Capital City Bank Group, Inc.
Reports First Quarter 2012 Results

TALLAHASSEE, Fla. (May 1, 2012) – Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported a net loss of $1.2 million, or $0.07 per diluted share for the first quarter of 2012 compared to a net loss of $0.5 million, or $0.03 per diluted share in the fourth quarter of 2011 and net income of $1.3 million, or $0.08 per diluted share for the first quarter of 2011.

Compared to the fourth quarter of 2011, performance reflects lower operating revenues of $1.1 million, an increase in noninterest expense of $1.5 million, and higher income taxes of $0.9 million.  These unfavorable variances were partially offset by a $2.8 million reduction in the loan loss provision reflecting improved metrics related to problem loan inflow and lower net charge-offs.

Compared to the first quarter of 2011, the reduction in earnings was due to lower operating revenues of $4.1 million and a higher loan loss provision of $0.7 million, partially offset by lower noninterest expense of $0.7 million and income taxes of $1.6 million.  Earnings for the first quarter of 2011 reflect the sale of our Visa stock, which resulted in a net pre-tax gain of $2.6 million.

“Credit quality continues to be our number one priority,” said William G. Smith, Jr., Chairman, President and CEO of Capital City Bank Group.  “We are encouraged by a significant reduction in gross additions to our nonaccruing loan portfolio, which were at a level consistent with the trends we experienced during most of 2011.  Additionally, our past due loans declined 53% to $9.2 million, which represents the lowest level since 2003.  Sales of other real estate (OREO) totaled $7.9 million which is the second best quarter since this economic downturn began.  As we enter the second quarter, we have a strong pipeline of OREO contracts pending.  From a lending perspective, real estate markets remain weak, which when combined with the historically low interest rates and high levels of liquidity continues to put pressure on our margin.  An uncertain economy and mounting regulation have produced the most difficult operating environment of my career, but our managers are working diligently to capitalize on market opportunities and to eliminate non-essential expenses.  While disappointed with the first quarter loss, we acknowledged early on that the road to recovery would be bumpy, and we will continue to stay focused and commit resources to those aspects of our business which will return Capital City to its historical performance level.  Although the present remains challenging, I continue to be optimistic about our long term prospects.”
 
The Return on Average Assets was -0.18% and the Return on Average Equity was -1.84% for the first quarter of 2012, compared to -0.08% and -0.80%, respectively for the fourth quarter of 2011, and 0.20% and 2.03%, respectively for the comparable quarter in 2011.
 
Discussion of Financial Condition

Average earning assets were $2.268 billion for the first quarter of 2012, an increase of $121.8 million, or 5.7% over the fourth quarter of 2011, and a decline of $10.3 million, or 0.5%, from the first quarter of 2011.  The increase compared to the fourth quarter of 2011 primarily reflects the higher level of deposits resulting from the seasonal influx of public funds.  The slight decline in earning assets when compared to the prior year is attributable to the continued resolution of problem loans as they were charged off or transferred to the other real estate category (OREO).   Partially offsetting the decline was a higher fund sold balance due to loan maturities/repayments and payoffs.

When compared to the fourth and first quarters of 2011, average deposits increased by $128.4 million and $36.0 million, respectively, and average loans declined (a portion of which is attributable to problem loan resolution) by $50.2 million and $133.9 million, respectively.

Loan balances continued to decline throughout the portfolio, driven primarily by a reduction in the commercial real estate, residential and commercial loan categories.  Our core loan portfolio continues to be impacted by a normal amortization and a higher level of payoffs that have outpaced our new loan production.  New loan production continues to be impacted by weak loan demand attributable to the lack of consumer confidence and a sluggish economy.  The resolution of problem loans (which has the effect of lowering the loan portfolio as loans are either charged off or transferred to OREO) also contributed to the overall decline.  During the first quarter of 2012, loan charge-offs and loans transferred to OREO accounted for $9.5 million, or 19%, of the net reduction in total loans of $49.8 million from the fourth quarter of 2011.  Compared to the first quarter of 2011, loan resolution accounted for $57.8 million, or 43%, of the net reduction in loans of $133.9 million1.  Efforts to stimulate new loan growth are ongoing and we have recently introduced new lending programs in our business and commercial real estate lending areas to mitigate the significant impact that consumer and business deleveraging is having on our portfolio.

Nonperforming assets (nonaccrual loans and OREO) totaled $136.8 million at the end of the first quarter of 2012, a decrease of $0.8 million from the fourth quarter of 2011 and an increase of $7.5 million over the first quarter of 2011.  Nonaccrual loans totaled $78.7 million at the end of the first quarter of 2012, an increase of $3.7 million and $4.8 million, respectively, over the same prior year periods.  The addition of one large commercial real estate loan drove the increase over both prior periods.  The balance of OREO totaled $58.1 million at the end of the first quarter of 2012, a decrease of $4.5 million from the fourth quarter of 2011 and an increase of $2.7 million over the first quarter of 2011.  OREO sales picked up momentum in the first quarter of 2012 as we sold properties totaling $7.9 million.  Nonperforming assets represented 5.14% of total assets at March 31, 2012 compared to 5.21% at December 31, 2011 and 4.86% at March 31, 2011.

Average total deposits were $2.161 billion for the first quarter of 2012, an increase of $128.4 million, or 6.3%, from the fourth quarter of 2011 and higher by $36.0 million, or 1.7%, from the first quarter of 2011.  The increase in deposits when compared to both periods was driven primarily by higher public funds balances, savings and noninterest bearing deposits.  This was partially offset by a reduction of certificates of deposit.  Although public funds are seasonal in nature they continue to represent a larger component of our deposit mix.

We continue to experience a favorable shift in the mix of our deposits 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.

Borrowings were slightly higher when compared to the fourth quarter of 2011, but declined $47.8 million when compared to the first quarter of 2011, as a result of lower balances in repurchase agreements and amortization/payment of FHLB advances.

We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased) sold position of $373.0 million during the first quarter of 2012 compared to an average net overnight funds sold position of $191.8 million in the fourth quarter of 2011 and an average overnight funds sold position of $238.1 million in the first quarter of 2011.  The higher balance when compared to both periods reflects higher deposits (public funds and noninterest bearing), and a decrease in the loan and investment portfolios.
 
Discussion of Operating Results

Tax equivalent net interest income for the first quarter of 2012 was $21.8 million compared to $22.6 million for the fourth quarter of 2011 and $23.3 million for the first quarter of 2011.  The decrease in tax equivalent net interest income compared to the prior periods was due to a reduction in loan income primarily attributable to declining loan balances and unfavorable asset repricing, partially offset by a reduction in  interest expense and a lower level of foregone interest on loans.  The lower interest expense is attributable to certificates of deposit and reflects both lower balances and favorable repricing.

1 The reductions in loan portfolio balances stated in this paragraph are based on “as of” balances, not averages.
 
 
 
The decline in the loan portfolio, coupled with the low rate environment continues to put pressure on our net interest income.  Lowering our cost of funds, to the extent we can, and continuing to shift the mix of our deposits will help to partially mitigate the unfavorable impact of weak loan demand and repricing, although the impact is expected to be minimal. 

The net interest margin for the first quarter of 2012 was 3.87%, a decrease of 30 basis points from the fourth quarter of 2011 and a decline of 27 basis points from the first quarter of 2011.  The decrease in the margin for all comparable periods is attributable to the shift in our earning asset mix and unfavorable asset repricing, partially offset by a lower average cost of funds.  The shift in the earning asset mix compared to the fourth quarter of 2011 was driven by both a reduction in the loan portfolio and an increase in seasonal deposits (which are invested in overnight funds), while the shift in mix year over year was primarily attributable to the decline in the loan portfolio.

The provision for loan losses for the first quarter of 2012 was $4.8 million compared to $7.6 million in the fourth quarter of 2011 and $4.1 million for the first quarter of 2011.  The decrease in the loan loss provision compared to fourth quarter of 2011 primarily reflects a lower level of reserves for impaired loan additions and a reduced level of loan charge-offs.  The higher level of loan loss provision compared to the first quarter of 2011 reflects a higher level of general reserves.  Net charge-offs for the first quarter of 2012 totaled $4.6 million, or 1.16% (annualized), of average loans compared to $6.2 million, or 1.50% for the fourth quarter of 2011 and $5.7 million, or 1.33% in the first quarter of 2011.  At quarter-end, the allowance for loan losses of $31.2 million was 1.98% of outstanding loans (net of overdrafts) and provided coverage of 40% of nonperforming loans compared to 1.91% and 41%, respectively, at December 31, 2011, and 1.98% and 46%, respectively, at March 31, 2011.

Noninterest income for the first quarter of 2012 totaled $13.6 million, a decrease of $0.3 million, or 2.1%, from the fourth quarter of 2011 and $2.7 million, or 16.8%, from the first quarter of 2011.  The decline from the fourth quarter of 2011 was driven by a $0.2 million reduction in deposit fees and a $0.1 million decrease in trust fees.  The decline in deposit fees reflects a seasonal reduction in overdraft fees and the decline in trust fees reflects a lower level of estate management fees, which will vary depending on the number of estates being managed.  The unfavorable variance compared to the first quarter of 2011 was driven by a $3.2 million gain from the sale of our Visa stock in the first quarter of 2011.  Higher deposit fees of $0.3 million, mortgage banking fees of $0.2 million, and bank card fees of $0.3 million, partially offset by lower data processing fees of $0.3 million also contributed to the variance.  The increase in deposit fees reflects a lower level of overdraft charge-offs.  Increased loan production drove the higher level of mortgage banking fees reflecting increased home purchase activity in our markets.  The increase in bank card fees was attributable to an increase in active cards and higher card utilization.  Data processing fees declined due to a reduction in the number of banks that we process for as two of our user banks were acquired and discontinued service in early 2011.

Noninterest expense for the first quarter of 2012 totaled $32.6 million, an increase of $1.5 million, or 4.8%, over the fourth quarter of 2011 and a decrease of $0.7 million, or 2.2%, from the first quarter of 2011.  The increase compared to the fourth quarter of 2011 was due to higher expense for salary/associate benefits, primarily pension plan expense of $0.6 million, stock compensation expense of $0.5 million, and unemployment taxes of $0.3 million.  The increase in expense for our pension plan was due to the utilization of a lower discount rate in 2012 reflective of lower long-term bond interest rates.  The unfavorable variance in stock compensation reflects the adjustment to our stock compensation expense accrual in the fourth quarter of 2011 due to not meeting the award criteria.  The higher level of unemployment taxes reflects a higher rate due to continued high unemployment levels in Florida.  The favorable variance in noninterest expense compared to the first quarter of 2011 was attributable to a reduction in other expense of $0.4 million and intangible amortization expense of $0.3 million.  The decrease in other expense was primarily due to lower FDIC insurance fees of $0.3 million, advertising costs of $0.2 million, and miscellaneous expense of $0.3 million, partially offset by higher professional fees of $0.5 million.  The reduction in intangible amortization expense reflects the full amortization of certain core deposit intangibles from past acquisitions.  FDIC insurance fees declined due to a lower premium rate reflective of the revised rate structure implemented in mid-2011.  Advertising expense declined due to improved cost controls over advertising for our free checking account products.  A swap liability recorded in the first quarter of 2011 related to the sale of our Visa stock drove the favorable variance in miscellaneous expense.  The increase in professional fees reflects higher audit and consulting fees.

We realized an income tax benefit of $1.0 million in the first quarter of 2012 compared to a benefit of $1.9 million for the fourth quarter of 2011.  The unfavorable variance was primarily attributable to the favorable resolution of certain tax contingencies in the fourth quarter of 2011.  Lower operating profit drove the variance in income taxes compared to the first quarter of 2011.
 
 
 
 
 
About Capital City Bank Group, Inc.

Capital City Bank Group, Inc. (“Company”) (NASDAQ: CCBG) is one of the largest publicly traded financial services companies headquartered in Florida and has approximately $2.7 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 70 banking offices and 74 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: legislative or regulatory changes, including the Dodd-Frank Act; the strength of the U.S. economy and the local economies where the Company conducts operations; the accuracy of the Company’s financial statement estimates and assumptions, including the estimate for the Company’s loan loss provision; the frequency and magnitude of foreclosure of the Company’s loans; continued depression of the market value of the Company that could result in an impairment of goodwill; restrictions on our operations, including the inability to pay dividends without our regulators’ consent; the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit Insurance Fund assessments; 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 impact on our net interest margin from the repeal of Regulation Q; negative publicity and the impact on our reputation; technological changes; 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; the Company’s ability to integrate acquisitions; 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, 2011, 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.

 

 
 
 

CAPITAL CITY BANK GROUP, INC.
                  
EARNINGS HIGHLIGHTS
                  
Unaudited
                  
                   
   
Three Months Ended
  
(Dollars in thousands, except per share data)
  
Mar 31, 2012
    
Dec 31, 2011
    
Mar 31, 2011
  
                   
EARNINGS
                  
Net (Loss) Income
   $ (1,162 )   $ (535 )   $ 1,310  
Net (Loss) Income Per Common Share
   $ (0.07 )   $ (0.03 )   $ 0.08  
PERFORMANCE
                        
Return on Average Equity
     -1.84 %     -0.80 %     2.03 %
Return on Average Assets
     -0.18 %     -0.08 %     0.20 %
Net Interest Margin
     3.87 %     4.17 %     4.14 %
Noninterest Income as % of Operating Revenue
     38.64 %     38.34 %     41.54 %
Efficiency Ratio
     91.73 %     85.08 %     83.30 %
CAPITAL ADEQUACY
                        
Tier 1 Capital Ratio
     14.17 %     13.96 %     13.46 %
Total Capital Ratio
     15.54 %     15.32 %     14.82 %
Tangible Common Equity Ratio
     6.42 %     6.51 %     6.73 %
Leverage Ratio
     9.71 %     10.26 %     9.74 %
Equity to Assets
     9.43 %     9.54 %     9.74 %
ASSET QUALITY
                        
Allowance as % of Non-Performing Loans
     39.65 %     41.37 %     45.80 %
Allowance as a % of Loans
     1.98 %     1.91 %     1.98 %
Net Charge-Offs as % of Average Loans
     1.16 %     1.50 %     1.33 %
Nonperforming Assets as % of Loans and ORE
     8.36 %     8.14 %     7.31 %
Nonperforming Assets as % of Total Assets
     5.14 %     5.21 %     4.86 %
STOCK PERFORMANCE
                        
High
   $ 9.91     $ 11.11     $ 13.80  
Low
     7.32       9.43       11.87  
Close
     7.45       9.55       12.68  
Average Daily Trading Volume
   $ 24,751     $ 33,026     $ 21,740  

 
 
 

CAPITAL CITY BANK GROUP, INC.
                              
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                    
Unaudited
                              
                               
   
2012
    
2011
  
(Dollars in thousands)
  
First Quarter
    
Fourth Quarter
    
Third Quarter
    
Second Quarter
    
First Quarter
  
ASSETS
                              
Cash and Due From Banks
   $ 50,567     $ 54,953     $ 53,027     $ 71,554     $ 52,000  
Funds Sold and Interest Bearing Deposits
     418,678       330,361       193,387       223,183       271,375  
Total Cash and Cash Equivalents
     469,245       385,314       246,414       294,737       323,375  
                                         
Investment Securities, Available-for-Sale
     284,490       307,149       306,038       304,313       311,356  
                                         
Loans, Net of Unearned Interest
                                        
Commercial, Financial, & Agricultural
     132,119       130,879       142,511       149,830       153,960  
Real Estate - Construction
     34,554       26,367       31,991       30,867       35,614  
Real Estate - Commercial
     624,528       639,140       644,128       660,058       668,583  
Real Estate - Residential
     364,123       386,877       388,686       395,126       404,204  
Real Estate - Home Equity
     240,800       244,263       245,438       248,228       248,745  
Consumer
     174,132       186,216       188,933       194,624       196,205  
Other Loans
     6,555       12,495       13,720       5,987       5,098  
Overdrafts
     2,073       2,446       2,292       2,882       2,385  
Total Loans, Net of Unearned Interest
     1,578,884       1,628,683       1,657,699       1,687,602       1,714,794  
Allowance for Loan Losses
     (31,217 )     (31,035 )     (29,658 )     (31,080 )     (33,873 )
Loans, Net
     1,547,667       1,597,648       1,628,041       1,656,522       1,680,921  
                                         
Premises and Equipment, Net
     111,408       110,991       111,471       112,576       113,918  
Intangible Assets
     85,376       85,483       85,591       85,699       85,806  
Other Real Estate Owned
     58,100       62,600       61,196       61,016       55,364  
Other Assets
     103,992       92,127       85,221       84,395       91,754  
Total Other Assets
     358,876       351,201       343,479       343,686       346,842  
                                         
Total Assets
   $ 2,660,278     $ 2,641,312     $ 2,523,972     $ 2,599,258     $ 2,662,494  
                                         
LIABILITIES
                                        
Deposits:
                                        
Noninterest Bearing Deposits
   $ 605,774     $ 618,317     $ 584,628     $ 568,813     $ 540,184  
NOW Accounts
     845,149       828,990       708,066       764,480       818,512  
Money Market Accounts
     283,224       276,910       280,001       283,230       288,224  
Regular Savings Accounts
     172,262       158,462       154,136       153,403       150,051  
Certificates of Deposit
     279,295       289,840       316,968       331,085       350,076  
Total Deposits
     2,185,704       2,172,519       2,043,798       2,101,011       2,147,047  
                                         
Short-Term Borrowings
     42,188       43,372       47,508       65,237       86,650  
Subordinated Notes Payable
     62,887       62,887       62,887       62,887       62,887  
Other Long-Term Borrowings
     42,826       44,606       45,389       49,196       50,050  
Other Liabilities
     75,876       65,986       63,465       60,383       56,582  
                                         
Total Liabilities
     2,409,481       2,389,370       2,263,047       2,338,714       2,403,216  
                                         
SHAREOWNERS' EQUITY
                                        
Common Stock
     172       172       172       171       171  
Additional Paid-In Capital
     38,101       37,838       38,074       37,724       37,548  
Retained Earnings
     236,299       237,461       237,969       237,709       237,276  
Accumulated Other Comprehensive Loss, Net of Tax
     (23,775 )     (23,529 )     (15,290 )     (15,060 )     (15,717 )
                                         
Total Shareowners' Equity
     250,797       251,942       260,925       260,544       259,278  
                                         
Total Liabilities and Shareowners' Equity
   $ 2,660,278     $ 2,641,312     $ 2,523,972     $ 2,599,258     $ 2,662,494  
                                         
OTHER BALANCE SHEET DATA
                                        
Earning Assets
   $ 2,282,053     $ 2,266,193     $ 2,157,124     $ 2,215,098     $ 2,297,525  
Intangible Assets
                                        
Goodwill
     84,811       84,811       84,811       84,811       84,811  
Core Deposits
     198       258       318       378       437  
Other
     367       414       462       510       558  
Interest Bearing Liabilities
     1,727,831       1,705,066       1,614,954       1,709,518       1,806,450  
                                         
Book Value Per Diluted Share
   $ 14.60     $ 14.68     $ 15.20     $ 15.20     $ 15.13  
Tangible Book Value Per Diluted Share
     9.63       9.70       10.21       10.21       10.13  
                                         
Actual Basic Shares Outstanding
     17,182       17,160       17,157       17,127       17,127  
Actual Diluted Shares Outstanding
     17,182       17,161       17,172       17,139       17,136  

 
 
 


CAPITAL CITY BANK GROUP, INC.
                              
CONSOLIDATED STATEMENT OF OPERATIONS
                          
Unaudited
                              
                               
                               
   
2012
    
2011
  
(Dollars in thousands, except per share data)
  
First Quarter
    
Fourth Quarter
    
Third Quarter
    
Second Quarter
    
First Quarter
  
                               
INTEREST INCOME
                              
Interest and Fees on Loans
   $ 22,005     $ 22,915     $ 23,777     $ 24,305     $ 23,947  
Investment Securities
     900       902       978       1,017       1,071  
Funds Sold
     225       95       136       145       171  
Total Interest Income
     23,130       23,912       24,891       25,467       25,189  
                                         
INTEREST EXPENSE
                                        
Deposits
     643       699       907       1,083       1,258  
Short-Term Borrowings
     8       6       78       110       111  
Subordinated Notes Payable
     382       358       339       343       340  
Other Long-Term Borrowings
     436       452       467       492       494  
Total Interest Expense
     1,469       1,515       1,791       2,028       2,203  
Net Interest Income
     21,661       22,397       23,100       23,439       22,986  
Provision for Loan Losses
     4,793       7,600       3,718       3,545       4,133  
Net Interest Income after Provision for Loan Losses
     16,868       14,797       19,382       19,894       18,853  
                                         
NONINTEREST INCOME
                                        
Service Charges on Deposit Accounts
     6,309       6,530       6,629       6,309       5,983  
Data Processing Fees
     675       743       749       764       974  
Asset Management Fees
     1,015       1,124       1,080       1,080       1,080  
Retail Brokerage Fees
     758       776       807       939       729  
Gain on Sale of Investment Securities
     -       -       -       -       -  
Mortgage Banking Fees
     848       845       645       568       617  
Interchange Fees (1)
     1,526       1,399       1,420       1,443       1,360  
ATM/Debit Card Fees (1)
     1,245       1,098       1,170       1,115       1,136  
Other
     1,210       1,358       1,693       2,230       4,455  
Total Noninterest Income
     13,586       13,873       14,193       14,448       16,334  
                                         
NONINTEREST EXPENSE
                                        
Salaries and Associate Benefits
     16,843       15,260       15,805       16,000       16,577  
Occupancy, Net
     2,266       2,284       2,495       2,447       2,396  
Furniture and Equipment
     2,201       2,097       2,118       2,117       2,226  
Intangible Amortization
     107       107       108       107       353  
Other Real Estate
     3,513       3,425       2,542       3,033       3,677  
Other
     7,667       7,930       7,579       7,463       8,102  
Total Noninterest Expense
     32,597       31,103       30,647       31,167       33,331  
                                         
OPERATING (LOSS) PROFIT
     (2,143 )     (2,433 )     2,928       3,175       1,856  
Income Tax (Benefit) Expense
     (981 )     (1,898 )     951       1,030       546  
NET (LOSS) INCOME
   $ (1,162 )   $ (535 )   $ 1,977     $ 2,145     $ 1,310  
                                         
PER SHARE DATA
                                        
Basic (Loss) Income
   $ (0.07 )   $ (0.03 )   $ 0.12     $ 0.12     $ 0.08  
Diluted (Loss) Income
   $ (0.07 )   $ (0.03 )   $ 0.12     $ 0.12     $ 0.08  
Cash Dividends
     0.000       0.000       0.100       0.100       0.100  
AVERAGE SHARES
                                        
Basic
     17,181       17,157       17,152       17,127       17,122  
Diluted
     17,181       17,157       17,167       17,139       17,130  
                                         
(1) Together referred to as "Bank Card Fees"
                                  

 
 
 


CAPITAL CITY BANK GROUP, INC.
                              
ALLOWANCE FOR LOAN LOSSES
                              
AND NONPERFORMING ASSETS
                              
Unaudited
                              
                               
   
2012
    
2011
    
2011
    
2011
    
2011
  
(Dollars in thousands, except per share data)
  
First Quarter
    
Fourth Quarter
    
Third Quarter
    
Second Quarter
    
First Quarter
  
                               
ALLOWANCE FOR LOAN LOSSES
                              
Balance at Beginning of Period
   $ 31,035     $ 29,658     $ 31,080     $ 33,873     $ 35,436  
Provision for Loan Losses
     4,793       7,600       3,718       3,545       4,133  
Net Charge-Offs
     4,611       6,223       5,140       6,338       5,696  
Balance at End of Period
   $ 31,217     $ 31,035     $ 29,658     $ 31,080     $ 33,873  
As a % of Loans
     1.98 %     1.91 %     1.79 %     1.84 %     1.98 %
As a % of Nonperforming Loans
     39.65 %     41.37 %     55.54 %     50.89 %     45.80 %
As a % of Nonperforming Assets
     22.82 %     22.55 %     25.88 %     25.46 %     26.19 %
                                         
CHARGE-OFFS
                                        
Commercial, Financial and Agricultural
   $ 268     $ 634     $ 186     $ 301     $ 721  
Real Estate - Construction
     -       25       75       14       -  
Real Estate - Commercial
     1,532       2,443       1,031       2,808       430  
Real Estate - Residential
     1,967       2,755       3,287       2,371       3,456  
Real Estate - Home Equity
     892       205       580       944       998  
Consumer
     732       879       832       606       620  
Total Charge-Offs
   $ 5,391     $ 6,941     $ 5,991     $ 7,044     $ 6,216  
                                         
RECOVERIES
                                        
Commercial, Financial and Agricultural
   $ 67     $ 242     $ 33     $ 43     $ 63  
Real Estate - Construction
     -       -       -       5       9  
Real Estate - Commercial
     138       87       37       115       12  
Real Estate - Residential
     163       34       271       113       60  
Real Estate - Home Equity
     18       13       108       57       36  
Consumer
     394       342       402       373       340  
Total Recoveries
   $ 780     $ 718     $ 851     $ 706     $ 520  
                                         
NET CHARGE-OFFS
   $ 4,611     $ 6,223     $ 5,140     $ 6,338     $ 5,696  
                                         
Net Charge-Offs as a % of Average Loans(1)
     1.16 %     1.50 %     1.22 %     1.49 %     1.33 %
                                         
RISK ELEMENT ASSETS
                                        
Nonaccruing Loans
   $ 78,726     $ 75,023     $ 53,396     $ 61,076     $ 73,954  
Other Real Estate
     58,100       62,600       61,196       61,016       55,364  
Total Nonperforming Assets
   $ 136,826     $ 137,623     $ 114,592     $ 122,092     $ 129,318  
                                         
Past Due Loans 30-89 Days
   $ 9,193     $ 19,425     $ 17,053     $ 18,103     $ 19,391  
Past Due Loans 90 Days or More
     25       224       26       271       -  
Performing Troubled Debt Restructuring's
   $ 37,373     $ 37,675     $ 28,404     $ 23,582     $ 24,028  
                                         
Nonperforming Loans as a % of Loans
     4.99 %     4.61 %     3.22 %     3.62 %     4.31 %
Nonperforming Assets as a % of
                                        
Loans and Other Real Estate
     8.36 %     8.14 %     6.67 %     6.98 %     7.31 %
Nonperforming Assets as a % of Capital(2)
     48.52 %     48.63 %     39.44 %     41.87 %     44.11 %
Nonperforming Assets as a % of Total Assets
     5.14 %     5.21 %     4.54 %     4.70 %     4.86 %
                                         
                                         
(1) Annualized
                                        
(2) Capital includes allowance for loan losses.
                                  

 
 
 
 

 
AVERAGE BALANCE AND INTEREST RATES(1)
                                                                  
Unaudited
                                                                      
                                                                       
                                                                       
   
First Quarter 2012
    
Fourth Quarter 2011
    
Third Quarter 2011
    
Second Quarter 2011
    
First Quarter 2011
  
 
(Dollars in thousands)
  
Average
Balance
  
 
Interest
  
Average
Rate
Average
Balance
 
Interest
  
Average
Rate
Average
Balance
 
Interest
  
Average
Rate
Average
Balance
 
Interest
  
Average
Rate
Average
Balance
 
Interest
  
Average
Rate
 
ASSETS:
                                                                      
Loans, Net of Unearned Interest
$
       1,596,480
$
     22,121
  
5.57
%
$
       1,646,715
$
      23,032
  
5.55
%
$
       1,667,720
$
      23,922
  
5.69
%
$
       1,704,348
$
      24,465
  
5.76
%
$
       1,730,330
$
    24,101
  
5.65
%
                                                                       
Investment Securities
                                                                      
Taxable Investment Securities
  
          242,481
  
           794
  
1.31
    
          248,217
  
            816
  
1.31
    
          248,138
  
            828
  
1.32
    
          244,487
  
           825
  
1.35
    
          231,153
  
          851
  
1.48
  
Tax-Exempt Investment Securities
  
56,313
  
162
  
1.15
    
59,647
  
131
  
0.88
    
55,388
  
231
  
1.67
    
60,963
  
297
  
1.95
    
74,226
  
337
  
1.81
  
                                                                       
Total Investment Securities
  
          298,794
 
           956
  
1.28
    
          307,864
 
            947
  
1.22
    
          303,526
 
         1,059
  
1.39
    
          305,450
 
        1,122
  
1.47
    
          305,379
 
      1,188
  
1.56
  
                                                                       
Funds Sold
  
373,033
  
225
  
0.24
    
191,884
  
96
  
0.20
    
231,681
  
136
  
0.23
    
249,133
  
145
  
0.23
    
242,893
  
171
  
0.28
  
                                                                       
Total Earning Assets
  
       2,268,307
$
23,302
  
4.13
%
  
       2,146,463
$
24,075
  
4.45
%
  
       2,202,927
$
25,117
  
4.52
%
  
       2,258,931
$
25,732
  
4.57
%
  
       2,278,602
$
25,460
  
4.53
%
                                                                       
Cash and Due From Banks
  
            49,427
            
            49,666
            
             47,252
            
             47,465
            
             50,942
          
Allowance for Loan Losses
  
           (31,382)
            
           (29,550)
            
           (30,969)
            
           (32,993)
            
           (34,822)
          
Other Assets
  
350,555
            
343,336
            
344,041
            
344,884
            
348,295
          
                                                                       
Total Assets
$
2,636,907
          
$
2,509,915
          
$
2,563,251
          
$
2,618,287
          
$
2,643,017
          
                                                                       
LIABILITIES:
                                                                      
Interest Bearing Deposits
                                                                      
NOW Accounts
$
          823,406
$
           192
  
0.09
%
$
          700,005
$
            148
  
0.08
%
$
          726,652
$
            222
  
0.12
%
$
          782,698
$
           259
  
0.13
%
$
          786,939
$
          261
  
0.13
%
Money Market Accounts
  
          277,558
  
             75
  
0.11
    
          283,677
  
              75
  
0.11
    
          282,378
  
              95
  
0.13
    
          284,411
  
           136
  
0.19
    
          278,562
  
          131
  
0.19
  
Savings Accounts
  
          165,603
  
             20
  
0.05
    
          156,088
  
              20
  
0.05
    
          153,748
  
              19
  
0.05
    
          152,599
  
              16
  
0.04
    
          144,623
  
            18
  
0.05
  
Time Deposits
  
284,129
  
356
  
0.50
    
299,487
  
456
  
0.60
    
324,951
  
571
  
0.70
    
338,723
  
672
  
0.80
    
360,575
  
848
  
0.95
  
Total Interest Bearing Deposits
  
       1,550,696
 
           643
  
0.17
%
  
       1,439,257
 
            699
  
0.19
%
  
       1,487,729
 
            907
  
0.24
%
  
       1,558,431
 
        1,083
  
0.28
%
  
       1,570,699
 
      1,258
  
0.32
%
                                                                       
Short-Term Borrowings
  
            45,645
  
                8
  
0.07
%
  
            44,573
  
                 6
  
0.05
%
  
             64,160
  
              78
  
0.48
%
  
             76,754
  
           110
  
0.58
%
  
             87,267
  
          111
  
0.52
%
Subordinated Notes Payable
  
            62,887
  
           382
  
2.40
    
            62,887
  
            358
  
2.23
    
             62,887
  
            339
  
2.11
    
             62,887
  
           343
  
2.16
    
             62,887
  
          340
  
2.16
  
Other Long-Term Borrowings
  
44,286
  
436
  
3.96
    
45,007
  
452
  
3.99
    
46,435
  
467
  
3.99
    
49,650
  
492
  
3.97
    
50,345
  
494
  
3.98
  
                                                                       
Total Interest Bearing Liabilities
  
       1,703,514
$
1,469
  
0.35
%
  
       1,591,724
$
1,515
  
0.38
%
  
       1,661,211
$
1,791
  
0.43
%
  
       1,747,722
$
2,028
  
0.47
%
  
       1,771,198
$
2,203
  
0.50
%
                                                                       
Noninterest Bearing Deposits
          610,692
            
          593,718
            
          574,184
            
          548,870
            
          554,680
          
Other Liabilities
  
68,254
            
60,197
            
63,954
            
59,324
            
55,536
          
                                                                       
Total Liabilities
  
2,382,460
            
2,245,639
            
2,299,349
            
2,355,916
            
2,381,414
          
                                                                       
SHAREOWNERS' EQUITY:
  
254,447
            
264,276
            
263,902
            
262,371
            
261,603
          
                                                                       
Total Liabilities and Shareowners' Equity
$
2,636,907
          
$
2,509,915
          
$
2,563,251
          
$
2,618,287
          
$
2,643,017
          
                                                                       
Interest Rate Spread
    
$
21,833
  
3.78
%
    
$
22,560
  
4.07
%
    
$
23,326
  
4.09
%
    
$
23,704
  
4.10
%
    
$
23,257
  
4.03
%
                                                                       
Interest Income and Rate Earned(1)
  
23,302
  
4.13
        
24,075
  
4.45
        
25,117
  
4.52
        
25,732
  
4.57
        
25,460
  
4.53
  
Interest Expense and Rate Paid(2)
      
1,469
  
0.26
        
1,515
  
0.28
        
1,791
  
0.32
        
2,028
  
0.36
        
2,203
  
0.39
  
                                                                       
Net Interest Margin
    
$
21,833
  
3.87
%
    
$
22,560
  
4.17
%
    
$
23,326
  
4.20
%
    
$
23,704
  
4.21
%
    
$
23,257
  
4.14
%
                                                                       
                                                                       
(1)  Interest and average rates are calculated on a tax-equivalent basis using the 35% Federal tax rate.
                                  
(2) Rate calculated based on average earning assets.