Capital City Bank Group, Inc.

Reports First Quarter 2019 Results

 

TALLAHASSEE, Fla. (April 22, 2019) – Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $6.4 million, or $0.38 per diluted share for the first quarter of 2019 compared to net income of $8.5 million, or $0.50 per diluted share for the fourth quarter of 2018, and $5.8 million, or $0.34 per diluted share for the first quarter of 2018. 

 

Net income for the first quarter of 2018 included a $1.5 million, or $0.09 per diluted share tax benefit related to a 2017 plan year pension plan contribution.  Net income for the fourth quarter of 2018 included a $2.0 million, or $0.09 per diluted share, gain from the sale of a banking office and a $0.3 million, or $0.02 per diluted share, tax benefit from a tax accounting method change.

 

HIGHLIGHTS

·       Net interest income up 2.3% sequentially and 14.5% over prior year

·       Period-end loan growth of 1.2% sequentially and 8.1% over prior year

·       42 basis points cost of funds reflects the quality of our core deposit base (~ 38% noninterest bearing)

·       Continued efforts to restrain expense growth 

·       Nonperforming assets down 24% sequentially and 35% from prior year

 

“The results of the first quarter were strong and a great start to the new year,” said William G. Smith, Jr., Chairman, President and CEO. “Loan growth finished strong – up $21 million quarter over quarter.  Four rate increases during 2018 and a strong core deposit base continue to positively impact our net interest income, which on a sequential basis, increased $600,000 as the higher rates roll through our earning asset portfolios.  Lowering our efficiency ratio is a top priority and we have multiple strategies in place to grow revenues and reduce expenses.  I am pleased to say that credit quality has returned to pre-crisis levels and our capital position is stronger today than it was then.  Florida is growing and we are once again on offense following a number of years playing defense after the crisis.  I am optimistic about 2019 and your management team will remain focused on implementing strategies that produce long-term value for our shareowners.”

 

Compared to the fourth quarter of 2018, the $2.1 million decrease in operating profit reflected a $1.7 million increase in noninterest expense, lower noninterest income of $0.7 million, and a $0.3 million increase in the loan loss provision, partially offset by higher net interest income of $0.6 million.

 

Compared to the first quarter of 2018, the $2.9 million increase in operating profit was attributable to higher net interest income of $3.1 million and noninterest income of $0.1 million, partially offset by higher noninterest expense of $0.3 million.

 

Our return on average assets (“ROA”) was 0.87% and our return on average equity (“ROE”) was 8.49% for the first quarter of 2019 compared to 0.81% and 8.14%, respectively, for the first quarter of 2018. 

 

Discussion of Operating Results

 

Tax-equivalent net interest income for the first quarter of 2019 was $25.0 million compared to $24.5 million for the fourth quarter of 2018 and $21.9 million for the first quarter of 2018.  During the first quarter of 2019, overnight funds increased primarily due to seasonal growth in our public fund deposits and a higher balance of one large negotiated rate client.  The increase in tax-equivalent net interest income compared to the first quarter of 2018 reflected growth in the loan portfolio and higher rates earned on overnight funds, investment securities, and variable rate loans, partially offset by a higher cost on our negotiated rate deposits.

 

The federal funds target rate ended the first quarter of 2019 at a range of 2.25%-2.50%, with the most recent increase to the target rate occurring in December 2018.  These fed rate increases positively affected our net interest income due to favorable repricing of our variable and adjustable rate earning assets.  Although these increases resulted in higher rates paid on our negotiated rate deposit products, we continue to prudently manage our deposit mix and overall cost of funds, which was 42 basis points for the first quarter of 2019 compared to 31 basis points for the prior quarter.  In conjunction with our overall balance sheet management, we continue to review our deposit board rates to determine whether rate increases are appropriate. We have developed several new deposit products designed to help maintain existing relationships for clients seeking higher returns on their deposit balances.     

 

Our net interest margin for the first quarter of 2019 was 3.75%, a decrease of six basis points compared to the fourth quarter of 2018 and an increase of 32 basis points over the first quarter of 2018.  The decrease in margin compared to the fourth quarter of 2018 was attributable to a higher level and less favorable mix of earning assets and an increase in cost of funds, primarily negotiated NOW and MMAs. All three factors were driven by the seasonal inflow of public fund deposits, which is anticipated in the first quarter of each year. The increase in the margin compared to the first quarter of 2018 was primarily due to loan growth and higher yields on our variable and adjustable rate earning assets, partially offset by higher rates on our negotiated rate deposits.

 

The provision for loan losses for the first quarter of 2019 was $0.8 million compared to $0.5 million for the fourth quarter of 2018 and $0.7 million for the first quarter of 2018.  The higher provision compared to the fourth quarter of 2018 was primarily attributable to higher net loan charge-offs.  At March 31, 2019, the allowance for loan losses of $14.1 million represented 0.78% of outstanding loans (net of overdrafts) and provided coverage of 280% of nonperforming loans compared to 0.80% and 207%, respectively, at December 31, 2018 and 0.80% and 181%, respectively, at March 31, 2018.

 

Noninterest income for the first quarter of 2019 totaled $12.6 million, a decrease of $0.7 million, or 5.2%, from the fourth quarter of 2018 and a $0.1 million, or 0.6%, increase over the first quarter of 2018.  The decrease from the fourth quarter of 2018 was primarily attributable to lower deposit fees and mortgage banking fees.      

 

Noninterest expense for the first quarter of 2019 totaled $28.2 million, an increase of $1.7 million, or 6.4%, over the fourth quarter of 2018 and $0.3 million, or 1.0%, over the first quarter of 2018.  The increase over the fourth quarter was primarily attributable to higher other real estate expense of $2.0 million, partially offset by lower occupancy expense of $0.3 million.  The increase in other real estate expense reflected a $2.0 million gain on the sale of a banking office in the fourth quarter of 2018.  The decrease in occupancy expense was primarily attributable to lower maintenance expense for premises.     

 

We realized income tax expense of $2.1 million for the first quarter of 2019 compared to $2.2 million for the fourth quarter of 2018 and an income tax benefit of $0.2 million for the first quarter of 2018.  Fourth quarter of 2018 income tax expense reflected a discrete tax benefit of $0.3 million related to a tax accounting method change for a cost segregation and depreciation analysis for various properties we own.  Income tax for the first quarter of 2018 included a discrete tax benefit of $1.5 million resulting from the effect of federal tax reform, on a pension plan contribution made in the first quarter of 2018 for the plan year 2017.  Absent discrete items, we expect our effective tax rate to approximate 24%. 

 

Discussion of Financial Condition

 

Average earning assets were $2.705 billion for the first quarter of 2019, an increase of $150.3 million, or 5.9%, over the fourth quarter of 2018, and an increase of $112.3 million, or 4.3%, over the first quarter of 2018.  The change in average earning assets over both periods reflected a higher level of total deposits, resulting in a higher balance of overnight funds sold.    

 

We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased) sold position of $265.7 million during the first quarter of 2019 compared to $80.8 million in the fourth quarter of 2018 and $240.9 million in the first quarter of 2018.  The increase in the average net overnight funds compared to both prior periods resulted from increases in all deposit types except money market accounts and certificates of deposit.

 

While average loans decreased slightly ($5.2 million, or 0.3%) when compared to the fourth quarter of 2018, they grew $132.8 million, or 8.1% when compared to the first quarter of 2018.  On an “as of” basis, loans grew $20.6 million and $134.9 million, respectively. The average decrease compared to the fourth quarter of 2018 primarily reflected declines in all loan types except commercial real estate and consumer loans.  During the first quarter 2019, we purchased principal balances of $10.3 million in commercial real estate loans and $4.4 million in residential real estate loan pools, which partially offset the decline in quarterly loan production.  Average growth over the first quarter of 2018 was experienced in all loan categories, with the exception of home equity loans. A portion of this growth compared to the first quarter 2018 was attributable to $36.8 million in principal balances of several loan pool purchases ($22.1 million in 2018 and $14.7 million in the first quarter of 2019).  All loan purchases are individually reviewed and evaluated in accordance with our credit underwriting standards.

 

Nonperforming assets (nonaccrual loans and OREO) totaled $6.9 million at March 31, 2019, a decrease of $2.2 million, or 23.6%, from December 31, 2018 and $3.7 million, or 34.7%, from March 31, 2018.  Nonaccrual loans totaled $5.0 million at March 31, 2019, a $1.8 million decrease from December 31, 2018 and a $2.3 million decrease from March 31, 2018.  Nonaccrual loan additions totaled $2.5 million for the first quarter of 2019 compared to $3.1 million for the fourth quarter of 2018 and $1.8 million for the first quarter of 2018.  The balance of OREO totaled $1.9 million at March 31, 2019, a decrease of $0.4 million and $1.4 million, respectively, from December 31, 2018 and March 31, 2018.  For the first quarter of 2019, we added properties totaling $0.5 million, sold properties totaling $0.7 million, and recorded valuation adjustments totaling $0.2 million. 

 

Average total deposits were $2.565 billion for the first quarter of 2019, an increase of $152.3 million, or 6.3% over the fourth quarter of 2018, and an increase of $108.6 million, or 4.4% over the first quarter of 2018.  The increase in average deposits compared to both prior periods reflected increases in all deposit types except money market accounts and certificates of deposit.  The seasonal influx of negotiated public NOW accounts has most likely peaked for this cycle, and is expected to gradually decline through the fourth quarter of 2019. 

 

Deposit levels remain strong, and average core deposits continue to experience growth.  We monitor deposit rates on an ongoing basis and adjust if necessary, as a prudent pricing discipline remains the key to managing our mix of deposits.

 

Average borrowings decreased $5.8 million compared to the fourth quarter of 2018 and decreased $3.1 million compared to the first quarter of 2018.  Declines from both prior periods were primarily due to payoffs of FHLB advances.

 

Shareowners’ equity was $309.0 million at March 31, 2019, compared to $302.6 million at December 31, 2018 and $288.4 million at March 31, 2018.  Our leverage ratio was 10.53%, 10.89%, and 10.36%, respectively, on these dates.  Further, at March 31, 2019, our risk-adjusted capital ratio was 17.09% compared to 17.13% and 17.05% at December 31, 2018 and March 31, 2018, respectively.  Our common equity tier 1 ratio was 13.62% at March 31, 2019, compared to 13.58% at December 31, 2018 and 13.44% at March 31, 2018.  At March 31, 2019, each of our regulatory capital ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards. 

 

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 $3.0 billion in assets.  We provide a full range of banking services, including traditional deposit and credit services, mortgage banking, asset management, trust, merchant services, bankcards and securities brokerage services.  Our bank subsidiary, Capital City Bank, was founded in 1895 and now has 59 banking offices and 73 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 our future results to differ materially.  The following factors, among others, could cause our actual results to differ: the accuracy of the our financial statement estimates and assumptions; legislative or regulatory changes, including the Dodd-Frank Act, Basel III, and the ability to repay and qualified mortgage standards; fluctuations in inflation, interest rates, or monetary policies; the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products; changes in consumer spending and savings habits; our growth and profitability; the strength of the U.S. economy and the local economies where we conduct operations; the effects of a non-diversified loan portfolio, including the risks of geographic and industry concentrations; harsh weather conditions and man-made disasters; 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; changes in accounting; and our ability to manage the risks involved in the foregoing.  Additional factors can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and our 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 we assume no obligation to update forward-looking statements or the reasons why actual results could differ.

 

USE OF NON-GAAP FINANCIAL MEASURES

 

We present a tangible common equity ratio and a tangible book value per diluted share that removes the effect of goodwill resulting from merger and acquisition activity.  We believe these measures are useful to investors because it allows investors to more easily compare our capital adequacy to other companies in the industry. 

 

The GAAP to non-GAAP reconciliations are provided below.