UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
____________________
FORM
10-K
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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, 2006
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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 ____________
Capital
City Bank Group, Inc.
(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. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer [ ] Accelerated
filer [ X ] Non-accelerated
filer [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [ X ]
As
of
June 30, 2006, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $330,816,293 based on the closing sale
price as reported on the National Association of Securities Dealers Automated
Quotation System National Market System.
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 28, 2007
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Common
Stock, $0.01 par value per share
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18,388,831
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 24, 2007, are incorporated by reference in
Part III.
CAPITAL
CITY BANK GROUP, INC.
ANNUAL
REPORT FOR 2006 ON FORM 10-K
TABLE
OF
CONTENTS
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PART
I
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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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14
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Item
1B.
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18
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Item
2.
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19
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Item
3.
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19
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Item
4.
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19
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PART
II
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Item
5.
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19
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Item
6.
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21
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Item
7.
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22
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Item
7A.
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47
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Item
8.
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49
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Item
9.
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82
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Item
9A.
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82
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Item
9B.
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84
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PART
III
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Item
10.
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84
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Item
11.
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84
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Item
12.
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84
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Item
13.
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85
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Item
14.
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85
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PART
IV
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Item
15.
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86
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88
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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:
| § |
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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| § |
our
need and our ability to incur additional debt or equity
financing;
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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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| § |
the
accuracy of our financial statement estimates and assumptions;
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| § |
the
effects of harsh weather conditions, including
hurricanes;
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| § |
inflation,
interest rate, market and monetary fluctuations;
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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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| § |
the
frequency and magnitude of foreclosure of our
loans;
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| § |
effect
of changes in the stock market and other capital markets;
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| § |
legislative
or regulatory changes;
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| § |
our
ability to comply with the extensive laws and regulations to which
we are
subject;
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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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| § |
changes
in the securities and real estate markets;
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| § |
increased
competition and its effect on
pricing;
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technological
changes;
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| § |
changes
in monetary and fiscal policies of the U.S.
Government;
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| § |
the
effects of security breaches and computer viruses that may affect
our
computer systems;
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| § |
changes
in consumer spending and saving habits;
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| § |
growth
and profitability of our noninterest income;
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| § |
changes
in accounting principles, policies, practices or
guidelines;
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| § |
the
limited trading activity of our common
stock;
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| § |
the
concentration of ownership of our common
stock;
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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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| § |
other
risks described from time to time in our filings with the Securities
and
Exchange Commission; and
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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.
PART
I
Item
1. Business
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 69 full-service banking locations in Florida,
Georgia, and Alabama. CCB operates these banking locations.
At
December 31, 2006, our consolidated total assets were approximately $2.6 billion
and shareowners’ equity was approximately $316 million. CCBG’s principal asset
is the capital stock of the Bank. CCB accounted for approximately 100% of
consolidated assets at December 31, 2006, and approximately 100% of consolidated
net income for the year ended December 31, 2006. 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 Capital City Bank, 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 CCBG 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 1,056 (full-time equivalent) associates at
February 28, 2007. Page 21 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:
| § |
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. Treasury management services and merchant
credit card transaction processing services are also
offered.
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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.
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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 mortgages
(“ARM”) loans. As of December 31, 2006, approximately 33% of the Bank’s
loan portfolio consisted of ARM
loans.
|
Te
The Bank offers these products through its existing network of branch offices.
Geographical expansion of the delivery of this product line has occurred over
the past three years through the opening of mortgage lending offices in
Gainesville, Florida (Alachua County), Panacea, Florida (Wakulla County),
Steinhatchee, Florida (Taylor County), and Thomasville, Georgia (Thomas
County).
| § |
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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| § |
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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| § |
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 “Star-Line” system to gain
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 provides data processing services to financial
institutions (including CCB), government agencies and commercial clients located
throughout North Florida and South Georgia. As of February 28, 2007, the
Services Company is providing computer services to seven correspondent banks,
which have relationships with CCB.
Trust
Services and Asset Management
Capital
City Trust Company (“CCTC’) 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 CCTC to manage
their
investment portfolios. 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 $753
million as of December 31, 2006, with total assets under administration
exceeding $823 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 NASD 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 affiliated
with
INVEST Financial Corporation.
Expansion
of Business
Since
1984, we have completed 15 acquisitions totaling $1.6 billion in deposits within
existing and new markets. In addition, since 2003, we opened six new offices
-
two in Tallahassee and one each in Crawfordville, Palatka (replacement office),
Spring Hill and Starke (replacement office) - to improve service and product
delivery within these Florida markets. Plans are currently being developed
for
new office sites in Macon, Georgia, Spring Hill, Florida, Brooksville, Florida,
and Gainesville, Florida.
Pursuant
to our “Project 2010” strategy, we plan to continue our expansion, emphasizing a
combination of growth in existing markets and acquisitions. 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,
insurance, and mortgage banking. We anticipate that slightly more than half
of
our future earnings growth will be generated through growth in existing markets
and slightly less than half through acquisitions.
Recent
Acquisitions. On
May
20, 2005, we completed our acquisition of First Alachua Banking Corporation
(“FABC”), headquartered in Alachua, Florida. FABC’s wholly-owned subsidiary,
First National Bank of Alachua (“FNBA”) had $228.3 million in assets, seven
offices located in Alachua County -- Gainesville (three), Alachua, High Springs,
Jonesville, Newberry -- and an eighth office in Hastings, Florida, which is
located in St. Johns County. FABC also had a mortgage lending office in
Gainesville and a financial services division. We issued 88.9456 shares of
CCBG
Common Stock and $2,847.04 in cash for each of the 10,186 shares of FABC,
resulting in the issuance of 906,000 shares of CCBG Common Stock and the payment
of $29.0 million in cash for a total purchase price of approximately $58.0
million.
On
October 15, 2004, we completed our acquisition of Farmers and Merchants Bank
in
Dublin, Georgia, a $395 million asset institution with three offices in Laurens
County. We issued 21.35 shares of CCBG Common Stock and $666.50 in cash for
each
of the 50,000 shares of Farmers and Merchants Bank, resulting in the issuance
of
1,067,500 shares of CCBG Common Stock and the payment of $33.3 million in cash
for a total purchase price of approximately $66.7 million.
On
March
19, 2004, our subsidiary, CCB, completed its merger with Quincy State Bank,
a
former subsidiary of Synovus Financial Corp. Quincy State Bank had $116.6
million in assets with one office in Quincy, Florida and one office in Havana,
Florida. Both markets adjoin Leon County, home to our Tallahassee headquarters.
In addition, we acquired $208 million in trust and other fiduciary assets of
Synovus Trust Company, an affiliate of Quincy State Bank. The purchase price
was
$28.1 million in cash.
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 $694.1 million, or 33.3%, of our consolidated deposits
at December 31, 2006.
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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2006
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2005
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2004
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Florida
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Alachua
County(2)
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5.6
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%
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6.3
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%
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--
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Bradford
County
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44.6
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%
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42.6
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%
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37.1
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%
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Citrus
County
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3.3
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%
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3.5
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%
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3.6
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%
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Clay
County
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2.0
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%
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2.2
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%
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2.4
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%
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Dixie
County
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20.8
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%
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17.3
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%
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16.9
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%
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Gadsden
County
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64.9
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%
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68.0
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%
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77.7
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%
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Gilchrist
County
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47.1
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%
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49.5
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%
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49.4
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%
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Gulf
County
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14.3
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%
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19.8
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%
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22.1
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%
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Hernando
County
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1.5
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%
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1.4
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%
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1.3
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%
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Jefferson
County
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24.6
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%
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24.4
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%
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24.0
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%
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Leon
County
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18.0
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%
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17.5
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%
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17.2
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%
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Levy
County
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34.4
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%
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33.8
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%
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34.1
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%
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Madison
County
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14.9
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%
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15.1
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%
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17.8
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%
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Pasco
County
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0.2
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%
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0.3
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%
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0.4
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%
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St.
Johns County(2)
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1.5
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%
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2.0
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--
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Putnam
County
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12.3
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%
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12.3
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%
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12.5
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%
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Suwannee
County
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11.8
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%
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7.5
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%
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7.7
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%
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Taylor
County
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28.6
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%
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27.9
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%
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27.4
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%
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Wakulla
County(3)
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2.9
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%
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--
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--
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Washington
County
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17.4
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%
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20.3
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%
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20.0
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%
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Georgia(4)
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Bibb
County
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2.9
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%
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|
2.8
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%
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|
2.8
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%
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Burke
County
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|
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9.2
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%
|
|
9.3
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%
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|
10.3
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%
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Grady
County
|
|
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20.0
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%
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|
19.7
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%
|
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23.6
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%
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Laurens
County(5)
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|
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23.8
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%
|
|
33.1
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%
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|
41.8
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%
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Troup
County
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8.2
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%
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|
7.5
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%
|
|
8.2
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%
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Alabama
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|
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|
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Chambers
County
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4.7
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%
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3.9
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%
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4.4
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%
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(1)
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Obtained
from the June 30, 2006 FDIC/OTS Summary of Deposits
Report.
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|
(2)
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CCB
entered market in May 2005.
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(3)
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CCB
entered market in December
2005.
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(4)
|
Does
not include Thomas County where Capital City Bank maintains a residential
mortgage lending office only.
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|
(5)
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CCB
entered market in October
2004.
|
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
|
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Florida
|
|
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Alachua
|
14
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64
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Bradford
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3
|
3
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Citrus
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15
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46
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Clay
|
11
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26
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Dixie
|
3
|
4
|
|
Gadsden
|
4
|
6
|
|
Gilchrist
|
3
|
5
|
|
Gulf
|
4
|
6
|
|
Hernando
|
12
|
36
|
|
Jefferson
|
2
|
2
|
|
Leon
|
13
|
78
|
|
Levy
|
3
|
13
|
|
Madison
|
6
|
6
|
|
Pasco
|
18
|
96
|
|
Putnam
|
5
|
11
|
|
St.
Johns
|
19
|
60
|
|
Suwannee
|
4
|
5
|
|
Taylor
|
3
|
4
|
|
Wakulla
|
4
|
9
|
|
Washington
|
4
|
4
|
|
Georgia
|
|
|
|
Bibb
|
10
|
52
|
|
Burke
|
5
|
10
|
|
Grady
|
5
|
8
|
|
Laurens
|
9
|
19
|
|
Troup
|
8
|
17
|
|
Alabama
|
|
|
|
Chambers
|
4
|
8
|
Data
obtained from the June 30, 2006 FDIC/OTS Summary of Deposits
Report.
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 (“BHCA”). As a result, we are subject to
supervisory regulation and examination by the Federal Reserve. The
Gramm-Leach-Bliley Act, the BHCA, and other federal laws subject financial
holding companies to particular restrictions on the types of activities in
which
they may engage, and to a range of supervisory requirements and activities,
including regulatory enforcement actions for violations of laws and
regulations.
Permitted
Activities.
The
Gramm-Leach-Bliley Act, enacted on November 12, 1999, amended the BHCA 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 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 BHCA and the Change in Bank Control Act, together
with regulations thereunder, 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
(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 (“CRA”).
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
Department of Financial Services (the “Florida Department”). 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
Department. 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.
Financial holding companies and their affiliates are prohibited from tying
the
provision of certain services, such as extending credit, to other services
offered by the holding company or its affiliates.
Capital;
Dividends; Source of Strength.
The
Federal Reserve imposes certain capital requirements on us under the BHCA,
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 financial holding
company. Further, federal bank regulatory authorities have additional discretion
to require a financial holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution’s financial condition.
Capital
City Bank
CCB
is a
banking institution that is chartered by and headquartered in the State of
Florida, and it is subject to supervision and regulation by the Florida
Department. The Florida Department 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
funds.
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
Section 658.37 of the Florida Banking 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 Department, 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 Department or a federal regulatory
agency.
Insurance
of Accounts and Other Assessments.
The
FDIC merged the Bank Insurance Fund and the Savings Association Insurance Fund
to form the Deposit Insurance Fund (the “DIF”) on March 31, 2006. The deposit
accounts of the Bank are currently insured by the DIF generally up to a maximum
of $100,000 per separately insured depositor, except for retirement accounts,
which are insured up to $250,000. The Bank pays its deposit insurance
assessments to the DIF.
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 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 0.05% of
deposits for an institution in the highest sub-category of the highest category
to 0.43% of deposits for an institution in the lowest category. The FDIC is
authorized to raise the assessment rates as necessary to maintain the minimum
required 1.25% reserve ratio of premiums held to deposits insured. The FDIC
allows the use of credits for assessments previously paid. We believe that
we
have credits that will offset certain of these assessments during
2007.
In
addition, all FDIC insured institutions are required to pay assessments to
the
FDIC at an annual rate of approximately 0.0122% 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 (“FRA”) 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 (“10%
Shareholders”), or to any political or campaign committee the funds or services
of which will benefit such executive officers, directors, or 10% Shareholders
or
which is controlled by such executive officers, directors or 10% Shareholders,
are subject to Sections 22(g) and 22(h) of the FRA and the regulations
promulgated thereunder (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 FRA. 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 such persons must first be
approved in advance by a disinterested majority of the entire board of
directors. Section 22(h) of the FRA prohibits loans to any such 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 such extensions of credit
outstanding to all such 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 CRA
and the regulations issued thereunder 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 CRA. The Federal Reserve considers a
bank’s CRA 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 CRA 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.
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 stockholders’ 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.
Interstate
Banking and Branching. The
BHCA
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 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 such 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 Department, 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 such transaction may maintain
and
operate the branches of the Florida bank that participated in such 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.
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 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. All new clients must be screened against any Section
326 government lists of known or suspected terrorists within a reasonable time
after opening an account.
Securities
Activities.
The
Financial Services Regulatory Relief Act of
2006
(“Regulatory Relief Act”) was signed into law on October 13, 2006, which among
other things, requires the Securities and Exchange Commission and the Federal
Reserve, in consultation with the other federal banking regulators, to jointly
promulgate regulations to implement the bank broker-dealer exceptions enacted
in
the Gramm-Leach-Bliley Act. On December 13, 2006, the SEC voted to propose
Regulation R, which would implement the bank broker-dealer exceptions.
Regulation R is expected to impact the way Bank associates 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 will broaden 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 accept orders
for
securities transactions from employee plan accounts, individual retirement
plan
accounts, and other similar accounts. Banks would be expected to comply on
the
first day of their fiscal year beginning on or after June 30, 2008.
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.
Consumer
Laws and Regulations.
The
Check Clearing for the 21st
Century
Act, or “Check 21” as it is commonly known, became effective in October 2004.
Check 21 facilitates check collection through a new negotiable instrument called
a “substitute check,” which permits, but does not require, banks to replace
original checks with substitute checks or information from the original check
and process check information electronically. Banks that do use substitute
checks must comply with certain notice and recredit rights. Check 21 cuts the
time and cost involved in physically transporting paper items to reduce float
(i.e., the time between the deposit of a check in a bank and payment) especially
in cases in which items were not already being delivered same-day or
overnight.
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 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. Such legislation may change banking statutes and the environment
in
which our banking subsidiary and we operate in substantial and unpredictable
ways. We cannot determine the ultimate effect that potential legislation, if
enacted, or implementing regulations with respect thereto, would have upon
our
financial condition or results of operations or that of our banking
subsidiary.
Effect
of Governmental Monetary Policies
The
commercial banking business in which 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, 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.
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 2005 and will do the same for
2006.
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.
|
Risk
Factors
|
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
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.
During
the last five years, we have experienced significant growth, and a key aspect
of
our business strategy is our continued growth and expansion. The goal of our
primary business strategy known as Project 2010 is to increase our annual
earnings to $50 million by 2010. 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 branches
will depend on successfully identifying, acquiring and integrating those
institutions or branches. We may be unable to identify attractive acquisition
candidates, make acquisitions on favorable terms or successfully integrate
any
acquired institutions or branches. 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.
We
may need additional capital resources in the future and these capital resources
may not be available when needed or at all.
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.
We
may incur losses if we are unable to successfully manage interest rate
risk.
Our
profitability depends to a large extent on the Bank’s net interest income, which
is the difference between income on interest-earning assets such as loans and
investment securities, and expense on interest-bearing liabilities such as
deposits and 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, 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 because we may need to pay the higher rates on our deposits and
borrowings while being limited on the repricing of these loans due to the
interest rate caps.
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
collectibility of our loan portfolio and provide an allowance for loan losses
that we believe is adequate based upon such factors as:
| § |
the
risk characteristics of various classifications of
loans;
|
| § |
previous
loan loss experience;
|
| § |
specific
loans that have loss potential;
|
| § |
delinquency
trends;
|
| § |
estimated
fair market value of the
collateral;
|
| § |
current
economic conditions; and
|
| § |
geographic
and industry loan concentrations.
|
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
loan portfolio includes loans with a higher risk of loss.
We
originate commercial real estate loans, commercial loans, construction loans,
consumer loans, and residential mortgage loans primarily within our market
area.
Commercial real estate, commercial, construction, and consumer loans may expose
a lender to greater credit risk than loans secured by single-family residential
real estate because the collateral securing these loans may not be sold as
easily as single-family residential real estate. In addition, commercial real
estate, commercial and construction/development loans tend to involve larger
loan balances to a single borrower or groups of related borrowers and are more
susceptible to a risk of loss during a downturn in the business cycle. These
loans also have greater credit risk than residential real estate for the
following reasons:
| § |
Commercial
Real Estate Loans.
Repayment is dependent on income being generated in amounts sufficient
to
cover operating expenses and debt service. These loans also involve
greater risk because they are generally not fully amortizing over
a loan
period, but rather have a balloon payment due at maturity. A borrower’s
ability to make a balloon payment typically will depend on being
able to
either refinance the loan or timely sell the underlying property.
|
| § |
Commercial
Loans.
Repayment is generally dependent upon the successful operation of
the
borrower’s business. In addition, the collateral securing the loans may
depreciate over time, be difficult to appraise, illiquid, or fluctuate
in
value based on the success of the
business.
|
| § |
Construction
Loans.
The risk of loss is largely dependent on our initial estimate of
whether
the property’s value at completion equals or exceeds the cost of property
construction and the availability of take-out financing. During the
construction phase, a number of factors can result in delays or cost
overruns. If our estimate is inaccurate or if actual construction
costs
exceed estimates, the value of the property securing our loan may
be
insufficient to ensure full repayment when completed through a permanent
loan or by seizure of collateral.
|
| § |
Consumer
Loans.
Consumer loans (such as personal lines of credit) are collateralized,
if
at all, with assets that may not provide an adequate source of payment
of
the loan due to depreciation, damage, or
loss.
|
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,
2006, approximately 32.2% and 35.5% of our $2.0 billion loan portfolio was
secured by commercial real estate and residential real estate, respectively.
As
of this same date, approximately 9.0% was secured by property under
construction.
A
major
change in the real estate market, such as a deterioration in the value of the
collateral, or in the local or national economy, could adversely affect our
clients’ ability to repay their loans. 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, there can be no assurance that
we
will 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.
An
economic downturn in Florida and Georgia could hinder our ability to operate
profitably and have an adverse impact on our operations.
Our
interest-earning assets are heavily concentrated in mortgage loans secured
by
properties located in Florida and Georgia. As of December 31, 2006,
substantially all of our loans secured by real estate are secured by properties
located in Florida and Georgia. The concentration of our loans in these areas
subjects us to risk that a downturn in the economy or recession in those areas
could result in a decrease in loan originations and increases in delinquencies
and foreclosures, which would more greatly affect us than if our lending were
more geographically diversified. In addition, since a large portion of our
portfolio is secured by properties located in Florida, 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 in that state. We may suffer losses if there is a decline
in
the value of the properties underlying our mortgage loans that 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:
| § |
general
or local economic conditions;
|
| § |
neighborhood
values;
|
| § |
interest
rates;
|
| § |
real
estate tax rates;
|
| § |
operating
expenses of the mortgaged
properties;
|
| § |
supply
of and demand for rental units or
properties;
|
| § |
ability
to obtain and maintain adequate occupancy of the
properties;
|
| § |
zoning
laws;
|
| § |
governmental
rules, regulations and fiscal policies;
and
|
| § |
acts
of God.
|
Certain
expenditures associated with the ownership of real estate, principally real
estate taxes and maintenance costs, may adversely affect the income from the
real estate. Therefore, the cost of operating real property may exceed the
rental income earned from such property, and we may have to advance funds in
order to protect our investment or we may be required to dispose of the real
property at a loss.
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 as a result of providing certain services,
which
could adversely affect our results of operations.
We
are
exposed to operational risk as a result 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 as a result of noncompliance with applicable
laws and regulatory requirements which 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
Department of Financial Services, the Federal Reserve, and the FDIC. As a member
of the Federal Home Loan Bank (“FHLB”), the Bank must also comply with
applicable regulations of the Federal Housing Finance Board and the FHLB.
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,
2006
was approximately 20,449 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
shareowners who own more than 5% of our common stock, directors, and executive
officers, beneficially owned approximately 46.4% of the outstanding shares
of
our stock as of December 31, 2006. 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 registered with the Federal Reserve as a bank
holding company under the BHCA. As a result, we are subject to supervisory
regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley Act,
the BHCA, and other federal laws subject financial holding companies to
particular restrictions on the types of activities in which they may engage,
and
to a range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.
Provisions
of our Articles of Incorporation, Bylaws, certain laws and regulations and
various other factors may make it more difficult and expensive for companies
or
persons to acquire control of us without the consent of our Board of Directors.
It is possible, however, that you would want a takeover attempt to succeed
because, for example, a potential buyer could offer a premium over the then
prevailing price of our common stock.
For
example, our Articles of Incorporation permit our Board of Directors to issue
preferred stock without shareowner action. The ability to issue preferred stock
could discourage a company from attempting to obtain control of us by means
of a
tender offer, merger, proxy contest or otherwise. Additionally, our Articles
of
Incorporation and Bylaws divide our Board of Directors into three classes,
as
nearly equal in size as possible, with staggered three-year terms. One class
is
elected each year. The classification of our Board of Directors could make
it
more difficult for a company to acquire control of us. We are also subject
to
certain provisions of the Florida Business Corporation Act and our Articles
of
Incorporation that relate to business combinations with interested shareowners.
Other provisions in our Articles of Incorporation or Bylaws that may discourage
takeover attempts or make them more difficult include:
| § |
Supermajority
voting requirements to remove a director from
office;
|
| § |
Provisions
regarding the timing and content of shareowner proposals and
nominations;
|
| § |
Supermajority
voting requirements to amend Articles of Incorporation unless approval
is
received by a majority of “disinterested
directors”;
|
| § |
Absence
of cumulative voting; and
|
| § |
Inability
for shareowners to take action by written
consent.
|
|
Unresolved
Staff Comments
|
None.
|
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.
The
Bank's Parkway Office is located on land leased from the Smith Interests General
Partnership L.L.P. in which several directors and officers have an interest.
The
annual lease provides for payments of approximately $109,000, to be adjusted
for
inflation in future years.
As
of
February 28, 2007, the Bank had 69 banking locations. Of the 69 locations,
the
Bank leases the land, buildings, or both at 14 locations and owns the land
and
buildings at the remaining 55.
|
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.
PART
II
|
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, as adjusted for our 5-for-4 stock split effective
July 1, 2005. We had a total of 1,805 shareowners of record as of February
28,
2007.
|
|
|
2006
|
|
2005
|
|
||||||||||||||||||||
|
|
|
Fourth
Qtr.
|
|
Third
Qtr.
|
|
Second
Qtr.
|
|
First
Qtr.
|
|
Fourth
Qtr.
|
|
Third
Qtr.
|
|
Second
Qtr.
|
|
First
Qtr.
|
|
||||||||
|
Common
stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
High
|
|
$
|
35.98
|
|
$
|
33.25
|
|
$
|
35.39
|
|
$
|
37.97
|
|
$
|
39.33
|
|
$
|
38.72
|
|
$
|
33.46
|
|
$
|
33.60
|
|
|
Low
|
|
|
30.14
|
|
|
29.87
|
|
29.51
|
|
|
33.79
|
|
|
33.21
|
|
|
31.78
|
|
|
28.02
|
|
|
29.30
|
|
|
|
Close
|
|
|
35.30
|
|
|
31.10
|
|
|
30.20
|
|
|
35.55
|
|
|
34.29
|
|
|
37.71
|
|
|
32.32
|
|
|
32.41
|
|
|
Cash
dividends declared per share
|
|
|
.1750
|
|
|
.1625
|
|
|
.1625
|
|
|
.1625
|
|
|
.1625
|
|
|
.1520
|
|
|
.1520
|
|
|
.1520
|
|
Future
payment of dividends will be subject to determination and declaration by our
Board of Directors. Florida law limits our payment of dividends. There are
also
legal limits on the frequency and amount of dividends that CCB can pay us.
See
subsection entitled "Dividends" in the Business section on page 9, in the
Management's Discussion and Analysis of Financial Condition and Operating
Results on page 43 and Note 14 in the Notes to Consolidated Financial
Statements. These restrictions may limit our ability to pay dividends to our
shareowners. As of February 28, 2007, we do not believe these restrictions
will
impair our ability to declare and pay our routine and customary
dividends.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
The
following table contains information about all purchases made by or on behalf
of
us or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the
Exchange Act) of shares or other units of any class of our equity securities
that is registered pursuant to Section 12 of the Exchange Act.
|
Period
|
Total
number
of
shares
purchased
|
|
Average
price
paid
per
share
|
|
Total
number of
shares
purchased as
part
of our share
repurchase
program(1)
|
|
Maximum
Number
of
shares that
may
yet be purchased
under
our share
repurchase
program
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
October
1, 2006 to October 31, 2006
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
307,758
|
|
||||||
|
November
1, 2006 to November 30, 2006
|
|
11,581
|
|
|
|
$32.98
|
|
|
|
879,837
|
|
|
|
296,177
|
|
||||
|
December
1, 2006 to December 31, 2006
|
|
4,139
|
|
|
|
32.90
|
|
|
|
883,976
|
|
|
|
292,038
|
|
||||
|
Total
|
|
15,720
|
|
|
|
$32.96
|
|
|
|
883,976
|
|
|
|
292,038
|
|
||||
|
(1)
|
This
balance represents the number of shares that were repurchased through
the
Capital City Bank Group, Inc. Share Repurchase Program, which was
approved
on March 30, 2000, and modified by our Board on January 24, 2002
(the
"Program") under which we were authorized to repurchase up to 1,171,875
shares of our common stock. The Program is flexible and shares are
acquired from the public markets and other sources with either free
cash
flow or borrowed funds. There is no predetermined expiration date
for the
Program.
|
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, 2001 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
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
|
Capital
City Bank Group, Inc.
|
100.00
|
168.06
|
251.02
|
232.18
|
242.31
|
254.43
|
|
NASDAQ
Composite
|
100.00
|
68.76
|
103.67
|
113.16
|
115.57
|
127.58
|
|
SNL
$1B-$5B Bank Index
|
100.00
|
115.44
|
156.98
|
193.74
|
190.43
|
220.36
|
Item
6. Selected
Financial Data
|
|
|
For
the Years Ended December 31,
|
|
|||||||||||||
|
(Dollars
in Thousands, Except Per Share Data)(1)
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Interest
Income
|
|
$
|
165,893
|
|
$
|
140,053
|
|
$
|
101,525
|
|
$
|
94,830
|
|
$
|
104,165
|
|
|
Net
Interest Income
|
|
|
119,136
|
|
|
109,990
|
|
|
86,084
|
|
|
79,991
|
|
|
81,662
|
|
|
Provision
for Loan Losses
|
|
|
1,959
|
|
|
2,507
|
|
|
2,141
|
|
|
3,436
|
|
|
3,297
|
|
|
Net
Income
|
|
|
33,265
|
|
|
30,281
|
|
|
29,371
|
|
|
25,193
|
|
|
23,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Net Income
|
|
$
|
1.79
|
|
$
|
1.66
|
|
$
|
1.74
|
|
$
|
1.53
|
|
$
|
1.40
|
|
|
Diluted
Net Income
|
|
|
1.79
|
|
|
1.66
|
|
|
1.74
|
|
|
1.52
|
|
|
1.39
|
|
|
Cash
Dividends Declared
|
|
|
.663
|
|
|
.619
|
|
|
.584
|
|
|
.525
|
|
|
.402
|
|
|
Book
Value
|
|
|
17.01
|
|
|
16.39
|
|
|
14.51
|
|
|
15.27
|
|
|
14.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on Average Assets
|
|
|
1.29
|
%
|
|
1.22
|
%
|
|
1.46
|
%
|
|
1.40
|
%
|
|
1.34
|
%
|
|
Return
on Average Equity
|
|
|
10.48
|
|
|
10.56
|
|
|
13.31
|
|
|
12.82
|
|
|
12.85
|
|
|
Net
Interest Margin (FTE)
|
|
|
5.35
|
|
|
5.09
|
|
|
4.88
|
|
|
5.01
|
|
|
5.35
|
|
|
Dividend
Pay-Out Ratio
|
|
|
37.01
|
|
|
37.35
|
|
|
33.62
|
|
|
34.51
|
|
|
28.87
|
|
|
Equity
to Assets Ratio
|
|
|
12.15
|
|
|
11.65
|
|
|
10.86
|
|
|
10.98
|
|
|
10.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
|
|
$
|
17,217
|
|
$
|
17,410
|
|
$
|
16,037
|
|
$
|
12,429
|
|
$
|
12,495
|
|
|
Allowance
for Loan Losses to Loans
|
|
|
0.86
|
%
|
|
0.84
|
%
|
|
0.88
|
%
|
|
0.93
|
%
|
|
0.97
|
%
|
|
Nonperforming
Assets
|
|
|
8,731
|
|
|
5,550
|
|
|
5,271
|
|
|
7,301
|
|
|
3,843
|
|
|
Nonperforming
Assets to Loans + ORE
|
|
|
0.44
|
|
|
0.27
|
|
|
0.29
|
|
|
0.54
|
|
|
0.30
|
|
|
Allowance
to Nonperforming Loans
|
|
|
214.09
|
|
|
331.11
|
|
|
345.18
|
|
|
529.80
|
|
|
497.72
|
|
|
Net
Charge-Offs to Average Loans
|
|
|
0.11
|
|
|
0.13
|
|
|
0.22
|
|
|
0.27
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
for the Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
Net
|
|
$
|
2,029,397
|
|
$
|
1,968,289
|
|
$
|
1,538,744
|
|
$
|
1,318,080
|
|
$
|
1,256,107
|
|
|
Earning
Assets
|
|
|
2,258,277
|
|
|
2,187,672
|
|
|
1,789,843
|
|
|
1,624,680
|
|
|
1,556,500
|
|
|
Total
Assets
|
|
|
2,581,078
|
|
|
2,486,733
|
|
|
2,006,745
|
|
|
1,804,895
|
|
|
1,727,180
|
|
|
Deposits
|
|
|
2,034,931
|
|
|
1,954,888
|
|
|
1,599,201
|
|
|
1,431,808
|
|
|
1,424,999
|
|
|
Subordinated
Notes
|
|
|
62,887
|
|
|
50,717
|
|
|
5,155
|
|
|
-
|
|
|
-
|
|
|
Long-Term
Borrowings
|
|
|
57,260
|
|
|
70,216
|
|
|
59,462
|
|
|
55,594
|
|
|
30,423
|
|
|
Shareowners'
Equity
|
|
|
317,336
|
|
|
286,712
|
|
|
220,731
|
|
|
196,588
|
|
|
179,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-End
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
Net
|
|
$
|
1,999,721
|
|
$
|
2,067,494
|
|
$
|
1,828,825
|
|
$
|
1,341,632
|
|
$
|
1,285,221
|
|
|
Earning
Assets
|
|
|
2,270,410
|
|
|
2,299,677
|
|
|
2,113,571
|
|
|
1,648,818
|
|
|
1,636,472
|
|
|
Total
Assets
|
|
|
2,597,910
|
|
|
2,625,462
|
|
|
2,364,013
|
|
|
1,846,502
|
|
|
1,824,771
|
|
|
Deposits
|
|
|
2,081,654
|
|
|
2,079,346
|
|
|
1,894,886
|
|
|
1,474,205
|
|
|
1,434,200
|
|
|
Subordinated
Notes
|
|
|
62,887
|
|
|
62,887
|
|
|
30,928
|
|
|
-
|
|
|
-
|
|
|
Long-Term
Borrowings
|
|
|
43,083
|
|
|
69,630
|
|
|
68,453
|
|
|
46,475
|
|
|
71,745
|
|
|
Shareowners'
Equity
|
|
|
315,770
|
|
|
305,776
|
|
|
256,800
|
|
|
202,809
|
|
|
186,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Average Shares Outstanding
|
|
|
18,584,519
|
|
|
18,263,855
|
|
|
16,805,696
|
|
|
16,528,109
|
|
|
16,531,606
|
|
|
Diluted
Average Shares Outstanding
|
|
|
18,609,839
|
|
|
18,281,243
|
|
|
16,810,926
|
|
|
16,563,986
|
|
|
16,592,944
|
|
|
Shareowners
of Record(2)
|
|
|
1,805
|
|
|
1,716
|
|
|
1,598
|
|
|
1,512
|
|
|
1,457
|
|
|
Banking
Locations(2)
|
|
|
69
|
|
|
69
|
|
|
60
|
|
|
57
|
|
|
54
|
|
|
Full-Time
Equivalent Associates(2)
|
|
|
1,056
|
|
|
1,013
|
|
|
926
|
|
|
795
|
|
|
781
|
|
|
(1)
|
All
share and per share data have been adjusted to reflect the 5-for-4
stock
split effective July 1, 2005, and the 5-for-4 stock split effective
June
13, 2003.
|
|
(2)
|
As
of the record date. The record date is on or about March 1st of the
following year.
|
|
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. 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." Information therein should facilitate
a better understanding of the major factors and trends that affect our earnings
performance and financial condition, and how our performance during 2006
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, 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
one-time 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 one-time 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 one-time 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,
|
|||
|
2006
|
2005
|
2004
|
|
|
Efficiency
ratio
|
68.87%
|
68.46%
|
64.73%
|
|
Effect
of intangible amortization and one-time merger expenses
|
(3.45)%
|
(3.67)%
|
(3.17%)
|
|
Operating
efficiency ratio
|
65.42%
|
64.79%
|
61.56%
|
Reconciliation
of operating net noninterest expense ratio -
|
For
the Years Ended December 31,
|
|||
|
2006
|
2005
|
2004
|
|
|
Net
noninterest expense as a percent of average assets
|
2.56%
|
2.44%
|
1.93%
|
|
Effect
of intangible amortization and one-time merger expenses
|
(0.24)%
|
(0.24)%
|
(0.22)%
|
|
Operating
net noninterest expense ratio
|
2.32%
|
2.20%
|
1.71%
|
The
following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in this Annual
Report on Form 10-K.
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 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 69
full-service offices located in Florida, Georgia, and Alabama. The Bank also
has
mortgage lending offices in three additional Florida communities, and one
Georgia community. The Bank offers commercial and retail banking services,
as
well as trust and asset management, merchant services, 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, mortgage banking revenues,
merchant service fees, brokerage 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 are a super-community bank in the relationship banking business with 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, and community advisory 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.
Pursuant
to our long-term strategic initiative, "Project 2010", we have continued 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. 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, insurance, and mortgage
banking.
Recent
Acquisitions.
On May
20, 2005, we completed our merger with First Alachua Banking Corporation
("FABC"), headquartered in Alachua, Florida. We issued approximately 906,000
shares of common stock and paid approximately $29.0 million in cash for a total
purchase price of $58.0 million. FABC's wholly-owned subsidiary, First National
Bank of Alachua, had $228.3 million in assets at closing with seven offices
in
Alachua County and an eighth office in Hastings, Florida, which is in St. Johns
County.
On
October 15, 2004, we completed our acquisition of Farmers and Merchants Bank
("FMB") in Dublin, Georgia, a $395 million asset institution with three offices
in Laurens County. We issued 21.35 shares and $666.50 in cash for each of the
50,000 shares of Farmers and Merchants Bank, resulting in the issuance of
1,067,500 shares of our common stock and the payment of $33.3 million in cash
for a total purchase price of approximately $66.7 million.
On
March
19, 2004, our subsidiary, CCB, completed its merger with Quincy State Bank
("QSB"), a former subsidiary of Synovus Financial Corp. QSB had $116.6 million
in assets with one office in Quincy, Florida and one office in Havana, Florida.
Both markets adjoin Leon County, home to our Tallahassee headquarters. In
addition, we acquired $208 million in trust and other fiduciary assets from
Synovus Trust Company, an affiliate of QSB. The purchase price was $28.1 million
in cash.
Throughout
this section, we refer to the acquisitions of FABC, FMB, and QSB as the "Recent
Acquisitions."
FINANCIAL
OVERVIEW
A
summary
overview of our financial performance for 2006 versus 2005 is provided below.
2006
Financial Performance Highlights -
| § |
2006
earnings of $33.3 million, or $1.79 per diluted share, an increase
of 9.9%
and 7.8%, respectively, over 2005.
|
| § |
Growth
in earnings was attributable to strong growth in operating revenues
led by
an 8.3% improvement in net interest income and a 13.0% increase in
noninterest income.
|
| § |
Tax
equivalent net interest income grew 8.8% over 2005 due to growth
in
average earnings assets attributable to the FABC acquisition and
an
improved net interest margin.
|
| § |
Net
interest margin percentage improved 26 basis points over 2005 driven
by
higher earning asset yields and a slight improvement in the earning
asset
mix.
|
| § |
Noninterest
income grew 13.0% over 2005 due primarily to higher deposit fees,
retail
brokerage fees, and card processing
fees.
|
| § |
Strong
credit quality continues to be a key driver in the Bank’s earnings
performance. Net charge-offs totaled $2.1 million, or .11% of average
loans for 2006 compared to $2.5 million, or .13% in 2005. At year-end
the
allowance for loan losses was .86% of outstanding loans and provided
coverage of 214% of nonperforming
loans.
|
| § |
We
remain well-capitalized with a risk based capital ratio of
14.95%.
|
RESULTS
OF OPERATIONS
Net
income for 2006 totaled $33.3 million, or $1.79 per diluted share. This compares
to $30.3 million or $1.66 per diluted share in 2005, and $29.4 million, or
$1.74
per diluted share in 2004. Results in 2006 reflect the acquisition of FABC
in
May 2005. Net income in 2004 included a one-time, after-tax gain of $4.2
million, or $.25 per diluted share, from the sale of the Bank’s credit card
portfolio in August 2004.
The
growth in earnings for 2006 of $3.0 million, or $.13 per diluted share, was
primarily attributable to growth in operating revenue (defined as the total
of
net interest income and noninterest income) of $15.5 million and a reduction
in
the loan loss provision of $0.5 million, partially offset by an increase in
noninterest expense of $11.8 million and income taxes of $1.3 million. The
increase in operating revenue was driven by an 8.3% increase in net interest
income and a 13.0% increase in noninterest income.
The
growth in net interest income for 2006 reflects earning asset growth and an
improved net interest margin. Higher deposit service charge fees, retail
brokerage fees, and card processing fees drove the increase in noninterest
income. The lower loan loss provision is reflective of a lower level of required
reserves. The increase in noninterest expense is primarily attributable to
higher compensation and occupancy costs. The integration of the FABC acquisition
was the primary reason for the increase in compensation, and the addition of
new
banking offices, replacement offices, and renovations to existing properties
drove the increase in occupancy.
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)(1)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Interest
Income
|
|
$
|
165,893
|
|
$
|
140,053
|
|
$
|
101,525
|
|
|
Taxable
Equivalent Adjustments
|
|
|
1,812
|
|
|
1,222
|
|
|
1,207
|
|
|
Total
Interest Income (FTE)
|
|
|
167,705
|
|
|
141,275
|
|
|
102,732
|
|
|
Interest
Expense
|
|
|
46,757
|
|
|
30,063
|
|
|
15,441
|
|
|
Net
Interest Income (FTE)
|
|
|
120,948
|
|
|
111,212
|
|
|
87,291
|
|
|
Provision
for Loan Losses
|
|
|
1,959
|
|
|
2,507
|
|
|
2,141
|
|
|
Taxable
Equivalent Adjustments
|
|
|
1,812
|
|
|
1,222
|
|
|
1,207
|
|
|
Net
Interest Income After Provision for Loan Losses
|
|
|
117,177
|
|
|
107,483
|
|
|
83,943
|
|
|
Noninterest
Income
|
|
|
55,577
|
|
|
49,198
|
|
|
43,372
|
|
|
Gain
on Sale of Credit Card Portfolios
|
|
|
-
|
|
|
-
|
|
|
7,181
|
|
|
Noninterest
Expense
|
|
|
121,568
|
|
|
109,814
|
|
|
89,226
|
|
|
Income
Before Income Taxes
|
|
|
51,186
|
|
|
46,867
|
|
|
45,270
|
|
|
Income
Taxes
|
|
|
17,921
|
|
|
16,586
|
|
|
15,899
|
|
|
Net
Income
|
$
|
33,265
|
$
|
30,281
|
$
|
29,371
|
||||
|
Basic
Net Income Per Share
|
$
|
1.79
|
$
|
1.66
|
$
|
1.74
|
||||
|
Diluted
Net Income Per Share
|
$
|
1.79
|
$
|
1.66
|
$
|
1.74
|
||||
|
(1)
|
All
share and per share data have been adjusted to reflect the 5-for-4
stock
split effective July 1, 2005.
|
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. An analysis of our net interest income,
including average yields and rates, is presented in Tables 2 and 3. This
information is presented 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
2006,
taxable equivalent net interest income increased $9.7 million, or 8.8%. This
follows an increase of $23.9 million, or 27.4%, in 2005, and an increase of
$5.9
million, or 7.2%, in 2004. The favorable impact in 2006 resulted from a $70.6
million, or 3.2%, growth in average earning assets and a 26 basis point
improvement in the net interest margin percentage. These increases reflect
the
integration of our acquisition of FABC, higher earning asset yields and a slight
improvement in earning asset mix, partially offset by higher funding cost.
The
increase in yields and funding costs are a result of the higher interest rate
environment.
Table
2
AVERAGE
BALANCES AND INTEREST RATES
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||||||||||||||||||
|
(Taxable
Equivalent Basis - Dollars in Thousands)
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|||||||||
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Loans,
Net of Unearned Interest(1)(2)
|
|
$
|
2,029,397
|
|
$
|
157,227
|
|
|
7.75
|
%
|
$
|
1,968,289
|
|
$
|
133,665
|
|
|
6.79
|
%
|
$
|
1,538,744
|
|
$
|
95,796
|
|
|
6.23
|
%
|
|
Taxable
Investment Securities
|
|
|
112,392
|
|
|
4,851
|
|
|
4.31
|
%
|
|
142,406
|
|
|
4,250
|
|
|
2.98
|
%
|
|
131,842
|
|
|
3,138
|
|
|
2.38
|
%
|
|
Tax-Exempt
Investment Securities(2)
|
|
|
74,634
|
|
|
3,588
|
|
|
4.81
|
%
|
|
49,252
|
|
|
2,369
|
|
|
4.81
|
%
|
|
51,979
|
|
|
2,965
|
|
|
5.70
|
%
|
|
Funds
Sold
|
|
|
41,854
|
|
|
2,039
|
|
|
4.81
|
%
|
|
27,725
|
|
|
991
|
|
|
3.53
|
%
|
|
67,278
|
|
|
833
|
|
|
1.24
|
%
|
|
Total
Earning Assets
|
|
|
2,258,277
|
|
|
167,705
|
|
|
7.42
|
%
|
|
2,187,672
|
|
|
141,275
|
|
|
6.46
|
%
|
|
1,789,843
|
|
|
102,732
|
|
|
5.74
|
%
|
|
Cash
& Due From Banks
|
|
|
100,237
|
|
|
|
|
|
|
|
|
105,787
|
|
|
|
|
|
|
|
|
93,070
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
|
|
|
(17,486
|
)
|
|
|
|
|
|
|
|
(17,081
|
)
|
|
|
|
|
|
|
|
(13,846
|
)
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
240,050
|
|
|
|
|
|
|
|
|
210,355
|
|
|
|
|
|
|
|
|
137,678
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
2,581,078
|
|
|
|
|
|
|
|
$
|
2,486,733
|
|
|
|
|
|
|
|
$
|
2,006,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
Accounts
|
|
$
|
518,671
|
|
$
|
7,658
|
|
|
1.48
|
%
|
$
|
430,601
|
|
$
|
2,868
|
|
|
.67
|
%
|
$
|
292,492
|
|
$
|
733
|
|
|
.25
|
%
|
|
Money
Market Accounts
|
|
|
370,257
|
|
|
11,687
|
|
|
3.16
|
%
|
|
275,830
|
|
|
4,337
|
|
|
1.57
|
%
|
|
227,808
|
|
|
1,190
|
|
|
.52
|
%
|
|
Savings
Accounts
|
|
|
134,033
|
|
|
278
|
|
|
0.21
|
%
|
|
152,890
|
|
|
292
|
|
|
0.19
|
%
|
|
130,282
|
|
|
164
|
|
|
.13
|
%
|
|
Other
Time Deposits
|
|
|
507,283
|
|
|
17,630
|
|
|
3.48
|
%
|
|
550,821
|
|
|
13,637
|
|
|
2.48
|
%
|
|
459,464
|
|
|
9,228
|
|
|
2.01
|
%
|
|
Total
Int. Bearing Deposits
|
|
|
1,530,244
|
|
|
37,253
|
|
|
2.43
|
%
|
|
1,410,142
|
|
|
21,134
|
|
|
1.50
|
%
|
|
1,110,046
|
|
|
11,315
|
|
|
1.02
|
%
|
|
Short-Term
Borrowings
|
|
|
78,700
|
|
|
3,074
|
|
|
3.89
|
%
|
|
97,863
|
|
|
2,854
|
|
|
2.92
|
%
|
|
100,582
|
|
|
1,270
|
|
|
1.26
|
%
|
|
Subordinated
Notes Payable
|
|
|
62,887
|
|
|
3,725
|
|
|
5.92
|
%
|
|
50,717
|
|
|
2,981
|
|
|
5.88
|
%
|
|
5,155
|
|
|
294
|
|
|
5.71
|
%
|
|
Other
Long-Term Borrowings
|
|
|
57,260
|
|
|
2,705
|
|
|
4.72
|
%
|
|
70,216
|
|
|
3,094
|
|
|
4.41
|
%
|
|
59,462
|
|
|
2,562
|
|
|
4.31
|
%
|
|
Total
Int. Bearing Liabilities
|
|
|
1,729,091
|
|
|
46,757
|
|
|
2.70
|
%
|
|
1,628,938
|
|
|
30,063
|
|
|
1.85
|
%
|
|
1,275,245
|
|
|
15,441
|
|
|
1.21
|
%
|
|
Noninterest
Bearing Deposits
|
|
|
504,687
|
|
|
|
|
|
|
|
|
544,746
|
|
|
|
|
|
|
|
|
489,155
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
29,964
|
|
|
|
|
|
|
|
|
26,337
|
|
|
|
|
|
|
|
|
21,614
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
2,263,742
|
|
|
|
|
|
|
|
|
2,200,021
|
|
|
|
|
|
|
|
|
1,786,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREOWNERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREOWNERS' EQUITY
|
|
|
317,336
|
|
|
|
|
|
|
|
|
286,712
|
|
|
|
|
|
|
|
|
220,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES & EQUITY
|
|
$
|
2,581,078
|
|
|
|
|
|
|
|
$
|
2,486,733
|
|
|
|
|
|
|
|
$
|
2,006,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Spread
|
|
|
|
|
|
|
|
|
4.72
|
%
|
|
|
|
|
|
|
|
4.61
|
%
|
|
|
|
|
|
|
|
4.53
|
%
|
|
Net
Interest Income
|
|
|
|
|
$
|
120,948
|
|
|
|
|
|
|
|
$
|
111,212
|
|
|
|
|
|
|
|
$
|
87,291
|
|
|
|
|
|
Net
Interest Margin(3)
|
|
|
|
|
|
|
|
|
5.35
|
%
|
|
|
|
|
|
|
|
5.09
|
%
|
|
|
|
|
|
|
|
4.88
|
%
|
|
(1)
|
Average
balances include nonaccrual loans. Interest income includes loan
fees of
$3.8 million, $3.1 million, and $1.7 million in 2006, 2005, and 2004,
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)
|
|
|
2006
Changes From 2005
|
|
2005
Changes From 2004
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
Due
to Average
|
|
|
|
Due
to Average
|
|
||||||||||||||||||||||||
|
(Taxable
Equivalent Basis - Dollars in Thousands)
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
|
Calendar
(3)
|
|
Volume
|
|
Rate
|
|
||||||||||||||||||
|
Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Loans,
Net of Unearned Interest (2)
|
|
$
|
23,562
|
|
$
|
5,760
|
|
$
|
17,802
|
|
$
|
37,870
|
|
$
|
(262
|
)
|
$
|
27,706
|
|
$
|
11,506
|
|
|||||||||||
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Taxable
|
|
|
601
|
|
|
(689
|
)
|
|
1,290
|
|
|
1,110
|
|
|
(3
|
)
|
|
693
|
|
|
420
|
|
|||||||||||
|
Tax-Exempt
(2)
|
|
|
1,219
|
|
|
1,220
|
|
|
(1
|
)
|
|
(597
|
)
|
|
-
|
|
|
(156
|
)
|
|
(441
|
)
|
|||||||||||
|
Funds
Sold
|
|
|
1,048
|
|
|
444
|
|
|
604
|
|
|
158
|
|
|
(2
|
)
|
|
(488
|
)
|
|
648
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total
|
|
|
26,430
|
|
|
6,735
|
|
|
19,695
|
|
|
38,541
|
|
|
(267
|
)
|
|
27,125
|
|
|
11,683
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Interest
Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
NOW
Accounts
|
|
|
4,790
|
|
|
586
|
|
|
4,204
|
|
|
2,134
|
|
|
(2
|
)
|
|
347
|
|
|
1,789
|
|
|||||||||||
|
Money
Market Accounts
|
|
|
7,350
|
|
|
1,485
|
|
|
5,865
|
|
|
3,148
|
|
|
(3
|
)
|
|
251
|
|
|
2,900
|
|
|||||||||||
|
Savings
Accounts
|
|
|
(14
|
)
|
|
(36
|
)
|
|
22
|
|
|
128
|
|
|
(1
|
)
|
|
28
|
|
|
101
|
|
|||||||||||
|
Time
Deposits
|
|
|
3,993
|
|
|
(1,078
|
)
|
|
5,071
|
|
|
4,408
|
|
|
(25
|
)
|
|
1,840
|
|
|
2,593
|
|
|||||||||||
|
Short-Term
Borrowings
|
|
|
221
|
|
|
(586
|
)
|
|
807
|
|
|
1,585
|
|
|
(3
|
)
|
|
83
|
|
|
1,505
|
|
|||||||||||
|
Subordinated
Notes Payable
|
|
|
744
|
|
|
715
|
|
|
29
|
|
|
2,687
|
|
|
(1
|
)
|
|
2,609
|
|
|
79
|
|
|||||||||||
|
Long-Term
Borrowings
|
|
|
(390
|
)
|
|
(571
|
)
|
|
181
|
|
|
532
|
|
|
(7
|
)
|
|
465
|
|
|
74
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total
|
|
|
16,694
|
|
|
515
|
|
|
16,179
|
|
|
14,622
|
|
|
(42
|
)
|
|
5,623
|
|
|
9,041
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Changes
in Net Interest Income
|
|
$
|
9,736
|
|
$
|
6,220
|
|
$
|
3,516
|
|
$
|
23,919
|
|
$
|
(255
|
)
|
$
|
21,502
|
|
$
|
2,642
|
|
|||||||||||
|
(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
the difference in 365 day year (2005) versus 366 day year
(2004).
For
the
year 2006, taxable equivalent interest income increased $26.4 million, or 18.7%,
over 2005, and increased $38.5 million, or 37.5%, in 2005 over 2004. Growth
in
2006 was driven primarily by higher yields on earning assets and by the FABC
acquisition. Rising interest rates during the first six months, coupled with
the
re-pricing of existing earning assets were the primary factors contributing
to a
96 basis point improvement in the yield on earning assets, which increased
from
6.46% in 2005 to 7.42% for 2006. This compares to a 72 basis point improvement
in 2005 over 2004. As shown in Table 3, the loan portfolio was a significant
contributor to the increase in interest income. Growth in interest income is
expected to slow significantly in 2007, reflecting the current interest rate
environment and the slowdown in loan activity over recent quarters.
Interest
expense increased $16.7 million, or 55.5%, over 2005, and $14.6 million, or
94.7%, in 2005 over 2004. Rising interest rates and growth in interest bearing
liabilities drove the increase in 2006. However, the impact of rising rates
was
partially offset by a shift in mix, as certificates of deposit (generally a
higher cost deposit product) declined relative to total deposits. Certificates
of deposit, as a percent of total average deposits, declined from 28.2% in
2005
to 24.9% in 2006. The average rate paid on interest bearing liabilities in
2006
increased 85 basis points compared to 2005, reflecting both deposit competition
and the Federal Reserve's increases in the federal funds target rate. Interest
expense is expected to trend upward in the upcoming year driven by the higher
rate environment and increasing competition for 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
11
basis points in 2006 and increased 8 basis points in 2005. The increase in
2006
was primarily attributable to the higher yields on earning assets.
Our
net
interest margin (defined as taxable equivalent interest income less interest
expense divided by average earning assets) was 5.35% in 2006, compared to 5.09%
in 2005 and 4.88% in 2004. In 2006, the higher yields on earning assets
(partially offset by higher rates paid on interest bearing liabilities) resulted
in a 26 basis point improvement in the margin.
During
2007, we anticipate some pressure on the net interest margin due to the
increasing cost of deposits driven by the current rate environment and market
conditions, and the slowdown in loan activity, which we have experienced over
the last several quarters. A further discussion of our earning assets and
funding sources can be found in the section entitled "Financial
Condition."
Provision
for Loan Losses
The
provision for loan losses was $2.0 million in 2006, compared to $2.5 million
in
2005 and $2.1 million in 2004. As discussed below, the analysis of our loan
loss
allowance resulted in a lower level of required reserves compared to 2005.
The
reduction in required reserves was driven by a decline in specific reserves
held
for several large previously identified impaired loans that were resolved during
2006. The loan loss provisions in both 2005 and 2004 were impacted by a
re-assessment of the allowance for loan losses to reflect the changing risk
profile associated with the Bank’s sale of its credit card portfolio during the
third quarter of 2004 and the integration of our 2004 and 2005
acquisitions.
Our
net
charge-offs continue to remain low as a percentage of our average loan
portfolio. Net charge-offs for 2006 totaled $2.1 million, or .11% of average
loans for the year compared to $2.5 million, or .13% for 2005 and $3.4 million,
or .22% for 2004. At December 31, 2006, the allowance for loan losses totaled
$17.2 million compared to $17.4 million in 2005 and $16.0 million in 2004.
At
year-end 2006, the allowance represented .86% of total loans and provided
coverage of 214% of nonperforming loans. Management considers the allowance
to
be adequate based on the current level of nonperforming loans and the estimate
of losses inherent in the portfolio at year-end. See the section entitled
"Financial Condition" and Tables 7 and 8 for further information regarding
the
allowance for loan losses.
Noninterest
Income
Noninterest
income increased $6.4 million, or 13.0%, over 2005 primarily due to higher
deposit fees, retail brokerage fees, and card processing fees, which were
slightly offset by the decrease in mortgage banking revenues.
In
2005,
noninterest income (excluding the before-tax gain of $6.9 million on the sale
of
the Bank's credit card portfolio in August 2004) increased $5.5 million, or
12.6%, over 2004 primarily due to higher deposit service charge fees, asset
management fees, mortgage banking revenues, and merchant services
fees.
The
table
below reflects the major components of noninterest income.
|
|
|
For
the Years Ended December 31,
|
|||||||
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|||
|
Noninterest
Income:
|
|
|
|
|
|
|
|||
|
Service
Charges on Deposit Accounts
|
|
$
|
24,620
|
|
$
|
20,740
|
|
$
|
17,574
|
|
Data
Processing
|
|
|
2,723
|
|
|
2,610
|
|
|
2,628
|
|
Asset
Management Fees
|
|
|
4,600
|
|
|
4,419
|
|
|
4,007
|
|
Retail
Brokerage Fees
|
|
|
2,091
|
|
|
1,322
|
|
|
1,401
|
|
(Loss)/Gain
on Sale of Investment Securities
|
(4)
|
9
|
14
|
||||||
|
Mortgage
Banking Revenues
|
|
|
3,235
|
|
|
4,072
|
|
|
3,208
|
|
Merchant
Services Fees
|
|
|
6,978
|
|
|
6,174
|
|
|
5,135
|
|
Interchange
Fees
|
|
|
3,105
|
|
|
2,239
|
|
|
2,229
|
|
Gain
on Sale of Credit Card Portfolios
|
-
|
-
|
7,180
|
||||||
|
ATM/Debit
Card Fees
|
|
|
2,519
|
|
|
2,206
|
|
|
2,007
|
|
Other
|
|
|
5,710
|
|
|
5,407
|
|
|
5,170
|
|
Total
Noninterest Income
|
|
$
|
55,577
|
|
$
|
49,198
|
|
$
|
50,553
|
Various
significant components of noninterest income are discussed in more detail
below.
Service
Charges on Deposit Accounts.
Deposit
service charge fees increased $3.9 million, or 18.7%, in 2006, compared to
an
increase of $3.2 million, or 18.0%, in 2005. 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 service charge fees in both 2006 and 2005
primarily reflects higher overdraft and nonsufficient funds ("NSF") fees due
to
growth in deposit accounts attributable to Recent Acquisitions and our
"Absolutely Free” checking products. Improved fee collection efforts also
contributed to the improvement in 2006.
Asset
Management Fees.
In
2006, asset management fees increased $181,000, or 4.1%, versus an increase
of
$412,000, or 10.3%, in 2005. At year-end 2006, assets under management totaled
$753.5 million, reflecting net growth of $60.5 million, or 8.7% over 2005.
At
year-end 2005, assets under management totaled $693.0 million, reflecting growth
of $40.0 million, or 6.1% over 2004. The increase in both years reflects growth
in new business and improved asset returns.
Mortgage
Banking Revenues.
In
2006, mortgage banking revenues decreased $838,000, or 20.6%, compared to an
increase of $864,000, or 26.9% in 2005. The decline in 2006 reflects lower
production reflective of a general slow-down in home purchase and refinancing
activity within Bank markets. The increase in 2005 reflects higher production
over 2004 which was driven by increased home purchase and construction activity
in Bank markets and lower interest rates for residential real estate financing.
We generally sell all fixed rate residential loan production into the secondary
market. The level of interest rates, origination volume, and the percent of
fixed rate production have significant impacts on our mortgage banking
revenues.
Card
Fees.
Card
processing fees (including merchant service fees, interchange fees, and
ATM/debit card fees) increased $2.0 million, or 18.7% over 2005. Merchant
services fees increased $805,000, or 13.0% in 2006 compared to a $1.0 million,
or 20.2% increase in 2005. The improvement in both periods is directly related
to growth in merchant card transaction volume primarily driven by growth in
our
client base. Interchange fees increased $866,000, or 38.7% compared to $10,000,
or .45% in 2005, and ATM/debit card fees increased $313,000, or 14.2% compared
to $199,000, or 9.9% in 2005. The higher interchange and ATM/debit card fees
for
both periods reflect an increase in our card base primarily associated with
growth in deposit accounts.
Noninterest
income as a percent of average assets was 2.15% in 2006, compared to 1.98%
in
2005, and 2.52% in 2004. A higher level of deposit fees drove the improvement
from 2005 to 2006. The decline from 2004 to 2005 primarily reflects the impact
of the one-time gain on sale of the Bank's credit card portfolio in August
2004.
Noninterest
Expense
Noninterest
expense grew by $11.8 million, or 10.7%, over 2005. Higher expense for
compensation, occupancy, intangible amortization, and interchange fees were
the
primary reasons for the increase.
Noninterest
expense increased $20.6 million, or 23.1%, in 2005 due to higher expense for
compensation, occupancy, professional fees, advertising, and intangible
amortization.
The
table
below reflects the major components of noninterest expense.
|
|
|
For
the Years Ended December 31,
|
|||||||
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|||
|
Noninterest
Expense:
|
|
|
|
|
|
|
|||
|
Salaries
|
|
$
|
46,604
|
|
$
|
40,978
|
|
$
|
33,968
|
|
Associate
Benefits
|
|
|
14,251
|
|
|
12,709
|
|
|
10,377
|
|
Total
Compensation
|
|
|
60,855
|
|
|
53,687
|
|
|
44,345
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises
|
|
|
9,395
|
|
|
8,293
|
|
|
7,074
|
|
Equipment
|
|
|
9,911
|
|
|
8,970
|
|
|
8,393
|
|
Total
Occupancy
|
|
|
19,306
|
|
|
17,263
|
|
|
15,467
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
Fees
|
|
|
1,734
|
|
|
1,827
|
|
|
1,301
|
|
Professional
Fees
|
|
|
3,402
|
|
|
3,825
|
|
|
2,858
|
|
Processing
Services
|
|
|
1,863
|
|
|
1,481
|
|
|
997
|
|
Advertising
|
|
|
4,285
|
|
|
4,275
|
|
|
2,001
|
|
Travel
and Entertainment
|
|
|
1,664
|
|
|
1,414
|
|
|
1,023
|
|
Printing
and Supplies
|
|
|
2,472
|
|
|
2,372
|
|
|
1,854
|
|
Telephone
|
|
|
2,323
|
|
|
2,493
|
|
|
2,048
|
|
Postage
|
|
|
1,145
|
|
|
1,195
|
|
|
1,007
|
|
Intangible
Amortization
|
|
|
6,085
|
|
|
5,440
|
|
|
3,824
|
|
Merger
Expense
|
-
|
438
|
550
|
||||||
|
Interchange
Fees
|
|
|
6,010
|
|
|
5,402
|
|
|
4,741
|
|
Courier
Service
|
|
|
1,307
|
|
|
1,360
|
|
|
1,143
|
|
Miscellaneous
|
|
|
9,117
|
|
|
7,342
|
|
|
6,067
|
|
Total
Other
|
41,407
|
38,864
|
29,414
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total
Noninterest Expense
|
|
$
|
121,568
|
|
$
|
109,814
|
|
$
|
89,226
|
Compensation.
Salaries
and associate benefits expense increased $7.2 million, or 13.4% over 2005.
For
the year, we experienced increases in associate salaries of $5.4 million,
payroll tax expense of $300,000, associate insurance expense of $329,000,
pension plan expense of $378,000, and stock-based compensation of $705,000.
The
increase in associate salaries and payroll tax expense reflects the addition
of
FABC associates, annual merit/market based raises for associates, and lower
realized loan cost. Realized loan cost reflects the impact of Statement of
Financial Accounting Standard (“SFAS”) No. 91 "Accounting for Nonrefundable Fees
and Costs Associated with Acquiring Loans", which requires deferral and
amortization of loan costs that are accounted for as a credit offset to salary
expense. The decrease in the number of loans originated reduced the amount
of
this offset as compared to 2005. The increase in expense for insurance and
pension benefits is reflective of an increase in eligible participants. The
higher pension expense is also due to a lower discount rate used for the 2006
expense projection. Higher stock based compensation reflects an increase in
plan
participants and higher target awards due to the adoption of our new Stock-based
Incentive Compensation Plan, which rewards our senior management team for
meeting certain milestones toward our Project 2010 earnings goal.
In
2005,
compensation increased $9.3 million, or 21.1%, over 2004. The increase in
compensation was driven by higher expense for associate salaries, pension,
and
insurance benefits, primarily reflective of the integration of associates from
acquisitions in late 2004 and mid-2005.
Occupancy.
Occupancy expense (including furniture, fixtures and equipment) increased by
$2.0 million, or 11.8%, in 2006, compared to $1.8 million, or 11.6% in 2005.
For
2006, we
experienced increases in depreciation of $895,000, maintenance and repairs
(for
our buildings as well as furniture, fixtures, and equipment) of $276,000,
utilities of $343,000, maintenance agreements of $364,000, and building
insurance of $143,000. The increase in depreciation is related to the addition
of FABC offices as well as renovations. An increase in our general maintenance
service expense associated with new and existing banking offices, core
processing/networking systems and ATM’s drove the increase in maintenance and
repairs. Utility expense increased due to a mid-year rate hike and the addition
of FABC offices in mid-2005. The increase in expense for maintenance agreements
is primarily due to an increase in core processing and networking costs
partially attributable to enhancement of our back-up and recovery capabilities.
The addition of new and replacement offices, renovations of existing offices,
and an insurance premium increase drove the increase in building
insurance.
The
increase in 2005 was driven by higher expense for depreciation, maintenance
and
repair, and property taxes, primarily attributable to the increase in the number
of banking offices, and higher expense for core processing and other software
maintenance agreements.
Other.
Other
noninterest expense increased $2.5 million, or 6.5%, in 2006, compared to $9.4
million, or 32.1% in 2005. The increase in 2006 was primarily attributable
to
higher expense for the following categories: 1) processing services - $382,000,
2) travel and entertainment - $250,000, 3) intangible amortization - $645,000,
4) interchange fees - $608,000, and 5) miscellaneous - $1.4 million. The
increase in processing services is due to the addition of core processing system
applications and system upgrade and enhancements. The higher expense for travel
and entertainment is linked primarily to an increase in associate training
and
company events during the year. The increase in intangible amortization reflects
new core deposit amortization from the FABC acquisition. The increase in
interchange fees is due to increased merchant card transaction volume.
Miscellaneous expense grew due to increases in other losses, ATM/debit card
production, associate hiring expense, and associate training
expense.
The
increase in 2005 was attributable primarily to: (1) higher legal expense of
$526,000; (2) higher professional fees of $967,000; (3) increased processing
service cost of $484,000; (4) higher advertising costs of $2.3 million, related
to our “Absolutely Free” checking program; (5) increased printing and supply
expense of $518,000; (6) higher intangible amortization of $1.6 million; (7)
increased interchange fees of $661,000; and (8) higher miscellaneous expense
of
$1.3 million.
The
operating net noninterest expense ratio (defined as noninterest income minus
noninterest expense, net of intangible amortization and one-time merger
expenses, as a percent of average assets) was 2.32% in 2006 compared to 2.20%
in
2005, and 1.71% in 2004. Our operating efficiency ratio (expressed as
noninterest expense, net of intangible amortization and one-time merger
expenses, as a percent of taxable equivalent net interest income plus
noninterest income) was 65.4%, 64.8%, and 61.6% in 2006, 2005 and 2004,
respectively. The increase in these operating ratios is due to the expense
growth noted above. Management has recently taken steps to strengthen our
expense control procedures, including enhancement of current expense policies,
creation of an expense control committee, which will focus on identifying cost
savings strategies, and implementation of a new software system to improve
accountability for expense management across our various divisions. Management
believes it has been successful in identifying in excess of $3.5 million in
either new incremental revenue or cost savings. A portion of these profit
enhancement initiatives were implemented during the later half of 2006 while
the
remainder will be implemented during 2007.
Income
Taxes
The
consolidated provision for federal and state income taxes was $17.9 million
in
2006, compared to $16.6 million in 2005, and $15.9 million in 2004. The increase
in all three years was due to higher taxable income driven by earnings growth.
Lower tax-exempt income also contributed to the increase in 2005.
The
effective tax rate was 35.0% in 2006, 35.4% in 2005, and 35.1% in 2004. These
rates differ from the combined federal and state statutory tax rates due
primarily to tax-exempt income on loans and securities.
FINANCIAL
CONDITION
Our
balance sheet reflects the acquisition of FABC in May 2005. Average assets
totaled $2.6 billion, an increase of $94.3 million, or 3.8%, in 2006 versus
the
comparable period in 2005. Average earning assets for 2006 were $2.3 billion,
representing an increase of $70.6 million, or 3.2%, over 2005. Growth in average
loans of $61.1 million, or 3.1% and average funds sold of $14.1 million, or
51.0% were the reasons for the earning asset increase in 2006. Partially
offsetting these increases was a decrease in average investment securities
of
$4.6 million, or 2.4%. 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 increased $61.1 million, or 3.1%, over the comparable period in 2005.
Loans as a percent of average earning assets were 90.0% in both 2006 and 2005.
Our loan growth reflects the acquisition of FABC in May 2005. A high level
of
principal pay-downs and loan pay-offs, and a general slowdown in existing
markets negatively impacted loan growth. The average loan portfolio declined
in
each of the last four quarters and was down $59.1 million, or 2.9% from the
fourth quarter of 2005 to the fourth quarter of 2006.
Although
management is continually evaluating alternative sources of revenue, lending
is
a major component of our business and is key to our profitability. 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.
Table
4
SOURCES
OF EARNING ASSET GROWTH
|
2005
to
|
Percentage
|
Components
of
|
||||||
|
2006
|
Of
Total
|
Average
|
Earning
|
Assets
|
||||
|
(Average
Balances - Dollars In Thousands)
|
Change
|
Change
|
2006
|
2005
|
2004
|
|||
|
Loans:
|
||||||||
|
Commercial,
Financial, and Agricultural
|
$
11,642
|
16.0%
|
9.7%
|
9.5%
|
10.3%
|
|||
|
Real
Estate - Construction
|
23,811
|
34.0%
|
7.8%
|
6.9%
|
6.2%
|
|||
|
Real
Estate - Commercial
|
(20,392)
|
(29.0%)
|
29.5%
|
31.4%
|
27.3%
|
|||
|
Real
Estate - Residential
|
42,022
|
60.0%
|
32.2%
|
31.3%
|
29.1%
|
|||
|
Consumer
|
4,025
|
6.0%
|
10.7%
|
10.9%
|
13.1%
|
|||
|
Total
Loans
|
61,108
|
87.0%
|
89.9%
|
90.0%
|
86.0%
|
|||
|
Investment
Securities:
|
||||||||
|
Taxable
|
(30,014)
|
(43.0%)
|
5.0%
|
6.5%
|
7.4%
|
|||
|
Tax-Exempt
|
25,382
|
36.0%
|
3.2%
|
2.3%
|
2.9%
|
|||
|
Total
Securities
|
(4,632)
|
(7.0%)
|
8.2%
|
8.8%
|
10.3%
|
|||
|
Funds
Sold
|
14,129
|
20.0%
|
1.9%
|
1.2%
|
3.7%
|
|||
|
Total
Earning Assets
|
$
70,605
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
|||
Our
average loan-to-deposit ratio decreased to 99.7% in 2006 from 100.7% in 2005.
This compares to an average loan-to-deposit ratio in 2004 of 96.2%. The lower
loan-to-deposit ratio in 2006 reflects strong deposit growth in relation to
the
loan growth. The higher average loan-to-deposit ratio in 2005 reflects strong
loan growth.
The
composition of our loan portfolio at December 31, for each of the past five
years is shown in Table 5. Table 6 arrays our total loan portfolio as of
December 31, 2006, based upon maturities. As a percent of the total portfolio,
loans with fixed interest rates represent 35.7% as of December 31, 2006, versus
34.9% at December 31, 2005.
Table
5
LOANS
BY CATEGORY
|
|
|
As
of December 31,
|
|
|||||||||||||
|
(Dollars
in Thousands)
|
|
2006
|
2005
|
2004
|
2003
|
2002
|
|
|||||||||
|
Commercial,
Financial and Agricultural
|
|
$
|
229,327
|
$
|
218,434
|
$
|
206,474
|
$
|
160,048
|
$
|
141,459
|
|
||||
|
Real
Estate - Construction
|
|
|
179,072
|
160,914
|
140,190
|
89,149
|
91,110
|
|
||||||||
|
Real
Estate - Commercial
|
|
|
643,885
|
718,741
|
655,426
|
391,250
|
356,807
|
|
||||||||
|
Real
Estate - Residential
|
|
|
709,735
|
723,336
|
600,375
|
467,790
|
474,069
|
|
||||||||
|
Consumer
|
|
|
237,702
|
246,069
|
226,360
|
233,395
|
221,776
|
|
||||||||
|
Total
Loans, Net of Unearned Interest
|
|
$
|
1,999,721
|
$
|
2,067,494
|
$
|
1,828,825
|
$
|
1,341,632
|
$
|
1,285,221
|
|
||||
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
|
|
$
|
96,103
|
96,313
|
36,911
|
229,327
|
|
||||||
|
Real
Estate
|
|
|
456,980
|
225,088
|
850,624
|
1,532,692
|
|
||||||
|
Consumer(1)
|
|
|
31,788
|
201,772
|
4,142
|
237,702
|
|
||||||
|
Total
|
|
$
|
584,871
|
523,173
|
891,677
|
1,999,721
|
|
||||||
|
|
|
|
|
||||||||||
|
Loans
with Fixed Rates
|
|
$
|
301,995
|
421,040
|
95,952
|
818,987
|
|
||||||
|
Loans
with Floating or Adjustable Rates
|
|
|
282,876
|
102,133
|
795,725
|
1,180,734
|
|
||||||
|
Total
|
|
$
|
584,871
|
523,173
|
891,677
|
1,999,721
|
|
||||||
|
(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. Loans 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
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.
Impaired loans are defined as those in which the full collection of principal
and interest in accordance with the contractual terms is improbable. Impaired
loans generally include those that are past due for 90 days or more and those
classified as doubtful in accordance with our risk rating system. Loans
classified as doubtful have a high possibility of loss, but because of certain
factors that may work to strengthen the loan, its classification as a loss
is
deferred until a more exact status may be determined. Not all loans are
considered in the review for impairment; only loans that are for business
purposes exceeding $25,000 are considered. The evaluation is based on current
financial condition 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 assigned to 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 commercial
purpose loans of $100,000 or more that are not impaired and large groups of
smaller-balance homogenous loans, including commercial loans less than $100,000,
consumer loans, and residential mortgage loans.
Commercial
purpose loans exceeding $100,000 that are not impaired, but exhibit specific
weaknesses are detailed in a monthly Problem Loan Report. These loans are
divided into seven different pools based on various risk characteristics and
the
underlying value of collateral taken to secure specific loans within the pools.
These classified loans are monitored for changes in risk ratings that are
assigned based on the Bank’s Asset Classification Policy, and for the ultimate
disposition of the loan. The ultimate disposition may include upgrades in risk
ratings, payoff of the loan, or charge-off of the loan. This migration analysis
results in a loan loss ratio by loan pool of classified loans that is applied
to
the balance of the pool to determine general reserves for specifically
identified pools of problem loans. This charge-off ratio is adjusted for various
environmental factors including past due and nonperforming trends in the loan
portfolio, the micro- and macro-economic outlook, and credit administration
practices as determined by independent parties.
General
reserves are assigned to smaller balance homogenous loan pools, including
commercial loans less than $100,000, consumer loans, and residential mortgage
loans based on calculated overall loan loss ratios for the past three years.
The
loan loss ratios applied are adjusted for various environmental
factors.
The
allowance for loan losses is compared against the sum of the specific reserves
assigned to impaired loans plus the general reserves assigned to the remaining
portfolio. Adjustments are made when appropriate. A most likely reserve value
is
determined within the computed range of required calculated reserve, with the
actual allowance for loan losses compared to the most likely reserve value.
The
unallocated reserve is monitored on a regular basis and adjusted based on
management’s determination of estimation risk and other existing conditions that
are not included in the allocated allowance determination. Table 7 analyzes
the
activity in the allowance over the past five years.
The
allowance for loan losses of $17.2 million at December 31, 2006 is similar
to
the allowance of $17.4 million at year-end 2005. As a percent of total loans,
the allowance was .86% in 2006 and .84% in 2005. The allowance for loan losses
reflects management’s current estimation of the credit quality of our loan
portfolio. While there can be no assurance that we will not sustain loan losses
in a particular period that are substantial in relation to the size of the
allowance, management’s assessment of the loan portfolio does not indicate a
likelihood of this occurrence. It is management’s opinion that the allowance at
December 31, 2006 is adequate to absorb losses inherent in the loan portfolio
at
year-end.
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. There was a significant
change in the reserve allocation in 2004 as noted by reserves held for the
consumer loan, commercial real estate, and commercial portfolios. The Bank's
credit card portfolio, which previously accounted for up to one-third of net
loan losses annually, was sold in August 2004, thus reducing the reserves
required to support consumer loans. The large increase in 2004 for reserves
held
for commercial real estate and commercial loans was due to the acquisition
of
loans from FMB in late 2004. Additionally, FABC was acquired during 2005, which
pushed total reserves higher.
Table
7
ANALYSIS
OF ALLOWANCE FOR LOAN LOSSES
|
|
|
For
the Years Ended December 31,
|
|
|||||||||||||
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance
at Beginning of Year
|
|
$
|
17,410
|
|
$
|
16,037
|
|
$
|
12,429
|
|
$
|
12,495
|
|
$
|
12,096
|
|
|
Acquired
Reserves
|
|
|
-
|
|
|
1,385
|
|
|
5,713
|
|
|
-
|
|
|
-
|
|
|
Reserve
Reversal(1)
|
|
|
-
|
|
|
-
|
|
(800
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-Offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
Financial and Agricultural
|
|
|
841
|
|
|
1,287
|
|
|
873
|
|
|
426
|
|
|
818
|
|
|
Real
Estate - Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Real
Estate - Commercial
|
|
|
346
|
|
|
255
|
|
|
48
|
|
|
91
|
|
|
-
|
|
|
Real
Estate - Residential
|
|
|
280
|
|
|
321
|
|
|
191
|
|
|
228
|
|
|
175
|
|
|
Consumer
|
|
|
2,516
|
|
|
2,380
|
|
|
3,946
|
|
|
3,794
|
|
|
3,279
|
|
|
Total
Charge-Offs
|
|
|
3,983
|
|
|
4,243
|
|
|
5,058
|
|
|
4,539
|
|
|
4,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
Financial and Agricultural
|
|
|
246
|
|
|
180
|
|
|
81
|
|
|
142
|
|
|
136
|
|
|
Real
Estate - Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Real
Estate - Commercial
|
|
|
17
|
|
|
3
|
|
|
14
|
|
|
-
|
|
|
20
|
|
|
Real
Estate - Residential
|
|
|
11
|
|
|
37
|
|
|
188
|
|
|
18
|
|
|
37
|
|
|
Consumer
|
|
|
1,557
|
|
|
1,504
|
|
|
1,329
|
|
|
877
|
|
|
1,181
|
|
|
Total
Recoveries
|
|
|
1,831
|
|
|
1,724
|
|
|
1,612
|
|
|
1,037
|
|
|
1,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Charge-Offs
|
|
|
2,152
|
|
|
2,519
|
|
|
3,446
|
|
|
3,502
|
|
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Loan Losses
|
|
|
1,959
|
|
|
2,507
|
|
|
2,141
|
|
|
3,436
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at End of Year
|
|
$
|
17,217
|
|
$
|
17,410
|
|
$
|
16,037
|
|
$
|
12,429
|
|
$
|
12,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Net Charge-Offs to Average Loans Outstanding
|
|
|
.11
|
%
|
|
.13
|
%
|
|
.22
|
%
|
|
.27
|
%
|
|
.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses as a Percent of Loans at End of Year
|
|
|
.86
|
%
|
|
.84
|
%
|
|
.88
|
%
|
|
.93
|
%
|
|
.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses as a Multiple of Net Charge-Offs
|
|
|
8.00x
|
|
|
6.91x
|
|
|
4.65x
|
|
|
3.55x
|
|
|
4.31x
|
|
|
(1)
|
Reflects
recapture of reserves allocated to the credit card portfolio sold
in
August 2004.
|
Table
8
ALLOCATION
OF ALLOWANCE FOR LOAN LOSSES
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
||||||||||||||||||||||
|
(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
|
|
$
|
3,900
|
11.5
|
%
|
$
|
3,663
|
|
|
10.6
|
%
|
$
|
4,341
|
|
|
11.3
|
%
|
$
|
2,824
|
|
|
11.9
|
%
|
$
|
2,740
|
|
|
11.0
|
%
|
||||
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Construction
|
|
|
745
|
9.0
|
|
|
762
|
|
|
7.8
|
|
|
578
|
|
|
7.7
|
|
|
313
|
|
|
6.6
|
|
|
348
|
|
|
7.1
|
|
||||
|
Commercial
|
|
|
5,996
|
32.2
|
|
|
6,352
|
|
|
34.7
|
|
|
6,296
|
|
|
35.8
|
|
|
2,831
|
|
|
29.2
|
|
|
2,559
|
|
|
27.8
|
|
||||
|
Residential
|
|
|
1,050
|
35.5
|
|
|
1,019
|
|
|
35.0
|
|
|
705
|
|
|
32.8
|
|
|
853
|
|
|
34.9
|
|
|
1,021
|
|
|
36.9
|
|
||||
|
Consumer
|
|
|
3,081
|
11.8
|
|
|
3,105
|
|
|
11.9
|
|
|
2,966
|
|
|
12.4
|
|
|
4,169
|
|
|
17.4
|
|
|
4,210
|
|
|
17.2
|
|
||||
|
Not
Allocated
|
|
|
2,445
|
-
|
|
|
2,509
|
|
|
-
|
|
|
1,151
|
|
|
-
|
|
|
1,439
|
|
|
-
|
|
|
1,617
|
|
|
-
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total
|
|
$
|
17,217
|
100.0
|
%
|
$
|
17,410
|
|
|
100.0
|
%
|
$
|
16,037
|
|
|
100.0
|
%
|
$
|
12,429
|
|
|
100.0
|
%
|
$
|
12,495
|
|
|
100.0
|
%
|
||||
Risk
Element Assets
Risk
element assets consist of nonaccrual loans, renegotiated loans, other real
estate, loans past due 90 days or more, potential problem loans and loan
concentrations. Table 9 depicts certain categories of our risk element assets
as
of December 31 for each of the last five years. We discuss potential problem
loans and loan concentrations within the narrative portion of this section.
Our
nonperforming loans increased $2.8 million, or 52.9%, from a level of $5.3
million at December 31, 2005, to $8.0 million at December 31, 2006. During
2006
we added loans totaling approximately $13.0 million to non-accruing status,
while removing loans totaling $10.3 million. Of the $10.3 million removed,
$3.1
million consisted of principal reductions and loan payoffs, $1.3 million
represented loans transferred to other real estate, $5.3 million consisted
of
loans brought current and returned to an accrual status, and $.6 million was
charged off. The increase in nonaccrual loans is partly attributable to the
addition of one large commercial real estate loan to nonaccrual status during
the fourth quarter of 2006 for which no material loss is expected. Where
appropriate, management has allocated specific reserves to absorb anticipated
losses on nonperforming loans.
We
review
non-accrual loans exceeding $25,000 not secured by 1-4 family residential
properties quarterly for impairment. A loan is considered impaired when the
full
collection of principal and interest in accordance with the contractual terms
is
improbable. When a loan is considered impaired, we review our exposure to credit
loss. If credit loss is probable, a specific reserve is allocated to absorb
the
anticipated loss. We had $10.7 million in loans considered impaired at December
31, 2006. The anticipated loss in those impaired loans is $2.3 million.
Table
9
RISK
ELEMENT ASSETS
|
|
|
As
of December 31,
|
|
|||||||||||||
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Nonaccruing
Loans
|
|
$
|
8,042
|
|
$
|
5,258
|
|
$
|
4,646
|
|
$
|
2,346
|
|
$
|
2,510
|
|
|
Restructured
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
Nonperforming Loans
|
|
|
8,042
|
|
|
5,258
|
|
|
4,646
|
|
|
2,346
|
|
|
2,510
|
|
|
Other
Real Estate
|
|
|
689
|
|
|
292
|
|
|
625
|
|
|
4,955
|
|
|
1,333
|
|
|
Total
Nonperforming Assets
|
|
$
|
8,731
|
|
$
|
5,550
|
|
$
|
5,271
|
|
$
|
7,301
|
|
$
|
3,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past
Due 90 Days or More
|
|
|
135
|
|
|
309
|
|
|
605
|
|
$
|
328
|
|
$
|
2,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
Loans/Loans
|
|
|
.40
|
%
|
|
.25
|
%
|
|
.25
|
%
|
|
.17
|
%
|
|
.20
|
%
|
|
Nonperforming
Assets/Loans Plus Other Real Estate
|
|
|
.44
|
%
|
|
.27
|
%
|
|
.29
|
%
|
|
.54
|
%
|
|
.30
|
%
|
|
Nonperforming
Assets/Capital(1)
|
|
|
2.62
|
%
|
|
1.72
|
%
|
|
1.93
|
%
|
|
3.39
|
%
|
|
1.93
|
%
|
|
Allowance/Nonperforming
Loans
|
|
|
214.09
|
%
|
|
331.11
|
%
|
|
345.18
|
%
|
|
529.80
|
%
|
|
497.72
|
%
|
|
(1)
|
For
computation of this percentage, "Capital" refers to shareowners'
equity
plus the allowance for loan
losses.
|
We
generally recognize interest on non-accrual loans only when received. We apply
cash collected on non-accrual loans against the principal balance or recognize
it as interest income based upon management’s expectations as to the ultimate
collectibility of principal and interest in full. If interest on non-accruing
loans had been recognized on a fully accruing basis, we would have recorded
an
additional $483,000 of interest income for the year ended December 31,
2006.
Other
real estate totaled $689,000 at December 31, 2006, versus $292,000 at December
31, 2005. 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 2006, we added properties totaling $1.3 million, and
partially or completely liquidated properties totaling $903,000, resulting
in a
net increase in other real estate of approximately $397,000.
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. Potential problem loans totaled $11.8 million at December
31,
2006, compared to $9.8 million at year-end 2005.
Loans
past due 90 days or more and still on accrual status totaled $135,000 at
year-end, down from $309,000 at the previous year-end.
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 (76.7%) secured by real estate, the primary types
of real estate collateral are commercial properties and 1-4 family residential
properties. At December 31, 2006, commercial real estate mortgage loans and
residential real estate mortgage loans accounted for 32.2% and 35.5%,
respectively, of the loan portfolio.
Our
real
estate loan portfolio, while subject to cyclical pressures, is not unusually
speculative in nature and is originated at amounts that are within or exceed
regulatory guidelines for collateral values. Management anticipates no
significant reduction in the percentage of real estate loans to total loans
outstanding.
Management
is continually analyzing its loan portfolio in an effort to identify and resolve
problem assets as quickly and efficiently as possible. As of December 31, 2006,
management believes it has identified and adequately reserved for such problem
assets. However, management recognizes that many factors can adversely impact
various segments of our markets, creating financial difficulties for certain
borrowers. As such, management continues to focus its attention on promptly
identifying and providing for potential losses as they arise.
Investment
Securities
In
2006,
our average investment portfolio decreased $4.6 million, or 2.4%, from 2005
and
increased $7.8 million, or 4.3%, from 2004 to 2005. As a percentage of average
earning assets, the investment portfolio represented 8.3% in 2006, compared
to
8.8% in 2005. In 2006, the average balance of our investment portfolio declined
due to the timing of reinvesting investments that had matured. In 2005, the
increase in the portfolio was due to additional securities obtained through
an
acquisition in late 2004, and the increase in required holdings of Federal
Home
Loan Bank stock. Throughout 2007, we will closely monitor liquidity levels
to
assess the need to purchase additional investments.
In
2006,
average taxable investments decreased $30.0 million, or 21.1%, while tax-exempt
investments increased $25.4 million, or 51.5%. This change in mix was
attributable to the attractive spread offered by tax-exempt securities 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. As of December 31, 2006, we have
the ability to purchase additional tax-exempt securities without adverse tax
consequences.
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, 2006, all securities are classified as available-for-sale. The
classification of securities as available-for-sale offers management full
flexibility in managing our liquidity, and interest rate sensitivity without
adversely impacting our regulatory capital levels. 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 loss component of shareowners' equity. At
December 31, 2006, shareowners' equity included a net unrealized loss in the
investment portfolio of $0.8 million, compared to a net unrealized loss of
$1.2
million at December 31, 2005. 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.
The
average maturity of the total portfolio at December 31, 2006 and 2005 was 1.75
and 1.65 years, respectively. Table 10 below provides a breakdown of maturities
by investment type.
The
weighted average taxable equivalent yield of our investment portfolio at
December 31, 2006 was 4.72%, versus 3.57% in 2005. The increase in yield was
due
to purchases of securities with yields higher than those of maturing bonds.
Purchases of shorter-term securities resulted in higher yields due to the yield
curve being inverted for a majority of 2006. The quality of the municipal
portfolio at year-end is depicted on page 40. There were 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, 2006.
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,
|
|
|||||||||||||||||||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||||||||||||||||||
|
(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
|
|
$
|
17,329
|
|
$
|
17,150
|
|
|
3.45
|
%
|
$
|
58,032
|
|
$
|
57,621
|
|
|
2.30
|
%
|
$
|
48,553
|
|
$
|
48,327
|
|
|
2.08
|
%
|
|
Due
over 1 year through 5 years
|
|
|
56,388
|
|
|
55,978
|
|
|
4.64
|
|
|
24,296
|
|
|
23,662
|
|
|
3.52
|
|
|
66,863
|
|
|
66,204
|
|
|
2.38
|
|
|
Due
over 5 years through 10 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,970
|
|
|
1,948
|
|
|
3.57
|
|
|
7,684
|
|
|
7,589
|
|
|
3.75
|
|
|
Due
over 10 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
TOTAL
|
|
|
73,717
|
|
|
73,128
|
|
|
4.36
|
|
|
84,298
|
|
|
83,231
|
|
|
2.68
|
|
|
123,100
|
|
|
122,120
|
|
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATES
& POLITICAL SUBDIVISIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in 1 year or less
|
|
|
31,438
|
|
|
31,300
|
|
|
4.21
|
|
|
21,097
|
|
|
21,048
|
|
|
4.66
|
|
|
27,916
|
|
|
28,090
|
|
|
5.94
|
|
|
Due
over 1 year through 5 years
|
|
|
52,183
|
|
|
51,922
|
|
|
5.25
|
|
|
32,130
|
|
|
31,702
|
|
|
4.11
|
|
|
21,076
|
|
|
21,200
|
|
|
4.56
|
|
|
Due
over 5 years through 10 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
384
|
|
|
393
|
|
|
6.53
|
|
|
897
|
|
|
916
|
|
|
5.36
|
|
|
Due
over 10 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
TOTAL
|
|
|
83,621
|
|
|
83,222
|
|
|
4.86
|
|
|
53,611
|
|
|
53,143
|
|
|
4.34
|
|
|
49,889
|
|
|
50,206
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MORTGAGE-BACKED
SECURITIES(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in 1 year or less
|
|
|
3,568
|
|
|
3,571
|
|
|
5.37
|
|
|
339
|
|
|
337
|
|
|
3.97
|
|
|
489
|
|
|
493
|
|
|
5.13
|
|
|
Due
over 1 year through 5 years
|
|
|
14,942
|
|
|
14,732
|
|
|
4.58
|
|
|
14,958
|
|
|
14,685
|
|
|
4.12
|
|
|
22,719
|
|
|
22,839
|
|
|
3.96
|
|
|
Due
over 5 years through 10 years
|
|
|
4,734
|
|
|
4,593
|
|
|
5.02
|
|
|
5,651
|
|
|
5,509
|
|
|
5.09
|
|
|
3,085
|
|
|
3,068
|
|
|
4.83
|
|
|
Due
over 10 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
TOTAL
|
|
|
23,244
|
|
|
22,896
|
|
|
4.79
|
|
|
20,948
|
|
|
20,531
|
|
|
4.38
|
|
|
26,293
|
|
|
26,400
|
|
|
4.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in 1 year or less
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Due
over 1 year through 5 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Due
over 5 years through 10 years
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Due
over 10 years(3)
|
|
|
12,648
|
|
|
12,648
|
|
|
5.78
|
|
|
14,114
|
|
|
14,114
|
|
|
4.75
|
|
|
11,514
|
|
|
11,514
|
|
|
4.31
|
|
|
TOTAL
|
|
|
12,648
|
|
|
12,648
|
|
|
5.78
|
|
|
14,114
|
|
|
14,114
|
|
|
4.75
|
|
|
11,514
|
|
|
11,514
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
INVESTMENT SECURITIES
|
|
$
|
193,230
|
|
$
|
191,894
|
|
|
4.72
|
%
|
$
|
172,971
|
|
$
|
171,019
|
|
|
3.57
|
%
|
$
|
210,796
|
|
$
|
210,240
|
|
|
3.38
|
%
|
|
(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)
|
|
2006
|
|
2005
|
|
2004
|
||
|
U.S.
Governments
|
|
1.76
|
1.01
|
1.54
|
|
|||
|
States
and Political Subdivisions
|
|
1.39
|
1.31
|
1.32
|
|
|||
|
Mortgage-Backed
Securities
|
|
3.05
|
5.05
|
2.67
|
|
|||
|
Other
Securities
|
|
-
|
-
|
-
|
|
|||
|
TOTAL
|
|
1.75
|
1.65
|
1.63
|
|
|||
MUNICIPAL
PORTFOLIO QUALITY
(Dollars
in Thousands)
|
Moody's
Rating
|
|
Amortized
Cost
|
|
Percentage
|
|||
|
AAA
|
|
$
|
77,122
|
92.79
|
%
|
||
|
AA-1
|
|
|
0
|
0.00
|
|
||
|
AA-2
|
|
|
500
|
.60
|
|
||
|
AA-3
|
|
|
501
|
.60
|
|
||
|
AA
|
|
|
20
|
.02
|
|
||
|
Not
Rated(1)
|
|
|
4,983
|
5.99
|
|
||
|
Total
|
|
$
|
83,126
|
100.00
|
%
|
||
|
(1)
|
All
of the securities not rated by Moody's are rated "A-" or higher by
S&P.
|
Deposits
and Funds Purchased
Average
total deposits of $2.03 billion in 2006, increased $80.0 million, or 4.1%,
from
the prior year. Deposit growth for the year was driven primarily by the
integration of deposits from FABC, growth in balances related to "Absolutely
Free Checking" products, and our “Cash Power” money market product. Increases
realized in NOW accounts ($88.1 million) and money market account ($94.4
million) were partially offset by a reduction in DDA accounts ($40.1 million),
savings accounts ($20.9 million), and certificates of deposit ($43.5 million).
Average noninterest bearing deposits as a percent of average total deposits
declined from 27.9% in 2005 to 24.8% in 2006. This was primarily a result of
the
growth in interest bearing "Absolutely Free Checking" balances and “Cash Power”
money market balances partly attributable to the higher interest rate
environment. The
decrease in certificates of deposit reflects management’s strategy to manage the
overall mix of deposits and not compete with higher rate paying competitors
for
this funding source unless the relationship is profitable and warrants
retention. In
2007,
growth is anticipated to continue in nonmaturity deposits primarily associated
with our "Absolutely Free Checking" products, and our “Cash Power” money market
product.
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 advances (maturing in
less than one year), and other borrowings, decreased $19.2 million, or 19.6%.
The decrease is attributable to a $15.0 million decrease in federal funds
purchased and a $5.4 million decrease in repurchase agreements, partially offset
by a $2.7 million increase in short-term Federal Home Loan Bank advances. See
Note 8 in the Notes to Consolidated Financial Statements for further information
on short-term borrowings.
Table
11
SOURCES
OF DEPOSIT GROWTH
|
|
|
2005
to
|
|
Percentage
|
|
Components
of
|
|
|||||||||
|
|
|
2006
|
|
of
Total
|
|
Total
Deposits
|
|
|||||||||
|
(Average
Balances - Dollars in Thousands)
|
|
Change
|
|
Change
|
|
2006
|
|
2005
|
|
2004
|
|
|||||
|
Noninterest
Bearing Deposits
|
|
$
|
(40,059)
|
(50.0)
|
%
|
24.8
|
%
|
27.9
|
%
|
30.6
|
%
|
|||||
|
NOW
Accounts
|
|
|
88,070
|
110.0
|
25.5
|
22.0
|
18.3
|
|
||||||||
|
Money
Market Accounts
|
|
|
94,427
|
118.0
|
18.2
|
14.1
|
14.3
|
|
||||||||
|
Savings
|
|
|
(18,857)
|
(23.6)
|
6.6
|
7.8
|
8.1
|
|
||||||||
|
Time
Deposits
|
|
|
(43,538)
|
(54.4)
|
24.9
|
28.2
|
28.7
|
|
||||||||
|
Total
Deposits
|
|
$
|
80,043
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
Table
12
MATURITY
DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
|
|
|
December
31, 2006
|
|
||||
|
(Dollars
in Thousands)
|
|
Time
Certificates of Deposit
|
|
Percent
|
|
||
|
Three
months or less
|
|
$
|
40,910
|
30.31
|
%
|
||
|
Over
three through six months
|
|
|
28,448
|
21.08
|
|
||
|
Over
six through twelve months
|
|
|
44,515
|
32.98
|
|
||
|
Over
twelve months
|
|
|
21,107
|
15.63
|
|
||
|
Total
|
|
$
|
134,980
|
100.00
|
%
|
||
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Liquidity
for a banking institution is the availability of funds to meet increased loan
demand and excessive deposit withdrawals. Management monitors our financial
position in an effort to ensure we have ready access to sufficient liquid funds
to meet normal transaction requirements, can take advantage of investment
opportunities and cover unforeseen liquidity demands. In addition to core
deposit growth, sources of funds available to meet liquidity demands include
cash received through ordinary business activities (e.g., collection of interest
and fees), federal funds sold, loan and investment maturities, our bank lines
of
credit, approved lines for the purchase of federal funds by CCB and Federal
Home
Loan Bank advances.
We
ended
2006 with $78.8 million in liquidity, an increase of $17.6 million from the
previous year-end. On a year-to-date average basis, liquidity increased $14.1
million from 2005. The increase in average liquidity was primarily the result
of
the aforementioned deposit growth.
Borrowings
At
December 31, 2006, we had $55.5 million in borrowings outstanding to the Federal
Home Loan Bank of Atlanta ("FHLB") consisting of 35 notes. Three notes totaling
$13.0 million are classified as short-term borrowings with the remaining notes
classified as long-term borrowings. The interest rates are fixed and the
weighted average rate at December 31, 2006 was 4.57%. Required annual principal
reductions approximate $2.7 million, with the remaining balances due at maturity
ranging from 2007 to 2024. During 2006, we obtained one advance from the FHLB
totaling $3.2 million with a fixed rate of 5.25% and maturing in 2022. 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, 2006.
|
|
|
Payments
Due By Period
|
|
|||||||||||||
|
(Dollars
in Thousands)
|
|
1
Year
or
Less
|
|
1
-
3
Years
|
|
4
-
5
Years
|
|
After
5
Years
|
|
Total
|
|
|||||
|
Federal
Home Loan Bank Advances
|
|
$
|
15,585
|
|
$
|
16,985
|
|
$
|
5,225
|
|
$
|
17,669
|
|
$
|
55,464
|
|
|
Subordinated
Notes Payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
62,887
|
|
|
62,887
|
|
|
Operating
Lease Obligations
|
|
|
1,503
|
|
|
2,600
|
|
|
2,036
|
|
|
6,071
|
|
|
12,210
|
|
|
Total
Contractual Cash Obligations
|
|
$
|
17,088
|
|
$
|
19,585
|
|
$
|
7,261
|
|
$
|
86,627
|
|
$
|
130,561
|
|
We
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. 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 FABC acquisition.
We
anticipate that our capital expenditures will approximate $26.6 million over
the
next twelve months. These capital expenditures are expected to consist primarily
of several new offices in existing markets, office equipment and furniture,
and
technology purchases. Management believes that these capital expenditures can
be
funded with existing resources internally without impairing our ability to
meet
our on-going obligations.
Capital
We
continue to maintain a strong capital position. The ratio of shareowners' equity
to total assets at year-end was 12.15%, 11.65%, and 10.86%, in 2006, 2005,
and
2004, respectively.
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 1 capital. As of December 31, 2006, we exceeded
these capital guidelines with a total risk-based capital ratio of 14.95% and
a
Tier 1 ratio of 14.00%, compared to 13.56% and 12.61%, respectively, in 2005.
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 1 capital in our capital calculations previously noted. See Note 9
in
the Notes to Consolidated Financial Statements for additional information on
our
two trust preferred security offerings. See Note 14 in the Notes to Consolidated
Financial Statements for additional information as to our capital
adequacy.
A
tangible leverage ratio is also used in connection with the risk-based capital
standards and is defined as Tier 1 capital divided by average assets. The
minimum leverage ratio under this standard is 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, 2006, we had a leverage
ratio of 11.30% compared to 10.27% in 2005.
Shareowners'
equity as of December 31, for each of the last three years is presented
below:
Shareowners'
Equity
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Common
Stock
|
|
|
185
|
|
|
186
|
|
|
177
|
|
|
Additional
Paid-in Capital
|
|
|
80,654
|
|
|
83,304
|
|
|
52,328
|
|
|
Retained
Earnings
|
|
|
243,242
|
|
|
223,532
|
|
|
204,648
|
|
|
Subtotal
|
|
|
324,081
|
|
|
307,022
|
|
|
257,153
|
|
|
Accumulated
Other Comprehensive (Loss), Net of Tax
|
|
|
(8,311)
|
|
(1,246
|
)
|
|
(353
|
)
|
|
|
Total
Shareowners' Equity
|
|
$
|
315,770
|
|
$
|
305,776
|
|
$
|
256,800
|
|
At
December 31, 2006, our common stock had a book value of $17.01 per diluted
share
compared to $16.39 in 2005. Book value is impacted by the net unrealized gains
and losses on investment securities available-for-sale. At December 31, 2006,
the net unrealized loss was $.8 million compared to a net unrealized loss of
$1.2 million in 2005. Beginning in 2006, book value has been impacted by the
recording of our unfunded pension liability through other comprehensive income
in accordance with SFAS 158. At December 31, 2006, the net pension liability
reflected in other comprehensive income was $7.5 million.
Our
Board
of Directors has authorized the repurchase of up to 1,171,875 shares of our
outstanding common stock. The purchases are made in the open market or in
privately negotiated transactions. Through December 31, 2006, we have
repurchased a total of 879,837 shares at an average purchase price of $18.55
per
share. During 2006, we repurchased 164,596 shares at an average purchase price
of $32.56.
We
offer
an Associate Incentive Plan under which certain associates are eligible to
earn
shares of our common stock based upon achieving established performance goals.
In 2006, we issued 19,643 shares, valued at approximately $644,290 under this
plan.
We
also
offer stock purchase plans, which permit our associates and directors to
purchase shares at a 10% discount. In 2006, 31,584 shares, valued at
approximately $969,000 (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 $.6625 per share in 2006. For the first through third
quarters of 2006 we declared and paid a dividend of $.1625 per share. The
dividend was raised 7.7% in the fourth quarter of 2006 from $.1625 per share
to
$.1750 per share. We paid dividends of $.6185 per share in 2005 and $.5840
per
share in 2004. The dividend payout ratio was 37.01%, 37.35%, and 33.62% for
2006, 2005 and 2004, respectively. Total cash dividends declared per share
in
2006 represented an 8.1% increase over 2005. All share and per share data has
been adjusted to reflect the five-for-four stock split effective July 1,
2005.
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, 2006, we had $419.0 million in commitments to extend credit and
$17.5 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 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 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 lines of credit from the FHLB, investment security
maturities and our revolving credit facility provide a sufficient source of
funds to meet these commitments.
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 is
evaluated quarterly by us 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 to determine if there has been impairment
of our goodwill. We have determined that no impairment existed at December
31,
2006. Impairment testing requires management to make significant judgments
and
estimates relating to the fair value of its identified reporting units.
Significant changes to these estimates may have a material impact on our
reported results.
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 reported
earnings.
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 2006 was 5.75%. The estimated impact to 2006 pension
expense of a 25 basis point increase or decrease in the discount rate would
have
been a decrease of approximately $291,000 and an increase of approximately
$305,000, respectively. We anticipate using a 6.00% discount rate in 2007.
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 2006 was 8.0%. The estimated impact to pension expense
of a 25 basis point increase or decrease in the rate of return would have been
an approximate $126,000 decrease or increase, respectively. We anticipate using
a rate of return on plan assets for 2007 of 8.0%.
The
assumed rate of annual compensation increases of 5.50% in 2006 is based on
expected trends in salaries and the employee base. This assumption is not
expected to change materially in 2007.
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
Statement
of Financial Accounting Standards
SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments."
SFAS 155 amends SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" and SFAS 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." SFAS 155 (i)
permits fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation, (ii)
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS 133, (iii) establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, (iv) clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and (v) amends SFAS 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for us on January 1, 2007, and is not
expected to have a significant impact on our financial statements.
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. SFAS 157 is
effective for us on January 1, 2008 and is not expected to have a
significant impact on our financial statements.
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. We have
recognized the funded status of our defined benefit pension plan in our
financial statements for the year ended December 31, 2006. See Note 12 to
the Consolidated Financial Statements for additional information regarding
the
impact of adopting this standard.
Financial
Accounting Standards Board Interpretations
In
July
2006, the FASB issued FASB Interpretation 48, "Accounting for Income Tax
Uncertainties" ("FIN 48"). FIN 48 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 is effective for fiscal years beginning after December 15,
2006
and is not expected to have a significant impact on our financial statements.
SEC
Staff Accounting Bulletin
Staff
Accounting Bulletin (“SAB”) No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements." SAB 108 addresses how the effects of prior year uncorrected
errors must be considered in quantifying misstatements in the current year
financial statements. The effects of prior year uncorrected errors include
the
potential accumulation of improper amounts that may result in a material
misstatement on the balance sheet or the reversal of prior period errors in
the
current period that result in a material misstatement of the current period
income statement amounts. Adjustments to current or prior period financial
statements would be required in the event that after application of various
approaches for assessing materiality of a misstatement in current period
financial statements and consideration of all relevant quantitative and
qualitative factors, a misstatement is determined to be material. We adopted
SAB 108 in December 2006 and analyzed the impact of prior uncorrected
misstatements under the guidance set forth in the pronouncement.
Two
techniques are used by companies in practice to accumulate and quantify
misstatements — the “rollover” approach and the “iron curtain” approach. The
rollover approach, which is the approach we previously used, quantifies a
misstatement based on the amount of the error originating in the current year
income statement. Thus, this approach ignores the effects of correcting the
portion of the current year balance sheet misstatement that originated in prior
years. The iron curtain approach quantifies a misstatement based on the effects
of correcting the misstatement existing in the balance sheet at the end of
the
current year, irrespective of the misstatement’s year(s) of origination.
Subsequent to adoption, SAB No. 108 requires registrants to begin using both
approaches to evaluate prior year misstatements.
Use
of
the rollover approach resulted in an accumulation of misstatements to our
statements of financial condition that were deemed immaterial to the financial
statements because the amounts that originated in each year were quantitatively
and qualitatively immaterial. Under the iron curtain approach, the accumulation
of misstatements, when aggregated, were deemed to be material to our financial
statements in the current reporting period.
We
elected, as allowed under SAB 108, to reflect the effect of initially applying
this guidance by adjusting the carrying amount of the impacted accounts as
of
the beginning of 2006 and recording an offsetting adjustment to the opening
balance of retained earnings in 2006. We recorded a cumulative effect adjustment
to decrease retained earnings by $1.2 million (after-tax) for the adoption
of
SAB 108. We evaluated the impact of these adjustments on previous periods
presented in the consolidated financial statements, individually and in the
aggregate, under the rollover method and concluded that they were immaterial
to
those periods’ consolidated financial statements.
The
following table presents a description of the two adjustments included in the
cumulative adjustment to retained earnings. These adjustments were identified
by
us in the normal course of performing our internal control
activities:
|
Adjustment
|
Description
|
Years
Impacted
|
|||||
|
Operating
Leases
|
$
|
715,000
|
Establish
deferred rent payable due to difference in using straight-line accounting
method for operating leases (required per SFAS 13) versus cash-basis
accounting
|
1990
- 2006
|
|||
|
Supplies
|
$
|
518,000
|
Overstatement
of prepaid supply account due to improper recognition of sales tax
and
freight charges when supplies were used
|
1998
- 2006
|
|||
|
Total
|
$
|
1,233,000
|
|||||
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
|
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
The
normal course of business activity exposes us to interest rate risk.
Fluctuations in interest rates may result in changes in the fair market value
of
our financial instruments, cash flows and net interest income. We seek to avoid
fluctuations in our net interest margin and to maximize net interest income
within acceptable levels of risk through periods of changing interest rates.
Accordingly, our interest rate sensitivity and liquidity are monitored on an
ongoing basis by our Asset and Liability Committee ("ALCO"), which oversees
market risk management and establishes risk measures, limits and policy
guidelines for managing the amount of interest rate risk and its effects on
net
interest income and capital. A variety of measures are used to provide for
a
comprehensive view of the magnitude of interest rate risk, the distribution
of
risk, the level of risk over time and the exposure to changes in certain
interest rate relationships.
ALCO
continuously monitors and manages the balance between interest rate-sensitive
assets and liabilities. ALCO's objective is to manage the impact of fluctuating
market rates on net interest income within acceptable levels. In order to meet
this objective, management may adjust the rates charged/paid on loans/deposits
or may shorten/lengthen the duration of assets or liabilities within the
parameters set by ALCO.
Our
financial assets and liabilities are classified as other-than-trading. An
analysis of the other-than-trading financial components including the fair
values, are presented in Table 14. This table presents our consolidated interest
rate sensitivity position as of year-end 2006 based upon certain assumptions
as
set forth in the Notes to the Table. The objective of interest rate sensitivity
analysis is to measure the impact on our net interest income due to fluctuations
in interest rates. The asset and liability values presented in Table 14 may
not
necessarily be indicative of our interest rate sensitivity over an extended
period of time.
We
expect
rising rates to have a favorable impact on the net interest margin, subject
to
the magnitude and timeframe over which the rate changes occur. However, as
general interest rates rise or fall, other factors such as current market
conditions and competition may impact how we respond to changing rates and
thus
impact the magnitude of change in net interest income. Non-maturity deposits
offer management greater discretion as to the direction, timing, and magnitude
of interest rate changes and can have a material impact on our interest rate
sensitivity. In addition, the relative level of interest rates as compared
to
the current yields/rates of existing assets/liabilities can impact both the
direction and magnitude of the change in net interest margin as rates rise
and
fall from one period to the next.
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."
Table
14
FINANCIAL
ASSETS AND LIABILITIES MARKET RISK ANALYSIS (1)
Other
Than Trading Portfolio
|
As
of December 31, 2006
|
|||||||||||||||||||||||||
|
(Dollars
in Thousands)
|
Year
1
|
Year
2
|
Year
3
|
Year
4
|
Year
5
|
Beyond
|
Total
|
Fair
Value(5)
|
|||||||||||||||||
|
Loans
|
|||||||||||||||||||||||||
|
Fixed
Rate
|
$
|
318,728
|
$
|
154,370
|
$
|
100,627
|
$
|
46,290
|
$
|
23,988
|
$
|
17,314
|
$
|
661,317
|
$
|
660,438
|
|||||||||
|
Average
Interest Rate
|
6.55
|
%
|
7.68
|
%
|
7.89
|
%
|
7.83
|
%
|
7.47
|
%
|
6.69
|
%
|
7.15
|
%
|
|||||||||||
|
Floating
Rate(2)
|
1,055,362
|
163,095
|
94,883
|
8,636
|
5,861
|
10,567
|
1,338,404
|
1,348,804
|
|||||||||||||||||
|
Average
Interest Rate
|
7.04
|
%
|
7.07
|
%
|
7.66
|
%
|
7.54
|
%
|
7.90
|
%
|
8.14
|
%
|
7.11
|
%
|
|||||||||||
|
Investment
Securities(3)
|
|||||||||||||||||||||||||
|
Fixed
Rate
|
56,247
|
79,065
|
40,900
|
8,248
|
4,767
|
1,630
|
190,859
|
190,859
|
|||||||||||||||||
|
Average
Interest Rate
|
3.13
|
%
|
4.34
|
%
|
4.10
|
%
|
4.09
|
%
|
4.25
|
%
|
4.84
|
%
|
3.93
|
%
|
|||||||||||
|
Floating
Rate
|
1,035
|
-
|
-
|
-
|
-
|
-
|
1,035
|
1,035
|
|||||||||||||||||
|
Average
Interest Rate
|
5.21
|
%
|
-
|
-
|
-
|
-
|
-
|
5.21
|
%
|
||||||||||||||||
|
Other
Earning Assets
|
|||||||||||||||||||||||||
|
Floating
Rate
|
78,795
|
-
|
-
|
-
|
-
|
-
|
78,795
|
78,795
|
|||||||||||||||||
|
Average
Interest Rate
|
5.22
|
%
|
-
|
-
|
-
|
-
|
-
|
5.22
|
%
|
||||||||||||||||
|
Total
Financial Assets
|
$
|
1,510,167
|
$
|
396,530
|
$
|
236,410
|
$
|
63,174
|
$
|
34,616
|
$
|
29,511
|
$
|
2,270,409
|
$
|
2,279,930
|
|||||||||
|
Average
Interest Rate
|
6.70
|
%
|
6.77
|
%
|
7.14
|
%
|
7.30
|
%
|
7.10
|
%
|
7.11
|
%
|
6.78
|
%
|
|||||||||||
|
Deposits(4)
|
|||||||||||||||||||||||||
|
Fixed
Rate Deposits
|
$
|
397,418
|
$
|
57,172
|
$
|
20,695
|
$
|
5,713
|
$
|
2,147
|
-
|
$
|
483,145
|
$
|
408,799
|
||||||||||
|
Average
Interest Rate
|
4.00
|
%
|
4.10
|
%
|
4.26
|
%
|
3.94
|
%
|
4.17
|
%
|
-
|
4.02
|
%
|
||||||||||||
|
Floating
Rate Deposits
|
1,108,495
|
-
|
-
|
-
|
-
|
-
|
1,108,495
|
1,108,495
|
|||||||||||||||||
|
Average
Interest Rate
|
2.35
|
%
|
-
|
-
|
-
|
-
|
-
|
2.35
|
%
|
||||||||||||||||
|
Other
Interest Bearing
|
|||||||||||||||||||||||||
|
Liabilities
|
|||||||||||||||||||||||||
|
Fixed
Rate Debt
|
4,397
|
14,004
|
3,218
|
2,970
|
2,915
|
15,579
|
43,083
|
42,256
|
|||||||||||||||||
|
Average
Interest Rate
|
4.64
|
%
|
4.41
|
%
|
4.77
|
%
|
4.90
|
%
|
4.98
|
%
|
4.98
|
%
|
4.74
|
%
|
|||||||||||
|
Floating
Rate Debt
|
65,023
|
-
|
30,928
|
31,959
|
-
|
-
|
127,910
|
127,983
|
|||||||||||||||||
|
Average
Interest Rate
|
4.22
|
%
|
-
|
5.71
|
%
|
6.07
|
%
|
-
|
-
|
5.04
|
%
|
||||||||||||||
|
Total
Financial Liabilities
|
$
|
1,575,333
|
$
|
71,176
|
$
|
54,841
|
$
|
40,642
|
$
|
5,062
|
$
|
15,579
|
$
|
1,762,633
|
$
|
1,687,533
|
|||||||||
|
Average
interest Rate
|
2.85
|
%
|
4.16
|
%
|
5.11
|
%
|
5.68
|
%
|
4.63
|
%
|
4.98
|
%
|
3.06
|
%
|
|||||||||||
|
(1)
|
Based
upon expected cash flows unless otherwise
indicated.
|
|
(2)
|
Based
upon a combination of expected maturities and re-pricing
opportunities.
|
|
(3)
|
Based
upon contractual maturity, except for callable and floating rate
securities, which are based on expected maturity and weighted average
life, respectively.
|
|
(4)
|
Savings,
NOW and money market accounts can be re-priced at any time, therefore,
all
such balances are included as floating rate deposits. Time deposit
balances are classified according to
maturity.
|
|
(5)
|
Fair
value of loans does not include a reduction for the allowance for
loan
losses.
|
Item
8. Financial Statements and Supplementary
Data
Table
15
QUARTERLY
FINANCIAL DATA
|
|
|
2006
|
|
2005
|
|
||||||||||||||||||||
|
(Dollars
in Thousands, Except Per Share Data)
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
||||||||
|
Summary
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Interest
Income
|
|
$
|
42,600
|
|
$
|
42,512
|
|
$
|
41,369
|
|
$
|
39,412
|
|
$
|
38,780
|
|
$
|
36,889
|
|
$
|
33,910
|
|
$
|
30,474
|
|
|
Interest
Expense
|
|
|
13,003
|
|
|
12,289
|
|
|
11,182
|
|
|
10,282
|
|
|
9,470
|
|
|
7,885
|
|
|
6,788
|
|
|
5,920
|
|
|
Net
Interest Income
|
|
|
29,597
|
|
|
30,223
|
|
|
30,187
|
|
|
29,130
|
|
|
29,310
|
|
|
29,004
|
|
|
27,122
|
|
|
24,554
|
|
|
Provision
for Loan Losses
|
|
|
460
|
|
|
711
|
|
|
121
|
|
|
667
|
|
|
1,333
|
|
|
376
|
|
|
388
|
|
|
410
|
|
|
Net
Interest Income After
Provision
for Loan Losses
|
|
|
29,137
|
|
|
29,512
|
|
|
30,066
|
|
|
28,463
|
|
|
27,977
|
|
|
28,628
|
|
|
26,734
|
|
|
24,144
|
|
|
Noninterest
Income
|
|
|
14,385
|
|
|
14,144
|
|
|
14,003
|
|
|
13,045
|
|
|
12,974
|
|
|
13,123
|
|
|
12,041
|
|
|
11,060
|
|
|
Merger
Expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24
|
|
|
180
|
|
|
234
|
|
|
-
|
|
|
Noninterest
Expense
|
|
|
29,984
|
|
|
30,422
|
|
|
31,070
|
|
|
30,092
|
|
|
29,318
|
|
|
28,429
|
|
|
26,362
|
|
|
25,267
|
|
|
Income
Before Provision for Income Taxes
|
|
|
13,538
|
|
|
13,234
|
|
|
12,999
|
|
|
11,416
|
|
|
11,609
|
|
|
13,142
|
|
|
12,179
|
|
|
9,937
|
|
|
Provision
for Income Taxes
|
|
|
4,688
|
|
|
4,554
|
|
|
4,684
|
|
|
3,995
|
|
|
4,150
|
|
|
4,565
|
|
|
4,311
|
|
|
3,560
|
|
|
Net
Income
|
|
$
|
8,850
|
|
$
|
8,680
|
|
$
|
8,315
|
|
$
|
7,421
|
|
$
|
7,459
|
|
$
|
8,577
|
|
$
|
7,868
|
|
$
|
6,377
|
|
|
Net
Interest Income (FTE)
|
|
$
|
30,152
|
|
$
|
30,745
|
|
$
|
30,591
|
|
$
|
29,461
|
|
$
|
29,652
|
|
$
|
29,329
|
|
$
|
27,396
|
|
$
|
24,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Basic
|
|
$
|
.48
|
|
$
|
.47
|
|
$
|
.44
|
|
$
|
.40
|
|
$
|
.40
|
|
$
|
.46
|
|
$
|
.44
|
|
$
|
.36
|
|
|
Net
Income Diluted
|
|
|
.48
|
|
|
.47
|
|
|
.44
|
|
|
.40
|
|
|
.40
|
|
|
.46
|
|
|
.44
|
|
|
.36
|
|
|
Dividends
Declared
|
|
|
.175
|
|
|
.163
|
|
|
.163
|
|
|
.163
|
|
|
.163
|
|
|
.152
|
|
|
.152
|
|
|
.152
|
|
|
Diluted
Book Value
|
|
|
17.01
|
|
|
17.18
|
|
|
16.81
|
|
|
16.65
|
|
|
16.39
|
|
|
16.17
|
|
|
15.87
|
|
|
14.69
|
|
|
Market
Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
35.98
|
|
|
33.25
|
|
|
35.39
|
|
|
37.97
|
|
|
39.33
|
|
|
38.72
|
|
|
33.46
|
|
|
33.60
|
|
|
Low
|
|
|
30.14
|
|
|
29.87
|
|
|
29.51
|
|
|
33.79
|
|
|
33.21
|
|
|
31.78
|
|
|
28.02
|
|
|
29.30
|
|
|
Close
|
|
|
35.30
|
|
|
31.10
|
|
|
30.20
|
|
|
35.55
|
|
|
34.29
|
|
|
37.71
|
|
|
32.32
|
|
|
32.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,003,719
|
|
$
|
2,025,112
|
|
$
|
2,040,656
|
|
$
|
2,048,642
|
|
$
|
2,062,775
|
|
$
|
2,046,968
|
|
$
|
1,932,637
|
|
$
|
1,827,327
|
|
|
Earning
Assets
|
|
|
2,238,066
|
|
|
2,241,158
|
|
|
2,278,817
|
|
|
2,275,667
|
|
|
2,279,010
|
|
|
2,250,902
|
|
|
2,170,483
|
|
|
2,047,049
|
|
|
Assets
|
|
|
2,557,357
|
|
|
2,560,155
|
|
|
2,603,090
|
|
|
2,604,458
|
|
|
2,607,597
|
|
|
2,569,524
|
|
|
2,458,788
|
|
|
2,306,807
|
|
|
Deposits
|
|
|
2,028,453
|
|
|
2,023,523
|
|
|
2,047,755
|
|
|
2,040,248
|
|
|
2,027,017
|
|
|
2,013,427
|
|
|
1,932,144
|
|
|
1,847,378
|
|
|
Shareowners’
Equity
|
|
|
323,903
|
|
|
318,041
|
|
|
315,794
|
|
|
311,461
|
|
|
306,208
|
|
|
300,931
|
|
|
278,107
|
|
|
260,946
|
|
|
Common
Equivalent Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,525
|
|
|
18,530
|
|
|
18,633
|
|
|
18,652
|
|
|
18,624
|
|
|
18,623
|
|
|
18,094
|
|
|
17,700
|
|
|
Diluted
|
|
|
18,569
|
|
|
18,565
|
|
|
18,653
|
|
|
18,665
|
|
|
18,654
|
|
|
18,649
|
|
|
18,102
|
|
|
17,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROA
|
|
|
1.37
|
%
|
|
1.35
|
%
|
|
1.28
|
%
|
|
1.16
|
%
|
|
1.14
|
%
|
|
1.32
|
%
|
|
1.28
|
%
|
|
1.12
|
%
|
|
ROE
|
|
|
10.84
|
%
|
|
10.83
|
%
|
|
10.56
|
%
|
|
9.66
|
%
|
|
9.67
|
%
|
|
11.31
|
%
|
|
11.35
|
%
|
|
9.91
|
%
|
|
Net
Interest Margin (FTE)
|
|
|
5.35
|
%
|
|
5.45
|
%
|
|
5.38
|
%
|
|
5.25
|
%
|
|
5.16
|
%
|
|
5.17
|
%
|
|
5.07
|
%
|
|
4.92
|
%
|
|
Efficiency
Ratio
|
|
|
63.99
|
%
|
|
64.35
|
%
|
|
66.23
|
%
|
|
67.20
|
%
|
|
65.22
|
%
|
|
63.60
|
%
|
|
63.56
|
%
|
|
67.06
|
%
|
|
(1)
|
All
share and per share data have been adjusted to reflect the 5-for-4
stock
split effective July 1, 2005.
|
CAPITAL
CITY BANK GROUP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
|
PAGE
|
|
|
51
|
Report
of Independent Registered Public Accounting Firm
|
|
|
|
|
52
|
Consolidated
Statements of Income
|
|
|
|
|
53
|
Consolidated
Statements of Financial Condition
|
|
|
|
|
54
|
Consolidated
Statements of Changes in Shareowners' Equity
|
|
|
|
|
55
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
56
|
Notes
to Consolidated Financial
Statements
|
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors
Capital
City Bank Group, Inc.:
We
have
audited the accompanying consolidated statements of financial condition of
Capital City Bank Group, Inc. and subsidiary (the Company) as of
December 31, 2006 and 2005, and the related consolidated statements of
income, changes in shareowners’ equity and cash flows for each of the years in
the three-year period 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 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Capital City Bank Group,
Inc. and subsidiary as of December 31, 2006 and 2005, and the results of
their operations and their cash flows for each of the years in the three-year
period 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.
123R, Share
Based Payment,
as of
January 1, 2006, 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 and Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements,
as of
January 1, 2006.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated
March 14, 2007 expressed an unqualified opinion on management’s assessment of,
and the effective operation of, internal control over financial
reporting.
/s/
KPMG
LLP
Orlando,
Florida
March
14,
2007
Certified
Public Accountants
CAPITAL
CITY BANK GROUP, INC.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
For
the Years Ended December 31,
|
|
|||||||
|
(Dollars
in Thousands, Except Per Share Data)(1)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|||
|
Interest
and Fees on Loans
|
|
$
|
156,666
|
|
$
|
133,268
|
|
$
|
95,607
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
453
|
|
|
412
|
|
|
759
|
|
|
U.S.
Government Agencies and Corporations
|
|
|
3,605
|
|
|
3,223
|
|
|
2,111
|
|
|
States
and Political Subdivisions
|
|
|
2,337
|
|
|
1,545
|
|
|
1,944
|
|
|
Other
Securities
|
|
|
793
|
|
|
614
|
|
|
271
|
|
|
Funds
Sold
|
|
|
2,039
|
|
|
991
|
|
|
833
|
|
|
Total
Interest Income
|
|
|
165,893
|
|
|
140,053
|
|
|
101,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
37,253
|
|
|
21,134
|
|
|
11,315
|
|
|
Short-Term
Borrowings
|
|
|
3,075
|
|
|
2,854
|
|
|
1,270
|
|
|
Subordinated
Notes Payable
|
|
|
3,725
|
|
|
2,981
|
|
|
294
|
|
|
Other
Long-Term Borrowings
|
|
|
2,704
|
|
|
3,094
|
|
|
2,562
|
|
|
Total
Interest Expense
|
|
|
46,757
|
|
|
30,063
|
|
|
15,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
119,136
|
|
|
109,990
|
|
|
86,084
|
|
|
Provision
for Loan Losses
|
|
|
1,959
|
|
|
2,507
|
|
|
2,141
|
|
|
Net
Interest Income After
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Loan Losses
|
|
|
117,177
|
|
|
107,483
|
|
|
83,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Service
Charges on Deposit Accounts
|
|
|
24,620
|
|
|
20,740
|
|
|
17,574
|
|
|
Data
Processing
|
|
|
2,723
|
|
|
2,610
|
|
|
2,628
|
|
|
Asset
Management Fees
|
|
|
4,600
|
|
|
4,419
|
|
|
4,007
|
|
|
(Loss)/Gain
on Sale of Investment Securities
|
(4)
|
9
|
14
|
|||||||
|
Mortgage
Banking Revenues
|
|
|
3,235
|
|
|
4,072
|
|
|
3,208
|
|
|
Gain
on the Sale of Credit Card Portfolios
|
-
|
-
|
7,181
|
|||||||
|
Other
|
|
|
20,403
|
|
|
17,348
|
|
|
15,941
|
|
|
Total
Noninterest Income
|
|
|
55,577
|
|
|
49,198
|
|
|
50,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Associate Benefits
|
|
|
60,855
|
|
|
53,687
|
|
|
44,345
|
|
|
Occupancy,
Net
|
|
|
9,395
|
|
|
8,293
|
|
|
7,074
|
|
|
Furniture
and Equipment
|
|
|
9,911
|
|
|
8,970
|
|
|
8,393
|
|
|
Intangible
Amortization
|
|
|
6,085
|
|
|
5,440
|
|
|
3,824
|
|
|
Merger
Expense
|
|
|
-
|
|
|
438
|
|
|
550
|
|
|
Other
|
|
|
35,322
|
|
|
32,986
|
|
|
25,040
|
|
|
Total
Noninterest Expense
|
|
|
121,568
|
|
|
109,814
|
|
|
89,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
51,186
|
|
|
46,867
|
|
|
45,270
|
|
|
Income
Taxes
|
|
|
17,921
|
|
|
16,586
|
|
|
15,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
33,265
|
|
$
|
30,281
|
|
$
|
29,371
|
|
|
BASIC
NET INCOME PER SHARE
|
|
$
|
1.79
|
|
$
|
1.66
|
|
$
|
1.74
|
|
|
DILUTED
NET INCOME PER SHARE
|
|
$
|
1.79
|
|
$
|
1.66
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Basic Common Shares Outstanding
|
|
|
18,585
|
|
|
18,264
|
|
|
16,806
|
|
|
Average
Diluted Common Shares Outstanding
|
|
|
18,610
|
|
|
18,281
|
|
|
16,811
|
|
|
(1)
|
All
share and per share data have been adjusted to reflect the 5-for-4
stock
split effective July 1, 2005.
|
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
CAPITAL
CITY BANK GROUP, INC.
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
|
As
of December 31,
|
|
||||
|
(Dollars
in Thousands, Except Per Share Data)(1)
|
|
2006
|
|
2005
|
|
||
|
ASSETS
|
|
|
|
|
|
||
|
Cash
and Due From Banks
|
|
$
|
98,769
|
$
|
105,195
|
|
|
|
Funds
Sold and Interest Bearing Deposits
|
|
|
78,795
|
|
61,164
|
|
|
|
Total
Cash and Cash Equivalents
|
|
|
177,564
|
|
166,359
|
|
|
|
Investment
Securities, Available-for-Sale
|
|
|
191,894
|
|
171,019
|
|
|
|
|
|
|
|
|
|
||
|
Loans,
Net of Unearned Interest
|
|
|
1,999,721
|
|
2,067,494
|
|
|
|
Allowance
for Loan Losses
|
|
|
(17,217)
|
|
(17,410
|
)
|
|
|
Loans,
Net
|
|
|
1,982,504
|
|
2,050,084
|
|
|
|
|
|
|
|
|
|
||
|
Premises
and Equipment, Net
|
|
|
86,538
|
|
73,818
|
|
|
|
Goodwill
|
|
|
84,811
|
|
84,829
|
|
|
|
Other
Intangible Assets
|
|
|
19,591
|
|
25,622
|
|
|
|
Other
Assets
|
|
|
55,008
|
|
53,731
|
|
|
|
Total
Assets
|
|
$
|
2,597,910
|
$
|
2,625,462
|
|
|
|
|
|
|
|
|
|
||
|
LIABILITIES
|
|
|
|
|
|
||
|
Deposits:
|
|
|
|
|
|
||
|
Noninterest
Bearing Deposits
|
|
$
|
490,014
|
$
|
559,492
|
|
|
|
Interest
Bearing Deposits
|
|
|
1,591,640
|
|
1,519,854
|
|
|
|
Total
Deposits
|
|
|
2,081,654
|
|
2,079,346
|
|
|
|
|
|
|
|
|
|
||
|
Short-Term
Borrowings
|
|
|
65,023
|
|
82,973
|
|
|
|
Subordinated
Notes Payable
|
|
|
62,887
|
|
62,887
|
|
|
|
Other
Long-Term Borrowings
|
|
|
43,083
|
|
69,630
|
|
|
|
Other
Liabilities
|
|
|
29,493
|
|
24,850
|
|
|
|
Total
Liabilities
|
|
|
2,282,140
|
|
2,319,686
|
|
|
|
|
|
|
|
|
|
||
|
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; 18,518,398 and
18,631,706 shares issued and outstanding at December 31, 2006 and
December
31, 2005, respectively
|
|
|
185
|
|
186
|
|
|
|
Additional
Paid-In Capital
|
|
|
80,654
|
|
83,304
|
|
|
|
Retained
Earnings
|
|
|
243,242
|
|
223,532
|
|
|
|
Accumulated
Other Comprehensive Loss, Net of Tax
|
|
|
(8,311)
|
|
(1,246
|
)
|
|
|
Total
Shareowners' Equity
|
|
|
315,770
|
|
305,776
|
|
|
|
Commitments
and Contingencies (See Note 18)
|
|
|
|
|
|
||
|
Total
Liabilities and Shareowners' Equity
|
|
$
|
2,597,910
|
$
|
2,625,462
|
|
|
|
(1)
|
All
share and per share data have been adjusted to reflect the 5-for-4
stock
split effective July 1, 2005.
|
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
CAPITAL
CITY BANK GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
|
(Dollars
in Thousands, Except Per Share Data)(1)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
(Loss)
Income,
Net
of Taxes
|
|
Total
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance,
December 31, 2003
|
|
$
|
165
|
|
$
|
16,124
|
|
|
185,134
|
|
$
|
1,386
|
|
$
|
202,809
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
29,371
|
|
|
|
|
|
|
|
|
Net
Change in Unrealized Loss On Available-for-Sale Securities (net of
tax)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,739
|
)
|
|
|
|
|
Total
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,632
|
|
|
Cash
Dividends ($.525 per share)
|
|
|
-
|
|
|
-
|
|
|
(9,857
|
)
|
|
-
|
|
|
(9,857
|
)
|
|
Stock
Performance Plan Compensation
|
|
|
-
|
|
|
193
|
|
|
-
|
|
|
-
|
|
|
193
|
|
|
Issuance
of Common Stock
|
|
|
12
|
|
|
36,011
|
|
|
-
|
|
|
-
|
|
|
36,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
177
|
|
|
52,328
|
|
|
204,648
|
|
|
(353
|
)
|
|
256,800
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
30,281
|
|
|
|
|
|
|
|
|
Net
Change in Unrealized Loss On Available-for-Sale Securities (net of
tax)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(893
|
)
|
|
|
|
|
Total
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,388
|
|
|
Cash
Dividends ($.584 per share)
|
|
|
-
|
|
|
-
|
|
|
(11,397
|
)
|
|
-
|
|
|
(11,397
|
)
|
|
Stock
Performance Plan Compensation
|
|
|
-
|
|
|
968
|
|
|
-
|
|
|
-
|
|
|
968
|
|
|
Issuance
of Common Stock
|
|
|
9
|
|
|
30,008
|
|
|
-
|
|
|
-
|
|
|
30,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
186
|
|
83,304
|
|
223,532
|
|
(1,246
|
)
|
305,776
|
|
||||
|
Cumulative
Effect Adjustment upon adoption of SAB No. 108 (net of
tax)
|
-
|
-
|
(1,233)
|
-
|
(1,233)
|
|||||||||||
|
Balance
(adjusted), December 31, 2005
|
186
|
83,304
|
222,299
|
(1,246)
|
304,543
|
|||||||||||
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
-
|
33,265
|
|
||||||||||
|
Net
Change in Unrealized Loss On Available-for-Sale Securities (net of
tax)
|
-
|
-
|
-
|
412
|
||||||||||||
|
Establish
Pension Liability upon adoption of SFAS No. 158 (net of
tax)
|
|
|
-
|
-
|
-
|
(7,477)
|
|
|||||||||
|
Total
Comprehensive Income
|
|
|
-
|
-
|
-
|
-
|
26,200
|
|
||||||||
|
Cash
Dividends ($.663 per share)
|
|
|
-
|
-
|
(12,322)
|
-
|
(12,322)
|
|
||||||||
|
Stock
Performance Plan Compensation
|
|
|
-
|
1,673
|
-
|
-
|
1,673
|
|||||||||
|
Issuance
of Common Stock
|
1
|
1,035
|
-
|
-
|
1,036
|
|
||||||||||
|
Repurchase
of Common Stock
|
|
|
(2)
|
(5,358)
|
-
|
-
|
(5,360)
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
185
|
|
$
|
80,654
|
|
$
|
243,242
|
|
$
|
(8,311)
|
$
|
315,770
|
|
|
|
(1)
|
All
share, per share, and shareowners' equity data have been adjusted
to
reflect the 5-for-4 stock split effective July 1, 2005, and the 5-for-4
stock split effective June 13,
2003.
|
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
CAPITAL
CITY BANK GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
For
the Years Ended December 31,
|
|
|||||||
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|||
|
Net
Income
|
|
$
|
33,265
|
|
$
|
30,281
|
|
$
|
29,371
|
|
|
Adjustments
to Reconcile Net Income to Cash Provided by Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Loan Losses
|
|
|
1,959
|
|
|
2,507
|
|
|
2,141
|
|
|
Depreciation
|
|
|
6,795
|
|
|
5,899
|
|
|
5,288
|
|
|
Net
Securities Amortization
|
|
|
582
|
|
|
1,454
|
|
|
2,117
|
|
|
Amortization
of Intangible Assets
|
|
|
6,085
|
|
5,440
|
|
|
3,824
|
|
|
|
Loss/(Gain)
on Sale of Investment Securities
|
|
|
4
|
|
(9
|
)
|
|
(14
|
)
|
|
|
Origination
of Loans Held-for-Sale
|
(190,945)
|
(219,171
|
)
|
(181,068
|
)
|
|||||
|
Proceeds
From Sales of Loans Held-for-Sale
|
194,569
|
227,853
|
178,248
|
|||||||
|
Net
Gain From Sales of Loans Held-for Sale
|
(3,235)
|
(4,072
|
)
|
(3,208
|
)
|
|||||
|
Non-Cash
Compensation
|
|
|
1,673
|
|
968
|
|
|
1,707
|
|
|
|
Deferred
Income Taxes
|
|
|
1,614
|
|
182
|
|
|
765
|
|
|
|
Net
Increase in Other Assets
|
|
|
(11,327)
|
|
(11,839
|
)
|
|
(4,210
|
)
|
|
|
Net
Increase (Decrease) in Other Liabilities
|
|
|
5,148
|
|
|
9,264
|
|
|
(3,182
|
)
|
|
Net
Cash Provided by Operating Activities
|
|
|
46,187
|
|
|
48,757
|
|
|
31,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(102,628)
|
|
(45,717
|
)
|
|
(88,028
|
)
|
|
|
Sales
|
|
|
283
|
|
35,142
|
|
|
3,466
|
|
|
|
Payments,
Maturities, and Calls
|
|
|
81,500
|
|
81,783
|
|
|
128,617
|
|
|
|
Net
Decrease (Increase) in Loans
|
|
|
64,213
|
|
(127,715
|
)
|
|
(127,115
|
)
|
|
|
Net
Cash Acquired (Used In) Acquisitions
|
|
|
-
|
|
37,412
|
|
(31,743
|
)
|
||
|
Purchase
of Premises & Equipment
|
|
|
(20,145)
|
|
(18,336
|
)
|
|
(5,576
|
)
|
|
|
Proceeds
From Sales of Premises & Equipment
|
|
|
630
|
|
897
|
|
|
1,155
|
|
|
|
Net
Cash Provided By (Used In) Investing Activities
|
|
|
23,853
|
|
(36,534
|
)
|
|
(119,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Deposits
|
|
|
2,308
|
|
(17,125
|
)
|
|
23,776
|
|
|
|
Net
Decrease in Short-Term Borrowings
|
|
|
(31,412)
|
|
(33,085
|
)
|
|
(33,559
|
)
|
|
|
Proceeds
from Subordinated Notes Payable
|
|
|
-
|
|
31,959
|
|
|
30,928
|
|
|
|
Increase
in Other Long-Term Borrowings
|
|
|
3,250
|
|
23,600
|
|
|
59,741
|
|
|
|
Repayment
of Other Long-Term Borrowings
|
|
|
(16,335)
|
|
(2,380
|
)
|
|
(41,815
|
)
|
|
|
Dividends
Paid
|
|
|
(12,322)
|
|
(11,397
|
)
|
|
(9,857
|
)
|
|
|
Repurchase
of Common Stock
|
|
|
(5,360)
|
|
|
-
|
|
|
-
|
|
|
Issuance
of Common Stock
|
|
|
1,036
|
|
|
1,019
|
|
|
1,184
|
|
|
Net
Cash (Used In) Provided By Financing Activities
|
(58,835)
|
(7,409
|
)
|
30,398
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
11,205
|
|
|
4,814
|
|
(57,047
|
)
|
|
|
Cash
and Cash Equivalents at Beginning of Year
|
|
|
166,359
|
|
|
161,545
|
|
|
218,592
|
|
|
Cash
and Cash Equivalents at End of Year
|
|
$
|
177,564
|
|
$
|
166,359
|
|
$
|
161,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Paid on Deposits
|
$
|
36,509
|
$
|
19,964
|
$
|
10,661
|
||||
|
Interest
Paid on Debt
|
$
|
9,688
|
$
|
8,754
|
$
|
4,066
|
||||
|
Taxes
Paid
|
$
|
16,797
|
$
|
15,923
|
$
|
12,606
|
||||
|
Loans
Transferred to Other Real Estate
|
$
|
1,018
|
$
|
2,689
|
$
|
1,351
|
||||
|
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
|
|
$
|
711
|
|
$
|
339
|
|
$
|
1,707
|
|
|
Transfer
of Current Portion of Long-Term Borrowings
to
Short-Term Borrowings
|
$
|
13,061
|
$
|
20,043
|
$
|
16,002
|
||||
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 in 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. All acquisitions during the reported periods were
accounted for using the purchase method. Accordingly, the operating results
of
the acquired companies are included with the Company’s results of operations
since their respective dates of acquisition.
On
July
1, 2005, the Company executed a five-for-four stock split in the form of a
25%
stock dividend, payable to shareowners of record as of the close of business
on
June 17, 2005. All share, per share, and shareowners' equity data have been
adjusted to reflect the stock split.
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, 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.
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. 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 (loss) 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 generally 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 and
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 collectibility
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 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. These loans are classified as loans held for sale and carried at the
lower
of cost or estimated fair value. Fair value is determined on the basis of rates
quoted in the respective secondary market for the type of loan held for sale.
Loans are generally sold 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 four elements: (i) specific
valuation allowances established for probable losses on specific loans deemed
impaired; (ii) general valuation allowances calculated based on historical
loan loss experience for specifically identified problem loans and other loans
with similar characteristics and trends; (iii) judgmental allowance reflective
of quantitative and qualitative risk factors both internal and external to
the
Company; and (iv) an unallocated allowance that reflects management’s
determination of estimation risk and other existing conditions that are not
included in the allocated allowance determination.
Long-Lived
Assets
Premises
and equipment are 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. Major additions are capitalized
and
depreciated in the same manner. 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 ("SFAS") 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 reporting unit with
goodwill. As of December 31, 2006, the Company performed its annual impairment
review and concluded that no impairment adjustment was necessary.
Income
Taxes
The
Company files a consolidated federal income tax return and each subsidiary
files
a separate state income tax return.
The
Company follows the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the carrying amounts
of existing assets and liabilities on the Company’s consolidated statement of
financial position and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock
Based Compensation
On
January 1, 2006, the Company changed its accounting policy related to
stock-based compensation in connection with the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment (Revised
2004)" ("SFAS 123R"). See Note 11 - Stock-Based Compensation for additional
information.
Recent
Accounting Pronouncements
Statement
of Financial Accounting Standards
SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments."
SFAS 155 amends SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" and SFAS 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." SFAS 155 (i)
permits fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation, (ii)
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS 133, (iii) establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, (iv) clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and (v) amends SFAS 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective on January 1, 2007, and is not expected
to have a significant impact on the Company’s financial statements.
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. SFAS 157 is
effective on January 1, 2008 and is not expected to have a significant
impact on the Company’s financial statements.
SFAS No. 158,
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of 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
its
defined benefit pension plan in its financial statements for the year ended
December 31, 2006. See Note 12 for additional discussion.
Financial
Accounting Standards Board Interpretations
In
July
2006, the FASB issued FASB Interpretation 48, "Accounting for Income Tax
Uncertainties" ("FIN 48"). FIN 48 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 is effective for fiscal years beginning after December 15,
2006
and is not expected to have a significant impact on the Company’s financial
statements.
SEC
Staff Accounting Bulletin
Staff
Accounting Bulletin (“SAB”) No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements." SAB 108 addresses how the effects of prior year uncorrected
errors must be considered in quantifying misstatements in the current year
financial statements. The effects of prior year uncorrected errors include
the
potential accumulation of improper amounts that may result in a material
misstatement on the balance sheet or the reversal of prior period errors in
the
current period that result in a material misstatement of the current period
income statement amounts. Adjustments to current or prior period financial
statements would be required in the event that after application of various
approaches for assessing materiality of a misstatement in current period
financial statements and consideration of all relevant quantitative and
qualitative factors, a misstatement is determined to be material. The Company
adopted SAB 108 in December 2006 and analyzed the impact of prior
uncorrected misstatements under the guidance set forth in the
pronouncement.
Two
techniques are used by companies in practice to accumulate and quantify
misstatements — the “rollover” approach and the “iron curtain” approach. The
rollover approach, which is the approach the Company previously used, quantifies
a misstatement based on the amount of the error originating in the current
year
income statement. Thus, this approach ignores the effects of correcting the
portion of the current year balance sheet misstatement that originated in prior
years. The iron curtain approach quantifies a misstatement based on the effects
of correcting the misstatement existing in the balance sheet at the end of
the
current year, irrespective of the misstatement’s year(s) of origination.
Subsequent to adoption, SAB No. 108 requires registrant’s to begin using both
approaches to evaluate prior year misstatements.
Use
of
the rollover approach by the Company resulted in an accumulation of
misstatements to the Company’s statements of financial condition that were
deemed immaterial to the financial statements because the amounts that
originated in each year were quantitatively and qualitatively immaterial. Under
the iron curtain approach, the accumulation of misstatements, when aggregated,
were deemed to be material to the Company’s financial statements in the current
reporting period.
The
Company elected, as allowed under SAB 108, to reflect the effect of initially
applying this guidance by adjusting the carrying amount of the impacted accounts
as of the beginning of 2006 and recording an offsetting adjustment to the
opening balance of retained earnings in 2006. The Company recorded a cumulative
effect adjustment to decrease retained earnings by $1.2 million (after-tax)
for
the adoption of SAB 108. The Company evaluated the impact of these adjustments
on previous periods presented in the consolidated financial statements,
individually and in the aggregate, under the rollover method and concluded
that
they were immaterial to those periods’ consolidated financial
statements.
The
following table presents a description of the two adjustments included in the
cumulative adjustment to retained earnings. These adjustments were identified
by
management in the normal course of performing their internal control
activities:
|
Adjustment
|
Description
|
Years
Impacted
|
|||||
|
Operating
Leases
|
$
|
715,000
|
Establish
deferred rent payable due to difference in using straight-line accounting
for operating leases (required per SFAS 13) versus cash-basis
accounting
|
1990
- 2006
|
|||
|
Supplies
|
$
|
518,000
|
Overstatement
of prepaid supply account due to improper recognition of sales tax
and
freight charges when supplies were used
|
1998
- 2006
|
|||
|
Total
|
$
|
1,233,000
|
|||||
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:
|
|
|
2006
|
|
||||||||||
|
(Dollars
in Thousands)
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Market
Value
|
|
||||
|
U.S.
Treasury
|
|
$
|
12,098
|
|
$
|
16
|
|
$
|
49
|
|
$
|
12,065
|
|
|
U.S.
Government Agencies and Corporations
|
|
|
61,619
|
|
|
37
|
|
|
593
|
|
|
61,063
|
|
|
States
and Political Subdivisions
|
|
|
83,621
|
|
|
16
|
|
|
415
|
|
|
83,222
|
|
|
Mortgage-Backed
Securities
|
|
|
23,244
|
|
|
23
|
|
|
371
|
|
|
22,896
|
|
|
Other
Securities(1)
|
|
|
12,648
|
|
|
-
|
|
|
-
|
|
|
12,648
|
|
|
Total
Investment Securities
|
|
$
|
193,230
|
|
$
|
92
|
|
$
|
1,428
|
|
$
|
191,894
|
|
|
|
|
2005
|
|
||||||||||
|
(Dollars
in Thousands)
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Market
Value
|
|
||||
|
U.S.
Treasury
|
|
$
|
9,065
|
|
$
|
-
|
|
$
|
50
|
|
$
|
9,015
|
|
|
U.S.
Government Agencies and Corporations
|
|
|
75,233
|
|
|
-
|
|
|
1,017
|
|
|
74,216
|
|
|
States
and Political Subdivisions
|
|
|
53,611
|
|
|
44
|
|
|
512
|
|
|
53,143
|
|
|
Mortgage-Backed
Securities
|
|
|
20,948
|
|
|
35
|
|
|
452
|
|
|
20,531
|
|
|
Other
Securities(1)
|
|
|
14,114
|
|
|
-
|
|
|
-
|
|
|
14,114
|
|
|
Total
Investment Securities
|
|
$
|
172,971
|
|
$
|
79
|
|
$
|
2,031
|
|
$
|
171,019
|
|
|
(1)
|
FHLB
and FRB stock recorded at
cost.
|
Securities
with an amortized cost of $87.6 million and $70.5 million at December 31, 2006
and 2005, 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, which is included in other
securities, is pledged to secure FHLB advances. No ready market exists for
this
stock, and it has no quoted market value. However, redemption of this stock
has
historically been at par value.
Investment
Sales.
The
total proceeds from the sale of investment securities and the gross realized
gains and losses from the sale of such securities for each of the last three
years are as follows:
|
(Dollars
in Thousands)
|
|
Year
|
|
Total
Proceeds
|
|
Gross
Realized
Gains
|
|
Gross
Realized
Losses
|
|
|||
|
|
|
2006
|
|
$
|
283
|
|
$
|
-
|
|
$
|
4
|
|
|
|
|
2005
|
|
$
|
35,142
|
|
$
|
9
|
|
$
|
-
|
|
|
|
|
2004
|
|
$
|
3,466
|
|
$
|
17
|
|
$
|
3
|
|
Maturity
Distribution.
As of
December 31, 2006, 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
|
$
|
52,337
|
$
|
52,020
|
|
||
|
Due
after one through five years
|
123,511
|
|
122,631
|
|
|||
|
Due
after five through ten years
|
4,734
|
|
4,595
|
|
|||
|
No
Maturity
|
12,648
|
|
12,648
|
|
|||
|
Total
Investment Securities
|
$
|
193,230
|
$
|
191,894
|
|
||
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, 2006
|
|||||||||||||||||||
|
|
|
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
|
|
$
|
12,065
|
|
$
|
49
|
|
$
|
-
|
|
$
|
-
|
|
$
|
12,065
|
|
$
|
49
|
|
|
U.S.
Government Agencies and Corporations
|
|
|
29,308
|
|
|
172
|
|
|
30,242
|
|
|
421
|
|
|
59,550
|
|
|
593
|
|
|
States
and Political Subdivisions
|
|
|
46,576
|
|
|
219
|
|
|
30,087
|
|
|
196
|
|
|
76,663
|
|
|
415
|
|
|
Mortgage-Backed
Securities
|
|
|
9,156
|
|
|
1
|
|
|
13,560
|
|
|
370
|
|
|
22,716
|
|
|
371
|
|
|
Total
Investment Securities
|
|
$
|
97,105
|
|
$
|
441
|
|
$
|
73,889
|
|
$
|
987
|
|
$
|
170,994
|
|
$
|
1,428
|
|
|
December
31, 2005
|
||||||||||||||||||
|
|
|
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
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,015
|
|
$
|
50
|
|
$
|
9,015
|
|
$
|
50
|
|
U.S.
Government Agencies and Corporations
|
|
|
7,907
|
|
|
98
|
|
|
66,309
|
|
|
919
|
|
|
74,216
|
|
|
1,017
|
|
States
and Political Subdivisions
|
|
|
34,640
|
|
|
348
|
|
|
10,926
|
|
|
164
|
|
|
45,566
|
|
|
512
|
|
Mortgage-Backed
Securities
|
|
|
7,680
|
|
|
179
|
|
|
9,741
|
|
|
273
|
|
|
17,421
|
|
|
452
|
|
Total
Investment Securities
|
|
$
|
50,227
|
|
$
|
625
|
|
$
|
95,991
|
|
$
|
1,406
|
|
$
|
146,218
|
|
$
|
2,031
|
At
December 31, 2006, the Company had securities of $193.0 million with net
unrealized losses of $1.3 million on these securities. Of the total, $97.1
million with net unrealized losses of $0.4 million, have been in a loss position
for less than 12 months and $74.0 million, with unrealized losses of $1.0
million, have been in a loss position for longer than 12 months. The Company
believes that these securities are only temporarily impaired and that the full
principle will be collected as anticipated.
Of
the
total, $71.6 million, or 41.9%, are either a direct obligation of the U.S.
Government or its agencies and are in a loss position because they were acquired
when the general level of interest rates was lower than that on December 31,
2006. As of December 31, 2006, $22.7 million, or 13.3% are mortgage-backed
securities that are guaranteed by the U.S. Government or its agencies. The
mortgage-backed securities are in a loss position due to either the lower
interest rate at time of purchase or due to accelerated prepayments driven
by
the low rate environment. The remaining $76.7 million, or 44.8%, of the
securities in a loss position are municipal bonds which all maintain
satisfactory ratings by a credit rating agency. The municipal bonds are also
in
a loss position due to the lower interest rate environment at the time of
purchase.
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 maturity, the Company does not consider these investments
to
be other-than-temporarily impaired at December 31, 2006.
Note
3
LOANS
Loan
Portfolio Composition.
At
December 31, the composition of the Company's loan portfolio was as
follows:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|||
|
Commercial,
Financial and Agricultural
|
|
$
|
229,327
|
|
$
|
218,434
|
|
|
Real
Estate - Construction
|
|
|
179,072
|
|
|
160,914
|
|
|
Real
Estate - Commercial Mortgage
|
|
|
643,885
|
|
|
718,741
|
|
|
Real
Estate - Residential(1)
|
|
|
531,968
|
|
|
553,124
|
|
|
Real
Estate - Home Equity
|
|
|
173,597
|
|
|
165,337
|
|
|
Real
Estate - Loans Held-for-Sale
|
|
|
4,170
|
|
|
4,875
|
|
|
Consumer
|
|
|
237,702
|
|
|
246,069
|
|
|
Total
Loans, Net of Unearned Interest
|
|
$
|
1,999,721
|
|
$
|
2,067,494
|
|
Net
deferred fees included in loans at December 31, 2006 and December 31, 2005
were
$1.5 million and $1.6 million, respectively.
(1)
Includes loans in process with outstanding balances of $11.5 million and $26.3
million for 2006 and 2005, 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
(76.6%) consists of loans secured by real estate, the primary types of
collateral being commercial properties and residential properties. At December
31, 2006, commercial real estate mortgage loans and residential real estate
mortgage loans accounted for 32.2% and 35.3% of the loan portfolio,
respectively. As of December 31, 2006, 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 $8.0 million and $5.3 million, at December 31,
2006 and 2005, respectively. There were no restructured loans at December 31,
2006 or 2005. Interest on nonaccrual loans is generally recognized only when
received. 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 collectibility of principal and interest in full. If interest
on
nonaccruing loans had been recognized on a fully accruing basis, interest income
recorded would have been $483,000, $186,000, and $189,000 higher for the years
ended December 31, 2006, 2005, and 2004, respectively. Accruing loans past
due
more than 90 days totaled $135,000 at December 31, 2006 and $309,000 at December
31, 2005.
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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Balance,
Beginning of Year
|
|
$
|
17,410
|
|
$
|
16,037
|
|
$
|
12,429
|
|
|
Acquired
Reserves
|
|
|
-
|
|
|
1,385
|
|
|
5,713
|
|
|
Reserve
Reversal(1)
|
|
|
-
|
|
|
-
|
|
(800
|
)
|
|
|
Provision
for Loan Losses
|
|
|
1,959
|
|
|
2,507
|
|
|
2,141
|
|
|
Recoveries
on Loans Previously Charged-Off
|
|
|
1,830
|
|
|
1,724
|
|
|
1,612
|
|
|
Loans
Charged-Off
|
|
|
(3,982)
|
|
(4,243
|
)
|
|
(5,058
|
)
|
|
|
Balance,
End of Year
|
|
$
|
17,217
|
|
$
|
17,410
|
|
$
|
16,037
|
|
|
(1)
|
Reflects
recapture of reserves allocated to the Bank's credit card portfolio,
which
was sold in August 2004.
|
Impaired
Loans.
Selected information pertaining to impaired loans, at December 31, is as
follows:
|
|
|
2006
|
|
2005
|
|
||||||||
|
(Dollars
in Thousands)
|
|
Valuation
Balance
|
|
Valuation
Allowance
|
|
Valuation
Balance
|
|
Valuation
Allowance
|
|
||||
|
Impaired
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
Related Credit Allowance
|
|
$
|
6,085
|
|
$
|
2,255
|
|
$
|
5,612
|
|
$
|
2,915
|
|
|
Without
Related Credit Allowance
|
|
4,574
|
|
|
-
|
|
1,658
|
|
|
-
|
|
||
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Average
Recorded Investment in Impaired Loans
|
|
$
|
12,782
|
|
$
|
9,786
|
|
$
|
5,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income on Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
|
|
$
|
398
|
|
$
|
218
|
|
$
|
140
|
|
|
Collected
in Cash
|
|
398
|
|
218
|
|
120
|
|
|||
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 $104.4 million and $110.5 million at December
31, 2006 and December 31, 2005, respectively. Intangible assets at December
31,
were as follows:
|
|
|
2006
|
|
2005
|
|
||||||||
|
(Dollars
in Thousands)
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
||||
|
Core
Deposits Intangibles
|
|
$
|
47,176
|
|
$
|
28,955
|
|
$
|
47,176
|
|
$
|
23,312
|
|
|
Goodwill
|
|
|
84,811
|
|
|
-
|
|
|
84,829
|
|
|
-
|
|
|
Customer
Relationship Intangible
|
|
|
1,867
|
|
|
497
|
|
|
1,867
|
|
|
305
|
|
|
Non-Compete
Agreement
|
|
|
537
|
|
|
537
|
|
|
483
|
|
|
287
|
|
|
Total
Intangible Assets
|
|
$
|
134,391
|
|
$
|
29,989
|
|
$
|
134,355
|
|
$
|
23,904
|
|
Net
Core Deposit Intangibles. As
of
December 31, 2006 and December 31, 2005, the Company had net core deposit
intangibles of $18.2 million and $23.9 million, respectively. Amortization
expense for the twelve months of 2006, 2005 and 2004 was $5.6 million, $5.0
million, and $3.7 million, respectively. The estimated annual amortization
expense (in millions) for the next five years is expected to be approximately
$5.7, $5.5, $3.9, $2.5, and $0.5 per year.
Goodwill.
As
of
December 31, 2006 and December 31, 2005, 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, 2006,
the Company performed its annual impairment review and concluded that no
impairment adjustment was necessary.
Other.
As of
December 31, 2006, the Company had a client relationship intangible, net of
accumulated amortization, of $1.4 million. This intangible was booked as a
result of the March 2004 acquisition of trust client relationships from Synovus
Trust Company. Amortization expense for 2006 was $192,000. Estimated annual
amortization expense is $192,000 based on use of a 10-year useful life. The
Company also had a non-compete intangible during the year which became fully
amortized at the end of the year. This intangible was booked as a result of
the
October 2004 acquisition of Farmers and Merchants Bank of Dublin. Amortization
expense for this intangible during 2006 was $250,000.
Note
6
PREMISES
AND EQUIPMENT
The
composition of the Company's premises and equipment at December 31, was as
follows:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
||
|
Land
|
|
$
|
22,597
|
|
$
|
16,503
|
|
|
Buildings
|
|
|
78,676
|
|
|
69,924
|
|
|
Fixtures
and Equipment
|
|
|
52,129
|
|
|
46,293
|
|
|
Total
|
|
|
153,402
|
|
|
132,720
|
|
|
Accumulated
Depreciation
|
|
|
(66,864)
|
|
(58,902
|
)
|
|
|
Premises
and Equipment, Net
|
|
$
|
86,538
|
|
$
|
73,818
|
|
Note
7
DEPOSITS
Interest
bearing deposits, by category, as of December 31, were as follows:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
||
|
NOW
Accounts
|
|
$
|
599,433
|
|
$
|
520,878
|
|
|
Money
Market Accounts
|
|
|
384,568
|
|
|
331,094
|
|
|
Savings
Accounts
|
|
|
125,500
|
|
|
144,296
|
|
|
Time
Deposits
|
|
|
482,139
|
|
|
523,586
|
|
|
Total
|
|
$
|
1,591,640
|
|
$
|
1,519,854
|
|
At
December 31, 2006 and 2005, $3.1 million and $3.6 million, respectively, in
overdrawn deposit accounts were reclassified as loans.
Deposits
from certain directors, executive officers, and their related interests totaled
$30.7 million and $34.1 million at December 31, 2006 and 2005,
respectively.
Time
deposits in denominations of $100,000 or more totaled $135.0 million and $143.4
million at December 31, 2006 and 2005, respectively.
At
December 31, 2006, the scheduled maturities of time deposits were as follows:
|
(Dollars
in Thousands)
|
|
|
|
|
|
2007
|
|
$
|
396,507
|
|
|
2008
|
|
|
56,790
|
|
|
2009
|
|
|
20,955
|
|
|
2010
|
|
|
5,452
|
|
|
2011
and thereafter
|
|
|
2,435
|
|
|
Total
|
|
$
|
482,139
|
|
Interest
expense on deposits for the three years ended December 31, was as
follows:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
NOW
Accounts
|
|
$
|
7,658
|
|
$
|
2,868
|
|
$
|
733
|
|
|
Money
Market Accounts
|
|
|
11,687
|
|
|
4,337
|
|
|
1,189
|
|
|
Savings
Accounts
|
|
|
278
|
|
|
292
|
|
|
164
|
|
|
Time
Deposits < $100,000
|
|
|
12,087
|
|
|
9,247
|
|
|
6,683
|
|
|
Time
Deposits > $100,000
|
|
|
5,543
|
|
|
4,390
|
|
|
2,546
|
|
|
Total
|
|
$
|
37,253
|
|
$
|
21,134
|
|
$
|
11,315
|
|
Note
8
SHORT-TERM
BORROWINGS
Short-term
borrowings included the following:
|
(Dollars
in Thousands)
|
|
Federal
Funds
Purchased
|
|
Securities
Sold
Under
Repurchase
Agreements
|
|
Other
Short-Term
Borrowings
|
|
|||
|
2006
|
|
|
|
|
|
|
|
|||
|
Balance
at December 31,
|
|
$
|
11,950
|
|
$
|
38,022
|
|
$
|
15,051
|
(1)
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31,
|
|
$
|
11,925
|
|
$
|
38,702
|
|
$
|
32,346
|
|
|
Maximum
indebtedness at any month end
|
|
|
26,825
|
|
|
65,206
|
|
|
67,122
|
|
|
Daily
average indebtedness outstanding
|
|
|
31,644
|
|
|
39,784
|
|
|
26,435
|
|
|
Average
rate paid for the year
|
|
|
3.36
|
%
|
|
2.30
|
%
|
|
3.32
|
%
|
|
Average
rate paid on period-end borrowings
|
|
|
3.88
|
%
|
|
3.21
|
%
|
|
3.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31,
|
|
$
|
19,800
|
|
$
|
58,431
|
|
$
|
17,783
|
|
|
Maximum
indebtedness at any month end
|
|
|
27,875
|
|
|
77,087
|
|
|
41,941
|
|
|
Daily
average indebtedness outstanding
|
|
|
22,291
|
|
|
54,607
|
|
|
23,683
|
|
|
Average
rate paid for the year
|
|
|
1.27
|
%
|
|
0.71
|
%
|
|
2.52
|
%
|
|
Average
rate paid on period-end borrowings
|
|
|
1.97
|
%
|
|
1.12
|
%
|
|
3.19
|
%
|
|
(1)
|
Includes
FHLB debt of $13.0 million and TT&L (client tax deposits) balance of
$2.0 million 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)
|
|
2006
|
|
2005
|
|
||
|
Due
on February 15, 2006, fixed rate of 3.00%
|
|
|
-
|
|
|
10
|
|
|
Due
on September 8, 2006, fixed rate of 4.28%
|
|
|
-
|
|
|
10,000
|
|
|
Due
on September 11, 2006, fixed rate of 2.93%
|
|
|
-
|
|
|
20,000
|
|
|
Due
on February 13, 2007, fixed rate of 3.05%(1)
|
|
|
3,000
|
|
|
3,000
|
|
|
Due
on April 24, 2007, fixed rate of 7.30%(1)
|
|
|
23
|
|
|
80
|
|
|
Due
on September 10, 2007, fixed rate of 4.29%(1)
|
|
|
10,000
|
|
|
10,000
|
|
|
Due
on May 30, 2008, fixed rate of 2.50%
|
|
|
61
|
|
|
98
|
|
|
Due
on June 13, 2008, fixed rate of 5.40%
|
|
|
214
|
|
|
357
|
|
|
Due
on September 8, 2008, fixed rate of 4.32%
|
|
|
10,000
|
|
|
10,000
|
|
|
Due
on November 10, 2008, fixed rate of 4.12%
|
|
|
2,189
|
|
|
2,270
|
|
|
Due
on October 19, 2009, fixed rate of 3.69%
|
|
|
470
|
|
|
638
|
|
|
Due
on November 10, 2010, fixed rate of 4.72%
|
|
|
722
|
|
|
749
|
|
|
Due
on December 31, 2010, fixed rate of 3.85%
|
|
|
699
|
|
|
864
|
|
|
Due
on April 4, 2011, fixed rate of 4.00%(2)
|
|
|
-
|
|
|
5,000
|
|
|
Due
on December 18, 2012, fixed rate of 4.84%
|
|
|
566
|
|
|
589
|
|
|
Due
on March 18, 2013, fixed rate of 6.37%
|
|
|
571
|
|
|
638
|
|
|
Due
on June 17, 2013, fixed rate of 3.53%
|
|
|
793
|
|
|
888
|
|
|
Due
on June 17, 2013, fixed rate of 3.85%
|
|
|
89
|
|
|
92
|
|
|
Due
on June 17, 2013, fixed rate of 4.11%
|
|
|
1,720
|
|
|
1,776
|
|
|
Due
on September 23, 2013, fixed rate of 5.64%
|
|
|
824
|
|
|
915
|
|
|
Due
on January 27, 2014, fixed rate of 5.79%
|
|
|
1,191
|
|
|
1,246
|
|
|
Due
on March 10, 2014, fixed rate of 4.21%
|
|
|
571
|
|
|
634
|
|
|
Due
on May 27, 2014, fixed rate of 5.92%
|
|
|
435
|
|
|
482
|
|
|
Due
on June 2, 2014, fixed rate of 4.52%
|
|
|
3,078
|
|
|
3,412
|
|
|
Due
on July 20, 2016, fixed rate of 6.27%
|
|
|
1,134
|
|
|
1,252
|
|
|
Due
on October 3, 2016, fixed rate of 5.41%
|
|
|
295
|
|
|
325
|
|
|
Due
on October 31, 2016, fixed rate of 5.16%
|
|
|
656
|
|
|
722
|
|
|
Due
on June 27, 2017, fixed rate of 5.53%
|
|
|
735
|
|
|
805
|
|
|
Due
on October 31, 2017, fixed rate of 4.79%
|
|
|
903
|
|
|
986
|
|
|
Due
on December 11, 2017, fixed rate of 4.78%
|
|
|
802
|
|
|
875
|
|
|
Due
on February 26, 2018, fixed rate of 4.36%
|
|
|
1,906
|
|
|
2,076
|
|
|
Due
on September 18, 2018, fixed rate of 5.15%
|
|
|
564
|
|
|
612
|
|
|
Due
on November 5, 2018, fixed rate of 5.10%
|
|
|
3,499
|
|
|
3,627
|
|
|
Due
on December 3, 2018, fixed rate of 4.87%
|
|
|
590
|
|
|
639
|
|
|
Due
on December 17, 2018, fixed rate of 6.33%
|
|
|
1,486
|
|
|
1,566
|
|
|
Due
on December 24, 2018, fixed rate of 6.29%
|
|
|
681
|
|
|
713
|
|
|
Due
on February 16, 2021, fixed rate of 3.00%
|
|
|
814
|
|
|
850
|
|
|
Due
on January 18, 2022, fixed rate of 5.25%
|
3,250
|
-
|
|||||
|
Due
on May 30, 2023, fixed rate of 2.50%
|
|
|
933
|
|
|
967
|
|
|
Due
on May 21, 2024, fixed rate of 5.94%
|
|
|
-
|
|
|
8,845
|
|
|
Total
outstanding
|
|
$
|
55,464
|
|
$
|
98,598
|
|
|
(1)
|
$13.0
million is classified as short-term
borrowings.
|
|
(2)
|
This
advance was callable quarterly at the option of the
FHLB.
|
The
contractual maturities of FHLB debt for the five years succeeding December
31,
2006, are as follows:
|
(Dollars
in Thousands)
|
|
|
|
|
|
2007
|
|
$
|
15,585
|
(1)
|
|
2008
|
|
|
14,567
|
|
|
2009
|
|
|
2,418
|
|
|
2010
|
|
|
2,971
|
|
|
2011
|
|
|
2,254
|
|
|
2012
and thereafter
|
|
|
17,669
|
|
|
Total
|
|
$
|
55,464
|
|
|
(1)
|
$13.0
million is classified as short-term
borrowings.
|
The
Federal Home Loan Bank 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 Federal Home Loan Bank
advances is paid on a monthly basis.
Repurchase
Agreements - Term.
At
December 31, the Company maintained three long-term repurchase agreements
totaling $0.6 million collateralized by bank-owned securities. The agreements
have maturities as follows (in millions): 2008-$0.4; 2009-$0.2. 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 conditional guarantee by the
Company of the two trusts' obligations under the two trust preferred security
issuances.
Despite
the fact that the accounts of CCBG Capital Trust I and CCBG Capital Trust II
are
not included in the Company’s consolidated financial statements, the $30.0
million and $31.0 million, respectively, in trust preferred securities issued
by
these subsidiary trusts are included in the Tier 1 capital of Capital City
Bank
Group, Inc. as allowed by Federal Reserve guidelines.
Note
10
INCOME
TAXES
The
provision for income taxes reflected in the statements of income is comprised
of
the following components:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Current:
|
|
|
|
|
|
|
|
|||
|
Federal
|
|
$
|
14,780
|
|
$
|
15,114
|
|
$
|
13,753
|
|
|
State
|
|
|
1,527
|
|
|
1,290
|
|
|
1,381
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,384
|
|
156
|
|
|
656
|
|
|
|
State
|
|
|
230
|
|
|
26
|
|
|
109
|
|
|
Total
|
|
$
|
17,921
|
|
$
|
16,586
|
|
$
|
15,899
|
|
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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Tax
Expense at Federal Statutory Rate
|
|
$
|
17,915
|
|
$
|
16,403
|
|
$
|
15,845
|
|
|
Increases
(Decreases) Resulting From:
|
|
|
|
|
|
|
|
|
|
|
|
Tax-Exempt
Interest Income
|
|
|
(1,334)
|
|
(1,054
|
)
|
|
(992
|
)
|
|
|
State
Taxes, Net of Federal Benefit
|
|
|
1,142
|
|
|
856
|
|
|
969
|
|
|
Other
|
|
|
198
|
|
|
381
|
|
|
77
|
|
|
Actual
Tax Expense
|
|
$
|
17,921
|
|
$
|
16,586
|
|
$
|
15,899
|
|
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, 2006 and 2005
are
as follows:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
||
|
Deferred
Tax Assets attributable to:
|
|
|
|
|
|
||
|
Allowance
for Loan Losses
|
|
$
|
6,659
|
|
$
|
6,733
|
|
|
Associate
Benefits
|
|
|
700
|
|
|
650
|
|
|
Unrealized
Losses on Investment Securities
|
|
|
503
|
|
|
706
|
|
|
Accrued
Pension/SERP
|
|
|
2,474
|
|
|
(133)
|
|
|
Market
Value of Loans
|
|
|
(122)
|
|
|
19
|
|
|
Interest
on Nonperforming Loans
|
|
|
170
|
|
|
170
|
|
|
Net
Operating Loss Carry Forwards
|
|
|
399
|
|
|
228
|
|
|
Intangible
Assets
|
|
|
70
|
|
|
44
|
|
|
Accrued
Expense
|
|
|
612
|
|
|
592
|
|
|
Other
|
|
|
835
|
|
|
251
|
|
|
Total
Deferred Tax Assets
|
|
$
|
12,300
|
|
$
|
9,260
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Liabilities attributable to:
|
|
|
|
|
|
|
|
|
Depreciation
on Premises and Equipment
|
|
$
|
4,434
|
|
$
|
4,676
|
|
|
Deferred
Loan Costs
|
|
|
2,550
|
|
|
1,752
|
|
|
Core
Deposit Intangible Assets
|
|
|
(278)
|
|
|
1,173
|
|
|
Intangible
Assets
|
|
|
1,319
|
|
|
1,019
|
|
|
Securities
Accretion
|
|
|
25
|
|
|
17
|
|
|
Other
|
|
|
223
|
|
|
243
|
|
|
Total
Deferred Tax Liabilities
|
|
|
8,273
|
|
|
8,880
|
|
|
Net
Deferred Tax Assets
|
|
$
|
4,027
|
|
$
|
380
|
|
In
the
opinion of management, it is more likely than not that all of the deferred
tax
assets will be realized; therefore, a valuation allowance is not
required.
Changes
in net deferred income tax assets were:
|
(Dollars
in Thousands)
|
|
2006
|
|
2005
|
|
||
|
Balance
at Beginning of Year
|
|
$
|
380
|
|
$
|
2,463
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
Accounting Acquisitions
|
|
|
-
|
|
(2,403
|
)
|
|
|
Change
in Accounting Method - Adoption of SFAS No. 158 and SAB No.
108
|
5,463
|
-
|
|||||
|
|
|
|
|
|
|
|
|
|
Income
Tax (Expense) Benefit From Change in Unrealized Losses on
Available-for-Sale Securities
|
|
|
(202)
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Tax Expense on Continuing Operations
|
|
|
(1,614)
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at End of Year
|
|
$
|
4,027
|
|
$
|
380
|
|
Note
11
STOCK-BASED
COMPENSATION
In
accordance with the Company’s adoption of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), in the first quarter of 2003, the cost
related to stock-based associate compensation included in net income has been
accounted for under the fair value method in all reported periods.
On
January 1, 2006, the Company adopted SFAS 123R. The Company continues to include
the cost of its share-based compensation plans in net income under the fair
value method. The impact of SFAS 123R to the Company’s financial statements upon
adoption was not material.
As
of
December 31, 2006, 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 2004-2006
was approximately $0.4 million, $0.8 million and $1.2 million,
respectively.
AIP.
The
Company's AIP allows the Company's Board of Directors to award key associates
various forms of equity-based incentive compensation. Under the AIP, the Company
has adopted the Stock-Based Incentive Plan (the "Incentive Plan"), effective
January 1, 2006, which is a performance-based equity bonus plan for selected
members of management, including all executive officers. Under the Incentive
Plan, all participants are eligible to earn an equity award, consisting of
performance shares, in each year of the five-year period ending December 31,
2010. Annual awards are tied to the annual earnings progression necessary to
achieve the Project 2010 goal of $50.0 million in annual net income. The
grant-date fair value of an annual compensation award is approximately $1.5
million. A total of 43,437 shares are eligible for issuance
annually.
At
the
end of each calendar year, the Compensation Committee of the Company’s Board of
Directors will confirm whether the performance goals have been met prior to
the
payout of any awards. Any performance shares earned under the Incentive Plan
will be issued in the calendar quarter following the calendar year in which
the
shares were earned.
In
accordance with the provisions of SFAS 123R, the Company recognized expense
of
approximately $1.1 million in 2006 related to the Incentive Plan. Under a
substantially similar predecessor plan, the Company recognized expense of $0.6
million in 2005 and $0.3 million in 2004. A total of 875,000 shares of common
stock have been reserved for issuance under the AIP. To date, the Company has
issued 28,093 shares of common stock.
Executive
Stock Option Agreement. In
2006,
under the provisions of the AIP, the Company's Board of Directors approved
a
stock option agreement for a key executive officer (William G. Smith, Jr. -
Chairman, President and CEO, CCBG). Similar stock option agreements were
approved in 2003-2005. These agreements grant 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 ten years and vest 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 2005 and 2006
agreements, the earnings per share conditions were not met; therefore, no
expense was recognized related to these agreements. In accordance with the
provisions of SFAS 123R and SFAS 123, the Company recognized expense of
approximately $205,000 and $193,000 for 2006 and 2005, respectively, related
to
the 2004 and 2003 agreements.
A
summary
of the status of the Company’s option shares as of December 31, 2006 is
presented below:
|
Options
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining Months To Vest
|
Aggregate
Intrinsic Value
|
||||||
|
Outstanding
at January 1, 2006
|
60,384
|
$
|
32.79
|
$
|
29.4
|
$
|
88,161
|
|||
|
Granted
|
-
|
-
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
-
|
-
|
||||||
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
||||||
|
Outstanding
at December 31, 2006
|
60,384
|
$
|
32.79
|
$
|
17.4
|
$
|
151,355
|
|||
|
Exercisable
at December 31, 2006
|
27,840
|
$
|
32.79
|
$
|
17.4
|
$
|
68,497
|
As
of
December 31, there was $125,000 of total unrecognized compensation cost related
to the non-vested option shares granted under the 2004 agreement. That cost
is
expected to be recognized over the next 12 months.
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
18,738 shares have been issued since the inception of the DSPP. For 2006, the
Company issued 12,149 shares under the DSPP and recognized approximately $37,000
in expense related to this plan. For 2005, the Company issued 6,589 shares
and
recognized approximately $26,000 in expense related to the DSPP. For 2004,
the
Company issued 9,211 shares and recognized approximately $27,000 in expense
under a substantially similar predecessor plan.
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 36,281 shares have been issued since
inception of the ASPP. For 2006, the Company issued 19,435 shares under the
ASPP
and recognized approximately $90,000 in expense related to this plan. For 2005,
the Company issued 16,846 shares and recognized approximately $90,000 in expense
related to the ASPP. For 2004, the Company issued 25,070 shares and recognized
approximately $125,000 in expense under a substantially similar predecessor
plan.
Based
on
the Black-Scholes option pricing model, the weighted average estimated fair
value of the purchase rights granted under the ASPP Plan was $5.65 for in 2006.
For 2005 and 2004, the weighted average fair value of the purchase rights
granted was $5.77 and $5.90, 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:
|
2006
|
2005
|
2004
|
|
|
Dividend
yield
|
1.9%
|
1.9%
|
1.7%
|
|
Expected
volatility
|
23.5%
|
28.0%
|
30.0%
|
|
Risk-free
interest rate
|
4.5%
|
2.6%
|
1.1%
|
|
Expected
life (in years)
|
0.5
|
0.5
|
0.5
|
Note
12
EMPLOYEE
BENEFIT PLANS
The
Company has a defined benefit pension plan covering substantially all full-time
and eligible part-time associates and a Supplemental Executive Retirement Plan
(“SERP”) covering selected executive officers.
Adoption
of SFAS 158
On
December 31, 2006, the Company adopted the recognition and disclosure
provisions of SFAS No. 158 (“SFAS 158”). This statement required the
Company to recognize the funded status of its defined benefit pension and SERP
plans in the December 31, 2006 consolidated statement of financial
condition, with a corresponding adjustment to accumulated other comprehensive
income, net of tax. The adjustment to accumulated other comprehensive income
at
adoption represents the net unrecognized actuarial losses, unrecognized prior
service costs, and unrecognized transition obligation remaining from the initial
adoption of SFAS No. 87 (“SFAS 87”), “Employers’ Accounting for
Pensions,” which was previously netted against the plans’ funded status in the
Company’s consolidated balance sheet pursuant to the provisions of SFAS 87.
These amounts will be subsequently recognized as net periodic pension cost
pursuant to the Company’s historical accounting policy for amortizing such
amounts. Further, actuarial gains and losses that arise in subsequent periods
and are not recognized as net periodic pension cost in the same periods will
be
recognized as a component of other comprehensive income. Those amounts will
be
subsequently recognized as a component of net periodic pension cost on the
same
basis as the amounts recognized in accumulated other comprehensive income at
adoption of SFAS 158.
The
following table illustrates the incremental effect of adopting the provisions
of
SFAS 158 on the Company’s consolidated statement of financial condition at
December 31, 2006. The adoption of SFAS 158 had no impact on the Company’s
consolidated statement of income for the year ended December 31, 2006, or
for any prior period presented, and it will not affect the Company’s operating
results in future periods.
Incremental
Effect of Applying SFAS 158
On
Individual Line Items of the Consolidated Statement of Financial
Condition
|
Prior
to
|
Effect
of
|
As
Reported
|
|||||||
|
Adoption
of
|
Adopting
|
at
December 31,
|
|||||||
|
(Dollars
in Thousands)
|
|
|
SFAS
158
|
|
|
SFAS
158
|
|
|
2006
|
|
Other
Assets
|
$
|
59,707
|
$
|
(4,699)
|
$
|
55,008
|
|||
|
Total
Assets
|
2,602,609
|
(4,699)
|
2,597,910
|
||||||
|
Other
Liabilities
|
26,716
|
2,777
|
29,493
|
||||||
|
Total
Liabilities
|
2,279,363
|
2,777
|
2,282,140
|
||||||
|
Accumulated
Other Comprehensive Loss
|
-
|
(7,477)
|
(7,477)
|
||||||
|
Total
Shareowners' Equity
|
$
|
323,247
|
$
|
(7,477)
|
$
|
315,770
|
Included
in accumulated other comprehensive income at December 31, 2006 are the
following amounts that have not yet been recognized in net periodic cost:
unrecognized prior service costs of $2.0 million ($1.2 million net of tax)
and
unrecognized actuarial losses of $10.2 million ($6.3 million net of tax). The
prior service cost and actuarial loss included in accumulated other
comprehensive income and expected to be recognized in net periodic pension
cost
during the year-ended December 31, 2007 is $308,000 ($191,000 net of tax)
and $1.1 million ($661,000 net of tax), respectively.
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 years immediately preceding
retirement. The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes.
The
defined benefit pension plan for the Farmers and Merchants Bank of Dublin was
merged into the Company's pension plan as of December 31, 2005. 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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Change
in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|||
|
Benefit
Obligation at Beginning of Year
|
|
$
|
64,131
|
$
|
54,529
|
|
$
|
46,227
|
|
|
|
Service
Cost
|
|
|
4,930
|
|
4,352
|
|
|
3,776
|
|
|
|
Interest
Cost
|
|
|
3,622
|
|
3,253
|
|
|
2,893
|
|
|
|
Actuarial
Loss
|
|
|
(1,421)
|
|
2,752
|
|
|
2,890
|
|
|
|
Benefits
Paid
|
|
|
(3,267)
|
|
(3,501
|
)
|
|
(1,092
|
)
|
|
|
Expenses
Paid
|
|
|
(149)
|
|
(75
|
)
|
|
(165
|
)
|
|
|
Plan
Change
|
825
|
-
|
|
|
-
|
|||||
|
Acquisitions
|
|
|
-
|
|
2,821
|
|
|
-
|
|
|
|
Projected
Benefit Obligation at End of Year
|
|
$
|
68,671
|
$
|
64,131
|
|
$
|
54,529
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Accumulated
Benefit Obligation at End of Year
|
|
$
|
49,335
|
$
|
45,645
|
|
$
|
38,325
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Change
in Plan Assets:
|
|
|
|
|
|
|
|
|
||
|
Fair
Value of Plan Assets at Beginning of Year
|
|
$
|
52,277
|
$
|
41,125
|
|
$
|
34,784
|
|
|
|
Actual
Return on Plan Assets
|
|
|
6,342
|
|
1,737
|
|
|
2,710
|
|
|
|
Employer
Contributions
|
|
|
11,350
|
|
10,500
|
|
|
4,888
|
|
|
|
Benefits
Paid
|
|
|
(3,267)
|
|
(3,501
|
)
|
|
(1,092
|
)
|
|
|
Expenses
Paid
|
|
|
(149)
|
|
(75
|
)
|
|
(165
|
||
|
Acquisitions
|
|
|
-
|
|
2,491
|
|
|
-
|
||
|
Fair
Value of Plan Assets at End of Year
|
|
$
|
66,553
|
$
|
52,277
|
|
$
|
41,125
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Reconciliation
of Funded Status:
|
|
|
|
|
|
|
|
|
||
|
Funded
Status
|
|
$
|
(2,117)
|
$
|
(11,853
|
)
|
$
|
(13,404
|
)
|
|
|
Unrecognized
Net Actuarial Losses
|
|
|
*
|
|
14,823
|
|
|
11,676
|
|
|
|
Unrecognized
Prior Service Cost
|
|
|
*
|
|
1,302
|
|
|
1,517
|
|
|
|
Unrecognized
Net Transition Obligation
|
|
|
-
|
|
-
|
|
|
-
|
|
|
|
Prepaid
(Accrued) Benefit Cost
|
|
$
|
*
|
$
|
4,272
|
$
|
(211
|
)
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Components
of Net Periodic Benefit Costs:
|
|
|
|
|
|
|
|
|
||
|
Service
Cost
|
|
$
|
4,930
|
$
|
4,352
|
|
$
|
3,776
|
|
|
|
Interest
Cost
|
|
|
3,622
|
|
3,410
|
|
|
2,893
|
|
|
|
Expected
Return on Plan Assets
|
|
|
(4,046)
|
|
(3,373
|
)
|
|
(2,665
|
)
|
|
|
Amortization
of Prior Service Costs
|
|
|
215
|
|
215
|
|
|
215
|
|
|
|
Transition
Obligation Recognition
|
|
|
-
|
|
11
|
|
|
1
|
|
|
|
Recognized
Net Actuarial Loss
|
|
|
1,598
|
|
1,324
|
|
|
1,163
|
|
|
|
Net
Periodic Benefit Cost
|
|
$
|
6,319
|
$
|
5,939
|
|
$
|
5,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| *Not applicable due to SFAS No. 158 | ||||||||||
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Discount
Rate
|
|
|
6.00
|
%
|
|
5.75
|
%
|
|
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
|
|
|
12/31/06
|
|
|
12/31/05
|
|
|
12/31/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
used to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
Discount
Rate
|
|
|
5.75
|
%
|
|
6.00
|
%
|
|
6.25
|
%
|
|
Expected
Return on Plan Assets
|
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
|
Rate
of Compensation Increase
|
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
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 2006 and 2005, and the
target asset allocation for 2007 are as follows:
|
|
|
Target
Allocation
|
Percentage
of Plan
Assets
at Year-End(1)
|
||||
|
|
|
2007
|
2006
|
2005
|
|||
|
Equity
Securities
|
|
|
65%
|
|
55%
|
|
51%
|
|
Debt
Securities
|
|
|
30%
|
|
18%
|
|
23%
|
|
Real
Estate
|
|
|
-
|
|
1%
|
|
-
|
|
Cash
Equivalent
|
|
|
5%
|
|
26%
|
|
26%
|
|
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, 2006, expected benefit payments related to the Company's defined
benefit pension plan were as follows:
|
2007
|
|
$
|
3,249,113
|
|
2008
|
|
|
4,350,617
|
|
2009
|
|
|
4,249,471
|
|
2010
|
|
|
3,979,390
|
|
2011
|
|
|
5,153,436
|
|
2012
through 2016
|
|
|
35,397,040
|
|
|
|
$
|
56,379,067
|
Contributions.
The
following table details the amounts contributed to the pension plan in 2006
and
2005, and the expected amount to be contributed in 2007.
|
|
2006
|
|
2005
|
|
Expected
2007(1)
|
|
Actual
Contributions
|
$
11,350,000
|
|
$
10,500,000
|
|
$
10,000,000
|
(1)
Estimate of 2007 maximum 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 years
immediately preceding retirement. The Company recognized expense during 2006,
2005 and 2004 of approximately $514,000, $478,000, and $491,000,
respectively.
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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Change
in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|||
|
Benefit
Obligation at Beginning of Year
|
|
$
|
3,878
|
|
$
|
3,601
|
|
$
|
1,880
|
|
|
Service
Cost
|
|
|
123
|
|
133
|
|
|
147
|
|
|
|
Interest
Cost
|
|
|
230
|
|
207
|
|
|
198
|
|
|
|
Actuarial
(Gain) Loss
|
|
|
62
|
|
(63
|
)
|
|
1,376
|
|
|
|
Plan
Change
|
|
|
(274)
|
|
-
|
|
|
-
|
|
|
|
Projected
Benefit Obligation at End of Year
|
|
$
|
4,019
|
$
|
3,878
|
|
$
|
3,601
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Accumulated
Benefit Obligation at End of Year
|
|
$
|
2,252
|
$
|
2,295
|
|
$
|
1,894
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Reconciliation
of Funded Status:
|
|
|
|
|
|
|
|
|
||
|
Funded
Status
|
|
$
|
(4,018)
|
$
|
(3,878
|
)
|
$
|
(3,601
|
)
|
|
|
Unrecognized
Net Actuarial Loss
|
|
|
*
|
|
734
|
|
|
874
|
|
|
|
Unrecognized
Prior Service Cost
|
|
|
*
|
|
388
|
|
|
449
|
|
|
|
Accrued
Benefit Cost
|
|
$
|
*
|
$
|
(2,756
|
)
|
$
|
(2,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Components
of Net Periodic Benefit Costs:
|
|
|
|
|
|
|
|
|
||
|
Service
Cost
|
|
$
|
123
|
$
|
133
|
|
$
|
147
|
|
|
|
Interest
Cost
|
|
|
230
|
|
207
|
|
|
198
|
|
|
|
Amortization
of Prior Service Cost
|
|
|
61
|
|
61
|
|
|
62
|
|
|
|
Recognized
Net Actuarial Loss (Gain)
|
|
|
100
|
|
|
77
|
|
|
84
|
|
|
Net
Periodic Benefit Cost
|
|
$
|
514
|
|
$
|
478
|
|
$
|
491
|
|
| *Not applicable due to adoption of SFAS No. 158 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
used to determine the benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Discount
Rate
|
|
|
6.00
|
%
|
|
5.75
|
%
|
|
6.00
|
%
|
|
Rate
of Compensation Increase
|
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
used to determine the net cost:
|
|
|
|
|
|
|
|
|
|
|
|
Discount
Rate
|
|
|
5.75
|
%
|
|
6.00
|
%
|
|
6.25
|
%
|
|
Rate
of Compensation Increase
|
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
Expected
Benefit Payments.
As of
December 31, 2006, expected benefit payments related to the Company's SERP
were
as follows:
|
2007
|
|
$
|
19,665
|
|
2008
|
|
|
96,715
|
|
2009
|
|
|
204,356
|
|
2010
|
|
|
269,559
|
|
2011
|
|
|
358,692
|
|
2012
through 2016
|
|
|
3,548,890
|
|
|
|
$
|
4,497,877
|
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 from the Company are made up to 6% of the participant's
compensation for eligible associates. During 2006, 2005, and 2004, the Company
made matching contributions of $273,000, $154,000 and $66,000, 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 from the public
markets.
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
2006, 2005 and 2004.
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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Numerator:
|
|
|
|
|
|
|
|
|||
|
Net
Income
|
|
$
|
33,265
|
|
$
|
30,281
|
|
$
|
29,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for Basic Earnings Per Share Weighted-Average Shares
|
|
|
18,584,519
|
|
|
18,263,855
|
|
|
16,805,696
|
|
|
Effects
of Dilutive Securities Stock Compensation Plans
|
|
|
25,320
|
|
|
17,388
|
|
|
5,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for Diluted Earnings Per Share Adjusted Weighted-Average Shares and
Assumed Conversions
|
|
|
18,609,839
|
|
|
18,281,243
|
|
|
16,810,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share
|
|
$
|
1.79
|
|
$
|
1.66
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings per Share
|
|
$
|
1.79
|
|
$
|
1.66
|
|
$
|
1.74
|
|
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, 2006, 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, 2006 and December 31, 2005
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, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Tier
I Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
CCBG
|
|
$
|
280,679
|
14.00
|
%
|
$
|
80,191
|
4.00
|
%
|
|
*
|
*
|
|
||||||
|
CCB
|
|
|
273,425
|
13.66
|
%
|
|
80,055
|
4.00
|
%
|
120,082
|
6.00
|
%
|
|||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total
Capital:
|
|
|
|
|
|
|
|
||||||||||||
|
CCBG
|
|
|
299,783
|
14.95
|
%
|
|
160,382
|
8.00
|
%
|
|
*
|
*
|
|||||||
|
CCB
|
|
|
290,642
|
14.52
|
%
|
|
160,109
|
8.00
|
%
|
|
200,137
|
10.00
|
%
|
||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
Tier
I Leverage:
|
|
|
|
|
|
|
|
||||||||||||
|
CCBG
|
|
|
280,679
|
11.30
|
%
|
|
80,191
|
4.00
|
%
|
|
*
|
*
|
|||||||
|
CCB
|
|
|
273,425
|
11.03
|
%
|
|
80,055
|
4.00
|
%
|
|
100,068
|
5.00
|
%
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCBG
|
|
$
|
257,572
|
|
|
12.61
|
%
|
$
|
81,675
|
|
|
4.00
|
%
|
|
*
|
|
|
*
|
|
|
CCB
|
|
|
252,096
|
|
|
12.36
|
%
|
|
81,599
|
|
|
4.00
|
%
|
122,398
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCBG
|
|
|
276,869
|
|
|
13.56
|
%
|
|
163,349
|
|
|
8.00
|
%
|
|
*
|
|
|
*
|
|
|
CCB
|
|
|
269,506
|
|
|
13.21
|
%
|
|
163,198
|
|
|
8.00
|
%
|
|
203,997
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Leverage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCBG
|
|
|
257,572
|
|
|
10.27
|
%
|
|
61,256
|
|
|
4.00
|
%
|
|
*
|
|
|
*
|
|
|
CCB
|
|
|
252,096
|
|
|
10.07
|
%
|
|
61,199
|
|
|
4.00
|
%
|
|
101,999
|
|
|
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. In 2007, the bank
subsidiary may declare dividends without regulatory approval of $39.7 million
plus an additional amount equal to the net profits of the Company’s subsidiary
bank for 2007 up to the date of any such dividend declaration.
Note
16
RELATED
PARTY INFORMATION
DuBose
Ausley, a Director of the Company, is employed by and is the former Chairman
of
Ausley & McMullen, the Company's general counsel. Fees paid by the Company
and its subsidiary for legal services, in aggregate, approximated $907,000,
$813,000, and $797,000 during 2006, 2005, and 2004, respectively.
Under
a
lease agreement expiring in 2024, the Bank leases land from a partnership in
which several directors and officers have an interest. The lease agreement
with
Smith Interests General Partnership L.L.P., provides for annual lease payments
of approximately $109,000, to be adjusted for inflation in future years. Amounts
paid in 2004-2006 were $91,000, $109,000, and $109,000, respectively.
At
December 31, 2006 and 2005, certain officers and directors were indebted to
the
Company’s bank subsidiary in the aggregate amount of $12.6 million and $17.7
million, respectively. During 2006, $17.9 million in new loans were made and
repayments totaled $23.0 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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
Noninterest
Income:
|
|
|
|
|
|
|
|
|||
|
Merchant
Fee Income
|
|
$
|
6,978
|
|
$
|
6,174
|
|
$
|
5,135
|
|
|
Interchange
Commission Fees
|
|
|
3,105
|
|
|
2,239
|
|
|
2,229
|
|
|
ATM/Debit
Card Fees
|
2,519
|
2,206
|
(1)
|
2,007
|
(1)
|
|||||
|
Noninterest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Fees
|
|
|
3,402
|
|
|
3,825
|
|
|
2,858
|
(1)
|
|
Printing
& Supplies
|
|
|
2,472
|
|
|
2,372
|
|
|
1,854
|
|
|
Interchange
Service Fees
|
|
|
6,010
|
|
|
5,402
|
|
|
4,741
|
|
|
Telephone
|
|
|
2,323
|
|
|
2,493
|
|
|
2,048
|
|
|
Advertising
|
|
|
4,285
|
|
|
4,275
|
|
2,001
|
(1)
|
|
|
(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, 2006, the amounts associated with the Company’s
off-balance sheet obligations were as follows:
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
|
Commitments
to Extend Credit(1)
|
|
$
|
418,952
|
|
|
Standby
Letters of Credit
|
|
$
|
17,537
|
|
|
(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 2006, $1.3 million in 2005, and $1.3 million
in
2004. Minimum lease payments under these leases due in each of the five years
subsequent to December 31, 2006, are as follows (in millions): 2007, $1.5;
2008,
$1.4; 2009, $1.2; 2010, $1.0; 2011, $1.0; thereafter, $6.1.
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.
Note
19
FAIR
VALUE OF 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:
Investment
Securities - Fair values for investment securities are based on quoted market
prices. If a quoted market price is not available, fair value is estimated
using
market prices for similar securities.
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,
|
|
||||||||||
|
|
|
2006
|
|
2005
|
|
||||||||
|
(Dollars
in Thousands)
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
||||
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
||||
|
Cash
|
|
$
|
98,769
|
|
$
|
98,769
|
|
$
|
105,195
|
|
$
|
105,195
|
|
|
Short-Term
Investments
|
|
|
78,795
|
|
|
78,795
|
|
|
61,164
|
|
|
61,164
|
|
|
Investment
Securities
|
|
|
191,894
|
|
|
191,894
|
|
|
171,019
|
|
|
171,019
|
|
|
Loans,
Net of Allowance for Loan Losses
|
|
|
1,982,504
|
|
|
1,992,025
|
|
|
2,050,084
|
|
|
2,044,954
|
|
|
Total
Financial Assets
|
|
$
|
2,351,962
|
|
$
|
2,361,483
|
|
$
|
2,387,462
|
|
$
|
2,382,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Deposits
|
|
$
|
2,081,654
|
|
$
|
2,007,308
|
|
$
|
2,079,346
|
|
$
|
1,953,576
|
|
|
Short-Term
Borrowings
|
|
|
65,023
|
|
|
64,970
|
|
|
82,973
|
|
|
82,748
|
|
|
Subordinated
Notes Payable
|
|
|
62,887
|
|
|
63,013
|
|
|
62,887
|
|
|
63,049
|
|
|
Long-Term
Borrowings
|
|
|
43,083
|
|
|
42,256
|
|
|
69,630
|
|
|
69,295
|
|
|
Total
Financial Liabilities
|
|
$
|
2,252,647
|
|
$
|
2,177,547
|
|
$
|
2,294,836
|
|
$
|
2,168,668
|
|
Certain
financial instruments and 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)
|
|
2006
|
|
2005
|
|
2004
|
|
|||
|
OPERATING
INCOME
|
|
|
|
|
|
|
|
|||
|
Income
Received from Subsidiary Bank:
|
|
|
|
|
|
|
|
|||
|
Dividends
|
|
$
|
20,166
|
|
$
|
10,597
|
|
$
|
12,716
|
|
|
Overhead
Fees
|
|
|
3,524
|
|
|
2,716
|
|
|
3,232
|
|
|
Other
Income
|
|
|
112
|
|
|
87
|
|
|
2
|
|
|
Total
Operating Income
|
|
|
23,802
|
|
|
13,400
|
|
|
15,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Associate Benefits
|
|
|
2,360
|
|
|
2,191
|
|
|
2,257
|
|
|
Interest
on Long-Term Borrowings
|
|
|
-
|
|
|
-
|
|
|
33
|
|
|
Interest
on Subordinated Notes Payable
|
|
|
3,725
|
|
|
2,981
|
|
|
294
|
|
|
Professional
Fees
|
|
|
741
|
|
|
1,399
|
|
|
895
|
|
|
Advertising
|
|
|
403
|
|
|
467
|
|
|
286
|
|
|
Legal
Fees
|
|
|
604
|
|
|
701
|
|
|
468
|
|
|
Other
|
|
|
649
|
|
|
471
|
|
|
480
|
|
|
Total
Operating Expense
|
|
|
8,482
|
|
|
8,210
|
|
|
4,713
|
|
|
Income
Before Income Taxes and Equity in Undistributed Earnings of Subsidiary
Bank
|
|
|
15,320
|
|
|
5,190
|
|
|
11,237
|
|
|
Income
Tax Benefit
|
|
|
(1,835)
|
|
(2,060
|
)
|
|
(581
|
)
|
|
|
Income
Before Equity in Undistributed Earnings of Subsidiary Bank
|
|
|
17,155
|
|
|
7,250
|
|
|
11,818
|
|
|
Equity
in Undistributed Earnings of Subsidiary Bank
|
|
|
16,110
|
|
|
23,031
|
|
|
17,553
|
|
|
Net
Income
|
|
$
|
33,265
|
|
$
|
30,281
|
|
$
|
29,371
|
|
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)(1)
|
|
2006
|
|
2005
|
|
||
|
ASSETS
|
|
|
|
|
|
||
|
Cash
and Due From Subsidiary Bank
|
|
$
|
8,921
|
|
$
|
5,434
|
|
|
Investment
in Subsidiary Bank
|
|
|
373,278
|
|
|
364,898
|
|
|
Other
Assets
|
|
|
1,550
|
|
|
1,447
|
|
|
Total
Assets
|
|
$
|
383,749
|
|
$
|
371,779
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Subordinated
Notes Payable
|
|
$
|
62,887
|
|
$
|
62,887
|
|
|
Other
Liabilities
|
|
|
5,092
|
|
|
3,116
|
|
|
Total
Liabilities
|
|
$
|
67,979
|
|
$
|
66,003
|
|
|
|
|
|
|
|
|
|
|
|
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; 18,518,398 and 18,631,706 shares issued and outstanding
at
December 31,2006 and December 31, 2005, respectively
|
|
|
185
|
|
|
186
|
|
|
Additional
Paid-In Capital
|
|
|
80,654
|
|
|
83,304
|
|
|
Retained
Earnings
|
|
|
243,242
|
|
|
223,532
|
|
|
Accumulated
Other Comprehensive Loss, Net of Tax
|
|
|
(8,311)
|
|
(1,246
|
)
|
|
|
Total
Shareowners' Equity
|
|
|
315,770
|
|
|
305,776
|
|
|
Total
Liabilities and Shareowners' Equity
|
|
$
|
383,749
|
|
$
|
371,779
|
|
|
(1)
|
All
share and per share data have been adjusted to reflect the 5-for-4
stock
split effective July 1, 2005.
|
The
cash
flows for the parent company for the three years ended December 31, were as
follows:
Parent
Company Statements of Cash Flows
|
|
2006
|
|
2005
|
|
2004
|
|
||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|||
|
Net
Income
|
|
$
|
33,265
|
$
|
30,281
|
|
$
|
29,371
|
|
|
|
Adjustments
to Reconcile Net Income to Net Cash Provided by Operating
Activities:
|
|
|
|
|
|
|
|
|
||
|
Equity
in Undistributed Earnings of Subsidiary Bank
|
|
|
(16,110)
|
|
(23,031
|
)
|
|
(17,553
|
)
|
|
|
Non-Cash
Compensation
|
|
|
1,673
|
|
110
|
|
|
1,707
|
|
|
|
Increase
in Other Assets
|
|
|
(670)
|
|
131
|
|
|
(189
|
)
|
|
|
Increase
in Other Liabilities
|
|
|
1,976
|
|
381
|
|
|
68
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
|
20,134
|
|
7,872
|
|
|
13,404
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
||
|
Cash
Paid for Investment in:
|
|
|
|
|
|
|
|
|
||
|
CCBG
Capital Trust I and CCBG Capital Trust II
|
|
|
-
|
|
(959
|
)
|
|
(928
|
)
|
|
|
Cash
Paid for Acquisitions
|
|
|
-
|
|
(29,953
|
)
|
|
(35,688
|
)
|
|
|
Net
Cash Used in Investing Activities
|
|
|
-
|
|
(30,912
|
)
|
|
(36,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||
|
CASH
FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
||
|
Proceeds
from Subordinated Notes
|
|
|
-
|
|
31,959
|
|
|
30,928
|
|
|
|
Increase
in Other Long-Term Borrowings
|
|
|
-
|
|
-
|
|
|
30,000
|
|
|
|
Repayments
of Long-Term Borrowings
|
|
|
-
|
|
-
|
|
|
(30,000
|
)
|
|
|
Payment
of Dividends
|
|
|
(12,322)
|
|
(11,397
|
)
|
|
(9,857
|
)
|
|
|
Repurchase
of Common Stock
|
|
|
(5,360)
|
|
-
|
|
|
-
|
|
|
|
Issuance
of Common Stock
|
|
|
1,035
|
|
1,019
|
|
|
1,184
|
|
|
|
Net
Cash (Used in) Provided by Financing Activities
|
|
|
(16,647)
|
|
21,581
|
|
|
22,255
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Net
Increase (Decrease) in Cash
|
|
|
3,487
|
|
(1,459
|
)
|
|
(957
|
)
|
|
|
Cash
at Beginning of Period
|
|
|
5,434
|
|
6,893
|
|
|
7,850
|
|
|
|
Cash
at End of Period
|
|
$
|
8,921
|
$
|
5,434
|
|
$
|
6,893
|
|
|
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:
|
|
|
2006
|
2005
|
2004
|
|
|||||
|
Other
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|||
|
Securities available for sale:
|
|
|
|
|
|
|
|
|||
|
Change
in net unrealized gain/loss during period:
|
|
$
|
412
|
|
$
|
(893)
|
$
|
(1,739)
|
||
|
Change in funded status of defined benefit pension plan and SERP
plan
(net
of tax)
|
|
|
(7,477)
|
|
-
|
|
|
-
|
|
|
|
Net
Other Comprehensive Loss
|
|
$
|
(7,065)
|
$
|
(893)
|
$
|
(1,739)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(834)
|
$
|
(1,246)
|
$
|
(353)
|
|||
|
Net unfunded liability for defined benefit pension plan and SERP
plan
|
|
|
(7,477)
|
|
-
|
|
|
-
|
|
|
|
|
|
$
|
(8,311)
|
$
|
(1,246)
|
$
|
(353)
|
|||
|
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, 2006, 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, 2006, 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, 2006.
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.
KPMG
LLP,
an independent registered public accounting firm, has audited our consolidated
financial statements as of and for the year ended December 31, 2006, and
management's assessment as to the effectiveness of internal control over
financial reporting as of December 31, 2006, as stated in its attestation
report, which is included herein on page 83.
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.
Attestation
Report of Independent Registered Public Accounting Firm
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors
Capital
City Bank Group, Inc.:
We
have
audited management's assessment, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting, that Capital City Bank
Group, Inc. maintained effective internal control over financial reporting
as of
December 31, 2006, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). 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. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, 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, management's assessment that Capital City Bank Group, Inc. maintained
effective internal control over financial reporting as of December 31,
2006, is fairly stated, in all material respects, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also,
in
our opinion, Capital City Bank Group, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee
of
Sponsoring Organizations of the Treadway Commission (COSO).
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial
condition of Capital City Bank Group, Inc. and subsidiary as of
December 31, 2006 and 2005, and the related consolidated statements of
income, changes in shareowners’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2006, and our report dated March
14, 2007 expressed an unqualified opinion on those consolidated financial
statements.
/s/
KPMG
LLP
Orlando,
Florida
March
14,
2007
Certified
Public Accountants
|
Other
Information
|
None.
Part
III
|
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 24, 2007.
|
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 24, 2007.
|
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)
|
|
$32.83
|
|
1,479,388(2)
|
|
|
|
|
|
|
|
|
|
Equity
Compensation Plans Not Approved by Securities Holders
|
|
-
|
|
-
|
|
-
|
|
Total
|
|
60,384
|
|
$
32.83
|
|
1,479,388
|
|
(1)
|
Includes
60,384 shares that may be issued upon exercise of outstanding options
under the terminated 1996 Associate Incentive
Plan.
|
|
(2)
|
Consists
of 846,907 shares available for issuance under our 2005 Associate
Incentive Plan, 557,469 shares available for issuance under our 2005
Associate Stock Purchase Plan, and 75,012 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 24, 2007.
|
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 24, 2007.
|
Principal
Accounting 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 24, 2007.
The
following documents are filed as part of this report
1. Financial
Statements
Report
of
Independent Registered Public Accounting Firm
Consolidated
Statements of Income for Fiscal Years 2006, 2005, and 2004
Consolidated
Statements of Financial Condition at the end of Fiscal Years 2006 and
2005
Consolidated
Statements of Changes in Shareowners’ Equity for Fiscal Years 2006, 2005, and
2004
Consolidated
Statements of Cash Flows for Fiscal Years 2006, 2005, and 2004
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
|
2.1
|
Agreement
and Plan of Merger, dated as of January 7, 2004, by and among Capital
City
Bank Group, Inc., Capital City Bank, Synovus Financial Corp. and
Quincy
State Bank - incorporated herein by reference to the Registrant’s Form 8-K
(filed 1/13/04) (No. 0-13358).
|
2.2 Agreement
and Plan of Merger, dated as of May 12, 2004, by and among Capital City Bank
Group, Inc., Capital City Bank, and Farmers and Merchants Bank
- incorporated herein by reference to the Registrant’s Form 10-Q/A (filed
8/10/04) (No. 0-13358).
2.3 Agreement
and Plan of Merger, dated as of February 3, 2005, by and among Capital City
Bank
Group, Inc., First Alachua Banking Corporation, and First National Bank of
Alachua (the schedules and exhibits have been omitted pursuant to Item 601(b)(2)
of Regulation S-K) - incorporated herein by reference to the Registrant’s Form
8-K (filed 2/9/05) (No. 0-13358).
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(b) of the
Registrant’s Form 10-Q (filed 1/13/97) (No. 0-13358).
4.1 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).
4.2 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).
4.3 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).
4.4 Junior
Subordinated Indenture between the Registrant and Wilmington Trust Company,
dated as of November 1, 2004 - incorporated herein by reference to Exhibit
4.1 of the Registrant’s Form 8-K (filed 11/4/04) (No.
0-13358).
4.5
Guarantee
Agreement between the Registrant and Wilmington Trust Company, dated as of
November 1, 2004 - incorporated herein by reference to Exhibit 4.2 of the
Registrant’s Form 8-K (filed 11/4/04) (No. 0-13358).
4.6 Amended
and Restated Trust Agreement among the Registrant, Wilmington Trust Company
and
certain Administrative Trustees, dated as of November 1, 2004 -
incorporated herein by reference to Exhibit 4.3 of the Registrant’s
Form 8-K (filed 11/4/04) (No. 0-13358).
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).
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).
31.1
Certification
of CEO pursuant to Securities and Exchange Act
Section 302 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 15,
2007,
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 15, 2007 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 15,
2007,
on its behalf by the undersigned, thereunto duly authorized.
|
Directors:
|
|
|
|
|
|
|
|
/s/
Dubose Ausley
|
|
/s/
L. McGrath Keen, Jr.
|
|
DuBose
Ausley
|
|
L.
McGrath
Keen, Jr.
|
|
|
|
|
|
/s/
Thomas A. Barron
|
|
/s/
Lina S. Knox
|
|
Thomas
A. Barron
|
|
Lina
S. Knox
|
|
|
|
|
|
/s/
Frederick Carroll, III
|
|
/s/
Ruth A. Knox
|
|
Frederick
Carroll, III
|
|
Ruth
A. 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.
|
|
|
|
|
|
/s/
John K. Humphress
|
|
|
|
John
K. Humphress
|
|
|
-89-