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:
September 30, 2001
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 office) (Zip
Code)
Registrant's telephone number, including area code:
(850) 671-0300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or 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 October 31, 2001, there were 10,685,493 shares of the
Registrant's Common Stock, $.01 par value, outstanding.
1
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q I N D E X
PAGE
ITEM PART I. FINANCIAL INFORMATION
NUMBER
- ---- ----------------------------- ----
- --
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
3. Quantitative and Qualitative Disclosure of
Market Risk 18
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
20
6. Exhibits and Reports on Form 8-K
20
Signatures
20
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(UNAUDITED)
(Dollars In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED NINE MONTHS
ENDED
SEPTEMBER 30, SEPTEMBER
30,
2001 2000 2001
2000
-------- -------- -------- ----
- ----
INTEREST INCOME
Interest and Fees on Loans $26,134 $24,062 $77,227
$67,767
Investment Securities:
U.S. Treasury 96 143 339
552
U.S. Government Agencies/Corp. 1,639 2,114 5,412
6,575
States and Political Subdivisions 794 981 2,523
3,079
Other Securities 559 581 1,754
1,777
Funds Sold 1,036 138 3,022
870
------- ------- ------- ---
- ----
Total Interest Income 30,258 28,019 90,277
80,620
INTEREST EXPENSE
Deposits 11,642 10,452 36,141
29,274
Short-Term Borrowings 374 1,391 1,980
3,379
Long-Term Debt 240 196 674
632
------- ------- ------- ---
- ----
Total Interest Expense 12,256 12,039 38,795
33,285
------- ------- ------- ---
- ----
Net Interest Income 18,002 15,980 51,482
47,335
Provision for Loan Losses 1,222 735 3,051
2,295
------- ------- ------- ---
- ----
Net Interest Income After
Provision for Loan Losses 16,780 15,245 48,431
45,040
NONINTEREST INCOME
Service Charges 2,581 2,365 7,656
7,014
Data Processing 506 630 1,593
1,960
Asset Management Fees 613 525 1,967
1,785
Securities Transactions 2 - 4
2
Mortgage Banking Revenues 1,111 391 2,686
847
Other 3,105 2,734 9,595
8,113
------- ------- ------- ---
- ----
Total Noninterest Income 7,918 6,645 23,501
19,721
------- ------- ------- ---
- ----
NONINTEREST EXPENSE
Salaries and Benefits 10,033 7,565 27,599
22,605
Occupancy, Net 1,492 1,169 4,122
3,377
Furniture and Equipment 1,703 1,484 4,934
4,355
Merger Expenses - (2) -
749
Other 5,765 4,466 16,310
13,202
------- ------- ------- ---
- ----
Total Noninterest Expense 18,993 14,682 52,965
44,288
------- ------- ------- ---
- ----
Income Before Income Taxes 5,705 7,208 18,967
20,473
Income Taxes 1,963 2,487 6,596
6,971
------- ------- ------- ---
- ----
NET INCOME $ 3,742 $ 4,721 $12,371
$13,502
======= ======= =======
=======
Basic Net Income Per Share $ .35 $ .46 $ 1.17 $
1.32
======= ======= =======
=======
Diluted Net Income Per Share $ .35 $ .46 $ 1.17 $
1.32
======= ======= =======
=======
Cash Dividends Per Share $ .1475 $ .1325 $ .4425 $
.3975
======= ======= =======
=======
Basic Average Shares Outstanding 10,685,183 10,192,009 10,566,406
10,194,294
========== ========== ==========
==========
Diluted Average Shares Outstanding 10,693,207 10,207,522 10,574,430
10,209,807
========== ========== ==========
==========
3
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(Dollars In Thousands, Except Per Share Amounts)
September 30, December
31,
2001 2000
(Unaudited)
(Audited)
------------ --------
- ---
ASSETS
Cash and Due From Banks $ 83,844 $
73,367
Funds Sold 125,223
40,623
Investment Securities, Available-for-Sale 237,397
276,839
Loans, Net of Unearned Interest 1,231,337
1,051,832
Allowance for Loan Losses (12,286)
(10,564)
---------- -------
- ---
Loans, Net 1,219,051
1,041,268
Premises and Equipment 45,778
37,023
Intangibles 37,097
22,293
Other Assets 34,171
36,047
---------- -------
- ---
Total Assets $1,782,561
$1,527,460
==========
==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 348,074 $
292,656
Interest Bearing Deposits 1,170,637
975,711
---------- -------
- ---
Total Deposits 1,518,711
1,268,367
Short-Term Borrowings 52,673
83,472
Long-Term Debt 16,352
11,707
Other Liabilities 21,204
16,307
---------- -------
- ---
Total Liabilities 1,608,940
1,379,853
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value,
3,000,000 shares authorized, no
shares issued and outstanding -
- -
Common Stock, $.01 par value; 90,000,000
shares authorized; 10,685,490 shares
outstanding at September 30, 2001
and 10,108,454 outstanding at
December 31, 2000 107
101
Additional Paid-In Capital 21,156
7,369
Retained Earnings 149,284
141,659
Accumulated Other Comprehensive Income (Loss),
Net of Tax 3,074
(1,522)
---------- -------
- ---
Total Shareowners' Equity 173,621
147,607
---------- -------
- ---
Total Liabilities and Shareowners' Equity $1,782,561
$1,527,460
==========
==========
4
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30
(Dollars In Thousands)
2001 2000
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net Income $ 12,371 $ 13,501
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 3,051 2,295
Depreciation 3,103 3,004
Net Securities Amortization 882 1,034
Amortization of Intangible Assets 2,943 2,136
Gain on Sales of Investment Securities (3) (2)
Non-Cash Compensation Expense 773 76
Net Decrease (Increase) in Other Assets 2,114 (1,933)
Net Increase in Other Liabilities 2,948 3,331
-------- --------
Net Cash Provided by Operating Activities 28,182 23,442
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 100,307 41,217
Purchase of Investment Securities (6,053) (492)
Net Increase in Loans (89,906) (133,454)
Purchase of Premises & Equipment (6,549) (2,061)
Sales of Premises & Equipment 1,934 65
Cash & Cash Equivalents from Acquisition 80,420 -
-------- --------
Net Cash Provided by (Used in) Investing Activities 80,153 (94,725)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 46,454 27,302
Net (Decrease) Increase in Short-Term Borrowings (55,798) 22,357
Borrowing of Long-Term Debt 6,971 928
Repayment of Long-Term Debt (2,598) (3,778)
Dividends Paid (4,746) (4,053)
Repurchase of Common Stock (3,761) -
Issuance of Common Stock 222 38
-------- --------
Net Cash (Used in) Provided by Financing Activities (13,256) 42,794
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 95,079 (28,489)
Cash and Cash Equivalents at Beginning of Period 113,990 93,072
-------- --------
Cash and Cash Equivalents at End of Period $209,069 $ 64,583
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 36,766 $ 30,066
======== ========
Interest Paid on Debt $ 2,628 $ 4,159
======== ========
Transfer of Loans to ORE $ 1,562 $ 818
======== ========
Income Taxes Paid $ 7,312 $ 8,718
======== ========
5
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 accounting principles generally accepted in the
United States 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.
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 September 30, 2001
and December 31, 2000, the results of operations for the three
and nine month periods ended September 30, 2001 and 2000, and
cash flows for the nine month periods ended September 30, 2001
and 2000.
The Company and its subsidiaries follow accounting principles
generally accepted in the United States and reporting practices
applicable to the banking industry. The principles which
materially affect its financial position, results of operations
and cash flows are set forth in Notes to Consolidated Financial
Statements which are included in the Company's 2000 Annual
Report and Form 10-K.
(2) INVESTMENT SECURITIES
---------------------
The carrying value and related market value of investment securities at
September 30, 2001 and December 31, 2000 were as follows (dollars in thousands):
September 30, 2001
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U.S. Treasury $ 4,001 $ 18 $ - $ 4,019
U.S. Government Agencies
and Corporations 46,327 1,244 - 47,571
States and Political
Subdivisions 74,371 1,654 4 76,021
Mortgage Backed Securities 68,426 1,228 1 69,653
Other Securities 39,420 728 15 40,133
-------- ------ --- --------
Total $232,545 $4,872 $20 $237,397
-------- ------ --- --------
December 31, 2000
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U.S. Treasury $ 10,016 $ 5 $ - $ 10,021
U.S. Government Agencies
and Corporations 69,683 49 516 69,216
States and Political
Subdivisions 85,744 192 695 85,241
Mortgage Backed Securities 73,741 134 1,126 72,749
Other Securities 40,058 7 453 39,612
-------- ------ --- --------
Total $279,242 $387 $2,790 $276,839
-------- ------ --- --------
6
(3) LOANS
-----
The composition of the Company's loan portfolio at September 30, 2001 and
December 31, 2000 was as follows (dollars in thousands):
<CATION>
September 30, 2001 December 31, 2000
------------------ -----------------
Commercial, Financial
and Agricultural $ 130,465 $ 108,340
Real Estate - Construction 81,736 84,133
Real Estate - Mortgage 292,536 231,099
Real Estate - Residential 518,463 444,489
Consumer 208,137 183,771
---------- ----------
Loans, Net of Unearned Interest $1,231,337 $1,051,832
========== ==========
(4) ALLOWANCE FOR LOAN LOSSES
-------------------------
An analysis of the changes in the allowance for loan losses for the nine month
period ended September 30, 2001 and 2000, is as follows (dollars in thousands):
September 30, 2001 September 30, 2000
------------------ ------------------
Balance, Beginning of the Period $10,564 $ 9,929
Acquired Reserves 1,206 -
Provision for Loan Losses 3,051 2,295
Recoveries on Loans Previously
Charged-Off 680 524
Loans Charged-Off (3,215) (2,095)
------- -------
Balance, End of Period $12,286 $10,653
======= =======
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):
September 30,
------------------------------------------
- ------
2001 2000
-------------------- ---------------
- ------
Valuation
Valuation
Balance Allowance Balance
Allowance
Impaired Loans: -------------------- ---------------
- ------
With Related Credit Allowance $1,951 $2 $ -
$-
Without Related Credit Allowance 2,026 - 1,522
- -
Average Recorded Investment
for the Period 3,977 N/A 1,866
N/A
Interest Income:
Recognized $ 13 $ 72
Collected $ 13 $ 72
The Company recognizes income on nonaccrual 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 September 30, 2001
and December 31, 2000 was as follows (dollars in thousands):
September 30, 2001 December 31,
2000
------------------ ---------------
- --
NOW Accounts $ 214,898 $207,978
Money Market Accounts 236,699 156,590
Savings Deposits 98,657 104,035
Other Time Deposits 620,383 507,108
---------- --------
Total Interest Bearing Deposits $1,170,637 $975,711
========== ========
7
(6) ACCOUNTING PRONOUNCEMENTS
-------------------------
In July 2001, the SEC released Staff Accounting Bulletin
("SAB") No. 102, "Selected Loan Loss Allowance Methodology and
Documentation Issues." SAB No. 102 expresses the SEC staff's
views on the development, documentation and application of a
systematic methodology in determining a GAAP allowance for loan
losses. The SAB stresses that the methodology for computing
the allowance be both disciplined and consistent, and
emphasizes that the documentation supporting the allowance and
provision must be sufficient. SAB No. 102 provides guidance
that is consistent with the Federal Financial Institutions
Examination Council's ("FFIEC"), "Policy Statement on Allowance
for Loan and Lease Losses Methodologies and Documentation for
Banks and Savings Institutions", which was also issued in July
2001. SAB No. 102 is applicable to all registrants with
material loan portfolios while the parallel guidance of the
FFIEC is applicable only to banks and savings institutions.
The adoption of this bulletin did not have a material impact on
reported results of operations of the Company.
In June 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangibles", which is effective for
fiscal years beginning after December 15, 2001. This statement
addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes Accounting
Principles Board ("APB") Opinion No. 17, "Intangible Assets."
This statement addresses how intangible assets that are
acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This
statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. The Company
anticipates the adoption of this standard to impact 2002
earnings by approximately $.06 to $.09 per diluted share.
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," which is effective for all business combinations
initiated after June 30, 2001. This statement addresses
financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, "Business Combinations", and
SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." All business combinations in the scope
of this statement are to be accounted for using one method, the
purchase method. The adoption of this standard did not have a
material impact on the reported results of operations of the
Company.
In September 2000, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", a
replacement of SFAS No. 125. The statement revises the
standards for accounting for securitizations and other
transfers of financial assets and collateral and requires
certain disclosures. The statement is effective for fiscal
years ending after December 15, 2000. The adoption of this
standard did not have a material impact on reported results of
operations of the Company.
8
(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 and nine month
periods ended September 30, 2001 and 2000, as follows (dollars in thousands):
THREE MONTHS ENDED NINE
MONTHS ENDED
------------------ ----------
- ---------
SEPTEMBER 30
SEPTEMBER 30
------------ ------
- ------
2001 2000 2001
2000
------ ------ -------
- --------
Net Income $3,742 $4,721 $12,371
$13,502
Other Comprehensive Income, Net of Tax
Unrealized Gains (Losses) on Securities:
Unrealized (Losses) Gains on Securities
During the Period 1,694 2,342 4,596
1,914
Less: Reclassification Adjustments for
Gains (Losses) in Net Income 2 - 4
2
------ ------ -------
- -------
Total Unrealized Gains (Losses)
On Securities 1,696 2,342 4,600
1,916
------ ------ -------
- -------
Other Comprehensive Income, Net of Tax $5,438 $7,063 $16,971
$15,418
====== ====== =======
=======
These changes reflect a market value increase in available-for-sale securities
for the three and nine months ended September 30, 2001 and 2000, respectively.
(8) ACQUISITIONS
------------
On March 9, 2001, the Company completed its purchase and
assumption agreement with First Union National Bank ("First
Union") and acquired six of First Union's offices which
included real estate, loans and deposits. The transaction
created approximately $11.5 million in intangible assets and is
being amortized over 10 years. The Company purchased $18
million in loans and assumed deposits of $104 million.
On March 2, 2001, the Company completed its acquisition of
First Bankshares of West Point, Inc., and its subsidiary First
National Bank of West Point. First National Bank of West Point
is a $155 million financial institution with offices located in
West Point, Georgia, and two offices in the Greater Valley area
of Alabama. First Bankshares of West Point, Inc., merged with
CCBG, and First National Bank of West Point merged with CCB.
The Company issued 3.6419 shares and $17.7543 in cash for each
of the 192,481 shares of First Bankshares of West Point, Inc.
The transaction was accounted for as a purchase and resulted in
approximately $5.5 million of intangibles, primarily goodwill.
These intangible assets are being amortized over fifteen years.
(9) CONTINGENCIES
-------------
As part of its card processing services operation, the Bank has
relationships with several Independent Sales Organizations
("ISOs"). A small number of one ISO's merchants have generated
large amounts of charge-backs, and have not reimbursed the ISO
for this charge-back activity. Should these charge-backs
exceed the financial capacity of the ISO, the Bank could face
related exposure. In addition, the ISO and certain merchants
may have disputes about reserves placed with the ISO. The Bank
is currently involved in a workout strategy with the ISO
related to charge-back issues, which Management believes
substantially mitigates the Bank's potential exposure. The
issues are still evolving and Management cannot reasonably
estimate potential exposure for losses, if any, at this time.
Management does not believe the ultimate resolution of these
issues will have a material impact on the Company's financial
position or results of operations.
9
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2001
2000 1999
--------------------------------- -----------------------
- ----------------------- ----------
Third Second First Fourth Third
Second First Fourth
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 30,258 $ 30,882 $ 29,137 $ 28,716 $ 28,019
$ 26,890 $ 25,711 $ 25,366
Interest Expense 12,256 13,396 13,143 12,948 12,039
11,070 10,176 10,171
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
Net Interest Income 18,002 17,486 15,994 15,768 15,980
15,820 15,535 15,195
Provision for
Loan Loss 1,222 1,007 822 825 735
950 610 510
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Loss 16,780 16,479 15,172 14,943 15,245
14,870 14,925 14,685
Noninterest Income 7,918 8,255 7,328 7,046 6,645
6,674 6,402 6,655
Merger Expense - - - 12
(2) 751 - 10
Noninterest Expense 18,993 18,132 15,840 14,847 14,684
14,502 14,353 14,463
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 5,705 6,602 6,660 7,130 7,208
6,291 6,974 6,867
Provision for
Income Taxes 1,963 2,322 2,311 2,478 2,487
2,123 2,361 2,548
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
Net Income $ 3,742 $ 4,280 $ 4,349 $ 4,652 $ 4,721
$ 4,168 $ 4,613 $ 4,319
========== ========== ========== ========== ==========
========== ========== ==========
Net Interest
Income (FTE) $ 18,453 $ 17,935 $ 16,454 $ 16,134 $ 16,365
$ 16,218 $ 15,963 $ 15,521
Per Common Share:
Net Income Basic $ .35 $ .40 $ .42 $ .46 $ .46
$ .41 $ .45 $ .42
Net Income Diluted .35 .40 .42 .46 .46
.41 .45 .42
Dividends Declared .1475 .1475 .1475 .1475 .1325
.1325 .1325 .1325
Book Value 16.24 15.87 15.62 14.56 14.08
13.51 13.20 12.96
Market Price:
High 25.25 25.00 26.13 26.75 20.50
20.50 23.00 25.00
Low 20.87 19.88 23.13 18.88 18.75
18.00 15.00 20.19
Close 23.47 24.87 25.19 24.81 19.56
19.50 19.63 21.50
Selected Average
Balances:
Loans $1,204,323 $1,192,103 $1,082,961 $1,053,674 $1,025,942
$ 989,696 $ 938,376 $ 915,194
Earning Assets 1,561,519 1,556,186 1,416,861 1,359,336 1,318,689
1,303,588 1,277,837 1,280,746
Assets 1,733,324 1,732,061 1,570,229 1,503,184 1,465,114
1,453,692 1,430,251 1,446,815
Deposits 1,482,516 1,478,163 1,300,824 1,223,472 1,203,266
1,202,765 1,198,645 1,235,002
Shareowners' Equity 170,454 169,459 155,837 146,161 141,847
137,014 133,836 131,932
Common Equivalent
Shares:
Basic 10,685 10,713 10,297 10,162 10,192
10,196 10,195 10,179
Diluted 10,693 10,721 10,305 10,186 10,208
10,211 10,211 10,201
Ratios:
ROA .86% .99% 1.12% 1.23% 1.28%
1.15% 1.30% 1.18%
ROE 8.71% 10.13% 11.32% 12.66% 13.24%
12.23% 13.86% 12.99%
Net Interest
Margin (FTE) 4.70% 4.62% 4.70% 4.73% 4.94%
5.00% 5.02% 4.82%
Efficiency Ratio 68.12% 65.09% 63.12% 61.03% 60.64%
60.30% 60.91% 60.67%
10
ITEM 2. MANAGEMENT'S DISCUSSION AND RESULTS OF OPERATIONS
AND ANALYSIS OF FINANCIAL CONDITION
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. 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
"Results of Operations", "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 2001
compares with prior years. Throughout this section, Capital
City Bank Group, Inc., and its subsidiaries, collectively, are
referred to as "CCBG" or the "Company." Capital City Bank is
referred to as "CCB" and First National Bank of Grady County is
referred to as "FNBGC", or collectively as the "Banks".
On March 9, 2001, the Company completed its purchase and
assumption agreement with First Union National Bank ("First
Union") and acquired six of First Union's offices which
included real estate, loans and deposits. The transaction
created approximately $11.5 million in intangible assets and is
being amortized over 10 years. The Company purchased $18
million in loans and assumed deposits of $104 million.
On March 2, 2001, the Company completed its acquisition of
First Bankshares of West Point, Inc., and its subsidiary First
National Bank of West Point. First National Bank of West Point
is a $155 million financial institution with offices located in
West Point, Georgia, and two offices in the Greater Valley area
of Alabama. First Bankshares of West Point, Inc., merged with
CCBG, and First National Bank of West Point merged with CCB.
The Company issued 3.6419 shares and $17.7543 in cash for each
of the 192,481 shares of First Bankshares of West Point, Inc.
The transaction was accounted for as a purchase and resulted in
approximately $5.5 million of intangibles, primarily goodwill.
These intangible assets are being amortized over fifteen years.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings, including the effects of special charges and
intangible amortization, for the three and nine months ended
September 30, 2001 were $3.7 million, or $0.35 per diluted
share and $12.4 million, or $1.17 per diluted share. This
compares to $4.7 million, or $0.46 per diluted share and $13.5
million, or $1.32 per diluted share in 2000. For the period
ended September 30, 2001, the Company has not experienced any
special charges compared to $475,000, net of taxes, or $0.05
per diluted share, for the comparable period in 2000.
Amortization of intangible assets, net of taxes, for the first
nine months in 2001 was $2.0 million, or $0.19 per diluted
share and $1.4 million, or $0.14 per diluted share for the
comparable period in 2000.
11
Operating revenues (defined as taxable equivalent net interest
income plus noninterest income) in 2001 grew $3.4 million, or
14.6%, and $8.1 million, or 11.8%, respectively, over the three
and nine month periods in 2000. The Company experienced an
increase in noninterest expense of 29.4% for the third quarter
in 2001 and 19.6% for the first nine months of 2001, versus the
comparable periods in 2000. This was attributable to continued
geographic expansion and higher ongoing operating costs. These
and other factors are discussed throughout the Financial
Review. A condensed earnings summary is presented below.
Three Months Ended Nine
Months Ended
September 30,
September 30,
------------------ --------
- -----------
2001 2000 2001
2000
------- ------- -------
- -------
Interest and Dividend Income $30,258 $28,019 $90,277
$80,620
Taxable Equivalent Adjustment(1) 451 385 1,360
1,211
------- ------- -------
- -------
Interest Income 30,709 28,404 91,637
81,831
Interest Expense 12,256 12,039 38,795
33,285
------- ------- -------
- -------
Net Interest Income (FTE) 18,452 16,365 52,842
48,546
Provision for Loan Losses 1,222 735 3,051
2,295
Taxable Equivalent Adjustment 451 385 1,360
1,211
------- ------- -------
- -------
Net Interest Income
After Provision 16,780 15,245 48,431
45,040
Noninterest Income 7,918 6,645 23,501
19,721
Merger Expense - (2) -
749
Noninterest Expense 18,993 14,684 52,965
43,539
------- ------- -------
- -------
Income Before Income Taxes 5,705 7,208 18,967
20,473
Income Taxes 1,963 2,487 6,596
6,971
------- ------- -------
- -------
Net Income $ 3,742 $ 4,721 $12,371
$13,502
======= ======= =======
=======
Percent Change over comparable
prior year period (20.74)% 7.95%
(8.38)% 23.49%
Return on Average Assets(2) .86% 1.28% .98%
1.24%
Return on Average Equity(2) 8.71% 13.24% 9.97%
13.11%
(1) Computed using a statutory tax rate of 35%
(2) Annualized
Net Interest Income
- -------------------
Third quarter taxable equivalent net interest income increased
$2.1 million, or 12.6%, over the comparable quarter in 2000.
Taxable equivalent net interest income for the nine month
period of 2001 increased $4.3 million, or 8.8%, over the same
period of 2000. The increase in both periods is attributable
to growth in earning assets. The margin improvement
attributable to the higher level of earning assets was
partially offset by an unfavorable rate variance driven by the
rapid reduction in interest rates during 2001. The growth in
the Company's balance sheet is primarily attributable to the
Georgia acquisitions discussed previously. Table I on page 17
provides a comparative analysis of the Company's average
balances and interest rates.
For the three and nine month periods ended September 30, 2001,
taxable-equivalent interest income increased $2.3 million, or
8.1%, and $9.8 million, or 12.0%, respectively, over the
comparable prior year periods. Average loans, which represent
the Company's highest yielding asset, increased $179.7 million,
or 18.2%, and represented 76.7% of total earning assets for the
nine months ended September 30, 2001 versus 75.7% for the
comparable period in 2000. Interest income on funds sold
increased $898,000 and $2.2 million from the comparable three
and nine months periods in 2001, reflecting higher liquidity
levels resulting from the recent Georgia acquisitions.
Partially offsetting these increases was a decline in income
from investment securities as maturities are not being
reinvested due to the current interest rate environment and in
anticipation of future loan demand. The higher level of
liquidity and declining interest rates contributed to a
decrease of 34 basis points in the yield on earning assets
which declined from 8.41% for the first nine months of 2000 to
8.07% in 2001.
12
Interest expense for the three and nine month periods ended
September 30, 2001, increased $217,000, or 1.8%, and $5.5
million, or 16.6%, respectively, over the comparable prior year
periods. This was primarily due to the recent Georgia
acquisitions, which added approximately $217 million in
deposits. Interest rates have declined 400 basis points during
the first nine months of 2001. Management is aggressively
managing the cost of funds and has experienced a 41 basis point
reduction in the average rate paid on interest bearing
liabilities from the second to third quarter of 2001 and 68
basis points versus third quarter 2000. Certificates of
deposit, which generally represent a higher cost deposit
product to the Company, increased from 41.2% of average
deposits in the first nine months of 2000 to 42.3% in 2001.
The Company's interest rate spread (defined as the average
federal taxable equivalent yield on earning assets less the
average rate paid on interest bearing liabilities) decreased
from 4.07% in the first nine months of 2000 to 3.76% in the
comparable period of 2001. The Company's net interest margin
percentage (defined as taxable-equivalent net interest income
divided by average earning assets) was 4.70% and 4.65%,
respectively, for the three and nine months ended of 2000,
versus 4.94% and 4.99%, respectively, for the comparable
periods in 2001. The decrease in spread and margin is
attributable to the lower yield on earning assets.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $1.2 million and $3.1
million, respectively, for the three and nine month periods
ended September 30, 2001, compared to $735,000 and $2.3 million
for the comparable periods in 2000. While still at
historically low levels, the Company continued to experience
slight deterioration in credit quality. Net charge-offs
increased over the first half of 2000, but remain at low levels
relative to the size of the loan portfolio. Nonperforming
assets increased $521,000, or 13.3%, during the first nine
months of 2001. The Company's nonperforming asset ratio
declined from .37% at year-end to .36% at September 30, 2001.
At September 30, the reserve for loan losses was $12.3 million
and represented 1.00% of total loans, consistent with the prior
year-end.
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 reserve for loan losses as of September 30,
2001, 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 Nine Months
Ended
(dollars in thousands) September 30, September 30,
---------------------- ------------------
- ------
2001 2000 2001
2000
-------- -------- ---------- ----
- ------
Net Charge-Offs $915,000 $560,000 $2,535,000
$1,571,000
Net Charge-Offs (Annualized)
as a percent of Average
Loans Outstanding, Net of
Unearned Interest .30% .22% .29%
.21%
13
Noninterest Income
- ------------------
Noninterest income increased $1.3 million, or 19.2%, in the
third quarter of 2001 versus the comparable quarter for 2000,
and $3.8 million, or 19.2%, for the nine months ended September
30, 2001 versus the comparable period for 2000. During both
periods, service charges on deposit accounts, mortgage banking
revenues and other income items posted higher revenues.
Service charges on deposit accounts increased $216,000, or
9.1%, and $639,000, or 9.1%, respectively, over the comparable
three and nine month periods for 2000. Service charge revenues
in any one year are dependent on the number of accounts,
primarily transaction accounts, the level of activity subject
to service charges and the collection rate. The increase in
the first nine months of 2001 compared to 2000, reflects an
increase in number of accounts, primarily attributable to the
Georgia acquisitions.
Data processing revenues decreased $124,000, or 19.7%, and
$367,000, or 18.7%, respectively, over the comparable three and
nine month periods in 2000. The decrease primarily reflects a
reduction in the number of processing clients.
Revenue from asset management fees increased $88,000, or 16.7%,
compared to the third quarter of 2000, and $182,000, or 10.2%,
over the comparable nine month period in 2000. Assets
generated through new production were offset by declining stock
market values and distributions. At September 30, 2001, assets
under management totaled $323.9 million compared to $328.5
million at September 30, 2000.
Mortgage banking revenues increased $720,000, or 184.4%, and
$1.8 million, or 217.3%, respectively, over the comparable
three and nine month period in 2000. The increase was due to
the lower interest rate environment, resulting in fixed rate
loans being generated and sold in the secondary market.
Other income increased $371,000, or 13.6%, and $1.5 million, or
18.3%, respectively, for the three and nine month periods ended
September 30, 2001 over the comparable prior year periods. The
increase is partially attributable to accounts receivable
financing of $175,000, credit card merchant fees of $254,000,
other commission revenues of $342,000, interchange commissions
of $252,000, safe deposit revenues of $147,000, gains on the
disposal of bank assets of $111,000 and miscellaneous
recoveries of $93,000.
Noninterest income as a percent of average assets was 1.86% and
1.82%, respectively, for the first nine months of 2001 and
2000.
Noninterest Expense
- -------------------
Noninterest expense increased $4.3 million, or 29.4%, and $8.7
million, or 19.6%, respectively, over the comparable three and
nine month periods in 2000. All expense categories experienced
increases attributable to the recent acquisitions.
Compensation expense increased $2.5 million, or 32.6%, and $5.0
million, or 22.1%, respectively, over the comparable three and
nine month periods of 2000, reflecting the addition of
associates through the Georgia acquisitions, annual raises, and
increased pension and insurance costs for associates.
Occupancy expense, including premises, furniture, fixtures and
equipment increased $542,000, or 20.4%, and $1.3 million, or
17.1%, respectively, over the comparable three and nine month
periods in 2000. The increase was partially due to the
addition of nine offices acquired with the two Georgia
acquisitions. Office leases, maintenance/repairs, other FF&E
and utilities increased $249,000, $740,000, $97,000 and
$127,000, respectively.
For the three and nine month periods ended September 30, 2001,
the Company did not incur any merger related expense. This
compares to $2,000 and $749,000 from the comparable periods in
2000.
14
Other noninterest expense (excluding merger related costs)
increased $1.3 million, or 29.1%, and $2.4 million, or 16.9%,
respectively, over the comparable three and nine month periods
in 2000. These increases are attributable to recent
acquisitions and include increases in intangible amortization
of $806,000, credit cards and ATM interchange costs of
$274,000, legal costs of $217,000, telephone costs of $344,000,
postage of $184,000, courier costs of $111,000, disposal of
bank assets of $107,000 and advertising of $220,000.
Annualized net noninterest expense (noninterest income minus
noninterest expense, net of intangibles and merger expense) as
a percent of average assets was 2.10% in the first nine months
of 2001, versus 1.99% for the first nine months of 2000. The
Company's efficiency ratio (noninterest expense, net of
intangibles and merger expense, expressed as a percent of the
sum of taxable-equivalent net interest income plus noninterest
income) was 65.52% in the first nine months of 2001, compared
to 60.61% for the comparable period in 2000. The increase in
the efficiency ratio is primarily attributable to the recent
acquisitions.
Income Taxes
- ------------
The provision for income taxes decreased $523,000, or 21.1%,
during the third quarter and $374,000, or 5.4%, during the
first nine months of 2001, relative to the comparable prior
year periods. The Company's effective tax rate for the first
nine months of 2001 was 34.8% versus 34.1% for the comparable
period in 2000. The increase in the effective tax rate is
attributable to a reduction in nontaxable municipal interest.
FINANCIAL CONDITION
The Company's average assets were $1.7 billion for the first
nine months of 2001 and $1.5 billion for the comparable period
in 2000. Average earning assets were $1.5 billion for the nine
months ended September 30, 2001, compared to $1.3 billion for
the first nine months of 2000. The increase, as well as the
change in the mix of earning assets, reflects the recent
Georgia acquisitions and continued loan generation, partially
offset by a decline in investment securities. Table I on Page
17 presents average balances for the three and nine month
periods ended September 30, 2001 and 2000.
Average loans increased $179.7 million, or 18.2%, over the
comparable period in 2000. Price and product competition remain
strong. With the recent rate decline, there is an increased
demand for fixed-rate, longer term financing. Loan growth has
occurred in all categories, with the most significant increase
in real estate, primarily first mortgage residential loans.
Loans as a percent of average earning assets represented 76.7%
of total earning assets for the nine months ended September 30,
2001 versus 75.7% for the comparable period in 2000.
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
September 30, 2001, the average investment portfolio decreased
$40.1 million, or 13.5%, from the comparable period in 2000.
The decrease in the investment portfolio is available for
future loan growth. 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
September 30, 2001, shareowners' equity included an accumulated
other comprehensive gain of $3.1 million compared to a loss of
$1.5 million at December 31, 2000. The increase in value
reflects a decrease in interest rates during the first nine
months of 2001.
At September 30, 2001, the Company's nonperforming loans were
$3.2 million versus $2.9 million at year-end 2000. As a
percent of nonperforming loans, the allowance for loan losses
represented 386% at September 30, 2001 versus 360% at December
31, 2000 and 333% at September 30, 2000, respectively.
Nonperforming loans include nonaccruing and restructured loans.
Other real estate, which includes property acquired either
through foreclosure, or by receiving a deed in lieu of
foreclosure, was $1.2 million at September 30, 2001, compared
to $971,000 at December 31, 2000, and $1.0 million at September
30, 2000. The ratio of nonperforming assets as a percent of
loans plus other real estate was .36% at September 30, 2001,
compared to .37% at December 31, 2000, and .40% at September
30, 2000.
15
Average deposits increased 18.7% from $1.2 billion for the
first nine months of 2000, to $1.4 billion for the first nine
months of 2001. The increase in deposits is primarily
attributable to Georgia acquisitions. Excluding acquisitions,
existing markets realized growth primarily in certificates of
deposit, NOW accounts and noninterest bearing demand accounts.
The ratio of average noninterest bearing deposits to total
deposits was 20.9% for the first nine months of 2001 compared
to 22.5% for the first nine months of 2000. For the same
periods, the ratio of average interest bearing liabilities to
average earning assets was 79.2% and 78.8%, 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 deposits, 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 funds
through established lines of credit with correspondent banks
and the Federal Home Loan Bank. Additionally, the parent
company maintains a $25 million revolving line of credit. As
of September 30, 2001 there was $2.3 million outstanding under
this facility. The Company did not reduce the outstanding
principal on the line of credit during the first nine months of
2001.
The Company's equity capital was $173.6 million as of September
30, 2001, compared to $147.6 million as of December 31, 2000.
Management continues to monitor its capital position in
relation to its level of assets with the objective of
maintaining a "well capitalized" position. The leverage ratio
was 7.49% at September 30, 2001, versus 8.30% at December 31,
2000. Further, the Company's risk-adjusted capital ratio of
11.67% significantly 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 agreement place certain restrictions on the payment
of dividends by both the Company and its Group banks. At
September 30, 2001, 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.
During the first nine months of 2001, shareowners' equity
increased $26.0 million, or 23.6%, on an annualized basis.
Growth in equity during the first nine months was favorably
impacted by net income of $12.4 million and issuance of common
stock of $17.5 million and a change in the net unrealized gain
(loss) on available-for-sale securities from a loss at year-end
of $1.5 million to a gain of $3.1 million. Equity was reduced
by dividends paid during the first nine months of $4.8 million,
or $.4425 per share and the repurchase of common stock of $3.7
million.
The Company's common stock had a diluted book value of $16.24
per share at September 30, 2001 compared to $14.56 at December
31, 2000. On March 30, 2000, the Company announced the
authorization to repurchase 500,000 shares of its outstanding
common stock. The purchases will be made in the open market or
in privately negotiated transactions. To date, 281,134 shares
have been repurchased.
16
TABLE I
AVERAGES BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED SEPTEMBER 30,
2001 2000
------------------------- ---------------------
- ----
Balance Interest Rate Balance Interest
Rate
---------- -------- ---- ---------- --------
- ----
ASSETS
Loans, Net of Unearned
Interest(1) $1,204,323 $26,199 8.63% $1,025,943 $24,108
9.35%
Taxable Investment Securities 162,680 2,294 5.59% 193,902 2,838
5.89%
Tax-Exempt Investment
Securities(2) 76,182 1,179 6.19% 90,641 1,320
5.83%
Funds Sold 118,334 1,036 3.46% 8,205 138
6.63%
---------- ------- ---- ---------- -------
- ----
Total Earning Assets 1,561,519 30,709 7.81% 1,318,691 28,404
8.57%
Cash & Due From Banks 68,198 59,831
Allowance for Loan Losses (12,081) (10,578)
Other Assets 115,688 97,172
---------- ----------
TOTAL ASSETS $1,733,324 $1,465,116
========== ==========
LIABILITIES
NOW Accounts $ 218,756 $ 1,000 1.81% $ 172,910 $ 1,115
2.56%
Money Market Accounts 220,338 1,667 3.00% 159,360 1,718
4.29%
Savings Accounts 115,404 521 1.79% 105,813 640
2.40%
Other Time Deposits 618,390 8,454 5.42% 495,773 6,979
5.61%
---------- ------- ---- ---------- -------
- ----
Total Int. Bearing Deposits 1,172,888 11,642 3.94% 933,856 10,452
4.46%
Short-Term Borrowings 43,855 374 3.38% 89,598 1,391
6.18%
Long-Term Debt 16,221 240 5.90% 12,706 196
6.14%
---------- ------- ---- ---------- -------
- ----
Total Interest Bearing
Liabilities 1,232,964 12,256 3.94% 1,036,160 12,039
4.62%
Noninterest Bearing Deposits 309,628 ------ ---- 269,410 ------
- ----
Other Liabilities 20,278 17,699
---------- ----------
TOTAL LIABILITIES 1,562,870 1,323,269
SHAREOWNERS' EQUITY
Common Stock 106 102
Surplus 20,908 9,342
Other Comprehensive Income 1,578 (5,609)
Retained Earnings 147,862 138,012
---------- ----------
TOTAL SHAREOWNERS' EQUITY 170,454 141,847
---------- ----------
TOTAL LIABILITIES & EQUITY $1,733,324 $1,465,116
========== ==========
Interest Rate Spread 3.87%
3.95%
====
====
Net interest Income $18,453 $16,365
======= =======
Net Yield on Earning Assets 4.69%
4.94%
====
====
FOR NINE MONTHS ENDED SEPTEMBER 30,
2001 2000
------------------------- ---------------------
- ----
Balance Interest Rate Balance Interest
Rate
---------- -------- ---- ---------- --------
- ----
ASSETS
Loans, Net of Unearned
Interest(1) $1,164,668 $77,418 8.89% $ 984,991 $67,901
9.21%
Taxable Investment Securities 175,707 7,505 5.71% 201,779 8,904
5.89%
Tax-Exempt Investment
Securities(2) 80,474 3,691 6.12% 94,457 4,156
5.87%
Funds Sold 96,958 3,023 4.13% 18,960 870
6.07%
---------- ------- ---- ---------- -------
- ----
Total Earning Assets 1,517,807 91,637 8.07% 1,300,187 81,831
8.41%
Cash & Due From Banks 69,478 62,736
Allowance for Loan Losses (11,757) (10,369)
Other Assets 110,003 97,260
---------- ----------
TOTAL ASSETS $1,685,531 $1,449,814
========== ==========
LIABILITIES
NOW Accounts $ 213,686 $ 3,562 2.23% $ 170,398 $ 3,088
2.42%
Money Market Accounts 200,369 5,240 3.50% 160,603 4,944
4.11%
Savings Accounts 111,254 1,668 2.00% 105,043 1,760
2.24%
Other Time Deposits 603,204 25,671 5.69% 494,084 19,482
5.26%
---------- ------- ---- ---------- -------
- ----
Total Int. Bearing Deposits 1,128,513 36,141 4.28% 931,128 29,274
4.20%
Short-Term Borrowings 58,399 1,980 4.53% 80,302 3,379
5.62%
Long-Term Debt 15,806 674 5.71% 13,610 632
6.20%
---------- ------- ---- ---------- -------
- ----
Total Interest Bearing
Liabilities 1,202,718 38,795 4.31% 1,025,040 33,285
4.34%
Noninterest Bearing Deposits 298,111 ------ ---- 270,448 ------
- ----
Other Liabilities 18,769 16,731
---------- ----------
TOTAL LIABILITIES 1,519,598 1,312,219
SHAREOWNERS' EQUITY
Common Stock 106 102
Surplus 18,326 9,353
Other Comprehensive Income 595 (6,615)
---------- ----------
Retained Earnings 146,906 134,755
---------- ----------
TOTAL SHAREOWNERS' EQUITY 165,933 137,595
---------- ----------
TOTAL LIABILITIES & EQUITY $1,685,531 $1,449,814
========== ==========
Interest Rate Spread 3.76%
4.07%
====
====
Net interest Income $52,842 $48,546
======= =======
Net Yield on Earning Assets 4.65%
4.99%
====
====
(1) Average balances include nonaccrual loans. Interest income includes fees on
loans
of approximately $1.0 million and $3.1 million for the three and nine months
ended
September 30, 2001, versus $1.0 million and $3.0 million, for the comparable
periods
ended September 30, 2000.
(2) Interest income includes the effects of taxable equivalent adjustments using
a 35%
federal tax rate.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Overview
- --------
Market risk management arises from changes in interest rates,
exchange rates, commodity prices and equity prices. The
Company has risk management policies to monitor and limit
exposure to market risk. Capital City Bank Group does not
actively participate in exchange rates, commodities or
equities. In asset and liability management activities,
policies are in place which 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
rates 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 19. This table presents the
Company's consolidated interest rate sensitivity position as of
September 30, 2001 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 or falling interest rates
the net interest margin will be 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.
18
Table II
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS(1)
(Dollars in Thousands)
Other Than Trading Portfolio September 30, 2001
- --------------------------------------------------------------------------------
- ------------------------------ Market
Year 1 Year 2 Year 3 Year 4
Year 5 Beyond Total Value
---------- -------- -------- -------- --
- ------ -------- ---------- ----------
Loans
Fixed Rate $ 93,818 $ 53,993 $ 54,057 $ 51,025 $
47,419 $120,085 $ 420,398 $ 432,923
Average Interest Rate 8.45% 8.95% 9.33% 9.48%
9.08% 7.84% 8.65%
Floating Rate(2) 434,400 59,567 76,362 63,220
94,076 83,314 810,939 835,099
Average Interest Rate 7.00% 8.76% 7.97% 8.64%
8.32% 7.92% 7.60%
Investment Securities(3)
Fixed Rate 55,696 30,651 35,598 26,097
14,473 66,951 229,466 229,466
Average Interest Rate 5.39% 5.04% 4.69% 4.16%
4.60% 5.28% 5.01%
Floating Rate 1,598 0 5,830 0
0 503 7,931 7,931
Average Interest Rate 5.17% 0 5.69% 0
0 6.05% 5.61%
Other Earning Assets
Fixed Rates 0 0 0 0
0 0 0 0
Average Interest Rates 0 0 0 0
0 0 0
Floating Rates 125,223 0 0 0
0 0 125,223 125,223
Average Interest Rates 2.91% 0 0 0
0 0 2.91%
Total Financial Assets $ 710,735 $144,211 $171,847 $140,343
$155,969 $270,853 $1,593,957 $1,629,335
Average Interest Rates 6.34% 8.04% 7.64% 8.11%
8.21% 7.23% 7.12%
Deposits(4)
Fixed Rate Deposits $ 553,299 $ 46,488 $ 12,967 $ 5,474 $
2,155 $ 0 $ 620,383 $ 631,695
Average Interest Rates 4.90% 5.06% 5.23% 5.48%
4.89% 0 4.93%
Floating Rate Deposits 550,254 0 0 0
0 0 550,254 550,254
Average Interest Rates 2.13% 0 0 0
0 0 2.13%
Other Interest Bearing
Liabilities
Fixed Rate Debt 2,798 1,048 1,027 988
905 7,311 14,077 14,480
Average Interest Rate 5.52% 6.06% 6.03% 6.00%
5.99% 6.00% 5.91%
Floating Rate Debt 54,949 0 0 0
0 0 54,949 54,949
Average Interest Rate 3.92% 0 0 0
0 0 3.92%
Total Financial Liabilities $1,161,300 $ 47,536 $ 13,994 $ 6,462 $
3,060 $ 7,311 $1,239,663 $1,251,378
Average interest Rate 1.21% 0.13% 0.44% 0.92%
1.77% 6.00% 1.19%
(1) Based upon expected 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 rate deposits in Year 1. Other time deposit balances are
classified according to maturity.
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PART II. OTHER INFORMATION
ITEMS 1-4
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
No Form 8-K was filed by Capital City Bank Group, Inc. during
the third quarter of 2001.
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: November 14, 2001
20