www.ccbg.com
2016
CCBGA N N U A L R E P O R T
ANNUAL
SHAREOWNERS’
MEETING
APRIL 25, 2017
Augustus B. Turnbull III Florida State Conference Center
555 W. Pensacola St., Tallahassee, Florida | 10 a.m. E.T.
2016
AT A GLANCE
NET INCOME
NET INCOME
$11.7M
$11.7M
PER DILUTED SHARE
PER DILUTED SHARE
$0.69
$0.69
LOAN GROWTH
LOAN GROWTH
4.6%
4.6%
DEAR FELLOW SHAREOWNERS
Since the financial crisis began to lift in 2013, our results have trended
stronger every year. The economic picture continues to brighten
as headlines across the industry tell the story of growing consumer
confidence and economic stability. As expected, recovery has been a
slow but steady march, but Capital City continues to make consistent and
meaningful progress.
2016, in particular, was a great year for Capital City, marked by solid loan
growth, significant reductions in nonperforming assets, lower expenses
and growth in earnings. Net income was $11.7 million, or $0.69 per
diluted share, as compared to $9.1 million, or $0.53 per diluted share in
2015. We also began to see clear evidence of growth strategies taking
hold in several critical areas of business.
Loan demand, which was all but absent through most of the economic
downturn, improved substantially during the year, creating renewed
lending opportunities for those, like Capital City, that were primed to
respond. We now have enjoyed three consecutive years of net growth.
Average loans grew $67.4 million, or 4.6%, driven by increased demand
and concerted calling efforts. We realized broader based growth in
the loan portfolio, with increases in all categories except commercial
mortgages. However, this portfolio is beginning to stabilize as we
experience stronger loan production.
Enhanced fee income is a vital contributor to sustained profitability.
Residential lending carried the load in this area, contributing a 14%
fee increase. We have developed a number of initiatives focused on
leveraging associated revenue
deepening client relationships and
opportunities. Some became effective in mid-2016, while others will
make an impact in 2017 and beyond.
Opportunities in growth markets have also been a major area of focus,
particularly in Gainesville, which has an abundance of untapped
potential. Intensive efforts to increase brand awareness and recruit talent
began in 2016. We have a solid team and well-honed strategies in place
helping to grow our presence and market share.
A robust and growing revenue stream is undoubtedly essential to
ensuring the continued success of Capital City Bank, but there is another
side to that coin: controlling expenses and maximizing efficiency. We
have turned a critical eye on our processes and challenged ourselves to
innovate. We continue to invest in our future by replacing legacy systems
with streamlined processes that allow our bankers to maximize the time
they have with their clients and advanced technology that ensures our
clients have access to the on-demand services they expect. Additionally,
we are evaluating how we own and operate our offices as the new
operating environment demands greater efficiency from our traditional
delivery channel.
2016, IN PARTICULAR, WAS A GREAT
YEAR FOR CAPITAL CITY, MARKED BY
SOLID LOAN GROWTH, SIGNIFICANT
REDUCTIONS IN NONPERFORMING
ASSETS, LOWER EXPENSES AND
GROWTH IN EARNINGS.
Our shareowners can rest confidently knowing that, as we have worked
to reinvent ourselves, a few things remain constant. Our commitment
to our clients and our own particular brand of relationship banking is
unwavering. We will not compromise the strength of our position in
pursuit of short-term gains – our risk profile will always be set for the best
long-term interests of the Company and our shareowners. Finally, we are
steadfast in our obligation to you, our shareowners.
As always, I thank you for your continued support and welcome your
comments and questions.
Your banker,
Capital City is well-positioned for rising rates. The Federal Reserve’s
decision to increase the target interest rate in the middle of December
provided an immediate lift.
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
FINANCIAL HIGHLIGHTS
FOR THE YEAR
Net Income
PER COMMON SHARE DATA
Net Income - Basic
Net Income - Diluted
Book Value
KEY RATIOS
Return on Average Assets
Return on Average Equity
Net Interest Margin
Total Capital
Tier 1 Leverage
Tangible Capital
PER COMMON SHARE DATA
Average Loans
Average Earning Assets
Average Total Assets
2016
$11,746
$0.69
0.69
16.23
0.43%
4.22%
3.25%
16.28%
10.23%
6.90%
2015
$9,116
$0.53
0.53
15.93
0.34%
3.31%
3.31%
17.25%
10.65%
6.99%
2014
$9,260
$0.53
0.53
15.53
0.36%
3.27%
3.36%
17.76%
10.99%
7.38%
$1,542,232
$1,474,833
$1,414,000
2,432,392
2,324,854
2,237,623
2,752,309
2,659,317
2,564,176
Average Non-Interest Bearing Deposits
785,689
715,883
671,188
Average Deposits
2,282,785
2,163,441
2,093,477
Average Shareowners’ Equity
278,335
275,144
283,079
ABOUT CAPITAL CITY BANK GROUP, INC.
Capital City Bank Group, Inc. (Nasdaq:CCBG) is one of the largest publicly traded financial holding companies headquartered in Florida
and has approximately $2.8 billion in assets. We provide a full range of banking services, including traditional deposit and credit services,
mortgage banking, asset management, trust, merchant services, bankcards, data processing and securities brokerage services. Our bank
subsidiary, Capital City Bank, was founded in 1895 and now has 60 banking offices and 71 ATMs in Florida, Georgia and Alabama. For more
information about Capital City Bank Group, Inc., visit www.ccbg.com.
YEAR IN REVIEW
( $10M TRUPs Repurchased )
$11.7M
NET INCOME
INCREASED CALLING EFFORTS
4.6% LOAN GROWTH
- commercial
- construction
- consumer
- tax-free
- home equity
- residential real estate
$2.752B in AVERAGE ASSETS
$2.283B in AVERAGE DEPOSITS
$1.542B in AVERAGE LOANS
noninterest
expense decreased
1.8%
$0.69
PER DILUTED SHARE
30%
INCREASE
LOWER LOAN CHARGE-OFFS +
STRONG LOAN RECOVERIES =
49% REDUCTION
IN LOAN LOSS PROVISION
435,000
shares of common stock
REPURCHASED
GAINESVILLE
FOCUS
for revenue
opportunity
$275.2M
SHAREOWNER
EQUITY
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 Professional
Carroll and Company, CPAs
Serving Since 2003
Stanley W. Connally, Jr.
Chairman, President and CEO
Gulf Power Company
Serving Since 2017
Cader B. Cox, III
Chairman and Secretary
Riverview Plantation, Inc.
Serving Since 1994
J. Everitt Drew
President
SouthGroup Equities, Inc.
Serving Since 2003
Eric Grant
President
Municipal Code Corporation
Serving Since 2017
SENIOR MANAGEMENT
John K. Humphress
Partner
Wadsworth, Humphress,
Hollar & Konrad, PA
Serving Since 1994
John G. Sample, Jr.
Senior Vice President and
Chief Financial Officer
Atlantic American Corporation
Serving Since 2016
Laura Johnson
Chief Executive Officer
Coton Colors
Serving Since 2017
Lina S. Knox
Community Volunteer
Serving Since 1998
Dr. Henry Lewis III
President
Tuskegee Homes, LLC
Serving Since 2003
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
38 years of service
Thomas A. Barron
President
42 years of service
J. Kimbrough Davis
Chief Financial Officer
35 years of service
Thomas W. Allen
Residential Mortgage
8 years of service
Clif E. Bradley
Community Banking
39 years of service
Edward G. Canup
Co-Chief Operating Officer
33 years of service
Bethany H. Corum
Co-Chief Operating Officer
10 years of service
Brooke W. Hallock
Marketing
12 years of service
Randall H. Lashua
Omni Channel Delivery
10 years of service
William L. Moor, Jr.
Wealth Management
29 years of service
Kyle D. Phelps
Commercial Banking
9 years of service
B. Randall Sharpton
Internal Audit
37 years of service
Ramsay H. Sims
Metro Banking
6 years of service
Cheryl B. Thompson
Business Support Services
12 years of service
Dale A. Thompson
Credit Administration
37 years of service
TOP PERFORMERS
RAIN MAKER
MOUNTAIN MOVER
RIPPLE EFFECT
FIRE STARTER
Clif Bradley
Community Banking
Julie DeLorme
Marketing
Janette Burkes
Direct Banker
Danny Etheridge
Financial Advisor
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-K
[X]
[ ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
(Exact name of Registrant as specified in its charter)
Florida
(State of Incorporation)
0-13358
(Commission File Number)
59-2273542
(IRS Employer Identification No.)
217 North Monroe Street, Tallahassee, Florida
(Address of principal executive offices)
32301
(Zip Code)
(850) 402-7821
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
Large accelerated filer [ ]
Accelerated filer [ X ]
Non-accelerated filer [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 30, 2016, the
last business day of the registrant’s most recently completed second fiscal quarter, was approximately $153,099,970 (based on the closing sales price
of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director and each person known to
the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not a determination for other purposes.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.01 par value per share
Outstanding at February 28, 2017
16,950,355
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 25, 2017, are incorporated by reference in Part III.
PAGE
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27
27
28
30
32
60
61
108
108
108
110
110
110
110
110
111
112
113
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2016 ON FORM 10-K
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosure
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Shareowner Matters, and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
2
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals,
expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various
factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,”
“expect,” “intend,” “plan,” “target,” “vision,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially
from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual results to
differ materially from those in the forward-looking statements, include, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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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 our 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 and pension plan;
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 subject to our capital requirements;
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”). The Bank commenced operations in 1895. 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 60 banking offices in Florida, Georgia, and Alabama operated by CCB. The
majority of our revenue, approximately 86%, is derived from our Florida market areas while approximately 13% 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 32 and our consolidated financial statements
on page 64.
Dollars in millions
Year Ended
December 31,
2016
2015
2014
Deposits
$2,412.3
$2,302.8
$2,146.8
(1)Revenue represents interest income plus noninterest income
Assets
$2,845.2
$2,797.9
$2,627.2
Shareowners’
Equity
$275.2
$274.4
$272.5
Revenue(1)
$134.8
$133.7
$130.8
Net Income
$11.7
$9.1
$9.3
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 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 853 associates at March 1, 2017. 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, 2016, and approximately 92% of consolidated net income for the year ended December 31, 2016.
The Bank historically approximates 100% of CCBG’s consolidated net income, but in 2016, CCBG realized a $2.5 million pre-tax
gain from the partial retirement of its trust preferred securities. 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 2016 totaled approximately 93.7%, 1.0%, 3.4%,
and 1.9% of our total revenue, respectively. In 2015 and 2014, Banking Services (CCB) revenue was approximately 93.8% and
92.8% 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:
4
• Business Banking – The Bank provides banking services to corporations and other business clients. Credit products are
available for a wide variety of general business purposes, including financing for commercial business properties, equipment,
inventories and accounts receivable, as well as commercial leasing and letters of credit. We also provide treasury
management services, and, through a marketing alliance with Elavon, Inc., merchant credit card transaction processing
services.
• Commercial Real Estate Lending – The Bank provides a wide range of products to meet the financing needs of commercial
developers and investors, residential builders and developers, and community development. Credit products are available to
purchase land and build structures for business use and for investors who are developing residential or commercial property.
• Residential Real Estate Lending – The Bank provides products to help meet the home financing needs of consumers,
including conventional permanent and construction/ permanent (fixed, 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.
• 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.
•
Institutional Banking – The Bank provides banking services to meet the needs of state and local governments, public schools
and colleges, charities, membership and not-for-profit associations including customized checking and savings accounts, cash
management systems, tax-exempt loans, lines of credit, and term loans.
• Retail Banking – The Bank provides a full-range of consumer banking services, including checking accounts, savings
programs, automated teller machines (ATMs), debit/credit cards, night deposit services, safe deposit facilities, 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 between the hours of 7 a.m. to 10 p.m. Monday through Friday and from 9 a.m. to 12 noon on
Saturday. 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. 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 $707.9 million as of December 31, 2016, with total assets under administration
exceeding $803.6 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, 2017, the Services
Company is providing data processing services to two correspondent banks which have relationships with CCB.
5
Underwriting Standards
A core goal of CCB is to support the communities in which it operates. The Bank seeks loans from within its primary market area,
which is defined as the counties in which the Bank’s offices are located. The Bank will also originate loans within its secondary
market area, defined as counties adjacent 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 are generally only 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.
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 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 also 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 (“HELOCs”) and home equity loans. 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 10-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, 2016, approximately 65% 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.
6
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.
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 $10 million (aggregate exposure to one borrowing
relationship) 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 common 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, 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 19 markets in Florida and two of four 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 8.74% market share in the Florida counties and 5.37% 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
generally stable and 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 we believe provide the best overall return to our shareowners.
7
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 $500
million.
Competition
We operate in a highly competitive environment, especially with respect to services and pricing. In addition, the banking business is
experiencing enormous changes. 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. The market has begun to stabilize. In late 2016, the first de
novo bank charter application was filed since 2009. As a result, we expect consolidation to continue during 2017, 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, four 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 $923.4 million, or 38.3% of our consolidated deposits at December
31, 2016.
8
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(2)
Grady
Laurens
Troup
Alabama
Chambers
Market Share as of June 30,(1)
2015
2014
2016
4.9%
46.1%
3.5%
1.9%
15.2%
77.7%
46.8%
15.5%
2.1%
22.5%
13.9%
29.2%
14.2%
0.1%
21.3%
0.8%
7.6%
18.0%
14.5%
14.2%
3.2%
4.8%
13.4%
9.3%
5.4%
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%
9.2%
8.6%
7.6%
(1) Obtained from the FDIC Summary of Deposits Report for the year indicated.
(2) The CCB Burke County banking office was closed in the third quarter of 2016 - all deposits were transferred to the Laurens County banking
office.
9
The following table sets forth the number of commercial banks and offices, including our offices and our competitor's 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(1)
Grady
Laurens
Troup
Alabama
Chambers
Number of
Commercial
Banks
Number of
Commercial
Bank Offices
17
3
12
13
4
2
4
3
13
2
16
2
3
21
6
21
5
3
4
6
11
5
5
10
11
6
64
3
41
32
5
3
6
4
38
2
76
11
3
102
11
64
8
4
4
6
45
10
7
20
21
9
Data obtained from the FDIC June 30, 2016 Summary of Deposits Report.
(1) The CCB Burke County banking office was closed in the third quarter of 2016.
Seasonality
We believe our commercial banking operations are not generally seasonal in nature; however, public deposits tend to increase with tax
collections in the fourth and first quarters of each year and decline with spending thereafter.
10
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.
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.
11
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.
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.
12
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, as of
January 1, 2017, financial institutions are be required to maintain a capital conservation buffer of at least 1.25% 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
Our deposit accounts are currently insured by the Deposit Insurance Fund generally up to a maximum of $250,000 per separately
insured depositor. CCB pays deposit insurance assessments to the Deposit Insurance Fund, which are determined through a risk-based
assessment system.
Under the current system, deposit insurance assessments are based on average total assets minus average tangible equity. The FDIC
assigns an institution to one of two categories based on asset size. CCB falls into the Established Small Institution category. This
category has three sub categories based on supervisory ratings (its “CAMELS ratings”) designed to measure risk. The assessment rate
is determined based on the institution’s most recent supervisory and capital evaluations.
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 its assessment base to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal
government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue
until the Financing Corporation bonds mature in 2017 through 2019.
Under the Federal Deposit Insurance Act, or FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has
engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable
law, regulation, rule, order or condition imposed by the FDIC.
Transactions With Affiliates
Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of 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.
13
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.
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.
14
In computing total risk-weighted assets, bank and bank holding company assets are given risk-weights of 0%, 20%, 50%, 100% and
150%. 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.
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, 2016, 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.
15
(Dollars in thousands)
As of December 31, 2016:
Common Equity Tier 1 Capital:
CCBG
CCB
Tier 1 Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier 1 Leverage:
CCBG
CCB
Actual
Required For Capital
Adequacy Purposes
To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
220,211
268,811
12.61%
15.44%
270,801
268,811
15.51%
15.44%
284,232
282,242
16.28%
16.21%
270,801
268,811
10.23%
10.18%
$
$
$
$
78,587
78,356
4.50%
4.50%
*
113,182
104,783
104,475
6.00%
6.00%
*
139,300
*
6.50%
*
8.00%
139,710
139,300
8.00%
8.00%
*
174,126
*
10.00%
105,909
105,652
4.00%
4.00%
*
132,066
*
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.
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.
16
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:
•
•
•
•
•
•
•
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.
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, 2016, 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.
17
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 have
lengthened the time it takes to approve mortgage loans.
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. The Volcker Rule and the final interagency rules implementing the Volcker Rule has not had a material
impact on our investment activities since we do not engage in transactions covered by the regulation.
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.
18
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.
19
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 continuously 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 we do not properly monitor our interest rate risk management strategies, 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:
• 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, 2016, commercial mortgage loans comprised approximately 32.1% of our total loan portfolio.
• 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, 2016, commercial loans comprised approximately 13.8% of our
total loan portfolio.
20
• 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, 2016,
construction loans comprised approximately 3.8% of our total loan portfolio.
• 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, 2016, vacant land loans comprised approximately 3.6% of our total
loan portfolio.
• 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,
2016, HELOCs comprised approximately 15.0% of our total loan portfolio.
• 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, 2016, consumer loans comprised approximately 16.8% 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 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 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 debit card industry.
Many issuers of debit cards have suffered significant losses in recent years due to the theft of cardholder data that has been illegally
exploited for personal gain.
The potential for debit card fraud against us or our clients and our third party service providers is a serious issue. Debit 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.
21
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:
•
•
•
•
•
•
•
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, 2016, the Bank’s allowance for loan losses was $13.4 million, which represented approximately 0.86% of its total
amount of loans. The Bank had $8.5 million in nonaccruing loans as of December 31, 2016. 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:
•
•
•
•
•
•
•
•
•
•
•
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.
22
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 2016 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, 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.
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. In addition to the regulations of the bank regulatory agencies, 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.
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.
Legislative and administrative action may affect our business.
President Donald Trump has called for substantial change to several regulations and policies, which may include the repeal of
regulations implemented as a result of Dodd-Frank and comprehensive tax reform. We cannot predict the impact, if any, of these
changes to our business. However, it is possible that these changes could adversely affect our business. It is likely that some policies
adopted by the new administration will benefit us and others will negatively affect us. Until we know what changes are enacted, if
any, we will not know whether in total we benefit from, or are negatively affected by, the changes.
23
The Increased Capital requirements 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, 2017, the CET1conservation buffer requirement was 1.25%, 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:
•
•
•
•
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.
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.
24
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, 2016, approximately 69% 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, 2016, 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, 2016,
approximately 32% and 34% of our $1.57 billion loan portfolio was secured by commercial real estate and residential real estate,
respectively. As of this same date, approximately 4% 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, 2016 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.
25
We may be unable to pay dividends in the future.
Risks Related to an Investment in Our Common Stock
In 2016, 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, 2016
was approximately 21,473 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 certain principal shareowners beneficially owned approximately 35.2% of the outstanding shares
of our common stock as of December 31, 2016. 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 15.5% of our shares.
William G. Smith, Jr. beneficially owns 22.2% of our shares. In addition, 2S Partnership beneficially owns 6.2% 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 31.6% 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.
26
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:
• 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”;
• Absence of cumulative voting; and
•
Inability for shareowners to take action by written consent.
Shares of our common stock are not an insured deposit and may lose value.
The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other government
agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.
Item 1B.
Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in Tallahassee, Florida. Our executive office is in the Capital City Bank building located on the corner of
Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by the Bank, but is located on land leased under a
long-term agreement.
As of February 28, 2017, the Bank had 60 banking offices. Of the 60 locations, the Bank leases the land, buildings, or both at six
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.
27
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 1,489 shareowners of
record as of February 28, 2017.
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.
2016
2015
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
$
23.15 $
14.29
20.48
0.05
15.35 $
13.32
14.77
0.04
$
15.96 $
13.16
13.92
0.04
15.88
12.83
14.59
0.04
16.05 $
13.56
15.35
0.04
15.75 $
14.39
14.92
0.03
16.32 $
13.94
15.27
0.03
16.33
13.16
16.25
0.03
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 12 and 13 and the section entitled “Liquidity and Capital Resources – Dividends” -- in Management's Discussion and Analysis of
Financial Condition and Operating Results on page 32 and Note 14 in the Notes to Consolidated Financial Statements.
28
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, 2011 in our common stock and each of the above indices, and that all dividends were
reinvested. The shareholder return shown below represents past performance and should not be considered indicative of future
performance.
Total Return Performance
Capital City Bank Group, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
350
300
250
200
150
e
u
l
a
V
x
e
d
n
I
100
12/31/11
12/31/12
12/31/13
12/31/14
12/31/215
12/31/16
Index
Capital City Bank Group, Inc.
Nasdaq Composite
SNL $1B-$5B Bank Index
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
$
100.00 $
100.00
100.00
119.06 $
117.45
123.31
123.25 $
164.57
179.31
163.75 $
188.84
187.48
163.15 $
201.98
209.86
220.01
219.89
301.92
Period Ending
29
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
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 plus 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 Common Equity(2)
Leverage
Equity to Assets
Dividend Pay-Out
Averages for the Year:
Loans, Net of Unearned Income
Earning Assets
Total Assets
Deposits
Shareowners’ Equity
Year-End Balances:
Loans, Net of Unearned Income
Earning Assets
Total Assets
Deposits
Shareowners’ Equity
Other Data:
Basic Average Shares Outstanding
Diluted Average Shares Outstanding
Shareowners of Record(3)
Banking Locations(3)
Full-Time Equivalent Associates(3)
2016
2015
2014
2013
2012
$
$
$
$
81,154
77,965
819
53,681
113,214
11,746
0.69
0.69
0.17
16.23
$
$
79,658
76,351
1,594
54,091
115,273
9,116
0.53
0.53
0.13
15.93
$
$
78,221
74,641
1,905
52,536
114,358
9,260
0.53
0.53
0.09
15.53
$
$
82,152
77,736
3,472
55,111
121,405
6,045
0.35
0.35
-
15.85
0.43 %
4.22
3.25
40.78
85.34
0.34 %
3.31
3.31
41.47
87.94
0.36 %
3.27
3.36
41.30
89.68
0.24 %
2.40
3.54
41.48
91.09
89,680
84,312
16,166
54,569
123,943
108
0.01
0.01
-
14.31
0.00 %
0.04
3.81
39.29
88.72
$
13,431
$
0.86 %
13,953
$
0.93 %
17,539
$
1.22 %
23,095
$
1.65 %
29,167
1.93 %
19,171
0.67
1.21
157.40
0.09
15.51 %
16.28
12.61
6.90
10.23
9.67
24.64
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
16.56 %
17.94
NA
7.58
10.46
10.58
NM
117,648
4.47
7.47
45.42
1.16
14.35 %
15.72
NA
6.35
9.90
9.37
NM
$
$
$
$
1,542,232
2,432,392
2,752,309
2,282,785
278,335
1,572,175
2,520,053
2,845,197
2,412,286
275,168
$
$
1,474,833
2,324,854
2,659,317
2,163,441
275,144
1,503,907
2,470,444
2,797,860
2,302,849
274,352
$
$
1,414,000
2,237,623
2,564,176
2,093,477
283,079
1,442,062
2,276,781
2,627,169
2,146,794
272,540
$
$
1,450,806
2,213,686
2,568,662
2,070,073
251,427
1,399,669
2,274,019
2,611,903
2,136,248
276,400
1,556,565
2,229,621
2,590,173
2,105,672
252,960
1,521,302
2,261,781
2,633,984
2,144,996
246,889
16,988,747
17,061,186
1,489
60
820
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
(1) Not applicable prior to January 1, 2015
(2) Tangible common equity ratio is a non-GAAP financial measure. For additional information, including a reconciliation to GAAP, refer to page 31
(3) As of record date. The record date is on or about March 1st of the following year.
NM - Not Meaningful
30
NON-GAAP FINANCIAL MEASURE
We present a tangible common equity ratio that removes the effect of goodwill resulting from merger and acquisition activity. We
believe this measure is useful to investors because it allows investors to more easily compare our capital adequacy to other companies
in the industry. The GAAP to non-GAAP reconciliation for selected financial data and quarterly financial data is provided below.
Non-GAAP Reconciliation - Selected Financial Data
(Dollars in Thousands)
TANGIBLE COMMON EQUITY RATIO
Shareowners' Equity (GAAP)
Less: Goodwill (GAAP)
Tangible Shareowners' Equity (non-GAAP)
Total Assets (GAAP)
Less: Goodwill (GAAP)
Tangible Assets (non-GAAP)
Tangible Common Equity Ratio (non-GAAP) A/B
A
B $
$
2016
2015
2014
2013
2012
275,168 $
84,811
190,357
2,845,197
84,811
2,760,386 $
6.90%
274,352 $
84,811
189,541
2,797,860
84,811
2,713,049 $
6.99%
272,540 $
84,811
187,729
2,627,169
84,811
2,542,358 $
7.38%
276,400 $
84,843
191,557
2,611,903
84,843
2,527,060 $
7.58%
246,889
85,053
161,836
2,633,984
85,053
2,548,931
6.35%
Non-GAAP Reconciliation - Quarterly Financial Data
(Dollars in Thousands)
Fourth
Third
Second
First
Fourth
Third
Second
First
2016
2015
TANGIBLE COMMON EQUITY RATIO
Shareowners' Equity (GAAP)
$
275,168 $
276,624 $
274,824 $
276,833 $
274,352 $
273,659 $
272,038 $
274,087
Less: Goodwill (GAAP)
84,811
84,811
84,811
84,811
84,811
84,811
84,811
84,811
Tangible Shareowners' Equity (non-GAAP)
A
190,357
191,813
190,013
192,022
189,541
188,848
187,227
189,276
Total Assets (GAAP)
Less: Goodwill (GAAP)
Tangible Assets (non-GAAP)
Tangible Common Equity Ratio (non-GAAP)
B
$
A/B
2,845,197
2,753,154
2,767,636
2,792,186
2,797,860
2,615,094
2,654,144
2,693,715
84,811
2,760,386 $
84,811
2,668,343 $
84,811
2,682,825 $
84,811
2,707,375 $
84,811
2,713,049 $
84,811
2,530,283 $
84,811
2,569,333 $
84,811
2,608,904
6.90%
7.19%
7.08%
7.09%
6.99%
7.46%
7.29%
7.26%
31
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, 2016 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 2016 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,” ”vision,” “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 60 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, and bank card 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.
32
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 19 markets in Florida and two of four 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 8.74% market share in the Florida counties and 5.37% 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 stable
and 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 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 other financial businesses that are closely aligned with the business of banking. Embedded in our acquisition strategy is
our desire to partner with institutions that are culturally similar, have experienced management and possess either established market
presence or have potential for improved profitability through growth, economies of scale, or expanded services. Generally, these
target institutions will range in asset size from $100 million to $500 million.
EXECUTIVE OVERVIEW
During 2016, we made meaningful progress throughout the year as we continued to focus on initiatives that add value to our
shareowners. The slow and steady economic recovery continued in our markets, loan demand improved noticeably, and new loan
production increased for all loan categories. Continued focus on expense management and further progress made toward reducing our
nonperforming assets also contributed to the improvement in performance.
For 2016, we realized net income of $11.7 million, or $0.69 per diluted share, compared to $9.1 million, or $0.53 per diluted share in
2015. The increase in earnings reflected lower noninterest expense of $2.0 million, higher net interest income of $1.6 million, and a
$0.8 million decrease in the loan loss provision, partially offset by higher income taxes of $1.4 million and lower noninterest income
of $0.4 million.
Below are summary highlights that impacted our performance for the year:
• Broader based loan growth of 4.6% driven by both increased demand and effective calling efforts
•
49% reduction in loan loss provision driven by lower loan charge-offs and strong loan recoveries
•
1.8% decrease in noninterest expenses (primarily other real estate owned (“OREO”) costs and FDIC fees)
• NPAs and classified assets down by 35% and 28%, respectively
•
$10 million trust preferred securities (“TRUPs”) repurchased at a discount added $2.5 million to pre-tax earnings ($0.09 per
share)
• Repurchased 435,000 shares of common stock
During 2016, we again realized meaningful re-composition in our earning asset mix as solid loan growth and increased deployment of
liquidity into our investment portfolio drove a 2.6% increase in tax-equivalent net interest income. Loan growth in 2016 was broader
based as we realized average loan growth in all loan categories except commercial mortgages. Increased new loan production for
commercial mortgages further stabilized that portfolio.
33
Our noninterest income remains diversified and we made good progress during 2016 toward initiatives aimed at strengthening and
growing fee income. Some of these initiatives commenced in mid-2016 and others are expected to commence in 2017 and beyond.
We remain focused on deepening client relationships and fully leveraging the fee income opportunities that stem from our strong core
deposit base franchise. In 2016, we realized a 14% increase in mortgage banking fees reflective of our strong sales network and
improved market share in our Gainesville market.
Noninterest expense (excluding OREO expense) decreased 0.7% in 2016 due to continued focus on expense management as we
realized reductions in several expense categories, including compensation, FDIC insurance fees, professional fees, and legal fees.
During 2016, we continued to focus on the execution of strategies aimed at optimizing our delivery systems (both on-line and banking
offices) which will both pay longer term benefits.
Our total credit costs (loan loss provision plus OREO costs) declined by 32% in 2016 driven by a lower loan loss provision and a
reduction in OREO expenses. Lower loan charge-offs and a strong year for loan recoveries contributed to the reduction in our loan
loss provision and lower property carrying costs favorably impacted OREO expense.
Throughout an historic period of low interest rates, we have been disciplined in our pricing strategies and have not changed our risk
profile to drive short-term earnings. As a result, we believe that we are very well positioned to benefit and drive operating leverage if
interest rates increase further. Continued focus on internal initiatives that drive loan growth, enhance fee income, and produce
improved efficiency coupled with being well positioned to leverage our capital as opportunities arise are operating principles that will
help to drive future earnings growth.
Key components of our 2016 financial performance are summarized below:
Results of Operations
• For 2016, taxable equivalent net interest income increased $2.0 million, or 2.6%, to $79.0 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 3.25% in 2016 was six basis points lower than the 3.31% recorded in 2015 reflective of a seven basis point
decrease in the earning asset yield that was partially offset by a one basis point reduction in the cost of funds.
• Total credit costs (loan loss provision plus OREO expenses) were $4.5 million in 2016 compared to $6.6 million for 2015.
Continued favorable problem loan migration and lower net loan charge-offs partially offset by growth in the loan portfolio
drove an $0.8 million decrease in our loan loss provision and lower property carrying costs drove a $1.3 million reduction in
OREO expense.
• For 2016, noninterest income totaled $53.7 million, a $0.4 million, or 0.8%, decrease from 2015 primarily attributable to
lower deposit fees of $1.3 million and lower wealth management fees $0.5 million, partially offset by higher other income of
$0.8 million ($2.5 million gain from partial retirement of TRUPs in 2016 and $1.7 million receipt of bank-owned life
insurance (“BOLI”) proceeds in 2015) and mortgage banking fees of $0.6 million.
• For 2016, noninterest expense totaled $113.2 million, a $2.1 million, or 1.8%, decrease from 2015 reflective of lower OREO
expense of $1.3 million, other expense (excluding OREO expenses) of $0.9 million, and compensation expense of $0.4
million, partially offset by higher occupancy expense of $0.5 million.
Financial Condition
• Average assets totaled approximately $2.752 billion for 2016, an increase of $93.0 million, or 3.5%, over 2015. Average
earning assets were approximately $2.432 billion for 2016, representing an increase of $107.5 million, or 4.6%, over
2015. Year-over-year, our average net overnight funds sold (deposits with banks plus fed funds sold less fed funds
purchased) decreased $25.2 million, while investment securities increased $65.3 million and average gross loans were higher
by $67.4 million.
• Average gross loans totaled $1.542 billion, a $67.4 million, or 4.6%, increase over 2015. In 2016, we experienced loan
growth in all categories except commercial mortgages. The largest increases occurred in the commercial loan category,
primarily tax-free loans, and consumer loans.
• Average total deposits for 2016 were $2.283 billion, an increase of $119.3 million, or 5.5%, over 2015. We experienced
growth in all deposit types except for money market accounts and time deposits.
34
• At December 31, 2016, our nonperforming assets totaled $19.2 million, a decrease of $10.4 million from December 31, 2015.
Nonaccrual loans totaled $8.5 million at December 31, 2016, a decrease of $1.8 million from December 31, 2015. The
balance of OREO totaled $10.6 million at December 31, 2016, a decrease of $8.6 million from December 31, 2015. We
continued to experience progress during 2016 in our efforts to dispose of OREO selling properties totaling $10.3 million.
Nonperforming assets represented 0.67% of total assets at December 31, 2016 compared to 1.06% at December 31, 2015.
• Our allowance for loan losses at December 31, 2016 was $13.4 million (0.86% of loans) and provided coverage of 157% of
nonperforming loans compared to $14.0 million (0.93% of loans) and 135% of nonperforming loans at December 31, 2015.
Net charge-offs for 2016 totaled $1.3 million, or 0.09% of average loans compared to $5.2 million, or 0.35% in 2015,
reflective of a lower level of gross loan charge-offs and strong loan recoveries.
• Shareowners’ equity increased by $0.8 million from $274.4 million at December 31, 2015 to $275.2 million at December 31,
2016. We continue to maintain a strong capital base as evidenced by a risk-based capital ratio of 16.28% and tangible
common equity ratio of 6.90% at December 31, 2016 compared to 17.25% and 6.99%, respectively, at December 31, 2015.
During 2016, the repurchase of our common shares and the partial retirement of TRUPs unfavorably impacted our regulatory
capital ratios by approximately 38 basis points and 50 basis points, respectively. At December 31, 2016, all of our regulatory
capital ratios exceeded the threshold to be well-capitalized under the Basel III capital standards.
RESULTS OF OPERATIONS
For 2016, we realized net income of $11.7 million, or $0.69 per diluted share, compared to $9.1 million, or $0.53 per diluted share in
2015, and $9.3 million, or $0.53 per diluted share in 2014.
The increase in earnings for 2016 was attributable to lower noninterest expense of $2.0 million, higher net interest income of $1.6
million, and a $0.8 million decrease in the loan loss provision, partially offset by higher income taxes of $1.4 million and lower
noninterest income of $0.4 million.
The decrease in earnings for 2015 as compared to 2014 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.
A condensed earnings summary for the last three years is presented in Table 1 below:
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share Data)
Interest Income
Taxable Equivalent Adjustments
Total Interest Income (FTE)
Interest Expense
Net Interest Income (FTE)
Provision for Loan Losses
Taxable Equivalent Adjustments
Net Interest Income After Provision for Loan Losses
Noninterest Income
Noninterest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Basic Net Income Per Share
Diluted Net Income Per Share
2016
2015
2014
$
$
$
$
81,154
1,011
82,165
3,189
78,976
819
1,011
77,146
53,681
113,214
17,613
5,867
11,746
0.69
0.69
$
$
$
$
79,658
638
80,296
3,307
76,989
1,594
638
74,757
54,091
115,273
13,575
4,459
9,116
0.53
0.53
$
$
$
$
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
35
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.
In 2016, our taxable equivalent net interest income increased $2.0 million, or 2.6%. This follows an increase of $1.9 million, or 2.5%,
in 2015, and a decrease of $3.2 million, or 4.1%, in 2014. The year over year increases in 2015 and 2016 were driven primarily by
growth in the loan and investment portfolios and, specific to 2016, one additional calendar day. These increases were partially offset
by generally lower loan rates.
For 2016, taxable equivalent interest income increased $1.9 million, or 2.3%, over 2015. In 2015, taxable equivalent interest income
increased $1.6 million, or 2.0%, over 2014. The increases in both comparisons were primarily due to higher balances in the loan and
investment portfolios, partially offset by lower yields on new loan production and loan portfolio repricing.
While total interest income has increased, the average yield on interest earning assets has declined seven basis points in each of the
last two years due to the lower average yield in the loan portfolio.
Interest expense decreased $118,000, or 3.6%, from 2015 to 2016, and $273,000, or 7.6%, from 2014 to 2015. Both declines were
primarily attributable to lower interest expense on long-term debt which was paid off. The cost of funds declined one basis point in
2016 compared to 2015 primarily due to a lower cost of certificates of deposit and a favorable shift in the mix of interest bearing
liabilities. The lower cost of funds of two basis points in 2015 compared to 2014 was a result of both certificates of deposit repricing
to lower rates and rate reductions on other non-maturity deposits.
Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on interest bearing
liabilities) decreased seven basis points in 2016 compared to 2015 and declined four basis points in 2015 compared to 2014. The
decrease in both years was primarily attributable to the adverse impact of lower rates on the loan portfolio, 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
3.25% in 2016 was six basis points lower than the 3.31% recorded in 2015. The net interest margin in 2015 was five basis points
lower than the 3.36% reported in 2014. In 2016, the yield on earning assets declined seven basis points compared to 2015, as the
adverse impact of loan portfolio repricing and lower fees was partially offset by a decline in the cost of funds of one basis point. 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.
The net interest margin for the fourth quarter of 2016 was 3.34%, an increase of 11 basis points over the third quarter of 2016 and a
decrease of three basis points from the fourth quarter of 2015. The increase in the margin compared to the third quarter of 2016 was
due to growth in our loan and investment portfolios, in addition to $0.5 million in net interest recoveries. The decrease in the margin
compared to the fourth quarter of 2015 was primarily attributable to lower loan yields.
Although the low interest rate environment continues to put downward pressure on our net interest income, we have been successful in
increasing our net interest income year-over-year. The Federal Open Market Committee (FOMC) increased the federal funds rate 25
basis points to a target rate of 75 basis points in December 2016, alleviating some of this pressure as we enter 2017, particularly in our
variable rate loans. However, aggressive lending competition in all markets continues to impact the pricing for loans. Low rates and
competition, collectively, continue to impact our loan yields.
Various loan strategies, which align with our overall risk appetite, continue to be reviewed and implemented to enhance our
performance. 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 in
normalized rate environments, a net interest margin that is significantly above peer comparisons.
36
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars
in Thousands)
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
2016
2015
2014
ASSETS
Loans, Net of Unearned Income(1)(2) $ 1,542,232 $ 73,417
6,317
Taxable Investment Securities
Tax-Exempt Investment Securities(2)
1,327
1,104
Funds Sold
Total Earning Assets
82,165
Cash & Due From Banks
Allowance for Loan Losses
Other Assets
TOTAL ASSETS
586,284
91,059
212,817
2,432,392
47,447
(14,080)
286,550
$ 2,752,309
73,436
5,223
1,005
632
80,296
4.76 % $ 1,474,833 $
1.08
1.46
0.52
3.38 %
530,297
81,748
237,976
2,324,854
48,195
(15,876)
302,144
$ 2,659,317
4.98 % $ 1,414,000 $
362,393
0.98
91,324
1.23
369,906
0.27
2,237,623
3.45 %
45,367
(21,234)
302,420
$ 2,564,176
73,637
3,423
722
933
78,715
5.21 %
0.91
0.79
0.25
3.52 %
LIABILITIES
NOW Accounts
Money Market Accounts
Savings Accounts
Other Time Deposits
Total Interest Bearing Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Total Interest Bearing Liabilities
Noninterest Bearing Deposits
Other Liabilities
TOTAL LIABILITIES
SHAREOWNERS’ EQUITY
TOTAL SHAREOWNERS’
EQUITY
$
779,764 $
256,265
292,326
168,741
1,497,096
36,762
55,729
23,880
1,613,467
785,689
74,818
2,473,974
292
120
144
323
879
148
1,434
728
3,189
0.04 % $
0.05
0.05
0.19
0.06 %
0.40
2.53
3.05
0.20 %
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
0.03 % $
0.05
0.05
0.23
0.07 %
0.10
2.14
3.15
0.21 %
715,846 $
273,092
227,215
206,136
1,422,289
44,403
62,887
33,727
1,563,306
671,188
46,603
2,281,097
318
190
112
479
1,099
78
1,328
1,075
3,580
0.04 %
0.07
0.05
0.23
0.08 %
0.18
2.08
3.19
0.23 %
278,335
275,144
283,079
TOTAL LIABILITIES & EQUITY $ 2,752,309
$ 2,659,317
$ 2,564,176
Interest Rate Spread
Net Interest Income
Net Interest Margin(3)
$ 78,976
3.18 %
3.25 %
$
76,989
3.25 %
3.31 %
$
75,135
3.29 %
3.36 %
(1) Average balances include nonaccrual loans. Interest income includes loan fees of $0.8 million for 2016, $1.4 million for 2015, and $1.6 million for 2014.
(2) Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
(3) Taxable equivalent net interest income divided by average earning assets.
37
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
2016 vs. 2015
2015 vs. 2014
Increase (Decrease) Due to Change In
Calendar(3) Volume
Rate
Total
Increase (Decrease) Due to Change In
Volume
Total
Rate
$
(19) $
201 $
3,155 $ (3,375) $
(201) $
3,168 $
(3,369)
1,094
322
472
1,869
38
(14)
18
(107)
89
66
(208)
(118)
14
3
2
537
111
(69)
543
208
539
1,800
283
(301)
1,586
(76)
(333)
214
359
32
220
3,734
(2,085)
1,581
4,345
(2,764)
1
-
-
1
-
4
3
9
10
(1)
18
(43)
(22)
(160)
(186)
(384)
27
(13)
-
(65)
111
222
(25)
257
(64)
(56)
14
(49)
(19)
40
(139)
(273)
14
(11)
14
(45)
25
-
(128)
(131)
(78)
(45)
-
(4)
(44)
40
(11)
(142)
Changes in Net Interest Income
$
1,987 $
211 $
4,118 $ (2,342) $
1,854 $
4,476 $
(2,622)
(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.
(3) Reflects change due to one extra calendar day in 2016.
Provision for Loan Losses
The provision for loan losses was $0.8 million in 2016 compared to $1.6 million in 2015 and $1.9 million in 2014. The decline in the
provision for all periods reflected favorable problem loan migration and lower net loan losses, 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
For 2016, noninterest income totaled $53.7 million, a $0.4 million, or 0.8%, decrease from 2015, primarily attributable to lower
deposit fees of $1.3 million and wealth management fees of $0.5 million, partially offset by higher other income of $0.8 million and
mortgage banking fees of $0.6 million. The decrease in deposit fees reflected lower overdraft service fees attributable to a reduction
in accounts using this service as well as lower utilization by existing users. The reduction in wealth management fees generally
reflected lower trading volume by our retail brokerage clients. The favorable variance in other income primarily reflected a $2.5
million gain from the partial retirement of our TRUPs in 2016, partially offset by higher BOLI income of $1.7 million in 2015. Strong
residential home sales activity in our markets and further expansion into the Gainesville, Florida market drove the improvement in
mortgage banking fees.
38
For 2015, the $1.5 million, or 3.0%, increase over 2014 reflected 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 BOLI proceeds drove the increase in other income. Lower overdraft fees drove the reduction in deposit fees.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 40.78% in 2016,
41.47% in 2015, and 41.30% in 2014.
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
Deposit Fees
Bank Card Fees
Wealth Management Fees
Mortgage Banking Fees
Other
Total Noninterest Income
2016
2015
2014
$
$
21,332 $
11,221
7,029
5,192
8,907
53,681 $
22,608 $
11,278
7,533
4,539
8,133
54,091 $
24,320
10,892
7,808
3,082
6,434
52,536
Various significant components of noninterest income are discussed in more detail below.
Deposit Fees. For 2016, deposit fees (service charge fees, insufficient fund/overdraft fees (“NSF/OD”), and business account analysis
fees) totaled $21.3 million compared to $22.6 million in 2015 and $24.3 million in 2014. The $1.3 million, or 5.6%, decrease in 2016
and the $1.7 million, or 7.0% decrease in 2015, were due to a lower level of NSF/OD fees attributable to a reduction in the number of
accounts using our overdraft protection service and lower utilization by existing users reflecting improved financial management by
our clients.
Bank Card Fees. Bank card fees totaled $11.2 million in 2016 compared to $11.3 million in 2015 and $10.9 million in 2014. The
$0.1 million, or 0.5%, decrease in 2016 primarily reflected lower fees for debit card PIN transactions partially offset by higher fees for
debit card signature transactions and credit card interchange fees. The lower level of fees for debit card PIN transactions reflected a
continuing trend of card accepting merchants steering card transactions to the lowest cost card processor, thus reducing our
interchange share. We continue to evaluate strategic opportunities to grow both debit card and credit card interchange revenue.
Wealth Management Fees. Wealth management fees including both trust fees (i.e., managed accounts and trusts/estates) and retail
brokerage fees (i.e., investment, insurance products, and retirement accounts) totaled $7.0 million in 2016 compared to $7.5 million in
2015 and $7.8 million in 2014. The $0.5 million, or 6.7%, decrease in 2016 reflected lower transaction activity by our retail brokerage
clients and the $0.3 million, or 3.5%, decrease in 2015 was attributable to a lower level of assets under management. At December
31, 2016, total assets under management were approximately $1.192 billion compared to $1.139 billion at December 31, 2015 and
$1.278 billion at December 31, 2014.
Mortgage Banking Fees. Mortgage banking fees totaled $5.2 million in 2016 compared to $4.5 million in 2015 and $3.1 million in
2014. The $0.6 million, or 14.4%, increase in 2016 reflected continued strong home purchase activity in our markets and to a lesser
extent growth in market share in our Gainesville, Florida market. The $1.5 million, or 47.3%, increase in 2015 was also due to strong
home purchase originations. Refinancing activity represented 20% of our loan production in 2016 compared to 18% and 14% for
2015 and 2014, respectively. Market conditions, housing activity, the level of interest rates and the mix of our fixed-rate and variable
rate production have significant impacts on our mortgage banking fees.
Other. Other noninterest income totaled $8.9 million in 2016 compared to $8.1 million in 2015 and $6.4 million in 2014. The
increase in 2016 reflected a $2.5 million gain from the partial retirement of our TRUPs, partially offset by higher BOLI income of
$1.7 million in 2015. The increase in 2015 reflected the receipt of $1.7 million in BOLI proceeds.
39
Noninterest Expense
For 2016, noninterest expense totaled $113.2 million, a decrease of $2.1 million, or 1.8%, from 2015 reflective of lower OREO
expense of $1.3 million, other expense (excluding OREO expenses) of $0.9 million and compensation expense of $0.4 million,
partially offset by higher occupancy expense of $0.5 million. Lower carrying costs drove the reduction in OREO expense. The
reduction in other expense was primarily attributable to lower FDIC insurance fees, professional fees, and legal fees, partially offset
by higher telephone expense and advertising expense. The decrease in compensation reflected a higher level of deferred loan cost
(which reduces salary expense) partially offset by higher associate benefit expense, primarily stock compensation expense. The
increase in occupancy expense was primarily due to higher depreciation expense reflective of technology investments in our banking
offices and security infrastructure, and to a lesser extent higher maintenance costs for building and furniture/equipment.
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.
Our operating efficiency ratio (expressed as noninterest expense as a percent of taxable equivalent net interest income plus noninterest
income) was 85.34%, 87.94% and 89.68% in 2016, 2015 and 2014, respectively. Higher operating revenues (net interest income) and
lower operating expenses drove the improvement in the ratio for 2016. The improvement in 2015 primarily reflected higher operating
revenues (primarily net interest income and BOLI proceeds).
Expense management is an important part of our culture and strategic focus and we will continue to review and evaluate opportunities
to optimize our operations, reduce operating costs and manage our discretionary expenses.
The table below reflects the major components of noninterest expense.
(Dollars in Thousands)
Salaries
Associate Benefits
Total Compensation
Premises
Equipment
Total Occupancy
Legal Fees
Professional Fees
Processing Services
Advertising
Travel and Entertainment
Printing and Supplies
Telephone
Postage
Insurance – Other
Other Real Estate
Miscellaneous
Total Other Expense
2016
2015
2014
$
47,610 $
17,374
64,984
48,263 $
17,151
65,414
9,047
9,249
18,296
2,311
3,424
6,471
1,702
889
710
2,296
891
2,060
3,649
5,531
29,934
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
48,896
13,319
62,215
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
Total Noninterest Expense
$
113,214 $
115,273 $
114,358
40
Various significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled $65.0 million in 2016, $65.4 million in 2015, and $62.2 million in 2014. For 2016, the
$0.4 million, or 0.7%, decrease from 2015 was attributable to lower salary expense of $0.6 million partially offset by higher associate
benefit expense of $0.2 million. The decrease in salary expense was attributable to higher deferred loan cost amortization (which is
accounted for as a credit offset to salary expense). The increase in associate benefit expense was primarily due to higher stock
compensation expense tied to financial performance which improved in 2016.
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 reflected 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 salary expense reflective of merit raises given during the year.
Occupancy. Occupancy expense (including premises and equipment) totaled $18.3 million for 2016, $17.7 million for 2015, and
$17.8 million for 2014. For 2016, the $0.6 million, or 3.1%, increase was primarily due to higher depreciation expense related to
technology investments in our banking offices and security infrastructure, and to a lesser extent higher maintenance costs for building
and furniture/equipment. For 2015, the $0.1 million, or 0.5%, decrease from 2014 reflected lower premises expense, primarily lower
building maintenance and repair costs.
Other. Other noninterest expense totaled $29.9 million in 2016, $32.1 million in 2015, and $34.3 million in 2014. For 2016, the
decrease was primarily attributable to lower OREO expense of $1.3 million, FDIC insurance fees of $0.7 million, legal fees of $0.2
million, and professional fees of $0.4 million, partially offset by higher telephone expense of $0.3 million and advertising expense of
$0.3 million. Lower property carrying costs drove the reduction in OREO expense. The reduction in FDIC insurance fees was
attributable to the revision of the FDIC fee structure in the third quarter of 2016. The decrease in professional fees reflected a lower
level of consulting and other professional fees. Legal fees declined due to a lower level of legal support needed for problem loan
resolutions. The increase in telephone expense was attributable to the implementation of a new telephone system during 2016 and the
need to run dual circuits for a period of time while the system was phased in. An increased level of product advertising drove the
increase in advertising expense.
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.
Income Taxes
For 2016, we realized income tax expense of $5.9 million (33% effective rate) compared to $4.5 million (33% effective rate) for 2015
and $1.7 million (15% effective rate) for 2014. Receipt of 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. 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 $2.752 billion for the year 2016, an increase of $93.0 million, or 3.5%, over 2015. Average
interest earning assets were approximately $2.432 billion for the year 2016, an increase of $107.5 million, or 4.6% over 2015. Year-
over-year, average overnight funds decreased $25.2 million, while investment securities increased $65.3 million and average gross
loans were higher by $67.4 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.
41
Loans
In 2016, average loans increased $67.4 million, or 4.6%, compared to an increase of $60.8 million, or 4.3%, in 2015. Loans as a
percentage of average earning assets were unchanged in 2016 compared to 2015 at 63.4%, and increased slightly over 2014 levels of
63.2%. Year-over-year average balances in the loan portfolio experienced increases in all loan categories except commercial
mortgages. The largest increases occurred in the commercial loan category, primarily tax-free loans, and consumer loans.
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. We believe these modifications are prudent and do not compromise our credit
standards or significantly increase our interest rate risk. 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 loans are retained in our loan portfolio.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances – Dollars In Thousands)
Loans:
Commercial, Financial, and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Loans
Investment Securities:
Taxable
Tax-Exempt
Total Securities
Funds Sold
2015 to
2016
Change
Percentage
Total
Change
Components of
Average Earning Assets
2015
2014
2016
$
$
$
50,378
4,509
(10,657)
2,075
4,141
16,953
67,399
47.0 %
4.0
(10.0)
2.0
4.0
16.0
63.0 %
8.5 %
2.1
20.3
12.5
9.6
10.4
63.4 %
6.8 %
2.0
21.7
13.0
9.9
10.1
63.5 %
5.9 %
1.8
23.1
14.1
10.1
8.2
63.2 %
55,987
9,311
65,298
52.0 %
9.0
61.0
24.1 %
3.8
27.9
22.8 %
3.5
26.3
16.2 %
4.1
20.3
(25,159)
(24.0)
8.7
10.2
16.5
Total Earning Assets
$
107,538
100.0 %
100.0 %
100.0 %
100.0 %
Our average loan-to-deposit ratio decreased to 67.6% in 2016 from 68.2% in 2015. The lower loan-to-deposit ratio reflects strong
growth in core deposits relative to increases in average loan balances.
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, 2016, by maturity period. As a percentage of the total portfolio, loans with fixed interest rates
represented 35.7% as of December 31, 2016, compared to 34.3% on December 31, 2015. 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.
42
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
(1) Includes loans held for sale
Table 6
LOAN MATURITIES
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer(1)
Total
Loans with Fixed Rates
Loans with Floating or Adjustable Rates
Total
2016
2015
2014
2013
$
$
216,404 $
59,147
503,978
291,691
236,512
264,443
1,572,175 $
179,816 $
47,402
499,813
301,299
233,901
241,676
1,503,907 $
136,925 $
43,472
510,120
304,781
229,572
217,192
1,442,062 $
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
Maturity Periods
One Year
or Less
Over One
Through Five
Years
Over
Five Years
$
$
$
$
56,229 $
54,282
62,154
22,619
3,508
13,066
211,858 $
83,424 $
128,434
211,858 $
115,610 $
1,996
79,413
31,853
52,596
237,706
519,174 $
386,835 $
132,339
519,174 $
44,565 $
2,869
362,411
237,219
180,408
13,671
841,143 $
91,560 $
749,583
841,143 $
Total
216,404
59,147
503,978
291,691
236,512
264,443
1,572,175
561,819
1,010,356
1,572,175
(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, troubled debt restructurings (“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 $19.2 million at December 31, 2016 compared to $29.6 million at
December 31, 2015. Nonaccrual loans totaled $8.5 million at December 31, 2016, a decrease of $1.8 million from December 31,
2015. Nonaccrual loan additions totaled $13.1 million for 2016 compared to $15.7 million for 2015. The balance of OREO totaled
$10.6 million at December 31, 2016, a decrease of $8.6 million from December 31, 2015. For 2016, we disposed of properties
totaling $10.3 million compared to $20.2 million in 2015. Nonperforming assets represented 0.67% of total assets as of December 31,
2016 compared to 1.06% as of December 31, 2015.
43
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
Performing Troubled Debt Restructurings
2016
2015
2014
2013
2012
$
$
$
$
$
468
311
3,410
2,330
1,774
240
8,533
10,638
19,171
6,438
38,233
$
$
$
$
$
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
Nonperforming Loans/Loans
Nonperforming Assets/Total Assets
Nonperforming Assets/Loans Plus OREO
Allowance/Nonperforming Loans
0.54 %
0.67
1.21
157.40 %
0.69 %
1.06
1.94
135.40 %
1.16 %
2.00
3.55
104.60 %
2.64 %
3.26
5.87
62.48 %
4.22 %
4.47
7.47
45.42 %
(1) Nonaccrual TDRs totaling $1.7 million, $2.7 million, and $2.2 million are included in nonaccrual/NPL totals for
December 31, 2016, December 31, 2015 and December 31, 2014, 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
NPA Net Change
NPA Ending Balance
2016
2015
$
29,595
$
52,449
10,305
13,065
(2,783)
(3,718)
(3,153)
(5,183)
8,533
19,290
4,016
(2,363)
(10,305)
-
10,638
(10,424)
19,171
$
$
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
(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 prior period.
44
Nonaccrual Loans. Nonaccrual loans totaled $8.5 million at December 31, 2016, a decrease of $1.8 million from December 31, 2015.
Gross additions to nonaccrual status during 2016 totaled $13.1 million compared to $15.7 million in 2015. The commercial real estate
and residential real estate categories realized the largest declines.
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 2016 had been recognized on a fully accruing basis, we would have recorded an additional $0.5 million of interest income for
the year ended December 31, 2016.
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 $10.6 million at December 31, 2016 versus $19.3 million at December 31, 2015. During 2016, we added properties
totaling $4.0 million and partially or completely liquidated properties totaling $10.3 million. Revaluation adjustments for OREO
properties during 2016 totaled $2.4 million and were charged to noninterest expense when realized. For 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.
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
2016
2015
$
$
7,052
1,035
1,551
1,000
10,638
$
$
11,718
2,221
4,137
1,214
19,290
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 an extension of the loan term, an interest rate reduction, or a principal moratorium. A
TDR classification can be removed if the borrower’s financial condition improves such that the borrower is no longer in financial
difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at
market terms and qualifies as a new loan.
Loans classified as TDRs at December 31, 2016 totaled $40.0 million compared to $38.3 million at December 31, 2015. Accruing
TDRs made up approximately $38.2 million, or 96%, of our TDR portfolio at December 31, 2016 of which $1.5 million was over 30
days past due. The weighted average rate for the loans within the accruing TDR portfolio is 5.2%. During 2016, we modified 14 loan
contracts totaling approximately $5.8 million. Our TDR default rate (default balance as a percentage of average TDRs) during 2016
and 2015 was 4% for each respective year.
45
The composition of our TDR portfolio as of December 31 is provided in the table below.
2016
2015
Accruing
Nonaccruing(1)
Accruing
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total TDRs
$
$
772 $
20,673
13,969
2,647
172
38,233 $
40 $
1,259
444
-
-
1,743 $
Nonaccruing(1)
-
1,070
1,582
-
35
2,687
897 $
16,621
14,979
2,914
223
35,634 $
(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
Transferred to OREO
TDR Ending Balance
2016
2015
$
$
38,321
5,808
(64)
(2,735)
(710)
(644)
39,976
$
$
49,154
3,317
(1,580)
(6,084)
(4,906)
(1,580)
38,321
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, 2016 totaled $6.4 million compared to $5.8 million at December 31, 2015.
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, 2016, we had $2.0 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 $3.6 million at December
31, 2015. 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 69% at December 31, 2016 and
72% at December 31, 2015. The primary types of real estate collateral are commercial properties and 1-4 family residential
properties. At December 31, 2016, commercial real estate and residential real estate mortgage loans (including home equity loans)
accounted for 32.1% and 33.6%, 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.
2016
2015
Investor Real
Estate
Owner
Occupied
Real Estate
Investor Real
Estate
Vacant Land, Construction, and Land Development
Improved Property
Total Real Estate Loans
10.7 %
22.2
32.9 %
-
67.1 %
67.1 %
10.5 %
22.2
32.7 %
Owner
Occupied
Real Estate
-
67.3 %
67.3 %
A major portion of our real estate loan portfolio is centered in the owner occupied category which carries a lower risk of non-
collection than certain segments of the investor category. Approximately 65% of the land/construction category was secured by
residential real estate at December 31, 2016.
Allowance for Loan Losses
46
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 bank will not be able to collect all amounts due (principal and interest payments), according to the
contractual terms of the loan agreement. Loans are monitored for potential impairment through our ongoing loan review procedures
and portfolio analysis. Classified loans and past due loans over a specific dollar amount, and all troubled debt restructurings are
individually evaluated for impairment.
The approach for assigning reserves for the impaired loans is determined by the dollar amount of the loan and loan type. Impairment
measurement for loans over a specific dollar are assigned on an individual loan basis with the amount reserved dependent on whether
repayment of the loan is dependent on the liquidation of collateral or from some other source of repayment. If repayment is dependent
on the sale of collateral, the reserve is equivalent to the recorded investment in the loan less the fair value of the collateral after
estimated sales expenses. If repayment is not dependent on the sale of collateral, the reserve is equivalent to the recorded investment
in the loan less the estimated cash flows discounted using the loan’s effective interest rate. The discounted value of the cash flows is
based on the anticipated timing of the receipt of cash payments from the borrower. The reserve allocations for individually measured
impaired loans are sensitive to the extent market conditions or the actual timing of cash receipts change. Impairment reserves for
smaller-balance loans under a specific dollar amount are assigned on a pooled basis utilizing loss factors for impaired loans of a
similar nature.
The second component is a general reserve on all loans other than those identified as impaired. General reserves are assigned to
various homogenous loan pools, including commercial, commercial real estate, construction, residential 1-4 family, home equity, and
consumer. General reserves are assigned based on historical loan loss ratios determined by loan pool and internal risk rating that are
adjusted for various internal and external risk factors unique to each loan pool.
Table 9 analyzes the activity in the allowance over the past five years.
For 2016, our net charge-offs totaled $1.3 million, or 0.09%, of average loans, compared to $5.2 million, or 0.35%, for 2015, and $7.5
million, or 0.53%, for 2014. The decrease in 2016 was attributable to both a lower level of gross loan charge-offs and a higher level
of loan recoveries. We continue to realize favorable problem loan migration and were very successful during 2016 in our loan loss
collection efforts. As borrowers have recovered financially from the great recession period of 2008-2013, we have received payments
from prior year loan losses as consumers and investors seek to remove judgments and collections from their records in order to borrow
money and acquire assets. The decrease in 2015 was primarily attributable to a $2.5 million decline in commercial real estate loan
charge-offs. As of December 31, 2016, the allowance for loan losses of $13.4 million was 0.86% of outstanding loans (net of
overdrafts) and provided coverage of 157% of nonperforming loans compared to 0.93% and 135%, respectively, as of December 31,
2015, and 1.22% and 105%, respectively, at December 31, 2014.
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, 2015 to December 31, 2016 and December 31, 2014 to
December 31, 2015, was primarily attributable to a decline in general reserves reflective of favorable 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 reflected slower inflow and successful resolutions, as well as lower loss content. During 2015 and 2016, 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, 2016 is adequate to absorb probable losses inherent in the loan portfolio.
47
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
2016
2015
2014
2013
2012
$
13,953
$
17,539
$
23,095
$
29,167
$
31,035
861
-
349
899
450
2,127
4,686
337
-
408
1,231
409
960
3,345
1,029
-
1,250
1,852
1,403
1,901
7,435
239
-
183
705
136
992
2,255
871
28
3,788
2,160
1,379
1,820
10,046
214
9
468
752
141
1,001
2,585
748
1,070
3,651
3,835
1,159
1,751
12,214
209
1
363
838
294
965
2,670
822
629
6,031
9,719
2,896
2,125
22,222
290
43
682
1,291
399
1,483
4,188
Net Charge-Offs
1,341
5,180
7,461
9,544
18,034
Provision for Loan Losses
819
1,594
1,905
3,472
16,166
Balance at End of Year
$
13,431
$
13,953
$
17,539
$
23,095
$
29,167
Ratio of Net Charge-Offs to Average Loans
Outstanding
Allowance for Loan Losses as a Percent of
Loans at End of Year
Allowance for Loan Losses as a Multiple of
Net Charge-Offs
0.09 %
0.35 %
0.53 %
0.66 %
1.16 %
0.86 %
0.93 %
1.22 %
1.65 %
1.93 %
10.02 x
2.69 x
2.35 x
2.42 x
1.62 x
48
Table 10
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2016
2015
2014
2013
2012
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
$ 1,198
13.8 % $
905
12.0 % $
784
9.5 % $
699
9.0 % $
1,253
9.2 %
168
4,315
3,445
2,297
2,008
-
3.7
32.1
18.6
15.0
16.8
-
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
-
(Dollars in Thousands)
Commercial, Financial
and Agricultural
Real Estate:
Construction
Commercial
Residential
Home Equity
Consumer
Not Allocated
Total
$ 13,431
100.0 % $ 13,953
100.0 % $ 17,539
100.0 % $ 23,095
100.0 % $ 29,167
100.0 %
Investment Securities
In 2016, our average investment portfolio increased $65.3 million, or 10.7%, from 2015 and increased $158.3 million, or 34.9%, from
2014 to 2015. As a percentage of average earning assets, the investment portfolio represented 27.8% in 2016, compared to 26.3% in
2015. In both 2015 and 2016, we strategically grew the portfolio to better deploy our liquidity. In 2017, 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. A relatively short investment portfolio
offers the flexibility to provide additional liquidity from maturing bonds, if necessary.
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 2015 and 2016, securities were purchased under both the AFS and HTM designations. As of
December 31, 2016, $522.7 million, or 74.7% of the investment portfolio was classified as AFS, with the remaining $177.4 million, or
25.3%, classified as HTM. At December 31, 2015, the AFS and HTM portfolio comprised 70.6% and 29.4%, respectively.
In 2016, average taxable investments increased $56.0 million, or 10.6%, while tax-exempt investments increased $9.3 million, or
11.4%. Both taxable and non-taxable investments increased as part of our overall investment strategy in 2016. High quality, short-
term taxable and non-taxable bonds offered attractive yields during the year, resulting in favorable repricing in the investment
portfolio. At December 31, 2016, municipal securities (taxable and non-taxable) comprised 14.7% of the 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.
49
At December 31, 2016, there were 396 positions (combined AFS and HTM) with unrealized losses totaling $2.3 million. Of the 396
positions, 115 were Ginnie Mae mortgage-backed securities (“GNMA”), U.S. Treasuries, or Small Business Administration (“SBA”)
securities with an unrealized loss of $1.7 million ($640,000, $930,000, and $150,000, respectively), 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
115 positions, there were 11 GNMA positions and 16 SBA positions in an unrealized loss position for longer than 12 months, and
have unrealized losses of $39,000 and $34,000, respectively. There were 19 agency positions with an unrealized loss of $0.2 million.
The remaining 262 positions in an unrealized loss position were municipal bonds that were pre-refunded, or rated “AA-“or better, with
unrealized losses of $0.4 million. Of these 262 positions, one was in an unrealized loss position greater than 12 months, with an
unrealized loss of $1,000. None of these positions with unrealized losses are considered impaired, and all are expected to mature at
par. At December 31, 2016, approximately 87% of the total investment portfolio was government guaranteed.
The average maturity of the total portfolio at December 31, 2016 was 1.85 years, unchanged from December 31, 2015. Balances
increased primarily in U.S. Treasury, SBA, and GNMA securities, with the remaining asset classes being unchanged or lower
compared to the prior year. The average life of the investment portfolio was unchanged as bonds purchased offset the natural aging of
the existing portfolio, resulting in an immaterial change to the average life year-over-year. U.S. Treasury, SBA, and GNMA securities
are all 0% risk weighted. We continue to invest in short-duration, high quality bonds. See Table 12 for a breakdown of maturities by
investment type.
The weighted average taxable equivalent yield of the investment portfolio at December 31, 2016 was 1.22% versus 1.08% in 2015.
This favorable yield reflects the reinvestment of proceeds at slightly higher market rates during 2016. Our 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, 2016.
Table 12 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 SECURITES BY CATEGORY
(Dollars in Thousands)
Available for Sale
U.S. Government Treasury
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Equity Securities
Total
$
Held to Maturity
U.S. Government Treasury
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Total
2016
2015
2014
Carrying
Amount
Percent
Carrying
Amount
Percent
Carrying
Amount
Percent
286,278
131,640
94,839
1,430
8,547
522,734
119,131
-
8,175
50,059
177,365
40.9 % $
18.8
13.5
0.2
1.2
74.7
17.0
-
1.2
7.2
25.3
250,346
101,824
88,362
1,901
8,595
451,028
134,554
10,043
15,693
27,602
187,892
39.2 % $
15.9
13.8
0.3
1.3
70.6
21.1
1.6
2.5
4.3
29.4
186,031
96,097
48,388
2,287
8,745
341,548
76,179
19,807
26,716
40,879
163,581
36.8 %
19.0
9.6
0.5
1.7
67.6
15.1
3.9
5.3
8.1
32.4
Total Investment Securities
$
700,099
100 % $
638,920
100 % $
505,129
100 %
50
Table 12
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Within 1 year
1 - 5 years
5 - 10 years
After 10 years
Total
WAY(3)
Amount WAY(3)
Amount WAY(3)
Amount
WAY(3)
Amount WAY(3)
$ 144,354
(Dollars in Thousands) Amount
Available for Sale
U.S. Government
Treasury
U.S. Government
Agency
States and Political
Subdivisions
Mortgage-Backed
Securities(1)
Other Securities(2)
4,955
15,742
88
-
0.96 % $ 141,924
1.13 % $
0.82
126,685
1.03
1.21
79,097
1.60
2.92
1,297
4.56
-
-
-
Total
$ 165,139
1.01 % $ 349,003
1.21 % $
Held to Maturity
U.S. Government
Treasury
States and Political
Subdivisions
Mortgage-Backed
Securities(1)
$
40,745
0.86 % $
78,386
1.14 % $
960
1.09
7,215
1.92
754
1.09
49,305
1.53
Total
$
42,459
0.87 % $ 134,906
1.33 % $
-
-
-
45
-
45
-
-
-
-
- % $
-
-
5.28
-
-
-
-
- % $ 286,278
1.06 %
-
-
-
131,640
1.02
94,839
1.53
1,430
4.49
-
8,547
5.25
8,547
5.25
5.28 % $
8,547
5.25 % $ 522,734
1.21 %
- % $
-
-
- % $
-
-
-
-
- % $ 119,131
1.05 %
-
-
8,175
1.82
50,059
1.53
- % $ 177,365
1.22 %
Total Investment
Securities
$ 207,598
0.98 % $ 483,909
1.24 % $
45
5.28 % $
8,547
5.25 % $ 700,099
1.21 %
(1) Based on weighted-average life.
(2) Federal Home Loan Bank Stock, Federal Reserve Bank Stock and FNBB, Inc. 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.
51
Deposits and Funds Purchased
Average total deposits for 2016 were $2.283 billion; an increase of $119.3 million, or 5.5%, over 2015. Average deposits increased
$70.0 million, or 3.3%, from 2014 to 2015. Both year-over-year increases occurred in all deposit types except money market accounts
and certificates of deposit.
The seasonal inflow of public funds started in the fourth quarter of 2016 and is expected to continue through the first quarter of 2017.
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.
We continue to closely monitor several metrics such as the sensitivity of our deposit rates, the Bank’s overall liquidity position, and
competitor rates when pricing deposits. 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 – 13 basis points for the year 2016 and
14 basis points for the year 2015.
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, 2016.
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, decreased $21.7 million, or 37.1% in 2016. The lower balance was
primarily attributable to decreases in repurchase agreements, partially offset by an increase 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
2015 to
2016
Change
Percentage
of Total
Change
Components of
Total Deposits
2015
2016
$
$
69,806
32,467
(1,655)
36,929
(18,203)
119,344
58.6 %
27.2
(1.4)
30.9
(15.3)
100.0 %
34.42 %
34.16
11.23
12.81
7.39
100.0 %
33.1 %
34.5
11.9
11.8
8.7
100.0 %
2014
32.1 %
34.2
13.0
10.9
9.8
100.0 %
Table 14
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 AND OVER
(Dollars in Thousands)
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
2016
Time Certificates
of Deposit
Percent
$
$
11,779
9,669
17,908
4,898
44,254
26.6 %
21.8
40.5
11.1
100.0 %
52
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 12-month and 24-month periods 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. During 2016, instantaneous rate shocks of down 100
bp were outside of desired parameters due to limited repricing of deposits relative to the decline in rates.
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, and do not
necessarily indicate the long-term prospects or economic value of the institution. In August 2016, the Board of Directors approved
policy limits for a 24-month rate shock, which is also included in the table below.
ESTIMATED CHANGES IN NET INTEREST INCOME(1)
Percentage Change (12-month shock)
Policy Limit
December 31, 2016
December 31, 2015
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-15.0 %
10.7 %
8.2 %
-12.5 %
7.5 %
5.2 %
-10.0 %
4.4 %
2.6 %
-7.5 %
2.1 %
1.1 %
-7.5 %
-9.0 %
-6.7 %
Percentage Change (24-month shock)
Policy Limit
December 31, 2016
December 31, 2015
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-17.5 %
41.3 %
N/A
-15.0 %
30.5 %
N/A
-12.5 %
19.9 %
N/A
-10.0 %
10.5 %
N/A
-10.0 %
-14.3 %
N/A
53
The Net Interest Income (“NII”) at Risk position improved for the period ending December 2016 compared to December 2015 for the
12-month shock for all rate scenarios with the exception of rates down 100bp. The unfavorable change from the prior year-end in
rates down 100bp reflected higher interest rates on the short-end of the Treasury curve compared to the prior year-end, while
maintaining deposit rates relatively flat, resulting in increased exposure to falling rates. The model indicates that in the short-term, all
rising rate environments will positively impact the net interest margin of the Company, while a declining rate environment of 100bp
will have a negative impact on the net interest margin. In addition, this analysis incorporates an instantaneous, parallel shock and
assumes we move with market rates and do not lag our deposit rates.
All shock scenarios of net interest income at risk are within our prescribed policy limits with the exception of an instantaneous rate
shock of -100bp over both a 12-month and 24-month period, which were -9.0% and -14.3% compared to limits of -7.50% and -10.0%,
respectively. These metrics were out of compliance at year-end due to limited repricing of deposits relative to the decline in rates.
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 by 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, 2016
December 31, 2015
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-30.0 %
23.5 %
31.1 %
-25.0 %
18.6 %
24.7 %
-20.0 %
13.1 %
17.3 %
-15.0 %
7.3 %
9.4 %
-15.0 %
-19.7 %
-26.2 %
As of December 2016, the economic value of equity was more favorable in the down 100 bp scenario, and less favorable in the rising
rate scenarios compared to December 2015. Although the down 100 bp rate scenario remains out of compliance 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, it improved over last year due to higher rates on the short end of the Treasury curve. 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.
As the interest rate environment and the dynamics of the economy continue to change, additional simulations will be analyzed to
address not only the changing rate environment, but also the changing balance sheet mix, measured over multiple years, to help assess
the risk to the Company.
(1) Down 200, 300, and 400 bp rate scenarios have been excluded due to the current historically low interest rate environment.
54
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, 2016 and 2015, 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, 2016, we had the ability to generate approximately $1.201 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 1.85 years and as of December 31, 2016 had a net unrealized
pre-tax loss of $0.7 million in the available-for sale portfolio.
Our average net overnight funds (defined as funds sold plus interest-bearing deposits with other banks less funds purchased) sold
position was $212.8 million during 2016 compared to an average net overnight funds sold position of $238.0 million in 2015. The
decrease in this positon compared to the prior year reflected higher growth in both the investment and loan portfolios, partially offset
by an increase in average deposits.
Capital expenditures are expected to approximate $5.3 million over the next 12 months, which consist primarily of technology
purchases for banking offices, business applications, and information technology security needs as well as furniture and fixtures and
banking office remodels. 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, 2016, total advances from the FHLB consisted of $18.1 million in outstanding debt consisting of 20 notes. In 2016,
the Bank made FHLB advance payments totaling $10.2 million, which included nine advances that matured or were paid off. No new
FHLB advances were obtained in 2016. 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 three-month
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 three-month 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.
On April 12, 2016, we retired $10 million in face value of trust preferred securities that were auctioned as part of a liquidation of a
pooled collateralized debt obligation fund. The trust preferred securities were originally issued through CCBG Capital Trust I. Our
winning bid equated to approximately 75% of the $10 million par value, with the 25% discount resulting in a pre-tax gain of
approximately $2.5 million. We utilized internal resources and a $3.75 million draw on a short-term borrowing facility to fund the
repurchase.
55
Table 15
CONTRACTUAL CASH OBLIGATIONS
Table 15 sets forth certain information about contractual cash obligations at December 31, 2016.
(Dollars in Thousands)
Federal Home Loan Bank Advances
Subordinated Notes Payable
Operating Lease Obligations
Time Deposit Maturities
Total Contractual Cash Obligations
< 1 Yr
> 1 – 3 Yrs
> 3 – 5 Yrs
> 5 Yrs
Total
$
$
7,894 $
-
485
134,250
142,629 $
7,095 $
-
915
21,326
29,336 $
2,849 $
-
826
4,033
7,708 $
3,302 $
52,887
1,981
1
58,171 $
21,140
52,887
4,207
159,610
237,844
Payments Due By Period
Capital
Shareowners’ equity was $275.2 million as of December 31, 2016, compared to $274.4 million as of December 31, 2015. During
2016, shareowners’ equity was positively impacted by net income of $11.7 million, stock compensation accretion of $1.3 million, and
net adjustments totaling $1.0 million related to transactions under our stock compensation plans. Shareowners’ equity was reduced by
common stock dividends of $2.9 million ($0.17 per share), common stock share repurchases totaling $6.3 million (435,461 shares), a
$3.5 million increase in the accumulated other comprehensive loss for our pension plan, and a net increase of $0.5 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
2016
2015
2014
$
$
168 $
34,188
267,037
301,393
(26,225)
275,168 $
172 $
38,256
258,181
296,609
(22,257)
274,352 $
174
42,569
251,306
294,049
(21,509)
272,540
We continue to maintain a strong capital position. The ratio of shareowners' equity to total assets at year-end was 9.67%, 9.81%, and
10.37%, in 2016, 2015, and 2014, 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.
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, 2016, we exceeded these
capital guidelines with a total risk-based capital ratio of 16.28% and a Tier 1 capital ratio of 15.51%, compared to 17.25% and
16.42%, respectively, in 2015. 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 14 for a detailed discussion of the new Basel III capital
requirements. The reduction in our regulatory capital ratios in 2015 reflected the implementation of Basel III and the repurchase of
our common stock. In 2016, the repurchase of our common stock and the partial redemption of TRUPs reduced our regulatory capital
ratios by approximately 38 basis points and 50 basis points, respectively. The common equity Tier 1 ratio is a required ratio that was
created in 2015 as a result 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 (0.625% in 2016, 1.25% in 2017, 1.875% in 2018, 2.5% in 2019). As of December 31, 2016,
our common equity tier 1 ratio was 12.61%.
56
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, 2016, we had a leverage ratio of 10.23% compared to 10.65% in 2015.
At December 31, 2016, our common stock had a book value of $16.23 per diluted share compared to $15.93 at December 31, 2015.
Book value is impacted by the net unrealized gains and losses on investment securities. At December 31, 2016, the net unrealized loss
was $583,000 compared to a $127,000 net unrealized loss at December 31, 2015. The aforementioned net unrealized loss of $583,000
reflected a $417,000 net loss on available for sale securities and $166,000 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, 2016, the net pension
liability reflected in other comprehensive loss was $25.6 million compared to $22.1 million at December 31, 2015.
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 860,289 shares of our outstanding common stock have been purchased at an
average price of $14.59 under the plan. During 2016, we repurchased 435,461 shares at an average price $14.49 per share and during
2015 we repurchased 405,228 shares at an average price of $14.73 per share.
We offer an Associate Incentive Plan (“AIP”) under which certain associates are eligible to earn equity-based awards based upon
achieving established performance goals. In 2016, 71,153 shares were earned under this plan of which 9,680 shares were issued in
2016 and 61,473 were issued in January 2017. In 2015, 61,118 shares were earned under this plan of which 7,931 shares were issued
in 2015 and 53,187 shares were issued in January 2016. Under the AIP, we also maintain long-term incentive plans (‘LTIPs”) for the
President and Chief Executive Officer of the Company and the President of the Bank that are both tied to earnings progression goals
over a three year period. Under these LTIPs, 35,342 shares were earned in 2016 and issued in January 2017.
We also offer stock purchase plans, which permit our associates and directors to purchase shares at a 10% discount. In 2016, 60,312
shares, valued at approximately $0.8 million (before 10% discount), were issued under these plans. In 2015, 33,582 shares, valued at
approximately $0.5 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:
• Compliance with state and federal laws and regulations;
• Our capital position and our ability to meet our financial obligations;
• Projected earnings and asset levels; and
• The ability of the Bank and us to fund dividends.
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.
57
At December 31, 2016, we had $402.4 million in commitments to extend credit and $4.7 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a client to a
third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on-balance sheet
instruments.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments require
funding in excess of historical levels, management believes current liquidity, investment security maturities, available advances from
the FHLB and Federal Reserve Bank provide a sufficient source of funds to meet these commitments.
Results of Operations
We realized net income of $3.3 million, or $0.20 per diluted share for the fourth quarter of 2016, compared to net income of $2.9
million, or $0.17 per diluted share for the third quarter of 2016. The growth in earnings reflected higher net interest income of $0.7
million and lower noninterest expense of $0.5 million, partially offset by a $0.5 million increase in the loan loss provision, lower
noninterest income of $0.2 million, and higher income taxes of $0.1 million.
Tax equivalent net interest income for the fourth quarter of 2016 was $20.3 million compared to $19.6 million for the third quarter of
2016. During the fourth quarter of 2016, overnight funds were used to fund growth in the loan and investment portfolios resulting in a
positive shift in our earning asset mix. Non-accrual loan adjustments also had a favorable impact. The net interest margin for the
fourth quarter of 2016 was 3.34% (annualized), an increase of 11 basis points over the third quarter of 2016 due to growth in our loan
and investment portfolios, in addition to $0.5 million in net interest recoveries.
The provision for loan losses for the fourth quarter of 2016 was $0.5 million compared to no provision for the third quarter of 2016
reflective of continued favorable problem loan migration and lower net loan charge-offs, partially offset by growth in the loan
portfolio. Net loan charge-offs for the fourth quarter of 2016 totaled $0.8 million, or 0.20% (annualized) of average loans compared
to net loan recoveries of $0.1 million for the third quarter of 2016.
Noninterest income for the fourth quarter of 2016 totaled $12.8 million, a decrease of $0.2 million, or 1.8%, from the third quarter of
2016 reflective of lower deposit fees of $0.1 million and mortgage banking fees of $0.1 million. The decrease in deposit fees reflected
lower overdraft service fees attributable to lower utilization of this service during the quarter. The reduction in mortgage banking fees
was attributable to lower loan production.
Noninterest expense for the fourth quarter of 2016 totaled $27.6 million, a decrease of $0.5 million, or 1.6%, from the third quarter of
2016 reflective of lower OREO expense of $0.5 million, other expense of $0.5 million, and occupancy expense of $0.2 million,
partially offset by higher compensation expense of $0.7 million. Lower carrying costs drove the reduction in OREO expense. The
decrease in other expense reflected lower processing fees and professional fees. The reduction in occupancy expense was attributable
to lower expense for utilities, property taxes, and maintenance agreements.
Discussion of Financial Condition
Average earning assets were $2.423 billion for the fourth quarter of 2016, an increase of $5.4 million, or 0.2%, over the third quarter
of 2016 reflective of a higher level of total deposits. Growth in both the loan and investment portfolios led to a more favorable
earning asset mix. Average loans increased $17.4 million, or 1.1% when compared to the third quarter of 2016 as all loan types
realized growth except institutional and residential mortgages.
Nonperforming assets (nonaccrual loans and OREO) totaled $19.2 million at December 31, 2016, a decrease of $2.2 million, or 10%,
from September 30, 2016. Nonaccrual loans totaled $8.5 million at December 31, 2016, a $0.1 million decrease from September 30,
2016. Nonaccrual loan additions totaled $3.9 million in the fourth quarter of 2016 compared to $2.8 million for third quarter of 2016.
The balance of OREO totaled $10.6 million at December 31, 2016, a decrease of $2.1 million from September 30, 2016. For the
fourth quarter of 2016, we added properties totaling $0.7 million, sold properties totaling $2.4 million, and recorded valuation
adjustments totaling $0.4 million. Nonperforming assets represented 0.67% of total assets at December 31, 2016 compared to 0.78%
at September 30, 2016.
Average total deposits were $2.307 billion for the fourth quarter of 2016, an increase of $18.2 million, or 0.8%, over the third quarter
of 2016 reflective of growth in all deposit products except money market accounts and certificates of deposit. The seasonal inflow of
public fund balances began late in the fourth quarter of 2016, and is expected to peak during the first quarter of 2017 for this cycle.
Compared to the third quarter of 2016, average borrowings decreased $3.5 million primarily due to payoffs of FHLB advances.
58
Shareowners’ equity was $275.2 million at December 31, 2016, compared to $276.6 million at September 30, 2016. Our leverage ratio
was 10.23% and 10.12%, respectively, for these periods. Further, at December 31, 2016, our risk-adjusted capital ratio was 16.28%
compared to 16.28% at September 30, 2016. Our common equity tier 1 ratio was 12.61% at December 31, 2016 compared to 12.55%
at September 30, 2016. All of our capital ratios significantly exceed the threshold to be designated as “well-capitalized” under the
Basel III capital standards at December 31, 2016.
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.
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. The multiples that resulted from the GLC method were validated by comparing to peer companies. A control
premium was then applied to the minority value to calculate a Step One value indication for the Company. The control premium
selected was validated by reviewing recent bank merger and acquisition transactions. 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.
59
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 2016 was 4.52%. The estimated impact to 2016
pension expense of a 25 basis point increase or decrease in the discount rate would have been a decrease and increase of
approximately $702,000 and $740,000, respectively. We anticipate using a 4.21% discount rate in 2017.
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 2016 was 7.5%. The estimated impact to 2016 pension expense of a 25 basis point increase or decrease in the
rate of return would have been an approximate $258,000 increase or decrease, respectively. We anticipate using a rate of return on
plan assets for 2017 of 7.5%.
The assumed rate of annual compensation increases of 3.25% in 2016 reflected expected trends in salaries and the employee base. We
anticipate using a compensation increase of 3.25% for 2017 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 2017. 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.
60
Item 8. Financial Statements and Supplementary Data
Table 16
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in Thousands, Except
Per Share Data)
Summary of Operations:
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After
Provision for Loan Losses
Noninterest Income(1)(2)
Noninterest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Net Interest Income (FTE)
Per Common Share:
Basic Net Income
Diluted Net Income
Cash Dividends Declared
Diluted Book Value
Market Price:
High
Low
Close
Selected Average Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Shareowners’ Equity
Common Equivalent Average Shares:
Basic
Diluted
Performance Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin (FTE)
Noninterest Income as % of Operating Revenue
Efficiency Ratio
Asset Quality:
Allowance for Loan Losses
Allowance for Loan Losses to Loans
Nonperforming Assets ("NPA's")
NPA’s to Total Assets
NPA’s to Loans plus ORE
Allowance to Non-Performing Loans
Net Charge-Offs to Average Loans
Capital Ratios:
Tier 1 Capital
Total Capital
Common Equity Tier 1 Capital
Leverage
Tangible Common Equity(3)
2016
2015
Fourth
Third
Second
First
Fourth
Third
Second
First
$
$
$
$
$
$
20,832
773
20,059
464
19,595
12,778
27,560
4,813
1,517
3,296
20,335
0.20
0.20
0.05
16.23
23.15
14.29
20.48
20,104
784
19,320
-
19,320
13,011
28,022
4,309
1,436
2,873
19,603
0.18
0.17
0.04
16.39
15.35
13.32
14.77
$ 1,573,264
2,423,388
2,743,463
2,306,917
278,943
$ 1,555,889
2,417,943
2,734,465
2,288,741
277,407
$
$
$
$
$
$
$
$
20,174
798
19,376
(97)
19,473
15,215
28,702
5,986
2,056
3,930
19,617
0.22
0.22
0.04
16.31
15.96
13.16
13.92
1,531,777
2,447,777
2,767,854
2,276,553
279,532
$
$
$
$
20,044
834
19,210
452
18,758
12,677
28,930
2,505
858
1,647
19,421
0.10
0.10
0.04
16.04
15.88
12.83
14.59
1,507,508
2,440,718
2,763,746
2,258,600
277,464
$
$
$
20,602
808
19,794
513
19,281
13,221
28,280
4,222
1,620
2,602
20,006
0.16
0.16
0.04
15.93
16.05
13.56
15.35
19,877
811
19,066
413
18,653
13,228
29,164
2,717
1,034
1,683
19,253
0.09
0.09
0.03
15.89
15.75
14.39
14.92
1,492,521
2,353,729
2,678,214
2,174,718
275,893
$ 1,483,657
2,310,823
2,639,692
2,137,433
274,956
$
$
$
$
19,833
849
18,984
375
18,609
14,794
28,439
4,964
1,119
3,845
19,119
0.22
0.22
0.03
15.80
16.32
13.94
15.27
1,473,954
2,328,012
2,670,701
2,178,399
274,421
$
$
$
$
19,346
839
18,507
293
18,214
12,848
29,390
1,672
686
986
18,611
0.06
0.06
0.03
15.59
16.33
13.16
16.25
1,448,617
2,306,485
2,648,551
2,163,376
275,304
16,809
16,913
16,804
16,871
17,144
17,196
17,202
17,235
17,145
17,214
17,150
17,229
17,296
17,358
17,508
17,555
0.48 %
4.70
3.34
38.91
83.23
0.42 %
4.12
3.23
40.24
85.92
0.57 %
5.65
3.22
43.99
82.40
0.24 %
2.39
3.20
39.76
90.13
0.39 %
3.74
3.37
40.05
85.11
0.25 %
2.43
3.31
40.96
89.79
0.58 %
5.62
3.29
43.80
83.85
0.15 %
1.45
3.27
40.98
93.42
$
13,431
$
13,744
$
13,677
$
0.86 %
0.88 %
0.89 %
19,171
0.67
1.21
157.40
0.20
21,352
0.78
1.35
159.56
(0.02)
22,836
0.83
1.48
166.50
(0.04)
15.51 %
16.28
12.61
10.23
6.90
15.48 %
16.28
12.55
10.12
7.19
15.63 %
16.44
12.65
9.98
7.08
13,613
$
0.90 %
26,499
0.95
1.73
150.44
0.21
16.39 %
17.20
12.82
10.34
7.09
13,953
$
14,737
$
15,236
$
16,090
0.93 %
0.99 %
1.03 %
1.10 %
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
16.42 %
17.25
12.84
10.65
6.99
16.36 %
17.24
12.76
10.71
7.46
15.83 %
16.72
12.34
10.53
7.29
16.16 %
17.11
12.57
10.73
7.26
(1) Includes $2.5 million gain on retirement of trust preferred securities in the second quarter, 2016.
(2) Includes $1.7 million in bank-owned life insurance proceeds in second quarter, 2015.
(3) Tangible common equity ratio is a non-GAAP financial measure. For additional information, including a reconciliation to GAAP, refer to page 31.
61
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
63
64
65
66
67
68
69
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
62
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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2016, 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, 2016, 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 2, 2017 expressed an unqualified opinion thereon.
Tampa, Florida
March 2, 2017
63
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
ASSETS
Cash and Due From Banks
Federal Funds Sold and Interest Bearing Deposits
Total Cash and Cash Equivalents
Investment Securities, Available for Sale, at fair value
Investment Securities, Held to Maturity, at amortized cost (fair value of $176,746 and $187,407)
Total Investment Securities
Loans Held For Sale
Loans, Net of Unearned Income
Allowance for Loan Losses
Loans, Net
Premises and Equipment, Net
Goodwill
Other Real Estate Owned
Other Assets
Total Assets
LIABILITIES
Deposits:
Noninterest Bearing Deposits
Interest Bearing Deposits
Total Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Other Liabilities
Total Liabilities
SHAREOWNERS’ EQUITY
As of December 31,
2015
2016
$
48,268 $
247,779
296,047
522,734
177,365
700,099
51,288
327,617
378,905
451,028
187,892
638,920
10,886
11,632
1,561,289
(13,431)
1,547,858
1,492,275
(13,953)
1,478,322
95,476
84,811
10,638
99,382
$ 2,845,197 $
98,819
84,811
19,290
87,161
2,797,860
$
791,182 $
1,621,104
2,412,286
758,283
1,544,566
2,302,849
12,749
52,887
14,881
77,226
2,570,029
61,058
62,887
28,265
68,449
2,523,508
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; 16,844,698 and 17,156,919
shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
-
-
168
34,188
267,037
(26,225)
275,168
$ 2,845,197 $
172
38,256
258,181
(22,257)
274,352
2,797,860
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64
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
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
For the Years Ended December 31,
2015
2016
2014
$
72,867 $
73,169 $
73,402
6,317
866
1,104
81,154
879
148
1,434
728
3,189
77,965
819
77,146
21,332
11,221
7,029
5,192
8,907
53,681
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
8,133
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
6,434
52,536
64,984
18,296
3,649
26,285
113,214
65,414
17,738
4,971
27,150
115,273
62,215
17,818
6,811
27,514
114,358
17,613
5,867
13,575
4,459
10,914
1,654
NET INCOME
$
11,746 $
9,116 $
9,260
BASIC NET INCOME PER SHARE
DILUTED NET INCOME PER SHARE
Average Basic Common Shares Outstanding
Average Diluted Common Shares Outstanding
$
$
0.69 $
0.69 $
0.53 $
0.53 $
16,989
17,061
17,273
17,318
0.53
0.53
17,425
17,488
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
65
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
NET INCOME
Other comprehensive income (loss), before tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
Total Investment Securities
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
Reclassification adjustment for amortization of net loss
Current year actuarial loss
Total Benefit Plans
Other comprehensive income (loss), before tax:
Deferred tax benefit related to other comprehensive income
Other comprehensive income (loss), net of tax
TOTAL COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31,
2015
2016
2014
$
11,746 $
9,116 $
9,260
(828)
(373)
82
(746)
76
(297)
278
3,960
(9,958)
(5,720)
(6,466)
2,498
(3,968)
7,778 $
316
3,743
(4,975)
(916)
(1,213)
465
(748)
8,368 $
251
70
321
473
705
(22,603)
(21,425)
(21,104)
8,135
(12,969)
(3,709)
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
66
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except
Per Share Data)
Balance, January 1, 2014
Net Income
Other Comprehensive Loss, Net of Tax
Cash Dividends ($0.09 per share)
Stock Compensation Expense
Impact of Transactions Under
Compensation Plans, net
Repurchase of Common Stock
Balance, December 31, 2014
Net Income
Other Comprehensive Loss, Net of Tax
Cash Dividends ($0.13 per share)
Stock Compensation Expense
Impact of Transactions Under
Compensation Plans, net
Repurchase of Common Stock
Balance, December 31, 2015
Net Income
Other Comprehensive Loss, Net of Tax
Cash Dividends ($0.17 per share)
Stock Compensation Expense
Impact of Transactions Under
Compensation Plans, net
Repurchase of Common Stock
Balance, December 31, 2016
Shares
Outstanding
Common
Stock
17,360,960 $
105,863
(19,600)
17,447,223
114,924
(405,228)
17,156,919
174 $
-
-
-
-
-
-
174
-
-
-
-
2
(4)
172
-
-
-
-
Additional
Paid-In
Capital
41,152 $
-
-
-
1,349
337
(269)
42,569
-
-
-
1,109
555
(5,977)
38,256
-
-
-
1,260
Retained
Earnings
243,614 $
9,260
-
(1,568)
-
-
-
251,306
9,116
-
(2,241)
-
-
-
258,181
11,746
-
(2,890)
-
Accumulated
Other
Comprehensive
Loss,
Net of Taxes
-
Total
(8,540) $ 276,400
9,260
(12,969)
(1,568)
1,349
-
-
(12,969)
-
-
(21,509)
-
(748)
-
-
-
-
(22,257)
-
(3,968)
-
-
337
(269)
272,540
9,116
(748)
(2,241)
1,109
557
(5,981)
274,352
11,746
(3,968)
(2,890)
1,260
123,240
(435,461)
16,844,698 $
-
(4)
168 $
980
(6,308)
34,188 $
-
-
267,037 $
-
-
980
(6,312)
(26,225) $ 275,168
The accompanying Notes to Consolidated Financial Statements are an integral part of these
67
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Provision for Loan Losses
Depreciation
Amortization of Premiums, Discounts, and Fees, net
Amortization of Intangible Assets
Gain on Securities Transactions
Impairment Loss on Security
Gain on Retirement of Trust Preferred Securities
Net Increase (Decrease) in Loans Held-for-Sale
Stock Compensation
Deferred Income Taxes
Loss on Sales and Write-Downs of Other Real Estate Owned
Loss on Disposal of Premises and Equipment
Net (Increase) Decrease in Other Assets
Net Increase in Other Liabilities
Net Cash Provided By Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
Payments, Maturities, and Calls
Securities Available for Sale:
Purchases
Payments, Maturities, and Calls
Net Increase 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 Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
Net (Decrease) Increase in Short-Term Borrowings
Redemption of Subordinated Notes
Repayment of Other Long-Term Borrowings
Dividends Paid
Payments to Repurchase Common Stock
Issuance of Common Stock Under Compensation Plans
Net Cash Provided By Financing Activities
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
Supplemental Cash Flow Disclosures:
Interest Paid
Income Taxes (Refunded) Paid
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned
Transfer of Current Portion of Long-Term Borrowings
For the Years Ended December 31,
2015
2014
2016
$
11,746
$
9,116
$
9,260
819
6,975
6,219
-
-
-
(2,487)
746
1,260
3,457
3,225
131
(18,374)
8,904
22,621
(50,001)
59,460
(192,005)
114,189
(73,997)
-
9,443
(4,450)
(137,361)
109,437
(52,666)
(7,500)
(9,027)
(2,890)
(6,312)
840
31,882
(82,858)
378,905
296,047
3,195
(330)
4,016
4,357
$
$
$
$
$
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
(6,151)
(144,872)
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.
68
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 in consolidation.
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, valuation of other real estate owned, 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, 2016 and 2015 were $15.3
million and $10.3 million, respectively.
69
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.
70
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 – Goodwill 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.
71
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 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 implements a common revenue standard that
clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. A significant portion of the Company’s revenue is comprised of net interest income on
financial instruments, which is explicitly excluded from the scope of ASU 2014-09. In addition to interest income, the Company has
various noninterest income revenue streams that the Company is in the process of assessing. The Company has formed a revenue
recognition working group and to date has completed its preliminary scoping and walk-through of noninterest income revenue
streams. Amongst non-interest income revenue streams, mortgage banking fees are not in the scope of the standard. Management is
in the process of completing its detailed contract review for the remaining revenue streams. ASU 2014-09 is effective for the
Company on January 1, 2018 and must be retrospectively applied. The Company expects to adopt the standard with a cumulative
effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.
72
ASU 2016-01, “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.
ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires the lease rights and obligations arising from lease contracts, including
existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for the
Company on January 1, 2019 and is not expected to have a significant impact on its financial statements.
ASU 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323) – Simplifying the Transition to the Equity Method of
Accounting.” ASU 2016-07 eliminates the requirement that when an investment qualifies for the use of the equity method as a result
in the increase in ownership interest, to retroactively apply the equity method of accounting to all previous periods that the investment
was held. The amendments require that the equity method investor add the cost of acquiring the additional interest to the current basis
of the investment. ASU 2016-07 will be effective for the Company on January 1, 2017 and is not expected to have a significant
impact on its financial statements.
ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as
income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were
recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax
benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when
computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in
additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an
operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an
entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for
forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to
permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable
jurisdictions. ASU 2016-09 is effective for the Company on January 1, 2017 and is not expected to have a significant impact on its
financial statements.
ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements.”
ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant
estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s
portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased
financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2020. The Company is
currently evaluating the potential impact of ASU 2016-13 on its financial statements.
ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15
addresses eight classification issues related to the statement of cash flow. The issues are (i) debt prepayment or debt extinguishment
costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in
relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv)
proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies (COLIs)
(including bank-owned life insurance policies (BOLIs)), (vi) distributions received from equity method investees, (vii) beneficial
interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. ASU
2016-15 will be effective for the Company on January 1, 2018 and is not expected to have a significant impact on its financial
statements.
ASU 2016-16, “Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provides guidance
stating that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when
the transfer occurs. ASU 2016-16 will be effective for the Company on January 1, 2018 and is not expected to have a significant
impact on its financial statements.
73
ASU 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash.” ASU 2016-18 requires that a statement of cash flows explain
the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
ASU 2016-18 will be effective for the Company on January 1, 2018 and is not expected to have a significant impact on its financial
statements.
ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition
and provides a more robust framework to use in determining when a set of assets and activities constitutes a business. ASU 2017-01 is
intended to provide guidance when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. ASU 2017-01 will be effective for the Company on January 1, 2018 and is not expected to have a significant impact on its
financial statements.
74
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related market value of investment securities available-for-sale and
held-to-maturity were as follows:
2016
2015
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Value
Losses
Losses
Value
Gains
Gain
Cost
Cost
(Dollars in Thousands)
Available for Sale
U.S. Government Treasury
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Equity Securities(1)
Total
$ 286,867 $
131,489
95,197
1,312
8,547
$ 523,412 $
Held to Maturity
U.S. Government Treasury
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Total
$ 119,131 $
-
8,175
50,059
$ 177,365 $
262 $
495
23
118
-
898 $
107 $
-
1
29
137 $
851 $ 286,278 $ 250,458 $
344
381
-
-
101,730
88,358
1,742
8,595
131,640
94,839
1,430
8,547
1,576 $ 522,734 $ 450,883 $
81 $ 119,157 $ 134,554 $
-
38
637
756 $ 176,746 $ 187,892 $
10,043
15,693
27,602
-
8,138
49,451
101 $
357
103
159
-
720 $
45 $
7
38
4
94 $
213 $ 250,346
101,824
263
88,362
99
1,901
-
8,595
-
575 $ 451,028
160 $ 134,439
10,045
5
15,724
7
407
27,199
579 $ 187,407
Total Investment Securities
$ 700,777 $
1,035 $
2,332 $ 699,480 $ 638,775 $
814 $
1,154 $ 638,435
(1) Includes Federal Home Loan Bank, Federal Reserve Bank and FNBB Inc. stock recorded at cost of $3.3 million, $4.8 million,
and $0.5 million, respectively, at December 31, 2016 and Federal Home Loan Bank, Federal Reserve Bank and FNBB, Inc. stock
at $3.6 million, $4.8 million and $0.2 million , respectively, at December 31, 2015.
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, 2016 totaled $270,000. 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 $332.7 million and $370.1 million at December 31, 2016 and December 31, 2015, 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.
As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain stock in the Federal Reserve Bank of Atlanta
based on a specified ratio relative to the Bank’s capital. Federal Reserve Bank stock is carried at cost and may be sold back to the
Federal Reserve Bank at its carrying value.
Investment Sales. There were no sales of investment securities for each of the last three years.
Maturity Distribution. As of December 31, 2016, 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.
75
(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
Held to Maturity
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
$
$
164,850 $
259,324
1,312
89,379
8,547
523,412 $
165,051 $
257,991
1,430
89,715
8,547
522,734 $
41,705 $
85,601
50,059
-
-
177,365 $
41,730
85,566
49,450
-
-
176,746
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)
December 31, 2016
Available for Sale
U.S. Government Treasury
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Total
Held to Maturity
U.S. Government Treasury
States and Political Subdivisions
Mortgage-Backed Securities
Total
December 31, 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
Less Than 12 Months
Market
Value
Losses
Unrealized
Greater Than 12 Months
Market
Value
Unrealized
Losses
Total
Market
Value
Unrealized
Losses
$ 116,704 $
48,520
81,521
3
246,748
851 $
310
380
-
1,541
- $
- $ 116,704 $
6,699
294
-
6,993
34
1
-
35
55,219
81,815
3
253,741
851
344
381
-
1,576
35,210
7,491
36,710
79,411 $
$
81
38
599
718 $
-
-
4,010
4,010 $
-
-
38
38 $
35,210
7,491
40,720
83,421 $
$ 150,061 $
43,508
39,608
233,177
213 $
200
86
499
- $
- $ 150,061 $
9,644
5,066
14,710
63
13
76
53,152
44,674
247,887
92,339
5,006
3,791
13,267
$ 114,403 $
160
5
7
185
357 $
-
-
-
11,889
11,889 $
-
-
-
222
222 $ 126,292 $
92,339
5,006
3,791
25,156
81
38
637
756
213
263
99
575
160
5
7
407
579
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.
76
At December 31, 2016, there were 396 positions (combined available for sale and held-to-maturity) with unrealized losses totaling
$2.3 million. Of the 396 positions, 115 were Ginnie Mae mortgage-backed securities (GNMA), U.S. Treasuries, or Small Business
Administration (“SBA”) securities with an unrealized loss of $1.7 million ($640,000, $930,000, and $150,000, respectively), all of
which carry the full faith and credit guarantee of the U.S. Government. 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, 2016. 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, 2016.
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
2016
2015
$
$
216,404
58,443
503,978
281,509
236,512
264,443
1,561,289
$
$
179,816
46,484
499,813
290,585
233,901
241,676
1,492,275
(1) Includes loans in process with outstanding balances of $9.6 million and $8.5 million for 2016 and 2015, respectively.
Net deferred costs included in loans were $0.5 million at December 31, 2016 and net deferred fees included in loans were $0.5 million
at December 31, 2015.
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:
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Nonaccrual Loans
2016
2015
Nonaccrual
90 + Days
Nonaccrual
90 + Days
$
$
468
311
3,410
2,330
1,774
240
8,533
$
$
-
-
-
-
-
-
-
$
$
96
97
4,191
4,739
1,017
165
10,305
$
$
-
-
-
-
-
-
-
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”).
77
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)
2016
Commercial, Financial and Agricultural $
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Past Due Loans
209
949
835
1,199
577
1,516
$ 5,285
2015
Commercial, Financial and Agricultural $
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Past Due Loans
153
690
754
567
787
735
$ 3,686
$
$
$
$
48
282
1
490
51
281
1,153
18
-
1,229
347
97
398
2,089
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
257
1,231
836
1,689
628
1,797
6,438
171
690
1,983
914
884
1,133
5,775
$
215,679
56,901
499,732
277,490
234,110
262,406
$ 1,546,318
$
216,404
58,443
503,978
281,509
236,512
264,443
$ 1,561,289
$
179,549
45,697
493,639
284,932
232,000
240,378
$ 1,476,195
$
179,816
46,484
499,813
290,585
233,901
241,676
$ 1,492,275
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,
Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
Agricultural Construction Mortgage
Residential Home Equity Consumer
(Dollars in Thousands)
2016
Beginning Balance
Provision for Loan Losses
Charge-Offs
Recoveries
Net Charge-Offs
Ending Balance
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
$
$
$
$
$
$
905
817
(861)
337
(524)
1,198
784
911
(1,029)
239
(790)
905
699
742
(871)
214
(657)
784
$
$
$
$
$
$
101
67
-
-
-
168
843
(742)
-
-
-
101
1,580
(718)
(28)
9
(19)
843
$
$
$
$
$
$
$
4,498
(242)
(349)
408
59
$
4,409
(1,296)
(899)
1,231
332
2,473
(135)
(450)
409
(41)
$ 1,567
1,608
(2,127)
960
(1,167)
4,315
$
3,445
$
2,297
$ 2,008
Total
$ 13,953
819
(4,686)
3,345
(1,341)
$ 13,431
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
9,073
(1,145)
(2,160)
752
(1,408)
6,520
$
$
$
$
2,882
858
(1,403)
136
(1,267)
2,473
$ 1,223
1,253
(1,901)
992
(909)
$ 1,567
$ 17,539
1,594
(7,435)
2,255
(5,180)
$ 13,953
3,051
1,069
(1,379)
141
(1,238)
2,882
$
982
1,060
(1,820)
1,001
(819)
$ 1,223
$ 23,095
1,905
(10,046)
2,585
(7,461)
$ 17,539
78
The following table details the amount of the allowance for loan losses by portfolio class at December 31, disaggregated on the basis
of the Company’s impairment methodology.
(Dollars in Thousands)
2016
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment
Loans Collectively
Evaluated for Impairment
Ending Balance
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
Commercial,
Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
Agricultural Construction Mortgage
Residential Home Equity Consumer
Total
$
$
$
$
$
$
80
$
-
$
2,038
$
1,561
$
335
$
6
$
4,020
1,118
1,198
$
168
168
$
2,277
4,315
$
1,884
3,445
$
1,962
2,297
2,002
$ 2,008
9,411
$ 13,431
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
79
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
Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
Agricultural Construction Mortgage Residential Home Equity Consumer
Total
(Dollars in Thousands)
2016
Individually Evaluated for
Impairment
Collectively Evaluated for
Impairment
Total
$
1,042 $
247
$
23,855
$
15,596
$
3,375 $
174
$
44,289
215,362
216,404 $
$
58,196
$
58,443
480,123
$
503,978
265,913
281,509
$
233,137
236,512 $
264,269
264,443
1,517,000
$ 1,561,289
2015
Individually Evaluated for
Impairment
Collectively Evaluated for
Impairment
Total
$
$
834 $
97
$
20,847
$
18,569
$
3,144 $
261
$
43,752
178,982
179,816 $
46,387
$
46,484
478,966
$
499,813
272,016
290,585
$
230,757
233,901 $
241,415
241,676
1,448,523
$ 1,492,275
2014
Individually Evaluated for
Impairment
Collectively Evaluated for
Impairment
Total
$
1,040 $
401
$
32,242
$
20,120
$
3,074 $
216
$
57,093
135,885
136,925 $
$
41,195
$
41,596
477,878
$
510,120
275,849
295,969
$
226,498
229,572 $
216,976
217,192
1,374,281
$ 1,431,374
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)
2016
Commercial, Financial and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total
2015
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
Recorded
Investment
With No Allowance With Allowance
Related
Allowance
565 $
-
8,954
2,509
1,871
65
13,964
$
279 $
97
3,265
2,941
1,101
79
7,762 $
477 $
247
14,901
13,087
1,504
109
30,325
$
555 $
-
17,582
15,628
2,043
182
35,990 $
80
-
2,038
1,561
335
6
4,020
77
-
2,049
2,118
384
18
4,646
1,042 $
247
23,855
15,596
3,375
174
44,289
$
834 $
97
20,847
18,569
3,144
261
43,752 $
80
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:
2016
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
$
Average
Recorded
Investment
886
69
21,376
17,314
3,076
207
42,928
Total
Interest
Income
49
1
920
786
115
9
1,880
$
$
Average
Recorded
Investment
1,002
$
335
27,644
19,105
3,001
201
51,288
$
$
$
Total
Interest
Income
Average
Recorded
Investment
1,440
637
41,435
21,122
3,000
294
67,928
46 $
-
1,093
842
86
7
2,074 $
Total
Interest
Income
62
4
1,725
1,070
72
9
2,942
$
$
Credit Risk Management. The Company has adopted comprehensive lending policies, underwriting standards and loan review
procedures designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors review and
approve these policies and procedures on a regular basis (at least annually).
Reporting systems have been implemented to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and
nonperforming loans and potential problem loans. Management and the Credit Risk Oversight Committee periodically review our
lines of business to monitor asset quality trends and the appropriateness of credit policies. In addition, total borrower exposure limits
are established and concentration risk is monitored. As part of this process, the overall composition of the portfolio is reviewed to
gauge diversification of risk, client concentrations, industry group, loan type, geographic area, or other relevant classifications of
loans. Specific segments of the loan portfolio are monitored and reported to the Board on a quarterly basis and have strategic plans in
place to supplement Board approved credit policies governing exposure limits and underwriting standards. Detailed below are the
types of loans within the Company’s loan portfolio and risk characteristics unique to each.
Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or other guarantees. Lending policy establishes debt service coverage
ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing debt.
The majority of these loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, or
equipment. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are
governed by established policy guidelines.
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines
and construction/permanent loans made to individuals and investors to finance the acquisition, development, construction or
rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower or project and generally
secured by the property being financed, including 1-4 family residential properties and commercial properties that are either owner-
occupied or investment in nature. These properties may include either vacant or improved property. Construction loans are generally
based upon estimates of costs and value associated with the completed project. Collateral values are determined based upon third
party appraisals and evaluations. Loan to value ratios at origination are governed by established policy guidelines. The disbursement
of funds for construction loans is made in relation to the progress of the project and as such these loans are closely monitored by on-
site inspections.
Real Estate Commercial Mortgage – Loans in this category consists of commercial mortgage loans secured by property that is either
owner-occupied or investment in nature. These loans are primarily made based on identified cash flows of the borrower or project
with consideration given to underlying real estate collateral and personal guarantees. Lending policy establishes debt service
coverage ratios and loan to value ratios specific to the property type. Collateral values are determined based upon third party
appraisals and evaluations.
Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that demonstrate the
ability to make scheduled payments with full consideration to underwriting factors such as current income, employment status, current
assets, and other financial resources, credit history, and the value of the collateral. Collateral consists of mortgage liens on 1-4 family
residential properties. Collateral values are determined based upon third party appraisals and evaluations. The Company does not
originate sub-prime loans.
81
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally secured
by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes. Borrower qualifications include
favorable credit history combined with supportive income and debt ratio requirements and combined loan to value ratios within
established policy guidelines. Collateral values are determined based upon third party appraisals and evaluations.
Consumer Loans – This loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft
lines of credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans. Lending policy
establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income and
receipt of credit reports.
Credit Quality Indicators. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes loans
into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial
information, historical payment performance, credit documentation, and current economic/market trends, among other factors. Risk
ratings are assigned to each loan and revised as needed through established monitoring procedures for individual loan relationships
over a predetermined amount and review of smaller balance homogenous loan pools. The Company uses the definitions noted below
for categorizing and managing its criticized loans. Loans categorized as “Pass” do not meet the criteria set forth for the Special
Mention, Substandard, or Doubtful categories and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected, could
cause future problems. Loans in this category may not meet required underwriting criteria and have no mitigating factors. More than
the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the
borrower. The possibility of loss is much more evident and above average supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
The following table presents the risk category of loans by segment at December 31:
(Dollars in Thousands)
2016
Special Mention
Substandard
Doubtful
Total Criticized Loans
2015
Special Mention
Substandard
Doubtful
Total Criticized Loans
Commercial,
Financial,
Agriculture
Real Estate
Consumer
Total
Criticized
Loans
$
$
$
$
3,300 $
1,158
-
4,458 $
5,938 $
1,307
-
7,245 $
23,183 $
39,800
-
62,983 $
27,838 $
51,425
-
79,263 $
216 $
549
-
765 $
69 $
819
-
888 $
26,699
41,507
-
68,206
33,845
53,551
-
87,396
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. A
TDR classification can be removed if the borrower’s financial condition improves such that the borrower is no longer in financial
difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at
market terms and qualifies as a new loan.
82
The following table presents loans classified as TDRs at December 31:
2016
2015
Accruing
Nonaccruing
Accruing
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total TDRs
$
$
772 $
-
20,673
13,969
2,647
172
38,233 $
40 $
-
1,259
444
-
-
1,743 $
Nonaccruing
-
-
1,070
1,582
-
35
2,687
897 $
-
16,621
14,979
2,914
223
35,634 $
Loans classified as TDRs during 2016, 2015, and 2014 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.
2016
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 TDRs
Recorded
Number
of
Recorded
Number
of
Investment(1) Contracts
$
Number
of
Contracts
-
-
3
6
5
-
Investment(1) Contracts
-
$
-
5,012
590
206
-
1
-
4
14
21
3
14 $
5,808
43 $
40
-
631
1,531
1,005
110
3,317
Recorded
Investment(1)
320
-
1,769
1,972
883
34
4,978
3 $
-
3
11
10
1
28 $
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
The following table provides information on how TDRs were modified during the periods included.
2015
Number Post-Modified Number Post-Modified Number Post-Modified
2014
2016
(Dollars in Thousands)
Extended amortization
Interest rate adjustment
Extended amortization and
Interest rate adjustment
Other
Total TDRs
of
Contracts
3
-
11
-
14
$
$
Recorded
Investment
973
284
of
Contracts
10
1
Recorded
Investment
1,894
156
$
2,060
-
3,317
8
9
28
$
1,179
1,749
4,978
$
$
of
Recorded
Investment Contracts
16
5
4,703
-
1,105
-
5,808
22
-
43
83
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.
2016
2015
2014
Number
of
Recorded
Number
of
(Dollars in Thousands)
Commercial, Financial and Agricultural
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Total TDRs
Contracts
-
-
-
-
-
-
Investment(1) Contracts
-
-
$
-
-
-
-
-
-
-
-
-
-
$
Number
Recorded
of
Investment(1) Contracts
-
-
$
-
-
-
1
-
2
-
1
-
4
$
Recorded
Investment(1)
-
$
-
60
177
153
390
$
(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
Note 5
GOODWILL
2016
2015
24,376
112,417
45,863
182,656
(87,180)
95,476
$
$
24,534
112,563
55,265
192,362
(93,543)
98,819
$
$
As of December 31, 2016 and December 31, 2015, 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 2016, 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.
Note 6
OTHER REAL ESTATE OWNED
The following table presents other real estate owned activity as of December 31,
(Dollars in Thousands)
Beginning Balance
Additions
Valuation Write-Downs
Sales
Other
Ending Balance
2016
2015
2014
$
$
19,290
4,016
(2,363)
(10,305)
-
10,638
$
$
35,680
5,752
(1,713)
(20,155)
(274)
19,290
$
$
48,071
15,271
(3,142)
(23,791)
(729)
35,680
84
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
2016
2015
2014
(410)
1,272
(88)
511
2,364
3,649
$
$
(938)
2,169
(250)
2,277
1,713
4,971
$
$
(774)
2,094
(523)
2,872
3,142
6,811
$
$
As of December 31, 2016, the Company had $1.9 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
2016
2015
$
$
904,014
252,800
304,680
159,610
1,621,104
$
$
848,330
248,367
269,162
178,707
1,544,566
At December 31, 2016 and 2015, $1.7 million and $1.2 million, respectively, in overdrawn deposit accounts were reclassified as loans.
Time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $9.8 million and $10.4 million at December 31, 2016
and December 31, 2015, respectively.
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2017
2018
2019
2020
2021 and thereafter
Total
2016
134,251
16,117
5,209
1,877
2,156
159,610
$
$
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
2016
2015
2014
292
120
144
306
17
879
$
$
254
134
126
377
53
944
$
$
318
190
112
463
16
1,099
$
$
85
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
2016
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
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
Federal Funds
Purchased
Securities
Sold Under
Repurchase
Agreements(1)
Other
Short-Term
Borrowings(2)
$
$
$
$
-
-
11
1.00 %
- %
$
-
-
12
0.74 %
- %
$
-
-
11
0.76 %
- %
$
6,490
74,911
32,732
0.05 %
0.05 %
$
60,977
64,935
57,689
0.05 %
0.05 %
$
47,411
47,413
42,877
0.05 %
0.05 %
6,259
7,961
4,019
3.28 %
3.05 %
81
2,003
780
3.98 %
5.23 %
2,014
2,035
1,514
3.76 %
3.76 %
(1) Balances are fully collateralized by government treasury or agency securities held in the Company's investment portfolio.
(2) Comprised of FHLB advances ($3.3 million) and line of credit advance ($3.0 million).
Note 9
LONG-TERM BORROWINGS
Federal Home Loan Bank Advances. FHLB long-term advances totaled $14.9 million at December 31, 2016 and $28.3 million at
December 31, 2015. The advances mature at varying dates from 2018 through 2025 and had a weighted-average rate of 2.81% and
3.13% at December 31, 2016 and 2015, 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)
2017
2018
2019
2020
2021
2022 and thereafter
Total
2016
1,635
2,575
4,520
1,919
930
3,302
14,881
$
$
86
Junior Subordinated Deferrable Interest Notes. The Company has issued two junior subordinated deferrable interest notes to wholly
owned Delaware statutory trusts. The first note for $30.9 million was issued to CCBG Capital Trust I. The second note for $32.0
million was issued to CCBG Capital Trust II. The two trusts are considered variable interest entities for which the Company is not the
primary beneficiary. Accordingly, the accounts of the trusts are not included in the Company’s consolidated financial statements. See
Note 1 - Summary of Significant Accounting Policies for additional information about the Company’s consolidation policy. Details of
the Company’s transaction with the two trusts are provided below.
In November 2004, CCBG Capital Trust I issued $30.0 million of trust preferred securities which represent interest in the assets of the
trust. The interest payments are due quarterly at 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, 2016, 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.
On April 12, 2016, we retired $10 million in face value of trust preferred securities that were auctioned as part of a liquidation of a
pooled collateralized debt obligation fund. The trust preferred securities were originally issued through CCBG Capital Trust I. Our
winning bid equated to approximately 75% of the $10 million par value, with the 25% discount resulting in a pre-tax gain of
approximately $2.5 million. We utilized internal resources and a $3.75 million draw on a short-term borrowing facility to fund the
repurchase.
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 $20.0 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.
87
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
Change in Valuation Allowance
Total:
Federal
State
Change in Valuation Allowance
Total
2016
2015
2014
$
$
2,295 $
115
2,410
2,742
712
3
3,457
5,037
827
3
5,867 $
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
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
2016
2015
2014
$
6,165 $
4,751 $
3,820
(662)
-
538
121
3
(298)
-
5,867 $
(395)
-
390
562
114
(303)
(660)
4,459 $
(327)
(2,902)
892
243
102
(174)
-
1,654
$
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, 2016 and 2015
are as follows:
88
(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
2016
2015
5,182 $
16,107
4,804
3,550
401
4,238
34,282 $
5,480 $
3,342
4,319
724
13,865
1,445
18,972 $
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
$
$
$
$
In the opinion of management, it is more likely than not that all of the deferred tax assets, with the exception of certain state net
operating loss carry-forwards, certain state tax credit carry-forwards, and certain capital loss carry-forwards expected to expire prior to
utilization, will be realized. Accordingly, a valuation allowance of $1.4 million is recorded at December 31, 2016. At December 31,
2016, the Company had state loss and tax credit carry-forwards of approximately $4.8 million, which expire at various dates from
2017 through 2035, federal capital loss carry-forwards of approximately $0.1 million which expire at various dates from 2019 through
2020, and federal tax credit carry-forwards of approximately $0.3 million which never expire.
The Company had no unrecognized tax benefits at December 31, 2016, December 31, 2015 and December 31, 2014.
A reconciliation of the beginning and ending unrecognized tax benefit is as follows:
(Dollars in Thousands)
Balance at January 1,
Decrease Due to Settlements With Taxing Authorities
Balance at December 31
2016
2015
2014
$
$
- $
-
- $
- $
-
- $
3,228
(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 years ended December 31, 2016 and December 31, 2015, there were no previously accrued
interest and penalties reversed in the income statement. For the year ended December 31, 2014, the company reversed previously
accrued interest and penalties of $800,000. There were no amounts for accrued interest and penalties at December 31, 2016 and 2015.
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 2013.
89
Note 11
STOCK-BASED COMPENSATION
As of December 31, 2016, 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 2014 through 2016 was $1.9 million, $1.4 million, and $1.8 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 2016, the Company, pursuant to the terms
and conditions of the AIP, created the 2016 Incentive Plan (“2016 Plan”), under which all participants in the 2016 Plan were eligible
to earn performance shares. Awards under the 2016 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 2016 was approximately $1.0 million. Approximately 75% of the
award is in the form of stock and 25% in the form of a cash bonus. For 2016, a total of 51,128 shares were eligible for issuance, but
additional shares could be earned if performance exceeded established goals. A total of 61,473 shares were earned for 2016 reflective
of goal achievement that exceeded the base level targets. The Company recognized expense of $1.2 million, $1.1 million, and $1.2
million for years ended 2016, 2015 and 2014, respectively. After deducting the shares earned in 2016, 630,248 shares remain eligible
for issuance under the 2011 AIP.
Executive Long-Term Incentive Plan (“LTIP”). In 2007, the Company established a Performance Share Unit Plan under the
provisions of the AIP that allows William G. Smith, Jr., the Chairman, President, and Chief Executive Officer of CCBG, Inc. to earn
shares based on the compound annual growth rate in diluted earnings per share over a three-year period. At December 31, 2016, there
were three LTIP agreements in place for the years 2014-2016. The Company recognized $0.3 million, $0.3 million, and $0.5 million
in expense for years 2016, 2015 and 2014, respectively, under these LTIP agreements. In addition, the Company entered into similar
LTIP agreements with Thomas A. Barron, the President of CCB for the years 2015-2016 that allows shares to be earned based on the
compound annual growth rate in diluted earnings per share over a three-year period. At December 31, 2016, there were two LTIP
agreements in place for the years 2015-2016. The Company recognized $0.2 million in expense for 2016 and no expense for the year
ended 2015.
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 2016, the Company issued 15,530 shares and
recognized approximately $23,000 in expense under the DSPP. For 2015, the Company issued 12,494 shares under the DSPP and
recognized approximately $19,000 in expense related to this plan. For 2014, the Company issued 10,932 shares and recognized
approximately $14,000 in expense related to the DSPP. As of December 31, 2016, there are 58,720 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 2016, 44,782 shares were acquired and approximately $100,000 in expense was recognized under the ASPP. For
2015, 21,088 shares were acquired under the ASPP and approximately $52,000 in expense was recognized related to this plan. For
2014, 28,630 shares were acquired and approximately $64,000 in expense was recognized related to the ASPP. As of December 31,
2016, 352,450 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 $2.22 for 2016. For 2015 and 2014, the weighted average fair value purchase right granted was $2.36 and $2.12,
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)
2016
2015
2014
1.1 %
19.5 %
0.4 %
0.5
0.8 %
19.0 %
0.1 %
0.5
0.3 %
21.5 %
0.1 %
0.5
90
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.
91
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial Loss (Gain)
Benefits Paid
Expenses Paid
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
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
Expected Return on Plan Assets
Amortization of Prior Service Costs
Net Loss Amortization
Net Periodic Benefit Cost
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate
Rate of Compensation Increase
Measurement Date
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
Prior Service Cost
Net Loss
Deferred Tax (Benefit) Expense
Other Comprehensive Loss (Gain), 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
2016
2015
2014
141,039 $
6,453
5,587
9,118
(9,412)
(200)
152,585 $
105,792 $
7,633
10,000
(9,412)
(200)
113,813 $
140,359 $
6,859
5,750
(6,880)
(4,825)
(224)
141,039 $
108,172 $
(2,331)
5,000
(4,825)
(224)
105,792 $
115,285
5,634
5,513
22,632
(8,438)
(267)
140,359
103,842
8,035
5,000
(8,438)
(267)
108,172
38,772 $
35,247 $
32,186
130,109 $
121,609 $
119,750
6,453 $
5,587
(7,736)
278
3,201
7,783 $
6,859 $
5,750
(7,820)
309
3,564
8,662 $
5,634
5,513
(7,487)
309
1,365
5,334
4.21%
3.25%
12/31/16
4.52%
3.25%
12/31/15
4.15%
3.25%
12/31/14
4.52%
7.50%
3.25%
4.15%
7.50%
3.25%
9,221 $
(278)
(3,201)
(2,216)
3,526 $
3,272 $
(309)
(3,564)
232
(369) $
5.00%
7.50%
3.25%
22,083
(309)
(1,365)
(7,873)
12,536
40,392 $
488
(15,772)
25,108 $
34,373 $
766
(13,556)
21,583 $
34,665
1,075
(13,788)
21,952
$
$
$
$
$
$
$
$
$
$
$
$
The Company expects to recognize $3.8 million of the net actuarial loss and $0.2 million of the prior service cost reflected in
accumulated other comprehensive income at December 31, 2016 as a component of net periodic benefit cost during 2017.
92
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 was accounted for as a
change in accounting estimate that is inseparable from a change in accounting principle and accordingly was accounted for
prospectively. While the benefit obligations for the plans measured under this approach were unchanged, the more granular
application of the spot rates decreased the combined service and interest costs for the defined benefit retirement plan by $0.7 million
in 2016.
Plan Assets. The Company’s pension plan asset allocation at year-end 2016 and 2015, and the target asset allocation for 2017 are as
follows:
Equity Securities
Debt Securities
Cash and Cash Equivalents
Total
Target
Allocation
2017
Percentage of Plan
Assets at Year-End(1)
2015
2016
70 %
25 %
5 %
100 %
66 %
20 %
14 %
100 %
68 %
20 %
12 %
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:
Equities
Mutual Funds - Real Estate
Mutual Funds - Fixed Income
Mutual Funds - Equity
Cash and Cash Equivalents
Level 2:
U.S. Government Agency
2016
2015
$
- $
4,731
16,189
75,159
15,345
18,197
3,442
14,738
53,649
12,402
2,389
3,364
Total Fair Value of Plan Assets
$
113,813 $
105,792
93
Expected Benefit Payments. As of December 31, expected benefit payments related to the defined benefit pension plan were as
follows:
(Dollars in Thousands)
2017
2018
2019
2020
2021
2022 through 2026
Total
2016
9,190
11,076
10,913
10,290
11,748
56,735
109,952
$
$
Contributions. The following table details the amounts contributed to the pension plan in 2015 and 2016, and the expected amount to
be contributed in 2017.
(Dollars in Thousands)
Actual Contributions
2015
2016
Expected
Contribution
2017(1)
$
5,000
$
10,000
$
5,000
(1) For 2017, the Company will have the option to make a cash contribution to the plan or utilize pre-funding balances.
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.
94
(Dollars in Thousands)
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial Loss
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
Prior Service Cost
Net (Loss) Gain
Deferred Tax Expense (Benefit)
Other Comprehensive Loss (Gain), net of tax
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Loss (Gain)
Prior Service Cost
Deferred Tax (Benefit) Liability
Accumulated Other Comprehensive Loss (Gain), net of tax
2016
2015
2014
4,842 $
-
162
737
5,741 $
3,003 $
3
133
1,703
4,842 $
5,741 $
4,842 $
4,913 $
4,348 $
- $
162
-
759
921 $
3 $
133
7
179
322 $
2,379
-
104
520
3,003
3,003
2,982
-
104
164
(661)
(393)
3.92%
3.25%
12/31/16
4.13%
3.25%
12/31/15
4.15%
3.25%
12/31/14
4.13%
3.25%
4.15%
3.25%
5.00%
3.25%
737 $
-
(759)
8
(14) $
870 $
-
(336)
534 $
1,703 $
(7)
(179)
(585)
932 $
892 $
-
(344)
548 $
520
(164)
660
(392)
624
(632)
7
241
(384)
$
$
$
$
$
$
$
$
$
$
The Company expects to recognize approximately $0.6 million of the net actuarial loss reflected in accumulated other comprehensive
income at December 31, 2016 as a component of net periodic benefit cost during 2017.
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 were unchanged, the more granular application of the spot rates
decreased the combined service and interest costs for the supplemental executive retirement plan by $34,000 for 2016.
95
Expected Benefit Payments. As of December 31, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2017
2018
2019
2020
2021
2022 through 2026
Total
401(k) Plan
2016
1,649
2,193
2,142
-
-
-
5,984
$
$
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 2016, the
Company made matching contributions of $0.6 million. For the years 2015 and 2014, the Company made matching contributions of
$0.5 and $0.5 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 2016, 2015 and 2014.
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
2016
2015
2014
$
11,746 $
9,116 $
9,260
Denominator:
Denominator for Basic Earnings Per Share Weighted-Average Shares
Effects of Dilutive Securities Stock Compensation Plans
16,989
72
17,273
45
17,425
63
Denominator for Diluted Earnings Per Share Adjusted Weighted-Average
Shares and Assumed Conversions
17,061
17,318
17,488
Basic Earnings Per Share
Diluted Earnings Per Share
$
$
0.69 $
0.69 $
0.53 $
0.53 $
0.53
0.53
96
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 capital (as defined in the regulations) to risk-weighted assets (as defined) and of tier 1
capital (as defined) to average assets (as defined). Under the Basel III rules, the Company must hold a capital conservation buffer
above the well capitalized risk-based capital ratios. The capital conservation buffer is being phased in as follows: 0.625% in 2016,
1.25% in 2017, 1.875% in 2018, and 2.50% in 2019. Management believes, as of December 31, 2016 and 2015, that the Company
and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2016, 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, 2016 and 2015 are also presented in the
table.
97
(Dollars in Thousands)
2016
Common Equity Tier 1:
CCBG
CCB
Tier 1 Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier 1 Leverage:
CCBG
CCB
2015
Common Equity Tier 1:
CCBG
CCB
Tier 1 Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier 1 Leverage:
CCBG
CCB
Actual
Amount
Ratio
Required
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well-
Capitalized Under
Prompt
Corrective
Action Provisions
Ratio
Amount
$
220,211
268,811
12.61% $
15.44%
78,587
78,356
4.50%
4.50% $
*
113,182
*
6.50%
270,801
268,811
15.51%
15.44%
104,783
104,475
6.00%
6.00%
*
139,300
*
8.00%
284,232
282,242
16.28%
16.21%
139,710
139,300
8.00%
8.00%
*
174,126
*
10.00%
270,801
268,811
10.23%
10.18%
105,909
105,652
4.00%
4.00%
*
132,066
*
5.00%
$
215,075
266,138
12.84% $
15.93%
75,385
75,162
4.50%
4.50% $
*
108,567
*
6.50%
275,075
266,138
16.42%
15.93%
100,513
100,216
6.00%
6.00%
*
133,621
*
8.00%
289,028
280,901
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.
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 2017, 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 2017 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.
98
The following table summarizes the tax effects for each component of other comprehensive income (loss):
(Dollars in Thousands)
2016
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
Total Investment Securities
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
Reclassification adjustment for amortization of net loss
Current year actuarial loss
Total Benefit Plans
Before
Tax
Amount
Tax
(Expense)
Benefit
Net of
Tax
Amount
$
(828) $
322 $
(506)
82
(746)
278
3,960
(9,958)
(5,720)
(32)
290
(107)
(1,528)
3,843
2,208
50
(456)
171
2,432
(6,115)
(3,512)
Total Other Comprehensive Loss
$
(6,466) $
2,498 $
(3,968)
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
Total Investment Securities
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
Reclassification adjustment for amortization of net loss
Current year actuarial loss
Total Benefit Plans
$
(373) $
143 $
(230)
76
(297)
316
3,743
(4,975)
(916)
(31)
112
(122)
(1,444)
1,919
353
45
(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
Total Investment Securities
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
Reclassification adjustment for amortization of net loss
Current year actuarial loss
Total Benefit Plans
$
251 $
(103) $
70
321
473
705
(22,603)
(21,425)
(27)
(130)
(182)
(272)
8,719
8,265
148
43
191
291
433
(13,884)
(13,160)
Total Other Comprehensive Loss
$
(21,104) $
8,135 $
(12,969)
99
Accumulated other comprehensive loss was comprised of the following components:
(Dollars in Thousands)
Balance as of January 1, 2016
Other comprehensive loss during the period
Balance as of December 31, 2016
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
Note 16
RELATED PARTY TRANSACTIONS
Securities
Available
for Sale
Accumulated
Other
Comprehensive
Loss
Retirement
Plans
(127) $
(456)
(583) $
59 $
(186)
(127) $
(132) $
191
59 $
(22,130) $
(3,512)
(25,642) $
(21,568) $
(562)
(22,130) $
(8,408) $
(13,160)
(21,568) $
(22,257)
(3,968)
(26,225)
(21,509)
(748)
(22,257)
(8,540)
(12,969)
(21,509)
$
$
$
$
$
$
At December 31, 2016 and 2015, certain officers and directors were indebted to the Company’s bank subsidiary in the aggregate
amount of $8.5 million and $9.7 million, respectively. During 2016, $9.9 million in new loans were made and repayments totaled
$11.1 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 $17.9 million and $19.0 million at December 31,
2016 and 2015, 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.
On June 15, 2016, the Company entered into a negotiated private transaction to repurchase 426,845 shares of its common stock from
the Estate of Robert H. Smith, a 5% beneficial owner of the Company’s common stock. The purchase price per share was
$14.50. The transaction was reviewed, processed and approved in accordance with the Company’s Related Party Transaction Policy.
William G. Smith, III, the son of our Chairman, President and Chief Executive Officer, William G. Smith, Jr., is employed as a Vice
President of Capital City Bank. In 2016, William G. Smith, III’s total compensation (consisting of annual base salary, annual bonus,
and stock-based compensation) was approximately $124,000.
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
2016
2015
2014
2,311
3,424
2,296
1,702
6,471
2,060
8,021
26,285 $
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
$
100
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
2016
Variable
Total
Fixed
2015
Variable
$
$
69,993 $
4,768
74,761 $
332,420 $
-
332,420 $
402,413 $
4,768
407,181 $
57,571 $
6,095
63,666 $
306,642
-
306,642
Total
364,213
6,095
370,308
$
$
(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 2016, $0.5 million in 2015, and $0.5 million in
2014. Minimum lease payments under these leases due in each of the five years subsequent to December 31, 2016, are as follows
(dollars in millions): 2017, $0.5; 2018, $0.5; 2019, $0.4; 2020, $0.4, thereafter, $2.4.
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. Fixed charges included in the swap 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 2016 totaled $287,000.
Conversion ratio payments and ongoing fixed quarterly charges are reflected in earnings in the period incurred.
101
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:
• Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date.
• Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from, or
corroborated, by market data by correlation or other means.
• Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own
assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale. U.S. Treasury securities 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. At December 31, 2016, there were no amounts payable.
102
A summary of fair values for assets and liabilities at December 31 consisted of the following:
(Dollars in Thousands)
2016
Securities Available for Sale:
U.S. Government Treasury
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Equity Securities
2015
Securities Available for Sale:
U.S. Government Treasury
U.S. Government Agency
State and Political Subdivisions
Mortgage-Backed Securities
Equity Securities
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
$
$
286,278 $
-
-
-
-
- $
131,640
94,839
1,430
8,547
250,346 $
-
-
-
-
- $
101,824
88,362
1,901
8,595
- $
-
-
-
-
- $
-
-
-
-
286,278
131,640
94,839
1,430
8,547
250,346
101,824
88,362
1,901
8,595
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 $6.3 million with a valuation allowance of $0.6 million at December 31, 2016 and
$8.8 million and $0.9 million, respectively, at December 31, 2015.
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 2016 and 2015, 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 record 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.
103
Deposits. The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using present
value techniques and rates currently offered for deposits of similar remaining maturities.
Subordinated Notes Payable. The fair value of each note is calculated using present value techniques, based upon projected cash
flows and estimated discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings. The fair value of each note is calculated using present value techniques, based upon
projected cash flows and estimated discount rates as well as rates being offered for similar debt.
A summary of estimated fair values of significant financial instruments at December 31 consisted of the following:
(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
LIABILITIES:
Deposits
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
(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
LIABILITIES:
Deposits
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
Carrying
Value
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
2016
$
$
$
$
48,268 $
247,779
522,734
177,365
10,886
1,547,858
2,412,286 $
12,749
52,887
14,881
48,268 $
247,779
286,278
119,157
-
-
- $
-
236,456
57,589
10,886
-
-
-
-
-
-
1,543,576
2,272,572 $
12,802
42,024
15,122
-
-
-
-
- $
-
-
-
2015
Carrying
Value
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
51,288 $
327,617
451,028
187,892
11,632
1,478,322
2,302,849 $
61,058
62,887
28,265
51,288 $
327,617
250,346
134,439
-
-
- $
-
200,682
52,968
11,632
-
-
-
-
-
-
1,483,926
- $
-
-
-
2,228,210 $
64,947
49,230
30,448
-
-
-
-
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.
104
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
Short-Term Borrowings
Subordinated Notes Payable
Other Liabilities
Total Liabilities
SHAREOWNERS’ EQUITY
Common Stock, $.01 par value; 90,000,000 shares authorized; 16,844,698 and 17,156,919 shares
issued and outstanding at December 31, 2016 and December 31, 2015, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
2016
2015
9,618 $
325,337
5,563
340,518 $
13,527
327,794
5,164
346,485
3,000
52,887 $
9,463
65,350
0
62,887
9,246
72,133
168
172
34,188
267,037
(26,225)
275,168
340,518 $
38,256
258,181
(22,257)
274,352
346,485
$
$
$
$
105
The operating results of the parent company for the three years ended December 31 are shown below:
Parent Company Statements of Operations
(Dollars in Thousands)
OPERATING INCOME
Income Received from Subsidiary Bank:
Overhead Fees
Dividends
Other Income
Total Operating Income
OPERATING EXPENSE
Salaries and Associate Benefits
Interest on Subordinated Notes Payable
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
Earnings Before Income Taxes and Equity in Undistributed
Earnings of Subsidiary Bank
2016
2015
2014
$
4,700 $
9,300
2,675
16,675
4,604 $
9,200
424
14,228
4,468
6,000
138
10,606
4,247
1,527
1,114
160
167
718
7,933
8,742
(1,492)
10,234
1,512
11,746 $
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
Income Tax Benefit
Earnings Before Equity in Undistributed Earnings of Subsidiary Bank
Equity in Undistributed Earnings of Subsidiary Bank
Net Income
$
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided By
Operating Activities:
Equity in Undistributed Earnings of Subsidiary Bank
Stock Compensation
Gain on Retirement of Trust Preferred Securities
(Increase) Decrease in Other Assets
Increase in Other Liabilities
Net Cash Provided By Operating Activities
CASH FROM FINANCING ACTIVITIES:
Redemption of Subordinated Notes
Proceeds from Short-Term Borrowings
Repayment of Short-Term Borrowings
Dividends Paid
Issuance of Common Stock Under Compensation Plans
Payments to Repurchase Common Stock
Net Cash Used In Financing Activities
Net (Decrease) Increase in Cash
Cash at Beginning of Year
Cash at End of Year
2016
2015
2014
$
11,746 $
9,116 $
9,260
(1,512)
1,260
(2,487)
(399)
345
8,953
(7,500)
3,750
(750)
(2,890)
840
(6,312)
(12,862)
(3,909)
13,527
9,618 $
(1,359)
1,109
-
191
444
9,501
-
-
-
(2,241)
507
(5,981)
(7,715)
1,786
11,741
13,527 $
(4,737)
1,349
-
387
532
6,791
-
-
-
(1,568)
578
(269)
(1,259)
5,532
6,209
11,741
$
106
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2016, 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, 2016, 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, 2016.
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, 2016, and opined as to the effectiveness of internal control over financial reporting as of
December 31, 2016, as stated in its attestation report, which is included herein on page 109.
Change in Internal Control. Our management, including the Chief Executive Officer and Chief Financial Officer, has reviewed our
internal control. There have been no changes in our internal control during our most recently completed fiscal quarter that materially
affected, or is likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
107
Ernst & Young LLP
One Tampa City Center
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Tampa, Florida 33602
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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, 2016, 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, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2016
consolidated financial statements of Capital City Bank Group, Inc. and our report dated March 2, 2017 expressed an unqualified
opinion thereon.
Tampa, Florida
March 2, 2017
108
Part III
Item 10.
Directors, Executive Officers, and Corporate Governance
Incorporated herein by reference to the sections entitled “Proposal No. 1 – Election of Directors”, “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 25, 2017.
Item 11. Executive Compensation
Incorporated herein by reference to the sections entitled “Compensation Discussion and Analysis,” “Executive Compensation” and
“Director Compensation” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 25,
2017.
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)
—
—
—
$ —
—
$ —
1,041,418(1)
—
1,041,418
Plan Category
Equity Compensation Plans
Approved by Securities Holders
Equity Compensation Plans Not
Approved by Securities Holders
Total
(1)
Consists of 630,248 shares available for issuance under our 2011 Associate Incentive Plan, 352,450 shares available for
issuance under our 2011 Associate Stock Purchase Plan, and 58,720 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 25,
2017.
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 25, 2017.
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 25, 2017.
109
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 2016 and 2015
Consolidated Statements of Income for Fiscal Years 2016, 2015, and 2014
Consolidated Statements of Comprehensive Income for Fiscal Years 2016, 2015, and 2014
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2016, 2015, and 2014
Consolidated Statements of Cash Flows for Fiscal Years 2016, 2015, and 2014
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
10.6
10.7
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).
110
10.8
11
14
21
23.1
31.1
31.2
32.1
32.2
Participant Agreement, dated February 21, 2017, by and between J. Kimbrough Davis and the Registrant –
incorporated by reference herein to Exhibit 10.1 of the Registrant’s Form 8-K (filed 2/27/17)(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, 2016.**
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
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance Document**
XBRL Taxonomy Extension Schema Document**
XBRL Taxonomy Extension Calculation Linkbase Document**
XBRL Taxonomy Extension Label Linkbase Document**
XBRL Taxonomy Extension Presentation Linkbase Document**
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.
Item 16. Form 10-K Summary
None.
111
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on March 2, 2017, 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 2, 2017 by the following
persons in the capacities indicated.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on March 2, 2017, 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/ Stanley W. Connally, Jr.
Stanley W. Connally, Jr
/s/ Eric Grant
Eric Grant
/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/ Laura Johnson
Laura Johnson
/s/ William G. Smith, Jr.
William G. Smith, Jr.
113
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
10.8
11
14
21
23.1
31.1
31.2
32.1
32.2
Amended and Restated Articles of Incorporation - incorporated herein by reference to Exhibit 3 of the
Registrant’s 1996 Proxy Statement (filed 4/11/96) (No. 0-13358).
Amended and Restated Bylaws - incorporated herein by reference to Exhibit 3.2 of the Registrant’s Form
8-K (filed 11/30/07) (No. 0-13358).
See Exhibits 3.1 and 3.2 for provisions of Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws, which define the rights of the Registrant’s shareowners.
Capital City Bank Group, Inc. 2011 Director Stock Purchase Plan - incorporated herein by reference to
Exhibit 10.2 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
Capital City Bank Group, Inc. 2011 Associate Stock Purchase Plan - incorporated herein by reference to
Exhibit 10.1 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
Capital City Bank Group, Inc. 2011 Associate Incentive Plan - incorporated herein by reference to Exhibit
10.3 of the Registrant’s Form 8-K (filed 5/2/11) (No. 0-13358).
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).
Participant Agreement, dated February 21, 2017, by and between J. Kimbrough Davis and the Registrant –
incorporated by reference herein to Exhibit 10.1 of the Registrant’s Form 8-K (filed 2/27/17)(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, 2016.**
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.**
114
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance Document**
XBRL Taxonomy Extension Schema Document**
XBRL Taxonomy Extension Calculation Linkbase Document**
XBRL Taxonomy Extension Label Linkbase Document**
XBRL Taxonomy Extension Presentation Linkbase Document**
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.
115
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 2, 2017
116
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 2, 2017
117
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,
2016, 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 2, 2017
118
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,
2016, 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 2, 2017
119
ANNUAL
SHAREOWNERS’
MEETING
APRIL 25, 2017
Augustus B. Turnbull III Florida State Conference Center
555 W. Pensacola St., Tallahassee, Florida | 10 a.m. E.T.
2016
AT A GLANCE
NET INCOME
$11.7M
PER DILUTED SHARE
$0.69
LOAN GROWTH
4.6%
www.ccbg.com
2016
CCBGA N N U A L R E P O R T