Annual Report (Form 10-K), fiscal year 1994

Item 1. Business 3 Item 2.



Item 2. Properties 11 Item 3.

Item 3. Legal Proceedings 11 Item 4.

Item 4. Submission of Matters To a Vote of Security Holders 11
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 11 Item 6.

Item 6. Selected Financial Data 11 Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 8.


Item 8. Financial Statements and Supplementary Data
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Capital City Bank Group, Inc. Tallahassee, Florida
We have audited the accompanying consolidated statement of financial condition of Capital City Bank Group, Inc. (a Florida Corporation) and subsidiaries as of December 31, 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year then ended. 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 audit. The financial statements of Capital City Bank Group, Inc. and subsidiaries as of December 31, 1993 and 1992, were audited by other auditors whose report dated February 4, 1994, on those statements was unqualified and included an explanatory paragraph that described the change in the Company's method of accounting for income taxes in 1993, as discussed in Note 1 to the financial statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capital City Bank Group, Inc. and subsidiaries as of December 31, 1994, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Capital City Bank Group, Inc., changed its method of accounting for investment securities, effective January 1, 1994.
ARTHUR ANDERSEN LLP
Atlanta, Georgia January 27, 1995
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of December 31, 1994 1993
ASSETS Cash and Due From Banks (Note 7) $ 63,327,189 $ 56,664,688 Interest Bearing Deposits in Other Banks - 1,256,516 Investment Securities Held to Maturity (market value $145,003,164 and $221,273,916 in 1994 and 1993) (Note 3) 150,441,260 218,622,520 Investment Securities Available for Sale (Note 3) 48,847,145 -
Federal Funds Sold 25,740,000 55,970,000
Loans (Notes 4 and 5) 426,012,721 406,566,731 Unearned Interest (5,208,716) (7,142,943) Allowance for Loan Losses (7,551,025) (7,594,101) Loans, Net 413,252,980 391,829,687
Premises and Equipment (Note 6) 24,292,288 20,820,473 Accrued Interest Receivable 5,546,092 5,467,174 Intangibles (Note 2) 1,378,408 1,719,491 Other Assets 9,804,822 9,984,232
Total Assets $742,630,184 $762,334,781
LIABILITIES Deposits: Noninterest Bearing Deposits $167,710,491 $171,984,693 Interest Bearing Deposits (Note 7) 480,463,376 490,760,129 Total Deposits 648,173,867 662,744,822
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 13,964,450 23,264,047 Short-Term Borrowings 999,176 1,201,565 Long-Term Debt (Note 8) - 1,900,000 Other Liabilities 7,092,599 6,084,592 Total Liabilities 670,230,092 695,195,026
SHAREHOLDERS' EQUITY Common Stock, $.01 par value; 4,000,000 shares authorized; 3,105,243 issued 31,052 31,052 Surplus 5,852,157 5,856,794 Retained Earnings 73,989,093 67,753,475 Treasury Stock: 259,428 shares in 1994 and 255,927 shares in 1993, at cost (6,587,956) (6,501,566) Net Unrealized Loss on Available for Sale Securities (884,254) - Total Shareholders' Equity 72,400,092 67,139,755 Total Liabilities and Shareholders' Equity $742,630,184 $762,334,781
The accompanying Notes to Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Years Ended December 31, 1994 1993 1992
Net Income $8,825,309 $8,243,711 $8,376,536 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Provision for Loan Losses 1,245,900 960,114 1,215,868 Depreciation 1,915,771 1,881,207 1,862,930 Net Gain (Loss) on Sale of Properties 812,238 143,914 189,653 Amortization of Intangible Assets 341,083 337,994 259,171 Deferred Income Taxes 101,301 74,585 (143,529)
Cumulative Effect of Accounting Change - 484,495 -
Net (Increase) Decrease in Interest Receivable (78,918) (339,456) 68,761
Net (Increase) Decrease in Other Assets (79,463) (1,537,096) (421,002)
Net Increase (Decrease) in Other Liabilities 604,322 318,515 (1,183,076) Net Cash from Operating Activities 13,687,543 10,567,983 10,225,312
Cash Flows from Investing Activities: Proceeds from Sales/Maturities of Investment Securities 94,713,053 82,540,933 31,163,153
Purchase of Investment Securities (76,263,192) (114,725,989) (79,694,258) Net (Increase) Decrease in Loans (22,669,193) (17,234,818) (6,438,547)
Purchase of Premises & Equipment (6,064,334) (6,952,279) (1,337,346)
Sales of Premises & Equipment 278,718 1,007,775 31,744
Cash Acquired in Bank Acquisitions - 28,811,166 -
Net Cash from Investing Activities (10,004,948) (26,553,212) (56,275,254)
Cash Flows from Financing Activities: Net Increase (Decrease) in Deposits (14,570,955) 21,150,418 42,405,239
Net Increase (Decrease) in Federal Funds Purchased (9,299,597) 5,702,833 2,648,874 Net Increase (Decrease) in Other Borrowed Funds (202,389) (19,558) (19,247) Addition to Long-Term Debt - 1,400,000 -
Repayment of Long-Term Debt (1,900,000) (1,500,000) (2,000,000)
Dividends Paid (2,447,279) (2,282,200) (2,153,230)
Sale (Purchase) of Treasury Stock (86,390) (1,845,988) (648,000)
Net Cash from Financing Activities (28,506,610) 22,605,505 40,233,636
Net Increase (Decrease) in Cash and Cash Equivalents (24,824,015) 6,620,276 (5,816,306)
Cash and Cash Equivalents at Beginning of Year 113,891,204 107,270,928 113,087,234
Cash and Cash Equivalents at End of Year $ 89,067,189 $113,891,204 $107,270,928
Supplemental Disclosures:
Interest on Deposits $14,380,539 $14,943,964 $19,213,697 Interest on Debt $ 735,134 $ 626,872 $ 746,352 Taxes Paid $ 3,613,716 $ 3,013,311 $ 2,763,567
Loans Transferred To Other Real Estate $ 453,543 $ 910,228 $ 2,311,826
The accompanying Notes to Financial Statements are an integral part of these statements.
Notes to Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Capital City Bank Group, Inc., and its subsidiaries (the "Company"), all of which are wholly- owned. All material intercompany transactions and accounts have been eliminated.
The Company follows generally accepted accounting principles and reporting practices applicable to the banking industry. Prior year financial statements and other information have been reclassified to conform to the current year presentation. The principles which materially affect the financial position, results of operations and cash flows are summarized below.
Cash and Cash Equivalents
Cash and cash equivalents includes cash and due from banks, interest-bearing deposits in other banks, securities purchased under agreements to resell and federal funds sold. Generally, federal funds are purchased and sold for one-day periods and all items have an initial maturity of ninety days or less.
Investment Securities
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. Prior to January 1, 1994, all investment securities were classified as Held for Investment and recorded at amortized cost. In accordance with SFAS No. 115, securities are classified as either "Held to Maturity" or "Available for Sale".
Investment securities classified as Held to Maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Held-to- Maturity securities are carried at amortized cost as the Company has the ability and positive intent to hold these securities to maturity. Investment securities in the Available for Sale portfolio are carried at fair value and represent securities that are available to meet liquidity and/or other needs of the Company. The Company does not maintain a trading account.
Gains and losses are recognized and shown separately in the Statements of Income upon realization or when impairment of values is deemed to be other than temporary. These gains or losses are recognized using the specific identification method. Unrealized holding gains and losses for securities in the
Available for Sale portfolio are excluded from the Consolidated Statements of Income and reported net of taxes as a separate component of shareholders' equity until realized.
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. Fees charged to originate loans and loan origination costs are deferred and amortized over the life of the loan as a yield adjustment.
Allowance for Loan Losses
Provisions for 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.
Statement of Financial Accounting Standards No. 114 -- "Accounting by Creditors for Impairment of a Loan", as amended, requires impaired loans be measured based on the present value of expected future cash flows discounted at the loan's 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. These two accounting pronouncements, which were adopted on a prospective basis on January 1, 1995, will not have a material impact on the Company's financial condition or results of operations.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, computed on the straight-line method over estimated useful lives for each type of asset. 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 Company which was acquired either through foreclosure or by receiving a deed in lieu of foreclosure. The properties are included in "other assets" in the statement of financial condition and are recorded at the estimated properties' fair value. Other real estate totalled $1.6 and $3.4 million at December 31, 1994 and 1993, respectively.
Income Taxes
The Company files 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 9 for further discussion.
Note 2
BRANCH ACQUISITIONS
During 1993, the Company consummated the purchase and assumption of four branch offices. The acquisition included the purchase of three office facilities (a fourth is leased), $13.2 million in loans (consisting primarily of first mortgage real estate loans) and the assumption of $44.1 million in deposits.
Assets and liabilities acquired through acquisition in 1993, on a combined basis, are as follows:
Loans $(13,229,315) Premises & Equipment (855,319) Intangible Assets (1,235,534) Other Assets (69,455) Total Assets $(15,389,623) 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. No intangible assets were recorded during 1994. The pre-tax amortization of all intangible assets was approximately $341,000 in 1994, $338,000 in 1993 and $259,000 in 1992.
Note 3
INVESTMENT SECURITIES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. Upon adoption, management transferred approximately 30% of the Company's portfolio to the "Available for Sale" category. Securities transferred on January 1, 1994, were as follows:
Amortized Category Cost
U. S. Treasuries $31,364,293 U. S. Government Agencies and Corporations 10,089,014 State and Political Subdivisions 20,853,825 Other Securities 1,513,500
Total Available for Sale $63,820,632
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
1994 $11,475,751 $ 13,407 $ 160,328 1993 $31,681,176 69,249 41,722 1992 8,700,297 42,338 44,485
Total proceeds include principal reductions in mortgage backed securities and proceeds from securities which were called of $4,032,934, $31,581,176, and $8,293,692 in 1994, 1993 and 1992, respectively.
As of December 31, 1994, the Company's debt securities had the following maturity distribution:
HELD TO MATURITY
Amortized Cost Market Value
Due in one year or less $ 36,743,847 $ 36,340,522 Due after one through five years 94,406,793 90,930,781 Due after five through ten years 17,334,158 15,934,697 Over ten years 1,956,462 1,797,164 Total Investment Securities $150,441,260 $145,003,164
AVAILABLE FOR SALE
Amortized Cost Market Value
Due in one year or less $ 9,467,325 $ 9,445,972 Due after one through five years 32,265,522 31,405,946 Due after five through ten years 8,495,994 7,995,227 Over ten years - - Total Investment Securities $ 50,228,841 $ 48,847,145
Securities with an amortized cost of $70,539,314, and $86,441,723 at December 31, 1994 and 1993, respectively, were pledged to secure public deposits and for other purposes as required by law.
Note 4
LOANS
At December 31, the composition of the Company's loan portfolio was as follows:
1994 1993
Commercial, Financial and Agricultural $ 39,287,891 $ 46,962,666 Real Estate - Construction 24,314,439 22,968,331 Real Estate - Mortgage 255,754,940 242,740,428 Consumer 106,655,451 93,895,306 Total Loans $426,012,721 $406,566,731
Nonaccruing loans amounted to $4,278,523 and $9,352,869 at December 31, 1994 and 1993, respectively. Restructured loans amounted to $1,693,701, and $64,661 at December 31, 1994 and 1993, respectively. If such nonaccruing and restructured loans had been on a fully accruing basis, interest income would have been $474,211 higher in 1994 and $846,000 higher in 1993.
Note 5
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the years ended December 31, is as follows: 1994 1993 1992
Balance, Beginning of Year $7,594,101 $7,584,958 $7,669,915 Provision for Loan Losses 1,245,900 960,114 1,215,868 Recoveries on Loans Previously Charged-Off 466,088 569,765 632,219 Loans Charged-Off (1,755,064) (1,520,736) (1,933,044) Balance, End of Year $7,551,025 $7,594,101 $7,584,958
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31, was as follows: 1994 1993
Land $ 5,285,682 $ 4,300,563 Buildings 20,001,014 18,348,113 Fixtures and Equipment 16,656,602 14,358,167 Total 41,943,298 37,006,843 Accumulated Depreciation (17,651,010) (16,186,370) Premises and Equipment, Net $24,292,288 $20,820,473
Depreciation of $1,915,771, $1,881,207, and $1,862,930 was charged to operations for 1994, 1993 and 1992, respectively.
Note 7
DEPOSITS
Interest bearing deposits, by category, as of December 31, are as follows:
1994 1993
NOW Accounts $ 95,539,952 $100,184,541 Money Market Accounts 71,762,847 77,301,643 Savings Accounts 101,009,197 110,127,691 Other Time Deposits 212,151,380 203,146,254 Total Interest Bearing Deposits $480,463,376 $490,760,129
Time deposits in denominations of $100,000 or more totalled $40,774,000 and $40,936,000, at December 31, 1994 and 1993, respectively.
The average balances maintained on deposit with the Federal Reserve Bank for the years ended December 31, 1994 and 1993, were $27,600,000 and $25,031,000, respectively.
Interest expense on deposits for the three years ended December 31, is as follows: 1994 1993 1992 NOW Accounts $ 1,808,766 $ 1,616,631 $ 1,770,024 Money Market Accounts 1,730,973 1,778,928 2,315,965 Savings Accounts 2,598,076 2,953,208 3,651,544 Other Time Deposits 7,852,699 7,864,445 10,047,391 Total $13,990,514 $14,213,212 $17,784,924
Note 8
LONG-TERM DEBT
The Company has established and maintains two $6.0 million revolving lines of credit. The credit facilities are collateralized by 100% of the common stock of the Company's lead banking subsidiary. The credit facilities expire on July 21, 1995 and January 24, 1996, respectively. As of December 31, 1994, there was no debt outstanding under either credit facility. 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 1994 was 4.72%. The loan agreements place certain restrictions on the amount of capital which must be maintained by the Company. On December 31, 1994, the Company's capital exceeded the most restrictive covenants of both agreements.
Note 9
INCOME TAXES
The provision for income taxes reflected in the statement of income was comprised of the following components:
1994 1993 1992 Currently Payable: Federal $2,893,317 $2,846,900 $2,903,663 State 397,853 387,129 404,207 Deferred: Federal 87,154 59,198 (129,880) State 14,147 15,387 (13,649) Total $3,392,471 $3,308,614 $3,164,341
The net deferred tax asset and liability and the temporary differences comprising those balances at December 31, 1994 and 1993, are as follows:
1994 1993 Deferred Tax Asset: Allowance for Loan Losses $2,842,496 $2,857,660 Deferred Loan Fees 337,532 313,883 Unrealized Losses on Investment Securities 497,411 - Stock Incentive Plan 205,690 - Writedown of Real Estate Held for Sale 37,622 22,495 Other 140,141 72,369 Total Deferred Tax Asset $4,060,892 $3,266,407
Deferred Tax Liability: Premises and Equipment 845,168 839,327 Employee Benefits 374,046 235,616 FDIC Premiums 254,132 - Other 30,011 30,039
Total Deferred Tax Liability 1,503,357 1,104,982 Net Deferred Tax Asset $2,557,535 $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: 1994 1993 1992
Computed Tax Expense $4,154,045 $4,092,519 $3,923,898 Increases (Decreases) Resulting From: Tax-Exempt Interest Income (1,079,682) (1,087,346) (1,001,370) State Income Taxes, Net of Federal Income Tax Benefits 271,920 265,660 257,768 Other 46,188 37,781 (15,955) Actual Tax Expense $3,392,471 $3,308,614 $3,164,341
The items that caused timing differences and the resulting deferred income taxes for 1992, were as follows: Asset Writedowns $(137,520) Provision for Loan Losses 30,736 Deferred Loan Fees (21,088) Pension Expense 178,259 Depreciation (75,646) Other (118 270) Total $(143,529)
Note 10
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.
1994 1993 1992 Components of Pension Expense: Service Cost $ 763,581 $685,449 $674,980 Interest Cost 847,555 845,301 763,211 Actual Return on Plan Assets (317,556) (525,422) (363,931) Net Amortization and Deferral (405,608) (330,861 (492,809) Total $887,972 $674,467 $581,451
Actuarial Present Value of Projected Benefit Obligations:
Accumulated Benefit Obligations: Vested $6,860,413 $6,896,007 $ 5,833,309 Nonvested 1,097,247 1,066,503 935,972 $7,957,660 $7,962,510 $ 6,769,281
Plan Assets at Fair Value (primarily listed stocks and bonds, U.S. Government secur- ities and interest bearing deposits) $12,156,448 $10,898,324 $10,144,450 Projected Benefit Obligation (11,672,264) (11,824,763) (10,616,298) Plan Assets in Excess of Projected Benefit Obligation 484,184 (926,439) (471,848) Unrecognized Net Loss 2,186,862 3,465,697 2,926,291 Unrecognized Net Asset (1,648,241) (1,884,324) (2,120,407) Prepaid Pension Cost $1,022,805 $ 654,934 $ 334,036 Major Assumptions: Discount Rate 8.25% 7.50% 8.00% Rate of Increase in Compensation Levels 5.50% 5.50% 6.00% Expected Long-Term Rate of Return on Plan Assets 7.50% 7.50% 8.50%
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 was approximately $258,000 and $354,000 in 1994 and 1993, respectively.
Note 11
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 $242,500, $266,000, and $286,000 during 1994, 1993 and 1992, 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 $53,000, to be adjusted for inflation in future years.
At December 31, 1994 and 1993, certain officers and directors were indebted to the Company's bank subsidiaries in the aggregate amount of $9,882,658 and $8,664,857, respectively. During 1994, $11,673,788 in new loans were made and repayments totalled $10,455,987. These loans were made on the same terms as loans to other individuals of comparable creditworthiness.
Note 12
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 1995, the subsidiaries may declare dividends without regulatory approval of $8.3 million plus an additional amount equal to the net profits of the Company's subsidiary banks for 1995 up to the date of any such dividend declaration.
Note 13
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.
1994 1993 1992 Noninterest Income: Merchant Fee Income $1,746,921 $1,127,050 $1,138,387 Noninterest Expense: Employee Insurance 931,668 954,397 887,618* Payroll Taxes 927,288 879,249 802,370* Maintenance and Repairs 1,311,865 1,274,555 1,243,497 Professional Fees 667,353 659,414 468,418* Advertising 705,753 658,696 438,655* Printing & Supplies 1,128,978 1,065,122 875,023 Telephone 700,483 560,939* 455,055* Insurance (including FDIC Premium) 1,756,415 1,708,134 1,490,156 Commission/Service Fees 1,065,346 579,673* 583,487*
*Less than 1% of operating income in the year reported.
Note 14
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, 1994, the amounts associated with the Company's off-balance-sheet obligations were as follows: Amount
Commitments to Extend Credit(1) $102,034,183 Standby Letters of Credit 1,867,127
(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 counterpart. 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, 1994 approximately 66% of the Company's loan portfolio consisted of real estate related loans.
Note 15
FAIR VALUE OF FINANCIAL INSTRUMENTS
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. 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.
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 and 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.
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.
At December 31, 1994 1993 Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value
Financial Assets: Investment Securities $199,288 $193,850 $218,623 $221,274
Loans, Net of Allowance for Loan Losses 413,253 405,899 391,830 394,171
Financial Liabilities: Deposits 648,174 646,354 662,745 663,665
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 16
PARENT COMPANY FINANCIAL INFORMATION
The following is a condensed statement of financial condition of the parent company at December 31:
Parent Company Statements of Financial Condition
1994 1993 ASSETS
Cash and Due from Group Banks $ 2,820,449 $ 2,788,987 Investment in Group Banks 72,441,604 68,733,692 Other Assets 351,150 358,919 Total Assets $75,613,203 $71,881,598
LIABILITIES
Dividends Payable $ 2,276,652 $ 2,134,240 Long-Term Debt (Note 8) - 1,900,000 Other Liabilities 936,459 707,603 Total Liabilities 3,213,111 4,741,843
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; 4,000,000 shares authorized; 3,105,243 issued 31,052 31,052 Surplus 5,852,157 5,856,794 Retained Earnings 73,989,093 67,753,475
Treasury Stock: 259,428 shares in 1994 and 255,927 shares in 1993, at cost (6,587,956) (6,501,566) Net Unrealized Loss on Available for Sale Securities held by Group Banks (884,254) -- Total Shareholders' Equity 72,400,092 67,139,755 Total Liabilities and Shareholders' Equity $75,613,203 $71,881,598
The accompanying Notes to Financial Statements are an integral part of these statements.
The operating results of the parent company for the three years ended December 31, are shown below:
Parent Company Statements of Income
1994 1993 1992
OPERATING INCOME Income Received from Group Banks:
Dividends (Note 12) $4,615,000 $4,675,000 $4,800,000 Group Overhead Fees 2,310,980 1,985,566 2,017,566 Total Operating Income 6,925,980 6,660,566 6,817,566
OPERATING EXPENSE Salaries and Employee Benefits 1,564,825 1,617,059 1,138,963 Legal Fees 74,357 63,458 47,936 Professional Fees 156,883 171,291 137,393 Advertising 594,391 432,978 304,886 Travel and Entertainment 72,057 62,481 49,783 Amortization of Excess of Purchase Price Over Book Value of Net Assets Acquired 52,025 51,617 56,818 Interest on Debt 53,703 56,009 178,619 Dues and Memberships 49,150 41,601 44,598 Other 360,642 180,176 239,705 Total Operating Expense 2,978,033 2,676,670 2,198,701
Income Before Income Taxes and Equity in Undistributed Earnings of Group Banks 3,947,947 3,983,896 4,618,865 Income Tax Benefit (233,171) (229,736) (81,497) Income Before Equity in Undistributed Earnings of Group Banks 4,181,118 4,213,632 4,700,362 Equity in Undistributed Earnings of Group Banks 4,644,191 4,030,079 3,676,174 Net Income $8,825,309 $8,243,711 $8,376,536
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
1994 1993 1992
Net Income $8,825,309 $8,243,711 $8,376,536 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Equity in undistributed Earnings of Group Banks (4,644,191) (4,030,079) (3,676,174) Amortization of Excess of Purchase Price Over Book Value of Net Assets Acquired 52,025 51,038 56,818 (Increase) Decrease in Other Assets 3,132 (187,857) 163,945 Net Increase (Decrease) in Other Liabilities 228,856 332,613 (54,215) Net Cash from Operating Activities (4,465,131) (4,409,426) 4,866,910
Cash Flows from Financing Activities: Addition to Long-Term Debt - 1,400,000 - Repayment of Long-Term Debt (1,900,000) (1,500,000) (2,000,000) Payment of Dividends (2,447,279) (2,282,200) (2,153,230) Sale (Purchase) of Treasury Stock, Net (86,390) (1,845,988) (648,000) Net Cash from Financing Activities (4,433,669) (4,228,188) (4,801,230) Net Increase (Decrease) in Cash 31,462 181,238 65,680 Cash at Beginning of Period 2,788,987 2,607,749 2,542,069 Cash at End of Period $2,820,449 $ 2,788,987 $2,607,749
Note 17
CORPORATE REORGANIZATION
On July 25, 1994, Capital City First National Bank, Capital City Second National Bank, Industrial National Bank, City National Bank, Havana State Bank, First National Bank of Jefferson County and Gadsden National Bank, each being wholly- owned subsidiaries of Capital City Bank Group, Inc., entered into a "Plan of Merger and Merger Agreement" under which the six national banks where merged into and with Havana State Bank, a state banking corporation. The effective date of the merger was January 1, 1995. Simultaneous with the merger, the name and headquarters was changed from Havana State Bank, Havana, Florida to Capital City Bank, Tallahassee, Florida. Capital City Bank is a member of the Federal Reserve Bank of Atlanta and is insured by the Federal Deposit Insurance Corporation. Following consummation of the merger, Capital City Bank has 20 banking locations and represents approximately 82% of the Company's total assets. The operating results for 1994 include pre-tax charges of $731,000 which are attributable to corporate reorganization.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
The Board of Directors has appointed Arthur Andersen LLP, independent certified public accountants, as independent auditors for Capital City Bank Group, Inc., and its subsidiaries for the current fiscal year ending December 31, 1995, subject to ratification by the shareholders. Fiscal 1995 will be the second year Arthur Andersen LLP 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 LLP was made by the Company's Board of Directors on January 21, 1994. Arthur Andersen LLP 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. or Arthur Andersen LLP 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, Compensation and Other Information" in the Registrant's Proxy Statement dated April 7, 1995, to be filed on or before April 7, 1995.
Item 11.

Item 11. Executive Compensation
Incorporated herein by reference to the section entitled "Executive Officers, Compensation and Other Information" in the Registrant's Proxy Statement dated April 7, 1995, to be filed on or before April 7, 1995.
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, 1995, to be filed on or before April 7, 1995.
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 Officers, Compensation and Other Information" in the Registrant's Proxy Statement dated April 7, 1995, to be filed on or before April 7, 1995.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
EXHIBITS
*2 Merger Agreement and Plan of Merger dated July 25, 1995, by and among Capital City First National Bank, Capital City Second National Bank, Industrial National Bank, City National Bank, Havana State Bank, First National Bank of Jefferson County and Gadsden National Bank
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(b)(1) 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(b)(2) Letter of Modification to Master Note and Loan and Security Agreement in Item 10(b) above, with an effective date of June 17, 1993.
*10(b)(3) Amendment to Master Note and Loan and Security Agreement in Item 10(b) above, dated July 25, 1994.
10(c) 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.
10(d) Capital City Bank Group, Inc. 1995 Associate Stock Purchase Plan is incorporated herein by reference to Exhibit A of the Registrant's 1995 Proxy Statement dated April 7, 1995.
22 For a listing of Capital City Bank Group's subsidiaries see Item I.
*These exhibits will be filed as an amendment to this Form 10K.
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 1994.
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 20, 1995, on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 20, 1995, by the following persons in the capacities indicated.
/s/ WILLIAM G. SMITH William G. 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 DuBose Ausley
/s/ Thomas A. Barron Thomas A. Barron
/s/ Cader B. Cox, III Cader B. Cox, III
/s/ John K. Humphress John K. Humphress
/s/ Payne H. Midyette, Jr. Payne H. Midyette, Jr.
/s/ Godfrey Smith Godfrey Smith
/s/ William G. Smith, Jr. William G. Smith, Jr.