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, 2002
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]
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of February 28, 2003, there were issued and outstanding 10,565,476 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
a on February 28, 2003, was $184.6 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 2002 ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
- ------ ----
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
- -------
Item 5. Market for the Registrant's Common Equity and Related
Shareowner Matters 16
Item 6. Selected Financial & Other Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 45
Item 8. Financial Statements and Supplementary Data 47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 78
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant 78
Item 11. Executive Compensation 78
Item 12. Security Ownership of Certain Beneficial Owners and
Management 78
Item 13. Certain Relationships and Related Transactions 79
PART IV
- -------
Item 14. Evaluation, Disclosure Controls and Procedures /
Changes in Internal Controls 79
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 80
INTRODUCTORY NOTE
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."
2
PART I
Item 1. Business
General
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, 2002, the Company had consolidated total assets of $1.8
billion and shareowners' equity of $186.5 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, 2002, and 100%
of consolidated net income of the Company for the year ended December 31,
2002. 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, Inc. and FNB Financial Services, Inc.,
all of which are wholly-owned subsidiaries of Capital City Bank.
On March 9, 2001, the Company completed a purchase and assumption transaction
with Wachovia Bank, NA, formerly First Union National Bank ("Wachovia") and
acquired six of Wachovia'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 approximately $18
million in loans and assumed deposits of approximately $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
approximately $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 intangible
assets, primarily goodwill.
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" in this Item 1 and Note 15 in the Notes to Consolidated
Financial Statements for additional information.
The Company had a total of 781 (full-time equivalent) associates at February
28, 2003. Page 17 contains other financial and statistical information about
the Company.
Banking Services
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.
3
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.
Data Processing Services
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 February 28, 2003,
the Services Company is providing computer services to six correspondent banks
which have relationships with Capital City Bank.
Trust Services
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 $343.2 million as of December 31, 2002, with
total assets under administration exceeding $422.1 million.
Brokerage Services
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, a member of 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
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 Bank competes 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 $560.8 million, or 39.1%, of
the Company's consolidated deposits at December 31, 2002.
4
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,
2002 2001 2000
----------------------------
Florida:
Bradford County 38.4% 41.4% 45.8%
Citrus County 3.3% 3.7% 3.8%
Clay County 3.2% 4.0% 4.1%
Dixie County 17.5% 18.7% 14.8%
Gadsden County 29.4% 30.7% 28.0%
Gilchrist County 38.5% 39.2% 48.3%
Gulf County 23.5% 23.1% 43.3%
Hernando County 1.0% 1.5% 1.6%
Jefferson County 27.1% 28.6% 28.9%
Leon County 18.4% 23.2% 20.9%
Levy County 34.0% 37.3% 36.5%
Madison County 19.0% 23.7% 21.3%
Pasco County .4% .8% 1.1%
Putnam County 12.5% 15.5% 22.4%
Suwannee County 9.1% 10.4% 19.4%
Taylor County 29.0% 33.4% 35.1%
Washington County 20.4% 22.5% 22.6%
Georgia:
Bibb County 3.1% 3.6% --
Burke County 12.4% 11.4% --
Grady County 31.5% 43.3% 43.5%
Troup County 10.9% 11.2% --
Alabama:
Chambers County 3.3% 3.4% --
Obtained from the September 30 Office Level Report published by the
Florida Bankers Association for each year.
Does not include Alachua, Marion and Wakulla counties where Capital City
Bank maintains residential mortgage lending offices only.
Obtained from the June 30 FDIC/OTS Summary of Deposits Report.
Entered the market in March 2001.
5
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, 2002.
Number of Number of Commercial
County Commercial Banks Bank Offices
- --------------------------------------------------------------
Florida:
Bradford 3 3
Citrus 10 37
Clay 11 23
Dixie 3 4
Gadsden 4 8
Gilchrist 3 5
Gulf 3 4
Hernando 12 29
Jefferson 2 2
Leon 14 57
Levy 3 11
Madison 5 5
Pasco 20 78
Putnam 6 11
Suwannee 4 4
Taylor 3 4
Washington 3 3
Georgia:
Bibb 10 56
Burke 5 10
Grady 5 8
Troup 8 20
Alabama:
Chambers 5 10
Obtained from the September 30 Office Level Report published by the
Florida Bankers Association for each year.
Obtained from the June 30 FDIC/OTS Summary of Deposits Report.
REGULATORY CONSIDERATIONS
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
- -------
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
6
a range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.
Financial Holding Companies
- ---------------------------
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
7
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 (the "Exchange
Act"), 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 Financial Services (the "Florida Department"). These
requirements will affect 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
8
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
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 demand
deposits, 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
The Federal Reserve requires all depository institutions to maintain reserves
against some 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
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
9
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
10
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.
On October 31, 2002, the Federal Reserve issued a new regulation, Regulation
W, effective April 1, 2003, that comprehensively implements Sections 23A and
23B of the FRA. Regulation W unifies in one public document the Federal
Reserve's interpretations of Sections 23A and 23B, including several new
interpretive proposals and addresses new issues arising as a result of the
expanded scope of non-banking activities engaged in by banks and bank holding
companies in recent years and those authorized for financial holding companies
under the Gramm-Leach-Bliley Act.
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) and
Section 13(k) of the Exchange Act relating to the prohibition on personal
loans to executives which exempts financial institutions in compliance with
the insider lending restrictions of Section 22(h) of the FRA.
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 the regulations 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.
11
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.
12
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 possess 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.
13
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.
USA Patriot Act of 2001
On October 26, 2001, the USA Patriot Act of 2001 (the "Patriot Act") was
enacted in response to the terrorist attacks occurring on September 11, 2001.
The Patriot Act is intended to strengthen the U.S. law enforcement and
intelligence communities' ability to work together to combat terrorism. Title
III of the Patriot Act, the International Money Laundering Abatement and Anti-
Terrorist Financing Act of 2001, amended the Bank Secrecy Act and adopted
additional provisions that increased the obligations of financial
institutions, including the Bank, to identify their customers, watch for and
report upon suspicious transactions, respond to requests for information by
federal banking and law enforcement agencies, and share information with other
financial institutions.
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.
14
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 with 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.
Website Access to Company's Reports
Capital City Bank Group Inc.'s internet website is www.ccbg.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Exchange Act are available free of charge through our
website as soon as reasonably practicable after they are electronically filed
with, or furnished to, the Securities and Exchange Commission.
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. The annual lease provides for payments of approximately
$85,000, to be adjusted for inflation in future years.
As of February 28, 2003, the Company had 54 banking locations. Of the 54
locations, the Company leases the land, buildings or both at 11 locations and
owns the land and buildings at the remaining 43.
15
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 1,457
shareowners of record at February 28, 2003.
2002 2001
------------------------------ ------------------------------
Fourth Third Second First Fourth Third Second First
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------------------------------ ------------------------------
Common stock price:
High $40.05 $36.94 $34.80 $27.50 $24.67 $25.25 $25.00 $26.13
Low 27.83 27.90 25.75 22.65 21.90 20.87 19.88 23.13
Close 39.19 33.06 34.53 27.00 24.23 23.47 24.87 25.19
Cash dividends
declared per share .1700 .1525 .1525 .1525 .1525 .1475 .1475 .1475
Future payment of dividends will be subject to determination and 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 42. These restrictions may limit the Company's ability to
pay dividends to its shareowners. As of February 28, 2003, the Company does
not believe these restrictions will impair the Company's ability to declare
and pay its routine and customary dividends.
16
Item 6. Selected Financial & Other Data
(Dollars in Thousands, Except Per Share Data)
For the Years Ended December 31,
----------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Interest Income $ 106,095 $ 118,983 $ 109,334 $ 99,685 $ 89,010
Net Interest Income 83,592 70,734 63,100 58,438 53,762
Provision for Loan Losses 3,297 3,983 3,120 2,440 2,439
Net Income 23,082 16,866 18,153 15,252 15,294
Per Common Share:
Basic Net Income $ 2.18 $ 1.59 $ 1.78 $ 1.50 $ 1.51
Diluted Net Income 2.17 1.59 1.78 1.50 1.50
Cash Dividends Declared .6275 .595 .545 .5525 .45
Diluted Book Value 17.60 16.08 14.56 12.96 12.69
Based on Net Income:
Return on Average Assets 1.34% 0.99% 1.24% 1.06% 1.30%
Return on Average Equity 12.85 10.00 12.99 11.64 12.37
Dividend Pay-out Ratio 28.92 37.42 30.62 32.86 28.20
Averages for the Year:
Loans, Net of Unearned
Interest $1,256,107 $1,184,290 $1,002,122 $ 884,323 $ 824,197
Earning Assets 1,556,500 1,534,548 1,315,024 1,291,262 1,065,677
Assets 1,727,180 1,704,167 1,463,612 1,444,069 1,180,785
Deposits 1,424,999 1,442,916 1,207,103 1,237,405 985,119
Long-Term Debt 30,423 15,308 13,070 17,274 18,041
Shareowners' Equity 179,652 168,652 139,738 131,058 123,647
Year-End Balances:
Loans, Net of Unearned
Interest $1,285,221 $1,243,351 $1,051,832 $ 928,486 $ 844,217
Earning Assets 1,636,472 1,626,841 1,369,294 1,263,296 1,288,439
Assets 1,824,771 1,821,423 1,527,460 1,430,520 1,443,675
Deposits 1,434,200 1,550,101 1,268,367 1,202,658 1,253,553
Long-Term Debt 71,745 13,570 11,707 14,258 18,746
Shareowners' Equity 186,531 171,783 147,607 132,216 128,862
Equity to Assets Ratio 10.22% 9.43% 9.66% 9.24% 8.93%
Other Data:
Basic Average Shares
Outstanding 10,580,228 10,593,566 10,186,199 10,174,945 10,146,393
Diluted Average Shares
Outstanding 10,619,484 10,633,948 10,214,842 10,196,233 10,167,630
Shareowners of Record 1,457 1,473 1,599 1,362 1,334
Banking Locations 54 56 56 48 46
Full-Time Equivalent Associates 781 787 791 678 677
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.
As of the record date. The record date is on or about March 1st of the following year.
17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL REVIEW
Management's discussion and analysis 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 subsections entitled "Results of Operations," "Financial
Condition," "Liquidity and Capital Resources" and "Accounting Policies."
Information therein should facilitate a better understanding of the major
factors and trends that affect the Company's earnings performance and
financial condition, and how the Company's performance during 2002 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 period-to-date averages used in this report are based on daily balances
for each respective period. In certain circumstances, comparing average
balances for the 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.
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;
. Changes in U.S. foreign or military policy;
. The timely development of competitive new products and services by us and
the acceptance of those products and services by new and existing
customers;
. The willingness of customers to accept third-party products marketed by
us;
18
. 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 noninterest or fee income being less
than expected;
. Unanticipated regulatory or judicial proceedings;
. The impact of changes in accounting policies by the Securities and
Exchange Commission;
. Adverse changes in the financial performance and/or condition of our
borrowers, which could impact the repayment of those borrowers'
outstanding loans; and
. Our success at managing the risks involved in the foregoing.
We caution that the foregoing list of important factors is not exhaustive.
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.
On March 9, 2001, the Company completed a purchase and assumption transaction
with Wachovia Bank, NA, formerly First Union National Bank ("Wachovia") and
acquired six of Wachovia'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 approximately $18
million in loans and assumed deposits of approximately $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
approximately $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 intangible
assets, primarily goodwill.
The Company is headquartered in Tallahassee and, as of December 31, 2002, had
54 offices covering 17 counties in Florida, four counties in Georgia and one
county in Alabama.
19
EARNINGS ANALYSIS
Earnings, after considering the effects of conversion/merger-related expenses
(primarily integration costs which include severance payments and system
conversion costs) and intangible amortization, were $23.1 million, or $2.17
per diluted share. This compares to $16.9 million, or $1.59 per diluted share
in 2001 and $18.2 million, or $1.78 per diluted share in 2000. During 2002,
conversion/merger-related expenses, net of taxes, totaled $130,000, or $.01
per diluted share, compared to $361,000, or $.03 per diluted share in 2001 and
$482,000, or $.05 per diluted share in 2000. Amortization of intangible
assets, net of taxes, in 2002 totaled $2.0 million, or $.19 per diluted
share, compared to $2.6 million, or $.24 per diluted share in 2001, and $1.9
million, or $.19 per diluted share in 2000. The decline in amortization was a
result of adopting SFAS No. 142.
The increase in earnings was attributable to 17.5% growth in operating
revenues due to improvements in net interest income of 18.2% and noninterest
income of 16.0%. The net interest margin increased 74 basis points over 2001
to a level of 5.47%, attributable to a 169 basis point reduction in the
Company's cost of funds. Growth in noninterest income resulted from increased
mortgage banking revenues reflecting the higher volume of fixed-rate
residential mortgages sold to the secondary market, a sale of selected long-
term adjustable rate mortgage loans and an increase in service charge fees.
The loan sale recorded in the fourth quarter generated an after-tax gain of
approximately $0.04 per diluted share. These and other significant 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,
--------------------------------------
2002 2001 2000
--------------------------------------
Interest Income $106,095 $118,983 $109,334
Taxable Equivalent Adjustments 1,682 1,775 1,577
-------- -------- --------
Total Interest Income (FTE) 107,777 120,758 110,911
Interest Expense 22,503 48,249 46,234
-------- -------- --------
Net Interest Income (FTE) 85,274 72,509 64,677
Provision for Loan Losses 3,297 3,983 3,120
Taxable Equivalent Adjustments 1,682 1,775 1,577
-------- -------- --------
Net Interest Income After Provision
for Loan Losses 80,295 66,751 59,980
Noninterest Income 37,176 32,037 26,769
Noninterest Expense 81,698 72,804 59,147
-------- -------- --------
Income Before Income Taxes 35,773 25,984 27,602
Income Taxes 12,691 9,118 9,449
-------- -------- --------
Net Income $ 23,082 $ 16,866 $ 18,153
======== ======== ========
Basic Net Income Per Share $ 2.18 $ 1.59 $ 1.78
======== ======== ========
Diluted Net Income Per Share $ 2.17 $ 1.59 $ 1.78
======== ======== ========
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 2002, taxable equivalent net interest income increased $12.8 million, or
17.6%. This follows an increase of $7.8 million, or 12.1%, in 2001, and $4.5
million, or 7.4%, in 2000. Lower interest rates paid on deposit products and
a decline
20
in interest bearing liabilities led to a net reduction in interest expense of
$25.7 million over 2001. This favorable variance was partially offset by
declining yields on earning assets, which produced a decline in taxable
equivalent interest income of $13.0 million. Over the last two years,
management has aggressively repriced interest bearing liabilities in response
to the Federal Reserve's rapid reduction in its target rate on overnight
funds.
21
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
2002 2001 2000
------------------------------ ------------------------------ -----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------ ------------------------------ -----------------------------
Assets:
Loans, Net of Unearned
Interest $1,256,107 $ 95,222 7.58% $1,184,290 $102,737 8.68% $1,002,122 $ 92,486 9.23%
Taxable Investment
Securities 135,865 6,941 5.11 170,328 9,619 5.65 199,234 11,701 5.87
Tax-Exempt Investment
Securities 68,915 4,133 6.00 78,928 4,792 6.07 92,440 5,403 5.84
Funds Sold 95,613 1,481 1.53 101,002 3,610 3.55 21,228 1,321 6.22
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total Earning Assets 1,556,500 107,777 6.92 1,534,548 120,758 7.87 1,315,024 110,911 8.43
Cash & Due From Banks 72,960 69,242 62,202
Allowance For Loan Losses (12,409) (11,910) (10,468)
Other Assets 110,129 112,287 96,854
TOTAL ASSETS $1,727,180 $1,704,167 $1,463,612
Liabilities:
NOW Accounts $ 241,873 $ 1,272 0.53% $ 214,881 $ 4,046 1.88% $ 174,853 $ 4,444 2.54%
Money Market Accounts 224,275 2,904 1.30 208,526 6,237 2.99 160,258 6,673 4.16
Savings Accounts 104,967 500 0.48 108,284 1,865 1.72 106,072 2,446 2.31
Time Deposits 493,956 15,875 3.21 604,909 33,066 5.47 496,699 26,896 5.42
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total Interest
Bearing Deposits 1,065,071 20,551 1.93 1,136,600 45,214 3.98 937,882 40,459 4.31
Short-Term Borrowings 72,594 767 1.06 58,111 2,164 3.72 86,119 4,968 5.77
Long-Term Debt 30,423 1,185 3.90 15,308 871 5.69 13,070 807 6.17
-------- ---- -------- ---- -------- ----
Total Interest
Bearing Liabilities 1,168,088 22,503 1.93 1,210,019 48,249 3.99 1,037,071 46,234 4.46
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Noninterest Bearing Deposits 359,928 306,316 269,221
Other Liabilities 19,512 19,180 17,582
---------- ---------- ----------
TOTAL LIABILITIES 1,547,528 1,535,515 1,323,874
Shareowners' Equity:
Common Stock 106 106 102
Additional Paid-In Capital 15,362 18,966 9,188
Retained Earnings 164,184 149,580 130,448
---------- ---------- ----------
TOTAL SHAREOWNERS' EQUITY 179,652 168,652 139,738
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,727,180 $1,704,167 $1,463,612
========== ========== ===========
Interest Rate Spread 4.99% 3.88% 3.97%
==== ==== ====
Net Interest Income $ 85,274 $ 72,509 $ 64,677
======== ======== ========
Net Interest Margin 5.47% 4.73% 4.91%
==== ==== ====
Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $4.6 million, $4.3 million
and $4.0 million in 2002, 2001 and 2000, respectively.
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.
Taxable equivalent net interest income divided by average earning assets.
22
Table 3
RATE/VOLUME ANALYSIS
(Taxable Equivalent Basis - Dollars in Thousands)
2002 Changes from 2001 2001 Changes from 2000
-------------------------------- ---------------------------------
Due To Due To
Average Average
-------------------- ---------------------
Total Volume Rate Total Volume Rate
- ------------------------------------- -------------------------------- ---------------------------------
Earning Assets:
Loans, Net of Unearned Interest $(7,515) $6,698 $(14,213) $10,251 $16,814 $(6,563)
Investment Securities:
Taxable (2,678) (1,987) (691) (2,082) (1,697) (385)
Tax-Exempt (659) (608) (51) (611) (789) 178
Funds Sold (2,129) (215) (1,914) 2,289 4,962 (2,673)
------- ------ -------- ------- ------- -------
Total (12,981) 3,888 (16,869) 9,847 19,290 (9,443)
------- ------ -------- ------- ------- -------
Interest Bearing Liabilities:
NOW Accounts (2,774) 509 (3,283) (398) 1,017 (1,415)
Money Market Accounts (3,333) 471 (3,804) (436) 2,008 (2,444)
Savings Accounts (1,365) (57) (1,308) (581) 51 (632)
Time Deposits (17,191) (6,065) (11,126) 6,170 5,865 305
Short-Term Borrowings (1,397) 447 (1,844) (2,804) (1,616) (1,188)
Long-Term Debt 314 860 (546) 64 138 (74)
------- ------ -------- ------- ------- -------
Total (25,746) (3,835) (21,911) 2,015 7,463 (5,448)
------- ------ -------- ------- ------- -------
Changes in Net Interest Income $12,765 $7,723 $ 5,042 $ 7,832 $11,827 $(3,995)
======= ====== ======== ======= ======= =======
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.
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.
23
For the year 2002, taxable equivalent interest income decreased $13.0 million,
or 10.7%, over 2001, compared to an increase of $9.8 million, or 8.9%, in 2001
over 2000. New loan production and repricing of existing earning assets
produced a 95 basis point reduction in the yield on earning assets, which
declined from 7.87% for 2001 to 6.92% for 2002. This compares to a 56 basis
point reduction in 2001 over 2000. The unfavorable impact of declining yields
was partially mitigated by growth in earning assets of $22 million and an
overall improvement in the mix. As shown in Table 3, the loan portfolio was
the largest contributor to the net reduction in interest income. In the
current rate environment, portfolio repricing will continue to put pressure on
interest income, but may be partially or completely offset by earning asset
growth.
Interest expense decreased $25.7 million, or 4.4%, over 2001, compared to an
increase of $2.0 million, or 4.4%, in 2001 over 2000. The general decline in
interest rates produced favorable rate variances on interest bearing
liabilities throughout the year. This was further enhanced by a favorable
shift in mix, as certificates of deposit (generally a higher cost deposit
product) declined relative to total deposits. Certificates of deposit, as a
percent of total average deposits, declined from 41.9% in 2001 to 34.7% in
2002. Lower interest rates and a favorable shift in mix led to a decline in
the average rate paid on interest bearing liabilities in 2002 of 206 basis
points compared to 2001.
Late in the third quarter, the Company obtained a $75 million advance from the
Federal Home Loan Bank to fund anticipated future loan growth. The advance
carries a weighted average rate of 2.51%. Initially, this transaction will
adversely impact the margin as the monies will be invested in overnight funds
until deployed into the loan portfolio.
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) increased 111 basis points in 2002 and decreased 9 basis points
in 2001. The significant increase in 2002 is attributable to management's
ability to rapidly adjust the average rate paid on interest bearing
liabilities relative to the decline in yield on earning assets. The decrease
in 2001 was attributable to the lower earning asset yield.
The Company's net interest margin (defined as taxable equivalent interest
income less interest expense divided by average earning assets) was 5.47% in
2002, compared to 4.73% in 2001 and 4.91% in 2000. In 2002, the lower rates
paid on interest bearing liabilities and the higher volume of earning assets
resulted in a 74 basis point increase in the margin.
Repricing of maturing certificates of deposit and continued loan growth are
anticipated to have a favorable impact on the net interest margin during the
upcoming year. However, this may be partially or completely offset by
unfavorable repricing variances associated with loans and securities and any
further changes in the Federal Reserve's target rate on overnight funds.
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 $3.3 million in 2002, compared to $4.0
million in 2001 and $3.1 million in 2000. The decrease in the 2002 provision
reflects the Company's lower level of charge-offs and stable credit quality.
The Company experienced improvement in the credit quality of its consumer loan
portfolio reflecting recent adjustments to its underwriting criteria. In
2002, consumer loan
24
net charge-offs declined both in terms of absolute dollars and as a
percentage of total net charge-offs.
Net charge-offs remain at historically low levels relative to the size of the
portfolio. In 2002, the decrease of $759,000 is largely due to lower gross
charge-offs and improved recovery efforts. The Company's nonperforming assets
ratio decreased to 0.30% from 0.32% at year-end 2001, and the net charge-off
ratio decreased to .23% versus .31% in 2001.
At December 31, 2002, the allowance for loan losses totaled $12.5 million
compared to $12.1 million in 2001. At year-end 2002, 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:
2002 2001 2000
----------------------------
Provision for Loan Losses as a
Multiple of Net Charge-offs 1.1x 1.1x 1.3x
Pre-tax Income Plus Provision
for Loan Losses as a Multiple
of Net Charge-offs 13.5x 8.2x 12.4x
----------------------------
Noninterest Income
In 2002, noninterest income increased $5.1 million, or 16.0%, and represented
30.4% of taxable equivalent operating revenue, compared to an increase of $5.3
million, or 19.7%, and 30.6%, respectively, in 2001. The increase in the
level of noninterest income is attributable primarily to growth in service
charge income on deposit accounts, mortgage banking revenues, and other
income. The increase in 2001 was primarily attributable to all categories
except data processing revenues. Factors affecting noninterest income are
discussed below.
Service charges on deposit accounts increased $2.1 million, or 19.7%, in 2002,
compared to an increase of $1.3 million, or 13.5%, in 2001. 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 2002 reflects an increase in the number of
accounts primarily attributable to the 2001 Georgia acquisitions and the
introduction of a new overdraft protection program in the fourth quarter of
2002. A full year (versus a partial year in 2002) of the overdraft protection
program will result in higher revenues in 2003. The increase in 2001 is
primarily attributable to the Georgia acquisitions.
Data processing revenues decreased $73,000, or 3.5%, in 2002 versus a decrease
of $446,000, or 17.7%, in 2001. The data processing center provides computer
services to both financial and non-financial clients in North Florida and
South Georgia. The decrease in 2002 was primarily a result of a decline in
revenues from financial clients. The Company added a financial client late in
the fourth quarter of 2002, increasing the number being processed to six.
In 2002, processing revenues for non-financial entities represented
approximately 41.5% of total processing, compared to 35.9% in 2001. The
Company completed its systems conversion to a third-party provider for all
financial clients during the first quarter of 2002. Management does not
anticipate a significant increase in data processing revenues during 2003.
The decrease in total processing revenues for 2001 was primarily the result of
a decline in revenues for financial clients.
25
In 2002, asset management fees decreased $35,000, or 1.4%, versus an increase
of $121,000, or 5.0%, in 2001. Fees lost due to distributions and the decline
in stock market values over the past year have outpaced the incremental
revenues attributable to new business development. At year-end 2002, assets
under management totaled approximately $343 million, reflecting growth of $6.0
million, or 1.8%. This growth was attributable to the generation of new
accounts in existing markets, including new Georgia markets acquired in 2001.
At year-end 2001, assets under management totaled $337 million, reflecting
growth of $9.0 million, or 2.7% over 2000.
The Company continues to be among the leaders in the production of residential
mortgage loans in most of its markets. In 2002, mortgage banking revenues
increased $2.6 million, or 63.7%, compared to an increase of $2.8 million, or
217.5% in 2001. The Company generally sells all fixed rate residential loan
production into the secondary market. The low interest rates have produced a
high level of fixed rate production and increased mortgage banking revenues.
The further decline in interest rates during 2002 continued a trend of higher
levels of fixed rate mortgage production (in excess of 85% of total
production). During the fourth quarter, the Company sold $23.5 million of
residential real estate loans generating a pre-tax gain of approximately
$675,000. The level of interest rates, origination volume and percent of
fixed rate production is expected to impact the Company's ability to maintain
the current level of mortgage banking revenues throughout 2003. The increase
in revenue during 2001 reflects the declining rate environment experienced
throughout the year, which produced a high level of fixed rate production.
Other noninterest income increased $580,000, or 4.5%, in 2002 versus an
increase of $1.6 million, or 14.1% in 2001. The increase in 2002 was
attributable primarily to retail brokerage fees and ATM/debit/credit card
transaction fees. Retail brokerage fees increased $661,000, or 131.05% over
2001. The Company continues to strategically place investment advisors in its
office network and expand its customer relationships through sales of
investment management and brokerage products. ATM/debit/credit cards
increased $175,000, or 10.5%, due to higher transaction volume. The 2001
increase was primarily attributable to increased ATM/debit/credit card fees,
accounts receivable financing, credit-related insurance revenue and safe
deposit fees.
Noninterest income as a percent of average assets increased to 2.15% in 2002,
compared to 1.88% in 2001 and 1.83% in 2000, driven by service charge income,
mortgage banking revenues and retail brokerage fees.
Noninterest Expense
Noninterest expense for 2002 was $81.7 million, an increase of $8.9 million,
or 12.2%, over 2001, compared with an increase of $13.7 million, or 23.1%, in
2001. Factors impacting the Company's noninterest expense during 2002 and
2001 are discussed below.
The Company's aggregate compensation expense in 2002 totaled $43.2 million, an
increase of $5.5 million, or 14.7%, over 2001. The increase is primarily
attributable to the addition of the Georgia and Alabama offices, performance-
based compensation (profit participation, commissions and incentives),
increased pension costs and higher healthcare insurance premiums. 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 in recent years. Pension costs are expected to increase in
2003 by approximately 40%. Healthcare premiums are expected to continue to
increase due to additional participants and rising costs from healthcare
providers. In 2001, aggregate compensation increased $7.7 million, or 25.8%,
over 2000. This increase was
26
primarily due to the addition of associates from the Georgia acquisitions,
higher commissions related to mortgage banking, increased pension costs and
higher healthcare insurance premiums.
Occupancy expense (including furniture, fixtures and equipment) increased by
$726,000, or 5.7%, in 2002, compared to $2.3 million, or 21.6% in 2001.
The increase in 2002 was primarily due to the addition of nine offices added
with the Georgia acquisitions and the completion of the data processing
systems conversion. 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 office leases and
building maintenance/repairs. The increase in 2001 was attributable to higher
depreciation, maintenance, and utilities associated with the Georgia
acquisitions.
Other noninterest expense increased $2.6 million, or 11.7%, in 2002, compared
to $3.7 million, or 19.6%, in 2001. The increase in 2002 was attributable to:
(1) higher legal costs of $351,000 primarily resulting from merchant credit
card processing (see Section entitled "Other" in "Liquidity and Capital
Resources" for further discussion); (2) increased professional fees associated
with external audit, tax and pension consulting of $594,000; (3) increased
processing expenses of $390,000 associated with customization of a newly
implemented data processing system, increased ATM processing and trust account
processing; (4) increased contributions of $175,000 attributable to increased
funding for Capital City Bank Group Foundation, Inc.; (5) increased telephone
costs of $215,000 resulting from Georgia acquisitions and line upgrades to the
existing wide-area network; and (6) higher miscellaneous expense of $1.2
million attributable to: loan underwriting/closing costs ($302,000), other
losses/cash short ($304,000), credit card interchange fees ($262,000),
seminars/education ($139,000), and other miscellaneous ($248,000).
The increase in 2001 was attributable to: (1) higher legal costs of $241,000
associated with 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 systems
conversion; (3) increased advertising costs of $203,000; (4) higher intangible
amortization of $926,000 that resulted from Georgia acquisitions; (5)
commission service fees of $514,000; (6) higher postage costs of $256,000; and
(7) higher credit card interchange costs of $1.2 million.
The net noninterest expense ratio (defined as noninterest income minus
noninterest expense, net of intangible amortization and conversion/merger-
related expenses, as a percent of average assets) was 2.38% in 2002, compared
to 2.14% in 2001 and 1.97% in 2000. The Company's efficiency ratio (expressed
as noninterest expense, net of intangible amortization and conversion/merger-
related expenses, as a percent of taxable equivalent operating revenues) was
63.9%, 65.5% and 60.7% in 2002, 2001 and 2000, respectively.
Income Taxes
The consolidated provision for federal and state income taxes was $12.7
million in 2002, compared to $9.1 million in 2001 and $9.4 million in 2000.
The increase in the 2002 tax provision was a result of higher taxable income
and a decline in tax exempt income. The decrease in the 2001 tax provision
from 2000 was primarily attributable to lower taxable income.
The effective tax rate was 35.5% in 2002, 35.1% in 2001, and 34.2% in 2000.
These rates differ from the combined federal and state statutory tax rates due
primarily to tax-exempt income. The increase in the effective tax rate for
2002 is primarily
27
attributable to an increase in state taxable income as well as a 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 8.7% in
2002, 13.0% in 2001, and 19.8% in 2000. The decline during the past three
years was primarily a result of growth in pre-tax income, 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 totaled $1.7 billion, an increase of $23.0 million, or 1.3%, in
2002 versus the comparable period in 2001. Average earning assets increased
to $1.6 billion in 2002, a $22.0 million, or 1.4%, increase over 2001.
Throughout 2002, there has been a favorable shift in mix of earning assets as
the Company continues to experience net loan growth. Loan growth was
primarily funded through existing liquidity 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
Average loans increased $71.8 million, or 6.1%, over the comparable period in
2001. Slow loan growth in the first quarter was replaced with brisk to strong
growth for the remainder of 2002. Loans, on average, increased $5.4 million
in the second quarter, $31.8 million in the third quarter and $26.3 million in
the fourth quarter. Loans as a percent of average earning assets increased to
80.7% for the year, compared to 77.2% for the comparable period of 2001. At
December 31, 2002, this percentage had decreased to 78.5%, primarily a result
of a $23.5 million loan sale consummated in November. Loan growth has
occurred in all loan categories during the last three quarters of 2002 with
the exception of residential 1-4 family. The decline in residential 1-4
family was a result of the high level of refinancing activity that occurred in
2002. Fixed rate loan production was generated from the refinancing activity
and sold in the secondary market. The loan sale increased short-term
liquidity and will be used to fund future loan growth. Management anticipates
moderate to strong loan production during the first quarter of 2003 in the
majority of its markets.
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.
28
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances - Dollars in Thousands)
Components
2001 to Percentage of Average Earning Assets
2002 of Total -------------------------
Change Change 2002 2001 2000
- -------------------------------------------------------------------------------------
Loans:
Commercial, Financial
and Agricultural $10,277 46.8% 8.6% 8.0% 8.2%
Real Estate - Construction 1,170 5.3 5.3 5.3 5.2
Real Estate - Com'l Mortgage 52,293 238.2 20.7 17.6 16.9
Real Estate - Residential 5,194 23.7 32.6 32.8 32.4
Consumer 2,883 13.1 13.5 13.5 13.5
------- ----- ----- ----- -----
Total Loans 71,817 327.2 80.7 77.2 76.2
------- ----- ----- ----- -----
Securities:
Taxable (34,463) (157.0) 8.8 11.1 15.2
Tax-Exempt (10,013) (45.6) 4.4 5.1 7.0
------- ----- ----- ----- -----
Total Securities (44,476) (202.6) 13.2 16.2 22.2
------- ----- ----- ----- -----
Funds Sold (5,389) (24.6) 6.1 6.6 1.6
------- ----- ----- ----- -----
Total Earning Assets $21,952 100.0% 100.0% 100.0% 100.0%
======= ===== ===== ===== =====
The Company's average loan-to-deposit ratio increased from 82.1% in 2001, to
88.1% in 2002. This compares to an average loan-to-deposit ratio in 2000 of
83.0%. The higher average loan-to-deposit ratio in 2002 reflects both higher
loans and a decline in deposits.
Real estate loans, combined, represented 71.7% of total loans at December 31,
2002, versus 72.8% in 2001. This decline from the prior year reflects the
decline in 1-4 family residential loans discussed above. 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, 2002, based upon maturities. As a percent
of the total portfolio, loans with fixed interest rates represent 32.9% as of
December 31, 2002, versus 36.4% at December 31, 2001.
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
As of December 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------
Commercial, Financial and
Agricultural $ 141,459 $ 128,480 $ 108,340 $ 98,894 $ 91,246
Real Estate - Construction 91,110 72,778 84,133 62,166 51,790
Real Estate - Com'l Mortgage 356,807 302,239 231,099 214,036 542,044
Real Estate - Residential 474,069 530,546 444,489 383,536 -
Consumer 221,776 209,308 183,771 169,854 159,137
---------- ---------- ---------- -------- --------
Total Loans, Net of
Unearned Interest $1,285,221 $1,243,351 $1,051,832 $928,486 $844,217
========== ========== ========== ======== ========
Real Estate - Residential loan information included in Real Estate - Com'l
Mortgage category for 1998
29
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 $ 64,444 $ 68,955 $ 8,060 $ 141,459
Real Estate 152,019 125,660 644,307 921,986
Consumer 73,368 129,945 18,463 221,776
-------- -------- -------- ----------
Total $289,831 $324,560 $670,830 $1,285,221
======== ======== ======== ==========
Loans with Fixed Rates $195,707 $213,074 $ 14,640 $ 423,421
Loans with Floating or
Adjustable Rates 94,124 111,486 656,190 861,800
-------- -------- -------- ----------
Total $289,831 $324,560 $670,830 $1,285,221
======== ======== ======== ==========
Demand loans and overdrafts are reported in the category of one year or less.
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' inability 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. Loans that have been identified as impaired 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 based on the anticipated timing of the
receipt of cash payments from the borrower.
30
The reserve allocations assigned to impaired loans are sensitive to the extent
market conditions or the actual timing of cash receipts change.
Once specific reserves have been assigned to impaired loans, general reserves
are assigned to the remaining portfolio. General reserves are assigned to
commercial purpose loans exceeding $100,000 that are not impaired, but that
have weaknesses requiring closer management attention. General reserves are
also assigned to commercial purpose loans exceeding $100,000 that do not
exhibit weaknesses requiring closer monitoring. Finally, general reserves are
assigned to large groups of smaller-balance homogenous loans, including
commercial purpose loans less than $100,000, consumer loans, credit card loans
and residential mortgage loans.
Large commercial purpose loans exhibiting specific weaknesses are detailed in
a monthly Problem Loan Report. These loans are divided into ten different
pools based on various risk characteristics and the underlying value of
collateral taken to secure specific loans within the pools. These classified
loans are monitored for changes in risk ratings that are assigned based on the
Bank's Asset Classification Policy, and for the ultimate disposition of the
loan. The ultimate disposition may include upgrades in risk ratings, payoff
of the loan, or charge-off of the loan. This migration analysis results in a
charge-off ratio by loan pool of classified loans that is applied to the
balance of the pool to determine general reserves for specifically identified
problem loans. This charge-off ratio is adjusted for various environmental
factors including past due and nonperforming trends in the loan portfolio, the
micro-and macro-economic outlook, and credit administration practices as
determined by independent parties.
General reserves are assigned to large commercial purpose loans exceeding
$100,000 that do not exhibit weaknesses and pools of smaller-balance
homogenous loans based on calculated overall charge-off ratios over the past
three years. The charge-off ratios applied are adjusted as detailed above,
with further consideration given to the highest charge-off experience of the
bank dating back to the last national recession.
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 specific problem loans. Adjustments are made when
appropriate. An unallocated reserve is reflected in 2002 as a result of a
change in policy regarding the methodology of calculating a required reserve.
In previous years, the allowance for loan losses was compared to the highest
end of a range of required calculated reserves. This year, a most likely
reserve value was determined within the computed range of required calculated
reserve, with the actual allowance for loan losses compared to the most likely
reserve value. The unallocated reserve is monitored on a regular basis and
adjusted based on qualitative factors. Table 7 analyzes the activity in the
allowance over the past five years.
31
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
For the Years Ended December 31,
-----------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------
Balance at Beginning of Year $12,096 $10,564 $ 9,929 $9,827 $9,662
Acquired Reserves - 1,206 - - -
Charge-Offs:
Commercial, Financial
and Agricultural 818 483 626 480 127
Real Estate - Construction - - 7 - 15
Real Estate - Com'l Mortgage - 32 - 354 1,011
Real Estate - Residential 175 159 168 251 -
Consumer 3,279 3,976 2,387 2,113 2,004
------- ------- ------- ------ ------
Total Charge-Offs 4,272 4,650 3,188 3,198 3,157
------- ------- ------- ------ ------
Recoveries:
Commercial, Financial
and Agricultural 136 44 52 142 72
Real Estate - Construction - - 11 - 142
Real Estate - Com'l Mortgage 20 65 73 84 176
Real Estate - Residential 37 116 54 11 -
Consumer 1,181 768 513 623 493
------- ------- ------- ------ ------
Total Recoveries 1,374 993 703 860 883
------- ------- ------- ------ ------
Net Charge-Offs 2,898 3,657 2,485 2,338 2,274
------- ------- ------- ------ ------
Provision for Loan Losses 3,297 3,983 3,120 2,440 2,439
------- ------- ------- ------ ------
Balance at End of Year $12,495 $12,096 $10,564 $9,929 $9,827
======= ======= ======= ====== ======
Ratio of Net Charge-Offs
to Average Loans Outstanding .23% .31% .25% .26% .28%
======= ======= ======= ====== ======
Allowance for Loan Losses as a
Percent of Loans at End of Year .97% .97% 1.00% 1.07% 1.16%
======= ======= ======= ====== ======
Allowance for Loan Losses as a
Multiple of Net Charge-Offs 4.31x 3.31x 4.25x 4.25x 4.32x
======= ======= ======= ====== ======
Real Estate - Residential charge-off and recovery information is included in
the Real Estate - Com'l Mortgage category for 1998.
32
The allowance for loan losses at December 31, 2002 of $12.5 million compares
to $12.1 million at year-end 2001. The allowance as a percent of total loans
was 0.97% in 2002 and 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 December 31, 2002 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 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 increased $76,000, or 3.1%, from a level of
$2.4 million at December 31, 2001, to $2.5 million at December 31, 2002.
During 2002, loans totaling approximately $4.7 million were added, while loans
totaling $4.6 million were removed from nonaccruing status. Of the $4.6
million removed, $714,000 consisted of principal reductions, $1.4 million
represented loans transferred to other real estate, $2.4 million consisted of
loans brought current and returned to an accrual status and loans refinanced,
and $111,000 was charged off. Where appropriate, management has allocated
specific reserves to absorb anticipated losses. The majority (72%) of the
Company's charge-offs in 2002 were in the consumer portfolio where loans are
charged off based on past due status and are not recorded as nonaccruing
loans.
Approximately 80% of the Company's nonaccrual loans are secured by 1-4 family
residential properties or residential lots. 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.
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 December 31, 2002.
The anticipated loss in those impaired loans is $219,000.
33
Table 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------
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 Loans Amount Loans Amount Loans Amount Loans
---------------------------------------------------------------------------------------------
Commercial, Financial
and Agricultural $ 2,740 11.0% $ 3,257 10.3% $ 1,423 10.3% $1,873 10.7% $1,599 10.8%
Real Estate:
Construction 348 7.1 600 5.9 424 8.0 477 6.7 556 6.1
Com'l Mortgage 2,559 27.8 3,098 24.3 3,157 22.0 3,228 23.0 3,461 64.2
Residential 1,021 36.9 947 42.7 922 42.3 573 41.3 - -
Consumer 4,210 17.2 4,194 16.8 3,423 17.4 3,327 18.3 3,110 18.9
Not Allocated 1,617 - - - 1,215 - 451 - 1,101 -
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Total $12,495 100.0% $12,096 100.0% $10,564 100.0% $9,929 100.0% $9,827 100.0%
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
Real Estate - Residential allowance for loan losses information is included in the Real Estate - Com'l Mortgage
category for 1998.
34
Table 9
RISK ELEMENT ASSETS
(Dollars in Thousands)
As of December 31,
-----------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------
Nonaccruing Loans $ 2,510 $ 2,414 $ 2,919 $ 2,965 $ 4,996
Restructured - 20 19 26 195
------- ------- ------- ------- -------
Total Nonperforming Loans 2,510 2,434 2,938 2,991 5,191
Other Real Estate 1,333 1,506 971 934 1,468
------- ------- ------- ------- -------
Total Nonperforming Assets $ 3,843 $ 3,940 $ 3,909 $ 3,925 $ 6,659
======= ======= ======= ======= =======
Past Due 90 Days or More $ 2,453 $ 1,065 $ 1,102 $ 781 $ 1,124
======= ======= ======= ======= =======
Nonperforming Loans/Loans .20% .20% .28% .32% .61%
======= ======= ======= ======= =======
Nonperforming Assets/Loans
Plus Other Real Estate .30% .32% .37% .42% .79%
======= ======= ======= ======= =======
Nonperforming Assets/Capital 1.93% 2.14% 2.47% 2.76% 4.80%
======= ======= ======= ======= =======
Reserve/Nonperforming Loans 497.72% 496.96% 359.57% 331.96% 189.31%
======= ======= ======= ======= =======
For computation of this percentage, "capital" refers to shareowners' equity
plus the allowance for loan losses.
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 $116,000 higher for the year ended December
31, 2002.
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 $1.3 million at December 31, 2002, versus $1.5
million at December 31, 2001. 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 2002, the Company added
properties totaling $1.2 million, and partially or completely liquidated
properties totaling $1.4 million, resulting in a net decrease in other real
estate of approximately $200,000. 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 $2.1 million at
December 31, 2002.
The increase in past due loans was due to one relationship which subsequently
has been brought to a current status.
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 bank 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
35
31, 2002, approximately 71.8% of the portfolio consisted of real estate loans.
Residential properties comprise approximately 51.4% 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, 2002, 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 2002, the Company's average investment portfolio decreased $44.5 million,
or 17.8%, from 2001 and $42.4 million, or 14.5%, from 2001 compared to 2000.
As a percentage of average earning assets, the investment portfolio
represented 13.2% in 2002, compared to 16.2% in 2001. In both years, the
decline in the portfolio was attributable to the maturities of investment
securities in all categories, which in anticipation of future loan growth,
were not replaced during the period. In December 2002, some liquidity was
invested into the securities portfolio, with plans of investing more in early
2003. In 2003, liquidity levels will be closely monitored to determine if
additional investments should be purchased.
In 2002, average taxable investments decreased $34.5 million, or 20.2%, while
tax-exempt investments decreased $10.0 million, or 12.7%. 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,
2002, 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, 2002, 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 with
unrealized gains and losses associated with these securities recorded, net of
tax, in the accumulated other comprehensive income (loss) component of
shareowners' equity. At December 31, 2002, shareowners' equity included a net
unrealized gain of $3.1 million, compared to a gain of $2.4 million at
December 31, 2001. 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, 2002 and 2001, was
1.32 and 2.02 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, 2002 was 4.98%, versus 5.72% in 2001. The quality of the
municipal portfolio at such date is depicted on page 38. 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, 2002.
36
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, 2002
-------------------------------------------------
Weighted
(Dollars in Thousands) Amortized Cost Market Value Average Yield
- ------------------------------------------------------------------------------------
U. S. GOVERNMENTS
Due in 1 year or less $ 27,037 $ 27,651 4.57%
Due over 1 year through 5 years 34,476 34,751 3.09
Due over 5 years through 10 years - - -
Due over 10 years - - -
-------- -------- ----
TOTAL 61,513 62,402 3.74
STATE & POLITICAL SUBDIVISIONS
Due in 1 year or less 5,193 5,251 5.48
Due over 1 year through 5 years 56,724 59,264 5.96
Due over 5 years through 10 years 928 960 6.41
Due over 10 years - - -
-------- -------- ----
TOTAL 62,845 65,475 5.93
MORTGAGE-BACKED SECURITIES
Due in 1 year or less 10,593 10,707 4.66
Due over 1 year through 5 years 24,048 25,112 5.61
Due over 5 years through 10 years 109 111 4.27
Due over 10 years - - -
-------- -------- ----
TOTAL 34,750 35,930 5.31
OTHER SECURITIES
Due in 1 year or less 8,515 8,693 5.42
Due over 1 year through 5 years 1,016 1,065 6.18
Due over 5 years through 10 years 127 127 -
Due over 10 years 6,623 6,623 5.12
-------- -------- ----
TOTAL 16,281 16,508 5.34
-------- -------- ----
TOTAL INVESTMENT SECURITIES $175,389 $180,315 4.98%
======== ======== ====
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.
Based on weighted average life.
Federal Home Loan Bank Stock and Federal Reserve Bank Stock are included in
this category for weighted average yield, but do not have stated maturities.
AVERAGE MATURITY (In Years)
AS OF DECEMBER 31, 2002
- -------------------------------------------
U.S. Governments .75
State and Political Subdivisions 1.99
Mortgage-Backed Securities 1.60
Other Securities .75
----
TOTAL 1.32
====
37
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody's Rating Amortized Cost Percentage
- ----------------------------------------------
AAA $41,879 66.6%
AA-1 3,091 4.9
AA-2 1,411 2.2
AA-3 2,332 3.7
AA 100 .2
A-1 374 .6
A-2 737 1.2
Not Rated 12,921 20.6
------- -----
Total $62,845 100.0%
======= =====
All of the securities not rated by Moody's are rated "A"
or higher by S&P.
Deposits and Funds Purchased
Average total deposits of $1.4 billion in 2002 decreased $17.9 million, or
1.2% from the prior year. The Company experienced a steep decline in
certificates of deposit beginning in the second quarter of 2001 and continuing
through 2002. Average certificates of deposit as a percent of average total
deposits have declined from 41.9% in 2001 to 34.7% in 2002. This was
primarily a result of increased competition and the relative low level of
interest rates. This decline was partially offset by growth of nonmaturity
deposits which created a favorable shift in the deposit mix and a positive
impact on the Bank's cost of funds.
Deposits may continue to decline slightly during the first quarter primarily
as a result of continued run-off in the certificate of deposit portfolio.
Run-off in 2003, if any, is anticipated to be at a slower pace in terms of
amount and percent, than experienced during 2002.
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, increased
$14.5 million, or 24.9%. The increase is primarily attributable to higher
repurchase agreements sold throughout 2002. During the third quarter, the
Company borrowed $75 million from the Federal Home Loan Bank consisting of
four separate advances. Of the $75 million borrowed, $20 million was
classified as short-term borrowings. See Note 9 in the Notes to Consolidated
Financial Statements for further information.
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
2001 to Percentage Components of Total Deposits
2002 of Total ----------------------------
Change Change 2002 2001 2000
- ---------------------------------------------------------------------------------
Noninterest Bearing
Deposits $ 53,612 299.2% 25.3% 21.2% 22.3%
NOW Accounts 26,992 150.7 17.0 14.9 14.5
Money Market Accounts 15,749 87.9 15.7 14.5 13.5
Savings (3,317) (18.5) 7.4 7.5 8.8
Time Deposits (110,953) (619.3) 34.7 41.9 41.1
-------- ----- ----- ----- -----
Total Deposits $(17,917) (100.0)% 100.0% 100.0% 100.0%
======== ===== ===== ===== =====
38
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
December 31, 2002
----------------------------------------
Time Certificates of Deposit Percent
- ------------------------------------------------------------------------
Three months or less $43,496 47.2%
Over three through six months 22,935 24.9
Over six through twelve months 13,679 14.9
Over twelve months 11,933 13.0
------- -----
Total $92,043 100.0%
======= =====
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 ended 2002 with approximately $90 million in liquidity generated
through $75 million in borrowings advanced from the Federal Home Loan Bank and
the $23.5 million loan sale in November. Liquidity is expected to decline as
the Company purchases investment securities and funds loan growth.
As of December 31, 2002, 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. As of December 31, 2002, the Company did
not have any debt outstanding on the line of credit.
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 2002, 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 10 in the Notes to Consolidated Financial Statements.
At December 31, 2002, the Company had $71.7 million in long-term debt
outstanding to the Federal Home Loan Bank of Atlanta. The debt consists of 23
loans. The interest rates are fixed and the weighted average rate at December
31, 2002 was 3.90%. Required annual principal reductions approximate $1.3
million, with the remaining balances due at maturity ranging from 2004 to
2021. During the third quarter, the Company borrowed $75 million from the
Federal Home Loan Bank to fund the recent growth in loan demand and the
continued decline in certificates of deposit. The borrowing consists of four
separate advances with maturities ranging from 12 to 36 months and a weighted
average rate of 2.51%. Of this amount, $55 million was classified as long-
term. The remaining long-term debt consists of
39
$16.8 million 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 1-4 family residential mortgage loans. See Note 10 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, 2002, the Company
had $397.0 million in commitments to extend credit and $3.7 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 $8 million over the
next twelve months. The capital expenditures are expected to consist
primarily of five 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)
2002 2001 2000
- ------------------------------------------------------------------------
Common Stock $ 106 $ 106 $ 101
Additional Paid-in Capital 14,717 17,178 7,369
Retained Earnings 168,587 152,149 141,659
-------- -------- --------
Subtotal 183,410 169,433 149,129
-------- -------- --------
Accumulated Other Comprehensive
Income (Loss), Net of Tax 3,121 2,350 (1,522)
-------- -------- --------
Total Shareowners' Equity $186,531 $171,783 $147,607
======== ======== ========
The Company continues to maintain a strong capital position. The ratio of
shareowners' equity to total assets at year-end was 10.22%, 9.43% and 9.66%,
in 2002, 2001 and 2000, 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, 2002, the Company exceeded these capital guidelines with a total risk-
based capital ratio of 13.00% and a Tier 1 ratio of 12.03%, compared to 11.80%
and 10.84%, respectively, in 2001.
40
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, 2002, the Company had a leverage ratio of 8.46% compared to 7.53%
in 2001. See Note 14 in the Notes to Consolidated Financial Statements for
additional information as to the Company's capital adequacy.
At December 31, 2002, the Company's common stock had a book value of $17.60
per diluted share compared to $16.08 in 2001. Beginning in 1994, book value
has been impacted by the net unrealized gains and losses on investment
securities available-for-sale. At December 31, 2002, the net unrealized gain
was $3.1 million compared to a net unrealized gain in 2001 of $2.4 million.
The current unrealized gain is a result of the decline in interest rates over
the past two years.
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 124,620 shares during 2002 and 214,000 shares during 2001.
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 February 28, 2003, the Company repurchased 457,754
shares at an average purchase price of $24.04 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. In 2002, the Company issued 10,094 shares, valued at
approximately $245,000 under this plan.
The Company also offers stock purchase plans at a reduced price to its
associates and directors. In 2002, 28,858 shares, valued at approximately
$688,000, 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 2002 and 2001, 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 2002 and 2001, 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.
41
Dividends
Adequate capital and financial strength is paramount to the stability of the
Company 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 regulations;
.. The Company's capital position and its ability to meet its financial
obligations;
.. Projected earnings and asset levels;
.. The ability of the Bank and CCBG 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 $.6275 per share in 2002. During the
fourth quarter of 2002 the quarterly dividend was raised 11.5% from $.1525 per
share to $.17 per share. The Company declared dividends of $.595 per share in
2001 and $.545 per share in 2000. The dividend payout ratio was 28.9%, 37.4%
and 30.6% for 2002, 2001 and 2000, respectively. Dividends declared per share
in 2002 represented a 5.5% increase over 2001.
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
Prior to 2002, Capital City Bank maintained several relationships with various
Independent Service Organizations (ISOs) in connection with its card
processing operations. During late 2000 and early 2001, a small number of one
of the ISO's merchants generated a large amount of charge-backs. The Bank and
the ISO were previously named defendants in one merchant lawsuit citing the
improper use of merchant reserve balances. That lawsuit was dismissed. While
no outstanding litigation currently exists, the Bank may be exposed to
litigation in the future. Management does not believe that the ultimate
resolution of these issues will have a material impact on the Company's
financial position or results of operations. The Bank no longer maintains
merchant service relationships with these ISOs.
42
ACCOUNTING POLICIES
Critical Accounting Policies
The consolidated financial statements and accompanying Notes to Consolidated
Financial Statements are prepared in accordance with accounting principles
generally accepted in the 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 various acquisitions.
Goodwill represents the excess of the cost of acquired businesses over the
fair market value of their identifiable net assets. The Company performs an
impairment review on an annual basis to determine if there has been impairment
of its goodwill. The Company has determined that no impairment existed at
December 31, 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 amortized
over approximately 10 years. Generally, core deposits refer to nonpublic,
nonmaturing deposits including noninterest-bearing deposits, NOW, money market
and savings. 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 may materially affect
reported earnings.
Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" (SFAS 148). SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS No.123,
"Accounting for Stock-Based Compensation" (SFAS 123), to require more
prominent and frequent disclosures in financial statements about the effects
of stock-based compensation. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for fiscal years ending after December
15, 2002 and the interim disclosure provisions are effective for periods
beginning after December 15, 2002. As permitted under SFAS 123 and SFAS 148,
the Company will continue to follow the accounting guidelines pursuant to
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), for stock-based compensation and to furnish the pro forma
disclosures as required under SFAS 148.
43
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB 25, and related Interpretations,
requiring that compensation expense be recorded equal to the intrinsic value
of the award at the measurement date.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (the Interpretation), which addresses
the disclosure to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The Interpretation also
requires the recognition of a liability by a guarantor at the inception of
certain guarantees.
The Interpretation requires the guarantor to recognize a liability for the
non-contingent component of the guarantee; this is the obligation to stand
ready to perform in the event that specified triggering events or conditions
occur. The initial measurement of this liability is the fair value of the
guarantee at inception. The recognition of the liability is required even it
is not probable that payments will be required under the guarantee or if the
guarantee was issued with a premium payment or as part of a transaction with
multiple elements. The Company has adopted the disclosure requirements of the
Interpretation in Note 6 and will apply the recognition and measurement
provisions for all guarantees entered into or modified after December 31,
2002. To date, the Company has not entered into or modified any guarantees
pursuant to the provisions of the Interpretation.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" (SFAS 147). SFAS 147 removes
financial institutions (with the exception of combinations of mutual
enterprises) from the scope of both SFAS No. 72 (SFAS 72), "Accounting for
Certain Acquisitions of Banking or Thrift Institutions" and FASB
Interpretation No. 9, applying APB Opinions No. 16 and 17, "When a Savings and
Loan Association or a Similar Institution is Acquired in a Business
Combination Accounted for by the Purchase Method" and requires that those
transactions be accounted for in accordance with SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." As a
result, the requirement under SFAS 72 to recognize (and subsequently amortize)
any excess of the fair value of liabilities assumed over the fair value of
tangible and identifiable intangible assets acquired as an unidentifiable
intangible asset no longer applies to acquisitions within the scope of SFAS
147. In addition, SFAS 147 amends SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," to include in its scope long-term customer-
relationship intangible assets of financial institutions such as depositor-
and borrower-relationship intangible assets and credit cardholder intangible
assets. The adoption of SFAS 147 has not had a material impact on the
reported results of operations of the Company.
In December 2001, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 01-6
("SOP 01-6"), Accounting by Certain Entities (Including Entities With Trade
Receivables) That Lend to or Finance the Activities of Others, effective for
fiscal years beginning after December 15, 2001. SOP 01-6 reconciles and
conforms the accounting and financial reporting provisions for similar
transactions as applied to different entities within the financial services
industry. The adoption of SOP 01-6 has not had a material impact on the
Company's results of operations or financial position. Refer to Notes 4,5 and
8 for the Company's disclosure pursuant to SOP 01-6.
44
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 and 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 13. This table presents the
Company's consolidated interest rate sensitivity position as of year-end 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 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.
45
Table 13
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS
Other Than Trading Portfolio
Maturing or Repricing in:
--------------------------------------------------------- Fair
(Dollars in Thousands) 2003 2004 2005 2006 2007 Beyond Total Value
- ---------------------------------------------------------------------------------------------------------------------------------
Loans:
Fixed Rate $ 195,707 $ 99,460 $ 74,641 $ 26,441 $12,532 $14,640 $ 423,421 $ 438,742
Average Interest Rate 7.70% 8.26% 7.92% 8.44% 8.40% 7.09% 7.92%
Floating Rate 528,042 82,597 144,790 70,538 12,640 23,194 861,800 892,982
Average Interest Rate 5.65% 7.39% 7.19% 7.62% 7.54% 8.07% 6.33%
Investment Securities:
Fixed Rate 61,498 52,305 44,310 7,747 1,061 7,987 174,908 174,908
Average Interest Rate 5.06% 4.15% 5.61% 6.70% 6.18% 4.74% 4.96%
Floating Rate 5,407 - - - - - 5,407 5,407
Average Interest Rate 5.36% - - - - - 5.36%
Other Earning Assets:
Floating Rate 170,936 - - - - - 170,936 170,936
Average Interest Rate 1.21% - - - - - 1.21%
Total Financial Assets $ 961,590 $234,362 $263,741 $104,726 $26,233 $45,820 $1,636,471 $1,682,975
Average Interest Rate 5.23% 7.04% 7.13% 7.76% 7.90% 7.18% 6.06%
Deposits:
Fixed Rate $ 362,761 $ 48,955 $ 15,154 $ 5,321 $ 5,874 $ 6 $ 438,071 $ 442,183
Average Interest Rate 2.30% 3.28% 3.76% 4.30% 4.01% 4.85% 2.51%
Floating Rate 590,048 - - - - - 590,048 590,048
Average Interest Rate 0.52% - - - - - 0.52%
Other Interest Bearing Liabilities:
Fixed Rate Debt 1,261 41,254 17,069 1,095 1,075 9,991 71,745 72,631
Average Interest Rate 5.62% 2.45% 3.37% 5.33% 5.31% 5.44% 3.23%
Floating Rate Debt 113,675 - - - - - 113,675 113,675
Average Interest Rate 1.06% - - - - - 1.06%
Total Financial Liabilities $1,067,745 $ 90,209 $ 32,223 $ 6,416 $ 6,949 $ 9,997 $1,213,539 $1,218,537
Average Interest Rate 1.19% 2.90% 3.56% 4.48% 4.21% 5.44% 1.45%
Based upon expected cash flows unless otherwise indicated.
Based upon a combination of expected maturities and repricing opportunities.
Based upon contractual maturity, except for callable and floating rate securities, which are based on expected maturity
and weighted average life, respectively.
Savings, NOW and money market accounts can be repriced at any time, therefore, all such balances are included as floating
rate deposits. Time deposit balances are classified according to maturity.
46
Item 8. Financial Statements and Supplementary Data
Table 14
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2002 2001
---------------------------------------------- ----------------------------------------------
Fourth Third Second First Fourth Third Second First
- ----------------------------------------------------------------------------------------------------------------------
Summary of Operations:
Interest Income $ 26,052 $ 26,403 $ 26,599 $ 27,041 $ 28,706 $ 30,258 $ 30,882 $ 29,137
Interest Expense 4,667 4,946 5,693 7,197 9,454 12,256 13,396 13,143
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 21,385 21,457 20,906 19,844 19,252 18,002 17,486 15,994
Provision for
Loan Losses 863 991 641 802 932 1,222 1,007 822
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Losses 20,522 20,466 20,265 19,042 18,320 16,780 16,479 15,172
Noninterest Income 11,243 9,087 8,552 8,294 8,536 7,918 8,255 7,328
Conversion/
Merger Expense 59 - 39 114 588 - - -
Noninterest Expense 21,316 20,526 20,293 19,351 19,251 18,993 18,132 15,840
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 10,390 9,027 8,485 7,871 7,017 5,705 6,602 6,660
Provision for
Income Taxes 3,668 3,226 3,037 2,760 2,522 1,963 2,322 2,311
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 6,722 $ 5,801 $ 5,448 $ 5,111 $ 4,495 $ 3,742 $ 4,280 $ 4,349
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 21,786 $ 21,873 $ 21,331 $ 20,284 $ 19,689 $ 18,431 $ 17,935 $ 16,454
Per Common Share:
Net Income Basic $ .63 $ .55 $ .52 $ .48 $ .42 $ .35 $ .40 $ .42
Net Income Diluted .63 .55 .51 .48 .42 .35 .40 .42
Dividends Declared .1700 .1525 .1525 .1525 .1525 .1475 .1475 .1475
Diluted Book Value 17.60 17.18 16.74 16.38 16.08 16.24 15.87 15.62
Market Price:
High 40.05 36.94 34.80 27.50 24.67 25.25 25.00 26.13
Low 27.83 27.90 25.75 22.65 21.90 20.87 19.88 23.13
Close 39.19 33.06 34.53 27.00 24.23 23.47 24.87 25.19
Selected Average
Balances:
Loans $1,292,893 $1,266,591 $1,234,787 $1,229,344 $1,242,516 $1,204,323 $1,192,103 $1,082,961
Earning Assets 1,591,536 1,511,485 1,547,603 1,575,698 1,584,225 1,561,519 1,556,186 1,416,861
Assets 1,762,174 1,678,620 1,720,095 1,748,211 1,756,995 1,734,392 1,733,115 1,570,587
Deposits 1,404,818 1,388,396 1,440,615 1,467,257 1,488,961 1,483,527 1,479,159 1,301,123
Shareowners' Equity 185,412 180,910 176,678 175,485 176,549 170,511 169,516 155,896
Common Equivalent
Average Shares:
Basic 10,552 10,551 10,576 10,644 10,674 10,685 10,713 10,297
Diluted 10,591 10,590 10,606 10,675 10,715 10,693 10,721 10,305
Ratios:
ROA 1.51% 1.37% 1.27% 1.19% 1.01% .86% .99% 1.12%
ROE 14.38% 12.72% 12.37% 11.81% 10.10% 8.71% 10.13% 11.32%
Net Interest
Margin (FTE) 5.44% 5.74% 5.52% 5.22% 4.93% 4.70% 4.62% 4.70%
Efficiency Ratio 62.08% 63.68% 65.20% 64.88% 65.30% 68.17% 65.09% 63.12%
47
CONSOLIDATED FINANCIAL STATEMENTS
49 Independent Auditors' Report
50 Report of Independent Public Accountants
51 Consolidated Statements of Income
52 Consolidated Statements of Financial Condition
53 Consolidated Statements of Changes in Shareowners' Equity
54 Consolidated Statements of Cash Flows
55 Notes to Consolidated Financial Statements
48
Independent Auditors' Report
The Board of Directors
Capital City Bank Group, Inc.:
We have audited the accompanying consolidated statement of financial condition
of Capital City Bank Group, Inc. and subsidiary as of December 31, 2002 and
the related consolidated statements of income, changes in shareowners' equity
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated statement of financial
condition of Capital City Bank Group, Inc. and subsidiary as of December 31,
2001 and the related consolidated statements of income, changes in
shareowners' equity and cash flows for each of the years in the two-year
period ended December 31, 2001 were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those
consolidated financial statements, before the revision described in Note 6 to
the consolidated financial statements, in their report dated January 24, 2002.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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
audit provides a reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Capital
City Bank Group, Inc. and subsidiary as of December 31, 2002, and the results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
As discussed above, the consolidated statement of financial condition of
Capital City Bank Group, Inc. and subsidiary as of December 31, 2001 and the
related consolidated statements of income, changes in shareowners' equity and
cash flows for each of the years in the two-year period ended December 31,
2001 were audited by other auditors who have ceased operations. As described
in Note 6, these consolidated financial statements have been revised to
include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was
adopted by the Company as of January 1, 2002. In our opinion, the disclosures
for 2001 and 2000 in Note 6 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 and 2000 consolidated
financial statements of Capital City Bank Group, Inc. and subsidiary other
than with respect to such disclosures and, accordingly, we do not express an
opinion or any other form of assurance on the 2001 and 2000 consolidated
financial statements taken as a whole.
KPMG LLP
Jacksonville, Florida
January 27, 2003
49
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
This report is a copy of a previously issued report and the predecessor
auditor has not reissued the report.
50
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
For the Years Ended December 31,
----------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $ 94,921 $102,473 $ 92,306
Investment Securities:
U.S. Treasury 2 367 696
U.S. Government Agencies/Corporations 5,366 6,933 8,632
States and Political Subdivisions 2,752 3,281 4,006
Other Securities 1,573 2,319 2,373
Funds Sold 1,481 3,610 1,321
-------- -------- --------
Total Interest Income 106,095 118,983 109,334
-------- -------- --------
INTEREST EXPENSE
Deposits 20,551 45,214 40,459
Short-Term Borrowings 767 2,164 4,968
Long-Term Debt 1,185 871 807
-------- -------- --------
Total Interest Expense 22,503 48,249 46,234
-------- -------- --------
Net Interest Income 83,592 70,734 63,100
Provision for Loan Losses 3,297 3,983 3,120
-------- -------- --------
Net Interest Income After Provision for
Loan Losses 80,295 66,751 59,980
-------- -------- --------
NONINTEREST INCOME
Service Charges on Deposit Accounts 12,749 10,647 9,380
Data Processing 2,006 2,079 2,525
Asset Management Fees 2,521 2,556 2,435
Securities Transactions 10 4 2
Mortgage Banking Revenues 6,575 4,016 1,265
Other 13,315 12,735 11,162
-------- -------- --------
Total Noninterest Income 37,176 32,037 26,769
-------- -------- --------
NONINTEREST EXPENSE
Salaries and Associate Benefits 43,215 37,686 29,967
Occupancy, Net 5,719 5,497 4,638
Furniture and Equipment 7,677 7,173 5,779
Other 25,087 22,448 18,763
-------- -------- --------
Total Noninterest Expense 81,698 72,804 59,147
-------- -------- --------
Income Before Income Taxes 35,773 25,984 27,602
Income Taxes 12,691 9,118 9,449
-------- -------- --------
NET INCOME $ 23,082 $ 16,866 $ 18,153
======== ======== ========
BASIC NET INCOME PER SHARE $ 2.18 $ 1.59 $ 1.78
======== ======== ========
DILUTED NET INCOME PER SHARE $ 2.17 $ 1.59 $ 1.78
======== ======== ========
Average Basic Common Shares Outstanding 10,580 10,594 10,186
======== ======== ========
Average Diluted Common Shares Outstanding 10,619 10,634 10,215
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
51
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)
As of December 31,
-----------------------------
2002 2001
- ----------------------------------------------------------------------------------
ASSETS
Cash and Due From Banks $ 89,823 $ 92,413
Funds Sold 170,936 164,417
---------- ----------
Total Cash and Cash Equivalents 260,759 256,830
Investment Securities, Available-for-Sale 180,315 219,073
Loans, Net of Unearned Interest 1,285,221 1,243,351
Allowance for Loan Losses (12,495) (12,096)
---------- ----------
Loans, Net 1,272,726 1,231,255
Premises and Equipment, Net 48,897 47,037
Intangibles 29,034 32,276
Other Assets 33,040 34,952
---------- ----------
Total Assets $1,824,771 $1,821,423
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 406,081 $ 389,146
Interest Bearing Deposits 1,028,119 1,160,955
---------- ----------
Total Deposits 1,434,200 1,550,101
Short-Term Borrowings 113,675 67,042
Long-Term Debt 71,745 13,570
Other Liabilities 18,620 18,927
---------- ----------
Total Liabilities 1,638,240 1,649,640
---------- ----------
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; 10,556,968 and 10,642,575 shares
issued and outstanding at December 31, 2002
and December 31, 2001, respectively 106 106
Additional Paid-In Capital 14,717 17,178
Retained Earnings 168,587 152,149
Accumulated Other Comprehensive Income, Net of Tax 3,121 2,350
---------- ----------
Total Shareowners' Equity 186,531 171,783
---------- ----------
Commitments and Contingencies (Note 18)
Total Liabilities and Shareowners' Equity $1,824,771 $1,821,423
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
52
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, 1999 $102 $ 9,249 $129,055 $(6,190) $132,216
Comprehensive Income:
Net Income 18,153
Net Change in Unrealized Gain (Loss)
On Available-for-Sale Securities 4,668
Total Comprehensive Income 22,821
Cash Dividends ($.545 per share) (5,549) (5,549)
Issuance of Common Stock 786 786
Repurchase and Retirement 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 Available-for-Sale Securities 3,872
Total Comprehensive Income 20,738
Cash Dividends ($.595 per share) (6,376) (6,376)
Issuance of Common Stock 7 14,749 14,756
Repurchase and Retirement of Common Stock (2) (4,940) (4,942)
---- ------- -------- ------- --------
Balance, December 31, 2001 106 17,178 152,149 2,350 171,783
Comprehensive Income:
Net Income 23,082
Net Change in Unrealized Gain (Loss)
On Available-for-Sale Securities 771
Total Comprehensive Income 23,853
Cash Dividends ($.6275 per share) (6,644) (6,644)
Issuance of Common Stock 934 934
Repurchase and Retirement of Common Stock (3,395) (3,395)
---- ------- -------- ------- --------
Balance, December 31, 2002 $106 $14,717 $168,587 $3,121 $186,531
==== ======= ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
53
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended December 31,
----------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 23,082 $ 16,866 $ 18,153
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 3,297 3,983 3,120
Depreciation 4,897 4,373 3,979
Loss on Disposal of Fixed Assets 32 108 -
Net Securities Amortization 889 1,173 1,368
Amortization of Intangible Assets 3,242 3,772 2,837
Gain on Sale of Investment Securities (10) (4) (2)
Non-Cash Compensation 892 489 369
Deferred Income Taxes (1,479) 7 (293)
Net Decrease (Increase) in Other Assets 4,183 1,744 (3,709)
Net (Decrease) Increase in Other Liabilities (953) 967 926
-------- -------- --------
Net Cash Provided by Operating Activities 38,062 33,478 26,748
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Payments/Maturities/Sales of
Investment Securities Available-for-Sale 82,466 117,198 50,837
Purchase of Investment Securities Available-for-Sale (43,370) (6,053) (492)
Net Increase in Loans (46,006) (103,042) (125,831)
Net Cash Received From Acquisitions - 81,390 -
Purchase of Premises & Equipment (6,868) (7,671) (3,236)
Proceeds From Sales of Premises & Equipment 89 418 69
-------- -------- --------
Net Cash (Used in) Provided by Investing Activities (13,689) 82,240 (78,653)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in Deposits (115,901) 77,844 65,709
Net Increase (Decrease) in Short-Term Borrowings 46,633 (41,431) 17,196
Borrowing from Long-Term Debt 62,058 7,861 1,428
Repayment of Long-Term Debt (3,883) (6,269) (3,979)
Dividends Paid (6,644) (6,376) (5,549)
Repurchase of Common Stock (3,395) (4,942) (2,667)
Issuance of Common Stock 688 435 685
-------- -------- --------
Net Cash (Used in) Provided By Financing Activities (20,444) 27,122 72,823
-------- -------- --------
Net Increase in Cash and Cash Equivalents 3,929 142,840 20,918
Cash and Cash Equivalents at Beginning of Year 256,830 113,990 93,072
-------- -------- --------
Cash and Cash Equivalents at End of Year $260,759 $256,830 $113,990
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest Paid on Deposits $ 23,694 $ 44,990 $ 41,863
======== ======== ========
Interest Paid on Debt $ 1,825 $ 2,883 $ 5,873
======== ======== ========
Taxes Paid $ 13,175 $ 9,290 $ 10,878
======== ======== ========
Loans Transferred to Other Real Estate $ 1,238 $ 2,149 $ 904
======== ======== ========
Issuance of Common Stock as Non-cash Compensation $ 246 $ 785 $ 101
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
54
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 wholly-owned
subsidiary ("CCB" or the "Bank"). 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 accounting principles generally accepted in the United States and
reporting practices applicable to the banking industry. 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 accounting
principles generally accepted in the United States 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 other cash equivalents have a
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.
Accretion and amortization are recognized on the effective yield method over
the life of the securities.
Loans
Loans are stated at the principal amount outstanding, net of unearned income.
Interest income is generally accrued on the effective yield method based on
outstanding balances. Fees charged to originate loans and direct loan
origination costs are deferred and amortized over the life of the loan as a
yield adjustment. Loans held for sale are valued at lower of cost or market
value based on information obtained from third party investors.
55
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 a significant estimate recorded by management and is based on
the credit quality of the portfolio.
The evaluation of credit quality begins with the review for impairment of
business purpose loans with balances exceeding $25,000. 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 nonaccrual status or classified as doubtful as
defined by the Company's internal risk rating system. Generally, loans are
placed on nonaccrual 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.
Commercial purpose loans exceeding $100,000 that are not impaired, but have
weaknesses requiring closer management attention, 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. In addition, the analysis includes changes in
risk ratings that are assigned based on the Bank's Asset Classification
Policy, and for the ultimate disposition of the loan. The ultimate
disposition may include upgrades in risk ratings, payoff of the loan, or
charge-off of the loan. This migration analysis results in a charge-off ratio
by loan pool of classified loans that is applied to the balance of the pool to
determine general reserves for specifically identified problem loans. This
charge-off ratio is adjusted for various environmental factors including past
due and nonperforming trends in the loan portfolio, the micro-and macro-
economic outlook, and credit administration practices as determined by
independent parties.
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 nonperforming 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 loan losses. These small balance
homogenous loans include consumer installment loans, credit card loans and
residential mortgage loans. Historical loss ratios are determined for these
smaller balance loan pools and applied to the balance of the related pool of
loans to determine the allowance needed. The historical loss ratios 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. Major
additions are capitalized and depreciated in the same manner. Repairs and
maintenance are charged to noninterest expense as incurred.
56
Intangible assets, other than goodwill, consist of core deposit assets that
were recognized in connection with the various acquisitions. Core deposit
intangible assets are amortized on the straight-line method over various
periods, with the majority being amortized over an average of 10 years.
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.
Goodwill
As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangibles" (SFAS 142). The
adoption of SFAS 142 required the Company to discontinue goodwill amortization
and identify reporting units to which the goodwill related for purposes of
assessing potential impairment of goodwill on an annual basis, or more
frequently, if events or changes in circumstances indicate that the carrying
value of the asset may not be recoverable. In accordance with the guidelines
in SFAS 142, the Company determined it has one reporting unit with goodwill.
On December 31, 2002, the Company performed its annual impairment review and
concluded that no impairment adjustment was necessary.
Income Taxes
The Company files consolidated federal and state income tax returns. In
general, the parent company and its subsidiary compute their tax provisions as
separate entities prior to recognition of any tax expense or benefits which
may accrue from filing a consolidated return.
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
carrying amounts of existing assets and liabilities on the Company's
consolidated statement of financial position and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Stock Based Compensation
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" (SFAS 148). SFAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for stock-
based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS No.123, "Accounting for Stock-Based Compensation" (SFAS
123), to require more prominent and frequent disclosures in financial
statements about the effects of stock-based compensation. The transition
guidance and annual disclosure provisions of SFAS 148 are effective for fiscal
years ending after December 15, 2002 and the interim disclosure provisions are
effective for periods beginning after December 15, 2002. As permitted under
SFAS 123 and SFAS 148, the Company will continue to follow the accounting
guidelines pursuant to Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), for stock-based compensation and to
furnish the pro forma disclosures as required under SFAS 148.
57
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB 25, and related Interpretations,
requiring compensation expense be recorded equal to the intrinsic value of the
award at the measurement date.
The Company has a Director Stock Purchase Plan ("DSPP"). The DSPP allows the
Company's directors to purchase common stock at a price equal to 90 percent of
the closing price on the date of purchase. The DSPP has 150,000 shares
reserved for issuance. In 2002, 2001 and 2000, CCBG issued 3,550, 3,475 and
5,001 shares, respectively, under this plan. A total of 33,726 shares have
been issued to directors since the inception of this plan. As the DSPP is
considered non-compensatory under the provision of APB 25, no compensation
expense has been recognized for the Company's purchase plan activity.
The Company sponsors an Associate Stock Purchase Plan ("ASPP"). Under the
ASPP, substantially all associates may purchase the Company's common stock
through payroll deductions at a price equal to 90 percent of the lower of the
fair market value at the beginning or end of each six-month offering period.
Stock purchases under the ASPP are limited to 10% of an employee's eligible
compensation, up to a maximum of $25,000 (fair market value on each enrollment
date) in any plan year. As the ASPP is considered non-compensatory under the
provisions of APB 25, no compensation expense has been recognized for the
Company's purchase plan activity.
The ASPP has 450,000 shares of common stock reserved for issuance. CCBG
issued 25,270, 15,004 and 26,397 shares under the plan in 2002, 2001 and 2000,
respectively. A total of 221,167 shares have been issued since inception of
this plan.
Transactions under the ASPP were as follows:
Purchase Price
Number of Shares per Share
- ----------------------------------------------------------------------------
Available at December 31, 1999 295,504
Purchased (26,397) $17.55
Available at December 31, 2000 269,107
Purchased (15,004) $22.04
Available at December 31, 2001 254,103
Purchased (25,270) $23.64
Available at December 31, 2002 228,833
Weighted Average Price for two annual offering periods
Based on the Black-Scholes option pricing model, the weighted average
estimated fair value of the purchase rights granted under the ASPP was $4.95
for 2002, $4.38 for 2001 and $3.55 for 2000. In calculating pro forma
compensation at December 31, the fair value of each stock purchase right is
estimated on the date of grant using the following weighted average
assumptions:
2002 2001 2000
- --------------------------------------------------------
Dividend yield 2.4% 2.4% 2.6%
Expected volatility 33.0% 26.0% 25.0%
Risk-free interest rate 1.7% 4.6% 6.1%
Expected life (in years) .50 .50 .50
In addition, the Company has an Associate Incentive Plan under which shares
are granted to participants based upon the achievement of performance goals
established by the Board of Directors at the beginning of each award period.
A total of 750,000 shares of common stock have been reserved for issuance
under this Plan.
58
Award periods are either one year for the short-term plan, or three years for
the long-term plan. As the Company accounts for these plans as variable
awards under APB 25, compensation expense is measured under the intrinsic
value method as of the measurement date and recognized over the related
service period. CCBG issued 10,094, 28,689 and 5,775 shares under the plan in
2002, 2001 and 2000, respectively. A total of 185,169 shares have been issued
since inception of this plan.
The following table illustrates the effect on net income and earnings per
share if the company had applied the fair value recognition provisions of SFAS
123, to its stock-based employee compensation plans as of December 31:
(Dollars in Thousands, Except Per Share Data) 2002 2001 2000
- ------------------------------------------------------------------------------
Net income, as reported $23,082 $16,866 $18,153
Add: Stock based compensation included
in reported net income, net of tax 580 318 240
Deduct: Stock based compensation
determined under fair value based method
for all awards, net of tax (407) (360) (364)
------- ------- -------
Pro forma net income $23,255 $16,824 $18,029
======= ======= =======
Earnings per share:
Basic-as reported $ 2.18 $ 1.59 $ 1.78
======= ======= =======
Basic-pro forma $ 2.20 $ 1.59 $ 1.77
======= ======= =======
Diluted-as reported $ 2.17 $ 1.59 $ 1.78
======= ======= =======
Diluted-pro forma $ 2.19 $ 1.58 $ 1.76
======= ======= =======
Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (the Interpretation), which addresses
the disclosure to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The Interpretation also
requires the recognition of a liability by a guarantor at the inception of
certain guarantees.
The Interpretation requires the guarantor to recognize a liability for the
non-contingent component of the guarantee; this is the obligation to stand
ready to perform in the event that specified triggering events or conditions
occur. The initial measurement of this liability is the fair value of the
guarantee at inception. The recognition of the liability is required even it
is not probable that payments will be required under the guarantee or if the
guarantee was issued with a premium payment or as part of a transaction with
multiple elements. The Company has adopted the disclosure requirements of the
Interpretation and will apply the recognition and measurement provisions for
all guarantees entered into or modified after December 31, 2002. To date, the
Company has not entered into or modified any guarantees pursuant to the
provisions of the Interpretation.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" (SFAS 147). SFAS 147 removes
financial institutions (with the exception of combinations of mutual
enterprises) from the scope of both SFAS No. 72 (SFAS 72), "Accounting for
Certain Acquisitions of Banking or Thrift Institutions" and FASB
Interpretation No. 9, applying APB Opinions No. 16 and 17, "When a Savings and
Loan Association or a Similar Institution is Acquired in a Business
Combination Accounted for by the Purchase Method" and requires that those
transactions be accounted for in accordance with SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other
59
Intangible Assets." As a result, the requirement under SFAS 72 to recognize
(and subsequently amortize) any excess of the fair value of liabilities
assumed over the fair value of tangible and identifiable intangible assets
acquired as an unidentifiable intangible asset no longer applies to
acquisitions within the scope of SFAS 147. In addition, SFAS 147 amends SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to
include in its scope long-term customer-relationship intangible assets of
financial institutions such as depositor- and borrower-relationship intangible
assets and credit cardholder intangible assets. The adoption of SFAS 147 has
not had a material impact on the reported results of operations of the
Company.
In December 2001, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 01-6
(SOP 01-6), Accounting by Certain Entities (Including Entities With Trade
Receivables) That Lend to or Finance the Activities of Others, effective for
fiscal years beginning after December 15, 2001. SOP 01-6 reconciles and
conforms the accounting and financial reporting provisions for similar
transactions as applied to different entities within the financial services
industry. The adoption of SOP 01-6 has not had a material impact on the
Company's results of operations or financial position. Refer to Notes 4,5 and
8 for the Company's disclosure pursuant to SOP 01-6.
Note 2
ACQUISITIONS
On March 9, 2001, the Company completed a purchase and assumption transaction
with Wachovia Bank, NA, formerly First Union National Bank ("Wachovia") and
acquired six of Wachovia'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 approximately $18
million in loans and assumed deposits of approximately $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
approximately $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 intangible
assets, primarily goodwill.
60
Note 3
INVESTMENT SECURITIES
The amortized cost and related market value of investment securities
available-for-sale at December 31, were as follows:
2002
---------------------------------------------------
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
U.S. Treasury $ 10,438 $ 5 $ - $ 10,443
U.S. Government Agencies
and Corporations 51,075 884 - 51,959
States and Political
Subdivisions 62,845 2,632 2 65,475
Mortgage-Backed Securities 34,750 1,180 - 35,930
Other Securities 16,281 227 - 16,508
-------- ------ --- --------
Total Investment
Securities $175,389 $4,928 $ 2 $180,315
======== ====== === ========
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
======== ====== === ========
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
- -------------------------------------------------------------
2002 $44,576 $10 $ -
2001 $84,794 $ 4 $ -
2000 $37,096 $ 2 $ -
Total proceeds do not include principal reductions in mortgage-backed
securities and proceeds from securities which were called of $37.9 million,
$33.0 million and $13.7 million in 2002, 2001 and 2000, respectively.
As of December 31, 2002, 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 $ 40,745 $ 41,595
Due after one through five years 92,216 95,080
Due after five through ten years 1,055 1,087
Over ten years 6,623 6,623
Mortgage-Backed Securities 34,750 35,930
-------- --------
Total Investment Securities $175,389 $180,315
======== ========
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.
61
Securities with an amortized cost of $115.4 million and $149.6 million at
December 31, 2002 and 2001, 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) 2002 2001
- -------------------------------------------------------------
Commercial, Financial and
Agricultural $ 141,459 $ 128,480
Real Estate - Construction 91,110 72,778
Real Estate - Com'l Mortgage 356,807 302,239
Real Estate - Residential 359,338 434,378
Real Estate - Home Equity 92,277 65,879
Real Estate - Loans Held-for-Sale 22,454 30,289
Consumer 221,776 209,308
---------- ----------
Total Loans, Net of
Unearned Interest $1,285,221 $1,243,351
========== ==========
Nonaccruing loans amounted to $2.5 million and $2.4 million, at December 31,
2002 and 2001, respectively. Restructured loans amounted to $0 and $20,000,
at December 31, 2002 and 2001, respectively. 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 $116,000 and
$122,000 higher for the year ended December 31, 2002 and 2001, respectively.
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) 2002 2001 2000
- ------------------------------------------------------------------------
Balance, Beginning of Year $12,096 $10,564 $ 9,929
Acquired Reserves - 1,206 -
Provision for Loan Losses 3,297 3,983 3,120
Recoveries on Loans
Previously Charged-Off 1,374 993 703
Loans Charged-Off (4,272) (4,650) (3,188)
------- ------- -------
Balance, End of Year $12,495 $12,096 $10,564
======= ======= =======
Selected information pertaining to impaired loans, at December 31, is as
follows:
2002 2001
------------------------------------------
Valuation Valuation
(Dollars in Thousands) Balance Allowance Balance Allowance
- -----------------------------------------------------------------------------
With Related Credit Allowance $ 412 $ 219 $ 956 $ 112
Without Related Credit Allowance 722 - 176 -
Average Recorded Investment
for the Period 2,544 * 1,827 *
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, 2002, 2001
and 2000 the Company recognized $169,000, $36,000 and $86,000, in interest
income on
62
impaired loans, of which $169,000, $36,000 and $77,000, respectively, was
collected in cash.
Note 6
INTANGIBLE ASSETS
The Company had intangible assets of $29.0 million and $32.3 million at
December 31, 2002 and December 31, 2001, respectively. Intangible assets at
December 31, were as follows:
2002 2001
----------------------- -----------------------
Gross Accumulated Gross Accumulated
(Dollars in Thousands) Amount Amortization Amount Amortization
- -----------------------------------------------------------------------------------
Core Deposits Intangibles $33,752 $11,398 $33,752 $ 8,156
Goodwill 10,466 3,786 10,466 3,786
------- ------- ------- -------
Total Intangible Assets $44,218 $15,184 $44,218 $11,942
======= ======= ======= =======
Net Core Deposit Intangibles:
As of December 31, 2002 and December 31, 2001, the Company had net core
deposit intangibles of $22.4 million and $25.6 million, respectively.
Amortization expense for the twelve months of 2002, 2001 and 2000 was $3.2
million, $3.8 million and $2.8 million, respectively. The estimated annual
amortization expense for the next five years is expected to be $3.2 million
per year.
Goodwill:
As of December 31, 2002 and December 31, 2001, the Company had goodwill, net
of accumulated amortization, of $6.7 million. As a result of the
discontinuance of amortization related to this goodwill, the adoption of SFAS
No. 142 increased annual 2002 earnings by approximately $622,000. Goodwill is
the Company's only intangible asset that is no longer subject to amortization
under the provisions of SFAS No. 142. On December 31, 2002, the Company
performed its annual impairment review and concluded that no impairment
adjustment was necessary.
Transitional Disclosures:
The pro forma effects, net of tax, of the adoption of SFAS No. 142 for the
years ended December 31, were as follows:
(Dollars in Thousands, Except Per Share Data) 2002 2001 2000
- ----------------------------------------------------------------------------------
Reported Net Income $23,082 $16,866 $18,153
Goodwill Amortization - 707 681
------- ------- -------
Adjusted Net Income $23,082 $17,573 $18,834
Basic Earnings Per Share:
Reported Net Income $ 2.18 $ 1.59 $ 1.78
Goodwill Amortization - .07 .07
------- ------- -------
Adjusted Net Income $ 2.18 $ 1.66 $ 1.85
Diluted Earnings Per Share:
Reported Net Income $ 2.17 $ 1.59 $ 1.78
Goodwill Amortization - .07 .07
------- ------- -------
Adjusted Net Income $ 2.17 $ 1.66 $ 1.85
63
Note 7
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31,
was as follows:
(Dollars in Thousands) 2002 2001
- -----------------------------------------------------------
Land $ 11,239 $10,342
Buildings 46,131 42,573
Fixtures and Equipment 44,242 42,601
-------- -------
Total 101,612 95,516
Accumulated Depreciation (52,715) (48,479)
-------- -------
Premises and Equipment, Net $ 48,897 $47,037
======== =======
Note 8
DEPOSITS
Interest bearing deposits, by category, as of December 31, were as follows:
(Dollars in Thousands) 2002 2001
- ----------------------------------------------------
NOW Accounts $ 276,487 $ 244,153
Money Market Accounts 209,508 220,755
Savings Accounts 104,053 99,685
Time Deposits 438,071 596,362
---------- ----------
Total $1,028,119 $1,160,955
========== ==========
Time deposits in denominations of $100,000 or more totaled $92.0 million and
$136.8 million at December 31, 2002 and 2001, respectively.
At December 31, 2002, the scheduled maturities of time deposits were as
follows: (Dollars in Thousands)
2003 $362,761
2004 48,955
2005 15,154
2006 5,321
2007 and thereafter 5,880
--------
$438,071
========
The average balances maintained on deposit with the Federal Reserve Bank for
the years ended December 31, 2002 and 2001, were $39.5 million and $35.5
million, respectively.
Interest expense on deposits for the three years ended December 31, was as
follows:
(Dollars in Thousands) 2002 2001 2000
- ----------------------------------------------------------------
NOW Accounts $ 1,272 $ 4,046 $ 4,444
Money Market Accounts 2,904 6,237 6,673
Savings Accounts 500 1,865 2,446
Time Deposits < $100,000 12,060 26,046 22,078
Time Deposits > $100,000 3,815 7,020 4,818
------- ------- -------
Total $20,551 $45,214 $40,459
======= ======= =======
64
Note 9
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
Securities
Federal Sold Under Other
Funds Repurchase Short-Term
(Dollars in Thousands) Purchased Agreements Borrowings
- ---------------------------------------------------------------------------------
2002
- ----
Balance at December 31, $14,120 $77,318 $22,237
Maximum indebtedness at any month end 17,395 77,318 22,237
Daily average indebtedness outstanding 9,079 55,679 7,836
Average rate paid for the year 1.46% 0.87% 1.89%
Average rate paid on period-end borrowings 0.55% 0.83% 2.32%
2001
- ----
Balance at December 31, $ 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%
Note 10
LONG-TERM DEBT
Long-term debt included the following at December 31:
(Dollars in Thousands) 2002 2001
- ---------------------------------------------------------------------------------
Federal Home Loan Bank Notes,
Due on March 8, 2004, fixed rate of 6.64% $ 113 $ 204
Due on March 10, 2004, fixed rate of 2.22% 20,000 -
Due on September 10, 2004, fixed rate of 2.48% 20,000 -
Due on December 16, 2004, fixed rate of 6.52% 116 188
Due on December 16, 2004, fixed rate of 6.52% 69 103
Due on September 12, 2005, fixed rate of 3.06% 15,000 -
Due on December 19, 2005, fixed rate of 6.04% 1,222 1,322
Due on February 15, 2006, fixed rate of 3.00% 120 153
Due on December 13, 2006, fixed rate of 6.20% - 870
Due on April 24, 2007, fixed rate of 7.30% 249 306
Due on June 13, 2008, fixed rate of 5.40% 786 929
Due on October 19, 2009, fixed rate of 3.69% 993 -
Due on December 18, 2012, fixed rate of 4.84% 650 -
Due on March 18, 2013, fixed rate of 6.37% 807 854
Due on September 23, 2013, fixed rate of 5.64% 1,148 1,215
Due on January 27, 2014, fixed rate of 5.79% 1,387 1,427
Due on May 27, 2014, fixed rate of 5.92% 609 647
Due on July 20, 2016, fixed rate of 6.27% 1,607 1,726
Due on October 31, 2017, fixed rate of 4.79% 1,236 -
Due on December 11, 2017, fixed rate of 4.78% 1,093 -
Due on December 20, 2017, fixed rate of 5.37% 1,025 -
Due on December 17, 2018, fixed rate of 6.33% 1,776 1,836
Due on December 24, 2018, fixed rate of 6.29% 794 817
Due on February 16, 2021, fixed rate of 3.00% 945 973
------- -------
Total outstanding $71,745 $13,570
======= =======
65
The contractual maturities of long-term debt for the five years succeeding
December 31, 2002, are as follows: (Dollars in Thousands)
2003 $ 1,261
2004 41,254
2005 17,069
2006 1,095
2007 and thereafter 11,066
Total $71,745
The Federal Home Loan Bank advances are collateralized with 1-4 family
residential mortgage loans. Interest on the Federal Home Loan Bank advances
is paid on a monthly basis.
The Company has the ability to draw on a Revolving Credit Note, due on
November 16, 2004. Upon expiration of this note, 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, 2002, 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 11
INCOME TAXES
The provision for income taxes reflected in the statement of income is
comprised of the following components:
(Dollars in Thousands) 2002 2001 2000
- ----------------------------------------------------------------
Current:
Federal $12,123 $7,709 $8,172
State 2,047 1,402 1,570
Deferred:
Federal (1,337) 6 (245)
State (142) 1 (48)
------- ------ ------
Total $12,691 $9,118 $9,449
======= ====== ======
66
The net deferred tax assets (liabilities) and the temporary differences
comprising that balance at December 31, 2002 and 2001, are as follows:
(Dollars in Thousands) 2002 2001
- --------------------------------------------------------------------
Deferred Tax Assets attributable to:
Allowance for Loan Losses $4,028 $2,992
Stock Incentive Plan 1,144 904
Interest on Nonperforming Loans 44 113
Acquired Deposits 1,165 803
Other 950 583
------ ------
Total Deferred Tax Assets $7,331 $5,395
Deferred Tax Liabilities attributable to:
Associate Benefits $ 167 $ 698
Unrealized Gains on Investment Securities 1,805 1,359
Depreciation on Premises and Equipment 2,051 1,643
Deferred Loan Fees 2,098 1,169
Securities Accretion 171 253
Acquired Deposits - 76
Other 140 331
------ ------
Total Deferred Tax Liabilities 6,432 5,529
------ ------
Net Deferred Tax Assets (Liabilities) $ 899 $ (134)
====== ======
Income taxes provided were different than the tax expense computed by
applying the statutory federal income tax rate of 35% to pre-tax income
as a result of the following:
(Dollars in Thousands) 2002 2001 2000
- --------------------------------------------------------------------------
Tax Expense at Federal Statutory Rate $12,521 $9,094 $9,661
Increases (Decreases)
Resulting From:
Tax-Exempt Interest Income (1,084) (1,179) (1,357)
State Taxes, Net of Federal Benefit 1,238 913 1,000
Other 16 290 145
------- ------ ------
Actual Tax Expense $12,691 $9,118 $9,449
======= ====== ======
67
Note 12
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 compensation 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) 2002 2001 2000
- ---------------------------------------------------------------------------------
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year $ 33,642 $26,811 $18,980
Service Cost 2,842 2,732 2,255
Interest Cost 2,348 2,122 1,777
Actuarial Loss 1,671 2,052 3,019
Amendments to Plan(1) - 1,553 2,099
Benefits Paid (2,385) (1,362) (1,119)
Expenses Paid (177) (266) (200)
-------- ------- -------
Projected Benefit Obligation at End of Year $ 37,941 $33,642 $26,811
-------- ------- -------
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $ 30,113 $31,319 $32,521
Actual Return on Plan Assets (3,357) (1,493) (798)
Employer Contributions 3,229 524 915
Amendments to Plan - 1,391 -
Benefits Paid (2,385) (1,362) (1,119)
Expenses Paid (177) (266) (200)
-------- ------- -------
Fair Value of Plan Assets at End of Year $ 27,423 $30,113 $31,319
-------- ------- -------
Funded Status $(10,518) $(3,529) $ 4,508
Unrecognized Net Actuarial Loss (Gain) 10,672 3,557 (3,000)
Unrecognized Prior Service Cost 1,434 1,718 2,203
Unrecognized Net Transition Obligation
Liability (Asset) 1 2 (232)
-------- ------- -------
Prepaid Benefit Cost $ 1,589 $ 1,748 $ 3,479
======== ======= =======
Weighted-Average Assumptions:
Discount Rate 6.75% 7.25% 7.50%
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 $ 2,842 $ 2,732 $ 2,255
Interest Cost 2,348 2,122 1,777
Expected Return on Plan Assets (2,404) (2,629) (2,643)
Amortization of Prior Service Cost 284 327 343
Transition Asset Recognition 1 (231) (236)
Recognized Net Actuarial Loss (Gain) 317 (168) (663)
-------- ------- -------
Net Periodic Benefit Cost $ 3,388 $ 2,153 $ 833
======== ======= =======
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.
68
The Company has a Supplemental Executive 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 2002, 2001 and 2000 of
approximately $393,000, $214,000 and $167,000, respectively, and no minimum
liability, at December 31, 2002, 2001 and 2000, respectively.
The following table details the components of the Supplemental Executive
Retirement Plan's periodic benefit cost, 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) 2002 2001 2000
- ---------------------------------------------------------------------------------
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year $ 1,458 $ 1,255 $ 1,347
Service Cost 118 73 59
Interest Cost 169 102 83
Actuarial Loss (Gain) 1,025 (111) (283)
Amendments - 139 49
------- ------- -------
Projected Benefit Obligation at End of Year $ 2,770 $ 1,458 $ 1,255
------- ------- -------
Change in Plan Assets:
Funded Status $(2,770) $(1,458) $(1,255)
Unrecognized Net Actuarial Loss (Gain) 645 (333) (242)
Unrecognized Prior Service Cost 546 605 525
------- ------- -------
Accrued Benefit Cost $(1,579) $(1,186) $ (972)
======= ======= =======
Weighted-Average Assumptions:
Discount Rate 6.75% 7.25% 7.50%
Rate of Compensation Increase 5.50% 5.50% 5.50%
Components of Net Periodic Benefit Costs:
Service Cost $ 118 $ 73 $ 59
Interest Cost 169 102 83
Amortization of Prior Service Cost 59 59 48
Recognized Net Actuarial Loss (Gain) 47 (20) (23)
------- ------- -------
Net Periodic Benefit Cost $ 393 $ 214 $ 167
======= ======= =======
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 2002,
2001 and 2000, 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.
A total of 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 2002, 2001 and 2000.
69
Note 13
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in Thousands, Except Per Share Data)
2002 2001 2000
------------------------------------
Numerator:
Net Income $ 23,082 $ 16,866 $ 18,153
========== ========== ==========
Denominator:
Denominator for Basic Earnings Per Share
Weighted-Average Shares 10,580,228 10,593,566 10,186,199
Effects of Dilutive Securities
Associate Stock Incentive Plan 39,267 40,382 28,643
---------- ---------- ----------
Denominator for Diluted Earnings Per Share
Adjusted Weighted-Average Shares and
Assumed Conversions 10,619,495 10,633,948 10,214,842
========== ========== ==========
Basic Earnings Per Share $ 2.18 $ 1.59 $ 1.78
========== ========== ==========
Diluted Earnings per Share $ 2.17 $ 1.59 $ 1.78
========== ========== ==========
70
Note 14
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-weighted assets, and of Tier I capital to average assets. As of
December 31, 2002, the Company met 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, 2002 and December
31, 2001 are as follows:
To Be Well-
Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
(Dollars in ------------------------------------------------------------
Thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------
As of December 31, 2002:
Tier I Capital:
CCBG $154,376 12.03% $ 51,340 4.00% * *
CCB 150,360 11.73% 51,261 4.00% $ 76,891 6.00%
Total Capital:
CCBG 166,871 13.00% 102,681 8.00% * *
CCB 162,855 12.71% 102,522 8.00% 128,152 10.00%
Tier I Leverage:
CCBG 154,376 8.46% 38,505 3.00% * *
CCB 150,360 8.25% 38,446 3.00% 64,076 5.00%
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% 37,952 3.00% * *
CCB 136,271 7.48% 37,813 3.00% 63,121 5.00%
*Non-applicable to bank holding companies.
71
Note 15
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 2003, the bank
subsidiary may declare dividends without regulatory approval of $15.5 million
plus an additional amount equal to the net profits of the Company's subsidiary
bank for 2003 up to the date of any such dividend declaration.
Note 16
RELATED PARTY INFORMATION
The Chairman of the Board of Capital City Bank Group, Inc., is employed by and
is the former 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 $647,000, $534,000 and $335,000
during 2002, 2001 and 2000, 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 $85,000, to be adjusted for inflation
in future years.
At December 31, 2002 and 2001, certain officers and directors were indebted to
the Company's bank subsidiary in the aggregate amount of $18.0 million and
$12.7 million, respectively. During 2002, $34.0 million in new loans were
made and repayments totaled $28.7 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 17
SUPPLEMENTARY INFORMATION
Components of noninterest income in excess of 1% of total interest income and
noninterest expense in excess of 1% of the sum of total interest income and
noninterest income, which are not disclosed separately elsewhere, are
presented below for each of the respective years.
(Dollars in Thousands) 2002 2001 2000
- ---------------------------------------------------------------------
Noninterest Income:
ATM Fees $1,142 $1,015 $ 892
Retail Brokerage Fees 1,166 505 747
Merchant Fee Income 3,715 3,612 3,388
Interchange Commission Fees 2,133 2,014 1,718
Noninterest Expense:
Pension Expense 3,388 2,153 833
Associate Insurance 2,585 2,339 1,697
Payroll Taxes 2,177 2,073 1,710
Maintenance and Repairs 4,198 4,267 2,972
Professional Fees 1,895 1,301 1,331
Printing & Supplies 1,772 1,757 1,590
Commission/Service Fees 3,464 2,863 3,517
Telephone 1,832 1,617 1,147
Less than 1% of the appropriate threshold.
72
Note 18
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISKS
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.
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, 2002, the amounts associated with the
Company's off-balance-sheet obligations were as follows:
(Dollars in Thousands) Amount
- ----------------------------------------------------------
Commitments to Extend Credit $396,996
Standby Letters of Credit $ 3,693
Commitments include unfunded loans, revolving lines of credit (including
credit card lines) and other unused commitments.
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 19
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, 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.
73
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 present value techniques and 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 as
well as rates being offered for similar debt.
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 that have estimated fair values are
presented below:
At December 31,
-------------------------------------------------
2002 2001
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
(Dollars in Thousands) Value Value Value Value
- --------------------------- ----------------------- -----------------------
Financial Assets:
Cash $ 89,823 $ 89,823 $ 92,413 $ 92,413
Short-Term Investments 170,936 170,936 164,417 164,417
Investment Securities 180,315 180,315 219,073 219,073
Loans, Net of Allowance
for Loan Losses 1,272,726 1,331,724 1,231,255 1,305,282
---------- ---------- ---------- ----------
Total Financial Assets $1,713,800 $1,772,798 $1,707,158 $1,781,185
========== ========== ========== ==========
Financial Liabilities:
Deposits $1,434,200 $1,438,964 $1,550,101 $1,569,116
Short-Term Borrowings 113,675 113,675 67,042 67,042
Long-Term Debt 71,745 72,631 13,570 14,630
---------- ---------- ---------- ----------
Total Financial Liabilities $1,619,620 $1,625,270 $1,630,713 $1,650,788
========== ========== ========== ==========
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.
74
Note 20
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) 2002 2001 2000
- -------------------------------------------------------------------------------
OPERATING INCOME
Income Received from Subsidiary Bank:
Dividends $12,678 $12,963 $ 8,713
Overhead Fees 3,061 2,393 2,373
Other Income 59 - -
------- ------- -------
Total Operating Income 15,798 15,356 11,086
------- ------- -------
OPERATING EXPENSE
Salaries and Associate Benefits 2,311 1,878 1,715
Interest on Debt 7 83 147
Professional Fees 994 399 332
Advertising 138 132 100
Legal Fees 197 85 67
Other 335 285 341
------- ------- -------
Total Operating Expense 3,982 2,862 2,702
------- ------- -------
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Bank 11,816 12,494 8,384
Income Tax Benefit (248) (124) (121)
------- ------- -------
Income Before Equity in Undistributed
Earnings of Subsidiary Bank 12,064 12,618 8,505
Equity in Undistributed Earnings
of Subsidiary Bank 11,018 4,248 9,648
------- ------- -------
Net Income $23,082 $16,866 $18,153
======= ======= =======
The following are condensed statements of financial condition of the parent
company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands) 2002 2001
- ----------------------------------------------------------------------------
ASSETS
Cash and Due From Subsidiary Bank $ 3,970 $ 3,224
Investment in Subsidiary Bank 183,780 171,991
Other Assets 1,148 892
-------- --------
Total Assets $188,898 $176,107
======== ========
LIABILITIES
Other Liabilities $ 2,367 $ 4,324
-------- --------
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; 10,556,968 and 10,642,575
shares issued and outstanding at December 31,
2002 and December 31, 2001, respectively 106 106
Additional Paid-In Capital 14,717 17,178
Retained Earnings 168,587 152,149
Accumulated Other Comprehensive Income, Net of Tax 3,121 2,350
-------- --------
Total Shareowners' Equity 186,531 171,783
-------- --------
Total Liabilities and Shareowners' Equity $188,898 $176,107
======== ========
75
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) 2002 2001 2000
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $23,082 $16,866 $18,153
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed
Earnings of Subsidiary Bank (11,018) (4,248) (9,648)
Non-Cash Compensation 892 489 369
(Increase) Decrease in Other Assets (256) 206 (925)
(Decrease) Increase in Other Liabilities (2,603) 386 (501)
------- ------- -------
Net Cash Provided by Operating Activities 10,097 13,699 7,448
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Cash Received From Acquisitions - 1,471 -
------- ------- -------
CASH FROM FINANCING ACTIVITIES:
Borrowings of Long-Term Debt 2,040 1,025 500
Repayments of Long-Term Debt (2,040) (2,275) (2,250)
Payment of Dividends (6,644) (6,376) (5,549)
Repurchase of Common Stock (3,395) (4,942) (2,667)
Issuance of Common Stock 688 435 685
------- ------- -------
Net Cash Used in Financing Activities (9,351) (12,133) (9,281)
------- ------- -------
Net Increase (Decrease) in Cash 746 3,037 (1,833)
Cash at Beginning of Period 3,224 187 2,020
------- ------- -------
Cash at End of Period $ 3,970 $ 3,224 $ 187
======= ======= =======
76
Note 21
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 on securities
available-for-sale, net of income taxes. Changes in unrealized gains (net of
taxes) on securities are reported as other comprehensive income and totaled
$771, $3,872, and $4,668 for 2002, 2001 and 2000, respectively.
Reclassification adjustments consist only of realized gains on sales of
investment securities and were not material for the years ended December 31,
2002, 2001 and 2000.
77
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
On May 29, 2002, the Board of Directors of the Company on the recommendation
of its Audit Committee, decided to no longer engage Arthur Andersen LLP
("Arthur Andersen") as the Company's independent public accountants and to
engage KPMG LLP ("KPMG") to serve as the Company's independent public
accountants for the fiscal year 2002.
For each of the years ended December 31, 2001 and 2000, Arthur Andersen's
reports on the Company's consolidated financial statements did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001 and 2000 and through May 29, 2002,
there were no disagreements with Arthur Andersen on any matter of accounting
principles or practice, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Arthur Andersen's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on the Company's consolidated financial statements for such years; and
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.
During the years ended December 31, 2001 and 2000, the Company did not consult
KPMG with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements, or any
other matters or reportable events as set forth in Items 301(a)(2)(i) and (ii)
of Regulation S-K. During the year ended December 31, 2002, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved to KPMG's satisfaction, would have caused them to make reference to
the subject matter in connection with their report on the Company's
consolidated financial statements included herein.
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, 2003, to be filed on or about
April 2, 2003.
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, 2003, to be filed on or about
April 2, 2003.
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, 2003, to be filed on or about
April 2, 2003.
78
Equity Compensation Plan Information
The following table summarizes information about the Company's equity
compensation plans as of December 31, 2002. All outstanding awards relate to
the Company's common stock. For additional information about the Company's
equity compensation plans, see Stock Based Compensation in note 1 to our
consolidated financial statements.
Number of securities
remaining available for
Number of securities Weighted-average future issuance under
to be issued upon exercise price of equity compensation
exercise of outstanding plans (excluding
outstanding options, options, warrants securities reflected in
Plan Category warrants and rights and rights column (a))
- -------------------- ---------------------- ------------------- -------------------------
(a) (b) (c)
Equity - - 909,938
Compensation
Plans Approved by
Securities
Holders
Equity - - -
Compensation
Plans Not
Approved by
Securities
Holders
- -------------------- ---------------------- ------------------- -------------------------
- - 909,938
- -------------------- ---------------------- ------------------- -------------------------
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, 2003, to be filed on or about April 2, 2003.
PART IV
Item 14. Evaluation Of Disclosure Controls And Procedures Changes In Internal
Controls
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within ninety (90) days prior to the date of this report, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on their evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures are effective. However, the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
CHANGES IN INTERNAL CONTROLS
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has reviewed the Company's internal controls. There have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation.
79
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Independent Auditors' Report
Report of Independent Public Accountants
Consolidated Statements of Income for Years Ended December 31, 2002,
2001 and 2000
Consolidated Statements of Financial Condition as of December 31,
2002 and 2001
Consolidated Statements of Changes in Shareowners' Equity for Years
Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for Years Ended December 31,
2002, 2001 and 2000
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 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(b) 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(c) Plan of Merger and Merger Agreement, dated August 23, 2001, by
and between Capital City Bank and First National Bank of Grady
County - incorporated herein by reference to Exhibit 2(f) of the
Registrant's Form 10-K (filed 3/28/02).
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).
80
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
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. Supplemental Executive Retirement
Plan filed with this report.
21 Subsidiaries - Filed with this report.
23 Consent of Independent Auditors - Filed with this report.
99.1 Certification required by the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification required by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth quarter of fiscal
year 2002.
81
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 27, 2003, on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith, Jr.
- -----------------------------
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 27, 2003 by the following persons in the
capacities indicated.
/s/ William G. Smith, Jr.
- -----------------------------
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
- -----------------------------
DuBose Ausley
/s/ Thomas A. Barron
- -----------------------------
Thomas A. Barron
/s/ Cader B. Cox, III
- -----------------------------
Cader B. Cox, III
/s/ John K. Humphress
- -----------------------------
John K. Humphress
/s/ Lina S. Knox
- -----------------------------
Lina S. Knox
/s/ John R. Lewis
- -----------------------------
John R. Lewis
/s/ William G. Smith, Jr.
- -----------------------------
William G. Smith, Jr.
82
CERTIFICATIONS
I, William G. Smith, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Capital City Bank
Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 27, 2003
/s/ William G. Smith, Jr.
- -----------------------------
William G. Smith, Jr.
President and Chief Executive Officer
83
CERTIFICATIONS
I, J. Kimbrough Davis, certify that:
1. I have reviewed this annual report on Form 10-K of Capital City Bank
Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
4. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 27, 2003
/s/ J. Kimbrough Davis
- -----------------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
84