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

TALLAHASSEE, Fla., April 27, 2021 (GLOBE NEWSWIRE) -- Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $9.5 million, or $0.56 per diluted share, for the first quarter of 2021 compared to net income of $7.7 million, or $0.46 per diluted share, for the fourth quarter of 2020, and $4.3 million, or $0.25 per diluted share, for the first quarter of 2020.

QUARTER HIGHLIGHTS

• Return on assets of 1.01% and return on equity of 11.81%
• Credit quality metrics remained stable and reduced COVID-19 exposure drove a negative credit loss provision of $1.0 million
• Period-end loan balances grew by $51 million, or 2.6% sequentially
  • SBA PPP Round 2 originations totaled $65 million through March 31 ^st
  • SBA PPP Round 1 forgiveness pay-offs totaled $36 million - $143 million in balances remain at period-end
  • SBA PPP deferred fees remaining at March 31 ^st totaled $5 million ($2 million for Round 1 and $3 million for Round 2)
• Average deposit balances grew $173 million, or 5.7% sequentially and reflected stimulus inflows as well as strong core deposit growth
• Noninterest expense declined $0.9 million driven by lower expense for other real estate and compensation
• Capital City Home Loans (“CCHL”) contributed $0.09 per share

“I am pleased with our first quarter results,” said William G. Smith, Jr., Chairman, President and CEO of Capital City Bank Group.  “Rising consumer spending, lower unemployment, improving credit quality and a noticeable increase in loan activity in and around our markets, are contributing to a stronger economy.  Our core business is performing well.  In addition to round two of the SBA PPP loans, we experienced solid growth in commercial real estate and residential loans, culminating in net loan growth of $51 million, or 2.6% for the quarter.  Wealth management, mortgage and debit/credit cards performed well.  Expenses declined $0.9 million, or 2% quarter over quarter.  After evaluating our credit risk, we lowered our allowance for credit losses by $1.8 million, or 8%.  This was based on our current level of problem assets and pandemic-related extensions, a $0.5 million net recovery for the quarter and our positive outlook on the economy.  The past year has been challenging.  Our team has responded to every challenge and we have tweaked our business model, where appropriate.  While our tactics may change, our strategy remains the same -- to produce long-term value for our shareowners.  I am optimistic about our future.”

COVID-19 Update

• We continue to closely monitor conditions in our communities.  With case counts trending downward in most of our markets, we established a phased plan for safely returning to work beginning February 1st.
• On March 1 ^st , all of our banking offices returned to normal banking hours and lobby services.
• For the near term, we will continue to maintain flexible in-office and remote working arrangements for non-retail associates to limit building capacity.
• 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 forgiveness process and offering funding for clients eligible in Round 2.

Discussion of Operating Results

Summary Overview

Compared to the fourth quarter of 2020, the $2.0 million increase in operating profit was attributable to a $2.3 million decrease in the provision for credit losses and lower noninterest expense of $0.9 million, partially offset by a $0.7 million decrease in noninterest income and lower net interest income of $0.5 million.

Compared to the first quarter of 2020, the $9.5 million increase in operating profit was attributable to a $14.3 million increase in noninterest income and a lower provision for credit losses of $6.0 million, partially offset by higher noninterest expense of $9.5 million and lower net interest income of $1.3 million.  This comparison reflects the acquisition of a 51% membership interest in, and consolidation of, CCHL on March 1, 2020.

Our return on average assets (“ROA”) was 1.01% and our return on average equity (“ROE”) was 11.81% for the first quarter of 2021.  These metrics were 0.84% and 8.97% for the fourth quarter of 2020, respectively, and 0.57% and 5.20% for the first quarter of 2020, respectively.

Net Interest Income/Net Interest Margin

Tax-equivalent net interest income for the first quarter of 2021 was $24.6 million compared to $25.1 million for the fourth quarter of 2020 and $25.9 million for the first quarter of 2020.  The decrease compared to both prior periods reflected lower rates earned on investment securities and variable/adjustable rate loans.  The year-over-year decline also reflected lower rates on overnight funds.  Partially offsetting these declines were higher volumes of earning assets, including lower yielding SBA PPP loans and overnight funds.

The federal funds target rate has remained in the range of 0.00%-0.25% since March 2020 when the Fed reduced its overnight rate by 150 basis points, and as a result, we continue to experience lower repricing of our variable/adjustable rate earning assets and investment securities.  Our overall cost of funds remained low during the first quarter of 2021 at 0.11%, a decrease of three basis points compared to the fourth quarter of 2020, primarily due to a reduction in short-term borrowings.

Our net interest margin for the first quarter of 2021 was 2.85%, a decrease of 15 basis points from the fourth quarter of 2020 and a decline of 93 basis points from the first quarter of 2020.  The decreases were primarily attributable to significant growth in overnight funds which reduced our margin.   Our net interest margin for the first quarter of 2021, excluding the impact of overnight funds in excess of $200 million, was 3.45%.  We discuss the effect of the pandemic related stimulus programs on our balance sheet in more detail below under Discussion of Financial Condition .

Provision for Credit Loss

We recorded a negative provision for credit losses of $1.0 million (consisting of a negative $2.3 million for HFI loans, partially offset by a $1.3 million expense for unfunded loan commitments) for the first quarter of 2021 compared to provision expense of $1.3 million for the fourth quarter of 2020 and $5.0 million for the first quarter of 2020.  The negative provision for the first quarter of 2021 generally reflected improving economic conditions and a lower level of expected losses related to COVID-19.  Further, we recognized net loan recoveries of $0.5 million in the first quarter of 2021.  We discuss the allowance for credit losses and COVID-19 exposure further below.

Noninterest Income and Noninterest Expense

Noninterest income for the first quarter of 2021 totaled $29.8 million compared to $30.5 million for the fourth quarter of 2020 and $15.5 million for the first quarter of 2020.  The decrease from the fourth quarter of 2020 was due to lower mortgage banking revenues of $0.6 million and deposit of $0.4 million, partially offset by higher bank card fees of $0.2 million and other income of $0.1 million.  Compared to the first quarter of 2020, the $14.3 million increase reflected higher mortgage banking revenues of $13.9 million, wealth management fees of $0.5 million, and bank card fees of $0.6 million, partially offset by lower deposit fees of $0.7 million.

Noninterest expense for the first quarter of 2021 totaled $40.5 million compared to $41.3 million for the fourth quarter of 2020 and $31.0 million for the first quarter of 2020.  The decrease from the fourth quarter of 2020 was primarily attributable to lower compensation expense of $0.6 million and other real estate owned (“OREO”) expense of $0.7 million, partially offset by higher other expense of $0.5 million.  Compared to the first quarter of 2020, the $9.5 million increase reflected expenses added by the CCHL acquisition as Core CCBG’s expenses remained flat.

The 51% ownership acquisition of CCHL and consolidation into CCBG’s financial statements occurred on March 1, 2020.  The table below reflects the major components of noninterest income for both Core CCBG and CCHL to help facilitate a better understanding of the year over year comparison.

Income Taxes

We realized income tax expense of $2.8 million (effective rate of 19%) for the first quarter of 2021 compared to $2.8 million (effective rate of 22%) for the fourth quarter of 2020 and $1.3 million (effective rate of 24%) for the first quarter of 2020.  Tax expense for the fourth quarter of 2020 was unfavorably impacted by a $0.3 million discrete tax expense.  Compared to the first quarter of 2020, the decrease in our effective tax rate was attributable to converting CCHL to a partnership for tax purposes in the second quarter of 2020.  Absent discrete items, we expect our annual effective tax rate to approximate 18%-19% in 2021.

Discussion of Financial Condition

Earning Assets

Average earning assets were $3.498 billion for the first quarter of 2021, an increase of $160.5 million, or 4.8%, over the fourth quarter of 2020, and an increase of $746.0 million, or 27.1%, over the first 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 SBA PPP loans.  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 $814.6 million in the first quarter of 2021 compared to an average net overnight funds sold position of $705.1 million in the fourth quarter of 2020 and $234.4 million in the first 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) increased $50.9 million, or 2.6%, over the fourth quarter of 2020 and increased $196.6 million, or 10.6%, over the first quarter of 2020.  Compared to the fourth quarter of 2020, average loan balances increased across all loan types except institutional and consumer, which declined slightly.  Compared to the first quarter of 2020, average loan balances increased across all loan types except institutional, consumer, and HELOCs.  Period-end HFI loans increased $51.3 million, or 2.6%, over the fourth quarter of 2020 and increased $195.3 million, or 10.5%, over the first quarter of 2020.

In the first quarter of 2021, we originated an additional round of SBA PPP loans totaling $65.4 million (reflected in the commercial loan category) which averaged $23.7 million for the quarter.  Approximately $256 million in SBA PPP loans have been made since the inception of this program.  Through the first quarter of 2021, approximately $47 million in SBA PPP loans have been forgiven and paid-off ($11 million in Q4 2020 and $36 million in Q1 2021).  Forgiveness applications are expected to remain strong over the next three months for SBA PPP loans funded in 2020, and then over the course of 2021 for the SBA PPP loans funded in 2021.  SBA PPP loan fee income totaled approximately $1.2 million for the first quarter of 2021.  At March 31, 2021 we had $5.0 million (net) in deferred SBA PPP loan fees.

Allowance for Credit Losses

At March 31, 2021, the allowance for credit losses for HFI loans totaled $22.0 million compared to $23.8 million at December 31, 2020 and $21.1 million at March 31, 2020.  Activity within the allowance is provided on Page 9.  The $1.8 million net decrease in the allowance for the first quarter of 2021 reflected net loan recoveries totaling $0.5 million and the release of $2.3 million in reserves which reflected lower expected loan losses related to COVID-19.  At March 31, 2021, the allowance represented 1.07% of HFI loans and provided coverage of 411% of nonperforming loans compared to 1.19% and 406%, respectively, at December 31, 2020 and 1.13% and 433%, respectively, at March 31, 2020.  At March 31, 2021, excluding SBA PPP loans (100% government guaranteed), the allowance represented 1.19% of HFI loans compared to 1.30% at December 31, 2020.

Credit Quality/COVID-19 Exposure

Nonperforming assets (nonaccrual loans and OREO) totaled $5.5 million at March 31, 2021 compared to $6.7 million at December 31, 2020 and $6.3 million at March 31, 2020.  Nonaccrual loans totaled $5.4 million at March 31, 2021, a $0.5 million decrease from December 31, 2020 and a $0.5 million increase over March 31, 2020.  The balance of OREO totaled $0.1 million at March 31, 2021, a decrease of $0.7 million from December 31, 2020 and a $1.3 million decrease from March 31, 2020.

We continue to monitor our loan portfolio for segments that continue to be affected by the pandemic.  To assist our clients, we have extended loans totaling $333 million of which 75% were for commercial borrowers and 25% were for consumer borrowers.  Approximately $328 million, or 98%, of the loan balances associated with these borrowers have resumed making regularly scheduled payments of which loan balances totaling $2.9 million were over 30 days delinquent and an additional $0.6 million was on nonaccrual status at March 31, 2021.  Of the $5 million that remains on extension, no loans were classified at March 31, 2021.

Funding (Deposits/Debt)

Average total deposits were $3.240 billion for the first quarter of 2021, an increase of $173.4 million, or 5.7%, over the fourth quarter of 2020 and $686.8 million, or 26.9%, over the first quarter of 2020.  Average core deposits grew $546.8 million over the first quarter of 2020, which includes $342.9 million in noninterest bearing deposits and $113.0 million in savings account balances. In addition, average public fund deposits grew $121 million during this period.  Over the past 12 months, multiple government stimulus programs have been implemented, including 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 throughout 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 $29.2 million over the fourth quarter of 2020 and increased $30.5 million over the first quarter of 2020, which reflected a seasonal fluctuation in warehouse line borrowing needs to support CCHL’s loans held for sale.

Capital

Shareowners’ equity was $324.4 million at March 31, 2021 compared to $320.8 million at December 31, 2020 and $328.5 million at March 31, 2020.  During the first quarter of 2021, shareowners’ equity was positively impacted by net income of $9.5 million, a $1.6 million increase in fair value of the interest rate swap related to subordinated debt, net adjustments totaling $0.3 million related to transactions under our stock compensation plans, stock compensation accretion of $0.2 million, and a $0.1 million decrease in the accumulated other comprehensive loss for our pension plan.  Shareowners’ equity was reduced by a common stock dividend of $2.5 million ($0.15 per share), reclassification of $4.2 million to temporary equity to increase the redemption value of the non-controlling interest in CCHL, and a $1.4 million decrease in the unrealized gain on investment securities.

At March 31, 2021, our total risk-based capital ratio was 17.20% compared to 17.30% at December 31, 2020 and 17.19% at March 31, 2020.  Our common equity tier 1 capital ratio was 13.63%, 13.71%, and 13.55%, respectively, on these dates.  Our leverage ratio was 8.97%, 9.33%, and 10.81%, 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 6.13% at March 31, 2021 compared to 6.25% and 7.98% at December 31, 2020 and March 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 $3.9 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 and securities brokerage services.  Our bank subsidiary, Capital City Bank, was founded in 1895 and now has 57 banking offices and 85 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 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.