Orders issued under Bank Holding Company Act

Federal Reserve Bulletin, Summer, 2005 by Robert de V. Frierson, Jennifer J. Johnson

Orders Issued Under Section 3 of the Bank Holding Company Act

Capital City Bank Group, Inc.

Tallahassee, Florida

Capital City Bank

Tallahassee, Florida

Order Approving the Merger of Bank Holding Companies, Merger of Banks, and Establishment of Branches

Capital City Bank Group, Inc. ("Capital City"), a financial holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (1) to merge with First Alachua Banking Corporation ("First Alachua"), with Capital City as the surviving entity, and thereby indirectly acquire First Alachua's wholly owned subsidiary, First National Bank of Alachua ("First National Bank"), both of Alachua, Florida. In addition, Capital City's subsidiary bank, Capital City Bank, a state member bank, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act (2) ("Bank Merger Act") to merge with First National Bank, with Capital City Bank as the surviving entity. Capital City Bank has also applied under section 9 of the Federal Reserve Act ("FRA") to retain and operate branches at the locations of First National Bank's main office and branches. (3)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published in the Federal Register (69 Federal Register 71,056 (2004)) and locally in accordance with the relevant statutes and the Board's Rules of Procedure. (4) As required by the BHC Act and the Bank Merger Act, reports on the competitive effects of the mergers were requested from the United States Attorney General and the appropriate banking agencies. The time for filing comments has expired, and the Board has considered the applications and all comments received in light of the factors set forth in section 3 of the

BHC Act, the Bank Merger Act, and the FRA. Capital City, with total consolidated assets of approximately $2.4 billion, is the 28th largest insured depository organization in Florida, controlling deposits of approximately $1.4 billion. (5) First Alachua, with total consolidated assets of approximately $231.8 million, is the 111th largest insured depository organization in Florida, controlling deposits of approximately $207 million. On consummation of the proposal, Capital City would become the 26th largest insured depository organization in Florida, controlling deposits of approximately $1.6 billion, which would represent less than 1 percent of total deposits of insured depository institutions in the state. (6)

Competitive Considerations

Section 3 of the BHC Act and the Bank Merger Act prohibit the Board from approving a proposal that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant banking market. The BHC Act and the Bank Merger Act also prohibit the Board from approving a bank acquisition that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served. (7)

Capital City Bank and First National Bank compete directly in the Gainesville and Palatka banking markets in Florida. (8) The Board has carefully reviewed the competitive effects of the proposal in these banking markets in light of all the facts of record, including the number of competitors that would remain in the markets, the relative shares of total deposits in depository institutions in each market ("market deposits") controlled by Capital City Bank and First National Bank, (9) the concentration level of market deposits and the increase in this level as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"), (10) and other characteristics of the markets.

Consummation of the proposal would be consistent with Board precedent and within the thresholds in the DOJ Guidelines in the Gainesville banking market. This banking market would remain moderately concentrated, and the post-merger HHI would increase 67 points, to 1,293. Fourteen competitors would remain in the banking market. (11)

In the Palatka banking market, the HHI would slightly exceed DOJ Guidelines on consummation. Capital City Bank is the fifth largest depository institution in the market, controlling approximately $63.8 million in deposits, which represent approximately 13.5 percent of market deposits. First National Bank is the sixth largest depository institution with deposits of approximately $42.7 million, which represent approximately 9 percent of market deposits. On consummation of the merger, Capital City Bank would become the largest depository institution in the market, controlling deposits of approximately $106.5 million, which represent approximately 22.5 percent of market deposits. The HHI would increase 242 points, to 1,808.

In reviewing the competitive effects of this proposal, the Board has considered that several factors appear to mitigate the likely effect of the proposal on competition in the Palatka banking market. The Palatka banking market has five commercial banking organizations and one thrift organization that would remain in the market after consummation. Two commercial bank competitors each would control approximately 20 percent of market deposits and local branch networks as large as Capital City's.