UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
 
D.C.
 
20549
FORM
10-Q
☒
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, 2021
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
Capital City Bank Group, Inc.
(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 every Interactive Data File required to be submitted 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
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
☒
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 29,October 28, 2021,
16,851,87816,878,303
 
shares of the Registrant's Common Stock, $.01 par value, were outstanding.
2
CAPITAL CITY BANK
 
GROUP,
 
INC.
QUARTERLY
 
REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31,SEPTEMBER 30, 2021
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – March 31,September 30, 2021 and December 31, 2020
4
Consolidated Statements of Income – Three and Nine Months Ended March 31,September 30, 2021 and 2020
5
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended March 31,September 30, 2021 and 2020
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended March 31,September 30, 2021 and 2020
7
Consolidated Statements of Cash Flows – ThreeNine Months Ended March 31,September 30, 2021 and 2020
8
Notes to Consolidated Financial Statements
9
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
29
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
4544
 
 
Item 4.
Controls and Procedures
4544
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
4544
 
 
Item 1A.
Risk Factors
4544
 
 
 
 
Item 3.
Defaults Upon
Senior Securities
4544
Item 4.
Mine Safety Disclosure
4544
Item 5.
Other Information
45
 
 
Item 6.
Exhibits
46
 
 
Signatures
 
47
3
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,”
 
“would,” “believe,” “anticipate,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
 
achieve our financial objectives could
 
could be adversely affected by
 
by the factors discussed in detail
 
in detail in Part
I, Item 2.
“Management’s “Management’s
Discussion and Analysis
 
Analysis of Financial Condition
 
Condition and
Results of Operations”
 
and Part II, Item
 
Item 1A. “Risk
Factors” in this
 
this Quarterly Report on
Form 10-Q and the
 
the following sections
of our Annual
 
Annual Report on Form
 
10-K for the year
 
year ended December
31, 2020
 
(the “2020 Form 10
 
-K”10-K”):
(a) “Introductory Note”
 
Note” in
Part I,
 
Item 1. “Business”;
 
“Business”; (b) “Risk
“Risk Factors”
 
in Part I,
 
I, Item
1A, as
 
updated in our
 
our subsequent
quarterly reports
filed on Form 10-Q; and (c) “Introduction”
 
“Introduction” in “Management’s
Discussion and
Analysis of Financial Condition
and Results
of Operations,” in
Part II, Item 7, as well as:
●
the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global and local economies
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;
●
potential attrition due to the recent
U.S. presidential directive to OSHA that requires employers with 100 or more employees to ensure
that their employees are fully vaccinated against COVID-19 or are tested weekly;
●
our ability to successfully manage credit risk, 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 loanallowance for credit losses,
loss reserve, deferred tax
asset valuation and pension plan;
●
changes in accounting principles, policies, practices or guidelines;
●
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;
●
structural changes in the markets for origination, sale and servicing of residential mortgages;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing
rights related to
these loans and related interest rate risk or price risk resulting from retaining mortgage servicing
rights and the potential effects of
higher interest rates on our loan origination volumes;
●
the effect of corporate restructuring, acquisitions or dispositions, including the actual
restructuring and other related charges
and the
failure to achieve the expected gains, revenue growth or expense savings from such corporate restructuring,
acquisitions or dispositions;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies,
 
health emergencies, military conflict,
terrorism, civil unrest or other geopolitical events;
●
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(Unaudited)
March 31,September 30,
December 31,
(Dollars in Thousands)Thousands, Except Par Value)
2021
 
2020
ASSETS
 
 
Cash and Due From Banks
$
73,97373,132
$
67,919
Funds Sold
 
851,910708,988
 
860,630
Total Cash and Cash
Equivalents
 
925,883782,120
 
928,549
 
 
Investment Securities, Available
 
for Sale, at fair value
 
406,245645,844
 
324,870
Investment Securities, Held to Maturity (fair value of $
204,158344,285
 
and $
175,175
)
 
199,109341,228
 
169,939
Total Investment
 
Securities
 
605,354987,072
 
494,809
 
Loans Held For Sale, at fair value
82,08177,036
 
114,039
 
Loans Held for Investment
2,057,7271,941,425
 
2,006,426
Allowance for Credit Losses
 
(22,026)(21,500)
 
(23,816)
Loans Held for Investment, Net
 
2,035,7011,919,925
 
1,982,610
 
 
Premises and Equipment, Net
 
86,37084,750
 
86,791
Goodwill and Other Intangibles
 
89,09593,293
 
89,095
Other Real Estate Owned
110192
808
Other Assets
 
105,290104,345
 
101,370
Total Assets
$
3,929,8844,048,733
$
3,798,071
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,473,8911,592,345
$
1,328,809
Interest Bearing Deposits
 
1,884,2171,873,617
 
1,888,751
Total Deposits
 
3,358,1083,465,962
 
3,217,560
 
 
Short-Term
 
Borrowings
 
55,68751,410
 
79,654
Subordinated Notes Payable
 
52,887
 
52,887
Other Long-Term
 
Borrowings
 
1,8291,610
 
3,057
Other Liabilities
 
109,487113,720
 
102,076
Total Liabilities
 
3,577,9983,685,589
 
3,455,234
Temporary Equity
27,46014,276
22,000
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
0
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,851,87816,878,303
 
and
16,790,573
 
shares issued and outstanding at March 31,September 30, 2021 and December
31, 2020, respectively
169
168
Additional Paid-In Capital
 
32,80433,876
 
32,283
Retained Earnings
 
335,324359,550
 
332,528
Accumulated Other Comprehensive Loss, net of tax
 
(43,871)(44,727)
 
(44,142)
Total Shareowners’
 
Equity
 
324,426348,868
 
320,837
Total Liabilities, Temporary
 
Equity, and Shareowners' Equity
$
3,929,8844,048,733
$
3,798,071
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended March 31,
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands, Except Per Share
 
Data)
2021
2020
2021
2020
INTEREST INCOME
Loans, including Fees
$
23,35025,885
$
23,59323,594
$
73,817
$
70,874
Investment Securities:
Taxable Securities
1,8632,332
2,9962,400
6,231
8,105
Tax Exempt Securities
2018
1926
56
73
Funds Sold
213285
757146
698
991
Total Interest Income
25,44628,520
27,36526,166
80,802
80,043
INTEREST EXPENSE
Deposits
208210
939190
626
1,347
Short-Term
 
Borrowings
412317
132498
1,053
1,051
Subordinated Notes Payable
307
471316
922
1,161
Other Long-Term
 
Borrowings
2114
5040
51
131
Total Interest Expense
948848
1,5921,044
2,652
3,690
NET INTEREST INCOME
24,49827,672
25,77325,122
78,150
76,353
Provision for Credit Losses
(982)0
4,9901,308
(1,553)
8,303
Net Interest Income After Provision For Credit Losses
25,48027,672
20,78323,814
79,703
68,050
NONINTEREST INCOME
Deposit Fees
4,2715,075
5,0154,316
13,582
13,087
Bank Card Fees
3,6183,786
3,0513,389
11,402
9,582
Wealth Management
 
Fees
3,0903,623
2,6042,808
9,987
7,966
Mortgage Banking Revenues
17,12512,283
3,25322,983
42,625
45,633
Other
1,7221,807
1,5551,469
5,277
4,374
Total Noninterest
 
Income
29,82626,574
15,47834,965
82,873
80,642
NONINTEREST EXPENSE
Compensation
26,06425,245
19,73626,164
76,687
69,558
Occupancy, Net
5,9676,032
4,9795,906
17,972
16,683
Other Real Estate Owned, Net
 
(118)(1,126)
(798)219
(1,514)
(463)
Pension Settlement
500
0
2,500
0
Other
8,5639,051
7,0528,053
26,656
22,836
Total Noninterest
 
Expense
40,47639,702
30,96940,342
122,301
108,614
INCOME BEFORE INCOME TAXES
14,83014,544
5,29218,437
40,275
40,078
Income Tax Expense
2,7872,949
1,2823,165
7,795
7,397
NET INCOME
12,04311,595
4,01015,272
32,480
32,681
Pre-Tax Income
 
Attributable to Noncontrolling Interests
(2,537)(1,504)
277(4,875)
(5,456)
(8,851)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
9,50610,091
$
4,28710,397
$
27,024
$
23,830
BASIC NET INCOME PER SHARE
$
0.560.60
$
0.250.62
$
1.60
$
1.42
DILUTED NET INCOME PER SHARE
$
0.560.60
$
0.250.62
$
1.60
$
1.42
Average Basic SharesCommon
 
Outstanding
16,838
16,808
Average Diluted
Basic Shares Outstanding
16,86216,875
16,84216,771
16,857
16,792
Average Common
Diluted Shares Outstanding
16,909
16,810
16,886
16,823
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
6
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
(Dollars in Thousands)
2021
2020
NET INCOME
$
9,506
$
4,287
Other comprehensive income, before
tax:
Investment Securities:
Change in net unrealized gain (loss) on securities available
for sale
(1,952)
3,547
Derivative:
Change in net unrealized gain on effective cash
flow derivative
2,125
0
Benefit Plans:
Reclassification adjustment for service cost
24
0
Actuarial gain
166
0
Total Benefit Plans
190
0
Other comprehensive income, before
tax
363
3,547
Deferred tax expense related to other comprehensive
income
92
899
Other comprehensive income, net of tax
271
2,648
TOTAL COMPREHENSIVE
INCOME
$
9,777
$
6,935
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share
Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income
-
0
0
9,506
0
9,506
Reclassification to Temporary
Equity
(1)
-
0
0
(4,182)
0
(4,182)
Other Comprehensive Income, net of tax
-
0
0
0
271
271
Cash Dividends ($
0.15
00 per share)
-
0
0
(2,528)
0
(2,528)
Stock Based Compensation
-
0
219
0
0
219
Stock Compensation Plan Transactions,
net
61,305
1
302
0
0
303
Balance, March 31, 2021
16,851,878
$
169
$
32,804
$
335,324
$
(43,871)
$
324,426
Balance, January 1, 2020
16,771,544
$
168
$
32,092
$
322,937
$
(28,181)
$
327,016
Adoption of ASC 326
-
0
0
(3,095)
0
(3,095)
Net Income
-
0
0
4,287
0
4,287
Other Comprehensive Income, net of tax
-
0
0
0
2,648
2,648
Cash Dividends ($
0.14
00 per share)
-
0
0
(2,357)
0
(2,357)
Repurchase of Common Stock
(33,074)
(1)
(707)
0
0
(708)
Stock Based Compensation
-
0
291
0
0
291
Stock Compensation Plan Transactio
ns, net
73,311
1
424
0
0
425
Balance, March 31, 2020
16,811,781
$
168
$
32,100
$
321,772
$
(25,533)
$
328,507
(1)
Adjustment to redemption value for
non-controlling interest
in Capital City Home Loans.
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
86
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWSCOMPREHENSIVE INCOME
 
(Unaudited)
Three Months Ended March 31,
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2021
2020
CASH FLOWS FROM OPERATING
ACTIVITIES2021
Net Income2020
NET INCOME
$
9,50610,091
$
4,28710,397
Adjustments to Reconcile Net Income to$
27,024
$
23,830
Other comprehensive income, before
 
Cash Provided by Operating Activities:tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
(1,935)
(763)
(4,361)
3,217
Derivative:
Change in net unrealized gain on effective cash flow
 
Provisionderivative
172
157
1,378
52
Benefit Plans:
Reclassification adjustment for Credit Losses
(982)
4,990
Depreciation
1,942
1,623
Amortization of Premiums, Discounts and Fees, net
2,428
1,643
Originations of Loans Held-for-Sale
(470,248)
(150,840)
Proceeds From Sales of Loans Held-for-Sale
519,331
80,781
Net Gain From Sales of Loans Held-for-Sale
(17,125)
(3,030)
Net Additions for Capitalized Mortgage Servicing Rights
119service cost
0
Change in Valuation
Provision for Mortgage Servicing Rights0
(250)24
0
Stock Compensation
219
291
Net Tax Benefit From
Stock-Based Compensation
(4)
(84)
Deferred Income Taxes
(378)
(511)
Net Change in Operating Leases
(41)
192
Net Gain on Sales and Write-Downs of
Other Real Estate Owned
(202)
(931)
Net Increase in Other Assets
(1,370)
(20,255)
Net Increase in Other Liabilities
7,935
26,646
Net Cash Provided By (Used In) Operating Activities
50,880
(55,198)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
(54,382)
(32,250)
Payments, Maturities, and Calls
24,629
19,370
Securities Available
for Sale:
Purchases
(133,628)
(26,795)
Payments, Maturities, and Calls
49,349
50,347
Purchases of Loans Held for Investment
(23,686)
(2,756)
Net Increase in Loans Held for Investment
(29,437)
(22,191)
Net Cash Paid for Brand AcquisitionActuarial gain
0
(2,405)0
Proceeds From Sales of Other Real Estate Owned
1,084
1,155
Purchases of Premises and Equipment
(1,592)
(4,773)
Noncontrolling Interest Contributions
1,259166
0
Net Cash Used In Investing Activities
(166,404)
(20,298)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits
140,548
(99,869)
Net (Decrease) Increase in Short-Term
Borrowings
(24,181)
70,018
Repayment of Other Long-Term
Borrowings
(1,014)
(524)
Dividends Paid
(2,528)
(2,357)
Payments to Repurchase Common StockDefined benefit plan settlement
0
(708)0
Issuance of Common Stock Under Purchase2,000
0
Total Benefit Plans
330
1250
Net Cash Provided By (Used In) Financing Activities2,190
112,8580
(33,315)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(2,666)
(108,811)
Cash and Cash Equivalents at Beginning of PeriodOther comprehensive (loss) income, before
 
tax
928,549(1,763)
378,423(606)
Cash and Cash Equivalents at End(793)
3,269
Deferred tax (benefit) expense related to other comprehensive income
(459)
(149)
(208)
801
Other comprehensive (loss) income, net of Periodtax
(1,304)
(457)
(585)
2,468
TOTAL COMPREHENSIVE
 
INCOME
$
925,8838,787
$
269,612
Supplemental Cash Flow Disclosures:
Interest Paid9,940
$
1,00926,439
$
1,562
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned
$
184
$
73426,298
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
9
CAPITAL CITY BANK
GROUP,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
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, 2020 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, 2020.
Accounting Standards Updates
ASU 2020-04, "Reference Rate Reform
(Topic
848).
ASU 2020-04 provides optional expedients and exceptions for applying
GAAP
to loan and lease agreements, derivative contracts, and
other transactions affected by the anticipated transition
away from LIBOR
toward new interest rate benchmarks. For transactions
that are modified because of reference rate reform and that meet certain
scope
guidance (i) modifications of loan agreements should
be accounted for by prospectively adjusting the effective
interest rate and the
modification will be considered "minor" so that any existing
unamortized origination fees/costs would carry forward and
continue to
be amortized and (ii) modifications of lease agreements
should be accounted for as a continuation of the existing
agreement with no
reassessments of the lease classification and the discount
rate or re-measurements of lease payments that otherwise would be required
for modifications not accounted for as separate
contracts. ASU 2020-04 also provides numerous optional expedients
for derivative
accounting.
ASU 2020-04 is effective March 12, 2020 through
December 31, 2022.
An entity may elect to apply ASU 2020-04 for
contract modifications as of January 1, 2020, or prospectively
from a date within an interim period that includes or is subsequent
to
March 12, 2020, up to the date that the financial statements
are available to be issued.
Once elected for a Topic
or an Industry
Subtopic within the Codification, the amendments in this
ASU must be applied prospectively for all eligible contract
modifications for
that Topic or Industry
Subtopic.
It is anticipated this ASU will simplify any modifications executed
between the selected start date
(yet to be determined) and December 31, 2022 that are
directly related to LIBOR transition by allowing prospective
recognition of the
continuation of the contract, rather than extinguishment of
the old contract resulting in writing off unamortized
fees/costs.
Further,
ASU 2021-01, “Reference Rate Reform
(Topic
848): Scope,”
clarifies that certain optional expedients and exceptions
in ASC 848 for
contract modifications and hedge accounting apply
to derivatives that are affected by the discounting
transition. ASU 2021-01 also
amends the expedients and exceptions in ASC 848 to
capture the incremental consequences of the scope clarification and
to tailor the
existing guidance to derivative instruments.
The Company is evaluating the impact of this ASU and has not
yet determined if this
ASU will have material effects on the Company’s
business operations and consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, July 1, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
Net Income
-
0
0
10,091
0
10,091
Reclassification to Temporary
Equity
(1)
-
0
0
6,585
0
6,585
Other Comprehensive Loss, net of tax
-
0
0
0
(1,304)
(1,304)
Cash Dividends ($
0.1600
per share)
-
0
0
(2,700)
0
(2,700)
Stock Based Compensation
-
0
219
0
0
219
Stock Compensation Plan Transactions, net
4,024
0
97
0
0
97
Balance, September 30, 2021
16,878,303
$
169
$
33,876
$
359,550
$
(44,727)
$
348,868
Balance, July 1, 2020
16,780,276
$
168
$
31,575
$
328,570
$
(25,256)
$
335,057
Net Income
-
0
0
10,397
0
10,397
Reclassification to Temporary
Equity
(1)
-
0
0
(3,075)
0
(3,075)
Other Comprehensive Loss, net of tax
-
0
0
0
(457)
(457)
Cash Dividends ($
0.1400
per share)
-
0
0
(2,347)
0
(2,347)
Repurchase of Common Stock
(23,000)
0
(472)
0
0
(472)
Stock Based Compensation
-
0
242
0
0
242
Stock Compensation Plan Transactions, net
4,188
0
80
0
0
80
Balance, September 30, 2020
16,761,464
$
168
$
31,425
$
333,545
$
(25,713)
$
339,425
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income
-
0
0
27,024
0
27,024
Reclassification to Temporary
Equity
(1)
-
0
0
7,756
0
7,756
Other Comprehensive Loss, net of tax
-
0
0
0
(585)
(585)
Cash Dividends ($
0.4600
per share)
-
0
0
(7,758)
0
(7,758)
Stock Based Compensation
-
0
657
0
0
657
Stock Compensation Plan Transactions, net
87,730
1
936
0
0
937
Balance, September 30, 2021
16,878,303
$
169
$
33,876
$
359,550
$
(44,727)
$
348,868
Balance, January 1, 2020
16,771,544
$
168
$
32,092
$
322,937
$
(28,181)
$
327,016
Adoption of ASC 326
-
0
0
(3,095)
0
(3,095)
Net Income
-
0
0
23,830
0
23,830
Reclassification to Temporary
Equity
(1)
-
0
0
(3,075)
0
(3,075)
Other Comprehensive Income, net of tax
-
0
0
0
2,468
2,468
Cash Dividends ($
0.4200
per share)
-
0
0
(7,052)
0
(7,052)
Repurchase of Common Stock
(99,952)
(1)
(2,042)
0
0
(2,043)
Stock Based Compensation
-
0
610
0
0
610
Stock Compensation Plan Transactions, net
89,872
1
765
0
0
766
Balance, September 30, 2020
16,761,464
$
168
$
31,425
$
333,545
$
(25,713)
$
339,425
(1)
Adjustment to redemption value for non-controlling
interest in Capital City Home Loans.
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
8
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
(Dollars in Thousands)
2021
2020
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income
$
27,024
$
23,830
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Credit Losses
(1,553)
8,303
Depreciation
5,666
5,174
Amortization of Premiums, Discounts and Fees, net
11,401
5,256
Amortization of Intangible Asset
80
0
Pension Plan Settlement Charges
2,500
0
Originations of Loans Held-for-Sale
(1,247,119)
(561,609)
Proceeds From Sales of Loans Held-for-Sale
1,326,747
500,190
Net Gain From Sales of Loans Held-for-Sale
(42,625)
(45,633)
Net Additions for Capitalized Mortgage Servicing Rights
138
0
Change in Valuation
Provision for Mortgage Servicing Rights
(250)
0
Stock Compensation
657
610
Net Tax Benefit From Stock-Based
Compensation
(4)
(84)
Deferred Income Taxes
(3,085)
(1,127)
Net Change in Operating Leases
(122)
811
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(1,640)
(876)
Net Decrease (Increase) in Other Assets
70
(23,482)
Net Increase in Other Liabilities
8,283
32,808
Net Cash Provided By (Used In) Operating Activities
86,168
(55,829)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
(235,356)
(32,250)
Payments, Maturities, and Calls
61,673
67,245
Securities Available for
Sale:
Purchases
(478,000)
(77,775)
Payments, Maturities, and Calls
148,968
153,702
Purchases of Loans Held for Investment
(92,336)
(29,538)
Net Decrease (Increase) in Loans Held for Investment
150,590
(134,416)
Net Cash Paid for Acquisitions
(4,482)
(2,405)
Proceeds From Sales of Other Real Estate Owned
3,892
2,558
Purchases of Premises and Equipment
(4,590)
(7,842)
Noncontrolling Interest Contributions
5,424
2,091
Net Cash Used In Investing Activities
(444,217)
(58,630)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
248,402
363,992
Net (Decrease) Increase in Short-Term
Borrowings
(28,458)
84,438
Repayment of Other Long-Term
Borrowings
(1,233)
(1,152)
Dividends Paid
(7,758)
(7,052)
Payments to Repurchase Common Stock
0
(2,043)
Issuance of Common Stock Under Purchase Plans
667
466
Net Cash Provided By Financing Activities
211,620
438,649
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(146,429)
324,190
Cash and Cash Equivalents at Beginning of Period
928,549
378,423
Cash and Cash Equivalents at End of Period
$
782,120
$
702,613
Supplemental Cash Flow Disclosures:
Interest Paid
$
2,679
$
3,673
Income Taxes Paid
$
12,759
$
6,991
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned
$
1,636
$
1,956
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
9
CAPITAL CITY BANK
GROUP,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
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,
2020 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, 2020.
Acquisition.
On
April 30, 2021
, a newly formed subsidiary of CCBG, Capital City Strategic Wealth,
LLC (“CCSW”) acquired
substantially all of the assets of Strategic Wealth
Group, LLC and certain related businesses (“SWG”), including
advisory, service,
and insurance carrier agreements, and the assignment of all related revenues
thereof.
Under the terms of the purchase agreement,
SWG principles became officers of CCSW and will continue
the operation of their five offices in South Georgia
offering wealth
management services and comprehensive risk management
and asset protection services for individuals and businesses.
CCBG paid
$
4.4
million in cash consideration and recorded goodwill of $
2.8
million and a customer relationship intangible asset of $
1.6
million.
Accounting Standards Updates
ASU 2020-04, "Reference Rate Reform (Topic
848).
ASU 2020-04 provides optional expedients and exceptions for applying GAAP
to loan and lease agreements, derivative contracts, and other transactions
affected by the anticipated transition away from LIBOR
toward new interest rate benchmarks. For transactions that
are modified because of reference rate reform and that meet certain scope
guidance (i) modifications of loan agreements should be accounted
for by prospectively adjusting the effective interest rate and
the
modification will be considered "minor" so that any existing unamortized
origination fees/costs would carry forward and continue to
be amortized and (ii) modifications of lease agreements should be accounted
for as a continuation of the existing agreement with no
reassessments of the lease classification and the discount rate or re-measurements
of lease payments
that otherwise would be required
for modifications not accounted for as separate contracts. ASU 2020
-04 also provides numerous optional expedients for derivative
accounting.
ASU 2020-04 is effective March 12, 2020 through December
31, 2022.
An entity may elect to apply ASU 2020-04 for
contract modifications as of January 1, 2020, or prospectively from a
date within an interim period that includes or is subsequent to
March 12, 2020, up to the date that the financial statements are available to
be issued.
Once elected for a Topic or
an Industry
Subtopic within the Codification, the amendments in this ASU must be applied
prospectively for all eligible contract modifications for
that Topic or Industry
Subtopic.
It is anticipated this ASU will simplify any modifications executed between the
selected start date
(yet to be determined) and December 31, 2022 that are directly related to
LIBOR transition by allowing prospective recognition of the
continuation of the contract, rather than extinguishment of the old contract
resulting in writing off unamortized fees/costs.
Further,
ASU 2021-01, “Reference Rate Reform (Topic
848): Scope,”
clarifies that certain optional expedients and exceptions in ASC 848 for
contract modifications and hedge accounting apply to derivatives that are
affected by the discounting transition. ASU 2021-01
also
amends the expedients and exceptions in ASC 848 to capture the incremental
consequences of the scope clarification and to tailor the
existing guidance to derivative instruments.
The Company is evaluating the impact of this ASU and has not yet determined
if this
ASU will have material effects on the Company’s
business operations and consolidated financial statements.
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related
market value of investment
securities available-for-sale and securities held
-to-maturityheld-to-maturity and the corresponding
amounts of gross unrealized
gains and losses.
March 31,September 30, 2021
December 31, 2020
Amortized
Unrealized
Unrealized
Market
Amortized
Unrealized
Unrealized
Market
(Dollars in Thousands)
Cost
Gains
Losses
Value
Cost
Gain
Losses
Value
Available for
 
Sale
U.S. Government Treasury
$
173,029164,806
$
55190
$
464849
$
173,116164,047
$
103,547
$
972
$
0
$
104,519
U.S. Government Agency
220,018249,649
2,0961,793
584970
221,530250,472
205,972
2,743
184
208,531
States and Political Subdivisions
4,24443,834
7369
9357
4,30843,546
3,543
89
0
3,632
Mortgage-Backed Securities
440(1)
5697,131
0240
496164
97,207
456
59
0
515
Corporate Debt Securities
84,331
13
567
83,777
0
0
0
0
Equity Securities
(1)(2)
6,795
0
0
6,795
7,673
0
0
7,673
Total
 
$
404,526646,546
$
2,7762,205
$
1,0572,907
$
406,245645,844
$
321,191
$
3,863
$
184
$
324,870
Held to Maturity
U.S. Government Treasury
$
0115,903
$
0
$
0348
$
0115,555
$
5,001
$
13
$
0
$
5,014
Mortgage-Backed Securities
199,109225,325
5,3583,941
309536
204,158228,730
164,938
5,223
0
170,161
Total
 
$
199,109341,228
$
5,3583,941
$
309884
$
204,158344,285
$
169,939
$
5,236
$
0
$
175,175
Total Investment
 
Securities
$
603,635987,774
$
8,1346,146
$
1,3663,791
$
610,403990,129
$
491,130
$
9,099
$
184
$
500,045
(1)
Comprised of residential mortgage-backed
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank
stock, recorded
 
at cost of $
2.0
 
million and $
4.8
 
million,
respectively,
 
at March 31,September 30, 2021 and includes
Federal Home Loan Bank and
Federal Reserve Bank stock recorded
 
at cost of
$
2.9
million and $
4.8
 
million, respectively,
 
at December 31, 2020.
Securities with an amortized cost of $
351.1312.3
 
million and $
308.2
 
million at March 31,September 30, 2021 and December 31, 2020, respectively,
were
were pledged to secure public deposits and for other purposes.
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
 
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 March 31,September 30, 2021,
the Company's investment securities had the following maturity
 
maturity distribution based on
contractual maturity.
 
Expected maturities may differ from contractual maturities because borrowers
 
because borrowers may have the right to call or
prepay obligations.
 
Mortgage-backed securities and certain amortizing U.S. government
 
agency securities are shown separately
because they are not due at a certain maturity date.
Available for
 
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Market Value
Amortized Cost
Market Value
Due in one year or less
$
77,46439,614
 
$
77,74139,423
 
$
0
 
$
0
Due after one year through five years
 
138,352264,747
 
 
137,981263,661
 
 
0115,903
 
 
0115,555
Due after five year through ten years
 
98966,347
 
 
98965,614
 
 
0
 
 
0
Mortgage-Backed Securities
44097,131
49697,207
199,109225,325
204,158228,730
U.S. Government Agency
 
180,486171,912
 
 
182,243173,144
 
 
0
 
 
0
Equity Securities
 
6,795
 
 
6,795
 
 
0
 
 
0
Total
 
$
404,526646,546
 
$
406,245645,844
 
$
199,109341,228
 
$
204,158344,285
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
Unrealized Losses on Investment Securities.
 
The following table summarizes the available for sale investment
securities with
unrealized losses aggregated by major security type
and length of time in a continuous
unrealized loss position:
 
Less Than
Greater Than
12 Months
12 Months
Total
Market
Unrealized
Market
Unrealized
Market
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
March 31,September 30, 2021
Available for
 
Sale
U.S. Government Treasury
$
65,577143,394
 
$
464849
 
$
0
 
$
0
 
$
65,577143,394
 
$
464849
U.S. Government Agency
63,630118,969
554859
4,77812,168
30111
68,408131,137
584970
States and Political Subdivisions
74427,355
 
9357
 
0
 
0
 
74427,355
 
9357
Total
Mortgage-Backed Securities
129,95140,012
 
1,027
4,778
30
134,729
1,057
Held to Maturity
Mortgage-Backed Securities
20,550
309164
 
0
 
0
 
20,55040,012
 
309164
Corporate Debt Securities
57,304
567
0
0
57,304
567
Total
387,034
2,796
12,168
111
399,202
2,907
Held to Maturity
U.S. Government Treasury
115,555
348
0
0
115,555
348
Mortgage-Backed Securities
93,023
536
0
0
93,023
536
Total
 
$
20,550208,578
 
$
309884
 
$
0
 
$
0
 
$
20,550208,578
 
$
309884
December 31, 2020
Available for
 
Sale
 
U.S. Government Agency
$
28,266
$
156
$
4,670
$
28
$
32,936
$
184
Total
 
$
28,266
 
$
156
 
$
4,670
 
$
28
 
$
32,936
 
$
184
At March 31,September 30, 2021, there were
89288
 
positions (combined AFS Available-for-Sale
and HTM)Held-to-Maturity) with unrealized losses totaling
$
1.43.8
 
million.
87206
 
of these positions
were U.S. government agency securities issued by U.S. government
 
sponsored entities.
 
The remainingMunicipal
2securities totaled
29
 
were municipal securities.positions.
 
Because theThe declines in the market value of these securities
were attributable to changes in interest rates and
not credit quality.
 
credit quality, andThe remaining
because the Company had the ability and intent to hold53
 
these investments until there is a recoverypositions were corporate debt securities.
A majority of the decline in fairthe market value which mayof these
securities were attributable to changes in interest rates.
 
be at
maturity, the
Company did
0
t record anyThese investment securities had allowance for credit losses on any investmenttotaling $
16,000
 
securities at March 31,
September 30, 2021.
 
Additionally,
0
neNone of the securities held by the Company were past due or
in nonaccrual status at March 31,
September 30, 2021.
 
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
 
securities through various risk management procedures, including
the
monitoring of credit ratings.
 
A majority of the debt securities in the Company’s
 
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly
or implicitly guaranteed
by the U.S. government.
 
The Company believes the
long history of no credit losses on these securities indicates that the expectation
 
the expectation of nonpayment of the amortized cost basis is zero,
even if the U.S. government were to technically
default.
 
Further, certain municipal securities held by the Company
 
the Company have been pre-
refunded and secured by government guaranteed treasuries.
 
Therefore, for the aforementioned securities, the Company
does not
assess or record expected credit losses due to the zero
loss assumption.
 
The Company monitors the credit quality of its municipal
securities portfolio via credit ratings which are updated
on a quarterly
basis.
 
On a quarterly basis, municipal securities in an
unrealized loss position are evaluated to determine if
the loss is attributable to
credit related factors and if an allowance
for credit loss
is needed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
 
FOR CREDIT LOSSES
Loan Portfolio Composition
.
 
The composition of the held for investment (“HFI”) loan
portfolio was as follows:
(Dollars in Thousands)
March 31,September 30, 2021
 
December 31, 2020
Commercial, Financial and Agricultural
$
413,819218,929
 
$
393,930
Real Estate – Construction
 
138,104177,443
 
 
135,831
Real Estate – Commercial Mortgage
 
669,158683,379
 
 
648,393
Real Estate – Residential
(1)
 
365,931362,750
 
 
352,543
Real Estate – Home Equity
 
202,099187,642
 
 
205,479
Consumer
(2)
 
268,616311,282
 
 
270,250
Loans HFI, Net of Unearned Income
$
2,057,7271,941,425
 
$
2,006,426
(1)
Includes loans in process with outstanding balances
 
balances of $
8.37.1
 
million and $
10.9
 
million at March 31,September 30, 2021 and December 31,
2020,
 
31, 2020,
respectively.
(2)
Includes overdraft balances of $
0.91.3
 
million and $
0.7
 
million at March 31,September 30, 2021 and December 31,
2020, respectively.
 
Net deferred fees,loan costs, which include premiums on purchased loans,
 
loans, included in loans were $
1.63.7
 
million at March 31,September 30, 2021 and
net deferred loan fees were $
0.1
million at December 31, 2020.
Accrued interest receivable on loans which is excluded from amortized
 
from amortized cost totaled $
7.25.6
 
million at March 31,September 30, 2021 and $
6.9
million at
December 31, 2020, and is reported separately in Other
Assets.
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 of
Atlanta 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.
Loan PurchasesPurchase and Sales
.
 
The Company will periodically purchase newly originated 1-4 family real
 
family real estate secured adjustable rate
loans from
Capital City Home Loans (“CCHL”), a related party.
 
LoanResidential loan purchases from CCHL totaled $
22.272.7
 
million for the three
nine month period ended March
31,September 30, 2021, and were not credit impaired.
In addition, during the second quarter of 2021, the
Company acquired a pool of
10
individual commercial real estate loans from a third party bank that totaled $
17.4
million and were not
credit impaired.
The Company transferred $
9.4
million of home equity loans from HFI to HFS in the second quarter of 2021.
 
Allowance for Credit Losses
.
 
The allowance for credit losses is calculated in accordance
with the current expected
credit loss model,
ASC 326 (“CECL”),
which was adopted on January 1, 2020.
 
The allowance has two basic components: first, an asset-specific
component involving loans that do not share risk characteristics
and the measurement
of expected credit losses for
such individual
loans; and second, a pooled component for expected credit
losses for pools of
loans that share similar risk characteristics.
 
This
allowance methodology is discussed further in Note 1
– Business and
Basis of Presentation/Significant Accounting
Policies in the
Company’s 2020 Form
10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
The following table details the activity in the allowance
for credit losses by
portfolio segment.
 
Allocation of a portion of the
allowance to one category of loans does not preclude
its availability to
absorb losses in other categories.
 
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months
Ended
March September 30, 2021
Beginning Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,175
Provision for Credit Losses
178
517
(1,588)
(433)
(131)
911
(546)
Charge-Offs
(37)
0
(405)
(17)
(15)
(1,314)
(1,788)
Recoveries
66
10
169
401
46
967
1,659
Net (Charge-Offs) Recoveries
29
10
(236)
384
31
(347)
(129)
Ending Balance
$
2,179
$
3,286
$
5,745
$
4,304
$
2,357
$
3,629
$
21,500
Nine Months Ended
September 30, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(314)(192)
(225)797
(718)(1,719)
(305)(1,768)
(655)(900)
(95)740
(2,312)(3,042)
Charge-Offs
(69)(138)
0
0(405)
(6)(88)
(5)(94)
(1,056)(3,040)
(1,136)(3,765)
Recoveries
136305
010
645840
75720
124240
6782,376
1,6584,491
Net (Charge-Offs) Recoveries
67167
010
645435
69632
119146
(378)(664)
522726
Ending Balance
$
1,9572,179
$
2,2543,286
$
6,9565,745
$
5,2044,304
$
2,5752,357
$
3,0803,629
$
22,02621,500
Three Months Ended
March 31,September 30, 2020
Beginning Balance
$
2,468
$
1,955
$
6,640
$
5,440
$
2,753
$
3,201
$
22,457
Provision for Credit Losses
(195)
161
616
(344)
196
831
1,265
Charge-Offs
(137)
0
(17)
(1)
(58)
(1,069)
(1,282)
Recoveries
74
0
30
35
41
517
697
Net Charge-Offs
(63)
0
13
34
(17)
(552)
(585)
Ending Balance
$
2,210
$
2,116
$
7,269
$
5,130
$
2,932
$
3,480
$
23,137
Nine Months Ended
September 30, 2020
Beginning Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
Impact of Adopting ASC 326
488
302
1,458
1,243
374
(596)
3,269
Provision for Credit Losses
406544
5671,444
7742,132
1,704745
101337
1,4382,668
4,9907,870
Charge-Offs
(362)(685)
0
(11)(28)
(110)(112)
(31)(141)
(1,566)(3,810)
(2,080)(4,776)
Recoveries
40188
0
191291
40126
33138
6952,126
9992,869
Net Charge-Offs
(322)(497)
0
180263
(70)14
2(3)
(871)(1,684)
(1,081)(1,907)
Ending Balance
$
2,2472,210
$
1,2392,116
$
5,8287,269
$
6,0055,130
$
2,7012,932
$
3,0633,480
$
21,08323,137
For the first three monthsnine month period ended March 31,September 30, 2021, the allowance for
 
HFI loans decreased by $
1.82.3
 
million and reflected a negative
provision of $
2.33.0
million and net loan recoveries of $
0.50.7
 
million.
 
The negative provision was attributable togenerally reflected improving economic
conditions primarily
(primarily a lower rate of unemployment and its potential effect
 
on rates of default.default), favorable problem loan migration, and
strong net loan recoveries.
 
Three unemployment rate forecast scenarios were utilized to
estimate probability
of default and were
weighted based on management’s
 
on management’s estimate
of probability.
 
The mitigating impact of the
unprecedented fiscal stimulus including direct payments
to individuals, increased unemployment benefits, as well as various
various government sponsored loan programs, was also considered.
 
See Note 8 – Commitments and Contingencies for information
on the
the allowance for off-balance sheet credit commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
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 amortized cost
basis in accruing
past due loans by class of loans.
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
March 31,September 30, 2021
Commercial, Financial and Agricultural
$
55499
$
5836
$
0
$
113535
$
413,556218,353
$
15041
$
413,819218,929
Real Estate – Construction
 
5650
0
0
5650
137,360177,443
1790
138,104177,443
Real Estate – Commercial Mortgage
 
183364
0
0
183364
667,719683,015
1,2560
669,158683,379
Real Estate – Residential
 
289735
226177
0
515912
362,266359,861
3,1501,977
365,931362,750
Real Estate – Home Equity
 
35576
19
0
095
355186,581
201,282966
462
202,099187,642
Consumer
 
7121,196
179258
0
8911,454
267,560309,786
16542
268,616311,282
Total
$
2,1592,870
$
463490
$
0
$
2,6223,360
$
2,049,7431,935,039
$
5,3623,026
$
2,057,7271,941,425
December 31, 2020
Commercial, Financial and Agricultural
$
194
$
124
$
0
$
318
$
393,451
$
161
$
393,930
Real Estate – Construction
 
0
717
0
717
134,935
179
135,831
Real Estate – Commercial Mortgage
 
293
0
0
293
646,688
1,412
648,393
Real Estate – Residential
 
375
530
0
905
348,508
3,130
352,543
Real Estate – Home Equity
 
325
138
0
463
204,321
695
205,479
Consumer
 
1,556
342
0
1,898
268,058
294
270,250
Total
 
$
2,743
$
1,851
$
0
$
4,594
$
1,995,961
$
5,871
$
2,006,426
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
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
 
current or when future payments are reasonably assured.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
nonaccrual status and loans past due over 90 days and
still on accrual
by class of loans.
March 31,
September 30, 2021
December 31, 2020
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With
With No
90 + Days
With
With No
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
15041
$
0
$
0
$
161
$
0
$
0
Real Estate – Construction
 
1790
 
0
0
179
0
0
Real Estate – Commercial Mortgage
 
1990
 
1,0570
0
337
1,075
0
Real Estate – Residential
 
1,6411,061
 
1,509916
0
1,617
1,513
0
Real Estate – Home Equity
 
462503
 
0463
0
695
0
0
Consumer
 
16542
 
0
0
294
0
0
Total Nonaccrual
 
Loans
$
2,7961,647
$
2,5661,379
$
0
$
3,283
$
2,588
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
 
March 31,September 30, 2021
December 31, 2020
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
0
$
0
$
0
$
0
Real Estate – Commercial Mortgage
1,1130
0
3,900
0
Real Estate – Residential
2,5371,891
0
3,022
0
Real Estate – Home Equity
 
299665
 
0
 
219
 
0
Consumer
 
0
 
290
 
0
 
29
Total Collateral Dependent
 
Loans
$
3,9492,556
$
290
$
7,141
$
29
A loan is collateral dependent when the borrower is experiencing
 
financial difficulty and repayment of the loan
is dependent on
the
sale or operation of the underlying collateral.
 
The Bank’s collateral dependent
 
loan portfolio is comprised primarily of real estate secured loans, collateralized
 
collateralized by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined by
 
by either independent appraisals
or internal evaluations, adjusted for selling costs or other
amounts to be deducted
when estimating expected net sales proceeds.
 
Residential Real Estate Loans In Process
of Foreclosure
.
 
At March 31,September 30, 2021 and December 31, 2020, the Company
had $
1.21.4
million
and $
1.6
 
million, respectively, in 1-4
 
1-4 family residential real estate loans for which formal foreclosure proceedings were
 
proceedings were in
process.
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 credit
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.
At March 31,September 30, 2021, the Company had $
14.38.5
 
million in TDRs, of which $
13.67.9
 
million were
performing in accordance with the
modified terms.
 
At December 31, 2020 the Company had $
14.3
 
million in TDRs, of which $
13.9
million were performing in
accordance with modified terms.
 
For TDRs, the Company estimated $
0.70.3
 
million and $
0.6
 
million of
credit loss reserves at March 31,
September 30, 2021 and December 31, 2020, respectively.
The modifications made to TDRs involved either an
extension of the loan term, a principal moratorium,
a reduction in the interest
rate,
or a combination thereof.
 
For the three months ended March 31,September 30, 2021 and September 30, 2020, there
were
0
loans modified.
For the nine month period ended September 30, 2021, there were
23
 
loans modified with a recorded investment of
$
0.40.6
 
million.
 
For
the three monthsnine month period ended March 31,September 30, 2020, there waswere
13
 
loanloans modified with a recorded investment of $
0.2
 
million.
 
For the three and nine month period ended March 31,September 30, 2021, there
 
there were
0
loans classified as TDRs, for which there was a
payment default and the loans were modified within the 12 months
prior to default.
For the three and nine month period ended
September 30, 2020, there were
0
 
loans classified as TDRs, for which there was a payment default and the loans
 
and
the loans were modified
within the 12 months prior to default.
For the three month period ended March 31, 2020,
there were
2
loans totaling $
0.1
million that were classified as TDRs, for which there was a payment
default and the loans were modified within the
12 months prior to default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwritinunderwriting standards and
 
g
standards and loan review
procedures designed to maximize loan income within an acceptable
 
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,
 
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
 
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 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.
 
16
Commercial, Financial, and Agricultural – Loans in this category
 
this category are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or
 
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.
 
 
16
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 identifie
d
identified cash flows of the borrower
or project and generally
secured by the property being financed, including 1-4 family residential properties
 
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
 
completed project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy
 
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
 
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
 
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
 
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,
 
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
 
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
 
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 economic and market trends, among other
factors.
 
Risk ratings are assigned to each loan and revised as needed through established monitoring
 
established monitoring procedures for individual loan
relationships over a predetermined amount and review
of smaller balance homogenous
loan pools.
 
The Company uses the definitions
noted below for categorizing and managing its criticized
loans.
 
Loans categorized as “Pass” do not meet the criteria set forth
below
and are not considered criticized.
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
 
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
 
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.
Performing/Nonperforming – Loans within certain homogenous
loan pools (home equity and consumer) are not individually reviewed,
but are monitored for credit quality via the aging status of the loan and
by payment activity.
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
and deterioration in credit quality.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
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.
Performing/Nonperforming – Loans within certain
homogenous loan pools (home equity and consumer) are not
individually reviewed,
but are monitored for credit quality via the aging
status of the loan and by payment activity.
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
and deterioration in credit quality.
The following table summarizes gross loans held for
investment at March 31,September
30, 2021
by years of origination and internally
assigned
credit risk ratings (refer to Credit Risk Management section
for detail on risk rating
system).
 
Term
 
Loans by Origination Year
Revolving
(Dollars in Thousands)
2021
2020
2019
2018
2017
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
77,06651,866
$
188,68838,453
$
41,68134,226
$
32,67422,539
$
12,79210,376
$
21,62214,072
$
38,52846,969
$
413,051218,501
Special Mention
0
0
18970
39
4
5512
0
28749
0
131
Substandard
 
0
 
1210
 
0
 
285204
 
386
 
8877
 
580
 
481297
Total
$
77,06651,866
$
188,70038,463
$
41,87034,296
$
32,99822,755
$
12,83410,382
$
21,76514,198
$
38,58646,969
$
413,819218,929
Real Estate -
Construction:
Pass
$
13,78675,222
$
80,57772,664
$
29,22123,588
$
6,301429
$
1,570132
$
0
$
3,4515,408
$
134,906
Special Mention
643
0
2,376
0
0
0
0
3,019
Substandard
0
0
179
0
0
0
0
179177,443
Total
$
14,42975,222
$
80,57772,664
$
31,77623,588
$
6,301429
$
1,570132
$
0
$
3,4515,408
$
138,104177,443
Real Estate -
Commercial Mortgage:
Pass
$
35,435139,623
$
158,436142,833
$
100,14387,251
$
115,971103,059
$
69,84867,392
$
111,70797,842
$
24,32119,690
$
615,861657,690
Special Mention
0
4,161454
6,0401,552
14,2969,727
4,618431
13,1435,423
3970
42,65517,587
Substandard
 
1,6041,520
 
589585
 
3,597
87
1,829
2,9363,517
 
0
 
10,6421,266
990
224
8,102
Total
$
37,039141,143
$
163,186143,872
$
109,78092,320
$
130,354112,786
$
76,29569,089
$
127,786104,255
$
24,71819,914
$
669,158683,379
Real Estate - Residential:
Pass
$
42,559105,611
$
92,15272,091
$
58,62444,393
$
39,57529,792
$
37,00628,447
$
78,36066,748
$
6,2908,538
$
354,566355,620
Special Mention
0
139136
2320
124122
173169
535419
0
994866
Substandard
 
1331,290
 
1,402441
 
2,6531,051
 
1,603812
 
1,341221
 
3,2392,373
 
076
 
10,3716,264
Total
 
$
42,692106,901
$
93,69372,668
$
61,30045,464
$
41,30230,726
$
38,52028,837
$
82,13469,540
$
6,2908,614
$
365,931362,750
Real Estate - Home
Equity:
Performing
$
3999
$
6256
$
358452
$
238176
$
767749
$
2,2471,756
$
197,926183,388
$
201,637186,676
Nonperforming
 
0
 
0
 
0
 
0
 
0
 
033
 
462933
 
462966
Total
 
$
3999
$
6256
$
358452
$
238176
$
767749
$
2,2471,789
$
198,388184,321
$
202,099187,642
Consumer:
Performing
$
30,721136,780
$
97,42373,778
$
61,53245,252
$
44,12631,530
$
20,29213,377
$
9,5024,666
$
4,8555,857
$
268,451311,240
Nonperforming
0
550
6117
5
12
3224
0
1651
0
42
Total
$
30,721136,780
$
97,47873,778
$
61,59345,269
$
44,13131,554
$
20,30413,377
$
9,5344,667
$
4,8555,857
$
268,616311,282
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities at its subsidiary, Capital City Homes Loans (“CCHL”) include
 
CCHL, include mandatory delivery loan
sales, forward sales contracts
used to manage residential
loan pipeline price risk, utilization of
warehouse lines to fund secondary
market residential loan closings,
and residential mortgage
servicing.
 
For the first quarternine month period of 2020, information provided below reflects
CCHL activities
for the
period March 1, 2020 to March
31,September 30, 2020 and CCB legacy residential
real estate activities
for the period
January 1, 2020 to March
1, 2020.
 
All quarterly information subsequent to the quarter ended March 31,
2020 includes CCHL activity.
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and
 
and government-sponsored residential mortgage
loans.
 
Generally,
conforming fixed rate residential mortgage loans are held
for sale in the
secondary market and non-conforming and
adjustable-rate
residential mortgage loans may be held for investment.
 
The volume of residential mortgage loans originated for
sale and secondary
market prices are the primary drivers of origination revenue.
Residential mortgage loan commitments are generally outstanding for 30
 
for 30 to 90 days, which represents the typical period from
commitment
to originate a residential mortgage loan to
when the closed loan is sold to an investor.
 
Residential mortgage loan
commitments are subject to both credit and price risk.
 
Credit risk is managed through underwriting policies and
procedures, including
collateral requirements, which are generally accepted
by the secondary
loan markets.
 
Price risk is primarily related to interest rate
fluctuations and is partially managed through forward
sales of residential
mortgage-backed securities (primarily to-be announced
securities, or TBAs) or mandatory delivery commitments
with investors.
 
The unpaid principal balance of residential mortgage loans
held for sale,
notional amounts of derivative contracts
related to residential
mortgage loan commitments and forward contract sales and their related
 
their related fair values are set- forth below.
March 31,September 30, 2021
December 31, 2020
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
79,90374,491
$
82,08177,036
$
109,831
$
114,039
Residential Mortgage Loan Commitments ("IRLCs")
(1)
144,15587,062
2,9821,717
147,494
4,825
Forward Sales Contracts
(2)
137,500102,500
1,356451
158,500
(907)
$
86,41979,204
$
117,957
(1)
Recorded in other assets at fair value
(2)
Recorded at fair value in other assets at March
31, 2021 and other liabilities at fair value
at September 30, 2021 and December 31, 2020, respectively
The Company had
0
Residential
residential mortgage loans held for sale that were
90 days or more outstanding or on nonaccrual totaled $
0.4
 
million at March 31,September
30, 2021 and had $
0.6
 
million at December 31, 2020.
 
Mortgage banking revenue was as follows:
Three Months Ended March 31,
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Net realized gains on sales of mortgage loans
$
14,42412,132
$
3,40721,423
$
40,089
$
39,410
Net change
in unrealized gain on mortgage loans held
for sale
(2,031)(165)
7381,499
(1,663)
3,329
Net change in the fair value of mortgage loan commitments
(IRLCs)
(1,843)(806)
1,655691
(3,108)
3,833
Net change in the fair value of forward sales contracts
2,263540
(1,394)560
1,358
791
Pair-Offs on net settlement of forward
sales contracts
3,310(636)
(1,376)(3,049)
2,199
(7,445)
Mortgage servicing rights additions
187205
0763
845
2,813
Net origination fees
8151,013
2231,096
2,905
2,902
Total mortgage banking
 
banking revenues
$
17,12512,283
$
3,25322,983
$
42,625
$
45,633
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
 
mortgage loans sold.
 
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage
servicing rights.
 
(Dollars in Thousands)
March 31,September 30, 2021
December 31, 2020
Number of residential mortgage loans serviced for others
1,8002,028
1,796
Outstanding principal balance of residential mortgage loans serviced
 
loans serviced for others
$
454,382505,321
$
456,135
Weighted average
 
interest rate
3.62%
3.64%
Remaining contractual term (in months)
320316
321
Conforming conventional loans serviced by the Company
are sold to FNMA on
a non-recourse basis, whereby foreclosure
losses are
generally the responsibility of FNMA and not the Company.
 
The government loans serviced by the Company are
secured through
GNMA, whereby the Company is insured against loss by
the Federal Housing
Administration or partially guaranteed against loss by
the Veterans
 
Administration.
 
At March 31,September 30, 2021, the servicing portfolio balance consisted of
 
consisted of the following loan types: FNMA
(
6360
%),
GNMA (
119
%), and private investor (
2631
%).
 
FNMA and private investor loans are structured as actual/actual payment
payment remittance.
 
The Company had $
2.93.0
 
million and $
4.9
 
million in delinquent residential mortgage loans currently
in GNMA pools
serviced by the
Company at March 31,September 30, 2021 and December 31, 2020,
respectively.
 
The right to repurchase these loans and the corresponding
liability
liability has been recorded in other assets and other liabilities, respectively,
 
in the Consolidated Statements of Financial Condition.
 
For the
three monthsmonth period ended March 31,September 30, 2021, the Company
 
did
0
t repurchase any delinquent residential loans currently in
GNMA pools.
For the nine month period ended September 30, 2021, the Company repurchased
$
1.52.2
 
million of GNMA delinquent or
defaulted mortgage loans with
the intention to modify their terms and include the
 
the loans in new GNMA pools.
 
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended March 31,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Beginning balance
$
3,710
$
2,862
$
3,452
$
910
Additions due to loans sold with servicing retained
187205
25763
845
2,813
Deletions and amortization
(306)(351)
(25)(277)
(983)
(375)
Valuation
 
allowance reversal
0
0
250
0
Ending balance
$
3,5833,564
$
9103,348
$
3,564
$
3,348
The Company did
0
t record any permanent impairment losses on mortgage servicing
rights for the
three or nine month periods ended March
31,September 30, 2021 and March 31,September 30, 2020.
 
The key unobservable inputs used in determining the
fair value of the Company’s mortgage
 
mortgage servicing rights were as follows:
March 31,September 30, 2021
December 31, 2020
Minimum
Maximum
Minimum
Maximum
Discount rates
11.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
9.60%13.53%
24.96%23.82%
13.08%
23.64%
Cost of servicing (per loan)
$
90
$
110
$
90
$
110
Changes in residential mortgage interest rates directly affect
 
affect the prepayment speeds used in valuing the Company’s
 
mortgage
servicing rights.
 
A separate third party model is used to estimate prepayment speeds
based on interest rates, housing
turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant
factors.
 
The weighted average
annual prepayment speed was
14.1617.34
% at March 31,September 30, 2021 and
17.10
% at December 31, 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
Warehouse
 
Line Borrowings
The Company has the following warehouse lines of
credit and master repurchase
agreements with various financial institutions
at
March 31,September 30, 2021.
 
Amounts
(Dollars in Thousands)
Outstanding
$
25
 
million warehouse line of credit agreement expiring
October 2021
.
 
Interest is at LIBOR plus
2.25%
, with a
floor rate of
3.50%
.
 
A cash pledge deposit of $
0.1
 
million is required by the lender.
$
7,788(1)
$
506,526
$
75
 
million master repurchase agreement without defined expiration.
 
Interest is at the LIBOR plus
2.24%
 
to
3.00%
, with a floor rate of
3.25%
.
 
A cash pledge deposit of $
0.5
 
million is required by the lender.
27,62221,942
$
50
 
million warehouse line of credit agreement expiring in
September 2021
.
 
Interest is at the LIBOR plus
2.75%
, with a floor rate of
3.25%
.
13,403
(2)
19,376
Total Warehouse
 
Borrowings
$
48,81347,844
(1)
The Company does not intend to renew when the warehouse line expires.
(2)
In October 2021, the warehouse line was renewed through November 30,
2021.
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At March 31,September 30, 2021, the Company had mortgage loans held for
for sale pledged as collateral under the above warehouse lines
of credit and
master repurchase agreements.
 
The above agreements also
contain covenants which include certain financial requirements, including maintenance
 
including maintenance of minimum tangible net worth,
minimum
liquid assets, maximum debt to net worth ratio and positive net income,
 
net income, as defined in the agreements.
 
The Company was in
compliance with all significant debt covenants at March
 
31,at September 30, 2021.
 
The Company intends to renew the warehouse lines of
credit and master repurchase agreements when they mature
.
The Company has extended a $
50
 
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
 
Balances and
transactions under this line of credit are eliminated
in the Company’s consolidated
 
consolidated financial statements and thus not included in the
total short term borrowings noted on the consolidatedConsolidated Statement of
 
statement of financial condition.Financial Condition.
 
The balance of this line of credit at March 31,
September 30, 2021 was $
29.727.0
 
million.
NOTE 5 – DERIVATIVES
 
The Company enters into derivative financial instruments to manage exposures
 
exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash
amounts, the value of
which are determined by interest rates.
 
The Company’s
derivative financial instruments are used to manage differences in
 
in the amount, timing, and duration of the Company’s
 
known or
expected cash receipts and its known or expected
cash payments principally
related to the Company’s subordinated
 
subordinated debt.
 
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling
$
30
 
million at March 31,September 30, 2021 were designed as a cash flow hedge
for subordinated
subordinated debt.
 
Under the swap arrangement, the Company will pay a fixed
interest rate of
2.50
% and receive a variable interest
rate based on
three-month LIBOR plus a weighted average margin
 
of
1.83
%.
For derivatives designated and that qualify as cash
flow hedges of interest rate
risk, the gain or loss on the
derivative is recorded in
accumulated other comprehensive income (“AOCI”) and subsequently
 
subsequently reclassified into interest expense in the
same period(s) during
which the hedged transaction affects earnings. Amounts reported
 
Amounts reported in accumulated other comprehensive income
related to derivatives
will be reclassified to interest expense as interest payments are
made on the Company’s
 
Company’s variable-rate subordinated debt.
 
debt.
The following table reflects the cash flow hedges included
in the consolidated
statements of financial condition
.
Notional
Fair
 
Balance Sheet
Weighted Average
(Dollars in Thousands)
 
Amount
Value
Location
 
Maturity (Years)
March 31,September 30, 2021
Interest rate swaps related to subordinated debt
$
30,000
$
2,6991,952
Other Assets
9.38.8
December 31, 2020
Interest rate swaps related to subordinated debt
$
30,000
$
574
Other Assets
9.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
The following table presents the net gains (losses) recorded
in AOCI and
the consolidated statements of income related
to the cash
flow derivative instruments (interest rate swaps related to subordinated
 
subordinated debt) for the three and nine month periodperiods ended MarchSeptember
31, 2021.30, 2021 and September 30, 2020.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
in AOCI
Category
from AOCI to Income
Three months ended March 31,September 30, 2021
$
1,587128
 
Interest Expense
$
(33)(41)
Three months ended September 30, 2020
129
Interest Expense
(28)
Nine months ended September 30, 2021
$
1,029
Interest Expense
$
(111)
Nine months ended September 30, 2020
21
Interest Expense
(31)
The Company estimates there will be approximately
$
0.10.2
 
million reclassified as an increase to interest expense within
the next 12
months.
The Company had a collateral liability of $
2.62.0
 
million and $
0.5
 
million at March 31,September 30, 2021 and December 31, 2020, respectively.
NOTE 6 – LEASES
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 statements of income.
The Company’s operating
 
leases primarily relate to banking offices with remaining lease terms
 
lease terms from
1
 
to
4544
 
years.
 
The Company’s
leases are not complex and do not contain residual value guarantees, variable
 
guarantees, variable lease payments, or significant assumptions
or judgments
made in applying the requirements of Topic
 
842.
 
Operating leases with an initial term of 12 months or less are not recorded on the
balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.
 
At March 31,September 30, 2021, the operating
operating lease ROU assets and liabilities were $
11.811.9
 
million and $
12.612.5
 
million, respectively.
 
The Company does not have any
finance leases or
any significant lessor agreements.
The table below summarizes our lease expense and other information related
 
information related to the Company’s
operating leases.
Three Months Ended
March 31,Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Operating lease expense
$
344369
$
156273
$
1,075
$
695
Short-term lease expense
140181
79145
490
378
Total
lease expense
$
484550
$
235418
$
1,565
$
1,073
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
385410
$
160271
$
1,197
$
695
Right-of-use assets obtained in exchange for new operating lease liabilities
75269
5,09285
784
5,206
Weighted average
 
remaining lease term — operating leases (in years)
25.525.0
15.4
25.0
15.4
Weighted average
 
discount rate — operating leases
2.1%2.0%
2.4%2.3%
2.0%
2.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
The table below summarizes the maturity of remaining
lease liabilities:
(Dollars in Thousands)
March 31,September 30, 2021
2021
$
1,158413
2022
1,3891,499
2023
9951,129
2024
9451,088
2025
771911
2026 and thereafter
11,13211,199
Total
$
16,39016,239
Less: Interest
(3,837)(3,720)
Present Value
 
of Lease liability
$
12,55312,519
At March 31,September 30, 2021, the Company had additional operating lease payments
 
lease payments for
2
 
banking offices that have not yet commenced
totaling $
4.8
 
million based on the initial contract term of
15 years
.
 
Payments for the banking offices are expected to commence after
the construction period ends, which is expected to occur during the second quarter of 2022 and the third quarter of 2022.
 
A related party is the lessor in an operating lease with
the Company.
 
The Company’s minimum payment
 
payment is $
0.2
 
million annually
through 2024, for an aggregate remaining obligation of
$
0.70.6
 
million at March 31,September 30, 2021.
NOTE 7 - 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”) and a Supplemental
 
a Supplemental Executive Retirement Plan II (“SERP II”) covering
its
executive officers.
 
The defined benefit plan was amended in December 2019
to remove plan eligibility
for new associates hired after
December 31, 2019.
 
The SERP II was adopted by the Company’s
 
Board on May 21, 2020 and covers certain executive officers
that
were not covered by the SERP.
 
The components of the net periodic benefit cost for
the Company's qualified
benefit pension plan were as follows:
Three Months Ended March 31,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Service Cost
$
1,743
$
1,457
$
5,229
$
4,371
Interest Cost
1,221
1,4111,400
3,664
4,212
Expected Return on Plan Assets
(2,787)
(2,748)
(8,361)
(8,245)
Prior Service Cost Amortization
4
4
11
11
Net Loss Amortization
1,691
1,011974
5,073
2,959
Settlement Loss
500
0
2,500
0
Special Termination
 
Charge
0
0
0
61
Net Periodic Benefit Cost
$
1,8722,372
$
1,1961,087
$
8,116
$
3,369
Discount Rate Used for Benefit Cost
2.88%
3.53%
2.88%
3.53%
Long-term Rate of Return on Assets
6.75%
7.00%
6.75%
The components of the net periodic benefit cost for the Company's
SERP plans were as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2021
2020
Service Cost
$
9
$
0
Interest Cost
$
59
$
72
Prior Service Cost Amortization
19
0
Net Loss Amortization
198
247
Net Periodic Benefit Cost
$
285
$
319
Discount Rate Used for Benefit Cost
2.38%
3.16%7.00%
In the second quarter of 2021, lump sum payments made under the Company’s
defined benefit pension plan triggered settlement
accounting.
In accordance with the applicable accounting guidance for defined benefit plans, the Company
recorded a settlement
losses of $
2.0
million in the second quarter of 2021 and $
0.5
million in the third quarter of 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The components of the net periodic benefit cost for the Company's SERP and SERP II
were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Service Cost
$
9
$
10
$
27
$
21
Interest Cost
61
83
183
238
Prior Service Cost Amortization
69
109
157
218
Net Loss Amortization
243
93
683
410
Net Periodic Benefit Cost
$
382
$
295
$
1,050
$
887
Discount Rate
2.38%
3.16%
2.38%
3.16%
The service cost component of net periodic benefit cost is reflected in
 
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 8 - 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
 
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:
March 31,September 30, 2021
December 31, 2020
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
170,898214,666
$
599,387535,695
$
770,285750,361
$
160,372
$
596,572
$
756,944
Standby Letters of Credit
 
6,7115,652
 
0
 
6,7115,652
6,550
 
0
 
6,550
Total
$
177,609220,318
$
599,387535,695
$
776,996756,013
$
166,922
$
596,572
$
763,494
(1)
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet residential
 
residential loan 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
 
termination clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn
 
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by
 
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.
 
24
The allowance for credit losses for off-balance sheet credit commitments
 
credit commitments that are not unconditionally cancellable
by the bank is
adjusted as a provision for credit loss expense and is recorded
in other liabilities.
 
The following table shows the activity in the
allowance.
 
Three Months Ended March 31,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Beginning Balance
$
2,587
$
1,033
$
1,644
$
157
Impact of Adoption of ASC 326
0
0
0
876
Provision for Credit Losses
1,330530
0434
1,473
434
Ending Balance
$
2,9743,117
$
1,0331,467
$
3,117
$
1,467
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
 
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.
24
Indemnification Obligation
.
 
The Company is a member of the Visa
U.S.A. network.
 
Visa U.S.A member banks are
 
are required to
indemnify the Visa U.S.A.
 
network for potential future settlement of certain litigation
(the (the “Covered Litigation”)
that relates to several
antitrust lawsuits challenging the practices of Visa
 
and MasterCard International.
 
In 2008, the Company,
as a member
of the Visa
U.S.A. network, obtained Class B shares of Visa,
 
Inc. upon its initial public offering.
 
Since its initial public offering, Visa,
 
Inc. has
funded a litigation reserve for the Covered Litigation resulting
in a reduction
in the Class B shares held by the Company.
 
During the
first quarter of 2011, the Company
sold its remaining
Class B shares.
 
Associated with this sale, the Company entered into a
swap
contract with the purchaser of the shares that requires
a payment to the
counterparty in the event that Visa, Inc.
 
Inc. makes subsequent
revisions to the conversion ratio for its Class B shares.
 
Fixed charges included in the swap liability are payable quarterly
 
quarterly until the litigation reserve is fully liquidated
and at which time the
aforementioned swap contract will be terminated.
 
Quarterly fixed payments approximate $
200,000206,000
.
 
Conversion ratio payments and
ongoing fixed quarterly charges are reflected in earnings
 
in earnings in the period incurred.
NOTE 9 – 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
 
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:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities
that the reporting
entity has the
ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability,
 
either directly
or indirectly. These might
 
might include quoted prices for similar assets or liabilities in active markets, quoted prices
 
quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other
 
inputs other than quoted prices that are observable for the
asset or
liability (such as interest rates, volatilities, prepayment
speeds, credit risks, etc.)
or inputs that are derived principally from, or
corroborated, by market data by correlation or other means
.
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or
liabilities that reflect an
entity's own
assumptions about the assumptions that market participants would
 
would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
 
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,
 
yield curve, live trading levels, trade execution data, credit information
and the bond’s
terms
and conditions, among other things.
25
In general, the Company does not purchase securities that have
a complicated structure.
 
The Company’s entire portfolio consists
 
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.
 
At least annually,
the Company
will validate prices supplied by the independent pricing
service by comparingcompari
ng them to prices obtained from an independent
third-party
source.
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based
on Level 2 inputs is determined,
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for
the specific attributes of
that loan, which would be used
by other market
participants.
 
The Company has elected the fair value option accounting for its held
for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived
by valuation
models incorporating market pricing for instruments with similar characteristics,
 
similar characteristics, commonly referred to as best execution
pricing, or
investor commitment prices for best effort
IRLCs which have
unobservable inputs, such as an estimate of
the fair value of the
servicing rights expected to be recorded upon sale of the
loans, net estimated costs to originate
the loans, and the pull-through
rate,
and are therefore classified as Level 3 within the fair value
hierarchy.
 
The fair value of forward sale commitments is based on
observable market pricing for similar instruments and are therefore
 
are therefore classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions
 
hierarchy.are classified as level 2 within the fair value hierarchy and are valued
using
models generally accepted in the financial services industry and
that use actively quoted or observable market input values from
external market data providers.
The fair value derivatives are determined using discounted cash flow models.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2526
Interest Rate Swap.
The Company’s derivative
positions are classified as level 2 within the fair value
hierarchy and are valued using
models generally accepted in the financial services
industry and that use actively quoted or observable market
input values from
external market data providers.
The fair value derivatives are determined using discounted cash
flow models.
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.
A summary of fair values for assets and liabilities consisted
of the following:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
March 31,September 30, 2021
ASSETS:
Securities Available for
 
for Sale:
U.S. Government Treasury
$
173,116164,047
$
0
$
0
$
173,116164,047
U.S. Government Agency
0
221,530250,472
0
221,530250,472
States and Political Subdivisions
0
4,30843,546
0
4,30843,546
Mortgage-Backed Securities
0
49697,207
0
49697,207
Corporate Debt Securities
0
83,777
0
83,777
Equity Securities
(1)
0
6,795
0
6,795
Loans Held for Sale
0
82,08177,036
0
82,08177,036
Interest Rate Swap Derivative
0
2,6991,952
0
2,6991,952
Mortgage Banking Hedge Derivative
0
1,356451
0
1,356451
Mortgage Banking IRLC Derivative
0
0
2,9821,717
2,9821,717
Mortgage Servicing Rights
0
0
4,0193,830
4,0193,830
December 31, 2020
ASSETS:
Securities Available for
 
for Sale:
U.S. Government Treasury
$
104,519
$
0
$
0
$
104,519
U.S. Government Agency
0
208,531
0
208,531
States and Political Subdivisions
0
3,632
0
3,632
Mortgage-Backed Securities
0
515
0
515
Equity Securities
(1)
0
7,673
0
7,673
Loans Held for Sale
0
114,039
0
114,039
Interest Rate Swap Derivative
0
574
0
574
Mortgage Banking IRLC Derivative
0
0
4,825
4,825
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
907
$
0
$
907
(1)
Not readily marketable securities - reflected
 
in other assets.
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers ofrelated to mortgage
 
banking activities of $
15.426.2
million and $
38.6
million, respectively,
for the nine month period ending September 30, 2021 and $
34.0
 
million and $
10.540.3
 
million,
respectively, for the
 
for
the three month period ending March 31, 2021 and Level 3
issuances and transfers of $
1.2
million and $
1.8
million, respectively,
for
the three month period ending March 31,1, 2020 related to
mortgage banking activities. September 30, 2020.
 
Issuances are valued based on the change in fair
value of the
underlying mortgage loan from inception
of the IRLC to the balance
sheet date, adjusted for pull
-throughpull-through rates and costs
to originate.
 
IRLCs transferred out of Level 3 represent IRLCs that were funded and moved
 
and moved to mortgage loans held for sale, at fair
value.
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
 
used for assets measured on a non-recurring basis.
 
26
Collateral Dependent 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
 
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.
 
Collateral dependent 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.
 
Collateral-dependent loans had a carrying value of $
4.02.6
 
million with a valuation allowance of $
0.1
 
million at March 31, 2021September 30,
2021 and $
7.1
 
million and $
0.1
 
million, respectively,
 
at December 31, 2020.
 
27
Other Real Estate Owned
.
 
During the first threenine months of 2021,
certain foreclosed assets, upon initial recognition,
were measured and
and reported at fair value through a charge-off
to the allowance
for credit losses based on the fair value of
the foreclosed asset less
estimated cost to sell.
 
The fair value of the foreclosed asset is determined by
an independent valuation
or professional appraisal in
conformance with banking regulations.
 
On an ongoing basis, we obtain updated appraisals on foreclosed
assets and realize valuation
adjustments as necessary.
 
The fair value of foreclosed assets is estimated using Level 3
inputs due to the judgment
and estimation
involved in the real estate valuation process.
Mortgage Servicing Rights
.
 
Residential mortgage loan servicing rights are evaluated for impairment
 
for impairment at each reporting period based
upon the fair value of the rights as compared to the carrying
amount.
 
Fair value is determined by a third party valuation model using
estimated prepayment speeds of the underlying mortgage loans serviced and
 
and stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest
rate).
 
The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and
the cost of loan
servicing.
 
Further detail on the key inputs utilized are
provided in Note 4 – Mortgage Banking Activities.
 
At March 31,September 30, 2021, there was
0
 
valuation allowance for loan servicing
rights.
 
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.
A summary of estimated fair values of significant financial instruments consisted
 
Cash and Short-Term
Investments.
of the following:
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.
 
September 30, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
73,132
$
73,132
$
0
$
0
Short-Term Investments
708,988
708,988
0
0
Investment Securities, Available
for Sale
645,844
164,047
481,797
0
Investment Securities, Held to Maturity
.341,228
115,555
228,730
0
Equity Securities
(1)
3,588
0
3,588
0
Loans Held for Sale
77,036
0
77,036
0
Interest Rate Swap Derivative
1,952
0
1,952
0
Mortgage Banking Hedge Derivative
451
0
451
0
Mortgage Banking IRLC Derivative
1,717
0
0
1,717
Mortgage Servicing Rights
3,564
0
0
3,830
Loans, Net of Allowance for Credit Losses
$
1,919,925
$
0
$
0
$
1,919,442
LIABILITIES:
Deposits
$
3,465,962
$
0
$
3,327,728
$
0
Short-Term
 
Securities held to maturity are valued in accordance
with the methodology previously noted in thisBorrowings
footnote under the caption “Assets and Liabilities Measured
at Fair Value
on a Recurring Basis – Securities Available
for Sale”.51,410
0
Loans.51,410
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.
0
Subordinated Notes Payable.Payable
The fair value of each note is calculated using present
value techniques, based upon projected cash52,887
flows and estimated discount rates as well as rates being offered
for similar obligations.0
42,359
Short-Term
and Long-Term
Borrowings.0
The fair value of each note is calculated using present value
techniques, based uponLong-Term Borrowings
projected cash flows and estimated discount rates as well as rates1,610
0
being offered for similar debt.
1,681
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
A summary of estimated fair values of significant
financial instruments consisted of the following:
March 31, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
73,973
$
73,973
$
0
$
0
Short-Term
Investments
851,910
851,910
0
0
Investment Securities, Available
for Sale
406,245
173,116
233,129
0
Investment Securities, Held to Maturity
199,109
0
204,158
0
Equity Securities
(1)
3,588
0
3,588
0
Loans Held for Sale
82,081
0
82,081
0
Interest Rate Swap Derivative
2,699
0
2,699
0
Mortgage Banking Hedge Derivative
1,356
0
1,356
0
Mortgage Banking IRLC Derivative
2,982
0
0
2,982
Mortgage Servicing Rights
3,583
0
0
4,019
Loans, Net of Allowance for Credit Losses
2,035,701
0
0
2,036,010
LIABILITIES:
Deposits
$
3,358,108
$
0
$
3,358,015
$
0
Short-Term
Borrowings
55,687
0
55,687
0
Subordinated Notes Payable
52,887
0
43,038
0
Long-Term Borrowings
1,829
0
1,927
0
28
 
December 31, 2020
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
67,919
$
67,919
$
0
$
0
Short-Term
Investments
860,630
860,630
0
0
Investment Securities, Available
 
for Sale
324,870
104,519
220,351
0
Investment Securities, Held to Maturity
169,939
5,014
170,161
0
Loans Held for Sale
114,039
0
114,039
0
Equity Securities
(1)
3,589
0
3,589
0
Interest Rate Swap Derivative
574
0
574
0
Mortgage Banking IRLC Derivative
4,825
0
0
4,825
Mortgage Servicing Rights
3,452
0
0
3,451
Loans, Net of Allowance for Credit Losses
$
1,982,610
$
0
$
0
$
1,990,740
LIABILITIES:
Deposits
$
3,217,560
$
0
$
3,217,615
$
0
Short-Term
 
Borrowings
79,654
0
79,654
0
Subordinated Notes Payable
52,887
0
43,449
0
Long-Term Borrowings
3,057
0
3,174
0
Mortgage Banking Hedge Derivative
907
0$
907
0
$
907
$
0
(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
 
the underlying value of the Company.
28
NOTE 10 – ACCUMULATED
 
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
 
income (loss) are presented in the table below.
 
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
 
for Sale
 
Swap
 
Plans
 
 
Loss
Balance as of January 1, 2021
$
2,700
 
$
428
 
$
(47,270)
 
$
(44,142)
Other comprehensive (loss) income during the period
 
(1,458)(3,249)
 
1,5871,029
 
1421,635
 
271(585)
Balance as of March 31,September 30, 2021
$
1,242(549)
 
$
2,0151,457
 
$
(47,128)(45,635)
 
$
(43,871)(44,727)
Balance as of January 1, 2020
$
864
 
$
0
 
$
(29,045)
 
$
(28,181)
Other comprehensive income during the period
 
2,6482,429
39
 
0
 
0
2,6482,468
Balance as of March 31,September 30, 2020
$
3,5123,293
 
$
039
 
$
(29,045)
 
$
(25,533)(25,713)
29
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
 
operations and should be read in conjunction with the Consolidated
Financial
Statements and related notes.
 
The following information should provide a better understanding of
 
understanding of the major factors and trends that
affect our earnings performance and financial condition,
 
condition, and how our performance during 2021 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
 
section, contains "forward-looking"forward-looking statements" within the
meaning of the
Private Securities Litigation Reform Act of 1995.
 
These forward-looking statements include, among others, statements about
 
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
 
are beyond our control.
 
The words "may," "could,"
 
"could," "should,should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan," "target,"
 
"plan," "target," "goal,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 2020
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
 
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
 
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
 
services through a total of 57 full-service
offices located in Florida, Georgia,
and Alabama.
 
The Bank offers commercial and retail banking services, as well
 
as well as trust and asset
management, and retail securities brokerage.brokerage,
and life insurance.
 
We offer
 
residential mortgage banking services through Capital City Home
Loans.
Home Loans.
Our profitability, like
 
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 credit
 
credit losses, noninterest
income such as deposit fees, wealth management fees, mortgage banking fees
 
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 2020 Form 10-K.
Acquisitions
Strategic Alliance
.
 
On March 1, 2020, CCB completed its acquisition of a 51% membership
 
interest in Brand Mortgage Group, LLC
(“Brand”) which is
now operated as a Capital City Home Loans
(“CCHL”).
 
CCHL was consolidated into CCBG’s financial
 
financial
statements effective March
1, 2020.
 
See Note 1 – Business Combination in the 2020 Form 10-K
in the Consolidated Financial Statements.
Statements.On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic
Wealth, LLC
(“CCSW”), completed its acquisition of
substantially all of the assets of Strategic Wealth
Group, LLC and certain related businesses (“SWG”).
CCSW was consolidated into
CCBG’s financial statements
effective May 1, 2021.
See Note 1 – Business and Basis of Presentation.
 
RESPONSE TO COVID-19 PANDEMIC
At this time, all of our banking offices have returned to normal banking
hours and lobby services and some back-office associates
work remotely while others have returned to an office.
Although the ongoing global and local responses to the COVID-19 pandemic
continue to impact our clients and associates as they adjust to the changing conditions
presented by the pandemic, we continue to
closely monitor COVID-19 and adjust our operations, as needed.
In addition, we have set a date (November 22, 2021) to comply with
a recent U.S. presidential directive to OSHA to have associates vaccinated
against COVID-19 or be tested weekly.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
RESPONSE TO COVID-19 PANDEMIC
The global and local responses to the COVID-19 pandemic
have shown significant progress, and our clients and
associates continue
to
adjust to the changing conditions presented by the
pandemic. However, the pandemic
has adversely impacted a broad range of
industries in which the Company’s
customers operate and could still impair their ability to
fulfill their financial obligations to the
Company.
In addition, although our associates have generally been
available and working during the pandemic, COVID-19 has the
potential to create widespread business continuity issues for
the Company.
Congress, the President, and the Federal Reserve have
taken several actions designed to cushion the economic fallout.
The
Coronavirus Aid, Relief and Economic Security (“CARES”) Act
was signed into law at the end of March 2020 as a $2 trillion
legislative package.
The goal of the CARES Act was to curb the economic downturn
through various measures, including direct
financial aid to American families and economic
stimulus to significantly impacted industry sectors through programs
like the
Paycheck Protection Program ("PPP") and Main Street Lending
Program (“MSLP”).
During December 2020, many provisions of the
CARES Act were extended through the end of 2021.
In addition to the general impact of COVID-19, certain provisions
of the
CARES Act as well as other recent legislative and regulatory
relief efforts have had a material impact on
the Company’s 2020 and
2021 operations and could continue to impact operations going
forward.
The Company’s business is dependent
upon the willingness and ability of its associates and clients to
conduct banking and other
financial transactions.
While it appears that epidemiological and macroeconomic
conditions are trending in a positive direction at
March 31, 2021, if case counts trend higher in our
markets,
the Company could experience further adverse effects
on its business,
financial condition, results of operations and cash
flows.
While it is not possible to know the full universe or extent that the impact
of
COVID-19, and any potential resulting measures to curtail its spread,
will have on the Company’s
future operations, we discuss
potential impacts on our financial performance in
more detail throughout parts of the MD&A section.
To protect the
health of our
clients and associates and comply with applicable government
directives, we have modified our business practices as noted
below.
COVID-19 Update
●
We continue
to closely follow COVID-19 case count trends in our markets and adjust
our operations as needed to respond
to the changing conditions presented by the COVID-19 pandemic.
●
All of our banking offices are open for business, but
continue to be subject to national guidelines
and local safety
ordinances that are designed to protect our clients and associates.
●
To limit building
capacity, we continue
to utilize flexible in-office and remote working arrangements
for non-retail
associates.
●
In support of social distancing measures, we encourage
clients to use our enhanced digital access options for banking
products and access to sales associates.
30
NON-GAAP FINANCIAL MEASURES
We present a tangible
 
tangible common equity ratio and a tangible book value per
diluted share that, in each case,
reduces shareowners’ equity
and total assets by the amount of goodwill resultingand other identifiable intangi
 
ble assets 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,
 
,
although the
manner in which we calculate non-GAAP financial measures may
 
measures may differ from that of other
companies reporting
non-GAAP measures
with similar names.
 
The GAAP to non-GAAP reconciliation for each quarter presented on
on page 31 is provided below.
2021
2020
2019
(Dollars in Thousands, except per share data)
Third
Second
First
Fourth
Third
Second
First
Fourth
Third
Second
Shareowners' Equity (GAAP)
$
348,868
$
335,880
$
324,426
$
320,837
$
339,425
$
335,057
$
328,507
$
327,016
$
321,562
$
314,595
Less: Goodwill and Other Intangibles (GAAP)
93,293
93,333
89,095
89,095
89,095
89,095
89,275
84,811
84,811
84,811
Tangible Shareowners' Equity (non
-GAAP)(non-GAAP)
A
255,575
242,547
235,331
231,742
250,330
245,962
239,232
242,205
236,751
229,784
Total Assets (GAAP)
4,048,733
4,011,459
3,929,884
3,798,071
3,587,041
3,499,524
3,086,523
3,088,953
2,934,513
3,017,654
Less: Goodwill and Other Intangibles (GAAP)
93,293
93,333
89,095
89,095
89,095
89,095
89,275
84,811
84,811
84,811
Tangible Assets (non-GAAP)
B
$
3,955,440
$
3,918,126
$
3,840,789
$
3,708,976
$
3,497,946
$
3,410,429
$
2,997,248
$
3,004,142
$
2,849,702
$
2,932,843
Tangible Common
Equity Ratio
(non-GAAP)
A/B
6.46%
6.19%
6.13%
6.25%
7.16%
7.21%
7.98%
8.06%
8.31%
7.83%
Actual Diluted Shares Outstanding (GAAP)
C
16,911,715
16,901,375
16,875,719
16,844,997
16,800,563
16,821,743
16,845,462
16,855,161
16,797,241
16,773,449
Diluted Tangible Book Value
 
(non-GAAP)
 
A/C
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
13.70
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
(Dollars in Thousands, Except
2021
2020
2019
Per Share Data)
Third
Second
First
Fourth
Third
Second
First
Fourth
Third
Second
Summary of Operations
:
Interest Income
$
28,520
$
26,836
$
25,446
$
26,154
$
26,166
$
26,512
$
27,365
$
28,008
$
28,441
$
28,665
Interest Expense
848
856
948
1,181
1,044
1,054
1,592
1,754
2,244
2,681
Net Interest Income
27,672
25,980
24,498
24,973
25,122
25,458
25,773
26,254
26,197
25,984
Provision for Credit Losses
-
(571)
(982)
1,342
1,308
2,005
4,990
(162)
776
646
Net Interest Income After
 
Provision for Credit Losses
27,672
26,551
25,480
23,631
23,814
23,453
20,783
26,416
25,421
25,338
Noninterest Income
26,574
26,473
29,826
30,523
34,965
30,199
15,478
13,828
13,903
12,770
Noninterest Expense
(1)
39,702
42,123
40,476
41,348
40,342
37,303
30,969
29,142
27,873
28,396
Income
 
Before
 
Income Taxes
14,544
10,901
14,830
12,806
18,437
16,349
5,292
11,102
11,451
9,712
Income Tax Expense
2,949
2,059
2,787
2,833
3,165
2,950
1,282
2,537
2,970
2,387
(Income) Loss Attributable to NCI
(1,504)
(1,415)
(2,537)
(2,227)
(4,875)
(4,253)
277
-
-
-
Net Income Attributable to CCBG
10,091
7,427
9,506
7,746
10,397
9,146
4,287
8,565
8,481
7,325
Net Interest Income (FTE)
$
27,750
$
26,064
$
24,607
$
25,082
$
25,233
$
25,564
$
25,877
$
26,378
$
26,333
$
26,116
 
Per Common Share
:
Net Income Basic
$
0.60
$
0.44
$
0.56
$
0.46
$
0.62
$
0.55
$
0.25
$
0.51
$
0.51
$
0.44
Net Income Diluted
0.60
0.44
0.56
0.46
0.62
0.55
0.25
0.51
0.50
0.44
Cash Dividends Declared
0.16
0.15
0.15
0.15
0.14
0.14
0.14
0.13
0.13
0.11
Diluted Book Value
20.63
19.87
19.22
19.05
20.20
19.92
19.50
19.40
19.14
18.76
Diluted Tangible Book Value
(1)(2)
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
13.70
Market Price:
 
High
26.10
27.39
28.98
26.35
21.71
23.99
30.62
30.95
28.00
25.00
 
Low
22.02
24.55
21.42
18.14
17.55
16.16
15.61
25.75
23.70
21.57
 
Close
24.74
25.79
26.02
24.58
18.79
20.95
20.12
30.50
27.45
24.85
 
Selected Average Balances
:
Loans Held for Investment
$
1,974,132
$
2,036,781
$
2,044,363
$
1,993,470
$
2,005,178
$
1,982,960
$
1,847,780
$
1,834,085
$
1,824,685
$
1,814,401
Earning Assets
3,693,123
3,623,910
3,497,929
3,337,409
3,223,838
3,016,772
2,751,880
2,694,700
2,670,081
2,719,217
Total Assets
4,026,613
3,956,349
3,821,521
3,652,436
3,539,332
3,329,226
3,038,788
2,982,204
2,959,310Deposits
3,010,6623,447,688
Deposits3,387,352
3,239,508
3,066,136
2,971,277
2,783,453
2,552,690
2,524,951
2,495,755
2,565,431
Shareowners’ Equity
341,460
329,040
326,330
343,674
340,073
333,515
331,891
326,904
320,273
313,599
Common Equivalent Average Shares:
 
Basic
16,875
16,858
16,838
16,763
16,771
16,797
16,808
16,750
16,747
16,791
 
Diluted
16,909
16,885
16,862
16,817
16,810
16,839
16,842
16,834
16,795
16,818
Performance Ratios:
Return on Average Assets
 
0.99
%
0.75
%
1.01
%
0.84
%
1.17
%
1.10
%
0.57
%
1.14
%
1.14
%
0.98
%
Return on Average Equity
11.72
9.05
11.81
8.97
12.16
11.03
5.20
10.39
10.51
9.37
Net Interest Margin (FTE)
2.98
2.89
2.85
3.00
3.12
3.41
3.78
3.89
3.92
3.85
 
Noninterest Income as % of
 
Operating Revenue
48.99
50.47
54.90
55.00
58.19
54.26
37.52
34.50
34.67
32.95
Efficiency Ratio
73.09
80.18
74.36
74.36
67.01
66.90
74.89
72.48
69.27
73.02
 
Asset Quality:
Allowance for Credit Losses ("ACL")
$
21,500
$
22,175
 
$
22,026
$
23,816
$
23,137
$
22,457
$
21,083
$
13,905
$
14,319
$
14,593
ACL to Loans HFI
1.11
%
1.10
%
1.07
%
1.19
%
1.16
%
1.11
%
1.13
%
0.75
%
0.78
%
0.79
%
Nonperforming Assets (“NPAs”)
3,218
6,302
5,472
6,679
6,732
8,025
6,337
5,425
5,454
6,632
 
NPAs to Total
 
Assets
0.08
0.16
0.14
0.18
0.19
0.23
0.21
0.18
0.19
0.22
NPAs to Loans HFI plus OREO
0.17
0.31
0.27
0.33
0.34
0.40
0.34
0.29
0.30
0.36
ACL to Non-Performing Loans
710.39
433.93
410.78
405.66
420.30
322.37
432.61
310.99
290.55
259.55
Net Charge-Offs to Average
 
Loans HFI
0.03
(0.07)
(0.10)
0.09
0.11
0.05
0.23
0.05
0.23
0.04
Capital Ratios:
Tier 1 Capital
15.69
%
15.44
%
16.08
%
16.19
%
16.77
%
16.59
%
16.12
%
17.16
%
16.83
%
16.36
%
Total Capital
16.70
16.48
17.20
17.30
17.88
17.60
17.19
17.90
17.59
17.13
Common Equity Tier 1
13.45
13.14
13.63
13.71
14.20
14.01
13.55
14.47
14.13Leverage
13.679.05
Leverage8.84
8.97
9.33
9.64
10.12
10.81
11.25
11.09
10.64
 
Tangible Common Equity
(1)(2)
6.46
6.19
6.13
6.25
7.16
7.21
7.98
8.06
8.31
7.83
 
(1)
Includes partial pension settlement charges of
$0.5 million, or $0.02/share, for the third
quarter of 2021 and $2.0 million (pre-tax), or
$0.10/share (after-tax) for the second quarter
of 2021.
(2)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 30.
32
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
 
Performance Summary
.
Net income was $9.5of $10.1 million, or $0.56$0.60 per diluted share,
for the firstthird quarter of 2021
compared to net income
of $7.7$7.4 million, or $0.46$0.44 per diluted share, for the fourth
second quarter of 2020202
1, and net income of $4.3$10.4 million,
or $0.25$0.62 per diluted share,
for the third
the first 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).
Net Interest Income
.Income.
 
Taxable equivalent
Tax-equivalent net
 
net interest income for the firstthird quarter of 2021 was $24.6
 
was $27.7 million compared to $25.1$26.1 million for
the second quarter of 2021 and $25.2 million for the fourththird quarter of 2020 and $25.92020.
For the first nine months of 2021, tax-equivalent net
interest income totaled $78.4 million compared to $76.7 million for the
 
first quartersame period of 2020.
 
The decrease compared to both prior periods reflectedHigher SBA PPP fees/interest and a
better earning asset mix drove the improvement over the second quarter
of 2021.
For the nine month period, the increase generally
reflected higher SBA PPP loan fees/interest and lower interest expense, partially
offset by 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 loans from
the
SBA Paycheck Protection Program (“SBA PPP”) and overnight
funds.
Provision and Allowance for Credit
 
Losses.
A provision for credit losses was not recorded for the third quarter of 2021.
This
compares to a negative provision of $0.6 million for the second quarter of 2021
and provision expense of $1.3 million for the third
quarter of 2020.
 
For the first quarternine months of 2021, we recorded a negative provision of $1.6 million
 
of $1.0 million compared
to provision expense of $1.3
$8.3 million for the fourth
quartersame period of 2020 and $5.0 million for the first quarter of
2020.
 
The negative
provision for the first quarternine months of 2021 generally reflected improving
economic conditions,
 
improving economic conditionsfavorable loan migration and a lower level of expected
losses related
to COVID-19.
Further, we recognizedstrong net loan recoveries totaling $0.7 million.
of $0.5 million in the first quarter of 2021.Noninterest Income.
 
Noninterest Income
.
Noninterest income for the firstthird quarter of 2021 totaled $29.8$26.6 million compared
 
to $26.5 million a decrease of $0.7 million, or 2.3%, fromfor the second
the fourth quarter of 20202021 and a $14.3$35.0 million or 92.7%,
increase overfor the firstthird quarter of 2020.
 
The decrease from the fourth quarter
of 2020 was due to a seasonal decline in mortgage
banking revenues.
Theslight increase over the firstsecond quarter of 20202021 was also attributableprimarily 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.
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 due to the strategic
alliance with CCHL.of $3.0 million.
 
Noninterest Expense.
 
Noninterest Expense
.
Noninterest expense for the firstthird quarter of 2021 totaled $40.5$39.7 million compared
 
to $42.1 million a decrease of $0.9 million, or 2.1%, fromfor the second
the fourth quarter of 20202021 and a $9.5$40.3 million or 30.78%,
increase overfor the firstthird quarter of 2020.
 
The $2.4 million decrease from the fourthsecond quarter of 2021 reflected a
pension settlement charge of 2020$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.
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 primarily attributable to lower compensationthe addition of expenses at CCHL (acquired
 
expense and other real estate owned (“OREO”) expense.March 1, 2020) of $6.7 million as well as higher
expenses at the core bank totaling $7.0 million driven primarily by
 
The increasepartial pension settlement charges of $2.5 million, annual merit
compared to the first quarter of 2020 reflected expenses addedraises, debit card processing costs (volume related),
 
by the CCHL acquisition as Core CCBG’sand professional fees, and FDIC insurance.
 
expenses remained flat.
Financial Condition
Earning Assets
.Assets.
 
Average
earning assets were $3.498
$3.693 billion for the firstthird quarter of 2021,
an increase of $160.5$69.2 million, or 4.8%
 
or 1.9%, over
the fourthsecond quarter of 2020,2021, and an increase of $746.0$355.7 million, or 10.7% over
 
or 27.1% over the firstfourth 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.
 
in 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.
programs.
Loans
.
 
Average loans held for investment
 
for investment (“HFI”) increased $50.9decreased $62.6 million, or 3.1%, from the second quarter of
 
2.6%2021 and $19.3
million, or 1.0%, overfrom the fourth quarter of 2020 and $196.6
million, or 10.6%, over the first quarter of 2020.
Period end balances increased $51.3 million, or 2.6%, over the fourth
quarter of
2020 and $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.
 
Excluding SBA PPP loans, average loans increased $34.9 million and $125.2
million and period end loans increased
$23 $5.1 million and $36$102.8
million, respectively, over the
 
overprior periods. 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 2020.2020, we realized growth in construction, residential,
 
commercial real
estate and indirect loans.
Credit Quality
.
 
Nonaccrual loans totaled $5.4$3.0 million (0.26%(0.16% of HFI loans)
at March 31,September 30, 2021
 
compared to $5.9$5.1 million (0.29%
of(0.25%
HFI loans) at December 31, 2020 and $4.9 million (0.26%
of HFI loans) at MarchJune 30, 2021 and $5.9 million (0.29% of HFI loans) at
December 31, 2020.
 
Classified loans totaled $20.6$16.3 million,
$17.6
19.4 million, and $16.5 $17.6
million at the same respective periods.
We continue
to closely monitor borrowers and loan portfolio
segments impacted by the pandemic.
Approximately $328 million of the $333 million in loans that received
COVID-19 loan
extension have resumed making regularly scheduled payments
and we have experienced nominal problem loan migration
within that
pool of loans.
 
Deposits
.
 
Average total
 
deposits increased $173.4$60.3 million, or 5.7%1.8%, over the fourth
second quarter of 2020,2021,
 
and $686.8 million, or 26.9%,
over the first quarter of 2020.
Period end deposit balances grew $140.5 million and
 
$812.5381.6 million, or 12.4%,
over the fourth quarter of 2020 and
first quarter of 2020,
respectively, indicating
strong growth in core deposit balances.2020.
 
Over the past twelve12 months, multiple
government stimulus programs have
been implemented, including
including the CARES Act and the American Rescue Plan Act, which are responsible
 
are
responsible for a large portion of this growth.
Capital
.
At March 31, 2021, we were well-capitalized with a total risk-based
capital ratio of 17.20%
and a tangible common equity
ratio (a non-GAAP financial measure) of 6.13% compared
to 17.30% and 6.25%, respectively,
at December 31, 2020 and 17.19% and
7.98%, respectively,
at March 31, 2020.
At March 31, 2021, all of our regulatory capital ratios exceeded
the threshold to be well-
capitalized under the Basel III capital standards.
33
RESULTS
OF OPERATIONS
Net Income
For the first quarter of 2021, we realized net income of
$9.5 million, or $0.56 per diluted share, 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.
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.
A condensed earnings summary of each major component
of our financial performance is provided below:
Three Months Ended
(Dollars in Thousands, except per share data)
March 31, 2021
December 31, 2020
March 31, 2020
Interest Income
$
25,446
$
26,154
$
27,365
Taxable Equivalent Adjustments
109
109
104
Total Interest Income (FTE)
25,555
26,263
27,469
Interest Expense
948
1,181
1,592
Net Interest Income (FTE)
24,607
25,082
25,877
Provision for Credit Losses
(982)
1,342
4,990
Taxable Equivalent Adjustments
109
109
104
Net Interest Income After Provision for Credit Losses
25,480
23,631
20,783
Noninterest Income
29,826
30,523
15,478
Noninterest Expense
40,476
41,348
30,969
Income Before Income Taxes
14,830
12,806
5,292
Income Tax Expense
2,787
2,833
1,282
Pre-Tax (Income) Loss
Attributable to Noncontrolling Interests
(2,537)
(2,227)
277
Net Income Attributable to Common Shareowners
$
9,506
$
7,746
$
4,287
Basic Net Income Per Share
$
0.56
$
0.46
$
0.25
Diluted Net Income Per Share
$
0.56
$
0.46
$
0.25
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 44.
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.
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 anticipate
margin improvement from these levels as a portion
of our overnight funds are
deployed into various strategies under consideration.
34
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. Interest and fee income related
to the SBA PPP (See Loans below) will partially offset
the effect of lower rates.
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.
Due to highly competitive fixed-rate loan pricing in our
markets, we continue to review our loan pricing and make adjustments
where
we believe
appropriate and prudent.
Provision for Credit Losses
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.
Charge-off activity for the respective
periods is set forth below:
Three Months Ended
(Dollars in Thousands, except per share data)
March 31, 2021
December 31, 2020
March 31, 2020
CHARGE-OFFS
Commercial, Financial and Agricultural
$
69
$
104
$
362
Real Estate - Construction
-
-
-
Real Estate - Commercial Mortgage
-
-
11
Real Estate - Residential
6
38
110
Real Estate - Home Equity
5
10
31
Consumer
(1)
1,056
1,232
1,566
Total Charge
-offs
$
1,136
$
1,384
$
2,080
RECOVERIES
Commercial, Financial and Agricultural
$
136
$
64
$
40
Real Estate - Construction
-
50
-
Real Estate - Commercial Mortgage
645
27
191
Real Estate - Residential
75
153
40
Real Estate - Home Equity
124
40
33
Consumer
(1)
678
564
695
Total Recoveries
$
1,658
$
898
$
999
Net Charge-offs (Recoveries)
$
(522)
$
486
$
1,081
Net Charge-offs (Recoveries) (Annualized)
to Average Loans HFI
(0.10)
%
0.09
%
0.23
%
(1)
Includes overdrafts.
Noninterest Income
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 fees 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.
35
Noninterest income represented 54.9% of operating revenues
(net interest income plus noninterest income) for the first quarter
of 2021
compared to 55.0% for the fourth quarter of 2020 and
37.5% for the first quarter of 2020.
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 period over period comparison.
Three Months Ended
Mar 31, 2021
Dec 31, 2020
Mar 31, 2020
(Dollars in thousands)
Core
CCBG
CCHL
Core
CCBG
CCHL
Core
CCBG
CCHL
Deposit Fees
$
4,271
-
$
4,713
$
-
$
5,015
$
-
Bank Card Fees
3,618
-
3,462
-
3,051
-
Wealth Management Fees
3,090
-
3,069
-
2,604
-
Mortgage Banking Revenues
279
16,846
302
17,409
1,138
2,115
Other
1,296
426
1,205
363
1,459
96
Total Noninterest Income
$
12,554
$
17,272
$
12,751
$
17,772
$
13,267
$
2,211
Significant components of noninterest income are
discussed in more detail below.
Deposit Fees
.
Deposit fees for the first quarter of 2021 totaled $4.3 million,
a decrease of $0.4 million, or 9.4%, from the fourth
quarter of 2020 and $0.7 million,
or 14.8%, from the first quarter of 2020.
The decrease from both prior periods was attributable to
lower overdraft fees and reflected lower utilization
of our overdraft services,
which we believe is primarily attributable to government
stimulus.
Bank Card Fees
.
Bank card fees for the first quarter of 2021 totaled $3.6
million, an increase of $0.2 million, or 4.5%, over the fourth
quarter of 2020 and $0.6
million, or 18.6%, over the first quarter of 2020.
Compared to both prior periods, the improvement reflected
higher card activity driven by increased consumer spending
,
which we believe is reflective of the economic recovery
and additional
government stimulus.
Wealth
Management Fees
.
Wealth management
fees, which include both trust fees (i.e., managed accounts
and trusts/estates)
and
retail brokerage fees (i.e., investment, insurance products,
and retirement accounts), totaled $3.1 million for the
first quarter of 2021,
comparable to the fourth quarter of 2020 and an increase
of $0.5
million, or 18.7%, over the first quarter of 2020.
The increase over
the first quarter of 2020 reflected higher assets under management
and higher trading activity.
At March 31, 2021, total assets under
management were approximately $2.088 billion compared
to $1.979 billion at December 31, 2020 and $1.561 billion at March
31,
2020.
Mortgage Banking Revenues
.
Mortgage banking revenues totaled $17.1 million for the
first quarter of 2021, a decrease of $0.6
million, or 3.3%, from the fourth quarter of 2020
and an increase of $13.9 million, or 426.4% over the first quarter
of 2020.
The
decrease from the fourth quarter of 2020 reflected
a seasonal decline in production.
The increase over the first quarter of 2020 was
attributable to the strategic alliance with CCHL that began
on March 1, 2020.
Noninterest Expense
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
33
Capital
.
At September 30, 2021, we were well-capitalized with a total risk-based capital ratio
of 16.70% and a tangible common
equity ratio (a non-GAAP financial measure) of 6.46% compared to
16.48% and 6.19%, respectively,
at June 30, 2021 and 17.30%
and 6.25%, respectively,
at December 31, 2020.
At September 30, 2021, all of our regulatory capital ratios exceeded the threshold
to
be well-capitalized under the Basel III capital standards.
RESULTS
OF OPERATIONS
The 51% ownership acquisitionfollowing table provides a condensed summary of CCHL and consolidationour results of operations
 
into CCBG’s financial statements- a discussion of the various components are discussed
in further detail below.
 
occurred
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands, except per share data)
2021
2021
2020
2021
2020
Interest Income
$
28,520
$
26,836
$
26,166
$
80,802
$
80,043
Taxable Equivalent Adjustments
78
84
111
270
321
Total Interest Income (FTE)
28,598
26,920
26,277
81,072
80,364
Interest Expense
848
856
1,044
2,652
3,690
Net Interest Income (FTE)
27,750
26,064
25,233
78,420
76,674
Provision for Credit Losses
-
(571)
1,308
(1,553)
8,303
Taxable Equivalent Adjustments
78
84
111
270
321
Net Interest Income After Provision for Credit Losses
27,672
26,551
23,814
79,703
68,050
Noninterest Income
26,574
26,473
34,965
82,873
80,642
Noninterest Expense
39,702
42,123
40,342
122,301
108,614
Income Before Income Taxes
14,544
10,901
18,437
40,275
40,078
Income Tax Expense
2,949
2,059
3,165
7,795
7,397
Pre-Tax Income Attributable to Noncontrolling
Interest
(1,504)
(1,415)
(4,875)
(5,456)
(8,851)
Net Income Attributable to Common Shareowners
$
10,091
$
7,427
$
10,397
$
27,024
$
23,830
Basic Net Income Per Share
$
0.60
$
0.44
$
0.62
$
1.60
$
1.42
Diluted Net Income Per Share
$
0.60
$
0.44
$
0.62
$
1.60
$
1.42
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 March 1,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 43.
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.
Also, as 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 tableincrease
generally reflected higher SBA PPP loan fees/interest 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/interest.
Compared to the third quarter of 2020, the decrease was primarily attributable
to growth in
earning assets (driven by deposit inflows), which negatively impacted our
margin percentage.
For the first nine months of 2021, the
net interest margin decreased 51 basis points to 2.91%,
which generally reflected 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%.
Due to highly competitive fixed-rate loan pricing in our markets, we continue
to review our loan pricing and make adjustments where
we believe appropriate and prudent.
34
Provision for Credit Losses
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 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 and strong net loan
recoveries totaling $0.7
million.
We discuss the allowance
for credit losses further below.
For more information on charge-offs and
recoveries, see Note 3 – Loans Held for Investment and Allowance for
Credit Losses.
Noninterest Income
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.
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.
Noninterest income represented 49.0% of operating revenues (net
interest income plus noninterest income) in the third quarter of 2021
compared to 50.5% in the second quarter of 2021 and 58.2% in the third quarter
of 2020.
For the first nine months of 2021,
noninterest income represented 51.5% of operating revenues compared
to 51.4% for the same period of 2020.
The table below reflects the major components of noninterest expenseincome.
 
for both Core CCBG and CCHL to help facilitate a better
understanding
of the year over year comparison.
 
Three Months Ended
Mar 31, 2021Nine Months Ended
Dec 31, 2020September 30,
Mar 31, 2020June 30,
September 30,
September 30,
September 30,
(Dollars in thousands)Thousands)
Core2021
CCBG2021
CCHL2020
Core2021
CCBG2020
CCHL
Core
CCBG
CCHL
SalariesDeposit Fees
$
12,171
10,2765,075
$
12,3844,236
$
10,3984,316
$
13,48813,582
$
2,24213,087
Associate BenefitsBank Card Fees
3,3963,786
2213,998
3,7403,389
20011,402
3,9579,582
49Wealth Management
Fees
3,623
3,274
2,808
9,987
7,966
Mortgage Banking Revenues
12,283
13,217
22,983
42,625
45,633
Other
1,807
1,748
1,469
5,277
4,374
Total Compensation
15,567
10,497
16,124
10,598
17,445
2,291
Premises
2,372
387
2,340
397
2,249
134
Equipment
2,734
474
2,716
523
2,499
97
Total Occupancy
5,106
861
5,056
920
4,748
231
Legal Fees
553
5
315
31
468
-
Professional Fees
1,167
163
1,078
154
1,055
66
Processing Services
1,545
-
1,299
-
1,557
-
Advertising
442
307
505
286
461
123
Travel and Entertainment
99
44
110
70
242
75
Printing and Supplies
176
48
172
30
187
13
Telephone
668
87
636
111
577
33
Postage
171
54
173
39
175
11
Insurance - Other
501
-
457
-
296
-
Other Real Estate Owned, Net
(118)
-
570
(4)
(798)
-
Miscellaneous
2,140
393
1,584
1,034
1,577
136
Total Other Expense
7,344
1,101
6,899
1,751
5,797
457
Total Noninterest ExpenseIncome
$
28,01726,574
$
12,45926,473
$
28,07934,965
$
13,26982,873
$
27,990
$
2,979
80,642
Significant components of noninterest expenseincome are
discussed in more
detail below.
Mortgage Banking Revenues.
Compensation
.
Compensation expenseMortgage banking revenues totaled $26.1$12.3 million for the firstthird quarter of 2021
 
compared to $13.2
million for the second quarter of 2021 a decrease of $0.7and $23.0 million or 2.5%, fromfor the
fourth quarter of 2020 and an increase of $6.3 million, third
 
or 32.1%, over the first quarter of 2020.
 
The decrease fromFor the fourth quarternine months of 2021, revenues totaled
of 2020 was due$42.6 million compared to lower salary expense at Core CCBG (primarily
realized loan cost which is a credit offset to expense)
and lower
associate benefit expense (associate insurance).
The increase over the first quarter of 2020 reflects the addition
of expenses for a full
quarter from CCHL.
Occupancy.
Occupancy expense (including premises and equipment) totaled
$6.0$45.6 million for the first quarter of 2021, comparable to
the fourth quarter of 2020 and an increase of $1.0 million,
or 19.9%, over the first quartersame period of 2020.
 
Compared to the firstsecond quarter of 2021 and third quarter of
2020, the increase reflected expenses added fromdecrease was attributable to lower production volume and a
 
the CCHL integration,lower gain on sale margin.
 
The decrease from the nine month
period of 2020 was primarily lease expense for loan production offices.
Higher
expense for maintenance and repairs at Core CCBG also contributed,
butattributable to a lesser extent.lower gain on sale margin.
Additional information on our mortgage banking subsidiary,
CCHL, is provided on page 36.
 
OtherDeposit Fees
.
Other noninterest expense totaled $8.4 million Deposit fees for the firstthird quarter of 2021 totaled $5.1 million, an increase
 
of 2021, a decrease of $0.2$0.8 million, or 2.4%19.8%, fromover the
fourth second
quarter of 20202021, and an increase of $2.2$0.8 million, or 3517.6%, over the
 
.0%third quarter of 2020.
For the first nine months of 2021, deposit
fees totaled $13.6 million, an increase of $0.5 million, or 3.8%, over the same period
of 2020.
Compared to all prior periods, the
increase was primarily attributable to higher monthly service charge
fees which reflected the conversion of the remaining free
checking accounts to a monthly maintenance fee account type.
Bank Card Fees
.
Bank card fees for the third quarter of 2021 totaled $3.8 million, a $0.2 million, or 5.3%,
decrease from the second
quarter of 2021, and a $0.4 million, or 11.7
%, increase over the third quarter of 2020.
For the first quarternine months of 2021, bank card
fees totaled $11.4 million, an increase of $1.8
million, or 19.0%, over the same period of 2020.
 
The increase over the first quarter of 2020prior year
periods generally reflected the addition of CCHL expenses and higher
OREO expense at Core CCBG driven by a $1.0 million gain
from the sale of a
banking office in the first quarter of 2020.
Our operating efficiency ratio (expressed
as noninterest expense as a percent of the sum of taxable-equivale
nt net interest income plus
noninterest income) was 74.36% for the first quarter
of 2021 compared to 74.36%
for the fourth quarter of 2020 and 74.89% for the
first quarter of 2020.
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.
37
FINANCIAL CONDITION
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%,in card-not-present debit card
 
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
transactions as well 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.
Investment Securities
In the first quarter of 2021, our average investment
portfolio increased $14.9 million, or 2.9%, over the fourth
quarter of 2020 and
decreased $102.1 million, or 16.1%, from the
first quarter of 2020.
Securities in our investment portfolio represented 15.2% of our
average earning assets for the first quarter of 2021
compared to 15.5% for the fourth quarter of 2020, and 23.1% for the
first quarter of
2020.
For the remainder of 2021, we will continue to monitor the
interest rate environment and look for opportunities to purchase
additional investment securities that align with the overall
investment strategy of the Company.
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 first quarter of 2021, we purchased securities under
the AFS designation.
At March 31,
2021,
$406.2 million, or 67.1%, of our investment portfolio was classified as AFS,
and $199.1 million, or 32.9%, classified as HTM.
The average maturity of our total portfolio at March
31, 2021 was 2.78 years compared to 2.09 years and 2.20 years
at December 31,
2020
and March 31, 2020, respectively.
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
maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore
we do not maintain a trading portfolio.
At March 31, 2021,
there were 89 positions (combined AFS and HTM) with unrealized
losses totaling $1.4 million at March 31, 2021.
GNMA mortgage-backed securities, US Treasuries,
and SBA securities carry the full faith and credit
guarantee of the US
Government, and are 0% risk-weighted assets for regulatory
purposes. The municipal bond positions are either pre
-refunded with
government securities, or are AAA rated. None of these
positions with unrealized losses are considered impaired, and
all are expected
to mature at par.
Further, we believe the long history of
no credit losses on these securities indicates that the expectation
of
nonpayment of the amortized cost basis is zero.
Loans HFI
Average loans
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 ($36 million in the first quarter of 2021
and $11 million in the fourth quarter of 2020).
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 $1.3 million
for the first quarter of 2021.
At March 31, 2021
we had $5.0 million (net) in deferred SBA PPP loan fees.
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
adjustments as necessary.
spending.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
Credit Quality
 
 
Nonperforming assets (nonaccrual loans
35
Wealth
Management Fees
.
Wealth management fees,
which include both trust fees (i.e., managed accounts and OREO)trusts/estates) and
retail brokerage fees (i.e., investment,
insurance products, and retirement accounts)
totaled $3.6 million for the third quarter of 2021, a
$0.3
million, or 10.7%, increase over the second quarter of 2021 and a $0.8 million, or 29.0%, increase
over the third quarter of 2020.
For the first nine months of 2021, wealth management fees totaled
 
$5.510.0 million, at March 31,an increase of $2.0 million, or 25.4%, over the same
period of 2020.
The favorable variances versus all prior periods reflected higher assets under
management and increased trading
activity by our retail brokerage clients.
At September 30, 2021, a $1.2 million decreasetotal assets under management were approximately
 
from December$2.24 billion
31, 2020 and a $0.9 million decrease from March 31, 2020
.
Nonaccrual loans totaled $5.4 millioncompared to $1.979 billion at March 31, 2021,
a $0.5 million
decrease from December 31, 2020 and a $0.5 million increase$1.823 billion
 
at September 30, 2020.
Other.
Other income for the third quarter of 2021 totaled $1.8 million, a $0.1 million, or
3.4%, increase over March 31,the second quarter of
2021, and $0.3 million, or 23.0%, over the third quarter of 2020.
For the first nine months of 2021, other income totaled $5.3 million,
an increase of $0.9
million, or 20.6%, over the same period of 2020.
 
The balance of OREO totaled $0.1 millionincrease over both prior year periods was primarily
attributable to higher loan servicing fees at
March 31, 2021, a decrease of $0.7 million and $1.4
million from December 31, 2020 and March 31, 2020,
respectively. CCHL.
 
(Dollars in Thousands)
March 31, 2021
December 31, 2020Noninterest Expense
 
MarchNoninterest expense for the third quarter of 2021 totaled $39.7 million
 
31, 2020compared to $42.1 million for the second quarter of 2021 and
Nonaccruing Loans:$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.
The table below reflects the major components of noninterest expense.
 
 
 
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
2021
2021
2020
2021
2020
Salaries
$
21,060
$
21,117
$
22,356
$
64,625
$
58,063
Associate Benefits
4,185
4,261
3,808
12,062
11,495
Total Compensation
25,245
25,378
26,164
76,687
69,558
 
Premises
Commercial, Financial and Agricultural2,736
$2,714
1502,763
8,209
7,775
Equipment
3,296
3,259
3,143
9,763
8,908
Total Occupancy
6,032
5,973
5,906
17,972
16,683
 
Legal Fees
$251
161321
343
1,130
$1,224
358Professional Fees
1,459
1,406
1,175
Real Estate
4,195
3,630
Processing Services
1,775
1,794
1,529
5,114
4,533
Advertising
645
631
825
2,025
2,208
Telephone
731
754
683
2,239
2,120
Insurance - ConstructionOther
179509
545
434
1791,555
-
Real Estate - Commercial Mortgage
1,256
1,412
1,332
Real Estate - Residential
3,150
3,130
2,213
Real Estate - Home Equity
462
695
692
Consumer
165
294
279
Total Nonaccruing
Loans (“NALs”)
(1)
$
5,362
$
5,871
$
4,874
1,150
Other Real Estate Owned,
net
 
110(1,126)
(270)
219
(1,514)
(463)
Pension Settlement
500
2,000
-
2,500
-
Miscellaneous
3,681
3,591
3,064
10,398
7,971
Total Other
 
8,425
10,772
8,272
27,642
22,373
Total
 
808
1,463
Total Nonperforming
Assets (“NPAs”)
$
5,472
Noninterest Expense
 
$
6,67939,702
 
$
42,123
 
$
6,33740,342
 
Past Due Loans 30 – 89 Days
$
2,622
$
4,594
$
5,077
Performing Troubled Debt Restructurings
13,597122,301
 
$
13,887
15,934
Nonaccruing Loans/Loans HFI
0.26
%
0.29
%
0.26
%
Nonperforming Assets/Total
Assets
0.14
0.18
0.21
Nonperforming Assets/Loans HFI Plus OREO
0.27
0.33
0.34
Allowance/Nonaccruing Loans
410.78
405.66
432.61
(1)
Nonaccrual TDRs totaling $0.7 million, $0.5 million, and
$1.0 million are included in NALs for March
31, 2021, December 31,
2020 and March 31, 2020, respectively.
COVID-19 Exposure
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.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that
is deducted from the loans’ amortized cost basis to present
the net amount
expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision
which is reported in
earnings, and reduced by the charge-off
of loan amounts, net of recoveries.
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance
is confirmed.
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected
to be charged-off.
Expected credit loss inherent in non-cancellable off
-balance sheet credit
exposures is provided through the credit loss provision,
but recorded as a separate liability included in other liabilities.
Management estimates the allowance balance using
relevant available information, from internal and external
sources relating to past
events, current conditions, and reasonable and supportable
forecasts.
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
Adjustments to historical loss information incorporate
management’s view of current
conditions and forecasts.
39
At March 31, 2021, the allowance for credit losses for
loans HFI 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 detailed in Note 3 to the consolidated
financial
statements.
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 loans HFI 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 loans HFI compared to 1.30%
at December 31, 2020.
At March 31, 2021, the allowance for credit losses for
unfunded commitments totaled $3.0 million compared to $1.6 million
at
December 31, 2020 and $1.0 million at March 31,
2020.
The allowance for unfunded commitments is recorded in other liabilities.
Deposits
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.
Over the past twelve months, multiple government stimulus
programs have been implemented, including the CARES Act
and the American Rescue Plan Act, which are responsible for
a portion
of this growth. Given these large 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.
We monitor
deposit rates on an ongoing basis and adjust if necessary,
as a prudent pricing discipline remains the key to managing
our
mix of deposits.
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 also reported to the Board of Directors.
In addition, more frequent forecasts may be produced when
interest rates are
particularly uncertain or when other business conditions
so dictate.
108,614
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
36
Significant components of noninterest expense are discussed in more detail
below.
Compensation
.
Compensation expense totaled $25.2 million for the third quarter of 2021 compared
to $25.4 million for the second
quarter of 2021 and $26.2 million for the third quarter of 2020.
For the first nine months of 2021, compensation expense totaled $76.7
million compared to $69.6 million for the same period of 2020.
Compared to the third quarter of 2020, the $1.0 million decrease is
primarily due to lower incentive compensation at CCHL.
The $7.1 million increase for the nine month period was attributable to
compensation expense added through the CCHL acquisition on March
1, 2020.
Core CCBG compensation expense increased $1.5
million primarily due to merit raises.
Occupancy
.
Occupancy expense totaled $6.0 million for the third quarter of 2021, which was compar
able to the second quarter of
2021 and $5.9 million for the third quarter of 2020.
For the first nine months of 2021, occupancy expense totaled $18.0 million
compared to $16.7 million for the same period of 2020.
The increase for the nine month period was primarily due to the addition of
CCHL occupancy expense through the CCHL acquisition as well as higher
expense at core CCBG reflective of increased FF&E
depreciation related to an increase in technology investment.
Other
.
Other noninterest expense totaled $8.4 million for the third quarter of 2021
compared to $10.8 million for the second quarter
of 2021 and $8.3 million for the third quarter of 2020.
For the first nine months of 2021, other noninterest expense totaled $27.6
million compared to $22.4 million for the same period of 2020.
Compared to the second quarter of 2021, the $2.3 million decrease
was primarily attributable to lower pension plan settlement charge
s
of $1.5 million and lower OREO expense of $0.9 million due to
the sale of a banking office.
The $5.3 million increase for the nine month period was primarily due to the addition
of CCHL expenses
beginning in March 1, 2020, and to a lesser extent,
higher expenses at core CCBG, including processing fees of $0.6 million
(debit
card volume), professional fees of $0.5 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 pension expense for our
base pension plan increased $1.5 million attributable to the utilization
of a lower discount rate for plan liabilities.
We anticipate additional
pension settlement expense in the fourth quarter of 2021.
Our operating efficiency ratio (expressed as noninterest
expense as a percentage of the sum of taxable-equivalent net interest income
plus noninterest income) was 73.09% for the third quarter of 2021 compared
to 80.18% for the second quarter of 2021 and 67.01% for
the third quarter of 2020.
For the first nine months of 2021, this ratio was 75.83%
compared to 69.04% for the same period of 2020.
Additional detail on CCHL’s
operations and key performance metrics is provided below.
Three Months Ended
Nine Months Ended
(Dollars in thousands)
Sep 30, 2021
Jun 30, 2021
Sep 30, 2020
Sep 30, 2021
Sep 30, 2020
Net Interest Income
$
(30)
$
19
$
17
$
(165)
$
142
Mortgage Banking Fees
12,293
13,116
22,775
42,255
44,046
Other
455
425
287
1,306
587
Total Noninterest
Income
12,748
13,541
23,062
43,561
44,633
Salaries
7,600
8,538
10,753
26,414
21,376
Other Associate Benefits
215
210
192
646
446
Total Compensation
7,815
8,748
10,945
27,060
21,822
Occupancy, Net
849
854
845
2,564
1,844
Other
1,292
1,359
1,342
3,751
3,048
Total Noninterest
Expense
9,956
10,961
13,132
33,375
26,714
Operating Profit
$
2,762
$
2,599
$
9,947
$
10,021
$
18,061
Key Performance Metrics:
Total Loans Closed
$
360,167
$
406,859
$
526,252
$
1,230,151
$
1,139,681
Total Loans Closed -
Mix
Purchase
71%
76%
60%
69%
59%
Refinance
29%
24%
40%
31%
41%
37
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 18%) for the same period of 2020.
Absent discrete items, we expect our annual effective tax rate to
approximate 18%-19% for
the remainder of 2021.
FINANCIAL CONDITION
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.
Investment Securities
In the third quarter of 2021, our average investment portfolio increased
$217.9 million, or 31.5%, over the second quarter of 2021 and
increased $391.5 million, or 75.6%, over the fourth quarter of 2020.
Our investment portfolio represented 24.6% of our average
earning assets for the third quarter of 2021 compared to 15.5% for the fourth quarter
of 2020, and 17.3% for the third quarter of 2020.
During the second quarter of 2021, we initiated a buy program to add to our
investment portfolio as part of our overall balance sheet
management,
which was completed by the end of the third quarter 2021.
For the remainder of 2021, we will continue to monitor our
overall liquidity position and look for opportunities to purchase additional
investment securities that align with our overall investment
strategy.
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 third quarter of 2021, we purchased securities under both
the AFS and HTM designations.
At September 30, 2021, $645.8 million, or 65.4%, of our investment portfolio
was classified as AFS, and $341.2 million, or 34.6%,
classified as HTM.
The average maturity of our total portfolio at September 30, 2021 was 3.73
years compared to 3.34 years and 2.09
years at June 30, 2021 and December 31, 2020, respectively.
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
maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maintain
a trading portfolio.
At September 30, 2021, there were 288 positions (combined AFS and HTM)
with unrealized losses totaling $3.8 million at September
30, 2021.
Of these 288 positions, 178 are U.S. government agency securities issued by
U.S. government sponsored entities which
carry the full faith and credit guarantee of the U.S. Government and
are 0% risk-weighted assets for regulatory purposes. There were
28 U.S. government agency positions that carry the implicit guarantee
of the U.S. Government. We
believe the long history of no
credit losses on government securities indicates that the expectation of
nonpayment of the amortized cost basis is zero.
Four positions
are asset backed securities that carry a AAA rating.
The remaining 78 positions are corporate or municipal bonds that carry a
minimum credit rating of “A-“.
Corporate debt securities had allowance for credit losses totaling $16,000
at September 30, 2021.
Loans HFI
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.
Excluding SBA PPP loans, average loans increased $34.9 million and $125.2 million
and
period end loans increased $5.1 million and $102.8 million, respectively,
over the prior periods. 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.
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 adjustments as necessary.
38
Credit Quality
Nonperforming assets (nonaccrual loans and OREO, “NPAs”
)
totaled $3.2 million at September 30, 2021, a $3.1 million decrease
from June 30, 2021, and a $3.5 million decrease from December 31, 2020.
Nonaccrual loans totaled $3.0 million (0.16% of HFI
loans) at September 30, 2021
compared to $5.1 million (0.25% of HFI loans) at June 30, 2021 and $5.9
million (0.29% of HFI loans)
at December 31, 2020.
For additional metrics on NPAs
see the Asset Quality section of the Selected Quarterly Financial Data table.
For more information on nonaccrual loans see Note 3 – Loans Held for
Investment and Allowance for Credit Losses.
The balance of
OREO totaled $0.2 million at September 30, 2021, a decrease of $1.0
million from June 30, 2021
and $0.6
million from December 31,
2020.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from
the loans’ amortized cost basis to present the net amount
expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings, and reduced by the charge-off
of loan amounts (net of recoveries).
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed.
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to
be charged-off.
Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision, but recorded
as a separate liability included in other liabilities.
Management estimates the allowance balance using relevant available
information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable
forecasts.
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
Adjustments to historical loss information incorporate management’s
view of current
conditions and forecasts.
At September 30, 2021, the allowance for credit losses for loans HFI 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 detailed in Note 3 to the consolidated financial statements.
For the first nine months of 2021, the $2.3 million net decrease in the
allowance reflected net loan recoveries of $0.7
million,
favorable problem loan migration, and lower expected losses related to
COVID-19, partially offset by core loan growth (excluding
SBA PPP loans).
At September 30, 2021, the allowance represented 1.11%
of loans HFI and provided coverage of 710% of
nonperforming loans compared to 1.19% and 406%, respectively,
at December 31, 2020.
At September 30, 2021, the allowance for credit losses for unfunded
commitments totaled $3.1 million compared to $2.6 million at
June 30, 2021 and $1.6 million at December 31, 2020.
The allowance for unfunded commitments is recorded in other liabilities.
Deposits
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.
We monitor
deposit rates on an ongoing basis and adjust if necessary,
as a prudent pricing discipline remains the key to managing our
mix of deposits.
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.
��
39
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 also reported to the Board of Directors.
In addition, more frequent forecasts may be produced when interest rates are
particularly uncertain or when other business conditions so dictate.
Our interest rate risk management goal is to maintain expected changes
 
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
 
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
 
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
 
period and do not necessarily
indicate the long-term prospects or economic value
of the institution.
ESTIMATED CHANGES
 
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
March 31,September 30, 2021
40.6%30.6%
30.0%22.7%
19.4%14.8%
9.3%7.1%
-4.0%-5.7%
December 31, 2020June 30,2021
39.0%33.1%
28.7%24.4%
18.7%15.8%
9.0%7.6%
-3.0%-4.7%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
March 31,September 30, 2021
53.0%48.0%
37.0%35.0%
21.2%22.2%
6.2%10.0%
-14.2%-9.9%
December 31, 2020June 30,2021
54.2%46.0%
38.3%32.5%
22.6%19.1%
7.6%6.5%
-10.9%
The Net Interest Income at Risk position indicates
that in the short-term, all rising rate environments will positively
impact the net
interest margin of the Company,
while a declining rate environment of 100bp will have a
negative impact on the net interest margin.
Compared to the prior quarter-end, the 12-month
Net Interest Income at Risk position became more favorable in
all rising rate
scenarios, and was slightly less favorable in the falling
rate scenario due to the higher level of nonmaturity deposits, and
our limited
ability to lower deposit rates relative to the decline
in the market. Compared to the prior quarter-end, the 24-month
Net Interest
Income at Risk position became slightly less favorable
in all rate scenarios primarily due to the lower amount
of SBA PPP loan fees in
year two compared to year one.
All measures of Net Interest Income at Risk in rising rate
environments are within our prescribed policy limits over the next 12
-month
and 24-month periods. We
are out of compliance in the down 100bp scenario for the 24-month
period due to our limited ability to
lower our deposit rates relative to the decline in market rates.
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.-12.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
41The Net Interest Income at Risk positions indicate that, in the short-term,
all rising rate environments will positively impact the net
interest income of the Company,
while a declining rate environment of 100 bp will have a negative impact on
the net interest income.
Compared to the prior quarter-end, the 12-month
Net Interest Income at Risk position became less favorable in all rate scenarios
primarily due to lower levels of SBA PPP fee recognition coupled
with asset extension,
partially offset by higher rates.
Compared to
the prior quarter-end, the projected 24-month Net Interest
Income at Risk levels improved in rising rate scenarios due to higher
assumed replacement rates.
The down 100 bp scenario improved due to longer duration assets purchased over the
last two quarters.
All measures of Net Interest Income at Risk in rising rate and declining environments
are within our prescribed policy limits over the
next 12-month and 24-month periods.
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.
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
March 31,September 30, 2021
 
166.7%28.8%
132.0%22.3%
93.3%14.6%
50.0%7.9%
-54.0%-16.5%
March 31, 2021 (Alternate Scenario)June 30,2021
(2)47.9%
115.9%38.4%
87.8%27.5%
56.5%15.2%
22.1%
-3.1%
December 31, 2020
160.9%
127.5%
89.9%
48.4%
-90.4%
-35.2%
(1) Down 200, 300, and 400 bp scenarios have been excluded due
 
excluded due to the low interest rate environment.
(2)
For the rates down 100 bp scenario,
the high negative percentage change
is due to a negative value assigned to our nonmaturity
deposits.
Since we believe our nonmaturity deposits are
highly valued core franchise deposits, we run
an alternate EVE
calculation which caps the projected
value of our nonmaturity deposits at their book value.
At March 31,September 30, 2021,
the economic value of equity results are favorable
in all
rising rate environments and are within prescribed
tolerance levels, but arelevels.
Although the EVE in rates down 100 bp is slightly outside of our policy
range, to be out of compliance, both the
EVE percentage and EVE ratio (EVE/EVA)
must be out of their desired range. Since the EVE ratio was 9.1% in a down 100 bp
scenario, which is above the policy minimum of 5.0%, we are considered
to be within Board policy at September 30, 2021.
The change in EVE in all scenarios reflects longer duration assets purchased
over the last two quarters, primarily due to investment
purchases in the down 100bond portfolio. Given our asset sensitivity,
 
bpthese longer duration assets resulted in a less favorable EVE scenario.in rising rate
scenarios, and more favorable EVE output in the down 100bp scenario is extremefalling rate scenarios.
 
given the
historically low rate environment, in conjunction with
the high overnight funds sold balance.
Management is monitoring the EVE
analysis in light of the economic recovery and evaluating
various strategies.
As management believes there is more permanency to
recent deposit growth, we are planning to invest an additional
$500 million in the investment portfolio, which will lessen
the bank’s
asset sensitivity.
In an alternate EVE scenario where the value of our nonmaturity
deposits are capped at their book value, we are
within policy guidelines.
As the interest rate environment and the dynamics of the
economy continue to change, additional simulations will be analyzed
to
address not only the changing rate environment, but also
the changing balance sheet mix, measured over multiple
years, to help assess
the risk to the Company.
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,
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
 
cash generated from operations, our borrowing capacity and our access to
 
access to capital resources are
sufficient to meet our future operating capital
and funding requirements.
 
At March 31,September 30, 2021,
we had the ability to generate $1.262$1.456 billion
in additional liquidity
through all of our available resources (this
excludes $852$709 million in overnight funds sold).
 
In addition to the primary borrowing outlets mentioned
above, we also have
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
 
Reserve Discount Window and through
brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed a Contingent
 
a Contingent Liquidity Plan, which addresses various
liquidity stress
levels and our response and action based on the level
of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level
increases that certain credit facilities may
no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on
events that could potentially occur
at the Bank and report results to ALCO,
our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At March 31,September 30, 2021,
we believe the
liquidity available to us was sufficient to meet
our on-going needs
and execute our business strategy.
 
 
41
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 primarily consists of debt issued by the
U.S. Treasury,
 
U.S. governmental
governmental and federal agencies, municipal governments,
corporate bonds, and municipal governments.asset-backed securities.
 
The weighted average life
of the portfolio was approximately 2.78
3.73 years at March
31,September 30, 2021, and
 
and the available for sale portfolio had a net unrealized prepre-tax
-tax gainloss of $1.7$0.7 million.
 
Our average overnight funds position (defined deposits with banks plus
 
plus Fed funds sold less Fed funds purchased) was $814.6
$741.9 million
duringin the firstthird 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.
 
of
2020 and $234.4 million inThe decrease compared to the firstsecond quarter of 2020.2021 was primarily due to
growth in
the investment portfolio.
 
The increase compared to both prior periodsthe fourth quarter 2020 was driven by strong core
 
deposit inflowsgrowth, in addition to
related to pandemic related stimulus programs and growth
in our core deposits (see
Deposits
).programs.
 
We expect our
 
42
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 March 31,September 30, 2021,
average short term borrowings totaled $67.0 $49.8
million compared
to $51.2 million at June 30, 2021 and $95.3
million at December 31,
2020 and $32.9
million at March 31, 2020.
The variance over both prior periods
was attributable to the
fluctuation of residential mortgage warehouse
warehouse borrowings at CCHL.
 
Additional detail on these borrowings is provided in Note
4 – Mortgage Banking
Activities in the Consolidated
Consolidated Financial Statements.
 
At March 31,September 30, 2021,
fixed rate credit advances from the FHLB totaled $1.9$1.7
 
million in outstanding debt consisting of five notes. During
During the first threenine months of 2021, the Bank made FHLB advance payments
 
totaling approximately $0.3$0.5 million,
which included one
one advance that paid off, and another that matured. We
 
We did not obtain
any new FHLB advances during this period. The FHLB notes are
are collateralized by a blanket floating lien on all of our 1-4
family residential mortgage
loans, commercial real estate mortgage
loans, and
and home equity mortgage loans.
We have issued two
 
two junior subordinated deferrable interest notes to our wholly owned
 
wholly owned Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
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
 
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 ofcontinue to evaluate
 
evaluating the impact of the expected
expected discontinuation of LIBOR on our two junior subordinated deferrable
 
subordinated deferrable interest notes.
 
During the second quarter of 2020,
we entered into a derivative cash
flow hedge of our interest rate risk
related to our subordinated
debt.
 
The notional amount of the derivative is $30 million ($10 million of
the CCBG Capital Trust
I borrowing and $20 million
of the
CCBG Capital Trust II borrowing).
 
The interest rate swap agreement requires CCBG to pay fixed
and receive variable (Libor
plus
spread) and has an average all-in fixed rate of 2.50% for
10 years.
 
Additional detail on the interest rate swap agreement is provided
in
Note 5 – Derivatives in the Consolidated Financial Statements.
Capital
Our capital ratios are presented in the Selected Quarterly
Financial Data table
on page 31.
 
At March 31,September 30, 2021, our regulatory capital
capital ratios exceeded the threshold to be designated as “well-capita“well-capitalized”
 
lized” under the Basel III capital standards.
Shareowners’ equity was $324.4$348.9 million at MarchSeptember 30, 2021
 
31,compared to $335.9 million at June 30, 2021 compared toand $320.8 million at December 31, 2020
and $328.5 million at
MarchDecember 31, 2020.
 
DuringFor the first quarternine months of 2021, shareowners’ equity was positively impacted by
 
impacted by net income of $9.5$27.0 million, a $1.6
$1.0 million increase in fair value of the interest rate swap
related to subordinated
debt, net adjustments totaling $0.3
$2.2 million related to
transactions under our stock compensation plans, stockand reclassification of
 
compensation accretion$7.8 million from temporary equity to decrease the
redemption value of $0.2the non-controlling interest in CCHL.
In addition, $1.6 million and a $0.1 million
decrease in the
was reclassified from accumulated other
comprehensive loss for ourto pension expense in conjunction with the partial
 
plan.pension settlement charge reflected in earnings, therefore,
the
charge had no net effect on equity.
 
Shareowners’ equity was reduced by a common stock dividenddividends of $7.8 million
 
of $2.5
million ($0.15($0.46 per share), reclassification of $4.2 million
to temporary equity to increase the redemption value of the
non-controllinga
interest in CCHL, and a $1.4$3.2 million decrease in the
unrealized gain on investment securities, and
 
securities.stock compensation of $0.5 million.
42
At March 31,September 30, 2021, our common stock had a book value of $20.63
 
of $19.22 per diluted share compared to $19.05$19.87 at June 30, 2021
 
December 31, 2020 and
$19.5019.05 at MarchDecember 31, 2020.
 
Book value is impacted by the net after-tax unrealized gains and
losses on
AFS investment securities.
 
At
March 31,At September 30, 2021, the net gainloss was $1.7$0.5 million compared
to a $3.7 million net gain at December 31, 2020 and a $3.5$0.9 million
 
net gain at June 30, 2021 and a $2.7 million net gain
Marchat December 31, 2020.
 
Book value is also impacted by the recording of our unfunded pension liability
 
liability through other comprehensive income
income in accordance with Accounting Standards Codification Topic
 
715.
 
At March 31,September 30, 2021, the net pension liability reflected
in other
comprehensive loss was $47.1$45.6 million compared to $45.6 million
 
$47.3at June 30, 2021 and $47.2 million at December 31, 2020 and $29.0 million at March
31, 2020.
 
This
This liability is re-measured annually on December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant assumptions
assumptions used in calculating the liability are discussed in our 2020 Form
 
2020 Form 10-K “Critical Accounting Policies” and include the
weighted average
discount rate used to measure the present value of the pension
 
the pension liability, the weighted
 
weighted average expected long-term
rate of return on
pension plan assets, and the assumed rate of annual compensation
 
increases, all of which will vary when re-measured.
 
The discount
rate assumption used to calculate the pension liability is subject to
 
long-term corporate bond rates at December 31
st
.
 
The estimated
estimated impact to the pension liability based on a 25-basis point increase
 
increase or decrease in long-term corporate bond rates used to
to discount the
pension obligation would decrease or increase the pension
 
liability by approximately $6.6 million (after-tax) using the balances
from
balances from the December 31, 2020 measurement date.
 
43
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
 
to financial instruments with off-balance sheet risks in the normal
 
normal course of business to meet the financing needs of our
clients.
 
At March 31,September 30, 2021,
we had $770.3$750.4 million in commitments to extend
credit and $6.7
$5.7 million in standby letters of credit.
 
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
 
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.
 
Standby letters of credit are conditional commitments issued by
us to guarantee
the performance
of a client to a third party.
 
We use the same credit
 
credit policies in establishing commitments and issuing letters of
credit as we do for on-
balance
sheet instruments.
If commitments arising from these financial instruments
continue to require
funding at historical levels, management does no
tnot
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
 
believes current liquidity,
advances available from the
FHLB and the
Federal Reserve, and investment security maturities provide a sufficient
 
a sufficient source of funds to meet these commitments.
Certain agreements provide that the commitments are
 
are unconditionally cancellable by the bank and for those agreements
no allowance
for credit losses has been recorded.
 
We have recorded
 
an allowance for credit losses on loan commitments that are not
unconditionally cancellable by the bank, which is included in other
 
in other liabilities on the consolidated statements of financial condition
and
totaled $3.0$3.1 million at March 31,September 30, 2021.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note
1 to the Consolidated
Financial Statements included in our
2020 Form 10-K.
 
The preparation of our Consolidated Financial Statement
sStatements
 
in accordance with GAAP and reporting practices applicable
to the banking
industry requires us to make estimates and assumptions that affect
 
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 credit losses, (ii) valuation of goodwill and other
 
goodwill, identifiable intangible assets,
(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 2020 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
43
TABLE I
AVERAGE
BALANCES & INTEREST RATES
Three Months Ended September 30,
Nine Months Ended September 30,
 
March 31, 2021
December 31, 2020
March 31, 2021
2020
 
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
 
106,24267,753
$
 
970497
3.702.91
%
$
 
121,05292,522
$
 
878671
3.853.64
%
$
 
34,92383,558
$
 
2102,033
2.643.24
%
$
67,719
$
1,577
3.50
%
Loans Held for Investment
(1)(2)
2,044,3631,974,132
22,48325,458
4.465.12
1,993,4702,005,178
23,10323,027
4.554.53
1,847,7802,018,168
23,48272,036
5.114.76
1,945,524
69,598
4.77
Taxable Securities
528,842904,962
1,8632,333
1.411.03
513,277553,395
2,0722,401
1.611.73
629,512708,606
2,9956,232
1.911.17
594,654
8,104
1.82
Tax-Exempt Securities
(2)
3,8444,332
25
2.612.31
4,4854,860
3032
2.712.66
5,2933,904
2573
1.862.49
5,338
94
2.34
Funds Sold
814,638741,944
214285
0.110.15
705,125567,883
180146
0.10
234,372791,466
757698
1.300.12
385,245
991
0.34
Total Earning Assets
3,497,9293,693,123
25,55528,598
2.963.07
%
3,337,4093,223,838
26,26326,277
3.143.25
%
2,751,8803,605,702
27,46981,072
4.013.01
%
2,998,480
80,364
3.58
%
Cash & Due From Banks
68,97872,773
73,96869,893
56,95871,956
66,512
Allowance For LoanCredit Losses
(24,128)(22,817)
(23,725)(22,948)
(14,389)(23,241)
(19,672)
Other Assets
278,742283,534
264,784268,549
244,339281,162
257,993
TOTAL ASSETS
$
 
3,821,5214,026,613
$
 
3,652,4363,539,332
$
 
3,038,7883,935,579
$
3,303,313
 
Liabilities:
NOW Accounts
$
 
985,517945,788
$
 
7672
0.03
%
$
 
879,564826,776
$
 
6661
0.03
%
$
 
808,811965,839
$
 
725222
0.360.03
%
$
808,389
$
864
0.14
%
Money Market Accounts
269,829
33
0.05
261,543282,860
34
0.05
212,211247,185
11732
0.220.05
274,990
100
0.05
227,331
189
0.11
Savings Accounts
492,252551,383
6068
0.05
466,116438,762
5754
0.05
379,237524,710
46192
0.05
409,230
150
0.05
Other Time Deposits
102,089102,765
3936
0.14
104,522
43
0.16
102,619
112
0.15
102,809104,925
44144
0.17
105,542
51
0.190.18
Total Interest Bearing Deposits
1,849,6871,882,796
208210
0.04
1,617,245
190
0.05
1,710,0321,868,158
201626
0.050.04
1,505,8011,549,875
9391,347
0.250.12
Short-Term Borrowings
67,03349,773
412317
2.492.53
95,28074,557
639498
2.672.66
32,91555,923
1321,053
1.612.52
60,335
1,051
2.33
Subordinated Notes Payable
52,887
307
2.322.27
52,887
311316
2.34
52,887
922
2.30
52,887
4711,161
3.522.89
Other Long-Term Borrowings
2,7361,652
2114
3.183.37
3,7005,453
3040
3.182.91
6,3122,046
5051
3.213.29
5,842
131
3.00
Total Interest Bearing Liabilities
1,972,3431,987,108
948848
0.190.17
%
1,861,8991,750,142
1,1811,044
0.250.24
%
1,597,9151,979,014
1,5922,652
0.400.18
%
1,668,939
3,690
0.30
%
Noninterest Bearing Deposits
1,389,8211,564,892
1,356,1041,354,032
1,046,8891,490,787
1,220,002
Other Liabilities
111,050112,707
74,60583,192
59,587110,526
71,661
TOTAL LIABILITIES
3,473,2143,664,707
3,292,6083,187,366
2,704,3913,580,327
2,960,602
Temporary Equity
21,97720,446
16,15411,893
2,50622,920
7,534
 
TOTAL SHAREOWNERS’ EQUITY
326,330341,460
343,674340,073
331,891332,332
335,177
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
 
3,821,5214,026,613
$
 
3,652,4363,539,332
$
 
3,038,7883,935,579
$
3,303,313
 
Interest Rate Spread
2.772.91
%
2.883.01
%
3.612.83
%
3.29
%
Net Interest Income
$
24,60727,750
$
25,08225,233
$
25,87778,420
$
76,674
Net Interest Margin
(3)
2.852.98
%
3.003.12
%
3.782.91
%
3.42
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loanloans fees of $1.2 million, $1.1$3.2 million
 
and $0.2$0.7 million for the three month periods ended September
 
30, 2021 and
 
2020, respectively, and $6.3 million and $1.5 million for the three monthsnine month periods ended March 31, 2021, December 31, 2020 andSeptember
 
March 31,30, 2021 and 2020, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments using
 
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earningsearning assets.
4544
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, 2020.
Item 4. CONTROLS
 
CONTROLS AND PROCEDURES
At March 31,September 30, 2021, the end of the period covered by this
Form 10-Q, our management,
including our Chief Executive
Officer and
Chief Financial Officer, evaluated
 
evaluated the effectiveness of our disclosure controls
and procedures (as defined
in Rule 13a-15(e) under the
Securities Exchange Act of 1934).
 
Based upon that evaluation, the Chief Executive Officer
and Chief Financial
Officer concluded
that, as of the end of the period covered by this report these
disclosure controls and procedures
were effective.
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
 
Exchange Act of 1934).
 
During the quarter ended on March 31,September 30, 2021,
other than the above, 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
 
control over financial
reporting.
 
 
PART
 
II. OTHER
 
OTHER INFORMATION
Item 1. Legal
 
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
 
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 2020 Form 10-K, as updated
in our subsequent
quarterly reports. The risks described
in our 2020 Form
10-K and our subsequent quarterly reports 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
 
adversely affect our business, financial condition
and/or operating
results.
U.S. presidential directives concerning mandatory
COVID-19 vaccination could have a material adverse impact on our
business and results of operations.
On September 9, 2021, President Biden announced two actions that require
certain companies to ensure their employees are
vaccinated against COVID-19. One order applies to U.S. Government
contractors and the other directive applies to companies with
100 or more employees.
In the second directive, he required the Occupational Safety and Health Administration
(OSHA) to develop
an Emergency Temporary
Standard (ETS) mandating either that employees are fully vaccination against
COVID-19 or are tested
weekly. OSHA has not yet
issued the ETS nor provided any additional information on its contents or requirements.
Although we are not a U.S. Government contractor,
we do have more than 100 employees and will likely be subject to the ETS.
As a
result, we have set November 22, 2021 as the date that all of our associates will need to
comply with the U.S. presidential directive to
OSHA by being vaccinated against COVID-19 or tested weekly.
It is currently not possible to predict with certainty the impact the
OSHA ETS or any similar directives will have on our workforce.
Our implementation of these type of directives may result in
attrition, including attrition of our employees and difficulty
securing future labor needs, which could have a material adverse effect
on
our business, financial condition, and results of operations.
Item 2. Unregistered
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
Proceeds
None.
Item 3.
 
Item 3. Defaults
Upon Senior Securities
None.
Item 4. Mine
 
Mine Safety Disclosure
Not Applicable.
 
45
Item 5. Other
 
Other Information
None.
 
 
47
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
 
hereunto duly authorized.
CAPITAL
 
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
 
Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: April 30,
October 29, 2021