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
JuneSeptember 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 July 29,October 28, 2021,
16,874,27916,878,303
 
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 JUNESEPTEMBER 30, 2021
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – JuneSeptember 30, 2021 and December 31, 2020
4
Consolidated Statements of Income – Three and SixNine Months Ended JuneSeptember 30, 2021 and 2020
5
Consolidated Statements of Comprehensive Income – Three and SixNine Months Ended JuneSeptember 30, 2021 and 2020
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and SixNine Months Ended JuneSeptember 30, 2021 and 2020
7
Consolidated Statements of Cash Flows – SixNine Months Ended JuneSeptember 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 (including the Delta variant) 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 allowance
for credit losses,
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)
JuneSeptember 30,
December 31,
(Dollars in Thousands)Thousands, Except Par Value)
2021
 
2020
ASSETS
 
 
Cash and Due From Banks
$
78,89473,132
$
67,919
Funds Sold
 
766,920708,988
 
860,630
Total Cash and Cash
Equivalents
 
845,814782,120
 
928,549
 
 
Investment Securities, Available
 
for Sale, at fair value
 
480,890645,844
 
324,870
Investment Securities, Held to Maturity (fair value of $
329,881344,285
 
and $
175,175
)
 
325,559341,228
 
169,939
Total Investment
 
Securities
 
806,449987,072
 
494,809
 
Loans Held For Sale, at fair value
80,82177,036
 
114,039
 
Loans Held for Investment
2,008,6621,941,425
 
2,006,426
Allowance for Credit Losses
 
(22,175)(21,500)
 
(23,816)
Loans Held for Investment, Net
 
1,986,4871,919,925
 
1,982,610
 
 
Premises and Equipment, Net
 
85,74584,750
 
86,791
Goodwill and Other Intangibles
 
93,33393,293
 
89,095
Other Real Estate Owned
1,192192
808
Other Assets
 
111,618104,345
 
101,370
Total Assets
$
4,011,4594,048,733
$
3,798,071
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,552,8641,592,345
$
1,328,809
Interest Bearing Deposits
 
1,894,0571,873,617
 
1,888,751
Total Deposits
 
3,446,9213,465,962
 
3,217,560
 
 
Short-Term
 
Borrowings
 
47,20051,410
 
79,654
Subordinated Notes Payable
 
52,887
 
52,887
Other Long-Term
 
Borrowings
 
1,7201,610
 
3,057
Other Liabilities
 
105,534113,720
 
102,076
Total Liabilities
 
3,654,2623,685,589
 
3,455,234
Temporary Equity
21,31714,276
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;
16,874,27916,878,303
 
and
16,790,573
 
shares issued and outstanding at JuneSeptember 30, 2021 and December
31, 2020, respectively
169
168
Additional Paid-In Capital
 
33,56033,876
 
32,283
Retained Earnings
 
345,574359,550
 
332,528
Accumulated Other Comprehensive Loss, net of tax
 
(43,423)(44,727)
 
(44,142)
Total Shareowners’
 
Equity
 
335,880348,868
 
320,837
Total Liabilities, Temporary
 
Equity, and Shareowners' Equity
$
4,011,4594,048,733
$
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
 
JuneSeptember 30,
SixNine Months Ended
 
June
September 30,
(Dollars in Thousands, Except Per Share
 
Data)
2021
2020
2021
2020
INTEREST INCOME
Loans, including Fees
$
24,58225,885
$
23,68723,594
$
47,93273,817
$
47,28070,874
Investment Securities:
Taxable
2,0362,332
2,7082,400
3,8996,231
5,7048,105
Tax Exempt
18
2926
3856
4873
Funds Sold
 
200285
88146
413698
845991
Total Interest
Income
26,83628,520
26,51226,166
52,28280,802
53,87780,043
INTEREST EXPENSE
Deposits
208210
218190
416626
1,1571,347
Short-Term
 
Borrowings
324317
421498
7361,053
5531,051
Subordinated Notes Payable
308307
374316
615922
8451,161
Other Long-Term
 
Borrowings
1614
4140
3751
91131
Total Interest Expense
856848
1,0541,044
1,8042,652
2,6463,690
NET INTEREST INCOME
25,98027,672
25,45825,122
50,47878,150
51,23176,353
Provision for Credit Losses
(571)0
2,0051,308
(1,553)
6,9958,303
Net Interest Income After Provision For Credit Losses
26,55127,672
23,45323,814
52,03179,703
44,23668,050
NONINTEREST INCOME
Deposit Fees
4,2365,075
3,7564,316
8,50713,582
8,77113,087
Bank Card Fees
3,9983,786
3,1423,389
7,61611,402
6,1939,582
Wealth Management
 
Fees
3,2743,623
2,5542,808
6,3649,987
5,1587,966
Mortgage Banking Revenues
13,21712,283
19,39722,983
30,34242,625
22,65045,633
Other
1,7481,807
1,3501,469
3,4705,277
2,9054,374
Total Noninterest
 
Income
26,47326,574
30,19934,965
56,29982,873
45,67780,642
NONINTEREST EXPENSE
Compensation
25,37825,245
23,65826,164
51,44276,687
43,39469,558
Occupancy, Net
5,9736,032
5,7985,906
11,94017,972
10,77716,683
Other Real Estate Owned, Net
 
(270)(1,126)
116219
(388)(1,514)
(682)(463)
Pension Settlement
2,000500
0
2,0002,500
0
Other
9,0429,051
7,7318,053
17,60526,656
14,78322,836
Total Noninterest
 
Expense
42,12339,702
37,30340,342
82,599122,301
68,272108,614
INCOME BEFORE INCOME TAXES
10,90114,544
16,34918,437
25,73140,275
21,64140,078
Income Tax Expense
2,0592,949
2,9503,165
4,8467,795
4,2327,397
NET INCOME
8,84211,595
13,39915,272
20,88532,480
17,40932,681
Pre-Tax Income
 
Attributable to Noncontrolling Interests
(1,415)(1,504)
(4,253)(4,875)
(3,952)(5,456)
(3,976)(8,851)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
7,42710,091
$
9,14610,397
$
16,93327,024
$
13,43323,830
BASIC NET INCOME PER SHARE
$
0.440.60
$
0.550.62
$
1.001.60
$
0.801.42
DILUTED NET INCOME PER SHARE
$
0.440.60
$
0.550.62
$
1.001.60
$
0.801.42
Average Common
 
Basic Shares Outstanding
16,85816,875
16,79716,771
16,84816,857
16,80316,792
Average Common
 
Diluted Shares Outstanding
16,88516,909
16,83916,810
16,87416,886
16,84416,823
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
SixNine Months Ended
JuneSeptember 30,
JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
NET INCOME
$
7,42710,091
$
9,14610,397
$
16,93327,024
$
13,43323,830
Other comprehensive income, before
 
tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
(481)(1,935)
433(763)
(2,434)(4,361)
3,9803,217
Derivative:
Change in net unrealized gain on effective cash flow
 
flow derivative
(919)172
(104)157
1,2061,378
(104)52
Benefit Plans:
Reclassification adjustment for service cost
0
0
24
0
Actuarial gain
0
0
166
0
Defined benefit plan settlement
2,0000
0
2,000
0
Total Benefit Plans
2,0000
0
2,190
0
Other comprehensive (loss) income, before
 
tax
600(1,763)
329(606)
962(793)
3,8763,269
Deferred tax (benefit) expense related to other comprehensive
income
152(459)
52(149)
243(208)
951801
Other comprehensive (loss) income, net of tax
448(1,304)
277(457)
719(585)
2,9252,468
TOTAL COMPREHENSIVE
 
INCOME
$
7,8758,787
$
9,4239,940
$
17,65226,439
$
16,35826,298
The accompanying Notes to Consolidated Financial Statements are
 
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, AprilJuly 1, 2021
16,851,878
$
169
$
32,804
$
335,324
$
(43,871)
$
324,426
Net Income
-
0
0
7,427
0
7,427
Reclassification to Temporary
Equity
(1)
-
0
0
5,353
0
5,353
Other Comprehensive Income, net of tax
-
0
0
0
448
448
Cash Dividends ($
0.15
00 per share)
-
0
0
(2,530)
0
(2,530)
Stock Based Compensation
-
0
219
0
0
219
Stock Compensation Plan Transactions,
net
22,401
0
537
0
0
537
Balance, June 30, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
Balance, April 1, 2020
16,811,781
$
168
$
32,100
$
321,772
$
(25,533)
$
328,507
Net Income
-
0
0
9,14610,091
0
9,14610,091
Reclassification to Temporary
Equity
(1)
-
0
0
6,585
0
6,585
Other Comprehensive Income,Loss, net of tax
-
0
0
0
277(1,304)
277(1,304)
Cash Dividends ($
0.140.1600
00
per share)
-
0
0
(2,348)(2,700)
0
(2,348)
Repurchase of Common Stock
(43,878)
0
(863)
0
0
(863)(2,700)
Stock Based Compensation
-
0
77219
0
0
77219
Stock Compensation Plan Transactions,
net
12,3734,024
0
26197
0
0
26197
Balance, JuneSeptember 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
16,93327,024
0
16,93327,024
Reclassification to Temporary
 
Equity
(1)
-
0
0
1,1717,756
0
1,1717,756
Other Comprehensive Income,Loss, net of tax
-
0
0
0
719(585)
719(585)
Cash Dividends ($
0.30.4600
000
per share)
-
0
0
(5,058)(7,758)
0
(5,058)(7,758)
Stock Based Compensation
-
0
438657
0
0
438657
Stock Compensation Plan Transactions,
net
83,70687,730
1
839936
0
0
840937
Balance, JuneSeptember 30, 2021
16,874,27916,878,303
$
169
$
33,56033,876
$
345,574359,550
$
(43,423)(44,727)
$
335,880348,868
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
13,43323,830
0
13,43323,830
Reclassification to Temporary
Equity
(1)
-
0
0
(3,075)
0
(3,075)
Other Comprehensive Income, net of tax
-
0
0
0
2,9252,468
2,9252,468
Cash Dividends ($
0.280.4200
00
per share)
-
0
0
(4,705)(7,052)
0
(4,705)(7,052)
Repurchase of Common Stock
(76,952)(99,952)
(1)
(1,570)(2,042)
0
0
(1,571)(2,043)
Stock Based Compensation
-
0
368610
0
0
368610
Stock Compensation Plan Transactions,
net
85,68489,872
1
685765
0
0
686766
Balance, JuneSeptember 30, 2020
16,780,27616,761,464
$
168
$
31,57531,425
$
328,570333,545
$
(25,256)(25,713)
$
335,057339,425
(1)
Adjustment to redemption value for non-controlling
 
non-controlling interest
in Capital City Home Loans.
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
 
(Unaudited)
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2021
2020
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income
 
$
16,93327,024
$
13,43323,830
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
(1,553)
6,9958,303
 
Depreciation
3,7825,666
3,4005,174
 
Amortization of Premiums, Discounts and Fees, net
5,94611,401
3,4145,256
 
Amortization of Intangible Asset
4080
0
 
Pension Plan Settlement ChargeCharges
2,0002,500
0
 
Originations of Loans Held-for-Sale
(877,613)(1,247,119)
(431,775)(561,609)
 
Proceeds From Sales of Loans Held-for-Sale
941,1731,326,747
385,518500,190
 
Net Gain From Sales of Loans Held-for-Sale
(30,342)(42,625)
(20,844)(45,633)
 
Net Additions for Capitalized Mortgage Servicing Rights
(8)138
0
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
(250)
0
 
Stock Compensation
438657
368610
 
Net Tax Benefit From Stock-Based
 
Stock-Based Compensation
(4)
(84)
 
Deferred Income Taxes
(469)(3,085)
(695)(1,127)
 
Net Change in Operating Leases
(81)(122)
498811
 
Net Gain on Sales and Write-Downs of
Other Real Estate Owned
(507)(1,640)
(915)(876)
 
Net IncreaseDecrease (Increase) in Other Assets
(9,789)70
(23,035)(23,482)
 
Net Increase in Other Liabilities
2,4728,283
36,25132,808
Net Cash Provided By (Used In) Operating Activities
52,16886,168
(27,471)(55,829)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(201,308)(235,356)
(32,250)
 
Payments, Maturities, and Calls
44,23861,673
38,36267,245
Securities Available for
 
for Sale:
 
Purchases
(255,379)(478,000)
(38,364)(77,775)
 
Payments, Maturities, and Calls
94,911148,968
102,846153,702
Purchases of Loans Held for Investment
(70,043)(92,336)
(18,359)(29,538)
Net Decrease (Increase) in Loans Held for Investment
64,708150,590
(167,587)(134,416)
Net Cash Paid for Acquisitions
(4,482)
(2,405)
Proceeds From Sales of Other Real Estate Owned
1,1213,892
1,8002,558
Purchases of Premises and Equipment
(3,215)(4,590)
(6,842)(7,842)
Noncontrolling Interest Contributions
3,4645,424
02,091
Net Cash Used In Investing Activities
(325,985)(444,217)
(122,799)(58,630)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
229,361248,402
309,542363,992
Net (Decrease) Increase in Short-Term
 
Borrowings
(32,668)(28,458)
57,46084,438
Repayment of Other Long-Term
 
Borrowings
(1,123)(1,233)
(837)(1,152)
Dividends Paid
(5,058)(7,758)
(4,705)(7,052)
Payments to Repurchase Common Stock
0
(1,571)(2,043)
Issuance of Common Stock Under Purchase Plans
570667
386466
Net Cash Provided By Financing Activities
191,082211,620
360,275438,649
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(82,735)(146,429)
210,005324,190
Cash and Cash Equivalents at Beginning of Period
 
928,549
378,423
Cash and Cash Equivalents at End of Period
 
$
845,814782,120
$
588,428702,613
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
1,8772,679
$
2,6553,673
 
Income Taxes Paid
$
9,36912,759
$
3,6136,991
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
9981,636
$
9911,956
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,
 
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
 
examinations by those regulatory authorities.
Basis of Presentation
.
 
The consolidated financial statements in this Quarterly Report on Form
 
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.
 
presentation.
The accompanying unaudited consolidated financial statements have
 
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
 
normal recurring accruals) considered necessary for a fair
presentation have been included.
 
The consolidated statement of financial condition at December 31,
 
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
 
and footnotes thereto
included in the Company’s annual
 
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,
 
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.
 
CCSWCCBG 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 (Topic
 
848).
 
ASU 2020-04 provides optional expedients and exceptions for applying
GAAP
to loan and lease agreements, derivative contracts, and other transactions
 
other transactions affected by the anticipated transition
away from LIBOR
toward new interest rate benchmarks. For transactions that
 
that are modified because of reference rate reform and that meet certain
scope
guidance (i) modifications of loan agreements should be accounted
 
be accounted for by prospectively adjusting the effective
interest rate and
the
modification will be considered "minor" so that any existing unamortized
 
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 2020-042020
-04 also provides numerous optional expedients
for derivative
accounting.
 
ASU 2020-04 is effective March 12, 2020 through December
 
December 31, 2022.
 
An entity may elect to apply ASU 2020-04 for
contract modifications as of January 1, 2020, or prospectively from a
 
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
 
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
 
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 (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
 
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-maturity
and the corresponding
amounts of gross unrealized gains and
losses.
JuneSeptember 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
$
161,247164,806
$
22090
$
590849
$
160,877164,047
$
103,547
$
972
$
0
$
104,519
U.S. Government Agency
226,807249,649
2,0871,793
593970
228,301250,472
205,972
2,743
184
208,531
States and Political Subdivisions
13,55543,834
6069
8357
13,60743,546
3,543
89
0
3,632
Mortgage-Backed Securities
56,894(1)
5697,131
0240
56,950164
97,207
456
59
0
515
Corporate Debt Securities
14,35784,331
313
0567
14,36083,777
0
0
0
0
Equity Securities
(1)(2)
6,795
0
0
6,795
7,673
0
0
7,673
Total
 
$
479,655646,546
$
2,4262,205
$
1,1912,907
$
480,890645,844
$
321,191
$
3,863
$
184
$
324,870
Held to Maturity
U.S. Government Treasury
$
110,926115,903
$
590
$
64348
$
110,921115,555
$
5,001
$
13
$
0
$
5,014
Mortgage-Backed Securities
214,633225,325
4,5793,941
252536
218,960228,730
164,938
5,223
0
170,161
Total
 
$
325,559341,228
$
4,6383,941
$
316884
$
329,881344,285
$
169,939
$
5,236
$
0
$
175,175
Total Investment
 
Securities
$
805,214987,774
$
7,0646,146
$
1,5073,791
$
810,771990,129
$
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 JuneSeptember 30, 2021 and includes Federal Home Loan Bank and
 
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 $
348.7312.3
 
million and $
308.2
 
million at JuneSeptember 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 JuneSeptember 30, 2021, the Company's investment securities had the following
 
following 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
$
52,05339,614
 
$
52,07539,423
 
$
0
 
$
0
Due after one year through five years
 
170,442264,747
 
 
169,879263,661
 
 
110,926115,903
 
 
110,921115,555
Due after five year through ten years
 
17,64566,347
 
 
17,62065,614
 
 
0
 
 
0
Mortgage-Backed Securities
56,89497,131
56,95097,207
214,633225,325
218,960228,730
U.S. Government Agency
 
175,826171,912
 
 
177,571173,144
 
 
0
 
 
0
Equity Securities
 
6,795
 
 
6,795
 
 
0
 
 
0
Total
 
$
479,655646,546
 
$
480,890645,844
 
$
325,559341,228
 
$
329,881344,285
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
JuneSeptember 30, 2021
Available for
 
Sale
U.S. Government Treasury
$
114,398143,394
 
$
590849
 
$
0
 
$
0
 
$
114,398143,394
 
$
590849
U.S. Government Agency
84,107118,969
530859
8,90612,168
63111
93,013131,137
593970
States and Political Subdivisions
3,39427,355
 
8357
 
0
 
0
 
3,39427,355
 
8357
Mortgage-Backed Securities
40,012
164
0
0
40,012
164
Corporate Debt Securities
57,304
567
0
0
57,304
567
Total
 
201,899387,034
 
1,1282,796
 
8,90612,168
 
63111
 
210,805399,202
 
1,1912,907
 
Held to Maturity
U.S. Government Treasury
 
57,803115,555
 
64348
 
 
0
 
0
 
 
57,803115,555
 
 
64348
Mortgage-Backed Securities
51,20893,023
 
252536
 
0
 
0
 
51,20893,023
 
252536
Total
 
$
109,011208,578
 
$
316884
 
$
0
 
$
0
 
$
109,011208,578
 
$
316884
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 JuneSeptember 30, 2021, there were
150288
 
positions (combined AFS Available-for-Sale
and HTM)Held-to-Maturity) with unrealized losses totaling
$
1.53.8
 
million.
145206
 
of these
positions were U.S. government agency securities issued by U.S. government
 
U.S. government sponsored entities.
 
The remainingMunicipal
5securities 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, and because quality.
 
the Company had the ability and intent to hold these investmentsThe remaining
53
 
until there is a recoverypositions were corporate debt securities.
A majority of the decline in fairthe market value whichof these
may be at maturity,securities were attributable to changes in interest rates.
 
the Company did
0
t record anyThese investment securities had allowance for credit losses on any investment securitiestotaling $
16,000
 
at June
September 30, 2021.
 
Additionally,
0
neNone of the securities held by the Company were past due
or in nonaccrual status at June
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)
JuneSeptember 30, 2021
 
December 31, 2020
Commercial, Financial and Agricultural
$
292,953218,929
 
$
393,930
Real Estate – Construction
 
149,884177,443
 
 
135,831
Real Estate – Commercial Mortgage
 
707,599683,379
 
 
648,393
Real Estate – Residential
(1)
 
368,457362,750
 
 
352,543
Real Estate – Home Equity
 
190,078187,642
 
 
205,479
Consumer
(2)
 
299,691311,282
 
 
270,250
Loans HFI, Net of Unearned Income
$
2,008,6621,941,425
 
$
2,006,426
(1)
Includes loans in process with outstanding balances
 
balances of $
7.47.1
 
million and $
10.9
 
million at JuneSeptember 30, 2021 and December 31, 2020,
2020,
respectively.
(2)
Includes overdraft balances of $
1.21.3
 
million and $
0.7
 
million at JuneSeptember 30, 2021 and December 31, 2020, respectively.
 
Net deferred loan costs, which include premiums on purchased loans,
 
loans, included in loans were $
0.53.7
 
million at JuneSeptember 30, 2021 and net
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 $
6.45.6
 
million at JuneSeptember 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 Purchase and Sales
.
The Company will periodically purchase newly originated 1-4 family real
estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party.
Residential loan purchases from CCHL totaled $
72.7
million for the
nine month period ended 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.
Loan Purchases
.
The Company will periodically purchase newly originated 1-4
family real estate secured adjustable rate loans from
Capital City Home Loans (“CCHL”), a related party.
Residential loan purchases from CCHL totaled $
51.1
million for the six month
period ended June 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.
 
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
JuneSeptember 30, 2021
Beginning Balance
$
1,957
$
2,254
$
6,956
$
5,204
$
2,575
$
3,080
$
22,026
Provision for Credit Losses
(56)
505
587
(1,030)
(114)
(76)
(184)
Charge-Offs
(32)
0
0
(65)
(74)
(670)
(841)
Recoveries
103
0
26
244
70
731
1,174
Net (Charge-Offs) Recoveries
71
0
26
179
(4)
61
333
Ending Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,175
SixProvision 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
 
JuneSeptember 30, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(370)(192)
280797
(131)(1,719)
(1,335)(1,768)
(769)(900)
(171)740
(2,496)(3,042)
Charge-Offs
(101)(138)
0
0(405)
(71)(88)
(79)(94)
(1,726)(3,040)
(1,977)(3,765)
Recoveries
239305
010
671840
319720
194240
1,4092,376
2,8324,491
Net (Charge-Offs) Recoveries
138167
010
671435
248632
115146
(317)(664)
855726
Ending Balance
$
1,9722,179
$
2,7593,286
$
7,5695,745
$
4,3534,304
$
2,4572,357
$
3,0653,629
$
22,17521,500
Three Months Ended
JuneSeptember 30, 2020
Beginning Balance
$
2,247
$
1,239
$
5,828
$
6,005
$
2,701
$
3,063
$
21,083
Provision for Credit Losses
333
716
742
(615)
40
399
1,615
Charge-Offs
(186)
0
0
(1)
(52)
(1,175)
(1,414)
Recoveries
74
0
70
51
64
914
1,173
Net Charge-Offs
(112)
0
70
50
12
(261)
(241)
Ending Balance
$
2,468
$
1,955
$
6,640
$
5,440
$
2,753
$
3,201
$
22,457
SixProvision 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
 
JuneSeptember 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
739544
1,2831,444
1,5162,132
1,089745
141337
1,8372,668
6,6057,870
Charge-Offs
(548)(685)
0
(11)(28)
(111)(112)
(83)(141)
(2,741)(3,810)
(3,494)(4,776)
Recoveries
114188
0
261291
91126
97138
1,6092,126
2,1722,869
Net Charge-Offs
(434)(497)
0
250
(20)263
14
(1,132)(3)
(1,322)(1,684)
(1,907)
Ending Balance
$
2,4682,210
$
1,9552,116
$
6,6407,269
$
5,4405,130
$
2,7532,932
$
3,2013,480
$
22,45723,137
For the sixnine month period ended JuneSeptember 30, 2021, the allowance for
 
for HFI loans decreased by $
1.62.3
 
million and reflected a negative
provision of $
2.53.0
 
million and net loan recoveries of $
0.90.7
 
million.
 
The negative provision generally 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 totaling
$0.9 million.recoveries.
 
Three unemployment rate forecast scenarios were utilized to estimate probability
 
probability of default and were
weighted based on
management’s estimate
 
estimate of probability.
 
The mitigating impact of the unprecedented fiscal stimulus as well as various
government
various government sponsored loan programs, was also considered.
 
See Note 8 – Commitments and Contingencies for information on
on 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
JuneSeptember 30, 2021
Commercial, Financial and Agricultural
$
353499
$
736
$
0
$
360535
$
292,565218,353
$
2841
$
292,953218,929
Real Estate – Construction
 
0
8400
0
8400
149,044177,443
0
149,884177,443
Real Estate – Commercial Mortgage
 
309
155364
0
4640
705,614364
1,521683,015
707,5990
683,379
Real Estate – Residential
 
394735
211177
0
605912
365,329359,861
2,5231,977
368,457362,750
Real Estate – Home Equity
 
8276
13819
0
22095
188,930186,581
928966
190,078187,642
Consumer
 
1,0611,196
195258
0
1,2561,454
298,325309,786
11042
299,691311,282
Total
$
2,1992,870
$
1,546490
$
0
$
3,7453,360
$
1,999,8071,935,039
$
5,1103,026
$
2,008,6621,941,425
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.
JuneSeptember 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
$
2841
$
0
$
0
$
161
$
0
$
0
Real Estate – Construction
 
0
 
0
0
179
0
0
Real Estate – Commercial Mortgage
 
1,0270
 
4940
0
337
1,075
0
Real Estate – Residential
 
1,5881,061
 
935916
0
1,617
1,513
0
Real Estate – Home Equity
 
928503
 
0463
0
695
0
0
Consumer
 
11042
 
0
0
294
0
0
Total Nonaccrual
 
Loans
$
3,6811,647
$
1,4291,379
$
0
$
3,283
$
2,588
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
 
JuneSeptember 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
1,7340
0
3,900
0
Real Estate – Residential
2,1921,891
0
3,022
0
Real Estate – Home Equity
 
700665
 
0
 
219
 
0
Consumer
 
0
 
270
 
0
 
29
Total Collateral Dependent
 
Loans
$
4,6262,556
$
270
$
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 JuneSeptember 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”).
 
At JuneSeptember 30, 2021, the Company had $
9.98.5
 
million in TDRs, of which $
9.07.9
 
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 $
0.40.3
 
million and $
0.6
 
million of
credit loss reserves at JuneSeptember 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 JuneSeptember 30, 2021 there was
1
loan modified with a recorded investment of $
0.1
million.
For the three months ended Juneand September 30, 2020, there
were
20
 
loans modified with a recorded investment of $
0.1
modified.
 
million.
For
For the sixnine month period ended JuneSeptember 30, 2021, there were
3
 
loans modified with a recorded investment of $
0.6
 
million.
 
For
the six
nine month period ended JuneSeptember 30, 2020, there were
3
 
loans modified with a recorded investment of $
0.2
 
million.
 
For the three and sixnine month period ended JuneSeptember 30, 2021,
 
there were
0
 
loans classified as TDRs, for which there was a payment
payment default and the loans were modified within the 12 months
 
prior to default.
 
For the three and nine month period ended June
September 30, 2020, 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 six month period ended June 30, 2020, there were
2
loans 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, underwriting standards and
 
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.
 
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 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
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
 
currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous
 
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
The following table summarizes gross loans held for
investment at June September
30, 2021
by years of origination and internally
assigned credit
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
$
96,16051,866
$
56,46638,453
$
37,28834,226
$
24,61222,539
$
11,52510,376
$
17,65114,072
$
48,60646,969
$
292,308218,501
Special Mention
570
0
18070
32
1
5112
0
32149
0
131
Substandard
 
0
 
1110
 
0
 
228204
 
226
 
2877
 
350
 
324297
Total
$
96,21751,866
$
56,47738,463
$
37,46834,296
$
24,87222,755
$
11,54810,382
$
17,73014,198
$
48,64146,969
$
292,953218,929
Real Estate -
Construction:
Pass
$
41,18375,222
$
78,59772,664
$
23,85423,588
$
488429
$
134132
$
0
$
4,0735,408
$
148,329
Special Mention
715
0
0
0
0
0
0
715
Substandard
0
840
0
0
0
0
0
840177,443
Total
$
41,89875,222
$
79,43772,664
$
23,85423,588
$
488429
$
134132
$
0
$
4,0735,408
$
149,884177,443
Real Estate -
Commercial Mortgage:
Pass
$
108,247139,623
$
155,143142,833
$
98,59187,251
$
111,327103,059
$
66,38167,392
$
96,83497,842
$
22,35819,690
$
658,881657,690
Special Mention
0
26454
4,5101,552
16,7209,727
4,601431
13,3045,423
40
39,16517,587
Substandard
 
1,5611,520
 
583585
 
3,589
90
1,799
1,9313,517
 
0
 
9,5531,266
990
224
8,102
Total
$
109,808141,143
$
155,752143,872
$
106,69092,320
$
128,137112,786
$
72,78169,089
$
112,069104,255
$
22,36219,914
$
707,599683,379
Real Estate - Residential:
Pass
$
83,586105,611
$
76,61672,091
$
50,77944,393
$
34,01029,792
$
31,30728,447
$
71,82766,748
$
7,9068,538
$
356,031355,620
Special Mention
0
139136
2120
123122
170169
529419
0
982866
Substandard
 
9361,290
 
1,908441
 
2,7831,051
 
1,732812
 
1,113221
 
2,8722,373
 
10076
 
11,4446,264
Total
 
$
84,522106,901
$
78,66372,668
$
53,58345,464
$
35,86530,726
$
32,59028,837
$
75,22869,540
$
8,0068,614
$
368,457362,750
Real Estate - Home
Equity:
Performing
$
15599
$
6056
$
353452
$
179176
$
755749
$
2,0911,756
$
185,557183,388
$
189,150186,676
Nonperforming
 
0
 
0
 
0
 
0
 
0
 
033
 
928933
 
928966
Total
 
$
15599
$
6056
$
353452
$
179176
$
755749
$
2,0911,789
$
186,485184,321
$
190,078187,642
Consumer:
Performing
$
96,878136,780
$
84,46273,778
$
52,43745,252
$
37,37231,530
$
16,46013,377
$
6,6524,666
$
5,3195,857
$
299,580311,240
Nonperforming
0
0
517
34
14
5824
0
1111
0
42
Total
$
96,878136,780
$
84,46273,778
$
52,44245,269
$
37,40631,554
$
16,47413,377
$
6,7104,667
$
5,3195,857
$
299,691311,282
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 sixnine month period of 2020, information provided below
reflects CCHL activities
for the
period March 1, 2020
to JuneSeptember 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.
JuneSeptember 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
$
78,11174,491
$
80,82177,036
$
109,831
$
114,039
Residential Mortgage Loan Commitments ("IRLCs")
(1)
107,79787,062
2,5241,717
147,494
4,825
Forward Sales Contracts
(2)
99,000102,500
(90)451
158,500
(907)
$
83,25579,204
$
117,957
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at fair value
at September 30, 2021 and December 31, 2020, respectively
The Company had
0
 
residential mortgage loans held for sale that were 90 days or more
outstanding or on nonaccrual
at June September
30, 2021
and had $
0.6
 
million at December 31, 2020.
 
Mortgage banking revenue was as follows:
Three Months Ended
SixNine Months Ended
 
JuneSeptember 30,
 
JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
Net realized gains on sales of mortgage loans
$
13,53412,132
$
14,58021,423
$
27,95840,089
$
17,98739,410
Net change
in unrealized
gain on mortgage loans held for sale
532(165)
1,0921,499
(1,499)(1,663)
1,8303,329
Net change in the fair value of mortgage loan commitments
(IRLCs)
(458)(806)
1,487691
(2,301)(3,108)
3,1423,833
Net change in the fair value of forward sales contracts
(1,446)540
1,625560
8171,358
231791
Pair-Offs on net settlement of forward
sales contracts
(476)(636)
(3,019)(3,049)
2,8352,199
(4,395)(7,445)
Mortgage servicing rights additions
453205
2,049763
640845
2,0492,813
Net origination fees
1,0781,013
1,5831,096
1,8922,905
1,8062,902
Total mortgage banking
 
banking revenues
$
13,21712,283
$
19,39722,983
$
30,34242,625
$
22,65045,633
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
JuneSeptember 30, 2021
December 31, 2020
Number of residential mortgage loans serviced for others
2,0082,028
1,796
Outstanding principal balance of residential mortgage loans serviced
 
loans serviced for others
$
498,984505,321
$
456,135
Weighted average
 
interest rate
3.61%3.62%
3.64%
Remaining contractual term (in months)
318316
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 JuneSeptember 30, 2021, the servicing portfolio balance consisted of
 
of the following loan types: FNMA
(
6260
%),
GNMA (
109
%), and private investor (
2831
%).
 
FNMA and private investor loans are structured as actual/actual payment
payment remittance.
 
The Company had $
2.83.0
 
million and $
4.9
 
million in delinquent residential mortgage loans currently
in GNMA pools
serviced by the
Company at JuneSeptember 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 and six monthsmonth period ended JuneSeptember 30, 2021, the Company
 
repurchased $did
0.70
t repurchase any delinquent residential loans currently in
GNMA pools.
 
million and For the nine month period ended September 30, 2021, the Company repurchased
$
2.2
 
million respectively,
of GNMA
delinquent or
defaulted mortgage loans with the intention
to modify their terms and include
the loans in new GNMA pools.
 
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
Beginning balance
$
3,5833,710
$
9102,862
$
3,452
$
910
Additions due to loans sold with servicing retained
453205
2,049763
640845
2,0742,813
Deletions and amortization
(326)(351)
(97)(277)
(632)(983)
(122)(375)
Valuation
 
allowance reversal
0
0
250
0
Ending balance
$
3,7103,564
$
2,8623,348
$
3,7103,564
$
2,8623,348
The Company did
0
t record any permanent impairment losses on mortgage servicing
rights for the
three or sixnine month periods ended
JuneSeptember 30, 2021 and JuneSeptember 30, 2020.
 
The key unobservable inputs used in determining the
fair value of the Company’s mortgage
 
mortgage servicing rights were as follows:
JuneSeptember 30, 2021
December 31, 2020
Minimum
Maximum
Minimum
Maximum
Discount rates
11.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
13.09%13.53%
22.68%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
16.5217.34
% at JuneSeptember 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 June
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.
$
5,630(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.
7,77221,942
$
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%
.
29,195
(2)
19,376
Total Warehouse
 
Borrowings
$
42,59747,844
(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 JuneSeptember 30, 2021, the Company had mortgage loans held
for sale
pledged as collateral under the above warehouse lines
of credit and
master repurchase agreements.
 
The above agreements also contain
contain covenants which include certain financial requirements, including maintenance
 
including maintenance of minimum tangible net worth,
minimum liquid
liquid assets, maximum debt to net worth ratio and positive net income,
 
income, as defined in the agreements.
 
The Company was in
compliance with
all significant debt covenants
at JuneSeptember 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 Consolidated Statement of
 
Statement of Financial Condition.
 
The balance of this line of credit at June
September 30,
2021 was $
27.727.0
 
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 JuneSeptember 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
 
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)
JuneSeptember 30, 2021
Interest rate swaps related to subordinated debt
$
30,000
$
1,7801,952
Other Assets
9.08.8
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 sixnine month periods ended September
June 30, 2021
and JuneSeptember 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 JuneSeptember 30, 2021
$
(686)
Interest Expense
$
(37)
Three months ended June 30, 2020
(108)
Interest Expense
(3)
Six months ended June 30, 2021
$
900128
 
Interest Expense
$
(70)(41)
SixThree months ended JuneSeptember 30, 2020
(108)129
Interest Expense
(3)(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 $
1.72.0
 
million and $
0.5
 
million at JuneSeptember 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.
 
The Company’s operating
 
leases primarily relate to banking offices with remaining lease terms
 
lease terms from
1
 
to
44
 
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 JuneSeptember 30, 2021, the operating
operating lease ROU assets and liabilities were $
11.9
 
million and $
12.712.5
 
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
SixNine Months Ended
JuneSeptember 30,
JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
Operating lease expense
$
362369
$
265273
$
7061,075
$
422695
Short-term lease expense
170181
154145
310490
233378
Total
 
lease expense
$
532550
$
419418
$
1,0161,565
$
6551,073
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
402410
$
263271
$
7861,197
$
424695
Right-of-use assets obtained in exchange for new operating lease liabilities
440269
085
515784
5,1205,206
Weighted average
 
remaining lease term — operating leases (in years)
25.125.0
15.515.4
25.125.0
15.515.4
Weighted average
 
discount rate — operating leases
2.0%
2.4%2.3%
2.0%
2.4%2.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
The table below summarizes the maturity of remaining
lease liabilities:
(Dollars in Thousands)
JuneSeptember 30, 2021
2021
$
816413
2022
1,4801,499
2023
1,0861,129
2024
1,0331,088
2025
855911
2026 and thereafter
11,16511,199
Total
$
16,43516,239
Less: Interest
(3,780)(3,720)
Present Value
 
of Lease liability
$
12,65512,519
At JuneSeptember 30, 2021, the Company had additional operating lease payments
 
lease payments for
2
 
banking offices that have not yet commenced totaling
totaling $
4.8
 
million based on the initial contract term of
15 years
.
 
Payments for the banking offices are expected to commence after the
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 JuneSeptember 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 JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
Service Cost
$
1,743
$
1,457
$
3,4865,229
$
2,9144,371
Interest Cost
1,221
1,400
2,4423,664
2,8114,212
Expected Return on Plan Assets
(2,787)
(2,748)
(5,574)(8,361)
(5,496)(8,245)
Prior Service Cost Amortization
4
4
811
811
Net Loss Amortization
1,691
974
3,3825,073
1,9852,959
Settlement Loss
2,000500
0
2,0002,500
0
Special Termination
 
Charge
0
0
0
61
Net Periodic Benefit Cost
$
3,8722,372
$
1,087
$
5,7448,116
$
2,2833,369
Discount Rate
2.88%
3.53%
2.88%
3.53%
Long-term Rate of Return on Assets
6.75%
7.00%
6.75%
7.00%
In the second quarter of 2021, lump sum payments
made under the Company’s defined
 
defined benefit pension plan triggered settlement
accounting.
 
In accordance with the applicable accounting guidance for defined
benefit plans, the Company
recorded a settlement loss
losses of $
2.0
 
million.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 JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
Service Cost
$
9
$
10
$
1827
$
1021
Interest Cost
61
83
120183
155238
Prior Service Cost Amortization
69
109
88157
109218
Net Loss Amortization
243
7193
441683
318410
Net Periodic Benefit Cost
$
382
$
273295
$
6671,050
$
592887
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:
JuneSeptember 30, 2021
December 31, 2020
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
204,549214,666
$
560,909535,695
$
765,458750,361
$
160,372
$
596,572
$
756,944
Standby Letters of Credit
 
6,5875,652
 
0
 
6,5875,652
6,550
 
0
 
6,550
Total
$
211,136220,318
$
560,909535,695
$
772,045756,013
$
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 cance
llablecancellable 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 JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2021
2020
2021
2020
Beginning Balance
$
2,9742,587
$
1,033
$
1,644
$
157
Impact of Adoption of ASC 326
0
0
0
876
Provision for Credit Losses
(387)530
391434
9431,473
391434
Ending Balance
$
2,5873,117
$
1,4241,467
$
2,5873,117
$
1,4241,467
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 outcooutcome of which
 
me 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.
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 $
205,000206,000
.
 
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
 
positions are classified as level 2 within the fair value
hierarchy and are valued
using
models generally accepted in the financial services industry and
 
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
 
based upon the revised share conversion rate, if any,
 
during the
period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
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
JuneSeptember 30, 2021
ASSETS:
Securities Available for
 
for Sale:
U.S. Government Treasury
$
160,877164,047
$
0
$
0
$
160,877164,047
U.S. Government Agency
0
228,301250,472
0
228,301250,472
States and Political Subdivisions
0
13,60743,546
0
13,60743,546
Mortgage-Backed Securities
0
56,95097,207
0
56,95097,207
Corporate Debt Securities
0
14,36083,777
0
14,36083,777
Equity Securities
(1)
0
6,795
0
6,795
Loans Held for Sale
0
80,82177,036
0
80,82177,036
Interest Rate Swap Derivative
0
1,7801,952
0
1,7801,952
Mortgage Banking Hedge Derivative
0
451
0
451
Mortgage Banking IRLC Derivative
0
0
2,5241,717
2,5241,717
Mortgage Servicing Rights
0
0
3,9003,830
3,900
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
90
$
0
$
903,830
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 related to mortgage
 
to mortgage banking activities of $
27.4
26.2
million and $
19.338.6
 
million, respectively,
 
for the sixnine month period ending JuneSeptember 30, 2021 and $
14.634.0
 
million and $
19.440.3
 
million,
respectively, for the
 
period March 1, 2020 to JuneSeptember 30, 2020.
 
Issuances are valued based on the change in fair value of
the underlying
underlying mortgage loan from inception of the IRLC to the balance
 
sheet date, adjusted for pull-through rates and costs to originateoriginate.
 
.
IRLCs
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 ValValue
 
ue 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.
 
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 $
4.72.6
 
million with a valuation allowance of $
0.60.1
 
million at JuneSeptember 30, 2021
2021 and $
7.1
 
million and $
0.1
 
million, respectively,
 
at December 31, 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
Other Real Estate Owned
.
 
During the first sixnine months of 2021,
certain foreclosed assets, upon initial recognition,
were measured
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 JuneSeptember 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
of the following:
 
 
JuneSeptember 30, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
78,89473,132
$
78,89473,132
$
0
$
0
Short-Term
Investments
766,920708,988
766,920708,988
0
0
Investment Securities, Available
 
for Sale
480,890645,844
160,877164,047
320,013481,797
0
Investment Securities, Held to Maturity
325,559341,228
110,921115,555
218,960228,730
0
Equity Securities
(1)
3,588
0
3,588
0
Loans Held for Sale
80,82177,036
0
80,82177,036
0
Interest Rate Swap Derivative
1,7801,952
0
1,7801,952
0
Mortgage Banking Hedge Derivative
451
0
451
0
Mortgage Banking IRLC Derivative
2,5241,717
0
0
2,5241,717
Mortgage Servicing Rights
3,7103,564
0
0
3,9003,830
Loans, Net of Allowance for Credit Losses
$
1,986,4871,919,925
$
0
$
0
$
1,988,2971,919,442
LIABILITIES:
Deposits
$
3,446,9213,465,962
$
0
$
3,350,6143,327,728
$
0
Short-Term
 
Borrowings
47,20051,410
0
47,20051,410
0
Subordinated Notes Payable
52,887
0
42,60942,359
0
Long-Term Borrowings
1,7201,610
0
1,804
0
Mortgage Banking Hedge Derivative
$
90
$
0
$
90
$1,681
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
(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.
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
 
(1,816)(3,249)
 
9001,029
 
1,635
 
719(585)
Balance as of JuneSeptember 30, 2021
$
884(549)
 
$
1,3281,457
 
$
(45,635)
 
$
(43,423)(44,727)
Balance as of January 1, 2020
$
864
 
$
0
 
$
(29,045)
 
$
(28,181)
Other comprehensive income during the period
 
3,0042,429
 
(79)39
 
0
 
2,9252,468
Balance as of JuneSeptember 30, 2020
$
3,8683,293
 
$
(79)39
 
$
(29,045)
 
$
(25,256)(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, retail securities brokerage,
 
and life insurance.
 
We offer
 
residential mortgage banking services through Capital City
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
 
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.
On April 30, 2021, a newly formed subsidiary
of CCBG, Capital City Strategic Wealth,
 
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
 
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 ongoing global and local responses to the COVID-19
pandemic and the new Delta variant continue to impact
our clients and
associates as they adjust to the changing conditions presented
by the pandemic.
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 and the
current Delta variant surge have the potential to
create widespread business continuity issues for the Company.
Congress, the President, and the Federal Reserve have
taken and continue to take 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 appeared that epidemiological and macroeconomic
conditions were trending in a positive direction in
the first quarter of 2021, if the Delta variant continues to
cause case counts to 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’s
variants, and any potential resulting measures to curtail their
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 belo
w.
●
We continue
to closely monitor COVID-19 and adjust our operations, as needed,
to the changing case counts and impacts of
COVID-19 in our communities.
●
We have established
a tentative return to work date for all associates, but we
will adjust as necessary depending on changing
conditions.
●
All of our banking offices have returned to
normal banking hours and lobby services; however,
we will adjust such hours and
services as necessary depending on the changing conditions.
●
We are adhering
to national guidelines and local safety ordinances to protect
both clients and associates.
●
We continue
to support clients with the Small Business Administration Payment
Protection Program (“SBA PPP”) by actively
assisting with the Round 1 and 2 forgiveness process.
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 and other identifiable intangi
 
identifiable intangibleble 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
.names.
 
The GAAP to non-GAAP reconciliation for each quarter presented
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
Shareowners' Equity (GAAP)
$
348,868
$
335,880
$
324,426
$
320,837
$
339,425
$
335,057
$
328,507
$
327,016
$
321,562
Less: Goodwill and Other Intangibles (GAAP)
93,293
93,333
89,095
89,095
89,095
89,095
89,275
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
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
Less: Goodwill and Other Intangibles (GAAP)
93,293
93,333
89,095
89,095
89,095
89,095
89,275
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
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%
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
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
Summary of Operations
:
Interest Income
$
28,520
$
26,836
$
25,446
$
26,154
$
26,166
$
26,512
$
27,365
$
28,008
$
28,441
Interest Expense
848
856
948
1,181
1,044
1,054
1,592
1,754
2,244
Net Interest Income
27,672
25,980
24,498
24,973
25,122
25,458
25,773
26,254
26,197
Provision for Credit Losses
-
(571)
(982)
1,342
1,308
2,005
4,990
(162)
776
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
Noninterest Income
26,574
26,473
29,826
30,523
34,965
30,199
15,478
13,828
13,903
Noninterest Expense
(1)
39,702
42,123
40,476
41,348
40,342
37,303
30,969
29,142
27,873
Income
 
Before
 
Income Taxes
14,544
10,901
14,830
12,806
18,437
16,349
5,292
11,102
11,451
Income Tax Expense
2,949
2,059
2,787
2,833
3,165
2,950
1,282
2,537
2,970
(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
Net Interest Income (FTE)
$
27,750
$
26,064
$
24,607
$
25,082
$
25,233
$
25,564
$
25,877
$
26,378
$
26,333
 
Per Common Share
:
Net Income Basic
$
0.60
$
0.44
$
0.56
$
0.46
$
0.62
$
0.55
$
0.25
$
0.51
$
0.51
Net Income Diluted
0.60
0.44
0.56
0.46
0.62
0.55
0.25
0.51
0.50
Cash Dividends Declared
0.16
0.15
0.15
0.15
0.14
0.14
0.14
0.13
0.13
Diluted Book Value
20.63
19.87
19.22
19.05
20.20
19.92
19.50
19.40
19.14
Diluted Tangible Book Value
(2)
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
Market Price:
 
High
26.10
27.39
28.98
26.35
21.71
23.99
30.62
30.95
28.00
 
Low
22.02
24.55
21.42
18.14
17.55
16.16
15.61
25.75
23.70
 
Close
24.74
25.79
26.02
24.58
18.79
20.95
20.12
30.50
27.45
 
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
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
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
Deposits3,447,688
3,387,352
3,239,508
3,066,136
2,971,277
2,783,453
2,552,690
2,524,951
2,495,755
Shareowners’ Equity
341,460
329,040
326,330
343,674
340,073
333,515
331,891
326,904
320,273
Common Equivalent Average Shares:
 
Basic
16,875
16,858
16,838
16,763
16,771
16,797
16,808
16,750
16,747
 
Diluted
16,909
16,885
16,862
16,817
16,810
16,839
16,842
16,834
16,795
Performance Ratios:
Return on Average Assets
 
0.99
%
0.75
%
1.01
%
0.84
%
1.17
%
1.10
%
0.57
%
1.14
%
1.14
%
Return on Average Equity
11.72
9.05
11.81
8.97
12.16
11.03
5.20
10.39
10.51
Net Interest Margin (FTE)
2.98
2.89
2.85
3.00
3.12
3.41
3.78
3.89
3.92
 
Noninterest Income as % of
 
Operating Revenue
48.99
50.47
54.90
55.00
58.19
54.26
37.52
34.50
34.67
Efficiency Ratio
73.09
80.18
74.36
74.36
67.01
66.90
74.89
72.48
69.27
 
Asset Quality:
Allowance for Credit Losses ("ACL")
$
21,500
$
22,175
 
$
22,175
$
22,026
$
23,816
$
23,137
$
22,457
$
21,083
$
13,905
$
14,319
ACL to Loans HFI
1.11
%
1.10
%
1.07
%
1.19
%
1.16
%
1.11
%
1.13
%
0.75
%
0.78
%
Nonperforming Assets (“NPAs”)
3,218
6,302
5,472
6,679
6,732
8,025
6,337
5,425
5,454
 
NPAs to Total
 
Assets
0.08
0.16
0.14
0.18
0.19
0.23
0.21
0.18
0.19
NPAs to Loans HFI plus OREO
0.17
0.31
0.27
0.33
0.34
0.40
0.34
0.29
0.30
ACL to Non-Performing Loans
710.39
433.93
410.78
405.66
420.30
322.37
432.61
310.99
290.55
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
Capital Ratios:
Tier 1 Capital
15.69
%
15.44
%
16.08
%
16.19
%
16.77
%
16.59
%
16.12
%
17.16
%
16.83
%
Total Capital
16.70
16.48
17.20
17.30
17.88
17.60
17.19
17.90
17.59
Common Equity Tier 1
13.45
13.14
13.63
13.71
14.20
14.01
13.55
14.47
14.13Leverage
Leverage9.05
8.84
8.97
9.33
9.64
10.12
10.81
11.25
11.09
 
Tangible Common Equity
(2)
6.46
6.19
6.13
6.25
7.16
7.21
7.98
8.06
8.31
 
(1)
Includes apartial 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
 
$0.10/share (after-tax), partial pension settlement charge
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.
 
Net income of $10.1 million, or $0.60 per diluted share, for the third quarter of 2021
compared to net income
of $7.4 million, or $0.44 per diluted share, for
the second quarter of 2021 compared to net202
income of $9.51, and $10.4 million, or $0.56$0.62 per diluted share, for
the first quarter of 2021, and $9.1 million, or $0.55 per
diluted share, for thethird
second quarter of 2020.
 
For the first sixnine months of 2021, net income totaled $16.9$27.0 million, or $1.60 per
 
$1.00 per diluted share, compared to net
income of $13.4$23.8 million, or $0.80$1.42 per diluted share,
for the same period of 2020.
 
Net income for the second quarter of 2021 included partial pre-tax pension
a partial pension settlement charge of $2.0charges totaling $2.5 million (3Q - $0.5 million
 
million (pre-tax)and 2Q - $2.0 million), or $0.10$0.12 per diluted share (after-tax)(after tax).
Net Interest Income.
 
Tax-equivalent net
 
net interest income for the secondthird quarter of 2021
 
was $26.1$27.7 million compared to $24.6$26.1 million for
for the firstsecond quarter of 2021 and $25.6$25.2 million for the second
third quarter of 2020.
 
For the first sixnine months of 2021, tax-equivalent net
interest income totaled $50.7$78.4 million compared to $51.4
$76.7 million for the
same period of 2020.
 
Loan growth and higherHigher SBA PPP loanfees/interest and a
feesbetter earning asset mix drove the improvement over the firstsecond quarter
of 2021.
 
For the sixnine month period, the decreaseincrease generally reflected
lower rates
earned on investment securities and variable/adjustable rate
loans partially offset byreflected higher SBA PPP loan fees
fees/interest and lower interest expense, partially
offset by lower rates earned on investment securities
expense.
and variable/adjustable rate loans.
Provision and Allowance for Credit
 
Losses.
 
ProvisionA 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
compared to a negative provision of $1.0 million for the
 
first quarter of 2021 and provision expense of $2.0$1.3 million
for the secondthird
quarter of 2020.
 
For the first sixnine months of 2021, we recorded a negative provision
of $1.6 million
compared
 
to provision expense of
$7.08.3 million for the same period of 2020.
 
The negative provision for the first halfnine months of 2021 generally reflected improving
economic conditions,
 
improving economic
conditionsfavorable loan migration and strong net loan recoveries.
recoveries totaling $0.7 million.
Noninterest Income.
 
Noninterest income for the secondthird quarter of 2021 totaled $26.6 million compared
 
totaledto $26.5 million compared to $29.8 million for the firstsecond
quarter of 2021 and $30.2$35.0 million for the secondthird quarter
of 2020.
 
The aforementioned declines wereslight increase over the second quarter of 2021 was primarily due to
lower mortgage
banking revenues at CCHL, but were partially offset
by improvements into higher deposit fees of $0.8 million and wealth management fees and bankof
 
card fees.$0.3 million, partially offset by lower mortgage banking
revenues of $0.9 million.
 
For the first six
nine months of 2021, noninterest income totaled $56.3$82.9 million
 
compared to $45.7$80.6 million for
the same period of 2020 with the increase
driven by the additionhigher wealth management
fees of CCHL mortgage banking
revenues late in the first quarter of 2020, and strong growth
in$2.0 million, bank card fees andof $1.8 million,
wealth management fees.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 Expense.
 
Noninterest expense for the secondthird quarter of 2021 totaled $39.7 million compared
 
$42.1 million compared to $40.5$42.1 million for the firstsecond
quarter of 2021 and $37.3$40.3 million for the secondthird quarter
of 2020.
 
The $1.6$2.4 million increase overdecrease from the firstsecond quarter of 2021 reflected a
pension settlement charge of $2.0 million in the second quarter of
 
a2021 versus $0.5 million in the third quarter of 2021.
In addition,
$2.0OREO 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 attributable to the addition of expenses at CCHL (acquired
March 1, 2020) of $6.7 million as well as higher
expenses at the core bank totaling $7.0 million driven primarily by
partial pension settlement chargecharges of $2.5 million, annual merit
that was partially offset by lower commission expense at CCHLraises, debit card processing costs (volume related),
 
and lower legalprofessional fees,
and other real estate owned (“OREO”) expense at CCB.FDIC insurance.
 
Compared to the prior year periods, the increase was primarily
attributable to
the aforementioned partial pension settlement charge
,
lower realized loan cost, higher pension plan expense (driven by
a lower
discount rate for plan liabilities), and performance based
compensation.
Additionally, the increase for
the six month period included
operating expenses of CCHL from March 1, 2020 forward.
Financial Condition
Earning Assets.
 
Average earning assets were
 
assets were $3.624$3.693 billion for the secondthird quarter of 2021, an
increase of $126.0$69.2 million,
or 3.6%1.9%, over
over the firstsecond quarter of 2021, and an increase of $286.5
$355.7 million, or 8.6%10.7% over
 
over the fourth quarter of 2020.
 
The increase over both prior
periods was primarily driven by higher deposit balances,
which funded growth
in both overnight funds sold and the investment
portfolio.
 
Deposit balances increased
as a result of strong core deposit
growth, in addition to funding retained
at the bank from
SBA
PPP loans, and various other stimulus
programs.
 
Loans
.
 
Average loans held for investment
 
for investment (“HFI”) decreased $7.6$62.6 million, or 0.4%3.1%,
from the firstsecond quarter of
2021 and increased $43.3$19.3
million, or 2.2%1.0%, overfrom the fourth quarter of 2020.
 
Excluding SBA PPP loans, average core loans grew $54.4increased $34.9 million
and $90.4 million$125.2
over both respective periodsmillion and period end loans
grew $74.3 increased $5.1 million and $97.7 million over both respective periods.$102.8
 
Growthmillion, respectively, over the
prior periods. Compared to the second
quarter of 2021, the increase in
period end loans was driven primarilyreflected growth in the commercialconstruction
 
mortgage,and indirect and construction categories.loans, partially offset by a decline in
commercial real estate.
 
At June 30, 2021, SBA PPP
loan balances totaled $79.9 million and remainingCompared to the fourth quarter of 2020, we realized growth in construction, residential,
 
deferred SBA PPP net loan fees totaled $3.5 million.commercial real
estate and indirect loans.
 
Credit Quality
.
 
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 compared to $5.4 million (0.26% of HFI
loans) at March 31, 2021 and $5.9 million (0.29
%
(0.29% of HFI loans) at
December 31, 2020.
 
Classified loans totaled $19.4$16.3 million, $20.6
$19.4 million, and $17.6
million at the same respective periods.
 
Deposits
.
 
Average total
 
deposits increased $147.8$60.3 million, or 4.6%1.8%, over the firstsecond quarter of 2021,
 
of 2021, and $321.2
$381.6 million, or 10.5%12.4%, over
over the fourth quarter of 2020.
 
Over the past 12 months, multiple government stimulus programs have
 
programs have been implemented, including the
the CARES Act and the American Rescue Plan Act, which are responsible
 
responsible for a large portion of this growth.
Capital
.
At June 30, 2021, we were well-capitalized with a total risk-based
capital ratio of 16.48%
and a tangible common equity
ratio (a non-GAAP financial measure) of 6.19% compared
to 17.20% and 6.13%, respectively,
at March 31, 2021 and 17.30%
and
6.25%, respectively,
at December 31, 2020.
At June 30, 2021, all of our regulatory capital ratios exceeded
the threshold to be well-
capitalized under the Basel III capital standards.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 following table provides a condensed summary of
our results of operations
- a discussion of the various components
are discussed
in further detail below.
 
Three Months Ended
SixNine Months Ended
June 30,
March 31,
JuneSeptember 30,
June 30,
JuneSeptember 30,
September 30,
September 30,
(Dollars in Thousands, except per share data)
2021
2021
2020
2021
2020
Interest Income
$
28,520
$
26,836
$
25,44626,166
$
26,51280,802
$
52,282
$
53,87780,043
Taxable Equivalent Adjustments
78
84
109111
106270
193
210321
Total Interest Income (FTE)
28,598
26,920
25,55526,277
26,61881,072
52,475
54,08780,364
Interest Expense
848
856
9481,044
1,0542,652
1,804
2,6463,690
Net Interest Income (FTE)
27,750
26,064
24,60725,233
25,56478,420
50,671
51,44176,674
Provision for Credit Losses
-
(571)
(982)
2,0051,308
(1,553)
6,9958,303
Taxable Equivalent Adjustments
78
84
109111
106270
193
210321
Net Interest Income After Provision for Credit Losses
27,672
26,551
25,48023,814
23,45379,703
52,031
44,23668,050
Noninterest Income
26,574
26,473
29,82634,965
30,19982,873
56,299
45,67780,642
Noninterest Expense
39,702
42,123
40,47640,342
37,303122,301
82,599
68,272108,614
Income Before Income Taxes
14,544
10,901
14,83018,437
16,34940,275
25,731
21,64140,078
Income Tax Expense
2,949
2,059
2,7873,165
2,9507,795
4,846
4,2327,397
Pre-Tax Income Attributable to Noncontrolling
 
Noncontrolling Interest
(1,504)
(1,415)
(2,537)(4,875)
(4,253)(5,456)
(3,952)
(3,976)(8,851)
Net Income Attributable to Common Shareowners
$
10,091
$
7,427
$
9,50610,397
$
9,14627,024
$
16,933
$
13,43323,830
 
Basic Net Income Per Share
$
0.60
$
0.44
$
0.560.62
$
0.551.60
$
1.00
$
0.801.42
Diluted Net Income Per Share
$
0.60
$
0.44
$
0.560.62
$
0.551.60
$
1.00
$
0.80
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 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
 
in Table I on page 44.43.
Tax-equivalent net
 
Tax-equivalent
net interest income for the secondthird quarter of 2021 totaled $26.1$27.7 million compared
 
million compared to $24.6$26.1 million for the firstsecond quarter
of 2021 and $25.6$25.2 million for the secondthird quarter of 2020.
 
Compared to the firstsecond quarter of 2021, the increase reflected higher
 
higher SBAloan
fees of $1.3 million (SBA PPP loan fees of $0.7 million, higher loan interest ofincreased $1.0 million) and
 
$0.5 million driven by loan growth, and higher investment
securities income of
$0.2 $0.3 million, which
reflected deployment of excess overnight
funds into the investment portfolio.
 
ComparedAlso, 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 driven byprimarily attributable to higher SBA PPP loan fees of
 
$1.3 million partially offset by lower interest earnedof $2.5
 
on investment
securities and variable/adjustable rate loans.million.
 
For the first sixnine months of
2021, tax-equivalent net interest income totaled $78.4 million compared
 
totaled $50.7 million
compared to $51.4$76.7 million for the same period of 2020.
 
The decrease increase
generally reflected higher SBA PPP loan fees/interest and lower interest expense,
partially offset by lower rates earned on investment
securities
securities and variable/adjustable rate loans partially offset
by higher SBA PPP loan fees and lower interest expense.
loans.
Our net interest margin for the secondthird quarter
of 2021 was 2.89%2.98%, an increase
of threenine basis points over
the firstsecond quarter of 2021 and a
decrease of 5214 basis points from the secondthird quarter of
2020.
Compared to the first quarter of 2021, the increase was driven
by higher
SBA PPP loan fees.
 
Compared to the second quarter of 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
 
attributable to downward re-pricing ofgrowth in
earning assets and significant growth in overnight
funds (driven by deposit inflows),
which negatively impactsimpacted our
margin percentage.
 
For the first sixnine months of 2021, the
net interest margin
decreased 7251 basis points to 2.87%2.91%,
which generally reflective of downward
re-
pricing of ourreflected growth in earning assets (variable/adjustable rate
loans and securities portfolio) partially offset by
a lower cost of funds and higher
SBA PPP
loan fees.assets.
 
Our net interest margin for
the secondthird quarter
of 2021, excluding the impact of overnight funds in excess of $200
 
excess of
$200 million, was 3.46%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
 
We recorded
record a negative 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 compared to a negative provision
of
$1.0 million for the first quarter of 2021 and provision expense
of $2.0$1.3 million for the second third
quarter of 2020.
 
For the first sixnine months
of 2021, we
recorded a negative provision of $1.6 million
compared to provision
expense of $7.0$8.3 million for the same period
of 2020.
The negative provision for the first halfnine months of 2021 generally reflected
 
reflected improving economic conditions and strong net loan recoveries
recoveries totaling $0.9 $0.7
million.
 
We discuss the allowance
 
for credit losses further below.
 
For more information on charge-offs and recoveries,
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
 
Noninterest incometo $26.5 million for the second quarter of 2021 totaledand
$26.5 million compared to $29.835.0 million for the first quarter of 202
1
and
$30.2 million for the secondthird quarter of 2020.
 
The primary reason forslight increase over the aforementioned declines weresecond 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
 
dueattributable to lower
mortgage banking revenues at CCHL but wereof
$10.7 million, partially
offset by improvements inhigher deposit fees
of $0.8 million, wealth management fees of $0.8 million, and bank card
 
bank card fees.fees of
$0.4 million.
 
The
decline in mortgage banking fees reflected lower production
volume (primarily re-finance activity) and a lower gain on
sale margin.
For the first sixnine months of 2021, noninterest income totaled $82.9 million
 
totaled $56.3 million compared to $45.7$80.6 million for the same
period
of 2020 with
the increase driven by the additionhigher wealth management
fees of CCHL mortgage
banking revenues late in the first quarter of 2020, and higher
$2.0 million, bank card fees of $1.8 million, deposit fees
of $0.5 million, and wealth management fees which grew $1.4other income of $0.9 million (primarily loan servicing
 
and $1.2 million, respectively.income at CCHL), partially offset by lower mortgage
banking revenues of $3.0 million.
Noninterest income represented 50.5%49.0% of operating revenues (net
 
(net interest income plus noninterest income) in the secondthird quarter
of 2021
2021
compared to 54.9%50.5% in the firstsecond quarter of 2021 and 54.3%58.2% in the secondthird quarter
 
quarter of 2020.
 
For the first sixnine months of 2021,
noninterest income represented 52.7%51.5% of operating revenues compared
 
compared to 47.1%51.4% for the same period of 2020.
 
The table below reflects the major components of noninterest income.
 
 
Three Months Ended
SixNine Months Ended
June 30,
March 31,
JuneSeptember 30,
June 30,
JuneSeptember 30,
September 30,
September 30,
(Dollars in Thousands)
2021
2021
2020
2021
2020
Deposit Fees
$
5,075
$
4,236
$
4,2714,316
$
3,75613,582
$
8,507
$
8,77113,087
Bank Card Fees
3,786
3,998
3,6183,389
3,14211,402
7,616
6,1939,582
Wealth Management
 
Fees
3,623
3,274
3,0902,808
2,5549,987
6,364
5,1587,966
Mortgage Banking Revenues
12,283
13,217
17,12522,983
19,39742,625
30,342
22,65045,633
Other
1,807
1,748
1,7221,469
1,3505,277
3,470
2,9054,374
Total
 
Noninterest Income
$
26,574
$
26,473
$
29,82634,965
$
30,19982,873
$
56,299
$
45,677
80,642
Significant components of noninterest income are
discussed in more
detail below.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $13.2$12.3 million for the third quarter of 2021
 
compared to $13.2
million for the second quarter of 2021 compared to $17.1
and $23.0 million for the first quarter of 2021 and $19.4 millionthird
 
for the second quarter of 2020.
 
For the sixnine months of 2021, revenues totaled
$30.342.6 million compared to $22.7$45.6 million for the same period
of 2020.
 
Lower production volume and gain on sale margin drove
the
decline fromCompared to the firstsecond quarter of 2021 and third quarter of
2020, the decrease was attributable to lower production volume and a lower
 
lower gain on sale margin was the primary reason
for the decline versus the second quarter
of 2020.margin.
 
The increase overdecrease from the sixnine month
period of 2020 reflected the additionwas primarily attributable to a lower gain on sale margin.
 
of CCHLAdditional information on our mortgage banking revenues late in the firstsubsidiary,
quarter of 2020 and overall higher production volumeCCHL, is provided on page 36.
 
reflective of the significant reduction in interest rates.
Deposit Fees
. Deposit fees for the secondthird quarter of 2021 totaled $4.2$5.1 million, an increase
 
a decrease of $0.1$0.8 million, or 0.8%19.8%, fromover the firstsecond
quarter of 2021, and an
increase of $0.5$0.8 million, or 12.8%17.6%, over the second
 
third quarter of 2020.
 
For the first sixnine months of 2021, deposit
fees totaled $8.5$13.6 million, a decreasean increase of $0.3$0.5 million, or
3.0% 3.8%, fromover the same period
of 2020.
 
Compared to all prior periods, the
variances
were driven by the utilization of our overdraft service which has been
volatile during the pandemic given the timing of
various stimulus paymentsincrease was primarily attributable to consumers over the past 12
months and higher monthly service charge fees.
 
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 secondthird quarter of 2021 totaled $4.0
$3.8 million, a $0.4$0.2 million, or 10.5%5.3%, increase over
decrease from the firstsecond
quarter of 2021, and a $0.9$0.4 million, or 27.2%11.7
%, increase over
the secondthird quarter of 2020.
 
For the first sixnine months of 2021, bank card
fees totaled $7.6$11.4 million, an
increase of $1.4 million,$1.8
 
million, or 23.0%19.0%, over the same period of 2020.
 
Compared to allThe increase over the prior year
periods the
improvementgenerally reflected higheran increase in card-not-present debit card activity driven by increased
 
transactions as well increased consumer spending,
which we believe is reflective of the economic
recovery.
spending.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Wealth
 
Management Fees
.
 
Wealth management fees,
 
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 $3.3$3.6 million for the second
third quarter of 2021, a
a $0.2$0.3
 
million, or 6.0%, increase over the first quarter of 2021 and
a $0.7 million, or 28.2%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 sixnine months of 2021, wealth management fees totaled
 
fees totaled $6.4$10.0 million, an
increase of $1.2$2.0 million,
or 23.4%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 JuneSeptember 30,
2021, total assets under management were approximately
 
$2.1902.24 billion compared
compared to $1.979 billion at December 31, 2020 and $1.750$1.823 billion
 
at JuneSeptember 30, 2020.
 
Other.
 
Other income for the secondthird quarter of 2021 totaled $1.7$1.8 million, a $0.1 million, or
 
million, comparable to3.4%, increase over the firstsecond quarter of
2021, and $0.4$0.3 million,
or
29.5% 23.0%, over the secondthird quarter of 2020.
 
For the first sixnine months of 2021, other income totaled $3.5$5.3 million,
an increase of $0.6$0.9
million, or 19.4%20.6%, over the same period of 2020.
 
The increase over both prior year periods was primarily
attributable to higher loan servicing fees at CCHL.
 
to loan servicing
fees added as part of the CCHL acquisition.
Noninterest Expense
 
Noninterest expense for the secondthird quarter of 2021 totaled $39.7 million
 
$42.1 million compared to $40.5 million for the first quarter
of 2021 and
$37.3$42.1 million for the second quarter of 2021 and
$40.3 million for the third quarter of 2020.
The $2.4 million decrease from the second quarter of 2021 reflected a pension settlement
charge of $2.0 million in the second quarter of 2021 versus $0.5
million in the third quarter of 2021.
In addition, OREO expense
declined by $0.9 million due to a gain on the sale of a banking office
in the third quarter of 2021.
Compared to the third quarter of
2020, the $0.6 million decrease was primarily attributable to lower compensation
expense of $0.9 million (primarily incentive
compensation at CCHL) and OREO expense of $1.3 million, partially
offset by higher other expense of $1.0 million and a pension
settlement charge of $0.5 million.
 
For the first sixnine months of 2021, noninterest expense totaled $122.3 million
 
$82.6 million compared to $108.6
$68.3 million for the same period of 2020.
 
The $1.6$13.7 million increase over the first quarter of 2021 reflected
a $2.0 million partial
pension settlement charge (due to a high level
of lump sum pay-outs) that was partially offset by lower
commission expense at CCHL
and lower legal fees and other real estate owned (“OREO”)
expense at CCB.
Compared to the prior year periods, the increase was
primarily attributable to the aforementioned partial pensionaddition of expenses at CCHL of $6.7
 
settlement charge,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 loan cost (credit offset to salarypension settlement
expense),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 expense (driven byattributable to the utilization of a
lower discount rate for plan liabilities), and performance
 
based compensation.
Additionally, the
increase for the first half of 2021 reflects the inclusion of CCHL expenses
for a full six month period versus only
four months in 2020.
liabilities.
The table below reflects the major components of noninterest expense
.expense.
 
 
 
Three Months Ended
SixNine Months Ended
June 30,
March 31,
JuneSeptember 30,
June 30,
JuneSeptember 30,
September 30,
September 30,
(Dollars in Thousands)
2021
2021
2020
2021
2020
Salaries
$
21,060
$
21,117
 
$
22,44722,356
 
$
19,97764,625
 
$
43,564
$
35,70858,063
Associate Benefits
4,185
4,261
3,6173,808
3,68112,062
7,878
7,68611,495
Total Compensation
 
25,245
25,378
26,06426,164
23,65876,687
51,442
43,39469,558
 
Premises
2,736
2,714
2,7592,763
2,6288,209
5,473
5,0117,775
Equipment
3,296
3,259
3,2083,143
3,1709,763
6,467
5,7668,908
Total Occupancy
6,032
5,973
5,9675,906
5,79817,972
11,940
10,77716,683
 
Legal Fees
251
321
558343
4121,130
879
8811,224
Professional Fees
1,459
1,406
1,3301,175
1,3344,195
2,736
2,4553,630
Processing Services
1,775
1,794
1,5451,529
1,4475,114
3,339
3,0044,533
Advertising
645
631
749825
7992,025
1,381
1,3832,208
Telephone
731
754
755683
8292,239
1,508
1,4392,120
Insurance - Other
509
545
501434
4201,555
1,046
7161,150
Other Real Estate Owned, net
 
(1,126)
(270)
(118)219
116(1,514)
(388)
(682)(463)
Pension Settlement
500
2,000
-
-
2,0002,500
-
Miscellaneous
3,681
3,591
3,1253,064
2,49010,398
6,716
4,9057,971
Total Other
 
8,425
10,772
8,4458,272
7,84727,642
19,217
14,10122,373
Total
 
Noninterest Expense
 
$
39,702
$
42,123
 
$
40,47640,342
 
$
37,303122,301
 
$
82,599
$
68,272
36
Significant components of noninterest expense are
discussed in more detail below.
Compensation
.
Compensation expense totaled $25.4 million for the second quarter
of 2021 compared to $26.1 million for the first
quarter of 2021 and $23.7 million for the second quarter
of 2020.
For the first six months of 2021, compensation expense totaled
$51.4 million compared to $43.4 million for the same period
of 2020.
Compared to the first quarter of 2021, the decrease is due to
lower commission expense at CCHL (lower production volume)
of $0.9 million,
payroll taxes of $0.4 million (primarily related to
2020 annual bonuses paid in January,
2021), and cash incentive expense of $0.4 million, partially offset
by higher
associate insurance
expense (utilization of self-funded plan reserves in
first quarter of 2021) of $0.6 million and lower realized
loan cost (credit offset to
salaries – primarily related to lower SBA loan production
)
of $0.4 million.
Compared to the second quarter of 2020, the increase was
primarily attributable to lower realized loan cost (credit
offset to salaries – primarily related to lower SBA
loan production) of $0.9
million, and higher pension plan expense (service cost) of
$0.3 million, and base salaries (merit raises) of $0.5 million.
The increase
for the six month period was primarily due to the addition
of CCHL compensation (primarily commission expense)
beginning March
1, 2020 as core CCBG compensation expense remained
essentially flat.
Occupancy
.
Occupancy expense totaled $6.0 million for the second quarter
of 2021 comparable to the first quarter of 2021 and $5.8
million for the second quarter of 2020.
For the first six months of 2021,
occupancy expense totaled $12.0 million compared to
$10.8
million for the same period of 2020.
The increase for the six month period was primarily due to the
addition of CCHL occupancy
costs beginning March 1, 2020 as well as higher expense at
core CCBG reflective of increased FF&E depreciation
related to increase
technology investment.
Other
.
Other noninterest expense totaled $10.8 million for
the second quarter of 2021 compared to $8.4 million for the first
quarter of
2021 and $7.8 million for the second quarter
of 2020.
For the first six months of 2021, other noninterest expense totaled $19.2
million
compared to $14.1 million for the same period of 2020.
Compared to the first quarter of 2021, the increase was primarily
attributable
to a $2.0 million partial pension plan settlement charge
related to higher lump sum pay-outs which triggered settlement
accounting.
Compared to the second quarter of 2020 the increase
was also attributable to the aforementioned pension settlement
charge as well as
higher expense for our current year defined benefit pension
cost of $0.6 million (due to a lower discount rate utilized
for determining
the 2021 plan year expense), and higher processing
fees of $0.3 million (reflective of higher debit card volume).
The increase for the
six 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 (higher
debit card volume), legal/professional (related to the
SWG and CCHL
acquisitions), FDIC insurance expense (related to higher
level of assets), and OREO expense (attributable to lower OREO sales gains).
Our operating efficiency ratio (expressed
as noninterest expense as a percentage of the sum of taxable-equivale
nt net interest income
plus noninterest income) was 80.18% for the second
quarter of 2021 compared to 74.36%
for the first quarter of 2021 and 66.90%
for
the second quarter of 2020.
For the first six months of 2021,
this ratio was 77.22%
compared to 70.30% for the same period of 2020.
108,614
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Additional detail on CCHL’s
operations and key performance metrics is provided below.
Three Months Ended
Six Months Ended
(Dollars in thousands)
Jun 30, 2021
Mar 31, 2021
Jun 30, 2020
Jun 30, 2021
Jun 30, 2020
Net Interest Income
$
19
$
(153)
$
109
$
(134)
$
125
Mortgage Banking Fees
13,116
16,846
19,156
29,962
21,271
Other
425
426
203
851
299
Total Noninterest
Income
13,541
17,272
19,359
30,813
21,570
Salaries
8,538
10,276
8,381
18,814
10,623
Other Associate Benefits
210
221
204
431
253
Total Compensation
8,748
10,497
8,585
19,245
10,876
Occupancy, Net
854
861
768
1,715
999
Other
1,359
1,101
1,248
2,460
1,705
Total Noninterest
Expense
10,961
12,459
10,601
23,420
13,580
Operating Profit
$
2,599
$
4,660
$
8,867
$
7,259
$
8,115
Key Performance Metrics:
Total Loans Closed
$
406,859
$
463,126
$
407,118
$
869,985
$
510,008
Total Loans Closed
- Mix
Purchase
76%
60%
51%
68%
53%
Refinance
24%
40%
49%
32%
47%
Income Taxes
We realized income
tax expense of $2.1 million (effective rate of 19%)
for the second quarter of 2021 compared to $2.8 million
(effective rate of 19%) for
the first quarter of 2021 and $2.9 million (effective
rate of 18%) for the second quarter of 2020.
For the
first six months of 2021, we realized income tax
expense of $4.8 million (effective rate of 19%) compared
to $4.2 million (effective
rate of 20%) for the same period of 2020.
Absent discrete items, we expect our annual effective tax
rate to approximate 18%-19% for
the remainder of 2021.
FINANCIAL CONDITION
Average earning
assets totaled $3.624 billion for the second quarter of 2021, an
increase of $126.0 million, or 3.6%, over the first
quarter of 2021, and an increase of $286.5 million,
or 8.6%, over the fourth quarter of 2020.
The increase over both prior periods was
primarily driven by higher deposit balances, which funded
growth in both overnight funds sold and the investment
portfolio.
Deposit
balances increased as a result of strong core deposit growth,
in addition to funding retained at the bank from SBA PPP loans,
and
various other stimulus programs.
Investment Securities
In the second quarter of 2021, our average investment
portfolio increased $158.7 million, or 29.8%, over the first quarter
of 2021 and
increased $173.6 million, or 33.5%, over the fourth quarter
of 2020.
Our investment portfolio represented 19.1% of our average
earning assets for the second quarter of 2021 compared
to 15.5% for the fourth quarter of 2020,
and 20.1% for the second 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.
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 second quarter of 2021, we purchased securities under
the AFS designation.
At June 30,
2021,
$480.9 million, or 59.6%, of our investment portfolio was classified as AFS,
and $325.6 million, or 40.4%, classified as HTM.
The average maturity of our total portfolio at June
30, 2021 was 3.34 years compared to 2.78 years and 2.09
years at March 31, 2021
and December 31, 2020, respectively.
38
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 June 30,
2021,
there were 150 positions (combined AFS and HTM) with unrealized
losses totaling $1.5
million at June 30,
2021.
Of these 150 positions, 145 are U.S. government agency
securities issued by U.S. government sponsored entities which carry
the full
faith and credit guarantee of the US Government and are
0% risk-weighted assets for regulatory purposes. The remaining
five
positions are municipal bonds with a minimum credit rating
of “A”. 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
held for investment (HFI) decreased $7.6 million, or 0.4%, from
the first quarter of 2021 and increased $43.3 million,
or 2.2%, over the fourth quarter of 2020.
Excluding SBA PPP loans, average core loans grew $54.4
million and $90.4 million over
both respective periods and period end loans grew $74.3
million and $97.7 million over both respective periods.
Growth in period end
loans was driven primarily in the commercial mortgage,
indirect, and construction categories.
At June 30, 2021, SBA PPP loan
balances totaled $79.9 million and remaining deferred SBA PPP net
loan fees totaled $3.5 million.
SBA PPP loan forgiveness
applications are expected to remain strong for the remainder
of 2021.
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.
Credit Quality
Nonperforming assets (nonaccrual loans and OREO, “NPAs”
)
totaled $6.3 million at June 30, 2021, a $0.8 million increase from
March 31, 2021, and a $0.4 million decrease from December
31, 2020.
Nonaccrual loans totaled $5.1 million (0.25% of HFI loans) at
June 30, 2021 compared to $5.4 million (0.26
%
of HFI loans) at March 31, 2021 and $6.8 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 $1.2 million at June 30, 2021, an increase of
$1.1 million over March 31, 2021 and a $0.3 million increase
over December 31,
2020.
A significant portion of the increase in ORE is attributable to an
office property,
which was under contract and moved to ORE
late in the second quarter.
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 June 30, 2021, the allowance for credit losses for
loans HFI totaled $22.2 million compared to $22.0 million
at March 31, 2021 and
$23.8 million at December 31, 2020.
Activity within the allowance is detailed in Note 3 to the
consolidated financial statements.
The
$0.2 million net increase in the allowance for the second quarter
of 2021 was primarily attributable to net loan recoveries totaling
$0.3
million.
For the first half of 2021, the $1.6 million net decrease in the
allowance reflected net loan recoveries of $0.9 million and
lower expected losses related to COVID-19, partially
offset by core loan growth (ex-SBA PPP).
At June 30, 2021, the allowance
represented 1.10% of loans HFI and provided coverage
of 434% of nonperforming loans compared to 1.19% and
406%, respectively,
at December 31, 2020.
At June 30, 2021, excluding SBA PPP loans (100% government
guaranteed), the allowance represented 1.15%
of loans HFI compared to 1.30% at December 31, 2020.
At June 30, 2021, the allowance for credit losses for
unfunded commitments totaled $2.6 million compared to $3.0 million
at March
31, 2021 and $1.6 million at December 31, 2020.
The allowance for unfunded commitments is recorded
in other liabilities.
Deposits
Average total
deposits were $3.387 billion for the second quarter of 2021, an
increase of $147.8 million, or 4.6%, over the first quarter
of 2021 and $321.2 million, or 10.5%, over the fourth
quarter of 2020.
The strongest growth over both comparable periods occurred
in our noninterest bearing deposits and savings account
balances.
Average public
deposits in the second quarter 2021 increased
compared to the fourth quarter 2020, but declined compared
to the first quarter 2021 due to the seasonality of these
deposits.
Over the
past 12 months, multiple government stimulus programs
have been implemented, including those under the CARES Act and
the
American Rescue Plan Act, which are responsible for a
large part of the growth in average deposits.
Given these increases, the
potential exists for our deposit levels to be volatile
for the remainder of 2021 due to the uncertain timing of the outflows of
the
stimulus related balances and the economic recovery.
It is anticipated that current liquidity levels will remain robust due
to our strong
overnight funds sold position.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
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%
JuneSeptember 30, 2021
30.6%
22.7%
14.8%
7.1%
-5.7%
June 30,2021
33.1%
24.4%
15.8%
7.6%
-4.7%
March 31, 2021
40.6%
30.0%
19.4%
9.3%
-4.0%
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%
JuneSeptember 30, 2021
48.0%
35.0%
22.2%
10.0%
-9.9%
June 30,2021
46.0%
32.5%
19.1%
6.5%
-12.4%
March 31, 2021
53.0%
37.0%
21.2%
6.2%
-14.2%
 
40
The Net Interest Income at Risk position indicates
positions indicate that, in the short-term,
all rising rate environments will positively
impact the net
interest marginincome of the Company,
 
while a declining rate environment of 100bp100 bp will have a
negative impact on
the net interest margin.income.
TheCompared 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 fees forfee recognition coupled
 
thewith asset extension,
partially offset by higher rates.
year-over-year comparison.
Compared to
the
prior quarter-end, the projected 24-month Net Interest
Income at Risk positionlevels improved in rising rate scenarios due to higher
assumed replacement rates.
 
became slightly
more favorable in ratesThe down 100 bps and rates up 100
bpsbp scenario improved due to investment purchases duringlonger duration assets purchased over the quarter,
 
and slightly less favorable
in rate scenarios of rates up 200 bps or more as the balancelast two quarters.
 
sheet is less asset sensitive due to these asset purchases. As an intended
result of the $500 million investment strategy during
the quarter, the Bank has become slightly
less asset sensitive, and has slightly
less risk to the rates down scenario.
All measures of Net Interest Income at Risk in rising rate and declining environments
 
environments are within our prescribed policy limits over the
next 12
-month
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
 
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
 
economic value of equity, which, in
 
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%
JuneSeptember 30, 2021
 
28.8%
22.3%
14.6%
7.9%
-16.5%
June 30,2021
47.9%
38.4%
27.5%
15.2%
-35.2%
June 30, 2021 (Alternate Scenario)
(2)
37.2%
28.4%
18.2%
9.1%
-12.5%
March 31, 2021
96.8%
76.6%
53.9%
28.5%
-55.6%
41
(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.
In the alternate EVE scenario where
the value of our nonmaturity deposits are
capped at their book value, both our EVE and our EVE Ratio
are within policy
guidelines.
At JuneSeptember 30, 2021,
the economic value of equity results are favorable
in all rising
rate environments and are within prescribed tolerance
tolerance levels.
 
TheAlthough the EVE Ratioin 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 6.4% for the second quarter 2021,9.1% in a down 100 bp
scenario, which is withinabove the policy minimum of 5.0%, we are considered
 
limits.to be within Board policy at September 30, 2021.
The change in EVE in all scenarios reflects longer duration assets purchased
 
EVE metrics became moreover the last two quarters, primarily due to investment
favorablepurchases in the rates down scenario reflecting the deployment ofbond portfolio. Given our asset sensitivity,
 
additional fundsthese longer duration assets resulted in the investment portfolioa less favorable EVE in rising rate
scenarios, and utilization ofmore favorable EVE in falling rate scenarios.
 
and a
lower cost of acquiring and maintaining deposits, which was incorporated
into the model in the second quarter.
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 JuneSeptember 30,
2021,
we had the ability to generate $1.248$1.456 billion
in additional
liquidity through all of our available resources (this
excludes $767$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 JuneSeptember 30, 2021,
we believe the liquidity
liquidity available to us was sufficient to meet our on-going needs
 
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 and federal agencies, municipal governments,
corporate bonds, and municipal governments.asset-backed securities.
 
The weighted average life
of the portfolio was approximately
3.34
3.73 years at JuneSeptember 30, 2021, and
 
and the available for sale portfolio had a net unrealized pre-tax
gainloss of $1.2$0.7 million.
 
Our average overnight funds position (defined deposits with banks plus
 
plus Fed funds sold less Fed funds purchased) was $818.6
$741.9 million
in the secondthird quarter of 2021 compared to an average net overnight funds
 
overnight funds sold position of $814.6$818.6 million in the firstsecond quarter of
2021
and $705.1 million in the fourth quarter of 2020.
 
The decrease compared to the second quarter of 2021 was primarily due to
growth in
the investment portfolio.
The increase compared to both prior periodsthe fourth quarter 2020 was driven by strong core
 
by deposit inflows relatedgrowth, in addition to
pandemic related stimulus programs and growth
in our core deposits (see
Deposits
).programs.
 
We expect our
 
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 JuneSeptember 30,
2021,
average short term borrowings totaled $49.8
million compared to $51.2 million compared
to $67.0 million at March 31,June 30, 2021 and $95.3 million
million at December 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.
 
42
At JuneSeptember 30,
2021,
fixed rate credit advances from the FHLB totaled $1.8 million$1.7
 
million in outstanding debt consisting of five notes. During
During the first sixnine months of 2021, the Bank made FHLB advance payments
 
totaling approximately $0.4$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 continue to evaluate
 
evaluate the impact of the expected
discontinuation of LIBOR on our two junior subordinated deferrable
 
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 JuneSeptember 30, 2021, our regulatory capital
capital ratios exceeded the threshold to be designated as “well-capitalized”
 
under the Basel III capital standards.
Shareowners’ equity was $348.9 million at September 30, 2021
compared to $335.9 million at June 30,
2021 compared to $324.4 million at March 31, 2021 and
$320.8 $320.8 million at
December 31, 2020 and.2020.
 
For the first sixnine months of 2021, shareowners’ equity was positively impacted by
 
impacted by net income of $16.9
$27.0 million, a $0.9
$1.0 million increase in fair value of
the interest rate swap related to subordinated
debt, net adjustments
totaling $1.0$2.2 million
related to
transactions under our stock compensation plans, and reclassification of
 
stock compensation accretion of $0.4 million, and reclassification
of $1.2
$7.8 million from temporary equity to decrease the
redemption
value of the non-controlling interest in CCHL.
 
In addition, $1.6 million
was reclassified from accumulated other
comprehensive
loss to pension expense in conjunction with the partial
pension settlement
charge
reflected in earnings, therefore, the charge
 
the
charge had no net effect on equity.
 
Shareowners’ equity was reduced by common stock dividends
of $5.1$7.8 million ($0.30
($0.46 per share) and, a $1.8
$3.2 million
decrease in the unrealized gain on investment securities.securities, and
stock compensation of $0.5 million.
42
At JuneSeptember 30, 2021, our common stock had a book value of $20.63
 
of $19.87 per diluted share compared to $19.22$19.87 at March 31,June 30, 2021
 
2021 and $19.05
$19.05 at December 31, 2020.
 
Book value is impacted by the net after-tax unrealized gains and
 
gains and losses on AFS investment securities.
 
At June
September 30, 2021, the net gainloss was $0.9$0.5 million compared
to a $1.2$0.9 million
net gain at March 31,June 30, 2021
and a $2.7 million net gain
at December
31, 2020.
 
Book value is also impacted by the recording of our unfunded pension liability
 
pension liability through other comprehensive
income in
accordance with Accounting Standards Codification Topic
 
Topic 715.
 
At JuneSeptember 30, 2021,
the net pension liability reflected
in other
comprehensive loss was $45.6 million compared to $45.6 million
 
$47.1 million at March 31,June 30, 2021 and $47.2 million at December
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 JuneSeptember 30, 2021,
we had $772.0$750.4 million in commitments to extend
credit and
$6.6 $5.7 million in standby letters of credit.
 
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
the contract.
 
Commitments generally have fixed expiration dates or other termination
 
other termination clauses and may require payment of a fee.
 
Since
many of the
commitments are expected to expire without being drawn upon,
 
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 sheeton-
instruments.
balance
 
sheet instruments.
If commitments arising from these financial instruments
continue to require
funding at historical levels, management does not
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 $2.6$3.1 million at JuneSeptember 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
identifiable intangible assets,
(iii) pension benefits, and (iv) income taxes as our most critical accounting
 
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
 
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
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4443
TABLE I
AVERAGE BALANCES & INTEREST RATES
Three Months Ended JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
 
2021
2020
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
$
 
77,10167,753
$
 
566497
2.942.91
%
$
 
74,96592,522
$
 
550671
3.413.64
%
$
 
91,59183,558
$
 
1,5362,033
3.383.24
%
$
 
55,18167,719
$
 
9061,577
3.303.50
%
Loans Held for Investment
(1)(2)
2,036,7811,974,132
24,09525,458
4.745.12
1,982,9602,005,178
23,23523,027
4.704.53
2,040,5512,018,168
46,57872,036
4.714.76
1,915,3701,945,524
46,57169,598
4.894.77
Taxable Securities
687,882904,962
2,0362,333
1.181.03
601,509553,395
2,7082,401
1.801.73
608,801708,606
3,8996,232
1.281.17
615,511594,654
5,7038,104
1.861.82
Tax-Exempt Securities
(2)
3,5304,332
2325
2.582.31
5,8654,860
3732
2.512.66
3,6863,904
4873
2.602.49
5,5795,338
6294
2.202.34
Funds Sold
818,616741,944
200285
0.15
567,883
146
0.10
351,473791,466
88698
0.100.12
816,638385,245
414991
0.10
292,922
845
0.580.34
Total Earning Assets
3,623,9103,693,123
26,92028,598
2.983.07
%
3,016,7723,223,838
26,61826,277
3.553.25
%
3,561,2673,605,702
52,47581,072
2.973.01
%
2,884,5632,998,480
54,08780,364
3.773.58
%
Cash & Due From Banks
74,07672,773
72,64769,893
71,54171,956
64,80266,512
Allowance For Credit Losses
(22,794)(22,817)
(21,642)(22,948)
(23,457)(23,241)
(18,015)(19,672)
Other Assets
281,157283,534
261,449268,549
279,956281,162
252,657257,993
TOTAL ASSETS
$
 
3,956,3494,026,613
$
 
3,329,2263,539,332
$
 
3,889,3073,935,579
$
 
3,184,0073,303,313
 
Liabilities:
NOW Accounts
$
 
966,649945,788
$
 
7472
0.03
%
$
 
789,378826,776
$
 
78
0.04
%
$
976,031
$
15061
0.03
%
$
 
799,094965,839
$
 
803222
0.200.03
%
$
808,389
$
864
0.14
%
Money Market Accounts
272,138282,860
3334
0.05
222,377247,185
40
0.07
270,990
6632
0.05
217,295274,990
157100
0.150.05
227,331
189
0.11
Savings Accounts
529,844551,383
6468
0.05
409,366438,762
5054
0.05
511,152524,710
124192
0.05
394,301409,230
96150
0.05
Other Time Deposits
102,995102,765
3736
0.14
104,522
43
0.16
102,619
112
0.15
104,718104,925
50144
0.19
102,544
76
0.15
105,130
101
0.190.18
Total Interest Bearing Deposits
1,871,6261,882,796
208210
0.04
1,525,8391,617,245
218
0.06
1,860,717
416190
0.05
1,515,8201,868,158
1,157626
0.150.04
1,549,875
1,347
0.12
Short-Term Borrowings
51,15249,773
324317
2.542.53
73,37774,557
421498
2.312.66
59,04955,923
7361,053
2.512.52
53,14660,335
5531,051
2.092.33
Subordinated Notes Payable
52,887
308307
2.27
52,887
316
2.34
52,887
922
2.30
52,887
3741,161
2.80
52,887
615
2.31
52,887
845
3.162.89
Other Long-Term Borrowings
1,7621,652
1614
3.383.37
5,7665,453
4140
2.842.91
2,2462,046
3751
3.263.29
6,0395,842
91131
3.033.00
Total Interest Bearing Liabilities
1,977,4271,987,108
856848
0.17
%
1,657,8691,750,142
1,0541,044
0.260.24
%
1,974,8991,979,014
1,8042,652
0.18
%
1,627,8921,668,939
2,6463,690
0.330.30
%
Noninterest Bearing Deposits
1,515,7261,564,892
1,257,6141,354,032
1,453,1211,490,787
1,152,2511,220,002
Other Liabilities
107,801112,707
72,07383,192
109,417110,526
65,83071,661
TOTAL LIABILITIES
3,600,9543,664,707
2,987,5563,187,366
3,537,4373,580,327
2,845,9732,960,602
Temporary Equity
26,35520,446
8,15511,893
24,17822,920
5,3317,534
 
TOTAL SHAREOWNERS’ EQUITY
329,040341,460
333,515340,073
327,692332,332
332,703335,177
TOTAL LIABILITIES, TEMPORARY
 
AND SHAREOWNERS’ EQUITY
$
 
3,956,3494,026,613
$
 
3,329,2263,539,332
$
 
3,889,3073,935,579
$
 
3,184,0073,303,313
 
Interest Rate Spread
2.812.91
%
3.303.01
%
2.792.83
%
3.443.29
%
Net Interest Income
$
26,06427,750
$
25,56425,233
$
50,67178,420
$
51,44176,674
Net Interest Margin
(3)
2.892.98
%
3.413.12
%
2.872.91
%
3.593.42
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loans fees of $1.9 million and $0.6$3.2 million
 
and $0.7 million for the three month periods ended June September
30, 2021 and 2020,
 
2020, respectively, and $3.1$6.3 million and $0.8$1.5 million for the sixnine month periods ended June September
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 earning 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 JuneSeptember 30, 2021, the end of the period covered by this Form
10-Q, our management,
including our Chief Executive
Officer and Chief
Chief Financial Officer, evaluated
 
the effectiveness of our disclosure controls and procedures (as defined
 
(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 JuneSeptember 30, 2021, other
other than the above, there have been no significant changes in our internal
 
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.
 
46
Item 6.
Exhibits
(A) Exhibits
 
Exhibits
31.1
31.2
32.1
32.2
101.SCH
 
101.SCH XBRL Taxonomy
 
Extension Schema Document
101.CAL XBRL
 
XBRL Taxonomy
 
Extension Calculation Linkbase Document
101.LAB XBRL
 
XBRL Taxonomy
 
Extension Label Linkbase Document
101.PRE XBRL
 
XBRL Taxonomy
 
Extension Presentation Linkbase Document
101.DEF
 
101.DEF XBRL Taxonomy
 
Extension Definition Linkbase Document
 
 
 
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: July 30,
October 29, 2021