SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 16, 1999
CAPITAL CITY BANK GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 0-13358 59-2273542
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
217 North Monroe Street, Tallahassee, Florida 32301
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (850) 671-0300
(Former Name or Former Address, if Changed Since Last Report)
CAPITAL CITY BANK GROUP, INC.
FORM 8-K
CURRENT REPORT
Item 5. Other Events
On May 7, 1999 Capital City Bank Group, Inc. (the "Company")
completed its acquisition of Grady Holding Company ("GHC"), and
GHC's subsidiary national bank, First National Bank of Grady
County. This acquisition was accounted for as a pooling of
interests, and accordingly, the Company's historical financial statements
have been restated to reflect the acquisition of GHC.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(c) Exhibits.
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
99.1 Consolidated Financial Statements for the Company
for the Years Ended December 31, 1998, 1997 and 1996
99.2 Management's Discussion and Analysis of Financial
Condition and Results of Operation
99.3 Report of Company's Independent Certified Public Accountants
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
Date: September 16, 1999 By:/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President
and Chief Financial Officer
CAPITAL CITY BANK GROUP, INC.
Current Report on Form 8-K
Exhibit Index
Exhibit No. Description
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
99.1 Consolidated Financial Statements for the
Company for the Years Ended December 31, 1998, 1997 and 1996
99.2 Management's Discussion and Analysis of Financial
Condition and Results of Operation
99.3 Report of Company's Independent Certified Public Accountants
Exhibit 23 Consent of Independent Certified Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K into the
Company's previosly filed Registration Statement
File Nos. 333-20683, 333-18557, 33-60113, 333-36693, and 333-18543.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
September 16, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000726601
<NAME> CAPITAL CITY BANK GROUP, INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 68,398
<INT-BEARING-DEPOSITS> 10,151
<FED-FUNDS-SOLD> 62,474
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 370,523
<INVESTMENTS-MARKET> 371,597
<LOANS> 844,217
<ALLOWANCE> (9,827)
<TOTAL-ASSETS> 1,443,675
<DEPOSITS> 1,253,553
<SHORT-TERM> 25,199
<LIABILITIES-OTHER> 17,315
<LONG-TERM> 18,746
0
0
<COMMON> 102
<OTHER-SE> 128,760
<TOTAL-LIABILITIES-AND-EQUITY> 1,443,675
<INTEREST-LOAN> 75,989
<INTEREST-INVEST> 9,445
<INTEREST-OTHER> 3,576
<INTEREST-TOTAL> 89,010
<INTEREST-DEPOSIT> 32,119
<INTEREST-EXPENSE> 35,248
<INTEREST-INCOME-NET> 53,762
<LOAN-LOSSES> 2,439
<SECURITIES-GAINS> 87
<EXPENSE-OTHER> 50,444
<INCOME-PRETAX> 23,463
<INCOME-PRE-EXTRAORDINARY> 15,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,294
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.50
<YIELD-ACTUAL> 5.18
<LOANS-NON> 4,996
<LOANS-PAST> 1,124
<LOANS-TROUBLED> 195
<LOANS-PROBLEM> 325
<ALLOWANCE-OPEN> 9,662
<CHARGE-OFFS> 3,157
<RECOVERIES> 883
<ALLOWANCE-CLOSE> 9,827
<ALLOWANCE-DOMESTIC> 9,827
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)(1)
For the Years Ended
December 31,
1998 1997 1996
INTEREST INCOME
Interest and Fees on Loans $75,989 $72,213 $59,068
Investment Securities:
U.S. Treasury 1,889 1,943 3,089
U.S. Government Agencies/Corp. 3,879 5,590 6,119
States and Political Subdivisions 3,028 3,235 3,540
Other Securities 649 386 332
Funds Sold 3,576 1,614 2,258
Total Interest Income 89,010 84,981 74,406
INTEREST EXPENSE
Deposits 32,119 29,430 26,192
Short-Term Borrowings 1,904 1,974 1,651
Long-Term Debt 1,225 1,284 717
Total Interest Expense 35,248 32,688 28,560
Net Interest Income 53,762 52,293 45,846
Provision for Loan Losses 2,439 2,328 1,863
Net Interest Income After Provision for
Loan Losses 51,323 49,965 43,983
NONINTEREST INCOME
Service Charges on Deposit Accounts 8,541 8,994 8,468
Data Processing 3,523 3,160 2,969
Income from Fiduciary Activities 1,761 1,202 1,164
Securities Transactions 87 (15) 50
Other 8,672 6,143 4,638
Total Noninterest Income 22,584 19,484 17,289
NONINTEREST EXPENSE
Salaries and Employee Benefits 26,597 25,919 22,789
Occupancy, Net 3,530 3,214 2,819
Furniture and Equipment 5,280 5,030 4,464
Other 15,037 13,673 11,958
Total Noninterest Expense 50,444 47,836 42,030
Income Before Income Taxes 23,463 21,613 19,242
Income Taxes 8,169 7,212 6,023
NET INCOME $15,294 $14,401 $13,219
BASIC NET INCOME PER SHARE $ 1.51 $ 1.44 $ 1.33
DILUTED NET INCOME PER SHARE $ 1.50 $ 1.43 $ 1.33
Basic Average Common Shares Outstanding 10,146 10,031 9,909
Diluted Average Common Shares Outstanding 10,168 10,061 9,948
(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,
1998 1997
ASSETS
Cash and Due From Banks $ 68,398 $ 65,871
Funds Sold 72,625 59,799
Investment Securities, Available-for-Sale 371,597 163,151
Loans, Net of Unearned Interest 844,217 775,451
Allowance for Loan Losses (9,827) (9,662)
Loans, Net 834,390 765,789
Premises and Equipment 37,171 33,851
Intangibles 28,772 7,703
Other Assets 30,722 20,487
Total Assets $1,443,675 $1,116,651
LIABILITIES
Deposits:
Noninterest Bearing Deposits $ 287,904 $ 204,382
Interest Bearing Deposits 965,649 718,459
Total Deposits 1,253,553 922,841
Short-Term Borrowings 25,199 46,114
Long-Term Debt 18,746 18,106
Other Liabilities 17,315 13,783
Total Liabilities 1,314,813 1,000,844
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; 10,163,919 and 10,085,650 shares
issued and outstanding 102 101
Additional Paid-In Capital 8,561 6,544
Retained Earnings 119,521 108,555
Accumulated Other Comprehensive
Income, Net of Tax 678 607
Total Shareowners' Equity 128,862 115,807
Total Liabilities and
Shareowners' Equity $1,443,675 $1,116,651
(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.
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Thousands, Except per Share Data)(1)
<CAPTION>
Accumulated Other
Additional Comprehensive
Common Paid-In Retained Income,
Stock Capital Earnings Net of Taxes Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $100 $3,892 $ 87,995 $1,071 $ 93,058
Net Income 13,219 13,219
Cash Dividends($.34 per share) (3,333) (3,333)
Issuance of Common Stock 1,050 1,050
Net Change in Unrealized Gain (Loss)
On Marketable Securities (985) (985)
Balance, December 31, 1996 100 4,942 97,881 86 103,009
Net Income 14,401 14,401
Cash Dividends ($.37 per share) (3,727) (3,727)
Issuance of Common Stock 1,602 1,602
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($.43 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
(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.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended December 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 15,294 $14,401 $ 13,219
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 2,439 2,328 1,863
Depreciation 3,565 3,404 2,985
Net Securities Amortization 758 695 1,006
Amortization of Intangible Assets 1,191 856 570
(Gain) on Sale of Investment Securities (89) (266) (12)
Non-Cash Compensation 869 563 589
Deferred Income Taxes 133 213 1,043
Net (Increase) Decrease in Other Assets (11,017) (1,711) 1,364
Net Increase (Decrease) in Other Liabilities 3,125 1,572 4,016
Net Cash Provided by Operating Activities 16,268 22,055 26,643
CASH FLOWS FROM INVESTING ACTIVITES:
Proceeds from Payments/Maturities of
Investment Securities Available-for-Sale 84,524 69,850 84,197
Purchase of Investment Securities
Available-for-Sale (123,537) (10,488) (60,127)
Net Increase in Loans (26,388) (34,812) (44,991)
Net Cash Received From (Used In) Acquisitions 36,726 - (16,167)
Purchase of Premises & Equipment (4,323) (2,192) (2,717)
Sales of Premises & Equipment 407 1,379 1,570
Net Cash (Used in) Provided By
Investing Activities (32,591) 23,737 (38,235)
CASH FLOWS FROM FINANCING ACTIVITES:
Net Increase (Decrease) in Deposits 55,082 (30,011) (30,522)
Net Increase (Decrease) in Short-Term Borrowings (20,914) 10,156 21,670
Borrowing from Long-Term Debt 8,241 2,210 17,955
Repayment of Long-Term Debt (7,600) (2,951) (1,090)
Dividends Paid (4,281) (3,726) (5,871)
Issuance of Common Stock 1,148 1,126 461
Net Cash Provided By (Used in)
Financing Activities 31,676 (23,196) 2,603
Net Increase (Decrease) in Cash
and Cash Equivalents 15,353 22,596 (8,989)
Cash and Cash Equivalents at Beginning
of Year 125,670 103,074 112,063
Cash and Cash Equivalents at End
of Year $141,023 $125,670 $103,074
Supplemental Disclosures:
Interest Paid on Deposits $ 31,179 $ 31,147 $ 28,995
Interest Paid on Debt $ 3,128 $ 3,258 $ 2,368
Taxes Paid $ 8,470 $ 7,308 $ 4,781
Loans Transferred To Other Real Estate $ 2,011 $ 2,701 $ 2,195
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 three-for-
two stock split effective June 1, 1998. The principles which
materially affect the financial position, results of operations and
cash flows are summarized below.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could vary
from these estimates; however, in the opinion of management, such
variances would not be material.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-
bearing deposits in other banks, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods and all items
have an initial maturity of ninety days or less.
Investment Securities
Investment securities available-for-sale are carried at fair value and
represent securities that are available to meet liquidity and/or other
needs of the Company. Gains and losses are recognized and reported
separately in the Consolidated Statements of Income upon realization
or when impairment of values is deemed to be other than temporary.
Gains or losses are recognized using the specific identification
method. Unrealized holding gains and losses for securities available-
for-sale are excluded from the Consolidated Statements of Income and
reported net of taxes in the accumulated other comprehensive income
component of shareowners' equity until realized.
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. Interest income is generally accrued based on outstanding
balances. Fees charged to originate loans and loan origination costs
are deferred and amortized over the life of the loan as a yield
adjustment.
Allowance for Loan Losses
The reserve is that amount considered adequate to absorb losses
inherent in the portfolio based on management's evaluations of the
size and current risk characteristics of the loan portfolio. Such
evaluations consider the balance of impaired loans (which are defined
as all nonperforming loans except residential mortgages and groups of
small homogeneous loans), prior loan loss experience as well as the
impact of current economic conditions. Specific provision for loan
losses is made for impaired loans based on a comparison of the
recorded carrying value in the loan to either the present value of the
loan's expected cash flow, the loan's estimated market price or the
estimated fair value of the underlying collateral. Specific and
general provisions for loan losses are also made based on other
considerations.
Loans are placed on a nonaccrual status when management believes the
borrower's financial condition, after giving consideration to economic
conditions and collection efforts, is such that collection of interest
is doubtful. Generally, loans are placed on nonaccrual status when
interest becomes past due 90 days or more, or management deems the
ultimate collection of principal and interest is in doubt.
Long-Lived Assets
Premises and equipment are stated at cost less accumulated
depreciation, computed on the straight-line method over the estimated
useful lives for each type of asset. Additions and major facilities
are capitalized and depreciated in the same manner. Repairs and
maintenance are charged to operating expense as incurred.
Intangible assets consist primarily of goodwill and core deposit
assets that were recognized in connection with the various
acquisitions. All intangible assets are being amortized on the
straight-line method over various periods ranging from five to 25
years with the majority being written off over an average life of
approximately 15 years. The amortization of all intangible assets was
approximately $1.2 million in 1998, $856,000 in 1997 and $570,000 in
1996.
The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights" on January 1, 1996 and SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities"
on January 1, 1997. The adoption of SFAS Nos. 122 and 125 did not
have a significant impact on the financial condition or results of
operations of the Company.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired
and the write-down would be material, an assessment of recoverability
is performed prior to any write-down of the asset.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". Statement 130 provides new
accounting and reporting standards for reporting and displaying
comprehensive income and its components in a full set of general-
purpose financial statements. The adoption of this standard did not
have a material impact on reported results of operations of the
Company.
Income Taxes
The Company files consolidated federal and state income tax returns.
In general, the parent company and its subsidiaries compute their tax
provisions as separate entities prior to recognition of any tax
expense benefits which may accrue from filing a consolidated return.
Deferred income tax assets and liabilities result from temporary
differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements that will result in
taxable or deductible amounts in future years.
Note 2
ACQUISITIONS
On 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. Seperate results
of operations of the combined entities for the three years ended
December 31, 1998 are as follows:
(Dollars in thousands)
1998 1997 1996
Net Interest Income:
CCBG $47,911 $46,524 $40,752
GHC 5,851 5,769 5,094
Combined $53,762 $52,293 $45,846
Net Income:
CCBG $13,188 $12,438 $11,360
GHC 2,106 1,963 1,859
Combined $15,294 $14,401 $13,219
On December 4 1998, the Company completed its purchase and assumption
transaction with First Union National Bank ("First Union") and
acquired eight of First Union's branch offices which included
deposits. The Company paid a premium of approximately $16.9 million,
and assumed approximately $219 million in deposits and acquired
certain real estate. The premium is being amortized over ten years.
On January 31, 1998, the Company completed its purchase and assumption
transaction with First Federal Savings & Loan Association of Lakeland,
Florida ("First Federal-Florida") and acquired five of First Federal-
Florida's offices which included loans and deposits. The Company paid
a deposit premium of $3.6 million, or 6.33%, and assumed $55 million
in deposits and purchased loans equal to $44 million. Four of the
five offices were merged into existing offices of Capital City Bank.
The deposit premium is being amortized over fifteen years.
Effective July 1, 1996, the Company acquired all of the outstanding
shares of First Financial Bancorp, Inc.("First Financial"), parent
company of First Federal Bank, for $20 million in cash. At the time
of the acquisition, First Financial had approximately $244 million in
assets, $192 million in loans, $205 million in deposits, $15 million
in equity and operated five offices in North Florida. The acquisition
was accounted for under the purchase method of accounting.
Accordingly, the Company's consolidated results of operations only
reflect First Financial's operations for the periods subsequent to
June 30, 1996.
The purchase price of First Financial has been allocated to the
underlying assets and liabilities based on the estimated fair values
as of the acquisition date. The Company recorded approximately $7.5
million of intangibles, primarily goodwill related to this
acquisition. These assets are being amortized over periods not
exceeding 15 years for financial reporting purposes. A significant
portion of the amortization of the intangible assets is not deductible
for tax purposes.
The following table sets forth the unaudited pro forma summary results
of operations for the years ended December 31, 1996 and 1995, assuming
the acquisition of First Financial, including the related debt
financing, had been consummated as of January 1, 1995. The pro forma
results are not necessarily indicative of the results that would have
been achieved had the acquisition occurred on January 1, 1995, or that
may occur in the future.
(Dollars in Thousands) 1996 1995
Net Interest Income $49,045 $44,231
Net Income 13,303 11,517
Net Income Per Share(1) 1.34 1.17
(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 3
INVESTMENT SECURITIES
The amortized cost and related market value of investment securities
available-for-sale at December 31, were as follows:
1998
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
U.S. Treasury $ 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
1997
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
U.S. Treasury $ 26,845 $ 42 $ 4 $ 26,883
U.S. Government Agencies
and Corporations 39,278 98 65 39,311
States and Political
Subdivisions 64,643 619 10 65,252
Mortgage-Backed Securities 26,030 355 49 26,336
Other Securities 5,407 1 19 5,369
Total Investment
Securities $162,183 $1,115 $147 $163,151
The total proceeds from the sale of investment securities and the
gross realized gains and losses from the sale of such securities for
each of the last three years is as follows:
(Dollars in Thousands)
Total Gross Gross
Year Proceeds Realized Gains Realized Losses
1998 $46,861 $117 $30
1997 $37,964 $ 18 $33
1996 $49,302 $ 80 $30
Total proceeds include principal reductions in mortgage-backed
securities and proceeds from securities which were called of
$27,236,000, $29,091,000, and $37,359,000 in 1998, 1997, and 1996,
respectively.
As of December 31, 1998, the Company's investment securities had the
following maturity distribution based on contractual maturities:
(Dollars in Thousands) Amortized Cost Market Value
Due in one year or less $ 81,429 $ 81,604
Due after one through five years 152,566 153,467
Due after five through ten years 38,769 39,025
Over ten years 4,576 4,556
Mortgage-Backed Securities 93,183 92,945
Total Investment Securities $370,523 $371,597
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Securities with an amortized cost of $66,934,000 and $53,398,000 at
December 31, 1998, and 1997, respectively, were pledged to secure
public deposits and for other purposes.
Note 4
LOANS
At December 31, the composition of the Company's loan portfolio was as
follows:
(Dollars in Thousands) 1998 1997
Commercial, Financial and
Agricultural $ 91,246 $ 82,641
Real Estate - Construction 51,790 51,098
Real Estate - Mortgage 542,044 492,778
Consumer 159,137 148,934
Total Loans,
Net of Unearned Interest $844,217 $775,451
Nonaccruing loans amounted to $4,996,000 and $1,403,000 at December
31, 1998 and 1997, respectively. Restructured loans amounted to
$195,000 and $224,000 at December 31, 1998 and 1997, respectively. If
such nonaccruing and restructured loans had been on a fully accruing
basis, interest income would have been $384,000 higher in 1998 and
$67,000 higher in 1997.
Note 5
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the
years ended December 31, is as follows:
(Dollars in Thousands) 1998 1997 1996_
Balance, Beginning of Year $9,662 $9,450 $7,522
Acquired Reserves - - 1,769
Provision for Loan Losses 2,439 2,328 1,863
Recoveries on Loans
Previously Charged-Off 883 946 700
Loans Charged-Off (3,157) (3,062) (2,404)
Balance, End of Year $9,827 $9,662 $9,450
Selected information pertaining to impaired loans, at December 31, is
as follows:
1998 1997
Valuation Valuation
(Dollars in Thousands) Balance Allowance Balance Allowance
With Related Credit Allowance $ 2,433 $ 427 $ 21 $ 10
Without Related Credit Allowance 1,347 - 949 -
Average Recorded Investment for
the Period 4,985 - 2,894 -
The Company recognizes income on impaired loans primarily on the cash
basis. Any change in the present value of expected cash flows is
recognized through the allowance for loan losses. For the years ended
December 31, 1998, 1997 and 1996, the Company recognized $84,000,
$140,000, and $26,000, in interest income on impaired loans, of which
$31,000, $138,000, and $25,000 and was collected in cash,
respectively.
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31,
was as follows:
(Dollars in Thousands) 1998 1997_
Land $ 9,259 $ 8,580
Buildings 32,399 25,966
Fixtures and Equipment 27,522 25,422
Total 69,180 59,968
Accumulated Depreciation (32,009) (26,117)
Premises and Equipment, Net $37,171 $33,851
Note 7
DEPOSITS
Interest bearing deposits, by category, as of December 31, were as
follows:
(Dollars in Thousands) 1998 1997_
NOW Accounts $154,069 $127,885
Money Market Accounts 124,691 82,259
Savings Accounts 118,570 87,047
Other Time Deposits 568,319 421,268
Total $965,649 $718,459
Time deposits in denominations of $100,000 or more totaled
$103,791,000 and $51,646,000 at December 31, 1998 and 1997,
respectively.
At December 31, 1998, the scheduled maturities of other time deposits
were as follows:
1999 $470,997
2000 75,001
2001 12,741
2002 6,442
2003 and thereafter 3,138
$568,319
The average balances maintained on deposit with the Federal Reserve
Bank for the years ended December 31, 1998 and 1997, were $27,187,000
and $27,564,000, respectively.
Interest expense on deposits for the three years ended December 31,
was as follows:
(Dollars in Thousands) 1998 1997 1996
NOW Accounts $ 2,223 $ 1,978 $ 2,091
Money Market Accounts 2,562 2,510 2,622
Savings Accounts 2,243 2,008 2,115
Other Time Deposits 25,091 22,934 19,364
Total $32,119 $29,430 $26,192
Note 8
SHORT-TERM BORROWINGS
Short-term borrowings included the following at December 31:
Securities
Federal Sold Under Other
Funds Repurchase Short-Term
(Dollars in Thousands) Purchased Agreements Borrowings
1998
Balance $ 6,120 $17,042 $ 2,037
Maximum indebtedness at any month end 29,255 18,770 2,037
Daily average indebtedness outstanding 22,159 15,635 1,190
Average rate paid for the year 5.19% 4.43% 5.23%
Average rate paid on period-end borrowings 3.79% 6.15% 3.88%
1997
Balance $29,190 $15,432 $ 1,492
Maximum indebtedness at any month end 29,660 18,930 7,043
Daily average indebtedness outstanding 17,542 13,976 5,976
Average rate paid for the year 5.34% 5.17% 5.27%
Average rate paid on period-end borrowings 4.24% 4.88% 5.36%
Note 9
LONG-TERM DEBT
Long-term debt included the following at December 31:
(Dollars in Thousands) 1998 1997
Federal Home Loan Bank Note
Due on December 19, 2005, fixed rate of 6.04% $ 1,652 $ 1,762
Due on December 13, 2006, fixed rate of 6.20% 1,068 1,134
Due on March 14, 2013, fixed rate of 6.13% 975 -
Due on September 20, 2013, fixed rate of 5.64% 1,387 -
Due on December 17, 2018, fixed rate of 6.33% 2,000 -
Due on December 24, 2018, fixed rate of 5.34% 875 -
Due during 1999, variable rate 1,000 1,000
Due during 2001, fixed rate of 5.0% 361 -
Due during 2004, fixed rate of 6.5% 581 -
Due during 2007, fixed rate of 7.3% 475 -
Due on December 16, 2004, fixed rate of 6.52% - 437
Due on December 16, 2004, fixed rate of 6.52% - 241
Due on April 24, 2007, fixed rate of 7.30% - 532
IBM Note Payable
Due on December 31, 2000, fixed rate of 3.77% 372 -
Revolving credit note,
Due on November 16, 2001, rates ranging from 6.23% - 7.22% 8,000 13,000
Total outstanding $18,746 $18,106
The contractual maturites of long-term debt for the five years
succeeding December 31, 1998, are as follows:
1999 $ 6,041
2000 3,559
2001 1,243
2002 394
2003 and thereafter 7,509
$18,746
The Federal Home Loan Bank advances are collateralized with U.S.
Treasury Securities and 1-4 family mortgages. Interest on the Federal
Home Loan Bank advances is paid on a monthly basis.
The IBM note payable is being paid over 36 monthly installments which
includes principal and interest.
Upon expiration of the revolving credit, the outstanding balance may
be converted to a term loan and repaid over a period of seven years.
The Company, at its option, may select from various loan rates
including the following: Prime, LIBOR, or the lender's cost of funds
rate, plus or minus increments thereof. The LIBOR or cost of funds
rates may be fixed for a period up to six months. The revolving
credit is unsecured, but upon conversion is to be collateralized by
common stock of the subsidiary bank equal to 125% of the principal
balance of the loan. The existing loan agreement places certain
restrictions on the amount of capital which must be maintained by the
Company. At December 31, 1998, the Company was in compliance with all
of the terms of the agreement and had $17 million available under a
$25 million line of credit facility.
Note 10
INCOME TAXES
The provision for income taxes reflected in the statement of income is
comprised of the following components:
(Dollars in Thousands) 1998 1997 1996
Current:
Federal $7,185 $6,076 $4,469
State 851 923 511
Deferred:
Federal 117 182 891
State 16 31 152
Total $8,169 $7,212 $6,023
The net deferred tax asset and the temporary differences comprising
that balance at December 31, 1998 and 1997, are as follows:
(Dollars in Thousands) 1998 1997
Deferred Tax Asset attributable to:
Allowance for Loan Losses $2,806 $2,736
Stock Incentive Plan 491 764
Interest on Nonperforming Loans 144 -
Other 95 172
Total Deferred Tax Asset $3,536 $3,672
Deferred Tax Liability attributable to:
Employee Benefits $1,298 $1,055
Premises and Equipment 888 964
Deferred Loan Fees 336 392
Unrealized Gains on Investment Securities 395 356
Acquired Deposits 127 177
Securities Accretion 89 94
Other 84 143
Total Deferred Tax Liability 3,217 3,181
Net Deferred Tax Asset $ 319 $ 491
Income taxes provided were less than the tax expense computed by
applying the statutory federal income tax rates to income. The
primary differences are as follows:
(Dollars in Thousands) 1998 1997 1996
Statutory Rate 35% 35% 35%
Computed Tax Expense $8,212 $7,565 $6,735
Increases (Decreases)
Resulting From:
Tax-Exempt Interest Income (972) (1,065) (1,132)
State Income Taxes,
Net of Federal Income
Tax Benefit 544 393 351
Other 385 319 69
Actual Tax Expense $8,169 $7,212 $6,023
Note 11
ASSOCIATE BENEFITS
The Company sponsors a noncontributory pension plan covering
substantially all of its associates. Benefits under this plan
generally are based on the associate's years of service and
compensation during the years immediately preceding retirement. The
Company's general funding policy is to contribute amounts deductible
for federal income tax purposes.
The following table details the components of pension expense, the
funded status of the plan, amounts recognized in the Company's
consolidated statements of financial condition, and major assumptions
used to determine these amounts.
(Dollars in Thousands) 1998 1997 1996
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year $21,159 $17,551 $14,565
Service Cost 1,678 1,517 1,241
Interest Cost 1,478 1,331 1,156
Plan Participants' Contributions - - -
Amendments - - -
Actuarial Loss 1,181 1,342 83
Remeasurement Loss 169 324 981
Acquisition - - 569
Benefits Paid (3,186) (671) (897)
Expenses Paid (268) (235) (147)
Benefit Obligation at End of Year $22,211 $21,159 $17,551
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $25,826 $20,041 $16,733
Actual Return on Plan Assets 5,382 4,918 2,718
Acquisition - - -
Employer Contribution 1,494 1,773 1,634
Plan Participants' Contributions - - -
Benefits Paid (3,186) (671) (897)
Expenses Paid (268) (235) (147)
Fair Value of Plan Assets at End of Year $29,248 $25,826 $20,041
Funded Status $ 7,036 $ 4,667 $ 2,490
Unrecognized Net Actuarial (Gain) Loss (2,919) (957) 852
Unrecognized Prior Service Cost (704) (940) (1,176)
Prepaid Benefit Cost $ 3,413 $ 2,770 $ 2,166
Weighted-Average Assumptions:
Discount Rate 6.50% 7.00% 7.50%
Expected Return on Plan Assets 8.25% 8.25% 8.25%
Rate of Compensation Increase 5.50% 5.50% 5.50%
Components of Net Periodic Benefit Costs:
Service Cost $ 1,678 $ 1,517 $ 1,241
Interest Cost 1,478 1,331 1,156
Expected Return on Plan Assets (2,103) (1,630) (1,307)
Amortization of Prior Service Cost 164 164 164
Transition Asset Recognition (236) (236) (236)
Recognized Net Actuarial (Gain) Loss (131) 24 130
Net Periodic Benefit Cost $ 850 $ 1,170 $ 1,148
The Company has a Supplemental Employee Retirement Plan covering
selected executives. Benefits under this plan generally are based on
the associate's years of service and compensation during the years
immediately preceding retirement. The Company recognized expense
during 1998, 1997 and 1996 of $193,000, $201,000 and $145,000
respectively, and a minimum liability adjusted to $0, $19,148 and
$69,653 at December 31, 1998, 1997 and 1996 respectively.
The Company has an Associate Incentive Plan under which shares of the
Company's stock are issued as incentive awards to selected
participants. Seven hundred fifty thousand shares of common stock are
reserved for issuance under this plan. The expense recorded related
to this plan was approximately $735,000, $1,210,000, and $740,000 in
1998, 1997 and 1996, respectively. The Company issued 48,508 shares
under the plan in 1998.
The Company has an Associate Stock Purchase Plan under which
associates may elect to make a monthly contribution towards the
purchase of Company stock on a semi-annual basis. Four hundred fifty
thousand shares of common stock are reserved for issuance under the
Stock Purchase Plan. The Company issued 30,314 shares under the plan
in 1998.
The Company has a Director Stock Purchase Plan. One hundred fifty
thousand shares have been reserved for issuance. In 1998, the Company
issued 14,052 shares under this plan.
The Company has a 401(k) Plan which enables associates to defer a
portion of their salary on a pre-tax basis. The plan covers
substantially all associates of the Company who meet minimum age
requirements. The plan is designed to enable participants to elect to
have an amount from 1% to 15% of their compensation withheld in any
plan year placed in the 401(k) Plan trust account. Matching
contributions from the Company can be made up to 6% of the
participant's compensation at the discretion of the Company. During
1998, no contributions were made by the Company. The participant may
choose to invest their contributions into seven investment funds
available to CCBG participants, including the Company's common stock.
The Company has a Dividend Reinvestment and Optional Stock Purchase
Plan. Seven hundred fifty thousand shares have been reserved for
issuance. The Company did not issue any shares under this plan in
1998.
Note 12
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
(Dollars in Thousands, Except Per share Data)(1)
1998 1997 1996
Numerator:
Net Income $ 15,294 $ 14,401 $ 13,219
Preferred Stock Dividends - - -
Numerator for Basic Earnings Per Share
Income to Common Shareowners' 15,294 14,401 13,219
Effect of Dilutive securities:
Preferred stock dividends - - -
Numerator for Diluted Earnings Per Share
Income Available to Common Shareowners'
After Assumed Conversions $ 15,294 $ 14,401 $ 13,219
Denominator:
Denominator for Basic Earnings Per Share
Weighted-Average Shares 10,146,393 10,031,116 9,908,762
Effects of Dilutive Securities:
Associate Stock Incentive Plan 21,237 32,736 39,314
Dilutive Potential Common Shares 21,237 32,736 39,314
Denominator for Diluted Earnings Per Share
Adjusted Weighted-Average Shares and
Assumed Conversions 10,167,630 10,060,852 9,948,076
Basic Earnings Per Share $ 1.51 $ 1.44 $ 1.33
Diluted Earnings per Share $ 1.50 $ 1.43 $ 1.33
(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 Company adopted SFAS No. 128, "Earnings Per Share" on December 31,
1997. The adoption of the SFAS No. 128 did not have a significant
impact on the reported results of operation.
Note 13
CAPITAL
The Company is subject to various regulatory capital requirements
which involve quantitative measures of the Company's assets,
liabilities and certain off-balance sheet items. The Company's
capital amounts and classification are subject to qualitative
judgments by the regulators about components, risk weightings, and
other factors. Quantitative measures established by regulation to
ensure capital adequacy require that the Company maintain amounts and
ratios (set forth in the table below) of total and Tier I capital to
risk-weighed assets, and of Tier I capital to average assets. As of
December 31, 1998, the Company meets all capital adequacy requirements
to which it is subject.
A summary of actual, required, and capital levels necessary to be
considered well-capitalized for Capital City Bank Group, Inc. ("CCBG,
Inc.") consolidated and its banking subsidiaries, Capital City Bank
("CCB") and First National Bank of Grady County ("FNB"),as of December
31, 1998 and December 31, 1997 are shown below:
(Dollars in Thousands)
To Be Well-
Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1998:
Tier I Capital:
CCBG, Inc. $ 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%
FNB Grady 16,536 19.86% 5,347 4.00% 8,021 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%
FNB Grady 17,581 21.11% 10,695 8.00% 13,369 10.00%
Tier I Leverage:
CCBG, Inc. 7.84% 3.00% 5.00%
CCB 7.62% 3.00% 5.00%
FNB Grady 14.77% 3.00% 5.00%
As of December 31, 1997:
Tier I Capital:
CCBG, Inc. $107,515 14.43% $29,805 4.00% $44,707 6.00%
CCB 101,386 15.18% 26,707 4.00% 40,078 6.00%
FNB Grady 14,767 19.47% 3,033 4.00% 4,550 6.00%
Total Capital:
CCBG, Inc. 116,790 15.67% 59,610 8.00% 74,512 10.00%
CCB 109,708 16.43% 53,416 8.00% 66,796 10.00%
FNB Grady 15,720 20.73% 6,067 8.00% 7,583 10.00%
Tier I Leverage:
CCBG, Inc. 9.65% 3.00% 5.00%
CCB 10.05% 3.00% 5.00%
FNB Grady 14.12% 3.00% 5.00%
Note 14
DIVIDEND RESTRICTIONS
Substantially all the Company's retained earnings are undistributed
earnings of its banking subsidiary, which are restricted by various
regulations administered by Federal and state bank regulatory
authorities.
The approval of the appropriate regulatory authority is required if
the total of all dividends declared by a subsidiary bank in any
calendar year exceeds the bank's net profits (as defined) for that
year combined with its retained net profits for the preceding two
calendar years. In 1999, the bank subsidiaries may declare dividends
without regulatory approval of $17.6 million plus an additional amount
equal to the net profits of the Company's subsidiary banks for 1999 up
to the date of any such dividend declaration.
Note 15
RELATED PARTY INFORMATION
The Chairman of the Board of Capital City Bank Group, Inc., is
chairman of the law firm which serves as general counsel to the
Company and its subsidiaries. Fees paid by the Company and its
subsidiaries for these services, in aggregate, approximated $340,000,
$295,000 and $347,000 during 1998, 1997, and 1996, respectively.
Under a lease agreement expiring in 2024, a bank subsidiary leases
land from a partnership in which several directors and officers have
an interest. The lease agreement provides for annual lease payments
of approximately $65,000, to be adjusted for inflation in future
years.
At December 31, 1998 and 1997, certain officers and directors were
indebted to the Company's bank subsidiaries in the aggregate amount of
$8,831,000 and $13,688,987, respectively. During 1998, $9,554,000 in
new loans were made and repayments totaled $14,411,987. These loans
were made on similar terms as loans to other individuals of comparable
creditworthiness.
Note 16
SUPPLEMENTARY INFORMATION
Components of noninterest income in excess of 1% of total interest
income and noninterest expense in excess of 1% of total interest
income and noninterest income, which are not disclosed separately
elsewhere, are presented below for each of the respective years.
(Dollars in Thousands) 1998 1997 1996
Noninterest Income:
Merchant Fee Income $1,184 $1,126 $ 978
Interchange Commission Fees 1,004 621* 639*
Gains on the Sale of
Real Estate Loans 1,625 853 241*
Noninterest Expense:
Associate Insurance 1,448 1,357 1,250
Payroll Taxes 1,485 1,352 1,199
Maintenance and Repairs 2,773 2,306 2,331
Professional Fees 1,337 1,341 1,273
Printing & Supplies 1,811 1,646 1,690
Commission/Service Fees 1,336 1,078 819*
Telephone 1,158 942* 848*
*Less than 1% of the appropriate threshold.
Note 17
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISKS
The Company is a party to financial instruments with off-balance-sheet
risks in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit.
The Company's maximum exposure to credit loss under standby letters of
credit and commitments to extend credit is represented by the
contractual amount of those instruments. The Company uses the same
credit policies in establishing commitments and issuing letters of
credit as it does for on-balance-sheet instruments. As of December
31, 1998, the amounts associated with the Company's off-balance-sheet
obligations were as follows:
(Dollars in Thousands) Amount
Commitments to Extend Credit(1) $251,901
Standby Letters of Credit $ 2,290
(1) Commitments include unfunded loans, revolving lines of credit
(including credit card lines) and other unused commitments.
Commitments to extend credit are agreements to lend to a customer so
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities. In general,
management does not anticipate any material losses as a result of
participating in these types of transactions. However, any potential
losses arising from such transactions are reserved for in the same
manner as management reserves for its other credit facilities.
For both on- and off-balance-sheet financial instruments, the Company
requires collateral to support such instruments when it is deemed
necessary. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on management's credit evaluation of the
counterpart. Collateral held varies, but may include deposits held in
financial institutions; U.S. Treasury securities; other marketable
securities; real estate; accounts receivable; property, plant and
equipment; and inventory.
Note 18
FAIR VALUE OF FINANCIAL INSTRUMENTS
Many of the Company's assets and liabilities are short-term financial
instruments whose carrying values approximate fair value. These items
include Cash and Due From Banks, Interest Bearing Deposits with Other
Banks, Federal Funds Sold, Federal Funds Purchased and Securities Sold
Under Repurchase Agreements, and Short-Term Borrowings. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. The
resulting fair values may be significantly affected by the assumptions
used, including the discount rates and estimates of future cash flows.
The methods and assumptions used to estimate the fair value of the
Company's other financial instruments are as follows:
Investment Securities - Fair values for investment securities are
based on quoted market prices. If a quoted market price is not
available, fair value is estimated using market prices for similar
securities.
Loans - The loan portfolio is segregated into categories and the fair
value of each loan category is calculated using present value
techniques based upon projected cash flows and estimated discount
rates. The calculated present values are then reduced by an
allocation of the allowance for loan losses against each respective
loan category.
Deposits - The fair value of Noninterest Bearing Deposits, NOW
Accounts, Money Market Accounts and Savings Accounts are the amounts
payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Long-Term Debt - The carrying value of the Company's long-term debt
approximates fair value as the current rate approximates the market
rate.
Commitments to Extend Credit and Standby Letters of Credit - The fair
value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into
account the present creditworthiness of the counterparts. Fair value
of these fees is not material.
The Company's financial instruments which have estimated fair values
differing from their respective carrying values are presented below:
At December 31,
1998 1997
Estimated Estimated
Carrying Fair Carrying Fair
(Dollars in Thousands) Value Value Value Value
Financial Assets:
Loans, Net of Allowance
for Loan Losses $ 834,390 $ 855,574 $765,789 $771,329
Financial Liabilities:
Deposits 1,253,553 1,233,623 922,841 923,088
Certain financial instruments and all nonfinancial instruments are
excluded from the disclosure requirements. The disclosures also do
not include certain intangible assets such as customer relationships,
deposit base intangibles and goodwill. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of
the Company.
Note 19
PARENT COMPANY FINANCIAL INFORMATION
The operating results of the parent company for the three years ended
December 31, are shown below:
Parent Company Statements of Income
(Dollars in Thousands) 1998 1997 1996
OPERATING INCOME
Income Received from Subsidiary Banks:
Dividends $ 7,190 $ 6,870 $ 9,870
Overhead Fees 4,007 3,868 3,123
Total Operating Income 11,197 10,738 12,993
OPERATING EXPENSE
Salaries and Employee Benefits 2,171 2,445 2,353
Interest on Debt 832 988 523
Professional Fees 527 617 332
Advertising 711 597 430
Restructuring Charge - 338 -
Legal Fees 115 126 85
Other 696 526 482
Total Operating Expense 5,052 5,637 4,205
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary Banks 6,145 5,101 8,788
Income Tax Benefit (394) (670) (378)
Income Before Equity in Undistributed
Earnings of Subsidiary Banks 6,539 5,771 9,166
Equity in Undistributed Earnings
of Subsidiary Banks 8,755 8,630 4,053
Net Income $15,294 $14,401 $13,219
The following are condensed statements of financial condition of the
parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands) 1998 1997
ASSETS
Cash and Due From Group Banks $ 4,749 $ 4,699
Investment in Subsidiary Banks 132,727 124,600
Other Assets 512 997
Total Assets $137,988 $130,296
LIABILITIES
Long-Term Debt $ 8,000 $ 13,000
Other Liabilities 1,126 1,489
Total Liabilities 9,126 14,489
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; 10,163,919 and 10,085,650
shares issued and outstanding 102 101
Additional Paid-in Capital 8,561 6,544
Retained Earnings 119,521 108,555
Accumulated Other Comprehensive
Income, Net of Tax 678 607
Total Shareowners' Equity 128,862 115,807
Total Liabilities and Shareowners' Equity $137,988 $130,296
The cash flows for the parent company for the three years ended
December 31, were as follows:
Parent Company Statements of Cash Flows
1998 1997 1996
Cash Flows From Operating Activities:
Net Income $15,294 $14,401 $13,219
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in undistributed
earnings of Subsidiary Banks (8,755) (8,630) (4,053)
Non-Cash Compensation 868 563 589
Amortization of Goodwill 25 25 29
Decrease (Increase) in Other Assets 1,155 (295) (476)
Net (Decrease) Increase in Other Liabilities (357) 299 137
Net Cash Provided by Operating Activities 8,230 6,363 9,445
Cash From Financing Activities:
Borrowings of Long-Term Debt - - 15,000
Acquisition of First Financial - - (20,666)
Acquisition of Interest-Bearing Deposits - (141) (375)
Repayment of Long-Term Debt (5,000) (2,000) -
Payment of Dividends (4,328) (3,727) (3,333)
Issuance of Common Stock, Net 1,148 1,040 461
Net Cash Used in Financing Activities (8,180) (4,828) (8,913)
Net Increase in Cash 50 1,535 532
Cash at Beginning of Period 4,699 3,164 2,632
Cash at End of Period $ 4,749 $ 4,699 $ 3,164
Note 20
CORPORATE REORGANIZATION
On October 18, 1997, the Company consolidated its three remaining bank
affiliates, Levy County State Bank, Farmers & Merchants Bank of
Trenton and Branford State Bank into Capital City Bank. The
consolidation enabled the Company to present a consistent image to a
broader market and to better serve its clients through the use of a
common name with multiple, convenient locations. The Company's
operating results for 1997 included pre-tax charges of $655,000, which
were attributable to the corporate reorganization.
Note 21
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standard Board issued SFAS No.
130, "Reporting Comprehensive Income", which requires that certain
transactions and other economic events that bypass the income
statement must be displayed as other comprehensive income. The
Company's comprehensive income consists of net income and changes in
unrealized gains (losses) on securities available-for-sale, net of
income taxes.
Comprehensive income for 1998, 1997 and 1996 was calculated as
follows:
(Dollars in Thousands) 1998 1997 1996
Net Unrealized Gains (Losses)
Recognized in Other Comprehensive Income:
Before Tax $ 109 $ 802 $(1,515)
Less Income Tax 38 281 530
Net of Tax 71 521 (985)
Amounts Reported in Net Income:
Gain (Loss) On Sale of Securities 87 (15) 50
Net Amortization (Accretion) 758 695 1,006
Reclassification Adjustment 845 680 1,056
Less Income Tax Expense 296 238 370
Reclassification Adjustment, Net of Tax 549 442 686
Amounts Reported in Other Comprehensive Income:
Unrealized Gain (Loss) Arising During the
Period, Net of Tax 620 963 (299)
Net Unrealized Gains (Losses) Recognized in
Reclassification Adjustments, Net of Tax (549) (442) (686)
Other Comprehensive Income 71 521 (985)
Net Income 15,294 14,401 13,219
Total Comprehensive Income $15,365 $14,922 $12,234
Selected Financial & Other Data
(Dollars in Thousands, Except Per Share Data)(1)
For the Years Ended December 31,
1998 1997 1996 1995 1994
Interest Income $ 89,010 $ 84,981 $ 74,406 $ 62,117 $ 54,065
Net Interest Income 53,762 52,293 45,846 38,763 37,281
Provision for Loan Losses 2,439 2,328 1,863 556 1,578
Net Income 15,294 14,401 13,219 11,181 10,183
Per Common Share:
Basic Net Income $ 1.51 $ 1.44 $ 1.33 $ 1.13 $ 1.03
Diluted Net Income 1.50 1.43 1.33 1.13 1.03
Cash Dividends Declared .43 .37 .34 .29 .26
Book Value 12.70 11.54 10.39 9.42 8.45
Based on Net Income:
Return on Average Assets 1.30% 1.30% 1.31% 1.31% 1.22%
Return on Average Equity 12.37 13.10 13.52 12.72 12.67
Dividend Pay-out Ratio 28.20 26.10 25.45 25.38 25.23
Averages for the Year:
Loans, Net of Unearned
Interest $ 824,197 $ 770,416 $ 631,437 $493,654 $462,290
Earning Assets 1,065,677 1,000,466 908,137 764,259 744,458
Assets 1,180,785 1,108,088 1,012,480 855,894 831,655
Deposits 985,119 924,891 856,540 735,966 721,651
Long-Term Debt 18,041 19,412 10,895 71 1,144
Shareowners' Equity 123,647 109,948 97,738 87,878 80,399
Year-End Balances:
Loans, Net of Unearned
Interest $ 844,217 $ 775,451 $ 741,376 $505,314 $476,221
Earning Assets 1,288,439 998,401 996,827 799,243 723,371
Assets 1,443,675 1,116,651 1,123,221 905,856 828,951
Deposits 1,253,553 922,841 952,744 778,161 722,571
Long-Term Debt 18,746 18,106 18,847 1,982 -
Shareowners' Equity 128,862 115,807 103,009 93,058 83,251
Equity to Assets Ratio 8.93% 10.37% 9.17% 10.27% 10.04%
Other Data:
Basic Average Shares
Outstanding 10,146,393 10,031,116 9,908,762 9,869,267 9,852,041
Shareowners of Record(2) 1,334 1,234 1,045 973 801
Banking Locations(2) 46 39 38 32 31
Full-Time Equivalent
Associates(2) 677 637 617 544 528
(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) 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 1998 compares with prior years.
Throughout this section, Capital City Bank Group, Inc., and its
subsidiaries, collectively, are referred to as "CCBG" or the
"Company." The subsidiary bank is referred to as the "Bank" or "CCB".
The year-to-date averages used in this report are based on daily
balances for each respective year. In certain circumstances, comparing
average balances for the fourth quarter of consecutive years may be
more meaningful than simply analyzing year-to-date averages.
Therefore, where appropriate, quarterly averages have been presented
for analysis and have been noted as such. See Table 2 for annual
averages and Table 14 for financial information presented on a
quarterly basis.
All prior period share and per share data have been adjusted to
reflect a three-for-two stock split effective June 1, 1998, and a two-
for-one stock split effective April 1, 1997 and the pooling-of-
interests for Grady Holding Company.
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.
On July 1, 1996, the Company completed its acquisition of First
Financial Bancorp, Inc. and its wholly-owned subsidiary, First Federal
Bank (collectively referred to as "First Financial"). The acquisition
was accounted for as a purchase. Operating results of First Financial
are included in the Company's consolidated financial statements
presented herein for all periods subsequent to June 30, 1996. On
December 6, 1996, First Federal Bank was merged into the Company's
lead bank, Capital City Bank. Financial comparisons to prior year
periods are not necessarily comparable due to the impact of the
acquisition.
The bank is headquartered in Tallahassee and, as of December 31, 1998,
had forty-four offices covering seventeen counties.
EARNINGS ANALYSIS
In 1998, the Company's earnings were $15.3 million, or $1.51 per basic
share, This compares to earnings of $14.4 million, or $1.44 per
basic share, in 1997, and $13.2 million, or $1.33 per basic share, in
1996. The Company's diluted per share earnings were $1.50 in 1998,
$1.43 in 1997 and $1.33 in 1996, respectively.
On a per diluted share basis, earnings increased 4.9% in 1998 versus
7.5% in 1997. Growth in operating revenues (defined as net interest
income plus noninterest income) of $4.4 million, or 5.9%, was the most
significant factor contributing to increased earnings in 1998. This
and other factors are discussed throughout the Financial Review. A
condensed earnings summary is presented in Table 1.
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share Data)(1)
For the Years Ended December 31,
1998 1997 1996
Interest Income $89,010 $84,981 $74,406
Taxable Equivalent Adjustments 1,402 1,610 1,771
Total Interest Income (FTE) 90,412 86,591 76,177
Interest Expense 35,248 32,688 28,560
Net Interest Income (FTE) 55,164 53,903 47,617
Provision for Loan Losses 2,439 2,328 1,863
Taxable Equivalent Adjustments 1,402 1,610 1,771
Net Interest Income After Provision
for Loan Losses 51,323 49,965 43,983
Noninterest Income 22,584 19,484 17,289
Noninterest Expense 50,444 47,836 42,030
Income Before Income Taxes 23,463 21,613 19,242
Income Taxes 8,169 7,212 6,023
Net Income $15,294 $14,401 $13,219
Basic Net Income Per Share $ 1.51 $ 1.44 $ 1.33
Diluted Net Income Per Share $ 1.50 $ 1.43 $ 1.33
(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.
Net Interest Income
Net interest income represents the Company's single largest source of
earnings and is equal to interest income and fees generated by earning
assets less interest expense paid on interest bearing liabilities. An
analysis of the Company's net interest income, including average
yields and rates, is presented in Tables 2 and 3. This information is
presented on a "taxable equivalent" basis to reflect the tax-exempt
status of income earned on certain loans and investments, the majority
of which are state and local government debt obligations.
In 1998, taxable-equivalent net interest income increased $1.3
million, or 2.4%. This follows an increase of $6.3 million, or 13.2%
in 1997, and $7.3 million, or 18.0%, in 1996. Taxable equivalent net
interest income during 1998 is attributable to growth in earning
assets. The favorable impact of asset growth was partially offset by
declining yields reflecting the overall decline in general interest
rates.
<TABLE>
Table 2
AVERAGE BALANCES AND INTEREST RATES
(Taxable Equivalent Basis - Dollars in Thousands)
<CAPTION>
1998 1997 1996
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans, Net of Unearned Interest(1)(2) $ 824,197 $76,104 9.23% $ 770,416 $72,365 9.39% $ 631,437 $59,210 9.38%
Taxable Investment Securities 107,484 6,417 5.97 124,576 7,919 6.36 153,031 9,540 6.23
Tax-Exempt Investment Securities(2) 67,297 4,315 6.41 69,956 4,693 6.71 73,962 5,169 6.99
Funds Sold 66,699 3,576 5.36 35,518 1,614 4.54 49,707 2,258 4.54
Total Earning Assets 1,065,677 90,412 8.48 1,000,466 86,591 8.66 908,137 76,177 8.39
Cash & Due From Banks 53,293 53,255 56,406
Allowance For Loan Losses (10,056) (9,736) (8,645)
Other Assets 71,871 64,103 56,582
TOTAL ASSETS $1,180,785 $1,108,088 $1,012,480
Liabilities:
NOW Accounts $ 119,134 $ 2,223 1.87% $ 115,663 $ 1,978 1.71% $ 116,497 $ 2,091 1.79%
Money Market Accounts 86,244 2,562 2.97 83,684 2,510 3.00 88,642 2,622 2.96
Savings Accounts 101,007 2,243 2.22 95,323 2,008 2.11 95,935 2,115 2.20
Other Time Deposits 469,087 25,091 5.35 433,300 22,934 5.29 371,241 19,364 5.22
Total Interest Bearing Deposits 775,472 32,119 4.14 727,970 29,430 4.04 672,315 26,192 3.90
Funds Purchased 37,797 1,842 4.87 31,518 1,659 5.26 25,181 1,229 4.88
Other Short-Term Borrowings 1,190 62 5.21 5,976 315 5.27 7,016 422 6.43
Long-Term Debt 18,041 1,225 6.79 19,412 1,284 6.61 10,895 717 6.31
Total Interest Bearing Liabilities 832,500 35,248 4.23 784,876 32,688 4.16 715,407 28,560 3.99
Noninterest Bearing Deposits 209,647 196,921 184,225
Other Liabilities 14,991 16,343 15,110
TOTAL LIABILITIES 1,057,138 998,140 914,742
Shareowners' Equity:
Common Stock 102 100 100
Additional Paid-In Capital 8,040 5,831 4,825
Retained Earnings 115,505 104,017 92,813
TOTAL SHAREOWNERS' EQUITY 123,647 109,948 97,738
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $1,180,785 $1,108,088 $1,012,480
Interest Rate Spread 4.25% 4.50% 4.40%
Net Interest Income $55,164 $53,903 $47,617
Net Interest Margin(3) 5.18% 5.39% 5.24%
(1) Average balances include nonaccrual loans. Interest income includes fees on
loans of approximately $3,233,000, $2,913,000 and $2,241,000 in 1998, 1997, and
1996, respectively.
(2) Interest income includes the effects of taxable equivalent adjustments
using a 35% tax rate to adjust interest on tax-exempt loans and securities to a
taxable equivalent basis.
(3) Tax-equivalent net interest income divided by earning assets.
</TABLE>
<TABLE>
Table 3
RATE/VOLUME ANALYSIS(1)
(Taxable Equivalent Basis - Dollars in Thousands)
<CAPTION>
1998 Changes from 1997 1997 Changes from 1996
Due To Due To
Average Average
Total Volume Rate Total Volume Rate
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, Net of Unearned Interest(2) $3,739 $4,965 $(1,226) $13,155 $13,055 $ 100
Investment Securities
Taxable (1,502) (1,020) (482) (1,621) (1,809) 188
Tax-Exempt (378) (170) (208) (476) (269) (207)
Funds Sold 1,962 1,650 312 (644) (645) 1
Total 3,821 5,425 (1,604) 10,414 10,332 82
Interest Bearing Liabilities:
NOW Accounts 245 (149) 394 (113) (14) (99)
Money Market Accounts 52 (35) 87 (112) (149) 37
Savings Accounts 235 (88) 323 (107) (13) (94)
Other Time Deposits 2,157 (941) 3,098 3,570 3,285 285
Funds Purchased 183 306 (123) 430 334 96
Other Short-Term Borrowings (253) (249) (4) (136) (55) (81)
Long-Term Debt (59) (242) 183 596 563 33
Total 2,560 (1,398) 3,958 4,128 3,951 177
Changes in Net Interest Income $1,261 $6,823 $(5,562) $ 6,286 $ 6,381 $ (95)
(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.
</TABLE>
For the year 1998, taxable equivalent interest income increased $3.8
million, or 4.4%, over 1997, compared to an increase of $10.4 million,
or 13.7%, in 1997 over 1996. The Company's taxable equivalent yield
on average earning assets of 8.48% represents a 18 basis point
decrease from 1997, compared to a 27 basis point improvement in 1997
over 1996. During 1998, interest income was positively impacted by
loan growth and the acquisition of First Federal-Florida. This was
partially offset by lower yields on earning assets resulting from the
decline in interest rates and increased competition. The loan
portfolio, which is the largest and highest yielding component of
earning assets, increased from 77.9% in the fourth quarter of 1997 to
81.3% in the comparable quarter of 1998, reflecting the acquisition of
$219 million in deposits from First Union.
Interest expense increased $2.6 million, or 7.8%, over 1997, compared
to an increase of $4.1 million, or 14.5%, in 1997 over 1996. The
higher level of interest expense in 1998 is attributable to the
acquisition of First Federal-Florida. The average rate paid on
interest-bearing liabilities was 4.23% in 1998, compared to 4.16% and
3.99%, in 1997 and 1996, respectively. The increase in the average
rate during 1998 is a direct result of the mix of deposits acquired
from First Federal-Florida and the introduction of a higher yielding
money market account. Certificates of deposit represent a higher cost
deposit product to the Company. Based on averages, certificates as a
percent of total deposits increased to 47.6% in 1998, compared to
46.9% in 1997, and 43.3% in 1996.
The Company's interest rate spread (defined as the taxable equivalent
yield on average earning assets less the average rate paid on interest
bearing liabilities) decreased twenty-five basis points in 1998 and
increased ten basis points in 1997. The decrease in 1998 is
attributable to the lower yield on earning assets resulting from the
lower rate environment. The increase in 1997 was attributable to the
higher yield on earning assets, which was driven by a more favorable
mix of earning assets.
The Company's net interest margin (defined as taxable equivalent
interest income less interest expense divided by average earning
assets) was 5.18% in 1998, compared to 5.39% in 1997 and 5.24% in
1996. In 1998, narrowing margins on the Company's incremental growth
resulted in the decline in the margin to 5.18%, or 21 basis points.
A further discussion of the Company's earning assets and funding
sources can be found in the section entitled "Financial Condition."
Provision for Loan Losses
The provision for loan losses was $2.4 million in 1998 versus $2.3
million in 1997 and $1.9 million in 1996. The provision approximates
total net charge-offs for 1998 and 1997. The Company's credit quality
measures declined slightly with a nonperforming assets ratio of .79%
compared to .37% at year-end 1997, and a net charge-off ratio of .28%
versus .27% in 1997.
At December 31, 1998, the allowance for loan losses totaled $9.8
million compared to $9.7 million in 1997. At year-end 1998, the
allowance represented 1.16% of total loans and 189% of nonperforming
loans. Management considers the allowance to be adequate based on the
current level of nonperforming loans and the estimate of losses
inherent in the portfolio at year-end. See the section entitled
"Financial Condition" for further information regarding the allowance
for loan losses. Selected loss coverage ratios are presented below:
1998 1997 1996
Provision for Loan Losses as a
Multiple of Net Charge-offs 1.1x 1.1x 1.1x
Pre-tax Income Plus Provision
for Loan Losses as a Multiple
of Net Charge-offs 11.4x 11.3x 12.4x
Noninterest Income
In 1998, noninterest income increased $3.1 million, or 15.9%, and
represented 29.0% of operating income, compared to $2.2 million, or
12.7% and 26.5%, respectively, in 1997. The increase in the level of
noninterest income is attributable to all major categories with the
exception of service charges. Factors affecting noninterest income
are discussed below.
Service charges on deposit accounts decreased $453,000, or 5.0%, in
1998, compared to an increase of $526,000, or 6.2%, in 1997. Service
charge revenues in any one year are dependent on the number of
accounts, primarily transaction accounts, and the level of activity
subject to service charges. The decrease in 1998 is primarily
attributable to higher compensating balances and an increase in
charged-off deposit accounts. Fees were increased during the fourth
quarter of 1998, and will favorably impact service charge income in
1999.
Data processing revenues increased $363,000, or 11.5%, in 1998 versus
an increase of $191,000, or 6.4%, in 1997. The data processing center
provides computer services to both financial and non-financial clients
in North Florida and South Georgia. In recent years, revenue gains
have been attributable to growth in processing for both financial and
non-financial clients. In 1998, processing revenues for non-financial
entities represented approximately 48% of the total processing
revenues, down from 51% in 1997, reflecting growth in processing
revenues for financial entities and a decline in revenues for non-
financial entities. In 1998, the Company changed its method of income
recognition on data processing revenues from the cash to the accrual
method. This resulted in a one-time adjustment which increased
revenues by $225,000.
In 1998, trust fees increased $559,000, or 46.5%, compared to $38,000,
or 3.3% in 1997. Increases in both years were attributable to growth
in assets under management. At year-end 1998, assets under management
totaled $261.2 million, reflecting growth of $75.5 million, or 40.6%.
For the comparable period in 1997, assets under management totaled
$185.7 million, reflecting growth of $54.4 million or 41.4%.
Other noninterest income increased $2.5 million, or 41.2%, in 1998
versus an increase of $1.5 million, or 32.4% in 1997. The increase in
1998 was attributable to ATM fees, brokerage revenues, interchange
commission fees and gains on the sale of real estate loans. The
Company realized gains on the sale of real estate loans totaling
approximately $1.5 million in 1998 compared to $803,000 in 1997.
Interchange commission fees increased $383,000, or 61.7% from 1997.
The increase in other noninterest income in 1997 was attributable to
ATM fees, gains recognized on the sale of real estate loans and gains
on the sale of bank assets.
Noninterest income as a percent of average assets was 1.91% in 1998
compared to 1.76% in 1997 and 1.71% in 1996.
Noninterest Expense
Noninterest expense for 1998 was $50.4 million, an increase of $2.6
million, or 5.5%, over 1997, compared with an increase of $5.8
million, or 13.8%, in 1997 over 1996. Factors impacting the Company's
noninterest expense during 1998 and 1997 are discussed below.
The Company's aggregate compensation expense in 1998 totaled $26.6
million, an increase of $678,000, or 2.6%,over 1997. Salaries
increased $1.5 million due to normal raises and additions to staff.
In addition to acquisitions, the Company added staff to capitalize on
competitive opportunities arising as a result of mergers of other
commercial banks within its market. Offsetting the increase in
salaries were reductions in pension expense and stock incentives. In
1997, total compensation increased $3.1 million, or 13.7%, over 1996.
Salaries increased $2.3 million due to normal raises, the full-year
impact of First Financial associates and a $317,000 charge associated
with restructuring. Additionally, a 93% increase in the Company's
stock price contributed to a $460,000, or 62.1%, increase in stock
compensation covered under the Company's Associate Incentive Plan.
Occupancy expense (including furniture, fixtures & equipment)
increased by $566,000, or 6.9%, in 1998, compared to $961,000, or
13.2%, in 1997. The increase in 1998 was attributable to higher cost
for maintenance and repair which increased $502,000, or 18.7%. The
increase in 1997 was attributable to higher depreciation and other
FF&E expense. Offsetting these increases in 1997 was a reduction in
maintenance and repairs.
Other noninterest expense increased $1.4 million and $1.7 million in
1998 and 1997, or 10.0% and 14.3%, respectively. The increase in 1998
was attributable to: (1) an increase in amortization expense of
approximately $335,000 due to the acquisitions of First Federal-
Florida and First Union offices; (2) an increase in advertising costs
of $463,000 due to greater product and market development; and (3) an
increase in printing and supplies costs of $143,000. The increase in
1997 was attributable to: (1) an increase in amortization expense of
approximately $300,000 due to the acquisition of First Financial
offices; (2) a one-time restructuring charge of $338,000 incurred by
the Company to consolidate its three remaining subsidiary banks into
Capital City Bank; (3) an increase in advertising expense of $180,000
due to the Company's enhanced focus on promoting products and the
acquisition of First Financial; and (4) an increase in credit card
processing fees, ORE expense and other miscellaneous expenses of
$259,000, $130,000 and $225,000, respectively.
Net noninterest expense ratio (defined as noninterest income minus
noninterest expense less amortization as a percent of average assets)
was 2.26% in 1998 compared to 2.42% in 1997 and 2.39% in 1996. The
Company's efficiency ratio (expressed as noninterest expenses, net of
intangible amortization, as a percent of taxable equivalent operating
revenues) was 63.4%, 63.1% (excluding restructuring charges), and
63.9% in 1998, 1997, and 1996, respectively.
Income Taxes
The consolidated provision for federal and state income taxes was $8.2
million in 1998 compared to $7.2 million in 1997 and $6.0 million in
1996. The increase in the tax provision over the last three years is
primarily attributable to the higher level of taxable income.
The effective tax rate was 34.8% in 1998, 33.4% in 1997, and 31.3% in
1996. These rates differ from the statutory tax rates due primarily
to tax-exempt income. The increase in the effective tax rate is
primarily attributable to the decreasing level of tax-exempt income
relative to pre-tax income and an increase in the statutory tax rate
for income greater than $10 million. Tax-exempt income (net of the
adjustment for disallowed interest) as a percent of pre-tax income was
18.0% in 1998, 21.7% in 1997, and 26.9% in 1996.
FINANCIAL CONDITION
Average assets increased $72.7 million, or 6.6%, from $1.2 billion in
1997 to $1.1 billion in 1998. Average earning assets increased to
$1.1 billion in 1998, a $65.2 million, or 6.5%, increase over 1997.
Average loans increased $53.8 million, or 7.0%, and accounted for
82.5% of the total growth in average earning assets. Loan growth in
1998 was funded primarily through deposits acquired through
acquisitions and maturities in the investment portfolio.
Table 2 provides information on average balances while Table 4
highlights the changing mix of the Company's earning assets over the
last three years.
Loans
Local markets were generally improved during 1998. Loan demand was
steady and internal growth was spread evenly throughout the year. The
First Federal-Florida acquisition completed in the first quarter of
1998 increased the number of markets served and enhanced the Company's
line of mortgage products and services. Price and product competition
remained strong during 1998 and there continues to be an increased
demand for fixed rate, longer-term financing. Areas that reflected
stronger demand were real estate, home equity and indirect automobile
lending.
Although management is continually evaluating alternative sources of
revenue, lending is a major component of the Company's business and is
key to profitability. While management strives to grow the Company's
loan portfolio, it can do so only by adhering to sound banking
principles applied in a prudent and consistent manner. Management
consistently strives to identify opportunities to increase loans
outstanding and enhance the portfolio's overall contribution to
earnings.
Table 4
SOURCES OF EARNING ASSET GROWTH
(Average Balances - Dollars in Thousands)
1997 to Percentage Components
1998 of Total of Total Earning Assets
Change Change 1998 1997 1996
Loans:
Commercial, Financial
and Agricultural $(4,284) (6.6)% 8.0% 8.3% 9.2%
Real Estate - Construction 2,740 4.2 4.5 4.5 4.0
Real Estate - Mortgage 41,000 62.9 49.9 49.1 42.1
Consumer 14,325 22.0 14.9 15.1 14.2
Total Loans 53,781 82.5 77.3 77.0 69.5
Securities:
Taxable (17,092) (26.2) 10.1 12.4 16.9
Tax-Exempt (2,659) (4.1) 6.3 7.0 8.1
Total Securities (19,751) (30.3) 16.4 19.4 25.0
Funds Sold 31,181 47.8 6.3 3.6 5.5
Total Earning Assets $65,211 100.0% 100.0% 100.0% 100.0%
The Company's average loan-to-deposit ratio increased from 83.3% in
1997 to 83.7% in 1998. It declined to a level of 78.8% in the fourth
quarter of 1998 compared to 84.8% in the fourth quarter of 1997. This
compares to an average loan-to-deposit ratio in 1996 of 73.7%. The
lower average quarterly loan-to-deposit ratio reflects the assumption
of deposits from First Union.
Real estate construction and mortgage loans, combined, represented
70.3% of total loans (net of unearned interest) in 1998 versus 70.1%
in 1997. See the section entitled "Risk Element Assets" for a
discussion concerning loan concentrations.
The composition of the Company's loan portfolio at December 31, for
each of the past five years is shown in Table 5. Table 6 arrays the
Company's total loan portfolio as of December 31, 1998, based upon
maturities. Demand loans and overdrafts are reported in the category
of one year or less. As a percent of the total portfolio, loans with
fixed interest rates have increased from 37.4% in 1997 to 41.6% in
1998.
Allowance for Loan Losses
Management attempts to maintain the allowance for loan losses at a
level sufficient to provide for estimated losses inherent in the loan
portfolio. The allowance for loan losses is established through a
provision charged to expense. Loans are charged against the allowance
when management believes collection of the principal is unlikely.
Management evaluates the adequacy of the allowance for loan losses on
a quarterly basis. The evaluations are based on the collectibility of
loans and take into consideration such factors as growth and
composition of the loan portfolio, evaluation of potential losses,
past loss experience and general economic conditions. As part of
these evaluations, management reviews all loans which have been
classified internally or through regulatory examination and, if
appropriate, allocates a specific reserve to each of these individual
loans. Further, management establishes a general reserve to provide
for losses inherent in the loan portfolio which are not specifically
identified. The general reserve is based upon management's evaluation
of the current and forecasted operating and economic environment
coupled with historical experience. The allowance for loan losses is
compared against the sum of the specific reserves plus the general
reserve and adjustments are made, as appropriate. Table 7 analyzes
the activity in the allowance over the past five years.
Table 5
LOANS BY CATEGORY
(Dollars in Thousands)
As of December 31,
1998 1997 1996 1995 1994
Commercial, Financial and
Agricultural $ 91,246 $ 82,641 $ 82,724 $ 67,975 $ 59,972
Real Estate - Construction 51,790 51,098 46,415 32,848 28,109
Real Estate - Mortgage 542,044 492,778 472,052 288,716 280,627
Consumer 159,137 148,934 143,935 120,629 113,583
Total Loans, Net of
Unearned Interest $844,217 $775,451 $745,126 $510,168 $482,291
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 $ 49,257 $ 37,679 $ 4,310 $ 91,246
Real Estate 110,274 65,573 417,987 593,834
Consumer 43,008 114,334 1,795 159,137
Total $202,539 $217,586 $424,092 $844,217
Loans with Fixed Rates $ 97,967 $179,983 $ 73,161 $351,111
Loans with Floating or
Adjustable Rates 104,572 37,603 350,931 493,106
Total $202,539 $217,586 $424,092 $844,217
The allowance for loan losses at December 31, 1998 of $9.8 million
compares to $9.7 million at year-end 1997. The allowance as a percent
of total loans was 1.16% in 1998 versus 1.25% in 1997. There can be
no assurance that in particular periods the Company will not sustain
loan losses which are substantial in relation to the size of the
allowance. When establishing the allowance, management makes various
estimates regarding the value of collateral and future economic
events. Actual experience may differ from these estimates. It is
management's opinion that the allowance at December 31, 1998, is
adequate to absorb losses from loans in the portfolio as of year-end.
Table 8 provides an allocation of the allowance for loan losses to
specific loan categories for each of the past five years. The
allocation of the allowance is developed using management's best
estimates based upon available information such as regulatory
examinations, internal loan reviews and historical data and trends.
The allocation by loan category reflects a base level allocation
derived primarily by analyzing the level of problem loans, specific
reserves and historical charge-off data. Current and forecasted
economic conditions, and other judgmental factors which cannot be
easily quantified (e.g. concentrations), are not presumed to be
included in the base level allocations, but instead are covered by the
unallocated portion of the reserve. The Company faces a geographic
concentration as well as a concentration in real estate lending. Both
risks are cyclical in nature and must be considered in establishing
the overall allowance for loan losses. Reserves in excess of the base
level reserves are maintained in order to properly reserve for the
losses inherent in the Company's portfolio due to these concentrations
and anticipated periods of economic difficulties. As part of its YEAR
2000 contingency plan (discussed on page 55), the Company has reviewed
its significant borrowers and allocated reserves to address the impact
of the YEAR 2000 issue.
Table 7
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
For the Years Ended December 31,
1998 1997 1996 1995 1994
Balance at Beginning of Year $9,662 $9,450 $7,522 $8,412 $8,324
Acquired Reserves - - 1,769 - -
Charge-Offs:
Commercial, Financial
and Agricultural 127 568 594 601 719
Real Estate-Construction 15 31 - - -
Real Estate-Mortgage 1,011 485 119 139 330
Consumer 2,004 1,978 1,691 1,310 926
Total Charge-Offs 3,157 3,062 2,404 2,050 1,975
Recoveries:
Commercial, Financial
and Agricultural 72 378 235 204 125
Real Estate - Construction 142 - 3 - -
Real Estate - Mortgage 176 83 - 10 15
Consumer 493 485 462 413 389
Total Recoveries 883 946 700 627 529
Net Charge-Offs 2,274 2,116 1,704 1,423 1,446
Provision for Loan Losses 2,439 2,328 1,863 533 1,534
Balance at End of Year $9,827 $9,662 $9,450 $7,522 $8,412
Ratio of Net Charge-Offs
Year to Average Loans Out-Standing,
Net of Unearned Interest .28% .28% .27% .29% .31%
Allowance for Loan Losses as a
Percent of Loans, Net of
Unearned Interest,at End of Year 1.16% 1.25% 1.27% 1.47% 1.74%
Allowance for Loan Losses as a
Multiple of Net Charge-Offs 4.32x 4.57x 5.55x 5.29x 5.82x
Risk Element Assets
Risk element assets consist of nonaccrual loans, renegotiated loans,
other real estate, loans past due 90 days or more, potential problem
loans and loan concentrations. Table 9 depicts certain categories of
the Company's risk element assets as of December 31, for each of the
last five years. Potential problem loans and loan concentrations are
discussed within the narrative portion of this section.
The Company's nonperforming loans increased $3.6 million, or 219.0%,
from a level of $1.6 million at December 31, 1997 to $5.2 million at
December 31, 1998. During 1998, loans totaling approximately $7.8
million were added, while loans totaling $4.2 million were removed
from nonaccruing status. Of the $7.8 million added, $3.6 million was
attributable to two relationships. Of the $4.2 million removed from
the nonaccrual category, $1.5 million consisted of principal
reductions, $1.0 million represented loans transferred to ORE, $1.0
million consisted of loans brought current and returned to an accrual
status and loans refinanced, and $700,000 were charged off. Where
appropriate, management has allocated specific reserves to absorb
anticipated losses. A majority of the Company's charge-offs in 1998
were in the consumer portfolio where loans are charged off based on
past due status and are not recorded as nonaccruing loans.
<TABLE>
Table 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
<CAPTION>
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Allow- Category Allow- Category Allow- Category Allow- Category Allow- Category
ance To Total ance To Total ance To Total ance To Total ance To Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $1,330 10.8% $ 665 10.7% $ 605 11.1% $ 708 13.3% $ 492 12.4%
Real Estate:
Construction 468 6.1 382 6.6 274 6.2 177 6.4 208 5.8
Mortgage 2,664 64.2 2,078 63.5 3,282 63.4 2,886 56.6 3,273 58.2
Consumer 2,175 18.9 2,137 19.2 1,875 19.3 1,213 23.7 1,073 23.6
Not Allocated 3,190 - 4,400 - 3,414 - 2,538 - 3,366 -
Total $9,827 100.0% $9,662 100.0% $9,450 100.0% $7,522 100.0% $8,412 100.0%
</TABLE>
Table 9
RISK ELEMENT ASSETS
(Dollars in Thousands)
As of December 31,
1998 1997 1996 1995 1994
Nonaccruing Loans $4,996 $1,403 $2,811 $3,151 $4,304
Restructured 195 224 262 1,686 1,694
Total Nonperforming Loans 5,191 1,627 3,073 4,837 5,998
Other Real Estate 1,468 1,244 1,489 1,001 1,675
Total Nonperforming Assets $6,659 $2,871 $4,562 $5,838 $7,673
Past Due 90 Days or More $1,124 $ 994 $ 638 $ 317 $ 364
Nonperforming Loans to Loans,
Net of Unearned Interest .61% .21% .41% .95% 1.24%
Nonperforming Assets to Loans,
Net of Unearned Interest,
Plus Other Real Estate .79% .37% .61% 1.14% 1.59%
Nonperforming Assets to Capital(1) 4.80% 2.28% 4.06% 5.81% 8.37%
Reserve to Nonperforming Loans 189.31% 593.85% 307.52% 155.51% 140.25%
(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 $384,000 higher for the year ended December 31, 1998.
Restructured loans are those with reduced interest rates or deferred
payment terms due to deterioration in the financial position of the
borrower.
Other real estate totaled $1.5 million at December 31, 1998 versus
$1.2 million at December 31, 1997. This category includes property
owned by Capital City Bank which was acquired either through
foreclosure procedures or by receiving a deed in lieu of foreclosure.
During 1998, the Company added properties totaling $1.9 million
(including parcels of bank premises) and partially or completely
liquidated properties totaling $1.6 million, resulting in a net
increase in other real estate of $300,000. Management does not
anticipate any significant losses associated with other real estate.
Potential problem loans are defined as those loans which are now
current but where management has doubt as to the borrower's ability to
comply with present loan repayment terms. Potential problem loans
totaled $325,000 at December 31, 1998.
Loan concentrations are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities
which cause them to be similarly impacted by economic or other
conditions and such amounts exceed 10% of total loans. Due to the
lack of diversified industry within the markets served by the Bank and
the relatively close proximity of the markets, the Company has both
geographic concentrations as well as concentrations in the types of
loans funded. Further, due to the nature of the Company's markets, a
significant portion of the portfolio is associated either directly or
indirectly with real estate. At December 31, 1998, approximately
70.3% of the portfolio consisted of real estate loans. Residential
properties comprise approximately 68.1% 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, 1998, management believes it has
identified and adequately reserved for such problem assets. However,
management recognizes that many factors can adversely impact various
segments of its markets, creating financial difficulties for certain
borrowers. As such, management continues to focus its attention on
promptly identifying and providing for potential losses as they arise.
Investment Securities
In 1998, the Company's average investment portfolio decreased $19.8
million, or 10.2%, compared to a decrease of $32.5 million, or 14.3%
in 1997. As a percentage of average earning assets, the investment
portfolio represented 16.4% in 1998, compared to 19.4% in 1997.
During the fourth quarter of 1998, the Company purchased approximately
$200.0 million in investment securities as a result of the assumption
of deposits from First Union, increasing the portfolio to 28.9% of
earning assets.
In 1998, average taxable investments decreased $17.1 million, or
13.7%, while tax-exempt investments decreased $2.7 million, or 3.8%.
Since the enactment of the Tax Reform Act of 1986, which significantly
reduced the tax benefits associated with tax-exempt investments,
management has monitored the level of tax-exempt investments. The tax-
exempt portfolio, as a percent of average earning assets, has declined
from 18.9% in 1986 to 6.3% in 1998. Management continues to purchase
"bank qualified" municipal issues when it considers the yield to be
attractive and the Company can do so without adversely impacting its
tax position. As part of the addition to the portfolio discussed
above, municipal securities, totaling approximately $28.6 million,
were purchased during the fourth quarter.
The investment portfolio is a significant component of the Company's
operations and, as such, it functions as a key element of liquidity
and asset/liability management. Securities may be classified as held-
to-maturity, available-for-sale or trading. As of December 31, 1998,
all securities are classified as available-for-sale. Classifying
securities as available-for-sale offers management full flexibility in
managing its liquidity and interest rate sensitivity without adversely
impacting its regulatory capital levels. Securities in the available-
for-sale portfolio are recorded at fair value and unrealized gains and
losses associated with these securities are recorded, net of tax, in
the accumulated other comprehensive income component of shareowners'
equity. At December 31, 1998, shareowners' equity included a net
unrealized gain of $678,000, compared to $607,000 at December 31,
1997. It is neither management's intent nor practice to participate
in the trading of investment securities for the purpose of recognizing
gains and therefore the Company does not maintain a trading portfolio.
The average maturity of the total portfolio at December 31, 1998 and
1997, was 2.98 and 1.93 years, respectively. See Table 10 for a
breakdown of maturities by portfolio.
The weighted average taxable-equivalent yield of the investment
portfolio at December 31, 1998, was 5.75% versus 6.48% in 1997. The
quality of the municipal portfolio at such date is depicted in the
chart below. There were no investments in obligations, other than
U.S. Governments, of any one state, municipality, political
subdivision or any other issuer that exceeded 10% of the Company's
shareowners' equity at December 31, 1998.
Table 10 and Note 3 in Notes to Consolidated Financial Statements
present a detailed analysis of the Company's investment securities as
to type, maturity and yield.
MUNICIPAL PORTFOLIO QUALITY
(Dollars in Thousands)
Moody's Rating Amortized Cost Percentage
AAA $58,450 61.6%
AA-1 2,684 2.8
AA-2 1,831 1.9
AA-3 2,456 2.6
AA 1,493 1.6
A-1 3,275 3.4
A-2 1,077 1.1
A 3,507 3.7
BAA 424 .5
Not Rated(1) 19,721 20.8
Total $94,918 100.0%
(1) Of the securities not rated by Moody's, $13.0 million are rated
"A" or higher by S&P.
Table 10
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars in Thousands)
As of December 31, 1998
Weighted
Amortized Cost Market Value Average Yield(1)
U. S. GOVERNMENTS
Due in 1 year or less $ 29,034 $ 29,164 5.59%
Due over 1 year thru 5 years 75,666 75,620 5.43
Due over 5 years thru 10 years - - -
Due over 10 years - - -
TOTAL 104,700 104,784 5.48
STATE & POLITICAL SUBDIVISIONS
Due in 1 year or less 12,927 13,013 6.35
Due over 1 year thru 5 years 44,775 45,603 6.37
Due over 5 years thru 10 years 37,216 37,436 5.74
Due over 10 years - - -
TOTAL 94,918 96,052 6.12
MORTGAGE-BACKED SECURITIES(2)
Due in 1 year or less 30 30 6.04
Due over 1 year thru 5 years 92,163 91,926 5.81
Due over 5 years thru 10 years 990 989 5.81
Due over 10 years - - -
TOTAL 93,183 92,945 5.81
OTHER SECURITIES
Due in 1 Year or less 39,468 39,427 5.45
Due over 1 year thru 5 years 32,125 32,244 5.51
Due over 5 years thru 10 years 1,553 1,589 5.98
Due over 10 years* 4,576 4,556 6.91
TOTAL 77,722 77,816 5.57
Total Investment Securities $370,523 $371,597 5.75%
*Federal Home Loan Bank Stock and Federal Reserve Bank Stock do not have
stated maturities.
(1) Weighted average yields are calculated on the basis of the
amortized cost of the security. The weighted average yields on tax-
exempt obligations are computed on a taxable-equivalent basis using a
35% tax rate.
(2) Based on weighted average life.
AVERAGE MATURITY (In Years)
AS OF DECEMBER 31, 1998
U.S. Governments 2.32
State and Political Subdivisions 3.52
Mortgage-Backed Securities 4.14
Other Securities 1.83
TOTAL 2.98
Deposits And Funds Purchased
Average total deposits increased from $924.9 million in 1997 to $985.1
million in 1998, representing an increase of $60.2 million, or 6.5%,
compared with an increase of $68.4 million, or 8.0%, in 1997. In
1998, the annual average increase is attributable to the acquisition
of First Federal-Florida offices and internal growth. In 1997, the
increase is attributable to the acquisition of First Financial.
In the fourth quarter of 1998, deposits averaged $1.06 billion,
compared to $925.0 million for the same period in 1997. The Company
continues to experience a notable increase in competition for
deposits, in terms of both rate and product. The Company introduced
CashPower, a higher yielding money market product in the fourth
quarter of 1998. The new CashPower product represents 26.9% of the
money market balance at year end 1998.
As of year-end 1998, deposits totaled $1.3 billion, an increase of
$331 million over the year-end 1997. This increase primarily reflects
growth through acquisitions (approximately $275 million) and the
introduction of the CashPower account.
Table 2 provides an analysis of the Company's average deposits, by
category, and average rates paid thereon for each of the last three
years. Table 11 reflects the shift in the Company's deposit mix over
the last three years and Table 12 provides a maturity distribution of
time deposits in denominations of $100,000 and over.
Average funds purchased, which include federal funds purchased and
securities sold under agreements to repurchase, increased $6.3
million, or 19.9%. See Note 8 in the Notes to Consolidated Financial
Statements for further information.
Table 11
SOURCES OF DEPOSIT GROWTH
(Average Balances - Dollars in Thousands)
1997 to Percentage
1998 of Total Components of Total Deposits
Change Change 1998 1997 1996
Noninterest Bearing
Deposits $12,726 21.1% 21.3% 21.1% 21.5%
NOW Accounts 3,471 5.8 12.1 12.5 13.6
Money Market Accounts 2,560 4.3 8.8 9.2 10.4
Savings 5,684 9.4 10.2 10.3 11.2
Other Time Deposits 35,787 59.4 47.6 46.9 43.3
Total Deposits $60,228 100.0% 100.0% 100.0% 100.0%
Table 12
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR OVER
(Dollars in Thousands)
December 31, 1998
Time Certificates of Deposit Percent
Three months or less $ 50,309 41.8%
Over three through six months 29,761 24.8
Over six through twelve months 28,866 24.0
Over twelve months 11,276 9.4
Total $120,212 100.0%
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for a banking institution is the availability of funds to
meet increased loan demand and/or excessive deposit withdrawals.
Management monitors the Company's financial position to ensure it has
ready access to sufficient liquid funds to meet normal transaction
requirements, take advantage of investment opportunities and cover
unforeseen liquidity demands. In addition to core deposit growth,
sources of funds available to meet liquidity demands include cash
received through ordinary business activities (i.e. collection of
interest and fees), federal funds sold, loan and investment
maturities, bank lines of credit for the Company and approved lines
for the purchase of federal funds by CCB.
As of December 31, 1998, the Company had a $25.0 million credit
facility under which $17 million was currently available. The
facility offers the Company an unsecured, revolving line of credit for
a period of three years which matures in November 2001. Upon
expiration of the revolving line of credit, the outstanding balance
may be converted to a term loan and repaid over a period of seven
years. The term loan is to be secured by stock of a subsidiary bank
equal to at least 125% of the principal balance of the term loan. The
Company, at its option, may select from various loan rates including
Prime, LIBOR or the lenders' Cost of Funds rate ("COF"), plus or minus
increments thereof. The LIBOR or COF rates may be fixed for a period
of up to six months. The Company also has the option to select fixed
rates for periods of one through five years. On July 1, 1996, the
Company borrowed $15.0 million in connection with the acquisition of
First Financial. In 1998, the Company reduced the amount of debt to
$8.0 million. The average interest rate during 1998 was 7.11%.
The Company's credit facility imposes certain limitations on the level
of the Company's equity capital, and federal and state regulatory
agencies have established regulations which govern the payment of
dividends to a bank holding company by its bank subsidiaries. Based
on the Company's current financial condition, these limitations and/or
regulations do not impair the Company's ability to meet its cash
obligations or limit the Company's ability to pay future dividends on
its common stock at current payout rate.
At December 31, 1998, the Company had $10.4 million in long-term debt
outstanding to the Federal Home Loan Bank of Atlanta. The debt
consists of ten loans. The interest rates are fixed and the weighted
average rate at December 31, 1998 was 6.10%. Required annual principal
reductions approximate $541,000, with the remaining balances due at
maturity ranging from 2005 to 2018. The debt was used to match-fund
selected lending activities and is secured investment securities and
by first mortgage residential real estate loans which are included in
the Company's loan portfolio. See Note 9 in the Notes to Consolidated
Financial Statements for additional information as to the Company's
long-term debt.
The Company is a party to financial instruments with off-balance-sheet
risks in the normal course of business to meet the financing needs of
its customers. At December 31, 1998, the Company had $251.9 million
in commitments to extend credit and $2.3 million in standby letters of
credit. Commitments to extend credit are agreements to lend to a
customer so long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. Standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. The Company uses the same credit policies
in establishing commitments and issuing letters of credit as it does
for on-balance-sheet instruments. If commitments arising from these
financial instruments continue to require funding at historical
levels, management does not anticipate that such funding will
adversely impact its ability to meet on-going obligations.
It is anticipated capital expenditures will approximate $6.0 to $7.0
million over the next twelve months. Management believes these
capital expenditures can be funded internally without impairing the
Company's ability to meet its on-going obligations.
Shareowners' equity as of December 31, for each of the last three
years is presented below.
Shareowners' Equity
(Dollars in Thousands)
1998 1997 1996
Common Stock $ 102 $ 101 $ 100
Additional Paid-in Capital 8,561 6,544 4,942
Retained Earnings 119,521 108,555 97,881
Subtotal 128,184 115,200 102,923
Accumulated Other Comprehensive
Income, Net of Tax 678 607 86
Total Shareowners' Equity $128,862 $115,807 $103,009
The Company continues to maintain a strong capital position. The
ratio of shareowners' equity to total assets at year-end was 8.93%,
10.37% and 9.17%, in 1998, 1997 and 1996, respectively. The lower
capital ratio in 1998 compared to 1997 reflects the acquisitions of
First Federal-Florida and First Union offices. Both acquisitions were
accounted for as a purchase.
The Company is subject to risk-based capital guidelines that measure
capital relative to risk weighted assets and off-balance-sheet
financial instruments. Capital guidelines issued by the Federal
Reserve Board require bank holding companies to have a minimum total
risk-based capital ratio of 8.00%, with at least half of the total
capital in the form of Tier 1 capital. Capital City Bank Group, Inc.,
exceeded these capital guidelines, with a total risk-based capital
ratio of 11.11% and a Tier 1 ratio of 10.14%, compared to 15.67% and
14.43%, respectively, in 1997.
In addition, a tangible leverage ratio is now being used in connection
with the risk-based capital standards and is defined as Tier 1 capital
divided by average assets. The minimum leverage ratio under this
standard is 3% for the highest-rated bank holding companies which are
not undertaking significant expansion programs. An additional 1% to
2% may be required for other companies, depending upon their
regulatory ratings and expansion plans. On December 31, 1998, the
Company had a leverage ratio of 7.84% compared to 9.65% in 1997. See
Note 13 in the Notes to Consolidated Financial Statements for
additional information as to the Company's capital adequacy.
Dividends declared and paid totaled $.43 per share in 1998. During
the fourth quarter of 1998 the quarterly dividend was raised nine
percent from $.11 per share to $.12 per share. The Company declared
dividends of $.37 per share in 1997 and $.34 per share in 1996. The
dividend payout ratio was 28.2%, 26.1%, and 25.5% for 1998, 1997 and
1996, respectively. Dividends declared per share in 1998 represented
a 16.2% increase over 1997.
At December 31, 1998, the Company's common stock had a book value of
$12.70 per share compared to $11.54 in 1997. Beginning in 1994, book
value has been impacted by the net unrealized gains and losses on
investment securities available-for-sale. At December 31, 1998, the
net unrealized gain was $678,000. At December 31, 1997, the Company
had a net unrealized gain of $607,000 and thus the net impact on
equity for the year was an increase in book value of $71,000.
The Company began a stock repurchase plan in 1989, which remains in
effect and provides for the repurchase of up to 900,000 shares. As of
December 31, 1998, the Company had repurchased 790,740 shares under
the plan. No shares were repurchased during 1998.
The Company offers an Associate Incentive Plan under which certain
associates are eligible to earn shares of CCBG stock based upon
achieving established performance goals. The Company issued 48,508
shares in 1998 under this plan.
The Company also offers stock purchase plans to its associates and
directors. In 1998, 30,314 shares were issued under these plans.
The Board of Directors approved a Dividend Reinvestment and Optional
Stock Purchase Plan for the Company in December, 1996. Shares for
this plan were purchased in the open market. In 1997, 14,052 shares
were issued under this plan. In 1998, no shares were issued under
this plan.
The Company offers a 401(k) Plan which enables associates to defer a
portion of their salary on a pre-tax basis. The plan covers
substantially all of the Company associates who meet the minimum age
requirement. The Plan is designed to enable participants to elect to
have an amount withheld from their compensation in any plan year and
placed in the 401(k) Plan trust account. Matching contributions from
the Company can be made up to 6% of the participant's compensation.
During 1998, no contributions were made by the Company. The
participants may choose to invest their contributions into seven
investment funds, including CCBG common stock.
Inflation
The impact of inflation on the banking industry differs significantly
from that of other industries in which a large portion of total
resources are invested in fixed assets such as property, plant and
equipment.
Assets and liabilities of financial institutions are virtually all
monetary in nature, and therefore are primarily impacted by interest
rates rather than changing prices. While the general level of
inflation underlies most interest rates, interest rates react more to
change in the expected rate of inflation and to changes in monetary
and fiscal policy. Net interest income and the interest rate spread
are good measures of the Company's ability to react to changing
interest rates and are discussed in further detail in the section
entitled "Earnings Analysis."
YEAR 2000 COMPLIANCE
Introduction
The YEAR 2000 issue creates challenges with respect to the automated
systems used by financial institutions and other companies. Many
programs and systems are not able to recognize the year 2000, or that
the new millennium is a leap year. The problem is not limited to
computer systems. YEAR 2000 issues will potentially effect 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 is committed to addressing the YEAR 2000 challenges in a
prompt and responsible manner and has dedicated significant resources
to do so. An assessment of the Company's automated systems and third
party operations was completed and a plan has been implemented. The
Company's YEAR 2000 compliance plan ("Y2K Plan") has nine phases.
These phases are (1) project management, (2) awareness, (3)
assessment, (4) renovation, (5) testing and implementation, (6) risk
assessment, (7) customer awareness, (8) contingency planning, and (9)
verification. The Company has substantially completed phases one,
two, three, four, five, six, and eight, although appropriate follow-up
activities are continuing to occur. The Company will continue the
testing and implementation phases of the Y2K Plan throughout the
remainder of the year, and has adopted a comprehensive customer
awareness program (phase seven).
(1) Project Management: The Company has assigned primary
responsibility for the YEAR 2000 project to the President of Capital
City Services Company, a wholly owned subsidiary of Capital City Bank
Group, Inc. Also, the Company has hired an outside consultant to
assist in project administration. Monthly updates are provided to
senior management and quarterly updates are provided to the Board of
Directors in order to assist them in overseeing the Company's
readiness.
(2) Awareness: The Company has defined the YEAR 2000 problem and
gained executive level support for allocation of the resources
necessary to renovate and/or upgrade all systems. A YEAR 2000 team
has been established and meets regularly. The strategy developed for
YEAR 2000 compliance covers in-house systems, service bureaus for
systems that are outsourced, vendors, auditors, customers, and
suppliers.
(3) Assessment: The Company has completed this phase of the
compliance plan. Information Technology "IT" and non-IT systems have
been assessed and mission critical applications that could potentially
be affected have been identified. Mission critical is defined as
anything that may have a material adverse effect on the Company if not
YEAR 2000 compliant.
(4) Renovation: The Company is upgrading and replacing 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 of Mission
Critical systems was approximately 99% complete by June 30, 1999.
Throughout 1999, the Company will continue to test IT and non-IT
systems and applications already implemented for YEAR 2000 compliance.
As systems test successfully for YEAR 2000 compliance, they will be
certified as compliant and accepted for implementation.
(6) Risk Assessment: Lending officers have been trained on YEAR 2000
issues and have documented YEAR 2000 readiness of borrowers.
Significant borrowers were mailed a questionnaire and have been
assigned a YEAR 2000 risk rating by the Company. Appropriate response
to current and future credit requests will take their YEAR 2000 status
into consideration. A similar assessment was conducted of deposit
customers relative to liquidity risk. Investment and funding
strategies have been planned to ameliorate any potential risk in this
area.
(7) Customer Awareness: During the second quarter of 1999, the
Company initiated a 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 includes 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 are provided with accurate
information about the Company's Y2K readiness.
(8) Contingency Planning: The Company has drafted a Business
Resumption/Contingency Plan for the YEAR 2000. This plan will
incorporate back-up systems and procedures for Core business
processes, should any unforeseen disruptions occur. This plan was
substantially completed by June 30, 1999.
(9) Verification: The Verification process will take place
subsequent to the actual Century Date Change. This will involve
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 has been 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 85% has been spent
as of June 30, 1999. Approximately 75% of the total spending
represents costs to modify existing systems. Costs incurred by the
Company prior to 1998 were immaterial. This estimate assumes that the
Company will not incur significant YEAR 2000 related costs on behalf
of its vendors, suppliers, customers and other third parties.
Risks of the Company's YEAR 2000 Issues
The YEAR 2000 presents certain risks to the Company and its
operations. Some risks are present because the Company purchased
technology applications from other parties who face YEAR 2000
challenges and additional risks that are inherent in the business of
banking. Management has identified the following potential risks
which could have a material adverse effect on the Company's business.
1. The Company's subsidiary bank may experience a liquidity problem
if there are a significant amount of deposits withdrawn by customers
who have uncertainties associated with the YEAR 2000. The Company has
implemented a contingency plan to ensure there are appropriate levels
of funding available.
2. The Company's operations could be materially affected by the
failure of third parties who provide mission critical IT and non-IT
systems. The Company has identified its mission critical third
parties and will monitor their Y2K Plan progress. In response to this
concern, the Company has identified and contacted the third parties
who provide mission critical applications. The Company has received
YEAR 2000 compliance assurances from third parties who provide mission
critical applications and will continue to monitor and test their
efforts for YEAR 2000 compliance.
3. The Company's ability to operate effectively in the YEAR 2000
could be adversely affected by the ability to communicate and to
access utilities. The Company is in the process of incorporating a
contingency plan for addressing this situation.
4. The Company's subsidiary bank lends significant amounts to
businesses and contractors in our market area. If the businesses are
adversely affected by the YEAR 2000 issues, their ability to repay
loans could be impaired and increased credit risk could affect the
Company's financial performance. As part of the Company's Y2K Plan,
the Company has identified its significant borrowers, and has
documented their YEAR 2000 readiness and risk to the Company.
5. Sanctions could be imposed against the Company if it does not meet
deadlines or follow timetables established by the federal and state
governmental agencies which regulate the Company and its subsidiaries.
The Company has incorporated the regulatory guidelines for YEAR 2000
into its Y2K Plan.
Contingency Plan
Contingency plans for YEAR 2000 related interruptions have been
developed and will include, but not be limited to, the development of
emergency backup and recovery procedures, remediation of existing
systems parallel with installation of new systems, replacing
electronic applications with manual processes, and identification of
alternate suppliers. All plans were substantially completed by June
30, 1999.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board "FASB" issued
Statement of Financial Accounting Standards "SFAS" No. 133 "Accounting
for Derivative Instruments of Hedging Activities" 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.
Effective February 1998, the Company adopted SFAS No. 132 "Employers
Disclosure about Pensions and Other Post-Retirement Benefits".
Statement 132 standardizes the disclosure requirements for pension and
other post-retirement benefits and requires additional information on
changes in the benefit obligations and fair values of plan assets.
The Statement suggests combined formats for presentation of pension
and other post-retirement benefit disclosures. The adoption of this
standard did not have a material impact on reported results of
operations of the Company.
Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". Statement 130 provides new
accounting and reporting standards for reporting and displaying
comprehensive income and its components in a full set of general-
purpose financial statements. The adoption of this standard did not
have a material impact on reported results of operations of the
Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
SFAS 128 provides new accounting and reporting standards for reporting
basic and diluted earnings per share. The adoption of this standard
on January 1, 1997 did not have a material impact on the reported
results of operations of the Company.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure". SFAS 129 provides new
accounting and reporting standards for disclosing information about an
entity's capital structure. The adoption of this standard on January
1, 1997 did not have a material impact on the reported results of
operation of the Company.
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS 125 provides new accounting and reporting standards for sales,
securitizations, and servicing of receivables and other financial
assets, for certain secured borrowing and collateral transactions, and
for extinguishment of liabilities. The adoption of this standard on
January 1, 1997, did not have a material impact on the financial
condition or results of operations of the Company.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Overview
Market risk management arises from changes in interest rates, exchange
rates, commodity prices and equity prices. The Company has risk
management policies to monitor and limit exposure to market risk.
Capital City Bank Group does not actively participate in exchange
rates, commodities or equities. In asset and liability management
activities, policies are in place that are designed to minimize
structural interest rate risk.
Interest Rate Risk Management
The normal course of business activity exposes Capital City Bank Group
to interest rate risk. Fluctuations in interest rate risk may result
in changes in the fair market value of the Company's financial
instruments, cash flows and net interest income. Capital City Bank
Group's asset/liability management process manages the Company's
interest rate risk.
The financial assets and liabilities of the Company are classified as
other-than-trading. An analysis of the other-than-trading financial
components, including the fair values, are presented in Table 13.
This table presents the Company's consolidated interest rate
sensitivity position as of year-end 1998 based upon certain
assumptions as set forth in the Notes to the Table. The objective of
interest rate sensitivity analysis is to measure the impact on the
Company's net interest income due to fluctuations in interest rates.
The asset and liability values presented in Table 13 may not
necessarily be indicative of the Company's interest rate sensitivity
over an extended period of time.
The Company is currently liability sensitive which generally indicates
that in a period of rising interest rates the net interest margin will
be adversely impacted as the velocity and/or volume of liabilities
being repriced exceeds assets. However, as general interest rates rise
or fall, other factors such as current market conditions and
competition may impact how the Company responds to changing rates and
thus impact the magnitude of change in net interest income.
<TABLE>
Table 13
FINANCIAL ASSETS AND LIABILITITES MARKET RISK ANALYSIS(1)
(Dollars in Thousands)
Other Than Trading Portfolio
<CAPTION>
December 31,
Fair
1999 2000 2001 2002 2003 Beyond Total Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans
Fixed Rate $ 89,458 $ 33,645 $ 53,607 $ 45,939 $ 46,792 $ 73,161 $ 342,602 $ 347,280
Average Interest Rate 9.90% 10.22% 9.78% 9.24% 8.87% 7.43% 9.16%
Floating Rate(2) 388,384 43,862 21,462 14,384 13,117 20,406 501,615 508,294
Average Interest Rate 8.55% 7.86% 8.27% 8.63% 8.20% 8.09% 8.45%
Investment Securities(3)
Fixed Rate 97,971 52,885 28,049 39,609 21,408 119,666 359,588 359,588
Average Interest Rate 5.78% 5.59% 6.11% 6.59% 5.75% 5.72% 5.85%
Floating Rate - 10,770 729 - - 510 12,009 12,009
Average Interest Rate - 6.39% 5.71% - - 6.29% 6.34%
Other Earning Assets
Fixed Rates - - - - - - - -
Average Interest Rates - - - - - - -
Floating Rates 53,500 - - - - 10,151 63,651 63,651
Average Interest Rates 5.20% - - - - 4.15 4.37%
Total Financial Assets $629,313 $141,162 $103,847 $ 99,932 $ 81,317 $223,894 $1,279,465 $1,290,822
Average Interest Rates 8.02% 7.46% 8.45% 8.10% 7.94% 6.43% 7.72%
Deposits(4)
Fixed Rate Deposits $470,472 $ 75,001 $ 12,741 $ 6,442 $ 2,961 $ 177 $ 567,794 $571,111
Average Interest Rates 5.14% 5.45% 5.32% 5.32% 5.03% 5.93% 5.19%
Floating Rate Deposits 374,608 - - - - - 374,608 374,608
Average Interest Rates 2.31% - - - - - 2.31%
Other Interest Bearing
Liabilities
Fixed Rate Debt 23,263 559 743 394 407 7,102 32,468 33,057
Average Interest Rate 2.68% 5.79% 5.52% 6.02% 6.01% 6.14% 3.64%
Floating Rate Debt 34,199 - - - - - 34,199 34,199
Average Interest Rate 4.38% - - - - - 4.38%
Total Financial Liabilities $902,542 $ 75,560 $ 13,484 $ 6,836 $ 3,368 $ 7,279 $1,009,069 $1,012,975
Average interest Rate 3.88% 5.45% 5.33% 5.36% 5.15% 6.13% 4.05%
(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.
</TABLE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
Table 14
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)(1)
<CAPTION>
1998 1997
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Interest Income $ 22,904 $ 21,974 $ 22,402 $ 21,730 $ 21,431 $ 21,733 $ 21,211 $ 20,606
Interest Expense 9,224 8,673 8,822 8,529 8,261 8,320 8,237 7,894
Net Interest Income 13,680 13,301 13,580 13,201 13,170 13,413 12,974 12,712
Provision for
Loan Loss 657 618 618 546 597 709 506 516
Net interest Income
After Provision
for Loan Loss 13,023 12,683 12,962 12,655 12,573 12,704 12,468 12,196
Noninterest Income 6,260 5,271 5,847 5,206 5,066 4,581 5,137 4,695
Merger Expense 115 - - - - - - -
Noninterest Expense 13,150 12,090 12,747 12,342 12,757 11,790 11,746 11,527
Income Before
Provision for
Income Taxes 6,018 5,864 6,062 5,519 4,882 5,495 5,859 5,364
Provision for
Income Taxes 2,146 2,057 2,065 1,901 1,563 1,861 1,985 1,798
Net Income $ 3,872 $ 3,807 $ 3,997 $ 3,618 $ 3,319 $ 3,634 $ 3,874 $ 3,566
Net Interest
Income (FTE) $ 14,046 $ 13,640 $ 13,922 $ 13,557 $ 13,523 $ 13,819 $ 13,398 $ 13,139
Per Common Share:
Net Income Basic $ .39 $ .37 $ .39 $ .36 $ .33 $ .37 $ .39 $ .36
Net Income Diluted .38 .37 .39 .36 .32 .37 .39 .36
Dividends Declared .11 .11 .10 .10 .09 .09 .09 .09
Book Value 12.69 12.43 12.10 11.80 11.45 11.16 11.16 11.02
Market Price(2):
High 31.00 33.13 32.67 32.67 27.33 23.50 21.50 21.33
Low 24.13 19.00 29.75 29.25 23.00 20.83 19.33 14.00
Close 27.63 29.13 31.38 31.67 27.00 23.17 20.83 20.17
Selected Average
Balances:
Total Assets $1,257,934 $1,148,404 $1,156,186 $1,147,054 $1,108,788 $1,106,713$1,101,962 $1,098,426
Earning Assets 1,131,933 1,038,981 1,043,578 1,035,971 998,037 1,003,039 998,462 987,332
Loans, Net of Unearned 834,315 819,755 823,432 809,949 777,895 784,116 766,885 753,664
Total Deposits 1,059,192 954,652 962,719 952,511 916,952 924,297 925,649 922,780
Total Shareowners'
Equity 128,250 123,728 121,686 119,455 113,750 112,591 106,355 103,884
Common Equivalent
Shares:
Basic 10,158 10,158 10,140 10,123 10,067 10,055 10,004 9,998
Diluted 10,179 10,158 10,140 10,123 10,167 10,055 10,004 9,998
Ratios:
ROA 1.22% 1.32% 1.39% 1.28% 1.19% 1.30% 1.41% 1.30%
ROE 11.98% 12.20% 13.18% 12.28% 11.58% 13.01% 14.61% 13.77%
Net Interest
Margin (FTE) 4.92% 5.21% 5.35% 5.31% 5.38% 5.47% 5.38% 5.34%
(1) A 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) Prior to February 3, 1997, there was not an established trading market
for the common stock of Capital City Bank Group, Inc.
</TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.3 Report Of Independent Certified Public Accountants
To the Shareowners and Board of Directors of Capital City Bank
Group, Inc.
We have audited the accompanying consolidated statements of
financial condition of Capital City Bank Group, Inc. (a Florida
Corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in
shareowners' equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Capital City Bank Group, Inc. and subsidiaries as of December
31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
May 7, 1999
