CAPITAL CITY BANK GROUP INC - Quarter Report: 2023 March (Form 10-Q)
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, 2023
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
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
At April 28, 2023,
17,021,748
2
CAPITAL CITY BANK GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2023
TABLE OF CONTENTS
PART I – Financial Information
Page
Item 1.
Consolidated Statements of Financial Condition – March 31, 2023 and December 31, 2022
4
Consolidated Statements of Income – Three Months Ended March 31, 2023 and 2022
5
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2023 and 2022
6
Consolidated Statements of Changes in Shareowners’ Equity – Three Months Ended March 31, 2023 and 2022
7
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2023 and 2022
8
Notes to Consolidated Financial Statements
9
Item 2.
30
Item 3.
45
Item 4.
45
PART II – Other Information
Item 1.
Legal Proceedings
45
Item 1A.
Risk Factors
45
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
45
Item 3.
Defaults Upon Senior Securities
46
Item 4.
Mine Safety Disclosure
46
Item 5.
Other Information
46
Item 6.
Exhibits
47
Signatures
48
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, 2022 (the “2022 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:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
adverse developments in the financial services industry generally, such as the recent bank failures and any related impact on depositor
behavior;
●
the effects of changes in the level of checking or savings account deposits and the competition for deposits on our funding costs, net
interest margin and ability to replace maturing deposits and advances, as necessary;
●
the effects of actions taken by governmental agencies to stabilize the recent volatility in the financial system and the effectiveness of such
actions;
●
changes in monetary and fiscal policies of the U.S. Government;
●
inflation, interest rate, market and monetary fluctuations;
●
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,
deferred tax asset valuation and pension plan;
●
changes in our liquidity position;
●
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 loan segments, 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 (including pandemics, such
as the COVID-19 pandemic), 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;
●
the outcomes of litigation or regulatory proceedings;
●
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
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,
December 31,
(Dollars in Thousands, Except Par Value)
2023
2022
ASSETS
Cash and Due From Banks
$
84,549
$
72,114
Federal Funds Sold and Interest Bearing Deposits
303,403
528,536
Total Cash and Cash Equivalents
387,952
600,650
Investment Securities, Available for Sale, at fair value (amortized cost of $
438,068
455,232
)
402,943
413,294
Investment Securities, Held to Maturity (fair value of $
612,200
612,701
)
651,755
660,744
Equity Securities
1,883
10
Total Investment Securities
1,056,581
1,074,048
Loans Held For Sale, at fair value
55,118
54,635
Loans Held for Investment
2,636,884
2,525,180
Allowance for Credit Losses
(26,507)
(24,736)
Loans Held for Investment, Net
2,610,377
2,500,444
Premises and Equipment, Net
82,055
82,138
Goodwill and Other Intangibles
93,053
93,093
Other Real Estate Owned
13
431
Other Assets
124,593
120,519
Total Assets
$
4,409,742
$
4,525,958
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
1,601,388
$
1,653,620
Interest Bearing Deposits
2,222,532
2,285,697
Total Deposits
3,823,920
3,939,317
Short-Term Borrowings
26,632
56,793
Subordinated Notes Payable
52,887
52,887
Other Long-Term Borrowings
463
513
Other Liabilities
85,878
73,675
Total Liabilities
3,989,780
4,123,185
Temporary Equity
8,722
8,757
SHAREOWNERS’ EQUITY
Preferred Stock, $
0.01
3,000,000
no
-
-
Common Stock, $
0.01
90,000,000
17,021,748
16,986,785
170
170
Additional Paid-In Capital
37,512
37,331
Retained Earnings
405,634
393,744
Accumulated Other Comprehensive Loss, net of tax
(32,076)
(37,229)
Total Shareowners’
Equity
411,240
394,016
Total Liabilities, Temporary Equity, and Shareowners’ Equity
$
4,409,742
$
4,525,958
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,
(Dollars in Thousands, Except Per Share Data)
2023
2022
INTEREST INCOME
Loans, including Fees
$
34,880
$
22,133
Investment Securities:
Taxable Securities
4,912
2,890
Tax Exempt Securities
12
6
Federal Funds Sold and Interest Bearing Deposits
4,111
409
Total Interest Income
43,915
25,438
INTEREST EXPENSE
Deposits
2,488
224
Short-Term Borrowings
461
192
Subordinated Notes Payable
571
317
Other Long-Term Borrowings
6
9
Total Interest Expense
3,526
742
NET INTEREST INCOME
40,389
24,696
Provision for Credit Losses
3,130
-
Net Interest Income After Provision for Credit Losses
37,259
24,696
NONINTEREST INCOME
Deposit Fees
5,239
5,191
Bank Card Fees
3,726
3,763
Wealth Management Fees
3,928
6,070
Mortgage Banking Revenues
6,995
8,946
Other
2,360
1,848
Total Noninterest Income
22,248
25,818
NONINTEREST EXPENSE
Compensation
25,636
24,856
Occupancy, Net
6,762
6,093
Other
8,057
8,284
Total Noninterest Expense
40,455
39,233
INCOME BEFORE INCOME TAXES
19,052
11,281
Income Tax Expense
4,133
2,235
NET INCOME
$
14,919
$
9,046
Loss (Income) Attributable to Noncontrolling Interests
35
(591)
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
14,954
$
8,455
BASIC NET INCOME PER SHARE
$
0.88
$
0.50
DILUTED NET INCOME PER SHARE
$
0.88
$
0.50
Average Basic Shares Outstanding
17,016
16,931
Average Diluted Shares Outstanding
17,045
16,946
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
Three Months Ended
March 31,
(Dollars in Thousands)
2023
2022
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
14,954
$
8,455
Other comprehensive income (loss), before tax:
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
6,808
(25,448)
Amortization of unrealized losses on securities transferred from available for sale to held to maturity
865
3
Derivative:
Change in net unrealized (loss) gain on effective cash flow derivative
(801)
1,836
Benefit Plans:
Pension Settlement
-
209
Total Benefit Plans
-
209
Other comprehensive income (loss), before tax
6,872
(23,400)
Deferred tax expense (benefit) related to other comprehensive income
1,719
(5,871)
Other comprehensive income (loss), net of tax
5,153
(17,529)
TOTAL COMPREHENSIVE INCOME (LOSS)
$
20,107
$
(9,074)
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
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, January 1, 2023
16,986,785
$
170
$
37,331
$
393,744
$
(37,229)
$
394,016
Net Income Attributable to Common Shareowners
-
-
-
14,954
-
14,954
Other Comprehensive Income, net of tax
-
-
-
-
5,153
5,153
Cash Dividends ($
0.1800
-
-
-
(3,064)
-
(3,064)
Repurchase of Common Stock
(25,241)
-
(819)
-
-
(819)
Stock Based Compensation
-
-
536
-
-
536
Stock Compensation Plan Transactions, net
60,204
-
464
-
-
464
Balance, March 31, 2023
17,021,748
$
170
$
37,512
$
405,634
$
(32,076)
$
411,240
Balance, January 1, 2022
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
-
-
8,455
-
8,455
Other Comprehensive Loss, net of tax
-
-
-
-
(17,529)
(17,529)
Cash Dividends ($
0.1600
-
-
-
(2,712)
-
(2,712)
Stock Based Compensation
-
-
245
-
-
245
Stock Compensation Plan Transactions, net
55,542
-
520
-
-
520
Balance, March 31, 2022
16,947,602
$
169
$
35,188
$
370,531
$
(33,743)
$
372,145
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
Three Months Ended March 31,
(Dollars in Thousands)
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income Attributable to Common Shareowners
$
14,954
$
8,455
Adjustments to Reconcile Net Income to
3,130
-
1,969
1,907
1,080
2,907
40
40
-
209
(212,085)
(246,887)
218,597
257,550
(6,995)
(8,946)
(633)
227
536
245
-
(19)
(747)
(6,167)
(3)
(27)
(1,858)
-
(4,349)
1,441
12,471
7,036
Net Cash Provided By Operating Activities
26,107
17,971
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
-
(194,448)
8,820
14,441
Securities Available for Sale:
(2,017)
(25,139)
-
3,365
16,559
24,824
Purchases of Loans Held for Investment
(121,029)
(26,713)
Net Decrease (Increase) in Loans Held for Investment
7,376
(28,405)
Proceeds From Sales of Other Real Estate Owned
2,699
-
Purchases of Premises and Equipment
(1,886)
(1,013)
Noncontrolling Interest Contributions
-
1,838
Net Cash Used In Investing Activities
(89,478)
(231,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits
(115,397)
52,645
Net Decrease in Short-Term Borrowings
(30,161)
(3,692)
Repayment of Other Long-Term Borrowings
(50)
(78)
Dividends Paid
(3,064)
(2,712)
Payments to Repurchase Common Stock
(819)
-
Proceeds from Issuance of Common Stock Under Purchase Plans
164
190
Net Cash (Used In) Provided by Financing Activities
(149,327)
46,353
NET DECREASE IN CASH AND CASH EQUIVALENTS
(212,698)
(166,926)
Cash and Cash Equivalents at Beginning of Period
600,650
1,035,354
Cash and Cash Equivalents at End of Period
$
387,952
$
868,428
Supplemental Cash Flow Disclosures:
$
3,723
$
715
$
7,466
$
20
Noncash Investing and Financing Activities:
$
423
$
-
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 notes 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, 2022 has been derived from the audited consolidated financial
statements at that date, but does not include all of the information and notes required by generally accepted accounting principles for
complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the year ended December 31, 2022.
Accounting Standards Updates
Adoption of New Accounting Standard,
“Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates
the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) 310-40, “Receivables -
Troubled Debt Restructurings by Creditors ” for entities that have adopted the current expected credit loss model introduced by ASU
2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” ASU 2022-
02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables
and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized
Cost.”
Proposed Accounting Standards
,
ASU 2023-01, “Leases (Topic 842)
: Common Control Arrangements.” ASU 2023-01 requires
entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group.
ASU 2023-01 also provides certain practical expedients applicable to private companies and not-for-profit organizations. ASU 2023-
01 will be effective for us on January 1, 2024, though early adoption is permitted. The Company is evaluating the effect that ASU
2023-01 will have on its consolidated financial statements and related disclosures.
ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323)
: Accounting for Investments in Tax Credit
Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for
investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the
proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was
only available for qualifying tax equity investments in low-income housing tax credit structures. ASU 2023-02 will be effective for us
on January 1, 2024, though early adoption is permitted. The Company is evaluating the effect that ASU 2023-02 will have on its
consolidated financial statements and related disclosures.
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related fair value of investment
securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”) and the corresponding amounts of gross
unrealized gains and losses.
Available for Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
March 31, 2023
U.S. Government Treasury
$
23,984
$
-
$
1,611
$
-
$
22,373
U.S. Government Agency
184,294
127
10,131
-
174,290
States and Political Subdivisions
47,143
7
5,663
(8)
41,479
Mortgage-Backed Securities
(1)
79,148
3
10,137
-
69,014
Corporate Debt Securities
96,144
34
7,718
(28)
88,432
Other Securities
(2)
7,355
-
-
-
7,355
Total
$
438,068
$
171
$
35,260
$
(36)
$
402,943
December 31, 2022
U.S. Government Treasury
$
23,977
$
1
$
1,928
$
-
$
22,050
U.S. Government Agency
198,888
27
12,863
-
186,052
States and Political Subdivisions
47,197
-
6,855
(13)
40,329
Mortgage-Backed Securities
(1)
80,829
2
11,426
-
69,405
Corporate Debt Securities
97,119
19
8,874
(28)
88,236
Other Securities
(2)
7,222
-
-
-
7,222
Total
$
455,232
$
49
$
41,946
$
(41)
$
413,294
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
March 31, 2023
U.S. Government Treasury
$
457,446
$
-
$
20,272
$
437,174
Mortgage-Backed Securities
(1)
194,309
19
19,302
175,026
Total
$
651,755
$
19
$
39,574
$
612,200
December 31, 2022
U.S. Government Treasury
$
457,374
$
-
$
25,641
$
431,733
Mortgage-Backed Securities
(1)
203,370
8
22,410
180,968
Total
$
660,744
$
8
$
48,051
$
612,701
(1)
(2)
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded at cost of $
2.3
5.1
respectively, at March 31, 2023 and $
2.1
5.1
At March 31, 2023 and December 31, 2022, the investment portfolio had $
1.9
0.01
securities. These securities do not have a readily determinable fair value and were not credit impaired.
Securities with an amortized cost of $
660.1
656.1
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
other securities, is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted fair value; however,
redemption of this stock has historically been at par value.
11
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.
During the third quarter of 2022, the Company transferred certain securities from the AFS to HTM classification. Transfers are made
at fair value on the date of the transfer. The
33
168.4
159.0
million, respectively at the time of transfer. The net unamortized, unrealized loss on the transferred securities included in accumulated
other comprehensive loss in the accompanying balance sheet at March 31, 2023 totaled $
7.1
amortized out of accumulated other comprehensive loss over the remaining life of the underlying securities as an adjustment of the
yield on those securities.
Investment Sales.
There were no significant sales of investment securities for the three months ended March 31, 2023 and $
3.4
in sales of investment securities for the three months ended March 31, 2022.
Maturity Distribution
. At March 31, 2023, 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 (“MBS”) 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
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
36,233
$
35,696
$
-
$
-
Due after one year through five years
159,994
147,344
457,446
437,174
Due after five year through ten years
50,961
42,970
-
-
Mortgage-Backed Securities
79,148
69,014
194,309
175,026
U.S. Government Agency
104,377
100,564
-
-
Other Securities
7,355
7,355
-
-
Total
$
438,068
$
402,943
$
651,755
$
612,200
12
Unrealized Losses on Investment Securities.
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
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
March 31, 2023
Available for Sale
U.S. Government Treasury
$
994
$
-
$
19,481
$
1,611
$
20,475
$
1,611
U.S. Government Agency
29,035
354
133,057
9,777
162,092
10,131
States and Political Subdivisions
-
-
39,905
5,663
39,905
5,663
Mortgage-Backed Securities
-
-
68,892
10,137
68,892
10,137
Corporate Debt Securities
10,009
215
74,472
7,503
84,481
7,718
Total
$
40,038
$
569
$
335,807
$
34,691
$
375,845
$
35,260
Held to Maturity
U.S. Government Treasury
4,827
106
432,346
20,166
437,173
20,272
Mortgage-Backed Securities
9,360
297
164,217
19,005
173,577
19,302
Total
$
14,187
$
403
$
596,563
$
39,171
$
610,750
$
39,574
December 31, 2022
Available for Sale
U.S. Government Treasury
$
983
$
-
$
19,189
$
1,928
$
20,172
$
1,928
U.S. Government Agency
63,112
2,572
113,004
10,291
176,116
12,863
States and Political Subdivisions
1,425
2
38,760
6,853
40,185
6,855
Mortgage-Backed Securities
6,594
959
60,458
10,467
67,052
11,426
Corporate Debt Securities
26,959
878
58,601
7,996
85,560
8,874
Total
$
99,073
$
4,411
$
290,012
$
37,535
$
389,085
$
41,946
Held to Maturity
U.S. Government Treasury
177,552
11,018
254,181
14,623
431,733
25,641
Mortgage-Backed Securities
88,723
6,814
91,462
15,596
180,185
22,410
Total
$
266,275
$
17,832
$
345,643
$
30,219
$
611,918
$
48,051
At March 31, 2023, there were
896
74.8
87
positions are U.S. Treasury bonds and carry the full faith and credit of the U.S. Government.
684
securities issued by U.S. government sponsored entities. We believe the long history of no credit losses on government securities
indicates that the expectation of nonpayment of the amortized cost basis is effectively zero. The remaining
125
securities and corporate bonds) have a credit component. At March 31, 2023, all collateralized mortgage obligation securities
(“CMO”), MBS, Small Business Administration securities (“SBA”), U.S. Agency, and U.S. Treasury bonds held were AAA rated. At
March 31, 2023, corporate debt securities had an allowance for credit losses of $
28,000
$
8,000
.
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
effectively 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
no
t assess or record expected credit losses due to the zero loss assumption. The Company monitors the credit quality of its
municipal and corporate securities portfolio via credit ratings which are updated on a quarterly basis. On a quarterly basis, municipal
and corporate 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.
13
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, 2023
December 31, 2022
Commercial, Financial and Agricultural
$
236,263
$
247,362
Real Estate – Construction
253,903
234,519
Real Estate – Commercial Mortgage
798,438
782,557
Real Estate – Residential
(1)
834,784
727,105
Real Estate – Home Equity
207,241
208,120
Consumer
(2)
306,255
325,517
Loans Held For Investment, Net of Unearned Income
$
2,636,884
$
2,525,180
(1)
Includes loans in process balances of $
8.5
6.1
(2)
Includes overdraft balances of $
0.9
1.1
Net deferred loan costs, which include premiums on purchased loans, included in loans were $
12.5
$
10.8
Accrued interest receivable on loans which is excluded from amortized cost totaled $
8.6
8.0
December 31, 2022, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
. The Company will periodically purchase newly originated 1-4 family real estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party. Residential loan purchases from CCHL totaled $
120.1
$
26.3
14
Allowance for Credit Losses
. The methodology for estimating the amount of credit losses reported in the allowance for credit losses
(“ACL”) 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 – Significant Accounting
Policies in the Company’s 2022 Form 10-K.
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, 2023
Beginning Balance
$
1,506
$
2,654
$
4,815
$
10,409
$
1,864
$
3,488
$
24,736
Provision for Credit Losses
78
704
7
1,183
(10)
1,329
3,291
Charge-Offs
(164)
-
(120)
-
-
(2,366)
(2,650)
Recoveries
95
1
8
57
25
944
1,130
Net (Charge-Offs) Recoveries
(69)
1
(112)
57
25
(1,422)
(1,520)
Ending Balance
$
1,515
$
3,359
$
4,710
$
11,649
$
1,879
$
3,395
$
26,507
Three Months Ended
March 31, 2022
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
(161)
(714)
(181)
314
(405)
1,068
(79)
Charge-Offs
(73)
-
(266)
-
(33)
(1,402)
(1,774)
Recoveries
165
8
29
27
58
716
1,003
Net (Charge-Offs) Recoveries
92
8
(237)
27
25
(686)
(771)
Ending Balance
$
2,122
$
2,596
$
5,392
$
4,470
$
1,916
$
4,260
$
20,756
For the three months ended March 31, 2023, the allowance for HFI loans increased by $
1.8
of $
3.3
1.5
growth. For the three months ended March 31, 2022, the allowance decreased by $
0.9
$
0.1
0.8
and its potential effect on rates of default. Four unemployment forecast scenarios were utilized to estimate probability of default and
are weighted based on management’s estimate of probability. See Note 8 – Commitments and Contingencies for information on the
allowance for off-balance sheet credit commitments.
15
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, 2023
Commercial, Financial and Agricultural
$
248
$
4
$
-
$
252
$
235,999
$
12
$
236,263
Real Estate – Construction
1,137
-
-
1,137
252,766
-
253,903
Real Estate – Commercial Mortgage
64
66
-
130
795,747
2,561
798,438
Real Estate – Residential
(1)
1,040
-
-
1,040
832,978
766
834,784
Real Estate – Home Equity
54
-
-
54
206,505
682
207,241
Consumer
2,175
273
-
2,448
303,239
568
306,255
Total
$
4,718
$
343
$
-
$
5,061
$
2,627,234
$
4,589
$
2,636,884
December 31, 2022
Commercial, Financial and Agricultural
$
109
$
126
$
-
$
235
$
247,086
$
41
$
247,362
Real Estate – Construction
359
-
-
359
234,143
17
234,519
Real Estate – Commercial Mortgage
158
149
-
307
781,605
645
782,557
Real Estate – Residential
845
530
-
1,375
725,491
239
727,105
Real Estate – Home Equity
-
35
-
35
207,314
771
208,120
Consumer
3,666
1,852
-
5,518
319,415
584
325,517
Total
$
5,137
$
2,692
$
-
$
7,829
$
2,515,054
$
2,297
$
2,525,180
(1)
Includes $
0.3
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, 2023
December 31, 2022
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
-
$
12
$
-
$
-
$
41
$
-
Real Estate – Construction
-
-
-
-
17
-
Real Estate – Commercial Mortgage
2,438
123
-
389
256
-
Real Estate – Residential
-
766
-
-
239
-
Real Estate – Home Equity
-
682
-
-
771
-
Consumer
-
568
-
-
584
-
Total Nonaccrual Loans
$
2,438
$
2,151
$
-
$
389
$
1,908
$
-
16
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent loans.
March 31, 2023
December 31, 2022
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
-
$
-
$
-
$
-
Real Estate – Construction
-
-
-
-
Real Estate – Commercial Mortgage
2,207
-
389
-
Real Estate – Residential
-
-
160
-
Real Estate – Home Equity
231
-
130
-
Consumer
-
-
21
-
Total Collateral Dependent Loans
$
2,438
$
-
$
700
$
-
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, 2023 and December 31, 2022, the Company had $
0.4
and $
0.6
For the three-month period ended March 31, 2023, the Company did
no
t modify any loans made to borrowers experiencing financial
difficulty.
Credit Risk Management
. The Company has adopted comprehensive lending policies, underwriting 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.
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.
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines
and construction/permanent loans made to individuals and investors to finance the acquisition, development, construction or
rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower or project and generally
secured by the property being financed, including 1-4 family residential properties 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.
17
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 category consists of direct and indirect 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 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.
18
The following table summarizes gross loans held for investment and current period gross write-offs at March 31, 2023 by years of
origination and internally assigned credit risk ratings (refer to Credit Risk Management section for detail on risk rating system).
Term Loans by Origination Year
Revolving
(Dollars in Thousands)
2023
2022
2021
2020
2019
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
9,753
$
86,415
$
40,206
$
17,534
$
12,291
$
15,965
$
49,582
$
231,746
Special Mention
1,200
-
748
71
2
47
2,322
4,390
Substandard
-
80
-
-
4
43
-
127
Total
$
10,953
$
86,495
$
40,954
$
17,605
$
12,297
$
16,055
$
51,904
$
236,263
Current-Period Gross
Writeoffs
$
-
$
105
$
22
$
14
$
-
$
10
$
13
$
164
Real Estate -
Construction:
Pass
$
34,114
$
149,982
$
52,697
$
7,275
$
397
$
123
$
6,881
$
251,469
Special Mention
-
-
859
25
453
-
-
1,337
Substandard
-
-
-
1,097
-
-
-
1,097
Total
$
34,114
$
149,982
$
53,556
$
8,397
$
850
$
123
$
6,881
$
253,903
Real Estate -
Commercial Mortgage:
Pass
$
34,848
$
245,205
$
159,795
$
131,444
$
51,973
$
137,449
$
26,056
$
786,770
Special Mention
995
339
992
240
1,402
2,819
300
7,087
Substandard
-
822
966
753
642
763
635
4,581
Total
$
35,843
$
246,366
$
161,753
$
132,437
$
54,017
$
141,031
$
26,991
$
798,438
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
120
$
-
$
120
Real Estate - Residential:
Pass
$
133,468
$
436,089
$
92,988
$
44,541
$
28,365
$
80,711
$
9,109
$
825,271
Special Mention
-
93
356
525
-
632
-
1,606
Substandard
-
1,042
1,133
1,725
953
3,054
-
7,907
Total
$
133,468
$
437,224
$
94,477
$
46,791
$
29,318
$
84,397
$
9,109
$
834,784
Real Estate - Home
Equity:
Performing
$
-
$
51
$
133
$
12
$
387
$
1,192
$
204,784
$
206,559
Nonperforming
-
-
-
-
14
76
592
682
Total
$
-
$
51
$
133
$
12
$
401
$
1,268
$
205,376
$
207,241
Consumer:
Performing
$
15,735
$
122,092
$
100,617
$
32,203
$
17,726
$
12,242
$
5,072
$
305,687
Nonperforming
-
269
170
19
84
26
-
568
Total
$
15,735
$
122,361
$
100,787
$
32,222
$
17,810
$
12,268
$
5,072
$
306,255
Current-Period Gross
Writeoffs
$
646
$
915
$
488
$
110
$
113
$
47
$
47
$
2,366
19
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage banking activities 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.
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, 2023
December 31, 2022
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
54,442
$
55,118
$
54,488
$
54,635
Residential Mortgage Loan Commitments ("IRLCs")
(1)
51,984
1,346
36,535
819
Forward Sales Contracts
(2)
34,000
(216)
15,500
187
$
56,248
$
55,641
(1)
Recorded in other assets at fair value
(2)
Recorded in other liabilities and other assets at fair value at March 31, 2023 and December 31, 2022, respectively
At March 31, 2023, the Company had $
0.3
0.3
loans were on nonaccrual status. At December 31, 2022, the Company had $
0.6
89 days past due and $
0.1
Mortgage banking revenue was as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2023
2022
Net realized gains on sales of mortgage loans
$
3,192
$
5,136
Net change in unrealized gain on mortgage loans held for sale
529
(975)
Net change in the fair value of mortgage loan commitments
(IRLCs)
527
(141)
Net change in the fair value of forward sales contracts
(402)
857
Pair-Offs on net settlement of forward sales contracts
(1)
2,255
Mortgage servicing rights additions
1,034
632
Net origination fees
2,116
1,182
Total mortgage banking revenues
$
6,995
$
8,946
20
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, 2023
December 31, 2022
Number of residential mortgage loans serviced for others
3,232
2,975
Outstanding principal balance of residential mortgage loans serviced for others
$
1,011,366
$
895,145
Weighted average interest rate
4.33%
4.19%
Remaining contractual term (in months)
339
345
Conforming conventional loans serviced by the Company are sold to Federal National Mortgage Association (“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 the Government National Mortgage Association (“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, 2023, the servicing portfolio balance consisted of the following loan types: FNMA (
48
%), GNMA (
1
%), and private
investor (
51
%). FNMA and private investor loans are structured as actual/actual payment remittance.
The Company had
no
0.3
December 31, 2022, respectively. The right to repurchase these loans and the corresponding liability has been recorded in other assets
and other liabilities, respectively, in the Consolidated Statement of Financial Condition. For the three months ended March 31, 2023
and March 31, 2022, the Company repurchased $
0.9
0.4
When delinquent residential loans are repurchased, the Company has 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,
(Dollars in Thousands)
2023
2022
Beginning balance
$
6,067
$
3,774
Additions due to loans sold with servicing retained
1,135
632
Deletions and amortization
(401)
(405)
Ending balance
$
6,801
$
4,001
At March 31, 2023, we recorded the sale of $
334
pending FNMA approval. The book value of the mortgage servicing rights of $
2.3
1.38
million were recorded as a secured borrowing in Other Liabilities within the Consolidated Financial Statement of Condition.
Subsequent to March 31, 2023, FNMA approval was obtained.
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the three months ended March 31,
2023 or 2022.
The key unobservable inputs used in determining the fair value of the Company’s mortgage servicing rights were as follows:
March 31, 2023
December 31, 2022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.51%
12.00%
9.50%
12.00%
Annual prepayment speeds
7.12%
19.55%
12.33%
20.45%
Cost of servicing (per loan)
$
85
$
95
$
85
$
95
21
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
21.20
% at March 31, 2023 and
17.22
% at December 31, 2022.
Warehouse Line Borrowings
The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at
March 31, 2023.
Amounts
(Dollars in Thousands)
Outstanding
$
75
2.00%
3.00%
, with a floor rate of
3.25%
. A cash pledge deposit of $
0.5
8,309
$
60
December 2023
. Interest is at the SOFR plus
2.25%
,
to
3.25%
.
13,864
Total Warehouse Borrowings
$
22,173
Warehouse line borrowings are classified as short-term borrowings. At December 31, 2022, warehouse line borrowings totaled $
50.2
million. At March 31, 2023, the Company had residential mortgage loans held for sale and construction loans held for investment
pledged as collateral under the above warehouse lines of credit and master repurchase agreements. The above agreements also contain
covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid
assets, and maximum debt to net worth ratio, as defined in the agreements. The Company was in compliance with all significant debt
covenants at March 31, 2023.
The Company has extended a $
50
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 Consolidated Statement of Financial Condition. The balance of this line of credit at March
31, 2023 and December 31, 2022 was $
32.8
22.9
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
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
.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
March 31, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,394
7.3
December 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
6,195
7.5
22
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 months ended March 31, 2023.
Amount of (Loss)
Amount of Gain
Gain Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended March 31, 2023
Interest expense
$
(598)
$
309
Three months ended March 31, 2022
Interest expense
1,370
(28)
The Company estimates there will be approximately $
1.2
months.
The Company had a collateral liability of $
5.4
5.8
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively, on its Consolidated Statement of Financial Condition.
The Company’s operating leases primarily relate to banking offices with remaining lease terms from
1
43
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
Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.
At March 31, 2023, the operating lease ROU assets and liabilities were $
24.7
25.1
31, 2022, ROU assets and liabilities were $
22.3
22.7
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,
(Dollars in Thousands)
2023
2022
Operating lease expense
$
700
$
384
Short-term lease expense
139
179
Total lease expense
$
839
$
563
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
706
$
429
Right-of-use assets obtained in exchange for new operating lease liabilities
2,906
592
Weighted average remaining lease term — operating leases (in years)
18.6
24.9
Weighted average discount rate — operating leases
3.3%
2.0%
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
March 31, 2023
2023
$
2,354
2024
2,666
2025
2,438
2026
2,320
2027
2,245
2028 and thereafter
21,045
Total
$
33,068
Less: Interest
(8,002)
Present Value of Lease liability
$
25,066
At March 31, 2023, the Company had
no
23
A related party is the lessor in an operating lease with the Company. The Company’s minimum payment is $
0.2
through 2052, for an aggregate remaining obligation of $
2.4
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,
(Dollars in Thousands)
2023
2022
Service Cost
$
872
$
1,572
Interest Cost
1,458
1,166
Expected Return on Plan Assets
(1,701)
(2,675)
Prior Service Cost Amortization
1
4
Net Loss Amortization
234
428
Pension Settlement
-
209
Net Periodic Benefit Cost
$
864
$
704
Discount Rate Used for Benefit Cost
5.63%
3.11%
Long-term Rate of Return on Assets
6.75%
6.75%
The components of the net periodic benefit cost for the Company's SERP plans were as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2023
2022
Service Cost
$
4
$
8
Interest Cost
130
79
Prior Service Cost Amortization
38
69
Net Loss Amortization
(155)
180
Net Periodic Benefit Cost
$
17
$
336
Discount Rate Used for Benefit Cost
5.45%
2.80%
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.
24
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, 2023
December 31, 2022
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
$
248,660
$
577,180
$
825,840
$
243,614
$
531,873
$
775,487
Standby Letters of Credit
5,677
-
5,677
5,619
-
5,619
Total
$
254,337
$
577,180
$
831,517
$
249,233
$
531,873
$
781,106
(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.
The allowance for credit losses for off-balance sheet credit commitments that are not unconditionally cancellable by the bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities. The following table shows the activity in the
allowance.
Three Months Ended March 31,
(Dollars in Thousands)
2023
2022
Beginning Balance
$
2,989
$
2,897
Provision for Credit Losses
(156)
79
Ending Balance
$
2,833
$
2,976
Other Commitments.
In the normal course of business, the Company enters into lease commitments which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the Company’s operating lease commitments. Furthermore,
the Company has an outstanding commitment of up to $
1.0
technology solutions for community banks and a commitment of up to $
7.0
2023, the Company had contributed $
0.3
2.8
December 31, 2022, the Company had contributed $
0.2
1.0
commitment.
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
on the consolidated results of operations, financial position, or cash flows of the Company.
25
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. Conversion ratio payments and ongoing fixed quarterly charges are reflected in
earnings in the period incurred. 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 $
0.3
million.
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.
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 compari ng them to prices obtained from an independent third-party
source.
Loans Held for Sale
. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined, when possible,
using either quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market
participants. The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics, 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.
26
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. At March 31, 2023, there were
no
0.1
A summary of fair values for assets and liabilities recorded at fair value on a recurring basis consisted of the following:
Level 1
Level 2
Level 3
Total Fair
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
March 31, 2023
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
22,373
$
-
$
-
$
22,373
U.S. Government Agency
-
174,290
-
174,290
States and Political Subdivisions
-
41,479
-
41,479
Mortgage-Backed Securities
-
69,014
-
69,014
Corporate Debt Securities
-
88,432
-
88,432
Loans Held for Sale
-
55,118
-
55,118
Interest Rate Swap Derivative
-
5,394
-
5,394
Mortgage Banking IRLC Derivative
-
-
1,346
1,346
LIABILITIES:
Mortgage Banking Hedge Derivative
$
-
$
216
$
-
$
216
December 31, 2022
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
22,050
$
-
$
-
$
22,050
U.S. Government Agency
-
186,052
-
186,052
States and Political Subdivisions
-
40,329
-
40,329
Mortgage-Backed Securities
-
69,405
-
69,405
Corporate Debt Securities
-
88,236
-
88,236
Loans Held for Sale
-
54,635
-
54,635
Interest Rate Swap Derivative
-
6,195
-
6,195
Mortgage Banking Hedge Derivative
-
187
-
187
Mortgage Banking IRLC Derivative
-
-
819
819
Mortgage Banking Activities
. The Company had Level 3 issuances and transfers related to mortgage banking activities of $
4.3
and $
6.7
4.3
13.6
three months ended March 31, 2022. Issuances are valued based on the change in fair value of the underlying mortgage loan from
inception of the IRLC to the Consolidated Statement of Financial Condition date, adjusted for pull-through rates and costs to 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 Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the assets are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of impairment.
The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
27
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 $
2.4
no
carrying value of $
0.7
0.1
Other Real Estate Owned
. During the first three months of 2023, certain foreclosed assets, upon initial recognition, were measured
and reported at fair value through a charge-off to the allowance for credit losses based on the fair value of the foreclosed asset less
estimated cost to sell. The fair value of the foreclosed asset is determined by an independent valuation or professional appraisal in
conformance with banking regulations. On an ongoing basis, we obtain updated appraisals on foreclosed assets and realize valuation
adjustments as necessary. The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment and estimation
involved in the real estate valuation process.
Mortgage Servicing Rights
. Residential mortgage loan servicing rights are evaluated for impairment 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 each of March 31, 2023 and December 31, 2022, there was
no
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 Investments.
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.
Securities Held to Maturity
. Securities held to maturity are valued in accordance with the methodology previously noted in the
caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for Sale.”
Loans.
techniques based upon projected cash flows and estimated discount rates. Pursuant to the adoption of ASU 2016-01,
Recognition and
Measurement of Financial Assets and Financial Liabilities
, the values reported reflect the incorporation of a liquidity discount to meet
the objective of “exit price” valuation.
Deposits.
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.
Subordinated Notes Payable.
flows and estimated discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings.
projected cash flows and estimated discount rates as well as rates being offered for similar debt.
28
A summary of estimated fair values of significant financial instruments not recorded at fair value consisted of the following:
March 31, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
84,549
$
84,549
$
-
$
-
Short-Term Investments
303,403
303,403
-
-
Investment Securities, Held to Maturity
651,755
437,174
175,026
-
Equity Securities
(1)
1,883
-
1,883
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
6,801
-
-
9,541
Loans, Net of Allowance for Credit Losses
2,610,377
-
-
2,464,688
LIABILITIES:
Deposits
$
3,823,920
$
-
$
3,284,249
$
-
Short-Term Borrowings
26,632
-
26,632
-
Subordinated Notes Payable
52,887
-
45,365
-
Long-Term Borrowings
463
-
464
-
December 31, 2022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
72,114
$
72,114
$
-
$
-
Short-Term Investments
528,536
528,536
-
-
Investment Securities, Held to Maturity
660,774
431,733
180,968
-
Equity Securities
(1)
10
-
10
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
6,067
-
-
8,503
Loans, Net of Allowance for Credit Losses
2,500,444
-
-
2,357,533
LIABILITIES:
Deposits
$
3,939,317
$
-
$
3,310,383
$
-
Short-Term Borrowings
56,793
-
56,793
-
Subordinated Notes Payable
52,887
-
45,763
-
Long-Term Borrowings
513
-
513
-
(1)
Not readily marketable securities - reflected in other assets.
(2)
Accounted for under the equity method – 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.
29
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)
Swap
Plans
Balance as of January 1, 2023
$
(37,349)
$
4,625
$
(4,505)
$
(37,229)
Other comprehensive income (loss) during the period
5,751
(598)
-
5,153
Balance as of March 31, 2023
$
(31,598)
$
4,027
$
(4,505)
$
(32,076)
Balance as of January 1, 2022
$
(4,588)
$
1,530
$
(13,156)
$
(16,214)
Other comprehensive (loss) income during the period
(19,055)
1,370
156
(17,529)
Balance as of March 31, 2022
$
(23,643)
$
2,900
$
(13,000)
$
(33,743)
30
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 2023 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,” “vision,” “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 of this quarterly report on Form 10-Q as well
as the Introductory Note and
Item 1A. Risk Factors
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”). We offer a broad array of products and services through a total of 60 full-service offices
located in Florida, Georgia, and Alabama. We provide a full range of banking services, including traditional deposit and credit
services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage services and financial
advisory services, including life insurance products, risk management and asset protection services.
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 interest 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, operating
expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest
income such as mortgage banking revenues, wealth management fees, deposit fees, and bank card fees.
We have included a detailed discussion of the economic conditions in our markets and our long-term strategic objectives as part of the
MD&A section of our 2022 Form 10-K.
31
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
We present a tangible common equity ratio and a tangible book value per diluted share that, in each case, removes the effect of
goodwill and other intangibles that resulted 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. The generally accepted
accounting principles (“GAAP”) to non-GAAP reconciliation for each quarter presented is provided below.
2023
2022
(Dollars in Thousands, except per share data)
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
411,240
$
394,016
$
373,165
$
371,675
$
372,145
Less: Goodwill and Other Intangibles (GAAP)
93,053
93,093
93,133
93,173
93,213
Tangible Shareowners' Equity (non-GAAP)
A
318,187
300,923
280,032
278,502
278,932
Total Assets (GAAP)
4,409,742
4,525,958
4,332,671
4,354,297
4,310,045
Less: Goodwill and Other Intangibles (GAAP)
93,053
93,093
93,133
93,173
93,213
Tangible Assets (non-GAAP)
B
$
4,316,689
$
4,432,865
$
4,239,538
$
4,261,124
$
4,216,832
Tangible Common Equity Ratio (non-GAAP)
A/B
7.37%
6.79%
6.61%
6.54%
6.61%
Actual Diluted Shares Outstanding (GAAP)
C
17,049,913
17,039,401
16,998,177
16,981,614
16,962,362
Tangible Book Value per Diluted Share (non-GAAP)
A/C
18.66
17.66
16.47
16.40
16.44
32
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2023
2022
(Dollars in Thousands, Except Per Share Data)
First
Fourth
Third
Second
First
Summary of Operations
:
Interest Income
$
43,915
$
41,226
$
35,364
$
29,320
$
25,438
Interest Expense
3,526
3,122
2,037
987
742
Net Interest Income
40,389
38,104
33,327
28,333
24,696
Provision for Credit Losses
3,130
3,521
2,099
1,542
-
Net Interest Income After
37,259
34,583
31,228
26,791
24,696
Noninterest Income
22,248
20,972
22,934
24,903
25,818
Noninterest Expense
40,455
42,287
39,810
40,498
39,233
Income Before Income Taxes
19,052
13,268
14,352
11,196
11,281
Income Tax Expense
4,133
2,599
3,074
2,177
2,235
Income Attributable to NCI
35
995
37
(306)
(591)
Net Income Attributable to CCBG
14,954
11,664
11,315
8,713
8,455
Net Interest Income (FTE)
(1)
40,489
38,192
33,410
28,409
24,774
Per Common Share
:
Net Income Basic
$
0.88
$
0.69
$
0.67
$
0.51
$
0.50
Net Income Diluted
0.88
0.68
0.67
0.51
0.50
Cash Dividends Declared
0.18
0.17
0.17
0.16
0.16
Diluted Book Value
24.12
23.12
21.95
21.89
21.94
Diluted Tangible Book Value
(2)
18.66
17.66
16.47
16.40
16.44
Market Price:
36.86
36.23
33.93
28.55
28.88
28.18
31.14
27.41
24.43
25.96
29.31
32.50
31.11
27.89
26.36
Selected Average Balances
:
Investment Securities
$
1,064,212
$
1,081,092
$
1,120,728
$
1,144,757
$
1,059,145
Loans Held for Investment
2,582,395
2,439,379
2,264,075
2,084,679
1,963,578
Earning Assets
4,062,688
4,032,733
4,009,951
3,974,221
3,938,824
Total Assets
4,411,865
4,381,825
4,357,678
4,321,388
4,266,775
Deposits
3,817,314
3,803,042
3,769,864
3,765,329
3,714,062
Shareowners’ Equity
404,067
380,570
379,305
373,365
383,956
Common Equivalent Average Shares:
17,016
16,963
16,960
16,949
16,931
17,045
17,016
16,996
16,971
16,946
Performance Ratios:
Return on Average Assets
1.37
%
1.06
%
1.03
%
0.81
%
0.80
%
Return on Average Equity
15.01
12.16
11.83
9.36
8.93
Net Interest Margin (FTE)
4.04
3.76
3.31
2.87
2.55
Noninterest Income as % of Operating Revenue
35.52
35.50
40.76
46.78
51.11
Efficiency Ratio
64.48
71.47
70.66
75.96
77.55
Asset Quality:
Allowance for Credit Losses (“ACL”)
$
26,507
$
24,736
22,510
$
21,281
$
20,756
Nonperforming Assets (“NPAs”)
4,602
2,728
2,422
3,231
2,745
ACL to Loans HFI
1.01
%
0.98
%
0.96
%
0.96
%
1.05
%
NPAs to Total Assets
0.10
0.06
0.06
0.07
0.06
NPAs to Loans HFI plus OREO
0.17
0.11
0.10
0.15
0.14
ACL to Non-Performing Loans
577.63
1,076.89
934.53
677.57
760.83
Net Charge-Offs to Average Loans HFI
0.24
0.21
0.12
0.22
0.16
Capital Ratios:
Tier 1 Capital
14.51
%
14.53
%
14.80
%
15.13
%
15.98
%
Total Capital
15.53
15.52
15.75
16.07
16.98
Common Equity Tier 1
12.68
12.64
12.83
13.07
13.77
Leverage
9.28
9.06
8.91
8.77
8.78
Tangible Common Equity
(2)
7.37
6.79
6.61
6.54
6.61
(1)
Fully Tax Equivalent
(2)
Non-GAAP financial measure. See non-GAAP reconciliation on page 31.
33
FINANCIAL OVERVIEW
Results of Operations
Performance Summary
. Net income attributable to common shareowners of $15.0 million, or $0.88 per diluted share, for the first
quarter of 2023 compared to $11.7 million, or $0.68 per diluted share, for the fourth quarter of 2022, and $8.5 million, or $0.50 per
diluted share, for the first quarter of 2022.
Net Interest Income
. Tax-equivalent net interest income for the first quarter of 2023 totaled $40.5 million, compared to $38.2 million
for the fourth quarter of 2022, and $24.8 million for the first quarter of 2022. Compared to both prior periods, the increase reflected
strong loan growth and higher interest rates across a majority of our earning assets, partially offset by higher deposit costs.
Provision and Allowance for Credit Losses.
compared to $3.5 million for the fourth quarter of 2022 and no provision for the first quarter of 2022. Compared to the fourth quarter
of 2022, the decrease reflected a lower level of loan growth. The lack of provision for the first quarter of 2022 reflected lower
required reserves needed post-pandemic.
Noninterest Income
. Noninterest income for the first quarter of 2023 totaled $22.2 million, an increase of $1.2 million, or 6.1%, over
the fourth quarter of 2022 and a decrease of $3.6 million, or 13.8%, from the first quarter of 2022. The increase over the fourth
quarter of 2022 was primarily due to higher mortgage banking revenues (higher rate locks and gain on sale margin) partially offset by
lower deposit fees (two less processing days). The decrease from the first quarter 2022 was driven by lower wealth management fees
due to lower insurance commissions - the first quarter of 2022 was higher than normal due to closing of several large insurance
policies. Lower mortgage revenues (lower rate locks and gain on sale margin) also contributed to the decrease, but was partially offset
by an increase in other income (loan servicing fees).
Noninterest Expense
. Noninterest expense for the first quarter of 2023 totaled $40.5 million compared to $42.3 million for the fourth
quarter of 2022 and $39.2 million for the first quarter of 2022. Compared to the fourth quarter of 2022, the $1.8 million decrease was
primarily attributable to a $2.4 million decrease in other expense due to a decrease in other real estate expense of $1.6 million due to a
gain from the sale of a banking office. Further, pension expense (non-service-related component) for the first quarter of 2023 totaled
$0.2 million compared to $1.1 million for the fourth quarter of 2022 which included a $1.8 million pension settlement charge.
Compared to the first quarter of 2022, the $1.3 million increase reflected increases in compensation expense of $0.8 million and
occupancy expense of $0.7 million that were partially off by a decrease in other expense of $0.2 million. The addition of banking
offices and staffing in new markets drove the variance in salary and occupancy expenses. Further, compensation expense reflected a
$0.7 million decrease in pension service cost that was partially offset by an increase in stock-based compensation expense of $0.4
million.
Financial Condition
Earning Assets.
Average earning assets totaled $4.063 billion for the first quarter of 2023, an increase of $30.0 million, or 0.7%, over
the fourth quarter of 2022, and an increase of $123.9 million, or 3.1%, over the first quarter of 2022. The increase over both prior
periods was primarily driven by higher deposit balances. The mix of earning assets continues to improve driven by strong loan
growth.
Loans.
Average loans held for investment (“HFI”) increased $143.0 million, or 5.9%, over the fourth quarter of 202 2 and increased
$618.8 million, or 31.5%, over the first quarter of 2022. Period end loans increased $111.7 million, or 4.4%, over the fourth quarter of
2022 and $651.4 million, or 32.8%, over the first quarter of 2022. Compared to the fourth quarter of 2022, a majority of the increase
was realized in the residential real estate category, and to a lesser extent, the construction and commercial real estate mortgage
categories. Compared to the first quarter of 2022, loan growth was broad based, with increases realized in all categories except
consumer loans. The slowdown in the secondary market residential loan sales has allowed us to book a steady flow of CCHL’s
adjustable-rate production in our loan portfolio throughout 2022 and the first quarter of 2023.
Credit Quality
. Overall credit quality remains stable. Nonperforming assets (nonaccrual loans and other real estate) totaled $4.6
million at March 31, 2023 compared to $2.7 million at December 31, 2022, and $2.7 million at March 31, 2022. At March 31, 2023,
nonperforming assets as a percent of total assets totaled 0.10% compared to 0.06% at December 31, 2022 and 0.06% at March 31,
2022. Nonaccrual loans totaled $4.6 million at March 31, 2023, a $2.3 million increase over December 31, 2022, and a $1.9 million
increase over March 31, 2022. At March 31, 2023, the increase was primarily due to the addition of one large business loan
relationship totaling $1.8 million to nonaccrual status – it is in the process of collection and is adequately secured and reserved for.
34
Deposits
. Average total deposits were $3.817 billion for the first quarter of 2023, an increase of $14.3 million, or 0.4%, over the
fourth quarter of 2022 and $103.3 million, or 2.8%, over the first quarter of 2022. Growth over the fourth quarter of 2022 was
primarily attributable to an increase in NOW account balances, primarily due to a seasonal increase in our public fund deposits that
occurred late in the fourth quarter. Compared to the first quarter of 2022, we had strong growth in our NOW accounts and, to a lesser
extent, our savings account balances.
Capital
. At March 31, 2023, we were well-capitalized with a total risk-based capital ratio of 15.53% and a tangible common equity
ratio (a non-GAAP financial measure) of 7.37% compared to 15.52% and 6.79%, respectively at December 31, 2022 and 16.98% and
6.61%, respectively, at March 31, 2022. At March 31, 2023, all of our regulatory capital ratios exceeded the threshold to be well-
capitalized under the Basel III capital standards.
RESULTS OF OPERATIONS
The following table provides a condensed summary of our results of operations - a discussion of the various components are discussed
in further detail below.
Three Months Ended
(Dollars in Thousands, except per share data)
March 31, 2023
December 31, 2022
March 31, 2022
Interest Income
$
43,915
$
41,226
$
25,438
Taxable Equivalent Adjustments
100
88
78
Total Interest Income (FTE)
44,015
41,314
25,516
Interest Expense
3,526
3,122
742
Net Interest Income (FTE)
40,489
38,192
24,774
Provision for Credit Losses
3,130
3,521
-
Taxable Equivalent Adjustments
100
88
78
Net Interest Income After Provision for Credit Losses
37,259
34,583
24,696
Noninterest Income
22,248
20,972
25,818
Noninterest Expense
40,455
42,287
39,233
Income Before Income Taxes
19,052
13,268
11,281
Income Tax Expense
4,133
2,599
2,235
Income Attributable to Noncontrolling Interests
35
995
(591)
Net Income Attributable to Common Shareowners
$
14,954
$
11,664
$
8,455
Basic Net Income Per Share
$
0.88
$
0.69
$
0.50
Diluted Net Income Per Share
$
0.88
$
0.68
$
0.50
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 2023 totaled $40.5 million, compared to $38.2 million for the fourth quarter
of 2022, and $24.8 million for the first quarter of 2022. Compared to both prior periods, the increase reflected strong loan growth and
higher rates across a majority of our earning assets, partially offset by higher deposit costs.
Our net interest margin for the first quarter of 2023 was 4.04%, an increase of 28 basis points over the fourth quarter of 2022 and 149
basis points over the first quarter of 2022, both driven by higher interest rates and an overall improved earning asset mix. For the
month of March 2023, our net interest margin was 4.07%. For the first quarter of 2023, our cost of funds was 35 basis points, an
increase of four basis points over the fourth quarter of 2022 and 27 basis points over the first quarter of 2022. Our cost of interest-
bearing deposits was 46 basis points, 35 basis points, and 4 basis points, respectively, for the same periods. Our total cost of deposits
(including noninterest bearing accounts) was 26 basis points, 20 basis points, and 2 basis points, respectively, for the same periods.
35
Provision for Credit Losses
We recorded a provision for credit losses of $3.1 million for the first quarter of 2023 compared to $3.5 million for the fourth quarter of
2022 and no provision for the first quarter of 2022. The decrease in the provision compared to the fourth quarter of 2022 was
primarily attributable to a lower level of loan growth. The credit loss provision for the first quarter of 2022 generally reflected lower
required reserves needed post-pandemic. We discuss the allowance for credit losses further below.
Noninterest Income
Noninterest income for the first quarter of 2023 totaled $22.2 million compared to $21.0 million for the fourth quarter of 2022 and
$25.8 million for the first quarter of 2022. The $1.2 million increase over the fourth quarter of 2022 was primarily attributable to
higher mortgage banking revenues at CCHL of $1.5 million partially offset by lower deposit fees $0.3 million. The increase in
mortgage banking revenues reflected a higher level of rate locks and gain on sale margin. The decrease in deposit fees was partially
attributable to two less processing days in the first quarter. Compared to the first quarter of 2022, the $3.6 million decrease reflected
lower wealth management fees of $2.1 million and mortgage banking revenues of $1.9 million, partially offset by higher other income
of $0.5 million. The decrease in wealth management fees was due to lower insurance commission revenues which reflected higher
than normal revenues in the first quarter of 2022 related to the closing of several large insurance policies. The decline in mortgage
banking revenues was attributable to a lower level of rate locks and gain on sale margin. The increase in other income was primarily
due to higher loan servicing income and miscellaneous income.
Noninterest income represented 35.52% of operating revenues (net interest income plus noninterest income) for the first quarter of
2023 compared to 35.50% for the fourth quarter of 2022 and 51.11% for the first quarter of 2022.
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
March 31, 2023
December 31, 2022
March 31, 2022
Deposit Fees
5,239
5,536
5,191
Bank Card Fees
3,726
3,744
3,763
Wealth Management Fees
3,928
3,649
6,070
Mortgage Banking Revenues
6,995
5,497
8,946
Other
2,360
2,546
1,848
Total Noninterest Income
22,248
20,972
25,818
Significant components of noninterest income are discussed in more detail below.
Deposit Fees
. Deposit fees for the first quarter of 2023 totaled $5.2 million, a decrease of $0.3 million, or 5.4%, from the fourth
quarter of 2022 and comparable to the first quarter of 2022. The decline from the fourth quarter of 2022 reflected two less days of
processing.
Bank Card Fees
. Bank card fees for the first quarter of 2023 totaled $3.7 million, comparable to the fourth quarter of 2022 and a
decrease of $0.1 million, or 1.0%, from the first quarter of 2022. The decline from the first quarter of 2022 was primarily attributable
to lower debit card usage and reflected lower consumer spending.
Wealth Management Fees
. Wealth management fees, which include both trust fees (i.e., managed accounts and trusts/estates), retail
brokerage fees (i.e., investment, insurance products, and retirement accounts), and insurance commission revenues, totaled $3.9
million for the first quarter of 2023, an increase of $0.3 million, or 7.7%, over the fourth quarter of 2022 and a decrease of $2.1
million, or 35.3%, from the first quarter of 2022. The increase over the fourth quarter of 2022 was primarily attributable to higher
retail brokerage fees. The decrease from the first quarter of 2022 was due to lower insurance commission revenues which reflected
higher than normal revenues in the first quarter of 2022 related to the closing of several large insurance policies. At March 31, 2023,
total assets under management were approximately $2.330 billion compared to $2.273 billion at December 31, 2022 and $2.329
billion at March 31, 2022.
Mortgage Banking Revenues
. Mortgage banking revenues totaled $7.0 million for the first quarter of 2023, an increase of $1.5
million, or 27.3%, over the fourth quarter of 2022 and a decrease of $1.9 million, or 21.8% from the first quarter of 2022. Compared
to the fourth quarter of 2022, the increase reflected a higher level of rate locks and gain on sale margin. The decrease from the first
quarter of 2022 was attributable to lower rate lock volume and gain on sale margin. We provide a detailed overview of our mortgage
banking operation, including a detailed break-down of mortgage banking revenues, mortgage servicing activity, and warehouse
funding within Note 4 - Mortgage Banking Activities in the Notes to Consolidated Financial Statements.
36
Other
. Other income totaled $2.4 million for the first quarter of 2023, a decrease of $0.2 million, or 7.3%, from the fourth quarter of
2022 and an increase of $0.5 million, or 27.7%, over the first quarter of 2022. Compared to the first quarter of 2022, the increase was
primarily attributable to higher loan servicing income and miscellaneous income.
Noninterest Expense
Noninterest expense for the first quarter of 2023 totaled $40.5 million compared to $42.3 million for the fourth quarter of 2022 and
$39.2 million for the first quarter of 2022. Compared to the fourth quarter of 2022, the $1.8 million decrease reflected a decrease in
other expense of $2.4 million that was partially offset by an increase in occupancy expense of $0.5 million and compensation expense
of $0.1 million. The decrease in other expense was primarily attributable to lower other real estate expense of $1.6 million due to a
gain on the sale of a banking office. Compared to the first quarter of 2022, the $1.3 million increase reflected an increase of $0.8
million in compensation expense and $0.7 million in occupancy expense that were partially off by a decrease of $0.2 million in other
expense. The addition of three banking offices and staffing in new markets drove the variance in compensation and occupancy
expenses.
The table below reflects the major components of noninterest expense.
(Dollars in Thousands)
March 31, 2023
December 31, 2022
March 31, 2022
Salaries
$
21,629
21,113
20,664
Associate Benefits
4,007
4,452
4,192
Total Compensation
25,636
25,565
24,856
Premises
3,245
2,907
2,759
Equipment
3,517
3,346
3,334
Total Occupancy
6,762
6,253
6,093
Legal Fees
362
390
349
Professional Fees
1,324
1,441
1,332
Processing Services
1,742
1,368
1,637
Advertising
874
729
773
Telephone
706
690
728
Insurance - Other
831
649
510
Other Real Estate Owned, net
(1,827)
(241)
25
Pension - Other
7
(761)
(761)
Pension Settlement
-
1,841
209
Miscellaneous
4,038
4,363
3,482
Total Other
8,057
10,469
8,284
Total Noninterest Expense
$
40,455
$
42,287
$
39,233
Significant components of noninterest expense are discussed in more detail below.
Compensation
. Compensation expense totaled $25.6 million for the first quarter of 2023, an increase of $0.1 million, or 0.3%, over
the fourth quarter of 2022 and an increase of $0.8 million, or 3.1%, over the first quarter of 2022. Compared to the fourth quarter of
2022, the $0.1 million increase in compensation expense reflected an increase in salary expense of $0.5 million that was partially
offset by a decrease in associate benefits expense of $0.4 million. The increase in salary expense was primarily attributable to an
increase in payroll tax expense which reflected the annual re-set of this tax as well as payroll taxes related to a high level of cash/stock
incentives paid in the first quarter. The decrease in associate benefit expense reflected a decrease of $0.7 million in pension service
cost that was partially offset by increases in stock compensation (higher expected pay-out for long-term incentive plan), associate
insurance, and other associate benefit expense (annual sales/service awards event). Compared to the first quarter of 2022, the increase
reflected higher salary expense of $1.0 million partially offset by lower associate benefit expense of $0.2 million. The increase in
salary expense was due to the addition of banking offices and staffing in new markets. The decrease in associate benefit expense was
primarily due to a decrease in pension service cost of $0.7 million that was partially offset by an increase in stock-based compensation
expense of $0.4 million.
37
Occupancy.
$0.5 million, or 8.1% over the fourth quarter of 2022 and an increase of $0.7 million, or 11.0%, over the first quarter of 2022. The
increase over both prior periods was primarily attributable to the three recently opened full-service offices and the re-location of one
office.
Other
. Other noninterest expense totaled $8.1 million for the first quarter of 2023, a decrease of $2.4 million, or 23.0%, from the
fourth quarter of 2022 and a decrease of $0.2 million, or 2.7%, from the first quarter of 2022. The decrease from the fourth quarter of
2022 was primarily attributable a decrease in other real estate expense of $1.6 million due to a gain from the sale of a banking office
and lower pension settlement expense of $1.8 million, partially offset by higher pension expense (non-service-related component) of
$0.8 million. Compared to the first quarter of 2022, the decrease was primarily driven by lower other real estate expense of $1.8
million due to a gain in other real estate from the sale of a banking office that was partially offset by higher pension expense (non-
service-related component) of $0.8 million and higher FDIC assessments of $0.3 million.
Our operating efficiency ratio (expressed as noninterest expense as a percent of the sum of taxable-equivalent net interest income plus
noninterest income) was 64.48% for the first quarter of 2023 compared to 71.47% for the fourth quarter of 2022 and 77.55% for the
first quarter of 2022. The improvement over both prior periods reflected higher net interest income.
Income Taxes
We realized income tax expense of $4.1 million (effective rate of 21.7%) for the first quarter of 2023 compared to $2.6 million
(effective rate of 19.6%) for the fourth quarter of 2022 and $2.2 million (effective rate of 19.8%) for the first quarter of 2022. A
discrete tax item of $0.4 million related our SERP plan favorably impacted the effective tax rate for the fourth quarter of 2022.
Absent discrete items, we expect our annual effective tax rate to approximate 21%-22% in 2023. The increase in the effective tax rate
for 2023 reflects a lower level of pre-tax income from CCHL in relation to our consolidated income as the non-controlling interest
adjustment for CCHL is accounted for as a permanent tax adjustment.
FINANCIAL CONDITION
Average earning assets totaled $4.063 billion for the first quarter of 2023, an increase of $30.0 million, or 0.7%, over the fourth
quarter of 2022, and an increase of $123.9 million, or 3.1%, over the first quarter of 2022. The increase over both prior periods was
primarily driven by higher deposit balances (see below –
Deposits
). The mix of earning assets continues to improve driven by strong
loan growth.
Investment Securities
Average investment s decreased $16.9 million, or 1.6%, from the fourth quarter of 2022 and increased $5.1 million, or 0.5%, over the
first quarter of 2022. Our investment portfolio represented 26.2% of our average earning assets for the first quarter of 2023 compared
to 26.8% for the fourth quarter of 2022 and 26.9% for the first quarter of 2022. For the remainder of 2023, we will continue to
monitor our overall liquidity position and allow cash flow from the investment portfolio to run-off to overnight funds.
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”). At March 31, 2023, $402.9 million, or 38.1%, of our investment portfolio was classified as AFS,
and $651.8 million, or 61.8%, classified as HTM. The average maturity of our total portfolio at March 31, 2023 was 3.34 years
compared to 3.57 years at December 31, 2022 and 3.63 years at March 31, 2022. The duration of our investment portfolio at March
31, 2023 was 2.99 years. In the third quarter of 2022, to mitigate risk to accumulated other comprehensive income due to higher
interest rates, we reclassified 33 U.S. Treasury obligations totaling $168.4 million with unrealized losses of $9.4 million from AFS to
HTM. At March 31, 2023, $7.1 million was remaining in unrealized losses relating to these securities.
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.
38
At March 31, 2023, there were 896 positions (combined AFS and HTM) with pre-tax unrealized losses totaling $74.8 million (see
Note 2 – Investment Securities in the Notes to Consolidated Financial Statements for detail by category). 87 of these positions are
U.S. Treasury bonds and carry the full faith and credit of the U.S. Government. 684 are U.S. government agency securities issued by
U.S. government sponsored entities. We believe the long history of no credit losses on government securities indicates that the
expectation of nonpayment of the amortized cost basis is effectively zero. The remaining 125 positions (Municipal securities and
corporate bonds) have a credit component. At March 31, 2023, corporate debt securities had an allowance for credit losses of $28,000
and municipal securities had an allowance of $8,000. At March 31, 2023, all CMO, MBS, SBA, U.S. Agency, and U.S. Treasury
bonds held were AAA rated.
Loans HFI
Average loans held for investment (“HFI”) increased $143.0 million, or 5.9%, over the fourth quarter of 2022 and $618.8 million, or
31.5%, over the first quarter of 2022. Period end loans increased $111.7 million, or 4.4%, over the fourth quarter of 2022 and $651.4
million, or 32.8%, over the first quarter of 2022. Compared to the fourth quarter of 2022, a majority of the increase was realized in the
residential real estate category, and to a lesser extent, the construction and commercial real estate mortgage categories. Compared to
the first quarter of 2022, loan growth was broad based, with increases realized in all categories except consumer loans.
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
Overall credit quality remains stable. Nonperforming assets (nonaccrual loans and other real estate) totaled $4.6 million at March 31,
2023 compared to $2.7 million at December 31, 2022 and $2.7 million at March 31, 2022. At March 31, 2023, the increase was
primarily due to the addition of one large business loan relationship totaling $1.8 million to nonaccrual status is in the process of
collection and is adequately secured and reserved for. At March 31, 2023, nonperforming assets as a percentage of total assets totaled
0.10% compared to 0.06% at December 31, 2022 and 0.06% at March 31, 202 2. Nonaccrual loans totaled $4.6 million at March 31,
2023, a $2.3 million increase over December 31, 2022 and a $1.9 million increase over March 31, 2022. Further, classified loans
totaled $12.2 million at March 31, 2023, a $7.2 million decrease from December 31, 2022 and a $10.2 million decrease from March
31, 2022.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount
expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings, and reduced by the charge-off of loan amounts (net of recoveries). Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged -off. Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision, but recorded as a separate liability included in other liabilities.
Management estimates the allowance balance using relevant available information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for
the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current
conditions and forecasts.
At March 31, 2023, the allowance for credit losses for HFI loans totaled $26.5 million compared to $24.7 million at December 31,
2022 and $20.8 million at March 31, 2022. Activity within the allowance is provided in Note 3 to the consolidated financial
statements. The increase in the allowance over the prior periods was primarily driven by loan growth. At March 31, 2023, net charge-
offs totaled $1.5 million, an increase of $0.2 million over the fourth quarter of 2022, and $0.7 million over the first quarter of 2022.
At March 31, 2023, the allowance represented 1.01% of HFI loans and provided coverage of 578% of nonperforming loans compared
to 0.98% and 1,077%, respectively, at December 31, 2022, and 1.05% and 761%, respectively, at March 31, 2022.
At March 31, 2023, the allowance for credit losses for unfunded commitments totaled $2.8 million compared to $3.0 million at
December 31, 2022 and $3.0 million at March 31, 2022. The allowance for unfunded commitments is recorded in other liabilities.
39
Deposits
Average total deposits were $3.817 billion for the first quarter of 2023, an increase of $14.3 million, or 0.4%, over the fourth quarter
of 2022 and $103.3 million, or 2.8%, over the first quarter of 2022. Compared to the fourth quarter of 2022, the increase reflected
higher NOW account balances, primarily due to a seasonal increase in our public fund deposits that occurred late in the fourth quarter.
Compared to the first quarter of 2022, we experienced strong growth in our NOW accounts, and to a lesser degree, our savings
accounts. Period end total deposits declined $115.4 million from the fourth quarter of 2022, and reflected lower balances in
noninterest bearing accounts, NOW accounts, and savings accounts, partially offset by slight growth in money market accounts and
certificates of deposit Noninterest bearing accounts decreased $52.2 million from the fourth quarter of 2022, largely due to the
migration of two commercial clients into interest bearing NOW accounts, in addition to clients seeking a higher yielding investment
account at Capital City Investments (approximately $30 million, which is predominantly attributable to clients with higher balances).
Interest bearing deposits decreased $63.2 million from the fourth quarter of 2022, including a $47.8 million decline in the NOW
account balance that was largely driven by an anticipated seasonal decline in public fund balances of $66 million, partially offset by
the previously mentioned migration of two clients from noninterest bearing accounts. Savings account balances decreased $20.1
million from the fourth quarter of 2022, primarily attributable to clients seeking higher yielding investment products outside of the
Bank. Money market account balances increased $4.5 million over the fourth quarter of 2022 (also due to some migration from
noninterest bearing accounts), in addition to growth in our new markets which offered a promotional rate.
We continue to closely monitor our cost of deposits and deposit mix as we manage through the current rising rate environment.
MARKET RISK AND INTEREST RATE SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk
management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our
policies are 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 reprice on a different basis than interest-earning assets. When
interest-bearing liabilities mature or reprice 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 reprice more
quickly than interest-bearing liabilities, falling market 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 what we believe to be a comprehensive interest rate risk management policy, which is administered by
management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits of risk, 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 captures
optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with
any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by
us. 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 assumptions used in the model. Finally, the
methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
The statement of financial condition is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk.
We prepare a current base case and several alternative interest rate simulations (-400, -300, -200, -100,+100, +200, +300, and +400
basis points (bp)), at least once per quarter, and report the analysis to ALCO, our Market Risk Oversight Committee (“MROC”), our
Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors. The -400bp rate scenario was reintroduced into the
model beginning in the fourth quarter of 2022 due to the higher interest rate environment. We augment our interest rate shock analysis
with alternative interest rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening or steepening of the
yield curve (non-parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly uncertain or
when other business conditions so dictate.
40
Our goal is to structure the statement of financial condition 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 attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets,
by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by managing the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing basis.
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
-200 bp
-300 bp
-400 bp
Policy Limit
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
-10.0%
-12.5%
-15.0%
March 31, 2023
7.1%
5.2%
3.4%
1.8%
-3.3%
-8.8%
-15.5%
-21.2%
December 31, 2022
11.3%
8.4%
5.5%
2.8%
-5.0%
-12.3%
-20.0%
-27.1%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
-12.5%
-15.0%
-17.5%
March 31, 2023
28.0%
22.7%
17.2%
12.2%
-0.5%
-10.9%
-22.5%
-31.2%
December 31, 2022
31.3%
25.2%
19.0%
13.1%
-2.0%
-13.8%
-25.7%
-36.3%
The Net Interest Income (“NII”) at Risk position indicates that in the short-term, all rising rate environments will positively impact the
net interest margin of the Company, while declining rate environments will have a negative impact on the net interest margin.
Compared to the fourth quarter of 2022, these metrics became less favorable in the rising rate scenarios primarily due to loan growth,
which reduced our level of overnight funds and made us slightly less asset sensitive. The converse is applicable in the down rate
scenarios where the metrics became more favorable due to loan growth which increased asset duration and therefore protection against
falling rates. The percent change over both a 12-month and 24-month shock are outside of policy in the rates down 300 bps and 400
bps scenarios due to our limited ability to lower our deposit rates relative to the decline in market rate.
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 by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these
discounted values of the assets and liabilities is the economic value of equity, which in theory approximates the fair value of our net
assets.
ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
-20.0%
-25.0%
-30.0%
March 31, 2023
11.6%
9.6%
7.0%
4.0%
-7.1%
-17.9%
-31.3%
-35.7%
December 31, 2022
11.0%
9.0%
6.4%
3.6%
-7.4%
-18.8%
-30.9%
-40.1%
EVE Ratio (policy minimum 5.0%)
20.6%
19.9%
19.0%
18.2%
15.6%
13.5%
11.2%
10.3%
(1) The down 400 bp rate scenario was added in the fourth quarter of 2022.
At March 31, 2023, the economic value of equity was favorable in all rising rate environments and unfavorable in the falling rate
environments. Compared to the fourth quarter of 2022, EVE metrics became slightly more favorable in all rate environments except
the down 300 environment, primarily due to a change in the shape and position of the yield curve, along with seasonal outflows of
some rate sensitive funding sources (public funds). EVE is currently in compliance with policy in all rate scenarios as the EVE ratio
in each rate scenario exceeds 5.0%.
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 change in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
41
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, 2023, we had the ability to generate $1.428 billion in additional liquidity through all of our available resources (this
excludes $303.4 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, 2023, we believe the
liquidity available to us was sufficient to meet our on-going needs and execute our business strategy.
We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for
borrowings or deposits, and/or to sell selected securities. Our portfolio consists of debt issued by the U.S. Treasury, U.S.
governmental agencies, municipal governments, and corporate entities. At March 31, 2023, the weighted-average life and duration of
our portfolio were 3.34 years and 2.99 years, respectively, and the available-for-sale portfolio had a net unrealized pre-tax loss of
$35.0 million.
We maintained an average net overnight funds (interest deposits with banks plus FED funds sold less FED funds purchased) sold
position of $361.0 million in the first quarter of 2023 compared to $469.4 million in the fourth quarter of 2022 and $873.1 million in
the first quarter of 2022. The declining overnight funds position reflects growth in average loans.
We expect our capital expenditures will be approximately $8.0 million over the next 12 months, which will primarily consist of
construction of new offices, 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
Average short -term borrowings totaled $47.1 million for the first quarter of 2023 compared to $50.8 million for the fourth quarter of
2022 and $32.4 million for the first quarter of 2022. The variance compared to both prior periods was primarily attributable to an
increase in short-term repurchase agreements and the fluctuation in CCHL’s warehouse line. Additional detail on these borrowings is
provided in Note 4 – Mortgage Banking Activities in the Consolidated Financial Statements.
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. Effective June 30, 2023, in
accordance with the trust agreements and the Adjustable Interest Rate (LIBOR) Act of 2021, LIBOR will be replaced with 3-month
CME Term SOFR (secured overnight financing rate) as the interest rate index. 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.
42
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 32. At March 31, 2023, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards.
Shareowners’ equity was $411.2 million at March 31, 2023 compared to $394.0 million at December 31, 2022 and $372.1 million at
March 31, 2022. For the first three months of 2023, shareowners’ equity was positively impacted by net income attributable to
common shareowners of $15.0 million, a $5.8 million decrease in the unrealized loss on investment securities, the issuance of stock of
$1.8 million, and stock compensation accretion of $0.5 million. Shareowners’ equity was reduced by common stock dividends of $3.1
million ($0.18 per share), the repurchase of stock of $0.8 million (25,241 shares), net adjustments totaling $1.4 million related to
transactions under our stock compensation plans, and a $0.6 million decrease in the fair value of the interest rate swap related to
subordinated debt.
At March 31, 2023, our total risk-based capital ratio was 15.53% compared to 15.52% at December 31, 2022 and 16.98% at March 31,
2022. Our common equity tier 1 capital ratio was 12.68%, 12.64%, and 13.77%, respectively, on those dates. Our leverage ratio was
9.28%, 9.06%, and 8.78%, respectively, on those dates. At March 31, 2023, all our regulatory capital ratios exceeded the threshold to
be designated as “well-capitalized” under the Basel III capital standards. Further, our tangible common equity ratio was 7.37% at
March 31, 2023 compared to 6.79% and 6.61% at December 31, 2022 and March 31, 2022, respectively. If our unrealized HTM
securities losses of $29.5 million (after-tax) were recognized in accumulated other comprehensive loss, our adjusted tangible capital
ratio would be 6.69%.
Our tangible capital ratio is also impacted by the recording of our unfunded pension liability through other comprehensive income in
accordance with ASC Topic 715. At March 31, 2023, the net pension liability reflected in other comprehensive loss was $4.5 million
compared to $4.5 million at December 31, 2022 and $13.0 million at March 31, 2022. This liability is re-measured annually on
December 31
st
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
. These assumptions are sensitivities are discussed in our 2022 Form 10-K “Critical Accounting Policies”.
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, 2023, we had $825.8 million in commitments to extend credit and $5.7 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance
of a client to a third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on-
balance sheet instruments.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet our on-going obligations. In the event these commitments
require funding in excess of historical levels, management believes current 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 $2.8 million at March 31, 2023.
43
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2022 Form 10-K.
The preparation of our Consolidated Financial Statements 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) goodwill, (iii) pension assumptions, and (iv) income taxes as
our most critical accounting policies and estimates in that they are important to the portrayal of our financial condition and results, and
they require our subjective and complex judgment as a result of the need to make estimates about the effects of matters that are
inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described
throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K.
44
TABLE I
AVERAGE BALANCES & INTEREST RATES
Three Months Ended
March 31, 2023
December 31, 2022
March 31, 2022
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
55,110
$
644
4.74
%
$
42,910
$
581
5.38
%
$
43,004
$
397
3.19
%
Loans Held for Investment
(1)(2)
2,582,395
34,331
5.39
2,439,379
31,418
5.11
1,963,578
21,811
4.52
Taxable Securities
1,061,372
4,912
1.86
1,078,265
4,835
1.78
1,056,736
2,889
1.10
Tax-Exempt Securities
(2)
2,840
17
2.36
2,827
17
2.36
2,409
10
1.60
Federal Funds Sold and Interest Bearing
Deposits
360,971
4,111
4.62
469,352
4,463
3.77
873,097
409
0.19
Total Earning Assets
4,062,688
44,015
4.39
%
4,032,733
41,314
4.07
%
3,938,824
25,516
2.63
%
Cash & Due From Banks
74,639
74,178
74,253
Allowance For Credit Losses
(25,637)
(22,596)
(21,655)
Other Assets
300,175
297,510
275,353
TOTAL ASSETS
$
4,411,865
$
4,381,825
$
4,266,775
Liabilities:
NOW Accounts
$
1,228,928
$
2,152
0.71
%
$
1,133,733
$
1,725
0.60
%
$
1,079,906
$
86
0.03
%
Money Market Accounts
267,573
208
0.31
273,328
63
0.09
285,406
33
0.05
Savings Accounts
629,388
76
0.05
641,153
80
0.05
599,359
72
0.05
Other Time Deposits
89,675
52
0.24
92,385
34
0.15
97,054
33
0.14
Total Interest Bearing Deposits
2,215,564
2,488
0.46
2,140,599
1,902
0.35
2,061,725
224
0.04
Short-Term Borrowings
47,109
461
3.97
50,844
690
5.38
32,353
192
2.40
Subordinated Notes Payable
52,887
571
4.32
52,887
522
3.86
52,887
317
2.40
Other Long-Term Borrowings
480
6
4.80
530
8
4.80
833
9
4.49
Total Interest Bearing Liabilities
2,316,040
3,526
0.62
%
2,244,860
3,122
0.55
%
2,147,798
742
0.14
%
Noninterest Bearing Deposits
1,601,750
1,662,443
1,652,337
Other Liabilities
81,206
84,585
72,166
TOTAL LIABILITIES
3,998,996
3,991,888
3,872,301
Temporary Equity
8,802
9,367
10,518
TOTAL SHAREOWNERS’ EQUITY
404,067
380,570
383,956
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
4,411,865
$
4,381,825
$
4,266,775
Interest Rate Spread
3.77
%
3.52
%
2.49
%
Net Interest Income
$
40,489
$
38,192
$
24,774
Net Interest Margin
(3)
4.04
%
3.76
%
2.55
%
(1)
(2)
(3)
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, 2022.
Item 4. CONTROLS AND PROCEDURES
At March 31, 2023, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report these disclosure controls and procedures were effective.
Our management, including our Chief Executive Officer and Chief Financial Officer, has reviewed our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). During the quarter ended on March 31, 2023,
there have been no significant changes in our internal control over financial reporting during our most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially affect, our internal control over 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 2022 Form 10-K, as updated in our subsequent quarterly reports. The risks described in our 2022 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
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table contains information about all purchases made by, or on behalf of, us and any affiliated purchaser (as defined in
Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of our equity securities that is registered pursuant to
Section 12 of the Exchange Act.
Total number
Average
Total number of shares
Maximum Number of shares
of shares
price paid
purchased under our
remaining for purchase under
Period
purchased
per share
share repurchase program
(1)
our share repurchase program
January 1, 2023 to
January 31, 2023
25,000
$32.39
25,000
548,048
February 1, 2023 to
February 28, 2023
-
-
-
548,048
March 1, 2023 to
March 31, 2023
241
32.65
241
547,807
Total
25,241
$32.39
25,241
547,807
46
(1)
This amount represents the number of shares that were repurchased during the first quarter of 2023 through the Capital City Bank
Group, Inc. Share Repurchase Program (the “Program”), which was approved on January 31, 2019 for a five-year period, under
which we were authorized to repurchase up to 750,000 shares of our common stock. The Program is flexible and shares are
acquired from the public markets and other sources using free cash flow. No shares are repurchased outside of the Program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not Applicable.
Item 5. Other Information
None.
47
Item 6. Exhibits
(A) Exhibits
31.1
31.2
32.1
32.2
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
48
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.
/s/ Jeptha E. Larkin
Jeptha E. Larkin
Executive Vice President and Chief Financial Officer
(Mr. Larkin is the Principa l Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: May 1, 2023