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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, 1999
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, 2000, there were issued and outstanding 10,197,712
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, 2000, was $91.3 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 1999 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 of Security Holders 16
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareowner 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 44
Item 8. Financial Statements and Supplementary Data 46
Item 9. Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure 72
PART III
Item 10. Directors and Executive Officers of the Registrant 72
Item 11. Executive Compensation 72
Item 12. Security Ownership of Certain Beneficial Owners and
Management 72
Item 13. Certain Relationships and Related Transactions 72
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 72
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, 1999, the Company had
consolidated total assets of $1.4 billion and shareowners' equity
of $132.2 million. Its principal asset is the capital stock of
Capital City Bank ("CCB") and First National Bank of Grady County
("FNBGC") (collectively the "Banks"). CCB accounted for approximately
92% of the consolidated assets at December 31, 1999 and approximately
93% of consolidated net income of the Company for the year ended
December 31, 1999. In addition to its banking subsidiaries, the
Company has five 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, and
First Insurance Agency of Grady County, which is a wholly-owned
subsidiary of First National Bank of Grady County.
On May 7, 1999, the Company completed its acquisition of Grady
Holding Company and its subsidiary First National Bank of Grady County.
FNBGC is a $114 million asset institution with offices
in Cairo and Whigham, Georgia. The Company issued 21.50 shares for
each if the 60,910 shares of FNBGC. The consolidated financial
statements of the Company give effect to the merger which has been
accounted for as a pooling-of-interests. Accordingly, financial
statements for the prior periods have been restated to reflect the
results of operations of these entities on a combined basis from
the earliest period presented.
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 $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 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.
Dividends and management fees received from the Banks are the
Company's only source of income. Dividend payments by the
subsidiaries to CCBG depend on the capitalization, earnings and
projected growth of the subsidiaries, 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 678 (full-time equivalent) associates
at March 1, 2000. Page 18 contains other financial and
statistical information about the Company.
Banking Services
CCB is a Florida chartered bank and FNBGC is a national bank.
The Banks are full service banks, 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, asset management 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 Banks are members of the "Star" 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, 2000, 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 $307 million as of December 31,
1999, with total assets under administration exceeding $360
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 INVEST
Financial Corporation, member NASD and SIPC. Non-deposit
investment and insurance products are: not FDIC insured; not
deposits, obligations, or guaranteed by any bank, and; are
subject to investment risk, including the possible loss of
prinicpal amount invested. Capital City Securities, Inc.'s
brokers are licensed through INVEST Financial Corporation, and
offer a full line of retail securities products, including U.S.
Government bonds, tax-free municipal bonds, stocks, mutual funds,
unit investment trusts, annuities, life insurance and long-term
health care. Capital City Bank Group and its subsidiaries are
not affiliated with INVEST Financial Corporation.
Competition
The banking business 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 eightteen counties in Florida and one
county in Georgia. In these markets, the Banks compete
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 $456
million, or 37.9%, of the Company's consolidated deposits at
December 31, 1999.
The following table depicts CCBG's market share percentage within
each respective county, based on total commercial bank deposits
within the county.
Market Share
as of September 30(1)(2)
1999 1998 1997
----------------------------
Capital City Bank:
Bradford County(4) 46.1% 53.3% --
Citrus County 4.2% 4.3% 4.4%
Clay County(4) 4.6% 5.8% --
Dixie County(3) 15.2% 15.7% --
Gadsden County 29.0% 28.0% 29.8%
Gilchrist County 50.0% 50.5% 45.1%
Gulf County(4) 39.8% 48.6% --
Hernando County 2.2% 2.0% 2.0%
Jefferson County 24.7% 27.1% 28.2%
Leon County 21.6% 23.4% 22.8%
Levy County 37.4% 37.7% 25.6%
Madison County 21.5% 20.6% 22.6%
Pasco County 1.6% 1.2% 1.3%
Putnam County(4) 24.2% 30.3% --
Suwannee County 20.5% 18.7% 16.6%
Taylor County 33.6% 32.7% 36.0%
Washington County(4) 23.9% 30.0% --
First National Bank of Grady County
Grady County(5) 44.5% 49.0% 42.5%
(1) Obtained from the September 30 Office Level Report published
by the Florida Bankers Association for each year.
(2) Does not include Alachua county where Capital City Bank
maintains a residential mortgage lending office.
(3) Entered the market in January 1998.
(4) Entered the market in December 1998.
(5) Obtained from the June 30 FDIC/OTS Summary of Deposits Report.
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, 1999.
Number of Number of Commercial
County Commercial Banks Bank Offices
- ---------------------------------------------------------------
Florida:
Bradford 3 3
Citrus 10 37
Clay 8 24
Dixie 3 4
Gadsden 4 9
Gilchrist 2 4
Gulf 2 4
Hernando 10 30
Jefferson 2 2
Leon 13 61
Levy 4 13
Madison 5 5
Pasco 17 84
Putnam 5 11
Suwannee 4 5
Taylor 3 4
Washington 3 3
Georgia:
Grady(1) 5 9
(1) Obtained from the June 30 FDIC/OTS Summary of Deposits Report.
REGULATORY CONSIDERATIONS
The Company and the Banks 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 shareowners. 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 Banks. 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.
Recent Legislation
On November 12, 1999, President Clinton signed into law the Gramm-
Leach-Bliley Act of 1999 (the "Financial Services Modernization
Act"). The Financial Services Modernization Act repeals the two
affiliation provisions of the Glass-Steagall Act: Section 20,
which restricted the affiliation of Federal Reserve Member Banks
with firms "engaged principally" in specified securities
activities; and Section 32, which restricted officer, director,
or associate interlocks between a member bank and any company or
person "primarily engaged" in specified securities activities.
In addition, the Financial Services Modernization Act contains
provisions that expressly preempt most state laws restricting
state banks from owning or acquiring interests in financial
affiliates, such as insurance companies. The general effect of
the law is to establish a comprehensive framework to permit
affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers. A bank
holding company may now engage in a full range of financial
activities by electing to become a "Financial Holding Company."
"Financial activities" are broadly defined to include not only
banking, insurance, and securities activities, but also merchant
banking and additional activities that the Board of Governors of
the Federal Reserve System ("FRB"), in consultation with the
Secretary of the Treasury, determines to be financial in nature,
incidental to such financial activities, or complementary
activities that do not pose a substantial risk to the safety and
soundness of depository institutions or the financial system
generally.
The Financial Services Modernization Act also permits national
banks to engage in expanded activities through the formation of
financial subsidiaries. A national bank may have a subsidiary
engaged in any activity authorized for national banks directly or
any financial activity, except for insurance underwriting,
insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a
subsidiary of a Financial Holding Company. Financial activities
include all activities permitted under new sections of the Bank
Holding Company Act of 1956, as amended ("BHCA"), or permitted by regulation.
The Company and the Banks do not believe that the Financial
Services Modernization Act will have a material adverse effect on
the operations of the Company and the Banks in the near-term.
However, to the extent that the act permits banks, securities
firms, and insurance companies to affiliate, the financial
services industry may experience further consolidation. The
Financial Services Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless,
this act may have the result of increasing the amount of
competition that the Company and the Banks face from larger
institutions and other types of companies offering financial
products, many of which may have substantially more financial
resources than the Company and the Banks.
The Company
General
As a result of its ownership of the Banks, the Company is
registered as a bank holding company under BHCA, and is regulated by the
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 Company has not elected to become a financial
holding company under the Financial Services Modernization Act.
If the Company elects to become a financial holding company in
the future, many of the restrictions and notice requirements
mentioned below would not apply.
Bank Holding Companies
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.
Under Florida law, a person proposing to directly or indirectly
acquire control of a Florida bank must first obtain permission
from the State of Florida. Florida statutes define "control" as
either (a) indirectly or directly owning, controlling or having
power to vote 25 percent or more of the voting securities of a
bank; (b) controlling the election of a majority of directors of
a bank; (c) owning, controlling or having power to vote 10
percent or more of the voting securities as well as directly or
indirectly exercising a controlling influence over management or
policies of a bank; or (d) as determined by the Florida
Department of Banking and Finance (the "FDBF"). These
requirements will effect the Company because CCB is
chartered under Florida law and changes in control of the Company
are indirect changes in control of CCB. Similar change in control
provisions apply to FNBGC under Federal law.
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 either
Bank, and such loans may be repaid from dividends paid from the
bank to the Company. The ability of the bank to pay
dividends will be subject to regulatory restrictions as described
below under "Dividends". The Company is also able to
raise capital for contributions to the Banks 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 Banks and to commit
resources to support the Banks 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 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 I
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.
CAPITAL CITY BANK
CCB 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. CCB 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 CCB are insured by the FDIC which
gives the FDIC certain enforcement powers over CCB. Various
consumer laws and regulations also affect the operations of
CCB, 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 CCB's
operations including, without limitation, making of loans, the
issuance of securities, the conduct of CCB'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,
CCB 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 CCB's
customers.
FIRST NATIONAL BANK OF GRADY COUNTY
FNBGC is a national bank which is chartered by the Office of the
Comptroller of the Currency ("OCC") and operates in Sounthern
Georgia. FNBGC is subject to supervision, regulation and
examination by the OCC, which monitors all areas of the operations
of FNBGC, including reserves, loans, mortgages, issuances of
securities, payment of dividends, establishment of branches,
capital adequacy, and compliance with laws. FNBGC is a member
of the FDIC and, as such, its deposits are insured by the FDIC
to the maximum extent permitted by law.
RESERVES
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
CCB and FNBGC are 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 CCB and the OCC may restrict the ability of
FNBGC 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 CCB and FNBGC 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 Banks' 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 Banks and make
their own periodic examinations of the Banks. 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.
TRANSACTIONS WITH AFFILIATES
The authority of the Banks 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 Banks, 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 and national 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 Banks, a bank or savings association subsidiary
of the Banks, any persons who own, control or vote more than 25%
of any class of stock of the Banks or the Company and any persons
who the Board of Directors determines exercises a controlling
influence over the management of the Banks or the Company. The
term "affiliate" also includes any company controlled by
controlling shareowners of the Banks or the Company and any
company sponsored and advised on a contractual basis by the Banks
or any subsidiary or affiliate of the Banks. Such transactions
between the Banks and their respective affiliates are subject to
certain requirements and limitations, including limitations on
the amounts of such Covered Transactions 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 Banks'
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 Banks to affiliates, must be
on terms and conditions 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 Banks
generally may not purchase securities issued or underwritten
by affiliates.
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
Shareowners") and their related interests (i.e., any company
controlled by such executive officer, director, or Principal
Shareowners), or to any political or campaign committee the funds
or services of which will benefit such executive officers,
directors, or Principal Shareowners or which is controlled by
such executive officers, directors or Principal Shareowners, 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 banks unimpaired capital and
unimpaired surplus. Section 22(g) identifies limited
circumstances in which the Banks are 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 institution'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 risk-based, capital adequacy guidelines for
bank holding companies and their subsidiary state-chartered banks
that are members of the Federal Reserve System. The OCC has also
adopted substantially similar risk-based, capital adequacy guidelines
for national banks. 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 I
Capital. Tier I Capital, which includes common shareowners'
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 appropriate
regulator (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 bank regulators
also continue 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 I 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 Banks' regulators possess the discretionary
authority to require higher ratios with respect to bank holding
companies and state-member banks.
The Company and the Banks currently exceed the requirements
contained in the applicable regulations, policies and directives
pertaining to capital adequacy, and management of the Company and
the Banks 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 adequately capitalized and managed bank holding companies
are permitted to acquire banks in any state. State laws
prohibiting interstate banking or discriminating against out-of-
state banks are preempted. 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 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 responded to the enactment of the Interstate Banking Act
by enacting the Florida Interstate Branching Act (the "Florida
Branching Act"). The purpose of the Florida Branching Act was to
permit interstate branching 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.
FUTURE LEGISLATIVE DEVELOPMENTS
Certain portions of the Financial Services Modernization Act
dealing with customer privacy will go into effect in 2000. These
measures will change the ways in which financial institutions may
transmit nonpublic personal information about their customers to
affiliates of the institution as well as to third parties. Also,
the Financial Services Modernization Act will preempt many state
laws regarding the activities of state-chartered banks. It is
likely that the Florida legislature will enact new statutes and
rules conforming Florida law to the Financial Services
Modernization Act. It cannot be predicted whether or in what
form these proposals or any others will be adopted or the extent
to which the business of the Company may be affected.
EFFECT OF GOVERNMENTAL MONETARY POLICIES
The commercial banking business in which the Banks engage 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 Banks 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 L.L.P. in which several
directors and officers have an interest. Lease payments during
1999 totaled approximately $81,000.
As of March 1, 2000 the Company had forty-eight banking
locations. Of the forty-eight locations, the Company leases
either the land or buildings (or both) at six locations and owns
the land and buildings at the remaining forty-two.
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 1,362 shareowners of record at March 1, 2000.
1999 (1) 1998 (1)
------------------------------ -------------------------------
Fourth Third Second First Fourth Third Second First
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------------------------------ -------------------------------
Common stock price:
High $25.00 $31.00 $25.00 $27.63 $31.00 $33.13 $32.67 $32.67
Low 20.19 21.00 20.25 22.00 24.13 19.00 29.75 29.25
Close 21.50 22.75 25.00 23.31 27.63 29.13 31.38 31.67
Cash dividends
declared per share(2) .1325 .12 .12 .18 .12 .11 .11 .11
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) 1999 first quarter dividend amount includes a special one-time
distribution paid to Grady Holding Company Shareowners of
approximately $563,000.
Selected Financial & Other Data (Dollars in Thousands, Except Per Share Data)(1)
For the Years Ended December 31,
1999 1998 1997 1996 1995
---------------------------------------------------------
Interest Income $ 99,685 $ 89,010 $ 84,981 $ 74,406 $ 62,117
Net Interest Income 58,438 53,762 52,293 45,846 38,763
Provision for Loan Losses 2,440 2,439 2,328 1,863 556
Net Income 15,252 15,294 14,401 13,219 11,181
Per Common Share:
Basic Net Income 1.50 1.51 1.44 1.33 1.13
Diluted Net Income 1.50 1.50 1.43 1.33 1.13
Cash Dividends Declared(2) .5525 .45 .37 .34 .29
Book Value 12.97 12.69 11.54 10.39 9.42
Based on Net Income:
Return on Average Assets 1.06 1.30 1.30 1.31 1.31
Return on Average Equity 11.64 12.37 13.10 13.52 12.72
Dividend Pay-out Ratio(2) 32.86 28.20 26.10 25.45 25.38
Averages for the Year:
Loans, Net of Unearned
Interest $ 884,323 $ 824,197 $ 770,416 $ 631,437 $493,654
Earning Assets 1,291,262 1,065,677 1,000,466 908,137 764,259
Assets 1,444,069 1,180,785 1,108,088 1,012,480 855,894
Deposits 1,237,405 985,119 924,891 856,540 735,966
Long-Term Debt 17,274 18,041 19,412 10,895 71
Shareowners' Equity 131,058 123,647 109,948 97,738 87,878
Year-End Balances:
Loans, Net of Unearned
Interest $ 928,486 $ 844,217 $ 775,451 $ 745,126 $510,168
Earning Assets 1,263,296 1,288,439 998,401 996,827 799,243
Assets 1,430,520 1,443,675 1,116,651 1,123,221 905,856
Deposits 1,202,658 1,253,553 922,841 952,744 778,161
Long-Term Debt 14,258 18,746 18,106 18,847 1,982
Shareowners' Equity 132,216 128,862 115,807 103,009 93,058
Equity to Assets Ratio 9.24% 8.93% 10.37% 9.17% 10.27%
Other Data:
Basic Average Shares
Outstanding 10,174,945 10,146,393 10,031,116 9,908,762 9,869,267
Shareowners of Record(3) 1,362 1,334 1,234 1,045 973
Banking Locations(3) 48 46 39 38 32
Full-Time Equivalent Associates(3) 678 677 637 617 544
(1) All share and per share data have been restated to reflect the
pooling-of-interests of Grady Holding Company and its subsidiaries and
adjusted to reflect the 2-for-1 stock split effective April, 1, 1997,
and the 3-for-2 stock split effective June 1, 1998.
(2) 1999 dividend amount includes a special one-time distribution paid to
Grady Holding Company shareowners of approximately $563,000.
(3) As of March 1st of the following year.
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 1999 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 banks are referred to
as the "Banks", "CCB", or "FNBGC".
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 restated to
reflect a three-for-two stock split effective June 1, 1998, a two-
for-one stock split effective April 1, 1997, and the acquisition
of Grady Holding Company, which was accounted for under the
pooling-of-interests method of accounting.
On May 7, 1999, the Company completed its acquisition of 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 issued 21.50 shares for each of the
60,910 shares of First National Bank of Grady County.
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.
The bank is headquartered in Tallahassee and, as of December 31,
1999, had forty-seven offices covering seventeen counties in
Florida and one county in Georgia.
EARNINGS ANALYSIS
Earnings, including the effects of merger-related expenses and
intangible amortization, were $15.3 million in 1999 and 1998, or
$1.50 per diluted share. This compares to $14.4 million, or
$1.43 per diluted share in 1997. During 1999, merger-related
expenses, net of taxes, totaled $1.2 million, or $.12 per diluted
share, compared to $75,000, or $.01 per diluted share in 1998 and
$403,000, or $.04 per diluted share in 1997. Amortization of
intangible assets, net of taxes, in 1999 totaled $1.9 million, or
$.19 per diluted share, compared to $928,000, or $.09 per diluted
share in 1998 or $731,000, or $.07 per diluted share in 1997.
In 1999, excluding merger-related expenses, earnings increased
$1.1 million, or 7.0%, due primarily to revenue growth.
Operating revenues (defined as taxable equivalent net interest
income) grew $7.2 million, or 9.3%, over 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,
1999 1998 1997
---------------------------------
Interest Income $ 99,685 $89,010 $84,981
Taxable Equivalent Adjustments 1,761 1,402 1,610
-------- ------- -------
Total Interest Income (FTE) 101,446 90,412 86,591
Interest Expense 41,247 35,248 32,688
-------- ------- -------
Net Interest Income (FTE) 60,199 55,164 53,903
Provision for Loan Losses 2,440 2,439 2,328
Taxable Equivalent Adjustments 1,761 1,402 1,610
-------- ------- -------
Net Interest Income After Provision
for Loan Losses 55,998 51,323 49,965
Noninterest Income 24,761 22,584 19,484
Noninterest Expense 58,028 50,444 47,836
-------- ------- -------
Income Before Income Taxes 22,731 23,463 21,613
Income Taxes 7,479 8,169 7,212
-------- ------- -------
Net Income $ 15,252 $15,294 $14,401
======== ======= =======
Basic Net Income Per Share $ 1.50 $ 1.51 $ 1.44
======== ======= =======
Diluted Net Income Per Share $ 1.50 $ 1.50 $ 1.43
======== ======= =======
(1) All share and per share data have been restated to reflect
the pooling-of-interests of Grady Holding Company and its
subsidiaries and adjusted to reflect the 2-for-1 stock split
effective April 1, 1997, and the 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 1999, taxable equivalent net interest income increased $5.0
million, or 9.1%. This follows an increase of $1.3 million, or
2.4% in 1998, and $6.3 million, or 13.2%, in 1997. The increase
in taxable equivalent net interest income during 1999 is due to
growth in earning assets attributable to the assumption of
deposits from First Union. The favorable impact of asset growth
was partially offset by declining yields reflecting the overall
change in the earning asset mix.
Table 2
AVERAGE BALANCES AND INTEREST RATES(Taxable Equivalent Basis - Dollars in Thousands)
1999 1998 1997
----------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------------------------------------
Assets:
Loans, Net of Unearned
Interest(1)(2) $ 884,323 $ 78,646 8.89% $ 824,197 $76,104 9.23% $ 770,416 $72,365 9.39%
Taxable Investment
Securities 232,085 13,229 5.70 107,484 6,417 5.97 124,576 7,919 6.36
Tax-Exempt Investment
Securities(2) 101,994 6,013 5.89 67,297 4,315 6.41 69,956 4,693 6.71
Funds Sold 72,860 3,558 4.88 66,699 3,576 5.36 35,518 1,614 4.54
---------- -------- ---- --------- ------- ---- ---------- ------- ----
Total Earning Assets 1,291,262 101,446 7.86 1,065,677 90,412 8.48 1,000,466 86,591 8.66
Cash & Due From Banks 67,410 53,293 53,255
Allowance For Loan Losses (10,132) (10,056) (9,736)
Other Assets 95,529 71,871 64,103
---------- ---------- ----------
TOTAL ASSETS $1,444,069 $1,180,785 $1,108,088
========== ========== ==========
Liabilities:
NOW Accounts $ 155,584 $ 3,134 2.01% $ 119,134 $ 2,223 1.87% $ 115,663 $ 1,978 1.71%
Money Market Accounts 155,594 5,766 3.71 86,244 2,562 2.97 83,684 2,510 3.00
Savings Accounts 115,789 2,453 2.12 101,007 2,243 2.22 95,323 2,008 2.11
Other Time Deposits 546,433 26,962 4.93 469,087 25,091 5.35 433,300 22,934 5.29
---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Total Interest
Bearing Deposits 973,400 38,315 3.94 775,472 32,119 4.14 727,970 29,430 4.04
Funds Purchased 40,920 1,756 4.29 37,797 1,842 4.87 31,518 1,659 5.26
Other Short-Term Borrowings 1,397 60 4.30 1,190 62 5.21 5,976 315 5.27
Long-Term Debt 17,274 1,116 6.46 18,041 1,225 6.79 19,412 1,284 6.61
---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Total Interest Bearing
Liabilities 1,032,991 41,247 3.99 832,500 35,248 4.23 784,876 32,688 4.16
Noninterest Bearing Deposits 264,005 -------- ---- 209,647 ------- ---- 196,921 ------- ----
Other Liabilities 16,015 14,991 16,343
---------- ---------- ----------
TOTAL LIABILITIES 1,313,011 1,057,138 998,140
Shareowners' Equity:
Common Stock 102 102 100
Additional Paid-In Capital 8,882 8,040 5,831
Retained Earnings 122,074 115,505 104,017
---------- ---------- ----------
TOTAL SHAREOWNERS' EQUITY 131,058 123,647 109,948
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,444,069 $1,180,785 $1,108,088
========== ========== ==========
Interest Rate Spread 3.87% 4.25% 4.50%
==== ==== ====
Net Interest Income $ 60,199 $55,164 $53,903
======== ======= =======
Net Interest Margin(3) 4.67% 5.18% 5.39%
==== ==== ====
(1) Average balances include nonaccrual loans. Interest income includes fees on
loans of approximately $3.5 million, $3.2 million and $3.0 million in 1999,
1998, and 1997, 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) Taxable equivalent net interest income divided by earning assets.
Table 3
RATE/VOLUME ANALYSIS(1)
(Taxable Equivalent Basis - Dollars in Thousands)
1999 Changes from 1998 1998 Changes from 1997
----------------------------------------------------------------------
Due To Due To
Average Average
-------------------- -------------------
Total Volume Rate Total Volume Rate
----------------------------------------------------------------------
EARNING ASSETS:
Loans, Net of Unearned Interest(2) $ 2,542 $ 5,550 $(3,008) $3,739 $5,050 $(1,311)
Investment Securities
Taxable 6,812 7,439 (627) (1,502) (1,087) (415)
Tax-Exempt 1,698 2,224 (526) (378) (178) (200)
Funds Sold and Interest
Bearing Deposits (18) 330 (348) 1,962 1,416 546
------- ------- ------- ------ ------ -------
Total 11,034 15,543 (4,509) 3,821 5,201 (1,380)
------- ------- ------- ------ ------ -------
Interest Bearing Liabilities:
NOW Accounts 911 682 229 245 (59) 186
Money Market Accounts 3,204 2,060 1,144 52 (77) (25)
Savings Accounts 210 328 (118) 235 (120) 115
Other Time Deposits 1,871 4,138 (2,267) 2,157 (1,893) 264
Short-Term Borrowings (88) 163 (251) (70) 78 (148)
Long-Term Debt (109) (52) (57) (59) (91) 32
------- ------- ------- ------ ------ -------
Total 5,999 7,319 (1,320) 2,560 (2,136) 424
------- ------- ------- ------ ------ -------
Changes in Net Interest Income $ 5,035 $ 8,224 $(3,189) $1,261 $3,065 $(1,804)
======= ======= ======= ====== ====== =======
(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 1999, taxable equivalent interest income increased
$11.0 million, or 12.2%, over 1998, compared to an increase of
$3.8 million, or 4.4%, in 1998 over 1997. The Company's taxable
equivalent yield on average earning assets of 7.86% represents a
62 basis point decrease from 1998, compared to a 18 basis point
decline in 1998 over 1997. During 1999, interest income was
positively impacted by purchase of approximately $200 million in
investment securities in the fourth quarter of 1998 and continued
loan growth. This was partially offset by lower yields on
earning assets resulting from the change in the earning asset mix
and increased competition. The loan portfolio, which is the
largest and highest yielding component of average earning assets,
decreased from 81.3% in the fourth quarter of 1998, to 68.5% in
the comparable quarter of 1999, reflecting the acquisition of
$219 million in deposits from First Union.
Interest expense increased $6.0 million, or 17.0%, over 1998,
compared to an increase of $2.6 million, or 7.8%, in 1998 over
1997. The higher level of interest expense in 1999 is
attributable to the assumption of deposits from First Union. The
average rate paid on interest-bearing liabilities was 3.99% in
1999, compared to 4.23% and 4.16%, in 1998 and 1997,
respectively. The decrease in the average rate during 1999 is a
direct result of a shift in the mix of deposits. As a percent of
average deposits, Certificates of Deposit (a higher cost deposit
product) declined to 44.1% in 1999, from 47.6% in 1998, and 46.9%
in 1997. The reduction in interest expense attributable to the
shift in mix was partially offset by an increase in the average
rate paid on money market accounts.
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 38 and 25 basis
points in 1999 and 1998, respectively. The decrease in 1999 is
attributable to the change in earning asset mix resulting from
the assumption as discussed above. The decrease in 1998 is
attributable to the lower yield on earning assets resulting from
the lower rate environment.
The Company's net interest margin (defined as taxable equivalent
interest income less interest expense divided by average earning
assets) was 4.67% in 1999, compared to 5.18% in 1998 and 5.39% in
1997. In 1999, the shift in the earning asset mix resulted in a
51 basis point decline in the margin.
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 $2.4 million in 1999 and 1998,
compared to $2.3 million in 1997. The provision approximates
total net charge-offs for 1999 and 1998. The Company's credit
quality measures improved with a nonperforming assets ratio of
.42% compared to .79% at year-end 1998, and a net charge-off
ratio of .26% versus .28% in 1998.
At December 31, 1999, the allowance for loan losses totaled $9.9
million compared to $9.8 million in 1998. At year-end 1999, the
allowance represented 1.07% of total loans and 332% 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:
1999 1998 1997
---------------------------
Provision for Loan Losses as a
Multiple of Net Charge-offs 1.0x 1.1x 1.1x
Pre-tax Income Plus Provision
for Loan Losses as a Multiple
of Net Charge-offs 10.8x 11.4x 11.3x
Noninterest Income
In 1999, noninterest income increased $2.2 million, or 9.6%, and
represented 29.1% of taxable equivalent operating revenue,
compared to $3.1 million, or 15.9%, and 29.0% in 1998. The
increase in the level of noninterest income is attributable to
all major categories with the exception of data processing
revenues and gains on the sale of 1-4 family loans. Factors
affecting noninterest income are discussed below.
Service charges on deposit accounts increased $1.4 million, or
16.8%, in 1999, compared to a decrease of $453,000, or 5.0%, in
1998. Service charge revenues in any one year are dependent on
the number of accounts, primarily transaction accounts, the level
of activity subject to service charges and the collection rate.
The increase in 1999 reflects a fee increase implemented in
November 1998 and an increase in the number of accounts. The
decrease in 1998 is primarily attributable to higher compensating
balances and an increase in charged-off deposit accounts.
Data processing revenues decreased $662,000, or 18.8%, in 1999
versus an increase of $363,000, or 11.5%, in 1998. The data
processing center provides computer services to both financial
and non-financial clients in North Florida and South Georgia. In
1999, the decrease reflects lower processing revenues with
government agencies. In 1999, processing revenues for non-
financial entities represented approximately 33% of the total
processing revenues, down from 45% in 1998, 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 1999, trust fees increased $466,000, or 26.5%, compared to
$559,000, or 46.5% in 1998. Increases in both years were
attributable to growth in assets under management. At year-end
1999, assets under management totaled $307.5 million, reflecting
growth of $46.3 million, or 17.7%. For the comparable period in
1998, assets under management totaled $261.2 million, reflecting
growth of $75.5 million, or 40.6%.
Other noninterest income increased $1.0 million, or 12.0%, in
1999 versus an increase of $2.5 million, or 41.2% in 1998. The
increase in 1999 was attributable to ATM fees, brokerage
revenues, business manager fees, interchange commission fees and
gains on the sale of bank assets. The increase in other
noninterest income in 1998 was attributable to ATM fees,
brokerage revenues, and gains recognized on the sale of real
estate loans.
Noninterest income as a percent of average assets was 1.71% in
1999, compared to 1.91% in 1998 and 1.76% in 1997.
Noninterest Expense
Noninterest expense for 1999 was $58.0 million, an increase of
$7.6 million, or 15.0%, over 1998, compared with an increase of
$2.6 million, or 5.5%, in 1998 over 1997. Factors impacting the
Company's noninterest expense during 1999 and 1998 are discussed
below.
The Company's aggregate compensation expense in 1999 totaled
$29.0 million, an increase of $2.4 million, or 8.9%, over 1998.
The increase was primarily in salaries to the addition of nine
offices and normal raises. In 1998, total compensation increased
$678,000, or 2.6%, over 1997. Salaries increased $1.5 million
due to normal raises and staff additions. 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.
Occupancy expense (including furniture, fixtures & equipment)
increased by $1.3 million, or 14.8%, in 1999, compared to
$566,000, or 6.9%, in 1998. The addition of eight offices
acquired from First Union resulted in higher costs in all
occupancy categories. The most significant increases occurred in
premises rental, utilities, and maintenance costs. The increase
in 1998 was attributable to higher cost for maintenance and
repair which increased $502,000, or 18.7%.
Merger-related expenses totaled $1.4 million, $115,000 and
$655,000, in 1999, 1998 and 1997 respectively. The costs for
1999 and 1998 were attributable to the acquisition of Grady
Holding Company and its subsidiaries. In 1997, merger-related
expenses represent restructuring changes associated with the
consolidation of three subsidiary banks into Capital City Bank.
Other noninterest expense increased $2.6 million and $1.43
million in 1999 and 1998, or 17.0% and 10.0%, respectively. The
increase in 1999 was attributable to: (1) an increase in
amortization expense of approximately $1.6 million due to the
acquisition of First Union offices; (2) an increase in telephone
expense of $281,000, as a result of implementing a wide-area
network; (3) an increase in postage costs of $383,000 due to
postal rate increase and higher volume with the addition of the
new offices; and (4) YEAR 2000 expenses. 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.
Net noninterest expense ratio (defined as noninterest income
minus noninterest expense, net of intangible amortization, as a
percent of average assets) was 2.01% in 1999 compared to 2.25% in
1998 and 2.42% in 1997. The Company's efficiency ratio
(expressed as noninterest expense, net of intangible amortization
and special charges, as a percent of taxable equivalent operating
revenues) was 63.4%, 63.3%, and 63.1% in 1999, 1998, and 1997,
respectively.
Income Taxes
The consolidated provision for federal and state income taxes was
$7.5 million in 1999 compared to $8.2 million in 1998 and $7.2
million in 1997. The decrease in the 1999 tax provision from
1998 is primarily attributable to the higher level of tax-exempt
income.
The effective tax rate was 32.9% in 1999, 34.8% in 1998, and
33.4% in 1997. These rates differ from the statutory tax rates
due primarily to tax-exempt income. The decrease in the
effective tax rate for 1999 is primarily attributable to the
increasing level of tax-exempt income relative to pre-tax income.
Tax-exempt income (net of the adjustment for disallowed interest)
as a percent of pre-tax income was 26.5% in 1999, 18.0% in 1998,
and 21.7% in 1997.
FINANCIAL CONDITION
Average assets increased $263.3 million, or 22.3%, from $1.2
billion in 1998 to $1.4 billion in 1999. Average earning assets
increased to $1.3 billion in 1999, a $225.6 million, or 21.2%,
increase over 1998. Average investment securities and average
loans increased $159.3 million and $60.0 million, or 91.1% and
7.3%, respectively, and accounted for 70.6% and 27.7% of the
total growth in average earning assets. Loan growth in 1999 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 1999. Loan growth
was strong throughout the year with the residential portfolio
representing a significant portion of the growth. The First
Union acquisition completed in the fourth quarter of 1998
increased the number of markets served and enhanced the Company's
line of products and services. Price and product competition
remained strong during 1999. There has been demand for both
fixed and variable rate, longer-term financing.
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 lending 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)
1998 to Percentage Components
1999 of Total of Average Earning Assets
Change Change 1999 1998 1997
-----------------------------------------------------------
Loans:
Commercial, Financial
and Agricultural $ 8,167 3.6% 7.2% 8.0% 8.3%
Real Estate - Construction 7,392 3.3 4.3 4.5 4.5
Real Estate - Mortgage 37,445 16.6 44.2 49.9 49.1
Consumer 7,122 3.2 12.8 14.9 15.1
-------- ----- ----- ----- -----
Total Loans 60,126 26.7 68.5 77.3 77.0
-------- ----- ----- ----- -----
Securities:
Taxable 124,601 55.2 18.0 10.1 12.4
Tax-Exempt 34,697 15.4 7.9 6.3 7.0
-------- ----- ----- ----- -----
Total Securities 159,298 70.6 25.9 16.4 19.4
-------- ----- ----- ----- -----
Funds Sold 6,161 2.7 5.6 6.3 3.6
-------- ----- ----- ----- -----
Total Earning Assets $225,585 100.0% 100.0% 100.0% 100.0%
======== ===== ===== ===== =====
The Company's average loan-to-deposit ratio decreased from 83.7%
in 1998 to 71.5% in 1999. This compares to an average loan-to-
deposit ratio in 1997 of 83.3%. The lower average loan-to-
deposit ratio reflects the assumption of deposits from First
Union. The generation of loans during 1999 increased the fourth
quarter loan-to-deposit ratio to 74.1%.
Real estate loans, combined, represented 71.1% of total loans in
1999 versus 70.3% in 1998. 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,
1999, 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
decreased from 41.6% in 1998, to 33.0% in 1999.
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,
----------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------
Commercial, Financial and
Agricultural $ 98,894 $ 91,246 $ 82,641 $ 82,724 $ 67,975
Real Estate - Construction 62,166 51,790 51,098 46,415 32,848
Real Estate - Mortgage 214,036 542,044 492,778 472,052 288,716
Real Estate - Residential(1) 383,536 - - - -
Consumer 169,854 159,137 148,934 143,935 120,629
-------- -------- -------- -------- --------
Total Loans, Net of
Unearned Interest $928,486 $844,217 $775,451 $745,126 $510,168
======== ======== ======== ======== ========
(1) Real Estate - Residential loan information included in Real
Estate - Mortgage category for 1998, 1997, 1996 and 1995.
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 $ 32,367 $ 55,892 $ 10,635 $ 98,894
Real Estate 104,335 68,149 487,254 659,738
Consumer 42,862 122,876 4,116 169,854
-------- -------- -------- --------
Total $179,564 $246,917 $502,005 $928,486
======== ======== ======== ========
Loans with Fixed Rates $ 73,132 $153,327 $ 79,966 $306,425
Loans with Floating or
Adjustable Rates 106,432 93,590 422,039 622,061
-------- -------- -------- --------
Total $179,564 $246,917 $502,005 $928,486
======== ======== ======== ========
The allowance for loan losses at December 31, 1999 of $9.9
million compares to $9.8 million at year-end 1998. The allowance
as a percent of total loans was 1.07% in 1999 versus 1.16% in
1998. 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, 1999, 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 41),
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,
---------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------
Balance at Beginning of Year $9,827 $9,662 $9,450 $7,522 $8,412
Acquired Reserves - - - 1,769 -
Charge-Offs:
Commercial, Financial
and Agricultural 480 127 568 594 601
Real Estate - Construction - 15 31 - -
Real Estate - Mortgage 354 1,011 485 119 139
Real Estate - Residential(1) 251 - - - -
Consumer 2,113 2,004 1,978 1,691 1,310
------ ------ ------ ------ ------
Total Charge-Offs 3,198 3,157 3,062 2,404 2,050
------ ------ ------ ------ ------
Recoveries:
Commercial, Financial
and Agricultural 142 72 378 235 204
Real Estate - Construction - 142 - 3 -
Real Estate - Mortgage 84 176 83 - 10
Real Estate - Residential(1) 11 - - - -
Consumer 623 493 485 462 413
------ ------ ------ ------ ------
Total Recoveries 860 883 946 700 627
------ ------ ------ ------ ------
Net Charge-Offs 2,338 2,274 2,116 1,704 1,423
------ ------ ------ ------ ------
Provision for Loan Losses 2,440 2,439 2,328 1,863 533
------ ------ ------ ------ ------
Balance at End of Year $9,929 $9,827 $9,662 $9,450 $7,522
====== ====== ====== ====== ======
Ratio of Net Charge-Offs
to Average Loans Outstanding .26% .28% .28% .27% .29%
====== ====== ====== ====== ======
Allowance for Loan Losses as a
Percent of Loans at End of Year 1.07% 1.16% 1.25% 1.27% 1.47%
====== ====== ====== ====== ======
Allowance for Loan Losses as a
Multiple of Net Charge-Offs 4.25x 4.32x 4.57x 5.55x 5.29x
====== ====== ====== ====== ======
(1) Real Estate - Residential Charge-off and recovery information included
in Real Estate - Mortgage category for 1998, 1997, 1996 and 1995.
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 decreased $2.2 million, or
42.3%, from a level of $5.2 million at December 31, 1998 to $3.0
million at December 31, 1999. During 1999, loans totaling
approximately $4.0 million were added, while loans totaling $6.2
million were removed from nonaccruing status. Of the $6.2
million removed from the nonaccrual category, $3.5 million
consisted of principal reductions, $780,000 represented loans
transferred to ORE, $1.2 million consisted of loans brought
current and returned to an accrual status and loans refinanced,
and $727,000 was charged off. Where appropriate, management has
allocated specific reserves to absorb anticipated losses. A
majority of the Company's charge-offs in 1999 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)
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------
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 $1,648 10.7% $1,330 10.8% $ 665 10.7% $ 605 11.1% $ 708 13.3%
Real Estate:
Construction 379 6.7 468 6.1 382 6.6 274 6.2 177 6.4
Mortgage 2,340 23.0 2,664 64.2 2,078 63.5 3,282 63.4 2,886 56.6
Residential(1) 160 41.3 - - - - - - - -
Consumer 2,301 18.3 2,175 18.9 2,137 19.2 1,875 19.3 1,213 23.7
Not Allocated 3,101 - 3,190 - 4,400 - 3,414 - 2,538 -
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $9,929 100.0% $9,827 100.0% $9,662 100.0% $9,450 100.0% $7,522 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
(1) Real Estate - Residential allowance for loan losses information included in
Real Estate - Mortgage category for 1998, 1997, 1996 and 1995.
Table 9
RISK ELEMENT ASSETS
(Dollars in Thousands)
As of December 31,
-------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------
Nonaccruing Loans $2,965 $4,996 $1,403 $2,811 $3,151
Restructured 26 195 224 262 1,686
------ ------ ------ ------ ------
Total Nonperforming Loans 2,991 5,191 1,627 3,073 4,837
Other Real Estate 934 1,468 1,244 1,489 1,001
------ ------ ------ ------ ------
Total Nonperforming Assets $3,925 $6,659 $2,871 $4,562 $5,838
====== ====== ====== ====== ======
Past Due 90 Days or More $ 781 $1,124 $ 994 $ 638 $ 317
====== ====== ====== ====== ======
Nonperforming Loans to Loans .32% .61% .21% .41% .95%
====== ====== ====== ====== ======
Nonperforming Assets to Loans,
Plus Other Real Estate .42% .79% .37% .61% 1.14%
====== ====== ====== ====== ======
Nonperforming Assets to Capital(1) 2.76% 4.80% 2.28% 4.06% 5.81%
====== ====== ====== ====== ======
Reserve to Nonperforming Loans 331.96% 189.31% 593.85% 307.52% 155.51%
======= ======= ======= ======= =======
(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 $317,000 higher for the year ended
December 31, 1999.
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 $934,000 at December 31, 1999 versus
$1.5 million at December 31, 1998. 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 1999, the Company added properties totaling
$1.4 million (including parcels of bank premises) and partially
or completely liquidated properties totaling $2.0 million,
resulting in a net decrease in other real estate of approximately
$600,000. 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 $5.8 million at December 31, 1999.
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, 1999, approximately 71% of the
portfolio consisted of real estate loans. Residential properties
comprise approximately 58.1% 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, 1999, 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 1999, the Company's average investment portfolio increased
$159.3 million, or 91.1%, compared to a decrease of $19.8
million, or 10.2% in 1998. As a percentage of average earning
assets, the investment portfolio represented 25.5% in 1999,
compared to 16.4% in 1998. The increase in the portfolio was
attributable to the purchase of approximately $200.0 million in
investment securities in December 1998, as a result of the
assumption of deposits from First Union.
In 1999, average taxable investments increased $124.6 million, or
115.9%, while tax-exempt investments increased $34.7 million, or
51.6%. 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 7.9% in 1999.
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.
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, 1999, 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, 1999, shareowners' equity
included a net unrealized loss of $6.2 million, compared to a
gain of $678,000 at December 31, 1998. 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, 1999
and 1998, was 3.38 and 2.98 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, 1999, was 5.74% versus 5.75% in 1998.
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, 1999.
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 $ 65,439 63.9%
AA-1 3,904 3.8
AA-2 3,936 3.8
AA-3 2,286 2.2
AA 301 .3
A-1 2,746 2.7
A-2 2,135 2.1
A-3 196 .2
A 1,009 1.0
BAA 418 .4
Not Rated(1) 20,003 19.6
-------- -----
Total $102,373 100.0%
======== =====
(1) Of the securities not rated by Moody's, $13.7 million are
rated "A" or higher by S&P.
Table 10
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
As of December 31, 1999
------------------------------------------------
Weighted
(Dollars in Thousands) Amortized Cost Market Value Average Yield(1)
- --------------------------------------------------------------------------------
U. S. GOVERNMENTS
Due in 1 year or less $ 23,388 $ 23,197 5.33%
Due over 1 year thru 5 years 75 840 73,408 5.46
Due over 5 years thru 10 years - - -
Due over 10 years - - -
-------- -------- ----
TOTAL 99,228 96,605 5.43
STATE & POLITICAL SUBDIVISIONS
Due in 1 year or less 19,217 19,227 6.57
Due over 1 year thru 5 years 47,147 46,546 6.18
Due over 5 years thru 10 years 37,373 36,190 6.09
Due over 10 years 575 528 -
-------- -------- ----
TOTAL 104,312 102,491 6.19
MORTGAGE-BACKED SECURITIES(2)
Due in 1 year or less 146 143 6.17
Due over 1 year thru 5 years 78,436 75,106 5.71
Due over 5 years thru 10 years 6,458 6,151 6.32
Due over 10 years - - -
-------- -------- ----
TOTAL 85,040 81,400 5.75
OTHER SECURITIES
Due in 1 Year or less 2,000 1,998 5.25
Due over 1 year thru 5 years 34,584 32,597 5.72
Due over 5 years thru 10 years 500 496 6.12
Due over 10 years(3) 5,288 5,605 6.90
-------- -------- ----
TOTAL 42,372 40,696 5.58
-------- -------- ----
Total Investment Securities $330,952 $321,192 5.81%
======== ======== ====
(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.
(3) Federal Home Loan Bank Stock and Federal Reserve Bank Stock do
not have stated maturities.
AVERAGE MATURITY (In Years)
AS OF DECEMBER 31, 1999
U.S. Governments 2.75
State and Political Subdivisions 3.62
Mortgage-Backed Securities 4.14
Other Securities 2.72
----
TOTAL 3.38
====
Deposits and Funds Purchased
Average total deposits increased from $1.0 billion in 1998 to
$1.2 billion in 1999, representing an increase of $252.3 million,
or 25.6%, compared with an increase of $60.2 million, or 6.5%, in
1998. In 1999, the annual average increase is attributable to a
full year impact of the assumption of deposits from First Union
and the continued success of the CashPower Money Market Account.
The increase was partially offset by declines in Certificates of
Deposit, attributable to the maturities of high yielding,
promotional certificates and a more competitive deposit market.
In 1998, the increase is attributable to the acquisition of First
Federal-Florida and internal growth.
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
has doubled from 1998 levels and represents 42.4% of the money
market balance at year-end 1999.
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 short-term borrowings, which include federal funds
purchased, securities sold under agreements to repurchase and
other borrowings, increased $3.3 million, or 8.5%. See Note 8 in
the Notes to Consolidated Financial Statements for further
information.
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
1998 to Percentage
1999 of Total Components of Total Deposits
Change Change 1999 1998 1997
--------------------------------------------------------
Noninterest Bearing
Deposits $ 54,358 21.5% 21.3% 21.3% 21.1%
NOW Accounts 36,450 14.4 12.6 12.1 12.5
Money Market Accounts 69,350 27.5 12.6 8.8 9.2
Savings 14,782 5.9 9.4 10.2 10.3
Other Time Deposits 77,346 30.7 44.1 47.6 46.9
-------- ----- ----- ----- -----
Total Deposits $252,286 100.0% 100.0% 100.0% 100.0%
======== ===== ===== ===== =====
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
December 31, 1999
-----------------------------------------
Time Certificates of Deposit Percent
-----------------------------------------
Three months or less $ 48,199 47.4%
Over three through six months 46,838 46.0
Over six through twelve months 4,392 4.3
Over twelve months 2,313 2.3
-------- -----
Total $101,742 100.0%
======== =====
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, 1999, the Company had a $25.0 million credit
facility under which $22 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 1999, the Company reduced the
amount of debt to $3.0 million. The average interest rate during
1999 was 7.06%.
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. As of year-end 1999, the Company was in compliance
with all contractual and/or regulatory requirements.
At December 31, 1999, the Company had $11.3 million in long-term
debt outstanding to the Federal Home Loan Bank of Atlanta. The
debt consists of twelve loans. The interest rates are fixed and
the weighted average rate at December 31, 1999 was 6.01%.
Required annual principal reductions approximate $600,000, with
the remaining balances due at maturity ranging from 2001 to 2018.
The debt was used to match-fund selected lending activities and
is secured by investment securities and 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, 1999, the
Company had $307.1 million in commitments to extend credit and
$2.6 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 $4.0 to
$5.0 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)
1999 1998 1997
------------------------------
Common Stock $ 102 $ 102 $ 101
Additional Paid-in Capital 9,249 8,561 6,544
Retained Earnings 129,055 119,521 108,555
-------- -------- --------
Subtotal 138,406 128,184 115,200
-------- -------- --------
Accumulated Other Comprehensive
Income, Net of Tax (6,190) 678 607
-------- -------- --------
Total Shareowners' Equity $132,216 $128,862 $115,807
======== ======== ========
The Company continues to maintain a strong capital position. The
ratio of shareowners' equity to total assets at year-end was
9.24%, 8.93% and 10.37%, in 1999, 1998 and 1997, respectively.
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 12.27% and a Tier 1 ratio of
11.23%, compared to 11.11% and 10.14%, respectively, in 1998.
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, 1999, the Company had a
leverage ratio of 7.92% compared to 7.84% in 1998. 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 $.5525 per share in 1999.
Included in this amount, was approximately $563,000 of a one-time
special distribution paid to Grady Holding Company shareowners.
During the fourth quarter of 1999 the quarterly dividend was
raised 10.4% from $.12 per share to $.1325 per share. The
Company declared dividends of $.43 per share in 1998 and $.37 per
share in 1997. The dividend payout ratio was 32.9%, 28.2%, and
26.1% for 1999, 1998 and 1997, respectively. Dividends declared
per share in 1999 represented a 28.5% increase over 1998.
At December 31, 1999, the Company's common stock had a book value
of $12.97 per share compared to $12.69 in 1998. Beginning in
1994, book value has been impacted by the net unrealized gains
and losses on investment securities available-for-sale. At
December 31, 1999, the net unrealized loss was $6.2 million. At
December 31, 1998, the Company had a net unrealized gain of
$678,000 and thus the net impact on equity for the year was a
decrease in book value of approximately $6.9 million.
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 1999.
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 5,706 shares in 1999 under this plan.
The Company also offers stock purchase plans to its associates
and directors. In 1999, 20,409 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.
In 1999 and 1998, shares for this plan were purchased in the open
market, and thus there were no newly issued shares 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 1999 and 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 created challenges with respect to the
automated systems used by financial institutions and other
companies. Many programs and systems were not able to recognize
the year 2000, or that the new millennium is a leap year. The
problem was not limited to computer systems. YEAR 2000 issues
could have potentially affected 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 effected by
the ability of its vendors, suppliers, customers and other third
parties to be YEAR 2000 compliant.
State of Readiness
The Company addressed the YEAR 2000 challenges in a prompt and
responsible manner and dedicated significant resources to do so.
An assessment of the Company's automated systems and third party
operations was completed and a plan was implemented. The
Company's YEAR 2000 compliance plan ("Y2K Plan") had nine phases.
These phases are (1) project management, (2) awareness, (3)
assessment, (4) renovation, (5) testing and implementation, (6)
risk assessment, (7) customer awareness, (8) contingency
planning, and (9) verification. The Company has completed
phases one through eight and the last section of Phase 9
pertaining to leap year will be completed in February 2000.
(1) Project Management: The Company 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 hired an outside
consultant to assist in project administration. Monthly updates
were provided to senior management and quarterly updates were
provided to the Board of Directors in order to assist them in
overseeing the Company's readiness.
(2) Awareness: The Company defined the YEAR 2000 problem and
gained executive level support for allocation of the resources
necessary to renovate and/or upgrade all systems. A YEAR 2000
team was established and met regularly. The strategy developed
for YEAR 2000 compliance covered in-house systems, service
bureaus for systems that are outsourced, vendors, auditors,
customers, and suppliers.
(3) Assessment: Information Technology "IT" and non-IT systems
were assessed and mission critical applications that could
potentially be affected were identified. Mission critical was
defined as anything that may have a material adverse effect on
the Company if not YEAR 2000 compliant.
(4) Renovation: The Company upgraded and replaced IT and non-IT
systems where appropriate, and all such replacements were
complete by June 30, 1999.
(5) Testing and Implementation: The Company's testing and
implementation of Mission Critical systems is complete.
(6) Risk Assessment: Lending officers were trained on YEAR 2000
issues and have documented YEAR 2000 readiness of borrowers.
Significant borrowers were mailed a questionnaire and were
assigned a YEAR 2000 risk rating by the Company. Appropriate
responses to credit requests took YEAR 2000 into consideration.
A similar assessment was conducted of deposit customers relative
to liquidity risk. Investment and funding strategies were
planned to ameliorate any potential risk in this area.
(7) Customer Awareness: During the fourth quarter of 1999, the
Company continued its comprehensive plan to increase customer
awareness of the YEAR 2000 issue and to inform customers of the
bank's efforts to become compliant. This plan included posting
information on the Company's web site, distribution of quarterly
press releases, statement stuffers and lobby brochures.
Associate training was conducted to assure that customers were
provided with accurate information about the Company's Y2K
readiness. Company officials participated in a community
question and answer program.
(8) Contingency Planning: The Company completed a Business
Resumption/Contingency Plan for the YEAR 2000. This plan
incorporated back-up systems and procedures for core business
processes, should any unforeseen disruptions occur. This plan
was substantially completed by September 30, 1999.
(9) Verification: The Verification process was completed during
the actual Century Date Change, with the exception of leap year
due February, 2000. This involved verifying successful transition
to the YEAR 2000 of all systems and applications, at all critical
dates and functions to the YEAR 2000. Monitoring and reporting
protocol were established for this phase.
Estimated Costs to Address the Company's YEAR 2000 Issues
Costs directly related to YEAR 2000 issues are estimated to be
$780,000 from 1998 to 2000, of which approximately 95% has been
spent as of December 31, 1999. Approximately 75% of the total
spending represent 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 identified the following potential risks
that could have had a material adverse effect on the Company's
business.
1. The Company's subsidiary banks may have experienced a
liquidity problem if there were any significant amount of
deposits withdrawn by customers who have uncertainties associated
with the YEAR 2000. This did not occur. The Company implemented
a contingency plan to ensure there were 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 identified its mission critical third
parties and monitored their Y2K Plan progress. In response to
this concern, the Company identified and contacted the third
parties who provide mission critical applications. The Company
received YEAR 2000 compliance assurances from third parties who
provide mission critical applications and monitored and tested
their efforts for YEAR 2000 compliance. The Company currently
knows of no material liability due to this risk.
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 established a contingency plan to
address this situation. Currently, no problems have materialized
due to this risk.
4. The Company's subsidiary banks lend 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 identified its significant
borrowers and documented their YEAR 2000 readiness and risk to
the Company. Currently, no businesses or contractors have been
identified that are affected by this risk.
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. No sanctions were
imposed.
Contingency Plan
Contingency plans for YEAR 2000 related interruptions have been
developed and include, but are not 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 were substantially completed
by September 30, 1999.
Year 2000
The company experienced no known Year 2000 problems that were
material.
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" as
amended. 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,
2000. The adoption of this standard is not expected to have a
material impact on reported 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
1999 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)
December 31, 1999
Other Than Trading Portfolio
December 31,
--------------------------------------------------------
(Dollars in Thousands) 2000 2001 2002 2003 2004 Beyond Total Fair Value
--------------------------------------------------------------------------------------------
Loans
Fixed Rate $ 63,254 $ 26,201 $ 40,831 $ 45,912 $ 40,385 $ 89,842 $ 306,425 $ 303,194
Average Interest Rate 9.27% 9.91% 8.99% 8.49% 8.06% 7.01% 8.97%
Floating Rate(2) 398,744 28,515 54,419 23,785 42,189 74,409 622,061 615,501
Average Interest Rate 8.82% 8.32% 8.34% 8.38% 8.24% 7.54% 8.53%
Investment Securities(3)
Fixed Rate 84,178 49,348 31,821 21,836 21,230 103,428 311,841 311,841
Average Interest Rate 5.75% 5.78% 5.57% 5.57% 5.79% 6.36% 5.94%
Floating Rate - - 8,846 - - 505 9,351 9,351
Average Interest Rate - - 5.93% - - 6.29% 5.95%
Other Earning Assets
Fixed Rates - - - - - - - -
Average Interest Rates - - - - - - -
Floating Rates 13,618 - - - - - 13,618 13,618
Average Interest Rates 5.43% - - - - - 5.43%
Total Financial Assets $559,794 $104,064 $135,917 $ 91,533 $103,804 $268,184 $1,263,296 $1,253,505
Average Interest Rates 8.33% 7.52% 7.73% 7.77% 7.67% 6.90% 7.95%
Deposits(4)
Fixed Rate Deposits $442,360 $ 43,326 $ 11,049 $ 4,158 $ 2,459 $ 50 $ 503,402 $501,618
Average Interest Rates 4.76% 5.03% 5.08% 5.10% 4.78% 4.90% 4.79%
Floating Rate Deposits 446,116 - - - - - 446,116 446,116
Average Interest Rates 2.77% - - - - - 2.77%
Other Interest Bearing
Liabilities
Fixed Rate Debt 822 647 662 678 698 7,751 11,258 11,226
Average Interest Rate 5.94% 6.10% 6.10% 6.10% 6.09% 5.98% 6.00%
Floating Rate Debt 69,275 - - - - - 69,275 69,080
Average Interest Rate 4.68% - - - - - 4.66%
Total Financial Liabilities $958,573 $ 43,973 $ 11,711 $ 4,836 $ 3,157 $ 7,801 $1,030,051 $1,028,040
Average interest Rate 3.88% 5.05% 5.14% 5.24% 5.07% 5.97% 3.92%
(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)
1999 1998
------------------------------------------- ----------------------------------------------
Fourth Third Second First Fourth Third Second First
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Summary of Operations:
Interest Income $ 25,366 $ 25,236 $ 24,816 $ 24,267 $ 22,904 $ 21,974 $ 22,402 $ 21,730
Interest Expense 10,171 10,287 10,476 10,313 9,224 8,673 8,822 8,529
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 15,195 14,949 14,340 13,954 13,680 13,301 13,580 13,201
Provision for
Loan Loss 510 610 580 740 657 618 618 546
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest Income
After Provision
for Loan Loss 14,685 14,339 13,760 13,214 13,023 12,683 12,962 12,655
Noninterest Income 6,204 6,269 6,185 6,103 6,260 5,271 5,847 5,206
Merger Expense 10 74 1,277 - 115 - - -
Noninterest Expense 14,012 14,072 14,591 13,992 13,150 12,090 12,747 12,342
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Provision for
Income Taxes 6,867 6,462 4,077 5,325 6,018 5,864 6,062 5,519
Provision for
Income Taxes 2,548 2,089 1,182 1,660 2,146 2,057 2,065 1,901
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 4,319 $ 4,373 $ 2,895 $ 3,665 $ 3,872 $ 3,807 $ 3,997 $ 3,618
========== ========== ========== ========== ========== ========== ========== ==========
Net Interest
Income (FTE) $ 15,521 $ 15,435 $ 14,822 $ 14,420 $ 14,046 $ 13,640 $ 13,922 $ 13,557
Per Common Share:
Net Income Basic $ .42 $ .43 $ .28 $ .36 $ .39 $ .37 $ .39 $ .36
Net Income Diluted .42 .43 .28 .36 .39 .37 .39 .36
Dividends Declared(2) .1325 .12 .12 .18 .12 .11 .11 .11
Book Value 12.97 12.85 12.59 12.82 12.69 12.43 12.10 11.80
Market Price:
High 25.00 30.00 25.00 27.63 31.00 33.13 32.67 32.67
Low 20.19 21.00 20.25 22.00 24.13 19.00 29.75 29.25
Close 21.50 22.75 25.00 23.31 27.63 29.13 31.38 31.67
Selected Average
Balances:
Total Assets $1,446,815 $1,446,505 $1,452,215 $1,430,533 $1,257,934 $1,148,404 $1,156,186 $1,147,054
Earning Assets 1,280,746 1,297,481 1,304,093 1,282,679 1,131,933 1,038,981 1,043,578 1,035,971
Loans, Net of Unearned 915,194 892,161 878,976 850,161 834,315 819,755 823,432 809,949
Total Deposits 1,235,002 1,234,360 1,247,452 1,232,816 1,059,192 954,652 962,719 952,511
Total Shareowners'
Equity 131,932 130,134 131,234 130,929 128,250 123,728 121,686 119,455
Common Equivalent
Shares:
Basic 10,179 10,179 10,172 10,170 10,158 10,158 10,140 10,123
Diluted 10,201 10,195 10,187 10,185 10,179 10,158 10,140 10,123
Ratios:
ROA 1.18% 1.20% .80% 1.04% 1.22% 1.32% 1.39% 1.28%
ROE 12.99% 13.33% 8.85% 11.35% 11.98% 12.20% 13.18% 12.28%
Net Interest
Margin (FTE) 4.82% 4.73% 4.56% 4.56% 4.92% 5.21% 5.35% 5.31%
(1) All share and per share data have been restated to reflect the pooling-
of-interests of Grady Holding Company and its subsidiaries and adjusted to
reflect the 3-for-2 stock split effective June 1, 1998.
(2) First quarter 1999 dividend amount includes a special one-time
distribution paid to Grady Holding Company shareowners of approximately
$563,000.
CONSOLIDATED FINANCIAL STATEMENTS
48 Report of Independent Certified Public Accountants
49 Consolidated Statements of Income
50 Consolidated Statements of Financial Condition
51 Consolidated Statements of Changes in Shareowners' Equity
52 Consolidated Statements of Cash Flows
53 Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)(1)
For the Years Ended December 31,
1999 1998 1997
INTEREST INCOME ----------------------------------
Interest and Fees on Loans $78,527 $75,989 $72,213
Investment Securities:
U.S. Treasury 1,430 1,889 1,943
U.S. Government Agencies/Corp. 9,313 3,879 5,590
States and Political Subdivisions 4,371 3,028 3,235
Other Securities 2,486 649 386
Funds Sold & Interest Bearing Deposits 3,558 3,576 1,614
------- ------- -------
Total Interest Income 99,685 89,010 84,981
INTEREST EXPENSE
Deposits 38,315 32,119 29,430
Short-Term Borrowings 1,816 1,904 1,974
Long-Term Debt 1,116 1,225 1,284
------- ------- -------
Total Interest Expense 41,247 35,248 32,688
------- ------- -------
Net Interest Income 58,438 53,762 52,293
Provision for Loan Losses 2,440 2,439 2,328
------- ------- -------
Net Interest Income After Provision for
Loan Losses 55,998 51,323 49,965
------- ------- -------
NONINTEREST INCOME
Service Charges on Deposit Accounts 9,973 8,541 8,994
Data Processing 2,861 3,523 3,160
Income from Fiduciary Activities 2,227 1,761 1,202
Securities Transactions (12) 87 (15)
Other 9,712 8,672 6,143
------- ------- -------
Total Noninterest Income 24,761 22,584 19,484
------- ------- -------
NONINTEREST EXPENSE
Salaries and Associate Benefits 28,969 26,597 25,602
Occupancy, Net 4,466 3,530 3,214
Furniture and Equipment 5,647 5,280 5,030
Merger Expense 1,361 115 655
Other 17,585 14,922 13,335
------- ------- -------
Total Noninterest Expense 58,028 50,444 47,836
------- ------- -------
Income Before Income Taxes 22,731 23,463 21,613
Income Taxes 7,479 8,169 7,212
------- ------- -------
NET INCOME $15,252 $15,294 $14,401
======= ======= =======
BASIC NET INCOME PER SHARE $ 1.50 $ 1.51 $ 1.44
======= ======= =======
DILUTED NET INCOME PER SHARE $ 1.50 $ 1.50 $ 1.43
======= ======= =======
Basic Average Common Shares Outstanding 10,175 10,146 10,031
======= ======= =======
Diluted Average Common Shares Outstanding 10,196 10,168 10,061
======= ======= =======
(1) All share and per share data have been restated to reflect
the pooling-of-interests of Grady Holding Company and its
subsidiaries and 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,
1999 1998
ASSETS -----------------------------
Cash and Due From Banks $ 79,454 $ 68,398
Funds Sold 13,618 72,625
Investment Securities, Available-for-Sale 321,192 371,597
Loans, Net of Unearned Interest 928,486 844,217
Allowance for Loan Losses (9,929) (9,827)
---------- ----------
Loans, Net 918,557 834,390
Premises and Equipment 37,834 37,171
Intangibles 25,149 28,772
Other Assets 34,716 30,722
---------- ----------
Total Assets $1,430,520 $1,443,675
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 253,140 $ 287,904
Interest Bearing Deposits 949,518 965,649
---------- ----------
Total Deposits 1,202,658 1,253,553
Short-Term Borrowings 66,275 25,199
Long-Term Debt 14,258 18,746
Other Liabilities 15,113 17,315
---------- ----------
Total Liabilities 1,298,304 1,314,813
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; 10,190,069 and 10,163,919 shares
issued and outstanding 102 102
Additional Paid-In Capital 9,249 8,561
Retained Earnings 129,055 119,521
Accumulated Other Comprehensive
Income, Net of Tax (6,190) 678
---------- ----------
Total Shareowners' Equity 132,216 128,862
---------- ----------
Total Liabilities and
Shareowners' Equity $1,430,520 $1,443,675
========== ==========
(1) All share and per share data have been restated to reflect the
pooling-of-interests of Grady Holding Company and its subsidiaries and
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 (Loss) Income,
Stock Capital Earnings Net of Taxes Total
--------------------------------------------------------------------
Balance, December 31, 1996 $100 $4,942 $ 97,881 $ 86 $103,009
Net Income 14,401 14,401
Cash Dividends ($.37 per share) (3,727) (3,727)
Issuance of Common Stock 1 1,602 1,603
Net Change in Unrealized Gain (Loss)
On Marketable Securities 521 521
---- ------ -------- ------- --------
Balance, December 31, 1997 101 6,544 108,555 607 115,807
Net Income 15,294 15,294
Cash Dividends($.45 per share) (4,328) (4,328)
Issuance of Common Stock 1 2,017 2,018
Net Change in Unrealized Gain (Loss)
On Marketable Securities 71 71
---- ------ -------- ------- --------
Balance, December 31, 1998 102 8,561 119,521 678 128,862
Net Income 15,252 15,252
Cash Dividends($.5525 per share)(2) (5,718) (5,718)
Issuance of Common Stock 688 688
Net Change in Unrealized Gain (Loss)
On Marketable Securities (6,868) (6,868)
---- ------ -------- ------- --------
Balance, December 31, 1999 $102 $9,249 $129,055 $(6,190) $132,216
==== ====== ======== ======= ========
(1) All share and per share data have been restated to reflect the pooling-of-interests
of Grady Holding Company and its subsidiaries and adjusted to reflect the 3-for-2
stock split effective June 1, 1998
(2) Dividend amount includes a special one-time distribution paid to Grady
Holding Company shareowners of approximately $563,000.
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,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: -------- -------- --------
Net Income $ 15,252 $ 15,294 $ 14,401
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 2,440 2,439 2,328
Depreciation 3,708 3,565 3,404
Net Securities Amortization 1,417 758 695
Amortization of Intangible Assets 2,833 1,191 856
(Gain) on Sale of Investment Securities 12 (87) 15
Non-Cash Compensation 260 869 563
Deferred Income Taxes (225) 133 213
Net (Increase) in Other Assets (230) (11,019) (1,710)
Net (Decrease) Increase in Other Liabilities (1,000) 3,125 1,572
-------- -------- --------
Net Cash Provided by Operating Activities 24,467 16,268 22,337
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITES:
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 104,189 84,524 69,569
Purchase of Investment Securities
Available-for-Sale (66,031) (123,537) (10,488)
Net Increase in Loans (86,608) (26,388) (34,812)
Net Cash Received From (Used In) Acquisitions - 36,726 -
Purchase of Premises & Equipment (4,471) (4,323) (2,192)
Sales of Premises & Equipment 100 407 1,379
-------- -------- --------
Net Cash (Used in) Provided By
Investing Activities (52,821) (32,591) 23,456
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITES:
Net (Decrease) Increase in Deposits (50,895) 55,082 (30,011)
Net Increase (Decrease) in Short-Term Borrowings 41,076 (20,914) 10,156
Borrowing from Long-Term Debt 2,262 8,241 2,210
Repayment of Long-Term Debt (6,750) (7,600) (2,951)
Dividends Paid(1) (5,718) (4,281) (3,726)
Issuance of Common Stock 428 1,148 1,126
-------- -------- --------
Net Cash (Used in) Provided By
Financing Activities (19,597) 31,676 (23,197)
-------- -------- --------
Net (Decrease) Increase in Cash
and Cash Equivalents (47,951) 15,353 22,596
Cash and Cash Equivalents at Beginning
of Year 141,023 125,670 103,074
-------- -------- --------
Cash and Cash Equivalents at End
of Year $ 93,072 $141,023 $125,670
======== ======== ========
Supplemental Disclosures:
Interest Paid on Deposits $ 38,822 $ 31,179 $ 31,147
======== ======== ========
Interest Paid on Debt $ 2,849 $ 3,128 $ 3,258
======== ======== ========
Taxes Paid $ 6,137 $ 8,470 $ 7,308
======== ======== ========
Loans Transferred To Other Real Estate $ 1,344 $ 2,011 $ 2,701
======== ======== ========
(1) Dividend amount includes a special one-time distribution paid to
Grady Holding Company shareowners of approximately $563,000.
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. The historical
financial statements have been restated for the acquisition of
Grady Holding Company and its subsidiaries which were accounted
for as a pooling-of-interests (see Note 2). 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 two-for-one stock split effective April 1, 1997, and 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 $2.8 million in 1999, $1.2 million in 1998, and
$856,000 in 1997.
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.
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 May 7, 1999, the Company completed its acquisition of 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 issued 21.50 shares for each of the
60,910 shares of First National Bank of Grady County.
The consolidated financial statements of the Company give effect
to the merger which has been accounted for as a pooling-of-
interests. Accordingly, financial statements for the prior
periods have been restated to reflect the results of operations
of these entities on a combined basis from the earliest period
presented. Separate results of operations of the combined
entities for the three years ended December 31, 1998 are as
follows:
(Dollars in thousands)
1999(1) 1998 1997
------- ------- -------
Net Interest Income:
CCBG $16,784 $47,911 $46,524
GHC 1,906 5,851 5,769
------- ------- -------
Combined $18,690 $53,762 $52,293
Net Income:
CCBG $ 4,034 $13,188 $12,438
GHC 609 2,106 1,963
------- ------- -------
Combined $ 4,643 $15,294 $14,401
(1) For the period January 1, 1999 through May 7, 1999.
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.
Note 3
INVESTMENT SECURITIES
The amortized cost and related market value of investment securities
available-for-sale at December 31, were as follows:
1999
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------
U.S. Treasury $ 20,047 $ 4 $ 70 $ 19,981
U.S. Government Agencies
and Corporations 79,181 - 2,557 76,624
States and Political
Subdivisions 104,312 74 1,895 102,491
Mortgage-Backed Securities 85,040 88 3,728 81,400
Other Securities 42,372 - 1,676 40,696
-------- ---- ------ --------
Total Investment
Securities $330,952 $166 $9,926 $321,192
1998
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------
U.S. Treasury $ 30,618 $ 203 $ - $ 30,821
U.S. Government Agencies
and Corporations 74,035 247 319 73,963
States and Political
Subdivisions 94,917 1,159 24 96,052
Mortgage-Backed Securities 93,183 205 443 92,945
Other Securities 77,770 159 113 77,816
-------- ------ ---- --------
Total Investment
Securities $370,523 $1,973 $899 $371,597
======== ====== ==== ========
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
- ---------------------------------------------------------------
1999 $86,213 $ 1 $13
1998 $46,861 $117 $30
1997 $37,964 $ 18 $33
Total proceeds include principal reductions in mortgage-backed
securities and proceeds from securities which were called of
$17,992,000, $27,236,000, and $29,091,000 in 1999, 1998, and 1997,
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 $ 44,605 $ 44,422
Due after one through five years 157,571 152,551
Due after five through ten years 37,873 36,686
Over ten years 5,863 6,133
Mortgage-Backed Securities 85,040 81,400
-------- --------
Total Investment Securities $330,952 $321,192
======== ========
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 $139,672,000 and $66,934,000 at
December 31, 1999, and 1998, 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) 1999 1998
- -------------------------------------------------------------
Commercial, Financial and
Agricultural $ 98,894 $ 91,246
Real Estate - Construction 62,166 51,790
Real Estate - Mortgage 214,036 542,044
Real Estate - Residential(1) 383,536 -
Consumer 169,854 159,137
-------- --------
Total Loans,
Net of Unearned Interest $928,486 $844,217
======== ========
(1) Real Estate - Residential loan information included in Real
Estate - Mortgage category for 1998.
Nonaccruing loans amounted to $2,965,000 and $4,996,000 at December
31, 1999 and 1998, respectively. Restructured loans amounted to
$26,000 and $195,000 at December 31, 1999 and 1998, respectively. If
such nonaccruing and restructured loans had been on a fully accruing
basis, interest income would have been $317,000 higher in 1999 and
$384,000 higher in 1998.
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) 1999 1998 1997
- ----------------------------------------------------------------
Balance, Beginning of Year $9,827 $9,662 $9,450
Provision for Loan Losses 2,440 2,439 2,328
Recoveries on Loans
Previously Charged-Off 860 883 946
Loans Charged-Off (3,198) (3,157) (3,062)
------ ------ ------
Balance, End of Year $9,929 $9,827 $9,662
====== ====== ======
Selected information pertaining to impaired loans, at December 31, is
as follows:
1999 1998
Valuation Valuation
(Dollars in Thousands) Balance Allowance Balance Allowance
- --------------------------------------------------------------------------
With Related Credit Allowance $ 25 $3 $2,433 $427
Without Related Credit Allowance 1,238 - 1,347 -
Average Recorded Investment for
the Period 1,871 - 4,985 -
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, 1999, 1998 and 1997, the Company recognized $74,000,
$84,000, and $140,000, in interest income on impaired loans, of which
$57,000, $31,000, and $138,000 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) 1999 1998
- --------------------------------------------------------
Land $ 9,289 $ 9,259
Buildings 33,948 32,399
Fixtures and Equipment 30,229 27,522
------- -------
Total 73,466 69,180
Accumulated Depreciation (35,632) (32,009)
------- -------
Premises and Equipment, Net $37,834 $37,171
======= =======
Note 7
DEPOSITS
Interest bearing deposits, by category, as of December 31, were as
follows:
(Dollars in Thousands) 1999 1998
- ----------------------------------------------------
NOW Accounts $182,794 $154,069
Money Market Accounts 157,825 124,691
Savings Accounts 105,498 118,570
Other Time Deposits 503,401 568,319
-------- --------
Total $949,518 $965,649
======== ========
Time deposits in denominations of $100,000 or more totaled
$101,742,000 and $103,791,000 at December 31, 1999 and 1998,
respectively.
At December 31, 1998, the scheduled maturities of other time deposits
were as follows:
2000 $442,360
2001 43,326
2002 11,049
2003 4,158
2004 and thereafter 2,508
--------
$503,401
========
The average balances maintained on deposit with the Federal Reserve
Bank for the years ended December 31, 1999 and 1998, were $34,402,000
and $27,187,000 respectively.
Interest expense on deposits for the three years ended December 31,
was as follows:
(Dollars in Thousands) 1999 1998 1997
- ----------------------------------------------------------------
NOW Accounts $ 3,134 $ 2,223 $ 1,978
Money Market Accounts 5,766 2,562 2,510
Savings Accounts 2,453 2,243 2,008
Other Time Deposits 26,962 25,091 22,934
------- ------- -------
Total $38,315 $32,119 $29,430
======= ======= =======
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
- --------------------------------------------------------------------------------
1999
Balance $28,050 $36,439 $1,786
Maximum indebtedness at any month end 28,050 41,114 1,786
Daily average indebtedness outstanding 12,997 27,923 1,397
Average rate paid for the year 4.87% 4.02% 4.31%
Average rate paid on period-end borrowings 4.20% 3.53% 4.22%
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%
Note 9
LONG-TERM DEBT
Long-term debt included the following at December 31:
(Dollars in Thousands) 1999 1998
- ------------------------------------------------------------------------------
Federal Home Loan Bank Note
Due on December 19, 2005, fixed rate of 6.04% $ 1,542 $ 1,652
Due on December 13, 2006, fixed rate of 6.20% 1,002 1,068
Due on March 14, 2013, fixed rate of 6.13% 938 975
Due on September 20, 2013, fixed rate of 5.64% 1,334 1,387
Due on December 17, 2018, fixed rate of 6.33% 1,949 2,000
Due on December 24, 2018, fixed rate of 5.34% 857 875
Due on January 26, 2014, fixed rate of 5.75% 1,499 -
Due on May 27, 2014, fixed rate of 5.92% 720 -
Due on December 16, 2004, fixed rate of 6.52% 313 1,000
Due on December 16, 2004, fixed rate of 6.52% 172 361
Due on April 24, 2007, fixed rate of 7.30% 419 581
Due on October 10, 2001, fixed rate of 5.00% 324 475
IBM Note Payable
Due on December 31, 2000, fixed rate of 3.77% 189 372
Revolving credit note,
Due on November 16, 2001, current rate of 6.50% 3,000 8,000
------- -------
Total outstanding $14,258 $18,746
======= =======
The contractual maturites of long-term debt for the five years
succeeding December 31, 1999, are as follows:
2000 $ 3,189
2001 324
2002 -
2003 -
2004 and thereafter 10,745
-------
$14,258
=======
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,
1999, the Company was in compliance with all of the terms of the
agreement and had $22 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) 1999 1998 1997
- -------------------------------------------------------------
Current:
Federal $6,880 $7,185 $6,076
State 824 851 923
Deferred:
Federal (189) 117 182
State (36) 16 31
------ ------ ------
Total $7,479 $8,169 $7,212
====== ====== ======
The net deferred tax asset and the temporary differences comprising
that balance at December 31, 1999 and 1998, are as follows:
(Dollars in Thousands) 1999 1998
- --------------------------------------------------------------------
Deferred Tax Asset attributable to:
Allowance for Loan Losses $2,909 $2,806
Unrealized Losses on Investment Securities 2,892 -
Stock Incentive Plan 682 491
Interest on Nonperforming Loans 169 144
Acquired Deposits 76 -
Other 306 95
------ ------
Total Deferred Tax Asset $7,034 $3,536
Deferred Tax Liability attributable to:
Associate Benefits $1,291 $1,298
Premises and Equipment 1,189 888
Deferred Loan Fees 370 336
Unrealized Gains on Investment Securities - 395
Acquired Deposits - 127
Securities Accretion 249 89
Other 104 84
------ ------
Total Deferred Tax Liability 3,203 3,217
------ ------
Net Deferred Tax Asset $3,831 $ 319
====== ======
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) 1999 1998 1997
- ---------------------------------------------------------------------
Computed Tax Expense $7,956 $8,212 $7,565
Increases (Decreases)
Resulting From:
Tax-Exempt Interest Income (1,409) (972) (1,065)
State Income Taxes,
Net of Federal Income
Tax Benefit 468 544 393
Other 464 385 319
------ ------ ------
Actual Tax Expense $7,479 $8,169 $7,212
====== ====== ======
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) 1999 1998 1997
- ----------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year $22,211 $21,159 $17,551
Service Cost 2,015 1,678 1,517
Interest Cost 1,477 1,478 1,331
Actuarial (Gain)/Loss (5,052) 1,181 1,342
Remeasurement Loss 641 169 324
Benefits Paid (2,021) (3,186) (671)
Expenses Paid (291) (268) (235)
------- ------- -------
Benefit Obligation at End of Year $18,980 $22,211 $21,159
------- ------- -------
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $29,248 $25,826 $20,041
Actual Return on Plan Assets 4,824 5,382 4,918
Employer Contribution 761 1,494 1,773
Benefits Paid (2,021) (3,186) (671)
Expenses Paid (291) (268) (235)
------- ------- -------
Fair Value of Plan Assets at End of Year $32,521 $29,248 $25,826
------- ------- -------
Funded Status $13,541 $ 7,037 $ 4,667
Unrecognized Net Actuarial (Gain) Loss (9,675) (2,919) (957)
Unrecognized Prior Service Cost (468) (704) (940)
------- ------- -------
Prepaid Benefit Cost $ 3,398 $ 3,413 $ 2,770
======= ======= =======
Weighted-Average Assumptions:
Discount Rate 7.75% 6.50% 7.00%
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 $ 2,015 $ 1,678 $ 1,517
Interest Cost 1,477 1,478 1,331
Expected Return on Plan Assets (2,401) (2,103) (1,630)
Amortization of Prior Service Cost 164 164 164
Transition Asset Recognition (236) (236) (236)
Recognized Net Actuarial (Gain) Loss (242) (131) 24
------- ------- -------
Net Periodic Benefit Cost $ 777 $ 850 $ 1,170
======= ======= =======
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 1999, 1998 and 1997 of $266,000,
$193,000 and $201,000 respectively, and a minimum liability
adjusted to $0, $0 and $19,148 at December 31, 1999, 1998 and
1997 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 $432,000,
$735,000 and $1,210,000 in 1999, 1998 and 1997, respectively.
The Company issued 5,706 shares under the plan in 1999.
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 18,444 shares
under the plan in 1999.
The Company has a Director Stock Purchase Plan. One hundred
fifty thousand shares have been reserved for issuance. In 1999,
the Company issued 1,965 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 1999, 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 1999.
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)
1999 1998 1997
------------------------------------
Numerator:
Net Income $ 15,252 $ 15,294 $ 14,401
Preferred Stock Dividends - - -
---------- ---------- ----------
Numerator for Basic Earnings Per Share
Income to Common Shareowners' 15,252 15,294 14,401
Effect of Dilutive securities:
Preferred stock dividends - - -
---------- ---------- ----------
Numerator for Diluted Earnings Per Share
Income Available to Common Shareowners'
After Assumed Conversions $ 15,252 $ 15,294 $ 14,401
========== ========== ==========
Denominator:
Denominator for Basic Earnings Per Share
Weighted-Average Shares 10,174,945 10,146,393 10,031,116
Effects of Dilutive Securities:
Associate Stock Incentive Plan 21,288 21,237 32,736
---------- ---------- ----------
Dilutive Potential Common Shares 21,288 21,237 32,736
---------- ---------- -----------
Denominator for Diluted Earnings Per Share
Adjusted Weighted-Average Shares and
Assumed Conversions 10,196,233 10,167,630 10,060,852
========== ========== ==========
Basic Earnings Per Share $ 1.50 $ 1.51 $ 1.44
========== ========== ==========
Diluted Earnings per Share $ 1.50 $ 1.50 $ 1.43
========== ========== ==========
(1) All share and per share data have been restated to reflect the
pooling-of-interests of Grady Holding Company and its subsidiaries and
adjusted to reflect the 3-for-2 stock split effective June 1, 1998.
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, 1999, 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 subsidiaries, Capital
City Bank ("CCB") and First National Bank of Grady County
("FNB"),as of December 31, 1999 and December 31, 1998 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, 1999:
Tier I Capital:
CCBG, Inc. $107,076 11.23% $38,138 4.00% $ 57,207 6.00%
CCB 91,832 10.65% 34,490 4.00% 51,736 6.00%
Total Capital:
CCBG, Inc. 117,005 12.27% 76,276 8.00% 95,345 10.00%
CCB 100,351 11.64% 68,981 8.00% 86,226 10.00%
Tier I Leverage:
CCBG, Inc. - 7.92% - 3.00% - 5.00%
CCB - 7.39% - 3.00% - 5.00%
As of December 31, 1998:
Tier I Capital:
CCBG, Inc. $ 99,473 10.14% $41,262 4.00% $ 61,893 6.00%
CCB 87,355 9.73% 35,929 4.00% 53,894 6.00%
Total Capital:
CCBG, Inc. 108,977 11.11% 82,525 8.00% 103,156 10.00%
CCB 95,814 10.67% 71,859 8.00% 89,823 10.00%
Tier I Leverage:
CCBG, Inc. - 7.84% - 3.00% - 5.00%
CCB - 7.62% - 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 2000, the bank subsidiaries may
declare dividends without regulatory approval of $17.2 million
plus an additional amount equal to the net profits of the
Company's subsidiary banks for 2000 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
$320,000, $340,000, and $295,000 during 1999, 1998, and 1997,
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 $81,000, to be adjusted
for inflation in future years.
At December 31, 1999 and 1998, certain officers and directors
were indebted to the Company's bank subsidiaries in the aggregate
amount of $8,615,000 and $8,831,000, respectively. During 1999,
$12,300,000 in new loans were made and repayments totaled
$12,545,000. 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) 1999 1998 1997
- ------------------------------------------------------------------
Noninterest Income:
Merchant Fee Income $1,193 $1,184 $1,126
Interchange Commission Fees 1,269 1,004 621*
Gains on the Sale of
Real Estate Loans 1,607 1,625 853
Noninterest Expense:
Associate Insurance 1,653 1,448 1,357
Payroll Taxes 1,647 1,485 1,352
Maintenance and Repairs 3,106 2,773 2,306
Professional Fees 1,173 1,337 1,341
Printing & Supplies 1,720 1,811 1,646
Commission/Service Fees 1,307 1,336 1,078
Telephone 1,440 1,158 942*
*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, 1999, the amounts associated with the
Company's off-balance-sheet obligations were as follows:
(Dollars in Thousands) Amount
- --------------------------------------------------
Commitments to Extend Credit(1) $307,073
Standby Letters of Credit $ 2,573
(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,
(Dollars in Thousands) 1999 1998
- --------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------
Financial Assets:
Loans, Net of Allowance
for Loan Losses $ 918,557 $ 908,766 $ 834,390 $ 855,574
Financial Liabilities
Deposits $1,202,658 $1,200,875 $1,253,553 $1,233,623
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) 1999 1998 1997
- ------------------------------------------------------------------------------
OPERATING INCOME
Income Received from Subsidiary Banks:
Dividends $ 7,285 $ 7,190 $ 6,870
Overhead Fees 2,595 4,007 3,868
------- ------- -------
Total Operating Income 9,880 11,197 10,738
------- ------- -------
OPERATING EXPENSE
Salaries and Associate Benefits 1,926 2,171 2,445
Interest on Debt 430 832 988
Professional Fees 232 527 617
Advertising 109 711 597
Restructuring Charge - - 338
Legal Fees 77 115 126
Other 257 696 526
------- ------- -------
Total Operating Expense 3,031 5,052 5,637
------- ------- -------
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Banks 6,849 6,145 5,101
Income Tax Benefit (198) (394) (670)
------- ------- -------
Income Before Equity in Undistributed
Earnings of Subsidiary Banks 7,047 6,539 5,771
Equity in Undistributed Earnings
of Subsidiary Banks 8,205 8,755 8,630
------- ------- -------
Net Income $15,252 $15,294 $14,401
======= ======= =======
The following are condensed statements of financial condition of the
parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands) 1999 1998
- --------------------------------------------------------------------
ASSETS
Cash and Due From Group Banks $ 2,020 $ 4,749
Investment in Subsidiary Banks 134,105 132,727
Other Assets 520 512
-------- --------
Total Assets $136,645 $137,988
======== ========
LIABILITIES
Long-Term Debt $ 3,000 $ 8,000
Other Liabilities 1,429 1,126
-------- --------
Total Liabilities 4,429 9,126
-------- --------
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; 10,190,069 and 10,163,919
shares issued and outstanding 102 102
Additional Paid-in Capital 9,249 8,561
Retained Earnings 129,055 119,521
Accumulated Other Comprehensive
Income, Net of Tax (6,190) 678
-------- --------
Total Shareowners' Equity 132,216 128,862
-------- --------
Total Liabilities and Shareowners' Equity $136,645 $137,988
======== ========
The cash flows for the parent company for the three years ended
December 31, were as follows:
Parent Company Statements of Cash Flows
1999 1998 1997
- --------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $15,252 $15,294 $14,401
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in undistributed
earnings of Subsidiary Banks (8,205) (8,755) (8,630)
Non-Cash Compensation 260 868 563
Amortization of Goodwill - 25 25
(Increase) Decrease in Other Assets (40) 1,155 (295)
Net Increase (Decrease) in Other Liabilities 292 (357) 299
------- ------- -------
Net Cash Provided by Operating Activities 7,559 8,230 6,363
------- ------- -------
Cash From Financing Activities:
Acquisition of Interest-Bearing Deposits - - (141)
Repayment of Long-Term Debt (5,000) (5,000) (2,000)
Payment of Dividends (5,718) (4,328) (3,727)
Issuance of Common Stock, Net 428 1,148 1,040
------- ------- -------
Net Cash Used in Financing Activities (10,290) (8,180) (4,828)
------- ------- -------
Net (Decrease) Increase in Cash (2,729) 50 1,535
Cash at Beginning of Period 4,749 4,699 3,164
------- ------- -------
Cash at End of Period $ 2,020 $ 4,749 $ 4,699
======= ======= =======
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) 1999 1998 1997
- --------------------------------------------------------------------------
Net Unrealized Gains (Losses)
Recognized in Other Comprehensive Income:
Before Tax $(10,566) $ 109 $ 802
Less Income Tax (3,698) 38 281
-------- ------- -------
Net of Tax (6,868) 71 521
Amounts Reported in Net Income:
(Loss) Gain On Sale of Securities (12) 87 (15)
Net Amortization 1,417 758 695
-------- ------- -------
Reclassification Adjustment 1,405 845 680
Less Income Tax Expense 492 296 238
-------- ------- -------
Reclassification Adjustment, Net of Tax 913 549 442
Amounts Reported in Other Comprehensive Income:
Unrealized (Loss) Gain Arising During the
Period, Net of Tax (5,955) 620 963
Net Unrealized (Losses) Recognized in
Reclassification Adjustments, Net of Tax (913) (549) (442)
-------- ------- -------
Other Comprehensive Income (6,868) 71 521
Net Income 15,252 15,294 14,401
-------- ------- -------
Total Comprehensive Income $ 8,384 $15,365 $14,922
======== ======= =======
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 4, 2000,
to be filed on or about April 4, 2000.
Item 11. Executive Compensation
Incorporated herein by reference 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 4, 2000, to be filed on or about April 4, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Incorporated herein by reference to the section entitled
"Shareownership of Management and Principal Shareowners" in the
Registrant's Proxy Statement dated April 4, 2000, to be filed on or
about April 4, 2000.
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 4, 2000, to be filed on or about April 4, 2000.
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, 1999
Consolidated Statements of Financial Condition for the years ended
December 31, 1999 and 1998
Consolidated Statements of Changes in Shareowners' Equity for each of
the three years in the period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1999
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 (File No. 0-13358).
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 reference to the Registrant's Form 10-K dated March 27, 1998
(File No. 0-13358).
2(c) Agreement and Plan of Merger, dated as of February 11, 1999, by
and among Capital City Bank Group, Inc., Grady Holding Company and
First National Bank of Grady County is incorporated herein by
reference to the Registrant's Form 8-K as filed with the Commission on
March 26, 1999 (File No. 0-13358).
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 (File No. 0-
13358).
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 for 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 reference to the Registrant's Form
10-K/A dated April 9, 1996 (File No. 0-13358).
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. Amended and Restated 1996 Director
Stock Purchase Plan, filed herewith.
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 (File 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
Capital City Bank Group, Inc., filed no Form 8-K during the fourth
quarter 1999.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on March 23, 2000, on its behalf by the undersigned, thereunto
duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 23, 2000 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:
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
Lina S. Knox
/s/ John R. Lewis
John R. Lewis
/s/ William G. Smith, Jr.
William G. Smith, Jr.
/s/ John B. Wight, Jr.
John B. Wight, Jr.