Business | WCTV Eyewitness News: Tallahassee, Thomasville, Valdosta

Capital City Bank Group, Inc. Reports Third Quarter 2010

By: Globe Newswire
By: Globe Newswire

TALLAHASSEE, Fla., Oct. 26, 2010 (GLOBE NEWSWIRE) --

Capital City BankGroup, Inc. (Nasdaq:CCBG) today, October 26 reported net income for the third quarter of 2010 totaling $0.4 million, or $0.02 per diluted share, compared to net income of $0.7 million, or $0.04 per diluted share, for the second quarter of 2010 and a net loss of $1.5 million, or $0.08 per diluted share, for the third quarter of 2009. For the first nine months of 2010, the Company reported a net loss of $2.3 million, or $0.14 per diluted share compared to a net loss of $0.1 million, or $0.00 per diluted share for the same period in 2009.

Net income for the third quarter reflects a loan loss provision of $5.7
million compared to $3.6 million for the second quarter of 2010. The
increase in the loan loss provision and lower noninterest income of
$1.2 million, partially offset by higher net interest income of $0.4
million and lower noninterest expense of $2.3 million, were the primary
factors driving the reduction in earnings from the linked second
quarter. Compared to the third quarter of 2009, a $6.7 million
reduction in the loan loss provision, partially offset by a decline in
net interest income of $1.8 million, lower noninterest income of $0.9
million and higher noninterest expense of $0.7 million, drove the
improvement in earnings.

For the first nine months of 2010, lower net interest income of $7.5
million, a decline in noninterest income of $0.9 million, and higher
noninterest expense of $3.6 million were the primary reasons for the
decline in earnings over 2009. A lower loss provision of $9.1 million
helped offset the aforementioned unfavorable variances.

"Given the current state of our economy, we were pleased to report a
profit for the second consecutive quarter. Credit related costs
continue to be elevated, but our diligence and focus on resolving
problem assets is paying benefits as our nonperforming assets fell $4.2
million to $145.6 million as of quarter-end. Our capital levels remain
strong and we believe we are well positioned to capitalize on
opportunities evolving in our markets. While resolving problem assets
is a high priority, it is not to the detriment of serving our existing
clients and growing our business," said William G. Smith, Jr.,
Chairman, President and Chief Executive Officer.

The Return on Average Assets was 0.06% and the Return on Average Equity
was 0.60% for the third quarter of 2010. These metrics were 0.11% and
1.11% for the second quarter of 2010, and -0.24% and -2.15% for the
third quarter of 2009, respectively.

For the first nine months of 2010, the Return on Average Assets was
-0.12% and the Return on Average Equity was -1.17% compared to 0.00%
and -0.03%, respectively, for the same period in 2009.

Discussion of Financial Condition

Average earning assets were $2.273 billion for the third quarter of
2010, a decrease of $56.2 million, or 2.4%, from the second quarter of
2010, and an increase of $35.6 million, or 1.6%, from the fourth
quarter of 2009. The decrease from the second quarter is primarily
attributable to a lower level of overnight funds of $15.1 million
(reflecting the reduction in deposits), and problem loan resolutions,
which have the effect of lowering the loan portfolio as loans are
either charged off or transferred to the other real estate owned
category. Growth over the fourth quarter is attributable to increases
in overnight funds and investment securities of $139.6 million and
$33.4 million, respectively, which were primarily funded by higher
deposit balances. These increases were partially offset by problem loan
resolutions. Average loans have declined throughout the portfolio,
driven by reductions in the commercial real estate and construction
loan categories. The portfolio continues to be impacted by weak loan
demand attributable to the sluggish economy, but not at the levels we
have experienced in recent quarters. In addition to lower production
and normal amortization and payoffs, the reduction in the portfolio is
also attributable to gross charge-offs and the transfer of loans to the
other real estate owned category, which collectively accounted for
$60.9 million, or 53%, of the net reduction of $114.7 million1 in the
portfolio during the first nine months of 2010.

At the end of the third quarter, nonperforming assets (including
nonaccrual loans, restructured loans and other real estate owned)
totaled $145.6 million, a decrease of $4.2 million from the second
quarter of 2010, driven primarily by a decrease in restructured loans
of $6.9 million - two large loans were restored to performing status
due to paying as agreed under restructured terms. Nonaccrual loans
realized a net decrease of $0.4 million in the current quarter as the
volume of loans migrating to nonaccrual status was essentially offset
by resolutions and transfers to the other real estate owned category.
The $3.1 million increase in the other real estate owned balance
reflects the aforementioned migration of nonaccrual loans through the
foreclosure process as well as a slight slowdown in property
dispositions. Nonperforming assets represented 7.86% of loans and other
real estate at the end of the third quarter compared to 8.01% at the
prior quarter-end and 7.38% at year-end 2009.

Average total deposits were $2.172 billion for the third quarter, a
decrease of $62.0 million, or 2.8%, from the second quarter of 2010 and
an increase of $82.2 million, or 3.9%, from the fourth quarter of 2009.
Deposit levels are strong, but down slightly from the second quarter
level, primarily attributable to lower money market account and
certificates of deposit balances, and a decline in public funds. The
money market account promotion launched during the third quarter of
2009 and concluded in the fourth quarter, experienced runoff as rates
were eased during the current quarter to standard levels. Despite the
lowering of rates, the bank has retained in excess of $24.4 million in
new deposit balances. This initiative served to support our core
deposit growth strategy while succeeding in further strengthening the
Bank's overall liquidity position. Certificates of deposit declined
primarily due to the maturity of one large public fund CD and a
reduction in the number of single relationship, higher yielding
certificates of deposit with the Bank. Public funds balances have
declined as anticipated from the linked quarter reflecting seasonality
within this deposit category. Our Absolutely Free Checking ("AFC")
products continue to be successful as both balances and the number of
accounts increased quarter over quarter.

We continue to pursue prudent pricing discipline to manage the mix of
our deposits. Therefore, we are not attempting to compete with higher
rate paying competitors for deposits. The increase from the fourth
quarter of 2009 reflects higher public funds of $37.3 million and core
deposits of $44.9 million, fueled primarily by the success of the AFC
products.

We maintained an average net overnight funds (deposits with banks plus
fed funds sold less fed funds purchased) sold position of $246.9
million during the third quarter of 2010 compared to an average net
overnight funds sold position of $262.2 million in the prior quarter
and an average overnight funds sold position of $112.8 million in the
fourth quarter of 2009. The lower balance when compared to the linked
quarter primarily reflects the decline in deposits mentioned above,
partially offset by the lower investment and loan portfolios. The
favorable variance as compared to year-end is primarily attributable to
the growth in deposits and net reductions in the loan portfolio,
partially offset by a higher balance in the investment portfolio. Late
in the third quarter, a portion of the funds sold position was deployed
into the investment portfolio. We will continue to evaluate deploying
the excess funds sold position into the investment portfolio during the
fourth quarter of 2010.

Equity capital was $260.7 million as of September 30, 2010, compared to
$261.7 million as of June 30, 2010 and $267.9 million as of December
31, 2009. Our leverage ratio was 9.75%, 9.58%, and 10.39%,
respectively, for the comparable periods. Further, our risk-adjusted
capital ratio of 14.29% at September 30, 2010 exceeds the 10.0%
threshold to be designated as "well-capitalized" under the risk-based
regulatory guidelines. At September 30, 2010, our tangible common
equity ratio was 6.98%, compared to 6.80% at June 30, 2010 and 6.84% at
December 31, 2009.

Discussion of Operating Results

Tax equivalent net interest income for the third quarter of 2010 was
$25.1 million compared to $24.7 million for the second quarter of 2010
and $27.1 million for the third quarter of 2009. For the first nine
months of 2010, tax equivalent net interest income totaled $74.3
million compared to $82.4 million in 2009.

The increase of $0.4 million in tax equivalent net interest income on a
linked quarter basis was due to lower interest expense, one additional
calendar day, and a continued decrease in foregone interest on
nonaccrual loans, partially offset by a reduction in loan income
attributable to declining loan balances, and continued unfavorable
asset repricing. Lower interest expense reflects a reduction in deposit
rates primarily in the categories of NOWs, money market accounts and
certificates of deposit.

The decrease of $8.1 million in tax equivalent net interest income for
the first nine months of 2010, as compared to the same period in 2009,
resulted from a reduction in loans outstanding, lower earning assets
yields reflecting unfavorable asset repricing, higher foregone interest
and lower loan fees, partially offset by a reduction in interest
expense.

The net interest margin in the third quarter of 2010 was 4.38%, an
increase of 12 basis points over the linked quarter and a decline of 61
basis points from the third quarter of 2009. The increase in the margin
when compared to the linked quarter was a result of a 12 basis point
reduction in the cost of funds, as the yield on earning assets remained
constant. The lower cost of funds resulted from a reduction in the
rates on NOW accounts primarily to comply with the Transaction Account
Guarantee Program changes. Rates were lowered on the money market
promotional accounts while certificates of deposit rates were
significantly reduced in all markets. The decline in the margin for the
first nine months of 2010 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
experienced in the fourth quarter of 2009 and the first half of 2010
improved our liquidity position, but has also adversely impacted our
margin in the short term as a significant portion of this growth is
currently invested in overnight funds.

The provision for loan losses for the third quarter of 2010 was $5.7
million compared to $3.6 million in the second quarter of 2010 and
$12.3 million for the third quarter of 2009. For the first nine months
of 2010, the loan loss provision totaled $20.0 million compared to
$29.2 million for the same period in 2009. The higher provision over
the second quarter primarily reflects an increase in the volume of
loans migrating to impaired status and collateral devaluation on
existing impaired loans. The lower provision for the first nine months
of the year primarily reflects a reduction in the level of loans
migrating into our problem loan pool as well as other stabilizing
trends within the loan portfolio. Net charge-offs in the third quarter
totaled $6.4 million, or 1.40% of average loans, compared to $6.4
million, or 1.39%, in the second quarter of 2010. At quarter-end, the
allowance for loan losses was 2.10% of outstanding loans (net of
overdrafts) and provided coverage of 40% of nonperforming loans
compared to 2.11% and 38%, respectively, at the end of the prior
quarter.

Noninterest income for the third quarter decreased $1.2 million, or
8.3%, from the linked quarter attributable to lower deposit fees ($0.6
million), retail brokerage fees ($0.2 million), and other income ($0.5
million). The decline in deposit fees was attributable to a lower level
of overdraft fees due to reduced activity and to a lesser extent a
higher level of overdraft charge-offs. The reduction in overdraft
activity reflects current economic conditions and a higher level of
consumer awareness that have both impacted consumer and business
spending habits, as well as the recent implementation of new rules
under Regulation E, which regulate our ability to post one-time debit
card/ATM transactions for clients who have not opted in to our
overdraft protection service. The lower level of retail brokerage fees
is primarily reflective of lower trading activity. The decline in other
income is due to a reduced level of merchant fees - a substantial
portion of our merchant portfolio was sold in July 2008 and over the
course of 2009 our merchants migrated to a new processor. For 2010, we
continued to service our largest remaining merchant who migrated to a
new processor during the third quarter of 2010. The reduction in this
revenue source has been substantially offset by a reduction in
processing costs which is reflected in noninterest expense (interchange
fees). For the first nine months of 2010, noninterest income declined
$0.9 million, or 2.1%, from the same period in 2009 attributable to
lower deposit fees ($0.9 million) and other income ($1.2 million),
partially offset by an increase in debit card and interchange fees
($0.9 million). The declines in deposit and merchant fees are
attributable the same aforementioned factors for the current quarter.
The higher level of debit card fees reflect a new rewards program
implemented in early 2010 as well as a higher level of card activation
and utilization.

Total noninterest expense decreased $2.3 million, or 6.5%, from the
linked quarter driven by a reduction in expense for other real estate
properties ($0.8 million), FDIC insurance ($0.4 million), advertising
costs ($0.5 million), pension plan expense ($0.4 million), and
interchange fees ($0.3 million). The decline in other real estate
expense reflects a lower level of property valuation write-downs. The
favorable variance in FDIC insurance reflects a higher required expense
in the prior quarter due to an adjustment in our premium rate. The
lower level of pension expense reflects a year-to-date adjustment after
receipt of accounting reports from our actuary which included better
than estimated asset return performance. The decline in interchange
fees reflects the migration of our last merchant services client to a
new processor -- this decline is substantially offset by a
corresponding decline in merchant fee revenue. For the first nine
months of 2010, as compared to the same period in 2009, noninterest
expense increased $3.6 million, or 3.7%, due primarily to higher
expense for other real estate properties ($6.2 million), partially
offset by lower pension expense ($1.4 million), advertising expense
($0.4 million), and intangible asset amortization ($0.9 million). A
higher level of other real estate owned properties drove the increase
in other real estate expenses. The decline in pension expense reflects
improved return on pension plan assets. Closer management of costs
related to our free checking products as well as lower public relations
expense contributed to the decline in advertising expense. The lower
level of intangible asset amortization reflects the full amortization
of a core deposit intangible.

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 $2.6 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 70 banking offices and 79 ATMs in Florida, Georgia and
Alabama.


WCTV 1801 Halstead Blvd. Tallahassee, FL 32309
Gray Television, Inc. - Copyright © 2002-2014 - Designed by Gray Digital Media - Powered by Clickability 105762653