Capital City Bank Group, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter 2011 results. Capital City Bank Group is a Florida-based bank holding company operating 70 banking locations in Florida, Georgia, and Alabama; Florida generated about 78% of revenue. Banking accounted for approximately 93% of revenue.
Financial performance and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Net income (loss) | $4.9 million | ($0.4 million) |
| Diluted earnings (loss) per share | $0.29 | ($0.02) |
| Net interest income (GAAP) | $91.9 million | $97.5 million |
| Net interest margin (taxable-equivalent) | 4.18% | 4.32% |
| Provision for loan losses | $19.0 million | $23.8 million |
| Noninterest income | $58.8 million | $56.8 million |
| Noninterest expense | $126.2 million | $133.9 million |
| Operating cash flow | $66.3 million | $75.9 million |
- Year-end assets were $2.641 billion, deposits $2.173 billion, loans before allowance $1.629 billion, and shareowners’ equity $251.9 million. Year-end cash and cash equivalents were $385.3 million, up from $236.2 million.
- Cash flow was $66.3 million from operations, $73.6 million from investing activities, and $9.3 million from financing activities; cash increased $149.1 million during 2011.
- Debt included $43.4 million of short-term borrowings, $44.6 million of FHLB advances, and $62.9 million of subordinated notes.
- Capital remained above regulatory well-capitalized thresholds: consolidated total risk-based capital was 15.32%, Tier I capital 13.96%, and leverage 10.26%. The Bank also remained well capitalized.
- At year-end, nonperforming loans were $75.0 million, or 4.61% of loans; nonperforming assets, including OREO, were $137.6 million, or 5.21% of assets. The $31.0 million loan-loss allowance equaled 1.91% of loans and covered 41% of nonperforming loans.
Changes versus prior year
- Results returned to profitability, compared with a small loss in 2010. Management attributed the improvement chiefly to a $4.8 million lower loan-loss provision, $7.7 million lower noninterest expense, and $2.0 million higher noninterest income; lower net interest income and higher taxes partly offset these gains.
- Net interest income fell $5.6 million, and the taxable-equivalent margin narrowed 14 basis points, reflecting lower loan balances, asset repricing, and a shift in earning-asset mix. Average loans declined 7.8%.
- Nonperforming assets rose from $123.6 million to $137.6 million. Nonperforming loans increased $9.3 million, while OREO rose to $62.6 million. Net charge-offs nevertheless declined to $23.4 million from $32.4 million.
- Average noninterest-bearing deposits increased $105.5 million, or 22.8%, but average total deposits declined 5.0%, principally as higher-cost certificates of deposit ran off.
- Shareowners’ equity fell $7.1 million. The pension-related accumulated other comprehensive loss increased, while capital ratios improved year over year.
Outlook, management commentary, and risks
- Management characterized 2012 as another challenging year, expecting continued pressure on net interest margin and elevated costs to manage and resolve nonperforming assets. It expected loan losses to remain elevated, while focusing on asset resolution, core earnings, cost management, and deposit relationships.
- In December 2011, the company suspended its common dividend. In consultation with the Federal Reserve, it also agreed to defer interest payments on trust preferred securities; interest continues to accrue. Resumption of dividends and trust preferred payments is subject to regulatory approval and improved asset quality and credit risk.
- A new informal, nonpublic Federal Reserve resolution for the Bank requires prior regulatory approval for dividends to the holding company and independent validation of the loan-loss allowance methodology. A separate 2010 holding-company resolution remains in effect, restricting new or refinanced debt, dividends, trust preferred payments, share repurchases, and certain capital reductions without Federal Reserve approval. Management said the entities remained well capitalized and expected to comply with the new Bank resolution within prescribed time frames.
- Credit risk is concentrated in Florida and Georgia real estate: about 80% of loans had real estate as a collateral component. Management cited weak regional economic conditions, property values, borrower performance, foreclosures, and loan concentrations as significant risks. Five large relationships added to nonaccrual status in the fourth quarter.
- Other notable exposures include goodwill of $84.8 million, which passed its 2011 impairment test but remains sensitive to valuation assumptions; $295.5 million of credit commitments and $10.9 million of standby letters of credit; and potential FDIC assessment, regulatory, interest-rate, liquidity, and cybersecurity risks. Management reported no known litigation expected to have a material effect.
- A $3.2 million pretax gain from selling Visa Class B shares contributed to 2011 noninterest income; an associated swap liability and other items reduced the net gain to approximately $2.6 million. The gain is nonrecurring.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether nonperforming loans and OREO decline, and whether the allowance remains adequate as charge-offs, delinquencies, and TDRs develop.
- Whether the Bank completes the allowance-methodology validation and both entities obtain required regulatory approvals; confirm the duration and terms of dividend and trust-preferred payment restrictions.
- Whether core earnings can withstand further margin compression, loan runoff, and the loss of data-processing clients; distinguish recurring income from the Visa share-sale gain.
- Liquidity and funding trends, including deposit mix, borrowing capacity, contractual maturities, and the effect of deferred trust-preferred interest accruing over time.
- Goodwill impairment assumptions, pension funding and liability changes, and the impact of regulatory and deposit-insurance costs.