Annual Report (Form 10-K), fiscal year 1993

Item 1. Business 3 Item 2.



Item 2. Properties
Capital City Bank Group, Inc., is headquartered in Tallahassee, Florida. The Company's offices are in the First National Bank building located on the corner of Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by First National Bank but is located, in part, on land leased under a long-term agreement.
City National's main office is located on land leased from the Smith Interest General Partnership in which several directors and officers have an interest. Lease payments during 1993 totalled approximately $51,900.
As of March 1, 1994, the Company had 30 banking locations. Of the 30 locations, the Company leases either the land or buildings (or both) at 8 locations and owns the land and buildings at the remaining 22.
Item 3.

Item 3. Legal Proceedings
Not Applicable
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
Item 5.

Item 5. Market for the Registrant's Securities and Related Stockholder Matters
There is currently no established trading market for the common stock of Capital City Bank Group, Inc., and therefore, no bid or sale quotations are generally available. Based on sales of stock of which the Company has knowledge, the stock has traded in a range of $24.00 to $26.00 per share for the two-year period ended December 31, 1993, with the most recent trades at $26.00 per share.
Item 6.

Item 6. Selected Financial And Other Data
For the Years Ended December 31, 1993 1992 1991 1990 1989 (Dollars in Thousands, Except Per Share Data)
Interest Income $ 46,395 $48,306 $54,801 $58,527 $58,913 Net Interest Income 31,555 29,775 28,195 27,851 27,444 Provision for Loan Losses 960 1,216 1,817 3,342 2,447 Income Before Accounting Change 8,728 8,376 7,272 6,590 7,234 Net Income 8,244 8,376 7,272 6,590 7,234 Per Common Share: Income Before Accounting Changes $ 2.99 $ 2.86 $ 2.46 $ 2.16 $ 2.33 Net Income 2.82 2.86 2.46 2.16 2.33 Cash Dividends Declared .83 .78 .73 .69 .65 Book Value 23.56 21.59 19.55 17.89 16.76
Based on Net Income: Return on Average Assets Before Accounting Change 1.21% 1.27% 1.15% 1.05% 1.18% Return on Average Assets 1.14 1.27 1.15 1.05 1.18 Return on Average Equity Before Accounting Change 13.15 13.71 13.07 12.25 14.48 Return on Average Equity 12.43 13.71 13.07 12.25 14.48 Dividend Payout Ratio 29.44 27.25 29.65 31.50 27.72
Averages for the Year: Loans, Net of Unearned Interest $381,807 $358,876 $368,555 $378,405 $379,939 Earning Assets 651,042 598,127 571,165 561,741 550,638 Assets 722,286 662,150 633,963 624,732 614,335 Deposits 630,324 573,162 546,291 537,774 527,524 Long-Term Debt 1,381 3,156 5,555 5,703 7,368 Shareholders' Equity 66,328 61,078 55,635 53,791 49,949
Year-End Balances: Loans, Net of Unearned Interest $399,424 $369,911 $364,773 $380,127 $380,828 Earning Assets 675,273 619,929 568,720 555,237 556,782 Assets 762,335 686,966 639,540 643,968 626,047 Deposits 662,745 597,497 555,092 550,336 536,950 Long-Term Debt 1,900 2,000 4,000 6,225 6,000 Shareholders' Equity 67,140 63,169 57,723 53,444 51,956 Equity to Assets Ratio 8.81% 9.20% 9.03% 8.30% 8.30%
Other Data: Average Shares Outstanding 2,924,022 2,932,123 2,958,920 3,049,992 3,103,535 Shareholders of Record* 754 748 731 727 734 Banking Locations* 30 27 27 26 26 Full-Time Equivalent Employees* 476 466 469 489 478
*As of March 1st of the following year.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Financial Review
This section provides supplemental information which should be read in conjunction with the consolidated financial statements and related notes. 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 1993 compares with prior years. Throughout this section, Capital City Bank Group, Inc., and its subsidiaries, collectively, are referred to as "CCBG" or the "Company". The year-to-date averages used in this report are based on daily balances for each respective year. In certain circumstances comparing average balances for the fourth quarter of consecutive years may be more meaningful than simply analyzing year-to-date averages. Therefore, where appropriate, fourth quarter averages have been presented for analysis and have been clearly noted as such.
Earnings Analysis
In 1993, the Company's earnings were $8.7 million, or $2.99 per share, before accounting for the adoption of Statement of Financial Accounting Standards No. 109 ("Accounting for Income Taxes"), which resulted in a one-time, non-cash charge of $484,000, or $.17 per share. This compares with earnings of $8.4 million, or $2.86 per share in 1992, and $7.3 million, or $2.46 per share in 1991. On a per share basis, before the effect of the accounting change, earnings increased 4.5% in 1993 versus an increase of 16.3% in 1992. Factors, other than the accounting change, which had a significant impact on the Company's earnings in 1993, as compared to 1992, include:
* Higher average earning assets resulted in an increase in net interest income of $1.8 million, or 6.0%.
* Improving asset quality and a low level of net charge-offs enabled the Company to reduce the provision for loan losses by $256,000, or 21.0%.
* Higher volume in mortgage originations and gains on the sale of other real estate served to boost noninterest income $536,000, or 4.7%.
* The Company's expansion into Citrus County, adding three new locations, contributed to an increase in noninterest expense of $2.1 million, or 7.3%.
These and other factors are discussed throughout the Financial Review. A condensed earnings summary is presented in Table 1.
Table 1
CONDENSED SUMMARY OF EARNINGS (Dollars in Thousands) For the Years Ended December 31, 1993 1992 1991
Interest and Dividend Income $46,395 $48,306 $54,801 Taxable-Equivalent Adjustments 1,663 1,583 1,567 48,058 49,889 56,368 Interest Expense 14,840 18,531 26,606 Net Interest Income 33,218 31,358 29,762 Provision for Loan Losses 960 1,216 1,817 Taxable-Equivalent Adjustments 1,663 1,583 1,567 Noninterest Income 12,014 11,478 10,814 Noninterest Expense 30,572 28,497 27,440 Income Before Income Taxes 12,037 11,540 9,752 Income Taxes 3,309 3,164 2,480 Income Before Accounting Change 8,728 8,376 7,272 Cumulative Effect of Accounting Change (484) -- -- Net Income $ 8,244 $8,376 $7,272 Income Per Share Before Accounting Change $ 2.99 $ 2.86 $ 2.46 Net Income Per Share $ 2.82 $ 2.86 $ 2.46
Net Interest Income
Net interest income represents the Company's single largest source of earnings and is equal to interest income and fees generated by earning assets less interest expense paid on interest bearing liabilities. An analysis of the Company's net interest income, including average yields and rates, is presented in Tables 2 and 3. This information is presented on a "taxable-equivalent" basis to reflect the tax-exempt status of income earned on certain loans and investments, the majority of which are state and local government debt obligations.
In 1993, taxable-equivalent net interest income increased $1.9 million, or 5.9%. This follows an increase of $1.6 million, or 5.4%, in 1992 and $249,000, or .8%, in 1991. During the period 1991 through 1993, higher levels of earning assets and a more favorable mix of funding sources have served to increase the Company's taxable-equivalent net interest income.
Interest rates, in general, have trended downward in recent years. Since the first quarter of 1991, the prime rate has declined from 10.0% to 6.0% and the Federal Reserve Bank's discount rate has fallen from 6.5% to 3.0%. In 1993 both rates were stable at 6.0% and 3.0%, respectively.
The Company's taxable-equivalent yield on average earning assets decreased 96 basis points in 1993 from 8.36% to 7.40%, and 152 basis points in 1992 from 9.88% to 8.36%. The lower yields are reflective of declining interest rates and sluggish loan volume. As the Company's interest sensitive assets mature and/or reprice, the lower rates adversely impact the portfolio yields. Additionally, the loan portfolio, which is the largest and highest yielding component of earning assets, has declined from 64.5% of earning assets in 1991 to 58.6% in 1993, reflecting a weakened economy. However, management is encouraged by some improvement in loan volume during the latter part of 1993.
The average rate paid on interest bearing liabilities in 1993 was 2.97% versus 3.97% in 1992 and 5.85% in 1991. Lower interest rates and a more favorable deposit mix were the primary factors contributing to the reduction in the average rate. Noninterest bearing deposits increased from 21.5% of the Company's average deposits in 1991 to 23.7% in 1993, while other time deposits (i.e., certificates of deposit) decreased from 45.0% to 33.1%, over the same period.
The Company's interest rate spread (defined as the taxable-equivalent yield on average earning assets less the average rate paid on interest bearing liabilities) increased 4 basis points in 1993 and 36 basis points in 1992. Improvement in the interest rate spread reflects declining interest rates and a more rapid repricing of interest sensitive liabilities versus earning assets.
The Company's net interest margin (defined as taxable-equivalent interest income less interest expense divided by average earning assets) fell to 5.11% in 1993, from 5.26% in 1992 and 5.23% in 1991. These relatively strong margins will be difficult to maintain, particularly in light of the continuing pressure on the pricing and/or repricing of assets. Continued strengthening in the economy and opportunities to profitably employ investable funds in the loan portfolio without compromising credit quality, will be key to management's ability to maintain strong margins in 1994.
A further discussion of the Company's earning assets and funding sources can be found in the section entitled "Financial Condition".
Provision for Loan Losses
The provision for loan losses was $960,000 in 1993 versus $1.2 million in 1992 and $1.8 million in 1991. The decrease over this period is attributable to a reduction in net charge-offs and a reserve which management considers to be adequate based on the current level of nonperforming loans and the potential for loss inherent in the portfolio at year-end.
The provision in 1993 enabled the Company to cover net charges to the allowance for loan losses and to maintain the level of the allowance at 1.9% of outstanding loans. See the section entitled "Financial Condition" for further discussion regarding the allowance for loan losses. Selected loss coverage ratios are presented below:
1993 1992 1991
Provision for Loan Losses as a Multiple of Net Charge-offs 1.0x 0.9x 1.1x Pre-tax Income Plus Provision for Loan Losses as Multiple of Net Charge-offs 13.7x 9.8x 6.9x
Noninterest Income
Noninterest income increased $536,000, or 4.7%, in 1993 compared with $665,000, or 6.1%, in 1992. Factors affecting noninterest income are discussed below.
Trust fees increased $60,000, or 10.3%, in 1993, due to growth in assets under management. Trust assets totalled $336.9 million at December 31, 1993. Assets under management grew $18.3 million, or 25.3%, in 1993, to a total of $90.7 million. Trust fees increased $98,000, or 20.3%, in 1992, reflecting growth of $12.6 million, or 21.1%, in assets under management and repricing of certain services.
Service charges on deposit accounts decreased $51,000, or 0.9%, in 1993, compared to an increase of $111,000, or 2.0%, in 1992. Service charge revenues in any one year are dependent on the number of accounts, primarily transaction accounts, and the level of activity subject to service charges.
Data processing revenues were down $66,000, or 2.7%, in 1993 versus an increase of $213,000, or 9.5%, in 1992. The data processing center provides computer services to both financial and non-financial clients in North Florida and South Georgia. For the year ended December 31, 1993, services provided to non- financial clients represented 50% of total revenues, which was down slightly from 52.2% in 1992. The decrease in 1993 is primarily attributable to repricing of certain servicing agreements. The increase in 1992 is attributable to the growth in services provided to non-financial entities.
Net securities gains recognized during 1993 totalled $28,000, versus a loss of $2,000 in 1992. The net gain in 1993 consisted of gross gains of $69,000 and losses of $41,000. All gains and losses recognized in 1993 were related to the redemption of principal from mortgage-backed securities and bonds which were called during the year. See Notes 1 and 5 in the Notes to Financial Statements for additional information on the Company's investment portfolio and recognition of gains and losses.
Other noninterest income increased $562,000, or 20.1%, in 1993 versus $250,000, or 9.8% in 1992. The Company originates residential mortgage loans to sell in the secondary market. Significant increases in origination volume generated fee increases of $477,000, or 93.8%, and $315,000, or 159.2%, in 1993 and 1992, respectively. Gains on the sale of other real estate totalled $225,000 and was up slightly over the prior year.
Noninterest income as a percent of average earning assets represented 1.85% in 1993 compared to 1.92% in 1992 and 1.89% in 1991.
Noninterest Expense
Total noninterest expense for 1993 was $30.6 million, an increase of $2.1 million, or 7.3%, over 1992. This followed an increase of $1.1 million, or 3.9%, in 1992. The most significant factor impacting the Company's noninterest expense during 1993 was expansion into Citrus County through the acquisition of branch offices. The acquisition was consummated on March 15, adding three new office locations and increasing deposits by $37.0 million.
The Company's compensation expense totalled $16.2 million, an increase of $1.6 million, or 11.4%, over 1992. There were several factors which impacted the Company's compensation expense, including addition of the three Citrus County offices which added 13 new employees, higher pension expense and implementation of the Company's stock incentive plan. Management has revised the interest rate assumptions incorporated in the pension plan to reflect the lower interest rate environment. Lower rates reduced projected earnings on the plan assets and increased current funding requirements, both of which result in higher pension expense. Management anticipates rate assumptions will require revision again in 1994. Nineteen ninety-three was the first year the Company incurred stock compensation expense as plan participants became eligible to earn shares under the Company's 1992 Stock Incentive Plan. The 1993 expense reflects the cost of shares earned in 1993, plus an allocation of expense for shares eligible for issuance if specified long-term goals are achieved in future years. The Company's compensation expense totalled $14.5 million in 1992, an increase of $485,000, or 3.5%, over 1991. The increase in 1992 is attributable to normal raises and higher pension expense.
Occupancy expense (including furniture, fixtures & equipment) was up by $207,000 (4.2%) and $200,000 (4.3%) in 1993 and 1992, respectively. These increases are primarily attributable to an increase in the number of operating facilities and maintenance of existing locations.
Other noninterest expense increased $215,000, or 2.4%, in 1993, compared to an increase of $372,000, or 4.3%, in 1992. The increase in 1993 is primarily attributable to expenses associated with the opening of the three new offices. Offsetting a significant portion of the increase due to expansion was a reduction of $497,000 in the costs associated with other real estate, including write-downs and related expenses. The increase in 1992 is attributable to higher costs associated with other real estate holdings, which increased, in aggregate, $475,000 over 1991.
Net noninterest expense (defined as noninterest income minus noninterest expense) as a percentage of average earning assets was 2.85% in 1993 compared to 2.85% in 1992 and 2.90% in 1991.
Income Taxes
The consolidated provision for federal and state income taxes was $3.3 million in 1993 compared to $3.2 million in 1992 and $2.5 million in 1991. The increases in the tax provision over the last three years is primarily attributable to the higher level of taxable income.
The effective tax rate was 27.5% in 1993, 27.4% in 1992 and 25.4% in 1991. These rates differ from the statutory tax rates due primarily to tax-exempt income. The increase in the effective tax rate from 1991 to 1992 is attributable to the decreasing level of tax-exempt income relative to pre-tax income. Tax-exempt income (net of the adjustment for disallowed interest) as a percent of pre-tax income was 26.8% in 1993, 26.6% in 1992 and 31.2% in 1991.
Change in Accounting Principle
On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which changed the method of accounting to the "liability" method from the "deferred" method previously required by Accounting Principles Board Opinion No. 11. The cumulative effect of adopting the new accounting standard was a reduction in the Company's net income of $484,000, which was recognized in the first quarter. See Note 1 in the Notes to Financial Statements.
Financial Condition
Average assets increased $60.1 million (9.1%) from $662.2 million in 1992 to $722.3 million in 1993. Average earning assets increased to $651.0 million in 1993, a $52.9 million, or 8.8% increase over 1992. Slower loan growth in 1991 and 1992 resulted in a decrease in average loans of $9.9 million, or 2.6% in 1991 and $9.7 million, or 2.6% in 1992. In 1993, while still sluggish, loan volume began to improve and the Citrus County acquisitions added $12.0 million in loans, resulting in an increase in average loans of $22.9 million, or 6.4%. In addition to funding loan growth, the majority of the Company's deposit growth, including $44 million in acquired deposits, was used to fund growth in the investment portfolio. During 1993, the Company significantly increased its investment in taxable and tax-exempt securities, extending maturities to take advantage of more favorable yields. In making the determination as to how investable funds are to be allocated, management takes into consideration market yields and the Company's liquidity position.
The Company's average investment portfolio increased $38.0 million, or 22.7%, during 1993. This followed an increase of $41.9 million, or 33.4%, in 1992. In 1993, average taxable investments increased $24.5 million, or 21.2%, while tax- exempt investments increased $13.5 million, or 26.0%. Since the enactment of the Tax Reform Act of 1986, which significantly reduced the tax benefits associated with tax-exempt investments, management has monitored the level of tax-exempt investments and, until 1992, has consistently reduced its holdings. Even with the growth in tax-exempt investments in 1992 and 1993, the tax-exempt portfolio as a percent of average earning assets has declined from 18.9% in 1986 to 10.0% in 1993. Table 2 on page 15 provides information on average balances while Table 4 highlights the changing mix of the Company's earning assets over the last three years.
Loans
In the last few years new loan volume has been sluggish, though in the last half of 1993 loan activity began to increase. Loan growth has been impacted by a number of factors including general economic conditions, particularly in the real estate market; continued emphasis on credit quality and an effort by the State of Florida to control growth.
At the local level, consumer spending has been adversely affected by slowing employment growth by the State in addition to a general slowdown in economic growth. Florida communities are still adjusting to new land development rules, which have created dislocations in the real estate markets. Counties which are served by the Group banks have adopted comprehensive plans, mandated by the State, which require certain infrastructure to be in place before development can begin. This effort by the State to control growth is having the effect, at least in the near-term, of significantly restricting development in certain markets.
The general deterioration in economic conditions, particularly in the real estate market, during the period 1990 to 1993, has resulted in refinement of underwriting standards and a sharper focus on credit quality. Lending is a major component of the Company's business and is key to profitability. While management strives to grow the Company's loan portfolio, it can do so only by adhering to sound banking principles applied in a prudent and consistent manner. Management is hopeful 1994 will show signs of economic improvement, affording opportunities to increase loans outstanding and enhance the portfolio's overall contribution to earnings.
The composition of the Company's loan portfolio at December 31, for each of the past five years is shown in Table 5. Consistent with bank regulatory reporting requirements, Bankers' Acceptances purchased (as opposed to originated) and Term Federal Funds (funds placed with another financial institution generally having a maturity of less than 90 days) are classified as loans and included in the commercial loan category. Management views these instruments not as loans but as investment alternatives in managing short-term liquidity. Bankers' Acceptances and Term Federal Funds, combined, totalled $6.5 million at December 31, 1993 and $14.7 million at December 31, 1992. Exclusive of Bankers' Acceptances and Term Federal Funds, commercial loans were flat and total loans increased $36.6 million.
Table 5
LOANS BY CATEGORY (Dollars in Thousands) As of December 31, 1993 1992 1991 1990 1989
Commercial, Financial and Agricultural $ 46,963 $57,188 $57,692 $78,279 $78,124 Real Estate - Construction 22,968 19,103 18,714 14,527 17,284 Real Estate - Mortgage 242,741 212,080 208,091 206,600 206,712 Consumer 93,895 89,848 89,529 90,468 89,067
Total Loans $406,567 $378,219 $374,026 $389,874 $391,187
The Company's average loan-to-deposit ratio has decreased over the last three years from 67.5% in 1991 to 60.6% in 1993. The reduction in this percentage in 1993 was attributable more to the acquisition of $44 million in deposits than the lack of loan growth.
Real estate construction and mortgage loans, combined, represented 65.4% of total loans in 1993 versus 61.1% in 1992. See the section entitled "Risk Element Assets" for a discussion concerning loan concentrations.
Table 6 arrays the Company's total loan portfolio as of December 31, 1993, based upon repricing opportunities. Loans are arrayed as to those which can be repriced in one year or less, over one through five years and over five years. Demand loans and overdrafts are reported in the category of one year or less. As a percent of the total portfolio, loans with a fixed interest rate have declined from 55.2% in 1992 to 46.9% in 1993.
Table 6
LOAN REPRICING OPPORTUNITIES (Dollars in Thousands) Repricing Periods
Over One Over One Year Through Five Or Less Five Years Years Total
Commercial, Financial and Agricultural $ 36,677 $ 8,990 $ 1,296 $ 46,963 Real Estate 185,355 64,846 15,508 265,709 Consumer 63,063 30,330 502 93,895 Total $285,095 $104,166 $17,306 $406,567
Loans with Fixed Rates $ 90,917 $ 83,605 $16,109 $190,631 Loans with Floating or Adjustable Rates 194,178 20,561 1,197 215,936
Total $285,095 $104,166 $17,306 $406,567
Allowance for Loan Losses
Management attempts to maintain the allowance for loan losses at a level sufficient to provide for potential losses in the loan portfolio. The allowance for loan losses is established through a provision charged to expense. Loans are charged against the allowance when management believes collection of the principal is unlikely.
Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The evaluations are based on the collectibility of loans and take into consideration such factors as growth and composition of the loan portfolio, evaluation of potential losses, past loss experience and general economic conditions. As part of these evaluations, management reviews all loans which have been classified internally or through regulatory examination and, if appropriate, allocates a specific reserve to each of these individual loans. Further, management establishes a general reserve to provide for potential losses which are, as yet, unidentified in the loan portfolio. The general reserve is based upon historical experience. The allowance for loan losses is compared against the sum of the specific reserves plus the general reserve and adjustments are made, as appropriate. Table 7 analyzes the activity in the allowance over the last five years.
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES (Dollars in Thousands) For the Years Ended December 31, 1993 1992 1991 1990 1989
Balance at Beginning of Year $7,585 $7,670 $7,526 $6,168 $5,355 Allowance for Loan Losses Acquired Through Acquisition - - - - 186
Charge-Offs: Commercial, Financial and Agricultural 556 511 724 878 911 Real Estate - Construction - 33 - - - Real Estate - Mortgage 81 460 175 169 178 Consumer 884 929 1,263 1,331 1,180 Total Charge-Offs 1,521 1,933 2,162 2,378 2,269
Recoveries: Commercial, Financial and Agricultural 198 231 177 126 109 Real Estate - Construction - - - - - Real Estate - Mortgage 8 7 18 14 21 Consumer 364 394 294 254 319 Total Recoveries 570 632 489 394 449
Net Charge-Offs 951 1,301 1,673 1,984 1,820
Provision for Loan Losses 960 1,216 1,817 3,342 2,447
Balance at End of Year $7,594 $7,585 $7,670 $7,526 $6,168
Ratio of Net Charge-Offs During Year to Average Loans Out- standing, Net Unearned Interest .25% .36% .45% .52% .48%
Allowance for Loan Losses as Percentage of Loans, Net of Un- earned Interest, at End of Year 1.90% 2.05% 2.10% 1.98% 1.62%
Allowance for Loan Losses as a Multiple of Net Charge-Offs 7.99x 5.83x 4.58x 3.79x 3.39x
The allowance for loan losses at December 31, 1993 of $7.6 million equals 1.90% of year-end loans. This compares to $7.6 million, or 2.05% in 1992, and $7.7 million, or 2.10% in 1991. The level of the allowance remains unchanged from 1992. The reduction in the percentage of the allowance relative to total loans is attributable to loan growth during the year.
Management closely monitors its nonperforming loans, allocated reserves and any potential for loss. With the uncertainty surrounding the economy in recent years and the level of nonperforming loans, management has considered it prudent to maintain the allowance at a level above that of historical levels. If, during 1994, management is successful in reducing the level of nonperforming loans, net charge-offs remain low and the economy continues to show evidence of improvement, management may then be afforded the opportunity to reduce the allowance from these historically high levels.
There can be no assurance that in particular periods the Company will not sustain loan losses which are substantial in relation to the size of the allowance. When establishing a provision, management makes various estimates regarding the value of collateral and future economic events. Actual experience may differ from these estimates. It is management's opinion that the allowance at December 31, 1993, is adequate to absorb possible losses from loans in the portfolio as of year-end.
Table 8 provides an allocation of the allowance for loan losses to specific loan categories for each of the last five years. The unallocated portion of the allowance is the residual after allocating to specific loan categories and is intended to provide a cushion to absorb potential unidentified losses. The Company's method of establishing the allowance does not permit a precise allocation of the allowance by loan category since such an allocation is not as critical as management's assessment of the adequacy of the allowance in total. However, in response to regulatory disclosure requirements, the information in Table 8 is presented based upon management's best estimates utilizing available information such as regulatory examinations, internal loan reviews and historical charge-off levels.
Risk Element Assets
Risk element assets consists of nonaccrual loans, renegotiated loans, other real estate, loans past due 90 days or more, potential problem loans and loan concentrations. Table 9 depicts certain categories of the Company's risk element assets as of December 31, for each of the last five years. Potential problem loans and loan concentrations are discussed within the narrative portion of this section.
Table 9 RISK ELEMENT ASSETS (Dollars in Thousands)
As of December 31, 1993 1992 1991 1990 1989
Nonaccruing Loans $ 9,353 $ 6,987 $ 8,423 $10,898 $5,229 Restructured 65 169 176 297 522 Total Nonperforming Loans 9,418 7,156 8,599 11,195 5,751 Other Real Estate 3,466 4,416 4,385 3,253 882 Total Nonperforming Assets $12,884 $11,572 $12,984 $14,448 $6,633
Past Due 90 Days or More $ 104 $ 2,564 $ 622 $ 1,671 $1,206
Nonperforming Loans to Loans, Net of Unearned Interest 2.36% 1.93% 2.36% 2.95% 1.51%
Nonperforming Assets to Loans, Net of Unearned Interest Plus Other Real Estate 3.20% 3.09% 3.52% 3.77% 1.74%
Nonperforming Assets to Capital(1) 17.24% 16.36% 19.86% 23.70% 11.41%
Reserve to Nonperforming Loans 80.64% 105.99% 89.20% 67.23% 107.25%
(1) For computation of this percentage, "capital" refers to shareholders' equity plus the allowance for loan losses.
The Company's nonaccruing loans increased $2.4 million, or 33.9%, from a level of $7.0 million at December 31, 1992 to $9.4 million at December 31, 1993. During 1993, loans totalling approximately $5.0 million were placed on nonaccrual, while loans totalling $2.6 million were removed from nonaccruing status. Of the $5.0 million, three credit relationships comprised $3.8 million of the total. All three relationships are secured with real estate and management has allocated specific reserves to these credits to absorb any anticipated losses. Of the $2.6 million removed from the nonaccrual category, $910,000 was transferred to other real estate and $413,000 was charged-off. The remaining decrease of $1.3 million represents principal reductions, loans which were refinanced and loans which were brought current and returned to an accrual basis.
The majority of nonaccrual loans are collateralized with real estate. Management continually reviews these loans and believes specific reserve allocations are sufficient to cover any potential loss exposure associated with these loans.
Interest on nonaccrual loans is recognized only when received. Cash collected on nonaccrual loans is applied against the principal balance or recognized as interest income based upon management's expectations as to the ultimate collectibility of principal and interest in full. If nonaccruing loans had been on a fully accruing basis, interest income recorded would have been $846,000 higher for the year ended December 31, 1993. Restructured loans, which are those loans with reduced interest rates or deferred payment terms due to deterioration in the financial position of the borrower, were nominal.
Other real estate totalled $3.4 million at December 31, 1993, versus $4.4 million at December 31, 1992. This category includes property owned by Group banks which was acquired either through foreclosure procedures or by receiving a deed in lieu of foreclosure. During 1993, the Company added approximately 8 properties totalling $910,000 and liquidated, partially or completely, 18 other properties totalling $1.9 million, resulting in a net reduction in other real estate of $1.0 million. Two properties accounted for $653,000 of the $910,000 in total additions during 1993. At the current time, management does not anticipate any significant losses associated with other real estate.
Potential problem loans are defined as those loans which are now current but where management has doubt as to the borrower's ability to comply with present loan repayment terms. Potential problem loans totalled $192,000 at December 31, 1993. In management's judgement these loans are adequately collateralized and no significant losses are anticipated.
Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which cause them to be similarly impacted by economic or other conditions and such amounts exceed 10% of total loans. Due to the lack of diversified industry within the markets served by the Group banks, and the relatively close proximity of the markets, the Company has both geographic concentrations as well as concentrations in the types of loans funded. Seven of the ten Group banks representing 81% of the Company's total loans at year-end are located within a thirty-mile radius of one another. Further, due to the nature of the Company's markets, a significant portion of the portfolio is associated either directly or indirectly with real estate. At December 31, 1993, approximately 65% of the portfolio consisted of real estate loans. Residential properties, including land acquisition and development loans for residential projects, comprise approximately 51% of the real estate portfolio.
Management is continually analyzing its loan portfolio in an effort to identify and resolve its problem assets as quickly and efficiently as possible. As of December 31, 1993, management believes it has identified and adequately reserved for such problem assets. However, management recognizes that many factors can adversely impact various segments of its markets, creating financial difficulties for certain borrowers. As such, management will continue to focus its attention on promptly identifying and providing for potential losses as they arise.
Investment Securities
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. It is not management's intent nor practice to participate in the trading of investment securities for the purpose of recognizing gains. At the time of purchase, management has both the ability and the intent to hold the securities for the foreseeable future and thus the securities are carried on the books at amortized cost, adjusted for the amortization of premiums and accretion
of discounts. Sales of securities are minimal and the gains or losses recognized from such sales are not material to the Company's financial performance. See the section entitled "Accounting Pronouncements" on page 38 for a discussion of Statement of Financial Accounting Standards No. 115 - "Accounting for Certain Investments in Debt and Equity Securities", which was adopted by the Company on January 1, 1994.
In 1993, proceeds from "called" bonds and principal redemption of mortgage- backed securities totalled $31.7 million and the Company recognized gains of $69,000 and losses of $41,000. Proceeds from the sale of securities were nominal.
During 1993, the Company's average investment portfolio increased 22.7% from $167.2 million in 1992 to $205.1 million in 1993. The growth in the investment portfolio is primarily due to the lack of loan production in recent years. As discussed previously, management made a conscious decision to shift from tax- exempt to taxable securities in response to lower tax rates and the ramifications of the Tax Reform Act of 1986. Tax-exempt securities as a percent of the total investment portfolio have declined from 70.8% in 1986 to 31.8% at December 31, 1993. Management will, however, continue to purchase "bank qualified" municipal issues when it considers the yield to be attractive and the Company can do so without adversely impacting its tax position. In 1993, the tax-exempt investment portfolio increased, on average, $13.5 million, or 26.0%, which is the largest increase since 1986, reflecting a more favorable market for tax-exempt securities.
The average maturity of the portfolio at December 31, 1993 and 1992, was 2.34 and 1.81 years, respectively. During 1993, the average maturity for U.S. Treasury and Government Agency securities increased from 1.12 to 1.80 years. The average maturity for municipal securities increased from 2.82 to 3.64 years.
The weighted average taxable-equivalent yield of the investment portfolio at December 31, 1993, was 5.51% versus 6.54% in 1992. The quality of the municipal portfolio at such date is depicted in the chart to the right. There were no investments in obligations of any one state, municipality, political subdivision or any other issuer that exceeded 10% of the Company's shareholders' equity at December 31, 1993.
The unrealized gain in the portfolio at December 31, 1993, of $2.7 million compares with $3.8 million at December 31, 1992. Tables 10 and 11 present a detailed analysis of the Company's investment securities as to type, maturity and yield.
Table 10
DISTRIBUTION OF INVESTMENT SECURITIES (Carrying Value - Dollars in Thousands) As of December 31, 1993 1992 1991
U.S. Treasury $111,233 $100,946 $74,693 Government Agencies and Corporations 35,315 25,365 7,951 States and Political Subdivisions 67,070 55,984 51,363 Other Securities 5,005 4,142 3,899 Total Investment Securities $218,623 $186,437 $137,906
Table 11
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (Dollars in Thousands) As of December 31, 1993 Weighted Carrying Value Market Value Average Yield(1)
U. S. GOVERNMENTS Due in 1 year or less $ 53,756 $ 53,904 5.48% Due over 1 year thru 5 years 87,248 87,371 4.50% Due over 5 years thru 10 years 4,596 5,067 5.82% Due over 10 years 948 934 6.28% TOTAL $146,548 $147,276 4.91%
MUNICIPALS Due in 1 year or less $ 9,827 $ 9,958 8.51% Due over 1 year thru 5 years 36,629 38,088 7.44% Due over 5 years thru 10 years 19,960 20,256 6.25% Due over 10 years 654 647 6.48% TOTAL $ 67,070 $ 68,949 7.23%
Other Securities $ 5,005 $ 5,049
Total Investment Securities $218,623 $221,274
(1) Weighted average yields are calculated on the basis of the carrying value of the security. The weighted average yields on tax-exempt obligations are computed on a taxable-equivalent basis using a 34% tax rate.
Carrying Value Moody's Rating (000's) Percentage AAA $ 39,750 59.3% AA-1 1,170 1.7% AA 3,535 5.3% A-1 5,400 8.1% A 9,285 13.8% BAA 1,000 1.5% Not Rated(1) 6,930 10.3%
Total $ 67,070 100.0%
(1) Of the securities not rated by Moody's, $4.3 million are rated "A" or higher by S & P.
Deposits
Average total deposits increased from $573.2 million in 1992 to $630.3 million in 1993. Contributing to this growth was the acquisition of approximately $44 million in deposits during the first quarter of 1993. The most significant developments during 1992-3 were the strong growth in noninterest bearing deposits and the shift in funding sources from "Other Time" to other deposit categories. As a percent of average total deposits, noninterest bearing increased from 21.5% in 1991 to 23.7% in 1993, while "Other Time" deposits decreased from 45.0% to 33.1%. These two developments have had a favorable impact on the Company's net interest margin.
Both developments discussed in the preceding paragraph run counter to the Company's historical trends. Since the Company's formation in 1984, two major trends have impacted the mix of deposits. First, the shift from noninterest bearing to interest bearing, and second, a majority of the Company's deposit growth during this period has been in certificates of deposit, which traditionally represent the highest yielding deposit offering.
The historical shift from noninterest bearing to interest bearing deposits is a result of deregulation which began in the early 1980's, and has adversely affected the Company's net interest margin. Based on annual averages, interest bearing deposits as a percent of total deposits has increased from 62.8% in 1984 to 76.3% in 1993, which is down from 1991 when this percent reached 78.5%.
Historically, a majority of the Company's deposit growth has been in the category of "Other Time", which consists primarily of certificates of deposit. This growth was generated both internally and through acquisitions. However, during the last two years, deposit growth from interest bearing sources came primarily from the category of "Savings". Since 1991, the average balance for Savings has increased 161.2% from $43.6 million to $113.9 million in 1993, while the average balance for Other Time deposits decreased 15.1% from $246.0 million to $208.7 million. This shift in the source of deposit growth from Other Time to Savings is due to the low interest rate environment, particularly during periods when yields on certificates of deposit were below the regular savings rate.
Table 2 on page 15 provides an analysis of the Company's average deposits, by category, and average rates paid thereon for each of the last three years. Table 12 reflects the shift in the Company's deposit mix over the last three years and Table 13 provides a maturity distribution of time deposits in denominations of $100,000 and over.
Table 12
SOURCES OF DEPOSIT GROWTH (Average Balances - Dollars in Thousands)
1992 to Percentage 1993 of Total Components of Total Deposits Change Change 1993 1992 1991
Noninterest Bearing Deposits $21,072 36.9% 23.7% 22.4% 21.5% NOW Accounts 10,964 19.2 12.4 11.7 11.4 Money Market Accounts 5,954 10.4 12.7 12.9 14.1 Savings 21,797 38.1 18.1 16.1 8.0 Other Time (2,625) (4.6) 33.1 36.9 45.0 Total Deposits $57,162 100.0% 100.0% 100.0% 100.0%
Table 13
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER (Dollars in Thousands)
December 31, 1993 Time Certificates of Deposit Percent
Three months or less $11,961 29.2% Over three through six months 11,291 27.6 Over six through twelve months 11,313 27.6 Over twelve months 6,371 15.6 Total $40,936 100.0%
Liquidity and Capital Resources
Liquidity for a banking institution is the availability of funds to meet increased loan demand and/or excessive deposit withdrawals. Management monitors the Company's financial position to ensure it has 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 include cash received through ordinary business activities such as the collection of interest and fees, federal funds sold, loan and investment maturities, bank lines of credit for the Company and approved lines for the purchase of federal funds by the Group banks.
On January 24, 1992, the Company established a $6.0 million revolving line of credit with Trust Company Bank, Atlanta, Georgia, and simultaneously amended its master note and loan agreement with Wachovia Bank of Georgia to provide for a $6.0 million revolving line of credit. The Trust Company facility expired on January 24, 1994, and was renewed until January 24, 1996. The Wachovia facility expires on May 31, 1994. At the expiration of the Wachovia line, the Company has the option to pay the loan or convert the outstanding balance to a term loan which will amortize in 24 equal quarterly installments. As of December 31, 1993, the Company had debt outstanding of $1.4 million with Trust Company and $500,000 with Wachovia. During 1993, the Company borrowed additional funds totalling $1.4 million and made principal reductions on the Wachovia line totalling $1.5 million, leaving an outstanding balance at year-end of $1.9 million. The average rate on debt outstanding during 1993 was 4.06%. See Note 10 in the Notes to Financial Statements for additional information on the Company's debt.
The Company's long-term debt agreements impose certain limitations on the level of CCBG's equity capital, and federal and state regulatory agencies have established regulations which govern the payment of dividends to bank holding companies by its bank subsidiaries. Based on the Company's current financial condition, these limitations and/or regulations do not impair the Company's ability to meet its cash obligations or limit the Company's ability to pay future dividends on its common stock. See Notes 10 and 14 in the Notes to Financial Statements for additional information.
Federal Funds Purchased and Securities Sold Under Repurchase Agreements (Dollars in Thousands)
1993 1992 1991
Year End Balance $23,264 $17,561 $14,912 Rate at Year End 2.78% 2.53% 3.60% Average Balance $17,765 $18,163 $19,017 Average Rate 3.08% 2.95% 5.24% Maximum Outstanding at Month-End $27,449 $26,441 $24,026
The Company is a party to financial instruments with off-balance-sheet risks in the normal course of business to meet the financing needs of its customers. At December 31, 1993, the Company had $97.6 million in commitments to extend credit and $1.9 million in standby letters of credit. Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance-sheet instruments. If obligations arising from these financial instruments continue to require funding at historical levels, management does not anticipate that such funding will adversely impact its ability to meet on-going obligations.
It is anticipated capital expenditures for purposes of refurbishing certain bank facilities and purchasing equipment will approximate $3.7 million over the next twelve months. Over the next five years the Company anticipates spending $4.9 million (including the $3.7 million) on refurbishing existing locations and building and equipping new branch facilities. Management believes these capital expenditures can be funded internally without impairing the Company's ability to meet its on-going obligations.
Shareholders' equity as of December 31, for each of the last three years is presented below.
Shareholders' Equity (Dollars in Thousands)
1993 1992 1991
Common Stock $ 31 $ 31 $ 31
Surplus 5,857 5,857 5,858
Retained Earnings 67,753 61,937 55,842
Subtotal 73,641 67,825 61,731
Less: Treasury Stock (6,501) (4,656) (4,008)
Total Shareholders' Equity $67,140 $63,169 $57,723
The Company continues to maintain a strong capital position. The ratio of shareholders' equity to total assets at year-end was 8.81%, 9.20% and 9.03% in 1993, 1992 and 1991, respectively, which ratios exceeded all minimum required regulatory capital levels. The lower capital ratio in 1993 primarily reflects the purchase of $1.8 million in treasury stock during the year. The Company has traditionally satisfied its regulatory capital requirements through earnings, and expects to continue to do so.
The company is subject to risk-based capital guidelines that measure capital relative to risk weighted assets and off-balance-sheet financial instruments. Capital guidelines issued by the Federal Reserve Board in effect at December 31, 1993 require bank holding companies to have a minimum total risk-based capital ratio of 8.00%, with at least half of the total capital in the form of Tier 1 capital. Capital City Bank Group, Inc., significantly exceeded these capital guidelines, with a total risk-based capital ratio of 16.3% and a Tier I ratio of 15.1%.
In addition, a tangible leverage ratio is now being used in connection with the risk-based capital standards and is defined as Tier I capital divided by average assets. The minimum leverage ratio under this standard is 3% for the highest- rated bank holding companies which are not undertaking significant expansion programs. An additional 1% to 2% may be required for other companies, depending upon their regulatory ratings and expansion plans. On December 31, the Company had a leverage ratio of 8.6%, which is in excess of regulatory requirements.
In 1993, the Board of Directors declared dividends totalling $.83 per share, consisting of $.10 per share payable in July 1993 and $.73 per share payable in January 1994. The Company declared dividends of $.78 per share in 1992 and $.73 per share in 1991.
The dividend payout ratio was 29.4%, 27.3% and 29.7% for 1993, 1992 and 1991, respectively. Dividends declared in 1993 represented a 6.4% increase over 1992.
At December 31, 1993, the Company's common stock had a book value of $23.56 per share compared to $21.59 in 1992 and $19.55 in 1991. There is currently no established trading market for the common stock of Capital City Bank Group, Inc., and therefore, no bid or sale quotations are generally available. Based on sales of stock of which the Company has knowledge, the stock has traded in a range of $24.00 to $26.00 per share for the two-year period ended December 31, 1993, with the most recent trades at $26.00 per share.
The Company began a stock repurchase plan in 1989, which remains in effect and provides for the repurchase of up to 300,000 shares. As of December 31, 1993, the Company has repurchased 255,927 shares, of which 77,011 shares were acquired during 1993. The shares acquired in 1993 were purchased at an average cost of $24.00 per share. Shares acquired under the plan are currently being held as treasury stock. On January 21, 1994, 2,218 shares were issued to participants for achieving certain established performance goals for the year ended December 31, 1993. The total value of the shares issued was $57,668 based on a stock price of $26.00 per share.
Interest Rate Sensitivity
Table 14 on page 37 presents the Company's consolidated interest rate sensitivity position as of year-end 1993. The objective of interest rate sensitivity analysis is to attempt to measure the impact on the Company's net interest income due to fluctuations in interest rates. Interest rate sensitivity is managed at the bank level, enabling bank management to
incorporate its own interest rate projections, liquidity needs and factors specific to the local market into the analysis. As such, the Company does not manage its interest rate sensitivity from a consolidated position. The information in Table 14 has been assembled and presented in response to regulatory reporting requirements.
Inflation
The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment. Assets and liabilities of financial institutions are virtually all monetary in nature, and therefore are primarily impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to change in the expected rate of inflation and to changes in monetary and fiscal policy. Net interest income and the interest rate spread are good measures of the Company's ability to react to changing interest rates and are discussed in further detail in the section entitled "Earnings Analysis" beginning on page 13.
Accounting Pronouncements
The Company adopted SFAS No. 109, "Accounting for Income Taxes," which changed the accounting for income taxes to the asset and liability method from the deferral method previously required by Accounting Principles Board Opinion 11. A tax expense of $484,000 reflecting the cumulative effect of adopting this new standard is included in 1993 net income. The adoption of SFAS No. 109 will not impact the effective tax rate. However, since SFAS No. 109 requires that deferred tax assets and liabilities be adjusted to reflect the effect of tax law or rate changes, the outcome of future tax legislation may have an impact on future income tax expense.
The Financial Accounting Standards Board ("FASB") issued a new accounting pronouncement "Accounting for Certain Investments in Debt and Equity Securities" which is effective for fiscal years beginning after December 15, 1993. The pronouncement requires securities be classified into three categories: (1) Held to Maturity, (2) Available for Sale, and (3) Trading. Category three is not applicable since the Company does not engage in securities trading. The criteria for maintaining securities in the "Held To Maturity" category are restrictive and the ability to sell a security in this category is very limited. Management believes to properly manage interest rate risks and liquidity it is prudent to place a portion (approximately 30%) of the investment portfolio into the "Available for Sale" category. This was done in January of 1994. See Note 1 in the Notes to Financial Statements. Securities remaining in the "Held To Maturity" category will be reported at amortized cost, without recognition of unrealized gains and losses, which is consistent with the Company's prior accounting practices. Securities in the "Available For Sale" category will be reported at fair value with unrealized gains and losses reported as a separate component of shareholders' equity. When the statement was adopted in January 1994, it resulted in the addition, net of deferred taxes, of approximately $847,000, or 1.3%, to the Company's equity capital.
In May 1993, the Financial Accounting Standards Board issued Statement No. 114 - "Accounting by Creditors for Impairment of a Loan." This statement requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans effective interest rate, or at the loan's observable market price, or at the fair value of the collateral if the loan is collateral dependent. The statement applies to financial statements for fiscal years beginning after December 15, 1994. Management has not yet determined the impact, if any, this statement may have on the Company's financial condition or results of operations when adopted on a prospective basis in 1995.
In December 1990, FASB issued SFAS No. 106, "Employers' Accounting for Post- Retirement Benefits Other Than Pension," which requires that the projected
future cost of providing post-retirement health care and other benefits be recognized as employees provide services to earn those benefits. The Company does not offer post-retirement benefits, thus this statement is not applicable.
SFAS No. 112, "Employers' Accounting for Post-Employment Benefits," which is effective for fiscal years beginning after December 15, 1993, requires employers who provide benefits to former or inactive employees after employment, but before retirement, to recognize these obligations as employees provide services to earn the benefits. The Company does not offer post-employment benefits, thus this statement is not applicable.
Item 8.


Item 8. Financial Statements and Supplementary Data
Report of Independent Accountants
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated and Parent Company Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Report of Independent Accountants
Shareholders and Board of Directors Capital City Bank Group, Inc. Tallahassee, Florida
We have audited the accompanying consolidated statements of condition of Capital City Bank Group, Inc., and subsidiaries as of December 31, 1993 and 1992, and the related statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital City Bank Group, Inc., as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the Financial Statements, Capital City Bank Group, Inc., changed its method of accounting for income taxes in 1993.
JAMES D. A. HOLLEY & CO.
Tallahassee, Florida February 4, 1994
Consolidated Statements of Condition
As of December 31, 1993 1992
ASSETS Cash and Due From Banks $ 56,664,688 $43,690,111 Interest Bearing Deposits in Other Banks 1,256,516 1,955,817 Investment Securities (market value $221,273,916 and $190,262,011 in 1993 and 1992) (Note 5) 218,622,520 186,437,464 Federal Funds Sold 55,970,000 61,625,000
Loans (Notes 6 and 7) 406,566,731 378,218,710 Unearned Interest (7,142,943) (8,308,084) Allowance for Loan Losses (7,594,101) (7,584,958) Loans, Net 391,829,687 362,325,668
Premises and Equipment (Note 8) 20,820,473 15,901,857 Accrued Interest Receivable 5,467,174 5,127,718 Intangibles (Note 2) 1,719,491 658,353 Other Assets 9,984,232 9,244,273
Total Assets $762,334,781 $686,966,261
LIABILITIES Deposits: Noninterest Bearing Deposits $171,984,693 $147,870,679 Interest Bearing Deposits (Note 9) 490,760,129 449,626,770 Total Deposits 662,744,822 597,497,449
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 23,264,047 17,561,214 Short-Term Borrowings 1,201,565 1,221,123 Long-Term Debt (Note 10) 1,900,000 2,000,000 Other Liabilities 6,084,592 5,517,780 Total Liabilities 695,195,026 623,797,566
SHAREHOLDERS' EQUITY Common Stock, $.01 par value; 4,000,000 shares authorized; 3,105,243 issued 31,052 31,052 Surplus 5,856,794 5,857,194 Retained Earnings 67,753,475 61,936,427 73,641,321 67,824,673 Treasury Stock: 255,927 shares in 1993 and 179,016 shares in 1992 at Cost (6,501,566) (4,655,978) Total Shareholders' Equity 67,139,755 63,168,695 Total Liabilities and Shareholders' Equity $762,334,781 $686,966,261
The accompanying Notes to Financial Statements are an integral part of these statements.
For the Years Ended December 31, 1993 1992 1991
Net Income $8,243,711 $8,376,536 $7,272,476 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 960,114 1,215,868 1,816,883 Depreciation 1,881,207 1,862,930 1,732,620 Amortization of Intangible Assets 337,994 259,171 302,915 Deferred Income Taxes 74,585 (143,529) (218,139) Cumulative Effect of Accounting Change 484,495 - - Net (Increase) Decrease in Interest Receivable (339,456) 68,761 208,180 Net (Increase) Decrease in Other Assets (1,393,182) (231,349) (986,758) Net Increase (Decrease) in Other Liabilities 318,515 (1,183,076) (151,038) Net Cash from Operating Activities 10,567,983 10,225,312 9,977,139
Cash Flows from Investing Activities:
Proceeds from Payments/Maturities of Investment Securities 82,540,933 31,163,153 45,083,468 Purchase of Investment Securities (114,725,989) (79,694,258) (65,614,794) Net (Increase) Decrease in Loans (17,234,818) (6,438,547) 13,680,540 Purchase of Premises & Equipment (6,952,279) (1,337,346) (1,618,160) Sales of Premises & Equipment 1,007,775 31,744 193,898 Cash Acquired in Bank Acquisitions 28,811,166 - - Net Cash from Investing Activities (26,553,212) (56,275,254) (8,275,048)
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits 21,150,418 42,405,239 4,755,974 Net Increase (Decrease) in Federal Funds Purchased 5,702,833 2,648,874 (10,572,406) Net Increase (Decrease) in Other Borrowed Funds (19,558) (19,247) (606,217) Addition to Long-Term Debt 1,400,000 - 403,800 Repayment of Long-Term Debt (1,500,000) (2,000,000) (2,628,800) Dividends Paid (2,282,200) (2,153,230) (2,065,029) Sale (Purchase) of Treasury Stock (1,845,988) (648,000) (834,842) Net Cash from Financing Activities 22,605,505 40,233,636 (11,547,520)
Net Increase (Decrease) in Cash and Cash Equivalents ( 6,620,276) (5,816,306) (9,845,429)
Cash and Cash Equivalents at Beginning of Period 107,270,928 113,087,234 122,932,663
Cash and Cash Equivalents at End of Period $113,891,204 $107,270,928 $113,087,234
The accompanying Notes to Financial Statements are an integral part of these statements.
Notes to Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
The Company and its subsidiaries follow generally accepted accounting principles and reporting practices applicable to the banking industry. Prior year financial statements and other statistical information have been reclassified to conform to the presentation adopted for 1993. The principles which materially affect the financial position, results of operations and cash flows are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts of Capital City Bank Group, Inc., and its subsidiaries, all of which are wholly-owned. All material intercompany transactions and accounts have been eliminated.
Investment Securities
Securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. Gains and losses on securities are accounted for by the specific identification method.
The investment portfolio is a by-product of the Company's operations and, as such, it functions as a key component of liquidity and asset/liability management. It is not management's intent nor practice to participate in the trading of investment securities. Sales of securities are minimal and the gains or losses recognized from such sales are not material to the Company's financial performance.
On January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 ("Accounting for Certain Investments in Debt and Equity Securities") and management transferred approximately 30% of the Company's portfolio to the "Available for Sale" category. Securities transferred to the "Available for Sale" category on the date the statement was adopted are as follows: Amortized Category Costs
U. S. Treasuries $31,364,293 U. S. Government Agencies and Corporations 10,089,014 State and Political Subdivisions 20,853,825 Other Securities 500,000
Total Available for Sale $62,807,132
Securities in this category are recorded at fair value with unrealized gains and losses, net of deferred taxes, reported as a separate component of equity capital. Fluctuations in the net unrealized gain or loss will not impact the Company's earnings.
Loans
Loans are stated at the principal amount outstanding. Interest income on certain loans, which are made on the discount basis, is recognized using the sum-of-the- months-digits method which does not differ materially from the interest method. Interest income on all other loans, except for those designated as non-accrual
loans, is accrued based on the outstanding daily balances. Under FASB Statement No. 91, fees charged to originate loans and loan origination costs are to be deferred and amortized over the life of the loan. Management has elected not to net the costs against the loan fees but to defer only fees. The effect of this practice does not have a material impact on the consolidated financial statements.
Allowance for Possible Loan Losses
Provisions for possible loan losses are charged to operating expenses and added to the allowance to maintain it at a level deemed appropriate by management to absorb known and inherent risks in the loan portfolio. When establishing a provision, management makes various estimates regarding the value of collateral and future economic events. Actual future experience may differ from these estimates. Recognized loan losses are charged to the allowance when loans are deemed to be uncollectible due to such factors as the borrower's failure to pay principal and interest or when loans are classified as losses under internal or external review criteria. Recoveries of principal on loans previously charged- off are added to the allowance.
Loans are placed on nonaccrual status when management believes the borrower's financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. Generally, loans are placed on nonaccrual status when interest becomes past due 90 days or more, or management deems the ultimate collection of principal and interest, in full, is in doubt.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, computed on the straight-line method over estimated useful lives of thirty to forty years for buildings and three to twenty years for fixtures and equipment. Additions and major facilities are capitalized and depreciated in the same manner. Repairs and maintenance are charged to operating expense as incurred.
Other Real Estate
Other real estate includes property owned by the Group banks which was acquired either through foreclosure or by receiving a deed in lieu of foreclosure. The properties are included in "other assets" on the statement of condition and are recorded at an amount which approximates market. Other real estate totalled $3.4 and $4.4 million at December 31, 1993 and 1992, respectively.
Income Taxes
The Company and its subsidiaries file consolidated federal and state income tax returns. In general, the parent company and its subsidiaries compute their tax provisions (benefits) as separate entities prior to recognition of any tax expenses (benefits) which may accrue from filing a consolidated return.
Effective January 1, 1993, the company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which mandates the asset and liability method of accounting for deferred income taxes. The Company had previously accounted for deferred taxes under the deferral method required by Accounting Principles Board (APB) Opinion 11. The cumulative effect of adopting the new accounting standard was a reduction in the Company's net income of $484,495, which was recognized the first quarter of 1993. See Note 11 in Notes to Financial Statements for further discussion.
Note 2
Branch Acquisitions
On March 15, 1993, Capital City First National Bank, a wholly-owned subsidiary of Capital City Bank Group, Inc., consummated the purchase and assumption of three branch offices located in Citrus County, Florida. First National acquired two of the office facilities and is leasing the third. In connection with these acquisitions, First National assumed $37.0 million in deposits and purchased $12.0 million in loans, consisting primarily of first mortgage residential real estate loans.
On February 1, 1993, Branford State Bank, a wholly-owned subsidiary of Capital City Bank Group, Inc., consummated the assumption of $7.0 million in deposits. Loans purchased were minimal and no office facilities were acquired.
Assets and liabilities acquired through acquisition, on a combined basis, are as follows:
Loans $(13,229,315) Premises & Equipment (855,319) Other Assets (1,304,989) Total Assets $44,200,789 Deposits 44,096,955 Other Liabilities 103,834 Cash Acquired in Acquisitions $28,811,166
Intangible assets, including goodwill, recorded in connection with the Company's acquisitions are being amortized over periods of one to twenty-five years with the majority being written off over an average life of approximately 10 years. Intangibles recorded during 1993 totalled $1.2 million. The pre-tax amortization was $338,000 in 1993, $259,000 in 1992 and $303,000 in 1991. The amortization of intangibles for each of the next five years is as follows:
Year Amount 1994 $363,000 1995 $284,000 1996 $244,000 1997 $185,000 1998 $159,000 Note 3
STATEMENT OF CASH FLOWS
The statement of cash flows is presented using the indirect method of presentation. For purposes of this statement, the Company considers cash, due from banks, interest bearing deposits in banks and federal funds sold to be cash equivalents.
Supplemental Disclosures of Cash Flow Information: 1993 1992 1991 Cash paid during the year for: Interest on Deposits and Other Funds Purchased $14,943,964 $19,213,697 $26,921,413 Interest on Long-Term Debt 56,009 $ 178,619 $ 445,245 Taxes Paid 3,013,311 $ 2,763,567 $ 2,504,278
Supplemental Schedule of Noncash Investing and Financing Activities:
1993 1992 1991
Loans Foreclosed and Transferred to Other Real Estate $910,228 $2,311,826 $3,200,742
Note 4
CASH & DUE FROM BANK ACCOUNTS
Six of the ten Group banks are members of the Federal Reserve Bank of Atlanta and are required to maintain reserve balances. The average amount of those reserve balances for the years ended December 31, 1993 and 1992, was $25,031,000 and $24,168,000, respectively.
Note 5
INVESTMENT SECURITIES
The carrying value and related market value of investment securities at December 31, were as follows:
Gross Gross Carrying Market Unrealized Unrealized Value Value
U.S. Treasury $111,233,251 $111,722,854 $ 578,434 $ 88,831 U.S. Government Agencies and Corporations 35,314,555 35,552,676 320,299 82,178 States and Political Subdivisions 67,069,825 68,949,454 1,991,218 111,589 Other Securities 5,004,889 5,048,932 47,657 3,614 Total Investment Securities $218,622,520 $221,273,916 $2,937,608 $ 286,212
Gross Gross Carrying Market Unrealized Unrealized Value Value Gains Losses
U.S. Treasury $100,946,059 $102,462,213 $l,516,154 - U.S. Government Agencies and Corporations 25,364,688 25,622,085 262,811 5,414 States and Political Subdivisions 55,984,326 57,995,657 2,013,753 2,422 Other Securities 4,142,391 4,182,056 43,733 4,068 Total Investment Securities $186,437,464 $190,262,011 $3,836,451 $11,904
The total proceeds from the sale of investment securities and the gross realized gains and losses from the sale of such securities for each of the last three years is presented below:
Total Gross Gross Year Proceeds Realized Gains Realized Losses
1993 $31,681,176 69,249 41,722 1992 8,700,297 42,338 44,485 1991 917,837 10,051 5,127
Total proceeds in the above chart include principal reductions in mortgage backed securities and proceeds from securities which were called of $31,581,176, $8,293,692 and $585,693 in 1993, 1992 and 1991, respectively.
As of December 31, 1993, the Company's debt securities had the following maturity distribution:
Carrying Value Market Value
Due in one year or less $ 68,588,734 $ 68,911,234 Due after one through five years 123,877,247 125,459,023 Due after five through ten years 24,554,631 25,322,697 Over ten years 1,601,908 1,580,962 Total Investment Securities $218,622,520 $221,273,916
Securities with a carrying value of $86,441,723 and $71,436,898 at December 31, 1993 and 1992, respectively, were pledged to secure public deposits and for other purposes as required by law.
Note 6
LOANS
At December 31, the composition of the Company's loan portfolio was as follows:
1993 1992
Commercial, Financial and Agricultural $ 46,962,666 $ 57,187,674 Real Estate - Construction 22,968,331 19,102,946 Real Estate - Mortgage 242,740,428 212,080,485 Consumer 93,895,306 89,847,605 Total Loans $ 406,566,731 $378,218,710
Nonaccruing loans amounted to $9,352,869 and $6,987,198 at December 31, 1993 and 1992, respectively. Restructured loans amounted to $64,661 and $169,314 at December 31, 1993 and 1992, respectively. If such nonaccruing and restructured loans had been on a fully accruing basis, interest income would have been $846,000 higher in 1993 and $696,000 higher in 1992.
Due to the lack of diversified industry within the markets served by the Group banks, a significant portion of the loan portfolio is associated either directly or indirectly with real estate. At December 31, 1993, approximately 65% of the portfolio consisted of real estate related loans.
Note 7
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the years ended December 31, is as follows:
1993 1992 1991
Balance, Beginning of Year $7,584,958 $7,669,915 $7,526,414 Provision for Loan Losses 960,114 1,215,868 1,816,883 Recoveries on Loans Previously Charged-Off 569,765 632,219 488,844 Loans Charged-Off (1,520,736) (1,933,044) (2,162,226) Balance, End of Year $7,594,101 $7,584,958 $7,669,915
Note 8
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31, was as follows: 1993 1992
Land $ 4,300,563 $ 4,112,299 Buildings 18,348,113 12,827,586 Fixtures and Equipment 14,358,167 13,457,612 37,006,843 30,397,497 Accumulated Depreciation (16,186,370) (14,495,640) Premises and Equipment, Net $20,820,473 $15,901,857
Depreciation of $1,881,207, $1,862,930, and $1,732,620 was charged to operations for 1993, 1992 and 1991, respectively.
Note 9
DEPOSITS
Interest bearing deposits, by category, as of December 31, are as follows:
1993 1992
NOW Accounts $100,184,541 $ 71,357,466 Money Market Accounts 77,301,643 71,719,744 Savings Accounts 110,127,691 111,206,053 Other Time Deposits 203,146,254 195,343,507 Total Interest Bearing Deposits $490,760,129 $449,626,770
Time deposits in denominations of $100,000 or more totalled $40,936,000 and $45,658,000, at December 31, 1993 and 1992, respectively.
Interest expense for each of these deposit categories for the three years ended December 31, is as follows:
1993 1992 1991
NOW Accounts $ 1,616,631 $1,770,024 $2,786,570 Money Market Accounts 1,778,928 2,315,965 3,885,783 Savings Accounts 2,953,208 3,651,544 2,219,917 Other Time Deposits 7,864,445 10,047,391 16,225,982 Total $14,213,212 $17,784,924 $25,118,252
Note 10
LONG-TERM DEBT
On January 24, 1992, the Company established a $6.0 million revolving line of credit with Trust Company Bank, Atlanta, Georgia, and simultaneously amended its master note and loan agreement with Wachovia Bank of Georgia (formerly "The First National Bank of Atlanta") to provide for a $6.0 million revolving line of credit. The two credit facilities are collateralized by 100% of the common stock of Capital City First National Bank of Tallahassee. The Trust Company facility expires on January 24, 1996, and the Wachovia facility expires on May 31, 1994, at which time the outstanding balance under the revolving line of credit may convert to a term loan which will amortize in 24 equal quarterly installments. As of December 31, 1993, there was $1.4 million outstanding to Trust Company and $500,000 outstanding to Wachovia. Under the two credit facilities the Company, at its option, may select from various loan rates including prime, LIBOR or the certificate of deposit ("CD") rate, plus or minus increments thereof. The LIBOR or CD rates may be fixed for a period of up to six months. The average interest rate on debt outstanding during 1993 was 4.06%, and the weighted average rate at year-end was 3.97%. The loan agreements place certain restrictions on the amount of capital which must be maintained by the Company. On December 31, 1993, the Company's capital exceeded the most restrictive covenants of either agreement.
Note 11
INCOME TAXES
The provision for income taxes reflected in the statement of income was comprised of the following components:
1993 1992 1991 Currently Payable: Federal $2,846,900 $2,903,663 $2,411,439 State 387,129 404,207 286,231 Deferred: Federal 59,198 (129,880) (186,756) State 15,387 (13,649) (31,383) Total $3,308,614 $3,164,341 $2,479,531
The net deferred tax asset and liability and the temporary differences comprising those balances at December 31, 1993, are detailed below:
Deferred Tax Assets: Allowance for Loan Losses $2,857,660 Deferred Loan Fees 313,883 Writedown of Real Estate Held for Sale 22,495 Other 72,369 Total Deferred Tax Assets $3,266,407
Deferred Tax Liabilities: Premises and Equipment 839,327 Employee Benefits 235,616 Other 30,039 Total Deferred Tax Liabilities 1,104,982 Net Deferred Tax Assets $2,161,425
Income taxes amounted to less than the tax expense computed by applying the statutory federal income tax rates to income. The reasons for these differences are as follows:
1993 1992 1991
Computed Tax Expense $4,092,519 $3,923,898 $3,315,682 Increases (Decreases) Resulting From: Tax-Exempt Interest Income (1,087,346) (1,001,370) (1,015,315) State Income Taxes, Net of Federal Income Tax Benefits 265,660 257,768 168,200 Other 37,781 (15,955) 10,964 Actual Tax Expense $3,308,614 $3,164,341 $2,479,531
The items that caused timing differences and the resulting deferred income taxes for 1992 and 1991, are as follows: 1992 1991
Asset Writedowns $(137,520) $ - Provision for Loan Losses 30,736 (51,916) Deferred Loan Fees (21,088) 12,297 Pension Expense 178,259 (205,883) Depreciation (75,646) 26,990 Other (118,270) 373 Total $(143,529) $(218,139)
Note 12
EMPLOYEE BENEFITS
The Company sponsors a noncontributory pension plan covering substantially all of its employees. Benefits under this plan generally are based on the employee's years of service and compensation during the years immediately preceding retirement. The Company's general funding policy is to contribute amounts deductible for federal income tax purposes.
The following table details the components of pension expense, the funded status of the plan and amounts recognized in the Company's consolidated statements of condition, and major assumptions used to determine these amounts.
1993 1992 1991 Components of Pension Expense: Service Cost $685,449 $674,980 $ 530,645 Interest Cost 845,301 763,211 742,002 Actual Return on Plan Assets (525,422) (363,931) (1,568,273) Net Amortization and Deferral (330,861) (492,809) 915,451 Total $674,467 $581,451 $ 619,825
Actuarial Present Value of Projected Benefit Obligations:
Accumulated Benefit Obligations:
Vested $6,896,007 $5,833,309 $4,022,661 Nonvested 1,066,503 935,972 487,853 $7,962,510 $6,769,281 $4,510,514 Plan Assets at Fair Value (primarily listed stocks and bonds, U.S. Government secur- ities and interest bearing deposits) $10,898,324 $10,144,450 $9,105,747 Projected Benefit Obligation (11,824,763) (10,616,298) (9,311,574) Plan Assets in Excess of: Projected Benefit Obligation (926,439) (471,848) (205,827) Unrecognized Net Loss 3,465,697 2,926,291 2,421,063 Unrecognized Net Asset (1,884,324) (2,120,407) (2,356,490) Prepaid (Accrued) Pension Cost $ 654,934 $ 334,036 $ (141,254) Major Assumptions: Discount Rate 7.5% 8.0% 9.0% Rate of Increase in Compensation Levels 5.5% 6.0% 6.0% Expected Long-Term Rate of Return on Plan Assets 7.5% 8.5% 9.0%
The Company has a stock incentive plan under which shares of the Company's stock are issued as incentive awards to selected participants. The cost of this plan in 1993 was $354,000.
Note 13
RELATED PARTY TRANSACTIONS
The Chairman of the Board of Capital City Bank Group, Inc., is chairman of the law firm which serves as general counsel to the Company and its subsidiaries. Fees paid by the Company and its subsidiaries for these services, in aggregate, approximated $266,000, $286,000, and $285,900 during 1993, 1992 and 1991, respectively.
Under a lease agreement expiring in 2024, a bank subsidiary leases land from a partnership in which several directors and officers have an interest. The lease agreement provides for annual lease payments of approximately $51,900, to be adjusted for inflation in future years.
At December 31, 1993 and 1992, certain officers and directors were indebted to the Company's bank subsidiaries in the aggregate amount of $10,257,576 and $12,463,712, respectively. During 1993, $7,709,884 in new loans were made and repayments totalled $9,916,020. These loans were made on the same terms as loans to other individuals of comparable creditworthiness.
Note 14
DIVIDEND RESTRICTIONS
The approval of the appropriate regulatory authority is required if the total of all dividends declared by a subsidiary bank in any calendar year exceeds the
bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. In 1994, the subsidiaries may declare dividends without regulatory approval of $7.8 million plus an additional amount equal to the net profits of the Company's subsidiary banks for 1994 up to the date of any such dividend declaration.
Note 15
SUPPLEMENTARY INFORMATION
Components of noninterest income and noninterest expense in excess of 1% of total operating income, which are not disclosed separately elsewhere, are presented below for each of the respective periods. 1993 1992 1991
Noninterest Expense: Employee Insurance $ 954,397 $887,618* $808,694* Payroll Taxes 879,249 802,370* 785,595* Maintenance and Repairs 1,274,555 1,243,497 1,552,134 Professional Fees 659,414 468,418* 434,933* Advertising 658,696 438,655* 615,638* Printing & Supplies 1,065,122 875,023 934,818 Insurance (other than employee) 1,708,134 1,490,156 1,518,206
*Less than 1% of operating income in the year reported
Note 16
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISKS
The Company is a party to financial instruments with off-balance-sheet risks in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The Company does not participate in financial guarantees, options, interest rate caps and floors, interest rate swaps or futures contracts.
The Company's maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance-sheet instruments. As of December 31, 1993, the amounts associated with the Company's off-balance-sheet obligations were as follows:
Off-Balance-Sheet Financial Instruments Amount
Commitments to Extend Credit(1) $97,647,248 Standby Letters of Credit 1,875,305
(1) Commitments include unfunded loans, revolving lines of credit (including credit card lines) and other unused commitments.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the corporation to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. In general, management does not anticipate any material losses as a result of participating in these types of transactions. However, any potential losses arising from such transactions are reserved for in the same manner as management reserves for its other credit facilities.
For both on and off-balance-sheet financial instruments, the Company requires collateral to support such instruments when it is deemed necessary. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the counterparty. Collateral held varies, but may include deposits held in financial institutions; U.S. Treasury Securities; other marketable securities; real estate; accounts receivable; property, plant and equipment; and inventory.
Due to the close proximity and the nature of the markets served by the Group banks, the Company has both a geographic concentration as well as a concentration in the types of loans funded. Seven of the ten Group banks representing 81% of the Company's total loans at year-end are located within a 30-mile radius. At December 31, 1993, approximately 65% of the Company's loan portfolio consisted of real estate related loans.
Note 17
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The resulting fair values may be significantly affected by the assumptions used, including the discount rates and estimates of future cash flows.
Many of the Company's assets and liabilities are short-term financial instruments whose carrying values approximate fair value. These items include Cash and Due From Banks, Interest Bearing Balances with Other Banks, Federal Funds Sold, Federal Funds Purchased and Securities Sold Under Repurchase Agreements, and Other Short-term Borrowings. The methods and assumptions used to estimate the fair value of the Company's other financial instruments are as follows:
Investment Securities - Fair values for investment securities are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities.
Loans - The loan portfolio is segregated into categories of loans with similar financial characteristics. The fair value of each loan category is calculated using present value techniques based upon projected cash flows and estimated discount rates. The calculated present values are then reduced by an allocation of the allowance for loan losses against each respective loan category.
Deposits - The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market Accounts and Savings Accounts are the amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.
Long-Term Debt - Carrying value of the Company's long-term debt approximates fair value due to the repricing frequency of the debt. The debt is generally repriced every 90 to 180 days and all long-term debt currently outstanding will reprice on or before March 31, 1994.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counterparties. Fair value of these fees is not material.
The Company's financial instruments which have estimated fair values differing from their respective carrying values are presented below.
As Of December 31, 1993 1992 Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value
Financial Assets: Investment Securities $218,623 $221,274 $186,437 $190,262 Loans, Net of Allowance for Loan Losses 391,830 394,171 362,326 363,891
Financial Liabilities: Deposits 662,745 663,665 597,497 598,848
Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. The disclosures also do not include certain intangible assets such as customer relationships, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
Note 18
PARENT COMPANY FINANCIAL INFORMATION
The following is a condensed statement of financial condition of the parent company at December 31:
Parent Company Statements of Condition
1993 1992
ASSETS
Cash and Due from Banks $ 2,788,987 $2,607,749 Investment in Group Banks 68,733,692 64,719,116 Other Assets 358,919 206,597 Total Assets $71,881,598 $67,533,462
LIABILITIES
Dividends Payable $ 2,134,240 $ 1,989,777 Long-Term Debt (Note 10) 1,900,000 2,000,000 Other Liabilities 707,603 374,990 Total Liabilities 4,741,843 4,364,767
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; 4,000,000 shares authorized; 3,105,243 issued 31,052 31,052 Surplus 5,856,794 5,857,194 Retained Earnings 67,753,475 61,936,427 73,641,321 67,824,673
Treasury Stock: 255,927 shares in 1993 and 179,016 shares in 1992, at Cost (6,501,566) (4,655,978) Total Shareholders' Equity 67,139,755 63,168,695 Total Liabilities and Shareholders' Equity $71,881,598 $67,533,462
The operating results of the parent company for the three years ended December 31 are shown below:
Parent Company Statements of Income
1993 1992 1991
OPERATING INCOME Income Received from Group Banks:
Dividends (Note 14) $4,675,000 $4,800,000 $5,800,000 Group Overhead Fees 1,985,566 2,017,566 1,846,977 Total Operating Income 6,660,566 6,817,566 7,646,977
OPERATING EXPENSE Salaries and Employee Benefits 1,617,059 1,138,963 1,108,250 Legal Fees 63,458 47,936 30,004 Professional Fees 171,291 137,393 145,008 Advertising 432,978 304,886 377,360 Travel and Entertainment 62,481 49,783 36,246 Amortization of Excess of Purchase Price Over Book Value of Net Assets Acquired 51,617 56,818 146,745 Interest on Debt 56,009 178,619 445,245 Dues and Memberships 41,601 44,598 39,882 Other 180,176 239,705 220,476 Total Operating Expense 2,676,670 2,198,701 2,549,216
Income Before Income Taxes and Equity in Undistributed Earnings of Group Banks 3,983,896 4,618,865 5,097,761 Income Tax Expense (Benefit) (229,736) (81,497) (264,098) Income Before Equity in Undistributed Earnings of Group Banks 4,213,632 4,700,362 5,361,859 Equity in Undistributed Earnings of Group Banks 4,030,079 3,676,174 1,910,617 Net Income $8,243,711 $8,376,536 $7,272,476
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
1993 1992 1991
Net Income $8,243,711 $8,376,536 $7,272,476 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Equity in Earnings of Group Banks (8,705,079) (8,476,174) (7,710,617) Amortization of Excess of Purchase Price Over Book Value of Net Assets Acquired 51,038 56,818 146,745 (Increase) Decrease in Other Assets (187,857) 163,945 (1,702) Net Increase (Decrease) in Other Liabilities 332,613 (54,215) (9,434) Net Cash from Operating Activities (265,574) 66,910 (302,532)
Cash Flows from Investing Activities: Dividends Received from Group Banks 4,675,000 4,800,000 5,800,000
Cash Flows from Financing Activities: Addition to Long-Term Debt 1,400,000 - 403,800 Repayment of Long-Term Debt (1,500,000) (2,000,000) (2,628,800) Payment of Dividends (2,282,200) (2,153,230) (2,065,029) Sale (Purchase) of Treasury Stock (1,845,988) (648,000) (834,842) Net Cash from Financing Activities (4,228,188) (4,801,230) (5,124,871) Net Increase (Decrease) in Cash 181,238 65,680 372,597 Cash at Beginning of Period 2,607,749 2,542,069 2,169,472 Cash at End of Period $2,788,987 $ 2,607,749 $2,542,069
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
The Board of Directors has appointed Arthur Andersen & Co., independent certified public accountants, as independent auditors for Capital City Bank Group, Inc., and its subsidiaries for the current fiscal year ending December 31, 1994, subject to ratification by the shareholders. Fiscal 1994 will be the first year Arthur Andersen & Co. will audit the books and records of the Company. The decision to change the Company's independent auditors from James D. A. Holley & Co. to Arthur Andersen & Co. was made by the Company's Board of Directors on January 21, 1994. Arthur Andersen & Co. was engaged on April 5, 1994. During the periods in which James D. A. Holley & Co. audited the books and records of the Company, none of the reports issued by such firm on the financial statements of the Company contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. The Company has never had any disagreements with James D. A. Holley & Co. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
Item 10.



Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to the sections entitled "Election of Directors" and "Executive Officers" in the Registrant's Proxy Statement dated April 7, 1994, to be filed on or before April 7, 1994.
Item 11.

Item 11. Executive Compensation
Incorporated herein by reference to the section entitled "Executive Compensation" in the Registrant's Proxy Statement dated April 7, 1994, to be filed on or before April 7, 1994.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the subsection entitled "Information Concerning Nominees" under the section entitled "Election of Directors", and "Principal Shareholders" in the Registrant's Proxy Statement dated April 7, 1994, to be filed on or before April 7, 1994.
Item 13.

Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the subsection entitled "Compensation Committee Interlocks and Insider Participation" under the section entitled "Executive Compensation" in the Registrant's Proxy Statement dated April 7, 1994, to be filed on or before April 7, 1994.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
EXHIBITS
3(a) Articles of Incorporation, As Amended, of Capital City Bank Group, Inc., were filed as Exhibit 3(a) to the Registrant's Form S-14 filed on August 26, 1983 (File No. 2-86158), and are incorporated herein by reference.
3(b) Capital City Bank Group, Inc.'s By-Laws, As Amended are incorporated herein by reference to Exhibit 3(b) of the Company's 1983 Form 10-K (File No. 2-86158).
10(a) Reorganization Agreement and Plan of Merger among Capital City Bank Group, Inc., Capital City First National Bank of Tallahassee, Capital City Second National Bank, Industrial National Bank, City National Bank, Havana State Bank and First National Bank of Jefferson County dated as of May 16, 1983, is incorporated herein by reference to Registrant's Rule 424(b) Prospectus/Joint Proxy Statement used in connection with Registration Statement No. 2-86158.
10(b) Master Note and Loan and Security Agreement evidencing a line of credit between Registrant and The First National Bank of Atlanta, Georgia, (now "Wachovia Bank of Georgia") dated December 22, 1989 is incorporated herein by reference to Exhibit A in Registrant's Form 8-K dated December 19, 1989.
10(c) Amendment to Master Note and Loan and Security Agreement in item 10(b) above, dated January 24, 1992, is incorporated herein by reference to Exhibit B in Registrant's Form 10-K dated March 29, 1993.
10(d) Promissory Note and Pledge and Security Agreement evidencing a line of credit between Registrant and Trust Company Bank, Atlanta, Georgia, dated January 24, 1992, is incorporated herein by reference to Exhibit B in Registrant's Form 10-K dated March 29, 1993.
16 Letter Regarding Change in Certifying Accountant
22 For a listing of Capital City Bank Group's subsidiaries see Item I
23 (a) Report of Independent Accountants
FINANCIAL STATEMENT SCHEDULES
Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the financial statements or the notes thereto.
REPORTS ON FORM 8-K
Capital City Bank Group, Inc. ("CCBG") filed no Form 8-K during the fourth quarter of 1993.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on March 15, 1994, on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ Godfrey Smith President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 15, 1994, by the following persons in the capacities indicated.
/s/ GODFREY SMITH Godfrey Smith President (Principal Executive Officer)
/s/ J. KIMBROUGH DAVIS J. Kimbrough Davis Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Directors:
/s/ DuBose Ausley
/s/ Thomas A. Barron
/s/ Payne H. Midyette, Jr.
/s/ Godfrey Smith
/s/ William G. Smith, Jr.