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:
March 31, 1998
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 orginaization) Identification No.)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive offices)
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 April 30, 1998, 5,886,684 shares of the Registrant's Common Stock,
$.01 par value, were 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 9
3. Qualitative and Quantitative Disclosure of
Market Risk 16
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 18
6. Exhibits and Reports on Form 8-K 18
Signatures 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(Dollars In Thousands, Except Per Share Amounts)
March 31, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
Cash and Due From Banks $ 51,977 $ 61,270
Federal Funds Sold and
Interest Bearing Deposits 80,100 52,519
Investment Securities Available-for-Sale 140,795 148,514
Loans, Net of Unearned Interest 737,484 697,726
Allowance for Loan Losses (8,520) (8,322)
__________ __________
Loans, Net 728,964 689,404
Premises and Equipment, Net 31,473 31,613
Intangibles, Net 10,748 7,703
Other Assets 24,764 18,650
__________ __________
Total Assets $1,068,821 $1,009,673
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 201,212 $ 191,797
Interest Bearing Deposits 689,384 643,015
---------- ----------
Total Deposits 890,596 834,812
Short-Term Borrowings 45,393 46,114
Long-Term Debt 16,352 15,896
Other Liabilities 12,546 12,401
__________ __________
Total Liabilities 964,887 909,223
SHARE OWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000
shares authorized; no shares outstanding - -
Common Stock, $.01 par value; 60,000,000 shares
authorized; 5,886,681 issued and outstanding
at March 31, 1998 and 5,778,366 issued and
outstanding at December 31, 1997 59 58
Additional Paid-In Capital 7,881 6,537
Retained Earnings 95,418 93,288
Net Unrealized Gain on Investment Securities
Available-for-Sale 576 567
__________ __________
Total Share Owners' Equity 103,934 100,450
Total Liabilities and
Share Owners' Equity $1,068,821 $1,009,673
========== ==========
Book Value Per Share $ 17.66 $ 17.17
========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(Dollars in Thousands, Except Per Share Amounts)
1998 1997
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and Fees on Loans $ 16,610 $ 15,398
Investment Securities Available-for-Sale:
U. S. Treasury 368 551
U. S. Government Agencies/Corporation 812 1,290
States and Political Subdivisions 714 832
Other Securities 85 96
Federal Funds Sold and
Interst Bearing Deposits 771 259
---------- ----------
Total Interest Income $ 19,360 $ 18,429
---------- ----------
INTEREST EXPENSE
Deposits 6,773 6,362
Short-Term Borrowings 537 410
Long-Term Debt 280 304
---------- ----------
Total Interest Expense 7,590 7,076
---------- ----------
Net Interest Income 11,770 11,353
Provision for Loan Losses 486 456
---------- ----------
Net Interest Income After Provision for
Loan Losses 11,284 10,897
---------- ----------
NONINTEREST INCOME
Service Charges on Deposit Accounts 1,941 2,013
Data Processing 852 800
Income from Fiduciary Activities 328 275
Securities Transactions 9 (2)
Other 1,856 1,364
---------- ----------
Total Noninterest Income 4,986 4,450
---------- ----------
NONINTEREST EXPENSE
Salaries and Employee Benefits 6,360 5,794
Occupancy, Net 781 705
Furniture and Equipment 1,174 1,285
Other 3,254 3,017
---------- ----------
Total Noninterest Expense 11,569 10,801
---------- ----------
Income Before Income Taxes 4,701 4,546
Income Tax Expense 1,600 1,504
---------- ----------
NET INCOME $ 3,101 $ 3,042
========== ==========
Basic Net Income Per Share $ .53 $ .53
========== ==========
Diluted Net Income Per Share $ .53 $ .53
========== ==========
Cash Dividends Per Share $ .165 $ .15
========== ==========
Average Shares Outstanding 5,874,892 5,792,292
========== ==========
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Dollars in Thousands)
1998 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,101 $ 3,042
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 486 456
Depreciation 800 782
Net Securities Amortization (Accretion) 163 117
Amortization of Intangible Assets 247 307
Securities (Gains) Losses (9) (2)
Non-Cash Compensation 1,201 184
Net (Increase) Decrease in Interest
Receivable (520) (209)
Net (Increase) Decrease in Other Assets (5,312) 553
Net Increase (Decrease) in Other
Liabilities 145 (1,222)
-------- --------
Net Cash Provided by (Used in)
Operating Activities 302 4,008
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Payments/Maturities of
Investment Securities 15,670 15,956
Purchase of Investment Securities (8,080) -
Net (Increase) Decrease in Loans 4,417 (19,397)
Net Cash Received from Acquisition 7,022 -
Purchase of Premises & Equipment (480) (456)
Sales of Premises & Equipment 243 228
-------- --------
Net Cash Provided by (Used in)
Investing Activities 18,792 (3,669)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits 287 (26,630)
Net Increase (Decrease) in Other
Short-Term Borrowings (721) 4,608
Borrowing or Proceeds from Long Term Debt 1,000 -
Repayment of Long-Term Debt (544) (544)
Dividends Paid (971) (869)
Issuance of Common Stock 143 341
-------- --------
Net Cash Used in Financing Activities (806) (23,094)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 18,288 (22,755)
Cash and Cash Equivalents at Beginning of
Period 113,789 88,906
-------- --------
Cash and Cash Equivalents at End of Period $132,077 $ 66,151
======== ========
Supplemental Disclosure:
Interest Paid $ 6,434 $ 6,426
======== ========
Transfer of Loans to ORE $ 452 $ 443
======== ========
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
March 31, 1998 and December 31, 1997, and the results of operations and
cash flows for the three month periods ended March 31, 1998 and 1997.
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 Consolidated Financial
Statements which are included in the Company's 1997 Annual Report and Form
10-K. The Company has not significantly changed its accounting and
reporting policies from those disclosed in its 1997 Annual Report on Form
10-K.
(2) INVESTMENT SECURITIES
The related amortized cost and market value of investment securities in the available-for-sale portfolio at March 31, 1998 and
December 31, 1997 were as follows (dollars in thousands):
March 31, 1998
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
U. S. Treasury $ 28,353 $ 59 $12 $ 28,400
U. S. Government Agencies
and Corporations 23,179 40 25 23,194
States and Political Subdivisions 62,240 594 8 62,826
Mortgage-Backed Securities 21,009 288 32 21,265
Other Securities 5,104 6 - 5,110
-------- ---- --- --------
Total $139,885 $987 $77 $140,795
======== ==== === ========
December 31, 1997
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
U. S. Treasury $ 24,345 $ 42 $ 4 $ 24,383
U. S. Government Agencies
and Corporations 32,036 55 60 32,031
States and Political Subdivisions 63,661 593 10 64,244
Mortgage-Backed Securities 22,644 326 48 22,922
Other Securities 4,933 1 - 4,934
-------- ------ ---- --------
Total $147,619 $1,017 $122 $148,514
======== ====== ==== ========
(3) LOANS
The composition of the Company's loan portfolio at March 31, 1998 and December 31, 1997 was as follows (dollars in thousands):
March 31, 1998 December 31, 1997
Commercial, Financial
and Agricultural $ 59,462 $ 53,888
Real Estate-Construction 42,413 45,563
Real Estate-Mortgage 491,712 456,499
Consumer, Net of Unearned Interest 143,897 141,776
-------- --------
Loans, Net $737,484 $697,726
======== ========
(4) ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the three month period ended March 31, 1998 and 1997, was as
follows (dollars in thousands):
March 31,
1998 1997
Balance, Beginning of the Period $8,322 $8,179
Provision for Loan Losses 486 456
Recoveries on Loans Previously
Charged-Off 165 183
Loans Charged-Off (453) (546)
------ ------
Balance, End of Period $8,520 $8,272
====== ======
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):
March 31,
1998 1997
Impaired Loans: Valuation Valuation
Balance Allowance Balance Allowance
With Related Credit Allowance $2,972 $305 $ 141 $48
Without Related Credit Allowance 1,211 - 1,429 -
Average Recorded Investment
for the Period 4,183 * 2,131 *
Interest Income:
Recognized $ 31 $ 24
Collected $ 31 $ 24
* 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.
(5) DEPOSITS
The composition of the Company's interest bearing deposits at March 31, 1998 and December 31, 1997 were as follows (dollars in
thousands):
March 31, 1998 December 31, 1997
NOW Accounts $109,914 $113,163
Money Market Accounts 78,005 79,010
Savings Deposits 89,149 80,476
Other Time Deposits 412,316 370,366
-------- --------
Total Interest Bearing Deposits $689,384 $643,015
======== ========
(6) ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statements of Financial
Accounting Standards "SFAS" No. 130, "Reporting Comprehensive Income".
Statement 130 provides new accounting and reporting standards for reporting
and displaying comprehensive income and its components in a full set of
general-purpose financial statements. The adoption of this standard did not
have a material impact on reported results of operations of the Company.
Effective February 1998, the Company adopted SFAS No. 132 "Employers
Disclosure about Pensions and Other Postretirement Benefits". Statement
132 standardizes the disclosure requirements for pension and other
postretirement benefits and requires additional information on changes in
the benefit obligations and fair values of plan assets. The Statement
suggests combined formats for presentation of pension and other
postretirement benefit disclosures. The adoption of this standard will not
have a material impact on reported results of operations of the Company.
(7) COMPREHENSIVE INCOME
Total comprehensive income is defined as net income and all other changes
in equity. The Company reported total comprehensive income, net of tax,
for the quarters ended March 31, 1998 and 1997 of $3.1 million and $2.6
million, respectively. Total comprehensive net income, net of tax, for the
first quarter of 1998 and 1997, included net gains of $9,000 and net losses
of $471,000, respectively. These changes reflect a market value increase
and decrease in investment securities available-for-sale for the quarters
ended March 31, 1998 and 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis reviews important factors affecting the financial
condition and results of operations of Capital City Bank Group, Inc., for
the three month periods ended March 31, 1998 and 1997. Capital City Bank
Group, Inc., has made, and may continue to make, various forward-looking
statements with respect to financial and business matters. Capital City
Bank Group, Inc., cautions that these forward-looking statements are
subject to numerous assumptions, risks and uncertainties, all of which may
change over time. Actual results could differ significantly from forward-
looking statements.
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.
The Financial Review is divided into three subsections entitled Earnings
Analysis, Financial Condition, and Liquidity and Capital Resources.
Information therein should facilitate a better understanding of the major
factors and trends which affect the Company's earnings performance and
financial condition, and how the Company's performance during 1998 compares
with prior years. Throughout this section, Capital City Bank Group, Inc.,
and its subsidiary, collectively, are referred to as "CCBG" or the
"Company."
On January 31, 1998, the Company completed its purchase and assumption
transaction with First Federal Savings & Loan Association of Lakeland,
Florida ("First Federal-Florida") and acquired five of First Federal-
Florida's branch facilities which included loans and deposits. The Company
paid a deposit premium of $3.3 million, or 6.33%, and assumed approximately
$55 million in deposits and purchased loans equal to approximately $44
million at closing and received cash of approximately $7.0 million. Four
of the five offices were merged into existing offices of Capital City Bank.
The deposit premium is being amortized over fifteen years.
On April 23, 1998, the Company announced a 3-2 stock split effective June
1, 1998, for share owners of record as of May 14, 1998. Amounts in the
financial statements and foot notes have not been restated to reflect this
stock split.
RESULTS OF OPERATIONS
Net Income
Net income of $3.1 million, or $.53 per basic and diluted share for the first quarter of 1998, was $59,000, or 1.9%, higher
than the $3.0 million, or $.53 per basic and diluted share reported for the comparable period in 1997. Operating revenues,
which include net interest income and noninterest income, increased $953,000, or 6.0%, over the first quarter of 1997, and are
the most significant factor contributing to the increase in earnings (dollars in thousands):
For The Three Months Ended March 31,
1998 1997
Interest Income $19,360 $18,429
Taxable Equivalent Adjustment(1) 361 427
------- -------
Interest Income (FTE) 19,721 18,856
Interest Expense 7,590 7,076
------- -------
Net Interest Income (FTE) 12,131 11,780
Provision for Loan Losses 486 456
Taxable Equivalent Adjustment 361 427
------- -------
Net Int. Inc. After Provision 11,284 10,897
Noninterest Income 4,986 4,450
Noninterest Expense 11,569 10,801
------- -------
Income Before Income Taxes 4,701 4,546
Income Taxes 1,600 1,504
------- -------
Net Income $ 3,101 $ 3,042
======= =======
Percent Change 1.94% 18.50%
Return on Average Assets (2) 1.21% 1.23%
Return on Average Equity (2) 12.28% 13.61%
(1) Computed using a statutory tax rate of 35%
(2) Annualized
Net Interest Income
First quarter taxable equivalent net interest income increased $351,000, or
3.0%, over the comparable period for 1997. The increase is attributable to
a higher level of earning assets, reflecting growth in the loan portfolio.
Loans purchased in the First Federal-Florida transaction account for
slightly over half of the total growth in the average loan portfolio.
Table I on page 14 provides a comparative analysis of the Company's average
balances and interest rates.
Taxable-equivalent interest income increased $865,000, or 4.6%, due to
growth in the loan portfolio. Loans, which represent the Company's highest
yielding asset, increased (on average) $52.5 million, or 7.7%, and
represented 78.4% of total earning assets in the first quarter of 1998
versus 75.7% for the comparable quarter in 1997. The favorable shift in
mix of earning assets contributed to an increase of 3 basis points in the
yield on earning assets which rose from 8.53% in the first quarter of 1997
to 8.56% in 1998. The improvement in yield attributable to loan growth was
partially offset by a higher level of liquidity.
Interest expense increased $514,000, or 7.3%, due primarily to the
assumption of $55 million in deposits from First Federal-Florida.
Certificates of deposit increased as a percent of average deposits from
45.2% in the first quarter of 1997 to 46.2% in the first quarter of 1998.
This shift in deposit mix is attributable to the mix of acquired
deposits and led to a 21 basis point increase in the average rate paid on
interest bearing liabilities, which rose from 4.00% in the first quarter of
1997 to 4.21% in the first quarter of 1998.
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) declined from 4.52% in the first quarter of 1997 to
4.35% in the comparable quarter for 1998 due to the higher cost paid on
interest bearing liabilities. The Company's net interest margin percentage
(defined as taxable-equivalent net interest income divided by average
earning assets) was 5.32% in the first quarter of 1997, versus 5.27% in the
first quarter of 1998. The decrease in the margin reflects the higher
costs of funds.
Provisions for Loan Losses
The provision for loan losses for the three months ended March 31, 1998,
was $486,000 versus $456,000 for the first quarter of 1997. Net charge-
offs were down from first quarter of 1997, and remain at historically low
levels relative to the size of the loan portfolio. Nonperforming loans
increased $3.2 million, or 234.5%, during the first quarter. As compared
to year-end, the reserve for loan losses increased slightly to $8.5 million
and represented 1.16% of total loans versus 1.19%.
For a discussion of the Company's nonperforming loans, see the section
entitled "Financial Condition."
Based on current economic conditions, the low level of nonperforming loans
and net charge-offs, it is management's opinion that the allowance for loan
losses as of March 31, 1998, is sufficient to provide for losses inherent
in the portfolio as of that date.
Charge-off activity for the respective periods is set forth below.
Three Months Ended
March 31,
1998 1997
Net Charge-Offs 288,000 $363,000
Net Charge-Offs (Annualized)
as a percent of Average Loans
Outstanding, Net of Unearned Interest .16% .20%
Noninterest Income
Noninterest income increased $536,000, or 12.1%, over the first quarter of
1997, which included increases in all major categories except service
charges on deposit accounts.
Service charges on deposit accounts declined $72,000, or 3.6%. The decline
in the first quarter of 1998, compared to the comparable quarter in 1997,
reflects a decline in the number of deposit accounts, higher compensating
balances and an increase in charged-off deposit accounts.
Data processing revenues increased $52,000, or 6.5%, over the first quarter
of 1997. The increase reflects higher processing revenues associated with
both government agencies and third party banks.
Income from fiduciary activities increased $53,000, or 19.2%, over the
comparable quarter in 1997. The increase is attributable to growth in
managed assets. At March 31, 1998, assets under management totaled $229.4
million compared to $185.7 million at year-end.
Other income increased $492,000, or 36.1%, over the comparable quarter of
1997. Gains on the sale of residential real estate loans increased
$142,000, reflecting increase volume attributable to the low rate
environment and a higher level of fixed rate refinancing. ATM fees,
interchange commissions, VISA cardholder fees, mortgage servicing fees and
other fees and commissions account for the remaining $350,000 favorable
variance over the comparable quarter in 1997.
Noninterest income as a percent of average assets was 1.95% for the first
quarter of 1998 versus 1.81% for the comparable quarter in 1997.
Noninterest Expense
Noninterest expense in the first quarter of 1998 increased $768,000, or
7.1%, over the first quarter of 1997, which included higher costs in all
major expenses categories except net occupancy expense.
Compensation expense increased $566,000, or 9.8%, over the first quarter of
1997 reflecting annual raises and an increase in full-time equivalent
employees of 22. During the first quarter of 1998, the Company added staff
to capitalize on competitive opportunities arising as a result of mergers
of other commercial banks within its markets.
Occupancy expense, including premises, furniture, fixtures and equipment
decreased $35,000, or 1.8%. The decline is primarily attributable to a
reduction in other FF&E costs and utilities. Partially offsetting this
reduction, was an increase in costs for maintenance on equipment.
Other noninterest expense increased $237,000, or 7.9%. The increase was
attributable to professional fees and printing and supplies costs, which
increased $196,000 and $62,000, or 70.2% and 16.7%, respectively.
Partially offsetting this increase was a reduction in EDP services and
commission fees expense.
Net noninterest expense (noninterest income minus noninterest expense, net
of intangibles) as a percent of average assets was 2.47% in the first
quarter of 1998 versus 2.48% for the first quarter of 1997. The Company's
efficiency ratio (noninterest expense expressed as a percent of the sum of
taxable-equivalent net interest income plus noninterest income) was 66.1%
in the first quarter 1998 compared to 65.2% for the comparable quarter in
1997. The increase in the efficiency ratio is attributable to higher
costs, primarily compensation expense.
Income Taxes
The provision for income taxes increased $96,000, or 6.4%, over the first
quarter of 1997. The increase in the provision is attributable to higher
taxable income. The Company's effective tax rate for the first quarter of
1997 was 34.0% compared to 33.1% for the same quarter in 1997. 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 quarter of 1998
as compared to first quarter of 1997.
FINANCIAL CONDITION
Average balances for the first quarter of 1998 reflect the acquisition of
First Federal-Florida which was completed on January 31, 1998. Table I on
page 14 presents average balances for the three months ended March 31, 1998
and 1997.
The Company's average assets increased to $1.04 billion in the first
quarter of 1998 from $999.8 million in the first quarter of 1997. Average
earning assets were $933.1 million for the three months ended March 31,
1998 versus $896.1 million for the comparable quarter of 1997. 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
Federal-Florida acquisition and internal loan growth. Maturities in the
investment portfolio were used to fund loan growth and improve overall
liquidity.
Average loans increased 52.5 million, or 7.7%, over the comparable period
in 1997. Loan growth has occurred in all of the portfolios, with the most
significant increase in real estate. Loans as a percent of average earning
assets increased to 78.4% for the first quarter of 1998, compared to 75.7%
for the first quarter of 1997.
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. As of March 31, 1998, the average investment
portfolio declined $53.9 million, or 27.4%, from the first quarter of 1997.
The decline in the investment portfolio was used to fund loan growth and
provide additional liquidity. Securities in the Available-for-Sale
portfolio are recorded at fair value and unrealized gains and losses
associated with these securities are recorded, net of tax, as a separate
component of share owners' equity. At March 31, 1998, share owners' equity
included a net unrealized gain of $576,000 compared to a gain of $567,000
at December 31, 1997. The slight increase in value reflects a decrease in
interest rates during the first quarter.
At March 31, 1998, the Company's nonperforming loans were $4.6 million
versus $1.4 million at year-end and $2.6 million at March 31, 1997. The
increase over year-end is primarily attributable to two loans. As a
percent of nonperforming loans, the allowance for loan losses represented
174% at March 31, 1998 versus 511% at December 31, 1997 and 323% at March
31, 1997. 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 $1.8 million
at March 31, 1998, versus $1.2 million at December 31, 1997, and $1.6
million at March 31, 1997. The ratio of nonperforming assets as a percent
of loans plus other real estate was .91% at March 31, 1998 compared to .41%
at December 31, 1997 and .60% at March 31, 1997.
Average deposits increased 2.7% from $840.0 million in the first quarter of
1997, to $862.9 million in the first quarter of 1997. The growth in
deposits is attributable to the acquisition of First Federal-Florida.
During 1998, average interest bearing deposits declined due to anticipated
run-off from prior acquisitions and strong competition.
At time of acquisition, certificates of deposit constituted 73% of the
acquired deposits. During the first quarter, certificates of deposit
represented 46.2% of total deposits compared to 45.2% for the comparable
quarter in 1997. This shift in mix has contributed to a compression in the
Company's net interest margin which averaged 5.27% in the first quarter of
1998 versus 5.32% in 1997.
The ratio of average noninterest bearing deposits to total deposits was
22.2% for the first quarter of 1998 compared to 21.3% for the first quarter
of 1997. For the same periods, the ratio of average interest bearing
liabilities to average earning assets was 78.4% and 80.0%, respectively.
The change in both ratios is primarily attributable to noninterest bearing
deposits increasing, while interest bearing deposits, primarily certificate
of deposits, declined throughout 1997, offset by the acquisition of First
Federal-Florida.
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 maturities, securities held in the available-for-sale
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 March 31, 1998,
there was $12.5 million outstanding under this facility. During the first
quarter of 1998, principal reductions on the line of credit totaled
$500,000.
The Company's equity capital was $103.9 million as of March 31, 1998
compared to $100.5 million as of December 31, 1997. 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
8.72% at March 31, 1998 compared to 9.19% at December 31, 1997. Further,
the Company's risk-adjusted capital ratio of 12.85% at March 31, 1998,
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 subsidiary bank. At March 31, 1998, these regulations
and covenants did not impair the Company's (or its subsidiary's) ability to
declare and pay dividends or to meet other existing obligations in the
normal course of business.
During the first three months of 1998, share owners' equity increased $3.5
million, or 14.1%, on an annualized basis. Growth in equity during the
first quarter was positively impacted by net income of $3.1 million,
issuance of common stock of $1.1 million and a slight increase of $9,000 in
the Company's net unrealized gain on available-for-sale securities.
Dividends paid during the first quarter totaled $971,000 or $.165 per
share.
At March 31, 1998, the Company's common stock had a book value of $17.66
per share compared to $17.17 at December 31, 1997. Pursuant to the
Company's stock repurchase program adopted in 1989, the Company has
repurchased 527,160 shares of its common stock. No shares have been
repurchased in 1998. During the first quarter, the Company issued 35,958
shares under its associate incentive and stock purchase plans.
Year 2000 Compliance
In 1996, Capital City Bank Group initiated the process of preparing its
computer systems and applications for the Year 2000. This process involves
modifying or replacing certain hardware and software maintained by the
Company as well as communicating with external service providers to ensure
they are taking the necessary action steps required to remedy their Year
2000 issues. The Company expects to have substantially all of the system
and application changes completed by the end of 1998 . The Company believes
that its level of preparedness is appropriate and will have a year to test
in 1999.
While it is not possible, at present, to give an accurate estimate of the
cost of the work, these costs may be material to the Company's results of
operations in one or more fiscal quarters or years, but are not expected to
have a material adverse impact on the long-term results of operations,
liquidity, or consolidated financial position of the Company.
The expected completion date and costs of the project are based upon the
Company's current best estimates.
TABLE I
AVERAGES BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
For Three Months Ended March 31
1998 1997
Average Average Average Average
Balance Interest Rate Balance Interest Rate
ASSETS
Loans, Net of Unearned Interest(1)(2) $ 731,204 $16,644 9.23% $678,730 $15,438 9.22%
Taxable Investment Securities 79,925 1,265 6.41% 124,657 1,940 6.30%
Tax-Exempt Investment Securities (2) 63,081 1,041 6.60% 72,250 1,218 6.75%
Funds Sold 58,842 771 5.31% 20,493 259 5.11%
---------- ------- ----- -------- ------- -----
Total Earning Assets 933,052 19,721 8.56% 896,130 18,856 8.53%
Cash & Due From Banks 49,797 50,180
Allowance for Loan Losses (8,390) (8,275)
Other Assets 64,347 61,802
---------- ------- ----- -------- ------- -----
TOTAL ASSETS $1,038,806 $999,837
========== ========
LIABILITIES
NOW Accounts $ 109,903 514 1.90% $110,072 $ 506 1.86%
Money Market Accounts 76,948 538 2.84% 79,882 579 2.94%
Savings Accounts 85,706 440 2.08% 91,236 451 2.00%
Other Time Deposits 398,839 5,281 5.37% 379,585 4,826 5.16%
---------- ------- ----- -------- ------- -----
Total Interest Bearing Deposits 671,396 6,773 4.09% 660,775 6,362 3.90%
Short-Term Borrowings 43,685 537 4.98% 38,060 410 4.37%
Long-Term Debt 16,014 280 7.09% 18,031 304 6.84%
---------- -------- ----- -------- ------- -----
Total Int. Bearing Liabilities 731,095 7,590 4.21% 716,866 7,076 4.00%
Noninterest Bearing Deposits 191,479 179,184
Other Liabilities 13,839 13,166
---------- --------
TOTAL LIABILITIES 936,413 909,216
SHARE OWNERS' EQUITY
Common Stock 59 58
Surplus 7,463 5,301
Retained Earnings 94,871 85,262
---------- --------
TOTAL SHARE OWNERS' EQUITY 102,393 90,621
---------- ---------
TOTAL LIABILITIES & EQUITY $1,038,806 $999,837
========== =========
Net Interest Rate Spread 4.35% 4.52%
===== =====
Net Interest Income $12,131 $11,780
======= =======
Net Interest Margin 5.27% 5.32%
===== =====
(1) Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $766,000 and
$705,000, for the three months ended March 31, 1998 and 1997, respectively.
(2) Interest income includes the effects of taxable equivalent adjustments using a 35% tax rate.
Item 3. Quantitative and Qualitative Disclosure for Market Risk
Overview
Market risk management arises from changes in interest rates, exchange
rates, commodity prices and equity prices. The Company has risk management
policies to monitor and limit exposure to market risk. Capital City Bank
Group does not actively participate in exchange rates, commodities or
equities. In asset and liability management activities, policies are in
place that are designed to minimize structural interest rate risk.
Interest Rate Risk Management
The normal course of business activity exposes Capital City Bank Group to
interest rate risk. Fluctuations in interest rate risk may result in
changes in the fair market value of the Company's financial instruments,
cash flows and net interest income. Capital City Bank Group's
asset/liability management process manages the Company's interest rate
risk.
The financial assets and liabilities of the Company are classified as other-
than-trading. An analysis of the other-than-trading financial components,
including the fair values, are presented in Table II on page 18. This
table presents the Company's consolidated interest rate sensitivity
position as of first quarter 1998 based upon certain assumptions as set-
forth in the Notes to the Table. The objective of interest rate
sensitivity analysis is to measure the impact on the Company's net interest
income due to fluctuations in interest rates. The asset and liability fair
values presented in Table II may not necessarily be indicative of the
Company's interest rate sensitivity over an extended period of time.
The Company is currently liability sensitive which generally indicates that
in a period of rising interest rates the net interest margin will be
adversely impacted as the velocity and/or volume of liabilities being
repriced exceeds assets. However, as general interest rates rise or fall,
other factors such as current market conditions and competition may impact
how the Company responds to changing rates and thus impact the magnitude of
change in net interest income.
Table II
FINANCIAL ASSETS AND LIABILITIES MARKET RISK ANALYSIS (1)
(Dollars in Thousands)
Other Than Trading Portfolio March 31, 1998 Fair
1999 2000 2001 2002 2003 Beyond Total Value
Loans
Fixed Rate $ 30,944 $ 24,176 $ 38,605 $ 43,828 $ 38,371 $ 65,246 $241,170 $244,149
Average Interest Rate 9.43% 10.16% 9.86% 9.09% 8.17% 9.09% 9.27%
Floating Rate (2) 384,147 56,932 21,740 11,399 13,398 8,699 496,315 502,445
Average Interest Rate 8.97% 7.56% 8.58% 8.15% 8.60% 9.13% 8.77%
Investment Securities (3)
Fixed Rate 75,626 23,023 4,560 6,997 5,805 8,804 124,815 124,815
Average Interest Rate 6.16% 6.08% 5.34% 6.12% 6.64% 5.66% 6.10%
Floating Rate - - 11,043 4,438 - 497 15,978 15,978
Average Interest Rate - - 7.01% 7.30% - 6.28% 7.07%
Other Earning Assets
Fixed Rates - - - - - - - -
Average Interest Rates - - - - - - -
Floating Rates 76,000 - - - - 4,100 80,100 80,100
Average Interest Rates 5.35% - - - - 5.01% 5.30%
Total Financial Assets $566,717 $104,131 $ 75,948 $ 66,662 $ 57,574 $ 87,346 $958,378 $959,143
Average Interest Rates 8.14% 7.84% 8.80% 8.50% 8.63% 7.82% 8.18%
Deposits (4)
Fixed Rate Deposits $353,987 $ 36,761 $ 16,452 $ 2,869 $ 2,229 $ 18 $412,316 $414,123
Average Interest Rates 5.31% 5.65% 5.69% 5.49% 5.76% 5.25% 5.36%
Floating Rate Deposits 277,069 - - - - - 277,069 277,069
Average Interest Rates 2.20% - - - - - 2.20%
Other Interest Bearing
Liabilities
Fixed Rate Debt 234 238 242 246 251 2,641 3,852 3,852
Average Interest Rate 6.14% 6.14% 6.14% 6.14% 6.14% 6.14% 6.14%
Floating Rate Debt 57,893 - - - - - 57,893 57,893
Average Interest Rate 5.35% - - - - - 5.35%
Total Financial Liabilities $689,183 $ 36,999 $ 16,694 $ 3,115 $ 2,480 $ 2,659 $751,130 $752,937
Average interest Rate 4.06% 5.65% 5.70% 5.54% 5.80% 6.13% 4.20%
(1) Based upon expected cashflows, unless otherwise indicated.
(2) Based upon a combination of expected maturities and repricing opportunities.
(3) Based upon contractual maturity, except for callable and floating rate securities, which are based on expected
maturity and weighted average life, respectively.
(4) Savings, NOW and money market accounts can be repriced at any time, therefore, all such balances are included as
floating rates deposits in 1998. Other time deposit balances are classified according to maturity.
PART II. OTHER INFORMATION
Items 1-4.
Not applicable
Item 5. Other
On April 23, 1998, the Company announced a 3-2 stock split effective June
1, 1998, for share owners of record as of May 14, 1998. Amounts in the
financial statements and foot notes have not been restated to reflect this
stock split.
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
March 31, 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: May 13, 1998