UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,September 30, 2019
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-13358
|
(Exact name of registrant as specified in its charter) |
Florida |
| 59-2273542 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
217 North Monroe Street, Tallahassee, Florida |
| 32301 |
(Address of principal executive office) |
| (Zip Code) |
(850) 402-7821 | ||
(Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, Par value $0.01 | CCBG | Nasdaq Stock Market, LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [X] | Non-accelerated filer [ ] | Smaller reporting company [ ] |
|
|
| Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
At April 30,October 31, 2019, 16,812,48516,748,858 shares of the Registrant's Common Stock, $.01 par value, were outstanding.
CAPITAL CITY BANK GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31,SEPTEMBER 30, 2019
TABLE OF CONTENTS
PART I – Financial Information |
| Page | |||
| |||||
Item 1. | Consolidated Financial Statements (Unaudited) |
| |||
| Consolidated Statements of Financial Condition – | 4 | |||
| Consolidated Statements of Income – Three and Nine Months Ended | 5 | |||
| Consolidated Statements of Comprehensive Income – Three and Nine Months Ended | 6 | |||
| Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended | 7 | |||
| Consolidated Statements of Cash Flows – | 8 | |||
| Notes to Consolidated Financial Statements | 9 | |||
|
|
| |||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
| |||
|
|
| |||
Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
| |||
|
|
| |||
Item 4. | Controls and Procedures |
| |||
|
|
| |||
PART II – Other Information |
|
| |||
| |||||
Item 1. | Legal Proceedings |
| |||
|
|
| |||
Item 1A. | Risk Factors |
| |||
|
|
| |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| |||
|
|
| |||
Item 3. | Defaults Upon Senior Securities |
| |||
|
|
| |||
Item 4. | Mine Safety Disclosure |
| |||
|
|
| |||
Item 5. | Other Information |
| |||
|
|
| |||
Item 6. | Exhibits |
| |||
|
|
| |||
Signatures
|
| ||||
|
|
| |||
|
|
| |||
|
|
| |||
2
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.
Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and the following sections of our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”): (a) “Introductory Note” in Part I, Item 1. “Business”; (b) “Risk Factors” in Part I, Item 1A, as updated in our subsequent quarterly reports filed on Form 10-Q; and (c) “Introduction” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7, as well as:
· our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;
· legislative or regulatory changes;
· changes in monetary and fiscal policies of the U.S. Government;
·inflation, interest rate, market and monetary fluctuations;
·the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;
· the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss reserve, deferred tax asset valuation and pension plan;
· changes in accounting principles, policies, practices or guidelines, including the effects of forthcoming Current Expected Credit Losses (“CECL”) accounting implementation;
· the frequency and magnitude of foreclosure of our loans;
· the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
· the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
· our ability to declare and pay dividends, the payment of which is subject to our capital requirements;
· changes in the securities and real estate markets;
·changes in monetary and fiscal policies of the U.S. Government;
·inflation, interest rate, market and monetary fluctuations;
· the effects of harsh weather conditions, including hurricanes, and man-made disasters;
· our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate;
· the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
· increased competition and its effect on pricing;
· technological changes;
· negative publicity and the impact on our reputation;
· changes in consumer spending and saving habits;
· growth and profitability of our noninterest income;
· the limited trading activity of our common stock;
· the concentration of ownership of our common stock;
· anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
· other risks described from time to time in our filings with the Securities and Exchange Commission; and
· our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in Item 1A Risk Factors or discussed in this Form 10-Q also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.
3
PART I. FINANCIAL INFORMATION | PART I. FINANCIAL INFORMATION | PART I. FINANCIAL INFORMATION | ||||||||||||
Item 1. | Item 1. | Item 1. | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
| ||
|
|
| March 31, |
| December 31, |
|
| September 30, |
| December 31, | ||||
(Dollars in Thousands) | (Dollars in Thousands) | 2019 |
| 2018 | (Dollars in Thousands) | 2019 |
| 2018 | ||||||
ASSETS | ASSETS |
|
|
|
|
| ASSETS |
|
|
|
|
| ||
Cash and Due From Banks | Cash and Due From Banks | $ | 49,501 |
| $ | 62,032 | Cash and Due From Banks | $ | 61,151 |
| $ | 62,032 | ||
Federal Funds Sold and Interest Bearing Deposits | Federal Funds Sold and Interest Bearing Deposits |
| 304,213 |
|
| 213,968 | Federal Funds Sold and Interest Bearing Deposits |
| 177,389 |
|
| 213,968 | ||
|
| Total Cash and Cash Equivalents |
| 353,714 |
|
| 276,000 |
| Total Cash and Cash Equivalents |
| 238,540 |
|
| 276,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities, Available for Sale, at fair value | Investment Securities, Available for Sale, at fair value |
| 429,016 |
|
| 446,157 | Investment Securities, Available for Sale, at fair value |
| 376,981 |
|
| 446,157 | ||
Investment Securities, Held to Maturity, at amortized cost (fair value of $225,317 and $214,413) |
| 226,179 |
|
| 217,320 | |||||||||
Investment Securities, Held to Maturity, at amortized cost (fair value of $241,887 and $214,413) | Investment Securities, Held to Maturity, at amortized cost (fair value of $241,887 and $214,413) |
| 240,303 |
|
| 217,320 | ||||||||
|
| Total Investment Securities |
| 655,195 |
|
| 663,477 |
| Total Investment Securities |
| 617,284 |
|
| 663,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held For Sale | Loans Held For Sale |
| 4,557 |
|
| 6,869 | Loans Held For Sale |
| 13,075 |
|
| 6,869 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Net of Unearned Income | Loans, Net of Unearned Income |
| 1,797,105 |
|
| 1,774,225 | Loans, Net of Unearned Income |
| 1,827,753 |
|
| 1,774,225 | ||
| Allowance for Loan Losses |
| (14,120) |
|
| (14,210) | Allowance for Loan Losses |
| (14,319) |
|
| (14,210) | ||
|
| Loans, Net |
| 1,782,985 |
|
| 1,760,015 |
| Loans, Net |
| 1,813,434 |
|
| 1,760,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and Equipment, net | Premises and Equipment, net |
| 86,846 |
|
| 87,190 | Premises and Equipment, net |
| 85,810 |
|
| 87,190 | ||
Goodwill | Goodwill |
| 84,811 |
|
| 84,811 | Goodwill |
| 84,811 |
|
| 84,811 | ||
Other Real Estate Owned | Other Real Estate Owned |
| 1,902 |
|
| 2,229 | Other Real Estate Owned |
| 526 |
|
| 2,229 | ||
Other Assets | Other Assets |
| 82,041 |
|
| 78,592 | Other Assets |
| 81,033 |
|
| 78,592 | ||
|
| Total Assets | $ | 3,052,051 |
| $ | 2,959,183 |
| Total Assets | $ | 2,934,513 |
| $ | 2,959,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES | LIABILITIES |
|
|
|
|
| LIABILITIES |
|
|
|
|
| ||
Deposits: | Deposits: |
|
|
|
|
| Deposits: |
|
|
|
|
| ||
| Noninterest Bearing Deposits | $ | 995,853 |
| $ | 947,858 | Noninterest Bearing Deposits | $ | 1,022,774 |
| $ | 947,858 | ||
| Interest Bearing Deposits |
| 1,621,441 |
|
| 1,583,998 | Interest Bearing Deposits |
| 1,450,233 |
|
| 1,583,998 | ||
|
| Total Deposits |
| 2,617,294 |
|
| 2,531,856 |
| Total Deposits |
| 2,473,007 |
|
| 2,531,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Borrowings | Short-Term Borrowings |
| 8,983 |
|
| 13,541 | Short-Term Borrowings |
| 10,622 |
|
| 13,541 | ||
Subordinated Notes Payable | Subordinated Notes Payable |
| 52,887 |
|
| 52,887 | Subordinated Notes Payable |
| 52,887 |
|
| 52,887 | ||
Other Long-Term Borrowings | Other Long-Term Borrowings |
| 7,661 |
|
| 8,568 | Other Long-Term Borrowings |
| 6,963 |
|
| 8,568 | ||
Other Liabilities | Other Liabilities |
| 56,240 |
|
| 49,744 | Other Liabilities |
| 69,472 |
|
| 49,744 | ||
|
| Total Liabilities |
| 2,743,065 |
|
| 2,656,596 |
| Total Liabilities |
| 2,612,951 |
|
| 2,656,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREOWNERS’ EQUITY | SHAREOWNERS’ EQUITY |
|
|
|
|
| SHAREOWNERS’ EQUITY |
|
|
|
|
| ||
Preferred Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and outstanding | Preferred Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and outstanding |
| - |
|
| - | Preferred Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and outstanding |
| - |
|
| - | ||
Common Stock, $.01 par value; 90,000,000 shares authorized; 16,812,460 and 16,747,571 shares |
|
|
|
| ||||||||||
issued and outstanding at March 31, 2019 and December 31, 2018, respectively |
| 168 |
|
| 167 | |||||||||
Common Stock, $.01 par value; 90,000,000 shares authorized; 16,748,858 and 16,747,571 shares | Common Stock, $.01 par value; 90,000,000 shares authorized; 16,748,858 and 16,747,571 shares |
|
|
|
| |||||||||
issued and outstanding at September 30, 2019 and December 31, 2018, respectively | issued and outstanding at September 30, 2019 and December 31, 2018, respectively |
| 167 |
|
| 167 | ||||||||
Additional Paid-In Capital | Additional Paid-In Capital |
| 31,929 |
|
| 31,058 | Additional Paid-In Capital |
| 31,075 |
|
| 31,058 | ||
Retained Earnings | Retained Earnings |
| 304,763 |
|
| 300,177 | Retained Earnings |
| 316,551 |
|
| 300,177 | ||
Accumulated Other Comprehensive Loss, net of tax | Accumulated Other Comprehensive Loss, net of tax |
| (27,874) |
|
| (28,815) | Accumulated Other Comprehensive Loss, net of tax |
| (26,231) |
|
| (28,815) | ||
Total Shareowners’ Equity | Total Shareowners’ Equity |
| 308,986 |
|
| 302,587 | Total Shareowners’ Equity |
| 321,562 |
|
| 302,587 | ||
Total Liabilities and Shareowners' Equity | Total Liabilities and Shareowners' Equity | $ | 3,052,051 |
| $ | 2,959,183 | Total Liabilities and Shareowners' Equity | $ | 2,934,513 |
| $ | 2,959,183 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
4
CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | |||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
(Dollars in Thousands, Except Per Share Data) | (Dollars in Thousands, Except Per Share Data) | 2019 |
| 2018 | (Dollars in Thousands, Except Per Share Data) | 2019 |
| 2018 |
| 2019 |
| 2018 | |||||||
INTEREST INCOME | INTEREST INCOME |
|
|
|
|
| INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
| |
Loans, including Fees | Loans, including Fees | $ | 22,616 |
| $ | 19,535 | Loans, including Fees | $ | 23,992 |
| $ | 21,618 |
| $ | 70,373 |
| $ | 61,686 | |
Investment Securities: | Investment Securities: |
|
|
|
|
| Investment Securities: |
|
|
|
|
|
|
|
|
|
|
| |
| Taxable Securities |
| 3,387 |
|
| 2,523 | Taxable |
| 3,249 |
|
| 3,290 |
|
| 9,937 |
|
| 8,757 | |
| Tax Exempt Securities |
| 126 |
|
| 239 | Tax Exempt |
| 58 |
|
| 182 |
|
| 276 |
|
| 633 | |
Federal Funds Sold and Interest Bearing Deposits | Federal Funds Sold and Interest Bearing Deposits |
| 1,593 |
|
| 917 | Federal Funds Sold and Interest Bearing Deposits |
| 1,142 |
|
| 302 |
|
| 4,242 |
|
| 1,949 | |
|
| Total Interest Income |
| 27,722 |
|
| 23,214 | ||||||||||||
Total Interest Income | Total Interest Income |
| 28,441 |
|
| 25,392 |
|
| 84,828 |
|
| 73,025 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE | INTEREST EXPENSE |
|
|
|
|
| INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
| |
Deposits | Deposits |
| 2,099 |
|
| 868 | Deposits |
| 1,596 |
|
| 1,068 |
|
| 5,683 |
|
| 2,931 | |
Short-Term Borrowings | Short-Term Borrowings |
| 35 |
|
| 8 | Short-Term Borrowings |
| 27 |
|
| 41 |
|
| 93 |
|
| 57 | |
Subordinated Notes Payable | Subordinated Notes Payable |
| 608 |
|
| 475 | Subordinated Notes Payable |
| 558 |
|
| 568 |
|
| 1,762 |
|
| 1,595 | |
Other Long-Term Borrowings | Other Long-Term Borrowings |
| 72 |
|
| 100 | Other Long-Term Borrowings |
| 63 |
|
| 92 |
|
| 201 |
|
| 286 | |
| Total Interest Expense |
| 2,814 |
|
| 1,451 | |||||||||||||
Total Interest Expense | Total Interest Expense |
| 2,244 |
|
| 1,769 |
|
| 7,739 |
|
| 4,869 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME | NET INTEREST INCOME |
| 24,908 |
|
| 21,763 | NET INTEREST INCOME |
| 26,197 |
|
| 23,623 |
|
| 77,089 |
|
| 68,156 | |
Provision for Loan Losses | Provision for Loan Losses |
| 767 |
|
| 745 | Provision for Loan Losses |
| 776 |
|
| 904 |
|
| 2,189 |
|
| 2,464 | |
Net Interest Income After Provision For Loan Losses | Net Interest Income After Provision For Loan Losses |
| 24,141 |
|
| 21,018 | Net Interest Income After Provision For Loan Losses |
| 25,421 |
|
| 22,719 |
|
| 74,900 |
|
| 65,692 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME | NONINTEREST INCOME |
|
|
|
|
| NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
| |
Deposit Fees | Deposit Fees |
| 4,775 |
|
| 4,872 | Deposit Fees |
| 4,961 |
|
| 5,207 |
|
| 14,492 |
|
| 14,921 | |
Bank Card Fees | Bank Card Fees |
| 2,855 |
|
| 2,811 | Bank Card Fees |
| 2,972 |
|
| 2,828 |
|
| 8,863 |
|
| 8,548 | |
Wealth Management Fees | Wealth Management Fees |
| 2,323 |
|
| 2,173 | Wealth Management Fees |
| 2,992 |
|
| 2,181 |
|
| 7,719 |
|
| 6,391 | |
Mortgage Banking Fees | Mortgage Banking Fees |
| 993 |
|
| 1,057 | Mortgage Banking Fees |
| 1,587 |
|
| 1,343 |
|
| 3,779 |
|
| 3,606 | |
Other | Other |
| 1,606 |
|
| 1,564 | Other |
| 1,391 |
|
| 1,749 |
|
| 4,372 |
|
| 4,861 | |
Total Noninterest Income | Total Noninterest Income |
| 12,552 |
|
| 12,477 | Total Noninterest Income |
| 13,903 |
|
| 13,308 |
|
| 39,225 |
|
| 38,327 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE | NONINTEREST EXPENSE |
|
|
|
|
| NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
| |
Compensation | Compensation |
| 16,349 |
|
| 15,911 | Compensation |
| 16,203 |
|
| 15,891 |
|
| 48,989 |
|
| 47,599 | |
Occupancy, net | Occupancy, net |
| 4,509 |
|
| 4,551 | Occupancy, net |
| 4,710 |
|
| 4,645 |
|
| 13,756 |
|
| 13,699 | |
Other Real Estate Owned, net | Other Real Estate Owned, net |
| 363 |
|
| 626 | Other Real Estate Owned, net |
| 6 |
|
| 347 |
|
| 444 |
|
| 1,221 | |
Other | Other |
| 6,977 |
|
| 6,818 | Other |
| 6,954 |
|
| 7,816 |
|
| 21,278 |
|
| 22,479 | |
Total Noninterest Expense | Total Noninterest Expense |
| 28,198 |
|
| 27,906 | Total Noninterest Expense |
| 27,873 |
|
| 28,699 |
|
| 84,467 |
|
| 84,998 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES | INCOME BEFORE INCOME TAXES |
| 8,495 |
|
| 5,589 | INCOME BEFORE INCOME TAXES |
| 11,451 |
|
| 7,328 |
|
| 29,658 |
|
| 19,021 | |
Income Tax Expense (Benefit) |
| 2,059 |
|
| (184) | ||||||||||||||
Income Tax Expense | Income Tax Expense |
| 2,970 |
|
| 1,338 |
|
| 7,416 |
|
| 1,255 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME | NET INCOME | $ | 6,436 |
| $ | 5,773 | NET INCOME | $ | 8,481 |
| $ | 5,990 |
| $ | 22,242 |
| $ | 17,766 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET INCOME PER SHARE | BASIC NET INCOME PER SHARE | $ | 0.38 |
| $ | 0.34 | BASIC NET INCOME PER SHARE | $ | 0.51 |
| $ | 0.35 |
| $ | 1.33 |
| $ | 1.04 | |
DILUTED NET INCOME PER SHARE | DILUTED NET INCOME PER SHARE | $ | 0.38 |
| $ | 0.34 | DILUTED NET INCOME PER SHARE | $ | 0.50 |
| $ | 0.35 |
| $ | 1.32 |
| $ | 1.04 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Basic Shares Outstanding |
| 16,791 |
|
| 17,028 | ||||||||||||||
Average Diluted Shares Outstanding |
| 16,819 |
|
| 17,073 | ||||||||||||||
Average Common Basic Shares Outstanding | Average Common Basic Shares Outstanding |
| 16,747 |
|
| 17,056 |
|
| 16,776 |
|
| 17,043 | |||||||
Average Common Diluted Shares Outstanding | Average Common Diluted Shares Outstanding |
| 16,795 |
|
| 17,125 |
|
| 16,810 |
|
| 17,102 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
5
CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | |||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| Three Months Ended | Three Months Ended |
| Nine Months Ended | |||||||||||||
|
|
| March 31, | September 30, |
| September 30, | |||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) | 2019 |
| 2018 | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
NET INCOME | NET INCOME | $ | 6,436 |
| $ | 5,773 | $ | 8,481 |
| $ | 5,990 |
| $ | 22,242 |
| $ | 17,766 | ||
| Other comprehensive income (loss), before tax: |
|
|
|
|
| |||||||||||||
|
| Change in net unrealized gain/loss on securities available for sale |
| 1,250 |
|
| (1,488) | ||||||||||||
|
| Amortization of unrealized losses on securities transferred from available for sale to held to maturity |
| 12 |
|
| 15 | ||||||||||||
|
| Total Investment Securities |
| 1,262 |
|
| (1,473) | ||||||||||||
| Other comprehensive income (loss), before tax |
| 1,262 |
|
| (1,473) | |||||||||||||
| Deferred tax expense (benefit) related to other comprehensive income |
| 321 |
|
| (373) | |||||||||||||
| Other comprehensive income (loss), net of tax |
| 941 |
|
| (1,100) | |||||||||||||
Other comprehensive income, before tax: |
|
|
|
|
|
|
|
|
|
|
| ||||||||
Change in net unrealized gain (loss) on securities available for sale |
| 443 |
|
| (553) |
|
| 3,427 |
|
| (2,306) | ||||||||
Amortization of unrealized losses on securities transferred from |
|
|
|
|
|
|
|
|
|
|
| ||||||||
available for sale to held to maturity |
| 11 |
| 13 |
|
| 33 |
|
| 42 | |||||||||
Total Investment Securities |
| 454 |
| (540) |
|
| 3,460 |
|
| (2,264) | |||||||||
Other comprehensive income (loss), before tax |
| 454 |
| (540) |
| 3,460 |
| (2,264) | |||||||||||
Deferred tax expense (benefit) related to other comprehensive income |
| 115 |
|
| (137) |
|
| 876 |
|
| (574) | ||||||||
Other comprehensive income (loss), net of tax |
| 339 |
|
| (403) |
|
| 2,584 |
|
| (1,690) | ||||||||
TOTAL COMPREHENSIVE INCOME | TOTAL COMPREHENSIVE INCOME | $ | 7,377 |
| $ | 4,673 | $ | 8,820 |
| $ | 5,587 |
| $ | 24,826 |
| $ | 16,076 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
6
CAPITAL CITY BANK GROUP, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive |
|
|
| |
| Shares |
| Common |
| Additional |
| Retained |
| Loss, Net of |
|
|
| ||||
(Dollars In Thousands, Except Share Data) | Outstanding |
| Stock |
| Paid-In Capital |
| Earnings |
| Taxes |
| Total | |||||
Balance, January 1, 2018 | 16,988,951 |
| $ | 170 |
| $ | 36,674 |
| $ | 279,410 |
| $ | (32,044) |
| $ | 284,210 |
Net Income | - |
|
| - |
|
| - |
|
| 5,773 |
|
| - |
|
| 5,773 |
Other Comprehensive Loss, net of tax | - |
|
| - |
|
| - |
|
| - |
|
| (1,100) |
|
| (1,100) |
Cash Dividends ($0.0700 per share) | - |
|
| - |
|
| - |
|
| (1,193) |
|
| - |
|
| (1,193) |
Stock Based Compensation | - |
|
| - |
|
| 331 |
|
| - |
|
| - |
|
| 331 |
Impact of Transactions Under Compensation Plans, net | 55,115 |
|
| 1 |
|
| 338 |
|
| - |
|
| - |
|
| 339 |
Balance, March 31, 2018 | 17,044,066 |
| $ | 171 |
| $ | 37,343 |
| $ | 283,990 |
| $ | (33,144) |
| $ | 288,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019 | 16,747,571 |
| $ | 167 |
| $ | 31,058 |
| $ | 300,177 |
| $ | (28,815) |
| $ | 302,587 |
Net Income | - |
|
| - |
|
| - |
|
| 6,436 |
|
| - |
|
| 6,436 |
Other Comprehensive Income, net of tax | - |
|
| - |
|
| - |
|
| - |
|
| 941 |
|
| 941 |
Cash Dividends ($0.1100 per share) | - |
|
| - |
|
| - |
|
| (1,850) |
|
| - |
|
| (1,850) |
Stock Based Compensation | - |
|
| - |
|
| 499 |
|
| - |
|
| - |
|
| 499 |
Impact of Transactions Under Compensation Plans, net | 64,889 |
|
| 1 |
|
| 372 |
|
| - |
|
| - |
|
| 373 |
Balance, March 31, 2019 | 16,812,460 |
| $ | 168 |
| $ | 31,929 |
| $ | 304,763 |
| $ | (27,874) |
| $ | 308,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
CAPITAL CITY BANK GROUP, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
| |
|
|
|
|
|
|
| Additional |
|
|
|
| Comprehensive |
|
|
| |
(Dollars In Thousands, | Shares | Common |
|
| Paid-In |
| Retained |
| (Loss) Income, |
|
|
| ||||
Except Share Data) | Outstanding | Stock |
|
| Capital |
| Earnings |
| Net of Taxes |
| Total | |||||
Three Months Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2019 | 16,745,866 |
| $ | 167 |
| $ | 30,751 |
| $ | 310,247 |
| $ | (26,570) |
| $ | 314,595 |
Net Income | - |
|
| - |
|
| - |
|
| 8,481 |
|
| - |
|
| 8,481 |
Other Comprehensive Income, net of tax | - |
|
| - |
|
| - |
|
| - |
|
| 339 |
|
| 339 |
Cash Dividends ($0.1300 per share) | - |
|
| - |
|
| - |
|
| (2,177) |
|
| - |
|
| (2,177) |
Stock Based Compensation | - |
|
| - |
|
| 249 |
|
| - |
|
| - |
|
| 249 |
Impact of Transactions Under Compensation Plans, net | 2,992 |
|
| - |
|
| 75 |
|
| - |
|
| - |
|
| 75 |
Balance, September 30, 2019 | 16,748,858 |
| $ | 167 |
| $ | 31,075 |
| $ | 316,551 |
| $ | (26,231) |
| $ | 321,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2018 | 17,055,664 |
| $ | 171 |
| $ | 37,932 |
| $ | 288,800 |
| $ | (33,332) |
| $ | 293,571 |
Net Income | - |
|
| - |
|
| - |
|
| 5,990 |
|
| - |
|
| 5,990 |
Other Comprehensive Loss, net of tax | - |
|
| - |
|
| - |
|
| - |
|
| (402) |
|
| (402) |
Cash Dividends ($0.0900 per share) | - |
|
| - |
|
| - |
|
| (1,536) |
|
| - |
|
| (1,536) |
Stock Based Compensation | - |
|
| - |
|
| 323 |
|
| - |
|
| - |
|
| 323 |
Impact of Transactions Under Compensation Plans, net | 2,857 |
|
| - |
|
| 70 |
|
| - |
|
| - |
|
| 70 |
Balance, September 30, 2018 | 17,058,521 |
| $ | 171 |
| $ | 38,325 |
| $ | 293,254 |
| $ | (33,734) |
| $ | 298,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
| |
|
|
|
|
|
|
| Additional |
|
|
|
| Comprehensive |
|
|
| |
(Dollars In Thousands, | Shares |
| Common |
|
| Paid-In |
| Retained |
| (Loss) Income, |
|
|
| |||
Except Share Data) | Outstanding |
| Stock |
|
| Capital |
| Earnings |
| Net of Taxes |
| Total | ||||
Nine Months Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019 | 16,747,571 |
| $ | 167 |
| $ | 31,058 |
| $ | 300,177 |
| $ | (28,815) |
| $ | 302,587 |
Net Income | - |
|
| - |
|
| - |
|
| 22,242 |
|
| - |
|
| 22,242 |
Other Comprehensive Income, net of tax | - |
|
| - |
|
| - |
|
| - |
|
| 2,584 |
|
| 2,584 |
Cash Dividends ($0.3500 per share) | - |
|
| - |
|
| - |
|
| (5,868) |
|
| - |
|
| (5,868) |
Repurchase of Common Stock | (77,000) |
|
| (1) |
|
| (1,805) |
|
| - |
|
| - |
|
| (1,806) |
Stock Based Compensation | - |
|
| - |
|
| 1,134 |
|
| - |
|
| - |
|
| 1,134 |
Impact of Transactions Under Compensation Plans, net | 78,287 |
|
| 1 |
|
| 688 |
|
| - |
|
| - |
|
| 689 |
Balance, September 30, 2019 | 16,748,858 |
| $ | 167 |
| $ | 31,075 |
| $ | 316,551 |
| $ | (26,231) |
| $ | 321,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018 | 16,988,951 |
| $ | 170 |
| $ | 36,674 |
| $ | 279,410 |
| $ | (32,044) |
| $ | 284,210 |
Net Income | - |
|
| - |
|
| - |
|
| 17,766 |
|
| - |
|
| 17,766 |
Other Comprehensive Loss, net of tax | - |
|
| - |
|
| - |
|
| - |
|
| (1,690) |
|
| (1,690) |
Cash Dividends ($0.2300 per share) | - |
|
| - |
|
| - |
|
| (3,922) |
|
| - |
|
| (3,922) |
Stock Based Compensation | - |
|
| - |
|
| 978 |
|
| - |
|
| - |
|
| 978 |
Impact of Transactions Under Compensation Plans, net | 69,570 |
|
| 1 |
|
| 673 |
|
| - |
|
| - |
|
| 674 |
Balance, September 30, 2018 | 17,058,521 |
| $ | 171 |
| $ | 38,325 |
| $ | 293,254 |
| $ | (33,734) |
| $ | 298,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
7
CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | CAPITAL CITY BANK GROUP, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||
|
|
|
|
|
|
|
|
| ||
| Three Months Ended March 31, | Nine Months Ended September 30, | ||||||||
(Dollars in Thousands) | 2019 |
| 2018 | 2019 |
| 2018 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 6,436 |
| $ | 5,773 | $ | 22,242 |
| $ | 17,766 |
Adjustments to Reconcile Net Income to |
|
|
|
|
|
|
|
|
|
|
Cash Provided by Operating Activities: |
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses |
| 767 |
| 745 |
| 2,189 |
| 2,464 | ||
Depreciation |
| 1,612 |
| 1,605 |
| 4,693 |
| 4,845 | ||
Amortization of Premiums, Discounts and Fees, net |
| 1,234 |
| 1,723 |
| 3,826 |
| 5,253 | ||
Originations of Loans Held-for-Sale |
| (38,698) |
| (39,137) |
| (160,720) |
| (136,492) | ||
Proceeds From Sales of Loans Held-for-Sale |
| 42,003 |
| 40,166 |
| 158,293 |
| 136,618 | ||
Net Gain From Sales of Loans Held-for-Sale |
| (993) |
| (1,057) |
| (3,779) |
| (3,606) | ||
Stock Compensation |
| 499 |
| 331 |
| 1,134 |
| 978 | ||
Net Tax Benefit From Stock-Based Compensation |
| (14) |
| (41) |
| (14) |
| (41) | ||
Deferred Income Taxes |
| 321 |
| 1,407 |
| 1,131 |
| 1,847 | ||
Net Change in Operating Leases |
| 23 |
| - |
| 68 |
| - | ||
Net Loss on Sales and Write-Downs of Other Real Estate Owned |
| 215 |
| 554 |
| 165 |
| 941 | ||
Net Increase in Other Assets |
| (4,854) |
| (6,173) | ||||||
Proceeds From Insurance Claim for Operating Loss |
| 268 |
| - | ||||||
Loss on Disposal of Premises and Equipment |
| 39 |
| 57 | ||||||
Net (Increase) Decrease in Other Assets |
| (5,483) |
| 3,040 | ||||||
Net Increase (Decrease) in Other Liabilities |
| 6,689 |
|
| (3,706) |
| 19,876 |
|
| (12,208) |
Net Cash Provided By Operating Activities |
| 15,240 |
|
| 2,190 |
| 43,928 |
|
| 21,462 |
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| ||
Securities Held to Maturity: |
|
|
|
|
|
|
|
| ||
Purchases |
| (18,167) |
| (35,953) |
| (69,347) |
| (102,428) | ||
Payments, Maturities, and Calls |
| 8,953 |
| 26,696 |
| 45,146 |
| 89,932 | ||
Securities Available for Sale: |
|
|
|
|
|
|
|
| ||
Purchases |
| (13,370) |
| (49,749) |
| (56,450) |
| (129,502) | ||
Payments, Maturities, and Calls |
| 30,784 |
| 55,221 |
| 126,171 |
| 119,092 | ||
Purchases of Loans Held for Investment |
| (14,706) |
| (3,965) |
| (21,537) |
| (25,048) | ||
Net Increase in Loans |
| (9,461) |
| (5,514) |
| (34,589) |
| (98,007) | ||
Proceeds from Insurance Claims on Premises |
| 790 |
| - |
| 814 |
| - | ||
Proceeds From Sales of Other Real Estate Owned |
| 639 |
| 364 |
| 2,330 |
| 1,540 | ||
Purchases of Premises and Equipment |
| (1,268) |
|
| (847) |
| (3,352) |
|
| (2,771) |
Net Cash Used In Investing Activities |
| (15,806) |
|
| (13,747) |
| (10,814) |
|
| (147,192) |
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| ||
Net Increase in Deposits |
| 85,438 |
| 29,007 | ||||||
Net Decrease in Short-Term Borrowings |
| (4,918) |
| (2,587) | ||||||
Net Decrease in Deposits |
| (58,849) |
| (88,661) | ||||||
Net (Decrease) Increase in Short-Term Borrowings |
| (3,279) |
| 9,164 | ||||||
Repayment of Other Long-Term Borrowings |
| (547) |
| (634) |
| (1,245) |
| (1,511) | ||
Dividends Paid |
| (1,850) |
| (1,193) |
| (5,868) |
| (3,922) | ||
Payments to Repurchase Common Stock |
| (1,806) |
| - | ||||||
Issuance of Common Stock Under Compensation Plans |
| 157 |
|
| 147 |
| 473 |
|
| 480 |
Net Cash Provided By In Financing Activities |
| 78,280 |
|
| 24,740 | |||||
Net Cash Used In Financing Activities |
| (70,574) |
|
| (84,450) | |||||
|
|
|
|
|
|
|
|
| ||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
| 77,714 |
| 13,183 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
| (37,460) |
| (210,180) | ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period |
| 276,000 |
|
| 285,442 |
| 276,000 |
|
| 285,442 |
Cash and Cash Equivalents at End of Period | $ | 353,714 |
| $ | 298,625 | $ | 238,540 |
| $ | 75,262 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
| ||
Interest Paid | $ | 2,813 |
| $ | 1,451 | $ | 7,761 |
| $ | 4,837 |
Income Taxes Paid | $ | - |
| $ | - | $ | 4,496 |
| $ | 151 |
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
| ||
Loans Transferred to Other Real Estate Owned | $ | 527 |
| $ | 307 | $ | 792 |
| $ | 1,260 |
Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities(1) | $ | 1,992 |
| $ | - | $ | 1,992 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
(1)Initial amount recorded upon implementation on January 1, 2019. |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| ||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
| The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
|
8
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-related services to individual and corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia, and Alabama. The Company is subject to competition from other financial institutions, is subject to regulation by certain government agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of CCBG and its wholly owned subsidiary, Capital City Bank (“CCB” or the “Bank”). All material inter-company transactions and accounts have been eliminated. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The consolidated statement of financial condition at December 31, 2018 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018.
Leases. Accounting Standards Update ("ASU") 2016-02 requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was effective for the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company elected to apply the modified retrospective transition approach as of the beginning of the period of adoption and has not restated comparative periods. The followingCompany also adopted the package of practical expedients provided under ASU 2016-02, werewhich provided for the Company not reassessed:to reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial and direct costs of any existing leases. The Company didelected not elect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by the accounting guidance).
The Company’s operating leases related primarily to banking office locations. As a result of implementing ASU 2016-02, the Company recognized operating lease right-of-use (“ROU”) assets of $2.0 million and operating lease liabilities of $2.8 million on January 1, 2019, with no significant impact on its consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model. The difference between the lease assets and the lease liabilities of $0.8 million was prepaid rent, which was reclassified to lease assets. The ROU asset and lease liability are recorded in other assets and other liabilities, respectively, in the consolidated statement of financial condition. See Note 5 – Leases for additional information.
9
(1) Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded at cost of $3.1 million, $4.8 million, respectively, at
Securities with an amortized cost of
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB based generally upon the balances of residential and commercial real estate loans and FHLB advances. FHLB stock, which is included in equity securities, is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted market value; however, redemption of this stock has historically been at par value.
As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain stock in the Federal Reserve Bank of Atlanta based on a specified ratio relative to the Bank’s capital. Federal Reserve Bank stock is carried at cost.
Maturity Distribution. At
10
Unrealized Losses on Investment Securities. The following table summarizes the investment securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position:
Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Declines in the fair value of available-for-sale (“AFS”) and held-to-maturity (“HTM”) securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, the Company considers, (i) whether it has decided to sell the security, (ii) whether it is more likely than not that the Company will have to sell the security before its market value recovers, and (iii) whether the present value of expected cash flows is sufficient to recover the entire amortized cost basis. When assessing a security’s expected cash flows, the Company considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost and (ii) the financial condition and near-term prospects of the issuer. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory issues, and analysts’ reports.
At 11
NOTE 3 – LOANS, NET
Loan Portfolio Composition. The composition of the loan portfolio was as follows:
(1) Includes loans in process with outstanding balances of (2) Includes overdraft balances of
Net deferred costs, which include premiums on purchased loans, included in loans were
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate mortgage loans, and home equity loans to support available borrowing capacity at the FHLB and has pledged a blanket floating lien on all consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal Reserve Bank of Atlanta.
Nonaccrual Loans. Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans.
12
Loan Portfolio Aging. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days past due (“DPD”).
The following table presents the aging of the recorded investment in accruing past due loans by class of loans.
Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of incurred losses within the existing portfolio of loans. Loans are charged-off to the allowance when losses are deemed to be probable and reasonably quantifiable.
13 The following table details the activity in the allowance for loan losses by portfolio class. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
The following table details the amount of the allowance for loan losses by portfolio class disaggregated on the basis of the Company’s impairment methodology.
The Company’s recorded investment in loans related to each balance in the allowance for loan losses by portfolio class and disaggregated on the basis of the Company’s impairment methodology was as follows:
Impaired Loans. Loans are deemed to be impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due (principal and interest payments), according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.
The following table presents loans individually evaluated for impairment by class of loans.
The following table summarizes the average recorded investment and interest income recognized by class of impaired loans.
Credit Risk Management. The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors review and approve these policies and procedures on a regular basis (at least annually).
Reporting systems are used to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans. Management and the Credit Risk Oversight Committee periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies. In addition, total borrower exposure limits are established and concentration risk is monitored. As part of this process, the overall composition of the portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type, geographic area, or other relevant classifications of loans. Specific segments of the loan portfolio are monitored and reported to the Board on a quarterly basis and we have strategic plans in place to supplement Board approved credit policies governing exposure limits and underwriting standards. Detailed below are the types of loans within the Company’s loan portfolio and risk characteristics unique to each.
Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral and personal or other guarantees. Lending policy establishes debt service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing debt. The majority of these loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, or equipment. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy guidelines.
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines and construction/permanent loans made to individuals and investors to finance the acquisition, development, construction or rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower or project and generally secured by the property being financed, including 1-4 family residential properties and commercial properties that are either owner-occupied or investment in nature. These properties may include either vacant or improved property. Construction loans are generally based upon estimates of costs and value associated with the completed project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy guidelines. The disbursement of funds for construction loans is made in relation to the progress of the project and as such these loans are closely monitored by on-site inspections.
Real Estate Commercial Mortgage – Loans in this category consists of commercial mortgage loans secured by property that is either owner-occupied or investment in nature. These loans are primarily made based on identified cash flows of the borrower or project with consideration given to underlying real estate collateral and personal guarantees. Lending policy establishes debt service coverage ratios and loan to value ratios specific to the property type. Collateral values are determined based upon third party appraisals and evaluations.
Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current income, employment status, current assets, and other financial resources, credit history, and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. Collateral values are determined based upon third party appraisals and evaluations. The Company does not originate sub-prime loans.
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally secured by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes. Borrower qualifications include favorable credit history combined with supportive income and debt ratio requirements and combined loan to value ratios within established policy guidelines. Collateral values are determined based upon third party appraisals and evaluations.
Consumer Loans – This loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft lines of credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans. Lending policy establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income and receipt of credit reports.
Credit Quality Indicators. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment performance, credit documentation, and current
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected, could cause future problems. Loans in this category may not meet required underwriting criteria and have no mitigating factors. More than the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy. These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the borrower. The possibility of loss is much more evident and above average supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following table presents the risk category of loans by segment.
Troubled Debt Restructurings (“TDRs”). TDRs are loans in which the borrower is experiencing financial difficulty and the Company has granted an economic concession to the borrower that it would not otherwise consider. In these instances, as part of a work-out alternative, the Company will make concessions including the extension of the loan term, a principal moratorium, a reduction in the interest rate, or a combination thereof. The impact of the TDR modifications and defaults are factored into the allowance for loan losses on a loan-by-loan basis as all TDRs are, by definition, impaired loans. Thus, specific reserves are established based upon the results of either a discounted cash flow analysis or the underlying collateral value, if the loan is deemed to be collateral dependent. A TDR classification can be removed if the borrower’s financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at market terms and qualifies as a new loan.
The following table presents loans classified as TDRs.
For TDRs, the Company estimated $1.7 million and $2.3 million of impaired loan loss reserves for these loans at
Loans classified as TDRs during the periods indicated are presented in the table below. The modifications made during the reporting period involved either an extension of the loan term, a principal moratorium, a reduction in the interest rate, or a combination thereof. The financial impact of these modifications was not material.
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
For the three and nine months ended 19
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
The following table provides information on how TDRs were modified during the periods indicated.
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.
NOTE 4 – OTHER REAL ESTATE OWNED
The following table presents other real estate owned activity for the periods indicated.
Operating leases in which the Company is the lessee are recorded as operating lease right of use (“ROU”) assets and operating liabilities, included in other assets and liabilities, respectively, on its consolidated statement of financial condition.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the consolidated statement of income.
The Company’s operating leases primarily relate to banking offices with remaining lease terms
The table below summarizes our lease expense and other information related to the Company’s operating leases:
At
A related party is the lessor in an operating lease with the Company. The Company’s minimum payment is $0.2 million annually through 22 NOTE 6 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all full-time and eligible part-time associates and a Supplemental Executive Retirement Plan (“SERP”) covering its executive officers.
The components of the net periodic benefit cost for the Company's qualified benefit pension plan were as follows:
The service cost component of net periodic benefit cost is reflected in compensation expense in the accompanying statements of income. The other components of net periodic cost are included in “other” within the noninterest expense category in the statements of income.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Lending Commitments. The Company is a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance sheet instruments. The amounts associated with the Company’s off-balance sheet obligations were as follows:
(1) Commitments include unfunded loans, revolving lines of credit, and other unused commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 23
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. In general, management does not anticipate any material losses as a result of participating in these types of transactions. However, any potential losses arising from such transactions are reserved for in the same manner as management reserves for its other credit facilities.
For both on- and off-balance sheet financial instruments, the Company requires collateral to support such instruments when it is deemed necessary. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; real estate; accounts receivable; property, plant and equipment; and inventory.
Contingencies. The Company is a party to lawsuits and claims arising out of the normal course of business. In management's opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on the consolidated results of operations, financial position, or cash flows of the Company.
Indemnification Obligation. The Company is a member of the Visa U.S.A. network. Visa U.S.A member banks are required to indemnify In September 2019, Visa increased the litigation reserve by $300 million and revised the conversion ratio for the Class B shares resulting in a $0.1 million payable due to the counterparty under the swap contract. Fixed charges included in the swap liability are payable quarterly until the litigation reserve is fully liquidated and at which time the aforementioned swap contract will be terminated. Quarterly fixed payments approximate
NOTE 8 – FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, credit information and the bond’s terms and conditions, among other things.
24 In general, the Company does not purchase securities that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-through securities, or general obligation or revenue-based municipal bonds. Pricing for such instruments is easily obtained.
Fair Value Swap. The Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares. The valuation represents the amount due and payable to the counterparty based upon the revised share conversion rate, if any, during the period. At
A summary of fair values for assets and liabilities consisted of the following:
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of impairment. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Impaired Loans. Impairment for collateral dependent loans is measured using the fair value of the collateral less selling costs. The fair value of collateral is determined by an independent valuation or professional appraisal in conformance with banking regulations. Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market, and the judgment and estimation involved in the real estate appraisal process. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. Valuation techniques are consistent with those techniques applied in prior periods. Impaired
Loans Held for Sale. These loans are carried at the lower of cost or fair value and are adjusted to fair value on a non-recurring basis. Fair value is based on observable markets rates for comparable loan products, which is considered a Level 2 fair value measurement.
Other Real Estate Owned. During the first
25 Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is practical to estimate fair value and the following is a description of valuation methodologies used for those assets and liabilities.
Cash and Short-Term Investments. The carrying amount of cash and short-term investments is used to approximate fair value, given the short time frame to maturity and as such assets do not present unanticipated credit concerns.
Securities Held to Maturity. Securities held to maturity are valued in accordance with the methodology previously noted in this footnote under the caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for Sale”.
Loans. The loan portfolio is segregated into categories and the fair value of each loan category is calculated using present value techniques based upon projected cash flows, estimated discount rates, and incorporates a liquidity discount to meet the objective of “exit price” valuation.
Deposits. The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market Accounts and Savings Accounts are the amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using present value techniques and rates currently offered for deposits of similar remaining maturities.
Subordinated Notes Payable. The fair value of each note is calculated using present value techniques, based upon projected cash flows and estimated discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings. The fair value of each note is calculated using present value techniques, based upon projected cash flows and estimated discount rates as well as rates being offered for similar debt.
A summary of estimated fair values of significant financial instruments consisted of the following:
26
(1) Not readily marketable securities - reflected in other assets.
All non-financial instruments are excluded from the above table. The disclosures also do not include goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
NOTE 9 – OTHER COMPREHENSIVE INCOME
The amounts allocated to other comprehensive income are presented in the table below. Reclassification adjustments related to securities held for sale are included in net
27
NOTE 10 – ACCOUNTING STANDARDS UPDATES
ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact of ASU 2016-13 on its financial statements and related disclosures. As part of its implementation efforts to date, management has formed a cross-functional implementation team and developed a project plan. The Company has also engaged a vendor to assist in model development. The Company’s implementation plan has progressed through the design and build phase and
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis ("MD&A") provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and related notes. The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during 2019 compares with prior years. Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively, is referred to as "CCBG," "Company," "we," "us," or "our."
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target," "goal," and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the Introductory Note and Item 1A. Risk Factors of our 2018 Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after the date of this report.
However, other factors besides those listed in our Quarterly Report or in our Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned subsidiary, Capital City Bank (the "Bank" or "CCB"). The Bank offers a broad array of products and services through a total of
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference between the interest and fees received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Results of operations are also affected by the provision for loan losses, noninterest income such as deposit fees, wealth management fees, mortgage banking fees and bank card fees, and operating expenses such as salaries and employee benefits, occupancy and other operating expenses, including income taxes.
A detailed discussion regarding the economic conditions in our markets and our long-term strategic objectives is included as part of the MD&A section of our 2018 Form 10-K.
NON-GAAP FINANCIAL
We present a tangible common equity ratio and a tangible book value per diluted share that, in each case, removes the effect of goodwill resulting from merger and acquisition activity. We believe these measures are useful to investors because it allows investors to more easily compare our capital adequacy to other companies in the
FINANCIAL OVERVIEW
A summary overview of our financial performance is provided below.
Results of Operations
· Net income of
·
· Provision for loan losses was $0.8 million for the
· Noninterest income for the
· Noninterest expense for the
Financial Condition
· Average earning assets were
· Average loans
· Nonperforming assets totaled
· At
RESULTS OF OPERATIONS
Net Income
For the
For the first nine months of 2019, net income totaled $22.2 million, or $1.32 per diluted share, compared to net income of $17.8 million, or $1.04 per diluted share, for the same period of 2018. Net income for the first
Compared to the
Compared to the The $10.6 million increase in operating profit for the first nine months of 2019 versus the comparable period of 2018 was attributable to higher net interest income of $8.9 million, higher noninterest income of $0.9 million, lower noninterest expense of $0.5 million, and a $0.3
A condensed earnings summary of each major component of our financial performance is provided below:
Net Interest Income
Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by earning assets less interest expense paid on interest bearing liabilities. This information is provided on a "taxable equivalent" basis to reflect the tax-exempt status of income earned on certain loans and state and local government debt obligations. We provide an analysis of our net interest income including average yields and rates in Table I on page
32 Tax-equivalent net interest income for the
The federal funds target rate
Our net interest margin for the
Provision for Loan Losses
The provision for loan losses for the
33
Noninterest Income
Noninterest income for the
Noninterest income represented
The table below reflects the major components of noninterest income.
34 Significant components of noninterest income are discussed in more detail below.
Deposit Fees. Deposit fees for the Bank Card Fees.
Wealth Management Fees. Wealth management fees, which include both trust fees (i.e., managed accounts, trusts/estates, and retirement plans) and retail brokerage fees (i.e., investment and insurance products)
Mortgage Banking
Noninterest Expense
Noninterest expense for the
Significant components of noninterest expense are discussed in more detail below.
Compensation. Compensation expense totaled
Other. Other noninterest expense Our operating efficiency ratio (expressed as noninterest expense as a
Income Taxes
We realized income tax expense of
FINANCIAL CONDITION
Average earning assets were
Investment Securities
In the
The investment portfolio is a significant component of our operations and, as such, it functions as a key element of liquidity and asset/liability management. Two types of classifications are approved for investment securities which are Available-for-Sale (“AFS”) and Held-to-Maturity (“HTM”). During the
We determine the classification of a security at the time of acquisition based on how the purchase will affect our asset/liability strategy and future business plans and opportunities. We consider multiple factors in determining classification, including regulatory capital requirements, volatility in earnings or other comprehensive income, and liquidity needs. Securities in the AFS portfolio are recorded at fair value with unrealized gains and losses associated with these securities recorded net of tax, in the accumulated other comprehensive income component of shareowners’ equity. HTM securities are acquired or owned with the intent of holding them to
At
Loans
Without compromising our credit standards, changing our underwriting standards, or taking on inordinate interest rate risk, we continue to closely monitor our markets and make minor rate adjustments as necessary.
We originate mortgage loans secured by 1-4 family residential properties through our Residential Real Estate line of business, a majority of which are fixed-rate loans that are sold into the secondary market to third party purchasers on a best efforts
Nonperforming Assets
Nonperforming assets (nonaccrual loans and OREO) totaled
(1) Nonaccrual TDRs totaling $1.4 million,
Allowance for Loan Losses
We maintain an allowance for loan losses at a level that management believes to be sufficient to provide for probable losses inherent in the loan portfolio as of the balance sheet date. Credit losses arise from borrowers’ inability or unwillingness to repay, and from other risks inherent in the lending process, including collateral risk, operations risk, concentration risk and economic risk. All related risks of lending are considered when assessing the adequacy of the loan loss reserve. The allowance for loan losses is established through a provision charged to expense. Loans are charged against the allowance when losses are probable and reasonably quantifiable. The allowance for loan losses is based on management's judgment of overall loan quality. This is a significant estimate based on a detailed analysis of the loan portfolio. The balance can and will change based on changes in the assessment of the loan portfolio's overall credit quality. We evaluate the adequacy of the allowance for loan losses on a quarterly basis.
The allowance for loan losses was
Deposits
Average total deposits were
MARKET RISK AND INTEREST RATE SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview. Market risk management arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk management policies to monitor and limit exposure to interest rate risk and do not participate in activities that give rise to significant market risk involving exchange rates, commodity prices, or equity prices. Our risk management policies are primarily designed to minimize structural interest rate risk.
Interest Rate Risk Management. Our net income is largely dependent on net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and shareowners’ equity.
We have established a comprehensive interest rate risk management policy, which is administered by management’s Asset/Liability Management Committee (“ALCO”). The policy establishes risk limits, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for maturities from one day to 30 years. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model is designed to capture optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of analyzing interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology that we use. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from the assumptions that we use in our modeling. Finally, the methodology does not measure or reflect the impact that higher rates may have on variable and adjustable-rate loan clients’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.
We prepare a current base case and several alternative simulations at least once per quarter and present the analysis to ALCO, with the risk metrics
Our interest rate risk management goal is to maintain expected changes in our net interest income and capital levels due to fluctuations in market interest rates within acceptable limits. Management attempts to achieve this goal by balancing, within policy limits, the volume of variable-rate liabilities with a similar volume of variable-rate assets, by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by maintaining our core deposits as a significant component of our total funding sources and by adjusting rates to market conditions on a continuing basis.
We test our balance sheet using varying interest rate shock scenarios to analyze our interest rate risk. Average interest rates are shocked by plus or minus 100, 200, 300, and 400 basis points (“bp”), although we may elect not to use particular scenarios that we determined are impractical in a current rate environment. It is management’s goal to structure the balance sheet so that net interest earnings at risk over 12-month and 24-month periods, and the economic value of equity at risk, do not exceed policy guidelines at the various interest rate shock levels.
We augment our interest rate shock analysis with alternative external interest rate scenarios on a quarterly basis. These alternative interest rate scenarios may include non-parallel rate ramps.
Analysis. Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period and do not necessarily indicate the long-term prospects or economic value of the institution.
The Net Interest Income at Risk position indicates that in the short-term,
All measures of Net Interest Income at Risk are within our prescribed policy limits over
The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates on all of our cash flows, and discounting the cash flows to estimate the present value of assets and liabilities. The difference between the aggregated discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of our net assets.
At
(1) Down 200, 300, and 400 bp scenarios have been excluded due to the
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated and monitored by our ALCO and senior management, and which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. Our principal source of funding has been our client deposits, supplemented by our short-term and long-term borrowings, primarily from securities sold under repurchase agreements, federal funds purchased and FHLB borrowings. We believe that the cash generated from operations, our borrowing capacity and our access to capital resources are sufficient to meet our future operating capital and funding requirements.
At
We view our investment portfolio primarily as a source of liquidity and have the option to pledge the portfolio as collateral for borrowings or deposits, and/or sell selected securities. The portfolio consists of debt issued by the U.S. Treasury, U.S. governmental and federal agencies, and municipal governments. The weighted average life of the portfolio was approximately
Our average overnight funds position (defined as funds sold plus interest bearing deposits with other banks less funds purchased) was
We expect our capital expenditures will be approximately $7.0 million over the next 12 months, which will primarily consist of office remodeling, office equipment/furniture, and technology purchases. Management expects that these capital expenditures will be funded with existing resources without impairing our ability to meet our on-going obligations.
Borrowings
At
We have issued two junior subordinated deferrable interest notes to our wholly owned Delaware statutory trusts. The first note for $30.9 million was issued to CCBG Capital Trust I in November 2004, of which $10 million was retired in April 2016. The second note for $32.0 million was issued to CCBG Capital Trust II in May 2005. The interest payment for the CCBG Capital Trust I borrowing is due quarterly and adjusts quarterly to a variable rate of three-month LIBOR plus a margin of 1.90%. This note matures on December 31, 2034. The interest payment for the CCBG Capital Trust II borrowing is due quarterly and adjusts quarterly to a variable rate of three-month LIBOR plus a margin of 1.80%. This note matures on June 15, 2035. The proceeds from these borrowings were used to partially fund acquisitions. Under the terms of each junior subordinated deferrable interest note, in the event of default or if we elect to defer interest on the note, we may not, with certain exceptions, declare or pay dividends or make distributions on our capital stock or purchase or acquire any of our capital stock. We are in the process of evaluating the impact of the expected discontinuation of LIBOR in 2021 on our two junior subordinated deferrable interest notes.
Capital
During the first
At
In January 2019, our Board of Directors authorized the repurchase of up to 750,000 shares of our outstanding common stock through February 2024, which replaced our prior repurchase program that was set to expire in February 2019. Repurchases may be made in the open market or in privately negotiated transactions; however, we are not obligated to repurchase any specified number of shares.
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently engage in the use of derivative instruments to hedge interest rate risks. However, we are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our clients.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to meet our on-going obligations. In the event these commitments require funding in excess of historical levels, management believes current liquidity, advances available from the FHLB and the Federal Reserve, and investment security maturities provide a sufficient source of funds to meet these commitments.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2018 Form 10-K. The preparation of our Consolidated Financial Statements in accordance with GAAP and reporting practices applicable to the banking industry requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.
We have identified accounting for (i) the allowance for loan and lease losses, (ii) valuation of goodwill, (iii) pension benefits, and (iv) income taxes as our most critical accounting policies and estimates in that they are important to the portrayal of our financial condition and results, and they require our subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2018 Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference. Management has determined that no additional disclosures are necessary to assess changes in information about market risk that have occurred since December 31, 2018.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At
Changes in Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has reviewed our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). There have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are party to lawsuits arising out of the normal course of business. In management's opinion, there is no known pending litigation, the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations, financial position, or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2018 Form 10-K, as updated in our subsequent quarterly reports. The risks described in our 2018 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Mine Safety Disclosure Not Applicable.
Item 5. Other Information None.
Item 6. Exhibits
(A) Exhibits
31.1 Certification of William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification of J. Kimbrough Davis, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certification of William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc., Pursuant to 18 U.S.C. Section 1350.
32.2 Certification of J. Kimbrough Davis, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc., Pursuant to 18 U.S.C. Section 1350.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned Chief Financial Officer hereunto duly authorized.
CAPITAL CITY BANK GROUP, INC. (Registrant)
/s/ J. Kimbrough Davis J. Kimbrough Davis Executive Vice President and Chief Financial Officer (Mr. Davis is the Principal Financial Officer and has been duly authorized to sign on behalf of the Registrant)
Date:
|