SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended: March 31, 2003 -------------- 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 offices) Registrant's telephone number, including area code: (850) 671-0300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] As of April 30, 2003, there were issued and outstanding 10,565,711 shares of the registrant's common stock. 1 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 11 3. Qualitative and Quantitative Disclosure of Market Risk 21 4. Controls and Procedures 23 ITEM PART II. OTHER INFORMATION - ---- -------------------------- 1. Legal Proceedings Not Applicable 2. Changes in Securities and Use of Proceeds Not Applicable 3. Defaults Upon Senior Securities Not Applicable 4. Submission of Matters to a Vote of Security Holders Not Applicable 5. Other Information 23 6. Exhibits and Reports on Form 8-K 23 Signatures 23 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." 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. 2 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31 (Dollars In Thousands, Except Per Share Amounts) (UNAUDITED) 2003 2002 - ------------------------------------------------------------------------------------ INTEREST INCOME Interest and Fees on Loans $ 23,174 $ 23,826 Investment Securities: U. S. Treasury 136 - U. S. Government Agencies and Corporations 866 1,447 States and Political Subdivisions 631 719 Other Securities 178 533 Funds Sold 352 516 ---------- ---------- Total Interest Income 25,337 27,041 ---------- ---------- INTEREST EXPENSE Deposits 3,226 6,847 Short-Term Borrowings 329 160 Long-Term Debt 545 190 ---------- ---------- Total Interest Expense 4,100 7,197 ---------- ---------- Net Interest Income 21,237 19,844 Provision for Loan Losses 779 802 ---------- ---------- Net Interest Income After Provision for Loan Losses 20,458 19,042 ---------- ---------- NONINTEREST INCOME Service Charges on Deposit Accounts 3,967 2,709 Data Processing 558 501 Asset Management Fees 605 630 Mortgage Banking Revenues 1,576 1,247 Other 3,471 3,207 ---------- ---------- Total Noninterest Income 10,177 8,294 ---------- ---------- NONINTEREST EXPENSE Salaries and Associate Benefits 11,370 10,544 Occupancy 1,369 1,394 Furniture and Equipment 1,795 1,896 Other 6,136 5,631 ---------- ---------- Total Noninterest Expense 20,670 19,465 ---------- ---------- Income Before Income Taxes 9,965 7,871 Income Taxes 3,604 2,760 ---------- ---------- NET INCOME $ 6,361 $ 5,111 ========== ========== Basic Net Income Per Share $ .60 $ .48 Diluted Net Income Per Share $ .60 $ .48 Cash Dividends Per Share $ .1700 $ .1525 Average Basic Shares Outstanding 10,565,539 10,644,266 Average Diluted Shares Outstanding 10,602,739 10,674,554 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3 CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF MARCH 31, 2003 AND DECEMBER 31, 2002 (Dollars In Thousands, Except Per Share Amounts) (UNAUDITED) March 31, December 31, 2003 2002 - ------------------------------------------------------------------------------------- ASSETS Cash and Due From Banks $ 85,796 $ 89,823 Funds Sold 176,428 170,936 ---------- ---------- Total Cash and Cash Equivalents 262,404 260,759 Investment Securities, Available-for-Sale 190,119 180,315 Loans, Net of Unearned Interest 1,311,556 1,285,221 Allowance for Loan Losses (12,437) (12,495) ---------- ---------- Loans, Net 1,299,119 1,272,726 Premises and Equipment, Net 51,484 48,897 Intangibles 28,223 29,034 Other Assets 33,168 33,040 ---------- ---------- Total Assets $1,864,517 $1,824,771 ========== ========== LIABILITIES Deposits: Noninterest Bearing Deposits $ 426,269 $ 406,081 Interest Bearing Deposits 1,032,801 1,028,119 ---------- ---------- Total Deposits 1,459,070 1,434,200 Short-Term Borrowings 140,138 113,675 Long-Term Debt 53,651 71,745 Other Liabilities 20,644 18,620 ---------- ---------- Total Liabilities 1,673,503 1,638,240 SHAREOWNERS' EQUITY Preferred Stock, $.01 par value, 3,000,000 shares authorized; no shares outstanding - - Common Stock, $.01 par value; 90,000,000 shares authorized; 10,565,708 issued and outstanding at March 31, 2003 and 10,556,968 issued and outstanding at December 31, 2002 106 106 Additional Paid-In Capital 15,120 14,717 Retained Earnings 173,152 168,587 Accumulated Other Comprehensive Income, Net of Tax 2,636 3,121 ---------- ---------- Total Shareowners' Equity 191,014 186,531 ---------- ---------- Total Liabilities and Shareowners' Equity $1,864,517 $1,824,771 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4 CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED MARCH 31 (Dollars in Thousands) (UNAUDITED) 2003 2002 - ------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 6,361 $ 5,111 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 779 802 Depreciation 1,151 1,238 Net Securities Amortization 532 275 Amortization of Intangible Assets 811 811 Gain on Sale of Securities (11) - Non-Cash Compensation 228 245 Net Decrease in Other Assets 202 1,468 Net Increase in Other Liabilities 2,191 1,283 -------- -------- Net Cash Provided by Operating Activities 12,244 11,233 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Payments/Maturities of Investment Securities Available-for-Sale 35,464 14,497 Purchase of Investment Securities (46,554) (16,137) Net (Increase) Decrease in Loans (27,222) 12,431 Purchase of Premises & Equipment (3,739) (1,309) Sales of Premises & Equipment 1 86 -------- -------- Net Cash (Used In) Provided by Investing Activities (42,050) 9,568 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net Increase (Decrease) in Deposits 24,870 (58,579) Net Increase in Short-Term Borrowings 6,463 27,246 Borrowing of Long-Term Debt 2,560 775 Repayment of Long-Term Debt (653) (1,029) Dividends Paid (1,796) (1,632) Repurchase of Common Stock - (605) Issuance of Common Stock 7 43 -------- -------- Net Cash Provided By (Used In) Financing Activities 31,451 (33,781) -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents 1,645 (12,980) Cash and Cash Equivalents at Beginning of Period 260,759 256,830 -------- -------- Cash and Cash Equivalents at End of Period $262,404 $243,850 ======== ======== Supplemental Disclosure: Interest Paid on Deposits $ 3,008 $ 8,274 ======== ======== Interest Paid on Debt $ 886 $ 350 ======== ======== Transfer of Loans to ORE $ 50 $ 286 ======== ======== Income Taxes Paid $ 948 $ 910 ======== ======== Issuance of Common Stock as Non-Cash Compensation $ 333 $ 245 ======== ======== Transfer of Current Portion of Long-Term Debt to Short-Term Borrowings $ 20,000 $ - ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5 CAPITAL CITY BANK GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES ------------------------------- Basis of Presentation - --------------------- 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 March 31, 2003 and December 31, 2002, the results of operations for the three month periods ended March 31, 2003 and 2002, and cash flows for the three month periods ended March 31, 2003 and 2002. 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 that 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 2002 Annual Report on Form 10-K. Stock-based Compensation - ------------------------ As of March 31, 2003, the Company had three stock-based employee compensation plans, consisting of the Associate Stock Incentive Plan ("AIP"), the Associate Stock Purchase Plan ("ASPP") and the Director Stock Purchase Plan ("DSPP"). In addition to stock-based compensation plans, the Company also executed an employee incentive stock option arrangement effective January 1, 2003. Prior to 2003, the Company accounted for its stock-based compensation under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. Stock-based employee compensation cost is reflected in 2002 net income for only the AIP, as the ASPP and DSPP were considered noncompensatory under the provisions of APB 25. Effective January 1, 2003, the Company adopted the fair value recognition provisions of the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, prospectively to all employee awards granted, modified, or settled after January 1, 2003. Awards under the Company's plans vest over periods ranging from six-months to four years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 and 2002 is different than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123, as a result of the difference between compensation measurement dates under SFAS 123 and APB 25, the differences in what instruments are considered noncompensatory, and the fact that awards granted prior to January 1, 2003 remain accounted for under APB 25. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period. 6 Period Ended March 31, ------------------------ (Dollars in Thousands, Except Per Share Data) 2003 2002 - ------------------------------------------------------------------------- Net income, as reported $ 6,361 $ 5,111 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 141 138 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (99) (97) -------- -------- Pro forma net income $ 6,403 $ 5,152 -------- -------- Earnings per share: Basic-as reported $ .60 $ .48 -------- -------- Basic-pro forma $ .61 $ .48 -------- -------- Diluted-as reported $ .60 $ .48 -------- -------- Diluted-pro forma $ .60 $ .48 -------- --------
(2) INVESTMENT SECURITIES --------------------- The carrying values and related market value of investment securities at March 31, 2003 and December 31, 2002 were as follows (dollars in thousands): March 31, 2003 ------------------------------------------- Amortized Unrealized Unrealized Market Available-For-Sale Cost Gains Losses Value - ------------------ --------- ---------- ---------- -------- U.S. Treasury $ 41,221 $ 48 $ - $ 41,269 U.S. Government Agencies and Corporations 43,455 641 - 44,096 States and Political Subdivisions 61,606 2,450 1 64,055 Mortgage-Backed Securities 27,005 837 - 27,842 Other Securities 12,671 186 - 12,857 -------- ------ --- -------- Total $185,958 $4,162 $ 1 $190,119 ======== ====== === ========
December 31, 2002 ------------------------------------------- Amortized Unrealized Unrealized Market Available-For-Sale 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 $175,389 $4,928 $ 2 $180,315 ======== ====== === ========
7 (3) LOANS ----- The composition of the Company's loan portfolio at March 31, 2003 and December 31, 2002 was as follows (dollars in thousands): March 31, 2003 December 31, 2002 -------------- ----------------- Commercial, Financial and Agricultural $ 146,293 $ 141,459 Real Estate - Construction 87,283 91,110 Real Estate - Commercial Mortgage 382,778 356,807 Real Estate - Residential 335,332 336,705 Real Estate - Home Equity 95,319 92,277 Real Estate - Loans Held-for-Sale 6,855 22,454 Consumer 226,967 221,776 Other Loans 30,729 22,633 ---------- ---------- Loans, Net of Unearned Interest $1,311,556 $1,285,221 ========== ========== Consists primarily of loans-in-process.
(4) ALLOWANCE FOR LOAN LOSSES ------------------------- An analysis of the changes in the allowance for loan losses for the three- month periods ended March 31, 2003 and 2002, was as follows (dollars in thousands): March 31, -------------------------- 2003 2002 ------- ------- Balance, Beginning of Period $12,495 $12,096 Provision for Loan Losses 779 802 Recoveries on Loans Previously Charged-Off 211 355 Loans Charged-Off (1,048) (1,140) ------- ------- Balance, End of Period $12,437 $12,113 ======= =======
Impaired loans are primarily defined as all nonaccruing loans for the loan categories which are included within the scope of SFAS 114. Selected information pertaining to impaired loans is depicted in the table below (dollars in thousands): March 31, ------------------------------------------------ 2003 2002 -------------------- --------------------- Valuation Valuation Balance Allowance Balance Allowance --------------------- --------------------- Impaired Loans: With Related Valuation Allowance $ 641 $227 $1,523 $379 Without Related Valuation Allowance 732 - 733 - Average Recorded Investment for the Period 1,451 * 2,444 * * Not Applicable
The Company recognizes income on impaired loans primarily on the cash basis. Any change in the present value of expected cash flows is recognized through the allowance for loan losses. For the periods ended March 31, 2003 and 2002, the Company recognized $5,000 and $27,000, respectively, in interest income on impaired loans, all of which was collected in cash. 8 (5) DEPOSITS -------- The composition of the Company's interest-bearing deposits at March 31, 2003 and December 31, 2002 was as follows (dollars in thousands): March 31, 2003 December 31, 2002 -------------- ----------------- NOW Accounts $ 280,335 $ 276,487 Money Market Accounts 205,940 209,508 Savings Deposits 108,632 104,053 Time Deposits 437,894 438,071 ---------- ---------- Total Interest Bearing Deposits $1,032,801 $1,028,119 ========== ==========
(6) INTANGIBLE ASSETS ----------------- As of January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("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. The Company had intangible assets of $28.2 million and $29.0 million at March 31, 2003 and December 31, 2002, respectively. Intangible assets were as follows (dollars in thousands): March 31, 2003 December 31, 2002 ----------------------- ----------------------- Gross Accumulated Gross Accumulated Description Amount Amortization Amount Amortization - ----------- ------- ------------ ------- ------------ Core Deposit Intangibles $33,752 $12,209 $33,752 $11,398 Goodwill 10,466 3,786 10,466 3,786 ------- ------- ------- ------- Total Intangible Assets $44,218 $15,995 $44,218 $15,184 ======= ======= ======= =======
Net Core Deposit Intangibles: As of March 31, 2003 and December 31, 2002, the Company had net core deposit intangibles of $21.5 million and $22.5 million, respectively. The adoption of SFAS 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 three months of 2003 and 2002 was $811,000 for both periods, respectively. Goodwill: As of March 31, 2003 and December 31, 2002, the Company had goodwill, net of accumulated amortization, of $6.7 million. Goodwill is the Company's only intangible asset that is no longer subject to amortization under the provisions of SFAS 142. (7) 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/losses (net of taxes) on securities are reported as other comprehensive income and totaled a loss of $485,000 and $386,000 for the three months ended March 31, 2003 and 2002, respectively. Reclassification adjustments consist only of realized gains on sales of investment securities and were not material for the three months ended March 31, 2003 and 2002. 9 QUARTERLY FINANCIAL DATA (UNAUDITED) (Dollars in Thousands, Except Per Share Data) 2003 2002 2001 ---------- ---------------------------------------------- ---------------------------------- First Fourth Third Second First Fourth Third Second ---------- ---------------------------------------------- ---------------------------------- Summary of Operations: Interest Income $ 25,337 $ 26,052 $ 26,403 $ 26,599 $ 27,041 $ 28,706 $ 30,258 $ 30,882 Interest Expense 4,100 4,667 4,946 5,693 7,197 9,454 12,256 13,396 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Interest Income 21,237 21,385 21,457 20,906 19,844 19,252 18,002 17,486 Provision for Loan Losses 779 863 991 641 802 932 1,222 1,007 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Interest Income After Provision for Loan Losses 20,458 20,522 20,466 20,265 19,042 18,320 16,780 16,479 Noninterest Income 10,177 11,243 9,087 8,552 8,294 8,536 7,918 8,255 Conversion/ Merger Expense - 59 - 39 114 588 - - Noninterest Expense 20,670 21,316 20,526 20,293 19,351 19,251 18,993 18,132 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes 9,965 10,390 9,027 8,485 7,871 7,017 5,705 6,602 Provision for Income Taxes 3,604 3,668 3,226 3,037 2,760 2,522 1,963 2,322 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 6,361 $ 6,722 $ 5,801 $ 5,448 $ 5,111 $ 4,495 $ 3,742 $ 4,280 ========== ========== ========== ========== ========== ========== ========== ========== Net Interest Income (FTE) $ 21,607 $ 21,786 $ 21,873 $ 21,331 $ 20,284 $ 19,689 $ 18,431 $ 17,935 Per Common Share: Net Income Basic $ .60 $ .63 $ .55 $ .52 $ .48 $ .42 $ .35 $ .40 Net Income Diluted .60 .63 .55 .51 .48 .42 .35 .40 Dividends Declared .1700 .1700 .1525 .1525 .1525 .1525 .1475 .1475 Diluted Book Value 18.02 17.60 17.18 16.74 16.38 16.08 16.24 15.87 Market Price: High 40.40 40.05 36.94 34.80 27.50 24.67 25.25 25.00 Low 33.51 27.83 27.90 25.75 22.65 21.90 20.87 19.88 Close 39.11 39.19 33.06 34.53 27.00 24.23 23.47 24.87 Selected Average Balances: Loans $1,289,161 $1,292,893 $1,266,591 $1,234,787 $1,229,344 $1,242,516 $1,204,323 $1,192,103 Earning Assets 1,615,286 1,591,536 1,511,485 1,547,603 1,575,698 1,584,225 1,561,519 1,556,186 Assets 1,796,657 1,762,174 1,678,620 1,720,095 1,748,211 1,756,995 1,734,392 1,733,115 Deposits 1,407,763 1,404,818 1,388,396 1,440,615 1,467,257 1,488,961 1,483,527 1,479,159 Shareowners' Equity 190,416 185,412 180,910 176,678 175,485 176,549 170,511 169,516 Common Equivalent Average Shares: Basic 10,566 10,552 10,551 10,576 10,644 10,674 10,685 10,713 Diluted 10,603 10,591 10,590 10,606 10,675 10,715 10,693 10,721 Ratios: ROA 1.44% 1.51% 1.37% 1.27% 1.19% 1.01% .86% .99% ROE 13.55% 14.38% 12.72% 12.37% 11.81% 10.10% 8.71% 10.13% Net Interest Margin (FTE) 5.42% 5.44% 5.74% 5.52% 5.22% 4.93% 4.70% 4.62% Efficiency Ratio 62.48% 62.08% 63.68% 65.20% 64.88% 65.30% 68.17% 65.09%
10 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 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 2003 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 comparable 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 I for average balances and interest rates 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; * The willingness of customers to substitute competitors' products and services for our products and services and vice versa; 11 * 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. The Company is headquartered in Tallahassee, Florida and as of March 31, 2003 had 53 offices covering 17 counties in Florida, four counties in Georgia and one county in Alabama. RESULTS OF OPERATIONS Net Income - ---------- Earnings, including the effects of intangible amortization, were $6.4 million, or $.60 per diluted share, for the first quarter of 2003. This compares to $5.1 million, or $.48 per diluted share for the first quarter of 2002. Amortization of intangible assets, net of taxes, totaled $811,000 for the first quarter in 2003 and 2002, or $.05 and $.04 per diluted share, respectively. The Company experienced growth in operating revenues of 11.2% over the comparable quarter in 2002. This increase is primarily due to growth in the taxable equivalent net interest income of 6.5% and noninterest income of 22.7%. The net interest margin increased 20 basis points over the first quarter of 2002 to a level of 5.42%, attributable to an 83 basis point reduction in the Company's cost of funds. Growth in noninterest income resulted from increased deposit fees, reflecting higher overdraft and NSF fees. Mortgage banking revenues remained strong and continued to reflect the higher volume of fixed rate residential mortgages sold to the secondary market. 12 A condensed earnings summary is presented below (Dollars in Thousands): For the Three Months Ended March 31, ---------------------------- 2003 2002 ------- ------- Interest Income $25,337 $27,041 Taxable Equivalent Adjustment 370 440 ------- ------- Interest Income (FTE) 25,707 27,481 Interest Expense 4,100 7,197 ------- ------- Net Interest Income (FTE) 21,607 20,284 Provision for Loan Losses 779 802 Taxable Equivalent Adjustment 370 440 ------- ------- Net Int. Inc. After Provision 20,458 19,042 Noninterest Income 10,177 8,294 Noninterest Expense 20,670 19,465 ------- ------- Income Before Income Taxes 9,965 7,871 Income Taxes 3,604 2,760 ------- ------- Net Income $ 6,361 $ 5,111 ======= ======= Percent Change 24.46% 17.52% Return on Average Assets 1.44% 1.19% Return on Average Equity 13.55% 11.81% Computed using a statutory tax rate of 35% Annualized
Net Interest Income - ------------------- First quarter taxable-equivalent net interest income increased $1.3 million, or 6.5%, over the comparable quarter in 2002. The favorable impact of lower funding costs and growth in earning assets was partially offset by declining asset yields attributable to the low interest rate environment. Table I on page 20 provides a comparative analysis of the Company's average balances and interest rates. Taxable equivalent interest income decreased $1.8 million, or 6.5% from the comparable quarter in 2002. Earning assets repriced at lower levels, reflecting the rate environment and strong market competition. New loan production and repricing of existing earning assets produced a 52 basis point reduction in the yield on earning assets, which declined from 7.07% for the first quarter in 2002 to 6.45% for the same period in 2003. Growth in earning assets and the favorable shift in mix partially offset the decline in yield. Interest expense decreased $3.1 million, or 43.0%, over the first quarter of 2002. The general decline in interest rates produced favorable rate variances on interest bearing liabilities. 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 average deposits, declined from 38.8% in 2002 to 30.9% in 2003. The average rate paid on interest bearing liabilities in 2003 declined 102 basis points over first quarter 2002, to a level of 1.39%. The Company's interest rate spread (defined as the average taxable equivalent yield on earning assets less the average rate paid on interest bearing liabilities) increased from 4.66% in the first quarter of 2002 to 5.06% in the comparable quarter for 2003. The Company's net interest margin percentage (defined as taxable-equivalent net interest income divided by average earning assets) was 5.22% in the first quarter of 2002 versus 5.42% in the first quarter of 2003. The improvement in both the spread and margin reflects the lower cost of funds. 13 Provisions for Loan Losses - -------------------------- The provision for loan losses of $779,000 for the quarter was slightly lower than the first quarter of 2002 due to continued improvement in the Bank's overall credit quality. Net charge-offs increased $52,000 from the first quarter of 2002, but remain at historically low levels. In both periods net charge-offs represented .26% of average loans for the quarter. The Company's non-performing assets ratio improved to .29% at March 31, 2003 compared to .30% for year-end 2002 and ..35% at March 31, 2002. Charge-off activity for the respective periods is set forth below: Three Months Ended March 31, -------------------- (Dollars in Thousands) 2003 2002 - ------------------------------------------------------------------ CHARGE-OFFS Commercial, Financial and Agricultural $ 142 $ 184 Real Estate - Construction - - Real Estate - Commercial Mortgage - - Real Estate - Residential 19 64 Consumer 887 892 ------ ------ Total Charge-offs 1,048 1,140 ------ ------ RECOVERIES Commercial, Financial and Agricultural 14 46 Real Estate - Construction - - Real Estate - Commercial Mortgage - - Real Estate - Residential - 1 Consumer 197 308 ------ ------ Total Recoveries 211 355 ------ ------ Net Charge-offs $ 837 $ 785 ====== ====== Net Charge-Offs (Annualized) as a Percent of Average Loans Outstanding, Net of Unearned Interest .26% .26% ====== ======
At March 31, 2003, the allowance for loan losses totaled $12.4 million, constant with year-end 2002. At quarter-end 2003, the allowance represented 0.95% of total loans. Management considers the allowance to be adequate based on the current level of nonperforming loans and the estimate of losses inherent in the portfolio as of March 31, 2003. Noninterest Income - ------------------ Noninterest income increased $1.9 million, or 22.7%, over the first quarter of 2002, driven primarily by higher deposit fees and mortgage banking revenues. Noninterest income represented 32.4% of operating revenue for the first quarter of 2003, compared to 29.5% for the first quarter of 2002. Both deposit fee income and mortgage banking revenues are expected to remain strong during the second quarter. Service charges on deposit accounts increased $1.3 million, or 46.4%. Service charge revenues in any one period are dependent on the number of accounts, primarily transaction accounts, and the level of activity subject to service charges. The higher revenues in the first quarter of 2003, compared to 2002, are primarily attributable to an increase in overdraft/NSF fees, which is anticipated to have a favorable impact throughout the remainder of the year. 14 Data processing revenues of $558,000 for the first quarter of 2003 reflect an increase of $57,000, or 11.4%, over the comparable period in 2002. The Company currently provides data processing services for six financial clients, an increase of one from the first quarter ended 2002. During the first quarter of 2003, financial clients represented approximately 63.0% of total processing revenues compared to 61.4% in the comparable period in 2002. Management believes quarterly revenues for the remainder of 2003 will remain consistent with the revenues generated in the first quarter. Income from asset management activities decreased $25,000, or 4.0%, over the comparable quarter in 2002. Fees lost due to the decline in stock market values over the past year have outpaced the incremental revenues attributable to new business development, as fees are primarily based on portfolio market values at quarter-end. At March 31, 2003, assets under management totaled $335.6 million, representing a decline of $5.8 million, or 1.7% from the comparable period in 2002. Mortgage banking revenues increased $329,000, or 26.4%, over the comparable quarter in 2002. The Company continues to be among the leaders in the production of residential mortgage loans in most of its markets. The Bank generally sells into the secondary market all fixed rate residential loan production. The low interest rates continue to produce 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 2003. Other income increased $253,000, or 7.91%, over the comparable quarter of 2002. The Company experienced increases in retail brokerage fees of $46,000, ATM/Visa settlement fees of $70,000, merchant card processing fees of $128,000, and ATM surcharge fees of $58,000. Noninterest income as a percent of average assets was 2.30% for the first quarter of 2003, compared to 1.92% for the first quarter of 2002, driven primarily by increases in deposit fees and mortgage banking revenues. Noninterest Expense - ------------------- Noninterest expense in the first quarter of 2003 increased $1.2 million, or 6.2%, over the first quarter of 2002. Factors impacting the Company's noninterest expense during the first quarter of 2003 are discussed below. Compensation expense increased $826,000, or 7.8%, over the first quarter of 2002. The company experienced increases in pension costs of $393,000, higher healthcare insurance premiums of $162,000, and salaries of $240,000. The higher pension costs is a result of an increase in the number of plan participants and the lower than expected return on plan assets resulting from the general stock market decline. Healthcare premiums have risen due to the addition of plan participants and the rising costs charged by healthcare providers. Occupancy expense, including premises, furniture, fixtures and equipment decreased $126,000, or 3.8%, over the first quarter of 2002. The Company experienced decreases in depreciation of $87,000, and maintenance and repairs of $48,000 from the comparable period in 2002. The decrease in depreciation is primarily attributable to the unusually high level of depreciation incurred during first quarter of 2002 due to the running of dual data processing systems. Occupancy costs are expected to increase over the course of 2003 due to the opening of three full-service banking offices. Other noninterest expense increased $505,000, or 9.0%. The increase was primarily the result of: (1) higher EDP processing services of $129,000 resulting from the system conversion during 2002; (2) higher legal costs of $110,000 primarily resulting from litigation costs and new corporate governance compliance requirements; (3) increased ATM/Visa settlement service fees of $152,000 resulting from higher transaction volumes in merchant services; and (4) miscellaneous expenses of $139,000. 15 Net noninterest expense (noninterest income minus noninterest expense, excluding intangible amortization) as a percent of average assets was 2.19% in the first quarter of 2003 compared to 2.40% in 2001. The Company's efficiency ratio (noninterest expense, excluding intangible amortization, expressed as a percent of the sum of taxable-equivalent net interest income plus noninterest income) was 62.48% in the first quarter 2003 compared to 64.88% for the comparable quarter in 2002. This improvement is attributable to growth in operating revenues. Income Taxes - ------------ The provision for income taxes increased $844,000, or 30.6%, over the first quarter of 2002, reflecting higher taxable income as a result of a decline in tax-exempt income. The Company's effective tax rate for the first quarter of 2003 was 36.2% compared to 35.1% for the same quarter in 2002. The increase in the effective tax rate is primarily attributable to a reduction in tax- exempt municipal interest. FINANCIAL CONDITION The Company's average assets increased $48.4 million, or 2.8%, from $1.7 billion at March 31, 2002 to $1.8 billion in the comparable quarter of 2003. Average earning assets of $1.6 billion, increased $39.6 million, or 2.5% from the comparable quarter of 2002. Throughout 2002 and the first quarter of 2003, there was 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 I on page 20 presents average balances for the three month periods ended March 31, 2003 and 2002. Average loans increased $59.8 million, or 4.9%, over the comparable period in 2002. The strong production levels have resulted in growth in all loan categories, 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 continues to occur. Loans as a percent of average earning assets increased to 79.8% for the first quarter of 2003, compared to 78.0% for the first quarter of 2002. Price and product competition remain strong. With the lower rate environment, there continues to be an increased demand for fixed-rate, longer term financing. Management anticipates moderate to strong loan production during the second 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. Management maintains the allowance for loan losses at a level sufficient to provide for the estimated credit losses inherent in the loan portfolio as of the balance sheet date. Credit losses arise from the borrowers' ability and willingness to repay, and from other risks inherent in the lending process, including collateral risk, operations risk, concentration risk and economic risk. All related risks of lending are considered when assessing the adequacy of the loan loss reserve. The allowance for loan losses is established through a provision charged to expense. Loans are charged against the allowance when management believes collection of the principal is unlikely. The allowance for loan losses is based on management's judgment of overall loan quality. This is a significant estimate based on a detailed analysis of the loan portfolio. The balance can and will change based on changes in the assessment of the portfolio's overall credit quality. Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The allowance for loan losses at March 31, 2003 was $12.4 million, slightly higher than the $12.1 million recorded at March 31, 2002. The allowance as a percent of total loans was 0.95% in 2003, versus 0.98% at March 31, 2002. While there can be no assurance that the Company will not sustain loan losses in a particular period that are substantial in 16 relation to the size of the allowance, management's assessment of the loan portfolio would not indicate a likelihood of this occurrence. It is management's opinion that the allowance at March 31, 2003 is adequate to absorb losses inherent in the loan portfolio at quarter-end. The Company continues to operate with a high level of liquidity with average funds sold of $122.7 million. This represents a slight decline of $4.9 million, or 3.8% from the March 31, 2002 level of $127.6 million. For a further discussion on liquidity see the section "Liquidity and Capital Resources." The investment portfolio is a significant component of the Company's operations and, as such, it functions as a key element of liquidity and asset/liability management. As of March 31, 2003, the average investment portfolio decreased $15.3 million, or 7.0%, from the first quarter of 2002. The decline was partially offset by management's decision to purchase available-for-sale securities during the fourth quarter of 2002 and early first quarter of 2003. The excess funds generated from the securities maturing were partially used to fund loan growth. Management will continue to evaluate the need to purchase securities for the investment portfolio throughout 2003. Securities in the available-for-sale portfolio are recorded at fair value and unrealized gains and losses associated with these securities are recorded, net of tax, as a separate component of shareowners' equity. At March 31, 2003, shareowners' equity included a net unrealized gain of $2.6 million compared to a gain of $3.1 million at December 31, 2002. The decrease in value reflects a slight increase in interest rates during the first quarter. The Company's nonperforming loans were $3.8 million at March 31, 2003, versus $4.3 million for the same period in 2002. As a percent of nonperforming loans, the allowance for loan losses represented 485% at March 31, 2003 versus 498% at December 31, 2002 and 421% at March 31, 2002. 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 March 31, 2003, versus $1.3 million at December 31, 2002 and $1.4 million at March 31, 2002. The ratio of nonperforming assets as a percent of loans plus other real estate was .29% at March 31, 2003 compared to .30% at December 31, 2002 and .35% at March 31, 2002. Average deposits decreased $59.5 million from $1.5 billion in the first quarter of 2002, to $1.4 billion in the first quarter of 2003. The Company experienced a steep decline in certificates of deposit throughout 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. The shift in mix and certificate of deposit run-off in the remainder of 2003, if any, is anticipated to be at a slower pace than experienced during 2002. The ratio of average noninterest bearing deposits to total deposits was 27.6% for the first quarter of 2003 compared to 23.4% for the first quarter of 2002. For the same periods, the ratio of average interest bearing liabilities to average earning assets was 74.1% compared to 76.8%. 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 maintains a $25.0 million revolving line of credit. As of March 31, 2003, the Company had no borrowings under the revolving line of credit. 17 During the first quarter of 2003, the Company borrowed $2.6 million from the Federal Home Loan Bank to fund loan growth. This borrowing was priced at 4.36% and has a maturity of 15 years. During the third quarter of 2002, the Company borrowed $75 million from the Federal Home Loan Bank to fund growth in loan demand and the 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's equity capital was $191.0 million as of March 31, 2003 compared to $186.5 million as of December 31, 2002. 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 8.59% at March 31, 2003 compared to 8.46% at December 31, 2002. Further, the Company's risk-adjusted capital ratio of 12.47% at March 31, 2003, exceeds the 8.0% minimum requirement under the risk-based regulatory guidelines. Adequate capital and financial strength is paramount to the stability of CCBG and its subsidiary bank. Cash dividends declared and paid should not place unnecessary strain on the Company's capital levels. Although a consistent dividend payment is believed to be favorably viewed by the financial markets and shareowners, the Board of Directors will declare dividends only if the Company is considered to have adequate capital. Future capital requirements and corporate plans are considered when the Board considers a dividend payment. Dividends declared and paid during the first quarter of 2003 totaled $.1700 per share compared to $.1525 per share for the first quarter of 2002, an increase of 11.5%. The dividend payout ratios for the first quarter ended 2003 and 2002 were 28.3% and 31.8%, respectively. State and federal regulations as well as the Company's long-term debt agreements place certain restrictions on the payment of dividends by both the Company and the Bank. At March 31, 2003, these regulations and covenants did not impair the Company's (or its subsidiaries') ability to declare and pay dividends or to meet other existing obligations in the normal course of business. During the first three months of 2003, shareowners' equity increased $4.5 million, or 9.7%, on an annualized basis. Growth in equity during the first quarter was positively impacted by net income of $6.4 million and the issuance of common stock of $63,000. Equity was reduced by dividends paid during the first quarter of $1.8 million, or $.1700 per share and a reduction in the net unrealized gain on available-for-sale securities of $485,000. At March 31, 2003, the Company's common stock had a book value of $18.02 per diluted share compared to $17.60 at December 31, 2002. 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. The purchases will be made in the open market or in privately negotiated transactions. The Company did not purchase any shares in the first quarter of 2003. During 2002, 124,620 shares were acquired. From March 30, 2000 through March 31, 2003, the Company repurchased 457,754 shares at an average purchase price of $24.04 per share. Other Prior to 2002, the 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. Certain merchants have alledged they are entitled to receive financial reserves placed with the ISO. The Bank is currently named, along with others, as a co-defendant in a lawsuit brought against the ISO by a merchant. 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 ISOs. 18 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 in the Compnay's 2002 Form 10-K). The Company believes that, of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Allowance for Loan Losses: The allowance for loan losses is established through a charge to the provision for loan losses. Provisions are made to reserve for estimated losses in loan balances. The allowance for loan losses is a significant estimate and is evaluated quarterly by the Company for adequacy. The use of different estimates or assumptions could produce a different required allowance, and thereby a larger or smaller provision recognized as expense in any given reporting period. 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 in the Company's 2002 Form 10-K. 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. 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. 19 TABLE I AVERAGE BALANCES & INTEREST RATES (Taxable Equivalent Basis - Dollars in Thousands) For Three Months Ended March 31, -------------------------------------------------------------------- 2003 2002 ----------------------------- ----------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ---------- -------- ------- ---------- -------- ------- ASSETS Loans, Net of Unearned Interest $1,289,161 $23,220 7.30% $1,229,344 $23,911 7.89% Taxable Investment Securities 138,646 1,180 3.41% 147,800 1,980 5.43% Tax-Exempt Investment Securities 64,772 955 5.89% 70,933 1,074 6.06% Funds Sold 122,708 352 1.15% 127,621 516 1.62% ---------- ------- ---- ---------- ------- ---- Total Earning Assets 1,615,287 25,707 6.45% 1,575,698 27,481 7.07% Cash & Due From Banks 82,453 72,266 Allowance for Loan Losses (12,619) (12,231) Other Assets 111,536 112,478 ---------- ---------- TOTAL ASSETS $1,796,657 $1,748,211 ========== ========== LIABILITIES NOW Accounts $ 262,618 $ 203 0.31% $ 230,696 $ 332 0.58% Money Market Accounts 214,539 420 0.79% 221,751 793 1.45% Savings Accounts 106,241 65 0.25% 102,125 131 0.52% Other Time Deposits 434,825 2,539 2.37% 569,166 5,591 3.98% ---------- ------- ---- ---------- ------- ---- Total Interest Bearing Deposits 1,018,223 3,227 1.29% 1,123,738 6,847 2.47% Short-Term Borrowings 106,798 329 1.25% 72,043 160 0.90% Long-Term Debt 72,372 544 3.05% 13,801 190 5.57% ---------- ------- ---- ---------- ------- ---- Total Interest Bearing Liabilities 1,197,393 4,100 1.39% 1,209,582 7,197 2.41% Noninterest Bearing Deposits 389,540 343,519 Other Liabilities 19,308 19,625 ---------- ---------- TOTAL LIABILITIES 1,606,241 1,572,726 SHAREOWNERS' EQUITY Common Stock 106 106 Surplus 14,862 17,064 Other Comprehensive Income 3,006 2,815 Retained Earnings 172,442 155,500 ---------- ---------- TOTAL SHAREOWNERS' EQUITY 190,416 175,485 ---------- ---------- TOTAL LIABILITIES & EQUITY $1,796,657 $1,748,211 ========== ========== Net Interest Rate Spread 5.06% 4.66% ==== ==== Net Interest Income $21,607 $20,284 ======= ======= Net Interest Margin 5.42% 5.22% ==== ==== Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $1.6 million and $1.1 million, for the three months ended March 31, 2003 and 2002, respectively. Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
20 Item 3. Qualitative and Quantitative Disclosure for Market Risk Overview Market risk management arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company has risk management policies to monitor and limit exposure to market risk 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 II on page 22. This table presents the Company's consolidated interest rate sensitivity position as of March 31, 2003 based upon certain assumptions as set forth in the Notes to the Table. The objective of interest rate sensitivity analysis is to measure the impact on the Company's net interest income due to fluctuations in interest rates. The asset and liability values presented in Table II may not necessarily be indicative of the Company's interest rate sensitivity over an extended period of time. The Company is currently liability sensitive, which generally indicates that, in a period of rising interest rates, the net interest margin will be adversely impacted as the velocity and/or volume of liabilities being repriced exceeds assets. The opposite is true in a falling rate environment. However, as general interest rates rise or fall, other factors such as current market conditions and competition may impact how the Company responds to changing rates and thus impact the magnitude of change in net interest income. Nonmaturity deposits offer management greater discretion as to the direction, timing and magnitude of interest rate changes and can have a material impact on the Company's interest rate sensitivity. In addition, the relative level of interest rates as compared to the current yields/rates of existing assets/liabilities can impact both the direction and magnitude of the change in net interest margin as rates rise and fall from one period to the next. 21 Table II - FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS (Dollars in Thousands) Other Than Trading Portfolio March 31, 2003 - ---------------------------- ---------------------------------------------------- Fair Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Value --------- -------- -------- ------- ------- ------- ---------- ---------- Loans Fixed Rate $ 173,442 $ 97,230 $ 74,148 $29,413 $15,414 $25,611 $ 415,258 $ 429,668 Average Interest Rate 7.68% 7.98% 7.56% 8.07% 7.88% 6.58% 7.69% Floating Rate 548,148 98,734 170,576 47,236 10,877 20,726 896,298 927,402 Average Interest Rate 5.49% 7.22% 7.02% 7.60% 7.47% 7.91% 6.16% Investment Securities Fixed Rate 94,332 47,082 26,130 7,913 2,305 7,689 185,452 185,452 Average Interest Rate 3.88% 3.79% 5.24% 6.61% 4.64% 4.09% 4.08% Floating Rate 4,667 - - - - - 4,667 4,667 Average Interest Rate 4.58% - - - - - 4.58% Other Earning Assets Floating Rates 176,428 - - - - - 176,428 176,428 Average Interest Rates 1.18% - - - - - 1.18% Total Financial Assets $ 997,018 $243,046 $270,854 $84,562 $28,597 $54,027 $1,678,103 $1,723,617 Average Interest Rates 4.95% 6.86% 6.99% 7.67% 7.46% 6.74% 5.78% Deposits Fixed Rate Deposits $ 350,465 $ 63,494 $ 13,270 $ 5,899 $ 5,519 7 $ 438,654 $ 440,400 Average Interest Rates 2.02% 3.05% 3.58% 4.08% 3.85% 4.85% 2.27% Floating Rate Deposits 594,147 - - - - - 594,147 594,147 Average Interest Rates 0.46% - - - - - 0.46% Other Interest Bearing Liabilities Fixed Rate Debt 20,757 14,472 4,669 1,264 1,330 11,161 53,651 54,610 Average Interest Rate 2.87% 3.06% 3.82% 5.19% 5.19% 5.27% 3.26% Floating Rate Debt 140,138 - - - - - 140,138 140,138 Average Interest Rate 1.77% - - - - - 1.77% Total Financial Liabilities $1,105,507 $ 77,966 $ 17,939 $ 7,162 $ 6,849 $11,168 $1,226,591 $1,229,295 Average interest Rate 1.17% 3.06% 3.64% 4.27% 4.11% 5.27% 1.40% Based upon expected cashflows, 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 rates deposits in Year 1. Other time deposit balances are classified according to maturity.
22 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. 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. 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 Capital City Bank Group, Inc. filed no reports on Form 8-K during the first quarter 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned Chief Financial Officer hereunto duly authorized. CAPITAL CITY BANK GROUP, INC. (Registrant) /s/ J. Kimbrough Davis - ----------------------------- J. Kimbrough Davis Executive Vice President and Chief Financial Officer Date: May 14, 2003 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: 14 May 2003 ----------- 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: May 14, 2003 ------------ ?? 30 21 35