UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON,
 
D.C.
 
20549
 
 
FORM
10-Q
 
☒
QUARTERLY REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended
March 31,June 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 AprilJuly 29, 2021,
16,851,87816,874,279
 
shares of the Registrant's Common Stock, $.01 par value, were outstanding.
 
2
CAPITAL CITY BANK
 
GROUP,
 
INC.
 
QUARTERLY
 
REPORT ON FORM 10-Q
 
FOR THE PERIOD ENDED MARCH 31,JUNE 30, 2021
 
TABLE OF CONTENTS
 
 
PART I –
 
Financial Information
 
Page
 
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – March 31,June 30, 2021 and December 31, 2020
4
Consolidated Statements of Income – Three and Six Months Ended March 31,June 30, 2021 and 2020
5
Consolidated Statements of Comprehensive Income – Three and Six Months Ended March 31,June 30, 2021 and 2020
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Six Months Ended March 31,June 30, 2021 and 2020
7
Consolidated Statements of Cash Flows – ThreeSix Months Ended March 31,June 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
45
 
 
Item 4.
Controls and Procedures
45
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
45
 
 
Item 1A.
Risk Factors
45
 
 
 
 
Item 3.
Defaults Upon
 
Senior Securities
45
Item 4.
Mine Safety Disclosure
45
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,” “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
 
our financial objectives could
 
be adversely affected by
 
the factors discussed in detail
 
in Part I, Item 2.
 
“Management’s
Discussion and Analysis
 
of Financial Condition
 
and Results of Operations”
 
and Part II, Item
 
1A. “Risk Factors” in
 
this Quarterly Report on
Form 10-Q and the
 
following sections of our
 
Annual Report on Form
 
10-K for the year
 
ended December 31, 2020
 
(the “2020 Form 10
 
-K”):
(a) “Introductory Note”
 
in Part I,
 
Item 1. “Business”;
 
(b) “Risk Factors”
 
in Part I,
 
Item 1A, as
 
updated in our
 
subsequent quarterly reports
filed on Form 10-Q; and (c) “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;
●
 
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
 
legislative or regulatory changes;
●
 
changes in monetary and fiscal policies of the U.S. Government;
●
 
inflation, interest rate, market and monetary fluctuations;
●
 
the effects of security breaches and computer viruses that may affect our computer
 
systems or fraud related to debit card products;
●
 
the accuracy of our financial statement estimates and assumptions, including the estimates used for our loanallowance
 
loss reserve, 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, military conflict,
terrorism, civil unrest or other geopolitical events;
●
 
our ability to comply with the extensive laws and regulations to which we are subject, including the laws
 
for each jurisdiction where
we operate;
●
 
the willingness of clients to accept third-party products and services rather than our products and
 
services and vice versa;
●
 
increased competition and its effect on pricing;
●
 
technological changes;
●
 
negative publicity and the impact on our reputation;
●
 
changes in consumer spending and saving habits;
●
 
growth and profitability of our noninterest income;
●
 
the limited trading activity of our common stock;
●
 
the concentration of ownership of our common stock;
●
 
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
 
other risks described from time to time in our filings with the Securities and Exchange Commission; and
●
 
our ability to manage the risks involved in the foregoing.
 
However, other factors besides those listed in
Item 1A Risk Factors
 
or discussed in this Form 10-Q also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
 
We do not undertake to update
 
any forward-looking
statement, except as required by applicable law.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(Unaudited)
March 31,June 30,
December 31,
(Dollars in Thousands)
2021
 
2020
ASSETS
 
 
Cash and Due From Banks
$
73,97378,894
$
67,919
Funds Sold
 
851,910766,920
 
860,630
Total Cash and Cash
 
Equivalents
 
925,883845,814
 
928,549
 
 
 
Investment Securities, Available
 
for Sale, at fair value
 
406,245480,890
 
324,870
Investment Securities, Held to Maturity (fair value of $
204,158329,881
 
and $
175,175
)
 
199,109325,559
 
169,939
Total Investment
 
Securities
 
605,354806,449
 
494,809
 
Loans Held For Sale, at fair value
82,08180,821
 
114,039
 
Loans Held for Investment
2,057,7272,008,662
 
2,006,426
Allowance for Credit Losses
 
(22,026)(22,175)
 
(23,816)
Loans Held for Investment, Net
 
2,035,7011,986,487
 
1,982,610
 
 
 
Premises and Equipment, Net
 
86,37085,745
 
86,791
Goodwill and Other Intangibles
 
89,09593,333
 
89,095
Other Real Estate Owned
1101,192
808
Other Assets
 
105,290111,618
 
101,370
Total Assets
$
3,929,8844,011,459
$
3,798,071
 
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,473,8911,552,864
$
1,328,809
Interest Bearing Deposits
 
1,884,2171,894,057
 
1,888,751
Total Deposits
 
3,358,1083,446,921
 
3,217,560
 
 
 
Short-Term
 
Borrowings
 
55,68747,200
 
79,654
Subordinated Notes Payable
 
52,887
 
52,887
Other Long-Term
 
Borrowings
 
1,8291,720
 
3,057
Other Liabilities
 
109,487105,534
 
102,076
Total Liabilities
 
3,577,9983,654,262
 
3,455,234
Temporary Equity
27,46021,317
22,000
 
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
0
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,851,87816,874,279
 
and
16,790,573
 
shares issued and outstanding at March 31,June 30, 2021 and December
 
31, 2020, respectively
169
168
Additional Paid-In Capital
 
32,80433,560
 
32,283
Retained Earnings
 
335,324345,574
 
332,528
Accumulated Other Comprehensive Loss, net of tax
 
(43,871)(43,423)
 
(44,142)
Total Shareowners’
 
Equity
 
324,426335,880
 
320,837
Total Liabilities, Temporary
 
Equity, and Shareowners' Equity
$
3,929,8844,011,459
$
3,798,071
The accompanying Notes to Consolidated Financial
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended March 31,
June 30,
Six Months Ended
June
30,
(Dollars in Thousands, Except Per Share
 
Data)
2021
2020
2021
2020
INTEREST INCOME
Loans, including Fees
$
23,35024,582
$
23,59323,687
$
47,932
$
47,280
Investment Securities:
Taxable Securities
1,8632,036
2,9962,708
3,899
5,704
Tax Exempt Securities
2018
1929
38
48
Funds Sold
213200
75788
413
845
Total Interest
Income
25,44626,836
27,36526,512
52,282
53,877
INTEREST EXPENSE
Deposits
208
939218
416
1,157
Short-Term
 
Borrowings
412324
132421
736
553
Subordinated Notes Payable
307308
471374
615
845
Other Long-Term
 
Borrowings
2116
5041
37
91
Total Interest Expense
948856
1,5921,054
1,804
2,646
NET INTEREST INCOME
24,49825,980
25,77325,458
50,478
51,231
Provision for Credit Losses
(982)(571)
4,9902,005
(1,553)
6,995
Net Interest Income After Provision For Credit Losses
25,48026,551
20,78323,453
52,031
44,236
NONINTEREST INCOME
Deposit Fees
4,2714,236
5,0153,756
8,507
8,771
Bank Card Fees
3,6183,998
3,0513,142
7,616
6,193
Wealth Management
 
Fees
3,0903,274
2,6042,554
6,364
5,158
Mortgage Banking Revenues
17,12513,217
3,25319,397
30,342
22,650
Other
1,7221,748
1,5551,350
3,470
2,905
Total Noninterest
 
Income
29,82626,473
15,47830,199
56,299
45,677
NONINTEREST EXPENSE
Compensation
26,06425,378
19,73623,658
51,442
43,394
Occupancy, Net
5,9675,973
4,9795,798
11,940
10,777
Other Real Estate Owned, Net
 
(118)(270)
(798)116
(388)
(682)
Pension Settlement
2,000
0
2,000
0
Other
8,5639,042
7,0527,731
17,605
14,783
Total Noninterest
 
Expense
40,47642,123
30,96937,303
82,599
68,272
INCOME BEFORE INCOME TAXES
14,83010,901
5,29216,349
25,731
21,641
Income Tax Expense
2,7872,059
1,2822,950
4,846
4,232
NET INCOME
12,0438,842
4,01013,399
20,885
17,409
Pre-Tax Income
 
Attributable to Noncontrolling Interests
(2,537)(1,415)
277(4,253)
(3,952)
(3,976)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
9,5067,427
$
4,2879,146
$
16,933
$
13,433
BASIC NET INCOME PER SHARE
$
0.560.44
$
0.250.55
$
1.00
$
0.80
DILUTED NET INCOME PER SHARE
$
0.560.44
$
0.250.55
$
1.00
$
0.80
Average Basic SharesCommon
 
Outstanding
16,838
16,808
Average Diluted
Basic Shares Outstanding
16,86216,858
16,84216,797
16,848
16,803
Average Common
Diluted Shares Outstanding
16,885
16,839
16,874
16,844
The accompanying Notes to Consolidated Financial
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
 
(Unaudited)
Three Months Ended
March 31,Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2021
2020
2021
2020
NET INCOME
$
9,5067,427
$
4,2879,146
$
16,933
$
13,433
Other comprehensive income, before
 
tax:
Investment Securities:
Change in net unrealized gain (loss)gain/loss on securities available
for sale
(1,952)(481)
3,547433
(2,434)
3,980
Derivative:
Change in net unrealized gain on effective cash
 
flow derivative
2,125(919)
0(104)
1,206
(104)
Benefit Plans:
Reclassification adjustment for service cost
0
0
24
0
Actuarial gain
0
0
166
0
Defined benefit plan settlement
2,000
0
2,000
0
Total Benefit Plans
1902,000
0
2,190
0
Other comprehensive income, before
 
tax
363600
3,547329
962
3,876
Deferred tax expense related to other comprehensive
 
income
92152
89952
243
951
Other comprehensive income, net of tax
271448
2,648277
719
2,925
TOTAL COMPREHENSIVE
 
INCOME
$
9,7777,875
$
6,9359,423
$
17,652
$
16,358
The accompanying Notes to Consolidated Financial
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
��
7
CAPITAL CITY BANK
 
GROUP,
 
INC.
 
CONSOLIDATED STATEMENTS
 
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Accumulated
 
Other
Additional
Comprehensive
 
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share
 
Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, April 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
9,146
0
9,146
Other Comprehensive Income, net of tax
-
0
0
0
277
277
Cash Dividends ($
0.14
00 per share)
-
0
0
(2,348)
0
(2,348)
Repurchase of Common Stock
(43,878)
0
(863)
0
0
(863)
Stock Based Compensation
-
0
77
0
0
77
Stock Compensation Plan Transactions,
net
12,373
0
261
0
0
261
Balance, June 30, 2020
16,780,276
$
168
$
31,575
$
328,570
$
(25,256)
$
335,057
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income
-
0
0
9,50616,933
0
9,50616,933
Reclassification to Temporary
 
Equity
(1)
-
0
0
(4,182)1,171
0
(4,182)1,171
Other Comprehensive Income, net of tax
-
0
0
0
271719
271719
Cash Dividends ($
0.150.3
00000 per share)
-
0
0
(2,528)(5,058)
0
(2,528)(5,058)
Stock Based Compensation
-
0
219438
0
0
219438
Stock Compensation Plan Transactions,
 
net
61,30583,706
1
302839
0
0
303840
Balance, March 31,June 30, 2021
16,851,87816,874,279
$
169
$
32,80433,560
$
335,324345,574
$
(43,871)(43,423)
$
324,426335,880
Balance, January 1, 2020
16,771,544
$
168
$
32,092
$
322,937
$
(28,181)
$
327,016
Adoption of ASC 326
 
-
0
0
(3,095)
0
(3,095)
Net Income
-
0
0
4,28713,433
0
4,28713,433
Other Comprehensive Income, net of tax
-
0
0
0
2,6482,925
2,6482,925
Cash Dividends ($
0.140.28
00 per share)
-
0
0
(2,357)(4,705)
0
(2,357)(4,705)
Repurchase of Common Stock
(33,074)(76,952)
(1)
(707)(1,570)
0
0
(708)(1,571)
Stock Based Compensation
-
0
291368
0
0
291368
Stock Compensation Plan TransactioTransactions,
 
ns, net
73,31185,684
1
424685
0
0
425686
Balance, March 31,June 30, 2020
16,811,78116,780,276
$
168
$
32,10031,575
$
321,772328,570
$
(25,533)(25,256)
$
328,507335,057
(1)
Adjustment to redemption value for
 
non-controlling interest
 
in Capital City Home Loans.
The accompanying Notes to Consolidated Financial
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
 
(Unaudited)
ThreeSix Months Ended March 31,June 30,
(Dollars in Thousands)
2021
2020
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income
 
$
9,50616,933
$
4,28713,433
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
(982)(1,553)
4,9906,995
 
Depreciation
1,9423,782
1,6233,400
 
Amortization of Premiums, Discounts and Fees, net
2,4285,946
1,6433,414
Amortization of Intangible Asset
40
0
Pension Plan Settlement Charge
2,000
0
 
Originations of Loans Held-for-Sale
(470,248)(877,613)
(150,840)(431,775)
 
Proceeds From Sales of Loans Held-for-Sale
519,331941,173
80,781385,518
 
Net Gain From Sales of Loans Held-for-Sale
(17,125)(30,342)
(3,030)(20,844)
 
Net Additions for Capitalized Mortgage Servicing Rights
119(8)
0
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
(250)
0
 
Stock Compensation
219438
291368
 
Net Tax Benefit From
 
Stock-Based Compensation
(4)
(84)
 
Deferred Income Taxes
(378)(469)
(511)(695)
 
Net Change in Operating Leases
(41)(81)
192498
 
Net Gain on Sales and Write-Downs of
 
Other Real Estate Owned
(202)(507)
(931)(915)
 
Net Increase in Other Assets
(1,370)(9,789)
(20,255)(23,035)
 
Net Increase in Other Liabilities
7,9352,472
26,64636,251
Net Cash Provided By (Used In) Operating Activities
50,88052,168
(55,198)(27,471)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(54,382)(201,308)
(32,250)
 
Payments, Maturities, and Calls
24,62944,238
19,37038,362
Securities Available
 
for Sale:
 
Purchases
(133,628)(255,379)
(26,795)(38,364)
 
Payments, Maturities, and Calls
49,34994,911
50,347102,846
Purchases of Loans Held for Investment
(23,686)(70,043)
(2,756)(18,359)
Net IncreaseDecrease (Increase) in Loans Held for Investment
(29,437)64,708
(22,191)(167,587)
Net Cash Paid for Brand AcquisitionAcquisitions
0(4,482)
(2,405)
Proceeds From Sales of Other Real Estate Owned
1,0841,121
1,1551,800
Purchases of Premises and Equipment
(1,592)(3,215)
(4,773)(6,842)
Noncontrolling Interest Contributions
1,2593,464
0
Net Cash Used In Investing Activities
(166,404)(325,985)
(20,298)(122,799)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits
140,548229,361
(99,869)309,542
Net (Decrease) Increase in Short-Term
 
Borrowings
(24,181)(32,668)
70,01857,460
Repayment of Other Long-Term
 
Borrowings
(1,014)(1,123)
(524)(837)
Dividends Paid
(2,528)(5,058)
(2,357)(4,705)
Payments to Repurchase Common Stock
0
(708)(1,571)
Issuance of Common Stock Under Purchase Plans
33570
125386
Net Cash Provided By (Used In) Financing Activities
112,858191,082
(33,315)360,275
NET DECREASE(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(2,666)(82,735)
(108,811)210,005
Cash and Cash Equivalents at Beginning of Period
 
928,549
378,423
Cash and Cash Equivalents at End of Period
 
$
925,883845,814
$
269,612588,428
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
1,0091,877
$
1,5622,655
Income Taxes Paid
$
9,369
$
3,613
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
184998
$
734991
The accompanying Notes to Consolidated Financial
 
Statements are an integral part of these statements.
 
9
CAPITAL CITY BANK
 
GROUP,
 
INC.
 
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
 
 
NOTE 1 –
 
BUSINESS AND BASIS OF PRESENTATION
 
 
Nature of Operations
.
 
Capital City Bank Group, Inc. (“CCBG” or the “Company”)
 
provides a full range of banking and banking-
related services to individual and corporate clients through
 
its subsidiary, Capital City Bank,
 
with banking offices located in Florida,
Georgia, and Alabama.
 
The Company is subject to competition from other financial
 
institutions, is subject to regulation by certain
government agencies and undergoes periodic
 
examinations by those regulatory authorities.
 
Basis of Presentation
.
 
The consolidated financial statements in this Quarterly Report
 
on Form 10-Q include the accounts of CCBG
and its wholly owned subsidiary,
 
Capital City Bank (“CCB” or the “Bank”).
 
All material inter-company transactions and accounts
have
been eliminated.
 
Certain previously reported amounts have been reclassified to conform
 
to the current year’s presentation.
 
The accompanying unaudited consolidated financial statements
 
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with
 
the instructions to Form 10-Q and Article 10 of Regulation S-X.
 
Accordingly,
they do not include all of the information and footnotes required
 
by generally accepted accounting principles for complete financial
statements.
 
In the opinion of management, all adjustments (consisting of
 
normal recurring accruals) considered necessary for a fair
presentation have been included.
 
 
The consolidated statement of financial condition at
 
December 31, 2020 has been derived from the audited
 
consolidated financial
statements at that date, but does not include all of the
 
information and footnotes required by generally accepted accounting
 
principles
for complete financial statements.
 
For further information, refer to the consolidated financial statements
 
and footnotes thereto
included in the Company’s
 
annual report on Form 10-K for the year ended December
 
31, 2020.
Acquisition.
On
April 30, 2021
, a newly formed subsidiary of CCBG, Capital City Strategic
Wealth, LLC (“CCSW”)
acquired
substantially all of the assets of Strategic Wealth
Group, LLC and certain related businesses (“SWG”), including
advisory,
service,
and insurance carrier agreements, and the assignment
of all related revenues thereof.
Under the terms of the purchase agreement,
SWG principles became officers of CCSW and will continue
the operation of their five offices in South Georgia
offering wealth
management services and comprehensive risk management
and asset protection services for individuals and businesses.
CCSW paid
$
4.4
million in cash consideration and recorded goodwill of $
2.8
million and a customer relationship intangible asset of $
1.6
million.
 
Accounting Standards Updates
 
 
ASU 2020-04, "Reference Rate Reform
 
(Topic
 
848).
 
ASU 2020-04 provides optional expedients and exceptions for applying
 
GAAP
to loan and lease agreements, derivative contracts, and
 
other transactions affected by the anticipated transition
 
away from LIBOR
toward new interest rate benchmarks. For transactions
 
that are modified because of reference rate reform and that meet certain
 
scope
guidance (i) modifications of loan agreements should
 
be accounted for by prospectively adjusting the effective
 
interest rate and the
modification will be considered "minor" so that any existing
 
unamortized origination fees/costs would carry forward and
 
continue to
be amortized and (ii) modifications of lease agreements
 
should be accounted for as a continuation of the existing
 
agreement with no
reassessments of the lease classification and the discount
 
rate or re-measurements of lease payments that otherwise would be required
for modifications not accounted for as separate
 
contracts. ASU 2020-04 also provides numerous optional expedients
 
for derivative
accounting.
 
ASU 2020-04 is effective March 12, 2020 through
 
December 31, 2022.
 
An entity may elect to apply ASU 2020-04 for
contract modifications as of January 1, 2020, or prospectively
 
from a date within an interim period that includes or is subsequent
 
to
March 12, 2020, up to the date that the financial statements
 
are available to be issued.
 
Once elected for a Topic
 
or an Industry
Subtopic within the Codification, the amendments in this
 
ASU must be applied prospectively for all eligible contract
 
modifications for
that Topic or Industry
 
Subtopic.
 
It is anticipated this ASU will simplify any modifications executed
 
between the selected start date
(yet to be determined) and December 31, 2022 that are
 
directly related to LIBOR transition by allowing prospective
 
recognition of the
continuation of the contract, rather than extinguishment of
 
the old contract resulting in writing off unamortized
 
fees/costs.
 
Further,
ASU 2021-01, “Reference Rate Reform
 
(Topic
 
848): Scope,”
clarifies that certain optional expedients and exceptions
 
in ASC 848 for
contract modifications and hedge accounting apply
 
to derivatives that are affected by the discounting
 
transition. ASU 2021-01 also
amends the expedients and exceptions in ASC 848 to
 
capture the incremental consequences of the scope clarification and
 
to tailor the
existing guidance to derivative instruments.
 
The Company is evaluating the impact of this ASU and has not
 
yet determined if this
ASU will have material effects on the Company’s
 
business operations and consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related
 
market value of investment
securities available-for-sale and securities heldheld-to-maturity
 
-to-maturity and the corresponding amounts of gross unrealized gains and
 
gains and losses.
March 31,June 30, 2021
December 31, 2020
Amortized
Unrealized
Unrealized
Market
Amortized
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
Cost
Gain
Losses
Value
Available for
 
Sale
U.S. Government Treasury
$
173,029161,247
$
551220
$
464590
$
173,116160,877
$
103,547
$
972
$
0
$
104,519
U.S. Government Agency
220,018226,807
2,0962,087
584593
221,530228,301
205,972
2,743
184
208,531
States and Political Subdivisions
4,24413,555
7360
98
4,30813,607
3,543
89
0
3,632
Mortgage-Backed Securities
44056,894
56
0
49656,950
456
59
0
515
Corporate Debt Securities
14,357
3
0
14,360
0
0
0
0
Equity Securities
(1)
6,795
0
0
6,795
7,673
0
0
7,673
Total
 
$
404,526479,655
$
2,7762,426
$
1,0571,191
$
406,245480,890
$
321,191
$
3,863
$
184
$
324,870
Held to Maturity
U.S. Government Treasury
$
0110,926
$
059
$
064
$
0110,921
$
5,001
$
13
$
0
$
5,014
Mortgage-Backed Securities
199,109214,633
5,3584,579
309252
204,158218,960
164,938
5,223
0
170,161
Total
 
$
199,109325,559
$
5,3584,638
$
309316
$
204,158329,881
$
169,939
$
5,236
$
0
$
175,175
Total Investment
 
Securities
$
603,635805,214
$
8,1347,064
$
1,3661,507
$
610,403810,771
$
491,130
$
9,099
$
184
$
500,045
 
(1)
 
Includes Federal Home Loan Bank and Federal Reserve Bank
 
stock, recorded
 
at cost of $
2.0
 
million and $
4.8
 
million,
respectively,
 
at March 31,June 30, 2021 and includes
Federal Home Loan
Bank and Federal Reserve Bank stock recorded
 
at cost of $
2.9
million and $
4.8
 
million, respectively,
 
at December 31, 2020.
 
Securities with an amortized cost of $
351.1348.7
 
million and $
308.2
 
million at March 31,June 30, 2021 and December 31, 2020, respectively,
 
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 been at par value.
 
As a member of the Federal Reserve Bank of Atlanta,
 
the Bank is required to maintain stock in the Federal Reserve Bank of
 
Atlanta
based on a specified ratio relative to the Bank’s
 
capital.
 
Federal Reserve Bank stock is carried at cost.
 
 
Maturity Distribution
.
 
At March 31,June 30, 2021,
the Company's investment securities had the
following maturity
distribution based on
contractual maturity.
 
Expected maturities may differ from contractual maturities
 
because borrowers may have the right to call or
prepay obligations.
 
Mortgage-backed securities and certain amortizing U.S. government
 
agency securities are shown separately
because they are not due at a certain maturity date.
 
 
Available for
 
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Market Value
Amortized Cost
Market Value
Due in one year or less
$
77,46452,053
 
$
77,74152,075
 
$
0
 
$
0
Due after one year through five years
 
138,352170,442
 
 
137,981169,879
 
 
0110,926
 
 
0110,921
Due after five year through ten years
 
98917,645
 
 
98917,620
 
 
0
 
 
0
Mortgage-Backed Securities
44056,894
49656,950
199,109214,633
204,158218,960
U.S. Government Agency
 
180,486175,826
 
 
182,243177,571
 
 
0
 
 
0
Equity Securities
 
6,795
 
 
6,795
 
 
0
 
 
0
Total
 
$
404,526479,655
 
$
406,245480,890
 
$
199,109325,559
 
$
204,158329,881
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
Unrealized Losses on Investment Securities.
 
The following table summarizes the available for sale investment
 
securities with
unrealized losses aggregated by major security type
 
and length of time in a continuous unrealized loss position:
 
 
 
Less Than
Greater Than
12 Months
12 Months
Total
Market
Unrealized
Market
Unrealized
Market
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
March 31,June 30, 2021
Available for
 
Sale
U.S. Government Treasury
$
65,577114,398
 
$
464590
 
$
0
 
$
0
 
$
65,577114,398
 
$
464590
U.S. Government Agency
63,63084,107
554530
4,7788,906
3063
68,40893,013
584593
States and Political Subdivisions
7443,394
 
98
 
0
 
0
 
7443,394
 
98
Total
 
129,951201,899
 
1,0271,128
 
4,7788,906
 
3063
 
134,729210,805
 
1,0571,191
 
Held to Maturity
Mortgage-Backed Securities
20,550U.S. Government Treasury
 
30957,803
64
 
0
 
0
 
20,550
57,803
 
309
64
Mortgage-Backed Securities
51,208
252
0
0
51,208
252
Total
 
$
20,550109,011
 
$
309316
 
$
0
 
$
0
 
$
20,550109,011
 
$
309316
December 31, 2020
Available for
 
Sale
 
U.S. Government Agency
$
28,266
$
156
$
4,670
$
28
$
32,936
$
184
Total
 
$
28,266
 
$
156
 
$
4,670
 
$
28
 
$
32,936
 
$
184
 
At March 31,June 30, 2021, there were
89150
 
positions (combined AFS and HTM) with unrealized losses totaling
$
1.41.5
 
million.
87145
 
of these positions
positions were U.S. government agency securities issued by
U.S. government
sponsored entities.
 
The remaining
25
 
were municipal
securities.
 
Because the declines in the market value of these securities
 
were attributable to changes in interest rates and not credit
quality, and because
 
credit quality, and
because the Company had the ability and intent to hold these investments
 
these investments until there is a recovery in fair value, which
may be at maturity,
 
be at
maturity, the
Company did
0
t record any allowance for credit losses on any investment securities
 
securities at March 31,June 30, 2021.
 
Additionally,
0
ne of the securities held by the Company were past due or
 
or in nonaccrual status at March 31,June 30, 2021.
 
 
Credit Quality Indicators
 
The Company monitors the credit quality of its investment
 
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 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 have been pre-
refunded and secured by government guaranteed treasuries.
 
Therefore, for the aforementioned securities, the Company
 
does not
assess or record expected credit losses due to the zero
 
loss assumption.
 
The Company monitors the credit quality of its municipal
securities portfolio via credit ratings which are updated
 
on a quarterly basis.
 
On a quarterly basis, municipal securities in an
unrealized loss position are evaluated to determine if
 
the loss is attributable to credit related factors and if an allowance
 
for credit loss
is needed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
 
FOR CREDIT LOSSES
 
 
Loan Portfolio Composition
.
 
The composition of the held for investment (“HFI”) loan
 
portfolio was as follows:
 
 
(Dollars in Thousands)
March 31,June 30, 2021
 
December 31, 2020
Commercial, Financial and Agricultural
$
413,819292,953
 
$
393,930
Real Estate – Construction
 
138,104149,884
 
 
135,831
Real Estate – Commercial Mortgage
 
669,158707,599
 
 
648,393
Real Estate – Residential
(1)
 
365,931368,457
 
 
352,543
Real Estate – Home Equity
 
202,099190,078
 
 
205,479
Consumer
(2)
 
268,616299,691
 
 
270,250
Loans HFI, Net of Unearned Income
$
2,057,7272,008,662
 
$
2,006,426
 
(1)
 
Includes loans in process with outstanding
 
balances of $
8.37.4
 
million and $
10.9
 
million at March 31,June 30, 2021 and December
31, 2020,
respectively.
(2)
 
Includes overdraft balances of $
0.91.2
 
million and $
0.7
 
million at March 31,June 30, 2021 and December 31,
2020, respectively.
 
 
Net deferred fees,loan costs, which include premiums on purchased
 
loans, included in loans were $
1.60.5
 
million at March 31,June 30, 2021 and net
deferred loan fees were $
0.1
million at December 31, 2020.
 
 
Accrued interest receivable on loans which is excluded
 
from amortized cost totaled $
7.26.4
 
million at March 31,June 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.
 
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.
 
LoanResidential loan purchases from CCHL totaled $
22.251.1
 
million for the threesix month
period ended MarchJune 30, 2021, and were not credit
impaired.
In addition, during the second quarter of 2021, the Company
acquired a
31, 2021,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
March 31,June 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
Six Months Ended
June 30, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(314)(370)
(225)280
(718)(131)
(305)(1,335)
(655)(769)
(95)(171)
(2,312)(2,496)
Charge-Offs
(69)(101)
0
0
(6)(71)
(5)(79)
(1,056)(1,726)
(1,136)(1,977)
Recoveries
136239
0
645671
75319
124194
6781,409
1,6582,832
Net (Charge-Offs) Recoveries
67138
0
645671
69248
119115
(378)(317)
522855
Ending Balance
$
1,9571,972
$
2,2542,759
$
6,9567,569
$
5,2044,353
$
2,5752,457
$
3,0803,065
$
22,02622,175
Three Months Ended
March 31,June 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
Six Months Ended
June 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
406739
5671,283
7741,516
1,7041,089
101141
1,4381,837
4,9906,605
Charge-Offs
(362)(548)
0
(11)
(110)(111)
(31)(83)
(1,566)(2,741)
(2,080)(3,494)
Recoveries
40114
0
191261
4091
3397
6951,609
9992,172
Net Charge-Offs
(322)(434)
0
180250
(70)(20)
214
(871)(1,132)
(1,081)(1,322)
Ending Balance
$
2,2472,468
$
1,2391,955
$
5,8286,640
$
6,0055,440
$
2,7012,753
$
3,0633,201
$
21,08322,457
 
For the first three monthssix month period ended March 31,June 30, 2021, the allowance
 
for HFI loans decreased by $
1.81.6
 
million and reflected a negative
provision of $
2.32.5
million and net loan recoveries of $
0.50.9
 
million.
 
The negative provision was attributable togenerally reflected improving economic
conditions,
 
conditions, primarily
a lower rate of unemployment and its potential effect
 
on rates of default.default, and strong net loan recoveries totaling
$0.9 million.
 
Three unemployment rate forecast scenarios were utilized to estimate
estimate probability of default and were weighted based on
on management’s estimate
 
of probability.
 
The mitigating impact of the
unprecedented fiscal stimulus including direct payments
to individuals, increased unemployment benefits, as well as various
government
government sponsored loan programs, was also considered.
 
See Note 8 – Commitments and Contingencies for information
 
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
March 31,June 30, 2021
Commercial, Financial and Agricultural
$
55353
$
587
$
0
$
113360
$
413,556292,565
$
15028
$
413,819292,953
Real Estate – Construction
 
5650
840
0
840
149,044
0
565
137,360
179
138,104149,884
Real Estate – Commercial Mortgage
 
183309
155
0
0464
183705,614
667,7191,521
1,256
669,158707,599
Real Estate – Residential
 
289394
226211
0
515605
362,266365,329
3,1502,523
365,931368,457
Real Estate – Home Equity
 
35582
138
0
0220
355188,930
201,282928
462
202,099190,078
Consumer
 
7121,061
179195
0
8911,256
267,560298,325
165110
268,616299,691
Total
$
2,1592,199
$
4631,546
$
0
$
2,6223,745
$
2,049,7431,999,807
$
5,3625,110
$
2,057,7272,008,662
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 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 or when future payments are reasonably assured.
 
 
The following table presents the amortized cost basis of loans in
 
nonaccrual status and loans past due over 90 days and
 
still on accrual
by class of loans.
 
 
March 31,
June 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
$
15028
$
0
$
0
$
161
$
0
$
0
Real Estate – Construction
 
1790
 
0
0
179
0
0
Real Estate – Commercial Mortgage
 
1991,027
 
1,057494
0
337
1,075
0
Real Estate – Residential
 
1,6411,588
 
1,509935
0
1,617
1,513
0
Real Estate – Home Equity
 
462928
 
0
0
695
0
0
Consumer
 
165110
 
0
0
294
0
0
Total Nonaccrual
 
Loans
$
2,7963,681
$
2,5661,429
$
0
$
3,283
$
2,588
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Collateral Dependent Loans.
 
The following table presents the amortized cost basis of collateral-dependent
 
loans.
 
March 31,June 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
1,1131,734
0
3,900
0
Real Estate – Residential
2,5372,192
0
3,022
0
Real Estate – Home Equity
 
299700
 
0
 
219
 
0
Consumer
 
0
 
2927
 
0
 
29
Total Collateral Dependent
 
Loans
$
3,9494,626
$
2927
$
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 by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined
 
by either independent appraisals
or internal evaluations, adjusted for selling costs or other
 
amounts to be deducted when estimating expected net sales proceeds.
 
 
Residential Real Estate Loans In Process
 
of Foreclosure
.
 
At March 31,June 30, 2021 and December 31, 2020, the Company had
 
had $
1.2
 
million
and $
1.6
 
million, respectively, in 1-4
 
family residential real estate loans for which formal foreclosure
 
proceedings were in process.
 
Troubled
 
Debt Restructurings (“TDRs”).
.
 
TDRs are loans in which the borrower is experiencing
financial difficulty and the Company
has granted an economic concession to the borrower
that it would not otherwise consider.
In these instances, as part of a work-out
alternative, the Company will make concessions including
the extension of the loan term, a principal moratorium, a
reduction in the
interest rate, or a combination thereof.
The impact of the TDR modifications and defaults are factored
into the allowance for credit
losses on a loan-by-loan basis as all TDRs are, by definition,
impaired loans.
Thus, specific reserves are established based upon the
results of either a discounted cash flow analysis or the
underlying collateral value, if the loan is deemed to
be collateral dependent.
A
TDR classification can be removed if the borrower’s
financial condition improves such that the borrower is no
longer in financial
difficulty,
the loan has not had any forgiveness of principal or interest,
and the loan is subsequently refinanced or restructured at
market terms and qualifies as a new loan.
At March 31,June 30, 2021, the Company had $
14.39.9
 
million in TDRs, of which $
13.69.0
 
million were
performing in accordance with the
modified terms.
 
At December 31, 2020 the Company had $
14.3
 
million in TDRs, of which $
13.9
million were performing in
accordance with modified
terms.
 
For TDRs, the Company estimated $
0.70.4
 
million and $
0.6
 
million of
credit loss reserves at March 31,
June 30, 2021 and December
31, 2020, respectively.
 
The modifications made to TDRs involved either an
 
extension of the loan term, a principal moratorium, a reduction in the interest
 
rate,
or a combination thereof.
 
For the three months ended March 31,June 30, 2021, there was
1
loan modified with a recorded investment of $
0.1
million.
For the three months ended June 30, 2020, there were
2
 
loans modified with a recorded investment of
$
0.40.1
million.
For
the six month period ended June 30, 2021, there were
3
loans modified with a recorded investment of $
0.6
 
million.
 
For the three monthssix
month period ended March 31,June 30, 2020, there waswere
13
 
loanloans modified with a recorded investment of $
0.2
 
million.
 
 
For the three and six month period ended March 31,June 30, 2021, there
 
there were
0
loans classified as TDRs, for which there was a payment
default and the loans were modified within the 12 months
prior to default.
For the three month period ended June 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 threesix month period ended March 31,June 30, 2020,
there were
2
loans totaling $
0.1
 
million that wereloans 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, underwritin
gunderwriting
 
standards and loan review
procedures designed to maximize loan income within
 
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, 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 area, or other relevant classifications of loans.
 
Specific segments
of the loan portfolio are monitored and reported
 
to the Board on a quarterly basis and have strategic plans in place
 
to supplement
Board approved credit policies governing exposure
 
limits and underwriting standards.
 
Detailed below are the types of loans within
the Company’s loan portfolio
 
and risk characteristics unique to each.
 
16
 
Commercial, Financial, and Agricultural – Loans in
 
this category are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and
 
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 identifieidentified cash
 
d
cash flows of the borrower or project and generally
secured by the property being financed, including 1-4 family
 
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 project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established
 
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 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 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 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, direct and indirect automobile financing, and
 
overdraft
lines of credit.
 
The majority of the consumer loan portfolio consists of indirect and
 
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 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
 
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 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 weaknesses that affect the repayment
 
capacity of the
borrower.
 
The possibility of loss is much more evident and above average
 
supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent
in a loan categorized as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full,
on the basis of currently
existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain
homogenous loan pools (home equity and consumer) are not
individually reviewed,
but are monitored for credit quality via the aging
status of the loan and by payment activity.
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
and deterioration in credit quality.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
Doubtful – Loans in this category have all the weaknesses inherent
in a loan categorized as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full,
on the basis of currently existing facts, conditions, and
values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain
homogenous loan pools (home equity and consumer) are not
individually reviewed,
but are monitored for credit quality via the aging
status of the loan and by payment activity.
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
and deterioration in credit quality.
The following table summarizes gross loans held for
 
investment at March 31,June 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
$
77,06696,160
$
188,68856,466
$
41,68137,288
$
32,67424,612
$
12,79211,525
$
21,62217,651
$
38,52848,606
$
413,051292,308
Special Mention
057
0
189180
3932
41
5551
0
287321
Substandard
 
0
 
1211
 
0
 
285228
 
3822
 
8828
 
5835
 
481324
Total
$
77,06696,217
$
188,70056,477
$
41,87037,468
$
32,99824,872
$
12,83411,548
$
21,76517,730
$
38,58648,641
$
413,819292,953
Real Estate -
Construction:
Pass
$
13,78641,183
$
80,57778,597
$
29,22123,854
$
6,301488
$
1,570134
$
0
$
3,4514,073
$
134,906148,329
Special Mention
643
0
2,376715
0
0
0
0
3,0190
0
715
Substandard
 
0
 
0
179840
 
0
 
0
 
0
 
0
 
1790
840
Total
$
14,42941,898
$
80,57779,437
$
31,77623,854
$
6,301488
$
1,570134
$
0
$
3,4514,073
$
138,104149,884
Real Estate -
Commercial Mortgage:
Pass
$
35,435108,247
$
158,436155,143
$
100,14398,591
$
115,971111,327
$
69,84866,381
$
111,70796,834
$
24,32122,358
$
615,861658,881
Special Mention
0
4,16126
6,0404,510
14,29616,720
4,6184,601
13,14313,304
3974
42,65539,165
Substandard
 
1,6041,561
 
589583
 
3,5973,589
 
8790
 
1,8291,799
 
2,9361,931
 
0
 
10,6429,553
Total
$
37,039109,808
$
163,186155,752
$
109,780106,690
$
130,354128,137
$
76,29572,781
$
127,786112,069
$
24,71822,362
$
669,158707,599
Real Estate - Residential:
Pass
$
42,55983,586
$
92,15276,616
$
58,62450,779
$
39,57534,010
$
37,00631,307
$
78,36071,827
$
6,2907,906
$
354,566356,031
Special Mention
0
139
2321
124123
173170
535529
0
994982
Substandard
 
133936
 
1,4021,908
 
2,6532,783
 
1,6031,732
 
1,3411,113
 
3,2392,872
 
0100
 
10,37111,444
Total
 
$
42,69284,522
$
93,69378,663
$
61,30053,583
$
41,30235,865
$
38,52032,590
$
82,13475,228
$
6,2908,006
$
365,931368,457
Real Estate - Home
Equity:
Performing
$
39155
$
6260
$
358353
$
238179
$
767755
$
2,2472,091
$
197,926185,557
$
201,637189,150
Nonperforming
 
0
 
0
 
0
 
0
 
0
 
0
 
462928
 
462928
Total
 
$
39155
$
6260
$
358353
$
238179
$
767755
$
2,2472,091
$
198,388186,485
$
202,099190,078
Consumer:
Performing
$
30,72196,878
$
97,42384,462
$
61,53252,437
$
44,12637,372
$
20,29216,460
$
9,5026,652
$
4,8555,319
$
268,451299,580
Nonperforming
0
55
610
5
1234
3214
58
0
165111
Total
$
30,72196,878
$
97,47884,462
$
61,59352,442
$
44,13137,406
$
20,30416,474
$
9,5346,710
$
4,8555,319
$
268,616299,691
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
NOTE 4 – MORTGAGE BANKING ACTIVITIES
 
The Company’s mortgage
 
banking activities at its subsidiary Capital City Homes Loans (“CCHL”) include
 
mandatory delivery loan
sales, forward sales contracts used to manage residential
 
loan pipeline price risk, utilization of warehouse lines to fund secondary
market residential loan closings, and residential mortgage
 
servicing.
 
For the first quartersix month period of 2020, information provided below reflects
reflects CCHL activities for the period March 1, 2020 to March
 
31,to June 30, 2020 and CCB legacy residential real estate activities for
 
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 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 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 fair values are set- forth below.
 
March 31,June 30, 2021
December 31, 2020
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
79,90378,111
$
82,08180,821
$
109,831
$
114,039
Residential Mortgage Loan Commitments ("IRLCs")
(1)
144,155107,797
2,9822,524
147,494
4,825
Forward Sales Contracts
(2)
137,50099,000
1,356(90)
158,500
(907)
$
86,41983,255
$
117,957
(1)
Recorded in other assets at fair value
(2)
Recorded at fair value in other assets at March
31, 2021 and other liabilities at December 31, 2020fair value
 
ResidentialThe Company had
0
residential mortgage loans held for sale that were
90 days or more
outstanding or on nonaccrual totaled $at June 30, 2021
0.4
million at March 31,
2021 and had $
0.6
 
million at December 31, 2020.
 
 
Mortgage banking revenue was as follows:
 
Three Months Ended March 31,
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Net realized gains on sales of mortgage loans
$
14,42413,534
$
3,40714,580
$
27,958
$
17,987
Net change in unrealized
gain on mortgage loans held
for sale
(2,031)532
7381,092
(1,499)
1,830
Net change in the fair value of mortgage loan commitments
 
(IRLCs)
(1,843)(458)
1,6551,487
(2,301)
3,142
Net change in the fair value of forward sales contracts
2,263(1,446)
(1,394)1,625
817
231
Pair-Offs on net settlement of forward
 
sales contracts
3,310(476)
(1,376)(3,019)
2,835
(4,395)
Mortgage servicing rights additions
187453
02,049
640
2,049
Net origination fees
8151,078
2231,583
1,892
1,806
Total mortgage
 
banking revenues
$
17,12513,217
$
3,25319,397
$
30,342
$
22,650
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
Residential Mortgage Servicing
 
 
The Company may retain the right to service residential
 
mortgage loans sold.
 
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
 
The following represents a summary of mortgage
 
servicing rights.
 
(Dollars in Thousands)
March 31,June 30, 2021
December 31, 2020
Number of residential mortgage loans serviced for others
1,8002,008
1,796
Outstanding principal balance of residential mortgage
 
loans serviced for others
$
454,382498,984
$
456,135
Weighted average
 
interest rate
3.62%3.61%
3.64%
Remaining contractual term (in months)
320318
321
 
Conforming conventional loans serviced by the Company
 
are sold to FNMA on a non-recourse basis, whereby foreclosure
 
losses are
generally the responsibility of FNMA and not the Company.
 
The government loans serviced by the Company are
 
secured through
GNMA, whereby the Company is insured against loss by
 
the Federal Housing Administration or partially guaranteed against loss by
the Veterans
 
Administration.
 
At March 31,June 30, 2021, the servicing portfolio balance consisted
 
consisted of the following loan types: FNMA (
6362
%),
GNMA (
1110
%), and private investor (
2628
%).
 
FNMA and private investor loans are structured as actual/actual
 
payment remittance.
 
 
The Company had $
2.92.8
 
million and $
4.9
 
million in delinquent residential mortgage loans currently
 
in GNMA pools serviced by the
Company at March 31,June 30, 2021 and December 31, 2020,
 
respectively.
 
The right to repurchase these loans and the corresponding
liability
has been recorded in other assets and other liabilities, respectively,
 
in the Consolidated Statements of Financial Condition.
 
For the
three and six months ended March 31,June 30, 2021, the Company
 
repurchased $
1.50.7
 
million and $
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 March 31,June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Beginning balance
$
3,583
$
910
$
3,452
$
910
Additions due to loans sold with servicing retained
187453
252,049
640
2,074
Deletions and amortization
(306)(326)
(25)(97)
(632)
(122)
Valuation
 
allowance reversal
0
0
250
0
Ending balance
$
3,5833,710
$
9102,862
$
3,710
$
2,862
 
The Company did
0
t record any permanent impairment losses on mortgage servicing
 
rights for the three or six month periods ended March
31,June 30, 2021 and March 31,June 30, 2020.
 
 
The key unobservable inputs used in determining the
 
fair value of the Company’s mortgage
 
servicing rights were as follows:
 
March 31,June 30, 2021
December 31, 2020
Minimum
Maximum
Minimum
Maximum
Discount rates
11.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
9.60%13.09%
24.96%22.68%
13.08%
23.64%
Cost of servicing (per loan)
$
90
$
110
$
90
$
110
 
Changes in residential mortgage interest rates directly
 
affect the prepayment speeds used in valuing the Company’s
 
mortgage
servicing rights.
 
A separate third party model is used to estimate prepayment speeds
 
based on interest rates, housing turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant
 
factors.
 
The weighted average
annual prepayment speed was
14.1616.52
% at March 31,June 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
March 31,30, 2021.
 
 
Amounts
(Dollars in Thousands)
Outstanding
$
25
 
million warehouse line of credit agreement expiring
October 2021
.
 
Interest is at LIBOR plus
2.25%
, with a
floor rate of
3.50%
.
 
A cash pledge deposit of $
0.1
 
million is required by the lender.
$
7,7885,630
$
50
 
million master repurchase agreement without defined expiration.
 
Interest is at the LIBOR plus
2.24%
 
to
3.00%
, with a floor rate of
3.25%
.
 
A cash pledge deposit of $
0.5
 
million is required by the lender.
27,6227,772
$
50
 
million warehouse line of credit agreement expiring in
September 2021
.
 
Interest is at the LIBOR plus
2.75%
, with a floor rate of
3.25%
.
13,40329,195
Total Warehouse
 
Borrowings
$
48,81342,597
 
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At March 31,June 30, 2021, the Company had mortgage loans held for sale
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 of minimum tangible net worth,
 
minimum liquid
liquid assets, maximum debt to net worth ratio and positive net
 
net income, as defined in the agreements.
 
The Company was in
compliance with
all significant debt covenants at March
31,June 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
 
financial statements and thus not
included in the
total short term borrowings noted on the consolidatedConsolidated
 
statementStatement of financial condition.Financial Condition.
 
The balance of this line of credit at March 31,June 30,
2021 was $
29.727.7
 
million.
 
NOTE 5 – DERIVATIVES
 
 
The Company enters into derivative financial instruments to manage
 
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 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 debt.
 
 
Cash Flow Hedges of Interest Rate Risk
 
Interest rate swaps with notional amounts totaling
 
$
30
 
million at March 31,June 30, 2021 were designed as a cash flow hedge
 
hedge for 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 in accumulated other comprehensive income
 
related to derivatives
will be reclassified to interest expense as interest payments are
 
made on the Company’s
 
variable-rate subordinated debt.
 
The following table reflects the cash flow hedges included
 
in the consolidated statements of financial condition
.
 
 
Notional
Fair
 
Balance Sheet
Weighted Average
(Dollars in Thousands)
 
Amount
Value
Location
 
Maturity (Years)
March 31,June 30, 2021
Interest rate swaps related to subordinated debt
$
30,000
$
2,6991,780
Other Assets
9.39.0
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 debt) for the three and six month periodperiods ended March
 
31, 2021.June 30, 2021
and June 30, 2020.
 
 
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
in AOCI
Category
from AOCI to Income
Three months ended March 31,June 30, 2021
$
1,587(686)
Interest Expense
$
(37)
Three months ended June 30, 2020
(108)
Interest Expense
(3)
Six months ended June 30, 2021
$
900
 
Interest Expense
$
(33)(70)
Six months ended June 30, 2020
(108)
Interest Expense
(3)
 
The Company estimates there will be approximately
 
$
0.1
 
million reclassified as an increase to interest expense within
 
the next 12
months.
 
The Company had a collateral liability of $
2.61.7
 
million and $
0.5
 
million at March 31,June 30, 2021 and December 31, 2020, respectively.
 
NOTE 6 – LEASES
 
Operating leases in which the Company is the lessee are
 
recorded as operating lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively,
 
on its consolidated statement of financial condition.
 
 
Operating lease ROU assets represent the Company’s
right to use an underlying asset during the lease term
and operating lease
liabilities represent the Company’s
obligation to make lease payments arising from the lease.
ROU assets and operating lease
liabilities are recognized at lease commencement based
on the present value of the remaining lease payments using a
discount rate that
represents the Company’s
incremental borrowing rate at the lease commencement
date.
Operating lease expense, which is comprised
of amortization of the ROU asset and the implicit interest accreted
on the operating lease liability,
is recognized on a straight-line basis
over the lease term, and is recorded in occupancy expense
in the consolidated statements of income.
The Company’s operating
 
leases primarily relate to banking offices with remaining
 
lease terms from
1
 
to
4544
 
years.
 
The Company’s
leases are not complex and do not contain residual value
 
guarantees, variable lease payments, or significant assumptions
 
or judgments
made in applying the requirements of Topic
 
842.
 
Operating leases with an initial term of 12 months or less are not recorded on the
balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.
 
At March 31,June 30, 2021, the operating
lease ROU assets and liabilities were $
11.811.9
 
million and $
12.612.7
 
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 to the Company’s
 
operating leases.
Three Months Ended
March 31,Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Operating lease expense
$
344362
$
156265
$
706
$
422
Short-term lease expense
140170
79154
310
233
Total
lease expense
$
484532
$
235419
$
1,016
$
655
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
385402
$
160263
$
786
$
424
Right-of-use assets obtained in exchange for new operating lease liabilities
75440
5,0920
515
5,120
Weighted average
 
remaining lease term — operating leases (in years)
25.525.1
15.415.5
25.1
15.5
Weighted average
 
discount rate — operating leases
2.1%2.0%
2.4%
2.0%
2.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
The table below summarizes the maturity of remaining
 
lease liabilities:
(Dollars in Thousands)
March 31,June 30, 2021
2021
$
1,158816
2022
1,3891,480
2023
9951,086
2024
9451,033
2025
771855
2026 and thereafter
11,13211,165
Total
$
16,39016,435
Less: Interest
(3,837)(3,780)
Present Value
 
of Lease liability
$
12,55312,655
 
At March 31,June 30, 2021, the Company had additional operating
 
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 is $
0.2
 
million annually
through 2024, for an aggregate remaining obligation of
 
$
0.7
 
million at March 31,June 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 Executive Retirement Plan II (“SERP II”) covering
 
its
executive officers.
 
The defined benefit plan was amended in December 2019
 
to remove plan eligibility for new associates hired after
December 31, 2019.
 
The SERP II was adopted by the Company’s
 
Board on May 21, 2020 and covers certain executive officers
 
that
were not covered by the SERP.
 
 
The components of the net periodic benefit cost for
 
the Company's qualified benefit pension plan were as follows:
 
Three Months Ended March 31,June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Service Cost
$
1,743
$
1,457
$
3,486
$
2,914
Interest Cost
1,221
1,4111,400
2,442
2,811
Expected Return on Plan Assets
(2,787)
(2,748)
(5,574)
(5,496)
Prior Service Cost Amortization
4
4
8
8
Net Loss Amortization
1,691
1,011974
3,382
1,985
Settlement Loss
2,000
0
2,000
0
Special Termination
 
Charge
0
0
0
61
Net Periodic Benefit Cost
$
1,8723,872
$
1,1961,087
$
5,744
$
2,283
Discount Rate Used for Benefit Cost
2.88%
3.53%
2.88%
3.53%
Long-term Rate of Return on Assets
6.75%
7.00%
6.75%
7.00%
 
The componentsIn the second quarter of the net periodic benefit cost for the Company's2021, lump sum payments
 
SERPmade under the Company’s defined
benefit pension plan triggered settlement
accounting.
In accordance with the applicable accounting guidance for defined
benefit plans, were as follows:the Company recorded a settlement loss
Three Months Ended March 31,
(Dollars in Thousands)
2021
2020
Service Cost
of $
92.0
$
0
Interest Cost
$
59
$
72
Prior Service Cost Amortization
19
0
Net Loss Amortization
198
247
Net Periodic Benefit Cost
$
285
$
319
Discount Rate Used for Benefit Cost
2.38%
3.16%million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The components of the net periodic benefit cost for the Company's
SERP and SERP II were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Service Cost
$
9
$
10
$
18
$
10
Interest Cost
61
83
120
155
Prior Service Cost Amortization
69
109
88
109
Net Loss Amortization
243
71
441
318
Net Periodic Benefit Cost
$
382
$
273
$
667
$
592
Discount Rate
2.38%
3.16%
2.38%
3.16%
The service cost component of net periodic benefit cost is reflected
 
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 to credit loss under standby letters of credit and
 
commitments to extend credit is represented by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
 
March 31,June 30, 2021
December 31, 2020
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
 
170,898204,549
$
 
599,387560,909
$
 
770,285765,458
$
160,372
$
 
596,572
$
 
756,944
Standby Letters of Credit
 
6,7116,587
 
0
 
6,7116,587
6,550
 
0
 
6,550
Total
$
 
177,609211,136
$
599,387560,909
$
776,996772,045
$
166,922
$
596,572
$
763,494
 
(1)
 
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet
 
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 clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without
 
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
 
Standby letters of credit are conditional commitments
 
issued by 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 that are not unconditionally cancellablecance
 
llable by the bank is
adjusted as a provision for credit loss expense and is recorded
 
in other liabilities.
 
The following table shows the activity in the
allowance.
 
Three Months Ended March 31,June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Beginning Balance
$
 
2,974
$
1,033
$
1,644
$
 
157
Impact of Adoption of ASC 326
0
0
0
876
Provision for Credit Losses
1,330(387)
0391
943
391
Ending Balance
$
 
2,9742,587
$
1,0331,424
$
2,587
$
1,424
 
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 outcomeoutco
 
me of which would, individually or in the aggregate, have a material
 
material effect
on the consolidated results of operations, financial
 
position, or cash flows of the Company.
 
24
Indemnification Obligation
.
 
The Company is a member of the Visa
 
U.S.A. network.
 
Visa U.S.A member banks
 
are required to
indemnify the Visa U.S.A.
 
network for potential future settlement of certain litigation
 
(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. makes subsequent
revisions to the conversion ratio for its Class B shares.
 
 
Fixed charges included in the swap liability are payable
 
quarterly until the litigation reserve is fully liquidated
 
and at which time the
aforementioned swap contract will be terminated.
 
Quarterly fixed payments approximate $
200,000205,000
.
 
Conversion ratio payments and
ongoing fixed quarterly charges are reflected
 
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 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 include quoted prices for similar assets or liabilities in active markets,
 
quoted prices for identical
or similar assets or liabilities in markets that are not active,
 
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 use in pricing the assets or liabilities.
 
Assets and Liabilities Measured at Fair
 
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, 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 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 comparing 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, 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 classified as Level 2 within the fair value
 
hierarchy.
 
Interest Rate Swap.
The Company’s derivative
positions are classified as level 2 within the fair value
hierarchy and are valued using
models generally accepted in the financial services
industry and that use actively quoted or observable market
input values from
external market data providers.
The fair value derivatives are determined using discounted cash
flow models.
Fair Value
Swap
.
The Company entered into a stand-alone derivative contract
with the purchaser of its Visa Class B
shares.
The
valuation represents the amount due and payable to the counterparty
based upon the revised share conversion rate, if any,
during the
period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
Interest Rate Swap.
The Company’s derivative
positions are classified as level 2 within the fair value
hierarchy and are valued using
models generally accepted in the financial services
industry and that use actively quoted or observable market
input values from
external market data providers.
The fair value derivatives are determined using discounted cash
flow models.
 
Fair Value
 
Swap
26
.
The Company entered into a stand-alone derivative contract
with the purchaser of its Visa Class B
shares.
The
valuation represents the amount due and payable to the counterparty
based upon the revised share conversion rate, if any,
during the
period.
 
A summary of fair values for assets and liabilities consisted
 
of the following:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
March 31,June 30, 2021
ASSETS:
Securities Available
 
for Sale:
U.S. Government Treasury
$
173,116160,877
$
0
$
0
$
173,116160,877
U.S. Government Agency
0
221,530228,301
0
221,530228,301
States and Political Subdivisions
0
4,30813,607
0
4,30813,607
Mortgage-Backed Securities
0
49656,950
0
49656,950
Corporate Debt Securities
0
14,360
0
14,360
Equity Securities
(1)
0
6,795
0
6,795
Loans Held for Sale
0
82,08180,821
0
82,08180,821
Interest Rate Swap Derivative
0
2,6991,780
0
2,699
Mortgage Banking Hedge Derivative
0
1,356
0
1,3561,780
Mortgage Banking IRLC Derivative
0
0
2,9822,524
2,9822,524
Mortgage Servicing Rights
0
0
4,0193,900
4,0193,900
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
90
$
0
$
90
December 31, 2020
ASSETS:
Securities Available
 
for Sale:
U.S. Government Treasury
$
104,519
$
0
$
0
$
104,519
U.S. Government Agency
0
208,531
0
208,531
States and Political Subdivisions
0
3,632
0
3,632
Mortgage-Backed Securities
0
515
0
515
Equity Securities
(1)
0
7,673
0
7,673
Loans Held for Sale
0
114,039
0
114,039
Interest Rate Swap Derivative
0
574
0
574
Mortgage Banking IRLC Derivative
0
0
4,825
4,825
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
907
$
0
$
907
(1)
Not readily marketable securities - reflected
 
in other assets.
 
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers ofrelated
 
to mortgage banking activities of $
15.427.4
million and $
19.3
million, respectively,
for the six month period ending June 30, 2021 and $
14.6
 
million and $
10.519.4
 
million,
respectively, for the
 
for
the three month period ending March 31, 2021 and Level 3
issuances and transfers of $
1.2
million and $
1.8
million, respectively,
for
the three month period ending March 31,1, 2020 related to
mortgage banking activities. June 30, 2020.
 
Issuances are valued based on the change in fair
value of
the underlying
mortgage loan from inception
of the IRLC to the balance
sheet date, adjusted for pull
-throughpull-through rates and costs
to originate.originate
.
 
IRLCs
transferred out of Level 3 represent IRLCs that were funded
 
and moved to mortgage loans held for sale, at fair
value.
 
Assets Measured at Fair ValueVal
 
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 assets measured on a non-recurring basis.
 
 
26
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured
 
using the fair value of the collateral less selling
costs.
 
The fair value of collateral is determined by an
 
independent valuation 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 $
4.04.7
 
million with a valuation allowance of $
0.10.6
 
million at March 31,June 30, 2021
and $
7.1
 
million and $
0.1
 
million, respectively,
 
at December 31, 2020.
27
 
Other Real Estate Owned
.
 
During the first threesix months of 2021,
 
certain foreclosed assets, upon initial recognition, were measured
and
and reported at fair value through a charge-off
 
to the allowance for credit losses based on the fair value of the foreclosed
 
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 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 stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest
 
rate).
 
The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and
 
the cost of loan servicing.
 
Further detail on the key inputs utilized are
provided in Note 4 – Mortgage Banking Activities.
 
At March 31,June 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.
 
Cash and Short-Term
A summary of estimated fair values of significant
 
Investments.
financial instruments consisted of the following:
The carrying amount of cash and short-term investments is used
to approximate fair value, given
the short time frame to maturity and as such assets do
not present unanticipated credit concerns.
 
June 30, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
78,894
$
78,894
$
0
$
0
Short-Term
Investments
766,920
766,920
0
0
Investment Securities, Available
for Sale
480,890
160,877
320,013
0
Investment Securities, Held to Maturity
.325,559
110,921
218,960
0
Equity Securities
(1)
3,588
0
3,588
0
Loans Held for Sale
80,821
0
80,821
0
Interest Rate Swap Derivative
1,780
0
1,780
0
Mortgage Banking IRLC Derivative
2,524
0
0
2,524
Mortgage Servicing Rights
3,710
0
0
3,900
Loans, Net of Allowance for Credit Losses
$
1,986,487
$
0
$
0
$
1,988,297
LIABILITIES:
Deposits
$
3,446,921
$
0
$
3,350,614
$
0
Short-Term
 
Securities held to maturity are valued in accordance
with the methodology previously noted in thisBorrowings
footnote under the caption “Assets and Liabilities Measured
at Fair Value
on a Recurring Basis – Securities Available
for Sale”.47,200
0
Loans.47,200
The loan portfolio is segregated into categories and the fair value
of each loan category is calculated using present value
techniques based upon projected cash flows, estimated
discount rates, and incorporates a liquidity discount to meet
the objective of
“exit price” valuation.
Deposits.
The fair value of Noninterest Bearing Deposits, NOW Accounts,
Money Market Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit is estimated using
present
value techniques and rates currently offered
for deposits of similar remaining maturities.
0
Subordinated Notes Payable.Payable
The fair value of each note is calculated using present
value techniques, based upon projected cash52,887
flows and estimated discount rates as well as rates being offered
for similar obligations.0
42,609
Short-Term
and Long-Term
Borrowings.0
The fair value of each note is calculated using present value
techniques, based uponLong-Term Borrowings
projected cash flows and estimated discount rates as well as rates1,720
0
being offered for similar debt.
1,804
0
Mortgage Banking Hedge Derivative
$
90
$
0
$
90
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
A summary of estimated fair values of significant
financial instruments consisted of the following:
March 31, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
73,973
$
73,973
$
0
$
0
Short-Term
Investments
851,910
851,910
0
0
Investment Securities, Available
for Sale
406,245
173,116
233,129
0
Investment Securities, Held to Maturity
199,109
0
204,158
0
Equity Securities
(1)
3,588
0
3,588
0
Loans Held for Sale
82,081
0
82,081
0
Interest Rate Swap Derivative
2,699
0
2,699
0
Mortgage Banking Hedge Derivative
1,356
0
1,356
0
Mortgage Banking IRLC Derivative
2,982
0
0
2,982
Mortgage Servicing Rights
3,583
0
0
4,019
Loans, Net of Allowance for Credit Losses
2,035,701
0
0
2,036,010
LIABILITIES:
Deposits
$
3,358,108
$
0
$
3,358,015
$
0
Short-Term
Borrowings
55,687
0
55,687
0
Subordinated Notes Payable
52,887
0
43,038
0
Long-Term Borrowings
1,829
0
1,927
0
28
 
December 31, 2020
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
67,919
$
67,919
$
0
$
0
Short-Term
 
Investments
860,630
860,630
0
0
Investment Securities, Available
 
for Sale
324,870
104,519
220,351
0
Investment Securities, Held to Maturity
169,939
5,014
170,161
0
Loans Held for Sale
114,039
0
114,039
0
Equity Securities
(1)
3,589
0
3,589
0
Interest Rate Swap Derivative
574
0
574
0
Mortgage Banking IRLC Derivative
4,825
0
0
4,825
Mortgage Servicing Rights
3,452
0
0
3,451
Loans, Net of Allowance for Credit Losses
$
1,982,610
$
0
$
0
$
1,990,740
LIABILITIES:
Deposits
$
3,217,560
$
0
$
3,217,615
$
0
Short-Term
 
Borrowings
79,654
0
79,654
0
Subordinated Notes Payable
52,887
0
43,449
0
Long-Term Borrowings
3,057
0
3,174
0
Mortgage Banking Hedge Derivative
$
907
0
$
907
$
0
 
(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 value of the Company.
 
 
28
NOTE 10 – ACCUMULATED
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
The amounts allocated to accumulated other comprehensive
 
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 income during the period
 
(1,458)(1,816)
 
1,587900
 
1421,635
 
271719
Balance as of March 31,June 30, 2021
$
1,242884
 
$
2,0151,328
 
$
(47,128)(45,635)
 
$
(43,871)(43,423)
Balance as of January 1, 2020
$
864
 
$
0
 
$
(29,045)
 
$
(28,181)
Other comprehensive income during the period
 
2,6483,004
(79)
 
0
 
0
2,6482,925
Balance as of March 31,June 30, 2020
$
3,5123,868
 
$
0(79)
 
$
(29,045)
 
$
(25,533)(25,256)
 
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 and should be read in conjunction with the Consolidated
 
Financial
Statements and related notes.
 
The following information should provide a better
 
understanding of the major factors and trends that
affect our earnings performance and financial
 
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 "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," "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.
 
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 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 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 a total of 57 full-service
offices located in Florida, Georgia,
 
and Alabama.
 
The Bank offers commercial and retail banking services,
 
as well as trust and asset
management, and retail securities brokerage.brokerage,
and life insurance.
 
We offer
 
residential mortgage banking services through Capital City
Home
Loans.
 
Our profitability,
 
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 losses, noninterest
income such as deposit fees, wealth management fees, mortgage
 
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.
 
Strategic AllianceAcquisitions
.
 
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
statements effective March
1, 2020.
 
See Note 1 – Business Combination in the 2020 Form 10-K in the
 
inConsolidated Financial Statements.
On April 30, 2021, a newly formed subsidiary
of CCBG, Capital City Strategic Wealth,
LLC (“CCSW”), completed its acquisition of
substantially all of the Consolidated Financialassets of Strategic Wealth
Group, LLC and certain related businesses (“SWG”).
CCSW was consolidated into
Statements.CCBG’s financial statements effective
May 1, 2021.
See Note 1 – Business and Basis of Presentation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
RESPONSE TO COVID-19 PANDEMIC
 
The ongoing global and local responses to the COVID-19 pandemic
 
have shown significant progress,pandemic and the new Delta variant continue to impact
our clients and
associates continue
to
as they adjust to the changing conditions presented
by the pandemic.
 
pandemic. However, theThe pandemic
has adversely impacted a broad range of
of industries in which the Company’s
 
customers operate and could still impair their ability to fulfill their
 
fulfill their financial obligations to the
Company.
 
In addition, although our associates have generally been
 
available and working during the pandemic, COVID-19 hasand 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 severaland continue to take actions designed to cushion the economic
fallout.
 
The
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act
 
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 appearsappeared that epidemiological and macroeconomic
 
conditions arewere trending in a positive direction atin
March 31,the first quarter of 2021, if the Delta variant continues to
cause case counts to trend higher in our markets, the Company
 
markets,could
the Company could experience further adverse effects
on its business, financial
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
 
of
COVID-19,variants, and any potential resulting measures to curtail its spread,their
 
spread,
will have on the Company’s
 
future operations, we discuss
potential impacts on our financial performance in
 
in more detail throughout
parts of the MD&A section.
 
To protect the
 
the health of our
clients and associates and comply with applicable government
 
government directives, we
have modified our business practices as noted belo
 
below.w.
 
COVID-19 Update
 
●
 
We continue
 
to closely followmonitor COVID-19 case count trends in our markets and adjust
our operations, as needed, to respond
to the changing conditions presented by the case counts and impacts of
COVID-19 pandemic.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 are open for business, buthave returned to
 
continue to be subject to national guidelinesnormal banking hours and lobby services; however,
 
we will adjust such hours and local safety
ordinances that are designed to protect our clients and associates.
services as necessary depending on the changing conditions.
●
 
To limit building
capacity, we continueWe are adhering
 
to utilize flexible in-officenational guidelines and remote working arrangementslocal safety ordinances to protect
 
for non-retail
both clients and associates.
●
 
InWe continue
to support of social distancing measures, we encourageclients with the Small Business Administration Payment
 
clients to use our enhanced digital access options for bankingProtection Program (“SBA PPP”) by actively
productsassisting with the Round 1 and access to sales associates.
2 forgiveness process.
 
NON-GAAP FINANCIAL MEASURES
 
We present a
 
tangible common equity ratio and a tangible book value per
 
diluted share that, in each case, reduces shareowners’ equity
and total assets by the amount of goodwill resultingand other
 
identifiable intangible 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 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)
Second
First
Fourth
Third
Second
First
Fourth
Third
Second
Shareowners' Equity (GAAP)
$
335,880
$
324,426
$
320,837
$
339,425
$
335,057
$
328,507
$
327,016
$
321,562
$
314,595
Less: Goodwill and Other Intangibles (GAAP)
93,333
89,095
89,095
89,095
89,095
89,275
84,811
84,811
84,811
Tangible Shareowners' Equity (non
 
-GAAP)
A
242,547
235,331
231,742
250,330
245,962
239,232
242,205
236,751
229,784
Total Assets (GAAP)
4,011,459
3,929,884
3,798,071
3,587,041
3,499,524
3,086,523
3,088,953
2,934,513
3,017,654
Less: Goodwill and Other Intangibles (GAAP)
93,333
89,095
89,095
89,095
89,095
89,275
84,811
84,811
84,811
Tangible Assets (non-GAAP)
B
$
3,918,126
$
3,840,789
$
3,708,976
$
3,497,946
$
3,410,429
$
2,997,248
$
3,004,142
$
2,849,702
$
2,932,843
Tangible Common Equity Ratio
 
(non-GAAP)
A/B
6.19%
6.13%
6.25%
7.16%
7.21%
7.98%
8.06%
8.31%
7.83%
Actual Diluted Shares Outstanding (GAAP)
C
16,901,375
16,875,719
16,844,997
16,800,563
16,821,743
16,845,462
16,855,161
16,797,241
16,773,449
Diluted Tangible Book Value
 
(non-GAAP)
 
A/C
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
13.70
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
(Dollars in Thousands, Except
2021
2020
2019
Per Share Data)
Second
First
Fourth
Third
Second
First
Fourth
Third
Second
Summary of Operations
:
Interest Income
$
26,836
$
25,446
$
26,154
$
26,166
$
26,512
$
27,365
$
28,008
$
28,441
$
28,665
Interest Expense
856
948
1,181
1,044
1,054
1,592
1,754
2,244
2,681
Net Interest Income
25,980
24,498
24,973
25,122
25,458
25,773
26,254
26,197
25,984
Provision for Credit Losses
(571)
(982)
1,342
1,308
2,005
4,990
(162)
776
646
Net Interest Income After
 
Provision for Credit Losses
26,551
25,480
23,631
23,814
23,453
20,783
26,416
25,421
25,338
Noninterest Income
26,473
29,826
30,523
34,965
30,199
15,478
13,828
13,903
12,770
Noninterest Expense
(1)
42,123
40,476
41,348
40,342
37,303
30,969
29,142
27,873
28,396
Income
 
Before
 
Income Taxes
10,901
14,830
12,806
18,437
16,349
5,292
11,102
11,451
9,712
Income Tax Expense
2,059
2,787
2,833
3,165
2,950
1,282
2,537
2,970
2,387
(Income) Loss Attributable to NCI
(1,415)
(2,537)
(2,227)
(4,875)
(4,253)
277
-
-
-
Net Income Attributable to CCBG
7,427
9,506
7,746
10,397
9,146
4,287
8,565
8,481
7,325
Net Interest Income (FTE)
$
26,064
$
24,607
$
25,082
$
25,233
$
25,564
$
25,877
$
26,378
$
26,333
$
26,116
 
Per Common Share
:
Net Income Basic
$
0.44
$
0.56
$
0.46
$
0.62
$
0.55
$
0.25
$
0.51
$
0.51
$
0.44
Net Income Diluted
0.44
0.56
0.46
0.62
0.55
0.25
0.51
0.50
0.44
Cash Dividends Declared
0.15
0.15
0.15
0.14
0.14
0.14
0.13
0.13
0.11
Diluted Book Value
19.87
19.22
19.05
20.20
19.92
19.50
19.40
19.14
18.76
Diluted Tangible Book Value
(1)(2)
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
13.70
Market Price:
 
High
27.39
28.98
26.35
21.71
23.99
30.62
30.95
28.00
25.00
 
Low
24.55
21.42
18.14
17.55
16.16
15.61
25.75
23.70
21.57
 
Close
25.79
26.02
24.58
18.79
20.95
20.12
30.50
27.45
24.85
 
Selected Average Balances
:
Loans Held for Investment
$
2,036,781
$
2,044,363
$
1,993,470
$
2,005,178
$
1,982,960
$
1,847,780
$
1,834,085
$
1,824,685
$
1,814,401
Earning Assets
3,623,910
3,497,929
3,337,409
3,223,838
3,016,772
2,751,880
2,694,700
2,670,081
2,719,217
Total Assets
3,956,349
3,821,521
3,652,436
3,539,332
3,329,226
3,038,788
2,982,204
2,959,310
3,010,662Deposits
Deposits3,387,352
3,239,508
3,066,136
2,971,277
2,783,453
2,552,690
2,524,951
2,495,755
2,565,431
Shareowners’ Equity
329,040
326,330
343,674
340,073
333,515
331,891
326,904
320,273
313,599
Common Equivalent Average Shares:
 
Basic
16,858
16,838
16,763
16,771
16,797
16,808
16,750
16,747
16,791
 
Diluted
16,885
16,862
16,817
16,810
16,839
16,842
16,834
16,795
16,818
Performance Ratios:
Return on Average Assets
 
0.75
%
1.01
%
0.84
%
1.17
%
1.10
%
0.57
%
1.14
%
1.14
%
0.98
%
Return on Average Equity
9.05
11.81
8.97
12.16
11.03
5.20
10.39
10.51
9.37
Net Interest Margin (FTE)
2.89
2.85
3.00
3.12
3.41
3.78
3.89
3.92
3.85
 
Noninterest Income as % of
 
Operating Revenue
50.47
54.90
55.00
58.19
54.26
37.52
34.50
34.67
32.95
Efficiency Ratio
80.18
74.36
74.36
67.01
66.90
74.89
72.48
69.27
73.02
 
Asset Quality:
Allowance for Credit Losses ("ACL")
 
$
22,175
$
22,026
$
23,816
$
23,137
$
22,457
$
21,083
$
13,905
$
14,319
$
14,593
ACL to Loans HFI
1.10
%
1.07
%
1.19
%
1.16
%
1.11
%
1.13
%
0.75
%
0.78
%
0.79
%
Nonperforming Assets (“NPAs”)
6,302
5,472
6,679
6,732
8,025
6,337
5,425
5,454
6,632
 
NPAs to Total
 
Assets
0.16
0.14
0.18
0.19
0.23
0.21
0.18
0.19
0.22
NPAs to Loans HFI plus OREO
0.31
0.27
0.33
0.34
0.40
0.34
0.29
0.30
0.36
ACL to Non-Performing Loans
433.93
410.78
405.66
420.30
322.37
432.61
310.99
290.55
259.55
Net Charge-Offs to Average
 
Loans HFI
(0.07)
(0.10)
0.09
0.11
0.05
0.23
0.05
0.23
0.04
Capital Ratios:
Tier 1 Capital
15.44
%
16.08
%
16.19
%
16.77
%
16.59
%
16.12
%
17.16
%
16.83
%
16.36
%
Total Capital
16.48
17.20
17.30
17.88
17.60
17.19
17.90
17.59
17.13
Common Equity Tier 1
13.14
13.63
13.71
14.20
14.01
13.55
14.47
14.13
13.67Leverage
Leverage8.84
8.97
9.33
9.64
10.12
10.81
11.25
11.09
10.64
 
Tangible Common Equity
(1)(2)
6.19
6.13
6.25
7.16
7.21
7.98
8.06
8.31
7.83
 
(1)
Includes a $2.0 million (pre-tax), or $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
.Summary.
 
Net income wasof $7.4 million, or $0.44 per diluted share, for
the second quarter of 2021 compared to net
income of $9.5 million, or $0.56 per diluted share, for
 
for the first quarter of 2021, compared toand $9.1 million, or $0.55 per
diluted share, for the
second quarter of 2020.
For the first six months of 2021, net income
of $7.7 totaled $16.9 million, or $0.46
$1.00 per diluted share, for the fourthcompared to net
quarter of 2020 and net income of $4.3$13.4 million,
or $0.25$0.80 per diluted share,
 
for
the first quartersame period of 2020.
 
Net income for the second quarter of 2021 included
a partial pension settlement charge of $2.0
million (pre-tax), or $0.10 per diluted share (after-tax).
 
Net Interest Income
.Income.
 
Taxable equivalent
Tax-equivalent
 
net interest income for the second quarter of 2021
was $26.1 million compared to $24.6 million
for the first quarter of 2021 was $24.6
million compared to $25.1 million
for the fourth quarter of 2020 and $25.9$25.6 million for the second
 
first quarter of 2020.
 
The decreaseFor the first six months of 2021, tax-equivalent net
interest income totaled $50.7 million compared to both prior periods$51.4
million for the same period of 2020.
Loan growth and higher SBA PPP loan
fees drove the improvement over the first quarter of 2021.
For the six month period, the decrease generally reflected
lower rates
earned
on investment securities and variable/adjustable rate loans.
 
The year-over-year decline also reflectedloans partially offset by higher SBA PPP loan fees
and lower rates oninterest
overnight funds.
Partially offsetting these declines were higher volumes
of earning assets, including lower yielding loans from
the
SBA Paycheck Protection Program (“SBA PPP”) and overnight
funds.
expense.
 
Provision and Allowance for Credit
 
Losses.
Provision for credit losses was a negative $0.6 million
for the second quarter of 2021
compared to a negative provision of $1.0 million for the
first quarter of 2021 and provision expense of $2.0 million
for the second
quarter of 2020.
 
For the first quartersix months of 2021, we recorded a negative provision
 
of $1.0$1.6 million compared
to provision expense of $1.3
$7.0 million for the fourth
quartersame period of 2020 and $5.0 million for the first quarter of
2020.
 
The negative
provision for the first quarterhalf of 2021 generally reflected
 
improving economic
conditions and a lower level of expected
losses related
to COVID-19.
Further, we recognizedstrong net loan recoveriesrecoveries.
Noninterest Income.
Noninterest income for the second quarter of 2021
totaled $26.5 million compared to $29.8 million for the first
quarter of 2021 and $30.2 million for the second quarter
 
of $0.52020.
The aforementioned declines were primarily due to
lower mortgage
banking revenues at CCHL, but were partially offset
by improvements in wealth management fees and bank
card fees.
For the first six
months of 2021, noninterest income totaled $56.3 million
compared to $45.7 million for the same period of 2020 with the increase
driven by the addition of CCHL mortgage banking
revenues late in the first quarter of 2021.2020, and strong growth
in bank card fees and
wealth management fees.
 
 
 
Noninterest Income
.Expense.
 
Noninterest incomeexpense for the firstsecond quarter of 2021 totaled $29.8
 
$42.1 million a decrease of $0.7compared to $40.5 million or 2.3%, fromfor the first
the fourth quarter of 20202021 and a $14.3$37.3 million or 92.7%,for the second quarter
 
of 2020.
The $1.6 million increase over the first quarter of 2020.2021 reflected
 
The decrease from the fourth quartera
of 2020 was due to a seasonal decline in mortgage$2.0 million partial pension settlement charge
 
banking revenues.that was partially offset by lower commission expense at CCHL
 
The increase over the first quarter of 2020 was also attributableand lower legal fees
to higher mortgage banking revenues due to the strategic
alliance with CCHL.
Noninterest Expense
.
Noninterest expense for the first quarter of 2021 totaled $40.5
million, a decrease of $0.9 million, or 2.1%, from
the fourth quarter of 2020 and a $9.5 million, or 30.78%,
increase over the first quarter of 2020.
The decrease from the fourth quarter
of 2020 was primarily attributable to lower compensation
expense and other real estate owned (“OREO”) expense.expense at CCB.
 
The increase
comparedCompared to the first quarterprior 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 reflected expenses added
by the CCHL acquisition as Core CCBG’s
expenses remained flat.
forward.
 
Financial Condition
 
Earning Assets
.Assets.
 
Average earning
 
earning assets were $3.498$3.624 billion for the second quarter of 2021, an
increase of $126.0 million, or 3.6%,
over the first quarter of 2021,
an increase of $160.5 million, or 4.8%
over
the fourth quarter of 2020, and an increase of $746.0 million,$286.5
 
million, or 27.1% 8.6%
over the firstfourth quarter of 2020.
 
The increase over both prior
periods was primarily driven by higher deposit balances,
 
which funded growth in both overnight funds sold and SBA PPP loans.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 (“HFI”) increased $50.9decreased $7.6 million, or 0.4%,
 
2.6%from the first quarter of 2021 and increased $43.3
million, or 2.2%, over the fourth quarter of 2020 and $196.6
million, or 10.6%, over the first quarter of 2020.
Period end balances increased $51.3 million, or 2.6%, over the fourth
quarter of
2020 and $195.3 million, or 10.5%, over the first quarter
of 2020.
In the first quarter of 2021, we originated an additional round
of
SBA PPP loans totaling $65.4 million.
 
Excluding SBA PPP loans, average core loans grew $54.4 million
and $90.4 million
over both respective periods and period end loans increased
 
$23grew $74.3 million and $36
$97.7 million respectively,over both respective periods.
 
overGrowth in
period end loans was driven primarily in the fourth quarter of 2020.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.
 
 
Credit Quality
.
 
Nonaccrual loans totaled $5.4$5.1 million (0.26%(0.25% of HFI loans)
 
at June 30, 2021 compared to $5.4 million (0.26% of HFI
loans) at March 31, 2021
compared to and $5.9 million (0.29%(0.29
 
of
HFI loans) at December 31, 2020 and $4.9 million (0.26%%
 
of HFI loans) at MarchDecember 31, 2020.
 
Classified loans totaled $19.4 million, $20.6 million,
$17.6
million, and $16.5$17.6 million at the same respective periods.
 
We continue
 
to closely monitor borrowers and loan portfolio
segments impacted by the pandemic.
 
Approximately $328 million of the $333 million in loans that received
COVID-19 loan
extension have resumed making regularly scheduled payments
and we have experienced nominal problem loan migration
within that
pool of loans.
Deposits
.
 
Average total
 
deposits increased $173.4$147.8 million, or 5.7%4.6%, over the fourthfirst quarter
 
quarter of 2020,
2021, and $686.8$321.2 million, or 26.9%10.5%, over
over the firstfourth quarter of 2020.
 
Period end deposit balances grew $140.5 million and
$812.5 million over the fourth quarter of 2020 and
first quarter of 2020,
respectively, indicating
strong growth in core deposit balances.
Over the past twelve12 months, multiple
government stimulus
programs have been implemented,
including the
CARES Act and the American Rescue Plan Act, which are
 
are
responsible for a portion of this growth.
 
Capital
.
 
At March 31,June 30, 2021, we were well-capitalized with a total risk-based
 
capital ratio of 17.20%16.48%
 
and a tangible common equity
ratio (a non-GAAP financial measure) of 6.13%6.19% compared
 
to 17.30%17.20% and 6.13%, respectively,
at March 31, 2021 and 17.30%
and
6.25%, respectively,
 
at December 31, 2020 and 17.19% and
7.98%, respectively,
at March 31, 2020.
 
At March 31,June 30, 2021, all of our regulatory capital ratios exceeded
 
the threshold to be well-
capitalized under the Basel III capital standards.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
RESULTS
OF OPERATIONS
Net Income
For the first quarter of 2021, we realized net income of
$9.5 million, or $0.56 per diluted share, compared to
net income of $7.7
million, or $0.46 per diluted share, for the fourth quarter
of 2020, and $4.3 million, or $0.25 per diluted share, for the first quarter
of
2020.
Compared to the fourth quarter of 2020, the $2.0 million
increase in operating profit was attributable to a $2.3
million decrease in the
provision for credit losses and lower noninterest expense
of $0.9 million, partially offset by a $0.7 million
decrease in noninterest
income and lower net interest income of $0.5 million.
Compared to the first quarter of 2020, the $9.5 million
increase in operating profit was attributable to a $14.3 million
increase in
noninterest income and a lower provision for credit losses of
$6.0 million, partially offset by higher noninterest
expense of $9.5 million
and lower net interest income of $1.3 million.
This comparison reflects the acquisition of a 51% membership
interest in, and
consolidation of, CCHL on March 1, 2020.
A condensed earnings summary of each major component
of our financial performance is provided below:
Three Months Ended
(Dollars in Thousands, except per share data)
March 31, 2021
December 31, 2020
March 31, 2020
Interest Income
$
25,446
$
26,154
$
27,365
Taxable Equivalent Adjustments
109
109
104
Total Interest Income (FTE)
25,555
26,263
27,469
Interest Expense
948
1,181
1,592
Net Interest Income (FTE)
24,607
25,082
25,877
Provision for Credit Losses
(982)
1,342
4,990
Taxable Equivalent Adjustments
109
109
104
Net Interest Income After Provision for Credit Losses
25,480
23,631
20,783
Noninterest Income
29,826
30,523
15,478
Noninterest Expense
40,476
41,348
30,969
Income Before Income Taxes
14,830
12,806
5,292
Income Tax Expense
2,787
2,833
1,282
Pre-Tax (Income) Loss
Attributable to Noncontrolling Interests
(2,537)
(2,227)
277
Net Income Attributable to Common Shareowners
$
9,506
$
7,746
$
4,287
Basic Net Income Per Share
$
0.56
$
0.46
$
0.25
Diluted Net Income Per Share
$
0.56
$
0.46
$
0.25
Net Interest Income
Net interest income represents our single largest
source of earnings and is equal to interest income and fees
generated by earning
assets less interest expense paid on interest bearing liabilities.
This information is provided on a "taxable equivalent" basis to
reflect
the tax-exempt status of income earned on certain loans
and state and local government debt obligations.
We provide an analysis of
our net interest income including average yields and rates
in Table I on page 44.
Tax-equivalent
net interest income for the first quarter of 2021 was $24.6 million
compared to $25.1 million for the fourth quarter of
2020 and $25.9 million for the first quarter of 2020.
The decrease compared to both prior periods reflected lower
rates earned on
investment securities and variable/adjustable rate loans.
The year-over-year decline also reflected lower rates on overnight
funds.
Partially offsetting these declines were higher volumes
of earning assets, including lower yielding SBA PPP loans and
overnight
funds.
Our net interest margin for the first quarter
of 2021 was 2.85%, a decrease of 15 basis points from
the fourth quarter of 2020 and a
decline of 93 basis points from the first quarter of 2020.
The decreases were primarily attributable to significant growth in
overnight
funds which reduced our margin.
Our net interest margin for the first quarter of 2021
,
excluding the impact of overnight funds in
excess of $200 million, was 3.45%.
We anticipate
margin improvement from these levels as a portion
of our overnight funds are
deployed into various strategies under consideration.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
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
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands, except per share data)
2021
2021
2020
2021
2020
Interest Income
$
26,836
$
25,446
$
26,512
$
52,282
$
53,877
Taxable Equivalent Adjustments
84
109
106
193
210
Total Interest Income (FTE)
26,920
25,555
26,618
52,475
54,087
Interest Expense
856
948
1,054
1,804
2,646
Net Interest Income (FTE)
26,064
24,607
25,564
50,671
51,441
Provision for Credit Losses
(571)
(982)
2,005
(1,553)
6,995
Taxable Equivalent Adjustments
84
109
106
193
210
Net Interest Income After Provision for Credit Losses
26,551
25,480
23,453
52,031
44,236
Noninterest Income
26,473
29,826
30,199
56,299
45,677
Noninterest Expense
42,123
40,476
37,303
82,599
68,272
Income Before Income Taxes
10,901
14,830
16,349
25,731
21,641
Income Tax Expense
2,059
2,787
2,950
4,846
4,232
Pre-Tax Income Attributable to
Noncontrolling Interest
(1,415)
(2,537)
(4,253)
(3,952)
(3,976)
Net Income Attributable to Common Shareowners
$
7,427
$
9,506
$
9,146
$
16,933
$
13,433
Basic Net Income Per Share
$
0.44
$
0.56
$
0.55
$
1.00
$
0.80
Diluted Net Income Per Share
$
0.44
$
0.56
$
0.55
$
1.00
$
0.80
Net Interest Income
 
 
Net interest income represents our single largest
source of earnings and is equal to interest income and fees
generated by earning
assets less interest expense paid on interest bearing liabilities.
This information is provided on a "taxable equivalent" basis to
reflect
the tax-exempt status of income earned on certain loans
and state and local government debt obligations.
We provide an analysis of
our net interest income including average yields and rates
in Table I on page 44.
 
Tax-equivalent
 
net interest income for the second quarter of 2021 totaled $26.1
 
million compared to $24.6 million for the first quarter
of 2021 and $25.6 million for the second quarter of 2020.
 
34
The federal funds target rate has remainedCompared to the first quarter of 2021, the increase reflected
 
inhigher SBA
PPP loan fees of $0.7 million, higher loan interest of
$0.5 million driven by loan growth, and higher investment
securities income of
$0.2 million, which reflected deployment of excess overnight
funds into the range of 0.00%-0.25% since March 2020 when the Fedinvestment portfolio.
 
reduced its overnight rateCompared to the second quarter of
2020, the increase was driven by
150 basis points, and as a result we continue to experience higher SBA PPP loan fees of
 
$1.3 million partially offset by lower repricing of ourinterest earned
on investment
securities and variable/adjustable rate earning assets and
investment securities. Interest and fee income relatedloans.
 
For the first six months of 2021, tax-equivalent net interest income
totaled $50.7 million
compared to $51.4 million for the SBA PPP (See Loans below) willsame period of 2020.
The decrease generally reflected lower rates earned on investment
securities
and variable/adjustable rate loans partially offset
 
the effect ofby higher SBA PPP loan fees and lower rates.interest expense.
 
 
Our overall cost net interest margin for the second quarter
of funds remained low during2021 was 2.89%, an increase of three basis points over
 
the first quarter of 2021 at 0.11%,and a
decrease
of three52 basis points comparedfrom the second quarter of
2020.
Compared to the first quarter of 2021, the increase was driven
by higher
fourthSBA PPP loan fees.
Compared to the second quarter of 2020, the decrease was primarily due
attributable to downward re-pricing of
earning assets and significant growth in overnight
funds (driven by deposit inflows),
which negatively impacts our margin percentage.
For the first six months of 2021, the net interest margin
decreased 72 basis points to 2.87% generally reflective of downward
re-
pricing of our earning assets (variable/adjustable rate
loans and securities portfolio) partially offset by
a reductionlower cost of funds and higher
SBA PPP
loan fees.
Our net interest margin for the second quarter
of 2021, excluding the impact of overnight funds in
 
short-term borrowings.excess of
$200 million, was 3.46%.
 
 
Due to highly competitive fixed-rate loan pricing in our
 
markets, we continue to review our loan pricing and make adjustments
 
where
we believe
 
appropriate and prudent.
 
Provision for Credit Losses
We recorded
a negative provision for credit losses of $1.0 million (consisting
of a negative $2.3 million for HFI loans, partially offset
by a $1.3 million expense for unfunded loan commitments)
for the first quarter of 2021 compared to provision expense
of $1.3 million
for the fourth quarter of 2020 and $5.0 million for the
first quarter of 2020.
The negative provision for the first quarter of 2021
generally reflected improving economic conditions and
a lower level of expected losses related to COVID-19.
Further, we recognized
net loan recoveries of $0.5 million in the first quarter
of 2021.
We discuss the allowance
for credit losses and COVID-19 exposure
further below.
Charge-off activity for the respective
periods is set forth below:
Three Months Ended
(Dollars in Thousands, except per share data)
March 31, 2021
December 31, 2020
March 31, 2020
CHARGE-OFFS
Commercial, Financial and Agricultural
$
69
$
104
$
362
Real Estate - Construction
-
-
-
Real Estate - Commercial Mortgage
-
-
11
Real Estate - Residential
6
38
110
Real Estate - Home Equity
5
10
31
Consumer
(1)
1,056
1,232
1,566
Total Charge
-offs
$
1,136
$
1,384
$
2,080
RECOVERIES
Commercial, Financial and Agricultural
$
136
$
64
$
40
Real Estate - Construction
-
50
-
Real Estate - Commercial Mortgage
645
27
191
Real Estate - Residential
75
153
40
Real Estate - Home Equity
124
40
33
Consumer
(1)
678
564
695
Total Recoveries
$
1,658
$
898
$
999
Net Charge-offs (Recoveries)
$
(522)
$
486
$
1,081
Net Charge-offs (Recoveries) (Annualized)
to Average Loans HFI
(0.10)
%
0.09
%
0.23
%
(1)
Includes overdrafts.
Noninterest Income
Noninterest income for the first quarter of 2021 totaled
$29.8 million compared to $30.5 million for the fourth
quarter of 2020 and
$15.5 million for the first quarter of 2020.
The decrease from the fourth quarter of 2020 was due to lower mortgage
banking revenues
of $0.6 million and deposit fees of $0.4 million, partially
offset by higher bank card fees of $0.2 million and
other income of $0.1
million.
Compared to the first quarter of 2020, the $14.3 million increase
reflected higher mortgage banking revenues of $13.9
million, wealth management fees of $0.5 million,
and bank card fees of $0.6 million, partially offset by
lower deposit fees of $0.7
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
34
Provision for Credit Losses
We recorded
a negative provision for credit losses of $0.6 million for the second
quarter of 2021 compared to a negative provision
of
$1.0 million for the first quarter of 2021 and provision expense
of $2.0 million for the second quarter of 2020.
For the first six months
of 2021, we recorded a negative provision of $1.6 million
compared to provision expense of $7.0 million for the same period
of 2020.
The negative provision for the first half of 2021 generally
reflected improving economic conditions and strong net loan recoveries
totaling $0.9 million.
We discuss the allowance
for credit losses further below.
For more information on charge-offs and recoveries,
see Note 3 – Loans Held for Investment and Allowance for
Credit Losses.
Noninterest Income
Noninterest income for the second quarter of 2021 totaled
$26.5 million compared to $29.8 million for the first quarter of 202
1
and
$30.2 million for the second quarter of 2020.
The primary reason for the aforementioned declines were primarily
due to lower
mortgage banking revenues at CCHL, but were partially
offset by improvements in wealth management fees and
bank card fees.
The
decline in mortgage banking fees reflected lower production
volume (primarily re-finance activity) and a lower gain on
sale margin.
For the first six months of 2021, noninterest income
totaled $56.3 million compared to $45.7 million for the same period
of 2020 with
the increase driven by the addition of CCHL mortgage
banking revenues late in the first quarter of 2020, and higher
bank card fees
and wealth management fees which grew $1.4 million
and $1.2 million, respectively.
Noninterest income represented 54.9%50.5% of operating revenues
 
(net interest income plus noninterest income) forin the firstsecond quarter
 
of 2021
2021
compared to 55.0% for the fourth quarter of 2020 and
37.5% for54.9% in the first quarter of 2021 and 54.3% in the second
quarter of 2020.
For the first six months of 2021,
noninterest income represented 52.7% of operating revenues
compared to 47.1% for the same period of 2020.
 
The 51% ownership acquisition of CCHL and consolidation
into CCBG’s financial statements
occurred on March 1, 2020.
The table
below reflects the major components of noninterest incomeincome.
 
for both Core CCBG and CCHL to help facilitate a better understanding
of
the period over period comparison.
 
 
Three Months Ended
MarSix Months Ended
June 30,
March 31, 2021
Dec 31, 2020June 30,
Mar 31, 2020June 30,
June 30,
(Dollars in thousands)Thousands)
Core2021
CCBG2021
CCHL2020
Core2021
CCBG
CCHL
Core
CCBG
CCHL2020
Deposit Fees
$
4,236
$
4,271
-
$
4,7133,756
$
-8,507
$
5,015
$
-8,771
Bank Card Fees
3,998
3,618
-3,142
3,4627,616
-
3,051
-6,193
Wealth Management
Fees
3,274
3,090
-2,554
3,0696,364
-
2,604
-5,158
Mortgage Banking Revenues
27913,217
16,84617,125
30219,397
17,40930,342
1,138
2,11522,650
Other
1,748
1,722
1,350
3,470
2,905
Total
 
1,296
426
1,205
363
1,459
96
Total Noninterest Income
$
12,55426,473
$
17,27229,826
$
12,75130,199
$
17,77256,299
$
13,267
$
2,21145,677
 
Significant components of noninterest income are
 
discussed in more detail below.
 
Deposit FeesMortgage Banking Revenues.
.Mortgage banking revenues totaled $13.2 million for
 
Deposit feesthe second quarter of 2021 compared to $17.1
million for the first quarter of 2021 and $19.4 million
for the second quarter of 2020.
For the six months of 2021, revenues totaled
$30.3 million compared to $22.7 million for the same period
of 2020.
Lower production volume and gain on sale margin drove
the
decline from the first quarter of 2021 and a lower
gain on sale margin was the primary reason
for the decline versus the second quarter
of 2020.
The increase over the six month period of 2020 reflected the addition
of CCHL mortgage banking revenues late in the first
quarter of 2020 and overall higher production volume
reflective of the significant reduction in interest rates.
Deposit Fees
. Deposit fees for the second quarter of 2021 totaled $4.3$4.2 million,
 
a decrease of $0.4$0.1 million, or 9.4%, from the fourth
quarter of 2020 and $0.7 million,
or 14.8%0.8%, from the first
quarter of 2021, and an
increase of $0.5 million, or 12.8%, over the second
quarter of 2020.
 
TheFor the first six months of 2021, deposit
fees totaled $8.5 million, a decrease of $0.3 million, or
3.0%, from boththe same period of 2020.
Compared to all prior periods, was attributable tothe
lower overdraft fees and reflected lower utilizationvariances
 
were driven by the utilization of our overdraft services,service which has been
 
which we believe is primarily attributablevolatile during the pandemic given the timing of
various stimulus payments to governmentconsumers over the past 12
stimulus.months and higher monthly service charge fees.
 
 
Bank Card Fees
.
 
Bank card fees for the firstsecond quarter of 2021 totaled $3.6$4.0
 
million, a $0.4 million, or 10.5%, increase over the first
quarter of 2021, and a $0.9 million, or 27.2%, increase over
the second quarter of 2020.
For the first six months of 2021, bank card
fees totaled $7.6 million, an
increase of $0.2$1.4 million,
or 4.5%23.0%, over the fourth
quarter of 2020 and $0.6
million, or 18.6%, over the first quartersame period of 2020.
 
Compared to bothall prior periods, the
improvement reflected
higher card activity driven by increased
consumer spending,
,
 
which we believe is reflective of the economic recovery
and additional
government stimulus.
Wealth
Management Fees
.
Wealth management
fees, which include both trust fees (i.e., managed accounts
and trusts/estates)
and
retail brokerage fees (i.e., investment, insurance products,
and retirement accounts), totaled $3.1 million for the
first quarter of 2021,
comparable to the fourth quarter of 2020 and an increase
of $0.5
million, or 18.7%, over the first quarter of 2020.
The increase over
the first quarter of 2020 reflected higher assets under management
and higher trading activity.
At March 31, 2021, total assets under
management were approximately $2.088 billion compared
to $1.979 billion at December 31, 2020 and $1.561 billion at March
31,
2020.
Mortgage Banking Revenues
.
Mortgage banking revenues totaled $17.1 million for the
first quarter of 2021, a decrease of $0.6
million, or 3.3%, from the fourth quarter of 2020
and an increase of $13.9 million, or 426.4% over the first quarter
of 2020.
The
decrease from the fourth quarter of 2020 reflected
a seasonal decline in production.
The increase over the first quarter of 2020 was
attributable to the strategic alliance with CCHL that began
on March 1, 2020.
Noninterest Expense
Noninterest expense for the first quarter of 2021 totaled
$40.5 million compared to $41.3 million for the fourth
quarter of 2020 and
$31.0 million for the first quarter of 2020.
The decrease from the fourth quarter of 2020 was primarily attributable
to lower
compensation expense of $0.6 million and other real estate owned
(“OREO”) expense of $0.7 million, partially offset
by higher other
expense of $0.5 million.
Compared to the first quarter of 2020, the $9.5 million
increase reflected expenses added by the CCHL
acquisition as Core CCBG’s expenses
remained flat.
recovery.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
The 51% ownership acquisition of CCHL and consolidation
 
into CCBG’s financial statements
 
occurred on March 1,
35
Wealth
Management Fees
.
Wealth management
fees, which include both trust fees (i.e., managed accounts
and trusts/estates) and
retail brokerage fees (i.e., investment, insurance products,
and retirement accounts) totaled $3.3 million for the second
quarter of 2021,
a $0.2
million, or 6.0%, increase over the first quarter of 2021 and
a $0.7 million, or 28.2%, increase over the second quarter of
2020.
For the first six months of 2021, wealth management
fees totaled $6.4 million, an
increase of $1.2 million,
or 23.4%, over the same
period of 2020.
 
The tablefavorable variances versus all prior periods reflected
higher assets under management and increased trading
activity by our retail brokerage clients.
At June 30,
2021, total assets under management were approximately
$2.190 billion compared
to $1.979 billion at December 31, 2020 and $1.750 billion
at June 30, 2020.
Other.
Other income for the second quarter of 2021 totaled $1.7
million, comparable to the first quarter of 2021, and $0.4 million,
or
29.5%, over the second quarter of 2020.
For the first six months of 2021, other income totaled $3.5 million,
an increase of $0.6
million, or 19.4%, over the same period of 2020.
The increase over both prior year periods was primarily attributable
to loan servicing
fees added as part of the CCHL acquisition.
Noninterest Expense
Noninterest expense for the second quarter of 2021 totaled
$42.1 million compared to $40.5 million for the first quarter
of 2021 and
$37.3 million for the second quarter of 2020.
For the first six months of 2021, noninterest expense totaled
$82.6 million compared to
$68.3 million for the same period of 2020.
The $1.6 million increase over the first quarter of 2021 reflected
a $2.0 million partial
pension settlement charge (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 pension
settlement charge,
lower realized loan cost (credit offset to salary
expense), higher pension plan expense (driven by a
lower discount rate for plan liabilities), and performance
based compensation.
Additionally, the
increase for the first half of 2021 reflects the inclusion of CCHL expenses
for a full six month period versus only
four months in 2020.
The table below reflects the major components of noninterest expense
 
for both Core CCBG and CCHL to help facilitate a better.
 
understanding
of the year over year comparison.
 
Three Months Ended
MarSix Months Ended
June 30,
March 31, 2021
Dec 31, 2020June 30,
Mar 31, 2020June 30,
June 30,
(Dollars in thousands)Thousands)
Core2021
CCBG2021
CCHL2020
Core2021
CCBG
CCHL
Core
CCBG
CCHL2020
Salaries
$
12,17121,117
10,276
$
12,38422,447
$
10,39819,977
$
13,48843,564
$
2,24235,708
Associate Benefits
3,3964,261
2213,617
3,7403,681
2007,878
3,957
497,686
Total Compensation
15,56725,378
10,49726,064
16,12423,658
10,59851,442
17,44543,394
2,291
Premises
2,3722,714
3872,759
2,3402,628
3975,473
2,249
1345,011
Equipment
2,7343,259
4743,208
2,7163,170
5236,467
2,499
975,766
Total Occupancy
5,1065,973
8615,967
5,0565,798
92011,940
4,74810,777
231
Legal Fees
553321
5558
315412
31879
468
-881
Professional Fees
1,1671,406
1631,330
1,0781,334
1542,736
1,055
662,455
Processing Services
1,794
1,545
-1,447
1,2993,339
-
1,557
-3,004
Advertising
442631
307749
505799
2861,381
461
123
Travel and Entertainment
99
44
110
70
242
75
Printing and Supplies
176
48
172
30
187
131,383
Telephone
668754
87755
636829
1111,508
577
33
Postage
171
54
173
39
175
111,439
Insurance - Other
545
501
-420
4571,046
-
296
-716
Other Real Estate Owned, Netnet
(270)
(118)
116
(388)
(682)
Pension Settlement
2,000
-
570-
(4)
(798)2,000
-
Miscellaneous
2,1403,591
3933,125
1,5842,490
1,0346,716
1,577
1364,905
Total Other Expense
7,34410,772
1,1018,445
6,8997,847
1,75119,217
5,797
45714,101
Total
Noninterest Expense
$
28,01742,123
$
12,45940,476
$
28,07937,303
$
13,26982,599
$
27,990
$
2,97968,272
 
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 2021, a decrease of $0.7 million, or 2.5%, from the
fourth quarter of 2020 and an increase of $6.3 million,2020.
 
or 32.1%, overFor the first quartersix months of 2020.
The decrease from the fourth quarter2021, compensation expense totaled
of 2020 was due$51.4 million compared to lower salary expense at Core CCBG (primarily
realized loan cost which is a credit offset to expense)
and lower
associate benefit expense (associate insurance).
The increase over the first quarter of 2020 reflects the addition
of expenses for a full
quarter from CCHL.
Occupancy.
Occupancy expense (including premises and equipment) totaled
$6.0$43.4 million for the first quarter of 2021, comparable to
the fourth quarter of 2020 and an increase of $1.0 million,same period
 
or 19.9%, over the first quarter 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 reflected expenses added fromwas
primarily attributable to lower realized loan cost (credit
 
the CCHL integration,offset to salaries – primarily related to lower SBA
 
primarily leaseloan production) of $0.9
million, and higher pension plan expense for loan production offices.(service cost) of
 
Higher
expense for maintenance$0.3 million, and repairs at Core CCBG also contributed,base salaries (merit raises) of $0.5 million.
 
butThe increase
for the six month period was primarily due to a lesser extent.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 2021, a decrease of $0.2 million, or 2.4%, from the2020.
 
fourth
quarterFor the first six months of 2020 and an increase of $2.2 million, or 352021, other noninterest expense totaled $19.2
 
.0%, overmillion
compared to $14.1 million for the same period of 2020.
Compared to the first quarter of 2020.2021, 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 overfor the first quarter of 2020
reflectedsix 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 at Core CCBG driven by a $1.0 million gain(attributable to lower OREO sales gains).
 
from the sale of a
banking office in the first quarter of 2020.
Our operating efficiency ratio (expressed
 
as noninterest expense as a percentpercentage of the sum of taxable-equivale
 
nt net interest income plus
plus noninterest income) was 74.36%80.18% for the first quartersecond
 
quarter of 2021 compared to 74.36%
 
for the fourthfirst quarter of 20202021 and 74.89% 66.90%
for the
firstthe second quarter of 2020.
 
Income Taxes
We realized income
tax expense of $2.8 million (effective rate of 19%)
forFor the first quarter of 2021 compared to $2.8 million
(effective rate of 22%) for the fourth quarter
of 2020 and $1.3 million (effective rate of 24%) for the
first quarter of 2020.
Tax
expense for the fourth quarter of 2020 was unfavorably
impacted by a $0.3 million discrete tax expense.
Compared to the first quarter
of 2020, the decrease in our effective tax rate
was attributable to converting CCHL to a partnership for tax
purposes in the second
quarter of 2020.
Absent discrete items, we expect our annual effective tax
rate to approximate 18%-19% in 2021.
37
FINANCIAL CONDITION
Average earning
assets were $3.498 billion for the first quarter of 2021, an
increase of $160.5 million, or 4.8%, over the fourth quarter
of 2020, and an increase of $746.0 million, or 27.1%,
over the first quarter of 2020.
The increase over both prior periods was
primarily driven by higher deposit balances, which funded
growth in both overnight funds sold and SBA PPP loans.
Deposit balances
increased as a result of strong core deposit growth,
in addition to funding retained at the bank from SBA PPP loans, and
various other
stimulus programs.
Investment Securities
In the first quarter of 2021, our average investment
portfolio increased $14.9 million, or 2.9%, over the fourth
quarter of 2020 and
decreased $102.1 million, or 16.1%, from the
first quarter of 2020.
Securities in our investment portfolio represented 15.2% of our
average earning assets for the first quartersix months of 2021,
 
this ratio was 77.22%
compared to 15.5%70.30% for the fourth quartersame period of 2020, and 23.1% for the
first quarter of
2020.
For the remainder of 2021, we will continue to monitor the
interest rate environment and look for opportunities to purchase
additional investment securities that align with the overall
investment strategy of the Company.
The investment portfolio is a significant component of
our operations and, as such, it functions as a key element
of liquidity and
asset/liability management.
Two types of classifications
are approved for investment securities which are Available
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
During the first quarter of 2021, we purchased securities under
the AFS designation.
At March 31,
2021,
$406.2 million, or 67.1%, of our investment portfolio was classified as AFS,
and $199.1 million, or 32.9%, classified as HTM.
The average maturity of our total portfolio at March
31, 2021 was 2.78 years compared to 2.09 years and 2.20 years
at December 31,
2020
and March 31, 2020, respectively.
We determine
the classification of a security at the time of acquisition based
on how the purchase will affect our asset/liability strategy
and future business plans and opportunities.
We consider
multiple factors in determining classification, including
regulatory capital
requirements, volatility in earnings or other comprehensive
income, and liquidity needs.
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with
these securities recorded net of tax, in
the accumulated other
comprehensive income component of shareowners’ equity.
HTM securities are acquired or owned with the intent
of holding them to
maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore
we do not maintain a trading portfolio.
At March 31, 2021,
there were 89 positions (combined AFS and HTM) with unrealized
losses totaling $1.4 million at March 31, 2021.
GNMA mortgage-backed securities, US Treasuries,
and SBA securities carry the full faith and credit
guarantee of the US
Government, and are 0% risk-weighted assets for regulatory
purposes. The municipal bond positions are either pre
-refunded with
government securities, or are AAA rated. None of these
positions with unrealized losses are considered impaired, and
all are expected
to mature at par.
Further, we believe the long history of
no credit losses on these securities indicates that the expectation
of
nonpayment of the amortized cost basis is zero.
Loans HFI
Average loans
HFI increased $50.9 million, or 2.6%, over the fourth quarter of 2020
and increased $196.6 million, or 10.6%, over the
first quarter of 2020.
Compared to the fourth quarter of 2020, average loan balances
increased across all loan types except
institutional and consumer, which
declined slightly.
Compared to the first quarter of 2020, average loan balances increased
across all
loan types except institutional, consumer,
and HELOCs.
Period-end HFI loans increased $51.3 million, or 2.6%, over
the fourth
quarter of 2020 and increased $195.3 million, or 10.5%,
over the first quarter of 2020.
In the first quarter of 2021, we originated an additional
round of SBA PPP loans totaling $65.4 million (reflected in the
commercial
loan category) which averaged $23.7 million for the quarter.
Approximately $256 million in SBA PPP loans have been made
since
the inception of this program.
Through the first quarter of 2021, approximately $47
million in SBA PPP loans have been forgiven and
paid-off ($36 million in the first quarter of 2021
and $11 million in the fourth quarter of 2020).
Forgiveness applications are expected
to remain strong over the next three months for SBA PPP loans
funded in 2020, and then over the course of 2021 for the
SBA PPP
loans funded in 2021.
SBA PPP loan fee income totaled approximately $1.3 million
for the first quarter of 2021.
At March 31, 2021
we had $5.0 million (net) in deferred SBA PPP loan fees.
Without compromising our credit standards
,
changing our underwriting standards, or taking on inordinate interest
rate risk, we
continue to closely monitor our markets and make minor
adjustments as necessary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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) totaledOREO, “NPAs”
 
$5.5)
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 a $1.2and $6.8 million decrease(0.
 
from29% of HFI loans) at December
31, 20202020.
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 a $0.9 million decrease from March 31, 2020
.
Nonaccrual loans totaled $5.4 million at March 31, 2021,
a $0.5 million
decrease from December 31, 2020 and a $0.5 million increase
over March 31, 2020.Allowance for Credit Losses.
 
The balance of OREO
totaled $0.1$1.2 million at June 30, 2021, an increase of
$1.1 million over March 31, 2021 and a decrease of $0.7$0.3 million and $1.4increase
 
million from December 31, 2020 and March 31, 2020,
respectively.
(Dollars in Thousands)
March 31, 2021
December 31, 2020
March
31, 2020
Nonaccruing Loans:
Commercial, Financial and Agricultural
$
150
$
161
$
358
Real Estate - Construction
179
179
-
Real Estate - Commercial Mortgage
1,256
1,412
1,332
Real Estate - Residential
3,150
3,130
2,213
Real Estate - Home Equity
462
695
692
Consumer
165
294
279
Total Nonaccruing
Loans (“NALs”)
(1)
$
5,362
$
5,871
$
4,874
Other Real Estate Owned
110
808
1,463
Total Nonperforming
Assets (“NPAs”)
$
5,472
$
6,679
$
6,337
Past Due Loans 30 – 89 Days
$
2,622
$
4,594
$
5,077
Performing Troubled Debt Restructurings
13,597
13,887
15,934
Nonaccruing Loans/Loans HFI
0.26
%
0.29
%
0.26
%
Nonperforming Assets/Total
Assets
0.14
0.18
0.21
Nonperforming Assets/Loans HFI Plus OREO
0.27
0.33
0.34
Allowance/Nonaccruing Loans
410.78
405.66
432.61
(1)
Nonaccrual TDRs totaling $0.7 million, $0.5 million, and
$1.0 million are included in NALs for March
31, 2021,over December 31,
2020 and March 31, 2020, respectively.
2020.
 
COVID-19 Exposure
We continue
to monitor our loan portfolio for segments that continue to be
affected by the pandemic.
To assist our clients, we have
extended loans totaling $333 million of which 75% were
for commercial borrowers and 25% were for consumer
borrowers.
Approximately $328 million, or 98%,A significant portion of the loan balances associatedincrease in ORE is attributable to an
 
with these borrowers have resumed making regularlyoffice property,
 
scheduledwhich was under contract and moved to ORE
payments of which loan balances totaling $2.9 million
were over 30 days delinquent and an additional $0.6 million was
on nonaccrual
status at March 31, 2021.
Oflate in the $5 million that remains on extension, no loans were
classified at March 31, 2021.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 March 31,June 30, 2021, the allowance for credit losses for
 
loans HFI totaled $22.0$22.2 million compared to $23.8$22.0 million
 
at DecemberMarch 31, 2021 and
2020 and $21.1$23.8 million at MarchDecember 31, 2020.
 
Activity within the allowance is detailed in Note 3 to the consolidated
 
consolidated financial
statements.
 
The $1.8
$0.2 million net decreaseincrease in the allowance for the second quarter
 
first quarter of 2021 reflectedwas primarily attributable to net loan recoveries totaling
 
$0.50.3
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 the release of $2.3 million in reserves
which reflected lower expected loan losses related to COVID-19.COVID-19, partially
offset by core loan growth (ex-SBA PPP).
 
At March 31,
June 30, 2021, the allowance
represented 1.07%1.10% of loans HFI and provided coverage
 
provided coverage of 411%434% of nonperforming
loans compared to 1.19% and
406%, respectively,
at December 31, 2020 and 1.13% and 433%, respectively,
at March 31, 2020.
 
At March 31,June 30, 2021, excluding SBA
PPP loans (100% government
guaranteed), the
allowance represented 1.19% 1.15%
of loans HFI compared to 1.30%
at December 31, 2020.
 
 
At March 31,June 30, 2021, the allowance for credit losses for
 
unfunded commitments totaled $3.0$2.6 million compared to $1.6$3.0 million
 
at March
31, 2021 and $1.6 million at December 31, 2020 and $1.0 million at March 31,
2020.
 
The allowance for unfunded commitments is recorded
in other liabilities.
 
Deposits
 
Average total
 
deposits were $3.240$3.387 billion for the firstsecond quarter of 2021, an
 
increase of $173.4$147.8 million, or 5.7%, over the fourth quarter
of 2020 and $686.8 million, or 26.9%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 twelve12 months, multiple government stimulus programs
programs have been implemented, including those under the CARES Act and
 
and the
American Rescue Plan Act, which are responsible for a
 
a portion
large part of this growth. the growth in average deposits.
Given these large increases, the
potential exists for our deposit levels to be volatile throughout 2021
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Our interest rate risk management goal is to maintain expected
 
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 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 indicators of an institution’s
 
short-term
performance in alternative rate environments.
 
These measures are typically based upon a relatively brief
 
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%
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%
December 31, 2020
39.0%
28.7%
18.7%
9.0%
-3.0%
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%
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%
December 31, 2020
54.2%
38.3%
22.6%
7.6%
-10.9%
 
The Net Interest Income at Risk position indicates
 
that in the short-term, all rising rate environments will positively
 
impact the net
interest margin of the Company,
 
while a declining rate environment of 100bp will have a
 
negative impact on the net interest margin.
Compared to the prior quarter-end, theThe 12-month
Net Interest Income at Risk position became more favorable in
 
all rising rate
scenarios, and was slightly less favorable in the falling
rate scenario due to the higher level of nonmaturity deposits, and
our limited
ability to lower deposit rates relative to the decline
in the market. Compared to the prior quarter-end, the 24-month
Net Interest
Income at Risk position became slightly less favorable
in all rate scenarios primarily due to the lower amountPPP fees for
 
the
year-over-year comparison. Compared to the
prior quarter-end, the 24-month Net Interest Income at Risk position
became slightly
more favorable in rates down 100 bps and rates up 100
bps due to investment purchases during the quarter,
and slightly less favorable
in rate scenarios of SBA PPP loan fees inrates up 200 bps or more as the balance
sheet is less asset sensitive due to these asset purchases. As an intended
year two comparedresult of the $500 million investment strategy during
the quarter, the Bank has become slightly
less asset sensitive, and has slightly
less risk to year one.the rates down scenario.
 
 
All measures of Net Interest Income at Risk in rising rate
 
environments are within our prescribed policy limits over the next 12
 
-month
and 24-month periods. We
 
are out of compliance in the down 100bp scenario for the 24-month
 
period due to our limited ability to
lower our deposit rates relative to the decline in market rates.
 
 
The measures of equity value at risk indicate our ongoing
 
economic value by considering the effects of changes
 
in interest rates on all
of our cash flows, and discounting the cash flows to estimate the
 
present value of assets and liabilities.
 
The difference between the
aggregated discounted values of the assets and liabilities is the
 
economic value of equity,
 
which, in theory,
 
approximates the fair value
of our net assets.
 
41
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
March 31,June 30, 2021
 
166.7%47.9%
132.0%38.4%
93.3%27.5%
50.0%15.2%
-54.0%-35.2%
March 31,June 30, 2021 (Alternate Scenario)
(2)
115.9%37.2%
87.8%28.4%
56.5%18.2%
22.1%9.1%
-3.1%-12.5%
DecemberMarch 31, 20202021
160.9%96.8%
127.5%76.6%
89.9%53.9%
48.4%28.5%
-90.4%-55.6%
 
41
(1) Down 200, 300, and 400 bp scenarios have been
 
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 March 31,June 30, 2021,
 
the economic value of equity results are favorable in all rising
 
rising rate environments and are within prescribed tolerance
tolerance levels, but are out oflevels.
The EVE Ratio (EVE/EVA)
was 6.4% for the second quarter 2021, which is within policy
limits.
EVE metrics became more
favorable in the rates down 100scenario reflecting the deployment of
 
bp EVE scenario. EVE output in the down 100bp scenario is extreme
given the
historically low rate environment, in conjunction with
the high overnightadditional funds sold balance.
Management is monitoring the EVE
analysis in light of the economic recovery and evaluating
various strategies.
As management believes there is more permanency to
recent deposit growth, we are planning to invest an additional
$500 million in the investment portfolio which will lessenand utilization of
 
the bank’sand a
asset sensitivity.lower cost of acquiring and maintaining deposits, which was incorporated
 
In an alternate EVE scenario whereinto the value of our nonmaturitymodel in the second quarter.
 
deposits are capped at their book value, we are
within policy guidelines.
As the interest rate environment and the dynamics of the
economy continue to change, additional simulations will be analyzed
to
address not only the changing rate environment, but also
the changing balance sheet mix, measured over multiple
years, to help assess
the risk to the Company.
 
LIQUIDITY AND CAPITAL
 
RESOURCES
 
Liquidity
 
In general terms, liquidity is a measurement of our ability
 
to meet our cash needs.
 
Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase
 
securities or repay deposits and other liabilities in accordance
 
with their
terms, without an adverse impact on our current or future
 
earnings.
 
Our liquidity strategy is guided by policies that are formulated
 
and
monitored by our ALCO and senior management,
 
which take into account the marketability of assets, the sources and
 
stability of
funding and the level of unfunded commitments.
 
We regularly evaluate
 
all of our various funding sources with an emphasis on
accessibility, stability,
 
reliability and cost-effectiveness.
 
Our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily
 
from securities sold under repurchase agreements, federal
 
funds purchased and
FHLB borrowings.
 
We believe that the
 
cash generated from operations, our borrowing capacity and our
 
access to capital resources are
sufficient to meet our future operating capital
 
and funding requirements.
 
At March 31, June 30,
2021,
 
we had the ability to generate $1.262$1.248 billion in additional liquidity
 
liquidity through all of our available resources (this
excludes $852$767 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 Window and through
 
brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed
 
a Contingent Liquidity Plan, which addresses various
 
liquidity stress
levels and our response and action based on the level
 
of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level
 
increases that certain credit facilities may no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on
 
events that could potentially occur at the Bank and report results to ALCO,
 
our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At March 31,June 30, 2021,
 
we believe the liquidity
liquidity available to us was sufficient to meet our on-going
 
our on-going needs and execute our business strategy.
 
 
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
 
the U.S. Treasury,
 
U.S. governmental
governmental and federal agencies, and municipal governments.
 
The weighted average life of the portfolio was approximately 2.78
 
3.34
years at March
31,June 30, 2021,
 
and the available for sale portfolio had a net unrealized prepre-tax
 
-tax gain of $1.7$1.2 million.
 
Our average overnight funds position (defined deposits with banks
 
plus Fed funds sold less Fed funds purchased) was $814.6$818.6
 
million
duringin the firstsecond quarter of 2021 compared to an average net
 
net overnight funds sold position of $814.6 million in the first quarter of
2021
and $705.1 million in the fourth quarter
of
2020 and $234.4 million in the first quarter of 2020.
 
The increase compared to both prior periods was driven by
 
by deposit inflows
related to
pandemic related stimulus programs and growth
 
in our core deposits (see
Deposits
).
 
 
42
We expect
 
our capital expenditures will be approximately $7.0 million over
 
the next 12 months, which will primarily consist of office
remodeling, office equipment/furniture, and technology
 
purchases.
 
Management expects that these capital expenditures will be
funded with existing resources without impairing our
 
ability to meet our on-going obligations.
 
Borrowings
 
At March 31, June 30,
2021,
 
average short term borrowings totaled $67.0$51.2 million compared
 
to $95.3$67.0 million at DecemberMarch 31,
2020 2021 and $32.9$95.3 million
million at MarchDecember 31, 2020.
 
The variance over both prior periods was attributable to the
 
fluctuation of residential mortgage warehouse
borrowings at CCHL.
 
Additional detail on these borrowings is provided in Note
 
4 – Mortgage Banking Activities in the Consolidated
Financial Statements.
 
 
42
At March 31, June 30,
2021,
 
fixed rate credit advances from the FHLB totaled $1.9$1.8 million
 
million in outstanding debt consisting of five notes. During
the first threesix months of 2021, the Bank made FHLB advance payments
 
totaling approximately $0.3$0.4 million,
 
which included one
advance that paid off, and another that matured.
 
We did not obtain
 
any new FHLB advances during this period. The FHLB notes are
collateralized by a blanket floating lien on all of our 1-4
 
family residential mortgage loans, commercial real estate mortgage
 
loans, and
home equity mortgage loans.
 
 
We have issued
 
two junior subordinated deferrable interest notes to our
 
wholly owned Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust
 
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 May 2005.
 
The interest payment for the CCBG Capital Trust
 
I
borrowing is due quarterly and adjusts quarterly to a
 
variable rate of three-month LIBOR plus a margin of
 
1.90%.
 
This note matures
on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II
 
borrowing is due quarterly and adjusts quarterly to a
variable rate of three-month LIBOR plus a margin
 
of 1.80%.
 
This note matures on June 15, 2035.
 
The proceeds from these
borrowings were used to partially fund acquisitions.
 
Under the terms of each junior subordinated deferrable interest note, in
 
the event
of default or if we elect to defer interest on the
 
note, we may not, with certain exceptions, declare or pay
 
dividends or make
distributions on our capital stock or purchase or acquire
 
any of our capital stock.
 
We are in the process ofcontinue to
 
evaluatingevaluate the impact of the expected
expected discontinuation of LIBOR on our two junior subordinated
 
subordinated deferrable interest notes.
 
 
During the second quarter of 2020,
 
we entered into a derivative cash flow hedge of our interest rate risk
 
related to our subordinated
debt.
 
The notional amount of the derivative is $30 million ($10 million of
 
the CCBG Capital Trust I borrowing and $20 million
 
of the
CCBG Capital Trust II borrowing).
 
The interest rate swap agreement requires CCBG to pay fixed
 
and receive variable (Libor plus
spread) and has an average all-in fixed rate of 2.50% for
 
10 years.
 
Additional detail on the interest rate swap agreement is provided
 
in
Note 5 – Derivatives in the Consolidated Financial Statements.
 
Capital
 
Our capital ratios are presented in the Selected Quarterly
 
Financial Data table on page 31.
 
At March 31,June 30, 2021, our regulatory capital
ratios exceeded the threshold to be designated as “well-capita“well-capitalized”
 
lized” under the Basel III capital standards.
 
Shareowners’ equity was $335.9 million at June 30,
2021 compared to $324.4 million at March
31, 2021 compared to $320.8and
$320.8 million at
December 31, 2020 and.
 
and $328.5 million at
March 31, 2020.
DuringFor the first quartersix months of 2021, shareowners’ equity was positively
 
impacted by net income of $9.5 $16.9
million, a $1.6
$0.9 million increase in fair value of
the interest rate swap
related to subordinated debt, net adjustments totaling $0.3
 
totaling $1.0 million
related to
transactions under our stock compensation plans, stock
 
stock compensation accretion of $0.2$0.4 million, and a $0.1 millionreclassification
 
of $1.2
million from temporary equity to decrease the redemption
value of the non-controlling interest in theCCHL.
In addition, $1.6 million
was reclassified from accumulated other comprehensive loss for our pension
 
plan.loss to pension expense in conjunction with partial pension settlement
charge
reflected in earnings, therefore, the charge
had no net effect on equity.
 
Shareowners’ equity was reduced by a common stock dividenddividends
of $2.5
$5.1 million ($0.150.30 per share), reclassification of $4.2 and a $1.8 million
 
to temporary equity to increase the redemption value of the
non-controlling
interest in CCHL, and a $1.4 million decrease in the
unrealized gain on investment
securities.
At March 31,June 30, 2021, our common stock had a book value
 
of $19.22$19.87 per diluted share compared to $19.05$19.22 at March 31,
 
December 31, 20202021 and $19.05
$19.50 at MarchDecember 31, 2020.
 
Book value is impacted by the net after-tax unrealized
gains and losses on
AFS investment securities.
 
At June
March 31,30, 2021, the net gain was $1.7$0.9 million compared
 
to a $3.7$1.2 million net gain at DecemberMarch 31, 2020 2021
and a $3.5$2.7 million
net gain at December
March 31, 2020.
 
Book value is also impacted by the recording of our unfunded pension
 
pension liability through other comprehensive income in
in accordance with Accounting Standards Codification Topic
 
Topic 715.
 
At March 31,June 30, 2021,
the net pension liability reflected in other
comprehensive loss was $47.1$45.6 million compared to
 
$47.347.1 million at DecemberMarch 31, 20202021 and $29.0$47.2 million at MarchDecember
 
31, 2020.
 
This
liability is re-measured annually on December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant assumptions
used in calculating the liability are discussed in our
 
2020 Form 10-K “Critical Accounting Policies” and include the
 
weighted average
discount rate used to measure the present value of
 
the pension liability, the
 
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
impact to the pension liability based on a 25-basis point
 
increase or decrease in long-term corporate bond rates used
 
to discount the
pension obligation would decrease or increase the pension
 
liability by approximately $6.6 million (after-tax) using the 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 course of business to meet the financing needs of our
clients.
 
 
At March 31,June 30, 2021,
 
we had $770.3$772.0 million in commitments to extend credit and $6.7
 
$6.6 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
contract.
 
Commitments generally have fixed expiration dates or other
 
other termination clauses and may require payment of a fee.
 
Since
many of the
commitments are expected to expire without being
 
being drawn upon, the total commitment amounts do not necessarily
represent future
cash requirements.
 
Standby letters of credit are conditional commitments issued by
 
us to guarantee the performance
of a client to a
third party.
 
We use the same
 
credit policies in establishing commitments and issuing
letters of
credit as we do for on-on-balance sheet
balance sheet instruments.
 
If commitments arising from these financial instruments
 
continue to require funding at historical levels, management does no
tnot
anticipate that such funding will adversely impact our ability to
 
meet our on-going obligations.
 
In the event these commitments
require funding in excess of historical levels, management
 
believes current liquidity,
 
advances available from the FHLB and the
Federal Reserve, and investment security maturities provide
 
a sufficient source of funds to meet these commitments.
 
Certain agreements provide that the commitments 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 liabilities on the consolidated statements of financial condition
 
and
totaled $3.0$2.6 million at March 31,June 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
 
s
 
in accordance with GAAP and reporting practices applicable
 
to the banking
industry requires us to make estimates and assumptions that
 
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 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
 
of matters
that are inherently uncertain.
 
These accounting policies, including the nature of the estimates
and types of assumptions used, are
described throughout
this Item 2, Management’s Discussion
 
Discussion and Analysis of Financial Condition
and Results of
Operations, and Part
II, Item 7, Management’s
 
Discussion and Analysis of Financial Condition and
 
Results of
Operations included in our 2020 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
TABLE I
AVERAGE
BALANCES & INTEREST RATES
Three Months Ended June 30,
Six Months Ended June 30,
 
March 31, 2021
December 31, 2020
March 31, 2021
2020
 
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
 
106,24277,101
$
 
970566
3.702.94
%
$
 
121,05274,965
$
 
878550
3.853.41
%
$
 
34,92391,591
$
 
2101,536
2.643.38
%
$
55,181
$
906
3.30
%
Loans Held for Investment
(1)(2)
2,044,3632,036,781
22,48324,095
4.464.74
1,993,4701,982,960
23,10323,235
4.554.70
1,847,7802,040,551
23,48246,578
5.114.71
1,915,370
46,571
4.89
Taxable Securities
528,842687,882
1,8632,036
1.411.18
513,277601,509
2,0722,708
1.611.80
629,512608,801
2,9953,899
1.911.28
615,511
5,703
1.86
Tax-Exempt Securities
(2)
3,8443,530
2523
2.612.58
4,4855,865
3037
2.712.51
5,2933,686
2548
1.862.60
5,579
62
2.20
Funds Sold
814,638818,616
214
0.11
705,125
180200
0.10
234,372351,473
75788
1.300.10
816,638
414
0.10
292,922
845
0.58
Total Earning Assets
3,497,9293,623,910
25,55526,920
2.962.98
%
3,337,4093,016,772
26,26326,618
3.143.55
%
2,751,8803,561,267
27,46952,475
4.012.97
%
2,884,563
54,087
3.77
%
Cash & Due From Banks
68,97874,076
73,96872,647
56,95871,541
64,802
Allowance For LoanCredit Losses
(24,128)(22,794)
(23,725)(21,642)
(14,389)(23,457)
(18,015)
Other Assets
278,742281,157
264,784261,449
244,339279,956
252,657
TOTAL ASSETS
$
 
3,821,5213,956,349
$
 
3,652,4363,329,226
$
 
3,038,7883,889,307
$
3,184,007
 
Liabilities:
NOW Accounts
$
 
985,517966,649
$
 
7674
0.03
%
$
 
879,564789,378
$
 
6678
0.04
%
$
976,031
$
150
0.03
%
$
 
808,811799,094
$
 
725803
0.360.20
%
Money Market Accounts
269,829272,138
33
0.05
261,543222,377
3440
0.07
270,990
66
0.05
212,211217,295
117157
0.220.15
Savings Accounts
492,252529,844
6064
0.05
466,116409,366
5750
0.05
379,237511,152
46124
0.05
394,301
96
0.05
Other Time Deposits
102,089102,995
3937
0.15
102,809104,718
4450
0.170.19
105,542102,544
5176
0.15
105,130
101
0.19
Total Interest Bearing Deposits
1,849,6871,871,626
208
0.050.04
1,710,0321,525,839
201218
0.06
1,860,717
416
0.05
1,505,8011,515,820
9391,157
0.250.15
Short-Term Borrowings
67,03351,152
412324
2.492.54
95,28073,377
639421
2.672.31
32,91559,049
132736
1.612.51
53,146
553
2.09
Subordinated Notes Payable
52,887
307
2.32
52,887
311308
2.30
52,887
471374
3.522.80
52,887
615
2.31
52,887
845
3.16
Other Long-Term Borrowings
2,7361,762
2116
3.183.38
3,7005,766
3041
3.182.84
6,3122,246
5037
3.213.26
6,039
91
3.03
Total Interest Bearing Liabilities
1,972,3431,977,427
948856
0.190.17
%
1,861,8991,657,869
1,1811,054
0.250.26
%
1,597,9151,974,899
1,5921,804
0.400.18
%
1,627,892
2,646
0.33
%
Noninterest Bearing Deposits
1,389,8211,515,726
1,356,1041,257,614
1,046,8891,453,121
1,152,251
Other Liabilities
111,050107,801
74,60572,073
59,587109,417
65,830
TOTAL LIABILITIES
3,473,2143,600,954
3,292,6082,987,556
2,704,3913,537,437
2,845,973
Temporary Equity
21,97726,355
16,1548,155
2,50624,178
5,331
 
TOTAL SHAREOWNERS’ EQUITY
326,330329,040
343,674333,515
331,891327,692
332,703
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
 
3,821,5213,956,349
$
 
3,652,4363,329,226
$
 
3,038,7883,889,307
$
3,184,007
 
Interest Rate Spread
2.772.81
%
2.883.30
%
3.612.79
%
3.44
%
Net Interest Income
$
 
24,60726,064
$
 
25,08225,564
$
 
25,87750,671
$
51,441
Net Interest Margin
(3)
2.852.89
%
3.003.41
%
3.782.87
%
3.59
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loanloans fees of $1.2$1.9 million $1.1and $0.6 million
 
for the three month periods ended June 30, 2021 and $0.2 million for
2020,
 
respectively, and $3.1 million and $0.8 million for the three monthssix month periods ended March 31,June 30, 2021 December 31, 2020 and
 
March 31,and 2020, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments using
 
a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earningsearning assets.
 
45
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
 
AND PROCEDURES
 
At March 31,June 30, 2021, the end of the period covered by this Form
 
Form 10-Q, our management, including our Chief Executive
 
Officer and Chief
Chief Financial Officer, evaluated
 
evaluated the effectiveness of our disclosure controls and procedures
 
and procedures (as(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 Act of 1934).
 
During the quarter ended on March 31,June 30, 2021, other
other than the above, there have been no significant changes in
 
in our internal control over financial reporting during our
 
our most recently
completed fiscal quarter that have materially affected,
 
or are reasonably likely to materially affect, our internal
 
control over financial
reporting.
 
 
 
PART
 
II. OTHER
 
INFORMATION
 
Item 1. 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
 
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 our business, financial condition
 
and/or operating
results.
 
Item 2. Unregistered
 
Sales of Equity Securities and Use of Proceeds
 
None.
 
 
 
Item 3. Defaults
 
Upon Senior Securities
None.
 
Item 4. Mine
 
Safety Disclosure
Not Applicable.
 
 
Item 5. Other
 
Information
None.
 
 
 
47
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange
 
Act of 1934, the Registrant has duly caused this Report to be signed
 
on its
behalf by the undersigned Chief Financial Officer
 
hereunto duly authorized.
 
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 Officer and has
been duly authorized to sign on behalf of the Registrant)
 
Date: AprilJuly 30,
 
2021