459
91,922
18,996
57,244
124,643
4,897
Per Common Share:
Basic Net Income .................................................... $
Diluted Net Income .................................................
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 1 Capital ..........................................................
Total Capital ...........................................................
Common Equity Tier 1 Capital(1) ............................
Tangible Capital......................................................
Leverage .................................................................
Equity to Assets ......................................................
Dividend Pay-Out ...................................................
0.53 $
0.53
0.13
15.93
0.34%
3.31
3.31
41.47
87.94
0.53 $
0.53
0.09
15.53
0.36%
3.27
3.36
41.30
89.68
0.35 $
0.35
—
15.85
0.24%
2.40
3.54
41.48
91.09
0.01 $
0.01
—
14.31
0.00%
0.04
3.81
39.29
88.72
0.29
0.29
0.30
14.68
0.19%
1.86
4.18
38.38
83.24
13,953 $
0.93%
17,539 $
1.22%
23,095 $
1.65%
29,167 $
1.93%
31,035
1.91%
29,595
1.06
1.94
135.40
0.35
16.42%
17.25
12.84
6.99
10.65
9.81
24.53
52,449
2.00
3.55
104.60
0.53
16.67%
17.76
NA
7.38
10.99
10.37
16.98
85,035
3.26
5.87
62.48
0.66
117,648
4.47
7.47
45.42
1.16
16.56%
17.94
NA
7.58
10.46
10.58
NM
14.35%
15.72
NA
6.35
9.90
9.37
NM
137,623
5.21
8.14
41.37
1.39
13.96%
15.32
NA
6.51
10.26
9.54
103.45
Averages for the Year:
Loans, Net of Unearned Income ............................. $ 1,474,833 $ 1,414,000 $ 1,450,806 $ 1,556,565 $ 1,686,995
2,221,317
Earning Assets ........................................................
2,583,197
Total Assets ............................................................
2,081,583
Deposits ..................................................................
263,048
Shareowners’ Equity ...............................................
2,324,854
2,659,317
2,163,441
275,144
2,237,623
2,564,176
2,093,477
283,079
2,213,686
2,568,662
2,070,073
251,427
2,229,621
2,590,173
2,105,672
252,960
Year-End Balances:
Loans, Net of Unearned Income ............................. $ 1,503,907 $ 1,442,062 $ 1,399,669 $ 1,521,302 $ 1,628,683
2,266,193
Earning Assets ........................................................
2,641,312
Total Assets ............................................................
2,172,519
Deposits ..................................................................
251,942
Shareowners’ Equity ...............................................
2,470,444
2,797,860
2,302,849
274,352
2,276,781
2,627,169
2,146,794
272,540
2,274,019
2,611,903
2,136,248
276,400
2,261,781
2,633,984
2,144,996
246,889
Other Data:
Basic Average Shares Outstanding .........................
Diluted Average Shares Outstanding ......................
Shareowners of Record(2) ........................................
Banking Locations(2) ...............................................
Full-Time Equivalent Associates(2) .........................
17,273,406
17,318,184
1,559
61
858
17,424,788
17,488,020
1,589
63
895
17,324,759
17,399,355
1,651
63
891
17,204,559
17,219,765
1,691
66
913
17,139,558
17,140,390
1,701
70
959
(1) Not applicable prior to January 1, 2015
(2) As of record date. The record date is on or about March 1st of the following year.
NM – Not Meaningful
29
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, 2015 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 2015 compares with prior years. Throughout this
section, Capital City Bank Group, Inc., and its subsidiaries, 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 financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned
subsidiary, Capital City Bank (the “Bank” or “CCB”). The Bank offers a broad array of products and services through a total
of 63 banking 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. Please see the section captioned
“About Us” beginning on page 4 for more detailed information about our business.
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the
difference between the interest and fees 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 deposit fees, wealth management 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.
30
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 8.55% market share in the Florida counties and 5.75% 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 The value of these markets stems from the fact they are less competitive, secondary markets. We strive to provide
value added services to our clients by being not just their bank, but their banker. This element of our strategy distinguishes
Capital City Bank from our competitors.
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. When evaluating
potential acquisition opportunities, we will continue to weigh the value of organic growth initiatives versus potential
acquisition returns and pursue the strategies that provide the best overall return to our shareowners.
Potential acquisition opportunities 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 economic
conditions and demographics of 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
In 2015, we continued to see improvement in our fundamentals and again made meaningful progress across all aspects of our
business positioning us very well moving into 2016. Economic activity in our markets continued to improve as did our
operating revenues, driven by strong growth in our investment and loan portfolios. Prudent expense management and
significant progress made toward reducing our nonperforming assets also contributed to our success.
For 2015, we realized net income of $9.1 million, or $0.53 per diluted share compared to $9.3 million, or $0.53 per diluted
share, in 2014. The slight decrease in earnings for 2015 was attributable to higher noninterest expense of $0.9 million and
higher income taxes of $2.8 million, partially offset by a $1.7 million increase in net interest income, higher noninterest
income of $1.5 million, and a lower loan loss provision of $0.3 million.
Below are summary highlights that impacted our performance for the year:
Strong broad based loan growth of $62 million, or 4.3% (period-end)
(cid:402)
(cid:402) Growth in tax-equivalent net interest income of $1.9 million, or 2.5%
Strong and diversified fee income -- residential mortgage loan sales up 47%
(cid:402)
44% reduction in nonperforming assets and 25% decline in total credit costs
(cid:402)
(cid:402) A return of $8.2 million of capital through share repurchases and dividends
During 2015, we realized meaningful re-composition in our earning asset mix as strong loan growth and increased
deployment of liquidity into our investment portfolio drove a 2.5% increase in tax-equivalent net interest income. Loan
growth in 2015 was broad based as we realized growth in commercial, tax-free, construction, home equity, and consumer
loans. Increased commercial and residential real estate loan production also helped to stabilize those portfolios.
31
We believe our noninterest income is well diversified. In 2015, mortgage banking fees, bank owned life insurance income
and bank card fees contributed to the overall increase in noninterest income compared to 2014. During 2015, we made
significant progress toward the development of new fee income opportunities aimed at adding value to our client
relationships and better leveraging our strong core deposit base franchise.
Core operating costs (excluding OREO) grew in 2015 largely due to higher pension plan expense, but continued prudent
expense management resulted in reductions in many other expense categories. Significant progress was made during 2015 in
the execution of strategies aimed at optimizing our delivery systems to improve our operating efficiency.
Our total credit costs (loan loss provision plus OREO costs) declined by 25% in 2015 driven by lower OREO costs
attributable to strong OREO sales. Our loan loss provision declined slightly in 2015 reflective of continued favorable
problem loan migration.
In 2015, many of our strategic initiatives gained traction that we expect will improve our profitability. We believe prudent
management of both our credit and interest rate risk profiles during an historic period of low interest rates has placed us in a
very good position to drive operating leverage when interest rates increase further.
Key components of our 2015 financial performance are summarized below:
Results of Operations
(cid:402)
For 2015, taxable equivalent net interest income increased $1.9 million, or 2.5%, to $77.0 million driven by a positive
shift in earning asset mix due to growth in the loan and investment portfolios, partially offset by unfavorable loan
repricing. Our net interest margin of 3.31% in 2015 was five basis points lower than the 3.36% recorded in 2014
reflective of a seven basis point decrease in the earning asset yield that was partially offset by a two basis point reduction
in the cost of funds.
(cid:402) Total credit costs (loan loss provision plus other real estate owned (“OREO”) expenses) were $6.6 million in 2015
compared to $8.7 million for 2014. Continued favorable problem loan migration and improvement in key credit metrics
resulted in a $0.3 million decrease in our loan loss provision and lower valuation adjustments drove a $1.8 million
reduction in OREO costs.
(cid:402)
(cid:402)
For 2015, noninterest income totaled $54.1 million, a $1.5 million, or 3.0%, increase over 2014 primarily attributable to
higher other income of $1.7 million (reflecting the receipt of BOLI proceeds) and mortgage banking fees of $1.5 million,
partially offset by lower deposit fees of $1.7 million.
For 2015, noninterest expense totaled $115.3 million, a $0.9 million, or 0.8%, increase over 2014 primarily attributable
to higher compensation expense of $3.2 million, partially offset by lower OREO expense of $1.8 million and other
expense (excluding OREO expenses) of $0.4 million.
Financial Condition
(cid:402) Average assets totaled approximately $2.659 billion for 2015, an increase of $95.1 million, or 3.71%, over 2014.
Average earning assets were approximately $2.325 billion, representing an increase of $87.2 million, or 3.9%, over
2014. Year-over-year, our average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased)
sold decreased $131.9 million, while investment securities increased $158.3 million and average gross loans were higher
by $60.8 million.
(cid:402) Average gross loans totaled $1.475 billion, a $60.8 million, or 4.3%, increase over 2014. Loan growth in 2015 was
broad-based including commercial, tax-free, construction, home equity, and continued growth in auto finance.
(cid:402) Average total deposits for 2015 were $2.163 billion, an increase of $70.0 million, or 3.3%, over 2014. We experienced
growth in all deposit types except for money market accounts and time deposits.
(cid:402) At year-end 2015, our nonperforming assets totaled $29.6 million, a decrease of $22.9 million from year-end 2014.
Nonaccrual loans totaled $10.3 million at year-end 2015, a decrease of $6.5 million from year-end 2014, reflective of
loan resolutions which outpaced gross additions. Nonaccrual loan additions slowed again for the fourth consecutive year,
by $6.8 million, or 30%. The balance of OREO totaled $19.3 million at year-end 2015, a decrease of $16.4 million from
year-end 2014. We continued to experience progress during 2015 in our efforts to dispose of OREO selling properties
totaling $20.2 million compared to $23.8 million in 2014. Nonperforming assets represented 1.06% of total assets at
December 31, 2015 compared to 2.00% at December 31, 2014.
32
(cid:402) Our allowance for loan losses at year-end 2015 was $14.0 million (0.93% of loans) and provided coverage of 135% of
nonperforming loans compared to $17.5 million (1.22% of loans) and 105% of nonperforming loans at year-end 2014.
Net charge-offs for 2015 totaled $5.2 million, or 0.35% of average loans compared to $7.5 million, or 0.53% in 2014,
primarily reflective of lower commercial real estate loan charge-offs.
(cid:402)
Shareowners’ equity increased by $1.8 million from $272.5 million at December 31, 2014 to $274.3 million at December
31, 2015. We continue to maintain a strong capital base as evidenced by a risk-based capital ratio of 17.25% and tangible
common equity ratio of 6.99% at December 31, 2015 compared to 17.76% and 7.38%, respectively, at December 31,
2014. All of our regulatory capital ratios significantly exceed the threshold to be well-capitalized under the Basel III
capital standards.
RESULTS OF OPERATIONS
For 2015, we realized net income of $9.1 million, or $0.53 per diluted share compared to $9.3 million, or $0.53 per diluted
share, in 2014, and $6.0 million, or $0.35 per diluted share in 2013.
The decrease in earnings for 2015 was attributable to higher noninterest expense of $0.9 million and higher income taxes of
$2.8 million, partially offset by a $1.7 million increase in net interest income, higher noninterest income of $1.5 million, and
a lower loan loss provision of $0.3 million.
The increase in earnings for 2014 as compared to 2013 reflects lower noninterest expense of $7.0 million, a lower loan loss
provision of $1.6 million, and lower income taxes of $0.4 million, partially offset by lower net interest income of $3.1
million and noninterest income of $2.6 million.
A condensed earnings summary for the last three years is presented in Table 1 below:
2014
78,221
494
78,715
3,580
75,135
1,905
494
72,736
52,536
114,358
10,914
1,654
9,260
0.53
0.53
$
$
$
$
2013
82,152
583
82,735
4,416
78,319
3,472
583
74,264
55,111
121,405
7,970
1,925
6,045
0.35
0.35
$
$
$
$
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 Before Income Taxes ...............................................................................
Income Tax Expense .............................................................................................
Net Income ...........................................................................................................
$
2015
79,658
638
80,296
3,307
76,989
1,594
638
74,757
54,091
115,273
13,575
4,459
9,116
$
Basic Net Income Per Share .................................................................................
Diluted Net Income Per Share ..............................................................................
$
$
0.53
0.53
33
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 2015, our taxable equivalent net interest income increased $1.9 million, or 2.5%. This follows a decrease of $3.2 million,
or 4.1%, in 2014, and a decrease of $6.6 million, or 7.8%, in 2013. The increase in tax equivalent net interest income for
2015 as compared 2014 reflects a positive shift in earning asset mix due to growth in the loan and investment portfolios,
partially offset by unfavorable loan repricing. The decrease in our taxable equivalent net interest income in 2014 as compared
to 2013 was primarily driven by declines in loan income attributable to lower average 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 2015, taxable equivalent interest income increased $1.6 million, or 2.0%, over 2014. In 2014, taxable equivalent interest
income declined $4.0 million, or 4.9%, from 2013. In 2015, the increase was primarily due to higher balances in the loan and
investment portfolios, partially offset by lower yields on new loan production and loan portfolio repricing. The decrease in
2014 was specifically attributable to both the shift in earning asset mix and lower yields. The declining loan portfolio resulted
in the higher yielding interest earning assets being replaced with lower yielding federal funds or investment securities.
These factors produced a seven basis point decline in the yield on interest earning assets, which decreased from 3.52% in
2014 to 3.45% in 2015. This compares to a 22 basis point decline from 2014 to 2013.
Interest expense decreased $273,000, or 7.6%, from 2014 to 2015, and $836,000, or 18.9%, from 2013 to 2014. The lower
cost of funds for both years was a result of both certificates of deposit repricing to lower rates and rate reductions on deposit
products. 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 two basis
points from 2014 to 2015, and declined five basis points from 2013 to 2014, 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 four basis points in 2015 compared to 2014 and declined 17 basis points in 2014
compared to 2013. 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.
Our net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets)
of 3.31% in 2015 was five basis points lower than the 3.36% recorded in 2014. The net interest margin in 2014 was 18 basis
points lower than the 3.54% reported in 2013. In 2015, the yield on earning assets declined seven basis points compared to
2014, and was partially offset by a decline in the cost of funds of two basis points. In 2014, compared to 2013, the yield on
earning assets declined 22 basis points and was partially offset by a decline in the cost of funds of four basis points.
The net interest margin for the fourth quarter of 2015 was 3.37%, an increase of six basis points over the third quarter of
2015, and a decrease of six basis points from the fourth quarter of 2014. The increase in the margin compared to the third
quarter was primarily attributable to the recognition of deferred interest on a loan that paid off during the quarter, and to a
lesser degree, an increase in the rate received on overnight funds which occurred later in the fourth quarter.
Net interest income increased for the third straight quarter and was higher than the fourth quarter of 2014. Historically low
interest rates and increased competition for loans continue to put pressure on loan yields, partially offsetting the favorable
impact attributable to growth in the loan and investment portfolios.
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 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 historically produced fairly consistent outcomes and a net interest margin that is
significantly above peer comparisons.
34
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars
in Thousands)
ASSETS
Loans, Net of Unearned
2015
2014
2013
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Income(1)(2) .................................... $ 1,474,833 $ 73,436
5,223
530,297
Taxable Investment Securities .........
Tax-Exempt Investment
4.98% $ 1,414,000 $ 73,637
3,423
362,393
0.98
5.21% $ 1,450,806 $ 78,484
2,344
232,173
0.91
Securities(2) ...................................
81,748
237,976
Funds Sold ........................................
2,324,854
Total Earning Assets ........................
48,195
Cash & Due From Banks .................
(15,876)
Allowance for Loan Losses ..............
Other Assets .....................................
302,144
TOTAL ASSETS ............................. $ 2,659,317
1,005
632
80,296
722
933
78,715
91,324
1.23
0.27
369,906
3.45% 2,237,623
45,367
(21,234)
302,420
$ 2,564,176
830
1,077
82,735
108,042
0.79
0.25
422,665
3.52% 2,213,686
49,978
(28,167 )
333,165
$ 2,568,662
LIABILITIES .................................
NOW Accounts ................................ $
Money Market Accounts ..................
Savings Accounts .............................
Other Time Deposits ........................
Total Interest Bearing Deposits ........
Short-Term Borrowings ...................
Subordinated Notes Payable ............
Other Long-Term Borrowings .........
Total Interest Bearing Liabilities .....
Noninterest Bearing Deposits ..........
Other Liabilities ................................
TOTAL LIABILITIES .....................
747,297 $
257,920
255,397
186,944
1,447,558
58,481
62,887
29,698
1,598,624
715,883
69,666
2,384,173
254
134
126
430
944
59
1,368
936
3,307
SHAREOWNERS’ EQUITY ........
TOTAL SHAREOWNERS’
318
190
112
479
1,099
78
1,328
1,075
3,580
715,846 $
0.03% $
273,092
0.05
227,215
0.05
206,136
0.23
0.07% 1,422,289
44,403
0.10
62,887
2.14
3.15
33,727
0.21% 1,563,306
671,188
46,603
2,281,097
482
211
101
637
1,431
235
1,420
1,330
4,416
0.04% $ 719,493 $
284,245
0.07
203,864
0.05
231,354
0.23
0.08% 1,438,956
53,922
0.18
62,887
2.08
3.19
41,077
0.23% 1,596,842
631,117
89,276
2,317,235
5.41%
0.94
0.76
0.25
3.74%
0.07%
0.07
0.05
0.28
0.10%
0.44
2.23
3.24
0.28%
EQUITY .......................................
275,144
283,079
251,427
TOTAL LIABILITIES &
EQUITY ....................................... $ 2,659,317
$ 2,564,176
$ 2,568,662
Interest Rate Spread .........................
Net Interest Income ..........................
Net Interest Margin(3) .......................
$ 76,989
3.25%
3.31%
$ 75,135
3.29%
3.36%
$ 78,319
3.46%
3.54%
(1) Average balances include nonaccrual loans. Interest income includes loan fees of $1.4 million for 2015, $1.6 million for 2014 and 2013.
(2)
(3) Taxable equivalent net interest income divided by average earning assets.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
35
Table 3
RATE/VOLUME ANALYSIS (1)
(Taxable Equivalent Basis -
Dollars in Thousands)
Earnings Assets:
Loans, Net of Unearned
Interest(2) .....................................
Investment Securities:
Taxable ..........................................
Tax-Exempt(2) ................................
Funds Sold .....................................
Total ...............................................
Interest Bearing Liabilities:
NOW Accounts ..............................
Money Market Accounts ...............
Savings Accounts ...........................
Time Deposits ................................
Short-Term Borrowings .................
Subordinated Notes Payable ..........
Other Long-Term Borrowings .......
Total ...............................................
2015 vs. 2014
Increase (Decrease) Due to Change In
2014 vs. 2013
Increase (Decrease) Due to Change In
Total
Volume
Rate
Total
Volume
Rate
$
(201) $
3,168
$
(3,369) $
(4,847) $
(1,991) $
(2,856)
1,800
283
(301)
1,581
(64)
(56)
14
(49)
(19)
40
(139)
(273)
1,586
(76)
(333)
4,345
14
(11)
14
(45)
25
—
(128)
(131)
214
359
32
(2,764)
1,079
(108)
(144)
(4,020)
(78)
(45)
—
(4)
(44)
40
(11)
(142)
(164)
(21)
11
(158)
(157)
(92)
(255)
(836)
1,315
(128)
(134)
(938)
(2)
(8)
12
(69)
(41)
—
(238)
(346)
(236)
20
(10)
(3,082)
(162)
(13)
(1)
(89)
(116)
(92)
(17)
(490)
Changes in Net Interest Income .....
$
1,854
$
4,476
$
(2,622) $
(3,184) $
(592) $
(2,592)
(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 $1.6 million in 2015 compared to $1.9 million in 2014 and $3.5 million in 2013. The
decline in the provision for all periods reflects favorable problem loan migration, lower loan losses, and overall improvement
in key credit metrics, partially offset by growth in the loan portfolio. We discuss these trends in further detail below under
Risk Element Assets and Allowance for Loan Losses.
Noninterest Income
Noninterest income totaled $54.1 million in 2015, $52.5 million in 2014, and $55.1 million in 2013. For 2015, the $1.5
million, or 3.0%, increase over 2014 reflects higher other income of $1.7 million, mortgage banking fees $1.5 million, and
bank card fees of $0.4 million, partially offset by lower deposit fees of $1.7 million, wealth management fees of $0.3 million
and data processing fees of $0.1 million. Stronger new home purchase originations drove the increase in mortgage banking
fees. The receipt of bank owned life insurance (“BOLI”) proceeds drove the increase in other income. Lower overdraft fees
drove the reduction in deposit fees.
For 2014, the $2.6 million, or 4.7%, decrease from 2013 reflects lower deposit fees of $0.9 million, data processing fees of
$1.1 million, wealth management fees of $0.4 million and mortgage banking fees of $0.5 million, partially offset by higher
bank card fees of $0.1 million and other income of $0.2 million. Lower overdraft fees drove the reduction in deposit fees.
The termination of a large government processing contract drove the decline in data processing fees. Wealth management
declined due to a lower level of client trading activity as well as strong new retail investment product sales in 2013. Lower
refinancing activity drove the reduction in mortgage banking fees.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 41.47% in
2015, 41.30% in 2014, and 41.48% in 2013.
36
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
Deposit Fees ...................................................................................................................
Bank Card Fees ...............................................................................................................
Wealth Management Fees ...............................................................................................
Mortgage Banking Fees ..................................................................................................
Data Processing Fees ......................................................................................................
Other ...............................................................................................................................
Total Noninterest Income ...............................................................................................
2013
2015
2014
$ 22,608 $ 24,320 $ 25,254
10,786
10,892
11,278
8,179
7,808
7,533
3,534
3,082
4,539
2,674
1,543
1,472
4,684
4,891
6,661
$ 54,091 $ 52,536 $ 55,111
Various significant components of noninterest income are discussed in more detail below.
Deposit Fees. For 2015, deposit service charge fees totaled $22.6 million compared to $24.3 million in 2014 and $25.3
million in 2013. The $1.7 million, or 7.01%, decrease in 2015 and the $0.9 million, or 3.7% decrease in 2014, were due to a
lower level of overdraft fees primarily reflecting improved financial management by our clients and to a lesser extent a
reduction in the number of accounts utilizing our overdraft service.
Bank Card Fees. Bank card fees totaled $11.3 million in 2015 compared to $10.9 million in 2014 and $10.8 million in 2013.
The $0.4 million, or 3.5% increase in 2015 and the slight increase in 2014 reflects higher card activity and average ticket
amount by our clients.
Wealth Management Fees. Wealth management fees including both trust fees (i.e., managed accounts, trusts/estates, and
retirement plans) and retail brokerage fees (i.e., investment and insurance products) totaled $7.5 million in 2015 compared to
$7.8 million in 2014 and $8.2 million in 2013. The $0.3 million, or 3.5%, decrease in 2015 was primarily attributable to
lower fees from our retail brokerage business generally reflective of a lower level of assets under management. The $0.4
million, or 4.5%, decrease in 2014 was primarily attributable to lower fees from our retail brokerage business reflective of
very strong new retail investment product sales in 2013. At December 31, 2015, total assets under management were
approximately $1.139 billion compared to $1.278 billion at December 31, 2014 and $1.259 billion at December 31, 2013.
Mortgage Banking Fees. Mortgage banking fees totaled $4.5 million in 2015 compared to $3.1 million in 2014 and $3.5
million in 2013. The $1.4 million, or 47.3%, increase in 2015 was primarily due to strong new home purchase originations.
The $0.4 million, or 12.8%, decrease in 2014 was driven by a slowdown in refinance activity, but was partially offset by a
higher margin realized for sold loans. Refinancing activity represented 18% of our loan production in 2015 compared to 14%
and 32% for 2014 and 2013, 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 2015 and 2014, data processing fees totaled $1.5 million. For 2013, data processing fees totaled
$2.7 million. The decrease in 2014 was attributable to the termination of a large government processing contract that began
migrating to another processor in mid-2013, completing the transition in mid-2014. We currently maintain processing
arrangements with three banks and two government agencies.
Other. Other noninterest income totaled $6.7 million in 2015 compared to $4.9 million in 2014 and $4.7 million in 2013. The
increase in 2015 reflects the receipt of BOLI proceeds. The increase in 2014 was due to higher bank owned life insurance
income and working capital financing fees.
Noninterest Expense
Noninterest expense totaled $115.3 million in 2015 compared to $114.4 million in 2014 and $121.4 million in 2013. For
2015, the $0.9 million, or 0.8%, increase was attributable to higher compensation expense of $3.2 million, partially offset by
lower OREO expense of $1.8 million, other expense (excluding OREO expenses) of $0.4 million and occupancy expense of
$0.1 million. The increase in compensation expense was primarily due to an increase in associate benefit expense (primarily
pension expense) partially offset by lower salary expense (primarily deferred loan costs and incentive plan expense). The
reduction in OREO expense was primarily attributable to lower property valuation adjustments and to a lesser extent lower
property carrying costs. The decrease in other expense was primarily attributable to lower legal fees, postage costs, and FDIC
insurance fees, partially offset by higher processing costs. Lower technology equipment costs and maintenance costs for
premises/FF&E drove the decrease in occupancy expense.
37
For 2014, the $7.0 million, or 5.8%, decrease was attributable to lower compensation expense of $3.9 million, OREO
expense of $1.4 million, and other expense (excluding OREO expenses) of $2.2 million, partially offset by higher occupancy
expense of $0.5 million. The reduction in compensation expense was primarily due to a decrease in pension plan expense
partially offset by higher incentive expense for both cash and stock plans. Lower property carrying costs as well as a
reduction in property valuation adjustments were the primary reasons for the reduction in OREO expense. The reduction in
other expense was primarily attributable to lower FDIC insurance fees reflective of a favorable premium adjustment and
reductions in both legal and professional fees. The increase in occupancy expense was due to higher maintenance contract
costs reflective of security and technology upgrades and to a lesser extent higher building maintenance costs attributable to
non-recurring expenditures.
Our operating efficiency ratio (expressed as noninterest expense as a percent of taxable equivalent net interest income plus
noninterest income) was 87.94%, 89.68% and 91.09% in 2015, 2014 and 2013, respectively. Higher operating revenues
(primarily net interest income and BOLI proceeds) drove the improvement in the ratio for 2015 and lower noninterest
expense (primarily lower pension and OREO expense) drove the improvement in the ratio for 2014.
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 .................................................................................................
$
2015
48,263
17,151
65,414
2014
$ 48,896
13,319
62,215
$
2013
48,584
17,543
66,127
Premises ...................................................................................................................
Equipment ................................................................................................................
Total Occupancy ......................................................................................................
Legal Fees ................................................................................................................
Professional Fees .....................................................................................................
Processing Services .................................................................................................
Advertising ..............................................................................................................
Travel and Entertainment .........................................................................................
Printing and Supplies ...............................................................................................
Telephone ................................................................................................................
Postage .....................................................................................................................
Insurance – Other .....................................................................................................
Other Real Estate .....................................................................................................
Miscellaneous ..........................................................................................................
Total Other Expense ................................................................................................
9,015
8,723
17,738
2,506
3,788
6,540
1,391
901
825
1,976
996
2,737
4,971
5,490
32,121
9,126
8,692
17,818
3,187
3,732
6,062
1,461
900
865
1,903
1,147
2,934
6,811
5,323
34,325
8,863
8,468
17,331
3,663
4,304
5,396
1,719
870
994
1,891
1,309
4,144
8,234
5,423
37,947
Total Noninterest Expense .......................................................................................
$ 115,273
$ 114,358
$ 121,405
Various significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled $65.4 million in 2015, $62.2 million in 2014, and $66.1 million in 2013. For
2015, the $3.2 million, or 5.1%, increase from 2014 was attributable to higher associate benefit expense of $3.8 million
partially offset by lower salary expense of $0.6 million. The increase in associate benefit expense reflects higher pension plan
expense of $4.0 million and associate insurance expense of $0.2 million, partially offset by lower stock compensation
expense of $0.4 million. The higher level of pension plan expense was attributable to the utilization of a lower discount rate
(attributable to lower long-term rates at the end of 2014) for determining pension plan liabilities. Revision to the mortality
tables used to calculate pension plan liabilities also contributed to the increase, but to a lesser extent. Pension plan expense is
determined by an external actuarial valuation based on assumptions that are evaluated annually, taking into consideration
both current market conditions and anticipated long-term market conditions. A discussion of the sensitivity to these
assumptions is detailed in the Critical Accounting Policy section of this report. Rising health care costs contributed to the
increase in associate insurance expense. A lower level of goal achievement for both our executive and company-wide stock
incentive plans drove the reduction in stock compensation expense. The decrease in salary expense was attributable to higher
deferred loan cost amortization (which is accounted for as a credit offset to salary expense), partially offset by higher
associate salary expense reflective of merit raises given during the year.
38
For 2014, the $3.9 million, or 5.9%, decrease from 2013 was attributable to lower associate benefit expense of $4.2 million
partially offset by higher salary expense of $0.3 million. The decrease in associate benefit expense reflects lower pension
plan expense of $5.0 million partially offset by higher stock compensation expense of $0.5 million and associate insurance
expense of $0.3 million. The lower level of pension plan expense was attributable to the utilization of a higher discount rate
(attributable to higher long-term rates at the end of 2013) for determining pension plan liabilities. Improved company
performance drove the increase in stock compensation expense and rising health care costs contributed to the increase in
associate insurance expense. The increase in salary expense was attributable to higher expense for our cash incentive plans
reflective of improved individual and company performance. Lower associate salary expense reflective of reduced headcount
partially offset the increase in cash incentives.
Occupancy. Occupancy expense (including premises and equipment) totaled $17.7 million for 2015, $17.8 million for 2014,
and $17.3 million for 2013. For 2015, the $0.1 million, or 0.5%, decrease from 2014 reflects lower premises expense,
primarily lower building maintenance and repair costs. For 2014, the $0.5 million, or 2.8%, increase over 2013 reflects higher
premises expense of $0.3 million and equipment expense of $0.2 million. Higher building maintenance costs, partially
attributable to non-recurring expenditures, drove the increase in premises expense. Higher maintenance contract costs
reflective of security and technology upgrades drove the majority of the increase in equipment expense.
Other. Other noninterest expense totaled $32.1 million in 2015, $34.3 million in 2014, and $37.9 million in 2013. For 2015,
the $2.2 million, or 6.4%, decrease from 2014 was primarily attributable to lower OREO expense of $1.8 million, FDIC
insurance fees of $0.2 million and legal fees of $0.7 million, partially offset by an increase in processing services of $0.5
million. Lower property valuation adjustments, and to a lesser extent lower property carrying costs, drove the decrease in
OREO expense. The decrease in FDIC insurance fees was attributable to a favorable premium adjustment due to our
improved financial performance. Legal fees declined due to a lower level of legal support needed for problem loan
resolutions. Higher costs related to our new online banking platform put in place early in 2015 drove the increase in
processing services.
For 2014, the $3.6 million, or 9.5%, decrease from 2013 was primarily attributable to lower OREO expense of $1.4 million,
FDIC insurance fees of $1.2 million, legal fees of $0.5 million, and professional fees of $0.6 million. Lower property
carrying costs driven by strong property sales during the year as well as a reduction in property valuation adjustments
reflective of improving property values were the primary reasons for the reduction in OREO expense. The decrease in FDIC
insurance fees was attributable to a favorable premium adjustment due to our improved financial performance. Legal fees
declined due to a lower level of legal support needed for problem loan resolutions. Lower audit and consulting costs drove
the reduction in professional fees.
Income Taxes
For 2015, we realized income tax expense of $4.5 million (effective tax rate of 32.8%) compared to income tax expense of
$1.7 million (effective tax rate of 15.2%) in 2014 and income tax expense of $1.9 million (effective tax rate of 24.2%) in
2013. Receipt of the aforementioned BOLI proceeds in 2015 was tax-exempt; therefore our effective tax rate was favorably
impacted. Income taxes for 2014 were favorably impacted by a $2.2 million state tax benefit attributable to an adjustment in
our reserve for uncertain tax positions associated with the full resolution of prior year matters. The tax provision for 2013
was favorably affected by the resolution of state tax contingencies totaling approximately $0.8 million. Absent future discrete
events, we anticipate our effective income tax rate to be within a range of 34%-35%.
FINANCIAL CONDITION
Average assets totaled approximately $2.659 billion for the year 2015, an increase of $95.1 million, or 3.7%, over 2014.
Average interest earning assets were approximately $2.325 billion, representing an increase of $87.2 million, or 3.9%, over
2014. Year-over-year, average overnight funds decreased $131.9 million, while investment securities increased $158.3
million and average gross loans were higher by $60.8 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.
39
Loans
In 2015, average loans increased $60.8 million, or 4.3%, compared to a decrease of $36.8 million, or 2.5%, in 2014. Loans as
a percentage of average earning assets improved to 63.4% in 2015, an increase over 2014 levels of 63.2%, and a decline from
2013 at 65.5%. Year-over-year average balances in the loan portfolio experienced increases in all loan types except
commercial and residential mortgages. Earlier in the year, growth in loans was driven primarily by auto loans, whereas in
recent quarters the growth has been broader based, including commercial, tax-free, construction, home equity as well as
consumer.
Without compromising our credit standards or taking on inordinate interest rate risk, we continue to make minor
modifications on some of our lending programs to try to mitigate the significant impact that consumer and business
deleveraging is having on our portfolio. These programs, coupled with economic improvements in our anchor markets, have
helped to increase overall production.
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.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances – Dollars In Thousands)
Loans:
2014 to
2015
Change
Percentage
Total
Change
Components of
Average Earning Assets
2015
2014
2013
Commercial, Financial, and Agricultural ...........................
Real Estate – Construction .................................................
Real Estate – Commercial Mortgage ..................................
Real Estate – Residential ....................................................
Real Estate – Home Equity ................................................
Consumer ...........................................................................
Total Loans .....................................................................
$
$
24,929
4,841
(11,137)
(12,322)
2,782
51,740
60,833
6.8 %
2.0
21.7
13.0
9.9
10.1
29.0%
6.0
(13.0)
(14.0)
3.0
59.0
70.0% 63.5 % 63.2%
5.9%
1.8
23.1
14.1
10.1
8.2
5.8%
1.9
26.2
14.5
10.5
6.8
65.7%
Investment Securities:
Taxable ...............................................................................
Tax-Exempt ........................................................................
Total Securities ...............................................................
$ 167,903
(9,575)
158,328
192.0% 22.8 % 16.2%
3.5
(11.0)
26.3
181.0
4.1
20.3
10.5%
4.9
15.4
Funds Sold .............................................................................
(131,930)
(151.0)
10.2
16.5
18.9
Total Earning Assets .......................................................
$
87,231
100.0% 100.0 % 100.0%
100.0%
Our average loan-to-deposit ratio increased to 68.2% in 2015 from 67.5% in 2014. The higher loan-to-deposit ratio reflects
an increase in average loan balances relative to the 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, 2015, by maturity period. As a percentage of the total portfolio, loans with fixed
interest rates represented 34.3% as of December 31, 2015, compared to 32.2% on December 31, 2014. The higher ratio was
primarily due to increases in consumer indirect and tax-free loans, which while having a fixed rate, typically have a shorter
duration.
40
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
Commercial, Financial and Agricultural ..........
Real Estate – Construction(1) ............................
Real Estate – Commercial Mortgage ...............
Real Estate – Residential(1) ..............................
Real Estate – Home Equity ..............................
Consumer .........................................................
Total Loans, Net of Unearned Income .............
$
2015
179,816
47,402
499,813
301,299
233,901
241,676
$ 1,503,907
$
2014
136,925
43,472
510,120
304,781
229,572
217,192
$ 1,442,062
$
2013
126,607
36,187
533,871
315,582
227,922
159,500
$ 1,399,669
2012
$ 139,850
43,740
613,625
329,947
236,263
157,877
$ 1,521,302
$
2011
130,879
26,367
639,140
399,371
244,263
188,663
$ 1,628,683
(1)
Includes loans held for sale.
Table 6
LOAN MATURITIES
Maturity Periods
(Dollars in Thousands)
Commercial, Financial and Agricultural .......................................
Real Estate – Construction ............................................................
Real Estate – Commercial Mortgage ............................................
Real Estate – Residential ..............................................................
Real Estate – Home Equity ...........................................................
Consumer(1) ...................................................................................
Total ..............................................................................................
Over One
Through
Five
Years
$
99,508
8,520
92,905
39,246
50,801
222,930
$ 513,910
One Year
or Less
$
50,251
36,599
54,745
24,029
1,670
12,496
$ 179,790
Over
Five
Years
$ 30,057 $
2,283
352,163
238,024
181,430
6,250
Total
179,816
47,402
499,813
301,299
233,901
241,676
$ 810,207 $ 1,503,907
Loans with Fixed Rates.................................................................
Loans with Floating or Adjustable Rates ......................................
Total ..............................................................................................
$
79,075
100,715
$ 179,790
$ 371,217
142,693
$ 513,910
515,858
$ 65,566 $
744,641
988,049
$ 810,207 $ 1,503,907
(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 $29.6 million at December 31, 2015 compared to $52.4 million
at December 31, 2014. Nonaccrual loans totaled $10.3 million at December 31, 2015, a decrease of $6.5 million from
December 31, 2014, 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 approximately $7 million and $22 million in
2015 and 2014, respectively. The balance of OREO totaled $19.3 million at December 31, 2015, a decrease of $16.4 million
from December 31, 2014. We again realized good progress in 2015 disposing of OREO properties totaling $20.2 million
compared to $23.8 million in 2014. Nonperforming assets represented 1.06% of total assets at December 31, 2015 compared
to 2.00% at December 31, 2014.
We continue to allocate significant resources to reduce our level of nonperforming assets, while mitigating losses and 2015
was another productive year in this respect as total nonperforming assets declined by $22.8 million, or 44%.
41
Table 7
RISK ELEMENT ASSETS
(Dollars in Thousands)
Nonaccruing Loans: ............................................................
Commercial, Financial and Agricultural .........................
Real Estate – Construction ..............................................
Real Estate – Commercial Mortgage ...............................
Real Estate – Residential .................................................
Real Estate – Home Equity .............................................
Consumer ........................................................................
Total Nonperforming Loans (“NPLs”)(1) ............................
Other Real Estate Owned ....................................................
Total Nonperforming Assets (“NPAs”) ..............................
Past Due Loans 30 – 89 Days .............................................
Past Due Loans 90 Days or More (accruing) ......................
Performing Troubled Debt Restructurings ..........................
2015
2014
2013
2012
2011
$
96
97
4,191
4,739
1,017
165
$ 10,305
19,290
$ 29,595
$ 5,775
—
$ 35,634
$
507
424
5,806
6,737
2,544
751
$ 16,769
35,680
$ 52,449
$ 6,792
—
$ 44,409
$
188
426
25,227
6,440
4,084
599
$ 36,964
48,071
$ 85,035
7,746
$
—
$ 44,764
$
1,069
4,071
41,045
13,429
4,034
574
$ 64,222
53,426
$ 117,648
9,934
$
—
$ 47,474
$
755
334
42,820
25,671
4,283
1,160
$ 75,023
62,600
$ 137,623
$ 19,425
224
$ 37,675
Nonperforming Loans/Loans ..............................................
Nonperforming Assets/Total Assets ...................................
Nonperforming Assets/Loans Plus OREO ..........................
Allowance/Nonperforming Loans ......................................
(1) Nonaccrual TDRs totaling $2.7 million, $2.2 million and $11.0 million are included in nonaccrual/NPL totals for
4.22%
4.47
7.47
45.42%
2.64%
3.26
5.87
62.48%
0.69%
1.06
1.94
1.16%
2.00
3.55
135.40% 104.60%
4.61%
5.21
8.14
41.37%
December 31, 2015, December 31, 2014 and December 31, 2013, 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 ................................................................................................................................
2015
$ 52,449
2014
85,035
$
16,769
15,715
(4,726)
(4,627)
(6,293)
(6,533)
10,305
35,680
5,752
(1,713)
(20,155)
(274)
19,290
36,964
22,466
(8,857)
(13,888)
(9,639)
(10,277)
16,769
48,071
15,271
(3,142)
(23,791)
(729)
35,680
(32,586)
52,449
NPA Net Change ............................................................................................................................
NPA Ending Balance .......................................................................................................................
(22,854)
$ 29,595
$
(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.
Nonaccrual Loans. Nonaccrual loans totaled $10.3 million at December 31, 2015, a decrease of $6.5 million from December
31, 2014. Gross additions to nonaccrual status during 2015 totaled $15.7 million compared to $22.5 million in 2014. All loan
categories had a year-over-year decrease in nonaccrual loans with residential real estate seeing the largest decline.
Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or management
deems the collectability of the principal and 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 2015 had been recognized on a fully accruing basis, we would have recorded an
additional $0.9 million of interest income for the year ended December 31, 2015.
42
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 $19.3 million at December 31, 2015 versus $35.7 million at December 31, 2014. During 2015, we added
properties totaling $5.8 million and partially or completely liquidated properties totaling $20.2 million. Revaluation
adjustments for OREO properties during 2015 totaled $1.7 million and were charged to noninterest expense when realized.
For 2014, we added properties totaling $15.3 million and partially or completely liquidated properties totaling $23.8 million.
Revaluation adjustments for OREO properties during 2014 totaled $3.1 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 ...................................................................................................................................
2015
$ 11,718
2,221
4,137
1,214
$ 19,290
2014
$ 19,405
4,430
10,197
1,648
$ 35,680
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 December 31, 2015 totaled $38.3 million compared to $49.2 million at December 31, 2014.
Accruing TDRs made up approximately $35.6 million, or 93%, of our TDR portfolio at December 31, 2015 of which $1.1
million was over 30 days past due. The weighted average rate for the loans within the accruing TDR portfolio is 5.3%.
During 2015, we modified 43 loan contracts totaling approximately $3.3 million. Our TDR default rate (default balance as a
percentage of average TDRs) during 2015 and 2014 was 4% and 16%, respectively.
The composition of our TDR portfolio as of December 31 is provided in the table below.
2015
(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 Nonaccruing(1)
—
—
1,070
1,582
—
35
2,687
897
—
16,621
14,979
2,914
223
$ 35,634
$
$
Accruing
838
—
26,565
14,940
1,856
211
$ 44,410
$
2014
Nonaccruing(1)
266
—
1,591
2,531
356
—
4,744
$
(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 ..........................................................................................................................
2015
$ 49,154
3,317
(1,580)
(6,084)
(4,906)
(1,580)
$ 38,321
2014
$ 58,543
4,978
(2,410)
(6,689)
(73)
(5,195)
$ 49,154
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 December 31, 2015 totaled $5.8 million compared to $6.8 million at December 31, 2014.
43
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, 2015, we had $3.6
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 $6.4 million at December 31, 2014. Management monitors these loans closely and reviews their performance on
a regular basis.
Loan Concentrations. Loan concentrations 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
72% at December 31, 2015 and 75% at December 31, 2014. The primary types of real estate collateral are commercial
properties and 1-4 family residential properties. At December 31, 2015, commercial real estate and residential real estate
mortgage loans (including home equity loans) accounted for 33.2% and 35.6%, 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 December 31st total real estate loans.
Vacant Land, Construction, and Land Development ........
Improved Property ............................................................
Total Real Estate Loans ....................................................
2015
2014
Investor
Real Estate
10.5%
22.2
32.7%
Owner
Occupied
Real Estate
Investor
Real Estate
—
67.3%
67.3%
10.0 %
22.0
32.0 %
Owner
Occupied
Real Estate
—
68.0%
68.0%
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. Approximately 68% of the land/construction category was secured
by residential real estate at December 31, 2015.
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.
44
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 2015, our net charge-offs totaled $5.2 million, or 0.35%, of average loans, compared to $7.5 million, or 0.53%, for 2014,
and $9.5 million, or 0.66%, for 2013. The decrease in 2015 was primarily attributable to a $2.5 million decline in commercial
real estate loan charge-offs. Lower residential and construction loan charge-offs of $1.6 million and $1.1 million,
respectively, drove the decrease in net charge-offs in 2014. At December 31, 2015, the allowance for loan losses of $14.0
million was 0.93% of outstanding loans (net of overdrafts) and provided coverage of 135% of nonperforming loans compared
to 1.22% and 105%, respectively, at December 31, 2014, and 1.65% and 62%, respectively, at December 31, 2013.
Table 10 provides an allocation of the allowance for loan losses to specific loan types for each of the past five years.
The reduction in the allowance for loan losses from both periods December 31, 2014 to December 31, 2015 and December
31, 2013 to December 31, 2014, was primarily attributable to a decline in general reserves reflective of slower problem loan
migration and continued improvement in credit quality metrics. A decrease in our impaired loan balance and related reserves
contributed to a lesser extent and reflects slower inflow and successful resolutions, as well as lower loss content. During
2015, growth in the loan portfolio and related general reserves partially offset the aforementioned reductions due to favorable
problem loan migration. It is management’s opinion that the allowance at December 31, 2015 is adequate to absorb probable
losses inherent in the loan portfolio.
Table 9
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
Balance at Beginning of Year .................................................
Charge-Offs: ...........................................................................
Commercial, Financial and Agricultural .................................
Real Estate – Construction ......................................................
Real Estate – Commercial .......................................................
Real Estate – Residential ........................................................
Real Estate – Home Equity .....................................................
Consumer ................................................................................
Total Charge-Offs ...................................................................
Recoveries:
Commercial, Financial and Agricultural .................................
Real Estate – Construction ......................................................
Real Estate – Commercial .......................................................
Real Estate – Residential ........................................................
Real Estate – Home Equity .....................................................
Consumer ................................................................................
Total Recoveries .....................................................................
Net Charge-Offs ......................................................................
Provision for Loan Losses ......................................................
2015
$ 17,539
2014
$ 23,095
2013
2011
$ 29,167 $ 31,035 $ 35,436
2012
1,029
—
1,250
1,852
1,403
1,901
7,435
239
—
183
705
136
992
2,255
5,180
1,594
871
28
3,788
2,160
1,379
1,820
10,046
748
1,070
3,651
3,835
1,159
1,751
12,214
822
629
6,031
9,719
2,896
2,125
22,222
1,843
114
6,713
11,870
2,727
2,924
26,191
214
9
468
752
141
1,001
2,585
7,461
1,905
209
1
363
838
294
965
2,670
290
43
682
1,291
399
1,483
4,188
387
14
251
478
214
1,450
2,794
9,544
18,034
23,397
3,472
16,166
18,996
Balance at End of Year ...........................................................
$ 13,953
$ 17,539
$ 23,095 $ 29,167 $ 31,035
Ratio of Net Charge-Offs to Average Loans
Outstanding .........................................................................
0.35%
0.53%
0.66%
1.16%
1.39%
Allowance for Loan Losses as a Percent of Loans at
End of Year .........................................................................
0.93%
1.22%
1.65%
1.93%
1.91%
Allowance for Loan Losses as a Multiple of Net
Charge-Offs .........................................................................
2.69x
2.35x
2.42x
1.62x
1.33x
45
Table 10
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2015
2014
2013
2012
2011
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allowance
Amount
Allowance
Amount
Allowance
Amount
(Dollars in
Thousands)
Commercial,
Financial and
Agricultural ........ $
Real Estate:
Construction .......
Commercial ........
Residential .........
Home Equity ......
Consumer ...............
Not Allocated .........
905
12.0 %$
784
9.5%$
699
9.0%$
1,253
9.2%$
1,534
8.0%
101
4,498
4,409
2,473
1,567
—
3.1
33.2
20.0
15.6
16.1
—
843
5,287
6,520
2,882
1,223
—
3.0
35.4
21.1
15.9
15.1
—
1,580
7,710
9,073
3,051
982
—
2.6
38.1
22.6
16.3
11.4
—
2,856
11,081
8,678
2,945
1,327
1,027
2.9
40.3
21.7
15.5
10.4
—
1,133
10,660
12,518
2,392
1,887
911
1.6
39.2
24.5
15.0
11.7
—
Total ...................... $ 13,953
100.0 %$ 17,539
100.0%$
23,095
100.0%$
29,167
100.0%$ 31,035
100.0%
Investment Securities
In 2015, our average investment portfolio increased $158.3 million, or 34.9%, from 2014 and increased $113.5 million, or
33.4%, from 2013 to 2014. As a percentage of average earning assets, the investment portfolio represented 26.3% in 2015,
compared to 20.3% in 2014. In both 2014 and 2015, we strategically grew the portfolio to better deploy our liquidity. In
2016, 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 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 2014 and 2015, securities were purchased under both the AFS and HTM
designations. As of December 31, 2015, $451.0 million, or 70.6% of the investment portfolio was classified as AFS, with the
remaining $187.9 million, or 29.4%, classified as HTM.
In 2015, average taxable investments increased $114.9 million, or 26.8%, while tax-exempt investments increased $24.7
million, or 35.3%. Both taxable and tax-exempt investments increased as part of our overall investment strategy in 2015.
Short-term, high quality tax-exempt and taxable bonds offered attractive yields during the year, resulting in favorable
repricing in the investment portfolio. 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, 2015, there were 295 positions (combined AFS and HTM) with unrealized losses totaling $1.2 million. Of
the 295 positions, 134 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. Of these 134 positions, there were 22 GNMA positions and 22 SBA positions in an unrealized loss
position for longer than 12 months, and have unrealized losses of $222,000 and $63,000, respectively. There were 141
municipal bonds in an unrealized loss position that were pre-refunded, or rated “AA-”or better. 14 of these positions were in
an unrealized loss position for longer than 12 months, and had unrealized loss of $13,000. The remaining 20 securities were
government agency bonds, which have been in an unrealized loss position for less than 12 months, with an unrealized loss of
$116,000. None of the positions with unrealized losses are considered impaired, and all are expected to mature at par.
46
The average maturity of the total portfolio at December 31, 2015 and 2014 was 1.85 and 2.17 years, respectively. Balances
increased primarily in U.S. Treasury and municipal bonds, with the remaining asset classes being unchanged or lower
compared to the prior year. The decline in average life of the investment portfolio occurred primarily in U.S. Treasuries, as
the natural aging of these investments shortened the overall portfolio. We continue to invest in short-duration, high quality
bonds. See Table 11 for a breakdown of maturities by investment type.
The weighted average taxable equivalent yield of the investment portfolio at December 31, 2015 was 1.08% versus 1.00% in
2014. This higher yield reflects the reinvestment of proceeds at slightly higher market rates during 2015. The Company’s
bond portfolio contained no investments in obligations, other than U.S. Governments, of any state, municipality, political
subdivision or any other issuer that exceed 10% of our shareowners’ equity at December 31, 2015.
Table 11 and Note 2 in the Notes to Consolidated Financial Statements present a detailed analysis of our investment
securities as to type, maturity and yield at December 31.
Table 11
INVESTMENT SECURITIES BY CATEGORY
2015
2014
2013
Carrying
Amount
(Dollars in Thousands)
Available for Sale
U.S. Government Treasury ......................... $ 250,346
101,824
U.S. Government Agency ...........................
88,362
States and Political Subdivisions ................
1,901
Mortgage-Backed Securities .......................
Equity Securities .........................................
8,595
451,028
Total ............................................................
Held to Maturity .......................................
U.S. Government Treasury .........................
U.S. Government Agency ...........................
States and Political Subdivisions ................
Mortgage-Backed Securities .......................
Total ............................................................
134,554
10,043
15,693
27,602
187,892
Percent
Carrying
Amount
Percent
Carrying
Amount
Percent
39.2% $ 186,031
96,097
15.9
48,388
13.8
2,287
0.3
1.3
8,745
341,548
70.6
36.8% $ 71,833
75,146
19.0
91,753
9.6
2,795
0.5
9,893
1.7
251,420
67.6
21.1
1.6
2.5
4.3
29.4
76,179
19,807
26,716
40,879
163,581
3.9
15.1
5.3
8.1
32.4
43,533
15,794
33,216
55,668
148,211
18.0%
18.8
23.0
0.7
2.4
62.9
4.0
10.9
13.9
8.3
37.1
Total Investment Securities ........................ $ 638,920
100% $ 505,129
100% $ 399,631
100%
47
Table 12
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Within 1 year
1 - 5 years
5 - 10 years
After 10 years
Total
(Dollars in Thousands) Amount
Available for Sale
U.S. Government
WAY(3)
Amount
WAY(3)
Amount
WAY(3)
Amount
WAY(3)
Amount
WAY(3)
Treasury.....................
$ 64,342
0.59% $ 186,004
1.02% $
U.S. Government
Agency ......................
9,161
States and Political
Subdivisions ..............
16,878
0.94
0.81
92,663
71,484
Mortgage-Backed
Securities(1) ................
Other Securities(2) ..........
Total ...............................
Held to Maturity
U.S. Government
215
—
$ 90,596
3.47
—
1,545
—
0.62% $ 351,696
0.90
1.46
4.94
—
1.10% $
Treasury.....................
$ 30,025
0.74% $ 104,529
1.02% $
U.S. Government
Agency ......................
6,950
0.85
0.85
3,093
8,400
0.88
1.82
7,293
3,583
$ 47,851
1.20
24,019
0.81% $ 140,041
1.72
1.19% $
States and Political
Subdivisions ..............
Mortgage-Backed
Securities(1) ................
Total ...............................
Total Investment
—
—
—
141
—
141
—
—
—
—
—
—% $
—
—
—
—
—
— % $ 250,346
0.89%
—
101,824
0.90
—
88,362
1.34
5.92
—
5.92% $
—
8,595
8,595
1,901
—
5.26
8,595
5.26 % $ 451,028
4.84
5.26
1.08%
—% $
—
—
—
—% $
—
—
—
—
—
— % $ 134,554
0.96%
—
—
10,043
0.86
15,693
1.37
—
27,602
— % $ 187,892
1.65
1.09%
Securities ...................
$ 138,447
0.68% $ 491,737
1.12% $
141
5.92% $
8,595
5.26 % $ 638,920
1.08%
(1)
(2)
Based on weighted-average life.
Federal Home Loan Bank Stock and Federal Reserve Bank Stock are included in this category for weighted average yield, but do not have stated
maturities.
(3) Weighted average yield calculated based on current amortized cost balances – not presented on a tax equivalent basis.
48
Deposits and Funds Purchased
Average total deposits for 2015 were $2.163 billion; an increase of $70.0 million, or 3.3%, over 2014. Average deposits
increased $23.4 million, or 1.1%, from 2013 to 2014. Increases in 2015 occurred in all deposit types except money market
accounts and certificates of deposit. The increase from 2013 to 2014 occurred in noninterest bearing deposits and savings
accounts, which were partially offset by declines in the remaining product types.
The seasonal inflow of public funds started in the fourth quarter of 2015 and is expected to continue through the first quarter
of 2016. Deposit levels remain strong and our mix of deposits continues to improve slightly as higher cost certificates of
deposit are replaced with lower rate non-maturity deposits and noninterest bearing demand accounts.
Notwithstanding the interest rate increase by the Federal Reserve in December 2015, our strategy is to lag deposit rates, while
closely monitoring liquidity and competitor rates. This strategy is consistent with previous rate cycles, and allows us to
manage the mix of our deposits rather than compete on rate. We believe this enables us to maintain a low cost of funds – 14
basis points for the year 2015 and 16 basis points for the year 2014.
Table 2 provides an analysis of our average deposits, by category, and average rates paid thereon for each of the last three
years. Table 13 reflects the shift in our deposit mix over the last year and Table 14 provides a maturity distribution of time
deposits in denominations of $100,000 and over at December 31, 2015.
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 $14.1 million, or 31.7% in 2015. The
higher balance was primarily attributable to increases in repurchase agreements, partially offset by a decrease in other
borrowed funds. See Note 8 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 13
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits ........................................
NOW Accounts ..............................................................
Money Market Accounts ...............................................
Savings...........................................................................
Time Deposits ................................................................
Total Deposits ................................................................
2014 to
2015
Change
$
$
44,695
31,451
(15,172)
28,182
(19,192)
69,964
Percentage
of Total
Change
Components of Total Deposits
2014
2015
2013
33.1%
63.8%
34.5
45.0
11.9
(21.7)
11.8
40.3
(27.4)
8.7
100.0% 100.0% 100.0%
32.1%
34.2
13.0
10.9
9.8
30.5%
34.8
13.7
9.8
11.2
100.0%
Table 14
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
Three months or less ..................................................................................................................
Over three through six months ...................................................................................................
Over six through twelve months ................................................................................................
Over twelve months ...................................................................................................................
Total ...........................................................................................................................................
2015
Time
Certificates
of Deposit
16,383
$
11,618
17,025
4,243
49,269
$
Percent
33.2%
23.6
34.6
8.6
100.0%
49
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 designed to monitor and limit exposure to market risk and we 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 what we believe to be 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.
The balance sheet is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk. We prepare
a current base case and several alternative interest rate simulations (-100,+100, +200, +300, and +400 basis points (bp)), 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. We augment our interest rate shock analysis with
alternative interest rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening or steepening of
the yield curve (non-parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly
uncertain or when other business conditions so dictate.
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. 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.
Analysis. Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term
performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one
year. They do not necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES IN NET INTEREST INCOME(1)
During the year, the bank implemented the results of a comprehensive deposit study and made some revisions to interest rate
risk modeling methodologies as a result. The more significant results of the exercise included the removal of time lags built
in to deposit pricing if market rates move, which resulted in more linear changes in margin as market rates change.
Changes in Interest Rates
Policy Limit ....................................................................
December 31, 2015 .........................................................
December 31, 2014 .........................................................
+400 bp +300 bp +200 bp
+100 bp
-15.0%
8.17%
NA
-12.5%
5.2%
2.7%
-10.0%
2.6%
4.0%
-7.5%
1.1%
-1.1%
-100 bp
-7.5%
-6.7%
-2.9%
50
The Net Interest Income (“NII”) at Risk position improved for the period ending December 2015 in the rates +300 bp and
+100 bp scenarios when compared to the same period in 2014. The NII at risk position declined in the +200 bp scenario, but
remained positive. The model suggests the largest exposure is when rates fall 100 bp, which is attributable to the historically
low interest rate environment. Compared to last year, a rate shock scenario of +400 bp was added. In addition, revised policy
limits were reviewed and approved by the Board after analysis was performed on peer bank limits. 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, 2015 ........................................................
December 31, 2014 ........................................................
+400 bp +300 bp +200 bp
+100 bp
-30.0%
31.1%
NA
-25.0%
24.7%
-2.1%
-20.0%
17.3%
1.0%
-15.0%
9.4%
-3.3%
-100 bp
-15.0%
-26.2%
-8.3%
As of December 2015, the improvement in the economic value of equity in all rate scenarios was more favorable than it was
as of December 2014, with the exception of the down 100 bp scenario, as exposure to falling rates is more extreme due to the
low level of current deposit costs and limited capacity to reduce those costs relative to the reduction in discount rates used to
value them. To bring this metric into compliance with our policy limits in the down 100 bp scenario would require the bank
to extend its asset duration which we do not believe is prudent given the current historically low interest rate environment.
Much of the improvement in EVE in the rates up scenarios was attributable to the extension of our average life assumptions
on core deposits. as a result of the core deposit study, as longer average lives on non-maturity deposits produce a more asset
sensitive posture for EVE.
Compared to last year, an EVE rate scenario of +400 bp was added. In addition, revised policy limits were reviewed and
approved by the Board after analysis was performed on peer bank limits.
(1) Down 200, 300, and 400 bp 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, accommodate deposit withdrawals or repay 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, 2015 and 2014, 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, 2015, we had the ability to generate approximately $1.038 billion in additional liquidity through all of
our available resources beyond our overnight funds sold position. 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. We
believe the liquidity available to us is sufficient to meet our ongoing needs.
We view our investment portfolio as a liquidity source and have the option to pledge the portfolio as collateral for borrowings
or deposits, and/or sell selected securities. The portfolio consists of debt issued by the U.S. Treasury, U.S. governmental
agencies, and municipal governments. The weighted-average life of the portfolio is 1.83 years and as of December 31, 2015
had a net unrealized pre-tax gain of $0.1 million in the available-for sale portfolio.
51
Our average net overnight funds (defined as funds sold plus interest-bearing deposits with other banks less funds purchased)
sold position was $238.0 million during 2015 compared to an average net overnight funds sold position of $369.9 million in
2014. The decrease in this positon compared to the prior year reflects higher growth in both the investment and loan
portfolios, partially offset by an increase in average deposits.
Capital expenditures are expected to approximate $5.0 million over the next 12 months, which consist primarily of ATM
replacements, furniture and fixtures, and other 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, 2015, advances from the FHLB consisted of $28.3 million in outstanding debt consisting of 29 notes. In
2015, the Bank made FHLB advance payments totaling $4.8 million, which included four advances that matured or were paid
off. No new FHLB advances were obtained in 2015. 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.
Table 15
CONTRACTUAL CASH OBLIGATIONS
Table 14 sets forth certain information about contractual cash obligations at December 31, 2015.
Payments Due By Period
(Dollars in Thousands)
< 1 Yr
2,829
Federal Home Loan Bank Advances ....................... $
—
Subordinated Notes Payable ....................................
Operating Lease Obligations ...................................
480
Time Deposit Maturities ..........................................
153,328
Total Contractual Cash Obligations ......................... $ 156,637
> 1 – 3 Yrs
18,882
$
—
1,273
21,893
42,048
$
Capital
> 3 – 5 Yrs
$
> 5 Yrs
Total
28,346
3,513 $
3,122 $
62,887
62,887
—
4,560
1,981
826
1,906
178,707
1,580
5,854 $ 69,961 $ 274,500
$
Shareowners’ equity totaled $274.4 million at December 31, 2015 compared to $272.5 million at December 31, 2014. During
2015, shareowners’ equity increased $1.9 million, or 0.7%. During the year, shareowners’ equity was positively impacted by
net income of $9.1 million, stock compensation accretion of $1.1 million, and net adjustments totaling $0.6 million related to
transactions under our stock compensation plans. Shareowners’ equity was reduced by common stock dividends of $2.2
million, share repurchases totaling $6.0 million, a $0.7 million increase in the accumulated other comprehensive loss for our
pension plan, and a net increase of $0.2 million in the unrealized loss on investment securities.
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 .......................................................................................
2015
2014
$
172
38,256
258,181
296,609
(22,257 )
$ 274,352
$
174
42,569
251,306
294,049
(21,509)
$ 272,540
2013
$
174
41,152
243,614
284,940
(8,540)
$ 276,400
We continue to maintain a strong capital position. The ratio of shareowners’ equity to total assets at year-end was 9.81%,
10.37%, and 10.58%, in 2015, 2014, and 2013, respectively. Management believes our strong capital base offered protection
during the course of the last economic downturn and provides sufficient capacity to meet our strategic objectives.
52
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 1 Capital. As of December 31,
2015, we exceeded these capital guidelines with a total risk-based capital ratio of 17.25% and a Tier 1 capital ratio of
16.42%, compared to 17.76% and 16.67%, respectively, in 2014. 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 1 Capital in our capital
calculations previously noted. See Note 9 in the Notes to Consolidated Financial Statements for additional information on our
two trust preferred security offerings. See Note 14 in the Notes to Consolidated Financial Statements for additional
information as to our capital adequacy.
The federal banking regulators issued new capital rules establishing a new comprehensive capital framework for U.S.
banking organizations which became effective January 1, 2015 (subject to a phase-in period) (the “Basel III Capital Rules”).
Refer to the Regulatory Considerations – Capital Regulations section on page 13 for a detailed discussion of the new Basel
III capital requirements. The reduction in our regulatory capital ratios in 2015 reflects the implementation of Basel III and the
repurchase of our common stock. The common equity tier 1 ratio is a new required ratio that was created out of the Basel III
capital requirements. The ratio measures core equity components relative to risk-weighted assets. Capital guidelines require a
minimum common equity tier 1 ratio of 4.5% plus a capital conservation buffer of 2.5% that will be phased in between 2016
and 2019 (currently 0.625%). As of December 31, 2015, our common equity tier 1 ratio was 12.84%.
A leverage ratio is also used in connection with the risk-based capital standards and is defined as Tier 1 Capital divided by
average assets. The minimum leverage ratio under this standard is 4% 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, 2015, we had a leverage ratio of 10.65% compared to 10.99%
in 2014.
At December 31, 2015, our common stock had a book value of $15.93 per diluted share compared to $15.53 at December 31,
2014. Book value is impacted by the net unrealized gains and losses on investment securities available-for-sale. At December
31, 2015, the net unrealized loss was $127,000 compared to a $59,000 net unrealized gain at December 31, 2014. The
aforementioned net unrealized loss of $127,000 reflects a $91,000 net gain on available for sale securities and $218,000 in
unamortized loss related to the transfer of securities to held-to-maturity in 2013. 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, 2015, the net pension liability reflected in other comprehensive loss was $22.1
million compared to $21.6 million at December 31, 2014.
In February 2014, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our outstanding common
stock over a five year period. Repurchases may be made in the open market or in privately negotiated transactions; however,
we are not obligated to repurchase any specified number of shares. A total of 424,828 shares of our outstanding common
stock have been purchased at an average price of $14.68 under the plan. During 2015, we repurchased 405,228 shares at an
average price of $14.73 per share.
We offer an Associate Incentive Plan under which certain associates are eligible to earn equity-based awards based upon
achieving established performance goals. In 2015, 61,118 shares were earned under this plan of which 7,931 shares were
issued in 2015 and 53,187 were issued in January 2016. In 2014, 76,547 shares were earned under this plan of which 3,200
shares were issued in 2014 and 73,347 were issued in January 2015.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2015,
33,582 shares, valued at approximately $0.5 million (before 10% discount), were issued under these plans. In 2014, 39,562
shares, valued at approximately $0.6 million (before 10% discount), were issued under these plans.
Dividends
Adequate capital and financial strength is paramount to our stability and the stability of our subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on our capital levels. When determining the level of dividends the
following factors are considered:
(cid:402) Compliance with state and federal laws and regulations;
(cid:402) Our capital position and our ability to meet our financial obligations;
(cid:402) Projected earnings and asset levels; and
(cid:402) The ability of the Bank and us to fund dividends.
53
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, 2015, we had $364.2 million in commitments to extend credit and $6.1 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of
a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to
guarantee the performance of a client to a third party. We use the same credit policies in establishing commitments and
issuing letters of credit as we do for on-balance sheet instruments.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments
require funding in excess of historical levels, management believes current liquidity, investment security maturities, available
advances from the FHLB and Federal Reserve Bank provide a sufficient source of funds to meet these commitments.
FOURTH QUARTER 2015 – FINANCIAL RESULTS
Results of Operations
We realized net income of $2.6 million, or $0.16 per diluted share for the fourth quarter of 2015, compared to net income of
$1.7 million, or $0.09 per diluted share for the third quarter of 2015. The growth in earnings reflects a $0.7 million increase
in net interest income and a decrease in noninterest expense of $0.9 million, partially offset by higher income taxes $0.6
million and a higher provision for loan losses of $0.1 million.
Tax equivalent net interest income for the fourth quarter of 2015 was $20.0 million compared to $19.3 million for the third
quarter of 2015. The increase reflects recognition of deferred interest on a loan that was paid off during the quarter, partially
offset by unfavorable loan repricing. The net interest margin for the fourth quarter of 2015 was 3.37% (annualized), an
increase of six basis points over the third quarter of 2015 attributable to the aforementioned recognition of deferred interest
and to a lesser degree, an increase in the rate received on overnight funds which occurred late in the fourth quarter.
The provision for loan losses for the fourth quarter of 2015 was $0.5 million compared to $0.4 million for the third quarter of
2015 and reflects continued favorable problem loan migration. Net charge-offs for the fourth quarter of 2015 totaled $1.3
million, or 0.34% (annualized) of average loans, compared to $0.9 million, or 0.24% (annualized), for the third quarter of 2015.
Noninterest income for the fourth quarter of 2015 totaled $13.2 million, comparable to the third quarter of 2015 as higher wealth
management fees of $0.1 million and other income of $0.3 million were offset by lower mortgage banking fees of $0.3 million
and deposit fees of $0.1 million. Higher estate management fees drove the increase in wealth management fees. The increase in
other income was attributable to higher income from an equity investment. The decrease in mortgage banking fees reflects lower
loan production which was very strong in the third quarter as well as a lower margin on loans sold in the fourth quarter. The
decrease in deposit fees reflects lower overdraft fees attributable to decreased utilization of our overdraft service.
Noninterest expense for the fourth quarter of 2015 totaled $28.3 million, a decrease of $0.9 million, or 3.0%, from the third
quarter of 2015. The decrease was primarily attributable to lower compensation expense of $0.8 million reflective of a $0.5
million decrease in pension expense due to a higher level of required 2015 pension expense in the third quarter upon
finalization of actuarial work. Lower commission expense of $0.2 million and payroll taxes of $0.1 million also contributed
to the decrease.
54
Discussion of Financial Condition
Average earning assets were $2.353 billion for the fourth quarter of 2015, an increase of $42.9 million, or 1.9%, over the
third quarter of 2015, attributable to a higher level of total deposits, primarily public funds deposits. Average loans were
$1.492 billion for the fourth quarter of 2015, an $8.9 million, or 0.6%, increase over the third quarter of 2015, primarily in
the tax-free loan category.
Nonperforming assets (nonaccrual loans and OREO) totaled $29.6 million at December 31, 2015, a decrease of $8.8 million
from September 30, 2015. Nonaccrual loans totaled $10.3 million at December 31, 2015, a decrease of $2.9 million from
September 30, 2015. Nonaccrual loan additions totaled $3.6 million in the fourth quarter of 2014 compared to $1.9 million
for the third quarter of 2015. The balance of OREO totaled $19.3 million at December 31, 2015, a decrease of $5.9 million
from September 30, 2015. For the fourth quarter of 2015, we added properties totaling $1.8 million, sold properties totaling
$7.5 million and recorded valuation adjustments totaling $0.2 million. Nonperforming assets represented 1.06% of total
assets at December 31, 2015 compared to 1.47% at September 30, 2015.
Average total deposits were $2.174 billion for the fourth quarter of 2015, an increase of $37.3 million, or 1.7%, over the third
quarter of 2015 reflective of higher noninterest bearing deposits and savings accounts, partially offset by declines in money
markets and certificates of deposit. The seasonal inflow of public funds started in the fourth quarter of 2015 and will continue
through the first quarter of 2016. Deposit levels remain strong and 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. Average
borrowings increased by $5.8 million attributable to higher repurchase agreement balances.
Equity capital was $274.4 million as of December 31, 2015, compared to $273.7 million as of September 30, 2015. Our
leverage ratio was 10.65% and 10.71% for these periods. Further, our risk-adjusted capital ratio was 17.25% at December 31,
2015 compared to 17.24% at September 30, 2015, significantly exceeding the 10.0% threshold to be designated as “well-
capitalized” under the risk-based regulatory guidelines. At December 31, 2015, our tangible common equity ratio was 6.99%,
compared to 7.46% at September 30, 2015. Our common equity tier 1 ratio was 12.84% as of December 31, 2015 compared
to 12.76% as of September 30, 2015. All of our capital ratios significantly exceed the threshold to be designated as “well-
capitalized” under the Basel III capital standards as of December 31, 2015.
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 the 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; and (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.
Goodwill. 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.
55
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.
During the fourth quarter, we performed our annual impairment testing. We proceeded with Step One by first estimating 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 utilized the guideline company valuation
(“GLC”) method to determine the overall equity valuation. 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. The multiples that resulted from the GLC method were validated by comparing to
peer companies. 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.
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 Statements of Operations 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 2015 was 4.15%. The
estimated impact to 2015 pension expense of a 25 basis point increase or decrease in the discount rate would have been a
decrease and increase of approximately $785,000 and $816,000, respectively. We anticipate using a 4.52% discount rate in
2016.
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 2015 was 7.5%. The estimated impact to 2015 pension expense of a 25
basis point increase or decrease in the rate of return would have been an approximate $261,000 increase or decrease,
respectively. We anticipate using a rate of return on plan assets for 2015 of 7.5%.
The assumed rate of annual compensation increases of 3.25% in 2015 reflected expected trends in salaries and the employee
base. We anticipate using a compensation increase of 3.25% for 2016 reflecting current market trends.
Effective December 31, 2015, we changed the method used to estimate the service and interest components of net periodic
benefit cost for the defined benefit plan. Detailed information on the pension plan, the actuarially determined disclosures, and
the assumptions used are provided in Note 12 of the Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements
The Financial Accounting Standards Board, the SEC, and other regulatory bodies have enacted new accounting
pronouncements and standards that either have impacted our results in prior years presented, or will likely impact our
results in 2016. 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.
56
Item 8. Financial Statements and Supplementary Data
Table 16
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in Thousands, Except Per Share Data)
Summary of Operations:
Fourth
Third
Second
First
Fourth
Third
Second
First
2015
2014
Interest Income ............................................... $
Interest Expense .............................................
Net Interest Income ........................................
Provision for Loan Losses .............................
20,602 $
808
19,794
513
19,877 $
811
19,066
413
19,833 $
849
18,984
375
19,346 $
839
18,507
293
19,871 $
852
19,019
623
19,766 $
868
18,898
424
19,348 $
910
18,438
499
19,236
950
18,286
359
Net Interest Income After Provision for
Loan Losses ...............................................
Noninterest Income ........................................
Noninterest Expense ......................................
Income Before Income Taxes ........................
Income Tax Expense (Benefit) ......................
Net Income .....................................................
Net Interest Income (FTE) ............................. $
Per Common Share:
Net Income Basic ........................................... $
Net Income Diluted ........................................
Cash Dividends Declared ...............................
Diluted Book Value .......................................
Market Price: ..................................................
High ...........................................................
Low ............................................................
Close ..........................................................
Selected Average Balances:
19,281
13,221
28,280
4,222
1,620
2,602
20,006 $
18,653
13,228
29,164
2,717
1,034
1,683
19,253 $
18,609
14,794
28,439
4,964
1,119
3,845
19,119 $
18,214
12,848
29,390
1,672
686
986
18,611 $
18,396
13,053
28,309
3,140
1,219
1,921
19,124 $
18,474
13,351
28,607
3,218
1,103
2,115
19,020 $
17,939
13,347
29,076
2,210
737
1,473
18,567 $
17,927
12,785
28,366
2,346
(1,405)
3,751
18,424
0.16 $
0.16
0.04
15.93
0.09 $
0.09
0.03
15.91
0.22 $
0.22
0.03
15.80
0.06 $
0.06
0.03
15.59
0.11 $
0.11
0.03
15.53
0.12 $
0.12
0.02
16.18
0.08 $
0.08
0.02
16.08
16.05
13.56
15.35
15.75
14.39
14.92
16.32
13.94
15.27
16.33
13.16
16.25
16.00
13.00
15.54
14.98
13.26
13.54
14.71
12.60
14.53
0.22
0.22
0.02
16.02
14.59
11.56
13.28
Loans, Net ...................................................... $1,492,521 $1,483,657 $1,473,954 $1,448,617 $1,426,756 $1,421,327 $1,411,988 $1,395,506
2,268,320
Earning Assets................................................
2,598,307
Total Assets ....................................................
2,124,960
Deposits ..........................................................
279,729
Shareowners’ Equity ......................................
Common Equivalent Average Shares:
2,209,429
2,530,571
2,062,881
284,130
2,328,012
2,670,701
2,178,399
274,421
2,310,823
2,639,692
2,137,433
274,956
2,260,885
2,578,993
2,109,563
282,346
2,212,781
2,549,736
2,077,365
286,029
2,353,729
2,678,214
2,174,718
275,893
2,306,485
2,648,551
2,163,376
275,304
Basic ...........................................................
Diluted .......................................................
17,145
17,214
17,150
17,229
17,296
17,358
17,508
17,555
17,433
17,530
17,440
17,519
17,427
17,488
17,399
17,439
Performance Ratios:
Return on Average Assets ..............................
Return on Average Equity .............................
Net Interest Margin (FTE) .............................
Noninterest Income as % of Operating
Revenue .....................................................
Efficiency Ratio .............................................
Asset Quality:
0.39%
3.74
3.37
0.25%
2.43
3.31
0.58%
5.62
3.29
0.15%
1.45
3.27
0.30%
2.66
3.43
0.33%
2.95
3.42
0.23%
2.09
3.29
0.59%
5.44
3.29
40.05
85.11
40.96
89.79
43.80
83.85
40.98
93.42
40.70
87.98
41.40
88.37
41.99
91.11
41.15
90.89
Allowance for Loan Losses ........................... $
Allowance for Loan Losses to Loans ............
Nonperforming Assets (“NPA’s”) .................
NPA’s to Total Assets ....................................
NPA’s to Loans + ORE .................................
Allowance to Non-Performing Loans ............
Net Charge-Offs to Average Loans ...............
13,953 $
0.93%
14,737 $
0.99%
15,236 $
1.03%
16,090 $
1.10%
17,539 $
1.22%
19,093 $
1.34%
20,543 $
1.45%
22,110
1.57%
29,595
1.06
1.94
135.40
0.34
38,357
1.47
2.54
112.17
0.24
45,487
1.71
3.00
99.46
0.33
50,625
1.88
3.38
95.83
0.49
52,449
2.00
3.55
104.60
0.61
65,208
2.61
4.45
81.31
0.52
68.249
2.66
4.67
80.03
0.59
78,594
2.98
5.42
63.98
0.39
Capital Ratios:
Tier 1 Capital .................................................
Total Capital ...................................................
Common Equity Tier 1 Capital(1) ...................
Tangible Capital .............................................
Leverage .........................................................
16.42%
17.25
12.84
6.99
10.65
16.36%
17.24
12.76
7.46
10.71
15.83%
16.72
12.34
7.29
10.53
16.16%
17.11
12.57
7.26
10.73
16.67%
17.76
NA
7.38
10.99
16.88%
18.08
NA
8.22
10.97
16.85%
18.10
NA
7.93
10.70
16.85%
18.10
NA
7.66
10.47
(1) Not applicable prior to January 1, 2015.
57
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
59
60
61
62
63
64
65
Report of Independent Registered Certified Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareowners’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
58
Ernst & Young LLP
One Tampa City Center
Suite 2400
201 North Franklin Street
Tampa, Florida 33602
Tel: +1 813 225 4800
Fax: +1 813 225 4711
ey.com
Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Shareowners of
Capital City Bank Group, Inc.
We have audited the accompanying consolidated statements of financial condition of Capital City Bank Group, Inc. as of
December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in
shareowners’ equity, and cash flows for each of the three years in the period ended December 31, 2015. 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, 2015 and 2014, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated March 8, 2016 expressed an unqualified opinion thereon.
Tampa, Florida
March 8, 2016
59
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
ASSETS
Cash and Due From Banks ................................................................................................................. $
Federal Funds Sold and Interest Bearing Deposits .............................................................................
Total Cash and Cash Equivalents ....................................................................................................
As of December 31,
2014
2015
51,288 $
327,617
378,905
55,467
329,589
385,056
Investment Securities, Available for Sale, at fair value ......................................................................
Investment Securities, Held to Maturity, at amortized cost (fair value of $187,407 and $163,412) .......
Total Investment Securities .............................................................................................................
451,028
187,892
638,920
341,548
163,581
505,129
Loans Held For Sale ...........................................................................................................................
11,632
10,688
Loans, Net of Unearned Income ......................................................................................................... 1,492,275
Allowance for Loan Losses .............................................................................................................
(13,953)
Loans, Net .................................................................................................................................... 1,478,322
1,431,374
(17,539)
1,413,835
Premises and Equipment, Net .............................................................................................................
Goodwill .............................................................................................................................................
Other Real Estate Owned ....................................................................................................................
Other Assets ........................................................................................................................................
101,899
84,811
35,680
90,071
Total Assets ................................................................................................................................. $ 2,797,860 $2,627,169
98,819
84,811
19,290
87,161
LIABILITIES
Deposits:
Noninterest Bearing Deposits .......................................................................................................... $ 758,283 $ 659,115
1,487,679
Interest Bearing Deposits ................................................................................................................ 1,544,566
2,146,794
Total Deposits .............................................................................................................................. 2,302,849
Short-Term Borrowings ......................................................................................................................
Subordinated Notes Payable ...............................................................................................................
Other Long-Term Borrowings ............................................................................................................
Other Liabilities ..................................................................................................................................
61,058
62,887
28,265
68,449
Total Liabilities ............................................................................................................................ 2,523,508
49,425
62,887
31,097
64,426
2,354,629
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; 17,156,919 and 17,447,223 shares
—
—
issued and outstanding at December 31, 2015 and December 31, 2014, respectively ....................
174
Additional Paid-In Capital ..................................................................................................................
42,569
Retained Earnings ...............................................................................................................................
251,306
Accumulated Other Comprehensive Loss, Net of Tax .......................................................................
(21,509)
272,540
Total Shareowners’ Equity .................................................................................................................
Total Liabilities and Shareowners’ Equity .......................................................................................... $ 2,797,860 $2,627,169
172
38,256
258,181
(22,257)
274,352
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
60
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
INTEREST INCOME
Loans, including Fees .............................................................................................
Investment Securities:
Taxable ................................................................................................................
Tax Exempt .........................................................................................................
Funds Sold ..............................................................................................................
Total Interest Income ..............................................................................................
INTEREST EXPENSE
Deposits ..................................................................................................................
Short-Term Borrowings ..........................................................................................
Subordinated Notes Payable ...................................................................................
Other Long-Term Borrowings ................................................................................
Total Interest Expense ............................................................................................
NET INTEREST INCOME .................................................................................
Provision for Loan Losses ......................................................................................
Net Interest Income After Provision for Loan Losses ............................................
NONINTEREST INCOME
Deposit Fees ...........................................................................................................
Bank Card Fees .......................................................................................................
Wealth Management Fees .......................................................................................
Mortgage Banking Fees ..........................................................................................
Data Processing Fees ..............................................................................................
Other .......................................................................................................................
Total Noninterest Income .......................................................................................
NONINTEREST EXPENSE
Compensation .........................................................................................................
Occupancy, Net .......................................................................................................
Other Real Estate Owned, Net ................................................................................
Other .......................................................................................................................
Total Noninterest Expense ......................................................................................
INCOME BEFORE INCOME TAXES ..................................................................
Income Tax Expense ...............................................................................................
NET INCOME ......................................................................................................
BASIC NET INCOME PER SHARE .................................................................
DILUTED NET INCOME PER SHARE ............................................................
For the Years Ended December 31,
2014
2013
2015
$ 73,169
$ 73,402
$
78,184
5,224
633
632
79,658
944
59
1,368
936
3,307
76,351
1,594
74,757
22,608
11,278
7,533
4,539
1,472
6,661
54,091
3,394
492
933
78,221
1,099
78
1,328
1,075
3,580
74,641
1,905
72,736
24,320
10,892
7,808
3,082
1,543
4,891
52,536
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
4,684
55,111
65,414
17,738
4,971
27,150
115,273
62,215
17,818
6,811
27,514
114,358
66,127
17,331
8,234
29,713
121,405
13,575
4,459
9,116
0.53
0.53
$
$
$
10,914
1,654
9,260
0.53
0.53
$
$
$
$
$
$
7,970
1,925
6,045
0.35
0.35
Average Basic Common Shares Outstanding .........................................................
Average Diluted Common Shares Outstanding ......................................................
17,273
17,318
17,425
17,488
17,325
17,399
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
61
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2014
2015
2013
$
9,116
$
9,260
$
6,045
(Dollars in Thousands)
NET INCOME ......................................................................................................
Other comprehensive income (loss), before tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale .....................
Unrealized losses on securities transferred from available for sale
(378)
to held to maturity ............................................................................................
—
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity ................................................................
Reclassification adjustment for net gains 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 (loss) gain ........................................................................
Total Benefit Plans ...........................................................................................
Other comprehensive (loss) income, before tax: ................................................
Deferred tax benefit (expense) related to other comprehensive income .................
Other comprehensive (loss) income, net of tax...................................................
TOTAL COMPREHENSIVE INCOME (LOSS) ..............................................
$
76
5
—
(297)
316
3,743
(4,975)
(916)
(1,213)
465
(748)
8,368
250
—
70
1
—
321
473
705
(22,603)
(21,425)
(21,104)
8,135
(12,969)
$
(3,709) $
(1,252)
(523)
25
3
600
(1,147)
504
4,079
30,784
35,367
34,220
(13,201)
21,019
27,064
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
62
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY
Shares
(Dollars in Thousands, Except Per Share Data)
Outstanding
Balance, January 1, 2013 .............................. 17,232,380 $
Net Income ...................................................
Other Comprehensive Income, Net of Tax ...
Stock Compensation Expense .......................
Impact of Transactions Under
Common
Stock
172 $
—
—
—
Accumulated
Other
Comprehensive
Loss,
Additional
Paid-In
Capital
Retained
Earnings
38,707 $ 237,569 $
6,045
—
—
—
—
1,296
Net of Taxes Total
—
(29,559) $246,889
6,045
21,019 21,019
1,296
—
Compensation Plans, net ...........................
128,580
Balance, December 31, 2013 ........................ 17,360,960
Net Income ...................................................
Other Comprehensive Loss, Net of Tax .......
Cash Dividends ($0.09 per share) .................
Stock Compensation Expense .......................
Impact of Transactions Under
105,863
Compensation Plans, net ...........................
Repurchase of Common Stock .....................
(19,600)
Balance, December 31, 2014 ........................ 17,447,223
Net Income ...................................................
Other Comprehensive Loss, Net of Tax .......
Cash Dividends ($0.13 per share) .................
Stock Compensation Expense .......................
Impact of Transactions Under
2
174
—
—
—
—
—
—
174
—
—
—
—
1,149
—
41,152 243,614
9,260
—
(1,568)
—
—
—
—
1,349
337
(269)
—
—
42,569 251,306
9,116
—
(2,241)
—
—
—
—
1,109
—
—
1,151
(8,540) 276,400
9,260
(12,969) (12,969)
(1,568)
1,349
—
—
—
—
337
(269)
(21,509) 272,540
9,116
(748)
(2,241)
1,109
—
(748)
—
—
114,924
Compensation Plans, net ...........................
Repurchase of Common Stock .....................
(405,228)
Balance, December 31, 2015 ........................ 17,156,919 $
2
(4)
172 $
555
—
(5,977)
—
38,256 $ 258,181 $
—
—
557
(5,981)
(22,257) $274,352
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
63
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2013
2014
2015
$
9,116
$
9,260
$
6,045
(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 ..................................................................
Impairment Loss on Security ......................................................................
Net (Decrease) Increase in Loans Held-for-Sale .........................................
Stock Compensation ....................................................................................
Deferred Income Taxes ...............................................................................
Loss on Sales and Write-Downs of Other Real Estate Owned ....................
Loss on Sale or Disposal of Premises and Equipment ................................
Net Decrease (Increase) in Other Assets .....................................................
Net Increase (Decrease) 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 (Increase) Decrease in Loans ...................................................................
Purchase of Bank Owned Life Insurance ........................................................
Proceeds From Sales of Other Real Estate Owned .........................................
Purchases of Premises and Equipment, net .....................................................
Net Cash Used In by Investing Activities .......................................................
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits ...............................................................
Net Increase (Decrease) in Short-Term Borrowings .......................................
Proceeds from Other Long-Term Borrowings ................................................
Repayment of Other Long-Term Borrowings .................................................
Dividends Paid ................................................................................................
Payments to Repurchase Common Stock .......................................................
Issuance of Common Stock Under Compensation Plans ................................
Net Cash Provided By (Used In) Financing Activities ...................................
1,594
6,586
5,182
—
—
90
(944)
1,109
3,847
2,943
44
684
3,510
33,761
(66,021)
40,482
(190,756)
—
76,452
(71,432)
—
18,925
(4,703)
(197,053)
156,055
11,536
—
(2,735)
(2,241)
(5,981)
507
157,141
1,905
6,490
4,717
32
(1 )
—
377
1,349
4,779
4,462
113
(12,353 )
4,021
25,151
(56,249 )
39,335
(210,858 )
—
117,281
(64,975 )
(13,085 )
23,201
(5,117 )
(170,467 )
10,546
(3,955 )
—
(4,888 )
(1,568 )
(269 )
578
444
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ........................................................................................
(6,151)
(144,872 )
Cash and Cash Equivalents at Beginning of Year...........................................
Cash and Cash Equivalents at End of Year .....................................................
Supplemental Cash Flow Disclosures:
Interest Paid.................................................................................................
Income Taxes Paid (Refunded) ...................................................................
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 ..............................
385,056
378,905
3,314
1,442
—
5,752
97
$
$
$
$
$
$
529,928
385,056
3,562
2,655
—
15,271
2,059
$
$
$
$
$
$
$
$
$
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64
3,472
6,396
4,756
210
(3)
600
3,124
1,296
1,805
4,573
—
5,087
(2,510)
34,851
(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)
—
—
1,114
(12,564)
20,196
509,732
529,928
6,012
(3,202)
62,488
24,488
4,428
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 their respective analysis of impairment.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods and all other cash equivalents have a maturity of 90
days or less. The Company is required to maintain average reserve balances with the Federal Reserve Bank based upon a
percentage of deposits. The average amounts of these required reserve balances for the years ended December 31, 2015 and
2014 were $10.3 million and $13.2 million, respectively.
65
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 not classified as held to maturity or trading securities 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, (i) whether it has decided to sell the security, (ii) whether it is more
likely than not that the Company will have to sell the security before its market value recovers, and (iii) whether the present
value of expected cash flows is sufficient to recover the entire amortized cost basis. When assessing the security’s expected
cash flows, the Company considers, among other things, (i) the length of time and the extent to which the fair value has been
less than cost and (ii) the financial condition and near-term prospects of the issuer.
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, and includes loan late fees. 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 (FFIEC) 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 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.
66
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.
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.
Bank Owned Life Insurance (BOLI)
The Company, through its subsidiary bank, has purchased life insurance policies on certain key officers. Bank owned life
insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the
cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
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
annually during the fourth quarter 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 in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of cost or fair
value less estimated selling costs, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. The
valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic
conditions. Revenue and expenses from operations and changes in value are included in noninterest expense.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Revenue Recognition
The Company recognizes revenue as it is earned based on contractual terms, as transactions occur, or as services are provided
and collectability is reasonably assured. Certain specific policies include the following:
Deposit Fees. Deposit fees 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 include 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.
67
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 13 — Earnings Per Share.
Comprehensive Income
Comprehensive income includes all changes in shareowners’ equity during a period, except those resulting from transactions
with shareowners. Besides net income, other components of the Company’s comprehensive income include the after tax
effect of changes in the net unrealized gain/loss on securities available for sale and changes in the funded status of defined
benefit and supplemental executive retirement plans. Comprehensive income is reported in the accompanying Consolidated
Statements of 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 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement
Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of
extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual
and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after
income from continuing operations. ASU 2015-01 will be effective for the Company beginning January 1, 2016. ASU 2015-
01 is not expected to have a significant impact on the Company’s financial statements.
ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2015-02 implements changes
to both the variable interest consolidation model and the voting interest consolidation model. ASU 2015-02 eliminates certain
criteria that must be met when determining when fees paid to a decision maker or service provider do not represent a variable
interest and amends the criteria for determining whether a limited partnership is a variable interest entity. ASU 2015-02 will
be effective for the Company on January 1, 2016. ASU 2015-02 is not expected to have a significant impact on the
Company’s financial statements.
ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs”
ASU 2015-03 requires companies to present debt issuance costs the same way they currently present debt discounts, as a
direct deduction from the carrying value of that debt liability. ASU 2015-03 will be effective for the Company on January 1,
2016. ASU 2015-03 is not expected to have a significant impact on the Company’s financial statements.
68
ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for
Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 provides guidance to evaluate accounting for fees paid by a
customer in cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a
software license, the customer should account for the license consistent with its accounting for other software licenses. If the
arrangement does not include a software license, the customer should account for the arrangement as a service contract.
ASU 2015-05 will be effective for the Company on January 1, 2016. ASU 2015-05 is not expected to have a significant
impact on the Company’s financial statements.
ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date.” ASU 2015-14
updates the effective date of ASU 2014-09 for all entities by one year. This makes ASU 2014-09 effective for the Company
on January 1, 2018. The Company is currently evaluating the potential impact of ASU 2014-09 on its financial statements.
ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.”
ASU 2015-15 states that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to
line-of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an
asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement,
regardless of whether there are any outstanding borrowing on the line-of-credit arrangement. The Company does not believe
this pronouncement will have a significant impact on its financial statements.
ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments.”
ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a
business combination be recognized in the reporting period in which the adjustment amounts are determined. Furthermore,
the income statement effects of such adjustments, if any, must be calculated as if the accounting had been completed at the
acquisition date. The portion of the amount recorded in current-period earnings that would have been recorded in previous
reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Under previous
guidance, adjustments to provisional amounts identified during the measurement period are to be recognized retrospectively.
ASU 2015-16 will be effective for the Company on January 1, 2016 and is not expected to have a significant impact on its
financial statements.
ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities. ASU 2016-1, among other things, (i) requires equity investments, with certain exceptions, to be
measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of
equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii)
eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate
the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv)
requires public business entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change
in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to
measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate
presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance
sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a
valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for the Company on
January 1, 2018 and is not expected to have a significant impact on its financial statements.
69
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related market value of investment securities at December 31 were
as follows:
2015
2014
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Market
Value
Amortized
Cost
Unrealized
Gain
Unrealized
Losses
Market
Value
Available for Sale
U.S. Government Treasury ................. $ 250,458 $
U.S. Government Agency ...................
States and Political Subdivisions ........
Mortgage-Backed Securities ...............
Equity Securities(1) ..............................
Total ................................................... $ 450,883 $
101,730
88,358
1,742
8,595
Held to Maturity
U.S. Government Treasury ................. $ 134,554 $
U.S. Government Agency ...................
States and Political Subdivisions ........
Mortgage-Backed Securities ...............
Total ................................................... $ 187,892 $
10,043
15,693
27,602
101 $
357
103
159
—
720 $
45 $
7
38
4
94 $
213 $250,346 $ 185,830 $
95,950
263 101,824
48,405
99 88,362
2,094
1,901
—
—
8,745
8,595
575 $451,028 $ 341,024 $
160 $134,439 $
5 10,045
7 15,724
407 27,199
579 $187,407 $ 163,581 $
76,179 $
19,807
26,717
40,878
220 $
289
65
193
—
767 $
144 $
29
36
33
242 $
19 $186,031
142 96,097
82 48,388
2,287
—
8,745
—
243 $341,548
6 $ 76,317
19 19,817
6 26,747
380 40,531
411 $163,412
Total Investment Securities ................ $ 638,775 $
814 $
1,154 $638,435 $ 504,605 $
1,009 $
654 $504,960
(1)
Includes Federal Home Loan Bank, Federal Reserve Bank and FNBB Inc. stock recorded at cost of $3.6 million and $4.8 and $0.2
million, respectively, at December 31, 2015 and Federal Home Loan Bank and Federal Reserve Bank stock at $3.9 million and $4.8
million, respectively, at December 31, 2014.
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, 2015 totaled $352,000. 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 $370.1 million and $337.9 million at December 31, 2015 and December 31, 2014,
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
Gross
Realized
Gains
Gross
Realized
Losses
$
$
—
—
7,506
$
$
—
—
3
$
$
—
—
—
Year
2015
2014
2013
70
Maturity Distribution. As of December 31, 2015, 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 .............
Mortgage-Backed Securities ...................
U.S. Government Agency .......................
Equity Securities .....................................
Total ........................................................ $
Available for Sale
Amortized
Cost
Market
Value
Held to Maturity
Amortized
Cost
Market
Value
90,331 $
280,264
1,742
69,951
8,595
450,883 $
90,261 $
280,116
1,901
70,155
8,595
451,028 $
44,267 $
116,023
27,602
—
—
187,892 $
44,270
115,938
27,199
—
—
187,407
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:
(Dollars in Thousands)
2015
Available for Sale
U.S. Government Treasury ......................
U.S. Government Agency ........................
States and Political Subdivisions .............
Total .........................................................
Held to Maturity
U.S. Government Treasury ......................
U.S. Government Agency ........................
States and Political Subdivisions .............
Mortgage-Backed Securities ....................
Total .........................................................
2014
Available for Sale
U.S. Government Treasury ......................
U.S. Government Agency ........................
States and Political Subdivisions .............
Total .........................................................
Held to Maturity
U.S. Government Treasury ......................
U.S. Government Agency ........................
States and Political Subdivisions .............
Mortgage-Backed Securities ....................
Total .........................................................
Less Than
12 Months
Greater Than
12 Months
Total
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
$ 150,061 $
43,508
39,608
233,177
92,339
5,006
3,791
13,267
$ 114,403 $
$ 35,838 $
18,160
16,497
70,495
15,046
10,002
3,788
15,066
$ 43,902 $
213 $
200
86
499
—
9,644
5,066
14,710
160
—
5
—
7
—
11,889
185
357 $ 11,889
19 $
54
77
150
—
18,468
505
18,973
6
—
19
—
6
—
18,155
149
180 $ 18,155
$
$
$
$
— $ 150,061 $
53,152
63
44,674
13
247,887
76
92,339
5,006
3,791
25,156
—
—
—
222
222 $ 126,292 $
— $ 35,838 $
36,628
88
17,002
5
89,468
93
15,046
10,002
3,788
33,221
—
—
—
231
231 $ 62,057 $
213
263
99
575
160
5
7
407
579
19
142
82
243
6
19
6
380
411
Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic
or market concerns warrant such evaluation. 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, (i) whether it has decided to sell the security, (ii) whether it is
more likely than not that the Company will have to sell the security before its market value recovers, and (iii) whether the
present value of expected cash flows is sufficient to recover the entire amortized cost basis. When assessing a security’s
expected cash flows, the Company considers, among other things, (i) the length of time and the extent to which the fair value
has been less than cost and (ii) the financial condition and near-term prospects of the issuer. 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.
71
At December 31, 2015, there were 295 positions (combined AFS and HTM) with unrealized losses totaling $1.2 million. Of
the 295 positions, 134 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. Of these 134 positions, there were 22 GNMA
positions and 22 SBA positions in an unrealized loss position for longer than 12 months. There were 141 municipal bonds in
an unrealized loss position that were pre-refunded, or rated “AA-”or better. Fourteen of these positions were in an unrealized
loss position for longer than 12 months. The remaining 20 securities were government agency bonds, which have been in an
unrealized loss position for less than 12 months. All of 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, 2015. 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,
2015.
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 ...................................................................................
$
2015
179,816
46,484
499,813
290,585
233,901
241,676
$ 1,492,275
$
2014
136,925
41,596
510,120
295,969
229,572
217,192
$ 1,431,374
(1)
Includes loans in process with outstanding balances of $8.5 million and $7.4 million for 2015 and 2014, respectively.
Net deferred fees included in loans were $0.5 million at December 31, 2015 and $1.5 million at December 31, 2014.
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:
2015
2014
(Dollars in Thousands)
Commercial, Financial and Agricultural .......................
Real Estate – Construction ............................................
Real Estate – Commercial Mortgage ............................
Real Estate – Residential ..............................................
Real Estate – Home Equity ...........................................
Consumer ......................................................................
Total ..............................................................................
$
Nonaccrual
96
97
4,191
4,739
1,017
165
10,305
$
90 + Days
—
—
—
—
—
—
—
72
$
Nonaccrual
507
424
5,806
6,737
2,544
751
16,769
$
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”).
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
Past Due
Total
Current
Total
Loans
(Dollars in Thousands)
2015
Commercial, Financial and Agricultural .................. $
Real Estate – Construction .......................................
Real Estate – Commercial Mortgage .......................
Real Estate – Residential .........................................
Real Estate – Home Equity ......................................
Consumer .................................................................
Total ......................................................................... $ 3,686 $ 2,089 $ — $
18 $ — $
—
—
—
—
—
153 $
690
754
567
787
735
—
1,229
347
97
398
2014
Commercial, Financial and Agricultural .................. $
Real Estate – Construction .......................................
Real Estate – Commercial Mortgage .......................
Real Estate – Residential .........................................
Real Estate – Home Equity ......................................
Consumer .................................................................
Total ......................................................................... $ 4,739 $ 2,053 $ — $
352 $
690
1,701
682
689
625
—
569
1,147
85
97
—
—
—
—
—
155 $ — $
179,816
179,549 $
171 $
46,484
45,697
690
499,813
493,639
1,983
290,585
284,932
914
233,901
232,000
884
1,133
241,676
240,378
5,775 $ 1,476,195 $ 1,492,275
507 $
690
2,270
1,829
774
722
136,925
135,911 $
41,596
40,482
510,120
502,044
295,969
287,403
229,572
226,254
217,192
215,719
6,792 $ 1,407,813 $ 1,431,374
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.
Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other
categories.
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real
Estate
Residential
Real
Estate
Home
Equity Consumer Unallocated Total
(Dollars in Thousands)
2015
Beginning Balance ..................... $
Provision for Loan Losses .....
Charge-Offs ...........................
Recoveries..............................
Net Charge-Offs .....................
Ending Balance .......................... $
2014
Beginning Balance ..................... $
Provision for Loan Losses .....
Charge-Offs ...........................
Recoveries..............................
Net Charge-Offs .....................
Ending Balance .......................... $
2013
Beginning Balance ..................... $
Provision for Loan Losses .....
Charge-Offs ...........................
Recoveries..............................
Net Charge-Offs .....................
Ending Balance .......................... $
784 $
911
(1,029)
239
(790)
905 $
699 $
742
(871)
214
(657)
784 $
1,253 $
(15)
(748)
209
(539)
699 $
843 $
(742)
—
—
—
101 $
1,580 $
(718)
(28)
9
(19)
843 $
5,287 $
278
(1,250)
183
(1,067)
4,498 $
7,710 $
897
(3,788)
468
(3,320)
5,287 $
6,520 $
(964)
(1,852)
705
(1,147)
4,409 $
2,882 $
858
(1,403)
136
(1,267)
2,473 $
1,223 $
1,253
(1,901)
992
(909)
1,567 $
9,073 $
(1,145)
(2,160)
752
(1,408)
6,520 $
3,051 $
1,069
(1,379)
141
(1,238)
2,882 $
982 $
1,060
(1,820)
1,001
(819)
1,223 $
— $ 17,539
1,594
—
(7,435)
—
2,255
—
—
(5,180)
— $ 13,953
— $ 23,095
—
1,905
— (10,046)
2,585
—
—
(7,461)
— $ 17,539
2,856 $
(207)
(1,070)
1
(1,069)
1,580 $
11,081 $
(83)
(3,651)
363
(3,288)
7,710 $
8,678 $
3,392
(3,835)
838
(2,997)
9,073 $
2,945 $
971
(1,159)
294
(865)
3,051 $
1,327 $
441
(1,751)
965
(786)
982 $
1,027 $ 29,167
3,472
(1,027)
— (12,214)
2,670
—
(9,544)
—
— $ 23,095
73
The following table details the amount of the allowance for loan losses by portfolio class at December 31, disaggregated on
the basis of the Company’s impairment methodology.
Commercial,
Financial,
Agricultural
Real Estate
Construction
Real Estate
Commercial
Mortgage
Real Estate
Residential
Real Estate
Home
Equity
Consumer
Total
(Dollars in Thousands)
2015
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment .................. $
Loans Collectively
Evaluated for
Impairment ..................
Ending Balance ................... $
2014
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment .................. $
Loans Collectively
Evaluated for
Impairment ..................
Ending Balance ................... $
2013
Period-end amount
Allocated to:
Loans Individually
Evaluated for
Impairment .................. $
Loans Collectively
Evaluated for
Impairment ..................
Ending Balance ................... $
77
$
— $
2,049 $
2,118 $
384 $
18 $
4,646
828
905
$
101
101 $
2,449
4,498 $
2,291
4,409 $
2,089
2,473 $
1,549
1,567 $
9,307
13,953
293
$
— $
2,733 $
2,113 $
638 $
5 $
5,782
491
784
$
843
843 $
2,554
5,287 $
4,407
6,520 $
2,244
2,882 $
1,218
1,223 $
11,757
17,539
75
$
66 $
4,336 $
2,047 $
682 $
23 $
7,229
624
699
$
1,514
1,580 $
3,374
7,710 $
7,026
9,073 $
2,369
3,051 $
959
982 $
15,866
23,095
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
Total
(Dollars in Thousands)
2015
Individually Evaluated for
Impairment ....................... $
834
$
97 $
20,847 $
18,569 $
3,144 $
261 $
43,752
Collectively Evaluated for
Impairment .......................
Total .................................... $
178,982
179,816
$
46,387
46,484 $
478,966
499,813 $
272,016
290,585 $
230,757
1,448,523
241,415
233,901 $ 241,676 $ 1,492,275
2014
Individually Evaluated for
Impairment ....................... $
1,040
$
401 $
32,242 $
20,120 $
3,074 $
216 $
57,093
Collectively Evaluated for
Impairment .......................
Total .................................... $
135,885
136,925
$
41,195
41,596 $
477,878
510,120 $
275,849
295,969 $
226,498
1,374,281
216,976
229,572 $ 217,192 $ 1,431,374
2013
Individually Evaluated for
Impairment ....................... $
1,580
$
557 $
49,973 $
20,470 $
3,359 $
355 $
76,294
Collectively Evaluated for
Impairment .......................
Total .................................. $
125,027
126,607
$
30,455
31,012 $
483,898
533,871 $
289,222
309,692 $
224,563
1,312,310
159,145
227,922 $ 159,500 $ 1,388,604
74
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)
2015
Commercial, Financial and Agricultural ......................
Real Estate – Construction ...........................................
Real Estate – Commercial Mortgage ...........................
Real Estate – Residential .............................................
Real Estate – Home Equity ..........................................
Consumer .....................................................................
Total .............................................................................
2014
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
834
97
20,847
18,569
3,144
261
43,752
1,040
401
32,242
20,120
3,074
216
57,093
$
$
$
$
279
97
3,265
2,941
1,101
79
7,762
189
401
11,984
5,492
758
3
18,827
$
$
$
$
555
—
17,582
15,628
2,043
182
35,990
851
—
20,258
14,628
2,316
213
38,266
$
$
$
$
77
—
2,049
2,118
384
18
4,646
293
—
2,733
2,113
638
5
5,782
Nonaccrual loans include both smaller balance homogenous loans that are collectively evaluated for impairment and
individually classified impaired loans. Therefore, the sum of nonaccrual loans and accruing troubled debt restructurings will
differ from the total impaired amount.
The following table summarizes the average recorded investment and interest income recognized for each of the last three
years by class of impaired loans:
2015
2014
2013
(Dollars in Thousands)
Commercial, Financial and Agricultural ...... $
Real Estate – Construction ...........................
Real Estate – Commercial Mortgage ...........
Real Estate – Residential .............................
Real Estate – Home Equity ..........................
Consumer .....................................................
Total ............................................................. $
Average
Recorded
Investment
Total
Interest
Income
Average
Recorded
Investment
Total
Interest
Income
Average
Recorded
Investment
Total
Interest
Income
1,002 $
335
46 $
—
1,440 $
637
62 $
4
2,861 $
1,181
140
7
27,644
19,105
3,001
201
1,093
842
86
7
41,435
21,122
3,000
294
1,725
1,070
72
9
51,288 $ 2,074 $
67,928 $ 2,942 $
60,043
21,238
4,037
501
2,062
860
72
10
89,861 $ 3,151
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.
75
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.
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.
76
The following table presents the risk category of loans by segment at December 31:
(Dollars in Thousands)
2015
Special Mention ..........................................................
Substandard ................................................................
Doubtful ......................................................................
Total Criticized Loans ................................................
2014
Special Mention ..........................................................
Substandard ................................................................
Doubtful ......................................................................
Total Criticized Loans ................................................
Commercial,
Financial,
Agriculture
Real Estate
Consumer
Total
Criticized
Loans
$
$
$
$
5,938
1,307
—
7,245
8,059
2,817
—
10,876
$
$
$
$
27,838
51,425
—
79,263
51,060
79,167
—
130,227
$
$
$
$
69
819
—
888
114
1,153
—
1,267
$
$
$
$
33,845
53,551
—
87,396
59,233
83,137
—
142,370
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.
The following table presents loans classified as TDRs at December 31:
2015
(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
897
—
16,621
14,979
2,914
223
35,634
$
$
Nonaccruing Accruing
838
—
—
—
26,565
1,070
14,940
1,582
1,856
—
211
35
44,410
2,687
$
$
$
2014
Nonaccruing
266
—
1,591
2,531
356
—
4,744
$
Loans classified as TDRs during 2015, 2014, and 2013 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.
(Dollars in Thousands)
Commercial, Financial and
Agricultural .......................
Real Estate – Construction ....
Real Estate – Commercial
Mortgage ...........................
Real Estate – Residential ......
Real Estate – Home Equity ...
Consumer ..............................
Total TDRs ...........................
2015
2014
2013
Number
of
Contracts
Recorded
Investment(1)
Number
of
Contracts
Recorded
Investment(1)
Number
of
Contracts
Recorded
Investment(1)
1 $
—
4
14
21
3
43 $
40
—
631
1,531
1,005
110
3,317
3 $
—
3
11
10
1
28 $
320
—
1,769
1,972
883
34
4,978
4 $
—
13
18
9
6
50 $
337
—
9,653
2,073
587
93
12,743
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
77
The following table provides information on how TDRs were modified during the periods included.
2015
2014
2013
Number
of
Contracts
Post-
Modified
Recorded
Investment
Number
of
Contracts
(Dollars in Thousands)
Extended Amortization ...........
Interest Rate Adjustment ........
Extended Amortization and
Interest Rate Adjustment .....
Principal Moratorium ..............
Other .......................................
Total TDRs .............................
16 $
5
22
—
—
43 $
973
284
2,060
—
—
3,317
Post-
Modified
Recorded
Investment
1,894
156
10 $
1
8
—
9
28 $
1,179
—
1,749
4,978
Number
of
Contracts
15 $
9
17
1
8
50 $
Post-
Modified
Recorded
Investment
4,334
982
5,381
1,700
346
12,743
The following table presents loans classified as TDRs for which there was a payment default during the years presented and
the loans were modified within the twelve months prior to default.
(Dollars in Thousands)
Commercial, Financial and
Agricultural ..........................
Real Estate – Construction .......
Real Estate – Commercial
Mortgage ..............................
Real Estate – Residential .........
Real Estate – Home Equity ......
Consumer .................................
Total TDRs ..............................
2015
2014
2013
Number
of
Contracts
Recorded
Investment(1)
Number
of
Contracts
Recorded
Investment(1)
Number
of
Contracts
Recorded
Investment(1)
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
—
1
2
1
—
4 $
—
—
60
177
153
—
390
— $
—
1
—
1
—
2 $
—
—
73
—
50
—
123
(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 ............................................................................................
2015
24,534
112,563
55,265
192,362
(93,543)
98,819
2014
24,548
111,810
57,579
193,937
(92,038)
101,899
$
$
$
$
Note 5
GOODWILL
As of December 31, 2015 and December 31, 2014, the Company had goodwill of $84.8 million. Goodwill is tested for
impairment on an annual basis, or more often if impairment indicators exist. A goodwill impairment test consists of two
steps. Step One compares the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeds
the estimated fair value, Step Two is performed by comparing the fair value of the reporting unit’s implied goodwill to the
carrying value of goodwill. If the carrying value of the reporting unit’s goodwill exceeds the estimated fair value, an
impairment charge is recorded equal to the excess.
During the fourth quarter of 2015, the Company performed its annual 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.
78
Note 6
OTHER REAL ESTATE OWNED
The following table presents other real estate owned activity as of December 31,
2015
2014
2013
(Dollars in Thousands)
Beginning Balance ..................................................................................
Additions ................................................................................................
Valuation Write-Downs ..........................................................................
Sales ........................................................................................................
Other .......................................................................................................
Ending Balance .......................................................................................
$
$
35,680
5,752
(1,713)
(20,155)
(274)
19,290
Net expenses applicable to other real estate owned as of December 31, was as follows:
(Dollars in Thousands)
Gains from the Sale of Properties ..........................................................
Losses from the Sale of Properties.........................................................
Rental Income from Properties ..............................................................
Property Carrying Costs.........................................................................
Valuation Adjustments ..........................................................................
Total .......................................................................................................
$
$
2015
(938)
2,169
(250)
2,277
1,713
4,971
$
$
$
$
48,071
15,271
(3,142)
(23,791)
(729)
35,680
2014
(774 )
2,094
(523 )
2,872
3,142
6,811
$
$
$
$
53,426
24,488
(3,592)
(25,940)
(311)
48,071
2013
(1,306)
2,287
(293)
3,954
3,592
8,234
As of December 31, 2015, the Company had $2.2 million of loans secured by residential real estate in the process of
foreclosure.
Note 7
DEPOSITS
The composition of the Company’s interest bearing deposits at December 31 was as follows:
(Dollars in Thousands)
NOW Accounts ..................................................................................................................
Money Market Accounts ...................................................................................................
Savings Deposits ................................................................................................................
Other Time Deposits ..........................................................................................................
Total Interest Bearing Deposits ...................................................................................
$
2015
848,330
248,367
269,162
178,707
$ 1,544,566
$
2014
804,337
254,149
233,612
195,581
$ 1,487,679
At December 31, 2015 and 2014, $1.2 million and $2.4 million, respectively, in overdrawn deposit accounts were reclassified
as loans.
Time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $10.4 million and $11.6 million at December
31, 2015 and December 31, 2014, respectively.
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2016 .................................................................................................................................................................
2017 .................................................................................................................................................................
2018 .................................................................................................................................................................
2019 .................................................................................................................................................................
2020 and thereafter ..........................................................................................................................................
Total .................................................................................................................................................................
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 < $250,000 .......................................................................
Time Deposits > $250,000 .......................................................................
Total .........................................................................................................
$
$
2015
2014
254
134
126
377
53
944
$
$
318
190
112
463
16
1,099
2015
153,328
15,878
6,015
1,906
1,580
178,707
2013
482
211
101
505
132
1,431
$
$
$
$
79
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2015
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 ....................
2014
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 ....................
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 ....................
$
$
$
Federal
Funds
Purchased
Securities
Sold Under
Repurchase
Agreements(1)
Other
Short-Term
Borrowings(2)
$
$
$
—
—
12
0.74%
—%
—
—
11
0.76%
—%
—
—
11
0.76%
—%
$
$
$
60,977
64,935
57,689
0.05 %
0.05 %
47,411
47,413
42,877
0.05 %
0.05 %
47,312
55,261
48,337
0.05 %
0.05 %
81
2,003
780
3.98%
5.23%
2,014
2,035
1,514
3.76%
3.76%
4,009
8,929
5,573
3.79%
3.25%
(1) Balances are fully collateralized by government treasury or agency securities held in the Company’s investment
portfolio.
(2) Comprised of FHLB debt.
Note 9
LONG-TERM BORROWINGS
Federal Home Loan Bank Advances. FHLB advances totaled $28.3 million at December 31, 2015 and $31.1 million at
December 31, 2014. The advances mature at varying dates from 2017 through 2025 and had a weighted-average rate of
3.13% and 3.17% at December 31, 2015 and 2014, 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)
2016 ................................................................................................................................................................
2017 ................................................................................................................................................................
2018 ................................................................................................................................................................
2019 ................................................................................................................................................................
2020 ................................................................................................................................................................
2021 and thereafter .........................................................................................................................................
Total ................................................................................................................................................................
2015
2,748
6,515
7,714
4,653
2,054
4,581
28,265
$
$
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.
80
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 3-month 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 3-month 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 and in whole at any time upon occurrence of certain events affecting their tax or regulatory
capital treatment. Distributions on the trust preferred securities are payable quarterly on March 15, June 15, September 15,
and December 15 of each year. CCBG Capital Trust II also issued $959,000 of common equity securities to CCBG. The
proceeds of the offering of trust preferred securities and common equity securities were used to purchase a $32.0 million
junior subordinated deferrable interest note issued by the Company, which has terms substantially similar to the trust
preferred securities.
The Company has the right to defer payments of interest on the two notes at any time or from time to time for a period of up
to twenty consecutive quarterly interest payment periods. Under the terms of each note, in the event that under certain
circumstances there is an event of default under the note or the Company has elected to defer interest on the note, the
Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or
acquire any of its capital stock. As of December 31, 2015, the Company has paid all interest payments in full.
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 1 Capital of Capital City Bank Group, Inc. as allowed by Federal Reserve
guidelines.
Note 10
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 ........................................................................................................
$
2015
2014
2013
497
115
612
3,258
475
114
3,847
3,755
590
114
4,459
$
$
$
(51)
(2,916)
(2,967)
4,270
249
102
4,621
4,219
(2,667)
102
1,654
$
(75)
195
120
1,650
99
56
1,805
1,575
294
56
1,925
81
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 ............................................................
Tax-Exempt Cash Surrender Value Life Insurance Benefit...................
Excess Death Benefit Payment ..............................................................
Actual Tax Expense ...............................................................................
2015
2014
2013
$
4,751
$
3,820
$
2,790
(395)
—
390
562
114
(303)
(660)
4,459
$
(327)
(2,902)
892
69
102
—
—
1,654
$
(385)
(777)
191
50
56
—
—
1,925
$
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, 2015 and 2014 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 ...................................................................................................
Federal Net Operating Loss and Tax Credit Carry-Forwards ............................................
Other ..................................................................................................................................
Total Deferred Tax Assets .................................................................................................
Deferred Tax Liabilities Attributable to:
Depreciation on Premises and Equipment .........................................................................
Deferred Loan Fees and Costs ...........................................................................................
Intangible Assets ................................................................................................................
Other ..................................................................................................................................
Total Deferred Tax Liabilities ...........................................................................................
Valuation Allowance .........................................................................................................
Net Deferred Tax Asset .....................................................................................................
2015
2014
$
$
$
$
5,383
13,901
5,061
5,012
1,241
4,351
34,949
5,982
2,883
4,019
687
13,571
1,442
19,936
$
$
$
$
6,767
13,547
5,012
8,229
574
3,652
37,781
6,247
2,490
3,719
612
13,068
1,328
23,385
In the opinion of management, it is more likely than not that all of the deferred tax assets, with the exception of the separate
state net operating loss carry-forward of the parent holding company, 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 the parent holding company’s separate state net operating loss carry-forward was recorded in 2008
and increased for additional state operating loss carry-forwards generated in 2009 through 2015. This valuation allowance at
December 31, 2015 was $1.1 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 $0.3 million at December
31, 2015. At December 31, 2015, the Company had state loss and tax credit carry-forwards of approximately $5.1 million,
which expire at various dates from 2016 through 2035, federal net operating and capital loss carry-forwards of approximately
$0.3 million which expire at various dates from 2019 through 2035, and federal credit carry-forwards of approximately $1.0
million that never expire.
82
The Company had no unrecognized tax benefits at December 31, 2015 and December 31, 2014. The unrecognized tax benefit
was $3.2 million at December 31, 2013.
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 .....................................
Decrease Due to Settlements With Taxing Authorities ..........................
Balance at December 31 .........................................................................
$
$
2015
2014
2013
—
—
—
—
—
$
$
3,228
—
—
(3,228)
—
$
$
4,209
—
(981)
—
3,228
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. For the year ended December 31, 2015, there were no interest and penalties recorded
in the income statement – income taxes. For the years ended December 31, 2014 and 2013, the Company reversed previously
accrued interest and penalties of $800,000 and $139,000, respectively. There were no amounts for accrued interest and
penalties at December 31, 2015 and 2014.
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 2012.
Note 11
STOCK-BASED COMPENSATION
As of December 31, 2015, 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 2013 through 2015 was
$1.4 million, $1.9 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 2015, the Company, pursuant to the
terms and conditions of the AIP, created the 2015 Incentive Plan (“2015 Plan”), under which all participants in the 2015 Plan
were eligible to earn performance shares. Awards under the 2015 Plan were tied to internally established performance goals.
At base level targets, the grant-date fair value of the shares eligible to be awarded in 2015 was approximately $0.9
million. Approximately 75% of the award is in the form of stock and 25% in the form of a cash bonus. For 2015, a total of
44,938 shares were eligible for issuance, but additional shares could be earned if performance exceeded established goals. A
total of 53,187 shares were earned for 2015 reflective of goal achievement that exceeded the base level targets. The Company
recognized expense of $1.1 million, $1.2 million and $965,000 for 2015, 2014 and 2013, respectively. After deducting the
shares earned in 2015, 693,115 shares remain eligible for issuance under the 2011 AIP.
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). All of the options granted under this
arrangement have expired. 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 Mr. Smith 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,
$0.5 million, and $0.3 million in expense for years 2015, 2014 and 2013, respectively, under Mr. Smith’s LTIP. At Mr.
Smith’s request, the Compensation Committee, with board approval, exercised its negative discretion option whereby the
grants for the three-year periods beginning 2012 and 2013 were cancelled and therefore there were no payouts. In addition,
the Company entered into a similar LTIP in 2015 for Thomas A. Barron – President of CCB) that allows Mr. Barron to earn
shares based on the compound annual growth rate in diluted earnings per share over a three-year period. No shares were
earned under this plan for 2015.
83
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 2015, the Company
issued 12,494 shares and recognized approximately $19,000 in expense under the DSPP. For 2014, the Company issued
10,932 shares under the DSPP and recognized approximately $14,000 in expense related to this plan. For 2013, the Company
issued 13,348 shares and recognized approximately $15,000 in expense related to the DSPP. As of December 31, 2015, there
are 74,250 shares eligible for issuance under the 2011 DSPP.
ASPP. Under the Company’s ASPP, substantially all associates may purchase the Company’s common stock through payroll
deductions at a price equal to 90% of the lower of the fair market value at the beginning or end of each six-month offering
period. Stock purchases under the ASPP are limited to 10% of an associate’s eligible compensation, up to a maximum of
$25,000 (fair market value on each enrollment date) in any plan year. Under the 2011 ASPP there were 593,750 shares of
common stock reserved for issuance. For 2015, 21,088 shares were acquired and approximately $52,000 in expense was
recognized under the ASPP. For 2014, 28,630 shares were acquired under the ASPP and approximately $64,000 in expense
was recognized related to this plan. For 2013, 31,597 shares were acquired and approximately $69,000 in expense was
recognized related to the ASPP. As of December 31, 2015, 397,232 shares remained eligible for issuance 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 $2.36 for 2015. For 2014 and 2013, the weighted average fair value purchase right granted was
$2.12 and $2.21, 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) .........................................................................
2015
2014
2013
0.8%
19.0%
0.1%
0.5
0.3%
21.5%
0.1%
0.5
—%
32.0%
0.1%
0.5
Note 12
EMPLOYEE BENEFIT PLANS
Pension Plan
The Company sponsors a noncontributory pension plan covering substantially all of its associates. Benefits under this plan
generally are based on the associate’s total years of service and average of the five highest years of compensation during the
ten years immediately preceding their departure. The Company’s general funding policy is to contribute amounts sufficient to
meet minimum funding requirements as set by law and to ensure deductibility for federal income tax purposes.
The following table details on a consolidated basis the changes in benefit obligation, changes in plan assets, the funded status
of the plan, components of pension expense, amounts recognized in the Company’s consolidated statements of financial
condition, and major assumptions used to determine these amounts.
84
2015
2014
2013
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year ................................................
Service Cost ............................................................................................
Interest Cost ............................................................................................
Actuarial (Gain) Loss .............................................................................
Benefits Paid ...........................................................................................
Expenses Paid .........................................................................................
Projected Benefit Obligation at End of Year ..........................................
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year .....................................
Actual Return on Plan Assets .................................................................
Employer Contributions ..........................................................................
Benefits Paid ...........................................................................................
Expenses Paid .........................................................................................
Fair Value of Plan Assets at End of Year ...............................................
$
$
$
$
140,359
6,859
5,750
(6,880)
(4,825)
(224)
141,039
108,172
(2,331)
5,000
(4,825)
(224)
105,792
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities ......................................................................................
$
35,247
Accumulated Benefit Obligation at End of Year ....................................
$
121,609
Components of Net Periodic Benefit Costs:
Service Cost ............................................................................................
Interest Cost ............................................................................................
Expected Return on Plan Assets .............................................................
Amortization of Prior Service Costs .......................................................
Net Loss Amortization ............................................................................
Net Periodic Benefit Cost .......................................................................
$
$
6,859
5,750
(7,820)
309
3,564
8,662
$
$
$
$
$
$
$
$
115,285
5,634
5,513
22,632
(8,438)
(267)
140,359
103,842
8,035
5,000
(8,438)
(267)
108,172
32,186
119,750
5,634
5,513
(7,487)
309
1,365
5,334
$
$
$
$
$
$
$
$
134,950
6,999
5,566
(18,965)
(12,946)
(319)
115,285
94,164
17,943
5,000
(12,946)
(319)
103,842
11,442
98,796
6,999
5,566
(7,371)
317
4,316
9,827
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate .........................................................................................
Rate of Compensation Increase ..............................................................
Measurement Date ..................................................................................
4.52%
3.25%
4.15%
3.25%
5.00%
3.25%
12/31/15
12/31/14
12/31/13
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate .........................................................................................
Expected Return on Plan Assets .............................................................
Rate of Compensation Increase ..............................................................
Amortization Amounts from Accumulated Other Comprehensive
Income:
Net Actuarial Loss (Gain) .......................................................................
Prior Service Cost ...................................................................................
Net Loss ..................................................................................................
Deferred Tax Expense (Benefit) .............................................................
Other Comprehensive (Gain) Loss, net of tax ........................................
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Losses ...............................................................................
Prior Service Cost ...................................................................................
Deferred Tax Benefit ..............................................................................
Accumulated Other Comprehensive Loss, net of tax ..............................
4.15%
7.50%
3.25%
5.00%
7.50%
3.25%
4.25%
8.00%
3.75%
$
$
$
$
3,272
(309)
(3,564)
232
(369)
34,373
766
(13,556)
21,583
$
$
$
$
22,083
(309)
(1,365)
(7,873)
12,536
34,665
1,075
(13,788)
21,952
$
$
$
$
(29,534)
(317)
(4,316)
13,180
(20,987)
13,947
1,383
(5,914)
9,416
The Company expects to recognize $3.2 million of the net actuarial loss and $0.3 million of the prior service cost reflected in
accumulated other comprehensive income at December 31, 2015 as a component of net periodic benefit cost during 2016.
85
Effective December 31, 2015, the Company changed the method used to estimate the service and interest components of net
periodic benefit cost for the defined benefit and supplemental executive retirement plans. This new estimation approach
discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates
derived from the yield curve used to discount the cash flows for the benefit obligations. Historically, the estimated service
and interest cost components utilized a single weighted-average discount rate derived from the yield curve used to measure
the benefit obligations at the beginning of the period. The Company elected this change to provide a more precise
measurement of service and interest costs by improving the correlation between projected benefit cash flows to the
corresponding spot yield curve rates. The change will be accounted for as a change in accounting estimate that is inseparable
from a change in accounting principle and accordingly will be accounted for prospectively. While the benefit obligations for
the plans measured under this approach are unchanged, the more granular application of the spot rates will decrease the
combined service and interest costs for the defined benefit retirement plan for fiscal 2016 by $0.7 million.
Plan Assets. The Company’s pension plan asset allocation at year-end 2015 and 2014, and the target asset allocation for 2016
are as follows:
Target
Allocation
2016
Percentage of Plan
Assets at Year-End(1)
2014
2015
Equity Securities .....................................................................................
Debt Securities ........................................................................................
Cash and Cash Equivalents .....................................................................
Total ........................................................................................................
70%
25%
5%
100%
68%
20%
12%
100%
74%
21%
5%
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 19 – Fair Value Measurements).
(Dollars in Thousands)
Level 1:
2015
2014
Equities ...........................................................................................................................
Mutual Funds .................................................................................................................
Cash and Cash Equivalents ............................................................................................
$
$
18,197
71,829
12,402
23,199
75,421
5,626
Level 2:
U.S. Government Agency ..............................................................................................
3,364
3,926
Total Fair Value of Plan Assets ..................................................................................
$
105,792
$
108,172
Expected Benefit Payments. As of December 31, expected benefit payments related to the defined benefit pension plan were
as follows:
(Dollars in Thousands)
2016 .................................................................................................................................................................
2017 .................................................................................................................................................................
2018 .................................................................................................................................................................
2019 .................................................................................................................................................................
2020 .................................................................................................................................................................
2021 through 2025 ...........................................................................................................................................
Total .................................................................................................................................................................
2015
8,199
8,859
10,608
10,912
10,222
54,925
103,724
$
$
86
Contributions. The following table details the amounts contributed to the pension plan in 2014 and 2015, and the expected
amount to be contributed in 2016.
(Dollars in Thousands)
Actual Contributions ............................................................................
(1) For 2016, the Company will have the option to make a cash contribution to the plan or utilize pre-funding balances.
5,000
5,000
2015
2014
$
$
$
5,000
Expected
Contribution
2016(1)
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) .................................................................................
Projected Benefit Obligation at End of Year ..............................................
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities ..........................................................................................
Accumulated Benefit Obligation at End of Year ........................................
Components of Net Periodic Benefit Costs:
Service Cost ................................................................................................
Interest Cost ................................................................................................
Amortization of Prior Service Cost.............................................................
Net Loss (Gain) Amortization ....................................................................
Net Periodic Benefit Cost ...........................................................................
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate .............................................................................................
Rate of Compensation Increase ..................................................................
Measurement Date ......................................................................................
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate .............................................................................................
Rate of Compensation Increase ..................................................................
Amortization Amounts from Accumulated Other Comprehensive
Income:
Net Actuarial Loss (Gain) ...........................................................................
Prior Service Cost .......................................................................................
Net (Loss) Gain ...........................................................................................
Deferred Tax (Benefit) Expense .................................................................
Other Comprehensive Loss (Gain), net of tax ............................................
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Loss (Gain) ...........................................................................
Prior Service Cost .......................................................................................
Deferred Tax Liability ................................................................................
Accumulated Other Comprehensive Loss (Gain), net of tax ......................
$
$
$
$
$
$
$
$
$
$
2015
2014
2013
3,003
3
133
1,703
4,842
4,842
4,348
3
133
7
179
322
$
$
$
$
$
$
2,379
—
104
520
3,003
3,003
2,982
—
104
164
(661)
(393)
$
$
$
$
$
$
4.13%
3.25%
4.15%
3.25%
3,492
—
137
(1,250)
2,379
2,379
2,379
—
137
187
(237)
87
5.00%
3.25%
12/31/15
12/31/14
12/31/13
4.15%
3.25%
5.00%
3.25%
4.25%
3.75%
1,703
(7)
(179)
(585)
932
892
—
(344)
548
$
$
$
$
520
(164)
660
(392)
624
(632)
7
241
(384)
$
$
$
$
(1,250)
(187)
237
463
(737)
(1,812)
171
633
(1,008)
87
The Company expects to recognize approximately $0.8 million of the net actuarial loss reflected in accumulated other
comprehensive income at December 31, 2015 as a component of net periodic benefit cost during 2016.
Effective December 31, 2015, the Company changed the method used to estimate the service and interest components of net
periodic benefit cost for the supplemental executive retirement plans to mirror the change previously noted for the defined
benefit plan. While the benefit obligations for the plans measured under this approach are unchanged, the more granular
application of the spot rates will decrease the combined service and interest costs for the supplemental executive retirement
plan for fiscal 2016 by $34,000.
Expected Benefit Payments. As of December 31, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2016 ................................................................................................................................................................
2017 ................................................................................................................................................................
2018 ................................................................................................................................................................
2019 ................................................................................................................................................................
2020 ................................................................................................................................................................
2021 through 2025 ..........................................................................................................................................
Total .........................................................................................................................................................
2015
1,499
1,036
1,225
1,196
—
—
4,956
$
$
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 2015, the Company made matching contributions of $0.5 million. For the years 2014 and 2013, the
Company made matching contributions of $0.5 and $0.4 million, respectively. 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 2015, 2014 and 2013.
Note 13
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 ...............................................................................................
Denominator:
Denominator for Basic Earnings Per Share Weighted-Average Shares ....
Effects of Dilutive Securities Stock Compensation Plans ........................
Denominator for Diluted Earnings Per Share Adjusted Weighted-
2015
2014
2013
$
9,116
$
9,260
$
6,045
17,273
45
17,425
63
17,325
74
Average Shares and Assumed Conversions ..........................................
17,318
17,488
17,399
Basic Earnings Per Share ..........................................................................
Diluted Earnings Per Share .......................................................................
$
$
0.53
0.53
$
$
0.53
0.53
$
$
0.35
0.35
88
Note 14
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
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.
The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules)
became effective for the Company on January 1, 2015 (subject to a phase-in period for certain provisions). 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 common equity Tier 1, 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, 2015 and 2014, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 2015, 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 common equity tier 1, 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, 2015 and 2014 are also
presented in the table.
*
6.50%
*
8.00%
Actual
Required
For Capital
Adequacy Purposes
To Be Well-
Capitalized Under
Prompt
Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
215,075
266,138
12.84% $
15.93%
75,385
75,162
4.50%
4.50% $
*
108,567
275,075
266,138
289,028
280,091
16.42%
15.93%
100,513
100,216
6.00%
6.00%
*
133,621
17.25%
16.77%
134,018
133,621
8.00%
8.00%
*
167,026
*
10.00%
275,075
266,138
10.65%
10.33%
103,342
103,095
4.00%
4.00%
*
128,869
$
269,503
261,655
16.67% $
16.24%
64,656
64,458
4.00%
4.00% $
*
96,687
*
5.00%
*
6.00%
287,042
279,194
269,503
261,655
17.76%
17.33%
129,313
128,916
8.00%
8.00%
*
161,145
*
10.00%
10.99%
10.70%
98,090
97,834
4.00%
4.00%
*
122,293
*
5.00%
(Dollars in Thousands)
2015
Common Equity Tier 1:
CCBG ....................................
CCB .......................................
Tier 1 Capital:
CCBG ....................................
CCB .......................................
Total Capital:
CCBG ....................................
CCB .......................................
Tier 1 Leverage:
CCBG ....................................
CCB .......................................
2014
Tier 1 Capital:
CCBG ....................................
CCB .......................................
Total Capital:
CCBG ....................................
CCB .......................................
Tier 1 Leverage:
CCBG ....................................
CCB .......................................
* Not applicable to bank holding companies.
89
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 2016, the bank subsidiary may declare dividends without regulatory
approval of $0.2 million plus an additional amount equal to net profits of the Company’s subsidiary bank for 2016 up to the
date of any such dividend declaration.
Note 15
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)
2015
Investment Securities:
Change in net unrealized gain/loss on securities available for sale ....................
Amortization of losses on securities transferred from available for sale to
held to maturity ..........................................................................................
Reclassification adjustment for net gain included 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 (loss) gain ...................................................................
Total Benefit Plans .....................................................................................
Before
Tax
Amount
Tax
(Expense)
Benefit
Net of
Tax
Amount
$
(378)
$
145
$
(233)
76
5
(297)
316
3,743
(4,975)
(916)
(31)
(2)
112
(122)
(1,444)
1,919
353
45
3
(185)
194
2,299
(3,056)
(563)
Total Other Comprehensive Loss ...................................................................
$
(1,213)
$
465
$
(748)
2014
Investment Securities:
Change in net unrealized gain/loss on securities available for sale ....................
Amortization of losses on securities transferred from available for sale to
held to maturity ..........................................................................................
Reclassification adjustment for net gain included 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 (loss) gain ...................................................................
Total Benefit Plans .....................................................................................
$
250
$
(103)
$
70
1
321
473
705
(22,603)
(21,425)
(27)
—
(130)
(182)
(272)
8,719
8,265
147
43
1
191
291
433
(13,884)
(13,160)
Total Other Comprehensive Loss ...................................................................
$
(21,104)
$
8,135
$
(12,969)
2013
Investment Securities:
Change in net unrealized gain/loss on securities available for sale ....................
Unrealized losses on securities transferred from available for sale to held to
maturity ......................................................................................................
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 (loss) ...................................................................
Total Benefit Plans .....................................................................................
$
(1,252)
$
483
$
(769)
(523)
25
3
600
(1,147)
504
4,079
30,784
35,367
202
(10)
(1)
(232)
442
(194)
(1,574)
(11,875)
(13,643)
(321)
15
2
368
(705)
310
2,505
18,909
21,724
Total Other Comprehensive Income ..............................................................
$
34,220
$
(13,201)
$
21,019
90
Accumulated other comprehensive loss was comprised of the following components:
(Dollars in Thousands)
Balance as of January 1, 2015 .......................................................
Other comprehensive (loss) during the period .................................
Balance as of December 31, 2015 ..................................................
Balance as of January 1, 2014 .......................................................
Other comprehensive income (loss) during the period ....................
Balance as of December 31, 2014 ..................................................
Balance as of January 1, 2013 .......................................................
Other comprehensive (loss) income during the period ....................
Balance as of December 31, 2013 ..................................................
Note 16
RELATED PARTY TRANSACTIONS
Securities
Available
for Sale
Retirement
Plans
Accumulated
Other
Comprehensive
Loss
$
$
$
$
$
$
59
(186)
(127)
(132)
191
59
573
(705)
(132)
$
$
$
$
$
$
(21,568)
(562)
(22,130)
(8,408)
(13,160)
(21,568)
(30,132)
21,724
(8,408)
$
$
$
$
$
$
(21,509)
(748)
(22,257)
(8,540)
(12,969)
(21,509)
(29,559)
21,019
(8,540)
At December 31, 2015 and 2014, certain officers and directors were indebted to the Company’s bank subsidiary in the
aggregate amount of $9.7 million and $14.3 million, respectively. During 2015, $7.6 million in new loans were made and
repayments totaled $12.3 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 $19.0 million and $18.8 million at
December 31, 2015 and 2014, 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 $170,000, to be adjusted for inflation in future years.
Note 17
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)
Legal Fees ................................................................................................
Professional Fees .....................................................................................
Telephone ................................................................................................
Advertising ..............................................................................................
Processing Services .................................................................................
Insurance – Other .....................................................................................
Other ........................................................................................................
Total .........................................................................................................
2015
2014
2013
2,506
3,789
1,976
1,391
6,540
2,737
8,211
27,150
$
3,187
3,732
1,903
1,461
6,062
2,934
8,235
27,514
$
3,663
4,304
1,891
1,719
5,396
4,144
8,596
29,713
$
91
Note 18
COMMITMENTS AND CONTINGENCIES
Lending Commitments. The Company is a party to financial instruments with off-balance sheet risks in the normal course of
business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and
standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing
commitments and issuing letters of credit as it does for on-balance sheet instruments. As of December 31, the amounts
associated with the Company’s off-balance sheet obligations were as follows:
(Dollars in Thousands)
Commitments to Extend Credit(1) .........
Standby Letters of Credit ......................
Total ...............................................
Fixed
$ 57,571
6,095
$ 63,666
2015
Variable
$ 306,642
—
$ 306,642
2014
Total
$ 364,213
6,095
$ 370,308
Fixed
$ 33,633
8,307
$ 41,940
Variable
$ 278,438
—
$ 278,438
Total
$ 312,071
8,307
$ 320,378
(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 $0.5 million in 2015, $0.5 million in 2014, and
$0.7 million in 2013. Minimum lease payments under these leases due in each of the five years subsequent to December 31,
2015, are as follows (dollars in millions): 2016, $0.5; 2017, $0.4; 2018, $0.4; 2019, $0.4, thereafter, $2.8.
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 19 below.
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 which was further funded during the
third quarter of 2014 resulting in a payment of $161,000 to the counterparty. Fixed charges included in the liability are
payable quarterly until the litigation reserve is fully liquidated and at which time the aforementioned swap contract will be
terminated. Quarterly payments during 2015 totaled $261,000. Conversion ratio payments and ongoing fixed quarterly
charges are reflected in earnings in the period incurred.
92
Note 19
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:402)
(cid:402)
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks,
etc.) or inputs that are derived principally from, or corroborated, by market data by correlation or other means.
(cid:402)
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 the amount due and payable to the counterparty based upon the revised share conversion rate, if any,
during the period.
A summary of fair values for assets and liabilities recorded at fair value at December 31 consisted of the following:
(Dollars in Thousands)
2015
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 ......................................
Equity Securities ........................................................
2014
Securities Available for Sale:
U.S. Government Treasury .........................................
U.S. Government Agency ..........................................
State and Political Subdivisions .................................
Mortgage-Backed Securities ......................................
Equity Securities ........................................................
$
$
$
$
250,346
—
—
—
—
186,031
—
—
—
—
$
$
—
101,824
88,362
1,901
8,595
—
96,097
48,388
2,287
8,745
—
—
—
—
—
—
—
—
—
—
$
$
250,346
101,824
88,362
1,901
8,595
186,031
96,097
48,388
2,287
8,745
93
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 $8.8 million with a valuation allowance
of $0.9 million at December 31, 2015 and $13.6 million and $2.0 million, respectively, at December 31, 2014.
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 2015 and 2014, 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.
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.
Securities Held to Maturity. Securities held to maturity are valued in accordance with the methodology previously noted in
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.
94
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
2015
(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 ..................
$
51,288
327,617
451,028
187,892
11,632
1,478,322
LIABILITIES:
Deposits ......................................................................
Short-Term Borrowings ..............................................
Subordinated Notes Payable .......................................
Long-Term Borrowings ..............................................
$ 2,302,849
61,058
62,887
28,265
(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 ..................
Carrying
Value
$
55,467
329,589
341,548
163,581
10,688
1,413,835
LIABILITIES:
Deposits ......................................................................
Short-Term Borrowings ..............................................
Subordinated Notes Payable .......................................
Long-Term Borrowings ..............................................
$ 2,146,794
49,425
62,887
31,097
$
$
$
$
51,288
327,617
250,346
134,439
—
—
—
—
—
—
$
$
—
—
200,682
52,968
11,632
—
2,228,210
64,947
49,230
30,448
2014
Level 1
Inputs
Level 2
Inputs
55,467
329,589
186,031
76,317
—
—
—
—
—
—
$
$
—
—
155,517
87,095
10,688
—
2,146,510
48,760
62,887
32,313
$
$
$
$
—
—
—
—
1,483,926
—
—
—
—
Level 3
Inputs
—
—
—
—
1,369,314
—
—
—
—
All non-financial instruments are excluded from the above table. The disclosures also do not include goodwill. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value of the Company.
95
2015
2014
Note 20
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 ..................................................................................................................
$
$
$
13,527
327,794
5,164
346,485
62,887
9,246
72,133
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; 17,156,919 and 17,447,223
shares issued and outstanding at December 31, 2015 and December 31, 2014,
respectively ....................................................................................................................
Additional Paid-In Capital .................................................................................................
Retained Earnings ..............................................................................................................
Accumulated Other Comprehensive Loss, Net of Tax ......................................................
Total Shareowners’ Equity ................................................................................................
Total Liabilities and Shareowners’ Equity .........................................................................
172
38,256
258,181
(22,257)
274,352
346,485
$
The operating results of the parent company for the three years ended December 31 are shown below:
$
$
$
$
11,741
329,632
2,906
344,279
62,887
8,852
71,739
174
42,569
251,306
(21,509)
272,540
344,279
Parent Company Statements of Operations
(Dollars in Thousands)
OPERATING INCOME
Income Received from Subsidiary Bank:
Overhead Fees ......................................................................................
Dividends ..............................................................................................
Other Income ........................................................................................
Total Operating Income ........................................................................
2015
2014
2013
$
$
4,604
9,200
424
14,228
$
4,468
6,000
138
10,606
OPERATING EXPENSE
Salaries and Associate Benefits ............................................................
Interest on Subordinated Notes Payable ...............................................
Professional Fees ..................................................................................
Advertising ...........................................................................................
Legal Fees .............................................................................................
Other .....................................................................................................
Total Operating Expense ......................................................................
Earnings (Loss) Before Income Taxes and Equity in Undistributed
Earnings of Subsidiary Bank .............................................................
Income Tax Benefit ..............................................................................
Earnings (Loss) Before Equity in Undistributed Earnings of
Subsidiary Bank ................................................................................
Equity in Undistributed Earnings of Subsidiary Bank ..........................
Net Income ...........................................................................................
$
3,395
1,368
1,078
105
168
699
6,813
7,415
(342)
7,757
1,359
9,116
$
3,156
1,328
1,024
141
243
624
6,516
4,090
(433)
4,523
4,737
9,260
$
96
4,417
—
208
4,625
3,130
1,419
1,491
142
245
1,117
7,544
(2,919)
(1,036)
(1,883)
7,928
6,045
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
(Used In) Operating Activities:
Equity in Undistributed Earnings of Subsidiary Bank ............................
Stock Compensation ...............................................................................
Decrease in Other Assets ........................................................................
Increase (Decrease) in Other Liabilities..................................................
Net Cash Provided By (Used In) Operating Activities ...........................
CASH FROM FINANCING ACTIVITIES:
Dividends Paid ........................................................................................
Issuance of Common Stock Under Compensation Plans ........................
Payments to Repurchase Common Stock ...............................................
Net Cash (Used In) Provided By in Financing Activities .......................
2015
2014
2013
$
9,116
$
9,260
$
6,045
(1,359)
1,109
191
444
9,501
(2,241)
507
(5,981)
(7,715)
(4,737)
1,349
387
532
6,791
(1,568)
578
(269)
(1,259)
(7,928)
1,296
339
(1,755)
(2,003)
—
1,151
—
1,151
(852)
7,061
6,209
Net Increase (Decrease) in Cash .............................................................
Cash at Beginning of Year ......................................................................
Cash at End of Year ................................................................................
$
1,786
11,741
13,527
$
5,532
6,209
11,741
$
97
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2015, 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, 2015, 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 (2013 framework) (the COSO criteria). 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, 2015.
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, 2015, and opined as to the effectiveness of internal control over
financial reporting as of December 31, 2015, as stated in its attestation report, which is included herein on page 97.
Change in Internal Control. Our management, including the Chief Executive Officer and Chief Financial Officer, has
reviewed our internal control. There have been no significant changes in our internal control during our most recently
completed fiscal quarter that materially affected, or is likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
98
Ernst & Young LLP
One Tampa City Center
Suite 2400
201 North Franklin Street
Tampa, Florida 33602
Tel: +1 813 225 4800
Fax: +1 813 225 4711
ey.com
Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Shareowners of
Capital City Bank Group, Inc.
We have audited Capital City Bank Group, Inc.’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (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, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the 2015 consolidated financial statements of Capital City Bank Group, Inc. and our report dated March 8, 2016 expressed an
unqualified opinion thereon.
Tampa, Florida
March 8, 2016
99
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Incorporated herein by reference to the subsections entitled “Codes of Conduct and Ethics”,” “Proposal No. 1 - Election of
Directors,” “Continuing Directors and Executive Officers,” under the section entitled “Corporate Governance at Capital
City,” “Share Ownership” and “Board Committee Membership” in the Registrant’s Proxy Statement relating to its Annual
Meeting of Shareowners to be held April 26, 2016.
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,” “Executive Compensation” and
“Director Compensation” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April
26, 2016.
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)
—
—
—
$
$
—
—
—
1,164,597(1)
—
1,164,597
Plan Category
Equity Compensation
Plans Approved by
Securities Holders
Equity Compensation
Plans Not Approved by
Securities Holders
Total
(1) Consists of 693,115 shares available for issuance under our 2011 Associate Incentive Plan, 397,232 shares available for issuance
under our 2011 Associate Stock Purchase Plan, and 74,250 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 26, 2016.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to the sections entitled “Transactions With Related Persons” and “Corporate Governance at
Capital City” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 26, 2016.
Item 14. Principal Accountant Fees and Services
Incorporated herein by reference to the section entitled “Audit Committee Matters” in the Registrant’s Proxy Statement
relating to its Annual Meeting of Shareowners to be held April 26, 2016.
100
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report
1. Financial Statements
Report of Independent Registered Certified Public Accounting Firm
Consolidated Statements of Financial Condition at the End of Fiscal Years 2015 and 2014
Consolidated Statements of Income for Fiscal Years 2015, 2014, and 2013
Consolidated Statements of Comprehensive Income for Fiscal Years 2015, 2014, and 2013
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2015, 2014, and 2013
Consolidated Statements of Cash Flows for Fiscal Years 2015, 2014, and 2013
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the
financial statements or the notes thereto.
3. Exhibits Required to be Filed by Item 601 of Regulation S-K
Reg. S-K
Exhibit
Table
Item No.
Description of Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
Amended and Restated Articles of Incorporation - incorporated herein by reference to Exhibit 3 of
the Registrant’s 1996 Proxy Statement (filed 4/11/96) (No. 0-13358).
Amended and Restated Bylaws - incorporated herein by reference to Exhibit 3.2 of the Registrant’s
Form 8-K (filed 11/30/07) (No. 0-13358).
See Exhibits 3.1 and 3.2 for provisions of Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, which define the rights of 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).
In accordance with Regulation S-K, Item 601(b)(4)(iii)(A) certain instruments defining the rights of
holders of long-term debt of Capital City Bank Group, Inc. not exceeding 10% of the total assets of
Capital City Bank Group, Inc. and its consolidated subsidiaries have been omitted; the Registrant
agrees to furnish a copy of any such instruments to the Commission upon request.
Capital City Bank Group, Inc. 1996 Dividend Reinvestment and Optional Stock Purchase Plan -
incorporated herein by reference to Exhibit 10 of the Registrant’s Form S-3 (filed 01/30/97) (No.
333-20683).
Capital City Bank Group, Inc. Supplemental Executive Retirement Plan - incorporated herein by
reference to Exhibit 10(d) of the Registrant’s Form 10-K (filed 3/27/03) (No. 0-13358).
Capital City Bank Group, Inc. 401(k) Profit Sharing Plan – incorporated herein by reference to
Exhibit 4.3 of Registrant’s Form S-8 (filed 09/30/97) (No. 333-36693).
101
10.6
10.7
11
14
21
23.1
31.1
31.2
32.1
32.2
Form of Participant Agreement for Long-Term Incentive Plan. - incorporated by reference herein to
Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K (filed 3/6/15)(No. 0-13358).
Participant Agreement, dated February 25, 2015, by and between Thomas A. Barron and the
Registrant – incorporated by reference herein to Exhibit 10.1 of the Registrant’s Form 8-K (filed
2/25/15)(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, 2015.**
Consent of Independent Registered Certified Public Accounting Firm.**
Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley
Act of 2002.**
Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley
Act of 2002.**
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
101.INS
XBRL Instance Document**
101.SCH
XBRL Taxonomy Extension Schema Document**
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document**
101.LAB
XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document**
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document**
*
**
Information required to be presented in Exhibit 11 is provided in Note 13 to the consolidated financial statements
under Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally accepted accounting
principles.
Filed electronically herewith.
102
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on March 8, 2016, 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 8, 2016 by the
following persons in the capacities indicated.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
103
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on March 8, 2016, on its behalf by the undersigned, thereunto duly authorized.
Directors:
/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/ John G. Sample, Jr
John G. Sample, Jr
/s/ William G. Smith, Jr.
William G. Smith, Jr.
104
Exhibit Index
Reg. S-K
Exhibit
Table
Item No.
Description of Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.6
10.7
11
14
21
23.1
31.1
31.2
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).
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).
Form of Participant Agreement for Long-Term Incentive Plan. - incorporated by reference herein to
Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K (filed 3/6/15)(No. 0-13358).
Participant Agreement, dated February 25, 2015, by and between Thomas A. Barron and the
Registrant – incorporated by reference herein to Exhibit 10.1 of the Registrant’s Form 8-K (filed
2/25/15)(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, 2015.**
Consent of Independent Registered Certified Public Accounting Firm.**
Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley
Act of 2002.**
Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley
Act of 2002.**
105
32.1
32.2
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
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 13 to the consolidated financial statements under
Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally accepted accounting principles.
Filed electronically herewith.
106
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 8, 2016
107
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 8, 2016
108
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, 2015, 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 8, 2016
109
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, 2015, 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 8, 2016
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