Capital City Bank Group, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 5, 2020. CCBG is a Florida-based bank holding company operating 57 banking offices in Florida, Georgia, and Alabama; Florida generated approximately 88% of revenue.
Financial results and condition
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue (interest income plus noninterest income) | $165.9 million | $151.0 million |
| Net income | $30.8 million | $26.2 million |
| Diluted earnings per share | $1.83 | $1.54 |
| Net interest income, GAAP | $103.3 million | $92.5 million |
| Noninterest income | $53.1 million | $51.6 million |
| Noninterest expense | $113.6 million | $111.5 million |
| Total assets at year-end | $3.089 billion | $2.959 billion |
| Deposits at year-end | $2.645 billion | $2.532 billion |
| Shareowners’ equity at year-end | $327.0 million | $302.6 million |
- Profitability and margins: Return on average assets was 1.03% versus 0.92%; return on average equity was 9.72% versus 8.89%. Tax-equivalent net interest margin rose to 3.85% from 3.64%, while the efficiency ratio improved to 72.40% from 77.05%.
- Cash flow and liquidity: Operating cash flow was $53.7 million; investing activities used $46.9 million and financing activities provided $95.6 million. Cash and cash equivalents increased $102.4 million to $378.4 million. Management reported access to approximately $1.282 billion of additional liquidity beyond overnight funds sold.
- Credit quality: Nonperforming assets fell 40% to $5.4 million, or 0.18% of assets, from $9.1 million, or 0.31%. The allowance for loan losses was $13.9 million, 0.75% of loans and 311% of nonperforming loans. Net charge-offs were $2.3 million, or 0.13% of average loans.
- Capital and debt: Total risk-based capital was 17.90%, Common Equity Tier 1 was 14.47%, and the leverage ratio was 11.25%; the Bank was categorized as well-capitalized. Year-end borrowings included $52.9 million of subordinated notes, $6.4 million of short-term borrowings, and $6.5 million of other long-term borrowings. Dividends declared were $0.48 per share, up from $0.32.
Material changes versus 2018
- Net income rose $4.6 million. Higher net interest income (+$10.8 million), higher noninterest income (+$1.5 million), and lower loan-loss provision (+$0.9 million) more than offset higher taxes (+$6.5 million) and noninterest expense (+$2.1 million).
- Average loans grew 6.0% to $1.822 billion and average deposits grew 4.7% to $2.537 billion. Noninterest-bearing deposits increased $105.0 million, or 11.6%.
- Wealth management fees increased $1.8 million and mortgage banking fees increased $0.6 million; deposit fees declined $0.6 million. Compensation expense rose $2.4 million, primarily reflecting raises and revenue-related commissions.
- Net income comparisons are affected by 2018’s $3.3 million discrete tax benefit related to 2017 pension contributions. The 2019 effective tax rate was 24%, compared with 12% in 2018; 2019 included a $0.4 million discrete expense following a Florida corporate tax-rate reduction.
Outlook, commentary, risks, and unusual items
- Management’s strategy emphasizes organic growth, core deposits, community banking, and selective acquisitions in Florida, Georgia, and Alabama. It provided no specific earnings or revenue guidance.
- On March 1, 2020, after year-end, CCBG acquired a 51% interest in Brand Mortgage, LLC. Management expects expanded mortgage-market reach, products, and lending capacity; the filing does not quantify expected financial effects.
- CECL adoption began January 1, 2020. Management estimated a 20%–30% increase in the combined allowance for loan losses and reserves for unfunded commitments; the final impact was still being determined. No significant effect on regulatory capital ratios was expected.
- Interest-rate exposure is material: management’s model showed rising-rate scenarios benefiting near-term net interest income, but a 100-basis-point decline adversely affecting it. The 24-month down-100-basis-point NII scenario was outside desired parameters because deposit rates cannot fall as quickly as market rates.
- The filing identifies COVID-19 as a potential pandemic risk that could affect local economic activity, credit losses, fee income, loan demand, and margins; it does not quantify an impact. Other key exposures include geographic and real-estate loan concentration, interest-rate and liquidity risk, cybersecurity, regulation, and competition.
- Real estate represented approximately 71% of loans; commercial mortgage loans were 33.9% of the portfolio. The company also disclosed $519.2 million of commitments to extend credit and $5.8 million of standby letters of credit. Management said ordinary-course litigation was not expected to have a material effect.
- The company reported $17.6 million of troubled debt restructurings, mostly accruing. A Visa-related swap produced a $0.1 million payable after a reserve adjustment; payments under the arrangement totaled $624,000 in 2019.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective.
Important facts for investors to verify
- Actual CECL transition adjustment and subsequent allowance levels compared with management’s preliminary 20%–30% estimate.
- Brand Mortgage’s contribution to earnings, integration costs, and capital or funding needs after acquisition.
- Credit performance in concentrated Florida and Georgia real-estate markets, including TDRs, charge-offs, and collateral values.
- Deposit pricing, liquidity capacity, and sensitivity to falling or rising interest rates, especially the disclosed down-rate scenario.
- Dividend sustainability and the effect of pension obligations, regulatory capital requirements, and any deterioration in credit quality.
- Any measurable financial or operating consequences from COVID-19 and other local economic disruptions, which were not quantified in this filing.