FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter:
September 30, 1996
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, 1996, there were 2,871,562 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
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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
ITEM PART II. OTHER INFORMATION
1. Legal Proceedings Not Applicable
2. Changes in Securities 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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Dollars In Thousands, Except Per Share Amounts)
September 30, 1996 December 31, 1995
(Unaudited) (Audited)
ASSETS
Cash and Due From Banks $ 59,643 $ 61,613
Federal Funds Sold 21,400 41,150
Interest Bearing Deposits in Other Banks 6,747 300
Investment Securities Available-for-Sale 209,105 230,747
Loans 668,081 447,779
Unearned Interest (2,756) (3,806)
Allowance for Loan Losses (8,292) (6,474)
Loans, Net 657,033 437,499
Premises and Equipment 34,381 26,240
Accrued Interest Receivable 8,624 7,339
Intangibles 8,704 1,129
Other Assets 10,298 7,642
Total Assets $1,015,935 $813,659
LIABILITIES
Deposits:
Noninterest Bearing Deposits $185,347 $168,566
Interest Bearing Deposits 681,979 531,013
Total Deposits 867,326 699,579
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 17,342 17,367
Other Short-Term Borrowings 14,091 2,400
Long-Term Debt 16,899 1,982
Other Liabilities 14,138 11,173
Total Liabilities 929,796 732,501
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; 30,000,000 shares
authorized; 2,871,559 shares outstanding at
September 30,1996 and 2,853,716 outstanding at
December 31, 1995 29 29
Additional Paid In Capital 4,438 3,913
Retained Earnings 82,321 76,248
Net Unrealized Gain (Loss) on Available-
for-Sale Securities, Net of Taxes (649) 968
Total Shareholders' Equity 86,139 81,158
Total Liabilities and
Shareholders' Equity $1,015,935 $813,659
Book Value Per Share $ 30.00 $ 28.44
The accompanying notes to Consolidated Financial Statements are an integral
part of these statements.
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CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
(Dollars in Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED SEPTEMBER
1996 1995 1996 1995
INTEREST INCOME
Interest and Fees on Loans $15,127 $10,523 $36,586 $30,322
Investment Securities:
U. S. Treasury 1,153 1,045 3,182 3,164
U. S. Government Agencies/
Corporations 1,070 1,046 3,074 2,346
States and Political
Subdivisions 857 883 2,639 2,579
Other Securities 96 60 236 188
Federal Funds Sold 716 502 1,604 1,814
Total Interest Income 19,019 14,059 47,321 40,413
INTEREST EXPENSE
Deposits 7,025 5,098 16,388 14,367
Federal Funds Purchased &
Securities Sold Under
Repurchase Agreements 325 252 865 780
Long-Term Debt 299 0 358 0
Other Short-Term Borrowings 136 14 157 38
Total Interest Expense 7,785 5,364 17,768 15,185
Net Interest Income 11,234 8,695 29,553 25,228
Provision for Loan Losses 334 2 857 293
Net Interest Income After
Provision for Loan Losses 10,900 8,693 28,696 24,935
NONINTEREST INCOME
Service Charges on Deposit
Accounts 2,347 1,422 5,496 4,152
Data Processing 716 632 2,228 2,018
Income from Fiduciary Activities 245 183 785 685
Securities Transactions 7 (1) 23 (1)
Other 1,120 972 3,287 2,957
Total Noninterest
Income 4,435 3,208 11,819 9,811
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,876 4,428 15,407 13,333
Occupancy, Net 745 639 1,971 1,858
Furniture and Equipment 1,098 830 2,961 2,461
Other 3,166 2,129 8,176 7,188
Total Noninterest
Expense 10,885 8,026 28,515 24,840
Income Before Income Tax 4,450 3,875 12,000 9,906
Income Tax Expense 1,405 1,160 3,606 2,842
NET INCOME $3,045 $ 2,715 $ 8,394 $ 7,064
Net Income Per Share $ 1.06 $ .96 $ 2.93 $ 2.48
Cash Dividends Per Share $ .27 $ 0.00 $ .81 $ .11
Average Shares Outstanding 2,871,455 2,853,699 2,864,601 2,853,073
The accompanying notes to Consolidated Financial Statements are an integral
part of these statements.
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CAPITAL CITY BANK GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30
(Dollars In Thousands)
1996 1995
(Unaudited) (Unaudited)
NET INCOME $ 8,394 $ 7,064
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 857 293
Depreciation 2,008 1,650
Net Amortization (Accretion) 747 317
Amortization of Intangible Assets 332 183
Non-Cash Compensation 90 72
Net (Increase) Decrease in Interest
Receivable 270 (1,781)
Net (Increase) Decrease in Other Assets 786 3,027
Net Increase (Decrease) in Other
Liabilities (1,261) 2,977
Net Cash From Operating Activities 12,223 13,802
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Payments/Maturities of
Investment Securities-Held to Maturity - 36,571
Proceeds from Payments/Maturities of
Investment Securities-Available for Sale 69,756 13,235
Purchase of Investment Securities-Held
to Maturity - (27,701)
Purchase of Investment Securities-
Available for Sale (28,206) (47,621)
Net (Increase) Decrease in Loans (28,968) (16,451)
Purchase of Premises & Equipment (1,792) (3,517)
Sales of Premises & Equipment 1,237 94
Cash Used to Fund Acquisition (20,666) -
Cash Acquired in Acquisition 4,499 -
Net Cash from Investing Activities (4,140) (45,390)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits (37,358) 9,701
Net Increase (Decrease) in Federal
Funds Purchased (25) 950
Net Increase (Decrease) in Other Borrowed
Funds 3,508 1,238
Addition of Long-Term Debt 15,000 0
Repayment of Long-Term Debt (82) 0
Dividends Paid (4,860) (2,591)
Issuance of Common Stock 461 221
Net Cash From Financing Activities (23,356) 9,519
Net Increase (Decrease) in Cash and
Cash Equivalents (15,273) (22,069)
Cash and Cash Equivalents at Beginning of
Period 103,063 89,067
Cash and Cash Equivalents at End of Period $87,790 $66,998
Supplemental Disclosure:
Interest Paid $18,421 $13,604
Taxes Paid $ 2,712 $ 2,066
The accompanying notes to Consolidated Financial Statements are an integral
part of these statements.
Cash balances of business acquired
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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.
In the opinion of management, the consolidated financial statements contain
all adjustments and disclosures necessary to present fairly the financial
position of the Company as of September 30, 1996 and December 31, 1995,
the results of operations for the three and nine month periods ended
September 30, 1996 and 1995, and cash flows for the nine month periods
ended September 30, 1996 and 1995. Such adjustments are of a normal and
recurring nature and include the elimination of all significant
intercompany accounts and transactions. Prior year financial statements
have been reformatted and/or amounts reclassified, as necessary, to conform
with the current year presentation.
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 1995 Annual Report and Form 10-K.
There have been no significant changes in the accounting policies of the
Company since December 31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles inherently involves the use of estimates and
assumptions which affect the amounts reported in the financial statements
and the related disclosures. Such estimates and assumptions may change
over time and actual amounts may differ from those reported.
(2) BUSINESS COMBINATION
On July 1, 1996, the Company completed its acquisition of First Financial
Bancorp, Inc.("First Financial"), parent company of First Federal Bank.
First Financial was acquired for $20.3 million in cash. The Company borrowed
$15.0 million to fund the acquisition. As of June 30, 1996,
First Financial had approximately $244 million in assets, $192 million in loans,
$205 million in deposits, $15 million in equity and operated five branch
locations in North Florida.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the Company's consolidated results of operations only reflect
First Financial's operations for the period from July 1, 1996.
First Financial's contribution to the Company's net income during the third
quarter was $190,000, or $.06 cents per share.
The intangibles created from this acquisition totaled $7.5 million. These
assets are being amortized over periods not exceeding 15 years for
financial reporting purposes. A significant portion of the amortization of
the intangible assets is not deductible for tax purposes.
The purchase price of First Financial has been allocated to the underlying
assets and liabilities based on the estimated fair values as of the
acquisition date. These amounts may be revised at a future date when
actual amounts become known, although such adjustments are not expected to be
significant.
The following table sets forth the unaudited pro forma summary results of
operations for the nine month periods ended September 30, 1996 and 1995,
<PAGE>
and assumes the acquisition of First Financial, including the related debt
financing, had been consummated as of January 1, 1996 and 1995, respectively.
The pro forma results are not necessarily indicative of the results that would
have been achieved had the acquisition occurred on the dates indicated or that
may occur in the future (dollars in thousands).
Sept. 30, Sept. 30,
1996 1995
Net Interest Income $ 32,753 $ 29,350
Net Income $ 8,479 $ 7,202
Net Income Per Share $ 2.96 $ 2.52
(3) INVESTMENT SECURITIES
The carrying value and related market value of investment securities at
September 30, 1996 and December 31, 1995 were as follows (dollars in
thousands):
September 30, 1996
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
U. S. Treasury $ 38,896 $ 66 $ 67 $ 38,895
U. S. Government Agencies
and Corporations 63,068 199 894 62,373
States and Political
Subdivisions 72,324 392 462 72,254
Mortgage Backed Securities 30,426 123 410 30,139
Other Securities 5,448 4 8 5,444
Total $ 210,162 $ 784 $ 1,841 $209,105
December 31, 1995
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
U.S. Treasury $ 72,289 $ 470 $ 54 $72,705
U.S. Government Agencies
and Corporations 70,883 264 96 71,051
States and Political
Subdivisions 75,986 1,037 143 76,880
Mortgage Backed Securities 5,965 47 26 5,986
Other Securities 4,107 19 1 4,125
Total $ 229,230 $ 1,837 $ 320 $230,747
(4) LOANS
The composition of the Company's loan portfolio at September 30, 1996 and
December 31, 1995 was as follows (dollars in thousands):
September 30, 1996 December 31, 1995
Commercial, Financial
and Agricultural $ 68,346 $ 46,149
Real Estate-Construction 42,798 28,391
Real Estate-Mortgage 420,784 259,503
Consumer 136,153 113,736
Gross Loans $668,081 $447,779
<PAGE>
(5) ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the nine
month period ended September 30, 1996 and 1995, is as follows (dollars in
thousands):
September 30, 1996 September 30, 1995
Balance, Beginning of the Period $6,474 $7,551
Acquired Reserves 1,846 -
Provision for Loan Losses 857 293
Recoveries on Loans Previously
Charged-Off 498 417
Loans Charged-Off (1,383) (1,227)
Balance, End of Period $8,292 $7,034
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, 1996 were $3.4 million compared to $4.3 million at
September 30, 1995 and $4.7 million at December 31, 1995.
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.
(6) DEPOSITS
The composition of the Company's interest bearing deposits at September 30,
1996 and December 31, 1995 was as follows (dollars in thousands):
September 30, 1996 December 31, 1995
NOW Accounts $104,601 $122,517
Money Market Accounts 88,243 67,942
Savings Deposits 94,372 78,522
Other Time Deposits 394,763 262,032
Total Interest Bearing Deposits $681,979 $531,013
(7) RECLASSIFICATION
Pursuant to current state laws, treasury shares are treated as authorized,
but unissued. Accordingly, the Company canceled all existing treasury
shares and recorded the cancellation as charges to paid-in capital and
retained earnings and a credit to treasury stock. At the time the shares
previously recorded as treasury shares were originally issued, (January 1,
1984), the book value per share was $8.57. Upon cancellation of the
treasury shares, the book value of $8.57 was used to reduce the capital
stock accounts ($.01 per share for common stock and $8.56 per share for
additional paid-in-capital), and the difference between $8.57 and the cost
per share at which the treasury shares were repurchased was charged to
retained earnings. All prior period statements presented herein have been
reclassified to reflect the cancellation of treasury shares and to conform
with current period presentation.
<PAGE>
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 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. Operating results of First Financial are
included in the Company's consolidated financial statements presented herein
for the period July 1, through September 30, 1996. Financial comparisons to
prior year periods are not necessarily comparable due to the impact of the
acquisition. See Note 2 in the Notes to Consolidated Financial Statements for
further information.
RESULTS OF OPERATIONS
Net Income
Net income was $3.0 million, or $1.06 per share for the third quarter of
1996, a per share increase of 10.4% over the $2.7 million, or $ .96 per
share for the comparable period in 1995. Net income was $8.4 million, or
$2.93 per share for the nine months ended September 30, 1996, a per
share increase of 18.1% over the $7.1 million, or $2.48 per share for
comparable period in 1995. Operating revenues, which include net interest
income and noninterest income, increased $6.3 million, or 18.1%, over the
comparable nine month period of 1995, and were the most significant factors
contributing to the increase in earnings.
For The Three For The Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
Interest and Dividend Income $19,019 $14,059 $47,321 $40,413
Taxable Equivalent Adjustment(1) 404 409 1,274 1,188
19,423 14,468 48,595 41,601
Interest Expense 7,785 5,364 17,768 15,185
Net Interest Income (FTE) 11,638 9,104 30,827 26,416
Provision for Loan Losses 334 2 857 293
Taxable Equivalent Adjustment 404 409 1,274 1,188
Net Int. Inc. After Provision 10,900 8,693 28,696 24,935
Noninterest Income 4,435 3,208 11,819 9,811
Noninterest Expense 10,885 8,026 28,515 24,840
Income Before Income Taxes 4,450 3,875 12,000 9,906
Income Taxes 1,405 1,160 3,606 2,842
Net Income $ 3,045 $ 2,715 $ 8,394 $ 7,064
Percent Change over comparable
prior year period 12.15% 23.07% 18.83% 1.74%
Return on Average Assets (2) 1.18% 1.40% 1.29% 1.25%
Return on Average Equity (2) 14.29% 13.73% 13.49% 12.43%
(1) Computed using a statutory tax rate of 34%
(2) Annualized
Net Interest Income
Third quarter taxable equivalent net interest income increased $2.5
million, or 27.8%, over the comparable quarter in 1995. Taxable equivalent
net interest income for the nine month period of 1996 increased $4.4
million, or 16.7%, over the same period of 1995. The increase in the third
<PAGE>
quarter is attributable to growth in average earning assets which grew by
$237.7 million, or 34.6%, due primarily to the First Financial acquisition.
The increase for the nine month period is attributable to the Company's recent
acquisition, internal earning asset growth and an improvement in the Company's
net interest margin which has been bolstered by loan growth and a reduction in
the cost of funds. Table I on page 15 provides a comparative analysis of
the Company's average balances and interest rates.
For the three and nine month periods ended September 30, 1996, taxable-
equivalent interest income increased $5.0 million, or 34.3%, and $7.0
million, or 16.8%, respectively, over the comparable prior year periods.
Interest income has increased due to growth in earning assets and, in
particular, loan growth. Loans during the first nine months of 1996
averaged $523.5 million, representing an increase of $94.4 million, or
22.0%, over the comparable period in 1995, again due primarily to the First
Financial acquisition. Over the same periods, loans as a percent of average
earning assets increased to 67.3% from 63.5%. This shift in the mix contributed
to an 11 basis point increase, from 8.23% to 8.34%, in the yield on earning
assets.
Interest expense for the three and nine month periods of 1996 increased
$2.4 million, or 45.1%, and $2.6 million, or 17.0%, over the comparable
periods of 1995. The increase in interest expense is attributable to
higher levels of interest bearing liabilities and a shift in the mix of
deposits. The increase in interest bearing liabilities is due to both
internal growth and the First Financial acquisition. For the third
quarter of 1996, average interest bearing deposits represented 79.9% of
total deposits compared to 76.1% for the third quarter of 1995. The shift
in deposit mix is principally attributable to the deposit base acquired from
First Financial, which was predominately certificates of deposit. During the
third quarter of 1996, the average rate paid on interest bearing liabilities
rose to 4.13% from 3.68% in the second quarter of 1996 and 4.07% in the third
quarter of 1995.
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, 1996 was 4.24% and 4.43%, respectively, compared to 4.31% and 4.29% for
the comparable periods in 1995. 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, 1996 was 5.01% and 5.29%, respectively, compared to 5.27% and
5.23% for the comparable periods in 1995. The lower spread and margin in
the third quarter comparison reflects the acquisition of First Financial.
Provision for Loan Losses
The provision for loan losses was $334,000 and $857,000, respectively, for
the three and nine month periods ended September 30, 1996, compared to
$2,000 and $293,000 for the comparable periods in 1995. As a result of
improving credit quality and continued low net charge-off levels,
management discontinued recording a loan loss provision during the second
quarter of 1995 and did not resume the provision until the first quarter of
1996. The provision recorded during the first nine months of 1996
approximates net charge-offs.
As of September 30, 1996, the allowance for loan losses totaled $8.3
million compared to $6.5 million at September 30, 1995. The allowance as a
percent of loans represented 1.25% and 1.46% at the end of each respective
period. Although the allowance for loan losses as a percent of loans has
declined over the prior year, it is management's opinion based on the
current economic conditions, low level of nonperforming loans and net
charge-offs, the allowance as of September 30, 1996 is sufficient to
provide for losses inherent in the loan portfolio as of that date.
<PAGE>
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
9/30/96 9/30/95 9/30/96 9/30/95
Net Charge-Offs $297,000 $312,000 $885,000 $810,000
Net Charge-Offs (Annualized)
as a percent of Average
Loans Outstanding, Net of
Unearned Interest .18% .29% .23% .25%
Noninterest Income
Noninterest income increased $1.2 million, or 38.3%, in the third quarter
of 1996 versus the comparable quarter for 1995, and $2.0 million, or 20.5%,
for the nine months ended September 30, 1996 versus the comparable period
for 1995. Although the acquisition of First Financial impacted
noninterest income, the increase is principally attributable to a
greater focus on revenue growth and several initiatives undertaken by
management, including the implementation of recommendations resulting from a
profit enhancement program conducted in 1995. Additionally, fees for deposit
services were increased effective July 1, 1996.
Service charges on deposit accounts increased $925,000, or 65.1%, and $1.3
million, or 32.4%, over the comparable three and nine month periods for
1995. The increase reflects the repricing mentioned above and tighter
controls over waived fees.
Data processing revenues increased $84,000, or 13.3%, and $210,000, or
10.4%, respectively, over the comparable three and nine month periods in
1995. The increase reflects higher revenues associated with processing for
both government agencies and third party banks.
Fees from fiduciary services increased $62,000, or 33.9%, and $100,000, or
14.6%, respectively, over the comparable three and nine month periods of
1995. A price increase effective January 1, 1996, growth in assets under
management and the collection of estate fees contributed to the higher
revenues during 1996. In January 1995, the Company changed its method of
income recognition for Capital City Trust Company ("CCTC") from cash to
accrual. This change resulted in a one-time adjustment which inflated CCTC
revenues during the first quarter of 1995.
Other income increased $148,000, or 15.2%, and $330,000, or 11.2%,
respectively, for the three and nine month periods ended September 30, 1996
over the comparable prior year periods. Gains on the sale of fixed rate
loans increased $90,000 due to the acquisition of First Financial and check
printing income increased $142,000 due to a renegotiation of the contract
which went into effect in March 1996. Additionally, other fees and
commissions were up $79,000.
Annualized noninterest income as a percent of average earning assets was 2.03%
for the first nine months of 1996 versus 1.96% for the comparable period in
1995.
Noninterest Expense
Noninterest expense increased $2.9 million, or 35.6%, and $3.7 million, or
14.8%, respectively, over the comparable three and nine month periods of
1995. For the nine month period ended September 30, 1996, compensation
expense and the acquisition of First Financial accounted for $3.0 million of
the $3.7 million increase in expenses.
<PAGE>
Compensation expense increased $1.4 million, or 32.7%, and $2.1 million, or
15.6%, respectively, over the comparable three and nine month periods of
1995. The increase reflects growth in the number of full-time equivalent
employees of 80 due principally to the First Financial acquisition,
higher pension expense including the adoption of a Supplemental Employee
Retirement Plan and increases associated with both cash and stock based
compensation plans reflecting the Company's improved
operating performance and higher stock price.
Occupancy expense, including premises, furniture, fixtures and equipment
increased $374,000, or 25.5%, and $613,000, or 14.2%, respectively, over
the comparable three and nine month periods of 1995. Excluding the recent
acquisition, the increase is attributable to higher depreciation and
repairs/maintenance expenses.
Other noninterest expense increased $1.0 million, or 48.7%, and 988,000, or
13.7%, respectively, over the comparable three and nine month periods of
1995. A reduction of approximately $600,000 in FDIC premiums was more than
offset by an increase in professional fees of $655,000 and additional expenses
associated with First Financial. The increase in professional fees
reflects the hiring of consultants to assist with various projects within the
Company including data processing conversions, technology initiatives,
restructurings and the development of a strategic plan.
Annualized net noninterest expense (noninterest income minus noninterest
expense) as a percent of average assets was 2.56% in the first nine months
of 1996 versus 2.65% for the first nine months of 1995. The decrease in
this percentage is attributable to the growth in noninterest income.
Income Taxes
The provision for income taxes increased $245,000, or 21.1%, during the
third quarter and $764,000, or 26.9%, during the first nine months of 1996.
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 1996 was 30.0% versus 28.7% for the comparable period in 1995. 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
1996 as compared to the comparable period of 1995.
FINANCIAL CONDITION
Average balances for the three and nine month periods ended September 30,
1996 reflect the acquisition of First Financial. The impact on average
balances for the third quarter is substantially greater than the nine month
period due to the timing of the acquisition. Table I on page 15, presents
average balances for the three and nine month periods of 1996 and 1995.
The Company's average assets increased to $871.5 million in the first nine
months of 1996 from $757.7 million in the first nine months of 1995.
Average earning assets were $778.3 million for the nine months ended
September 30, 1996 versus $675.3 million for the comparable period in 1995.
The most significant change in the mix of earning assets occurred through
growth in the loan portfolio. The increase in the loan portfolio was
funded primarily through deposit growth and investment portfolio
maturities.
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. 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, 1996, shareholders' equity included
a net unrealized loss of $649,000 compared to a gain of $968,000 at
December 31, 1995. The reduction in value reflects a rise in current
interest rates relative to their level at year-end.
<PAGE>
Average loans were up $94.4 million, or 22.0%, over the comparable nine
month period in 1995. 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 1996, loans as a percent of earning assets
increased to 67.3% from 63.5% in 1995, which had a favorable impact on the
Company's net interest income. During the third quarter of 1996 this
percentage increased further to 70.5%.
At September 30, 1996, the Company's nonperforming loans were $3.4 million
versus $4.7 million at year-end 1995. As a percent of nonperforming loans,
the allowance for loan losses represented 244.1% at September 30, 1996
versus 138.3% at year-end 1995. 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 $1.0 million at September 30, 1996 and December 31, 1995.
The ratio of nonperforming assets to loans plus other real estate was .66% at
September 30, 1996 compared to 1.28% at December 31, 1995.
Average deposits increased to $741.0 million for the first nine months of
1996, from $653.3 million for the first nine months of 1995. The growth in
deposits was primarily driven by deposit promotions which were initiated by
the Company during the second and fourth quarters of 1995, as well as by the
First Financial acquisition. As a result of these promotions and the recent
acquisition, certificates of deposit represented $57.3 million, or 65.3%, of the
$87.7 million growth in average total deposits. Certificates of deposit, as a
percent of average total deposits, increased to 41.0% for the first nine months
of 1996, from 37.7% for the comparable period in 1995. During the third quarter
of 1996 this percentage increased to 45.6% reflecting the mix of deposits
acquired from First Financial.
The ratio of average noninterest bearing deposits to total deposits fell to
22.7% for the first nine months of 1996, compared to 24.3% for the
comparable period in 1995. For the same periods, the ratio of average
interest bearing liabilities to average earning assets was 78.0% and
76.3%, 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, 1996, there was $15.0 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 $86.1 million as of September 30, 1996,
compared to $81.2 million as of December 31, 1995. 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 7.6% at September 30, 1996 versus 9.8%
at December 31, 1995. Further, the Company's risk-adjusted capital ratio
of 14.0% significantly exceeds the 8.0% minimum requirement under the risk-
based regulatory guidelines. Capital ratios declined during the third
quarter reflecting the recent acquisition.
In 1996, the Board of Directors converted its dividend payment schedule
from semi-annual to quarterly. As of September 30, 1996, the Company had
declared and paid three quarterly dividends of $ .27 each. 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, 1996, 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.
<PAGE>
During the first nine months of 1996, shareholders' equity increased $5.0
million, or 8.2%, on an annualized basis. The net increase in
shareholders' equity reflects net income of $8.4 million, dividends of $2.3
million and a shift in the Company's net unrealized gain(loss) on available-for-
sale securities from a gain of $968,000 at December 31, 1995 to a loss of
$649,000 at September 30, 1996. The Company's common stock had a book
value of $30.00 per share at September 30, 1996 compared to $28.44 at
December 31, 1995. Pursuant to the Company's stock repurchase program
adopted in 1989, the Company has repurchased 263,580 shares of its common
stock. In the first nine months of 1996, there were no shares repurchased
and 17,843 shares were issued, a majority of which were shares issued in
accordance with the Company's Associate Stock Purchase Plan.
<PAGE>
<TABLE>
AVERAGES BALANCES & INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
<CAPTION>
FOR THREE MONTHS ENDED SEPTEMBER 30, FOR NINE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, Net of Unearned Interest $651,753 $15,164 9.26% $432,791 $10,536 9.66% $523,485 36,685 9.36% $429,061 $30,354 9.46%
Taxable Investment Securities 144,756 2,319 6.38% 146,754 2,151 5.82% 139,811 6,492 6.20% 135,681 5,698 5.62%
Tax-Exempt Investment Securities 72,857 1,224 6.72% 72,249 1,279 7.08% 74,404 3,814 6.83% 69,993 3,735 7.11%
Funds Sold 54,462 716 5.23% 34,335 502 5.80% 40,598 1,604 5.28% 40,576 1,814 5.98%
Total Earning Assets 923,828 19,423 8.37% 686,129 14,468 8.37% 778,298 48,594 8.34% 675,311 41,601 8.23%
Cash & Due From Banks 50,148 48,440 49,997 48,496
Allowance for Loan Losses (8,227) (7,254) (7,077) (7,528)
Other Assets 60,362 41,295 50,311 41,423
TOTAL ASSETS $1,026,111 $768,610 $871,529 $757,702
LIABILITIES
NOW Accounts $105,372 539 2.03% $ 91,435 422 1.83% $100,253 1,322 1.76% $ 91,245 1,412 2.07%
Money Market Accounts 97,736 756 3.08% 70,747 527 2.96% 84,805 1,944 3.06% 69,841 1,586 3.04%
Savings Accounts 96,492 517 2.13% 81,443 436 2.12% 84,061 1,323 2.10% 87,172 1,520 2.33%
Other Time Deposits 399,072 5,213 5.20% 259,581 3,713 5.68% 303,537 11,799 5.19% 246,200 9,849 5.35%
Total Int. Bearing Deposits 698,672 7,025 4.00% 503,206 5,098 4.02% 572,656 16,388 3.82% 494,458 14,367 3.88%
Funds Purchased 26,325 325 4.90% 18,953 252 5.27% 23,963 865 4.82% 19,521 780 5.34%
Other Borrowed Funds 8,929 136 6.06% 1,407 14 3.85% 3,842 158 5.49% 1,184 38 4.25%
Long-Term Debt 16,855 299 7.06% -- -- -- 6,964 358 6.87% -- -- --
Total Interest Bearing
Liabilities 750,781 7,785 4.13% 523,566 5,364 4.07% 607,425 17,768 3.91% 515,163 15,185 3.94%
Noninterest Bearing Deposits 175,931 157,677 168,350 158,817
Other Liabilities 14,611 8,960 12,610 7,723
TOTAL LIABILITIES 941,323 690,203 788,385 681,703
SHAREHOLDERS' EQUITY
Common Stock 29 31 30 31
Surplus 4,349 5,868 4,979 5,866
Retained Earnings 80,410 72,508 78,135 70,102
TOTAL SHAREHOLDERS' EQUITY 84,788 78,407 83,144 75,999
TOTAL LIABILITIES & EQUITY $1,026,111 $768,610 $871,529 $757,702
Interest Rate Spread 4.24% 4.31% 4.43% 4.29%
Net interest Income $11,638 $ 9,104 $30,827 $26,416
Net Interest Margin 5.01% 5.27% 5.29% 5.23%
(1) Average balances include nonaccrual loans. Interest income includes fees on
loans of approximately $685,000 and $1,641,000, for the three and nine months ended September 30, 1996, versus $422,000 and
$1,119,000, for the comparable periods ended September 30, 1995.
(2) Interest income includes the effects of taxable equivalent adjustments using
a 34% tax rate.
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1-4
Not applicable
ITEM 5
On October 25, 1996, the Company filed an application for inclusion of its
common stock on the NASDAQ National Market. The Company anticipates such
inclusion to be approved. If so, quotations on the
National Market System should commence during the first quarter of 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
2(a) The Agreement and Plan of Merger, dated as of December 10, 1995, by
and among Capital City Bank Group, Inc., a Florida corporation to be formed
as a direct wholly-owned subsidiary of the Company, and First Financial Bancorp,
Inc., is incorporated herein by reference to Exhibit 2 of the Company's Form
10-K/A filed on April 9, 1996 (File No. 0-13358).
3(a) Amended and Restated Articles of Incorporation of the Company are
incorporated by reference to the Company's 1996 Proxy Statement filed on April
11, 1996 (File No. 0-13358).
3(b) Bylaws of the Company are incorporated by reference to Exhibit 3(b) of
the Company's 1983 Form 10-K (File No. 2-86158).
27 Financial Data Schedule
(B) Reports on Form 8-K
On July15, 1996, the Company filed a Form 8-K to report the acquisition of
First Financial Bancorp, Inc., had been consummated on July 1, 1996. This Form
8-K was amended by a Form 8-K/A filed on September 13, 1996, to include audited
financial statements of First Financial Bancorp, Inc., for the years ended
September 30, 1995, 1994 and 1993, and pro forma consolidated financial
statements for the year ended December 31, 1995 and for the six months
ended June 30, 1996.
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)
J. Kimbrough Davis
Senior Vice President and
Chief Financial Officer
Date: November 14, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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