relationships = results
www.ccbg.com
A N N U A L R E P O R T 2 0 0 5
table of contents
annual
report
2
financial highlights
4
noninterest income
6
loan growth
8
absolutely free checking
10
client service center
12
senior management
14
letter from the CEO
16
capital city map
18
board of directors
20
selected financial data
21
financial review
41
report of independent
registered public
accounting firm
62
officers, directors and
community boards
64
shareowner information
65
capital city offices
CCBG
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CCBG
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financial
highlights
2
annual
report
annual
report
financial
highlights
CCBG
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3
CCBG
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noninterest income
$49,198,000
“
Life is
like a
dogsled
team.
If you
ain’t the
lead dog,
the
scenery
never
changes.
”
Lewis Grizzard
4
annual
report
annual
report
> Strong 12.9% compound
growth rate over a five
year period.
> In medium growth
markets — we
consistently outdeliver
smaller institutions
with an extensive line
of products and
out-service larger
institutions.
> Significant growth
experienced in:
Trust Asset Management
Mortgage Banking
Merchant Services
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2005 was punctuated by
extraordinary loan
growth in each
Capital City Bank market.
Commercial Real Estate
lending led the way
with a 17% or more
increase in every
major market.
Growth in the
Tallahassee market grew
an impressive 27%.
Our FreedomLine
home equity product
significantly exceeded
our goals, producing over
$43 million in new home
equity lines.
loan growth in 2005
6
annual
report
$238,669,000
annual
report
“
You can’t
build a
reputation
on what
you’re
going
”
to do...
Henry Ford
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CCBG
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“
Don’t lower your
expectations
to meet your
performance.
Raise your level
of performance
to meet your
expectations.
”
Ralph Marston
8
annual
report
28,923
annual
report
new checking
accounts opened
“It all adds up.” Simply put,
Absolutely FREE Checking
was the largest and most
successful single product
launch in the history of
Capital City Bank.
Over 2,718,806 pieces of mail
were distributed, producing
over $71.4 million in new
accounts. New consumer
checking accounts grew 238%
over 2004. New business
checking accounts grew by
200% during the fourth
quarter of 2005.
The success of Absolutely
FREE Checking was due to a
carefully orchestrated plan
and support from every area
of the bank. The hard work of
our entire team makes us an
even more formidable
opponent in the markets
we call home.
New accounts equal new
relationships, which yield
tremendous opportunities
and results for Capital City.
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“
Competition
is a painful
thing, but it
produces
great
”
results.
Jerry Flint
number of phone calls
answered
by Capital City
Bank Direct
264,008
10
annual
report
annual
report
> Capital City Bank Direct,
our client service center,
averages one telephone call
every 25 seconds. Client
requests range from account
balances to applying for
loans. Accuracy and timely
service are the goals of the
center.
> Sales is Service.
Service is Sales.
Our associates turn these
service calls into potential
sales calls, referring clients
to a variety of departments
within the bank.
Results — stronger, more
profitable relationships.
Capital City Bank Direct:
> Produced over $2.9 million
in loans and credit cards
in 2005.
> Automated service line
received over 1.7 million
calls in 2005.
> Convenience.
With 73 offices in Florida,
Georgia and Alabama,
our clients are just around
the corner from a Capital
City banker.
Our network of 79 ATMs,
our innovative Internet
banking service and bill
payment feature continue
to grow, making it more
convenient than ever to
bank with us.
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senior
management
Edward G. Canup
EXECUTIVE VICE PRESIDENT
COMMERCIAL LENDING
Randolph M. Pople
PRESIDENT
CAPITAL CITY TRUST COMPANY
William G. Smith, Jr.
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Karen H. Love
EXECUTIVE VICE PRESIDENT
RESIDENTIAL LENDING
Thomas A. Barron
PRESIDENT
CAPITAL CITY BANK
William D. Colledge
EXECUTIVE VICE PRESIDENT
INSTITUTIONAL BANKING
Randolph K. Briley
EXECUTIVE VICE PRESIDENT
RETAIL CREDIT
12
annual
report
annual
report
Mitchell R. Englert
EXECUTIVE VICE PRESIDENT
COMMUNITY BANKING
Cynthia Y. Pyburn
PRESIDENT
CAPITAL CITY SERVICES COMPANY
Flecia Braswell
EXECUTIVE VICE PRESIDENT
AND CHIEF BRAND OFFICER
Edwin N. West, Jr.
EXECUTIVE VICE PRESIDENT
COMMUNITY BANKING
Noel A. Ellis
EXECUTIVE VICE PRESIDENT
CREDIT ADMINISTRATION
Dale A. Thompson
EXECUTIVE VICE PRESIDENT
BUSINESS BANKING
J. Kimbrough Davis
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
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letter
from CEO
14
annual
report
Relationships = results. As a super-community bank in the relationship banking business, I believe the
cover of this year's annual report says it all. Capital City has been in the business of building relationships
for 110 years and those relationships produced record results in 2005.
Earnings of $30.3 million or $1.66 per share were up 11.9% over 2004 after adjusting for the one-time
gain from the sale of the bank's credit card portfolio. The results produced a return on assets of 1.22%
and a return on equity of 10.56%. Capital City enjoyed a margin of 5.09%, a primary driver of our earnings.
Net charge-offs remained historically low at .13% of total loans. Credit quality continues to be our number
one internal goal.
Earnings growth is critical to continued success and is the work of over 1,000 dedicated associates who
understand we are in the relationship building business. These associates have the company's 2010 goal
of $50 million in annual earnings firmly etched in their thought process. The results were driven by a
variety of factors including our strategy of focusing on smaller markets not well served by our
competitors, and communities which value and appreciate the Capital City style of relationship banking.
We want our clients to not only have a bank, but also a banker.
Perhaps the most exciting event in 2005 was the rollout of Absolutely Free Checking, a change in the way
we do business, not just a short-lived promotion or campaign. The offering produced new deposits at a
rate double initial expectations. I am extremely proud of the talented bankers across the company who
set an incredible pace for us.
Capital City Securities finished 2005 with 15 investment executives and is on track to exceed the 2006
goal of more than $1.4 million in revenues. Auto Finance grew at a rate of 22.5% in 2005 while reducing
charge-offs by 45%. Our home equity product, FreedomLine, generated $43 million in new loans in 2005
with a 2006 goal of $60 million. Institutional Banking has been one of the best received offerings by our
community presidents in smaller markets.
Capital City Services Company provides the often overlooked, but much appreciated back-office support
to the company and other institutions in our trade area. Residential lending enjoyed significant growth,
as we closed over $311 million in new home loans, which exceeded budget by 8%.
Capital City Trust Company ended the year with almost $700 million in assets under management for
individuals, partnerships, corporate clients, and foundations and plans to open an office in Gainesville
during 2006. Capital City's talented team of lenders including community presidents, the commercial real
estate division, and the business bank grew loans to over $2.0 billion at year-end. This continues to be
the primary engine driving our record earnings.
During the year we opened or renovated five offices and welcomed our new clients and associates from
the First National Bank of Alachua to the Capital City team. We continue to share our growth strategy
with our shareowners, institutional investors, and analysts. The Brand Leadership team of Marketing,
Human Resources, and Opportunity Capital City further strengthened the Capital City Bank brand.
It was another great year for CCBG. Tom Barron, Capital City Bank President and Kim Davis, Capital City
Bank Group CFO manage the day-to-day effort and should be applauded for their tireless effort and
intellect in leading this great group of associates we call the Capital City family. After six years of
tremendous service, John Lewis, former President of Super-Lube, retired from the board following the
sale of his primary business. I will miss his wise counsel, attention to detail, and drive for world class
service.
As always, I welcome your comments and thoughts.
annual
report
William G. Smith, Jr.
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
“We’re not
managing
for tomorrow,
we’re managing
for the day
after tomorrow.”
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annual
report
ALABAMACHAMBERS COUNTYLanettValleyTampaOrlandoDaytona BeachJacksonvilleTiftonPanama CityMontgomeryPhenix CityColumbusAtlantaAuburnPort RicheySpring HillFloral CityCrystal RiverInvernessCitrus SpringsInglisWillistonBronsonPalatkaGainesvilleCross CityFanning SpringsPerrySteinhatcheeBranfordMadisonMonticelloPort St. JoeQuincyChipleyValleyWest PointMaconDublinWaynesboroChattahoocheeWhighamHavanaThomasvilleCairoTallahasseeStarkeBellTrentonKeystone HeightsCedar KeyChieflandHastingsCrawfordvilleEast DublinPanaceaHigh SpringsAlachuaJonesvilleNewberry capital city
locations
MADISON COUNTY
Madison
PASCO COUNTY
Port Richey
PUTNAM COUNTY
Palatka
ST. JOHNS COUNTY
Hastings
SUWANNEE COUNTY
Branford
TAYLOR COUNTY
Perry
Steinhatchee
WAKULLA COUNTY
Crawfordville
Panacea
WASHINGTON COUNTY
Chipley
GEORGIA
BIBB COUNTY
Macon
BURKE COUNTY
Waynesboro
GRADY COUNTY
Cairo
Whigham
LAURENS COUNTY
Dublin
East Dublin
THOMAS COUNTY
Thomasville
TROUP COUNTY
West Point
ALABAMA
CHAMBERS COUNTY
Lanett
Valley
FLORIDA
ALACHUA COUNTY
Alachua
Gainesville
High Springs
Jonesville
Newberry
BRADFORD COUNTY
Starke
CITRUS COUNTY
Crystal River
Citrus Springs
Floral City
Inverness
CLAY COUNTY
Keystone Heights
DIXIE COUNTY
Cross City
GADSDEN COUNTY
Chattahoochee
Havana
Quincy
GILCHRIST COUNTY
Bell
Fanning Springs
Trenton
GULF COUNTY
Port St. Joe
HERNANDO COUNTY
Spring Hill
JEFFERSON COUNTY
Monticello
LEON COUNTY
Tallahassee
LEVY COUNTY
Bronson
Cedar Key
Chiefland
Inglis
Williston
annual
report
CCBG
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ALABAMACHAMBERS COUNTYLanettValleyTampaOrlandoDaytona BeachJacksonvilleTiftonPanama CityMontgomeryPhenix CityColumbusAtlantaAuburnPort RicheySpring HillFloral CityCrystal RiverInvernessCitrus SpringsInglisWillistonBronsonPalatkaGainesvilleCross CityFanning SpringsPerrySteinhatcheeBranfordMadisonMonticelloPort St. JoeQuincyChipleyValleyWest PointMaconDublinWaynesboroChattahoocheeWhighamHavanaThomasvilleCairoTallahasseeStarkeBellTrentonKeystone HeightsCedar KeyChieflandHastingsCrawfordvilleEast DublinPanaceaHigh SpringsAlachuaJonesvilleNewberry CCBG
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board
of directors
seated
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
Henry Lewis III, PharmD, RPH
Professor
Florida A&M University College of Pharmacy
McGrath Keen, Jr.
Private Investor
John R. Lewis, PhD
Former President and Chief Executive Officer
Super-Lube, Inc.
Ruth A. Knox
Attorney/President
Wesleyan College
Thomas A. Barron
President
Capital City Bank
standing
Frederick Carroll, III
Managing Partner
Carroll and Company, CPAs
DuBose Ausley
Attorney
Ausley & McMullen, P.A.
Lina S. Knox
Community Volunteer
John K. Humphress
Partner
Wadsworth, Humphress, Holler & Konrad
Cader B. Cox, III
President
Riverview Plantation Inc.
J. Everitt Drew
President
St. Joe Land Company
18
annual
report
financials 2005
annual
report
CCBG
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19
CCBG
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selected financial data
(Dollars in Thousands, Except Per Share Data) (1)
2005
2004
2003
2002
2001
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:
$ 140,053
$ 101,525
$ 94,830
$ 104,165
$ 117,156
109,990
2,507
30,281
$
1.66
1.66
.619
16.39
86,084
2,141
29,371
$
1.74
1.74
.584
14.51
1.22%
10.56
5.09
37.35
11.65
1.46%
13.31
4.88
33.62
10.86
79,991
3,436
25,193
81,662
3,297
23,082
68,907
3,983
16,866
$ 1.53
$ 1.40
$ 1.02
1.52
.525
15.27
1.40%
12.82
5.01
34.51
10.98
1.39
.402
14.08
1.02
.381
12.86
1.34%
0.99%
12.85
5.35
28.87
10.22
10.00
4.61
37.48
9.43
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
$
17,410
$
16,037
$ 12,429
$ 12,495
$ 12,096
0.84%
0.88%
0.93%
0.97%
0.98%
5,550
0.27
331.11
0.13
5,271
0.29
345.18
0.22
7,301
0.54
529.80
0.27
3,843
0.30
497.72
0.23
3,940
0.32
496.96
0.31
Averages for the Year:
Loans, Net
Earning Assets
Total Assets
Deposits
Subordinated Notes
Long-Term Borrowings
Shareowners' Equity
Year-End Balances:
Loans, Net
Earning Assets
Total Assets
Deposits
Subordinated Notes
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)
$1,968,289
$1,538,744
$1,318,080
$1,256,107
$1,184,290
2,187,672
2,486,733
1,954,888
50,717
70,216
286,712
1,789,843
2,006,745
1,599,201
5,155
59,462
220,731
1,624,680
1,804,895
1,431,808
-
55,594
196,588
1,556,500
1,727,180
1,424,999
-
30,423
179,652
1,534,548
1,704,167
1,442,916
-
15,308
168,652
$2,067,494
$1,828,825
$1,341,632
$1,285,221
$1,243,351
2,299,677
2,625,462
2,079,346
62,887
69,630
305,776
2,113,571
2,364,013
1,894,886
30,928
68,453
256,800
1,648,818
1,846,502
1,474,205
-
46,475
202,809
1,636,472
1,824,771
1,434,200
-
71,745
186,531
1,626,841
1,821,423
1,550,101
-
13,570
171,783
18,263,855
18,281,243
16,805,696
16,810,926
16,528,109
16,563,986
16,531,606
16,592,944
16,552,446
16,615,544
1,716
69
1,013
1,598
60
926
1,512
57
795
1,457
54
781
1,473
56
787
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005, and 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.
20
annual
report
annual
report
financial review
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis ("MD&A") provides supplemental
information, which sets forth the major factors that have affected our financial
condition and results of operation and should be read in conjunction with our
consolidated financial statements and notes thereto included in this Annual Report.
This Annual Report, including this MD&A section, contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, among others, statements about
our beliefs, plans, objectives, goals, expectations, estimates and intentions that are
subject to significant risks and uncertainties and are subject to change based on
various factors, many of which are beyond our control. The words "may," "could,"
"should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan,"
"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. Our actual future results may differ materially from those set forth in
our forward-looking statements. Please see the Introductory Note and Item 1A Risk
Factors in our Form 10-K for a discussion of factors that could cause our actual
results to differ materially from those in the forward-looking statements. However,
other factors besides those listed in Item 1A Risk Factors or discussed in this
Annual Report also could adversely affect our results, and you should not consider
any such list of factors to be a complete set of all potential risks or uncertainties.
Any forward-looking statements made by us or on our behalf speak only as of the
date they are made. We do not undertake to update any forward-looking
statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Tallahassee,
Florida and are the parent of our wholly-owned subsidiary, Capital City Bank.
The Bank offers a broad array of products and services through a total of 69
full-service offices located in Florida, Georgia, and Alabama. The Bank also has
mortgage lending offices in three additional Florida communities, and one
Georgia community. The Bank offers commercial and retail banking services,
as well as trust and asset management, merchant services, brokerage and
data processing services.
From an industry and national perspective, our profitability, 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 interest 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,
asset management and trust fees, mortgage banking revenues, merchant
services, brokerage and data processing revenues.
Our philosophy is to grow and prosper, building long-term relationships
based on quality service, high ethical standards, and safe and sound banking
practices. We are a super-community bank in the relationship banking
business with a locally oriented, community-based focus, which is augmented
by experienced, centralized support in select specialized areas. Our local
market orientation is reflected in our network of banking office locations,
experienced community executives, and community advisory boards which
support our focus on responding to local banking needs. We strive 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 our long-term strategic initiative "Project 2010", we have
continued our expansion, emphasizing a combination of growth in existing
markets and acquisitions. Acquisitions will continue to be focused on a three
state area including Florida, Georgia, and Alabama with a particular focus on
financial institutions, which are $100 million to $400 million in asset size and
generally located on the outskirts of major metropolitan areas. We continue to
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.
Recent Acquisitions. On May 20, 2005, we completed our merger with
First Alachua Banking Corporation ("FABC"), headquartered in Alachua, Florida.
We issued approximately 906,000 shares of common stock and paid
approximately $29.0 million in cash for a total purchase price of $58.0 million.
FABC's wholly-owned subsidiary, First National Bank of Alachua ("FNBA") had
$228.3 million in assets at closing with seven offices in Alachua County and an
eighth office in Hastings, Florida, which is in St. Johns County.
On October 15, 2004, we completed our acquisition of Farmers and
Merchants Bank ("FMB") in Dublin, Georgia, a $395 million asset institution with
three offices in Laurens County. We issued 21.35 shares and $666.50 in cash
for each of the 50,000 shares of Farmers and Merchants Bank, resulting in the
issuance of 1,067,500 shares of our common stock and the payment of $33.3
million in cash for a total purchase price of approximately $66.7 million.
On March 19, 2004, our subsidiary, Capital City Bank, completed its
merger with Quincy State Bank ("QSB"), a former subsidiary of Synovus
Financial Corp. QSB 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 our Tallahassee headquarters. In addition, we acquired $208 million in
trust and other fiduciary assets from Synovus Trust Company, an affiliate of
QSB. The purchase price was $28.1 million in cash.
Throughout this section, we refer to the acquisitions of FABC, FMB, and
QSB as the "Recent Acquisitions."
FINANCIAL OVERVIEW
We are providing a summary overview of our financial performance for
2005 below. For comparison purposes, the below mentioned performance
factors exclude the impact of a one-time gain on sale of the Bank’s credit card
portfolio in August 2004.
• Earnings of $30.3 million, or $1.66 per diluted share, represent
increases of 20.4% and 11.1%, respectively, over 2004 core earnings
(reported earnings excluding the one-time, after-tax gain on the sale of
the credit card portfolio of $4.2 million, or $.25 per diluted share).
• Growth in earnings was attributable to strong growth in operating
revenues as reflected by 27.8% growth in net interest income and a
12.6% increase in noninterest income.
• Taxable equivalent net interest income grew 27.4% over 2004 due to
earning asset growth and an improved net interest margin.
• Net interest margin percentage improved 21 basis points to 5.09%
driven by an improved earning asset mix and higher earning asset
yields.
• Noninterest income grew 12.6% over 2004 due primarily to higher
deposit service charge fees, asset management fees, mortgage
banking revenues, and merchant services fees.
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21
CCBG
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financial review
• Strong credit quality continues to be a key driver in the Bank's earnings
performance. Net charge-offs totaled $2.5 million, or .13% of average
loans in 2005 compared to $3.4 million, or .22% in 2004. At year-end
the allowance for loan losses was .84% of outstanding loans and
provided coverage of 331% of nonperforming loans.
• Nonperforming assets totaled $5.6 million, or .27% of total loans and other
real estate at year-end 2005 compared to $7.4 million, or .36%, at the end
of the third quarter 2005 and $5.3 million, or .29%, at year-end 2004.
• Average earning assets grew 22.2% over 2004 due to Recent
Acquisitions and strong loan growth in existing markets.
• The First National Bank of Alachua acquisition was completed in May
2005 adding $228.3 million in assets.
• Average deposits grew 22.2% over 2004 due to Recent Acquisitions
and our free checking campaign initiated in early 2005.
• We remain well-capitalized with a risk based capital ratio of 13.56%.
RESULTS OF OPERATIONS
Net income for 2005 totaled $30.3 million, or $1.66 per diluted share.
This compares to $29.4 million, or $1.74 per diluted share in 2004, and $25.2
million, or $1.52 per diluted share in 2003. Net income in 2004 included a one-
time, after-tax gain of $4.2 million, or $.25 per diluted share, from the sale of
the Bank’s credit card portfolio in August 2004.
The growth in core earnings (reported earnings excluding the one-time,
after-tax gain on sale of credit card portfolio) for 2005 of $5.2 million, or $.17
per diluted share, was primarily attributable to growth in operating revenue
(defined as the total of net interest income and noninterest income) of $29.4
million, or 22.7%, partially offset by a higher loan loss provision of $0.4 million,
or 17.1%, an increase in noninterest expense of $20.6 million, or 23.1%, and a
higher income tax provision of $3.3 million, or 25.1%. The increase in operating
revenue was driven by a 27.8% increase in net interest income and a 12.6%
increase in noninterest income.
The growth in net interest income for 2005 reflects earning asset growth
and an improved net interest margin. Higher deposit service charge fees,
mortgage banking revenues, asset management fees, and merchant services
fees drove the increase in noninterest income. The increase in noninterest
expense is primarily attributable to higher operating costs associated with the
integration of two recent acquisitions, which added 12 new offices to the
Capital City franchise, and marketing costs supporting our new "Absolutely
Free Checking" product.
A condensed earnings summary for the last three years is presented in
Table 1.
Net Interest Income
Net interest income represents our 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 our net interest
income, including average yields and rates, is presented in Tables 2 and 3. This
information is presented on a "taxable equivalent" basis to reflect the tax-
exempt status of income earned on certain loans and investments, the
majority of which are state and local government debt obligations.
For the year 2005, taxable equivalent interest income increased $38.5
million, or 37.5%, over 2004, and increased $6.5 million, or 6.7%, in 2004 over
2003. Growth in 2005 was driven by strong organic loan growth, loans
acquired in connection with Recent Acquisitions, and higher yields on earning
assets. Rising interest rates, coupled with new loan production and the
repricing of existing earning assets were the primary factors contributing to a
72 basis point improvement in the yield on earning assets, which increased
from 5.74% in 2004 to 6.46% for 2005. This compares to an 18 basis point
reduction in 2004 over 2003. As shown in Table 3, the loan portfolio was a
significant contributor to the increase in interest income.
Interest expense increased $14.6 million, or 94.7%, over 2004, and $0.6
million, or 4.1%, in 2004 over 2003. Rising interest rates and growth in interest
bearing liabilities drove the increase in 2005. However, the impact of rising rates
was partially offset by a shift in mix, as certificates of deposit (generally a higher
cost deposit product) declined relative to total deposits. Certificates of deposit,
as a percent of total average deposits, declined from 28.7% in 2004 to 28.2% in
2005. The average rate paid on interest bearing liabilities in 2005 increased 64
basis points compared to 2004, reflecting both deposit competition and the
Federal Reserve's continued increases in the federal funds target rate.
Our interest rate spread (defined as the taxable equivalent yield on
average earning assets less the average rate paid on interest bearing liabilities)
increased 8 basis points in 2005 and decreased 13 basis points in 2004. The
increase in 2005 was primarily attributable to the higher yields on earning assets.
Our net interest margin (defined as taxable equivalent interest income
less interest expense divided by average earning assets) was 5.09% in 2005,
compared to 4.88% in 2004 and 5.01% in 2003. In 2005, the higher yields on
earning assets (partially offset by higher rates paid on interest bearing
liabilities) resulted in a 21 basis point improvement in the margin.
Loan growth is anticipated to have a favorable impact on net interest
income during the upcoming year along with any further increases in the
Federal Reserve's target rate on overnight funds. However, these
improvements will be partially offset by the rising cost of funds. A further
discussion of our earning assets and funding sources can be found in the
section entitled "Financial Condition."
Provision for Loan Losses
The provision for loan losses was $2.5 million in 2005, compared to $2.1
million in 2004 and $3.4 million in 2003. The loan loss provisions in both 2004
and 2005 were impacted by a re-assessment of the reserve to reflect the
changing risk profile associated with the Bank’s sale of its credit card portfolio
during the third quarter of 2004 and the addition of Recent Acquisitions.
Net charge-offs for 2005 totaled $2.5 million, or .13% of average loans for
the year compared to $3.4 million, or .22% for 2004 and $3.5 million, or .27%
for 2003. At December 31, 2005, the allowance for loan losses totaled $17.4
million compared to $16.0 million in 2004 and $12.4 million in 2003. At year-
end 2005, the allowance represented .84% of total loans and provided
coverage of 331% 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 2005, taxable equivalent net interest income increased $23.9 million,
In 2005, noninterest income (excluding the before-tax gain of $6.9 million
or 27.4%. This follows an increase of $5.9 million, or 7.2%, in 2004, and a
decrease of $1.9 million, or 2.3%, in 2003. The favorable impact in 2005
resulted from a $397.8 million, or 22.2%, growth in average earning assets and
a 21 basis point improvement in the net interest margin percentage.
on the sale of the Bank’s credit card portfolio in August 2004) increased $5.5
million, or 12.6%, over 2004 primarily due to higher deposit service charge
fees, asset management fees, mortgage banking revenues, and merchant
services fees.
22
annual
report
Noninterest income (excluding the above referenced gain) for 2004
increased $1.8 million, or 4.3%, over 2003. The increase primarily reflects a
higher level of deposit service charge fees, asset management fees, data
processing fees, and merchant services fees, partially offset by a decrease in
mortgage banking revenues.
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
Noninterest Income:
Service Charges on Deposit Accounts
Data Processing
Asset Management Fees
Retail Brokerage Fees
Gain on Sale of Investment Securities
Mortgage Banking Revenues
Merchant Services Fees
Interchange Fees
Gain on Sale of Credit Card Portfolios
ATM/Debit Card Fees
Other
Total Noninterest Income
For the Years Ended December 31,
2005
2004
2003
$20,740
2,610
4,419
1,322
9
4,072
6,174
2,239
-
2,206
5,407
$49,198
========
$17,574
2,628
4,007
1,401
14
3,208
5,135
2,229
7,180
2,007
5,170
$50,553
========
$16,319
2,403
2,650
1,212
1
6,090
4,563
2,183
-
1,939
4,579
$41,939
========
Various significant components of noninterest income are discussed in
more detail below.
Service Charges on Deposit Accounts. Deposit service charge fees
increased $3.2 million, or 18.0%, in 2005, compared to an increase of $1.3
million, or 7.7%, in 2004. 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 deposit service charge fees in 2005 is due to higher overdraft and
nonsufficient funds ("NSF") fees due to growth in deposit accounts attributable
to Recent Acquisitions and "Absolutely Free Checking." The increase in
Table 1
Condensed Summary of Earnings
(Dollars in Thousands, Except Per Share Data) (1)
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 Portfolios .....................................................................
Noninterest Expense ................................................................................................
Income Before Income Taxes...................................................................................
Income Taxes ............................................................................................................
Net Income................................................................................................................
Basic Net Income Per Share.....................................................................................
Diluted Net Income Per Share..................................................................................
annual
report
financial review
service charge revenues in 2004 was primarily attributable to growth in
overdraft and NSF fees primarily associated with a revised fee structure
implemented in mid-2004.
Asset Management Fees. In 2005, asset management fees increased
$412,000, or 10.3%, versus an increase of $1.4 million, or 51.2%, in 2004. At
year-end 2005, assets under management totaled $693.0 million, reflecting net
growth of $40.0 million, or 6.1% over 2004. The increase reflects new business
which produced growth in assets of $118.0 million partially offset by normal
distribution activity within managed accounts and estates. At year-end 2004,
assets under management totaled $653.0 million, reflecting growth of $249.0
million, or 61.6% over 2003. This growth was due to the purchase of $208.0
million in trust and investment management accounts from Synovus Trust
Company in connection with the Quincy State Bank acquisition, growth in new
business, and improved asset returns.
Mortgage Banking Revenues. In 2005, mortgage banking revenues
increased $864,000, or 26.9%, compared to a decrease of $2.9 million, or 47.3%
in 2004. The increase in 2005 reflects a 19.2% increase in production over
2004 which was driven by increased home purchase and construction activity
in Bank markets and lower interest rates for residential real estate financing.
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. We
generally sell all fixed rate residential loan production into the secondary
market. The level of interest rates, origination volume and percent of fixed rate
production have significant impacts on our mortgage banking revenues.
Merchant Services Fees. Merchant services fees increased $1.0 million,
or 20.2% in 2005 compared to a $572,000, or 12.5% increase in 2004. The
improvement in both periods is directly related to growth in merchant card
transaction volume primarily driven by growth in the client base.
Noninterest income as a percent of average assets was 1.98% in 2005,
compared to 2.52% in 2004, and 2.32% in 2003. The decline from 2004 to 2005
primarily reflects the impact of the one-time gain on sale of the Bank’s credit
card portfolio in August 2004. The decline from 2003 versus 2005 reflects the
impact of Recent Acquisitions which brought a lower and less diverse level of
noninterest income in relation to the consolidated asset base.
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
=====================
$
1.74
=====================
$
1.74
=====================
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
======================
$ 1.53
=======================
$ 1.52
=======================
2005
$140,053
1,222
141,275
30,063
111,212
2,507
1,222
107,483
49,198
-
109,814
46,867
16,586
$ 30,281
=====================
$
1.66
=====================
$
1.66
=====================
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005, and the 5-for-4 stock split effective June 13, 2003.
CCBG
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23
CCBG
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financial review
Table 2
Average Balances and Interest Rates
(Taxable Equivalent Basis-Dollars in Thousands)
Assets:
2005
2004
2003
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Loans, Net of Unearned Interest (1)(2) ..........
$1,968,289
$133,665
6.79%
$1,538,744
$ 95,796
6.23%
$1,318,080
$ 87,608
6.65%
Taxable Investment Securities....................
Tax-Exempt Investment Securities (2)..........
Funds Sold ..................................................
142,406
49,252
27,725
4,250
2,369
991
Total Earning Assets................................
2,187,672
141,275
2.98
4.81
3.35
6.46
131,842
51,979
67,278
3,138
2,965
833
1,789,843
102,732
2.38
5.70
1.24
5.74
124,541
61,387
120,672
3,725
3,650
1,261
1,624,680
96,244
2.98
5.95
1.03
5.92
Cash & Due From Banks ............................
Allowance For Loan Losses........................
Other Assets................................................
TOTAL ASSETS ........................................
105,787
(17,081)
210,355
$2,486,733
==========================
Liabilities:
93,070
(13,846)
137,678
$2,006,745
=============================
79,625
(12,544)
113,134
$1,804,895
=============================
NOW Accounts............................................
$ 430,601
$ 2,868
0.67%
$ 292,492
$ 733
0.25%
$ 264,159
$ 676
0.26%
Money Market Accounts ............................
Savings Accounts........................................
Time Deposits ............................................
275,830
152,890
550,821
Total Interest Bearing Deposits ..............
1,410,142
Short-Term Borrowings ..............................
Subordinated Notes Payable ......................
Other Long-Term Borrowings ....................
97,863
50,717
70,216
4,337
,292
13,637
21,134
2,854
2,981
3,094
Total Interest Bearing Liabilities..............
1,628,938
30,063
1.57
0.19
2.48
1.50
2.92
5.88
4.41
1.85
227,808
130,282
459,464
1,190
164
9,228
1,110,046
11,315
100,582
5,155
59,462
1,270
294
2,562
1,275,245
15,441
0.52
0.13
2.01
1.02
1.26
5.71
4.31
1.21
215,597
109,837
433,176
1,312
189
9,390
1,022,769
11,567
101,274
1,270
-
-
55,594
2,002
1,179,637
14,839
0.61
0.17
2.17
1.13
1.25
-
3.60
1.26
Noninterest Bearing Deposits ....................
Other Liabilities ..........................................
544,746
26,337
TOTAL LIABILITIES....................................
2,200,021
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) ......................................
186
70,678
215,848
286,712
$2,486,733
==========================
489,155
21,614
1,786,014
178
24,543
196,010
220,731
409,039
19,631
1,608,307
175
15,229
181,184
196,588
$2,006,745
=============================
$1,804,895
=============================
$111,212
======================
4.61%
============
5.09%
============
$ 87,291
====================
4.53%
==========
4.88%
==========
$ 81,405
=======================
4.66%
=========
5.01%
=========
(1) Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $3.1 million, $1.7 million and $1.8 million in 2005, 2004 and 2003, 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.
24
annual
report
annual
report
financial review
Compensation. Our aggregate compensation expense in 2005 totaled
$53.7 million, an increase of $9.3 million, or 21.1%, over 2004. The increase in
compensation was driven by higher expense for associate salaries, pension,
and insurance benefits, primarily reflective of the integration of associates
from acquisitions in late 2004 and mid-2005.
In 2004, compensation increased $3.9 million, or 9.6%, over 2003. The
increase was due to higher expense for associate salaries, higher
performance-based compensation, increased pension costs, and insurance
benefits. The increase in associate salaries was partially due to two
acquisitions.
Occupancy. Occupancy expense (including furniture, fixtures and
equipment) increased by $1.8 million, or 11.6%, in 2005, compared to $1.7
million, or 12.0% in 2004. The increase in 2005 was driven by higher expense
for depreciation, maintenance and repair, and property taxes, primarily
attributable to the increase in the number of banking offices, and higher
expense for core processing and other software maintenance agreements.
The increase in 2004 was primarily due to higher expense for utilities, property
taxes, depreciation, and premises rental attributable to the increase in banking
offices.
Other. Other noninterest expense increased $9.4 million, or 32.1%, in
2005, compared to $4.0 million, or 15.6%, in 2004. The increase in 2005 was
attributable primarily to: (1) higher legal expense of $526,000; (2) higher
professional fees of $967,000; (3) increased processing service cost of
$484,000; (4) higher advertising costs of $2.3 million; (5) increased printing and
supply expense of $518,000; (6) higher intangible amortization of $1.6 million;
(7) increased interchange fees of $661,000; and (8) higher miscellaneous
expense of $1.3 million.
Noninterest Expense
Noninterest expense grew by $20.6 million, or 23.1%, in 2005 and $9.5
million, or 11.9% in 2004 due to higher expense for compensation, occupancy,
professional fees, advertising, and intangible amortization.
The table below reflects the major components of noninterest expense.
(Dollars in Thousands)
Noninterest Expense:
Salaries
Associate Benefits
Total Compensation
Premises
Equipment
Total Occupancy
Legal Fees
Professional Fees
Processing Services
Advertising
Travel and Entertainment
Printing and Supplies
Telephone
Postage
Intangible Amortization
Merger Expense
Interchange Fees
Courier Service
Miscellaneous
Total Other
Total Noninterest Expense
For the Years Ended December 31,
2005
2004
2003
$ 40,978
12,709
53,687
8,293
8,970
17,263
1,827
3,825
1,481
4,275
1,414
2,372
2,493
1,195
5,440
438
5,402
1,360
7,342
38,864
$109,814
===============
$33,968
10,377
44,345
$30,677
9,785
40,462
7,074
8,393
15,467
1,301
2,858
997
2,001
1,023
1,854
2,048
1,007
3,824
550
4,741
1,143
6,067
29,414
5,972
7,840
13,812
1,226
1,918
999
1,260
970
1,742
1,872
1,042
3,241
-
4,181
1,068
5,928
25,447
$89,226
=============
$79,721
=============
Table 3
Rate/Volume Analysis (1)
2005 Changes from 2004
2004 Changes from 2003
Due To
Average
Due To
Average
(Taxable Equivalent Basis - Dollars in Thousands)
Total
Calendar (3)
Volume
Rate
Total
Calendar (3)
Volume
Rate
Earning Assets:
Loans, Net of Unearned Interest (2) ..................
$37,870
$(262)
$27,076
$11,056
$8,188
$240
$13,939
$(5,991)
Investment Securities:
Taxable(2) ......................................................
1,110
Tax-Exempt ..................................................
Funds Sold ........................................................
(597)
158
(3)
-)
(2)
693
(156)
(488)
420
(441)
648
(587)
(685)
(428)
3
-
3
68
(558)
(558)
(658)
(127)
127
Total ............................................................................
38,541
(267)
27,125
11,683
6,488
246
12,891
(6,649)
Interest Bearing Liabilities:
NOW Accounts..................................................
Money Market Accounts ..................................
Savings Accounts..............................................
Time Deposits ..................................................
Short-Term Borrowings ....................................
Subordinated Notes Payable............................
Long-Term Borrowings ....................................
2,134
3,148
128
4,408
1,585
2,687
532
Total ............................................................................
14,622
(2)
(3)
(1)
(25)
(3)
(1)
(7)
(42)
347
251
28
1,840
83
2,609
465
5,623
1,789
2,900
101
2,593
1,505
79
74
9,041
55
(121)
(25)
(161)
-
294
560
602
2
4
-
26
3
-
5
40
73
74
35
568
(197)
294
139
986
(20)
(199)
(60)
(755)
194
-
416
(424)
Changes in Net Interest Income ................................
$23,919
============
$(225)
==========
$21,502
=============
$ 2,642
============
$5,886
==========
$206
===========
$11,905
==============
$(6,225)
=============
(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 365 day year (2005 and 2003) versus 366 day year (2004).
CCBG
2 0 0 5
25
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financial review
Legal fees increased due to corporate governance initiatives and a
general increase in legal services tied to corporate activities. Higher external
audit fees have driven the increase in professional fees. The higher expense
for processing fees is attributable to the cost of integrating Recent Acquisitions
and core processing upgrades. The increase in advertising expense reflects
the marketing costs to support our "Absolutely Free Checking" strategy. The
higher expense for printing and supplies is driven by Recent Acquisitions. The
increase in intangible amortization reflects core deposit amortization from
Recent Acquisitions. The increase in interchange fees is due to merchant card
transaction volume and was offset by higher merchant service fees reflected
in noninterest income. The higher level of miscellaneous expense is due to
increases in Federal Reserve account analysis fees, ATM/Debit card production
fees, associate hiring expense, training expense, and other real estate expense.
The increase in 2004 was attributable to: (1) higher professional fees of
$940,000 reflective of the internal and external costs of Sarbanes-Oxley
Section 404 compliance and testing work; (2) higher director fees of $101,000
due to an increase in the number of directors, higher fee structure, and
number of meetings; (3) higher advertising expense of $741,000 reflective of an
increased level of marketing initiatives aimed at supporting two acquisitions
and an increased level of product and market support activities; (4) increased
interchange service fees of $560,000 due to higher merchant card transaction
volume; (5) higher telephone expense of $176,000; (6) increased intangible
amortization expense of $583,000; and (7) higher merger expenses of
$550,000. The increases in telephone, intangible amortization, and merger
expenses were due to the integration of two acquisitions during the year.
The net noninterest expense ratio (defined as noninterest income minus
noninterest expense, net of intangible amortization and conversion/merger-
related expenses, as a percent of average assets) was 2.20% in 2005
compared to 1.71% in 2004, and 1.91% in 2003. Our 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 64.8%, 61.6%, and 62.0% in 2005, 2004 and 2003,
respectively. Excluding the effect of the one-time gain of $6.9 million realized
from the sale of the Bank’s credit card portfolio, the above mentioned metrics
for 2004 adjust to 2.05% and 64.8%, respectively.
Income Taxes
The consolidated provision for federal and state income taxes was $16.6
million in 2005, compared to $15.9 million in 2004, and $13.6 million in 2003.
The increase in each of the three respective years was due to higher taxable
income, driven by earnings growth and lower tax exempt income.
The effective tax rate was 35.4% in 2005, 35.1% in 2004, and 35.0% in
2003. These rates differ from the combined federal and state statutory tax
rates due primarily to tax-exempt income on loans and securities.
FINANCIAL CONDITION
Our 2005 balance sheet reflects growth from within our existing markets
plus the integration of the Recent Acquisitions. Average assets totaled $2.5
billion, an increase of $480.0 million, or 23.9%, in 2005 versus the comparable
period in 2004. Average earning assets for 2005 were $2.2 billion, representing
an increase of $397.8 million, or 22.2%, over 2004. Loan growth, in existing
markets and from acquisitions, fueled the earning asset increase in 2005 as
average loans increased $429.5 million, or 27.9%. A $7.8 million, or 4.3%
increase in investment securities also contributed to the increase. Partially
offsetting the aforementioned increases was a decrease in average funds sold
of $39.6 million, or 58.8%. Funding of 2005 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, and Table 4 highlights the
changing mix of our earning assets over the last three years.
Loans
Average loans increased $429.5 million, or 27.9%, over the comparable
period in 2004. Loans as a percent of average earning assets increased to
90.0% for the year, compared to 86.0% for 2004. Loan growth occurred in all
loan categories during the year as noted in Table 4 below. The growth reflects
Recent Acquisitions and strong organic loan growth within existing markets.
Although management is continually evaluating alternative sources of
revenue, lending is a major component of our business and is key to
profitability. While management strives to identify opportunities to increase
Table 4
Sources of Earning Asset Growth
(Average Balances - Dollars in Thousands)
Loans:
2004 to
2005
Change
Percentage
of Total
Change
Components of Average
Earning Assets
2005
2004
2003
Commercial, Financial and Agricultural .......................................
$ 22,696
5.7%
9.5%
10.3%
9.2%
Real Estate - Construction ............................................................
Real Estate - Commercial .............................................................
Real Estate - Residential ...............................................................
Consumer ......................................................................................
Total Loans................................................................................
Securities:
Taxable...........................................................................................
Tax-Exempt....................................................................................
Total Securities .........................................................................
41,406
197,179
163,479
4,785
429,545
10,564
(2,727)
7,837
Funds Sold...............................................................................................
(39,553)
Total Earning Assets ............................................................
$397,829
================
10.4
49.6
41.1
1.2
108.0
2.7
(0.7)
2.0
(10.0)
100.0%
===========
6.9
31.4
31.3
10.9
90.0
6.5
2.3
8.8
1.2
6.2
27.3
29.1
13.1
86.0
7.4
2.9
10.3
3.7
5.5
23.4
29.1
13.9
81.1
7.7
3.8
11.5
7.4
100.0%
===========
100.0%
===========
100.0%
=============
26
annual
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report
financial review
loans outstanding and enhance the portfolio's overall contribution to earnings,
it can do so only by adhering to sound lending principles applied in a prudent
and consistent manner. Thus, management will not relax its underwriting
standards in order to achieve designated growth goals.
Our average loan-to-deposit ratio increased to 100.7% in 2005 from
96.2% in 2004. This compares to an average loan-to-deposit ratio in 2003 of
92.1%. The higher average loan-to-deposit ratio in all three periods reflects
strong loan growth as discussed above.
Real estate loans, combined, represented 77.5% of total loans at
December 31, 2005, versus 76.3% in 2004. 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 our loan portfolio at December 31, for each of the
past five years is shown in Table 5. Table 6 arrays our total loan portfolio as of
December 31, 2005, based upon maturities. As a percent of the total portfolio,
loans with fixed interest rates represent 34.9% as of December 31, 2005,
versus 36.6% at December 31, 2004.
Allowance for Loan Losses
Management maintains the allowance for loan losses at a level sufficient
to provide for the estimated credit losses inherent in the loan portfolio as of
the balance sheet date. Credit losses arise from the borrowers’ inability and
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 allowance. 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
credit 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 and other risk factors both
internal and external to us.
Management evaluates the adequacy of the allowance for loan losses on
a quarterly basis. Loans that have been identified as impaired are reviewed for
adequacy of collateral, with a specific reserve assigned to those loans when
necessary. Impaired loans are defined as those in which the full collection of
principal and interest in accordance with the contractual terms is improbable.
Impaired loans generally include those that are past due for 90 days or more
and those classified as doubtful in accordance with our risk rating system.
Loans classified as doubtful have a high possibility of loss, but because of
certain factors that may work to strengthen the loan, its classification as a loss
is deferred until a more exact status may be determined. Not all loans are
considered in the review for impairment; only loans that are for business
purposes exceeding $25,000 are considered. The evaluation is based on
current financial condition of the borrower or current payment status of the
loan.
The method used to assign a specific reserve depends on whether
repayment of the loan is dependent on liquidation of collateral. If repayment is
dependent on the sale of collateral, the reserve is equivalent to the recorded
investment in the loan less the fair value of the collateral after estimated sales
expenses. If repayment is not dependent on the sale of collateral, the reserve
Table 5
Loans by Category
As of December 31,
(Dollars in Thousands)
2005
2004
2003
2002
2001
Commercial, Financial and Agricultural .........................................
$ 218,434
$ 206,474
$ 160,048
$ 141,459
$ 128,480
Real Estate - Construction..............................................................
Real Estate - Commercial ...............................................................
Real Estate - Residential .................................................................
Consumer........................................................................................
Total Loans, Net of Unearned Interest..................................
160,914
718,741
723,336
246,069
140,190
655,426
600,375
226,360
89,149
391,250
467,790
233,395
91,110
356,807
474,069
221,776
72,778
302,239
530,546
209,308
$2,067,494
==================
$1,828,825
===================
$1,341,632
===================
$1,285,221
=====================
$1,243,351
=================
Table 6
Loan Maturities
(Dollars in Thousands)
One Year
or Less
Commercial, Financial and Agricultural .............................................................
$ 91,765
Real Estate...........................................................................................................
463,150
Consumer (1).........................................................................................................
30,306
Total ...........................................................................................................
$585,221
================
Loans with Fixed Rates .......................................................................................
$337,826
Loans with Floating or Adjustable Rates............................................................
247,395
Total ..........................................................................................................
$585,221
================
(1) Demand loans and overdrafts are reported in the category of one year or less.
Maturity Periods
Over One
Through
Five Years
$ 92,780
284,786
165,704
$543,270
================
$359,971
183,299
$543,270
================
Over
Five
Years
$ 33,889
855,055
50,059
$939,003
==================
$ 24,277
914,726
$939,003
==================
Total
$ 218,434
1,602,991
246,069
$2,067,494
=================
$ 722,074
1,345,420
$2,067,494
=================
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Table 7
Analysis of Allowance for Loan Losses
For the Years Ended December 31,
(Dollars in Thousands)
2005
2004
2003
2002
2001
Balance at Beginning of Year ....................................................................
Acquired Reserves......................................................................................
Reserve Reversal(1) ......................................................................................
$16,037
1,385
-
Charge-Offs:
Commercial, Financial and Agricultural ...........................................
Real Estate - Construction ................................................................
Real Estate - Commercial..................................................................
Real Estate - Residential....................................................................
Consumer .........................................................................................
Total Charge-Offs .........................................................................
Recoveries:
Commercial, Financial and Agricultural ...........................................
Real Estate - Construction ................................................................
Real Estate - Commercial .................................................................
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 sold in August 2004.
Table 8
Allocation of Allowance for Loan Losses
1,287
-
255
321
2,380
4,243
180
-
3
37
1,504
1,724
2,519
2,507
$17,410
=============
.13%
=============
.84%
=============
6.91x
=============
$12,429
$12,495
$12,096
5,713
(800)
873
-
48
191
3,946
5,058
81
-
14
188
1,329
1,612
3,446
2,141
-
-
426
-
91
228
3,794
4,539
142
-
-
18
877
1,037
3,502
3,436
-
-
818
-
-
175
3,279
4,272
136
-
20
37
1,181
1,374
2,898
3,297
$16,037
============
.22%
============
.88%
============
4.65x
============
$12,429
===========
.27%
===========
.93%
===========
3.55x
===========
$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
==============
2005
2004
2003
2002
2001
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Percent
of Loans
in Each
Category
To Total
Loans
Percent
of Loans
in Each
Category
To Total
Loans
Allow-
ance
Amount
Allow-
ance
Amount
Allow-
ance
Amount
(Dollars in Thousands)
Commercial, Financial
and Agricultural ................................
$ 3,663
10.6%
$ 4,341
11.3%
$ 2,824
11.9%
$ 2,740
11.0%
$ 3,257
10.3%
Real Estate:
Construction ...............................
Commercial ................................
Residential ..................................
Consumer .............................................
Not Allocated........................................
762
6,352
1,019
3,105
2,509
7.8
34.7
35.0
11.9
-
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
-
Total .......................................
$17,410
===========
100.0%
==========
$16,037
============
100.0%
=========
$12,429
============
100.0%
=========
$12,495
===========
100.0%
=========
$12,096
===========
100.0%
=========
28
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is equivalent to the recorded investment in the loan less the estimated cash
flows discounted using the loan’s effective interest rate. The discounted value
of the cash flows is based on the anticipated timing of the receipt of cash
payments from the borrower. The reserve allocations assigned to impaired
loans are sensitive to the extent market conditions or the actual timing of cash
receipts change.
Once specific reserves have been assigned to impaired loans, general
reserves are assigned to the remaining portfolio. General reserves are
assigned to commercial purpose loans of $100,000 or more that are not
impaired and large groups of smaller-balance homogenous loans, including
commercial loans less than $100,000, consumer loans, and residential
mortgage loans.
Commercial purpose loans exceeding $100,000 that are not impaired, but
exhibit 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 loan loss 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 determined by independent parties.
General reserves are assigned to smaller balance homogenous loan
pools, including commercial loans less than $100,000, consumer loans, and
residential mortgage loans based on calculated overall loan loss ratios for the
past three years. The loan loss ratios applied are adjusted for various
environmental factors, 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 impaired loans plus the general reserves
assigned to the remaining portfolio. 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 risk factors
both internal and external to us. Table 7 analyzes the activity in the allowance
over the past five years.
The allowance for loan losses of $17.4 million at December 31, 2005
compares to $16.0 million at year-end 2004. As a percent of total loans, the
allowance was .84% in 2005 and .88% in 2004. The allowance for loan losses
reflects management’s current estimation of the credit quality of our loan
portfolio. While there can be no assurance that we 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, 2005 is adequate to absorb losses inherent in the loan portfolio
at year-end.
Table 8 provides an allocation of the allowance for loan losses to specific
loan types for each of the past five years. The reserve allocations, as
calculated using the above methodology, are assigned to specific loan
categories corresponding to the type represented within the components
discussed. There was a significant change in the reserve allocation in 2004 as
noted by reserves held for the consumer loan, commercial real estate, and
commercial portfolios. The Bank’s credit card portfolio, which previously
accounted for up to one-third of net loan losses annually, was sold in August
2004, thus reducing the reserves required to support consumer loans. The
large increase in 2004 for reserves held for commercial real estate and
commercial loans was due to the acquisition of loans from FMB in late 2004.
First National Bank of Alachua was acquired during 2005, which pushed total
reserves higher.
Risk Element Assets
Risk element assets consist of nonaccrual loans, renegotiated loans,
other real estate, loans past due 90 days or more, potential problem loans and
loan concentrations. Table 9 depicts certain categories of our 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.
Our nonperforming loans increased $612,000, or 13.2%, from a level of
$4.6 million at December 31, 2004, to $5.3 million at December 31, 2005.
During 2005 loans totaling approximately $10.7 million were added, while loans
totaling $10.1 million were removed from nonaccruing status. Of the $10.1
million removed, $2.0 million consisted of principal reductions and loan
payoffs, $3.0 million represented loans transferred to other real estate, $4.1
million consisted of loans brought current and returned to an accrual status,
and $1.0 million was charged off. Where appropriate, management has
allocated specific reserves to absorb anticipated losses.
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 improbable. When a loan is
considered impaired, it is reviewed for exposure to credit loss. If credit loss is
probable, a specific reserve is allocated to absorb the anticipated loss. We had
$7.3 million in loans considered impaired at December 31, 2005. The
anticipated loss in those impaired loans is $2.9 million.
Interest on nonaccrual loans is generally recognized only when received.
Cash collected on nonaccrual loans is applied against the principal balance or
recognized as interest income based upon management’s expectations as to
the ultimate collectibility of principal and interest in full. If interest on
nonaccruing loans had been recognized on a fully accruing basis, interest
income recorded would have been $186,000 higher for the year ended
December 31, 2005.
Other real estate totaled $292,000 at December 31, 2005, versus
$625,000 at December 31, 2004. This category includes property owned by the
Bank that was acquired either through foreclosure procedures or by receiving
a deed in lieu of foreclosure. During 2005, we added properties totaling $2.7
million, and partially or completely liquidated properties totaling $3.0 million,
resulting in a net decrease in other real estate of approximately $333,000.
Potential problem loans are defined as those loans which are now
current but where management has doubt as to the borrower’s ability to
comply with present loan repayment terms. Potential problem loans totaled
$9.8 million at December 31, 2005, compared to $7.1 million at year-end 2004.
Loans past due 90 days or more totaled $309,000 at year-end, down
from $605,000 at the previous year-end.
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, we have both geographic concentrations as well as
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concentrations in the types of loans funded. Specifically, due to the nature of
our markets, a significant portion of the portfolio has historically been secured
with real estate.
While we have a majority of our loans (77.5%) secured by real estate, the
primary types of real estate collateral are commercial properties and 1-4 family
residential properties. At December 31, 2005, commercial real estate
mortgage loans and residential real estate mortgage loans accounted for
34.7% and 35.0%, respectively, of the loan portfolio.
The real estate portfolio, while subject to cyclical pressures, is not
typically speculative in nature and is originated at amounts that are within or
below regulatory guidelines for collateral values. Management anticipates no
significant reduction in the percentage of real estate loans to total loans
outstanding.
Management is continually analyzing its loan portfolio in an effort to
identify and resolve problem assets as quickly and efficiently as possible. As of
December 31, 2005, management believes it has identified and adequately
reserved for such problem assets. However, management recognizes that many
factors can adversely impact various segments of its markets, creating financial
difficulties for certain borrowers. As such, management continues to focus its
attention on promptly identifying and providing for potential losses as they arise.
Investment Securities
In 2005, our average investment portfolio increased $7.8 million, or 4.3%,
from 2004 and decreased $2.1 million, or 1.1%, from 2003 to 2004. As a
percentage of average earning assets, the investment portfolio represented
8.8% in 2005, compared to 10.3% in 2004. In 2005, the increase in the portfolio
was due to additional securities obtained through an acquisition in late 2004,
and the increase in required holdings of Federal Home Loan Bank stock. In
2004, the decline in the portfolio was attributable to the maturities of
investment securities, which in anticipation of future loan growth, were only
partially replaced during the period. Throughout 2006, we will closely monitor
liquidity levels to assess the need to purchase additional investments.
In 2005, average taxable investments increased $10.5 million, or 8.0%,
while tax-exempt investments decreased $2.7 million, or 5.2%. Management
will continue to purchase "bank qualified" municipal issues when it considers
the yield to be attractive and we can do so without adversely impacting our tax
position. As of December 31, 2005, we may purchase additional tax-exempt
securities without adverse tax consequences.
Table 9
Risk Element Assets
The investment portfolio is a significant component of our operations
and, as such, it functions as a key element of liquidity and asset/liability
management. As of December 31, 2005, all securities are classified as
available-for-sale. Classifying securities as available-for-sale offers
management full flexibility in managing our liquidity and interest rate sensitivity
without adversely impacting our regulatory capital levels. Securities in the
available-for-sale portfolio are recorded at fair value with unrealized gains and
losses associated with these securities recorded, net of tax, in the
accumulated other comprehensive loss component of shareowners' equity. At
December 31, 2005, shareowners' equity included a net unrealized loss of $1.2
million, compared to an unrealized loss of $0.4 million at December 31, 2004. It
is neither management's intent nor practice to participate in the trading of
investment securities for the purpose of recognizing gains and therefore we do
not maintain a trading portfolio.
The average maturity of the total portfolio at December 31, 2005 and
2004, was 1.65 and 1.63 years, respectively. See Table 10 for a breakdown of
maturities by investment type.
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody’s Rating
Amortized Cost
AAA ..................................................
$48,831
Percentage
91.09%
AA-1 ..................................................
AA-2 ..................................................
AA-3 ..................................................
AA ......................................................
500
502
613
45
Not Rated (1) ......................................
3,120
.93
.94
1.14
.08
5.82
Total ..............................................
$53,611
=================
100.00%
============
(1) All of the securities not rated by Moody’s are rated “A-” or higher by S&P.
The weighted average taxable equivalent yield of the investment
portfolio at December 31, 2005 was 3.57%, versus 3.38% in 2004. The increase
in yield was due to acquisitions and purchases of securities throughout the
year in a higher interest rate environment. The quality of the municipal
portfolio at year-end is depicted in the table 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 our
shareowners' equity at December 31, 2005.
As of December 31,
(Dollars in Thousands)
2005
2004
2003
2002
2001
Nonaccruing Loans ...................................................................................................................
$ 5,258
$ 4,646
$ 2,346
$ 2,510
$ 2,414
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 .............................................................................................
-
5,258
292
$ 5,550
=============
$
309
=============
.25%
=============
.27%
=============
1.72%
=============
331.11%
=============
-
4,646
625
$ 5,271
=============
$
605
=============
.25%
=============
.29%
=============
1.93%
=============
345.18%
=============
-
2,346
4,955
$ 7,301
=============
$ 328
=============
.17%
=============
.54%
=============
3.39%
=============
529.80%
=============
-
2,510
1,333
$ 3,843
===========
$ 2,453
===========
.20%
===========
.30%
===========
1.93%
===========
497.72%
===========
20
2,434
1,506
$ 3,940
===========
$ 1,065
===========
.20%
===========
.32%
===========
2.14%
===========
496.96%
===========
(1) For computation of this percentage, "Capital" refers to shareowners' equity plus the allowance for loan losses.
30
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Table 10
Maturity Distribution of Investment Securities
As of December 31,
2005
2004
2003
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
Amortized
Cost
Market
Value
Weighted(1)
Average
Yield
(Dollars in Thousands)
U.S. GOVERNMENTS
Due in 1 year or less ..................................
$ 58,032
$ 57,621
2.30%
$ 48,553
$ 48,327
2.08%
$ 82,654
$ 82,749
1.26%
Due over 1 year through 5 years ..............
Due over 5 years through 10 years............
Due over 10 years ......................................
24,296
1,970
-
23,662
1,948
-
TOTAL ....................................................
84,298
83,231
STATES & 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 ......................................
21,097
32,130
384
-
21,048
31,702
393
-
TOTAL ..........................................................
53,611
53,143
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 ......................................
339
14,958
5,651
-
337
14,685
5,509
-
TOTAL ......................................................
20,948
20,531
3.52
3.57
-
2.68
4.66
4.11
6.53
-
4.34
3.97
4.12
5.09
-
4.38
OTHER SECURITIES
66,863
66,204
7,684
7,589
-
-
2.38
3.75
-
22,706
22,848
2.04
-
-
-
-
-
-
123,100
122,120
2.35
105,360
105,597
1.43
27,916
21,076
897
-
28,090
21,200
916
-
5.94
4.56
5.36
-
19,018
36,046
577
-
19,205
37,337
610
-
4.18
4.47
4.36
-
49,889
50,206
5.35
55,641
57,152
4.37
489
493
22,719
22,839
3,085
3,068
-
-
5.13
3.96
4.83
-
356
361
11,167
11,586
95
-
98
-
5.12
5.29
3.26
-
26,293
26,400
4.09
11,618
12,045
5.27
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 ......................................................
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,114
14,114
14,114
14,114
4.75
4.75
11,514
11,514
11,514
11,514
4.31
4.31
1,003
1,016
6.18
-
2
5,922
6,927
-
2
5,922
6,940
-
-
3.89
4.22
TOTAL INVESTMENT SECURITIES ......................
$172,971
=============
$171,019
=============
3.57%
=====
$210,796
$210,240
============= =============
3.38%
=======
$179,546
=============
$181,734
==============
2.69%
======
(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)
U.S. Governments ...........................................................
States and Political Subdivisions ...................................
Mortgage-Backed Securities..........................................
Other Securities ..............................................................
TOTAL .........................................................................
As of December 31,
2005
2004
2003
1.01
1.31
5.05
-
1.65
=======
1.54
1.32
2.67
-
1.63
=======
.73
1.23
1.56
.30
.90
=======
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financial review
Table 10 and Note 3 in the Notes to Consolidated Financial Statements
present a detailed analysis of our investment securities as to type, maturity
and yield.
Deposits and Funds Purchased
Average total deposits of $1.95 billion in 2005 increased $355.7 million, or
22.2%, from the prior year. Deposit growth for the year was driven primarily by
the integration of deposits from bank acquisitions and the introduction of
"Absolutely Free Checking." All deposit categories grew, with a majority of the
growth being realized in non-maturity interest bearing deposits. Average
noninterest bearing deposits as a percent of average total deposits declined
from 30.6% in 2004 to 27.9% in 2005. This was primarily a result of "Absolutely
Free Checking," promotions on interest bearing deposit products, and an
increase in the level of interest rates. We experienced deposit run-off in
acquisition markets throughout 2005, primarily in certificates of deposit.
Competition for deposits remains strong in all Bank markets. In 2006, growth is
anticipated to continue in nonmaturity deposits and be partially offset by a
decline in certificates of deposits, but at a slower pace than 2005.
Table 2 provides an analysis of our average deposits, by category, and
average rates paid thereon for each of the last three years. Table 11 reflects
the shift in our deposit mix over the last three years and Table 12 provides a
maturity distribution of time deposits in denominations of $100,000 and over.
Average short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase, Federal Home Loan Bank
advances (maturing in less than one year), and other borrowings, declined $2.7
million, or 2.7%. The slight decline is attributable to a $14.8 million decline in
repurchase agreements, partially offset by a $9.4 million increase in federal
funds purchased and a $2.7 million increase in short-term 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 our financial position in an effort to ensure we have 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, our bank lines of credit, approved lines for the purchase
of federal funds by CCB and Federal Home Loan Bank advances.
We ended 2005 with approximately $61.1 million in liquidity, a decline of
approximately $13.9 million from the previous year-end. On a year-to-date
average basis, liquidity declined $39.6 million from 2004. The decline was
primarily the result of loan growth. Management expects liquidity to continue
to decline throughout 2006 due to the funding of planned loan growth.
We have the ability to draw on a $25.0 million 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 we must maintain. At
December 31, 2005, we were in compliance with all of the terms of the
agreement and had $25.0 million available under the line of credit facility.
At December 31, 2005, we had $98.6 million in borrowings outstanding to
the Federal Home Loan Bank of Atlanta ("FHLB") consisting of 39 notes. Three
notes totaling $30.0 million are classified as short-term borrowings with the
remaining notes classified as long-term borrowings. The interest rates are fixed
and the weighted average rate at December 31, 2005 was 4.29%. Required
annual principal reductions approximate $2.7 million, with the remaining
balances due at maturity ranging from 2006 to 2024. During 2005, we obtained
Table 11
Sources of Deposit Growth
(Average Balances - Dollars in Thousands)
Noninterest Bearing Deposits ....................................................
NOW Accounts............................................................................
Money Market Accounts ............................................................
Savings ........................................................................................
Time Deposits .............................................................................
Total Deposits ....................................................................
2004 to 2005
Change
Percentage
of Total
Change
$ 55,591
138,109
48,022
22,608
91,357
$355,687
===============
15.6%
38.8
13.5
6.4
25.7
100.0%
=========
Components of Total Deposits
2005
27.9%
22.0
14.1
7.8
28.2
100.0%
========
2004
2003
30.6%
28.6%
18.3
14.3
8.1
28.7
18.4
15.1
7.7
30.2
100.0%
=========
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, 2005
Time Certificates of Deposit
$ 41,852
28,158
41,609
31,755
$143,374
=============
Percent
29.19%
19.64
29.02
22.15
100.00%
===========
32
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financial review
three advances from the FHLB totaling $30.0 million with an average fixed rate
of 4.30% and maturing in one year increments starting in September 2006 and
concluding in September 2008. Other FHLB long-term borrowings obtained in
2005 consisted of $3.6 million primarily used to match-fund longer-term, fixed
rate loan products, which management elected not to fund internally due to
asset/liability management considerations. The aforementioned FHLB notes are
collateralized by a blanket floating lien on all 1-4 family residential mortgage
loans, commercial real estate mortgage loans, and home equity mortgage
loans. See Note 10 in the Notes to Consolidated Financial Statements for
additional information on these borrowings.
We issued two junior subordinated deferrable interest notes to wholly
owned Delaware statutory trusts. The first note for $30.9 million was issued to
CCBG Capital Trust I in November 2004. The second note for $32.0 million was
issued to CCBG Capital Trust II in May 2005. See Note 10 in the Notes to
Consolidated Financial Statements for additional information on these
borrowings. The interest payments for the CCBG Capital Trust I borrowing are
due quarterly at a fixed rate of 5.71% for five years, then adjustable annually to
LIBOR plus a margin of 1.90%. This note matures on December 31, 2034. The
proceeds of this borrowing were used to partially fund the Farmers and
Merchants Bank of Dublin acquisition. The interest payments for the CCBG
Capital Trust II borrowing are due quarterly at a fixed rate of 6.07% for five
years, then adjustable quarterly to LIBOR plus a margin of 1.80%. This note
matures on June 15, 2035. The proceeds of this borrowing were used to
partially fund the First Alachua Banking Corporation acquisition.
It is anticipated that capital expenditures will approximate $16.6 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 our ability to meet our
on-going obligations.
Capital
We continue to maintain a strong capital position. The ratio of
shareowners' equity to total assets at year-end was 11.65%, 10.86%, and
10.98%, in 2005, 2004, and 2003, respectively.
We are 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,
2005, we exceeded these capital guidelines with a total risk-based capital ratio
of 13.56% and a Tier 1 ratio of 12.61%, compared to 12.33% and 11.44%,
respectively, in 2004. As allowed by Federal Reserve Board capital guidelines
the trust preferred securities issued by CCBG Capital Trust I and CCBG Capital
Trust II are included as Tier 1 capital in our capital calculations previously
noted. See Note 10 in the Notes to Consolidated Financial Statements for
additional information on our two trust preferred security offerings. See Note
14 in the Notes to Consolidated Financial Statements for additional information
as to our 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, 2005, we had a leverage ratio of 10.27% compared to 8.79% in 2004.
Shareowners' equity as of December 31, for each of the last three years
is presented below:
Shareowners’ Equity
(Dollars in Thousands)
Common Stock
Additional Paid-in Capital
Retained Earnings
Subtotal
Accumulated Other Comprehensive
(Loss) Income, Net of Tax
Total Shareowners' Equity
2005
2004
2003
$ 186
83,304
223,532
307,022
$ 177
52,328
204,648
257,153
$ 165
16,124
185,134
201,423
(1,246)
$305,776
=========
(353)
$256,800
=========
1,386
$202,809
=========
At December 31, 2005, our common stock had a book value of $16.39 per
diluted share compared to $14.51 in 2004. Beginning in 1994, book value has
been impacted by the net unrealized gains and losses on investment securities
available-for-sale. At December 31, 2005, the net unrealized loss was $1.2
million compared to a net unrealized loss of $.4 million in 2004. The increase in
unrealized loss is primarily due to the general increase in interest rates.
Our Board of Directors has authorized the repurchase of up to 1,171,875
shares of our outstanding common stock. The purchases are made in the open
market or in privately negotiated transactions. To date, we have repurchased a
total of 715,884 shares at an average purchase price of $15.34 per share.
We offer an Associate Incentive Plan under which certain associates are
eligible to earn shares of our common stock based upon achieving established
performance goals. In 2005, we issued 8,450 shares, valued at approximately
$283,000 under this plan.
We also offer stock purchase plans, whereby employees and directors
may purchase shares at a 10% discount. In 2005, 23,435 shares, valued at
approximately $679,000 (before 10% discount), were issued under these plans.
Table 13
Contractual Cash Obligations
Table 13 sets forth certain information about contractual cash obligations at December 31, 2005.
(Dollars in Thousands)
1 Year or Less
1-3 Years
4-5 Years
After 5 Years
Total
Federal Home Loan Bank Advances ..........................................
$32,816
$30,748
Subordinated Notes Payable ......................................................
Operating Lease Obligations ......................................................
Total Contractual Cash Obligations............................................
-
1,345
$34,161
=============
-
2,386
$33,135
==============
$6,049
-
2,177
$8,226
===========
$28,985
62,887
6,349
$98,221
=============
$ 98,598
62,887
12,258
$173,742
===============
Payments Due By Period
CCBG
2 0 0 5
33
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Dividends
Adequate capital and financial strength is paramount to our stability and
the stability of our subsidiary bank. Cash dividends declared and paid should
not place unnecessary strain on our capital levels. When determining the level
of dividends the following factors are considered:
• Compliance with state and federal laws and regulations;
• Our capital position and our ability to meet our financial obligations;
• Projected earnings and asset levels; and
• The ability of the Bank and us 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 we are 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 $.6185 per share in 2005. For the
first through third quarters of 2005 we declared a dividend of $.1525 per share.
The dividend was raised 7.2% in the fourth quarter of 2005 from $.1525 per
share to $.1625 per share. We paid dividends of $.5840 per share in 2004 and
$.5248 per share in 2003. The dividend payout ratio was 37.35%, 33.62%, and
34.54% for 2005, 2004 and 2003, respectively. Total cash dividends declared
per share in 2005 represented a 6.0% increase over 2004. All share and per
share data has been adjusted to reflect the five-for-four stock split effective
July 1, 2005.
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently engage in the use of derivative instruments to hedge
interest rate risks. However, we are a party to financial instruments with off-
balance sheet risks in the normal course of business to meet the financing
needs of our clients.
At December 31, 2005, we had $445.3 million in commitments to extend
credit and $20.7 million in standby letters of credit. Commitments to extend
credit are agreements to lend to a client 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
us to guarantee the performance of a client to a third party. We use the same
credit policies in establishing commitments and issuing letters of credit as we do
for on-balance sheet instruments.
If commitments arising from these financial instruments continue to
require funding at historical levels, management does not anticipate that such
funding will adversely impact its ability to meet on-going obligations. In the event
these commitments require funding in excess of historical levels, management
believes current liquidity, available lines of credit from the FHLB, investment
security maturities and our 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
accounting principles generally accepted in the United States of America,
which require us to make various estimates and assumptions (see Note 1 in
the Notes to Consolidated Financial Statements). We believe that, of our
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Allowance for Loan Losses. The allowance for loan losses is established
through a charge to the provision for loan losses. Provisions are made to
reserve for estimated losses in loan balances. The allowance for loan losses is
a significant estimate and is evaluated quarterly by us for adequacy. The use
of different estimates or assumptions could produce a different required
allowance, and thereby a larger or smaller provision recognized as expense in
any given reporting period. A further discussion of the allowance for loan
losses can be found in the section entitled "Allowance for Loan Losses" and
Note 1 in the Notes to Consolidated Financial Statements.
Intangible Assets. Intangible assets consist primarily of goodwill, core
deposit assets, and other identifiable intangibles that were recognized in
connection with various acquisitions. Goodwill represents the excess of the
cost of acquired businesses over the fair market value of their identifiable net
assets. We perform an impairment review on an annual basis to determine if
there has been impairment of our goodwill. We have determined that no
impairment existed at December 31, 2005. 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 our reported results.
Core deposit assets represent the premium we paid for core deposits.
Core deposit intangibles are amortized on the straight-line method over
various periods ranging from 5-10 years. Generally, core deposits refer to
nonpublic, non-maturing deposits including noninterest-bearing deposits,
NOW, money market and savings. We make 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 client 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. We have a defined benefit pension plan for the
benefit of substantially all of our associates. Our funding policy with respect to
the pension plan is to contribute 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 assumptions 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
anticipated 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 2005 was 6.00%.
The estimated impact to 2005 pension expense of a 25 basis point increase or
decrease in the discount rate would have been a decrease of approximately
$252,000 and an increase of approximately $263,000, respectively. We
anticipate using a 5.75% discount rate in 2006.
34
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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 temporary
liquid funds awaiting investment). The weighted-average expected long-term
rate of return on plan assets utilized for 2005 was 8.0%. The estimated impact
to pension expense of a 25 basis point increase or decrease in the rate of
return would have been an approximate $99,000 decrease or increase,
respectively. We anticipate using a rate of return on plan assets for 2006 of
8.0%.
The assumed rate of annual compensation increases of 5.50% in 2005 is
based on expected trends in salaries and the employee base. This assumption
is not expected to change materially in 2006.
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
SFAS No. 154, "Accounting Changes and Error Corrections, a
Replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154").
SFAS 154 establishes, unless impracticable, retrospective application as the
required method for reporting a change in accounting principle in the absence
of explicit transition requirements specific to a newly adopted accounting
principle. Previously, most changes in accounting principle were recognized by
including the cumulative effect of changing to the new accounting principle in
net income of the period of the change. Under SFAS 154, retrospective
application requires (i) the cumulative effect of the change to the new
accounting principle on periods prior to those presented to be reflected in the
carrying amounts of assets and liabilities as of the beginning of the first period
presented, (ii) an offsetting adjustment, if any, to be made to the opening
balance of retained earnings (or other appropriate components of equity) for
that period, and (iii) financial statements for each individual prior period
presented to be adjusted to reflect the direct period-specific effects of
applying the new accounting principle. Special retroactive application rules
apply in situations where it is impracticable to determine either the period-
specific effects or the cumulative effect of the change. Indirect effects of a
change in accounting principle are required to be reported in the period in
which the accounting change is made. SFAS 154 carries forward the guidance
in APB Opinion 20 "Accounting Changes," requiring justification of a change in
accounting principle on the basis of preferability. SFAS 154 also carries
forward without change the guidance contained in APB Opinion 20, for
reporting the correction of an error in previously issued financial statements
and for a change in accounting estimate. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after
December 15, 2005. We do not expect SFAS 154 will significantly impact our
financial statements upon its adoption on January 1, 2006.
FASB Staff Position (FSP) No. 115-1, "The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments." FSP 115-1
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. If, after consideration of all available
evidence to evaluate the realizable value of its investment, 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. FSP 115-1 nullifies certain provisions of Emerging Issues Task Force
(EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
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financial review
Its Application to Certain Investments," while retaining the disclosure
requirements of EITF 03-1 which were adopted in 2003. FSP 115-1 is effective
for reporting periods beginning after December 15, 2005. We do not expect
FSP 115-1 will significantly impact our financial statements upon its adoption
on January 1, 2006.
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. We adopted the accounting standards set forth in SFAS
No. 123 in 2003 and have accordingly expensed stock–based compensation for
2003, 2004, and 2005. See Note 1 — Accounting Policies.
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 contractual cash flows and cash flows
expected to be collected from an investor's initial investment in loans acquired
in a transfer when 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 recognized 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 remaining 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 us beginning January 1, 2005. We adopted SOP 03-3 and
application of its guidance for the recent First Alachua Bank Corporation
acquisition, which did not have a significant impact on our financial statements.
Loans acquired in future acquisitions will continue to be accounted for under
SOP 03-3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Overview
Market risk management arises from changes in interest rates, exchange
rates, commodity prices, and equity prices. We have risk management policies
to monitor and limit exposure to market risk and do 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.
CCBG
2 0 0 5
35
CCBG
2 0 0 5
financial review
Interest Rate Risk Management
The normal course of business activity exposes us to interest rate risk.
Fluctuations in interest rates may result in changes in the fair market value of
our financial instruments, cash flows and net interest income. We seek to
avoid fluctuations in our net interest margin and to maximize net interest
income within acceptable levels of risk through periods of changing interest
rates. Accordingly, our interest rate sensitivity and liquidity are monitored on
an ongoing basis by our 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 liabilities
within the parameters set by ALCO.
Our financial assets and liabilities are classified as other-than-trading. An
analysis of the other-than-trading financial components, including the fair
values, are presented in Table 14. This table presents our consolidated interest
rate sensitivity position as of year-end 2005 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 our net interest income due to
fluctuations in interest rates. The asset and liability values presented in Table
14 may not necessarily be indicative of our interest rate sensitivity over an
extended period of time.
We expect 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 we respond to
changing rates and thus impact the magnitude of change in net interest
income. Non-maturity deposits offer management greater discretion as to the
direction, timing, and magnitude of interest rate changes and can have a
material impact on our interest rate sensitivity. In addition, the relative level of
interest rates as compared to the current yields/rates of existing
assets/liabilities can impact both the direction and magnitude of the change in
net interest margin as rates rise and fall from one period to the next.
Inflation
The impact of inflation on the banking industry differs significantly from
that of other industries in which a large portion of total resources are invested
in fixed assets such as property, plant and equipment.
Assets and liabilities of financial institutions are virtually all monetary in
nature, and therefore are primarily impacted by interest rates rather than
changing prices. While the general level of inflation underlies most interest
rates, interest rates react more to changes in the expected rate of inflation and
to changes in monetary and fiscal policy. Net interest income and the interest
rate spread are good measures of our ability to react to changing interest rates
and are discussed in further detail in the section entitled "Results of
Operations."
36
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financial review
Table 14
Financial Assets and Liabilities Market Risk Analysis (1)
Other Than Trading Portfolio
(Dollars in Thousands)
Year 1
Year 2
Year 3
Year 4
Year 5
Beyond
Total
Fair
Value
Maturing or Repricing in:
Loans:
Fixed Rate...................................................... $ 337,826
$159,503
$117,903
$52,794
$29,771
$24,277
$ 722,074
$ 719,765
Average Interest Rate ..........................
6.16%
Floating Rate (2) ..............................................
1,082,130
Average Interest Rate ..........................
6.20%
Investment Securities: (3)
Fixed Rate......................................................
78,444
Average Interest Rate ..........................
Floating Rate ................................................
Average Interest Rate ..........................
Other Earning Assets:
Floating Rate ................................................
Average Interest Rate ..........................
2.57%
2,038
4.63%
61,164
4.32%
7.25%
137,593
6.28%
49,018
3.08%
7.26%
106,314
6.82%
11,215
3.59%
-
-
-
-
-
-
-
-
7.22%
7,748
7.17%
3,127
3.84%
-
-
-
-
7.46%
4,952
7.47%
8,373
3.95%
-
-
-
-
6.35%
6,683
7.74%
18,804
4.82%
-
-
-
-
6.72%
1,345,420
1,342,599
6.28%
168,981
168,981
3.13%
2,038
4.63%
61,164
4.32%
2,038
61,164
Total Financial Assets .................... $1,561,602
$346,114
$235,432
$63,669
Average Interest Rate ............
5.93%
6.27%
6.89%
7.05%
$43,096
6.78%
$49,764
$2,299,677
$2,294,547
5.96%
6.13%
Deposits: (4)
Fixed Rate...................................................... $ 409,844
$ 71,258
$ 29,600
Average Interest Rate ..........................
2.83%
3.29%
3.46%
Floating Rate ................................................
995,136
Average Interest Rate ..........................
1.44%
Other Interest Bearing Liabilities:
Fixed Rate Debt ............................................
Average Interest Rate ..........................
Floating Rate Debt ........................................
Average Interest Rate ..........................
3,399
4.68%
82,973
3.35%
-
-
16,879
4.14%
-
-
-
-
13,921
4.41%
-
-
Total Financial Liabilities .............. $1,491,352
$ 88,137
$ 43,521
Average Interest Rate ............
1.94%
3.46%
3.76%
$ 9,105
3.59%
$ 5,317
3.80%
-
-
-
-
3,021
4.41%
30,928
5.71%
$43,054
1.07%
2,759
4.88%
31,959
6.07%
$40,035
5.69%
$ 251
$ 525,375
$ 449,663
4.94%
-
-
29,652
5.08%
-
-
2.95%
995,136
1.44%
69,631
4.66%
145,860
4.45%
995,136
69,295
145,797
$29,904
$1,736,002
$1,659,891
5.08%
2.18%
(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.
CCBG
2 0 0 5
37
CCBG
2 0 0 5
financial review
Table 15
Quarterly Financial Data (Unaudited)
(Dollars in Thousands, Except Per Share Data) (1)
Fourth
Third
Second
First
Fourth
Third
Second
First
2005
2004
Summary of Operations:
Interest Income .....................................
$
38,780
$ 36,889
$ 33,910
$ 30,474
$
29,930
$ 24,660
$ 24,265
$ 22,670
Interest Expense....................................
Net Interest Income ..............................
Provision for Loan Losses .....................
Net Interest Income After
9,470
29,310
1,333
7,885
29,004
376
6,788
27,122
388
5,920
24,554
410
Provision for Loan Losses ..............
27,977
28,628
26,734
24,144
Gain on Sale of Credit Card Portfolios..
Noninterest Income ..............................
Conversion/Merger Expense ................
Noninterest Expense.............................
Income Before Provision
for Income Taxes .............................
Provision for Income Taxes...................
-
12,974
24
29,318
11,609
4,150
-
13,123
180
28,429
13,142
4,565
-
12,041
234
26,362
12,179
4,311
-
11,060
-
25,267
9,937
3,560
5,634
24,296
300
23,996
324
11,596
436
24,481
10,999
3,737
3,408
21,252
300
20,952
6,857
10,864
68
21,565
17,040
6,221
3,221
21,044
580
3,178
19,492
961
20,464
18,531
-
11,031
4
21,597
9,894
3,451
-
9,881
42
21,033
7,337
2,490
Net Income ............................................
Net Interest Income (FTE) .....................
7,459
$
==========
29,652
$
$
8,577
==========
$ 29,329
7,868
$
==========
$ 27,396
$
6,377
==========
$ 24,835
7,262
$
==========
24,619
$
$
10,819
==========
$ 21,528
6,443
$
==========
$ 21,333
$
4,847
==========
$ 19,811
Per Common Share:
Net Income Basic ..................................
$
Net Income Diluted ...............................
Dividends Declared ...............................
Diluted Book Value ................................
Market Price:
High.................................................
Low ................................................
Close ...............................................
Selected Average Balances:
.40
.40
.163
16.39
39.33
33.21
34.29
$ .46
$ .44
$ .36
$
.46
.152
16.17
38.72
31.78
37.71
.44
.152
15.87
33.46
28.02
32.32
.36
.152
14.69
33.60
29.30
32.41
.40
.40
.152
14.51
36.78
30.17
33.44
$ .66
$ .38
$ .30
.66
.144
3.19
32.96
26.66
30.97
.38
.144
12.64
34.52
28.40
31.67
.30
.144
12.43
36.44
31.24
33.00
Loans .....................................................
$2,062,775
$2,046,968
$1,932,637
$1,827,327
$1,779,736
$1,524,401
$1,491,142
$1,357,206
Earning Assets.......................................
2,279,010
2,250,902
2,170,483
2,047,049
2,066,111
1,734,708
1,721,655
1,634,468
Assets ....................................................
2,607,597
2,569,524
2,458,788
2,306,807
2,322,870
1,941,372
1,929,485
1,830,496
Deposits.................................................
2,027,017
2,013,427
1,932,144
1,847,378
1,853,588
1,545,224
1,538,630
1,457,160
Shareowners’ Equity .............................
306,208
300,931
278,107
260,946
248,773
217,273
210,211
206,395
Common Equivalent Average Shares:
Basic ..............................................
Diluted.............................................
18,624
18,654
18,623
18,649
18,094
18,102
17,700
17,708
17,444
17,451
16,604
16,609
16,593
16,596
16,578
16,607
Ratios:
ROA ........................................................
ROE ........................................................
Net Interest Margin (FTE) ......................
1.14%
9.67%
5.16%
Efficiency Ratio ......................................
65.22%
1.32%
11.31%
5.17%
63.60%
1.28%
11.35%
5.07%
63.56%
1.12%
9.91%
4.92%
67.06%
1.24%
11.61%
4.75%
63.85%
2.22%(2)
19.81%(2)
4.94%
52.60%(2)
1.34%
12.33%
4.99%
63.87%
1.06%
9.45%
4.88%
68.06%
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
(2) Includes $6.9 million ($4.2 million after-tax) one-time gain on sale of credit card portfolio.
38
annual
report
consolidated financial statements
annual
report
41
report of independent
registered public
accounting firm
42
consolidated statements
of income
43
consolidated statements
of financial condition
44
consolidated statements
of changes
in shareowners’ equity
45
consolidated statements
of cash flows
46
notes to consolidated
financial statements
CCBG
2 0 0 5
39
CCBG
2 0 0 5
40
annual
report
This page intentionally left blank.
annual
report
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, 2005 and 2004, 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, 2005. 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 presentation. 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, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-
year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.
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, 2005, 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, 2006 expressed an
unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
KPMG LLP
Orlando, Florida
March 16, 2006
Certified Public Accountants
CCBG
2 0 0 5
41
CCBG
2 0 0 5
consolidated statements of income
(Dollars In Thousands, Except Per Share Data) (1)
2005
2004
2003
INTEREST INCOME
Interest and Fees on Loans ..............................................................................................................
$133,268
$ 95,607
$87,435
For the Years Ended December 31,
Investment Securities:
U.S. Treasury...............................................................................................................................
U.S. Government Agencies and Corporations..........................................................................
States and Political Subdivisions ..............................................................................................
Other Securities.........................................................................................................................
Funds Sold .........................................................................................................................................
412
3,223
1,545
614
991
759
2,111
1,944
271
833
Total Interest Income ................................................................................................................
140,053
101,525
INTEREST EXPENSE
Deposits ...........................................................................................................................................
Short-Term Borrowings.....................................................................................................................
Subordinated Notes Payable ............................................................................................................
Other Long-Term Borrowings ...........................................................................................................
Total Interest Expense...............................................................................................................
Net Interest Income ..........................................................................................................................
Provision for Loan Losses .................................................................................................................
Net Interest Income After Provision for Loan Losses ......................................................................
21,134
2,854
2,981
3,094
30,063
109,990
2,507
107,483
NONINTEREST INCOME
Service Charges on Deposit Accounts.............................................................................................
20,740
Data Processing ................................................................................................................................
Asset Management Fees ..................................................................................................................
Gain on Sale of Investment Securities ............................................................................................
Mortgage Banking Revenues............................................................................................................
Gain on Sale of Credit Card Portfolios..............................................................................................
Other..................................................................................................................................................
2,610
4,419
9
4,072
-
er
Total Noninterest Income..........................................................................................................
49,198
NONINTEREST EXPENSE
Salaries and Associate Benefits .......................................................................................................
Occupancy, Net .................................................................................................................................
Furniture and Equipment..................................................................................................................
Intangible Amortization.....................................................................................................................
Merger Expense ................................................................................................................................
53,687
8,293
8,970
5,440
438
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
Other..................................................................................................................................................
32,986 25,040
Total Noninterest Expense ........................................................................................................
109,814
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...............................................................................
46,867
16,586
$ 30,281
===========
$
1.66
===========
$
1.66
===========
18,264
===========
18,281
===========
89,226
45,270
15,899
$ 29,371
============
$
1.74
============
$
1.74
============
16,806
============
16,811
============
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005, and the 5-for-4 stock split effective June 13, 2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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
=========
$ 1.53
=========
$ 1.52
=========
16,528
=========
16,564
=========
42
annual
report
consolidated statements of financial condition
annual
report
As of December 31,
2005
2004
(Dollars in Thousands, Except Per Share Data) (1)
ASSETS
Cash and Due From Banks ....................................................................................................................................
$ 105,195
$
87,039
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 Notes Payable ..................................................................................................................................
Other Long-Term Borrowings ................................................................................................................................
Other Liabilities........................................................................................................................................................
61,164
166,359
171,019
2,067,494
(17,410)
2,050,084
73,818
84,829
25,622
53,731
74,506
161,545
210,240
1,828,825
(16,037)
1,812,788
58,963
54,341
25,964
40,172
$2,625,462
============================
$2,364,013
============================
$ 559,492
1,519,854
2,079,346
82,973
62,887
69,630
24,850
$ 566,991
1,327,895
1,894,886
96,014
30,928
68,453
16,932
Total Liabilities ..............................................................................................................................................
2,319,686
2,107,213
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; 18,631,706 and 17,694,139 shares
issued and outstanding at December 31, 2005 and December 31, 2004, respectively ................................
Additional Paid-In Capital........................................................................................................................................
Retained Earnings ..................................................................................................................................................
Accumulated Other Comprehensive Loss, Net of Tax ..........................................................................................
Total Shareowners' Equity ............................................................................................................................
Commitments and Contingencies (See Note 18)
186
83,304
223,532
(1,246)
305,776
-
177
52,328
204,648
(353)
256,800
Total Liabilities and Shareowners' Equity ................................................................................................
$2,622,110
============================
$2,364,013
============================
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CCBG
2 0 0 5
43
CCBG
2 0 0 5
consolidated statements of changes in shareowners’ equity
(Dollars in Thousands, Except Per Share Data) (1)
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated Other
Comprehensive
(Loss) Income,
Net of Taxes
Total
Balance, December 31, 2002 ..................................
$165
$14,658
$168,587
$ 3,121
$186,531
Comprehensive Income:
Net Income ....................................................
Net Change in Unrealized Loss
On Available-for-Sale Securities ..........
Total Comprehensive Income .................................
Cash Dividends ($.525 per share) ...........................
Stock Performance Plan Compensation ...............
Issuance of Common Stock ....................................
Repurchase and Retirement of Common Stock ....
-
-
-
-
-
-
-
-
-
-
-
62
1,421
(17)
25,193
-
-
(8,646)
-
-
-
(1,735)
-
-
-
-
-
23,458
(8,646)
62
1,421
(17)
Balance, December 31, 2003 .................................
165
16,124
185,134
1,386
202,809
Comprehensive Income:
Net Income ....................................................
Net Change in Unrealized Loss
On Available-for-Sale Securities ..........
Total Comprehensive Income .................................
Cash Dividends ($.584 per share) ...........................
Stock Performance Plan Compensation ...............
Issuance of Common Stock ....................................
Balance, December 31, 2004 .................................
Comprehensive Income:
Net Income ...................................................
Net Change in Unrealized Loss
On Available-for-Sale Securities .........
Total Comprehensive Income .................................
Cash Dividends ($.619 per share) ...........................
Stock Performance Plan Compensation ................
Issuance of Common Stock ....................................
Balance, December 31, 2005 ..................................
-
-
-
-
-
12
177
-
-
-
-
-
9
$186
=======
-
-
-
-
193
36,011
52,328
-
-
-
-
968
30,008
$83,304
==========
29,371
-
-
(9,857)
-
-
204,648
30,281
-
-
(11,397)
-
-
(1,739)
-
-
-
-
27,632
(9,857)
193
36,023
(353)
256,800
(893)
-
-
-
-
29,388
(11,397)
968
30,017
$223,532
== ===========
$(1,246)
===========
$305,776
============
(1) All share, per share, and shareowners' equity data have been adjusted to reflect the 5-for-4 stock split effective July 1, 2005, and the 5-for-4 stock split effective June 13, 2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
44
annual
report
consolidated statements of cash flows
annual
report
For the Years Ended December 31,
2005
2004
2003
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................................................................................................................
$ 30,281
$ 29,371
$ 25,193
Adjustments to Reconcile Net Income to
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:
Securities Available-for-Sale:
Purchases ................................................................................................................................................
Sales ........................................................................................................................................................
Payments, Maturities, and Calls ..............................................................................................................
Net Increase in Loans ........................................................................................................................................
Net Cash Acquired (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 (Decrease) Increase in Deposits ................................................................................................................
Net Decrease in Short-Term Borrowings ..........................................................................................................
Proceeds from Subordinated Notes 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 (Used In) Provided By Financing Activities........................................................................................
Net Increase (Decrease) 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.
2,507
5,899
-
1,454
5,440
(9)
968
182
(11,839)
9,264
44,147
(45,717)
35,142
81,783
(123,105)
37,412
(18,336)
897
(31,924)
(17,125)
(33,085)
31,959
23,600
(2,380)
(11,397)
-
1,019
(7,409)
4,814
161,545
$166,359
=============
$ 19,964
=============
$ 8,754
=============
$ 15,923
=============
$ 2,689
=============
$
339
=============
$ 20,043
=============
2,141
5,288
-
2,117
3,824
(14)
1,707
765
(4,210)
3,182
44,171
(88,028)
3,466
128,617
(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
(107,695)
125
101,234
(65,180)
-
(11,152)
1,090
(81,578)
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
=============
CCBG
2 0 0 5
45
CCBG
2 0 0 5
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 interest 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 financial 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
interest, known as the primary beneficiary, consolidates the VIE. CCBG's
wholly-owned subsidiaries, CCBG Capital Trust I (established November 1,
2004) and CCBG Capital Trust II (established May 24, 2005) are VIEs for which
the Company is not the primary beneficiary. Accordingly, the accounts of these
entities 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).
On July 1, 2005, the Company executed a five-for-four stock split in the
form of a 25% stock dividend, payable to shareowners of record as of the close
of business on June 17, 2005. All share, per share, and shareowners' equity
data have been adjusted to reflect the stock split.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-
bearing deposits in other banks, and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods and all other cash
equivalents have a maturity of 90 days or less.
Investment Securities
Investment securities available-for-sale are carried at fair value and
represent securities that are available to meet liquidity and/or other needs of
the Company. Gains and losses are recognized and reported separately in the
Consolidated Statements of Income upon realization or when impairment of
values is deemed to be other than temporary. Gains or losses are recognized
using the specific identification method. Unrealized holding gains and losses
for securities available-for-sale are excluded from the Consolidated Statements
of Income and reported net of taxes in the accumulated other comprehensive
(loss) income component of shareowners' equity until realized. Accretion and
amortization are recognized on the effective yield method over the life of the
securities.
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. Interest income is generally accrued on the effective yield method
based on outstanding balances. The accrual of interest is generally suspended
on loans more than 90 days past due with respect to principal and interest.
When a loan is placed on nonaccrual status, all previously accrued and
uncollected interest is reversed against current income. Interest income on
nonaccrual loans is recognized on a cash basis when the ultimate collectibility
is no longer considered doubtful. Loans are returned to accrual status when
the principal and interest amounts contractually due are brought current and
future payments are reasonably assured. 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
Certain residential mortgage loans are originated for sale in the
secondary mortgage loan market. Additionally, certain other loans are
periodically identified to be sold. These loans are classified as loans held for
sale and carried at the lower of cost or estimated fair value. Fair value is
determined on the basis of rates quoted in the respective secondary market
for the type of loan held for sale. Loans are generally sold at a premium or
discount from the carrying amount of the loans. Such premium or discount is
recognized as mortgage banking revenue at the date of sale. Fixed
commitments may be used at the time loans are originated or identified for
sale to mitigate interest rate risk. The fair value of fixed commitments to
originate and sell loans held for sale is not material.
Use of Estimates
Allowance for Loan Losses
The preparation of financial statements in conformity with accounting
The allowance for loan losses is a reserve established through a
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. Material estimates that are particularly susceptible to
significant changes in the near-term relate to the determination of the
allowance for loan losses, income taxes, and valuation of goodwill and other
intangibles and their respective analysis of impairment.
provision for loan losses charged to expense, which represents management’s
best estimate of probable losses that have been incurred within the existing
portfolio of loans. The allowance is that amount considered adequate to
absorb losses inherent in the loan portfolio based on management’s
evaluation of credit risk as of the balance sheet date.
The allowance for loan losses includes allowance allocations calculated
in accordance with Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
118, and allowance allocations calculated in accordance with SFAS 5,
"Accounting for Contingencies." The level of the allowance reflects
46
annual
report
notes to consolidated financial statements
annual
report
management’s continuing evaluation of specific credit risks, loan loss
experience, current loan portfolio quality, present economic conditions and
unidentified losses inherent in the current loan portfolio, as well as trends in
the foregoing. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision as more information becomes
available.
The Company’s allowance for loan losses consists of three elements: (i)
specific valuation allowances established for probable losses on specific loans
deemed impaired; (ii) general valuation allowances calculated based on
historical loan loss experience for similar loans with similar characteristics and
trends; and (iii) unallocated general valuation allowances determined based on
general economic conditions and other qualitative risk factors both internal
and external to the Company.
Long-Lived Assets
Premises and equipment are stated at cost less accumulated
depreciation, computed on the straight-line method over the estimated useful
lives for each type of asset with premises being depreciated over a range of 10
to 40 years, and equipment being depreciated over a range of 3 to 10 years.
Major additions are capitalized and depreciated in the same manner. Repairs
and maintenance are charged to noninterest expense as incurred.
Intangible assets, other than goodwill, consist of core deposit assets, and
a client 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 5 to 10 years. Other identifiable
intangibles are amortized on the straight-line method 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.
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 circumstances indicate that the
carrying value of the asset may not be recoverable.
guidelines in SFAS 142, the Company determined it has one reporting unit with
goodwill. As of December 31, 2005, the Company performed its annual
impairment review and concluded that no impairment adjustment was
necessary.
In accordance with the
Income Taxes
The Company files a consolidated federal income tax return and each
subsidiary files a separate state income tax return. In general, the parent
company and its subsidiary compute their tax provisions as separate entities
prior to recognition of any tax expense or benefits which may accrue from
filing a consolidated return.
The Company follows the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the carrying amounts of existing assets and liabilities on the
Company’s consolidated statement of financial position and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Stock Based Compensation
As of December 31, 2005, the Company had three stock-based
compensation plans, consisting of the 2005 Associate Incentive Plan ("AIP"),
the 2005 Associate Stock Purchase Plan and the 2005 Director Stock Purchase
Plan. Prior to 2005, the Company maintained stock based compensation plans
substantially similar to the aforementioned plans (each a “Predecessor Plan”).
As a result of SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," the Company adopted the fair value recognition
provisions 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 three 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 recognized if the fair value
based method had been applied to all awards since the original effective date
of SFAS 123, as a result of the difference between compensation
measurement dates under SFAS 123 and Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the differences
in what instruments are considered 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-based associate compensation included in net
income is accounted for under the fair value based method during 2005 and
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.
(Dollars in Thousands, Except Per Share Data)
2005
2004
2003
Net income, as reported
$30,281
$29,371
$25,193
Add: Stock based compensation included
in reported net income, net of tax
671
400
634
Deduct: Stock based compensation
determined under fair value based method
for all awards, net of tax
(671)
(400)
(348)
Pro forma net income
Net income per share:
Basic-as reported
Basic-pro forma
Diluted-as reported
Diluted-pro forma
$30,281
========
$29,371
========
$25,479
========
$ 1.66
========
$ 1.66
========
$ 1.66
========
$ 1.66
========
$ 1.74
========
$ 1.74
========
$ 1.74
========
$ 1.74
========
$ 1.53
========
$ 1.54
========
$ 1.52
========
$ 1.54
========
2005 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. Stock purchases
under the DSPP are limited to the amount of the directors’ annual retainer and
meeting fees. The DSPP has 93,750 shares reserved for issuance. In 2005,
CCBG issued 6,589 shares under the DSPP. During 2004 and 2003, CCBG
issued 9,211 and 6,076 shares, respectively, under the Predecessor Plan to the
CCBG
2 0 0 5
47
CCBG
2 0 0 5
notes to consolidated financial statements
DSPP. A total of 6,589 shares have been issued to directors since the inception
of this plan. In accordance with the Company’s adoption of SFAS 123,
compensation expense has been recognized for the Company's plan activity in
all reported periods.
2005 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 associate's eligible
compensation, up to a maximum of $25,000 (fair market value on each
enrollment date) in any plan year. The ASPP has 593,750 shares of common
stock reserved for issuance. CCBG issued 16,846 shares under the plan in
2005 at a weighted average price of $28.92. A total of 16,846 shares have
been issued since inception of the ASPP. During 2004 and 2003, CCBG issued
25,070 and 31,543 shares under a Predecessor Plan to the ASPP at a weighted
average price of $28.50 and $24.37, respectively. In accordance with the
Company’s adoption of SFAS 123, compensation expense has been recognized
for the Company's plan activity in all reported periods.
Based on the Black-Scholes option pricing model, the weighted average
estimated fair value of the purchase rights granted under the ASPP Plan was
$5.77 in 2005. For 2004 and 2003, the weighted average fair value of the
purchase rights granted was $5.90 and $3.17, respectively. In calculating
compensation, the fair value of each stock purchase right was estimated on
the date of grant using the following weighted average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
2005
1.9%
28.0%
2.6%
0.5
2004
1.7%
30.0%
1.1%
0.5
2003
1.8%
34.5%
1.1%
0.5
2005 Associate Incentive Plan ("AIP"). Under the Company's AIP, shares
are granted to participants based upon the achievement of performance goals
established by the Board of Directors at the beginning of each award period.
Shares earned are issued during the first calendar quarter of the following year.
A total of 875,000 shares of common stock have been reserved for issuance
under this plan. CCBG issued 8,450 shares under the AIP in 2005. A total of
8,450 shares have been issued since inception of this plan. During 2004 and
2003, CCBG issued 46,726 and 13,245 shares under the Predecessor Plan to
the AIP. In accordance with the Company’s adoption of SFAS 123,
compensation expense has been recognized for the Company's plan activity in
all reported periods.
Executive Stock Option Agreement. In 2005, the Company's Board of
Directors approved a stock option agreement for a key executive officer
(William G. Smith, Jr. - Chairman, President and CEO, CCBG) under the
provisions of the AIP. Similar stock option agreements were approved in 2004
and 2003 under the Predecessor Plan to the AIP. These agreements grant a
non-qualified stock option award upon achieving certain annual earnings 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 2004 and 2003 agreements, 37,246 and 23,138 option
shares, respectively, were issued, none of which has been exercised. The fair
value of a 2004 option share was $13.42, and the fair value of a 2003 option
share was $11.64. The exercise prices for the 2004 and 2003 shares are $32.69
and $32.96, respectively. Under the 2005 agreement, the earnings per share
conditions were not met; therefore, no economic value was earned by the
executive. During 2005, 2004 and 2003, the Company recognized expense of
approximately $193,000, $193,000, and $62,000, respectively, related to these
agreements in accordance with the provisions of SFAS 123.
Recent Accounting Pronouncements
SFAS No. 154, "Accounting Changes and Error Corrections, a
Replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154").
SFAS 154 establishes, unless impracticable, retrospective application as the
required method for reporting a change in accounting principle in the absence
of explicit transition requirements specific to a newly adopted accounting
principle. Previously, most changes in accounting principle were recognized by
including the cumulative effect of changing to the new accounting principle in
net income of the period of the change. Under SFAS 154, retrospective
application requires (i) the cumulative effect of the change to the new
accounting principle on periods prior to those presented to be reflected in the
carrying amounts of assets and liabilities as of the beginning of the first period
presented, (ii) an offsetting adjustment, if any, to be made to the opening
balance of retained earnings (or other appropriate components of equity) for
that period, and (iii) financial statements for each individual prior period
presented to be adjusted to reflect the direct period-specific effects of applying
the new accounting principle. Special retroactive application rules apply in
situations where it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. Indirect effects of a change in
accounting principle are required to be reported in the period in which the
accounting change is made. SFAS 154 carries forward the guidance in APB
Opinion 20 "Accounting Changes," requiring justification of a change in
accounting principle on the basis of preferability. SFAS 154 also carries forward
without change the guidance contained in APB Opinion 20, for reporting the
correction of an error in previously issued financial statements and for a
change in accounting estimate. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not expect SFAS 154 will significantly impact its
financial statements upon its adoption on January 1, 2006.
FASB Staff Position (FSP) No. 115-1, "The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments." FSP 115-1
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. If, after consideration of all available
evidence to evaluate the realizable value of its investment, 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. FSP 115-1 nullifies certain provisions of Emerging Issues Task Force
(EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments," while retaining the disclosure
requirements of EITF 03-1 which were adopted in 2003. FSP 115-1 is effective
for reporting periods beginning after December 15, 2005. The Company does
not expect FSP 115-1 will significantly impact its financial statements upon its
adoption on January 1, 2006.
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
48
annual
report
notes to consolidated financial statements
annual
report
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, 2004, and 2005.
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 contractual cash flows and cash flows
expected to be collected from an investor's initial investment in loans acquired
in a transfer when 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 recognized 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 remaining 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. The Company
has adopted SOP 03-3 and application of its guidance for the recent First
Alachua Banking Corporation acquisition did not have a significant impact on
its financial statements. Loans acquired in future acquisitions will continue to
be accounted for under SOP 03-3.
The information below lists the consolidated assets and liabilities of
FNBA as of May 20, 2005, along with the consideration paid.
(Dollars in Thousands)
Cash and Due From Banks
Funds Sold
Total Cash and Cash Equivalents
Investment Securities, Available-for-Sale
Loans, Net of Unearned Interest
Intangible Assets
Other Assets
Total Assets Acquired
Total Deposits
Long-Term Borrowings
Other Liabilities
Total Liabilities Assumed
Consideration Paid to FABC Shareowners
First National Bank
of Alachua
$ 9,082
58,312
67,394
35,181
119,262
35,623
3,282
$260,742
$201,748
-
994
$202,742
$ 58,000
==========
The following unaudited pro forma financial information for 2005 and
2004, presents the consolidated operations of the Company as if the FNBA
acquisition had been made on January 1, 2004. 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 acquisition of FNBA been consummated on this earlier date, and do
not project the Company's results of operations for any future period.
(Dollars in Thousands, Except Per Share Data)(1)
2005
2004(3)
For the 12 Months Ended
December 31,
Note 2
ACQUISITIONS
Interest Income
Interest Expense
Net Interest Income
On May 20, 2005, the Company completed its merger with First Alachua
Provision for Loan Losses
Banking Corporation ("FABC"), headquartered in Alachua, Florida. The
Company issued approximately 906,000 shares of common stock and paid
approximately $29.0 million in cash for a total purchase price of $58.0 million.
Results of FABC operations have been included in the Company's consolidated
financial statements since May 21, 2005. FABC's wholly-owned subsidiary, First
National Bank of Alachua ("FNBA") had $228.3 million in assets at closing with
seven offices in Alachua County and an eighth office in Hastings, Florida, which
is in St. Johns County. The transaction was accounted for as a purchase and
resulted in approximately $35.6 million of intangible assets, including
approximately $30.5 million in goodwill and a core deposit intangible of $5.1
million. The core deposit intangible is being amortized over a 5.5 year period.
On May 20, 2005, the Company issued a $32.0 million junior
subordinated deferrable interest note to a wholly owned Delaware statutory
trust, CCBG Capital Trust II to facilitate the cash portion of the consideration
paid to FABC shareowners. Interest payments on this note are due quarterly at
a fixed rate of 6.07% for five years, then adjustable annually to three month
LIBOR plus a margin of 1.80%. The note matures on June 15, 2035. The general
terms and conditions of the Company's transaction with CCBG Capital Trust II
are consistent with those enumerated for CCBG Capital Trust I and are
described in Note 10.
Net Interest Income After
Provision for Loan Losses
Noninterest Income
Noninterest Expense(2)
Income Before Income Taxes
Income Taxes
Net Income
Basic Net Income Per Share
Diluted Net Income Per Share
$144,440
31,888
112,552
2,507
110,045
50,017
113,808
46,254
16,596
$ 29,658
===========
$
1.59
===========
$ 1.59
===========
$112,670
20,078
92,592
2,141
90,451
52,448
96,447
46,452
16,348
$ 30,104
===========
$
1.70
===========
$ 1.70
===========
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective
July 1, 2005.
(2) Includes year-to-date 2005 non-recurring merger related expenses at FNBA and CCBG totaling
approximately $1.3 million.
(3) Includes $6.9 million ($4.2 million after-tax) one-time gain on sale of the Bank’s credit card
portfolio in August 2004.
CCBG
2 0 0 5
49
CCBG
2 0 0 5
notes to consolidated financial statements
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.
Other Than Temporarily Impaired Securities. Securities with unrealized
losses at year-end 2005 not recognized in income by period of time unrealized
losses have existed are as follows:
Less Than
12 months
Greater Than
12 months
Total
(Dollars in Thousands)
Market Unrealized
Value
Losses
Market Unrealized
Value
Losses
Market Unrealized
Value
Losses
U.S. Treasury
U.S. Government Agencies
and Corporations
States and Political
Subdivisions
Mortgage-Backed
Securities
Total Investment
Securities
$ -
$ -
$ 9,015
$ 50
$ 9,015
$ 50
7,907
34,640
7,680
98
348
179
66,309
10,926
9,741
919
164
273
74,216
1,017
45,566
17,421
512
452
$50,227
========
$625
======
$95,991
==========
$1,406
========
$146,218
==========
$2,031
========
At December 31, 2005, the Company had securities of $173.0 million
with net unrealized losses of $2.0 million on these securities. $50.2 million of
these securities, with net unrealized losses of $.6 million, have been in a loss
position for less than 12 months and $96.0 million, with unrealized losses of
$1.4 million, have been in a loss position for longer than 12 months. The
Company believes that these securities are only temporarily impaired and that
the full principle will be collected as anticipated.
Of the total, $83.2 million, or 56.9%, are either a direct obligation of the
U.S Government or its agencies and are in a loss position because they were
acquired when the general level of interest rates was lower than that on
December 31, 2005. As of December 31, 2005, $17.4 million, or 11.9% are
mortgage-backed securities that are guaranteed by the U.S. Government or its
agencies. The mortgage-backed securities are in a loss position due to either
the lower interest rate at time of purchase or due to accelerated prepayments
driven by the low rate environment. The remaining $45.6 million, or 31.2%, of
the securities in a loss position are municipal bonds which all maintain
satisfactory ratings by a credit rating agency. The municipal bonds are also in a
loss position due to the lower interest rate environment at the time of
purchase.
Because the declines in the market value of these investments are
attributable to changes in interest rates and not credit quality and because the
Company has the ability and intent to hold these investments until a recovery
in fair value, which may be maturity, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2005.
Note 3
INVESTMENT SECURITIES
Investment Portfolio Composition. The amortized cost and related
market value of investment securities available-for-sale at December 31, were
as follows:
2005
(Dollars in Thousands)
Amortized Unrealized Unrealized Market
Value
Losses
Gains
Cost
U.S. Treasury
$ 9,065
$ -
$ 50
$ 9,015
U.S. Government Agencies
and Corporations
75,233
-
1,017
74,216
States and Political
Subdivisions
Mortgage-Backed Securities
Other Securities (1)
Total Investment
Securities
(Dollars in Thousands)
53,611
20,948
14,114
44
35
-
512
452
-
53,143
20,531
14,114
$172,971
=============
$ 79
========
$2,031
===========
$171,019
=============
2004
Amortized Unrealized Unrealized Market
Value
Losses
Gains
Cost
U.S. Treasury
$ 31,027
$ -
$ 244
$ 30,783
U.S. Government Agencies
and Corporations
States and Political
Subdivisions
Mortgage-Backed Securities
Other Securities (1)
Total Investment
Securities
92,073
49,889
26,293
11,514
5
409
187
-
741
91,337
92
80
-
50,206
26,400
11,514
$210,796
=============
$601
========
$1,157
============
$210,240
=============
(1) FHLB and FRB stock recorded at cost.
Securities with an amortized cost of $70.5 million and $142.8 million at
December 31, 2005 and 2004, respectively, were pledged to secure public
deposits and for other purposes.
Investment Sales. The total proceeds from the sale of investment
securities and the gross realized gains and losses from the sale of such
securities for each of the last three years are as follows:
(Dollars in Thousands)
Total
Proceeds
Gross
Realized Gains
Gross
Realized Losses
2005
2004
2003
$35,142
$ 3,446
$ 125
$ 9
$17
$24
$ -
$ 3
$23
Maturity Distribution. As of December 31, 2005, the Company's
investment securities had the following maturity distribution based on
contractual maturities:
(Dollars in Thousands)
Amortized Cost
Market Value
Due in one year or less
Due after one through five years
Due after five through ten years
No Maturity
Total Investment Securities
$ 79,468
71,384
8,005
14,114
$172,971
========
$ 79,006
70,049
7,850
14,114
$171,019
========
50
annual
report
notes to consolidated financial statements
annual
report
Note 4
LOANS
Loan Portfolio Composition. At December 31, the composition of the
Company's loan portfolio was as follows:
(Dollars in Thousands)
2005
2004
Commercial, Financial and Agricultural
$ 218,434
$ 206,474
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
160,914
718,741
553,124
165,337
4,875
246,069
$2,067,494
========================
140,190
655,426
438,484
150,061
11,830
226,360
$1,828,825
=======================
Impaired Loans. Selected information pertaining to impaired loans, at
December 31, is as follows:
2005
2004
Valuation
Balance Allowance
Valuation
Balance Allowance
(Dollars in Thousands)
Imparied Loans:
With Related Credit Allowance
$5,612
$2,915
$ 578
$313
Without Related Credit
Allowance
$1,658
-
$3,150
-
(Dollars in Thousands)
2005
2004
2003
Average Recorded Investment
in Impaired Loans
$9,786
$5,382
$6,737
Interest Income on Impaired Loans
Net deferred fees included in loans at December 31, 2005 and December
Recognized
31, 2004 were $1.6 million and $1.0 million, respectively.
Collected in Cash
218
$ 218
140
$ 120
194
$ 194
Concentrations of Credit. Most of the Company's lending activity occurs
within the states of Florida, Georgia, and Alabama. A large majority of the
Company's loan portfolio (77.5%) consists of loans secured by real estate, the
primary types of collateral being commercial properties and residential
properties. At December 31, 2005, commercial real estate mortgage loans and
residential real estate mortgage loans accounted for 34.7% and 35.0% of the
loan portfolio, respectively. As of December 31, 2005, there were no
concentrations of loans related to any single borrower or industry in excess of
10% of total loans.
Nonperforming Loans. Nonaccruing loans amounted to $5.3 million and
$4.6 million, at December 31, 2005 and 2004, respectively. There were no
restructured loans at December 31, 2005 or 2004. Interest on nonaccrual loans
is generally recognized only when received. Cash collected on nonaccrual
loans is applied against the principal balance or recognized as interest income
based upon management's expectations as to the ultimate collectibility of
principal and interest in full. If interest on nonaccruing loans had been
recognized on a fully accruing basis, interest income recorded would have
been $186,000, $189,000, and $166,000 higher for the years ended December
31, 2005, 2004, and 2003, 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)
2005
2004
2003
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
$16,037
1,385
-
2,507
1,724
(4,243)
$17,410
========
$12,429
$12,495
5,713
(800)
2,141
1,612
(5,058)
$16,037
========
-
-
3,436
1,037
(4,539)
$12,429
========
(1) Reflects recapture of reserves allocated to the Bank’s credit card portfolio, which
was sold in August 2004.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful, at
which time payments received are recorded as reduction of principal.
Note 6
INTANGIBLE ASSETS
The Company had intangible assets of $110.5 million and $80.3 million at
December 31, 2005 and December 31, 2004, respectively. Intangible assets at
December 31, were as follows:
(Dollars in Thousands)
2005
2004
Gross Accumulated
Gross Accumulated
Amount Amortization Amount Amortization
Core Deposits Intangibles
$ 47,716
$23,312
$ 42,078
$18,300
Goodwill
88,615
3,786
58,127
3,786
Customer Relationship
Intangible
1,867
Non-Compete Agreement
483
305
287
1,867
483
114
50
Total Intangible Assets
$138,141
===============
$27,690
=============
$102,555
================
$22,250
=============
Net Core Deposit Intangibles. As of December 31, 2005 and December
31, 2004, the Company had net core deposit intangibles of $23.9 million and
$23.8 million, respectively. Amortization expense for the twelve months of
2005, 2004 and 2003 was $5.0 million, $3.7 million, and $3.2 million,
respectively. The estimated annual amortization expense for the next five
years is expected to be approximately $5.6 million per year.
Goodwill. As of December 31, 2005 and December 31, 2004, the
Company had goodwill, net of accumulated amortization, of $84.8 million and
$54.3 million, respectively. The increase in goodwill is due to the acquisition of
First National Bank of Alachua in May 2005. Goodwill is the Company's only
intangible asset that is no longer subject to amortization under the provisions
of SFAS 142. On December 31, 2005, the Company performed its annual
impairment review and concluded that no impairment adjustment was
necessary.
CCBG
2 0 0 5
51
CCBG
2 0 0 5
notes to consolidated financial statements
Other. As of December 31, 2005, the Company had a client relationship
At December 31, 2005, the scheduled maturities of time deposits were
intangible, net of accumulated amortization, of $1.6 million. This intangible was
booked as a result of the March 2004 acquisition of trust client relationships
from Synovus Trust Company. Amortization expense for the twelve months of
2005 was $191,000. Estimated annual amortization expense is $191,000 based
on use of a 10-year useful life. The Company also had a non-compete
intangible, net of accumulated amortization, of $196,000. 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 2005 was
$237,000. Estimated annual amortization expense for 2006 is $196,000.
as follows:
(Dollars in Thousands)
2006
2007
2008
2009
2010 and thereafter
Total
$408,055
71,258
29,600
9,105
5,568
$523,586
==============
Note 7
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at
December 31, was as follows:
(Dollars in Thousands)
2005
2004
Land
Buildings
Fixtures and Equipment
Total
Accumulated Depreciation
Premises and Equipment, Net
$ 16,503
$ 13,251
69,924
46,293
$132,720
(58,902)
$ 73,818
=========
59,311
40,878
$113,440
(54,477)
$ 58,963
==========
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
2005
2004
2003
$ 2,868
$ 733
$ 678
4,337
292
9,247
4,390
$21,134
=============
1,189
164
6,683
2,546
1,310
189
7,007
2,383
$11,315
=============
$11,567
=============
Note 9
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
Note 8
DEPOSITS
Interest bearing deposits, by category, as of December 31, were as
follows:
(Dollars in Thousands)
(Dollars in Thousands)
2005
2004
2005
Securities
Sold Under
Repurchase Short-Term
Purchased Agreements Borrowings(1)
Federal
Funds
Other
NOW Accounts
$ 520,878
$ 338,932
Money Market Accounts
331,094
Savings Accounts
Time Deposits
Total
144,296
523,586
$1,519,854
=================
270,095
147,348
571,520
$1,327,895
=================
At December 31, 2005 and 2004, $3.6 million and $4.1 million,
respectively, in overdrawn deposit accounts were reclassified as loans.
Deposits from certain directors, executive officers, and their related
interests totaled $34.1 million and $23.1 million at December 31, 2005 and
2004, respectively.
Time deposits in denominations of $100,000 or more totaled $143.4
million and $166.8 million at December 31, 2005 and 2004, respectively.
Balance at December 31,
$11,925
$38,702
$32,346
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
26,825
31,644
3.36%
3.88%
65,206
39,784
2.30%
3.21%
67,122
26,435
3.32%
3.48%
2004
Balance at December 31,
$19,800
$58,431
$17,783
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
27,875
22,291
1.27%
1.97%
77,087
54,607
0.71%
1.12%
41,941
23,683
2.52%
3.19%
2003
Balance at December 31,
$12,624
$53,223
$42,337
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
Average rate paid on period-end borrowings
23,930
14,768
0.94%
0.68%
90,209
49,785
0.59%
0.31%
44,226
36,721
2.28%
2.50%
(1) Includes FHLB debt of $30.0 million and TT&L balance of $2.3 million at December 31, 2005.
52
annual
report
notes to consolidated financial statements
annual
report
Note 10
LONG-TERM DEBT
Federal Home Loan Bank Notes. At December 31, Federal Home Loan
Bank advances included:
(Dollars in Thousands)
2005
2004
Due on February 15, 2006, fixed rate of 3.00%(1)
$
10
$ 49
Due on September 8, 2006, fixed rate of 4.28%(1)
Due on September 11, 2006, fixed rate of 2.93%(1)
Due on February 13, 2007, fixed rate of 3.05%
Due on April 24, 2007, fixed rate of 7.30%
Due on September 10, 2007, fixed rate of 4.29%
Due on May 30, 2008, fixed rate of 2.50%
Due on June 13, 2008, fixed rate of 5.40%
Due on September 8, 2008, fixed rate of 4.32%
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%(2)
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 26, 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 May 31, 2014, fixed rate of 4.88%
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 14, 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
(1) $30.0 million is classified as short-term borrowings.
(2) This advance is callable quarterly at the option of the FHLB.
10,000
20,000
3,000
80
10,000
98
357
10,000
2,270
638
749
864
5,000
589
638
888
92
1,776
915
1,246
634
482
3,412
1,252
325
722
805
986
875
-
2,076
612
3,627
639
1,566
713
850
967
8,845
$98,598
=========
-
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
========
The contractual maturities of FHLB debt for the five years succeeding
December 31, 2005, are as follows:
(Dollars in Thousands)
2006
2007
2008
2009
2010
2011 and thereafter
Total
$32,816(1)
15,875
14,873
2,740
3,309
28,985
$98,598
=========
(1) $30.0 million is classified as short-term borrowings.
The Federal Home Loan Bank advances are collateralized by a blanket
floating lien on all 1-4 family residential mortgage loans, commercial real estate
mortgage loans, and home equity mortgage loans. Interest on the Federal
Home Loan Bank advances is paid on a monthly basis.
Repurchase Agreements – Term. At December 31, the Company
maintained three repurchase agreements totaling $1.0 million collateralized by
bank-owned securities. The agreements have maturities as follows (in millions):
2007, $.4; 2008, $.4; 2009, $.2. Interest is payable upon maturity.
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, 2005, the Company was in
compliance with all of the terms of the agreement and had $25.0 million
available under a $25.0 million line of credit facility.
Junior Subordinated Deferrable Interest Notes. The Company has issued
two junior subordinated deferrable interest notes to wholly owned Delaware
statutory trusts. The first note for $30.9 million was issued to CCBG Capital
Trust I. The second note for $32.0 million was issued to CCBG Capital Trust II.
The two trusts are considered variable interest entities for which the Company
is not the primary beneficiary. Accordingly, the accounts of the trusts 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 consolidation policy. Details of the Company’s transaction with
the two trusts 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 at any time upon
occurrence of certain events affecting their tax or regulatory capital treatment.
Distributions on the trust preferred securities 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 CCBG. The proceeds 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 substantially similar to the trust preferred
securities.
CCBG
2 0 0 5
53
CCBG
2 0 0 5
notes to consolidated financial statements
In May 2005, CCBG Capital Trust II issued $31.0 million of trust preferred
Income taxes provided were different than the tax expense computed by
securities which represent beneficial interest in the assets of the trust. The
interest rate is fixed at 6.07% for a period of five years, then adjustable
quarterly to LIBOR plus a margin of 1.80%. The trust preferred securities will
mature on June 15, 2035, 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 May 20, 2010 and in whole at any time upon occurrence of certain events
affecting their tax or regulatory capital treatment. Distributions on the trust
preferred securities are payable quarterly on March 15, June 15, September 15,
and December 15 of each year. CCBG Capital Trust II also issued $959,000 of
common equity securities to CCBG. The proceeds of the offering of trust
preferred securities and common equity securities were used to purchase a
$32.0 million junior subordinated deferrable interest note issued by the
Company, which has terms substantially similar to the trust preferred
securities.
The Company has the right to defer payments of interest on the two
notes at any time or from time to time for a period of up to twenty consecutive
quarterly interest payment periods. Under the terms of each 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 obligations and has not executed the right to
defer interest payments on the notes.
The Company has entered into agreements to guarantee the payments
of distributions on the trust preferred securities and payments of redemption
of the trust preferred securities. Under these agreements, the Company also
agrees, on a subordinated basis, to pay expenses and liabilities of the two
trusts other than those arising under the trust preferred securities. The
obligations of the Company under the two junior subordinated notes, the trust
agreements establishing the two trusts, the guarantee and agreement as to
expenses and liabilities, in aggregate, constitute a full and conditional
guarantee by the Company of the two trusts' obligations under the two trust
preferred security issuances.
applying the statutory federal income tax rate of 35% to pre-tax income as a
result of the following:
(Dollars in Thousands)
2005
2004
2003
Tax Expense at Federal Statutory Rate
$16,403
$15,845
$13,571
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income
State Taxes, Net of Federal Benefit
Other
Actual Tax Expense
(1,054)
856
381
$16,586
=======
(992)
969
77
(957)
1,314
(348)
$15,899
=======
$13,580
=======
Deferred income tax liabilities and assets result from difference between
assets and liabilities measured for financial reporting purposes and for income
tax return purposes. These assets and liabilities are measured using the
enacted tax rates and laws that are currently in effect. The net deferred tax
asset and the temporary differences comprising that balance at December 31,
2005 and 2004, are as follows:
(Dollars in Thousands)
2005
2004
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
Net Operating Loss Carry Forwards
Intangible Assets
Accrued Expense
Other
Total Deferred Tax Assets
Deferred Tax Liabilities attributable to:
Despite the fact that the accounts of CCBG Capital Trust I and CCBG
Depreciation on Premises and Equipment
Capital Trust II are not included in the Company’s consolidated financial
statements, the $30.0 million and $31.0 million, respectively, in trust preferred
securities issued by these subsidiary trusts are included in the Tier 1 capital of
Capital City Bank Group, Inc. as allowed by Federal Reserve Board guidelines.
Note 11
INCOME TAXES
Deferred Loan Costs
Core Deposit Intangible Amortization
Intangible Assets
Accrued Pension/SERP
Securities Accretion
Other
Total Deferred Tax Liabilities
Net Deferred Tax Assets
The provision for income taxes reflected in the statement of income is
comprised of the following components:
(Dollars in Thousands)
2005
2004
2003
In the opinion of management, it is more likely than not that all of the
deferred tax assets will be realized; therefore, a valuation allowance is not
required.
Current:
Federal
State
Deferred:
Federal
State
Total
$15,114
1,290
156
26
$16,586
========
$13,753
1,381
656
109
$15,899
=========
$10,876
1,949
682
73
$13,580
=========
54
annual
report
$6,733
$5,681
650
706
-
19
170
228
44
592
251
$9,393
$4,676
1,752
1,173
1,019
133
17
243
9,013
$ 380
============
229
203
1,390
248
45
-
18
573
331
$8,718
$3,433
2,016
465
-
-
20
321
6,255
$2,463
============
notes to consolidated financial statements
annual
report
Changes in net deferred income tax assets were:
Reconciliation of Funded Status:
Funded Status
$(11,853)
$(13,404)
$(11,443)
Unrecognized Net Actuarial Losses
Unrecognized Prior Service Cost
Unrecognized Net Transition Obligation
Prepaid (Accrued) Benefit Cost
14,823
1,302
-
11,676
1,517
-
9,993
1,732
1
$ 4,272
========
$ (211)
========
$ 283
========
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
$ 4,352
$ 3,776
$ 3,302
3,410
(3,373)
215
11
1,324
$ 5,939
========
2,893
(2,665)
215
1
1,163
2,571
(2,168)
216
1
1,127
$ 5,383
========
$ 5,049
========
Assumptions:
Weighted-average used to determine benefit obligations:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
5.75%
8.00%
5.50%
6.00%
8.00%
5.50%
6.25%
8.25%
5.50%
Measurement Date
12/31/05
12/31/04
12/31/03
Weighted-average used to determine net cost:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
6.00%
8.00%
5.50%
6.25%
8.00%
5.50%
6.75%
8.25%
5.50%
(1) Represents a change in mortality assumptions set forth in IRC 417(e).
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 securities.
Plan Assets. The Company’s pension plan asset allocation at year-end
2005 and 2004, and the target asset allocation for 2006 are as follows:
Target Allocation
Assets at Year-End (1)
Percentage of Plan
(Dollars in Thousands)
Balance at Beginning of Year
Purchase Accounting Acquisitions
Income Tax Benefit From Change
in Unrealized Losses on
Available-for-Sale Securities
Deferred Income Tax Expense
on Continuing Operations
Balance at End of Year
2005
$ 2,463
(2,403)
2004
$1,147
1,076
502
1,005
(182)
(765)
$ 380
============
$2,463
=============
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 defined benefit pension plan for the Farmers and Merchants Bank of
Dublin was merged into the Company’s pension plan as of December 31, 2005.
The following table details, on a consolidated basis, the components of
pension expense, the funded status of the plan, amounts recognized in the
Company's consolidated statements of financial condition, and major
assumptions used to determine these amounts.
(Dollars in Thousands)
2005
2004
2003
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$ 57,403
$ 46,227
$ 37,941
4,352
3,410
2,900
(3,859)
(75)
-
3,776
2,893
2,890
(1,092)
(165)
-
3,302
2,571
3,196
(1,060)
(237)
514
Service Cost
Interest Cost
Actuarial Loss
Benefits Paid
Expenses Paid
Plan Change(1)
Projected Benefit Obligation
at End of Year
Accumulated Benefit Obligation
at End of Year
Change in Plan Assets:
Fair Value of Plan Assets
at Beginning of Year
Actual Return on Plan Assets
Employer Contributions
Benefits Paid
Expenses Paid
$ 43,921
$ 34,784
$ 27,423
1,790
10,500
(3,859)
(75)
2,710
4,888
(1,092)
(165)
4,915
3,744
(1,061)
(237)
Fair Value of Plan Assets at End of Year
$ 52,277
$ 41,125
$ 34,784
$ 64,131
========
$ 54,529
========
$ 46,227
========
$ 45,645
========
$ 38,325
========
$ 32,444
========
Equity Securities
Debt Securities
Real Estate
2006
65%
35%
-
Cash Equivalent -
2005
55%
24%
-
21%
Total
100%
100%
2004
58%
28%
-
14%
100%
(1) Represents asset allocation at year-end which may differ from the average target allocation
for the year due to the year-end cash contribution to the plan.
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.
CCBG
2 0 0 5
55
CCBG
2 0 0 5
notes to consolidated financial statements
Expected Benefit Payments. As of December 31, 2005, expected benefit
Weighted-average used to determine the net cost:
payments related to the Company's defined benefit pension plan were as follows:
Discount Rate
2006
2007
2008
2009
2010
2011 through 2015
$ 2,874,654
3,139,350
4,203,199
4,150,829
3,919,446
31,659,590
$49,947,068
=============
Contributions. The following table details the amounts contributed to the
pension plan in 2005 and 2004, and the expected amount to be contributed in 2006.
2005
2004
Expected
2006 (1)
Actual Contributions
$10,500,000
$4,888,000
$0 to $6,000,000
(1) Estimate calculated based on pension funding laws and regulations currently in effect.
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan ("SERP")
covering selected executive officers. Benefits under this plan generally are
based on the executive officer's years of service and compensation during the
years immediately preceding retirement. The Company recognized expense
during 2005, 2004 and 2003 of approximately $478,000, $491,000, and
$208,000, respectively.
The following table details the components of the Supplemental
Executive Retirement Plan's periodic benefit cost, the funded status of the
plan, amounts recognized in the Company's consolidated statements of
financial condition, and major assumptions used to determine these amounts.
(Dollars in Thousands)
2005
2004
2003
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$ 3,601
$ 1,880
$ 2,770
Service Cost
Interest Cost
Actuarial (Gain) Loss
Plan Change(1)
Projected Benefit Obligation
at End of Year
Accumulated Benefit Obligation
at End of Year
Reconciliation of Funded Status:
133
207
(63)
-
147
198
80
111
1,376
(1,107)
-
26
$ 3,878
=======
$ 3,601
=======
$ 1,880
=======
$ 2,295
=======
$ 1,894
=======
$ 1,206
=======
Rate of Compensation Increase
6.00%
5.50%
6.25%
5.50%
6.75%
5.50%
(1) Represents a change in mortality assumptions set forth in IRC 417(e)
Expected Benefit Payments. As of December 31, 2005, expected benefit
payments related to the Company's SERP were as follows:
2006
2007
2008
2009
2010
2011 through 2015
401(k) Plan
$ 18,627
19,461
98,113
208,477
269,937
3,719,795
$4,334,410
============
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 eligible associates. During 2005, 2004, and
2003, the Company made matching contributions of $154,483, $66,281 and
$32,258, respectively. The participant may choose to invest their contributions
into sixteen investment funds available to CCBG participants, including CCBG's
common stock. A total of 50,000 shares of Capital City Bank Group, Inc.
common stock have 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 2005, 2004 and 2003.
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)
2005
2004
2003
Funded Status
$(3,878)
$(3,601)
$(1,880)
Unrecognized Net Actuarial Loss (Gain)
Unrecognized Prior Service Cost
734
388
874
449
(418)
511
Numerator:
Net Income
Denominator:
Accrued Benefit Cost
$(2,756)
=======
$(2,278)
=======
$(1,787)
=======
Denominator for Basic Earnings Per Share
$
30,281
==============
29,371
25,193
$
=============== ===============
$
$ 133
$ 147
$ 80
Effects of Dilutive Securities
Weighted-Average Shares
18,263,855
16,805,696
16,528,109
Components of Net Periodic Benefit Costs:
Service Cost
Interest Cost
Amortization of Prior Service Cost
Recognized Net Actuarial Loss (Gain)
Net Periodic Benefit Cost
Assumptions:
207
61
77
$ 478
=======
198
62
84
111
61
(44)
$ 491
=======
$ 208
=======
Weighted-average used to determine the benefit obligations:
Discount Rate
Rate of Compensation Increase
5.75%
5.50%
6.00%
5.50%
6.25%
5.50%
56
annual
report
Stock Compensation Plans
17,388
5,230
35,878
Denominator for Diluted Earnings Per Share
Adjusted Weighted-Average Shares and
Assumed Conversions
Basic Earnings Per Share
Diluted Earnings per Share
18,281,243
==============
$ 1.66
==============
$ 1.66
==============
16,810,926
16,563,986
=============== ===============
$ 1.74
$ 1.53
=============== ===============
$ 1.74
$ 1.52
=============== ===============
notes to consolidated financial statements
annual
report
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, 2005, the
Company met all capital adequacy requirements to which it is subject.
A summary of actual, required, and capital levels necessary to be
considered well-capitalized for Capital City Bank Group, Inc. consolidated and
its banking subsidiary, Capital City Bank, as of December 31, 2005 and
December 31, 2004 are as follows:
To Be Well-
Capitalized Under
Prompt Corrective
Adequacy Purposes Action Provisions
Required
For Capital
Actual
(Dollars in Thousands) Amount Ratio Amount Ratio Amount
Ratio
As of December 31, 2005:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
$257,572
12.61%
$ 81,675
4.00%
*
*
252,096
12.36%
81,599
4.00%
$122,398
6.00%
276,869 13.56%
163,349
8.00%
*
*
269,506
13.21%
163,198
8.00%
203,997 10.00%
257,572
10.27%
61,256
4.00%
*
*
252,096
10.07%
61,199
4.00%
101,999
5.00%
As of December 31, 2004:
Tier I Capital:
CCBG
CCB
Total Capital:
CCBG
CCB
Tier I Leverage:
CCBG
CCB
$207,776
11.44%
$ 72,617
4.00%
*
*
199,565
11.01%
72,506
4.00%
$108,759
6.00%
223,813
12.33%
145,235
8.00%
*
*
215,602
11.89%
145,012
8.00%
181,265 10.00%
207,776
8.79%
54,463
4.00%
*
*
199,565
8.47%
54,379
4.00%
90,632
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 regulations
administered by federal and state bank regulatory authorities.
The approval of the appropriate regulatory authority is required if the
total of all dividends declared by a subsidiary bank in any calendar year
exceeds the bank’s net profits (as defined under Florida law) for that year
combined with its retained net profits for the preceding two calendar years. In
2006, the bank subsidiary may declare dividends without regulatory approval
of $37.5 million plus an additional amount equal to the net profits of the
Company’s subsidiary bank for 2006 up to the date of any such dividend
declaration.
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 $813,000, $797,000, and $765,000 during 2005, 2004, and 2003,
respectively.
Under a lease agreement expiring in 2024, the Bank leases land from a
partnership in which several directors and officers have an interest. The lease
agreement with Smith Interests General Partnership L.L.P., provides for annual
lease payments of approximately $109,000, to be adjusted for inflation in
future years.
Under a lease agreement expiring in 2018, the Bank leases its East Dublin
Office from a partnership involving McGrath Keen, Jr., a Director of the
Company. The lease agreement provides for annual lease payments of
$46,500, to be adjusted for inflation every five years beginning in 2008.
Director Keen has one-half ownership interest in the aforementioned
partnership.
Under an agreement with Keen Insurance Agency, the Bank shares with
the agency one-half of the commissions received from the sale of credit life
and accident/health insurance to Bank clients in the Dublin market. Payments
made to the agency during 2005 were approximately $30,000. McGrath Keen,
Jr., a director of the Company, has sixty-percent ownership interest in Keen
Insurance Agency.
At December 31, 2005 and 2004, certain officers and directors were
indebted to the Company’s bank subsidiary in the aggregate amount of $17.7
million and $18.8 million, respectively. During 2005, $13.5 million in new loans
were made and repayments totaled $14.6 million. In the opinion of
management, these loans were made on similar terms as loans to other
individuals of comparable creditworthiness and were all current at year-end.
CCBG
2 0 0 5
57
CCBG
2 0 0 5
notes to consolidated financial statements
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 presented below for each of
the respective years.
(Dollars in Thousands)
Noninterest Income:
2005
2004
2003
Merchant Fee Income
Interchange Commission Fees
$6,174
2,239
$5,135
2,229
$4,563
2,183
Noninterest Expense:
Professional Fees
Printing & Supplies
Interchange Service Fees
Telephone
Advertising
(1) <1% of appropriate threshold.
3,825
2,372
5,402
2,493
4,275
2,858
1,854
4,741
2,048
2,001(1)
1,918
1,742
4,181
1,872
1,260(1)
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 business to meet the
financing needs of its clients. These financial instruments consist of
commitments to extend credit and standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters
of credit and commitments to extend credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in
establishing commitments and issuing letters of credit as it does for on-
balance sheet instruments. As of December 31, 2005, the amounts associated
with the Company’s off-balance sheet obligations were as follows:
(Dollars in Thousands)
Commitments to Extend Credit (1)
Standby Letters of Credit
Amount
$445,299
$ 20,709
(1) Commitments include unfunded loans, revolving lines of credit, and other unused
commitments.
Commitments to extend credit are agreements to lend to a client 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 client to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities. In general, management does not anticipate any
material losses as a result of participating in these types of transactions.
However, any potential losses arising from such transactions are reserved for
in the same manner as management reserves for its other credit facilities.
For both on- and off-balance sheet financial instruments, the Company
requires collateral to support such instruments when it is deemed necessary.
The Company evaluates each client’s creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is based on
management’s credit evaluation of the counterparty. Collateral held varies, but
may include deposits held in financial institutions; U.S. Treasury securities;
other marketable securities; real estate; accounts receivable; property, plant
and equipment; and inventory.
Other Commitments. In the normal course of business, the Company
enters into lease commitments which are classified as operating leases. Rent
expense incurred under these leases was approximately $1.3 million in 2005,
$1.3 million in 2004, and $1.1 million in 2003. Minimum lease payments under
these leases due in each of the five years subsequent to December 31, 2005,
are as follows (in millions): 2006, $1.4; 2007, $1.2; 2008, $1.2; 2009, $1.1; 2010,
$1.0; thereafter, $6.4.
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 consolidated results of
operations, financial position, or cash flows of the Company.
Note 19
FAIR VALUE OF FINANCIAL
INSTRUMENTS
Many of the Company’s assets and liabilities are short-term financial
instruments whose carrying values approximate fair value. These items
include Cash and Due From Banks, Interest Bearing Deposits with Other Banks,
Federal Funds Sold, Federal Funds Purchased, Securities Sold Under
Repurchase Agreements, and Short-Term Borrowings. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. The resulting fair values may be
significantly affected by the assumptions used, including the discount rates
and estimates of future cash flows.
The methods and assumptions used to estimate the fair value of the
Company’s other financial instruments are as follows:
Investment Securities – Fair values for investment securities are based
on quoted market prices. If a quoted market price is not available, fair value is
estimated using market prices for similar securities.
Loans – The loan portfolio is segregated into categories and the fair value
of each loan category is calculated using present value techniques based upon
projected cash flows and estimated discount rates. The calculated present
values are then reduced by an allocation of the allowance for loan losses
against each respective loan category.
Deposits – The fair value of Noninterest Bearing Deposits, NOW
Accounts, Money Market Accounts and Savings Accounts are the amounts
payable on demand at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated using present value techniques and rates
currently offered for deposits of similar remaining maturities.
Subordinated Notes Payable – 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 obligations.
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.
58
annual
report
notes to consolidated financial statements
annual
report
Commitments to Extend Credit and Standby Letters of Credit – The fair
value of commitments to extend credit is estimated using the fees currently
charged to enter into similar agreements, taking into account the present
creditworthiness of the counterparties. The fair value of these fees is not
material.
The Company’s financial instruments that have estimated fair values are
presented below:
Note 20
PARENT COMPANY FINANCIAL
INFORMATION
The operating results of the parent company for the three years ended
December 31, are shown below:
Parent Company Statements of Income
At December 31,
2005
2004
(Dollars in Thousands)
OPERATING INCOME
Carrying
Value
Estimated
Fair
Value
Carrying
Value
Estimated
Fair
Value
$ 105,195
$ 105,195
$ 87,039
$ 87,039
61,164
171,019
61,164
171,019
74,506
210,240
74,506
210,240
(Dollars in Thousands)
Financial Assets:
Cash
Short-Term Investments
Investment Securities
Loans, Net of Allowance
for Loan Losses
2,050,084
2,044,954
1,812,788
1,816,670
Income Received from Subsidiary Bank:
Dividends
Overhead Fees
Other Income
Total Operating Income
OPERATING EXPENSE
Salaries and Associate Benefits
Interest on Long-Term Borrowings
Total Financial Assets
$2,387,462
==================
$2,382,332
==================
$2,184,573
==================
$2,188,455
==================
Interest on Subordinated Notes Payable
Financial Liabilities:
Deposits
$2,079,346
$1,953,576
$1,894,886
$1,791,797
Short-Term Borrowings
Subordinated Notes Payable
82,973
62,887
Long-Term Borrowings
69,630
82,748
63,049
69,295
96,014
30,928
68,453
96,053
31,040
68,582
Total Financial Liabilities
$2,294,836
==================
$2,168,668
==================
$2,090,281
==================
$1,987,472
==================
Certain financial instruments and all nonfinancial instruments are
excluded from the above table. The disclosures also do not include certain
intangible assets such as client relationships, deposit base intangibles and
goodwill. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
2005
2004
2003
$10,597
$12,716
$11,599
2,716
87
13,400
3,232
2
2,935
-
15,950
14,534
2,191
-
2,981
1,399
467
701
471
8,210
2,257
1,847
33
294
895
286
468
480
-
-
1,104
193
374
404
4,713
3,922
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Bank
5,190
11,237
10,612
Income Tax Benefit
(2,060)
(581)
(278)
Income Before Equity in Undistributed
Earnings of Subsidiary Bank
7,250
11,818
10,890
Equity in Undistributed Earnings
of Subsidiary Bank
Net Income
23,031
$30,281
=============
17,553
$29,371
=============
14,303
$25,193
=============
CCBG
2 0 0 5
59
CCBG
2 0 0 5
notes to consolidated financial statements
The following are condensed statements of financial condition of the
The cash flows for the parent company for the three years ended
parent company at December 31:
December 31, were as follows:
Parent Company Statements of Financial Condition
Parent Company Statements of Cash Flows
(Dollars in Thousands, Except Per Share Data) (1)
2005
2004
(Dollars in Thousands)
2005
2004
2003
ASSETS
Cash and Due From Subsidiary Bank
Investment in Subsidiary Bank
Other Assets
Total Assets
LIABILITIES
Subordinated Notes Payable
Other Liabilities
Total Liabilities
$ 5,434
$ 6,893
364,898
282,034
1,447
$371,779
============
1,536
$290,463
============
$ 62,887
$ 30,928
3,116
2,735
$ 66,003
$ 33,663
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$30,281
$29,371
$25,193
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed
Earnings of Subsidiary Bank
(23,031)
(17,553)
(14,303)
Non-Cash Compensation
Increase in Other Assets
Increase in Other Liabilities
Net Cash Provided by Operating Activities
110
131
381
7,872
1,707
(189)
68
508
(130)
300
13,404
11,568
SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000 shares
authorized; no shares issued and outstanding
-
-
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Investment in:
CCBG Trust I and CCBG Trust II
Cash Paid for Acquisitions
Net Cash Used in Investing Activities
(959)
(29,953)
(30,912)
(928)
(35,688)
(36,616)
Common Stock, $.01 par value; 90,000,000
shares authorized; 18,631,706 and 17,694,139
shares issued and outstanding at December 31,
2005 and December 31, 2004, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Total Shareowners' Equity
Total Liabilities and Shareowners' Equity
186
177
83,304
52,328
223,532
204,648
(1,246)
305,776
$371,779
============
(353)
256,800
$290,463
============
CASH FROM FINANCING ACTIVITIES:
Proceeds from Subordinated Notes
31,959
Increase in Other Long-Term Borrowings
Repayments of Long-Term Borrowings
Payment of Dividends
Repurchase of Common Stock
-
-
(11,397)
-
30,928
30,000
(30,000)
(9,857)
-
Issuance of Common Stock
1,019
1,184
-
-
-
-
-
-
(8,646)
(17)
975
(1) All share and per share data have been adjusted to reflect the 5-for-4 stock split effective
Net Cash Provided by (Used in)
July 1, 2005.
Financing Activities
21,581
22,255
(7,688)
Net (Decrease) Increase in Cash
Cash at Beginning of Period
Cash at End of Period
(1,459)
6,893
$ 5,434
=========
(957)
7,850
3,880
3,970
$ 6,893
=========
$ 7,850
=========
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 ($893,000), ($1,739,000), and
($1,735,000), for 2005, 2004 and 2003, respectively. Reclassification
adjustments consist only of realized gains on sales of investment securities
and were not material for the years ended December 31, 2005, 2004 and 2003.
60
annual
report
annual
report
office managers
At Capital City Bank, service begins when you open the front door to our banking offices.
Every one of our 68 office managers is responsible for exceeding the expectations of our clients each business day.
Whether you visit our offices to simply cash a check, or to complete a complicated lending transaction,
you can be assured your banking experience will be handled promptly and professionally.
CCBG
2 0 0 5
61
CCBG
2 0 0 5
officers, directors, community boards
Capital City Bank Group, Inc.
Tallahassee, Florida
Edward G. Canup
Executive Vice President
William D. Colledge
Executive Vice President
Mark W. Strickland
Senior Vice President
Emory F. Sullivan
Senior Vice President
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
Bethany H. Corum
Executive Vice President and
Chief People Officer
Beverly Hickman Black
Community President
Burke County
Noel A. Ellis
Executive Vice President
Mitchell R. Englert
Executive Vice President
Clifton E. Bradley
Community President, Dixie,
Gilchrist, Levy and Suwannee
Counties
Flecia Braswell
Executive Vice President
Karen H. Love
Executive Vice President
Randall Sharpton
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, Wadsworth,
Humphress, Holler & Konrad
McGrath Keen, Jr.
Private Investor
Lina S. Knox
Community Volunteer
Ruth A. Knox
Attorney/President
Wesleyan College
Henry Lewis III, PharmD, RPH
Professor, Florida A&M
University College of Pharmacy
William G. Smith, Jr.
Chairman, President
and Chief Executive Officer
Capital City Bank Group, Inc.
Capital City Bank
Tallahassee, Florida
OFFICERS
William G. Smith, Jr.
Chairman of the Board
Thomas A. Barron
President
J. Kimbrough Davis
Executive Vice President and
Chief Financial Officer
Andy Andrews
Executive Vice President
Flecia Braswell
Executive Vice President and
Chief Brand Officer
Randolph K. Briley
Executive Vice President
Roger Miller
Executive Vice President
Cynthia Y. Pyburn
Executive Vice President
Dale A. Thompson
Executive Vice President
Edwin N. West, Jr.
Executive Vice President
Ricky K. Bitner
Senior Vice President
William H. Brimacombe
Senior Vice President
Charles J. Davis
Senior Vice President
Judy Getts
Senior Vice President
John M. Hutchison
Senior Vice President
Compliance
Ray A. Johnson
Senior Vice President
Finance Executive
Jep Larkin
Senior Vice President
Controller
Robert K. Mayer
Senior Vice President
William L. Moor, Jr.
Senior Vice President
Michael Penney
Senior Vice President
Gene Perkins
Senior Vice President
Helen Proctor
Senior Vice President
Frances Purvis
Senior Vice President/
Senior Office Manager
Ruben Ramos
Senior Vice President
William R. Rodrigues
Senior Vice President
David Sanda
Senior Vice President
James Y. Scarboro
Senior Vice President
Erin Sjostrom
Senior Vice President
William P. Smith, Jr.
Senior Vice President
Roy L. Carter
Community President
Washington County
Don L. Davis
Community President
Gainesville
David V. Donato
Community President
Hernando/Pasco Counties
Drew Ferguson, III
Community President
Troup and Chambers Counties
Amy Geiger
Community President
Wakulla County
W. W. Gunnels, Jr.
Community President
Jefferson and Madison Counties
Donald L. James
Community President
NW Alachua County
Stephen Jukes
Community President
Bibb County
C. Stephen Martin
Community President
Citrus County/Inglis
Terry McRae
Community President
Grady County
Jeffrey L. Oody
Community President
Bradford and Clay Counties
Stephen Stabler
Community President
Laurens County
James R. Suber
Community President
Gadsden County
Gregory J. Walker
Community President
Putnam 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
62
annual
report
Gregory V. Beauchamp
Attorney
Gregory V. Beauchamp, PA
Charles K. Buafo, MD
Chief of Staff, Medical Center
of Central Georgia
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.
Harold M. Knowles
Attorney/Managing Shareholder
Knowles, Marks & Randolph
Blucher B. Lines
Attorney, Lines, Hinson & Lines
S. Craig McMillan
President, Pat Thomas &
Associates Insurance, Inc.
John B. Mowell
Chairman
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
Cynthia Y. Pyburn
President
Randall H. Lashua
Executive Vice President
Mark Newman
Senior Vice President
Capital City Trust Company
Randolph M. Pople
President
Robert A. Barnett
Senior Vice President
R. David Maloy, Jr.
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
Dudley B. Christie, Jr., OD
Investor, Optometrist
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
United Way of Central Georgia, Inc.
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 Marchese, DMD
Owner, Bradford Family Dentistry
John M. Miller
Owner/Publisher
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 E. Edwards
Area Distribution Manager
Georgia Power Company
John Lee Fulcher
CPA/Owner, John L. Fulcher, CPA
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.
officers, directors, community boards
annual
report
Dolores H. Clark-Mills
President/Owner
R&R Clark Construction, Inc.
Billy G. Lafferty
President/Owner
Total Rental Centers, Inc.
William M. Lyons
Semi-Retired, Real Estate
Alana Rich
Publisher, Nature Coast Visitors Guide
Magazine, Inc.
Gadsden County Community Board
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, Inc.
John N. Bert
Owner/Editor, Havana Herald,
Twin City News, and Havana Publishing
Michael L. Gainous
Owner, Triple L. Timber
John Shaw Curry
Retired Attorney
Michael Dooner
President, Southern Forestry Consultants
George Hackney
Owner/President, Hackney Nursery, Inc.
Harold J. Henderson, PhD
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 of Medicine
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
Gainesville Community Board
Norma B. Adams
Realtor, Prudential Preferred Property
Alan A. Goldblatt, MD
President/CEO
Alan A. Goldblatt, MD, PA
William F. McDavid
Managing Shareholder/President
McDavid & Company, CPAs
Lee C. McGriff
President
McGriff Williams Insurance
Frank P. Saier
Vice President/Partner
Scruggs & Carmichael
Dempsey R. Sapp, Jr.
President/CEO
Florida Pest Control
Ken LeGette
President, Graco Fertilizer, Inc.
Sidney Pridgen
Owner, Center Drugs
Ray Prince
Owner, Prince Farms
Earl Stuckey
Owner/President, Stuckey
Construction, Inc.
Richard VanLandingham
Retired, Monrovia Growers
John B. Wight, Jr.
Retired Nursery Owner
Reverend Sylvester Williams
Pastor, Beulah Missionary
Baptist Church
Gulf County Community Board
Mark H. 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.
Clay Smallwood
President, St. Joe Timberland
Hernando/Pasco County
Community Board
David T. Alberson
Retired, Capital City Bank
George M. Allen, Jr.
Board of Trustees
Hernando Health Care
David R. Carter
Attorney, Law Offices of David R. Carter, PA
Carl A. Feddeler
President, CA Feddeler, Inc., Real Estate
Brokerage/Krysher-Delzer, Inc.
Gilchrist County Community Board
Theodore M. Burt
Attorney, Theodore M. Burt, PA
Michael J. Kierzynski
Certified Public Accountant
Kierzynski & Associates, CPAs, PA
Howell E. Lancaster, Jr.
President, Lancaster Oil
Deborah G. Kilgore
Retired
Joseph Mazzuco, Jr.
President/Owner
Royal Coachman Homes, Inc.
G. Frank Parker
Certified Public Accountant
Stone, Parker & Company, CPA, PA
Jefferson County Community Board
Frank Blow
Owner, Fantasia Enterprises
Teresa Diane Freeman
President, Jefferson Builders Mart
and Hardware, Inc.
Brian T. Hayes
Attorney, Brian T. Hayes, PA
Felix R. Joyner
Owner, Joyner’s Travel Center
George W. Miller
Owner, Miller Accounting
Thomas B. Scott
Owner, Scott Septic Tank Service
Jerry P. Walton, Jr.
Managing Partner
Big Bend Timber Services, LLC
Laurens County Community Board
Nelson Carswell, Jr.
Owner, Children’s Clinic
Leon County Community Board
Lawrence Carter, Ph.D.
Associate Dean, Florida A&M University
J. Marshall Conrad
Attorney, Ausley & McMullen, P.A.
Kevin M. Davis
Real Estate Investor, Blue Chip Realty
Erin Ennis
Vice President - Finance and
Administration, St. Joe Land Company
Fincher W. Smith
Restaurant Owner, McFinch
Management, Co., K2 Urban Corporation
Roger C. Smith
Chairman, Prime Credit Corporation
Glenda L. Thornton
Partner, Foley & Lardner
Levy County Community Board
Sharon C. Brannan
Owner, Sharon C. Brannan, CPA, PA
Donald M. McCoy, Jr., DO
Physician, Nature Coast Medical Group
Robert E. Mount, Jr., DDS
Owner, Robert E. Mount, Jr., DDS, PA
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
NW Alachua County Community Board
Jerry M. Smith
Chairman, NW Alachua County
Community Board
Ronald F. Andrews
President/Owner, Andrews Paving, Inc.
Gary D. Grunder
Attorney, Grunder & Petteway, PA
Robert Alan Hitchcock
President/CEO, Hitchcock & Sons, Inc.
Patricia A. Moser
President, Horizon Realty of Alachua, Inc.
Marilyn Bishop Shaw
Literacy Coach, Oak View Middle School
Putnam County Community Board
Bruce A. Baldwin
CEO, Putnam Community Medical Center
U.D. Floyd
Owner, U.D. Floyd Farms
Mildred G. Horton
Retired, St. John’s Water Management
District
Daniel A. Martinez
Retired, Georgia Pacific Corporation
Randall S. Mathews
President/CEO
Mathews’ Moving & Storage, Inc., et al.
R. L. McLendon, Jr., PhD
President, St. Johns River
Community College
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
President, 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, Sr.
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.
CCBG
2 0 0 5
63
CCBG
2 0 0 5
officers, directors, community boards
Grady C. Moore, Jr.
President, Grady C. Moore
Real Estate, Inc.
L. Foy Fisher, III
Vice President/Human Resources
West Point Stevens
Rebecca J. Harris
Branch Manager
Associated Land Title Group, Inc.
Joe R. Roberts, III
Chief Financial Officer, Roberts Lumber
Co. & RDS Manufacturing Co.
Edmund C. Glover
Chairman/CEO
Batson Cook Company
Michael S. Smith
Attorney, Smith, Smith & Moore, PA
William L. Nix
Attorney/Owner Morrow & Nix
Troup/Chambers County
Community Board
Carter Brown
Real Estate Broker, Coldwell Banker/
Spinks Brown Durand Realtors
Jerry Cash
Owner, Greene Super Drug
Thomas Ray Edwards
Owner, Valley Resale
A. Drew Ferguson, IV, DMD
Owner, A. Drew Ferguson, IV, DMD, PC
C. Y. Wood, Jr.
Editor/Publisher, Valley Times News
Wakulla County Community Board
Sonya Hall
President, Wakulla Realty, Inc.
Washington County Community Board
James Edwin Davis
Owner, Davis Angus, Inc.
Margaret Gilmore
Secretary/Treasurer, Blackburn
Properties, Inc.
Robert W. Snare, MD
Physician, Robert W. Snare, MD
Lamar L. Townsend
Owner, L. Townsend Mini Storage
Emeritus Board
Ashley P. Beggs
Ned P. Brafford
R. Spencer Burress
C. Bob Butler
Donald E. Grant
Sumpter James
Damon D. King
William W. Mahaffey
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., MD
Wesley Ramsey
Jack G. Rich
Rodney L. Scarboro
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 25,
2006, 10:00 a.m., University Center Club, Tallahassee, Florida.
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 or 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 2005 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.
64
annual
report
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
Alachua Office
15000 NW 140th Street
Alachua, Florida 32615
386.462.1041
High Springs Office
660 NE Santa Fe Boulevard
High Springs, Florida 32643
386.454.5500
Jonesville Office
14009 West Newberry Road
Jonesville, Florida 32669
352.331.2605
Main Street Office
4000 North Main Street
Gainesville, Florida 32609
352.375.6991
Millhopper Office
4040 NW 16th Boulevard
Gainesville, Florida 32605
352.336.1041
Newberry Office
24202 West Newberry Road
Suite F
Newberry, Florida 32669
352.472.9950
Northwood Office
6360 NW 13th Street
Gainesville, Florida 32653
352.371.1041
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 East 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
annual
report
locations
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
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
Putnam County
Palatka Office
200 Reid Street
Palatka, Florida 32177
386.329.1150
Palatka West Office
4120 Crill Avenue
Palatka, Florida 32177
386.329.1155
CCBG
2 0 0 5
65
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 East Washington Street
Quincy, Florida 32351
850.875.1000
CCBG
2 0 0 5
locations
St. Johns County
Hastings Office
207 North Main Street
Hastings, FLorida 32145
904.692.1221
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
352.498.4016
Wakulla County
Crawfordville Office
2592 Crawfordville Highway
Crawfordville, Florida 32327
850.926.6740
Wakulla Mortgage Lending Office
91 Coastal Highway
Panacea, Florida 32346
850.984.3461
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
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 East Winthrope Avenue
Millen, Georgia 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
66
annual
report