SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended:
September 30, 2002
Commission File Number 0-13358
CAPITAL CITY BANK GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2273542
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code:
(850) 671-0300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days.
Yes [X] No [ ]
At October 31, 2002, there were 10,551,234 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q I N D E X
ITEM PART I. FINANCIAL INFORMATION PAGE NUMBER
- ---- ----------------------------- -----------
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
3. Quantitative and Qualitative Disclosure of
Market Risk 22
4. Controls and Procedures 24
ITEM PART II. OTHER INFORMATION
- ---- --------------------------
1. Legal Proceedings Not Applicable
2. Changes in Securities and Use of Proceeds Not Applicable
3. Defaults Upon Senior Securities Not Applicable
4. Submission of Matters to a Vote of
Security Holders Not Applicable
5. Other Information 24
6. Exhibits and Reports on Form 8-K 24
Signatures 24
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 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------- ------- ------- -------
INTEREST INCOME
Interest and Fees on Loans $23,897 $26,134 $71,294 $77,227
Investment Securities:
U.S. Treasury - 96 - 339
U.S. Government Agencies/Corp. 1,326 1,639 4,244 5,411
States and Political Subdivisions 678 794 2,099 2,523
Other Securities 320 559 1,317 1,754
Funds Sold 182 1,036 1,089 3,023
------- ------- ------- -------
Total Interest Income 26,403 30,258 80,043 90,277
INTEREST EXPENSE
Deposits 4,496 11,641 16,657 36,141
Short-Term Borrowings 194 374 531 1,980
Long-Term Debt 256 241 648 674
------- ------- ------- -------
Total Interest Expense 4,946 12,256 17,836 38,795
------- ------- ------- -------
Net Interest Income 21,457 18,002 62,207 51,482
Provision for Loan Losses 991 1,222 2,434 3,051
------- ------- ------- -------
Net Interest Income After
Provision for Loan Losses 20,466 16,780 59,773 48,431
NONINTEREST INCOME
Service Charges on Deposit Accounts 2,979 2,581 8,716 7,656
Data Processing 485 506 1,494 1,593
Asset Management Fees 585 613 1,890 1,967
Securities Transactions - 2 - 4
Mortgage Banking Revenues 1,612 1,111 3,957 2,686
Other 3,426 3,105 9,876 9,595
------- ------- ------- -------
Total Noninterest Income 9,087 7,918 25,933 23,501
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and Associate Benefits 10,888 10,033 31,947 27,599
Occupancy, Net 1,363 1,492 4,242 4,122
Furniture and Equipment 1,819 1,703 5,656 4,934
Conversion/Merger Expense - - 153 -
Other 6,456 5,765 18,325 16,310
------- ------- ------- -------
Total Noninterest Expense 20,526 18,993 60,323 52,965
Income Before Income Taxes 9,027 5,705 25,383 18,967
Income Taxes 3,226 1,963 9,023 6,596
------- ------- ------- -------
NET INCOME $ 5,801 $ 3,742 $16,360 $12,371
======= ======= ======= =======
Basic Net Income Per Share $ .55 $ .35 $ 1.54 $ 1.17
======= ======= ======= =======
Diluted Net Income Per Share $ .55 $ .35 $ 1.54 $ 1.17
======= ======= ======= =======
Cash Dividends Per Share $ .1525 $ .1475 $ .4575 $ .4425
======= ======= ======= =======
Basic Average Shares Outstanding 10,550,941 10,685,137 10,589,901 10,566,360
========== ========== ========== ==========
Diluted Average Shares Outstanding 10,590,197 10,693,161 10,629,157 10,574,384
========== ========== ========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash and Due From Banks $ 87,613 $ 92,413
Funds Sold 79,034 164,417
---------- ----------
Total Cash and Cash Equivalents 166,647 256,830
Investment Securities, Available-for-Sale 194,035 219,073
Loans, Net of Unearned Interest 1,286,909 1,243,351
Allowance for Loan Losses (12,462) (12,096)
---------- ----------
Loans, Net 1,274,447 1,231,255
Premises and Equipment 47,633 47,037
Intangibles 29,844 32,276
Other Assets 31,323 34,952
---------- ----------
Total Assets $1,743,929 $1,821,423
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 396,946 $ 389,146
Interest Bearing Deposits 1,006,837 1,160,955
---------- ----------
Total Deposits 1,403,783 1,550,101
Short-Term Borrowings 70,346 67,042
Long-Term Debt 66,987 13,570
Other Liabilities 20,838 18,927
---------- ----------
Total Liabilities 1,561,954 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; 10,551,231 shares
outstanding at September 30, 2002
and 10,642,575 outstanding at
December 31, 2001 106 106
Additional Paid-In Capital 14,539 17,178
Retained Earnings 163,659 152,149
Accumulated Other Comprehensive Income,
Net of Tax 3,671 2,350
---------- ----------
Total Shareowners' Equity 181,975 171,783
---------- ----------
Total Liabilities and Shareowners' Equity $1,743,929 $1,821,423
========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30
(Dollars In Thousands)
(UNAUDITED)
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 16,360 $ 12,371
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses 2,434 3,051
Depreciation 3,711 3,103
Net Securities Amortization 725 882
Amortization of Intangible Assets 2,432 2,943
Gain on Sales of Investment Securities - (4)
Non-Cash Compensation Expense 246 773
Net Decrease in Other Assets 3,811 2,114
Net Increase in Other Liabilities 1,909 2,948
-------- --------
Net Cash Provided by Operating Activities 31,628 28,181
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 54,224 100,308
Purchase of Investment Securities (27,824) (6,053)
Net Increase in Loans (46,572) (89,906)
Purchase of Premises & Equipment (4,418) (6,549)
Sales of Premises & Equipment 111 1,934
Cash & Cash Equivalents from Acquisition - 80,420
-------- --------
Net Cash (Used in) Provided by Investing Activities (24,479) 80,154
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits (146,318) 46,454
Net Increase (Decrease) in Short-Term Borrowings 3,304 (55,798)
Borrowing of Long-Term Debt 57,040 6,971
Repayment of Long-Term Debt (3,623) (2,598)
Dividends Paid (4,850) (4,746)
Repurchase of Common Stock (3,396) (3,761)
Issuance of Common Stock 511 222
-------- --------
Net Cash Used in Financing Activities (97,332) (13,256)
-------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents (90,183) 95,079
Cash and Cash Equivalents at Beginning of Period 256,830 113,990
-------- --------
Cash and Cash Equivalents at End of Period $166,647 $209,069
======== ========
Supplemental Disclosure:
Interest Paid on Deposits $ 19,702 $ 36,766
======== ========
Interest Paid on Debt $ 1,094 $ 2,628
======== ========
Transfer of Loans to ORE $ 946 $ 1,562
======== ========
Income Taxes Paid $ 9,815 $ 7,312
======== ========
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) MANAGEMENT'S OPINION AND ACCOUNTING POLICIES
--------------------------------------------
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, including Regulation S-X. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. Prior period financial statements
have been reformatted and/or amounts reclassified, as necessary, to conform
with the current presentation.
In the opinion of management, the consolidated financial statements contain
all adjustments, which are those of a recurring nature, and disclosures
necessary to present fairly the financial position of the Company as of
September 30, 2002 and December 31, 2001, the results of operations for the
three and nine month periods ended September 30, 2002 and 2001, and cash
flows for the nine month periods ended September 30, 2002 and 2001.
The Company and its subsidiaries follow accounting principles generally
accepted in the United States of America and reporting practices applicable
to the banking industry. The principles which materially affect its
financial position, results of operations and cash flows are set forth in
Notes to Consolidated Financial Statements which are included in the
Company's 2001 Annual Report on Form 10-K.
(2) INVESTMENT SECURITIES
---------------------
The carrying value and related market value of investment securities at
September 30, 2002 and December 31, 2001 were as follows (dollars in
thousands):
September 30, 2002
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U.S. Government Agencies
and Corporations $ 53,975 $1,091 $ - $ 55,066
States and Political
Subdivisions 65,675 3,107 4 68,778
Mortgage Backed Securities 46,647 1,314 5 47,956
Other Securities 21,943 292 - 22,235
-------- ------ --- --------
Total $188,240 $5,804 $ 9 $194,035
======== ====== === ========
December 31, 2001
-------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- --------
U.S. Government Agencies
and Corporations $ 41,303 $1,076 $ - $ 42,379
States and Political
Subdivisions 70,905 1,182 22 72,065
Mortgage Backed Securities 64,382 876 10 65,248
Other Securities 38,774 623 16 39,381
-------- ------ --- --------
Total $215,364 $3,757 $48 $219,073
======== ====== === ========
(3) LOANS
-----
The composition of the Company's loan portfolio at September 30, 2002 and
December 31, 2001 was as follows (dollars in thousands):
September 30, 2002 December 31, 2001
------------------ -----------------
Commercial, Financial
and Agricultural $ 138,392 $ 128,480
Real Estate - Construction 89,090 72,778
Real Estate - Mortgage 331,403 302,239
Real Estate - Residential 404,837 434,378
Real Estate - Home Equity 86,711 65,879
Real Estate - Loans Held-for-Sale 22,497 30,289
Consumer 213,979 209,308
---------- ----------
Loans, Net of Unearned Interest $1,286,909 $1,243,351
========== ==========
(4) ALLOWANCE FOR LOAN LOSSES
-------------------------
An analysis of the changes in the allowance for loan losses for the nine
month period ended September 30, 2002 and 2001, is as follows (dollars in
thousands):
September 30,
----------------------------
2002 2001
------- -------
Balance, Beginning of the Period $12,096 $10,564
Acquired Reserves - 1,206
Provision for Loan Losses 2,434 3,051
Recoveries on Loans Previously
Charged-Off 1,129 680
Loans Charged-Off (3,197) (3,215)
------- -------
Balance, End of Period $12,462 $12,286
======= =======
Impaired loans are primarily defined as all nonaccruing loans for the loan
categories which are included within the scope of Statement of Financial
Accounting ("SFAS") No. 114. Selected information pertaining to impaired
loans is depicted in the table below (dollars in thousands):
September 30, 2002 December 31, 2001
-------------------- --------------------
Impaired Loans: Valuation Valuation
Balance Allowance Balance Allowance
-------------------- --------------------
With Related Credit Allowance $1,274 $370 $ 956 $112
Without Related Credit Allowance 1,369 - 176 -
Average Recorded Investment
for the Period 2,643 N/A 1,827 N/A
Interest Income:
Recognized $ 96 $ 6
Collected $ 96 $ 6
The Company recognizes income on nonaccrual loans primarily on the cash
basis. Any change in the present value of expected cash flows is recognized
through the allowance for loan losses.
(5) DEPOSITS
--------
The composition of the Company's interest bearing deposits at September 30,
2002 and December 31, 2001 was as follows (dollars in thousands):
September 30, 2002 December 31, 2001
------------------ -----------------
NOW Accounts $ 231,931 $ 244,153
Money Market Accounts 217,562 220,755
Savings Deposits 106,164 96,685
Other Time Deposits 451,180 596,362
---------- ----------
Total Interest Bearing Deposits $1,006,837 $1,160,955
========== ==========
(6) ACCOUNTING PRONOUNCEMENTS
-------------------------
In October 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 147, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions." SFAS No. 147 removes financial institutions (with the
exception of combinations of mutual enterprises) from the scope of both FASB
Statement No. 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 FASB Statements
No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets." As a result, the requirement under SFAS No. 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 No. 147. In addition, SFAS No. 147 amends FASB
Statement 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 No. 147 is not expected to have a material impact on the reported
results of operations of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," effective for fiscal years beginning after
December 31, 2002. This statement supercedes Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." This statement requires a liability for
a cost associated with an exit or disposal activity be recognized and
measured initially at fair value when the liability is incurred. The
adoption of this standard is not expected to have a material impact on the
reported results of operations of the Company.
(7) INTANGIBLE ASSETS
-----------------
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles,"
which is effective for fiscal years beginning after December 15, 2001. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes Accounting Principles Board
("APB") Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how
intangible assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This statement also
addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements.
Specifically, the adoption of SFAS No. 142 requires the discontinuance of
goodwill amortization and includes provisions for reassessment of the useful
lives of existing intangibles and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a two-step transitional goodwill
impairment test. The first step of the impairment test must be completed six
months from the date of adoption by the Company and the second step, if
necessary, must be completed as soon as possible, but no later than the end
of the year of initial application. The Company completed the first step of
the transitional goodwill impairment test and has determined no goodwill
impairment existed at January 1, 2002. Thus, the second step of the two-step
process is not required. The Company will perform an impairment test of the
goodwill on an annual basis.
The Company had intangible assets of $29.8 million and $32.3 million at
September 30, 2002 and December 31, 2001, respectively. Intangible assets
were as follows (dollars in thousands):
September 30, 2002 December 31, 2001
--------------------- --------------------
Gross Accumulated Gross Accumulated
Description Amount Amortization Amount Amortization
- ----------- ------- ------------ ------- ------------
Core Deposits Intangibles $33,752 $10,588 $33,752 $ 8,156
Goodwill 10,466 3,786 10,466 3,786
------- ------- ------- -------
Total Intangible Assets $44,218 $14,374 $44,218 $11,942
======= ======= ======= =======
Net Core Deposit Intangibles:
As of September 30, 2002 and December 31, 2001, the Company had core deposit
intangibles of $23.1 million and $25.6 million, respectively. The adoption
of SFAS No. 142 did not have a material impact on the useful lives assigned
to the Company's intangible assets subject to amortization. Amortization
expense for the first nine months of 2002 and 2001 was $2.4 million and $2.9
million, respectively. Estimated annual amortization expense for the next
five years is expected to be $3.2 million per year.
Goodwill:
As of September 30, 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 Company has
estimated that the adoption of SFAS No. 142 will increase annual 2002
earnings by approximately $622,000. Goodwill is the Company's only
intangible asset that is no longer subject to amortization under the
provisions of SFAS No. 142.
Transitional Disclosures:
The pro forma effects, net of tax, of the adoption of SFAS No. 142 for the
periods presented were as follows (dollars in thousands, except per share
data):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------
2002 2001 2002 2001
------ ------ ------- -------
Reported Net Income $5,801 $3,742 $16,360 $12,371
Goodwill Amortization - 156 - 467
------ ------ ------- -------
Adjusted Net Income $5,801 $3,898 $16,360 $12,838
Basic Earnings Per Share:
Reported Net Income $ .55 $ .35 $ 1.54 $ 1.17
Goodwill Amortization - .01 - .04
------ ------ ------- -------
Adjusted Net Income $ .55 $ .36 $ 1.54 $ 1.21
Diluted Earnings Per Share:
Reported Net Income $ .55 $ .35 $ 1.54 $ 1.17
Goodwill Amortization - .01 - .04
------ ------ ------- -------
Adjusted Net Income $ .55 $ .36 $ 1.54 $ 1.21
(8) COMPREHENSIVE INCOME
--------------------
Total comprehensive income is defined as net income and all other changes in
equity which, for the Company, consists solely of changes in unrealized gains
(losses) on available-for-sale securities, net of income taxes. The Company
reported total comprehensive income, net of tax, for the three and nine month
periods ended September 30, 2002 and 2001, as follows (dollars in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -----------------
2002 2001 2002 2001
------ ------ ------- -------
Net Income $5,801 $3,742 $16,360 $12,371
Other Comprehensive Income, Net of Tax
Unrealized Gains on Securities:
Unrealized Gains on Securities
During the Period 680 1,696 1,321 4,600
Less: Reclassification Adjustments for
Gains in Net Income - (2) - (4)
------ ------ ------- -------
Total Unrealized Gains On Securities 680 1,694 1,321 4,596
------ ------ ------- -------
Other Comprehensive Income, Net of Tax $6,481 $5,436 $17,681 $16,967
====== ====== ======= =======
These changes reflect a market value increase in available-for-sale
securities for the three and nine months ended September 30, 2002 and 2001,
respectively.
(9) ACQUISITIONS
------------
On March 9, 2001, the Company completed a purchase and assumption transaction
with First Union National Bank ("First Union") and acquired six of First
Union's offices in Georgia which included real estate, loans and deposits.
The transaction resulted in approximately $11.3 million in core deposit
intangibles, which are being amortized over a 10-year period. The Company
purchased $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 intangibles,
primarily goodwill.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
2002 2001 2000
--------------------------------- ---------------------------------------------- ----------
Third Second First Fourth Third Second First Fourth
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 26,403 $ 26,599 $ 27,041 $ 28,706 $ 30,258 $ 30,882 $ 29,137 $ 28,717
Interest Expense 4,946 5,693 7,197 9,454 12,256 13,396 13,143 12,949
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 21,457 20,906 19,844 19,252 18,002 17,486 15,994 15,768
Provision for
Loan Loss 991 641 802 932 1,222 1,007 822 825
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision
for Loan Loss 20,466 20,265 19,042 18,320 16,780 16,479 15,172 14,943
Noninterest Income 9,087 8,552 8,294 8,536 7,918 8,255 7,328 7,046
Conversion/
Merger Expense - 39 114 588 - - - 12
Noninterest Expense 20,526 20,293 19,351 19,251 18,993 18,132 15,840 14,847
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 9,027 8,485 7,871 7,017 5,705 6,602 6,660 7,130
Provision for
Income Taxes 3,226 3,037 2,760 2,522 1,963 2,322 2,311 2,478
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 5,801 $ 5,448 $ 5,111 $ 4,495 $ 3,742 $ 4,280 $ 4,349 $ 4,652
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 21,873 $ 21,332 $ 20,284 $ 19,689 $ 18,431 $ 17,935 $ 16,454 $ 16,134
Per Common Share:
Net Income Basic $ .55 $ .52 $ .48 $ .42 $ .35 $ .40 $ .42 $ .46
Net Income Diluted .55 .51 .48 .42 .35 .40 .42 .46
Dividends Declared .1525 .1525 .1525 .1525 .1475 .1475 .1475 .1475
Book Value 17.18 16.74 16.38 16.08 16.24 15.87 15.62 14.56
Market Price:
High 36.94 34.80 27.50 24.67 25.25 25.00 26.13 26.75
Low 27.90 25.75 22.65 21.90 20.87 19.88 23.13 18.88
Close 33.06 34.53 27.00 24.23 23.47 24.87 25.19 24.81
Selected Average
Balances:
Loans $1,266,591 $1,234,787 $1,229,344 $1,242,516 $1,204,323 $1,192,103 $1,082,961 $1,053,674
Earning Assets 1,511,485 1,547,603 1,575,698 1,584,225 1,561,519 1,556,186 1,416,861 1,359,336
Assets 1,678,620 1,720,095 1,748,211 1,756,995 1,734,392 1,733,115 1,570,587 1,503,184
Deposits 1,388,396 1,440,615 1,467,257 1,488,961 1,483,527 1,479,159 1,301,123 1,223,401
Shareowners' Equity 180,910 176,678 175,485 176,549 170,511 169,516 155,896 146,232
Common Equivalent
Shares:
Basic 10,551 10,576 10,644 10,674 10,685 10,713 10,297 10,162
Diluted 10,590 10,606 10,675 10,715 10,693 10,721 10,305 10,186
Ratios:
ROA 1.37% 1.27% 1.19% 1.01% .86% .99% 1.12% 1.23%
ROE 12.72% 12.37% 11.81% 10.10% 8.71% 10.13% 11.32% 12.66%
Net Interest
Margin (FTE) 5.74% 5.52% 5.22% 4.93% 4.70% 4.62% 4.70% 4.73%
Efficiency Ratio 63.68% 65.20% 64.88% 65.30% 68.17% 65.09% 63.12% 61.03%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 four subsections entitled "Results of Operations,"
"Financial Condition," "Liquidity and Capital Resources" and "Other."
Information therein should facilitate a better understanding of the major
factors and trends which affect the Company's earnings performance and
financial condition, and how the Company's performance during 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 year-to-date
averages used in this report are based on daily balances for each respective
period.
This Report and other Company communications and statements may contain
"forward-looking statements." These forward-looking statements include,
among others, statements about our beliefs, plans, objectives, goals,
expectations, estimates and intentions that are subject to significant risks
and uncertainties and are subject to change based on various factors, many of
which are beyond our control. The words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions are intended to identify forward-looking statements. The
following factors, among others, could cause our financial performance to
differ materially from what is contemplated in those forward-looking
statements:
.. The strength of the United States economy in general and the strength of
the local economies in which we conduct operations may be different than
expected resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit, including the resultant effect
on our loan portfolio and allowance for loan losses;
.. The effects of, and changes in, trade, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the
Federal Reserve System;
.. Inflation, interest rate, market and monetary fluctuations;
.. Adverse conditions in the stock market and other capital markets and the
impact of those conditions on our capital markets and capital management
activities, including our investment and wealth management advisory
businesses and brokerage activities;
.. The timely development of competitive new products and services by us and
the acceptance of those products and services by new and existing
customers;
.. The willingness of customers to accept third-party products marketed by
us;
.. The willingness of customers to substitute competitors' products and
services for our products and services and vice versa;
.. The impact of changes in financial services laws and regulations
(including laws concerning taxes, banking, securities and insurance);
.. Technological changes;
.. Changes in consumer spending and saving habits;
.. The effect of corporate restructuring, acquisitions or dispositions,
including the actual restructuring and other related charges and the
failure to achieve the expected gains, revenue growth or expense savings
from such corporate restructuring, acquisitions or dispositions;
.. The growth and profitability of our non-interest or fee income being less
than expected;
.. Unanticipated regulatory or judicial proceedings;
.. The impact of changes in accounting policies by the 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.
RESULTS OF OPERATIONS
Net Income
- ----------
Earnings, including the effects of merger-related expenses and intangible
amortization, for the three and nine months ended September 30, 2002 were
$5.8 million, or $0.55 per diluted share and $16.4 million, or $1.54 per
diluted share, respectively. This compares to $3.7 million, or $0.35 per
diluted share, and $12.4 million, or $1.17 per diluted share in 2001.
Amortization of intangible assets, net of taxes, for the first nine months in
2002 totaled $1.5 million, or $0.14 per diluted share, compared to $2.0
million, or $.19 per diluted share in 2001. The decrease in 2002 intangible
amortization is primarily attributable to the elimination of goodwill
amortization in accordance with the new accounting pronouncements.
The Company experienced growth in operating revenues (net interest income
plus noninterest income) of 17.9% and 17.6% over the comparable three and
nine month periods in 2001, respectively. The increase was primarily
attributable to growth in the net interest income. The rapid reduction in
interest rates throughout 2001 significantly reduced the Company's cost of
funds. The lower cost of funds boosted the net yield on earning assets to
5.74% for the third quarter and 5.50% for the first nine months of 2002.
This represents a 104 and 85 basis point improvement over the same periods in
2001, respectively. Noninterest income grew as a result of continued higher
mortgage banking revenues, reflecting the higher volume of fixed rate
residential mortgage production sold in the secondary market, an increase in
service charge fees and higher investment brokerage fees. These increases
were the most significant factors contributing to the increase in net income.
A condensed earnings summary is presented below.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2002 2001 2002 2001
------- ------- ------- -------
Interest Income $26,403 $30,258 $80,043 $90,277
Taxable Equivalent Adjustment 416 429 1,282 1,338
------- ------- ------- -------
Interest Income (FTE) 26,819 30,687 81,325 91,615
Interest Expense 4,946 12,256 17,836 38,795
------- ------- ------- -------
Net Interest Income (FTE) 21,873 18,431 63,489 52,820
Provision for Loan Losses 991 1,222 2,434 3,051
Taxable Equivalent Adjustment 416 429 1,282 1,338
------- ------- ------- -------
Net Interest Income After
Provision for Loan Losses 20,466 16,780 59,773 48,431
Noninterest Income 9,087 7,918 25,933 23,501
Conversion/Merger Expense - - 153 -
Noninterest Expense 20,526 18,993 60,170 52,965
------- ------- ------- -------
Income Before Income Taxes 9,027 5,705 25,383 18,967
Income Taxes 3,226 1,963 9,023 6,596
------- ------- ------- -------
Net Income $ 5,801 $ 3,742 $16,360 $12,371
======= ======= ======= =======
Percent Change 55.02% (20.74)% 32.24% (8.38)%
Return on Average Assets 1.37% .86% 1.28% .98%
Return on Average Equity 12.72% 8.71% 12.38% 9.97%
Computed using a federal statutory tax rate of 35%
Annualized
Net Interest Income
- -------------------
Third quarter taxable-equivalent net interest income increased $3.4 million,
or 18.7%, over the comparable quarter in 2001. This improvement is entirely
attributable to a reduction in interest expense, produced by lower rates and
a reduction in the level of interest bearing liabilities. During the first
nine months of 2002, taxable-equivalent net interest income increased $10.7
million, or 20.2%, over the first nine months of 2001. Both lower interest
expense and a higher level of average earning assets contributed to the year-
to-date improvement. In both periods, the improvement in net interest income
attributable to the factors noted above was partially offset by a decline in
interest income due to lower yields on earning assets. Table I on page 21
provides a comparative analysis of the Company's average balances and
interest rates.
For the three and nine month periods ended September 30, 2002, taxable-
equivalent interest income decreased $3.9 million, or 12.6%, and $10.3
million, or 11.2%, respectively, over the comparable prior year periods. The
general decline in interest rates produced unfavorable rate variances on
earning assets during both periods. The impact of these unfavorable rate
variances was partially mitigated by a positive volume variance during this
nine-month period and a favorable shift in mix of earning assets in both the
three and nine month periods. In the current rate environment, portfolio
repricing will continue to have an adverse impact on interest income, but may
be partially or completely offset by growth.
Lower yields on earning assets contributed to a decrease of 103 basis points
in the yield on earning assets, which declined from 8.07% for the nine months
in 2001 to 7.04% for the same period in 2002.
Interest expense for the three and nine month periods ended September 30,
2002 declined $7.3 million, or 60.0% and $21.0 million, or 54.0%,
respectively, from the comparable prior year periods. The general decline in
interest rates produced favorable rate variances on interest bearing
liabilities in both periods. 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 41.7% in the third quarter of 2001
to 33.3% in the third quarter of 2002. Lower interest rates and a favorable
shift in mix led to a decline in the average rate paid on interest bearing
liabilities of 219 basis points and 226 basis points, respectively, for the
three and nine month periods as compared to the comparable prior year
periods.
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 average federal taxable-
equivalent yield on earning assets less the average rate paid on interest
bearing liabilities) increased from 3.87% in the first nine months of 2001 to
5.29% in the comparable period of 2002. The Company's net yield on earning
assets (defined as taxable-equivalent net interest income divided by average
earning assets) was 5.50% for the first nine months in 2002, versus 4.65% in
the first nine months of 2001. The improvement in both the spread and net
yield on earning assets is attributable to the lower cost of funds.
Repricing of maturing certificates of deposit and continued loan growth are
anticipated to have a favorable impact on the net interest margin during the
fourth quarter. This can be partially or completely offset by unfavorable
repricing variances associated with loans and securities which are repricing
and/or maturing. The Federal Reserve reduced the federal funds rate 50 basis
points in November. Management does not anticipate this reduction will have
a material impact on net interest income during the fourth quarter.
Provision for Loan Losses
- -------------------------
The provision for loan losses of $1.0 million and $2.4 million decreased
$231,000, or 18.9%, and $617,000, or 20.2%, respectively, for the three and
nine month periods ended September 30, 2002, compared to $1.2 million and
$3.1 million for the same periods in 2001. The decline in the 2002 provision
reflects the lower level of net charge-offs relative to the same periods in
2001. Management implemented policy and procedural changes for monitoring
the credit card portfolio and the Company experienced a decline in net credit
card charge-offs.
Net charge-offs decreased in comparison to the first nine months of 2001 by
$467,000 and remain at low levels relative to the size of the portfolio. The
net charge-off ratio decreased to .22% versus .29% in 2001. The Company's
nonperforming assets ratio decreased slightly to .28% at September 30, 2002
compared to .32% for December 31, 2001 and .36% for September 30, 2001.
At September 30, 2002, the allowance for loan losses totaled $12.5 million,
approximately $400,000 higher than year-end 2001. At September 30, 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 as of September 30,
2002. Charge-off activity for the respective periods is set forth below
(dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
2002 2001 2002 2001
---- ---- ------ ------
Net Charge-Offs $756 $915 $2,068 $2,535
Net Charge-Offs (Annualized)
as a percent of Average
Loans Outstanding, Net of
Unearned Interest .24% .30% .22% .29%
Noninterest Income
- ------------------
Noninterest income increased $1.2 million, or 14.8%, in the third quarter of
2002 versus the comparable quarter for 2001, and $2.4 million, or 10.4%, for
the nine months ended September 30, 2002 versus the comparable period for
2001. During both periods, service charges on deposit accounts, mortgage
banking revenues and investment brokerage fees posted higher revenues.
Service charges on deposit accounts increased $399,000, or 15.4%, and $1.1
million, or 13.9%, respectively, over the comparable three and nine month
periods for 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 the
first nine months of 2002 compared to the comparable period in 2001, reflects
an increase in number of accounts primarily attributable to the 2001 Georgia
acquisitions. The Company implemented a courtesy overdraft product in
October of 2002. This product is expected to have a favorable impact in fee
income generated during the fourth quarter of 2002.
Data processing revenues decreased $21,000 and $99,000, over the comparable
three and nine month periods in 2001, representing a 4.1% and 6.1% decrease,
respectively. The Company currently provides data processing services for
five financial clients, a decline of one from the first nine months in 2001.
During the first nine months of 2002, financial clients represented
approximately 58.4% of total processing revenues compared to 66.9% in the
comparable period in 2001. The Company completed its systems conversion to a
third-party provider for all financial clients during the first quarter of
2002. The Company will add a new financial client late in the fourth quarter
of 2002. This addition is expected to generate minimal revenues during the
fourth quarter. Management expects fourth quarter revenues to remain
consistent with the quarterly revenues generated in the first nine months of
2002.
Asset management fees decreased $30,000, or 4.5%, compared to the third
quarter of 2001, and $77,000, or 3.9%, over the comparable nine month period
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 September 30, 2002, assets under management
totaled approximately $324 million, constant with September 30, 2001.
Mortgage banking revenues increased $501,000, or 45.0%, and $1.3 million, or
47.3%, respectively, over the comparable three and nine month periods in
2001. The Company generally sells into the secondary market all fixed rate
residential loan production. The low interest rates have produced a high
level of fixed rate production and increased mortgage banking revenues. The
level of interest rates, origination volume and percent of fixed rate
production is expected to impact the Company's ability to maintain the
current level of mortgage banking revenues throughout the remainder of 2002.
The Company entered into an agreement to sell approximately $25 million of
loans in late November 2002. The sale of these loans is expected to generate
a pre-tax gain of approximately $725,000.
Other income increased $321,000, or 10.3%, and $281,000, or 2.9%,
respectively, for the three and nine month periods ended September 30, 2002
over the comparable prior year periods. The Company experienced an increase
in investment brokerage fees of $407,000 primarily due to expansion into the
Georgia acquisition markets and the addition of investment professionals in
existing CCB markets. An increase was also reported in merchant credit card
fees of $192,000. Partially offsetting these increases was a decrease in
credit life insurance commission revenues of $172,000. Additionally, in
2001, a one-time gain of $135,000 was reported on condemnation of property by
the State of Florida.
Noninterest income as a percent of average assets was 2.02% and 1.86%,
respectively, for the first nine months of 2002 and 2001.
Noninterest Expense
- -------------------
Noninterest expense increased $1.5 million, or 8.1%, and $7.4 million, or
13.9%, respectively, over the comparable three and nine month periods in
2001. The level of noninterest expense during the first nine months of 2002,
relative to the first nine months of 2001, was significantly impacted by the
Company's continued expansion, which added seven new offices in Georgia and
two new offices in Alabama in March of 2001. Expense levels for the first
nine months of 2001 included minimal conversion/merger-related costs.
Factors impacting the Company's noninterest expense during the first nine
months of 2002 are discussed below.
Compensation expense increased $854,000, or 8.5%, and $4.3 million, or 15.8%,
respectively, over the comparable three and nine month periods of 2001. The
increase is primarily attributable to the addition of the Georgia and Alabama
offices, higher performance-based compensation, increased pension costs and
higher healthcare insurance premiums. The higher pension costs are 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. At
the current market levels, pension costs are expected to increase
significantly during 2003. Healthcare premiums are expected to continue to
increase due to additional participants and rising costs from healthcare
providers.
Occupancy expense, including premises, furniture, fixtures and equipment for
the third quarter of 2002 was constant with the comparable period in 2001 and
increased $843,000, or 9.3%, from the comparable nine month period in 2001.
The increase was primarily due to the addition of nine offices added with the
Georgia acquisitions and the completion of the data processing systems
conversion. The Company experienced an increase in depreciation of $609,000,
or 19.6%, from the first nine months in 2001. The increase in depreciation
was attributable to the assets added through acquisitions and the
implementation of a new data processing system. Additional increases were
experienced in office leases and building maintenance/repairs.
Conversion/Merger-related expenses for the nine month period in 2002 was
$153,000. There were no merger-related costs for the comparable period in
2001. Conversion/Merger-related costs for the first nine months of 2002
consist primarily of severance payments resulting from a data processing
systems conversion. The Company did not experience any conversion/merger
costs in the third quarter of 2002 and 2001.
Other noninterest expense increased $691,000, or 12.0%, and $2.0 million, or
12.3%, respectively, over the comparable three and nine month periods in
2001. The increase was the result of: (1) higher telephone costs of $207,000
resulting from the Georgia acquisitions and ongoing costs attributable to
expansion of the existing wide-area network; (2) increased service costs of
$317,000 resulting from higher transaction volumes in merchant services; (3)
legal costs of $251,000 attributable to consultation related to merchant
service processing; (4) professional fees of $211,000 primarily associated
with consulting and third party processing costs; (5) audit fees of $106,000;
(6) advertising costs of $117,000; (7) other losses of $179,000 primarily due
to fraud and reconciliation losses; (8) bank service charge analysis fees of
$185,000 due to higher transaction volume and lower compensating balances;
and (9) miscellaneous costs of $398,000 reflective of increases in loan
closing costs, credit information costs and education expense.
Annualized net noninterest expense (noninterest income minus noninterest
expense, net of intangible amortization and conversion/merger expense) as a
percent of average assets was 2.48% in the first nine months of 2002 versus
2.10% for the first nine months of 2001. The Company's efficiency ratio
(noninterest expense, net of intangible amortization and conversion/merger
expense, expressed as a percent of the sum of federal taxable-equivalent net
interest income plus noninterest income) was 65.57% in the first nine months
of 2002 compared to 65.54% for the comparable period in 2001.
Income Taxes
- ------------
The provision for income taxes increased $1.3 million, or 64.3%, during the
third quarter and $2.4 million, or 36.8%, during the first nine months of
2002, relative to the comparable prior year periods. The Company's effective
tax rate for the first nine months of 2002 was 35.5% versus 34.8% for the
comparable period in 2001. The increase in the effective tax rate is
attributable to a higher operating profit and a reduction in tax-exempt
municipal interest.
FINANCIAL CONDITION
The Company's average assets were $1.72 billion for the first nine months of
2002 and $1.69 billion for the comparable period in 2001. Average earning
assets were $1.54 billion for the nine months ended September 30, 2002,
compared to $1.52 billion for the first nine months of 2001. The increase in
average earning assets reflects the March 2001 Georgia acquisitions. During
2002, there has been a favorable shift in mix of earning assets as the
Company continues to experience net loan growth and the level of earning
assets has declined. Loan growth was funded through liquidity generated from
acquisitions, minimal deposit growth, Federal Home Loan Bank advances, and
the maturity of investment securities. Table I on page 21 presents average
balances for the three and nine month periods ended September 30, 2002 and
2001.
Average loans increased $79.0 million, or 6.8%, over the comparable period in
2001. Loan growth was strong throughout most of 2001, with a slight decline
in the fourth quarter and again in the first quarter of 2002. However,
during 2002, loan growth has improved with loans, on average, increasing $5.4
million in the second quarter and $31.8 million in the third quarter. Loans
as a percent of average earning assets increased to 80.5% for the first nine
months of 2002, compared to 76.7% for the comparable period of 2001. At
September 30, 2002, this percentage had increased to 82.5%. Loan growth has
occurred in all loan categories during the second and third quarter of 2002.
The Company has entered into an agreement to sell approximately $25 million
of adjustable-rate loans in late November 2002. The loan sale will increase
short-term liquidity and will be used to fund future loan growth. Management
anticipates moderate to strong loan production during the fourth quarter of
2002 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.
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 unwillingness to repay, and from other risks inherent in the lending
process, including collateral risk, operations risk, concentration risk and
economic risk. All related risks of lending are considered when assessing
the adequacy of the loan loss reserve. The allowance for loan losses is
established through a provision charged to expense. Loans are charged
against the allowance when management believes collection of the principal is
unlikely. The allowance for loan losses is based on management's judgment of
overall loan quality. This is a significant estimate based on a detailed
analysis of the loan portfolio. The balance can and will change based on
changes in the assessment of the portfolio's overall credit quality.
Management evaluates the adequacy of the allowance for loan losses on a
quarterly basis.
The allowance for loan losses at September 30, 2002 was $12.5 million,
slightly higher than the $12.3 million recorded at September 30, 2001. The
allowance for loan losses 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
September 30, 2002 is adequate to absorb losses inherent in the loan
portfolio.
Average funds sold in the third quarter declined $74.1 million or 62.6%, from
the comparable period in 2001. This is attributable to continued loan growth
and a decline in deposits, primarily, certificates of deposit. Average loans
increased $62 million and average deposits declined $95 million. This
balance sheet change reduced the Bank's liquidity as measured by the level of
net funds sold on an overnight basis. Although management's focus is on core
deposit growth, in the current interest rate environment it is economically
more feasible to borrow money from the Federal Home Loan Bank than to
increase deposit rates to a level sufficient to generate the deposit growth
necessary to keep pace with the current rate of growth in the loan portfolio.
Therefore, in September 2002, the Bank borrowed $75 million from the Federal
Home Loan Bank. For a further discussion on liquidity and the recent Federal
Home Loan Bank advances, see the section "Liquidity and Capital Resources".
The investment portfolio is a significant component of the Company's
operations and, as such, it functions as a key element of liquidity and
asset/liability management. As of September 30, 2002, the average investment
portfolio decreased $43.2 million, or 16.9%, from the comparable period in
2001. The decline reflects the strong loan growth experienced in 2001 and
2002.
Securities in the available-for-sale portfolio are recorded at fair value and
unrealized gains and losses associated with these securities are recorded,
net of tax, as a separate component of shareowners' equity. At September 30,
2002, shareowners' equity included a net unrealized gain of $3.7 million
compared to a gain of $2.4 million at December 31, 2001. The increase in
value reflects the decrease in interest rates during 2002.
At September 30, 2002, the Company's nonperforming loans were $2.5 million
versus $2.4 million at year-end 2001 and $3.1 million at September 30, 2001.
As a percent of nonperforming loans, the allowance for loan losses
represented 504% at September 30, 2002 versus 497% at December 31, 2001 and
386% at September 30, 2001. Nonperforming loans include nonaccruing and
restructured loans. Other real estate, which includes property acquired
either through foreclosure or by receiving a deed in lieu of foreclosure, was
$1.2 million at September 30, 2002, versus $1.5 million at December 31, 2001
and $1.2 million at September 30, 2001. The ratio of nonperforming assets as
a percent of loans plus other real estate was .28% at September 30, 2002
compared to .32% and .36% at December 31, 2001 and September 30, 2001,
respectively.
Third quarter average deposits have declined $95.1 million, or 6.4%, from the
comparable period in 2001. The Company experienced a steep decline in
certificates of deposit beginning in the second quarter of 2001 and
continuing through the first nine months of 2002. 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
are expected to decline slightly during the fourth quarter primarily as a
result of continued roll-off in the certificate of deposit portfolio. The
roll-off, in terms of amount and percent, is anticipated to be at a slower
pace than experienced during the first nine months of 2002.
The ratio of average noninterest bearing deposits to total deposits was 24.7%
for the first nine months of 2002 compared to 20.9% for the first nine months
of 2001. For the same periods, the ratio of average interest bearing
liabilities to average earning assets was 75.4% compared to 79.2%.
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. Additionally, the Company maintains a $25.0 million revolving
line of credit. As of September 30, 2002, the Company had no borrowings
under the revolving line of credit.
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%.
The Company generated approximately $102 million in liquidity through its two
Georgia acquisitions in March 2001. The First Union branch acquisition added
$72 million in liquidity to the Company. The assumption of deposits totaled
approximately $105 million. Including the core deposit premium, the Company
purchased assets totaling $33 million, with the balance of $72 million being
paid to CCB in cash. The acquisition of First Bankshares of West Point Inc.
generated liquidity of approximately $30 million, primarily due to the sale
of a substantial portion of West Point's investment portfolio for the purpose
of aligning its risk profile with that of CCB. This liquidity was used
during the first nine months of 2002 to fund loan growth and deposit
maturities. The Company's current level of liquidity is a result of the
above mentioned advance obtained from the Federal Home Loan Bank late in the
third quarter of 2002.
The Company's equity capital was $182.0 million as of September 30, 2002
compared to $171.8 million as of December 31, 2001. Management continues to
monitor its capital position in relation to its level of assets with the
objective of maintaining a strong capital position. The leverage ratio was
8.51% at September 30, 2002 compared to 7.53% at December 31, 2001. Further,
the Company's risk-adjusted capital ratio of 13.02% at September 30, 2002,
exceeds the 8.0% minimum requirement under the risk-based regulatory
guidelines.
Adequate capital and financial strength is paramount to the stability of CCBG
and its subsidiary bank. Cash dividends declared and paid should not place
unnecessary strain on the Company's capital levels. Although a consistent
dividend payment is believed to be favorably viewed by the financial markets
and shareowners, the Board of Directors will declare dividends only if the
Company is considered to have adequate capital and in accordance with
applicable law. Future capital requirements and corporate plans are
considered when the Board considers a dividend payment. Dividends declared
and paid during the first nine months of 2002 totaled $.4575 per share
compared to $.4425 per share for the first nine months of 2001, an increase
of 3.4%. The dividend payout ratios for the first nine months of 2002 and
2001 were 44.4% and 56.6%, respectively.
State and federal regulations as well as the Company's long-term debt
agreement place certain restrictions on the payment of dividends by both the
Company and its subsidiary bank. At September 30, 2002, these regulations
and covenants did not impair the Company's (or its subsidiary's) ability to
declare and pay dividends or to meet other existing obligations in the normal
course of business.
During the first nine months of 2002, shareowners' equity increased $10.2
million, or 7.9%, on an annualized basis. Growth in equity during the first
nine months was positively impacted by net income of $16.4 million, the
issuance of common stock of $757,000 and an increase in the net unrealized
gain on available-for-sale securities of $943,000. Equity was reduced by
dividends paid during the first nine months of $4.9 million and the
repurchase of common stock of $3.4 million. At September 30, 2002, the
Company's common stock had a book value of $17.18 per diluted share compared
to $16.08 at December 31, 2001 and $16.24 at September 30, 2001.
On March 30, 2000, the Company's Board of Directors authorized the repurchase
of up to 500,000 shares of its outstanding common stock. On January 24,
2002, the Company's Board of Directors authorized the repurchase of an
additional 250,000 shares of its outstanding common stock. Purchases are
made in the open market or in privately negotiated transactions. The Company
acquired 124,620 shares during the first nine months of 2002, 214,000 shares
during 2001 and 119,134 shares during 2000. From March 30, 2000 through
November 14, 2002, the Company repurchased 457,754 shares at an average
purchase price of $24.04 per share.
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.
Critical Accounting Policies
The consolidated financial statements included herein have been prepared by
the Company, without audit, in accordance with accounting principles
generally accepted in the U.S., which require the Company to make various
estimates and assumptions. The principles which materially affect its
financial position, results of operations and cash flows are set forth in the
Notes to Consolidated Financial Statements included in the Company's 2001
Annual Report on Form 10-K. The Company believes that of its significant
accounting policies, the following may involve a higher degree of judgment
and complexity.
Allowance for Loan Losses: The allowance for loan losses is established
through a charge to the provision for loan losses. Provisions are made to
reserve for estimated losses in loan balances. The allowance for loan losses
is a significant estimate and is evaluated quarterly by the Company for
adequacy. The use of different estimates or assumptions could produce a
different required allowance, and thereby a larger or smaller provision
recognized as an expense in any given reporting period.
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 completed
the first step of the transitional impairment test during the second quarter
of 2002. After conducting the test, the Company determined no impairment
existed at January 1, 2002, and thus the second step is not required. The
Company will continue to perform an impairment test on an annual basis.
Impairment testing requires management to make significant judgments and
estimates relating to the fair value of its identified reporting units.
Significant changes to these estimates may have a material impact on the
Company's reported results.
Core deposit assets represent the premium the Company paid for core deposits.
Core deposit intangibles are amortized on the straight-line method over
various periods ranging from 10 - 15 years, with the majority being written
off over approximately 10 years. Generally, core deposits refer to
nonpublic, nonmaturing deposits (noninterest-bearing deposits, NOW, money
market and savings) and certificates of deposit equal to or less than
$100,000. The Company makes certain estimates relating to the useful life of
these assets, and rate of run-off based on the nature of the specific assets
and the customer bases acquired. If there is a reason to believe there has
been a permanent loss in value, management will assess these assets for
impairment. Any changes in the original estimates may materially affect
reported earnings.
TABLE I
AVERAGES BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED SEPTEMBER 30,
2002 2001
----------------------- -----------------------
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS
Loans, Net of Unearned
Interest $1,266,591 $23,969 7.51% $1,204,323 $26,199 8.63%
Taxable Investment Securities 131,939 1,646 4.95% 162,680 2,294 5.59%
Tax-Exempt Investment
Securities 68,692 1,022 5.95% 76,182 1,158 6.08%
Funds Sold 44,263 182 1.61% 118,334 1,036 3.46%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 1,511,485 26,819 7.04% 1,561,519 30,687 7.80%
Cash & Due From Banks 69,765 68,198
Allowance for Loan Losses (12,503) (12,081)
Other Assets 109,873 116,756
---------- ----------
TOTAL ASSETS $1,678,620 $1,734,392
========== ==========
LIABILITIES
NOW Accounts $ 240,032 $ 324 0.54% $ 218,756 $ 1,000 1.81%
Money Market Accounts 221,521 731 1.31% 220,338 1,667 3.00%
Savings Accounts 106,551 137 0.51% 115,404 520 1.79%
Other Time Deposits 462,139 3,304 2.84% 618,390 8,454 5.42%
---------- ------- ---- ---------- ------- ----
Total Int. Bearing Deposits 1,030,243 4,496 1.73% 1,172,888 11,641 3.94%
Short-Term Borrowings 64,915 194 1.19% 43,855 374 3.38%
Long-Term Debt 24,763 256 4.09% 16,221 241 5.90%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing
Liabilities 1,119,921 4,946 1.75% 1,232,964 12,256 3.94%
Noninterest Bearing Deposits 358,153 ------- ---- 310,639 ------- ----
Other Liabilities 19,636 20,278
---------- ----------
TOTAL LIABILITIES 1,497,710 1,563,881
SHAREOWNERS' EQUITY
Common Stock 106 106
Surplus 14,530 20,908
Other Comprehensive Income 3,412 1,578
Retained Earnings 162,862 147,919
---------- ----------
TOTAL SHAREOWNERS' EQUITY 180,910 170,511
---------- ----------
TOTAL LIABILITIES & EQUITY $1,678,620 $1,734,392
========== ==========
Interest Rate Spread 5.29% 3.86%
==== =====
Net Interest Income $21,873 $18,431
======= =======
Net Yield on Earning Assets 5.74% 4.70%
==== =====
FOR NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
----------------------- -----------------------
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS
Loans, Net of Unearned
Interest $1,243,711 $71,527 7.69% $1,164,668 $77,418 8.89%
Taxable Investment Securities 143,251 5,561 5.19% 175,707 7,504 5.71%
Tax-Exempt Investment
Securities 69,691 3,148 6.02% 80,474 3,670 6.08%
Funds Sold 88,041 1,089 1.63% 96,958 3,023 4.17%
---------- ------- ---- ---------- ------- ----
Total Earning Assets 1,544,694 81,325 7.04% 1,517,807 91,615 8.07%
Cash & Due From Banks 72,061 69,478
Allowance for Loan Losses (12,334) (11,757)
Other Assets 110,966 110,836
---------- ----------
TOTAL ASSETS $1,715,387 $1,686,364
========== ==========
LIABILITIES
NOW Accounts $ 237,296 $ 980 0.55% $ 213,686 $ 3,562 2.23%
Money Market Accounts 225,908 2,346 1.39% 200,369 5,240 3.50%
Savings Accounts 104,707 403 0.51% 111,254 1,668 2.00%
Other Time Deposits 510,523 12,928 3.39% 603,204 25,671 5.69%
---------- ------- ---- ---------- ------- ----
Total Int. Bearing Deposits 1,078,434 16,657 2.07% 1,128,513 36,141 4.28%
Short-Term Borrowings 69,046 531 1.03% 58,399 1,980 4.53%
Long-Term Debt 17,536 648 4.94% 15,806 674 5.71%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing
Liabilities 1,165,016 17,836 2.05% 1,202,718 38,795 4.31%
Noninterest Bearing Deposits 353,366 ------- ---- 298,886 ------- ----
Other Liabilities 19,294 18,769
---------- ----------
TOTAL LIABILITIES 1,537,676 1,520,373
SHAREOWNERS' EQUITY
Common Stock 106 106
Surplus 15,637 18,326
Other Comprehensive Income 2,863 595
Retained Earnings 159,105 146,964
---------- ----------
TOTAL SHAREOWNERS' EQUITY 177,711 165,991
---------- ----------
TOTAL LIABILITIES & EQUITY $1,715,387 $1,686,364
========== ==========
Interest Rate Spread 4.99% 3.76%
==== =====
Net Interest Income $63,489 $52,820
======= =======
Net Yield on Earning Assets 5.50% 4.65%
==== =====
Average balances include nonaccrual loans. Interest income includes fees on loans
of approximately $1.2 million and $3.4 million for the three and nine months ended
September 30, 2002, versus $1.0 million and $3.1 million, for the comparable periods
ended September 30, 2001.
Interest income includes the effects of taxable equivalent adjustments using a 35% federal tax rate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Overview
Market risk management arises from changes in interest rates, exchange rates,
commodity prices and equity prices. The Company has risk management policies
to monitor and limit exposure to market risk. CCBG does not actively
participate in exchange rates, commodities or equities. In asset and
liability management activities, policies are in place which are designed to
minimize structural interest rate risk.
Interest Rate Risk Management
The normal course of business activity exposes CCBG to interest rate risk.
Fluctuations in interest rates may result in changes in the fair market value
of the Company's financial instruments, cash flows and net interest income.
CCBG's asset/liability management process manages the Company's interest rate
risk.
The financial assets and liabilities of the Company are classified as other-
than-trading. An analysis of the other-than-trading financial components,
including the fair values, are presented in Table II on page 23. This table
presents the Company's consolidated interest rate sensitivity position as of
September 30, 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 fair values presented in Table II
may not necessarily be indicative of the Company's interest rate sensitivity
over an extended period of time.
The Company is currently liability sensitive, which generally indicates that,
in a period of rising interest rates, the net interest margin will be
adversely impacted as the velocity and/or volume of liabilities being
repriced exceeds assets. The opposite is true in a falling rate environment.
However, as general interest rates rise or fall, other factors such as
current market conditions and competition may impact how the Company responds
to changing rates and thus impact the magnitude of change in net interest
income. Nonmaturity deposits offer management greater discretion as to the
direction, timing and magnitude of interest rate changes and can have a
material impact on the Company's interest rate sensitivity. In addition, the
relative level of interest rates as compared to the current yields/rates of
existing assets/liabilities can impact both the direction and magnitude of
the change in net interest margin as rates rise and fall from one period to
the next.
Table II
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS(1)
(Dollars in Thousands)
Other Than Trading Portfolio September 30, 2001
- ---------------------------------------------------------------------------------------------------------------- Market
Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value
---------- -------- -------- -------- ------- ------- ---------- ----------
Loans
Fixed Rate $ 229,697 $ 91,931 $ 74,103 $ 27,535 $12,492 $16,517 $ 452,275 $ 467,439
Average Interest Rate 6.72% 8.52% 8.16% 8.47% 8.23% 6.95% 7.48%
Floating Rate(2) 484,447 75,932 136,741 80,879 35,396 21,239 834,634 862,618
Average Interest Rate 6.24% 7.59% 7.40% 7.61% 7.34% 7.97% 6.77%
Investment Securities(3)
Fixed Rate 45,773 63,557 41,139 16,266 4,820 16,566 188,121 188,121
Average Interest Rate 5.88% 4.88% 4.52% 4.96% 4.99% 5.67% 5.12%
Floating Rate 5,914 - - - - - 5,914 5,914
Average Interest Rate 5.54% - - - - - 5.54%
Other Earning Assets
Fixed Rates - - - - - - - -
Average Interest Rates - - - - - - -
Floating Rates 79,034 - - - - - 79,034 79,034
Average Interest Rates 1.59% - - - - - 1.59%
Total Financial Assets $ 844,865 $231,420 $251,983 $124,680 $52,708 $54,322 $1,559,978 $1,603,126
Average Interest Rates 5.91% 7.22% 7.15% 7.45% 7.34% 6.96% 6.51%
Deposits(4)
Fixed Rate Deposits $ 386,527 $ 41,916 $ 12,329 $ 4,535 $ 5,867 $ 6 $ 451,180 $ 454,070
Average Interest Rates 2.54% 3.40% 4.21% 4.48% 4.10% 4.85% 2.71%
Floating Rate Deposits 555,657 - - - - - 555,657 555,657
Average Interest Rates 0.82% - - - - - 0.82%
Other Interest Bearing
Liabilities
Fixed Rate Debt 1,038 40,996 15,891 882 872 7,308 66,987 65,988
Average Interest Rate 5.76% 2.43% 3.20% 5.59% 5.67% 5.87% 3.12%
Floating Rate Debt 70,346 - - - - - 70,346 70,346
Average Interest Rate 1.46% - - - - - 1.46%
Total Financial Liabilities $1,013,568 $ 82,912 $ 28,220 $ 5,417 $ 6,739 $ 7,314 $1,144,170 $1,146,061
Average interest Rate 1.53% 2.92% 3.64% 4.66% 4.30% 5.87% 1.74%
(1) Based upon expected cash-flows, unless otherwise indicated.
(2) Based upon a combination of expected maturities and repricing opportunities.
(3) Based upon contractual maturity, except for callable and floating rate securities, which are based on expected
maturity and weighted average life, respectively.
(4) Savings, NOW and money market accounts can be repriced at any time, therefore, all such balances are included as
floating rate deposits in Year 1. Other time deposit balances are classified according to maturity.
ITEM 4. CONTROLS AND PROCEDURES
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.
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.
PART II. OTHER INFORMATION
ITEMS 1-4
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
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
On September 23, 2002, the Company filed an 8-K to report a change in the
Company's independent auditor for the Capital City Bank Group, Inc. Profit
Sharing 401(k) Plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned Chief Financial Officer hereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
(Registrant)
/s/ J. Kimbrough Davis
- ----------------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: November 14, 2002
Certification required by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
I, William G. Smith, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital City Bank
Group, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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.
/s/ William G. Smith, Jr.
- ----------------------------
William G. Smith, Jr.
President and Chief Executive Officer
Date: November 14, 2002
-----------------
Certification required by the Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
I, J. Kimbrough Davis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital City Bank
Group, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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.
/s/ J. Kimbrough Davis
- ----------------------------
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Date: November 14, 2002
-----------------