SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter:
March 31, 2000
Commission File Number 0-13358
CAPITAL CITY BANK GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2273542
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive offices)
Registrant's telephone number, including area code:
(850) 671-0610
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days.
Yes[X] No [ ]
At April 30, 2000, 10,197,718 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q I N D E X
ITEM PART I. FINANCIAL INFORMATION PAGE
NUMBER
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
3. Qualitative and Quantitative Disclosure of
Market Risk 19
ITEM PART II. OTHER INFORMATION
1. Legal Proceedings Not Applicable
2. Changes in Securities and Use of Proceeds Not Applicable
3. Defaults Upon Senior Securities Not Applicable
4. Submission of Matters to a Vote of
Security Holders Not Applicable
5. Other Information 21
6. Exhibits and Reports on Form 8-K 21
Signatures 21
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(Dollars in Thousands, Except Per Share Amounts)
2000 1999
(Unaudited) (Unaudited)
----------- -----------
INTEREST INCOME
- ---------------
Interest and Fees on Loans $ 21,119 $ 18,753
Investment Securities:
U. S. Treasury 248 419
U. S. Government Agencies and Corporations 2,269 2,336
States and Political Subdivisions 1,081 1,067
Other Securities 604 668
Funds Sold 389 1,024
---------- ----------
Total Interest Income $ 25,710 $ 24,267
---------- ----------
INTEREST EXPENSE
- ----------------
Deposits 9,175 9,672
Short-Term Borrowings 784 332
Long-Term Debt 217 309
---------- ----------
Total Interest Expense 10,176 10,313
---------- ----------
Net Interest Income 15,534 13,954
Provision for Loan Losses 610 740
---------- ----------
Net Interest Income After Provision
for Loan Losses 14,924 13,214
---------- ----------
NONINTEREST INCOME
- ------------------
Service Charges on Deposit Accounts 2,336 2,445
Data Processing 680 748
Income from Fiduciary Activities 660 523
Securities Transactions 2 -
Other 2,224 2,387
---------- ----------
Total Noninterest Income 5,902 6,103
---------- ----------
NONINTEREST EXPENSE
- -------------------
Salaries and Associate Benefits 7,555 7,478
Occupancy, Net 1,096 1,036
Furniture and Equipment 1,392 1,397
Other 3,809 4,081
---------- ----------
Total Noninterest Expense 13,852 13,992
---------- ----------
Income Before Income Taxes 6,974 5,325
Income Taxes 2,361 1,660
---------- ----------
NET INCOME $ 4,613 $ 3,665
- ---------- ========== ==========
Basic Net Income Per Share $ .45 $ .36
========== ==========
Diluted Net Income Per Share $ .45 $ .36
========== ==========
Cash Dividends Per Share(1) $ .1325 $ .18
========== ==========
Average Shares Outstanding - Basic 10,195,261 10,169,638
========== ==========
Average Shares Outstanding - Diluted 10,210,794 10,185,169
========== ==========
(1)First quarter 1999 dividend amount includes a one-time distribution paid
to Grady Holding Company shareowners of approximately $563,000.
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(Dollars In Thousands, Except Per Share Amounts)
March 31, December 31,
2000 1999
(Unaudited) (Audited)
----------- ----------
ASSETS
- ------
Cash and Due From Banks $ 73,612 $ 79,454
Funds Sold 68,411 13,618
Investment Securities, Available-for-Sale 300,713 321,192
Loans, Net of Unearned Interest 964,073 928,486
Allowance for Loan Losses (10,226) (9,929)
---------- ----------
Loans, Net 953,847 918,557
Premises and Equipment, Net 37,332 37,834
Intangibles 24,425 25,149
Other Assets 37,097 34,716
---------- ----------
Total Assets $1,495,437 $1,430,520
========== ==========
LIABILITIES
- -----------
Deposits:
Noninterest Bearing Deposits $ 309,684 $ 253,140
Interest Bearing Deposits 941,788 949,518
---------- ----------
Total Deposits 1,251,472 1,202,658
Short-Term Borrowings 78,632 66,275
Long-Term Debt 14,056 14,258
Other Liabilities 16,456 15,113
---------- ----------
Total Liabilities 1,360,616 1,298,304
SHAREOWNERS' EQUITY
- -------------------
Preferred Stock, $.01 par value, 3,000,000
shares authorized; no shares outstanding - -
Common Stock, $.01 par value; 90,000,000 shares
authorized; 10,197,715 issued and outstanding
at March 31, 2000 and 10,190,069 issued and
outstanding at December 31, 1999 102 102
Additional Paid-In Capital 9,436 9,249
Retained Earnings 132,317 129,055
Accumulated Other Comprehensive
(Loss), Net of Tax (7,034) (6,190)
---------- ----------
Total Shareowners' Equity 134,821 132,216
---------- ----------
Total Liabilities and Shareowners' Equity $1,495,437 $1,430,520
========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Dollars in Thousands)
2000 1999
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Income $ 4,613 $ 3,665
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 610 740
Depreciation 983 890
Net Securities Amortization 363 266
Amortization of Intangible Assets 705 696
Gain on Sale of Investment Securities (2) -
Non-Cash Compensation Expense 157 49
Net (Increase) Decrease in Other Assets (1,833) 796
Net Increase (Decrease) in Other Liabilities 1,344 (2,741)
-------- --------
Net Cash Provided by Operating Activities 6,940 4,361
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 19,237 63,663
Purchase of Investment Securities (492) (30,108)
Net (Increase) in Loans (35,900) (22,858)
Purchase of Premises & Equipment (488) (788)
Sales of Premises & Equipment 6 1,314
-------- --------
Net Cash (Used In) Provided by Investing Activities (17,637) 11,223
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net Increase (Decrease) in Deposits 48,814 (8,754)
Net Increase in Short-Term Borrowings 12,357 19,655
Borrowing from Long-Term Debt 928 1,525
Repayment of Long-Term Debt (1,130) (1,667)
Dividends Paid (1,351) (1,876)
Issuance of Common Stock 30 183
-------- --------
Net Cash Provided by Financing Activities 59,648 9,066
-------- --------
Net Increase in Cash and Cash Equivalents 48,951 24,650
Cash and Cash Equivalents at Beginning of Period 93,072 141,024
-------- --------
Cash and Cash Equivalents at End of Period $142,023 $165,674
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 9,170 $ 9,795
======== ========
Interest Paid on Debt $ 1,090 $ 593
======== ========
Transfer of Loans to ORE $ 363 $ 430
======== ========
Income Taxes Paid $ 1,865 $ 1,686
======== ========
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) MANAGEMENT'S OPINION AND ACCOUNTING POLICIES
--------------------------------------------
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of S-X
and S-K of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Prior year
financial statements have been reformatted and/or amounts reclassified, as
necessary, to conform with the current year presentation, including
restatement to reflect the pooling of interest of Grady Holding Company and
its subsidiaries.
In the opinion of management, the consolidated financial statements contain
all adjustments, which are those of a recurring nature, and disclosures
necessary to present fairly the financial position of the Company as of
March 31, 2000 and December 31, 1999, the results of operations for the
three month periods ended March 31, 2000 and 1999, and cash flows for the
three month periods ended March 31, 2000 and 1999.
The Company and its subsidiaries follow generally accepted accounting
principles and reporting practices applicable to the banking industry. The
principles which materially affect its financial position, results of
operations and cash flows are set forth in Notes to Financial Statements
which are included in the Company's 1999 Annual Report and Form 10-K.
(2) INVESTMENT SECURITIES
---------------------
The carrying values and related market value of investment securities at
March 31, 2000 and December 31, 1999 were as follows (dollars in thousands):
March 31,2000
------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U. S. Treasury $ 14,031 $ - $ 118 $ 13,913
U. S. Government Agencies
and Corporations 75,394 1 2,799 72,596
States and Political Subdivisions 100,283 36 2,569 97,750
Mortgage-Backed Securities 81,787 66 4,251 77,602
Other Securities 40,352 - 1,500 38,852
-------- ---- ------- --------
Total $311,847 $103 $11,237 $300,713
======== ==== ======= ========
December 31, 1999
------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U. S. Treasury $ 20,047 $ 4 $ 70 $ 19,981
U. S. Government Agencies
and Corporations 79,181 - 2,557 76,624
States and Political Subdivisions 104,312 74 1,895 102,491
Mortgage-Backed Securities 85,040 88 3,728 81,400
Other Securities 42,372 - 1,676 40,696
-------- ---- ------ --------
Total $330,952 $166 $9,926 $321,192
======== ==== ====== ========
(3) LOANS
-----
The composition of the Company's loan portfolio at March 31, 2000 and
December 31, 1999 was as follows (dollars in thousands):
March 31, 2000 December 31, 1999
-------------- -----------------
Commercial, Financial
and Agricultural $103,434 $ 98,894
Real Estate - Construction 60,590 62,166
Real Estate - Mortgage 220,581 214,036
Real Estate - Residential 404,022 383,536
Consumer 175,446 169,854
-------- --------
Loans, Net of Unearned Interest $964,073 $928,486
======== ========
(4) ALLOWANCE FOR LOAN LOSSES
-------------------------
An analysis of the changes in the allowance for loan losses for the three
month period ended March 31, 2000 and 1999, was as follows (dollars in
thousands):
March 31,
--------------------------
2000 1999
------- -------
Balance, Beginning of the Period $ 9,929 $ 9,827
Provision for Loan Losses 610 740
Recoveries on Loans Previously
Charged-Off 184 210
Loans Charged-Off (497) (598)
------- -------
Balance, End of Period $10,226 $10,179
======= =======
Impaired loans are primarily defined as all nonaccruing loans for the loan
categories which are included within the scope of SFAS 114. Selected
information pertaining to impaired loans is depicted in the table below
(dollars in thousands):
March 31,
------------------------------------------
2000 1999
------------------- -------------------
Impaired Loans: Valuation Valuation
Balance Allowance Balance Allowance
------------------- -------------------
With Related Valuation Allowance $ - $ - $2,372 $268
Without Related Valuation Allowance 1,604 - 757 -
Average Recorded Investment
for the Period 1,602 * 3,950 *
Interest Income:
Recognized $ - $ 43
Collected $ - $ 34
* Not Applicable
The Company recognizes income on impaired loans primarily on the cash
basis. Any change in the present value of expected cash flows is recognized
through the allowance for loan losses.
(5) DEPOSITS
--------
The composition of the Company's interest bearing deposits at March 31, 2000
and December 31, 1999 were as follows (dollars in thousands):
March 31, 2000 December 31, 1999
-------------- -----------------
NOW Accounts $169,322 $182,794
Money Market Accounts 171,307 157,825
Savings Deposits 108,160 105,498
Other Time Deposits 492,999 503,401
-------- --------
Total Interest Bearing Deposits $941,788 $949,518
======== ========
(6) ACCOUNTING PRONOUNCEMENTS
-------------------------
In June 1998, the Financial Accounting Standards Board "FASB" issued
Statement of Financial Accounting Standards "SFAS" No. 133 "Accounting for
Derivative Instruments and Hedging Activities" as amended. The statement
establishes accounting and reporting standards for derivative instruments
(including certain derivative instruments imbedded in other contracts).
The statement is effective for fiscal years beginning after June 15, 2000.
The adoption of this standard is not expected to have a material impact on
reported results of operations of the Company.
(7) COMPREHENSIVE INCOME
--------------------
Total comprehensive income is defined as net income and all other changes
in equity which, for Capital City Bank Group, consists solely of changes in
unrealized gains (losses) on available-for-sale securities. The Company
reported total comprehensive income, net of tax, for the three month
periods ended March 31, 2000 and 1999, as follows (dollars in thousands):
THREE MONTHS ENDED
MARCH 31
------------------
2000 1999
------ ------
Net Income $4,613 $3,665
Other Comprehensive Income, Net of Tax
Unrealized (Losses) on Securities:
Unrealized (Losses) on Securities
Arising During the Period (844) (974)
Less: Reclassification Adjustments for
Gains (Losses) Included in Net Income 2 -
------ ------
Total Unrealized (Losses) On Securities (842) (974)
------ ------
Total Comprehensive Income, Net of Tax $3,771 $2,691
====== ======
(8) ACQUISITION OF GRADY HOLDING COMPANY
------------------------------------
On May 7, 1999, the Company completed its acquisition of Grady Holding
Company and its subsidiary, First National Bank of Grady County in Cairo,
Georgia. FNBGC is a $114 million asset institution with offices in Cairo
and Whigham, Georgia. The Company issued 21.50 shares for each of the
60,910 shares of FNBGC. The consolidated financial statements of the
Company give effect to the merger which has been accounted for as a pooling-
of-interests. Accordingly, financial statements for the prior periods have
been restated to reflect the results of operations of these entities on a
combined basis from the earliest period presented.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)(1)
2000 1999 1998
---------- ------------------------------------------- ----------------------------------
First Fourth Third Second First Fourth Third Second
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 25,710 $ 25,366 $ 25,236 $ 24,816 $ 24,267 $ 22,904 $ 21,974 $ 22,402
Interest Expense 10,176 10,171 10,287 10,476 10,313 9,224 8,673 8,822
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 15,534 15,195 14,949 14,340 13,954 13,680 13,301 13,580
Provision for
Loan Loss 610 510 610 580 740 657 618 618
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest Income
After Provision
for Loan Loss 14,924 14,685 14,339 13,760 13,214 13,023 12,683 12,962
Noninterest Income 5,902 6,204 6,269 6,185 6,103 6,260 5,271 5,847
Merger Expense - 10 74 1,277 - 115 - -
Noninterest Expense 13,852 14,012 14,072 14,591 13,992 13,150 12,090 12,747
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 6,974 6,867 6,462 4,077 5,325 6,018 5,864 6,062
Provision for
Income Taxes 2,361 2,548 2,089 1,182 1,660 2,146 2,057 2,065
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 4,613 $ 4,319 $ 4,373 $ 2,895 $ 3,665 $ 3,872 $ 3,807 $ 3,997
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 15,962 $ 15,521 $ 15,435 $ 14,822 $ 14,420 $ 14,046 $ 13,640 $ 13,922
Per Common Share:
Net Income Basic $ .45 $ .42 $ .43 $ .28 $ .36 $ .39 $ .37 $ .39
Net Income Diluted .45 .42 .43 .28 .36 .39 .37 .39
Dividends Declared(2) .1325 .1325 .12 .12 .18 .12 .11 .11
Book Value 13.20 12.95 12.78 12.56 12.80 12.65 12.40 12.07
Market Price:
High 23.00 25.00 30.00 25.00 27.63 31.00 33.13 32.67
Low 15.00 20.19 21.00 20.25 22.00 24.13 19.00 29.75
Close 19.63 21.50 22.75 25.00 23.31 27.63 29.13 31.38
Selected Average
Balances:
Total Assets $1,430,620 $1,446,815 $1,446,505 $1,452,215 $1,430,533 $1,257,934 $1,148,404 $1,156,186
Earning Assets 1,277,894 1,280,746 1,297,481 1,304,093 1,282,679 1,131,933 1,038,981 1,043,578
Loans 938,351 915,194 892,161 878,976 850,161 834,315 819,755 823,432
Total Deposits 1,198,608 1,235,002 1,234,360 1,247,452 1,232,816 1,059,192 954,652 962,719
Total Shareowners'
Equity 133,836 131,932 130,134 131,234 130,929 128,250 123,728 121,686
Common Equivalent
Shares:
Basic 10,195 10,179 10,179 10,172 10,170 10,158 10,158 10,140
Diluted 10,211 10,201 10,195 10,187 10,185 10,179 10,158 10,140
Ratios:
ROA 1.30% 1.18% 1.20% .80% 1.04% 1.22% 1.32% 1.39%
ROE 13.86% 12.99% 13.33% 8.85% 11.35% 11.98% 12.20% 13.18%
Net Interest
Margin (FTE) 5.02% 4.82% 4.73% 4.56% 4.56% 4.92% 5.21% 5.35%
(1) All share and per share data have been restated to reflect the pooling-
of-interests of Grady Holding Company and its subsidiaries and adjusted to
reflect the 3-for-2 stock split effective June 1, 1998.
(2) First quarter 1999 dividend amount includes a one-time distribution
paid to Grady Holding Company shareowners of approximately $563,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis reviews important factors affecting the financial
condition and results of operations of Capital City Bank Group, Inc., for
the periods shown below. The Company, has made, and may continue to make,
various forward-looking statements with respect to financial and business
matters that involve numerous assumptions, risks and uncertainties. The
following is a list of factors, among others, that could cause actual
results to differ materially from the forward-looking statements: general
and local economic conditions, competition for the Company's customers from
other banking and financial institutions, government legislation and
regulation, changes in interest rates, the impact of rapid growth,
significant changes in the loan portfolio composition, and other risks
described in the Company's filings with the Securities and Exchange
Commission, all of which are difficult to predict and many of which are
beyond the control of the Company.
The following discussion sets forth the major factors that have affected
the Company's financial condition and results of operations and should be
read in conjunction with the accompanying financial statements. All prior
period financial information has been restated to reflect the pooling-of-
interests of Grady Holding Company and its subsidiaries. The year-to-date
averages used in this report are based on daily balances for each
respective period.
The Financial Review is divided into three subsections entitled Earnings
Analysis, Financial Condition, and Liquidity and Capital Resources.
Information therein should facilitate a better understanding of the major
factors and trends which affect the Company's earnings performance and
financial condition, and how the Company's performance during 2000 compares
with prior years. Throughout this section, Capital City Bank Group, Inc.,
and its subsidiaries, collectively, are referred to as "CCBG" or the
"Company." The two subsidiary banks are referred to as the "Capital City
Bank" or "CCB", and "First National Bank of Grady County" or "FNBGC".
On March 30, 2000, the Company announced the authorization to repurchase
500,000 shares of the oustanding common stock. The purchases will be made
in the open market or in privately negotiated transactions.
On May 7, 1999, the Company completed its acquisition of Grady Holding
Company and its subsidiary, First National Bank of Grady County in Cairo,
Georgia. FNBGC is a $114 million asset institution with offices in Cairo
and Whigham, Georgia. The Company issued 21.50 shares for each of the
60,910 shares of FNBGC. The consolidated financial statements of the
Company give effect to the merger which has been accounted for as a pooling-
of-interests. Accordingly, financial statements for the prior periods have
been restated to reflect the results of operations of these entities on a
combined basis from the earliest period presented.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings, including the effects of intangible amortization, were $4.6
million, or $.45 per diluted share, for the first quarter of 2000. This
compares to $3.7 million, or $.36 per diluted share for the first quarter
of 1999. Amortization of intangible assets, net of taxes, totaled $479,000
and $475,000, respectively, or $.05 per diluted share, for the first
quarter in 2000 and 1999. Operating revenues, which include net interest
income and noninterest income, increased $1.4 million, or 6.9%, over the
first quarter of 1999, and are the most significant factor contributing to
the increase in net income.
For The Three Months Ended March 31,
-----------------------------------
(Dollars in Thousands) 2000 1999
- ---------------------- ------- -------
Interest Income $25,710 $24,267
Taxable Equivalent Adjustment(1) 428 466
------- -------
Interest Income (FTE) 26,138 24,733
Interest Expense 10,176 10,313
------- -------
Net Interest Income (FTE) 15,962 14,420
Provision for Loan Losses 610 740
Taxable Equivalent Adjustment 428 466
------- -------
Net Int. Inc. After Provision 14,924 13,214
Noninterest Income 5,902 6,103
Noninterest Expense 13,852 13,992
------- -------
Income Before Income Taxes 6,974 5,325
Income Taxes 2,361 1,660
------- -------
Net Income $ 4,613 $ 3,665
======= =======
Percent Change 25.86% 1.30%
Return on Average Assets(2) 1.30% 1.04%
Return on Average Equity(2) 13.86% 11.35%
(1) Computed using a statutory tax rate of 35%
(2) Annualized
Net Interest Income
- -------------------
First quarter taxable equivalent net interest income increased $1.5
million, or 10.7%, over the comparable period for 1999. This increase is
attributable to higher yields and a change in the earning assets mix.
Table I on page 18 provides a comparative analysis of the Company's average
balances and interest rates.
Taxable equivalent interest income increased $1.4 million, or 5.7%, due to
growth in the loan portfolio and increased yields on earning assets.
Average loans, which represent the Company's highest yielding asset,
increased $88.1 million, or 10.4%, and represented 73.4% of total earning
assets in the first quarter of 2000 versus 66.3% for the comparable quarter
in 1999. Offsetting this increase was a decline in income from investment
securities and funds sold. The shift in mix of earning assets contributed
to an increase of 40 basis points in the yield on earning assets which
increased from 7.82% in the first quarter of 1999 to 8.22% in 2000.
Interest expense decreased $137,000, or 1.3%, primarily due to a decline in
average deposits and a change in the mix of interest bearing liabilities.
The change in mix was the primary factor contributing to a 6 basis point
reduction in the average rate. Based on averages, certificates as a
percent of average deposits decreased from 45.8% in the first quarter of
1999 to 41.5% in the first quarter of 2000. Partially offsetting this
decline were increases in NOW, money market accounts and short-term
borrowings.
The Company's interest rate spread (defined as the average taxable
equivalent yield on earning assets less the average rate paid on interest
bearing liabilities) increased from 3.72% in the first quarter of 1999 to
4.18% in the comparable quarter for 2000 due to higher yield on earning
assets. The Company's net interest margin percentage (defined as taxable-
equivalent net interest income divided by average earning assets) was 4.56%
in the first quarter of 1999, versus 5.02% in the first quarter of 2000.
The increase in the margin reflects the higher yield on earning assets,
resulting from the shift in the mix of earning assets.
Provisions for Loan Losses
- --------------------------
The provision for loan losses for the three months ended March 31, 2000,
was $610,000 versus $740,000 for the first quarter of 1999. Net charge-
offs decreased during the first quarter of 2000 and continue to remain at
historically low levels relative to the size of the loan portfolio.
Nonperforming loans decreased $1.0 million, or 26.2%, during the first
quarter. The Company's nonperforming asset ratio declined slightly from
.42% at year-end to .30%. As compared to year-end, the reserve for loan
losses increased slightly to $10.2 million and represented 1.06% of total
loans versus 1.07%.
For a discussion of the Company's nonperforming loans, see the section
entitled "Financial Condition."
Based on current economic conditions, the low level of nonperforming loans
and net charge-offs, it is management's opinion that the allowance for loan
losses as of March 31, 2000, is sufficient to provide for losses inherent
in the portfolio as of that date.
Charge-off activity for the respective periods is set forth below.
Three Months Ended
March 31,
---------------------------
2000 1999
-------- --------
Net Charge-Offs $312,875 $388,074
Net Charge-Offs (Annualized) as a Percent
of Average Loans Outstanding, Net of
Unearned Interest .13% .18%
Noninterest Income
- ------------------
Noninterest income decreased $201,000, or 3.3%, over the first quarter of
1999, which included decreases in all major categories except income from
fiduciary activites.
Service charges on deposit accounts decreased $109,000, or 4.5%. Service
charge revenues in any one year are dependent on the number of accounts,
primarily transaction accounts and the level of activity subject to service
charges. The decrease in the first quarter of 2000, compared to the
comparable quarter in 1999, reflects higher compensating balances and a
decline in the number of transaction accounts.
Data processing revenues decreased $68,000, or 9.1%, over the first quarter
of 1999. The decrease reflects lower processing revenues associated with
government agencies.
Income from fiduciary activities increased $137,000, or 26.2%, over the
comparable quarter in 1999. The increase is attributable to growth in
managed assets. At March 31, 2000, assets under management totaled $323.3
million compared to $264.2 million at March 31, 1999.
Other income decreased $163,000, or 6.8%, over the comparable quarter of
1999. Gains on the sale of residential real estate loans decreased
$293,000 attributable to the higher interest rate environment, resulting in
fewer fixed rate loans being originated and sold in the secondary market.
Offsetting this decline were increases in ATM fees, brokerage fees, and
miscellaneous fees totaling $141,000.
Noninterest income as a percent of average assets was 1.66% for the first
quarter of 2000 versus 1.72% for the comparable quarter in 1999.
Noninterest Expense
- -------------------
Noninterest expense in the first quarter of 2000 decreased $140,000, or
1.0%, over the first quarter of 1999, primarily in the "other" expense
category.
Compensation expense increased $77,000, or 1.0%, over the first quarter of
1999 reflecting annual raises partially offset by reductions in pension
expense, contractual employment and full-time equivalent associates
("FTE's"). For the comparable first quarter periods in 2000 and 1999,
FTE's declined by 11 associates.
Occupancy expense, including premises, furniture, fixtures and equipment
increased $55,000, or 2.3%, over the first quarter of 1999. Depreciation
expense, utilites and property taxes increased $92,000, $17,000 and
$18,000, respectively. These increases were partially offset by a decline
in maintenance and repairs of $82,000.
Other noninterest expense decreased $272,000, or 6.7%. The decrease is
attributable to printing and supplies, postage, telephone and the
elimination of Florida intangible taxes. The decline in printing and
supplies is attributable to the implementation of centralized purchasing.
Telephone costs have declined due to the completion of the wide-area
network.
Net noninterest expense (noninterest income minus noninterest expense, net
of intangible amoritization) as a percent of average assets was 2.04% in
the first quarter of 2000 and 1999. The Company's efficiency ratio
(noninterest expense, net of intangible amoritization, expressed as a
percent of the sum of taxable-equivalent net interest income plus
noninterest income) was 60.02% in the first quarter 2000 compared to 64.70%
for the comparable quarter in 1999. The decrease in the efficiency ratio
is attributable to both higher operating revenues and lower costs.
Income Taxes
- ------------
The provision for income taxes increased $701,000, or 42.2%, over the first
quarter of 1999. The Company's effective tax rate for the first quarter of
2000 was 33.9% compared to 31.2% for the same quarter in 1999. The
increase in the effective tax rate is attributable to an increase in state
tax due to the elimination of the intangible tax credit.
FINANCIAL CONDITION
The Company's average assets were $1.4 billion in the first quarter of 2000
and 1999. Average earning assets were $1.3 billion for the three months
ended March 31, 2000, constant with the comparable quarter of 1999. The
change in the mix of earning assets reflects loan generation offset by a
decline in investment securities. Table I on page 18 presents average
balances for the three months ended March 31, 2000 and 1999.
Average loans increased $88.0 million, or 10.4%, over the comparable period
in 1999. Price and product competition remains strong and there continues
to be an increased demand for fixed-rate, longer term financing. Loan
growth has occurred in all categories, with the most significant increase
in real estate. Loans as a percent of average earning assets increased to
73.4% for the first quarter of 2000, compared to 66.3% for the first
quarter of 1999.
The investment portfolio is a significant component of the Company's
operations and, as such, it functions as a key element of liquidity and
asset/liability management. As of March 31, 2000, the average investment
portfolio decreased $31.3 million, or 9.1%, from the first quarter of 1999.
The decrease in the investment portfolio was used to fund the growth in
loans. Securities in the available-for-sale portfolio are recorded at fair
value and unrealized gains and losses associated with these securities are
recorded, net of tax, as a separate component of shareowners' equity. At
March 31, 2000, shareowners' equity included a net unrealized loss of $7.0
million compared to a loss of $6.2 million at December 31, 1999. The
decrease in value reflects an increase in interest rates during the first
quarter.
At March 31, 2000, the Company's nonperforming loans were $1.8 million
versus $3.0 million at year-end 1999, primarily due to the romaval of
several large loans. As a percent of nonperforming loans, the allowance
for loan losses represented 563% at March 31, 2000 versus 332% at December
31, 1999 and 183% at March 31, 1999. Nonperforming loans include
nonaccruing and restructured loans. Other real estate, which includes
property acquired either through foreclosure or by receiving a deed in lieu
of foreclosure, was $1.1 million at March 31, 2000, versus $934,000 at
December 31, 1999, and $1.2 million at March 31, 1999. The ratio of
nonperforming assets as a percent of loans plus other real estate was .30%
at March 31, 2000 compared to .42% at December 31, 1999 and .78% at March
31, 1999.
Average deposits decreased 2.8% from $1.23 billion in the first quarter of
1999, to $1.20 billion in the first quarter of 2000. The decrease in
deposits is attributable to the decline in certificates of deposits,
partially reflecting maturities of high yielding, promotional certificates.
This decline was partially offset by increases in NOW and money market
accounts. The Company is experiencing a notable increase in competition
for deposits, in terms of both rate and product.
The ratio of average noninterest bearing deposits to total deposits was
22.3% for the first quarter of 2000 compared to 21.4% for the first quarter
of 1999. For the same periods, the ratio of average interest bearing
liabilities to average earning assets was 79.3% and 79.6%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity, for a financial institution, is the availability of funds to
meet increased loan demand and/or excessive deposit withdrawals.
Management has implemented a financial structure that provides ready access
to sufficient liquid funds to meet normal transaction requirements, take
advantage of investment opportunities and cover unforeseen liquidity
demands. In addition to core deposit growth, sources of funds available to
meet liquidity demands for the subsidiary banks include federal funds sold,
near-term loan maturities, securities held in the available-for-sale
portfolio, and the ability to purchase federal funds through established
lines of credit with correspondent banks. Additionally, the parent company
maintains a $25.0 million revolving line of credit. As of March 31, 2000,
there was $3.0 million outstanding under this facility. During the first
quarter of 2000, the Company did not make a principal reduction on the line
of credit.
The Company's equity capital was $134.8 million as of March 31, 2000
compared to $132.2 million as of December 31, 1999. 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
7.85% at March 31, 2000 compared to 7.84% at December 31, 1999. Further,
the Company's risk-adjusted capital ratio of 11.92% at March 31, 2000,
exceeds the 8.0% minimum requirement under the risk-based regulatory
guidelines.
State and federal regulations as well as the Company's long-term debt
agreements place certain restrictions on the payment of dividends by both
the Company and its subsidiary bank. At March 31, 2000, these regulations
and covenants did not impair the Company's (or its subsidiary's) ability to
declare and pay dividends or to meet other existing obligations in the
normal course of business.
During the first three months of 2000, shareowners' equity increased $2.6
million, or 7.9%, on an annualized basis. Growth in equity during the
first quarter was positively impacted by net income of $4.6 million,
issuance of common stock of $187,000. Equity was reduced by an increase in
the net unrealized loss on available-for-sale securities of $880,000 and
dividends paid during the first quarter of $1.4 million, or $.1325 per share.
At March 31, 2000, the Company's common stock had a book value of $13.20
per diluted share compared to $12.95 at December 31, 1999. On March 30,
2000, the Company announced the authorization to repurchase 500,000 shares
of the oustanding common stock. The purchases will be made in the open
market or in privately negotiated transactions. No shares have been
repurchased during 2000.
YEAR 2000 COMPLIANCE
Introduction
- ------------
The YEAR 2000 issue created challenges with respect to the automated
systems used by financial institutions and other companies. Many programs
and systems were not able to recognize the year 2000, or that the new
millennium is a leap year. The problem was not limited to computer
systems. YEAR 2000 issues could have potentially affected every system
that has an embedded microchip containing this flaw.
The YEAR 2000 challenge impacts the Company, as many of its transactions
are date sensitive. The Company also is effected by the ability of its
vendors, suppliers, customers and other third parties to be YEAR 2000
compliant.
State of Readiness
- ------------------
The Company addressed the YEAR 2000 challenges in a prompt and responsible
manner and dedicated significant resources to do so. An assessment of the
Company's automated systems and third party operations was completed and a
plan was implemented. The Company's YEAR 2000 compliance plan ("Y2K Plan")
had nine phases. These phases are (1) project management, (2) awareness,
(3) assessment, (4) renovation, (5) testing and implementation, (6) risk
assessment, (7) customer awareness, (8) contingency planning, and (9)
verification. The Company had completed phases one through eight as of
December 31, 1999, and the last section of Phase 9, pertaining to the risk
associated with the leap year, was completed in February 2000.
(1) Project Management: The Company assigned primary responsibility for
the YEAR 2000 project to the President of Capital City Services Company, a
wholly owned subsidiary of Capital City Bank Group, Inc. Also, the Company
hired an outside consultant to assist in project administration. Monthly
updates were provided to senior management and quarterly updates were
provided to the Board of Directors in order to assist them in overseeing
the Company's readiness.
(2) Awareness: The Company defined the YEAR 2000 problem and gained
executive level support for allocation of the resources necessary to
renovate and/or upgrade all systems. A YEAR 2000 team was established and
met regularly. The strategy developed for YEAR 2000 compliance covered in-
house systems, service bureaus for systems that are outsourced, vendors,
auditors, customers, and suppliers.
(3) Assessment: Information Technology "IT" and non-IT systems were
assessed and mission critical applications that could potentially be
affected were identified. Mission critical was defined as anything that
may have a material adverse effect on the Company if not YEAR 2000
compliant.
(4) Renovation: The Company upgraded and replaced IT and non-IT systems
where appropriate, and all such replacements were complete in June 30, 1999.
(5) Testing and Implementation: The Company's testing and implementation
of Mission Critical systems is complete.
(6) Risk Assessment: Lending officers were trained on YEAR 2000 issues
and have documented YEAR 2000 readiness of borrowers. Significant
borrowers were mailed a questionnaire and were assigned a YEAR 2000 risk
rating by the Company. Appropriate responses to credit requests took YEAR
2000 into consideration. A similar assessment was conducted of deposit
customers relative to liquidity risk. Investment and funding strategies
were planned to ameliorate any potential risk in this area.
(7) Customer Awareness: During the fourth quarter of 1999, the Company
continued its comprehensive plan to increase customer awareness of the YEAR
2000 issue and to inform customers of the bank's efforts to become
compliant. This plan included posting information on the Company's web
site, distribution of quarterly press releases, statement stuffers and
lobby brochures. Associate training was conducted to assure that customers
were provided with accurate information about the Company's Y2K readiness.
Company officials participated in a community question and answer program.
(8) Contingency Planning: The Company completed a Business
Resumption/Contingency Plan for the YEAR 2000. This plan incorporated back-
up systems and procedures for core business processes, should any
unforeseen disruptions occur. This plan was substantially completed by
September 30, 1999.
(9) Verification: The Verification process was completed during the
actual Century Date Change, with the exception of leap year due February,
2000. This involved verifying successful transition to the YEAR 2000 of all
systems and applications, at all critical dates and functions to the YEAR
2000. Monitoring and reporting protocol were established for this phase.
Estimated Costs to Address the Company's YEAR 2000 Issues
- ---------------------------------------------------------
Costs directly related to YEAR 2000 issues are estimated to be $780,000
from 1998 to 2000, of which approximately 100% had been spent as of
December 31, 1999. Approximately 75% of the total spending represent costs
to modify existing systems. Costs incurred by the Company prior to 1998
were immaterial. This estimate assumes that the Company will not incur
significant YEAR 2000 related costs on behalf of its vendors, suppliers,
customers and other third parties.
Risks of the Company's YEAR 2000 Issues
- ---------------------------------------
The YEAR 2000 presents certain risks to the Company and its operations.
Some risks are present because the Company purchased technology
applications from other parties who face YEAR 2000 challenges and
additional risks that are inherent in the business of banking. Management
identified the following potential risks that could have had a material
adverse effect on the Company's business.
1. The Company's subsidiary banks may have experienced a liquidity problem
if there were any significant amount of deposits withdrawn by customers who
have uncertainties associated with the YEAR 2000. This did not occur. The
Company implemented a contingency plan to ensure there were appropriate
levels of funding available.
2. The Company's operations could be materially affected by the failure of
third parties who provide mission critical IT and non-IT systems. The
Company identified its mission critical third parties and monitored their
Y2K Plan progress. In response to this concern, the Company identified and
contacted the third parties who provide mission critical applications. The
Company received YEAR 2000 compliance assurances from third parties who
provide mission critical applications and monitored and tested their
efforts for YEAR 2000 compliance. The Company currently knows of no
material liability due to this risk.
3. The Company's ability to operate effectively in the YEAR 2000 could be
adversely affected by the ability to communicate and to access utilities.
The Company established a contingency plan to address this situation.
Currently, no problems have materialized due to this risk.
4. The Company's subsidiary banks lend significant amounts to businesses
and contractors in our market area. If the businesses are adversely
affected by the YEAR 2000 issues, their ability to repay loans could be
impaired and increased credit risk could affect the Company's financial
performance. As part of the Company's Y2K Plan, the Company identified its
significant borrowers and documented their YEAR 2000 readiness and risk to
the Company. Currently, no businesses or contractors have been identified
that are affected by this risk.
5. Sanctions could be imposed against the Company if it does not meet
deadlines or follow timetables established by the federal and state
governmental agencies, which regulate the Company and its subsidiaries.
The Company has incorporated the regulatory guidelines for YEAR 2000 into
its Y2K Plan. No sanctions have been imposed by regulators.
Contingency Plan
- ----------------
Contingency plans for YEAR 2000 related interruptions have been developed
and include, but are not limited to, the development of emergency backup
and recovery procedures, remediation of existing systems parallel with
installation of new systems, replacing electronic applications with manual
processes, and identification of alternate suppliers. All plans were
substantially completed by September 30, 1999.
Year 2000
- ---------
As of March 31, 2000, the Company experienced no known Year 2000 problems
that were material.
TABLE I
AVERAGES BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
For Three Months Ended March 31 2000 1999
------------------------------ ------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- -------- ------- ----------- -------- -------
ASSETS
- ------
Loans, Net of Unearned Interest(1)(2) $ 938,351 $21,161 9.07% $ 850,161 $18,820 8.98%
Taxable Investment Securities 213,136 3,121 5.89% 242,604 3,423 5.72%
Tax-Exempt Investment Securities(2) 99,000 1,467 5.93% 100,821 1,466 5.82%
Funds Sold 27,407 389 5.71% 89,093 1,024 4.66%
---------- ------- ----- ---------- ------- -----
Total Earning Assets 1,277,894 26,138 8.22% 1,282,679 24,733 7.82%
Cash & Due From Banks 65,326 64,035
Allowance for Loan Losses (10,085) (10,055)
Other Assets 97,485 93,874
---------- ----------
TOTAL ASSETS $1,430,620 $1,430,533
========== ==========
LIABILITIES
- -----------
NOW Accounts $ 167,862 948 2.27% $ 145,101 $ 663 1.85%
Money Market Accounts 162,129 1,592 3.95% 143,298 1,319 3.73%
Savings Accounts 103,817 536 2.07% 115,545 577 2.03%
Other Time Deposits 497,296 6,099 4.93% 564,686 7,113 5.11%
---------- ------- ----- ---------- ------- -----
Total Interest Bearing Deposits 931,104 9,175 3.96% 968,630 9,672 4.05%
Funds Purchased 65,888 767 4.68% 32,047 316 4.00%
Short-Term Borrowings 1,614 17 4.24% 1,175 16 5.52%
Long-Term Debt 14,169 217 6.16% 18,832 309 6.66%
---------- ------- ----- ---------- ------- -----
Total Int. Bearing Liabilities 1,012,775 10,176 4.04% 1,020,684 10,313 4.10%
Noninterest Bearing Deposits 267,504 264,185
Other Liabilities 16,505 14,735
---------- ----------
TOTAL LIABILITIES 1,296,784 1,299,604
SHAREOWNERS' EQUITY
- -------------------
Common Stock 102 102
Surplus 9,316 8,699
Retained Earnings 124,418 122,128
---------- ----------
TOTAL SHAREOWNERS' EQUITY 133,836 130,929
---------- ----------
TOTAL LIABILITIES & EQUITY $1,430,620 $1,430,533
========== ==========
Net Interest Rate Spread 4.18% 3.72%
===== =====
Net Interest Income $15,962 $14,420
======= =======
Net Interest Margin 5.02% 4.56%
===== =====
(1) Average balances include nonaccrual loans. Interest income includes fees
on loans of approximately $974,000 and $790,000, for the three months ended
March 31, 2000 and 1999, respectively.
(2) Interest income includes the effects of taxable equivalent adjustments
using a 35% tax rate.
Item 3. Qualitative and Quantitative Disclosure for Market Risk
Overview
- --------
Market risk management arises from changes in interest rates, exchange
rates, commodity prices and equity prices. The Company has risk management
policies to monitor and limit exposure to market risk. Capital City Bank
Group does not actively participate in exchange rates, commodities or
equities. In asset and liability management activities, policies are in
place that are designed to minimize structural interest rate risk.
Interest Rate Risk Management
- -----------------------------
The normal course of business activity exposes Capital City Bank Group to
interest rate risk. Fluctuations in interest rate risk may result in
changes in the fair market value of the Company's financial instruments,
cash flows and net interest income. Capital City Bank Group's
asset/liability management process manages the Company's interest rate
risk.
The financial assets and liabilities of the Company are classified as other-
than-trading. An analysis of the other-than-trading financial components,
including the fair values, are presented in Table II on page 20. This
table presents the Company's consolidated interest rate sensitivity
position as of March 31, 2000, based upon certain assumptions as set-forth
in the Notes to the Table. The objective of interest rate sensitivity
analysis is to measure the impact on the Company's net interest income due
to fluctuations in interest rates. The asset and liability fair values
presented in Table II may not necessarily be indicative of the Company's
interest rate sensitivity over an extended period of time.
The Company is currently liability sensitive which generally indicates that
in a period of rising interest rates the net interest margin will be
adversely impacted as the velocity and/or volume of liabilities being
repriced exceeds assets. However, as general interest rates rise or fall,
other factors such as current market conditions and competition may impact
how the Company responds to changing rates and thus impact the magnitude of
change in net interest income.
Table II
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS
(Dollars in Thousands)
Other Than Trading Portfolio March 31, 2000
- ---------------------------- ----------------------------------------------------- Fair
Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value
-------- -------- -------- -------- -------- ---------- --------- ----------
Loans
Fixed Rate $ 71,689 $ 28,999 $ 45,461 $ 46,906 $ 40,541 $ 73,157 $ 306,753 $ 307,235
Average Interest Rate 9.44% 9.90% 8.55% 8.71% 8.57% 7.94% 9.04%
Floating Rate(2) 393,370 34,109 53,484 33,403 72,471 70,483 657,320 658,352
Average Interest Rate 9.22% 8.23% 8.52% 7.98% 8.20% 7.01% 8.67%
Investment Securities(3)
Fixed Rate 83,319 40,725 33,608 18,550 22,592 92,946 291,740 291,740
Average Interest Rate 5.83% 5.80% 5.58% 5.59% 5.89% 6.52% 6.01%
Floating Rate - - 8,468 - - 505 8,973 8,973
Average Interest Rate - - 5.91% - - 6.29% 5.93%
Other Earning Assets
Fixed Rates - - - - - - - -
Average Interest Rates - - - - - - -
Floating Rates 68,411 - - - - - 68,411 68,411
Average Interest Rates 5.66% - - - - - 5.66%
Total Financial Assets $616,789 $103,833 $141,021 $ 98,859 $135,604 $237,091 $1,333,197 $1,334,711
Average Interest Rates 8.39% 7.74% 7.67% 7.88% 7.92% 7.10% 8.00%
Deposits(4)
Fixed Rate Deposits $438,665 $ 36,770 $ 11,192 $ 4,137 $ 2,220 $ 16 $ 493,000 $ 489,905
Average Interest Rates 4.90% 5.31% 5.04% 5.05% 4.97% 4.79% 4.93%
Floating Rate Deposits 448,788 - - - - - 448,788 448,788
Average Interest Rates 2.01% - - - - - 2.01%
Other Interest Bearing
Liabilities
Fixed Rate Debt 779 644 662 678 698 7,595 11,056 10,945
Average Interest Rate 6.02% 6.16% 6.16% 6.16% 6.15% 6.08% 6.10%
Floating Rate Debt 81,632 - - - - - 81,632 80,813
Average Interest Rate 4.76% - - - - - 4.76%
Total Financial Liabilities $969,864 $ 37,414 $ 11,854 $ 4,815 $ 2,918 $ 7,611 $1,034,476 $1,030,451
Average interest Rate 3.55% 5.32% 5.10% 5.21% 5.25% 6.08% 3.66%
(1) Based upon expected cashflows, 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 rates deposits in
2000. Other time deposit balances are classified according to maturity.
PART II. OTHER INFORMATION
Items 1-4.
Not applicable
Item 5. Other
On March 30, 2000, the Company announced the authorization to repurchase
500,000 shares of the oustanding common stock. The purchases will be made
in the open market or in privately negotiated transactions.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Not applicable
(B) Reports on Form 8-K
Capital City Bank Group, Inc., filed no Form 8-K during the first quarter 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned Chief Financial Officer hereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
(Registrant)
/s/ J. Kimbrough Davis
- ----------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: May 15, 2000