CCBG - Capital City Bank Group Inc. Reports Fourth Quarter and Full Year 2021 Results

TALLAHASSEE, Fla., Jan. 25, 2022 (GLOBE NEWSWIRE) -- Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $6.4 million, or $0.38 per diluted share, for the fourth quarter of 2021 compared to net income of $10.1 million, or $0.60 per diluted share, for the third quarter of 2021, and $7.7 million, or $0.46 per diluted share, for the fourth quarter of 2020.

For the full year of 2021, net income totaled $33.4 million, or $1.98 per diluted share, compared to net income of $31.6 million, or $1.88 per diluted share, for 2020.

Fourth Quarter 2021 HIGHLIGHTS

• Operating revenues (excluding mortgage revenues and SBA PPP loan income) improved 1.9%
• Capital City Home Loans (“CCHL”) contributed $0.03 per share versus $0.06 per share in the prior quarter reflective of a typical seasonal slowdown
• Noninterest expense increased $0.5 million, or 1.3%, on higher other real estate expense related to a third quarter gain of $1.0 million on the sale of a banking office
• Average loans, excluding PPP loans, grew $8 million and average investment securities increased $82 million
• Noninterest expense included a pension settlement charge of $0.6 million or $0.03 per share
• Strong credit quality metrics resulted in no loan loss provision and an allowance coverage ratio of 1.12%
• Average Deposits grew $101 million, or 2.9%, primarily due to a seasonal increase in public fund inflows
• Capital growth of $34.3 million ($2.03 per share), or 9.8%, primarily attributable to a favorable adjustment for year-end pension plan re-measurement

Full Year 2021 HIGHLIGHTS

• 2021 net income totaled $33.4 million, a record year
• Operating revenues (excluding mortgage revenues and SBA PPP loan income) improved 1.4%
• CCHL contributed $0.23 per share versus $0.52 per share in 2020
• Average loans, excluding PPP loans, grew $76 million and average investment securities increased $203 million
• Negative loan loss provision of $1.6 million
• Noninterest expense included pension settlement charges totaling $3.1 million or $0.15 per share
• Average Deposits grew $563 million, or 19.8%, reflective of government stimulus related inflows
• Capital growth of $62.3 million ($3.69 per share), or 19.4%

“Capital City reported record earnings in 2021,” said William G. Smith, Jr., Chairman, President and CEO of Capital City Bank Group.  “SBA PPP loan income, pristine credit quality and growth in our fee-based businesses drove earnings, more than offsetting the adverse impacts of a normalizing mortgage market, pension settlement charges and a lower interest rate environment. We are well positioned for rising interest rates given our asset sensitive balance sheet and the favorable impact higher interest rates have on our pension related other comprehensive loss.  Year over year, the favorable pension equity adjustment added $2.01 per share to book value.  As I look toward 2022, I am excited about the prospects of our recent addition of Capital City Strategic Wealth (a financial planning/advisory service), which gained traction in the latter half of 2021, and our market expansion in the western panhandle of Florida and the northern arc of Atlanta.  While challenges remain, we are identifying opportunities and executing on strategies we believe are sustainable and add long-term value for our shareowners. I am optimistic about the future and appreciate your continued support.”

Discussion of Operating Results

Net Interest Income/Net Interest Margin

Tax-equivalent net interest income for the fourth quarter of 2021 totaled $24.8 million compared to $27.8 million for the third quarter of 2021 and $25.1 million for the fourth quarter of 2020. For the full year 2021 tax-equivalent net interest income totaled $103.2 million compared to $101.8 million for 2020. Compared to the third quarter of 2021 and the fourth quarter of 2020, the decrease was primarily due to lower SBA PPP loan income. Compared to the full year 2020, the increase was primarily attributable to higher SBA PPP loan income and higher average loan balances, partially offset by unfavorable rate repricing due to a generally lower rate environment.

Our net interest margin for the fourth quarter of 2021 was 2.60%, a decrease of 38 basis points over the third quarter of 2021 and a decrease of 40 basis points from the fourth quarter of 2020. Compared to both prior periods, the decrease was attributable to a decline in SBA PPP loan income, in conjunction with growth in earning assets (driven by deposit inflows), which negatively impacts our margin percentage. For the full year 2021, the net interest margin declined 47 basis points compared to 2020, primarily driven by growth in earning assets. Our net interest margin for the fourth quarter of 2021, excluding the impact of overnight funds in excess of $200 million, was 3.10%.

Provision for Credit Loss

We did not record a provision for credit losses for the fourth quarter of 2021. This compares to provision expense of $1.3 million for the fourth quarter of 2020.   For the full year 2021, we recorded a negative provision of $1.6 million compared to provision expense of $9.6 million for 2020. The lower provision in 2021 was attributable to improvements in forecasted economic conditions, favorable loan migration and net loan recoveries totaling $0.6 million. We discuss the allowance for credit losses further below.

Noninterest Income and Noninterest Expense

Noninterest income for the fourth quarter of 2021 totaled $24.7 million compared to $26.6 million for the third quarter of 2021 and $30.5 million for the fourth quarter of 2020.   For the full year 2021, noninterest income totaled $107.5 million compared to $111.2 million for 2020. The decrease from all prior periods was primarily attributable to lower mortgage banking revenues that were partially offset by strong gains in deposit fees, bank card fees, and wealth management fees.   The decline in mortgage banking revenues for the fourth quarter of 2021 reflected a normal seasonal decline in loan purchase activity. Year over year, the decline in mortgage banking revenues was driven generally by lower refinancing activity, a shift in production mix (lower government versus conventional product), and lower market driven gain on sale margins.   Additional detail on our mortgage banking operation (CCHL) is provided on Page 11.   The increase in deposit fees reflected the conversion, in the third quarter of 2021, of the remaining free checking accounts to a monthly maintenance fee account type. The increase in wealth management fees was primarily attributable to higher retail brokerage transaction volume and advisory accounts added from the acquisition of Capital City Strategic Wealth on May 1, 2021. To a lesser extent, higher trust fees contributed to the increase in wealth management fees driven by higher assets under management. The increase in bank card fees generally reflected an increase in card-not-present debit card transactions and increased consumer spending.

Noninterest expense for the fourth quarter of 2021 totaled $40.2 million compared to $39.7 million for the third quarter of 2021 and $41.3 million for the fourth quarter of 2020. The increase over the third quarter of 2021 was primarily attributable to higher other real estate expense of $1.2 million, partially offset by lower compensation expense of $0.5 million. The increase in other real estate expense reflected a gain on the sale of a banking office in the third quarter of 2021. The decrease in compensation was attributable to lower commission expense at CCHL. Compared to the fourth quarter of 2020, the decrease was primarily due to lower commission expense at CCHL.

For the full year 2021, noninterest expense totaled $162.5 million compared to $150.0 million for 2021. The $12.5 million increase was attributable to the addition of expenses at CCHL (March 1, 2020 acquisition) of $2.3 million and higher expenses at the core bank totaling $10.2 million. The increase in expenses at the core bank were primarily due to higher compensation expense of $3.7 million (merit raises, pension/service cost expense, and realized loan cost), pension settlement expense of $3.1 million, and an increase in other expense of $5.0 million, partially offset by lower other real estate expense of $1.6 million. The increase in other expense was primarily attributable to higher expense of $2.1 million for the non-service cost component of our pension plan attributable to the utilization of a lower discount rate for plan liabilities. Higher processing fees of $0.7 million (debit card volume), professional fees of $0.6 million, occupancy expense of $0.5 million, and FDIC insurance of $0.5 million (higher asset size) also contributed to the increase in other expense.

Income Taxes

We realized income tax expense of $2.0 million (effective rate of 22%) for the fourth quarter of 2021 compared to $2.9 million (effective rate of 20%) for the third quarter of 2021 and $2.8 million (effective rate of 22%) for the fourth quarter of 2020. For the full year 2021, we realized income tax expense of $9.8 million (effective rate of 20%) compared to $10.2 million (effective rate of 19%) for the same period of 2020.   Tax expense for the fourth quarter of 2021 and 2020 was unfavorably impacted by discrete tax expense of $0.1 million and $0.3 million, respectively. Absent discrete items, we expect our annual effective tax rate to approximate 19%-20% in 2022.

Discussion of Financial Condition

Earning Assets

Average earning assets totaled $3.791 billion for the fourth quarter of 2021, an increase of $98.2 million, or 2.7%, over the third quarter of 2021, and an increase of $453.9 million, or 13.6%, over the fourth quarter of 2020. The increase over both prior periods was primarily driven by higher deposit balances. Deposit balances increased as a result of strong core deposit growth, SBA PPP loan proceeds deposited in client accounts, and various other stimulus programs.

We maintained an average net overnight funds (deposits with banks plus FED funds sold less FED funds purchased) sold position of $789.1 million in the fourth quarter of 2021 compared to an average net overnight funds sold position of $741.9 million in the third quarter of 2021 and $705.1 million in the fourth quarter of 2020. The increase compared to both prior periods was driven by strong core deposit growth, in addition to pandemic related stimulus programs (see below – Funding ).

Average loans held for investment (“HFI”) decreased $25.8 million, or 1.3%, from the third quarter of 2021 and decreased $45.1 million, or 2.3%, from the fourth quarter of 2020. Excluding SBA PPP loans, average loans HFI increased $7.8 million compared to the third quarter of 2021, and increased $133.1 million compared to the fourth quarter of 2020. Compared to the third quarter of 2021 the increase in average loans (excluding PPP loans) reflected growth in construction and indirect loans, partially offset by declines in the remaining loan products. Compared to the fourth quarter of 2020, we realized growth in construction, residential, commercial real estate and indirect loans. At December 31, 2021, remaining SBA PPP loan balances and fees totaled less than $0.2 million.

Allowance for Credit Losses

At December 31, 2021, the allowance for credit losses for HFI loans totaled $21.6 million compared to $21.5 million at September 30, 2021 and $23.8 million at December 31, 2020. Activity within the allowance is provided on Page 9.   At December 31, 2021, the allowance represented 1.12% of HFI loans and provided coverage of 546% of nonperforming loans compared to 1.11% and 710%, respectively, at September 30, 2021, and 1.19% and 406%, respectively, at December 31, 2020.   At December 31, 2021, excluding SBA PPP loans (100% government guaranteed), the allowance represented 1.12% of HFI loans compared to 1.30% at December 31, 2020.

Credit Quality

Overall credit quality continues to remain strong. Nonperforming assets (nonaccrual loans and other real estate) totaled $4.3 million at December 31, 2021 compared to $3.2 million at September 30, 2021 and $6.7 million at December 31, 2020. At December 31, 2021, nonperforming assets as a percentage of total assets was stable at 0.10%. Nonaccrual loans totaled $4.3 million at December 31, 2021, a $1.3 million increase over September 30, 2021 and a $1.5 million decrease from December 31, 2020.

Funding (Deposits/Debt)

Average total deposits were $3.549 billion for the fourth quarter of 2021, an increase of $101.5 million, or 2.9%, over the third quarter of 2021 and $483.0 million, or 15.8%, over the fourth quarter of 2020. Compared to both prior periods, growth in average total deposits was experienced in all products except certificates of deposit, with the strongest growth occurring in our noninterest bearing deposits and savings account balances. Over the past 18 months, multiple government stimulus programs have been implemented, including those under the CARES Act and the American Rescue Plan Act, which are responsible for a large part of the growth in average deposits. Given these increases, the potential exists for our deposit levels to be volatile into 2022 due to the uncertain timing of the outflows of the stimulus related balances and the economic recovery. It is anticipated that current liquidity levels will remain robust due to our strong overnight funds sold position. The Bank continues to strategically consider ways to safely deploy a portion of this liquidity.

Average short-term borrowings decreased $3.4 million from the third quarter of 2021 and declined $48.9 million from the fourth quarter of 2020, both of which reflected a seasonal fluctuation in warehouse line borrowing needs to support CCHL’s loans held for sale.

Capital

Shareowners’ equity was $383.2 million at December 31, 2021 compared to $348.9 million at September 30, 2021 and $320.8 million at December 31, 2020. For the full year 2021, shareowners’ equity was positively impacted by net income of $33.4 million, a $34.1 million decrease in the accumulated other comprehensive loss for our pension plan, a $1.1 million increase in fair value of the interest rate swap related to subordinated debt, net adjustments totaling $1.4 million related to transactions under our stock compensation plans, stock compensation accretion of $0.8 million, and reclassification of $9.3 million from temporary equity to decrease the redemption value of the non-controlling interest in CCHL. Shareowners’ equity was reduced by common stock dividends of $10.5 million ($0.62 per share) and a $7.3 million decrease in the unrealized gain on investment securities.

At December 31, 2021, our total risk-based capital ratio was 17.15% compared to 16.70% at September 30, 2021 and 17.30% at December 31, 2020. Our common equity tier 1 capital ratio was 13.86%, 13.45%, and 13.71%, respectively, on these dates. Our leverage ratio was 8.95%, 9.05%, and 9.33%, respectively, on these dates. All of our regulatory capital ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards. Further, our tangible common equity ratio was 6.95% at December 31, 2021 compared to 6.46% and 6.25% at September 30, 2021 and December 31, 2020, respectively.   Our tangible capital ratio was favorably impacted at December 31, 2021 by the aforementioned annual adjustment to the other comprehensive loss for our pension plan. The favorable adjustment was primarily attributable to the utilization of higher discount rates to re-measure the present value of the projected benefit obligation and a strong return on plan assets for 2021.

About Capital City Bank Group, Inc.

Capital City Bank Group, Inc. (NASDAQ: CCBG) is one of the largest publicly traded financial holding companies headquartered in Florida and has approximately $4.3 billion in assets. We provide a full range of banking services, including traditional deposit and credit services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage services and life insurance. Our bank subsidiary, Capital City Bank, was founded in 1895 and now has 57 banking offices and 86 ATMs/ITMs in Florida, Georgia and Alabama. For more information about Capital City Bank Group, Inc., visit www.ccbg.com.

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this Press Release are based on current plans and expectations that are subject to uncertainties and risks, which could cause our future results to differ materially. The following factors, among others, could cause our actual results to differ: the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions and our business, results of operations and financial condition, including the impact of our participation in government programs related to COVID-19; the accuracy of our financial statement estimates and assumptions; legislative or regulatory changes; fluctuations in inflation, interest rates, or monetary policies; the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products; changes in consumer spending and savings habits; our growth and profitability; the strength of the U.S. economy and the local economies where we conduct operations; the effects of a non-diversified loan portfolio, including the risks of geographic and industry concentrations; natural disasters, widespread health emergencies, military conflict, terrorism or other geopolitical events; changes in the stock market and other capital and real estate markets; customer acceptance of third-party products and services; increased competition and its effect on pricing; negative publicity and the impact on our reputation; technological changes, especially changes that allow out of market competitors to compete in our markets; changes in accounting; and our ability to manage the risks involved in the foregoing. Additional factors can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and our other filings with the SEC, which are available at the SEC’s internet site (http://www.sec.gov). Forward-looking statements in this Press Release speak only as of the date of the Press Release, and we assume no obligation to update forward-looking statements or the reasons why actual results could differ.

USE OF NON-GAAP FINANCIAL MEASURES

We present a tangible common equity ratio and a tangible book value per diluted share that removes the effect of goodwill and other intangibles 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 industry.

The GAAP to non-GAAP reconciliations are provided below.