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: September 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 October 31, 1995, 2,853,710 shares of the Registrant's Common Stock, $.01 par value, were outstanding. CAPITAL CITY BANK GROUP, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NUMBER Consolidated Statements of Condition -- September 30, 1995 and December 31, 1994 3 Consolidated Statements of Income -- Three and Nine Months Ended September 30, 1995 4 and 1994 Consolidated Statements of Cash Flows -- Nine Months Ended September 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 15 Signatures 15 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF CONDITION AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Dollars In Thousands, Except Per Share Amounts) September 30, December 31, 1995 1994 (Unaudited) (Audited) ASSETS Cash & Due From Banks $ 47,448 $ 63,327 Federal Funds Sold 19,550 25,740 Investment Securities, Market Value $141,832 and $145,003 as of September 30, 1995 and December 31, 1994, respectively (Note 2) 141,571 150,441 Investment Securities Available for Sale 83,992 48,847 Loans: (Note 3) 440,622 426,013 Unearned Interest (4,178) (5,209) Allowance for Loan Losses (7,034) (7,551) Loans, Net 429,410 413,253 Premises & Equipment 26,065 24,292 Accrued Interest Receivable 7,327 5,546 Intangible Assets 1,196 1,379 Other Assets 6,794 9,805 TOTAL ASSETS $763,353 $742,630 LIABILITIES Deposits: Noninterest Bearing Deposits $ 162,913 $167,711 Interest Bearing Deposits (Note 4) 494,962 480,463 Total Deposits 657,875 648,174 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 14,914 13,964 Other Short-Term Borrowings 2,237 999 Other Liabilities 7,865 7,093 TOTAL LIABILITIES $ 682,891 $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 80,739 73,989 Treasury Stock: 251,536 shares at September 30, 1995 and 259,428 at December 31, 1994 (6,367) (6,588) Net Unrealized Gains (Losses) 191 (884) TOTAL SHAREHOLDERS' EQUITY 80,462 72,400 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 763,353 $742,630 Book Value Per Share $ 28.20 $ 25.44 CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED SEPTEMBER 30 (Dollars in Thousands, Except Per Share Amounts) THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED SEPTEMBER 1995 1994 1995 1994
INTEREST INCOME Interest and Fees on Loans $10,523 $ 9,118 $ 30,322 $26,039 Investment Securities: U. S. Treasury 1,045 1,376 3,164 3,931 U. S. Government Agencies/Corp. 1,046 419 2,346 1,406 States and Political Subdivisions 883 862 2,579 2,633 Other Securities 60 63 188 201 Federal Funds Sold 502 397 1,814 1,216 Total Interest Income 14,059 12,235 40,413 35,426 INTEREST EXPENSE Deposits 5,098 3,500 14,367 10,154 Fed. Funds Purchased & Securities 252 168 780 451 Sold Under Repurchase Agreements Long-Term Borrowings - 12 - 47 Other Short-Term Debt 14 8 38 22 Total Interest Expense 5,364 3,688 15,185 10,674 Net Interest Income 8,695 8,547 25,228 24,752 Provision for Loan Losses 2 304 293 963 Net Interest Income After Provision for Loan Losses 8,693 8,243 24,935 23,789 NONINTEREST INCOME Income from Fiduciary Activities 183 150 685 487 Service Charges on Deposit Accounts 1,422 1,346 4,152 4,014 Data Processing 632 582 2,018 1,890 Securities Transactions (1) 3 (1) 7 Other 888 677 2,569 2,844 Total Noninterest Income 3,124 2,758 9,423 9,242 NONINTEREST EXPENSE Salaries and Employee Benefits 4,461 4,273 13,333 12,803 Occupancy, Net 626 619 1,858 1,737 Furniture and Equipment 810 718 2,461 2,096 Other 2,045 2,315 6,800 6,747 Total Noninterest Expense 7,942 7,925 24,452 23,383 Income Before Income Tax 3,875 3,076 9,906 9,648 Income Tax Expense 1,160 870 2,842 2,705 NET INCOME $ 2,715 $ 2,206 $ 7,064 $ 6,943 Net Income Per Share $ .96 $ .78 $ 2.48 $ 2.44 Cash Dividends Per Share $ - $ - $ .11 $ .11 Average Shares Outstanding 2,853,699 2,845,815 2,853,073 2,848,056 CAPITAL CITY BANK GROUP, INC. STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30 (Dollars in Thousands) CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 (Unaudited) (Unaudited) Net Income $ 7,064 $ 6,943 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 293 963 Depreciation 1,650 1,334 Amortization of Intangible Assets 183 275 Net (Increase) Decrease in Interest Receivable (1,781) 24 Net (Increase) Decrease in Other Assets 3,027 575 Net Increase (Decrease) in Other Liabilities 3,049 931 Net Cash From Operating Activities 13,485 11,045 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Payments/Maturities of Investment Securities-Held to Maturity 36,571 57,223 Proceeds from Payments/Maturities of Investment Securities-Available for Sale 13,552 12,869 Purchase of Investment Securities-Held to Maturity (27,701) (57,061) Purchase of Investment Securities Available for Sale (47,621) (2,078) Net (Increase) Decrease in Loans (16,451) (12,892) Purchase of Premises & Equipment (3,517) (4,143) Sales of Premises & Equipment 94 85 Net Cash from Investing Activities (45,073) (5,997) CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase (Decrease) in Deposits 9,701 (11,577) Net Increase (Decrease) in Federal Funds Purchased 950 (8,104) Net Increase (Decrease) in Other Borrowed Funds 1,238 (202) Repayment of Long-Term Debt - (1,400) Dividends Paid (2,591) (2,447) Issuance (Purchase) of Treasury Stock 221 (87) Net Cash From Financing Activities 9,519 (23,817) Net Increase (Decrease) in Cash and Cash Equivalents (22,069) (18,769) Cash and Cash Equivalents at Beginning of Period 89,067 113,892 Cash and Cash Equivalents at End of Period $ 66,998 $ 95,123 Supplemental Disclosure: Interest Paid $ 13,604 $ 10,714 Taxes Paid $ 2,066 $ 2,659 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 September 30, 1995 and December 31, 1994, and the results of operations and cash flows for the three and nine month periods ended September 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 on 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 September 30, 1995 and December 31, 1994 were as follows (dollars in thousands): September 30, 1995 Amortized Unrealized Unrealized Market Held-To-Maturity Cost Gains Losses Value U. S. Treasury $ 54,912 $ 146 $ 158 $ 54,900 U. S. Government Agencies and Corporations 32,090 181 354 31,917 States and Political Subdivisions 49,358 649 179 49,828 Mortgage Backed Securities 3,449 1 24 3,426 Other Securities 1,762 4 5 1,761 Total $141,571 $ 981 $ 720 $141,832 September 30, 1995 Amortized Unrealized Unrealized Market Available-For-Sale Cost Gains Losses Value U. S. Treasury $ 21,809 $ 198 $ 17 $ 21,990 U. S. Government Agencies and Corporations 32,224 70 89 32,205 States and Political Subdivisions 23,293 269 94 23,468 Mortgage Backed Securities 3,514 19 67 3,466 Other Securities 2,863 11 11 2,863 Total $ 83,703 $ 567 $ 278 $83,992 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 September 30, 1995 and December 31, 1994 was as follows (dollars in thousands): September 30, 1995 December 31, 1994 Commercial, Financial and Agricultural $ 39,376 $ 39,288 Real Estate-Construction 27,749 24,315 Real Estate-Mortgage 258,041 255,754 Consumer 115,456 106,656 Gross Loans $440,622 $426,013 (4) ALLOWANCE FOR LOAN LOSSES An analysis of the changes in the allowance for loan losses for the nine month period ended September 30, 1995 and 1994, is as follows (dollars in thousands): September 30, 1995 September 30, 1994 Balance, Beginning of the Period $7,551 $7,594 Provision for Loan Losses 293 963 Recoveries on Loans Previously Charged-Off 417 385 Loans Charged-Off 1,227 1,143 Balance, End of Period $7,034 $7,799 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 January, 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 (dollars in thousands). September 30, 1995 Valuation Balance Allowance Impaired Loans: With Related Credit Allowance $ 1,330 $ 334 Without Related Credit Allowance $ 1,236 $ - Average Recorded Investment for the Period $ 3,450 $ * * 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 September 30, 1995, the Company recognized $82,179 in interest income on impaired loans, of which $67,223 was collected in cash. (5) DEPOSITS The composition of the Company's interest bearing deposits at September 30, 1995 and December 31, 1994 was as follows (dollars in thousands): September 30, 1995 December 31, 1994 NOW Accounts $ 85,943 $ 95,540 Money Market Accounts 69,667 71,763 Savings Deposit 80,692 101,009 Other Time Deposits 258,660 212,151 Total Interest Bearing Deposits $494,962 $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 single name. Over the long run, management anticipates achieving operational efficiencies through the centralization of various functional areas. In the short run, however, management anticipates incurring some additional costs associated with completing the reorganization and promoting the newly formed Capital City Bank. These costs will continue to be reflected in current year operations. RESULTS OF OPERATIONS Net Income Net income was $2.7 million, or $.96 per share for the third quarter of 1995, a 23.1% increase on a per share basis over the comparable period for 1994. Net income was $7.1 million, or $2.48 per share for the nine months ended September 30, 1995, a 1.6% increase on a per share basis over the comparable period in 1994. Some of the factors which impacted earnings include: (1) higher net interest income attributable to loan growth, and (2) a reduction in the provision for loan losses reflecting improved asset quality, and (3) a rebate of FDIC insurance premiums. Condensed statements of income for the respective periods are presented below: For The Three For The Nine Months Ended Months Ended Sept. 30, Sept. 30, 1995 1994 1995 1994 Interest and Dividend Income $14,059 $12,235 $40,413 $35,426 Taxable Equivalent Adjustment(1) 409 403 1,188 1,256 14,468 12,638 41,601 36,682 Interest Expense 5,364 3,688 15,185 10,674 Net Interest Income (FTE) 9,104 8,950 26,416 26,008 Provision for Loan Losses 2 304 293 963 Taxable Equivalent Adjustment 409 403 1,188 1,256 Net Int. Inc. After Provision 8,693 8,243 24,935 23,789 Noninterest Income 3,124 2,758 9,423 9,242 Noninterest Expense 7,942 7,925 24,452 23,383 Income Before Income Taxes 3,875 3,076 9,906 9,648 Income Taxes 1,160 870 2,842 2,705 Net Income $ 2,715 $ 2,206 $ 7,064 $ 6,943 Percent Change 23.07% (7.47%) 1.74% 5.23% Return on Average Assets (2) 1.40% 1.17% 1.25% 1.24% Return on Average Equity (2) 13.73% 12.29% 12.43% 13.30% (1) Computed using a statutory tax rate of 34% (2) Annualized Net Interest Income Through September 30, 1995, taxable equivalent net interest income increased over the prior year $154,000, or 1.7%, and $408,000, or 1.5%, respectively, for the three and nine month periods. 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 14.5%, and $4.9 million, or 13.4%, respectively, for the three and nine month periods ended September 30, 1995. The increase in each period is due to higher interest rates and loan growth. From January of 1994 through September of 1995, the prime rate increased 275 basis points and the three-year Treasury Bill index increased 141 basis points. Loans, which generally represent the Company's highest yielding asset, increased on average $27.1 million, or 6.74%. As a percent of average earning assets, the loan portfolio increased from 60.1% to 63.5%. Higher interest rates and loan growth led to an 86 to 89 basis points improvement in the yield on earning assets over the comparable three and nine month periods in 1994. Interest expense increased $1.7 million, or 45.4%, and $4.5 million, or 42.3%, respectively, as compared to the three and nine month periods in 1994. This increase is attributable to a 123 and 118 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 offering, increased to 39.3% of average deposits during the third quarter of 1995, compared to 34.4% 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 4.57% in the first nine months 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 5.20% in the first nine months of 1994 to 5.23% for the comparable period in 1995. Provision for Loan Losses The provision for loan losses was $2,000 and $293,000, respectively, for the three and nine month periods ended September 30, 1995, compared to $304,000 and $963,000 for the comparable periods in 1994. The lower provision reflects improved credit quality, low charge-off levels and slower than budgeted loan growth during 1995. As of September 30, 1995, the reserve for loan losses totaled $7.0 million compared to $7.8 million at September 30, 1994. As a percent of loans, these reserves represented 1.61% and 1.89%, respectively. Charge-off activity for the respective periods is set forth below. Three Months Ended Nine Months Ended 9/30/95 9/30/94 9/30/95 9/30/94 Net Charge-Offs $312,000 $66,000 $810,000 $758,000 Net Charge-Offs (Annualized) as a percent of Average Loans Outstanding, Net of Unearned Interest .29% .06% .25% .25% Noninterest Income Noninterest income increased $366,000 or 13.3%, in the third quarter of 1995 versus the comparable quarter for 1994, and increased $181,000 or 2.0%, for the nine months ended September 30, 1995 versus the comparable period for 1994. All major categories of noninterest income increased with the exception of "Other" noninterest income which declined $275,000, or 9.7% in 1995. The decrease in this category is primarily attributable to gains on the sale of real estate and bank owned premises which were recognized during the first nine months of 1994. Additionally, mortgage origination fees declined due to lower origination volume which fell by 32.4%, in the nine months ended September 30, 1995. 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 $76,000, or 5.64%, and $138,000, or 3.44%, over the comparable three and nine 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 stable at 1.9% for the first nine months of 1995 and 1994. Noninterest Expense Noninterest expense increased $17,000, or .2%, and increased $1.1 million, or 4.6%, respectively, over the comparable three and nine month periods in 1994. Through the first nine months, compensation expense increased $530,000, or 4.1%, reflecting annual raises and an increase in full-time equivalent employees of 13. Occupancy expense, including premises, furniture, fixtures and equipment increased $99,000, or 7.4%, and $486,000, or 12.7%, respectively, over the comparable three and nine month periods in 1994. The increase is primarily attributable to depreciation expense which is up $393,000, or 22.6% year-to- date in 1995. 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 add additions are planned for the remainder of 1995 which will add to the current level of depreciation expense. Effective June 1, 1995, the Federal Deposit Insurance Corporation ("FDIC") reduced deposit insurance premiums from $.23 per $100 in deposits to $.04 per $100. In September the Company received $407,000 from the FDIC which represented a rebate of prepaid premiums for the period June 1 through September 30. This amount was recorded as a credit against premium expense during the third quarter. On a prospective basis, at the Company's current level of deposits, the premium reduction represents a pre-tax savings of approximately $100,000 per month. Other noninterest expense increased $53,000, or .79%, during the first nine months of 1995. Excluding the FDIC rebate, the increase is $460,000, or 6.7%. 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 3.0% in 1995 versus 2.8% for 1994. The increase in this percentage is attributable to nonrecurring gains recognized in 1994 and the higher level of noninterest expense discussed above. Income Taxes The provision for income taxes increased $290,000, or 33.3%, during the third quarter and $137,000, or 5.1%, during the first nine months of 1995. The Company's effective tax rate for the first nine months of 1995 was 28.7% compared to 28.0% in 1994. FINANCIAL CONDITION The Company's average assets increased to $757.7 million in the first nine months of 1995 from $745.7 million in 1994. Average earning assets were $675.3 million for the nine months ended September 30, 1995 versus $668.7 million for the comparable period in 1994. Average loans are up $27.1 million, or 6.7%. The increase in loans was funded primarily through a reduction in the investment portfolio. U.S. Government securities decreased $15.0 million, or 10.2%, while municipal securities decreased $2.3 million, or 3.2%. Table I on page 14, presents average balances for the three and nine 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 seperate component of equity capital. See Note 2 in Notes to Consolidated Financial Statements for further disclosure. At September 30, 1995, the Company's nonperforming loans were $4.3 million versus $6.0 million at year-end and $6.9 million at September 30, 1994. As a percent of nonperforming loans, the allowance for loan losses represented 164.4% at September 30, 1995 versus 126.6% at year-end and 113.6% at September 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 $750,000 at September 30, 1995, versus $1.6 million at December 31, 1994 and $1.8 million at September 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 increased from $650.0 million for the first nine months of 1994, to $653.3 million in 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 became 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 third quarter of 1995 were $660.9 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 nine months of 1995, this shift was further accentuated. Certificates of deposit, on average, as a percent of total deposits increased to 39.3% in the third quarter versus 34.4% for the comparable quarter in 1994 which impacted the Company's net interest margin. The ratio of average noninterest bearing deposits to total deposits was 24.3% for the first nine months of 1995 compared to 23.7% in 1994. For the same periods, the ratio of average interest bearing liabilities to average earning assets was 76.3% and 77.2%, 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 September 30, 1995, there was no debt outstanding under either line. The Company's equity capital was $80.5 million as of September 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 10.4% at September 30, 1995 versus 9.6% at December 31, 1994. Further, the Company's risk-adjusted capital ratio of 19.6% significantly exceeds the 8.0% minimum requirement under the risk-based regulatory guide- lines. 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 September 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 nine months of 1995, shareholders' equity increased $8.1 million, or 14.8%, 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 $191,000 at September 30, 1995. The Company's common stock had a book value of $28.20 per share at September 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 251,536 shares of its common stock, net of shares subsequently reissued. In the first nine months of 1995, there were no shares repurchased and 7,892 treasury shares were reissued, a majority of which were performance awards issued in accordance with the Company's Stock Incentive Plan. In March of 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The statement must be adopted by the company on or before January 1, 1996. The company has not yet adopted the standard. The company is currently evaluating the impact of adoption. In May 1995, the Financial Accounting Standards Board issued SFAS No. 122, "Accounting for Mortgage Servicing Rights". The statement eliminates the distinction between rights to service mortgage loans for others that are acquired through origination and those acquired through purchase transactions. The company must adopt the statement prospectively by January 1, 1996, but may adopt earlier. The company has not yet adopted the standard. Adoption of the standard will result in recognition of additional servicing right assets and related income. The company is currently evaluating the impact of adoption. TABLE I AVERAGES BALANCES & INTEREST RATES (Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED SEPTEMBER 30 FOR NINE MONTHS ENDED SEPTEMBER 30 Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate ASSETS Loans, Net of Unearned Interest $432,791 $10,536 9.66 $410,819 $ 9,124 8.81% $429,061 $30,354 9.46% $401,965 $ 26,055 8.67% Taxable Investment Securities 146,754 2,151 5.82 152,105 1,858 4.95% 135,681 5,698 5.62% 151,691 5,538 4.93% Tax-Exempt Investment Securities 72,249 1,279 7.08 71,908 1,259 7.00% 69,993 3,735 7.11% 72,327 3,873 7.14% Funds Sold 34,335 502 5.80 35,555 397 4.42% 40,576 1,814 5.98% 42,757 1,216 3.80% Total Earning Assets 686,129 14,468 8.37 670,387 12,638 7.51% 675,311 $41,601 8.23% 668,740 36,682 7.34% Cash & Due From Banks 48,440 43,013 48,496 46,223 Allowance for Loan Losses (7,254) (7,665) (7,528) (7,744) Other Assets 41,295 39,233 41,423 38,475 TOTAL ASSETS $768,610 $744,968 $757,702 $745,694 LIABILITIES NOW Accounts $ 91,435 422 1.83 $ 90,081 $483 2.13% $ 91,245 1,412 2.07% $ 94,012 $ 1,341 1.93% Money Market Accounts 70,747 527 2.96 75,374 431 2.27% 69,841 1,586 3.04% 76,972 1,220 2.14% Savings Accounts 81,443 436 2.12 107,151 652 2.42% 87,172 1,520 2.33% 109,527 1,971 2.41% Other Time Deposits 259,581 3,713 5.68 222,838 1,934 3.44% 246,200 9,849 5.35% 215,500 5,622 3.49% Total Int. Bearing Deposits 503,206 5,098 4.02 495,444 3,500 2.80% 494,458 14,367 3.88% 496,011 10,154 2.74% Funds Purchased 18,953 252 5.27 17,175 168 3.88% 19,521 780 5.34% 17,925 451 3.36% Other Borrowed Funds 1,407 14 3.85 872 8 3.88% 1,184 38 4.25% 947 22 3.17% Long-Term Debt - - - 889 12 5.30% - - - 1,378 47 4.53% Total Interest Bearing Liabilities 523,566 5,364 4.07 514,380 3,688 2.84% 515,163 15,185 3.94% 516,261 10,674 2.77% Noninterest Bearing Deposits 157,677 153,301 158,817 154,024 Other Liabilities 8,960 6,083 7,723 5,601 TOTAL LIABILITIES 690,203 673,764 681,703 675,886 SHAREHOLDERS' EQUITY Common Stock 31 31 31 31 Surplus 5,868 5,852 5,866 5,853 Retained Earnings 72,508 65,321 70,102 63,924 TOTAL S'HOLDERS' EQUITY 78,407 71,204 75,999 69,808 TOTAL LIAB. & EQUITY $768,610 $744,968 $757,702 $745,694 Interest Rate Spread 4.31% 4.67% 4.29% 4.57% Net interest Income $9,104 $8,950 $26,416 $26,008 Net Interest Margin 5.27% 5.33% 5.23% 5.20% (1) Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $422,000 and $1,119,000, for the three and nine months ended September 30, 1995, versus $477,000 and $1,266,000, for the comparable periods ended September 30, 1994. (2) Interest income includes the effects of taxable equivalent adjustments using a 34% tax rate.
PART II. OTHER INFORMATION Items 1-5. Not applicable Item 6. Exhibits and Reports on Form 8-K (A) Exhibits EX-27 Financial Data Schedule (B) Reports on Form 8-K The Company did not file any reports on Form 8-K during the period ended September 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 Senior Vice President and Chief Financial Officer Date: November 10, 1995