lead
execute
communicate
think
learn
welcome
table of contents
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Letter from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Lead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Execute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Communicate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Think . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Learn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capital City Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Community Presidents and Office Managers . . . . . . . . . . . . . . . . . . . . . 24
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Report of Independent Registered Public Accounting Firm
. . . . . . . . . . 51
Officers, Directors and Community Boards . . . . . . . . . . . . . . . . . . . . . . 72
Shareowner Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Capital City Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
CORPORATE PROFILE Capital City Bank Group, Inc. (Capital City Bank Group) is a $2.4 billion financial services company
headquartered in Tallahassee, Florida, providing traditional deposit and credit services, asset management, trust, mortgage banking,
bankcards, data processing, and securities brokerage services. Founded in 1895, Capital City Bank has 60 banking offices, five
mortgage lending offices, 74 ATMs, and 11 Bank 'N Shop locations in Florida, Georgia and Alabama. For more information about
Capital City Bank Group, Inc. visit us on the Web at http://www.ccbg.com. Capital City Bank Group stock can be found on NASDAQ
under the ticker CCBG.
Capital City Bank Group
financial highlights
(Dollars in Thousands, Except Per Share Data)
2004
2003
Percent
Change
For the Year:
Net Income
Cash Dividends Declared
Average Loans, Net of Unearned Interest
Average Earning Assets
Average Assets
Average Deposits
Average Equity
$ 16,86$
29,371
$
25,193
16.6%
6,3769,857
1,538,744
1,534,5481,789,843
1,704,1672,006,745
1,1,599,201
168,65220,731
8,646
1,318,080
1,624,680
1,804,895
1,431,808
196,588
13,222,487
13,251,189
14.0
16.7
10.2
11.2
11.7
12.3
14.1
14.7
11.3
18.7
Basic Average Common Shares Outstanding
13,443,753
Diluted Average Common Shares Outstanding
10,633,94813,447,937
Per Share:
Basic Net Income
Diluted Net Income
Cash Dividends Declared
Diluted Book Value
Ratios:
Return on Average Assets
Return on Average Equity
Equity to Assets, Year-End
Dividend Payout
Net Interest Margin(1)
(1) Taxable-Equivalent Net Interest Income Divided by Average Earning Assets.
$
1.$ 2.18
$ 1.91
1.592.18
.595.730
16.0818.13
1.46%
13.31
10.86
33.42
4.88
1.90
.656
15.27
1.40%
12.82
10.98
34.51
5.01
2 Capital City Bank Group
financial data
Net Income
(dollars in thousands)
Return on Equity
$28,000
21,000
14,000
7,000
$2.0
1.5
1.0
0.5
1.500%
1.125
0.750
0.375
29,371
15.00%
11.25
7.50
3.75
99
00
01
02
03
04
99
00
01
02
03
04
Diluted Earnings
per Share
Average Assets
(dollars in millions)
2.18
$2,000
1,500
1,000
500
99
00
01
02
03
04
99
00
01
02
03
04
Return on Assets
Average Deposits
(dollars in millions)
1.46
$1,500
1,125
750
375
13.31
2,007
1,599
99
00
01
02
03
04
99
00
01
02
03
04
Capital City Bank Group 3
Capital City Associates
think, learn, communicate,
execute, lead and welcome.
These are the core
competencies that drive
our success as we
strive every day to be a
super-community bank in the
relationship banking business.
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
4 Capital City Bank Group
I
Letter from
the Chairman
n last year’s annual report I wrote
about an exciting undertaking at
The Project 2010 road map for
Capital City Bank Group, Project
expansion includes five areas which are
expansion may be a part of the Capital
2010. The plan, with a single goal of
targeted by Capital City for acquisition
City
future,
these
five
identified
$50 million in annual earnings by
and expansion over the next seven
markets are critical to the 2010 goal.
2010, was unveiled to all directors and
years:
Hernando/Pasco,
Ocala,
2004
saw an
economy
that
associates in February 2004. We are
Gainesville, west Florida, and middle
responded well to a slight rise in
well on the way after one year. Earnings
Georgia. Capital City expanded its
interest rates. Residential lending, a
of $29.4 million, or $2.18 per share,
presence in middle Georgia to almost
Capital City strength, saw production
were up 16.6% over 2004 and put
$500 million with the purchase of the
of $262 million. Capital City Trust
Capital City Bank Group ahead of pace
Farmers & Merchants Bank in Dublin,
Company finished the year with $653
toward its ambitious, yet achievable
Georgia in October 2004. With Macon
million in assets under management
2010 goal. The excitement, focused
as an anchor city in the franchise, this
following the successful integration of
attention, and desire to achieve can be
strategic acquisition
significantly
trust assets in conjunction with the
seen in our associates every day. The
strengthened the presence of Capital
Quincy State Bank purchase. Loans,
simplicity of the goal and ability to drive
City in Georgia. I am pleased McGrath
excluding acquisitions, grew $166
it to every department, office, and
Keen, a fourth generation Dublin
million during the year as we saw nice
associate is a formula for success.
banker, with a wealth of banking
gains
in both commercial and
Project 2010 includes the continued
knowledge, joined the Capital City
commercial real estate lending. Credit
building of the Capital City franchise
Bank Group board and made an
quality was pristine with charge-offs of
which
includes acquisitions and
immediate impact.
.22% and nonperforming loans of .29%.
construction of new offices. Offices in
In February 2005, Capital City
I am humbled
to have
the
Palatka and Keystone Heights, Florida
announced an agreement to purchase
opportunity to lead the talented group
will be relocated to new facilities that
the First National Bank of Alachua.
of associates that define Capital City
are under construction, and Capital
This $230 million bank, with eight
Bank Group. Their strength, energy
City
is entering a new market
offices in and around Gainesville,
and passion are contagious. We have
in Wakulla County, Florida with
Florida will increase our foothold in the
the team that will drive us relentlessly
the construction of an office
in
central Florida market and
is a
until we reach our Project 2010 goal of
Crawfordville.
significant step in the CCBG expansion
$50 million in annual earnings. We
plans. While other geographical
enter 2005 with great enthusiasm
and momentum.
As always, I welcome your comments.
Capital City Bank Group 5
Senior Management
William G. Smith, Jr.
Chairman, President and
Chief Executive Officer
Thomas A. Barron
President
Capital City Bank
J. Kimbrough Davis
Executive Vice President
and Chief Financial Officer
E
xperienced mountain climbers will tell you that the first steps you
AA BBOOLLDD SSTTRROOKKEE
take on an important climb are just as important as the last. It just
The year began with a bold financial stroke as Capital City Bank Group
doesn’t seem it at the time.
acquired Quincy State Bank for $28.1 million dollars. As a result of the
Maybe it’s the low altitude or the excitement of the event or that at the
acquisition, Capital City acquired $218 million in trust assets – not a bad
start of the climb, the climber tends to be so fresh and full of ambition he
way to begin the year.
or she looks past those initial steps.
The acquisition more than doubled the Company’s banking assets in the
After the February 2004 breakthrough event where Capital City Bank
Gadsden market and increased by over 50% the total assets under
Group, Inc. Chairman, President and CEO Bill Smith established the
management in Capital City Trust Company. “We will strengthen our
Company’s lofty 2010 goal – a Mount Everest-like goal of doubling the
presence in the Gadsden County Market,” said Capital City Trust Company
Company’s annual earnings from $25 million in 2003 to $50 million by
President Randy Pople. While Pople noted the name would change, the
2010 – he inspired a lot of pick work.
faces and the interpersonal relationships would not.
So, as Capital City Bank roars into 2005, well on its way to the pinnacle
“Our clients will continue to work closely with the Quincy Associates
that Smith pointed to, it may someday look back at 2004 – a record year –
they have come to know and trust,” he said.
as the launching pad for an unforgettable financial climb.
6 Capital City Bank Group
Senior Management
Flecia Braswell
Executive Vice President
Director of Marketing
Randolph K. Briley
Executive Vice President
Retail Credit
Edward G. Canup
Executive Vice President
Commercial Lending
AANNOOTTHHEERR BBIIGG MMOOVVEE
Laurens County, serving generation after generation of local families. By
The next big announcement to Capital City Bank Associates was the
teaming up with Capital City, the future of banking in Laurens County
acquisition of Farmers and Merchants Bank in Dublin, Ga., a sure sign
has never looked brighter."
that the Star was continuing to head north as well as south and west –
But 2004 wasn’t all about acquiring other banks. Inside the
something that Smith had promised.
workings of Capital City, some senior managers were working overtime,
In May, the announcement came that Capital City Bank Group
trying to find better and smarter ways to do business.
was buying Farmers and Merchants Bank in Dublin, a $66.7 million
dollar acquisition.
AA CCRREEDDIITTAABBLLEE DDEECCIISSIIOONN
Farmers and Merchants Bank, one of Georgia’s oldest and largest
Randy Briley, Capital City Bank Executive Vice President of
community banks, founded in 1910, had assets totaling $395 million and
Retail Credit, recommended changes to the Capital City credit card
70 associates.
product line.
Farmers and Merchants Bank Chairman Wallace Miller proudly
Capital City’s credit card offering was relatively basic and didn’t offer
announced, “Our clients can look forward to the same friendly, personal
many of the bells and whistles Briley knew our clients preferred. He also
service they have always enjoyed. We have built a loyal client base in
knew that for every dollar in credit card loans, about 4-5 cents would go
Capital City Bank Group 7
Senior Management
William D. Colledge
Executive Vice President
Institutional Banking
Noel A. Ellis
Executive Vice President
Credit Administration
Mitchell R. Englert
Executive Vice President
Community Banking
Russell S. Grosvenor
Executive Vice President
President
Capital City Services Company
toward bad debt or money that would never be collected.
Capital City continued to focus on earnings and process improvement.
Capital City Bank entered into an agreement with Élan Financial
Once again, Capital City stepped up the promotion of the annual Spring
Services to sell our portfolio of credit cards. “This agreement enables the
campaign called “FreedomLine Home Equity” – loan opportunities for
Bank to offer a bankcard with the features our clients desire,” Briley said.
clients and prospects.
The conversion, which officially took place in November, was a bold and
It worked. Capital City’s “FreedomLine” promotion ended up exceeding
decisive strike for the future.
its 2004 stated goal of $42 million by $13 million – quite an achievement.
The after-tax gain on the sale of the portfolio, which included
The popular Spring promotion will be continued in 2005 in
approximately 22,000 accounts and $22.7 million in receivables, was
all 60 offices.
$4.2 million. Selling the portfolio enhanced profitability and improved the
overall risk profile of the Capital City Bank loan portfolio, each of which
LLOOOOKKIINNGG BBAACCKK,, LLOOOOKKIINNGG AAHHEEAADD
is moving Capital City closer to its 2010 goal. Having announced two
So, with a wonderful, experienced, energetic team of senior
strategic acquisitions and its intention to sell the credit card portfolio,
managers, arguably the finest crew in our history, Capital City was
8 Capital City Bank Group
Senior Management
Karen H. Love
Executive Vice President
Residential Lending
Randolph M. Pople
President
Capital City Trust Company
Dale A. Thompson
Executive Vice President
Business Banking
Edwin N. West, Jr.
Executive Vice President
Community Banking
able to make 2004 a year to remember.
“Simply put,” Smith said, “we will need to grow earnings over the next
“2004 was Capital City’s greatest year ever,” said Bill Smith. “We’re off
seven years by an amount equal to what it took Capital City 109 years to
to a great start toward Project 2010. But each year must be a record year
produce. Ambitious, but achievable.”
for us to achieve our goal.”
Sounds like a perfect description of mountain climbing.
Capital City must produce a 10 percent plus compounded annual
Pick a peak and go for it!
growth rate to achieve Capital City’s goal for 2010 of $50 million in
annual earnings.
“We made $25 million in 2003,” Smith said, “and we believe a little
more than half of the next $25 million we’ll need by 2010 will come from
our existing offices and a little less than half will come from acquisitions.”
Then Smith offered a challenge to Capital City’s Team 2010, one that
will echo in their minds for a while to come.
Capital City Bank Group 9
lead
He’s never held
a scalpel,taken a
pulse or scrubbed
up for surgery.
10 Capital City Bank Group
H
e will talk cholesterol, exercise and blood pressure, if
you prod him.
But Capital City Bank Executive Vice President Bill Colledge
knows about heart. Knows about hearts. Singular and Plural.
As National Chairman of the Board for the American Heart
Association, an honor that capped a 12-year stint working as a volunteer
for the association, Colledge is uniquely qualified to speak about
these things.
So when he got a good look at President George W. Bush’s 2005 budget
and wasn’t as happy with it as he might have been, he spoke up. For all
of us. It was in newspapers all over the country.
“We applaud the President for all his work to safeguard Americans,”
Colledge said, “but we believe part of providing safety and security is to
fight the diseases that kill the most Americans. The proposed budget
invests too little in the search for cures and the prevention of our
Number 1 killer, heart disease, and stroke, the third-leading
chaired the Florida Affiliate board in 1999 and has been on more
cause of death.”
committees than you can count.
Speaking as a guy who may – in those 12 inexhaustible years – have
“It is a lot of time,” Colledge said, “but technology has really helped a
done as much good for American hearts as Shirley Temple, those words
lot in that regard. With teleconferences and emails, it’s a lot more
carry weight. But that’s what leaders do. They speak out. Say their piece.
convenient to communicate. And since the organization is so spread out
They lead.
and I’m on the East Coast, some of these things get done in the evenings.”
Colledge is somebody who does that as a matter of course. “Bankers,
Not surprisingly, Colledge’s role with Capital City has been a success,
I think, as a rule, are people who like to give back to the community,”
too. Hired seven years ago to lead Capital City’s business with
he said.
governments, school districts, water districts and other non-profit areas,
He has. Whether with the Chamber of Commerce (he’s a former
Colledge has grown the institutional side of Capital City Bank.
Chairman) or the United Way, Colledge is tireless about that sort of thing.
In 2004, Colledge’s group had a total production of $37 million, adding
And the American Heart Association? That’s a topic that’s really dear to
11 new clients.
his heart.
Leaders know the value of ideas and hard work. Bill Colledge has
“My family was really touched by heart disease,” he said. “My father,
known for years now that he’s been giving something away that’s worth
both my grandparents and my uncle all died before the age of 60. There
more than anything he’ll find in a vault down the hall. His time. With that,
were a lot of questions I never got answered. I would have liked for my
he doesn’t think like a banker. Then again, maybe he does.
dad to be around to see my children as adults, to get to really know them
Time does pay.
and see them become the fine people they are.”
But, instead of cursing his genetic fate, Colledge decided to do
something about it – a sure trait of a leader. He volunteered for
the American Heart Association, became a member of the board,
Capital City Bank Group 11
execute
E
It’s all in the details
– and the execution.
ven if they didn’t exactly know what was about to happen or why,
the relentless rush of excitement was unmistakable.
Fifty-three buses perfectly timed, arriving in an undisclosed
location within 15 minutes of each other. Enough candles to illuminate a
baseball stadium at midnight. Enough genuine joy to tinder even the
cold, cold heart of Ebenezer Scrooge.
In all, more than 1,000 Capital City Associates and Directors arrived
at the 2004 kick-off event for Project 2010 with bounces in their steps
and lifts in their hearts. Bankers from far and wide were ready to get
rowdy, but in a really fun way.
Rowdy? Bankers? Yes, it can happen. When you have a plan – a grand
plan – then execute it with a precision that rivals that of Allied
Commander Dwight D. Eisenhower at Normandy, people are going to
make the assumption that you know what you are doing and
where you are going.
12 Capital City Bank Group
Not only that. They will also follow – if you show them that you will lead
With successful acquisitions of Quincy State Bank in Quincy, Florida
them. That goes a little deeper. That isn’t something that happens in one
and Farmers and Merchants Bank in Dublin, Georgia, the Capital City
night or 20 days. That only happens over time, over days and weeks and
Bank Group network grew a little wider. There was some intricate work
months of consistent, well-thought out, sharply executed ideas.
inside, too, selling the credit card portfolio, implementing new profit
So, in the final moments of the event, when Capital City Bank Group
initiatives and strengthening Capital City’s already distinct place in the
Chairman, President and CEO Bill Smith took the stage to an ovation
region, as Smith puts it, “Being a super-community bank in the
worthy of The Beatles on Ed Sullivan, it was enough to make you pause
relationship banking business.”
– in quiet – and reflect.
For 2005, there will be more to come. Three new offices will open and
Why were bankers getting rowdy over a CEO in folksy jeans, sitting
the acquisition of
the First Alachua Banking Corporation
and idly chatting on the back of a pickup truck, talking about his plans
is anticipated, giving Capital City Bank an even stronger foothold in
for the Bank’s future?
north central Florida.
Do these people know something, perhaps sense something that those
Heading down the road toward the goal of $50 million in annual
outside the magical circle of Capital City Bank don’t? It’s all in the details
earnings for 2010 will take continued commitment, dedication
– and the execution.
and enthusiasm.
“The details leading up to that event were incredible,” said Capital City
Like country music icon Billy Dean, from Quincy, Florida, sang in his
Bank Executive Vice President of Marketing Flecia Braswell.
well-chosen song from that magical event: “Life is not tried, it is merely
“The T-shirts, the video, Billy Dean showing up…it was a better
survived if you are standing outside the fire.”
than perfect day.”
At Capital City Bank, associates aren’t standing outside the fire. They
Not only that, it was evidently motivational. Sparked by that eventful
are dancing on the coals and turning up the heat.
day, Capital City roared through the rest of 2004, finishing ahead of
schedule with earnings of $29 million and assets of $2.4 billion dollars.
Capital City Bank Group 13
communicate
I“
tell you one thing I learned. We have a great brand.”
just got back from six weeks with the United Way as a loaned
executive,” explained Darrell (pronounced Darr-ELL) Fowler,
Capital City Bank Vice President for Business Banking, “and I’ll
It’s a
Capital City Bank
specialty.
He may be the new guy in town – he’s only been in Tallahassee about
a year – but he knows quality when he sees it.
Because of the distinctive way Capital City Bank does business,
because of the Bank’s tireless efforts in the community, because of all
sorts of intangible things, Fowler doesn’t think it’s at all difficult for
Tallahasseans to distinguish Capital City from its competitors.
“When people see the name, there’s something there, something
intangible yet very real,” he said.
As a former college basketball coach, someone who was always fearful
that Tuesday’s newspaper interview would wind up as inspirational
fodder for the other team in Wednesday’s sports section, Fowler was
14 Capital City Bank Group
reluctant to talk about the opposition - at first. Then he remembered he
people, get involved in the community, interact with people, and bring
had a new life, a new career.
them to us.”
“I guess I don’t have to worry about bulletin board material any more,”
“That’s what my role is, to communicate with businesses, clients,”
laughed Fowler. “I don’t care what the big boys say, we are ‘The Bank’ in
he said. “I probably talk to 25-30 of them a day.”
our communities.”
“You see,” he continued, “the whole point of getting out there and
How did that happen? Why did that happen? There are many facets to
talking to people is that’s really the only way we can let them know what
the answer, of course.
we do and why we do it better than anybody else. We operate in very
But a major factor – and one that generally distinguishes all quality
competitive markets. It’s like I say, in Tallahassee, there’s a bank and a
organizations from those of lesser ilk – is communication. For a group of
church on every corner.
people to share ideals, goals, problems and solutions, they need to be able
“But I think the difference with us is, we can do all the things the big
to talk to each other.
That’s a Capital City Bank specialty.
banks can do – but we never lose that small-town feel…”
At Capital City Bank, feel is important. When you’re a super-
“That’s something I think we do exceptionally well,” Fowler said, who
community bank in the relationship banking business, it always will be.
spent a number of years in different finance-related positions, so he
knows the difference.
In the long-term, Capital City Associates are able to apply those
communication skills to their interaction with their clients.
“It’s all about establishing relationships,” Fowler said. “That’s what my
job is all about, working in the business end of things. A few years ago,
banks would sit back and wait for the business to walk in. Not here. We
have a strong sales culture. Let’s go out and find the business, meet
Capital City Bank Group 15
think
Mark Twain, admittedly,
would have been lousy
at banking commercial
real estate clients.
16 Capital City Bank Group
I“
was never able to recognize an opportunity,” Twain once
lamented, “until after it ceased to be one.”
Native Tallahassean Ed Canup, Capital City Bank Executive
Vice President for Commercial Real Estate, is cut from a different
bolt of cloth.
To Canup, opportunity is always knocking. You just have to be
listening. And thinking about what to do if you hear something.
A few months ago, Canup set up a meeting with Pat Roberts, president
of the Florida Broadcasters Association. Canup, who did his
homework, knew Roberts, a prominent long-time Tallahassean, did his
banking elsewhere.
When Canup’s fellow associate, Emory Mayfield’s hard work turned up
news of Roberts’ impending purchase of a large parcel of land by a scenic
lake in Tallahassee, Canup’s mind was brimming with possibilities.
“That parcel of land hadn’t changed hands in almost 100 years,”
Canup said excitedly. “It was just gorgeous.”
“It’s really relationship-banking,” Canup said. “It’s not just about the
Roberts had plans to develop it with a number of lakefront lots. With
deal or the numbers. Because you’re not just thinking about this
his Tallahassee background, Canup knew instantly how valuable the land
opportunity, but about another opportunity two years from now, 10 years
could be. What Ed and Emory had to do was find the best way to present
from now.”
to Roberts exactly what Capital City could bring to the project. How could
In this case, Canup and Mayfield were able to do that brilliantly.
Capital City add value, and create a relationship rather than just a deal?
Despite prior loyalties, Roberts knew the value added when he saw it.
Canup had to think on his feet and when he and Mayfield accompanied
Once Mayfield secured Roberts’ financial statements, he got him what
Roberts to the site. Roberts immediately started sharing his plans for
every client wants: a quick answer.
developing the land. Canup had some concerns right away.
When Canup and Mayfield presented the commitment letter to
“I knew Pat was an experienced real estate developer,” Canup said, “but
Roberts, explaining that Capital City Bank wanted to help him, Roberts
I also knew that lake preservation development is different.
was ready to move.
“Fortunately, our team has had some experience with this kind of
Quick responses. Right answers. The whole process, not just the start
project,” Canup said. “Consequently, we were uniquely qualified to help
of it. Capital City Bank had it all, when necessary.
him. We were able to help him understand the obstacles and what he
Why? Because, like Ed Canup and Emory Mayfield, these folks know
needed to do to develop the land. And I do believe he genuinely
how to think things through.
appreciated the opportunity to work with someone who understood his
plans and what it would take to realize them.”
To Canup, that’s one of the real strengths Capital City offers its clients.
Not only thinking about them but also with them, particularly in deals
where it helps to have some grasp of the geography and history of the
area. It’s the ability of Capital City to add value beyond the numbers.
Capital City Bank Group 17
learn
Work made fun
gets done.
18 Capital City Bank Group
T
he note, gracefully penned in Bill Smith’s distinctive
handwriting, carried an air of excitement. He was thrilled. He’d
just sat in on the opening class of a revolutionary new program
and knew instantly his 20-year search was over. It was that many years
earlier Smith had read, and held on to, an article written on the
importance and rarity of excellent client service. Now, after learning about
the FISH! program, he could send the article to an associate and have
them see what he did so long ago.
“I have saved this article since 1984,” Smith wrote. “I read it again after
our FISH! class. Hope these stories will continue to inspire us to even
higher levels.” That long-ago article, written by Thomas Peters, whose
book “In Search Of Excellence” became a phenomenal best-seller in 1983,
made perfect sense. Then and now.
“Good associate relations is good client service…” it read. “It’s hard
work, it’s an agonizing game of inches, of millimeters. It is a thousand
things done a little better…” Which is precisely the idea behind the famous
name, asked something personal about them like, “Where are the kids
FISH! program, a radical approach to work inspired by Seattle’s Pike Place
today?” “How is your husband doing?” “Do you have plans for
Fish Market.
the weekend?”
The Market, now one of Seattle’s great tourist stops, draws enormous
In another office, an innovative plan to reduce absenteeism and
crowds every day, beginning at 6:30 a.m. as visitors are invited to join the
tardiness has been a masterstroke. Every Monday morning, there’s a
fish peddlers in their daily routines, tossing stone crabs or mackerel back
drawing to see which associate will be selected for “Make Their Week.”
and forth. The idea is to involve the customers in the process in a most
That week’s winner is the recipient of extra help on the job, perhaps their
unique way.
favorite lunch, all sorts of perks.
Since then, the Market’s four guiding principles: Play, Make Their Day,
“Not only did it help attendance and early arrivals,” a bank associate
Be There, Choose Your Attitude have become concepts applicable to
noted, “everyone’s work improved. They couldn’t wait to get to work
industries all over the world. Even banking.
on Monday.”
“‘Work made fun gets done,’” explained Denise Wilson, Capital City
Yes, it’s all about a thousand things, done a little better. A company that
Bank Associate Director of Development. “And really, we’ve seen it work.
realizes where it is, where it can be and what it will take to get there.
The FISH! program is definitely a big part of our future.”
There’s nothing too small, no mountain too big. Choose your attitude and
How does throwing fish around an open-air market translate into
be there to play and make their day. You won’t want to miss it.
banking excellence? By striving for the same kind of “Make Their Day”
distinction with each and every client.
“I received a partial distribution from a legal case, a horrible endeavor
to endure that took four years,” writes a Capital City client. “…I went to
the bank and the tellers were helpful, cheerful and acting happy to see
each and every person that walked in the doors. They called people by
Capital City Bank Group 19
welcome
I“
Sometimes,
Sue Wise admits,
she takes the
long way home.
t’s a couple of miles out of the way,” she says a little sheepishly,
“but I kind of like seeing how things are coming along.”
There’s something unusual here. Wise, the Community
President for the Perry Office, is celebrating her 40th year of banking and
ninth in that office.
As she awaited daily updates about the impending birth of another
grandchild, she found herself taking a new route home two or three days
a week, past a new building at 1149 West Hampton Springs Road. She
was checking on another new arrival.
Perry’s newest church, the Mount Olive Baptist Church, is a project
that Wise helped get started.
“We wondered if Sue could help us get the funding for a new church,”
explained Thomas Demps, a Pastor at Mount Olive Baptist Church.
“I knew Capital City Bank was a fairly big bank but Sue, she’s a
people person.”
20 Capital City Bank Group
Building a new church had been a dream of the Mount Olive
found out what we were hoping to do, she came out and saw the whole
congregation for several years. A small church in a tough area, they’d seen
congregation in our old church.’’
the congregation grow to the point where they had to do something.
On a Saturday in February – both parties distinctly remember it
“They say that when a congregation gets to 70 percent of capacity,
was a Saturday, not your typical workday – Sue went to a meeting to
it doesn’t go forward, it goes back,” Demps said. “There’s got to be
hear more.
room to grow.”
“Sue came in, talked with us and said, ‘You’re going to have questions
Church leaders started saving money and Demps made personal
on this. Here’s my number at the Bank, here’s my number at home. Call
appeals to the Campers On Mission volunteers, visiting them at a number
me any time.’’’ Demps recalled, “That was impressive.”
of sites where this nationally known group of retirees helped communities
Is there a better way to make a client feel important? To make them
build churches. Then came Sue.
feel welcome in sharing their dream? To let them know you and your
“When they came to see me,” Wise said, “they had already saved
bank want to be a part of it?
$200,000. Though they checked at some other banks, and were told ‘No,’
So the church is going up. Campers On Mission is in Perry helping.
I was confident we would be able to help them. I knew them and what
The congregation of the Mount Olive Baptist Church has shown them
this meant.
community commitment.
“It’s so easy to do the right thing for the right reasons,” Wise said. “I’m
That congregation could also tell them about an enthusiastic
in an economically depressed area. It’s not a white-collar area. Whenever
banker, now beginning her 40th year in the business with a dream of
you can do something that’s going to benefit our town, it’s an easy call.
her own. And a knack for making neighbors and their dreams –
That’s one of the great things about working for a community bank. You
always feel welcome.
really feel like you can make a difference.”
Demps knew at Capital City Bank their nurtured dream would be
welcome. “Sue is a down-home kind of person,” Demps said. “When Sue
Capital City Bank Group 21
Atlanta
Lanett
West Point
Macon
Auburn
Valley
Phenix City
Columbus
Montgomery
Waynesboro
Dublin
Tifton
Cairo
Thomasville
Monticello
Madison
Tallahassee
Jacksonville
Branford
Perry
Starke
Steinhatchee
Fanning
Springs
Bell
Trenton
Keystone Heights
Gainesville
Palatka
Daytona Beach
Cross City
Chiefland
Bronson
Cedar Key
Inglis
Williston
Citrus Springs
Inverness
Crystal River
Floral City
Orlando
Lakeland
Spring Hill
Port Richey
Tampa
Whigham
Havana
Quincy
Panacea
Chipley
Chattahoochee
Panama City
Port St. Joe
22 Capital City Bank Group
Capital City locations
ALABAMA
GULF COUNTY
WAKULLA COUNTY
CHAMBERS COUNTY
Port St. Joe
Panacea
Lanett
Valley
HERNANDO COUNTY
WASHINGTON COUNTY
Spring Hill
Chipley
GEORGIA
BIBB COUNTY
Macon
BURKE COUNTY
Waynesboro
GRADY COUNTY
Cairo
Whigham
LAURENS COUNTY
Dublin
THOMAS COUNTY
Thomasville
TROUP COUNTY
West Point
FLORIDA
ALACHUA COUNTY
Gainesville
BRADFORD COUNTY
Starke
CITRUS COUNTY
Crystal River
Citrus Springs
Inverness
CLAY COUNTY
Keystone Heights
Floral City
DIXIE COUNTY
Cross City
GADSDEN COUNTY
Quincy
Havana
Chattahoochee
JEFFERSON COUNTY
Monticello
LEON COUNTY
Tallahassee
LEVY COUNTY
Chiefland
Bronson
Williston
Cedar Key
Inglis
MADISON COUNTY
Madison
PASCO COUNTY
Port Richey
POLK COUNTY
Lakeland
PUTNAM COUNTY
Palatka
SUWANNEE COUNTY
GILCHRIST COUNTY
Branford
Bell
Trenton
Fanning Springs
TAYLOR COUNTY
Perry
Steinhatchee
Capital City Bank Group 23
Community Presidents
LEFT TO RIGHT: Jeff Oody, Bradford and Clay Counties; Johanna White, Gulf County; Clif Bradley, Dixie, Gilchrist, Levy and Suwannee Counties;
Dave Alberson, Hernando and Pasco Counties; Jimmy Suber, Gadsden County; Roy Carter, Washington County; Terry McRae, Grady County;
Drew Ferguson, III, Chambers and Troup Counties; Steve Martin, Citrus County and Inglis Market; Beverly Black, Burke County;
Steve Jukes, Bibb County; Sue Wise, Taylor County; Larry Fredrick, Putnam County; Bill Gunnels, Jefferson and Madison Counties.
Office Managers
ALABAMA
Chambers County
Shawmut Office – Susan Terry
Fob James Office – Sandra Fuller
FLORIDA
Bradford/Clay Counties
Keystone Heights Office – Sam Midgett
Starke Office – Vorease Jones
Citrus County/Inglis
Crystal River Office – Robin Falkenburg
Citrus Springs Office – Patricia Striglio
Floral City Office – James Segovia
Inglis Office – Vickie Keech
Inverness Office – Deborah Wade
Dixie/Gilchrist/Levy/Suwannee Counties
Bell Office – Shelly Irvin
Branford Office – Teresa Kelley
Bronson Office – Annie Sims
Cedar Key Office – Inez Worthington
Chiefland Office – Jackie Hawkins
Cross City Office – Connie Odom
Fanning Springs Office – Becky Magwood
Trenton Office – Elwanda Gore
Williston Office – Andy Lott
Gadsden County
Chattahoochee Office – Jane Thompson
Havana Office – Almeta Leverett
Quincy Office – Sue Chester
24 Capital City Bank Group
Gulf County
Port St. Joe Office – Kim Knight
Taylor County
Perry Office – Angela Wilson
Hernando/Pasco Counties
Mariner Boulevard Office – Anita Hearl
Port Richey Office – Tiffany Marholz
Suncoast Spring Hill Office – Donna Lipidarov
Jefferson/Madison Counties
Madison Office – Evelyn Pridgeon
Monticello Office – Sharon Bradley
Leon County
Apalachee Parkway East Office – Sue McCoy
Apalachee Parkway Office – Liz Beaty
Bradfordville Office – Lisa Elam
Capital Circle NW Office – Pat Ramsden
Centerville Office – Beverly Duinkerken
Governors Square Office – Beverly Duinkerken
Lake Jackson Office – Tresann Walsh
Mahan Office – Chris Maxwell
Main Office – Liz Beaty
Metropolitan Office – Pelita Sheffield
North Monroe Office – Karol Schneider
South Monroe Office – Barbara Gregg
Tharpe St. Office – Tammy Ciaccio
Thomasville Rd. Office – Jackye Beasley-Moore
West Tennessee Office – Judy Sharman
Westwood Office – Brenda Sunday
Putnam County
Palatka Main Office – Linda Baggs
Palatka Mall Office – Carol Snow
Washington County
Chipley Office – Sheila Sanders
GEORGIA
Bibb County
Macon Main Office – Darlene Stewart
Macon Main Office – Heather Turnbull
Macon Mall Office – Michelle Rodriguez
Macon Northside Office – Teresa Knipfer
Burke County
Waynesboro Office – Ruth McClellan
Grady County
Cairo Office – Becky Miller
Whigham Office – Jessica Kines
Laurens County
Dublin Main Office – Frances Purvis
Dublin Main Office – Annelle Lowery
East Dublin Office – Gloria Ikner
Westgate Office – Janie Stewart
Troup County
West Point Office – Diane McCollough
2004 financials
Capital City Bank Group 25
selected financial data
(Dollars in Thousands,Except Per Share Data) (1)
2004
2003
2002
2001
2000
For the Years Ended December 31,
Interest Income
Net Interest Income
Provision for Loan Losses
Net Income
Per Common Share:
Basic Net Income
Diluted Net Income
Cash Dividends Declared
Book Value
Key Performance Ratios:
Return on Average Assets
Return on Average Equity
Net Interest Margin (FTE)
Dividend Pay-Out Ratio
Equity to Assets Ratio
Asset Quality:
$ 101,525
86,084
2,141
29,371
$ 2.18
2.18
.730
18.13
$ 94,830
79,991
3,436
25,193
$ 1.91
1.90
.656
15.27
$ 104,165
81,662
3,297
23,082
$ 1.75
1.74
.502
14.08
$ 117,156
68,907
3,983
16,866
$ 1.27
1.27
.476
12.86
$ 107,720
61,486
3,120
18,153
$ 1.43
1.43
.436
11.61
1.46%
13.31
4.88
33.42
10.86
1.40%
12.82
5.01
34.51
10.98
1.34%
12.85
5.35
28.87
10.22
0.99%
10.00
4.61
37.48
9.43
1.24%
12.99
4.80
30.49
9.66
Allowance for Loan Losses
Allowance for Loan Losses to Loans
Nonperforming Assets
Nonperforming Assets to Loans + ORE
Allowance to Nonperforming Loans
Net Charge-Offs to Average Loans
$ 16,037
$ 12,429
$ 12,495
$ 12,096
$ 10,564
0.88%
5,271
0.29
345.18
0.22
0.93%
7,301
0.54
529.80
0.27
0.97%
3,843
0.30
497.72
0.23
0.98%
3,940
0.32
496.96
0.31
1.00%
3,909
0.37
359.57
0.25
Averages for the Year:
Loans, Net
Earning Assets
Total Assets
Deposits
Subordinated Note
Long-Term Borrowings
Shareowners’ Equity
Year-End Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Subordinated Note
Long-Term Borrowings
Shareowners’ Equity
Other Data:
Basic Average Shares Outstanding
Diluted Average Shares Outstanding
Shareowners of Record (2)
Banking Locations (2)
Full-Time Equivalent Associates (2)
$1,538,744
1,789,843
2,006,745
1,599,201
5,155
59,462
220,731
$1,828,825
2,113,571
2,364,013
1,894,886
30,928
68,453
256,800
13,443,753
13,447,937
1,598
60
926
$1,318,080
1,624,680
1,804,895
1,431,808
-
55,594
196,588
$1,341,632
1,648,818
1,846,502
1,474,205
-
46,475
202,809
13,222,487
13,251,189
1,512
57
795
$1,256,107
1,556,500
1,727,180
1,424,999
-
30,423
179,652
$1,285,221
1,636,472
1,824,771
1,434,200
-
71,745
186,531
13,225,285
13,274,355
1,457
54
781
$1,184,290
1,534,548
1,704,167
1,442,916
-
15,308
168,652
$1,243,351
1,626,841
1,821,423
1,550,101
-
13,570
171,783
13,241,957
13,292,435
1,473
56
787
$1,002,122
1,315,024
1,463,612
1,207,103
-
13,070
139,738
$1,051,832
1,369,294
1,527,460
1,268,367
-
11,707
147,607
12,732,749
12,768,553
1,599
56
791
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective June 13,2003.
(2) As of the record date. The record date is on or about March 1st of the following year.
26 Capital City Bank Group
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management’s discussion and analysis (“MD&A”) provides supple-
mental 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 MD&A is divided into subsections entitled “Business
Overview,” “Financial Overview,” “Results of Operations,” “Financial
Condition,” “Liquidity and Capital Resources,” “Off-Balance Sheet
Arrangements,” 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 2004 compares with prior
years. Throughout this section, Capital City Bank Group, Inc., and its
subsidiary, collectively, are referred to as “CCBG” or the “Company.”
Capital City Bank is referred to as “CCB” or the “Bank.”
The period-to-date averages used in this report are based on daily
balances for each respective period. In certain circumstances, comparing
average balances for the fourth quarters of consecutive years may be
more meaningful than simply analyzing year-to-date averages. Therefore,
where appropriate, quarterly averages have been presented for analysis
and have been noted as such. See Table 2 for annual averages and Table
15 for financial information presented on a quarterly basis.
This Report including the MD&A section, and other Company
written and oral communications and statements may contain “forward-
looking statements.” These forward-looking statements include, among
others, statements about our beliefs, plans, objectives, goals, expecta-
tions, 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,”
“target,” “goal,” and similar expressions are intended to identify forward-
looking statements.
All forward-looking statements, by their nature, are subject to risks
and uncertainties. The Company’s actual future results may differ
materially from those set forth in its forward-looking statements.
Factors that might cause the future financial performance to vary from
that described in its forward-looking statements include the credit,
market, operational, liquidity, interest rate and other risks discussed in
the MD&A section of this report and in other periodic reports filed with
the SEC. In addition, the following discussion sets forth certain risks
and uncertainties that the Company believes could cause its actual
future results to differ materially from expected results. However, other
factors besides those listed below or discussed in the Company’s reports
to the SEC also could adversely affect the Company’s results, and the
reader should not consider any such list of factors to be a complete set
of all potential risks or uncertainties. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995. The
following factors, among others, could cause our financial performance
financial review
to differ materially from what is contemplated in those forward-looking
statements.
• Our ability to integrate the business and operations of companies
and banks that we have acquired and that we may acquire in the
future. For example, the Company may fail to realize the growth
opportunities and cost savings anticipated to be derived from our
acquisitions. In addition, it is possible that during the integration
process of our acquisitions, the Company could lose key employ-
ees or the ability to maintain relationships with customers.
• 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;
• Worldwide political and social unrest, including acts of war and
terrorism;
• The effects of harsh weather conditions, including hurricanes;
• The effects of, and changes in, trade, monetary and fiscal poli-
cies 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 invest-
ment 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 mar-
keted 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 regula-
tions (including laws concerning taxes, banking, securities and
insurance);
• Technological changes;
• Changes in consumer spending and saving habits;
• 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;
Capital City Bank Group 27
financial review
• 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. Any forward-looking statements made by or on behalf of the
Company speak only as of the date they are made. 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
may make further disclosures of a forward-looking nature in its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q and its
current report on Form 8-K.
BUSINESS OVERVIEW
The Company is a financial holding company headquartered in
Tallahassee, Florida and is the parent of its wholly-owned subsidiary,
Capital City Bank. The Bank offers a broad array of products and ser-
vices through a total of 60 full-service offices located in 17 Florida
counties, five Georgia counties, and one Alabama county. The Bank
also has mortgage lending offices in four additional Florida communi-
ties, and one Georgia community. The Bank offers commercial and
retail banking services, as well as trust and asset management, broker-
age, and data processing services.
From an industry and national perspective, the Company’s prof-
itability, like most financial institutions, is dependent to a large extent
upon net interest income, which is the difference between the interest
received on earning assets, such as loans and securities, and the inter-
est paid on interest-bearing liabilities, principally deposits and
borrowings. Results of operations are also affected by the provision for
loan losses, operating expenses such as salaries and employee benefits,
occupancy and other operating expenses, including income taxes, and,
non-interest income such as service charges on deposit accounts, trust
service fees, mortgage banking revenues, and data processing revenues.
Economic conditions, competition and the monetary and fiscal policies
of the Federal government, in general, significantly affect financial insti-
tutions, including the Company. During 2004, the Federal government’s
monetary and fiscal policy was marked by a steady increase in short-
term interest rates to curb the potential for inflationary pressures.
Lending activities are also significantly influenced by regional and local
economic factors. Some specific factors may include the demand for
and supply of housing, competition among lenders, interest rate condi-
tions and prevailing market rates on competing investments, customer
preferences and levels of personal income and savings in the Company’s
primary market area.
The Company philosophy is to grow and prosper, building long-
term relationships based on quality service, high ethical standards, and
safe and sound banking practices. The Company is a super-community
bank in the relationship banking business with a locally oriented, com-
munity-based focus, which is augmented by experienced, centralized
support in select specialized areas. The Company’s local market orien-
28 Capital City Bank Group
tation is reflected in its network of banking office locations, experienced
community executives, and community advisory boards which support
the Company’s focus of responding to local banking needs. The
Company strives to offer a broad array of sophisticated products and to
provide quality service by empowering associates to make decisions in
their local markets.
Pursuant to the Company’s “Project 2010”, the Company plans to
continue its expansion, emphasizing a combination of growth in existing
markets and acquisitions. Acquisitions will be focused on a three state
area including Florida, Georgia, and Alabama with a particular focus on
acquiring banks and banking offices, which are $100 million to $400
million in asset size, located on the outskirts of major metropolitan
areas. The Company will evaluate de novo expansion opportunities in
attractive new markets in the event that acquisition opportunities are
not feasible. Other expansion opportunities that will be evaluated
include asset management, insurance, and mortgage banking.
Management anticipates that roughly half of the Company’s future earn-
ings growth will be generated through growth in existing markets and
half through acquisitions.
Pending Acquisition. On February 3, 2005, the Company announced
the signing of a definitive agreement to acquire First Alachua Banking
Corporation (“FABC”), headquartered in Alachua, Florida. FABC’s
wholly-owned subsidiary, First National Bank of Alachua (“FNBA”) has
$229 million in assets, seven offices located in Alachua County --
Gainesville (three), Alachua, High Springs, Jonesville, Newberry -- and
an eighth office in Hastings, Florida, which is located in St. Johns
County. FABC also has a mortgage lending office in Gainesville and a
financial services division. Subject to certain potential adjustments,
FABC shareowners will receive $2,847.04 in cash and 71.176 shares of
CCBG common stock for each of the 10,186 shares of FABC common
stock outstanding. Based on Capital City’s closing market price on
Nasdaq on February 3, 2005, this cash and stock combination equaled
aggregate consideration of $58.0 million. Closing is anticipated for mid-
year 2005.
Previous Acquisitions. On March 19, 2004, the Company’s subsidiary,
Capital City Bank, completed its merger with Quincy State Bank, a
former subsidiary of Synovus Financial Corp. Quincy State Bank had
$116.6 million in assets with one office in Quincy, Florida and one office
in Havana, Florida. Both markets adjoin Leon County, home to the
Company’s Tallahassee headquarters. The purchase price was $26.1
million in cash.
On October 15, 2004, the Company completed its acquisition of
Farmers and Merchants Bank in Dublin, Georgia, a $395 million asset
institution with three offices in Laurens County. The Company issued
17.08 shares and $666.50 in cash for each of the 50,000 shares of
Farmers and Merchants Bank, resulting in the issuance of 854,000
shares of Company common stock and the payment of $33.3 million in
cash for a total purchase price of approximately $66.7 million.
FINANCIAL OVERVIEW
The Company’s net income for 2004 totaled $29.4 million, or $2.18
per diluted share. This compares to $25.2 million, or $1.90 per diluted
share in 2003. Key factors impacting the Company’s financial condition
and results of operations for 2004 are summarized below.
•
•
•
•
Total assets of the Company increased to $2.4 billion at the
end of 2004, or 28.0%, from $1.8 billion at the end of 2003.
This strong growth is primarily reflective of increases in
earning assets obtained through the two acquisitions during
2004 and strong loan production in existing markets.
Shareowners’ equity for the same periods improved from
$202.8 million at the end of 2003 to $256.8 million at the end
of 2004. The Company continues to be well capitalized with a
Tier 1 capital ratio of 11.4%.
Net interest income in 2004 grew $6.1 million, or 7.6% over
2003 due to higher interest income reflective of earning asset
growth through acquisitions and strong organic loan growth,
and an improved deposit mix, partially offset by declining
asset yields primarily attributable to earning asset re-pricing.
The full year net interest margin of 4.88% declined 13 basis
points from the comparable period in 2003 reflective of an 18
basis point decline in earning asset yield partially offset by a
5 basis point decline in the cost of funds.
Noninterest income increased $8.6 million, or 20.5%, over 2003
due primarily to the $6.9 million one-time gain on the sale of
the bank’s credit card portfolio recognized in the third quarter.
Gains were also realized in deposit service fees, data processing
Table 1
Condensed Summary of Earnings
(Dollars in Thousands,Except Per Share Data)
Interest Income ...............................................................................................
Taxable Equivalent Adjustments..........................................................................
Total Interest Income (FTE) ................................................................................
Interest Expense ..............................................................................................
Net Interest Income (FTE)..................................................................................
Provision for Loan Losses .................................................................................
Taxable Equivalent Adjustments..........................................................................
Net Interest Income After Provision for Loan Losses ..............................................
Noninterest Income..........................................................................................
Gain on Sale of Credit Card Portfolio...................................................................
Noninterest Expense ........................................................................................
Income Before Income Taxes.............................................................................
Income Taxes..................................................................................................
Net Income.....................................................................................................
Basic Net Income Per Share..............................................................................
Diluted Net Income Per Share............................................................................
financial review
•
•
•
fees, asset management fees, and merchant fees that were par-
tially offset by a decline in mortgage banking revenues.
Noninterest expense grew by $9.5 million, or 11.9% over
2003. Higher expense for compensation, occupancy, profes-
sional fees, advertising, and intangibles were the primary
reasons for the increase. The integration of two acquisitions
during the year, expansion of banking office locations, and
the implementation of Sarbanes-Oxley Section 404 compli-
ance and testing were the primary contributing factors
driving the increase.
Provision for loan losses for the year totaled $2.1 million com-
pared to $3.4 million in 2003. The lower provision is
reflective of continued strong credit quality and lower inher-
ent risk in the loan portfolio due to the sale of the credit card
portfolio. Net charge-offs totaled $3.4 million, or .22% of
average loans for the year compared to $3.5 million, or .27%
for 2003. At year-end the allowance for loan losses was .88%
of outstanding loans and provided coverage of 345% of non-
performing loans.
Nonperforming assets totaled $5.3 million, or .29% of total
loans and other real estate at year-end. This compares to
.36% for the third quarter of 2004, and .54% for the year
ended 2003. Asset quality continues to be strong and a key
driver in bank performance and growth.
The year 2004 set the stage for the start of the Company’s “Project
2010”, a strategic initiative aimed at achieving $50.0 million in annual
earnings by 2010. Key parts of the initiative include the continued
For the Years Ended December 31,
2004
$101,525
1,207
102,732
15,441
87,291
2,141
1,207
83,943
43,372
7,181
89,226
45,270
15,899
$ 29,371
====================
$ 2.18
====================
$ 2.18
====================
2003
$94,830
1,414
96,244
14,839
81,405
3,436
1,414
76,555
41,939
-
79,721
38,773
13,580
$25,193
=================
$ 1.91
=================
$ 1.90
=================
2002
$104,165
1,682
105,847
22,503
83,344
3,297
1,682
78,365
36,103
-
78,695
35,773
12,691
$ 23,082
====================
$ 1.75
====================
$ 1.74
====================
Capital City Bank Group 29
financial review
building of the Company’s franchise through acquisitions and/or con-
struction of offices in five targeted geographic areas (Hernando/Pasco,
Ocala, Gainesville, west Florida, and middle Georgia), and organic
growth in existing markets through the continued emphasis on relation-
ship banking, quality service, and offering a broad array of sophisticated
banking services.
RESULTS OF OPERATIONS
Net income for 2004 totaled $29.4 million, or $2.18 per diluted
share. This compares to $25.2 million, or $1.90 per diluted share in
2003, and $23.1 million, or $1.74 per diluted share in 2002. Net income
in 2004 included a one-time, after-tax gain of $4.2 million, or $.32 per
diluted share, from the sale of the Bank’s credit card portfolio.
The increase in 2004 net income was primarily attributable to
Table 2
Average Balances and Interest Rates
(Taxable Equivalent Basis-Dollars in Thousands)
Assets:
2004
2003
2002
Average
Balance
Average
Interest Rate
Average
Balance
Average
Interest Rate
Average
Balance
Average
Interest Rate
Loans, Net of Unearned Interest (1)(2) ............
Taxable Investment Securities ....................
Tax-Exempt Investment Securities (2) ............
Funds Sold ..............................................
Total Earning Assets ..............................
$1,538,744
131,842
51,979
67,278
1,789,843
$ 95,796
3,138
2,965
833
102,732
6.23% $1,318,080 $87,608
3,725
124,541
2.38
5.70
3,650
61,387
120,672 1,261
1.24
96,244
1,624,680
5.74
6.65%
2.98
5.95
1.03
5.92
$1,256,107
135,865
68,915
95,613
1,556,500
$ 93,293
6,941
4,133
1,481
105,848
7.43%
5.11
6.00
1.53
6.80
Cash & Due From Banks ..........................
Allowance For Loan Losses........................
Other Assets ............................................
TOTAL ASSETS ....................................
Liabilities:
NOW Accounts ........................................
Money Market Accounts ............................
Savings Accounts ....................................
Time Deposits..........................................
Total Interest Bearing Deposits ................
Short-Term Borrowings ............................
Long-Term Borrowings..............................
Subordinate Debentures ............................
Total Interest Bearing Liabilities................
Noninterest Bearing Deposits......................
Other Liabilities ........................................
TOTAL LIABILITIES................................
Shareowners’ Equity:
Common Stock........................................
Additional Paid-In Capital ..........................
Retained Earnings ....................................
TOTAL SHAREOWNERS’ EQUITY ............
TOTAL LIABILITIES AND
SHAREOWNERS’ EQUITY ............
Interest Rate Spread ......................................
Net Interest Income........................................
Net Interest Margin (3) ....................................
93,070
(13,846)
137,678
$2,006,745
============
$ 292,492
227,808
130,282
459,464
1,110,046
100,582
59,462
5,155
1,275,245
489,155
21,614
1,786,014
135
24,586
196,010
220,731
$2,006,745
============
79,625
(12,544)
113,134
$1,804,895
============
$ 733
1,190
164
9,228
11,315
1,270
2,562
294
15,441
0.25% $ 264,159 $ 676
1,312
215,597
0.52
0.13
189
109,837
433,176 9,390
2.01
11,567
1,022,769
1.02
1,270
101,274
1.26
2,002
55,594
4.31
-
5.71
-
1,179,637
14,839
1.21
409,039
19,631
1,608,307
0.26%
0.61
0.17
2.17
1.13
1.25
3.60
-
1.26
132
15,272
181,184
196,588
$1,804,895
============
$ 1,272
2,904
500
15,875
20,551
767
1,185
-
22,503
0.53%
1.30
0.48
3.21
1.93
1.06
3.90
-
1.93
72,960
(12,409)
110,129
$1,727,180
============
$ 241,873
224,275
104,967
493,956
1,065,071
72,594
30,423
-
1,168,088
359,928
19,512
1,547,528
132
15,386
164,184
179,652
$1,727,180
============
$ 87,291
==========
4.53%
=========
4.88%
=========
$81,405
=========
4.66%
========
5.01%
========
$ 83,345
==========
4.87%
========
5.35%
========
(1) Average balances include nonaccrual loans.Interest income includes fees on loans of approximately $1.7 million,$1.8 million and $2.7 million in 2004,2003 and 2002,respectively.
(2) Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate to adjust interest on tax-exempt loans and securities to a taxable equivalent basis.
(3) Taxable equivalent net interest income divided by average earning assets.
30 Capital City Bank Group
financial review
growth in operating revenues (defined as the total of net interest income
and noninterest income) of 12.1%, driven by a 7.6% increase in net
interest income and a 20.5% increase in noninterest income. A lower
loan loss provision also enhanced net income. The increase in net inter-
est income primarily reflects growth in earning assets and an improved
deposit mix. The increase in noninterest income reflects higher deposit
service fees, asset management fees, and a one-time gain on the sale of
the credit card portfolio. The lower loan loss provision is reflective of a
reduction in the overall risk of the loan portfolio due to the sale of the
credit card portfolio. A condensed earnings summary for the last three
years is presented in Table 1.
Net Interest Income
Net interest income represents the Company’s single largest source
of earnings and is equal to interest income and fees generated by
earning assets, less interest expense paid on interest bearing liabilities.
An analysis of the Company’s net interest income, including average
yields and rates, is presented in Tables 2 and 3. This information is pre-
sented on a “taxable equivalent” basis to reflect the tax-exempt status of
income earned on certain loans and investments, the majority of which
are state and local government debt obligations.
In 2004, taxable equivalent net interest income increased $5.9
million, or 7.2%. This follows a decrease of $1.9 million, or 2.3%, in
2003, and an increase of $10.8 million, or 14.9%, in 2002. The favor-
able impact resulted from an improved earning asset mix, lower funding
costs, and two acquisitions; and was partially offset by declining asset
yields attributable to the continued low interest rate environment.
For the year 2004, taxable equivalent interest income increased
$6.5 million, or 6.7%, over 2003, and decreased $9.6 million, or 9.1%, in
2003 over 2002. Growth resulting from strong loan demand and two
acquisitions was partially offset by lower yields on earning assets and a
decline in short-term funds and investment securities. New loan pro-
duction and repricing of existing earning assets produced a 18 basis
point reduction in the yield on earning assets, which declined from
5.92% for 2003 to 5.74% for 2004. This compares to an 88 basis point
reduction in 2003 over 2002. As shown in Table 3, the loan portfolio
was a significant contributor to the net increase in interest income.
Interest expense increased $.6 million, or 4.0%, over 2003, and
decreased $7.7 million, or 34.1%, in 2003 over 2002. The increase in
2004 was primarily a result of higher interest bearing liabilities attribut-
able to the acquisitions and offset partially by the lower costs of funds.
The lower cost of funds resulted from a favorable shift in mix, as certifi-
Table 3
Rate/Volume Analysis (1)
2004 Changes from 2003
2003 Changes from 2002
Due To
Average
Due To
Average
(Taxable Equivalent Basis - Dollars in Thousands)
Total
Calendar(3) Volume
Rate
Total
Volume
Rate
Earning Assets:
Loans, Net of Unearned Interest (2) ...................... $8,188
Investment Securities:
Taxable (2) ....................................................
Tax-Exempt..................................................
Funds Sold ......................................................
(587)
(685)
(428)
$240
$13,939
$ (5,991)
$(5,685)
$3,189
$ (8,874)
3
-
3
68
(558)
(558)
(658)
(127)
127
(3,217)
(482)
(220)
(2,448)
(450)
389
(769)
(32)
(609)
Total
......................................................................
6,488
246
12,891
(6,649)
(9,604)
680
$(10,284)
Interest Bearing Liabilities:
NOW Accounts ................................................
Money Market Accounts ....................................
Savings Accounts..............................................
Time Deposits ..................................................
Short-Term Borrowings ......................................
Subordinated Note Payable ................................
Long-Term Borrowings ......................................
55
(121)
(25)
(161)
-
294
560
Total
......................................................................
602
2
4
-
26
3
-
5
40
73
74
35
568
(197)
294
139
(20)
(199)
(60)
(755)
194
-
416
(596)
(1,592)
(311)
(6,485)
503
-
817
117
(111)
23
(1,953)
578
-
981
(713)
(1,481)
(334)
(4,532)
(75)
--
(164)
986
(424)
(7,664)
(365)
(7,299)
Changes in Net Interest Income.................................... $5,886
==========
$206
========
$11,905
=============
$ (6,225)
============
$(1,940)
==========
$1,045
===========
$ (2,985)
==============
(1) This table shows the change in taxable equivalent net interest income for comparative periods based on either changes in average volume or changes in average rates for earning assets and interest bearing
liabilities. Changes which are not solely due to volume changes or solely due to rate changes have been attributed to rate changes.
(2) Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate to adjust interest on tax-exempt loans and securities to a taxable equivalent basis.
(3) Reflects difference in 366 day year (2004) versus 365 day year (2003).
Capital City Bank Group 31
financial review
cates 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 30.2% in 2003 to 28.7% in 2004. The average
rate paid on interest bearing liabilities in 2004 declined 5 basis points
compared to 2003, primarily attributable to the favorable shift in mix.
The Company’s interest rate spread (defined as the taxable equiva-
lent yield on average earning assets less the average rate paid on
interest bearing liabilities) decreased 13 basis points in 2004 and
decreased 21 basis points in 2003. The decrease in 2004 was primarily
attributable to the decline in the earning asset yield.
The Company’s net interest margin (defined as taxable equivalent inter-
est income less interest expense divided by average earning assets) was
4.88% in 2004, compared to 5.01% in 2003 and 5.35% in 2002. In 2004, the
lower yields on earning assets (partially offset by lower rates paid on interest
bearing liabilities) resulted in the 13 basis point decline in the margin.
Loan growth is anticipated to have a favorable impact on net inter-
est income during the upcoming year along with any favorable changes
in the Federal Reserve’s target rate on overnight funds. However,
depending on the magnitude of the loan growth, the improvement attrib-
utable to growth may be partially or completely offset by unfavorable
repricing variances associated with deposits. A further discussion of the
Company’s earning assets and funding sources can be found in the
section entitled “Financial Condition.”
Provision for Loan Losses
The provision for loan losses was $2.1 million in 2004, compared to
$3.4 million in 2003 and $3.3 million in 2002. The decrease in the 2004
provision reflects continued strong credit quality and lower inherent risk
in the loan portfolio due to the sale of the credit card portfolio, which pre-
viously accounted for approximately one-third of net charge-offs.
Net charge-offs for 2004 were comparable to 2003, and remain at
historically low levels relative to the size of the portfolio. Net charge-offs
for 2004 totaled $3.4 million, or .22% of average loans. This compares
to $3.5 million, or .27% for 2003. Excluding credit card charge-offs, net
charge-offs increased $500,000 due to a higher level of commercial loan
and consumer indirect auto loan charge-offs.
At December 31, 2004, the allowance for loan losses totaled $16.0
million compared to $12.4 million in 2003. At year-end 2004, the
allowance represented 0.88% of total loans and provided coverage of
345% of nonperforming loans. Management considers the allowance to
be adequate based on the current level of nonperforming loans and the
estimate of losses inherent in the portfolio at year-end. See the section
entitled “Financial Condition” and Tables 7 and 8 for further information
regarding the allowance for loan losses.
Noninterest Income
In 2004, noninterest income increased $8.6 million, or 20.5%,
compared to an increase of $5.8 million, or 16.2% in 2003. The increase
in the level of noninterest income is attributable primarily to a one-time
$7.2 million gain recognized from the sale of the credit card portfolio.
32 Capital City Bank Group
Higher deposit service fees, asset management fees, data processing
fees, and merchant service fees also contributed to the increase, but
were partially offset by a decrease in mortgage banking revenues.
Excluding the one-time gain on the sale of the credit card portfolio, non-
interest income represented 33.5% of operating revenue in 2004
compared to 34.4% in 2003. The increase in noninterest income in
2003 was attributable to growth in deposit service charge fees, merchant
service fee income, and mortgage banking revenues. Factors affecting
noninterest income are discussed below.
Service charge fees on deposit accounts increased $1.3 million, or
7.7%, in 2004, compared to an increase of $3.6 million, or 28.0%, in
2003. Deposit 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 service charge revenues in 2004 was primarily attributable to growth
in NSF/overdraft fees associated with a revised fee structure implement-
ed in mid-2004 and implementation of improved processing efficiencies
in late 2004. The increase in deposit service charge fees in 2003 was
primarily attributable to growth in NSF/overdraft fees associated with a
new overdraft protection program implemented in late 2002.
Data processing revenues increased $225,000, or 9.4%, in 2004
versus an increase of $397,000, or 19.8%, in 2003. The data processing
center provides computer services to both financial and non-financial
clients in North Florida and South Georgia. The increase in 2004 was
driven by an increase in revenues from financial clients. The Company
currently provides data processing services for six financial clients and
contract processing services for six non-financial clients. In 2004, pro-
cessing revenues for financial clients increased 16.6% and represented
66.3% of total processing revenues. Processing revenues for non-finan-
cial clients decreased 8.7% in 2004 due to slightly lower processing
volume for one government client. In 2003, processing revenues for
financial clients represented 60.7% of total processing revenues. The
increase in processing revenues for 2003 was due to higher revenues
from both financial clients and government contract processing.
In 2004, asset management fees increased $1.4 million, or 51.2%,
versus an increase of $129,000, or 5.1%, in 2003. At year-end 2004,
assets under management totaled $653.0 million, reflecting growth of
$249.0 million, or 61.6% over 2003. This growth is due to the purchase
of $208 million in trust and investment management accounts from
Synovus Trust Company in connection with the Quincy State Bank
acquisition, growth in new business, and increased fee revenues from
managed accounts due to improved asset returns. At year-end 2003,
assets under management totaled $404 million, reflecting growth of
$61.0 million, or 17.8% over 2002.
The Company continues to be among the leaders in the production
of residential mortgage loans in many of its markets. In 2004, mortgage
banking revenues decreased $2.9 million, or 47.3%, compared to an
increase of $588,000, or 10.7% in 2003. The decrease in 2004 was due
to a decline in fixed rate mortgage production that was affected by a
general slow-down in residential lending markets. The Company gener-
ally sells all fixed rate residential loan production into the secondary
market. Management expects 2005 mortgage banking revenues to
remain near the levels experienced in 2004. The increase in revenue in
2003 was due to a high level of fixed rate mortgage production driven by
a historically low interest rate environment. The level of interest rates,
origination volume and percent of fixed rate production have significant
impacts on the Company’s mortgage banking revenues.
Other noninterest income increased $1.5 million, or 10.2%, in
2004 versus an increase of $1.2 million, or 8.7% in 2003. The increase
in 2004 was attributable primarily to an increase in merchant service
fee income, retail brokerage fees, and miscellaneous income. Merchant
service fee income increased $572,000, or 12.5%, due to increased
transaction volume and was partially offset with higher interchange
service fees, which is reflected in noninterest expense. Retail brokerage
fees increased $189,000, or 15.6% due to increased commission fees
driven by higher trade volume and the number of accounts.
Miscellaneous income increased $592,000 due primarily to one-time
gains realized from the sale of two parcels of other real estate. The 2003
increase in noninterest income was attributable primarily to higher mer-
chant service fees and miscellaneous recoveries.
Noninterest income as a percent of average assets increased to
2.52% in 2004, compared to 2.32% in 2003, and 2.09% in 2002, driven
primarily by the one-time gain on sale of the credit card portfolio, higher
deposit service charge fees, and asset management fees.
Noninterest Expense
Noninterest expense for 2004 was $89.2 million, an increase of
$9.5 million, or 11.9%, over 2003, compared with an increase of $1.0
million, or 1.3%, in 2003. Factors impacting the Company’s noninterest
expense during 2004 and 2003 are discussed below.
The Company’s aggregate compensation expense in 2004 totaled
$44.3 million, an increase of $3.9 million, or 9.6%, over 2003. The
increase is primarily attributable to higher associate salary expense,
higher performance-based compensation, increased pension costs, and
higher healthcare insurance premiums. The increase in associate
salary expense reflects normal merit and market based increases, the
integration of two acquired banks, and higher performance-based com-
pensation, which is primarily reflective of higher incentive payments to
loan production associates. The higher pension cost is a result of an
increase in the number of plan participants, slightly lower than expected
return on plan assets, and use of a slightly lower discount rate. Pension
costs in 2005 are expected to be higher due to the increase in the
number of plan participants associated with the two acquisitions during
the year. Healthcare premiums are expected to continue to increase due
to additional participants and rising costs from healthcare providers. In
2003, aggregate compensation increased $250,000, or .62%, over 2002.
The increase was primarily attributable to higher pension costs, health-
care insurance premiums, and stock based compensation, partially
offset by higher deferred loan costs, which is accounted for as a reduc-
tion to associate salary expense.
financial review
Occupancy expense (including furniture, fixtures and equipment)
increased by $1.7 million, or 12.0%, in 2004, compared to $416,000, or
3.1% in 2003. The increase in 2004 was primarily due to higher expense
for utilities, property taxes, depreciation, and premises rental attribut-
able to the increase in banking offices. The increase in 2003 was
primarily due to higher furniture/fixture, utility, and building deprecia-
tion expenses associated with the addition of four new banking offices.
Other noninterest expense increased $4.0 million, or 15.6%, in
2004, compared to $360,000, or 1.4%, in 2003. The increase in 2004
was attributable primarily to: (1) higher professional fees of $940,000;
(2) higher director fees of $101,000; (3) higher advertising expense of
$742,000; (4) increased interchange service fees of $560,000; (5) higher
contribution expense of $132,000; (6) higher telephone expense of
$176,000; (7) higher intangible amortization expense of $583,000; and
(8) higher merger expenses of $550,000. The increase in professional
fees is primarily reflective of the cost of Sarbanes-Oxley Section 404
compliance and testing work. The increase in director fees is reflective
of an increase in the number of directors, higher fee structure, and
number of committees and meetings. Higher advertising expense is due
to an increased level of marketing initiatives aimed at supporting two
new acquisitions during the year and an increased level of product and
market support activities. The increase in interchange service fees is
reflective of increased merchant card processing volume, and was offset
by higher merchant service fees reflected in other income. The increase
in contribution expense is due primarily to an increase in contributions
made to local non-profit scholarship funding organizations. The
increase in telephone, intangible amortization, and merger expenses
were due to the integration of two acquisitions during the year.
The increase in 2003 was attributable to: (1) higher legal costs of
$106,000 primarily resulting from corporate governance compliance
work associated with the Sarbanes-Oxley Act; (2) increased processing
expenses of $272,000 associated with implementation of new database
systems in human resources, and custom programming work performed
by the bank’s core processing system vendor to facilitate the implemen-
tation of new applications (platform automation and home banking);
and (3) increased interchange service fees of $717,000 associated with
higher merchant card processing volume. These increases were partial-
ly offset with approximately $617,000 lower expense for legal reserves,
and lower seminar/education expense of $123,000.
The net noninterest expense ratio (defined as noninterest income
minus noninterest expense, net of intangible amortization and conver-
sion/merger-related expenses, as a percent of average assets) was
1.71% in 2004 compared to 1.91% in 2003, and 2.27% in 2002. The
Company’s efficiency ratio (expressed as noninterest expense, net of
intangible amortization and conversion/merger-related expenses, as a
percent of taxable equivalent net interest income plus noninterest
income) was 61.6%, 62.0%, and 63.0% in 2004, 2003 and 2002, respec-
tively. Excluding the affect of the one-time gain realized from the sale of
the credit card portfolio, the above mentioned metrics adjust to and
2.07% and 64.9%, respectively, for 2004.
Capital City Bank Group 33
financial review
Income Taxes
The consolidated provision for federal and state income taxes was
$15.9 million in 2004, compared to $13.6 million in 2003, and $12.7
million in 2002. The increase in each of the three respective years was
due to higher taxable income and lower tax exempt income.
The effective tax rate was 35.1% in 2004, 35.0% in 2003, and
35.5% in 2002. These rates differ from the combined federal and state
statutory tax rates due primarily to tax-exempt income. The decrease in
the effective tax rate in 2003 was due to an adjustment in federal
income tax expense in the amount of $500,000 made during the fourth
quarter of 2003. Following an IRS examination in 2003, the Company
performed an evaluation of all its tax accounts. Upon completion of the
analysis, the Company adjusted certain tax accounts to more appropri-
ately reflect its current and deferred assets and liabilities.
FINANCIAL CONDITION
The Company’s 2004 balance sheet reflects growth from within its
existing markets plus the integration of two acquisitions during the year.
Average assets totaled $2.0 billion, an increase of $201.9 million, or
11.2%, in 2004 versus the comparable period in 2003. Average earning
assets for 2004 were $1.8 billion, representing an increase of $165.2
million, or 10.2%, over 2003. Loan growth, in existing markets and from
acquisitions, fueled the earning asset increase in 2004 as average loans
increased $220.7 million, or 16.7%. Partially offsetting the increase was
a decrease in average funds sold of $53.4 million, or 44.2% and a slight
decline in investment securities of $2.1 million, or 1.1%. Funding of
2004 earning asset growth is discussed in more detail under the section
entitled “Liquidity”.
Table 2 provides information on average balances and rates, Table 3
provides an analysis of rate and volume variances, while Table 4 highlights
the changing mix of the Company’s earning assets over the last three years.
Loans
Average loans increased $220.7 million, or 16.7%, over the compa-
rable period in 2003. Loans as a percent of average earning assets
increased to 86.0% for the year, compared to 81.1% for 2003. Loan
growth occurred in all loan categories during the year as noted in Table
4 below. Approximately $103.2 million, or 46.8% of the growth in
average loans was from loan production in existing markets, and
approximately $117.5 million, or 53.2% was from acquisitions.
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 oppor-
tunities 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, manage-
ment will not relax its underwriting standards in order to achieve
designated growth goals.
The Company’s average loan-to-deposit ratio increased to 96.2% in
2004 from 92.1% in 2003. This compares to an average loan-to-deposit
ratio in 2002 of 88.1%. The higher average loan-to-deposit ratio in 2004
primarily reflects higher loan growth as discussed above.
Real estate loans, combined, represented 76.1% of total loans at
December 31, 2004, versus 70.7% in 2003. This increase is reflective of
increases in all real estate loan categories as noted above. See the
section entitled “Risk Element Assets” for a discussion concerning loan
concentrations.
The composition of the Company’s loan portfolio at December 31,
for each of the past five years is shown in Table 5. Table 6 arrays the
Company’s total loan portfolio as of December 31, 2004, based upon
maturities. As a percent of the total portfolio, loans with fixed interest
rates represent 36.6% as of December 31, 2004, versus 32.5% at
Table 4
Sources of Earning Asset Growth
(Average Balances - Dollars in Thousands)
Loans:
Commercial, Financial and Agricultural........................................
Real Estate - Construction ........................................................
Real Estate - Commercial Mortgage...........................................
Real Estate - Residential...........................................................
Consumer..............................................................................
Total Loans........................................................................
Securities:
Taxable..................................................................................
Tax-Exempt............................................................................
Total Securities...................................................................
2003 to
2004
Change
Percentage
of Total
Change
Components
of Total Earning Assets
2004
2003
2002
$ 35,032
19,291
109,503
48,529
8,309
220,664
7,301
(9,408)
(2,107)
21.2%
11.7
66.3
29.4
5.0
133.6
4.4
(5.7)
(1.3)
(32.3)
10.3%
6.2
27.3
29.1
13.1
86.0
7.4
2.9
10.3
3.7
9.2%
5.5
23.4
29.1
13.9
81.1
7.7
3.8
11.5
7.4
8.6%
5.3
20.7
32.6
13.5
80.7
8.8
4.4
13.2
6.1
Funds Sold .....................................................................................
(53,394)
Total Earning Assets.................................................................
$165,163
===============
100.0%
==========
100.0%
==========
100.0%
==========
100.0%
===========
34 Capital City Bank Group
financial review
December 31, 2003. The increase from 2003 is reflective of the integra-
tion of loans acquired from Farmers and Merchants Bank of Dublin,
which maintained a high number of fixed rate loans with one to three
year stated maturities.
Allowance for Loan Losses
Management maintains the allowance for loan losses at a level suf-
ficient to provide for the estimated credit losses inherent in the loan
portfolio as of the balance sheet date. Credit losses arise from the bor-
rowers’ inability and unwillingness to repay, and from other risks
inherent in the lending process including collateral risk, operations risk,
concentration risk and economic risk. As such, all related risks of
lending are considered when assessing the adequacy of the loan loss
reserve. The allowance for loan losses is established through a provision
charged to expense. Loans are charged against the allowance when
management believes collection of the principal is unlikely. The
allowance for loan losses is based on management’s judgment of overall
loan quality. This is a significant estimate based on a detailed analysis
of the loan portfolio. The balance can and will change based on changes
in the assessment of the portfolio’s overall credit quality.
Management evaluates the adequacy of the allowance for loan losses
on a quarterly basis. Loans that have been identified as impaired are
reviewed for adequacy of collateral, with a specific reserve assigned to
those loans when necessary. Impaired loans are defined as those in which
the full collection of principal and interest in accordance with the contrac-
tual terms is improbable. Impaired loans generally include those that are
past due for 90 days or more and those classified as doubtful in accor-
dance with the Company’s risk rating system. Loans classified as
doubtful have a high possibility of loss, but because of certain factors that
may work to strengthen the loan, its classification as a loss is deferred
until a more exact status may be determined. Not all loans are considered
in the review for impairment; only loans that are for business purposes
exceeding $25,000 are considered. The evaluation is based on current
financial condition of the borrower or current payment status of the loan.
The method used to assign a specific reserve depends on whether
repayment of the loan is dependent on liquidation of collateral. If repay-
ment is dependent on the sale of collateral, the reserve is equivalent to
the recorded investment in the loan less the fair value of the collateral
after estimated sales expenses. If repayment is not dependent on the
sale of collateral, the reserve is equivalent to the recorded investment in
the loan less the estimated cash flows discounted using the loan’s effec-
tive interest rate. The discounted value of the cash flows is based on the
anticipated timing of the receipt of cash payments from the borrower.
The reserve allocations assigned to impaired loans are sensitive to
Table 5
Loans by Category
As of December 31,
(Dollars in Thousands)
2004
2003
2002
2001
2000
Commercial, Financial and Agricultural .........................................
Real Estate - Construction..........................................................
Real Estate - Commercial Mortgage ............................................
Real Estate – Residential............................................................
Consumer................................................................................
Total Loans, Net of Unearned Interest .......................................
$ 206,474
140,190
655,426
600,375
226,360
$1,828,825
===================
$ 160,048
89,149
391,250
467,790
233,395
$1,341,632
===================
$ 141,459
91,110
356,807
474,069
221,776
$1,285,221
===================
$ 128,480
72,778
302,239
530,546
209,308
$1,243,351
=====================
$ 108,340
84,133
231,099
444,489
183,771
$1,051,832
=================
Table 6
Loan Maturities
(Dollars in Thousands)
Maturity Periods
One Year
or Less
Over One
Through
Five Years
Commercial, Financial and Agricultural ...........................................................
Real Estate ................................................................................................
Consumer (1) ..............................................................................................
Total .....................................................................................................
Loans with Fixed Rates................................................................................
Loans with Floating or Adjustable Rates..........................................................
Total .....................................................................................................
(1) Demand loans and overdrafts are reported in the category of one year or less.
$ 92,626
338,244
37,436
$468,306
===============
$336,290
132,046
$468,306
===============
$ 89,045
287,113
183,657
$559,816
===============
$311,011
248,805
$559,816
===============
Over
Five
Years
$ 24,802
770,634
5,267
$800,703
===============
$ 21,637
779,066
$800,703
===============
Total
$ 206,474
1,395,991
226,360
$1,828,825
===================
$ 668,938
1,159,887
$1,828,825
===================
Capital City Bank Group 35
financial review
Table 7
Analysis of Allowance for Loan Losses
For the Years Ended December 31,
(Dollars in Thousands)
2004
2003
2002
2001
2000
Balance at Beginning of Year.................................................................
Acquired Reserves ..............................................................................
Reserve Reversal (1) .............................................................................
Charge-Offs:
Commercial, Financial and Agricultural ....................................................
Real Estate - Construction ....................................................................
Real Estate - Mortgage ........................................................................
Real Estate - Residential.......................................................................
Consumer ..........................................................................................
Total Charge-Offs ............................................................................
Recoveries:
Commercial, Financial and Agricultural ....................................................
Real Estate - Construction ....................................................................
Real Estate - Mortgage ........................................................................
Real Estate - Residential.......................................................................
Consumer ..........................................................................................
Total Recoveries..............................................................................
Net Charge-Offs..................................................................................
Provision for Loan Losses.....................................................................
Balance at End of Year .........................................................................
Ratio of Net Charge-Offs to Average Loans Outstanding ............................
Allowance for Loan Losses as a Percent of Loans at End of Year ................
Allowance for Loan Losses as a Multiple of Net Charge-Offs ......................
(1) Reflects recapture of reserves allocated to the credit card portfolio,which was sold in August 2004.
$12,429
5,713
(800)
873
-
48
191
3,946
5,058
81
-
14
188
1,329
1,612
3,446
2,141
$16,037
===============
.22%
===============
.88%
===============
4.65x
===============
$12,495
-
-
426
-
91
228
3,794
4,539
142
-
-
18
877
1,037
3,502
3,436
$12,429
===============
.27%
===============
.93%
===============
3.55x
===============
$12,096
-
-
818
-
-
175
3,279
4,272
136
-
20
37
1,181
1,374
2,898
3,297
$12,495
==============
.23%
==============
.97%
==============
4.31x
==============
$10,564
1,206
-
483
-
32
159
3,976
4,650
44
-
65
116
768
993
3,657
3,983
$12,096
================
.31%
================
.97%
================
3.31x
================
$ 9,929
-
-
626
7
-
168
2,387
3,188
52
11
73
54
513
703
2,485
3,120
$10,564
=================
.25%
=================
1.00%
=================
4.25x
=================
Table 8
Allocation of Allowance for Loan Losses
2004
2003
2002
2001
2000
Percent
of Loans
in Each
Allow- Category
To Total
ance
Loans
Amount
Percent
of Loans
in Each
Allow- Category
To Total
ance
Loans
Amount
Percent
of Loans
in Each
Allow- Category
To Total
ance
Amount Loans
Percent
of Loans
in Each
Allow- Category
To Total
ance
Loans
Amount
Percent
of Loans
in Each
Allow- Category
To Total
ance
Loans
Amount
$ 4,341
11.3%
$ 2,824
11.9%
$ 2,740
11.0%
$ 3,257
10.3% $ 1,423
10.3%
578
6,296
705
2,966
1,151
7.7
35.8
32.8
12.4
-
313
2,831
853
4,169
1,439
6.6
29.2
34.9
17.4
-
348
2,559
1,021
4,210
1,617
7.1
27.8
36.9
17.2
-
600
3,098
947
4,194
-
5.9
24.3
42.7
16.8
-
424
3,157
922
3,423
1,215
8.0
22.0
42.3
17.4
-
(Dollars in Thousands)
Commercial, Financial and Agricultural ...
Real Estate:
Construction .............................
Commercial Mortgage ................
Residential................................
Consumer .........................................
Not Allocated .....................................
Total ........................................
$16,037
============
100.0%
==========
$12,429
============
100.0%
=========
$12,495
============
100.0%
=========
$12,096
============
100.0% $10,564
============
=========
100.0%
=========
36 Capital City Bank Group
the extent market conditions or the actual timing of cash receipts change.
Once specific reserves have been assigned to impaired loans,
general reserves are assigned to the remaining portfolio. General
reserves are assigned to commercial purpose loans exceeding $100,000
that are not impaired. Finally, general reserves are assigned to large
groups of smaller-balance homogenous loans, including commercial
purpose loans less than $100,000 which are not deemed to be impaired,
consumer loans, and residential mortgage loans.
Large commercial purpose loans exhibiting specific weaknesses are
detailed in a monthly Problem Loan Report. These loans are divided into
seven different pools based on various risk characteristics and the
underlying value of collateral taken to secure specific loans within the
pools. These classified loans are monitored for changes in risk ratings
that are assigned based on the Bank’s Asset Classification Policy, and
for the ultimate disposition of the loan. The ultimate disposition may
include upgrades in risk ratings, payoff of the loan, or charge-off of the
loan. This migration analysis results in a charge-off ratio by loan pool of
classified loans that is applied to the balance of the pool to determine
general reserves for specifically identified pools of problem loans. This
charge-off ratio is adjusted for various environmental factors including
past due and nonperforming trends in the loan portfolio, the micro-and
macro-economic outlook, and credit administration practices as deter-
mined by independent parties.
General reserves are assigned to large commercial purpose loans
exceeding $100,000 that do not exhibit weaknesses and pools of
smaller-balance homogenous loans based on calculated overall charge-
off ratios over the past three years. The charge-off ratios applied are
adjusted as detailed above, with further consideration given to the
highest charge-off experience of the Bank dating back to the recession of
the late 1980s.
The allowance for loan losses is compared against the sum of the
specific reserves assigned to problem loans plus the general reserves
assigned to pools of loans that are not specific problem loans.
Table 9
Risk Element Assets
financial review
Adjustments are made when appropriate. A most likely reserve value is
determined within the computed range of required calculated reserve,
with the actual allowance for loan losses compared to the most likely
reserve value. The unallocated reserve is monitored on a regular basis
and adjusted based on qualitative factors. Table 7 analyzes the activity
in the allowance over the past five years.
The allowance for loan losses at December 31, 2004 of $16.0
million compares to $12.4 million at year-end 2003. The allowance as a
percent of total loans was 0.88% in 2004 and 0.93% in 2003. The
allowance for loan losses as a percentage of loans reflects management’s
current estimation of the credit quality of the Company’s loan portfolio.
While there can be no assurance that the Company will not sustain loan
losses in a particular period that are substantial in relation to the size of
the allowance, management’s assessment of the loan portfolio does not
indicate a likelihood of this occurrence. It is management’s opinion that
the allowance at December 31, 2004 is adequate to absorb losses inher-
ent in the loan portfolio at year-end.
Table 8 provides an allocation of the allowance for loan losses to
specific loan types for each of the past five years. The reserve alloca-
tions, as calculated using the above methodology, are assigned to
specific loan categories corresponding to the type represented within the
components discussed. The greatest losses experienced by the
Company have historically occurred in the consumer loan portfolio,
including credit cards. As such, the greatest amount of the allowance
has been allocated to consumer loans despite its relatively small
balance. The credit card portfolio was sold in 2004, thus the allowance
amount allocated to consumer loans declined noticeably as of December
31, 2004. Compared to December 31, 2003, the increase in reserve allo-
cated to commercial real estate mortgage loans is reflective of the large
increase in this category due to loans acquired from Farmers and
Merchants Bank of Dublin. Management has implemented credit risk
management procedures to closely monitor all segments of its loan port-
folio, including the ongoing review of the delivery, underwriting and
As of December 31,
(Dollars in Thousands)
2004
2003
2002
2001
2000
Nonaccruing Loans..........................................................................................................
Restructured...................................................................................................................
Total Nonperforming Loans ...........................................................................................
Other Real Estate ............................................................................................................
Total Nonperforming Assets...........................................................................................
Past Due 90 Days or More ...............................................................................................
Nonperforming Loans/Loans.............................................................................................
Nonperforming Assets/Loans Plus Other Real Estate.............................................................
Nonperforming Assets/Capital (1) ........................................................................................
Allowance/Nonperforming Loans .......................................................................................
$ 4,646
-
4,646
625
$ 5,271
===============
$ 605
===============
.25%
===============
.29%
===============
1.93%
===============
345.18%
===============
$ 2,346
-
2,346
4,955
$ 7,301
===============
$ 328
===============
.17%
===============
.54%
===============
3.39%
===============
529.80%
===============
$ 2,510
-
2,510
1,333
$ 3,843
===============
$ 2,453
===============
.20%
===============
.30%
===============
1.93%
===============
497.72%
===============
$ 2,414
20
2,434
1,506
$ 3,940
=============
$ 1,065
=============
.20%
=============
.32%
=============
2.14%
=============
496.96%
=============
$ 2,919
19
2,938
971
$ 3,909
=============
$ 1,102
=============
.28%
=============
.37%
=============
2.47%
=============
359.57%
=============
(1) For computation of this percentage,“capital”refers to shareowners’ equity plus the allowance for loan losses.
Capital City Bank Group 37
financial review
collection practices to reduce loan losses.
Risk Element Assets
Risk element assets consist of nonaccrual loans, renegotiated
loans, other real estate, loans past due 90 days or more, potential
problem loans and loan concentrations. Table 9 depicts certain cate-
gories of the Company’s risk element assets as of December 31 for each
of the last five years. Potential problem loans and loan concentrations
are discussed within the narrative portion of this section.
The Company’s nonperforming loans increased $2.3 million, or
98.1% from a level of $2.3 million at December 31, 2003, to $4.6 million
at December 31, 2004. The increase from 2003 is primarily reflective of
one large commercial real estate loan added to nonaccrual status in the
amount of $2.1 million. During 2004 loans totaling approximately $7.8
million were added, while loans totaling $5.5 million were removed from
nonaccruing status. Of the $5.5 million removed, $2.4 million consisted
of principal reductions and loan payoffs, $811,000 represented loans
transferred to other real estate, $2.0 million consisted of loans brought
current and returned to an accrual status, and $284,000 was charged
off. Where appropriate, management has allocated specific reserves to
absorb anticipated losses. The majority (76%) of the Company’s net
charge-offs in 2004 were in the consumer portfolio where loans are
charged off based on past due status and are not recorded as nonaccru-
ing loans.
All nonaccrual loans exceeding $25,000 not secured by 1-4 family
residential properties are reviewed quarterly for impairment. A loan is
considered impaired when the full collection of principal and interest in
accordance with the contractual terms is in doubt. When a loan is con-
sidered impaired, it is reviewed for exposure to credit loss. If credit loss is
probable, a specific reserve is allocated to absorb the anticipated loss.
The Company had $3.7 million in loans considered impaired at December
31, 2004. The anticipated loss in those impaired loans is $313,000.
Interest on nonaccrual loans is generally recognized only when
received. Cash collected on nonaccrual loans is applied against the
principal balance or recognized as interest income based upon manage-
ment’s expectations as to the ultimate collectibility of principal and
interest in full. If interest on nonaccruing loans had been recognized on
a fully accruing basis, interest income recorded would have been
$189,000 higher for the year ended December 31, 2004.
Other real estate totaled $625,000 at December 31, 2004, versus
$5.0 million at December 31, 2003. This category includes property
owned by Capital City Bank that was acquired either through foreclosure
procedures or by receiving a deed in lieu of foreclosure. During 2004, the
Company added properties totaling $1.4 million, and partially or com-
pletely liquidated properties totaling $5.7 million, resulting in a net
decrease in other real estate of approximately $4.3 million. The majority
of the decrease is due to the resolution of a large commercial real estate
loan in the amount of $3.9 million during the first quarter of 2004.
Potential problem loans are defined as those loans which are now
current but where management has doubt as to the borrower’s ability to
comply with present loan repayment terms. Potential problem loans
38 Capital City Bank Group
totaled $7.1 million at December 31, 2004.
Loans past due 90 days or more totaled $605,000 at year-end, up
from $328,000 at the previous year-end. This is primarily the result of
the addition of several smaller consumer loans.
Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar
activities which cause them to be similarly impacted by economic or
other conditions and such amount exceeds 10% of total loans. Due to
the lack of diversified industry within the markets served by the Bank
and the relatively close proximity of the markets, the Company has both
geographic concentrations as well as concentrations in the types of
loans funded. Specifically, due to the nature of the Company’s markets,
a significant portion of the portfolio has historically been secured with
real estate.
While the Company has a majority of its loans (76.3%) secured by
real estate, the primary types of real estate collateral are commercial prop-
erties and 1-4 family residential properties. At December 31, 2004,
commercial real estate mortgage loans and residential real estate mortgage
loans accounted for 35.8% and 32.8% of the loan portfolio, respectively.
The real estate portfolio, while subject to cyclical pressures, is not
typically speculative in nature and is originated at amounts that are
within or below regulatory guidelines for collateral values. Management
anticipates no significant reduction in the percentage of real estate loans
to total loans outstanding.
Management is continually analyzing its loan portfolio in an effort
to identify and resolve its problem assets as quickly and efficiently as
possible. As of December 31, 2004, management believes it has identi-
fied and adequately reserved for such problem assets. However,
management recognizes that many factors can adversely impact various
segments of its markets, creating financial difficulties for certain bor-
rowers. As such, management continues to focus its attention on
promptly identifying and providing for potential losses as they arise.
Investment Securities
In 2004, the Company’s average investment portfolio decreased
$2.1 million, or 1.1%, from 2003 and $18.9 million, or 9.2%, from 2003
to 2002. As a percentage of average earning assets, the investment port-
folio represented 10.3% in 2004, compared to 11.4% in 2003. In 2004,
the decline was due to maturities in the portfolio partially offset by the
addition of $75.6 million in investment securities obtained in the two
acquisitions. In 2003, the decline in the portfolio was attributable to the
maturities of investment securities in most categories, which in anticipa-
tion of future loan growth, were only partially replaced during the period.
Throughout 2005, the Company will closely monitor liquidity levels to
determine if the Company should purchase additional investments.
In 2004, average taxable investments increased $7.3 million, or
5.9%, primarily as a result of the acquisitions, while tax-exempt invest-
ments decreased $9.4 million, or 15.3%. Although the Tax Reform Act
of 1986 significantly reduced the tax benefits associated with tax-
exempt securities, management will continue to purchase “bank
Table 10
Maturity Distribution of Investment Securities
As of December 31,
2004
2003
2002
Weighted(1)
Weighted(1)
Weighted(1)
financial review
(Dollars in Thousands)
U.S. GOVERNMENTS
Amortized Market Average
Value
Yield
Cost
Amortized Market Average Amortized Market Average
Cost
Value
Yield
Cost
Value
Yield
Due in 1 year or less ................................
Due over 1 year through 5 years ................
Due over 5 years through 10 years ............
Due over 10 years....................................
TOTAL ................................................
$ 48,553 $ 48,327
66,204
7,589
-
122,120
66,863
7,684
-
123,100
2.08%
2.38
3.75
-
2.35
$ 82,654 $ 82,749
22,848
-
-
105,360 105,597
22,706
-
-
1.26%
2.04
-
-
1.43
$ 27,037
34,476
-
-
61,513
$ 27,651
34,751
-
-
62,402
4.57%
3.09
-
-
3.74
STATE & POLITICAL SUBDIVISIONS
Due in 1 year or less ................................
Due over 1 year through 5 years ................
Due over 5 years through 10 years ............
Due over 10 years....................................
TOTAL ................................................
MORTGAGE-BACKED SECURITIES (2)
Due in 1 year or less ................................
Due over 1 year through 5 years ................
Due over 5 years through 10 years ............
Due over 10 years....................................
TOTAL ....................................................
OTHER SECURITIES
27,916
21,076
897
-
49,889
489
22,719
3,085
-
26,293
28,090
21,200
916
-
50,206
493
22,839
3,068
-
26,400
Due in 1 year or less ................................
Due over 1 year through 5 years ................
Due over 5 years through 10 years ............
Due over 10 years (3) ................................
TOTAL ................................................
-
-
-
-
-
-
11,514 11,514
11,514
11,514
5.94
4.56
5.36
-
5.35
5.13
3.96
4.83
-
4.09
-
-
-
4.31
4.31
19,018
36,046
577
-
55,641
356
11,167
95
-
11,618
1,003
-
2
5,922
6,927
19,205
37,337
610
-
57,152
361
11,586
98
-
12,045
1,016
-
2
5,922
6,940
4.18
4.47
4.36
-
4.37
5.12
5.29
3.26
-
5.27
6.18
-
-
3.89
4.22
5,193
56,724
928
-
62,845
10,593
24,048
109
-
34,750
5,251
59,264
960
-
65,475
10,707
25,112
111
-
35,930
8,515
1,016
127
6,623
16,281
8,693
1,065
127
6,623
16,508
5.48
5.96
6.41
-
5.93
4.66
5.61
4.27
-
5.31
5.42
6.18
4.45
5.12
5.34
TOTAL INVESTMENT SECURITIES....................
$210,796 $210,240
============== ==============
3.38%
======
$179,546 $181,734
============== ==============
2.69%
=======
$175,389
==============
$180,315
==============
4.98%
=======
(1) Weighted average yields are calculated on the basis of the amortized cost of the security.The weighted average yields on tax-exempt obligations are computed on a taxable equivalent basis using a 35% tax rate.
(2) Based on weighted average life.
(3) Federal Home Loan Bank Stock and Federal Reserve Bank Stock are included in this category for weighted average yield,but do not have stated maturities.
AVERAGE MATURITY
(In Years)
As of December 31,
2003
2002
2004
U.S. Governments ......................................................
State and Political Subdivisions.....................................
Mortgage-Backed Securities........................................
Other Securities .........................................................
TOTAL.................................................................
1.54
1.32
2.67
-
1.63
======
.73
1.23
1.56
.30
.90
======
.75
1.99
1.60
.75
1.32
======
Capital City Bank Group 39
MUNICIPAL PORTFOLIO QUALITY (Dollars in Thousands)
Moody’s Rating
Amortized Cost
Percentage
AAA ..............................................
AA-1 ............................................
AA-2 ............................................
AA-3 ............................................
A-1 ..............................................
A-2 ..............................................
Not Rated (1) ..................................
Total ........................................
$37,624
1,850
1,111
1,305
374
227
7,398
$49,889
=============
75.42%
3.71
2.23
2.62
0.74
0.45
14.83
100.00%
==========
(1) All of the securities not rated by Moody’s are rated “A-”or higher by S&P.
qualified” municipal issues when it considers the yield to be attractive
and the Company can do so without adversely impacting its tax position.
As of December 31, 2004, the Company may purchase additional tax-
exempt securities without adverse tax consequences.
The investment portfolio is a significant component of the
Company’s operations and, as such, it functions as a key element of liq-
uidity and asset/liability management. As of December 31, 2004, all
securities are classified as available-for-sale. Classifying securities as
available-for-sale offers management full flexibility in managing its liq-
uidity and interest rate sensitivity without adversely impacting its
regulatory capital levels. Securities in the available-for-sale portfolio are
recorded at fair value with unrealized gains and losses associated with
these securities recorded, net of tax, in the accumulated other compre-
hensive (loss) income component of shareowners’ equity. At December
Table 11
Sources of Deposit Growth
31, 2004, shareowners’ equity included a net unrealized loss of $0.4
million, compared to a gain of $1.4 million at December 31, 2003. It is
neither management’s intent nor practice to participate in the trading of
investment securities for the purpose of recognizing gains and therefore
the Company does not maintain a trading portfolio.
The average maturity of the total portfolio at December 31, 2004
and 2003, was 1.63 and 0.90 years, respectively. See Table 10 for a
breakdown of maturities by portfolio.
The weighted average taxable equivalent yield of the investment port-
folio at December 31, 2004 was 3.38%, versus 2.69% in 2003. The
increase in yield was due to acquisitions and purchases of securities made
throughout the year in a higher interest rate environment. The quality of
the municipal portfolio at year-end is depicted above. There were no
investments in obligations, other than U.S. Governments, of any one state,
municipality, political subdivision or any other issuer that exceeded 10%
of the Company’s shareowners’ equity at December 31, 2004.
Table 10 and Note 3 in the Notes to Consolidated Financial
Statements present a detailed analysis of the Company’s investment
securities as to type, maturity and yield.
Deposits and Funds Purchased
Average total deposits of $1.6 billion in 2004 increased $167.4
million, or 11.7% from the prior year. Deposit growth for the year was
driven primarily by the integration of deposits from two bank acquisi-
tions. All deposit categories grew, with a majority of the growth being
realized in noninterest bearing deposits, thus creating a favorable shift
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits .............................................
NOW Accounts ................................................................
Money Market Accounts....................................................
Savings ..........................................................................
Time Deposits .................................................................
Total Deposits ..............................................................
2003 to 2004
Change
Percentage
of Total
Change
$ 80,116
28,333
12,211
20,445
26,288
$167,393
================
47.9%
16.9
7.3
12.2
15.7
100.0%
=========
Components of Total Deposits
2004
30.6%
18.3
14.3
8.1
28.7
100.0%
=========
2003
28.6%
18.4
15.1
7.7
30.2
100.0%
=========
2002
25.3%
17.0
15.7
7.4
34.7
100.0%
==========
Table 12
Maturity Distribution of Certificates of Deposit $100,000 or Over
(Dollars in Thousands)
Three months or less ...............................................................................................................
Over three through six months ...................................................................................................
Over six through twelve months..................................................................................................
Over twelve months .................................................................................................................
Total .................................................................................................................................
December 31, 2004
Time Certificates of Deposit
Percent
$ 57,337
35,816
44,719
28,889
$166,761
===========
34.38%
21.48
26.82
17.32
100.00%
========
40 Capital City Bank Group
in deposit mix and positive impact on the Bank’s cost of funds. Average
noninterest bearing deposits as a percent of average total deposits
improved from 28.6% in 2003 to 30.6% in 2004. This was primarily a
result of the high level of core deposits retained from the two acquisi-
tions during 2004, and the relatively low level of interest rates.
Table 2 provides an analysis of the Company’s average deposits, by
category, and average rates paid thereon for each of the last three years.
Table 11 reflects the shift in the Company’s deposit mix over the last
three years and Table 12 provides a maturity distribution of time
deposits in denominations of $100,000 and over.
Average short-term borrowings, which include federal funds pur-
chased, securities sold under agreements to repurchase, Federal Home
Loan Bank advances, and other borrowings, increased $692,000, or
.68%. The slight increase is attributable to a $7.5 million increase in
federal funds purchased and $4.8 million increase in repurchase agree-
ment balances offset by a $13.0 million decrease in Federal Home Loan
Bank advances. See Note 9 in the Notes to Consolidated Financial
Statements for further information on short-term borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
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, can 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 (e.g., collection
of interest and fees), federal funds sold, loan and investment maturities,
bank lines of credit for the Company, approved lines for the purchase of
federal funds by CCB and Federal Home Loan Bank advances.
The Company ended 2004 with approximately $75 million in liq-
uidity, a decline of approximately $50.0 million from the previous
year-end. The decline was primarily the result of loan growth and
funding of acquisitions. Management expects liquidity to continue to
decline throughout 2005 as the Company funds future loan growth.
The Company intends to borrow approximately $31.0 million to
financial review
fund the cash portion of the consideration paid for the acquisition of
First National Bank of Alachua. Management expects to use a mixture
of debt and stock to fund future acquisition opportunities.
The Company has the ability to draw on a Revolving Credit Note,
due on October 15, 2007. Interest is payable quarterly at LIBOR plus
an applicable margin on advances. The revolving credit is unsecured.
The existing loan agreement contains certain financial covenants that
must be maintained by the Company. At December 31, 2004, the
Company was in compliance with all of the terms of the agreement and
had $36.0 million available under a $36.0 million line of credit facility.
Effective January 1, 2005, in accordance with the terms of the agree-
ment which was executed on October 15, 2004, the amount available
under the facility will be reduced from $36.0 million to $25.0 million.
At December 31, 2004, the Company had $68.5 million in long-term
borrowings outstanding to the Federal Home Loan Bank of Atlanta. The
debt consists of 36 loans. The interest rates are fixed and the weighted
average rate at December 31, 2004 was 4.29%. Required annual principal
reductions approximate $2.3 million, with the remaining balances due at
maturity ranging from 2006 to 2024. During 2004, the Company reclassi-
fied $16.0 million, consisting of an advance from the Federal Home Loan
Bank of Atlanta (“FHLB”), from long-term to short-term borrowings. The
Company also obtained a $20.0 million advance from the FHLB with a
fixed rate of 2.93% and a maturity of September 2006. Additions to long-
term borrowings also consists of $9.7 million primarily used to
match-fund longer-term, fixed rate loan products, which management
elected not to fund internally due to asset/liability management consider-
ations. The remaining increase was attributable to FHLB debt assumed
from the bank acquisitions in 2004. The debt is secured by 1-4 family
residential mortgage loans and selected investment securities from the
portfolio. See Note 10 in the Notes to Consolidated Financial Statements
for additional information on these borrowings.
The Company issued a $30.9 million junior subordinated
deferrable interest note in November 2004 to a wholly owned Delaware
statutory trust, Capital City Bank Group Capital Trust I (“CCBG Capital
Trust I”). See Note 10 in the Notes to Consolidated Financial Statements
for additional information on this borrowing. Interest payments are due
quarterly at a fixed rate of 5.71% for five years, then adjustable annually
to LIBOR plus a margin of 1.90%. The note matures on December 31,
Table 13
Contractual Cash Obligations
Table 13 sets forth certain information about contractual cash obligations at December 31, 2004.
Payments Due By Period
1 Year or Less 1-3 Years
4-5 Years After 5 Years
Total
Federal Home Loan Bank Advances.........................................
Subordinated Note Payable.....................................................
Operating Lease Obligations ...................................................
Total Contractual Cash Obligations ...........................................
$18,306
-
1,319
$19,625
=============
$32,599
-
3,372
$36,042
==============
$5,325
-
2,110
$7,435
===========
$28 216
30,928
6,127
$65,271
=============
$ 84,446
30,928
12,928
$128,302
===============
Capital City Bank Group 41
financial review
2034. The proceeds of the borrowing were used to partially fund the
Farmers and Merchants Bank of Dublin acquisition.
It is anticipated that capital expenditures will approximate $10
million over the next twelve months. These capital expenditures are
expected to consist primarily of several new offices in existing markets,
office equipment and furniture, and technology purchases. Management
believes these capital expenditures can be funded internally without
impairing the Company’s ability to meet its on-going obligations.
Capital
The Company continues to maintain a strong capital position. The
ratio of shareowners’ equity to total assets at year-end was 10.86%,
10.98%, and 10.22%, in 2004, 2003, and 2002, respectively.
The Company is subject to risk-based capital guidelines that
measure capital relative to risk weighted assets and off-balance sheet
financial instruments. Capital guidelines issued by the Federal Reserve
Board require bank holding companies to have a minimum total risk-
based capital ratio of 8.00%, with at least half of the total capital in the
form of Tier 1 capital. As of December 31, 2004, the Company exceeded
these capital guidelines with a total risk-based capital ratio of 12.33%
and a Tier 1 ratio of 11.44%, compared to 13.79% and 12.88%, respec-
tively, in 2003. As allowed by Federal Reserve Board capital guidelines
the trust preferred securities issued by CCBG Capital Trust I are includ-
ed as Tier 1 capital in the Company’s capital calculations previously
noted. See Note 10 in the Notes to Consolidated Financial Statements
for additional information on the trust preferred security offering. See
Note 14 in the Notes to Consolidated Financial Statements for additional
information as to the Company’s capital adequacy.
A tangible leverage ratio is also used in connection with the risk-
based capital standards and is defined as Tier 1 capital divided by
average assets. The minimum leverage ratio under this standard is 3%
for the highest-rated bank holding companies which are not undertaking
significant expansion programs. An additional 1% to 2% may be
required for other companies, depending upon their regulatory ratings
and expansion plans. On December 31, 2004, the Company had a lever-
age ratio of 8.79% compared to 9.51% in 2003.
Shareowners’ equity as of December 31, for each of the last three
years is presented below:
Shareowners’ Equity
(Dollars in Thousands)
2004
2003
2002
Common Stock
Additional Paid-in Capital
Retained Earnings
Subtotal
Accumulated Other Comprehensive
Income, Net of Tax
Total Shareowners’ Equity
$ 142
52,363
204,648
257,153
$ 132
16,157
185,134
201,423
(353)
$256,800
==========
1,386
$202,809
==========
$ 132
14,691
168,587
183,410
3,121
$186,531
==========
At December 31, 2004, the Company’s common stock had a book value of
42 Capital City Bank Group
$18.13 per diluted share compared to $15.27 in 2003. Beginning in 1994,
book value has been impacted by the net unrealized gains and losses on invest-
ment securities available-for-sale. At December 31, 2004, the net unrealized
loss was $353,000 compared to a net unrealized gain in 2003 of $1.4 million.
The decrease in unrealized gain is a result of changes in the portfolio due to
securities which have matured or been called and an increase in interest rates.
On March 30, 2000, the Company’s Board of Directors authorized the
repurchase of up to 625,000 shares of its outstanding common stock. The
purchases are made in the open market or in privately negotiated transac-
tions. The Company acquired 155,775 shares during 2002 and 267,500
shares during 2001. On January 24, 2002, the Company’s Board of Directors
authorized the repurchase of an additional 312,500 shares of its outstanding
common stock. From March 30, 2000 through February 28, 2005, the
Company repurchased a total of 572,707 shares at an average purchase price
of $19.18 per share.
The Company offers an Associate Incentive Plan under which certain
associates are eligible to earn shares of CCBG stock based upon achieving
established performance goals. In 2004, the Company issued 37,381 shares,
valued at approximately $1.6 million under this plan.
The Company also offers stock purchase plans, whereby employees and
directors may purchase shares at a 10% discount. In 2004, 27,425 shares,
valued at approximately $991,000, were issued under these plans.
Dividends
Adequate capital and financial strength is paramount to the stability of
the Company and its subsidiary bank. Cash dividends declared and paid
should not place unnecessary strain on the Company’s capital levels. When
determining the level of dividends the following factors are considered:
• Compliance with state and federal laws and regulations;
• The Company’s capital position and its ability to meet its financial
obligations;
• Projected earnings and asset levels; and
• The ability of the Bank and CCBG to fund dividends.
Although a consistent dividend payment is believed to be favorably
viewed by the financial markets and shareowners, the Board of Directors will
declare dividends only if the Company is considered to have adequate capital.
Future capital requirements and corporate plans are considered when the
Board considers a dividend payment.
Dividends declared and paid totaled $.730 per share in 2004. For the
first through third quarters of 2004 the Company declared a dividend of
$.180 per share. The dividend was raised 6.0% in the fourth quarter of 2004
from $.180 per share to $.190 per share. The Company declared dividends of
$.656 per share in 2003 and $.502 per share in 2002. The dividend payout
ratio was 33.42%, 34.51%, and 28.87% for 2004, 2003 and 2002, respective-
ly. Total cash dividends declared per share in 2004 represented an 11.3%
increase over 2003. All share and per share data has been adjusted to reflect
the five-for-four stock dividend paid on June 13, 2003.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not currently engage in the use of derivative instru-
ments to hedge interest rate risks. However, the Company is a party to
financial instruments with off-balance sheet risks in the normal course of
business to meet the financing needs of its customers.
At December 31, 2004, the Company had $407.3 million in commit-
ments to extend credit and $17.8 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a customer so long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Standby
letters of credit are conditional commitments issued by the Company to guar-
antee the performance of a customer to a third party. The Company uses the
same credit policies in establishing commitments and issuing letters of credit
as it does for on-balance sheet instruments.
If commitments arising from these financial instruments continue to
require funding at historical levels, management does not anticipate that such
funding will adversely impact its ability to meet on-going obligations. In the
event these commitments require funding in excess of historical levels, man-
agement believes current liquidity, available lines of credit from the Federal
Home Loan Bank, investment security maturities and the Company’s revolving
credit facility provide a sufficient source of funds to meet these commitments.
ACCOUNTING POLICIES
Critical Accounting Policies
The consolidated financial statements and accompanying Notes to
Consolidated Financial Statements are prepared in accordance with account-
ing principles generally accepted in the United States of America, which
require the Company to make various estimates and assumptions (see Note 1
in the Notes to Consolidated Financial Statements). The Company believes
that, of its significant accounting policies, the following may involve a higher
degree of judgment and complexity.
Allowance for Loan Losses: The allowance for loan losses is estab-
lished 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 ade-
quacy. The use of different estimates or assumptions could produce a
different required allowance, and thereby a larger or smaller provision recog-
nized as expense in any given reporting period. A further discussion of the
allowance for loan losses can be found in the section entitled “Allowance for
Loan Losses” and Note 1 in the Notes to Consolidated Financial Statements.
Intangible Assets: Intangible assets consist primarily of goodwill, core
deposit assets, and other identifiable intangibles that were recognized in con-
nection 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
financial review
if there has been impairment of its goodwill. The Company has determined that
no impairment existed at December 31, 2004. 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 7-10 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.
Pension Assumptions: The Company has a trusteed defined benefit
pension plan for the benefit of substantially all associates of the Company.
The Company’s funding policy with respect to the pension plan is to con-
tribute amounts to the plan sufficient to meet minimum funding
requirements as set by law. Pension expense, reflected in the Consolidated
Statements of Income in noninterest expense as “Salaries and Associate
Benefits”, is determined by an external actuarial valuation based on assump-
tions that are evaluated annually as of December 31, the measurement date
for the pension obligation. The Consolidated Statements of Financial
Condition reflect an accrued pension benefit cost due to funding levels and
unrecognized actuarial amounts. The most significant assumptions used in
calculating the pension obligation are the weighted-average discount rate
used to determine the present value of the pension obligation, the weighted-
average expected long-term rate of return on plan assets, and the assumed
rate of annual compensation increases. These assumptions are re-evaluated
annually with the external actuaries, taking into consideration both current
market conditions and anticipated long-term market conditions.
The weighted-average discount rate is determined by matching antici-
pated Retirement Plan cash flows for a 30-year period to long-term corporate
Aa-rated bonds and solving for the underlying rate of return, which investing
in such securities would generate. This methodology is applied consistently
from year-to-year. The discount rate utilized in 2004 was 6.25%. The estimat-
ed impact to 2004 pension expense of a 25 basis point increase or decrease in
the discount rate would have been a decrease of approximately $208,000 and
an increase of approximately $217,000, respectively. The discount rate to be
used in 2005 will be 6.00%.
The weighted-average expected long-term rate of return on plan assets
is determined based on the current and anticipated future mix of assets in
the plan. The assets currently consist of equity securities, U.S. Government
and Government agency debt securities, and other securities (typically tempo-
rary liquid funds awaiting investment). The weighted-average expected
long-term rate of return on plan assets utilized in 2004 was 8.00%. The esti-
mated impact to pension expense of a 25 basis point increase or decrease in
the rate of return would have been an approximate $83,000 decrease or
Capital City Bank Group 43
financial review
increase, respectively. The rate of return on plan assets for 2005 will be 8.0%.
The assumed rate of annual compensation increases (5.50% in 2004) is
based on expected trends in salaries and the employee base. This assumption
is not expected to change materially in 2005.
Detailed information on the pension plan, the actuarially determined
disclosures, and the assumptions used are provided in Note 12 of the Notes
to Consolidated Financial Statements.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 123R, “Share-Based Payment” (Revised). SFAS 123R estab-
lishes standards for the accounting for transactions in which an entity (i)
exchanges its equity instruments for goods or services, or (ii) incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity’s equity instruments or that may be settled by the issuance of the
equity instruments. SFAS 123R eliminates the ability to account for stock-
based compensation using APB 25 and requires that such transactions be
recognized as compensation cost in the income statement based on their fair
values on the date of the grant. The Company adopted the accounting stan-
dards set forth in SFAS No. 123 in 2003 and has accordingly expensed
stock–based compensation for 2003 and 2004. See Note 1 — Accounting
Policies.
In March 2004, the FASB ratified the consensus reached by the
Emerging Issues Task Force in Issue 03-1, “The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”).
EITF 03-1 provides guidance for determining when an investment is consid-
ered impaired, whether impairment is other-than-temporary, and
measurement of an impairment loss. An investment is considered impaired if
the fair value of the investment is less than its cost. Generally, an impairment
is considered other-than-temporary unless: (a) the investor has the ability and
intent to hold an investment for a reasonable period of time sufficient for a
forecasted recovery of fair value up to (or beyond) the cost of the investment;
and (b) evidence indicating that the cost of the investment is recoverable
within a reasonable period of time outweighs evidence to the contrary. If
impairment is determined to be other-than-temporary, then an impairment
loss should be recognized equal to the difference between the investment’s cost
and its fair value. Certain disclosure requirements of EITF 03-1 were adopted
in 2003 and the Company began presenting the new disclosure requirement in
its consolidated financial statements for the year ended December 31, 2003.
The recognition and impairment provisions were initially effective for other-
than-temporary impairment evaluations in reporting periods beginning after
June 15, 2004. However, in September 2004, the effective date of these provi-
sions was delayed until the finalization of the FASB Staff Position (FSP) to
provide additional implementation guidance. The Company is continuing to
evaluate the impact of EITF 03-1. The amount of other-than-
temporary impairment the Company will recognize, if any, will be dependent
on market conditions and management’s intent and ability at the time of the
evaluation to hold investments with unrealized losses until a forecasted recov-
ery in the fair value up to and beyond the adjusted cost.
In December 2003, the FASB issued Interpretation No. 46 (“FIN46”)
44 Capital City Bank Group
(revised December 2003 (“FIN46R”)), “Consolidation of Variable Interest
Entities,” which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through means
other than voting rights and accordingly should consolidate the entity.
FIN46R replaces FIN46, which was issued in January 2003. FIN46R applies
immediately to a variable interest entity created after January 31, 2003 and
as of the first interim period ending after March 15, 2004 to those variable
interest entities created before February 1, 2003 and not already consolidated
under FIN46 in previously issued financial statements. The Company has
adopted FIN 46R in connection with its consolidated financial statements for
the year ended December 31, 2004. The implementation of FIN 46R requires
the Company to not consolidate its investment in CCBG Capital Trust I
because the Company is not the primary beneficiary.
In December 2003, the American Institute of Certified Public
Accountants (“AICPA”) issued Statement of Position (“SOP”) No. 03-3,
“Accounting for Certain Loans or Debt Securities Acquired in a Transfer.”
SOP 03-3 addresses accounting for differences between the contractual cash
flows of certain loans and debt securities and the cash flows expected to be
collected when loans or debt securities are acquired in a transfer and those
cash flow differences are attributable, at least in part, to credit quality. As
such, SOP 03-3 applies to loans and debt securities acquired individually, in
pools or as part of a business combination and does not apply to originated
loans. The application of SOP 03-3 limits the interest income, including
accretion of purchase price discounts, that may be recognized for certain
loans and debt securities. Additionally, SOP 03-3 does not allow the excess of
contractual cash flows over cash flows expected to be collected to be recog-
nized as an adjustment of yield, loss accrual or valuation allowance, such as
the allowance for loan losses. SOP 03-3 requires that increases in expected
cash flows subsequent to the initial investment be recognized prospectively
through adjustment of the yield on the loan or debt security over its remain-
ing life. Decreases in expected cash flows should be recognized as
impairment. In the case of loans acquired in a business combination where
the loans show signs of credit deterioration, SOP 03-3 represents a significant
change from current purchase accounting practice whereby the acquiree’s
allowance for loan losses is typically added to the acquirer’s allowance for
loan losses. SOP 03-3 is effective for loans and debt securities acquired by
the Company beginning January 1, 2005. Loans acquired in future acquisi-
tions will be impacted by the adoption of this pronouncement.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
Overview
Market risk management arises from changes in interest rates,
exchange rates, commodity prices, and equity prices. The Company has risk
management policies to monitor and limit exposure to market risk and does
not participate in activities that give rise to significant market risk involving
exchange rates, commodity prices, or equity prices. 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. The Company seeks to avoid fluctuations in its net interest margin
and to maximize net interest income within acceptable levels of risk through
periods of changing interest rates. Accordingly, the Company’s interest rate
sensitivity and liquidity are monitored on an ongoing basis by its Asset and
Liability Committee (“ALCO”), which oversees market risk management and
establishes risk measures, limits and policy guidelines for managing the
amount of interest rate risk and its effects on net interest income and capital.
A variety of measures are used to provide for a comprehensive view of the
magnitude of interest rate risk, the distribution of risk, the level of risk over
time and the exposure to changes in certain interest rate relationships.
ALCO continuously monitors and manages the balance between interest
rate-sensitive assets and liabilities. ALCO’s objective is to manage the impact
of fluctuating market rates on net interest income within acceptable levels. In
order to meet this objective, management may adjust the rates charged/paid
on loans/deposits or may shorten/lengthen the duration of assets or liabili-
ties within the parameters set by ALCO.
The financial assets and liabilities of the Company are classified as
other-than-trading. An analysis of the other-than-trading financial compo-
nents, including the fair values, are presented in Table 14. This table
presents the Company’s consolidated interest rate sensitivity position as of
year-end 2004 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 14 may not necessari-
ly be indicative of the Company’s interest rate sensitivity over an extended
period of time.
The Company expects rising rates to have a favorable impact on the net
interest margin, subject to the magnitude and timeframe over which the rate
changes occur. 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 sen-
sitivity. 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.
Inflation
The impact of inflation on the banking industry differs significantly from
that of other industries in which a large portion of total resources are invested
in fixed assets such as property, plant and equipment.
Assets and liabilities of financial institutions are virtually all monetary
in nature, and therefore are primarily impacted by interest rates rather than
financial review
changing prices. While the general level of inflation underlies most interest
rates, interest rates react more to changes in the expected rate of inflation
and to changes in monetary and fiscal policy. Net interest income and the
interest rate spread are good measures of the Company’s ability to react to
changing interest rates and are discussed in further detail in the section enti-
tled “Results of Operations.”
Capital City Bank Group 45
financial review
Table 14
Financial Assets and Liabilities Market Risk Analysis (1)
Other Than Trading Portfolio
(Dollars in Thousands)
Loans:
Year 1
Year 2
Year 3
Year 4
Year 5
Beyond
Total
Fair
Value
Maturing or Repricing in:
Fixed Rate .................................................. $ 336,290
5.90%
888,396
5.02%
Average Interest Rate................................
Floating Rate (2) ............................................
Average Interest Rate................................
$153,445
7.09%
165,277
6.21%
$ 81,088
7.01%
84,206
6.17%
$48,491
6.83%
7,625
7.08%
Investment Securities: (3)
Fixed Rate ..................................................
Average Interest Rate................................
Floating Rate................................................
Average Interest Rate................................
83,436
2.98%
2,610
4.37%
76,818
2.57%
-
-
25,132
3.75%
-
-
9,528
3.23%
-
-
Other Earning Assets:
Floating Rate................................................
Average Interest Rate................................
74,506
2.01%
Total Financial Assets............................ $1,385,238
4.95%
Average Interest Rate ......................
Deposits: (4)
Fixed Rate .................................................. $ 452,241
1.87%
755,218
0.63%
Average Interest Rate................................
Floating Rate................................................
Average Interest Rate................................
Other Interest Bearing Liabilities:
Fixed Rate Debt............................................
Average Interest Rate................................
Floating Rate Debt ........................................
Average Interest Rate................................
4,476
4.26%
93,811
1.40%
Total Financial Liabilities ........................ $1,305,746
1.13%
Average Interest Rate ......................
-
-
$395,540
5.84%
-
-
$190,426
6.21%
-
-
$65,644
6.33%
$ 64,554
2.64%
-
-
24,630
3.18%
-
-
$ 89,184
2.79%
$ 37,962
3.38%
-
-
3,574
4.68%
346
4.91%
$ 41,882
3.50%
$12,563
3.35%
-
-
3,318
4.80%
832
3.05%
$16,713
3.62%
$27,987
6.65%
6,245
7.07%
4,342
3.54%
-
-
-
-
$38,574
6.37%
$ 5,349
3.19%
-
-
2,747
4.97%
1,025
4.00%
$ 9,121
3.82%
$21,637
6.34%
8,138
7.36%
$ 668,938
6.42%
1,159,887
5.32%
$ 670,404
1,162,303
8,374
3.25%
-
-
207,630
2.96%
2,610
4.37%
207,630
2,610
-
-
$38,149
5.88%
74,506
2.01%
$2,113,571
5.32%
74,506
$2,117,453
$ 8
2.50%
-
-
$ 572,677
2.10%
755,218
0.63%
$ 535,085
755,218
29,708
5.04%
30,928
5.71%
$60,644
5.38%
68,453
4.29%
126,942
1.46%
$1,523,290
1.41%
68,582
127,093
$1,485,978
(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.Time deposit balances are classified according to maturity.
46 Capital City Bank Group
Table 15
Quarterly Financial Data (Unaudited)
(Dollars in Thousands,Except Per Share Data) (1)
Fourth
Third
Second
First
Fourth
Third
Second
First
2004
2003
financial review
Summary of Operations:
Interest Income ...................................
Interest Expense..................................
Net Interest Income..............................
Provision for Loan Losses.....................
Net Interest Income After
Provision for Loan Losses...............
Gain on Sale of Credit Card Portfolio.......
Noninterest Income..............................
Conversion/Merger Expense .................
Noninterest Expense ............................
Income Before Provision for Income Taxes..
Provision for Income Taxes....................
Net Income ........................................
Net Interest Income (FTE) .....................
Per Common Share:
Net Income Basic ................................
Net Income Diluted ..............................
Dividends Declared..............................
Diluted Book Value ..............................
Market Price:
High............................................
Low ............................................
Close...........................................
Selected Average
Balances:
Loans ................................................
Earning Assets ....................................
Assets ...............................................
Deposits.............................................
Shareowners’ Equity.............................
Common Equivalent Average Shares:
$ 29,930
5,634
24,296
300
23,996
324
11,596
436
24,481
10,999
3,737
$ 7,262
===========
$ 24,619
$ .51
.51
.190
18.13
$ 24,660 $ 24,265 $ 22,670
3,408 3,221 3,178
19,492
300 580 961
21,044
21,252
20,464
-
11,031
4
20,952
6,857
10,864
68
18,531
-
9,881
42
21,565 21,597 21,033
7,337
6,221 3,451 2,490
$ 10,819 $ 6,443 $ 4,847
=========== =========== ===========
$ 21,528 $ 21,333 $ 19,811
17,040
9,894
$ .82 $ .48 $ .37
.37
.180
15.54
.48
.180
15.80
.82
.180
16.48
$ 23,022
3,339
19,683
850
$ 23,484
3,506
19,978
921
$ 23,997 $ 24,327
3,894 4,100
20,227
886 779
20,103
18,833
-
10,614
-
20,593
8,854
2,758
$ 6,096
===========
$ 20,020
19,217
-
10,428
-
19,448
19,057
-
-
9,945
10,952
-
-
19,516 19,428
20,184
9,965
9,825
3,689 3,604
3,529
$ 6,296
$ 6,440 $ 6,361
=========== =========== ===========
$ 20,456 $ 20,597
$ 20,332
10,129
$ .47
.46
.180
15.27
$ .47
.47
.170
15.00
$ .49 $ .48
.48
.136
14.42
.49
.170
14.73
45.98
37.71
41.80
41.20
33.33
38.71
43.15
35.50
39.59
45.55
39.05
41.25
46.83
36.62
45.99
40.93
35.00
38.16
36.43
29.74
36.08
32.32
26.81
31.29
$1,779,736
2,066,111
2,322,870
1,853,588
248,773
$1,524,401 $1,491,142 $1,357,206
1,634,468
1,721,655
1,734,708
1,830,496
1,929,485
1,941,372
1,457,160
1,538,630
1,545,224
206,395
210,211
217,273
$1,329,673
1,636,269
1,819,552
1,451,095
201,939
$1,336,139
1,634,689
1,816,005
1,451,879
199,060
$1,316,705 $1,289,161
1,615,287
1,612,133
1,796,657
1,786,991
1,407,763
1,415,798
190,416
194,781
Basic...........................................
Diluted.........................................
13,955
13,961
13,283
13,287
13,274
13,277
13,262
13,286
13,223
13,265
13,221
13,260
13,209
13,255
13,207
13,253
Ratios:
ROA ..................................................
ROE ..................................................
Net Interest Margin (FTE) ......................
Efficiency Ratio....................................
1.24%
11.61%
4.75%
63.85%
2.22%
19.81%
4.94%
52.60%(2)
1.34%
12.33%
4.99%
63.87%
1.06%
9.45%
4.88%
68.06%
1.33%
11.98%
4.85%
64.58%
1.38%
12.55%
4.94%
61.93%
1.45%
13.26%
5.09%
60.57%
1.44%
13.55%
5.17%
60.96%
(1) All share and per-share data have been adjusted to reflect the 5-for-4 stock split effective June 13,2003.
(2) Includes $4.2 million (after-tax) one-time gain on sale of credit card portfolio.
Capital City Bank Group 47
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48 Capital City Bank Group
consolidated financial statements
Report of Independent Registered Public Accounting Firm _______________51
Consolidated Statements of Income _____________________________ 52
Consolidated Statements of Financial Condition______________________ 53
Consolidated Statements of Changes in Shareowners’ Equity ____________ 54
Consolidated Statements of Cash Flows __________________________ 55
Notes to Consolidated Financial Statements ________________________ 56
Capital City Bank Group 49
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This page intentionally left blank.
50 Capital City Bank Group
report of independent registered
public accounting firm
The Board of Directors
Capital City Bank Group, Inc.:
We have audited the accompanying consolidated statements of financial condition of Capital City Bank Group, Inc. and subsidiary (the “Company”) as of
December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareowners’ equity, and cash flows for each of the years
in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital City Bank
Group, Inc. and subsidiary as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of computing stock-based compensation in 2003, and
as discussed in Note 6 to the consolidated financial statements, changed its method of accounting for goodwill and other intangible assets in 2002.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2005 expressed an unqual-
ified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
KPMG LLP
Orlando, Florida
March 16, 2005
Capital City Bank Group 51
consolidated statements of income
(Dollars In Thousands,Except Per Share Data) (1)
INTEREST INCOME
Interest and Fees on Loans .....................................................................................................
Investment Securities:
U.S. Treasury.......................................................................................................................
U.S. Government Agencies/Corporations .................................................................................
States and Political Subdivisions.............................................................................................
Other Securities...................................................................................................................
Funds Sold...........................................................................................................................
Total Interest Income.......................................................................................................
INTEREST EXPENSE
Deposits
............................................................................................................................
Short-Term Borrowings ..........................................................................................................
Subordinated Note Payable .....................................................................................................
Other Long-Term Borrowings ..................................................................................................
Total Interest Expense .....................................................................................................
Net Interest Income................................................................................................................
Provision for Loan Losses.......................................................................................................
Net Interest Income After Provision for Loan Losses....................................................................
NONINTEREST INCOME
Service Charges on Deposit Accounts ......................................................................................
Data Processing ....................................................................................................................
Asset Management Fees ........................................................................................................
Securities Transactions ...........................................................................................................
Mortgage Banking Revenues...................................................................................................
Gain on Sale of Credit Cards ...................................................................................................
Other...................................................................................................................................
Total Noninterest Income .................................................................................................
NONINTEREST EXPENSE
Salaries and Associate Benefits................................................................................................
Occupancy, Net.....................................................................................................................
Furniture and Equipment.........................................................................................................
Intangible Amortization............................................................................................................
Merger Expense....................................................................................................................
Other...................................................................................................................................
Total Noninterest Expense ................................................................................................
Income Before Income Taxes ..................................................................................................
Income Taxes........................................................................................................................
NET INCOME ........................................................................................................................
BASIC NET INCOME PER SHARE ............................................................................................
DILUTED NET INCOME PER SHARE.........................................................................................
Average Basic Common Shares Outstanding .............................................................................
Average Diluted Common Shares Outstanding ...........................................................................
(1)
All share and per share data have been adjusted to reflect the 5-for-4 stock split effective June 13,2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
For the Years Ended December 31,
2004
2003
2002
$ 95,607
$ 87,435
$ 92,991
759
2,111
1,944
271
833
101,525
11,315
1,270
294
2,562
15,441
86,084
2,141
83,943
17,574
2,628
4,007
14
3,208
7,181
15,941
50,553
44,345
7,074
8,393
3,824
550
25,040
89,226
45,270
15,899
$ 29,371
============
$ 2.18
============
$ 2.18
============
13,444
============
13,448
============
664
2,486
2,409
575
1,261
94,830
11,567
1,270
-
2,002
14,839
79,991
3,436
76,555
16,319
2,403
2,650
1
6,090
-
14,476
41,939
40,462
5,972
7,840
3,241
-
22,206
79,721
38,773
13,580
$ 25,193
============
$ 1.91
============
$ 1.90
============
13,222
============
13,251
============
2
5,366
2,752
1,573
1,481
104,165
20,551
767
-
1,185
22,503
81,662
3,297
78,365
12,749
2,006
2,521
10
5,502
-
13,315
36,103
40,212
5,719
7,677
3,242
212
21,633
78,695
35,773
12,691
$ 23,082
===========
$ 1.75
===========
$ 1.74
===========
13,225
===========
13,274
===========
52 Capital City Bank Group
consolidated statements of financial condition
(Dollars in Thousands,Except Per Share Data) (1)
ASSETS
Cash and Due From Banks ........................................................................................................................
Funds Sold and Interest Bearing Deposits ....................................................................................................
Total Cash and Cash Equivalents ............................................................................................................
Investment Securities, Available-for-Sale........................................................................................................
Loans, Net of Unearned Interest ..................................................................................................................
Allowance for Loan Losses ....................................................................................................................
Loans, Net ......................................................................................................................................
Premises and Equipment, Net ....................................................................................................................
Goodwill
................................................................................................................................................
Other Intangible Assets ..............................................................................................................................
Other Assets ............................................................................................................................................
Total Assets ....................................................................................................................................
LIABILITIES
Deposits:
Noninterest Bearing Deposits..................................................................................................................
Interest Bearing Deposits ......................................................................................................................
Total Deposits..................................................................................................................................
Short-Term Borrowings ..............................................................................................................................
Subordinated Note Payable ........................................................................................................................
Other Long-Term Borrowings ......................................................................................................................
Other Liabilities ........................................................................................................................................
Total Liabilities ................................................................................................................................
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; 14,155,312 and 13,236,462 shares
issued and outstanding at December 31, 2004 and December 31, 2003, respectively ....................................
Additional Paid-In Capital ............................................................................................................................
Retained Earnings ....................................................................................................................................
Accumulated Other Comprehensive (Loss) Income,
Net of Tax ............................................................................................................................................
Total Shareowners’ Equity..................................................................................................................
Commitments and Contingencies (See Note 18)
Total Liabilities and Shareowners’ Equity ..........................................................................................
(1)
All share and per share data have been adjusted to reflect the 5-for-4 stock split effective June 13,2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
As of December 31,
2004
2003
$ 87,039
74,506
161,545
210,240
1,828,825
(16,037)
1,812,788
58,963
54,341
25,964
40,172
$2,364,013
==========================
$ 566,991
1,327,895
1,894,886
96,014
30,928
68,453
16,932
2,107,213
-
142
52,363
204,648
(353)
256,800
$2,364,013
==========================
$ 93,140
125,452
218,592
181,734
1,341,632
(12,429)
1,329,203
54,011
6,680
19,112
37,170
$1,846,502
==========================
$ 455,550
1,018,655
1,474,205
108,184
-
46,475
14,829
1,643,693
-
132
16,157
185,134
1,386
202,809
$1,846,502
==========================
Capital City Bank Group 53
consolidated statements of changes in shareowners’ equity
(Dollars in Thousands,Except Per Share Data) (1)
Balance, December 31, 2001 ...............................
Comprehensive Income:
Net Income................................................
Net Change in Unrealized Gain (Loss)
On Available-for-Sale Securities................
Total Comprehensive Income.................................
Cash Dividends ($.502 per share)..........................
Issuance of Common Stock...................................
Repurchase and Retirement of Common Stock ........
Balance, December 31, 2002 ..............................
Comprehensive Income:
Net Income................................................
Net Change in Unrealized (Loss) Gain
On Available-for-Sale Securities................
Total Comprehensive Income.................................
Cash Dividends ($.656 per share)..........................
Executive Stock Performance Plan Compensation.....
Issuance of Common Stock...................................
Repurchase and Retirement of Common Stock ........
Balance, December 31, 2003 ...............................
Comprehensive Income:
Net Income................................................
Net Change in Unrealized (Loss) Gain
On Available-for-Sale Securities................
Total Comprehensive Income.................................
Cash Dividends ($.730 per share)..........................
Executive Stock Performance Plan Compensation.....
Issuance of Common Stock...................................
Common
Stock
Additional
Paid-In
Capital
Accumulated Other
Comprehensive
Retained Income (Loss),
Earnings
Net of Taxes
Total
$132
$17,152
$152,149
$2,350
$171,783
-
-
-
-
-
-
-
-
-
934
(3,395)
23,082
-
-
(6,644)
-
__ ___-
771
-
-
-
__ __-
23,853
(6,644)
934
(3,395)
132
14,691
168,587
3,121
186,531
-
-
-
-
-
-
__ _-
-
25,193
-
-
-
62
1,421
(17)
-
-
(8,646)
-
-
_ _____-
(1,735)
-
-
-
-
___ __-
23,458
(8,646)
62
1,421
(17)
132
16,157
185,134
1,386
202,809
-
-
-
-
-
10
-
29,371
-
-
-
193
36,013
-
-
(9,857)
-
-
(1,739)
-
-
-
-
27,632
(9,857)
193
36,023
Balance, December 31, 2004 ...............................
$142
=======
$52,363
===========
$204,648
== ===========
$ (353)
==========
$256,800
=============
(1)
All share and per share data have been adjusted to reflect the 5-for-4 stock split effective June 13,2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
54 Capital City Bank Group
consolidated statements of cash flows
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income..........................................................................................................................................
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses ......................................................................................................................
Depreciation ........................................................................................................................................
Loss on Disposal of Fixed Assets ............................................................................................................
Net Securities Amortization ....................................................................................................................
Amortization of Intangible Assets ............................................................................................................
Gain on Sale of Investment Securities ......................................................................................................
Non-Cash Compensation ......................................................................................................................
Deferred Income Taxes..........................................................................................................................
Net (Increase) Decrease in Other Assets ..................................................................................................
Net Increase (Decrease) in Other Liabilities ..............................................................................................
Net Cash Provided by Operating Activities ................................................................................................
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Payments/Maturities/Sales of Investment Securities Available-for-Sale......................................
Purchase of Investment Securities Available-for-Sale ..................................................................................
Net Increase in Loans............................................................................................................................
Net Cash Used in Acquisitions ................................................................................................................
Purchase of Premises & Equipment ........................................................................................................
Proceeds From Sales of Premises & Equipment ........................................................................................
Net Cash Used in Investing Activities ........................................................................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits ........................................................................................................
Net (Decrease) Increase in Short-Term Borrowings ....................................................................................
Proceeds from Subordinated Note Payable ..............................................................................................
Increase in Other Long-Term Borrowings..................................................................................................
Repayment of Other Long-Term Borrowings ............................................................................................
Dividends Paid ....................................................................................................................................
Repurchase of Common Stock ..............................................................................................................
Issuance of Common Stock ..................................................................................................................
Net Cash Provided By (Used in) Financing Activities ..................................................................................
Net (Decrease) Increase in Cash and Cash Equivalents ..............................................................................
Cash and Cash Equivalents at Beginning of Year........................................................................................
Cash and Cash Equivalents at End of Year ................................................................................................
SUPPLEMENTAL DISCLOSURES:
Interest Paid on Deposits ......................................................................................................................
Interest Paid on Debt ............................................................................................................................
Taxes Paid ..........................................................................................................................................
Loans Transferred to Other Real Estate ....................................................................................................
Issuance of Common Stock as Non-Cash Compensation............................................................................
Transfer of Current Portion of Long-Term Borrowings to Short-Term Borrowings ............................................
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
For the Years Ended December 31,
2004
2003
2002
$ 29,371
$ 25,193
$ 23,082
2,141
5,288
-
2,117
3,824
(14)
1,707
765
(4,210)
3,182
44,171
132,083
(88,028)
(139,507)
(31,743)
(5,576)
1,155
(131,616)
23,776
(33,559)
30,928
59,741
(41,815)
(9,857)
-
1,184
30,398
(57,047)
218,592
$161,545
=============
$ 10,661
=============
$ 4,066
=============
$ 12,606
=============
$ 1,351
=============
$ 1,707
=============
$ 16,002
=============
3,436
4,857
92
2,180
3,241
(1)
508
755
1,385
(3,791)
37,855
3,297
4,897
32
889
3,242
(10)
892
(1,479)
4,183
(953)
38,062
101,359
(107,695)
(65,180)
-
(11,152)
1,090
(81,578)
82,466
(43,370)
(46,006)
-
(6,868)
89
(13,689)
40,005
(45,913)
-
16,564
(1,412)
(8,646)
(17)
975
1,556
(42,167)
260,759
$218,592
=============
$ 11,999
=============
$ 3,238
=============
$ 16,303
=============
$ 5,267
=============
$ 508
=============
$ 40,423
=============
(115,901)
46,633
-
62,058
(3,883)
(6,644)
(3,395)
688
(20,444)
3,929
256,830
$260,759
=============
$ 23,694
=============
$ 1,825
=============
$ 13,175
=============
$ 1,238
=============
$ 246
=============
$
-
=============
Capital City Bank Group 55
notes to consolidated financial statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of
Capital City Bank Group, Inc. (“CCBG”), and its wholly-owned subsidiary,
Capital City Bank (“CCB” or the “Bank” and together with CCBG, the
“Company”). All material inter-company transactions and accounts have
been eliminated.
The Company, which operates in a single reportable business
segment comprised of commercial banking within the states of Florida,
Georgia, and Alabama, follows accounting principles generally accepted in
the United States of America and reporting practices applicable to the
banking industry. The principles which materially affect the financial
position, results of operations and cash flows are summarized below.
The Company determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is a voting inter-
est entity or a variable interest entity under accounting principles
generally accepted in the United States of America. Voting interest entities
are entities in which the total equity investment at risk is sufficient to
enable the entity to finance itself independently and provides the equity
holders with the obligation to absorb losses, the right to receive residual
returns and the right to make decisions about the entity’s activities. The
Company consolidates voting interest entities in which it has all, or at
least a majority of, the voting interest. As defined in applicable accounting
standards, variable interest entities (VIEs) are entities that lack one or
more of the characteristics of a voting interest entity. A controlling finan-
cial interest in an entity is present when an enterprise has a variable
interest, or a combination of variable interests, that will absorb a majority
of the entity’s expected losses, receive a majority of the entity’s expected
residual returns, or both. The enterprise with a controlling financial inter-
est, known as the primary beneficiary, consolidates the VIE. CCBG’s
wholly-owned subsidiary, CCBG Capital Trust I (established November 1,
2004) is a VIE for which the Company is not the primary beneficiary.
Accordingly, the accounts of this entity are not included in the Company’s
consolidated financial statements.
Certain items in prior financial statements have been reclassified to
conform to the current presentation. All acquisitions during the reported
periods were accounted for using the purchase method. Accordingly, the
operating results of the acquired companies are included with the
Company’s results of operations since their respective dates of acquisition
(see Note 2 — Acquisitions).
Use of Estimates
The preparation of financial statements in conformity with account-
ing principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
vary from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, inter-
est-bearing deposits in other banks, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods and all other
cash equivalents have a maturity of 90 days or less.
Investment Securities
Investment securities available-for-sale are carried at fair value and
represent securities that are available to meet liquidity and/or other needs
of the Company. Gains and losses are recognized and reported separately
in the Consolidated Statements of Income upon realization or when
impairment of values is deemed to be other than temporary. Gains or
losses are recognized using the specific identification method. Unrealized
holding gains and losses for securities available-for-sale are excluded from
the Consolidated Statements of Income and reported net of taxes in the
accumulated other comprehensive (loss) income component of shareown-
ers’ equity until realized. Accretion and amortization are recognized on
the effective yield method over the life of the securities.
Loans
Loans are stated at the principal amount outstanding, net of
unearned income. Interest income is generally accrued on the effective
yield method based on outstanding balances. Fees charged to originate
loans and direct loan origination costs are deferred and amortized over the
life of the loan as a yield adjustment. Loans held for sale are valued at
lower of cost or market value based on information obtained from third
party investors.
Allowance for Loan Losses
The allowance for loan losses is that amount considered adequate to
absorb losses inherent in the portfolio based on management’s evaluation
of the current risk characteristics of the loan portfolio as of the reporting
date. The allowance is a significant estimate recorded by management
and is based on the credit quality of the portfolio.
The evaluation of credit quality begins with the review for impair-
ment of commercial purpose loans with balances exceeding $25,000.
Impaired loans are defined as those in which the full collection of principal
and interest in accordance with the contractual terms is improbable.
Impaired loans typically include those that are in nonaccrual status or
classified as doubtful as defined by the Company’s internal risk rating
system. Generally, loans are placed on nonaccrual status when interest
becomes past due 90 days or more, or management deems the ultimate
collection of principal and interest is in doubt. A specific allowance for
loss is made for impaired loans based on a comparison of the recorded
investment in the loan to either the present value of the loan’s expected
cash flow, the loan’s estimated market price or the estimated fair value of
the underlying collateral less costs to sell the collateral.
Commercial purpose loans exceeding $100,000 that are not
impaired, but have weaknesses requiring closer management attention,
are analyzed to determine if an allowance is required. This analysis is
based primarily on the underlying value of the collateral. If the value of
the collateral is considered insufficient, an allowance is made for the defi-
56 Capital City Bank Group
notes to consolidated financial statements
ciency. The value of the collateral is dependent on current economic con-
ditions in the communities served and is subject to change. In addition,
the analysis includes changes in risk ratings that are assigned based on
the Bank’s Asset Classification Policy, and for the ultimate disposition of
the loan. The ultimate disposition may include upgrades in risk ratings,
payoff of the loan, or charge-off of the loan. This migration analysis
results in a charge-off ratio by loan pool of classified loans that is applied
to the balance of the pool to determine general reserves for specifically
identified problem loans. This charge-off ratio is adjusted for various envi-
ronmental factors including past due and nonperforming trends in the
loan portfolio, the micro and macro-economic outlook, and credit adminis-
tration practices as determined by independent parties.
Larger commercial purpose loans that show no signs of weakness
are assigned an allowance based on the historical loss ratios in pools of
loans with similar characteristics. The historical loss ratios are deter-
mined by analyzing losses over the prior twelve quarters, with more
emphasis being placed on the recent four quarters. The historical loss
ratios are then adjusted for certain external factors, including micro- and
macro-economic outlook, past due and nonperforming trends within the
portfolio, loan growth, and credit administration practices.
Large groups of smaller balance homogeneous loans that are not
impaired are collectively evaluated to determine the allowance required for
loan losses. These small balance homogenous loans include commercial
purpose loans less than $100,000, consumer installment loans, and resi-
dential mortgage loans. Historical loss ratios are determined for these
smaller balance loan pools and applied to the balance of the related pool of
loans to determine the allowance needed. The historical loss ratios are
adjusted for external factors as described above.
Goodwill
As of January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (“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 circum-
stances 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. As of
December 31, 2004, the Company performed its annual impairment
review and concluded that no impairment adjustment was necessary.
Income Taxes
The Company files consolidated federal and state income tax
returns. In general, the parent company and its subsidiary compute their
tax provisions as separate entities prior to recognition of any tax expense
or benefits which may accrue from filing a consolidated return.
The Company follows the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the carrying amounts of existing assets and liabilities on the
Company’s consolidated statement of financial position and their respec-
tive tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Long-Lived Assets
Stock Based Compensation
Premises and equipment are stated at cost less accumulated depre-
As of December 31, 2004, the Company had three stock-based com-
ciation, computed on the straight-line method over the estimated useful
lives for each type of asset with premises being depreciated over a range of
10 to 40 years, and equipment being depreciated over a range of 3 to 10
years. Major additions are capitalized and depreciated in the same
manner. Repairs and maintenance are charged to noninterest expense as
incurred.
Intangible assets, other than goodwill, consist of core deposit assets,
and a customer relationship and non-compete asset that were recognized
in connection with various acquisitions. Core deposit intangible assets are
amortized on the straight-line method over various periods, with the
majority being amortized over an average of 7 to 10 years. Other identifi-
able intangibles are amortized on the straight-line methods over their
estimated useful lives.
Long-lived assets are evaluated for impairment if circumstances
suggest that their carrying value may not be recoverable, by comparing
the carrying value to estimated undiscounted cash flows. If the asset is
deemed impaired, an impairment charge is recorded equal to the carrying
value less the fair value.
pensation plans, consisting of the Associate Incentive Plan (“AIP”), the
Associate Stock Purchase Plan and the Director Stock Purchase Plan.
Under the AIP, performance shares are awarded to participants based on
performance goals being achieved. In addition, pursuant to the AIP, the
Company executed incentive stock option arrangements for 2004 and
2003 for a key executive officer (William G. Smith, Jr.). As a result of
SFAS No. 148, “Accounting for Stock-Based Compensation - Transition
and Disclosure,” the Company adopted the fair value recognition provi-
sions of SFAS No. 123 (“SFAS 123”), “Accounting for Stock-Based
Compensation,” prospectively to all awards granted, modified, or settled
on or 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 associate compensation included in the determination of
net income for 2003 is different than that which would have been recog-
nized 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
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees” (“APB 25”) the differences in what instruments are consid-
ered non-compensatory, and the fact that awards granted prior to January
1, 2003 were accounted for under APB 25. The cost related to all stock-
Capital City Bank Group 57
notes to consolidated financial statements
based associate compensation included in net income is accounted for
under the fair value based method during 2004 as all awards have grant
dates after January 1, 2003.
The following table illustrates the effect on net income and net
income per share if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based compensation.
Transactions under the ASPP were as follows:
Number of Shares
Purchase Price
per Share(1)
Available at December 31, 2001
Purchased
Available at December 31, 2002
(Dollars in Thousands,Except Per Share Data)
2004
2003
2002
Purchased
Net income, as reported
Add: Stock based compensation included
$29,371 $25,193 $23,082
in reported net income, net of tax
400
634
553
Deduct: Stock based compensation
Available at December 31, 2003
Purchased
Available at December 31, 2004
determined under fair value based method
for all awards, net of tax
317,629
(31,588)
286,041
(25,234)
260,807
(20,056)
240,751
=============
$18.90
$30.46
$35.63
Pro forma net income
Net Income per share:
Basic-as reported
Basic-pro forma
Diluted-as reported
Diluted-pro forma
(400)
(388)
(348)
$29,371 $25,479 $23,247
=========
=========
=========
$ 2.18 $ 1.91 $ 1.75
=========
=========
=========
$ 2.18 $ 1.93 $ 1.76
=========
=========
=========
$ 1.74
$ 1.90
$ 2.18
=========
=========
=========
$ 2.18 $ 1.92 $ 1.75
=========
=========
=========
Director Stock Purchase Plan (“DSPP”). The Company’s DSPP
allows the directors to purchase the Company’s common stock at a price
equal to 90% of the closing price on the date of purchase. The DSPP has
187,500 shares reserved for issuance. In 2004, 2003, and 2002, CCBG
issued 7,369, 4,861, and 4,438 shares, respectively, under this plan. A
total of 54,388 shares have been issued to directors since the inception of
this plan. Prior to 2003, the DSPP plan was accounted for under the pro-
visions of APB 25 and no compensation expense was recognized. In
accordance with the Company’s adoption of SFAS 123, compensation
expense has been recognized for the Company’s purchase plan activity in
2004 and 2003.
Associate Stock Purchase Plan (“ASPP”). Under the Company’s
ASPP, substantially all associates may purchase the Company’s common
stock through payroll deductions at a price equal to 90% of the lower of
the fair market value at the beginning or end of each six-month offering
period. Stock purchases under the ASPP are limited to 10% of an asso-
ciate’s eligible compensation, up to a maximum of $25,000 (fair market
value on each enrollment date) in any plan year. The ASPP has 562,500
shares of common stock reserved for issuance. CCBG issued 20,056,
25,234, and 31,588 shares under the plan in 2004, 2003, and 2002,
respectively. A total of 321,749 shares have been issued since inception
of this plan. Prior to 2003, the ASPP was accounted for under the provi-
sions of APB 25 and no compensation expense was recognized. In
accordance with the Company’s adoption of SFAS 123, compensation
expense has been recognized for the Company’s purchase plan activity
in 2004 and 2003.
58 Capital City Bank Group
(1) Weighted Average Price for two annual offering periods
Based on the Black-Scholes option pricing model, the weighted
average estimated fair value of the purchase rights granted under the
ASPP was $7.37 for 2004, $6.65 for 2003, and $3.96 for 2002. In calcu-
lating pro forma compensation at December 31, the fair value of each
stock purchase right is estimated on the date of grant using the follow-
ing weighted average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
2004
2003
2002
2.4%
1.8%
1.7%
30.0% 34.5% 33.0%
1.7%
1.1%
1.1%
0.5
0.5
0.5
Associate Incentive Plan (“AIP”). Under the Company’s AIP,
shares are granted to participants based upon the achievement of per-
formance goals established by the Board of Directors at the beginning of
each award period. A total of 937,500 shares of common stock have
been reserved for issuance under this Plan. Award periods have histori-
cally been one year for the short-term plan and three years for the
long-term plan. In 2004, award periods were one year for both plans.
Both plans were accounted for under SFAS 123 for 2004 and compensa-
tion expense was measured under the fair value method as of the grant
date and recognized over the service period. Shares earned are issued
during the first calendar quarter of the following year. CCBG issued
37,381, 10,596, and 12,618 shares under the plan in 2004, 2003, and
2002, respectively. A total of 279,438 shares have been issued since
inception of this plan.
Executive Stock Option Agreement. In 2003 and 2004, the
Company’s Board of Directors approved stock option agreements for a
key executive officer (William G. Smith, Jr. - Chairman, President and
CEO, CCBG) under the provisions of the AIP. These agreements grant a
non-qualified stock option award upon achieving certain annual earn-
ings per share conditions set by the Board, subject to certain vesting
requirements. The options granted under the agreements have a term of
ten years and vest at a rate of one-third on each of the first, second, and
third anniversaries of the date of grant. Under the 2003 agreement,
notes to consolidated financial statements
18,510 option shares were issued, none of which have been exercised.
The exercise price for the 2003 shares is $41.20. Under the 2004 agree-
ment, the earnings per share conditions were analyzed resulting in
economic value earned by the executive of approximately $500,000, for
which the Company will issue option shares equal to that value. During
2004 and 2003, the Company recognized expense of $193,000 and
$61,658, respectively, related to these agreements in accordance with
the provisions of SFAS 123.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No.123R, “Share-Based Payment” (Revised). SFAS
123R establishes standards for the accounting for transactions in which
an entity (i) exchanges its equity instruments for goods or services, or (ii)
incurs liabilities in exchange for goods or services that are based on the
fair value of the entity’s equity instruments or that may be settled by the
issuance of the equity instruments. SFAS 123R eliminates the ability to
account for stock-based compensation using APB 25 and requires that
such transactions be recognized as compensation cost in the income
statement based on their fair values on the date of the grant. The
Company adopted the accounting standards set forth in SFAS No. 123
in 2003 and has accordingly expensed stock–based compensation for
2003 and 2004. See Note 1 — Accounting Policies.
In March 2004, the FASB ratified the consensus reached by the
Emerging Issues Task Force in Issue 03-1, “The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments”
(“EITF 03-1”). EITF 03-1 provides guidance for determining when an
investment is considered impaired, whether impairment is other-than-
temporary, and measurement of an impairment loss. An investment is
considered impaired if the fair value of the investment is less than its
cost. Generally, an impairment is considered other-than-temporary
unless: (a) the investor has the ability and intent to hold an investment
for a reasonable period of time sufficient for a forecasted recovery of fair
value up to (or beyond) the cost of the investment; and (b) evidence indi-
cating that the cost of the investment is recoverable within a reasonable
period of time outweighs evidence to the contrary. If impairment is deter-
mined to be other-than-temporary, then an impairment loss should be
recognized equal to the difference between the investment’s cost and its
fair value. Certain disclosure requirements of EITF 03-1 were adopted in
2003 and the Company began presenting the new disclosure require-
ment in its consolidated financial statements for the year ended
December 31, 2003. The recognition and impairment provisions were
initially effective for other-than-temporary impairment evaluations in
reporting periods beginning after June 15, 2004. However, in September
2004, the effective date of these provisions was delayed until the final-
ization of the FASB Staff Position to provide additional implementation
guidance. The Company is continuing to evaluate the impact of EITF
03-1. The amount of other-than-temporary impairment the Company
will recognize, if any, will be dependent on market conditions and man-
agement’s intent and ability at the time of the evaluation to hold invest-
ments with unrealized losses until a forecasted recovery in the fair value
up to and beyond the adjusted cost.
In December 2003, the FASB issued Interpretation No. 46 (“FIN46”)
(revised December 2003 (“FIN46R”)), “Consolidation of Variable Interest
Entities,” which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate the
entity. FIN46R replaces FIN46, which was issued in January 2003.
FIN46R applies immediately to a variable interest entity created after
January 31, 2003 and as of the first interim period ending after March
15, 2004 to those variable interest entities created before February 1,
2003 and not already consolidated under FIN46 in previously issued
financial statements. The Company has adopted FIN46R in connection
with its consolidated financial statements for the year ended December
31, 2004. The implementation of FIN46R requires the Company to not
consolidate its investment in CCBG Capital Trust I because the
Company is not the primary beneficiary.
In December 2003, the American Institute of Certified Public
Accountants (“AICPA”) issued Statement of Position (“SOP”) No. 03-3,
“Accounting for Certain Loans or Debt Securities Acquired in a Transfer.”
SOP 03-3 addresses accounting for differences between the contractual cash
flows of certain loans and debt securities and the cash flows expected to be
collected when loans or debt securities are acquired in a transfer and those
cash flow differences are attributable, at least in part, to credit quality. As
such, SOP 03-3 applies to loans and debt securities acquired individually, in
pools or as part of a business combination and does not apply to originated
loans. The application of SOP 03-3 limits the interest income, including
accretion of purchase price discounts, that may be recognized for certain
loans and debt securities. Additionally, SOP 03-3 does not allow the excess of
contractual cash flows over cash flows expected to be collected to be recog-
nized as an adjustment of yield, loss accrual or valuation allowance, such as
the allowance for loan losses. SOP 03-3 requires that increases in expected
cash flows subsequent to the initial investment be recognized prospectively
through adjustment of the yield on the loan or debt security over its remain-
ing life. Decreases in expected cash flows should be recognized as
impairment. In the case of loans acquired in a business combination where
the loans show signs of credit deterioration, SOP 03-3 represents a significant
change from current purchase accounting practice whereby the acquiree’s
allowance for loan losses is typically added to the acquirer’s allowance for
loan losses. SOP 03-3 is effective for loans and debt securities acquired by
the Company beginning January 1, 2005. Loans acquired in future acquisi-
tions will be impacted by the adoption of this pronouncement.
Capital City Bank Group 59
notes to consolidated financial statements
Note 2
ACQUISITIONS
On February 3, 2005, the Company announced the signing of a
definitive agreement to acquire First Alachua Banking Corporation
(“FABC”), headquartered in Alachua, Florida. FABC’s wholly-owned sub-
sidiary, First National Bank of Alachua (“FNBA”) has $229 million in
assets, seven offices located in Alachua County -- Gainesville (three),
Alachua, High Springs, Jonesville, Newberry -- and an eighth office in
Hastings, Florida, which is located in St. Johns County. FABC also has
a mortgage lending office in Gainesville and a financial services division.
Subject to certain potential adjustments, FABC shareowners will receive
$2,847.04 in cash and 71.176 shares of CCBG common stock for each
of the 10,186 shares of FABC common stock outstanding. Based on
Capital City’s closing market price on Nasdaq on February 3, 2005, this
cash and stock combination equaled aggregate consideration of $58.0
million. Closing is anticipated for mid-year 2005.
On March 19, 2004, the Company’s subsidiary, Capital City Bank,
completed its merger with Quincy State Bank, a subsidiary of Synovus
Financial Corp. Results of Quincy State Bank’s operations have been
included in the Company’s consolidated financial statements since
March 20, 2004. Quincy State Bank had $116.6 million in assets with
one office in Quincy, Florida and one office in Havana, Florida. The
transaction was accounted for as a purchase and resulted in approxi-
mately $15.4 million of intangible assets, including approximately $13.0
million in goodwill and a core deposit intangible of $2.4 million. The
core deposit intangible is being amortized over a 7-year period.
On March 19, 2004, the Company completed its purchase of fidu-
ciary assets from Synovus Trust Company for $2.0 million. This
purchase was subject to a $800,000 earn-out agreement of which
$634,000 was paid in October 2004. Subsequently, the intangible asset
associated with this transaction was increased to $1.8 million. This
intangible is being amortized over a 10-year period.
On October 15, 2004, the Company completed its acquisition of
Farmers and Merchants Bank in Dublin, Georgia, a $395 million asset
institution with three offices in Laurens County. The Company issued
17.08 shares and $666.50 in cash for each of the 50,000 shares of
Farmers and Merchants Bank, resulting in the issuance of 854,000
shares of Company common stock and the payment of $33.3 million in
cash for a total purchase price of approximately $66.7 million. The
transaction resulted in approximately $41.1 million of intangible assets,
including approximately $34.7 million in goodwill, a core deposit intan-
gible of $5.9 million, and a non-compete intangible of $483,000. The
core deposit intangible is being amortized over a 7-year period and the
non-compete intangible is being amortized over a 2-year period.
The following table summarizes the assets acquired and liabilities
assumed as of the date of each acquisition (excluding trust assets),
along with the consideration paid:
(Dollars in Thousands)
Quincy State Bank
Farmers & Merchants
Bank of Dublin
Cash and Due From Banks
Funds Sold
$ 2,295
6,949
Total Cash and Cash Equivalents $ 9,244
Investment Securities, Available-for-Sale
Loans, Net
Intangible Asset
Other Assets
Total Assets Acquired
16,150
88,727
14,915
2,498
$131,534
Total Deposits
Short-Term Borrowings
Long-Term Borrowings
Other Liabilities
Total Liabilities Assumed
Consideration Paid to Shareowners
102,434
-
3,000
-
105,434
$ 26,100
=========
$ 8,521
12,641
$ 21,162
61,359
257,685
41,103
4,035
$385,344
293,938
5,388
17,063
2.305
318,694
$ 66,650
=========
The following unaudited pro forma financial information for 2004
and 2003 presents the consolidated operations of the Company as if the
acquisitions had been made on January 1, 2003. The unaudited pro
forma financial information is provided for informational purposes only,
should not be construed to be indicative of the Company’s consolidated
results of operations had the acquisitions been consummated on this
earlier date, and does not project the Company’s results of operations for
any future period:
For the 12 Months Ended
December 31,
(Dollars in Thousands, Except Per Share Data)
2004
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After
Provision for Loan Losses
Noninterest Income
Noninterest Expense
Income Before Income Taxes
Income Taxes
Net Income
Basic Net Income Per Share
Diluted Net Income Per Share
$120,416
20,480
99,936
2,696
97,240
52,321
96,443
53,118
18,882
$ 34,236
=========
$ 2.36
=========
$ 2.36
=========
2003
$121,757
22,637
99,120
3,976
95,144
46,158
89,432
51,870
18,655
$ 33,215
=========
$ 2.26
=========
$ 2.25
=========
60 Capital City Bank Group
notes to consolidated financial statements
Note 3
INVESTMENT SECURITIES
As of December 31, 2004, the Company’s investment securities
had the following maturity distribution based on contractual maturities:
The amortized cost and related market value of investment securi-
(Dollars in Thousands)
Amortized Cost
Market Value
$ 78,498
$ 105
$ 1
$ 78,602
(Dollars in Thousands) Value
Losses
Market Unrealized
Market Unrealized Market Unrealized
Value
Losses
Losses
Value
ties available-for-sale at December 31, were as follows:
2004
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies
and Corporations
States and Political
Subdivisions
Mortgage-Backed Securities
Other Securities (1)
Total Investment
Securities
(Dollars in Thousands)
U.S. Treasury
U.S. Government Agencies
and Corporations
States and Political
Subdivisions
Mortgage-Backed Securities
Other Securities (1)
Total Investment
Securities
Amortized Unrealized Unrealized Market
Value
Losses
Gains
Cost
$ 31,027
$
92,073
49,889
26,293
11,514
-
5
409
187
-
$ 244
$ 30,783
741
91,337
92
80
-
50,206
26,400
11,514
$210,796
===========
$ 601
$210,240
======== ========= ===========
$1,157
2003
Amortized Unrealized Unrealized Market
Value
Losses
Gains
Cost
26,862
133
55,641
11,618
6,927
1,511
427
13
-
-
-
-
26,995
57,152
12,045
6,940
$179,546
===========
$2,189
=========
$ 1
$181,734
======= ===========
(1) FHLB and FRB stock recorded at cost.
The total proceeds from the sale of investment securities and the
gross realized gains and losses from the sale of such securities for each
of the last three years are as follows:
(Dollars in Thousands)
Year
2004
2003
2002
Total
Proceeds
Gross
Realized Gains
Gross
Realized Losses
$114,184
$ 48,922
$ 44,576
$17
$24
$10
$ 3
$23
$ -
Total proceeds do not include principal reductions in mortgage-
backed securities and proceeds from securities which were called of
$17.9 million, $52.4 million, and $37.9 million in 2004, 2003 and 2002,
respectively.
Due in one year or less
Due after one through five years
Due after five through ten years
Over ten years
Total Investment Securities
$ 76,958
110,658
11,666
11,514
$210,796
========
$ 76,910
110,243
11,573
11,514
$210,240
========
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Securities with an amortized cost of $142.8 million and $73.9
million at December 31, 2004 and 2003, respectively, were pledged to
secure public deposits and for other purposes.
Securities with unrealized losses at year-end 2004 not recognized
in income by period of time unrealized losses have existed are as follows:
Less Than
12 months
Greater Than
12 months
Total
U.S. Treasury
U.S. Government
Agencies
and Corporations
States and Political
Subdivisions
Mortgage-Backed
$ 30,783
$ 244
$ -
$
88,331
13,217
741
92
-
-
-
-
-
$ 30,783
$ 244
88,331
741
13,217
92
Securities
18,173
80
-
-
18,173
80
Total Investment
Securities
$150,504
==========
$1,157
========
$ -
======
$
-
======
$150,504
==========
$1,157
========
Note 4
LOANS
At December 31, the composition of the Company’s loan portfolio
was as follows:
(Dollars in Thousands)
2004
2003
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Real Estate - Loans Held-for-Sale
Consumer
Total Loans, Net of Unearned Interest
$ 206,474
140,190
655,426
438,484
150,061
11,830
226,360
$1,828,825
========================
$ 160,048
89,149
391,250
346,170
116,810
4,810
233,395
$1,341,632
=======================
Capital City Bank Group 61
notes to consolidated financial statements
Nonaccruing loans amounted to $4.6 million and $2.3 million, at
December 31, 2004 and 2003, respectively. There were no restructured
loans at December 31, 2004 or 2003. Interest on nonaccrual loans is
generally recognized only when received. Cash collected on nonaccrual
loans is applied against the principal balance or recognized as interest
income based upon management’s expectations as to the ultimate col-
lectibility of principal and interest in full. If interest on nonaccruing
loans had been recognized on a fully accruing basis, interest income
recorded would have been $189,000, $166,000, and $116,000 higher for
the years ended December 31, 2004, 2003, and 2002, respectively.
Note 5
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the
years ended December 31, is as follows:
(Dollars in Thousands)
2004
2003
2002
Balance, Beginning of Year
Acquired Reserves
Reserve Reversal (1)
Provision for Loan Losses
Recoveries on Loans
Previously Charged-Off
Loans Charged-Off
Balance, End of Year
$12,429
5,713
(800)
2,141
1,612
(5,058)
$16,037
========
$12,495
-
-
3,436
1,037
(4,539)
$12,429
========
$12,096
-
-
3,297
1,374
(4,272)
$12,495
========
(1) Reflects recapture of reserves allocated to the credit card portfolio,which
was sold in August 2004.
Selected information pertaining to impaired loans, at December 31,
is as follows:
(Dollars in Thousands)
2004
2003
Valuation
Balance Allowance
Valuation
Balance Allowance
With Related Credit Allowance
$ 578
Without Related Credit Allowance $3,150
$313
-
$810
$477
$178
-
(Dollars in Thousands)
2004
2003
2002
Average Recorded Investment
in Impaired Loans
Interest Income on Impaired Loans
Recognized
Collected in Cash
$5,382
$6,737
$2,544
140
$ 120
194
$ 194
169
$ 169
Note 6
INTANGIBLE ASSETS
The Company had intangible assets of $80.3 million and $25.8
million at December 31, 2004 and December 31, 2003, respectively.
Intangible assets at December 31, were as follows:
(Dollars in Thousands)
2004
2003
Accumulated
Gross
Amount Amortization
Accumulated
Gross
Amount Amortization
Core Deposits Intangibles
Goodwill
Customer Relationship Intangible
Non-Compete Agreement
Total Intangible Assets
$ 42,078
58,127
1,867
483
$102,555
===============
$18,300
3,786
114
50
$22,250
=============
$33,752 $14,640
3,786
10,466
-
-
-
-
$44,218 $18,426
============= =============
Net Core Deposit Intangibles. As of December 31, 2004 and
December 31, 2003, the Company had net core deposit intangibles of
$23.8 million and $19.1 million, respectively. Amortization expense for
the twelve months of 2004, 2003 and 2002 was $3.7 million, $3.2
million and $3.2 million, respectively. The estimated annual amortiza-
tion expense for the next five years is expected to be approximately $4.4
million per year.
Goodwill. As of December 31, 2004 and December 31, 2003, the
Company had goodwill, net of accumulated amortization, of $54.3
million and $6.7 million, respectively. The increase in goodwill is due to
the acquisition of Quincy State Bank and Farmers and Merchants Bank
of Dublin during 2004. Goodwill is the Company’s only intangible asset
that is no longer subject to amortization under the provisions of SFAS
142. On December 31, 2004, the Company performed its annual
impairment review and concluded that no impairment adjustment was
necessary.
Other. As of December 31, 2004, the Company had a customer
relationship intangible, net of accumulated amortization, of $1.8 million.
This intangible was booked as a result of the March 2004 acquisition of
trust customer relationships from Synovus Trust Company.
Amortization expense for the twelve months of 2004 was $114,000.
Estimated annual amortization expense is $187,000 based on use of a
10-year useful life. The Company also had a non-compete intangible,
net of accumulated amortization, of $433,000. This intangible was
booked as a result of the October 2004 acquisition of Farmers and
Merchants Bank of Dublin. Amortization expense for the twelve months
of 2004 was $50,000. Estimated annual amortization expense is
$242,000 based on a 2-year useful life.
62 Capital City Bank Group
notes to consolidated financial statements
Note 7
PREMISES AND EQUIPMENT
The composition of the Company’s premises and equipment at
2004
2003
59,311
$ 13,251
$ 12,152
51,577
43,623
40,878
113,440 107,352
(54,477)
(53,341)
$ 58,963 $ 54,011
==========
=========
December 31, was as follows:
(Dollars in Thousands)
Land
Buildings
Fixtures and Equipment
Total
Accumulated Depreciation
Premises and Equipment, Net
Note 8
DEPOSITS
Interest expense on deposits for the three years ended December
31, was as follows:
(Dollars in Thousands)
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits < $100,000
Time Deposits > $100,000
Total
2004
2003
$ 733
1,189
164
6,683
2,546
$11,315
===========
$ 678
1,310
189
7,007
2,383
$11,567
===========
2002
$ 1,272
2,904
500
12,060
3,815
$20,551
===========
Note 9
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
Interest bearing deposits, by category, as of December 31, were as
follows:
(Dollars in Thousands)
NOW Accounts
Money Market Accounts
Savings Accounts
Time Deposits
Total
2004
2003
$ 338,932
270,095
147,348
571,520
$1,327,895
==============
$ 276,934
207,934
110,834
422,953
$1,018,655
==============
At December 31, 2004 and 2003, $4.1 million and $7.2 million,
respectively, in overdrawn deposit accounts were reclassified as loans.
Deposits from certain directors, executive officers, and their related
interests totaled $23.1 million and $11.1 million at December 31, 2004
and 2003, respectively.
Time deposits in denominations of $100,000 or more totaled
$166.8 million and $107.2 million at December 31, 2004 and 2003,
respectively.
The balances maintained on deposit with the Federal Reserve Bank
to meet reserve requirements as of December 31, 2004 and 2003, were
$59.0 million and $57.1 million, respectively.
At December 31, 2004, the scheduled maturities of time deposits
were as follows:
(Dollars in Thousands)
2005
2006
2007
2008
2009 and thereafter
Total
$448,880
64,553
38,309
13,395
6,383
$571,520
============
(Dollars in Thousands)
2004
Balance at December 31,
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
(Dollars in Thousands)
2003
Balance at December 31,
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
(Dollars in Thousands)
2002
Balance at December 31,
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
Securities
Sold Under
Repurchase Short-Term
Purchased Agreements Borrowings
Federal
Funds
Other
$19,800
27,875
22,291
1.27%
1.97%
$58,431
77,087
54,607
0.71%
1.12%
$17,783
41,941
23,683
2.52%
3.19%
Securities
Sold Under
Repurchase Short-Term
Purchased Agreements Borrowings
Federal
Funds
Other
$12,624
23,930
14,768
0.94%
0.68%
$53,223
90,209
49,785
0.59%
0.31%
$42,337
44,226
36,721
2.28%
2.50%
Securities
Sold Under
Repurchase Short-Term
Purchased Agreements Borrowings
Federal
Funds
Other
$14,120
17,395
9,079
1.46%
0.55%
$77,318
77,318
55,679
0.87%
0.83%
$22,237
22,237
7,836
1.89%
2.32%
Capital City Bank Group 63
notes to consolidated financial statements
Note 10
LONG-TERM DEBT
Federal Home Loan Bank Notes. At December 31, Federal Home
Loan Bank advances included:
(Dollars in Thousands)
2004
2003
Due on September 12, 2005, fixed rate of 3.06%
Due on December 19, 2005, fixed rate of 6.04%
Due on February 15, 2006, fixed rate of 3.00%
Due on September 11, 2006, fixed rate of 2.93%
Due on February 13, 2007, fixed rate of 3.05%
Due on April 24, 2007, fixed rate of 7.30%
Due on May 30, 2008, fixed rate of 2.50%
Due on June 13, 2008, fixed rate of 5.40%
Due on November 10, 2008, fixed rate of 4.12%
Due on October 19, 2009, fixed rate of 3.69%
Due on November 10, 2010, fixed rate of 4.72%
Due on December 31, 2010, fixed rate of 3.85%
Due on April 4, 2011, fixed rate of 4.00%(1)
Due on December 18, 2012, fixed rate of 4.84%
Due on March 18, 2013, fixed rate of 6.37%
Due on June 17, 2013, fixed rate of 3.53%
Due on June 17, 2013, fixed rate of 3.85%
Due on June 17, 2013, fixed rate of 4.11%
Due on September 23, 2013, fixed rate of 5.64%
Due on January 27, 2014, fixed rate of 5.79%
Due on March 10, 2014, fixed rate of 4.21%
Due on May 27, 2014, fixed rate of 5.92%
Due on July 20, 2016, fixed rate of 6.27%
Due on October 3, 2016, fixed rate of 5.41%
Due on October 31, 2016, fixed rate of 5.16%
Due on June 27, 2017, fixed rate of 5.53%
Due on October 31, 2017, fixed rate of 4.79%
Due on December 11, 2017, fixed rate of 4.78%
Due on December 20, 2017, fixed rate of 5.37%
Due on February 26, 2018, fixed rate of 4.36%
Due on September 18, 2018, fixed rate of 5.15%
Due on November 5, 2018, fixed rate of 5.10%
Due on December 3, 2018, fixed rate of 4.87%
Due on December 17, 2018, fixed rate of 6.33%
Due on December 24, 2018, fixed rate of 6.29%
Due on February 16, 2021, fixed rate of 3.00%
Due on May 30, 2023, fixed rate of 2.50%
Due on May 21, 2024, fixed rate of 5.94%
Total outstanding
$
-
-
49
20,000
3,000
136
134
500
2,346
784
774
1,006
5,000
610
699
977
96
1,828
998
1,297
694
527
1,371
355
789
875
1,070
948
979
2,247
660
3,749
688
1,640
742
884
1,001
9,000
$68,453
=========
$15,000
1,103
86
-
-
-
168
643
2,419
906
798
1,115
-
631
755
1,060
98
1,877
1,076
1,344
-
569
1,489
-
-
-
1,160
1,021
1,003
2,418
708
3,866
737
1,710
769
915
1,031
-
$46,475
========
(1) This advance is callable quarterly at the option of the FHLB beginning on April 4,2005.
The contractual maturities of FHLB debt for the five years succeed-
ing December 31, 2004, are as follows:
(Dollars in Thousands)
2005
2006
2007
2008
2009
2010 and thereafter
Total
$ 2,313
22,509
5,554
4,536
2,386
31,155
$68,453
=========
The Federal Home Loan Bank advances are collateralized with 1-4
family residential mortgage loans and treasury securities. Interest on
the Federal Home Loan Bank advances is paid on a monthly basis.
Line of Credit. The Company has the ability to draw on a Revolving
Credit Note, due on October 15, 2007. Interest is payable quarterly at
LIBOR plus an applicable margin on advances. The revolving credit is
unsecured. The existing loan agreement contains certain financial
covenants that must be maintained by the Company. At December 31,
2004, the Company was in compliance with all of the terms of the agree-
ment and had $36.0 million available under a $36.0 million line of credit
facility. Effective January 1, 2005, in accordance with the terms of the
agreement which was executed on October 15, 2004, the amount available
under the facility will be reduced from $36.0 million to $25.0 million.
Junior Subordinated Deferrable Interest Note. The Company has
issued a $30.9 million junior subordinated deferrable interest note to a
wholly owned Delaware statutory trust, Capital City Bank Group Capital
Trust I (“CCBG Capital Trust I”). The trust is considered a variable
interest entity for which the Company is not the primary beneficiary.
Accordingly, the accounts of the trust are not included in the Company’s
consolidated financial statements. See Note 1 – Summary of Significant
Accounting Policies for additional information about the Company’s con-
solidation policy. Details of the Company’s transaction with the trust
are provided below.
In November 2004, CCBG Capital Trust I issued $30.0 million of
trust preferred securities which represent beneficial interest in the
assets of the trust. The interest rate is fixed at 5.71% for a period of five
years, then adjustable annually to LIBOR plus a margin of 1.90%. The
trust preferred securities will mature on December 31, 2034, and are
redeemable upon approval of the Federal Reserve Board in whole or in
part at the option of the Company at any time after December 31, 2009
and in whole or upon occurance of certain events affecting their tax or
regulatory capital treatment. Distributions on the trust preferred secu-
rities are payable quarterly on March 31, June 30, September 30, and
December 31 of each year. CCBG Capital Trust I also issued $928,000
of common equity securities to Capital City Bank Group, Inc. The pro-
ceeds of the offering of trust preferred securities and common equity
securities were used to purchase a $30.9 million junior subordinated
deferrable interest note issued by the Company, which has terms sub-
stantially similar to the trust preferred securities.
64 Capital City Bank Group
notes to consolidated financial statements
The Company has the right to defer payments of interest on the
note at any time or from time to time for a period of up to twenty consec-
utive quarterly interest payment periods. Under the terms of the note,
in the event that under certain circumstances there is an event of
default under the note or the Company has elected to defer interest on
the note, the Company may not, with certain exceptions, declare or pay
any dividends or distributions on its capital stock or purchase or acquire
any of its capital stock. The Company is current on the interest
payment obligation and has not executed the right to defer interest pay-
ments on the note.
The Company has entered into an agreement to guarantee the pay-
ments of distributions on the trust preferred securities and payments of
redemption of the trust preferred securities. Under this agreement, the
Company also agrees, on a subordinated basis, to pay expenses and lia-
bilities of the trust other than those arising under the trust preferred
securities. The obligations of the Company under the junior subordinat-
ed note, the trust agreement establishing the trust, the guarantee and
agreement as to expenses and liabilities, in aggregate, constitute a full
and conditional guarantee by the Company of the trust’s obligations
under the trust preferred securities.
Despite the fact that the accounts of CCBG Capital Trust I are not
included in the Company’s consolidated financial statements, the $30.0
million in trust preferred securities issued by the trust is included in the
Tier 1 capital of Capital City Bank Group, Inc. as allowed by Federal
Reserve Board guidelines.
Note 11
INCOME TAXES
The provision for income taxes reflected in the statement of income
is comprised of the following components:
(Dollars in Thousands)
2004
2003
2002
Current:
Federal
State
Deferred:
Federal
State
Total
$13,753
1,381
656
109
$15,899
========
$10,876
1,949
682
73
$13,580
=========
$12,123
2,047
(1,337)
(142)
$12,691
=========
The net deferred tax assets and the temporary differences compris-
ing that balance at December 31, 2004 and 2003, are as follows:
(Dollars in Thousands)
2004
2003
Deferred Tax Assets attributable to:
Allowance for Loan Losses
Associate Benefits
Unrealized Losses on Investment Securities
Accrued Pension/SERP
Market Value of Loans
Interest on Nonperforming Loans
Core Deposit Intangible Amortization
Intangible Assets
Accrued Expense
Other
Total Deferred Tax Assets
Deferred Tax Liabilities attributable to:
Depreciation on Premises and Equipment
Deferred Loan Costs
Unrealized Gains on Investment Securities
Core Deposit Intangible Amortization
Securities Accretion
Other
Total Deferred Tax Liabilities
Net Deferred Tax Assets
$5,681
229
203
1,390
248
45
-
18
573
331
$8,718
$3,433
2,016
-
465
20
321
6,256
$2,463
============
$4,216
-
-
985
-
-
1,524
-
461
871
$8,057
$2,852
3,041
802
-
65
150
6,910
$1,147
============
Income taxes provided were different than the tax expense comput-
ed by applying the statutory federal income tax rate of 35% to pre-tax
income as a result of the following:
(Dollars in Thousands)
2004
2003
2002
Tax Expense at Federal Statutory Rate $15,845 $13,571 $12,521
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income
State Taxes, Net of Federal Benefit
Other
Actual Tax Expense
(992)
969
77
(348)
$15,899 $13,580
=============
==============
(957)
(1,084)
1,314 1,238
16
$12,691
=============
Capital City Bank Group 65
notes to consolidated financial statements
Note 12
EMPLOYEE BENEFIT PLANS
Pension Plan
The Company sponsors a noncontributory pension plan covering
substantially all of its associates. Benefits under this plan generally are
based on the associate’s years of service and compensation during the
years immediately preceding retirement. The Company’s general
funding policy is to contribute amounts deductible for federal income tax
purposes.
The following table details the components of pension expense, the
funded status of the plan, amounts recognized in the Company’s consol-
idated statements of financial condition, and major assumptions used to
determine these amounts.
(Dollars in Thousands)
2004
2003
2002
Change in Projected Benefit Obligation:
$ 46,227
Benefit Obligation at Beginning of Year
3,776
Service Cost
Interest Cost
2,893
Actuarial Loss 2,890
(1,092)
Benefits Paid
(165)
Expenses Paid
Plan Change (1)
-
$ 37,941
3,302
2,571
3,196
(1,060)
(237)
514
$ 33,642
2,842
2,348
1,671
(2,385)
(177)
-
Projected Benefit Obligation
at End of Year
Accumulated Benefit Obligation
at End of Year
$ 54,529
========
$ 46,227
$ 37,941
======== ========
$ 38,325
========
$ 26,441
$ 32,444
======== ========
Change in Plan Assets:
Fair Value of Plan Assets
at Beginning of Year
Actual Return on Plan Assets
Employer Contributions
Benefits Paid
Expenses Paid
Fair Value of Plan Assets
$ 34,784
2,710
4,888
(1,092)
(165)
$ 27,423
4,915
3,744
(1,061)
(237)
$ 30,113
(3,357)
3,229
(2,385)
(177)
Reconciliation of Funded Status:
Funded Status
Unrecognized Net Actuarial Losses
Unrecognized Prior Service Cost
Unrecognized Net Transition Obligation
(Accrued) Prepaid Benefit Cost
$(13,404)
11,676
1,517
-
$ (211)
========
$(10,518)
$(11,443)
10,672
9,993
1,434
1,732
1
1
$ 283
$ 1,589
======== ========
66 Capital City Bank Group
(Dollars in Thousands)
2004
2003
2002
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of Prior Service Costs
Transition Obligation Recognition
Recognized Net Actuarial Loss
Net Periodic Benefit Cost
$ 3,776
2,893
(2,665)
215
1
1,163
$ 5,383
=======
$ 3,302
2,571
(2,168)
216
1
1,127
$ 5,049
=======
$ 2,842
2,348
(2,404)
284
1
317
$ 3,388
=======
Assumptions:
Weighted-average used to determine benefit obligations:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
6.00%
8.00%
5.50%
Weighted-average used to determine net cost:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
6.25%
8.00%
5.50%
(1) Represents a change in mortality assumptions set forth in IRC 417(e).
6.25%
8.25%
5.50%
6.75%
8.25%
5.50%
6.75%
8.25%
5.50%
7.25%
8.25%
5.50%
Return on Plan Assets.. The overall expected long-term rate of
return on assets is a weighted-average expectation for the return on plan
assets. The Company considers historical performance and current
benchmarks to arrive at expected long-term rates of return in each asset
category. The Company assumed that 65% of its portfolio would be
invested in equity securities, with the remainder invested in debt securi-
ties.
Plan Assets. The Company’s pension plan asset allocation at year-
end 2004 and 2003, and the target asset allocation for 2005 are as
follows:
Percentage of Plan
Assets at Year-End
Target Allocation
2005
65%
2004
58%
Debt Securities
35%
28%
Real Estate
-
-
Other
-
14%
Total
100%
100%
2003
60%
28%
-
12%
100%
The Company’s pension plan assets are overseen by the CCBG
Retirement Committee. Capital City Trust Company acts as plan trustee
and investment manager. The investment strategy is to maximize return
on investments while minimizing risk. The Company believes the best
way to accomplish this goal is to take a conservative approach to its
investment strategy by investing in high-grade equity and debt securities.
at End of Year
$ 41,125
$ 34,784
$ 27,423
Equity Securities
notes to consolidated financial statements
notes to consolidated financial statements
Expected Benefit Payments. As of December 31, 2004, expected
(Dollars in Thousands)
2004
2003
2002
benefit payments related to the Company’s defined benefit pension plan
were as follows:
2005
2006
2007
2008
2009
2010 through 2014
$ 2,438,891
2,660,318
3,178,166
3,621,447
3,954,736
25,227,483
$41,081,041
===========
Contributions. The following table details the amounts contributed
to the pension plan in 2004 and 2003, and the expected amount to be
contributed in 2005.
2004
2003
Actual Contributions
$4,888,593
$3,743,763
Expected
2005
$4,000,000 to
$5,000,000
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan
(“SERP”) covering selected executives. Benefits under this plan generally
are based on the executive’s years of service and compensation during
the years immediately preceding retirement. The Company recognized
expense during 2004, 2003 and 2002 of approximately $490,000,
$208,000, and $393,000, respectively, and no minimum liability, at
December 31, 2004, 2003 and 2002.
The following table details the components of the Supplemental
Executive Retirement Plan’s periodic benefit cost, the funded status of
the plan, amounts recognized in the Company’s consolidated statements
of financial condition, and major assumptions used to determine these
amounts.
(Dollars in Thousands)
2004
2003
2002
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial Loss (Gain)
Plan Change (1)
Projected Benefit Obligation
$ 1,880
147
198
1,376
-
$ 2,770
80
111
(1,107)
26
$ 1,458
118
169
1,025
-
at End of Year
$ 3,601
$ 1,880
$ 2,770
Accumulated Benefit Obligation
at End of Year
$ 1,894
$ 1,206
$ 1,273
Reconciliation of Funded Status:
Funded Status
Unrecognized Net Actuarial Loss (Gain)
Unrecognized Prior Service Cost
Accrued Benefit Cost
Components of Net Periodic Benefit Costs:
$ (3,601)
874
449
$ (2,278)
$ (1,880)
(418)
511
$ (1,787)
$ (2,770)
645
546
$ (1,579)
=========
=========
=========
Service Cost
Interest Cost
Amortization of Prior Service Cost
Recognized Net Actuarial Loss (Gain)
Net Periodic Benefit Cost
$ 147
198
62
84
$ 491
$ 80
111
61
(44)
$ 208
$ 118
169
59
47
$ 393
=========
=========
=========
Assumptions:
Weighted-average used to determine the benefit obligations:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
6.00%
8.00%
5.50%
Weighted-average used to determine the net cost:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
6.25%
8.00%
5.50%
(1) Represents a change in mortality assumptions set forth in IRC 417(e)
6.25%
8.25%
5.50%
6.75%
8.25%
5.50%
6.75%
8.25%
5.50%
7.25%
8.25%
5.50%
Expected Benefit Payments. As of December 31, 2004, expected
benefit payments related to the Company’s SERP were as follows:
2005
2006
2007
2008
2009
2010 through 2014
401(k) Plan
$ 17,519
19,411
20,507
103,905
218,825
2,720,069
$3,100,236
==========
The Company has a 401(k) Plan which enables associates to defer
a portion of their salary on a pre-tax basis. The plan covers substantially
all associates of the Company who meet minimum age requirements.
The plan is designed to enable participants to elect to have an amount
from 1% to 15% of their compensation withheld in any plan year placed
in the 401(k) Plan trust account. Matching contributions from the
Company are made up to 6% of the participant’s compensation for some
qualifying associates. During 2004 and 2003, the Company made
matching contributions of $66,281 and $32,258, respectively. There
were no contributions made by the Company for 2002. The participant
may choose to invest their contributions into seventeen investment
funds available to CCBG participants, including CCBG’s common stock.
A total of 50,000 shares of Capital City Bank Group, Inc. stock have
Capital City Bank Group 67
notes to consolidated financial statements
Required
For Capital
Adequacy Purposes
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
Actual
(Dollars in Thousands)
Amount Ratio Amount Ratio Amount
Ratio
As of December 31, 2004:
Tier I Capital:
CCBG
CCB
$207,776 11.44% $ 72,617 4.00%
199,565 11.01%
*
72,506 4.00% $108,759 6.00%
*
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
223,813 12.33%
215,602 11.89%
145,235 8.00%
145,012 8.00%
*
*
181,265 10.00%
207,776
199,564
8.79%
8.47%
54,463 3.00%
54,379 3.00%
*
*
90,632 5.00%
As of December 31, 2003:
Tier I Capital:
CCBG
CCB
$175,631 12.88% $ 54,547 4.00%
167,698 12.32%
*
54,438 4.00% $ 81,658 6.00%
*
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
188,059 13.79%
180,126 13.24%
109,094 8.00%
108,877 8.00%
*
*
136,096 10.00%
175,631
167,698
9.51%
9.10%
40,910 3.00%
40,829 3.00%
*
*
68,048 5.00%
*Non-applicable to bank holding companies.
Note 15
DIVIDEND RESTRICTIONS
Substantially all the Company’s retained earnings are undistributed
earnings of its banking subsidiary which are restricted by various regula-
tions administered by federal and state bank regulatory authorities.
The approval of the appropriate regulatory authority is required if
the total of all dividends declared by a subsidiary bank in any calendar
year exceeds the bank’s net profits (as defined under Florida law) for that
year combined with its retained net profits for the preceding two calendar
years. In 2005, the bank subsidiary may declare dividends without regu-
latory approval of $35.2 million plus an additional amount equal to the
net profits of the Company’s subsidiary bank for 2005 up to the date of
any such dividend declaration.
been reserved for issuance.
Other Plans
The Company has a Dividend Reinvestment and Optional Stock
Purchase Plan. A total of 250,000 shares have been reserved for
issuance. In recent years, shares for the Dividend Reinvestment and
Optional Stock Purchase Plan have been acquired in the open market
and, thus, CCBG did not issue any shares under this plan in 2004,
2003 and 2002.
Note 13
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
(Dollars in Thousands,Except per Share Data)
2004
2003
2002
Numerator:
Net Income
Denominator:
$ 29,371 $ 25,193 $ 23,082
============ ============= =============
Denominator for Basic Earnings
Per Share Weighted-Average Shares
13,443,753 13,222,487 13,225,285
Effects of Dilutive Securities
Stock Compensation Plans
4,184 28,702 49,070
Denominator for Diluted Earnings
Per Share Adjusted Weighted-Average
Shares and Assumed Conversions
Basic Earnings Per Share
Diluted Earnings per Share
13,447,937 13,251,189 13,274,355
============ ============= =============
$ 2.18 $ 1.91 $ 1.75
============ ============= =============
$ 2.18 $ 1.90 $ 1.74
============ ============= =============
Note 14
CAPITAL
The Company is subject to various regulatory capital requirements
which involve quantitative measures of the Company’s assets, liabilities
and certain off-balance sheet items. The Company’s capital amounts
and classification are subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Quantitative
measures established by regulation to ensure capital adequacy require
that the Company maintain amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. As of December 31, 2004, the Company met
all capital adequacy requirements to which it is subject.
A summary of actual, required, and capital levels necessary to be
considered well-capitalized for Capital City Bank Group, Inc. consolidat-
ed and its banking subsidiary, Capital City Bank, as of December 31,
2004 and December 31, 2003 are as follows:
68 Capital City Bank Group
notes to consolidated financial statements
Note 16
RELATED PARTY INFORMATION
DuBose Ausley, a Director of the Company, is employed by and is
the former Chairman of Ausley & McMullen, the Company’s general
counsel. Fees paid by the Company and its subsidiary for legal services,
in aggregate, approximated $797,000, $765,000, and $647,000 during
2004, 2003, and 2002, respectively.
as it does for on-balance sheet instruments. As of December 31, 2004,
the amounts associated with the Company’s off-balance sheet obliga-
tions were as follows:
(Dollars in Thousands)
Commitments to Extend Credit (1)
Standby Letters of Credit
Amount
$407,331
$ 17,844
Under a lease agreement expiring in 2024, the Bank leases land
(1) Commitments include unfunded loans,revolving lines of credit (including credit card lines) and other
from a partnership in which several directors and officers have an inter-
est. The lease agreement with Smith Interests General Partnership
L.L.P., provides for annual lease payments of approximately $91,000, to
be adjusted for inflation in future years.
At December 31, 2004 and 2003, certain officers and directors
were indebted to the Company’s bank subsidiary in the aggregate
amount of $18.8 million and $17.8 million, respectively. During 2004,
$13.6 million in new loans were made and repayments totaled $12.6
million. In the opinion of management, these loans were made on
similar terms as loans to other individuals of comparable creditworthi-
ness and were all current at year-end.
Note 17
SUPPLEMENTARY INFORMATION
Components of other noninterest income and noninterest expense
in excess of 1% of the sum of total interest income and noninterest
income, which are not disclosed separately elsewhere, are
(Dollars in Thousands)
Merchant Fee Income
Interchange Commission Fees
Noninterest Expense:
Professional Fees
Printing & Supplies
Telephone
Commission/Service Fees
2004
2003
2002
$5,135
2,229
$4,563
2,183
$3,715
2,133
2,858
1,854
2,048
4,741
1,918
1,742
1,872
4,181
1,895
1,772
1,832
3,464
Note 18
COMMITMENTS AND CONTINGENCIES
Lending Commitments. The Company is a party to financial
instruments with off-balance sheet risks in the normal course of busi-
ness to meet the financing needs of its customers. These financial
instruments consist of commitments to extend credit and standby letters
of credit.
The Company’s maximum exposure to credit loss under standby
letters of credit and commitments to extend credit is represented by the
contractual amount of those instruments. The Company uses the same
credit policies in establishing commitments and issuing letters of credit
unused commitments.
Commitments to extend credit are agreements to lend to a cus-
tomer so long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities. In general, man-
agement does not anticipate any material losses as a result of
participating in these types of transactions. However, any potential
losses arising from such transactions are reserved for in the same
manner as management reserves for its other credit facilities.
For both on- and off-balance sheet financial instruments, the
Company requires collateral to support such instruments when it is
deemed necessary. The Company evaluates each customer’s creditwor-
thiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on management’s credit evaluation of the
counterparty. Collateral held varies, but may include deposits held in
financial institutions; U.S. Treasury securities; other marketable securi-
ties; real estate; accounts receivable; property, plant and equipment;
and inventory.
Other Commitments. In the normal course of business, the
Company enters into lease commitments. Minimum lease payments
under leases classified as operating leases due in each of the five years
subsequent to December 31, 2004, are as follows (in millions): 2005,
$1.3; 2006, $1.2; 2007, $1.1; 2008, $1.1; and 2009, $1.1.
Contingencies. The Company is a party to lawsuits and claims
arising out of the normal course of business. In management’s opinion,
there are no known pending claims or litigation, the outcome of which
would, individually or in the aggregate, have a material effect on the con-
solidated results of operations, financial position, or cash flows of the
Company.
Capital City Bank Group 69
notes to consolidated financial statements
Note 19
FAIR VALUE OF FINANCIAL
INSTRUMENTS
Many of the Company’s assets and liabilities are short-term finan-
cial instruments whose carrying values approximate fair value. These
items include Cash and Due From Banks, Interest Bearing Deposits with
Other Banks, Federal Funds Sold, Federal Funds Purchased, Securities
Sold Under Repurchase Agreements, and Short-Term Borrowings. In
cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques.
The resulting fair values may be significantly affected by the assump-
tions used, including the discount rates and estimates of future cash
flows.
The methods and assumptions used to estimate the fair value of
the Company’s other financial instruments are as follows:
Investment Securities – Fair values for investment securities are
based on quoted market prices. If a quoted market price is not avail-
able, fair value is estimated using market prices for similar securities.
Loans – The loan portfolio is segregated into categories and the fair
value of each loan category is calculated using present value techniques
based upon projected cash flows and estimated discount rates. The cal-
culated present values are then reduced by an allocation of the
allowance for loan losses against each respective loan category.
Deposits – The fair value of Noninterest Bearing Deposits, NOW
Accounts, Money Market Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of
fixed maturity certificates of deposit is estimated using present value
techniques and rates currently offered for deposits of similar remaining
maturities.
Subordinated Note Payable - The fair value of the note is calculated
using present value techniques, based upon projected cash flows and
estimated discount rates as well as rates being offered for similar obliga-
tions.
Long-Term Borrowings – The fair value of each note is calculated
using present value techniques, based upon projected cash flows and
estimated discount rates as well as rates being offered for similar debt.
The Company’s financial instruments that have estimated fair
values are presented below:
At December 31,
2004
2003
Carrying
Value
Estimated
Fair
Value
Carrying
Value
Estimated
Fair
Value
$ 87,039 $ 87,039 $ 93,140 $ 93,140
125,452
181,734
74,506
210,240
74,506
210,240
125,452
181,734
(Dollars in Thousands)
Financial Assets:
Cash
Short-Term Investments
Investment Securities
Loans, Net of Allowance
for Loan Losses
Total Financial Assets
1,812,788 1,816,670 1,329,203 1,365,541
$2,184,573 $2,188,455 $1,729,529 $1,765,867
=============== =============== =============== ===============
Financial Liabilities:
Deposits
Short-Term Borrowings
Subordinated Note Payable
Long-Term Borrowings
Total Financial Liabilities
96,014
30,928
$1,894,886 $1,791,797 $1,474,205 $1,486,539
108,184
-
68,453 68,582 46,475 47,270
$2,090,281 $1,987,472 $1,628,864 $1,641,993
=============== =============== =============== ===============
108,184
-
96,053
31,040
Certain financial instruments and all nonfinancial instruments are
excluded from the above table. The disclosures also do not include
certain intangible assets such as customer relationships, deposit base
intangibles and goodwill. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
Note 20
PARENT COMPANY FINANCIAL
INFORMATION
The operating results of the parent company for the three years
ended December 31, are shown below:
Commitments to Extend Credit and Standby Letters of Credit – The
Parent Company Statements of Income
fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account
the present creditworthiness of the counterparties. Fair value of these
fees is not material.
(Dollars in Thousands)
2004
2003
2002
OPERATING INCOME
Income Received from Subsidiary Bank:
Dividends
Overhead Fees
Other Income
Total Operating Income
$12,716
3,232
2
15,950
$11,599
2,935
-
14,534
$12,678
3,061
59
15,798
70 Capital City Bank Group
notes to consolidated financial statements
(Dollars in Thousands)
2004
2003
2002
The cash flows for the parent company for the three years ended
OPERATING EXPENSE
Salaries and Associate Benefits
Interest on Long-Term Borrowings
Interest on Subordinated Note Payable
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Bank
Income Tax Benefit
Income Before Equity in Undistributed
Earnings of Subsidiary Bank
Equity in Undistributed Earnings
of Subsidiary Bank
Net Income
$ 2,257
33
294
895
286
468
480
4,713
$ 1,847
-
-
1,104
193
374
404
3,922
$ 2,311
7
-
994
138
197
335
3,982
11,237
(581)
10,612
(278)
11,816
(248)
11,818
10,890
12,064
17,553
$29,371
===========
14,303
$25,193
===========
11,018
$23,082
===========
The following are condensed statements of financial condition of
the parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands,Except Per Share Data) (1)
2004
2003
ASSETS
Cash and Due From Subsidiary Bank
Investment in Subsidiary Bank
Other Assets
Total Assets
LIABILITIES
Subordinated Note Payable
Other Liabilities
Total Liabilities
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; 14,155,312 and 13,236,462
shares issued and outstanding at December 31,
2004 and December 31, 2003, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive (Loss) Income,
Net of Tax
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
$ 6,893 $ 7,850
282,034
196,316
1,536 1,310
$290,463 $205,476
========== ==========
$ 30,928 $
-
2,735 2,667
$ 33,663 $ 2,667
142
52,363
204,648
132
16,157
185,134
(353)
1,386
256,800 202,809
$290,463 $205,476
========== ==========
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective June 13,
2003.
December 31, were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
2004
2003
2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed
Earnings of Subsidiary Bank
Non-Cash Compensation
Increase in Other Assets
Increase (Decrease) in Other Liabilities
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Cash Paid for Investment in Subsidiary
Increase in Investment in Bank Subsidiary
CASH FROM FINANCING ACTIVITIES:
Proceeds from Subordinated Note
Increase in Other Long-Term Borrowings
Repayments of Long-Term Borrowings
Payment of Dividends
Repurchase of Common Stock
Issuance of Common Stock, Net
Net Cash Provided by (Used in)
Financing Activities
Net (Decrease) Increase in Cash
Cash at Beginning of Period
Cash at End of Period
$29,371
$25,193
$23,082
(17,553)
1,707
(189)
68
13,404
(14,303)
508
(130)
300
11,568
(11,018)
892
(256)
(2,603)
10,097
(928)
(35,688)
(36,616)
-
-
-
-
-
-
30,928
30,000
(30,000)
(9,857)
-
1,184
-
-
-
(8,646)
(17)
975
-
2,040
(2,040)
(6,644)
(3,395)
688
22,255
(7,688)
(9,351)
(957)
7,850
$ 6,893
========
3,880
3,970
$ 7,850
========
746
3,224
$ 3,970
========
Note 21
COMPREHENSIVE INCOME
-
-
SFAS No. 130, “Reporting Comprehensive Income,” requires that
certain transactions and other economic events that bypass the income
statement be displayed as other comprehensive income (loss). The
Company’s comprehensive income (loss) consists of net income (loss)
and changes in unrealized gains (losses) on securities available-for-sale,
net of income taxes. Changes in unrealized gains (losses) (net of taxes)
on securities are reported as other comprehensive (loss) income and
totaled ($1,739,000), ($1,735,000), and $771,000 for 2004, 2003 and
2002, respectively. Reclassification adjustments consist only of realized
gains on sales of investment securities and were not material for the
years ended December 31, 2004, 2003 and 2002.
Capital City Bank Group 71
officers, directors and community boards
Capital City Bank Group, Inc.
Tallahassee, Florida
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Drew Ferguson, III
Community President
Troup and Chambers Counties
S. Craig McMillan
President,Pat Thomas & Associates
Insurance,Inc.
OFFICERS
William G. Smith, Jr.
Chairman,President
and Chief Executive Officer
Thomas A. Barron
Treasurer
J. Kimbrough Davis
Executive Vice President
and Chief Financial Officer
John M. Hutchison
Senior Vice President
Ray A. Johnson
Senior Vice President
DIRECTORS
DuBose Ausley
Attorney
Ausley & McMullen,P.A.
Thomas A. Barron
President
Capital City Bank
Frederick Carroll, III
Managing Partner
Carroll and Company,CPAs
Cader B. Cox, III
President
Riverview Plantation Inc.
J. Everitt Drew
President
St.Joe Land Company
John K. Humphress
Partner
Krause Humphress Pace &
Wadsworth,Chartered CPAs
Lina S. Knox
Community Volunteer
Ruth A. Knox
Attorney/President
Wesleyan College
Henry Lewis, III, PharmD, RPH
Dean and Professor
Florida A&M University
College of Pharmacy
John R. Lewis, PhD
President and Chief Executive Officer
Super-Lube,Inc.
William G. Smith, Jr.
Chairman,President
and Chief Executive Officer
Capital City Bank Group,Inc.
Andy Andrews
Executive Vice President
Flecia Braswell
Executive Vice President
Randolph K. Briley
Executive Vice President
Edward G. Canup
Executive Vice President
William D. Colledge
Executive Vice President
Noel A. Ellis
Executive Vice President
Mitchell R. Englert
Executive Vice President
Russell S. Grosvenor
Executive Vice President
Karen H. Love
Executive Vice President
Roger Miller
Executive Vice President
Frances Purvis
Senior Vice President,
Senior Office Manager
Cynthia Y. Pyburn
Senior Vice President
Dale A. Thompson
Executive Vice President
Edwin N. West, Jr.
Executive Vice President
Charles J. Davis
Senior Vice President
Jep Larkin
Senior Vice President,Controller
Robert K. Mayer
Senior Vice President
William L. Moor, Jr.
Senior Vice President
William R. Rodrigues
Senior Vice President
David Sanda
Senior Vice President
James Y. Scarboro
Senior Vice President
William P. Smith, Jr.
Senior Vice President
Stephen Stabler
Senior Vice President
Mark W. Strickland
Senior Vice President
Emory F. Sullivan
Senior Vice President
Larry R. Fredrick
Community President,Putnam County
W. W. Gunnels, Jr.
Community President
Jefferson and Madison Counties
Stephen Jukes
Community President,Bibb County
C. Stephen Martin
Community President
Citrus County/Inglis
Terry McRae
Community President,Grady County
Wallace Miller
Community President
Laurens County
Jeffrey L. Oody
Community President
Bradford and Clay Counties
James R. Suber
Community President,
Gadsden County
Johanna White
Community President,Gulf County
Susan E. Wise
Community President,Taylor County
DIRECTORS
Daniel M. Ausley
Owner
MASK Development
Thomas A. Barron
President
Capital City Bank
Gregory V. Beauchamp
Attorney
Gregory V.Beauchamp,PA
Robert J. Beauchamp
Certified Public Accountant
Beauchamp & Edwards,PA
Donald T. Bennink
Dairy Farmer/Owner
North Florida Holsteins
Kenneth R. Hart
President
Ausley & McMullen,PA
E. Cantey Higdon
Investor
John B. Higdon
Investor
Higdon Investment Co.
Capital City Bank
Tallahassee, Florida
OFFICERS
William G. Smith, Jr.
Chairman of the Board
Thomas A. Barron
President
Beverly H. Black
Community President,Burke County
McGrath Keen, Jr.
Private Investor
Clifton E. Bradley
Community President,Dixie,Gilchrist,
Levy and Suwannee Counties
Harold M. Knowles
Attorney/Shareholder
Knowles,Marks & Randolph
Roy L. Carter
Community President
Washington County
Blucher B. Lines
Attorney
Lines,Hinson & Lines
72 Capital City Bank Group
John B. Mowell
President
Mowell Financial Group,Inc.
William G. Smith, Jr.
Chairman,President
and Chief Executive Officer
Capital City Bank Group,Inc.
Ben H. Wilkinson, Jr.
Partner
Tallahassee Land Company
Fred M. Williams, Jr.
President
Williams Timber,Inc.
P. Graves Williams
President
Q.L.Enterprises,Inc.
SUBSIDIARIES
Capital City Securities, Inc.
William L. Moor, Jr.
President
Capital City Services Company
Russell S. Grosvenor
President
Mark Newman
Senior Vice President
Cynthia Y. Pyburn
Senior Vice President
Capital City Trust Company
Randolph M. Pople
President
Robert A. Barnett
Senior Vice President
R. David Maloy, Jr.
Senior Vice President
Ross P. Obley
Senior Vice President
COMMUNITY BOARDS
Bibb County Community Board
Marilyn L. Ashmore
Director,Capital Campaign -
Museum of Aviation Foundation
Leonard Bevill
CEO/Co-owner
Macon Occupational Medicine
Charles K. Buafo, M.D.
Chief of Staff,Medical Center of
Central Georgia
Dudley B. Christie, Jr.
Investor
Robert J. Cleveland, Jr.
President,Vantage Homes,Inc.
Guy B. Eberhardt, Sr.
President,Eberhardt Industries,Inc.
J. Milton Heard, IV
President,Hart’s Mortuary
T. Baldwin Martin, Jr.
Retired Attorney
Paul R. Nagle
Investor
Edmund E. Olson
President
Sports Towne/Macon Knights
James A. Upshaw, M.D.
Partner
Internal Medicine Associates,P.C.
Bradford/Clay Counties
Community Board
Steve Denmark
Owner,Denmark Furniture Store
Susan Faulkner-O’Neal
Owner,Faulkner Realty
William E. Edwards
Area Distributor Manager
Georgia Power Company
William Marchese, DMD
Owner,Bradford Family Dentistry
John M. Miller
Owner,Bradford County Telegraph
Douglas E. Reddish
Partner,Reddish & White CPAs
Burke County
Community Board
Rickie Blackburn
Owner,Delta Termite & Pest Control
Gregory Coursey
Sheriff of Burke County
William Edwards
Area Distribution Manager
Georgia Power Company
William H. Harper, Jr.
Owner,Harper Consulting,Inc.
C.W. Hopper
Retired,Burke County Commission
Robert H. McKinney
Owner
McKinney Wholesale Company,Inc.
Bonnie Taylor
General Manager,The True Citizen
Citrus County
Community Board
C.L. Calloway
District Manager
Withlacoochee River Electric
Cooperative,Inc.
Dolores H. Clark
President/Owner
R&R Clark Construction,Inc.
Alana Crowder
Publisher
Nature Coast Visitors Guide,Inc.
Billy G. Lafferty
President/Owner
Total Rental Centers,Inc.
William M. Lyons
Semi-Retired,Real Estate
officers, directors and community boards
Gadsden County Community Board
John N. Bert
Owner/Editor,Havana Herald,
Twin City News,and Havana Publishing
Sidney Pridgen
Owner,Center Drugs
Ray Prince
Owner,Prince Farms
Felix R. Joyner
Owner,Joyner’s Travel Center
George W. Miller
Accountant,Miller Accounting,Inc.
John Shaw Curry
Retired Attorney
Michael Dooner
President
Southern Forestry Consultants
George Hackney
Owner/President
Hackney Nursery,Inc.
Harold J. Henderson, Ph.D.
President
Henderson Care Centers,Inc.
E.W. Hinson, Jr.
Owner/President
Hinson Oil Company
Alma Littles, M.D.
Professor/Assoc.Dean for Academic Affairs
FSU College ofMedicine
William W. Mahaffey
President/Broker
Mahaffey Agency,Inc.
Terrance L. Massey
President
Massey Drugs
William M. Maxwell
President
Maxwell & Suber Co.
Fount H. May, Jr.
President,May Nursery,Inc.
W. Dale Summerford
Tax Collector
Gadsden County
Bruce H. Thomas
President
Thomas Motor Cars
Pat M. Woodward, MD
Retired
Gilchrist County Community Board
Theodore M. Burt
Partner,Burt & Feather,PTR
Howell E. Lancaster, Jr.
President,Lancaster Oil
Gary E. Rexroat
Physician’s Assistant
Chiefland Medical Center
Jimmie L. Troke
Co-Owner/REALTOR®,Troke Realty,Inc.
Grady County Community Board
John P. Bell, Jr.
President/Owner,Bell Irrigation,Inc.
Jo Ann Butler
Owner,Joe McNair,Inc.
Phillip Drew
President,Drew Oil Company
Michael L. Gainous
Owner,Triple L.Timber
Ken LeGette
President,Graco Fertilizer,Inc.
Earl Stuckey
Owner/President,Stuckey Construction,Inc.
Thomas B. Scott
Owner,Scott Septic Tank Service
Richard VanLandingham
CEO,Monrovia Nursery Company
John B. Wight, Jr.
Retired
Reverend Sylvester Williams
Pastor,Beulah Missionary Baptist Church
Gulf County Community Board
Mark Costin
Owner,St.Joe Ace Hardware
B. Phillip Earley
Owner/Operator,St.Joe Rental
J. Patrick Farrell, Jr.
Owner/REALTOR®,St.Joe Realty
Shirley Jenkins
Tax Collector,Gulf County
Tommy Pitts
Port Director,Port St.Joe Port Authority
Eugene Raffield
Vice President,Raffield Fisheries,Inc.
Willie Mae Roche
Owner,Holland Roche Design
Clay Smallwood
President,St.Joe Timberland
Hernando/Pasco County
Community Board
George M. Allen, Jr.
Vice Moderator Board of Trustees,
Hernando Health Care
Jerry P. Walton, Jr.
Managing Partner
Big Bend Timber Services,LLC
Laurens County Community Board
Nelson Carswell, Jr.
Physician,Children’s Clinic
Eddie Herrin
Owner,Agriculture wholesale distributor
Leon County Community Board
Ashley P. Beggs
Co-Owner/President,Beggs Funeral Homes
Lawrence Carter, Ph.D.
Associate Dean,Florida A&MUniversity
J. Marshall Conrad
Attorney,Ausley & McMullen,P.A.
Kevin M. Davis
REALTOR®,ERA/Blue Chip Realty
Erin Ennis
Vice President - Finance and Administration
St Joe Land Company
Fincher W. Smith
Restaurant Owner,McFinch Management,Co.
Roger C. Smith
Chairman,Prime Credit Corporation
Glenda L. Thornton
Partner,Foley & Lardner
Levy County Community Board
Thomas D. Barb
Executive Director,Hernando Health Care
Sharon C. Brannan
Sharon C.Brannan,CPA,PA
David R. Carter
Attorney,Law Offices of David R.Carter,PA
Donald M. McCoy, Jr., M.D.
Physician,Nature Coast Medical Group
Carl A. Feddeler
President,CA Feddeler,Inc.,Real Estate
Brokerage/Krysher-Delzer,Inc.
Michael J. Kierzynski
Certified Public Accountant
Kierzynski & Associates,CPAs,PA
Joseph Mazzuco, Jr.
President/Owner
Royal Coachman Homes,Inc.
G. Frank Parker
Certified Public Accountant
Stone,Parker & Assimack,CPA,PA
Jefferson County Community Board
Frank Blow
Owner
Fantasia Enterprises
Teresa Diane Freeman
Senior Engineering Representative
Progress Energy-Florida
Brian T. Hayes
Attorney,Brian T.Hayes,P.A.
Robert E. Mount, Jr., DDS
Dentist
Madison County Community Board
Henry N. Davis
President,Davis Enterprises
Frederick M. Norfleet, Sr.
Pharmacist/Investor
Pam Schoelles
President,Schoelles & Associates,Inc.
Lucas M. Waring
Owner,Lucas Waring Enterprises,Inc.
Odiorne Insurance Agency
Gary L. Williams
Owner,Williams Electric
Putnam County Community Board
Bruce A. Baldwin
CEO,Putnam Community Medical Center
U.D. Floyd
Owner,Floyd Farms
Mildred G. Horton
Retired,St.John’s Water Management District
Daniel A. Martinez
Retired,Georgia Pacific
Randall S. Mathews
President/CEO
Mathews’ Moving and Storage,Inc.,et al.
R. L. McLendon, Jr.
President,St.Johns River CommunityCollege
E. David Risch, MD
Orthopedic Surgeon,E.David Risch,MD,PA
Q. Irving Roberts
President/Owner,Roberts Communications,Inc.
Communications Products,Inc./Roberts Land &
Timber Company,Inc.
Preston Breck Sloan
President,Beck Auto Sales,Inc.
Suwannee County Community Board
Benita Byrd
Office Manager,T.W.Byrd’s Sons,Inc.
Charles E. Hatch
President,Hatch Brothers Farms,Inc.
Charles D. Hurst
C & D Farms,Inc.
Brian L. McAdams, DVM
Co-Owner/President,McAdams Dairy Farm,Inc.
Robbie Suggs
Co-Owner,North Florida Bio-Med
Taylor County Community Board
James C. Bassett
President,Bassett Dairy Products,Inc.
Donald R. Everett
President,Ware Oil & Supply Co.
William R. Grant
President,Perry Auto Supply,Inc.
Carl Gross
President,CG Contractors,Inc.
Michael R. Lynn
President,Michael Lynn,Inc.
Grady C. Moore, Jr.
President,Grady C.Moore Real Estate,Inc.
Joe R. Roberts, III
Chief Financial Officer,Roberts Lumber Co.&
RDS Manufacturing Co.
Michael S. Smith
Attorney,Smith,Smith & Moore,P.A.
Troup/Chambers County
Community Board
Carter Brown
Real Estate Broker,Spinks Brown Durand
Realtors
Jerry Cash
Owner,Greene Super Drug
Thomas Ray Edwards
Owner,Valley Resale
A. Drew Ferguson, IV
Owner,A.Drew Ferguson,IV,DMD
L. Foy Fisher, III
Vice President/Human Resources,
West Point Stevens
Capital City Bank Group 73
officers, directors and community boards
Edmund C. Glover
Chairman/CEO Batson Cook
Company
John Hood
Owner,Hood’s Pharmacy
Scott A. Huguley
Chairman,Troup/Chambers
County Community Board
Casper Y. Wood, Jr.
Editor/Publisher,Valley Times News
Washington County
Community Board
James Edwin Davis
Owner,ChuckWagon House
Restaurant and Davis Angus,Inc.
Willis A. Johnson
President,Johnson Brown Service
Funeral Home,Inc.
William L. Nix
Attorney,Morrow & Nix
W. Mark Garney
Family Nurse Practitioner
Margaret Gilmore
Secretary/Treasurer,
Blackburn Properties,Inc.
Rebecca J. Harris
Branch Manager
Associated Land Title Group,Inc.
Vivian P. Morris, EdD
Educator
Robert W. Snare, MD
Physician,Robert W.Snare,M.D.
Lamar L. Townsend
Owner,L.Townsend Mini Storage
Emeritus Board
Ned P. Brafford
R. Spencer Burress
C. Bob Butler
Donald E. Grant
Sumpter James
Damon D. King
James T. McNeill
Payne H. Midyette, Jr.
G. Ulmer Miller
John L. Miller
M. William Miller
Harold Mills
John T. Mitchell, Sr.
William L. Moor
Millard J. Noblin
James M. Pafford
John H. Parker, Jr., M.D.
Wesley Ramsey
Jack G. Rich
Rodney L. Scarboro
P. W. Shelfer
George A. Stephens
Giles C. Toole, Jr.
Mary M. Whatley
Earlene U. Wheeler
Warren Winkler
shareowner information
How to Communicate With
Capital City Bank Group, Inc.
Telephone
(850) 671-0300
Mailing Address
P. O. Box 11248
Tallahassee, Florida 32302
Internet Address
www.ccbg.com
Capital City Bank Direct Automated
Tallahassee Area
(850) 671-0400
Outside Tallahassee
(888) 671-0400
Capital City Bank Direct Client Service Center
Tallahassee Area
(850) 671-0400
Outside Tallahassee
(888) 671-0400
Trust and Investment Management Services
(850) 671-0315
Corporate Headquarters
Capital City Bank Group, Inc.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
217 North Monroe Street
Tallahassee, Florida 32301
(850) 671-0300
Notice of Annual Meeting
The Annual Meeting of Shareowners will be held on Tuesday,
April 26, 2005, 11:00 a.m., at Wesleyan College in Macon, Georgia.
74 Capital City Bank Group
Shareowner Services
Shareowners desiring to change the name, address or ownership of
stock, to report lost certificates or to consolidate accounts should
contact:
American Stock Transfer and Trust Company
59 Maiden Lane
New York, New York 10007
(212) 936-5100
(800) 937-5449
Independent Public Accountants
KPMG, LLP
Jacksonville, Florida
General Counsel
Ausley & McMullen, P.A.
Tallahassee, Florida
General Information
Analysts, investors and others seeking financial
information should contact:
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
or
Robert H. Smith
Vice President
Capital City Bank Group, Inc.
P. O. Box 11248
Tallahassee, Florida 32302
(850) 671-0300
Capital City Bank Group, Inc. common stock trades on The Nasdaq
Stock Market® under the symbol CCBG.
Form 10-K
A copy of the Company’s 2003 Annual Report on Form 10-K, filed with
the Securities and Exchange Commission, is available at no charge upon
written request to the Chief Financial Officer listed under General
Information.
Banks in the Capital City Bank Group, Inc. are members of the Federal
Deposit Insurance Corporation.
ALABAMA
Chambers County
Fob James Office
375 Fob James Drive
Valley, Alabama 36854
(334) 756-8550
Shawmut Office
3503 20th Avenue
Valley, Alabama 36854
(334) 768-5410
FLORIDA
Alachua County
Gainesville Mortgage Lending Office
3760 NW 83rd Street, Suite 2
Gainesville, Florida 32606
(352) 395-1330
Bradford County
Starke Office
350 North Temple Avenue
Starke, Florida 32091
(904) 964-7050
Citrus County
Citrus Springs Office
10241 North Florida Avenue
Citrus Springs, Florida 34434
(352) 465-0035
Crystal River Office
101 Southeast U.S. Highway 19
Crystal River, Florida 34429
(352) 795-6100
Floral City Office
7697 South Florida Avenue
Floral City, Florida 34436
(352) 344-1555
Inverness Office
1500 North U.S. Highway 41
Inverness, Florida 34450
(352) 726-3200
Clay County
Keystone Heights Office
405 South Lawrence Boulevard
Keystone Heights, Florida 32656
(352) 473-4952
Dixie County
Cross City Office
Barber and Chewning Avenue
Cross City, Florida 32628
(352) 498-5536
Gadsden County
Chattahoochee Office
316 West Washington Street
Chattahoochee, Florida 32324
(850) 663-4355
Havana Office
102 South Main Street
Havana, Florida 32333
(850) 539-5805
Quincy Office
4 E. Washington Street
Quincy, Florida 32351
(850) 875-1000
Gilchrist County
Bell Office
690 South U.S. Highway 129
Bell, Florida 32619
(352) 463-7660
Fanning Springs Office
7240 U.S. Highway 19
Fanning Springs, Florida 32693
(352) 463-6537
Trenton Office
109 West Wade Street
Trenton, Florida 32693
(352) 463-2329
Gulf County
Port St. Joe Office
504 Monument Avenue
Port St. Joe, Florida 32456
(850) 229-8282
Hernando County
Mariner Boulevard Office
7101 Mariner Boulevard
Spring Hill, Florida 34609
(352) 597-2707
Suncoast Spring Hill Office
14302 Spring Hill Drive
Spring Hill, Florida 34609
(352) 797-6700
Jefferson County
Monticello Office
800 South Jefferson Street
Monticello, Florida 32344
(850) 671-0589
Leon County
Apalachee Parkway Office
1801 Apalachee Parkway
Tallahassee, Florida 32301
(850) 671-0579
Apalachee Parkway East Office
3513 Apalachee Parkway
Tallahassee, Florida 32311
(850) 942-3100
Bradfordville Office
6691 Thomasville Road
Tallahassee, Florida 32312
(850) 906-5760
Capital Circle Northwest Office
1456 Capital Circle, Northwest
Tallahassee, Florida 32303
(850) 575-1705
Centerville Road Office
2375 Centerville Road
Tallahassee, Florida 32308
(850) 671-0665
Governor’s Square Mall Office
Governor’s Square Mall
1500 Apalachee Parkway
Tallahassee, Florida 32301
(850) 671-0640
Lake Jackson Office
3815 North Monroe Street
Tallahassee, Florida 32303
(850) 671-0643
Mahan Office
3255 Mahan Drive
Tallahassee, Florida 32308
(850) 671-0384
Main Office
217 North Monroe Street
Tallahassee, Florida 32301
(850) 671-0300
Metropolitan Office
1301 Metropolitan Boulevard
Tallahassee, Florida 32308
(850) 671-0583
North Monroe Office
2111 North Monroe Street
Tallahassee, Florida 32303
(850) 671-0655
South Monroe Office
3404 South Monroe Street
Tallahassee, Florida 32301
(850) 671-0625
Tharpe Street Office
1108 West Tharpe Street
Tallahassee, Florida 32303
(850) 671-0428
Washington County
Chipley Office
1242 Jackson Avenue
Chipley, Florida 32428
(850) 638-0510
GEORGIA
Bibb County
Macon Main Office
455 Walnut Street
Macon, Georgia 31201
(478) 749-6701
Macon Mall Office
3535 Mercer University Center Drive
Macon, Georgia 31204
(478) 749-8021
Macon Northside Office
3710 Northside Drive
Macon, Georgia 31210
(478) 749-8071
Burke County
Waynesboro Office
615 Liberty Street
Waynesboro, Georgia 30830
(706) 437-2000
Waynesboro Office (Remote)
243 Sixth Street
Waynesboro, Georgia 30830
(706) 437-2017
Grady County
Cairo Office
420 North Broad Street
Cairo, Georgia 39828
(229) 377-3002
Cairo Office (Remote)
397 38th Boulevard, Northeast
Cairo, Georgia 39828
(229) 377-3003
Whigham Office
126 East Broad Avenue
Whigham, Georgia 39879
(229) 762-4151
Laurens County
Dublin Main
600 Bellevue Avenue
Dublin, Georgia 31021
(478) 272-3100
East Dublin Office
220 Central Drive
East Dublin, Georgia 31027
(478) 272-3100
Westgate Office
1959 Veterans Boulevard
Dublin, Georgia 31021
(478) 272-3100
Thomas County
Mortgage Lending Office
2024-D East Pinetree Boulevard
Thomasville, Georgia 31792
(229) 226-1935
Troup County
West Point Office
410 West 10th Street
West Point, Georgia 31833
(706) 645-2944
West Point Office (Remote)
110 3rd Avenue
West Point, Georgia 31833
(706) 645-6227
Thomasville Road Office
3528 Thomasville Road
Tallahassee, Florida 32308
(850) 671-0650
West Tennessee Street Office
1828 West Tennessee Street
Tallahassee, Florida 32304
(850) 671-0430
Westwood Office
2020 West Pensacola Street
Tallahassee, Florida 32304
(850) 671-0445
Levy County
Bronson Office
140 East Hathaway
Bronson, Florida 32621
(352) 486-2103
Cedar Key Office
390 2nd Street
Cedar Key, Florida 32625
(352) 543-5174
Chiefland Office
2012 North Young Boulevard
Chiefland, Florida 32626
(352) 493-2571
Inglis Office
95 West Highway 40
Inglis, Florida 34449
(352) 447-2231
Williston Office
144 East Noble Avenue
Williston, Florida 32696
(352) 528-5389
Madison County
Madison Office
603 West Base Street
Madison, Florida 32340
(850) 973-4161
Pasco County
Port Richey Office
10290 Regency Park Boulevard
Port Richey, Florida 34668
(727) 842-8467
Polk County
Lakeland Mortgage Lending Office
124 South Florida Avenue, Suite 304
Lakeland, Florida 33801
(863) 682-4735
Putnam County
Palatka Office
200 Reid Street
Palatka, Florida 32177
(386) 329-1150
Palatka Mall Office
400 North State Road 19, Suite 52
Palatka, Florida 32177
(386) 329-1155
Suwannee County
Branford Office
814 Suwannee Avenue
Branford, Florida 32008
(386) 935-1112
Taylor County
Perry Office
115 West Green Street
Perry, Florida 32347
(850) 584-2057
Steinhatchee Mortgage
Lending Office
1502 1st Avenue SE, Unit B
Steinhatchee, Florida 32359
(352) 498-4136
Wakulla County
Wakulla Mortgage Lending Office
91 Coastal Highway
Panacea, Florida 32346
(850) 984-3461
locations
SUBSIDIARIES
Capital City Securities, Inc.
420 North Broad Street
Cairo, Georgia 39828
(229) 378-8409
2012 North Young Boulevard
Chiefland, Florida 32626
(352) 490-9004
294 NE 210th Avenue
Cross City, Florida 32628
(352) 498-5442
1500 North U.S. Highway 41
Inverness, Florida 34450
(352) 726-3673
455 Walnut Street
Macon, Georgia 31201
(478) 749-6735
833 E. Winthrope Avenue
Millen, GA 30442
(478) 982-2222
200 Reid Street
Palatka, Florida 32177
(386) 312-9904
4 E. Washington Street
Quincy, Florida 32351
(850) 875-5555, Ext. 274
105 West Jefferson Street
Starke, Florida 32091
(904) 964-7056
1801 Apalachee Parkway
Tallahassee, Florida 32301
(850) 671-0505
6691 Thomasville Road
Tallahassee, Florida 32312
(850) 906-5760
1301 Metropolitan Boulevard
Tallahassee, Florida 32308
(850) 671-0505
217 North Monroe Street
Tallahassee, Florida 32301
(850) 671-0450
2111 North Monroe Street
Tallahassee, Florida 32303
(850) 671-0419
615 Liberty Street
Waynesboro, Georgia 30830
(706) 437-2006
410 West 10th Street
West Point, Georgia 31833
(706) 645-6262
Capital City Services
Company
1860 Capital Circle, Northeast
Tallahassee, Florida 32308
(850) 671-0300
Capital City Trust Company
217 North Monroe Street
Tallahassee, Florida 32301
(850) 671-0315
455 Walnut Street
Macon, Georgia 31201
(478) 749-6701
14302 Spring Hill Drive
Spring Hill, Florida 34609
(352) 797-6704
4 E. Washington Street
Quincy, Florida 32351
(850) 875-1000
Capital City Bank Group 75
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76 Capital City Bank Group