SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended:
March 31, 2002
---------------
Commission File Number 0-13358
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CAPITAL CITY BANK GROUP, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2273542
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive offices)
Registrant's telephone number, including area code:
(850) 671-0300
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirement for the past
90 days.
Yes[X] No[ ]
At April 30, 2002, 10,625,712 shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
In reliance on Release No. 34-45589 under the Securities Exchange
Act of 1934, the Registrant's interim financial statements
contained in this Quarterly Report on Form 10-Q have not been
reviewed by an independent public accountant pursuant to Rule
10-01 of Regulation S-X.
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q I N D E X
PAGE
ITEM PART I. FINANCIAL INFORMATION NUMBER
- ---- ----------------------------- ------
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
3. Qualitative and Quantitative Disclosure of
Market Risk 23
ITEM PART II. OTHER INFORMATION
- ---- --------------------------
1. Legal Proceedings Not Applicable
2. Changes in Securities and
Use of Proceeds Not Applicable
3. Defaults Upon Senior Securities Not Applicable
4. Submission of Matters to a Vote of
Security Holders Not Applicable
5. Other Information 25
6. Exhibits and Reports on Form 8-K 25
Signatures 25
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(Dollars in Thousands, Except Per Share Amounts)
2002 2001
(Unaudited) (Unaudited)
----------- -----------
INTEREST INCOME
- ---------------
Interest and Fees on Loans $ 23,826 $ 24,673
Investment Securities:
U. S. Treasury - 128
U. S. Government Agencies and
Corporations 1,447 2,041
States and Political Subdivisions 719 882
Other Securities 533 608
Funds Sold 516 805
---------- ----------
Total Interest Income 27,041 29,137
---------- ----------
INTEREST EXPENSE
- ----------------
Deposits 6,847 11,787
Short-Term Borrowings 160 1,111
Long-Term Debt 190 245
---------- ----------
Total Interest Expense 7,197 13,143
---------- ----------
Net Interest Income 19,844 15,994
Provision for Loan Losses 802 822
---------- ----------
Net Interest Income After Provision
for Loan Losses 19,042 15,172
---------- ----------
NONINTEREST INCOME
- ------------------
Service Charges on Deposit Accounts 2,709 2,421
Data Processing 501 501
Asset Management Fees 630 638
Securities Transactions - -
Mortgage Banking Revenues 1,247 565
Other 3,207 3,203
---------- ----------
Total Noninterest Income 8,294 7,328
---------- ----------
NONINTEREST EXPENSE
- -------------------
Salaries and Associate Benefits 10,544 8,434
Occupancy, Net 1,394 1,219
Furniture and Equipment 1,896 1,498
Conversion / Merger Expense 114 -
Other 5,517 4,689
---------- ----------
Total Noninterest Expense 19,465 15,840
---------- ----------
Income Before Income Taxes 7,871 6,660
Income Taxes 2,760 2,311
---------- ----------
NET INCOME $ 5,111 $ 4,349
========== ==========
Basic Net Income Per Share $ .48 $ .42
========== ==========
Diluted Net Income Per Share $ .48 $ .42
========== ==========
Cash Dividends Per Share $ .1525 $ .1475
========== ==========
Basic Average Shares Outstanding 10,644,266 10,296,686
========== ==========
Diluted Average Shares Outstanding 10,674,554 10,304,710
========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
(Dollars In Thousands, Except Per Share Amounts)
March 31, December 31,
2002 2001
(Unaudited) (Audited)
----------- ------------
ASSETS
Cash and Due From Banks $ 70,975 $ 92,413
Funds Sold 172,875 164,417
---------- ----------
Total Cash and Cash Equivalents 243,850 256,830
Investment Securities,
Available-for-Sale 219,830 219,073
Loans, Net of Unearned Interest 1,230,135 1,243,351
Allowance for Loan Losses (12,113) (12,096)
---------- ----------
Loans, Net 1,218,022 1,231,255
Premises and Equipment, Net 47,023 47,037
Intangibles 31,465 32,276
Other Assets 33,706 34,952
---------- ----------
Total Assets $1,793,896 $1,821,423
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 389,889 $ 389,146
Interest Bearing Deposits 1,101,633 1,160,955
---------- ----------
Total Deposits 1,491,522 1,550,101
Short-Term Borrowings 94,288 67,042
Long-Term Debt 13,316 13,570
Other Liabilities 20,210 18,927
---------- ----------
Total Liabilities 1,619,336 1,649,640
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value,
3,000,000 shares authorized;
no shares outstanding - -
Common Stock, $.01 par value;
90,000,000 shares authorized;
10,629,709 issued and outstanding
at March 31, 2002 and 10,642,575
issued and outstanding at
December 31, 2001 106 106
Additional Paid-In Capital 16,862 17,178
Retained Earnings 155,628 152,149
Accumulated Other Comprehensive
Income, Net of Tax 1,964 2,350
---------- ----------
Total Shareowners' Equity 174,560 171,783
Total Liabilities and
---------- ----------
Shareowners' Equity $1,793,896 $1,821,423
========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Dollars in Thousands)
2002 2001
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Income $ 5,111 $ 4,349
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 802 822
Depreciation 1,238 961
Net Securities Amortization 275 274
Amortization of Intangible Assets 811 828
Non-Cash Compensation Expense 245 738
Net Increase in Other Assets 1,468 493
Net Increase (Decrease) in Other Liabilities 1,283 (568)
-------- --------
Net Cash Provided by Operating Activities 11,233 7,897
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 14,497 63,588
Purchase of Investment Securities (16,137) (449)
Net Decrease (Increase) in Loans 12,431 (21,144)
Purchase of Premises & Equipment (1,309) (81)
Sales of Premises & Equipment 86 330
Cash & Cash Equivalents from Acquisition - 80,435
-------- --------
Net Cash Provided by Investing Activities 9,568 122,679
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net (Decrease) Increase in Deposits (58,579) 44,369
Net Increase (Decrease) in Short-Term Borrowings 27,246 (59,934)
Borrowing of Long-Term Debt 775 2,196
Repayment of Long-Term Debt (1,029) (156)
Dividends Paid (1,632) (1,587)
Repurchase of Common Stock (605) (2,183)
Issuance of Common Stock 43 43
-------- --------
Net Cash Used In Financing Activities (33,781) (17,252)
-------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents (12,980) 113,324
Cash and Cash Equivalents at Beginning of Period 256,830 113,990
-------- --------
Cash and Cash Equivalents at End of Period $243,850 $227,314
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 8,274 $ 12,782
======== ========
Interest Paid on Debt $ 350 $ 1,218
======== ========
Transfer of Loans to ORE $ 286 $ 305
======== ========
Income Taxes Paid $ 910 $ 539
======== ========
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) MANAGEMENT'S OPINION AND ACCOUNTING POLICIES
--------------------------------------------
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, including
Regulation S-X. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to such rules and
regulations. Prior period financial statements have been
reformatted and/or amounts reclassified, as necessary, to conform
with the current presentation.
In the opinion of management, the consolidated financial
statements contain all adjustments, consisting only of normal,
recurring adjustments, and disclosures necessary to present
fairly the financial position of the Company as of March 31, 2002
and December 31, 2001, and the results of operations and cash
flows for the three-month periods ended March 31, 2002 and 2001.
The Company and its subsidiaries follow accounting principles
generally accepted in the United States and reporting practices
applicable to the banking industry. The principles which
materially affect its financial position, results of operations
and cash flows are set forth in the Notes to Consolidated
Financial Statements which are included in the Company's 2001
Annual Report on Form 10-K.
(2) INVESTMENT SECURITIES
---------------------
The carrying values and related market value of investment
securities at March 31, 2002 and December 31, 2001 were as
follows (dollars in thousands):
March 31, 2002
------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- ------
U.S. Government Agencies
and Corporations 53,312 584 - 53,896
States and Political Subdivisions 68,196 1,336 - 69,532
Mortgage-Backed Securities 59,594 809 - 60,403
Other Securities 35,628 388 17 35,999
-------- ------ --- --------
Total $216,730 $3,117 $17 $219,830
======== ====== === ========
December 31, 2001
------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- ------
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 $215,364 $3,757 $48 $219,073
======== ====== === ========
(3) LOANS
-----
The composition of the Company's loan portfolio at
March 31, 2002 and December 31, 2001 was as follows
(dollars in thousands):
March 31, 2002 December 31, 2001
-------------- -----------------
Commercial, Financial
and Agricultural $ 130,151 $ 128,480
Real Estate - Construction 77,160 72,778
Real Estate - Mortgage 313,873 302,239
Real Estate - Residential 418,633 434,378
Real Estate - Home Equity 68,594 65,879
Real Estate - Loans Held-for-Sale 19,783 30,289
Consumer 201,941 209,308
---------- ----------
Loans, Net of Unearned Interest $1,230,135 $1,243,351
========== ==========
(4) ALLOWANCE FOR LOAN LOSSES
-------------------------
An analysis of the changes in the allowance for loan
losses for the three-month periods ended March 31, 2002
and 2001, was as follows (dollars in thousands):
March 31,
--------------------------
2002 2001
------- -------
Balance, Beginning of the Period $12,096 $10,564
Acquired Reserves - 1,206
Provision for Loan Losses 802 822
Recoveries on Loans Previously
Charged-Off 355 252
Loans Charged-Off (1,140) (1,064)
------- -------
Balance, End of Period $12,113 $11,780
======= =======
Impaired loans are primarily defined as all nonaccruing
loans for the loan categories which are included within
the scope of SFAS 114. Selected information pertaining
to impaired loans is depicted in the table below
(dollars in thousands):
March 31,
------------------------------------------------
2002 2001
-------------------- ---------------------
Impaired Loans: Valuation Valuation
Balance Allowance Balance Allowance
-------------------- ---------------------
With Related Valuation Allowance $1,523 $379 $ - $ -
Without Related Valuation Allowance 733 - 951 -
Average Recorded Investment
for the Period 2,444 * 951 *
Interest Income:
Recognized $ 27 $ 4
Collected $ 27 $ 4
* Not Applicable
The Company recognizes income on impaired loans
primarily on the cash basis. Any change in the present
value of expected cash flows is recognized through the
allowance for loan losses.
(5) DEPOSITS
--------
The composition of the Company's interest-bearing
deposits at March 31, 2002 and December 31, 2001
was as follows (dollars in thousands):
March 31, 2002 December 31, 2001
-------------- -----------------
NOW Accounts $ 233,500 $ 244,153
Money Market Accounts 220,028 220,755
Savings Deposits 104,883 99,685
Other Time Deposits 543,222 596,362
---------- ----------
Total Interest Bearing Deposits $1,101,633 $1,160,955
========== ==========
(6) ACCOUNTING PRONOUNCEMENTS
-------------------------
In August 2001, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for the Company's
fiscal year beginning January 1, 2002. This statement supersedes
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," and the accounting and reporting provisions
of Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS 144
establishes a single accounting model, based on the framework
established in SFAS 121 for long-lived assets to be disposed of
by sale. The adoption of this standard did not have a material
impact on the reported results of operations of the Company.
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 ("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 FASB issued SFAS No. 142, "Goodwill and Other
Intangibles", which is effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 addresses financial accounting
and reporting for acquired goodwill and other intangible assets
and supersedes Accounting Principles Board ("APB") Opinion No.
17, "Intangible Assets." SFAS No. 142 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. Specifically, the
adoption of SFAS No. 142 requires the discontinuance of goodwill
amortization and includes provisions for reassessment of the
useful lives of existing intangibles and the identification of
reporting units for purposes of assessing potential future
impairments of goodwill. SFAS No. 142 also requires the Company
to complete a two-step transitional goodwill impairment test.
The first step of the impairment test must be completed six
months from the date of adoption and the second step must be
completed as soon as possible, but no later than the end of the
year of initial application. The Company intends to complete the
first step of the impairment test by June 30, 2002.
The Company had intangible assets of $31.5 million and $32.3
million at March 31, 2002 and December 31, 2001, respectively.
Intangible assets subject to intangible amortization were as
follows (dollars in thousands):
March 31,2002 December 31, 2001
----------------------- -----------------------
Gross Accumulated Gross Accumulated
Description Amount Amortization Amount Amortization
- ----------- ------- ------------ ------- ------------
Core Deposits Intangibles $33,752 $ 8,967 $33,752 $ 8,156
Unidentified Intangible 10,466 3,786 10,466 3,786
------- ------- ------- -------
Total Intangible Assets $44,218 $12,753 $44,218 $11,942
======= ======= ======= =======
Core Deposit Intangibles:
As of March 31, 2002 and December 31, 2001, the Company had core
deposit intangibles of $24.8 million and $25.6 million,
respectively. The adoption of SFAS No. 142 did not have a
material impact on the useful lives assigned to the Company's
intangible assets subject to amortization. Amortization expense
for the first quarter of 2002 and 2001 was $811,000 and $828,000
(including goodwill amortization), respectively. Estimated
annual amortization expense for the next five years is:
2002 $3.2 million
2003 3.2 million
2004 3.2 million
2005 3.2 million
2006 3.2 million
Goodwill:
As of March 31, 2002 and December 31, 2001, the Company had
goodwill of $6.7 million. As a result of the discontinuance of
amortization related to this goodwill, the Company has estimated
that the adoption of SFAS No. 142 will increase annual 2002
earnings by approximately $622,000. Goodwill is the Company's
only intangible asset that is no longer subject to amortization
under the adoption of SFAS No. 142.
The Company will perform a transitional impairment test of the
goodwill during the second quarter of 2002, and will perform an
annual impairment test of the goodwill thereafter.
Transitional Disclosures:
The pro forma effects, net of tax, of the adoption of SFAS No.
142 for the periods presented were as follows:
For the Period Ended
March 31, 2002 March 31, 2001
-------------- --------------
Reported Net Income $5,111 $4,349
Goodwill Amortization - 156
------ ------
Adjusted Net Income $5,111 $4,505
Basic Earnings Per Share:
Reported Net Income $ .48 $ .42
Goodwill Amortization - .02
------ ------
Adjusted Net Income $ .48 $ .44
Diluted Earnings Per Share:
Reported Net Income $ .48 $ .42
Goodwill Amortization - .02
------ ------
Adjusted Net Income $ .48 $ .44
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.
(7) COMPREHENSIVE INCOME
--------------------
Total comprehensive income is defined as net income and all other
changes in equity which, for the Company, consists solely of
changes in unrealized gains (losses) on available-for-sale
securities. The Company reported total comprehensive income, net
of tax, for the three-months period ended March 31, 2002 and
2001, as follows (dollars in thousands):
THREE MONTHS ENDED
MARCH 31
-----------------
2002 2001
------ ------
Net Income $5,111 $4,349
Other Comprehensive Income, Net of Tax
Unrealized (Losses) Gains on Securities:
Unrealized (Losses) Gains on Securities
Arising During the Period (386) 2,458
Less: Reclassification Adjustments for
Gains (Losses) Included in Net Income - -
------ ------
Total Unrealized (Losses) Gains
On Securities, Net of Tax (386) 2,458
------ ------
Total Comprehensive Income, Net of Tax $4,725 $6,807
====== ======
(8) ACQUISITIONS
------------
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 are 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 the Company, and First National Bank of West Point
merged with Capital City Bank. The Company issued 3.6419 shares
and $17.7543 in cash for each of the 192,481 outstanding shares
of First Bankshares of West Point, Inc., resulting in the
issuance of 701,000 shares of Company common stock and the
payment of $3.4 million in cash for a total purchase price of
approximately $17.0 million. The transaction was accounted for
as a purchase and resulted in approximately $2.5 million of
intangibles, primarily goodwill.
The information below lists the consolidated assets and
liabilities required in the acquisition of First Bankshares of
West Point, Inc., 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
========
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2002 2001 2000
---------- ------------------------------------------- --------------------------------
First Fourth Third Second First Fourth Third Second
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 27,041 $ 28,706 $ 30,258 $ 30,882 $ 29,137 $ 28,717 $ 28,018 $ 26,889
Interest Expense 7,197 9,454 12,256 13,396 13,143 12,949 12,039 11,070
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 19,844 19,252 18,002 17,486 15,994 15,768 15,979 15,819
Provision for
Loan Loss 802 932 1,222 1,007 822 825 735 950
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Loss 19,042 18,320 16,780 16,479 15,172 14,943 15,244 14,869
Noninterest Income 8,294 8,536 7,918 8,255 7,328 7,046 6,646 6,675
Conversion /
Merger Expense 114 588 - - - 12 (2) 751
Noninterest Expense 19,351 19,251 18,993 18,132 15,840 14,847 14,684 14,503
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 7,871 7,017 5,705 6,602 6,660 7,130 7,208 6,290
Provision for
Income Taxes 2,760 2,522 1,963 2,322 2,311 2,478 2,487 2,123
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 5,111 $ 4,495 $ 3,742 $ 4,280 $ 4,349 $ 4,652 $ 4,721 $ 4,167
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 20,284 $ 19,689 $ 18,431 $ 17,935 $ 16,454 $ 16,134 $ 16,364 $ 16,217
Per Common Share:
Net Income Basic $ .48 $ .42 $ .35 $ .40 $ .42 $ .46 $ .46 $ .41
Net Income Diluted .48 .42 .35 .40 .42 .46 .46 .41
Dividends Declared .1525 .1525 .1475 .1475 .1475 .1475 .1325 .1325
Book Value 16.38 16.08 16.24 15.87 15.62 14.56 14.08 13.51
Market Price:
High 27.50 24.67 25.25 25.00 26.13 26.75 20.50 20.50
Low 22.65 21.90 20.87 19.88 23.13 18.88 18.75 18.00
Close 27.00 24.23 23.47 24.87 25.19 24.81 19.56 19.50
Selected Average
Balances:
Loans $1,229,344 $1,242,516 $1,204,323 $1,192,103 $1,082,961 $1,053,674 $1,025,942 $ 989,696
Earning Assets 1,575,698 1,584,225 1,561,519 1,556,186 1,416,861 1,359,336 1,318,689 1,303,588
Assets 1,748,211 1,756,995 1,733,324 1,732,061 1,570,587 1,503,184 1,465,114 1,453,692
Deposits 1,467,257 1,488,961 1,482,516 1,478,163 1,301,123 1,223,401 1,203,266 1,202,765
Shareowners' Equity 175,485 176,549 170,511 169,459 155,896 146,232 141,847 137,014
Common Equivalent
Shares:
Basic 10,644 10,674 10,685 10,713 10,297 10,162 10,192 10,196
Diluted 10,675 10,715 10,693 10,721 10,305 10,186 10,208 10,211
Ratios:
ROA 1.19% 1.01% .86% .99% 1.12% 1.23% 1.28% 1.15%
ROE 11.81% 10.10% 8.71% 10.13% 11.32% 12.66% 13.24% 12.23%
Net Interest
Margin (FTE) 5.22% 4.93% 4.70% 4.62% 4.70% 4.73% 4.94% 5.00%
Efficiency Ratio 64.88% 65.30% 68.17% 65.09% 63.12% 61.03% 60.64% 60.30%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 sets forth
the major factors that have affected the Company's financial
condition and results of operations and should be read in
conjunction with the Consolidated Financial Statements and
related notes. The 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 period.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings, including the effects of intangible amortization, were
$5.1 million, or $.48 per diluted share, for the first quarter of
2002. This compares to $4.3 million, or $.42 per diluted share
for the first quarter of 2001. Amortization of intangible
assets, net of taxes, totaled $811,000 and $828,000, or $.04 and
$.06 per diluted share, respectively, for the first quarter in
2002 and 2001.
The Company experienced growth in operating revenues of 20.7%
over the comparable quarter in 2001. Net interest income
increased 24.1% and noninterest income increased 13.2%. The
increase was attributable to growth in earning assets and the
rapid and dramatic reduction in interest rates during 2001, which
has significantly reduced the Company's cost of funds. The lower
cost of funds boosted the net interest margin to 5.22%, a 52
basis point improvement over the like quarter in 2001.
Noninterest income grew as a result of higher mortgage banking
revenues, reflecting the higher volume of fixed rate residential
mortgage production, which is subsequently sold in the secondary
market, and an increase in service charge fees. These increases
were the most significant factors contributing to the increase in
net income.
For The Three Months Ended March 31,
------------------------------------
(Dollars in Thousands) 2002 2001
- ---------------------- ------- -------
Interest Income $27,041 $29,137
Taxable Equivalent Adjustment<F1> 440 460
------- -------
Interest Income (FTE) 27,481 29,597
Interest Expense 7,197 13,143
------- -------
Net Interest Income (FTE) 20,284 16,454
Provision for Loan Losses 802 822
Taxable Equivalent Adjustment 440 460
------- -------
Net Int. Inc. After Provision 19,042 15,172
Noninterest Income 8,294 7,328
Conversion / Merger Expense 114 -
Noninterest Expense 19,351 15,840
------- -------
Income Before Income Taxes 7,871 6,660
Income Taxes 2,760 2,311
------- -------
Net Income $ 5,111 $ 4,349
======= =======
Percent Change 17.53% (5.72)%
Return on Average Assets<F2> 1.19% 1.12%
Return on Average Equity<F2> 11.81% 11.32%
<FN>
<F1> Computed using a statutory tax rate of 35%
<F2> Annualized
</FN>
Net Interest Income
- -------------------
First quarter taxable equivalent net interest income increased
$3.8 million, or 25.5%, over the comparable period for 2001.
This increase is attributable to growth in earning assets and
lower interest rates on interest-bearing liabilities. Internally
generated growth from existing markets, coupled with acquisition
growth, combined to produce a favorable volume variance of $2.7
million. Lower interest rates produced a favorable rate variance
of $1.1 million. Table I on page 22 provides a comparative
analysis of the Company's average balances and interest rates.
Taxable equivalent interest income decreased $2.1 million, or
7.2%, due to the declining interest rate environment throughout
2001. Earning assets repriced at lower levels, reflecting the
rate environment and strong market competition. The loan yield
declined 137 basis points from the first quarter in 2001, as
existing loans repriced downward and new loans were booked at the
lower rates. In the current interest rate environment, the loan
portfolio is expected to continue to reprice downward. Due to
the dramatic decline in interest rates, earning assets throughout
2001 produced an unfavorable rate variance of $5.6 million in the
first quarter of 2002, as compared to the comparable quarter in
2001.
The rate variance decline was partially offset by a positive
volume variance of $3.5 million. The Company experienced growth
in earning assets, primarily the loan portfolio and funds sold.
Average loans, which represent the Company's highest yielding
asset, increased $146.4 million, or 13.5%, and represented 78.0%
of total earning assets in the first quarter of 2002 versus 76.4%
for the comparable quarter in 2001, which helped to buffer the
decrease in yield attributable to falling rates. Loans have
slowly declined since the fourth quarter in 2001 with marginal
growth expected during the second quarter. Funds sold
experienced a positive volume variance, reflecting the higher
liquidity generated from the March 2001, Georgia acquisitions.
The low interest rate environment produced a decline in the rate
variance on funds sold, eliminating the positive variance
attributed to volume. Partially offsetting these increases was a
decline in income from investment securities as maturities were
used to fund the Company's loan growth.
Lower yields on earning assets (partially offset by a favorable
shift in mix) contributed to a decrease of 139 basis points in
the yield on earning assets, which declined from 8.46% in the
first quarter of 2001 to 7.07% in 2002.
Interest expense declined $6.0 million, or 45.2%, due to the
decrease in interest rates resulting from the decline experienced
throughout 2001 and shift in mix of interest bearing liabilities.
The dramatic decline in rates during 2001 favorably impacted the
Company's cost of funds, which fell 233 basis points from the
first quarter of 2001 to 2.41%. The shift in mix of interest
bearing liabilities favorably impacted interest expense in the
first quarter. Certificates of deposit, which generally
represent a higher cost of funds for the Company, decreased from
42.2% of average deposits in the first quarter of 2001 to 38.8%
in the first quarter of 2002. A substantial portion of the
reduction in certificates of deposit has been replaced by
increases in traditional, lower yielding nonmaturity deposit
products. The Company continues to experience competition for
deposits in terms of both rate and product. In the current
interest rate environment, management expects the Company's cost
of funds to decline slightly and begin to stabilize during the
second quarter.
The Company's interest rate spread (defined as the average
taxable equivalent yield on earning assets less the average rate
paid on interest bearing liabilities) increased from 3.72% in the
first quarter of 2001 to 4.66% in the comparable quarter for
2002. The Company's net interest margin percentage (defined as
taxable-equivalent net interest income divided by average earning
assets) was 4.70% in the first quarter of 2001 versus 5.22% in
the first quarter of 2002. The improvement in both the spread
and margin reflects the lower cost of funds.
Provisions for Loan Losses
- --------------------------
The provision for loan losses was $802,000 in 2002, compared to
$822,000 in 2001. The decline in the first quarter 2002
provision approximates the slight decline in net charge-offs
between comparable periods. Management implemented policy and
procedure changes in monitoring the credit card portfolio, where
appropriate, and has experienced a decline in net credit card
charge-offs.
Net charge-offs decreased from the first quarter of 2001 by
$26,000 and remain at low levels relative to the size of the
portfolio. The net charge-off ratio decreased to .26% versus
...30% in 2001. The Company's nonperforming assets ratio increased
slightly to .35% at March 31, 2002 compared to .32% for year-end
2001 and .42% at March 31, 2001.
At March 31, 2002, the allowance for loan losses totaled $12.1
million, constant with year-end 2001. At quarter-end 2002, the
allowance represented 0.98% 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 as of March 31, 2002. Charge-off activity for the
respective periods is set forth below:
Three Months Ended
March 31,
---------------------------
2002 2001
-------- --------
Net Charge-Offs $785,355 $811,766
Net Charge-Offs (Annualized) as
a Percent of Average Loans
Outstanding, Net of Unearned Interest .26% .30%
Noninterest Income
- ------------------
Noninterest income increased $965,000, or 13.2%, over the first
quarter of 2001, which included increases in service charges on
deposit accounts and mortgage banking revenues.
Service charges on deposit accounts increased $288,000, or 11.9%.
Service charge revenues in any one period are dependent on the
number of accounts, primarily transaction accounts, and the level
of activity subject to service charges. The increase in the
first quarter of 2002, compared to the comparable quarter in
2001, reflects an increase in number of accounts primarily
attributable to the 2001 Georgia acquisitions.
Data processing revenues of $501,000 remained constant with the
first quarter of 2001. The Company currently provides data
processing services for five financial clients, a decline of one
from the first quarter ended 2001. During the first quarter of
2002, financial clients represented approximately 59.9% of total
processing revenues compared to 71.2% in the comparable period in
2001. The Company completed its conversion to a third-party
service provider for all financial clients during the first
quarter of 2002. Management believes quarterly revenues for the
remainder of 2002 will remain consistent with the revenues
generated in the first quarter.
Income from asset management activities decreased $8,000, or
1.2%, over the comparable quarter in 2001. Fees lost due to the
decline in stock market values over the past year have outpaced
the incremental revenues attributable to new business
development, as fees are based on portfolio market values at
quarter-end. At March 31, 2002, assets under management totaled
$341.4 million, representing growth of $14.1 million, or 4.3%
from the comparable period in 2001.
Mortgage banking revenues increased $682,000, or 120.7%, over the
comparable quarter in 2001. The Company generally sells into the
secondary market all fixed rate residential loan production. The
low interest rates have produced a high level of fixed rate
production and increased mortgage banking revenues. The level of
interest rates, origination volume and percent of fixed rate
production is expected to significantly impact the Company's
ability to maintain the current level of mortgage banking
revenues throughout the remainder of 2002.
Other income increased $4,000, or 0.1%, over the comparable
quarter of 2001. The Company experienced increases in retail
brokerage fees of $66,000 and interchange fees of $57,000.
Partially offsetting these increases were declines in credit life
commission revenues of $85,000 and loan servicing fee income of
$32,000.
Noninterest income as a percent of average assets was 2.13% for
the first quarter of 2002, compared to 1.89% for the comparable
period in 2001, driven primarily by increases in service charges
and mortgage banking revenues.
Noninterest Expense
- -------------------
Noninterest expense in the first quarter of 2002 increased $3.6
million, or 22.9%, over the first quarter of 2001. The level of
noninterest expense during the first quarter of 2002, relative to
first quarter 2001, was significantly impacted by the Company's
continued expansion, which added six new offices in Georgia and
two new offices in Alabama in March of 2001. Expense levels for
the first quarter of 2001 included minimal costs related to the
acquisitions. Factors impacting the Company's noninterest
expense during the first quarter of 2002 are discussed below.
Compensation expense increased $2.1 million, or 25.0%, over the
first quarter of 2001. The increase is primarily attributable to
the addition of the Georgia and Alabama offices, higher
commissions related to mortgage banking, increased pension costs
and higher healthcare insurance premiums. Pension costs and
healthcare premiums are expected to increase throughout 2002 by
approximately 60% and 24%, respectively. The higher pension
costs 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.
Occupancy expense, including premises, furniture, fixtures and
equipment increased $573,000, or 21.1%, over the first quarter of
2001. The increase was partially due to the addition of eight
offices added with the Georgia acquisitions and the completion of
the data processing systems conversion. The Company experienced
an increase in depreciation of $277,000 or 28.8% from the
comparable period in 2001. The increase in depreciation was
attributable to the assets added through acquisitions and the
implementation of a new data processing system. Additional
increases were experienced in maintenance contracts, primarily
associated with running dual processing systems through February
2002. Utilities and office leases attributable to the new
Georgia and Alabama offices also contributed to the higher
expense levels.
Conversion / Merger-related expenses for the first quarter of
2002 totaled $114,000. The Company did not experience merger-
related costs for the comparable period in 2001. Merger-related
costs for the first quarter of 2002 consist primarily of
severance payments.
Other noninterest expense increased $828,000, or 15.0%. The
increase was the result of: (1) higher telephone costs of
$192,000 resulting from the Georgia acquisitions and ongoing
costs attributable to expansion of the existing wide-area
network; (2) higher courier costs of $104,000 resulting from the
Georgia expansion; (3) increased commission service costs of
$114,000 resulting from higher transaction volumes in merchant
services, and (4) other losses of $130,000 primarily due to fraud
losses; (5) bank service charge analysis fees of $80,000 due to
higher transaction volume and lower earnings rate on compensating
balances; (6) miscellaneous costs of $125,000 reflective of
increases in special assets costs, loan closing costs, credit
information costs and education expense.
Net noninterest expense (noninterest income minus noninterest
expense, net of intangible amortization) as a percent of average
assets was 2.38% in the first quarter of 2002 compared to 1.98%
in 2001. The Company's efficiency ratio (noninterest expense,
net of intangible amortization, expressed as a percent of the sum
of taxable-equivalent net interest income plus noninterest
income) was 64.88% in the first quarter 2002 compared to 63.12%
for the comparable quarter in 2001.
Income Taxes
- ------------
The provision for income taxes increased $449,000, or 19.4%, over
the first quarter of 2001, reflecting higher taxable income and a
decline in tax-exempt income. The Company's effective tax rate
for the first quarter of 2002 was 35.1% compared to 34.7% for the
same quarter in 2001. The increase in the effective tax rate is
attributable to a higher operating profit and a reduction in tax
exempt municipal interest.
FINANCIAL CONDITION
The Company's average assets increased $177.6 million, or 11.3%,
from $1.6 billion at March 31, 2001 to $1.7 billion in the
comparable quarter of 2001. Average earning assets increased to
$1.6 billion for the three months ended March 31, 2002, an
increase of $158.9 million, or 11.2% from the comparable quarter
of 2001. The change in the mix of earning assets reflects the
March 2001 Georgia acquisitions and continued loan generation,
partially offset by a decline in investment securities. Loan
growth was funded through liquidity generated from acquisitions,
deposit growth and the maturity of the investment securities.
Table I on page 22 presents average balances for the three months
ended March 31, 2002 and 2001.
Average loans increased $145.2 million, or 13.6%, over the
comparable period in 2001. Loan growth was strong during 2001,
helping generate the loan levels at first quarter-end 2002.
Approximately $90 million in loans were added through the Georgia
acquisitions. The remaining loan additions were a result of
increases in all loan categories in existing markets. Loans as a
percent of average earning assets increased to 78.4% for the
first quarter of 2002, compared to 76.4% for the first quarter of
2001. Loan balances have slowly declined since the fourth
quarter of 2001, with marginal growth expected during the second
quarter. Price and product competition remain strong. With the
lower rate environment, there continues to be an increased demand
for fixed-rate, longer term financing.
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.
Management maintains the allowance for loan losses at a level
sufficient to provide for the estimated credit losses inherent in
the loan portfolio as of the balance sheet date. Credit losses
arise from the borrowers' ability and willingness to repay, and
from other risks inherent in the lending process, including
collateral risk, operations risk, concentration risk and economic
risk. All related risks of lending are considered when assessing
the adequacy of the loan loss reserve. The allowance for loan
losses is established through a provision charged to expense.
Loans are charged against the allowance when management believes
collection of the principal is unlikely. The allowance for loan
losses is based on management's judgment of overall loan quality.
This is a significant estimate based on a detailed analysis of
the loan portfolio. The balance can and will change based on
changes in the assessment of the portfolio's overall credit
quality. Management evaluates the adequacy of the allowance for
loan losses on a quarterly basis.
The allowance for loan losses at March 31, 2001 was $12.1
million, slightly higher than the $11.8 million recorded at March
31, 2001. The allowance as a percent of total loans was 0.98% in
2002, versus 1.01% at March 31, 2001. 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
March 31, 2002 is adequate to absorb losses inherent in the loan
portfolio at quarter-end.
The Company continues to operate with a high level of liquidity.
Average funds sold increased $66.8 million, or 110.0% from March
31, 2001 to $127.6 million. Liquidity approximating $102 million
was generated through the two Georgia acquisitions in March of
2001. For a further discussion on liquidity see the section
"Liquidity and Capital Resources."
The investment portfolio is a significant component of the
Company's operations and, as such, it functions as a key element
of liquidity and asset/liability management. As of March 31,
2002 the average investment portfolio decreased $54.4 million, or
19.9%, from the first quarter of 2001. The decline reflects
management's decision not to reinvest in the securities portfolio
in anticipation of future loan growth. Slowing loan growth in
the first quarter of 2002 has generated a higher level of
liquidity. During the first quarter of 2002, the Company
averaged overnight funds of $127.6 million. Management has
authorized purchases in the investment portfolio during the
second quarter to reduce the Company's overall level of overnight
funds.
Securities in the available-for-sale portfolio are recorded at
fair value and unrealized gains and losses associated with these
securities are recorded, net of tax, as a separate component of
shareowners' equity. At March 31, 2002, shareowners' equity
included a net unrealized gain of $2.0 million compared to a gain
of $2.4 million at December 31, 2001. The decrease in value
reflects a slight increase in interest rates during the first
quarter.
At March 31, 2002, the Company's nonperforming loans were $2.8
million versus $2.4 million at year-end 2001. As a percent of
nonperforming loans, the allowance for loan losses represented
421% at March 31, 2002 versus 497% at December 31, 2001 and 311%
at March 31, 2001. Nonperforming loans include nonaccruing and
restructured loans. Other real estate, which includes property
acquired either through foreclosure or by receiving a deed in
lieu of foreclosure, was $1.4 million at March 31, 2002, versus
$1.5 million at December 31, 2001 and $1.1 million at March 31,
2001. The ratio of nonperforming assets as a percent of loans
plus other real estate was .35% at March 31, 2002 compared to
...32% at December 31, 2001 and .42% at March 31, 2001.
Average deposits increased 12.8% from $1.3 billion in the first
quarter of 2001, to $1.5 billion in the first quarter of 2002.
The increase in deposits is primarily attributable to the Georgia
acquisitions in the first quarter of 2001. Excluding
acquisitions, existing markets realized growth primarily in NOW
accounts and noninterest-bearing demand accounts. The Company
experienced a decline in certificates of deposit during the
second half of 2001 through the first quarter of 2002. This
decline was primarily attributable to the relatively low level of
interest rates. However, the decline in certificates during this
time 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.
The ratio of average noninterest bearing deposits to total
deposits was 23.4% for the first quarter of 2002 compared to
21.0% for the first quarter of 2001. For the same periods, the
ratio of average interest bearing liabilities to average earning
assets was 76.8% compared to 79.3%.
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 parent company maintains a $25.0 million
revolving line of credit. As of March 31, 2002, the Company had
no borrowings under the revolving line of credit; the Company
borrowed $775,000 during th quarter and repaid the balance prior
to quarter-end.
The Company generated approximately $102 million in liquidity
through its two Georgia acquisitions in March 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.
The Company's equity capital was $174.6 million as of March 31,
2002 compared to $171.8 million as of December 31, 2000.
Management continues to monitor its capital position in relation
to its level of assets with the objective of maintaining a strong
capital position. The leverage ratio was 7.87% at March 31, 2002
compared to 7.53% at December 31, 2001. Further, the Company's
risk-adjusted capital ratio of 12.65% at March 31, 2002, exceeds
the 8.0% minimum requirement under the risk-based regulatory
guidelines.
Adequate capital and financial strength is paramount to the
stability of CCBG and its subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on the
Company's capital levels. Although a consistent dividend payment
is believed to be favorably viewed by the financial markets and
shareowners, the Board of Directors will declare dividends only
if the Company is considered to have adequate capital. Future
capital requirements and corporate plans are considered when the
Board considers a dividend payment. Dividends declared and paid
during the first quarter totaled $.1525 per share compared to
$.1475 in the prior quarter, an increase of 3.4%. The dividend
payout ratios for the first quarter ended 2002 and 2001 were
31.3% and 34.6%, respectively.
State and federal regulations as well as the Company's long-term
debt agreements place certain restrictions on the payment of
dividends by both the Company and its subsidiary banks. At March
31, 2002, these regulations and covenants did not impair the
Company's (or its subsidiaries') ability to declare and pay
dividends or to meet other existing obligations in the normal
course of business.
During the first three months of 2002, shareowners' equity
increased $2.8 million, or 6.6%, on an annualized basis. Growth
in equity during the first quarter was positively impacted by net
income of $5.1 million and the issuance of common stock of
$300,000. Equity was reduced by dividends paid during the first
quarter of $1.6 million, or $.1525 per share, the repurchase of
common stock of $600,000 and a reduction in the net unrealized
gain on available-for-sale securities of $400,000. At March 31,
2002, the Company's common stock had a book value of $16.38 per
diluted share compared to $16.08 at December 31, 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. Purchases are made in the open market or in privately
negotiated transactions. The Company acquired 41,000 shares
during the first quarter of 2002, 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 May 15, 2002, the Company repurchased 417,074 shares
at an average purchase price of $23.74 per share.
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
charge-backs 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 included herein have been
prepared by the Company, without audit, in accordance with
accounting principles generally accepted in the U.S., which
require the Company to make various estimates and assumptions.
The principles which materially affect its financial position,
results of operations and cash flows are set forth in the Notes
to Consolidated Financial Statements included in the Company's
2001 Annual Report on Form 10-K. 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.
Intangible Assets: Intangible assets consist primarily of
goodwill and core deposit assets that were recognized in
connection with the various acquisitions. Goodwill represents
the excess of the cost of acquired businesses over the fair
market value of their identifiable net assets. In 2002, the
Company adopted SFAS No. 142. The adoption of the pronouncement
requires the discontinuance of goodwill amortization and includes
provisions for reassessment of the useful lives of existing
intangibles and the identification of reporting units for
purposes of assessing potential future impairments of goodwill.
SFAS No. 142 also requires the Company to complete a two-step
transitional goodwill impairment test. The first step of the
impairment test must be completed six months from the date of
adoption and the second step must be completed as soon as
possible, but no later than the end of the year of initial
application. The Company expects to complete the first step of
the impairment test by June 30, 2002. Impairment testing
requires management to make significant judgments and estimates
relating to the fair value of its identified reporting units.
Significant changes to these estimates may have a material impact
on the Company's reported results.
Core deposit assets represent the premium the Company paid for
core deposits. Core deposit intangibles are amortized on the
straight-line method over various periods ranging from 10 - 15
years, with the majority being written off over approximately 10
years. Generally, core deposits refer to nonpublic, nonmaturing
deposits (noninterest-bearing deposits, NOW, money market and
savings) and certificates of deposit equal to or less than
$100,000. The Company makes certain estimates relating to the
useful life of these assets, and rate of run-off based on the
nature of the specific assets and the customer bases acquired.
If there is a reason to believe there has been a permanent loss
in value, management will assess these assets for impairment.
Any changes in the original estimates resulting, may materially
affect reported earnings.
TABLE I
AVERAGE BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
For Three Months Ended March 31 2002 2001
----------------------------- -----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------------------------- -----------------------------
ASSETS
- ------
Loans, Net of Unearned
Interest<F1><F2> $1,229,344 $23,911 7.89% $1,082,961 $24,734 9.26%
Taxable Investment Securities 147,800 1,980 5.43% 189,414 2,777 5.94%
Tax-Exempt Investment
Securities<F2> 70,933 1,074 6.06% 83,701 1,281 6.12%
Funds Sold 127,621 516 1.60% 60,785 805 5.30%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 1,575,698 27,481 7.07% 1,416,861 29,597 8.46%
Cash & Due From Banks 72,266 64,761
Allowance for Loan Losses (12,231) (11,081)
Other Assets 112,478 100,046
---------- ----------
TOTAL ASSETS $1,748,211 $1,570,587
LIABILITIES
- -----------
NOW Accounts $ 230,696 $ 332 0.58% $ 203,842 $ 1,400 2.79%
Money Market Accounts 221,751 793 1.45% 169,221 1,706 4.09%
Savings Accounts 102,125 131 0.52% 105,416 612 2.34%
Other Time Deposits 569,166 5,590 3.98% 549,365 8,069 5.96%
---------- ------- ---- ----------- ------- ----
Total Interest Bearing
Deposits 1,123,738 6,847 2.47% 1,027,844 11,787 4.65%
Short-Term Borrowings 72,043 160 0.81% 78,952 1,111 5.70%
Long-Term Debt 13,801 189 5.57% 17,013 245 5.83%
Total Interest Bearing
Liabilities 1,209,582 7,197 2.41% 1,123,809 13,143 4.74%
---------- ------- ---- ---------- ------- ----
Noninterest Bearing Deposits 343,519 273,479
Other Liabilities 19,625 17,603
---------- ----------
TOTAL LIABILITIES 1,572,726 1,414,691
SHAREOWNERS' EQUITY
- -------------------
Common Stock 106 103
Surplus 17,064 12,010
Other Comprehensive Income 2,815 (566)
---------- ----------
Retained Earnings 155,500 143,349
TOTAL SHAREOWNERS'
EQUITY 175,485 155,896
---------- ----------
TOTAL LIABILITIES &
EQUITY $1,748,211 $1,570,587
Net Interest Rate Spread 4.66% 3.72%
---- ----
Net Interest Income $20,284 $16,454
------- -------
Net Interest Margin 5.22% 4.70%
---- ----
<FN>
<F1> Average balances include nonaccrual loans. Interest income includes fees on loans
of approximately $1.1 million and $0.9 million, for the three months ended March 31,
2002 and 2001, respectively.
<F2> Interest income includes the effects of taxable equivalent adjustments using a 35%
tax rate.
Item 3. Qualitative and Quantitative Disclosure for Market Risk
Overview
Market risk management arises from changes in interest rates,
exchange rates, commodity prices and equity prices. The Company
has risk management policies to monitor and limit exposure to
market risk. 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-than-
trading financial components, including the fair values, are
presented in Table II on page 25. This table presents the
Company's consolidated interest rate sensitivity position as of
March 31, 2002 based upon certain assumptions as set forth in the
Notes to the Table. The objective of interest rate sensitivity
analysis is to measure the impact on the Company's net interest
income due to fluctuations in interest rates. The asset and
liability values presented in Table II may not necessarily be
indicative of the Company's interest rate sensitivity over an
extended period of time.
The Company 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 II
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS<F1>
(Dollars in Thousands)
Other Than Trading Portfolio March 31, 2002
------------------------------------------------- Fair
Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value
---------- -------- -------- -------- -------- -------- ---------- ---------
Loans
Fixed Rate $ 109,670 $ 44,397 $ 80,907 $ 51,767 $ 53,918 $110,702 $ 451,361 $ 456,951
Average Interest Rate 5.66% 9.37% 8.67% 9.40% 8.61% 8.04% 7.93%
Floating Rate<F2> 437,628 51,906 98,803 82,410 87,794 20,233 778,774 788,419
Average Interest Rate 6.72% 7.67% 7.54% 7.85% 7.30% 7.33% 7.09%
Investment Securities<F3>
Fixed Rate 60,640 41,052 40,831 34,029 7,429 30,040 214,021 214,021
Average Interest Rate 6.50% 5.17% 4.78% 4.98% 5.28% 3.91% 5.27%
Floating Rate - 5,809 - - - - 5,809 5,809
Average Interest Rate - 5.01% - - - - 5.01%
Other Earning Assets
Floating Rates 172,875 - - - - - 172,875 23,916
Average Interest Rates 1.63% - - - - - 1.63%
Total Financial Assets $ 780,813 $143,164 $220,541 $168,206 $149,141 $160,975 $1,622,840 $1,589,116
Average Interest Rates 5.43% 7.37% 7.44% 7.75% 7.67% 7.18% 6.49%
Deposits<F4>
Fixed Rate Deposits $ 485,295 $ 36,891 $ 13,368 $ 3,638 $ 4,014 $ 16 $ 543,222 $ 547,594
Average Interest Rates 3.52% 3.70% 4.44% 5.21% 4.29% 4.28% 3.57%
Floating Rate Deposits 558,411 - - - - - 558,411 558,411
Average Interest Rates 0.37% - - - - - 0.37%
Other Interest Bearing
Liabilities
Fixed Rate Debt 1,104 1,108 1,006 948 954 8,196 13,316 13,157
Average Interest Rate 5.81% 5.81% 5.72% 5.66% 5.70% 5.89% 5.84%
Floating Rate Debt 94,288 - - - - - 94,288 94,288
Average Interest Rate 0.80% - - - - - 0.80%
Total Financial
Liabilities $1,139,098 $ 37,999 $ 14,374 $ 4,586 $ 4,968 $ 8,212 $1,209,237 $1,213,450
Average interest Rate 1.75% 3.76% 4.53% 5.30% 4.56% 5.89% 1.90%
<FN>
<F1> Based upon expected cashflows, 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 Year 1.
Other time deposit balances are classified according to maturity.
</FN>
PART II. OTHER INFORMATION
ITEMS 1-4.
Not applicable.
ITEM 5. OTHER INFORMATION
Arthur Andersen audited our accounts for fiscal 2001. As
previously reported, in light of the recent business and legal
developments affecting the firm, our Audit Committee has begun a
comprehensive review and selection process to recommend to the
Board of Directors the selection of an independent auditor for
fiscal year 2002. The Audit Committee continues to monitor
developments at Arthur Andersen and will make a recommendation to
our Board of Directors as to the firm that will be engaged to
audit our accounts for fiscal 2002 after further evaluation.
In reliance on Release No. 34-45589 under Securities Exchange Act
of 1934, the Company's interim financial statements contained in
this Quarterly Report on Form 10-Q have not been reviewed by an
independent public accountant pursuant to Rule 10-01 of
Regulation S-X. The interim financial statements will be
reviewed by our accountants for the fiscal year 2002 after they
are selected. If in the opinion of the accountants any changes
to the interim financial statements are required, we will file an
amended Report on Form 10-Q in accordance with the release.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Not applicable
(B) Reports on Form 8-K
Capital City Bank Group, Inc. filed no reports on Form 8-K during
the first quarter 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned Chief Financial Officer hereunto
duly authorized.
CAPITAL CITY BANK GROUP, INC.
(Registrant)
/s/ J. Kimbrough Davis
- ---------------------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: May 15, 2002