Capital City Bank Group, Inc. Reports Third Quarter 2014 Results

HIGHLIGHTS:

• Net income of $2.1 million - $0.12 diluted share.
• Achieved positive operating leverage driven by 13 bp margin expansion to 3.42% and lower operating costs.
• Loan balances grew for third consecutive quarter and more liquidity deployed in investment portfolio.
• Credit quality continued to improve as nonperforming assets declined 4% sequentially and 23% year to date.
• Tangible capital grew 3.7% sequentially to 8.22%.

TALLAHASSEE, Fla., Oct. 28, 2014 (GLOBE NEWSWIRE) -- Capital City Bank Group, Inc. (Nasdaq:CCBG) today reported net income of $2.1 million, or $0.12 per diluted share for the third quarter of 2014, compared to net income of $1.5 million, or $0.08 per diluted share for the second quarter of 2014, and $1.6 million, or $0.09 per diluted share, for the third quarter of 2013. For the first nine months of 2014, the Company reported net income of $7.3 million, or $0.42 per diluted share, compared to net income of $3.3 million, or $0.19 per diluted share for the same period in 2013.

Compared to the second quarter of 2014, performance reflects higher net interest income of $0.4 million, lower noninterest expense of $0.5 million, and a lower loan loss provision of $0.1 million, partially offset by higher income tax expense of $0.4 million.

Compared to the third quarter of 2013, the increase in earnings was due to lower noninterest expense of $1.5 million and loan loss provision of $0.2 million, partially offset by lower net interest income of $0.3 million, a decline in noninterest income of $0.7 million, and higher income tax expense of $0.2 million.

The increase in earnings for the first nine months of 2014 versus the comparable period in 2013 was attributable to lower noninterest expense of $5.7 million, a lower loan loss provision of $1.8 million, and lower income taxes of $1.4 million, partially offset by lower net interest income of $3.1 million and noninterest income of $1.8 million.

"Capital City Bank Group posted a solid performance in the third quarter, and our year-to-date numbers are strong," said William G. Smith, Jr., Chairman, President, and CEO of Capital City Bank Group. "We continue to see a strengthening economy and are encouraged by the loan growth we have experienced for the third consecutive quarter. Progress continues on right-sizing our expense base and we remain focused on improving our credit quality and identifying new revenue opportunities."

The Return on Average Assets was 0.33% and the Return on Average Equity was 2.95% for the third quarter of 2014. These metrics were 0.23% and 2.09% for the second quarter of 2014, and 0.25% and 2.51% for the third quarter of 2013, respectively.

For the first nine months of 2014, the Return on Average Assets was 0.38% and the Return on Average Equity was 3.48% compared to 0.17% and 1.75%, respectively, for the same period in 2013.

Discussion of Financial Condition

Average earning assets were $2.209 billion for the third quarter of 2014, a decrease of $51.5 million, or 2.3%, from the second quarter of 2014 and an increase of $3.1 million, or 0.1%, over the fourth quarter of 2013. The change in earning assets from the second quarter of 2014 reflects a lower level of overnight funds attributable to declining balances in both public fund deposits and repurchase agreements. The increase compared to the fourth quarter of 2013 reflects a higher level of investments and loans, which was funded through a reduction in overnight funds and growth in core deposits.

We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased) sold position of $317.6 million during the third quarter of 2014 compared to an average net overnight funds sold position of $408.7 million in the second quarter of 2014 and an average overnight funds sold position of $411.6 million in the fourth quarter of 2013.  The lower balance when compared to the second quarter of 2014 and fourth quarter of 2013 primarily reflects higher loan and investment portfolios, and the lower level of public funds. 

Slow economic growth continues to impact our markets and deleveraging by our clients has generated a historically high level of liquidity, which, given the current operating environment, is difficult to profitably deploy without taking inordinate risks. Although we have experienced loan growth in 2014, where practical, we are working to lower the level of overnight funds by adding to our investment portfolio with short-duration, high quality securities and reducing deposit balances. We continue to offer to our clients a fully-insured money market account which is provided by a third party and can serve as an alternative investment for some of our higher balance depositors while at the same time allowing us to maintain the account relationship. Until such time that attractive investment alternatives arise, we will continue to execute these strategies as well as seek other initiatives in an effort to lower our overnight fund balances.

Period end loans increased in each of the last three quarters and, when compared to the second quarter of 2014, average loans increased by $9.3 million, or 0.7%, which represents the second straight quarter-over-quarter increase in average loans.   Average loans have increased by $6.4 million when compared to the fourth quarter of 2013. The improvement in loans when compared to both periods was attributable primarily to the consumer and commercial portfolios, while the commercial real estate portfolio continued to decline. 

Without compromising our credit standards or taking on inordinate interest rate risk, we have modified several lending programs in our business (commercial real estate and consumer portfolios) to try to mitigate the significant impact that consumer and business deleveraging is having on our portfolio. These programs have helped to increase overall production.

Nonperforming assets (nonaccrual loans and OREO) totaled $65.2 million at the end of the third quarter of 2014, a decrease of $3.0 million from the second quarter of 2014 and $19.8 million from the fourth quarter of 2013. Nonaccrual loans totaled $23.5 million at the end of the third quarter of 2014, a decrease of $2.2 million from the second quarter of 2014 and $13.5 million from the fourth quarter of 2013. Nonaccrual loan additions totaled $4.8 million in the third quarter of 2014 and $16.7 million for the first nine months of 2014, which compares to $29.6 million for the same period of 2013. The balance of OREO totaled $41.7 million at the end of the third quarter of 2014, representing decreases of $0.9 million from the second quarter of 2014 and $6.4 million from the fourth quarter of 2013. For the third quarter of 2014, we added properties totaling $2.9 million, sold properties totaling $2.7 million, recorded valuation adjustments totaling $0.7 million, and realized miscellaneous adjustments of $0.4 million. For the first nine months of 2014, we have added properties totaling $12.1 million, sold properties totaling $15.9 million, recorded valuation adjustments totaling $2.2 million, and realized miscellaneous adjustments of $0.4 million. Nonperforming assets represented 2.61% of total assets at September 30, 2014 compared to 2.66% at June 30, 2014 and 3.26% at December 31, 2013.

Average total deposits were $2.063 billion for the third quarter of 2014, a decrease of $46.7 million, or 2.2%, from the second quarter of 2014 and an increase of $12.0 million, or 0.59%, over the fourth quarter of 2013.  The decrease in deposits when compared to the second quarter of 2014 resulted primarily from the reduction in the level of seasonal public funds and certificates of deposit. When compared to the fourth quarter of 2013, the increase was a result of higher noninterest bearing demand and savings accounts, partially offset by lower certificates of deposit and public funds.

Deposit levels remain strong and our mix of deposits continues to improve as higher cost certificates of deposit are replaced with lower rate non-maturity deposits and noninterest bearing demand accounts.  Prudent pricing discipline will continue to be the key to managing our mix of deposits.  Therefore, we do not attempt to compete with higher rate paying competitors for deposits. 

Average borrowings when compared to the second quarter of 2014 and fourth quarter of 2013 decreased by $4.5 million and $24.2 million, respectively, resulting from payoff/amortization of FHLB advances and lower repurchase agreement balances.

Equity capital was $283.3 million as of September 30, 2014, compared to $281.6 million as of June 30, 2014 and $276.4 million as of December 31, 2013. Our leverage ratio was 10.97%, 10.70%, and 10.46%, respectively, for these periods. Further, our risk-adjusted capital ratio of 18.08% at September 30, 2014 compares to 18.10% at June 30, 2014 and 17.94% at December 31, 2013, and significantly exceeds the 10.0% threshold to be designated as "well-capitalized" under the risk-based regulatory guidelines. At September 30, 2014, our tangible common equity ratio was 8.22%, compared to 7.93% at June 30, 2014 and 7.58% at December 31, 2013. In the first quarter of 2014, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our outstanding common stock. During the third quarter of 2014, we repurchased 19,600 shares of our common stock at an average price of $13.69 per share.   

Discussion of Operating Results

Tax equivalent net interest income for the third quarter of 2014 was $19.0 million compared to $18.6 million for the second quarter of 2014 and $19.4 million for the third quarter of 2013.  The increase in tax equivalent net interest income compared to the second quarter of 2014 reflects one additional calendar day, a positive shift in earning asset mix due to growth in the investment and loan portfolios and a slight reduction in interest expense, partially offset by unfavorable asset repricing. The lower net interest income when compared to the third quarter of 2013 reflects a reduction in loan income primarily attributable to unfavorable asset repricing, partially offset by a reduction in interest expense and a lower level of foregone interest on loans. For the nine months ended September 30, 2014, tax equivalent net interest income totaled $56.0 million compared to $59.1 million for the same period of 2013.

The company experienced higher net interest income for the quarter but pressure still remains on net interest income primarily as a result of the low rate environment.  The low rate environment continues to negatively impact the loan portfolio and, going forward, will have minimal to no impact on deposits. Increased lending competition in all markets has also unfavorably impacted the pricing for loans. 

The net interest margin for the third quarter of 2014 at 3.42% represents an increase of 13 basis points from the second quarter of 2014 and represented a decline of 7 basis points from the third quarter of 2013.  Growth in our investment and loan portfolios helped to improve our margin from the second to third quarter, while the decrease in the margin from the comparable prior year period was attributable to unfavorable asset repricing, partially offset by a lower average cost of funds.

The provision for loan losses for the third quarter of 2014 was $0.4 million compared to $0.5 million for the second quarter of 2014 and $0.6 million for the third quarter of 2013. For the first nine months of 2014, the loan loss provision totaled $1.3 million compared to $3.1 million for the same period of 2013. The lower level of provision reflects continued favorable problem loan migration and improvement in key credit metrics. Net charge-offs for the third quarter of 2014 totaled $1.9 million, or 0.52% (annualized), of average loans compared to $2.1 million, or 0.59% (annualized), for the second quarter of 2014 and $2.8 million, or 0.78% (annualized), for the third quarter of 2013. For the first nine months of 2014, net charge-offs totaled $5.3 million, or 0.50% (annualized), of average loans compared to $7.2 million, or 0.66%, for the same period of 2013. At September 30, 2014, the allowance for loan losses of $19.1 million was 1.34% of outstanding loans (net of overdrafts) and provided coverage of 81% of nonperforming loans compared to 1.45% and 80%, respectively, at June 30, 2014 and 1.65% and 62%, respectively, at December 31, 2013.

Noninterest income for the third quarter of 2014 totaled $13.4 million, comparable to the second quarter of 2014 and a decrease of $0.7 million, or 4.8%, from the third quarter of 2013. For the third quarter of 2014, higher wealth management fees of $0.2 million and mortgage banking fees of $0.2 million were offset by lower bank card fees of $0.1 million, data processing fees of $0.1 million, and other income of $0.2 million. Higher fees from retail brokerage drove the increase in wealth management and are reflective of new account openings as well as higher client trading activity. The increase in mortgage banking fees was primarily attributable to a higher margin realized on sold loans.   Bank card fees decreased due to lower card spend. A lower level of miscellaneous recoveries contributed to the decline in other income. Compared to the third quarter of 2013, the decrease was driven by a $0.3 million reduction in deposit fees, a $0.3 million decline in data processing fees, and lower wealth management fees of $0.1 million. The decrease in deposit fees was attributable to a lower level of overdraft fees generally reflective of improved financial management by our clients, and to a lesser extent a higher level of charged off checking accounts.  Data processing fees declined due to a lower level of fees from a government processing contract that ended early in the second quarter of 2014. The decrease in wealth management fees was attributable to lower fees from our retail brokerage business generally reflective of lower client trading activity.  

For the first nine months of 2014, noninterest income totaled $39.5 million, a $1.8 million, or 4.4%, decrease from the same period of 2013 reflective of lower deposit fees of $0.6 million, mortgage banking fees of $0.6 million, wealth management fees of $0.1 million, and data processing fees of $0.7 million, partially offset by higher bank card fees of $0.1 million and other income of $0.1 million. The decrease in deposit fees was due to a lower level of overdraft fees generally reflective of improved financial management by our clients. A lower level of refinancing activity drove the reduction in mortgage banking fees. The lower level of wealth management fees was attributable to lower fees from our retail brokerage business generally reflective of lower client trading activity. Data processing fees declined due to the aforementioned government processing contract that ended during the second quarter of 2014. Higher card spend drove the increase in bank card fees. A higher level of miscellaneous recoveries drove the increase in other income.                   

Noninterest expense for the third quarter of 2014 totaled $28.6 million, a decrease of $0.5 million, or 1.6%, from the second quarter of 2014 reflective of lower OREO expense of $0.5 and other expense of $0.2 million, partially offset by a higher compensation expense of $0.2 million. The decline in OREO expense was attributable to a $0.3 million reduction in net losses from the sale of properties and a $0.2 million decrease in property valuation adjustments. Other expense decreased due to a decline in legal fees reflective of a lower level of legal support needed for problem loan resolutions during the quarter. The increase in compensation expense was driven by associate merit raises that were effective late in the second quarter of 2014. Compared to the third quarter of 2013, noninterest expense decreased by $1.5 million, or 5.1%, attributable to lower compensation expense of $0.8 million, other expense of $0.8 million, and OREO expense of $0.1 million, partially offset by higher occupancy expense of $0.2 million. The decline in compensation expense was due to lower pension costs and the decrease in other expense reflects lower professional fees of $0.3 million, FDIC insurance fees of $0.3 million, legal fees of $0.1 million, and postage expense of $0.1 million. Lower property carrying costs drove the decline in OREO expense. Higher building maintenance costs partially attributable to non-recurring expenditures drove the increase in occupancy expense.    

For the first nine months of 2014, noninterest expense totaled $86.0 million, a decrease of $5.7 million, or 6.2%, from the same period of 2013 attributable to lower compensation expense of $3.2 million, OREO expense of $1.5 million, other expense of $1.3 million, and intangible expense of $0.1 million, partially offset by higher occupancy expense of $0.4 million. The reduction in compensation expense was primarily attributable to lower pension plan expense reflective of the utilization of a higher discount rate for determining pension plan liabilities. Lower property carrying costs as well as a reduction in property valuation adjustments were the primary reasons for the reduction in OREO expense. The reduction in other expense was primarily attributable to lower FDIC insurance fees reflective of a favorable premium adjustment. The decline in intangible amortization expense reflects the full amortization of our remaining intangible in early 2014. The increase in occupancy expense primarily reflects higher maintenance contract costs reflective of security and technology upgrades. Higher building maintenance costs partially attributable to non-recurring expenditures also contributed to the increase, but to a lesser extent. 

We realized income tax expense of $1.1 million for the third quarter of 2014 compared to $0.7 million for the second quarter of 2014 and $0.9 million for the third quarter of 2013.  For the first nine months of 2014, we realized income tax expense of $0.4 million compared to income tax expense of $1.9 million for the same period of 2013. Income taxes for the nine-month period of 2014 was favorably impacted by a $2.2 million state tax benefit attributable to an adjustment in our reserve for uncertain tax positions associated with prior year matters.      

About Capital City Bank Group, Inc.

Capital City Bank Group, Inc. (Nasdaq:CCBG) is one of the largest publicly traded financial holding companies headquartered in Florida and has approximately $2.5 billion in assets. The Company provides a full range of banking services, including traditional deposit and credit services, asset management, trust, mortgage banking, merchant services, bankcards, data processing and securities brokerage services. The Company's bank subsidiary, Capital City Bank, was founded in 1895 and now has 63 full-service offices and 71 ATMs in Florida, Georgia and Alabama. For more information about Capital City Bank Group, Inc., visit www.ccbg.com.

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this Press Release are based on current plans and expectations that are subject to uncertainties and risks, which could cause the Company's future results to differ materially. The following factors, among others, could cause the Company's actual results to differ: the Company's need and our ability to incur additional debt or equity financing; the accuracy of the Company's financial statement estimates and assumptions; legislative or regulatory changes, including the Dodd-Frank Act and Basel III; the strength of the U.S. economy and the local economies where the Company conducts operations; the effects of the Company's lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; harsh weather conditions and man-made disasters; fluctuations in inflation, interest rates, or monetary policies; changes in the stock market and other capital and real estate markets; customer acceptance of third-party products and services; increased competition and its effect on pricing, including the long-term impact on our net interest margin from the repeal of Regulation Q; negative publicity and the impact on our reputation; technological changes, especially changes that allow out of market competitors to compete in our markets; the effects of security breaches and computer viruses that may affect the Company's computer systems; changes in consumer spending and savings habits; the Company's growth and profitability; changes in accounting; and the Company's ability to manage the risks involved in the foregoing. Additional factors can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and the Company's other filings with the SEC, which are available at the SEC's internet site (http://www.sec.gov). Forward-looking statements in this Press Release speak only as of the date of the Press Release, and the Company assumes no obligation to update forward-looking statements or the reasons why actual results could differ.

CONTACT: J. Kimbrough Davis
         Executive Vice President
         and Chief Financial Officer
         850.402.7820

Released October 28, 2014