Capital City Bank Group, Inc.

Reports Second Quarter 2019 Results

 

TALLAHASSEE, Fla. (July 23, 2019) – Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $7.3 million, or $0.44 per diluted share, for the second quarter of 2019 compared to net income of $6.4 million, or $0.38 per diluted share, for the first quarter of 2019, and $6.0 million, or $0.35 per diluted share, for the second quarter of 2018.  For the first six months of 2019, net income totaled $13.8 million, or $0.82 per diluted share, compared to net income of $11.8 million, or $0.69 per diluted share, for the same period of 2018.

 

Net income for the first six months of 2018 included tax benefits totaling $2.9 million, or $0.17 per diluted share (1Q - $1.5 million, or $0.09 per diluted share and 2Q - $1.4 million, or $0.08 per diluted share) related to 2017 plan year pension plan contributions made in 2018.        

 

HIGHLIGHTS

·       Net interest income up 4.3% sequentially and 14.3% over prior year

·       Net interest margin of 3.85%, up 10 basis points over prior quarter

·       Average loan growth of $43 million, or 2.4% over prior quarter

·       Strong year over year growth in average deposit balances of $121 million, or 5.0%

·       Year-to-date net charge-offs at 12 basis points continues to reflect the quality of our loan portfolio

·       Repurchased 77,000 shares of our stock in the second quarter of 2019

·       Tangible equity ratio up 27 basis points sequentially to 7.83%

 

“I am very encouraged by our results in the first half and particularly pleased with the loan growth and margin expansion achieved in the second quarter,” said William G. Smith, Jr., Chairman, President and CEO. “Higher earning asset yields, loan growth and a phenomenal core deposit base are all contributing to higher net interest income. Credit quality continues to improve and the strength of our Florida and Georgia economies is driving continued improvement in our market demographics. Lowering our efficiency ratio is a top priority, and we have multiple strategies in place to grow revenues and manage expenses. There is more to be done, but I am pleased with our progress as we remain focused on strategies that produce long-term value for our shareowners.”

 

Compared to the first quarter of 2019, the $1.2 million increase in operating profit reflected a $1.1 million increase in net interest income, higher noninterest income of $0.2 million, and a $0.1 million decrease in the loan loss provision, partially offset by higher noninterest expense of $0.2 million.

 

Compared to the second quarter of 2018, the $3.6 million increase in operating profit was attributable to higher net interest income of $3.2 million, higher noninterest income of $0.2 million, and a $0.2 million decrease in the loan loss provision.

 

The increase in operating profit for the first six months of 2019 versus the comparable period of 2018 was attributable to higher net interest income of $6.4 million, higher noninterest income of $0.3 million, and a $0.1 million decrease in the loan loss provision, partially offset by higher noninterest expense of $0.3 million.

 

Our return on average assets (“ROA”) was 0.98% and our return on average equity (“ROE”) was 9.37% for the second quarter of 2019.  These metrics were 0.87% and 8.49% for the first quarter of 2019, respectively, and 0.84% and 8.25% for the second quarter of 2018, respectively.  For the first six months of 2019, our ROA was 0.92% and our ROE was 8.94% compared to 0.83% and 8.20%, respectively, for the same period of 2018.

 

Discussion of Operating Results

 

Tax-equivalent net interest income for the second quarter of 2019 was $26.1 million compared to $25.0 million for the first quarter of 2019 and $22.9 million for the second quarter of 2018.  For the first six months of 2019, tax-equivalent net interest income totaled $51.2 million compared to $44.9 million for the comparable period of 2018.  The increase in tax-equivalent net interest income compared to the prior quarter reflected loan growth, higher interest rates, and one additional calendar day. The year-over-year comparisons for both the second quarter and year-to-date periods were primarily driven by significant growth in our earning assets, as higher balances of noninterest bearing deposits funded loan growth.

 

The federal funds target rate has increased nine times since December 2015 to 2.50% by the end of December 2018. The above comparisons reflected favorable repricing of our variable and adjustable rate earning assets as a result of these rate increases.  Our overall cost of funds was 40 basis points for the second quarter of 2019, a two basis point reduction compared to the prior quarter.  The reduction in cost of funds reflected the favorable shift in our deposit mix.  Due to highly competitive fixed-rate loan pricing across most markets, we have continued to review our loan pricing and make adjustments where appropriate and prudent.   

 

Our net interest margin for the second quarter of 2019 was 3.85%, an increase of 10 basis points compared to the first quarter of 2019 and an increase of 27 basis points over the second quarter of 2018.  For the first six months of 2019, the net interest margin increased 29 basis points to 3.80% compared to the same period of 2018. The increase in the margin as compared to all respective prior periods reflected rising interest rates and a favorable shift in our earning asset mix, which produced higher net interest income in each period. 

 

The provision for loan losses for the second quarter of 2019 was $0.6 million compared to $0.8 million for the first quarter of 2019 and $0.8 million for the second quarter of 2018.  For the first six months of 2019, the loan loss provision was $1.4 million compared to $1.6 million in 2018.  At June 30, 2019, the allowance for loan losses of $14.6 million represented 0.79% of outstanding loans (net of overdrafts) and provided coverage of 260% of nonperforming loans compared to 0.78% and 280%, respectively, at March 31, 2019 and 0.80% and 207%, respectively, at December 31, 2018.

 

Noninterest income for the second quarter of 2019 totaled $12.8 million, an increase of $0.2 million, or 1.7%, over the first quarter of 2019 and a $0.2 million, or 1.8%, increase over the second quarter of 2018.  For the first six months of 2019, noninterest income totaled $25.3 million, a $0.3 million, or 1.2%, increase over the same period of 2018.  Higher mortgage banking fees and bank card fees drove the increase compared to the first quarter of 2019.  Higher wealth management fees drove the increase compared to both prior year periods and reflected higher assets under management.         

 

Noninterest expense for the second quarter of 2019 totaled $28.4 million, an increase of $0.2 million, or 0.7%, over the first quarter of 2019 and comparable to the second quarter of 2018.  For the first six months of 2019, noninterest expense totaled $56.6 million, a $0.3 million, or 0.5% increase over the same period of 2018.  The slight increase over the first quarter of 2019 reflected higher compensation expense, primarily mid-year merit raises and commissions.  The increase for the six month period reflected higher compensation expense of $1.1 million that was partially offset by lower other real estate expense of $0.4 million and other expense of $0.4 million.  Higher base salary expense (primarily merit raises) and commissions drove the increase in compensation expense.  Lower valuation adjustments drove the reduction in other real estate expense.  The decrease in other expense primarily reflected lower professional fees.         

 

We realized income tax expense of $4.4 million (effective rate of 25%) for the first six months of 2019 compared to an income tax benefit of $0.1 million for the same period of 2018.  During 2018, we realized tax benefits totaling $2.9 million (1Q - $1.5 million and 2Q - $1.4 million) resulting from the effect of federal tax reform on pension plan contributions made in 2018 for the plan year 2017.     

 

Discussion of Financial Condition

 

Average earning assets were $2.719 billion for the second quarter of 2019, an increase of $14.4 million, or 0.5%, over the first quarter of 2019, and an increase of $164.7 million, or 6.4%, over the fourth quarter of 2018.  The change in average earning assets compared to the first quarter 2019 was primarily attributable to loan growth funded by noninterest bearing deposits, partially offset by a decline in our seasonal public fund balances.  The change in average earning assets over the fourth quarter 2018 was attributable to growth in our overnight funds position and loan portfolio, primarily funded by increases in our noninterest bearing and public fund deposits. 

 

We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased) sold position of $251.8 million for the second quarter of 2019 compared to an average net overnight funds sold position of $265.7 million for the first quarter of 2019 and $80.8 million for the fourth quarter of 2018.  The decrease in average net overnight funds compared to the prior quarter reflected loan growth, partially offset by runoff from the investment portfolio. The increase in average overnight funds compared to the fourth quarter of 2018 reflected growth in all deposit products except money market accounts and certificates of deposit, and a reduction in the investment portfolio, partially offset by loan growth.

 

Average loans increased $42.9 million, or 2.4% compared to the first quarter of 2019, and have grown $37.7 million, or 2.1% compared to the fourth quarter of 2018.  Growth over both prior periods occured in all loan types except institutional, home equity, and consumer loans.  During the second quarter of 2019, we purchased pools of adjustable rate residential loans totaling $3.9 million.  In the first quarter 2019, we purchased a $10.3 million pool of fixed and adjustable rate commercial real estate loans and a $4.4 million pool of adjustable rate residential loans.

 

We continue to make minor modifications on some of our lending programs to try to mitigate the impact that consumer and business deleveraging has had on our portfolio.  These programs, coupled with economic improvements in our anchor markets, have helped to increase overall loan growth.

 

Nonperforming assets (nonaccrual loans and OREO) totaled $6.6 million at June 30, 2019, a decrease of $0.3 million, or 4.6%, from March 31, 2019 and $2.5 million, or 27.1%, from December 31, 2018.  Nonaccrual loans totaled $5.6 million at June 30, 2019, a $0.6 million increase over March 31, 2019 and a $1.2 million decrease from December 31, 2018.  The balance of OREO totaled $1.0 million at June 30, 2019, a decrease of $0.9 million and $1.2 million, respectively, from March 31, 2019 and December 31, 2018. 

 

Average total deposits were $2.565 billion for the second quarter of 2019, an increase of $0.7 million over the first quarter of 2019, and an increase of $153.1 million, or 6.3% over the fourth quarter of 2018.  The increase in deposits compared to the first quarter of 2019 reflected higher noninterest bearing and savings accounts, partially offset by lower public fund NOW accounts, money market accounts, and certificates of deposit balances. The increase in deposits when compared to the fourth quarter of 2018 reflected growth in all deposit products except money market accounts and certificates of deposit.  Public fund accounts typically peak in the first quarter and trend lower through the fourth quarter due to the cycle of tax receipts.  Deposit levels remain strong, and average core deposits continue to experience growth.  We monitor deposit rates on an ongoing basis as a prudent pricing discipline remains the key to managing our mix of deposits.

 

Average borrowings decreased $2.4 million in the second quarter 2019 compared to the prior quarter, and declined $8.2 million compared to the fourth quarter of 2018. Decreases occurred in both short-term and long-term borrowings as we reduced our repurchase agreements and a portion of our match funded advances from the Federal Home Loan Bank.  

 

Shareowners’ equity was $314.6 million at June 30, 2019, compared to $309.0 million at March 31, 2019 and $302.6 million at December 31, 2018.  Our leverage ratio was 10.64%, 10.53%, and 10.89%, respectively, on these dates.  Further, at June 30, 2019, our total risk-based capital ratio was 17.13% compared to 17.09% and 17.13% at March 31, 2019 and December 31, 2018, respectively.  Our common equity tier 1 capital ratio was 13.67% at June 30, 2019, compared to 13.62% at March 31, 2019 and 13.58% at December 31, 2018.  All of our 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 57 banking offices and 81 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 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 reconciliation is provided below.