Capital City Bank Group, Inc. Reports First Quarter 2010 Results

TALLAHASSEE, Fla., April 19, 2010 (GLOBE NEWSWIRE) -- Capital City Bank Group, Inc. (Nasdaq:CCBG) today reported a net loss of $3.5 million, or $0.20 per diluted share for the first quarter of 2010 compared to a net loss of $3.4 million, or $0.20 per diluted share in the fourth quarter of 2009 and net income of $0.7 million, or $0.04 per diluted share for the first quarter of 2009.

The net loss reported for the first quarter of 2010 reflects a loan loss provision of $10.7 million, or $0.39 per diluted share versus $10.8 million, or $0.39 per diluted share for the linked fourth quarter of 2009 and $8.4 million, or $0.30 per diluted share in the first quarter of 2009. Compared to the linked fourth quarter of 2009, lower operating expenses of $1.9 million contributed to earnings, but were offset by a $1.7 million reduction in operating revenues (net interest income plus noninterest income) and a lower tax benefit of $0.3 million.   

"We believe many of the economic indicators across our footprint appear to be in the early stages of stabilization, but uncertainty and a weak economy continue to affect our banking markets," said William G. Smith, Jr., Chairman, President and Chief Executive Officer. "Consumers and businesses alike appear to be waiting for more economic certainty and confidence before resuming traditional spending patterns or business expansion plans. Although our margin remains strong at 4.21%, these market realities have adversely impacted loan volume and thereby our margin in recent quarters. Concerning credit quality, we are encouraged by positive developments in some of our underlying credit metrics, specifically, a slowdown in the level of gross additions to our problem loans. Nonaccrual loans have declined for three consecutive quarters. The slight increase in total nonperforming assets this quarter was driven by migration into restructured loans, which are accruing interest and other real estate, which is an end stage to resolution. Migration of the problem loans from nonaccruing to the restructured and other real estate categories simply puts us in a stronger position to ultimately resolve these situations.

"Without question, this is the most difficult operating environment our team has faced during our 20-30 year careers. We believe the collective experience of our management team, knowledge of our local markets, strength of our brand, healthy capital and the company's underlying performance metrics will enable us to successfully manage through this current economic cycle and capitalize on opportunities as our markets recover," said Smith.

The Return on Average Assets was -0.52% and the Return on Average Equity was -5.23% for the first quarter of 2010. These metrics were -0.52% and -5.03%, respectively for the fourth quarter of 2009, and 0.11% and 0.94%, respectively for the comparable quarter in 2009.

Discussion of Financial Condition

Average earning assets were $2.358 billion for the first quarter of 2010, an increase of $120.7 million, or 5.4% from the fourth quarter of 2009, and an increase of $192.1 million, or 8.9% from the first quarter of 2009. The improvement from the fourth quarter is primarily attributable to an increase in the overnight funds position of $190.5 million, partially offset by an $11.3 million and $58.5 million decrease in the investment and loan portfolios, respectively. The improvement in the funds position primarily reflects core deposit growth and to a lesser extent an influx of public funds. Average loans declined throughout the portfolio driven by reduction in the residential real estate and construction loan categories primarily reflecting the transfer of loans to the other real estate category as well as loan charge-offs. Additionally, the portfolio has been impacted by diminished loan demand, primarily attributable to the weak economy, as we have experienced lower production levels in recent quarters. Compared to the first quarter of 2009, the increase in average earning assets primarily reflects growth in the overnight funds position partially offset by a reduction in the loan portfolio and investment securities. Our loan production levels began to decline during the second half of 2009 with the trend continuing through the recent quarter.

Nonperforming assets of $153.7 million increased from the linked fourth quarter by $9.6 million and from the first quarter of 2009 by $26.9 million. Nonaccrual loans decreased $9.9 million and $33.8 million, respectively, from the same prior-year periods. For the first quarter, the migration of loans into our problem loan pool slowed as the gross additions declined for the second straight quarter and the level of our past due loans improved significantly. More specifically, gross additions to our portfolio of nonaccruing loans have declined in four of the last five quarters, including the first quarter of 2010. Furthermore, our collection and loan work-out efforts continue to produce positive momentum reflective of the increased level of loans migrating into both the restructured loan and other real estate categories. Restructured loans totaled $30.8 million at the end of the first quarter reflecting an increase of $9.2 million over year-end 2009 and $25.7 million over the first quarter of 2009. Four large loans were added to the restructured category during the first quarter and reflect our efforts to alleviate these borrowers near term cash flow strains. Our current restructured loan portfolio consists of 150 loans that are all on fully accruing status and maintain a weighted average interest rate of 5.86%. Other real estate owned totaled $46.4 million at the end of the quarter compared to $36.1 million at year-end 2009 and $11.4 million at the end of the first quarter of 2009, reflecting the continued migration of our problem loan pool through the foreclosure process which has picked up momentum over the last two quarters. Nonperforming assets represented 8.10% of loans and other real estate at the end of the first quarter compared to 7.38% at year-end 2009 and 6.39% at the end of the first quarter of 2009. The increase in this percentage is partially attributable to a decline in loans outstanding.

Average total deposits were $2.249 billion for the first quarter, an increase of $158.8 million, or 7.6%, from the fourth quarter and an increase of $291.4 million, or 14.9%, from the first quarter of 2009. On a linked quarter basis, the increase reflects core deposit growth of approximately $66.3 million resulting from a successful money market promotion, higher deposit balances maintained by several larger, non-public depositors, as well as continued growth in our Absolutely Free Checking ("AFC") accounts. Additionally, average public funds increased approximately $92.0 million from the linked quarter attributable to seasonal inflow and the addition of new relationships. The money market account promotion, which was launched during the third quarter and concluded in the fourth quarter, has generated in excess of $100.0 million in new deposit balances and served to support our core deposit growth initiatives and to further strengthen the bank's overall liquidity position. Our AFC products continue to be successful as both balances and the number of accounts continue to post growth quarter over quarter. The improvement from the first quarter of 2009 primarily reflects the increase in core deposits mentioned above.

We maintained an average net overnight funds (deposits with banks plus Fed funds sold less Fed funds purchased) sold position of $303.3 million during the first quarter of 2010 compared to an average net overnight funds sold position of $112.8 million in the fourth quarter of 2009 and an average overnight funds purchased position of $33.9 million in the first quarter of 2009. The favorable variance as compared to both the fourth and first quarters of 2009, is primarily attributable to the growth in core deposits mentioned above and net reductions in both the loan and investment portfolios. The investment portfolio was expanded at the end of the first quarter with the purchase of $50.0 million of US Treasuries in relatively short maturities. If appropriate, we will continue to look to deploy a portion of the funds sold position in the investment portfolio during the second quarter.

Equity capital was $262.0 million as of March 31, 2010, compared to $267.9 million as of December 31, 2009 and $275.5 million as of March 31, 2009. Our leverage ratio was 9.64%, 10.39%, and 11.25%, respectively, for the comparable periods. Further, our risk-adjusted capital ratio of 14.16% at March 31, 2010 exceeds the 10.0% threshold to be designated as "well-capitalized" under the risk-based regulatory guidelines. At March 31, 2010, our tangible common equity ratio was 6.62%, compared to 6.84% at December 31, 2009 and 7.63% at March 31, 2009. 

Discussion of Operating Results

Tax equivalent net interest income for the first quarter of 2010 was $24.5 million compared to $25.8 million for the fourth quarter of 2009 and $27.6 million for the first quarter of 2009. The decrease of $1.3 million in net interest income on a linked quarter basis was due to two less calendar days, a shift in earning asset mix and unfavorable asset repricing, partially offset by a decrease in foregone interest on nonaccrual loans and lower interest expense. Interest income was primarily impacted by declining balances in our investment and loan portfolios as well as continued unfavorable repricing in each of these portfolios. These unfavorable volume and rate variances were partially offset by a favorable variance in foregone interest on nonaccrual loans and a reduction in interest expense, primarily attributable to lower rates on certificates of deposit and subordinated notes payable. With the exception of calendar days, the $3.1 million unfavorable variance over the first quarter of 2009 is primarily attributable to the trends as noted above in comparing the first quarter 2010 to fourth quarter 2009.

The net interest margin in the first quarter of 2010 was 4.21%, a decline of 38 basis points over the linked quarter and 95 basis points over the first quarter of 2009. The lower margin is attributable to the shift in our earning asset mix and unfavorable asset repricing, partially offset by a favorable variance in our average cost of funds. Strong deposit growth in recent quarters has improved our liquidity position, but has adversely impacted our margin in the short term as a significant portion of this growth is currently invested in overnight funds. When we determine what portion of this growth is permanent we will begin deploying the overnight funds into higher yielding earning assets. As noted earlier, late in the first quarter we invested an additional $50 million in the investment portfolio. 

The provision for loan losses for the current quarter was $10.7 million compared to $10.8 million in the linked fourth quarter of 2009 and $8.4 million for the first quarter of 2009. The provision for the current quarter primarily reflects required reserves for loans added to impaired status during the quarter and to a lesser extent collateral devaluation on existing impaired loans. An increase in loan loss factors also impacted the level of loan loss provision for the quarter. Net charge-offs in the first quarter totaled $13.5 million, or 2.91%, of average loans compared to $11.8 million, or 2.42% in the linked fourth quarter of 2009 and $5.2 million, or 1.08% in the first quarter of 2009. The increase in net charge-offs compared to the linked fourth quarter reflects losses recorded on three large previously impaired loans that are working through the foreclosure process – these loans were substantially reserved for in the prior quarter. At quarter-end, the allowance for loan losses was 2.23% of outstanding loans (net of overdrafts) and provided coverage of 38% of nonperforming loans compared to 2.30% and 41%, respectively, at the end of the prior quarter.

Noninterest income for the first quarter decreased $444,000, or 3.1%, from the fourth quarter of 2009 and declined $75,000, or 0.53%, from the first quarter of 2009. Compared to the linked fourth quarter, the decrease is attributable to lower deposit fees ($554,000) and retail brokerage fees ($207,000), partially offset by higher merchant fees ($320,000). The reduction in deposit fees compared to the prior linked quarter reflects a two-day calendar variance, and a lower level of NSF/overdraft activity reflective of current economic conditions and a higher level of consumer awareness that have both impacted consumer and business spending habits. The decline in retail brokerage fees was driven by lower trading volume by clients. The increase in merchant fees reflects higher processing volume for our sole remaining merchant that is scheduled to convert to another processor early in the third quarter. Compared to the first quarter of 2009, the slight decline is attributable to a lower level of merchant fees ($293,000) reflective of a higher number of remaining merchants in early 2009. Partially offsetting the reduction in merchant fees was an increase in bank card fees ($256,000) primarily driven by growth in transaction accounts as well as a debit card rewards program that was implemented in late 2009.   

Noninterest expense decreased $1.9 million, or 5.5%, from the fourth quarter of 2009 and increased $1.1 million, or 3.5%, over the first quarter of 2009. The decrease compared to the fourth quarter was driven by lower expense for other real estate properties ($700,000), which includes holding costs as well as valuation adjustments due to property devaluation. Lower expense for loan collection legal support ($215,000), professional fees ($554,000), advertising ($272,000), and intangible amortization ($301,000) also contributed to the decline for the quarter. The reduction in legal expense was due to a lower level of legal assistance needed for complex loan work-out arrangements as well as various cost control strategies implemented to reduce this cost. Professional fees was elevated in the fourth quarter due to a one-time payment to a consulting firm for services related to a review of our vendor maintenance contracts that will result in future cost reductions. The decline in advertising expense primarily reflects lower direct mail costs for our ongoing AFC product promotion and, to a lesser extent, costs incurred in support of our money market account promotion, which was recognized in the fourth quarter of 2009. Intangible amortization declined due to the fact that the scheduled amortization of one of our core deposit intangible assets concluded during the fourth quarter of 2009. Compared to the first quarter of 2009, the increase in noninterest expense was attributable to higher expense for other real estate properties ($1.8 million), partially offset by lower pension plan expense ($618,000).

We realized a tax benefit of $2.7 million for the first quarter of 2010 and a tax benefit of $3.0 million for the fourth quarter of 2009, both of which primarily reflect the impact of a higher level of permanent book/tax differences (primarily tax exempt income) in relation to our book operating profit. The reduction in benefit for the current quarter primarily reflects a lower level of tax exempt income.

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 $2.7 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 69 banking offices and 79 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: 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, 2009, 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.