Capital City Bank Group, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Capital City Bank Group is a Florida-based financial holding company operating 61 banking offices in Florida, Georgia, and Alabama. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance and position
| Metric | Q1 2016 / March 31, 2016 | Comparable period / change |
|---|---|---|
| Net income; diluted EPS | $1.65 million; $0.10 | Q1 2015: $0.99 million; $0.06. Q4 2015: $2.60 million; $0.16. |
| Net interest income (tax-equivalent) | $19.42 million | Up 4.4% from Q1 2015; down 2.9% from Q4 2015. |
| Net interest margin (tax-equivalent) | 3.20% | Q1 2015: 3.27%; Q4 2015: 3.37%. |
| Noninterest income / expense | $12.68 million / $28.93 million | Income down 1.3% and expense down 1.6% from Q1 2015. |
| Cash flow | Operating cash flow $9.25 million; cash and equivalents $350.82 million at quarter-end | Operating cash flow was $6.70 million in Q1 2015; cash declined $28.08 million during Q1 2016. |
| Loans / deposits | Loans, net of allowance: $1,493.22 million; deposits: $2,291.41 million | Loans up from $1,478.32 million and deposits down from $2,302.85 million at year-end 2015. |
| Debt and borrowings | Short-term borrowings $62.92 million; subordinated notes $62.89 million; other long-term borrowings $27.06 million | Total of these reported borrowings: approximately $152.87 million. |
| Capital and liquidity | Equity $276.83 million; total capital ratio 17.20%; CET1 12.82%; tangible capital ratio 7.09% | Company reported all regulatory capital ratios above “well-capitalized” thresholds and $1.11 billion of additional available liquidity. |
Return on average assets was 0.24%, return on average equity 2.39%, and the efficiency ratio 90.13%. Credit costs—loan-loss provision plus other real estate owned expense—were $1.9 million. The allowance for loan losses was $13.61 million, or 0.90% of loans, covering 150% of nonperforming loans.
Material changes versus comparable periods
- Year over year, net income rose to $1.65 million from $0.99 million, supported by higher net interest income and lower noninterest expense; higher provision, taxes, and lower noninterest income partly offset the improvement.
- Quarter over quarter, net income fell from $2.60 million. Management cited lower net interest income and noninterest income, higher noninterest expense, and lower tax expense as principal items.
- Average loans grew 4.1% year over year and average deposits grew 4.4%. Loan growth was broad-based except in commercial mortgages. Average deposits benefited from noninterest-bearing and savings balances, and from seasonal public funds.
- Asset quality improved: nonperforming assets were $26.50 million, or 0.95% of assets, versus $50.63 million and 1.88% a year earlier. Net charge-offs were $0.79 million, compared with $1.74 million in Q1 2015.
Outlook, commentary, risks, and unusual items
- Management gave no specific earnings or revenue guidance. It expects an effective tax rate of 34%–35%, absent future discrete events; expects most investment-portfolio cash flows during the remainder of 2016 to be reinvested; and anticipates approximately $5 million of capital expenditures over the next 12 months.
- Management said competitive lending and the low-rate environment pressure loan yields. It intends to maintain short-duration balance-sheet positions rather than reach further out the yield curve. Its interest-rate model showed rising-rate scenarios benefiting short-term net interest income, while a 100-basis-point decline was estimated to reduce it 6.2%.
- Estimated economic value of equity declined 31.3% in the down-100-basis-point scenario, outside the company’s stated policy limit. Management attributed the exposure to low deposit costs and noted that capping non-maturity deposit values at book value would reduce the modeled decline to 5.4%, within policy guidelines.
- Credit and concentration risks, local economic conditions, interest-rate and liquidity risk, regulatory requirements, and the accuracy of loan-loss and other estimates are identified risks. At quarter-end, criticized loans totaled $80.76 million; commitments to extend credit and standby letters of credit totaled $387.78 million.
- Subsequent event: On April 12, 2016, the company repurchased and retired $10 million face value of trust preferred securities for about 75% of par. It expects to recognize an approximately $2.5 million pretax gain in Q2 2016 and funded the purchase partly with a $3.75 million short-term borrowing draw.
- The company reported no known pending litigation expected to have a material effect. A Visa-related swap obligation remains associated with potential litigation-reserve adjustments and quarterly fixed payments of approximately $66,000.
Important facts for investors to verify
- Whether loan and deposit growth, particularly seasonal public-fund balances, persist and translate into improved recurring earnings.
- Whether the decline in net interest margin and the modeled exposure to falling rates remain within management’s risk tolerance and policy limits.
- Whether asset-quality improvement continues, including performance of criticized loans, troubled debt restructurings, and the $17.45 million OREO balance.
- The Q2 realization and accounting treatment of the expected $2.5 million trust-preferred repurchase gain, and the effect of the related borrowing and debt retirement.
- Capital, liquidity, and dividend capacity in light of regulatory requirements, the $387.78 million of off-balance-sheet commitments, and management’s planned capital spending.