43
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, 1997
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
incorporation or organization) Identification No.)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(850) 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, 1997, there were 5,835,141 shares of the Registrant's
Common Stock, $.01 par value, outstanding.
CAPITAL CITY BANK GROUP, INC.
FORM 10-Q I N D E X
ITEM PART I. FINANCIAL INFORMATION PAGE NUMBER
1. Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
3. Qualitative and Quantitative Disclosure of
Market Risk Not Applicable
ITEM PART II. OTHER INFORMATION
1. Legal Proceedings Not Applicable
2. Changes in Securities and Use of Proceeds Not Applicable
3. Defaults Upon Senior Securities Not Applicable
4. Submission of Matters to a Vote of
Security Holders Not Applicable
5. Other Information 16
6. Exhibits and Reports on Form 8-K 16
Signatures 16
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CONDITION (1)
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars In Thousands, Except Per Share Amounts)
September 30, 1997 December 31, 1996
(Unaudited) (Audited)
ASSETS
Cash and Due From Banks $ 51,520 $ 62,863
Funds Sold 18,769 26,043
Investment Securities Available-for-Sale 167,839 207,189
Loans 705,627 674,675
Unearned Interest (1,766) (2,479)
Allowance for Loan Losses (8,505) (8,179)
Loans, Net 695,356 664,017
Premises and Equipment 31,677 34,006
Accrued Interest Receivable 6,996 6,877
Intangibles 7,684 8,398
Other Assets 12,231 12,006
Total Assets $ 992,072 $1,021,399
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 187,287 $ 196,486
Interest Bearing Deposits 638,560 670,210
Total Deposits 825,847 866,696
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 31,028 28,697
Other Short-Term Borrowings 6,427 7,260
Long-Term Debt 16,440 18,072
Other Liabilities 14,048 11,174
Total Liabilities 893,790 931,899
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value,
3,000,000 shares authorized, no
shares outstanding - -
Common Stock, $.01 par value; 60,000,000
shares authorized; 5,835,138 shares
outstanding at September 30,1997
and 5,778,366 outstanding at
December 31, 1996 58 58
Additional Paid In Capital 6,335 4,934
Retained Earnings 91,397 84,426
Net Unrealized Gain (Loss) on
Available-for-Sale Securities,
Net of Taxes 492 82
Total Shareholders' Equity 98,282 89,500
Total Liabilities and
Shareholders' Equity $ 992,072 $1,021,399
Book Value Per Share $ 16.84 $ 15.49
(1) Prior period share and per share data have been restated to
reflect a 2-for-1 stock split effective April 1, 1997.
The accompanying notes to Consolidated Financial Statements are an
integral part of these statements.
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (1)
FOR THE PERIODS ENDED SEPTEMBER 30
(UNAUDITED)
(Dollars In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SEPTEMBER
1997 1996
INTEREST INCOME
Interest and Fees on Loans $16,542 $15,127
Investment Securities:
U.S. Treasury 904 1,153
U.S. Gov. Agencies/Corp. 684 1,070
States and Political Subdivisions 784 857
Other Securities 82 96
Funds Sold 366 716
Total Interest Income 19,362 19,019
INTEREST EXPENSE
Deposits 6,597 7,025
Federal Funds Purchased & Securities
Sold Under Repurchase Agreements 416 325
Long-Term Debt 291 299
Other Short-Term Borrowings 98 136
Total Interest Expense 7,402 7,785
Net Interest Income 11,960 11,234
Provision for Loan Losses 449 334
Net Interest Income After
Provision for Loan Losses 11,511 10,900
NONINTEREST INCOME
Service Charges on Deposit Accounts 2,021 2,347
Data Processing 724 716
Income from Fiduciary Activities 269 245
Securities Transactions (3) 7
Other 1,383 1,120
Total Noninterest Income 4,394 4,435
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,903 5,876
Occupancy, Net 771 745
Furniture and Equipment 1,241 1,098
Other 3,059 3,166
Total Noninterest Expense 10,974 10,885
Income Before Income Tax 4,931 4,450
Income Tax Expense 1,664 1,405
NET INCOME $ 3,267 $3,045
Net Income Per Share $ .56 $ .53
Cash Dividends Per Share $ .15 $ .135
Average Shares Outstanding 5,830,421 5,742,910
NINE MONTHS ENDED SEPTEMBER
1997 1996
INTEREST INCOME
Interest and Fees on Loans $47,746 $36,586
Investment Securities:
U.S. Treasury 2,943 3,182
U.S. Gov. Agencies/Corp. 2,286 3,074
States and Political Subdivisions 2,432 2,639
Other Securities 267 236
Funds Sold 982 1,604
Total Interest Income 56,656 47,321
INTEREST EXPENSE
Deposits 19,545 16,388
Federal Funds Purchased & Securities
Sold Under Repurchase Agreements 1,166 865
Long-Term Debt 893 358
Other Short-Term Borrowings 234 157
Total Interest Expense 21,838 17,768
Net Interest Income 34,818 29,553
Provision for Loan Losses 1,351 857
Net Interest Income After
Provision for Loan Losses 33,467 28,696
NONINTEREST INCOME
Service Charges on Deposit Accounts 6,075 5,496
Data Processing 2,461 2,228
Income from Fiduciary Activities 797 785
Securities Transactions (5) 23
Other 4,368 3,287
Total Noninterest Income 13,696 11,819
NONINTEREST EXPENSE
Salaries and Employee Benefits 17,587 15,407
Occupancy, Net 2,252 1,971
Furniture and Equipment 3,665 2,961
Other 9,249 8,176
Total Noninterest Expense 32,753 28,515
Income Before Income Tax 14,410 12,000
Income Tax Expense 4,825 3,606
NET INCOME $ 9,585 $8,394
Net Income Per Share $ 1.65 $ 1.47
Cash Dividends Per Share $ .45 $ .405
Average Shares Outstanding 5,806,473 5,729,202
(1) Prior period share and per share information have been restated to
reflect a 2-for-1 stock split effective April 1, 1997.
The accompanying notes to Consolidated Financial Statements are an
integral part of these statements.
CAPITAL CITY BANK GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30
(UNAUDITED)
(Dollars In Thousands) 1997 1996
NET INCOME $ 9,585 $ 8,394
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 1,351 857
Depreciation 2,441 2,008
Net Amortization (Accretion) 501 747
Amortization of Intangible Assets 714 332
Gain on Sale of Real Estate Loans (500) (90)
Gain on Sale of Bank Property (275) -
Non-Cash Compensation 185 90
Net (Increase) Decrease in Interest
Receivable (119) 270
Net (Increase) Decrease in Other Assets 2,528 876
Net Increase (Decrease) in Other
Liabilities (341) (1,261)
Net Cash From Operating Activities 16,070 12,223
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Payments/Maturities of
Investment Securities-Available for Sale 43,420 69,756
Purchase of Investment Securities-
Available for Sale (2,925) (28,206)
Net (Increase) Decrease in Loans (32,691) (28,968)
Purchase of Premises & Equipment (1,270) (1,792)
Sales of Premises & Equipment 1,157 1,237
Cash Used to Fund Acquisition - (20,666)
Cash Acquired in Acquisition - 4,499
Net Cash from Investing Activities 7,691 (4,140)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits (40,849) (37,358)
Net Increase (Decrease) in Federal
Funds Purchased 2,332 (25)
Net Increase (Decrease) in Other Borrowed
Funds (833) 3,508
Addition of Long-Term Debt - 15,000
Repayment of Long-Term Debt (1,632) (82)
Dividends Paid (2,613) (4,860)
Issuance of Common Stock 1,217 461
Net Cash From Financing Activities (42,378) (23,356)
Net Increase (Decrease) in Cash and
Cash Equivalents (18,617) (15,273)
Cash and Cash Equivalents at Beginning of
Period 88,906 103,063
Cash and Cash Equivalents at End of Period $ 70,289 $ 87,790
Supplemental Disclosure:
Interest Paid $ 19,926 $ 18,421
Taxes Paid $ 5,159 $ 2,712
The accompanying notes to Consolidated Financial Statements are an
integral part of these statements.
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
presentation, including the restatement of share and per share data to
reflect a 2-for-1 stock split effective April 1, 1997.
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, 1997 and December 31, 1996, the results of
operations for the three and nine month periods ended September 30,
1997 and 1996, and cash flows for the nine month periods ended
September 30, 1997 and 1996.
The Company and its subsidiaries follow generally accepted accounting
principles and reporting practices applicable to the banking industry.
The principles which materially affect its financial position, results
of operations and cash flows are set forth in Notes to Financial
Statements which are included in the Company's 1996 Annual Report and
Form 10-K. There have been no significant changes in the accounting
policies of the Company since December 31, 1996.
(2) INVESTMENT SECURITIES
The carrying value and related market value of investment securities
at September 30, 1997 and December 31, 1996 were as follows (dollars
in thousands):
September 30, 1997
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
U.S. Treasury $ 29,384 $ 55 $ 4 $ 29,435
U.S. Government Agencies
and Corporations 41,058 76 60 41,074
States and Political
Subdivisions 66,783 462 74 67,171
Mortgage Backed Securities 25,181 388 68 25,501
Other Securities 4,657 1 - 4,658
Total $167,063 $982 $206 $167,839
December 31, 1996
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
U.S. Treasury $ 40,766 $ 75 $ 9 $ 40,832
U.S. Government Agencies
and Corporations 57,381 32 376 57,037
States and Political
Subdivisions 74,196 620 117 74,699
Mortgage Backed Securities 29,266 160 257 29,169
Other Securities 5,448 4 - 5,452
Total $207,057 $891 $759 $207,189
(3) LOANS
The composition of the Company's loan portfolio at September 30, 1997
and December 31, 1996 was as follows (dollars in thousands):
September 30, 1997 December 31, 1996
Commercial, Financial
and Agricultural $ 55,871 $ 57,023
Real Estate-Construction 51,539 41,389
Real Estate-Mortgage 455,620 432,110
Consumer 142,597 137,153
Gross Loans $705,627 $674,675
(4) ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the
nine month period ended September 30, 1997 and 1996, is as follows
(dollars in thousands):
September 30, 1997 September 30, 1996
Balance, Beginning of the Period $8,179 $6,474
Acquired Reserves - 1,846
Provision for Loan Losses 1,351 857
Recoveries on Loans Previously
Charged-Off 523 498
Loans Charged-Off (1,548) (1,383)
Balance, End of Period $8,505 $8,292
Impaired loans are primarily defined as all nonaccruing loans for the
loan categories which are included within the scope of SFAS 114.
Nonaccruing loans at September 30, 1997 were $2.4 million compared to
$3.4 million at September 30, 1996 and $3.0 million at December 31,
1996.
The Company recognizes income on nonaccrual loans primarily on the
cash basis. Any change in the present value of expected cash flows is
recognized through the allowance for loan losses.
(5) DEPOSITS
The composition of the Company's interest bearing deposits at
September 30, 1997 and December 31, 1996 was as follows (dollars in
thousands):
September 30, 1997 December 31, 1996
NOW Accounts $ 98,257 $114,507
Money Market Accounts 79,338 79,352
Savings Deposits 81,634 91,986
Other Time Deposits 379,331 384,365
Total Interest Bearing
Deposits $638,560 $670,210
(6) ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997 Capital City Bank adopted Statements of
Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This Statement establishes new rules for determining
whether a transfer of financial assets constitutes a sale and, if so,
the determination of any resulting gain or loss. This Statement
requires that an enterprise recognize only assets it controls and
liabilities it has incurred, to remove assets only when control has
been surrendered, and to remove liabilities only when they have been
extinguished. The adoption of the Statement did not have a material
impact on the Company's financial condition or results of operation.
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share" which, when adopted, will replace the current methodology
for calculating and presenting earnings per share. Under SFAS No.
128, primary earnings per share will be replaced with a presentation
of basic earnings per share and fully diluted earnings per share will
be replaced with diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed
similar to fully diluted earnings per share. This Statement will be
effective for the Company's December 31, 1997 financial statements and
is not anticipated to have a material impact on the Company's
financial condition or results of operation.
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 129,
"Disclosure of Information About Capital Structure." This Statement
establishes standards for disclosing information about an entity's
capital structure. This Statement will be effective for the Company's
December 31, 1997 financial statements and will not have a material
impact on the Company's financial condition or results of operation.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." This Statement establishes
standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's financial statements
for periods beginning after December 31, 1997 and will not have a
material impact on the Company's financial condition or results of
operation.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
This Statement establishes standards for the way public business
enterprises report information about operating segments in annual
financial statements and requires the enterprises to report selected
information about operating segments in interim financial reports
issued to shareholders. This Statement will be effective for the
Company's financial statements for periods beginning after December
31, 1997 and will not have a material impact on the Company's
financial condition or results of operation.
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. All prior period share and per share data have been
adjusted to reflect a 2-for-1 stock split effective April 1, 1997.
The year-to-date averages used in this report are based on daily
balances for each respective period.
On July 1, 1996, the Company completed its acquisition of First
Financial Bancorp, Inc. and its wholly-owned subsidiary, First Federal
Bank; (collectively referred to as "First Financial"). The
acquisition was accounted for under the purchase method of accounting.
Financial comparisons to prior year periods are not necessarily
comparable due to the impact of the acquisition.
RESULTS OF OPERATIONS
Net Income
Net income was $3.3 million, or $.56 per share for the third quarter
of 1997, a per share increase of 5.7% over the $3.0 million, or $.53
per share for the comparable period in 1996. Net income was $9.6
million, or $1.65 per share for the nine months ended September 30,
1997, a per share increase of 12.2% over the $8.4 million, or $1.47
per share for comparable period in 1996. Operating revenue, which
includes net interest income and noninterest income, increased $6.6
million, or 16.4%, over the comparable nine month period of 1996, and
was the most significant factor contributing to the increase in
earnings.
For The Three For The Nine
Months Ended Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest and Dividend Income $19,362 $19,019 $56,656 $47,321
Taxable Equivalent Adjustment(1) 406 404 1,257 1,274
19,768 19,423 57,913 48,595
Interest Expense 7,402 7,785 21,838 17,768
Net Interest Income (FTE) 12,366 11,638 36,075 30,827
Provision for Loan Losses 449 334 1,351 857
Taxable Equivalent Adjustment 406 404 1,257 1,274
Net Interest Income
After Provision 11,511 10,900 33,467 28,696
Noninterest Income 4,394 4,435 13,696 11,819
Noninterest Expense 10,974 10,885 32,753 28,515
Income Before Income Taxes 4,931 4,450 14,410 12,000
Income Taxes 1,664 1,405 4,825 3,606
Net Income $ 3,267 $ 3,045 $ 9,585 $ 8,394
Percent Change over comparable
prior year period 7.29% 12.15% 14.19% 18.83%
Return on Average Assets (2) 1.29% 1.18% 1.28% 1.29%
Return on Average Equity (2) 13.44% 14.20% 13.76% 13.49%
(1) Computed using a statutory tax rate of 35%
(2) Annualized
Net Interest Income
Third quarter taxable equivalent net interest income increased
$728,000, or 6.3%, over the comparable quarter in 1996. Taxable
equivalent net interest income for the nine month period of 1997
increased $5.2 million, or 17.0%, over the same period of 1996. The
increase in both the three and nine month periods is attributable to
loan growth. Loans, on average through the first nine months,
increased 31.8%, reflecting the acquisition of First Financial and
internal loan growth. During 1997, loans averaged 76.6% of total
earning assets compared to 67.6% for the comparable nine month period
in 1996. Table I on page 16 provides a comparative analysis of the
Company's average balances and interest rates.
For the three and nine month periods ended September 30, 1997, taxable
equivalent interest income increased $345,000, or 1.8%, and $9.3
million, or 19.2%, respectively, over the comparable prior year
periods. Interest income has increased primarily due to the Company's
ability to grow the loan portfolio. Loans during the first nine
months of 1997 averaged $690.2 million, representing an increase of
$166.7 million, or 31.8%, over the comparable period in 1996, and
loans as a percent of average earning assets increased to 76.6% from
67.3%. This shift in mix contributed to a 25 basis point increase,
from 8.34% to 8.59%, in the yield on earning assets.
Interest expense for the three month period of 1997 decreased
$383,000, or 4.9%, from the comparable period of 1996. The decrease
in the three month period is primarily attributable to the contraction
of interest bearing deposits. For the third quarter of 1997, average
interest bearing deposits declined $48.2 million and represented 77.5%
of total deposits, compared to 79.9% for the third quarter of 1996.
During the third quarter of 1997, the average rate paid on interest
bearing liabilities rose to 4.18%, from 4.16% in the second quarter of
1997 and 4.13% in the third quarter of 1996. For the nine month
period ended September 30, interest expense increased $4.1 million, or
22.9%, over the comparable period of 1996. The year-to-date increase
in interest expense is attributable to higher levels of interest
bearing liabilities and a shift in the mix of deposits, both
reflecting the acquisition of First Federal.
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) for the three and nine month periods
ended September 30, 1997 was 4.48% and 4.47%, respectively, compared
to 4.24% and 4.43% for the comparable periods in 1996. The
improvement in spread is attributable to higher yields on earning
assets. The Company's net interest margin percentage (defined as
taxable-equivalent net interest income divided by average earning
assets) for the three and nine month periods ended September 30, 1997
was 5.42% and 5.35%, respectively, compared to 5.01% and 5.29% for the
comparable periods in 1996. The higher margin is due to higher yields
on earning assets and a reduction in the level of earning assets
funded with interest bearing liabilities.
Provision for Loan Losses
The provision for loan losses was $449,000 and $1.4 million,
respectively, for the three and nine month periods ended September 30,
1997, compared to $334,000 and $857,000 for the comparable periods in
1996. Net charge-offs, while up slightly from 1996, remain at
historically low levels relative to the size of the loan portfolio.
Nonperforming loans declined $600,000, or 20.0%, during the first nine
months of 1997. As compared to year-end, the allowance for loan
losses increased slightly to $8.5 million and represented 1.21% of
total loans versus 1.22% at year-end 1996.
Based on current economic conditions, the low level of nonperforming
loans, and net charge-offs, it is management's opinion the allowance
for loan losses as of September 30, 1997 is sufficient to provide for
losses inherent in the loan portfolio as of that date.
For a discussion of the Company's nonperforming loans, see the section
entitled "Financial Condition."
Charge-off activity for the respective periods is set forth below.
Three Months Ended Nine Months Ended
9/30/97 9/30/96 9/30/97 9/30/96
Net Charge-Offs $393,000 $297,000 $1,025,000 $885,000
Net Charge-Offs (Annualized)
as a percent of Average
Loans Outstanding, Net of
Unearned Interest .22% .18% .20% .23%
Noninterest Income
Noninterest income declined $41,000, or .9%, in the third quarter of
1997 versus the comparable quarter for 1996, and increased $1.9
million, or 15.9%, for the nine months ended September 30, 1997 versus
the comparable period for 1996. The lower level of noninterest income
during the third quarter reflects a decline in service charge
revenues. Although the acquisition of First Financial favorable
impacted noninterest income, the increase is principally attributable
to the implementation of recommendations resulting from a profit
enhancement program conducted in the latter half of 1995 and repricing
of the bank service fees which went into effect on July 1, 1996.
Additionally, the Company sold parcels of bank property which resulted
in a $275,000 gain during the second quarter of 1997.
Service charges on deposit accounts for the third quarter of 1997
decreased $326,000, or 13.9%, versus the comparable period in 1996,
and increased $579,000, or 10.5%, over the comparable nine month
periods for 1996. The third quarter decline is partially attributable
to a decrease in the total number of deposit accounts. The year-to-
date increase reflects the repricing mentioned above.
Data processing revenues increased $8,000, or 1.1%, and $233,000, or
10.5%, respectively, over the comparable three and nine month periods
in 1996. The increase reflects higher revenues associated with
processing for third party banks.
Other income increased $263,000, or 23.5%, and $1.1 million, or 32.9%,
respectively, for the three and nine month periods ended September 30,
1997 over the comparable prior year periods. The increase is
primarily attributable to gains on the sale of real estate loans
during the first nine months of 1997 totaling $500,000, a $275,000
gain on the sale of bank property recognized in the second quarter,
and ATM surcharge revenue.
Annualized noninterest income as a percent of average assets was 1.83%
for the first nine months of 1997, an increase of 1 basis point for
the comparable period in 1996.
Noninterest Expense
Noninterest expense increased $89,000, or .8%, and $4.2 million, or
14.9%, respectively, over the comparable three and nine month periods
of 1996. The comparison to the first nine months of 1996 is
substantially impacted by the acquisition of First Financial.
Compensation expense increased $27,000, or .5%, and $2.2 million, or
14.2%, respectively, over the comparable three and nine month periods
of 1996. The increase reflects growth in the number of full-time
equivalent employees by 55 attributable to the First Financial
acquisition.
Occupancy expense, including premises, furniture, fixtures and
equipment increased $169,000, or 9.2%, and $985,000, or 20.0%,
respectively, over the comparable three and nine month periods of
1996. The increase is primarily attributable to the addition of five
new offices acquired through the First Financial acquisition.
Other noninterest expense declined $107,000, or 3.4%, and increased
$1.1 million, or 13.1%, respectively, over the comparable three and
nine month periods of 1996. A significant portion of the increase
reflects operating expenses with the five new offices. Additionally,
advertising expense increased $187,000, or 42.1%, and amortization of
intangible assets increased $303,000, or 88.1%.
Annualized net noninterest expense (noninterest income minus
noninterest expense, net of intangibles) as a percent of average
assets was 2.46% in the first nine months of 1997 versus 2.56% for the
first nine months of 1996. The decrease in this percentage is
attributable to the growth in noninterest income.
Income Taxes
The provision for income taxes increased $259,000, or 18.4%, during
the third quarter and $1.2 million, or 33.8%, during the first nine
months of 1997. The increase in the provision over the prior year is
attributable to higher taxable income. The Company's effective tax
rate for the first nine months of 1997 was 33.5%, versus 30.0% for the
comparable period in 1996. The increase in the effective tax rate is
attributable to a decrease in tax exempt income as a percent of
taxable income in the first nine months of 1997 as compared to the
comparable period of 1996.
FINANCIAL CONDITION
Average balances for the nine month period ended September 30, 1997
reflect the acquisition of First Financial. The impact on average
balances for the nine month period is due to the timing of the
acquisition. Table I on page 16 presents average balances for the
three and nine month periods of 1997 and 1996.
The Company's average assets increased to $1.0 billion in the first
nine months of 1997 from $871.5 million in the first nine months of
1996. Average earning assets were $901.7 million for the nine months
ended September 30, 1997 versus $778.3 million for the comparable
period in 1996. The most significant change in the mix of earning
assets occurred through growth in the loan portfolio. The increase in
the loan portfolio reflects the First Financial acquisition, and
internal loan growth partially funded through a reduction in the
investment portfolio.
Average loans increased $166.7 million, or 31.8%, over the comparable
nine month period in 1996. Loan growth occurred primarily in the real
estate and consumer portfolios. Residential real estate loans
increased substantially with the acquisition of First Financial.
Based on averages for the first nine months of 1997, loans as a
percentage of earning assets increased to 76.6% from 67.3% in 1996,
which had a favorable impact on the Company's net interest income.
At September 30, 1997, the Company's nonperforming loans were $2.4
million versus $3.0 million at year-end 1996. As a percentage of
nonperforming loans, the allowance for loan losses represented 354.5%
at September 30, 1997 versus 275.8% at year-end 1996. 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 $2.3 million at September
30, 1997 compared to $1.5 million at December 31, 1996. The increase
reflects undeveloped branch sites acquired in the First Financial
transaction which are held for sale and have been reclassified to
other real estate. The ratio of nonperforming assets to loans plus
other real estate was .66% at September 30, 1997, constant with year-
end.
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. During 1997, maturities in the
securities portfolio have been used to fund loan growth resulting in a
$39.4 million, or 18.8%, reduction in the portfolio. 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 taxes, as a separate component of shareholders'
equity. At September 30, 1997, shareholders' equity included a net
unrealized gain of $492,000 compared to a gain of $82,000 at December
31, 1996. The increase in value reflects a decline in current
interest rates relative to their level at year-end.
Average deposits increased to $840.5 million for the first nine months
of 1997, from $741.0 million for the first nine months of 1996. The
growth in deposits is attributable to the First Financial acquisition.
During the third quarter, deposits averaged $838.7 million, compared
to $874.6 million for the comparable quarter in 1996. The decrease
reflects growing competition from banks and non-banks. The mix of
deposits acquired through First Financial (certificates of deposit
representing 75% of total acquired deposits) impacted the Company's
overall deposit structure. Certificates of deposit, as a percent of
average total deposits, increased to 45.8% for the first nine months
of 1997, from 41.0% for the comparable period in 1996.
The ratio of average noninterest bearing deposits to total deposits
fell to 21.92% for the first nine months of 1997, compared to 22.7%
for the comparable period in 1996. For the same periods, the ratio of
average interest bearing liabilities to average earning assets was
78.7% and 78.1%, 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 a $25.0 million revolving line of credit.
As of September 30, 1997, there was $13.5 million outstanding under
this credit facility which the Company borrowed on July 1, 1996 to
fund the acquisition of First Financial.
The Company's equity capital was $98.3 million as of September 30,
1997, compared to $89.5 million as of December 31, 1996. 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 9.1% at September 30,
1997 versus 7.9% at December 31, 1996. Further, the Company's risk-
adjusted capital ratio of 14.8% 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
agreement place certain restrictions on the payment of dividends by
both the Company and its Group banks. At September 30, 1997, 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 1997, shareholders' equity increased
$8.8 million, or 13.1%, on an annualized basis. The net increase in
shareholders' equity reflects net income of $9.6 million, dividends of
$2.6 million, stock issuances of $1.4 million and an increase in the
Company's net unrealized gain on available-for-sale securities of
$410,000. Stock issuances totaling $1.4 million reflect 9,368 shares
issued under the Company's recently adopted Dividend Reinvestment and
Optional Stock Purchase Plan and 47,405 shares issued under other
employee stock purchase and incentive plans.
The Company's common stock had a book value of $16.84 per share at
September 30, 1997 compared to $15.49 at December 31, 1996. Pursuant
to the Company's stock repurchase program adopted in 1989, the Company
has repurchased 527,160 (split adjusted) shares of its common stock.
In the first nine months of 1997, there were no shares repurchased.
IMPACT OF NEW ACCOUNTING STANDARDS
Effective January 1, 1997 Capital City Bank adopted SFAS No. 125,
"Accounting Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This Statement establishes new rules
for determining whether a transfer of financial assets constitutes a
sale and, if so, the determination of any resulting gain or loss.
This Statement requires that an enterprise recognize only assets it
controls and liabilities it has incurred, to remove assets only when
control has been surrendered, and to remove liabilities only when they
have been extinguished.
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share" which, when adopted, will replace the current methodology
for calculating and presenting earnings per share. The Statement will
be effective for the Company's December 31, 1997 financial statements.
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 129,
"Disclosure of Information About Capital Structure." The Statement
will be effective for the Company's December 31, 1997 financial
statements.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS)No. 130, "Reporting
Comprehensive Income." The Statement will be effective for the
Company's financial statements for periods beginning after
December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
The Statements will be effective for the Company's financial statements
for periods beginning after December 15, 1997.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
AVERAGES BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
FOR THREE MONTHS ENDED SEPTEMBER 30,
1997
Balance Interest Rate
ASSETS
Loans, Net of Unearned Interest $ 704,222 $16,580 9.34%
Taxable Investment Securities 106,684 1,670 6.20%
Tax-Exempt Investment Securities 68,192 1,152 6.76%
Funds Sold 26,623 366 5.49%
Total Earning Assets 905,721 19,768 8.66%
Cash & Due From Banks 46,796
Allowance for Loan Losses (8,476)
Other Assets 59,129
TOTAL ASSETS $1,003,170
LIABILITIES
NOW Accounts $ 100,740 $ 408 1.61%
Money Market Accounts 81,528 627 3.05%
Savings Accounts 83,294 420 2.00%
Other Time Deposits 384,783 5,142 5.30%
Total Int. Bearing Deposits 650,345 6,597 4.02%
Funds Purchased 29,096 416 5.67%
Other Borrowed Funds 6,187 98 6.26%
Long-Term Debt 16,935 291 6.83%
Total Interest Bearing
Liabilities 702,563 7,402 4.18%
Noninterest Bearing Deposits 188,387
Other Liabilities 15,773
TOTAL LIABILITIES 906,723
SHAREHOLDERS' EQUITY
Common Stock 58
Surplus 6,169
Retained Earnings 90,220
TOTAL SHAREHOLDERS' EQUITY 96,447
TOTAL LIABILITIES & EQUITY $1,003,170
Interest Rate Spread 4.48%
Net interest Income $12,366
Net Interest Margin 5.42%
FOR THREE MONTHS ENDED SEPTEMBER 30,
1996
Balance Interest Rate
ASSETS
Loans, Net of Unearned Interest $ 651,753 $15,164 9.26%
Taxable Investment Securities 144,756 2,319 6.38%
Tax-Exempt Investment Securities 72,857 1,224 6.72%
Funds Sold 54,462 716 5.23%
Total Earning Assets 923,828 19,423 8.37%
Cash & Due From Banks 50,148
Allowance for Loan Losses (8,227)
Other Assets 60,362
TOTAL ASSETS $1,026,111
LIABILITIES
NOW Accounts $ 105,372 $ 539 2.03%
Money Market Accounts 97,736 756 3.08%
Savings Accounts 96,492 517 2.13%
Other Time Deposits 399,072 5,213 5.20%
Total Int. Bearing Deposits 698,672 7,025 4.00%
Funds Purchased 26,325 325 4.90%
Other Borrowed Funds 8,929 136 6.06%
Long-Term Debt 16,855 299 7.06%
Total Interest Bearing
Liabilities 750,781 7,785 4.13%
Noninterest Bearing Deposits 175,931
Other Liabilities 14,611
TOTAL LIABILITIES 941,323
SHAREHOLDERS' EQUITY
Common Stock 58
Surplus 4,320
Retained Earnings 80,410
TOTAL SHAREHOLDERS' EQUITY 84,788
TOTAL LIABILITIES & EQUITY $1,026,111
Interest Rate Spread 4.24%
Net interest Income $11,638
Net Interest Margin 5.01%
FOR NINE MONTHS ENDED SEPTEMBER 30,
1997
Balance Interest Rate
ASSETS
Loans, Net of Unearned Interest $ 690,175 $47,859 9.27%
Taxable Investment Securities 116,658 5,496 6.30%
Tax-Exempt Investment Securities 70,189 3,576 6.79%
Funds Sold 24,630 982 5.33%
Total Earning Assets 901,652 57,913 8.59%
Cash & Due From Banks 47,188
Allowance for Loan Losses (8,371)
Other Assets 60,489
TOTAL ASSETS $1,000,957
LIABILITIES
NOW Accounts $ 103,572 $ 1,331 1.72%
Money Market Accounts 80,720 1,826 3.03%
Savings Accounts 87,124 1,307 2.01%
Other Time Deposits 384,742 15,081 5.24%
Total Int. Bearing Deposits 656,158 19,545 3.98%
Funds Purchased 29,607 1,166 5.26%
Other Borrowed Funds 6,319 234 4.95%
Long-Term Debt 17,480 893 6.83%
Total Interest Bearing
Liabilities 709,564 21,838 4.11%
Noninterest Bearing Deposits 184,291
Other Liabilities 13,954
TOTAL LIABILITIES 907,809
SHAREHOLDERS' EQUITY
Common Stock 58
Surplus 6,169
Retained Earnings 86,921
TOTAL SHAREHOLDERS' EQUITY 93,148
TOTAL LIABILITIES & EQUITY $1,000,957
Interest Rate Spread 4.47%
Net interest Income $36,075
Net Interest Margin 5.35%
FOR NINE MONTHS ENDED SEPTEMBER 30,
1996
Balance Interest Rate
ASSETS
Loans, Net of Unearned Interest $523,485 36,685 9.36%
Taxable Investment Securities 139,811 6,492 6.20%
Tax-Exempt Investment Securities 74,404 3,814 6.83%
Funds Sold 40,598 1,604 5.28%
Total Earning Assets 778,298 48,594 8.34%
Cash & Due From Banks 49,997
Allowance for Loan Losses (7,077)
Other Assets 50,311
TOTAL ASSETS $871,529
LIABILITIES
NOW Accounts $100,253 1,322 1.76%
Money Market Accounts 84,805 1,944 3.06%
Savings Accounts 84,061 1,323 2.10%
Other Time Deposits 303,537 11,799 5.19%
Total Int. Bearing Deposits 572,656 16,388 3.82%
Funds Purchased 23,963 865 4.82%
Other Borrowed Funds 3,842 158 5.49%
Long-Term Debt 6,964 358 6.87%
Total Interest Bearing
Liabilities 607,425 17,768 3.91%
Noninterest Bearing Deposits 168,350
Other Liabilities 12,610
TOTAL LIABILITIES 788,385
SHAREHOLDERS' EQUITY
Common Stock 58
Surplus 4,951
Retained Earnings 78,135
TOTAL SHAREHOLDERS' EQUITY 83,144
TOTAL LIABILITIES & EQUITY $871,529
Interest Rate Spread 4.43%
Net interest Income $30,827
Net Interest Margin 5.29%
(1) Average balances include nonaccrual loans. Interest income
includes fees on loans of approximately $741,000 and $2,215,000, for
the three and nine months ended September 30, 1997, versus $685,000
and $1,641,000, for the comparable periods ended September 30, 1996.
(2) Interest income includes the effects of taxable equivalent
adjustments using a 35% tax rate.
PART II. OTHER INFORMATION
ITEMS 1-4
Not applicable
ITEM 5. OTHER INFORMATION
On October 29, 1997, the Company entered into a definitive purchase
and assumption agreement with First Federal Savings & Loan Association
of Lakeland, Florida ("First Federal") to acquire five of First
Federal's branch facilities which include loans and deposits. The
Company has agreed to pay a deposit premium of 6.33% to assume
approximately $60 million in deposits, purchase loans equal to 80% of
deposits at closing, and acquire the real estate. Four of the five
offices will be merged into existing offices of Capital City Bank.
The buildings and premises, totaling approximately $415,000, of the
four First Federal offices being merged, will be classified as other
real estate. The transaction, subject to regulatory approval, is
expected to close during the first quarter of 1998.
On October 18, 1997, the Company consolidated three of its subsidiary
banks (Levy County State Bank, Farmers and Merchants Bank of Trenton
and Branford State Bank) into Capital City Bank. As a result, the
Company now has one subsidiary bank with approximately $1.0 billion in
assets, $700 million in loans and $826 million in deposits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(3b) Amended and Restated Bylaws of Capital City Bank Group, Inc.
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, 1997.
SIGNATURES
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
Executive Vice President and
Chief Financial Officer
Date: November 13, 1997