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Form 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities
Exchange Act
Of 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 0-13358
CAPITAL CITY BANK GROUP, INC.
Incorporated in the State of Florida
I.R.S. Employer Identification Number 59-2273542
Address: 217 North Monroe Street, Tallahassee, Florida 32301
Telephone: (850) 671-0610
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
shorter period that the registrant was required to
file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive
proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this Form 10-K.(X)
As of March 1, 1999, there were issued and
outstanding 8,862,038 shares of the registrant's
common stock. The registrant's voting stock is
listed on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") National
Market under the symbol "CCBG." The aggregate
market value of the voting stock held by
nonaffiliates of the registrant, based on the
average of the bid and asked prices of the
registrant's common stock as quoted on Nasdaq on
March 1, 1999, was $81.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy
statement (pursuant to Regulation 14A), to be filed
not more than 120 days after the end of the fiscal
year covered by this report, are incorporated by
reference into Part III.
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 1998 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote ofSecurity Holders 16
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 16
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 45
Item 8. Financial Statements and Supplementary Data 47
Item 9. Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure 73
PART III
Item 10. Directors and Executive Officers of the Registrant 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial Owners and
Management 73
Item 13. Certain Relationships and Related Transactions 73
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 73
PART I
Item 1. Business
General
Capital City Bank Group, Inc. ("CCBG" or "Company"),
is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. At
December 31, 1998, the Company had consolidated
total assets of $1.3 billion and shareowners' equity
of $111.7 million. Its principal asset is the
capital stock of Capital City Bank (the "Bank" or
"CCB"). The Bank accounted for approximately 99.9%
of the consolidated assets at December 31, 1998 and
approximately 100% of consolidated net income of the
Company for the year ended December 31, 1998. In
addition to its banking subsidiary, the Company has
four other indirect subsidiaries, Capital City Trust
Company, Capital City Securities, Inc., Capital City
Mortgage Company (inactive) and Capital City
Services Company, all of which are wholly-owned
subsidiaries of Capital City Bank.
On February 12, 1999, the Company entered into a
definitive agreement to acquire Grady Holding
Company and its subsidiary, First National Bank of
Grady County in Cairo, Georgia. First National Bank
of Grady County is a $114 million asset institution
with offices in Cairo and Whigham, Georgia. The
Company will issue 21.50 shares for each of the
60,910 shares of First National Bank of Grady
County. The closing is scheduled for the second
quarter of 1999 and the transaction will be
accounted for as a pooling-of-interests.
On December 4, 1998, the Company completed its
purchase and assumption transaction with First Union
National Bank ("First Union") and acquired eight of
First Union's branch offices which included
deposits. The Company paid a deposit premium of
$16.9 million, and assumed $219 million in deposits
and acquired certain real estate. The deposit
premium is being amortized over ten years.
On January 31, 1998, the Company completed its
purchase and assumption transaction with First
Federal Savings & Loan Association of Lakeland,
Florida ("First Federal-Florida") and acquired five
of First Federal-Florida's branch offices which
included loans and deposits. The Company paid a
deposit premium of $3.6 million, or 6.33%, and
assumed $55 million in deposits and purchased loans
equal to $44 million. Four of the five offices were
merged into existing offices of Capital City Bank.
The deposit premium is being amortized over fifteen
years.
On October 18, 1997, the Company consolidated its
three remaining bank affiliates, Levy County State
Bank, Farmers & Merchants Bank of Trenton and
Branford State Bank into Capital City Bank. The
consolidation enabled the Company to present a
consistent image to a broader market and to better
serve its clients through the use of a common name
with multiple, convenient locations.
On July 1, 1996, the Company completed its
acquisition of First Financial Bancorp, Inc. ("First
Financial"), parent company of First Federal Bank, a
federal savings bank headquartered in Tallahassee,
Florida. First Financial was acquired for $20
million in cash. The Company borrowed $15 million
to fund the acquisition. Subsequent to the
acquisition of First Financial, First Federal Bank
was merged into Capital City Bank on December 6,
1996. As of June 30, 1996, First Financial had
approximately $244 million in assets, $192 million
in loans, $205 million in deposits, $15 million in
equity and operated five branch locations in North
Florida.
The Company and Capital City Bank are headquartered
in Tallahassee, Florida, the state capital. State
government and two major state universities employ a
large percentage of the local work force and help to
provide a strong and stable economy for Tallahassee
and the surrounding area.
Dividends and management fees received from the Bank
are the Company's only source of income. Dividend
payments by the Bank to CCBG depend on the
capitalization, earnings and projected growth of the
Bank, and are limited by various regulatory
restrictions. See the section entitled "Regulation
and Supervision" and Note 4 in the Notes to
Consolidated Financial Statements for additional
information.
The Company had a total of 633 (full-time
equivalent) employees at March 1, 1999. Page 18
contains other financial and statistical information
about the Company.
Banking Services
Capital City Bank is a state chartered, full service
bank, engaged in the commercial and retail banking
business, including accepting demand, savings and
time deposits, extending credit, originating
residential mortgage loans, providing data
processing services, trust services, retail
brokerage services and a broad range of other
financial services to corporate and individual
customers, governmental entities and correspondent
banks.
The Bank is a member of the "Honor" system which
enables customers to utilize their "QuickBucks" or
"QuickCheck" cards to access cash at automatic
teller machines ("ATMs") or point of sale merchants
located throughout the state of Florida.
Additionally, customers may access their cash
outside Florida through various interconnected ATM
networks and merchant locations.
Data Processing Services
Capital City Services Company provides data
processing services to financial institutions
(including CCB), government agencies and commercial
customers located throughout North Florida and South
Georgia. As of March 1, 1999, the services company
is providing computer services to correspondent
banks which have relationships with Capital City
Bank.
Trust Services
Capital City Trust Company is the investment
management arm of Capital City Bank. The Trust
Company provides asset management for individuals
through agency, personal trust and IRA accounts
personal investment management. Pension, profit
sharing and 401(k) Plans administration are
significant product lines. Associations, endowments
and other non-profit entities hire the Trust Company
to manage their long-term investment portfolios.
Individuals requiring the services of a trustee,
personal representative, or a guardian are served by
a staff of well trained professionals. The market
value of trust assets under discretionary management
exceeded $261 million as of December 31, 1998, with
total assets under administration exceeding $305 million.
Brokerage Services
The Company offers access to retail investment
products through Capital City Securities, Inc., a
wholly-owned subsidiary of Capital City Bank. These
products are offered through FSC Securities
Corporation, a registered Broker/Dealer, member NASD
and SIPC. Insurance products are provided by FSC
Agency, Inc. Non-deposit investment and insurance
products are: not FDIC insured, not bank guaranteed,
and may lose value. Capital City Securities, Inc.'s
brokers are licensed through FSC Securities
Corporation and FSC Agency, Inc., and offer a full
line of retail securities products, including U.S.
Government bonds, tax-free municipal bonds, stocks,
mutual funds, unit investment trusts and annuities.
Capital City Bank Group and its subsidiaries are not
affiliated with FSC Securities Corporation or FSC
Agency, Inc.
Competition
The banking business in Florida is rapidly changing
and CCBG and its subsidiaries operate in a highly
competitive environment, especially with respect to
services and pricing. Recent consolidation of the
industry significantly alters the competitive
environment within the State of Florida and,
management believes, further enhances the Company's
competitive position and opportunities in many of
its markets. CCBG's primary market area is
seventeen counties in North Florida. In these
markets, the Bank competes against a wide range of
banking and nonbanking institutions including
savings and loan associations, credit unions, money
market funds, mutual fund advisory companies,
mortgage banking companies, investment banking
companies, finance companies and other types of
financial institutions.
All of Florida's major banking concerns have a
presence in Leon County. Capital City Bank's Leon
County deposits totaled $462 million, or 39.8%, of
the Company's consolidated deposits at December 31,
1998.
The following table depicts CCB's market share
percentage within each respective county, based on
total commercial bank deposits within the county.
Market Share
as of September 30(1)
1998 1997 1996
Capital City Bank:
Bradford County(3) 53.3% -- --
Citrus County 4.3% 4.4% 4.4%
Clay County(3) 5.8% -- --
Dixie County(2) 15.7% -- --
Gadsden County 28.0% 29.8% 27.5%
Gilchrist County 50.5% 45.1% 47.4%
Gulf County(3) 48.6% -- --
Hernando County 2.0% 2.0% 2.0%
Jefferson County 27.1% 28.2% 27.3%
Leon County 23.4% 22.8% 23.9%
Levy County 37.7% 25.6% 27.9%
Madison County 20.6% 22.6% 28.5%
Pasco County 1.2% 1.3% 1.5%
Putnam County(3) 30.3% -- --
Suwannee County 18.7% 16.6% 16.2%
Taylor County 32.7% 36.0% 43.3%
Washington County(3) 30.0% -- --
(1) Obtained from the September 30 Office Level
Report published by the Florida Bankers Association
for each year.
(2) Entered the market in January 1998.
(3) Entered the market in December 1998
The following table sets forth the number of
commercial banks and offices, including the Company
and its competitors, within each of the respective
counties as of September 30, 1998.
Number of Number of Commercial
County Commercial Banks Bank Offices
Bradford 3 5
Citrus 10 38
Clay 7 24
Dixie 3 4
Gadsden 4 9
Gilchrist 2 4
Gulf 2 4
Hernando 11 36
Jefferson 2 2
Leon 13 69
Levy 4 13
Madison 4 5
Pasco 14 85
Putnam 6 11
Suwannee 4 6
Taylor 3 5
Washington 3 3
Supervision and Regulation
The Company and the Bank must comply with state and
federal banking laws and regulations that control
virtually all aspects of operations. These laws and
regulations generally aim to protect depositors, not
shareholders. Particular references to statutes or
regulations in this document qualify and supersede
any summaries or descriptions of the particular
statues or regulations. Any changes in applicable
laws or regulations may materially affect the
business and prospects of the Company. Such
legislative changes or changes in regulator policies
may also affect the operations of the Company and
the Bank. The Company cannot predict the nature or
extent of effects on business or earnings caused by
future fiscal or monetary policies, economic control
or new federal or state legislation.
The Company
General
As a result of its ownership of the Bank, the
Company is registered as a bank holding company
under the Bank Holding Company Act of 1956, as
amended ("BHCA") and is regulated by the Board of
Governors of the Federal Reserve System ("FRB").
Under the BHCA, the Company is subject to periodic
examination by the FRB and is required to file
periodic reports of its operations and such
additional information as the FRB may require.
The Bank Holding Company Act of 1956
Permitted Activities. The BHCA limits the Company's
activities to managing or controlling banks,
furnishing services to or performing services for
its subsidiaries, and engaging in other activities
that the FRB determines to be so closely related to
banking or managing or controlling banks as to be a
proper incident thereto. In determining whether a
particular activity is permissible, the FRB must
consider whether the performance of such an activity
reasonably can be expected to produce benefits to
the public that outweigh possible adverse effects.
Possible benefits include greater convenience,
increased competition and gains in efficiency.
Possible adverse effects include undue concentration
of resources, decreased or unfair competition,
conflicts of interest and unsound banking practices.
The FRB has determined the following activities,
among others, to be permissible for bank holding
companies:
Factoring accounts receivable;
Acquiring or servicing loans;
Leasing personal property;
Conducting discount securities brokerage activities;
Performing certain data processing services;
Acting as agent or broker and selling credit life insurance and
certain other types of insurance in connection with credit
transactions; and
Performing certain insurance underwriting activities.
There are no territorial limitations on permissible
non-banking activities of bank holding companies.
Despite prior approval, the FRB may order a holding
company or its subsidiaries to terminate any
activity or to terminate ownership or control of any
subsidiary when the FRB has reasonable cause to
believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of
that bank holding company may result from such an
activity.
Changes in Control. In addition, and subject to
certain exceptions, the BHCA and the Change in Bank
Control Act, together with regulations thereunder,
require FRB approval (or, depending on the
circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank
holding company, such as the Company. A conclusive
presumption of control exists if an individual or
company acquires 25% or more of any class of voting
securities of the bank holding company. A
rebuttable presumption of control exists if a person
acquires 10% or more but less than 25% of any class
of voting securities and either the Company has
registered securities under Section 12 of the
Securities Exchange Act of 1934, as amended, or no
other person will own a greater percentage of that
class of voting securities immediately after the
transaction.
The BHCA requires, among other things, the prior
approval of the FRB in any case where a bank holding
company proposes to (i) acquire all or substantially
all of the assets of a bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the
outstanding voting stock of any bank (unless it owns
a majority of such bank's voting shares), or (iii)
merge or consolidate with any other bank holding
company. Additionally, the BHCA prohibits a bank
holding company, with certain limited exceptions,
from (i) acquiring or retaining direct or indirect
ownership or control of more than 5% of the
outstanding voting stock of any company which is not
a bank or bank holding company, or (ii) engaging
directly or indirectly in activities other than
those of banking, managing or controlling banks, or
performing services for its subsidiaries unless such
non-banking business is determined by the FRB to be
so closely related to banking or managing or
controlling banks as to be a proper incident
thereto.
Tying. The BHCA also prohibits bank holding
companies and their affiliates from tying the
provision of certain services, such as extending
credit, to other services offered by the bank
holding company or its affiliates.
Capital; Dividends; Source of Strength. The FRB
imposes certain capital requirements on the Company
under the BHCA, including a minimum leverage ratio
and a minimum ratio of "qualifying" capital to
risk-weighted assets. These requirements are
described below under "Capital Regulations."
Subject to its capital requirements and certain
other restrictions, the Company is able to borrow
money to make a capital contribution to the Bank,
and such loans may be repaid from dividends paid
from the Bank to the Company (although the ability
of the Bank to pay dividends will be subject to
regulatory restrictions as described below under
"The Bank - Dividends"). The Company is also able
to raise capital for contribution to the Bank by
issuing securities without having to receive
regulatory approval, subject to compliance with
federal and state securities laws.
In accordance with FRB policy, the Company is
expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank
in circumstances in which the Company might not
otherwise do so. Under the BHCA, the FRB may require
a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the FRB's
determination that such activity or control
constitutes a serious risk to the financial
soundness or stability of any subsidiary depository
institution of the bank holding company. Further,
federal bank regulatory authorities have additional
discretion to require a bank holding company to
divest itself of any bank or nonbank subsidiary if
the agency determines that divestiture may aid the
depository institution's financial condition.
Financial Institutions Reform, Recovery and
Enforcement Act of 1989
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") was enacted in
August 1989. FIRREA contains major regulatory
reforms which include stronger civil and criminal
enforcement provisions applicable to all financial
institutions. FIRREA allows the acquisition of
healthy and failed savings and loans by bank holding
companies, and removes all interstate barriers on
these bank holding company acquisitions. With
certain qualifications, FIRREA also allows bank
holding companies to merge acquired savings and
loans into their existing commercial bank
subsidiaries.
The FRB, the Florida Department of Banking and
Finance (the "FDBF") and the Federal Deposit
Insurance Corporation ("FDIC") collectively have
extensive enforcement authority over depository
institutions and their holding companies, and this
authority has been enhanced substantially by FIRREA.
This enforcement authority includes, among other
things, the ability to assess civil money penalties,
to issue cease-and-desist or removal orders, to
initiate injunctive actions, and, in extreme cases,
to terminate deposit insurance. In general, these
enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide
the basis for enforcement action, including
misleading or untimely reports filed with the
federal banking agencies. FIRREA significantly
increased the amount of and grounds for civil money
penalties and generally requires public disclosure
of final enforcement actions.
FIRREA further requires a depository institution or
holding company thereof to give 30 days' prior
written notice to its primary federal regulator of
the appointment of any proposed director or senior
executive officer if the institution (i) has been
chartered less than two years; (ii) has undergone a
change in control within the preceding two years; or
(iii) is not in compliance with the minimum capital
requirements or otherwise is in a "troubled
condition." The regulator would have the
opportunity to disapprove any such appointment.
Economic Growth and Regulatory Paperwork Reduction
Act of 1996
The enactment of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 ("EGRPRA")
streamlined the non-banking activities application
process for well-capitalized and well-managed bank
holding companies. Under EGRPRA, qualified bank
holding companies may commence a regulatory approved
non-banking activity without prior notice to the
FRB; written notice is merely required within 10
days after commencing the activity. Also, under
EGRPRA, the prior notice period is reduced to 12
business days in the event of any non-banking
acquisition or share purchase, assuming the size of
the acquisition does not exceed 10% of risk-weighted
assets of the acquiring bank holding company and the
consideration does not exceed 15% in Tier 1 capital.
This prior notice requirement also applies to
commencing a non-banking activity de novo which has
been previously approved by order of the FRB, but
not yet implemented by regulations.
The Bank
General
The Bank is a banking institution which is chartered
by and operated in the State of Florida, and it is
subject to supervision and regulation by the FDBF.
The Bank is a member bank of the Federal Reserve
System and its operations are also subject to broad
federal regulation and oversight by the FRB. The
deposit accounts of the Bank are insured by the FDIC
which gives the FDIC certain enforcement powers over
the Bank. Various consumer laws and regulations
also affect the operations of the Bank, including
state usury laws, laws relating to fiduciaries,
consumer credit and equal credit laws, and fair
credit reporting.
The FDBF supervises and regulates all areas of the
Bank's operations including, without limitation,
making of loans, the issuance of securities, the
conduct of the Bank's corporate affairs, capital
adequacy requirements, the payment of dividends and
the establishment or closing of branches.
In addition, the Federal Deposit Insurance
Corporation Improvement Act of 1991 prohibits
insured state chartered institutions from conducting
activities as principal that are not permitted for
national banks. A bank may, however, engage in an
otherwise prohibited activity if it meets its
minimum capital requirements and the FDIC determines
that the activity does not present a significant
risk to the deposit insurance funds.
As a state chartered banking institution in the
State of Florida, the Bank is empowered by statute,
subject to the limitations contained in those
statutes, to take savings and time deposits and pay
interest on them, to accept checking accounts, to
make loans on residential and other real estate, to
make consumer and commercial loans, to invest, with
certain limitations, in equity securities and in
debt obligations of banks and corporations and to
provide various other banking services on behalf of
the Bank's customers.
The FRB requires all depository institutions to
maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and
non-personal time deposits. The balances
maintained to meet the reserve requirements imposed
by the FRB may be used to satisfy liquidity
requirements.
Institutions are authorized to borrow from the
Federal Reserve Bank "discount window," but FRB
regulations require institutions to exhaust other
reasonable alternative sources of funds before
borrowing from the Federal Reserve Bank.
Dividends
The Bank is subject to legal limitations on the
frequency and amount of dividends that can be paid
to the Company. The FRB may restrict the ability of
a bank to pay dividends if such payments would
constitute an unsafe or unsound banking practice.
These regulations and restrictions may limit the
Company's ability to obtain funds from the Bank for
its cash needs, including funds for acquisitions and
the payment of dividends, interest and operating
expenses.
In addition, Florida law also places certain
restrictions on the declaration of dividends from
state chartered banks to their holding companies.
Pursuant to Section 658.37 of the Florida Banking
Code, the board of directors of state chartered
banks, after charging off bad debts, depreciation
and other worthless assets, if any, and making
provisions for reasonably anticipated future losses
on loans and other assets, may quarterly,
semi-annually or annually declare a dividend of up
to the aggregate net profits of that period combined
with the bank's retained net profits for the
preceding two years and, with the approval of the
FDBF, declare a dividend from retained net profits
which accrued prior to the preceding two years.
Before declaring such dividends, 20% of the net
profits for the preceding period as is covered by
the dividend must be transferred to the surplus fund
of the bank until this fund becomes equal to the
amount of the bank's common stock then issued and
outstanding. A state chartered bank may not declare
any dividend if (i) its net income from the current
year combined with the retained net income for the
preceding two years is a loss or (ii) the payment of
such dividend would cause the capital account of the
bank to fall below the minimum amount required by
law, regulation, order or any written agreement with
the FDBF or a federal regulatory agency.
Insurance of Accounts and Other Assessments
The Bank's deposit accounts are insured by the Bank
Insurance Fund ("BIF") of the FDIC to a maximum of
$100,000 for each insured depositor. The federal
banking agencies require an annual audit by
independent accountants of the Bank and make their
own periodic examinations of the Bank. They may
revalue assets of an insured institution based upon
appraisals, and require establishment of specific
reserves in amounts equal to the difference between
such revaluation and the book value of the assets,
as well as require specific charge-offs relating to
such assets. The federal banking agencies may
prohibit any FDIC-insured institution from engaging
in any activity they determine by regulation or
order poses a serious threat to the insurance fund.
Under federal law, BIF and the Savings Association
Insurance Fund ("SAIF") are each statutorily
required to be recapitalized to a 1.25% of insured
reserve deposits ratio. In view of the BIF's
achieving the 1.25% ratio during 1995, the FDIC
reduced the assessments for most banks by adopting a
new assessment rate schedule of 4 to 31 basis points
for BIF deposits. The FDIC further reduced the BIF
assessment schedule by an additional four basis
points for the 1996 calendar year so that most BIF
members paid only the statutory minimum semiannual
assessment of $1,000. During this same period, the
FDIC retained the existing assessment rate schedule
applicable to SAIF deposits of 23 cents to 31 cents
per $100 of domestic deposits, depending on the
institution's risk classification.
On September 30, 1996, the Deposit Insurance Funds
Act of 1996 ("DIFA") was enacted and signed into
law. DIFA was intended to reduce the amount of semi-
annual FDIC insurance premiums for savings
association deposits acquired by banks to the same
levels assessed for deposits insured by BIF. To
accomplish this reduction, DIFA provided for a
special one-time assessment imposed on deposits
insured by SAIF to recapitalize SAIF and bring it up
to statutory required levels. This one-time
assessment accrued in the third quarter of 1996. As
a result, since early 1997, both BIF and SAIF
deposits have been assessed at the same rate of 0 to
27 basis points depending on risk classification.
Effective January 1, 1997, DIFA also separated from
the SAIF assessments the Financing Corporation
("FICO") assessments which service the interest on
its bond obligations. According to the FDIC's risk-
related assessment rate schedules, the amount
assessed on individual institutions by the FICO will
be in addition to the amount paid for deposit
insurance. By law, the FICO rate on BIF-assessable
deposits must be one-fifth the rate on SAIF-
assessable deposits until the insurance funds are
merged as specified in DIFA or until January 1,
2000, whichever occurs first.
Transactions With Affiliates
The authority of the Bank to engage in transactions
with related parties or "affiliates" or to make
loans to insiders is limited by certain provisions
of law and regulations. Commercial banks, such as
the Bank, are prohibited from making extensions of
credit to any affiliate that engages in an activity
not permissible under the regulations of the FRB for
a bank holding company. Pursuant to Sections 23A
and 23B of the Federal Reserve Act ("FRA"), member
banks are subject to restrictions regarding
transactions with affiliates ("Covered
Transactions").
With respect to any Covered Transaction, the term
"affiliate" includes any company that controls or
is controlled by a company that controls the Bank, a
bank or savings association subsidiary of the Bank,
any persons who own, control or vote more than 25%
of any class of stock of the Bank or the Company and
any persons who the Board of Directors determines
exercises a controlling influence over the
management of the Bank or the Company. The term
"affiliate" also includes any company controlled by
controlling stockholders of the Bank or the Company
and any company sponsored and advised on a
contractual basis by the Bank or any subsidiary or
affiliate of the Bank. Such transactions between
the Bank and its respective affiliates are subject
to certain requirements and limitations, including
limitations on the amounts of such Covered Transac
tions that may be undertaken with any one affiliate
and with all affiliates in the aggregate. The
federal banking agencies may further restrict such
transactions with affiliates in the interest of
safety and soundness.
Section 23A of the FRA limits Covered Transactions
with any one affiliate to 10% of an institution's
capital stock and surplus and limits aggregate
affiliate transactions to 20% of the Bank's capital
stock and surplus. Sections 23A and 23B of the FRA
provide that a loan transaction with an affiliate
generally must be collateralized (but may not be
collateralized by a low quality asset or securities
issued by an affiliate) and that all Covered
Transactions, as well as the sale of assets, the
payment of money or the provision of services by the
Bank to an affiliate, must be on terms and condi
tions that are substantially the same, or at least
as favorable to the Bank, as those prevailing for
comparable nonaffiliated transactions. A Covered
Transaction generally is defined as a loan to an
affiliate, the purchase of securities issued by an
affiliate, the purchase of assets from an affiliate,
the acceptance of securities issued by an affiliate
as collateral for a loan, or the issuance of a
guarantee, acceptance or letter of credit on behalf
of an affiliate. In addition, the Bank generally
may not purchase securities issued or underwritten
by an affiliate.
Loans to executive officers, directors or to any
person who directly or indirectly, or acting through
or in concert with one or more persons, owns,
controls or has the power to vote more than 10% of
any class of voting securities of a bank ("Principal
Shareholders") and their related interests (i.e.,
any company controlled by such executive officer,
director, or Principal Shareholders), or to any
political or campaign committee the funds or
services of which will benefit such executive
officers, directors, or Principal Shareholders or
which is controlled by such executive officers,
directors or Principal Shareholders, are subject to
Sections 22(g) and 22(h) of the FRA and the
regulations promulgated thereunder (Regulation O).
Among other things, these loans must be made on
terms substantially the same as those prevailing on
transactions made to unaffiliated individuals and
certain extensions of credit to such persons must
first be approved in advance by a disinterested
majority of the entire board of directors. Section
22(h) of the FRA prohibits loans to any such
individuals where the aggregate amount exceeds an
amount equal to 15% of an institution's unimpaired
capital and surplus plus an additional 10% of
unimpaired capital and surplus in the case of loans
that are fully secured by readily marketable
collateral, or when the aggregate amount on all such
extensions of credit outstanding to all such persons
would exceed the Bank's unimpaired capital and
unimpaired surplus. Section 22(g) identifies
limited circumstances in which the Bank is permitted
to extend credit to executive officers.
Community Reinvestment Act
The Community Reinvestment Act of 1977 ("CRA")
requires a financial institution to help meet the
credit needs of its entire community, including low-
income and moderate-income areas. On May 3, 1995,
the federal banking agencies issued final
regulations which change the manner in which the
regulators measure a bank's compliance with the CRA
obligations. The final regulations adopt a
performance-based evaluation system which bases CRA
ratings on an institutions's actual lending, service
and investment performance, rather than the extent
to which the institution conducts needs assessments,
documents community outreach or complies with other
procedural requirements. Federal banking agencies
may take CRA compliance into account when regulating
and supervising bank and holding company activities;
for example, CRA performance may be considered in
approving proposed bank acquisitions.
Capital Regulations
The FRB has adopted capital adequacy guidelines for
bank holding companies and their subsidiary
state-chartered banks that are members of the
Federal Reserve System. Bank holding companies and
their subsidiary state-chartered member banks must
comply with the FRB's risk-based capital guidelines.
The risk-based capital guidelines are designed to
make regulatory capital requirements more sensitive
to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet
exposure, to minimize disincentives for holding
liquid assets and to achieve greater consistency in
evaluating the capital adequacy of major banks
throughout the world. Under these guidelines assets
and off-balance sheet items are assigned to broad
risk categories each with designated weights. The
resulting capital ratios represent capital as a
percentage of total risk-weighted assets and
off-balance sheet items.
The current guidelines require all bank holding
companies and federally-regulated banks to maintain
a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier 1 Capital.
Tier I Capital, which includes common stockholders'
equity, noncumulative perpetual preferred stock, and
a limited amount of cumulative perpetual preferred
stock, less certain goodwill items and other
intangible assets, is required to equal at least 4%
of risk-weighted assets. The remainder ("Tier II
Capital") may consist of (i) an allowance for loan
losses of up to 1.25% of risk-weighted assets, (ii)
excess of qualifying perpetual preferred stock,
(iii) hybrid capital instruments, (iv) perpetual
debt, (v) mandatory convertible securities, and (vi)
subordinated debt and intermediate-term preferred
stock up to 50% of Tier I Capital. Total capital is
the sum of Tier I and Tier II Capital less
reciprocal holdings of other banking organizations'
capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined
by the FRB (determined on a case by case basis or as
a matter of policy after formal rule making).
In computing total risk-weighted assets, bank and
bank holding company assets are given risk-weights
of 0%, 20%, 50% and 100%. In addition, certain
off-balance sheet items are given similar credit
conversion factors to convert them to asset
equivalent amounts to which an appropriate
risk-weight will apply. Most loans will be assigned
to the 100% risk category, except for performing
first mortgage loans fully secured by residential
property, which carry a 50% risk rating. Most
investment securities (including, primarily, general
obligation claims on states or other political
subdivisions of the United States) will be assigned
to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and
direct obligations of the U.S. Treasury or
obligations backed by the full faith and credit of
the U.S. Government, which have a 0% risk-weight.
In covering off-balance sheet items, direct credit
substitutes, including general guarantees and
standby letters of credit backing financial
obligations, are given a 100% conversion factor.
Transaction-related contingencies such as bid bonds,
standby letters of credit backing non-financial
obligations, and undrawn commitments (including
commercial credit lines with an initial maturity of
more than one year) have a 50% conversion factor.
Short-term commercial letters of credit are
converted at 20% and certain short-term
unconditionally cancelable commitments have a 0%
factor.
The federal bank regulatory authorities have also
adopted regulations which supplement the risk-based
guideline. These regulations generally require
banks and bank holding companies to maintain a
minimum level of Tier I Capital to total assets less
goodwill of 4% (the "leverage ratio"). The FRB
permits a bank to maintain a minimum 3% leverage
ratio if the bank achieves a 1 rating under the
CAMELS rating system in its most recent examination,
as long as the bank is not experiencing or
anticipating significant growth. The CAMELS rating
is a non-public system used by bank regulators to
rate the strength and weaknesses of financial
institutions. The CAMELS rating is comprised of six
categories: capital, asset quality, management,
earnings, liquidity, and interest rate sensitivity.
Banking organizations experiencing or anticipating
significant growth, as well as those organizations
which do not satisfy the criteria described above,
will be required to maintain a minimum leverage
ratio ranging generally from 4% to 5%. The FRB also
continues to consider a "tangible Tier I leverage
ratio" in evaluating proposals for expansion or new
activities. The tangible Tier I leverage ratio is
the ratio of a banking organization's Tier I
Capital, less deductions for intangibles otherwise
includable in Tier I Capital, to total tangible
assets.
Federal law and regulations establish a
capital-based regulatory scheme designed to promote
early intervention for troubled banks and require
the FDIC to choose the least expensive resolution of
bank failures. The capital-based regulatory
framework contains five categories of compliance
with regulatory capital requirements, including
"well capitalized," "adequately capitalized,"
"undercapitalized," "significantly
undercapitalized," and "critically
undercapitalized." To qualify as a "well
capitalized" institution, a bank must have a
leverage ratio of no less than 5%, a Tier 1
risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and
the bank must not be under any order or directive
from the appropriate regulatory agency to meet and
maintain a specific capital level.
Under the regulations, the applicable agency can
treat an institution as if it were in the next lower
category if the agency determines (after notice and
an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in
an unsafe or unsound practice. The degree of
regulatory scrutiny of a financial institution will
increase, and the permissible activities of the
institution will decrease, as it moves downward
through the capital categories. Institutions that
fall into one of the three undercapitalized
categories may be required to (i) submit a capital
restoration plan; (ii) raise additional capital;
(iii) restrict their growth, deposit interest rates,
and other activities; (iv) improve their management;
(v) eliminate management fees; or (vi) divest
themselves of all or a part of their operations.
Bank holding companies controlling financial
institutions can be called upon to boost the
institutions' capital and to partially guarantee the
institutions' performance under their capital
restoration plans.
It should be noted that the minimum ratios referred
to above are merely guidelines and the FRB possesses
the discretionary authority to require higher ratios
with respect to bank holding companies and
state-member banks.
The Company and the Bank currently exceed the
requirements contained in FRB regulations, policies
and directives pertaining to capital adequacy, and
management of the Company and the Bank is unaware of
any violation or alleged violation of these
regulations, policies or directives.
Interstate Banking and Branching
The BHCA was amended in September 1994 by the Riegle-
Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking Act"). The
Interstate Banking Act provides that, effective
September 29, 1995, adequately capitalized and
managed bank holding companies were permitted to
acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-
state banks are preempted as of the effective date.
States were not permitted to enact laws opting out
of this provision; however, states were allowed to
adopt a minimum age restriction requiring that
target banks located within the state be in
existence for a period of years, up to a maximum of
five years, before such bank may be subject to the
Interstate Banking Act. The Interstate Banking Act
establishes deposit caps which prohibit acquisitions
that result in the acquiring company controlling 30
percent or more of the deposits of insured banks and
thrift institutions held in the state in which the
target maintains a branch or 10 percent or more of
the deposits nationwide. States have the authority
to waive the 30 percent deposit cap. State-level
deposit caps are not preempted as long as they do
not discriminate against out-of-state companies, and
the federal deposit caps apply only to initial entry
acquisitions.
The Interstate Banking Act also provides that as of
June 1, 1997, adequately capitalized and managed
banks are able to engage in interstate branching by
merging with banks in different states. States were
permitted to enact legislation authorizing
interstate mergers earlier than June 1, 1997, or,
unlike the interstate banking provision discussed
above, states were permitted to opt out of the
application of the interstate merger provision by
enacting specific legislation before June 1, 1997.
Florida has responded to the enactment of the
Interstate Banking Act by enacting the Florida
Interstate Branching Act (the "Florida Branching
Act") which became effective on May 31, 1997. The
purpose of the Florida Branching Act was to permit
interstate branching, effective June 1, 1997,
through merger transactions under the Interstate
Banking Act. Under the Florida Branching Act, with
the prior approval of the FDBF, a Florida bank may
establish, maintain and operate one or more branches
in a state other than the State of Florida pursuant
to a merger transaction in which the Florida bank is
the resulting bank. In addition, the Florida
Branching Act provides that one or more Florida
banks may enter into a merger transaction with one
or more out-of-state banks, and an out-of-state bank
resulting from such transaction may maintain and
operate the branches of the Florida bank that
participated in such merger. An out-of-state bank,
however, is not permitted to acquire a Florida bank
in a merger transaction unless the Florida bank has
been in existence and continuously operated for more
than three years.
Year 2000 Guidelines
The Federal Financial Institutions Examination
Counsel ("FFIEC"), which is composed of federal bank
regulatory authorities including the FDIC and the
FRB, has issued supervisory guidelines on how banks
must achieve Year 2000 compliance. Although federal
bank regulatory authorities have not issued official
regulations regarding the Year 2000 problem, if a
bank fails to meet the FFIEC's Year 2000 guidelines,
regulators may require the bank to submit an
acceptable compliance plan. If an insured member
bank consistently fails to satisfy the Year 2000
guidelines, either the FRB or FDIC may take
corrective action based on their authority to
maintain the safety and soundness of bank
activities. The Company and the Bank have taken
steps to comply with the FFIEC's Year 2000
guidelines. See "Item 7 - Year 2000 Compliance."
Future Legislative Developments
Because of concerns relating to competitiveness and
the safety and soundness of the industry, Congress
is considering a number of wide-ranging proposals
for altering the structure, regulation and
competitive relationships of the nation's financial
institutions. Among such bills are proposals to
prohibit banks and bank holding companies from
conducting certain types of activities, to subject
banks to increased disclosure and reporting
requirements, to alter the statutory separation of
commercial and investment banking and to further
expand the powers of banks, bank holding companies
and competitors of banks. It cannot be predicted
whether or in what form any of these proposals will
be adopted or the extent to which the business of
the Company may be affected thereby.
Effect of Governmental Monetary Policies
The commercial banking business in which the Bank
engages is affected not only by general economic
conditions, but also by the monetary policies of the
FRB. Changes in the discount rate on member bank
borrowing, availability of borrowing at the
"discount window," open market operations, the
imposition of changes in reserve requirements
against member banks' deposits and assets of foreign
branches and the imposition of and changes in
reserve requirements against certain borrowings by
banks and their affiliates are some of the
instruments of monetary policy available to the FRB.
These monetary policies are used in varying
combinations to influence overall growth and
distributions of bank loans, investments and
deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary
policies of the FRB have had a significant effect on
the operating results of commercial banks and are
expected to do so in the future. The monetary
policies of the FRB are influenced by various
factors, including inflation, unemployment,
short-term and long-term changes in the
international trade balance and in the fiscal
policies of the U.S. Government. Future monetary
policies and the effect of such policies on the
future business and earnings of the Bank cannot be
predicted.
Item 2. Properties
Capital City Bank Group, Inc., is headquartered in
Tallahassee, Florida. The Company's executive
office is in the Capital City Bank building located
on the corner of Tennessee and Monroe Streets in
downtown Tallahassee. The building is owned by
Capital City Bank but is located, in part, on land
leased under a long-term agreement.
Capital City Bank's Parkway Office is located on
land leased from the Smith Interests General
Partnership in which several directors and officers
have an interest. Lease payments during 1998
totaled approximately $65,000.
As of March 1, 1999 the Company had forty-four
banking locations. Of the forty-four locations, the
Company leases either the land or buildings (or
both) at six locations and owns the land and
buildings at the remaining thirty-eight.
Item 3. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareowner Matters
The Company's common stock trades on the Nasdaq
National Market under the symbol "CCBG". "The
Nasdaq National Market" or "Nasdaq" is a highly-
regulated electronic securities market comprised of
competing market makers whose trading is supported
by a communications network linking them to
quotation dissemination, trade reporting, and order
execution. This market also provides specialized
automation services for screen-based negotiations of
transactions, on-line comparison of transactions,
and a range of informational services tailored to
the needs of the security industry, investors and
issuers. The Nasdaq National Market is operated by
The Nasdaq Stock Market, Inc., a wholly-owned
subsidiary of the National Association of Securities
Dealers, Inc.
The following table presents the range of high and
low closing sales prices reported on the Nasdaq
National Market and cash dividends declared for each
quarter during the past two years. The Company had
a total of 1,294 shareowners of record at March 1, 1999.
1998 (1)(2) 1997 (1)(2)
Fourth Third Second First Fourth Third Second First
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
Common stock price:
High $31.00 $33.13 $32.67 $32.67 $27.33 $23.50 $21.50 $21.33
Low 24.13 19.00 29.75 29.25 23.00 20.83 19.33 14.00
Close 27.63 29.13 31.38 31.67 27.00 23.17 20.83 20.17
Cash dividends
declared per share .12 .11 .11 .11 .11 .10 .10 .10
Future payment of dividends will be subject to
determination and declaration by the Board of Directors.
(1) All share and per share information have been
adjusted to reflect a three-for-two stock split
effective June 1, 1998.
(2) Prior to February 3, 1997, there was not an
established trading market for the common stock of
the Company.
Item 6. Selected Financial & Other Data
(Dollars in Thousands, Except Per ShareData)(1)
For the Years Ended December 31,
1998 1997 1996 1995 1994
Interest Income $ 79,253 $ 75,664 $ 66,171 $ 54,477 $ 47,891
Net Interest Income 47,911 46,524 40,752 33,989 33,166
Provision for Loan Losses 2,160 1,788 1,463 293 1,246
Net Income 13,188 12,438 11,360 9,522 8,825
Per Common Share:
Basic Net Income $ 1.49 $ 1.43 $ 1.32 $ 1.11 $ 1.03
Diluted Net Income 1.49 1.42 1.31 1.11 1.03
Cash Dividends Declared .45 .41 .37 .33 .30
Book Value 12.62 11.45 10.33 9.48 8.48
Based on Net Income:
Return on Average Assets 1.23% 1.24% 1.25% 1.25% 1.18%
Return on Average Equity 12.42 13.15 13.48 12.32 12.51
Dividend Payout Ratio 30.20 28.75 28.03 29.94 29.34
Averages for the Year:
Loans, Net of Unearned
Interest $ 742,737 $ 692,691 $ 560,986 $ 432,313 $ 406,873
Earning Assets 961,349 900,824 815,467 681,186 666,919
Assets 1,070,862 1,001,110 910,658 763,697 745,334
Deposits 895,039 836,862 770,492 657,384 647,254
Long-Term Debt 15,850 17,202 10,120 71 1,144
Shareowners' Equity 106,196 94,591 84,287 77,259 70,563
Year-End Balances:
Loans, Net of Unearned
Interest $ 763,667 $ 697,726 $ 672,196 $ 443,973 $ 420,804
Earning Assets 1,180,240 898,759 905,428 716,170 645,832
Assets 1,329,405 1,009,673 1,021,399 813,659 742,630
Deposits 1,160,284 834,812 866,696 699,579 648,174
Long-Term Debt 16,329 15,896 18,072 1,982 -
Shareowners' Equity 111,700 100,450 89,500 81,158 72,400
Equity to Assets Ratio 8.40% 9.95% 8.76% 9.97% 9.75%
Other Data:
Basic Average Shares
Outstanding 8,836,828 8,721,551 8,599,197 8,599,702 8,542,476
Shareowners of Record(2) 1,294 1,194 1,005 933 761
Banking Locations(2) 44 37 36 30 29
Full-Time Equivalent
Associates(2) 633 593 573 503 489
(1) All share and per share data have been adjusted
to reflect a 3-for-2 stock split effective June 1, 1998.
(2) As of March 1st of the following year.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL REVIEW
The following analysis reviews important factors
affecting the financial condition and results of
operations of Capital City Bank Group, Inc., for the
periods shown below. The Company, has made, and may
continue to make, various forward-looking statements
with respect to financial and business matters that
involve numerous assumptions, risks and
uncertainties. The following is a list of factors,
among others, that could cause actual results to
differ materially from the forward-looking
statements: general and local economic conditions,
competition for the Company's customers from other
banking and financial institutions, government
legislation and regulation, changes in interest
rates, the impact of rapid growth, significant
changes in the loan portfolio composition, and other
risks described in the Company's filings with the
Securities and Exchange Commission, all of which are
difficult to predict and many of which are beyond
the control of the Company.
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
1998 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 subsidiary bank is
referred to as the "Bank" or "CCB".
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, quarterly
averages have been presented for analysis and have
been noted as such. See Table 2 for annual averages
and Table 14 for financial information presented on
a quarterly basis.
All prior period share and per share data have been
adjusted to reflect a three-for-two stock split
effective June 1, 1998, and a two-for-one stock
split effective April 1, 1997.
On February 12, 1999, the Company entered into a
definitive agreement to acquire Grady Holding
Company and its subsidiary, First National Bank of
Grady County in Cairo, Georgia. First National Bank
of Grady County is a $114 million asset institution
with offices in Cairo and Whigham, Georgia. The
Company will issue 21.50 shares for each of the
60,910 shares of First National Bank of Grady
County. The closing is scheduled for the second
quarter of 1999 and the transaction will be
accounted for as a pooling-of-interests.
On December 4, 1998, the Company completed its
purchase and assumption transaction with First Union
National Bank ("First Union") and acquired eight of
First Union's branch offices which included
deposits. The Company paid a deposit premium of
$16.9 million, and assumed $219 million in deposits
and acquired certain real estate. The deposit
premium is being amortized over ten years. Average
balances and earnings of the Company for 1998 were
not significantly impacted by the acquisition.
On January 31, 1998, the Company completed its
purchase and assumption transaction with First
Federal Savings & Loan Association of Lakeland,
Florida ("First Federal-Florida") and acquired five
of First Federal-Florida's branch offices which
included loans and deposits. The Company paid a
premium of $3.6 million, or 6.33%, and assumed $55
million in deposits and purchased loans equal to $44
million. Four of the five offices were merged into
existing offices of Capital City Bank. The premium
is being amortized over fifteen years.
On October 18, 1997, the Company consolidated its
three remaining bank affiliates into Capital City
Bank. See Note 20 in the Notes to Consolidated
Financial Statements for further information.
On July 1, 1996, the Company completed its
acquisition of First Financial Bancorp, Inc. and its
wholly-owned subsidiary, First Federal Bank
(collectively referred to as "First Financial").
The acquisition was accounted for as a purchase.
Operating results of First Financial are included in
the Company's consolidated financial statements
presented herein for all periods subsequent to June
30, 1996. On December 6, 1996, First Federal Bank
was merged into the Company's lead bank, Capital
City Bank. Financial comparisons to prior year
periods are not necessarily comparable due to the
impact of the acquisition.
The bank is headquartered in Tallahassee and, as of
December 31, 1998, had forty-four offices covering
seventeen counties.
EARNINGS ANALYSIS
In 1998, the Company's earnings were $13.2 million,
or $1.49 per basic share, This compares to
earnings of $12.4 million, or $1.43 per basic share,
in 1997, and $11.4 million, or $1.32 per basic
share, in 1996. The Company's diluted per share
earnings were $1.49 in 1998, $1.42 in 1997 and $1.31
in 1996, respectively.
On a per diluted share basis, earnings increased
4.9% in 1998 versus 8.4% in 1997. Growth in
operating revenues (defined as net interest income
plus noninterest income) of $4.5 million, or 7.0%,
was the most significant factor contributing to
increased earnings in 1998. This 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, Except Per Share Data)(1)
For the Years Ended December 31,
1998 1997 1996
Interest Income $79,253 $75,664 $66,171
Taxable Equivalent Adjustments 1,449 1,610 1,771
Total Interest Income (FTE) 80,702 77,274 67,942
Interest Expense 31,342 29,140 25,419
Net Interest Income (FTE) 49,360 48,134 42,523
Provision for Loan Losses 2,160 1,788 1,463
Taxable Equivalent Adjustments 1,449 1,610 1,771
Net Interest Income After Provision
for Loan Losses 45,751 44,736 39,289
Noninterest Income 21,751 18,591 16,316
Noninterest Expense 47,309 44,765 39,255
Income Before Income Taxes 20,193 18,562 16,350
Income Taxes 7,005 6,124 4,990
Net Income $13,188 $12,438 $11,360
Basic Net Income Per Share $ 1.49 $ 1.43 $ 1.32
Diluted Net Income Per Share $ 1.49 $ 1.42 $ 1.31
(1) All share and per share data have been adjusted
to reflect a 3-for-2 stock split effective June 1, 1998.
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 1998, taxable-equivalent net interest income
increased $1.2 million, or 2.5%. This follows an
increase of $5.6 million, or 13.2% in 1997, and $6.9
million, or 19.5%, in 1996. Taxable equivalent net
interest income during 1998 is attributable to
growth in earning assets. The favorable impact of
asset growth was partially offset by declining
yields reflecting the overall decline in general
interest rates.
Table 2
AVERAGE BALANCES AND INTEREST RATES(Taxable Equivalent Basis - Dollars in Thousands)
1998 1997 1996
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets:
Loans, Net of Unearned Interest(1)(2)$ 742,737 $67,680 9.11% $ 692,691 $64,153 9.26% $560,986 $51,999 9.27%
Taxable Investment Securities 91,657 5,449 5.95 110,947 6,959 6.27 138,982 8,648 6.22
Tax-Exempt Investment Securities(2) 64,657 4,231 6.54 68,948 4,634 6.72 73,857 5,106 6.91
Funds Sold 62,298 3,342 5.37 28,238 1,528 5.41 41,642 2,189 5.26
Total Earning Assets 961,349 80,702 8.39 900,824 77,274 8.58 815,467 67,942 8.33
Cash & Due From Banks 50,433 48,654 50,302
Allowance For Loan Losses (8,673) (8,396) (7,374)
Other Assets 67,753 60,028 52,263
TOTAL ASSETS $1,070,862 $1,001,110 $910,658
Liabilities:
NOW Accounts $ 107,690 $ 1,996 1.85% $ 104,190 $ 1,765 1.69% $102,453 $ 1,877 1.83%
Money Market Accounts 82,521 2,468 2.99 80,435 2,407 2.99 85,256 2,523 2.96
Savings Accounts 91,382 1,952 2.14 85,503 1,718 2.01 86,437 1,813 2.10
Other Time Deposits 415,716 21,932 5.28 382,398 20,105 5.26 325,453 16,867 5.18
Total Interest Bearing Deposits 697,309 28,348 4.07 652,526 25,995 3.98 599,599 23,080 3.85
Funds Purchased 37,794 1,841 4.87 31,518 1,659 5.26 25,181 1,229 4.88
Other Short-Term Borrowings 1,190 62 5.23 5,976 315 5.27 7,016 422 6.01
Long-Term Debt 15,850 1,091 6.89 17,202 1,171 6.81 10,120 688 6.80
Total Interest Bearing Liabilities 752,143 31,342 4.17 707,222 29,140 4.12 641,916 25,419 3.96
Noninterest Bearing Deposits 197,730 184,336 170,893
Other Liabilities 14,793 14,961 13,562
TOTAL LIABILITIES 964,666 906,519 826,371
Shareowners' Equity:
Common Stock 88 87 87
Additional Paid-In Capital 8,003 5,794 4,788
Retained Earnings 98,105 88,710 79,412
TOTAL SHAREOWNERS' EQUITY 106,196 94,591 84,287
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,070,862 $1,001,110 $910,658
Interest Rate Spread 4.22% 4.46% 4.37%
Net Interest Income $49,360 $48,134 $42,523
Net Interest Margin(3) 5.13% 5.34% 5.21%
(1) Average balances include nonaccrual loans. Interest income includes fees on
loans of approximately $2,856,000, $2,913,000 and $2,241,000 in 1998, 1997, and
1996, respectively.
(2) Interest income includes the effects of taxable equivalent adjustments
using a 35% tax rate to adjust interest on tax-exempt loans and securities to a
taxable equivalent basis.
(3) Tax-equivalent net interest income divided by earning assets.
Table 3
RATE/VOLUME ANALYSIS(1)
(Taxable Equivalent Basis - Dollars in Thousands)
1998 Changes from 1997 1997 Changes from 1996
Due To Due To
Average Average
Total Volume Rate Total Volume Rate
EARNING ASSETS:
Loans, Net of Unearned Interest(2) $3,527 $4,634 $(1,107) $12,154 $12,209 $ (55)
Investment Securities
Taxable (1,510) (1,209) (301) (1,689) (1,744) 55
Tax-Exempt (403) (288) (115) (472) (339) (133)
Funds Sold 1,814 1,843 (29) (661) (705) 44
Total 3,428 4,980 (1,552) 9,332 9,421 (89)
Interest Bearing Liabilities:
NOW Accounts 231 59 172 (111) 32 (143)
Money Market Accounts 61 62 (1) (116) (143) 27
Savings Accounts 234 118 116 (95) (20) (75)
Other Time Deposits 1,827 1,753 74 3,238 2,950 288
Funds Purchased 182 330 (148) 430 309 121
Other Short-Term Borrowings (253) (252) (1) (107) (63) (44)
Long-Term Debt (80) (92) 12 482 482 0
Total 2,202 1,978 224 3,721 3,547 174
Changes in Net Interest Income $1,226 $3,002 $(1,776) $ 5,611 $ 5,874 $ (263)
(1) This table shows the change in net interest income for comparative
periods based on either changes in average volume or changes in average rates
for earning assets and interest bearing liabilities. Changes which are not
solely due to volume changes or solely due to rate changes have been attributed to rate changes.
(2) Interest income includes the effects of taxable equivalent adjustments
using a 35% tax rate to adjust interest on tax-exempt loans and securities to
a taxable equivalent basis.
For the year 1998, taxable equivalent interest income increased $3.4
million, or 4.4%, over 1997, compared to an increase of $9.3 million, or
13.7%, in 1997 over 1996. The Company's taxable equivalent yield on average
earning assets of 8.39% represents a 19 basis point decrease from 1997,
compared to a 25 basis point improvement in 1997 over 1996. During 1998,
interest income was positively impacted by loan growth and the acquisition of
First Federal-Florida. This was partially offset by lower yields on earning
assets resulting from the decline in interest rates and increased
competition. The loan portfolio, which is the largest and highest yielding
component of earning assets, decreased from 77.9% in the fourth quarter of
1997 to 73.3% in the comparable quarter of 1998, reflecting the acquisition
of $219 million in deposits from First Union.
Interest expense increased $2.2 million, or 7.6%,
over 1997, compared to an increase of $3.7 million,
or 14.6%, in 1997 over 1996. The higher level of
interest expense in 1998 is attributable to the
acquisition of First Federal-Florida. The average
rate paid on interest-bearing liabilities was 4.17%
in 1998, compared to 4.12% and 3.96%, in 1997 and
1996, respectively. The increase in the average rate
during 1998 is a direct result of the mix of
deposits acquired from First Federal-Florida and the
introduction of a higher yielding money market
account. Certificates of deposit represent a higher
cost deposit product to the Company. Based on
averages, certificates as a percent of total
deposits increased to 46.4% in 1998, compared to
45.7% in 1997, and 42.2% in 1996.
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) decreased twenty-four basis points in
1998 and increased nine basis points in 1997. The
decrease in 1998 is attributable to the lower yield
on earning assets resulting from the lower rate
environment. The increase in 1997 was attributable
to the higher yield on earning assets, which was
driven by a more favorable mix of earning assets.
The Company's net interest margin (defined as
taxable equivalent interest income less interest
expense divided by average earning assets) was 5.13%
in 1998, compared to 5.34% in 1997 and 5.21% in
1996. In 1998, narrowing margins on the Company's
incremental growth resulted in the decline in the
margin to 5.13%, or 21 basis points.
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 $2.2 million in
1998 versus $1.8 million in 1997 and $1.5 million in
1996. The provision approximates total net charge-
offs for 1998 and 1997. The Company's credit
quality measures declined slightly with a
nonperforming assets ratio of .80% compared to .41%
at year-end 1997, and a net charge-off ratio of .27%
versus .24% in 1997.
At December 31, 1998, the allowance for loan losses
totaled $8.5 million compared to $8.3 million in
1997. At year-end 1998, the allowance represented
1.11% of total loans and 182% of nonperforming
loans. Management considers the allowance to be
adequate based on the current level of nonperforming
loans and the estimate of losses inherent in the
portfolio at year-end. See the section entitled
"Financial Condition" for further information
regarding the allowance for loan losses. Selected
loss coverage ratios are presented below:
1998 1997 1996
Provision for Loan Losses as a
Multiple of Net Charge-offs 1.1x 1.1x 1.0x
Pre-tax Income Plus Provision
for Loan Losses as a Multiple
of Net Charge-offs 11.0x 12.4x 11.7x
Noninterest Income
In 1998, noninterest income increased $3.2 million,
or 17.0%, and represented 30.6% of operating income,
compared to $2.3 million, or 13.9% and 28.6%,
respectively, in 1997. The increase in the level of
noninterest income is attributable to all major
categories with the exception of service charges.
Factors affecting noninterest income are discussed
below.
Service charges on deposit accounts decreased
$134,000, or 1.6%, in 1998, compared to an increase
of $470,000, or 6.1%, in 1997. 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. The
decrease in 1998 is primarily attributable to higher
compensating balances and an increase in charged-off
deposit accounts. Fees were increased during the
fourth quarter of 1998, and will favorably impact
service charge income in 1999.
Data processing revenues increased $363,000, or
11.1%, in 1998 versus an increase of $191,000, or
6.4%, in 1997. The data processing center provides
computer services to both financial and non-
financial clients in North Florida and South
Georgia. In recent years, revenue gains have been
attributable to growth in processing for both
financial and non-financial clients. In 1998,
processing revenues for non-financial entities
represented approximately 48% of the total
processing revenues, down from 51% in 1997,
reflecting growth in processing revenues for
financial entities and a decline in revenues for non-
financial entities. In 1998, the Company changed
its method of income recognition on data processing
revenues from the cash to the accrual method. This
resulted in a one-time adjustment which increased
revenues by $225,000.
In 1998, trust fees increased $559,000, or 46.5%,
compared to $38,000, or 3.3% in 1997. Increases in
both years were attributable to growth in assets
under management. At year-end 1998, assets under
management totaled $261.2 million, reflecting growth
of $75.5 million, or 40.6%. For the comparable
period in 1997, assets under management totaled
$185.7 million, reflecting growth of $54.4 million
or 41.4%.
Other noninterest income increased $2.3 million, or
37.3%, in 1998 versus an increase of $1.6 million,
or 36.6% in 1997. The increase in 1998 was
attributable to ATM fees, brokerage revenues,
interchange commission fees and gains on the sale of
real estate loans. The Company realized gains on
the sale of real estate loans totaling approximately
$1.5 million in 1998 compared to $803,000 in 1997.
Interchange commission fees increased $383,000, or
61.7% from 1997. The increase in other noninterest
income in 1997 was attributable to ATM fees, gains
recognized on the sale of real estate loans and
gains on the sale of bank assets.
Noninterest income as a percent of average assets
was 2.03% in 1998 compared to 1.86% in 1997 and
1.79% in 1996.
Noninterest Expense
Noninterest expense for 1998 was $47.3 million, an
increase of $2.5 million, or 5.7%, over 1997,
compared with an increase of $5.5 million, or 14.0%,
in 1997 over 1996. Factors impacting the Company's
noninterest expense during 1998 and 1997 are
discussed below.
The Company's aggregate compensation expense in 1998
totaled $24.7 million, an increase of $723,000, or
3.0%,over 1997. Salaries increased $1.5 million due
to normal raises and additions to staff. In
addition to acquisitions, the Company added staff to
capitalize on competitive opportunities arising as a
result of mergers of other commercial banks within
its market. Offsetting the increase in salaries
were reductions in pension expense and stock
incentives. In 1997, total compensation increased
$3.0 million, or 14.2%, over 1996. Salaries
increased $2.3 million due to normal raises, the
full-year impact of First Financial associates and a
$317,000 charge associated with restructuring.
Additionally, a 93% increase in the Company's stock
price contributed to a $460,000, or 62.1%, increase
in stock compensation covered under the Company's
Associate Incentive Plan.
Occupancy expense (including furniture, fixtures &
equipment) increased by $526,000, or 6.7%, in 1998,
compared to $914,000, or 13.2%, in 1997. The
increase in 1998 was attributable to higher cost for
maintenance and repair which increased $502,000, or
18.7%. The increase in 1997 was attributable to
higher depreciation and other FF&E expense.
Offsetting these increases in 1997 was a reduction
in maintenance and repairs.
Other noninterest expense increased $1.3 million and
$1.6 million in 1998 and 1997, or 10.1% and 14.3%,
respectively. The increase in 1998 was attributable
to: (1) an increase in amortization expense of
approximately $335,000 due to the acquisitions of
First Federal-Florida and First Union offices; (2)
an increase in advertising costs of $463,000 due to
greater product and market development; and (3) an
increase in printing and supplies costs of $143,000.
The increase in 1997 was attributable to: (1) an
increase in amortization expense of approximately
$300,000 due to the acquisition of First Financial
offices; (2) a one-time restructuring charge of
$338,000 incurred by the Company to consolidate its
three remaining subsidiary banks into Capital City
Bank; (3) an increase in advertising expense of
$180,000 due to the Company's enhanced focus on
promoting products and the acquisition of First
Financial; and (4) an increase in credit card
processing fees, ORE expense and other miscellaneous
expenses of $259,000, $130,000 and $225,000,
respectively.
Net noninterest expense ratio (defined as
noninterest income minus noninterest expense as a
percent of average assets) was 2.39% in 1998
compared to 2.61% in 1997 and 2.52% in 1996. The
Company's efficiency ratio (expressed as noninterest
expenses, net of intangible amortization, as a
percent of taxable equivalent operating revenues)
was 64.8%, 64.8% (excluding restructuring charges),
and 66.7% in 1998, 1997, and 1996, respectively.
Income Taxes
The consolidated provision for federal and state
income taxes was $7.0 million in 1998 compared to
$6.1 million in 1997 and $5.0 million in 1996. The
increase in the tax provision over the last three
years is primarily attributable to the higher level
of taxable income.
The effective tax rate was 34.7% in 1998, 33.0% in
1997, and 30.5% in 1996. These rates differ from
the statutory tax rates due primarily to tax-exempt
income. The increase in the effective tax rate is
primarily attributable to the decreasing level of
tax-exempt income relative to pre-tax income and an
increase in the statutory tax rate for income
greater than $10 million. Tax-exempt income (net of
the adjustment for disallowed interest) as a percent
of pre-tax income was 13.3% in 1998, 16.0% in 1997,
and 20.1% in 1996.
FINANCIAL CONDITION
Average assets increased $69.8 million, or 7.0%,
from $1.01 billion in 1997 to $1.07 billion in 1998.
Average earning assets increased to $961.3 million
in 1998, a $60.5 million, or 6.7%, increase over
1997. Average loans increased $50.0 million, or
7.2%, and accounted for 82.7% of the total growth in
average earning assets. Loan growth in 1998 was
funded primarily through deposits acquired through
acquisitions and maturities in the investment
portfolio.
Table 2 provides information on average balances
while Table 4 highlights the changing mix of the
Company's earning assets over the last three years.
Loans
Local markets were generally improved during 1998.
Loan demand was steady and internal growth was
spread evenly throughout the year. The First
Federal-Florida acquisition completed in the first
quarter of 1998 increased the number of markets
served and enhanced the Company's line of mortgage
products and services. Price and product
competition remained strong during 1998 and there
continues to be an increased demand for fixed rate,
longer-term financing. Areas that reflected
stronger demand were real estate, home equity and
indirect automobile lending.
Although management is continually evaluating
alternative sources of revenue, 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
consistently strives to identify opportunities to
increase loans outstanding and enhance the
portfolio's overall contribution to earnings.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances - Dollars in Thousands)
1997 to Percentage Components
1998 of Total of Total Earning Assets
Change Change 1998 1997 1996
Loans:
Commercial, Financial
and Agricultural $ (565) (.9)% 6.3% 6.8% 7.1%
Real Estate - Construction 2,369 3.9 4.4 4.4 3.9
Real Estate - Mortgage 34,279 56.6 50.9 50.5 42.8
Consumer 13,963 23.1 15.7 15.2 15.0
Total Loans 50,046 82.7 77.3 76.9 68.8
Securities:
Taxable (19,290) (31.9) 9.5 12.3 17.0
Tax-Exempt (4,291) (7.1) 6.7 7.7 9.1
Total Securities (23,581) (39.0) 16.2 20.0 26.1
Funds Sold 34,060 56.3 6.5 3.1 5.1
Total Earning Assets $60,525 100.0% 100.0% 100.0% 100.0%
The Company's average loan-to-deposit ratio
increased from 82.8% in 1997 to 83.0% in 1998. It
declined to a level of 77.7% in the fourth quarter
of 1998 compared to 84.5% in the fourth quarter of
1997. This compares to an average loan-to-deposit
ratio in 1996 of 72.8%. The lower average quarterly
loan-to-deposit ratio reflects the assumption of
deposits from First Union.
Real estate construction and mortgage loans,
combined, represented 71.3% of total loans (net of
unearned interest) in 1998 versus 72.0% in 1997.
See the section entitled "Risk Element Assets" for a
discussion concerning loan concentrations.
The composition of the Company's loan portfolio at
December 31, for each of the past five years is
shown in Table 5. Table 6 arrays the Company's
total loan portfolio as of December 31, 1998, based
upon maturities. Demand loans and overdrafts are
reported in the category of one year or less. As a
percent of the total portfolio, loans with fixed
interest rates have increased from 30.3% in 1997 to
35.4% in 1998.
Allowance for Loan Losses
Management attempts to maintain the allowance for
loan losses at a level sufficient to provide for
estimated losses inherent 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 losses inherent in the loan portfolio
which are not specifically identified. The general
reserve is based upon management's evaluation of the
current and forecasted operating and economic
environment coupled with 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 past five years.
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
As of December 31,
1998 1997 1996 1995 1994
Commercial, Financial and
Agricultural $ 67,463 $ 53,888 $ 57,023 $ 46,149 $ 39,288
Real Estate - Construction 45,283 45,563 41,389 28,391 24,314
Real Estate - Mortgage 499,394 456,499 439,110 259,503 255,755
Consumer 151,527 141,776 137,153 113,736 106,656
Total Loans, Net of
Unearned Interest $763,667 $697,726 $674,675 $447,779 $426,013
Table 6
LOAN MATURITIES
(Dollars in Thousands)
Maturity Periods
Over One Over
One Year Through Five
Or Less Five Years Years Total
Commercial, Financial and
Agricultural $ 33,431 $ 30,576 $ 3,456 $ 67,463
Real Estate 77,034 50,655 416,988 544,677
Consumer 37,755 111,977 1,795 151,527
Total $148,220 $193,208 $422,239 $763,667
Loans with Fixed Rates $ 43,648 $155,605 $ 71,308 $270,561
Loans with Floating or
Adjustable Rates 104,572 37,603 350,931 493,106
Total $148,220 $193,208 $422,239 $763,667
The allowance for loan losses at December 31, 1998
of $8.5 million compares to $8.3 million at year-end
1997. The allowance as a percent of total loans was
1.11% in 1998 versus 1.19% in 1997. 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 the allowance, 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, 1998, is
adequate to absorb 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 past five years. The allocation of the
allowance is developed using management's best
estimates based upon available information such as
regulatory examinations, internal loan reviews and
historical data and trends. The allocation by loan
category reflects a base level allocation derived
primarily by analyzing the level of problem loans,
specific reserves and historical charge-off data.
Current and forecasted economic conditions, and
other judgmental factors which cannot be easily
quantified (e.g. concentrations), are not presumed
to be included in the base level allocations, but
instead are covered by the unallocated portion of
the reserve. The Company faces a geographic
concentration as well as a concentration in real
estate lending. Both risks are cyclical in nature
and must be considered in establishing the overall
allowance for loan losses. Reserves in excess of the
base level reserves are maintained in order to
properly reserve for the losses inherent in the
Company's portfolio due to these concentrations and
anticipated periods of economic difficulties. As
part of its Year 2000 contingency plan (discussed on
page 42), the Company has reviewed its significant
borrowers and allocated reserves to address the
impact of the Year 2000 issue.
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
For the Years Ended December 31,
1998 1997 1996 1995 1994
Balance at Beginning of Year $8,322 $8,179 $6,474 $7,551 $7,594
Acquired Reserves - - 1,769 - -
Charge-Offs:
Commercial, Financial
and Agricultural 95 392 466 520 575
Real Estate-Construction 15 31 - - -
Real Estate-Mortgage 832 120 91 139 315
Consumer 1,888 1,887 1,585 1,237 865
Total Charge-Offs 2,830 2,430 2,142 1,896 1,755
Recoveries:
Commercial, Financial
and Agricultural 48 340 200 157 104
Real Estate - Construction 142 - 3 - -
Real Estate - Mortgage 172 55 - - 12
Consumer 445 390 412 369 350
Total Recoveries 807 785 615 526 466
Net Charge-Offs 2,023 1,645 1,527 1,370 1,289
Provision for Loan Losses 2,160 1,788 1,463 293 1,246
Balance at End of Year $8,459 $8,322 $8,179 $6,474 $7,551
Ratio of Net Charge-Offs
Year to Average Loans Out-Standing,
Net of Unearned Interest .27% .24% .27% .32% .32%
Allowance for Loan Losses as a
Percent of Loans, Net of
Unearned Interest,at End of Year 1.11% 1.19% 1.22% 1.46% 1.79%
Allowance for Loan Losses as a
Multiple of Net Charge-Offs 4.18x 5.06x 5.36x 4.73x 5.86x
Risk Element Assets
Risk element assets consist 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.
The Company's nonperforming loans increased $3.0
million, or 187.5%, from a level of $1.6 million at
December 31, 1997 to $4.6 million at December 31,
1998. During 1998, loans totaling approximately
$7.2 million were added, while loans totaling $4.2
million were removed from nonaccruing status. Of
the $7.2 million added, $3.6 million was
attributable to two relationships. Of the $4.2
million removed from the nonaccrual category, $1.5
million consisted of principal reductions, $1.0
million represented loans transferred to ORE, $1.0
million consisted of loans brought current and
returned to an accrual status and loans refinanced,
and $700,000 were charged off. Where appropriate,
management has allocated specific reserves to absorb
anticipated losses. A majority of the Company's
charge-offs in 1998 were in the consumer portfolio
where loans are charged off based on past due status
and are not recorded as nonaccruing loans.
Table 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Allow- Category Allow- Category Allow- Category Allow- Category Allow- Category
ance To Total ance To Total ance To Total ance To Total ance To Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
Commercial, Financial
and Agricultural $1,145 8.5% $ 573 7.7% $ 524 8.5% $ 609 10.3% $ 442 9.3%
Real Estate:
Construction 403 5.9 329 6.5 237 6.1 152 6.3 187 5.7
Mortgage 2,293 65.3 1,790 65.3 2,841 65.1 2,484 58.0 2,938 60.0
Consumer 1,872 20.3 1,841 20.5 1,623 20.3 1,044 25.4 963 25.0
Not Allocated 2,746 - 3,789 - 2,954 - 2,185 - 3,021 -
Total $8,459 100.0% $8,322 100.0% $8,179 100.0% $6,474 100.0% $7,551 100.0%
Table 9
RISK ELEMENT ASSETS
(Dollars in Thousands)
As of December 31,
1998 1997 1996 1995 1994
Nonaccruing Loans $4,431 $1,403 $2,704 $2,996 $4,278
Restructured 195 224 262 1,686 1,694
Total Nonperforming Loans 4,626 1,627 2,966 4,682 5,972
Other Real Estate 1,468 1,244 1,489 1,001 1,581
Total Nonperforming Assets $6,094 $2,871 $4,455 $5,683 $7,553
Past Due 90 Days or More $1,040 $ 972 $ 536 $ 273 $ 258
Nonperforming Loans to Loans,
Net of Unearned Interest .61% .23% .44% 1.05% 1.42%
Nonperforming Assets to Loans,
Net of Unearned Interest,
Plus Other Real Estate .80% .41% .66% 1.28% 1.79%
Nonperforming Assets to Capital(1) 5.07% 2.64% 4.56% 6.49% 9.45%
Reserve to Nonperforming Loans 182.86% 511.59% 275.76% 138.27% 126.44%
(1) For computation of this percentage, "capital"
refers to shareowners' equity plus the allowance for
loan losses.
The majority of nonaccrual loans are collateralized
with real estate. Management continually reviews
these loans and believes specific reserve
allocations are sufficient to cover the loss
exposure associated with these loans.
Interest on nonaccrual loans is generally 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 interest on nonaccruing loans had been recognized
on a fully accruing basis, interest income recorded
would have been $354,000 higher for the year ended
December 31, 1998.
Restructured loans are those with reduced interest
rates or deferred payment terms due to deterioration
in the financial position of the borrower.
Other real estate totaled $1.5 million at December
31, 1998 versus $1.2 million at December 31, 1997.
This category includes property owned by Capital
City Bank which was acquired either through
foreclosure procedures or by receiving a deed in
lieu of foreclosure. During 1998, the Company added
properties totaling $1.9 million (including parcels
of bank premises) and partially or completely
liquidated properties totaling $1.6 million,
resulting in a net increase in other real estate of
$300,000. 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
totaled $325,000 at December 31, 1998.
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 Bank and the
relatively close proximity of the markets, the
Company has both geographic concentrations as well
as concentrations in the types of loans funded.
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, 1998, approximately 71.3% of the
portfolio consisted of real estate loans.
Residential properties comprise approximately 69.7%
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, 1998, 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 continues to focus its attention on
promptly identifying and providing for potential
losses as they arise.
Investment Securities
In 1998, the Company's average investment portfolio
decreased $23.6 million, or 13.1%, compared to a
decrease of $32.9 million, or 15.5% in 1997. As a
percentage of average earning assets, the investment
portfolio represented 16.3% in 1998, compared to
20.0% in 1997. During the fourth quarter of 1998,
the Company purchased approximately $200.0 million
in investment securities as a result of the
assumption of deposits from First Union, increasing
the portfolio to 29.9% of earning assets.
In 1998, average taxable investments decreased $19.3
million, or 17.4%, while tax-exempt investments
decreased $4.3 million, or 6.2%. 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. The
tax-exempt portfolio, as a percent of average
earning assets, has declined from 18.9% in 1986 to
6.5% in 1998. Management continues 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. As
part of the addition to the portfolio discussed
above, municipal securities, totaling approximately
$28.6 million, were purchased during the fourth
quarter.
The investment portfolio is a significant component
of the Company's operations and, as such, it
functions as a key element of liquidity and
asset/liability management. Securities may be
classified as held-to-maturity, available-for-sale
or trading. As of December 31, 1998, all securities
are classified as available-for-sale. Classifying
securities as available-for-sale offers management
full flexibility in managing its liquidity and
interest rate sensitivity without adversely
impacting its regulatory capital levels. Securities
in the available-for-sale portfolio are recorded at
fair value and unrealized gains and losses
associated with these securities are recorded, net
of tax, in the accumulated other comprehensive
income component of shareowners' equity. At
December 31, 1998, shareowners' equity included a
net unrealized gain of $593,000, compared to
$567,000 at December 31, 1997. It is neither
management's intent nor practice to participate in
the trading of investment securities for the purpose
of recognizing gains and therefore the Company does
not maintain a trading portfolio.
The average maturity of the total portfolio at
December 31, 1998 and 1997, was 2.98 and 1.93 years,
respectively. See Table 10 for a breakdown of
maturities by portfolio.
The weighted average taxable-equivalent yield of the
investment portfolio at December 31, 1998, was 5.73%
versus 6.44% in 1997. The quality of the municipal
portfolio at such date is depicted in the chart
below. There were no investments in obligations,
other than U.S. Governments, of any one state,
municipality, political subdivision or any other
issuer that exceeded 10% of the Company's
shareowners' equity at December 31, 1998.
Table 10 and Note 3 in Notes to Consolidated
Financial Statements present a detailed analysis of
the Company's investment securities as to type,
maturity and yield.
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody's Rating Amortized Cost Percentage
AAA $58,159 63.5%
AA-1 2,684 2.9
AA-2 1,831 2.0
AA-3 2,243 2.4
AA 1,493 1.6
A-1 2,903 3.2
A-2 572 .6
A 3,197 3.5
BAA 424 .5
Not Rated(1) 18,138 19.8
Total $91,644 100.0%
(1) Of the securities not rated by Moody's, $13.0
million are rated "A" or higher by S&P.
Table 10
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollar in Thousands)
As of December 31, 1998
Weighted
Amortized Cost Market Value Average Yield(1)
U. S. GOVERNMENTS
Due in 1 year or less $ 26,534 $ 26,646 5.54%
Due over 1 year thru 5 years 69,026 68,947 5.37
Due over 5 years thru 10 years - - -
Due over 10 years - - -
TOTAL 95,560 95,593 5.42
STATE & POLITICAL SUBDIVISIONS
Due in 1 year or less 12,842 12,924 6.35
Due over 1 year thru 5 years 44,259 45,067 6.37
Due over 5 years thru 10 years 34,543 34,712 5.68
Due over 10 years - - -
TOTAL 91,644 92,703 6.11
MORTGAGE-BACKED SECURITIES(2)
Due in 1 year or less 12 12 6.30
Due over 1 year thru 5 years 89,122 88,901 5.81
Due over 5 years thru 10 years 990 989 5.81
Due over 10 years - - -
TOTAL 90,124 89,902 5.81
OTHER SECURITIES
Due in 1 Year or less 39,468 39,427 5.45
Due over 1 year thru 5 years 30,584 30,681 5.49
Due over 5 years thru 10 years 500 510 6.29
Due over 10 years* 4,106 4,106 7.03
TOTAL 74,658 74,724 5.56
Total Investment Securities $351,986 $352,922 5.73%
*Federal Home Loan Bank Stock and Federal Reserve Bank Stock do not have stated maturities.
(1) Weighted average yields are calculated on the
basis of the amortized cost of the security. The
weighted average yields on tax-exempt obligations
are computed on a taxable-equivalent basis using a
35% tax rate.
(2) Based on weighted average life.
AVERAGE MATURITY (In Years)
AS OF DECEMBER 31, 1998
U.S. Governments 2.44
State and Political Subdivisions 3.47
Mortgage-Backed Securities 4.06
Other Securities 1.74
TOTAL 2.98
Deposits And Funds Purchased
Average total deposits increased from $836.9 million
in 1997 to $895.0 million in 1997, representing an
increase of $58.1 million, or 6.9%, compared with an
increase of $66.4 million, or 8.6%, in 1997. In
1998, the annual average increase is attributable to
the acquisition of First Federal-Florida offices and
internal growth. In 1997, the increase is
attributable to the acquisition of First Financial.
In the fourth quarter of 1998, deposits averaged
$968.3 million, compared to $828.2 million for the
same period in 1997. The Company continues to
experience a notable increase in competition for
deposits, in terms of both rate and product. The
Company introduced CashPower, a higher yielding
money market product in the fourth quarter of 1998.
The new CashPower product represents 29.3% of the
money market balance at year end 1998.
As of year-end 1998, deposits totaled $1.2 billion,
an increase of $325 million over the year-end 1997.
This increase primarily reflects growth through
acquisitions (approximately $275 million) and the
introduction of the CashPower account.
Table 2 provides an analysis of the Company's
average deposits, by category, and average rates
paid thereon for each of the last three years.
Table 11 reflects the shift in the Company's deposit
mix over the last three years and Table 12 provides
a maturity distribution of time deposits in
denominations of $100,000 and over.
Average funds purchased, which include federal funds
purchased and securities sold under agreements to
repurchase, increased $6.3 million, or 19.9%. See
Note 8 in the Notes to Consolidated Financial
Statements for further information.
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
1997 to Percentage
1998 of Total Components of Total Deposits
Change Change 1998 1997 1996
Noninterest Bearing
Deposits $13,394 23.0% 22.1% 22.0% 22.2%
NOW Accounts 3,500 6.0 12.0 12.5 13.3
Money Market Accounts 2,086 3.6 9.2 9.6 11.1
Savings 5,879 10.1 10.2 10.2 11.2
Other Time Deposits 33,318 57.3 46.5 45.7 42.2
Total Deposits $58,177 100.0% 100.0% 100.0% 100.0%
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
December 31, 1998
Time Certificates of Deposit Percent
Three months or less $ 42,661 41.1%
Over three through six months 22,570 21.8
Over six through twelve months 27,484 26.5
Over twelve months 11,076 10.6
Total $103,791 100.0%
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 (i.e. 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
CCB.
As of December 31, 1998, the Company had a $25.0
million credit facility under which $17 million was
currently available. The facility offers the
Company an unsecured, revolving line of credit for a
period of three years which matures in November
2001. Upon expiration of the revolving line of
credit, the outstanding balance may be converted to
a term loan and repaid over a period of seven years.
The term loan is to be secured by stock of a
subsidiary bank equal to at least 125% of the
principal balance of the term loan. The Company, at
its option, may select from various loan rates
including Prime, LIBOR or the lenders' Cost of Funds
rate ("COF"), plus or minus increments thereof. The
LIBOR or COF rates may be fixed for a period of up
to six months. The Company also has the option to
select fixed rates for periods of one through five
years. On July 1, 1996, the Company borrowed $15.0
million in connection with the acquisition of First
Financial. In 1998, the Company reduced the amount
of debt to $8.0 million. The average interest rate
during 1998 was 7.11%.
The Company's credit facility imposes certain
limitations on the level of the Company's equity
capital, and federal and state regulatory agencies
have established regulations which govern the
payment of dividends to a bank holding company 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 at current payout rate.
At December 31, 1998, the Company had $8.0 million
in long-term debt outstanding to the Federal Home
Loan Bank of Atlanta. The debt consists of six
loans. The interest rates are fixed and the
weighted average rate at December 31, 1998 was
6.00%. Required annual principal reductions
approximate $541,000, with the remaining balances
due at maturity ranging from 2005 to 2018. The debt
was used to match-fund selected lending activities
and is secured investment securities and by first
mortgage residential real estate loans which are
included in the Company's loan portfolio. See Note 9
in the Notes to Consolidated Financial Statements
for additional information as to the Company's long-
term debt.
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, 1998, the Company had
$243.2 million in commitments to extend credit and
$2.0 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 commitments 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 will
approximate $6.0 to $7.0 million over the next
twelve months. Management believes these capital
expenditures can be funded internally without
impairing the Company's ability to meet its on-going
obligations.
Shareowners' equity as of December 31, for each of
the last three years is presented below.
Shareowners' Equity
(Dollars in Thousands)
1998 1997 1996
Common Stock $ 88 $ 87 $ 87
Additional Paid-in Capital 8,524 6,508 4,905
Retained Earnings 102,495 93,288 84,426
Subtotal 111,107 99,883 89,418
Accumulated Other Comprehensive
Income, Net of Tax 593 567 82
Total Shareowners' Equity $111,700 $100,450 $89,500
The Company continues to maintain a strong capital
position. The ratio of shareowners' equity to total
assets at year-end was 8.40%, 9.95% and 8.76%, in
1998, 1997 and 1996, respectively. The lower
capital ratio in 1998 compared to 1997 reflects the
acquisitions of First Federal-Florida and First
Union offices. Both acquisitions were accounted for
as a purchase.
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 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., exceeded these capital guidelines, with
a total risk-based capital ratio of 10.18% and a
Tier 1 ratio of 9.24%, compared to 15.10% and
13.86%, respectively, in 1997.
In addition, a tangible leverage ratio is now being
used in connection with the risk-based capital
standards and is defined as Tier 1 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, 1998, the Company had a leverage
ratio of 6.24% compared to 9.19% in 1997. See Note
13 in the Notes to Consolidated Financial Statements
for additional information as to the Company's
capital adequacy.
Dividends declared and paid totaled $.45 per share
in 1998. During the fourth quarter of 1998 the
quarterly dividend was raised nine percent from $.11
per share to $.12 per share. The Company declared
dividends of $.41 per share in 1997 and $.37 per
share in 1996. The dividend payout ratio was 30.2%,
28.8%, and 28.0% for 1998, 1997 and 1996,
respectively. Dividends declared per share in 1998
represented a 9.76% increase over 1997.
At December 31, 1998, the Company's common stock had
a book value of $12.62 per share compared to $11.45
in 1997. Beginning in 1994, book value has been
impacted by the net unrealized gains and losses on
investment securities available-for-sale. At
December 31, 1998, the net unrealized gain was
$593,000. At December 31, 1997, the Company had a
net unrealized gain of $567,000 and thus the net
impact on equity for the year was an increase in
book value of $26,000.
The Company began a stock repurchase plan in 1989,
which remains in effect and provides for the
repurchase of up to 900,000 shares. As of December
31, 1998, the Company had repurchased 790,740 shares
under the plan. No shares were repurchased during
1998.
The Company offers an Associate Incentive Plan under
which certain associates are eligible to earn shares
of CCBG stock based upon achieving established
performance goals. The Company issued 48,508 shares
in 1998 under this plan.
The Company also offers stock purchase plans to its
associates and directors. In 1998, 30,314 shares
were issued under these plans.
The Board of Directors approved a Dividend
Reinvestment and Optional Stock Purchase Plan for
the Company in December, 1996. Shares for this plan
were purchased in the open market. In 1997, 14,052
shares were issued under this plan. In 1998, no
shares were issued under this plan.
The Company offers a 401(k) Plan which enables
associates to defer a portion of their salary on a
pre-tax basis. The plan covers substantially all of
the Company associates who meet the minimum age
requirement. The Plan is designed to enable
participants to elect to have an amount withheld
from their compensation in any plan year and placed
in the 401(k) Plan trust account. Matching
contributions from the Company can be made up to 6%
of the participant's compensation. During 1998, no
contributions were made by the Company. The
participants may choose to invest their
contributions into seven investment funds, including
CCBG common stock.
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."
Year 2000 Compliance
Introduction
The YEAR 2000 issue creates challenges with respect
to the automated systems used by financial
institutions and other companies. Many programs and
systems are not able to recognize the year 2000, or
that the new millennium is a leap year. The problem
is not limited to computer systems. YEAR 2000
issues will potentially affect every system that has
an embedded microchip containing this flaw.
The YEAR 2000 challenge impacts the Company as many
of its transactions are date sensitive. The Company
also is affected by the ability of its vendors,
suppliers, customers and other third parties to be
YEAR 2000 compliant.
State of Readiness
The Company is committed to addressing the YEAR 2000
challenges in a prompt and responsible manner and
has dedicated significant resources to do so. An
assessment of the Company's automated systems and
third party operations was completed and a plan has
been implemented. The Company's YEAR 2000
compliance plan ("Y2K Plan") has nine phases. These
phases are (1) project management, (2) awareness,
(3) assessment, (4) testing and implementation, (5)
renovation, (6) customer awareness, (7) risk
assessment, (8) contingency planning and (9)
verification. The Company has substantially
completed phases one through four, six and seven,
although appropriate follow-up activities are
continuing to occur. The Company will continue the
testing and implementation phases of the Y2K Plan
throughout the remainder of the year.
1. Project Management. The Company has assigned
primary responsibility for the YEAR 2000 project to
the President of Capital City Services Company, a
wholly-owned subsidiary of Capital City Bank Group,
Inc. Also, the Company has hired an outside
consultant to assist in project administration.
Monthly updates are provided to senior management
and quarterly updates are provided to the Board of
Directors in order to assist them in overseeing the
Company's readiness.
2. Awareness. The Company has defined the YEAR
2000 issues and gained executive level support for
allocation of the resources necessary to renovate
and/or upgrade all systems. A YEAR 2000 team has
been established and meets regularly. The strategy
developed for YEAR 2000 compliance covers in-house
systems, service bureaus for outsourced systems,
vendors, auditors, customers and suppliers.
3. Assessment. The Company has completed this
phase of the Y2K plan. Information Technology
("IT") and non-IT systems have been assessed and
mission critical applications that could potentially
be affected have been identified. Mission critical
is defined as anything that may have a material
adverse effect on the Company if not YEAR 2000
compliant.
4. Testing and implementation. The Company's
testing of mission critical systems was
approximately 45% complete by December 31, 1998 and
will be completed by March 1999. Throughout 1999,
the Company will continue to test IT and non-IT
systems and applications already implemented for
YEAR 2000 compliance. As systems test successfully
for YEAR 2000 compliance, they will be certified as
compliant and accepted for implementation.
5. Renovation. The Company is upgrading and
replacing IT and non-IT systems
where appropriate and all such replacements should
be substantially complete by March 31, 1999.
6. Customer Awareness. The Company has
incorporated into its web site information regarding
YEAR 2000. Pamphlets and brochures have been
developed to increase customer awareness of the YEAR
2000 issues and to inform customers of the Company's
strategy for compliance.
7. Risk Assessment. Lending officers have been
trained on YEAR 2000 issues and have documented YEAR
2000 readiness of borrowers. Significant borrowers
were mailed a questionnaire and have been assigned a
YEAR 2000 risk rating by the Company. Appropriate
response to current and future credit requests will
take their YEAR 2000 status into consideration. A
similar assessment was conducted of deposit
customers relative to liquidity risk. Investment
and funding strategies have been planned to
ameliorate any potential risk in this area.
Continuation of these and additional activities are
planned for the remainder of 1999.
8. Contingency Planning. The Company is in the
process of completing a Business
Resumption/Contingency Plan. This plan will
incorporate procedures for core business processes,
in the event disruption of business occurs.
9. Verification. The verification process will
occur subsequent to the actual century date change.
This will involve verifying a successful transition
of all systems and applications, and all critical
dates and functions to the year 2000.
Estimated Costs to Address the Company's YEAR 2000
Issues
Costs directly related to YEAR 2000 issues are
estimated to be $750,000 from 1998 to 2000, of which
65% has been spent as of year end 1998.
Approximately 75% of the total spending represents
costs to modify existing systems. Costs incurred by
the Company prior to 1998 were immaterial. This
estimate assumes that the Company will not incur
significant YEAR 2000 related costs on behalf of its
vendors, suppliers, customers and other third
parties.
Risks of the Company's YEAR 2000 Issues
The YEAR 2000 presents certain risks to the Company
and its operations. Some risks are present because
the Company purchased technology applications from
other parties who face YEAR 2000 challenges and
additional risks that are inherent in the business
of banking. Management has identified the following
potential risks which could have a material adverse
effect on the Company's business.
1. The Company's subsidiary bank may experience a
liquidity problem if there are a significant amount
of deposits withdrawn by customers who have
uncertainties associated with the YEAR 2000. The
Company has implemented a contingency plan to ensure
there are appropriate levels of funding available.
2. The Company's operations could be materially
affected by the failure of third parties who provide
mission critical IT and non-IT systems. The Company
has identified its mission critical third parties
and will monitor their Y2K Plan progress. In
response to this concern, the Company has identified
and contacted the third parties who provide mission
critical applications. The Company has received
YEAR 2000 compliance assurances from third parties
who provide mission critical applications and will
continue to monitor and test their efforts for YEAR
2000 compliance.
3. The Company's ability to operate effectively in
the YEAR 2000 could be adversely affected by the
ability to communicate and to access utilities. The
Company is in the process of incorporating a
contingency plan for addressing this situation.
4. The Company's subsidiary bank lends significant
amounts to businesses and contractors in our market
area. If the businesses are adversely affected by
the YEAR 2000 issues, their ability to repay loans
could be impaired and increased credit risk could
affect the Company's financial performance. As part
of the Company's Y2K Plan, the Company has
identified its significant borrowers, and has
documented their YEAR 2000 readiness and risk to the
Company.
5. Sanctions could be imposed against the Company
if it does not meet deadlines or follow timetables
established by the federal and state governmental
agencies which regulate the Company and its
subsidiaries. The Company has incorporated the
regulatory guidelines for YEAR 2000 into its Y2K
Plan.
Contingency Plan
Contingency plans for YEAR 2000 related
interruptions are being developed and will include,
but not be limited to, the development of emergency
backup and recovery procedures, remediation of
existing systems parallel with installation of new
systems, replacing electronic applications with
manual processes, and identification of alternate
suppliers. All plans are expected to be completed
by June 30, 1999.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards
Board "FASB" issued Statement of Financial
Accounting Standards "SFAS" No. 133 "Accounting for
Derivative Instruments of Hedging Activities". The
statement establishes accounting and reporting
standards for derivative instruments (including
certain derivative instruments imbedded in other
contracts). The statement is effective for fiscal
years beginning after June 15, 1999. The adoption
of this standard is not expected to have a material
impact on reported results of operations of the
Company.
Effective February 1998, the Company adopted SFAS
No. 132 "Employers Disclosure about Pensions and
Other Post-Retirement Benefits". Statement 132
standardizes the disclosure requirements for pension
and other post-retirement benefits and requires
additional information on changes in the benefit
obligations and fair values of plan assets. The
Statement suggests combined formats for presentation
of pension and other post-retirement benefit
disclosures. The adoption of this standard did not
have a material impact on reported results of
operations of the Company.
Effective January 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income".
Statement 130 provides new accounting and reporting
standards for reporting and displaying comprehensive
income and its components in a full set of general-
purpose financial statements. The adoption of this
standard did not have a material impact on reported
results of operations of the Company.
In February 1997, the FASB issued SFAS No. 128,
"Earnings Per Share". SFAS 128 provides new
accounting and reporting standards for reporting
basic and diluted earnings per share. The adoption
of this standard on January 1, 1997 did not have a
material impact on the reported results of
operations of the Company.
In February 1997, the FASB issued SFAS No. 129,
"Disclosure of Information About Capital Structure".
SFAS 129 provides new accounting and reporting
standards for disclosing information about an
entity's capital structure. The adoption of this
standard on January 1, 1997 did not have a material
impact on the reported results of operation of the
Company.
In June 1996, the FASB issued SFAS No. 125
"Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS
125 provides new accounting and reporting standards
for sales, securitizations, and servicing of
receivables and other financial assets, for certain
secured borrowing and collateral transactions, and
for extinguishment of liabilities. The adoption of
this standard on January 1, 1997, did not have a
material impact on the financial condition or
results of operations of the Company.
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk
Overview
Market risk management arises from changes in
interest rates, exchange rates, commodity prices and
equity prices. The Company has risk management
policies to monitor and limit exposure to market
risk. Capital City Bank Group does not actively
participate in exchange rates, commodities or
equities. In asset and liability management
activities, policies are in place that are designed
to minimize structural interest rate risk.
Interest Rate Risk Management
The normal course of business activity exposes
Capital City Bank Group to interest rate risk.
Fluctuations in interest rate risk may result in
changes in the fair market value of the Company's
financial instruments, cash flows and net interest
income. Capital City Bank Group's asset/liability
management process manages the Company's interest
rate risk.
The financial assets and liabilities of the Company
are classified as other-than-trading. An analysis
of the other-than-trading financial components,
including the fair values, are presented in Table
13. This table presents the Company's consolidated
interest rate sensitivity position as of year-end
1998 based upon certain assumptions as set forth in
the Notes to the Table. The objective of interest
rate sensitivity analysis is to measure the impact
on the Company's net interest income due to
fluctuations in interest rates. The asset and
liability values presented in Table 13 may not
necessarily be indicative of the Company's interest
rate sensitivity over an extended period of time.
The Company is currently liability sensitive which
generally indicates that in a period of rising
interest rates the net interest margin will be
adversely impacted as the velocity and/or volume of
liabilities being repriced exceeds assets. However,
as general interest rates rise or fall, other
factors such as current market conditions and
competition may impact how the Company responds to
changing rates and thus impact the magnitude of
change in net interest income.
Table 13
FINANCIAL ASSETS AND LIABILITITES MARKET RISK ANALYSIS(1)
(Dollars in Thousands)
Other Than Trading Portfolio
December 31,
Fair
1999 2000 2001 2002 2003 Beyond Total Value
Loans
Fixed Rate $ 35,139 $ 23,921 $ 43,884 $ 43,473 $ 44,327 $ 71,308 $ 262,052 $ 265,541
Average Interest Rate 9.00% 10.12% 9.62% 9.17% 8.78% 7.35% 8.75%
Floating Rate(2) 388,384 43,862 21,462 14,384 13,117 20,406 501,615 508,294
Average Interest Rate 8.55% 7.86% 8.27% 8.63% 8.20% 8.09% 8.45%
Investment Securities(3)
Fixed Rate 95,346 49,936 25,100 36,660 18,458 115,413 340,913 340,913
Average Interest Rate 5.77% 5.56% 6.11% 6.63% 5.70% 5.71% 5.83%
Floating Rate - 10,770 729 - - 510 12,009 12,009
Average Interest Rate - 6.39% 5.71% - - 6.29% 6.34%
Other Earning Assets
Fixed Rates - - - - - - - -
Average Interest Rates - - - - - - -
Floating Rates 53,500 - - - - 10,151 63,651 63,651
Average Interest Rates 5.20% - - - - 4.15 5.03%
Total Financial Assets $572,369 $128,489 $ 91,175 $ 94,517 $ 75,902 $217,788 $1,180,240 $1,190,408
Average Interest Rates 7.80% 7.26% 8.31% 8.10% 7.93% 6.40% 7.55%
Deposits(4)
Fixed Rate Deposits $421,729 $ 71,290 $ 10,913 $ 5,902 $ 2,827 $ 177 $ 512,838 $515,197
Average Interest Rates 5.05% 5.43% 5.22% 5.26% 4.99% 5.93% 5.12%
Floating Rate Deposits 374,608 - - - - - 374,608 374,608
Average Interest Rates 2.31% - - - - - 2.31%
Other Interest Bearing
Liabilities
Fixed Rate Debt 541 559 382 394 407 6,046 8,329 8,918
Average Interest Rate 5.79% 5.79% 6.02% 6.02% 6.01% 6.01% 5.98%
Floating Rate Debt 33,199 - - - - - 33,199 35,549
Average Interest Rate 4.33% - - - - - 4.33%
Total Financial Liabilities $830,077 $ 71,849 $ 11,295 $ 6,296 $ 3,234 $ 6,223 $ 928,974 $ 934,272
Average interest Rate 3.79% 5.43% 5.25% 5.31% 5.12% 6.01% 3.96%
(1) Based upon expected cash flows, unless otherwise indicated.
(2) Based upon a combination of expected maturities and repricing opportunities.
(3) Based upon contractual maturity, except for callable and floating rate
securities, which are based on expected maturity and weighted average life, respectively.
(4) Savings, NOW and money market accounts can be repriced at any time,
therefore, all such balances are included as floating
rates deposits in 1999. Other time deposits balances are classified
according to maturity.
Item 8. Financial Statements and Supplementary Data
Table 14
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)(1)
1998 1997
Fourth Third Second First Fourth Third Second First
Summary of Operations:
Interest Income $ 20,477 $ 19,483 $ 19,933 $ 19,360 $ 19,008 $ 19,362 $ 18,865 $ 18,429
Interest Expense 8,235 7,686 7,831 7,590 7,302 7,402 7,360 7,076
Net Interest Income 12,242 11,797 12,102 11,770 11,706 11,960 11,505 11,353
Provision for
Loan Loss 558 558 558 486 437 449 446 456
Net interest Income
After Provision
for Loan Loss 11,684 11,239 11,544 11,284 11,269 11,511 11,059 10,897
Noninterest Income 6,062 5,059 5,644 4,986 4,895 4,394 4,852 4,450
Noninterest Expense 12,503 11,271 11,966 11,569 12,012 10,974 10,978 10,801
Income Before
Provision for
Income Taxes 5,243 5,027 5,222 4,701 4,152 4,931 4,933 4,546
Provision for
Income Taxes 1,871 1,759 1,775 1,600 1,299 1,664 1,657 1,504
Net Income $ 3,372 $ 3,268 $ 3,447 $ 3,101 $ 2,853 $ 3,267 $ 3,276 $ 3,042
Net Interest
Income (FTE) $ 12,637 $ 12,147 $ 12,445 $ 12,131 $ 12,059 $ 12,366 $ 11,929 $ 11,780
Per Common Share:
Net Income Basic $ .38 $ .37 $ .39 $ .35 $ .33 $ .37 $ .38 $ .35
Net Income Diluted .38 .37 .39 .35 .32 .37 .38 .35
Dividends Declared .12 .11 .11 .11 .11 .10 .10 .10
Book Value 12.62 12.38 12.08 11.77 11.45 11.23 10.91 10.55
Market Price(2):
High 31.00 33.13 32.67 32.67 27.33 23.50 21.50 21.33
Low 24.13 19.00 29.75 29.25 23.00 20.83 19.33 14.00
Close 27.63 29.13 31.38 31.67 27.00 23.17 20.83 20.17
Selected Average
Balances:
Total Assets $1,146,673 $1,052,301 $1,046,842 $1,038,806 $1,001,661 $1,003,170 $999,888 $999,837
Earning Assets 1,025,916 946,601 938,970 933,052 898,383 905,722 902,970 896,130
Loans, Net of Unearned 752,312 745,257 741,914 731,204 700,158 704,222 687,280 678,730
Total Deposits 968,301 875,938 872,087 862,875 828,239 838,732 842,847 839,959
Total Shareowners'
Equity 101,227 107,545 104,580 102,393 98,920 96,448 92,375 90,621
Common Equivalent
Shares 8,849 8,848 8,830 8,812 8,757 8,745 8,694 8,688
Ratios:
ROA 1.27% 1.23% 1.32% 1.21% 1.13% 1.29% 1.31% 1.23%
ROE 12.09% 12.06% 13.22% 12.28% 11.45% 13.44% 14.22% 13.61%
Net Interest
Margin (FTE) 4.89% 5.10% 5.31% 5.27% 5.33% 5.42% 5.30% 5.32%
(1) All share and per share data have been adjusted to reflect the 3-for-2 stock split effective
June 1, 1998.
(2) Prior to February 3, 1997, there was not an established trading market for
the common stock of Capital City Bank Group, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
49 Report of Independent Certified Public
Accountants
50 Consolidated Statements of Income
51 Consolidated Statements of Financial Condition
52 Consolidated Statements of Changes in Shareowners' Equity
53 Consolidated Statements of Cash Flows
54 Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareowners and Board of Directors of Capital
City Bank Group, Inc.
We have audited the accompanying consolidated
statements of financial condition of Capital City
Bank Group, Inc. (a Florida Corporation) and
subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income,
changes in shareowners' equity and cash flows for
each of the three years in the period ended December
31, 1998. These consolidated financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated 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
financial position of Capital City Bank Group, Inc.
and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash
flows for each of the three years in the period
ended December 31, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
February 11, 1999
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)(1)
For the Years Ended December 31,
1998 1997 1996
INTEREST INCOME
Interest and Fees on Loans $67,565 $64,001 $51,857
Investment Securities:
U.S. Treasury 1,736 1,943 3,089
U.S. Government Agencies/Corp. 3,189 4,666 5,227
States and Political Subdivisions 2,896 3,176 3,477
Other Securities 524 350 332
Funds Sold 3,343 1,528 2,189
Total Interest Income 79,253 75,664 66,171
INTEREST EXPENSE
Deposits 28,348 25,995 23,080
Short-Term Borrowings 1,903 1,974 1,651
Long-Term Debt 1,091 1,171 688
Total Interest Expense 31,342 29,140 25,419
Net Interest Income 47,911 46,524 40,752
Provision for Loan Losses 2,160 1,788 1,463
Net Interest Income After Provision for
Loan Losses 45,751 44,736 39,289
NONINTEREST INCOME
Service Charges on Deposit Accounts 8,006 8,140 7,670
Data Processing 3,523 3,160 2,969
Income from Fiduciary Activities 1,761 1,202 1,164
Securities Transactions 94 (6) 50
Other 8,367 6,095 4,463
Total Noninterest Income 21,751 18,591 16,316
NONINTEREST EXPENSE
Salaries and Employee Benefits 24,745 24,022 21,036
Occupancy, Net 3,350 3,074 2,681
Furniture and Equipment 5,037 4,787 4,266
Other 14,177 12,882 11,272
Total Noninterest Expense 47,309 44,765 39,255
Income Before Income Taxes 20,193 18,562 16,350
Income Taxes 7,005 6,124 4,990
NET INCOME $13,188 $12,438 $11,360
BASIC NET INCOME PER SHARE $ 1.49 $ 1.43 $ 1.32
DILUTED NET INCOME PER SHARE $ 1.49 $ 1.42 $ 1.31
Basic Average Common Shares Outstanding 8,837 8,722 8,599
Diluted Average Common Shares Outstanding 8,858 8,754 8,639
(1) All share and per share data have been adjusted to reflect the 3-for-2
stock split effective June 1, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)(1)
As of December 31,
1998 1997
ASSETS
Cash and Due From Banks $ 65,000 $ 61,270
Funds Sold 63,651 52,519
Investment Securities, Available-for-Sale 352,922 148,514
Loans, Net of Unearned Interest 763,667 697,726
Allowance for Loan Losses (8,459) (8,322)
Loans, Net 755,208 689,404
Premises and Equipment 35,026 31,613
Intangibles 28,763 7,703
Other Assets 28,835 18,650
Total Assets $1,329,405 $1,009,673
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 272,838 $ 191,797
Interest Bearing Deposits 887,446 643,015
Total Deposits 1,160,284 834,812
Short-Term Borrowings 25,199 46,114
Long-Term Debt 16,329 15,896
Other Liabilities 15,893 12,401
Total Liabilities 1,217,705 909,223
SHAREOWNERS' EQUITY
Preferred Stock; $.01 par value, 3,000,000 shares
authorized; no shares issued and outstanding - -
Common Stock, $.01 par value; 90,000,000 shares
authorized; 8,854,354 and 8,776,085 shares
issued and outstanding 88 87
Additional Paid-In Capital 8,524 6,508
Retained Earnings 102,495 93,288
Accumulated Other Comprehensive
Income, Net of Tax 593 567
Total Shareowners' Equity 111,700 100,450
Total Liabilities and
Shareowners' Equity $1,329,405 $1,009,673
(1) All share and per share data have been adjusted
to reflect the 3-for-2 stock split effective June 1, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except per Share Data)(1)
Accumulated Other
Additional Comprehensive
Common Paid-In Retained Income,
Stock Capital Earnings Net of Taxes Total
Balance, December 31, 1995 $ 87 $3,855 $ 76,248 $ 968 $ 81,158
Net Income 11,360 11,360
Cash Dividends($.37 per share) (3,182) (3,182)
Issuance of Common Stock 1,050 1,050
Net Change in Unrealized Gain (Loss)
On Marketable Securities (886) (886)
Balance, December 31, 1996 87 4,905 84,426 82 89,500
Net Income 12,438 12,438
Cash Dividends ($.41 per share) (3,576) (3,576)
Issuance of Common Stock 1,603 1,603
Net Change in Unrealized Gain (Loss)
On Marketable Securities 485 485
Balance, December 31, 1997 87 6,508 93,288 567 100,450
Net Income 13,188 13,188
Cash Dividends($.45 per share) (3,981) (3,981)
Issuance of Common Stock 1 2,016 2,017
Net Change in Unrealized Gain (Loss)
On Marketable Securities 26 26
Balance, December 31, 1998 $ 88 $8,524 $102,495 $ 593 $111,700
(1) All share and per share data have been adjusted to reflect the 3-for-2
stock split effective June 1, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended December 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 13,188 $ 12,438 $ 11,360
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 2,160 1,788 1,463
Depreciation 3,350 3,206 2,808
Net Securities Amortization 727 662 958
Amortization of Intangible Assets 1,191 856 570
(Gain) on Sale of Investment Securities (95) (275) (40)
Non-Cash Compensation 869 563 589
Deferred Income Taxes 137 213 1,043
Net (Increase) Decrease in Other Assets (10,761) (1,460) 1,385
Net Increase (Decrease) in Other Liabilities 2,982 1,226 4,198
Net Cash Provided by Operating Activities 13,748 19,217 24,334
CASH FLOWS FROM INVESTING ACTIVITES:
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 72,599 62,746 75,252
Purchase of Investment Securities
Available-for-Sale (107,597) (2,925) (54,356)
Net Increase in Loans (23,312) (27,175) (36,752)
Net Cash Received From (Used In) Acquisitions 36,726 - (16,167)
Purchase of Premises & Equipment (4,190) (1,921) (2,550)
Sales of Premises & Equipment 407 1,379 1,570
Net Cash Provided By (Used in)
Investing Activities (25,367) 32,104 (33,003)
CASH FLOWS FROM FINANCING ACTIVITES:
Net Increase (Decrease) in Deposits 49,795 (31,884) (37,988)
Net Increase (Decrease) in Short-Term Borrowings (20,914) 10,156 21,670
Borrowing from Long-Term Debt 5,823 - 17,180
Repayment of Long-Term Debt (5,390) (2,176) (1,090)
Dividends Paid (3,981) (3,576) (5,721)
Issuance of Common Stock 1,148 1,040 461
Net Cash Provided By (Used in)
Financing Activities 26,481 (26,438) (5,488)
Net Increase (Decrease) in Cash
and Cash Equivalents 14,862 24,883 (14,157)
Cash and Cash Equivalents at Beginning
of Year 113,789 88,906 103,063
Cash and Cash Equivalents at End
of Year $128,651 $113,789 $ 88,906
Supplemental Disclosures:
Interest Paid on Deposits $ 27,541 $ 27,844 $ 25,959
Interest Paid on Debt $ 2,995 $ 3,145 $ 2,339
Taxes Paid $ 7,287 $ 6,309 $ 3,722
Loans Transferred To Other Real Estate $ 1,930 $ 2,687 $ 2,192
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 and to
reflect a three-for-two stock split effective June
1, 1998. The principles which materially affect the
financial position, results of operations and cash
flows are summarized below.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent
assets and liabilities at the date of financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could vary from these estimates; however, in
the opinion of management, such variances would not
be material.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from
banks, interest-bearing deposits in other banks, 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
Investment securities available-for-sale are carried
at fair value and represent securities that are
available to meet liquidity and/or other needs of
the Company. Gains and losses are recognized and
reported separately in the Consolidated Statements
of Income upon realization or when impairment of
values is deemed to be other than temporary. Gains
or losses are recognized using the specific
identification method. Unrealized holding gains and
losses for securities available-for-sale are
excluded from the Consolidated Statements of Income
and reported net of taxes in the accumulated other
comprehensive income component of shareowners'
equity until realized.
Loans
Loans are stated at the principal amount
outstanding, net of unearned income. Interest
income is generally accrued based on outstanding
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
The reserve is that amount considered adequate to
absorb losses inherent in the portfolio based on
management's evaluations of the size and current
risk characteristics of the loan portfolio. Such
evaluations consider the balance of impaired loans
(which are defined as all nonperforming loans except
residential mortgages and groups of small
homogeneous loans), prior loan loss experience as
well as the impact of current economic conditions.
Specific provision for loan losses is made for
impaired loans based on a comparison of the recorded
carrying value in the loan to either the present
value of the loan's expected cash flow, the loan's
estimated market price or the estimated fair value
of the underlying collateral. Specific and general
provisions for loan losses are also made based on
other considerations.
Loans are placed on a 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 is in doubt.
Long-Lived Assets
Premises and equipment are stated at cost less
accumulated depreciation, computed on the straight-
line method over the 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.
Intangible assets consist primarily of goodwill and
core deposit assets that were recognized in
connection with the various acquisitions. All
intangible assets are being amortized on the
straight-line method over various periods ranging
from five to 25 years with the majority being
written off over an average life of approximately 15
years. The amortization of all intangible assets was
approximately $1.2 million in 1998, $856,000 in 1997
and $570,000 in 1996.
The Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights" on January 1, 1996 and
SFAS No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of
Liabilities" on January 1, 1997. The adoption of
SFAS Nos. 122 and 125 did not have a significant
impact on the financial condition or results of
operations of the Company.
Long-lived assets are evaluated regularly for other-
than-temporary impairment. If circumstances suggest
that their value may be impaired and the write-down
would be material, an assessment of recoverability
is performed prior to any write-down of the asset.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income".
Statement 130 provides new accounting and reporting
standards for reporting and displaying comprehensive
income and its components in a full set of general-
purpose financial statements. The adoption of this
standard did not have a material impact on reported
results of operations of the Company.
Income Taxes
The Company files consolidated federal and state
income tax returns. In general, the parent company
and its subsidiaries compute their tax provisions as
separate entities prior to recognition of any tax
expense benefits which may accrue from filing a
consolidated return.
Deferred income tax assets and liabilities result
from temporary differences between the tax bases of
assets and liabilities and their reported amounts in
the financial statements that will result in taxable
or deductible amounts in future years.
Note 2
ACQUISITIONS
On December 4 1998, the Company completed its
purchase and assumption transaction with First Union
National Bank ("First Union") and acquired eight of
First Union's branch offices which included
deposits. The Company paid a premium of
approximately $16.9 million, and assumed
approximately $219 million in deposits and acquired
certain real estate. The premium is being amortized
over ten years.
On January 31, 1998, the Company completed its
purchase and assumption transaction with First
Federal Savings & Loan Association of Lakeland,
Florida ("First Federal-Florida") and acquired five
of First Federal-Florida's offices which included
loans and deposits. The Company paid a deposit
premium of $3.6 million, or 6.33%, and assumed $55
million in deposits and purchased loans equal to $44
million. Four of the five offices were merged into
existing offices of Capital City Bank. The deposit
premium is being amortized over fifteen years.
Effective July 1, 1996, the Company acquired all of
the outstanding shares of First Financial Bancorp,
Inc.("First Financial"), parent company of First
Federal Bank, for $20 million in cash. At the time
of the acquisition, First Financial had
approximately $244 million in assets, $192 million
in loans, $205 million in deposits, $15 million in
equity and operated five offices in North Florida.
The acquisition was accounted for under the purchase
method of accounting. Accordingly, the Company's
consolidated results of operations only reflect
First Financial's operations for the periods
subsequent to June 30, 1996.
The purchase price of First Financial has been
allocated to the underlying assets and liabilities
based on the estimated fair values as of the
acquisition date. The Company recorded
approximately $7.5 million of intangibles, primarily
goodwill related to this acquisition. These assets
are being amortized over periods not exceeding 15
years for financial reporting purposes. A
significant portion of the amortization of the
intangible assets is not deductible for tax
purposes.
The following table sets forth the unaudited pro
forma summary results of operations for the years
ended December 31, 1996 and 1995, assuming the
acquisition of First Financial, including the
related debt financing, had been consummated as of
January 1, 1995. The pro forma results are not
necessarily indicative of the results that would
have been achieved had the acquisition occurred on
January 1, 1995, or that may occur in the future.
(Dollars in Thousands) 1996 1995
Net Interest Income $43,951 $39,457
Net Income 11,444 9,858
Net Income Per Share(1) 3.99 3.46
(1) All share and share data have been adjusted to
reflect the 3-for-2 stock split effective June 1, 1998.
Note 3
INVESTMENT SECURITIES
The amortized cost and related market value of investment securities available-
for-sale at December 31, were as follows:
1998
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
U.S. Treasury $ 28,606 $ 203 $ - $ 28,809
U.S. Government Agencies
and Corporations 66,954 139 309 66,784
States and Political
Subdivisions 91,644 1,083 24 92,703
Mortgage-Backed Securities 90,124 196 418 89,902
Other Securities 74,658 159 93 74,724
Total Investment
Securities $351,986 $1,780 $844 $352,922
1997
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value_
U.S. Treasury $ 24,345 $ 42 $ 4 $ 24,383
U.S. Government Agencies
and Corporations 32,036 55 60 32,031
States and Political
Subdivisions 63,661 593 10 64,244
Mortgage-Backed Securities 22,644 326 48 22,922
Other Securities 4,933 1 - 4,934
Total Investment
Securities $147,619 $1,017 $122 $148,514
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 as follows:
(Dollars in Thousands)
Total Gross Gross
Year Proceeds Realized Gains Realized Losses
1998 $36,291 $112 $18
1997 $32,014 $ 6 $12
1996 $40,864 $ 80 $30
Total proceeds include principal reductions in
mortgage-backed securities and proceeds from
securities which were called of $27,236,000,
$29,091,000, and $37,359,000 in 1998, 1997, and
1996, respectively.
As of December 31, 1998, the Company's investment
securities had the following maturity distribution
based on contractual maturities:
(Dollars in Thousands) Amortized Cost Market Value
Due in one year or less $ 78,844 $ 78,997
Due after one through five years 143,869 144,695
Due after five through ten years 35,043 35,222
Over ten years 4,106 4,106
Mortgage-Backed Securities 90,124 89,902
Total Investment Securities $351,986 $352,922
Expected maturities will differ from contractual
maturities because borrowers may have the right to
call or prepay obligations with or without call or
prepayment penalties.
Securities with an amortized cost of $66,934,000 and
$53,398,000 at December 31, 1998, and 1997,
respectively, were pledged to secure public deposits
and for other purposes.
Note 4
LOANS
At December 31, the composition of the Company's
loan portfolio was as follows:
(Dollars in Thousands) 1998 1997
Commercial, Financial and
Agricultural $ 67,463 $ 53,888
Real Estate - Construction 45,283 45,563
Real Estate - Mortgage 499,394 456,499
Consumer 151,527 141,776
Total Loans,
Net of Unearned Interest $763,667 $697,726
Nonaccruing loans amounted to $4,431,000 and
$1,403,000 at December 31, 1998 and 1997,
respectively. Restructured loans amounted to
$195,000 and $224,000 at December 31, 1998 and 1997,
respectively. If such nonaccruing and restructured
loans had been on a fully accruing basis, interest
income would have been $354,000 higher in 1998 and
$67,000 higher in 1997.
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:
(Dollars in Thousands) 1998 1997 1996
Balance, Beginning of Year $8,322 $8,179 $6,474
Acquired Reserves - - 1,769
Provision for Loan Losses 2,160 1,788 1,463
Recoveries on Loans
Previously Charged-Off 807 785 615
Loans Charged-Off (2,830) (2,430) (2,142)
Balance, End of Year $8,459 $8,322 $8,179
Selected information pertaining to impaired loans,
at December 31, is as follows:
1998 1997
Valuation Valuation
(Dollars in Thousands) Balance Allowance Balance Allowance
With Related Credit Allowance $ 2,433 $ 427 $ 21 $ 10
Without Related Credit Allowance 1,347 - 949 -
Average Recorded Investment for
the Period 4,985 - 2,894 -
The Company recognizes income on impaired loans
primarily on the cash basis. Any change in the
present value of expected cash flows is recognized
through the allowance for loan losses. For the
years ended December 31, 1998, 1997 and 1996, the
Company recognized $84,000, $140,000, and $26,000,
in interest income on impaired loans, of which
$31,000, $138,000, and $25,000 and was collected in
cash, respectively.
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and
equipment at December 31,
was as follows:
(Dollars in Thousands) 1998 1997
Land $ 8,958 $ 8,279
Buildings 30,431 24,042
Fixtures and Equipment 26,085 24,062
Total 65,474 56,383
Accumulated Depreciation (30,448) (24,770)
Premises and Equipment, Net $35,026 $31,613
Note 7
DEPOSITS
Interest bearing deposits, by category, as of
December 31, were as follows:
(Dollars in Thousands) 1998 1997
NOW Accounts $144,018 $113,163
Money Market Accounts 121,383 79,010
Savings Accounts 109,207 80,476
Other Time Deposits 512,838 370,366
Total $887,446 $643,015
Time deposits in denominations of $100,000 or more
totaled $103,791,000 and $51,646,000 at December 31,
1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of
other time deposits were as follows:
1999 $421,729
2000 71,290
2001 10,913
2002 5,902
2003 and thereafter 3,004
$512,838
The average balances maintained on deposit with the
Federal Reserve Bank for the years ended December
31, 1998 and 1997, were $26,552,000 and $27,007,000,
respectively.
Interest expense on deposits for the three years
ended December 31, was as follows:
(Dollars in Thousands) 1998 1997 1996
NOW Accounts $ 1,996 $ 1,765 $ 1,877
Money Market Accounts 2,468 2,407 2,523
Savings Accounts 1,952 1,718 1,813
Other Time Deposits 21,932 20,105 16,867
Total $28,348 $25,995 $23,080
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following at December 31:
Securities
Federal Sold Under Other
Funds Repurchase Short-Term
(Dollars in Thousands) Purchased Agreements Borrowings
1998
Balance $ 6,120 $17,042 $ 2,037
Maximum indebtedness at any month end $29,255 $18,770 $ 2,037
Daily average indebtedness outstanding 22,159 15,635 1,190
Average rate paid for the year 5.19% 4.43% 5.23%
Average rate paid on period-end borrowings 3.79% 6.15% 3.88%
1997
Balance $29,190 $15,432 $ 1,492
Maximum indebtedness at any month end 29,660 18,930 7,043
Daily average indebtedness outstanding 17,542 13,976 5,976
Average rate paid for the year 5.34% 5.17% 5.27%
Average rate paid on period-end borrowings 4.24% 4.88% 5.36%
Note 9
LONG-TERM DEBT
Long-term debt included the following at December 31:
(Dollars in Thousands) 1998 1997
Federal Home Loan Bank Note
Due on December 19, 2005, fixed rate of 6.04% $ 1,652 $ 1,762
Due on December 13, 2006, fixed rate of 6.20% 1,068 1,134
Due on March 14, 2013, fixed rate of 6.13% 975 -
Due on September 20, 2013, fixed rate of 5.64% 1,387 -
Due on December 17, 2018, fixed rate of 6.33% 2,000 -
Due on December 24, 2018, fixed rate of 5.34% 875 -
IBM Note Payable
Due on December 31, 2000, fixed rate of 3.77% 372 -
Revolving credit note,
Due on November 16, 2001, rates ranging from 6.23% - 7.22% 8,000 13,000
Total outstanding $16,329 $15,896
The contractual maturites of long-term debt for the
five years succeeding December 31, 1998, are as follows:
1999 $ 5,041
2000 3,559
2001 882
2002 394
2003 and thereafter 6,453
$16,329
The Federal Home Loan Bank advances are
collateralized with U.S. Treasury Securities and 1-4
family mortgages. Interest on the Federal Home Loan
Bank advances is paid on a monthly basis.
The IBM note payable is being paid over 36 monthly
installments which includes principal and interest.
Upon expiration of the revolving credit, the
outstanding balance may be converted to a term loan
and repaid over a period of seven years. The
Company, at its option, may select from various loan
rates including the following: Prime, LIBOR, or the
lender's cost of funds rate, plus or minus
increments thereof. The LIBOR or cost of funds
rates may be fixed for a period up to six months.
The revolving credit is unsecured, but upon
conversion is to be collateralized by common stock
of the subsidiary bank equal to 125% of the
principal balance of the loan. The existing loan
agreement places certain restrictions on the amount
of capital which must be maintained by the Company.
At December 31, 1998, the Company was in compliance
with all of the terms of the agreement and had $17
million available under a $25 million line of credit
facility.
Note 10
INCOME TAXES
The provision for income taxes reflected in the
statement of income is comprised of the following
components:
(Dollars in Thousands) 1998 1997 1996
Current:
Federal $6,090 $5,054 $3,494
State 778 857 453
Deferred:
Federal 121 182 891
State 16 31 152
Total $7,005 $6,124 $4,990
The net deferred tax asset and the temporary differences comprising
that balance at December 31, 1998 and 1997, are as follows:
(Dollars in Thousands) 1998 1997
Deferred Tax Asset attributable to:
Allowance for Loan Losses $2,594 $2,514
Stock Incentive Plan 491 764
Interest on Nonperforming Loans 144 -
Other 76 158
Total Deferred Tax Asset $3,305 $3,436
Deferred Tax Liability attributable to:
Employee Benefits $1,298 $1,055
Premises and Equipment 817 883
Deferred Loan Fees 336 392
Unrealized Gains on Investment Securities 343 328
Acquired Deposits 127 177
Securities Accretion 89 94
Other 84 143
Total Deferred Tax Liability 3,094 3,072
Net Deferred Tax Asset $ 212 $ 364
Income taxes provided were less than the tax expense
computed by applying the statutory federal income
tax rates to income. The primary differences are as
follows:
(Dollars in Thousands) 1998 1997 1996
Statutory Rate 35% 35% 35%
Computed Tax Expense $7,068 $6,497 $5,722
Increases (Decreases)
Resulting From:
Tax-Exempt Interest Income (942) (1,037) (1,100)
State Income Taxes,
Net of Federal Income
Tax Benefit 471 327 293
Other 408 337 75
Actual Tax Expense $7,005 $6,124 $4,990
Note 11
ASSOCIATE BENEFITS
The Company sponsors a noncontributory pension plan
covering substantially all of its associates.
Benefits under this plan generally are based on the
associate'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,
amounts recognized in the Company's consolidated
statements of financial condition, and major
assumptions used to determine these amounts.
(Dollars in Thousands) 1998 1997 1996
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year $21,159 $17,551 $14,565
Service Cost 1,678 1,517 1,241
Interest Cost 1,478 1,331 1,156
Plan Participants' Contributions - - -
Amendments - - -
Actuarial Loss 1,180 1,342 83
Remeasurement Loss 169 324 981
Acquisition - - 569
Benefits Paid (3,185) (671) (897)
Expenses Paid (268) (235) (147)
Benefit Obligation at End of Year $22,212 $21,159 $17,551
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $25,826 $20,041 $16,733
Actual Return on Plan Assets 5,382 4,918 2,718
Acquisition - - -
Employer Contribution 1,494 1,773 1,634
Plan Participants' Contributions - - -
Benefits Paid (3,185) (671) (897)
Expenses Paid (267) (235) (147)
Fair Value of Plan Assets at End of Year $29,248 $25,826 $20,041
Funded Status $ 7,036 $ 4,667 $ 2,490
Unrecognized Net Actuarial (Gain) Loss (2,919) (957) 852
Unrecognized Prior Service Cost (704) (940) (1,176)
Prepaid Benefit Cost $ 3,413 $ 2,770 $ 2,166
Weighted-Average Assumptions:
Discount Rate 6.50% 7.00% 7.50%
Expected Return on Plan Assets 8.25% 8.25% 8.25%
Rate of Compensation Increase 5.50% 5.50% 5.50%
Components of Net Periodic Benefit Costs:
Service Cost $ 1,678 $ 1,517 $ 1,241
Interest Cost 1,478 1,331 1,156
Expected Return on Plan Assets (2,103) (1,630) (1,307)
Amortization of Prior Service Cost 164 164 164
Transition Asset Recognition (236) (236) (236)
Recognized Net Actuarial (Gain) Loss (131) 24 130
Net Periodic Benefit Cost $ 850 $ 1,170 $ 1,148
The Company has a Supplemental Employee Retirement
Plan covering selected executives. Benefits under
this plan generally are based on the associate's
years of service and compensation during the years
immediately preceding retirement. The Company
recognized expense during 1998, 1997 and 1996 of
$193,000, $201,000 and $145,000 respectively, and a
minimum liability adjusted to $0, $19,148 and
$69,653 at December 31, 1998, 1997 and 1996
respectively.
The Company has an Associate Incentive Plan under
which shares of the Company's stock are issued as
incentive awards to selected participants. Seven
hundred fifty thousand shares of common stock are
reserved for issuance under this plan. The expense
recorded related to this plan was approximately
$735,000, $1,210,000, and $740,000 in 1998, 1997 and
1996, respectively. The Company issued 48,508
shares under the plan in 1998.
The Company has an Associate Stock Purchase Plan
under which associates may elect to make a monthly
contribution towards the purchase of Company stock
on a semi-annual basis. Four hundred fifty thousand
shares of common stock are reserved for issuance
under the Stock Purchase Plan. The Company issued
30,314 shares under the plan in 1998.
The Company has a Director Stock Purchase Plan. One
hundred fifty thousand shares have been reserved for
issuance. In 1998, the Company issued 14,052 shares
under this plan.
The Company has a 401(k) Plan which enables
associates to defer a portion of their salary on a
pre-tax basis. The plan covers substantially all
associates of the Company who meet minimum age
requirements. The plan is designed to enable
participants to elect to have an amount from 1% to
15% of their compensation withheld in any plan year
placed in the 401(k) Plan trust account. Matching
contributions from the Company can be made up to 6%
of the participant's compensation at the discretion
of the Company. During 1998, no contributions were
made by the Company. The participant may choose to
invest their contributions into seven investment
funds available to CCBG participants, including the
Company's common stock.
The Company has a Dividend Reinvestment and Optional
Stock Purchase Plan. Seven hundred fifty thousand
shares have been reserved for issuance. The Company
did not issue any shares under this plan in 1998.
Note 12
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
(Dollars in Thousands, Except Per share Data)(1)
1998 1997 1996
Numerator:
Net Income $ 13,188 $12,438 $11,360
Preferred Stock Dividends - - -
Numerator for Basic Earnings Per Share
Income to Common Shareowners' 13,188 12,438 11,360
Effect of Dilutive securities:
Preferred stock dividends - - -
Numerator for Diluted Earnings Per Share
Income Available to Common Shareowners'
After Assumed Conversions $ 13,188 $12,438 $11,360
Denominator:
Denominator for Basic Earnings Per Share
Weighted-Average Shares 8,836,828 8,721,551 8,599,197
Effects of Dilutive Securities:
Associate Stock Incentive Plan 21,237 32,736 39,314
Dilutive Potential Common Shares 21,237 32,736 39,314
Denominator for Diluted Earnings Per Share
Adjusted Weighted-Average Shares and
Assumed Conversions 8,858,065 8,754,287 8,638,511
Basic Earnings Per Share $ 1.49 $ $1.43 $ $1.32
Diluted Earnings per Share $ 1.49 $ $1.42 $ $1.31
(1) All share and per share data have been adjusted to reflect the 3-for-2
stock split effective June 1, 1998.
The Company adopted SFAS No. 128, "Earnings Per
Share" on December 31, 1997. The adoption of the
SFAS No. 128 did not have a significant impact on
the reported results of operation.
Note 13
CAPITAL
The Company is subject to various regulatory capital
requirements which involve quantitative measures of
the Company's assets, liabilities and certain off-
balance sheet items. The Company's capital amounts
and classification are subject to qualitative
judgments by the regulators about components, risk
weightings, and other factors. Quantitative
measures established by regulation to ensure capital
adequacy require that the Company maintain amounts
and ratios (set forth in the table below) of total
and Tier I capital to risk-weighed assets, and of
Tier I capital to average assets. As of December
31, 1998, the Company meets all capital adequacy
requirements to which it is subject.
A summary of actual, required, and capital levels
necessary to be considered well-capitalized for
Capital City Bank Group, Inc. ("CCBG, Inc.")
consolidated and its banking subsidiary, Capital
City Bank ("CCB") as of December 31, 1998 and
December 31, 1997 are shown below:
(Dollars in Thousands)
To Be Well-
Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1998:
Tier I Capital:
CCBG, Inc. $ 82,937 9.24% $35,915 4.00% $53,872 6.00%
CCB 87,355 9.73% 35,929 4.00 53,894 6.00
Total Capital:
CCBG, Inc. 91,396 10.18% 71,830 8.00 89,787 10.00
CCB 95,814 10.67% 71,859 8.00 89,823 10.00
Tier I Leverage:
CCBG, Inc. 7.23% 3.00 5.00
CCB 7.62% 3.00 5.00
As of December 31, 1997:
Tier I Capital:
CCBG, Inc. $ 92,748 13.86% $26,772 4.00% $40,157 6.00%
CCB 101,386 15.18% 26,707 4.00 40,078 6.00
Total Capital:
CCBG, Inc. 101,070 15.10% 53,543 8.00 66,929 10.00
CCB 109,708 16.43% 53,416 8.00 66,796 10.00
Tier I Leverage:
CCBG, Inc. 9.19% 3.00 5.00
CCB 10.05% 3.00 5.00
Note 14
DIVIDEND RESTRICTIONS
Substantially all the Company's retained earnings
are undistributed earnings of its banking
subsidiary, which are restricted by various
regulations administered by Federal and state bank
regulatory authorities.
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 1999, the bank
subsidiaries may declare dividends without
regulatory approval of $14.6 million plus an
additional amount equal to the net profits of the
Company's subsidiary banks for 1999 up to the date
of any such dividend declaration.
Note 15
RELATED PARTY INFORMATION
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 $340,000, $295,000 and $347,000 during
1998, 1997, and 1996, 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 $65,000, to be adjusted
for inflation in future years.
At December 31, 1998 and 1997, certain officers and
directors were indebted to the Company's bank
subsidiaries in the aggregate amount of $8,831,000
and $13,556,000, respectively. During 1998,
$9,554,000 in new loans were made and repayments
totaled $14,279,000. These loans were made on
similar terms as loans to other individuals of
comparable creditworthiness.
Note 16
SUPPLEMENTARY INFORMATION
Components of noninterest income in excess of 1% of
total interest income and noninterest expense in
excess of 1% of total interest income and
noninterest income, which are not disclosed
separately elsewhere, are presented below for each
of the respective years.
(Dollars in Thousands) 1998 1997 1996
Noninterest Income:
Merchant Fee Income $1,182 $1,123 $ 976
Interchange Commission Fees 1,004 621* 639*
Gains on the Sale of
Real Estate Loans 1,510 803 194*
Noninterest Expense:
Associate Insurance 1,326 1,250 1,163
Payroll Taxes 1,386 1,253 1,112
Maintenance and Repairs 2,652 2,179 2,227
Professional Fees 1,224 1,216 1,172
Printing & Supplies 1,654 1,511 1,547
Commission/Service Fees 1,336 1,078 819*
Telephone 1,114 899* 813*
*Less than 1% of the appropriate threshold.
Note 17
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'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, 1998, the amounts
associated with the Company's off-balance-sheet
obligations were as follows:
(Dollars in Thousands) Amount
Commitments to Extend Credit(1) $243,162
Standby Letters of Credit $ 1,986
(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 Company 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.
Note 18
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 Deposits
with Other Banks, Federal Funds Sold, Federal Funds
Purchased and Securities Sold Under Repurchase
Agreements, and 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 - The carrying value of the Company's
long-term debt approximates fair value as the
current rate approximates the market rate.
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
counterparts. 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,
1998 1997
Estimated Estimated
Carrying Fair Carrying Fair
(Dollars in Thousands) Value Value Value Value
Financial Assets:
Loans, Net of Allowance
for Loan Losses $ 755,208 $ 773,835 $689,404 $696,081
Financial Liabilities:
Deposits 1,160,284 1,162,643 834,812 836,996
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 19
PARENT COMPANY FINANCIAL INFORMATION
The operating results of the parent company for the three years ended
December 31, are shown below:
Parent Company Statements of Income
(Dollars in Thousands) 1998 1997 1996
OPERATING INCOME
Income Received from Subsidiary Banks:
Dividends $ 6,825 $ 6,600 $ 9,600
Overhead Fees 3,975 3,845 3,106
Total Operating Income 10,800 10,445 12,706
OPERATING EXPENSE
Salaries and Employee Benefits 2,171 2,445 2,353
Interest on Debt 832 988 523
Professional Fees 527 617 332
Advertising 709 597 430
Restructuring Charge - 338 -
Legal Fees 115 126 85
Other 619 515 471
Total Operating Expense 4,973 5,626 4,194
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Banks 5,827 4,819 8,512
Income Tax Benefit (376) (675) (380)
Income Before Equity in Undistributed
Earnings of Subsidiary Banks 6,203 5,494 8,892
Equity in Undistributed Earnings
of Subsidiary Banks 6,985 6,944 2,468
Net Income $13,188 $12,438 $11,360
The following are condensed statements of financial condition of the parent
company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands) 1998 1997
ASSETS
Cash and Due From Group Banks $ 4,217 $ 4,167
Investment in Subsidiary Bank 116,118 109,799
Other Assets 480 967
Total Assets $120,815 $114,933
LIABILITIES
Long-Term Debt $ 8,000 $ 13,000
Other Liabilities 1,115 1,483
Total Liabilities 9,115 14,483
SHAREOWNERS' EQUITY
Preferred Stock; $.01 par value, 3,000,000 shares
authorized; no shares issued and outstanding - -
Common Stock, $.01 par value; 90,000,000
shares authorized; 8,854,354 and 8,776,085
shares issued and outstanding 88 87
Additional Paid-in Capital 8,524 6,508
Retained Earnings 102,495 93,288
Accumulated Other Comprehensive
Income, Net of Tax 593 567
Total Shareowners' Equity 111,700 100,450
Total Liabilities and Shareowners' Equity $120,815 $114,933
The cash flows for the parent company for the three years ended December 31,
were as follows:
Parent Company Statements of Cash Flows
1998 1997 1996
Cash Flows From Operating Activities:
Net Income $13,188 $12,438 $11,360
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in undistributed
earnings of Subsidiary Bank (6,985) (6,944) (2,468)
Non-Cash Compensation 868 563 589
Amortization of Goodwill 25 25 29
(Increase) Decrease in Other Assets 1,155 (295) (477)
Net Increase in Other Liabilities (368) 294 137
Net Cash Provided by Operating Activities 7,883 6,081 9,170
Cash From Financing Activities:
Borrowings of Long-Term Debt - - 15,000
Acquisition of First Financial - - (20,666)
Repayment of Long-Term Debt (5,000) (2,000) -
Payment of Dividends (3,981) (3,576) (5,721)
Issuance of Common Stock, Net 1,148 1,040 461
Net Cash Used in Financing Activities (7,833) (4,536) (10,926)
Net Increase in Cash 50 1,545 (1,756)
Cash at Beginning of Period 4,167 2,622 4,378
Cash at End of Period $ 4,217 $4,167 $ 2,622
Note 20
CORPORATE REORGANIZATION
On October 18, 1997, the Company consolidated its
three remaining bank affiliates, Levy County State
Bank, Farmers & Merchants Bank of Trenton and
Branford State Bank into Capital City Bank. The
consolidation enabled the Company to present a
consistent image to a broader market and to better
serve its clients through the use of a common name
with multiple, convenient locations. The Company's
operating results for 1997 included pre-tax charges
of $655,000, which were attributable to the
corporate reorganization.
Note 21
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standard
Board issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that certain transactions
and other economic events that bypass the income
statement must be displayed as other comprehensive
income. The Company's comprehensive income consists
of net income and changes in unrealized gains
(losses) on securities available-for-sale, net of
income taxes.
Comprehensive income for 1998, 1997 and 1996 was calculated as follows:
(Dollars in Thousands) 1998 1997 1996
Unrealized Gains and Losses (Net)
Recognized in Other Comprehensive Income:
Before Income Tax (Benefit) $ 40 $ 743 $(1,357)
Income Tax (Benefit) (14) (258) (471)
Net of Income Tax (Benefit) 26 485 (886)
Amounts Reported in Net Income:
Gain (Loss) in Sale of Securities 94 (6) 50
Net Amortization (Accretion) 727 662 958
Reclassification Adjustment 821 656 1,008
Income Tax Expense 285 228 350
Reclassification Adjustment, Net of Tax 94 (6) 50
Amounts Reported in Other Comprehensive Income:
Unrealized Gain (Loss) Arising During Period,
Net of Tax 562 913 (228)
Reclassification Adjustment, Net of Tax (536) (428) (658)
Net Unrealized Gains (Loss) Recognized in
Other Comprehensive Income 26 485 (886)
Net Income 13,188 12,438 11,360
Total Comprehensive Income $13,214 $12,923 $10,474
Note 22
SUBSEQUENT EVENT
On February 12, 1999, the Company entered into a definitive
agreement to acquire Grady Holding Company and its subsidiary,
First National Bank of Grady County in Cairo, Georgia. First
National Bank of Grady County is a $114 million asset
institution with offices in Cairo and Whigham, Georgia.
The company will issue 21.50 shares for each of the 60,910 shares of
First National Bank of Grady County. The closing is scheduled
for the second quarter of 1999 and the transaction will be
accounted for as a pooling-of-interests.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.
Not applicable.
Part III
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 2, 1999, to be filed on or about April 2, 1999.
Item 11. Executive Compensation
Incorporated herein by refernce to the section entitled
"Executive Officers, Compensation and Other Information" and the
subsection entitled "Director Compensation" under the section
entitled "Meetings and Committees of the Board of Directors" in
the Registrant's Proxy Statement dated April 2, 1999, to be
filed on or about April 2, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the section entitled "Shareownership
of Management and Prinicpal Shareowners" in the Registrant's Proxy
dated April 2, 1999, to be filed on or about April 2, 1999.
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 "Meetings and Committees of the Board of Directors"
and the subsection entitled "Transactions With Management and
Related Parties" under the section entitled "Executive Officers,
Compensation and Other Information" in the Registrant's Proxy
Statement dated April 2, 1999, to be filed on or about April 2, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
14(a)(1) List of Financial Statements
Report of Independent Certified Public Accountants
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1998
Consolidated Statements of Financial Condition for the years ended
December 31, 1998 and 1997
Consolidated Statements of Changes in Shareowners' Equity for
each of the three years in the period ended December 31, 1998
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1998
Notes to Consolidated Financial Statements
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.
14(a)(3) Exhibits
2(a) Agreement and Plan of Merger, dated as of December 10, 1995, by and
among Capital City Bank Group, Inc.; a Florida corporation to be formed
as a direct wholly-owned subsidiary of the Company; and First Financial
Bancorp, Inc., is incorporated herein by reference to the Registrant's
Form 10-K dated March 29, 1996.
2(b) Merger Agreement and Plan of Merger, dated October 18, 1997,
by and among Capital City Bank, Levy County State Bank, Farmers & Merchant
Bank of Trenton and Branford State Bank, is incorporated herein by
refernce to the Registrant's Form 10-K dated March 27, 1998.
3(a) Articles of Incorporation, as amended, of Capital City Bank
Group, Inc., are incorporated herein by reference to Exhibit B of
the Registrant's 1996 Proxy Statement dated April 12, 1996.
3(b) By-Laws, as amended, of Capital City Bank Group, Inc., are
incorporated herein by reference to Exhibit 3(b) of the Company's
Form 10-Q fro the period ended September 30, 1997 (File No. 0-13358).
10(b) Promissory Note and Pledge and Security Agreement evidencing
a line of credit by and between Registrant and SunTrust, dated
November 18, 1995, is incorporated herein by refernce to the Registrant's
Form 10-K/A dated April 9, 1996.
10(c) Capital City Bank Group, Inc. 1996 Associate Incentive
Plan, as amended, is incorporated herein by reference to Exhibit 10
of the Registrant's Form S-8 Registration Statement, as filed
with the Commission on December 23, 1996 (File No. 333-18543).
10(d) Capital City Bank Group, Inc. 1996 Director Stock Purchase
Plan, as amended, is incorporated by reference to the Registrant's Form S-8
filed on December 23, 1996 (Registration No. 333-18557).
10(e) Capital City Bank Group, Inc. 1996 Dividend Reinvestment
and Optional Stock Purchase Plan is incorporated herein by
reference to the Registrant's Form S-3 filed on January 30, 1997
(Registration No. 333-20683).
21 A listing of Capital City Bank Group's subsidiaries is filed herewith.
23(a) Consent of Independent Certified Public Accountants
27 Financial Data Schedule
14(b) REPORTS ON FORM 8-K
On March 26, 1999, the Company filed a Form 8-K to report on February
11, 1999, the Company entered into a definitive agreement to
acquire Grady Holding Company and its subsidiary, First National
Bank of Grady County headquarted in Cairo, Georgia. First National
Bank of Grady County is a $114 million asset institution with offices
in Cairo and Whigham, Georgia. The Company will issue 21.50 shares
for each of the 60,190 shares of First National Bank of Grady County.
The closing is scheduled for the second quarter of 1999 and the
transaction will be accounted for as a pooling-of-interests.
On December 21, 1998, the Company filed a Form 8-K to report on
December 4, 1998, it completed its purchase of eight First Union
National Bank offices and assumed approximately $219 million in deposits.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 25, 1999 by the following persons
in the capacities indicated.
/s/ William G. Smith, Jr
William G. Smith, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive 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/ Lina S. Knox
Lina S. Knox
/s/ Payne H. Midyette, Jr.
Payne H. Midyette, Jr.
/s/ Godfrey Smith
Godfrey Smith
/s/ William G. Smith
William G. Smith, Jr.