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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended:
June 30, 2004
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Commission File Number 0-13358
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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) (Zip Code)
(850) 671-0300
--------------
(Registrant's telephone number, including area code)
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 requirement 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 Exchange Act). Yes [X] No [ ]
At July 31, 2004, 13,281,707 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
1
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q INDEX
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 13
3. Quantitative and Qualitative Disclosures
About Market Risk 25
4. Controls and Procedures 27
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 28
5. Other Information Not Applicable
6. Exhibits and Reports on Form 8-K 29
Signatures 29
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 Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
2004 2003 2004 2003
- -----------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $22,922 $22,126 $44,194 $44,290
Investment Securities:
U.S. Treasury 224 150 452 286
U.S. Govt. Agencies and Corporations 462 628 791 1,494
States and Political Subdivisions 482 610 1,023 1,240
Other Securities 59 151 136 329
Funds Sold 116 332 339 685
------- ------- ------- -------
Total Interest Income 24,265 23,997 46,935 48,324
INTEREST EXPENSE
Deposits 2,385 3,053 4,779 6,280
Short-Term Borrowings 249 340 536 669
Long-Term Debt 587 501 1,084 1,045
------- ------- ------- -------
Total Interest Expense 3,221 3,894 6,399 7,994
------- ------- ------- -------
Net Interest Income 21,044 20,103 40,536 40,330
Provision for Loan Losses 580 886 1,541 1,665
------- ------- ------- -------
Net Interest Income After Provision
for Loan Losses 20,464 19,217 38,995 38,665
------- ------- ------- -------
NONINTEREST INCOME
Service Charges on Deposit Accounts 4,427 4,074 8,371 8,041
Data Processing 703 611 1,336 1,169
Asset Management Fees 950 650 1,691 1,255
Gain on Sale of Investment Securities 19 12 19 23
Mortgage Banking Revenues 986 1,540 1,680 2,885
Other 3,946 3,541 7,815 7,001
------- ------- ------- -------
Total Noninterest Income 11,031 10,428 20,912 20,374
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and Associate Benefits 10,809 9,766 21,549 19,895
Occupancy, Net 1,749 1,510 3,366 2,879
Furniture and Equipment 1,977 1,874 4,040 3,669
Conversion/Merger Expense 4 - 46 -
Other 7,062 6,366 13,675 12,502
------- ------- ------- -------
Total Noninterest Expense 21,601 19,516 42,676 38,945
------- ------- ------- -------
Income Before Income Taxes 9,894 10,129 17,231 20,094
Income Taxes 3,451 3,689 5,941 7,293
------- ------- ------- -------
NET INCOME $ 6,443 $ 6,440 $11,290 $12,801
======= ======= ======= =======
Basic Net Income Per Share $ .48 $ .49 $ .85 $ .97
======= ======= ======= =======
Diluted Net Income Per Share $ .48 $ .49 $ .85 $ .97
======= ======= ======= =======
Cash Dividends Per Share $ .1800 $ .1700 $ .3600 $ .3060
======= ======= ======= =======
Basic Average Shares Outstanding 13,274,451 13,209,124 13,268,272 13,208,999
========== ========== ========== ==========
Diluted Average Shares Outstanding 13,277,202 13,254,886 13,271,090 13,254,761
========== ========== ========== ==========
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 JUNE 30, 2004 AND DECEMBER 31, 2003
(Unaudited)
(Dollars In Thousands, Except Share Data)
June 30, December 31,
2004 2003
- ------------------------------------------------------------------------------------
ASSETS
Cash and Due From Banks $ 97,154 $ 93,140
Funds Sold 107,399 125,452
---------- ----------
Total Cash and Cash Equivalents 204,553 218,592
Investment Securities, Available-for-Sale 183,732 181,734
Loans, Net of Unearned Interest 1,521,497 1,341,632
Allowance for Loan Losses (13,657) (12,429)
---------- ----------
Loans, Net 1,507,840 1,329,203
Premises and Equipment, Net 56,263 54,011
Intangibles 40,608 25,792
Other Assets 33,834 37,170
---------- ----------
Total Assets $2,026,830 $1,846,502
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 520,118 $ 455,550
Interest Bearing Deposits 1,092,618 1,018,655
---------- ----------
Total Deposits 1,612,736 1,474,205
Short-Term Borrowings 127,012 108,184
Long-Term Debt 58,427 46,475
Other Liabilities 18,934 14,829
---------- ----------
Total Liabilities 1,817,109 1,643,693
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; 13,274,585 shares outstanding
at June 30, 2004 and 13,236,462 outstanding at
December 31, 2003 133 132
Additional Paid-In Capital 17,922 16,157
Retained Earnings 191,645 185,134
Accumulated Other Comprehensive Income, Net of Tax 21 1,386
---------- ----------
Total Shareowners' Equity 209,721 202,809
---------- ----------
Total Liabilities and Shareowners' Equity $2,026,830 $1,846,502
========== ==========
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 SIX MONTH PERIODS ENDED JUNE 30
(Unaudited)
(Dollars in Thousands)
2004 2003
- ----------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 11,290 $ 12,801
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses 1,541 1,665
Depreciation 2,584 2,327
Net Securities Amortization 1,229 1,070
Amortization of Intangible Assets 1,729 1,621
Gains on Sale of Investment Securities (19) (23)
Non-Cash Compensation 1,625 334
Net Decrease in Other Assets 4,940 1,817
Net Increase (Decrease) in Other Liabilities 4,167 (1,369)
-------- --------
Net Cash Provided By Operating Activities 29,086 20,243
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Payments/Maturities/Sales of
Investment Securities Available-for-Sale 87,296 54,166
Purchase of Investment Securities Available-for-Sale (76,484) (46,555)
Net Increase in Loans (92,296) (49,520)
Net Cash Used In Acquisition (18,055) -
Purchase of Premises & Equipment (3,686) (6,563)
Sales of Premises & Equipment 861 1
-------- --------
Net Cash Used In Investing Activities (102,364) (48,471)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 36,097 64,377
Net Increase (Decrease) in Short-Term Borrowings 18,828 (32,372)
Borrowing of Long-Term Debt 9,737 6,891
Repayment of Long-Term Debt (785) (646)
Dividends Paid (4,779) (4,042)
Issuance of Common Stock 141 422
-------- --------
Net Cash Provided By Financing Activities 59,239 34,630
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (14,039) 6,402
Cash and Cash Equivalents at Beginning of Period 218,592 260,759
-------- --------
Cash and Cash Equivalents at End of Period $204,553 $267,161
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 4,815 $ 6,591
======== ========
Interest Paid on Debt $ 1,615 $ 1,692
======== ========
Transfer of Loans to ORE $ 846 $ 628
======== ========
Income Taxes Paid $ 2,148 $ 9,496
======== ========
Issuance of Common Stock as Non-Cash Compensation $ 1,625 $ 334
======== ========
Transfer of Current Portion of Long-Term Debt to
Short-Term Borrowings $ - $ 20,326
======== ========
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) MANAGEMENT'S OPINION AND 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 had 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 June
30, 2004 and December 31, 2003, the results of operations for the three and
six month periods ended June 30, 2004 and 2003, and cash flows for the six
month periods ended June 30, 2004 and 2003.
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 which 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 2003 Annual Report on Form 10-K.
Stock-based Compensation
- ------------------------
As of June 30, 2004, the Company had three stock-based compensation plans,
consisting of the Associate Stock Incentive Plan ("AIP"), the Associate Stock
Purchase Plan ("ASPP") and the Director Stock Purchase Plan ("DSPP").
Pursuant to the AIP, the Company executed an executive incentive stock option
arrangement effective January 1, 2004. As a result of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," the
Company adopted the fair value recognition provisions of SFAS No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," prospectively to all awards
granted, modified, or settled on or 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 associate compensation included in
the determination of net income for 2003 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 non-compensatory, and the
fact that awards granted prior to January 1, 2003 were accounted for under
APB 25. The cost related to all stock-based associate compensation included
in net income is accounted for under the fair value based method during 2004
as all awards have grant dates after January 1, 2003.
6
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
(Dollars in Thousands, Except Per Share Data) 2004 2003 2004 2003
- --------------------------------------------------------------------------------------------------
Net income, as reported $6,443 $6,440 $11,290 $12,801
Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects 98 80 180 221
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (98) (132) (180) (229)
------ ------ ------- -------
Pro forma net income $6,443 $6,388 $11,290 $12,793
------ ------ ------- -------
Earnings per share:
Basic-as reported $ .48 $ .49 $ .85 $ .97
------ ------ ------- -------
Basic-pro forma $ .48 $ .48 $ .85 $ .97
------ ------ ------- -------
Diluted-as reported $ .48 $ .49 $ .85 $ .97
------ ------ ------- -------
Diluted-pro forma $ .48 $ .48 $ .85 $ .97
------ ------ ------- -------
(2) ACQUISITIONS
On March 19, 2004, the Company's subsidiary, Capital City Bank, completed its
merger with Quincy State Bank , a subsidiary of Synovus Financial Corp.
Results of Quincy State Bank's operations have been included in the Company's
consolidated financial statements since March 20, 2004. Quincy State Bank
had $116.6 million in assets with one office in Quincy, Florida and one
office in Havana, Florida. The transaction was accounted for as a purchase
and resulted in approximately $15.4 million of intangible assets, including
approximately $13.0 million in goodwill and a core deposit intangible of $2.4
million. The core deposit intangible is being amortized over a 7-year
period.
The information below lists the consolidated assets and liabilities of Quincy
State Bank as of March 19, 2004, along with the consideration paid:
(Dollars in Thousands) Quincy State Bank
- ------------------------------------------------------------
Cash and Due From Banks $ 2,295
Funds Sold 6,949
--------
Total Cash and Cash Equivalents 9,244
Investment Securities, Available-for-Sale 16,150
Loans, Net of Unearned Interest 88,727
Intangible Asset 14,915
Other Assets 2,498
--------
Total Assets $131,534
Total Deposits $102,434
Long-Term Debt 3,000
--------
Total Liabilities $105,434
Consideration Paid to Quincy State Bank
Shareowners $ 26,100
========
The following unaudited pro forma financial information for the three and six
months ended June 30, 2004 and 2003 presents the consolidated operations of
the Company as if the Quincy State Bank acquisition had been made on January
1, 2003. The unaudited pro forma financial information is provided for
informational purposes only, should not be construed to be indicative of the
Company's consolidated results of operations had the
7
acquisition of Quincy State Bank been consummated on this earlier date, and
do not project the Company's results of operations for any future period:
(Dollars in Thousands, For 36 Months Ended June 30, For 6 Months Ended June 30,
Except Per Share Data) 2004 2003 2004 2003
- --------------------------------------------------------------------------------------
Interest Income $24,265 $25,752 $48,404 $51,877
Interest Expense 3,221 4,234 6,604 8,693
------- ------- ------- -------
Net Interest Income 21,044 21,518 41,800 43,184
Provision for Loan Losses 580 931 1,571 1,755
------- ------- ------- -------
Net Interest Income After
Provision for Loan Losses 20,464 20,587 40,229 41,429
Noninterest Income 11,031 10,883 21,252 21,183
Noninterest Expense 21,601 20,542 43,498 41,002
------- ------- ------- -------
Income Before Income Taxes 9,894 10,928 17,983 21,609
Income Taxes 3,451 4,134 6,204 8,052
------- ------- ------- -------
Net Income $ 6,443 $ 6,794 $11,779 $13,558
======= ======= ======= =======
Basic Net Income Per Share $ .48 $ .51 $ .89 $ 1.03
======= ======= ======= =======
Diluted Net Income Per Share $ .48 $ .51 $ .89 $ 1.02
======= ======= ======= =======
On March 19, 2004, the Company completed its purchase of fiduciary assets
from Synovus Trust Company for $2.0 million. This purchase is subject to a
$800,000 earn-out agreement and, as a result, a $1.2 million intangible was
recorded with the balance, to the extent earned, to be recorded in the fourth
quarter of 2004. This intangible is being amortized over a 10-year period.
During the fourth quarter of 2004, the Company plans to complete its
acquisition of the Farmers and Merchants Bank in Dublin, Georgia, a $411
million asset institution with three offices in Laurens County. The purchase
price is $66.6 million, payable in a combination of cash and stock. Farmers
and Merchants Bank shareowners will receive $666.50 in cash and an equivalent
value in CCBG common stock for each of the 50,000 shares issued and
outstanding.
(3) INVESTMENT SECURITIES
The carrying value and related market value of investment securities at June
30, 2004 and December 31, 2003 were as follows (dollars in thousands):
June 30, 2004
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------------------------------------------------------------------------
U.S. Treasury $ 46,386 $ 15 $ 255 $ 46,146
U.S. Govt. Agencies and Corporations 65,502 36 571 64,967
States and Political Subdivisions 52,301 809 115 52,995
Mortgage-Backed Securities 13,765 236 94 13,907
Other Securities 5,717 - - 5,717
-------- ------ ------ --------
Total $183,671 $1,096 $1,035 $183,732
======== ====== ====== ========
December 31, 2003
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------------------------------------------------------------------------
U.S. Treasury $ 78,498 $ 105 $ 1 $ 78,602
U.S. Govt. Agencies and Corporations 26,862 133 - 26,995
States and Political Subdivisions 55,641 1,511 - 57,152
Mortgage-Backed Securities 11,618 427 - 12,045
Other Securities 6,927 13 $ - 6,940
-------- ------ ------ --------
Total $179,546 $2,189 $ 1 $181,734
======== ====== ====== ========
8
(4) LOANS
The composition of the Company's loan portfolio at June 30, 2004 and December
31, 2003 was as follows (dollars in thousands):
June 30, 2004 December 31, 2003
------------- -----------------
Commercial, Financial and Agricultural $ 187,530 $ 160,048
Real Estate-Construction 108,422 89,149
Real Estate-Commercial Mortgage 466,437 391,250
Real Estate-Residential 345,305 327,212
Real Estate-Home Equity 133,729 116,810
Real Estate-Loans Held-for-Sale 3,612 4,240
Consumer 243,890 233,395
Other Loans 32,572 19,528
---------- ----------
Loans, Net of Unearned Interest $1,521,497 $1,341,632
========== ==========
Consists primarily of loans-in-process.
(5) ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the six month
periods ended June 30, 2004 and 2003, is as follows (dollars in thousands):
June 30,
----------------------
2004 2003
-------- --------
Balance, Beginning of Period $12,429 $12,495
Provision for Loan Losses 1,541 1,665
Recoveries on Loans Previously Charged-Off 892 447
Loans Charged-Off (2,518) (2,173)
Acquired Reserves 1,313 -
------- -------
Balance, End of Period $13,657 $12,434
======= =======
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):
June 30,
-------------------------------------------
2004 2003
-------------------- --------------------
Valuation Valuation
Impaired Loans: Balance Allowance Balance Allowance
-------------------- --------------------
With Related Credit Allowance $ 989 $481 $ 878 $453
Without Related Credit Allowance 1,912 - 1,668 -
Average Recorded Investment for the Period 3,380 * 3,088 *
* 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 six month period ended June 30, 2004
and 2003, the Company recognized $18,000 and $5,000, respectively, in
interest income on impaired loans, all of which was collected in cash.
9
(6) DEPOSITS
The composition of the Company's interest bearing deposits at June 30, 2004
and December 31, 2003 was as follows (dollars in thousands):
June 30, 2004 December 31, 2003
------------- -----------------
NOW Accounts $ 320,460 $ 276,934
Money Market Accounts 214,815 207,934
Savings Deposits 130,822 110,834
Other Time Deposits 426,521 422,953
---------- ----------
Total Interest Bearing Deposits $1,092,618 $1,018,655
========== ==========
(7) INTANGIBLE ASSETS
The Company had intangible assets of $40.6 million and $25.8 million at June
30, 2004 and December 31, 2003, respectively. Intangible assets were as
follows (dollars in thousands):
June 30, 2004 December 31, 2003
----------------------- -----------------------
Gross Accumulated Gross Accumulated
Amount Amortization Amount Amortization
------- ------------ ------- ------------
Core Deposit Intangibles $36,149 $16,363 $33,752 $14,640
Goodwill 23,442 3,786 10,466 3,786
Other 1,200 34 - -
------- ------- ------- -------
Total Intangible Assets $60,791 $20,183 $44,218 $18,426
======= ======= ======= =======
Net Core Deposit Intangibles: As of June 30, 2004 and December 31, 2003, the
Company had net core deposit intangibles of $19.8 million and $19.1 million,
respectively. Amortization expense for the first half of 2004 and 2003 was
$1.7 million and $1.6 million, respectively.
Goodwill: As of June 30, 2004 and December 31, 2003, the Company had
goodwill, net of accumulated amortization, of $19.7 million and $6.7
million, respectively. The increase in goodwill is due to the acquisition
of Quincy State Bank in March 2004. Goodwill is the Company's only
intangible asset that is no longer subject to amortization under the
provisions of SFAS 142.
Other: As of June 30, 2004, the Company had a customer relationship
intangible, net of accumulated amortization, of $1.2 million. This
intangible was booked as a result of the March 2004 acquisition of trust
customer relationships from Synovus Trust Company. Amortization expense for
the first half of 2004 was $34,000. Estimated annual amortization expense is
$120,000 based on use of a 10 year useful life.
(8) EMPLOYEE BENEFIT PLANS
The components of the net periodic benefit costs for the Company's qualified
benefit pension plan were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
(Dollars in Thousands) 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------
Discount rate 6.25% 6.75% 6.25% 6.75%
Long-term rate of return on assets 8.00% 8.25% 8.00% 8.25%
Service cost $ 950 $ 826 $1,900 $1,651
Interest cost 725 642 1,450 1,285
Expected return on plan assets (675) (542) (1,350) (1,084)
Transition obligation/(asset) amortization - 1 - 1
Prior service cost amortization 50 54 100 108
Net loss/(gain) amortization 300 282 600 564
------ ------ ------ ------
Net periodic benefit cost $1,350 $1,263 $2,700 $2,525
====== ====== ====== ======
10
The components of the net periodic benefit costs for the Company's Supplemental
Executive Retirement Plan ("SERP") were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
(Dollars in Thousands) 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------
Discount rate 6.25% 6.75% 6.25% 6.75%
Long-term rate of return on assets N/A N/A N/A N/A
Service cost $ 48 $20 $ 96 $ 40
Interest cost 65 28 129 56
Expected return on plan assets N/A N/A N/A N/A
Transition obligation/(asset) amortization - - - -
Prior service cost amortization 30 15 61 30
Net loss/(gain) amortization (18) (11) (36) (22)
---- --- ---- ----
Net periodic benefit cost $125 $52 $250 $104
==== === ==== ====
(9) 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
(loss) consists of net income (loss) 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 (loss) and totaled $(1.4 million) for both the three and
six months ended June 30, 2004, and $(92,000) and $(577,000), respectively,
for the three and six months ended June 30, 2003. Reclassification
adjustments consist only of realized gains on sales of investment securities
and were not material for the six months ended June 30, 2004 and 2003.
(10) SUBSEQUENT EVENT
On July 30, 2004, Capital City Bank Group, Inc.'s wholly-owned banking
subsidiary, Capital City Bank, entered into an agreement with Elan Financial
Services, a subsidiary of Minneapolis-based U.S. Bancorp. The agreement
provides for Capital City Bank to sell its portfolio of credit card
receivables to Elan and for Elan to provide additional credit card services
to Capital City Bank. As part of the arrangement, Capital City Bank will
continue to issue and support credit card products and services, and Elan
will enable Capital City to offer a bankcard with enhanced features. The
transaction closed August 5, 2004, and is expected to generate an after-tax
gain of approximately $4.2 million for Capital City. The credit card
portfolio sold to Elan has approximately 22,000 accounts and $22.7 million in
receivables.
11
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2004 2003 2002
---------------------- ---------------------------------------------- ----------------------
Second First Fourth Third Second First Fourth Third
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 24,265 $ 22,670 $ 23,022 $ 23,484 $ 23,997 $ 24,327 $ 25,272 $ 25,555
Interest Expense 3,221 3,178 3,339 3,506 3,894 4,099 4,667 4,946
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 21,044 19,492 19,683 19,978 20,103 20,227 20,605 20,609
Provision for
Loan Losses 580 961 850 921 886 779 863 992
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Losses 20,464 18,531 18,833 19,057 19,217 19,448 19,742 19,617
Noninterest Income 11,031 9,881 10,614 10,952 10,428 9,945 10,898 8,810
Conversion/
Merger Expense 4 42 - - - - 59 -
Noninterest Expense 21,597 21,033 20,593 20,184 19,516 19,428 20,191 19,400
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 9,894 7,337 8,854 9,825 10,129 9,965 10,390 9,027
Provision for
Income Taxes 3,451 2,490 2,758 3,529 3,689 3,604 3,668 3,226
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 6,443 $ 4,847 $ 6,096 $ 6,296 $ 6,440 $ 6,361 $ 6,722 $ 5,801
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 21,333 $ 19,811 $ 20,020 $ 20,332 $ 20,456 $ 20,597 $ 21,006 $ 21,026
Per Common Share:
Net Income Basic $ .48 $ .37 $ .47 $ .47 $ .49 $ .48 $ .51 $ .44
Net Income Diluted .48 .37 .46 .47 .49 .48 .51 .44
Dividends Declared .180 .180 .180 .170 .170 .136 .136 .122
Diluted Book Value 15.80 15.54 15.27 15.00 14.73 14.42 14.08 13.75
Market Price:
High 43.15 45.55 46.83 40.93 36.43 32.32 32.04 29.55
Low 35.50 39.05 36.62 35.00 29.74 26.81 22.26 22.32
Close 39.59 41.25 45.99 38.16 36.08 31.29 31.35 26.45
Selected Average
Balances:
Loans $1,491,142 $1,357,206 $1,329,673 $1,336,139 $1,316,705 $1,289,161 $1,292,892 $1,266,591
Earning Assets 1,721,655 1,634,468 1,636,269 1,634,689 1,612,133 1,615,287 1,591,535 1,511,485
Assets 1,929,485 1,830,496 1,819,552 1,816,005 1,786,991 1,796,657 1,762,174 1,678,620
Deposits 1,538,630 1,457,160 1,451,095 1,451,879 1,415,798 1,407,763 1,404,818 1,388,396
Shareowners' Equity 210,211 206,395 201,939 199,060 194,781 190,416 185,412 180,910
Common Equivalent
Average Shares:
Basic 13,274 13,262 13,223 13,221 13,209 13,207 13,189 13,189
Diluted 13,277 13,286 13,265 13,260 13,255 13,253 13,238 13,238
Ratios:
ROA 1.34% 1.06% 1.33% 1.38% 1.45% 1.44% 1.51% 1.37%
ROE 12.33% 9.45% 11.98% 12.55% 13.26% 13.55% 14.38% 12.72%
Net Interest
Margin (FTE) 4.99% 4.88% 4.85% 4.94% 5.09% 5.17% 5.24% 5.52%
Efficiency Ratio 63.87% 68.06% 64.58% 61.93% 60.57% 60.96% 60.75% 62.31%
12
ITEM 2. 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 the
Company's 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 "Results of Operations,"
"Financial Condition," "Liquidity and Capital Resources," "Legal
Developments," 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 2004 compares with prior years. Throughout this
section, Capital City Bank Group, Inc., and its subsidiary, collectively, are
referred to as "CCBG" or the "Company." Capital City Bank and its
subsidiaries are 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;
* Worldwide political and social unrest, including acts of war and
terrorism;
* 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;
13
* 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 June 30, 2004
had 57 banking offices, five residential lending offices, 73 ATMs and 11 Bank
'N Shop locations in Florida, Georgia and Alabama.
On May 13, 2004, the Company announced the signing of a definitive agreement
to acquire Farmers and Merchants Bank in Dublin, Georgia, a $411 million
asset institution with three offices in Laurens County. The purchase price
is $66.6 million, payable in a combination of cash and stock. The
acquisition, which is subject to regulatory approval and the approval of
Farmers and Merchants Bank's shareowners, is scheduled to close in the fourth
quarter of 2004.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings for the three and six months ended June 30, 2004 were $6.4 million,
or $0.48 per diluted share, and $11.3 million, or $0.85 per diluted share,
respectively. This compares to $6.4 million, or $0.49 per diluted share, and
$12.8 million, or $0.97 per diluted share in 2003.
Growth in operating revenues (defined as net interest income plus noninterest
income) of 5.1% and 1.2% over the comparable three and six month periods in
2003, respectively, was offset by higher expense levels, reflecting the
addition of three new offices in the second half of 2003 and the acquisition
of Quincy State Bank in the first quarter of 2004. Growth in operating
revenues was driven by higher net interest income and noninterest income.
Net interest income increased 4.7% and .51%, respectively, on a dollar basis,
for the three and six month periods due primarily to lower interest expense.
Growth in noninterest income resulted from higher deposit and asset
management fees, and other income. A condensed earnings summary is presented
below.
14
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
(Dollars in Thousands) 2004 2003 2004 2003
- -------------------------------------------------------------------------------
Interest and Dividend Income $24,265 $23,997 $46,936 $48,323
Taxable-Equivalent Adjustment 289 353 607 723
------- ------- ------- -------
Interest Income (FTE) 24,554 24,350 47,543 49,046
Interest Expense 3,221 3,894 6,400 7,994
------- ------- ------- -------
Net Interest Income (FTE) 21,333 20,456 41,143 41,052
Provision for Loan Losses 580 886 1,541 1,665
Taxable Equivalent Adjustment 289 353 607 723
------- ------- ------- -------
Net Int. Inc. After Provision 20,464 19,217 38,995 38,664
Noninterest Income 11,031 10,428 20,912 20,373
Merger/Conversion Expense 4 - 46 -
Noninterest Expense 21,597 19,516 42,630 38,943
------- ------- ------- -------
Income Before Income Taxes 9,894 10,129 17,231 20,094
Income Taxes 3,451 3,689 5,941 7,293
------- ------- ------- -------
Net Income $ 6,443 $ 6,440 $11,290 $12,801
======= ======= ======= =======
Percent Change .05% 18.21% (11.80)% 21.23%
Return on Average Assets 1.34% 1.45% 1.21% 1.44%
Return on Average Equity 12.33% 13.26% 10.90% 13.40%
Computed using a statutory tax rate of 35%
From Prior Comparable Period
Annualized
Net Interest Income
- -------------------
Net interest income represents the Company's 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. Second
quarter of 2004 taxable-equivalent net interest income increased $877,000, or
4.3%, over the comparable quarter in 2003. During the first half of 2004,
taxable-equivalent net interest income increased $91,000, or 0.2%, over the
first half of 2003. The favorable impact of lower funding costs, an improved
earning asset mix and the recent bank acquisition was partially offset by
declining asset yields attributable to the low interest rate environment.
Table I on page 24 provides a comparative analysis of the Company's average
balances and interest rates.
For the three months period ended June 30, 2004, taxable-equivalent interest
income increased $204,000 or 0.8%, over the comparable period in 2003. During
the first half of 2004, taxable-equivalent interest income decreased $1.5
million, or 3.1%, respectively, over the comparable period in 2003. During
the second quarter of 2004, growth in earning assets resulting from strong
loan demand and the recent acquisition of Quincy State Bank offset the lower
yields attributable to the low rate environment. New loan production and
repricing of existing earning assets produced a 63 basis point reduction in
the yield on earning assets, which declined from 6.06% for the second quarter
in 2003 to 5.74% for the same period in 2004. The Federal Reserve increased
interest rates slightly during the second quarter of 2004 which will start to
have a minimal impact on new production and repricing. Repricing of existing
assets and new production (at current rate levels) will continue to put
pressure on earning asset yields.
Interest expense for the three and six month periods ended June 30, 2004
declined $673,000, or 17.3% and $1.6 million, or 19.9%, respectively, from
the comparable prior year periods. The favorable variances were primarily
attributable to lower rates and were further enhanced by a favorable shift in
mix (i.e. increase in noninterest bearing deposits). The average rate paid on
interest bearing liabilities in 2004 declined 29 basis points over first half
of 2003, to a level of 1.07%.
15
The Company's interest rate spread (defined as the average federal taxable-
equivalent yield on earning assets less the average rate paid on interest
bearing liabilities) decreased from 4.77% in the first half of 2003 to 4.63%
in the comparable period of 2004.
The Company's net interest margin percentage (defined as taxable-equivalent
net interest income divided by average earning assets) was 4.93% in the first
half of 2004, versus 5.13% in the first half of 2003. The reduction in both
the spread and margin reflects the lower yields. The margin percentage may
continue to decline slightly over the next quarter as historically low
interest rates continue to prevail.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $580,000 and $1.5 million, respectively,
for the three and six month periods ended June 30, 2004, compared to $886,000
and $1.7 million for the same periods in 2003. The provision decrease in the
first half of 2004 reflects a lower level of net charge-offs between
comparable periods.
Net charge-offs totaled $649,000, or .18% of average loans for the quarter
compared to $889,000, or .27% for the second quarter of 2003. The primary
reason for the decrease in net charge-offs is due to the higher level of
recoveries in the second quarter of 2004.
Charge-off activity for the respective periods is set forth below:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
-------- ------- ------ -------
CHARGE-OFFS
Commercial, Financial and Agricultural $ 286 $ 177 $ 453 $ 319
Real Estate - Construction - - - -
Real Estate - Commercial Mortgage - - 39 -
Real Estate - Residential 11 20 94 40
Consumer 885 928 1,932 1,814
------ ------ ------ ------
Total Charge-offs 1,182 1,125 2,518 2,173
------ ------ ------ ------
RECOVERIES
Commercial, Financial and Agricultural 24 42 36 56
Real Estate - Construction - - - -
Real Estate - Commercial Mortgage - - - -
Real Estate - Residential 176 - 176 1
Consumer 333 194 680 390
------ ------ ------ ------
Total Recoveries 533 236 892 447
------ ------ ------ ------
Net Charge-offs $ 649 $ 889 $1,626 $1,726
====== ====== ====== ======
Net Charge-offs (Annualized) as a
Percent of Average Loans Outstanding,
Net of Unearned Interest .18% .27% .23% .27%
------ ------ ------ ------
Noninterest Income
- ------------------
Noninterest income increased $603,000, or 5.8%, and $539,000, or 2.6%,
respectively, over the comparable three and six month periods in 2003,
reflecting higher deposit and asset management fees, and other income. These
increases were partially offset by a reduction in mortgage banking revenues.
Noninterest income represented 34.4% and 34.0% of operating revenue for the
three and six-month periods of 2004 compared to 34.2% and 33.6% for the same
periods in 2003.
Service charges on deposit accounts increased $353,000, or 8.7%, and
$330,000, or 4.1%, respectively, over the comparable three and six month
periods for 2003. 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 increase is
16
attributable to higher NSF/overdraft fees, partially attributable to a recent
change in fee structure and lower NSF/overdraft charge-offs.
Data processing revenues of $703,000 and $1.4 million for the three and six
month periods ended June 30, 2004 reflect an increase of 15.2% and 14.3% over
the comparable periods in 2003. The increase in both periods was primarily a
result of higher processing revenues from existing financial clients. The
Company currently provides data processing services for six financial clients
and contract processing services for four non-financial clients. During the
first half of 2004 and 2003, financial clients represented approximately
66.1% and 61.2% of total processing revenues, respectively. Management
believes that revenues for the remainder of 2004 will remain consistent with
revenues generated in the first half of the year.
Income from asset management activities increased $300,000, or 46.2%, and
$436,000, or 34.7%, respectively, over the comparable three and six month
periods in 2003. This increase is due primarily to the acquisition of $208
million in managed trust accounts from Synovus Trust Company late in the
first quarter, 2004. At June 30, 2004, assets under management totaled
$632.4 million, representing an increase of $264.2 million, or 71.8% from the
comparable period in 2003.
Mortgage banking revenues declined $554,000, or 36.0%, and $1.2 million, or
41.7%, respectively, over the comparable three and six month periods in 2003.
This decline reflects a slow-down in residential lending markets, which
occurred during the latter part of the fourth quarter of 2003 and continued
through the first half of 2004. This declining trend stabilized in the
second quarter consistent with management expectations as production improved
42% over the first quarter.
Other income increased $405,000, or 11.4%, and $814,000, or 11.6%,
respectively, over the comparable three and six month periods in 2003. For
the first half of the year, the Company experienced increases in retail
brokerage fees of $247,000, merchant card processing fees of $361,000,
interchange fees of $56,000, and gain on sale of other real estate of
$218,000.
Noninterest income as a percent of average assets was 2.24% and 2.29%,
respectively, for the first half of 2004 and 2003. The reduction in 2004 is
primarily attributable to the decline in mortgage banking revenues.
Noninterest Expense
- -------------------
Noninterest expense increased $2.1 million, or 10.7%, and $3.7 million, or
9.6%, respectively, over the comparable three and six month periods in 2003.
Factors impacting the Company's noninterest expense during the first six
months of 2004 are discussed below.
Compensation expense increased $1.0 million, or 10.7%, and $1.7 million, or
8.3% over the comparable three and six month periods in 2003. For the first
half of the year, the Company experienced increases in associate salaries of
$1.2 million, payroll tax expense of $106,000, pension plan expense of
$243,000, and associate insurance expense of $212,000. The increases in
associate salaries and payroll tax is primarily attributable to the late
first quarter integration of Quincy State Bank. The higher pension costs is
due primarily to a lower discount rate and rate of return on plan assets used
for the 2004 expense projection. The increase in associate insurance expense
is primarily attributable to additional participants and higher healthcare
insurance premiums.
Occupancy expense, including premises, furniture, fixtures and equipment
increased $342,000, or 10.1%, and $858,000, or 13.1%, respectively, over the
comparable three and six month periods in 2003. For the first half of the
year, the Company experienced increases in depreciation of $258,000,
maintenance and repairs of $167,000, premises rental of $111,000, utilities
of $63,000, and other FF&E expense of $238,000 from the comparable period in
2003. The increase in depreciation is primarily attributable to the addition
of three new banking offices in the second half of 2003. Higher maintenance
and
17
repairs expense was driven by upgrades and repairs to existing banking
offices and incremental expense incurred with the addition of three new
banking offices in the second half of 2003. The increase in premises rental
expenses is due primarily to a rent
increase for one banking office. Other FF&E expense increased due to higher
expenses for software licenses and maintenance agreements.
Other noninterest expense increased $701,000, or 11.0%, and $1.2 million, or
9.8%, respectively, over the comparable three and six month periods in 2003.
For the first half of the year, the increase was primarily attributable to:
1) higher professional fees of $449,000; 2) higher advertising expense of
$541,000; and 3) higher interchange service fees of $183,000. Consulting
projects, which may vary as to their magnitude and timing, led to higher
professional fees. Advertising expense increased consistent with several
initiatives implemented in the second quarter and will fluctuate consistent
with advertising strategies planned throughout the year. The increase in
interchange service fees is attributable to higher merchant card processing
volume and is offset by increased merchant card processing fees reflected in
other income.
Net noninterest expense (noninterest income minus noninterest expense,
excluding intangible amortization and one-time merger expenses) as a percent
of average assets was 2.14% in the first half of 2004 compared to 1.91% in
2003. The Company's efficiency ratio (noninterest expense, excluding
intangible amortization and one-time merger expense, expressed as a percent
of the sum of taxable-equivalent net interest income plus noninterest income)
was 65.87% for the first half of 2004 compared to 60.76% for the comparable
period in 2003. The increase is primarily attributable to higher noninterest
expense.
Income Taxes
- ------------
The provision for income taxes decreased $238,000, or 6.5%, during the second
quarter and $1.4 million, or 18.5%, during the first six months of 2004,
relative to the comparable prior year periods, reflecting lower taxable
income and a decline in the effective tax rate. The Company's effective tax
rate for the first half of 2004 was 34.5% versus 36.3% for the comparable
period in 2003. The decline in the effective tax rate is primarily
attributable to a modification of the Company's tax structure enabling the
Company to more effectively manage its tax position.
FINANCIAL CONDITION
Asset and liability balances include those of Quincy State Bank, which was
acquired on March 19, 2004.
The Company's average assets increased $142.5 million, or 8.0%, to $1.93
billion for the quarter-ended June 30, 2004 from $1.79 billion in the
comparable quarter of 2003. Average earning assets of $1.7 billion increased
$109.5 million, or 6.8%, from the comparable quarter of 2003 driven by a
$174.4 million, or 13.3%, increase in average loans. Offsetting the increase
in average loans was a decrease in short-term investments of $68.7 million,
or 60.1%. Table I on page 24 presents average balances for the three and six
month periods ended June 30, 2004 and 2003.
The Company ended the second quarter of 2004 with approximately $24.8 million
in average net overnight funds. This represents a decline of $74.5 million,
or 75.0% from the 2003 level of $99.3 million. For a further discussion on
liquidity see the section "Liquidity and Capital Resources."
The investment portfolio functions as a key element of liquidity and
asset/liability management. For the quarter ended June 30, 2004, the average
investment portfolio increased $3.8 million, or 2.1%, from the second quarter
of 2003. U.S. Treasury and U.S. Agency security balances increased by $32.3
million from the second quarter of 2003 offset by a decrease in mortgage-
backed, municipal, and other security balances of $28.5 million. Management
will continue to evaluate the need to purchase securities for the investment
portfolio throughout 2004, taking into consideration liquidity needed to fund
planned loan growth and pledging requirements.
18
Securities 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 June 30, 2004, shareowners' equity
included a net unrealized gain of $21,000 compared to a gain of $1.4 million
at December 31, 2003. The decrease in value reflects the slight increase in
interest rates realized during the first half of 2004.
The increase in average loans was driven by strong loan production for the
first half of the year and $90 million in loans acquired in the Quincy State
Bank merger. Strong gains were realized in the commercial, real estate
(construction, commercial mortgage, and home equity), and indirect consumer
loan categories of $35.9 million, or 23.9%, $113.4 million, or 12.4%, and
$22.5 million, or 11.6%, respectively.
The Company's nonperforming loans were $3.0 million at June 30, 2004, versus
$2.3 million at year-end and $3.8 million for the same period in 2003. As a
percent of nonperforming loans, the allowance for loan losses represented
453% at June 30, 2004 versus 530% at December 31, 2003 and 331% at June 30,
2003. 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 $1.1 million at June 30,
2004, versus $5.0 million at December 31, 2003 and $1.3 million at June 30,
2003. The ratio of nonperforming assets as a percent of loans plus other
real estate was .27% at June 30, 2004 compared to .54% at December 31, 2003
and .38% at June 30, 2003. The Company expects strong credit quality to
continue into the third quarter.
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 June 30, 2004 was $13.7 million, an increase
of $1.2 million over year-end 2003. The increase reflects the integration of
acquired loan reserves from Quincy State Bank during the first quarter. At
quarter-end 2004, the allowance represented 0.90% of total loans. While
there can be no assurance that the Company 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 June 30, 2004 is adequate to absorb losses inherent in the loan portfolio
at quarter-end.
Average total deposits increased $122.8 million, or 8.7%, to $1.54 billion for
the quarter-ended June 30, 2004 from $1.42 billion in the comparable quarter of
2003. The increase was driven by a $72.5 million increase in nonmaturity
deposits, $26.6 million increase in NOW accounts, and $20.3 million increase in
savings accounts. These increases are primarily reflective of the deposit
accounts acquired from Quincy State Bank late in the first quarter.
The ratio of average noninterest bearing deposits to total deposits was 31.0%
for the second quarter of 2004 compared to 28.5% for the second quarter of
2003. For the same periods, the ratio of average interest bearing
liabilities to average earning assets was 71.2% compared to 72.5%.
19
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
- ---------
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 June 30, 2004, the Company had no borrowings under the
revolving line of credit.
During the first half of 2004, the Company increased borrowings by $12.7
million due primarily to the assumption of $3.0 million in FHLB advances from
the Quincy State Bank acquisition, and two advances totaling $9.7 million
from the FHLB to match fund loan growth. For the first half of the year, the
Bank made scheduled FHLB advance payments totaling $920,000 and in March of
2004 repaid a $20 million advance from the FHLB with a rate of 2.22%. This
advance originated during the third quarter of 2002, when $75 million was
borrowed from the FHLB to fund growth in loan demand and mitigate the adverse
liquidity effect caused by a decline in certificates of deposit.
Capital
- -------
The Company's equity capital was $209.7 million as of June 30, 2004 compared
to $202.8 million as of December 31, 2003. 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 8.34% at June
30, 2004 compared to 9.51% at December 31, 2003. Further, the Company's
risk-adjusted capital ratio of 10.98% at June 30, 2004 exceeds the 8.0%
minimum requirement under 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 half of 2004 totaled
$.360 per share compared to $.306 per share for the first half of 2003, an
increase of 17.7%. The dividend payout ratios for the second quarter of 2004
and 2003 were 41.4% and 34.8%, 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 June 30, 2004, these regulations and covenants did
not impair the Company's (or the Bank's) ability to declare and pay
dividends or to meet other existing obligations in the normal course of
business.
During the first six months of 2004, shareowners' equity increased $6.9
million, or 6.8%, on an annualized basis. Growth in equity during the first
half of the year was positively impacted by net income of $11.3 million and
the issuance of common stock of $1.8 million. Equity was reduced by
dividends paid during the first half by $4.8 million, or $.3600 per share and
a decrease in the net unrealized gain on available-for-sale securities of
$1.4 million. At June 30, 2004, the Company's common stock had a book value
of $15.80 per diluted share compared to $15.27 at December 31, 2003.
On March 30, 2000, the Company's Board of Directors authorized the repurchase
of up to 625,000 shares of its outstanding common stock. On January 24,
2002, the Company's Board of Directors authorized the repurchase of an
additional 312,500 shares of its outstanding common stock. The purchases
will be made in the open market or in privately negotiated
20
transactions. The Company did not purchase any shares in the first half of
2004. From March 30, 2000 through June 30, 2004, the Company repurchased
572,707 shares at an average purchase price of $19.18 per share.
Other Commitments and Contingencies
- -----------------------------------
Financial Instruments with Off-Balance-Sheet Risk. The Company does not
currently engage in the use of derivative instruments to hedge interest rate
risks. However, 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 customers.
At June 30, 2004, the Company had $368.8 million in commitments to extend
credit and $15.2 million in standby letters of credit. Commitments to extend
credit are agreements to lend to a customer 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 customer to a third
party. The Company uses the same credit policies in establishing commitments
and issuing letters of credit as it does 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 its 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
Federal Home Loan Bank, investment security maturities and the Company's
credit facility provide a sufficient source of funds to meet these
commitments.
Contractual Cash Obligations. The Company maintains certain debt and
operating lease commitments that require cash payments. The table below
details those future cash commitments as of June 30, 2004:
Payments Due After June 30, 2004
-------------------------------------------------------------
2004
(remaining
(Dollars in Thousands) 6 months) 2005 2006 2007 2008 Thereafter Total
- ------------------------------------------------------------------------------------
Short-Term Debt $20,048 $ - $ - $ - $ - $ - $20,048
Long-Term Debt 1,001 18,139 2,342 5,387 4,369 27,189 58,427
Operating Leases 618 1,092 1,092 1,092 1,055 2,122 7,071
------- ------- ------ ------ ------ ------- -------
Total Contractual
Cash Obligations $21,667 $19,231 $3,434 $6,479 $5,424 $29,311 $85,547
======= ======= ====== ====== ====== ======= =======
LEGAL DEVELOPMENTS
Prior to 2002, the Bank maintained relationships with a small number of
Independent Service Organizations ("ISO"s) in connection with its card
processing operations. Certain merchant clients of one ISO have alleged they
are entitled to receive financial reserves placed with the ISO. The Bank is
currently named as a co-defendant in one lawsuit brought against the ISO by a
merchant. Management does not believe that the ultimate resolution of this
lawsuit 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.
21
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 the Company
to make various estimates and assumptions (see Note 1 in the Notes to
Consolidated Financial Statements). 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 2003 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. The Company has determined that no impairment
existed at December 31, 2003. 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 7-10 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.
Pension Assumptions: The Company has a defined benefit pension plan for the
benefit of substantially all associates of the Company and its subsidiary.
The Company's 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 Balance Sheets reflect a
prepaid 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 anticipated
Retirement Plan cash flows for a 30-year period to long-term corporate Aa-
rated bonds 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 for 2004 is 6.25%.
22
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 2004 is 8.0%.
The assumed rate of annual compensation increases of 5.5% in 2004 is based on
expected trends in salaries and the associate base. This assumption is not
expected to change materially in 2004.
Detailed information on components of the Company's net benefit cost is
provided in Note 8 of the Notes to Consolidated Financial Statements in the
Company's 2003 Form 10-K.
New Accounting Pronouncements
- -----------------------------
In March 2004, the Financial Accounting Standards Board ratified the
consensus reached by the Emerging Issues Task Force in Issue 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" (EITF 03-1). EITF 03-1 provides guidance for determining when an
investment is considered impaired, whether impairment is other-than-
temporary, and measurement of an impairment loss. An investment is considered
impaired if the fair value of the investment is less than its cost.
Generally, an impairment is considered other-than-temporary unless: (a) the
investor has the ability and intent to hold an investment for a reasonable
period of time sufficient for a forecasted recovery of fair value up to (or
beyond) the cost of the investment; and (b) evidence indicating that the cost
of the investment is recoverable within a reasonable period of time outweighs
evidence to the contrary. If impairment is determined to be other-than-
temporary, then an impairment loss should be recognized equal to the
difference between the investment's cost and its fair value. EITF 03-1 is
effective for the Company in the third quarter of 2004. Gross unrealized
losses on available for sale securities was $1.0 million at June 30, 2004.
The Company is continuing to evaluate the impact of EITF 03-1. The amount of
other than temporary impairment to be recognized, if any, will be dependent
on market conditions and management's intent and ability at the time of the
evaluation to hold underwater investments until a forecasted recovery in the
fair value up to and beyond the adjusted cost.
23
TABLE I
AVERAGE BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED JUNE 30,
2004 2003
-------------------------- --------------------------
Balance Interest Rate Balance Interest Rate
---------- ------- ---- ---------- ------- ----
ASSETS
Loans, Net of Unearned Interest $1,491,142 $22,961 6.19% $1,316,705 $22,166 6.75%
Taxable Investment Securities 134,634 745 2.21% 118,494 929 3.13%
Tax-Exempt Investment Securities 50,191 732 5.83% 62,552 923 5.90%
Funds Sold 45,688 116 1.01% 114,382 332 1.15%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 1,721,655 24,554 5.74% 1,612,133 24,350 6.06%
Cash & Due From Banks 89,921 74,537
Allowance for Loan Losses (13,804) (12,531)
Other Assets 131,713 112,852
---------- ----------
TOTAL ASSETS $1,929,485 $1,786,991
========== ==========
LIABILITIES
NOW Accounts $ 283,297 $ 121 0.17% $ 256,675 $ 193 0.30%
Money Market Accounts 215,746 239 0.44% 211,314 392 0.74%
Savings Accounts 129,684 32 0.10% 109,424 68 0.25%
Other Time Deposits 433,514 1,993 1.85% 434,515 2,400 2.22%
---------- ------- ---- ---------- ------- ----
Total Int. Bearing Deposits 1,062,241 2,385 0.90% 1,011,928 3,053 1.21%
Short-Term Borrowings 109,723 249 0.91% 102,510 340 1.33%
Long-Term Debt 53,752 587 4.39% 54,434 501 3.69%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing
Liabilities 1,225,716 3,221 1.06% 1,168,872 3,894 1.34%
Noninterest Bearing Deposits 476,389 403,870
Other Liabilities 17,169 19,468
---------- ----------
TOTAL LIABILITIES 1,719,274 1,592,210
SHAREOWNERS' EQUITY
Common Stock 133 114
Surplus 17,851 15,181
Other Comprehensive Income 817 2,568
Retained Earnings 191,410 176,918
---------- ----------
TOTAL SHAREOWNERS' EQUITY 210,211 194,781
---------- ----------
TOTAL LIABILITIES & EQUITY $1,929,485 $1,786,991
========== ==========
Interest Rate Spread 4.68% 4.72%
==== ====
Net Interest Income $21,333 $20,456
======= =======
Net Interest Margin 4.99% 5.09%
==== ====
FOR SIX MONTHS ENDED JUNE 30,
2004 2003
-------------------------- --------------------------
Balance Interest Rate Balance Interest Rate
---------- ------- ---- ---------- ------- ----
ASSETS
Loans, Net of Unearned Interest $1,424,175 $44,271 6.25% $1,303,008 $44,375 6.87%
Taxable Investment Securities 128,167 1,380 2.15% 128,514 2,109 3.28%
Tax-Exempt Investment Securities 52,233 1,554 5.95% 63,656 1,877 5.90%
Funds Sold 73,487 338 0.91% 118,523 685 1.15%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 1,678,062 47,543 5.70% 1,613,701 49,046 6.13%
Cash & Due From Banks 90,124 78,473
Allowance for Loan Losses (13,264) (12,575)
Other Assets 125,069 112,198
---------- ----------
TOTAL ASSETS $1,879,991 $1,791,797
========== ==========
LIABILITIES
NOW Accounts $ 277,588 $ 245 0.18% $ 259,630 $ 396 0.31%
Money Market Accounts 215,412 478 0.45% 212,918 812 0.77%
Savings Accounts 122,835 60 0.10% 107,841 133 0.25%
Other Time Deposits 427,007 3,996 1.88% 434,669 4,939 2.29%
---------- ------- ---- ---------- ------- ----
Total Int. Bearing Deposits 1,042,842 4,779 0.92% 1,015,058 6,280 1.25%
Short-Term Borrowings 107,064 536 1.01% 104,642 669 1.29%
Long-Term Debt 50,387 1,084 4.33% 63,354 1,045 3.33%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing
Liabilities 1,200,293 6,399 1.07% 1,183,054 7,994 1.36%
Noninterest Bearing Deposits 455,053 396,744
Other Liabilities 16,342 19,389
---------- ----------
TOTAL LIABILITIES 1,671,688 1,599,187
SHAREOWNERS' EQUITY
Common Stock 133 110
Surplus 17,549 15,022
Other Comprehensive Income 1,110 2,786
Retained Earnings 189,511 174,692
---------- ----------
TOTAL SHAREOWNERS' EQUITY 208,303 192,610
---------- ----------
TOTAL LIABILITIES & EQUITY $1,879,991 $1,791,797
========== ==========
Interest Rate Spread 4.63% 4.77%
==== ====
Net Interest Income $41,144 $41,052
======= =======
Net Interest Margin 4.93% 5.13%
==== ====
Average balances include nonaccrual loans. Interest income includes fees on loans of
approximately $528,000 and $873,000, for the three and six months ended June 30, 2004,
versus $477,000 and $1.1 million, for the comparable periods ended June 30, 2003.
Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 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 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.
The Company seeks to avoid fluctuations in its net interest margin and to
maximize net interest income within acceptable levels of risk through periods
of changing interest rates. Accordingly, the Company's interest rate
sensitivity and liquidity are monitored on an ongoing basis by its 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.
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 26. This table
presents the Company's consolidated interest rate sensitivity position as of
June 30, 2004 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 expects 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 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.
25
Table II
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS
(Dollars in Thousands)
June 30, 2004
---------------------------------------------------- Fair
Other Than Trading Portfolio Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value
- -----------------------------------------------------------------------------------------------------------------------
Loans
Fixed Rate $ 257,354 $123,154 $ 47,930 $27,514 $14,620 $ 5,891 $ 476,463 $ 471,177
Average Interest Rate 6.86% 7.18% 7.37% 7.15% 6.76% 5.64% 6.99%
Floating Rate 800,245 145,312 78,392 15,172 5,077 836 1,045,034 1,034,181
Average Interest Rate 5.40% 6.24% 5.95% 4.91% 7.48% 8.74% 5.40%
Investment Securities
Fixed Rate 73,736 76,635 14,428 3,666 1,217 11,704 181,386 181,386
Average Interest Rate 2.83% 2.39% 3.26% 3.36% 4.07% 3.43% 2.73%
Floating Rate 2,346 - - - - - 2,346 2,346
Average Interest Rate 3.83% - - - - - 3.83%
Other Earning Assets
Floating Rate 107,399 - - - - - 107,399 107,399
Average Interest Rates 1.09% - - - - - 1.09%
Total Financial Assets $1,241,080 $345,101 $140,750 $46,352 $20,914 $18,430 $1,812,628 $1,796,489
Average Interest Rates 4.91% 5.72% 6.16% 6.13% 6.78% 6.89% 5.30%
Deposits
Fixed Rate Deposits $ 346,804 $ 42,949 $ 29,238 $ 6,720 $ 1,573 $ - $ 427,222 $ 427,380
Average Interest Rates 1.57% 2.46% 3.04% 3.33% 2.55% - 1.79%
Floating Rate Deposits 665,396 - - - - - 665,396 665,396
Average Interest Rates 0.26% - - - - - 0.26%
Other Interest Bearing
Liabilities
Fixed Rate Debt 4,640 19,467 3,857 3,178 2,783 24,502 58,427 58,630
Average Interest Rate 4.56% 3.38% 4.46% 4.77% 4.86% 5.23% 4.47%
Floating Rate Debt 127,012 - - - - - 127,012 127,012
Average Interest Rate 0.67% - - - - - 0.67%
Total Financial Liabilities $1,143,851 $ 62,416 $ 33,094 $ 9,899 $ 4,356 $24,502 $1,278,057 $1,278,418
Average interest Rate 1.04% 2.74% 3.20% 3.79% 4.03% 5.23% 1.00%
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 rate deposits in Year 1. Other time deposit balances are classified according to maturity.
26
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934, as amended, are recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that the information is accumulated and
communicated to the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognized that any
disclosure controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired objectives,
and management was required to apply its judgment in evaluating the cost-
benefit relationship of possible disclosure controls and procedures. The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures as
of the end of the period covered by this report. Based upon that evaluation
and subject to the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of the Company's
disclosure controls and procedures provided reasonable assurance that the
disclosure controls and procedures are effective to accomplish their
objectives.
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 during the
Company's most recently completed fiscal quarter, nor subsequent to the date
of their evaluation, that could significantly affect the Company's disclosure
controls and procedures.
27
PART II. OTHER INFORMATION
ITEMS 1-3.
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Capital City Bank Group, Inc. was held
on April 27, 2004. Proxies for the meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and there was no
solicitation in opposition to management's solicitations. The following
summarizes all matters voted upon at this meeting.
1. The following directors were elected for terms expiring as noted. These
individuals served on the Board of Directors prior to the Annual Meeting.
The number of votes cast were as follows:
For terms to expire at Against/ Abstentions/
the 2007 annual meeting: For Withheld Broker Non-Votes
Cader B. Cox, III 10,955,541 412,965 -
Ruth A. Knox 10,955,054 413,451 -
William G. Smith, Jr. 11,281,383 87,122 -
2. The shareowners approved the Capital City Bank Group, Inc. 2005 Associate
Incentive Plan. The number of votes cast were as follows:
Against/ Abstentions/
For Withheld Broker Non-Vote
9,436,712 733,720 33,183
3. The shareowners approved the Capital City Bank Group, Inc. 2005 Associate
Stock Purchase Plan. The number of votes cast were as follows:
Against/ Abstentions/
For Withheld Broker Non-Vote
10,142,880 27,303 33,433
4. The shareowners approved the Capital City Bank Group, Inc. 2005 Associate
Director Stock Purchase Plan. The number of votes cast were as follows:
Against/ Abstentions/
For Withheld Broker Non-Vote
10,141,107 29,356 33,152
5. The shareowners ratified the selection of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 2004. The
number of votes cast were as follows:
Against/ Abstentions/
For Withheld Broker Non-Vote
10,786,716 549,351 32,439
ITEM 5. OTHER INFORMATION
Not applicable.
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
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.
31.1 Certification of William G. Smith, Jr., Chairman, President and Chief
Executive Officer of Capital City Bank Group, Inc., Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification of J. Kimbrough Davis, Executive Vice President and Chief
Financial Officer of Capital City Bank Group, Inc., Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certification of William G. Smith, Jr., Chairman, President and Chief
Executive Officer of Capital City Bank Group, Inc., Pursuant to 18
U.S.C. Section 1350.
32.2 Certification of J. Kimbrough Davis, Executive Vice President and Chief
Financial Officer of Capital City Bank Group, Inc., Pursuant to 18
U.S.C. Section 1350.
(B) Reports on Form 8-K
On April 27, 2004, the Company furnished to the SEC on Form 8-K a press
release reporting earnings for the quarter ended March 31, 2004.
On May 14, 2004, the Company filed with the SEC on Form 8-K a press release
announcing the execution of an agreement and plan of merger, by and among the
Company, Capital City Bank, and Farmers & Merchants Bank.
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)
By: /s/ J. Kimbrough Davis
----------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: August 9, 2004
29
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