Item 2. Properties
Capital City Bank Group, Inc., is headquartered in Tallahassee, Florida. The Company's offices are in the Capital City Bank building located on the corner of Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by Capital City Bank but is located, in part, on land leased under a long-term agreement.
Capital City Bank's Parkway Office is located on land leased from the Smith Interests General Partnership in which several directors and officers have an interest. Lease payments during 1995 totaled approximately $53,000.
As of March 1, 1996 the Company had 30 banking locations. Of the 30 locations, the Company leases either the land or buildings (or both) at 4 locations and owns the land and buildings at the remaining 26.
Item 3.

Item 3. Legal Proceedings
Not Applicable
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
Item 5.

Item 5. Market for the Registrant's Securities and Related Stockholder Matters
There is currently no established trading market for the common stock of Capital City Bank Group, Inc., and therefore, no bid or sale quotations are generally available. Based on sales of stock of which the Company has knowledge, the stock has traded in a range of $26.00 to $33.00 per share for the two-year period ended December 31, 1995, with the most recent trades at $33.00 per share.
Item 6.

Item 7. Management's Discussion and Analysis of Financial Codition and Results of Operations
FINANCIAL REVIEW
This section provides supplemental information which should be read in conjunction with the consolidated financial statements and related notes. The Financial Review is divided into three subsections entitled Earnings Analysis, Financial Condition, and Liquidity and Capital Resources. Information therein should facilitate a better understanding of the major factors and trends which affect the Company's earnings performance and financial condition, and how the Company's performance during 1995 compares with prior years. Throughout this section, Capital City Bank Group, Inc., and its subsidiaries, collectively, are referred to as "CCBG" or the "Company". The subsidiaries, collectively, are referred to as Group Banks.
On January 1, 1995, the Company completed a corporate reorganization whereby seven of the Company's ten banking subsidiaries were merged to form one bank. The new bank, Capital City Bank, is headquartered in Tallahassee and has twenty-one offices covering four counties. See Note 17 in the Notes to Consolidated Financial Statements for further information.
The year-to-date averages used in this report are based on daily balances for each respective year. In certain circumstances comparing average balances for the fourth quarter of consecutive years may be more meaningful than simply analyzing year-to-date averages. Therefore, where appropriate, fourth quarter averages have been presented for analysis and have been clearly noted as such.
On December 10, 1995, the Company executed an Agreement and Plan of Merger to acquire First Financial Bancorp, Inc., ("FFB") for $22.00 per share in cash, or a total purchase price of approximately $20.3 million. First Financial is a $230 million federal savings bank headquartered in Tallahassee, Florida, with six offices located in five Florida counties. It is anticipated the transaction will close during the second half of 1996, expanding the number of counties served by the Company from seven to eleven and increasing the number of offices from thirty to thirty-five.
EARNINGS ANALYSIS
In 1995, the Company's earnings were $9.5 million, or $3.34 per share. This compares to earnings of $8.8 million, or $3.10 per share in 1994, and $8.2 million, or $2.82 per share in 1993. The earnings in 1993 were impacted by the adoption of Statement of Financial Accounting Standards No. 109 ("Accounting for Income Taxes"), which resulted in a one-time, non-cash charge of $484,000, or $.17 per share.
On a per share basis, earnings increased 7.7% in 1995 versus 9.9% in 1994. Growth in operating revenues and a reduction in the provision for loan losses were significant factors which contributed to stronger earnings in 1995. These and other factors are discussed throughout the Financial Review. A condensed earnings summary is presented in Table 1.
Table 1
CONDENSED SUMMARY OF EARNINGS (Dollars in Thousands, Except Per Share Data) For the Years Ended December 31, 1995 1994 1993
Interest Income $54,477 $47,891 $46,395 Taxable Equivalent Adjustments 1,591 1,657 1,663 Total Interest Income 56,068 49,548 48,058 Interest Expense 20,488 14,725 14,840 Net Interest Income 35,580 34,823 33,218 Provision for Loan Losses 293 1,246 960 Taxable Equivalent Adjustments 1,591 1,657 1,663 Net Interest Income After Provision for Loan Losses 33,696 31,920 30,595 Noninterest Income 13,170 13,009 12,478 Noninterest Expense 33,466 32,711 31,036 Income Before Income Taxes 13,400 12,218 12,037 Income Taxes 3,878 3,393 3,309 Income Before Accounting Change 9,522 8,825 8,728 Cumulative Effect of Accounting Change - - (484) Net Income $ 9,522 $ 8,825 $ 8,244 Income Per Share Before Accounting Change $ 3.34 $ 3.10 $ 2.99 Net Income Per Share $ 3.34 $ 3.10 $ 2.82
Net Interest Income
Net interest income represents the Company's single largest source of earnings and is equal to interest income and fees generated by earning assets less interest expense paid on interest bearing liabilities. An analysis of the Company's net interest income, including average yields and rates, is presented in Tables 2 and 3. This information is presented on a "taxable equivalent" basis to reflect the tax-exempt status of income earned on certain loans and investments, the majority of which are state and local government debt obligations.
In 1995, taxable-equivalent net interest income increased $757,000, or 2.2%. This follows an increase of $1.6 million, or 4.8% in 1994, and $1.9 million, or 5.9% in 1993. During 1995, higher levels of earning assets and growth in the loan portfolio were the primary factors contributing to the Company's overall increase in taxable equivalent net interest income.
Interest rates, after declining for several years began increasing in early 1994 and peaked during the first quarter of 1995. During this fifteen month period, the prime rate rose from 6% to 9% and the federal funds rate increased from approximately 3% to 6%. Subsequent to the first quarter of 1995, however, rates declined. The prime rate fell from 9.0% to 8.5% at December 31, 1995, and the federal funds rate declined from 6.0% to 5.5%. Although rates fell during the latter half of the year, the current interest rate environment is still well above that of early 1994.
The Company's taxable equivalent yield on average earning assets of 8.23% represents an 80 basis point increase over 1994, compared to only a five basis point improvement in 1994 over 1993. The higher yield in 1995 is reflective of both higher interest rates and loan volume, which increased steadily throughout the year. The loan portfolio, which is the largest and highest yielding component of earning assets, increased from 58.9% in the first quarter of 1994 to 63.4% in the fourth quarter of 1995. The lower yields on earning assets in 1994 and 1993 are reflective of the interest rate environment during those years and a less favorable mix of earning assets.
The average rate paid on interest bearing liabilities in 1995 was 3.96% versus 2.88% in 1994 and 2.97% in 1993. The increase is attributable to higher interest rates and a less favorable deposit mix. As interest rates increased in 1994 and early 1995, depositors sought higher yields by investing in certificates of deposits versus non-maturity deposits such as money market and savings accounts. The increase also reflects the results of promotions during the year in which the Company raised in excess of $30 million in certificates of deposit. As certificates of deposit generally represent a higher cost deposit product, this shift in depositor preference increased the Company's cost of funds. Certificates of deposit as a percent of total deposits increased from 32.1% in the first quarter of 1994 to 38.9% in the fourth quarter of 1995. In prior years, the lower average rates are reflective of lower interest rates and a more favorable deposit mix.
The Company's interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on interest bearing liabilities) decreased 28 basis points in 1995 and increased 14 basis points in 1994. The reduction in spread in 1995 is attributable to the higher cost of funds.
The Company's net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets) was 5.22% in 1995, compared to 5.22% in 1994, and 5.10% in 1993. Although the Company experienced an increase in its cost of funds during 1995, the increase in interest income was sufficient to enable the Company to maintain its margin of 5.22%. The increase in 1994 over 1993 is attributable to an improved spread and a reduction in the volume of earning assets funded through interest bearing liabilities.
A further discussion of the Company's earning assets and funding sources can be found in the section entitled "Financial Condition".
Provision for Loan Losses
The provision for loan losses was $293,000 in 1995 versus $1.2 million in 1994 and $960,000 in 1993. The reduction in the provision over prior years reflects improved credit quality and a relatively low level of charge-offs. At December 31, 1995, the allowance for loan losses totaled $6.5 million compared to $7.6 million in 1994 and $7.6 million in 1993. Management considers the allowance to be adequate based on the current level of nonperforming loans and the potential for loss inherent in the portfolio at year-end. See the section entitled "Financial Condition" for further information regarding the allowance for loan losses. Selected loss coverage ratios are presented below:
1995 1994 1993 Provision for Loan Losses as a Multiple of Net Charge-offs .2x 1.0x 1.0x Pre-tax Income Plus Provision for Loan Losses as Multiple of Net Charge-offs 10.0x 10.4x 13.7x
Noninterest Income
Noninterest income increased $161,000, or 1.2%, in 1995 compared with $531,000, or 4.3%, in 1994. Factors affecting noninterest income are discussed below.
Service charges on deposit accounts increased $241,000, or 4.5%, in 1995, compared to a decrease of $193,000, or 3.4%, in 1994. Service charge revenues in any one year are dependent on the number of accounts, primarily transaction accounts, and the level of activity subject to service charges.
Data processing revenues increased $174,000, or 7.1%, in 1995 versus an increase of $54,000, or 2.3%, in 1994. The data processing center provides computer services to both financial and non-financial clients in North Florida and South Georgia. In recent years, a significant portion of the growth in revenues has been provided by processing for clients other than financial institutions. Processing revenues for non-financial entities represented approximately 52% of the total processing revenues in 1995.
In 1995, trust fees increased $262,000, or 38.5%. In January 1995, the Company changed its method of income recognition for Capital City Trust Company ("CCTC") from cash to accrual. This change in method resulted in a one-time adjustment which increased CCTC revenues by $166,000 during the first quarter of 1995. The remaining increase in fees of approximately $96,000 is attributable to the growth in assets under management which grew $12.6 million, or 12.2%. Assets under management totaled $116.0 million at December 31, 1995. Trust fees increased $37,000, or 5.8%, in 1994, attributable to growth in assets under management.
Net gains from the sale of securities recognized during 1995 were not material. The net loss recognized in 1994 consisted of gross gains of $13,000 and losses of $160,000. Of the $160,000 in losses, $152,000 reflects management's decision to sell approximately $7,000,000 in securities (including U.S. Governments and municipals) and reinvest the proceeds in higher yielding securities. All other gains and losses recognized in 1995 and 1994 were related to the redemption of principal from mortgage-backed securities and bonds which were called during the year.
Other noninterest income decreased $671,000, or 14.5%, in 1995 versus an increase of $808,000, or 21.1% in 1994. The decrease in 1995 is attributable to real estate gains recognized in 1994 and a reduction in mortgage origination fees. During 1994, the Company recognized gains on the sale of real estate (including other real estate and bank premises) totaling $827,000, compared to $94,000 in 1995. Mortgage origination volume declined $9.4 million, or 27.0% in 1995, resulting in a reduction in mortgage fees of $220,000, or 30.8%. These reductions in income were partially offset by a $295,000 increase in credit card income which was primarily attributable to higher volume. The primary factors impacting the increase in noninterest income in 1994 as compared to 1993 were gains on the sale of real estate of $827,000, an increase in credit card fees of $290,000 and a reduction in mortgage origination fees of $374,000. Gains on the sale of real estate were comprised of $430,000 recognized on the sale of other real estate and $397,000 on the sale of bank premises. While several factors impacted credit card fees, the majority of the increase in 1994 is attributable to volume. Mortgage loan origination volume fell from $55.5 million in 1993 to $34.8 million in 1994, contributing to the 38% decline in origination fees.
Noninterest income as a percent of average earning assets represented 1.93% in 1995 compared to 1.95% in 1994 and 1.92% in 1993.
Noninterest Expense
Total noninterest expense for 1995 was $33.5 million, an increase of $755,000, or 2.3%, over 1994, compared with an increase of $1.7 million, or 5.4% in 1994 over 1993. Factors impacting the Company's noninterest expense during 1995 and 1994 are discussed below.
The Company's compensation expense totaled $18.0 million, an increase of $872,000, or 5.1%, over 1994. Salaries increased $530,000, or 3.8%, due to normal annual raises. Employee insurance and expenses associated with the Company's stock incentive plan accounted for the remaining increase of $342,000. Stock compensation expense in 1995 was $424,000 compared to $258,000 in the prior year. In 1994, compensation expense totaled $17.1 million, an increase of $904,000, or 5.6%, over 1993. Salaries and wages increased $732,000, or 4.5%, due to annual raises and an increase in the number of offices opened for a full year in 1994. Additionally, the Company's pension expense increased $214,000, or 31.7%. In 1994 management revised the interest rate assumptions incorporated in the pension plan to reflect the lower interest rate environment. Lower rates reduced projected earnings on the plan assets and increased current funding requirements, both of which resulted in higher pension expense.
Occupancy expense (including furniture, fixtures & equipment) was up by $631,000, or 12.0% in 1995. The increase is attributable to higher depreciation expense which increased $447,000 and maintenance and repairs which increased $195,000. In 1994, occupancy expense was up $161,000, or 3.2%. During 1994, the Company completed building renovations, opened a new operations center and acquired an additional banking location. Depreciation, property taxes, and maintenance and repairs associated with the new and existing facilities were the primary expense categories contributing to the overall increase.
Other noninterest expense decreased $748,000, or 7.2%, in 1995, compared to an increase of $610,000, or 6.3%, in 1994. The decrease in 1995 is primarily attributable to a reduction in FDIC insurance premiums and corporate reorganization expenses. Effective June 1, 1995, the Federal Deposit Insurance Corporation reduced deposit insurance premiums from $.23 per $100 in deposits to $.04 per $100. This resulted in a reduction of premiums for 1995 of $700,000. For 1996, insurance premiums have been completely eliminated which will result in additional savings to the Company of approximately $240,000 based on the current level of deposits. Corporate reorganization expenses incurred in 1994 totaled $731,000 and thus the elimination of these expenses in 1995 contributed to the overall expense reduction in this category. The increase in 1994 of $610,000 is primarily attributable to expenses associated with the corporate reorganization.
Net noninterest expense (defined as noninterest income minus noninterest expense) as a percent of average earning assets was 2.98% in 1995 compared to 2.95% in 1994 and 2.85% in 1993.
Income Taxes
The consolidated provision for federal and state income taxes was $3.9 million in 1995 compared to $3.4 million in 1994 and $3.3 million in 1993. The increases in the tax provision over the last three years is primarily attributable to the higher level of taxable income.
The effective tax rate was 28.9% in 1995, 27.8 in 1994 and 27.5% in 1993. These rates differ from the statutory tax rates due primarily to tax-exempt income. The increase in the effective tax rate is primarily attributable to the decreasing level of tax-exempt income relative to pre-tax income. Tax-exempt income (net of the adjustment for disallowed interest) as a percent of pre-tax income was 23.0% in 1995, 25.1% in 1994 and 26.8% in 1993.
Change in Accounting Principle
On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which changed the method of accounting to the "liability" method from the "deferred" method previously required by Accounting Principles Board Opinion No. 11. The cumulative effect of adopting the new accounting standard was a reduction in the Company's net income of $484,000, which was recognized in the first quarter of 1993. See Note 1 in the Notes to Consolidated Financial Statements.
FINANCIAL CONDITION
Average assets increased $18.4 million, or 2.5%, from $745.3 million in 1994 to $763.7 million in 1995. Average earning assets increased to $681.2 million in 1995, a $14.3 million, or 2.1% increase over 1994. After experiencing a reduction in loans in 1992, loan volume has improved. Average loans have grown from $358.9 million in 1992 to $432.3 million in 1995, including growth of $25.4 million, or 6.3% during 1995. Growth in the loan portfolio in 1995 was primarily funded through deposit growth of $10.1 million and a reduction in the Company's investment portfolio and federal funds sold position of $7.8 million and $3.4 million, respectively.
Table 2 provides information on average balances while Table 4 highlights the changing mix of the Company's earning assets over the last three years.
Loans
Local markets served by Group banks were generally improved during 1995. Loan demand was fairly steady and slightly stronger during the second half. Price and product competition strengthened during 1995 and there was increasing demand for fixed rate financing. Real estate lending, an area of primary focus, continued to improve. Other areas reflecting stronger demand include home equity and indirect automobile lending. While the markets were generally good, perhaps the most significant contributor to loan growth was the Company's recent restructuring and an increased emphasis on product marketing.
Lending is a major component of the Company's business and is key to profitability. While management strives to grow the Company's loan portfolio, it can do so only by adhering to sound banking principles applied in a prudent and consistent manner. Management is hopeful the improvements noted in 1994 and 1995 will continue during 1996, affording opportunities to increase loans outstanding and enhance the portfolio's overall contribution to earnings.
Table 4
SOURCES OF EARNING ASSET GROWTH (Average Balances - Dollars in Thousands)
1994 to Percentage Components 1995 of Total of Total Earning Assets Change Change 1995 1994 1993 Loans: Commercial, Financial and Agricultural $ 4,266 29.9% 7.1% 6.6% 6.5% Real Estate - Construction 4,986 35.0 3.7 3.1 3.2 Real Estate - Mortgage 3,100 21.7 37.7 38.0 35.5 Consumer 13,088 91.7 15.0 13.3 13.5 Total Loans 25,440 178.3 63.5 61.0 58.7
Securities: Taxable (6,853) (48.0) 20.5 22.0 21.5 Tax-Exempt (910) (6.4) 10.4 10.8 10.0 Total Securities (7,763) (54.4) 30.9 32.8 31.5
Funds Sold (3,410) (23.9) 5.6 6.2 9.8
Total Earning Assets $14,267 100.0% 100.0% 100.0% 100.0%
The composition of the Company's loan portfolio at December 31 for each of the past five years is shown in Table 5. Consistent with bank regulatory reporting requirements, Bankers' Acceptances purchased (as opposed to originated) and Term Federal Funds (funds placed with another financial institution generally having a maturity of less than 90 days) are classified as loans and included in the commercial loan category. Management views these instruments not as loans but as investment alternatives in managing short-term liquidity. While there were no Bankers' Acceptances or Term Federal Funds outstanding at December 31, 1995, they totaled $1.0 million at year-end 1994 and $6.5 million at year- end 1993.
The Company's average loan-to-deposit ratio increased from 62.9% in 1994 to 65.8% in 1995 and reached a level of 66.0% in the fourth quarter. The average loan-to-deposit ratio for 1993 was 60.6%.
Real estate construction and mortgage loans, combined, represented 64.8% of total loans (net of unearned interest) in 1995 versus 66.6% in 1994. See the section entitled "Risk Element Assets" for a discussion concerning loan concentrations.
Table 6 arrays the Company's total loan portfolio as of December 31, 1995, based upon maturities. Loans are arrayed as to those which mature in one year or less, over one through five years and over five years. Demand loans and overdrafts are reported in the category of one year or less. As a percent of the total portfolio, loans with a fixed interest rate have declined from 40.2% in 1994 to 30.2% in 1995.
Allowance for Loan Losses
Management attempts to maintain the allowance for loan losses at a level sufficient to provide for potential losses inherent in the loan portfolio. 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.
Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The evaluations are based on the collectibility of loans and take into consideration such factors as growth and composition of the loan portfolio, evaluation of potential losses, past loss experience and general economic conditions. As part of these evaluations, management reviews all loans which have been classified internally or through regulatory examination and, if appropriate, allocates a specific reserve to each of these individual loans. Further, management establishes a general reserve to provide for losses inherent in the loan portfolio which are not specifically identified. The general reserve is based upon management's evaluation of the current and forecasted operating and economic environment coupled with historical experience. The allowance for loan losses is compared against the sum of the specific reserves plus the general reserve and adjustments are made, as appropriate. Table 7 analyzes the activity in the allowance over the last five years.
Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended, which prescribes how the allowance for loan losses related to impaired loans should be determined. Certain loan categories including residential, consumer and credit card loans are excluded from the scope of this statement.
Impaired loans for Capital City Bank Group are primarily defined as all nonaccruing loans for the categories which are included within the scope of Statement No. 114. Adoption of Statement No. 114 had no significant impact on the financial condition or results of operations of the Company. See Note 5 in the Notes to Consolidated Financial Statements for further information.
Table 5
LOANS BY CATEGORY (Dollars in Thousands) As of December 31, 1995 1994 1993 1992 1991 Commercial, Financial and Agricultural $ 46,149 $ 39,288 $ 46,963 $ 57,188 $ 57,692 Real Estate - Construction 28,391 24,314 22,968 19,103 18,714 Real Estate - Mortgage 259,503 255,755 242,741 212,080 208,091 Consumer 113,736 106,656 93,895 89,848 89,529 Total Loans $447,779 $426,013 $406,567 $378,219 $374,026
Table 6
LOAN MATURITIES (Dollars in Thousands) Maturity Periods
Over One Over One Year Through Five Or Less Five Years Years Total Commercial, Financial and Agricultural $ 33,632 $ 11,658 $ 859 $46,149 Real Estate 222,831 42,753 22,310 287,894 Consumer 32,509 80,878 349 113,736 Total $288,972 $135,289 $23,518 $447,779
Loans with Fixed Rates $ 88,899 $ 37,266 $ 8,915 $135,080 Loans with Floating or Adjustable Rates 200,073 98,023 14,603 312,699
Total $288,972 $135,289 $23,518 $447,779
The allowance for loan losses at December 31, 1995 of $6.5 million compares to $7.6 million at year-end 1994 and 1993. The allowance as a percent of total loans declined from 1.79% in 1994 to 1.46% in 1995. The lower percentage is attributable to a reduction in the Company's nonperforming loans and continued low levels of net charge-offs. See the section entitled "Risk Element Assets" for a further discussion.
There can be no assurance that in particular periods the Company will not sustain loan losses which are substantial in relation to the size of the allowance. When establishing the allowance, management makes various estimates regarding the value of collateral and future economic events. Actual experience may differ from these estimates. It is management's opinion that the allowance at December 31, 1995, is adequate to absorb losses from loans in the portfolio as of year-end.
Table 8 provides an allocation of the allowance for loan losses to specific loan categories for each of the last five years. The allocation of the allowance is developed using management's best estimates based upon available information such as regulatory examinations, internal loan reviews and historical data and trends. The allocation by loan category reflects a base level allocation derived primarily by analyzing the level of problem loans, specific reserves and historical charge-off data. Current and forecasted economic conditions, and other judgmental factors which cannot be easily quantified (e.g. concentrations) are not presumed to be included in the base level allocations, but instead are covered by the unallocated portion of the reserve. The Company faces a geographic concentration as well as a concentration in real estate lending. Both risks are cyclical in nature and must be considered in establishing the overall allowance for loan losses. Reserves in excess of the base level reserves are maintained in order to properly reserve for the losses inherent in the Company's portfolio due to these concentrations and anticipated periods of economic difficulties.
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES (Dollars in Thousands) For the Years Ended December 31, 1995 1994 1993 1992 1991
Balance at Beginning of Year $7,551 $7,594 $7,585 $7,670 $7,526 Charge-Offs: Commercial, Financial and Agricultural 520 575 556 511 724 Real Estate-Construction - - - 33 - Real Estate-Mortgage 139 315 81 460 175 Consumer 1,237 865 884 929 1,263 Total Charge-Offs 1,896 1,755 1,521 1,933 2,162
Recoveries: Commercial, Financial and Agricultural 157 104 198 231 177 Real Estate - Construction - - - - Real Estate - Mortgage - 12 8 7 18 Consumer 369 350 364 394 294 Total Recoveries 526 466 570 632 489
Net Charge-Offs 1,370 1,289 951 1,301 1,673
Provision for Loan Losses 293 1,246 960 1,216 1,817
Balance at End of Year $6,474 $7,551 $7,594 $7,585 $7,670
Ratio of Net Charge-Offs During Year to Average Loans Out- standing, Net of Unearned Interest .32% .32% .25% .36% .45%
Allowance for Loan Losses as a Percente of Loans, Net of Un- earned Interest, at End of Year 1.46% 1.79% 1.90% 2.05% 2.10%
Allowance for Loan Losses as a Multiple of Net Charge-Offs 4.73x 5.86x 7.99x 5.83x 4.58x
Risk Element Assets
Risk element assets consist of nonaccrual loans, renegotiated loans, other real estate, loans past due 90 days or more, potential problem loans and loan concentrations. Table 9 depicts certain categories of the Company's risk element assets as of December 31, for each of the last five years. Potential problem loans and loan concentrations are discussed within the narrative portion of this section.
The Company's nonperforming loans decreased $1.3 million, or 21.6%, from a level of $6.0 million at December 31, 1994 to $4.7 million at December 31, 1995. During 1995, loans totaling approximately $2.4 million were placed on nonaccrual, while loans totaling $3.7 million were removed from nonaccruing status. Of the $2.4 million added, three credit relationships comprised $1.1 million of the total. All three relationships are secured with real estate and management has allocated specific reserves to these credits to absorb anticipated losses. Of the $3.7 million removed from the nonaccrual category, $2.3 million consists of principal reductions, $647,000 consists of loans transferred to ORE and loans totaling $451,000 were charged off. The remaining decrease of $349,000 represents loans which were either brought current and returned to an accrual status or refinanced.
Table 9
RISK ELEMENT ASSETS (Dollars in Thousands) As of December 31, 1995 1994 1993 1992 1991
Nonaccruing Loans $2,996 $4,278 $ 9,353 $ 6,987 $ 8,423 Restructured 1,686 1,694 65 169 176 Total Nonperforming Loans 4,682 5,972 9,418 7,156 8,599 Other Real Estate 1,001 1,581 3,466 4,416 4,385 Total Nonperforming Assets $5,683 $7,553 $12,884 $11,572 $12,984
Past Due 90 Days or More $ 273 $ 258 $ 104 $ 2,564 $ 622
Nonperforming Loans to Loans, Net of Unearned Interest 1.05% 1.42% 2.36% 1.93% 2.36% Nonperforming Assets to Loans, Net of Unearned Interest, Plus Other Real Estate 1.28% 1.79% 3.20% 3.09% 3.52% Nonperforming Assets to Capital(1) 6.49% 9.45% 17.24% 16.36% 19.86% Reserve to Nonperforming Loans 138.27% 126.44% 80.64% 105.99% 89.20%
(1) For computation of this percentage, "capital" refers to shareholders' equity plus the allowance for loan losses.
The majority of nonaccrual loans are collateralized with real estate. Management continually reviews these loans and believes specific reserve allocations are sufficient to cover the loss exposure associated with these loans.
Interest on nonaccrual loans is 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 nonaccruing loans had been on a fully accruing basis, interest income recorded would have been $285,000 higher for the year ended December 31, 1995.
Restructured loans are loans with reduced interest rates or deferred payment terms due to deterioration in the financial position of the borrower. The difference in interest income which would have been recorded under the original terms of the restructured loans and the interest income recognized for the year ended December 31, 1995 was $35,000. Restructured loans at December 31, 1995 consisted primarily of one large relationship which was classified as restructured in accordance with Statement of Financial Accounting Standards No. 15, prior to the adoption of Statement No. 114 in January 1995. Loans restructured subsequent to January 1, 1995, are deemed impaired, as that term is defined in Statement No. 114, and will be accounted for accordingly.
Other real estate totaled $1.0 million at December 31, 1995, versus $1.6 million at December 31, 1994. This category includes property owned by Group Banks which was acquired either through foreclosure procedures or by receiving a deed in lieu of foreclosure. During 1995, the Company added properties totaling $647,000 and liquidated, partially or completely, properties totaling $1.2 million, resulting in a net reduction in other real estate of $580,000. Management does not anticipate any significant losses associated with other real estate.
Potential problem loans are defined as those loans which are now current but where management has doubt as to the borrower's ability to comply with present loan repayment terms. Potential problem loans totaled $1.3 million at December 31, 1995.
Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which cause them to be similarly impacted by economic or other conditions and such amounts exceed 10% of total loans. Due to the lack of diversified industry within the markets served by the Group banks, and the relatively close proximity of the markets, the Company has both geographic concentrations as well as concentrations in the types of loans funded. Capital City Bank, which operates predominately in a three county market area in North Florida, comprised 83% of the Company's total loans at year-end. Further, due to the nature of the Company's markets, a significant portion of the portfolio is associated either directly or indirectly with real estate. At December 31, 1995, approximately 64% of the portfolio consisted of real estate loans. Residential properties comprise approximately 55% of the real estate portfolio.
Management is continually analyzing its loan portfolio in an effort to identify and resolve its problem assets as quickly and efficiently as possible. As of December 31, 1995, 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 will continue to focus its attention on promptly identifying and providing for potential losses as they arise.
Investment Securities
The Company's average investment portfolio decreased $7.8 million, or 3.6%, during 1995. This followed an increase of $13.3 million, or 6.5%, in 1994. As a percent of average earning assets, the investment portfolio represented 30.9% in 1995, compared to 32.8% in 1994. In recent years, other than 1995, the investment portfolio increased in size relative to total earning assets as a result of the slowdown in loan production. In 1991, the comparable percentage was 21.9%. This recent trend reversed itself somewhat in 1995, as the growth in loans exceeded the overall growth in earning assets.
In 1995, average taxable investments decreased $6.9 million, or 4.7%, while tax-exempt investments decreased $910,000, or 1.3%. Since the enactment of the Tax Reform Act of 1986, which significantly reduced the tax benefits associated with tax-exempt investments, management has monitored the level of tax-exempt investments and, until 1992, consistently reduced its holdings. Even with the growth in tax-exempt investments in 1993 and 1994, the tax-exempt portfolio as a percent of average earning assets has declined from 18.9% in 1986 to 10.4% in 1995. Management will continue to purchase "bank qualified" municipal issues when it considers the yield to be attractive and the Company can do so without adversely impacting its tax position.
The investment portfolio is a significant component of the Company's operations and, as such, it functions as a key element of liquidity and asset/liability management. In 1994, the Company adopted SFAS No. 115 -- "Accounting for Investments in Certain Debt and Equity Securities". In accordance with the new accounting pronouncement, securities are to be classified as held-to-maturity, available-for-sale or trading. To be classified as Held-to-Maturity, management must have both the ability and the positive intent to hold securities to maturity. Securities in this category are recorded at amortized cost. It is not management's intent nor practice to participate in the trading of investment securities for the purpose of recognizing gains and therefore the Company does not maintain a
Trading portfolio. However, management felt it was prudent to establish an Available-for-Sale portfolio in order to provide the flexibility necessary to properly manage the Company's interest rate risk and liquidity position. Upon adoption of SFAS No. 115 in 1994, management classified approximately 30% of the total investment portfolio as Available-for-Sale. Following a determination by the regulatory agencies during 1995 that the net unrealized gain (loss) would be excluded from the computation of regulatory capital, the Financial Accounting Standards Board offered companies a one- time opportunity to transfer securities from held-to-maturity category to the available-for-sale category without penalty. On December 27, 1995, management transferred all securities classified as held-to-maturity to available-for-sale. Securities transferred totaled $122.6 million with an net unrealized gain after tax of $503,000. This transfer of securities offers management full flexibility in managing its liquidity position and interest rate sensitivity without adversely impacting its regulatory capital levels. Securities in the Available-for-Sale portfolio are recorded at fair value and unrealized gains and losses associated with these securities are recorded, net of tax, as a separate component of shareholders' equity. At December 31, 1995 shareholders' equity included a net unrealized gain of $968,000. See the section entitled "Accounting Pronouncements" and Note 1 in the Notes to Consolidated Financial Statements for a further discussion of SFAS No. 115.
Historically, when purchasing securities, management has had both the ability and intent to hold the securities for the foreseeable future and sales, including the gains or losses recognized from such sales, were minimal. This was true in 1995 as well. However, in 1994, in order to invest in higher yielding securities, the Company sold approximately $7.0 million in securities, incurring a net pre-tax loss of $152,000. These securities were sold from the available-for-sale portfolio and there were no sales from the held-to-maturity portfolio in 1995 or 1994.
In 1995, proceeds from the sale of securities were nominal. However, proceeds from "called" bonds and principal redemption of mortgage-backed securities totaled $22.5 million and the related gains and losses totaled $11,000 and $3,000, respectively.
The average maturity of the total portfolio at December 31, 1995 and 1994, was 2.62 and 2.41 years, respectively. See Table 11 for a breakdown of maturities by portfolio.
The weighted average taxable-equivalent yield of the investment portfolio at December 31, 1995, was 6.20% versus 5.73% in 1994. The quality of the municipal portfolio at such date is depicted in the chart below. There were no investments in obligations, other than U.S. Governments, of any one state, municipality, political subdivision or any other issuer that exceeded 10% of the Company's shareholders' equity at December 31, 1995.
The net unrealized gain in the total portfolio at December 31, 1995, of $1.5 million compares with a loss of $6.8 million at December 31, 1994. See Note 3 in the Notes to Consolidated Financial Statements for a breakdown of unrealized gains and losses. Tables 10 and 11 present a detailed analysis of the Company's investment securities as to type, maturity and yield.
MUNICIPAL PORTFOLIO QUALITY (Dollars in Thousands)
Amortized Cost Moody's Rating (000's) Percentage
AAA $46,684 61.4% AA-1 1,810 2.4 AA 3,955 5.2 A-1 5,525 7.3 A 8,680 11.4 BAA 1,000 1.3 Not Rated(1) 8,332 11.0 Total $75,986 100.0% (1) Of the securities not rated by Moody's, $4.9 million are rated "A" or higher by S&P.
Table 10 DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars in Thousands)
Amortized Unrealized Unrealized Market Available-For-Sale Cost Gains Losses Value
U.S. Treasury $ 72,289 $ 470 $ 54 $72,705 U.S. Government Agencies and Corporations 70,883 264 96 71,051 States and Political Subdivisions 75,986 1,037 143 76,880 Mortgage Backed Securities 5,965 47 26 5,986 Other Securities 4,107 19 1 4,125 Total Investment Securities $229,230 $1,837 $320 $230,747
Table 11
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (Dollars in Thousands)
As of December 31, 1995 Weighted Amortized Cost Market Value Average Yield(1) U. S. GOVERNMENTS Due in 1 year or less $ 64,543 $ 64,604 5.45% Due over 1 year thru 5 years 78,629 79,152 5.76% Due over 5 years thru 10 years - - - Due over 10 years - - - TOTAL 143,172 143,756 5.92%
STATE & POLITICAL SUBDIVISIONS Due in 1 year or less 7,803 7,781 8.13% Due over 1 year thru 5 years 47,146 47,796 6.65% Due over 5 years thru 10 years 18,847 19,102 6.01% Due over 10 years 2,190 2,201 7.53% TOTAL 75,986 76,880 6.68%
MORTGAGE BACKED SECURITIES Due in 1 year or less 444 451 6.98% Due over 1 year thru 5 years 4,083 4,100 6.51% Due over 5 years thru 10 years 582 594 7.68% Due over 10 years 856 841 6.30% TOTAL 5,965 5,986 6.62%
OTHER SECURITIES Due in 1 Year or less 1,354 1,365 5.98% Due over 1 year thru 5 years 149 179 5.59% Due over 5 years thru 10 years 252 229 5.68% Due over 10 years* 2,352 2,352 6.81% TOTAL 4,107 4,125 6.40%
Total Investment Securities $229,230 $230,747 6.20%
*Federal Home Loan Bank Stock and Federal Reserve Bank Stock do not have a stated maturities.
AVERAGE MATURITY (In Years) AS OF DECEMBER 31, 1995 Available For Sale
U. S. Governments 1.98 State and Political Subdivisions 3.81 Mortgaged Backed Securities 3.78 TOTAL 2.62
(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 34% tax rate.
Deposits And Funds Purchased
Average total deposits increased from $647.3 million in 1994 to $657.4 million in 1995, representing an increase of $10.1 million, or 1.6%. In 1994, deposits increased $16.9 million, or 2.7%. The Company experienced a notable increase in competition for deposits during 1995, in terms of both rate and product.
From 1991 to 1994, the Company experienced growth in noninterest bearing deposits and a shift in funding sources from certificates of deposits to other deposit categories. This pattern ran counter to the Company's historical trends in which a majority of the growth was generated from certificates of deposits. As rates rose during 1994 and early 1995, however, depositors returned to more historical patterns shifting funds from non-maturity deposits to certificates of deposit and investing new funds in certificates. Average certificates of deposit increased $35.8 million, or 16.7%, over 1994. The growth in certificates of deposit was partially offset by a reduction in money market accounts of $6.0 million, or 7.9%, and savings of $22.3 million, or 20.7%. This shift in deposits during 1995 put additional pressure on the Company's net interest margin.
Table 2 provides an analysis of the Company's average deposits, by category, and average rates paid thereon for each of the last three years. Table 12 reflects the shift in the Company's deposit mix over the last three years and Table 13 provides a maturity distribution of time deposits in denominations of $100,000 and over.
Average funds purchased, which include federal funds purchased and securities sold under agreements to repurchase, increased $1.0 million, or 5.6%.
Federal Funds Purchased and Securities Sold Under Repurchase Agreements (Dollars in Thousands)
1995 1994 1993
Year End Balance $17,367 $13,964 $23,264 Rate at Year End 4.79% 5.38% 2.78% Average Balance $19,308 $18,291 $17,765 Average Rate 5.45% 3.55% 3.08% Maximum Outstanding at Month-End $27,806 $35,516 $27,449
At December 31, 1995, the Company had $2.0 million in debt outstanding to the Federal Home Loan Bank of Atlanta. The debt, which has a fixed rate of interest of 6.04%, requires annual principal reductions of approximately $110,000 with the remaining balance due at maturity in 2005. The debt was used to match-fund selected lending activities and is secured by first mortgage residential loans which are included in the Company's loan portfolio. See Note 8 in the Notes to Consolidated Financial Statements.
Table 12
SOURCES OF DEPOSIT GROWTH (Average Balances - Dollars in Thousands)
1994 to Percentage 1995 of Total Components of Total Deposits Change Change 1995 1994 1993
Noninterest Bearing Deposits $ 4,586 45.3% 24.4% 24.1% 23.7% NOW Accounts (1,897) (18.7) 13.9 14.3 12.4 Money Market Accounts (5,985) (59.1) 10.7 11.8 12.7 Savings (22,333) (220.5) 13.0 16.7 18.1 Other Time 35,759 353.0 38.0 33.1 33.1 Total Deposits $10,130 100.0% 100.0% 100.0% 100.0%
Table 13
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER (Dollars in Thousands)
December 31, 1995 Time Certificates of Deposit Percent
Three months or less $15,798 34.8% Over three through six months 13,732 30.3 Over six through twelve months 6,496 14.3 Over twelve months 9,340 20.6 Total $45,366 100.0%
Liquidity and Capital Resources
Liquidity for a banking institution is the availability of funds to meet increased loan demand and/or excessive deposit withdrawals. Management monitors the Company's financial position to ensure it has ready access to sufficient liquid funds to meet normal transaction requirements, take advantage of investment opportunities and cover unforeseen liquidity demands. In addition to core deposit growth, sources of funds available to meet liquidity demands include cash received through ordinary business activities such as the collection of interest and fees, federal funds sold, loan and investment maturities, bank lines of credit for the Company and approved lines for the purchase of federal funds by the Group Banks.
As of December 31, 1995, the Company has available a $25.0 million credit facility. The facility offers the Company an unsecured, revolving line of credit for a period of three years which matures in November 1998. Upon expiration of the revolving line of credit, the outstanding balance may be converted to a term loan and repaid over a period of seven years. The term
loan is to be secured by stock of a subsidiary bank equal to at least 125% of the principal balance of the term loan. The Company, at its option, may select from various loan rates including Prime, LIBOR or the Certificate of Deposit ("CD") rate, plus or minus increments thereof. The LIBOR or CD rates may be fixed for a period of up to six months. During 1995, the Company had no long-term debt outstanding under this credit facility. The new facility was established to increase the Company's borrowing capacity and to consolidate two existing credit facilities in the amount of $6.0 million each. It is anticipated the Company may borrow up to $20 million in connection with the proposed acquisition of First Financial Bancorp, Inc., which is expected to close during the second half of 1996. See Notes 2 and 8 in the Notes to Consolidated Financial Statements.
The Company's new credit facility imposes certain limitations on the level of the Company's equity capital, and federal and state regulatory agencies have established regulations which govern the payment of dividends to a bank holding company by its bank subsidiaries. Based on the Company's current financial condition, these limitations and/or regulations do not impair the Company's ability to meet its cash obligations or limit the Company's ability to pay future dividends on its common stock. See Notes 8 and 12 in the Notes to Consolidated Financial Statements for additional information.
At December 31, 1995, the Company had $2.0 million in debt outstanding to the Federal Home Loan Bank of Atlanta. The debt, which has a fixed rate of interest of 6.04%, requires annual principal reductions of approximately $110,000 with the remaining balance due at maturity in 2005. The debt was used to match-fund selected lending activities and is secured by first mortgage residential loans which are included in the Company's loan portfolio. See Note 8 in the Notes to Financial Statements.
The Company is a party to financial instruments with off-balance-sheet risks in the normal course of business to meet the financing needs of its customers. At December 31, 1995, the Company had $111.2 million in commitments to extend credit and $1.8 million in standby letters of credit. Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance-sheet instruments. If obligations 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.
It is anticipated capital expenditures, excluding the purchase of First Financial Bancorp, Inc., will approximate $5.0 million to $7.0 million over the next twelve months. Management believes these capital expenditures can be funded internally without impairing the Company's ability to meet its on-going obligations.
Shareholders' equity as of December 31, for each of the last three years is presented below.
Shareholders' Equity (Dollars in Thousands) 1995 1994 1993
Common Stock $ 31 $ 31 $ 31 Additional Paid in Capital 5,868 5,852 5,857 Retained Earnings 80,658 73,989 67,753 Subtotal 86,557 79,872 73,641 Treasury Stock (6,367) (6,588) (6,502) Unrealized Gains (Losses) 968 (884) - Total Shareholders' Equity $81,158 $72,400 $67,139
The Company continues to maintain a strong capital position. The ratio of shareholders' equity to total assets at year-end was 9.97%, 9.75%, and 8.81% in 1995, 1994, and 1993, respectively, which ratios exceeded all minimum required regulatory capital levels. The lower capital ratio in 1993 primarily reflects the purchase of $1.8 million in treasury stock during the year. The Company has traditionally satisfied its regulatory capital requirements through earnings and expects to continue to do so.
The Company is subject to risk-based capital guidelines that measure capital relative to risk weighted assets and off-balance-sheet financial instruments. Capital guidelines issued by the Federal Reserve Board in effect at December 31, 1995 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. Capital City Bank Group, Inc., significantly exceeded these capital guidelines, with a total risk-based capital ratio of 19.26% and a Tier 1 ratio of 18.02%. The proposed acquisition of First Financial Bancorp, Inc., will be treated, when consummated, as a purchase for accounting purposes and thus result in a lower risk-based capital ratio. On a proforma basis as of December 31, 1995, the total risk-based capital ratio would have been 13.06% versus 19.26%.
In addition, a tangible leverage ratio is now being used in connection with the risk-based capital standards and is defined as Tier 1 capital divided by average assets. The minimum leverage ratio under this standard is 3% for the highest-rated bank holding companies which are not undertaking significant expansion programs. An additional 1% to 2% may be required for other companies, depending upon their regulatory ratings and expansion plans. On December 31, 1995, the Company had a leverage ratio of 9.84%, which is in excess of regulatory requirements. On a proforma basis as of December 31, 1995, the acquisition of First Financial Bancorp, Inc., would have reduced this ratio to 6.73%.
In 1995, the Board of Directors declared dividends totaling $1.00 per share, consisting of $.11 per share payable in July 1995 and $.89 per share payable in January 1996. The Company declared dividends of $.91 per share in 1994 and $.83 per share in 1993. The dividend payout ratio was 29.9%, 29.3%, and 29.4% for 1995, 1994, and 1993, respectively. Dividends declared per share in 1995 represented a 9.9% increase over 1994.
At December 31, 1995, the Company's common stock had a book value of $28.44 per share compared to $25.44 in 1994 and $23.56 in 1993. In 1994 and 1995, book value was impacted by the adoption of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires the unrealized gains or losses on securities held in the available-for-sale securities portfolio be recorded, net of taxes, as a component of the Company's equity capital. At December 31, 1995, the net unrealized gain was $968,000. At December 31, 1994, the Company had a net unrealized loss of $884,000 and thus the net impact on equity for the year was $1.9 million, or $.65 per share. See Note 1 in the Notes to Consolidated Financial Statements for further discussion of SFAS No. 115.
There is currently no established trading market for the common stock of Capital City Bank Group, Inc., and therefore, no bid or sale quotations are generally available. Based on sales of stock of which the Company has knowledge, the stock has traded in a range of $26.00 to $33.00 per share for the two-year period ended December 31, 1995, with the most recent trades at December 31, 1995, being at $33.00 per share.
The Company began a stock repurchase plan in 1989, which remains in effect and provides for the repurchase of up to 300,000 shares. As of December 31, 1995, the Company has repurchased 263,580 shares under the plan. No shares were repurchased during 1995. On January 26, 1996, 1,692 shares were issued to certain employees for achieving established performance goals for the year ended December 31, 1995. The total value of the shares issued was $56,000 based on a stock price of $33.00 per share.
Interest Rate Sensitivity
Table 14 presents the Company's consolidated interest rate sensitivity position as of year-end 1995. The objective of interest rate sensitivity analysis is to attempt to measure the impact on the Company's net interest income due to fluctuations in interest rates. Interest rate sensitivity is managed at the bank level, enabling bank management to incorporate its own interest rate projections, liquidity needs and factors specific to the local market into the analysis. The information in Table 14 has been prepared on a consolidated basis and is assembled and presented in response to regulatory reporting requirements.
The asset and liability values presented in Table 14 are as of December 31, 1995, which may not necessarily be indicative of the Company's interest rate sensitivity over an extended period of time. The information, as presented, incorporates certain assumptions which are set-forth in the footnotes to the table.
The Company is currently liability sensitive which generally indicates that in a period of rising interest rates the net interest margin will be adversely impacted as the velocity and/or volume of liabilities being repriced exceeds assets. However, as general interest rates rise or fall, other factors such as current market conditions and competition may impact how the Company responds to changing rates and thus impact the magnitude of change in net interest income.
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 change in the expected rate of inflation and to changes in monetary and fiscal policy. Net interest income and the interest rate spread are good measures of the Company's ability to react to changing interest rates and are discussed in further detail in the section entitled "Earnings Analysis".
Accounting Pronouncements
As discussed in Note 1 in the Notes to Consolidated Financial Statements, on January 1, 1994, the Company adopted SFAS No. 115, which changed the accounting for certain debt and equity securities from amortized cost to fair value. Those securities classified as available-for-sale were reported at fair value of $230.7 million on December 31, 1995. As required by the new accounting standard, the net unrealized gain or loss on investment securities in the available-for-sale portfolio was recorded, net of taxes, as a separate component of shareholders' equity. At December 31, 1995, the net unrealized gain totaled $968,000 versus a net unrealized loss of $884,000 at December 31, 1994. As a result of a Financial Accounting Standards Board (FASB) interpretation allowing a one-time transfer of securities from the held-to-maturity category, investment securities with an amortized cost of $122.6 million were transferred from held-to-maturity to available-for-sale on December 27, 1995. At December 31, 1995, there were no securities classified as held-to-maturity. See Note 3 in the Notes to Consolidated Financial Statements for further information.
In 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes," which changed the accounting for income taxes to the asset and liability method from the deferral method previously required by Accounting
Principles Board Opinion 11. A tax expense of $484,000 reflecting the cumulative effect of adopting this new standard is included in 1993 net income. The adoption of SFAS No. 109 did not impact the effective tax rate. However, since SFAS No. 109 requires that deferred tax assets and liabilities be adjusted to reflect the effect of tax law or rate changes, the outcome of tax legislation may have an impact on future income tax expense.
On January 1, 1995, the Company adopted SFAS No. 114 - "Accounting by Creditors for Impairment of a Loan". As a result of applying the new rules, certain impaired loans are reported at the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The adoption of the standard did not have a material impact on the Company's financial position or results of operations. See Note 5 in the Notes to Financial Statements for further information.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The statement was adopted by the Company on January 1, 1996. The adoption of this standard did not have a significant impact on the financial condition or results of operations of the Company.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights". The statement requires that an enterprise recognize as separate assets the rights to service mortgage loans for others, however those servicing rights are acquired. Additionally, the enterprise must periodically assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. This statement was adopted by the Company on January 1, 1996. The adoption of this statement did not have a material impact on the financial condition or results of operations of the Company.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Capital City Bank Group, Inc. Tallahassee, Florida
We have audited the accompanying consolidated statements of financial condition of Capital City Bank Group, Inc. (a Florida Corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Capital City Bank Group, Inc. and subsidiaries as of December 31, 1993, were audited by other auditors whose report dated February 4, 1994, on those statements was unqualified and included an explanatory paragraph that described the change in the Company's method of accounting for income taxes in 1993, as discussed in Note 1 to the consolidated financial statements.
We conducted our audits in accordance with generally accepted auditing standards. 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 subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP Atlanta, Georgia January 26, 1996
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in Thousands) As of December 31, 1995 1994 ASSETS Cash and Due From Banks (Note 7) $ 61,613 $63,327 Federal Funds Sold 41,150 25,740 Interest Bearing Deposits in Other Banks 300 - Investment Securities Held-to-Maturity (market value of $145,003 in 1994) (Note 3) - 150,441 Investment Securities Available-for-Sale (Note 3) 230,747 48,847
Loans (Notes 4 and 5) 447,779 426,013 Unearned Interest (3,806) (5,209) Allowance for Loan Losses (6,474) (7,551) Loans, Net 437,499 413,253
Premises and Equipment (Note 6) 26,240 24,292 Accrued Interest Receivable 7,339 5,546 Intangibles (Note 1) 1,129 1,379 Other Assets 7,642 9,805
Total Assets $813,659 $742,630
LIABILITIES Deposits: Noninterest Bearing Deposits $168,566 $167,711 Interest Bearing Deposits (Note 7) 531,013 480,463 Total Deposits 699,579 648,174
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 17,367 13,964 Other Short-Term Borrowings (Note 8) 2,400 999 Long-Term Debt (Note 8) 1,982 - Other Liabilities 11,173 7,093 Total Liabilities 732,501 670,230
SHAREHOLDERS' EQUITY Common Stock, $.01 par value; 4,000,000 shares authorized; 3,105,243 issued 31 31 Additional Paid In Capital 5,868 5,852 Retained Earnings 80,658 73,989 Treasury Stock: 251,527 shares in 1995 and 259,428 shares in 1994, at cost (6,367) (6,588) Net Unrealized Gain (Loss) on Available- for-Sale Securities 968 (884) Total Shareholders' Equity 81,158 72,400 Total Liabilities and Shareholders' Equity $813,659 $742,630
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME (Dollars In Thousands, Except Per Share Data) For the Years Ended December 31, 1995 1994 1993 INTEREST INCOME Interest and Fees on Loans $40,826 $35,490 $33,554 Investment Securities: U.S. Treasury 4,205 4,967 5,564 U.S. Government Agencies and Corporations 3,500 1,991 1,621 States and Political Subdivisions 3,444 3,461 3,492 Other Securities 261 313 210 Deposits in Other Banks 2 17 119 Federal Funds Sold 2,239 1,652 1,835 Total Interest Income 54,477 47,891 46,395
INTEREST EXPENSE Deposits (Note 7) 19,382 13,990 14,213 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,053 650 548 Other Short-Term Borrowings (Note 8) 49 31 23 Long-Term Debt (Note 8) 4 54 56 Total Interest Expense 20,488 14,725 14,840
Net Interest Income 33,989 33,166 31,555 Provision for Loan Losses (Note 5) 293 1,246 960 Net Interest Income After Provision for Loan Losses 33,696 31,920 30,595
NONINTEREST INCOME
Service Charges on Deposit Accounts 5,649 5,408 5,601 Data Processing 2,608 2,434 2,380 Income from Fiduciary Activities 942 680 643 Securities Transactions (Note 3) 8 (147) 28 Other (Note 13) 3,963 4,634 3,826 Total Noninterest Income 13,170 13,009 12,478
NONINTEREST EXPENSE Salaries and Employee Benefits (Note 10) 17,959 17,087 16,183 Occupancy, Net 2,538 2,343 2,183 Furniture and Equipment 3,346 2,910 2,909 Other (Note 13) 9,623 10,371 9,761 Total Noninterest Expense 33,466 32,711 31,036
Income Before Income Taxes and Accounting Change 13,400 12,218 12,037 Income Taxes (Note 9) 3,878 3,393 3,309 Income Before Accounting Change 9,522 8,825 8,728 Cumulative Effect of a Change in Accounting Method (Note 1) - - (484) NET INCOME $ 9,522 $ 8,825 $ 8,244 Net Income Per Share Before Accounting Change $ 3.34 $ 3.10 $ 2.99 Net Income Per Share $ 3.34 $ 3.10 $ 2.82
Average Common Shares Outstanding 2,853 2,847 2,924
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) For the Years Ended December 31, 1995 1994 1993
Net Income $ 9,522 $ 8,825 $ 8,244 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 293 1,246 960 Depreciation 2,363 1,916 1,881 Net Loss on Sale of Properties 83 812 144 Amortization of Intangible Assets 250 341 338 Non-Cash Compensation 206 70 - Deferred Income Taxes 893 101 74 Cumulative Effect of Accounting Change - - 484 Net (Increase) Decrease in Interest Receivable (1,793) (79) (339) Net (Increase) Decrease in Other Assets 1,284 (79) (1,537) Net Increase (Decrease) in Other Liabilities 3,817 604 319 Net Cash Provided by Operating Activities 16,918 13,757 10,568
Cash Flows Used in Investing Activities: Proceeds from Payments/Maturities of Investment Securities Held-To-Maturity 48,529 77,324 82,541 Proceeds from Payments/Maturities of Investment Securities Available-for-Sale 32,486 17,389 - Purchase of Investment Securities Held to Maturity (27,000) (64,865) (114,726) Purchase of Investment Securities Available for Sale (83,621) (11,398) - Net Increase in Loans (24,539) (22,669) (17,235) Purchase of Premises & Equipment (4,482) (6,065) (6,952) Sales of Premises & Equipment 89 279 1,008 Cash Acquired in Bank Acquisitions - - 28,811 Net Cash Used in Investing Activities (58,538) (10,005) (26,553)
Cash Flows Provided by (Used in) Financing Activities: Net Increase (Decrease) in Deposits 51,405 (14,571) 21,150 Net Increase (Decrease) in Federal Funds Purchased 3,403 (9,300) 5,703 Net Increase (Decrease) in Other Short-Term Borrowings 1,401 (202) (20) Addition to Long-Term Debt 1,982 - 1,400 Repayment of Long-Term Debt - (1,900) (1,500) Dividends Paid (2,590) (2,447) (2,282) Sale (Purchase) of Treasury Stock 15 (156) (1,846) Net Cash Provided by (Used in) Financing Activities 55,616 (28,576) 22,605
Net Increase (Decrease) in Cash and Cash Equivalents 13,996 (24,824) 6,620 Cash and Cash Equivalents at Beginning of Year 89,067 113,891 107,271 Cash and Cash Equivalents at End of Year $103,063 $ 89,067 $113,891
Supplemental Disclosures:
Interest on Deposits $ 18,441 $14,381 $14,944 Interest on Debt 1,106 $ 735 $ 627 Taxes Paid $ 2,868 $ 3,614 $ 3,013 Securities Transferred from Held-To-Maturity To Available-for-Sale $122,630 $ - $ - Loans Transferred To Other Real Estate $ 647 $ 453 $ 910
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Capital City Bank Group, Inc., and its subsidiaries (the "Company"), all of which are wholly- owned. All material intercompany transactions and accounts have been eliminated.
The Company follows generally accepted accounting principles and reporting practices applicable to the banking industry. Prior year financial statements and other information have been reclassified to conform to the current year presentation. The principles which materially affect the financial position, results of operations and cash flows are summarized below.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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; however, in the opinion of management, such variances would not be material.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, securities purchased under agreements to resell and federal funds sold. Generally, federal funds are purchased and sold for one-day periods and all items have an initial maturity of ninety days or less.
Investment Securities
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, as of January 1, 1994. Prior to January 1, 1994, all investment securities were classified as held-for-investment and recorded at amortized cost. In accordance with SFAS No. 115, investment securities are classified as either held-to-maturity or available-for-sale.
Investment securities classified as held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Held-to- maturity securities are carried at amortized cost as the Company has the ability and positive intent to hold these securities to maturity. Investment securities in the available-for-sale portfolio are carried at fair value and represent securities that are available to meet liquidity and/or other needs of the Company. The Company does not maintain a trading account.
Gains and losses are recognized and shown separately in the Consolidated Statements of Income upon realization or when impairment of values is deemed to be other than temporary. These gains or losses are recognized using the specific identification method. Unrealized holding gains and losses for securities in the available-for-sale portfolio are excluded from the Consolidated Statements of Income and reported net of taxes as a separate component of shareholders' equity until realized.
Loans
Loans are stated at the principal amount outstanding. Interest income on certain loans, which are made on a discount basis, is recognized using the sum-of-the-months-digits method which does not differ materially from the interest method.
Interest income on all other loans, except for those designated as nonaccrual loans, is accrued based on the outstanding daily balances. Fees charged to originate loans and loan origination costs are deferred and amortized over the life of the loan as a yield adjustment.
Allowance for Loan Losses
Provisions for loan losses are charged to operating expenses and added to the allowance to maintain it at a level deemed appropriate by management to absorb known and inherent risks in the loan portfolio. When establishing the allowance, management makes various estimates regarding the value of collateral and future economic events. Actual future experience may differ from these estimates.
Recognized loan losses are charged to the allowance when loans are deemed to be uncollectible due to such factors as the borrower's failure to pay principal and interest or when loans are classified as losses under internal or external review criteria. Recoveries of principal on loans previously charged-off are added to the allowance.
Loans are placed on a nonaccrual status when management believes the borrower's financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. Generally, loans are placed on nonaccrual status when interest becomes past due 90 days or more, or management deems the ultimate collection of principal and interest is in doubt.
Statement of Financial Accounting Standards No. 114 -- "Accounting by Creditors for Impairment of a Loan", as amended, requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price, or at the fair value of the collateral if the loan is collateral dependent. This accounting pronouncement, which was adopted on a prospective basis on January 1, 1995, did not have a material impact on the Company's financial condition, results of operations, or allowance for loan loss.
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. Additions and major facilities are capitalized and depreciated in the same manner. Repairs and maintenance are charged to operating expense as incurred.
Intangible assets consist primarily of core deposit assets which were recognized in connection with prior acquisitions. Core deposit is separate and distinct from goodwill and is an intangible asset which represents the present value of the future stream of income to be derived from investing the core deposits of the acquired bank. All intangible assets are being amortized on the straight-line method over various periods ranging from one to twenty five years with the majority being written off over an average life of approximately ten years.
The pretax amortization of all intangible assets was approximately $250,000 in 1995, $341,000 in 1994 and $338,000 in 1993. The Company adopted, SFAS No. 122, accounting for Mortgage Servicing Rights on January 1, 1996. The adoption of SFAS No 122 did not have a significant impact on the financial condition or results of operations of the Company.
Long-lived assets are evaluated regularly for other than temporary impairment. If circumstances suggest that their value may be impaired and the write down would be material, as assessment of recoverability is performed prior to any write down of the asset. SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of must be adopted on or before January 1, 1996. The Company adopted the standard on January 1, 1996, and the adoption did not have a significant impact on the financial condition or results of operations of the Company.
Other Real Estate
Other real estate includes property owned by the Company which was acquired either through foreclosure or by receiving a deed in lieu of foreclosure. The properties are included in "other assets" in the statement of financial condition and are recorded at the estimated properties' fair value. Other real estate totaled $1.0 million and $1.6 million at December 31, 1995 and 1994, respectively.
Income Taxes
The Company files consolidated federal and state income tax returns. In general, the parent company and its subsidiaries compute their tax provisions (benefits) as separate entities prior to recognition of any tax expenses (benefits) which may accrue from filing a consolidated return.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which mandates the asset and liability method of accounting for deferred income taxes. The Company had previously accounted for deferred taxes under the deferral method required by Accounting Principles Board (APB) Opinion 11. The cumulative effect of adopting the new accounting standard was a reduction in the Company's net income of $484,000, which was recognized in the first quarter of 1993. See Note 9 for further discussion.
Note 2
ACQUISITIONS
During 1993, the Company consummated the purchase and assumption of four branch offices. Assets and liabilities acquired through acquisition, on a combined basis, are as follows:
(Dollars in Thousands)
Loans $(13,229) Premises & Equipment (855) Intangible Assets (1,236) Other Assets (70) Total Assets $(15,390) Deposits 44,097 Other Liabilities 104 Cash Acquired in Acquisitions $ 28,811
On December 10, 1995, the Company executed an Agreement and Plan of Merger to acquire First Financial Bancorp, Inc., ("FFB") for $22.00 per share in cash, or a total purchase price of approximately $20.3 million. First Financial is a $230 million federal savings bank headquartered in Tallahassee, Florida, with six offices located in five Florida counties. It is anticipated the transaction will close during the second half of 1996, expanding the number of counties served by the Company from seven to eleven and increasing the number of offices to thirty five.
Note 3
INVESTMENT SECURITIES
As a result of a Financial Accounting Standards Board (FASB) interpretation allowing a one-time transfer of securities from the held-to-maturity category, investment securities with an amortized cost of $122,630,000 and net unrealized appreciation of $503,000 were transferred from held-to- maturity to available-for-sale on December 27, 1995.
The amortized cost and related market value of investment securities at December 31, were as follows:
(Dollars in Thousands) Amortized Unrealized Unrealized Market Available-for-Sale Cost Gains Losses Value
U.S. Treasury $ 72,289 $ 470 $ 54 $72,705 U.S. Government Agencies and Corporations 70,883 264 96 71,051 States and Political Subdivisions 75,986 1,037 143 76,880 Mortgaged Backed Securities 5,965 47 26 5,986 Other Securities 4,107 19 1 4,125 Total Investment Securities $229,230 $1,837 $320 $230,747
Amortized Unrealized Unrealized Market Held-To-Maturity Cost Gains Losses Value
U.S. Treasury $ 72,979 $ 1 $1,681 $ 71,299 U.S. Government Agencies and Corporations 23,018 2 1,415 21,605 States and Political Subdivisions 49,125 134 2,026 47,233 Mortgage Backed Securities 3,005 2 183 2,824 Other Securities 2,314 - 272 2,042 Total Investment Securities $150,441 $ 139 $5,577 $145,003
Amortized Unrealized Unrealized Market Available-for-Sale Cost Gains Losses Value
U.S. Treasury $ 18,634 $ - $ 180 $ 18,454 U.S. Government Agencies and Corporations 7,041 3 443 6,601 States and Political Subdivisions 19,641 77 805 18,913 Mortgage Backed Securities 2,932 - 32 2,900 Other Securities 1,981 - 2 1,979 Total Investment Securities $ 50,229 $80 $1,462 $ 48,847
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 is presented below:
(Dollars in Thousands)
Total Gross Gross Year Proceeds Realized Gains Realized Losses
1995 $25,296 $11 $ 3 1994 $11,476 $13 $160 1993 $31,681 $70 $ 42
Total proceeds include principal reductions in mortgage backed securities and proceeds from securities which were called of $22,546,000, $4,033,000, and $31,581,000, in 1995, 1994, and 1993, respectively.
As of December 31, 1995, the Company's investment securities had the following maturity distribution:
(Dollars in Thousands)
Amortized Cost Market Value
Due in one year or less $ 74,144 $ 74,201 Due after one through five years 130,007 131,227 Due after five through ten years 19,681 19,925 Over ten years 5,398 5,394 Total Investment Securities $229,230 $230,747
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities with an amortized cost of $60,289,000 at December 31, 1995, were pledged to secure public deposits and for other purposes.
Note 4
LOANS
At December 31, the composition of the Company's loan portfolio was as follows:
(Dollars in Thousands)
1995 1994
Commercial, Financial and Agricultural $ 46,149 $ 39,288 Real Estate - Construction 28,391 24,314 Real Estate - Mortgage 259,503 255,755 Consumer 113,736 106,656 Total Gross Loans $447,779 $426,013
Nonaccruing loans amounted to $2,996,000 and $4,278,000 at December 31, 1995 and 1994, respectively. Restructured loans amounted to $1,686,000 and $1,694,000 at December 31, 1995 and 1994, respectively. If such nonaccruing and restructured loans had been on a fully accruing basis, interest income would have been $320,000 higher in 1995 and $529,000 higher in 1994.
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) 1995 1994 1993
Balance, Beginning of Year $7,551 $7,594 $7,585 Provision for Loan Losses 293 1,246 960 Recoveries on Loans Previously Charged-Off 526 466 570 Loans Charged-Off (1,896) (1,755) (1,521) Balance, End of Year $6,474 $7,551 $7,594
The value of a loan which is deemed "impaired" is measured based on the present value of expected future cash flows discounted at the loan's initial effective interest rate or the fair value of the collateral, if the loan is collateral dependent. If the value of a loan is less than its recorded investment, a valuation allowance is established. This valuation allowance is included in the total allowance for loan losses, which is established to cover losses inherent in the portfolio as a whole. Certain loan categories including residential, consumer and credit card loans are excluded from the scope of this statement. Adoption of SFAS No. 114 did not have a material impact on the level of the allowance for loan losses.
As of January 1, 1995, loans which were previously deemed insubstance foreclosures and classified as other real estate have been reclassified as loans. Insubstance foreclosures are not material and have not been reclassified for prior periods.
Impaired loans are primarily defined as all nonaccruing loans. Selected information pertaining to impaired loans at December 31, 1995 is depicted in the table below.
(Dollars in Thousands) Valuation Balance Allowance Impaired Loans: With Related Credit Allowance $ 946 $ 334 Without Related Credit Allowance $ 1,962 $ - Average Recorded Investment for the Period $ 3,282 $ *
* Not Applicable
The Company recognizes income on impaired loans primarily on the cash basis. Any change in the present value of expected cash flows is recognized through the allowance for loan losses. For the period ended December 31, 1995, the Company recognized $93,000 in interest income on impaired loans, of which $75,000 was collected in cash.
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31, was as follows:
(Dollars in Thousands) 1995 1994
Land $ 5,705 $ 5,286 Buildings 21,120 20,001 Fixtures and Equipment 18,409 16,656 Total 45,234 41,943 Accumulated Depreciation (18,994) (17,651) Premises and Equipment, Net $ 26,240 $ 24,292
Note 7
DEPOSITS
Interest bearing deposits, by category, as of December 31, are as follows:
(Dollars in Thousands)
1995 1994
NOW Accounts $122,517 $ 95,540 Money Market Accounts 67,942 71,763 Savings Accounts 78,522 101,009 Other Time Deposits 262,032 212,151 Total $531,013 $480,463
Time deposits in denominations of $100,000 or more totaled $45,366,000 and $40,774,000, at December 31, 1995 and 1994, respectively.
The average balances maintained on deposit with the Federal Reserve Bank for the years ended December 31, 1995 and 1994, were $29,811,000 and $27,600,000, respectively.
Interest expense on deposits for the three years ended December 31, is as follows:
(Dollars in Thousands) 1995 1994 1993
NOW Accounts $ 1,806 $ 1,809 $ 1,617 Money Market Accounts 2,108 1,731 1,779 Savings Accounts 1,942 2,597 2,953 Other Time Deposits 13,526 7,853 7,864 Total $19,382 $13,990 $14,213
Note 8
DEBT
As of December 31, 1995, the Company has available a $25.0 million credit facility. The facility offers the Company an unsecured, revolving line of credit for a period of three years which matures in November 1998. Upon expiration of the revolving line of credit, the outstanding balance may be converted to a term loan and repaid over a period of seven years. The term loan is to be secured by stock of a subsidiary bank equal to at least 125% of the principal balance of the term loan. The Company, at its option, may select from various loan rates including Prime, LIBOR or the Certificate of Deposit ("CD") rate, plus or minus increments thereof. The LIBOR or CD rates may be fixed for a period of up to six months. During 1995, the Company had no long-term debt outstanding under this credit facility. The existing loan agreement places certain restrictions on the amount of capital which must be maintained by the Company. On December 31, 1995, the Company's capital exceeded the most restrictive covenants of the agreement.
At December 31, 1995, the Company had $2.0 million in debt outstanding to the Federal Home Loan Bank of Atlanta. The debt, which has a fixed rate of interest of 6.04%, requires annual principal reductions of approximately $110,000 with the remaining balance due at maturity in 2005. The debt was used to match-fund selected lending activities and is secured by first mortgage residential loans which are included in the Company's loan portfolio.
As of December 31, 1995 and 1994, the Company had other short-term borrowings totaling $2.4 million and $1.0 million, respectively. These notes are secured by investment securities and the average interest rates were 4.23% and 3.67% for the years ended 1995 and 1994, respectively.
Note 9
INCOME TAXES
The provision for income taxes reflected in the statement of income was comprised of the following components:
(Dollars in Thousands) 1995 1994 1993 Currently Payable: Federal $2,646 $2,894 $2,848 State 339 398 387 Deferred: Federal 762 87 59 State 131 14 15 Total $3,878 $3,393 $3,309
The net deferred tax asset and liability and the temporary differences comprising those balances at December 31, 1995 and 1994, are as follows:
(Dollars in Thousands) 1995 1994 Deferred Tax Asset: Allowance for Loan Losses $2,438 $2,842 Deferred Loan Fees - 338 Unrealized Losses on Investment Securities - 497 Stock Incentive Plan 261 206 Writedown of Real Estate Held for Sale 25 38 Other 81 140 Total Deferred Tax Asset $2,805 $4,061
Deferred Tax Liability: Premises and Equipment $ 851 $ 845 Employee Benefits 593 374 Unrealized Gains on Investment Securities 549 - FDIC Premiums - 254 Deferred Loan Fees 109 - Other 84 30 Total Deferred Tax Liability 2,186 1,503 Net Deferred Tax Asset $ 619 $2,558
Income taxes amounted to less than the tax expense computed by applying the statutory federal income tax rates to income. The reasons for these differences are as follows:
(Dollars in Thousands) 1995 1994 1993
Computed Tax Expense $4,556 $4,154 $4,093 Increases (Decreases) Resulting From: Tax-Exempt Interest Income (1,046) (1,079) (1,087) State Income Taxes, Net of Federal Income Tax Benefit 310 272 265 Other 58 46 38 Actual Tax Expense $3,878 $3,393 $3,309
Note 10
EMPLOYEE BENEFITS
The Company sponsors a noncontributory pension plan covering substantially all of its employees. Benefits under this plan generally are based on the employee's years of service and compensation during the years immediately preceding retirement. The Company's general funding policy is to contribute amounts deductible for federal income tax purposes.
The following table details the components of pension expense, the funded status of the plan and amounts recognized in the Company's consolidated statements of financial condition, and major assumptions used to determine these amounts.
(Dollars in Thousands) 1995 1994 1993 Components of Pension Expense: Service Cost $ 774 $ 764 $ 685 Interest Cost 983 848 845 Actual Return on Plan Assets (3,029) (318) (525) Net Amortization and Deferral 2,173 (406) (331) Total $ 901 $ 888 $ 674
Actuarial Present Value of Projected Benefit Obligations:
Accumulated Benefit Obligations: Vested $ 8,353 $6,861 $6,896 Nonvested 1,695 1,097 1,067 $10,048 $7,958 $7,963
Plan Assets at Fair Value (primarily listed stocks and bonds, U.S. Government Secur- ities and interest bearing deposits) $ 15,946 $ 12,156 $ 10,898 Projected Benefit Obligation (14,565) (11,672) (11,825) Plan Assets in Excess of Projected Benefit Obligation 1,381 484 (927) Unrecognized Net Loss 1,636 2,187 3,466 Unrecognized Net Asset (1,412) (1,648) (1,884) Prepaid Pension Cost $ 1,605 $ 1,023 $ 655 Major Assumptions: Discount Rate 7.50% 8.25% 7.50% Rate of Increase in Compensation Levels 5.50% 5.50% 5.50% Expected Long-Term Rate of Return on Plan Assets 7.50% 7.50% 7.50%
The Company has a stock incentive plan under which shares of the Company's stock are issued as incentive awards to selected participants. The expense recorded related to this plan was approximately $424,000, $258,000 and $354,000 in 1995, 1994 and 1993, respectively.
The Company has an Employee Stock Purchase Plan under which employees may elect to make a monthly contribution towards the purchase of company stock on a semiannual basis. One hundred fifty thousand (150,000) shares of common stock are reserved for issuance under the Stock Purchase Plan. The Company will issue 6,660 shares under the plan in 1996, for the period ended December 31, 1995.
Note 11
RELATED PARTY TRANSACTIONS
The Chairman of the Board of Capital City Bank Group, Inc., is chairman of the law firm which serves as general counsel to the Company and its subsidiaries. Fees paid by the Company and its subsidiaries for these services, in aggregate, approximated $225,000, $242,000, and $266,000 during 1995, 1994, and 1993, respectively.
Under a lease agreement expiring in 2024, a bank subsidiary leases land from a partnership in which several directors and officers have an interest. The lease agreement provides for annual lease payments of approximately $53,000, to be adjusted for inflation in future years.
At December 31, 1995 and 1994, certain officers and directors were indebted to the Company's bank subsidiaries in the aggregate amount of $11,669,000 and $11,514,000, respectively. During 1995, $12,298,000 in new loans were made and repayments totaled $12,143,000. These loans were made on similar terms as loans to other individuals of comparable creditworthiness.
Note 12
DIVIDEND RESTRICTIONS
The approval of the appropriate regulatory authority is required if the total of all dividends declared by a subsidiary bank in any calendar year exceeds the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. In 1996, the bank subsidiaries may declare dividends without regulatory approval of $9.8 million plus an additional amount equal to the net profits of the Company's subsidiary banks for 1996 up to the date of any such dividend declaration.
Note 13
SUPPLEMENTARY INFORMATION
Components of noninterest income and noninterest expense in excess of 1% of total operating income, which are not disclosed separately elsewhere, are presented below for each of the respective periods.
(Dollars in Thousands) 1995 1994 1993 Noninterest Income: Merchant Fee Income $1,227 $ 932 $ 642 Noninterest Expense: Employee Insurance 1,068 932 954 Payroll Taxes 963 927 879 Maintenance and Repairs 1,955 1,760 1,689 Professional Fees 565* 667 659 Advertising 494* 706 659 Printing & Supplies 1,634 1,129 1,065 Telephone 662* 700 561* Insurance (including FDIC Premium) 1,042 1,285 1,209 Commission/Service Fees 878 890* 695* *Less than 1% of operating income in the year reported.
Note 14
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISKS
The Company is a party to financial instruments with off-balance-sheet risks in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The Company does not participate in financial guarantees, options, interest rate caps and floors, interest rate swaps or futures contracts.
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, 1995, the amounts associated with the Company's off-balance-sheet obligations were as follows:
Amount
Commitments to Extend Credit(1) $111,248 Standby Letters of Credit $ 1,812
(1) Commitments include unfunded loans, revolving lines of credit (including credit card lines) and other unused commitments.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the corporation to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. In general, management does not anticipate any material losses as a result of participating in these types of transactions.
However, any potential losses arising from such transactions are reserved for in the same manner as management reserves for its other credit facilities.
For both on and off-balance-sheet financial instruments, the Company requires collateral to support such instruments when it is deemed necessary. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the counterpart. 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.
Due to the close proximity and the nature of the markets served by the Company's subsidiary banks, the Company has both a geographic concentration as well as a concentration in the types of loans funded. Capital City Bank, which is headquartered in North Florida, accounts for approximately 82% of the Companys total loan volume. At December 31, 1995 approximately 64% of the Company's loan portfolio consisted of real estate related loans.
Note 15
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 Balances with Other Banks, Federal Funds Sold, Federal Funds Purchased and 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 the rates currently offered for deposits of similar remaining maturities.
Long-Term Debt - The carrying value of the Company's long-term debt approximates fair value.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counterparties. Fair value of these fees is not material.
The Company's financial instruments which have estimated fair values differing from their respective carrying values are presented below:
(Dollars in Thousands) At December 31, 1995 1994 Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value
Financial Assets: Investment Securities (1) $230,747 $230,747 $199,288 $193,850 Loans, Net of Allowance for Loan Losses 437,499 441,446 413,253 405,899
Financial Liabilities: Deposits 699,579 700,868 648,174 646,354
(1) At December 31, 1995 all investment securities were carried at fair value. See Note 3 for further information.
Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. The disclosures also do not include certain intangible assets such as customer relationships, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
Note 16
PARENT COMPANY FINANCIAL INFORMATION
The following are condensed statements of financial condition of the parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands) 1995 1994 ASSETS
Cash and Due from Group Banks $ 4,378 $ 2,820 Investment in Group Banks 80,143 72,442 Other Assets 227 351 Total Assets $84,748 $75,613
LIABILITIES
Dividends Payable $ 2,539 $ 2,277 Long-Term Debt (Note 8) - - Other Liabilities 1,051 936 Total Liabilities 3,590 3,213
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; 4,000,000 shares authorized; 3,105,243 issued 31 31 Additional Paid in Capital 5,868 5,852 Retained Earnings 80,658 73,989
Treasury Stock: 251,527 shares in 1995 and 259,428 shares in 1994, at cost (6,367) (6,588) Net Unrealized Gain (Loss) on Available-for- Sale Securities 968 (884) Total Shareholders' Equity 81,158 72,400 Total Liabilities and Shareholders' Equity $84,748 $75,613
The operating results of the parent company for the three years ended December 31, are shown below:
Parent Company Statements of Income
(Dollars in Thousands)
1995 1994 1993
OPERATING INCOME Income Received from Group Banks:
Dividends (Note 12) $3,884 $4,615 $4,675 Group Overhead Fees 2,702 2,311 1,986 Total Operating Income 6,586 6,926 6,661
OPERATING EXPENSE Salaries and Employee Benefits 2,064 1,565 1,617 Legal Fees 48 74 63 Professional Fees 243 157 171 Advertising 391 594 433 Travel and Entertainment 52 72 63 Amortization of Excess of Purchase Price Over Book Value of Net Assets Acquired 52 52 52 Interest on Debt - 54 56 Dues and Memberships 46 49 42 Other 204 361 180 Total Operating Expense 3,100 2,978 2,677
Income Before Income Taxes and Equity in Undistributed Earnings of Group Banks 3,486 3,948 3,984 Income Tax Benefit (135) (233) (230) Income Before Equity in Undistributed Earnings of Group Banks 3,621 4,181 4,214 Equity in Undistributed Earnings of Group Banks 5,901 4,644 4,030 Net Income $9,522 $8,825 $8,244
The cash flows for the parent company for the three years ended December 31, were as follows:
Parent Company Statements of Cash Flows
1995 1994 1993
Net Income $9,522 $8,825 $8,244 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Equity in undistributed Earnings of Group Banks (5,901) (4,644) (4,030) Non-Cash Compensation 206 70 - Amortization of Excess of Purchase Price Over Book Value of Net Assets Acquired 52 52 51 (Increase) Decrease in Other Assets 140 3 (189) Net Increase in Other Liabilities 114 228 333 Net Cash Provided by Operating Activities 4,133 4,534 4,409
Cash Flows Used in Financing Activities: Addition to Long-Term Debt - - 1,400 Repayment of Long-Term Debt - (1,900) (1,500) Payment of Dividends (2,590) (2,447) (2,282) Sale (Purchase) of Treasury Stock, Net 15 (156) (1,846) Net Cash Used in Financing Activities (2,575) (4,503) (4,228) Net Increase in Cash 1,558 31 181 Cash at Beginning of Period 2,820 2,789 2,608 Cash at End of Period $4,378 $2,820 $ 2,789
Note 17
CORPORATE REORGANIZATION
On July 25, 1994, Capital City First National Bank, Capital City Second National Bank, Industrial National Bank, City National Bank, Havana State Bank, First National Bank of Jefferson County and Gadsden National Bank, each being
wholly-owned subsidiaries of Capital City Bank Group, Inc., entered into a "Plan of Merger and Merger Agreement" under which the six national banks where merged into and with Havana State Bank, a state banking corporation. The effective date of the merger was January 1, 1995. Simultaneous with the merger, the name and headquarters was changed from Havana State Bank, Havana, Florida to Capital City Bank, Tallahassee, Florida. Capital City Bank is a member of the Federal Reserve Bank of Atlanta and its deposits are insured by the Federal Deposit Insurance Corporation. At the time of merger, Capital City Bank had 20 banking locations and represented approximately 82% of the Company's total assets. The Company's operating results for 1994 included pre-tax charges of $731,000 which were attributable to corporate reorganization.
Net Income and Balance Sheet Information By Bank (Unaudited)
Capital Levy Farmers & Branford City County Merchants State Bank* State Bank Bank of Trenton Bank (Dollars In Thousands)
For the Year: 1995 $ 7,743 $ 909 $ 576 $ 557 Net Income 1994 7,337 1,000 503 419 1993 7,088 777 477 364
At December 31:
Loans, Net of Unearned 1995 $362,462 $42,313 $21,384 $17,714 Interest 1994 342,606 42,343 20,021 15,834 1993 323,272 43,366 19,498 13,288
Assets 1995 $699,697 $78,020 $36,898 $32,247 1994 611,923 71,004 33,457 28,953 1993 623,972 75,583 32,950 30,181
Noninterest Bearing Deposits 1995 $154,241 $12,321 $ 5,163 $5,362 1994 152,450 11,104 5,903 4,897 1993 156,634 9,782 5,049 4,407
Interest Bearing 1995 $424,228 $56,636 $27,176 $22,974 Deposits 1994 383,991 51,983 23,749 20,740 1993 386,229 57,835 24,553 22,143
Shareholders' Equity 1995 $ 63,756 $ 8,156 $ 3,971 $ 3,547 1994 57,607 7,497 3,537 3,036 1993 54,766 7,060 3,317 2,774
*Information for Capital City Bank is presented on a proforma basis for years prior to 1995.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
The Board of Directors has appointed Arthur Andersen LLP, independent certified public accountants, as independent auditors for Capital City Bank Group, Inc., and its subsidiaries for the current fiscal year ending December 31, 1996, subject to ratification by the shareholders. Fiscal 1996 will be the third year Arthur Andersen LLP will audit the books and records of the Company. The decision to change the Company's independent auditors from James D. A. Holley & Co. to Arthur Andersen LLP was made by the Company's Board of Directors on January 21, 1994. Arthur Andersen LLP was engaged on April 5, 1994. During the periods in which James D. A. Holley & Co. audited the books and records of the Company, none of the reports issued by such firm on the financial statements of the Company contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. The Company has never had any disagreements with James D. A. Holley & Co. or Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to the sections entitled "Election of Directors" and "Executive Officers, Compensation and Other Information" in the Registrant's Proxy Statement dated April 10, 1996 to be filed on or before April 10, 1996.
Item 11. Executive Compensation
Incorporated herein by reference to the section entitled "Executive Officers, Compensation and Other Information" in the Registrant's Proxy Statement dated April 10, 1996, to be filed on or before April 10, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the subsection entitled "Information Concerning Nominees" under the section entitled "Election of Directors", and "Principal Shareholders" in the Registrant's Proxy Statement dated April 10, 1996, to be filed on or before April 10, 1996.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the subsection entitled "Compensation Committee Interlocks and Insider Participation" under the section entitled "Executive Officers, Compensation and Other Information" in the Registrant's Proxy Statement dated April 10, 1996 to be filed on or before April 10, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
EXHIBITS
2(a) Agreement and Plan of Merger, dated as of December 10, 1995, by and among Capital City Bank Group, Inc.; a Florida corporation to be formed as a direct wholly-owned subsidiary of the Company; and First Financial Bancorp, Inc.*
3(a) Articles of Incorporation, as amended, of Capital City Bank Group, Inc., were filed as Exhibit 3(a) to the Registrant's Form S-14 filed on August 26, 1983 (File No. 2-86158), and are incorporated herein by reference.
3(b) By-Laws, as amended, of Capital City Bank Group, Inc. are incorporated herein by reference to Exhibit 3(b) of the Company's 1983 Form 10-K (File No. 2-86158).
10(a) Merger Agreement and Plan of Merger, dated July 25, 1994, by and among Capital City First National Bank, Capital City Second National Bank, Industrial National Bank, City National Bank, Havana State Bank, First National Bank of Jefferson County and Gadsden National Bank, is incorporated herein by reference to Exhibit A in Registrant's Form 10K-A, dated April 5, 1995.
10(b) Promissory Note and Pledge and Security Agreement evidencing a line of credit by and between Registrant and SunTrust, dated November 18, 1995.
10(c) Capital City Bank Group, Inc. 1992 Stock Incentive Plan is incorporated herein by reference to Exhibit A of the Registrant's 1992 Proxy Statement, dated Aril 8, 1992.
10(d) Capital City Bank Group, Inc. 1995 Associate Stock Purchase Plan is incorporated herein by reference to Exhibit A of the Registrant's 1995 Proxy Statement, dated April 7, 1995.
10(e) Capital City Bank Group, Inc. 1996 Associate Incentive Plan is incorporated herein by reference to Exhibit A of the Registrant's 1996 Proxy, dated onor about April 10, 1996.
21 For a listing of Capital City Bank Group's subsidiaries See Item I.
22 (a) Report of Independent Accountants
27 Financial Data Schedule
*To be filed as an amendment to this Form 10K
FINANCIAL STATEMENT SCHEDULES
Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the financial statements or the notes thereto.
REPORTS ON FORM 8-K
Capital City Bank Group, Inc. ("CCBG") filed no Form 8-K during the fourth quarter of 1995.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on March 22, 1996, 1996 on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 22, 1996 by the following persons in the capacities indicated.
/s/ WILLIAM G. SMITH William G. Smith President (Principal Executive Officer)
/s/ J. KIMBROUGH DAVIS J. Kimbrough Davis Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Directors:
/s/ DuBose Ausley DuBose Ausley
/s/ Thomas A. Barron Thomas A. Barron
/s/ Cader B. Cox, III Cader B. Cox, III
/s/ John K. Humphress John K. Humphress
/s/ Payne H. Midyette, Jr. Payne H. Midyette, Jr.
/s/ Godfrey Smith Godfrey Smith
/s/ William G. Smith, Jr. William G. Smith, Jr.