UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section[X] QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended:
June 30,2005
------------Quarterly Period Ended March 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File NumberNumber: 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)office) (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 requirementrequirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer[ ] Accelerated filer[X] Non-accelerated filer[ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] No [X]
At July 29, 2005, 18,623,393April 28, 2006, 18,666,607 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
1
CAPITAL CITY BANK GROUP, INC.
FORMQUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2006
TABLE OF CONTENTS
PART I PAGE
- --------------------------------------------------------------------------------------
1. Consolidated Financial Statements 4
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
3. Quantitative and Qualitative Disclosure About Market Risk 29
4. Controls and Procedures 31
PART II
- -------
1. Legal Proceedings 32
1.A. Risk Factors 32
2. Unregistered Sales of Equity Securities and
Use of Proceeds 32
3. Defaults Upon Senior Securities 32
4. Submission of Matters to a Vote of Security Holders 32
5. Other Information 32
6. Exhibits 32
Signatures 33
2
INTRODUCTORY NOTE:
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q INDEX
ITEM PART I. FINANCIAL INFORMATION PAGE NUMBER
- ---- ----------------------------- -----------
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysiscontains "forward-looking statements"
within the meaning of Financial Condition and Resultsthe Private Securities Litigation Reform Act of Operations 14
3. Quantitative and Qualitative Disclosures
About Market Risk 27
4. Controls and Procedures 29
ITEM PART II. OTHER INFORMATION
- ---- --------------------------
1. Legal Proceedings Not Applicable
2. Unregistered Sales of Equity Securities and
Use of Proceeds Not Applicable
3. Defaults Upon Senior Securities Not Applicable
4. Submission of Matters to a Vote of
Security Holders 30
5. Other Information Not Applicable
6. Exhibits 30
Signatures 31
INTRODUCTORY NOTE
This Report and other Company communications and1995.
These forward-looking statements may contain
"forward-looking statements," includinginclude, among others, statements about our
beliefs, plans, objectives, goals, expectations, estimates and intentions. These statementsintentions
that are subject to significant risks and uncertainties and are subject to
change based on various factors, many of which are beyond our control. The
words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan," "target," "goal," and similar
expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks
and uncertainties. Our actual future results may differ materially from
those set forth in our forward-looking statements.
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,"Operations" and Part II, Item 1A "Risk Factors" in this
Quarterly Report on Form 10-Q, and the Company'sfollowing sections of our Annual Report
on Form 10-K for the fiscal year ended December 31, 20042005 (the "2005 Form 10-K"):
(a) "Introductory Note"; (b) "Risk Factors" in Part I, Item 1A; and
(c) "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part II, Item 7. However, other factors besides those
referenced also could adversely affect our results, and you should not
consider any such list of factors to be a complete set of all potential risks
or uncertainties. Any forward-looking statements made by us or on our behalf
speak only as of the Company's other filings with the Securities
and Exchange Commission.
2date they are made. We do not undertake to update any
forward-looking statement, except as required by applicable law.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODSTHREE MONTHS ENDED JUNE 30MARCH 31
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
(Dollars inIn Thousands, Except Per Share Data)(1) 2006 2005
2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $32,105 $22,922 $60,947 $44,194$ 37,343 $ 28,842
Investment Securities:
U.S. Treasury 121 224 257 45279 136
U.S. Govt.Government Agencies and Corporations 834 462 1,654 791814 820
States and Political Subdivisions 335 482 717 1,023439 382
Other Securities 157 59 292 136198 135
Funds Sold 358 116 517 339
------- ------- ------- -------539 159
---------- ----------
Total Interest Income 33,910 24,265 64,384 46,93539,412 30,474
---------- ----------
INTEREST EXPENSE
Deposits 4,618 2,385 8,927 4,7797,722 4,309
Short-Term Borrowings 734 249 1,184 536824 450
Subordinated Notes Payable 667 - 1,108 -926 441
Other Long-Term Borrowings 769 587 1,489 1,084
------- ------- ------- -------810 720
---------- ----------
Total Interest Expense 6,788 3,221 12,708 6,399
------- ------- ------- -------10,282 5,920
---------- ----------
Net Interest Income 27,122 21,044 51,676 40,53629,130 24,554
Provision for Loan Losses 388 580 798 1,541
------- ------- ------- -------667 410
---------- ----------
Net Interest Income After
Provision for Loan Losses 26,734 20,464 50,878 38,995
------- ------- ------- -------28,463 24,144
---------- ----------
NONINTEREST INCOME
Service Charges on Deposit Accounts 5,035 4,427 9,383 8,3715,680 4,348
Data Processing 650 703 1,257 1,336637 607
Asset Management Fees 1,013 950 2,125 1,691
Gain on Sale of Investment Securities - 19 - 191,050 1,112
Mortgage Banking Revenues 1,036 986 1,799 1,680721 763
Other 4,307 3,946 8,537 7,815
------- ------- ------- -------4,957 4,230
---------- ----------
Total Noninterest Income 12,041 11,031 23,101 20,912
------- ------- ------- -------13,045 11,060
---------- ----------
NONINTEREST EXPENSE
Salaries and Associate Benefits 13,187 10,809 25,747 21,54915,430 12,560
Occupancy, Net 2,035 1,749 3,972 3,3662,223 1,937
Furniture and Equipment 2,192 1,977 4,304 4,0402,500 2,112
Intangible Amortization 1,296 927 2,492 1,752
Merger Expense 234 4 234 461,530 1,196
Other 7,652 6,135 15,114 11,923
------- ------- ------- -------8,409 7,462
---------- ----------
Total Noninterest Expense 26,596 21,601 51,863 42,676
------- ------- ------- -------30,092 25,267
---------- ----------
Income Before Income Taxes 12,179 9,894 22,116 17,23111,416 9,937
Income Taxes 4,311 3,451 7,871 5,941
------- ------- ------- -------3,995 3,560
---------- ----------
NET INCOME $ 7,8687,421 $ 6,443 $14,245 $11,290
======= ======= ======= =======6,377
========== ==========
BASIC NET INCOME PER SHARE $ .44.40 $ .38 $ .80 $ .68
======= ======= ======= =======.36
========== ==========
DILUTED NET INCOME PER SHARE $ .44.40 $ .38 $ .80 $ .68
======= ======= ======= =======.36
========== ==========
Average Basic Shares Outstanding 18,094,256 16,592,894 17,898,253 16,585,340
========== ==========18,651,746 17,700,071
========== ==========
Average Diluted Shares Outstanding 18,102,200 16,596,333 17,908,580 16,588,863
========== ==========18,665,136 17,706,965
========== ==========
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split
effective July 1, 2005.
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
34
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 2005MARCH 31, 2006 AND DECEMBER 31, 20042005
(Unaudited)
June 30,March 31, December 31,
(Dollars In Thousands, Except Per Share Data)(1) 2006 2005
2004
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Due From Banks $ 117,921104,486 $ 87,039105,195
Funds Sold and Interest Bearing Deposits 59,062 74,506110,604 61,164
---------- ----------
Total Cash and Cash Equivalents 176,983 161,545215,090 166,359
Investment Securities, Available-for-Sale 195,860 210,240180,760 171,019
Loans, Net of Unearned Interest 2,046,774 1,828,8252,054,656 2,067,494
Allowance for Loan Losses (17,451) (16,037)(17,279) (17,410)
---------- ----------
Loans, Net 2,029,323 1,812,7882,037,377 2,050,084
Premises and Equipment, Net 69,294 58,96376,693 73,818
Goodwill 84,511 54,34184,810 84,829
Other Intangible Assets 28,570 25,96424,148 25,622
Other Assets 45,344 40,17255,841 53,731
---------- ----------
Total Assets $2,629,885 $2,364,013$2,674,719 $2,625,462
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 598,602562,140 $ 566,991559,492
Interest Bearing Deposits 1,502,027 1,327,8951,547,016 1,519,854
---------- ----------
Total Deposits 2,100,629 1,894,8862,109,156 2,079,346
Short-Term Borrowings 71,148 96,01489,105 82,973
Subordinated Notes Payable 62,887 30,92862,887
Other Long-Term Borrowings 73,144 68,45368,764 69,630
Other Liabilities 26,655 16,93233,744 24,850
---------- ----------
Total Liabilities 2,334,463 2,107,2132,363,656 2,319,686
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000
shares authorized; no shares outstanding - -
Common Stock, $.01 par value,value; 90,000,000 shares
authorized; 18,614,48218,666,604 and 18,631,706 shares
issued and outstanding at June 30, 2005March 31, 2006 and 17,694,139 outstanding at
December 31, 20042005, respectively 187 186 177
Additional Paid-In Capital 82,582 52,32884,291 83,304
Retained Earnings 213,352 204,648227,920 223,532
Accumulated Other Comprehensive Loss, Net of Tax (698) (353)(1,335) (1,246)
---------- ----------
Total Shareowners' Equity 295,422 256,800311,063 305,776
---------- ----------
Total Liabilities and Shareowners' Equity $2,629,885 $2,364,013$2,674,719 $2,625,462
========== ==========
(1) All share, per share, and shareowners' equity data have been adjusted to reflect
the 5-for-4 stock split effective July 1, 2005.
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except Per Share Data)(1)
Additional Accumulated Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Loss, Net of Taxes Total
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 $177 $52,328 $204,648 $(353) $256,800
Comprehensive Income:
Net Income - - 14,245
Net Change in Unrealized Loss
On Available-for-Sale Securities - - - (345)
Total Comprehensive Income - - - - 13,900
Cash Dividends ($.304 per share) - - (5,541) - (5,541)
Stock Performance Plan Compensation - 765 - - 765
Issuance of Common Stock 9 29,489 - - 29,498
---- ------- -------- ----- --------
Balance, June 30, 2005 $186 $82,582 $213,352 $(698) $295,422
==== ======= ======== ===== ========
(1) All share, per share, and shareowners' equity data have been adjusted to reflect the 5-for-4 stock split
effective July 1, 2005.
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
5
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Additional Accumulated Other
Common Paid-In Retained Comprehensive
(Dollars in Thousands) 2005 2004Thousands, Except Per Share Data) Stock Capital Earnings Loss, Net of Taxes Total
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Balance, December 31, 2005 $186 $83,304 $223,532 $(1,246) $305,776
Comprehensive Income:
Net Income $ 14,245 $ 11,290
Adjustments to Reconcile- - 7,421 - 7,421
Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 798 1,541
Depreciation 2,769 2,584
Net Securities Amortization 783 1,229
Amortization of Intangible Assets 2,492 1,729
Gains on Sale of InvestmentChange in Unrealized Loss
On Available-for-Sale Securities - (19)
Non-Cash- - (89) (89)
Total Comprehensive Income - - - - 7,332
Cash Dividends ($.1625 per share) - - (3,033) - (3,033)
Stock Performance Plan Compensation 339 1,625
Net (Increase) Decrease in Other Assets (5,534) 4,940
Net Increase in Other Liabilities 10,749 4,167
-------- --------
Net Cash Provided By Operating Activities 26,641 29,086
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Payments/Maturities/Sales of
Investment Securities Available-for-Sale 77,357 87,296
Purchase of Investment Securities Available-for-Sale (29,468) (76,484)
Net Increase in Loans (98,045) (92,296)
Net Cash Acquired (Used) In Acquisitions 37,412 (18,055)
Purchase of Premises & Equipment (9,918) (3,686)
Proceeds From Sales of Premises & Equipment 134 861
-------- --------
Net Cash Used In Investing Activities (22,528) (102,364)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 4,157 36,097
Net (Decrease) Increase in Short-Term Borrowings (74,909) 18,828
Proceeds from Subordinated Note Payable 31,959 - Increase in Other Long-Term Borrowings 3,600 9,737
Repayment of Other Long-Term Borrowings 51,134 (785)
Dividends Paid (5,541) (4,779)442 - - 442
Issuance of Common Stock 925 1411 545 - - 546
---- ------- -------- ------- --------
Net Cash Provided By Financing Activities 11,325 59,239
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 15,438 (14,039)
Cash and Cash Equivalents at Beginning of Period 161,545 218,592
-------- --------
Cash and Cash Equivalents at End of Period $176,983 $204,553Balance, March 31, 2006 $187 $84,291 $227,920 $(1,335) $311,063
==== ======= ======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 8,210 $ 4,815
======== ========
Interest Paid on Debt $ 3,525 $ 1,615
======== ========
Taxes Paid $ 6,468 $ 2,148
======== ========
Transfer of Loans to Other Real Estate $ 99 $ 846
======== ========
Issuance of Common Stock as Non-Cash Compensation $ 339 $ 1,625
======== ========
Transfer of Current Portion of Long-Term Borrowings
to Short-Term Borrowings $ 43 $ -
=============== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
(Dollars in Thousands) 2006 2005
- -------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,421 $ 6,377
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 667 410
Depreciation 1,657 1,360
Net Securities Amortization 220 414
Amortization of Intangible Assets 1,530 1,196
Origination of Loans Held-for-Sale (40,260) (41,820)
Proceeds From Sale of Loans Held-for Sale 42,705 43,604
Net Gain From Sales of Loans Held-for-Sale (721) (763)
Non-Cash Compensation 442 338
Deferred Income Taxes 2,722 (497)
Net (Increase) Decrease in Other Assets (2,019) 388
Net Increase in Other Liabilities 6,629 5,249
-------- --------
Net Cash Provided by Operating Activities 20,993 16,256
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Available-for-Sale:
Purchases (41,170) -
Sales - -
Payments, Maturities, and Calls 31,024 17,632
Net Decrease (Increase) in Loans 9,828 (16,464)
Purchase of Premises & Equipment (4,558) (2,846)
Proceeds From Sales of Premises & Equipment 26 5
-------- --------
Net Cash Used In Investing Activities (4,850) (1,673)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits 29,810 (5,528)
Net Increase (Decrease) in Short-Term Borrowings 2,711 (17,465)
Increase in Other Long-Term Borrowings 3,250 -
Repayment of Other Long-Term Borrowings (694) (531)
Dividends Paid (3,033) (2,691)
Issuance of Common Stock 546 70
-------- --------
Net Cash Provided By (Used In) Financing Activities 32,588 (26,145)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 48,731 (11,562)
Cash and Cash Equivalents at Beginning of Period 166,359 161,545
-------- --------
Cash and Cash Equivalents at End of Period $215,090 $149,983
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 7,612 $ 4,372
======== ========
Interest Paid on Debt $ 2,558 $ 1,606
======== ========
Taxes Paid $ 27 $ 22
======== ========
Loans Transferred to Other Real Estate $ 488 $ 59
======== ========
Issuance of Common Stock as Non-Cash Compensation $ 644 $ 338
======== ========
Transfer of Current Portion of Long-Term Borrowings
to Short-Term Borrowings $ 3,000 $ 43
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
7
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 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, 2005March
31, 2006 and December 31, 2004,2005, the results of operations for the three and
six month
periods ended June 30,March 31, 2006 and 2005, and 2004, and cash flows for the sixthree month
periods ended June 30, 2005March 31, 2006 and 2004.2005.
The Company and its subsidiary 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 the Notes to
Consolidated Financial Statements which are included in the Company's 20042005
Annual Report on Form 10-K.
Stock-Based Compensation
On JulyJanuary 1, 2005,2006, the Company executed a five-for-four stock split in the
form of a 25% stock dividend, payablechanged its accounting policy related to shareowners of record as of close
of business on June 17, 2005. All share, per share, and shareowners' equity
data have been adjusted to reflect stock split.
Stock-based Compensation
- ------------------------
As of June 30, 2005, the Company had three
stock-based compensation plans,
consistingin connection with the adoption of the Associate Incentive PlanStatement of
Financial Accounting Standards ("AIP"SFAS"), the Associate Stock
Purchase Plan and the Director Stock Purchase Plan. Under the AIP,
performance share units are awarded to participants based on performance
goals being achieved. In addition, pursuant to the AIP, the Company executed
stock option arrangements for 2005, 2004, and 2003 for a key executive
officer (William G. Smith, Jr. No. 123R, "Share-Based Payment
(Revised 2004)" ("SFAS 123R"). As a result of SFAS No. 148, "Accounting
forSee Note 7 - Stock-Based Compensation - Transition and Disclosure," the Company
adopted the fair value recognition provisions of SFAS No. 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. The cost related to
all stock-based associate compensation included in net income is accounted
for under the fair value based method during 2004 and 2005 as all awards have
grant dates after January 1, 2003.additional information.
(2) ACQUISITIONS
On May 20, 2005, the Company completed its merger with First Alachua Banking
Corporation ("FABC"), headquartered in Alachua, Florida. The Company issued
approximately 906,000 shares of common stock and paid approximately $29.0
million in cash for a total purchase price of $58.0 million. Results of FABC
operations have been included in the Company's consolidated financial
statements since May 21, 2005. FABC's wholly-owned subsidiary, First
National Bank of Alachua ("FNBA") had $228.3 million in assets at closing
with seven offices in Alachua County and an eighth office in Hastings,
Florida, which is in St. Johns County. The transaction was accounted for as
a purchase and resulted in approximately $35.6 million of intangible assets,
including approximately $30.5 million in goodwill and a core deposit
intangible of $5.1 million. The core deposit intangible is being amortized
over a 5.5 year period.
7
On May 20, 2005, the Company issued a $32.0 million junior subordinated
deferrable interest note to a wholly owned Delaware statutory trust, Capital
City Bank Group Capital Trust II ("CCBG Capital Trust II") to facilitate the
cash portion of the consideration paid to FABC shareowners. Interest
payments on this note are due quarterly at a fixed rate of 6.07% for five
years, then adjustable annually to three month LIBOR plus a margin of 1.80%.
The note matures on June 15, 2035. The general terms and conditions of the
Company's transaction with CCBG Capital Trust II are consistent with those
enumerated for CCBG Capital Trust I which are described in Note 10 in the
Company's 2004 Annual Report on Form 10-K.
The information below lists the consolidated assets and liabilities of FNBA
as of May 20, 2005, along with the consideration paid:
First National Bank
(Dollars in Thousands) of Alachua
- ------------------------------------------------------------------
Cash and Due From Banks $ 9,082
Funds Sold 58,312
--------
Total Cash and Cash Equivalents 67,394
Investment Securities, Available-for-Sale 35,181
Loans, Net of Unearned Interest 119,262
Intangible Assets 35,623
Other Assets 3,282
--------
Total Assets Acquired $260,742
Total Deposits $201,748
Long-Term Borrowings -
Other Liabilities 994
--------
Total Liabilities Assumed $202,742
Consideration Paid to FABC Shareowners $ 58,000
========
The following unaudited pro forma financial information for the three and six
months ended June 30, 2005 and 2004, presents the consolidated operations of
the Company as if the FNBA acquisition had been made on January 1, 2004. 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 acquisition of FNBA been
consummated on this earlier date, and do not project the Company's results of
operations for any future period:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
(Dollars in Thousands, Except Per Share Data)(1) 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------
Interest Income $35,442 $27,012 $68,772 $52,475
Interest Expense 7,451 4,371 14,533 8,722
------- ------- ------- -------
Net Interest Income 27,991 22,641 54,239 43,753
Provision for Loan Losses 388 580 798 1,541
------- ------- ------- -------
Net Interest Income After
Provision for Loan Losses 27,603 22,061 53,441 42,212
Noninterest Income 12,492 11,491 23,920 21,901
Noninterest Expense(2) 28,554 22,966 55,858 45,983
------- ------- ------- -------
Income Before Income Taxes 11,541 10,586 21,503 18,130
Income Taxes 4,311 3,714 7,881 6,283
------- ------- ------- -------
Net Income $ 7,230 $ 6,872 $13,622 $11,847
======= ======= ======= =======
Basic Net Income Per Share $ .40 $ .41 $ .76 $ .70
======= ======= ======= =======
Diluted Net Income Per Share $ .40 $ .41 $ .76 $ .70
======= ======= ======= =======
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split
effective July 1, 2005.
(2) Includes non-recurring merger related expenses at FNBA and CCBG in the second quarter
of 2005 totaling approximately $959,000, and year-to-date 2005 totaling approximately
$1.1 million.
8
(3) INVESTMENT SECURITIES
The amortized cost and related market value of investment securities
available-for-sale at June 30, 2005March 31, 2006 and December 31, 20042005 were as follows:
June 30, 2005
-------------------------------------------March 31, 2006
------------------------------------------
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury $ 23,23511,496 $ - $ 16959 $ 23,06611,437
U.S. Government Agencies and Corporations 86,354 20 814 85,56067,947 2 981 66,968
States and Political Subdivisions 51,736 148 208 51,67669,017 24 620 68,421
Mortgage-Backed Securities 22,131 100 170 22,06119,751 8 512 19,247
Other Securities(1) 13,49714,687 - - 13,49714,687
-------- ------- ------ --------
Total Investment Securities $196,953 $268 $1,361 $195,860$182,898 $34 $2,172 $180,760
======== ======= ====== ========
December 31, 2004
-------------------------------------------2005
------------------------------------------
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury $ 31,0279,065 $ - $ 24450 $ 30,7839,015
U.S. Government Agencies and Corporations 92,073 5 741 91,33775,233 - 1,017 74,216
States and Political Subdivisions 49,889 409 92 50,20653,611 44 512 53,143
Mortgage-Backed Securities 26,293 187 80 26,40020,948 35 452 20,531
Other Securities(1) 11,51414,114 - - 11,51414,114
-------- ------- ------ --------
Total Investment Securities $210,796 $601 $1,157 $210,240$172,971 $79 $2,031 $171,019
======== ======= ====== ========
(1) FHLB and FRB stock recorded at cost.
(4)8
(3) LOANS
The composition of the Company's loan portfolio at June 30, 2005March 31, 2006 and
December 31, 20042005 was as follows:
(Dollars in Thousands) June 30, 2005March 31, 2006 December 31, 20042005
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial, Financial and Agricultural $ 214,983209,642 $ 206,474218,434
Real Estate-Construction 148,462 140,190Estate - Construction 172,317 160,914
Real Estate-Commercial Mortgage 713,619 655,426Estate - Commercial 693,617 718,741
Real Estate-Residential 553,034 438,484Estate - Residential 566,356 553,124
Real Estate-HomeEstate - Home Equity 160,767 150,061163,189 165,337
Real Estate-LoansEstate - Loans Held-for-Sale 9,624 11,8303,967 4,875
Consumer 246,285 226,360245,568 246,069
---------- ----------
Loans, Net of Unearned Interest $2,046,774 $1,828,825$2,054,656 $2,067,494
========== ==========
(5)(4) ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the sixthree-
month periods ended June 30,March 31, 2006 and 2005, and 2004, iswas as follows:
March 31,
-------------------------
(Dollars in Thousands) June 30,2006 2005
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance, Beginning of Period $17,410 $16,037 $12,429
Acquired Reserves 1,385 1,313
Provision for Loan Losses 798 1,541667 410
Recoveries on Loans Previously Charged-Off 943 892428 428
Loans Charged-Off (1,712) (2,518)(1,226) (835)
------- -------
Balance, End of Period $17,451 $13,657$17,279 $16,040
======= =======
9
Impaired loans are primarily defined as all nonaccruing loans for the loan
categories which are included within the scope of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." Selected information pertaining to
impaired loans is depicted in the table below:
June 30, 2005March 31, 2006 December 31, 20042005
-------------------- ---------------------
Valuation Valuation
(Dollars in Thousands) Balance Allowance Balance Allowance
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Impaired Loans:
With Related Valuation Allowance $5,672 $2,910 $ 578 $313$4,129 $2,383 $5,612 $2,915
Without Related Valuation Allowance 3,346$2,819 - 3,150$1,658 -
Three Months Ended
----------------------------------
(Dollars in Thousands) June 30, 2005March 31, 2006 December 31, 20042005
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Average Recorded Investment in Impaired Loans $9,724 $5,382
Interest Income on Impaired Loans:
Recognized 62 140
Collected in Cash 62 120$8,718 $9,786
(6) DEPOSITS
The composition of the Company's interest bearing deposits at June 30, 2005
and December 31, 2004 was as follows:
(Dollars in Thousands) June 30, 2005 December 31, 2004
- -------------------------------------------------------------------------
NOW Accounts $ 475,687 $ 338,932
Money Market Accounts 287,601 270,095
Savings Deposits 162,665 147,348
Other Time Deposits 576,074 571,520
---------- ----------
Total Interest Bearing Deposits $1,502,027 $1,327,895
========== ==========
(7)(5) INTANGIBLE ASSETS
The Company had intangible assets of $113.1$109.0 million and $80.3$110.5 million at
June 30, 2005March 31, 2006 and December 31, 2004,2005, respectively. Intangible assets were
as follows:
June 30, 2005March 31, 2006 December 31, 2004
------------------------ ------------------------2005
----------------------- -----------------------
Gross Accumulated Gross Accumulated
(Dollars in Thousands) Amount Amortization Amount Amortization
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Core Deposit Intangibles $ 47,176 $20,578$24,723 $ 42,078 $18,30047,176 $23,312
Goodwill 88,29788,596 3,786 58,12788,615 3,786
Customer Relationship Intangible 1,867 210353 1,867 114
Other305
Non-Compete Agreement 539 358 483 168 483 50287
-------- ------- -------- -------
Total Intangible Assets $137,823 $24,742 $102,555 $22,250$138,178 $29,220 $138,141 $27,690
======== ======= ======== =======
Net Core Deposit Intangibles: As of June 30, 2005March 31, 2006 and December 31, 2004,2005,
the Company had net core deposit intangibles of $26.6$22.5 million and $23.8$23.9
million, respectively. Amortization expense for the first halfthree months of
2006 and 2005 and 2004 was $2.3$1.4 million and $1.7$1.1 million, respectively. Estimated
annual amortization expense is $5.3$5.6 million.
9
Goodwill: As of June 30, 2005March 31, 2006 and December 31, 2004,2005, the Company had
goodwill, net of accumulated amortization, of $84.5 million and $54.3
million, respectively.$84.8 million. Goodwill is the
Company's only intangible asset that is no longer subject to amortization
under the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets."
10
Other: As of June 30, 2005March 31, 2006 and December 31, 2004,2005, the Company had a
customer relationship intangible, net of accumulated amortization, of $1.7$1.5
million and $1.8$1.6 million, respectively. This intangible was recordedbooked as a
result of the March 2004 acquisition of trust clientcustomer relationships from
Synovus Trust Company. Amortization expense for the first sixthree months of
2006 and 2005 was $48,000 and 2004 was
$96,000 and $34,000,$47,000, respectively. Estimated annual
amortization expense is $191,000 based on use of a 10 year10-year useful life.
As of June 30, 2005March 31, 2006 and December 31, 2004,2005, the Company also had a non-competenon-
compete intangible, net of accumulated amortization, of $315,000$181,000 and
$433,000,$196,000, respectively. This intangible was recorded as a result of the
October 2004 acquisition of Farmers and Merchants Bank of Dublin, Georgia.
Amortization expense for the first sixthree months of 2006 and 2005 was $118,000.$71,000
and $59,000, respectively. Estimated annual amortization expense for the
remainder of 2006 is $236,000$181,000.
(6) DEPOSITS
The composition of the Company's interest-bearing deposits at March 31, 2006
and December 31, 2005 was as follows:
(Dollars in Thousands) March 31, 2006 December 31, 2005
- ------------------------------------------------------------------------
NOW Accounts $ 518,024 $ 520,878
Money Market Accounts 369,416 331,094
Savings Deposits 137,780 144,296
Time Deposits 521,796 523,586
---------- ----------
Total Interest Bearing Deposits $1,547,016 $1,519,854
========== ==========
(7) STOCK-BASED COMPENSATION
In accordance with the Company's adoption of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") in the first quarter of 2003, the cost
related to stock-based associate compensation included in net income has been
accounted for under the fair value method in all reported periods.
On January 1, 2006, the Company adopted SFAS 123R. The Company continues to
include the cost of its share-based compensation plans in net income under
the fair value method.
As of March 31, 2006, the Company had three stock-based compensation plans,
consisting of the 2005 Associate Incentive Plan ("AIP"), the 2005 Associate
Stock Purchase Plan, and the 2005 Director Stock Purchase Plan. For 2006,
the Company also has a stock option arrangement with a key executive officer.
Total compensation expense associated with these plans for the three months
ended March 31, 2006 and 2005, was approximately $461,000 and $258,000,
respectively.
2005 AIP. The Company's 2005 AIP allows the Company's Board of Directors to
award key associates various forms of equity-based incentive compensation.
Under the 2005 AIP, the Company has adopted the Stock-Based Incentive Plan
(the "Incentive Plan"), effective January 1, 2006, which is a performance-
based equity bonus plan for selected members of management, including all
executive officers. Under the Incentive Plan, all participants are eligible
to earn an equity award, consisting of performance shares, in each year of
the five-year period ending December 31, 2010. Annual awards are tied to the
annual earnings progression necessary to achieve the Project 2010 goal. The
grant-date fair value of an annual compensation award is $1.5 million.
A total of 43,437 shares are eligible for issuance annually.
10
At the end of each calendar year, the Compensation Committee will confirm
whether the performance goals have been met prior to the payout of any
awards. Any performance shares earned under the Incentive Plan will be
issued in the calendar quarter following the calendar year in which the
shares were earned.
In accordance with the provisions of SFAS 123R, the Company recognized
expense of approximately $367,000 for the first quarter of 2006 related to
the Incentive Plan. Under a substantially similar predecessor plan, the
Company recognized expense of $166,000 for the first quarter of 2005. A
total of 875,000 shares of common stock have been reserved for issuance under
the 2005 AIP. To date, the Company has issued 28,093 shares of common stock.
2005 Director Stock Purchase Plan ("DSPP"). The Company's DSPP allows the
directors to purchase the Company's common stock at a price equal to 90% of
the closing price on the date of purchase. Stock purchases under the DSPP
are limited to the amount of the directors' annual retainer and meeting fees.
The DSPP has 93,750 shares reserved for issuance. A total of 11,623 shares
have been issued since the inception of the DSPP. For the first quarter of
2006, the Company issued 5,034 shares under the DSPP and recognized $18,000
in expense related to this plan. For the first quarter of 2005, the Company
issued 4,816 shares and recognized $14,000 in expense related to the DSPP.
2005 Associate Stock Purchase Plan ("ASPP"). Under the Company's ASPP,
substantially all associates may purchase the Company's common stock through
payroll deductions at a 2-year useful life.price equal to 90% of the lower of the fair market
value at the beginning or end of each six-month offering period. Stock
purchases under the ASPP are limited to 10% of an associate's eligible
compensation, up to a maximum of $25,000 (fair market value on each
enrollment date) in any plan year. Shares are issued at the beginning of the
quarter following each six-month offering period. The ASPP has 593,750
shares of common stock reserved for issuance. A total of 26,938 shares have
been issued since inception of the ASPP. For the first quarter of 2006, the
Company recognized $23,000 in expense related to this plan. For the first
quarter of 2005, the Company recognized $22,000 in expense related to the
ASPP.
Based on the Black-Scholes option pricing model, the weighted average
estimated fair value of the purchase rights granted under the ASPP Plan was
$6.22 for the first quarter of 2006. For the first quarter of 2005, the
weighted average fair value of the purchase rights granted was $5.64. In
calculating compensation, the fair value of each stock purchase right was
estimated on the date of grant using the following weighted average
assumptions:
First Quarter
-----------------
2006 2005
- ----------------------------------------------
Dividend yield 1.8% 1.9%
Expected volatility 25.0% 26.0%
Risk-free interest rate 4.0% 2.2%
Expected life (in years) 0.5 0.5
Executive Stock Option Agreement. In 2006, the Company's Board of Directors
approved a stock option agreement for a key executive officer (William G.
Smith, Jr. - Chairman, President and CEO, CCBG). Similar stock option
agreements were approved in 2003-2005. These agreements grant a non-
qualified stock option award upon achieving certain annual earnings per share
conditions set by the Board, subject to certain vesting requirements. The
options granted under the agreements have a term of ten years and vest at a
rate of one-third on each of the first, second, and third anniversaries of
the date of grant. Under the 2004 and 2003 agreements, 37,246 and 23,138
options, respectively, were issued, none of which has been exercised. The
fair value of a 2004 option was $13.42, and the fair value of a 2003 option
was $11.64. The exercise prices for the 2004 and 2003 options are $32.69 and
$32.96, respectively. Under the 2005 agreement, the earnings per share
conditions were not met; therefore, no economic value was earned by the
executive. In accordance with the provisions of SFAS 123R and SFAS 123, the
Company recognized expense of approximately $53,000 and $56,000 for the first
quarter of 2006 and first quarter of 2005, respectively, related to the
aforementioned agreements.
11
A summary of the status of the Company's nonvested option shares as of March
31, 2006 is presented below:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Shares Price Term Value
- ----------------------------------------------------------------------------------
Outstanding at January 1, 2006 60,384 $32.83 8.6 $ 88,161
Granted - - - -
Exercised - - - -
Forfeited or expired - - - -
------
Outstanding at March 31, 2006 60,384 $32.83 8.4 $164,244
====== ====== === ========
Exercisable at March 31, 2006 27,841 $32.83 8.4 $ 75,728
====== ====== === ========
As of March 31, 2006, there was $268,000 of total unrecognized compensation
cost related to the nonvested option shares granted under the agreements.
That cost is expected to be recognized over a remaining weighted-average
period of 16 months.
(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) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------
Discount rate 6.00% 6.25% 6.00% 6.25%
Long-term rate of return on assets 8.00% 8.00% 8.00% 8.00%
Service cost $1,040 $ 950 $2,080 $1,900
Interest cost 800 725 1,600 1,450
Expected return on plan assets (798) (675) (1,596) (1,350)
Prior service cost amortization 55 50 110 100
Net loss amortization 295 300 590 600
------ ------ ------ ------
Net periodic benefit cost $1,392 $1,350 $2,784 $2,700
====== ====== ====== ======
The components of the net periodic benefit costs for the Company'sand Supplemental Executive Retirement Plan ("SERP") were
as follows:
Three Months Ended Six Months Ended
June 30, June 30,months ended March 31,
------------------------------------------
Qualified Plan SERP
------------------ ------------------
(Dollars in Thousands) 2006 2005 20042006 2005
2004
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Discount rateRate 5.75% 6.00% 6.25%5.75% 6.00%
6.25%
Long-term rateLong-Term Rate of returnReturn on assets N/A N/AAssets 8.00% 8.00% N/A N/A
Service costCost $1,250 $1,040 $ 30 $ 35
$ 48 $ 70 $ 96
Interest costCost 875 800 56 54
65 108 129
Expected returnReturn on plan assets N/A N/APlan Assets (975) (798) N/A N/A
Prior service cost amortizationService Cost Amortization 50 55 15 30 30 6115
Net loss/(gain) amortizationLoss Amortization 375 295 19 21
(18) 42 (36)
---- ---- ---- ----
Net periodic benefit costPeriodic Benefit Cost $1,575 $1,392 $120 $125 $125 $250 $250
==== ==== ==== ====
11
(9) COMMITMENTS AND CONTINGENCIES
Lending Commitments. The Company is a party to financial instruments with
off-balance sheet risks in the normal course of business to meet the
financing needs of its customers.clients. These financial instruments consist of
commitments to extend credit and standby letters of credit.
The Company's maximum exposure to credit loss under standby letters of credit
and commitments to extend credit is represented by the contractual amount of
those instruments. The Company uses the same credit policies in establishing
commitments and issuing letters of credit as it does for on-balance sheet
instruments. As of June 30, 2005,March 31, 2006, the amounts associated with the Company's
off-balance sheet obligations were as follows:
(Dollars in Millions)Thousands) Amount
- ---------------------------------------------------------------------------------------------
Commitments to Extend Credit(1) $471.1$440,312
Standby Letters of Credit $ 21.018,901
(1) Commitments include unfunded loans, revolving lines of credit,
and other unused commitments.
12
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.
Contingencies. The Company is a party to lawsuits and claims arising out of
the normal course of business. In management's opinion, there are no known
pending claims or litigation, the outcome of which would, individually or in
the aggregate, have a material effect on the consolidated results of
operations, financial position, or cash flows of the Company.
(10) COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," requires that certain
transactions and other economic events that bypass the income statement be
displayed as other comprehensive income (loss). Comprehensive income
totaled $8.3 million and $13.9 million, respectively, for the three and six
months ended June 30, 2005 and $5.0 million and $9.9 million, respectively,
for the comparable periods in 2004. The Company's comprehensive
income consists of net income and changes in unrealized gains (losses) on
securities available-for-sale, net of income taxes. Changes in unrealized
gains (losses), net of taxes, on securities totaled $452,000$(89,000) and $(345,000),
respectively,$(797,000)
for the three and six months ended June 30,March 31, 2006 and 2005, and $(1.4
million) for both the three and six months ended June 30, 2004.
Reclassification adjustments consist only of realized gains on sales of
investment securities and were not material for the six months ended June 30,
2005 and 2004.respectively.
12
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)(1)
2006 2005 2004
2003
Second---------- ---------------------------------------------- ----------------------------------
First Fourth Third Second First Fourth Third ---------------------- ---------------------------------------------- ----------------------Second
- ---------------------------------------------------------------------------------------------------------------------
Summary of Operations:
Interest Income $ 39,412 $ 38,780 $ 36,889 $ 33,910 $ 30,474 $ 29,930 $ 24,660 $ 24,265
$ 22,670 $ 23,022 $ 23,484
Interest Expense 10,282 9,470 7,885 6,788 5,920 5,634 3,408 3,221 3,178 3,339 3,506
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 29,130 29,310 29,004 27,122 24,554 24,296 21,252 21,044
19,492 19,683 19,978
Provision for
Loan Losses 667 1,333 376 388 410 300 300 580 961 850 921
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Losses 28,463 27,977 28,628 26,734 24,144 23,996 20,952 20,464 18,531 18,833 19,057
Gain on Sale of Credit
Card PortfolioPortfolios - - - - - 324 6,857 -
- - -
Noninterest Income 13,045 12,974 13,123 12,041 11,060 11,596 10,864 11,031
9,881 10,614 10,952Conversion/
Merger Expense - 24 180 234 - 436 68 4
42 - -
Noninterest Expense 30,092 29,318 28,429 26,362 25,267 24,481 21,565 21,597 21,033 20,593 20,184
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 11,416 11,609 13,142 12,179 9,937 10,999 17,040 9,894
7,337 8,854 9,825
Provision for
Income Taxes 3,995 4,150 4,565 4,311 3,560 3,737 6,221 3,451 2,490 2,758 3,529
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 7,421 $ 7,459 $ 8,577 $ 7,868 $ 6,377 $ 7,262 $ 10,819 $ 6,443 $ 4,847 $ 6,096 $ 6,296
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 29,461 $ 29,652 $ 29,329 $ 27,396 $ 24,835 $ 24,619 $ 21,528 $ 21,333
$ 19,811 $ 20,020 $ 20,332
Per Common Share:
Net Income Basic $ .40 $ .40 $ .46 $ .44 $ .36 $ .40 $ .66 $ .38
$ .30 $ .38 $ .38
Net Income Diluted .40 .40 .46 .44 .36 .40 .66 .38
.30 .37 .38
Dividends Declared .163 .163 .152 .152 .152 .152 .144 .144
.144 .144 .136
Diluted Book Value 16.65 16.39 16.17 15.87 14.69 14.51 13.19 12.64
12.43 12.22 12.00
Market Price:
High 37.97 39.33 38.72 33.46 33.60 36.78 32.96 34.52
36.44 37.46 32.74
Low 33.79 33.21 31.78 28.02 29.30 30.17 26.66 28.40
31.24 29.30 28.00
Close 35.55 34.29 37.71 32.32 32.41 33.44 30.97 31.67
33.00 36.79 30.53
Selected Average
Balances:
Loans $2,048,642 $2,062,775 $2,046,968 $1,932,637 $1,827,327 $1,779,736 $1,524,401 $1,491,142
$1,357,206 $1,329,673 $1,336,139
Earning Assets 2,275,667 2,279,010 2,250,902 2,170,483 2,047,049 2,066,111 1,734,708 1,721,655
1,634,468 1,636,269 1,634,689
Assets 2,604,458 2,607,597 2,569,524 2,458,788 2,306,807 2,322,870 1,941,372 1,929,485
1,830,496 1,819,552 1,816,005
Deposits 2,040,248 2,027,017 2,013,427 1,932,144 1,847,378 1,853,588 1,545,224 1,538,630
1,457,160 1,451,095 1,451,879
Shareowners' Equity 311,461 306,208 300,931 278,107 260,946 248,773 217,273 210,211
206,395 201,939 199,060
Common Equivalent
Average Shares:
Basic 18,652 18,624 18,623 18,094 17,700 17,444 16,604 16,593
16,578 16,528 16,527
Diluted 18,665 18,654 18,649 18,102 17,708 17,451 16,609 16,596
16,607 16,581 16,575
Ratios:
ROA 1.16% 1.14% 1.32% 1.28% 1.12% 1.24% 2.22%(2) 1.34%
1.06% 1.33% 1.38%
ROE 9.66% 9.67% 11.31% 11.35% 9.91% 11.61% 19.81%(2) 12.33%
9.45% 11.98% 12.55%
Net Interest
Margin (FTE) 5.25% 5.16% 5.17% 5.07% 4.92% 4.75% 4.94% 4.99%
4.88% 4.85% 4.94%
Efficiency Ratio 67.20% 65.22% 63.60% 63.56% 67.06% 63.85% 52.60%(2) 63.87% 68.06% 64.58% 61.93%
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
(2) Includes $4.2$6.9 million (after-tax)($4.2 million after-tax) one-time gain on sale of credit card portfolio.
1314
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'sour
financial condition and results of operations and should be read in
conjunction with the Consolidated Financial Statements and related notes.
The MD&A is divided into subsections entitled "Business Overview," "Financial
Overview," "Results of Operations," "Financial Condition," "Liquidity and
Capital Resources," "Off-Balance Sheet Arrangements," and "Accounting
Policies." Information therein should facilitate a better understanding of
the major factors and trends that affect the Company'sour earnings performance and
financial condition, and how the Company'sour performance during 20052006 compares with prior
years. Throughout this section, Capital City Bank Group, Inc., and its
subsidiary, collectively, are referred to as "CCBG""CCBG," "Company," "we," "us,"
or the "Company."our." 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 on page 26 for average balances and interest rates
presented on a quarterly basis.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in this
Quarterly Report on Form 10-Q.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This reportQuarterly Report on Form 10-Q, including thethis MD&A section, and other Company written and oral
communications and statements may containcontains
"forward-looking statements."statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include,
among others, statements about our beliefs, plans, objectives, goals,
expectations, estimates and intentions that are subject to significant risks
and uncertainties and are subject to change based on various factors, many of
which are beyond our control. The words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan""plan," "target,"
"goal," and similar expressions are intended to identify forward-looking
statements.
All forward-looking statements, by their nature, are subject to risks and
uncertainties. The Company'sOur actual future results may differ materially from those
set forth in itsour forward-looking statements. Please see the Introductory
Note and Item 1A. Risk Factors of our Annual Report on Form 10-K, which
should be read in conjunction with this Quarterly Report (as updated by
Item 1A, "Risk Factors," in Part II of this Quarterly Report), and in our
other filings made from time to time with the SEC after the date of this
report. Our ability to achieve our financial objectives could be adversely
affected by the factors discussed in detail in Item 1A, "Risk Factors," in
our Annual Report on Form 10-K, as well as:
* our ability to integrate the business and operations of companies and
banks that might
causewe have acquired, and those we may acquire in the future financial performance to vary from that describedfuture;
* strength of the United States economy in its
forward-looking statements includegeneral and the credit, market, operational,
liquidity,strength of
the local economies in which we conduct operations;
* effects of harsh weather conditions, including hurricanes;
* inflation, interest rate, market and monetary fluctuations;
* effect of changes in the stock market and other risks discussedcapital markets;
15
* legislative or regulatory changes;
* willingness of customers to accept third-party products and services
for our products and services and vice versa;
* changes in the MD&A sectionsecurities and real estate markets;
* increased competition and its effect on pricing;
* technological changes;
* changes in monetary and fiscal policies of this reportthe U.S. government;
* changes in consumer spending and savings habits;
* growth and profitability of our noninterest income;
* changes in accounting principles, policies, practices or guidelines;
* other periodic reports filedrisks described from time to time in filings with the SEC. In addition,Securities
and Exchange Commission; and
* our ability to manage the following discussion sets forth certain risks and uncertainties thatinvolved in the Company believes could cause its actual future results to differ materially
from expected results.foregoing.
However, other factors besides those listed belowabove, in our Quarterly Report or
discussed in the Company's reports to the SECour Annual Report also could adversely affect the
Company'sour results, and the readeryou should
not consider any such list of factors to be a complete set of all potential
risks or uncertainties. This
discussion is provided as permitted by the Private Securities Litigation
Reform Act of 1995. The following factors, among others, could cause our
financial performance to differ materially from what is contemplated in those
forward-looking statements.
* Our ability to integrate the business and operations of companies and
banks that we have acquired and that we may acquire in the future. For
example, the Company may fail to realize the growth opportunities and
cost savings anticipated to be derived from our acquisitions. In
addition, it is possible that during the integration process of our
acquisitions, the Company could lose key employees or the ability to
maintain relationships with customers.
* 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;
14
* The effects of harsh weather conditions, including hurricanes;
* 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;
* 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;
* 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.
Any forward-looking statements made by us or on our
behalf of the Company speak only as of the date they are made. We do not undertake to
update any forward-
lookingforward-looking statement, whether written or oral, that may be made from time to
timeexcept as required by us or on our behalf. The Company may make further disclosures ofapplicable law.
BUSINESS OVERVIEW
We are a forward-looking nature in its Annual Reports on Form 10-K, its Quarterly
Reports on Form 10-Q and its current report on Form 8-K.
The Company isfinancial holding company headquartered in Tallahassee, Florida and
asare the parent of June 30, 2005
had 68 bankingour wholly-owned subsidiary, Capital City Bank (the
"Bank"). The Bank offers a broad array of products and services through a
total of 69 full-service offices six mortgage lending offices, 79 ATMs and 11 Bank'N
Shop locationslocated in Florida, Georgia, and Alabama.
15The Bank also has mortgage lending offices in three additional Florida
communities, and one Georgia community. The Bank offers commercial and
retail banking services, as well as trust and asset management, merchant
services, brokerage and data processing services.
Our profitability, like most financial institutions, is dependent to a large
extent upon net interest income, which is the difference between the interest
received on earning assets, such as loans and securities, and the interest
paid on interest-bearing liabilities, principally deposits and borrowings.
Results of operations are also affected by the provision for loan losses,
operating expenses such as salaries and employee benefits, occupancy and
other operating expenses including income taxes, and non-interest income such
as service charges on deposit accounts, asset management and trust fees,
mortgage banking revenues, merchant services, brokerage and data processing
revenues.
Our philosophy is to grow and prosper, building long-term relationships based
on quality service, high ethical standards, and safe and sound banking
practices. We are a super-community bank in the relationship banking
business with a locally oriented, community-based focus, which is augmented
by experienced, centralized support in select specialized areas. Our local
market orientation is reflected in our network of banking office locations,
experienced community executives, and community advisory boards which support
our focus on responding to local banking needs. We strive to offer a broad
array of sophisticated products and to provide quality service by empowering
associates to make decisions in their local markets.
16
Pursuant to our long-term strategic initiative, "Project 2010", we have
continued our expansion, emphasizing a combination of growth in existing
markets and acquisitions. Acquisitions will continue to be focused on a
three state area including Florida, Georgia, and Alabama with a particular
focus on financial institutions, which are $100 million to $400 million in
asset size and generally located on the outskirts of major metropolitan
areas. We continue to evaluate de novo expansion opportunities in attractive
new markets in the event that acquisition opportunities are not feasible.
Other expansion opportunities that will be evaluated include asset
management, insurance, and mortgage banking.
Recent Acquisitions. On May 20, 2005, we completed our merger with First
Alachua Banking Corporation ("FABC"), headquartered in Alachua, Florida. We
issued approximately 906,000 shares of common stock and paid approximately
$29.0 million in cash for a total purchase price of $58.0 million. FABC's
wholly-owned subsidiary, First National Bank of Alachua, had $228.3 million
in assets at closing with seven offices in Alachua County and an eighth
office in Hastings, Florida, which is in St. Johns County.
FINANCIAL OVERVIEW
A summary overview of our financial performance for the first quarter of 2006
versus the first quarter of 2005 is provided below. Results for the first
quarter of 2006 include the impact of the acquisition of FABC in May 2005.
Highlights -
* Quarterly earnings totaled $7.4 million, or $0.40 per diluted share,
increases of 16.4% and 11.1%, respectively.
* Earnings improvement driven by growth in operating revenue reflective
of an 18.6% increase in net interest income and 17.9% increase in
noninterest income.
* Growth in net interest income is reflective of loan growth from the May
2005 acquisition and strong organic loan growth throughout 2005, and
improvement in the net interest margin.
* Net interest margin improved 33 basis points primarily due to a
favorable re-pricing on existing assets and higher yields on new loan
production.
* Growth in noninterest income is primarily due to a 30.6% increase in
deposit service charge fees primarily reflective of growth in free
checking accounts.
* Continued strong credit quality as reflected by a nonperforming asset
ratio of .28% and an annualized net charge-off ratio of .16%.
* We remain well capitalized with a risk based capital ratio of 13.94%.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings for the three and six months ended June 30, 2005 were $7.9$7.4 million, or $0.44$.40 per diluted share, and $14.2 million, or $0.80 per diluted share,
respectively.for the first quarter
of 2006. This compares to $6.4 million, or $0.38$.36 per diluted share and $11.3 million, or $0.68 per diluted share in 2004.
The growth in earnings for the
threefirst quarter of 2005, increases of 16.4% and six month periods11.1%, respectively. Results
include the impact of the acquisition of FABC in May 2005.
The increase in our earnings was driven byprimarily attributable to an increase in
operating revenues and a decrease in the loan loss provision.
Operating revenuesrevenue (defined as net interest income plus noninterest income) increased 22.1%of
$6.6 million, or 18.4%, partially offset by an increase in our loan loss
provision of $257,000, or 62.7%, noninterest expense of $4.8 million, or
19.1%, and 21.7% over the comparable three and six month periods in
2004. Growthincome taxes of $435,000,
17
or 12.2%. The increase in operating revenues is reflective of higherrevenue reflects an 18.6% increase in
net interest income and a 17.9% increase in noninterest income. NetThe increase
in net interest income increased 28.9% and
27.5%, respectively, on a dollar basis, for the three and six month periods
dueis attributable to strong earning assetloan growth and an improvedimproving net
interest margin. The
increase inOur noninterest income is due toincreased because of higher deposit
service charge fees, asset managementretail brokerage fees, and merchantcard processing fees. The
loan loss provision declined
33.1% and 48.2% over the same periods in 2004. The lowerhigher loan loss provision reflects continued strong credit quality.a higher level of required reserves.
Higher expense for compensation and occupancy drove the increase in
noninterest expense.
A condensed earnings summary is presented below.below:
For the Three Months
Ended Six Months Ended
June 30, June 30,
------------------ ------------------March 31,
----------------------------
(Dollars in Thousands) 2006 2005
2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------------------------
Interest Income $33,910 $24,265 $64,384 $46,935$39,412 $30,474
Taxable Equivalent Adjustment(1) 274 289 555 608
------- -------331 281
------- -------
Interest Income (FTE) 34,184 24,554 64,939 47,54339,743 30,755
Interest Expense 6,788 3,221 12,708 6,399
------- -------10,282 5,920
------- -------
Net Interest Income (FTE) 27,396 21,333 52,231 41,14429,461 24,835
Provision for Loan Losses 388 580 798 1,541667 410
Taxable Equivalent Adjustment 274 289 555 608
------- -------331 281
------- -------
Net Interest IncomeInt. Inc. After Provision 26,734 20,464 50,878 38,99528,463 24,144
Noninterest Income 12,041 11,031 23,101 20,912
Merger Expense 234 4 234 4613,045 11,060
Noninterest Expense 26,362 21,597 51,629 42,630
------- -------30,092 25,267
------- -------
Income Before Income Taxes 12,179 9,894 22,116 17,23111,416 9,937
Income Taxes 4,311 3,451 7,871 5,941
------- -------3,995 3,560
------- -------
Net Income $ 7,8687,421 $ 6,443 $14,245 $11,290
======= =======6,377
======= =======
Percent Change 22.12% .05% 26.17% (11.80)%16.37% 30.84%
Return on Average Assets(2) 1.28% 1.34% 1.21% 1.21%1.16% 1.12%
Return on Average Equity(2) 11.35% 12.33% 10.66% 10.90%9.66% 9.91%
(1) Computed using a statutory tax rate of 35%
(2) Annualized
Net Interest Income
- -------------------
Net interest income represents the Company'sour 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. SecondFirst quarter of 2005 taxable-equivalenttaxable-
equivalent net interest income increased $6.1$4.6 million, or 28.4%18.6%, over the
comparable quarter in 2004. During the first
half of 2005, taxable-equivalent net interest income increased $11.1
million, or 26.9%, respectively, over the first half of 2004.2005. This favorable impactincrease was caused by the effect of three acquisitions (twoour
acquisition of FABC, higher earning asset yields and a slight improvement in 2004
and one in 2005), an improved
earning asset mix, and higher yields; partially offset by increasedhigher funding costs resulting fromand change in
deposit mix. The increase in yields and funding costs are a result of the
higher interest rate environment. The combination of these factors resulted
in a 33 basis point improvement in the net interest margin as compared to the
first quarter of 2005. Table I on page 26 provides a comparative analysis of the
Company'sour
average balances and interest rates.
16
For the three month period ended June 30, 2005,first quarter of 2006, taxable-equivalent interest income increased
$9.6$9.0 million, or 39.2%,29.2% over the comparable periodquarter in 2004.
During2005. The increase was
attributable to a change in earning asset mix, higher yields on earning
assets, and the acquisition of FABC. Earning asset yields improved 100 basis
points to 7.08% in the first halfquarter of 2005, taxable-equivalent interest income improved
$17.4 million, or 36.6%, respectively, over2006 from 6.09% in the comparable period in 2004.
During the secondfirst quarter
of 2005 growth in interest income resultedand 6.81% from strong loan demand, the recent acquisition of the First National Bank of
Alachua ("FNBA"), and higher earning asset yieldsprior quarter, primarily attributable to the
risinghigher interest rate environment. New loan production and repricing of existing earning
assets produced a 58 basis point improvement in the yieldWe anticipate that our income on earning
assets which increased from 5.74% for the second quarter in 2004 to 6.32% for the
same period in 2005. The Federal Reserve increased interest rateswill expand during the second quarter of 2005, which continue to impact new production and
repricing. Income generated on earning assets is anticipated to expand in
the third quarter due to the improved earning asset mix and the higher rate
environment.
Interest expense for the three and six month periods ended June 30, 2005first quarter increased $3.6$4.4 million, or 110.7% and $6.3 million, or 98.6%73.7%, respectively, from
the comparable prior year periods.prior-year period. The unfavorable variance is attributable
to higher rates acquired depositspaid on all interest bearing liabilities and an unfavorable shiftincrease in
mix, as certificates of deposit, generally a higher cost deposit product,
increased relativelong-term debt costs resulting from debt secured to total deposits.fund the FABC acquisition.
The average rate
18
paid on interest bearing liabilities of 2.39% in 2005 increased 63the first quarter of 2006
represents an increase of 22 and 78 basis points, respectively, over the
second
quarterfourth and first quarters of 2004, to a level of 1.69%.
Interest2005. We anticipate that our interest expense
is anticipatedwill continue to increase in the thirdsecond quarter as a result of the higher rate
environment and increased competition for funding sources.
The Company'scompetition.
Our interest rate spread (defined as the average federal taxable-
equivalenttaxable-equivalent
yield on earning assets less the average rate paid on interest bearing
liabilities) decreasedincreased from 4.63%4.48% in the first halfquarter of 20042005 to 4.56%4.69% in
the comparable period of 2005,2006, reflecting the higher cost of funds.
The Company'syield on earning assets.
Our net yield on earning assets (defined as federal taxable-equivalent net
interest income divided by average earning assets) was 5.07% and 4.99%,
respectively, for5.25% in the first
three and six month periodsmonths of 2005,2006, versus 4.99% and
4.93%, respectively, for4.92% in the comparable periods in 2004.first three months of 2005. The
increase in margin reflects higher asset yields driven by rising interest
rates,
partially offset by higher cost of funds.rates. If interest rates continue to rise at a measured pace, we anticipate
that the net yield on earning assets is anticipated to increasewill remain constant or may slightly
improve during the thirdsecond quarter of 2005.2006 as higher yields will only be
partially offset by the rising costs of funds. Net interest income is
expected to expand slightly during the thirdsecond quarter, which is attributable
to anticipated higher net yield on earning assets, a favorable shift in mix of
earning assets and other factors noted above.
ProvisionProvisions for Loan Losses
- -------------------------
The provision for loan losses was $388,000 and $798,000, respectively,of $667,000 for the three and six month periods ended June 30, 2005, compared to $580,000 and
$1.5 million for the same periods in 2004. The decrease in the provision forquarter was higher than the
first halfquarter of 2005 reflectsdue to a lowerhigher level of net charge-offs between
comparable periods.required reserves based on our
analysis of the allowance for loan losses at quarter-end. Net charge-offs
totaled $362,000,$798,000, or .08%.16% of average loans for the secondquarter compared to
$407,000, or .09% for the first quarter of 2005 compared to $631,000, or .18% for the second quarter of 2004.
The primary reason for the decrease in net charge-offs is attributable to a
lower level of credit card charge-offs due to the sale of the portfolio.2005. At quarter-end the
allowance for loan losses was .85%.84% of outstanding loans and provided coverage
of 289%331% of nonperforming loans.
17
Charge-offDetail of charge-off activity for the respective periods is set forth below:
Three Months Ended
Six Months Ended
June 30, June 30,
--------------------March 31,
--------------------
(Dollars in Thousands) 2006 2005
2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------------------------------
CHARGE-OFFS
Commercial, Financial and Agricultural $ 302322 $ 286 $ 390 $ 45388
Real Estate - Construction - -
- -
Real Estate - Commercial Mortgage 2 - 6 39291 4
Real Estate - Residential 37 11 62 9422 25
Consumer 536 885 1,254 1,932
------ ------591 718
------ ------
Total Charge-offs 877 1,182 1,712 2,518
------ ------1,226 835
------ ------
RECOVERIES
Commercial, Financial and Agricultural 98 24 107 3662 9
Real Estate - Construction - -
- -
Real Estate - Commercial Mortgage - - -3 -
Real Estate - Residential 14 176 16 1767 2
Consumer 403 333 820 680
------ ------356 417
------ ------
Total Recoveries 515 533 943 892
------ ------428 428
------ ------
Net Charge-offs $ 362798 $ 649 $ 769 $1,626
====== ======407
====== ======
Net Charge-offsCharge-Offs (Annualized) as a
Percent of Average Loans Outstanding,
Net of Unearned Interest .08% .18% .08% .23%
====== ======.16% .09%
====== ======
Noninterest Income
- ------------------
Noninterest income increased $1.0$2.0 million, or 9.2%17.9%, and $2.2 million, or
10.5%, respectively, overfrom the comparable three and six month periods in 2004,first quarter
of 2005 primarily due to higher deposit service charge fees, asset managementretail brokerage
fees, card processing fees, and merchant fees.other income. Noninterest income represented
30.7% and 30.9% of operating revenue forrevenues in the three and six month periodsfirst quarter of 20052006 compared to 34.4% and 34.0%31.1%
for the same periodsperiod in 2004.2005.
19
The decrease is due to strong
growthtable below reflects the major components of noninterest income.
Three Months Ended
March 31,
---------------------
(Dollars in Thousands) 2006 2005
- -------------------------------------------------------------------
Noninterest Income:
Service Charges on Deposit Accounts $ 5,680 $ 4,348
Data Processing 637 607
Asset Management Fees 1,050 1,112
Retail Brokerage Fees 483 299
Mortgage Banking Revenues 721 763
Merchant Services Fees 1,725 1,564
Interchange Fees 675 491
ATM/Debit Card Fees 599 538
Other 1,475 1,338
------- -------
Total Noninterest Income $13,045 $11,060
======= =======
Various significant components of noninterest income are discussed in net interest income during 2005.more
detail below.
Service chargesCharges on deposit accountsDeposit Accounts. Deposit service charge fees increased
$608,000, or 13.7% and $1.0$1.3 million, or 12.1%30.6%, respectively, overfrom the comparable three and six month
periodsperiod in 2004.2005. The increase
isreflects higher overdraft and nonsufficient funds fees due primarily to the
growth in deposit accounts partially attributable to acquisitions, a fee structure change implemented in
mid-2004, and an increase in non-sufficient funds (NSF) and overdraft fees
due to increased NSF activity.
Data processing revenues of $650,000 and $1.3 million for the three and six
month periods ended June 30, 2005 reflect a decrease of 7.5% and 5.9%,
respectively, from the comparable periods in 2004. The decline is due to
slightly lower revenues from one processing contract with a state agency.
The Company currently provides data processing services for six financial
clients and contract processing services for six non-financial clients. For
the first half of 2005 and 2004, processing revenues for financial clients
represented 67.6% and 64.4% of total processing revenues, respectively.free checking
accounts.
Asset Management anticipates that revenues for the remainder of 2005 will remain
consistent with the first half of the year.Fees. Income from asset management activities increased $63,000,decreased
$62,000, or 6.6%5.6%, and
$434,000, or 25.7%, respectively, over the comparable three and six month
periods in 2004. The improvement for the three-month period is due primarily
to growth in new business within existing markets. The increase for the
first half of 2005 reflects trust assets acquired late in the first quarter
of 2004. At June 30, 2005, assets under management totaled $651.0 million,
representing an increase of $18.6 million, or 2.9% from the comparable period in 2004. Management anticipates that revenues for the remainder of 2005 will
remain consistent with the first half of the year.
18
2005.
Mortgage Banking Revenues. Mortgage banking revenues increased $50,000,decreased $42,000, or
5.1%5.5%, and $119,000, or 7.1%,
respectively, overfrom the comparable threeperiod in 2005. The decrease reflects the local
and six month periods in 2004. The
improvement is due to an increase in mortgage production, which is up 24.0%
over the first halfnational trend of 2004, reflecting growth in both portfolio loans (ARM
product)a slower housing market and loans sold in the secondary market. Due to the increasing rate
environment, a larger percentage of total production is being retained in the
loan portfolio. Loans sold in the secondary market during the first half of
2005 increased 9.5% over the first half of 2004 to adecreased level of
$101.4 million.refinance activity. The residential loan pipeline at the end of the second quarter of 2005
reflects an increase of 27.2% over the pipeline atpicked up momentum toward the
end of the first quarter and is now at a level slightly lower than the first
quarter of 2005.
Other incomeCard Fees. Card processing fees (including merchant services fees,
interchange fees, and ATM/debit card fees) increased $361,000,$406,000, or 9.1%15.7%, and $722,000, or 9.2%,
respectively, over
the comparable three and six month periodsperiod in 2004. The
increase for both periods is primarily2005 due to growth in card processing fees
and miscellaneous loan fees.
Noninteresttransaction volume.
Other. Other income as a percent of average assets was 1.95% and 2.24%,
respectively, for the first half of 2005 and 2004.
Noninterest Expense
- -------------------
Noninterest expense increased $5.0 million,$137,000, or 23.1%10.2%, and $9.2 million, or
21.5%, respectively, over the comparable threeperiod
in 2005 due primarily to increases in credit life/vendor single interest
commission fees and six month periodscheck printing fees.
Noninterest Expense
Noninterest expense in 2004.
Factors impacting the Company'sfirst quarter of 2006 increased $4.8 million, or
19.1%, over the first quarter of 2005.
20
The table below reflects the major components of noninterest expense.
Three Months Ended
March 31,
---------------------
(Dollars in Thousands) 2006 2005
- ---------------------------------------------------------------
Noninterest Expense:
Salaries $11,715 $ 9,658
Associate Benefits 3,715 2,902
------- -------
Total Compensation 15,430 12,560
Premises 2,223 1,937
Equipment 2,500 2,112
------- -------
Total Occupancy 4,723 4,049
Legal Fees 517 368
Professional Fees 754 696
Processing Services 434 399
Advertising 999 1,200
Travel and Entertainment 386 265
Printing and Supplies 607 451
Telephone 622 519
Postage 281 325
Intangible Amortization 1,530 1,196
Interchange Fees 1,494 1,341
Courier Service 330 308
Miscellaneous 1,985 1,590
------- -------
Total Other 9,939 8,658
------- -------
Total Noninterest Expense $30,092 $25,267
======= =======
Various significant components of noninterest expense for the first six months
of 2005 are discussed in more
detail below.
Compensation. Salaries and associate benefitsbenefit expense increased $2.4$2.9 million,
or 22.0%22.9%, and
$4.2 million, or 19.5% over the comparable three and six month periods in
2004. For the first halfquarter of the year, the Company experienced increases in2005. This increase is due primarily to
higher associate salaries and payroll taxes of $2.9$1.4 million, payroll tax expense of $328,000, pension
plan expense of $154,000, associate insurance expense of $328,000, and stock-higher cash
performance based compensation of $523,000.$387,000 (cash incentive and profit
participation), higher stock based compensation of $223,000, higher benefit
expense (insurance and pension) of $483,000, and lower realized loan cost of
$235,000. The increasesincrease in associate salaries and payroll tax expenses
primarily reflects the addition of associates from acquisitionsthe FABC acquisition in
2004 andMay 2005 and annual merit/market based raises for associates. The higher pension
expense is due primarily to a lower discount rate used for the 2005 expense
projection. The increase
in associate insurance expense is primarily
attributable to additional participants andcash performance based compensation reflects a higher healthcare insurance
premiums. The increase in stock-basedachievement rate of
performance goals. Higher stock based compensation reflects an increase in
plan participants and higher target awards due to the numberadoption of participantsour new
Stock-Based Incentive Plan. The increase in expense for insurance and
pension benefits is also reflective of an increase in eligible participants.
Realized loan cost reflects the Company's stock compensation plansimpact of SFAS No. 91, which requires
deferral and amortization of loan costs that are accounted for as a higher levelcredit
offset to salary expense. The decrease in loan production for the quarter
reduced the amount of projected performance.this offset as compared to the first quarter of 2005.
Occupancy. Occupancy expense including(including premises furniture, fixtures and equipmentequipment) increased
$501,000,$674,000, or 13.4%16.7%, and $870,000, or 11.7%, respectively, over the comparable three and six month periods in 2004. For the first halfquarter of the
year, the Company2005. We experienced increases
in depreciation of $185,000,$297,000, maintenance and repairs (building)(building and FF&E) of
$261,000,$135,000, utilities of $66,000,
property taxes of $191,000, tangible tax of $96,000,$72,000, and maintenance agreements (FF&E) of $218,000$173,000
from the comparable period in 2004. The2005, all of which reflect the increase in the
aforementioned expense categories is primarily reflectivenumber of incremental
expense incurred with the addition of 12banking offices from recent acquisitions and new banking offices sinceoffice
openings during the second
quarterlater part of 2004.2005.
Other. Other noninterest expense increased $1.5$1.3 million, or 24.7%14.8%, and $3.1 million,
or 26.8%, respectively, over the
comparable three and six month periods in
2004. For the first halfquarter of the year, the increase was primarily
attributable2005. Legal fees have increased due to higher expense for the following categories: 1) legal -
$190,000; 2) professional fees - $339,000; 3) processing services - $244,000;
4) advertising - $894,000; 5) printing and supplies - $197,000; 6) travel and
entertainment - $136,000; and 7) interchange service fees - $391,000. The
increase in legal fees is reflective of increased corporate governance
initiatives and a general increase
in legal services tied to corporate activities. The increase in professional fees is due to higher expense for
external audit fees. The higher expense for processing fees is attributable
to the cost of integrating recent acquisitions and core processing system
upgrades. The increase in advertising expense reflects the marketing cost to
support the new free checking product introduced in the first quarter of
2005. The higher expense for printing and supplies and
travel and entertainment is linked primarily to associate related events that
took place during the quarter. The increase in printing and supplies expense
was driven by an increase
21
in the recent acquisitions.number of banking offices requiring printed brochures for bank
products and services, and supplies. Telephone expense increased also due to
an increase in banking offices. The increase in intangible amortization
reflects new core deposit amortization from the FABC acquisition. The
increase in interchange fees is due to increased merchant card processingtransaction
volume. 19
Miscellaneous expense grew due to increases in other losses,
ATM/debit card production, associate hiring expense, and seminars/education
expense.
Net noninterest expense (noninterest income minus noninterest expense,
excluding intangible amortization and one-time merger expenses)amortization) as a percent of average assets was 2.20% for2.38%
in the first halfquarter of 20052006 compared to 2.14%2.29% in 2004. The Company's2005. Our 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 65.23%67.20% in the first quarter 2006 compared to 67.06% for the
first half of 2005 compared to 65.87% for the first half
of 2004.comparable quarter in 2005.
Income Taxes
- ------------
Relative to the prior year periods, theThe provision for income taxes increased $860,000,$435,000, or 24.9%12.2%, during the second quarter and $1.9 million, or 32.5%,
duringover the first
six monthsquarter of 2005, reflecting higher taxable income. The
Company'sOur effective tax rate
for the first halfquarter of 20052006 was 35.6%35.1% compared to 34.5%35.8% for the same
periodquarter in 2004.2005. The increasedecrease in the effective tax rate is primarily
attributable to a lowerhigher level of tax-free loan and securitysecurities income.
FINANCIAL CONDITION
Asset and liability balances include the integration of Farmers and Merchants
Bank of Dublin on October 15, 2004, and First National Bank of Alachua onFABC in May 20, 2005.
The Company's averageAverage assets increased $136.0decreased $3.1 million, or 5.9%.12%, to $2.46$2.604 billion for the
quarter-ended June 30, 2005March 31, 2006 from $2.32$2.607 billion in the fourth quarter of
2004.2005. Average earning assets of $2.17$2.276 billion increased $104.4decreased $3.3 million, or
5.1%..15%, from the fourth quarter of 2004 driven2005, attributable to a $14.1 million
decline in average loans and a $6.5 million decline in average investment
securities, partially offset by a $152.9$17.3 million
or 8.6%, increase in average loans. The growthshort
term investments. These variances are discussed in loans reflects the recent
FNBA acquisition and strong organic loan growth.
The Companymore detail below.
Funds Sold
We ended the secondfirst quarter with approximately $13.0$29.5 million in average net
overnight funds sold, as compared to $60.6$5.7 million in net overnight funds soldpurchased
in the fourth quarter of 2004.2005. The declineimprovement reflects the increase in
deposits that is primarily
reflective ofdiscussed in further detail below (Deposits). Growth in
deposits during the Company's loan growth. For a further discussionquarter helped to reduce the reliance on liquidity see the section "Liquidity and Capital Resources."
Thepurchasing
overnight funds.
Investment Securities
Our investment portfolio is a significant component of the Company'sour operations and, as
such, it functions as a key element of liquidity and asset/liability
management. As of June 30, 2005,March 31, 2006, the average investment portfolio decreased
$12.5$6.5 million, or 6.1%3.6%, from the fourth quarter of 2004.
Cash from portfolio run-off for the first half of the year has been used to
fund loan growth. Management2005. We will continue to
evaluate the need to purchase securities for the investment portfolio
throughout 2005,2006, taking into consideration liquidity needed to fund loan
growth acquisitions, and to meet pledging requirements.
Securities classified as available-for-sale 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, 2005March 31,
2006 and December 31, 2004,2005, shareowners' equity included a net unrealized
loss of $0.7$1.3 million and $0.4$1.2 million, respectively.
Loans
Average loans increased $152.9for the first quarter decreased $14.1 million, or 8.6%.69%, from
the fourth quarter, due to higher than expected loan activity (principal pay-
downs and pay-offs). Lower than expected loan production was realized during
the first quarter, however,
22
the pipeline of 2004. The increase was driven by gains in allnew loan categories reflective of
loans integrated from the FNBA acquisitionrequests has accelerated and from organicnet loan growth foris
expected in the first half of the year. Exclusive of the FNBA acquisition, period end
loans increased $97.5 million, or 5.3% over the fourth quarter of 2004. Loan
activity in all markets remains moderate to strong.
The Company'ssecond quarter.
Our nonperforming loans were $6.2$5.2 million at June 30, 2005,March 31, 2006 versus $4.6$5.3
million at December 31, 2004. The increase is attributable to the addition of
one large commercial real estate loan relationship for which the bank
recently received a deed in lieu of foreclosure. Management expects no
significant loss upon the disposition of this asset.2005. As a percent of nonperforming loans, the
allowance for loan losses represented 289%331% at June
30, 2005 versus 345% atMarch 31, 2006 and December 31,
2004.2005. 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 $0.2$0.6 million at 20
June 30, 2005,March 31,
2006 versus $0.6$0.3 million at December 31, 2004.2005. The ratio of nonperforming
assets as a percent of loans plus other real estate was .30%.28% at June 30, 2005March 31,
2006, compared to .29%.27% at December 31, 2004.
Management maintains the2005.
We maintain an 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
willingnessinability or unwillingness
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 evaluatesWe evaluate the
adequacy of the allowance for loan losses on a quarterly basis.
The allowance for loan losses at June 30, 2005March 31, 2006 was $17.5$17.3 million, compared
to $16.0$17.4 million at year-end 2004. The increase from year-end primarily
reflects the integration of acquired loan reserves from FNBA in the second
quarter ofDecember 31, 2005. At quarter-endMarch 31, 2006 and December 31,
2005, the allowance represented 0.85%0.84% of total loans. While there can be no
assurance that the Companywe will not sustain loan losses in a particular period that
are substantial in relation to the size of the allowance, management'sour assessment of
the loan portfolio does not indicate a likelihood of this occurrence. It is
management's opinion that the allowance at June 30, 2005March 31, 2006 is adequate to
absorb losses inherent in the loan portfolio at quarter-end.
Deposits
Average total deposits for the first quarter of 2006 increased $78.6$16.2 million, or
4.2%..80% from the fourth quarter of 2004 driven by a $84.1 million2005 due to continued strong increases in NOW
($26.5 million) and money market ($35.7 million) account balances. The
increases reflect new free checking deposits and an increase in nonmaturity deposits.
This increase primarily reflects accounts added from the FNBA acquisition and
new accounts gained from the Company's free-checking campaign initiated early
in the first quarter of 2005.Cash Power
money market balances.
The ratio of average noninterest bearing deposits to total deposits was 28.2%25.7%
for the secondfirst quarter of 20052006, compared to 29.9%26.8% for the fourth quarter of
2004.2005. The decline in the percentage is attributable to the strong growth in
interest bearing nonmaturity deposits, primarily interest bearing free
checking accounts and Cash Power money market accounts. For the same periods,period,
the ratio of average interest bearing liabilities to average earning assets
was 74.2%,76.6% and 72.1%75.8%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
- ---------
General. Liquidity for a banking institution is the availability of funds to
meet increased loan demand, excessive deposit withdrawals, and the payment of
other contractual cash obligations. Management monitors the Company'sour financial
position in an effort to ensure the Company haswe have ready access to sufficient liquid
funds to meet normal transaction requirements and 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,
our bank lines of credit, for the Company, approved lines for the purchase of federal funds by
CCB and Federal Home Loan Bank ("FHLB") advances.
23
Average liquidity (defined as funds sold and interest bearing deposits with
other banks) for the first quarter of 2006 was approximately $49.6 million,
an increase of $17.3 million from the fourth quarter of 2005. The increase
is primarily reflective of deposit growth. Management expects liquidity
levels to decline in the second quarter due to funding of planned loan
growth.
Borrowings. The Company maintainsWe have the ability to draw on a $25.0 million Revolving Credit
Note, due on October 15, 2007. Interest is payable quarterly at LIBOR plus
an applicable margin on advances. The revolving linecredit is unsecured. The
existing loan agreement contains certain financial covenants that we must
maintain. At March 31, 2006, we were in compliance with all of credit.
Asthe terms of
June 30, 2005, the Companyagreement and had no borrowings$25.0 million available under the revolving line
of credit.credit facility.
For the first sixthree months of the year, the Bank has made scheduled FHLB advance
payments totaling $51.1approximately $0.7 million and obtained $53.8 million inone new FHLB
advances. The aforementioned borrowing activity for the year
includes a new short-term advance for $50.0 million that was obtained in May
and repaid in June.
21
The Company$3.2 million.
We issued a $32.0 million junior subordinated deferrable interest note in May
2005 to a wholly owned Delaware statutory trust, Capital City Bank Group
Capital Trust II ("CCBG Capital Trust II"). Interest payments are due
quarterly at a fixed rate of 6.07% for the first five years, then adjustableadjusts
annually tothereafter based on the three month LIBOR plus a margin of 1.80%.
The note matures on June 15, 2035. The proceeds of the borrowing were used
to partially fund the First National Bankcash portion of Alachua acquisition.
The Company ended the second quarteracquisition price for the purchase of 2005 with approximately $13.0 million
in average net overnight funds sold as compared to $60.6 million net
overnight funds sold in the fourth quarter of 2004. The decline reflects
cash used to fund loan growth. If loan growth continues at its current pace,
the Company expects to be a net purchaser of funds in the third quarter.FABC.
Contractual Cash Obligations. The Company maintainsWe maintain certain debt and
operating lease commitments that requirecontractual arrangements
to make future cash payments. The table below details those future cash
commitmentspayment obligations as of June 30, 2005:March 31, 2006. Payments for borrowings do not
include interest. Payments related to leases are based on actual payments
specified in the underlying contracts.
Payments Due After June 30, 2005By Period
-----------------------------------------------
1 Year 1 - ---------------------------------------------------------------------------------------
20053 4 - 5 After
(Dollars in Thousands) (Remaining) 2006 2007 2008 2009 Thereafteror Less Years Years 5 Years Total
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Advances $17,320 $22,843 $5,905 $4,905 $2,775$32,112 $3,028 $6,349 $ 33,12431,673 $ 86,87273,162
Subordinated Notes Payable - - - - - 62,887 62,887
Operating Lease Obligations 707 1,243 1,122 1,114 1,104 7,129 12,4191,059 2,512 2,180 7,088 12,839
------- ------- ------ ------ ------ -------- --------
Total Contractual Cash Obligations $18,027 $24,086 $7,027 $6,019 $3,879 $103,140 $162,178$33,171 $5,540 $8,529 $101,647 $148,888
======= ======= ====== ====== ====== ======== ========
Capital
- -------
The Company's equityEquity capital was $295.4$311.1 million as of June 30, 2005March 31, 2006 compared to $256.8$305.8
million as of December 31, 2004.2005. 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 9.28%10.34% at June
30, 2005March 31, 2006
compared to 8.79%10.27% at December 31, 2004.2005. Further, the Company's risk-adjusted capital
ratio of 11.96%13.56% at June 30, 2005March 31, 2006 exceeds the 8.0% minimum requirement under
risk-based regulatory guidelines. As allowed by Federal Reserve Board
capital guidelines the trust preferred securities issued by CCBG Capital
Trust I and CCBG Capital Trust II are included as Tier 1 capital in the Company'sour
capital calculations previously noted.calculations.
Adequate capital and financial strength is paramount to the stability of CCBG
and its subsidiary bank.the Bank. Cash dividends declared and paid should not place unnecessary
strain on the Company'sour 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 iswe are considered to have
adequate capital. Future capital requirements and corporate plans are
considered when the Board considers a dividend payment. Dividends declared
and paid during the secondfirst quarter of 20052006 totaled $.1520$.1625 per share compared
to $.1440$.1520 per share for the secondfirst quarter of 2004,2005, an increase of 5.6%6.9%. The
dividend payout ratios for the secondfirst quarter ended 2006 and 2005 were 40.1%
and 2004 were 34.5% and 37.9%41.6%, respectively.
24
State and federal regulations as well as the Company'sour long-term debt agreements place
certain restrictions on the payment of dividends by both the
CompanyCCBG and the Bank.
At June 30, 2005,March 31, 2006, these regulations and covenants did not impair CCBG or the
Company's (or the Bank's)Bank's ability to declare and pay dividends or to meet other existing
obligations in the normal course of business.
During the first sixthree months of 2005,2006, shareowners' equity increased $38.6$5.3
million, or 30.0%6.9%, on an annualized basis. Growth in equity during the first
halfthree months of the year was positively impacted by net income of $14.2$7.4
million, the issuance of common stock of $29.5$0.5 million, and stock-based
compensation accretion of $0.7$0.4 million. Equity was reduced by dividends paid
during the first halfthree months of the year by $5.5$3.0 million, or $.304$.1625 per
share and
22
an increase in the net unrealized loss on available-for-sale
securities of $0.3$0.1 million. At June 30, 2005, the Company'sMarch 31, 2006, our common stock had a book
value of $15.87$16.65 per diluted share compared to $14.50$16.39 at December 31, 2004.
On July 1, 2005, the Company executed a five-for-four stock split in the form
of a 25% stock dividend, payable to shareowners of record as of close of
business on June 17, 2005.
All share, per share, and shareowners' equity
data in this Form 10-Q have been adjusted to reflect the stock split.
On March 30, 2000, the Company'sOur Board of Directors has authorized the repurchase of up to 781,2501,171,875
shares of its outstanding common stock. On January 24,
2002, the Company's Board of Directors authorized the repurchase of an
additional 390,625 shares of itsour outstanding common stock. The purchases will beare made in the open
market or in privately negotiated transactions. The
Company did not purchase any shares in the second quarterTo date, we have repurchased
a total of 2005. From
March 30, 2000 through June 30, 2005, the Company repurchased 715,884 shares at an average purchase price of $15.34 per share.
We did not repurchase any shares of our common stock in the first three
months of 2006.
OFF-BALANCE SHEET ARRANGEMENTS
The Company doesWe do not currently engage in the use of derivative instruments to hedge
interest rate risks. However, the Company iswe are a party to financial instruments with
off-balance sheet risks in the normal course of business to meet the
financing needs of its customers.our clients.
At June 30, 2005, the CompanyMarch 31, 2006, we had $471.1$440.3 million in commitments to extend credit and
$21.0$18.9 million in standby letters of credit. Commitments to extend credit are
agreements to lend to a customerclient 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 Companyus to guarantee the performance of a customerclient to a third party. The Company usesWe
use the same credit policies in establishing commitments and issuing letters
of credit as it doeswe do for on-balance sheet instruments.
If commitments arising from these financial instruments continue to require
funding at historical levels, management does not anticipate that such
funding will adversely impact 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,FHLB, investment security maturities and the Company'sour revolving credit facility
provide a sufficient source of funds to meet these commitments.
ACCOUNTING POLICIES
Critical Accounting Policies
- ----------------------------
The consolidated financial statements and accompanying Notes to Consolidated
Financial Statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require the Companyus to make
various estimates and assumptions (see Note 1 in the Notes to Consolidated
Financial Statements). The Company believesWe believe that, of itsour significant accounting
policies, the following may involve a higher degree of judgment and
complexity.
Allowance for Loan Losses: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 Companyus 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
25
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 2004our 2005 Annual Report on Form 10-K.
23
Intangible Assets:Assets. Intangible assets consist primarily of goodwill, core
deposit assets, and other identifiable intangibles that were recognized in
connection with various acquisitions. Goodwill represents the excess of the
cost of acquired businesses over the fair market value of their identifiable
net assets. The Company performsWe perform an impairment review on an annual basis to determine
if there has been impairment of itsour goodwill. The Company hasWe have determined that no
impairment existed at December 31, 2004.2005. 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'sour reported results.
Core deposit assets represent the premium the Companywe paid for core deposits. Core
deposit intangibles are amortized on the straight-line method over various
periods ranging from 5.5-105-10 years. Generally, core deposits refer to
nonpublic, nonmaturingnon-maturing deposits including noninterest-bearing deposits, NOW,
money market and savings. The Company makesWe make certain estimates relating to the useful
life of these assets, and rate of run-off based on the nature of the specific
assets and the customerclient 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 hasAssumptions. We have a defined benefit pension plan for the benefit
of substantially all associates of the Company. The Company'sour associates. Our funding policy with respect to
the pension plan is to contribute amounts to the plan sufficient to meet
minimum funding requirements as set by law. Pension expense, reflected in
the Consolidated Statements of Income in noninterest expense as "Salaries and
Associate Benefits",Benefits," is determined by an external actuarial valuation based
on assumptions that are evaluated annually as of December 31, the measurement
date for the pension obligation. The Consolidated Statements of Financial
Condition reflect an accrued pension benefit cost due to funding levels and
unrecognized actuarial amounts. The most significant assumptions used in
calculating the pension obligation are the weighted-average discount rate
used to determine the present value of the pension obligation, the weighted-averageweighted-
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. TheWe anticipate using a 5.75% discount rate utilized for 2005 is 6.00%.2006.
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-termWe anticipate using a rate of return on
plan assets utilizedof 8.0% for 2005 is 8.0%.2006.
The assumed rate of annual compensation increases of 5.50% in 2005for 2006 is based
on expected trends in salaries and the employee base. This assumption is not
expected to change materially in 2005.2006.
Information on components of the Company'sour net periodic benefit cost is provided in
Note 8 of the Notes to Consolidated Financial Statements included herein and
Note 812 of the Notes to Consolidated Financial Statements in the
Company's 2004our 2005 Annual
Report on Form 10-K.
2426
Recent Accounting Pronouncements
- --------------------------------
SFAS No. 154,155, "Accounting Changesfor Certain Hybrid Financial Instruments."
SFAS 155 amends SFAS 133, "Accounting for Derivative Instruments and Error Corrections,Hedging
Activities" and SFAS 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS 155 (i) permits
fair value re-measurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation, (ii)
clarifies which interest-only strips and principal-only strips are not
subject to the requirements of SFAS 133, (iii) establishes a Replacementrequirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, (iv) clarifies that
concentrations of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). SFAS 154
establishes, unless impracticable, retrospective application as the required
method for reporting a change in accounting principlecredit risk in the absenceform of explicit transition requirements specificsubordination are not embedded
derivatives, and (v) amends SFAS 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial
instrument that pertains to a newlybeneficial interest other than another
derivative financial instrument. SFAS 155 is effective for us on January 1,
2007 and is not expected to have a significant impact on our financial
statements.
On January 31, 2006, we adopted accounting
principle. Previously, most changes in accounting principle were recognized
by includingSFAS 123R which requires the cumulative effect of changingcost related to
the new accounting
principlestock-based associate compensation included in net income of the period of the change. Under SFAS 154,
retrospective application requires (i) the cumulative effect of the change
to the new accounting principle on periods prior to those presented to be reflected inaccounted for
under the carrying amounts of assets and liabilities as of the
beginning of the first period presented, (ii) an offsetting adjustment, if
any, to be made to the opening balance of retained earnings (or other
appropriate components of equity) for that period, and (iii) financial
statements for each individual prior period presented to be adjusted to
reflect the direct period-specific effects of applying the new accounting
principle. Special retroactive application rules apply in situations where
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. Indirect effects of a change in accounting
principle are required to be reported in the period in which the accounting
change is made.fair value method. SFAS 154 carries forward the guidance in APB Opinion 20
"Accounting Changes," requiring justification of a change in accounting
principle on the basis of preferability. SFAS 154 also carries forward
without change the guidance contained in APB Opinion 20, for reporting the
correction of an error in previously issued financial statements and for a
change in accounting estimate. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Corporation does not expect SFAS 154123R will significantly impact
its financial statements upon its adoption on January 1, 2006.
In December 2003, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 03-3, "Accounting for
Certain Loans or Debt Securities Acquired in a Transfer." SOP No. 03-3
addresses accounting for differences between contractual cash flows and cash
flows expected to be collected from an investor's initial investment in
loans acquired in a transfer when those cash flow differences are
attributable, at least in part, to credit quality. As such, SOP 03-3
applies to loans and debt securities acquired individually, in pools or as
part of a business combination and does not apply to originated loans. The
application of SOP 03-3 limits the interest income, including accretion of
purchase price discounts, that may be recognized for certain loans and debt
securities. Additionally, SOP 03-3 does not allow the excess of contractual
cash flows over cash flows expected to be collected to be recognized as an
adjustment of yield, loss accrual or valuation allowance, such as the
allowance for loan losses. SOP 03-3 requires that increases in expected
cash flows subsequent to the initial investment be recognized prospectively
through adjustment of the yield on the loan or debt security over its
remaining life. Decreases in expected cash flows should be recognized as
impairment. In the case of loans acquired in a business combination where
the loans show signs of credit deterioration, SOP 03-3 represents a
significant change from current purchase accounting practice whereby the
acquiree's allowance for loan losses is typically added to the acquirer's
allowance for loan losses. SOP 03-3 is effective for loans and debt
securities acquired by the Company beginning January 1, 2005. The Company
has adopted SOP 03-3 and application of its guidance for the recent FABC
acquisition did not have a significant impact on
the Company'sour financial statements. Loans acquired in future acquisitions will continue to bestatements as stock-based associate compensation has been
accounted for under SOP 03-3.
25the provisions of SFAS 123 since the first quarter of
2003.
27
TABLE I
AVERAGE BALANCES & INTEREST RATES
For Three Months Ended March 31,
--------------------------------------------------------------------
2006 2005
----------------------------- -----------------------------
Average Average Average Average
(Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED JUNE 30,
2005 2004
-------------------------- --------------------------
Balance Interest Rate Balance Interest Rate
---------- -------- ----- ---------- -------- -----
Loans, Net of Unearned Interest(1)(2) $1,932,637 $32,200 6.68% $1,491,142 $22,961 6.19%
Taxable Investment Securities 149,958 1,113 2.96% 134,634 745 2.21%
Tax-Exempt Investment Securities(2) 41,316 513 4.97% 50,191 732 5.83%
Funds Sold 46,572 358 3.04% 45,688 116 1.01%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 2,170,483 34,184 6.32% 1,721,655 24,554 5.74%
Cash & Due From Banks 104,336 89,921
Allowance for Loan Losses (16,998) (13,804)
Other Assets 200,967 131,713
---------- ----------
TOTAL ASSETS $2,458,788 $1,929,485
LIABILITIES
NOW Accounts $ 413,799 $ 560 0.54% $ 283,297 $ 121 0.17%
Money Market Accounts 270,195 830 1.23% 215,746 239 0.44%
Savings Accounts 155,286 75 0.19% 129,684 32 0.10%
Other Time Deposits 547,919 3,153 2.31% 433,514 1,993 1.85%
---------- ------- ---- ---------- ------- ----
Total Int. Bearing Deposits 1,387,199 4,618 1.34% 1,062,241 2,385 0.90%
Short-Term Borrowings 108,508 734 2.71% 109,723 249 0.91%
Subordinated Note Payable 45,681 667 5.86% - - -
Other Long-Term Borrowings 68,975 769 4.47% 53,752 587 4.39%
---------- ------- ---- ---------- ------- ----
Total Int. Bearing Liabilities 1,610,363 6,788 1.69% 1,225,716 3,221 1.06%
Noninterest Bearing Deposits 544,945 476,389
Other Liabilities 25,373 17,169
---------- ----------
TOTAL LIABILITIES 2,180,681 1,719,274
SHAREOWNERS' EQUITY
TOTAL SHAREOWNERS' EQUITY 278,107 210,211
---------- ----------
TOTAL LIABILITIES & EQUITY $2,458,788 $1,929,485
========== ==========
Interest Rate Spread 4.63% 4.68%
==== ====
Net Interest Income $27,396 $21,333
======= =======
Net Interest Margin(3) 5.07% 4.99%
==== ====
FOR SIX MONTHS ENDED JUNE 30,
2005 2004
-------------------------- --------------------------
Balance Interest Rate Balance Interest Rate
---------- -------- ----- ---------- -------- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans, Net of Unearned Interest(1)(2) $1,880,272 $61,120 6.56% $1,424,175 $44,271 6.25%$2,048,642 $37,439 7.41% $1,827,327 $28,920 6.42%
Taxable Investment Securities 151,740 2,203 2.91% 128,167 1,380 2.15%118,055 1,091 3.70% 153,543 1,090 2.85%
Tax-Exempt Investment Securities(2) 42,615 1,099 5.16% 52,233 1,554 5.95%59,368 674 4.54% 43,928 586 5.33%
Funds Sold 34,479 517 2.98% 73,487 338 0.91%49,602 539 4.36% 22,251 159 2.85%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 2,109,106 64,939 6.21% 1,678,062 47,543 5.70%2,275,667 39,743 7.08% 2,047,049 30,755 6.09%
Cash & Due From Banks 100,848 90,124109,907 97,322
Allowance for Loan Losses (16,585) (13,264)(17,582) (16,167)
Other Assets 189,849 125,069236,466 178,603
---------- ----------
TOTAL ASSETS $2,383,218 $1,879,991$2,604,458 $2,306,807
========== ==========
LIABILITIES
NOW Accounts $ 386,626510,270 $ 1,007 0.53%1,446 1.15% $ 277,588359,151 $ 245 0.18%447 0.50%
Money Market Accounts 261,072 1,455 1.12% 215,412 478 0.45%343,652 2,298 2.71% 251,849 625 1.01%
Savings Accounts 151,502 151 0.20% 122,835 60 0.10%139,664 62 0.18% 147,676 75 0.21%
Other Time Deposits 549,983 6,314 2.31% 427,007 3,996 1.88%521,966 3,916 3.04% 552,069 3,162 2.32%
---------- ------- ---- ---------- ------- ----
Total Int.Interest Bearing Deposits 1,349,183 8,9271,515,552 7,722 2.07% 1,310,745 4,309 1.33% 1,042,842 4,779 0.92%
Short-Term Borrowings 94,125 1,184 2.54% 107,064 536 1.01%93,867 824 3.55% 79,582 450 2.29%
Subordinated NoteNotes Payable 38,345 1,108 5.83% - - -62,887 926 5.97% 30,928 441 5.79%
Other Long-Term Borrowings 68,590 1,489 4.38% 50,387 1,084 4.33%69,966 810 4.70% 68,200 720 4.28%
---------- ------- ---- ---------- ------- ----
Total Int.Interest Bearing Liabilities 1,550,243 12,708 1.65% 1,200,293 6,399 1.07%1,742,272 10,282 2.39% 1,489,455 5,920 1.61%
Noninterest Bearing Deposits 540,812 455,053524,696 536,633
Other Liabilities 22,589 16,34226,029 19,773
---------- ----------
TOTAL LIABILITIES 2,113,644 1,671,6882,292,997 2,045,861
SHAREOWNERS' EQUITY
Common Stock 186 176
Surplus 83,527 52,606
Other Comprehensive Loss (1,194) (489)
Retained Earnings 228,942 208,653
---------- ----------
TOTAL SHAREOWNERS' EQUITY 269,574 208,303311,461 260,946
---------- ----------
TOTAL LIABILITIES & EQUITY $2,383,218 $1,879,991$2,604,458 $2,306,807
========== ==========
Net Interest Rate Spread 4.56% 4.63%4.69% 4.48%
==== ====
Net Interest Income $52,231 $41,144$29,461 $24,835
======= =======
Net Interest Margin(3) 4.99% 4.93%5.25% 4.92%
==== ====
(1) Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $820,478$964,000
and $1.3 million,$479,000, for the three and six months ended June 30,March 31, 2006 and 2005, versus $528,000 and $873,000, for the comparable periods ended June 30, 2004.respectively.
(2) Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.rate to adjust interest
on tax-exempt loans and securities to a taxable equivalent basis.
(3) Taxable equivalent net interest income divided by average earning assets.
2628
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTDISCLOSURE FOR MARKET RISK
Overview
- --------
Market risk management arises from changes in interest rates, exchange rates,
commodity prices, and equity prices. The Company hasWe have risk management policies to
monitor and limit exposure to market risk and doesdo not participate in
activities that give rise to significant market risk involving exchange
rates, commodity prices, or equity prices. In asset and liability management
activities, policies are in place that are designed to minimize structural
interest rate risk.
Interest Rate Risk Management
- -----------------------------
The normal course of business activity exposes CCBGus to interest rate risk.
Fluctuations in interest rates may result in changes in the fair market value
of the Company'sour financial instruments, cash flows and net interest income. The Company seeksWe seek to
avoid fluctuations in itsour net interest margin and to maximize net interest
income within acceptable levels of risk through periods of changing interest
rates. Accordingly, the Company'sour interest rate sensitivity and liquidity are
monitored on an ongoing basis by itsour 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.
TheOur financial assets and liabilities of the Company are classified as other-
than-trading.other-than-trading.
An analysis of the other-than-trading financial components, including the
fair values, are presented in Table II on page 28.II. This table presents the Company'sour consolidated
interest rate sensitivity position as of June 30, 2005March 31, 2006 based upon certain
assumptions as set forth in the Notes to the Table. The objective of
interest rate sensitivity analysis is to measure the impact on the Company'sour 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'sour interest rate sensitivity over an extended period of time.
The Company expectsWe expect rising rates to have a favorable impact on the net interest margin,
subject to the magnitude and timeframe over which the rate changes occur.
However, as general interest rates rise or fall, other factors such as
current market conditions and competition may impact how the
Company respondswe respond to
changing rates and thus impact the magnitude of change in net interest
income. NonmaturityNon-maturity 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'sour 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.
29
Inflation
- ---------
The impact of inflation on the banking industry differs significantly from
that of other industries in which a large portion of total resources are
invested in fixed assets such as property, plant and equipment.
Assets and liabilities of financial institutions are virtually all monetary
in nature, and therefore are primarily impacted by interest rates rather than
changing prices. While the general level of inflation underlies most
interest rates, interest rates react more to changes in the expected rate of
inflation and to changes in monetary and fiscal policy. Net interest income
and the interest rate spread are good measures of the Company'sour ability to react to
changing interest rates and are discussed in further detail in the section
entitled "Results of Operations."
2730
TableTABLE II - FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS(1)
(OtherOther Than Trading Portfolio)Portfolio
As of June 30, 2005
--------------------------------------------------------------------------------March 31, 2006
------------------------------------------------------------------------------ Fair
(Dollars in Thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value
- -------------------------------------------------------------------------------------------------------------------------
LoansLoans:
Fixed Rate $ 371,720 $174,391315,294 $157,171 $116,714 $53,606 $27,306 $23,075 $ 96,393 $61,712 $27,637 $25,534693,166 $ 757,387 $ 745,841694,113
Average Interest Rate 6.24% 7.01% 7.14% 6.81% 7.11% 6.18% 6.61%6.22% 7.37% 7.42% 7.26% 7.53% 6.42% 6.82%
Floating Rate(2) 1,018,582 152,998 97,721 8,172 5,270 6,645 1,289,388 1,289,9461,101,611 137,255 105,029 6,549 5,196 5,850 1,361,490 1,361,490
Average Interest Rate 5.39% 6.13% 6.39% 7.08% 7.46% 7.62% 5.59%6.54% 6.43% 6.97% 7.25% 7.34% 7.75% 6.57%
Investment Securities(3)Securities:(3)
Fixed Rate 105,989 31,496 21,997 5,281 1,395 27,248 193,406 193,40662,354 53,474 31,814 2,898 9,712 18,589 178,841 178,841
Average Interest Rate 2.62% 3.14% 3.28% 3.45% 3.78% 4.28% 3.04%3.06% 3.31% 3.83% 3.91% 3.93% 4.49% 3.48%
Floating Rate 2,4541,919 - - - - - 2,454 2,4541,919 1,919
Average Interest Rate 4.51%4.75% - - - - - 4.51%4.75%
Other Earning AssetsAssets:
Floating Rate 59,062Rates 110,604 - - - - - 59,062 59,062110,604 110,604
Average Interest Rates 3.10%Rate 4.55% - - - - - 3.10%4.55%
Total Financial Assets $1,557,807 $358,885 $216,111 $75,165 $34,302 $59,427 $2,301,697 $2,290,709$1,591,782 $347,900 $253,557 $63,053 $42,214 $47,514 $2,346,020 $2,346,967
Average Interest Rates 5.32% 6.30% 6.41% 6.61% 7.03% 5.47% 5.64%
Deposits(4)Rate 6.20% 6.37% 6.78% 7.10% 6.68% 5.83% 6.31%
Deposits:(4)
Fixed Rate Deposits $ 427,064410,385 $ 90,03075,086 $ 40,776 $11,58525,456 $ 7,4617,615 $ 2584,320 253 $ 577,174523,115 $ 555,784442,687
Average Interest Rates 2.27% 2.96% 3.47% 3.37%Rate 3.23% 3.62% 4.88% 2.50%3.61% 3.54% 4.09% 4.93% 3.32%
Floating Rate Deposits 924,8521,023,901 - - - - - 924,852 891,5701,023,901 1,023,901
Average Interest Rates 0.75%Rate 1.68% - - - - - 0.75%1.68%
Other Interest Bearing Liabilities
Fixed Rate Debt 3,275 26,418 3,881 3,914 3,846 31,811 73,145 73,9813,920 14,421 13,796 3,505 3,263 29,859 68,764 67,130
Average Interest Rate 4.70% 3.17% 4.67% 3.72% 4.63% 5.08% 4.26%4.79% 4.43% 4.46% 4.62% 5.05% 5.04% 4.76%
Floating Rate Debt 71,14889,105 - - 30,928 31,959 - 62,887 - 134,035 134,268151,992 151,922
Average Interest Rate 2.63%3.62% - - 5.71% 6.07% - 5.89% - 4.16%4.56%
Total Financial Liabilities $1,426,339 $116,448$1,527,311 $ 44,657 $15,499 $74,194 $32,069 $1,709,207 $1,655,60389,507 $ 39,252 $42,048 $39,542 $30,112 $1,767,772 $1,685,640
Average interest Rate 1.31% 3.01% 3.58% 3.46% 5.60% 5.08% 1.76%2.22% 3.75% 3.91% 5.23% 5.77% 5.04% 2.53%
(1) Based upon expected cashflows,cash flows, unless otherwise indicated.
(2) Based upon a combination of expected maturities and repricing opportunities.
(3) Based upon contractual maturity, except for callable and floating rate securities, which are based on expected
maturity and weighted average life, respectively.
(4) Savings, NOW and money market accounts can be repriced at any time, therefore, all such balances are included as
floating raterates deposits in Year 1. Other time deposit balances are classified according to maturity.
2831
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
The Company maintains disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange ActAs of 1934) 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 ofMarch 31, 2006, the end of the period covered by this report.
Based upon that evaluation and subject to the foregoing, the Company'sForm 10-Q, our
management, including our Chief Executive Officer and Chief Financial
Officer, concluded thatevaluated the design and
operationeffectiveness of the Company'sour disclosure controls and
procedures provided
reasonable assurance(as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer each concluded that as of March 31, 2006, the end of the
period covered by this Form 10-Q, we maintained effective disclosure controls
and procedures are
effective to accomplish their objectives.procedures.
Changes in Internal Control over Financial Reporting
- ----------------------------------------------------
The Company'sOur management, including the Chief Executive Officer and Chief Financial
Officer, has reviewed the Company'sour internal control. There have been no significant
changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(l) under the
Securities Exchange Act of 1934). There have not been any changes in the
Company's internal controls over financial reporting during the Company'sour most recently completed fiscal
quarter, nor subsequent to the date of their evaluation, that have materially affected, or that
are reasonably likely to materiallycould
significantly affect the Company'sour internal control over financial reporting.
2932
PART II. OTHER INFORMATION
ITEMS 1-3.
Not applicable
ITEMItem 1. Legal Proceedings
We are party to lawsuits and claims arising out of the normal course of
business. In management's opinion, there are no known pending claims or
litigation, the outcome of which would, individually or in the aggregate,
have a material effect on our consolidated results of operations, financial
position, or cash flows.
Item 1.A. Risk Factors
In addition to the other information set forth in this Quarterly Report on
Form 10-Q, you should carefully consider the factors discussed in Part I,
"Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2005, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on Form
10-K are not the only risks we face. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or
operating results.
Item 2. Unregistered Sales of equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual MeetingSubmission of ShareholdersMatters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
10.1 2006 Stock Option Agreement by and between Capital City Bank Group,
Inc. was held
on April 26, 2005. Proxies forand William G. Smith, Jr., dated March 23, 2006 - incorporated
herein by reference to Exhibit 10.1 of the meeting were solicited pursuantRegistrants Form 8-K (filed
3/29/06)(No. 0-13358).
10.2 Capital City Bank Group, Inc. Non-Employee Director Compensation Plan,
as amended - incorporated herein by reference to Regulation 14A underExhibit 10.2 of 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 2008 annual meeting: For Withheld Broker Non-Votes
------------------------ ------------ ---------- -------------------
Thomas A. Barron 11,149,980 13,609 -
J. Everitt Drew 11,148,011 15,578 -
Lina S. Knox 11,069,396 94,193 -
John R. Lewis 11,086,005 77,585 -
2. The shareowners ratified the selection of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 2005. The
number of votes cast were as follows:
Against/ Abstentions/
For Withheld Broker Non-Vote
------------ ---------- -----------------
11,140,536 13,908 9,145
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
(A) ExhibitsRegistrant's Form 8-K (filed 3/29/06)(No. 0-13358).
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.
3033
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 ViceWilliam G. Smith, Jr.
- ----------------------------------
William G. Smith, Jr.
Chairman, President and
Chief FinancialExecutive Officer
Date: August 9, 2005
31
??May 10, 2006
qtr110q2006 1