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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended:
March 31, 2003
--------------
Commission File Number 0-13358
-------
CAPITAL CITY BANK GROUP, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2273542
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive offices)
Registrant's telephone number, including area code:
(850) 671-0300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of April 30, 2003, there were issued and outstanding 10,565,711 shares of
the registrant's common stock.
1
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q I N D E X
ITEM PART I. FINANCIAL INFORMATION PAGE NUMBER
- ---- ----------------------------- -----------
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
3. Qualitative and Quantitative Disclosure of
Market Risk 21
4. Controls and Procedures 23
ITEM PART II. OTHER INFORMATION
- ---- --------------------------
1. Legal Proceedings Not Applicable
2. Changes in Securities and Use of Proceeds Not Applicable
3. Defaults Upon Senior Securities Not Applicable
4. Submission of Matters to a Vote of
Security Holders Not Applicable
5. Other Information 23
6. Exhibits and Reports on Form 8-K 23
Signatures 23
INTRODUCTORY NOTE
This Report and other Company communications and statements may contain
"forward-looking statements," including statements about our beliefs, plans,
objectives, goals, expectations, estimates and intentions. These statements
are subject to significant risks and uncertainties and are subject to change
based on various factors, many of which are beyond our control. For
information concerning these factors and related matters, see Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WEBSITE ACCESS TO COMPANY'S REPORTS
Capital City Bank Group Inc.'s 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, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) 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.
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
2003 2002
- ------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $ 23,174 $ 23,826
Investment Securities:
U. S. Treasury 136 -
U. S. Government Agencies and Corporations 866 1,447
States and Political Subdivisions 631 719
Other Securities 178 533
Funds Sold 352 516
---------- ----------
Total Interest Income 25,337 27,041
---------- ----------
INTEREST EXPENSE
Deposits 3,226 6,847
Short-Term Borrowings 329 160
Long-Term Debt 545 190
---------- ----------
Total Interest Expense 4,100 7,197
---------- ----------
Net Interest Income 21,237 19,844
Provision for Loan Losses 779 802
---------- ----------
Net Interest Income After Provision
for Loan Losses 20,458 19,042
---------- ----------
NONINTEREST INCOME
Service Charges on Deposit Accounts 3,967 2,709
Data Processing 558 501
Asset Management Fees 605 630
Mortgage Banking Revenues 1,576 1,247
Other 3,471 3,207
---------- ----------
Total Noninterest Income 10,177 8,294
---------- ----------
NONINTEREST EXPENSE
Salaries and Associate Benefits 11,370 10,544
Occupancy 1,369 1,394
Furniture and Equipment 1,795 1,896
Other 6,136 5,631
---------- ----------
Total Noninterest Expense 20,670 19,465
---------- ----------
Income Before Income Taxes 9,965 7,871
Income Taxes 3,604 2,760
---------- ----------
NET INCOME $ 6,361 $ 5,111
========== ==========
Basic Net Income Per Share $ .60 $ .48
Diluted Net Income Per Share $ .60 $ .48
Cash Dividends Per Share $ .1700 $ .1525
Average Basic Shares Outstanding 10,565,539 10,644,266
Average Diluted Shares Outstanding 10,602,739 10,674,554
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
3
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
March 31, December 31,
2003 2002
- -------------------------------------------------------------------------------------
ASSETS
Cash and Due From Banks $ 85,796 $ 89,823
Funds Sold 176,428 170,936
---------- ----------
Total Cash and Cash Equivalents 262,404 260,759
Investment Securities, Available-for-Sale 190,119 180,315
Loans, Net of Unearned Interest 1,311,556 1,285,221
Allowance for Loan Losses (12,437) (12,495)
---------- ----------
Loans, Net 1,299,119 1,272,726
Premises and Equipment, Net 51,484 48,897
Intangibles 28,223 29,034
Other Assets 33,168 33,040
---------- ----------
Total Assets $1,864,517 $1,824,771
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 426,269 $ 406,081
Interest Bearing Deposits 1,032,801 1,028,119
---------- ----------
Total Deposits 1,459,070 1,434,200
Short-Term Borrowings 140,138 113,675
Long-Term Debt 53,651 71,745
Other Liabilities 20,644 18,620
---------- ----------
Total Liabilities 1,673,503 1,638,240
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000
shares authorized; no shares outstanding - -
Common Stock, $.01 par value; 90,000,000 shares
authorized; 10,565,708 issued and outstanding
at March 31, 2003 and 10,556,968 issued and
outstanding at December 31, 2002 106 106
Additional Paid-In Capital 15,120 14,717
Retained Earnings 173,152 168,587
Accumulated Other Comprehensive Income, Net of Tax 2,636 3,121
---------- ----------
Total Shareowners' Equity 191,014 186,531
---------- ----------
Total Liabilities and Shareowners' Equity $1,864,517 $1,824,771
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
4
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Dollars in Thousands)
(UNAUDITED)
2003 2002
- -------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,361 $ 5,111
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 779 802
Depreciation 1,151 1,238
Net Securities Amortization 532 275
Amortization of Intangible Assets 811 811
Gain on Sale of Securities (11) -
Non-Cash Compensation 228 245
Net Decrease in Other Assets 202 1,468
Net Increase in Other Liabilities 2,191 1,283
-------- --------
Net Cash Provided by Operating Activities 12,244 11,233
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 35,464 14,497
Purchase of Investment Securities (46,554) (16,137)
Net (Increase) Decrease in Loans (27,222) 12,431
Purchase of Premises & Equipment (3,739) (1,309)
Sales of Premises & Equipment 1 86
-------- --------
Net Cash (Used In) Provided by Investing Activities (42,050) 9,568
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits 24,870 (58,579)
Net Increase in Short-Term Borrowings 6,463 27,246
Borrowing of Long-Term Debt 2,560 775
Repayment of Long-Term Debt (653) (1,029)
Dividends Paid (1,796) (1,632)
Repurchase of Common Stock - (605)
Issuance of Common Stock 7 43
-------- --------
Net Cash Provided By (Used In) Financing Activities 31,451 (33,781)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,645 (12,980)
Cash and Cash Equivalents at Beginning of Period 260,759 256,830
-------- --------
Cash and Cash Equivalents at End of Period $262,404 $243,850
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 3,008 $ 8,274
======== ========
Interest Paid on Debt $ 886 $ 350
======== ========
Transfer of Loans to ORE $ 50 $ 286
======== ========
Income Taxes Paid $ 948 $ 910
======== ========
Issuance of Common Stock as Non-Cash Compensation $ 333 $ 245
======== ========
Transfer of Current Portion of Long-Term Debt to
Short-Term Borrowings $ 20,000 $ -
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
5
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Basis of Presentation
- ---------------------
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, including Regulation S-X. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. Prior period financial statements
have been reformatted and/or amounts reclassified, as necessary, to conform
with the current presentation.
In the opinion of management, the consolidated financial statements contain
all adjustments, which are those of a recurring nature, and disclosures
necessary to present fairly the financial position of the Company as of March
31, 2003 and December 31, 2002, the results of operations for the three month
periods ended March 31, 2003 and 2002, and cash flows for the three month
periods ended March 31, 2003 and 2002.
The Company and its subsidiaries follow accounting principles generally
accepted in the United States of America and reporting practices applicable
to the banking industry. The principles that materially affect its financial
position, results of operations and cash flows are set forth in Notes to
Consolidated Financial Statements which are included in the Company's 2002
Annual Report on Form 10-K.
Stock-based Compensation
- ------------------------
As of March 31, 2003, the Company had three stock-based employee compensation
plans, consisting of the Associate Stock Incentive Plan ("AIP"), the
Associate Stock Purchase Plan ("ASPP") and the Director Stock Purchase Plan
("DSPP"). In addition to stock-based compensation plans, the Company also
executed an employee incentive stock option arrangement effective January 1,
2003. Prior to 2003, the Company accounted for its stock-based compensation
under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations. Stock-based employee compensation cost is reflected in 2002
net income for only the AIP, as the ASPP and DSPP were considered
noncompensatory under the provisions of APB 25. Effective January 1, 2003,
the Company adopted the fair value recognition provisions of the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, prospectively to all employee awards granted, modified, or
settled after January 1, 2003. Awards under the Company's plans vest over
periods ranging from six-months to four years. Therefore, the cost related
to stock-based employee compensation included in the determination of net
income for 2003 and 2002 is different than that which would have been
recognized if the fair value based method had been applied to all awards
since the original effective date of SFAS 123, as a result of the difference
between compensation measurement dates under SFAS 123 and APB 25, the
differences in what instruments are considered noncompensatory, and the fact
that awards granted prior to January 1, 2003 remain accounted for under APB
25. The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all outstanding
and unvested awards in each period.
6
Period Ended March 31,
------------------------
(Dollars in Thousands, Except Per Share Data) 2003 2002
- -------------------------------------------------------------------------
Net income, as reported $ 6,361 $ 5,111
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects 141 138
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards,
net of related tax effects (99) (97)
-------- --------
Pro forma net income $ 6,403 $ 5,152
-------- --------
Earnings per share:
Basic-as reported $ .60 $ .48
-------- --------
Basic-pro forma $ .61 $ .48
-------- --------
Diluted-as reported $ .60 $ .48
-------- --------
Diluted-pro forma $ .60 $ .48
-------- --------
(2) INVESTMENT SECURITIES
---------------------
The carrying values and related market value of investment securities at
March 31, 2003 and December 31, 2002 were as follows (dollars in thousands):
March 31, 2003
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U.S. Treasury $ 41,221 $ 48 $ - $ 41,269
U.S. Government Agencies
and Corporations 43,455 641 - 44,096
States and Political Subdivisions 61,606 2,450 1 64,055
Mortgage-Backed Securities 27,005 837 - 27,842
Other Securities 12,671 186 - 12,857
-------- ------ --- --------
Total $185,958 $4,162 $ 1 $190,119
======== ====== === ========
December 31, 2002
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U.S. Treasury $ 10,438 $ 5 $ - $ 10,443
U.S. Government Agencies
and Corporations 51,075 884 - 51,959
States and Political Subdivisions 62,845 2,632 2 65,475
Mortgage-Backed Securities 34,750 1,180 - 35,930
Other Securities 16,281 227 - 16,508
-------- ------ --- --------
Total $175,389 $4,928 $ 2 $180,315
======== ====== === ========
7
(3) LOANS
-----
The composition of the Company's loan portfolio at March 31, 2003 and
December 31, 2002 was as follows (dollars in thousands):
March 31, 2003 December 31, 2002
-------------- -----------------
Commercial, Financial
and Agricultural $ 146,293 $ 141,459
Real Estate - Construction 87,283 91,110
Real Estate - Commercial Mortgage 382,778 356,807
Real Estate - Residential 335,332 336,705
Real Estate - Home Equity 95,319 92,277
Real Estate - Loans Held-for-Sale 6,855 22,454
Consumer 226,967 221,776
Other Loans 30,729 22,633
---------- ----------
Loans, Net of Unearned Interest $1,311,556 $1,285,221
========== ==========
Consists primarily of loans-in-process.
(4) ALLOWANCE FOR LOAN LOSSES
-------------------------
An analysis of the changes in the allowance for loan losses for the three-
month periods ended March 31, 2003 and 2002, was as follows (dollars in
thousands):
March 31,
--------------------------
2003 2002
------- -------
Balance, Beginning of Period $12,495 $12,096
Provision for Loan Losses 779 802
Recoveries on Loans Previously
Charged-Off 211 355
Loans Charged-Off (1,048) (1,140)
------- -------
Balance, End of Period $12,437 $12,113
======= =======
Impaired loans are primarily defined as all nonaccruing loans for the loan
categories which are included within the scope of SFAS 114. Selected
information pertaining to impaired loans is depicted in the table below
(dollars in thousands):
March 31,
------------------------------------------------
2003 2002
-------------------- ---------------------
Valuation Valuation
Balance Allowance Balance Allowance
--------------------- ---------------------
Impaired Loans:
With Related Valuation Allowance $ 641 $227 $1,523 $379
Without Related Valuation Allowance 732 - 733 -
Average Recorded Investment
for the Period 1,451 * 2,444 *
* Not Applicable
The Company recognizes income on impaired loans primarily on the cash basis.
Any change in the present value of expected cash flows is recognized through
the allowance for loan losses. For the periods ended March 31, 2003 and
2002, the Company recognized $5,000 and $27,000, respectively, in interest
income on impaired loans, all of which was collected in cash.
8
(5) DEPOSITS
--------
The composition of the Company's interest-bearing deposits at March 31, 2003
and December 31, 2002 was as follows (dollars in thousands):
March 31, 2003 December 31, 2002
-------------- -----------------
NOW Accounts $ 280,335 $ 276,487
Money Market Accounts 205,940 209,508
Savings Deposits 108,632 104,053
Time Deposits 437,894 438,071
---------- ----------
Total Interest Bearing Deposits $1,032,801 $1,028,119
========== ==========
(6) INTANGIBLE ASSETS
-----------------
As of January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). The adoption of SFAS 142 required the
Company to discontinue goodwill amortization and identify reporting units to
which the goodwill related 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.
The Company had intangible assets of $28.2 million and $29.0 million at March
31, 2003 and December 31, 2002, respectively. Intangible assets were as
follows (dollars in thousands):
March 31, 2003 December 31, 2002
----------------------- -----------------------
Gross Accumulated Gross Accumulated
Description Amount Amortization Amount Amortization
- ----------- ------- ------------ ------- ------------
Core Deposit Intangibles $33,752 $12,209 $33,752 $11,398
Goodwill 10,466 3,786 10,466 3,786
------- ------- ------- -------
Total Intangible Assets $44,218 $15,995 $44,218 $15,184
======= ======= ======= =======
Net Core Deposit Intangibles:
As of March 31, 2003 and December 31, 2002, the Company had net core deposit
intangibles of $21.5 million and $22.5 million, respectively. The adoption
of SFAS 142 did not have a material impact on the useful lives assigned to
the Company's intangible assets subject to amortization. Amortization
expense for the first three months of 2003 and 2002 was $811,000 for both
periods, respectively.
Goodwill:
As of March 31, 2003 and December 31, 2002, the Company had goodwill, net of
accumulated amortization, of $6.7 million. Goodwill is the Company's only
intangible asset that is no longer subject to amortization under the
provisions of SFAS 142.
(7) 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. The Company's comprehensive income
consists of net income and changes in unrealized gains on securities
available-for-sale, net of income taxes. Changes in unrealized gains/losses
(net of taxes) on securities are reported as other comprehensive income and
totaled a loss of $485,000 and $386,000 for the three months ended March 31,
2003 and 2002, respectively. Reclassification adjustments consist only of
realized gains on sales of investment securities and were not material for
the three months ended March 31, 2003 and 2002.
9
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2003 2002 2001
---------- ---------------------------------------------- ----------------------------------
First Fourth Third Second First Fourth Third Second
---------- ---------------------------------------------- ----------------------------------
Summary of Operations:
Interest Income $ 25,337 $ 26,052 $ 26,403 $ 26,599 $ 27,041 $ 28,706 $ 30,258 $ 30,882
Interest Expense 4,100 4,667 4,946 5,693 7,197 9,454 12,256 13,396
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 21,237 21,385 21,457 20,906 19,844 19,252 18,002 17,486
Provision for
Loan Losses 779 863 991 641 802 932 1,222 1,007
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Losses 20,458 20,522 20,466 20,265 19,042 18,320 16,780 16,479
Noninterest Income 10,177 11,243 9,087 8,552 8,294 8,536 7,918 8,255
Conversion/
Merger Expense - 59 - 39 114 588 - -
Noninterest Expense 20,670 21,316 20,526 20,293 19,351 19,251 18,993 18,132
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 9,965 10,390 9,027 8,485 7,871 7,017 5,705 6,602
Provision for
Income Taxes 3,604 3,668 3,226 3,037 2,760 2,522 1,963 2,322
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 6,361 $ 6,722 $ 5,801 $ 5,448 $ 5,111 $ 4,495 $ 3,742 $ 4,280
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 21,607 $ 21,786 $ 21,873 $ 21,331 $ 20,284 $ 19,689 $ 18,431 $ 17,935
Per Common Share:
Net Income Basic $ .60 $ .63 $ .55 $ .52 $ .48 $ .42 $ .35 $ .40
Net Income Diluted .60 .63 .55 .51 .48 .42 .35 .40
Dividends Declared .1700 .1700 .1525 .1525 .1525 .1525 .1475 .1475
Diluted Book Value 18.02 17.60 17.18 16.74 16.38 16.08 16.24 15.87
Market Price:
High 40.40 40.05 36.94 34.80 27.50 24.67 25.25 25.00
Low 33.51 27.83 27.90 25.75 22.65 21.90 20.87 19.88
Close 39.11 39.19 33.06 34.53 27.00 24.23 23.47 24.87
Selected Average
Balances:
Loans $1,289,161 $1,292,893 $1,266,591 $1,234,787 $1,229,344 $1,242,516 $1,204,323 $1,192,103
Earning Assets 1,615,286 1,591,536 1,511,485 1,547,603 1,575,698 1,584,225 1,561,519 1,556,186
Assets 1,796,657 1,762,174 1,678,620 1,720,095 1,748,211 1,756,995 1,734,392 1,733,115
Deposits 1,407,763 1,404,818 1,388,396 1,440,615 1,467,257 1,488,961 1,483,527 1,479,159
Shareowners' Equity 190,416 185,412 180,910 176,678 175,485 176,549 170,511 169,516
Common Equivalent
Average Shares:
Basic 10,566 10,552 10,551 10,576 10,644 10,674 10,685 10,713
Diluted 10,603 10,591 10,590 10,606 10,675 10,715 10,693 10,721
Ratios:
ROA 1.44% 1.51% 1.37% 1.27% 1.19% 1.01% .86% .99%
ROE 13.55% 14.38% 12.72% 12.37% 11.81% 10.10% 8.71% 10.13%
Net Interest
Margin (FTE) 5.42% 5.44% 5.74% 5.52% 5.22% 4.93% 4.70% 4.62%
Efficiency Ratio 62.48% 62.08% 63.68% 65.20% 64.88% 65.30% 68.17% 65.09%
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis provides supplemental information, which
sets forth the major factors that have affected the Company's financial
condition and results of operations and should be read in conjunction with
the Consolidated Financial Statements and related notes. The Financial
Review is divided into subsections entitled "Results of Operations,"
"Financial Condition," "Liquidity and Capital Resources" and "Accounting
Policies." Information therein should facilitate a better understanding of
the major factors and trends that affect the Company's earnings performance
and financial condition, and how the Company's performance during 2003
compares with prior years. Throughout this section, Capital City Bank Group,
Inc., and its subsidiaries, collectively, are referred to as "CCBG" or the
"Company." Capital City Bank is referred to as "CCB" or the "Bank."
The period-to-date averages used in this report are based on daily balances
for each respective period. In certain circumstances, comparing average
balances for the comparable quarters of consecutive years may be more
meaningful than simply analyzing year-to-date averages. Therefore, where
appropriate, quarterly averages have been presented for analysis and have
been noted as such. See Table I for average balances and interest rates
presented on a quarterly basis.
This Report and other Company communications and statements may contain
"forward-looking statements." 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" and similar
expressions are intended to identify forward-looking statements. The
following factors, among others, could cause our financial performance to
differ materially from what is contemplated in those forward-looking
statements:
* The strength of the United States economy in general and the strength
of the local economies in which we conduct operations may be different
than expected resulting in, among other things, a deterioration in
credit quality or a reduced demand for credit, including the resultant
effect on our loan portfolio and allowance for loan losses;
* The effects of, and changes in, trade, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the
Federal Reserve System;
* Inflation, interest rate, market and monetary fluctuations;
* Adverse conditions in the stock market and other capital markets and
the impact of those conditions on our capital markets and capital
management activities, including our investment and wealth management
advisory businesses and brokerage activities;
* Changes in U.S. foreign or military policy;
* The timely development of competitive new products and services by us
and the acceptance of those products and services by new and existing
customers;
* The willingness of customers to accept third-party products marketed by
us;
* The willingness of customers to substitute competitors' products and
services for our products and services and vice versa;
11
* The impact of changes in financial services laws and regulations
(including laws concerning taxes, banking, securities and insurance);
* Technological changes;
* Changes in consumer spending and saving habits;
* The effect of corporate restructuring, acquisitions or dispositions,
including the actual restructuring and other related charges and the
failure to achieve the expected gains, revenue growth or expense
savings from such corporate restructuring, acquisitions or
dispositions;
* The growth and profitability of our noninterest or fee income being
less than expected;
* Unanticipated regulatory or judicial proceedings;
* The impact of changes in accounting policies by the Securities and
Exchange Commission;
* Adverse changes in the financial performance and/or condition of our
borrowers, which could impact the repayment of those borrowers'
outstanding loans; and
* Our success at managing the risks involved in the foregoing.
We caution that the foregoing list of important factors is not exhaustive.
Also, we do not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by us or on our behalf.
The Company is headquartered in Tallahassee, Florida and as of March 31, 2003
had 53 offices covering 17 counties in Florida, four counties in Georgia and
one county in Alabama.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings, including the effects of intangible amortization, were $6.4
million, or $.60 per diluted share, for the first quarter of 2003. This
compares to $5.1 million, or $.48 per diluted share for the first quarter of
2002. Amortization of intangible assets, net of taxes, totaled $811,000 for
the first quarter in 2003 and 2002, or $.05 and $.04 per diluted share,
respectively.
The Company experienced growth in operating revenues of 11.2% over the
comparable quarter in 2002. This increase is primarily due to growth in the
taxable equivalent net interest income of 6.5% and noninterest income of
22.7%. The net interest margin increased 20 basis points over the first
quarter of 2002 to a level of 5.42%, attributable to an 83 basis point
reduction in the Company's cost of funds. Growth in noninterest income
resulted from increased deposit fees, reflecting higher overdraft and NSF
fees. Mortgage banking revenues remained strong and continued to reflect the
higher volume of fixed rate residential mortgages sold to the secondary
market.
12
A condensed earnings summary is presented below (Dollars in Thousands):
For the Three Months
Ended March 31,
----------------------------
2003 2002
------- -------
Interest Income $25,337 $27,041
Taxable Equivalent Adjustment 370 440
------- -------
Interest Income (FTE) 25,707 27,481
Interest Expense 4,100 7,197
------- -------
Net Interest Income (FTE) 21,607 20,284
Provision for Loan Losses 779 802
Taxable Equivalent Adjustment 370 440
------- -------
Net Int. Inc. After Provision 20,458 19,042
Noninterest Income 10,177 8,294
Noninterest Expense 20,670 19,465
------- -------
Income Before Income Taxes 9,965 7,871
Income Taxes 3,604 2,760
------- -------
Net Income $ 6,361 $ 5,111
======= =======
Percent Change 24.46% 17.52%
Return on Average Assets 1.44% 1.19%
Return on Average Equity 13.55% 11.81%
Computed using a statutory tax rate of 35%
Annualized
Net Interest Income
- -------------------
First quarter taxable-equivalent net interest income increased $1.3 million,
or 6.5%, over the comparable quarter in 2002. The favorable impact of lower
funding costs and growth in earning assets was partially offset by declining
asset yields attributable to the low interest rate environment. Table I on
page 20 provides a comparative analysis of the Company's average balances and
interest rates.
Taxable equivalent interest income decreased $1.8 million, or 6.5% from the
comparable quarter in 2002. Earning assets repriced at lower levels,
reflecting the rate environment and strong market competition. New loan
production and repricing of existing earning assets produced a 52 basis point
reduction in the yield on earning assets, which declined from 7.07% for the
first quarter in 2002 to 6.45% for the same period in 2003. Growth in
earning assets and the favorable shift in mix partially offset the decline in
yield.
Interest expense decreased $3.1 million, or 43.0%, over the first quarter of
2002. The general decline in interest rates produced favorable rate
variances on interest bearing liabilities. This was further enhanced by a
favorable 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 average deposits, declined from 38.8% in 2002 to
30.9% in 2003. The average rate paid on interest bearing liabilities in 2003
declined 102 basis points over first quarter 2002, to a level of 1.39%.
The Company's interest rate spread (defined as the average taxable equivalent
yield on earning assets less the average rate paid on interest bearing
liabilities) increased from 4.66% in the first quarter of 2002 to 5.06% in
the comparable quarter for 2003. The Company's net interest margin
percentage (defined as taxable-equivalent net interest income divided by
average earning assets) was 5.22% in the first quarter of 2002 versus 5.42%
in the first quarter of 2003. The improvement in both the spread and margin
reflects the lower cost of funds.
13
Provisions for Loan Losses
- --------------------------
The provision for loan losses of $779,000 for the quarter was slightly lower
than the first quarter of 2002 due to continued improvement in the Bank's
overall credit quality.
Net charge-offs increased $52,000 from the first quarter of 2002, but remain
at historically low levels. In both periods net charge-offs represented .26%
of average loans for the quarter. The Company's non-performing assets ratio
improved to .29% at March 31, 2003 compared to .30% for year-end 2002 and
..35% at March 31, 2002.
Charge-off activity for the respective periods is set forth below:
Three Months Ended
March 31,
--------------------
(Dollars in Thousands) 2003 2002
- ------------------------------------------------------------------
CHARGE-OFFS
Commercial, Financial and Agricultural $ 142 $ 184
Real Estate - Construction - -
Real Estate - Commercial Mortgage - -
Real Estate - Residential 19 64
Consumer 887 892
------ ------
Total Charge-offs 1,048 1,140
------ ------
RECOVERIES
Commercial, Financial and Agricultural 14 46
Real Estate - Construction - -
Real Estate - Commercial Mortgage - -
Real Estate - Residential - 1
Consumer 197 308
------ ------
Total Recoveries 211 355
------ ------
Net Charge-offs $ 837 $ 785
====== ======
Net Charge-Offs (Annualized) as a
Percent of Average Loans Outstanding,
Net of Unearned Interest .26% .26%
====== ======
At March 31, 2003, the allowance for loan losses totaled $12.4 million,
constant with year-end 2002. At quarter-end 2003, the allowance represented
0.95% of total 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 as of March 31, 2003.
Noninterest Income
- ------------------
Noninterest income increased $1.9 million, or 22.7%, over the first quarter
of 2002, driven primarily by higher deposit fees and mortgage banking
revenues. Noninterest income represented 32.4% of operating revenue for the
first quarter of 2003, compared to 29.5% for the first quarter of 2002. Both
deposit fee income and mortgage banking revenues are expected to remain
strong during the second quarter.
Service charges on deposit accounts increased $1.3 million, or 46.4%.
Service charge revenues in any one period are dependent on the number of
accounts, primarily transaction accounts, and the level of activity subject
to service charges. The higher revenues in the first quarter of 2003,
compared to 2002, are primarily attributable to an increase in overdraft/NSF
fees, which is anticipated to have a favorable impact throughout the
remainder of the year.
14
Data processing revenues of $558,000 for the first quarter of 2003 reflect an
increase of $57,000, or 11.4%, over the comparable period in 2002. The
Company currently provides data processing services for six financial
clients, an increase of one from the first quarter ended 2002. During the
first quarter of 2003, financial clients represented approximately 63.0% of
total processing revenues compared to 61.4% in the comparable period in 2002.
Management believes quarterly revenues for the remainder of 2003 will remain
consistent with the revenues generated in the first quarter.
Income from asset management activities decreased $25,000, or 4.0%, over the
comparable quarter in 2002. Fees lost due to the decline in stock market
values over the past year have outpaced the incremental revenues attributable
to new business development, as fees are primarily based on portfolio market
values at quarter-end. At March 31, 2003, assets under management totaled
$335.6 million, representing a decline of $5.8 million, or 1.7% from the
comparable period in 2002.
Mortgage banking revenues increased $329,000, or 26.4%, over the comparable
quarter in 2002. The Company continues to be among the leaders in the
production of residential mortgage loans in most of its markets. The Bank
generally sells into the secondary market all fixed rate residential loan
production. The low interest rates continue to produce a high level of fixed
rate production and increased mortgage banking revenues. The level of
interest rates, origination volume and percent of fixed rate production is
expected to impact the Company's ability to maintain the current level of
mortgage banking revenues throughout the remainder of 2003.
Other income increased $253,000, or 7.91%, over the comparable quarter of
2002. The Company experienced increases in retail brokerage fees of $46,000,
ATM/Visa settlement fees of $70,000, merchant card processing fees of
$128,000, and ATM surcharge fees of $58,000.
Noninterest income as a percent of average assets was 2.30% for the first
quarter of 2003, compared to 1.92% for the first quarter of 2002, driven
primarily by increases in deposit fees and mortgage banking revenues.
Noninterest Expense
- -------------------
Noninterest expense in the first quarter of 2003 increased $1.2 million, or
6.2%, over the first quarter of 2002. Factors impacting the Company's
noninterest expense during the first quarter of 2003 are discussed below.
Compensation expense increased $826,000, or 7.8%, over the first quarter of
2002. The company experienced increases in pension costs of $393,000, higher
healthcare insurance premiums of $162,000, and salaries of $240,000. The
higher pension costs is a result of an increase in the number of plan
participants and the lower than expected return on plan assets resulting from
the general stock market decline. Healthcare premiums have risen due to the
addition of plan participants and the rising costs charged by healthcare
providers.
Occupancy expense, including premises, furniture, fixtures and equipment
decreased $126,000, or 3.8%, over the first quarter of 2002. The Company
experienced decreases in depreciation of $87,000, and maintenance and repairs
of $48,000 from the comparable period in 2002. The decrease in depreciation
is primarily attributable to the unusually high level of depreciation
incurred during first quarter of 2002 due to the running of dual data
processing systems. Occupancy costs are expected to increase over the course
of 2003 due to the opening of three full-service banking offices.
Other noninterest expense increased $505,000, or 9.0%. The increase was
primarily the result of: (1) higher EDP processing services of $129,000
resulting from the system conversion during 2002; (2) higher legal costs of
$110,000 primarily resulting from litigation costs and new corporate
governance compliance requirements; (3) increased ATM/Visa settlement service
fees of $152,000 resulting from higher transaction volumes in merchant
services; and (4) miscellaneous expenses of $139,000.
15
Net noninterest expense (noninterest income minus noninterest expense,
excluding intangible amortization) as a percent of average assets was 2.19%
in the first quarter of 2003 compared to 2.40% in 2001. The Company's
efficiency ratio (noninterest expense, excluding intangible amortization,
expressed as a percent of the sum of taxable-equivalent net interest income
plus noninterest income) was 62.48% in the first quarter 2003 compared to
64.88% for the comparable quarter in 2002. This improvement is attributable
to growth in operating revenues.
Income Taxes
- ------------
The provision for income taxes increased $844,000, or 30.6%, over the first
quarter of 2002, reflecting higher taxable income as a result of a decline in
tax-exempt income. The Company's effective tax rate for the first quarter of
2003 was 36.2% compared to 35.1% for the same quarter in 2002. The increase
in the effective tax rate is primarily attributable to a reduction in tax-
exempt municipal interest.
FINANCIAL CONDITION
The Company's average assets increased $48.4 million, or 2.8%, from $1.7
billion at March 31, 2002 to $1.8 billion in the comparable quarter of 2003.
Average earning assets of $1.6 billion, increased $39.6 million, or 2.5% from
the comparable quarter of 2002. Throughout 2002 and the first quarter of
2003, there was a favorable shift in mix of earning assets as the Company
continues to experience net loan growth. Loan growth was primarily funded
through existing liquidity and the maturity of investment securities. Table I
on page 20 presents average balances for the three month periods ended March
31, 2003 and 2002.
Average loans increased $59.8 million, or 4.9%, over the comparable period in
2002. The strong production levels have resulted in growth in all loan
categories, with the exception of residential 1-4 family. The decline in
residential 1-4 family was a result of the high level of refinancing activity
that continues to occur. Loans as a percent of average earning assets
increased to 79.8% for the first quarter of 2003, compared to 78.0% for the
first quarter of 2002. Price and product competition remain strong. With
the lower rate environment, there continues to be an increased demand for
fixed-rate, longer term financing. Management anticipates moderate to strong
loan production during the second quarter of 2003 in the majority of its
markets.
Although management is continually evaluating alternative sources of revenue,
lending is a major component of the Company's business and is key to
profitability. While management strives to identify opportunities to
increase loans outstanding and enhance the portfolio's overall contribution
to earnings, it can do so only by adhering to sound lending principles
applied in a prudent and consistent manner. Thus, management will not relax
its underwriting standards in order to achieve designated growth goals.
Management 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' ability and
willingness to repay, and from other risks inherent in the lending process,
including collateral risk, operations risk, concentration risk and economic
risk. All related risks of lending are considered when assessing the
adequacy of the loan loss reserve. 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 loan 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.
Management evaluates the adequacy of the allowance for loan losses on a
quarterly basis.
The allowance for loan losses at March 31, 2003 was $12.4 million, slightly
higher than the $12.1 million recorded at March 31, 2002. The allowance as a
percent of total loans was 0.95% in 2003, versus 0.98% at March 31, 2002.
While there can be no assurance that the Company will not sustain loan losses
in a particular period that are substantial in
16
relation to the size of the allowance, management's assessment of the loan
portfolio would not indicate a likelihood of this occurrence. It is
management's opinion that the allowance at March 31, 2003 is adequate to
absorb losses inherent in the loan portfolio at quarter-end.
The Company continues to operate with a high level of liquidity with average
funds sold of $122.7 million. This represents a slight decline of $4.9
million, or 3.8% from the March 31, 2002 level of $127.6 million. For a
further discussion on liquidity see the section "Liquidity and Capital
Resources."
The investment portfolio is a significant component of the Company's
operations and, as such, it functions as a key element of liquidity and
asset/liability management. As of March 31, 2003, the average investment
portfolio decreased $15.3 million, or 7.0%, from the first quarter of 2002.
The decline was partially offset by management's decision to purchase
available-for-sale securities during the fourth quarter of 2002 and early
first quarter of 2003. The excess funds generated from the securities
maturing were partially used to fund loan growth. Management will continue
to evaluate the need to purchase securities for the investment portfolio
throughout 2003.
Securities in the available-for-sale portfolio are recorded at fair value and
unrealized gains and losses associated with these securities are recorded,
net of tax, as a separate component of shareowners' equity. At March 31,
2003, shareowners' equity included a net unrealized gain of $2.6 million
compared to a gain of $3.1 million at December 31, 2002. The decrease in
value reflects a slight increase in interest rates during the first quarter.
The Company's nonperforming loans were $3.8 million at March 31, 2003, versus
$4.3 million for the same period in 2002. As a percent of nonperforming
loans, the allowance for loan losses represented 485% at March 31, 2003
versus 498% at December 31, 2002 and 421% at March 31, 2002. Nonperforming
loans include nonaccruing and restructured loans. Other real estate, which
includes property acquired either through foreclosure or by receiving a deed
in lieu of foreclosure, was $1.2 million at March 31, 2003, versus $1.3
million at December 31, 2002 and $1.4 million at March 31, 2002. The ratio
of nonperforming assets as a percent of loans plus other real estate was .29%
at March 31, 2003 compared to .30% at December 31, 2002 and .35% at March 31,
2002.
Average deposits decreased $59.5 million from $1.5 billion in the first quarter
of 2002, to $1.4 billion in the first quarter of 2003. The Company experienced
a steep decline in certificates of deposit throughout 2002. This decline was
partially offset by growth of nonmaturity deposits which created a favorable
shift in the deposit mix and a positive impact on the Bank's cost of funds.
The shift in mix and certificate of deposit run-off in the remainder of 2003,
if any, is anticipated to be at a slower pace than experienced during 2002.
The ratio of average noninterest bearing deposits to total deposits was 27.6%
for the first quarter of 2003 compared to 23.4% for the first quarter of
2002. For the same periods, the ratio of average interest bearing
liabilities to average earning assets was 74.1% compared to 76.8%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for a banking institution is the availability of funds to meet
increased loan demand and/or excessive deposit withdrawals. Management
monitors the Company's financial position in an effort to ensure the Company
has ready access to sufficient liquid funds to meet normal transaction
requirements, 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 (i.e., collection of interest and fees), federal funds
sold, loan and investment maturities, bank lines of credit for the Company,
approved lines for the purchase of federal funds by CCB and Federal Home Loan
Bank advances. The Company maintains a $25.0 million revolving line of
credit. As of March 31, 2003, the Company had no borrowings under the
revolving line of credit.
17
During the first quarter of 2003, the Company borrowed $2.6 million from the
Federal Home Loan Bank to fund loan growth. This borrowing was priced at
4.36% and has a maturity of 15 years. During the third quarter of 2002, the
Company borrowed $75 million from the Federal Home Loan Bank to fund growth
in loan demand and the decline in certificates of deposit. The borrowing
consists of four separate advances with maturities ranging from 12 to 36
months and a weighted average rate of 2.51%.
The Company's equity capital was $191.0 million as of March 31, 2003 compared
to $186.5 million as of December 31, 2002. Management continues to monitor
its capital position in relation to its level of assets with the objective of
maintaining a strong capital position. The leverage ratio was 8.59% at March
31, 2003 compared to 8.46% at December 31, 2002. Further, the Company's
risk-adjusted capital ratio of 12.47% at March 31, 2003, exceeds the 8.0%
minimum requirement under the risk-based regulatory guidelines.
Adequate capital and financial strength is paramount to the stability of CCBG
and its subsidiary bank. Cash dividends declared and paid should not place
unnecessary strain on the Company's capital levels. Although a consistent
dividend payment is believed to be favorably viewed by the financial markets
and shareowners, the Board of Directors will declare dividends only if the
Company is considered to have adequate capital. Future capital requirements
and corporate plans are considered when the Board considers a dividend
payment. Dividends declared and paid during the first quarter of 2003
totaled $.1700 per share compared to $.1525 per share for the first quarter
of 2002, an increase of 11.5%. The dividend payout ratios for the first
quarter ended 2003 and 2002 were 28.3% and 31.8%, respectively.
State and federal regulations as well as the Company's long-term debt
agreements place certain restrictions on the payment of dividends by both the
Company and the Bank. At March 31, 2003, these regulations and covenants did
not impair the Company's (or its subsidiaries') ability to declare and pay
dividends or to meet other existing obligations in the normal course of
business.
During the first three months of 2003, shareowners' equity increased $4.5
million, or 9.7%, on an annualized basis. Growth in equity during the first
quarter was positively impacted by net income of $6.4 million and the
issuance of common stock of $63,000. Equity was reduced by dividends paid
during the first quarter of $1.8 million, or $.1700 per share and a reduction
in the net unrealized gain on available-for-sale securities of $485,000. At
March 31, 2003, the Company's common stock had a book value of $18.02 per
diluted share compared to $17.60 at December 31, 2002.
On March 30, 2000, the Company's Board of Directors authorized the repurchase
of up to 500,000 shares of its outstanding common stock. On January 24,
2002, the Company's Board of Directors authorized the repurchase of an
additional 250,000 shares of its outstanding common stock. The purchases
will be made in the open market or in privately negotiated transactions. The
Company did not purchase any shares in the first quarter of 2003. During
2002, 124,620 shares were acquired. From March 30, 2000 through March 31,
2003, the Company repurchased 457,754 shares at an average purchase price of
$24.04 per share.
Other
Prior to 2002, the Bank maintained several relationships with various
Independent Service Organizations (ISOs) in connection with its card
processing operations. During late 2000 and early 2001, a small number of
one of the ISO's merchants generated a large amount of charge-backs. Certain
merchants have alledged they are entitled to receive financial reserves
placed with the ISO. The Bank is currently named, along with others, as a
co-defendant in a lawsuit brought against the ISO by a merchant. Management
does not believe that the ultimate resolution of these issues will have a
material impact on the Company's financial position or results of operations.
The Bank no longer maintains merchant service relationships with ISOs.
18
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 U.S., which require the Company to make various
estimates and assumptions (see Note 1 in the Notes to Consolidated Financial
Statements in the Compnay's 2002 Form 10-K). The Company believes that, of
its 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 the Company 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
in the Company's 2002 Form 10-K.
Intangible Assets: Intangible assets consist primarily of goodwill and core
deposit assets 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. The Company performs an
impairment review on an annual basis to determine if there has been
impairment of its goodwill. 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 the Company's reported results.
Core deposit assets represent the premium the Company paid for core deposits.
Core deposit intangibles are amortized on the straight-line method over
various periods ranging from 10 - 15 years, with the majority being amortized
over approximately 10 years. Generally, core deposits refer to nonpublic,
nonmaturing deposits including noninterest-bearing deposits, NOW, money
market and savings. The Company makes 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 customer 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.
19
TABLE I
AVERAGE BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
For Three Months Ended March 31,
--------------------------------------------------------------------
2003 2002
----------------------------- -----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
ASSETS
Loans, Net of Unearned Interest $1,289,161 $23,220 7.30% $1,229,344 $23,911 7.89%
Taxable Investment Securities 138,646 1,180 3.41% 147,800 1,980 5.43%
Tax-Exempt Investment Securities 64,772 955 5.89% 70,933 1,074 6.06%
Funds Sold 122,708 352 1.15% 127,621 516 1.62%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 1,615,287 25,707 6.45% 1,575,698 27,481 7.07%
Cash & Due From Banks 82,453 72,266
Allowance for Loan Losses (12,619) (12,231)
Other Assets 111,536 112,478
---------- ----------
TOTAL ASSETS $1,796,657 $1,748,211
========== ==========
LIABILITIES
NOW Accounts $ 262,618 $ 203 0.31% $ 230,696 $ 332 0.58%
Money Market Accounts 214,539 420 0.79% 221,751 793 1.45%
Savings Accounts 106,241 65 0.25% 102,125 131 0.52%
Other Time Deposits 434,825 2,539 2.37% 569,166 5,591 3.98%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing Deposits 1,018,223 3,227 1.29% 1,123,738 6,847 2.47%
Short-Term Borrowings 106,798 329 1.25% 72,043 160 0.90%
Long-Term Debt 72,372 544 3.05% 13,801 190 5.57%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing Liabilities 1,197,393 4,100 1.39% 1,209,582 7,197 2.41%
Noninterest Bearing Deposits 389,540 343,519
Other Liabilities 19,308 19,625
---------- ----------
TOTAL LIABILITIES 1,606,241 1,572,726
SHAREOWNERS' EQUITY
Common Stock 106 106
Surplus 14,862 17,064
Other Comprehensive Income 3,006 2,815
Retained Earnings 172,442 155,500
---------- ----------
TOTAL SHAREOWNERS' EQUITY 190,416 175,485
---------- ----------
TOTAL LIABILITIES & EQUITY $1,796,657 $1,748,211
========== ==========
Net Interest Rate Spread 5.06% 4.66%
==== ====
Net Interest Income $21,607 $20,284
======= =======
Net Interest Margin 5.42% 5.22%
==== ====
Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $1.6 million
and $1.1 million, for the three months ended March 31, 2003 and 2002, respectively.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
20
Item 3. Qualitative and Quantitative Disclosure for Market Risk
Overview
Market risk management arises from changes in interest rates, exchange rates,
commodity prices and equity prices. The Company has risk management policies
to monitor and limit exposure to market risk and does not actively
participate in exchange rates, commodities or equities. 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 CCBG to interest rate risk.
Fluctuations in interest rates may result in changes in the fair market value
of the Company's financial instruments, cash flows and net interest income.
CCBG's asset/liability management process manages the Company's interest rate
risk.
The financial assets and liabilities of the Company are classified as other-
than-trading. An analysis of the other-than-trading financial components,
including the fair values, are presented in Table II on page 22. This table
presents the Company's consolidated interest rate sensitivity position as of
March 31, 2003 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 the Company's net interest income due to fluctuations in
interest rates. The asset and liability values presented in Table II may not
necessarily be indicative of the Company's interest rate sensitivity over an
extended period of time.
The Company is currently liability sensitive, which generally indicates that,
in a period of rising interest rates, the net interest margin will be
adversely impacted as the velocity and/or volume of liabilities being
repriced exceeds assets. The opposite is true in a falling rate environment.
However, as general interest rates rise or fall, other factors such as
current market conditions and competition may impact how the Company responds
to changing rates and thus impact the magnitude of change in net interest
income. Nonmaturity deposits offer management greater discretion as to the
direction, timing and magnitude of interest rate changes and can have a
material impact on the Company's 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.
21
Table II - FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS
(Dollars in Thousands)
Other Than Trading Portfolio March 31, 2003
- ---------------------------- ---------------------------------------------------- Fair
Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value
--------- -------- -------- ------- ------- ------- ---------- ----------
Loans
Fixed Rate $ 173,442 $ 97,230 $ 74,148 $29,413 $15,414 $25,611 $ 415,258 $ 429,668
Average Interest Rate 7.68% 7.98% 7.56% 8.07% 7.88% 6.58% 7.69%
Floating Rate 548,148 98,734 170,576 47,236 10,877 20,726 896,298 927,402
Average Interest Rate 5.49% 7.22% 7.02% 7.60% 7.47% 7.91% 6.16%
Investment Securities
Fixed Rate 94,332 47,082 26,130 7,913 2,305 7,689 185,452 185,452
Average Interest Rate 3.88% 3.79% 5.24% 6.61% 4.64% 4.09% 4.08%
Floating Rate 4,667 - - - - - 4,667 4,667
Average Interest Rate 4.58% - - - - - 4.58%
Other Earning Assets
Floating Rates 176,428 - - - - - 176,428 176,428
Average Interest Rates 1.18% - - - - - 1.18%
Total Financial Assets $ 997,018 $243,046 $270,854 $84,562 $28,597 $54,027 $1,678,103 $1,723,617
Average Interest Rates 4.95% 6.86% 6.99% 7.67% 7.46% 6.74% 5.78%
Deposits
Fixed Rate Deposits $ 350,465 $ 63,494 $ 13,270 $ 5,899 $ 5,519 7 $ 438,654 $ 440,400
Average Interest Rates 2.02% 3.05% 3.58% 4.08% 3.85% 4.85% 2.27%
Floating Rate Deposits 594,147 - - - - - 594,147 594,147
Average Interest Rates 0.46% - - - - - 0.46%
Other Interest Bearing
Liabilities
Fixed Rate Debt 20,757 14,472 4,669 1,264 1,330 11,161 53,651 54,610
Average Interest Rate 2.87% 3.06% 3.82% 5.19% 5.19% 5.27% 3.26%
Floating Rate Debt 140,138 - - - - - 140,138 140,138
Average Interest Rate 1.77% - - - - - 1.77%
Total Financial Liabilities $1,105,507 $ 77,966 $ 17,939 $ 7,162 $ 6,849 $11,168 $1,226,591 $1,229,295
Average interest Rate 1.17% 3.06% 3.64% 4.27% 4.11% 5.27% 1.40%
Based upon expected cashflows, unless otherwise indicated.
Based upon a combination of expected maturities and repricing opportunities.
Based upon contractual maturity, except for callable and floating rate securities, which are based on expected
maturity and weighted average life, respectively.
Savings, NOW and money market accounts can be repriced at any time, therefore, all such balances are included as
floating rates deposits in Year 1. Other time deposit balances are classified according to maturity.
22
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
Within ninety (90) days prior to the date of this report, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on their evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures are effective. However, the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
Changes in Internal Controls
- ----------------------------
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has reviewed the Company's internal controls. There have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation.
PART II. OTHER INFORMATION
ITEMS 1-4.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
99.1 Certification required by the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification required by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K
Capital City Bank Group, Inc. filed no reports on Form 8-K during the first
quarter 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned Chief Financial Officer hereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
(Registrant)
/s/ J. Kimbrough Davis
- -----------------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: May 14, 2003
Certification required by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
I, William G. Smith, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital City Bank
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ William G. Smith, Jr.
- ---------------------------------------
William G. Smith, Jr.
President and Chief Executive Officer
Date: 14 May 2003
-----------
Certification required by the Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
I, J. Kimbrough Davis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital City Bank
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ J. Kimbrough Davis
- ------------------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: May 14, 2003
------------
??
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