CCBG - Capital City Bank Group Inc. Reports Second Quarter 2021 Results

TALLAHASSEE, Fla., July 27, 2021 (GLOBE NEWSWIRE) -- Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $7.4 million, or $0.44 per diluted share, for the second quarter of 2021 compared to net income of $9.5 million, or $0.56 per diluted share, for the first quarter of 2021, and $9.1 million, or $0.55 per diluted share, for the second quarter of 2020. Net income for the second quarter of 2021 included a partial pension settlement charge of $2.0 million (pre-tax), or $0.10 per diluted share (after tax).

For the first six months of 2021, net income totaled $16.9 million, or $1.00 per diluted share, compared to net income of $13.4 million, or $0.80 per diluted share, for the same period of 2020.

Our return on average assets (“ROA”) was 0.75% and our return on average equity (“ROE”) was 9.05% for the second quarter of 2021. These metrics were 1.01% and 11.81% for the first quarter of 2021, respectively, and 1.10% and 11.03% for the second quarter of 2020, respectively. For the first six months of 2021, our ROA was 0.88% and our ROE was 10.42% compared to 0.85% and 8.12%, respectively, for the same period of 2020.

QUARTER HIGHLIGHTS

• Net interest income grew 6% sequentially driven by strong loan growth and higher SBA PPP fees
• Period-end loan balances (net of SBA PPP balances) grew by $74 million, or 4.0% sequentially
  • Remaining SBA PPP balances and deferred fees totaled $80 million and $3.5 million, respectively, at period-end
• Strong credit quality metrics and a net loan loss recovery drove a negative credit loss provision of $0.6 million
• Average deposit balances grew $148 million, or 4.6% sequentially and reflected additional stimulus inflows as well as strong core deposit growth
• Noninterest expense increased $1.6 million and included a partial pension settlement charge of $2.0 million – controllable expenses at CCB continued to be well managed
• Capital City Home Loans (“CCHL”) contributed $0.05 per share
  

“Challenges remain, but Capital City produced solid results for both the second quarter and first half of 2021,” said William G. Smith, Jr., Chairman, President and CEO of Capital City Bank Group. “Excluding PPP loans, our loan portfolio grew $74.3 million, or 3.8%, for the quarter with commercial mortgages and auto finance contributing a majority of the net growth. Continued improvement in the economy and favorable credit quality resulted in a negative credit loss provision of $570,000. Quarter over quarter, our fee based businesses performed well. Wealth management revenues increased 6.0%, and I am pleased to welcome Capital City Strategic Wealth (“CCSW” – formerly Strategic Wealth Group) to our team. CCSW offers financial planning services specializing in life insurance solutions and we are excited about the prospects it brings to our wealth management business. Debit and credit card fees were up 10% as consumer spending gains momentum. Although mortgage revenues were down for the quarter, CCHL continues to perform well above its historical norms. After adjusting for the pension settlement expense of $2.0 million, our total expenses were down quarter over quarter and continue to be well managed. Our management team focuses on those aspects of our business we can do something about and strives to implement strategies that are sustainable and produce long-term value for our shareowners. I am optimistic about our future and appreciate your support.”

COVID-19 Update

• We continue to closely monitor conditions including the rising case count in some of our communities.
• We have established a tentative return to work date for all associates, but we will adjust as necessary depending on changing conditions.
• All of our banking offices have returned to normal banking hours and lobby services.
• We are adhering to national guidelines and local safety ordinances to protect both clients and associates.
• We continue to support clients with the Small Business Administration Payment Protection Program (“SBA PPP”) by actively assisting with the Round 1 and 2 forgiveness process.
  

Discussion of Operating Results

Net Interest Income/Net Interest Margin

Tax-equivalent net interest income for the second quarter of 2021 totaled $26.1 million compared to $24.6 million for the first quarter of 2021 and $25.6 million for the second quarter of 2020. Compared to the first quarter of 2021, the increase reflected higher SBA PPP loan fees of $0.7 million, higher loan interest of $0.5 million driven by loan growth, and higher investment securities income of $0.2 million which reflected deployment of excess overnight funds into the investment portfolio. Compared to the second quarter of 2020, the increase was driven by higher SBA PPP loan fees of $1.3 million partially offset by lower interest earned on investment securities and variable/adjustable rate loans. For the first six months of 2021, tax-equivalent net interest income totaled $50.7 million compared to $51.4 million for the same period of 2020. The decrease generally reflected lower rates earned on investment securities and variable/adjustable rate loans partially offset by higher SBA PPP loan fees and lower interest expense.

Our net interest margin for the second quarter of 2021 was 2.89%, an increase of three basis points over the first quarter of 2021 and a decrease of 52 basis points from the second quarter of 2020. Compared to the first quarter of 2021, the increase was driven by higher SBA PPP loan fees. Compared to the second quarter of 2020, the decrease was primarily attributable to downward re-pricing of earning assets and significant growth in overnight funds (driven by deposit inflows) which negatively impacts our margin percentage. For the first six months of 2021, the net interest margin decreased 72 basis points to 2.87% generally reflective of downward re-pricing of our earning assets (variable/adjustable rate loans and securities portfolio) partially offset by a lower cost of funds and higher SBA PPP loan fees. Our net interest margin for the second quarter of 2021, excluding the impact of overnight funds in excess of $200 million, was 3.46%.

Provision for Credit Loss

We recorded a negative provision for credit losses of $0.6 million for the second quarter of 2021 compared to a negative provision of $1.0 million for the first quarter of 2021 and provision expense of $2.0 million for the second quarter of 2020. For the first six months of 2021, we recorded a negative provision of $1.6 million compared to provision expense of $7.0 million for the same period of 2020. The negative provision for the first half of 2021 generally reflected improving economic conditions and strong net loan recoveries totaling $0.9 million. We discuss the allowance for credit losses further below.

Noninterest Income and Noninterest Expense

Noninterest income for the second quarter of 2021 totaled $26.5 million compared to $29.8 million for the first quarter of 2021 and $30.2 million for the second quarter of 2020. The aforementioned declines were primarily due to lower mortgage banking revenues at CCHL, partially offset by improvements in wealth management and bank card fees. The decline in mortgage banking revenues reflected lower production volume (primarily re-finance activity) and a lower gain on sale margin. For the first six months of 2021, noninterest income totaled $56.3 million compared to $45.7 million for the same period of 2020 with the increase driven by the addition of CCHL mortgage banking revenues late in the first quarter of 2020, and higher bank card and wealth management fees which grew $1.4 million and $1.2 million, respectively. Additional detail on CCHL’s operations and key performance metrics is provided on page 11.

Noninterest expense for the second quarter of 2021 totaled $42.1 million compared to $40.5 million for the first quarter of 2021 and $37.3 million for the second quarter of 2020. For the first six months of 2021, noninterest expense totaled $82.6 million compared to $68.3 million for the same period of 2020. The $1.6 million increase over the first quarter of 2021 reflected a $2.0 million partial pension settlement charge that was partially offset by lower commission expense at CCHL and lower legal fees and other real estate owned (“OREO”) expense at CCB. The partial pension settlement charge was attributable to a higher level of lump sum pay-outs, a trend that we expect will continue for the remainder of the year. Compared to the prior year periods, the increase was primarily attributable to the partial pension settlement charge of $2.0 million, lower realized loan cost (credit offset to salary expense), higher pension plan expense (driven by a lower discount rate for plan liabilities), and performance based compensation. Additionally, the increase for the first half of 2021 reflects the inclusion of CCHL expenses for a full six month period versus only four months in 2020.

Income Taxes

We realized income tax expense of $2.1 million (effective rate of 19%) for the second quarter of 2021 compared to $2.8 million (effective rate of 19%) for the first quarter of 2021 and $2.9 million (effective rate of 18%) for the second quarter of 2020. For the first six months of 2021, we realized income tax expense of $4.8 million (effective rate of 19%) compared to $4.2 million (effective rate of 20%) for the same period of 2020. Absent discrete items, we expect our annual effective tax rate to approximate 18%-19%.

Discussion of Financial Condition

Earning Assets

Average earning assets totaled $3.624 billion for the second quarter of 2021, an increase of $126.0 million, or 3.6%, over the first quarter of 2021, and an increase of $286.5 million, or 8.6%, over the fourth quarter of 2020. The increase over both prior periods was primarily driven by higher deposit balances, which funded growth in both overnight funds sold and the investment portfolio. Deposit balances increased as a result of strong core deposit growth, in addition to funding retained at the bank from SBA PPP loans, 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 $818.6 million in the second quarter of 2021 compared to an average net overnight funds sold position of $814.6 million in the first 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 $7.6 million, or 0.4%, from the first quarter of 2021 and increased $43.3 million, or 2.2%, over the fourth quarter of 2020. Excluding SBA PPP loans, average core loans grew $54.4 million and $90.4 million over both respective periods and period end loans grew $74.3 million and $97.7 million over both respective periods. Growth in period end loans was driven primarily in the commercial mortgage, indirect, and construction categories. At June 30, 2021, SBA PPP loan balances totaled $79.9 million and remaining deferred SBA PPP net loan fees totaled $3.5 million. SBA PPP loan forgiveness applications are expected to remain strong for the remainder of 2021.

Allowance for Credit Losses

At June 30, 2021, the allowance for credit losses for HFI loans totaled $22.2 million compared to $22.0 million at March 31, 2021 and $23.8 million at December 31, 2020. Activity within the allowance is provided on Page 9. At June 30, 2021, the allowance represented 1.10% of HFI loans and provided coverage of 434% of nonperforming loans compared to 1.07% and 411%, respectively, at March 31, 2021, and 1.19% and 406%, respectively, at December 31, 2020. At June 30, 2021, excluding SBA PPP loans (100% government guaranteed), the allowance represented 1.15% of HFI loans compared to 1.30% at December 31, 2020.

Credit Quality

Nonperforming assets (nonaccrual loans and OREO) totaled $6.3 million at June 30, 2021 compared to $5.5 million at March 31, 2021 and $6.7 million at December 31, 2020. Nonaccrual loans totaled $5.1 million at June 30, 2021, a $0.3 million decrease from March 31, 2021 and a $0.8 million decrease from December 31, 2020. The balance of OREO totaled $1.2 million at June 30, 2021, a $1.0 million increase over March 31, 2021 and $0.4 million increase over December 31, 2020.

Funding (Deposits/Debt)

Average total deposits were $3.387 billion for the second quarter of 2021, an increase of $147.8 million, or 4.6%, over the first quarter of 2021 and $321.2 million, or 10.5%, over the fourth quarter of 2020. The strongest growth over both comparable periods occurred in our noninterest bearing deposits and savings account balances. Average public deposits in the second quarter 2021 increased compared to the fourth quarter 2020, but declined compared to the first quarter 2021 due to the seasonality of these deposits. Over the past 12 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 for the remainder of 2021 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 $15.9 million over the first quarter of 2021 and declined $44.1 million over 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 $335.9 million at June 30, 2021 compared to $324.4 million at March 31, 2021 and $320.8 million at December 31, 2020. For the first six months of 2021, shareowners’ equity was positively impacted by net income of $16.9 million, a $0.9 million increase in fair value of the interest rate swap related to subordinated debt, net adjustments totaling $1.0 million related to transactions under our stock compensation plans, stock compensation accretion of $0.4 million, and reclassification of $1.2 million from temporary equity to decrease the redemption value of the non-controlling interest in CCHL. In addition, $1.6 million was reclassified from accumulated other comprehensive loss to pension expense in conjunction with the partial pension settlement charge reflected in earnings, therefore, the charge had no net effect on equity. Shareowners’ equity was reduced by common stock dividends of $5.1 million ($0.30 per share) and a $1.8 million decrease in the unrealized gain on investment securities.

At June 30, 2021, our total risk-based capital ratio was 16.48% compared to 17.20% at March 31, 2021 and 17.30% at December 31, 2020. Our common equity tier 1 capital ratio was 13.14%, 13.63%, and 13.71%, respectively, on these dates. Our leverage ratio was 8.84%, 8.97%, 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 6.19% at June 30, 2021 compared to 6.13% and 6.25% at March 31, 2021 and December 31, 2020, respectively.

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 $4.0 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 (“CCB”), 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 the 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.