CCBG - Capital City Bank Group Inc. Reports Fourth Quarter and Full Year 2019 Results

TALLAHASSEE, Fla., Jan. 30, 2020 (GLOBE NEWSWIRE) -- Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $8.6 million, or $0.51 per diluted share for the fourth quarter of 2019 compared to net income of $8.5 million, or $0.50 per diluted share for the third quarter of 2019, and $8.5 million, or $0.50 per diluted share for the fourth quarter of 2018. 

For the full year 2019, net income totaled $30.8 million, or $1.83 per diluted share, compared to net income of $26.2 million, or $1.54 per diluted share for 2018.  Net income for 2018 included tax benefits totaling $3.3 million, or $0.19 per diluted share related to 2017 plan year pension contributions made in 2018.

Fourth Quarter 2019 HIGHLIGHTS

• Operating revenues held firm despite third and fourth quarter Fed rate reductions  
  - Highlights the value of our revenue diversification and core deposit franchise
• Average loans increased $9 million, or 0.5% sequentially
• Loan loss provision decreased $1.0 million sequentially
• Entered into a definitive agreement to acquire 51% ownership in Brand Mortgage, LLC

Full Year 2019 HIGHLIGHTS

• Strong revenue growth
  - Net interest income increased 12%
  - Noninterest income increased 3%
• Net interest margin of 3.85%, increased 21 basis points
• Average loans increased $104 million, or 6%
• Average deposit balances increased $115 million, or 5%
• Continued strong credit quality
  - Loan loss provision decreased $0.9 million, or 31%
  - Nonperforming assets decreased $3.7 million, or 40%
• Tangible common equity ratio, a non-GAAP financial measure, increased 48 basis points to 8.06%
• Tangible book value per share, a non-GAAP financial measure, increased 10.9% to $14.37

“Capital City wrapped up 2019 with a strong fourth quarter and solid performance for the year as annual earnings per share increased 19%,” said William G. Smith, Jr., Chairman, President and CEO.  “While rates declined throughout the year, our net interest income and net interest margin increased $10.7 million and 21 basis points, respectively.  Wealth management, mortgage banking and bankcard fees drove $1.5 million growth in noninterest income, while our efficiency ratio continues to show significant improvement.  Loan growth in 2019 was lower than projected, but we know our markets, operate within our risk profile and will not unnecessarily compromise on rate or quality.  For the year, net charge-offs were 0.13% of average loans and our credit quality metrics continued to improve.  Florida and Georgia are strong and growing and I remain optimistic.  Additionally, I am excited about our recent announcement to acquire a 51% ownership interest in Brand Mortgage, which we expect to close later this quarter and operate as Capital City Home Loans.  There is a wonderful chemistry between our two management teams and I believe this strategic alliance will significantly enhance our overall mortgage banking business.  Your management team will continue to focus on implementing strategies that produce long-term value for our shareowners and I appreciate your continued support.”

Compared to the third quarter of 2019, the $0.1 million increase in net income reflected a $1.0 million decrease in the loan loss provision, lower income taxes of $0.4 million, and a $0.1 million increase in net interest income, partially offset by higher noninterest expense of $1.3 million and lower noninterest income of $0.1 million.

Compared to the fourth quarter of 2018, the $0.1 million increase in net income was attributable to higher net interest income of $1.9 million, higher noninterest income of $0.6 million, and a $0.6 million decrease in the loan loss provision, partially offset by higher noninterest expense of $2.6 million and income taxes of $0.4 million.

The increase in net income of $4.6 million for the full year 2019 versus 2018 was attributable to higher net interest income of $10.8 million, higher noninterest income of $1.5 million, and a $0.9 million decrease in the loan loss provision, partially offset by higher income taxes of $6.5 million and noninterest expense of $2.1 million. 

Our return on average assets (“ROA”) was 1.14% and our return on average equity (“ROE”) was 10.39% for the fourth quarter of 2019.  These metrics were 1.14% and 10.51% for the third quarter of 2019, respectively, and 1.18% and 11.10% for the fourth quarter of 2018, respectively.  For the full year 2019, our ROA was 1.03% and our ROE was 9.72% compared to 0.92% and 8.89%, respectively, for 2018.

Discussion of Operating Results

Tax-equivalent net interest income for the fourth quarter of 2019 was $26.4 million compared to $26.3 million for the third quarter of 2019 and $24.5 million for the fourth quarter of 2018.  For the full year 2019, tax-equivalent net interest income totaled $103.9 million compared to $93.2 million for 2018.  Compared to the third quarter of 2019, growth in both our overnight funds and loans offset the unfavorable rate variance due to the lower overnight funds rate.  Compared to the prior-year periods, the increase in net interest income was driven by deposit growth (predominately noninterest bearing), which funded growth in overnight funds and loans.  Additionally, average yields/rates were generally favorable as higher rates prior to 2019 continued to migrate through the earning asset portfolios.     

The federal funds target rate reached a recent high in the second quarter of 2019 at a range of 2.25% to 2.50%. During the second half of 2019, the Federal Open Market Committee reduced rates by an aggregate of 75 basis points to the current range of 1.50% to 1.75%.  These rate cuts resulted in downward repricing of our variable/adjustable rate earning assets, which to date has been offset by loan growth and a corresponding reduction in rates paid on our negotiated rate deposit products.  We continue to prudently manage our overall cost of funds, which was 26 basis points for the fourth quarter of 2019, compared to 33 basis points for the third quarter of 2019.  Due to highly competitive fixed-rate loan pricing in our markets, we continue to review our loan pricing and make adjustments where we believe appropriate and prudent.   

Our net interest margin for the fourth quarter of 2019 was 3.89%, a decrease of three basis points from the third quarter of 2019 and an increase of eight basis points over the fourth quarter of 2018.  For the full year 2019, the net interest margin was 3.85%, a 21 basis point increase compared to 2018.  The decrease in the margin compared to the third quarter 2019 was due primarily to the growth and composition of our earning assets. The increase in the margin compared to the fourth quarter 2018 reflected a three basis point increase in our earning asset yield and a five basis point decline in our cost of funds.  The increase in the margin compared to 2018 was attributable to a 29 basis point increase in our earning asset yield, partially offset by an eight basis point increase in our cost of funds.  In general, overnight rates rose into the second quarter 2019, at which time they reversed and began to fall in response to the Fed rate cuts.  

The provision for loan losses for the fourth quarter of 2019 was negative $0.2 million and reflected a lower level of net loan losses.  This compares to a provision expense of $0.8 million for the third quarter of 2019 and $0.4 million for the fourth quarter of 2018.  For the full year 2019, the loan loss provision expense was $2.0 million compared to $2.9 million in 2018.  At December 31, 2019, the allowance for loan losses of $13.9 million represented 0.75% of outstanding loans (net of overdrafts) and provided coverage of 311% of nonperforming loans compared to 0.78% and 291%, respectively, at September 30, 2019 and 0.80% and 207%, respectively, at December 31, 2018.

Noninterest income for the fourth quarter of 2019 totaled $13.8 million, a decrease of $0.1 million, or 0.5%, from the third quarter of 2019 and a $0.6 million, or 4.5%, increase over the fourth quarter of 2018.  For the full year 2019, noninterest income totaled $53.1 million, a $1.5 million, or 2.9%, increase over 2018, which reflected higher wealth management fees of $1.8 million, mortgage banking fees of $0.6 million, and bank card fees of $0.6 million, partially offset by lower deposit fees of $0.6 million and other income of $0.9 million.  The improvement in wealth management fees was driven by higher trading activity by our retail brokerage clients and to a lesser extent growth in assets under management.  A lower rate environment drove higher residential loan production and the increase in mortgage banking fees.  Higher debit card utilization by our clients and credit card promotions throughout the year drove the improvement in bank card fees.  The decline in deposit fees reflected lower overdraft fees and the reduction in other income was primarily attributable to a miscellaneous recovery in the fourth quarter of 2018 and lower miscellaneous fees.  The same aforementioned factors drove the variance versus the fourth quarter of 2018.        

Noninterest expense for the fourth quarter of 2019 totaled $29.1 million, an increase of $1.3 million, or 4.6%, over the third quarter of 2019 and $2.6 million, or 9.9%, over the fourth quarter of 2018.  Compared to the third quarter of 2019, higher compensation expense (primarily incentives) and legal/professional fees related to the Brand Mortgage, LLC transaction drove the increase.  The increase over the fourth quarter of 2018 was primarily attributable to lower other real estate owned (“OREO”) expense in the fourth quarter of 2018, which reflected a large gain from the sale of a banking office.  Higher compensation expense (base salaries and commissions) also contributed to the variance.  For the full year 2019, noninterest expense totaled $113.6 million, a $2.1 million, or 1.9% increase over 2018, which primarily reflected higher compensation expense of $2.4 million (base salaries and commissions) and OREO expense of $1.0 million, partially offset by lower other expense of $1.2 million (primarily legal fees, professional fees, and FDIC insurance fees).       
       
We realized income tax expense of $2.5 million (effective rate of 22.9%) for the fourth quarter of 2019 compared to $3.0 million (effective rate of 25.9%) for the third quarter of 2019 and $2.1 million (effective rate of 20.4%) for the fourth quarter of 2018.  Income tax expense for the third quarter of 2019 was unfavorably impacted by net discrete items totaling $0.3 million.  For the full year 2019, income tax expense totaled $9.9 million (effective rate of 24.4%) compared to $3.4 million (effective rate of 11.5%) for 2018.  During 2018, we realized tax benefits totaling $3.3 million (1Q - $1.5 million, 2Q - $1.4 million, 3Q - $0.4 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 $2.695 billion for the fourth quarter of 2019, an increase of $24.6 million, or 0.9%, over the third quarter of 2019, and an increase of $140.2 million, or 5.5%, over the fourth quarter of 2018.  The increase in average earning assets compared to both prior periods reflected a higher level of deposits, primarily noninterest bearing accounts.

We maintained an average net overnight funds (deposits with banks plus fed funds sold less fed funds purchased) sold position of $228.1 million in the fourth quarter of 2019 compared to an average net overnight funds sold position of $207.1 million in the third quarter of 2019 and $80.8 million in the fourth quarter of 2018.  The increase compared to both prior periods reflected deposit growth and runoff from the investment portfolio, partially offset by loan growth.    

Average loans increased $8.6 million, or 0.5% compared to the third quarter of 2019, and grew by $60.6 million, or 3.4% compared to the fourth quarter of 2018.  The increase compared to both prior periods reflected growth in all our loan types except institutional loans, consumer loans, and home equity loans.  During 2019, we purchased adjustable rate residential loans totaling $14.9 million and a fixed rate commercial loan pool totaling $10.3 million, in each case based on principal balances at the time of purchase.

Without compromising our credit standards or taking on inordinate interest rate risk, we have modified some of our lending programs to address the highly competitive rate environment. We continue to closely monitor our markets and make minor rate adjustments as necessary.

Nonperforming assets (nonaccrual loans and OREO) totaled $5.4 million at December 31, 2019, comparable to September 30, 2019, and a $3.7 million, or 40.4%, decrease from December 31, 2018.  Nonaccrual loans totaled $4.5 million at December 31, 2019, a $0.5 million decrease from September 30, 2019 and a $2.4 million decrease from December 31, 2018.  The balance of OREO totaled $1.0 million at December 31, 2019, an increase of $0.4 million over September 30, 2019 and a $1.3 million decrease from December 31, 2018. 

Average total deposits were $2.525 billion for the fourth quarter of 2019, an increase of $29.2 million, or 1.2%, from the third quarter of 2019, and an increase of $112.6 million, or 4.7%, over the fourth quarter of 2018.  The increase in average deposits compared to both prior periods primarily reflected increases in noninterest bearing deposits, partially offset by declines in money market accounts and certificates of deposit.

We continue to closely monitor and manage deposit levels as part of our overall liquidity position and believe a prudent pricing discipline remains the key to managing our mix of deposits.

Average borrowings for the fourth quarter 2019 decreased $1.7 million compared to the third quarter 2019, and declined $11.2 million compared to the fourth quarter of 2018. Declines compared to both prior periods occurred in both short-term and long-term borrowings.     

Shareowners equity was $326.7 million at December 31, 2019 compared to $321.6 million at September 30, 2019 and $302.6 million at December 31, 2018.  Our leverage ratio was 11.25%, 11.09%, and 10.89%, respectively, on these dates.  At December 31, 2019, our total risk-based capital ratio was 17.90% compared to 17.59% and 17.13%, respectively.  Our common equity tier 1 capital ratio was 14.47% at December 31, 2019 compared to 14.13% at September 30, 2019 and 13.58% at December 31, 2018.  All of our regulatory capital ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards.  Further, our tangible common equity ratio was 8.05% at December 31, 2019 compared to 8.31% and 7.58% at September 30, 2019 and December 31, 2018, respectively. 

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 $3.1 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 82 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, except as required by law.

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.