TALLAHASSEE, Fla., Oct. 26, 2021 (GLOBE NEWSWIRE) — Capital City Bank Group, Inc. (NASDAQ: CCBG) today reported net income of $10.1 million, or $0.60 per diluted share, for the third quarter of 2021 compared to net income of $7.4 million, or $0.44 per diluted share, for the second quarter of 2021, and $10.4 million, or $0.62 per diluted share, for the third quarter of 2020.
For the first nine months of 2021, net income totaled $27.0 million, or $1.60 per diluted share, compared to net income of $23.8 million, or $1.42 per diluted share, for the same period of 2020. Net income for 2021 included partial pre-tax pension settlement charges totaling $2.5 million (3Q – $0.5 million and 2Q – $2.0 million), or $0.12 per diluted share (after tax).
Our return on average assets (“ROA”) was 0.99% and our return on average equity (“ROE”) was 11.72% for the third quarter of 2021. These metrics were 0.75% and 9.05% for the second quarter of 2021, respectively, and 1.17% and 12.16% for the third quarter of 2020, respectively. For the first nine months of 2021, our ROA was 0.92% and our ROE was 10.87% compared to 0.96% and 9.50%, respectively, for the same period of 2020.
QUARTER HIGHLIGHTS
- Net interest income grew $1.7 million, or 6.5% sequentially, driven by higher loan fees of $1.3 million (primarily SBA PPP fees of $1.0 million) and a better earning asset mix
- Average loans, excluding PPP loans, grew $35 million and average investment securities increased $218 million
- Strong credit quality metrics resulted in no loan loss provision for the quarter
- Noninterest expense decreased $2.4 million due to lower pension settlement charges of $1.5 million and a $1.0 million gain from the sale of a banking office
- Capital City Home Loans (“CCHL”) contributed $0.06 per share
“Capital City posted strong third quarter results and, year over year, earnings have increased 13.4%,” said William G. Smith, Jr., Chairman, President and CEO of Capital City Bank Group. “Historically favorable credit quality continued to improve resulting in no provision for loan losses in the third quarter and a net provision credit year-to-date. Operating revenues improved as we experienced growth in both net interest income and noninterest income, while noninterest expense declined reflecting lower pension settlement charges and a gain on the sale of ORE (office building). Our recent addition of Capital City Strategic Wealth (a financial planning/advisory service) is gaining traction and expands our portfolio of wealth management businesses. We continue to focus our expansion efforts on markets in west 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 third quarter of 2021 totaled $27.7 million compared to $26.1 million for the second quarter of 2021 and $25.2 million for the third quarter of 2020. Compared to the second quarter of 2021, the increase reflected higher loan fees of $1.3 million (SBA PPP loan fees increased $1.0 million) and higher investment securities income of $0.3 million, which reflected deployment of excess overnight funds into the investment portfolio. Compared to the second quarter of 2021, lower loan interest income from SBA PPP loans was offset by loan interest income from growth in non-SBA PPP loans. Compared to the third quarter of 2020, the increase was primarily attributable to higher SBA PPP loan fees of $2.5 million. For the first nine months of 2021, tax-equivalent net interest income totaled $78.4 million compared to $76.7 million for the same period of 2020. The increase generally reflected higher SBA PPP loan fees and lower interest expense, partially offset by lower rates earned on investment securities and variable/adjustable rate loans.
Our net interest margin for the third quarter of 2021 was 2.98%, an increase of nine basis points over the second quarter of 2021 and a decrease of 14 basis points from the third quarter of 2020. Compared to the second quarter of 2021, the increase was primarily driven by higher SBA PPP loan fees. Compared to the third quarter of 2020, the decrease was primarily attributable to growth in earning assets (driven by deposit inflows), which negatively impacts our margin percentage. For the first nine months of 2021, the net interest margin decreased 51 basis points to 2.91%, which is generally reflective of growth in earning assets. Our net interest margin for the third quarter of 2021, excluding the impact of overnight funds in excess of $200 million, was 3.50%.
Provision for Credit Loss
We did not record a provision for credit losses for the third quarter of 2021. This compares to a negative provision of $0.6 million for the second quarter of 2021 and a provision expense of $1.3 million for the third quarter of 2020. For the first nine months of 2021, we recorded a negative provision of $1.6 million compared to provision expense of $8.3 million for the same period of 2020. The negative provision for the first nine months of 2021 generally reflected improving economic conditions, favorable loan migration and strong net loan recoveries totaling $0.7 million. We discuss the allowance for credit losses further below.
Noninterest Income and Noninterest Expense
Noninterest income for the third quarter of 2021 totaled $26.6 million compared to $26.5 million for the second quarter of 2021 and $35.0 million for the third quarter of 2020. The slight increase over the second quarter of 2021 was primarily due to higher deposit fees of $0.8 million and wealth management fees of $0.3 million, partially offset by lower mortgage banking revenues of $0.9 million. The $8.4 million decrease from the third quarter of 2020 was primarily attributable to lower mortgage banking revenues at CCHL of $10.7 million, partially offset by higher deposit fees of $0.8 million, wealth management fees of $0.8 million, and bank card fees of $0.4 million. The decline in mortgage banking revenues was driven by lower production volume (primarily re-finance activity) and a lower gain on sale margin (additional information on CCHL is provided on Page 11). The increase in deposit fees reflected the conversion of the remaining free checking accounts to a monthly maintenance fee account type. The increase in wealth management fees was attributable to higher retail brokerage transaction volume and advisory accounts added from the acquisition of Capital City Strategic Wealth on May 1, 2021. The increase in bank card fees generally reflected an increase in card-not-present debit card transactions as well increased consumer spending. For the first nine months of 2021, noninterest income totaled $82.9 million compared to $80.6 million for the same period of 2020 with the increase driven by higher wealth management fees of $2.0 million, bank card fees of $1.8 million, deposit fees of $0.5 million, and other income of $0.9 million (primarily loan servicing income at CCHL), partially offset by lower mortgage banking revenues of $3.0 million. These variances were generally due to the same aforementioned factors noted in the year over year quarterly comparison.
Noninterest expense for the third quarter of 2021 totaled $39.7 million compared to $42.1 million for the second quarter of 2021 and $40.3 million for the third quarter of 2020. The $2.4 million decrease from the second quarter of 2021 reflected a pension settlement charge of $2.0 million in the second quarter of 2021 versus $0.5 million in the third quarter of 2021. In addition, OREO expense declined by $0.9 million due to a gain on the sale of a banking office in the third quarter of 2021. Compared to the third quarter of 2020, the $0.6 million decrease was primarily attributable to lower compensation expense of $0.9 million (primarily incentive compensation at CCHL) and OREO expense of $1.3 million partially offset by higher other expense of $1.0 million and a pension settlement charge of $0.5 million. For the first nine months of 2021, noninterest expense totaled $122.3 million compared to $108.6 million for the same period of 2020. The $13.7 million increase was attributable to the addition of expenses at CCHL of $6.7 million as well as higher expenses at the core bank totaling $7.0 million. The increase in expenses at the core bank were primarily due to higher compensation expense of $1.5 million (primarily merit raises), processing fees of $0.6 million (debit card volume), professional fees of $0.5 million, occupancy expense of $0.4 million, and FDIC insurance of $0.4 million (higher asset size), partially offset by lower OREO expense of $1.1 million (gains from the sale of two banking offices). In addition, we have realized pension settlement charges totaling $2.5 million so far in 2021 and other expense increased $1.5 million, which reflected higher expense for our base pension plan attributable to the utilization of a lower discount rate for plan liabilities. We anticipate additional settlement expense in the fourth quarter of 2021.
Income Taxes
We realized income tax expense of $2.9 million (effective rate of 20%) for the third quarter of 2021 compared to $2.1 million (effective rate of 19%) for the second quarter of 2021 and $3.2 million (effective rate of 17%) for the third quarter of 2020. For the first nine months of 2021, we realized income tax expense of $7.8 million (effective rate of 19%) compared to $7.4 million (effective rate of 19%) 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 $3.693 billion for the third quarter of 2021, an increase of $69.2 million, or 1.9%, over the second quarter of 2021, and an increase of $355.7 million, or 10.7%, over the fourth quarter of 2020. The increase over both prior periods was primarily driven by higher deposit balances, which funded growth in the investment portfolio. 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 $741.9 million in the third quarter of 2021 compared to an average net overnight funds sold position of $818.6 million in the second quarter of 2021 and $705.1 million in the fourth quarter of 2020. The decrease compared to the second quarter of 2021 was primarily due to growth in the investment portfolio. The increase compared to the fourth quarter 2020 was driven by strong core deposit growth, in addition to pandemic related stimulus programs (see below – Funding).
Average loans held for investment (“HFI”) decreased $62.6 million, or 3.1%, from the second quarter of 2021 and $19.3 million, or 1.0%, from the fourth quarter of 2020. Over these same prior periods, average loans (excluding SBA PPP loans) increased $34.9 million and $125.2 million and period end loans increased $5.1 million and $102.8 million, respectively. Compared to the second quarter of 2021, the increase in period end loans reflected growth in construction and indirect loans, partially offset by a decline in commercial real estate. Compared to the fourth quarter of 2020, we realized growth in construction, residential, commercial real estate and indirect loans. At September 30, 2021, SBA PPP loan balances totaled $7.5 million and remaining deferred SBA PPP net loan fees totaled $0.3 million. SBA PPP loan forgiveness applications are expected to be completed in the fourth quarter 2021.
Allowance for Credit Losses
At September 30, 2021, the allowance for credit losses for HFI loans totaled $21.5 million compared to $22.2 million at June 30, 2021 and $23.8 million at December 31, 2020. Activity within the allowance is provided on Page 9. At September 30, 2021, the allowance represented 1.11% of HFI loans and provided coverage of 710% of nonperforming loans compared to 1.10% and 434%, respectively, at June 30, 2021, and 1.19% and 406%, respectively, at December 31, 2020. At September 30, 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
Nonperforming assets (nonaccrual loans and OREO) totaled $3.2 million at September 30, 2021 compared to $6.3 million at June 30, 2021 and $6.7 million at December 31, 2020. Nonaccrual loans totaled $3.0 million at September 30, 2021, a $2.1 million decrease from June 30, 2021 and a $2.8 million decrease from December 31, 2020. The balance of OREO totaled $0.2 million at September 30, 2021, a $1.0 million decrease from June 30, 2021 and $0.6 million decrease from December 31, 2020.
Funding (Deposits/Debt)
Average total deposits were $3.448 billion for the third quarter of 2021, an increase of $60.3 million, or 1.8%, over the second quarter of 2021 and $381.6 million, or 12.4%, 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 third quarter 2021 decreased slightly compared to the second quarter of 2021, but increased compared to the fourth quarter of 2020. 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 and 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 $1.4 million over the second quarter of 2021 and declined $45.5 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 $348.9 million at September 30, 2021 compared to $335.9 million at June 30, 2021 and $320.8 million at December 31, 2020. For the first nine months of 2021, shareowners’ equity was positively impacted by net income of $27.0 million, a $1.0 million increase in fair value of the interest rate swap related to subordinated debt, net adjustments totaling $2.2 million related to transactions under our stock compensation plans, and reclassification of $7.8 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 $7.8 million ($0.46 per share), a $3.2 million decrease in the unrealized gain on investment securities, and stock compensation of $0.5 million.
At September 30, 2021, our total risk-based capital ratio was 16.70% compared to 16.48% at June 30, 2021 and 17.30% at December 31, 2020. Our common equity tier 1 capital ratio was 13.45%, 13.14%, and 13.71%, respectively, on these dates. Our leverage ratio was 9.05%, 8.84%, 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 6.46% at September 30, 2021 compared to 6.19% and 6.25% at June 30, 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, 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.
