SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter: June 30, 1995 Commission File Number 0-13358 CAPITAL CITY BANK GROUP, INC. (Exact name of registrant as specified in its charter) Florida 59-2273542 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 217 North Monroe Street, Tallahassee, Florida 32301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (904) 671-0610 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes __X___ No _____ At July 31, 1995, 2,853,701 shares of the Registrant's Common Stock, $.01 par value, were outstanding. CAPITAL CITY BANK GROUP, INC. I N D E X PART I. FINANCIAL INFORMATION PAGE NUMBER Consolidated Statements of Condition -- June 30, 1995 and December 31, 1994 3 Consolidated Statements of Income -- Three and Six Months Ended June 30, 1995 4 and 1994 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1995 and 1994 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Index to Exhibits 16 Signatures 16 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF CONDITION AS OF JUNE 30, 1995 AND DECEMBER 31, 1994 (Dollars In Thousands, Except Per Share Amounts) June 30, 1995 December 31, 1994 (Unaudited) (Audited) ASSETS Cash & Due From Banks $ 48,771 $ 63,327 Investment Securities, Market Value $154,763 and $145,003 as of June 30, 1995 and December 31, 1994, respectively (Note 2) 154,876 150,441 Investment Securities Available for Sale 54,953 48,847 Federal Funds Sold 53,050 25,740 Loans: (Note 3) 431,124 426,013 Unearned Interest (4,503) (5,209) Allowance for Loan Losses (7,344) (7,551) Loans, Net 419,277 413,253 Premises & Equipment 25,667 24,292 Accrued Interest Receivable 6,591 5,546 Intangible Assets 1,246 1,379 Other Assets 8,355 9,805 TOTAL ASSETS $772,786 $742,630 LIABILITIES Deposits: Noninterest Bearing Deposits $159,895 $167,711 Interest Bearing Deposits (Note 4) 506,618 480,463 Total Deposits 666,513 648,174 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 20,252 13,964 Other Short-Term Borrowings 1,630 999 Other Liabilities 6,694 7,093 TOTAL LIABILITIES $695,089 $670,230 SHAREHOLDERS' EQUITY Common Stock, $.01 Par Value; 4,000,000 shares authorized; 3,105,243 issued 31 31 Surplus 5,868 5,852 Retained Earnings 78,025 73,989 Treasury Stock: 251,563 shares at June 30, 1995 and 259,428 at December 31, 1994 (6,368) (6,588) Unrealized Gains and Losses 141 (884) TOTAL SHAREHOLDERS' EQUITY 77,697 72,400 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $772,786 $742,630 Book Value Per Share $ 27.23 $ 25.44 CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED JUNE 30 (Dollars in Thousands, Except Per Share Amounts) THREE MONTHS ENDED JUNE SIX MONTHS ENDED JUNE 1995 1994 1995 1994 INTEREST INCOME Interest and Fees on Loans $10,062 $ 8,650 $19,799 $16,921 Investment Securities: U. S. Treasury 1,032 1,265 2,119 2,555 U. S. Government Agencies/Corp. 744 492 1,300 987 States and Political Subdivisions 857 889 1,696 1,771 Other Securities 61 58 128 138 Federal Funds Sold 834 435 1,312 819 Total Interest Income 13,590 11,789 26,354 23,191 INTEREST EXPENSE Deposits 5,064 3,351 9,269 6,654 Fed. Funds Purchased & Securities 303 140 528 283 Sold Under Repurchase Agreements Long-Term Borrowings - 15 - 35 Other Short-Term Debt 12 8 24 14 Total Interest Expense 5,379 3,514 9,821 6,986 Net Interest Income 8,211 8,275 16,533 16,205 Provision for Loan Losses 17 329 291 659 Net Interest Income After Provision for Loan Losses 8,194 7,946 16,242 15,546 NONINTEREST INCOME Income from Fiduciary Activities 165 146 502 337 Service Charges on Deposit Accounts 1,407 1,365 2,730 2,668 Data Processing 780 715 1,386 1,308 Securities Transactions - 5 - 4 Other 1,047 1,074 2,159 2,535 Total Noninterest Income 3,399 3,305 6,777 6,852 NONINTEREST EXPENSE Salaries and Employee Benefits 4,446 4,278 8,872 8,530 Occupancy, Net 634 564 1,232 1,118 Furniture and Equipment 806 698 1,651 1,378 Other 2,718 2,387 5,233 4,800 Total Noninterest Expense 8,604 7,927 16,988 15,826 Income Before Income Tax 2,989 3,324 6,031 6,572 Income Tax Expense 828 937 1,682 1,835 NET INCOME $ 2,161 $ 2,387 $4,349 $4,737 Net Income Per Share $ .75 $ .84 $ 1.52 $ 1.66 Cash Dividends Per Share $ .11 $ .11 $ .11 $ .11 Average Shares Outstanding 2,853,680 2,847,414 2,853,680 2,849,196 CAPITAL CITY BANK GROUP, INC. STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED JUNE 30 (Dollars In Thousands) 1995 1994 (Unaudited) (Unaudited) NET INCOME $ 4,349 $ 4,737 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 291 659 Depreciation 1,197 836 Amortization of Intangible Assets 133 183 Net (Increase) Decrease in Interest Receivable (1,045) (135) Net (Increase) Decrease in Other Assets 1,466 697 Net Increase (Decrease) in Other Liabilities 1,564 (136) Net Cash From Operating Activities 7,955 6,841 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Payments/Maturities of Investment Securities-Held to Maturity 20,368 32,682 Proceeds from Payments/Maturities of Investment Securities-Available for Sale 7,435 7,350 Purchase of Investment Securities Held to Maturity (24,868) (46,959) Purchase of Investment Securities Available for Sale (12,450) (1,081) Net (Increase) Decrease in Loans (6,315) (11,979) Purchase of Premises & Equipment (2,594) (2,560) Sales of Premises & Equipment 22 55 Net Cash from Investing Activities (18,402) (22,492) CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase (Decrease) in Deposits 18,339 3,986 Net Increase (Decrease) in Federal Funds Purchased 6,288 (4,804) Net Increase (Decrease) in Other Borrowed Funds 631 (202) Repayment of Long-Term Debt - (1,000) Dividends Paid (2,277) (2,134) Sale (Purchase) of Treasury Stock 220 (86) Net Cash From Financing Activities 23,201 (4,240) Net Increase (Decrease) in Cash and Cash Equivalents 12,754 (19,891) Cash and Cash Equivalents at Beginning of Period 89,067 113,892 Cash and Cash Equivalents at End of Period $ 101,821 $ 94,001 Supplemental Disclosure: Interest Paid $ 8,837 $ 6,913 Taxes Paid $ 1,542 $ 1,699 CAPITAL CITY BANK GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) MANAGEMENT'S OPINION AND ACCOUNTING POLICIES The consolidated financial statements, included herein, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Prior year financial statements have been reformatted and/or amounts reclassified, as necessary, to conform with the current year presentation. In the opinion of management, the consolidated financial statements contain all adjustments, which are those of a recurring nature, and disclosures necessary to present fairly the financial position of the Company as of June 30, 1995 and December 31, 1994, and the results of operations and cash flows for the three and six month periods ended June 30, 1995 and 1994. The Company and its subsidiaries follow generally accepted accounting principles and reporting practices applicable to the banking industry. The principles which materially affect the financial position, results of operations and cash flows are set forth in Notes to Financial Statements which are included in the Company's 1994 Annual Report and Form 10K. (2) INVESTMENT SECURITIES The carrying value and related market value of investment securities in the held-to-maturity and available-for-sale portfolios at June 30, 1995 and December 31, 1994 were as follows (dollars in thousands): June 30, 1995 Amortized Unrealized Unrealized Market Held-To-Maturity Cost Gains Losses Value U. S. Treasury $ 62,096 $ 206 $ 279 $ 62,023 U. S. Government Agencies and Corporations 38,602 198 375 38,425 States and Political Subdivisions 49,526 558 409 49,675 Mortgage Backed Securities 2,883 26 38 2,871 Other Securities 1,769 6 6 1,769 Total $154,876 $ 994 $ 1,107 $154,763 June 30, 1995 Amortized Unrealized Unrealized Market Available-For-Sale Cost Gains Losses Value U. S. Treasury $ 14,527 $ 218 $ 33 $ 14,712 U. S. Government Agencies and Corporations 12,260 105 108 12,257 States and Political Subdivisions 22,368 232 213 22,387 Mortgage Backed Securities 3,563 20 15 3,568 Other Securities 2,014 15 - 2,029 Total $ 54,732 $ 590 $ 369 $ 54,953 December 31, 1994 Amortized Unrealized Unrealized Market Held To Maturity Cost Gains Losses Value U.S. Treasury $ 72,979 $ - $ 1,681 $ 71,298 U.S. Government Agencies and Corporations 23,018 3 1,415 21,606 States and Political Subdivisions 49,125 135 2,027 47,233 Mortgaged Backed Securities 3,005 1 182 2,824 Other Securities 2,314 - 272 2,042 Total $150,441 $ 139 $ 5,577 $145,003 December 31, 1994 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 2 443 6,600 States and Political Subdivisions 19,641 77 805 18,913 Mortgaged Backed Securities 2,932 - 32 2,900 Other Securities 1,981 1 2 1,980 Total $ 50,229 $ 80 $ 1,462 $ 48,847 (3) LOANS The composition of the Company's loan portfolio at June 30, 1995 and December 31, 1994 was as follows (dollars in thousands): June 30, 1995 December 31, 1994 Commercial, Financial and Agricultural $ 42,042 $ 39,288 Real Estate-Construction 25,222 24,315 Real Estate-Mortgage 255,941 255,754 Consumer 107,919 106,656 Gross Loans $431,124 $426,013 (4) ALLOWANCE FOR LOAN LOSSES An analysis of the changes in the allowance for loan losses for the six month period ended June 30, 1995 and 1994, is as follows: June 30, 1995 June 30, 1994 Balance, Beginning of the Period $ 7,551 $ 7,594 Provision for Loan Losses 291 659 Recoveries on Loans Previously Charged-Off 297 229 Loans Charged-Off 795 921 Balance, End of Period $ 7,344 $ 7,561 Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan," as amended. In accordance with SFAS 114, 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 114 did not have a material impact on the level of the allowance for loan losses. The definition of insubstance foreclosure loans was also changed by SFAS 114. As of June 30, 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 for the loan categories which are included within the scope of SFAS 114. Selected information pertaining to impaired loans is depicted in the table below. June 30, 1995 Valuation Balance Allowance Impaired Loans: With Related Credit Allowance $1,356 $ 327 Without Related Credit Allowance $1,227 $ --- Average Recorded Investment for the Period $3,783 $ * * 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 June 30, 1995, the Company recognized $38,573 in interest income on impaired loans, of which $32,282 was collected in cash. (5) DEPOSITS The composition of the Company's interest bearing deposits at June 30, 1995 and December 31, 1994 was as follows (dollars in thousands): June 30, 1995 December 31, 1994 NOW Accounts $ 93,315 $ 95,540 Money Market Accounts 69,354 71,763 Savings Deposit 83,213 101,009 Other Time Deposits 260,736 212,151 Total Interest Bearing Deposits $506,618 $480,463 ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion sets forth the major factors that have affected the Company's financial condition and results of operations and should be read in conjunction with the accompanying financial statements. The year-to-date averages used in this report are based on daily balances for each respective period. On January 1, 1995, the Company completed its corporate reorganization in which seven independently chartered banks were combined to form Capital City Bank, which operates 20 offices and represents in excess of 80% of the Company's total assets. The impetus for the reorganization was to provide greater convenience by enabling customers to transact business in multiple locations which was limited under the Company's previous structure, and to enhance to Company's marketing efforts in the north Florida area by marketing its products and services under a singular name. Over the long run management anticipates achieving operational efficiencies through the centralization of various functional areas. However, it is not expected that these efficiencies will be realized immediately. In the short run, management anticipates incurring some additional costs associated with completing the reorganization and promoting the newly formed Capital City Bank and these costs will be reflected in current year operations. RESULTS OF OPERATIONS Net Income Net income was $2.2 million, or $.75 per share for the second quarter of 1995, a 10.7% decrease on a per share basis over the comparable period for 1994. Net income was $4.3 million, or $1.52 per share for the six months ended June 30, 1995, an 8.4% decrease on a per share basis over the comparable period in 1994. The decrease in earnings is directly attributable to higher noninterest expense reflecting an increase in occupancy costs and expenses associated with completion of the Company's corporate reorganization which was consummated on January 1, 1995. Other factors which impacted earnings include: (1) higher net interest income attributable to improvement in the margin, and (2) a reduction in the provision for loan losses reflecting improved asset quality. Condensed statements of income for the respective periods are presented below: For The Three For The Six Months Ended Months Ended June 30, June 30, 1995 1994 1995 1994 Interest and Dividend Income $13,590 $11,789 $26,354 $23,191 Taxable Equivalent Adjustment(1) 389 433 779 853 13,979 12,222 27,133 24,044 Interest Expense 5,379 3,514 9,821 6,986 Net Interest Income (FTE) 8,600 8,708 17,312 17,058 Provision for Loan Losses 17 329 291 659 Taxable Equivalent Adjustment 389 433 779 853 Net Int. Inc. After Provision 8,194 7,946 16,242 15,546 Noninterest Income 3,399 3,305 6,777 6,852 Noninterest Expense 8,604 7,927 16,988 15,826 Income Before Income Taxes 2,989 3,324 6,031 6,572 Income Taxes 828 937 1,682 1,835 Income Before Taxes 2,161 2,387 4,349 4,737 Net Income $ 2,161 $ 2,387 $ 4,349 $ 4,737 Percent Change (9.47%) 6.66% (8.19%) 27.00% Return on Average Assets (2) 1.13% 1.28% 1.17% 1.28% Return on Average Equity (2) 11.40% 13.81% 11.73% 13.87% (1) Computed using a statutory tax rate of 34% (2) Annualized Net Interest Income Through June 30, 1995, taxable equivalent net interest income increased $254,000, or 1.5%, over the first half of 1994. However, second quarter taxable equivalent net interest income decreased $108,000, or 1.2%, over the comparable quarter in 1994. The decrease in the second quarter is attributable to a contraction in the Company's net interest margin. Table I on page 14 provides a comparative analysis of the Company's average balances and interest rates. As compared to the prior year, taxable-equivalent interest income increased $1.8 million, or 14.4%, and $3.1 million, or 12.8%, respectively, for the three and six month periods ended June 30, 1995. The increase in each period is due to rising interest rates and loan growth. From January of 1994 through March of 1995, the Prime rate increased 300 basis points and the three-year Treasury Bill index increased over 200 basis points. Loans, which generally represent the Company's highest yielding asset, increased (on average) $30.0 million, or 7.6%. As a percent of average earning assets, the loan portfolio increased from 59.4% to 63.8%. Higher interest rates and loan growth lead to an 84 and 91 basis points improvement in the yield on earning assets over the comparable three and six month periods in 1994. Interest expense increased $1.9 million, or 53.1%, and $2.8 million, or 40.6%, respectively, as compared to the three and six month periods in 1994. This increase is attributable to a 139 and 115 basis points increase in the average rate paid, reflecting the increase in interest rates and a shift in the mix of deposits. A significant portion of the deposit shift occurred during the second quarter. Certificates of deposit, which generally represent a higher cost of funds than other deposit offerings, increased to 39.1% of average deposits during the second quarter of 1995, compared to 32.7% for the comparable quarter in 1994. The shift in mix further accentuated the overall increase in cost of funds attributable to rising rates. The Company's interest rate spread (defined as the average taxable equivalent yield on earning assets less the average rate paid on interest bearing liabilities) decreased from 4.53% in the first half of 1994 to 4.29% in 1995. The Company's net interest margin percentage (defined as taxable-equivalent net interest income divided by average earning assets) increased from 5.15% in the first half of 1994 to 5.21% in 1995. Although the net interest margin percentage increased through the first six months, the margin declined significantly during the second quarter. Between the first and second quarter of 1995, the margin declined 39 basis points due primarily to the shift in deposits discussed above. Provisions for Loan Losses The provision for loan losses was $17000 and $291,000, respectively, for the three and six month periods ended June 30, 1995, compared to $329,000 and $659,000 for the comparable periods in 1994. The lower provision reflects improved credit quality, a reduction in net charge-offs and slower than anticipated loan growth during 1995. As of June 30, 1995, the reserve for loan losses totalled $7.3 million compared to $7.6 million at June 30, 1994. As a percent of loans, the reserve represented 1.72% and 1.84%, respectively. Charge-off activity for the respective periods is set forth below. Three Months Ended Six Months Ended 6/30/95 6/30/94 6/30/95 6/30/94 Net Charge-Offs $393,000 $538,000 $498,000 $692,000 Net Charge-Offs (Annualized) as a percent of Average Loans Outstanding, Net of Unearned Interest .36% .54% .23% .35% Noninterest Income Noninterest income increased $94,000, or 2.8%, in the second quarter of 1995 versus the comparable quarter for 1994, and decreased $75,000, or 1.1%, for the six months ended June 30, 1995 versus the comparable period for 1994. All major categories of noninterest income increased with the exception of "Other" noninterest income which declined $376,000, or 14.8%. The decrease in this category is primarily attributable to gains on the sale of real estate of $548,000 which were recognized during the first half of 1994 compared to $82,000 in 1995. Additionally, mortgage origination fees declined $279,000 due to origination volume which declined by 49.0%. These decreases were partially offset by higher credit card merchant fee income. 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. Service charges on deposit accounts increased $42,000, or 3.1%, and $62,000, or 2.3%, over the comparable three and six month periods for 1994. The increase primarily reflects a higher level of activity subject to service charge assessments. Noninterest income as a percent of average earning assets was 2.0% for the first half of 1995 versus 2.1% for the comparable quarter in 1994. Noninterest Expense Noninterest expense increased $677,000, or 8.5%, and $1.1 million, or 7.3%, respectively, over the comparable three and six month periods in 1994. Through the first six months, compensation expense increased $342,000, or 4.0%, reflecting annual raises and an increase in full-time equivalent employees of 15. Occupancy expense, including premises, furniture, fixtures and equipment increased $178,000, or 14.1%, and $387,000, or 15.5%, respectively, over the comparable three and six month periods in 1994. The increase is primarily attributable to depreciation expense which is up $331,000, or 38.6% year-to-date. The increase reflects major capital additions placed into service in 1994 including a new operations center, a new office, renovations and the purchase of furniture and equipment. Further capital additions are planned for 1995 which will add to the current level of depreciation expense. Other noninterest expense increased $433,000, or 9.0%, during the first six months of 1995, a majority of which was realized in the second quarter. A portion of this increase in associated with the recently completed corporate reorganization and the newly consolidated Capital City Bank. The expense categories which were primarily affected include advertising, printing/supplies, telephone and postage. Annualized net noninterest expense (noninterest income minus noninterest expense) as a percent of average earning assets was 3.07% in the first half of 1995 versus 2.71% for the first half of 1994. The increase in this percentage is primarily attributable to nonrecurring gains recognized during the first half of 1994 and the higher level of noninterest expense discussed above. Income Taxes The provision for income taxes decreased $109,000, or 11.6%, during the second quarter and $153,000, or 8.3%, during the first six months of 1995. The decrease in the provision is attributable to lower taxable income. The Company's effective tax rate for the first half of 1995 and 1994 was 27.9%. FINANCIAL CONDITION The Company's average assets increased to $751.0 million in the first half of 1995 from $746.4 million in the first half of 1994. Average earning assets were $669.8 million for the six months ended June 30, 1995 versus $668.4 million for the comparable period in 1994. Average loans are up $30.0 million, or 7.6%. The increase in loans was funded primarily through a reduction in the investment portfolio. U.S. Government securities decreased $20.5 million, or 14.0%, while municipal securities decreased $3.9 million, or 5.4%. Table I on page 15, presents average balances for the three and six month periods of 1995 and 1994. During the first quarter of 1994, the Company adopted Statement of Financial Accounting Standards No. 115 ("Accounting for Certain Investments in Debt and Equity Securities"). To afford greater flexibility in managing the portfolio, management transferred approximately 30% of the portfolio to the "Available-for-Sale" category. The available-for-sale securities portfolio will enable the Company to better manage its liquidity position and interest rate risk without adversely affecting the classification of securities in the "Held-to-Maturity" portfolio, which are recorded at amortized cost. Securities in the available-for-sale portfolio are recorded at fair value with unrealized gains and losses, net of deferred taxes, reported as a separate component of equity capital. See Note 2 in Notes to Consolidated Financial Statements for further disclosure. At June 30, 1995, the Company's nonperforming loans were $4.1 million versus $6.0 million at year-end and $8.7 million at June 30, 1994. As a percent of nonperforming loans, the allowance for loan losses represented 181.3% at June 30, 1995 versus 126.6% at year-end and 87.4% at June 30, 1994. Nonperforming loans include nonaccruing and restructured loans. Other real estate, which includes property acquired either through foreclosure or by receiving a deed in lieu of foreclosure, was $749,000 million at June 30, 1995, versus $1.6 million at December 31, 1994 and $2.2 million at June 30, 1994. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan," as amended. In accordance with SFAS 114, the valuation allowance for loans which are 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. See Note 4 in the Notes to Consolidated Financial Statements for further information. Average deposits decreased from $650.8 million for the first half of 1994, to $647.7 million for the first half of 1995. Although interest rates increased significantly during 1994, there was little competitive pressure to increase pricing and total deposits remained relatively stable. However, during the first quarter of 1995, as competition increased and depositors sought higher yields, the Company experienced a decline in average deposits. To combat the deposit outflow management become more aggressive on pricing and by the end of the first quarter had increased deposits to a level which exceeded that of the fourth quarter of 1994. Average deposits during the second quarter of 1995 were $660.5 million compared to $635.1 million during the first quarter. Although the level of deposits remained relatively constant during 1994, there was a gradual shift from transaction and savings accounts to certificates of deposits as interest rates rose and depositors become more willing to invest in longer term, fixed rate maturities. During the first half of 1995, this shift was further accentuated. Certificates of deposit, on average, as a percent of total deposits increased to 39.1% in the second quarter versus 32.7% for the comparable quarter in 1994 which has adversely impacted the Company's net interest margin. The ratio of average noninterest bearing deposits to total deposits was 24.4% for the first half of 1995 compared to 23.7% for the first half of 1994. For the same periods, the ratio of average interest bearing liabilities to average earning assets was 76.3% and 77.4%, respectively. LIQUIDITY AND CAPITAL RESOURCES Liquidity, for a financial institution, is the availability of funds to meet increased loan demand and/or excessive deposit withdrawals. Management has implemented a financial structure that provides 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 for the subsidiary banks include federal funds sold, near-term loan and investment maturities, including the "Available for Sale" investment portfolio, and the ability to purchase federal funds through established lines of credit with correspondent banks. Additionally, the parent company maintains two $6.0 million revolving lines of credit. As of June 30, 1995, there was no debt outstanding under either line. The Company's equity capital was $77.7 million as of June 30, 1995, compared to $72.4 million as of December 31, 1994. The Company's management continues to monitor its capital position in relation to its level of assets with the objective of maintaining a strong capital position. The leverage ratio was 9.9% at June 30, 1995 versus 9.6% at December 31, 1994. Further, the Company's risk-adjusted capital ratio of 17.4% significantly exceeds the 8.0% minimum requirement under the risk-based regulatory guidelines. State and federal regulations as well as the Company's long-term debt agreements place certain restrictions on the payment of dividends by both the Company and its Group banks. At June 30, 1995, these regulations and covenants did not impair the Company's (or its Group banks') ability to declare and pay dividends or to meet other existing obligations. During the first six months of 1995, shareholders' equity increased $5.3 million, or 14.6%, on an annualized basis. A portion of the increase in equity is attributable to "unrealized gains and losses" on the available-for-sale investment portfolio which improved from an unrealized loss of $884,000 at year-end to an unrealized gain of $141,000 at June 30, 1995. The Company's common stock had a book value of $27.23 per share at June 30, 1995 compared to $25.44 at December 31, 1994. Pursuant to the Company's stock repurchase program adopted in 1989, the Company has repurchased 251,563 shares of its common stock, net of shares subsequently reissued. In the first half of 1995, there were no shares repurchased and 7,865 treasury shares were reissued, a majority of which were performance awards issued in accordance with the Company's Stock Incentive Plan. AVERAGES BALANCES & INTEREST RATES (Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED JUNE 30 FOR SIX MONTHS ENDED JUNE 30 1995 1994 1995 1994 Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate ASSETS Loans, Net of Unearned Interest $431,237 $10,069 9.37% $400,665 $ 8,655 8.66% $427,072 $19,818 9.36% $397,076 $16,931 8.60% Taxable Investment Securities 131,823 1,837 5.59% 150,495 1,815 4.89% 130,121 3,547 5.49% 151,790 3,680 4.91% Tax-Exempt Investment Securities 69,691 1,238 7.11% 72,772 1,317 7.24% 68,845 2,456 7.13% 72,740 2,614 7.19% Funds Sold 55,269 834 6.05% 47,839 435 3.65% 43,749 1,312 6.05% 46,805 819 3.53% Total Earning Assets 688,020 13,978 8.15% 671,771 12,222 7.31% 669,787 27,133 8.16% 668,411 24,044 7.25% Cash & Due From Banks 45,953 46,484 48,533 47,679 Allowance for Loan Losses (7,688) (7,858) (7,667) (7,779) Other Assets 39,142 37,042 40,358 38,134 TOTAL ASSETS $765,427 $747,439 $751,011 $746,445 LIABILITIES NOW Accounts $ 88,886 461 2.08% $ 95,337 429 1.80% $ 91,148 990 2.19% $95,964 857 1.80% Money Market Accounts 68,025 518 3.05% 76,506 402 2.11% 69,380 1,059 3.08% 77,821 789 2.04% Savings Accounts 85,047 506 2.39% 110,814 662 2.40% 90,085 l,084 2.43% 110,792 1,319 2.40% Other Time Deposits 258,336 3,578 5.55% 214,474 1,858 3.47% 239,400 6,135 5.17% 211,942 3,689 3.51% Total Int. Bearing Deposits 500,294 5,063 4.06% 497,131 3,351 2.70% 490,013 9,268 3.81% 496,519 6,654 2.70% Funds Purchased 21,777 303 5.58% 16,137 140 3.47% 19,810 529 5.38% 18,511 283 3.08% Other Borrowed Funds 1,262 12 3.89% 900 8 3.38% 1,256 24 3.85% 985 14 2.85% Long-Term Debt - - - 1,372 15 4.44% - - - 1,629 35 4.31% Total Interest Bearing Liabilities 523,333 5,378 4.12% 515,540 3,514 2.73% 511,079 9,821 3.87% 517,644 6,986 2.72% Noninterest Bearing Deposits 160,168 157,902 157,733 154,290 Other Liabilities 5,880 4,666 7,435 5,662 TOTAL LIABILITIES $689,381 $678,108 $676,247 $677,596 SHAREHOLDERS' EQUITY Common Stock 31 31 31 31 Surplus 5,868 5,852 5,865 5,853 Retained Earnings 70,147 63,448 68,868 62,965 TOTAL S'HOLDERS' EQUITY 76,046 69,331 74,764 68,849 TOTAL LIAB. & EQUITY $765,427 $747,439 $751,011 $746,445 Interest Rate Spread 4.03% 4.58% 4.29% 4.53% Net interest Income $8,600 $8,708 17,312 $17,058 Net Interest Margin 5.02% 5.21% 5.21% 5.15% (1) Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $278,000 and $697,000, for the three and six months ended June 30, 1994, versus $398,000 and $789,000, for the comparable periods ended June 30, 1994. (2) Interest income includes the effects of taxable equivalent adjustments using a 34% tax rate.
PART II. OTHER INFORMATION Items 1-3. Not applicable Item 4. The Annual Meeting of Shareholders of Capital City Bank Group, Inc. was held on April 26, 1995. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's solicitations. The following summarizes all matters voted upon at this meeting. 1. The following directors were elected for terms expiring in 1996. These individuals served as the Board of Directors prior to the Annual Meeting. The number of votes cast were as follows: Number of Votes Cast Against/ Abstentions/ For Withheld Broker Non-Votes DuBose Ausley 2,490,724 0 2,263 Thomas A. Barron 2,491,909 0 1,078 Cader B. Cox, III 2,491,909 0 1,078 John K. Humphress 2,491,306 603 1,078 Payne H. Midyette, Jr. 2,491,909 0 1,078 Godfrey Smith 2,491,909 0 1,078 William G. Smith, Jr. 2,491,909 0 1,078 2. The shareholders ratified the selection of Arthur Andersen LLP as the independent auditors for the Company for 1995. The number of votes cast were as follows: Number of Votes Cast Against/ Abstentions/ For Withheld Broker Non-Votes 2,491,275 0 1,712 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (A) Exhibits Not applicable (B) Reports on Form 8-K The Company did not file any reports on Form 8-K during the period ended June 30, 1995. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned Chief Financial Officer hereunto duly authorized. CAPITAL CITY BANK GROUP, INC. (Registrant) /s/J. Kimbrough Davis J. Kimbrough Davis Senior Vice President and Chief Financial Officer Date: August 11, 1995