UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
____________________
FORM
10-K
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ý
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2008
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from ____________ to ____________
(Exact
name of Registrant as specified in its charter)
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Florida
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0-13358
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59-2273542
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(State
of Incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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217
North Monroe Street, Tallahassee, Florida
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32301
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(Address
of principal executive offices)
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(Zip
Code)
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(850)
671-0300
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each
Class Name of Each Exchange on
Which Registered
Common
Stock, $0.01 par
value 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 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. [ X ]
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, 2008,
the last business day of the registrant’s most recently completed second fiscal
quarter, was approximately $204,847,378 (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.
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Class
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Outstanding
at February 27, 2009
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Common
Stock, $0.01 par value per share
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17,139,730
shares
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DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the
Annual Meeting of Shareowners to be held on April 21, 2009, are incorporated by
reference in Part III.
-1-
CAPITAL
CITY BANK GROUP, INC.
ANNUAL
REPORT FOR 2008 ON FORM 10-K
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PAGE
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Item
1.
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4
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Item
1A.
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15
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Item
1B.
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23
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Item
2.
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23
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Item
3.
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23
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Item
4.
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23
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Item
5.
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23
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Item
6.
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25
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Item
7.
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26
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Item
7A.
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54
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Item
8.
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55
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Item
9.
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93
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Item
9A.
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93
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Item
9B.
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93
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Item
10.
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95
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Item
11.
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95
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Item
12.
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95
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Item
13.
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96
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Item
14.
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96
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Item
15.
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97
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99
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-2-
INTRODUCTORY
NOTE
This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, among others,
statements about our beliefs, plans, objectives, goals, expectations, estimates
and intentions that are subject to significant risks and uncertainties and are
subject to change based on various factors, many of which are beyond our
control. The words “may,” “could,” “should,” “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and
similar expressions are intended to identify forward-looking
statements.
All
forward-looking statements, by their nature, are subject to risks and
uncertainties. Our actual future results may differ materially from
those set forth in our forward-looking statements.
In
addition to those risks discussed in this Annual Report under Item 1A Risk Factors,
factors that could cause our actual results to differ materially from those in
the forward-looking statements, include, without limitation:
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·
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the
strength of the United States economy in general and the strength of the
local economies in which we conduct
operations;
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·
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changes
in the securities and real estate
markets;
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·
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changes
in monetary and fiscal policies of the U.S.
Government;
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·
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inflation,
interest rate, market and monetary
fluctuations;
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·
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legislative
or regulatory changes;
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·
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the
frequency and magnitude of foreclosure of our
loans;
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·
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the
effects of our lack of a diversified loan portfolio, including the risks
of geographic and industry
concentrations;
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·
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the
accuracy of our financial statement estimates and assumptions, including
the estimate for our loan loss
provision;
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·
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our
need and our ability to incur additional debt or equity
financing;
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·
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our
ability to integrate the business and operations of companies and banks
that we have acquired, and those we may acquire in the
future;
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·
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our
ability to comply with the extensive laws and regulations to which we are
subject;
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·
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the
willingness of clients to accept third-party products and services rather
than our products and services and vice
versa;
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·
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increased
competition and its effect on
pricing;
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·
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technological
changes;
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·
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the
effects of security breaches and computer viruses that may affect our
computer systems;
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·
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changes
in consumer spending and saving
habits;
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·
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growth
and profitability of our noninterest
income;
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·
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changes
in accounting principles, policies, practices or
guidelines;
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·
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the
limited trading activity of our common
stock;
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·
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the
concentration of ownership of our common
stock;
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·
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anti-takeover
provisions under federal and state law as well as our Articles of
Incorporation and our Bylaws;
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·
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other
risks described from time to time in our filings with the Securities and
Exchange Commission; and
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·
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our
ability to manage the risks involved in the
foregoing.
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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.
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Business
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About
Us
General
Capital
City Bank Group, Inc. (“CCBG”) is a financial holding company registered under
the Gramm-Leach-Bliley Act of 1999 (“Gramm-Leach-Bliley Act”). CCBG
was incorporated under Florida law on December 13, 1982, to acquire five
national banks and one state bank that all subsequently became part of CCBG’s
bank subsidiary, Capital City Bank (“CCB” or the “Bank”). In this
report, the terms “Company”, “we”, “us”, or “our” mean CCBG and all subsidiaries
included in our consolidated financial statements.
We
provide traditional deposit and credit services, asset management, trust,
mortgage banking, merchant services, bank cards, data processing, and securities
brokerage services through 68 full-service banking locations in Florida,
Georgia, and Alabama. CCB operates these banking
locations.
At
December 31, 2008, we had total consolidated assets of approximately $2.5
billion, total deposits of approximately $2 billion and shareowners’ equity was
approximately $279 million. Our financial condition and results of
operations are more fully discussed in our consolidated financial
statements.
CCBG’s
principal asset is the capital stock of the Bank. CCB accounted for
approximately 100% of consolidated assets at December 31, 2008, and
approximately 100% of consolidated net income for the year ended December 31,
2008. In addition to our banking subsidiary, we have seven indirect
subsidiaries, Capital City Trust Company, Capital City Mortgage Company
(inactive), Capital City Banc Investments, Inc., Capital City Services Company,
First Insurance Agency of Grady County, Inc., Southern Oaks, Inc., and FNB
Financial Services, Inc., all of which are wholly-owned subsidiaries of CCB, and
two direct subsidiaries CCBG Capital Trust I and CCBG Capital Trust II, both
wholly-owned subsidiaries of CCBG.
Dividends
and management fees received from the Bank are our only source of
income. Dividend payments by the Bank to us depend on the
capitalization, earnings and projected growth of the Bank, and are limited by
various regulatory restrictions. See the section entitled “Regulatory
Considerations” in this Item 1 and Note 15 in the Notes to Consolidated
Financial Statements for additional information. We had a total of
1,042 (full-time equivalent) associates at February 27, 2009. Page 25
contains other financial and statistical information about
us.
We have
one reportable segment with the following principal services: Banking
Services, Data Processing Services, Trust and Asset Management Services, and
Brokerage Services.
Banking
Services
CCB is a
Florida chartered full-service bank engaged in the commercial and retail banking
business. Significant services offered by the Bank
include:
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·
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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.
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·
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Commercial Real Estate
Lending – The Bank provides a wide range of products to meet the
financing needs of commercial developers and investors, residential
builders and developers, and community development. Credit
products are available to facilitate the purchase of land and/or build
structures for business use and for investors who are developing
residential or commercial property.
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·
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Residential Real Estate
Lending – The Bank provides products to help meet the home
financing needs of consumers, including conventional permanent and
construction/permanent (fixed or adjustable rate) financing arrangements,
and FHA/VA loan products. The bank offers both fixed-rate and
adjustable rate (ARM) residential mortgage loans. As of
December 31, 2008, approximately 14.1% of the Bank’s loan portfolio
consisted of residential ARM loans. A portion of our loans
originated are sold into the secondary market. We do not
originate subprime residential real estate
loans.
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The Bank
offers these products through its existing network of offices in addition to a
mortgage lending office in Gainesville, Florida
(Alachua County).
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·
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Retail Credit – The
Bank provides a full range of loan products to meet the needs of
consumers, including personal loans, automobile loans, boat/RV loans, home
equity loans, and credit card
programs.
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·
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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.
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·
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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, and
PC/Internet banking. Clients can use the Capital City Bank
Direct which offers both a “live” call center between the hours of 8 a.m.
to 6 p.m. five days a week, and an automated phone system offering 24-hour
access to their deposit and loan account information, and transfer funds
between linked accounts. The Bank is a member of the “Star” ATM
Network that permits banking clients to access cash at ATMs or point of
sale merchants.
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Data
Processing Services
Capital
City Services Company (the “Services Company”) provides data processing services
to financial institutions (including CCB), government agencies, and commercial
clients located throughout North Florida and South Georgia. As of
February 27, 2009, the Services Company is providing data processing services to
seven correspondent banks, which have relationships with CCB.
Trust
Services and Asset Management
Capital
City Trust Company (the “Trust Company”) is the investment management arm of
CCB. The Trust Company provides asset management for individuals
through agency, personal trust, IRAs, and personal investment management
accounts.
Administration
of pension, profit sharing, and 401(k) plans is a significant product
line. Associations, endowments, and other non-profit entities hire
the Trust Company to manage their investment
portfolios. Additionally, a staff of well-trained professionals
serves individuals requiring the services of a trustee, personal representative,
or a guardian. The market value of trust assets under discretionary
management exceeded $664.0 million as of December 31, 2008, with total assets
under administration exceeding $677.0 million.
Brokerage
Services
We offer
access to retail investment products through Capital City Banc Investments,
Inc., a wholly-owned subsidiary of CCB. These products are offered through
INVEST Financial Corporation, a member of FINRA and SIPC. Non-deposit
investment and insurance products are: (1) not FDIC insured; (2) not deposits,
obligations, or guaranteed by any bank; and (3) subject to investment risk,
including the possible loss of principal amount invested. Capital
City Banc Investments, Inc. offers a full line of retail securities products,
including U.S. Government bonds, tax-free municipal bonds, stocks, mutual funds,
unit investment trusts, annuities, life insurance and long-term health
care. We are not an affiliate of INVEST Financial
Corporation.
Expansion
of Business
Since
1984, we have completed 15 acquisitions totaling approximately $1.6 billion in
deposits within existing and new markets. In addition, since 2003, we
have opened 12 new banking offices to improve service and product delivery
within our markets, two of which were opened during 2008 (Macon, Georgia and
Brooksville, Florida). We currently have in construction, three
replacement banking offices (Macon, Georgia, Palatka, Florida and Gainesville,
Florida scheduled for opening in the first half of 2010.
We plan
to continue our expansion, emphasizing a combination of growth in existing
markets and acquisitions. The restructuring in late 2007 of our
community banking sales and service model has resulted in a more tactical focus
on certain higher growth metro markets, including Macon, Tallahassee,
Gainesville, and Hernando/Pasco counties. Acquisitions will be
focused on a three state area including Florida, Georgia, and Alabama with a
particular focus on acquiring banks and banking offices, which are $100 million
to $400 million in asset size, located on the outskirts of major metropolitan
areas. We will evaluate de novo expansion opportunities in attractive
new markets in the event that acquisition opportunities are not
feasible. Other expansion opportunities that will be evaluated
include asset management and mortgage banking.
Competition
The
banking business is rapidly changing. We operate in a highly
competitive environment, especially with respect to services and
pricing. The on-going consolidation of the banking industry has
altered and continues to significantly alter the competitive environment within
the Florida, Georgia, and Alabama markets. We believe this
consolidation further enhances our competitive position and opportunities in
many of our markets. Our primary market area is 20 counties in
Florida, five counties in Georgia, and one county in Alabama. In
these markets, the Bank competes against a wide range of banking and nonbanking
institutions including savings and loan associations, credit unions, money
market funds, mutual fund advisory companies, mortgage banking companies,
investment banking companies, finance companies and other types of financial
institutions.
All of
Florida’s major banking concerns have a presence in Leon
County. CCB’s Leon County deposits totaled $783 million, or 39.3%, of
our consolidated deposits at December 31, 2008.
The
following table depicts our market share percentage within each respective
county, based on total commercial bank deposits within the county.
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Market
Share as of June 30,(1)
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2008
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2007
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2006
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||||||||||
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Florida
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Alachua County
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4.6
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%
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4.7
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%
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5.6
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%
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||||||
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Bradford County
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50.1
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%
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47.6
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%
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44.6
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%
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Citrus County
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3.1
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%
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3.0
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%
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3.3
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%
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Clay County
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1.9
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%
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2.0
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%
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2.0
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%
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||||||
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Dixie County
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23.4
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%
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22.9
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%
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20.8
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%
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||||||
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Gadsden County
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55.7
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%
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61.0
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%
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64.9
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%
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||||||
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Gilchrist County
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37.8
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%
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33.6
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%
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47.1
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%
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||||||
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Gulf County
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9.1
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%
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11.7
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%
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14.3
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%
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||||||
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Hernando County
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1.2
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%
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1.2
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%
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1.5
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%
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||||||
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Jefferson County
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21.9
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%
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22.8
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%
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24.6
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%
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||||||
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Leon County
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17.6
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%
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16.2
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%
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18.0
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%
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||||||
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Levy County
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31.7
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%
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33.0
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%
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34.4
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%
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||||||
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Madison County
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12.1
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%
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13.1
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%
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14.9
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%
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||||||
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Pasco County
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0.2
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%
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0.2
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%
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0.2
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%
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||||||
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Putnam County
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19.7
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%
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11.1
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%
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12.3
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%
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||||||
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St. Johns County
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1.1
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%
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1.2
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%
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1.5
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%
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||||||
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Suwannee County
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7.2
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%
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7.7
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%
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11.8
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%
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||||||
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Taylor County
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31.1
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%
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30.1
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%
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28.6
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%
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||||||
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Wakulla County
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5.5
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%
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2.6
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%
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2.9
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%
|
||||||
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Washington County
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17.0
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%
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13.8
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%
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17.4
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%
|
||||||
|
Georgia
|
||||||||||||
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Bibb County
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2.1
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%
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2.5
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%
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2.9
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%
|
||||||
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Burke County
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7.4
|
%
|
7.8
|
%
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9.2
|
%
|
||||||
|
Grady County
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16.7
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%
|
18.7
|
%
|
20.0
|
%
|
||||||
|
Laurens County
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16.2
|
%
|
19.2
|
%
|
23.8
|
%
|
||||||
|
Troup County
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5.6
|
%
|
6.2
|
%
|
8.2
|
%
|
||||||
|
Alabama
|
||||||||||||
|
Chambers County
|
7.3
|
%
|
6.5
|
%
|
4.7
|
%
|
||||||
|
(1)
|
Obtained
from the June 30, 2008 FDIC/OTS Summary of Deposits
Report.
|
The following table sets forth the
number of commercial banks and offices, including our offices and our
competitors' offices, within each of the respective
counties.
|
County
|
Number
of
Commercial
Banks
|
Number
of Commercial
Bank
Offices
|
||||||
|
Florida
|
||||||||
|
Alachua
|
14
|
66
|
||||||
|
Bradford
|
3
|
3
|
||||||
|
Citrus
|
14
|
49
|
||||||
|
Clay
|
14
|
31
|
||||||
|
Dixie
|
3
|
4
|
||||||
|
Gadsden
|
4
|
6
|
||||||
|
Gilchrist
|
3
|
6
|
||||||
|
Gulf
|
6
|
9
|
||||||
|
Hernando
|
13
|
43
|
||||||
|
Jefferson
|
2
|
2
|
||||||
|
Leon
|
19
|
96
|
||||||
|
Levy
|
3
|
13
|
||||||
|
Madison
|
6
|
6
|
||||||
|
Pasco
|
26
|
120
|
||||||
|
Putnam
|
6
|
16
|
||||||
|
St. Johns
|
23
|
66
|
||||||
|
Suwannee
|
5
|
8
|
||||||
|
Taylor
|
3
|
4
|
||||||
|
Wakulla
|
4
|
7
|
||||||
|
Washington
|
5
|
5
|
||||||
|
Georgia
|
|
|||||||
|
Bibb
|
12
|
57
|
||||||
|
Burke
|
5
|
10
|
||||||
|
Grady
|
5
|
8
|
||||||
|
Laurens
|
10
|
20
|
||||||
|
Troup
|
12
|
27
|
||||||
|
Alabama
|
|
|||||||
|
Chambers
|
5
|
10
|
||||||
Data
obtained from the June 30, 2008 FDIC/OTS Summary of Deposits
Report.
Seasonality
We
believe our commercial banking operations are not generally seasonal in
nature. However, public deposits tend to increase with tax
collections in the second and fourth quarters and decline with spending
thereafter.
Regulatory
Considerations
We must
comply with state and federal banking laws and regulations that control
virtually all aspects of our operations. These laws and regulations
generally aim to protect our depositors, not our shareowners or our
creditors. Any changes in applicable laws or regulations may
materially affect our business and prospects. Such legislative or
regulatory changes may also affect our operations. The following
description summarizes some of the laws and regulations to which we are
subject. References to applicable statutes and regulations are brief
summaries, do not purport to be complete, and are qualified in their entirety by
reference to such statutes and regulations.
The
Company
CCBG is
registered with the Board of Governors of the Federal Reserve System (the
“Federal Reserve”) as a financial holding company under the Gramm-Leach-Bliley
Act and is registered with the Federal Reserve as a bank holding company under
the Bank Holding Company Act of 1956. As a result, we are subject to
supervisory regulation and examination by the Federal Reserve. The
Gramm-Leach-Bliley Act, the Bank Holding Company Act, and other federal laws
subject 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, enacted on November
12, 1999, amended the Bank Holding Company Act by (i) allowing bank holding
companies that qualify as “financial holding companies” to engage in a broad
range of financial and related activities; (ii) allowing insurers and other
financial service companies to acquire banks; (iii) removing restrictions that
applied to bank holding company ownership of securities firms and mutual fund
advisory companies; and (iv) establishing the overall regulatory scheme
applicable to bank holding companies that also engage in insurance and
securities operations. The general effect of the law was to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service
providers. Activities that are financial in nature are broadly
defined to include not only banking, insurance, and securities activities, but
also merchant banking and additional activities that the Federal Reserve, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.
In
contrast to financial holding companies, bank holding companies are limited to
managing or controlling banks, furnishing services to or performing services for
its subsidiaries, and engaging in other activities that the Federal Reserve
determines by regulation or order to be so closely related to banking or
managing or controlling banks as to be a proper incident
thereto. Except for the activities relating to financial holding
companies permissible under the Gramm-Leach-Bliley Act, these restrictions will
apply to us. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public that
outweigh possible adverse effects. Possible benefits include greater
convenience, increased competition, and gains in efficiency. Possible
adverse effects include undue concentration of resources, decreased or unfair
competition, conflicts of interest, and unsound banking
practices. Despite prior approval, the Federal Reserve may order a
bank holding company or its subsidiaries to terminate any activity or to
terminate ownership or control of any subsidiary when the Federal Reserve has
reasonable cause to believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that bank holding company may
result from such an activity.
Changes in
Control. Subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with the applicable
regulations, require Federal Reserve approval (or, depending on the
circumstances, no notice of disapproval) prior to any person or company
acquiring “control” of a bank or bank holding company. A conclusive presumption
of control exists if an individual or company acquires the power, directly or
indirectly, to direct the management or policies of an insured depository
institution or to vote 25% or more of any class of voting securities of any
insured depository institution. A rebuttable presumption of control exists if a
person or company acquires 10% or more but less than 25% of any class of voting
securities of an insured depository institution and either the institution has
registered securities under Section 12 of the Securities Exchange Act of 1934 or
as we will refer to as the Exchange Act, or no other person will own a greater
percentage of that class of voting securities immediately after the
acquisition.
As a bank
holding company, we are required to obtain prior approval from the Federal
Reserve before (i) acquiring all or substantially all of the assets of a bank or
bank holding company, (ii) acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting stock of any bank or bank holding company
(unless we own a majority of such bank’s voting shares), or (iii) merging or
consolidating with any other bank or bank holding company. In determining
whether to approve a proposed bank acquisition, federal bank regulators will
consider, among other factors, the effect of the acquisition on competition, the
public benefits expected to be received from the acquisition, the projected
capital ratios and levels on a post-acquisition basis, and the acquiring
institution’s record of addressing the credit needs of the communities it
serves, including the needs of low and moderate income neighborhoods, consistent
with the safe and sound operation of the bank, under the Community Reinvestment
Act of 1977.
Under
Florida law, a person or entity proposing to directly or indirectly acquire
control of a Florida bank must first obtain permission from the Florida Office
of Financial Regulation. Florida statutes define “control” as either (a)
indirectly or directly owning, controlling or having power to vote 25% or more
of the voting securities of a bank; (b) controlling the election of a majority
of directors of a bank; (c) owning, controlling, or having power to vote 10% or
more of the voting securities as well as directly or indirectly exercising a
controlling influence over management or policies of a bank; or (d) as
determined by the Florida Office of Financial Regulation. These requirements
will affect us because the Bank is chartered under Florida law and changes in
control of us are indirect changes in control of the Bank.
Tying. Bank
holding companies and their affiliates are prohibited from tying the provision
of certain services, such as extending credit, to other services or products
offered by the holding company or its affiliates, such as deposit
products.
Capital; Dividends; Source of
Strength. The Federal Reserve imposes certain capital requirements on
bank holding companies under the Bank Holding Company Act, including a minimum
leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted
assets. These requirements are described below under “Capital Regulations.”
Subject to its capital requirements and certain other restrictions, we are able
to borrow money to make a capital contribution to the Bank, and such loans may
be repaid from dividends paid from the Bank to us.
The
ability of the Bank to pay dividends, however, will be subject to regulatory
restrictions that are described below under “Dividends.” We are also able to
raise capital for contributions to the Bank by issuing securities without having
to receive regulatory approval, subject to compliance with federal and state
securities laws.
In
accordance with Federal Reserve policy, we are expected to act as a source of
financial strength to the Bank and to commit resources to support the Bank in
circumstances in which we might not otherwise do so. In 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 bank holding company.
Further, federal bank regulatory authorities have additional discretion to
require a financial holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution’s financial condition.
Capital
City Bank
CCB is a
banking institution that is chartered by and headquartered in the State of
Florida, and it is subject to supervision and regulation by the Florida Office
of Financial Regulation. The Florida Office of Financial Regulation
supervises and regulates all areas of the Bank’s operations including, without
limitation, the making of loans, the issuance of securities, the conduct of the
Bank’s corporate affairs, the satisfaction of capital adequacy requirements, the
payment of dividends, and the establishment or closing of branches. The Bank is
also a member bank of the Federal Reserve System, which makes the Bank’s
operations subject to broad federal regulation and oversight by the Federal
Reserve. In addition, the Bank’s deposit accounts are insured by the Federal
Deposit Insurance Corporation (“FDIC”) to the maximum extent permitted by law,
and the FDIC has certain enforcement powers over the Bank.
As a
state chartered banking institution in the State of Florida, the Bank is
empowered by statute, subject to the limitations contained in those statutes, to
take and pay interest on savings and time deposits, to accept demand deposits,
to make loans on residential and other real estate, to make consumer and
commercial loans, to invest, with certain limitations, in equity securities and
in debt obligations of banks and corporations and to provide various other
banking services on behalf of the Bank’s clients. Various consumer laws and
regulations also affect the operations of the Bank, including state usury laws,
laws relating to fiduciaries, consumer credit and equal credit opportunity laws,
and fair credit reporting. In addition, the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”) prohibits insured state chartered
institutions from conducting activities as principal that are not permitted for
national banks. A bank, however, may engage in an otherwise prohibited activity
if it meets its minimum capital requirements and the FDIC determines that the
activity does not present a significant risk to the Deposit Insurance Fund
(“DIF”).
Reserves. The
Federal Reserve requires all depository institutions to maintain reserves
against some transaction accounts (primarily NOW and Super NOW checking
accounts). The balances maintained to meet the reserve requirements imposed by
the Federal Reserve may be used to satisfy liquidity requirements. An
institution may borrow from the Federal Reserve Bank “discount window” as a
secondary source of funds, provided that the institution meets the Federal
Reserve Bank’s credit standards.
Dividends. The
Bank is subject to legal limitations on the frequency and amount of dividends
that can be paid to us. The Federal Reserve may restrict the ability
of the Bank to pay dividends if such payments would constitute an unsafe or
unsound banking practice. These regulations and restrictions may limit our
ability to obtain funds from the Bank for our cash needs, including funds for
acquisitions and the payment of dividends, interest, and operating
expenses.
In
addition, Florida law also places certain 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, declare a dividend from retained
net profits which accrued prior to the preceding two years. Before
declaring such dividends, 20% of the net profits for the preceding period as is
covered by the dividend must be transferred to the surplus fund of the bank
until this fund becomes equal to the amount of the bank’s common stock then
issued and outstanding. A state chartered bank may not declare any
dividend if (i) its net income from the current year combined with the retained
net income for the preceding two years is a loss or (ii) the payment of such
dividend would cause the capital account of the bank to fall below the minimum
amount required by law, regulation, order or any written agreement with the
Florida Office of Financial Regulation or a federal regulatory
agency. See Management Discussion and Analysis (Liquidity and Capital
Resources - Dividends) and Note 15 in the Notes to Consolidated Financial
Statements for additional information on the impact of this regulatory
requirement on us.
Insurance of Accounts and Other
Assessments. The FDIC merged the Bank Insurance Fund and the
Savings Association Insurance Fund to form the DIF on March 31,
2006. The Bank pays its deposit insurance assessments to the DIF,
which insures the Bank’s deposit accounts.
On
October 3, 2008, the Emergency Economic Stabilization Act of 2008 was enacted,
which temporarily raises the basic limit on federal deposit insurance coverage
from $100,000 to $250,000 per depositor. The legislation provides
that the basic deposit insurance limit will return to $100,000 after December
31, 2009. This increase in coverage does not in itself increase our DIF
assessment.
In
addition, on November 26, 2008 the FDIC issued a final rule under its
Transaction Account Guarantee Program (“TAGP”), pursuant to which the deposit
insurance coverage limits for all non-interest bearing transaction deposit
accounts, including all personal and business checking deposit accounts that do
not earn interest, lawyer trust accounts where interest does not accrue to the
account owner (IOLTA), and NOW accounts with interest rates no higher than
0.50%. Thus, all money in these accounts is fully insured by the FDIC
regardless of dollar amount. This second increase to coverage is in
effect through December 31, 2009. The cost to us for participating in this
expanded deposit insurance coverage program is a 10-basis point surcharge to our
current insurance assessment rate with respect to the portions of the TAGP
covered deposit accounts not otherwise covered by the existing deposit insurance
limit of $250,000. We have elected to participate in the
TAGP.
On
February 27, 2009, the FDIC announced an amendment to its restoration plan for
the DIF by imposing an emergency special assessment on all insured financial
institutions. This special assessment of 20 basis points will occur
on June 30, 2009, and will be payable by us on September 30,
2009. The FDIC may impose an additional special assessment of up to
10 basis points if necessary to maintain public confidence in federal deposit
insurance. Subsequently, the FDIC has announced its willingness to
lower the special assessment to 10 basis points, but as of March 9, 2009, no
final determination has been made. Based on our deposits as of
December 31, 2008, we anticipate our special assessment, based on the current
guidance from the FDIC of a 20 basis point special assessment, to be
approximately $3.9 million.
Effective
January 1, 2007, the FDIC established a risk-based assessment system for
determining the deposit insurance assessments to be paid by insured depository
institutions. Under the current assessment system, the FDIC assigns an
institution to one of four risk categories, with the first category having two
sub-categories based on the institution’s most recent supervisory and capital
evaluations, designed to measure risk. Assessment rates currently range from
0.12% of deposits for an institution in the highest sub-category of the highest
category to 0.50% of deposits for an institution in the lowest
category. Beginning with the second quarter of 2009, the FDIC has
announced it will make changes to the deposit insurance assessment system to
require riskier institutions to pay a larger share of the DIF
assessment. The FDIC has announced that the new assessment rates will
range from 0.08% to 0.775%. Any changes to our DIF assessment rate
will impact our earnings.
In
addition, all FDIC insured institutions are required to pay assessments to the
FDIC at an annual rate of approximately one basis point (the rate is adjusted
quarterly) of insured deposits to fund interest payments on bonds issued by the
Financing Corporation, an agency of the federal government established to
recapitalize the predecessor to the Savings Association Insurance Fund. These
assessments will continue until the Financing Corporation bonds mature in 2017
through 2019.
Transactions With
Affiliates. Pursuant to Sections 23A and 23B of the Federal
Reserve Act and Regulation W, the authority of the Bank to engage in
transactions with related parties or “affiliates” or to make loans to insiders
is limited. Loan transactions with an “affiliate” generally must be
collateralized and certain transactions between the Bank and its “affiliates”,
including the sale of assets, the payment of money or the provision of services,
must be on terms and conditions that are substantially the same, or at least as
favorable to the Bank, as those prevailing for comparable nonaffiliated
transactions. In addition, the Bank generally may not purchase securities issued
or underwritten by affiliates.
Loans to
executive officers, directors or to any person who directly or indirectly, or
acting through or in concert with one or more persons, owns, controls or has the
power to vote more than 10% of any class of voting securities of a bank, which
we refer to as 10% Shareholders, or to any political or campaign committee the
funds or services of which will benefit those executive officers, directors, or
10% Shareholders or which is controlled by those executive officers, directors
or 10% Shareholders, are subject to Sections 22(g) and 22(h) of the Federal
Reserve Act and its corresponding regulations (Regulation O) and Section 13(k)
of the Exchange Act 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 the Bank’s unimpaired capital and unimpaired surplus. Section
22(g) identifies limited circumstances in which the Bank is permitted to extend
credit to executive officers.
Community Reinvestment
Act. The Community Reinvestment Act and its corresponding
regulations are intended to encourage banks to help meet the credit needs of
their service area, including low and moderate income neighborhoods, consistent
with the safe and sound operations of the banks. These regulations
provide for regulatory assessment of a bank’s record in meeting the needs of its
service area. Federal banking agencies are required to make public a
rating of a bank’s performance under the Community Reinvestment
Act. The Federal Reserve considers a bank’s Community Reinvestment
Act rating when the bank submits an application to establish branches, merge, or
acquire the assets and assume the liabilities of another bank. In the
case of a 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 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 Reserve has adopted risk-based,
capital adequacy guidelines for financial holding companies and their subsidiary
state-chartered banks that are members of the Federal Reserve System. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and
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
current guidelines require all financial holding companies and federally
regulated banks to maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier I Capital. Tier I Capital, which includes
common shareholders’ equity, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock and trust preferred
securities, less certain goodwill items and other intangible assets, is required
to equal at least 4% of risk-weighted assets. The remainder (“Tier II Capital”)
may consist of (i) an allowance for loan losses of up to 1.25% of risk-weighted
assets, (ii) excess of qualifying perpetual preferred stock, (iii) hybrid
capital instruments, (iv) perpetual debt, (v) mandatory convertible securities,
and (vi) subordinated debt and intermediate-term preferred stock up to 50% of
Tier I Capital. Total capital is the sum of Tier I and Tier II Capital less
reciprocal holdings of other banking organizations’ capital instruments,
investments in unconsolidated subsidiaries and any other deductions as
determined by the appropriate regulator (determined on a case by case basis or
as a matter of policy after formal rule making).
In
computing total risk-weighted assets, bank and financial holding company assets
are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain
off-balance sheet items are given similar credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight will apply.
Most loans will be assigned to the 100% risk category, except for performing
first mortgage loans fully secured by 1- to 4-family and certain multi-family
residential property, which carry a 50% risk rating. Most investment securities
(including, primarily, general obligation claims on states or other political
subdivisions of the United States) will be assigned to the 20% category, except
for municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of the U.S. Treasury or obligations backed by the full faith and
credit of the U.S. Government, which have a 0% risk-weight. In covering
off-balance sheet items, direct credit substitutes, including general guarantees
and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction-related contingencies such as bid bonds, standby
letters of credit backing non-financial obligations, and undrawn commitments
(including commercial credit lines with an initial maturity of more than one
year) have a 50% conversion factor. Short-term commercial letters of credit are
converted at 20% and certain short-term unconditionally cancelable commitments
have a 0% factor.
The
federal bank regulatory authorities have also adopted regulations that
supplement the risk-based guidelines. These regulations generally require banks
and financial holding companies to maintain a minimum level of Tier I Capital to
total assets less goodwill of 4% (the “leverage ratio”). The Federal Reserve
permits a bank to maintain a minimum 3% leverage ratio if the bank achieves a 1
rating under the CAMELS rating system in its most recent examination, as long as
the bank is not experiencing or anticipating significant growth. The CAMELS
rating is a non-public system used by bank regulators to rate the strength and
weaknesses of financial institutions. The CAMELS rating is comprised of six
categories: capital adequacy, asset quality, management, earnings, liquidity,
and sensitivity to market risk.
Banking
organizations experiencing or anticipating significant growth, as well as those
organizations which do not satisfy the criteria described above, will be
required to maintain a minimum leverage ratio ranging generally from 4% to 5%.
The bank regulators also continue to consider a “tangible Tier I leverage ratio”
in evaluating proposals for expansion or new activities. The tangible Tier I
leverage ratio is the ratio of a banking organization’s Tier I Capital, less
deductions for intangibles otherwise includable in Tier I Capital, to total
tangible assets.
Federal
law and regulations establish a capital-based regulatory scheme designed to
promote early intervention for troubled banks and require the FDIC to choose the
least expensive resolution of bank failures. The capital-based regulatory
framework contains five categories of compliance with regulatory capital
requirements, including “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and “critically
undercapitalized.” To qualify as a “well-capitalized” institution, a bank must
have a leverage ratio of no less than 5%, a Tier I risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. Generally, a financial
institution must be “well capitalized” before the Federal Reserve will approve
an application by a financial holding company to acquire or merge with a bank or
bank holding company.
Under the
regulations, the applicable agency can treat an institution as if it were in the
next lower category if the agency determines (after notice and an opportunity
for hearing) that the institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of
a financial institution will increase, and the permissible activities of the
institution will decrease, as it moves downward through the capital categories.
Institutions that fall into one of the three undercapitalized categories may be
required to (i) submit a capital restoration plan; (ii) raise additional
capital; (iii) restrict their growth, deposit interest rates, and other
activities; (iv) improve their management; (v) eliminate management fees; or
(vi) divest themselves of all or a part of their operations. Financial holding
companies controlling financial institutions can be called upon to boost the
institutions’ capital and to partially guarantee the institutions’ performance
under their capital restoration plans.
It should
be noted that the minimum ratios referred to above are merely guidelines and the
bank regulators possess the discretionary authority to require higher
ratios.
We
currently exceed the requirements contained in the applicable regulations,
policies and directives pertaining to capital adequacy, and are unaware of any
material violation or alleged violation of these regulations, policies or
directives.
Basel II Capital
Standards. We may decide to adopt certain new capital and
other regulatory requirements proposed by the Basel Committee on Banking
Supervision. The federal banking regulators have implemented new risk-based
capital requirements in the United States. These new requirements, which are
often referred to as the Basel II Accord, modify the capital charge
applicable to credit risk and incorporate a capital charge for operational risk.
The Basel II Accord also places greater reliance on market discipline than
previous standards. The Basel II standards will be mandatory only with
respect to banking organizations with total banking assets of $250 billion
or more or total on-balance-sheet foreign exposure of $10 billion or
more. We will continue to closely monitor developments on these
matters and assess their impact on us.
Interstate Banking and
Branching. The Bank Holding Company Act was amended by the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
“Interstate Banking Act”). The Interstate Banking Act provides that
adequately capitalized and managed financial and bank holding companies are
permitted to acquire banks in any state.
State
laws prohibiting interstate banking or discriminating against out-of-state banks
are preempted. States are not permitted to enact laws opting out of
this provision; however, states are allowed to adopt a minimum age restriction
requiring that target banks located within the state be in existence for a
period of years, up to a maximum of five years, before a bank may be subject to
the Interstate Banking Act. The Interstate Banking Act establishes
deposit caps which prohibit acquisitions that result in the acquiring company
controlling 30% or more of the deposits of insured banks and thrift institutions
held in the state in which the target maintains a branch or 10% or more of the
deposits nationwide. States have the authority to waive the 30% deposit
cap. State-level deposit caps are not preempted as long as they do
not discriminate against out-of-state companies, and the federal deposit caps
apply only to initial entry acquisitions.
The
Interstate Banking Act also provides that adequately capitalized and managed
banks are able to engage in interstate branching by merging with banks in
different states. Unlike the interstate banking provision discussed
above, states were permitted to opt out of the application of the interstate
merger provision by enacting specific legislation.
Florida
responded to the enactment of the Interstate Banking Act by enacting the Florida
Interstate Branching Act (the “Florida Branching Act”). The purpose
of the Florida Branching Act was to permit interstate branching through merger
transactions under the Interstate Banking Act. Under the Florida
Branching Act, with the prior approval of the Florida Office of Financial
Regulation, a Florida bank may establish, maintain and operate one or more
branches in a state other than the State of Florida pursuant to a merger
transaction in which the Florida bank is the resulting bank. In
addition, the Florida Branching Act provides that one or more Florida banks may
enter into a merger transaction with one or more out-of-state banks, and an
out-of-state bank resulting from this transaction may maintain and operate the
branches of the Florida bank that participated in this merger. An
out-of-state bank, however, is not permitted to acquire a Florida bank in a
merger transaction unless the Florida bank has been in existence and
continuously operated for more than three years.
BankSecrecy Act/Anti-Money
Laundering. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
“USA PATRIOT Act”) was enacted in response to the terrorist attacks occurring on
September 11, 2001. The USA PATRIOT Act is intended to strengthen the
U.S. law enforcement and intelligence communities’ ability to work together to
combat terrorism. Title III of the USA PATRIOT Act, the International
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, amended the
Bank Secrecy Act and adopted additional provisions that increased the
obligations of financial institutions, including the Bank, to file reports and
maintain records, to identify their clients, watch for and report upon
suspicious transactions, respond to requests for information by federal banking
and law enforcement agencies, and share information with other financial
institutions. In addition, the collected client identification
information must be verified within a reasonable time after a new account is
opened through documentary or non-documentary
methods.
In 2007,
the Federal Reserve and the other federal financial regulatory agencies issued
an interagency policy on the application of section 8(s) of the Federal Deposit
Insurance Act. This provision generally requires each federal banking
agency to issue an order to cease and desist when a bank is in violation of the
requirement to establish and maintain a Bank Secrecy Act/anti-money laundering
(BSA/AML) compliance program or, in the alternative, the Bank fails to correct a
deficiency which has been previously cited by the federal banking agency with
respect to the Bank’s BSA/AML compliance program. The policy
statement provides that, in addition to the circumstances where the agencies
will issue a cease and desist order in compliance with section 8(s), they may
take other actions as appropriate for other types of BSA/AML program concerns or
for violations of other BSA requirements. The policy statement also
does not address the independent authority of the U.S. Department of the
Treasury’s Financial Crimes Enforcement Network to take enforcement action for
violations of the BSA.
Securities Activities. In 2007, the
SEC adopted Regulation R, which implements the bank broker-dealer exceptions
enacted in the Gramm-Leach-Bliley Act. Regulation R affects the way
the Bank’s employees who are not registered with the SEC may be compensated for
referrals to a third-party broker-dealer for which the Bank has entered into a
networking arrangement. In addition, Regulation R broadens the
ability of the Bank to effect securities transactions in a trustee or fiduciary
capacity without registering as a broker, permit banks to effect certain sweep
account transactions, and to accept orders for securities transactions from
employee plan accounts, individual retirement plan accounts, and other similar
accounts. Regulation R went into effect for us on January 1,
2009.
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.
Fair and Accurate Credit Transaction
Act of 2003. The Fair and Accurate Credit Transaction Act of
2003, which amended the Fair Credit Reporting Act, enhances consumers’ ability
to combat identity theft, increases the accuracy of consumer reports, allows
consumers to exercise greater control over the type and amount of marketing
solicitations they receive, restricts the use and disclosure of sensitive
medical information, and establishes uniform national standards in the
regulation of consumer reporting.
In 2007,
the Federal Reserve and the other federal financial regulatory agencies together
with the U.S. Department of the Treasury and the Federal Trade Commission issued
final regulations (Red Flag Regulations) enacting Sections 114 and 315 of the
Fair and Accurate Credit Transaction Act of 2003. The Red Flag
Regulations required the Bank to have identity theft policies and programs in
place by no later than November 1, 2008. The Red Flag Regulations
require the Bank to develop and implement an identity theft protection program
for combating identity theft in connection with new and existing consumer
accounts and other accounts for which there is a reasonably foreseeable risk of
identity theft.
Consumer Laws and
Regulations. The Bank is also subject to other federal and
state consumer laws and regulations that are designed to protect consumers in
transactions with banks. While the list set forth below is not
exhaustive, these laws and regulations include the Truth in Lending Act, the
Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds
Availability Act, the Check Clearing for the 21st Century
Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair
Housing Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement
Procedures Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with clients when taking deposits or making loans to such
clients. The Bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of its ongoing client
relations.
Future
Legislative Developments
Various
legislative acts are from time to time introduced in Congress and the Florida
legislature. This legislation may change banking statutes and the
environment in which our banking subsidiary and we operate in substantial and
unpredictable ways. We cannot determine the ultimate effect that
potential legislation, if enacted, or implementing regulations with respect
thereto, would have upon our financial condition or results of operations or
that of our banking subsidiary. See page 28 for further discussion of
recent legislation.
Effect
of Governmental Monetary Policies
The
commercial banking business in which the Bank engages is affected not only by
general economic conditions, but also by the monetary policies of the Federal
Reserve. Changes in the discount rate on member bank borrowing,
availability of borrowing at the “discount window,” open market operations, the
imposition of changes in reserve requirements against member banks’ deposits and
assets of foreign branches and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal
Reserve. These monetary policies are used in varying combinations to
influence overall growth and distributions of bank loans, investments and
deposits, and this use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks and are expected
to do so in the future. The monetary policies of the Federal Reserve
are influenced by various factors, including inflation, unemployment, and
short-term and long-term changes in the international trade balance and in the
fiscal policies of the U.S. Government. Future monetary policies and
the effect of such policies on the future business and earnings of the Bank
cannot be predicted.
Since
December 2008, the Federal Reserve has adopted a zero interest rate policy to
help combat the severe economic downturn in the United States and growing
deflationary pressure. For banks, one of the most significant
downsides with a zero interest rate policy is that it causes the yield curve to
flatten (i.e. there is little difference between short and long term interest
rates). Because banks make money by lending long term and borrowing
short term funds, the narrowing of this gap narrows profit
margins.
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. We have
filed tax returns for each state jurisdiction affected in 2007 and will do the
same for 2008.
Website
Access to Company's Reports
Our
Internet website is www.ccbg.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, including any
amendments to those reports filed or furnished pursuant to section 13(a) or
15(d), and reports filed pursuant to Section 16, 13(d), and 13(g) of the
Exchange Act are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or furnished
to, the Securities and Exchange Commission. The information on our
website is not incorporated by reference into this
report.
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Risk
Factors
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You
should consider carefully the following risk factors before deciding whether to
invest in our common stock. Our business, including our operating
results and financial condition, could be harmed by any of these
risks. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially and adversely
affect our business. The trading price of our common stock could
decline due to any of these risks, and you may lose all or part of your
investment. In assessing these risks, you should also refer to the
other information contained in our filings with the SEC, including our financial
statements and related notes.
Risks
Related to Our Business
Difficult
market conditions and economic trends have adversely affected our industry and
our business.
Dramatic
declines in the housing market, with decreasing home prices and increasing
delinquencies and foreclosures, have negatively impacted the credit performance
of mortgage and construction loans and resulted in significant write-downs of
assets by many financial institutions. General downward economic trends, reduced
availability of commercial credit and increasing unemployment have negatively
impacted the credit performance of commercial and consumer credit, resulting in
additional write-downs. Concerns over the stability of the financial markets and
the economy have resulted in decreased lending by financial institutions to
their customers and to each other. This market turmoil and tightening of credit
has led to increased commercial and consumer deficiencies, lack of customer
confidence, increased market volatility and widespread reduction in general
business activity. Financial institutions have experienced decreased access to
deposits and borrowings.
The
resulting economic pressure on consumers and businesses and the lack of
confidence in the financial markets may adversely affect our business, financial
condition, results of operations and stock price.
Our
ability to assess the creditworthiness of customers and to estimate the losses
inherent in our credit exposure is made more complex by these difficult market
and economic conditions. We also expect to face increased regulation and
government oversight as a result of these downward trends. This increased
government action may increase our costs and limit our ability to pursue certain
business opportunities. We also may be required to pay even higher FDIC premiums
than the recently increased level, because financial institution failures
resulting from the depressed market conditions have depleted and may continue to
deplete the deposit insurance fund and reduce its ratio of reserves to insured
deposits.
We do not
believe these difficult conditions are likely to improve in the near future. A
worsening of these conditions would likely exacerbate the adverse effects of
these difficult economic conditions on us, our clients and the other financial
institutions in our market. As a result, we may experience increases in
foreclosures, delinquencies, and client bankruptcies, as well as more restricted
access to funds.
Recent
legislative and regulatory initiatives to address difficult market and economic
conditions may not stabilize the U.S. banking system.
The
recently enacted Emergency Economic Stabilization Act of 2008 (the “EESA”)
authorizes the United States Treasury to purchase from financial institutions
and their holding companies up to $700 billion in mortgage loans,
mortgage-related securities and certain other financial instruments, including
debt and equity securities issued by financial institutions and their holding
companies, under a troubled asset relief program, or “TARP.” The purpose of TARP
is to restore confidence and stability to the U.S. banking system and to
encourage financial institutions to increase their lending to customers and to
each other.
The EESA
followed, and has been followed by, numerous actions by the Board of Governors
of the Federal Reserve System, the U.S. Congress, Treasury, the FDIC, the SEC
and others to address the current liquidity and credit crisis that has followed
the sub-prime meltdown that commenced in 2007. These measures include homeowner
relief that encourage loan restructuring and modification; the establishment of
significant liquidity and credit facilities for financial institutions and
investment banks; the lowering of the federal funds rate; emergency action
against short selling practices; a temporary guaranty program for money market
funds; the establishment of a commercial paper funding facility to provide
back-stop liquidity to commercial paper issuers; and coordinated international
efforts to address illiquidity and other weaknesses in the banking
sector.
In 2009,
with the change in presidential administrations, additional changes have been
announced, such as the creation of a Public-Private Investment Fund to purchase
“toxic assets”, which are primarily mortgage-backed securities and nonperforming
mortgage loans, from financial institutions. Further, a new capital
injection plan has been unveiled accompanied with significantly more
restrictions on the payment of executive compensation and dividends, and a
prohibition on acquisitions.
The
purpose of all of these legislative and regulatory actions is to stabilize the
U.S. banking system. The EESA and the other regulatory initiatives described
above may not have their desired effects. If the volatility in the markets
continues and economic conditions fail to improve or worsen, our business,
financial condition and results of operations could be materially and adversely
affected.
Current
levels of market volatility are unprecedented.
The
capital and credit markets have been experiencing volatility and disruption for
more than a year. In recent months, the volatility and disruption has reached
unprecedented levels. In some cases, the markets have produced downward pressure
on stock prices and credit availability for certain issuers without regard to
those issuers’ underlying financial strength. If current levels of market
disruption and volatility continue or worsen, there can be no assurance that we
will not experience an adverse effect, which may be material, on our ability to
access capital and on our business, financial condition, and results of
operations.
An
impairment in the carrying value of our goodwill could negatively impact our
earnings and capital.
Goodwill
is initially recorded at fair value and is not amortized, but is reviewed for
impairment at least annually or more frequently if events or changes in
circumstances indicate that the carrying value may not be
recoverable. Given the current economic environment and conditions in
the financial markets, we could be required to evaluate the recoverability of
goodwill prior to our normal annual assessment if we experience disruption in
our business, unexpected significant declines in our operating results, or
sustained market capitalization declines. These types of events and
the resulting analyses could result in goodwill impairment charges in the
future. These non-cash impairment charges could adversely affect our
results of operations in future periods, and could also significantly impact
certain financial ratios and limit our ability to obtain financing or raise
capital in the future. A goodwill impairment charge does not
adversely affect the calculation of our risk based and tangible capital
ratios. As of December 31, 2008, we had $84.8 million in goodwill,
which represented approximately 3.41% of our total assets.
State
law may limit our ability to declare and pay dividends.
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 declare dividends 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, declare a
dividend from retained net profits which accrued prior to the preceding two
years. If the Bank does not earn an amount approximately equal to
CCBG’s anticipated 2009 dividend, CCBG may be unable to declare and pay a
dividend to its shareowners. See section entitled “Liquidity and
Capital Resources – Dividends” in Management’s Discussion and Analysis for
further discussion.
An
inadequate allowance for loan losses would reduce our earnings.
We are
exposed to the risk that our clients will be unable to repay their loans
according to their terms and that any collateral securing the payment of their
loans will not be sufficient to assure full repayment. This will
result in credit losses that are inherent in the lending business. We
evaluate the collectability of our loan portfolio and provide an allowance for
loan losses that we believe is adequate based upon such factors as:
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the
risk characteristics of various classifications of
loans;
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previous
loan loss experience;
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specific
loans that have loss potential;
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delinquency
trends;
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estimated
fair market value of the
collateral;
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current
economic conditions; and
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geographic
and industry loan concentrations.
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If our
estimate of credit losses inherent in the loan portfolio is incorrect, our
earnings could be significantly and adversely affected because our allowance may
not be adequate. Additionally, we may experience losses in our loan
portfolios or encounter adverse trends that require us to significantly increase
our allowance for loan losses in the future, which could also have an adverse
affect on our earnings.
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, 2008, approximately 33.6% and 35.9% of our
$1.958 billion loan portfolio was secured by commercial real estate and
residential real estate, respectively. As of this same date,
approximately 7.3% was secured by property under construction.
The
current downturn in the real estate market, the deterioration in the value of
collateral, and the local and national economic recessions, have adversely
affected our clients’ ability to repay their loans. If these
conditions persist, or get worse, our clients’ ability to repay their loans will
be further eroded. In the event we are required to foreclose on a
property securing one of our mortgage loans or otherwise pursue our remedies in
order to protect our investment, we may be unable to recover funds in an amount
equal to our projected return on our investment or in an amount sufficient to
prevent a loss to us due to prevailing economic conditions, real estate values
and other factors associated with the ownership of real property. As
a result, the market value of the real estate or other collateral underlying our
loans may not, at any given time, be sufficient to satisfy the outstanding
principal amount of the loans, and consequently, we would sustain loan
losses.
If
our nonperforming loans continue to increase, our earnings will
suffer.
At
December 31, 2008, our non-performing loans (which consist of non-accrual and
restructured loans) totaled $98.6 million, or 5.04% of the total loan portfolio,
which is an increase of $73.5 million, or 293% over non-performing loans at
December 31, 2007. At December 31, 2008, our nonperforming assets
(which include foreclosed real estate) were $107.8 million, or 4.33% of total
assets. In addition, the Bank had approximately $0.1 million in
accruing loans that were over 90 days delinquent and still accruing as of
December 31, 2008. Our non-performing assets adversely affect our net
income in various ways. We do not record interest income on
non-accrual loans or real estate owned. We must reserve for probable
losses, which is established through a current period charge to the provision
for loan losses as well as from time to time, as appropriate, write down the
value of properties in our other real estate owned portfolio to reflect changing
market values. Additionally, there are legal fees associated the
resolution of problem assets as well as carrying costs such as taxes, insurance
and maintenance related to our other real estate owned. Further, the
resolution of nonperforming assets requires the active involvement of
management, which can distract them from more profitable
activity. Finally, if our estimate for the recorded allowance for
loan losses proves to be incorrect and our allowance is inadequate, we will have
to increase the allowance accordingly.
We
may incur losses if we are unable to successfully manage interest rate
risk.
Our
profitability depends largely on the Bank’s net interest income, which is the
difference between income on interest-earning assets such as loans and
investment securities, and expense on interest-bearing liabilities such as
deposits and our borrowings. We are unable to predict changes in
market interest rates, which are affected by many factors beyond our control
including inflation, recession, unemployment, money supply, domestic and
international events and changes in the United States and other financial
markets. Our net interest income may be reduced if: (i) more
interest-earning assets than interest-bearing liabilities reprice or mature
during a time when interest rates are declining or (ii) more
interest-bearing liabilities than interest-earning assets reprice or mature
during a time when interest rates are rising.
Changes
in the difference between short- and long-term interest rates may also harm our
business. For example, short-term deposits may be used to fund
longer-term loans. When differences between short-term and long-term
interest rates shrink or disappear, as is likely in the current zero interest
rate policy environment, the spread between rates paid on deposits and received
on loans could narrow significantly, decreasing our net interest
income.
If market
interest rates rise rapidly, interest rate adjustment caps may limit increases
in the interest rates on adjustable rate loans, thus reducing our net interest
income.
Our
loan portfolio is heavily concentrated in mortgage loans secured by properties
in Florida and Georgia.
Our
interest-earning assets are heavily concentrated in mortgage loans secured by
real estate, particularly real estate located in Florida and
Georgia. As of December 31, 2008, approximately 75.9% of our loans
had real estate as a primary, secondary, or tertiary component of
collateral. The real estate collateral in each case provides an
alternate source of repayment in the event of default by the borrower; however,
the value of the collateral may decline during the time the credit is
extended. If we are required to liquidate the collateral securing a
loan during a period of reduced real estate values, such as in today’s market,
to satisfy the debt, our earnings and capital could be adversely
affected.
Additionally,
as of December 31, 2008, substantially all of our loans secured by real estate
are secured by commercial and residential properties located in Northern Florida
and Middle Georgia. The concentration of our loans in this area
subjects us to risk that a downturn in the economy or recession in those areas,
such as the one the areas are currently experiencing, could result in a decrease
in loan originations and increases in delinquencies and foreclosures, which
would more greatly affect us than if our lending were more geographically
diversified. In addition, since a large portion of our portfolio is
secured by properties located in Florida and Georgia, the occurrence of a
natural disaster, such as a hurricane, could result in a decline in loan
originations, a decline in the value or destruction of mortgaged properties and
an increase in the risk of delinquencies, foreclosures or loss on loans
originated by us. We may suffer further losses due to the decline in
the value of the properties underlying our mortgage loans, which would have an
adverse impact on our operations.
Since
we engage in lending secured by real estate and may be forced to foreclose on
the collateral property and own the underlying real estate, we may be subject to
the increased costs associated with the ownership of real property, which could
result in reduced net income.
Since we
originate loans secured by real estate, we may have to foreclose on the
collateral property to protect our investment and may thereafter own and operate
such property, in which case we are exposed to the risks inherent in the
ownership of real estate.
The
amount that we, as a mortgagee, may realize after a default is dependent upon
factors outside of our control, including, but not limited to:
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general
or local economic conditions;
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environmental
cleanup liability;
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neighborhood
values;
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interest
rates;
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real
estate tax rates;
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operating
expenses of the mortgaged
properties;
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supply
of and demand for rental units or
properties;
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ability
to obtain and maintain adequate occupancy of the
properties;
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zoning
laws;
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governmental
rules, regulations and fiscal policies;
and
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acts
of God.
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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.
Liquidity
risk could impair our ability to fund operations and jeopardize our financial
condition.
Liquidity
is essential to our business. An inability to raise funds through
deposits, borrowings, and other sources, could have a substantial negative
effect on our liquidity. Our access to funding sources in amounts
adequate to finance our activities on terms that are acceptable to us could be
impaired by factors that affect us specifically or the financial services
industry or economy in general. Factors that could negatively impact
our access to liquidity sources include a decrease in the level of our business
activity as a result of a downturn in the markets in which our loans are
concentrated, adverse regulatory action against us, or our inability to attract
and retain deposits. Our ability to borrow could be impaired by
factors that are not specific to us, such a disruption in the financial markets
or negative views and expectations about the prospects for the financial
services industry in light of recent turmoil faced by banking organizations and
the unstable credit markets.
We
may need additional capital resources in the future and these capital resources
may not be available when needed or at all. If we do raise additional
capital, your ownership could be diluted.
We may
need to incur additional debt or equity financing in the future to make
strategic acquisitions or investments or for future growth. Such
financing may not be available to us on acceptable terms or at all.
Further,
our Articles of Incorporation do not provide shareowners with preemptive rights
and such shares may be offered to investors other than shareowners at the
discretion of the Board. If we do sell additional shares of common
stock to raise capital, the sale could dilute your ownership interest and such
dilution could be substantial.
Concerns
of clients over deposit insurance may cause a decrease in our
deposits.
With
increased concerns about bank failures, clients are increasingly concerned about
the extent to which their deposits are insured by the FDIC. Clients
may withdraw deposits from CCB in an effort to ensure that the amount that they
have on deposit at CCB is fully insured. Decreases in deposits may
adversely affect our funding costs and net income. See Regulatory
Considerations – Capital City Bank – Insurance Accounts and Other Assessments
for further discussion.
We
may not be able to successfully manage our growth or implement our growth
strategies, which may adversely affect our results of operations and financial
condition.
A key
aspect of our business strategy is our continued growth and
expansion. Our ability to manage our growth successfully will depend
on whether we can maintain capital levels adequate to support our growth,
maintain cost controls and asset quality and successfully integrate any
businesses we acquire into our organization.
Our
earnings growth relies, at least in part, on strategic
acquisitions. Our ability to grow through selective acquisitions of
financial institutions or offices will depend on successfully identifying,
acquiring and integrating those institutions or offices. We may be
unable to identify attractive acquisition candidates, make acquisitions on
favorable terms or successfully integrate any acquired institutions or
offices. In addition, we may fail to realize the growth opportunities
and cost savings we anticipate to be derived from our
acquisitions. Growth through acquisitions causes us to take on
additional risks such as the risks of unknown or contingent liabilities,
exposure to potential asset quality issues from acquired institutions, and the
diversion of our management’s time and attention from our existing business and
operations. Finally, it is possible that during the integration
process of our acquisitions, we could lose key associates or the ability to
maintain relationships with clients.
As we
continue to implement our growth strategy by opening new offices or through
strategic acquisitions, we expect to incur increased personnel, occupancy and
other operating expenses. In the case of new offices, we must absorb
those higher expenses while we begin to generate new deposits, and there is a
further time lag involved in redeploying new deposits into attractively priced
loans and other higher yielding earning assets.
Potential
acquisitions may dilute shareowner value.
We
regularly evaluate opportunities to acquire other financial
institutions. As a result, merger and acquisition discussions and, in
some cases, negotiations may take place and future mergers or acquisitions
involving cash, debt, or equity securities may occur at any
time. Acquisitions typically involve the payment of a premium over
book and market values, and, therefore, some dilution of our tangible book value
and net income per common share may occur in connection with any future
acquisitions.
Future
economic growth in our Florida market area is likely to be slower compared to
previous years.
The State
of Florida’s population growth has historically exceeded national averages.
Consequently, the state has experienced substantial growth in population, new
business formation and public works spending. Due to the moderation of economic
growth and migration into our market area and the downturn in the real estate
market, management believes that growth in our market area will be restrained in
the near term. We have experienced an overall slow down in the
origination of residential mortgage loans recently due to the slowing in
residential real estate sales activity in our markets. A decrease in
existing and new home sales decreases lending opportunities and negatively
affects our income. Continued deterioration in the housing market and property
values could lead to additional valuation adjustments in our loan
portfolios.
The
market value of our investments could decline.
Our
investment securities portfolio as of December 31, 2008 has been designated as
available-for-sale pursuant to Statement of Financial Accounting Standards No.
115 (“SFAS 115") relating to accounting for investments. SFAS 115
requires 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 shareholders’ equity (net of tax) as accumulated other comprehensive
income. At December 31, 2008, we maintained all of our investment
securities in the available-for-sale classification.
Shareowners’
equity will continue to reflect the unrealized gains and losses (net of tax) of
these investments. The market value of our investment portfolio may
decline, causing a corresponding decline in shareowners’ equity.
Management
believes that several factors will affect the market values of our investment
portfolio. These include, but are not limited to, changes in interest
rates or expectations of changes, the degree of volatility in the securities
markets, inflation rates or expectations of inflation and the slope of the
interest rate yield curve (the yield curve refers to the differences between
shorter-term and longer-term interest rates; a positively sloped yield curve
means shorter-term rates are lower than longer-term rates). These and
other factors may impact specific categories of the portfolio differently, and
we cannot predict the effect these factors may have on any specific
category.
Confidential
client information transmitted through our online banking service is vulnerable
to security breaches and computer viruses, which could expose us to litigation
and adversely affect our reputation and our ability to generate
deposits.
We
provide our clients the ability to bank online. The secure
transmission of confidential information over the Internet is a critical element
of banking online. Our network could be vulnerable to unauthorized
access, computer viruses, phishing schemes and other security
problems. We may be required to spend significant capital and other
resources to protect against the threat of security breaches and computer
viruses, or to alleviate problems caused by security breaches or
viruses. To the extent that our activities or the activities of our
clients involve the storage and transmission of confidential information,
security breaches and viruses could expose us to claims, litigation and other
possible liabilities. Any inability to prevent security breaches or
computer viruses could also cause existing clients to lose confidence in our
systems and could adversely affect our reputation and our ability to generate
deposits.
We
must comply 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 our compliance with the rules enforced by the Office
of Foreign Assets Control. In order to comply with regulations,
guidelines and examination procedures in this area, we have been required to
adopt new policies and procedures and to install new systems. We
cannot be certain that the policies, procedures and systems we have in place
will permit us to fully comply with these laws. Furthermore,
financial institutions that we have already acquired or may acquire in the
future may or may not have had adequate policies, procedures and systems to
fully comply with these laws. Whether our own policies, procedures
and systems are deficient or the policies, procedures and systems of the
financial institutions that we have already acquired or may acquire in the
future are deficient, we would be subject to liability, including fines and
regulatory actions such as restrictions on our ability to pay dividends and to
obtain regulatory approvals necessary to proceed with certain aspects of our
business plan, including our acquisition plans.
Our
controls and procedures may fail or be circumvented.
We
regularly review and update our internal controls, disclosure controls and
procedures, and corporate governance policies and procedures. Any
system of controls, however well designed and operated, is based in part on
certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of the system are met. Any failure or
circumvention of our controls and procedures or failure to comply with
regulations related to controls and procedures could have a material adverse
effect on our business, results of operations and financial
condition.
We
are exposed to operational risk because of providing certain services, which
could adversely affect our results of operations.
We are
exposed to operational risk because of providing various fee-based services
including electronic banking, item processing, data processing, correspondent
banking, merchant services, and asset management. Operational risk is
the risk of loss resulting from errors related to transaction processing,
breaches of the internal control system and compliance requirements, fraud by
employees or persons outside the company or business interruption due to system
failures or other events. We continually assess and monitor
operational risk in our business lines and provide for disaster and business
recovery planning including geographical diversification of our facilities;
however, the occurrence of various events including unforeseeable and
unpreventable events such as hurricanes or other natural disasters could still
damage our physical facilities or our computer systems or software, cause delay
or disruptions to operational functions, impair our clients, vendors and
counterparties and negatively impact our results of
operations. Operational risk also includes potential legal or
regulatory actions that could arise because of noncompliance with applicable
laws and regulatory requirements that could have an adverse affect on our
reputation.
Our
future success is dependent on our ability to compete effectively in the highly
competitive banking industry.
We face
vigorous competition from other banks and other financial institutions,
including savings and loan associations, savings banks, finance companies and
credit unions for deposits, loans and other financial services in our market
area. A number of these banks and other financial institutions are
significantly larger than we are and have substantially greater access to
capital and other resources, as well as larger lending limits and branch
systems, and offer a wider array of banking services. To a limited
extent, we also compete with other providers of financial services, such as
money market mutual funds, brokerage firms, consumer finance companies,
insurance companies and governmental organizations which may offer more
favorable financing than we can. Many of our non-bank competitors are
not subject to the same extensive regulations that govern us. As a
result, these non-bank competitors have advantages over us in providing certain
services. This competition may reduce or limit our margins and our
market share and may adversely affect our results of operations and financial
condition.
We are
subject to extensive regulation that could restrict our activities and impose
financial requirements or limitations on the conduct of our business and limit
our ability to receive dividends from the Bank.
The Bank
is subject to extensive regulation, supervision and examination by the Florida
Office of Financial Regulation, the Federal Reserve, and the FDIC. As
a member of the Federal Home Loan Bank, the Bank must also comply with
applicable regulations of the Federal Housing Finance Board and the Federal Home
Loan Bank. Regulation by these agencies is intended primarily for the
protection of our depositors and the deposit insurance fund and not for the
benefit of our shareowners. The Bank’s activities are also regulated
under consumer protection laws applicable to our lending, deposit and other
activities. A sufficient claim against us under these laws could have
a material adverse effect on our results. Please refer to the Section
entitled “Business – Regulatory Considerations” of this Report.
Risks
Related to an Investment in Our Common Stock
Limited
trading activity for shares of our common stock may contribute to price
volatility.
While our
common stock is listed and traded on The NASDAQ Global Select Market, there has
been limited trading activity in our common stock. The average daily
trading volume of our common stock over the twelve-month period ending December
31, 2008 was approximately 39,293 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.
Our
insiders have substantial control over matters requiring shareowner approval,
including changes of control.
Our
insiders who own more than 5% of our common stock, directors, and executive
officers, beneficially owned approximately 45.67% of the outstanding shares of
our stock as of February 27, 2009. Accordingly, these principal
shareowners, directors, and executive officers, if acting together, may be able
to influence or control matters requiring approval by our shareowners, including
the election of directors and the approval of mergers, acquisitions or other
extraordinary transactions.
They may
also have interests that differ from yours and may vote in a way with which you
disagree and which may be adverse to your interests. The
concentration of ownership may have the effect of delaying, preventing or
deterring a change of control of our company, could deprive our shareowners of
an opportunity to receive a premium for their common stock as part of a sale of
our company and might ultimately affect the market price of our common
stock.
Our
Articles of Incorporation, Bylaws, and certain laws and regulations may prevent
or delay transactions you might favor, including a sale or merger of
CCBG.
CCBG is
registered with the Federal Reserve as a financial holding company under the
Gramm-Leach-Bliley Act and is a bank holding company under the Bank Holding
Company Act. 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.
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.
|
Our
shares of common stock are not an insured deposit.
The
shares of our common stock are not a bank deposit and will not be insured or
guaranteed by the FDIC or any other government agency. Your
investment will be subject to investment risk, and you must be capable of
affording the loss of your entire investment.
|
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 27, 2009, the Bank had 68 banking locations. Of the 68
locations, the Bank leases the land, buildings, or both at 12 locations and owns
the land and buildings at the remaining 56.
|
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.
|
Submission of Matters to a Vote
of Security Holders
|
None.
|
Market for the Registrant's
Common Equity, Related Shareowner Matters, and Issuer Purchases of Equity
Securities
|
Common
Stock Market Prices and Dividends
Our
common stock trades on the NASDAQ Global Select Market under the symbol
"CCBG."
The
following table presents the range of high and low closing sales prices reported
on the NASDAQ Global Select Market and cash dividends declared for each quarter
during the past two years. We had a total of 1,756 shareowners of
record as of February 27, 2009.
|
2008
|
2007
|
|||||||||||||||||||||||||||||||
|
Fourth
Quarter
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
Fourth
Quarter
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
|||||||||||||||||||||||||
|
Common
stock price:
|
||||||||||||||||||||||||||||||||
|
High
|
$
|
33.32
|
$
|
34.50
|
$
|
30.19
|
$
|
29.99
|
$
|
34.00
|
$
|
36.40
|
$
|
33.69
|
$
|
35.91
|
||||||||||||||||
|
Low
|
21.06
|
19.20
|
21.76
|
24.76
|
24.60
|
27.69
|
29.12
|
29.79
|
||||||||||||||||||||||||
|
Close
|
27.24
|
31.35
|
21.76
|
29.00
|
28.22
|
31.20
|
31.34
|
33.30
|
||||||||||||||||||||||||
|
Cash
dividends declared per share
|
.1900
|
.1850
|
.1850
|
.1850
|
.1850
|
.1750
|
.1750
|
.1750
|
||||||||||||||||||||||||
Future
payment of dividends will be subject to determination and declaration by our
Board of Directors. Florida law limits the amount of dividends that
CCB can pay annually to the holding company. These restrictions may
limit our ability to pay dividends to our shareowners. During 2009,
in accordance with these restrictions, CCB may declare and pay a dividend in an
amount which approximates its current year-to-date earnings and it has further
received authority from its state regulator to declare and pay a dividend up to
$60 million in 2009 to the holding company. See subsection entitled
"Capital; Dividends; Sources of Strength" in the Business section on page 9, and
the section entitled “Liquidity and Capital Resources – Dividends” -- in
Management's Discussion and Analysis of Financial Condition and Operating
Results on page 50 and Note 15 in the Notes to Consolidated Financial
Statements.
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,
2003 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.
|
Period
Ending
|
||||||||||||||||||||||||
|
Index
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
||||||||||||||||||
|
Capital
City Bank Group, Inc.
|
$
|
100.00
|
$
|
92.50
|
$
|
96.53
|
$
|
101.36
|
$
|
82.95
|
$
|
82.41
|
||||||||||||
|
NASDAQ
Composite
|
100.00
|
108.59
|
110.08
|
120.56
|
132.39
|
78.72
|
||||||||||||||||||
|
SNL
$1B-$5B Bank Index
|
100.00
|
123.42
|
121.31
|
140.38
|
102.26
|
84.81
|
||||||||||||||||||
|
Selected
Financial Data
|
|
|
For
the Years Ended December 31,
|
||||||||||||||||||||
|
(Dollars in Thousands, Except
Per Share Data)(1)
(3)
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Interest
Income
|
$
|
142,866
|
$
|
165,323
|
$
|
165,893
|
$
|
140,053
|
$
|
101,525
|
||||||||||
|
Net
Interest Income
|
108,866
|
112,241
|
119,136
|
109,990
|
86,084
|
|||||||||||||||
|
Provision
for Loan Losses
|
32,496
|
6,163
|
1,959
|
2,507
|
2,141
|
|||||||||||||||
|
Net
Income
|
15,225
|
29,683
|
33,265
|
30,281
|
29,371
|
|||||||||||||||
|
Per
Common Share:
|
||||||||||||||||||||
|
Basic
Net Income
|
$
|
0.89
|
$
|
1.66
|
$
|
1.79
|
$
|
1.66
|
$
|
1.74
|
||||||||||
|
Diluted
Net Income
|
0.89
|
1.66
|
1.79
|
1.66
|
1.74
|
|||||||||||||||
|
Cash
Dividends Declared
|
.745
|
.710
|
.663
|
.619
|
.584
|
|||||||||||||||
|
Book
Value
|
16.27
|
17.03
|
17.01
|
16.39
|
14.51
|
|||||||||||||||
|
Key
Performance Ratios:
|
||||||||||||||||||||
|
Return
on Average Assets
|
0.59
|
%
|
1.18
|
%
|
1.29
|
%
|
1.22
|
%
|
1.46
|
%
|
||||||||||
|
Return
on Average Equity
|
5.06
|
9.68
|
10.48
|
10.56
|
13.31
|
|||||||||||||||
|
Net
Interest Margin (FTE)
|
4.96
|
5.25
|
5.35
|
5.09
|
4.88
|
|||||||||||||||
|
Dividend
Pay-Out Ratio
|
83.71
|
42.77
|
37.01
|
37.35
|
33.62
|
|||||||||||||||
|
Equity
to Assets Ratio
|
11.20
|
11.19
|
12.15
|
11.65
|
10.86
|
|||||||||||||||
|
Asset
Quality:
|
||||||||||||||||||||
|
Allowance
for Loan Losses
|
$
|
37,004
|
$
|
18,066
|
$
|
17,217
|
$
|
17,410
|
$
|
16,037
|
||||||||||
|
Allowance
for Loan Losses to Loans
|
1.89
|
%
|
0.95
|
%
|
0.86
|
%
|
0.84
|
%
|
0.88
|
%
|
||||||||||
|
Nonperforming
Assets
|
107,842
|
28,163
|
8,731
|
5,550
|
5,271
|
|||||||||||||||
|
Nonperforming
Assets to Loans + ORE
|
5.48
|
1.47
|
0.44
|
0.27
|
0.29
|
|||||||||||||||
|
Allowance
to Nonperforming Loans
|
37.52
|
71.92
|
214.09
|
331.11
|
345.18
|
|||||||||||||||
|
Net
Charge-Offs to Average Loans
|
0.71
|
0.27
|
0.11
|
0.13
|
0.22
|
|||||||||||||||
|
Averages
for the Year:
|
||||||||||||||||||||
|
Loans,
Net
|
$
|
1,918,417
|
$
|
1,934,850
|
$
|
2,029,397
|
$
|
1,968,289
|
$
|
1,538,744
|
||||||||||
|
Earning
Assets
|
2,240,649
|
2,183,528
|
2,258,277
|
2,187,672
|
1,789,843
|
|||||||||||||||
|
Total
Assets
|
2,567,905
|
2,507,217
|
2,581,078
|
2,486,733
|
2,006,745
|
|||||||||||||||
|
Deposits
|
2,066,065
|
1,990,446
|
2,034,931
|
1,954,888
|
1,599,201
|
|||||||||||||||
|
Subordinated
Notes
|
62,887
|
62,887
|
62,887
|
50,717
|
5,155
|
|||||||||||||||
|
Long-Term
Borrowings
|
39,735
|
37,936
|
57,260
|
70,216
|
59,462
|
|||||||||||||||
|
Shareowners'
Equity
|
300,890
|
306,617
|
317,336
|
286,712
|
220,731
|
|||||||||||||||
|
Year-End
Balances:
|
||||||||||||||||||||
|
Loans,
Net
|
$
|
1,957,797
|
$
|
1,915,850
|
$
|
1,999,721
|
$
|
2,067,494
|
$
|
1,828,825
|
||||||||||
|
Earning
Assets
|
2,156,172
|
2,272,829
|
2,270,410
|
2,299,677
|
2,113,571
|
|||||||||||||||
|
Total
Assets
|
2,488,699
|
2,616,327
|
2,597,910
|
2,625,462
|
2,364,013
|
|||||||||||||||
|
Deposits
|
1,992,174
|
2,142,344
|
2,081,654
|
2,079,346
|
1,894,886
|
|||||||||||||||
|
Subordinated
Notes
|
62,887
|
62,887
|
62,887
|
62,887
|
30,928
|
|||||||||||||||
|
Long-Term
Borrowings
|
51,470
|
26,731
|
43,083
|
69,630
|
68,453
|
|||||||||||||||
|
Shareowners'
Equity
|
278,830
|
292,675
|
315,770
|
305,776
|
256,800
|
|||||||||||||||
|
Other
Data:
|
||||||||||||||||||||
|
Basic
Average Shares Outstanding
|
17,141,454
|
17,909,396
|
18,584,519
|
18,263,855
|
16,805,696
|
|||||||||||||||
|
Diluted
Average Shares Outstanding
|
17,146,914
|
17,911,587
|
18,609,839
|
18,281,243
|
16,810,926
|
|||||||||||||||
|
Shareowners
of Record(2)
|
1,756
|
1,750
|
1,805
|
1,716
|
1,598
|
|||||||||||||||
|
Banking
Locations(2)
|
68
|
70
|
69
|
69
|
60
|
|||||||||||||||
|
Full-Time
Equivalent Associates(2)
|
1,042
|
1,097
|
1,056
|
1,013
|
926
|
|||||||||||||||
|
(1)
|
All share and per share data have
been adjusted to reflect the 5-for-4 stock split effective July 1,
2005.
|
|
(2)
|
As of the record date. The record
date is on or about March 1st of the following
year.
|
|
(3)
|
The
consolidated financial statements reflect the acquisitions of Quincy State
Bank on March 19, 2004, Farmers and Merchants Bank of Dublin on October
15, 2004, and First Alachua Banking Corporation on May 20,
2005.
|
|
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," "Financial Overview," "Results of Operations," "Financial Condition,"
"Liquidity and Capital Resources," "Off-Balance Sheet Arrangements," 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 2008
compares with prior years. Throughout this section, Capital City Bank
Group, Inc., and its subsidiary, collectively, are referred to as "CCBG,"
"Company," "we," "us," or "our."
In this
MD&A, we present an operating efficiency ratio and an operating net
noninterest expense as a percent of average assets ratio, both of which are not
calculated based on accounting principles generally accepted in the United
States ("GAAP"), but that we believe provide important information regarding our
results of operations. Our calculation of the operating efficiency
ratio is computed by dividing noninterest expense less intangible amortization
and merger expenses, by the sum of tax equivalent net interest income and
noninterest income. We calculate our operating net noninterest
expense as a percent of average assets by subtracting noninterest expense
excluding intangible amortization and merger expenses from noninterest
income. Management uses these non-GAAP measures as part of its
assessment of its performance in managing noninterest expenses. We
believe that excluding intangible amortization and merger expenses in our
calculations better reflect our periodic expenses and is more reflective of
normalized operations.
Although
we believe the above-mentioned non-GAAP financial measures enhance investors’
understanding of our business and performance these non-GAAP financial measures
should not be considered an alternative to GAAP. In addition, there
are material limitations associated with the use of these non-GAAP financial
measures such as the risks that readers of our financial statements may disagree
as to the appropriateness of items included or excluded in these measures and
that our measures may not be directly comparable to other companies that
calculate these measures differently. Our management compensates for
these limitations by providing detailed reconciliations between GAAP information
and the non-GAAP financial measure as detailed below.
Reconciliation
of operating efficiency ratio to efficiency ratio:
|
For
the Years Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Efficiency
ratio
|
68.09
|
%
|
70.13
|
%
|
68.87
|
%
|
||||||
|
Effect
of intangible amortization and merger expenses
|
(3.19
|
)%
|
(3.36
|
)%
|
(3.45
|
)%
|
||||||
|
Operating
efficiency ratio
|
64.91
|
%
|
66.77
|
%
|
65.42
|
%
|
||||||
Reconciliation
of operating net noninterest expense ratio:
|
For
the Years Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
noninterest expense as a percent of average assets
|
2.12
|
%
|
2.50
|
%
|
2.56
|
%
|
||||||
|
Effect
of intangible amortization and merger expenses
|
(0.22
|
)%
|
(0.23
|
)%
|
(0.24
|
)%
|
||||||
|
Operating
net noninterest expense as a percent of average assets
|
1.90
|
%
|
2.27
|
%
|
2.32
|
%
|
||||||
CAUTION
CONCERNING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K, including this MD&A section, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
include, among others, statements about our beliefs, plans, objectives, goals,
expectations, estimates and intentions that are subject to significant risks and
uncertainties and are subject to change based on various factors, many of which
are beyond our control. The words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan," "target," "goal," and
similar expressions are intended to identify forward-looking
statements.
All
forward-looking statements, by their nature, are subject to risks and
uncertainties. Our actual future results may differ materially from
those set forth in our forward-looking statements. Please see the
Introductory Note and Item 1A
Risk Factors of this Annual Report for a discussion of factors that
could cause our actual results to differ materially from those in the
forward-looking statements.
However,
other factors besides those listed in Item 1A Risk Factors or
discussed in this Annual Report also could adversely affect our results, and you
should not consider any such list of factors to be a complete set of all
potential risks or uncertainties. Any forward-looking statements made
by us or on our behalf speak only as of the date they are made. We do
not undertake to update any forward-looking statement, except as required by
applicable law.
BUSINESS
OVERVIEW
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 68 full-service offices located in Florida, Georgia, and
Alabama. The Bank offers commercial and retail banking services, as
well as trust and asset management, retail securities brokerage and data
processing services.
Our
profitability, like most financial institutions, is dependent to a large extent
upon net interest income, which is the difference between the interest received
on earning assets, such as loans and securities, and the interest paid on
interest-bearing liabilities, principally deposits and
borrowings. Results of operations are also affected by the provision
for loan losses, operating expenses such as salaries and employee benefits,
occupancy and other operating expenses including income taxes, and noninterest
income such as service charges on deposit accounts, asset management and trust
fees, retail securities brokerage fees, mortgage banking revenues, bank card
fees, and data processing revenues.
Our
philosophy is to grow and prosper, building long-term 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.
Our
long-term vision is to continue our expansion, emphasizing a combination of
growth in existing markets and acquisitions. Acquisitions will
continue to be focused on a three state area including Florida, Georgia, and
Alabama with a particular focus on financial institutions, which are $100
million to $400 million in asset size and generally located on the outskirts of
major metropolitan areas. Five markets have been identified, four in
Florida and one in Georgia, in which management will proactively pursue
expansion opportunities. These markets include Alachua, Marion, and
Hernando and Pasco counties in Florida and the western panhandle in Florida and
Bibb and surrounding counties in central Georgia. We continue to
evaluate de novo expansion opportunities in attractive new markets in the event
that acquisition opportunities are not feasible. Other expansion
opportunities that will be evaluated include asset management and mortgage
banking.
Recent
Market Developments
The
global and U.S. economies are experiencing significantly reduced business
activity as a result of, among other factors, disruptions in the financial
system in the past year. In fact, the National Bureau of Economic
Research announced that the U.S. had entered into a recession in December
2007. Dramatic declines in the housing market during the past year,
with falling home prices and increasing foreclosures and unemployment, have
resulted in significant write-downs of asset values by financial institutions,
including government-sponsored entities and major commercial and investment
banks. These write-downs, initially of mortgage-backed securities but spreading
to credit default swaps and other derivative securities, as well as other areas
of the credit market, including investment grade and non-investment grade
corporate debt, convertible securities, emerging market debt and equity, and
leveraged loans, have caused many financial institutions to seek additional
capital, to merge with larger and stronger institutions and, in some cases, to
fail.
The
magnitude of these declines led to a crisis of confidence in the financial
sector as a result of concerns about the capital base and viability of certain
financial institutions. During this period, interbank lending and commercial
paper borrowing fell sharply, precipitating a credit freeze for both
institutional and individual borrowers. This market turmoil and
tightening of credit have led to an increased level of consumer and commercial
delinquencies, lack of consumer confidence, increased market volatility and
widespread reduction of business activity generally. The resulting
economic pressure on consumers and lack of confidence in the financial markets
has, in some cases, adversely affected the financial services
industry.
Over the
course of the past year, the landscape of the U.S. financial services industry
changed dramatically, especially during the fourth quarter of
2008. Lehman Brothers Holdings Inc. declared bankruptcy and many
major U.S. financial institutions consolidated were forced to merge or were put
into conservatorship by the U.S. Federal Government, including The Bear Stearns
Companies, Inc., Wachovia Corporation, Washington Mutual, Inc., Federal Home
Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage
Association (“Fannie Mae”). In addition, the U.S. Federal Government provided a
sizable loan to American International Group Inc. (“AIG”) in exchange for an
equity interest in AIG.
Much of
our lending operations are in the State of Florida, which has been particularly
hard hit in the current U.S. recession. Evidence of the economic
downturn in Florida is reflected in current unemployment
statistics. The Florida unemployment rate at the end of 2008
increased to 8.1% from 4.7% at the end of 2007, reaching the highest level since
September 1992. A worsening of the economic condition in Florida
would likely exacerbate the adverse effects of these difficult market conditions
on our customers, which may have a negative impact on our financial
results.
In
response to the financial crises affecting the banking system and financial
markets and going concern threats to investment banks and other financial
institutions, on October 3, 2008, the Emergency Economic Stabilization Act
of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the U.S.
Treasury was given the authority to, among other things, purchase up to
$700 billion of mortgages, mortgage-backed securities and certain other
financial instruments from financial institutions for the purpose of stabilizing
and providing liquidity to the U.S. financial markets.
On
October 14, 2008, the Secretary of the Department of the Treasury announced
that the Department of the Treasury will purchase equity stakes in a wide
variety of banks and thrifts. Under the program, known as the Troubled Asset
Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”),
from the $700 billion authorized by the EESA, the Treasury made
$250 billion of capital available to U.S. financial institutions in the
form of preferred stock. In conjunction with the purchase of preferred
stock, the Treasury received, from participating financial institutions,
warrants to purchase common stock with an aggregate market price equal to 15% of
the preferred investment. Participating financial institutions were
required to adopt the Treasury’s standards for executive compensation and
corporate governance for the period during which the Treasury holds equity
issued under the TARP Capital Purchase Program. On November 13, 2008, we
announced that we would not apply for funds available through the TARP Capital
Purchase Program.
On
November 21, 2008, the Board of Directors of the FDIC adopted a final
rule relating to the Temporary Liquidity Guarantee Program (“TLG Program”).
The TLG Program was announced by the FDIC on October 14, 2008 as
an initiative to counter the system-wide crisis in the nation’s financial
sector. Under the TLG Program the FDIC will (i) guarantee,
through the earlier of maturity or June 30, 2012, certain newly issued
senior unsecured debt issued by participating institutions on or after
October 14, 2008, and before June 30, 2009 and (ii) provide full
FDIC deposit insurance coverage for non-interest bearing transaction deposit
accounts, Negotiable Order of Withdrawal (“NOW”) accounts paying less than 0.5%
interest per annum and Interest on Lawyers Trust Accounts (“IOLTA”) accounts
held at participating FDIC insured institutions through December 31, 2009.
Coverage under the TLG Program was available for the first
30 days without charge. The fee assessment for coverage of senior
unsecured debt ranges from 50 basis points to 100 basis points per
annum, depending on the initial maturity of the debt. The fee assessment
for deposit insurance coverage is 10 basis points per quarter on amounts in
covered accounts exceeding $250,000. On December 12, 2008, we
announced that we would participate in both guarantee programs.
FINANCIAL
OVERVIEW
A summary
overview of our financial performance for 2008 versus 2007 is provided
below.
2008
Financial Performance Highlights –
|
·
|
In
2008, we earned $15.2 million, or $0.89 per diluted share, compared to
$29.7 million, or $1.66 per diluted share in 2007, decreases of 48.7% and
46.4%, respectively. For the year, turbulent economic and
market conditions and an associated increase in the provision for loan
losses and the level of nonperforming assets significantly impacted our
earnings performance.
|
|
·
|
Tax
equivalent net interest income fell $3.3 million, or 2.9%, over 2007 due
primarily to a higher level of foregone interest associated with an
increased level of nonperforming assets which drove compression in our net
interest margin of 29 basis
points.
|
|
·
|
Noninterest
income increased $7.7 million, or 13.0%, from 2007 due primarily to a
$6.25 million gain from the sale of a portion of our merchant services
portfolio ($0.22 per share) and a $2.4 million gain from the redemption of
Visa shares ($0.09) related to their initial public
offering. Lower asset management revenues (trust fees and
retail brokerage fees) and mortgage banking revenues, all related to weak
economic conditions and turbulent market conditions during 2008 partially
offset the aforementioned
gains.
|
|
·
|
Noninterest
expense declined $0.5 million, or 0.43%, reflecting the impact of the $1.9
million Visa litigation charge in the fourth quarter of 2007 and the
reversal of $1.1 million in Visa litigation reserves in the first quarter
of 2008. Higher operating expenses primarily for salaries,
legal fees and other real estate owned, partially offset the
aforementioned favorable variance related to our Visa litigation
reserve. The higher level of legal fees and other real estate
owned expense was driven by legal support needed for loan
workout/resolution and holding costs related to foreclosed
properties.
|
|
·
|
Loan
loss provision increased $26.3 million ($0.95 per share) in 2008 driven
primarily by a higher level of required reserves for our consumer and our
residential real estate loan portfolios, generally reflective of weak
economic conditions and stress in our residential real estate
markets. Net loan charge-offs for 2008 were 71 basis points of
average loans compared to 27 basis points in 2007. At year-end
2008, the allowance for loan losses was 1.89% of outstanding loans (net of
overdrafts) and provided coverage of 38% of nonperforming
loans.
|
|
·
|
Share
repurchase activity continued in 2008 with 90,041 shares being purchased
during the year compared to 1,404,364 shares being repurchased during
2007. We remain well-capitalized with a risk based capital
ratio of 14.69% and a tangible capital ratio of
7.76%.
|
RESULTS
OF OPERATIONS
Net
income for 2008 totaled $15.2 million ($0.89 per diluted share) compared to
$29.7 million ($1.66 per diluted share) in 2007 and $33.3 million ($1.79 per
diluted share) in 2006. Earnings per share reflect the repurchase of
90,041 common shares during 2008, 1,404,364 common shares during 2007, and
164,596 common shares during 2006.
The
reduction in earnings in 2008 of $14.5 million, or $0.77 per diluted share, is
primarily due to lower net interest income of $3.4 million, a higher loan loss
provision of $26.3 million, partially offset by a $6.25 million gain from the
sale of a portion of the bank’s merchant services portfolio and a $2.4 million
gain from the redemption of Visa Inc. shares related to its initial public
offering. Our 2007 earnings include a $1.9 million charge to reserve
for Visa litigation and our 2008 earnings include the reversal of $1.1 million
of our Visa litigation reserve.
The
earnings decline in 2007 of $3.6 million, or $0.13 per diluted share, reflects
lower operating revenues (defined as the total of net interest income and
noninterest income) of $3.2 million, an increase in the loan loss provision of
$4.2 million, and slightly higher noninterest expense of $0.4 million, partially
offset by lower income taxes of $4.2 million.
A
condensed earnings summary for the last three years is presented in Table 1
below:
Table
1
CONDENSED
SUMMARY OF EARNINGS
|
For
the Years Ended December 31,
|
||||||||||||
|
(Dollars
in Thousands, Except Per Share Data)
|
2008
|
2007
|
2006
|
|||||||||
|
Interest
Income
|
$ | 142,866 | $ | 165,323 | $ | 165,893 | ||||||
|
Taxable
Equivalent Adjustments
|
2,482 | 2,420 | 1,812 | |||||||||
|
Total
Interest Income (FTE)
|
145,348 | 167,743 | 167,705 | |||||||||
|
Interest
Expense
|
34,000 | 53,082 | 46,757 | |||||||||
|
Net
Interest Income (FTE)
|
111,348 | 114,661 | 120,948 | |||||||||
|
Provision
for Loan Losses
|
32,496 | 6,163 | 1,959 | |||||||||
|
Taxable
Equivalent Adjustments
|
2,482 | 2,420 | 1,812 | |||||||||
|
Net
Interest Income After Provision for Loan Losses
|
76,370 | 106,078 | 117,177 | |||||||||
|
Noninterest
Income
|
67,040 | 59,300 | 55,577 | |||||||||
|
Noninterest
Expense
|
121,472 | 121,992 | 121,568 | |||||||||
|
Income
Before Income Taxes
|
21,938 | 43,386 | 51,186 | |||||||||
|
Income
Taxes
|
6,713 | 13,703 | 17,921 | |||||||||
|
Net
Income
|
$ | 15,225 | $ | 29,683 | $ | 33,265 | ||||||
|
Basic
Net Income Per Share
|
$ | 0.89 | $ | 1.66 | $ | 1.79 | ||||||
|
Diluted
Net Income Per Share
|
$ | 0.89 | $ | 1.66 | $ | 1.79 | ||||||
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. We provide this information on a "taxable equivalent" basis to
reflect the tax-exempt status of income earned on certain loans and investments,
the majority of which are state and local government debt
obligations.
In 2008,
our taxable equivalent net interest income decreased $3.4 million, or
2.9%. This follows a decrease of $6.3 million, or 5.2%, in 2007, and
an increase of $9.7 million, or 8.8%, in 2006. The decrease in our
taxable equivalent net interest income in 2008 resulted from a higher level of
foregone interest associated with the increased level of nonperforming assets
and a decline in loan fees, partially offset by the lower costs of funds for
deposits.
For the
year 2008, taxable equivalent interest income declined $22.5 million, or 13.4%
from 2007 and was constant for the periods in 2007 and 2006. Taxable
equivalent interest income was unfavorably impacted by the lower rate
environment in 2008 as compared to 2007, the higher level of foregone interest
on non-performing loans and a decline in loan fees, all of which resulted in
lower yields on our earning assets during 2008. These factors
produced a 120 basis point decline in the yield on earning assets, which
decreased from 7.68% in 2007 to 6.48% for 2008. This compares to a 26
basis point improvement in 2007 over 2006. Interest income is
expected to decline further during 2009, reflecting the lower interest rate
environment stemming from reductions in the Federal Reserve’s target rate
throughout the year and the continued impact of foregone interest income
associated with the current level of nonperforming assets.
Interest
expense decreased $19.1 million, or 36.0%, from 2007, and $6.3 million, or
13.5%, in 2007 over 2006. The decrease was experienced in interest on
deposits and short-term borrowings, primarily as a result of lower average
interest rates in 2008 and a favorable shift in the deposit
mix. Management responded aggressively to the reductions in the
Federal Reserve’s target rate, which began in September 2007, and believe we
have successfully neutralized the overall impact of the rate reductions by
aggressively lowering our deposit rates.
The
average rate paid on interest bearing liabilities in 2008 decreased 123 basis
points compared to 2007, reflecting the factors mentioned
above. Interest expense is expected to trend downward in 2009 driven
by the lower rate environment, offset partially by a continued shift to higher
yielding deposits.
Our
interest rate spread (defined as the taxable equivalent yield on average earning
assets less the average rate paid on interest bearing liabilities) increased 2
basis points in 2008 compared to 2007 and decreased 13 basis points in 2007
compared to 2006. The increase in 2008 was primarily attributable to
the rapid repricing of our deposit base, which more than offset the adverse
impact of lower rates and higher foregone interest.
Our net
interest margin (defined as taxable equivalent interest income less interest
expense divided by average earning assets) was 4.96% in 2008, compared to 5.25%
in 2007 and 5.35% in 2006. In 2008, the decline was a result of a 120
basis point decrease in the yield on earning assets, partially offset by a 91
basis point decrease in the cost of funds. Year over year, the
increase in foregone interest coupled with maintaining a higher level of
municipal deposits, which produce relatively thin spreads, led to the
compression in our net interest margin of 29 basis points.
During
2008, the Federal Reserve reduced the federal funds rate by 400 basis
points. Capital City Bank benefited from the influx of NOW deposits,
primarily during the first half of 2008, attributable to transfers from the
Florida State Board of Administration’s Local Government Investment
Pool. These new deposits were in the form of negotiated public
deposits and resulted in a significant increase in the bank’s NOW
accounts. These public funds declined throughout the second half of
2008. Overall, by aggressively lowering deposit interest rates,
management believes we have been fairly successful in neutralizing the impact of
the Federal Reserve’s interest rate reductions. While the higher cost
public funds have been priced to produce a positive interest rate spread and
will add to net interest income, the margin on these accounts are thin, and
therefore, due to the volume of these new deposits, we have experienced an
adverse impact on our net interest margin percentage.
Table
2
AVERAGE
BALANCES AND INTEREST RATES
|
2008
|
2007
|
2006
|
||||||||||||||||||||||||||
|
(Taxable
Equivalent Basis - Dollars in Thousands)
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
|||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||
|
Loans,
Net of Unearned Interest(1)(2)
|
$
|
1,918,417
|
$
|
133,457
|
6.96
|
%
|
$
|
1,934,850
|
$
|
155,434
|
8.03
|
%
|
$
|
2,029,397
|
$
|
157,227
|
7.75
|
%
|
||||||||||
|
Taxable
Investment Securities
|
93,149
|
3,889
|
5.04
|
103,840
|
4,949
|
4.76
|
112,392
|
4,851
|
4.31
|
|||||||||||||||||||
|
Tax-Exempt
Investment Securities(2)
|
97,010
|
4,893
|
4.16
|
84,849
|
4,447
|
5.24
|
74,634
|
3,588
|
4.81
|
|||||||||||||||||||
|
Funds
Sold
|
132,073
|
3,109
|
2.32
|
59,989
|
2,913
|
4.79
|
41,854
|
2,039
|
4.81
|
|||||||||||||||||||
|
Total
Earning Assets
|
2,240,649
|
145,348
|
6.48
|
%
|
2,183,528
|
167,743
|
7.68
|
%
|
2,258,277
|
167,705
|
7.42
|
%
|
||||||||||||||||
|
Cash
& Due From Banks
|
82,410
|
86,692
|
100,237
|
|||||||||||||||||||||||||
|
Allowance
for Loan Losses
|
(23,015
|
)
|
(17,535
|
)
|
(17,486
|
)
|
||||||||||||||||||||||
|
Other
Assets
|
267,861
|
254,532
|
240,050
|
|||||||||||||||||||||||||
|
TOTAL
ASSETS
|
$
|
2,567,905
|
$
|
2,507,217
|
$
|
2,581,078
|
||||||||||||||||||||||
|
LIABILITIES
|
||||||||||||||||||||||||||||
|
NOW
Accounts
|
$
|
743,327
|
$
|
7,454
|
1.00
|
%
|
$
|
$557,060
|
$
|
10,748
|
1.93
|
%
|
$
|
518,671
|
$
|
7,658
|
1.48
|
%
|
||||||||||
|
Money
Market Accounts
|
374,278
|
5,242
|
1.40
|
397,193
|
13,667
|
3.44
|
370,257
|
11,687
|
3.16
|
|||||||||||||||||||
|
Savings
Accounts
|
116,413
|
121
|
0.10
|
119,700
|
279
|
0.23
|
134,033
|
278
|
0.21
|
|||||||||||||||||||
|
Other
Time Deposits
|
424,748
|
14,489
|
3.41
|
474,728
|
19,993
|
4.21
|
507,283
|
17,630
|
3.48
|
|||||||||||||||||||
|
Total
Interest Bearing Deposits
|
1,658,766
|
27,306
|
1.65
|
%
|
1,548,681
|
44,687
|
2.89
|
%
|
1,530,244
|
37,253
|
2.43
|
%
|
||||||||||||||||
|
Short-Term
Borrowings
|
61,181
|
1,157
|
1.88
|
66,397
|
2,871
|
4.31
|
78,700
|
3,074
|
3.89
|
|||||||||||||||||||
|
Subordinated
Notes Payable
|
62,887
|
3,735
|
5.84
|
62,887
|
3,730
|
5.93
|
62,887
|
3,725
|
5.92
|
|||||||||||||||||||
|
Other
Long-Term Borrowings
|
39,735
|
1,802
|
4.54
|
37,936
|
1,794
|
4.73
|
57,260
|
2,705
|
4.72
|
|||||||||||||||||||
|
Total
Interest Bearing Liabilities
|
1,822,569
|
34,000
|
1.87
|
%
|
1,715,901
|
53,082
|
3.09
|
%
|
1,729,091
|
46,757
|
2.70
|
%
|
||||||||||||||||
|
Noninterest
Bearing Deposits
|
407,299
|
441,765
|
504,687
|
|||||||||||||||||||||||||
|
Other
Liabilities
|
37,147
|
42,934
|
29,964
|
|||||||||||||||||||||||||
|
TOTAL
LIABILITIES
|
2,267,015
|
2,200,600
|
2,263,742
|
|||||||||||||||||||||||||
|
SHAREOWNERS'
EQUITY
|
||||||||||||||||||||||||||||
|
TOTAL
SHAREOWNERS' EQUITY
|
300,890
|
306,617
|
317,336
|
|||||||||||||||||||||||||
|
TOTAL
LIABILITIES & EQUITY
|
$
|
2,567,905
|
$
|
2,507,217
|
$
|
2,581,078
|
||||||||||||||||||||||
|
Interest
Rate Spread
|
4.61
|
%
|
4.59
|
%
|
4.72
|
%
|
||||||||||||||||||||||
|
Net
Interest Income
|
$
|
111,348
|
$
|
114,661
|
$
|
120,948
|
||||||||||||||||||||||
|
Net
Interest Margin(3)
|
4.96
|
%
|
5.25
|
%
|
5.35
|
%
|
||||||||||||||||||||||
|
(1)
|
Average balances include
nonaccrual loans. Interest income includes loan fees of $2.3
million, $3.0 million, and $3.8 million in 2008, 2007, and 2006,
respectively.
|
|
(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.
|
Table
3
RATE/VOLUME ANALYSIS
(1)
|
2008
Changes From 2007
|
2007
Changes From 2006
|
||||||||||||||||||||||||
|
Due to Average
|
Due to Average
|
||||||||||||||||||||||||
|
(Taxable
Equivalent Basis - Dollars in Thousands)
|
Total
|
Calendar(3)
|
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
||||||||||||||||||
|
Earnings
Assets:
|
|||||||||||||||||||||||||
|
Loans,
Net of Unearned Interest (2)
|
$
|
(21,978
|
)
|
$
|
426
|
$
|
(2,012
|
)
|
$
|
(20,392
|
)
|
$
|
(1,792
|
)
|
$
|
(7,465
|
)
|
$
|
5,673
|
||||||
|
Investment
Securities:
|
|||||||||||||||||||||||||
|
Taxable
|
(1,061
|
)
|
13
|
(400
|
)
|
(674
|
)
|
99
|
(350
|
)
|
449
|
||||||||||||||
|
Tax-Exempt
(2)
|
448
|
12
|
636
|
(200
|
)
|
858
|
491
|
367
|
|||||||||||||||||
|
Funds
Sold
|
196
|
8
|
3,393
|
(3,205
|
)
|
873
|
883
|
(10
|
)
|
||||||||||||||||
|
Total
|
(22,395
|
)
|
459
|
1,617
|
(24,471
|
)
|
38
|
(6,441
|
)
|
6,479
|
|||||||||||||||
|
Interest
Bearing Liabilities:
|
|||||||||||||||||||||||||
|
NOW
Accounts
|
(3,293
|
)
|
29
|
3,584
|
(6,906
|
)
|
3,090
|
567
|
2,523
|
||||||||||||||||
|
Money
Market Accounts
|
(8,425
|
)
|
37
|
(786
|
)
|
(7,676
|
)
|
1,979
|
850
|
1,129
|
|||||||||||||||
|
Savings
Accounts
|
(159
|
)
|
1
|
(8
|
)
|
(152
|
)
|
2
|
(29
|
)
|
31
|
||||||||||||||
|
Time
Deposits
|
(5.505
|
)
|
55
|
(2,099
|
)
|
(3,461
|
)
|
2,364
|
(1,131
|
)
|
3,495
|
||||||||||||||
|
Short-Term
Borrowings
|
(1,713
|
)
|
8
|
(185
|
)
|
(1,536
|
)
|
(204
|
)
|
(424
|
)
|
220
|
|||||||||||||
|
Subordinated
Notes Payable
|
5
|
10
|
0
|
(5
|
)
|
5
|
0
|
5
|
|||||||||||||||||
|
Long-Term
Borrowings
|
8
|
5
|
85
|
(82
|
)
|
(911
|
)
|
(913
|
)
|
2
|
|||||||||||||||
|
Total
|
19,082
|
145
|
591
|
(19,818
|
)
|
6,325
|
(1,080
|
)
|
7,405
|
||||||||||||||||
|
Changes
in Net Interest Income
|
$
|
(3,313
|
)
|
$
|
314
|
$
|
1,026
|
$
|
(4,653
|
)
|
$
|
(6,287
|
)
|
$
|
(5,361
|
)
|
$
|
(926
|
)
|
||||||
|
(1)
|
This table shows the change in
taxable equivalent net interest income for comparative periods based on
either changes in average volume or changes in average rates for earning
assets and interest bearing liabilities. Changes which are not solely due
to volume changes or solely due to rate changes have been attributed to
rate changes.
|
|
(2)
|
Interest income includes the
effects of taxable equivalent adjustments using a 35% tax rate to adjust
interest on tax-exempt loans and securities to a taxable equivalent
basis.
|
|
(3)
|
Reflects difference in 366
days year (2008) versus 365 day year
(2007).
|
Provision
for Loan Losses
The
provision for loan losses was $32.5 million in 2008, compared to $6.2 million in
2007 and $2.0 million in 2006. The increase in the provision for 2008
generally reflects turbulent economic conditions and the associated impact on
consumers, housing, and real estate markets. Over the course of the
year, a majority of the increase in our provision has been driven by higher
reserves needed for our consumer loan portfolio and for loans where repayment is
reliant on activity within residential real estate markets, primarily loans to
builders and investors (both business and individual). Activity
within our residential real estate markets significantly slowed during 2008 and
has been hampered by property de-valuation. We continue to perform a
detailed review and valuation assessment of our impaired loans on a quarterly
basis and adjust specific reserves or charge off losses, as appropriate, based
on collateral valuations.
The
increase in the provision for loan losses in 2007 was primarily attributable to
a higher level of required reserves held for our consumer loan portfolio and for
loans where repayment is tied to residential real estate market activity which
began to show signs of stress in late 2007.
Net
charge-offs for 2008 totaled $13.6 million, or .71% of average loans for the
year compared to $5.3 million, or .27% for 2007 and $2.2 million, or .11% for
2006. A majority (58%) of our loan charge-offs realized during 2008
were for consumer loans and loans secured by residential real estate
property. See Table 7 on page 40 for a detailed analysis of loan
charge-offs and recoveries over the past five years.
Noninterest
Income
Noninterest
income increased $7.7 million, or 13.0% and $3.7 million or 6.7%, in 2008 and
2007, respectively, compared to the immediately preceding year. The
increase in 2008 was primarily due to a $6.25 million gain from the sale of a
portion of the bank’s merchant services portfolio, a $2.4 million gain from the
redemption of Visa Inc. shares related to their initial public offering, and a
strong improvement in deposit fees ($1.6 million). We retained and
continue to service approximately 40% of the merchant services
portfolio. The aforementioned gains were partially offset by a
reduction in merchant services fees ($1.7 million) attributable to the portion
of the merchant services portfolio sold in July 2008 and lower mortgage banking
revenues ($1.0 million).
In 2007,
there were appreciable increases in all categories of noninterest income with
the exception of mortgage banking, which was adversely impacted by the slowdown
in residential housing market.
Noninterest
income as a percent of average assets was 2.61% in 2008, compared to 2.37% in
2007, and 2.15% in 2006. Gains from the sale of the bank’s merchant
services portfolio and the redemption of Visa Inc. shares and higher deposit
fees were the primary reasons for the improvement in 2008, while higher deposit
fees and card fees drove the improvement in 2007. Noninterest income
as a percent of taxable equivalent operating revenues was 37.6% in 2008, up from
34.1% in 2007 with the improvement being primarily attributable to the two
aforementioned gains totaling $8.65 million.
The table
below reflects the major components of noninterest income.
|
For
the Years Ended December 31,
|
||||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Noninterest
Income:
|
||||||||||||
|
Service
Charges on Deposit Accounts
|
$ | 27,742 | $ | 26,130 | $ | 24,620 | ||||||
|
Data
Processing
|
3,435 | 3,133 | 2,723 | |||||||||
|
Asset
Management Fees
|
4,235 | 4,700 | 4,600 | |||||||||
|
Retail
Brokerage Fees
|
2,399 | 2,510 | 2,091 | |||||||||
|
Gain/(Loss)
on Sale/Call of Investment Securities
|
125 | 14 | (4 | ) | ||||||||
|
Mortgage
Banking Revenues
|
1,623 | 2,596 | 3,235 | |||||||||
|
Merchant
Fees(1)
|
5,548 | 7,257 | 6,978 | |||||||||
|
Interchange
Fees(1)
|
4,165 | 3,757 | 3,105 | |||||||||
|
Gain
on Sale of Portion of Merchant Services Portfolio
|
6,250 | - | - | |||||||||
|
ATM/Debit
Card Fees(1)
|
2,988 | 2,692 | 2,519 | |||||||||
|
Other
|
8,530 | 6,511 | 5,710 | |||||||||
|
Total
Noninterest Income
|
$ | 67,040 | $ | 59,300 | $ | 55,577 | ||||||
(1) Together called “Bank Card
Fees”
Various
significant components of noninterest income are discussed in more detail
below.
Service Charges on Deposit
Accounts. Deposit service charge fees increased $1.6 million,
or 6.2%, in 2008, compared to an increase of $1.5 million, or 6.1%, in
2007. Deposit service charge revenues in any one year are dependent
on the number of accounts, primarily transaction accounts, the level of activity
subject to service charges, and the collection rate. The increase in
deposit fees in both years was due to higher overdraft and nonsufficient funds
("NSF") fees reflecting higher activity levels and improved fee collection
experience.
Asset Management
Fees. In 2008, asset management fees declined $465,000, or
9.9%, versus an increase of $100,000, or 2.2%, in 2007. At year-end
2008, assets under management totaled $664.7 million, reflecting a net decline
of $116.6 million, or 14.9% from 2007. At year-end 2007, assets under
management totaled $781.3 million, reflecting net growth of $27.8 million, or
3.7% over 2006. The decline for 2008 is primarily due to a reduction
in assets under management because of a decline in market values for
discretionary managed accounts. Account attrition related to the
resolution of trust and estate accounts also contributed to the decline in
fees. The improvement in 2007 primarily reflects growth in new
business.
Mortgage Banking
Revenues. In 2008, mortgage banking revenues declined
$973,000, or 37.5%, compared to a $639,000, or 19.8% decrease in 2007, with the
decline in both years due to lower production reflective of weak economic
conditions and a significant slowdown in our housing markets. We
generally sell all fixed rate residential loan production into the secondary
market. Market conditions, housing activity, the level of interest
rates, and the percent of our fixed rate production have significant impacts on
our mortgage banking revenues.
Gain on the Sale of Merchant Services
Portfolio. On July 31, 2008, we sold a portion of the Bank’s
merchant services portfolio resulting in a pre-tax gain of $6.25 million, but
retained approximately 40% of the portfolio which will continue to be serviced
by the Bank.
Bank Card
Fees. Card fees (including merchant service fees, interchange
fees, and ATM/debit card fees) decreased $1.0 million, or 7.3%, in
2008. Interchange fees and ATM/debit card fees increased 10.9% and
11.0%, respectively, for the year due to higher transaction volumes, however,
merchant service fees were significantly reduced due to the aforementioned sale
of a portion of the bank’s merchant services portfolio. In 2007, card
fees increased $1.1 million, or 8.7% due to increases in merchant services fees,
interchange fees, and ATM/debit card fees of 4.0%, 21.0%, and 6.8%,
respectively. The higher interchange and ATM/debit card fees in 2008
and 2007 reflect an increase in our card base primarily associated with growth
in transaction deposit accounts.
Other. Other
income increased $2.0 million, or 31.0%, from 2007 due to a $2.4 million gain
from the redemption of Visa, Inc. shares related to its initial public
offering. Higher fees received for accounts receivable financing and
gains from the sale of other real estate also contributed to the
increase. A lower level of gains from the sale of banking premises
and a decline in miscellaneous loan related fees, and lower income from one
equity investment partially offset the aforementioned favorable
variances.
Noninterest
Expense
For the
full year 2008, noninterest expense decreased $520,000, or 0.43%, reflecting the
impact of a $1.9 million Visa litigation charge in the fourth quarter of 2007
and the reversal of $1.1 million in Visa litigation reserves during the first
quarter of 2008. Lower interchange expense ($1.5 million) reflecting
the sale of a portion of the bank’s merchant services portfolio also contributed
to the favorable variance for the year. Partially offsetting the
aforementioned favorable variances was higher salary expense ($1.1 million),
legal fees ($501,000), FDIC insurance premiums ($555,000), and other real estate
owned expenses ($1.0 million). Management continues to work on
expense reduction opportunities, improvement in cost controls, and enhancement
of operating efficiencies as core strategic objectives.
Noninterest
expense grew by $424,000, or 0.35%, in 2007, which included the aforementioned
$1.9 million pre-tax charge recorded in the fourth quarter of 2007 to establish
a litigation reserve related to Visa U.S.A.’s “covered”
litigation. This litigation reserve is discussed in more detail
below. Compensation expense for 2007 reflects reduced expense levels
for performance based incentive plans and lower pension
expense. Lower expense for courier reflecting our transition to
remote office capture also contributed positively to the favorable variance for
the year.
The table
below reflects the major components of noninterest expense.
|
For
the Years Ended December 31,
|
||||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Noninterest
Expense:
|
||||||||||||
|
Salaries
|
$ | 50,581 | $ | 49,206 | $ | 46,604 | ||||||
|
Associate
Benefits
|
11,250 | 11,073 | 14,251 | |||||||||
|
Total
Compensation
|
61,831 | 60,279 | 60,855 | |||||||||
|
Premises
|
9,729 | 9,347 | 9,395 | |||||||||
|
Equipment
|
9,902 | 9,890 | 9,911 | |||||||||
|
Total
Occupancy
|
19,631 | 19,237 | 19,306 | |||||||||
|
Legal
Fees
|
2,240 | 1,739 | 1,734 | |||||||||
|
Professional
Fees
|
4,083 | 3,855 | 3,402 | |||||||||
|
Processing
Services
|
1,758 | 1,994 | 1,863 | |||||||||
|
Advertising
|
3,609 | 3,742 | 4,285 | |||||||||
|
Travel
and Entertainment
|
1,390 | 1,470 | 1,664 | |||||||||
|
Printing
and Supplies
|
1,977 | 2,124 | 2,472 | |||||||||
|
Telephone
|
2,522 | 2,373 | 2,323 | |||||||||
|
Postage
|
1,743 | 1,565 | 1,145 | |||||||||
|
Intangible
Amortization
|
5,685 | 5,834 | 6,085 | |||||||||
|
Interchange
Fees
|
4,577 | 6,118 | 6,010 | |||||||||
|
Commission
Fees
|
2,163 | 1,284 | 836 | |||||||||
|
Courier
Service
|
465 | 641 | 1,307 | |||||||||
|
Miscellaneous
|
7,798 | 9,737 | 8,281 | |||||||||
|
Total
Other
|
40,010 | 42,476 | 41,407 | |||||||||
|
Total
Noninterest Expense
|
$ | 121,472 | $ | 121,992 | $ | 121,568 | ||||||
Various
significant components of noninterest expense are discussed in more detail
below.
Compensation. Total
compensation expense increased $1.6 million, or 2.6% in 2008 due primarily to
higher associate salaries of $2.1 million, or 5.1%, which generally reflects
routine merit adjustments during the course of the year, and an increase in
associate benefit expense of $177,000, or 1.6%. Partially offsetting
these unfavorable variances was lower cash based incentive compensation which
experienced a favorable variance of approximately $1.1 million, or 19.2% for the
year generally reflective of lower earnings performance. In 2009, we
expect our retirement plan expense will increase approximately $4.0 million
driven by a lower discount rate assumption, but more significantly due to a loss
in market value on our pension plan assets during 2008.
In 2007,
salaries and associate benefits expense decreased $577,000, or 0.95% from 2006
primarily attributable to lower expense for pension ($1.4 million) and stock
based compensation ($2.0 million). A $2.6 million, or 6.0% increase
in associate salaries partially offset these declines. Pension
expense declined as a result of large contributions and strong investment
returns on pension plan assets, and an increase in the weighted-average discount
rate from 2006 to 2007. The lower expense for stock based
compensation is reflective of performance goals not being met during
2007.
Occupancy. Occupancy
expense (including furniture, fixtures and equipment) increased by $394,000, or
2.0% in 2008 primarily due to an increase in depreciation expense for both
buildings and furniture, fixtures, and equipment (FF&E). The
increase primarily reflects the addition of one new banking office in late 2007,
major remodeling of two banking offices in mid-2007, and the opening of two new
banking offices during 2008.
For 2007,
occupancy expense decreased by $69,000, or 0.36% in 2007 due to a decrease in
depreciation (furniture, fixtures, and equipment) expense of $472,000 and
maintenance and repairs (buildings) expense of $254,000. Partially
offsetting these declines were increases in maintenance and repairs (furniture,
fixtures, and equipment) expense of $273,000 and software license expense of
$230,000. The reduction in depreciation (furniture, fixtures, and
equipment) was due to several large capital assets that became fully depreciated
during 2007. The lower expense for maintenance and repairs
(buildings) reflects management’s efforts to better manage this
expense. The increase in expense for maintenance and repairs
(furniture, fixtures, and equipment) primarily reflects the cost of
new/replacement telecommunications and network cabling associated with the
implementation of voice over IP and remote office capture technology during
2007. The increase in software license expense primarily reflects the
purchase of certain technology aimed at improving our sales monitoring,
operational procedures, and budgeting/planning efforts.
Other. In 2008, we
realized a favorable variance of $2.3 million, or 6.3%, in other noninterest
expense due to the impact of a $1.9 million Visa litigation charge in the fourth
quarter of 2007 and the reversal of $1.1 million in Visa reserves during the
first quarter of 2008. At year-end 2008, we still maintained Visa
litigation reserves of approximately $800,000. Lower interchange
expense ($1.5 million) reflecting the sale of a portion of the bank’s merchant
services portfolio also contributed to the favorable variance for the
year. Partially offsetting the aforementioned favorable variances
were higher legal fees ($501,000), FDIC insurance premiums ($555,000), and other
real estate owned expenses ($1.0 million). Legal expense increased
due to a higher level of legal support needed for problem loan
collection/workout efforts. Our FDIC insurance premium increased
during the second half of the year primarily reflecting the full use of our
premium credits. We expect our premium to increase in 2009 by
approximately $1.9 million based on the FDIC’s increase to rates. In
addition, if the FDIC’s one-time emergency special assessment is levied at the
20 basis point level, we expect it to further increase our FDIC insurance
expense by approximately $3.9 million in 2009. Expense related to our
other real estate owned properties was higher due to an increase in general
holding costs driven by a higher level of properties, but more significantly,
the unfavorable variance was driven by subsequent valuation adjustments
(write-downs) on properties.
For 2007,
other noninterest expense increased $1.3 million, or 3.7%, primarily
attributable to a pre-tax charge of $1.9 million, which was recorded in the
fourth quarter of 2007 to establish a litigation reserve. The Bank is
a member of Visa U.S.A. and this reserve was established in connection with
lawsuits filed against Visa U.S.A., which is generally referred to as the
“Covered” litigation. The nature and circumstances regarding this
charge is more fully explained in Form 8-Ks filed with the SEC on January 10,
2008 and January 22, 2008.
The
operating net noninterest expense ratio (defined as noninterest income minus
noninterest expense, net of intangible amortization and merger expenses, as a
percent of average assets) was 1.90% in 2008 compared to 2.27% in 2007, and
2.32% in 2006. Our operating efficiency ratio (expressed as
noninterest expense, net of intangible amortization and merger expenses, as a
percent of taxable equivalent net interest income plus noninterest income) was
64.91%, 66.87%, and 65.42% in 2008, 2007 and 2006,
respectively.
The above
mentioned ratios for 2008 reflect the impact of the $6.25 million gain from the
sale of the bank’s merchant services portfolio, the $2.4 million gain from the
redemption of Visa Inc. shares, and the $1.1 million reversal of Visa Inc.
litigation reserve, all occurring during 2008. These transactions
were the primary factors driving the change in these ratios.
During
2007, we took steps to strengthen our expense control procedures, including
enhancement of current expense policies, creation of an expense control
committee to focus on identifying cost savings strategies, and improve
accountability for expense management across our various divisions – these
efforts continue to be part of our strategic planning process. The
increase in the operating efficiency ratio during 2007 is primarily attributable
to a lower level of operating revenues (tax equivalent net interest income plus
noninterest income).
Income
Taxes
The
consolidated provision for federal and state income taxes was $6.7 million in
2008, compared to $13.7 million in 2007, and $17.9 million in
2006. Lower taxable income primarily drove the decline in the tax
provision for both 2007 and 2008.
The
effective tax rate was 30.6% in 2008, 31.6% in 2007, and 35.0% in
2006. These rates differ from the combined federal and state
statutory tax rates due primarily to tax-exempt income on loans and
securities. The variance in our effective tax rate for 2008 and 2007
was driven by a lower level of taxable income, primarily reflective of our
higher loan loss provisions, in relation to the size of our permanent book/tax
differences. The 2007 effective tax rate was also impacted by a
true-up of our deferred tax liabilities which resulted in a net reduction in our
income tax provision of $937,000.
FINANCIAL
CONDITION
Average
assets totaled approximately $2.6 billion, an increase of $60.7 million, or
2.4%, in 2008 versus the comparable period in 2007. Average earning
assets for 2008 were approximately $2.2 billion, representing an increase of
$57.1 million, or 2.6%, over 2007. An increase in average short term
investments of $72.1 million partially offset by a decline in average loans of
$16.4 million drove the increase in earning assets. We discuss these
variances in more detail below.
Table 2
provides information on average balances and rates, Table 3 provides an analysis
of rate and volume variances, and Table 4 highlights the changing mix of our
earning assets over the last three years.
Loans
Average
loans decreased $16.4 million, or 0.85%, from the comparable period in
2007. Loans as a percent of average earning assets declined to 85.6%
in 2008, down from the 2007 level of 88.6%. Our loan portfolio
remained relatively flat for the first half of 2008 as new loan production was
offset by loan principal pay-downs and pay-offs. For the second half
of the year, we realized net loan growth driven by both a pick-up in new loan
production for commercial real estate, home equity, and indirect auto loans, and
the impact of a slowdown in loan principal pay-downs and pay-offs.
We are
encouraged by the growth in our loan balances during the second half of 2008,
which reflects continued focus on the sales and service efforts of our
bankers. This trend also reflects the diversity of our loan products
and the variety of quality lending opportunities that we believe our banking
relationships and markets continue to offer. While we strive to
identify opportunities to increase loans outstanding and enhance the portfolio's
overall contribution to earnings, we will only do so by adhering to sound
lending principles applied in a prudent and consistent manner. Thus,
we will not relax our underwriting standards in order to achieve designated
growth goals and, where appropriate have adjusted our standards to reflect risks
inherent in the current economic environment.
Table
4
SOURCES
OF EARNING ASSET GROWTH
|
2007
to
|
Percentage
|
Components
of
|
||||||||||||||||||
|
2008
|
Of
Total
|
Average Earning Assets
|
||||||||||||||||||
|
(Average
Balances – Dollars In Thousands)
|
Change
|
Change
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Loans:
|
||||||||||||||||||||
|
Commercial,
Financial, and Agricultural
|
(10,473
|
)
|
18.0
|
%
|
8.8
|
%
|
9.5
|
%
|
9.7
|
%
|
||||||||||
|
Real
Estate – Construction
|
(11,616
|
)
|
20.0
|
%
|
6.6
|
%
|
7.3
|
%
|
7.8
|
%
|
||||||||||
|
Real
Estate – Commercial
|
(8,228
|
)
|
14.0
|
%
|
28.0
|
%
|
29.2
|
%
|
29.5
|
%
|
||||||||||
|
Real
Estate – Residential
|
8,445
|
(15.0
|
)%
|
31.1
|
%
|
31.5
|
%
|
32.2
|
%
|
|||||||||||
|
Consumer
|
5,439
|
(10.0
|
)%
|
11.1
|
%
|
11.2
|
%
|
10.7
|
%
|
|||||||||||
|
Total
Loans
|
(16,433
|
)
|
29.0
|
%
|
85.6
|
%
|
88.7
|
%
|
89.9
|
%
|
||||||||||
|
Investment
Securities:
|
||||||||||||||||||||
|
Taxable
|
(10,691
|
)
|
19.0
|
%
|
4.2
|
%
|
4.8
|
%
|
5.0
|
%
|
||||||||||
|
Tax-Exempt
|
12,161
|
(21.0
|
)%
|
4.3
|
%
|
3.8
|
%
|
3.2
|
%
|
|||||||||||
|
Total
Securities
|
1,470
|
(3.0
|
)%
|
8.5
|
%
|
8.6
|
%
|
8.2
|
%
|
|||||||||||
|
Funds
Sold
|
72,084
|
(126.0
|
)%
|
5.9
|
%
|
2.7
|
%
|
1.9
|
%
|
|||||||||||
|
Total
Earning Assets
|
$
|
57,121
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||||
Our
average loan-to-deposit ratio decreased to 92.9% in 2008 from 97.2% in
2007. The lower loan-to-deposit ratio reflects both declining average
loan balances, which until the fourth quarter of 2007 declined for seven
straight quarters, and a higher level of average deposits.
The
composition of our loan portfolio at December 31st for
each of the past five years is shown in Table 5. Table 6 arrays our
total loan portfolio as of December 31, 2008, based upon
maturities. As a percent of the total portfolio, loans with fixed
interest rates represent 33.2% as of December 31, 2008, versus 36.4% at December
31, 2007.
Table
5
LOANS
BY CATEGORY
|
As
of December 31,
|
||||||||||||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Commercial,
Financial and Agricultural
|
$ | 206,230 | $ | 208,864 | $ | 229,327 | $ | 218,434 | $ | 206,474 | ||||||||||
|
Real
Estate - Construction
|
141,973 | 142,248 | 179,072 | 160,914 | 140,190 | |||||||||||||||
|
Real
Estate - Commercial
|
656,959 | 634,920 | 643,885 | 718,741 | 655,426 | |||||||||||||||
|
Real
Estate - Residential
|
484,238 | 488,372 | 536,138 | 558,000 | 450,314 | |||||||||||||||
|
Real
Estate – Home Equity
|
218,500 | 192,428 | 173,597 | 165,336 | 150,061 | |||||||||||||||
|
Consumer
|
249,897 | 249,018 | 237,702 | 246,069 | 226,360 | |||||||||||||||
|
Total
Loans, Net of Unearned Interest
|
$ | 1,957,797 | $ | 1,915,850 | $ | 1,999,721 | $ | 2,067,494 | $ | 1,828,825 | ||||||||||
Table
6
LOAN
MATURITIES
|
Maturity
Periods
|
||||||||||||||||
|
(Dollars
in Thousands)
|
One
Year
or
Less
|
Over
One
Through
Five
Years
|
Over
Five
Years
|
Total
|
||||||||||||
|
Commercial,
Financial and Agricultural
|
$
|
91,184
|
$
|
78,937
|
$
|
36,107
|
$
|
206,228
|
||||||||
|
Real
Estate - Construction
|
132,677
|
8,041
|
1,256
|
141,974
|
||||||||||||
|
Real
Estate – Commercial Mortgage
|
153,683
|
102,180
|
401,096
|
656,959
|
||||||||||||
|
Real
Estate - Residential
|
105,062
|
65,179
|
313,997
|
484,238
|
||||||||||||
|
Real
Estate – Home Equity
|
819
|
6,737
|
210,945
|
218,501
|
||||||||||||
|
Consumer(1)
|
26,507
|
159,536
|
63,854
|
249,897
|
||||||||||||
|
Total
|
$
|
509,932
|
$
|
420,610
|
$
|
1,027,255
|
$
|
1,957,797
|
||||||||
|
Loans
with Fixed Rates
|
$
|
347,099
|
$
|
268,030
|
$
|
35,218
|
$
|
650,347
|
||||||||
|
Loans
with Floating or Adjustable Rates
|
162,833
|
152,580
|
992,037
|
1,307,450
|
||||||||||||
|
Total
|
$
|
509,932
|
$
|
420,610
|
$
|
1,027,255
|
$
|
1,957,797
|
||||||||
|
(1)
|
Demand loans and overdrafts are
reported in the category of one year or
less.
|
Allowance
for Loan Losses
Management
believes it maintains the allowance for loan losses at a level sufficient to
provide for the estimated credit losses inherent in the loan portfolio as of the
balance sheet date. Credit losses arise from the borrowers’ inability
or unwillingness to repay, and from other risks inherent in the lending process
including collateral risk, operations risk, concentration risk, and economic
risk. As such, all related risks of lending are considered when
assessing the adequacy of the allowance. The allowance for loan
losses is established through a provision charged to expense. Loan
losses are charged against the allowance when management believes collection of
the principal is unlikely. The allowance for loan losses is based on
management's judgment of overall credit quality. This is a significant estimate
based on a detailed analysis of the loan portfolio. The balance can
and will change based on changes in the assessment of the loan portfolio's
overall credit quality and other risk factors both internal and external to
us.
Management
evaluates the adequacy of the allowance for loan losses on a quarterly
basis. Loans that have been identified as impaired are reviewed for
adequacy of collateral, with a specific reserve assigned to those loans when
necessary. A loan is deemed impaired when, based on current
information and events, it is probable that the company will not be able to
collect all amounts due (principal and interest payments), according to the
contractual terms of the loan agreement. All classified loan
relationships that exceed $100,000 are reviewed for impairment. The
evaluation is based on the repayment capacity of the borrower or current payment
status of the loan.
The
method used to assign a specific reserve depends on whether repayment of the
loan is dependent on liquidation of collateral. If repayment is dependent on the
sale of collateral, the reserve is equivalent to the recorded investment in the
loan less the fair value of the collateral after estimated sales
expenses. If repayment is not dependent on the sale of collateral,
the reserve is equivalent to the recorded investment in the loan less the
estimated cash flows discounted using the loan’s effective interest rate. The
discounted value of the cash flows is based on the anticipated timing of the
receipt of cash payments from the borrower. The reserve allocations
for impaired loans are sensitive to the extent market conditions or the actual
timing of cash receipts change.
Once
specific reserves have been assigned to impaired loans, general reserves are
assigned to the remaining portfolio. General reserves are assigned to
various homogenous loan pools, including commercial, commercial real estate,
construction, residential 1-4 family, home equity, and
consumer. General reserves are assigned based on historical loan loss
ratios (by loan pool and internal risk rating) and are adjusted for various
internal and external environmental factors unique to each loan
pool.
The
unallocated portion of the allowance is monitored on a regular basis and
adjusted based on management’s determination of estimation
risk. Table 7 analyzes the activity in the allowance over the past
five years.
Table 8
provides an allocation of the allowance for loan losses to specific loan types
for each of the past five years. The reserve allocations, as
calculated using the above methodology, are assigned to specific loan categories
corresponding to the type represented within the components
discussed.
The
allowance for loan losses was $37.0 million at December 31, 2008 and $18.1
million at December 31, 2007. The allowance for loan losses was 1.89%
of outstanding loans (net of overdrafts) and provided coverage of 38% of
nonperforming loans at year-end 2008 compared to 0.95% and 72% in
2007. The increase in the allowance for loan losses was driven
primarily by a higher level of required reserves for our residential real
estate, construction, and consumer loan portfolios as current economic
conditions and stress within our real estate markets has had an adverse impact
on our consumer borrowers and borrowers who derive their revenue or personal
incomes from the real estate industry. The reduction in the
nonperforming loan coverage ratio reflects a higher level of nonperforming
loans, including $37.7 million in impaired loans for which there is no specific
reserve required because, notwithstanding de-valuation in our real estate
markets, the collateral values exceeded the loan balance based on loan specific
collateral analyses. Impaired loans are discussed in further detail
below under the section “Risk Element Assets”. It is management’s opinion
that the allowance at December 31, 2008 is adequate to absorb losses inherent in
the loan portfolio at quarter-end.
Table
7
ANALYSIS
OF ALLOWANCE FOR LOAN LOSSES
|
For
the Years Ended December 31,
|
|||||||||||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||
|
Balance
at Beginning of Year
|
$
|
18,066
|
$
|
17,217
|
$
|
17,410
|
$
|
16,037
|
$
|
12,429
|
|||||||||
|
Acquired
Reserves
|
-
|
-
|
-
|
1,385
|
5,713
|
||||||||||||||
|
Reserve
Reversal(1)
|
-
|
-
|
-
|
-
|
(800
|
)
|
|||||||||||||
|
Charge-Offs:
|
|||||||||||||||||||
|
Commercial,
Financial and Agricultural
|
1,649
|
1,462
|
841
|
1,287
|
873
|
||||||||||||||
|
Real
Estate - Construction
|
2,581
|
166
|
-
|
-
|
-
|
||||||||||||||
|
Real
Estate - Commercial
|
1,499
|
709
|
346
|
255
|
48
|
||||||||||||||
|
Real
Estate - Residential
|
3,787
|
407
|
260
|
311
|
154
|
||||||||||||||
|
Real
Estate – Home Equity
|
267
|
1,022
|
20
|
10
|
37
|
||||||||||||||
|
Consumer
|
6,192
|
3,451
|
2,516
|
2,380
|
3,946
|
||||||||||||||
|
Total
Charge-Offs
|
15,975
|
7,217
|
3,983
|
4,243
|
5,058
|
||||||||||||||
|
Recoveries:
|
|||||||||||||||||||
|
Commercial,
Financial and Agricultural
|
331
|
174
|
246
|
180
|
81
|
||||||||||||||
|
Real
Estate - Construction
|
4
|
-
|
-
|
-
|
-
|
||||||||||||||
|
Real
Estate - Commercial
|
15
|
14
|
17
|
3
|
14
|
||||||||||||||
|
Real
Estate - Residential
|
161
|
34
|
11
|
37
|
188
|
||||||||||||||
|
Real
Estate – Home Equity
|
1
|
2
|
-
|
-
|
-
|
||||||||||||||
|
Consumer
|
1,905
|
1,679
|
1,557
|
1,504
|
1,329
|
||||||||||||||
|
Total
Recoveries
|
2,417
|
1,903
|
1,831
|
1,724
|
1,612
|
||||||||||||||
|
Net
Charge-Offs
|
13,558
|
5,314
|
2,152
|
2,519
|
3,446
|
||||||||||||||
|
Provision
for Loan Losses
|
32,496
|
6,163
|
1,959
|
2,507
|
2,141
|
||||||||||||||
|
Balance
at End of Year
|
$
|
37,004
|
$
|
18,066
|
$
|
17,217
|
$
|
17,410
|
$
|
16,037
|
|||||||||
|
Ratio
of Net Charge-Offs to Average Loans Outstanding
|
.71
|
%
|
.27
|
%
|
.11
|
%
|
.13
|
%
|
.22
|
%
|
|||||||||
|
Allowance
for Loan Losses as a Percent of Loans at End of Year
|
1.89
|
%
|
.94
|
%
|
.86
|
%
|
.84
|
%
|
.88
|
%
|
|||||||||
|
Allowance
for Loan Losses as a Multiple of Net Charge-Offs
|
2.73
|
x
|
3.40
|
x
|
8.00
|
x
|
6.91
|
x
|
4.65
|
x
|
|||||||||
|
(1)
|
Reflects
recapture of reserves allocated to the credit card portfolio sold in
August 2004.
|
Table
8
ALLOCATION
OF ALLOWANCE FOR LOAN LOSSES
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||
|
(Dollars
in Thousands)
|
Allowance
Amount
|
Percent
of
Loans
in
Each
Category
To
Total
Loans
|
Allowance
Amount
|
Percent
of
Loans
in
Each
Category
To
Total
Loans
|
Allowance
Amount
|
Percent
of
Loans
in
Each
Category
To
Total
Loans
|
Allowance
Amount
|
Percent
of
Loans
in
Each
Category
To
Total
Loans
|
Allowance
Amount
|
Percent
of
Loans
in
Each
Category
To
Total
Loans
|
||||||||||||||||||||
|
Commercial,
Financial and Agricultural
|
$
|
2,401
|
10.5
|
%
|
$
|
3,106
|
10.9
|
%
|
$
|
3,900
|
11.5
|
%
|
$
|
3,663
|
10.6
|
%
|
$
|
4,341
|
11.3
|
%
|
||||||||||
|
Real
Estate:
|
||||||||||||||||||||||||||||||
|
Construction
|
8,973
|
7.3
|
3,117
|
7.4
|
745
|
9.0
|
762
|
7.8
|
578
|
7.7
|
||||||||||||||||||||
|
Commercial
|
6,022
|
33.6
|
4,372
|
33.1
|
5,996
|
32.2
|
6,352
|
34.7
|
6,296
|
35.8
|
||||||||||||||||||||
|
Residential
|
12,489
|
24.7
|
3,733
|
35.6
|
1,050
|
35.5
|
1,019
|
35.0
|
705
|
32.8
|
||||||||||||||||||||
|
Home
Equity
|
1,091
|
11.2
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
|
Consumer
|
5,055
|
12.8
|
2,790
|
13.0
|
3,081
|
11.8
|
3,105
|
11.9
|
2,966
|
12.4
|
||||||||||||||||||||
|
Not
Allocated
|
973
|
-
|
948
|
-
|
2,445
|
-
|
2,509
|
-
|
1,151
|
-
|
||||||||||||||||||||
|
Total
|
$
|
37,004
|
100.0
|
%
|
$
|
18,066
|
100.0
|
%
|
$
|
17,217
|
100.0
|
%
|
$
|
17,410
|
100.0
|
%
|
$
|
16,037
|
100.0
|
%
|
||||||||||
Risk
Element Assets
Risk
element assets consist of nonaccrual loans, restructured loans, loans past due
90 days or more, other real estate owned, potential problem loans and loan
concentrations. Table 9 depicts certain categories of our risk
element assets as of December 31st for
each of the last five years. We also discuss potential problem loans
and loan concentrations within the narrative portion of this
section.
Nonperforming
Assets. Nonperforming assets increased $79.7 million, or 283%
from year-end 2007 reflective of a $71.8 million increase in nonaccrual loans, a
$1.7 million increase in restructured loans, and a $6.2 million increase in
other real estate owned. The increase in nonaccrual loans is
primarily due to the addition of loans to builders, investors, and other
borrowers whom operate within our residential real estate markets, which are
experiencing continued stress due to general economic conditions, significant
slow-down in purchase activity, and property de-valuation. Vacant
residential land loans represented 49% of our nonaccrual balance at
year-end. In aggregate, a reserve equal to approximately 31% has been
allocated to these loans. Nonperforming assets represented 5.48% of
loans and other real estate at year-end 2008 compared to 1.47% at year-end
2007.
Generally,
loans are placed on non-accrual status if principal or interest payments become
90 days past due and/or management deems the collectibility of the principal
and/or interest to be doubtful. Once a loan is placed in nonaccrual
status, all previously accrued and uncollected interest is reversed against
interest income. Interest income on nonaccrual loans is recognized on
a cash basis 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 and future payments are
reasonably assured. If interest on our loans classified as nonaccrual
at December 31, 2008 had been recognized on a fully accruing basis, we would
have recorded an additional $6.4 million of interest income for the year ended
December 31, 2008.
Restructured
loans are loans on which, due to the deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or
either principal or interest has been forgiven. Restructured loans
totaled $1.7 million at December 31, 2008 and primarily reflect vacant
residential land loans. There were no restructured loans at December
31, 2007.
Other
real estate owned totaled $9.2 million at December 31, 2008, versus $3.0 million
at December 31, 2007. This category includes property owned by the
Bank that was acquired either through foreclosure procedures or by receiving a
deed in lieu of foreclosure. During 2008, we added properties
totaling $10.9 million, and partially or completely liquidated properties
totaling $4.7 million, resulting in a net increase in other real estate of
approximately $6.2 million.
Foreclosed
assets represent property acquired as the result of borrower defaults on loans.
Foreclosed assets are recorded at estimated fair value, less estimated
selling costs, at the time of foreclosure. Write-downs occurring at
foreclosure are charged against the allowance for possible loan losses. On
an ongoing basis, properties are appraised as required by market indications and
applicable regulations. Write-downs are provided for subsequent declines
in value and are included in other noninterest expense along with other expenses
related to maintaining the properties.
Table
9
RISK
ELEMENT ASSETS
|
As
of December 31,
|
|||||||||||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||
|
Nonaccruing
Loans
|
$
|
96,876
|
$
|
25,119
|
$
|
8,042
|
$
|
5,258
|
$
|
4,646
|
|||||||||
|
Restructured
Loans
|
1,744
|
-
|
-
|
-
|
-
|
||||||||||||||
|
Total
Nonperforming Loans
|
98,620
|
25,119
|
8,042
|
5,258
|
4,646
|
||||||||||||||
|
Other
Real Estate Owned
|
9,222
|
3,043
|
689
|
292
|
625
|
||||||||||||||
|
Total
Nonperforming Assets
|
$
|
107,842
|
$
|
28,162
|
$
|
8,731
|
$
|
5,550
|
$
|
5,271
|
|||||||||
|
Past
Due 90 Days or More (still accruing interest)
|
$
|
88
|
$
|
416
|
$
|
135
|
$
|
309
|
$
|
605
|
|||||||||
|
Nonperforming
Loans/Loans
|
5.04
|
%
|
1.31
|
%
|
.40
|
%
|
.25
|
%
|
.25
|
%
|
|||||||||
|
Nonperforming
Assets/Loans Plus Other Real Estate
|
5.48
|
%
|
1.47
|
%
|
.44
|
%
|
.27
|
%
|
.29
|
%
|
|||||||||
|
Nonperforming
Assets/Capital(1)
|
34.15
|
%
|
9.06
|
%
|
2.62
|
%
|
1.72
|
%
|
1.93
|
%
|
|||||||||
|
Allowance/Nonperforming
Loans
|
37.52
|
%
|
71.92
|
%
|
214.09
|
%
|
331.11
|
%
|
345.18
|
%
|
|||||||||
|
(1)
|
For computation of this
percentage, "Capital" refers to shareowners' equity plus the allowance for
loan losses.
|
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,
2008, we had $30.0 million in loans of this type which are not included in
either of the nonaccrual or 90 day past due loan categories compared to $10.2
million at year-end 2007. Approximately $19.0 million of the
potential problem loans at December 31, 2008 were secured by vacant residential
land. Management monitors these loans closely and reviews their
performance on a regular basis.
Loan
Concentrations. Loan concentrations are considered to exist
when there are amounts loaned to a multiple number of borrowers engaged in
similar activities which cause them to be similarly impacted by economic or
other conditions and such amount exceeds 10% of total loans. Due to
the lack of diversified industry within the markets served by the Bank and the
relatively close proximity of the markets, we have both geographic
concentrations as well as concentrations in the types of loans
funded. Specifically, due to the nature of our markets, a significant
portion of the portfolio has historically been secured with real
estate.
While we
have a majority of our loans (75.9%) secured by real estate, the primary types
of real estate collateral are commercial properties and 1-4 family residential
properties. At December 31, 2008, commercial real estate mortgage
loans and residential real estate mortgage loans accounted for 33.6% and 35.9%,
respectively, of the loan portfolio. Furthermore, approximately 13.1%
of our loan portfolio is secured by vacant residential land
loans. These loans include both improved and unimproved land and are
comprised of loans to individuals as well as
developers.
Investment
Securities
In 2008,
our average investment portfolio increased $1.5 million, or 0.8%, from 2007 and
increased $1.7 million, or 0.9%, from 2006 to 2007. As a percentage
of average earning assets, the investment portfolio represented 8.5% in 2008,
compared to 8.6% in 2007. In both 2008 and 2007, the increase in the
average balance of the investment portfolio was primarily due to the
reinvestment of a portion of the interest earned on these
investments. In 2009, we will closely monitor liquidity levels and
pledging requirements to assess the need to purchase additional
investments.
In 2008,
average taxable investments decreased $10.7 million, or 10.3%, while tax-exempt
investments increased $12.2 million, or 14.3%. The mix changed as
tax-exempt securities offered a more attractive spread compared to taxable
securities during the year. Management will continue to purchase municipal
issues when it considers the yield to be attractive and we can do so without
adversely impacting our tax position.
The
investment portfolio is a significant component of our operations and, as such,
it functions as a key element of liquidity and asset/liability
management. As of December 31, 2008, all securities are classified as
available-for-sale which offers management full flexibility in managing our
liquidity and interest rate sensitivity without adversely impacting our
regulatory capital levels. It is neither management's intent nor
practice to participate in the trading of investment securities for the purpose
of recognizing gains and therefore we do not maintain a trading
portfolio. Securities in the available-for-sale portfolio are
recorded at fair value with unrealized gains and losses associated with these
securities recorded net of tax, in the accumulated other comprehensive income
(loss) component of shareowners' equity. At December 31, 2008, the
investment portfolio maintained a net pre-tax unrealized gain of $2.3 million
compared to a net pre-tax unrealized gain of $0.4 million at December 31,
2007. $16.8 million of our investment securities have an unrealized
loss totaling $0.1 million and have been in a loss position for less than 12
months. These securities are primarily mortgage-backed securities
that are in a loss position because they were acquired when the general level of
interest rates was lower than that on December 31, 2008. We believe
that these securities are only temporarily impaired and that the full principal
will be collected as anticipated therefore we do not consider these securities
to be other-than-temporarily impaired at December 31, 2008.
The
average maturity of the total portfolio at December 31, 2008 and 2007 was 2.00
and 1.63 years, respectively. See Table 10 for a breakdown of
maturities by investment type.
The
weighted average taxable equivalent yield of the investment portfolio at
December 31, 2008 was 4.26%, versus 5.08% in 2007. This lower yield was a result
of matured bonds being invested at lower market rates during 2008, as the
Federal Reserve cut rates 400 basis points throughout the year. Our
bond portfolio contained no investments in obligations, other than U.S.
Governments, of any one state, municipality, political subdivision or any other
issuer that exceeded 10% of our shareowners' equity at December 31,
2008. New investments are being made selectively into high quality
bonds. Due diligence is continually performed on the investment
portfolio, namely the municipal bonds.
Table 10
and Note 2 in the Notes to Consolidated Financial Statements present a detailed
analysis of our investment securities as to type, maturity and
yield.
Table
10
MATURITY
DISTRIBUTION OF INVESTMENT SECURITIES
|
As
of December 31,
|
||||||||||||||||||||||||||||
|
2008
|
2007
|
2006
|
||||||||||||||||||||||||||
|
(Dollars
in Thousands)
|
Amortized
Cost
|
Market
Value
|
Weighted(1)
Average
Yield
|
Amortized
Cost
|
Market
Value
|
Weighted(1)
Average
Yield
|
Amortized
Cost
|
Market
Value
|
Weighted(1)
Average
Yield
|
|||||||||||||||||||
|
U.S.
GOVERNMENTS
|
||||||||||||||||||||||||||||
|
Due
in 1 year or less
|
$
|
18,695
|
$
|
19,033
|
3.54
|
%
|
$
|
36,441
|
$
|
36,570
|
4.62
|
%
|
$
|
17,329
|
$
|
17,150
|
3.45
|
%
|
||||||||||
|
Due
over 1 year through 5 years
|
17,490
|
17,909
|
1.98
|
25,264
|
25,493
|
4.46
|
56,388
|
55,978
|
4.64
|
|||||||||||||||||||
|
Due
over 5 years through 10 years
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Due
over 10 years
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
TOTAL
|
36,185
|
36,942
|
2.79
|
61,705
|
62,063
|
4.56%
|
73,717
|
73,128
|
4.36
|
|||||||||||||||||||
|
STATES
& POLITICAL SUBDIVISIONS
|
||||||||||||||||||||||||||||
|
Due
in 1 year or less
|
39,277
|
39,581
|
5.02
|
25,675
|
25,697
|
5.19
|
31,438
|
31,300
|
4.21
|
|||||||||||||||||||
|
Due
over 1 year through 5 years
|
61,093
|
61,981
|
4.55
|
64,339
|
64,304
|
5.38
|
52,183
|
51,922
|
5.25
|
|||||||||||||||||||
|
Due
over 5 years through 10 years
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Due
over 10 years
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
TOTAL
|
100,370
|
101,562
|
4.74
|
90,014
|
90,001
|
5.32%
|
83,621
|
83,222
|
4.86
|
|||||||||||||||||||
|
MORTGAGE-BACKED
SECURITIES(2)
|
||||||||||||||||||||||||||||
|
Due
in 1 year or less
|
1,258
|
1,267
|
3.84
|
4,125
|
4,117
|
4.23
|
3,568
|
3,571
|
5.37
|
|||||||||||||||||||
|
Due
over 1 year through 5 years
|
30,803
|
30,907
|
4.44
|
15,043
|
15,070
|
4.89
|
14,942
|
14,732
|
4.58
|
|||||||||||||||||||
|
Due
over 5 years through 10 years
|
1,420
|
1,426
|
5.29
|
7,166
|
7,100
|
5.21
|
4,734
|
4,593
|
5.02
|
|||||||||||||||||||
|
Due
over 10 years
|
6,379
|
6,476
|
5.38
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
TOTAL
|
39,860
|
40,076
|
3.74
|
26,334
|
26,287
|
4.87%
|
23,244
|
22,896
|
4.79
|
|||||||||||||||||||
|
OTHER
SECURITIES
|
||||||||||||||||||||||||||||
|
Due
in 1 year or less
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Due
over 1 year through 5 years
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Due
over 5 years through 10 years
|
1,000
|
1,107
|
5.00
|
1,000
|
1,061
|
5.00
|
-
|
-
|
-
|
|||||||||||||||||||
|
Due
over 10 years(3)
|
11,882
|
11,882
|
5.94
|
11,307
|
11,307
|
5.90
|
12,648
|
12,648
|
5.78
|
|||||||||||||||||||
|
TOTAL
|
12,882
|
12,989
|
5.87
|
12,307
|
12,368
|
5.90
|
12,648
|
12,648
|
5.78
|
|||||||||||||||||||
|
TOTAL
INVESTMENT SECURITIES
|
$
|
189,297
|
$
|
191,569
|
4.26
|
%
|
$
|
190,360
|
$
|
190,719
|
5.08
|
%
|
$
|
193,230
|
$
|
191,894
|
4.72
|
%
|
||||||||||
|
(1)
|
Weighted average yields are
calculated on the basis of the amortized cost of the security. The
weighted average yields on tax-exempt obligations are computed on a
taxable equivalent basis using a 35% tax
rate.
|
|
(2)
|
Based on weighted average
life.
|
|
(3)
|
Federal Home Loan Bank Stock and
Federal Reserve Bank Stock are included in this category for weighted
average yield, but do not have stated
maturities.
|
AVERAGE
MATURITY
|
As
of December 31,
|
||||||
|
(In
Years)
|
2008
|
2007
|
2006
|
|||
|
U.S.
Governments
|
1.15
|
1.09
|
1.76
|
|||
|
States
and Political Subdivisions
|
1.56
|
1.48
|
1.39
|
|||
|
Mortgage-Backed
Securities
|
4.98
|
3.47
|
3.05
|
|||
|
Other
Securities
|
-
|
-
|
-
|
|||
|
TOTAL
|
2.24
|
1.63
|
1.75
|
|||
Deposits
and Funds Purchased
In 2008,
average total deposits of $2.1 billion increased $75.6 million, or 3.8%, over
2007 due to an increase in NOW account balances reflecting growth in our
negotiated rate deposit products. Partially offsetting the NOW
increase were declines in all other deposit categories. Our
noninterest bearing deposits, money markets accounts and certificates of deposit
declined $34.5 million, $22.9 million and $50.0 million, respectively, while
savings balances also declined by $3.3 million from the prior
year. Average noninterest bearing deposits as a percent of average
total deposits declined from 22.2% in 2008 to 19.7% in
2007. The decrease in the money market and demand accounts are
due to lower account balances for both businesses and individuals, which we
believe is attributable to lower rates and distressed economic
conditions. The decline in the certificate of deposit category
reflects a combination of proceeds migrating to other deposit categories, as
well as transferring to higher rate paying competitors. Despite the
disruption in the market, we continue to pursue prudent pricing discipline and
have chosen not to compete with higher rate paying competitors for these
deposits.
Table 2
provides an analysis of our average deposits, by category, and average rates
paid thereon for each of the last three years. Table 11 reflects the shift in
our deposit mix over the last three years and Table 12 provides a maturity
distribution of time deposits in denominations of $100,000 and
over.
Average
short-term borrowings, which include federal funds purchased, securities sold
under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances
(maturing in less than one year), and other borrowings, decreased $5.2 million,
or 7.9% in 2008. The decrease is attributable to a $6.2 million
decrease in repurchase agreements and a $3.0 million decrease in other
borrowings primarily attributable to maturities of FHLB advances, partially
offset by a $4.0 million increase in funds purchased. See Note 8 in
the Notes to Consolidated Financial Statements for further information on
short-term borrowings.
Table
11
SOURCES
OF DEPOSIT GROWTH
|
2007
to
|
Percentage
|
Components
of
|
||||||||||||||||||
|
2008
|
of
Total
|
Total
Deposits
|
||||||||||||||||||
|
(Average
Balances - Dollars in Thousands)
|
Change
|
Change
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Noninterest
Bearing Deposits
|
$ | (34,466 | ) | (45.6 | ) % | 19.7 | % | 22.2 | % | 24.8 | % | |||||||||
|
NOW
Accounts
|
186,267 | 246.3 | 36.0 | 28.0 | 25.5 | |||||||||||||||
|
Money
Market Accounts
|
(22,915 | ) | (30.3 | ) | 18.1 | 20.0 | 18.2 | |||||||||||||
|
Savings
|
(3,287 | ) | (4.3 | ) | 5.6 | 6.0 | 6.6 | |||||||||||||
|
Time
Deposits
|
(49,980 | ) | (66.1 | ) | 20.6 | 23.9 | 24.9 | |||||||||||||
|
Total
Deposits
|
$ | 75,619 | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
Table
12
MATURITY
DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
|
December
31, 2008
|
||||||||
|
(Dollars
in Thousands)
|
Time
Certificates of Deposit
|
Percent
|
||||||
|
Three
months or less
|
$
|
37,420
|
39.33
|
%
|
||||
|
Over
three through six months
|
21,300
|
22.38
|
||||||
|
Over
six through twelve months
|
30,993
|
32.57
|
||||||
|
Over
twelve months
|
5,440
|
5.72
|
||||||
|
Total
|
$
|
95,153
|
100.00
|
%
|
||||
Market
Risk and Interest Rate Sensitivity
Overview. Market
risk management arises from changes in interest rates, exchange rates, commodity
prices, and equity prices. We have risk management policies to
monitor and limit exposure to market risk and do not participate in activities
that give rise to significant market risk involving exchange rates, commodity
prices, or equity prices. In asset and liability management
activities, policies are in place that are designed to minimize structural
interest rate risk.
Interest Rate
Risk Management. Our net income is largely dependent on net
interest income. Net interest income is susceptible to interest rate
risk to the degree that interest-bearing liabilities mature or reprice on a
different basis than interest-earning assets. When interest-bearing
liabilities mature or reprice more quickly than interest-earning assets in a
given period, a significant increase in market rates of interest could adversely
affect net interest income. Similarly, when interest-earning assets
mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could result in a decrease in net interest income. Net
interest income is also affected by changes in the portion of interest-earning
assets that are funded by interest-bearing liabilities rather than by other
sources of funds, such as noninterest-bearing deposits and shareowners’
equity.
We have
established a comprehensive interest rate risk management policy, which is
administered by management’s Asset Liability Management Committee
(ALCO). The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net
interest income at risk) and the fair value of equity capital (a measure of
economic value of equity (“EVE”) at risk) resulting from a hypothetical change
in interest rates for maturities from one day to 30 years. We measure
the potential adverse impacts that changing interest rates may have on our
short-term earnings, long-term value, and liquidity by employing simulation
analysis through the use of computer modeling. The simulation model
captures optionality factors such as call features and interest rate caps and
floors imbedded in investment and loan portfolio contracts. As with
any method of gauging interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology used by us. When
interest rates change, actual movements in different categories of
interest-earning assets and interest-bearing liabilities, loan prepayments, and
withdrawals of time and other deposits, may deviate significantly from
assumptions used in the model. Finally, the methodology does not
measure or reflect the impact that higher rates may have on adjustable-rate loan
clients’ ability to service their debts, or the impact of rate changes on demand
for loan, and deposit products.
We
prepare a current base case and three alternative simulations, at least once a
quarter, and report the analysis to the Board of Directors. In
addition, more frequent forecasts may be produced when interest rates are
particularly uncertain or when other business conditions so
dictate.
Our
interest rate risk management goal is to avoid unacceptable variations in net
interest income and capital levels due to fluctuations in market
rates. Management attempts to achieve this goal by balancing,
within policy limits, the volume of floating-rate liabilities with a similar
volume of floating-rate assets, by keeping the average maturity of fixed-rate
asset and liability contracts reasonably matched, by maintaining a pool of
administered core deposits, and by adjusting pricing rates to market conditions
on a continuing basis.
The
balance sheet is subject to testing for interest rate shock possibilities to
indicate the inherent interest rate risk. Average interest rates are
shocked by plus or minus 100, 200, and 300 basis points (“bp”), although we may
elect not to use particular scenarios that we determined are impractical in a
current rate environment. It is management’s goal to structure the
balance sheet so that net interest earnings at risk over a 12-month period and
the economic value of equity at risk do not exceed policy guidelines at the
various interest rate shock levels.
We
augment our quarterly interest rate shock analysis with alternative external
interest rate scenarios on a monthly basis. These alternative
interest rate scenarios may include non-parallel rate ramps.
Analysis. Measures
of net interest income at risk produced by simulation analysis are indicators of
an institution’s short-term performance in alternative rate
environments. These measures are typically based upon a relatively
brief period, usually one year. They do not necessarily indicate the
long-term prospects or economic value of the institution.
ESTIMATED
CHANGES IN NET INTEREST INCOME(1)
|
Changes
in Interest Rates
|
+300
bp
|
+200
bp
|
+100
bp
|
-100
bp
|
|
Policy
Limit
|
-10.0%
|
-7.5%
|
-5.0%
|
-5.0%
|
|
December
31, 2008
|
1.4%
|
1.6%
|
1.2%
|
-1.4%
|
|
December
31, 2007
|
1.4%
|
4.1%
|
3.5%
|
-4.1%
|
The Net
Interest Income at Risk position declined for the month of December 2008, when
compared to the same period in 2007, for both the “down rate” and “up rate”
scenarios with the exception of the +300 bp and -100 bp
scenarios. Our largest exposure is at the -100 bp level, with a
measure of -1.4%, which is still within our policy limit of
-5.0%. The year-over-year variance is attributable to the current low
interest rate environment which limits the magnitude by which rates on interest
bearing liabilities may be further reduced in a declining rate
scenario. All measures of net interest income at risk are within our
prescribed policy limits.
The
measures of equity value at risk indicate our ongoing economic value by
considering the effects of changes in interest rates on all of our cash flows,
and discounting the cash flows to estimate the present value of assets and
liabilities. The difference between these discounted values of the assets and
liabilities is the economic value of equity, which, in theory, approximates the
fair value of our net assets.
ESTIMATED
CHANGES IN ECONOMIC VALUE OF EQUITY(1)
|
Changes
in Interest Rates
|
+300
bp
|
+200
bp
|
+100
bp
|
-100
bp
|
|
Policy
Limit
|
-12.5%
|
-10.0%
|
-7.5%
|
-7.5%
|
|
December
31, 2008
|
0.8%
|
2.3%
|
1.9%
|
-4.1%
|
|
December
31, 2007
|
1.8%
|
3.4%
|
2.7%
|
-3.5%
|
Our risk
profile, as measured by EVE, declined for the month of December 2008, when
compared to the same period in 2007, for both the “down rate” and “up rate”
scenarios, but remains well within our prescribed policy limits. The
unfavorable variance between periods is attributable to the current low interest
rate environment, which limits the magnitude by which rates on interest bearing
liabilities may be further reduced in a declining rate scenario.
|
(1)
|
Down
200 and 300 rate scenarios have been excluded due to the current
historically low interest rate
environment.
|
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
In
general terms, liquidity is a measurement of our ability to meet our cash
needs. Our objective in managing our liquidity is to maintain our
ability to meet loan commitments, purchase securities or repay deposits and
other liabilities in accordance with their terms, without an adverse impact on
our current or future earnings. Our liquidity strategy is guided by
policies, which are formulated and monitored by our Asset Liability Committee
(ALCO) and senior management, and which take into account the marketability of
assets, the sources and stability of funding and the level of unfunded
commitments. We regularly evaluate all of our various funding sources
with an emphasis on accessibility, stability, reliability and
cost-effectiveness. For the years ended December 31, 2008 and
2007, our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily from securities sold under
repurchase agreements and 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 needs and debt.
Overall,
we have the ability to generate $690 million in additional liquidity through all
of our available resources. In addition to 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. The Bank has the ability to declare and pay up to $60
million in dividends to us in 2009, more than meeting our ongoing financial
obligations. 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 that certain credit facilities may no longer be
available. The liquidity available to us is considered sufficient to
meet the 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 two years and as of year-end had a net
unrealized pre-tax gain of $2.3 million.
Our
average liquidity (defined as funds sold plus interest bearing deposits with
other banks less funds purchased) for the fourth quarter of 2008 reflects a net
funds purchased position of $26.8 million compared to a net funds sold position
of $96.7 million in the fourth quarter of 2007. The variance in the
liquidity position primarily reflects a decline in deposits. Despite
the disruption in the market, we continue to pursue prudent pricing discipline
and have chosen not to compete with higher rate paying competitors for these
deposits.
Capital
expenditures are expected to approximate $24.5 million over the next twelve
months, which consist primarily of new banking office construction, office
equipment and furniture, and technology purchases. Management
believes that these capital expenditures will be funded with existing resources
without impairing our ability to meet our on-going obligations.
Borrowings
At
December 31, 2008, we had $51.3 million in borrowings outstanding to the FHLB
consisting of 42 notes. One note totaling $134,000 is classified as
short-term borrowings with the remaining notes classified as long-term
borrowings with maturities ranging from 2010 to 2025. The interest rates
are fixed and the weighted average rate at December 31, 2008 was
4.39%. Required cash payments (including principal reductions and
maturities) for the FHLB advances are detailed in Table 13. Approximately
$41.3 million of the aforementioned FHLB debt is related to match-term funding
for loans originated by the Bank. During 2008, we obtained 15 advances
from the FHLB for $19.3 million with a fixed rate of 4.14%, maturing between
2013 and 2025 for the purpose of match-term funding. The FHLB notes 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. See Note 9 in the Notes to Consolidated Financial Statements for
additional information on these borrowings.
Table
13
CONTRACTUAL
CASH OBLIGATIONS
Table 13
sets forth certain information about contractual cash obligations at December
31, 2008.
|
Payments
Due By Period
|
||||||||||||||||||||
|
(Dollars
in Thousands)
|
<
1 Yr
|
1 –
3 Yrs
|
3 –
5 Yrs
|
>
5 Years
|
Total
|
|||||||||||||||
|
Federal
Home Loan Bank Advances
|
$
|
2,969
|
$
|
16,628
|
$
|
12,957
|
$
|
18,768
|
$
|
51,322
|
||||||||||
|
Subordinated
Notes Payable
|
-
|
-
|
-
|
62,887
|
62,887
|
|||||||||||||||
|
Operating
Lease Obligations
|
1,429
|
1,744
|
994
|
5,095
|
9,262
|
|||||||||||||||
|
Time
Deposit Maturities
|
330,407
|
41,649
|
1,539
|
-
|
373,595
|
|||||||||||||||
|
Liability
for Unrecognized Tax Benefits
|
-
|
645
|
2,015
|
2,090
|
4,750
|
|||||||||||||||
|
Total
Contractual Cash Obligations
|
$
|
334,805
|
$
|
60,666
|
$
|
17,505
|
$
|
88,840
|
$
|
501,816
|
||||||||||
We have
issued two junior subordinated deferrable interest notes to wholly owned
Delaware statutory trusts. The first note for $30.9 million was
issued to CCBG Capital Trust I in November 2004. The second note for
$32.0 million was issued to CCBG Capital Trust II in May 2005. See
Note 9 in the Notes to Consolidated Financial Statements for additional
information on these borrowings. The interest payments for the CCBG
Capital Trust I borrowing are due quarterly at a fixed rate of 5.71% for five
years, then adjustable annually to LIBOR plus a margin of 1.90%. This
note matures on December 31, 2034. The proceeds of this borrowing
were used to partially fund the Farmers and Merchants Bank of Dublin acquisition
in 2004. The interest payments for the CCBG Capital Trust II
borrowing are due quarterly at a fixed rate of 6.07% for five years, then
adjustable quarterly to LIBOR plus a margin of 1.80%. This note
matures on June 15, 2035. The proceeds of this borrowing were used to
partially fund the First National Bank of Alachua acquisition in
2005.
Capital
We
continue to maintain a strong capital position. The ratio of
shareowners' equity to total assets at year-end was 11.20%, 11.19%, and 12.15%,
in 2008, 2007, and 2006, respectively. Management believes its strong
capital base not only offers protection against adverse developments that may
arise during the course of an economic downturn, but it also places the company
in a position to take advantage of opportunities that arise, including
investments, acquisitions, and/or stock purchases.
We are
subject to risk-based capital guidelines that measure capital relative to risk
weighted assets and off-balance sheet financial instruments. Capital
guidelines issued by the Federal Reserve Board require bank holding companies to
have a minimum total risk-based capital ratio of 8.00%, with at least half of
the total capital in the form of Tier I Capital. As of December 31,
2008, we exceeded these capital guidelines with a total risk-based capital ratio
of 14.69% and a Tier 1 ratio of 13.34%, compared to 14.05% and 13.05%,
respectively, in 2007. As allowed by Federal Reserve Board capital
guidelines the trust preferred securities issued by CCBG Capital Trust I and
CCBG Capital Trust II are included as Tier I Capital in our capital calculations
previously noted. See Note 9 in the Notes to Consolidated Financial
Statements for additional information on our two trust preferred security
offerings. See Note 14 in the Notes to Consolidated Financial
Statements for additional information as to our capital
adequacy.
A
tangible leverage ratio is also used in connection with the risk-based capital
standards and is defined as Tier I Capital divided by average
assets. The minimum leverage ratio under this standard is 3% for the
highest-rated bank holding companies which are not undertaking significant
expansion programs. An additional 1% to 2% may be required for other
companies, depending upon their regulatory ratings and expansion
plans. On December 31, 2008, we had a leverage ratio of 11.51%
compared to 10.41% in 2007.
Shareowners'
equity as of December 31, for each of the last three years is presented
below:
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
Common
Stock
|
171
|
172
|
185
|
||||||||
|
Additional
Paid-in Capital
|
36,783
|
38,243
|
80,654
|
||||||||
|
Retained
Earnings
|
262,890
|
260,325
|
243,242
|
||||||||
|
Subtotal
|
299,844
|
298,740
|
324,081
|
||||||||
|
Accumulated
Other Comprehensive (Loss), Net of Tax
|
(21,014
|
)
|
(6,065
|
)
|
(8,311
|
)
|
|||||
|
Total
Shareowners' Equity
|
$
|
278,830
|
$
|
292,675
|
$
|
315,770
|
|||||
At
December 31, 2008, our common stock had a book value of $16.27 per diluted share
compared to $17.03 in 2007. Book value is impacted by the net
unrealized gains and losses on investment securities
available-for-sale. At December 31, 2008, the net unrealized gain was
$1.5 million compared to $.2 million in 2007. Beginning in 2006, book
value has been impacted by the recording of our unfunded pension liability
through other comprehensive income in accordance with Statement of Financial
Accounting Standard No. 158. At December 31, 2008, the net pension
liability reflected in other comprehensive income was $22.5 million compared to
$6.3 million at December 31, 2007. The change in our net pension
liability in 2008 was primarily attributable to a decline in pension plan assets
driven by market disruption and significant asset de-valuation occurring during
the second half of the year.
Our Board
of Directors has authorized the repurchase of up to 2,671,875 shares of our
outstanding common stock. The purchases are made in the open market
or in privately negotiated transactions. Through December 31, 2008,
we have repurchased a total of 2,374,242 shares at an average purchase price of
$26.08 per share. During 2008, we repurchased 90,041 shares at an
average purchase price of $26.77.
We offer
an Associate Stock Incentive Plan under which certain associates are eligible to
earn shares of our common stock based upon achieving established performance
goals. In 2008, we issued no shares under this plan as the 2007
financial performance goal was not achieved.
We also
offer stock purchase plans, which permit our associates and directors to
purchase shares at a 10% discount. In 2008, 34,424 shares, valued at
approximately $889,000 (before 10% discount), were issued under these
plans.
Dividends
Adequate
capital and financial strength is paramount to our stability and the stability
of our subsidiary bank. Cash dividends declared and paid should not
place unnecessary strain on our capital levels. When determining the
level of dividends the following factors are considered:
|
·
|
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.
|
Although
we believe a consistent dividend payment is favorably viewed by the financial
markets and our shareowners, our Board of Directors will declare dividends only
if we are considered to have adequate capital. Future capital
requirements and corporate plans are considered when the Board considers a
dividend payment.
Dividends
declared and paid totaled $.7450 per share in 2008. For the first
through the third quarters of 2008 we declared and paid a dividend of $.1850 per
share. The dividend was raised 2.7% in the fourth quarter of 2008
from $.1850 per share to $.1900 per share. We paid dividends of
$.7100 per share in 2007 and $.6625 per share in 2006. The dividend
payout ratio was 83.71%, 42.77%, and 37.01% for 2008, 2007 and 2006,
respectively. Total cash dividends declared per share in 2008
represented a 4.9% increase over 2007.
As
permitted by Florida law, during 2009, the Bank may declare and pay dividends to
us in an amount which approximates the Bank’s current year earnings and, in
addition, the Bank has received authorization from the Office of Financial
Regulation to declare and pay dividends totaling up to $60 million on or before
December 31, 2009.
Inflation
The
impact of inflation on the banking industry differs significantly from that of
other industries in which a large portion of total resources are invested in
fixed assets such as property, plant and equipment.
Assets
and liabilities of financial institutions are virtually all monetary in nature,
and therefore are primarily impacted by interest rates rather than changing
prices. While the general level of inflation underlies most interest
rates, interest rates react more to changes in the expected rate of inflation
and to changes in monetary and fiscal policy. Net interest income and
the interest rate spread are good measures of our ability to react to changing
interest rates and are discussed in further detail in the section entitled
"Results of Operations."
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
currently engage in the use of derivative instruments to hedge interest rate
risks. However, we are a party to financial instruments with
off-balance sheet risks in the normal course of business to meet the financing
needs of our clients.
At
December 31, 2008, we had $384.3 million in commitments to extend credit and
$18.9 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, available advances from the FHLB and
Federal Reserve Bank, and investment security maturities provide a sufficient
source of funds to meet these commitments.
Fourth
Quarter, 2008 Financial Results
For the
fourth quarter, we realized a net loss of $1.7 million, or $.10 per diluted
share compared to net income of $4.8 million, or $.29 per diluted share, in the
previous quarter. Earnings for the fourth and third quarters included
loan loss provisions of $.45 per share and $.37 per share, respectively,
reflective of stressed economic conditions and the related impact on our loan
portfolio. Earnings for the prior quarter also included a $6.25
million pre-tax gain from the sale of our merchant services portfolio ($.22 per
share).
For the
fourth quarter, tax equivalent net interest income increased $587,000, or 2.1%,
compared to the prior quarter. Favorable volume and rate variances of
$262,000 and $498,000, respectively, were partially offset by an unfavorable
loan fee variance of $174,000. The volume variance was driven by a
1.3% increase in average loans for the quarter, while the rate variance is
primarily attributable to the recapture of $784,000 in accrued interest and
impaired loan discount related to a nonaccrual loan that was resolved during the
quarter.
The net
interest margin expanded by 25 basis points to 5.26% from the prior quarter
reflective of a 9 basis point decline in the earning asset yield that was more
than offset by a 34 basis point decline in the cost of funds. The
aforementioned recapture of accrued interest and loan discount improved the
earning asset yield by 15 basis points. Excluding this one-time
transaction, the core net interest margin still improved by 10 basis points to
5.11% driven by the continued close management of core deposit funding costs and
a favorable shift in deposit mix as higher cost certificates of deposit balances
declined 7.5% during the quarter.
The
provision for loan losses for the current quarter was $12.5 million compared to
$10.4 million in the prior quarter. The increase in the provision for
the current quarter reflects a higher level of loan charge-offs which were $6.0
million, or 1.24% of average loans, and an increase in both general and impaired
loan reserves required for loans where repayment is tied to residential real
estate market activity, which has significantly slowed and has been hampered by
property de-valuation.
Noninterest
income for the fourth quarter decreased $6.9 million, or 34.1%, from the third
quarter of 2008 primarily attributable to a pre-tax gain of $6.25 million from
the sale of a portion of the bank’s merchant services portfolio and a one-time
gain from the sale of a banking office ($241,000), both of which were recognized
in the third quarter. Lower deposit fees of $303,000 driven partially
by a three day processing variance also contributed to the decline for the
quarter.
Noninterest
expense for the fourth quarter increased $1.1 million, or 3.6%, over the third
quarter of 2008 primarily attributable to higher expenses for advertising
($459,000), legal ($201,000), and professional fees ($284,000). Other
real estate owned write-downs also increased $186,000 during the
quarter. The increase in advertising was driven by our branding
campaign which kicked off in late November. Legal expense increased
due to a higher level of legal support needed for problem loan
collection/workout efforts. The increase in professional fees
primarily reflects an increase to both our internal and external audit expense
accruals.
For the
quarter, the Bank’s earning assets averaged $2.151 billion, down $56.8 million
from $2.208 billion in the third quarter. The decrease is
attributable to an $83.3 million reduction in short term investments partially
offset by a $25.1 million increase in the loan portfolio and a $1.4 million
increase in investment securities. The increase in average loans
reflects solid new loan production and a lower level of loan run-off
(pay-offs/pay-downs). The following loan categories account for a
majority of the net loan growth for the quarter (commercial mortgage - $15.4
million, home equity - $7.2 million). The pipeline of new loan
requests grew during the third/fourth quarters due to less competitive pressures
on terms as larger banking companies were either focused internally on problem
loan resolution or were exiting certain types of lending activity.
The Bank
maintained an average net overnight funds (deposits with banks plus fed funds
sold less fed funds purchased) purchased position of $18.0 million during the
fourth quarter as compared to an average net overnight funds sold position of
$86.5 million in the third quarter. The decline in the funds position
primarily reflects a decline in client deposit balances.
At the
end of the fourth quarter, nonperforming assets (including nonaccrual loans,
restructured loans, and other real estate) totaled $107.8 million, an increase
of $40.1 million from the third quarter. The level of nonaccrual
loans increased $35.4 million to $96.9 million during the quarter due primarily
to the addition of loans to builders, investors, and other borrowers whom
operate within our residential real estate markets which are experiencing
continued stress due to general economic conditions, significant slow-down in
purchase activity, and property de-valuation. Restructured loans
totaled $1.7 million at the end of the quarter. Other real estate
owned totaled $9.2 million at the end of the fourth
quarter. Nonperforming assets represented 5.48% of loans and other
real estate at the end of the fourth quarter compared to 3.51% at the end of the
prior quarter.
Average
deposits for the fourth quarter decreased $84.8 million from the third quarter
to $1.946 billion. The decrease is primarily due to a decline in the
following categories: NOW ($43.5 million or 6.0%), MMA ($8.6 million or 2.3%),
and CD’s ($30.8 million or 7.5%). The decline in NOW accounts was
primarily driven by a reduction in public funds balances, lower legal settlement
deposit balances, and lower balances maintained by a few select corporate
clients. The decline in the CD category reflects a combination of CD
proceeds migrating to other deposit categories within CCB, as well as
transferring to higher rate paying competitors.
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 established through a
charge to the provision for loan losses. Provisions are made to reserve for
estimated losses in loan balances. The allowance for loan losses is a
significant estimate and we evaluate the allowance quarterly for
adequacy. The use of different estimates or assumptions could produce
a different required allowance, and thereby a larger or smaller provision
recognized as expense in any given reporting period. A further
discussion of the allowance for loan losses can be found in the section entitled
"Allowance for Loan Losses" and Note 1 in the Notes to Consolidated Financial
Statements.
Intangible
Assets. Intangible assets consist primarily of goodwill, core
deposit assets, and other identifiable intangibles that were recognized in
connection with various acquisitions. Goodwill represents the excess
of the cost of acquired businesses over the fair market value of their
identifiable net assets. We perform an impairment review on an annual
basis or more frequently if events or changes in circumstances indicate that the
carrying value may not be recoverable. We have determined that no
impairment existed at December 31, 2008. Impairment testing requires
management to make significant judgments and estimates relating to the fair
value of its reporting unit. If our market capitalization were to
decline below book value which was $278.8 million at December 31, 2008, further
analysis would be performed to determine whether goodwill impairment
exists. Significant changes to our estimates, when and if they occur,
could result in a non-cash impairment charge and thus have a material impact on
our operating results for any particular reporting period. A goodwill
impairment charge does not adversely affect the calculation of our risk based
and tangible capital ratios.
Core
deposit assets represent the premium we paid for core deposits. Core
deposit intangibles are amortized on the straight-line method over various
periods ranging from 5-10 years. Generally, core deposits refer to
nonpublic, non-maturing deposits including noninterest-bearing deposits, NOW,
money market and savings. We make certain estimates relating to the
useful life of these assets, and rate of run-off based on the nature of the
specific assets and the client bases acquired. If there is a reason
to believe there has been a permanent loss in value, management will assess
these assets for impairment. Any changes in the original estimates
may materially affect our operating results.
Pension Assumptions. We have a defined
benefit pension plan for the benefit of substantially all of our
associates. Our funding policy with respect to the pension plan is to
contribute amounts to the plan sufficient to meet minimum funding requirements
as set by law. Pension expense, reflected in the Consolidated
Statements of Income in noninterest expense as "Salaries and Associate
Benefits," is determined by an external actuarial valuation based on assumptions
that are evaluated annually as of December 31, the measurement date for the
pension obligation. The Consolidated Statements of Financial
Condition reflect an accrued pension benefit cost due to funding levels and
unrecognized actuarial amounts. The most significant assumptions used
in calculating the pension obligation are the weighted-average discount rate
used to determine the present value of the pension 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
Retirement 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 2008 was
6.25%. The estimated impact to 2008 pension expense of a 25 basis
point increase or decrease in the discount rate would have been a decrease and
increase of approximately $314,000 and $329,000, respectively. We
anticipate using a 6.00% discount rate in 2009.
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
2008 was 8.0%. The estimated impact to 2008 pension expense of a 25
basis point increase or decrease in the rate of return would have been an
approximate $185,000 decrease or increase, respectively. We
anticipate using a rate of return on plan assets for 2009 of 8.0%.
The
assumed rate of annual compensation increases of 5.50% in 2008 is based on
expected trends in salaries and the employee base. This assumption is
not expected to change materially in 2009.
Detailed
information on the pension plan, the actuarially determined disclosures, and the
assumptions used are provided in Note 12 of the Notes to Consolidated Financial
Statements.
Recent
Accounting Pronouncements
The
Financial Accounting Standards Board, the SEC, and other regulatory bodies have
enacted new accounting pronouncements and standards that either has impacted our
results in prior years presented, or will likely impact our results in
2009. Please refer to the footnote No. 1 in the Notes to our
Consolidated Financial Statements.
|
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.
In years
prior to 2008, we presented quantitative information about market risk under a
tabular format which disclosed our company’s interest rate sensitive
assets and liabilities and their respective contractual maturity or re-pricing
intervals and the respective fair value of those financial assets and
liabilities. For 2008, we have revised our disclosure format as
allowed under this section to present the results of our internal interest rate
sensitivity modeling which assesses the impact to our net interest income and
capital resulting from a hypothetical change in interest rates. We
believe this disclosure method provides a reader improved insight into the
impact of interest rate changes on our performance and financial
condition.
|
Financial
Statements and Supplementary Data
|
Table
14
QUARTERLY
FINANCIAL DATA (Unaudited)
|
2008
|
2007
|
||||||||||||||||||||||||||||||||
|
(Dollars
in Thousands, Except Per Share Data)
|
Fourth
|
Third(1)
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
|||||||||||||||||||||||||
|
Summary
of Operations:
|
|||||||||||||||||||||||||||||||||
|
Interest
Income
|
$
|
33,229
|
$
|
34,654
|
$
|
36,260
|
$
|
38,723
|
$
|
40,786
|
$
|
41,299
|
$
|
41,724
|
$
|
41,514
|
|||||||||||||||||
|
Interest
Expense
|
5,482
|
7,469
|
8,785
|
12,264
|
13,241
|
13,389
|
13,263
|
13,189
|
|||||||||||||||||||||||||
|
Net
Interest Income
|
27,747
|
27,185
|
27,475
|
26,459
|
27,545
|
27,910
|
28,461
|
28,325
|
|||||||||||||||||||||||||
|
Provision
for Loan Losses
|
12,497
|
10,425
|
5,432
|
4,142
|
1,699
|
1,552
|
1,675
|
1,237
|
|||||||||||||||||||||||||
|
Net
Interest Income After
Provision
for Loan Losses
|
15,250
|
16,760
|
22,043
|
22,317
|
25,846
|
26,358
|
26,786
|
27,088
|
|||||||||||||||||||||||||
|
Noninterest
Income
|
13,311
|
20,212
|
15,718
|
17,799
|
15,823
|
14,431
|
15,084
|
13,962
|
|||||||||||||||||||||||||
|
Noninterest
Expense
|
31,002
|
29,916
|
30,756
|
29,798
|
31,614
|
29,919
|
29,897
|
30,562
|
|||||||||||||||||||||||||
|
(Loss)
Income Before Provision for Income Taxes
|
(2,441
|
)
|
7,056
|
7,005
|
10,318
|
10,055
|
10,870
|
11,973
|
10,488
|
||||||||||||||||||||||||
|
Provision
for Income Taxes
|
(738
|
)
|
2,218
|
2,195
|
3,038
|
2,391
|
3,699
|
4,082
|
3,531
|
||||||||||||||||||||||||
|
Net
(Loss) Income
|
$
|
(1,703
|
)
|
$
|
4,838
|
$
|
4,810
|
$
|
7,280
|
$
|
7,664
|
$
|
7,171
|
$
|
7,891
|
$
|
6,957
|
||||||||||||||||
|
Net
Interest Income (FTE)
|
$
|
28,387
|
$
|
27,802
|
$
|
28,081
|
$
|
27,078
|
$
|
28,196
|
$
|
28,517
|
$
|
29,050
|
$
|
28,898
|
|||||||||||||||||
|
Per
Common Share:
|
|||||||||||||||||||||||||||||||||
|
Net
(Loss) Income Basic
|
$
|
(0.10
|
)
|
$
|
0.29
|
$
|
0.28
|
$
|
0.42
|
$
|
0.44
|
$
|
0.41
|
$
|
0.43
|
$
|
0.38
|
||||||||||||||||
|
Net
(Loss) Income Diluted
|
(0.10
|
)
|
0.29
|
0.28
|
0..42
|
0.44
|
0.41
|
0.43
|
0.38
|
||||||||||||||||||||||||
|
Dividends
Declared
|
0.190
|
0.185
|
0.185
|
0.185
|
0.185
|
0.175
|
0.175
|
0.175
|
|||||||||||||||||||||||||
|
Diluted
Book Value
|
16.27
|
17.45
|
17.33
|
17.33
|
17.03
|
16.95
|
16.87
|
16.97
|
|||||||||||||||||||||||||
|
Market
Price:
|
|||||||||||||||||||||||||||||||||
|
High
|
33.32
|
34.50
|
30.19
|
29.99
|
34.00
|
36.40
|
33.69
|
35.91
|
|||||||||||||||||||||||||
|
Low
|
21.06
|
19.20
|
21.76
|
24.76
|
24.60
|
27.69
|
29.12
|
29.79
|
|||||||||||||||||||||||||
|
Close
|
27.24
|
31.35
|
21.76
|
29.00
|
28.22
|
31.20
|
31.34
|
33.30
|
|||||||||||||||||||||||||
|
Selected
Average
|
|||||||||||||||||||||||||||||||||
|
Balances:
|
|||||||||||||||||||||||||||||||||
|
Loans
|
$
|
1,940,083
|
$
|
1,915,008
|
$
|
1,908,802
|
$
|
1,909,574
|
$
|
1,908,069
|
$
|
1,907,235
|
$
|
1,944,969
|
$
|
1,980,224
|
|||||||||||||||||
|
Earning
Assets
|
2,150,841
|
2,207,670
|
2,303,971
|
2,301,463
|
2,191,230
|
2,144,737
|
2,187,236
|
2,211,560
|
|||||||||||||||||||||||||
|
Assets
|
2,463,318
|
2,528,638
|
2,634,771
|
2,646,474
|
2,519,682
|
2,467,703
|
2,511,252
|
2,530,790
|
|||||||||||||||||||||||||
|
Deposits
|
1,945,866
|
2,030,684
|
2,140,545
|
2,148,874
|
2,016,736
|
1,954,160
|
1,987,418
|
2,003,726
|
|||||||||||||||||||||||||
|
Shareowners’
Equity
|
302,227
|
303,595
|
300,890
|
296,804
|
299,342
|
301,536
|
309,352
|
316,484
|
|||||||||||||||||||||||||
|
Common
Equivalent Average Shares:
|
|||||||||||||||||||||||||||||||||
|
Basic
|
17,125
|
17,124
|
17,146
|
17,170
|
17,444
|
17,709
|
18,089
|
18,409
|
|||||||||||||||||||||||||
|
Diluted
|
17,135
|
17,128
|
17,147
|
17,178
|
17,445
|
17,719
|
18,089
|
18,420
|
|||||||||||||||||||||||||
|
Ratios:
|
|||||||||||||||||||||||||||||||||
|
Return
on Assets
|
-0.28
|
%
|
0.76
|
%
|
.73
|
%
|
1.11
|
%
|
1.21
|
%
|
1.15
|
%
|
1.26
|
%
|
1.11
|
%
|
|||||||||||||||||
|
Return
on Equity
|
-2.24
|
%
|
6.34
|
%
|
6.43
|
%
|
9.87
|
%
|
10.16
|
%
|
9.44
|
%
|
10.23
|
%
|
8.91
|
%
|
|||||||||||||||||
|
Net
Interest Margin (FTE)
|
5.26
|
%
|
5.01
|
%
|
4.90
|
%
|
4.73
|
%
|
5.10
|
%
|
5.27
|
%
|
5.33
|
%
|
5.29
|
%
|
|||||||||||||||||
|
Efficiency
Ratio
|
71.21
|
%
|
59.27
|
%
|
66.89
|
%
|
63.15
|
%
|
68.51
|
%
|
66.27
|
%
|
64.44
|
%
|
67.90
|
%
|
|||||||||||||||||
(1) Includes $6.25 million ($3.8
million after-tax) one-time gain on sale of portion of merchant services
portfolio.
CAPITAL
CITY BANK GROUP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
|
PAGE
|
|
|
57
|
|
|
59
|
|
|
60
|
|
|
61
|
|
|
62
|
|
|
63
|
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Shareholders of
Capital
City Bank Group, Inc.
We have
audited the accompanying consolidated statements of condition of Capital City
Bank Group, Inc. and subsidiary as of December 31, 2008 and 2007, and the
related consolidated statements of income, changes in shareowners’ equity, and
cash flows for the years then ended. 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. and subsidiary at December 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for the years then ended, 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, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 12,
2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Birmingham,
Alabama
March 12,
2009
Report
of Independent Registered Public Accounting Firm
The Board
of Directors
Capital
City Bank Group, Inc.:
We have
audited the accompanying consolidated statements of income, changes in
shareowners’ equity and cash flows of Capital City Bank Group, Inc. and
subsidiary for the year ended December 31, 2006. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 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 audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Capital
City Bank Group, Inc. and subsidiary for the year ended December 31, 2006,
in conformity with U.S. generally accepted accounting principles.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS)
No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132R, as of
December 31, 2006.
/s/ KPMG
LLP
March 14,
2007
Orlando,
Florida
Certified
Public Accountants
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
As
of December 31,
|
|||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
|||||
|
ASSETS
|
|||||||
|
Cash
and Due From Banks
|
$
|
88,143
|
$
|
93,437
|
|||
|
Federal
Funds Sold and Interest Bearing Deposits
|
6,806
|
166,260
|
|||||
|
Total
Cash and Cash Equivalents
|
94,949
|
259,697
|
|||||
|
Investment
Securities, Available-for-Sale
|
191,569
|
190,719
|
|||||
|
Loans,
Net of Unearned Interest
|
1,957,797
|
1,915,850
|
|||||
|
Allowance
for Loan Losses
|
(37,004
|
)
|
(18,066
|
)
|
|||
|
Loans,
Net
|
1,920,793
|
1,897,784
|
|||||
|
Premises
and Equipment, Net
|
106,433
|
98,612
|
|||||
|
Goodwill
|
84,811
|
84,811
|
|||||
|
Other
Intangible Assets
|
8,072
|
13,757
|
|||||
|
Other
Assets
|
82,072
|
70,947
|
|||||
|
Total
Assets
|
$
|
2,488,699
|
$
|
2,616,327
|
|||
|
LIABILITIES
|
|||||||
|
Deposits:
|
|||||||
|
Noninterest
Bearing Deposits
|
$
|
419,696
|
$
|
432,659
|
|||
|
Interest
Bearing Deposits
|
1,572,478
|
1,709,685
|
|||||
|
Total
Deposits
|
1,992,174
|
2,142,344
|
|||||
|
Short-Term
Borrowings
|
62,044
|
53,131
|
|||||
|
Subordinated
Notes Payable
|
62,887
|
62,887
|
|||||
|
Other
Long-Term Borrowings
|
51,470
|
26,731
|
|||||
|
Other
Liabilities
|
41,294
|
38,559
|
|||||
|
Total
Liabilities
|
2,209,869
|
2,323,652
|
|||||
|
SHAREOWNERS'
EQUITY
|
|||||||
|
Preferred
Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and
outstanding
|
-
|
-
|
|||||
|
Common
Stock, $.01 par value; 90,000,000 shares authorized; 17,126,997 and
17,182,553 shares issued and outstanding at December 31, 2008 and December
31, 2007, respectively
|
171
|
172
|
|||||
|
Additional
Paid-In Capital
|
36,783
|
38,243
|
|||||
|
Retained
Earnings
|
262,890
|
260,325
|
|||||
|
Accumulated
Other Comprehensive Loss, Net of Tax
|
(21,014
|
)
|
(6,065
|
)
|
|||
|
Total
Shareowners' Equity
|
278,830
|
292,675
|
|||||
|
Total
Liabilities and Shareowners' Equity
|
$
|
2,488,699
|
$
|
2,616,327
|
|||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CAPITAL
CITY BANK GROUP, INC.
|
For
the Years Ended December 31,
|
|||||||||||
|
(Dollars
in Thousands, Except Per Share Data)
|
2008
|
2007
|
2006
|
||||||||
|
INTEREST
INCOME
|
|||||||||||
|
Interest
and Fees on Loans
|
$
|
132,682
|
$
|
154,567
|
$
|
156,666
|
|||||
|
Investment
Securities:
|
|||||||||||
|
U.S.
Treasury
|
747
|
574
|
453
|
||||||||
|
U.S.
Government Agencies and Corporations
|
2,562
|
3,628
|
3,605
|
||||||||
|
States
and Political Subdivisions
|
3,185
|
2,894
|
2,337
|
||||||||
|
Other
Securities
|
581
|
747
|
793
|
||||||||
|
Funds
Sold
|
3,109
|
2,913
|
2,039
|
||||||||
|
Total
Interest Income
|
142,866
|
165,323
|
165,893
|
||||||||
|
INTEREST
EXPENSE
|
|||||||||||
|
Deposits
|
27,306
|
44,687
|
37,253
|
||||||||
|
Short-Term
Borrowings
|
1,157
|
2,871
|
3,075
|
||||||||
|
Subordinated
Notes Payable
|
3,735
|
3,730
|
3,725
|
||||||||
|
Other
Long-Term Borrowings
|
1,802
|
1,794
|
2,704
|
||||||||
|
Total
Interest Expense
|
34,000
|
53,082
|
46,757
|
||||||||
|
NET
INTEREST INCOME
|
108,866
|
112,241
|
119,136
|
||||||||
|
Provision
for Loan Losses
|
32,496
|
6,163
|
1,959
|
||||||||
|
Net
Interest Income After Provision for Loan Losses
|
76,370
|
106,078
|
117,177
|
||||||||
|
NONINTEREST
INCOME
|
|||||||||||
|
Service
Charges on Deposit Accounts
|
27,742
|
26,130
|
24,620
|
||||||||
|
Data
Processing
|
3,435
|
3,133
|
2,723
|
||||||||
|
Asset
Management Fees
|
4,235
|
4,700
|
4,600
|
||||||||
|
Securities
Transactions
|
125
|
14
|
(4
|
)
|
|||||||
|
Mortgage
Banking Revenues
|
1,623
|
2,596
|
3,235
|
||||||||
|
Bank
Card Fees
|
12,701
|
13,706
|
12,602
|
||||||||
|
Gain
on Sale of Portion of Merchant Services Portfolio
|
6,250
|
-
|
-
|
||||||||
|
Other
|
10,929
|
9,021
|
7,801
|
||||||||
|
Total
Noninterest Income
|
67,040
|
59,300
|
55,577
|
||||||||
|
NONINTEREST
EXPENSE
|
|||||||||||
|
Salaries
and Associate Benefits
|
61,831
|
60,279
|
60,855
|
||||||||
|
Occupancy,
Net
|
9,729
|
9,347
|
9,395
|
||||||||
|
Furniture
and Equipment
|
9,902
|
9,890
|
9,911
|
||||||||
|
Intangible
Amortization
|
5,685
|
5,834
|
6,085
|
||||||||
|
Other
|
34,325
|
36,642
|
35,322
|
||||||||
|
Total
Noninterest Expense
|
121,472
|
121,992
|
121,568
|
||||||||
|
INCOME
BEFORE INCOME TAXES
|
21,938
|
43,386
|
51,186
|
||||||||
|
Income
Taxes
|
6,713
|
13,703
|
17,921
|
||||||||
|
NET
INCOME
|
$
|
15,225
|
$
|
29,683
|
$
|
33,265
|
|||||
|
BASIC
NET INCOME PER SHARE
|
$
|
0.89
|
$
|
1.66
|
$
|
1.79
|
|||||
|
DILUTED
NET INCOME PER SHARE
|
$
|
0.89
|
$
|
1.66
|
$
|
1.79
|
|||||
|
Average
Basic Common Shares Outstanding
|
17,141
|
17,909
|
18,585
|
||||||||
|
Average
Diluted Common Shares Outstanding
|
17,147
|
17,912
|
18,610
|
||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CAPITAL
CITY BANK GROUP, INC.
|
(Dollars
in Thousands, Except Per Share Data)
|
Shares
Outstanding
|
Common
Stock
|
Additional
Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss)
Income,
Net
of Taxes
|
Total
|
|
||||||||||||||||
|
Balance,
December 31, 2005
|
18,631,706
|
$
|
186
|
$ |
83,304
|
$ |
222,299
|
$ |
(1,246
|
)
|
$
|
304,543
|
|||||||||||
|
Comprehensive
Income:
|
|||||||||||||||||||||||
|
Net
Income
|
-
|
-
|
33,265
|
-
|
33,265
|
||||||||||||||||||
|
Net
Change in Unrealized Loss On Available-for-Sale Securities
(net
of tax)
|
-
|
-
|
-
|
412
|
412
|
||||||||||||||||||
|
Total
Comprehensive Income
|
-
|
-
|
-
|
-
|
33,677
|
||||||||||||||||||
|
Establish
Pension Liability upon adoption of SFAS No. 158 (net of
tax)
|
-
|
-
|
-
|
(7,477
|
)
|
(7,477
|
)
|
||||||||||||||||
|
Cash
Dividends ($.663 per share)
|
-
|
-
|
(12,322
|
)
|
-
|
(12,322
|
)
|
||||||||||||||||
|
Stock
Performance Plan Compensation
|
-
|
1,673
|
-
|
-
|
1,673
|
||||||||||||||||||
|
Issuance
of Common Stock
|
51,288
|
1
|
1,035
|
-
|
-
|
1,036
|
|||||||||||||||||
|
Repurchase
of Common Stock
|
(164,596
|
)
|
(2
|
)
|
(5,358
|
)
|
-
|
-
|
(5,360
|
)
|
|||||||||||||
|
Balance,
December 31, 2006
|
18,518,398
|
185
|
80,654
|
243,242
|
(8,311
|
)
|
315,770
|
||||||||||||||||
|
Comprehensive
Income:
|
|||||||||||||||||||||||
|
Net
Income
|
-
|
-
|
29,683
|
-
|
29,683
|
||||||||||||||||||
|
Net
Change in Unrealized Loss On Available-for-Sale Securities
(net
of tax)
|
-
|
-
|
-
|
1,080
|
1,080
|
||||||||||||||||||
|
Net
Change in Funded Status of Defined Pension Plan and SERP Plan (net of
tax)
|
-
|
-
|
-
|
1,166
|
1,166
|
||||||||||||||||||
|
Total
Comprehensive Income
|
-
|
-
|
-
|
-
|
31,929
|
||||||||||||||||||
|
Miscellaneous
– Other
|
-
|
-
|
223
|
-
|
223
|
||||||||||||||||||
|
Cash
Dividends ($.710 per share)
|
-
|
-
|
(12,823
|
)
|
-
|
(12,823
|
)
|
||||||||||||||||
|
Stock
Performance Plan Compensation
|
-
|
265
|
-
|
-
|
265
|
||||||||||||||||||
|
Issuance
of Common Stock
|
68,519
|
1
|
571
|
-
|
-
|
572
|
|||||||||||||||||
|
Repurchase
of Common Stock
|
(1,404,364
|
)
|
(14
|
)
|
(43,247
|
)
|
-
|
-
|
(43,261
|
)
|
|||||||||||||
|
Balance,
December 31, 2007
|
17,182,553
|
172
|
38,243
|
260,325
|
(6,065
|
)
|
292,675
|
||||||||||||||||
|
Cumulative
Effect of Adoption of EITF 06-4
|
(30
|
)
|
(30
|
)
|
|||||||||||||||||||
|
Comprehensive
Income:
|
|||||||||||||||||||||||
|
Net
Income
|
-
|
-
|
15,225
|
-
|
15,225
|
||||||||||||||||||
|
Net
Change in Unrealized Gain On Available-for-Sale Securities
(net
of tax)
|
-
|
-
|
-
|
1,230
|
1,230
|
||||||||||||||||||
|
Net
Change in Funded Status of Defined Pension Plan and SERP Plan (net of
tax)
|
-
|
-
|
-
|
(16,179
|
)
|
(16,179
|
)
|
||||||||||||||||
|
Total
Comprehensive Income
|
-
|
-
|
-
|
-
|
276
|
||||||||||||||||||
|
Cash
Dividends ($.7450 per share)
|
-
|
-
|
(12,630
|
)
|
-
|
(12,630
|
)
|
||||||||||||||||
|
Stock
Performance Plan Compensation
|
-
|
62
|
-
|
-
|
62
|
||||||||||||||||||
|
Issuance
of Common Stock
|
34,485
|
891
|
-
|
-
|
891
|
||||||||||||||||||
|
Repurchase
of Common Stock
|
(90,041
|
)
|
(1
|
)
|
(2,413
|
)
|
-
|
-
|
(2,414
|
)
|
|||||||||||||
|
Balance,
December 31, 2008
|
17,126,997
|
$
|
171
|
$
|
36,783
|
$
|
262,890
|
$
|
(21,014
|
)
|
$
|
278,830
|
|||||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CAPITAL
CITY BANK GROUP, INC.
|
For
the Years Ended December 31,
|
|||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||
|
Net
Income
|
$
|
15,225
|
$
|
29,683
|
$
|
33,265
|
|||||
|
Adjustments
to Reconcile Net Income to Cash Provided by Operating
Activities:
|
|||||||||||
|
Provision
for Loan Losses
|
32,496
|
6,163
|
1,959
|
||||||||
|
Depreciation
|
6,798
|
6,338
|
6,795
|
||||||||
|
Net
Securities Amortization
|
990
|
279
|
582
|
||||||||
|
Amortization
of Intangible Assets
|
5,685
|
5,834
|
6,085
|
||||||||
|
(Gain)
Loss on Securities Transactions
|
(125
|
)
|
(14
|
)
|
4
|
||||||
|
Origination of
Loans Held-for-Sale
|
(106,340
|
)
|
(158,390
|
)
|
(190,945
|
)
|
|||||
|
Proceeds
From Sales of Loans Held-for-Sale
|
108,218
|
162,835
|
194,569
|
||||||||
|
Net
Gain From Sales of Loans Held-for Sale
|
(1,623
|
)
|
(2,596
|
)
|
(3,235
|
)
|
|||||
|
Gain
on Sale of Portion of Merchant Services Portfolio
|
(6,250
|
)
|
-
|
-
|
|||||||
|
Proceeds
From Sale of Portion of Merchant Services Portfolio
|
6,250
|
-
|
-
|
||||||||
|
Non-Cash
Compensation
|
62
|
265
|
1,673
|
||||||||
|
Increase
(Decrease) in Deferred Income Taxes
|
(15,235
|
)
|
1,328
|
1,614
|
|||||||
|
Net
(Increase) Decrease in Other Assets
|
(1,371
|
)
|
(12,894
|
)
|
(11,327
|
)
|
|||||
|
Net
Increase (Decrease) in Other Liabilities
|
2,200
|
8,115
|
5,148
|
||||||||
|
Net
Cash Provided by Operating Activities
|
46,980
|
46,946
|
46,187
|
||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||
|
Securities
Available-for-Sale:
|
|||||||||||
|
Purchases
|
(89,059
|
)
|
(56,289
|
)
|
(102,628
|
)
|
|||||
|
Sales
|
10,490
|
-
|
283
|
||||||||
|
Payments,
Maturities, and Calls
|
78,767
|
58,894
|
81,500
|
||||||||
|
Net
(Increase) Decrease in Loans
|
(66,635
|
)
|
74,058
|
64,213
|
|||||||
|
Purchase
of Premises & Equipment
|
(14,626
|
)
|
(18,613
|
)
|
(20,145
|
)
|
|||||
|
Proceeds
From Sales of Premises & Equipment
|
6
|
203
|
630
|
||||||||
|
Net
Cash (Used In) Provided By Investing Activities
|
(81,057
|
)
|
58,253
|
23,853
|
|||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||||||
|
Net
(Decrease) Increase in Deposits
|
(150,171
|
)
|
60,690
|
2,308
|
|||||||
|
Net
Increase (Decrease) in Short-Term Borrowings
|
8,925
|
(12,263
|
)
|
(31,412
|
)
|
||||||
|
Increase
(Decrease) in Other Long-Term Borrowings
|
30,600
|
(10,618
|
)
|
3,250
|
|||||||
|
Repayment
of Other Long-Term Borrowings
|
(5,872
|
)
|
(5,363
|
)
|
(16,335
|
)
|
|||||
|
Dividends
Paid
|
(12,630
|
)
|
(12,823
|
)
|
(12,322
|
)
|
|||||
|
Repurchase
of Common Stock
|
(2,414
|
)
|
(43,261
|
)
|
(5,360
|
)
|
|||||
|
Issuance
of Common Stock
|
891
|
572
|
1,036
|
||||||||
|
Net
Cash Used In Financing Activities
|
(130,671
|
)
|
(23,066
|
)
|
(58,835
|
)
|
|||||
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(164,748
|
)
|
82,133
|
11,205
|
|||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
259,697
|
177,564
|
166,359
|
||||||||
|
Cash
and Cash Equivalents at End of Year
|
$
|
94,949
|
$
|
259,697
|
$
|
177,564
|
|||||
|
SUPPLEMENTAL
DISCLOSURES:
|
|||||||||||
|
Interest
Paid on Deposits
|
$
|
29,729
|
$
|
44,510
|
$
|
36,509
|
|||||
|
Interest
Paid on Debt
|
$
|
6,658
|
$
|
8,463
|
$
|
9,688
|
|||||
|
Taxes
Paid
|
$
|
16,998
|
$
|
12,431
|
$
|
16,797
|
|||||
|
Loans
Transferred to Other Real Estate
|
$
|
10,874
|
$
|
3,494
|
$
|
1,018
|
|||||
|
Cumulative
Effect Adjustment to Beginning Retained Earnings – SAB 108
|
$
|
-
|
$
|
-
|
$
|
1,233
|
|||||
|
Cumulative
Effect Adjustment to Other Comprehensive Income to Record Minimum Pension
Liability – SFAS 158
|
$
|
-
|
$
|
-
|
$
|
7,477
|
|||||
|
Issuance
of Common Stock as Non-Cash Compensation
|
$
|
-
|
$
|
1,160
|
$
|
711
|
|||||
|
Transfer
of Current Portion of Long-Term Borrowings
to
Short-Term Borrowings
|
$
|
176
|
$
|
12,318
|
$
|
13,061
|
|||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
Notes
to Consolidated Financial Statements
Note
1
SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements include the accounts of Capital City Bank
Group, Inc. ("CCBG"), and its wholly-owned subsidiary, Capital City Bank ("CCB"
or the "Bank" and together with CCBG, the "Company"). All material
inter-company transactions and accounts have been eliminated.
The
Company, which operates a single reportable business segment comprised of
commercial banking within the states of Florida, Georgia, and Alabama, follows
accounting principles generally accepted in the United States of America and
reporting practices applicable to the banking industry. The
principles which materially affect the financial position, results of operations
and cash flows are summarized below.
The
Company determines whether it has a controlling financial interest in an entity
by first evaluating whether the entity is a voting interest entity or a variable
interest entity under accounting principles generally accepted in the United
States of America. Voting interest entities are entities in which the total
equity investment at risk is sufficient to enable the entity to finance itself
independently and provide the equity holders with the obligation to absorb
losses, the right to receive residual returns and the right to make decisions
about the entity’s activities. The Company consolidates voting
interest entities in which it has all, or at least a majority of, the voting
interest. As defined in applicable accounting standards, variable
interest entities (VIEs) are entities that lack one or more of the
characteristics of a voting interest entity. A controlling financial
interest in an entity is present when an enterprise has a variable interest, or
a combination of variable interests, that will absorb a majority of the entity’s
expected losses, receive a majority of the entity’s expected residual returns,
or both. The enterprise with a controlling financial interest, known as the
primary beneficiary, consolidates the VIE. CCBG's wholly-owned
subsidiaries, CCBG Capital Trust I (established November 1, 2004) and CCBG
Capital Trust II (established May 24, 2005) are VIEs for which the Company is
not the primary beneficiary. Accordingly, the accounts of these
entities are not included in the Company’s consolidated financial
statements.
Certain
items in prior financial statements have been reclassified to conform to the
current presentation.
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, income taxes, loss contingencies, and valuation of
goodwill and other intangibles and their respective analysis of
impairment.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash and due from banks, interest-bearing deposits in
other banks, and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods and all other cash equivalents have a maturity of
90 days or less. The Company is required to maintain average reserve
balances with the Federal Reserve Bank based upon a percentage of
deposits. The average amounts of these reserve balances for the years
ended December 31, 2008 and 2007 were $11.9 million and $5.2 million,
respectively.
Investment
Securities
Investment
securities available-for-sale are carried at fair value and represent securities
that are available to meet liquidity and/or other needs of the
Company. Gains and losses are recognized and reported separately in
the Consolidated Statements of Income upon realization or when impairment of
values is deemed to be other than temporary. In estimating
other-than-temporary impairment losses, management considers, (i) the
length of time and the extent to which the fair value has been less than cost,
(ii) the financial condition and near-term prospects of the issuer, and
(iii) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for anticipated recovery in fair
value. Gains or losses are recognized using the specific identification
method. Unrealized holding gains and losses for securities
available-for-sale are excluded from the Consolidated Statements of Income and
reported net of taxes in the accumulated other comprehensive income component of
shareowners' equity until realized. Accretion and amortization are
recognized on the effective yield method over the life of the
securities.
Loans
Loans are
stated at the principal amount outstanding, net of unearned income. Interest
income is accrued on the effective yield method based on outstanding
balances. Fees charged to originate loans and direct loan origination
costs are deferred and amortized over the life of the loan as a yield
adjustment. The Company defines loans as past due when one full
payment is past due or a contractual maturity is over 30 days
late. The accrual of interest is generally suspended on loans more
than 90 days past due with respect to principal or interest. When a
loan is placed on nonaccrual status, all previously accrued and uncollected
interest is reversed against current income. Interest income on
nonaccrual loans is recognized on a cash basis 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 and future payments are reasonably assured. Loans
are charged-off (if unsecured) or written-down (if secured) when losses are
probable and reasonably quantifiable.
Loans
Held For Sale
Certain
residential mortgage loans are originated for sale in the secondary mortgage
loan market. Additionally, certain other loans are periodically
identified to be sold. The Company has the ability and intent to sell
these loans and they are classified as loans held for sale and carried at the
lower of cost or estimated fair value. At December 31, 2008 and
December 31, 2007, the Company had $3.2 million and $2.8 million, respectively,
in loans classified as held for sale which were committed to be purchased by
third party investors. Fair value is determined on the basis of rates
quoted in the respective secondary market for the type of loan held for
sale. Loans are generally sold with servicing released at a premium
or discount from the carrying amount of the loans. Such premium or discount is
recognized as mortgage banking revenue at the date of sale. Fixed
commitments may be used at the time loans are originated or identified for sale
to mitigate interest rate risk. The fair value of fixed commitments
to originate and sell loans held for sale is not material.
Allowance
for Loan Losses
The
allowance for loan losses is a reserve established through a provision for loan
losses charged to expense, which represents management’s best estimate of
probable losses that have been incurred 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 Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by
SFAS 118, and allowance allocations calculated in accordance with
SFAS 5, "Accounting for Contingencies." The level of the
allowance reflects management’s continuing evaluation of specific credit risks,
loan loss experience, current loan portfolio quality, present economic
conditions and unidentified losses inherent in the current loan portfolio, as
well as trends in the foregoing. This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant
revision as more information becomes available.
The
Company’s allowance for loan losses consists of three components:
(i) specific valuation allowances established for probable losses on
specific loans deemed impaired; (ii) valuation allowances calculated for
specific homogenous loan pools based on, but not limited to, historical loan
loss experience, current economic conditions, levels of past due loans, and
levels of problem loans; (iii) an unallocated allowance that reflects
management’s determination of estimation risk.
Long-Lived
Assets
Premises
and equipment is stated at cost less accumulated depreciation, computed on the
straight-line method over the estimated useful lives for each type of asset with
premises being depreciated over a range of 10 to 40 years, and equipment being
depreciated over a range of 3 to 10 years. Additions, renovations and
leasehold improvements to premises are capitalized and depreciated over the
lesser of the useful life or the remaining lease term. Repairs and
maintenance are charged to noninterest expense as incurred.
Intangible
assets, other than goodwill, consist of core deposit intangible assets and
client relationship and non-compete assets that were recognized in connection
with various acquisitions. Core deposit intangible assets are
amortized on the straight-line method over various periods, with the majority
being amortized over an average of 5 to 10 years. Other identifiable
intangibles are amortized on the straight-line method over their estimated
useful lives.
Long-lived
assets are evaluated for impairment if circumstances suggest that their carrying
value may not be recoverable, by comparing the carrying value to estimated
undiscounted cash flows. If the asset is deemed impaired, an
impairment charge is recorded equal to the carrying value less the fair
value.
Goodwill
Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142") prohibits the Company from amortizing goodwill and requires
the Company to identify reporting units to which the goodwill relates for
purposes of assessing potential impairment of goodwill on an annual basis, or
more frequently, if events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. In accordance
with the guidelines in SFAS 142, the Company determined it has one goodwill
reporting unit. As of December 31, 2008, the Company had performed
its annual impairment review and concluded that no impairment adjustment was
necessary.
Foreclosed
Assets
Assets
acquired through or instead of loan foreclosure are held for sale and are
initially recorded at the lower of cost or fair value less estimated selling
costs when acquired. Costs after acquisition are generally expensed.
If the fair value of the asset declines, a write-down is recorded through
expense. The valuation of foreclosed assets is subjective in nature and
may be adjusted in the future because of changes in economic conditions.
Foreclosed assets are included in other assets in the accompanying consolidated
balance sheets and totaled $9.2 million and $3.0 million at
December 31, 2008 and 2007.
Loss
Contingencies
Loss
contingencies, including claims and legal actions arising in the ordinary course
of business are recorded as liabilities when the likelihood of loss is probable
and an amount or range of loss can be reasonably estimated.
Income
Taxes
The
Company files a consolidated federal income tax return and each subsidiary files
a separate state income tax return.
Income
tax expense is the total of the current year income tax due or refundable and
the change in deferred tax assets and liabilities. 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 amount that is expected to be
realized.
The
Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), as of January 1, 2007. A tax position is recognized
as a benefit only if it is "more likely than not" that the tax position would be
sustained in a tax examination, with a tax examination being presumed to
occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on examination. For
tax positions not meeting the "more likely than not" test, no tax benefit is
recorded. The adoption had no material affect on the Company’s
financial statements.
The
Company recognizes interest and/or penalties related to income tax matters in
income tax expense.
Earnings
Per Common Share
Basic
earnings per common share is based on net income divided by the weighted-average
number of common shares outstanding during the period excluding non-vested
stock. Diluted earnings per common share include the dilutive effect
of stock options and non-vested stock awards granted using the treasury stock
method. A reconciliation of the weighted-average shares used in
calculating basic earnings per common share and the weighted average common
shares used in calculating diluted earnings per common share for the reported
periods is provided in Note 13 — Earnings Per Share.
Comprehensive
Income
Comprehensive
income includes all changes in shareowners’ equity during a period, except those
resulting from transactions with shareowners. Besides net income,
other components of the Company’s comprehensive income include the after tax
effect of changes in the net unrealized gain/loss on securities available for
sale and changes in the funded status of defined benefit and supplemental
executive retirement plans. Comprehensive income is reported in the
accompanying consolidated statements of changes in shareowners’
equity.
Stock
Based Compensation
The
Company follows the provisions of Statement of Financial Accounting Standards
No. 123R, "Share-Based Payment (Revised 2004)" when recording stock based
compensation. See Note 11 – Stock-Based Compensation for additional
information.
Recent
Accounting Pronouncements
Statement
of Financial Accounting Standards (“SFAS”)
SFAS No. 141,
“Business Combinations (Revised 2007).” SFAS 141R replaces SFAS 141,
“Business Combinations,” and applies to all transactions and other events in
which one entity obtains control over one or more other businesses.
SFAS 141R requires an acquirer, upon initially obtaining control of
another entity, to recognize the assets, liabilities and any non-controlling
interest in the acquiree at fair value as of the acquisition date.
Contingent consideration is required to be recognized and measured at fair
value on the date of acquisition rather than at a later date when the amount of
that consideration may be determinable beyond a reasonable doubt. This
fair value approach replaces the cost-allocation process required under
SFAS 141 whereby the cost of an acquisition was allocated to the individual
assets acquired and liabilities assumed based on their estimated fair value.
SFAS 141R requires acquirers to expense acquisition-related costs as
incurred rather than allocating such costs to the assets acquired and
liabilities assumed, as was previously the case under SFAS 141. Under
SFAS 141R, the requirements of SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities,” would have to be met in order to
accrue for a restructuring plan in purchase accounting. Pre-acquisition
contingencies are to be recognized at fair value, unless it is a non-contractual
contingency that is not likely to materialize, in which case, nothing should be
recognized in purchase accounting and, instead, that contingency would be
subject to the probable and estimable recognition criteria of SFAS 5,
“Accounting for Contingencies.” SFAS 141R is effective for
business combinations closing on or after January 1, 2009. The
Company is in the process of reviewing the impact of SFAS 141R.
SFAS No. 157,
"Fair Value Measurements." SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements
(see Note 19 – Fair Value Measurements).
SFAS No. 158,
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of Financial Accounting Standards Board (“FASB”) Statements
No. 87, 88 106, and 132(R)." SFAS 158 requires an employer to
recognize the over-funded or under-funded status of defined benefit
postretirement plans as an asset or a liability in its statement of financial
position. The funded status is measured as the difference between
plan assets at fair value and the benefit obligation (the projected benefit
obligation for pension plans or the accumulated benefit obligation for other
postretirement benefit plans). An employer is also required to
measure the funded status of a plan as of the date of its year-end statement of
financial position with changes in the funded status recognized through
comprehensive income. SFAS 158 also requires certain disclosures
regarding the effects on net periodic benefit cost for the next fiscal year that
arise from delayed recognition of gains or losses, prior service costs or
credits, and the transition asset or obligation. The Company
recognized the funded status of their defined benefit pension plan in the
financial statements for the year ended December 31, 2006.
SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement
No. 115." SFAS 159 permits entities to choose to measure
eligible items at fair value at specified election dates (see Note 19 – Fair
Value Measurements).
SFAS No. 160,
“Noncontrolling Interest in Consolidated Financial Statements, an amendment of
ARB Statement No. 51.” SFAS 160 amends Accounting Research
Bulletin (ARB) No. 51, “Consolidated Financial Statements,” to establish
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS 160
clarifies that a non-controlling interest in a subsidiary, which is sometimes
referred to as minority interest, is an ownership interest in the consolidated
entity that should be reported as a component of equity in the consolidated
financial statements. Among other requirements, SFAS 160 requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest. It also
requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS 160 is effective on January 1, 2009 and
is not expected to have a significant impact on the Company’s financial
statements.
SFAS
No. 161, “Disclosures About Derivative Instruments and Hedging Activities,
an Amendment of FASB Statement No. 133.” SFAS 161 amends SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities,” to amend and
expand the disclosure requirements of SFAS 133 to provide greater
transparency about (i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedge items are accounted for
under SFAS 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations and cash flows. To meet those objectives,
SFAS 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts of
gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements.
SFAS 161 is effective for on January 1, 2009 and is not expected
to have a significant impact on the Company’s financial
statements.
SFAS No.
162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (GAAP) in the United
States (the GAAP hierarchy). SFAS 162 became effective in July of
2008 and did not have a material impact on the Company’s financial
statements.
Financial
Accounting Standards Board Interpretations
In July
2006, the FASB issued FIN 48 which defines the threshold for recognizing the
benefits of tax return positions in the financial statements as
"more-likely-than-not" to be sustained by the taxing authority. The
recently issued literature also provides guidance on the derecognition,
measurement and classification of income tax uncertainties, along with any
related interest and penalties. FIN 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income tax
uncertainties. The differences between the amounts recognized in the
statements of financial position prior to the adoption of FIN 48 and the amounts
reported after adoption will be accounted for as a cumulative-effect adjustment
recorded to the beginning balance of retained earnings. FIN 48 became
effective in the first quarter of 2007 and did not have a material impact on the
Company’s financial statements.
On
October 10, 2008, the FASB issued FSP FAS 157-3, which clarifies the application
of FAS 157, Fair Value Measurements, in an inactive market and
illustrates how an entity would determine fair value when the market for a
financial asset is not active. The FSP states that an entity should
not automatically conclude that a particular transaction price is determinative
of fair value. In a dislocated market, judgment is required to
evaluate whether individual transactions are forced liquidations or distressed
sales. When relevant observable market information is not available,
a valuation approach that incorporates management’s judgments about the
assumptions that market participants would use in pricing the asset in a current
sale transaction is acceptable. The FSP also indicates that quotes
from brokers or pricing services may be relevant inputs when measuring fair
value, but are not necessarily determinative in the absence of an active market
for the asset. In weighing a broker quote as an input to a fair value
measurement, an entity should place less reliance on quotes that do not reflect
the result of market transactions. Further, the nature of the quote
(for example, whether the quote is an indicative price or a binding offer)
should be considered when weighing the available evidence. The FSP
was effective immediately and applied to prior periods for which financial
statements have not been issued, including interim or annual periods ending on
or before September 30, 2008. The adoption of the FSP did not have a
material impact on the Company’s financial statements or fair value
determinations.
FSP
No. EITF 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating
Securities.” FSP EITF 03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. FSP EITF 03-6-1 will be effective on
January 1, 2009. FSP EITF 03-6-1 is not expected to have an
impact on the Company’s financial statements.
Emerging
Issues Task Force
In March
2007, the FASB ratified the consensus the Emerging Issues Task Force (“EITF”)
reached regarding EITF Issue No. 06-10, “Accounting for Collateral
Assignment Split-Dollar Life Insurance Arrangements” (“Issue 06-10”), which
provides accounting guidance for postretirement benefits related to collateral
assignment split-dollar life insurance arrangements, whereby the employee owns
and controls the insurance policies. The consensus concludes that an
employer should recognize a liability for the postretirement benefit in
accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits
Other Than Pensions” (“Statement 106”) or Accounting Principles Board Opinion
No. 12 (“APB 12”), as well as recognize an asset based on the substance of the
arrangement with the employee. Issue 06-10 was effective for fiscal
years beginning after December 15 and it did not have a material impact on
the Company’s financial statements.
In
September 2006, the FASB ratified the consensus the EITF reached regarding EITF
Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“Issue
06-4”), which provides accounting guidance for postretirement benefits related
to endorsement split-dollar life insurance arrangements, whereby the employer
owns and controls the insurance policies. The consensus concludes
that an employer should recognize a liability for the postretirement benefit in
accordance with Statement 106 or APB 12. In addition, the consensus
states that an employer should also recognize an asset based on the substance of
the arrangement with the employee. Issue 06-4 was effective for
fiscal years beginning after December 15, 2007 and it did not have a
material impact on the Company’s financial statements.
In
September 2006, the FASB ratified the consensus the EITF reached regarding EITF
Issue No. 06-5, “Accounting for Purchases of Life Insurance — Determining
the Amount That Could Be Realized in Accordance with FASB Technical Bulletin
No. 85-4, Accounting for Purchases of Life Insurance.” FASB
Technical Bulletin No. 85-4 requires that the amount that could be realized
under the insurance contract as of the date of the statement of financial
position should be reported as an asset. Since the issuance of FASB
Technical Bulletin No. 85-4, there has been diversity in practice in the
calculation of the amount that could be realized under insurance
contracts. Issue No. 06-5 concludes that we should consider any
additional amounts (e.g., cash stabilization reserves and deferred acquisition
cost taxes) included in the contractual terms of the insurance policy other than
the cash surrender value in determining the amount that could be realized in
accordance with FASB Technical Bulletin No. 85-4. The Company
adopted this standard in the first quarter of 2007 and it did not have a
significant impact on their financial statements.
SEC
Staff Accounting Bulletin
SAB No.
109, "Written Loan Commitments Recorded at Fair Value Through
Earnings." SAB No. 109 supersedes SAB No. 105, "Application of
Accounting Principles to Loan Commitments," and indicates that the expected net
future cash flows related to the associated servicing of the loan should be
included in the measurement of all written loan commitments that are accounted
for at fair value through earnings. The guidance in SAB No. 109
became effective on January 1, 2008 and did not have a material impact on
the Company’s financial statements.
Note
2
INVESTMENT
SECURITIES
Investment Portfolio
Composition. The amortized cost and related market value of investment
securities available-for-sale at December 31, were as follows:
|
2008
|
|||||||||||||||
|
(Dollars
in Thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Market
Value
|
|||||||||||
|
U.S.
Treasury
|
$
|
29,094
|
$
|
577
|
$
|
-
|
$
|
29,671
|
|||||||
|
U.S.
Government Agencies and Corporations
|
7,091
|
180
|
-
|
7,271
|
|||||||||||
|
States
and Political Subdivisions
|
100,370
|
1,224
|
32
|
101,562
|
|||||||||||
|
Mortgage-Backed
Securities
|
39,860
|
332
|
116
|
40,076
|
|||||||||||
|
Other
Securities(1)
|
12,882
|
107
|
-
|
12,989
|
|||||||||||
|
Total
Investment Securities
|
$
|
189,297
|
$
|
2,420
|
$
|
148
|
$
|
191,569
|
|||||||
|
2007
|
|||||||||||||||
|
(Dollars
in Thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Market
Value
|
|||||||||||
|
U.S.
Treasury
|
$
|
16,216
|
$
|
97
|
$
|
-
|
$
|
16,313
|
|||||||
|
U.S.
Government Agencies and Corporations
|
45,489
|
295
|
34
|
45,750
|
|||||||||||
|
States
and Political Subdivisions
|
90,014
|
164
|
177
|
90,001
|
|||||||||||
|
Mortgage-Backed
Securities
|
26,334
|
85
|
132
|
26,287
|
|||||||||||
|
Other
Securities(1)
|
12,307
|
61
|
0
|
12,368
|
|||||||||||
|
Total
Investment Securities
|
$
|
190,360
|
$
|
702
|
$
|
343
|
$
|
190,719
|
|||||||
|
(1)
|
Includes FHLB and Federal
Reserve Bank stock recorded at cost of $7.0 million and $4.8 million,
respectively, at December 31, 2008 and $6.5 million and $4.8 million,
respectively, at December 31,
2007.
|
Securities
with an amortized cost of $83.5 million and $77.2 million at December 31, 2008
and 2007, respectively, were pledged to secure public deposits and for other
purposes.
The
Company’s subsidiary, Capital City Bank, as a member of the Federal Home Loan
Bank (“FHLB”) of Atlanta, is required to own capital stock in the FHLB of
Atlanta based generally upon the balances of residential and commercial real
estate loans, and FHLB advances. FHLB stock of $7.0 million which is
included in other securities is pledged to secure FHLB advances. No
ready market exists for this stock, and it has no quoted market
value. However, redemption of this stock has historically been at par
value.
Investment Sales. The total
proceeds from the sale or call of investment securities and the gross realized
gains and losses from the sale or call of such securities for each of the last
three years are as follows:
|
(Dollars
in Thousands)
|
Year
|
Total
Proceeds
|
Gross
Realized
Gains
|
Gross
Realized
Losses
|
|||||||||
|
2008
|
$
|
57,762
|
$
|
126
|
$
|
(1
|
)
|
||||||
|
2007
|
$
|
53,011
|
$
|
14
|
$
|
-
|
|||||||
|
2006
|
$
|
283
|
$
|
-
|
$
|
4
|
|||||||
Maturity Distribution. As of
December 31, 2008, the Company's investment securities had the following
maturity distribution based on contractual maturities:
|
(Dollars
in Thousands)
|
Amortized
Cost
|
Market
Value
|
||||
|
Due
in one year or less
|
$
|
59,231
|
$
|
59,881
|
||
|
Due
after one through five years
|
109,386
|
110,797
|
||||
|
Due
after five through ten years
|
2,420
|
2,533
|
||||
|
Due
over ten years
|
6,378
|
6,476
|
||||
|
No
Maturity
|
11,882
|
11,882
|
||||
|
Total
Investment Securities
|
$
|
189,297
|
$
|
191,569
|
||
Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Other Than Temporarily Impaired
Securities. Securities with unrealized losses at year-end not recognized
in income by period of time unrealized losses have existed are as
follows:
|
December
31, 2008
|
||||||||||||||||||||||||
|
Less
Than
12
Months
|
Greater
Than
12
Months
|
Total
|
||||||||||||||||||||||
|
(Dollars
in Thousands)
|
Market
Value
|
Unrealized
Losses
|
Market
Value
|
Unrealized
Losses
|
Market
Value
|
Unrealized
Losses
|
||||||||||||||||||
|
U.S.
Treasury
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
|
U.S.
Government Agencies and Corporations
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
States
and Political Subdivisions
|
2,652
|
32
|
-
|
-
|
2,652
|
32
|
||||||||||||||||||
|
Mortgage-Backed
Securities
|
14,149
|
116
|
-
|
-
|
14,149
|
116
|
||||||||||||||||||
|
Total
Investment Securities
|
$
|
16,801
|
$
|
148
|
$
|
$
|
$
|
16,801
|
$
|
148
|
||||||||||||||
|
December
31, 2007
|
||||||||||||||||||||||||
|
Less
Than
12
Months
|
Greater
Than
12
Months
|
Total
|
||||||||||||||||||||||
|
(Dollars
in Thousands)
|
Market
Value
|
Unrealized
Losses
|
Market
Value
|
Unrealized
Losses
|
Market
Value
|
Unrealized
Losses
|
||||||||||||||||||
|
U.S.
Treasury
|
$
|
12,258
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
12,258
|
$
|
-
|
||||||||||||
|
U.S.
Government Agencies and Corporations
|
39,278
|
16
|
6,471
|
18
|
45,749
|
34
|
||||||||||||||||||
|
States
and Political Subdivisions
|
70,701
|
147
|
13,924
|
30
|
84,625
|
177
|
||||||||||||||||||
|
Mortgage-Backed
Securities
|
14,058
|
4
|
10,376
|
128
|
24,434
|
132
|
||||||||||||||||||
|
Total
Investment Securities
|
$
|
136,295
|
$
|
167
|
$
|
30,771
|
$
|
176
|
$
|
167,066
|
$
|
343
|
||||||||||||
At
December 31, 2008, the Company had securities of $191.6 million with net
unrealized gains of $2.3 million on these securities. $16.8 million
have unrealized losses totaling $0.1 million and have been in a loss position
for less than 12 months. These securities are primarily
mortgage-backed securities that are in a loss position because they were
acquired when the general level of interest rates was lower than that on
December 31, 2008. The Company believes that these securities are
only temporarily impaired and that the full principal will be collected as
anticipated. Because the declines in the market value of these
investments are attributable to changes in interest rates and not credit quality
and because the Company has the ability and intent to hold these investments
until there is a recovery in fair value, which may be at maturity, the Company
does not consider these investments to be other-than-temporarily impaired at
December 31, 2008.
Note
3
LOANS
Loan Portfolio Composition.
At December 31, the composition of the Company's loan portfolio was as
follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
||||
|
Commercial,
Financial and Agricultural
|
$
|
206,230
|
$
|
208,864
|
||
|
Real
Estate - Construction
|
141,973
|
142,248
|
||||
|
Real
Estate - Commercial Mortgage
|
656,959
|
634,920
|
||||
|
Real
Estate – Residential(1)
|
481,034
|
485,608
|
||||
|
Real
Estate - Home Equity
|
218,500
|
192,428
|
||||
|
Real
Estate - Loans Held-for-Sale
|
3,204
|
2,764
|
||||
|
Consumer
|
249,897
|
249,018
|
||||
|
Total
Loans, Net of Unearned Interest
|
$
|
1,957,797
|
$
|
1,915,850
|
||
|
(1)
|
Includes
loans in process with outstanding balances of $13.9 million and $7.5
million for 2008 and 2007,
respectively.
|
Net
deferred fees included in loans at December 31, 2008 and December 31, 2007 were
$1.9 million and $1.6 million, respectively.
Concentrations of
Credit. Substantially all of the Company's lending activity
occurs within the states of Florida, Georgia, and Alabama. A large
majority of the Company's loan portfolio (76.7.9%) consists of loans secured by
real estate, the primary types of collateral being commercial properties and
residential properties. At December 31, 2008, commercial real estate
mortgage loans and residential real estate mortgage loans accounted for 33.6%
and 35.9% of the loan portfolio, respectively. As of December 31,
2008, there were no concentrations of loans related to any single borrower or
industry in excess of 10% of total loans.
Nonperforming/Past Due
Loans. Nonaccruing loans amounted to $96.9 million and $25.1
million, at December 31, 2008 and 2007, respectively. Restructured
loans totaled $1.7 million at December 31, 2008. There were no
restructured loans at December 31, 2007. Interest income on
nonaccrual loans is recognized on a cash basis when the ultimate collectability
is no longer considered doubtful. Cash collected on nonaccrual loans
is applied against the principal balance or recognized as interest income based
upon management's expectations as to the ultimate collectability of principal
and interest in full. If interest on non-accruing loans had been
recognized on a fully accruing basis, interest income recorded would have been
$6.5 million, $0.9 million, and $0.4 million higher for the years ended December
31, 2008, 2007, and 2006, respectively. Accruing loans past due more
than 90 days totaled $0.1 million at December 31, 2008 and $0.4 million at
December 31, 2007.
Note
4
ALLOWANCE
FOR LOAN LOSSES
An
analysis of the changes in the allowance for loan losses for the years ended
December 31, is as follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
Balance,
Beginning of Year
|
$
|
18,066
|
$
|
17,217
|
$
|
17,410
|
|||||
|
Provision
for Loan Losses
|
32,496
|
6,163
|
1,959
|
||||||||
|
Recoveries
on Loans Previously Charged-Off
|
2,417
|
1,903
|
1,830
|
||||||||
|
Loans
Charged-Off
|
(15,975
|
)
|
(7,217
|
)
|
(3,982
|
)
|
|||||
|
Balance,
End of Year
|
$
|
37,004
|
$
|
18,066
|
$
|
17,217
|
|||||
Impaired Loans. Selected
information pertaining to impaired loans, at December 31, is as
follows:
|
2008
|
2007
|
|||||||||||||||
|
(Dollars
in Thousands)
|
Valuation
Balance
|
Valuation
Allowance
|
Valuation
Balance
|
Valuation
Allowance
|
||||||||||||
|
Impaired
Loans:
|
||||||||||||||||
|
With
Related Credit Allowance
|
$
|
68,705
|
$
|
15,901
|
$
|
21,615
|
$
|
4,702
|
||||||||
|
Without
Related Credit Allowance
|
37,723
|
-
|
15,019
|
-
|
||||||||||||
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
Average
Recorded Investment in Impaired Loans
|
$
|
80,827
|
$
|
23,922
|
$
|
12,782
|
|||||
|
Interest
Income on Impaired Loans
|
|||||||||||
|
Recognized
|
$
|
1,708
|
$
|
761
|
$
|
398
|
|||||
|
Collected
in Cash
|
1,708
|
761
|
398
|
||||||||
Interest
payments received on impaired loans are recorded as interest income unless
collection of the remaining recorded investment is doubtful, at which time
payments received are recorded as reduction of principal.
Note
5
INTANGIBLE
ASSETS
The
Company had intangible assets of $92.9 million and $98.6 million at December 31,
2008 and December 31, 2007, respectively. Intangible assets at December
31, were as follows:
|
2008
|
2007
|
||||||||||||||
|
(Dollars
in Thousands)
|
Gross
Amount
|
Accumulated
Amortization
|
Gross
Amount
|
Accumulated
Amortization
|
|||||||||||
|
Core
Deposits Intangibles
|
$
|
47,176
|
$
|
40,092
|
$
|
47,176
|
$
|
34,598
|
|||||||
|
Goodwill
|
84,811
|
-
|
84,811
|
-
|
|||||||||||
|
Customer
Relationship Intangible
|
1,867
|
879
|
1,867
|
688
|
|||||||||||
|
Non-Compete
Agreement
|
-
|
-
|
537
|
537
|
|||||||||||
|
Total
Intangible Assets
|
$
|
133,854
|
$
|
40,971
|
$
|
134,391
|
$
|
35,823
|
|||||||
Net Core Deposit
Intangibles. As of December 31, 2008 and December 31, 2007,
the Company had net core deposit intangibles of $7.1 million and $12.6 million,
respectively. Amortization expense for the twelve months of 2008,
2007 and 2006 was $5.5 million, $5.6 million, and $5.6 million,
respectively. The estimated annual amortization expense (in millions)
for the next five years is expected to be approximately $3.9, $3.9, $2.4, $0.6,
and $0.6 per year.
Goodwill. As of
December 31, 2008 and December 31, 2007, the Company had goodwill of $84.8
million. Goodwill is the Company's only intangible asset that is no
longer subject to amortization under the provisions of SFAS 142. On
December 31, 2008, the Company performed its annual impairment review and
concluded that no impairment adjustment was necessary. The Company
cannot predict the occurrence of certain future events that might adversely
affect the reported value of goodwill at December 31, 2008. Such
events include, but are not limited to, economic conditions, financial market
conditions, and the Company’s market capitalization.
Other. As of
December 31, 2008, the Company had a client relationship intangible, net of
accumulated amortization, of $0.9 million. This intangible asset was
booked as a result of the March 2004 acquisition of trust client relationships
from Synovus Trust Company. Amortization expense for 2008 was
$191,000. Estimated annual amortization expense is $191,000 based on
use of a 10-year useful life.
Note
6
PREMISES
AND EQUIPMENT
The
composition of the Company's premises and equipment at December 31, was as
follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
|||||
|
Land
|
$
|
24,289
|
$
|
22,722
|
|||
|
Buildings
|
100,179
|
90,335
|
|||||
|
Fixtures
and Equipment
|
56,493
|
55,783
|
|||||
|
Total
|
180,961
|
168,840
|
|||||
|
Accumulated
Depreciation
|
(74,528
|
)
|
(70,228
|
)
|
|||
|
Premises
and Equipment, Net
|
$
|
106,433
|
$
|
98,612
|
|||
Note
7
DEPOSITS
Interest
bearing deposits, by category, as of December 31, were as follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
||||
|
NOW
Accounts
|
$
|
758,976
|
$
|
744,093
|
||
|
Money
Market Accounts
|
324,646
|
386,619
|
||||
|
Savings
Accounts
|
115,261
|
111,600
|
||||
|
Time
Deposits
|
373,595
|
467,373
|
||||
|
Total
|
$
|
1,572,478
|
$
|
1,709,685
|
||
At
December 31, 2008 and 2007, $2.9 million and $5.6 million, respectively, in
overdrawn deposit accounts were reclassified as loans.
Deposits
from certain directors, executive officers, and their related interests totaled
$35.1 million and $45.7 million at December 31, 2008 and 2007
respectively.
Time
deposits in denominations of $100,000 or more totaled $95.2 million and $129.7
million at December 31, 2008 and December 31, 2007, respectively.
At
December 31, 2008, the scheduled maturities of time deposits were as
follows:
|
(Dollars
in Thousands)
|
||||
|
2009
|
$ | 330,407 | ||
|
2010
|
30,122 | |||
|
2011
|
9,140 | |||
|
2012
|
2,387 | |||
|
2013
and thereafter
|
1,539 | |||
|
Total
|
$ | 373,595 | ||
Interest
expense on deposits for the three years ended December 31, was as
follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
|||||||
|
NOW
Accounts
|
$
|
7,454
|
$
|
10,748
|
$
|
7,658
|
||||
|
Money
Market Accounts
|
5,242
|
13,666
|
11,687
|
|||||||
|
Savings
Accounts
|
121
|
280
|
278
|
|||||||
|
Time
Deposits < $100,000
|
10,199
|
13,990
|
12,087
|
|||||||
|
Time
Deposits > $100,000
|
4,290
|
6,003
|
5,543
|
|||||||
|
Total
|
$
|
27,306
|
$
|
44,687
|
$
|
37,253
|
||||
Note
8
SHORT-TERM
BORROWINGS
Short-term
borrowings included the following:
|
(Dollars
in Thousands)
|
Federal
Funds
Purchased
|
Securities
Sold
Under
Repurchase
Agreements(1)
|
Other
Short-Term
Borrowings
|
|||||||||
|
2008
|
||||||||||||
|
Balance
at December 31,
|
$ | 19,875 | $ | 40,868 | $ | 1,302 | (2) | |||||
|
Maximum
indebtedness at any month end
|
36,700 | 40,868 | 14,087 | |||||||||
|
Daily
average indebtedness outstanding
|
19,777 | 32,433 | 8,971 | |||||||||
|
Average
rate paid for the year
|
1.58 | % | 1.50 | % | 3.93 | % | ||||||
|
Average
rate paid on period-end borrowings
|
0.56 | % | 0.11 | % | 0.41 | % | ||||||
|
2007
|
||||||||||||
|
Balance
at December 31,
|
$ | 7,550 | $ | 32,806 | $ | 12,775 | (2) | |||||
|
Maximum
indebtedness at any month end
|
26,400 | 47,047 | 13,664 | |||||||||
|
Daily
average indebtedness outstanding
|
15,812 | 38,683 | 11,902 | |||||||||
|
Average
rate paid for the year
|
4.89 | % | 4.11 | % | 4.17 | % | ||||||
|
Average
rate paid on period-end borrowings
|
2.47 | % | 3.32 | % | 4.29 | % | ||||||
|
2006
|
||||||||||||
|
Balance
at December 31,
|
$ | 11,950 | $ | 38,022 | $ | 15,051 | (2) | |||||
|
Maximum
indebtedness at any month end
|
39,225 | 55,321 | 34,738 | |||||||||
|
Daily
average indebtedness outstanding
|
16,645 | 34,335 | 27,720 | |||||||||
|
Average
rate paid for the year
|
4.82 | % | 3.79 | % | 3.47 | % | ||||||
|
Average
rate paid on period-end borrowings
|
4.61 | % | 3.79 | % | 3.90 | % | ||||||
|
(1)
|
Balances
are fully collateralized by government treasury or agency securities held
in the company’s investment
portfolio.
|
|
(2)
|
Includes
FHLB debt and client tax deposit balances of $134,000 and $1.2 million,
respectively at December 31, 2008, $12.2 million and $0.6 million,
respectively at December 31, 2007, and $13.0 million and $2.0 million,
respectively at December 31, 2006.
|
Note
9
LONG-TERM
BORROWINGS
Federal Home Loan Bank
Notes. At December 31, Federal Home Loan Bank advances
included:
|
(Dollars
in Thousands)
|
2008
|
2007
|
||||
|
Due
on May 30, 2008, fixed rate 2.50%
|
-
|
21
|
(1)
|
|||
|
Due
on June 13, 2008, fixed rate 5.40%
|
-
|
72
|
(1)
|
|||
|
Due
on September 8, 2008, fixed rate 4.32%
|
-
|
10,000
|
(1)
|
|||
|
Due
on November 10, 2008, fixed rate 4.12%
|
-
|
2,105
|
(1)
|
|||
|
Due
on October 19, 2009, fixed rate 3.69%(1)
|
134
|
(1)
|
302
|
|||
|
Due
on November 10, 2010, fixed rate 4.72%
|
665
|
695
|
||||
|
Due
on December 31, 2010, fixed rate 3.85%
|
349
|
524
|
||||
|
Due
on September 08, 2011, fixed rate 3.66%
|
10,000
|
-
|
||||
|
Due
on December 18, 2012, fixed rate 4.84%
|
517
|
542
|
||||
|
Due
on March 18, 2013, fixed rate 3.55%
|
1,188
|
-
|
||||
|
Due
on March 18, 2013, fixed rate 3.31%
|
399
|
-
|
||||
|
Due
on March 18, 2013, fixed rate 6.37%
|
420
|
499
|
||||
|
Due
on April 17, 2013, fixed rate 3.42%
|
1,155
|
-
|
||||
|
Due
on April 17, 2013, fixed rate 3.50%
|
1,694
|
-
|
||||
|
Due
on May 15, 2013, fixed rate 3.81%
|
970
|
-
|
||||
|
Due
on May 15, 2013, fixed rate 3.81%
|
1,120
|
-
|
||||
|
Due
on June 17, 2013, fixed rate 3.53%
|
82
|
692
|
||||
|
Due
on June 17, 2013, fixed rate 3.85%
|
583
|
85
|
||||
|
Due
on June 17, 2013, fixed rate of 4.11%
|
1,597
|
1,660
|
||||
|
Due
on September 23, 2013, fixed rate 5.64%
|
622
|
727
|
||||
|
Due
on January 26, 2014, fixed rate 5.79%
|
1,067
|
1,131
|
||||
|
Due
on January 27, 2014, fixed rate 5.79%
|
-
|
1,641
|
||||
|
Due
on January 27, 2014, fixed rate 5.31%
|
1,571
|
-
|
||||
|
Due
on March 10, 2014, fixed rate 4.21%
|
435
|
505
|
||||
|
Due
on May 27, 2014, fixed rate 5.92%
|
334
|
386
|
||||
|
Due
on May 31, 2014, fixed rate 4.88%
|
2,357
|
-
|
||||
|
Due
on June 2, 2014, fixed rate 4.52%
|
-
|
2,726
|
||||
|
Due
on February 23, 2015, fixed rate 4.07%
|
725
|
-
|
||||
|
Due
on August 17, 2015, fixed rate 4.31%
|
586
|
-
|
||||
|
Due
on October 15, 2015, fixed rate 4.11%
|
745
|
-
|
||||
|
Due
on July 20, 2016, fixed rate 6.27%
|
897
|
1,016
|
||||
|
Due
on October 3, 2016, fixed rate 5.41%
|
235
|
265
|
||||
|
Due
on October 31, 2016, fixed rate 5.16%
|
522
|
589
|
||||
|
Due
on June 27, 2017, fixed rate 5.53%
|
595
|
665
|
||||
|
Due
on October 31, 2017, fixed rate 4.79%
|
736
|
819
|
||||
|
Due
on December 11, 2017, fixed rate 4.78%
|
656
|
728
|
||||
|
Due
on February 22, 2018, fixed rate 4.61%
|
1,425
|
-
|
||||
|
Due
on February 26, 2018, fixed rate 4.36%
|
-
|
1,735
|
||||
|
Due
on April 10, 2018, fixed rate 4.20%
|
1,217
|
-
|
||||
|
Due
on April 10, 2018, fixed rate 4.20%
|
1,010
|
-
|
||||
|
Due
on September 17, 2018, fixed rate 4.23%
|
2,925
|
-
|
||||
|
Due
on September 18, 2018, fixed rate 5.15%
|
468
|
516
|
||||
|
Due
on November 5, 2018, fixed rate 5.10%
|
3,222
|
3,364
|
||||
|
Due
on December 3, 2018, fixed rate 4.87%
|
492
|
541
|
||||
|
Due
on December 17, 2018, fixed rate 6.33%
|
1,310
|
1,401
|
||||
|
Due
on December 24,2018, fixed rate 6.29%
|
-
|
-
|
||||
|
Due
on February 16, 2021, fixed rate 3.00%
|
736
|
776
|
||||
|
Due
on January 18, 2022, fixed rate 5.25%
|
926
|
1,033
|
||||
|
Due
on May 30, 2023, fixed rate 2.50%
|
858
|
896
|
||||
|
Due
on June 15, 2023, fixed rate 4.77%
|
483
|
-
|
||||
|
Due
on July 1, 2025, fixed rate 4.80%
|
3,294
|
-
|
||||
|
Total
Outstanding
|
$
|
51,322
|
$
|
38,657
|
||
|
(1)
|
$134,000 is classified as
short-term borrowings as of December 31, 2008 and $12.2 million classified
as short-term borrowings as of December 31,
2007.
|
The
contractual maturities of FHLB debt for the five years subsequent to December
31, 2008, are as follows:
|
(Dollars
in Thousands)
|
|||||
|
2009
|
$ | 2,969 | (1) | ||
|
2010
|
3,650 | ||||
|
2011
|
12,978 | ||||
|
2012
|
3,528 | ||||
|
2013
|
9,429 | ||||
|
2014
and thereafter
|
18,768 | ||||
|
Total
|
$ | 51,322 | |||
|
(1)
|
$134,000 is classified as
short-term borrowings.
|
The FHLB
advances are collateralized by a blanket floating lien on all 1-4 family
residential mortgage loans, commercial real estate mortgage loans, and home
equity mortgage loans. Interest on the FHLB advances is paid on a monthly
basis.
Repurchase Agreements -
Term. At December 31, 2008 the Company maintained one
long-term repurchase agreement for $0.3 million collateralized by bank-owned
securities. Interest is payable upon maturity.
Junior Subordinated Deferrable
Interest Notes. The Company has issued two junior subordinated
deferrable interest notes to wholly owned Delaware statutory
trusts. The first note for $30.9 million was issued to CCBG Capital
Trust I. The second note for $32.0 million was issued to CCBG Capital
Trust II. The two trusts are considered variable interest entities for which the
Company is not the primary beneficiary. Accordingly, the accounts of
the trusts are not included in the Company’s consolidated financial statements.
See Note 1 - Summary of Significant Accounting Policies for additional
information about the Company’s consolidation policy. Details of the
Company’s transaction with the two trusts are provided below.
In
November 2004, CCBG Capital Trust I issued $30.0 million of trust preferred
securities which represent beneficial interest in the assets of the
trust. The interest rate is fixed at 5.71% for a period of five
years, then adjustable annually to LIBOR plus a margin of 1.90%. The
trust preferred securities will mature on December 31, 2034, and are redeemable
upon approval of the Federal Reserve in whole or in part at the option of the
Company at any time after December 31, 2009 and in whole at any time upon
occurrence of certain events affecting their tax or regulatory capital
treatment. Distributions on the trust preferred securities are payable quarterly
on March 31, June 30, September 30, and December 31 of each
year. CCBG Capital Trust I also issued $928,000 of common equity
securities to CCBG. The proceeds of the offering of trust preferred
securities and common equity securities were used to purchase a $30.9 million
junior subordinated deferrable interest note issued by the Company, which has
terms substantially similar to the trust preferred securities.
In May
2005, CCBG Capital Trust II issued $31.0 million of trust preferred securities
which represent beneficial interest in the assets of the trust. The
interest rate is fixed at 6.07% for a period of five years, then adjustable
quarterly to LIBOR plus a margin of 1.80%. The trust preferred
securities will mature on June 15, 2035, and are redeemable upon approval of the
Federal Reserve in whole or in part at the option of the Company at any
time after May 20, 2010 and in whole at any time upon occurrence of certain
events affecting their tax or regulatory capital treatment. Distributions on the
trust preferred securities are payable quarterly on March 15, June 15, September
15, and December 15 of each year. CCBG Capital Trust II also issued
$959,000 of common equity securities to CCBG. The proceeds of the
offering of trust preferred securities and common equity securities were used to
purchase a $32.0 million junior subordinated deferrable interest note issued by
the Company, which has terms substantially similar to the trust preferred
securities.
The
Company has the right to defer payments of interest on the two notes at any time
or from time to time for a period of up to twenty consecutive quarterly interest
payment periods. Under the terms of each note, in the event that
under certain circumstances there is an event of default under the note or the
Company has elected to defer interest on the note, the Company may not, with
certain exceptions, declare or pay any dividends or distributions on its capital
stock or purchase or acquire any of its capital stock. The Company is current on
the interest payment obligations and has not executed the right to defer
interest payments on the notes.
The
Company has entered into agreements to guarantee the payments of distributions
on the trust preferred securities and payments of redemption of the trust
preferred securities. Under these agreements, the Company also
agrees, on a subordinated basis, to pay expenses and liabilities of the two
trusts other than those arising under the trust preferred
securities. The obligations of the Company under the two junior
subordinated notes, the trust agreements establishing the two trusts, the
guarantee and agreement as to expenses and liabilities, in aggregate, constitute
a full and unconditional guarantee by the Company of the two trusts' obligations
under the two trust preferred security issuances.
Despite
the fact that the accounts of CCBG Capital Trust I and CCBG Capital Trust II are
not included in the Company’s consolidated financial statements, the $30.0
million and $31.0 million, respectively, in trust preferred securities issued by
these subsidiary trusts are included in the Tier I Capital of Capital City
Bank Group, Inc. as allowed by Federal Reserve guidelines.
Note
10
INCOME
TAXES
The
provision for income taxes reflected in the statements of income is comprised of
the following components:
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
Current:
|
|||||||||||
|
Federal
|
$
|
11,730
|
$
|
13,603
|
$
|
14,780
|
|||||
|
State
|
510
|
280
|
1,527
|
||||||||
|
Deferred:
|
|||||||||||
|
Federal
|
(4,882
|
)
|
(32
|
)
|
1,384
|
||||||
|
State
|
(1,289
|
)
|
(148
|
)
|
230
|
||||||
|
Valuation
Allowance
|
644
|
-
|
-
|
||||||||
|
Total
|
$
|
6,713
|
$
|
13,703
|
$
|
17,921
|
|||||
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)
|
2008
|
2007
|
2006
|
||||||||
|
Tax
Expense at Federal Statutory Rate
|
$
|
7,678
|
$
|
15,185
|
$
|
17,915
|
|||||
|
Increases
(Decreases) Resulting From:
|
|||||||||||
|
Tax-Exempt
Interest Income
|
(1,663
|
)
|
(1,630
|
)
|
(1,334
|
)
|
|||||
|
State
Taxes, Net of Federal Benefit
|
(506
|
)
|
86
|
1,142
|
|||||||
|
Other
|
560
|
62
|
198
|
||||||||
|
Change
in Valuation Allowance
|
644
|
-
|
-
|
||||||||
|
Actual
Tax Expense
|
$
|
6,713
|
$
|
13,703
|
$
|
17,921
|
|||||
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, 2008
and 2007 are as follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
||||
|
Deferred
Tax Assets attributable to:
|
||||||
|
Allowance
for Loan Losses
|
$
|
14,276
|
$
|
7,110
|
||
|
Associate
Benefits
|
385
|
510
|
||||
|
Accrued
Pension/SERP
|
14,127
|
3,964
|
||||
|
Interest
on Nonperforming Loans
|
2,247
|
603
|
||||
|
State
Net Operating Loss Carry Forwards
|
776
|
511
|
||||
|
Intangible
Assets
|
121
|
95
|
||||
|
Core
Deposit Intangible
|
2,569
|
1,360
|
||||
|
Contingency
Reserve
|
323
|
746
|
||||
|
Accrued
Expense
|
450
|
611
|
||||
|
Leases
|
456
|
464
|
||||
|
Other
Real Estate Owned
|
482
|
38
|
||||
|
Other
|
586
|
479
|
||||
|
Total
Deferred Tax Assets
|
$
|
36,798
|
$
|
16,491
|
||
|
Deferred
Tax Liabilities attributable to:
|
||||||
|
Depreciation
on Premises and Equipment
|
$
|
4,677
|
$
|
3,290
|
||
|
Deferred
Loan Fees and Costs
|
3,897
|
3,887
|
||||
|
Net
Unrealized Gains on Investment Securities
|
796
|
113
|
||||
|
Intangible
Assets
|
1,919
|
1,619
|
||||
|
Accrued
Pension/SERP
|
7,080
|
4,669
|
||||
|
Securities
Accretion
|
15
|
25
|
||||
|
Market
Value on Loans Held for Sale
|
2
|
59
|
||||
|
Other
|
-
|
68
|
||||
|
Total
Deferred Tax Liabilities
|
18,386
|
13,730
|
||||
|
Valuation
Allowance
|
644
|
-
|
||||
|
Net
Deferred Tax Assets
|
$
|
17,768
|
$
|
2,761
|
||
In the
opinion of management, it is more likely than not that all of the deferred tax
assets, with the exception of the separate state net operating loss
carry-forward of the holding company, will be realized. Accordingly,
a valuation allowance for the holding company’s separate state net operating
loss carry-forward was recorded in 2008. At year-end 2008, the
Company had state net operating loss carry-forwards of approximately $18.0
million which expire at various dates from 2022 through 2028. The
Company also had state tax credit carry-forwards of approximately $200,000 which
expire at various dates from 2012 through 2013.
Changes
in net deferred income tax assets were:
|
(Dollars
in Thousands)
|
2008
|
2007
|
|||||
|
Balance
at Beginning of Year
|
$
|
2,761
|
$
|
4,027
|
|||
|
Income
Tax Benefit (Expense) From Change in Pension
Liability
|
10,163
|
(830
|
)
|
||||
|
Income
Tax Expense From Change in Unrealized Losses on Available-for-Sale
Securities
|
(683
|
)
|
(616
|
)
|
|||
|
Deferred
Income Tax Expense on Continuing Operations
|
5,527
|
180
|
|||||
|
Balance
at End of Year
|
$
|
17,768
|
$
|
2,761
|
|||
The
Company adopted the provisions of FASB Interpretation No. 48, "Accounting for
Income Tax Uncertainties" ("FIN 48"), on January 1, 2007. There was
no material effect on its financial condition or results of operations as a
result of implementing FIN 48. The Company had unrecognized tax
benefits at December 31, 2008 and December 31, 2007 of $3.9 million and $3.3
million, respectively, of which $2.5 million would increase income from
continuing operations, and thus impact the Company’s effective tax rate, if
ultimately recognized into income.
A
reconciliation of the beginning and ending unrecognized tax benefit is as
follows:
|
(Dollars
in Thousands)
|
2008
|
2007
|
||||
| Balance at January 1, | $ |
3,254
|
$ |
2,021
|
||
| Additions Based on Tax Positions Related to Prior Years |
252
|
|||||
| Decreases Based on Tax Positions Related to Prior Years |
(252
|
)
|
||||
| Addition Based on Tax Positions Related to Current Years |
914
|
918
|
||||
| Balance at December 31, 2008 | $ |
3,916
|
$ |
3,254
|
||
It is the
Company’s policy to recognize interest and penalties accrued relative to
unrecognized tax benefits in their respective federal or state income taxes
accounts. The total amount of interest and penalties recorded in the
income statement for the years ended December 31, 2008 and December 31, 2007
were $281,000 and $409,000, respectively. The amount accrued for
interest and penalties at December 31, 2008 and December 31, 2007 were $834,000
and $553,000, respectively.
No
significant increases or decreases in the amounts of unrecognized tax benefits
are expected in the next 12 months.
The
Company and its subsidiaries file a consolidated U.S. federal income tax return,
as well as file various returns in states where its banking offices are
located. The Company is no longer subject to U.S. federal or state
tax examinations for years before 2005.
Note
11
STOCK-BASED
COMPENSATION
The
Company recognizes the cost of stock-based associate stock compensation in
accordance with SFAS No. 123R, "Share-Based Payment” (Revised) under the
fair value method.
As of
December 31, 2008, the Company had three stock-based compensation plans,
consisting of the 2005 Associate Incentive Plan ("AIP"), the 2005 Associate
Stock Purchase Plan ("ASPP"), and the 2005 Director Stock Purchase Plan
("DSPP"). Total compensation expense associated with these plans for
the years 2006 through 2008 was approximately $1.2 million, $0.2 million, and
$0.3 million, respectively. The Company, under the terms and
conditions of the AIP, maintained a 2011 Incentive Plan (“2011 Plan”) which was
terminated in March 2008, and approximately $577,000 in related expense accrued
for this plan was reversed during the first quarter of 2008.
AIP. The Company's
AIP allows the Company's Board of Directors to award key associates various
forms of equity-based incentive compensation. Under the AIP, the
Company adopted the Stock-Based Incentive Plan (the "2006 Incentive Plan"),
effective January 1, 2006, which was a performance-based equity bonus plan for
selected members of management, including all executive
officers. Under the 2006 Incentive Plan, all participants were
eligible to earn an equity award, in the form of performance shares, on an
annual basis over a term of five years. Annual awards were tied to an
internally established annual earnings target linked to the Company’s 2011
strategic initiative.
The
Company terminated the 2006 Incentive Plan in March 2008 in conjunction with the
termination of the Company’s 2011 strategic initiative. Due to the
performance targets not being met, no expense was recognized in 2008 or 2007 for
the 2006 Incentive Plan.
During
the first quarter of 2008, under the terms and conditions of the AIP, the
Company adopted a new Stock-Based Incentive Plan (the “2008 Incentive Plan”),
substantially similar to the 2006 Incentive Plan. All participants in
this plan are eligible to earn an equity award, in the form of restricted
stock. The award for 2008 is tied to internally established
performance goals. The grant-date fair value of the compensation
award for 2008 is approximately $561,000. In addition, each plan
participant is eligible to receive from the Company a tax supplement bonus equal
to 31% of the stock award value at the time of issuance. A total of
21,146 shares are eligible for issuance. Approximately $0.2 million
in expense was recognized in 2008 related to this plan.
A total
of 875,000 shares of common stock have been reserved for issuance under the
AIP. To date, the Company has issued a total of 60,892 shares of
common stock under the AIP.
Executive Stock Option
Agreement. For 2003 through 2006, under the provisions of the
AIP (and its predecessor), the Company's Board of Directors approved stock
option agreements for a key executive officer (William G. Smith, Jr. - Chairman,
President and CEO, CCBG). These agreements granted a non-qualified
stock option award upon achieving certain annual earnings per share conditions
set by the Board, subject to certain vesting requirements. The
options granted under the agreements have a term of 10 years and vested at a
rate of one-third on each of the first, second, and third anniversaries of the
date of grant. Under the 2004 and 2003 agreements, 37,246 and 23,138
options, respectively, were issued, none of which have been
exercised. The fair value of a 2004 option was $13.42, and the fair
value of a 2003 option was $11.64. The exercise prices for the 2004
and 2003 options are $32.69 and $32.96, respectively. Under the 2006
and 2005 agreements, the earnings per share conditions were not met; therefore,
no options were granted and no expense was recognized related to these
agreements. In accordance with the provisions of SFAS 123R and SFAS
123, the Company recognized expenses in 2005 through 2007 of approximately
$193,000, $205,000, and $125,000, respectively, related to the 2004 and 2003
agreements. In 2007, the Company replaced its practice of entering
into a stock option arrangement by establishing a Performance Share Unit Plan
under the provisions of the AIP that allows the executive to earn shares based
on the compound annual growth rate in diluted earnings per share over a
three-year period. The details of this program for the executive are
outlined in a Form 8-K filing dated January 31, 2007. No expense
related to this plan was recognized for the year 2008 as results fell short of
the earnings performance goal.
A summary
of the status of the Company’s option shares as of December 31, 2008 is
presented below:
|
Options
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Outstanding
at January 1, 2008
|
60,384 | $ | 32.79 | $ | 6.9 | $ | - | |||||||||
|
Granted
|
- | - | - | - | ||||||||||||
|
Exercised
|
- | - | - | - | ||||||||||||
|
Forfeited
or expired
|
- | - | - | - | ||||||||||||
|
Outstanding
at December 31, 2008
|
60,384 | $ | 32.79 | $ | 5.9 | $ | - | |||||||||
|
Exercisable
at December 31, 2008
|
60,384 | $ | 32.79 | $ | 5.9 | $ | - | |||||||||
DSPP. The
Company's DSPP allows the directors to purchase the Company's common stock at a
price equal to 90% of the closing price on the date of
purchase. Stock purchases under the DSPP are limited to the amount of
the directors' annual retainer and meeting fees. The DSPP has 93,750
shares reserved for issuance. A total of 43,320 shares have been
issued since the inception of the DSPP. For 2008, the Company issued
12,454 shares under the DSPP and recognized approximately $30,000 in expense
related to this plan. For 2007, the Company issued 12,128 shares and
recognized approximately $33,000 in expense related to the DSPP. For
2006, the Company issued 12,149 shares and recognized approximately $37,000 in
expense under the DSPP.
ASPP. Under the
Company's ASPP, substantially all associates may purchase the Company's common
stock through payroll deductions at a price equal to 90% of the lower of the
fair market value at the beginning or end of each six-month offering
period. Stock purchases under the ASPP are limited to 10% of an
associate's eligible compensation, up to a maximum of $25,000 (fair market value
on each enrollment date) in any plan year. Shares are issued at the
beginning of the quarter following each six-month offering
period. The ASPP has 593,750 shares of common stock reserved for
issuance. A total of 81,782 shares have been issued since inception
of the ASPP. For 2008, the Company issued 21,970 shares under the
ASPP and recognized approximately $125,000 in expense related to this
plan. For 2007, the Company issued 23,531 shares and recognized
approximately $102,000 in expense related to the ASPP. For
2006, the Company issued 19,435 shares and recognized approximately $90,000 in
expense under the ASPP.
Based on
the Black-Scholes option pricing model, the weighted average estimated fair
value of each of the purchase rights granted under the ASPP was $4.97 for
2008. For 2007 and 2006, the weighted average fair value purchase
right granted was $5.82 and $5.65, 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:
|
2008
|
2007
|
2006
|
||||||||||
|
Dividend
yield
|
3.0
|
%
|
2.1
|
%
|
1.9
|
%
|
||||||
|
Expected
volatility
|
37.0
|
%
|
25.5
|
%
|
23.5
|
%
|
||||||
|
Risk-free
interest rate
|
2.6
|
%
|
4.8
|
%
|
4.5
|
%
|
||||||
|
Expected
life (in years)
|
0.5
|
0.5
|
0.5
|
|||||||||
Note
12
EMPLOYEE
BENEFIT PLANS
Pension
Plan
The
Company sponsors a noncontributory pension plan covering substantially all of
its associates. Benefits under this plan generally are based on the
associate's years of service and compensation during the year’s immediately
preceding retirement. The Company's general funding policy is to
contribute amounts deductible for federal income tax purposes.
The
following table details on a consolidated basis the components of pension
expense, the funded status of the plan, amounts recognized in the Company's
consolidated statements of financial condition, and major assumptions used to
determine these amounts.
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
Change
in Projected Benefit Obligation:
|
|||||||||||
|
Benefit
Obligation at Beginning of Year
|
$
|
70,118
|
$
|
68,671
|
$
|
64,131
|
|||||
|
Service
Cost
|
5,351
|
4,903
|
4,930
|
||||||||
|
Interest
Cost
|
4,482
|
3,967
|
3,622
|
||||||||
|
Actuarial
Loss/(Gain)
|
4,038
|
(1,420
|
)
|
(1,421
|
)
|
||||||
|
Benefits
Paid
|
(6,483
|
)
|
(5,759
|
)
|
(3,267
|
)
|
|||||
|
Expenses
Paid
|
(165
|
)
|
(244
|
)
|
(149
|
)
|
|||||
|
Plan
Change(1)
|
2,266
|
-
|
825
|
||||||||
|
Projected
Benefit Obligation at End of Year
|
$
|
79,607
|
$
|
70,118
|
$
|
68,671
|
|||||
|
Accumulated
Benefit Obligation at End of Year
|
$
|
56,368
|
$
|
51,256
|
$
|
49,335
|
|||||
|
Change
in Plan Assets:
|
|||||||||||
|
Fair
Value of Plan Assets at Beginning of Year
|
$
|
75,653
|
$
|
66,554
|
$
|
52,277
|
|||||
|
Actual
(Loss)Return on Plan Assets
|
(14,642
|
)
|
3,602
|
6,342
|
|||||||
|
Employer
Contributions
|
12,000
|
11,500
|
11,350
|
||||||||
|
Benefits
Paid
|
(6,483
|
)
|
(5,759
|
)
|
(3,267
|
)
|
|||||
|
Expenses
Paid
|
(165
|
)
|
(244
|
)
|
(149
|
)
|
|||||
|
Fair
Value of Plan Assets at End of Year
|
$
|
66,363
|
$
|
75,653
|
$
|
66,553
|
|||||
|
Amounts
Recognized in the Consolidated Statements of Financial
Condition:
|
|||||||||||
|
Other
Assets
|
$
|
-
|
$
|
5,535
|
$
|
-
|
|||||
|
Other
Liabilities
|
13,245
|
-
|
2,117
|
||||||||
|
Amounts
(Pre-Tax) Recognized in Accumulated Other Comprehensive
Income:
|
|||||||||||
|
Net
Actuarial Losses
|
$
|
32,341
|
$
|
8,622
|
$
|
9,601
|
|||||
|
Prior
Service Cost
|
3,369
|
1,611
|
1,912
|
||||||||
|
Components
of Net Periodic Benefit Costs:
|
|||||||||||
|
Service
Cost
|
$
|
5,351
|
$
|
4,903
|
$
|
4,930
|
|||||
|
Interest
Cost
|
4,482
|
3,967
|
3,622
|
||||||||
|
Expected
Return on Plan Assets
|
(5,921
|
)
|
(5,083
|
)
|
(4,046
|
)
|
|||||
|
Amortization
of Prior Service Costs
|
509
|
301
|
215
|
||||||||
|
Recognized
Net Actuarial Loss
|
882
|
1,039
|
1,598
|
||||||||
|
Net
Periodic Benefit Cost
|
$
|
5,303
|
$
|
5,127
|
$
|
6,319
|
|||||
|
Assumptions:
|
|||||||||||
|
Weighted-average
used to determine benefit obligations:
|
|||||||||||
|
Discount
Rate
|
6.00
|
%
|
6.25
|
%
|
6.00
|
%
|
|||||
|
Expected
Return on Plan Assets
|
8.00
|
%
|
8.00
|
%
|
8.00
|
%
|
|||||
|
Rate
of Compensation Increase
|
5.50
|
%
|
5.50
|
%
|
5.50
|
%
|
|||||
|
Measurement
Date
|
12/31/08
|
12/31/07
|
12/31/06
|
||||||||
|
Weighted-average
used to determine net cost:
|
|||||||||||
|
Discount
Rate
|
6.25
|
%
|
6.00
|
%
|
5.75
|
%
|
|||||
|
Expected
Return on Plan Assets
|
8.00
|
%
|
8.00
|
%
|
8.00
|
%
|
|||||
|
Rate
of Compensation Increase
|
5.50
|
%
|
5.50
|
%
|
5.50
|
%
|
|||||
| Assumptions: | |||||||||||
| Weighted-average used to determine benefit obligations: | |||||||||||
| Discount Rate |
6.00
|
% |
6.25
|
% |
6.00
|
% | |||||
|
Expected
Return on Plan Assets
|
8.00
|
% |
8.00
|
% |
8.00
|
% | |||||
| Rate of Compensation Increase |
5.50
|
% |
5.50
|
% |
5.50
|
% | |||||
|
Measurement
Date
|
12/31/08
|
12/31/07
|
12/31/06
|
||||||||
| Weighted-average used to determine net cost: | |||||||||||
| Discount Rate |
6.25
|
% |
6.00
|
% |
5.75
|
% | |||||
| Expected Return on Plan Assets |
8.00
|
% |
8.00
|
% |
8.00
|
% | |||||
| Rate of Compensation Increase |
5.50
|
% |
5.50
|
% |
5.50
|
% | |||||
|
(1)
|
In
2008, plan was amended to include stock as plan
compensation.
|
Other Comprehensive
Income. The estimated amounts (dollars in thousands) that will
be amortized from accumulated other comprehensive income into net periodic
benefit cost in 2008 are as follows:
|
Actuarial
Loss
|
$
|
2,971
|
||
|
Prior
Service Cost
|
509
|
|||
|
$
|
3,480
|
Return on Plan
Assets. The overall expected long-term rate of return on
assets is a weighted-average expectation for the return on plan
assets. The Company considers historical performance and current
benchmarks to arrive at expected long-term rates of return in each asset
category. The Company assumed that 65% of its portfolio would be
invested in equity securities, with the remainder invested in debt
securities.
Plan Assets. The Company’s
pension plan asset allocation at year-end 2008 and 2007, and the target asset
allocation for 2009 are as follows:
|
Target
Allocation
|
Percentage
of Plan
Assets
at Year-End(1)
|
|||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Equity
Securities
|
65
|
%
|
39
|
%
|
58
|
%
|
||||
|
Debt
Securities
|
30
|
%
|
26
|
%
|
27
|
%
|
||||
|
Cash
Equivalent
|
5
|
%
|
35
|
%
|
15
|
%
|
||||
|
Total
|
100
|
%
|
100
|
%
|
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.
Expected Benefit
Payments. As of December 31, 2008, expected benefit payments
related to the Company's defined benefit pension plan were as
follows:
|
2009
|
$
|
3,684,807
|
||
|
2010
|
3,658,868
|
|||
|
2011
|
4,555,218
|
|||
|
2012
|
5,270,913
|
|||
|
2013
|
5,767,479
|
|||
|
2014
through 2018
|
42,243,894
|
|||
|
Total
|
$
|
65,181,179
|
Contributions. The
following table details the amounts contributed to the pension plan in 2008 and
2007, and the expected amount to be contributed in 2009.
|
(Dollars
in Thousands)
|
2008
|
2007
|
Expected
Range of Contribution
2009(1)
|
||
|
Actual
Contributions
|
$
12,000
|
$
11,500
|
$
8,000 - $15,000
|
|
(1)
|
Estimate
reflects the Company’s best estimate given historical funding practice and
the 2009 minimum ($5.5 million) and maximum ($45.0 million) allowable
contribution.
|
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 executive officer's years of service and compensation during the year’s
immediately preceding retirement.
The
following table details the components of the SERP’s periodic benefit cost, the
funded status of the plan, amounts recognized in the Company's consolidated
statements of financial condition, and major assumptions used to determine these
amounts.
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
Change
in Projected Benefit Obligation:
|
|||||||||||
|
Benefit
Obligation at Beginning of Year
|
$
|
3,706
|
$
|
4,018
|
$
|
3,878
|
|||||
|
Service
Cost
|
31
|
83
|
123
|
||||||||
|
Interest
Cost
|
287
|
208
|
230
|
||||||||
|
Actuarial
(Gain) Loss
|
(180
|
)
|
(603
|
)
|
62
|
||||||
|
Plan
Change(1)
|
1,190
|
-
|
(274
|
)
|
|||||||
|
Projected
Benefit Obligation at End of Year
|
$
|
5,034
|
$
|
3,706
|
$
|
4,019
|
|||||
|
Accumulated
Benefit Obligation at End of Year
|
$
|
2,899
|
$
|
2,603
|
$
|
2,252
|
|||||
|
Amounts
Recognized in the Consolidated Statements of Financial
Condition:
|
|||||||||||
|
Other
Liabilities
|
$
|
5,034
|
$
|
3,706
|
$
|
4,019
|
|||||
|
Amounts
(Pre-Tax) Recognized in Accumulated Other Comprehensive
Income:
|
|||||||||||
|
Net
Actuarial (Gain) Loss
|
$
|
(148)
|
$
|
(3)
|
$
|
608
|
|||||
|
Prior
Service Cost
|
1,055
|
44
|
52
|
||||||||
|
Components
of Net Periodic Benefit Costs:
|
|||||||||||
|
Service
Cost
|
$
|
31
|
$
|
83
|
$
|
123
|
|||||
|
Interest
Cost
|
287
|
208
|
230
|
||||||||
|
Amortization
of Prior Service Cost
|
180
|
7
|
61
|
||||||||
|
Recognized
Net Actuarial (Gain)Loss
|
(36
|
)
|
8
|
100
|
|||||||
|
Net
Periodic Benefit Cost
|
$
|
462
|
$
|
306
|
$
|
514
|
|||||
|
Assumptions:
|
|||||||||||
|
Weighted-average
used to determine the benefit obligations:
|
|||||||||||
|
Discount
Rate
|
6.00
|
%
|
6.25
|
%
|
6.00
|
%
|
|||||
|
Rate
of Compensation Increase
|
5.50
|
%
|
5.50
|
%
|
5.50
|
%
|
|||||
|
Measurement
Date
|
12/31/08
|
12/31/07
|
12/31/06
|
||||||||
|
Weighted-average
used to determine the net cost:
|
|||||||||||
|
Discount
Rate
|
6.25
|
%
|
6.00
|
%
|
5.75
|
%
|
|||||
|
Rate
of Compensation Increase
|
5.50
|
%
|
5.50
|
%
|
5.50
|
%
|
|||||
|
(1)
|
In
2008, plan was amended to include stock as plan
compensation.
|
Expected Benefit Payments. As
of December 31, 2008, expected benefit payments related to the Company's SERP
were as follows:
|
2009
|
$ | 198,184 | ||
|
2010
|
265,194 | |||
|
2011
|
360,150 | |||
|
2012
|
457,858 | |||
|
2013
|
524,547 | |||
|
2014
through 2018
|
3,963,163 | |||
|
Total
|
$ | 5,769,096 |
401(k)
Plan
The
Company has a 401(k) Plan which enables associates to defer a portion of their
salary on a pre-tax basis. The plan covers substantially all
associates of the Company who meet minimum age requirements. The plan
is designed to enable participants to elect to have an amount from 1% to 15% of
their compensation withheld in any plan year placed in the 401(k) Plan trust
account. Matching contributions of 50% from the Company are made up to 6% of the
participant's compensation for eligible associates. During 2008,
2007, and 2006, the Company made matching contributions of $349,000, $299,000
and $273,000, respectively. The participant may choose to invest
their contributions into sixteen investment funds available to 401(k)
participants, including the Company’s common stock. A total of 50,000
shares of CCBG common stock have been reserved for issuance. These
shares have historically been purchased in the open market.
Other
Plans
The
Company has a Dividend Reinvestment and Optional Stock Purchase
Plan. A total of 250,000 shares have been reserved for
issuance. In recent years, shares for the Dividend Reinvestment and
Optional Stock Purchase Plan have been acquired in the open market and, thus,
the Company did not issue any shares under this plan in 2008, 2007 and
2006.
Note
13
EARNINGS
PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share:
|
(Dollars
in Thousands, Except Per Share Data)
|
2008
|
2007
|
2006
|
||||||
|
Numerator:
|
|||||||||
|
Net
Income
|
$
|
15,225
|
$
|
29,683
|
$
|
33,265
|
|||
|
Denominator:
|
|||||||||
|
Denominator
for Basic Earnings Per Share Weighted-Average Shares
|
17,141
|
17,909
|
18,585
|
||||||
|
Effects
of Dilutive Securities Stock Compensation Plans
|
5,460
|
2,191
|
25,320
|
||||||
|
Denominator
for Diluted Earnings Per Share Adjusted Weighted-Average Shares and
Assumed Conversions
|
17,147
|
17,912
|
18,610
|
||||||
|
Basic
Earnings Per Share
|
$
|
0.89
|
$
|
1.66
|
$
|
1.79
|
|||
|
Diluted
Earnings per Share
|
$
|
0.89
|
$
|
1.66
|
$
|
1.79
|
|||
Note
14
CAPITAL
The
Company is subject to various regulatory capital requirements which involve
quantitative measures of the Company's assets, liabilities and certain
off-balance sheet items. The Company's capital amounts and
classification are subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require that the Company
maintain amounts and ratios (set forth in the table below) of total and Tier I
Capital to risk-weighted assets, and of Tier I Capital to average
assets. As of December 31, 2008, the Company met all capital adequacy
requirements to which it is subject.
A summary
of actual, required, and capital levels necessary to be considered
well-capitalized for Capital City Bank Group, Inc. consolidated and its banking
subsidiary, Capital City Bank, as of December 31, 2008 and December 31, 2007 are
as follows:
|
Actual
|
Required
For
Capital
Adequacy
Purposes
|
To
Be Well-
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|||||||||||
|
(Dollars in Thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||
|
As
of December 31, 2008:
|
|||||||||||||
|
Tier
I Capital:
|
|||||||||||||
|
CCBG
|
$
|
271,767
|
13.34
|
%
|
$
|
81,948
|
4.00
|
%
|
*
|
*
|
|||
|
CCB
|
269,812
|
13.27
|
%
|
81,762
|
4.00
|
%
|
122,643
|
6.00
|
%
|
||||
|
Total
Capital:
|
|||||||||||||
|
CCBG
|
299,263
|
14.69
|
%
|
163,895
|
8.00
|
%
|
*
|
*
|
|||||
|
CCB
|
295,362
|
14.53
|
%
|
163,524
|
8.00
|
%
|
204,405
|
10.00
|
%
|
||||
|
Tier
I Leverage:
|
|||||||||||||
|
CCBG
|
271,767
|
11.51
|
%
|
81,948
|
4.00
|
%
|
*
|
*
|
|||||
|
CCB
|
269,812
|
11.45
|
%
|
81,762
|
4.00
|
%
|
102,202
|
5.00
|
%
|
||||
|
As
of December 31, 2007:
|
|||||||||||||
|
Tier
I Capital:
|
|||||||||||||
|
CCBG
|
$
|
261,172
|
13.05
|
%
|
$
|
80,047
|
4.00
|
%
|
*
|
*
|
|||
|
CCB
|
260,720
|
13.05
|
%
|
79,934
|
4.00
|
%
|
119,901
|
6.00
|
%
|
||||
|
Total
Capital:
|
|||||||||||||
|
CCBG
|
281,125
|
14.05
|
%
|
160,094
|
8.00
|
%
|
*
|
*
|
|||||
|
CCB
|
278,787
|
13.95
|
%
|
159,868
|
8.00
|
%
|
199,835
|
10.00
|
%
|
||||
|
Tier
I Leverage:
|
|||||||||||||
|
CCBG
|
261,172
|
10.41
|
%
|
80,047
|
4.00
|
%
|
*
|
*
|
|||||
|
CCB
|
260,720
|
10.42
|
%
|
79,934
|
4.00
|
%
|
99,917
|
5.00
|
%
|
||||
|
*
|
Not applicable to bank holding
companies.
|
Note
15
DIVIDEND
RESTRICTIONS
Substantially
all the Company’s retained earnings are undistributed earnings of its banking
subsidiary which are restricted by various regulations administered by federal
and state bank regulatory authorities.
The
approval of the appropriate regulatory authority is required if the total of all
dividends declared by a subsidiary bank in any calendar year exceeds the bank’s
net profits (as defined under Florida law) for that year combined with its
retained net profits for the preceding two calendar years. Under
these guidelines, the bank subsidiary may declare and pay dividends in an amount
which approximates its net profits in 2009 up to the date of any such dividend
declaration. Furthermore, the Bank has received authorization from
the Office of Financial Regulation to declare and pay dividends up to a
total of $60 million during 2009 without further regulatory
approval.
Note
16
RELATED
PARTY INFORMATION
Related Party
Loans. At December 31, 2008 and 2007, certain officers and
directors were indebted to the Company’s bank subsidiary in the aggregate amount
of $20.7 million and $9.1 million, respectively. During 2008, $24.9
million in new loans were made and repayments totaled $13.3
million. In the opinion of management, these loans were made on
similar terms as loans to other individuals of comparable creditworthiness and
were all current at year-end.
Note
17
SUPPLEMENTARY
INFORMATION
Components
of other noninterest income and noninterest expense in excess of 1% of the sum
of total interest income and noninterest income, which are not disclosed
separately elsewhere, are presented below for each of the respective
years.
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
|||||||
|
Noninterest
Income:
|
||||||||||
|
Merchant
Fee Income
|
$
|
5,548
|
$
|
7,257
|
$
|
6,978
|
||||
|
Interchange
Commission Fees
|
4,165
|
3,757
|
3,105
|
|||||||
|
ATM/Debit
Card Fees
|
2,988
|
2,692
|
2,519
|
|||||||
|
Retail
Brokerage Fees
|
2,399
|
2,510
|
2,091
|
|||||||
|
Noninterest
Expense:
|
||||||||||
|
Maintenance
Agreements - FF&E
|
3,506
|
3,684
|
3,483
|
|||||||
|
Legal
Fees
|
2,240
|
1,739
|
1,734
|
|||||||
|
Professional
Fees
|
4,083
|
3,855
|
3,402
|
|||||||
|
Interchange
Service Fees
|
4,577
|
6,118
|
6,010
|
|||||||
|
Telephone
|
2,522
|
2,373
|
2,323
|
|||||||
|
Advertising
|
3,609
|
3,742
|
4,285
|
|||||||
|
Commissions
Fees
|
2,163
|
1,284
|
836
|
|||||||
|
Printing
& Supplies
|
1,977
|
(1)
|
2,124
|
(1)
|
2,472
|
|||||
|
(1)
|
<1% of appropriate
threshold.
|
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, 2008, the amounts associated
with the Company’s off-balance sheet obligations were as follows:
|
(Dollars
in Thousands)
|
Amount
|
|||
|
Commitments
to Extend Credit(1)
|
$ | 384,253 | ||
|
Standby
Letters of Credit
|
$ | 18,946 | ||
|
(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
$1.5 million in 2008, $1.5 million in 2007, and $1.5 million in
2006. Minimum lease payments under these leases due in each of the
five years subsequent to December 31, 2008, are as follows (in millions): 2009,
$1.4; 2010, $1.2; 2011, $.5; 2012, $.5; 2013, $.5; thereafter,
$5.1.
Contingencies. The
Company is a party to lawsuits and claims arising out of the normal course of
business. In management's opinion, there are no known pending claims
or litigation, the outcome of which would, individually or in the aggregate,
have a material effect on the consolidated results of operations, financial
position, or cash flows of the Company.
Indemnification
Obligation. The Company is a member of the Visa U.S.A.
network. Visa U.S.A believes that its member banks are required to
indemnify Visa U.S.A. for potential future settlement of certain litigation (the
“Covered Litigation”). The Company recorded a charge in its fourth
quarter 2007 financial statements of approximately $1.9 million, or $0.07 per
diluted common share, to recognize its proportionate contingent liability
related to the costs of the judgments and settlements from the Covered
Litigation.
The
Company reversed a portion of the Covered Litigation accrual in the amount of
approximately $1.1 million to account for the establishment of an escrow account
by Visa Inc., the parent company of Visa U.S.A., in conjunction with Visa’s
initial public offering during the first quarter of 2008. This escrow
account was established to pay the costs of the judgments and settlements from
the Covered Litigation. Approximately $0.8 million remains accrued
for the contingent liability related to remaining Covered
Litigation.
In
October 2008, Visa U.S.A. reached a settlement with Discover Financial Services
related to a case within the Covered Litigation and as a result, the Company
estimated that the settlement incrementally added $0.4 million to the fair value
of its guarantee liability. Following the Discover settlement, Visa
U.S.A. funded an additional $1.1 billion to the escrow account during December
which in effect reduced the exchange ratio for the Company’s Class B shares of
Visa U.S.A. While the Company could be required to separately fund
its proportionate share of any Covered Litigation losses, it is expected that
the escrow account will be used to pay all or a substantial amount of the
losses.
Note
19
FAIR
VALUE MEASUREMENTS
Effective
January 1, 2008, the Company adopted the provisions of
SFAS No. 157, "Fair Value Measurements," for financial assets and
financial liabilities. In accordance with Financial Accounting
Standards Board Staff Position No. 157-2, "Effective Date of FASB Statement
No. 157," the Company will delay application of SFAS 157 for
non-financial assets and non-financial liabilities, until January 1,
2009. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. A
fair value measurement assumes that the transaction to sell the asset or
transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the
asset or liability. The price in the principal (or most advantageous)
market used to measure the fair value of the asset or liability shall not be
adjusted for transaction costs. An orderly transaction is a
transaction that assumes exposure to the market for a period prior to the
measurement date to allow for marketing activities that are usual and customary
for transactions involving such assets and liabilities; it is not a forced
transaction. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact, and (iv) willing to transact.
SFAS 157
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets and
liabilities. The income approach uses valuation techniques to convert
future amounts, such as cash flows or earnings, to a single present amount on a
discounted basis. The cost approach is based on the amount that
currently would be required to replace the service capacity of an asset
(replacement cost). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that
market participants would use in pricing the asset or
liability. Inputs may be observable, meaning those that reflect the
assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or
unobservable, meaning those that reflect the reporting entity's own assumptions
about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. In that regard, SFAS 157 establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as
follows:
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.
Level 2 Inputs - Inputs
other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. These might include quoted
prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liability
(such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or
inputs that are derived principally from or corroborated by market data by
correlation or other means.
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity's own assumptions about the assumptions that
market participants would use in pricing the assets or liabilities.
A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Company’s financial assets and financial liabilities
carried at fair value effective January 1, 2008.
In
general, fair value is based upon quoted market prices, where
available. If such quoted market prices are not available, fair value
is based upon models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that
financial instruments are recorded at fair value. These adjustments
may include amounts to reflect counterparty credit quality, the Company’s
creditworthiness, among other things, as well as unobservable
parameters. Any such valuation adjustments are applied consistently
over time. The Company’s valuation methodologies may produce a fair
value calculation that may not be indicative of net realizable value or
reflective of future fair values. While management believes the Company’s
valuation methodologies are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the
fair value of certain financial instruments could result in a different estimate
of fair value at the reporting date.
Securities Available for
Sale. Securities
classified as available for sale are reported at fair value on a recurring basis
utilizing Level 1, 2, or 3 inputs. For these securities, the
Company obtains fair value measurements from an independent pricing service or a
model that uses, as inputs, observable market based parameters. The
fair value measurements consider observable data that may include quoted prices
in active markets, or other inputs, including dealer quotes, market spreads,
cash flows, the U.S. Treasury yield curve, live trading levels, trade execution
data, market consensus prepayment speeds, and credit information and the bond's
terms and conditions.
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of December 31, 2008, segregated by the
level of the valuation inputs within the fair value hierarchy utilized to
measure fair value:
|
(Dollars
in Thousands)
|
Level
1 Inputs
|
Level
2 Inputs
|
Level
3 Inputs
|
Total
Fair Value
|
||||
|
Securities
Available for Sale
|
$
|
32,370
|
$
|
146,210
|
$
|
1,107
|
$
|
179,687
|
The
change in the fair value of Level 3 securities from January 1, 2008 to December
31, 2008 primarily relates to the change in the unrealized gain for one security
and was not material to the Company’s financial statements.
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment). Financial assets and financial liabilities measured at
fair value on a non-recurring basis were not significant at December 31,
2008.
Impaired Loans. On
a non-recurring basis, certain impaired loans are reported at the fair value of
the underlying collateral if repayment is expected solely from the liquidation
of collateral. Collateral values are estimated using Level 3 inputs
based on customized discounting criteria. Impaired loans had a
carrying value of $106.4 million, with a valuation allowance of $15.9 million,
resulting in an additional provision for loan losses of $11.2 million for the
year ended December 31, 2008.
Loans Held for Sale. Loans held
for sale of $3.2 million, which are carried at the lower of cost or fair value,
are adjusted to fair value on a non-recurring basis. Fair value is
based on observable markets rates for comparable loan products which is
considered a level 2 fair value measurement.
Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 159,
"The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115." SFAS 159 permits
the Company to choose to measure eligible items at fair value at specified
election dates. Changes in fair value on items for which the fair
value measurement option has been elected are reported in earnings at each
subsequent reporting date. The fair value option (i) is applied
instrument by instrument, with certain exceptions, thus the Company may record
identical financial assets and liabilities at fair value or by another
measurement basis permitted under generally accepted accounting principals,
(ii) is irrevocable (unless a new election date occurs), and (iii) is
applied only to entire instruments and not to portions of
instruments. Adoption of SFAS 159 on January 1, 2008 did
not have a significant impact on the Company’s financial statements because the
Company did not elect fair value measurement under SFAS 159.
Other Financial
Instruments. Many of the Company’s assets and liabilities are
short-term financial instruments whose carrying values approximate fair value.
These items include Cash and Due From Banks, Interest Bearing Deposits with
Other Banks, Federal Funds Sold, Federal Funds Purchased, Securities Sold Under
Repurchase Agreements, and Short-Term Borrowings. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. The resulting fair
values may be significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows.
The
methods and assumptions used to estimate the fair value of the Company’s other
financial instruments are as follows:
Loans -
The loan portfolio is segregated into categories and the fair value of each loan
category is calculated using present value techniques based upon projected cash
flows and estimated discount rates. The calculated present values are then
reduced by an allocation of the allowance for loan losses against each
respective loan category.
Deposits
- The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
Accounts and Savings Accounts are the amounts payable on demand at the reporting
date. The fair value of fixed maturity certificates of deposit is estimated
using present value techniques and rates currently offered for deposits of
similar remaining maturities.
Subordinated
Notes Payable - The fair value of each note is calculated using present value
techniques, based upon projected cash flows and estimated discount rates as well
as rates being offered for similar obligations.
Long-Term
Borrowings - The fair value of each note is calculated using present value
techniques, based upon projected cash flows and estimated discount rates as well
as rates being offered for similar debt.
Commitments
to Extend Credit and Standby Letters of Credit - The fair value of commitments
to extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the present creditworthiness of the
counterparties. The fair value of these fees is not material.
The
Company’s financial instruments that have estimated fair values are presented
below:
|
At
December 31,
|
||||||||||||||
|
2008
|
2007
|
|||||||||||||
|
(Dollars
in Thousands)
|
Carrying
Value
|
Estimated
Fair
Value
|
Carrying
Value
|
Estimated
Fair
Value
|
||||||||||
|
Financial
Assets:
|
||||||||||||||
|
Cash
|
$
|
88,143
|
$
|
88,143
|
$
|
93,437
|
$
|
93,437
|
||||||
|
Short-Term
Investments
|
6,806
|
6,806
|
166,260
|
166,260
|
||||||||||
|
Investment
Securities
|
191,569
|
191,569
|
190,719
|
190,719
|
||||||||||
|
Loans,
Net of Allowance for Loan Losses
|
1,920,793
|
1,915,887
|
1,897,784
|
1,982,661
|
||||||||||
|
Total
Financial Assets
|
$
|
2,207,311
|
$
|
2,202,405
|
$
|
2,348,200
|
$
|
2,433,077
|
||||||
|
Financial
Liabilities:
|
||||||||||||||
|
Deposits
|
$
|
1,992,174
|
$
|
1,960,361
|
$
|
2,142,344
|
$
|
2,089,550
|
||||||
|
Short-Term
Borrowings
|
62,044
|
61,799
|
53,131
|
53,022
|
||||||||||
|
Subordinated
Notes Payable
|
62,887
|
63,637
|
62,887
|
63,371
|
||||||||||
|
Long-Term
Borrowings
|
51,470
|
57,457
|
26,731
|
28,284
|
||||||||||
|
Total
Financial Liabilities
|
$
|
2,168,575
|
$
|
2,143,254
|
$
|
2,285,093
|
$
|
2,234,227
|
||||||
All
non-financial instruments are excluded from the above table. The
disclosures also do not include certain intangible assets such as client
relationships, deposit base intangibles and goodwill. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value
of the Company.
Note
20
PARENT
COMPANY FINANCIAL INFORMATION
The
operating results of the parent company for the three years ended December 31,
are shown below:
Parent
Company Statements of Income
|
(Dollars
in Thousands)
|
2008
|
2007
|
2006
|
||||||||
|
OPERATING
INCOME
|
|||||||||||
|
Income
Received from Subsidiary Bank:
|
|||||||||||
|
Dividends
|
$
|
16,655
|
$
|
49,207
|
$
|
20,166
|
|||||
|
Overhead
Fees
|
3,209
|
3,532
|
3,524
|
||||||||
|
Other
Income
|
184
|
164
|
112
|
||||||||
|
Total
Operating Income
|
20,048
|
52,903
|
23,802
|
||||||||
|
OPERATING
EXPENSE
|
|||||||||||
|
Salaries
and Associate Benefits
|
1,341
|
1,812
|
2,360
|
||||||||
|
Interest
on Long-Term Debt
|
35
|
-
|
-
|
||||||||
|
Interest
on Subordinated Notes Payable
|
3,735
|
3,730
|
3,725
|
||||||||
|
Professional
Fees
|
978
|
787
|
741
|
||||||||
|
Advertising
|
244
|
260
|
403
|
||||||||
|
Legal
Fees
|
213
|
375
|
604
|
||||||||
|
Other
|
620
|
621
|
649
|
||||||||
|
Total
Operating Expense
|
7,166
|
7,585
|
8,482
|
||||||||
|
Income
Before Income Taxes and Equity in Undistributed Earnings of Subsidiary
Bank
|
12,882
|
45,318
|
15,320
|
||||||||
|
Income
Tax Benefit
|
(737
|
)
|
(1,429
|
)
|
(1,835
|
)
|
|||||
|
Income
Before Equity in Undistributed Earnings of Subsidiary
Bank
|
13,619
|
46,747
|
17,155
|
||||||||
|
Equity
in Undistributed Earnings of Subsidiary Bank
|
1,606
|
(17,064
|
)
|
16,110
|
|||||||
|
Net
Income
|
$
|
15,225
|
$
|
29,683
|
$
|
33,265
|
|||||
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)
|
2008
|
2007
|
|||||
|
ASSETS
|
|||||||
|
Cash
and Due From Subsidiary Bank
|
$
|
950
|
$
|
958
|
|||
|
Investment
in Subsidiary Bank
|
343,603
|
357,093
|
|||||
|
Other
Assets
|
2,689
|
2,826
|
|||||
|
Total
Assets
|
$
|
347,242
|
$
|
360,877
|
|||
|
LIABILITIES
|
|||||||
|
Subordinated
Notes Payable
|
$
|
62,887
|
$
|
62,887
|
|||
|
Other
Liabilities
|
5,525
|
5,315
|
|||||
|
Total
Liabilities
|
$
|
68,412
|
$
|
68,202
|
|||
|
SHAREOWNERS'
EQUITY
|
|||||||
|
Preferred
Stock, $.01 par value, 3,000,000 shares authorized; no shares issued and
outstanding
|
-
|
-
|
|||||
|
Common
Stock, $.01 par value; 90,000,000 shares authorized; 17,126,997 and
17,182,553 shares issued and outstanding at December 31, 2008 and
December 31, 2007, respectively
|
171
|
172
|
|||||
|
Additional
Paid-In Capital
|
36,783
|
38,243
|
|||||
|
Retained
Earnings
|
262,890
|
260,325
|
|||||
|
Accumulated
Other Comprehensive Loss, Net of Tax
|
(21,014
|
)
|
(6,065
|
)
|
|||
|
Total
Shareowners' Equity
|
278,830
|
292,675
|
|||||
|
Total
Liabilities and Shareowners' Equity
|
$
|
347,242
|
$
|
360,877
|
|||
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)
|
2008
|
2007
|
2006
|
||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||
|
Net
Income
|
$
|
15,225
|
$
|
29,683
|
$
|
33,265
|
|||||
|
Adjustments
to Reconcile Net Income to Net Cash Provided by Operating
Activities:
|
|||||||||||
|
Equity
in Undistributed Earnings of Subsidiary Bank
|
(1,606
|
)
|
17,064
|
(16,110
|
)
|
||||||
|
Non-Cash
Compensation
|
62
|
238
|
1,673
|
||||||||
|
Increase
in Other Assets
|
254
|
(152
|
)
|
(670
|
)
|
||||||
|
Increase
in Other Liabilities
|
210
|
222
|
1,976
|
||||||||
|
Net
Cash Provided by Operating Activities
|
14,145
|
47,055
|
20,134
|
||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||
|
Cash
Paid for Investment in:
|
|||||||||||
|
Purchase
of held-to-maturity and available-for-sale
securities
|
-
|
(1,000
|
)
|
-
|
|||||||
|
Increase
in Investment in Bank Subsidiary
|
-
|
1,466
|
-
|
||||||||
|
Net
Cash Used in Investing Activities
|
-
|
466
|
-
|
||||||||
|
CASH
FROM FINANCING ACTIVITIES:
|
|||||||||||
|
Payment
of Dividends
|
(12,630
|
)
|
(12,823
|
)
|
(12,322
|
)
|
|||||
|
Repurchase
of Common Stock
|
(2,414
|
)
|
(43.233
|
)
|
(5,360
|
)
|
|||||
|
Issuance
of Common Stock
|
891
|
572
|
1,035
|
||||||||
|
Net
Cash (Used in) Provided by Financing Activities
|
(14,153
|
)
|
(55,484
|
)
|
(16,647
|
)
|
|||||
|
Net
Increase (Decrease) in Cash
|
(8
|
)
|
(7,963
|
)
|
3,487
|
||||||
|
Cash
at Beginning of Period
|
958
|
8,921
|
5,434
|
||||||||
|
Cash
at End of Period
|
$
|
950
|
$
|
958
|
$
|
8,921
|
|||||
Note
21
COMPREHENSIVE
INCOME
SFAS No.
130, "Reporting Comprehensive Income," requires that certain transactions and
other economic events that bypass the income statement be displayed as other
comprehensive income (loss). Total comprehensive income is reported in the
accompanying statements of changes in shareowners’
equity. Information related to net comprehensive income (loss) is as
follows:
|
(Dollars in
Thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Other
Comprehensive Income (Loss):
|
||||||||||||
|
Securities available for sale:
|
||||||||||||
|
Change
in net unrealized gain, net of tax expense of $683, $616, and
$202
|
$
|
1,230
|
$
|
1,080
|
$
|
412
|
||||||
|
Retirement plans:
|
||||||||||||
|
Change
in funded status of defined benefit pension plan and SERP, net of tax
benefit of $10,613 and tax expense of $830
|
(16,179
|
)
|
1,166
|
-
|
||||||||
|
Net
Other Comprehensive (Loss) Gain
|
$
|
(14,949
|
)
|
$
|
2,246
|
$
|
412
|
|||||
|
The
components of accumulated other comprehensive income, net of tax, as of
year-end were as follows:
|
||||||||||||
|
Net unrealized gain (loss) on securities available for
sale
|
$
|
1,476
|
$
|
246
|
$
|
(834
|
)
|
|||||
|
Net unfunded liability for defined benefit pension plan and
SERP
|
(22,490
|
)
|
(6,311
|
)
|
(7,477
|
)
|
||||||
|
$
|
(21,014
|
)
|
$
|
(6,065
|
)
|
$
|
(8,311
|
)
|
||||
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
None.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls
and Procedures. As of December 31, 2008, 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, 2008, the end of the period covered by this Annual Report on Form 10-K, we
maintained effective disclosure controls and procedures.
Management's Report on Internal
Control Over Financial Reporting. Our management is responsible for
establishing and maintaining effective internal control over financial
reporting. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles.
Under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation
under the framework in Internal Control - Integrated Framework, our management
has concluded we maintained effective internal control over financial reporting,
as such term is defined in Securities Exchange Act of 1934 Rule 13a-15(f), as of
December 31, 2008.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
Management
is also responsible for the preparation and fair presentation of the
consolidated financial statements and other financial information contained in
this report. The accompanying consolidated financial statements were prepared in
conformity with U.S. generally accepted accounting principles and include, as
necessary, best estimates and judgments by management.
Ernst
& Young, LLP, an independent registered public accounting firm, has audited
our consolidated financial statements as of and for the year ended December 31,
2008, and opined as to the effectiveness of internal control over financial
reporting as of December 31, 2008, as stated in its attestation report, which is
included herein on page 94.
Change in Internal Control.
Our management, including the Chief Executive Officer and Chief Financial
Officer, has reviewed our internal control. There have been no significant
changes in our internal control during our most recently completed fiscal
quarter, nor subsequent to the date of their evaluation, that could
significantly affect our internal control over financial reporting.
|
Other
Information
|
None.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of
Capital
City Bank Group, Inc.
We have
audited Capital City Bank Group, Inc.’s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Capital City Bank Group, Inc.’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Report on the
Management on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Capital City Bank Group, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) the consolidated statements of condition of
Capital City Bank Group, Inc. and subsidiary as of December 31, 2008 and 2007,
and the related consolidated statements of income, changes in shareowners’
equity, and cash flows for the years then ended of Capital City Bank Group, Inc.
and our report dated March 12,
2009 expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Birmingham,
Alabama
March 12,
2009
|
Directors,
Executive Officers, and Corporate
Governance
|
Incorporated
herein by reference to the subsection entitled “Codes of Conduct and Ethics”
under the section entitled “Corporate Governance,” “Nominees for Election as
Directors,” “Continuing Directors and Executive Officers,” “Share Ownership” and
the subsection entitled “Committees of the Board” under the section “Board and
Committee Membership” in the Registrant’s Proxy Statement relating to its Annual
Meeting of Shareowners to be held April 21, 2009.
|
Executive
Compensation
|
Incorporated
herein by reference to the sections entitled “Executive Compensation” and
“Director Compensation” in the Registrant’s Proxy Statement relating to its
Annual Meeting of Shareowners to be held April 21, 2009.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Shareowners Matters
|
Equity
Compensation Plan Information
Our 2005
Associate Incentive Plan, 2005 Associate Stock Purchase Plan, and 2005 Director
Stock Purchase Plan were approved by our shareowners. The following
table provides certain information regarding our equity compensation
plans.
|
Plan
Category
|
Number
of securities to be issued upon exercise of
outstanding
options, warrants and rights
|
Weighted-average
exercise price
of
outstanding options, warrants and rights
|
Number
of securities remaining available
for
future issuance under equity
compensation
plans (excluding
securities
reflected in column (a))
|
|||
|
(a)
|
(b)
|
(c)
|
||||
|
Equity
Compensation Plans Approved by Securities Holders
|
60,384(1)
|
$32.79
|
1,376,506(2)
|
|||
|
Equity
Compensation Plans Not Approved by Securities
Holders
|
||||||
|
Total
|
60,384
|
$32.79
|
1,376,506
|
|
(1)
|
Includes
60,384 shares that may be issued upon exercise of outstanding options
under the terminated 1996 Associate Incentive
Plan.
|
|
(2)
|
Consists
of 814,108 shares available for issuance under our 2005 Associate
Incentive Plan, 511,968 shares available for issuance under our 2005
Associate Stock Purchase Plan, and 50,430 shares available for issuance
under our 2005 Director Stock Purchase Plan. Of these plans,
the only plan under which options may be granted in the future is our 2005
Associate Incentive Plan.
|
For
additional information about our equity compensation plans, see Stock Based
Compensation in Note 11 in the Notes to the Consolidated Financial
Statements.
The other
information required by Item 12 is incorporated herein by reference to the
section entitled “Share Ownership” in the Registrant’s Proxy Statement relating
to its Annual Meeting of Shareowners to be held April 21, 2009.
Item
13. Certain
Relationships and Related Transactions, and Director Independence
Incorporated
herein by reference to the subsections entitled “Related Person Transaction
Policy” and “Transactions With Related Persons” under the section entitled
“Executive Officers and Transactions with Related Persons” and the subsection
entitled “Independent Directors” under the section entitled “Corporate
Governance” in the Registrant’s Proxy Statement relating to its Annual Meeting
of Shareowners to be held April 21, 2009.
Item
14. Principal
Accountant Fees and
Services
Incorporated
herein by reference to the section entitled “Audit Fees and Related Matters” in
the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners
to be held April 21, 2009.
|
Exhibits
and Financial Statement Schedules
|
|
|
The
following documents are filed as part of this
report
|
1. Financial
Statements
Reports of Independent Registered
Public Accounting Firms
Consolidated Statements of Income for
Fiscal Years 2008, 2007, and 2006
Consolidated Statements of Financial
Condition at the end of Fiscal Years 2008 and 2007
|
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years
2008, 2007, and 2006
|
Consolidated Statements of Cash Flows
for Fiscal Years 2008, 2007, and 2006
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
|
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).
|
|
|
3.2
|
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).
|
|
|
4.1
|
See
Exhibits 3.1, and 3.2 for provisions of Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws, which define the rights of
its shareholders.
|
|
|
4.2
|
Capital
City Bank Group, Inc. 2005 Director Stock Purchase Plan - incorporated
herein by reference to Exhibit 4.3 of the Registrant’s Form S-8
(filed 11/5/04) (No. 333-120242).
|
|
|
4.3
|
Capital
City Bank Group, Inc. 2005 Associate Stock Purchase Plan - incorporated
herein by reference to Exhibit 4.4 of the Registrant’s Form S-8
(filed 11/5/04) (No. 333-120242).
|
|
|
4.4
|
Capital
City Bank Group, Inc. 2005 Associate Incentive Plan - incorporated herein
by reference to Exhibit 4.5 of the Registrant’s Form S-8 (filed
11/5/04) (No. 333-120242).
|
|
|
4.5
|
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.
|
|
|
10.1
|
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).
|
|
|
10.2
|
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).
|
|
|
10.3
|
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).
|
|
|
10.4
|
2005
Stock Option Agreement by and between Capital City Bank Group, Inc. and
William G. Smith, Jr., dated March 24, 2005 – incorporated herein by
reference to Exhibit 10.1 of the Registrant’s Form 8-K (filed 3/31/05)
(No. 0-13358).
|
|
|
10.5
|
2006
Stock Option Agreement by and between Capital City Bank Group, Inc. and
William G. Smith, Jr., dated March 23, 2006 – incorporated herein by
reference to Exhibit 10.1 of the Registrant’s Form 8-K (filed 3/29/06)
(No. 0-13358).
|
|
|
10.6
|
Capital
City Bank Group, Inc. Non-Employee Director Plan, as amended –
incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form
8-K (filed 3/29/06) (No. 0-13358).
|
|
|
10.7
|
Form
of Participant Agreement for the Capital City Bank Group, Inc. Long-Term
Incentive Plan – incorporated herein by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q (filed 8/10/06) (No.
0-13358).
|
|
|
10.8
|
Form
of Participant Agreement for 2008 Stock-Based Incentive Plan –
incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form
8-K (filed 6/5/08) (No. 0-13358).
|
|
|
11
|
Statement
re Computation of Per Share
Earnings.*
|
|
|
14
|
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).
|
-97-
|
|
21
|
Capital
City Bank Group, Inc. Subsidiaries, as of December 31,
2008.**
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting
Firm.**
|
|
|
23.2
|
Consent
of Independent Registered Public Accounting
Firm.**
|
|
|
31.1
|
Certification
of CEO pursuant to Securities and Exchange Act Section 302 of the
Sarbanes-Oxley Act of 2002.**
|
|
|
31.2
|
Certification
of CFO pursuant to Securities and Exchange Act Section 302 of the
Sarbanes-Oxley Act of 2002.**
|
|
|
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.**
|
|
|
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.**
|
|
*
|
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 FASB Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per
Share.
|
|
**
|
Filed
electronically herewith.
|
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 13, 2009,
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 13, 2009 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) |
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 13, 2009,
on its behalf by the undersigned, thereunto duly authorized.
|
Directors:
|
||
| /s/ DuBose Ausley | /s/ John K. Humphress | |
|
DuBose
Ausley
|
John
K. Humphress
|
|
| /s/ Thomas A. Barron | /s/ L. McGrath Keen, Jr. | |
|
Thomas
A. Barron
|
L.
McGrath Keen, Jr.
|
|
| /s/ Frederick Carroll, III | /s/ Lina S. Knox | |
|
Frederick
Carroll, III
|
Lina
S. Knox
|
|
| /s/ Cader B. Cox, III | /s/ Henry Lewis III | |
|
Cader
B. Cox, III
|
Henry
Lewis III
|
|
| /s/ J. Everitt Drew | /s/ William G. Smith, Jr. | |
|
J.
Everitt Drew
|
William
G. Smith, Jr.
|
|
-100-