Capital City Bank Group, Inc.
Reports First Quarter 2009 Results
TALLAHASSEE, Fla. (April 20, 2009) – Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income for the first quarter of 2009 totaling $.7 million ($0.04 per diluted share) compared to a net loss of $1.7 million ($0.10 per diluted share) in the fourth quarter of 2008 and net income of $7.3 million ($0.42 per diluted share) for the first quarter of 2008. Earnings for the first quarter of 2008 included a $2.4 million pre-tax gain from the redemption of Visa shares related to their initial public offering and the reversal of $1.1 million (pre-tax) in litigation reserves related to certain Visa litigation.
”In a continuing tough operating environment, we grew our loan portfolio by $24 million or 1.2% and maintained our focus on prudently managing the net interest margin, despite historically low interest rates. Our margin at 5.16% was 43 basis points higher than a year ago, and better than the linked fourth quarter after adjusting for the recovery of interest income on the resolution of a problem loan late last year,” said William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group.
“During the first quarter, the principal measures of our capital adequacy remained strong and better than a year ago. Even though we declined participation in TARP, our total capital ratio ranks in the top quartile of our peer group1. At March 31, 2009, our risk based and tangible capital ratios were 14.40% and 7.63%, respectively.
“Nonperforming assets amounted to 6.39% of loans and other real estate at the end of the first quarter, compared to 5.48% at year-end 2008 and 2.14% at the end of the first quarter of 2008, which is indicative of the severity and persistence of economic weakness across our markets. Nonaccrual loans were up $13.3 million over year-end levels, mostly due to the addition of three large real estate loan relationships, including a student housing development and two single-family residential projects.
“We believe we are currently dedicating sufficient resources and talent to understand, monitor and eventually resolve our problem assets. Certainly we are in the grip of prolonged adverse economic conditions that have elevated credit quality and the resolution of problem loans to top-of-mind status among investors. But our execution of the fundamentals of profitable community banking – basic lending, rational deposit gathering and good expense management -- continues to be both prudent and consistent,” said Smith.
The Return on Average Assets was .11% and the Return on Average Equity was .94% for the first quarter of 2009. These metrics were 1.11% and 9.87% for the comparable quarter in 2008 and -.28% and -2.24% for the fourth quarter of 2008, respectively.
1 Publicly traded $1-$5 billion Banks (Source: SNL-Southeastern Commercial Banks – 12/31/2008)
Discussion of Financial Condition
Average earning assets were $2.166 billion for the first quarter of 2009, an increase of $15.4 million, or 0.71% from the fourth quarter of 2008, and a decrease of $135.2 million, or 5.88% from the first quarter of 2008. The increase from the fourth quarter is primarily attributable to a $24.0 million increase in the loan portfolio, which was partially funded by a reduction of $6.4 million in short-term investments. Compared to the first quarter of 2008, the decrease in earning assets primarily reflects a reduction in short-term investments driven by the decline in client deposits (see discussion below), partially offset by a $54.5 million increase in average loans and a $6.5 million increase in investment securities. Our loan production began increasing during the second half of 2008 and this trend continues through the recent quarter due to the efforts of our bankers to reach clients who are interested in moving or expanding their banking relationships. Year over year, growth was primarily attributable to commercial real estate mortgages and home equity loans.
Nonperforming assets of $126.8 million increased from the linked fourth quarter by $18.9 million and from the first quarter of 2008 by $85.7 million. Nonaccrual loans increased $13.3 million and $74.8 million, respectively, from the same prior-year periods. A large portion of the increase in nonaccrual loans in the first quarter is due to the addition of three large real estate loan relationships, including a student housing development ($5.5 million) and two residential single-family developments ($5.8 million). Vacant residential land loans represented 48% of our nonaccrual balance at quarter end. In aggregate, a reserve equal to approximately 29% has been allocated to these land loans. Restructured loans totaled $5.2 million at the end of the first quarter reflecting an increase of $3.5 million over year-end and $3.2 million over first quarter 2008. Other real estate owned totaled $11.4 million at the end of the quarter compared to $9.2 million at year-end 2008 and $3.8 million at the end of the first quarter of 2008. Nonperforming assets represented 6.39% of loans and other real estate at the end of the first quarter compared to 5.48% at year-end 2008 and 2.14% at the end of the first quarter of 2008.
Average total deposits were $1.946 billion for the first quarter, an increase of $11.5 million, or 0.6%, from the fourth quarter and a decrease of $191.5 million, or 8.9%, from the first quarter of 2008. On a linked quarter basis, the increase in deposits reflects higher public funds accounts, primarily in negotiated accounts and certificates of deposit, which have been partially offset by declining money market balances. The decline from the first quarter of 2008 reflects a lower level of NOW account balances (primarily public funds and legal settlement accounts), money market account balances and certificates of deposit balances.
We believe the decline in the public funds is partially attributable to certain public entity clients seeking higher yield. Compared to the first quarter of 2008, a majority of the decrease in deposits has been realized in the money market and certificates of deposit categories. The decrease in the money market accounts is due to lower balances maintained by both businesses and individuals, which we believe is attributable to lower rates and distressed economic conditions. We believe the decline in the certificate of deposit category reflects a combination of proceeds migrating to other deposit categories, as well as transferring to higher rate paying competitors. Despite the disruption in the market, we continue to pursue prudent pricing discipline and have chosen not to compete with higher rate paying competitors for these deposits.
We maintained an average net overnight funds (deposits with banks plus Fed funds sold less Fed funds purchased) purchased position of $33.9 million during the first quarter of 2009 compared to an average net overnight funds purchased position of $18.0 million in the fourth quarter of 2008 and an average overnight funds sold position of $186.8 million in the first quarter of 2008. The unfavorable variance in the funds position primarily reflects a decline in deposit balances as discussed above, coupled with growth in the loan portfolio. During the first quarter of 2009, we repurchased approximately 146,000 shares of our common stock at a weighted average stock price of $10.65.
Discussion of Operating Results
Tax equivalent net interest income for the first quarter of 2009 was $27.6 million compared to $28.4 million for the fourth quarter of 2008 and $27.1 million for the first quarter of 2008. The decrease in the net interest income on a linked quarter basis is partially due to two less calendar days in the first quarter. Additionally, the fourth quarter of 2008 was favorably impacted by a $784,000 interest recovery attributable to the resolution of a problem loan, which we acquired in one of our bank acquisitions several years ago. Lower foregone interest on nonaccrual loans and an increase in loan fees partially offset the decline in net interest income.
The increase in the net interest margin compared to the first quarter of 2008 primarily reflects aggressive deposit repricing in response to the rate reductions initiated by the Federal Reserve, partially offset by higher foregone interest on nonaccrual loans, a reduction in loan fees and one less calendar day in the first quarter of 2009.
The net interest margin of 5.16% declined by 10 basis points over the linked quarter and improved 43 basis points over the first quarter of 2008. The interest recovery recorded on the resolution of a problem loan added 15 basis points to the margin in the fourth quarter of 2008. The improvement in the margin over the linked quarter (after adjusting for the interest recovery in the fourth quarter) is attributable to the aggressive deposit repricing and, relative to the first quarter of 2008, the improvement is primarily attributable to both deposit repricing and a favorable shift in the mix of deposits.
The provision for loan losses for the current quarter was $8.4 million compared to $12.5 million in the fourth quarter of 2008 and $4.1 million for the first quarter of 2008. The provision for the current quarter reflects a higher level of required reserves for impaired loans, primarily related to newly identified nonaccrual loans. An increase in loan loss factors and a higher level of internally identified problem loans also impacted the level of loan loss provision for the quarter. Net charge-offs in the first quarter totaled $5.2 million, or 1.08%, of average loans compared to $6.0 million, or 1.24% in the fourth quarter and $1.9 million, or .41% in the first quarter of 2008. At quarter-end, the allowance for loan losses was 2.04% of outstanding loans (net of overdrafts) and provided coverage of 35% of nonperforming loans.
Noninterest income for the first quarter increased $731,000, or 5.5%, over the fourth quarter of 2008 and declined $3.8 million, or 21.1%, from the first quarter of 2008. Compared to the fourth quarter, the increase is primarily due to higher mortgage banking fees and bank card fees. The increase in mortgage banking fees reflects an 82% increase in secondary market loan production over the prior quarter, primarily driven by homeowner refinancings. The higher level of bank card fees is primarily due to fee adjustments implemented during the first quarter of 2009. Compared to the first quarter of 2008, the decline is due to a $2.4 million gain from the redemption of Visa shares, which was recognized in the first quarter of 2008, and a lower level of merchant fees attributable to the sale of a portion of the merchant services portfolio, which occurred in third quarter of 2008.
Noninterest expense increased $1.3 million, or 4.0%, from the fourth quarter of 2008 and $2.5 million, or 8.3%, from the first quarter of 2008. Compared to the fourth quarter, the increase was due to higher compensation expense of $1.7 million, primarily reflective of an increase in pension plan expense ($904,000) and associate salary expense ($649,000). The increase in pension cost is primarily due to a decline in the value of pension assets during 2008. The increase in associate salary expense reflects annual merit raises, but more significantly a higher accrual for performance incentives, which is typical in the first quarter as incentive plan expense is reset to its par level and then subsequently adjusted throughout the year based on actual performance. Compared to the first quarter of 2008, the impact of a one-time entry of $1.1 million to reverse a portion of our Visa litigation accrual, the reversal of $577,000 in accrued expense for our 2011 Incentive Plan (terminated in the first quarter of 2008), and higher FDIC insurance premiums of approximately $700,000 drove the increase. Higher pension plan expense of $1.0 million also contributed to the year over year variance.
About Capital City Bank Group, Inc.
Capital City Bank Group, Inc. (NASDAQ: CCBG) is one of the largest publicly traded financial services 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 68 banking offices and 80 ATMs in Florida, Georgia and Alabama. Since 2005, the Company has been named as a Dividend Achiever by Mergent, Inc., a leading provider of information on publicly traded companies. To be named a Dividend Achiever, a public company must have increased its regular cash dividends for at least 10 consecutive years. 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 frequency and magnitude of foreclosure of the Company’s loans; the effects of the Company’s lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; the accuracy of the Company’s financial statement estimates and assumptions, including the estimate for the Company’s loan loss provision; the Company’s ability to integrate acquisitions; the strength of the U.S. economy and the local economies where the Company conducts operations; harsh weather conditions; fluctuations in inflation, interest rates, or monetary policies; changes in the stock market and other capital and real estate markets; legislative or regulatory changes; customer acceptance of third-party products and services; increased competition and its effect on pricing; 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; 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, 2008, 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.
