Capital City Bank Group, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report; fourth-quarter results are also summarized below. The company is a Florida-based financial holding company providing banking, mortgage, trust, asset-management and brokerage services across Florida, Georgia and Alabama.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue (interest income plus noninterest income) | $217.4 million | $165.9 million |
| Net income attributable to CCBG | $31.6 million | $30.8 million |
| Diluted EPS | $1.88 | $1.83 |
| Total assets at year-end | $3.80 billion | $3.09 billion |
| Loans held for investment at year-end | $2.01 billion | $1.84 billion |
| Deposits at year-end | $3.22 billion | $2.65 billion |
| Net interest margin (tax-equivalent) | 3.30% | 3.85% |
| Return on average assets / equity | 0.93% / 9.36% | 1.03% / 9.72% |
| Efficiency ratio | 70.43% | 72.40% |
- Net interest income was $101.3 million, down 2.0%; the provision for credit losses rose to $9.6 million from $2.0 million. Net charge-offs were $2.4 million, or 0.12% of average loans.
- Noninterest income increased to $111.2 million, mainly from mortgage banking revenues after the March 2020 acquisition of a 51% interest in Brand Mortgage Group, renamed Capital City Home Loans (CCHL). CCHL contributed $8.7 million, or $0.52 per diluted share, to 2020 earnings; 49% of its earnings are attributable to noncontrolling interests.
- Operating cash flow was negative $48.6 million, compared with positive $53.7 million in 2019. Investing cash flow was negative $32.6 million; financing cash flow was positive $631.3 million, largely reflecting $572.1 million of deposit growth. Cash and cash equivalents ended the year at $928.5 million, up from $378.4 million.
- Year-end allowance for credit losses was $23.8 million, or 1.19% of loans held for investment (1.30% excluding government-guaranteed PPP loans). Nonperforming assets were $6.7 million, 0.18% of total assets.
- Regulatory capital remained above well-capitalized thresholds: total risk-based capital 17.30%, CET1 13.71%, and leverage 9.33%. Tangible common equity was 6.25%, down from 8.06%.
- Borrowings included $79.7 million of short-term borrowings, $52.9 million of subordinated notes and $3.1 million of other long-term borrowings. Management reported approximately $1.20 billion of additional available liquidity beyond overnight funds sold.
Changes versus the prior year and fourth quarter
- Total assets grew about 23%, deposits 22% and loans held for investment 9%. The $190 million of PPP originations ($178 million outstanding at year-end) materially supported reported loan growth; management said core loan balances held firm.
- Average deposits grew 12.1%, reflecting core growth and government stimulus inflows. Lower rates reduced asset yields, while the cost of funds fell to 0.16% from 0.35%; the resulting margin compression contributed to lower net interest income.
- Mortgage banking revenues rose to $63.3 million from $5.3 million, reflecting the CCHL consolidation and strong mortgage production. Noninterest expense rose to $150.0 million from $113.6 million, largely due to adding CCHL; Core CCBG expenses declined $3.6 million.
- CECL was adopted January 1, 2020, increasing the opening loan allowance by $3.3 million and the allowance for unfunded commitments by $0.7 million, with a $3.1 million after-tax reduction to retained earnings.
- Fourth-quarter net income was $7.7 million, or $0.46 per diluted share, versus $10.4 million, or $0.62, in Q3 2020. Mortgage revenue declined seasonally; Q4 net interest margin was 3.00%, down 12 basis points sequentially.
Outlook, commentary and risks
- Management described pandemic-related uncertainty as significant and warned that further economic deterioration could weaken borrower repayment, asset quality, earnings, capital and liquidity. It did not provide specific earnings or revenue guidance.
- The bank extended $333 million of loans for affected borrowers; $324 million had returned to regular payments by year-end, with about $9 million still extended. Management identified at-risk sectors equal to 8% of loans: hotels 3%, restaurants 1%, retail and shopping centers 3%, and other sectors 1%.
- Management expected a 2021 effective tax rate of approximately 18%–19%, excluding discrete items, and approximately $7 million in capital expenditures over the next 12 months. Planned expansion included additional Florida offices in late 2021 or early 2022.
- Key risks include COVID-19 and local economic conditions, concentrated Florida/Georgia lending and real-estate collateral, credit-loss estimates under the newly adopted CECL standard, low interest rates and margin sensitivity, liquidity and deposit behavior, mortgage-market volatility, LIBOR transition, cybersecurity, and extensive banking regulation.
- The pension obligation and lower discount rate drove a substantial unfavorable 2020 actuarial adjustment: other comprehensive loss was $16.0 million, and the net pension liability in accumulated other comprehensive loss increased to $47.3 million. The auditor identified the allowance for credit losses and pension obligation as critical audit matters.
- Management reported no known litigation expected to have a material effect. The independent auditor issued unqualified opinions on the financial statements and internal control; however, internal-control testing excluded CCHL, acquired in March 2020.
Important facts for investors to verify
- How much of loan and deposit growth persists after PPP balances and temporary stimulus-related inflows run off.
- Whether mortgage banking earnings remain strong if refinancing activity or gain-on-sale margins decline, and how CCHL’s results and noncontrolling-interest redemption terms evolve.
- Whether the CECL allowance proves adequate as pandemic relief fades, particularly for commercial real estate and the identified at-risk industries.
- How net interest margin, liquidity and economic-value sensitivity respond to changing interest rates; the filing reports the 24-month down-100-basis-point NII scenario outside policy limits.
- Whether pension assumptions, valuation and funding affect future earnings, other comprehensive income and capital; and whether CCHL controls are brought within the company’s internal-control assessment.