FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter: June 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 July 31, 1996, 2,871,553 shares of the Registrant's Common Stock, $.01 par value, were outstanding.
CAPITAL CITY BANK GROUP, INC. I N D E X PART I. FINANCIAL INFORMATION PAGE NUMBER Consolidated Statements of Condition -- June 30, 1996 and December 31, 1995 3 Consolidated Statements of Income -- Three and Six Months Ended June 30, 1996 4 and 1995 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item IV Submission of Matters to a Vote of Security Holders 14 Item V Other Information 16 Item VI 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 AS OF JUNE 30, 1996 AND DECEMBER 31, 1995 (Dollars In Thousands, Except Per Share Amounts) June 30, 1996 December 31, 1995 (Unaudited) (Audited) ASSETS Cash and Due From Banks $59,639 $ 61,613 Federal Funds Sold 53,100 41,150 Interest Bearing Deposits in Other Banks 1,982 300 Investment Securities Available-for-Sale 197,351 230,747 Loans 469,626 447,779 Unearned Interest (3,076) (3,806) Allowance for Loan Losses (6,409) (6,474) Loans, Net 460,141 437,499 Premises and Equipment 26,832 26,240 Accrued Interest Receivable 6,890 7,339 Intangibles 1,011 1,129 Other Assets 8,972 7,642 Total Assets $815,918 $813,659 LIABILITIES Deposits: Noninterest Bearing Deposits $175,776 $168,566 Interest Bearing Deposits 524,264 531,013 Total Deposits 700,040 699,579 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 20,781 17,367 Other Short-Term Borrowings 1,931 2,400 Long-Term Debt 1,927 1,982 Other Liabilities 7,829 11,173 Total Liabilities 732,508 732,501 SHAREHOLDERS' EQUITY Common Stock, $.01 par value; 30,000,000 shares authorized; 2,862,296 shares outstanding at June 30, 1996 and 2,853,716 outstanding at December 31, 1995 29 29 Additional Paid In Capital 4,162 3,913 Retained Earnings 80,052 76,248 Net Unrealized Gain (Loss) on Available- for-Sale Securities (833) 968 Total Shareholders' Equity 83,410 81,158 Total Liabilities and Shareholders' Equity $815,918 $813,659 Book Value Per Share $ 29.14 $ 28.44 The accompanying notes to Consolidated Financial Statements are an integral part of these statements.
CAPITAL CITY BANK GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED JUNE 30 (Dollars in Thousands, Except Per Share Amounts) THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 1996 1995 1996 1995 INTEREST INCOME Interest and Fees on Loans $10,784 $10,062 $21,459 $19,799 Investment Securities: U. S. Treasury 985 1,032 2,029 2,119 U. S. Government Agencies/Corp. 993 744 2,004 1,300 States and Political Subdivisions 878 857 1,782 1,696 Other Securities 71 61 140 128 Federal Funds Sold 430 834 888 1,312 Total Interest Income 14,141 13,590 28,302 26,354 INTEREST EXPENSE Deposits 4,593 5,064 9,363 9,269 Fed. Funds Purchased & Securities Sold Under Repurchase Agreements 257 303 540 528 Long-Term Borrowings 29 - 59 - Other Short-Term Debt 9 12 21 24 Total Interest Expense 4,888 5,379 9,983 9,821 Net Interest Income 9,253 8,211 18,319 16,533 Provision for Loan Losses 262 17 523 291 Net Interest Income After Provision for Loan Losses 8,991 8,194 17,796 16,242 NONINTEREST INCOME Income from Fiduciary Activities 252 165 540 502 Service Charges on Deposit Accounts 1,630 1,407 3,149 2,730 Data Processing 845 780 1,512 1,386 Securities Transactions 4 - 16 - Other 1,095 896 2,167 1,985 Total Noninterest Income 3,826 3,248 7,384 6,603 NONINTEREST EXPENSE Salaries and Employee Benefits 4,746 4,464 9,531 8,906 Occupancy, Net 609 628 1,226 1,219 Furniture and Equipment 972 790 1,863 1,631 Other 2,525 2,571 5,010 5,058 Total Noninterest Expense 8,852 8,453 17,630 16,814 Income Before Income Tax 3,965 2,989 7,550 6,031 Income Tax Expense 1,183 828 2,201 1,682 NET INCOME $ 2,782 $ 2,161 $ 5,349 $ 4,349 Net Income Per Share $ .97 $ .75 $ 1.87 $ 1.52 Cash Dividends Per Share $ .27 $ .11 $ .54 $ .11 Average Shares Outstanding 2,862,292 2,853,680 2,861,136 2,852,756 The accompanying notes to Consolidated Financial Statements are an integral part of these statements.
CAPITAL CITY BANK GROUP, INC. STATEMENT OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30 (Dollars In Thousands) 1996 1995 (Unaudited) (Unaudited) NET INCOME $ 5,349 $ 4,349 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 523 291 Depreciation 1,245 1,188 Net Amortization (Accretion) 555 674 Amortization of Intangible Assets 118 133 Non-Cash Compensation 90 72 Net (Increase) Decrease in Interest Receivable 449 (1,045) Net (Increase) Decrease in Other Assets (1,330) 1,466 Net Increase (Decrease) in Other Liabilities (2,224) 1,332 Net Cash From Operating Activities 4,775 8,460 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Payments/Maturities of Investment Securities-Held to Maturity - 20,368 Proceeds from Payments/Maturities of Investment Securities-Available for Sale 55,884 7,435 Purchase of Investment Securities-Held to Maturity - (25,382) Purchase of Investment Securities- Available for Sale (23,450) (12,450) Net (Increase) Decrease in Loans (23,166) (6,315) Purchase of Premises & Equipment (1,841) (2,585) Sales of Premises & Equipment 4 22 Net Cash from Investing Activities 7,431 (18,907) CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase (Decrease) in Deposits 461 18,339 Net Increase (Decrease) in Federal Funds Purchased 3,414 6,288 Net Increase (Decrease) in Other Borrowed Funds (469) 631 Repayment of Long-Term Debt (55) - Dividends Paid (4,085) (2,277) Issuance of Common Stock 186 220 Net Cash From Financing Activities (548) 23,201 Net Increase (Decrease) in Cash and Cash Equivalents 11,658 12,754 Cash and Cash Equivalents at Beginning of Period 103,063 89,067 Cash and Cash Equivalents at End of Period $ 114,721 $ 101,821 Supplemental Disclosure: Interest Paid $11,366 $8,837 Taxes Paid $ 1,988 $1,542 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 year presentation. In the opinion of management, the consolidated financial statements contain all adjustments, which are those of a recurring nature, and disclosures necessary to present fairly the financial position of the Company as of June 30, 1996 and December 31, 1995, and the results of operations for the three and six month periods ended June 30, 1996 and 1995, and cash flows for the six month period ended June 30, 1996 and 1995. 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 10K. (2) INVESTMENT SECURITIES The carrying value and related market value of investment securities at June 30, 1996 and December 31, 1995 were as follows (dollars in thousands): June 30, 1996 Amortized Unrealized Unrealized Market Available-For-Sale Cost Gains Losses Value U. S. Treasury $ 50,694 $ 129 $ 123 $ 50,700 U. S. Government Agencies and Corporations 66,081 13 1,025 65,069 States and Political Subdivisions 73,770 435 603 73,602 Mortgage Backed Securities 4,110 10 93 4,027 Other Securities 3,959 5 11 3,953 Total $198,614 $ 592 $ 1,855 $197,351 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
(3) LOANS The composition of the Company's loan portfolio at June 30, 1996 and December 31, 1995 was as follows (dollars in thousands): June 30, 1996 December 31, 1995 Commercial, Financial and Agricultural $ 50,935 $ 46,149 Real Estate-Construction 27,673 28,391 Real Estate-Mortgage 270,190 259,503 Consumer 120,828 113,736 Gross Loans $469,626 $447,779 (4) ALLOWANCE FOR LOAN LOSSES An analysis of the changes in the allowance for loan losses for the six month period ended June 30, 1996 and 1995, is as follows (dollars in thousands): June 30, 1996 June 30, 1995 Balance, Beginning of the Period $ 6,474 $ 7,551 Provision for Loan Losses 523 291 Recoveries on Loans Previously Charged-Off 306 297 Loans Charged-Off 894 795 Balance, End of Period $ 6,409 $ 7,344 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 June 30, 1996 were $1.2 million compared to $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. (5) DEPOSITS The composition of the Company's interest bearing deposits at June 30, 1996 and December 31, 1995 was as follows (dollars in thousands): June 30, 1996 December 31, 1995 NOW Accounts $110,260 $122,517 Money Market Accounts 86,605 67,942 Savings Deposits 77,002 78,522 Other Time Deposits 250,397 262,032 Total Interest Bearing Deposits $524,264 $531,013 (6) SUBSEQUENT EVENT On July 1, 1996, Capital City Bank Group, Inc. (the "Company"), consummated its acquisition of First Financial Bancorp, Inc. a Florida corporation ("First Financial"), parent company to First Federal Bank, Tallahassee, Florida. At June 30, 1996, First Financial had assets of approximately $243.7 million, deposits of approximately $205.1 million and stockholders' equity of approximately $15.3 million.
(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. 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. RESULTS OF OPERATIONS Net Income Net income was $2.8 million, or $.97 per share for the second quarter of 1996, a per share increase of 29.3% over the $2.2 million, or $.75 per share for the comparable period in 1995. Net income was $5.3 million, or $1.87 per share for the six months ended June 30, 1996, a per share increase of 23.0% over the $4.3 million, or $1.52 per share for comparable period in 1995. Operating revenue, which includes net interest income and noninterest income, increased $2.6 million, or 11.1%, over the first half of 1995, and was the most significant factor contributing to the increase in earnings. For The Three For The Six Months Ended Months Ended June 30, June 30, 1996 1995 1996 1995 Interest and Dividend Income $14,141 $13,590 $28,302 $26,354 Taxable Equivalent Adjustment(1) 429 389 870 779 14,570 13,979 29,172 27,133 Interest Expense 4,888 5,379 9,983 9,821 Net Interest Income (FTE) 9,682 8,600 19,189 17,312 Provision for Loan Losses 262 17 523 291 Taxable Equivalent Adjustment 429 389 870 779 Net Int. Inc. After Provision 8,991 8,194 17,796 16,242 Noninterest Income 3,826 3,248 7,384 6,603 Noninterest Expense 8,852 8,453 17,630 16,814 Income Before Income Taxes 3,965 2,989 7,550 6,031 Income Taxes 1,183 828 2,201 1,682 Net Income $ 2,782 $ 2,161 $ 5,349 $ 4,349 Percent Change Over Comparable Prior Year Period 28.74% (9.47%) 22.99% (8.19%) Return on Average Assets (2) 1.42% 1.13% 1.36% 1.17% Return on Average Equity (2) 13.33% 11.40% 13.05% 11.73% (1) Computed using a statutory tax rate of 34% (2) Annualized
Net Interest Income Second quarter taxable equivalent net interest income increased $1.1 million or 12.6%, over the comparable quarter in 1995. Taxable equivalent net interest income for the first half of 1996 increased $1.9 million, or 10.8%, over the first half of 1995. The increase in both periods is attributable to 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 13 provides a comparative analysis of the Company's average balances and interest rates. For the three and six month periods ended June 30, 1996, taxable-equivalent interest income increased $591,000, or 4.2%, and $2.0 million, or 7.5%, 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 half of 1996 averaged $458.6 million, representing an increase of $31.6 million, or 7.4%, over the comparable period in 1995, and loans as a percent of average earning assets increased to 65.1% from 63.8%. This shift in the mix lead to a 16 basis point increase in the yield on earning assets during the first six months of 1996 as compared to the comparable prior year period. Interest expense through the first six months of 1996 has increased $162,000, or 1.6%, over the first half of 1995. However, second quarter interest expense decreased $491,000 or 9.1%, over the comparable quarter in 1995. The decrease in the second quarter of 1996 is due to lower rates paid on the Company's deposits, including both transaction and time accounts, and repricing of approximately $31.0 million in promotional certificates of deposit which were issued late in the first quarter of 1995. During the second quarter of 1996, the average rate paid on interest bearing liabilities fell to 3.68% from 3.83% in the first quarter of 1996 and 4.12% in the second 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) increased from 4.29% in the first half of 1995 to 4.57% in the comparable 1996 period. The Company's net interest margin percentage (defined as taxable-equivalent net interest income divided by average earning assets) increased from 5.21% in the first half of 1995 to 5.47% in the first half of 1996. Provision for Loan Losses The provision for loan losses was $262,000 and $523,000, respectively, for the three and six month periods ended June 30, 1996, compared to $17,000 and $291,000 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 six months of 1996 approximates net charge-offs. For a discussion of the Company's nonperforming loans, see the section entitled "Financial Condition". As of June 30, 1996, the allowance for loan losses totaled $6.4 million compared to $7.3 million at June 30, 1995. The allowance as a percent of loans, represented 1.37% and 1.72% at the end of each respective period. Although the allowance for the loan losses has declined over the prior year, it is management's opinion, based on the low level of nonperforming loans and net charge-offs, and current economic conditions, that the allowance of $6.4 million, or 1.37% of period-end loans, is sufficient to provide for losses inherent in the loan portfolio at June 30, 1996. Charge-off activity for the respective periods is set forth below. Three Months Ended Six Months Ended 6/30/96 6/30/95 6/30/96 6/30/95 Net Charge-Offs $283,000 $393,000 $588,000 $498,000 Net Charge-Offs (Annualized) as a percent of Average Loans Outstanding, Net of Unearned Interest .24% .36% .26% .23%
Noninterest Income Noninterest income increased $578,000, or 17.8%, in the second quarter of 1996 versus the comparable quarter for 1995, and $781,000, or 11.8%, for the six months ended June 30, 1996 versus the comparable period for 1995. The increase in noninterest income is 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. On a prospective basis, fees for deposit services were increased effective July 1, 1996, which will further bolster growth in noninterest revenues. Service charges on deposit accounts increased $223,000, or 15.8%, and $419,000, or 15.3%, over the comparable three and six month periods for 1995. The increase primarily reflects a higher level of activity subject to service charge assessments and tighter controls over waived fees. Data processing revenues increased $65,000, or 8.3%, and $126,000, or 9.1%, respectively, over the comparable three and six month periods in 1995. The increase primarily reflects higher revenues associated with processing for third party banks. In the second quarter of 1996, income from fiduciary services increased $87,000, or 52.7%, as compared to the second quarter of 1995. A price increase, growth in assets under management and the collection of estate fees all contributed to the higher revenues during the second quarter. 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. Despite the significant increase in revenues during the second quarter, year-to-date revenues are only up $38,000, or 7.6%, as a result of the one-time adjustment recognized during 1995. Other income increased $199,000, or 22.2%, and $182,000, or 9.2%, respectively, for the three and six month periods ended June 30, 1996 over the comparable prior year periods. Mortgage origination fees increased $68,000 or 43.6% due to higher volume and check printing income increased $46,000, or 34.8%, due to a renegotiation of the contract which went into effect in March 1996. Additionally, other fees and commissions were up $61,000, or 18.9%. Noninterest income as a percent of average earning assets was 2.1% for the first half of 1996 versus 2.0% for the comparable quarter in 1995. Noninterest Expense Noninterest expense increased $399,000, or 4.7%, and $816,000, or 4.9%, respectively, over the comparable three and six month periods in 1995. Through the first six months, compensation expense increased $625,000, or 7.0%, reflecting annual raises and an increase in full-time equivalent employees of 15. Occupancy expense, including premises, furniture, fixtures and equipment increased $163,000, or 11.5%, and $239,000, or 8.4%, respectively, over the comparable three and six month periods in 1995. The increase is attributable to depreciation, repairs/maintenance and other related expenses which were up over the prior year by $57,000, $102,000 and $79,000, respectively. Other noninterest expense decreased $48,000, or .9%, during the first six months of 1996. The overall decrease reflects a $720,000 reduction in FDIC insurance premiums. Higher costs associated with legal and professional fees, ORE expenses/losses, fraud losses and courier service offset a significant portion of the favorable reduction in insurance premiums.
Annualized net noninterest expense (noninterest income minus noninterest expense) as a percent of average assets was 2.61% in the first half of 1996 versus 2.74% for the first half of 1995. The decrease in this percentage is attributable to the growth in noninterest income. Income Taxes The provision for income taxes increased $355,000, or 42.8%, during the second quarter and $519,000, or 30.9%, during the first six 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 half of 1996 was 29.2% versus 27.9% 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 half of 1996 as compared to the first half of 1995. FINANCIAL CONDITION The Company's average assets increased to $790.9 million in the first half of 1996 from $751.0 million in the first half of 1995. Average earning assets were $704.7 million for the six months ended June 30, 1996 versus $669.8 million for the comparable period in 1995. Average loans were up $31.6 million, or 7.4%, over the comparable six month period in 1995. The increase in loans was funded primarily through an increase in average deposits which grew by $25.8 million or 4.0%. Average U.S. Government securities increased $7.3 million, or 5.8%, while average municipal securities increased $6.3 million, or 9.2%. Table I on page 13, presents average balances for the three and six month periods of 1996 and 1995. 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 tax, as a separate component of shareholders' equity. At June 30, 1996, shareholders' equity included a net unrealized loss of $833,000 compared to a gain of $968,000 at December 31, 1995. The reduction in value reflects the rise in interest rates which began late in the first quarter of 1996. Average loans increased $31.6 million reflecting growth primarily in the catagories of real estate mortgage and consumer loans. Based on the averages for the first half of 1996, loans as a percent of earning assets increased to 65.1% from 63.8% in 1995, which had a favorable impact on the Company's net interest margin. For the second quarter of 1996, this percentage increased further to 66.0%. At June 30, 1996, the Company's nonperforming loans were $1.2 million versus $4.7 million at year-end 1995. As a percent of nonperforming loans, the allowance for loan losses represented 542.2% at June 30, 1996 versus 126.6% 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 $1.1 million at June 30, 1996, versus $1.0 million at December 31, 1995. The ratio of nonperforming assets to loans plus other real estate was .48% at June 30, 1996 compared to 1.28% at December 31, 1995. Average deposits increased to $673.5 million for the first half of 1996, from $647.7 million for the first half 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 a result of these promotions, certificates of deposit represented $14.8 million, or 57.4%, of the $25.8 million growth in average total deposits. Certificates of deposit, as a percent of average total deposits, increased to 37.8% for the first half of 1996 from 36.9% for the comparable period in 1995. The ratio of average noninterest bearing deposits to total deposits was 24.4% for the first half of 1996 and 1995. For the same periods, the ratio of average interest bearing liabilities to average earning assets was 75.9% 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 million revolving line of credit. As of June 30, 1996, there was no debt outstanding under this credit facility. However, on July 1, the Company borrowed $15.0 million to fund the acquisition of First Financial Bancorp, Inc. (See Item V) The Company's equity capital was $83.4 million as of June 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 10.1% at June 30, 1996 versus 9.8% at December 31, 1995. Further, the Company's risk-adjusted capital ratio of 18.9% significantly exceeds the 8.0% minimum requirement under the risk- based regulatory guidelines. In 1996, the Board of Directors converted its dividend payment schedule from semi-annual to quarterly. As of June 30, 1996, the Company had declared and paid two 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 June 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. During the first six months of 1996, shareholders' equity increased $2.3 million, or 5.5%, on an annualized basis. The net increase in shareholders' equity reflects net income of $5.3 million, dividends of $1.6 million and a shift in the Company's unrealized gain(loss) on available-for-sale securities from a gain of $968,000 at December 31, 1995 to a loss of $833,000 at June 30, 1996. The Company's common stock had a book value of $29.14 per share at June 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 251,563 shares of its common stock, net of shares subsequently reissued. In the first half of 1996, there were no shares repurchased and 8,580 shares were issued, a majority of which were shares issued in accordance with the Company's Associate Stock Purchase Plan.
<TABLE> AVERAGES BALANCES & INTEREST RATES (Taxable Equivalent Basis - Dollars in Thousands) <CAPTION> FOR THREE MONTHS ENDED JUNE 30 FOR SIX MONTHS ENDED JUNE 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> Loans, Net of Unearned Interest $464,713 $10,812 9.36% $431,237 $ 10,069 9.37% $458,645 $21,521 9.44% $427,072 $19,818 9.36% Taxable Investment Securities 132,218 2,049 6.23% 131,823 1,837 5.59% 137,283 4,173 6.11% 130,121 3,547 5.49% Tax-Exempt Investment Securities 74,361 1,279 6.88% 69,691 1,238 7.11% 75,185 2,589 6.89% 68,845 2,456 7.13% Funds Sold 32,524 430 5.32% 55,269 834 6.05 33,592 889 5.32% 43,749 1,312 6.05% Total Earning Assets 703,816 14,570 8.32% 688,020 13,978 8.15% 704,705 29,172 8.32% 669,787 27,133 8.16% Cash & Due From Banks 50,713 45,953 49,985 48,533 Allowance for Loan Losses (6,484) (7,688) (6,495) (7,667) Other Assets 42,622 39,142 42,744 40,358 TOTAL ASSETS $790,667 $765,427 $790,939 $751,011 LIABILITIES NOW Accounts $ 95,918 $ 353 1.47% $ 88,886 $ 461 2.08% $97,666 $ 783 1.61% $ 91,148 $ 990 2.19% Money Market Accounts 84,319 664 3.17% 68,025 518 3.05% 78,268 1,188 3.05% 69,380 1,059 3.08% Savings Accounts 78,305 399 2.05% 85,047 506 2.39% 78,762 808 2.06% 90,085 l,084 2.43% Other Time Deposits 250,995 3,177 5.09% 258,336 3,578 5.55% 254,240 6,584 5.21% 239,400 6,135 5.17% Total Int. Bearing Deposits 509,537 4,593 3.62% 500,294 5,063 4.06% 508,936 9,363 3.70% 490,013 9,268 3.81% Funds Purchased 21,536 257 4.80% 21,777 303 5.58% 22,772 540 4.77% 19,810 529 5.38% Other Borrowed Funds 1,279 9 3.15% 1,262 12 3.89% 1,294 21 3.41% 1,256 24 3.85% Long-Term Debt 1,941 29 6.04% - - - 1,955 59 6.07% - - - Total Interest Bearing Liabilities 534,293 4,888 3.68% 523,333 5,378 4.12% 534,957 9,983 3.75% 511,079 9,821 3.87% Noninterest Bearing Deposits 164,218 160,168 164,556 157,733 Other Liabilities 8,217 5,880 8,962 7,435 TOTAL LIABILITIES 706,728 689,381 708,475 676,247 SHAREHOLDERS' EQUITY Common Stock 29 29 29 29 Surplus 4,163 3,912 4,080 3,833 Retained Earnings 79,747 72,105 78,355 70,902 TOTAL SHAREHOLDERS' EQUITY 83,939 76,046 82,464 74,764 TOTAL LIABILITIES & EQUITY $790,667 $765,427 $790,939 $751,011 Interest Rate Spread 4.64% 4.03% 4.57% 4.29% Net interest Income $9,682 $8,600 $19,189 $17,312 Net Interest Margin 5.53% 5.02% 5.47% 5.21% (1) Average balances include nonaccrual loans. Interest income includes fees on loans of approximately $ 480,000 and $ 956,000, for the three and six months ended June 30, 1996, versus $ 238,000 and $697,000, for the comparable periods ended June 30, 1995. (2) Interest income includes the effects of taxable equivalent adjustments using a 34% tax rate. </TABLE>
PART II. OTHER INFORMATION Items 1-3. Not applicable Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of Capital City Bank Group, Inc. was held on April 30, 1996. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's solicitations. The following summarizes all matters voted upon at this meeting. (1) To fix the number of directors to be elected at seven (7) and the election of the seven (7) persons listed as a group: (1) DuBose Ausley (5) Payne H. Midyette, Jr. (2) Thomas A. Barron (6) Godfrey Smith (3) Cader B. Cox, III (7) William G. Smith, Jr. (4) John K. Humphress NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,426,363 1,113 0 (2) To approve the Company's 1996 Associate Incentive Plan. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,405,558 21,918 0 (3) To approve and adopt an amendment to the Articles of Incorporation of the Company to increase the number of authorized shares of the Company's common stock to 30,000,000 and to authorize 3,000,000 shares of preferred stock, which preferred stock would have rights and preferences to be determined by the Board of Directors. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,416,824 4,215 6,437 (4) To approve and adopt amendments to the Articles of Incorporation of the Company governing certain rights of shareholders; specifically, to (a) establish a classified Board of Directors beginning with the 1997 Annual Meeting of Shareholders; (b) provide that the shareholders of the Company may act only at a duly and validly called meeting and not by written consent; (c) provide that only (i) a majority of the total number of authorized directors on the Board of Directors (calculated without regard to any vacant positions) or (ii) the holders of not less than fifty percent (50%) of all the votes entitled to be cast on any issue at a special meeting of shareholders, may call such a special meeting; and (d) amend the procedures that shareholders must follow in order to nominate directors. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,423,094 2,650 1,732 (5) To approve and adopt an amendment to the Articles of Incorporation of the Company to specify factors to be considered by the Board of Directors in evaluating acquisition offers. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,423,550 2,372 1,554 (6) To approve and adopt an amendment to the Articles of Incorporation of the Company to require obligatory indemnification of the Company of its officers and directors in certain instances. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,417,421 2,695 7,360 (7) To approve and adopt amendments to the Articles of Incorporation of the Company to increase certain shareholder voting requirements; specifically, to (a) provide that the affirmative vote of at least two- thirds (66 2/3%) of the outstanding shares of the Company's Common Stock, or a majority of such shares if a majority of disinterested directors also approve, is required to amend or to repeal several of the articles or to adopt any provision inconsistent therewith; and (b) provide that members of the Board of Directors may be removed, other than in connection with the annual election of directors, only for cause and then only by affirmative vote of at least two-thirds (66 2/3%) of the outstanding shares of common stock. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,419,880 1,368 6,228 (8) To ratify the appointment of Arthur Andersen as auditors for the Company for the fiscal year ending December 31, 1996. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,425,693 269 1,514 (9) In the discretion of the proxies named above, to approve such other business as may be brought before the meeting or any adjournment thereof. NUMBER OF VOTES CAST AGAINST/ ABSTENTIONS/ FOR WITHHELD BROKER NON-VOTES 2,419,491 2,197 5,788 Item 5. Other Information On July 1, 1996, Capital City Bank Group, Inc. (the Company), consummated its acquisition of First Financial Bancorp, Inc. a Florida corporation (First Financial), parent company to First Federal Bank, Tallahassee, Florida. Pursuant to the terms of the Agreement and Plan of Merger dated December 10, 1995, each share of common stock of First Financial issued and outstanding on July 1, 1996 was converted into the right to receive from the Company $22.00 in cash. Total consideration paid to First Financial common stockholders and holders of options to acquire First Financial common stock was $20.3 million. During the fourth quarter, First Federal bank will be combined with and into Capital City Bank, a wholly owned subsidiary of the Company. Prior to consummation of the merger, First Financial, through First Federal Bank conducted business from its headquarters and main office in Tallahassee, Florida and four other full service offices in northern and west-central Florida. At June 30, 1996, First Financial had assets of approximately $243.7 million, deposits of approximately $205.1 million and stockholders' equity of approximately $15.3 million. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits 3G) Amended and Restated Articles of Incorporation of Capital City Bank Group, Inc., dated as of May 1, 1996. 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 June 30, 1996. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned Chief Financial Officer hereunto duly authorized. CAPITAL CITY BANK GROUP, INC. (Registrant) /S/ J. KIMBROUGH DAVIS J. Kimbrough Davis Senior Vice President and Chief Financial Officer Date: August 14, 1996