Form 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act
Of 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number 0-13358
CAPITAL CITY BANK GROUP, INC.
Incorporated in the State of Florida
I.R.S. Employer Identification Number 59-2273542
Address: 217 North Monroe Street, Tallahassee, Florida 32301
Telephone: (850) 671-0300
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of March 6, 2002, there were issued and outstanding 10,627,669
shares of the registrant's common stock. The registrant's voting
stock is listed on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market under the symbol
"CCBG". The aggregate market value of the voting stock held by
nonaffiliates of the registrant, based on the average of the bid
and asked prices of the registrant's common stock as quoted on
Nasdaq on March 6, 2002, was $147.4 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement (pursuant
to Regulation 14A), to be filed not more than 120 days after the
end of the fiscal year covered by this report, are incorporated
by reference into Part III.
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2001 ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
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Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
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Item 5. Market for the Registrant's Common Equity and
Related Shareowner Matters 15
Item 6. Selected Financial & Other Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk 42
Item 8. Financial Statements and Supplementary Data 45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 74
PART III
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Item 10. Directors and Executive Officers of the Registrant 74
Item 11. Executive Compensation 74
Item 12. Security Ownership of Certain Beneficial Owners
and Management 74
Item 13. Certain Relationships and Related Transactions 74
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 74
PART I
ITEM 1. BUSINESS
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This Report and other Company communications and statements may
contain "forward-looking statements," including statements about
our beliefs, plans, objectives, goals, expectations, estimates
and intentions. These statements are subject to significant
risks and uncertainties and are subject to change based on
various factors, many of which are beyond our control. For
information concerning these factors and related matters, see
Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
General
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Capital City Bank Group, Inc. ("CCBG" or "Company"), is a
financial holding company registered under the Gramm-Leach-Bliley
Act of 1999 ("Gramm-Leach-Bliley Act") and is subject to the Bank
Holding Company Act of 1956. CCBG was organized under Florida law
on December 13, 1982, to acquire five national banks and one
state bank that all subsequently became part of CCBG's bank
subsidiary, Capital City Bank ("CCB" or the "Bank").
At December 31, 2001, the Company had consolidated total assets
of $1.8 billion and shareowners' equity of $171.8 million. Its
principal asset is the capital stock of Capital City Bank ("CCB"
or "Bank"). CCB accounted for approximately 100% of the
consolidated assets at December 31, 2001, and 100% of
consolidated net income of the Company for the year ended
December 31, 2001. In addition to its banking subsidiary, the
Company has six other indirect subsidiaries, Capital City Trust
Company, Capital City Securities, Inc., Capital City Mortgage
Company (inactive), Capital City Services Company, First
Insurance Agency of Grady County and FNB Financial Services,
Inc., all of which are wholly-owned subsidiaries of Capital City
Bank.
On March 9, 2001, the Company completed its second purchase and
assumption transaction with First Union National Bank ("First
Union") and acquired six of First Union's offices in Georgia
which included real estate, loans and deposits. The transaction
resulted in approximately $11.3 million in intangible assets,
primarily core deposit intangibles, which is being amortized over
a 10-year period. The Company purchased $18 million in loans and
assumed deposits of $105 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. At the time of the acquisition, First
National Bank of West Point had $144 million in assets with one
office 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., resulting in the issuance of 701,000 CCBG shares and paid
consideration of approximately $17.0 million. The transaction
was accounted for as a purchase and resulted in approximately
$2.5 million of intangibles, primarily goodwill. These
intangible assets are being amortized over a 15-year period.
On May 7, 1999, the Company completed its acquisition of Grady
Holding Company and its subsidiary, First National Bank of Grady
County ("FNBGC") in Cairo, Georgia. At the time of the
acquisition, FNBGC had $119 million in assets with offices in
Cairo and Whigham, Georgia. The Company issued 21.50 shares for
each of the 60,910 shares of FNBGC. Grady Holding Company was
merged with CCBG, and FNBGC became a second bank subsidiary for
CCBG. 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. On November 2, 2001, the merger of FNBGC with CCB was
completed, and CCB became the resulting bank and only bank
subsidiary of CCBG.
On December 4, 1998, the Company completed its first purchase and
assumption transaction with First Union and acquired eight of
First Union's offices which included deposits. The Company paid
a premium of $16.9 million, and assumed approximately $219
million in deposits and acquired certain real estate. The
premium is being amortized over a 10-year period.
On January 31, 1998, the Company completed its purchase and
assumption transaction with First Federal Savings & Loan
Association of Lakeland, Florida ("First Federal-Florida") and
acquired five of First Federal-Florida's offices in Florida which
included loans and deposits. The Company paid a deposit premium
of $3.6 million and assumed $55 million in deposits and purchased
loans equal to $44 million. Four of the five offices were merged
into existing offices of CCB. The deposit premium is being
amortized over a 15-year period.
Dividends and management fees received from the Bank are the
Company's only source of income. Dividend payments by the Bank
to CCBG depend on the capitalization, earnings and projected
growth of the Bank, and are limited by various regulatory
restrictions. See the section entitled "Regulatory
Considerations" and Note 14 in the Notes to Consolidated
Financial Statements for additional information.
The Company had a total of 787 (full-time equivalent) associates
at March 6, 2002. Page 17 contains other financial and
statistical information about the Company.
Banking Services
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CCB is a Florida chartered bank. The Bank is a full service
bank, engaged in the commercial and retail banking business,
including accepting demand, savings and time deposits; extending
credit; originating residential mortgage loans; and providing
data processing services, asset management services, trust
services, retail brokerage services and a broad range of other
financial services to corporate and individual customers,
governmental entities and correspondent banks.
The Bank is a member of the "Star" ATM Network which enables
customers to utilize their "QuickBucks" or "QuickCheck" cards to
access cash at automatic teller machines ("ATMs") or point of
sale merchants located throughout Florida, Georgia and Alabama.
Additionally, customers may access their cash outside Florida,
Georgia and Alabama through various interconnected ATM networks
and merchant locations.
Data Processing Services
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Capital City Services Company provides data processing services
to financial institutions (including CCB), government agencies
and commercial customers located throughout North Florida and
South Georgia. As of March 6, 2002, the Services Company is
providing computer services to five correspondent banks which
have relationships with Capital City Bank.
Trust Services
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Capital City Trust Company is the investment management arm of
Capital City Bank. The Trust Company provides asset management
for individuals through agency, personal trust, IRA's and
personal investment management accounts. Administration of
pension, profit sharing and 401(k) plans is a significant product
line. Associations, endowments and other non-profit entities
hire the Trust Company to manage their investment portfolios.
Individuals requiring the services of a trustee, personal
representative or a guardian are served by a staff of well
trained professionals. The market value of trust assets under
discretionary management exceeded $337.0 million as of December
31, 2001, with total assets under administration exceeding $381.4
million.
Brokerage Services
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The Company offers access to retail investment products through
Capital City Securities, Inc., a wholly-owned subsidiary of
Capital City Bank. These products are offered through INVEST
Financial Corporation, member NASD and SIPC. Non-deposit
investment and insurance products are: (1) not FDIC insured; (2)
not deposits, obligations, or guaranteed by any bank; and (3)
subject to investment risk, including the possible loss of
principal amount invested. Capital City Securities, Inc.'s
brokers are licensed through INVEST Financial Corporation, and
offer a full line of retail securities products, including U.S.
Government bonds, tax-free municipal bonds, stocks, mutual funds,
unit investment trusts, annuities, life insurance and long-term
health care. CCBG and its subsidiaries are not affiliated with
INVEST Financial Corporation.
Competition
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The banking business is rapidly changing and CCBG and its
subsidiaries operate in a highly competitive environment,
especially with respect to services and pricing. Consolidation
of the industry significantly alters the competitive environment
within the Florida, Georgia and Alabama markets and, management
believes, further enhances the Company's competitive position and
opportunities in many of its markets. CCBG's primary market area
is 17 counties in Florida, four counties in Georgia and one
county in Alabama. In these markets, the Banks compete against a
wide range of banking and nonbanking institutions including
savings and loan associations, credit unions, money market funds,
mutual fund advisory companies, mortgage banking companies,
investment banking companies, finance companies and other types
of financial institutions.
All of Florida's major banking concerns have a presence in Leon
County. Capital City Bank's Leon County deposits totaled $528.9
million, or 34.1%, of the Company's consolidated deposits at
December 31, 2001.
The following table depicts CCBG's market share percentage within
each respective county, based on total commercial bank deposits
within the county.
Market Share
as of September 30
2001 2000 1999
------ ------ ------
Florida:
Bradford County <F1><F2> 41.4% 45.8% 46.1%
Citrus County 4.0% 3.8% 4.2%
Clay County 3.9% 4.1% 4.6%
Dixie County 18.7% 14.2% 15.2%
Gadsden County 30.7% 27.9% 29.0%
Gilchrist County 39.2% 48.3% 50.0%
Gulf County 40.4% 43.3% 39.8%
Hernando County 1.7% 1.6% 2.2%
Jefferson County 28.6% 28.9% 24.7%
Leon County 25.4% 21.5% 21.6%
Levy County 37.3% 36.5% 37.4%
Madison County 23.7% 21.2% 21.5%
Pasco County 1.0% 1.1% 1.6%
Putnam County 23.5% 22.3% 24.2%
Suwannee County 19.5% 19.3% 20.5%
Taylor County 33.4% 35.1% 33.6%
Washington County 22.5% 22.6% 23.9%
Georgia:<F3>
Bibb County<F4> 3.6% -- --
Burke County<F4> 11.4% -- --
Grady County 43.3% 43.5% 44.5%
Troup County<F4> 11.2% -- --
Alabama:<F3>
Chambers County<F4> 3.4% -- --
<FN>
<F1> Obtained from the September 30 Office Level Report published
by the Florida Bankers Association for each year.
<F2> Does not include Alachua, Marion and Wakulla counties where
Capital City Bank maintains residential mortgage lending offices.
<F3> Obtained from the June 30 FDIC/OTS Summary of Deposits
Report.
<F4> Entered the market in March 2001.
</FN>
The following table sets forth the number of commercial banks and
offices, including the Company and its competitors, within each
of the respective counties as of September 30, 2001.
Number of Number of Commercial
County Commercial Banks Bank Offices
- -------------------------------------------------------------
<c>
Florida:<F1>
Bradford 3 3
Citrus 8 38
Clay 9 24
Dixie 3 4
Gadsden 4 8
Gilchrist 3 5
Gulf 2 3
Hernando 11 32
Jefferson 2 2
Leon 12 57
Levy 4 11
Madison 5 5
Pasco 18 79
Putnam 5 11
Suwannee 3 4
Taylor 3 4
Washington 3 3
Georgia:<F2>
Bibb 10 52
Burke 5 10
Grady 5 9
Troup 8 21
Alabama:<F2>
Chambers 5 11
<FN>
<F1> Obtained from the September 30 Office Level Report published
by the Florida Bankers Association for each year.
<F2> Obtained from the June 30 FDIC/OTS Summary of Deposits
Report.
</FN>
REGULATORY CONSIDERATIONS
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The Company and the Bank must comply with state and federal
banking laws and regulations that control virtually all aspects
of operations. These laws and regulations generally aim to
protect depositors, not shareholders. Any changes in applicable
laws or regulations may materially affect the business and
prospects of the Company. Such legislative or regulatory changes
may also affect the operations of the Company and the Bank. The
following description summarizes some of the laws and regulations
to which the Company and the Bank are subject. References to
applicable statutes and regulations are brief summaries, do not
purport to be complete, and are qualified in their entirety by
reference to such statutes and regulations.
The Company
General
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The Company has elected to be registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve")
as a financial holding company under the Gramm-Leach-Bliley Act
and is registered with the Federal Reserve as a bank holding
company under the Bank Holding Company Act of 1956 ("BHCA"). As
a result, the Company is subject to supervisory regulation and
examination by the Federal Reserve. The Gramm-Leach-Bliley Act,
the BHCA and other federal laws subject financial holding
companies to particular restrictions on the types of activities
in which they may engage, and to a range of supervisory
requirements and activities, including regulatory enforcement
actions for violations of laws and regulations.
Financial Holding Companies
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Permitted Activities. The Gramm-Leach-Bliley Act was enacted on
November 12, 1999, and repealed two anti-affiliation provisions
of the Glass-Steagall Act: Section 20, which restricted the
affiliation of Federal Reserve Member Banks with firms "engaged
principally" in specified securities activities; and Section 32,
which restricted officer, director, or employee interlocks
between a member bank and any company or person "primarily
engaged" in specified securities activities. In addition, the
Gramm-Leach-Bliley Act contained provisions that expressly
preempted most state laws restricting state banks from owning or
acquiring interests in financial affiliates, such as insurance
companies. The general effect of the law was to establish a
comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms, and other financial
service providers. A bank holding company may now engage in a
full range of activities that are financial in nature by electing
to become a "Financial Holding Company." Activities that are
financial in nature are broadly defined to include not only
banking, insurance, and securities activities, but also merchant
banking and additional activities that the Federal Reserve, in
consultation with the Secretary of the Treasury, determines to be
financial in nature, incidental to such financial activities, or
complementary activities that do not pose a substantial risk to
the safety and soundness of depository institutions or the
financial system generally.
The Gramm-Leach-Bliley Act also permits national banks to engage
in expanded activities through the formation of financial
subsidiaries. A national bank may have a subsidiary engaged in
any activity authorized for national banks directly or any
financial activity, except for insurance underwriting, insurance
investments, real estate investment or development, or merchant
banking, which may only be conducted through a subsidiary of a
financial holding company. Financial activities include all
activities permitted under new sections of the BHCA or permitted
by regulation.
In contrast to financial holding companies, bank holding
companies are limited to managing or controlling banks,
furnishing services to or performing services for its
subsidiaries, and engaging in other activities that the Federal
Reserve determines to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
Except for those activities that are now permitted for financial
holding companies by the Gramm-Leach-Bliley Act, these
restrictions will apply to the Company. In determining whether a
particular activity is permissible, the Federal Reserve must
consider whether the performance of such an activity reasonably
can be expected to produce benefits to the public that outweigh
possible adverse effects. Possible benefits include greater
convenience, increased competition and gains in efficiency.
Possible adverse effects include undue concentration of
resources, decreased or unfair competition, conflicts of interest
and unsound banking practices. The Federal Reserve has
determined the following activities, among others, to be
permissible for bank holding companies:
. Factoring accounts receivable
. Acquiring or servicing loans
. Leasing personal property
. Conducting discount securities brokerage activities
. Performing certain data processing services
. Acting as agent or broker and selling credit life insurance
and certain other types of insurance in connection with
credit transactions
. Performing certain insurance underwriting activities
There are no territorial limitations on permissible non-banking
activities of financial holding companies. Despite prior
approval, the Federal Reserve may order a holding company or its
subsidiaries to terminate any activity or to terminate ownership
or control of any subsidiary when the Federal Reserve has
reasonable cause to believe that a serious risk to the financial
safety, soundness or stability of any bank subsidiary of that
bank holding company may result from such an activity.
CHANGES IN CONTROL. Subject to certain exceptions, the BHCA and
the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval (or, depending on
the circumstances, no notice of disapproval) prior to any person
or company acquiring "control" of a financial holding company,
such as the Company. A conclusive presumption of control exists
if an individual or company acquires 25% or more of any class of
voting securities of the financial holding company. A rebuttable
presumption of control exists if a person acquires 10% or more
but less than 25% of any class of voting securities and either
the Company has registered securities under Section 12 of the
Securities Exchange Act of 1934, as amended, or no other person
will own a greater percentage of that class of voting securities
immediately after the transaction.
The BHCA requires, among other things, the prior approval of the
Federal Reserve in any case where a financial holding company
proposes to (i) acquire all or substantially all of the assets of
a bank, (ii) acquire direct or indirect ownership or control of
more than 5% of the outstanding voting stock of any bank (unless
it owns a majority of such bank's voting shares), or (iii) merge
or consolidate with any other financial holding company or bank
holding company.
Under Florida law, a person or entity proposing to directly or
indirectly acquire control of a Florida bank must first obtain
permission from the State of Florida. Florida statutes define
"control" as either (a) indirectly or directly owning,
controlling or having power to vote 25% or more of the voting
securities of a bank; (b) controlling the election of a majority
of directors of a bank; (c) owning, controlling or having power
to vote 10% or more of the voting securities as well as directly
or indirectly exercising a controlling influence over management
or policies of a bank; or (d) as determined by the Florida
Department of Banking and Finance (the "Florida Department").
These requirements will effect the Company because CCB is
chartered under Florida law and changes in control of the Company
are indirect changes in control of CCB.
TYING. Financial holding companies and their affiliates are
prohibited from tying the provision of certain services, such as
extending credit, to other services offered by the holding
company or its affiliates.
CAPITAL; DIVIDENDS; SOURCE OF STRENGTH. The Federal Reserve
imposes certain capital requirements on the Company under the
BHCA, including a minimum leverage ratio and a minimum ratio of
"qualifying" capital to risk-weighted assets. These requirements
are described below under "Capital Regulations." Subject to its
capital requirements and certain other restrictions, the Company
is able to borrow money to make a capital contribution to the
Bank, and such loans may be repaid from dividends paid from the
Bank to the Company. The ability of the Bank to pay dividends,
however, will be subject to regulatory restrictions which are
described below under "Dividends." The Company is also able to
raise capital for contributions to the Bank by issuing securities
without having to receive regulatory approval, subject to
compliance with federal and state securities laws.
In accordance with Federal Reserve policy, the Company is
expected to act as a source of financial strength to the Bank and
to commit resources to support the Bank in circumstances in which
the Company might not otherwise do so. In furtherance of this
policy, the Federal Reserve may require a financial holding
company to terminate any activity or relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank)
upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the
financial holding company. Further, federal bank regulatory
authorities have additional discretion to require a financial
holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
Capital City Bank
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CCB is a banking institution that is chartered by and operated in
the State of Florida, and it is subject to supervision and
regulation by the Florida Department. The Florida Department
supervises and regulates all areas of CCB's operations including,
without limitation, the making of loans, the issuance of
securities, the conduct of CCB's corporate affairs, the
satisfaction of capital adequacy requirements, the payment of
dividends and the establishment or closing of branches. CCB is
also a member bank of the Federal Reserve System, which makes
CCB's operations subject to broad federal regulation and
oversight by the Federal Reserve. In addition, CCB's deposit
accounts are insured by the FDIC to the maximum extent permitted
by law, and the FDIC has certain enforcement powers over CCB.
As a state chartered banking institution in the State of Florida,
CCB is empowered by statute, subject to the limitations contained
in those statutes, to take savings and time deposits and pay
interest on them, to accept checking accounts, to make loans on
residential and other real estate, to make consumer and
commercial loans, to invest, with certain limitations, in equity
securities and in debt obligations of banks and corporations and
to provide various other banking services on behalf of CCB's
customers. Various consumer laws and regulations also affect the
operations of CCB, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit laws, and fair
credit reporting. In addition, the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") prohibits insured
state chartered institutions from conducting activities as
principal that are not permitted for national banks. A bank,
however, may engage in an otherwise prohibited activity if it
meets its minimum capital requirements and the FDIC determines
that the activity does not present a significant risk to the
deposit insurance funds.
Reserves
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The Federal Reserve requires all depository institutions to
maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts) and non-personal time
deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve may be used to
satisfy liquidity requirements.
Institutions are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve regulations require
institutions to exhaust other reasonable alternative sources of
funds before borrowing from the Federal Reserve Bank.
Dividends
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CCB is subject to legal limitations on the frequency and amount
of dividends that can be paid to the Company. The Federal
Reserve may restrict the ability of CCB to pay dividends if such
payments would constitute an unsafe or unsound banking practice.
These regulations and restrictions may limit the Company's
ability to obtain funds from CCB for its cash needs, including
funds for acquisitions and the payment of dividends, interest and
operating expenses.
In addition, Florida law also places certain restrictions on the
declaration of dividends from state chartered banks to their
holding companies. Pursuant to Section 658.37 of the Florida
Banking Code, the board of directors of state chartered banks,
after charging off bad debts, depreciation and other worthless
assets, if any, and making provisions for reasonably anticipated
future losses on loans and other assets, may quarterly, semi
annually or annually declare a dividend of up to the aggregate
net profits of that period combined with the bank's retained net
profits for the preceding two years and, with the approval of the
Florida Department, declare a dividend from retained net profits
which accrued prior to the preceding two years. Before declaring
such dividends, 20% of the net profits for the preceding period
as is covered by the dividend must be transferred to the surplus
fund of the bank until this fund becomes equal to the amount of
the bank's common stock then issued and outstanding. A state
chartered bank may not declare any dividend if (i) its net income
from the current year combined with the retained net income for
the preceding two years is a loss or (ii) the payment of such
dividend would cause the capital account of the bank to fall
below the minimum amount required by law, regulation, order or
any written agreement with the Florida Department or a federal
regulatory agency.
Insurance of Accounts and Other Assessments
- -------------------------------------------
The deposit accounts of CCB are insured by the Bank Insurance
Fund of the FDIC generally up to a maximum of $100,000 per
separately insured depositor, and the Bank is subject to FDIC
deposit insurance assessments. The federal banking agencies may
prohibit any FDIC-insured institution from engaging in any
activity they determine by regulation or order poses a serious
threat to the insurance fund. Pursuant to FDICIA, the FDIC
adopted a risk-based system for determining deposit insurance
assessments under which all insured institutions were placed into
one of nine categories and assessed insurance premiums, ranging
from 0.0% to 0.27% of insured deposits, based upon their level of
capital and supervisory evaluation. Because the FDIC sets the
assessment rates based upon the level of assets in the insurance
fund, premium rates rise and fall as the number and size of bank
failures increase and decrease, respectively. Under the system,
institutions are assigned to one of three capital categories
based solely on the level of an institution's capital, "well
capitalized," "adequately capitalized" and "undercapitalized."
These three groups are then divided into three subgroups that
reflect varying levels of supervisory concern, from those that
are considered to be healthy to those that are considered to be
of substantial supervisory concern. Bank Insurance Fund and
Savings Association Insurance Fund deposits may be assessed at
different rates. Furthermore, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 requires Bank Insurance Fund
insured banks to participate in the payment of interest due on
Financing Corporation bonds used to finance the thrift bailout.
Transactions With Affiliates
- ----------------------------
The authority of the Bank to engage in transactions with related
parties or "affiliates" or to make loans to insiders is limited
by certain provisions of law and regulations. Commercial banks,
such as the Bank, are prohibited from making extensions of credit
to any affiliate that engages in an activity not permissible
under the regulations of the Federal Reserve for a bank holding
company. Pursuant to Sections 23A and 23B of the Federal Reserve
Act ("FRA"), member banks are subject to restrictions regarding
transactions with affiliates ("Covered Transactions").
With respect to any Covered Transaction, the term "affiliate"
includes any company that controls or is controlled by a company
that controls the Bank, a bank or savings association subsidiary
of the Bank, any persons who own, control or vote more than 25%
of any class of stock of the Bank or the Company and any persons
who the Board of Directors determines exercises a controlling
influence over the management of the Bank or the Company. The
term "affiliate" also includes any company controlled by
controlling stockholders of the Bank or the Company and any
company sponsored and advised on a contractual basis by the Bank
or any subsidiary or affiliate of the Bank. Such transactions
between the Bank and their respective affiliates are subject to
certain requirements and limitations, including limitations on
the amounts of such Covered Transactions that may be undertaken
with any one affiliate and with all affiliates in the aggregate.
The federal banking agencies may further restrict such
transactions with affiliates in the interest of safety and
soundness.
Section 23A of the FRA limits Covered Transactions with any one
affiliate to 10% of an institution's capital stock and surplus
and limits aggregate affiliate transactions to 20% of the Bank's
capital stock and surplus. Sections 23A and 23B of the FRA
provide that a loan transaction with an affiliate generally must
be collateralized (but may not be collateralized by a low quality
asset or securities issued by an affiliate) and that all Covered
Transactions, as well as the sale of assets, the payment of money
or the provision of services by the Bank to affiliates, must be
on terms and conditions that are substantially the same, or at
least as favorable to the bank, as those prevailing for
comparable nonaffiliated transactions. A Covered Transaction
generally is defined as a loan to an affiliate, the purchase of
securities issued by an affiliate, the purchase of assets from an
affiliate, the acceptance of securities issued by an affiliate as
collateral for a loan, or the issuance of a guarantee, acceptance
or letter of credit on behalf of an affiliate. In addition, the
Bank generally may not purchase securities issued or underwritten
by affiliates.
Loans to executive officers, directors or to any person who
directly or indirectly, or acting through or in concert with one
or more persons, owns, controls or has the power to vote more
than 10% of any class of voting securities of a bank ("Principal
Shareholders") and their related interests (i.e., any company
controlled by such executive officer, director, or Principal
Shareholders), or to any political or campaign committee the
funds or services of which will benefit such executive officers,
directors, or Principal Shareholders or which is controlled by
such executive officers, directors or Principal Shareholders, are
subject to Sections 22(g) and 22(h) of the FRA and the
regulations promulgated thereunder (Regulation O).
Among other things, these loans must be made on terms
substantially the same as those prevailing on transactions made
to unaffiliated individuals and certain extensions of credit to
such persons must first be approved in advance by a disinterested
majority of the entire board of directors. Section 22(h) of the
FRA prohibits loans to any such individuals where the aggregate
amount exceeds an amount equal to 15% of an institution's
unimpaired capital and surplus plus an additional 10% of
unimpaired capital and surplus in the case of loans that are
fully secured by readily marketable collateral, or when the
aggregate amount on all such extensions of credit outstanding to
all such persons would exceed the bank's unimpaired capital and
unimpaired surplus. Section 22(g) identifies limited
circumstances in which the Bank is permitted to extend credit to
executive officers.
Community Reinvestment Act
- --------------------------
The Community Reinvestment Act of 1977 ("CRA") and theregulations
issued thereunder are intended to encourage banks to help meet
the credit needs of their service area, including low and
moderate income neighborhoods, consistent with the safe and sound
operations of the banks. These regulations also provide for
regulatory assessment of a bank's record in meeting the needs of
its service area when considering applications to establish
branches, merger applications and applications to acquire the
assets and assume the liabilities of another bank. Federal
banking agencies are required to make public a rating of a bank's
performance under the CRA. In the case of a financial holding
company, the CRA performance record of the banks involved in the
transaction are reviewed in connection with the filing of an
application to acquire ownership or control of shares or assets
of a bank or to merge with any other financial holding company.
An unsatisfactory record can substantially delay or block the
transaction.
Capital Regulations
- -------------------
The Federal Reserve has adopted risk-based, capital adequacy
guidelines for financial holding companies and their subsidiary
state-chartered banks that are members of the Federal Reserve
System. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in
risk profiles among banks and financial holding companies, to
account for off-balance sheet exposure, to minimize disincentives
for holding liquid assets and to achieve greater consistency in
evaluating the capital adequacy of major banks throughout the
world. Under these guidelines assets and off-balance sheet items
are assigned to broad risk categories each with designated
weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet
items.
The current guidelines require all financial holding companies
and federally-regulated banks to maintain a minimum risk-based
total capital ratio equal to 8%, of which at least 4% must be
Tier I Capital. Tier I Capital, which includes common
stockholders' equity, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock,
less certain goodwill items and other intangible assets, is
required to equal at least 4% of risk-weighted assets. The
remainder ("Tier II Capital") may consist of (i) an allowance for
loan losses of up to 1.25% of risk-weighted assets, (ii) excess
of qualifying perpetual preferred stock, (iii) hybrid capital
instruments, (iv) perpetual debt, (v) mandatory convertible
securities, and (vi) subordinated debt and intermediate-term
preferred stock up to 50% of Tier I Capital. Total capital is
the sum of Tier I and Tier II Capital less reciprocal holdings of
other banking organizations' capital instruments, investments in
unconsolidated subsidiaries and any other deductions as
determined by the appropriate regulator (determined on a case by
case basis or as a matter of policy after formal rule making).
In computing total risk-weighted assets, bank and financial
holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given
similar credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will
apply. Most loans will be assigned to the 100% risk category,
except for performing first mortgage loans fully secured by
residential property, which carry a 50% risk rating. Most
investment securities (including, primarily, general obligation
claims on states or other political subdivisions of the United
States) will be assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight,
and direct obligations of the U.S. Treasury or obligations backed
by the full faith and credit of the U.S. Government, which have a
0% risk-weight. In covering off-balance sheet items, direct
credit substitutes, including general guarantees and standby
letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction-related contingencies such as bid
bonds, standby letters of credit backing non-financial
obligations, and undrawn commitments (including commercial credit
lines with an initial maturity of more than one year) have a 50%
conversion factor. Short-term commercial letters of credit are
converted at 20% and certain short-term unconditionally
cancelable commitments have a 0% factor.
The federal bank regulatory authorities have also adopted
regulations which supplement the risk-based guideline. These
regulations generally require banks and financial holding
companies to maintain a minimum level of Tier I Capital to total
assets less goodwill of 4% (the "leverage ratio"). The Federal
Reserve permits a bank to maintain a minimum 3% leverage ratio if
the bank achieves a 1 rating under the CAMELS rating system in
its most recent examination, as long as the bank is not
experiencing or anticipating significant growth. The CAMELS
rating is a non-public system used by bank regulators to rate the
strength and weaknesses of financial institutions. The CAMELS
rating is comprised of six categories: capital, asset quality,
management, earnings, liquidity, and interest rate sensitivity.
Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not satisfy the
criteria described above, will be required to maintain a minimum
leverage ratio ranging generally from 4% to 5%. The bank
regulators also continue to consider a "tangible Tier I leverage
ratio" in evaluating proposals for expansion or new activities.
The tangible Tier I leverage ratio is the ratio of a banking
organization's Tier I Capital, less deductions for intangibles
otherwise includable in Tier I Capital, to total tangible assets.
Federal law and regulations establish a capital-based regulatory
scheme designed to promote early intervention for troubled banks
and require the FDIC to choose the least expensive resolution of
bank failures. The capital-based regulatory framework contains
five categories of compliance with regulatory capital
requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." To qualify
as a "well capitalized" institution, a bank must have a leverage
ratio of no less than 5%, a Tier I risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than
10%, and the bank must not be under any order or directive from
the appropriate regulatory agency to meet and maintain a specific
capital level.
Under the regulations, the applicable agency can treat an
institution as if it were in the next lower category if the
agency determines (after notice and an opportunity for hearing)
that the institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. The degree of
regulatory scrutiny of a financial institution will increase, and
the permissible activities of the institution will decrease, as
it moves downward through the capital categories. Institutions
that fall into one of the three undercapitalized categories may
be required to (i) submit a capital restoration plan; (ii) raise
additional capital; (iii) restrict their growth, deposit interest
rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a
part of their operations. Financial holding companies
controlling financial institutions can be called upon to boost
the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
It should be noted that the minimum ratios referred to above are
merely guidelines and the bank regulators possesses the
discretionary authority to require higher ratios.
The Company and the Bank currently exceed the requirements
contained in the applicable regulations, policies and directives
pertaining to capital adequacy, and management of the Company and
the Bank is unaware of any material violation or alleged
violation of these regulations, policies or directives.
Interstate Banking and Branching
- --------------------------------
The BHCA was amended in September 1994 by the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The Interstate Banking Act now
provides that adequately capitalized and managed financial
holding companies are permitted to acquire banks in any state.
State laws prohibiting interstate banking or discriminating
against out-of-state banks are preempted. States were not
permitted to enact laws opting out of this provision; however,
states were allowed to adopt a minimum age restriction requiring
that target banks located within the state be in existence for a
period of years, up to a maximum of five years, before such bank
may be subject to the Interstate Banking Act. The Interstate
Banking Act establishes deposit caps which prohibit acquisitions
that result in the acquiring company controlling 30% or more of
the deposits of insured banks and thrift institutions held in the
state in which the target maintains a branch or 10% or more of
the deposits nationwide. States have the authority to waive the
30% deposit cap. State-level deposit caps are not preempted as
long as they do not discriminate against out-of-state companies,
and the federal deposit caps apply only to initial entry
acquisitions.
The Interstate Banking Act also provides that adequately
capitalized and managed banks are able to engage in interstate
branching by merging with banks in different states. States were
permitted to enact legislation authorizing interstate mergers
earlier than June 1, 1997, or, unlike the interstate banking
provision discussed above, states were permitted to opt out of
the application of the interstate merger provision by enacting
specific legislation before June 1, 1997.
Florida responded to the enactment of the Interstate Banking Act
by enacting the Florida Interstate Branching Act (the "Florida
Branching Act"). The purpose of the Florida Branching Act was to
permit interstate branching through merger transactions under the
Interstate Banking Act. Under the Florida Branching Act, with
the prior approval of the Florida Department, a Florida bank may
establish, maintain and operate one or more branches in a state
other than the State of Florida pursuant to a merger transaction
in which the Florida bank is the resulting bank. In addition,
the Florida Branching Act provides that one or more Florida banks
may enter into a merger transaction with one or more out-of-state
banks, and an out-of-state bank resulting from such transaction
may maintain and operate the branches of the Florida bank that
participated in such merger. An out-of-state bank, however, is
not permitted to acquire a Florida bank in a merger transaction
unless the Florida bank has been in existence and continuously
operated for more than three years.
Consumer Laws and Regulations
- -----------------------------
The Bank is also subject to certain consumer laws and regulations
that are designed to protect consumers in transactions with
banks. While the list set forth below is not exhaustive, these
laws and regulations include the Truth in Lending Act, the Truth
in Savings Act, the Electronic Funds Transfer Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act, and the
Fair Housing Act, among others. These laws and regulations
mandate certain disclosure requirements and regulate the manner
in which financial institutions must deal with customers when
taking deposits or making loans to such customers. The Bank must
comply with the applicable provisions of these consumer
protection laws and regulations as part of its ongoing customer
relations.
Future Legislative Developments
- -------------------------------
Various legislation, including proposals to modify the bank
regulatory system, expand the powers of banking institutions and
financial holding companies and limit the investments that a
depository institution may make with insured funds, is from time
to time introduced in Congress. Such legislation may change
banking statutes and the environment in which the Company and its
banking subsidiary operate in substantial and unpredictable ways.
We cannot determine the ultimate effect that potential
legislation, if enacted, or implementing regulations with respect
thereto, would have upon our financial condition or results of
operations or that of our banking subsidiary.
Expanding Enforcement Authority
- -------------------------------
One of the major additional burdens imposed on the banking
industry by the FDICIA is the increased ability of banking
regulators to monitor the activities of banks and their holding
companies. In addition, the Federal Reserve and FDIC are
possessed of extensive authority to police unsafe or unsound
practices and violations of applicable laws and regulations by
depository institutions and their holding companies. For example,
the FDIC may terminate the deposit insurance of any institution
which it determines has engaged in an unsafe or unsound practice.
The agencies can also assess civil money penalties, issue cease
and desist or removal orders, seek injunctions, and publicly
disclose such actions. FDICIA, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and other laws have expanded
the agencies' authority in recent years, and the agencies have
not yet fully tested the limits of their powers.
Effect of Governmental Monetary Policies
- ----------------------------------------
The commercial banking business in which the Bank engages is
affected not only by general economic conditions, but also by the
monetary policies of the Federal Reserve. Changes in the
discount rate on member bank borrowing, availability of borrowing
at the "discount window," open market operations, the imposition
of changes in reserve requirements against member banks' deposits
and assets of foreign branches and the imposition of and changes
in reserve requirements against certain borrowings by banks and
their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. These monetary policies are
used in varying combinations to influence overall growth and
distributions of bank loans, investments and deposits, and this
use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the Federal Reserve have had
a significant effect on the operating results of commercial banks
and are expected to do so in the future. The monetary policies
of the Federal Reserve are influenced by various
factors,including inflation, unemployment, short-term and long-
term changes in the international trade balance and in the fiscal
policies of the U.S. Government. Future monetary policies and
the effect of such policies on the future business and earnings
of the Bank cannot be predicted.
ITEM 2. PROPERTIES
- -------------------
Capital City Bank Group, Inc., is headquartered in Tallahassee,
Florida. The Company's executive office is in the Capital City
Bank building located on the corner of Tennessee and Monroe
Streets in downtown Tallahassee. The building is owned by
Capital City Bank but is located, in part, on land leased under a
long-term agreement.
Capital City Bank's Parkway Office is located on land leased from
the Smith Interests General Partnership L.L.P. in which several
directors and officers have an interest. Lease payments during
2001 totaled approximately $69,400.
As of March 6, 2002, the Company had 56 banking locations. Of
the 56 locations, the Company leases either the land or buildings
(or both) at nine locations and owns the land and buildings at
the remaining 47.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is a party to lawsuits and claims arising out of the
normal course of business. In management's opinion, there are no
known pending claims or litigation, the outcome of which would,
individually or in the aggregate, have a material effect on the
consolidated results of operations, financial position or cash
flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----
- --------------------------------------------------------
Not Applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREOWNER MATTERS
- ------------------------------------------------------
The Company's common stock trades on the Nasdaq National Market
under the symbol "CCBG".
The following table presents the range of high and low closing
sales prices reported on the Nasdaq National Market and cash
dividends declared for each quarter during the past two years.
The Company had a total of 1,473 shareowners of record at March
6, 2002.
2001 2000
------------------------------ --------------------------
----
Fourth Third Second First Fourth Third Second
First
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------------------------------ --------------------------
- ---
Common stock price:
High $24.67 $25.25 $25.00 $26.13 $26.75 $20.50 $20.50
$23.00
Low 21.90 20.87 19.88 23.13 18.88 18.75 18.00
15.00
Close 24.23 23.47 24.87 25.19 24.81 19.56 19.50
19.63
Cash dividends
declared per share .1525 .1475 .1475 .1475 .1475 .1325 .1325
.1325
Future payment of dividends will be subject to determinationand
declaration by the Board of Directors. The payment of dividends
by the Company is limited by Florida law. There are also legal
limits on the frequency and amount of dividends that can be paid
by CCB to the Company. See subsection entitled "Dividends" on
page 40. These restrictions may limit the Company's ability to
pay dividends to its shareowners. As of March 6, 2002, the
Company does not believe these restrictions will impair the
Company's ability to declare and pay its routine and customary
dividends.
ITEM 6. SELECTED FINANCIAL & OTHER DATA
- ----------------------------------------
(Dollars in Thousands, Except Per Share Data)<F1>
For the Years Ended December 31,
-----------------------------------------------
- ---------
2001 2000 1999 1998
1997
- ---------------------------------------------------------------------------------
- -------
Interest Income $ 118,983 $ 109,334 $ 99,685 $ 89,010
$84,981
Net Interest Income 70,734 63,100 58,438 53,762
52,293
Provision for Loan Losses 3,983 3,120 2,440 2,439
2,328
Net Income 16,866 18,153 15,252 15,294
14,401
Per Common Share:
Basic Net Income $ 1.59 $ 1.78 $ 1.50 $ 1.51
$ 1.44
Diluted Net Income 1.59 1.78 1.50 1.50
1.43
Cash Dividends Declared .595 .545 .5525 .45
.37
Book Value 16.08 14.56 12.96 12.69
11.54
Based on Net Income:
Return on Average Assets 0.99% 1.24% 1.06% 1.30%
1.30%
Return on Average Equity 10.00 12.99 11.64 12.37
13.10
Dividend Pay-out Ratio 37.42 30.62 32.86 28.20
26.10
Averages for the Year:
Loans, Net of Unearned
Interest $1,184,290 $1,002,122 $ 884,323 $ 824,197
$770,416
Earning Assets 1,534,548 1,315,024 1,291,262 1,065,677
1,000,466
Assets 1,704,167 1,463,612 1,444,069 1,180,785
1,108,088
Deposits 1,442,916 1,207,103 1,237,405 985,119
924,891
Long-Term Debt 15,308 13,070 17,274 18,041
19,412
Shareowners' Equity 168,652 139,738 131,058 123,647
109,948
Year-End Balances:
Loans, Net of Unearned
Interest $1,243,351 $1,051,832 $ 928,486 $ 844,217 $
775,451
Earning Assets 1,626,841 1,369,294 1,263,296 1,288,439
998,401
Assets 1,821,423 1,527,460 1,430,520 1,443,675
1,116,651
Deposits 1,550,101 1,268,367 1,202,658 1,253,553
922,841
Long-Term Debt 13,570 11,707 14,258 18,746
18,106
Shareowners' Equity 171,783 147,607 132,216 128,862
115,807
Equity to Assets Ratio 9.43% 9.66% 9.24% 8.93%
10.37%
Other Data:
Basic Average Shares
Outstanding 10,593,566 10,186,199 10,174,945 10,146,393
10,031,116
Diluted Average Shares
Outstanding 10,633,948 10,214,842 10,196,233 10,167,630
10,063,852
Shareowners of Record<F2> 1,473 1,599 1,362 1,334
1,234
Banking Locations<F2> 56 56 48 46
39
Full-Time Equivalent
Associates<F2> 787 791 678 677
637
<FN>
<F1> 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, and the 2-for-1 stock split
effective April 1, 1997.
<F2> As of March 6th of the following year for the fiscal year ended 2001. As
of March 9th of the following year for the fiscal year ended 2000. As of March
1st of the following year for the fiscal years ended 1999, 1998 and 1997.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------
FINANCIAL REVIEW
This Report and other Company communications and statements may
contain "forward-looking statements." These forward-looking
statements include, among others, statements about our beliefs,
plans, objectives, goals, expectations, estimates and intentions
that are subject to significant risks and uncertainties and are
subject to change based on various factors, many of which are
beyond our control. The words "may", "could", "should", "would",
"believe", "anticipate", "estimate", "expect", "intend", "plan"
and similar expressions are intended to identify forward-looking
statements. The following factors, among others, could cause our
financial performance to differ materially from what is
contemplated in those forward-looking statements:
. The strength of the United States economy in general and the
strength of the local economies in which we conduct
operations may be different than expected resulting in, among
other things, a deterioration in credit quality or a reduced
demand for credit, including the resultant effect on our loan
portfolio and allowance for loan losses;
. The effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Board of Governors of the Federal Reserve System;
. Inflation, interest rate, market and monetary fluctuations;
. Adverse conditions in the stock market and other capital
markets and the impact of those conditions on our capital
markets and capital management activities, including our
investment and wealth management advisory businesses, and
brokerage activities;
. The timely development of competitive new products and
services by us and the acceptance of those products and
services by new and existing customers;
. The willingness of customers to accept third-party products
marketed by us;
. The willingness of customers to substitute competitors'
products and services for our products and services and vice
versa;
. The impact of changes in financial services laws and
regulations (including laws concerning taxes, banking,
securities and insurance);
. Technological changes;
. Changes in consumer spending and saving habits;
. The effect of corporate restructuring, acquisitions or
dispositions, including the actual restructuring and other
related charges and the failure to achieve the expected
gains, revenue growth or expense savings from such corporate
restructuring, acquisitions or dispositions;
. The growth and profitability of our non-interest or fee
income being less than expected;
. Unanticipated regulatory or judicial proceedings;
. The impact of changes in accounting policies by the SEC;
. Adverse changes in the financial performance and/or condition
of our borrowers, which could impact the repayment of those
borrowers' outstanding loans; and
. Our success at managing the risks involved in the foregoing.
We caution that the foregoing list of important factors is not
exhaustive. Also, we do not undertake to update any forward
looking statement, whether written or oral, that may be made from
time to time by us or on our behalf.
This section provides supplemental information which should be
read in conjunction with the Consolidated Financial Statements
and related notes. 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
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" or the "Bank".
The year-to-date averages used in this report are based on daily
balances for each respective year. In certain circumstances,
comparing average balances for the fourth quarters of consecutive
years may be more meaningful than simply analyzing year-to-date
averages. Therefore, where appropriate, quarterly averages have
been presented for analysis and have been noted as such. See
Table 2 for annual averages and Table 14 for financial
information presented on a quarterly basis.
On March 9, 2001, the Company completed its second purchase and
assumption transaction with First Union National Bank ("First
Union") and acquired six of First Union's offices in Georgia
which included real estate, loans and deposits. The transaction
resulted in approximately $11.3 million in intangible assets,
primarily core deposit intangibles, which is being amortized over
a 10-year period. The Company purchased $18 million in loans and
assumed deposits of $105 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. At the time of the acquisition, First
National Bank of West Point had $144 million in assets with one
office 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., resulting in the issuance of 701,000 CCBG shares and paid
consideration of approximately $17.0 million. The transaction
was accounted for as a purchase and resulted in approximately
$2.5 million of intangibles, primarily goodwill. These
intangible assets are being amortized over a 15-year period.
On May 7, 1999, the Company completed its acquisition of Grady
Holding Company and its subsidiary, First National Bank of Grady
County ("FNBGC") in Cairo, Georgia. At the time of the
acquisition, FNBGC had $119 million in assets with offices in
Cairo and Whigham, Georgia. The Company issued 21.50 shares for
each of the 60,910 shares of FNBGC. Grady Holding Company was
merged with CCBG, and FNBGC became a second bank subsidiary for
CCBG. 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. On November 2, 2001, the merger of FNBGC with CCB was
completed, and CCB became the resulting bank and only bank
subsidiary of CCBG.
The Company is headquartered in Tallahassee and, as of December
31, 2001, had 56 offices covering 17 counties in Florida, four
counties in Georgia and one county in Alabama.
EARNINGS ANALYSIS
Earnings, after considering the effects of merger-related
expenses (primarily integration costs which include severance
payments, system conversion costs and travel) and intangible
amortization, were $16.9 million, or $1.59 per diluted share.
This compares to $18.2 million, or $1.78 per diluted share in
2000 and $15.3 million, or $1.50 per diluted share in 1999.
During 2001, merger-related expenses, net of taxes, totaled
$361,000, or $.03 per diluted share, compared to $482,000, or
$.05 per diluted share in 2000 and $1.2 million, or $.12 per
diluted share in 1999. Amortization of intangible assets, net of
taxes, in 2001 totaled $2.6 million, or $.24 per diluted share,
compared to $1.9 million, or $.19 per diluted share in 2000 and
1999.
The decline in earnings was attributable to continued geographic
expansion and higher ongoing operating costs, primarily pension
costs and healthcare premiums. A further discussion of the
Company's operating costs can be found in the section entitled
"Noninterest Expense". Partially offsetting the higher expense
level was an increase in operating revenues of $12.9 million, or
14.4%, over 2000, driven by growth in earning assets and fee
income. This and other factors are discussed throughout the
Financial Review. A condensed earnings summary is presented in
Table 1.
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share Data)
For the Years Ended December 31,
-------------------------------------
---
2001 2000
1999
-------------------------------------
---
- -
Interest Income $118,983 $109,334 $
99,685
Taxable Equivalent Adjustments 1,775 1,577
1,761
-------- -------- -------
Total Interest Income (FTE) 120,758 110,911
101,446
Interest Expense 48,249 46,234
41,247
-------- -------- -------
Net Interest Income (FTE) 72,509 64,677
60,199
Provision for Loan Losses 3,983 3,120
2,440
Taxable Equivalent Adjustments 1,775 1,577
1,761
-------- -------- -------
Net Interest Income After Provision
for Loan Losses 66,751 59,980
55,998
Noninterest Income 32,037 26,769
26,561
Noninterest Expense 72,804 59,147
59,828
-------- -------- -------
Income Before Income Taxes 25,984 27,602
22,731
Income Taxes 9,118 9,449
7,479
-------- -------- -------
Net Income $ 16,866 $ 18,153 $
15,252
======== ========
========
Basic Net Income Per Share $ 1.59 $ 1.78 $
1.50
======== ========
========
Diluted Net Income Per Share $ 1.59 $ 1.78 $
1.50
======== ========
========
Net Interest Income
- -------------------
Net interest income represents the Company's single largest
source of earnings and is equal to interest income and fees
generated by earning assets, less interest expense paid on
interest bearing liabilities. An analysis of the Company's net
interest income, including average yields and rates, is presented
in Tables 2 and 3. This information is presented on a "taxable
equivalent" basis to reflect the tax-exempt status of income
earned on certain loans and investments, the majority of which
are state and local government debt obligations.
In 2001, taxable equivalent net interest income increased $7.8
million, or 12.1%. This follows an increase of $4.5 million, or
7.4%, in 2000, and $5.0 million, or 9.1%, in 1999. The increase
in taxable equivalent net interest income during 2001 is due to
growth in earning assets. Internally generated growth from
existing markets, which along with acquisition growth, combined
to produce a favorable volume variance of $11.8 million.
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
2001
-----------------------------
Average Average
Balance Interest Rate
-----------------------------
Assets:
Loans, Net of Unearned Interest<F1><F2> $1,184,290 $102,737 8.68%
Taxable Investment Securities 170,328 9,619 5.65
Tax-Exempt Investment Securities<F2> 78,928 4,792 6.07
Funds Sold 101,002 3,610 3.55
---------- -------- ----
Total Earning Assets 1,534,548 120,758 7.87
Cash & Due From Banks 69,242
Allowance For Loan Losses (11,910)
Other Assets 112,287
----------
TOTAL ASSETS $1,704,167
==========
Liabilities:
NOW Accounts $ 214,881 $ 4,046 1.88%
Money Market Accounts 208,526 6,237 2.99
Savings Accounts 108,284 1,865 1.72
Other Time Deposits 604,909 33,066 5.47
---------- -------- ----
Total Interest Bearing Deposits 1,136,600 45,214 3.98
Short-Term Borrowings 58,111 2,164 3.72
Long-Term Debt 15,308 871 5.69
---------- -------- ----
Total Interest Bearing Liabilities 1,210,019 48,249 3.99
Noninterest Bearing Deposits 306,316 -------- ----
Other Liabilities 19,180
---------
TOTAL LIABILITIES 1,535,515
Shareowners' Equity:
Common Stock 106
Additional Paid-In Capital 18,966
Retained Earnings 149,580
----------
TOTAL SHAREOWNERS' EQUITY 168,652
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,704,167
==========
Interest Rate Spread 3.88%
====
Net Interest Income $ 72,509
========
Net Interest Margin<F3> 4.73%
====
2000
-----------------------------
Average Average
Balance Interest Rate
-----------------------------
Assets:
Loans, Net of Unearned Interest<F1><F2> $1,002,122 $ 92,486 9.23%
Taxable Investment Securities 199,234 11,701 5.87
Tax-Exempt Investment Securities<F2> 92,440 5,403 5.84
Funds Sold 21,228 1,321 6.22
---------- -------- ----
Total Earning Assets 1,315,024 110,911 8.43
Cash & Due From Banks 62,202
Allowance For Loan Losses (10,468)
Other Assets 96,854
TOTAL ASSETS $1,463,612
Liabilities:
NOW Accounts $ 174,853 $ 4,444 2.54%
Money Market Accounts 160,258 6,673 4.16
Savings Accounts 106,072 2,446 2.31
Other Time Deposits 496,699 26,896 5.42
---------- -------- ----
Total Interest Bearing Deposits 937,882 40,459 4.31
Short-Term Borrowings 86,119 4,968 5.77
Long-Term Debt 13,070 807 6.17
---------- -------- ----
Total Interest Bearing Liabilities 1,037,071 46,234 4.46
Noninterest Bearing Deposits 269,221 -------- ----
Other Liabilities 17,582
----------
TOTAL LIABILITIES 1,323,874
Shareowners' Equity:
Common Stock 102
Additional Paid-In Capital 9,188
Retained Earnings 130,448
----------
TOTAL SHAREOWNERS' EQUITY 139,738
----------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,463,612
==========
Interest Rate Spread 3.97%
====
Net Interest Income $ 64,677
========
Net Interest Margin<F3> 4.91%
====
1999
-----------------------------
Average Average
Balance Interest Rate
------------------------------
Assets:
Loans, Net of Unearned Interest<F1><F2> $ 884,323 $ 78,646 8.89%
Taxable Investment Securities 232,085 13,229 5.70
Tax-Exempt Investment Securities<F2> 101,994 6,013 5.89
Funds Sold 72,860 3,558 4.88
---------- -------- ----
Total Earning Assets 1,291,262 101,446 7.86
Cash & Due From Banks 67,410
Allowance For Loan Losses (10,132)
Other Assets 95,529
TOTAL ASSETS $1,444,069
Liabilities:
NOW Accounts $ 155,584 $ 3,134 2.01%
Money Market Accounts 155,594 5,766 3.71
Savings Accounts 115,789 2,453 2.12
Other Time Deposits 546,433 26,962 4.93
---------- -------- ----
Total Interest Bearing Deposits 973,400 38,315 3.94
Short-Term Borrowings 42,317 1,816 4.29
Long-Term Debt 17,274 1,116 6.46
---------- -------- ----
Total Interest Bearing Liabilities 1,032,991 41,247 3.99
Noninterest Bearing Deposits 264,005 -------- ----
Other Liabilities 16,015
----------
TOTAL LIABILITIES 1,313,011
Shareowners' Equity:
Common Stock 102
Additional Paid-In Capital 8,882
Retained Earnings 122,074
----------
TOTAL SHAREOWNERS' EQUITY 131,058
----------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,444,069
==========
Interest Rate Spread 3.87%
====
Net Interest Income $ 60,199
========
Net Interest Margin<F3> 4.67%
====
<FN>
<F1> Average balances include nonaccrual loans. Interest income includes fees
on
loans of approximately $4.3 million, $4.0 million and $3.5 million in 2001, 2000
and 1999, respectively.
<F2> Interest income includes the effects of taxable equivalent adjustments using
a 35% tax rate to adjust interest on tax-exempt loans and securities to a taxable
equivalent basis.
<F3> Taxable equivalent net interest income divided by average earning assets.
</FN>
Table 3
RATE/VOLUME ANALYSIS<F1>
(Taxable Equivalent Basis - Dollars in Thousands)
2001 Changes from 2000
2000 Changes from 1999
--------------------------------- ------
- ---------------------------
Due To
Due To
Average
Average
--------------------
- ---------------------
Total Volume Rate Total
Volume Rate
- ------------------------------------- --------------------------------- ------
- ---------------------------
Earning Assets:
Loans, Net of Unearned Interest<F2> $10,251 $16,814 $(6,563)
$13,840 $10,472 $ 3,368
Investment Securities:
Taxable (2,082) (1,697) (385)
(1,528) (1,872) 344
Tax-Exempt (611) (789) 178
(610) (562) (48)
Funds Sold 2,289 4,962 (2,673)
(2,237) (2,520) 283
------- ------- ------- ----
- --- ------- -------
Total 9,847 19,290 (9,443)
9,465 5,518 3,947
------- ------- ------- ----
- --- ------- -------
Interest Bearing Liabilities:
NOW Accounts (398) 1,017 (1,415)
1,310 387 923
Money Market Accounts (436) 2,008 (2,444)
907 173 734
Savings Accounts (581) 51 (632)
(7) (206) 199
Other Time Deposits 6,170 5,865 305
(66) (2,452) 2,386
Short-Term Borrowings (2,804) (1,616) (1,188)
3,152 1,881 1,271
Long-Term Debt 64 138 (74)
(309) (272) (37)
------- ------- ------- ----
- --- ------- -------
Total 2,015 7,463 (5,448)
4,987 (489) 5,476
------- ------- ------- ----
- --- ------- -------
Changes in Net Interest Income $ 7,832 $11,827 $(3,995) $
4,478 $ 6,007 $(1,529)
======= ======= =======
======= ======= =====
<FN>
<F1> This table shows the change in taxable equivalent net interest income for
comparative periods based on either changes in average volume or changes in
average rates for earning assets and interest bearing liabilities. Changes
which are not solely due to volume changes or solely due to rate changes have
been attributed to rate changes.
<F2> Interest income includes the effects of taxable equivalent adjustments
using a 35% tax rate to adjust interest on tax-exempt loans and securities to a
taxable equivalent basis.
</FN>
In addition to growth, higher levels of liquidity and rapidly
declining interest rates also significantly impacted the
Company's net interest margin. For the year, the Company
experienced an unfavorable rate variance of $4.0 million.
Liquidity generated by the Georgia acquisitions made the
Company's balance sheet more susceptible to interest rate
movements over the short-term. See Section entitled "Liquidity
and Capital Resources" for discussion of Georgia acquisitions and
liquidity. Management aggressively restructured rates on
interest bearing liabilities to combat margin compression created
by the Federal Reserve's 450 basis point reduction in the funds
rate during 2001. As a result, the Company produced a favorable
rate variance in the fourth quarter and the net interest margin
increased from 4.62% in the second quarter of 2001 to 4.93% in
the fourth quarter.
For the year 2001, taxable equivalent interest income increased
$9.8 million, or 8.9%, over 2000, compared to an increase of $9.5
million, or 9.3%, in 2000 over 1999. The Company's taxable
equivalent yield on average earning assets of 7.87% represents a
56 basis point decrease from 2000, compared to a 57 basis point
increase in 2000 over 1999. During 2001, interest income was
positively impacted by the growth and acquisition of earning
assets, but adversely affected by lower yields as rates declined
throughout the year. The loan portfolio, which is the largest
and highest yielding component of average earning assets,
increased from 77.5% in the fourth quarter of 2000, to 78.4% in
the comparable quarter of 2001, which helped to buffer the
decrease in yield attributable to falling rates. Interest income
on funds sold increased 173.3% reflecting the higher liquidity
levels resulting from the recent Georgia acquisitions and growth
in existing markets. These increases were partially offset by a
decline in income from investment securities as maturities were
not being reinvested in the securities portfolio due to the
current interest rate environment and in anticipation of future
loan demand.
Interest expense increased $2.0 million, or 4.4%, over 2000,
compared to an increase of $5.0 million, or 12.1%, in 2000 over
1999. The higher level of interest expense in 2001 is
attributable to the recent Georgia acquisitions ($205 million in
new deposits) and growth in established markets. The dramatic
reduction in interest rates during 2001 had a very favorable
impact on the Company's overall cost of funds, which fell 47
basis points year-over-year (comparing fourth quarter 2001 to
fourth quarter 2000 produces a 174 basis point reduction in the
cost of funds). Partially offsetting the favorable impact of
lower rates was a slight shift in mix as certificates of deposit,
which generally represent a higher cost deposit product to the
Company, increased from 41.1% of average deposits in 2000 to
41.9% in 2001.
The Company's interest rate spread (defined as the taxable
equivalent yield on average earning assets less the average rate
paid on interest bearing liabilities) declined 9 basis points in
2001 and increased 10 basis points in 2000. The decrease in 2001
is attributable to the lower earning asset yields as discussed
above. The increase in 2000 was attributable to the change in
earning asset mix and higher interest rates.
The Company's net interest margin (defined as taxable equivalent
interest income less interest expense divided by average earning
assets) was 4.73% in 2001, compared to 4.91% in 2000 and 4.67% in
1999. In 2001, the higher level of liquidity and the rapid
decline in interest rates resulted in an 18 basis point decrease
in the margin.
Due to the declining interest rate environment in 2001, the
Company anticipates continued lower yields on earning assets and
lower rates on interest bearing liabilities. Given the current
rate environment, the Company's net interest margin is expected
to improve in the first quarter of 2002.
A further discussion of the Company's earning assets and funding
sources can be found in the section entitled "Financial
Condition".
Provision for Loan Losses
- -------------------------
The provision for loan losses was $4.0 million in 2001, compared
to $3.1 million in 2000 and $2.4 million in 1999. The increase
in the 2001 provision primarily reflects the Company's loan
growth. While still at historically low levels, the Company
continued to experience slight deterioration in the credit
quality of its consumer loan portfolio. In 2001 and 2000,
consumer loan net charge-offs represented 87.7% and 75.4%,
respectively, of total net charge-offs. Management is addressing
rising consumer loan charge-offs by adjusting its underwriting
criteria where appropriate.
Net charge-offs increased over 2000, but remain at low levels
relative to the size of the portfolio. In 2001, the increase
primarily reflects the growth in the loan portfolio. The
Company's nonperforming assets ratio decreased to .32% from .37%
at year-end 2000, and the net charge-off ratio increased to .31%
versus .25% in 2000.
At December 31, 2001, the allowance for loan losses totaled $12.1
million compared to $10.6 million in 2000. At year-end 2001, the
allowance represented 0.97% of total loans. Management considers
the allowance to be adequate based on the current level of
nonperforming loans and the estimate of losses inherent in the
portfolio at year-end. See the section entitled "Financial
Condition" and Tables 7 and 8 for further information regarding
the allowance for loan losses. Selected loss coverage ratios are
presented below:
2001 2000 1999
---------------------------
Provision for Loan Losses as a
Multiple of Net Charge-offs 1.1x 1.3x 1.0x
Pre-tax Income Plus Provision
for Loan Losses as a Multiple
of Net Charge-offs 8.2x 12.4x 10.8x
---------------------------
Noninterest Income
- -----------------
In 2001, noninterest income increased $5.3 million, or 19.7%, and
represented 30.6% of taxable equivalent operating revenue,
compared to $208,000, or 0.8%, and 29.3%, respectively, in 2000.
The increase in the level of noninterest income is attributable
to all categories except data processing revenues. The increase
in 2000 was primarily attributable to asset management fees and
other income, partially offset by lower service charges on
deposit accounts and data processing revenues. Factors affecting
noninterest income are discussed below.
Service charges on deposit accounts increased $1.3 million, or
13.5%, in 2001, compared to a decrease of $593,000, or 5.9%, in
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 2001 reflects the increase in the number of
accounts, primarily as a result of the Georgia acquisitions. The
decrease in 2000 is primarily attributable to higher compensating
balances and a decline in the number of service chargeable
accounts.
Data processing revenues decreased $446,000, or 17.7%, in 2001
versus a decrease of $336,000, or 11.7%, in 2000. The data
processing center provides computer services to both financial
and non-financial clients in North Florida and South Georgia. The
decrease in 2001 was primarily a result of a decline in revenues
for financial clients. The Company currently processes for five
financial clients, a decline from the prior year level of six.
In 2001, processing revenues for non-financial entities
represented approximately 35.9% of the total processing revenues,
compared to 23.0% in 2000. The decrease in total processing
revenues for 2000 was primarily a result of a decline in revenues
for non-financial clients.
In 2001, asset management fees increased $121,000, or 5.0%,
compared to $208,000, or 9.3% in 2000. Increases in both years
were attributable to growth in assets under management. At year
end 2001, assets under management totaled $337.0 million,
reflecting growth of $9.0 million, or 2.7%. This growth was
attributable to the generation of new accounts in existing
markets and managed assets acquired through the Georgia
acquisitions. The decline in stock market values over the past
couple of years has offset a significant portion of the
incremental revenues attributable to new business development, as
fees are based on portfolio market value at quarter-end. At year
end 2000, assets under management totaled $328 million,
reflecting growth of $20.5 million, or 6.7% over 1999.
The Company generally sells into the secondary market all fixed
rate residential loan production. The low level of interest
rates during 2001 produced a high level (in excess of 80%) of
fixed rate production and drove mortgage banking revenues up $2.8
million, or 217.5%, over the prior year. The level of interest
rates, origination volume and percent of fixed rate production
will significantly impact the Company's ability to maintain the
current level of mortgage banking revenues in 2002. In 2000,
mortgage banking revenues declined $342,000, or 21.3% over 1999,
reflecting the impact of rising interest rates and a lower level
of fixed rate loan production.
Other noninterest income increased $1.6 million, or 14.1%, in
2001 versus an increase of $1.2 million, or 12.7% in 2000. The
increase in 2001 was attributable to higher transaction volumes
in the following areas which accounted for an increase of $1.5
million: ATM/debit card fees, credit card merchant fees, credit
card interchange fees, accounts receivable financing, other
commission revenue and safe deposit fees. Additionally, a one
time gain of $135,000 was recognized on condemnation of property
by the State of Florida. The increase in 2000 was attributable
to credit card merchant fees, credit card interchange fees,
brokerage revenues and check printing income.
Noninterest income as a percent of average assets increased to
1.88% in 2001, compared to 1.83% in 2000 and 1.71% in 1999,
driven by service charge income and mortgage banking revenues.
Noninterest Expense
- -------------------
Noninterest expense for 2001 was $72.8 million, an increase of
$13.7 million, or 23.1%, over 2000, compared with a decrease of
$681,000, or 1.1%, in 2000 versus 1999. The level of noninterest
expense in 2001 was significantly impacted by the Company's
continued expansion which added nine new offices in Georgia and
Alabama. Factors impacting the Company's noninterest expense
during 2001 and 2000 are discussed below.
The Company's aggregate compensation expense in 2001 totaled
$37.7 million, an increase of $7.7 million, or 25.8%, over 2000.
The increase is primarily attributable to the addition of the
Georgia and Alabama offices, higher commissions expense related
to mortgage banking, increased pension costs and higher
healthcare insurance premiums. In 2002, both pension cost and
healthcare premiums are expected to increase by approximately 60%
and 24%, respectively. The higher pension cost is a result of an
increase in the number of plan participants and the lower than
expected return on plan assets resulting from the general stock
market decline. Healthcare premiums are expected to continue to
increase due to additional participants and rising costs from
healthcare providers. In 2000, total compensation increased $1.0
million, or 3.4%, over 1999. This increase was primarily in
salaries due to raises, higher commissions and incentives.
Occupancy expense (including furniture, fixtures and equipment)
increased by $2.3 million, or 21.6%, in 2001, compared to
$304,000, or 3.0%, in 2000. The increase was primarily due to
the addition of nine offices acquired with the two Georgia
acquisitions and a complete data processing systems conversion.
The most significant increases occurred in depreciation,
maintenance and utilities. The increase in 2000 was attributable
to higher depreciation, utilities and software licenses, and was
partially offset by a decline in maintenance costs.
Merger-related expenses totaled $588,000 and $761,000, in 2001
and 2000, respectively. These expenses include severance
payments, system conversions, travel and other costs associated
with integrating the new offices into Capital City Bank.
Other noninterest expense increased $3.9 million, or 21.4% in
2001 and decreased $1.4 million, or 7.1% in 2000. The increase
in 2001 was attributable to: (1) higher legal costs of $241,000
primarily resulting from merchant credit card processing (see
Section entitled "other" in "Liquidity and Capital Resources" for
further discussion); (2) increased telephone costs of $470,000
due to the Georgia acquisitions and expansion of the existing
wide-area network; (3) increased advertising costs of $203,000;
(4) higher intangible amortization of $926,000 resulting from the
Georgia acquisitions; (5) commission service fees of $514,000
resulting from higher transaction volume in merchant services;
(6) higher postage costs of $256,000; and (7) higher credit card
interchange costs of $1.2 million. The decrease in 2000 was
attributable to: (1) a decrease in intangible taxes of $511,000
resulting from the elimination of this tax for banks by the State
of Florida; (2) decline in other losses of $326,000; (3) decline
in telephone costs of $293,000 resulting from the completion of
the wide-area network; and (4) elimination of YEAR 2000 costs.
The net noninterest expense ratio (defined as noninterest income
minus noninterest expense, net of intangible amortization and
merger-related expenses, as a percent of average assets) was
2.14% in 2001, compared to 1.97% in 2000 and 2.01% in 1999. The
Company's efficiency ratio (expressed as noninterest expense, net
of intangible amortization and merger-related expenses, as a
percent of taxable equivalent operating revenues) was 65.5%,
60.7% and 63.7% in 2001, 2000 and 1999, respectively.
Income Taxes
- ------------
The consolidated provision for federal and state income taxes was
$9.1 million in 2001, compared to $9.4 million in 2000 and $7.5
million in 1999. The decline in the 2001 tax provision was a
result of lower taxable income. The increase in the 2000 tax
provision from 1999 was primarily attributable to a higher
taxable income and a decline in tax-exempt income.
The effective tax rate was 35.1% in 2001, 34.2% in 2000, and
32.9% in 1999. These rates differ from the statutory tax rates
due primarily to tax-exempt income. The increase in the
effective tax rate for 2001 and 2000 is primarily attributable to
the decline of tax-exempt income relative to pre-tax income. Tax
exempt income (net of the adjustment for disallowed interest) as
a percent of pre-tax income was 13.0% in 2001, 19.8% in 2000, and
26.5% in 1999. The decline during the past three years was
primarily a result of maturities in the tax-exempt security
portfolio and management's decision to use these proceeds to fund
loan growth, rather than replace maturities in the portfolio.
See Section entitled "Financial Condition" for further
discussion.
FINANCIAL CONDITION
Average assets increased $240.6 million, or 16.4%, from $1.5
billion in 2000 to $1.7 billion in 2001. Average earning assets
increased to $1.5 billion in 2001, a $219.5 million, or 16.7%,
increase over 2000. Average loans and funds sold increased
$182.2 million, or 18.2%, and $79.8 million, or 375.8%,
respectively, and were partially offset by a decline in average
securities of $42.4 million, or 14.5%. Loan growth in 2001 was
funded through liquidity generated from acquisitions, deposit
growth and the maturity of investment securities.
Table 2 provides information on average balances and rates, Table
3 provides an analysis of rate and volume variances, while Table
4 highlights the changing mix of the Company's earning assets
over the last three years.
Loans
- -----
Loan growth was strong during 2001. Including $90 million in
loans acquired through the Georgia acquisitions, the portfolio
increased $188 million, or 17.9%. Areas experiencing the most
significant growth included the commercial and residential real
estate portfolios which, combined, grew $150 million.
Although management is continually evaluating alternative sources
of revenue, lending is a major component of the Company's
business and is key to profitability. While management strives
to identify opportunities to increase loans outstanding and
enhance the portfolio's overall contribution to earnings, it can
do so only by adhering to sound lending principles applied in a
prudent and consistent manner. Thus, management will not relax
its underwriting standards in order to achieve designated growth
goals.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances - Dollars in Thousands)
2000 to Percentage Components
2001 of Total of Average Earning
Assets
Change Change 2001 2000
1999
- --------------------------------------------------------------------------------
- ----
Loans:
Commercial, Financial
and Agricultural $ 15,266 7.0% 8.0% 8.2%
7.2%
Real Estate - Construction 13,379 6.1 5.3 5.2
4.3
Real Estate - Mortgage 48,377 22.0 17.6 16.9
21.8
Real Estate - Residential 76,287 34.8 32.8 32.4
22.4
Consumer 28,859 13.1 13.5 13.5
12.8
-------- ----- ----- ----- -
- ----
Total Loans 182,168 83.0 77.2 76.2
68.5
-------- ----- ----- ----- -
- ----
Securities:
Taxable (28,906) (13.2) 11.1 15.2
18.0
Tax-Exempt (13,512) (6.1) 5.1 7.0
7.9
-------- ----- ----- ----- -
- ----
Total Securities (42,418) (19.3) 16.2 22.2
25.9
-------- ----- ----- ----- -
- ----
Funds Sold 79,774 36.3 6.6 1.6
5.6
-------- ----- ----- ----- -
- ----
Total Earning Assets $219,524 100.0% 100.0% 100.0%
100.0%
======== ===== ===== =====
=====
The Company's average loan-to-deposit ratio decreased from 83.0%
in 2000, to 82.1% in 2001. This compares to an average loan-to
deposit ratio in 1999 of 71.5%. The lower average loan-todeposit
ratio in 2001 reflects the increase in deposits attributable to
the Georgia acquisitions.
Real estate loans, combined, represented 72.8% of total loans in
2001, versus 72.2% in 2000. See the section entitled "Risk
Element Assets" for a discussion concerning loan concentrations.
The composition of the Company's loan portfolio at December 31,
for each of the past five years is shown in Table 5. Table 6
arrays the Company's total loan portfolio as of December 31,
2001, based upon maturities. As a percent of the total
portfolio, loans with fixed interest rates represent 36.4% as of
December 31, 2001.
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
As of December 31,
----------------------------------------------------
---
2001 2000 1999 1998
1997
----------------------------------------------------
- --
Commercial, Financial and
Agricultural $ 128,480 $ 108,340 $ 98,894 $ 91,246 $
82,641
Real Estate - Construction 72,778 84,133 62,166 51,790
51,098
Real Estate - Mortgage 302,239 231,099 214,036 542,044
492,778
Real Estate - Residential<F1> 530,546 444,489 383,536 -
- -
Consumer 209,308 183,771 169,854 159,137
148,934
---------- ---------- -------- -------- -----
- --
Total Loans, Net of
Unearned Interest $1,243,351 $1,051,832 $928,486 $844,217
$775,451
========== ========== ======== ========
========
<FN>
<F1> Real Estate - Residential loan information included in Real Estate
Mortgage
category for 1998 and 1997.
</FN>
Table 6
LOAN MATURITIES
(Dollars in Thousands)
Maturity Periods
------------------------------------------------
Over One Over
One Year Through Five
Or Less Five Years Years Total
- -------------------------------------------------------------------------------
Commercial, Financial and
Agricultural $ 54,300 $ 54,531 $ 19,649 $ 128,480
Real Estate 105,472 101,116 698,975 905,563
Consumer<F1> 63,671 129,655 15,982 209,308
-------- -------- -------- ----------
Total $223,443 $285,302 $734,606 $1,243,351
======== ======== ======== ==========
Loans with Fixed Rates $ 94,297 $236,236 $121,694 $ 452,227
Loans with Floating or
Adjustable Rates 129,146 49,066 612,912 791,124
-------- -------- -------- ----------
Total $223,443 $285,302 $734,606 $1,243,351
======== ======== ======== ==========
<FN>
<F1> Demand loans and overdrafts are reported in the category of one year or
less.
</FN>
Allowance for Loan Losses
- -------------------------
Management maintains the allowance for loan losses at a level
sufficient to provide for the estimated credit losses inherent in
the loan portfolio as of the balance sheet date. Credit losses
arise from the borrowers' ability and willingness to repay, and
from other risks inherent in the lending process including
collateral risk, operations risk, concentration risk and economic
risk. As such, all related risks of lending are considered when
assessing the adequacy of the loan loss reserve. The allowance
for loan losses is established through a provision charged to
expense. Loans are charged against the allowance when management
believes collection of the principal is unlikely. The allowance
for loan losses is based on management's judgment of overall loan
quality. This is a significant estimate based on a detailed
analysis of the loan portfolio. The balance can and will change
based on changes in the assessment of the portfolio's overall
credit quality.
Management evaluates the adequacy of the allowance for loan
losses on a quarterly basis. Four components are addressed in
the evaluation of the adequacy of the allowance for loan losses.
Loans that have been identified as impaired as defined by FAS 114
are reviewed for adequacy of collateral, with a specific reserve
assigned to those loans when necessary. Impaired loans are
defined as those in which the full collection of principal and
interest in accordance with the contractual terms is improbable.
Impaired loans generally include those that are past due for 90
days or more and those classified as doubtful in accordance with
the Company's risk rating system. Loans classified as doubtful
have a high possibility of loss, but because of certain factors
that may work to strengthen the loan, its classification as a
loss is deferred until a more exact status may be determined.
Not all loans are considered in the review for impairment; only
loans that are for business purposes exceeding $25,000 are
considered. The evaluation is based on current financial
condition of the borrower or current payment status of the loan.
The method used to assign a specific reserve depends on whether
repayment of the loan is dependent on liquidation of collateral.
If repayment is dependent on the sale of collateral, the reserve
is equivalent to the recorded investment in the loan less the
fair value of the collateral after estimated sales expenses. If
repayment is not dependent on the sale of collateral, the reserve
is equivalent to the recorded investment in the loan less the
estimated cash flows discounted using the loan's effective
interest rate. The discounted value of the cash flows is
dependent on the timing of the receipt of cash payments from the
borrower. The reserve allocations assigned to impaired loans
are sensitive to the extent market conditions or the timing of
cash receipts change.
Commercial purpose loans exceeding $100,000 that are not
considered impaired, but which have weaknesses that require
closer management attention, are analyzed with a specific reserve
allocated, if needed, based on the underlying value of the
collateral. The underlying value of the collateral is based on
independent assessments of value. Examples of this independent
assessment include appraisals, tax assessments, and evaluations
from those in the business of selling assets similar to the
collateral.
A general reserve is then assigned to the pool of larger loans
that individually have not exhibited weaknesses as of the balance
sheet date. This reserve is allocated based on the historical
loss ratio of the portfolio. Finally, large groups of smaller
balance homogenous loans, including consumer loans, credit card
loans, and residential mortgage loans are collectively evaluated
with a reserve assigned based on historical losses of that
particular loan pool.
Historical loss ratios are calculated quarterly by tracking
actual charge-offs within a specific loan type and are used to
estimate losses inherent in the pool. Historical loss ratios are
calculated for the previous twelve quarters, with the most recent
history being emphasized because of management's belief that this
more closely represents the expected near-term performance of the
portfolio. The results of this calculation are adjusted for
certain external factors including micro-and macro-economic
outlook, past due and non-performing trends within the portfolio,
loan growth, and credit administration practices. These factors
are specifically monitored on a quarterly basis. The adjustments
to actual losses experienced over the past three years are
quantitatively determined by trends in past due and nonperforming
loans, loan growth and mix, and audits of internal and external
examiners regarding credit administration practices.
The allowance for loan losses is compared against the sum of the
specific reserves assigned to problem loans plus the general
reserves assigned to pools of loans that are not problems.
Adjustments are made when appropriate. Table 7 analyzes the
activity in the allowance over the past five years.
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
For the Years Ended December 31,
--------------------------------------------
--
2001 2000 1999 1998
1997
- --------------------------------------------------------------------------------
- --
Balance at Beginning of Year $10,564 $ 9,929 $9,827 $9,662
$9,450
Acquired Reserves 1,206 - - -
- -
Charge-Offs:
Commercial, Financial
and Agricultural 483 626 480 127
568
Real Estate - Construction - 7 - 15
31
Real Estate - Mortgage 32 - 354 1,011
485
Real Estate - Residential<F1> 159 168 251 -
- -
Consumer 3,976 2,387 2,113 2,004
1,978
------- ------- ------ ------ ---
- ---
Total Charge-Offs 4,650 3,188 3,198 3,157
3,062
------- ------- ------ ------ ---
- ---
Recoveries:
Commercial, Financial
and Agricultural 44 52 142 72
378
Real Estate - Construction - 11 - 142
- -
Real Estate - Mortgage 65 73 84 176
83
Real Estate - Residential<F1> 116 54 11 -
- -
Consumer 768 513 623 493
485
------- ------- ------ ------ ---
- ---
Total Recoveries 993 703 860 883
946
------- ------- ------ ------ ---
- ---
Net Charge-Offs 3,657 2,485 2,338 2,274
2,116
------- ------- ------ ------ ---
- ---
Provision for Loan Losses 3,983 3,120 2,440 2,439
2,328
------- ------- ------ ------ ---
- ---
Balance at End of Year $12,096 $10,564 $9,929 $9,827
$9,662
======= ======= ====== ======
======
Ratio of Net Charge-Offs
to Average Loans Outstanding .31% .25% .26% .28%
.28%
======= ======= ====== ======
======
Allowance for Loan Losses as a
Percent of Loans at End of Year .97% 1.00% 1.07% 1.16%
1.25%
======= ======= ====== ======
======
Allowance for Loan Losses as a
Multiple of Net Charge-Offs 3.31x 4.25x 4.25x 4.32x
4.57x
======= ======= ====== ======
======
<FN>
<F1> Real Estate - Residential charge-off and recovery information is included
in the Real Estate - Mortgage category for 1998 and 1997.
</FN>
The allowance for loan losses at December 31, 2001 of $12.1
million compares to $10.6 million at year-end 2000. The
allowance as a percent of total loans was 0.97% in 2001, versus
1.00% in 2000. The allowance for loan losses as a percentage of
loans reflects management's current estimation of the credit
quality of the Company's loan portfolio. While there can be no
assurance that the Company will not sustain loan losses in a
particular period that are substantial in relation to the size of
the allowance, management's assessment of the loan portfolio
would not indicate a likelihood of this occurrence. It is
management's opinion that the allowance at December 31, 2001 is
adequate to absorb losses inherent in the loan portfolio at year
end.
Table 8 provides an allocation of the allowance for loan losses
to specific loan types for each of the past five years. The
reserve allocations, as calculated using the above methodology,
are assigned to specific loan categories corresponding to the
type represented within the four components discussed. The
greatest losses experienced by the Company have occurred in the
consumer loan portfolio, including credit cards. As such, the
greatest amount of the allowance is allocated to consumer loans
despite its relatively small balance. Management is making
changes in the underwriting of consumer loans throughout the
company and in the management of the credit card portfolio in an
effort to reduce the charge-offs associated with consumer purpose
loans.
Risk Element Assets
- ------------------
Risk element assets consist of nonaccrual loans, renegotiated
loans, other real estate, loans past due 90 days or more,
potential problem loans and loan concentrations. Table 9 depicts
certain categories of the Company's risk element assets as of
December 31 for each of the last five years. Potential problem
loans and loan concentrations are discussed within the narrative
portion of this section.
The Company's nonperforming loans decreased $504,000, or 17.2%,
from a level of $2.9 million at December 31, 2000, to $2.4
million at December 31, 2001. During 2001, loans totaling
approximately $5.6 million were added, while loans totaling $6.1
million were removed from nonaccruing status. Of the $6.1
million removed, $638,000 consisted of principal reductions, $2.1
million represented loans transferred to other real estate, $3.3
million consisted of loans brought current and returned to an
accrual status and loans refinanced, and $92,000 was charged off.
Where appropriate, management has allocated specific reserves to
absorb anticipated losses. The majority (88%) of the Company's
charge-offs in 2001 were in the consumer portfolio where loans
are charged off based on past due status and are not recorded as
nonaccruing loans.
The majority of the Company's nonaccrual loans are secured by
real estate. Specifically, approximately one-half of the
Company's nonaccrual loans are secured by 1 - 4 family
residential properties. These loans are believed to have little
exposure to credit loss as evidenced by the relatively small
amount of charge-offs experienced in nonaccrual loans. The
housing markets in the areas served by the Company continue to be
strong despite the general decline in the economy. Consumer
loans are charged off based on regulatory guidelines dictated by
past due status and are not recorded as nonaccruing loans.
All nonaccrual loans exceeding $25,000 not secured by 1 - 4
family residential properties are reviewed quarterly for
impairment. Loans are considered impaired when it is probable
that all principal and interest will not be collected according
to the contractual terms. When a loan is considered impaired, it
is reviewed for exposure to credit loss. If credit loss is
probable, a specific reserve is allocated to absorb the
anticipated loss. The Company had $1.1 million in loans
considered impaired at year-end. The anticipated loss in those
impaired loans is $112,000.
Table 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2001 2000 1999
1998 1997
---------------------------------------------------------
- -----------------------------------
Percent Percent Percent
Percent Percent
of Loans of Loans of Loans
of Loans of Loans
in Each in Each in Each
in Each in Each
Allow- Category Allow- Category Allow- Category
Allow- Category Allow- Category
ance To Total ance To Total ance To
Total ance To Total ance To Total
(Dollars in Thousands) Amount Loans Amount Loan Amount
Loans Amount Loans Amount Loans
---------------------------------------------------------
- -----------------------------------
Commercial, Financial
and Agricultural $ 3,257 10.3% $ 1,423 10.3% $1,873 10.7 %
$1,599 10.8% $ 795 10.7%
Real Estate:
Construction 600 5.9 424 8.0 477
6.7 556 6.1 488 6.6
Mortgage 3,098 24.3 3,157 22.0 3,228
23.0 3,461 64.2 3,035 63.5
Residential<F1> 947 42.7 922 42.3 573
41.3 - - - -
Consumer 4,194 16.8 3,423 17.4 3,327
18.3 3,110 18.9 2,869 19.2
Not Allocated - - 1,215 - 451 -
1,101 - 2,475 -
------- ----- ------- ----- ------ -----
- ------ ----- ------ -----
Total $12,096 100.0% $10,564 100.0% $9,929 100.0%
$9,827 100.0% $9,662 100.0%
======= ===== ======= ===== ====== =====
====== ===== ====== =====
<FN>
<F1> Real Estate - Residential allowance for loan losses information is included
in the Real Estate - Mortgage category
for 1998 and 1997.
</FN>
Table 9
RISK ELEMENT ASSETS (Dollars in Thousands)
As of December 31,
----------------------------------------------
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------
Nonaccruing Loans $ 2,414 $ 2,919 $ 2,965 $ 4,996 $
1,403
Restructured 20 19 26 195
224
------- ------- ------- ------- ------
- -
Total Nonperforming Loans 2,434 2,938 2,991 5,191
1,627
Other Real Estate 1,506 971 934 1,468
1,244
------- ------- ------- ------- ------
- -
Total Nonperforming Assets $ 3,940 $ 3,909 $ 3,925 $ 6,659 $
2,871
======= ======= ======= =======
=======
Past Due 90 Days or More $ 1,065 $ 1,102 $ 781 $ 1,124 $
994
======= ======= ======= =======
=======
Nonperforming Loans/Loans .20% .28% .32% .61%
.21%
======= ======= ======= =======
=======
Nonperforming Assets/Loans
Plus Other Real Estate .32% .37% .42% .79%
.37%
======= ======= ======= =======
=======
Nonperforming Assets/Capital<F1> 2.14% 2.47% 2.76% 4.80%
2.28%
======= ======= ======= =======
=======
Reserve/Nonperforming Loans 496.96% 359.57% 331.96% 189.31%
593.85%
======= ======= ======= =======
=======
<FN>
<F1> For computation of this percentage, "capital" refers to shareowners' equity
plus the allowance for loan losses.
</FN>
Interest on nonaccrual loans is generally recognized only when
received. Cash collected on nonaccrual loans is applied against
the principal balance or recognized as interest income based upon
management's expectations as to the ultimate collectibility of
principal and interest in full. If interest on nonaccruing loans
had been recognized on a fully accruing basis, interest income
recorded would have been $122,000 higher for the year ended
December 31, 2001.
Restructured loans are those with reduced interest rates or
deferred payment terms due to deterioration in the financial
position of the borrower.
Other real estate totaled $1.5 million at December 31, 2001,
versus $971,000 at December 31, 2000. This category includes
property owned by Capital City Bank which was acquired either
through foreclosure procedures or by receiving a deed in lieu of
foreclosure. During 2001, the Company added properties totaling
$2.1 million, and partially or completely liquidated properties
totaling $1.6 million, resulting in a net increase in other real
estate of approximately $500,000. Management does not anticipate
any significant losses associated with other real estate.
Potential problem loans are defined as those loans which are now
current but where management has doubt as to the borrower's
ability to comply with present loan repayment terms. Potential
problem loans totaled $4.6 million at December 31, 2001.
Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in
similar activities which cause them to be similarly impacted by
economic or other conditions and such amounts exceed 10% of total
loans. Due to the lack of diversified industry within the
markets served by the Banks and the relatively close proximity of
the markets, the Company has both geographic concentrations as
well as concentrations in the types of loans funded.
Furthermore, due to the nature of the Company's markets, a
significant portion of the portfolio has historically been
secured with real estate.
While the Company has a majority of its loans secured by real
estate, the primary type of real estate collateral is 1 - 4
family residential properties. At December 31, 2001,
approximately 72.8% of the portfolio consisted of real estate
loans. Residential properties comprise approximately 58.6% of
the real estate portfolio.
The real estate portfolio, while subject to cyclical pressures,
is not typically speculative in nature and is originated at
amounts that are within or below regulatory guidelines for
collateral values. Management anticipates no significant
reduction in the percentage of real estate loans to total loans
outstanding.
Management is continually analyzing its loan portfolio in an
effort to identify and resolve its problem assets as quickly and
efficiently as possible. As of December 31, 2001, management
believes it has identified and adequately reserved for such
problem assets. However, management recognizes that many factors
can adversely impact various segments of its markets, creating
financial difficulties for certain borrowers. As such,
management continues to focus its attention on promptly
identifying and providing for potential losses as they arise.
Investment Securities
- ---------------------
In 2001 and 2000, the Company's average investment portfolio
decreased $42.4 million in each year, or 14.5% and 12.7%,
respectively. As a percentage of average earning assets, the
investment portfolio represented 16.2% in 2001, compared to 22.2%
in 2000. In both years, the decline in the portfolio was
attributable to the maturities of investment securities in all
categories. In anticipation of future loan growth, investment
maturities were not replaced during 2001. During 2002, if loan
growth does not meet management's forecast, a portion of the
bank's liquidity may be invested in the securities portfolio.
In 2001, average taxable investments decreased $28.9 million, or
14.5%, while tax-exempt investments decreased $13.5 million, or
14.6%. Although the Tax Reform Act of 1986 significantly reduced
the tax benefits associated with tax-exempt securities,
management will continue to purchase "bank qualified" municipal
issues when it considers the yield to be attractive and the
Company can do so without adversely impacting its tax position.
As of December 31, 2001, the Company may purchase additional tax
exempt securities without adverse tax consequences.
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 December 31,
2001, all securities are classified as available-for-sale.
Classifying securities as available-for-sale offers management
full flexibility in managing its liquidity and interest rate
sensitivity without adversely impacting its regulatory capital
levels. 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, in the
accumulated other comprehensive income (loss) component of
shareowners' equity. At December 31, 2001, shareowners' equity
included a net unrealized gain of $2.4 million, compared to a
loss of $1.5 million at December 31, 2000. It is neither
management's intent nor practice to participate in the trading of
investment securities for the purpose of recognizing gains and
therefore the Company does not maintain a trading portfolio.
The average maturity of the total portfolio at December 31, 2001
and 2000, was 2.02 and 2.63 years, respectively. See Table 10
for a breakdown of maturities by portfolio.
The weighted average taxable-equivalent yield of the investment
portfolio at December 31, 2001 was 5.72%, versus 5.83% in 2000.
The quality of the municipal portfolio at such date is depicted
on page 35. There were no investments in obligations, other than
U.S. Governments, of any one state, municipality, political
subdivision or any other issuer that exceeded 10% of the
Company's shareowners' equity at December 31, 2001.
Table 10 and Note 3 in the Notes to Consolidated Financial
Statements present a detailed analysis of the Company's
investment securities as to type, maturity and yield.
Table 10
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
As of December 31, 2001
---------------------------------------------
----
Weighted
(Dollars in Thousands) Amortized Cost Market Value Average
Yield<F1>
- --------------------------------------------------------------------------------
- ---
U. S. GOVERNMENTS
Due in 1 year or less $ 15,307 $ 15,582 5.24%
Due over 1 year through 5 years 25,996 26,797 5.25
Due over 5 years through 10 years - - -
Due over 10 years - - -
-------- -------- ----
TOTAL 41,303 42,379 5.25
STATE & POLITICAL SUBDIVISIONS
Due in 1 year or less 9,227 9,312 6.56
Due over 1 year through 5 years 60,149 61,236 6.00
Due over 5 years through 10 years 1,336 1,329 6.32
Due over 10 years 193 188 6.53
-------- -------- ----
TOTAL 70,905 72,065 6.08
MORTGAGE-BACKED SECURITIES<F2>
Due in 1 year or less 6,707 6,785 5.29
Due over 1 year through 5 years 56,803 57,599 5.71
Due over 5 years through 10 years 872 864 5.89
Due over 10 years - - -
-------- -------- ----
TOTAL 64,382 65,248 5.67
OTHER SECURITIES
Due in 1 year or less 22,284 22,646 5.60
Due over 1 year through 5 years 9,619 9,880 5.53
Due over 5 years through 10 years - - -
Due over 10 years<F3> 6,871 6,855 6.11
-------- -------- ----
TOTAL 38,774 39,381 5.67
-------- -------- ----
Total Investment Securities $215,364 $219,073 5.72%
======== ======== ====
<FN>
<F1> Weighted average yields are calculated on the basis of the amortized cost
of the security. The weighted average yields on tax-exempt obligations are
computed on a taxable equivalent basis using a 35% tax rate.
<F2> Based on weighted average life.
<F3> Federal Home Loan Bank Stock and Federal Reserve Bank Stock are included in
this category, but do not have stated maturities.
</FN>
AVERAGE MATURITY (In Years)
AS OF DECEMBER 31, 2001
U.S. Governments 1.16
State and Political Subdivisions 2.69
Mortgage-Backed Securities 2.41
Other Securities .89
---
TOTAL 2.02
====
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody's Rating Amortized Cost Percentage
- ---------------------------------------------
AAA $47,060 66.4%
AA-1 3,548 5.0
AA-2 2,099 3.0
AA-3 2,342 3.3
AA - -
A-1 1,314 1.8
A-2 859 1.2
A-3 - -
A - -
BAA 397 .6
Not Rated<F1> 13,286 18.7
------- ----
Total $70,905 100.0%
======= =====
<FN>
<F1> Of the securities not rated by Moody's, $12.6 million, or 95%, are rated
"A" or higher by S&P.
</FN>
Deposits and Funds Purchased
- ----------------------------
Average total deposits increased from $1.2 billion in 2000, to
$1.4 billion in 2001, representing an increase of $235.8 million,
or 19.5%, compared with a decrease of $30.3 million, or 2.5%, in
2000. In 2001, the increase in deposits is primarily
attributable to the Georgia acquisitions. Excluding
acquisitions, existing markets realized growth primarily in NOW
accounts and noninterest bearing demand accounts. The Company
experienced a decline in certificates of deposits during the
second half of 2001. This decline was primarily a result of
increased competition and the relative low level of interest
rates. However, the decline in certificates during the second
half was mostly offset by growth of nonmaturity deposits creating
a favorable shift in the deposit mix and a positive impact on the
Bank's cost of funds. In 2000, the decrease was primarily due to
declining balances in certificates of deposit and savings. The
decline in certificates was attributable to rising interest rates
and an increase in competition. Partially offsetting this
decline was an increase in NOW, money market and noninterest
bearing balances. The most significant increase occurred in NOW
balances primarily as a result of higher public funds.
Table 2 provides an analysis of the Company's average deposits,
by category, and average rates paid thereon for each of the last
three years. Table 11 reflects the shift in the Company's
deposit mix over the last three years and Table 12 provides a
maturity distribution of time deposits in denominations of
$100,000 and over.
Average short-term borrowings, which include federal funds
purchased, securities sold under agreements to repurchase and
other borrowings, declined $28.0 million, or 32.5%. The decrease
was due to repayment of short-term borrowings from the Federal
Home Loan Bank. See Note 8 in the Notes to Consolidated
Financial Statements for further information.
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
2000 to Percentage
2001 of Total Components of Total Deposits
Change Change 2001 2000 1999
- ------------------------------------------------------------------------------
Noninterest Bearing
Deposits $ 37,095 15.7% 21.2% 22.3% 21.3%
NOW Accounts 40,028 17.0 14.9 14.5 12.6
Money Market Accounts 48,268 20.5 14.5 13.3 12.6
Savings 2,212 0.9 7.5 8.8 9.4
Other Time Deposits 108,210 45.9 41.9 41.1 44.1
-------- ----- ----- ----- -----
Total Deposits $235,813 100.0% 100.0% 100.0% 100.0%
======== ===== ===== ===== =====
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
December 31, 2001
----------------------------------------
Time Certificates of Deposit Percent
- -----------------------------------------------------------------------
Three months or less $ 64,912 47.4%
Over three through six months 40,563 29.7
Over six through twelve months 19,162 14.0
Over twelve months 12,182 8.9
-------- -----
Total $136,819 100.0%
======== =====
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for a banking institution is the availability of funds
to meet increased loan demand and/or excessive deposit
withdrawals. Management monitors the Company's financial
position in an effort to ensure the Company has ready access to
sufficient liquid funds to meet normal transaction requirements,
take advantage of investment opportunities and cover unforeseen
liquidity demands. In addition to core deposit growth, sources
of funds available to meet liquidity demands include cash
received through ordinary business activities (i.e. collection of
interest and fees), federal funds sold, loan and investment
maturities, bank lines of credit for the Company, approved lines
for the purchase of federal funds by CCB and Federal Home Loan
Bank advances.
The Company generated approximately $102 million in liquidity
through its two Georgia acquisitions in 2001. The First Union
branch acquisition added $72 million in liquidity to the Company.
The assumption of deposits totaled approximately $105 million.
Including the core deposit premium, the company purchased assets
totaling $33 million with the balance of $72 million being paid
to CCBG in cash. First Bankshares of West Point Inc. generated
liquidity of approximately $30 million, primarily due to the sale
of a substantial portion of West Point's investment portfolio for
the purpose of aligning its risk profile with that of CCB.
As of December 31, 2001, the Company had a $25.0 million credit
facility under which all the funds were currently available. The
facility offers the Company an unsecured, revolving line of
credit for a period of three years which matures in November
2004. Upon expiration of the revolving line of credit, the
outstanding balance may be converted to a term loan and repaid
over a period of seven years. The term loan is to be secured by
stock of a subsidiary bank equal to at least 125% of the
principal balance of the term loan. The Company, at its option,
may select from various loan rates including Prime, LIBOR or the
lenders' Cost of Funds rate ("COF"), plus or minus increments
thereof. The LIBOR or COF rates may be fixed for a period of up
to six months. The Company also has the option to select fixed
rates for periods of one through five years. In 2001, the
Company reduced all of the debt outstanding on the line of
credit. The average interest rate during 2001 was 5.22%.
The Company's credit facility imposes certain limitations on the
level of the Company's equity capital, and federal and state
regulatory agencies have established regulations which govern the
payment of dividends to a bank holding company by its bank
subsidiaries. As of year-end 2001, the Company was in compliance
with all of these contractual and/or regulatory requirements. A
further discussion of the Company's credit facility can be found
in Note 9 in the Notes to Consolidated Financial Statements.
At December 31, 2001, the Company had $13.6 million in long-term
debt outstanding to the Federal Home Loan Bank of Atlanta. The
debt consists of sixteen loans. The interest rates are fixed and
the weighted average rate at December 31, 2001 was 5.84%.
Required annual principal reductions approximate $1.0 million,
with the remaining balances due at maturity ranging from 2004 to
2021. The debt was used to match-fund longer-term, fixed rate
loan products, which management elected not to fund internally
from an asset/liability perspective. The debt is secured by
investment securities. See Note 9 in the Notes to Consolidated
Financial Statements for additional information as to the
Company's long-term debt.
The Company does not currently engage in the use of derivative
instruments to hedge interest rate risks. However, the Company
is a party to financial instruments with off-balance-sheet risks
in the normal course of business to meet the financing needs of
its customers. At December 31, 2001, the Company had $382.4
million in commitments to extend credit and $2.6 million in
standby letters of credit. Commitments to extend credit are
agreements to lend to a customer so long as there is no violation
of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of
a customer to a third party. The Company uses the same credit
policies in establishing commitments and issuing letters of
credit as it does for on-balance-sheet instruments. If
commitments arising from these financial instruments continue to
require funding at historical levels, management does not
anticipate that such funding will adversely impact its ability to
meet on-going obligations. In the event these commitments
require funding in excess of historical levels, management
believes current liquidity, available lines of credit from the
Federal Home Loan Bank, investment security maturities and the
Company's $25.0 million credit facility provide a sufficient
source of funds to meet these commitments.
It is anticipated capital expenditures will approximate $6
million over the next twelve months. The capital expenditures
are expected to consist primarily of three new offices in
existing markets, office equipment and furniture, and technology
purchases. Management believes these capital expenditures can be
funded internally without impairing the Company's ability to meet
its on-going obligations.
Shareowners' equity as of December 31, for each of the last three
years is presented below.
Shareowners' Equity
(Dollars in Thousands)
2001 2000 1999
- -----------------------------------------------------------------------
Common Stock $ 106 $ 101 $ 102
Additional Paid-in Capital 17,178 7,369 9,249
Retained Earnings 152,149 141,659 129,055
-------- -------- --------
Subtotal 169,433 149,129 138,406
-------- -------- --------
Accumulated Other Comprehensive
Income (Loss), Net of Tax 2,350 (1,522) (6,190)
-------- -------- --------
Total Shareowners' Equity $171,783 $147,607 $132,216
======== ======== ========
The Company continues to maintain a strong capital position. The
ratio of shareowners' equity to total assets at year-end was
9.43%, 9.66% and 9.24%, in 2001, 2000 and 1999, respectively.
The Company is subject to risk-based capital guidelines that
measure capital relative to risk weighted assets and off-balance
sheet financial instruments. Capital guidelines issued by the
Federal Reserve Board require bank holding companies to have a
minimum total risk-based capital ratio of 8.00%, with at least
half of the total capital in the form of Tier 1 capital. As of
December 31, 2001, CCBG exceeded these capital guidelines with a
total risk-based capital ratio of 11.80% and a Tier 1 ratio of
10.84%, compared to 12.86% and 11.87%, respectively, in 2000.
In addition, a tangible leverage ratio is now being used in
connection with the risk-based capital standards and is defined as
Tier 1 capital divided by average assets. The minimum leverage
ratio under this standard is 3% for the highest-rated bank holding
companies which are not undertaking significant expansion
programs. An additional 1% to 2% may be required for other
companies, depending upon their regulatory ratings and expansion
plans. On December 31, 2001, the Company had a leverage ratio of
7.53% compared to 8.30% in 2000. See Note 13 in the Notes to
Consolidated Financial Statements for additional information as to
the Company's capital adequacy.
At December 31, 2001, the Company's common stock had a book value
of $16.08 per diluted share compared to $14.56 in 2000.
Beginning in 1994, book value has been impacted by the net
unrealized gains and losses on investment securities availablefor-
sale. At December 31, 2001, the net unrealized gain was $2.4
million. At December 31, 2000, the Company had a net unrealized
loss of $1.5 million and thus the net impact on equity for the
year was an increase in book value of approximately $3.9 million,
or $.36 per diluted share. The current unrealized gain is a
result of the significant decline in interest rates during 2001.
On March 30, 2000, the Company's Board of Directors authorized the
repurchase of up to 500,000 shares of its outstanding common
stock. The purchases will be made in the open market or in
privately negotiated transactions. The Company acquired 214,000
shares during 2001 and 119,134 shares during 2000. On January 24,
2002, the Company's Board of Directors authorized the repurchase
of an additional 250,000 shares of its outstanding common stock.
From March 30, 2000 through March 6, 2002, the Company repurchased
348,074 shares at an average purchase price of $22.83 per share.
The Company offers an Associate Incentive Plan under which certain
associates are eligible to earn shares of CCBG stock based upon
achieving established performance goals. The Company issued
28,689 shares, valued at approximately $712,000, in 2001 under
this plan.
The Company also offers stock purchase plans at a reduced price to
its associates and directors. In 2001, 18,479 shares, valued at
approximately $404,000, were issued under these plans.
The Board of Directors approved a Dividend Reinvestment and
Optional Stock Purchase Plan for the Company in December 1996.
In 2001 and 2000, shares for this plan were purchased in the open
market, and thus there were no newly issued shares under this
plan.
The Company offers a 401(k) Plan which enables associates to defer
a portion of their salary on a pre-tax basis. The plan covers
substantially all of the Company's associates who meet the minimum
age requirement. The Plan is designed to enable participants to
elect to have an amount withheld from their
compensation in any plan year and placed in the 401(k) Plan trust
account. Matching contributions from the Company can be made up
to 6% of the participant's compensation. During 2001 and 2000, no
contributions were made by the Company. The participants may
choose to invest their contributions into fifteen investment
funds, including CCBG common stock. The purchase of CCBG common
stock is strictly voluntary, and there are no restrictions on the
sale of CCBG common stock held in the 401(k) Plan.
Dividends
- ---------
Adequate capital and financial strength is paramount to the
stability of CCBG and its subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on the
Company's capital levels. When determining the level of dividends
the following factors are considered:
. Compliance with state and federal laws and regulation;
. The Company's capital position and its ability to meet its
financial obligations;
. Projected earnings and asset levels;
. The ability of the Bank and Holding Company to fund
dividends.
Although a consistent dividend payment is believed to be favorably
viewed by the financial markets and shareowners, the Board of
Directors will declare dividends only if the Company is considered
to have adequate capital. Future capital requirements and
corporate plans are considered when the Board considers a dividend
payment.
Dividends declared and paid totaled $.595 per share in 2001.
During the fourth quarter of 2001 the quarterly dividend was
raised 3.4% from $.1475 per share to $.1525 per share. The
Company declared dividends of $.545 per share in 2000 and $.5525
per share in 1999. The dividend payout ratio was 37.4%, 30.6% and
32.9% for 2001, 2000 and 1999, respectively. Dividends declared
per share in 2001 represented a 9.2% increase over 2000.
Inflation
- ---------
The impact of inflation on the banking industry differs
significantly from that of other industries in which a large
portion of total resources are invested in fixed assets such as
property, plant and equipment.
Assets and liabilities of financial institutions are virtually all
monetary in nature, and therefore are primarily impacted by
interest rates rather than changing prices. While the general
level of inflation underlies most interest rates, interest rates
react more to changes in the expected rate of inflation and to
changes in monetary and fiscal policy. Net interest income and the
interest rate spread are good measures of the Company's ability to
react to changing interest rates and are discussed in further
detail in the section entitled "Earnings Analysis".
Other
- -----
As part of its card processing services operation, the Bank
previously maintained relationships with several Independent Sales
Organizations ("ISOs"). In late 2000 and early 2001, a small
number of one ISO's merchants generated large amounts of charge-
backs, for which the ISO or the Bank have not been reimbursed. In
addition, the ISO and certain merchants may have disputes about
financial reserves placed with the ISO. Should the ISO's financial
capacity be insufficient to absorb the chargebacks and cover its
financial obligations arising from the disputes, the Bank may face
related exposure. One lawsuit has been filed naming the ISO and
the Bank as defendants, but the Bank 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.
Critical Accounting Policies
- ----------------------------
The consolidated financial statements and accompanying Notes to
Consolidated Financial Statements are prepared in accordance with
accounting principles generally accepted in the U.S., which
require the Company to make various estimates and assumptions (see
Note 1 in the Notes to Consolidated Financial Statements). The
Company believes that of its significant accounting policies, the
following may involve a higher degree of judgment and complexity.
Allowance for loan losses: The allowance for loan losses is
established through a charge to the provision for loan losses.
Provisions are made to reserve for estimated losses in loan
balances. The allowance for loan losses is a significant estimate
and is evaluated quarterly by the Company for adequacy. The use of
different estimates or assumptions could produce a different
required allowance, and thereby a larger or smaller provision
recognized as expense in any given reporting period. A further
discussion of the allowance for loan losses can be found in the
section entitled "Allowance for Loan Losses" and Note 1 in the
Notes to Consolidated Financial Statements.
Intangible Assets: Intangible assets consist primarily of
goodwill and core deposit assets that were recognized in
connection with the various acquisitions. All intangible assets
were amortized on the straight-line method over various periods
ranging from 5 to 20 years with the majority being written off
over an average life of approximately 11 years. Goodwill
represents the excess of the cost of acquired businesses over the
fair market value of their identifiable net assets. Core deposit
assets represent the premium the Company paid for core deposits.
Core deposits are retail deposits that have an immediate penalty
free capability and an administered rate paid. Core deposits
include demand deposits, NOWs, savings and money market accounts.
The Company makes certain estimates as it relates to the useful
life of these assets, and rate of run-off based on the nature of
the specific assets and the customer bases acquired. If there is
a reason to believe there has been a permanent loss in value,
management will assess these assets for impairment. Any changes
in the original estimates resulting therefrom, may materially
affect reported earnings.
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 the allowance for loan
losses using generally accepted accounting principles. The SAB
indicates that the methodology for computing the allowance should
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 the provisions contained in
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 increase 2002
earnings by approximately $622,000.
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 FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement replaces SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." It revises the standards for
accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it
carries over most of Statement 125's provisions without
reconsideration. This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The adoption of this standard did
not have a material impact on reported results of operations of
the Company.
In June 1998, the FASB issued 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 did not have a material impact on reported results of
operations of the Company.
ITEM 7A. 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. CCBG does not actively participate in exchange
rates, commodities or equities. In asset and liability management
activities, policies are in place that are designed to minimize
structural interest rate risk.
Interest Rate Risk Management
- -----------------------------
The normal course of business activity exposes CCBG to interest
rate risk. Fluctuations in interest rates may result in changes
in the fair market value of the Company's financial instruments,
cash flows and net interest income. CCBG's asset/liability
management process manages the Company's interest rate risk.
The financial assets and liabilities of the Company are classified
as other-than-trading. An analysis of the other-thantrading
financial components, including the fair values, are presented in
Table 13. This table presents the Company's consolidated interest
rate sensitivity position as of year-end 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 values presented in Table 13 may
not necessarily be indicative of the Company's interest rate
sensitivity over an extended period of time. The Company is
currently liability sensitive, which generally indicates that, in
a period of rising interest rates, the net interest margin will be
adversely impacted as the velocity and/or volume of liabilities
being repriced exceeds assets. The opposite is true in a falling
rate environment. However, as general interest rates rise or
fall, other factors such as current market conditions and
competition may impact how the Company responds to changing rates
and thus impact the magnitude of change in net interest income.
Nonmaturity deposits offer management greater discretion as to the
direction, timing and magnitude of interest rate changes and can
have a material impact on the Company's interest rate sensitivity.
In addition, the relative level of interest rates as compared to
the current yields/rates of existing assets/liabilities can impact
both the direction and magnitude of the change in net interest
margin as rates rise and fall from one period to the next.
Table 13
FINANCIAL ASSETS AND LIABILITITES MARKET RISK ANALYSIS<F1>
Other Than Trading Portfolio
As of December 31,
------------------------------------------------
- ---------- Fair
(Dollars in Thousands) 2002 2003 2004 2005
2006 Beyond Total Value
- --------------------------------------------------------------------------------
- --------------------------------------------
Loans:
Fixed Rate $ 94,297 $ 42,728 $ 81,636 $ 55,004
$ 56,868 $121,694 $ 452,227 $ 74,757
Average Interest Rate 8.14% 9.55% 8.84% 9.42%
8.82% 7.72% 8.53%
Floating Rate<F2> 424,599 42,354 80,506 70,433
109,787 63,445 791,124 830,525
Average Interest Rate 6.75% 8.05% 7.69% 8.22%
7.43% 7.24% 7.18%
Investment Securities:<F3>
Fixed Rate 70,110 42,925 32,087 43,361
10,790 13,186 212,459 212,459
Average Interest Rate 6.52% 5.71% 5.15% 4.98%
5.39% 5.79% 5.73%
Floating Rate - 3,786 2,568 260
- - - 6,614 6,614
Average Interest Rate - 5.44% 5.26% 5.11%
- - - 5.35%
Other Earning Assets:
Floating Rate 164,417 - - -
- - - 164,417 164,417
Average Interest Rate 1.68% - - -
- - - 1.68%
Total Financial Assets $ 753,423 $131,793 $196,797 $169,058
$177,445 $198,325 $1,626,841 $1,688,772
Average Interest Rate 5.79% 7.70% 7.72% 7.78%
7.75% 7.44% 6.80%
Deposits:<F4>
Fixed Rate Deposits $ 532,160 $ 44,005 $ 12,197 $ 4,529
$ 3,436 $ 35 $ 596,362 $ 615,377
Average Interest Rate 4.40% 4.48% 5.04% 5.47%
4.63% 4.29% 4.43%
Floating Rate Deposits 564,593 - - -
- - - 564,593 564,593
Average Interest Rate 0.96% - - -
- - - 0.96%
Other Interest Bearing Liabilities:
Fixed Rate Debt 1,104 1,109 1,052 948
962 8,395 13,570 14,630
Average Interest Rate 5.93% 5.92% 5.98% 5.95%
5.96% 6.05% 6.01%
Floating Rate Debt 67,042 - - -
- - - 67,042 67,042
Average Interest Rate 3.42% - - -
- - - 3.24%
Total Financial Liabilities $1,164,899 $ 45,114 $ 13,249 $ 5,477 $
4,398 $ 8,430 $1,241,567 $1,261,642
Average interest Rate 2.66% 4.51% 5.11% 5.55%
4.92% 6.04% 2.80%
<FN>
<F1> Based upon expected cash flows unless otherwise indicated.
<F2> Based upon a combination of expected maturities and repricing
opportunities.
<F3> Based upon contractual maturity, except for callable and floating rate
securities, which are based on expected maturity
and weighted average life, respectively.
<F4> Savings, NOW and money market accounts can be repriced at any time,
therefore, all such balances are included as floating
rates deposits in 2001. Other time deposit balances are classified according to
maturity.
</FN>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Table 14
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2001
2000
---------------------------------------------- --------
- --------------------------------------
Fourth Third Second First Fourth
Third Second First
---------- ---------- ---------- ---------- --------
- -- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 28,706 $ 30,258 $ 30,882 $ 29,137 $
28,717 $ 28,018 $ 26,889 $ 25,710
Interest Expense 9,454 12,256 13,396 13,143
12,949 12,039 11,070 10,176
---------- ---------- ---------- ---------- --------
- -- ---------- ---------- ----------
Net Interest Income 19,252 18,002 17,486 15,994
15,768 15,979 15,819 15,534
Provision for
Loan Loss 932 1,222 1,007 822
825 735 950 610
---------- ---------- ---------- ---------- --------
- -- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Loss 18,320 16,780 16,479 15,172
14,943 15,244 14,869 14,924
Noninterest Income 8,536 7,918 8,255 7,328
7,046 6,646 6,675 6,402
Merger Expense 588 - - -
12 (2) 751 -
Noninterest Expense 19,251 18,993 18,132 15,840
14,847 14,684 14,503 14,352
----------- ---------- ---------- ---------- -------
- --- --------- ---------- ----------
Income Before
Provision for
Income Taxes 7,017 5,705 6,602 6,660
7,130 7,208 6,290 6,974
Provision for
Income Taxes 2,522 1,963 2,322 2,311
2,478 2,487 2,123 2,361
----------- ---------- ---------- ---------- -------
- --- --------- ---------- ----------
Net Income $ 4,495 $ 3,742 $ 4,280 $ 4,349 $
4,652 $ 4,721 $ 4,167 $ 4,613
========== ========== ========== ==========
========== ========== ========== ==========
Net Interest
Income (FTE) $ 19,689 $ 18,431 $ 17,935 $ 16,454 $
16,134 $ 16,364 $ 16,217 $ 15,962
Per Common Share:
Net Income Basic $ .42 $ .35 $ .40 $ .42 $
.46 $ .46 $ .41 $ .45
Net Income Diluted .42 .35 .40 .42
.46 .46 .41 .45
Dividends Declared .1525 .1475 .1475 .1475
.1475 .1325 .1325 .1325
Book Value 16.08 16.24 15.87 15.62
14.56 14.08 13.51 13.20
Market Price:
High 24.67 25.25 25.00 26.13
26.75 20.50 20.50 23.00
Low 21.90 20.87 19.88 23.13
18.88 18.75 18.00 15.00
Close 24.23 23.47 24.87 25.19
24.81 19.56 19.50 19.63
Selected Average
Balances:
Loans $1,242,516 $1,204,323 $1,192,103 $1,082,961
$1,053,674 $1,025,942 $ 989,696 $ 938,376
Earning Assets 1,584,225 1,561,519 1,556,186 1,416,861
1,359,336 1,318,689 1,303,588 1,277,837
Assets 1,756,995 1,733,324 1,732,061 1,570,229
1,503,184 1,465,114 1,453,692 1,430,251
Deposits 1,488,961 1,482,516 1,478,163 1,300,824
1,223,401 1,203,266 1,202,765 1,198,645
Shareowners' Equity 176,549 170,511 169,459 155,837
146,232 141,847 137,014 133,836
Common Equivalent
Shares:
Basic 10,674 10,685 10,713 10,297
10,162 10,192 10,196 10,195
Diluted 10,715 10,693 10,721 10,305
10,186 10,208 10,211 10,211
Ratios:
ROA 1.01% .86% .99% 1.12%
1.23% 1.28% 1.15% 1.30%
ROE 10.10% 8.71% 10.13% 11.32%
12.66% 13.24% 12.23% 13.86%
Net Interest
Margin (FTE) 4.93% 4.70% 4.62% 4.70%
4.73% 4.94% 5.00% 5.02%
Efficiency Ratio 65.30% 68.17% 65.09% 63.12%
61.03% 60.64% 60.30% 60.91%
CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------
47 Report of Independent Public Accountants
48 Consolidated Statements of Income
49 Consolidated Statements of Financial Condition
50 Consolidated Statements of Changes in Shareowners' Equity
51 Consolidated Statements of Cash Flows
52 Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Capital City Bank Group, Inc.:
We have audited the accompanying consolidated statements of
financial condition of CAPITAL CITY BANK GROUP, INC. (a Florida
corporation) AND SUBSIDIARIES as of December 31, 2001 and 2000,
and the related consolidated statements of income, changes in
shareowners' equity, and cash flows for each of the three years
in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Capital City Bank Group, Inc. and subsidiaries as of December
31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 24, 2002
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
For the Years Ended December 31,
----------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $102,473 $ 92,306 $78,527
Investment Securities:
U.S. Treasury 367 696 1,430
U.S. Government Agencies/Corp. 6,933 8,632 9,313
States and Political Subdivisions 3,281 4,006 4,371
Other Securities 2,319 2,373 2,486
Funds Sold 3,610 1,321 3,558
-------- -------- -------
Total Interest Income 118,983 109,334 99,685
INTEREST EXPENSE
Deposits 45,214 40,459 38,315
Short-Term Borrowings 2,164 4,968 1,816
Long-Term Debt 871 807 1,116
-------- -------- -------
Total Interest Expense 48,249 46,234 41,247
-------- -------- -------
Net Interest Income 70,734 63,100 58,438
Provision for Loan Losses 3,983 3,120 2,440
-------- -------- -------
Net Interest Income After Provision for
Loan Losses 66,751 59,980 55,998
-------- -------- -------
NONINTEREST INCOME
Service Charges on Deposit Accounts 10,647 9,380 9,973
Data Processing 2,079 2,525 2,861
Asset Management Fees 2,556 2,435 2,227
Securities Transactions 4 2 (12)
Mortgage Banking Revenues 4,016 1,265 1,607
Other 12,735 11,162 9,905
-------- -------- -------
Total Noninterest Income 32,037 26,769 26,561
-------- -------- -------
NONINTEREST EXPENSE
Salaries and Associate Benefits 37,686 29,967 28,969
Occupancy, Net 5,497 4,638 4,466
Furniture and Equipment 7,173 5,779 5,647
Merger Expense 588 761 1,361
Other 21,860 18,002 19,385
-------- -------- -------
Total Noninterest Expense 72,804 59,147 59,828
-------- -------- -------
Income Before Income Taxes 25,984 27,602 22,731
-------- -------- -------
Income Taxes 9,118 9,449 7,479
-------- -------- -------
NET INCOME $ 16,866 $ 18,153 $15,252
======== ======== =======
BASIC NET INCOME PER SHARE $ 1.59 $ 1.78 $ 1.50
======== ======== =======
DILUTED NET INCOME PER SHARE $ 1.59 $ 1.78 $ 1.50
======== ======== =======
Basic Average Common Shares Outstanding 10,594 10,186 10,175
======== ======== =======
Diluted Average Common Shares Outstanding 10,634 10,215 10,196
======== ======== =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)
As of December 31,
---------------------------
--
2001 2000
- --------------------------------------------------------------------------------
- --
ASSETS
Cash and Due From Banks $ 92,413 $
73,367
Funds Sold 164,417
40,623
---------- --------
- --
Total Cash and Cash Equivalents 256,830
113,990
Investment Securities, Available-for-Sale 219,073
276,839
Loans, Net of Unearned Interest 1,243,351
1,051,832
---------- --------
- --
Allowance for Loan Losses (12,096)
(10,564)
Loans, Net 1,231,255
1,041,268
Premises and Equipment 47,037
37,023
Intangibles 32,276
22,293
Other Assets 34,952
36,047
---------- --------
- --
Total Assets $1,821,423
$1,527,460
==========
==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 389,146 $
292,656
Interest Bearing Deposits 1,160,955
975,711
---------- --------
- --
Total Deposits 1,550,101
1,268,367
Short-Term Borrowings 67,042
83,472
Long-Term Debt 13,570
11,707
Other Liabilities 18,927
16,307
---------- --------
- --
Total Liabilities 1,649,640
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; 10,642,575 and 10,108,454 shares
issued and outstanding 106
101
Additional Paid-In Capital 17,178
7,369
Retained Earnings 152,149
141,659
Accumulated Other Comprehensive Income (Loss),
Net of Tax 2,350
(1,522)
---------- --------
- --
Total Shareowners' Equity 171,783
147,607
---------- --------
- --
Total Liabilities and Shareowners' Equity $1,821,423
$1,527,460
==========
==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except Per Share Data)
Accumulated Other
Additional
Comprehensive
Common Paid-In Retained
Income (Loss),
Stock Capital Earnings Net
of Taxes Total
- --------------------------------------------------------------------------------
- --------------------
Balance, December 31, 1998 $102 $ 8,561 $119,521 $
678 $128,862
Comprehensive Income:
Net Income 15,252
Net Change in Unrealized (Loss) Gain
On Marketable Securities
(6,868)
Total Comprehensive Income
8,384
Cash Dividends ($.5525 per share) (5,718)
(5,718)
Issuance of Common Stock 688
688
---- ------- -------- -
- ----- --------
Balance, December 31, 1999 102 9,249 129,055
(6,190) 132,216
Comprehensive Income:
Net Income 18,153
Net Change in Unrealized Gain (Loss)
On Marketable Securities
4,668
Total Comprehensive Income
22,821
Cash Dividends ($.545 per share) (5,549)
(5,549)
Issuance of Common Stock 786
786
Repurchase of Common Stock (1) (2,666)
(2,667)
---- ------- -------- -
- ----- --------
Balance, December 31, 2000 101 7,369 141,659
(1,522) 147,607
Comprehensive Income:
Net Income 16,866
Net Change in Unrealized Gain (Loss)
On Marketable Securities
3,872
Total Comprehensive Income
20,738
Cash Dividends ($.595 per share) (6,376)
(6,376)
Issuance of Common Stock 7 14,749
14,756
Repurchase of Common Stock (2) (4,940)
(4,942)
---- ------- -------- -
- ----- --------
Balance, December 31, 2001 $106 $17,178 $152,149
$2,350 $171,783
==== ======= ========
====== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended
December 31,
-------------------------
- ---------
2001 2000
1999
- --------------------------------------------------------------------------------
- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,866 $ 18,153
$ 15,252
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 3,983 3,120
2,440
Depreciation 4,373 3,979
3,708
Net Securities Amortization 1,173 1,368
1,417
Amortization of Intangible Assets 3,772 2,837
2,833
(Gain) Loss on Sale of Investment Securities (4) (2)
12
Non-Cash Compensation 785 101
260
Deferred Income Taxes 7 (293)
(225)
Net Decrease (Increase) in Other Assets 1,744 (3,709)
(230)
Net Increase (Decrease) in Other Liabilities 671 1,194
(1,000)
-------- --------
- --------
Net Cash Provided by Operating Activities 33,370 26,748
24,467
-------- --------
- --------
CASH FLOWS FROM INVESTING ACTIVITES:
Proceeds from Payments/Maturities/Sales of
Investment Securities Available-for-Sale 117,198 50,837
104,189
Purchase of Investment Securities Available-for-Sale (6,053) (492)
(66,031)
Net Increase in Loans (103,042) (125,831)
(86,608)
Net Cash Received From Acquisitions 81,390 -
- -
Purchase of Premises & Equipment (7,671) (3,236)
(4,471)
Sales of Premises & Equipment 526 69
100
-------- --------
- --------
Net Cash Provided by (Used in) Investing Activities 82,348 (78,653)
(52,821)
-------- --------
- --------
CASH FLOWS FROM FINANCING ACTIVITES:
Net Increase (Decrease) in Deposits 77,844 65,709
(50,895)
Net (Decrease) Increase in Short-Term Borrowings (41,431) 17,196
41,076
Borrowing from Long-Term Debt 7,861 1,428
2,262
Repayment of Long-Term Debt (6,269) (3,979)
(6,750)
Dividends Paid (6,376) (5,549)
(5,718)
Repurchase of Common Stock (4,942) (2,667)
- -
Issuance of Common Stock 435 685
428
-------- --------
- --------
Net Cash Provided By (Used in) Financing Activities 27,122 72,823
(19,597)
-------- --------
- --------
Net Increase (Decrease) in Cash
and Cash Equivalents 142,840 20,918
(47,951)
Cash and Cash Equivalents at Beginning of Year 113,990 93,072
141,023
-------- --------
- --------
Cash and Cash Equivalents at End of Year $256,830 $113,990
$ 93,072
======== ========
========
SUPPLEMENTAL DISCLOSURES:
Interest Paid on Deposits $ 44,990 $ 41,863
$ 38,822
======== ========
========
Interest Paid on Debt $ 2,883 $ 5,873
$ 2,849
======== ========
========
Taxes Paid $ 9,290 $ 10,878
$ 6,137
======== ========
========
Loans Transferred To Other Real Estate $ 2,149 $ 904
$ 1,344
======== ========
========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of
Capital City Bank Group, Inc. ("CCBG" or collectively the
"Company"), and its subsidiaries ("CCB" or the "Bank"), all of
which are wholly-owned. The historical financial statements have
been restated for the 1999 acquisition of Grady Holding Company
and its subsidiaries which was accounted for as a pooling-of
interests (see Note 2). All material inter-company transactions
and accounts have been eliminated.
The Company, which operates in a single reportable business
segment comprised of commercial banking within the states of
Florida, Georgia and Alabama, follows generally accepted
accounting principles and reporting practices applicable to the
banking industry. Prior year financial statements and other
information have been reclassified to conform to the current year
presentation. The principles which materially affect the
financial position, results of operations and cash flows are
summarized below.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could vary from these estimates.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash and due from banks,
interest-bearing deposits in other banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day
periods and all items have an initial maturity of 90 days or
less.
Investment Securities
- ---------------------
Investment securities available-for-sale are carried at fair
value and represent securities that are available to meet
liquidity and/or other needs of the Company. Gains and losses
are recognized and reported separately in the Consolidated
Statements of Income upon realization or when impairment of
values is deemed to be other than temporary. Gains or losses are
recognized using the specific identification method. Unrealized
holding gains and losses for securities available-for-sale are
excluded from the Consolidated Statements of Income and reported
net of taxes in the accumulated other comprehensive income (loss)
component of shareowners' equity until realized.
Loans
- -----
Loans are stated at the principal amount outstanding, net of
unearned income. Interest income is generally accrued based on
outstanding balances. Fees charged to originate loans and loan
origination costs are deferred and amortized over the life of the
loan as a yield adjustment.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is that amount considered adequate
to absorb losses inherent in the portfolio based on management's
evaluation of the current risk characteristics of the loan
portfolio as of the reporting date. The allowance is based on
significant management's estimate of the credit quality of the
portfolio.
The evaluation of credit quality begins with the review of
business purpose loans with balances exceeding $25,000 for
impairment. Impaired loans are defined as those in which the
full collection of principal and interest in accordance with the
contractual terms is improbable. Impaired loans typically
include those that are in non-accrual status or classified as
doubtful as defined by the Company's internal risk rating system.
Generally, loans are placed on non-accrual status when interest
becomes past due 90 days or more, or management deems the
ultimate collection of principal and interest is in doubt. A
specific allowance for loss is made for impaired loans based on a
comparison of the recorded investment in the loan to either the
present value of the loan's expected cash flow, the loan's
estimated market price or the estimated fair value of the
underlying collateral less costs to sell the collateral.
Loans that are reviewed for impairment but deemed not to be
impaired are analyzed to determine if an allowance is required.
This analysis is based primarily on the underlying value of the
collateral. If the value of the collateral is considered
insufficient, an allowance is made for the deficiency. The value
of the collateral is dependent on current economic conditions in
the communities we serve and is subject to change.
Larger business purpose loans that show no signs of weakness are
assigned an allowance based on the historical loss ratios in
pools of loans with similar characteristics. The historical loss
ratios are determined by analyzing losses over the prior twelve
quarters, with more emphasis being placed on the recent four
quarters. The historical loss ratios are then adjusted for
certain external factors, including micro- and macro-economic
outlook, past due and non-performing trends within the portfolio,
loan growth, and credit administration practices.
Large groups of smaller balance homogeneous loans are
collectively evaluated to determine the allowance required for
possible loan losses. These small balance homogenous loans
include consumer installment loans, credit card loans, and
residential mortgage loans. An historical loss ratio is
determined for these smaller balance loans and applied to the
balance of the individual pools of loans to determine the
allowance needed. The historical losses are adjusted for
external factors as described above.
Long-Lived Assets
- -----------------
Premises and equipment are stated at cost less accumulated
depreciation, computed on the straight-line method over the
estimated useful lives for each type of asset with premises being
depreciated over a range of 10 to 40 years, and equipment being
depreciated over a range of 3 to 10 years. Additions and major
facilities are capitalized and depreciated in the same manner.
Repairs and maintenance are charged to noninterest expense as
incurred.
Intangible assets consist primarily of goodwill and core deposit
assets that were recognized in connection with the various
acquisitions. Core deposit intangible assets were amortized on
the straightline method over various periods, with the majority
being written-off over an average of 10 years. Goodwill
intangible assets were amortized on the straightline method over
various periods, with the majority being written off over an
average of 15 years. The amortization of all intangible assets
was approximately $3.8 million in 2001, and $2.8 million in 2000
and 1999.
Long-lived assets are evaluated for impairment if circumstances
suggest that their carrying value may not be recoverable, by
comparing the carrying value to estimated undiscounted cash
flows. If the asset is deemed impaired, an impairment charge is
recorded equal to the carrying value less the fair value.
Income Taxes
- ------------
The Company files consolidated federal and state income tax
returns. In general, the parent company and its subsidiaries
compute their tax provisions as separate entities prior to
recognition of any tax expense benefits which may accrue from
filing a consolidated return.
Deferred income tax assets and liabilities result from temporary
differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years.
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 the allowance for loan
losses, using generally accepted accounting principles. The SAB
indicates that the methodology for computing the allowance should
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 the provisions
contained in 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 increase 2002 earnings by approximately
$622,000.
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 FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This statement replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." It revises the standards for
accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it
carries over most of Statement 125's provisions without
reconsideration. This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The adoption of this standard
did not have a material impact on reported results of operations
of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138. 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 did not have a material
impact on reported results of operations of the Company.
Note 2
ACQUISITIONS
Merger-related expenses totaled $588,000 in 2001, $761,000 in
2000, and $1.4 million in 1999. The expenses are integration
costs which include primarily severance payments, system
conversion and travel.
On March 9, 2001, the Company completed its second purchase and
assumption transaction with First Union National Bank ("First
Union") and acquired six of First Union's offices in Georgia
which included real estate, loans and deposits. The transaction
resulted in approximately $11.3 million in intangible assets,
primarily core deposit intangibles, which is being amortized over
a 10-year period. The Company purchased $18 million in loans and
assumed deposits of $105 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. At the time of the acquisition, First
National Bank of West Point had $144 million in assets with one
office 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. resulting in the issuance of 701,000 CCBG shares and paid
consideration of approximately $17.0 million. The transaction
was accounted for as a purchase and resulted in approximately
$2.5 million of intangibles, primarily goodwill. These
intangible assets are being amortized over a 15-year period.
The information below lists the consolidated assets and
liabilities, along with the consideration paid for the
acquisition:
First Bankshares of
(Dollars in Thousands) West Point, Inc.
- -------------------------------------------------------------
Cash and Due From Banks $ 4,944
Funds Sold 8,378
-------
Total Cash and Cash Equivalents 13,322
Investment Securities, Available-for-Sale 48,244
Loans, Net of Unearned Interest 74,685
Intangible Asset 2,471
Other Assets 4,830
-------
Total Assets 143,552
--------
Total Deposits 99,928
Short-Term Borrowings 25,000
Long-Term Debt 272
Other Liabilities 1,398
-------
Total Liabilities 126,598
--------
Consideration Paid to West Point Shareowners $ 16,954
=========
On May 7, 1999, the Company completed its acquisition of Grady
Holding Company and its subsidiary, First National Bank of Grady
County ("FNBGC") in Cairo, Georgia. At the time of the
acquisition, FNBGC had $119 million in assets with offices in
Cairo and Whigham, Georgia. The Company issued 21.50 shares for
each of the 60,910 shares of FNBGC. Grady Holding Company was
merged with CCBG, and FNBGC became a second bank subsidiary for
CCBG. 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. On November 2, 2001, the merger of FNBGC with CCB was
completed, and CCB became the resulting bank and bank subsidiary
of CCBG.
Note 3
INVESTMENT SECURITIES
The amortized cost and related market value of investment
securities available-for-sale at December 31, were as follows:
2001
----------------------------------------------------
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S. Treasury $ - $ - $ - $ -
U.S. Government Agencies
and Corporations 41,303 1,076 - 42,379
States and Political
Subdivisions 70,905 1,182 22 72,065
Mortgage-Backed Securities 64,382 876 10 65,248
Other Securities 38,774 623 16 39,381
-------- ------ --- --------
Total Investment
Securities $215,364 $3,757 $48 $219,073
======== ====== === ========
2000
----------------------------------------------------
Amortized Unrealized Unrealized Market
(Dollars in Thousands) 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 Investment
Securities $279,242 $387 $2,790 $276,839
======== === ====== ========
The total proceeds from the sale of investment securities and the
gross realized gains and losses from the sale of such securities
for each of the last three years are as follows:
(Dollars in Thousands)
Total Gross Gross
Year Proceeds Realized Gains Realized Losses
- -------------------------------------------------------------
2001 $84,794 $4 $ -
2000 $37,096 $2 $ -
1999 $86,213 $1 $13
Total proceeds do not include principal reductions in mortgage
backed securities and proceeds from securities which were called
of $33.0 million, $13.7 million and $18.0 million in 2001, 2000
and 1999, respectively.
As of December 31, 2001, the Company's investment securities had
the following maturity distribution based on contractual
maturities:
(Dollars in Thousands) Amortized Cost Market Value
- -----------------------------------------------------------------
Due in one year or less $ 46,818 $ 47,540
Due after one through five years 95,764 97,913
Due after five through ten years 1,336 1,329
Over ten years 7,064 7,043
Mortgage-Backed Securities 64,382 65,248
-------- --------
Total Investment Securities $215,364 $219,073
======== ========
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Securities with an amortized cost of $149.6 million and $141.2
million at December 31, 2001 and 2000, respectively, were pledged
to secure public deposits and for other purposes.
Note 4
LOANS
At December 31, the composition of the Company's loan portfolio
was as follows:
(Dollars in Thousands) 2001 2000
- -------------------------------------------------------------
Commercial, Financial and
Agricultural $ 128,480 $ 108,340
Real Estate - Construction 72,778 84,133
Real Estate - Mortgage 302,239 231,099
Real Estate - Residential 434,378 379,123
Real Estate - Home Equity 65,879 58,629
Real Estate - Loans Held-for-Sale 30,289 6,737
Consumer 209,308 183,771
---------- ----------
Total Loans, Net of
Unearned Interest $1,243,351 $1,051,832
========== ==========
Nonaccruing loans amounted to $2.4 million and $2.9 million, at
December 31, 2001 and 2000, respectively. Restructured loans
amounted to $20,000 and $19,000, at December 31, 2001 and 2000,
respectively. If such nonaccruing and restructured loans had been
on a fully accruing basis, interest income would have been
$122,000 higher in 2001 and $291,000 higher in 2000.
Note 5
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for
the years ended December 31, is as follows:
(Dollars in Thousands) 2001 2000 1999
- -------------------------------------------------------------------------
Balance, Beginning of Year $10,564 $ 9,929 $9,827
Acquired Reserves 1,206 - -
Provision for Loan Losses 3,983 3,120 2,440
Recoveries on Loans
Previously Charged-Off 993 703 860
Loans Charged-Off (4,650) (3,188) (3,198)
------- ------- ------
Balance, End of Year $12,096 $10,564 $9,929
======= ======= ======
Selected information pertaining to impaired loans, at December 31,
is as follows:
2001 2000
Valuation Valuation
(Dollars in Thousands) Balance Allowance Balance Allowance
- -----------------------------------------------------------------------------
With Related Credit Allowance $ 956 $ 112 $ - $-
Without Related Credit Allowance 176 - 1,009 -
Average Recorded Investment
for the Period $1,827 $1,020 $1,687 $-
The Company recognizes income on impaired loans primarily on the
cash basis. Any change in the present value of expected cash
flows is recognized through the allowance for loan losses. For
the years ended December 31, 2001, 2000 and 1999 the Company
recognized $36,000, $86,000, and $74,000, in interest income on
impaired loans, of which $36,000, $77,000, and $57,000, was
collected in cash, respectively.
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at
December 31,
was as follows:
(Dollars in Thousands) 2001 2000
- ----------------------------------------------------------
Land $10,342 $ 9,458
Buildings 42,573 34,259
Fixtures and Equipment 42,601 32,587
------- -------
Total 95,516 76,304
Accumulated Depreciation (48,479) (39,281)
------- -------
Premises and Equipment, Net $47,037 $37,023
======= =======
Note 7
DEPOSITS
Interest bearing deposits, by category, as of December 31, were
as follows:
(Dollars in Thousands) 2001 2000
- ----------------------------------------------------
NOW Accounts $ 244,153 $207,978
Money Market Accounts 220,755 156,590
Savings Accounts 99,685 104,035
Other Time Deposits 596,362 507,108
---------- --------
Total $1,160,955 $975,711
========== ========
Time deposits in denominations of $100,000 or more totaled $136.8
million and $95.1 million at December 31, 2001 and 2000,
respectively.
At December 31, 2001, the scheduled maturities of other time
deposits were as follows:
2002 $532,160
2003 44,005
2004 12,197
2005 4,529
2006 and thereafter 3,471
--------
$596,362
========
The average balances maintained on deposit with the Federal
Reserve Bank for the years ended December 31, 2001 and 2000, were
$35.5 million and $34.8 million, respectively.
Interest expense on deposits for the three years ended December
31, was as follows:
(Dollars in Thousands) 2001 2000 1999
- ----------------------------------------------------------------
NOW Accounts $ 4,046 $ 4,444 $ 3,134
Money Market Accounts 6,237 6,673 5,766
Savings Accounts 1,865 2,446 2,453
Other Time Deposits 33,066 26,896 26,962
------- ------- -------
Total $45,214 $40,459 $38,315
======= ======= =======
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following at December 31:
Securities
Federal Sold Under Other
Funds Repurchase Short-
Term
(Dollars in Thousands) Purchased Agreements
Borrowings
- --------------------------------------------------------------------------------
- --
2001
- ----
Balance $ 5,025 $59,792 $ 2,225
Maximum indebtedness at any month end 22,875 59,792 31,503
Daily average indebtedness outstanding 10,817 39,505 7,789
Average rate paid for the year 3.96% 3.17% 6.20%
Average rate paid on period-end borrowings 1.89% 1.03% 1.82%
2000
- ----
Balance $ 7,225 $44,478 $31,769
Maximum indebtedness at any month end 39,975 60,283 61,269
Daily average indebtedness outstanding 18,612 44,908 22,599
Average rate paid for the year 6.47% 4.95% 6.83%
Average rate paid on period-end borrowings 4.88% 4.32% 6.84%
Note 9
LONG-TERM DEBT
Long-term debt included the following at December 31:
(Dollars in Thousands) 2001 2000
- --------------------------------------------------------------------------------
- -
Federal Home Loan Bank Notes,
Due on October 10, 2001, fixed rate of 5.00% $ - $
286
Due on March 8, 2004, fixed rate of 6.64% 204
- -
Due on December 16, 2004, fixed rate of 6.52% 188
250
Due on December 16, 2004, fixed rate of 6.52% 103
138
Due on December 19, 2005, fixed rate of 6.04% 1,322
1,432
Due on February 15, 2006, fixed rate of 3.00% 153
- -
Due on December 13, 2006, fixed rate of 6.20% 870
936
Due on April 24, 2007, fixed rate of 7.30% 306
362
Due on June 13, 2008, fixed rate of 5.40% 929
- -
Due on March 18, 2013, fixed rate of 6.37% 854
898
Due on September 23, 2013, fixed rate of 5.64% 1,215
1,277
Due on January 27, 2014, fixed rate of 5.79% 1,427
1,463
Due on May 27, 2014, fixed rate of 5.92% 647
683
Due on July 20, 2016, fixed rate of 6.27% 1,726
- -
Due on December 17, 2018, fixed rate of 6.33% 1,836
1,895
Due on December 24, 2018, fixed rate of 6.29% 817
837
Due on February 16, 2021, fixed rate of 3.00% 973
- -
Revolving Credit Note,
Due on November 16, 2004,
rates ranging from 3.99 - 5.39% -
1,250
------- ------
- -
Total outstanding $13,570
$11,707
=======
=======
The contractual maturities of long-term debt for the five years
succeeding December 31, 2001, are as follows:
2002 $ 1,104
2003 1,109
2004 1,052
2005 948
2006 and thereafter 9,357
-------
$13,570
The Federal Home Loan Bank advances are collateralized with U.S.
Government Agencies. Interest on the Federal Home Loan Bank
advances is paid on a monthly basis.
Upon expiration of the Revolving Credit Note, due on November 16,
2004, the outstanding balance may be converted to a term loan and
repaid over a period of seven years. The Company, at its option,
may select from various loan rates including the following:
Prime, LIBOR, or the lender's cost of funds rate, plus or minus
increments thereof. The LIBOR or cost of funds rates may be
fixed for a period up to six months. The revolving credit is
unsecured, but upon conversion is to be collateralized by common
stock of the subsidiary bank equal in value to 125% of the
principal balance of the loan. The existing loan agreement
places certain restrictions on the amount of capital which must
be maintained by the Company. At December 31, 2001, the Company
was in compliance with all of the terms of the agreement and had
$25 million available under a $25 million line of credit
facility.
Note 10
INCOME TAXES
The provision for income taxes reflected in the statement of
income is comprised of the following components:
(Dollars in Thousands) 2001 2000 1999
- ----------------------------------------------------------------------
Current:
Federal $7,709 $8,172 $6,880
State 1,402 1,570 824
Deferred:
Federal 6 (245) (189)
State 1 (48) (36)
------ ------ ------
Total $9,118 $9,449 $7,479
====== ====== ======
The net deferred tax (liability) asset and the temporary
differences comprising that balance at December 31, 2001 and
2000, are as follows:
(Dollars in Thousands) 2001 2000
- --------------------------------------------------------------------
Deferred Tax Asset attributable to:
Allowance for Loan Losses $2,992 $2,841
Unrealized Losses on Investment Securities - 881
Stock Incentive Plan 904 875
Interest on Nonperforming Loans 113 57
Acquired Deposits 803 392
Acquisition Integration Costs 41 111
Other 542 392
------ ------
Total Deferred Tax Asset $5,395 $5,549
Deferred Tax Liability attributable to:
Associate Benefits $ 698 $1,347
Unrealized Gains on Investment Securities 1,359 -
Premises and Equipment 1,643 1,421
Deferred Loan Fees 1,169 291
Securities Accretion 253 210
Acquired Deposits 76 -
Other 331 167
------ ------
Total Deferred Tax Liability 5,529 3,436
------ ------
Net Deferred Tax (Liability) Asset $ (134) $2,113
====== ======
Income taxes provided were higher (lower) than the tax expense
computed by applying the statutory federal income tax rates to
income. The primary differences are as follows:
(Dollars in Thousands) 2001 2000 1999
- ---------------------------------------------------------------------
Computed Tax Expense $9,094 $9,661 $7,956
Increases (Decreases)
Resulting From:
Tax-Exempt Interest Income (1,179) (1,357) (1,409)
State Income Taxes,
Net of Federal Income
Tax Benefit 913 1,000 468
Other 290 145 464
------ ------ ------
Actual Tax Expense $9,118 $9,449 $7,479
====== ====== ======
Note 11
ASSOCIATE BENEFITS
The Company sponsors a noncontributory pension plan covering
substantially all of its associates. Benefits under this plan
generally are based on the associate's years of service and
ompensation during the years immediately preceding retirement.
The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes.
The following table details the components of pension expense,
the funded status of the plan, amounts recognized in the
Company's consolidated statements of financial condition, and
major assumptions used to determine these amounts.
(Dollars in Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
- -
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year $26,811 $18,980
$22,211
Service Cost 2,732 2,255
2,015
Interest Cost 2,122 1,777
1,477
Actuarial Loss (Gain) 2,052 3,019
(4,411)
Amendments to Plan<F1> 1,553 2,099
- -
Benefits Paid (1,362) (1,119)
(2,021)
Expenses Paid (266) (200)
(291)
------- ------- ------
- -
Projected Benefit Obligation at End of Year $33,642 $26,811
$18,980
------- ------- ------
- -
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $31,319 $32,521
$29,248
Actual Return on Plan Assets (1,493) (798)
4,824
Employer Contributions 524 915
761
Amendments to Plan(1) 1,391 -
- -
Benefits Paid (1,362) (1,119)
(2,021)
Expenses Paid (266) (200)
(291)
------- ------- ------
- -
Fair Value of Plan Assets at End of Year $30,113 $31,319
$32,521
------- ------- ------
- -
Funded Status $(3,529) $ 4,508
$13,541
Unrecognized Net Actuarial Loss (Gain) 3,557 (3,000)
(10,122)
Unrecognized Prior Service Cost 1,718 2,203
447
Unrecognized Net Transition Obligation
Liability (Asset) 2 (232)
(468)
------- ------- ------
- -
Prepaid Benefit Cost $ 1,748 $ 3,479 $
3,398
======= =======
=======
Weighted-Average Assumptions:
Discount Rate 7.25% 7.50%
7.75%
Expected Return on Plan Assets 8.25% 8.25%
8.25%
Rate of Compensation Increase 5.50% 5.50%
5.50%
Components of Net Periodic Benefit Costs:
Service Cost $ 2,732 $ 2,255 $
2,015
Interest Cost 2,122 1,777
1,477
Expected Return on Plan Assets (2,629) (2,643)
(2,401)
Amortization of Prior Service Cost 327 343
164
Transition Asset Recognition (231) (236)
(236)
Recognized Net Actuarial Gain (168) (663)
(242)
------- ------- ------
- -
Net Periodic Benefit Cost $ 2,153 $ 833 $
777
======= =======
=======
<FN>
<F1> The amendments to the plan are a result of acquisitions and the IRS
regulation regarding the change from the PBGC mortality table to the GATT
mortality table.
</FN>
The Company has a Supplemental Employee Retirement Plan
covering selected executives. Benefits under this plan
generally are based on the associate's years of service
and compensation during the years immediately preceding
retirement. The Company recognized expense during 2001,
2000 and 1999 of $213,793, $167,000 and $266,000,
respectively, and no minimum liability, at December 31,
2001, 2000 and 1999, respectively.
The following table details the components of the
Supplemental Employee Retirement Plan, the funded status
of the plan, amounts recognized in the Company's
consolidated statements of financial condition, and
major assumptions used to determine these amounts.
(Dollars in Thousands) 2001 2000
1999
- ---------------------------------------------------------------------------
- ------
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year $ 1,255 $ 1,347 $
1,302
Service Cost 73 59
88
Interest Cost 102 83
102
Actuarial Gain (111) (283)
(145)
Amendments 139 49
- -
------- ------- -
- -----
- -
Projected Benefit Obligation at End of Year $ 1,458 $ 1,255 $
1,347
------- ------- -
- ------
Change in Plan Assets:
Funded Status $(1,458) $(1,255)
$(1,347)
Unrecognized Net Actuarial (Gain) Loss (333) (242)
18
Unrecognized Prior Service Cost 605 525
524
------- ------- -
- -----
- -
Accrued Benefit Cost $(1,186) $ (972) $
(805)
======= =======
=======
Weighted-Average Assumptions:
Discount Rate 7.25% 7.50%
7.75%
Rate of Compensation Increase 5.50% 5.50%
5.50%
Components of Net Periodic Benefit Costs:
Service Cost $ 73 $ 59 $
88
Interest Cost 102 83
102
Expected Return on Plan Assets - -
- -
Amortization of Prior Service Cost 59 48
44
Transition Asset Recognition - -
- -
Recognized Net Actuarial (Gain) Loss (20) (23)
32
------- ------- -
- ------
Net Periodic Benefit Cost $ 214 $ 167 $
266
======= =======
=======
The Company has an Associate Incentive Plan under which shares of the Company's
stock are issued as incentive awards to selected participants. 750,000 shares
of common stock are reserved for issuance under this plan. The expense recorded
related to this plan was approximately $757,000, $561,000 and $432,000 in 2001,
2000 and 1999, respectively. CCBG issued 28,689, 5,775 and 5,706 shares under
the plan in 2001, 2000 and 1999, respectively. 176,692 shares have been issued
since inception of this plan.
The Company has an Associate Stock Purchase Plan under which associates may
elect to make a monthly contribution towards the purchase of Company stock on a
semi-annual basis at a reduced price. 450,000 shares of common stock are
reserved for issuance under the Stock Purchase Plan. CCBG issued 15,004, 26,397
and
18,444 shares under the plan in 2001, 2000 and 1999, respectively. 195,897
shares have been issued since inception of this plan.
The Company has a Director Stock Purchase Plan. 150,000 shares have been
reserved for issuance. In 2001, 2000 and 1999, CCBG issued 3,475, 5,001 and
1,965 shares, respectively, under this plan. 30,176 shares have been issued
since the inception of this plan to directors at a reduced price.
The Company has a 401(k) Plan which enables associates to defer a portion of
their salary on a pre-tax basis. The plan covers substantially all associates
of the Company who meet minimum age requirements. The plan is designed to
enable participants to elect to have an amount from 1% to 15% of their
compensation withheld in any plan year placed in the 401(k) Plan trust account.
Matching contributions from the Company can be made up to 6% of the
participant's compensation at the discretion of the Company. During 2001, 2000
and 1999, no contributions were made by the Company. The participant may choose
to invest their contributions into fifteen investment funds available to CCBG
participants, including CCBG's common stock.
The Company has a Dividend Reinvestment and Optional Stock Purchase Plan.
250,000 shares have been reserved for issuance. In recent years, shares for the
Dividend Reinvestment and Optional Stock Purchase Plan have been acquired in the
open market and, thus, CCBG did not issue any shares under this plan in 2001,
2000 and 1999.
Note 12
EARNINGS PER SHARE
The following table sets forth the computation of basic
and diluted earnings per share:
(Dollars in Thousands, Except Per Share Data)
2001 2000 1999
----------------------------------
- --
Numerator:
Net Income $ 16,866 $ 18,153 $
15,252
Preferred Stock Dividends - -
- -
---------- ---------- --------
- --
Numerator for Basic Earnings Per Share
Income to Common Shareowners 16,866 18,153
15,252
---------- ---------- --------
- --
Effects of Dilutive Securities:
Preferred stock dividends - -
- -
---------- ---------- --------
- --
Numerator for Diluted Earnings Per Share
Income Available to Common Shareowners
After Assumed Conversions $ 16,866 $ 18,153 $
15,252
========== ==========
==========
Denominator:
Denominator for Basic Earnings Per Share
Weighted-Average Shares 10,593,566 10,186,199
10,174,945
Effects of Dilutive Securities
Associate Stock Incentive Plan 40,382 28,643
21,288
---------- ---------- --------
- --
Denominator for Diluted Earnings Per Share
Adjusted Weighted-Average Shares and
Assumed Conversions 10,633,948 10,214,842
10,196,233
========== ==========
==========
Basic Earnings Per Share $ 1.59 $ 1.78 $
1.50
========== ==========
==========
Diluted Earnings per Share $ 1.59 $ 1.78 $
1.50
========== ==========
==========
Note 13
CAPITAL
The Company is subject to various regulatory capital
requirements
which involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items.
The Company's capital amounts and classification are
subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to
ensure capital adequacy require that the Company
maintain amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighed
assets, and of Tier I capital to average assets. As of
December 31, 2001, the Company meets all capital
adequacy requirements to which it is subject.
A summary of actual, required, and capital levels
necessary to be
considered well-capitalized for Capital City Bank Group,
Inc. consolidated and its banking subsidiary, Capital
City Bank, as of December 31, 2001 and December 31, 2000
is shown below:
To Be
WellRequired
Capitalized Under
For Capital Prompt
Corrective
Actual Adequacy Purposes Action
Provisions (Dollars in -----------------------------------------
- --------------------
Thousands) Amount Ratio Amount Ratio Amount
Ratio
- ----------------------------------------------------------------------
- ---------
As of December 31, 2001:
Tier I Capital:
CCBG $137,158 10.84% $ 50,602 4.00% *
*
CCB 136,271 10.79% 50,497 4.00% $ 75,746
6.00%
Total Capital:
CCBG 149,254 11.80% 101,205 8.00% *
*
CCB 148,368 11.75% 100,994 8.00% 126,243
10.00%
Tier I Leverage:
CCBG 137,158 7.53% 54,643 3.00% *
*
CCB 136,271 7.48% 54,674 3.00% 91,123
5.00%
As of December 31, 2000:
Tier I Capital:
CCBG $126,836 11.87% $42,753 4.00% *
*
CCB 108,474 11.00% 39,451 4.00% $ 59,177
6.00%
Total Capital:
CCBG 137,400 12.86% 85,507 8.00% *
*
CCB 117,440 11.91% 78,902 8.00% 98,628
10.00%
Tier I Leverage:
CCBG 126,836 8.30% 32,065 3.00% *
*
CCB 108,474 7.59% 29,589 3.00% 49,314
5.00%
*Non-applicable to bank holding companies.
Note 14
DIVIDEND RESTRICTIONS
Substantially all the Company's retained earnings are
undistributed earnings of its banking subsidiary which
are restricted by various regulations administered by
Federal and state bank regulatory authorities.
The approval of the appropriate regulatory authority is
required if the total of all dividends declared by a
subsidiary bank in any calendar year exceeds the bank's
net profits (as defined) for that year combined with its
retained net profits for the preceding two calendar
years. In 2002, the bank subsidiaries may declare
dividends without regulatory approval of $14.4 million
plus an additional amount equal to the net profits of
the Company's subsidiary banks for 2002 up to the date
of any such dividend declaration.
Note 15
RELATED PARTY INFORMATION
The Chairman of the Board of Capital City Bank Group,
Inc., is chairman of the law firm which serves as
general counsel to the Company and its subsidiary. Fees
paid by the Company and its subsidiary for these
services, in aggregate, approximated $534,000, $335,000
and $320,000 during 2001, 2000 and 1999, respectively.
Under a lease agreement expiring in 2024, a bank
subsidiary leases land from a partnership in which
several directors and officers have an interest. The
lease agreement with Smith Interest General Partnership
L.L.P., provides for annual lease payments of
approximately $69,400, to be adjusted for inflation in
future years.
At December 31, 2001 and 2000, certain officers and
directors were indebted to the Company's bank subsidiary
in the aggregate amount of $12.7 million and $12.0
million, respectively. During 2001, $19.6 million in
new loans were made and repayments totaled $18.9
million. In the opinion of management, these loans were
made on similar terms as loans to other individuals of
comparable creditworthiness and were all current at year-
end.
Note 16
SUPPLEMENTARY INFORMATION
Components of noninterest income in excess of 1% of
total interest income and noninterest expense in excess
of 1% of the sum total of interest income and
noninterest income, which are not disclosed separately
elsewhere, are presented below for each of the
respective years.
(Dollars in Thousands) 2001 2000 1999
- -------------------------------------------------------------------
Noninterest Income:
Merchant Fee Income $3,612 $3,388 $2,993
Interchange Commission Fees 2,014 1,718 1,269
Noninterest Expense:
Pension Expense 2,153 833<F1> 777<F1>
Associate Insurance 2,339 1,697 1,653
Payroll Taxes 2,073 1,710 1,647
Maintenance and Repairs 4,267 2,972 3,106
Professional Fees 1,301<F1> 1,331 1,173
Printing & Supplies 1,757 1,590 1,720
Commission/Service Fees 2,863 3,517 3,107
Telephone 1,617 1,147<F1> 1,440
<FN>
<F1> Less than 1% of the appropriate threshold.
</FN>
Note 17
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISKS
The Company is a party to financial instruments with off-
balancesheet risks in the normal course of business to
meet the financing needs of its customers. These
financial instruments consist of commitments to extend
credit and standby letters of credit.
The Company's maximum exposure to credit loss under
standby letters of credit and commitments to extend
credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies
in establishing commitments and issuing letters of
credit as it does for on-balance-sheet instruments.
As of December 31, 2001, the amounts associated
with the Company's off-balance-sheet obligations
were as follows:
(Dollars in Thousands) Amount
- -------------------------------------------------
- ---------
Commitments to Extend Credit<F1>
$382,363
Standby Letters of Credit
$ 2,630
<FN>
<F1> Commitments include unfunded loans, revolving lines of
credit (including credit card lines) and other unused
commitments.
</FN>
Commitments to extend credit are agreements to lend to a customer
so long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities. In general, management does not anticipate any
material losses as a result of participating in these types of
transactions. However, any potential losses arising from such
transactions are reserved for in the same manner as management
reserves for its other credit facilities.
For both on- and off-balance-sheet financial instruments, the
Company requires collateral to support such instruments when it
is deemed necessary. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral
held varies, but may include deposits held in financial
institutions; U.S. Treasury securities; other marketable
securities; real estate; accounts receivable; property, plant and
equipment; and inventory.
Note 18
FAIR VALUE OF FINANCIAL INSTRUMENTS
Many of the Company's assets and liabilities are short-term
financial instruments whose carrying values approximate fair
value. These items include Cash and Due From Banks, Interest
Bearing Deposits with Other Banks, Federal Funds Sold, Federal
Funds Purchased and Securities Sold Under Repurchase Agreements,
and Short-Term Borrowings. In cases where quoted market prices
are not available, fair values are based on estimates using
present value or other valuation techniques. The resulting fair
values may be significantly affected by the assumptions used,
including the discount rates and estimates of future cash flows.
The methods and assumptions used to estimate the fair value of
the Company's other financial instruments are as follows:
Investment Securities - Fair values for investment securities are
based on quoted market prices. If a quoted market price is not
available, fair value is estimated using market prices for
similar securities.
Loans - The loan portfolio is segregated into categories and the
fair value of each loan category is calculated using present
value techniques based upon projected cash flows and estimated
discount rates. The calculated present values are then reduced
by an allocation of the allowance for loan losses against each
respective loan category.
Deposits - The fair value of Noninterest Bearing Deposits, NOW
Accounts, Money Market Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value
of fixed maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining
maturities.
Long-Term Debt - The fair value of each note is calculated using
present value techniques, based upon projected cash flows and
estimated discount rates.
Commitments to Extend Credit and Standby Letters of Credit - The
fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking
into account the present creditworthiness of the counterparties.
Fair value of these fees is not material.
The Company's financial instruments which have estimated fair
values are presented below:
At December 31,
----------------------------------------
---------
2001 2000
----------------------- --------------
- ---------
Estimated
Estimated
Carrying Fair Carrying
Fair
(Dollars in Thousands) Value Value Value
Value
- --------------------------- ----------------------- --------------
- ---------
Financial Assets:
Cash $ 92,413 $ 92,413 $ 73,367 $
73,367
Short-Term Investments 164,417 164,417 40,623
40,623
Investment Securities 219,073 219,073 276,839
276,839
Loans, Net of Allowance
for Loan Losses 1,231,255 1,305,282 1,041,268
1,068,945
---------- ---------- ---------- -
- ---------
Total Financial Assets $1,707,158 $1,781,185 $1,432,097
$1,459,774
========== ========== ==========
==========
Financial Liabilities:
Deposits $1,550,101 $1,569,116 $1,268,367
$1,270,844
Short-Term Borrowings 67,042 67,042 83,472
83,472
Long-Term Debt 13,570 14,630 11,707
12,096
---------- ---------- ---------- -
- ---------
Total Financial Liabilities $1,630,713 $1,650,788 $1,363,546
$1,366,412
========== ========== ==========
==========
Certain financial instruments and all nonfinancial
instruments are excluded from the above table. The
disclosures also do not include certain intangible
assets such as customer relationships, deposit base
intangibles and goodwill. Accordingly, the aggregate
fair value amounts presented do not represent the
underlying value of the Company.
Note 19
PARENT COMPANY FINANCIAL INFORMATION
The operating results of the parent company for the
three years ended December 31, are shown below:
Parent Company Statements of Income
(Dollars in Thousands) 2001 2000
1999
- ----------------------------------------------------------------------
- --------
OPERATING INCOME
Income Received from Subsidiary Bank:
Dividends $12,963 $ 8,713 $ 7,285
Overhead Fees 2,393 2,373 2,595
------- ------- -------
Total Operating Income 15,356 11,086 9,880
------- ------- -------
OPERATING EXPENSE
Salaries and Associate Benefits 1,878 1,715 1,926
Interest on Debt 83 147 430
Professional Fees 399 332 232
Advertising 132 100 109
Legal Fees 85 67 77
Other 285 341 257
------- ------- -------
Total Operating Expense 2,862 2,702 3,031
------- ------- -------
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Bank 12,494 8,384 6,849
Income Tax Benefit (124) (121) (198)
------- ------- -------
Income Before Equity in Undistributed
Earnings of Subsidiary Bank 12,618 8,505 7,047
Equity in Undistributed Earnings
of Subsidiary Bank 4,248 9,648 8,205
------- ------- -------
Net Income $16,866 $18,153 $15,252
======= ======= =======
The following are condensed statements of financial condition of the
parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands) 2001
2000
- -----------------------------------------------------------------------
- -----
ASSETS
Cash and Due From Group Bank $ 3,224 $ 187
Investment in Subsidiary Bank 171,991
148,412
Other Assets 892
1,454
-------- ---
- -----
Total Assets $176,107
$150,053
========
========
LIABILITIES
Long-Term Debt $ - $
1,250
Other Liabilities 4,324
1,196
-------- ---
- -----
Total Liabilities 4,324
2,446
-------- ---
- -----
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; 10,642,575 and 10,108,454
shares issued and outstanding 106 101
Additional Paid-In Capital 17,178
7,369
Retained Earnings 152,149
141,659
Accumulated Other Comprehensive Income (Loss),
Net of Tax 2,350
(1,522)
-------- ---
- -----
Total Shareowners' Equity 171,783
147,607
-------- ---
- -----
Total Liabilities and Shareowners' Equity $176,107
$150,053
========
========
The cash flows for the parent company for the three years ended
December 31, were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands) 2001 2000 1999
- ----------------------------------------------------------------------
- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $16,866 $18,153 $15,252
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed
Earnings of Subsidiary Bank (4,248) (9,648) (8,205)
Non-Cash Compensation 785 101 260
Decrease (Increase) in Other Assets 206 (925) (40)
Increase (Decrease) in Other Liabilities 90 (233) 292
------- ------- -------
Net Cash Provided by Operating Activities 13,699 7,448 7,559
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITES:
Net Cash Received From Acquisitions 1,471 - -
------- ------- -------
Net Cash Provided by Investing Activities 1,471 - -
------- ------- -------
CASH FROM FINANCING ACTIVITIES:
Borrowings of Long-Term Debt 1,025 500 -
Repayments of Long-Term Debt (2,275) (2,250) (5,000)
Payment of Dividends (6,376) (5,549) (5,718)
Repurchase of Common Stock (4,942) (2,667) -
Issuance of Common Stock 435 685 428
------- ------- -------
Net Cash Used in Financing Activities (12,133) (9,281) (10,290)
------- ------- -------
Net Increase (Decrease) in Cash 3,037 (1,833) (2,729)
Cash at Beginning of Period 187 2,020 4,749
------- ------- -------
Cash at End of Period $ 3,224 $ 187 $ 2,020
======= ======= =======
Note 20
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", requires
that certain transactions and other economic events that
bypass the income statement be displayed as other
comprehensive income. The Company's comprehensive
income consists of net income and changes in unrealized
gains (losses) on securities available-for-sale, net of
income taxes.
Comprehensive income for 2001, 2000 and 1999 was
calculated as follows:
(Dollars in Thousands) 2001 2000 1999
- -----------------------------------------------------------------------
- ---------
Net Unrealized Gains (Losses)
Recognized in Other Comprehensive Income:
Before Tax $ 6,112 $ 7,357
$(10,566)
Less Income Tax 2,240 2,689
(3,698)
------- -------
- --------
Net of Tax 3,872 4,668
(6,868)
Amounts Reported in Net Income:
Gain (Loss) On Sale of Securities 4 2
(12)
Net Amortization 1,173 1,368 1,417
------- -------
- --------
Reclassification Adjustment 1,177 1,370 1,405
Less: Income Tax Expense 412 480 492
------- -------
- --------
Reclassification Adjustment, Net of Tax 765 890 913
Amounts Reported in Other Comprehensive Income:
Unrealized Gain (Loss) Arising During the
Period, Net of Tax 4,637 5,558
(5,955)
Net Unrealized Losses Recognized in
Reclassification Adjustments, Net of Tax (765) (890)
(913)
------- -------
- --------
Other Comprehensive Income 3,872 4,668
(6,868)
Net Income 16,866 18,153 15,252
------- -------
- --------
Total Comprehensive Income $20,738 $22,821
$ 8,384
======= =======
========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- ---------------------------------------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Incorporated herein by reference to the sections entitled
"Nominees for Election as Directors" and "Continuing
Directors and Executive Officers" in the Registrant's
Proxy Statement dated April 2, 2002, to be filed on or
about April 2, 2002.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Incorporated herein by reference to the sections
entitled "Summary Compensation Table" and the subsection
entitled "What are directors paid for their services?"
under the section entitled "Corporate Governance" in the
Registrant's Proxy Statement dated April 2, 2002, to be
filed on or about April 2, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
- --------------------------------------------------
Incorporated herein by reference to the section entitled
"Share Ownership" in the Registrant's Proxy Statement
dated April 2,
2002, to be filed on or about April 2, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Incorporated herein by reference to the subsection
entitled "Transactions With Management and Related
Parties" under the section entitled "Executive Officers
and Transactions with Management" in the Registrant's
Proxy Statement dated April 2, 2002, to be filed on or
about April 2, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
report:
1. Financial Statements
Report of Independent Public Accountants
Consolidated Statements of Income for Fiscal
Years 2001,
2000 and 1999
Consolidated Statements of Financial Condition
at the
end of Fiscal Years 2001 and 2000
Consolidated Statements of Changes in
Shareowners'
Equity for Fiscal Years 2001, 2000 and 1999
Consolidated Statements of Cash Flows for
Fiscal Years
2001, 2000 and 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Other schedules and exhibits are omitted
because the
Required information either is not applicable
or is
shown in the financial statements or the notes
thereto.
3. Exhibits Required to be Filed by Item 601 of
Regulation
S-K
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
- -------- ----------------------
2(a) Agreement and Plan of Merger, dated as of
December 10,
1995, by and among Capital City Bank Group,
Inc.; a
Florida corporation to be formed as a direct
wholly-
owned subsidiary of the Registrant; and First
Financial Bancorp, Inc. - incorporated herein
by
reference to Exhibit 2(a) of the Registrant's
Form 10K
(filed 3/29/96).
2(b) Purchase and Assumption Agreement, dated as
of
August 26, 1998, by and between Capital City
Bank and
First Union National Bank - incorporated
herein by
reference to Registrant's Form 8-K
(filed3/21/98).
2(c) Agreement and Plan of Merger, dated as of
February 11,
1999, by and among Capital City Bank Group,
Inc.,
Grady Holding Company and First National Bank
of Grady
County - incorporated herein by reference to
the
Registrant's Form 8-K (filed 3/26/99).
2(d) Agreement and Plan of Merger, dated as of
September
25, 2000, by and between Capital City Bank
Group, Inc.
and First Bankshares of West Point, Inc. -
incorporated herein by reference to Exhibit
2(d) of
the Registrant's Form 10-K (filed 3/30/01).
2(e) Purchase and Assumption Agreement, dated as
of October
3, 2000, by and between Capital City Bank and
First
Union National Bank - incorporated herein by
reference
to Exhibit 2(e) of the Registrant's Form 10-K
(filed
3/30/01).
2(f) Plan of Merger and Merger Agreement, dated
August 23,
2001, by and between Capital City Bank and
First
National Bank of Grady County Filed with this
report.
3(a) Amended and Restated Articles of
Incorporation -
incorporated herein by reference to Exhibit 3
of the
Registrant's 1996 Proxy Statement (filed
4/11/96).
3(b) Amended and Restated Bylaws - incorporated
herein by
reference to Exhibit 3(b) of the Registrant's
Form
10-Q (filed 1/13/97).
10(a) Promissory Note and Pledge and Security
Agreement
evidencing a line of credit by and between
Registrant
and SunTrust Bank, dated November 16, 1995 -
incorporated herein by reference to Exhibit
10(b) of
the Registrant's Form 10-K (filed 3/29/96).
10(b) Capital City Bank Group, Inc. 1996 Associate
Incentive
Plan, as amended - incorporated herein by
reference to
Exhibit 10 of the Registrant's Form S-8
(filed
12/23/96).
10(c) Capital City Bank Group, Inc. Amended and
Restated
Director Stock Purchase Plan - incorporated
herein by
reference to Exhibit 10(d) of the
Registrant's Form
10-K (filed 3/30/00).
10(d) Capital City Bank Group, Inc. 1996 Dividend
Reinvestment and Optional Stock Purchase Plan
- -
incorporated herein by reference to the
Registrant's
Form S-3 (filed 1/30/97).
21 Subsidiaries - Filed with this report.
23 Consent of Independent Public Accountants -
Filed with
this report.
99 Letter regarding Arthur Andersen LLP
Assurances -
Filed with this report.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth
quarter of fiscal year 2001.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on March 21, 2002,
on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith
- ----------------------------
- -
William G. Smith, Jr.
President and Chief
Executive Officer (Principal
Executive Officer)
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed on
March 21, 2002 by the following persons in the
capacities indicated.
/s/ William G. Smith
- ----------------------------
- -
William G. Smith, Jr.
President and Chief
Executive Officer (Principal
Executive Officer)
/s/ J. Kimbrough Davis
- ----------------------------
- -
J. Kimbrough Davis
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
Directors:
/s/ DuBose Ausley /s/
Lina S. Knox
- -------------------------- -----------------
- ---------
DuBose Ausley Lina S. Knox
/s/ Thomas A. Barron /s/ John R. Lewis
- -------------------------- -----------------
- ---------
Thomas A. Barron John R. Lewis
/s/ William G.
Smith, Jr. -------------------------- -----------------
- ---------
Cader B. Cox, III William G. Smith,
Jr.
/s/ John K. Humphress
- --------------------------
John K. Humphress