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ccbg:ClaimsLitigations
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-Q/A
(Amendment No. 1)
☒
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
June 30, 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 [
]
No
[ X ]
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 [ ]
No
[X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or
an emerging growth company.
See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [
]
No
[X]
At July 27, 2023,
16,991,634
shares of the Registrant’s Common Stock, $.01 par value, were outstanding.
2
EXPLANATORY NOTE
Capital City Bank Group, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amendment” or “Form 10-
Q/A”) to amend and restate certain items in its Quarterly Report on Form 10-Q for the period ended June 30, 2023, originally filed
with the U.S. Securities and Exchange Commission (the “SEC”) on July 31, 2023 (the “Original Form 10-Q”). Except as described
below, no other information included in the Original Form 10-Q is being amended or updated by this Amendment and this
Amendment does not purport to reflect any information or events subsequent to the Original Form 10-Q.
Restatement Background
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on November 13, 2023, the Company
identified certain inter-company transactions between its subsidiaries, Capital City Home Loans Inc. (“CCHL”), and Capital City
Bank (“CCB” or “the Bank”), involving residential mortgage loan purchases that were not properly recorded. The inaccuracies
materially impacted the Company’s previously issued financial statements as of and for the annual period ended December 31, 2022,
the three months ended March 31, 2022 and 2023, the three and six months ended June 30, 2022 and 2023, and the three and nine
months ended September 30, 2022 (the “Impacted Financials”). In connection with these transactions, CCHL recorded mortgage
banking revenue and a mortgage servicing right. On an ongoing basis, CCHL recognized noninterest income for servicing these loans
on behalf of CCB.
Because these inter-company transactions were not properly eliminated and net loan fees were not properly recorded, management,
after discussion with the Company’s independent registered public accounting firm, FORVIS, LLP (“FORVIS”), and the chair of the
Audit Committee of the Company’s Board of Directors, determined that the Impacted Financials should no longer be relied upon, and
certain consolidated statement of financial condition line items, including loans, other assets, other liabilities, and equity, and
consolidated statement of income line items, including mortgage banking revenues, loan interest income, compensation expense, other
income, income taxes, and net income, needed to be restated. For additional information on the restatements, see “Part I – Item 1
Financial Information – Note 1 – Restatement of Previously Issued Consolidated Financial Statements” in this Form 10-Q/A.
The Company determined that it would file amendments to the Annual Report on Form 10-K for the year ended December 31, 2022,
its Quarterly Report on Form 10-Q for the three months ended March 31, 2023, and the Original Form 10-Q, including restated
financial statements and related disclosures (collectively, the “Amended Reports”). All material restatement information will be
included in the Amended Reports, and we do not intend to separately amend the Quarterly Reports on Form 10-Q that the Company
has previously filed with the SEC for the three months ended March 31, 2022, the three and six months ended June 30, 2022, and the
three and nine months ended September 30, 2022 (collectively, the “2022 Form 10-Qs”). As a result, the 2022 Form 10-Qs should no
longer be relied upon.
Restatement of Previously Issued Consolidated Financial Statements
This Form 10-Q/A includes unaudited restated consolidated financial statements as of June 30, 2023 and for the three-month and six-
month periods ended June 30, 2023, and the audited restated consolidated statements of financial condition as of December 31, 2022.
In addition to correcting the accounting treatment for the mortgage banking inter-company transactions described above, the restated
consolidated financial statements, included herein also correct previously identified errors that the Company determined to be
immaterial, both individually and in the aggregate.
For additional information on the restatements, see “Part I – Item 1 Financial Information – Note 1 – Restatement of Previously Issued
Consolidated Financial Statements” in this Form 10-Q/A.
This Form 10-Q/A also amends and restates the following items included in the Original Form 10-Q as appropriate to reflect the
restatement and revision of the relevant periods: Part I – Item 1 Financial Information; Item 2. Management’s Discussions and
Analysis of Financial Condition and Results of Operations; Item 3. Quantitative and Qualitative Disclosures About Market Risk; Item
4. Controls and Procedures; and Part II - Item 6. Exhibits.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is also
including with this Form 10-Q/A currently dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer
(attached as Exhibits 31.1, 31.2, 32.1, and 32.2).
Except as discussed above and as further described herein, the Company has not modified or updated the disclosures presented in the
Original Form 10-Q/A. Accordingly, this Form 10-Q/A does not reflect events occurring after the filing of Original Form 10-Q or
modify or update those disclosures affected by any such subsequent events. Information not affected by the restatements reflects
disclosures made at the time of the filing of the Original Form 10-Q. Forward-looking statements included in this Form 10-Q/A
represent management’s views as of the date of the Original Form 10-Q and should not be assumed to be accurate as of any date
thereafter. This Form 10-Q/A should be read in conjunction with the Company's filings made with the SEC subsequent to the filing of
the Original Form 10-Q, including any amendment to those filings.
3
Control Considerations
In connection with the restatements discussed above, management has re-assessed the effectiveness of the Company’s internal control
over financial reporting and disclosure controls and procedures as of June 30, 2023, as further described in “Part I – Item 4. Controls
and Procedures.” Based on this assessment, the Company identified a material weakness in its internal control over financial reporting
for the review of significant inter-company mortgage sales and servicing. As a result, the Company’s Chief Financial Officer
concluded that the internal control over financial reporting and disclosure controls and procedures were not effective as of June 30,
2023. Management has taken steps towards remediating the material weakness in the Company’s internal control over financial
reporting. For additional information related to the material weakness in internal control over financial and the related remedial
measures, see Part II Item 9A – Controls and Procedures in the Company’s Form 10-K/A for the year ended December 31, 2022,
which was filed with the SEC on December 22, 2023 (the “2022 Form 10-K/A”) for a description of these matters.
4
CAPITAL CITY BANK
GROUP,
INC.
QUARTERLY
REPORT ON FORM 10-Q/A
FOR THE PERIOD ENDED JUNE 30, 2023
TABLE OF CONTENTS
PART I –
Financial Information
Page
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – June 30, 2023 and December 31, 2022
7
Consolidated Statements of Income – Three and Six Months Ended June 30, 2023 and 2022
8
Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2023 and 2022
9
Consolidated Statements of Changes in Shareowners’ Equity – Three and Six Months Ended June 30, 2023 and 2022
10
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2023 and 2022
11
Notes to Consolidated Financial Statements
12
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
50
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
66
Item 4.
Controls and Procedures
66
PART II –
Other Information
Item 1.
Legal Proceedings
67
Item 1A.
Risk Factors
67
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
67
Item 3.
Defaults Upon Senior Securities
67
Item 4.
Mine Safety Disclosure
67
Item 5.
Other Information
67
Item 6.
Exhibits
69
Signatures
70
5
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q/A 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/A and
the following sections
of the 2022
Form 10-K/A: (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/A; 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 impact of the restatement of the Impacted Financials;
●
any inability to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to
remediate any existing material weaknesses in our internal control over financial reporting and/or disclosure controls deemed ineffective;
●
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.
6
However, other factors besides those listed in
Item 1A Risk Factors
or discussed in this Form 10-Q also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
We do not undertake to update any forward-looking
statement, except as required by applicable law.
7
PART
I.
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(Unaudited)
(As Restated)
(As Restated)
June 30,
December 31,
(Dollars in Thousands, Except Par Value)
2023
2022
ASSETS
Cash and Due From Banks
$
83,679
$
72,114
Federal Funds Sold and Interest Bearing Deposits
285,129
528,536
Total Cash and Cash Equivalents
368,808
600,650
Investment Securities, Available
for Sale, at fair value (amortized cost of $
424,220
and $
455,232
)
386,220
413,294
Investment Securities, Held to Maturity (fair value of $
595,219
and $
612,701
)
641,398
660,744
Equity Securities
1,703
10
Total Investment
Securities
1,029,321
1,074,048
Loans Held For Sale, at fair value
44,659
26,909
Loans Held for Investment
2,683,512
2,547,685
Allowance for Credit Losses
(28,243)
(25,068)
Loans Held for Investment, Net
2,655,269
2,522,617
Premises and Equipment, Net
82,062
82,138
Goodwill and Other Intangibles
93,013
93,093
Other Real Estate Owned
1
431
Other Assets
118,073
119,337
Total Assets
$
4,391,206
$
4,519,223
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
1,520,134
$
1,653,620
Interest Bearing Deposits
2,268,732
2,285,697
Total Deposits
3,788,866
3,939,317
Short-Term
Borrowings
50,673
56,793
Subordinated Notes Payable
52,887
52,887
Other Long-Term
Borrowings
414
513
Other Liabilities
77,192
73,675
Total Liabilities
3,970,032
4,123,185
Temporary Equity
8,752
8,757
SHAREOWNERS’ EQUITY
Preferred Stock, $
0.01
par value;
3,000,000
shares authorized;
no
shares issued and outstanding
-
-
Common Stock, $
0.01
par value;
90,000,000
shares authorized;
16,991,634
and
16,986,785
shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
170
170
Additional Paid-In Capital
36,853
37,331
Retained Earnings
408,771
387,009
Accumulated Other Comprehensive Loss, net of tax
(33,372)
(37,229)
Total Shareowners’
Equity
412,422
387,281
Total Liabilities, Temporary
Equity, and Shareowners’ Equity
$
4,391,206
$
4,519,223
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
8
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF INCOME
(Unaudited)
(As Restated)
(As Restated)
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in Thousands, Except Per Share
Data)
2023
2022
2023
2022
INTEREST INCOME
Loans, including Fees
$
37,608
$
24,268
$
72,499
$
46,697
Investment Securities:
Taxable
4,803
3,833
9,716
6,723
Tax Exempt
12
7
23
13
Funds Sold
2,782
1,408
6,893
1,817
Total Interest Income
45,205
29,516
89,131
55,250
INTEREST EXPENSE
Deposits
4,008
266
6,496
490
Short-Term
Borrowings
451
343
912
535
Subordinated Notes Payable
604
370
1,175
687
Other Long-Term
Borrowings
5
8
11
17
Total Interest Expense
5,068
987
8,594
1,729
NET INTEREST INCOME
40,137
28,529
80,537
53,521
Provision for Credit Losses
2,197
1,692
5,296
1,724
Net Interest Income After Provision For Credit Losses
37,940
26,837
75,241
51,797
NONINTEREST INCOME
Deposit Fees
5,326
5,447
10,565
10,638
Bank Card Fees
3,795
4,034
7,521
7,797
Wealth Management
Fees
4,149
4,403
8,077
10,473
Mortgage Banking Revenues
3,363
4,857
6,234
8,912
Other
3,334
1,823
5,328
3,556
Total Noninterest
Income
19,967
20,564
37,725
41,376
NONINTEREST EXPENSE
Compensation
23,438
23,222
46,962
45,520
Occupancy, Net
6,820
6,075
13,582
12,168
Other
10,027
8,853
17,417
16,985
Total Noninterest
Expense
40,285
38,150
77,961
74,673
INCOME BEFORE INCOME TAXES
17,622
9,251
35,005
18,500
Income Tax Expense
3,417
1,685
7,126
3,405
NET INCOME
14,205
7,566
27,879
15,095
(Income) Loss Attributable to Noncontrolling Interests
(31)
(306)
4
(897)
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
14,174
$
7,260
$
27,883
$
14,198
BASIC NET INCOME PER SHARE
$
0.83
$
0.43
$
1.64
$
0.84
DILUTED NET INCOME PER SHARE
$
0.83
$
0.43
$
1.64
$
0.84
Average Common
Basic Shares Outstanding
17,002
16,949
17,009
16,940
Average Common
Diluted Shares Outstanding
17,035
16,971
17,040
16,958
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
9
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(As Restated)
(As Restated)
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2023
2022
2023
2022
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
14,174
$
7,260
$
27,883
$
14,198
Other comprehensive (loss) income, before
tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
(2,887)
(10,718)
3,921
(36,167)
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
876
4
1,741
9
Derivative:
Change in net unrealized gain on effective cash flow
derivative
585
1,161
(217)
2,997
Benefit Plans:
Pension plan settlement
(217)
169
(217)
378
Total Benefit Plans
(217)
169
(217)
378
Other comprehensive (loss) income, before
tax
(1,643)
(9,384)
5,228
(32,783)
Deferred tax (benefit) expense related to other comprehensive income
(347)
(2,362)
1,371
(8,232)
Other comprehensive (loss) income, net of tax
(1,296)
(7,022)
3,857
(24,551)
TOTAL COMPREHENSIVE
INCOME (LOSS)
$
12,878
$
238
$
31,740
$
(10,353)
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
10
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS’ EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, April 1, 2023, as restated
17,021,748
$
170
$
37,512
$
397,654
$
(32,076)
$
403,260
Net Income Attributable to Common Shareowners
-
-
-
14,174
-
14,174
Other Comprehensive Loss, net of tax
-
-
-
-
(1,296)
(1,296)
Cash Dividends ($
0.1800
per share)
-
-
-
(3,057)
-
(3,057)
Repurchase of Common Stock
(40,495)
-
(1,203)
-
-
(1,203)
Stock Based Compensation
-
-
228
-
-
228
Stock Compensation Plan Transactions, net
10,381
-
316
-
-
316
Balance, June 30, 2023, as restated
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
Balance, April 1, 2022, as restated
16,947,602
$
169
$
35,188
$
369,014
$
(33,743)
$
370,628
Net Income Attributable to Common Shareowners
-
-
-
7,260
-
7,260
Other Comprehensive Loss, net of tax
-
-
-
-
(7,022)
(7,022)
Cash Dividends ($
0.1600
per share)
-
-
-
(2,712)
-
(2,712)
Stock Based Compensation
-
-
244
-
-
244
Stock Compensation Plan Transactions, net
11,678
1
306
-
-
307
Balance, June 30, 2022, as restated
16,959,280
$
170
$
35,738
$
373,562
$
(40,765)
$
368,705
Balance, January 1, 2023, As Restated
16,986,785
$
170
$
37,331
$
387,009
$
(37,229)
$
387,281
Net Income Attributable to Common Shareowners
-
-
-
27,883
-
27,883
Other Comprehensive Income, net of tax
-
-
-
-
3,857
3,857
Cash Dividends ($
0.3600
per share)
-
-
-
(6,121)
-
(6,121)
Repurchase of Common Stock
(65,736)
-
(2,022)
-
-
(2,022)
Stock Based Compensation
-
-
764
-
-
764
Stock Compensation Plan Transactions, net
70,585
-
780
-
-
780
Balance, June 30, 2023, As Restated
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
Balance, January 1, 2022, As Restated
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
-
-
14,198
-
14,198
Other Comprehensive Loss, net of tax
-
-
-
-
(24,551)
(24,551)
Cash Dividends ($
0.3200
per share)
-
-
-
(5,424)
-
(5,424)
Stock Based Compensation
-
-
489
-
-
489
Stock Compensation Plan Transactions, net
67,220
1
826
-
-
827
Balance, June 30, 2022, As Restated
16,959,280
$
170
$
35,738
$
373,562
$
(40,765)
$
368,705
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
11
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(As Restated)
Six Months Ended June 30,
(Dollars in Thousands)
2023
2022
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income Attributable to Common Shareowners
$
27,883
$
14,198
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Credit Losses
5,296
1,724
Depreciation
3,927
3,802
Amortization of Premiums, Discounts and Fees, net
2,117
5,053
Amortization of Intangible Asset
80
80
Pension Plan Settlement (Gain) Charge
(291)
378
Originations of Loans Held-for-Sale
(214,364)
(549,018)
Proceeds From Sales of Loans Held-for-Sale
202,848
585,476
Mortgage Banking Revenues
(6,234)
(8,912)
Net Additions for Capitalized Mortgage Servicing Rights
(253)
360
Stock Compensation
764
489
Net Tax Benefit From Stock-Based
Compensation
-
(19)
Deferred Income Taxes
(2,849)
(9,887)
Net Change in Operating Leases
(3)
(72)
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(1,900)
(26)
Net Decrease in Other Assets
4,593
3,516
Net Increase in Other Liabilities
3,815
22,040
Net Cash Provided By Operating Activities
25,429
69,182
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
-
(218,548)
Proceeds from Payments, Maturities, and Calls
18,992
28,111
Securities Available for
Sale:
Purchases
(4,634)
(37,044)
Proceeds from Sale of Securities
-
3,365
Proceeds from Payments, Maturities, and Calls
32,490
47,413
Purchases of Loans Held for Investment
(201,000)
(174,779)
Net Decrease (Increase) in Loans Held for Investment
61,293
(130,913)
Proceeds From Sales of Other Real Estate Owned
3,772
30
Purchases of Premises and Equipment
(3,851)
(3,322)
Noncontrolling Interest Contributions
-
2,573
Net Cash Used In Investing Activities
(92,938)
(483,114)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits
(150,451)
73,396
Net (Decrease) Increase in Short-Term
Borrowings
(6,120)
4,784
Repayment of Other Long-Term
Borrowings
(99)
(150)
Dividends Paid
(6,121)
(5,424)
Payments to Repurchase Common Stock
(2,022)
-
Proceeds from Issuance of Common Stock Under Purchase Plans
480
496
Net Cash (Used In) Provided by Financing Activities
(164,333)
73,102
NET DECREASE IN CASH AND CASH EQUIVALENTS
(231,842)
(340,830)
Cash and Cash Equivalents at Beginning of Period
600,650
1,035,354
Cash and Cash Equivalents at End of Period
$
368,808
$
694,524
Supplemental Cash Flow Disclosures:
Interest Paid
$
8,720
$
1,617
Income Taxes Paid
$
3,860
$
3,765
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned
$
1,442
$
77
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
12
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/A for the year ended December 31, 2022.
Accounting Standards Updates
Adoption of New Accounting Standard,
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2022-02,
“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 the Company 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 the
Company 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.
Restatement of Previously Issued Consolidated Financial
Statements
We have restated
herein our unaudited consolidated financial statements for the three
and six months ended June 30, 2023. We
have
also restated financial statements for the year ended December 31, 2022 and restated
the impacted amounts within the accompanying
notes to the consolidated financial statements.
13
Restatement Background
CCHL sold residential mortgage loans to CCB. CCHL recorded mortgage
banking revenue and a mortgage servicing right. On an
ongoing basis, CCHL recognized noninterest income for servicing these loans
on behalf of CCB. As a result of this misstatement,
assets are overstated by $
1.6
million as of June 30, 2023 and net income is overstated by $
1.6
million for the six months ended June
30, 2023. This represents
0.04
% of total assets as of June 30, 2023 and
5.83
% of net income for the six months ended June 30, 2023.
As a result, diluted EPS decreases from $
1.73
per share to $
1.64
per share.
Description of Misstatements
Misstatements Associated with Mortgage Loan Sale Transactions
a)
Loan Origination Costs & Gain on Sale of Loan
CCHL originated certain mortgage loans that were sold to the Bank for
a premium. The gain recorded by CCHL and the
corresponding loan purchase premium recorded by the Bank were not
eliminated in consolidation. Additionally,
the
Company did not defer net loan origination costs on these loans. The impacts
of the loan origination costs & gain on sale of
loan misstatements on each period are presented in this note.
b)
Mortgage Servicing Right (“MSR”) Asset
CCHL recorded an MSR asset and recognized a corresponding gain related
to the aforementioned loans sold to and serviced
for the Bank. As the MSR asset is recorded at amortized cost, CCHL also recorded
amortization expense in each period in
other non-interest expense. The MSR asset, gain, and amortization expense should
have been eliminated in consolidation.
The impacts of the MSR Asset misstatements on each period are presented in
this note.
c)
Mortgage Servicing
The Bank recorded servicing fee expense and CCHL recorded servicing
income; these amounts should have been eliminated
in consolidation. The impacts of the mortgage servicing misstatements on each
period are presented in this note.
d)
Statement of Financial Condition Misclassification
CCHL classifies all mortgage production as loans held for sale. The portion of
this production that was designated to be sold
to the Bank should have been designated as loans held for investment for the Consolidated
Financial Statements. This
reclassification includes the reversal of the related mark-to-market adjustment
and the establishment of the Allowance for
Credit Losses (“ACL”) on these loans. While previously the mark-to-market
adjustment had been reversed and the ACL
established at the time the loans were sold to CCB, this correction reflects those entries
in the appropriate periods. The
impacts of the restatement on each period are presented in this note.
Description of Restatement Tables
The following tables present the amounts previously reported and a reconciliation
of the restatement amounts reported on the restated
Consolidated Statements
of Financial Condition as of June 30, 2023 and December 31, 2022, the restated
Consolidated Statements
of
Income for the three and six months ended June 30, 2023 and 2022, the restated
Consolidated Statements
of Comprehensive Income
(Loss) for the three and six months ended June 30, 2023 and 2022, the restated Consolidated
Statements of Changes in Shareowners’
Equity for the three and six months ended June 30, 2023 and 2022, and the restated Consolidated
Statements of Cash Flows for the six
months ended June 30, 2023. The amounts previously reported as of June 30,
2023 and for the three and six months ended June 30,
2023 were derived from our Quarterly Report on Form 10-Q for
the period ended June 30, 2023, originally filed July 31, 2023.
14
PART
I.
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(Unaudited)
June 30, 2023
December 31, 2022
(Dollars in Thousands, Except Par Value)
As Previously
Reported
As Restated
As Previously
Reported
As Restated
ASSETS
Cash and Due From Banks
$
83,679
$
83,679
$
72,114
$
72,114
Federal Funds Sold and Interest Bearing Deposits
285,129
285,129
528,536
528,536
Total Cash and Cash Equivalents
368,808
368,808
600,650
600,650
Investment Securities, Available
for Sale, at fair value (amortized
cost of $
424,220
and $
455,232
)
386,220
386,220
413,294
413,294
Investment Securities, Held to Maturity (fair value of $
595,219
and $
612,701
)
641,398
641,398
660,744
660,744
Equity Securities
1,703
1,703
10
10
Total Investment
Securities
1,029,321
1,029,321
1,074,048
1,074,048
Loans Held For Sale, at fair value
67,908
44,659
54,635
26,909
Loans Held for Investment
2,667,003
2,683,512
2,525,180
2,547,685
Allowance for Credit Losses
(27,964)
(28,243)
(24,736)
(25,068)
Loans Held for Investment, Net
2,639,039
2,655,269
2,500,444
2,522,617
Premises and Equipment, Net
82,062
82,062
82,138
82,138
Goodwill and Other Intangibles
93,013
93,013
93,093
93,093
Other Real Estate Owned
1
1
431
431
Other Assets
119,411
118,073
120,519
119,337
Total Assets
$
4,399,563
$
4,391,206
$
4,525,958
$
4,519,223
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
1,520,134
$
1,520,134
$
1,653,620
$
1,653,620
Interest Bearing Deposits
2,268,732
2,268,732
2,285,697
2,285,697
Total Deposits
3,788,866
3,788,866
3,939,317
3,939,317
Short-Term
Borrowings
50,673
50,673
56,793
56,793
Subordinated Notes Payable
52,887
52,887
52,887
52,887
Other Long-Term
Borrowings
414
414
513
513
Other Liabilities
77,192
77,192
73,675
73,675
Total Liabilities
3,970,032
3,970,032
4,123,185
4,123,185
Temporary Equity
8,752
8,752
8,757
8,757
SHAREOWNERS’ EQUITY
Preferred Stock, $
0.01
par value;
3,000,000
shares authorized;
no
shares issued and outstanding
-
-
-
-
Common Stock, $
0.01
par value;
90,000,000
shares authorized;
16,991,634
and
16,986,785
shares issued and outstanding at June 30, 2023 and December 31,
2022, respectively
170
170
170
170
Additional Paid-In Capital
36,853
36,853
37,331
37,331
Retained Earnings
417,128
408,771
393,744
387,009
Accumulated Other Comprehensive Loss, net of tax
(33,372)
(33,372)
(37,229)
(37,229)
Total Shareowners’
Equity
420,779
412,422
394,016
387,281
Total Liabilities, Temporary
Equity, and Shareowners’ Equity
$
4,399,563
$
4,391,206
$
4,525,958
$
4,519,223
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
15
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF INCOME
(Unaudited)
Three Months Ended
Three Months Ended
June 30, 2023
June 30, 2022
(Dollars in Thousands, Except Per Share
Data)
As Previously
Reported
As Restated
As Previously
Reported
As Restated
INTEREST INCOME
Loans, including Fees
$
37,477
$
37,608
$
24,072
$
24,268
Investment Securities:
Taxable Securities
4,803
4,803
3,833
3,833
Tax Exempt Securities
12
12
7
7
Federal Funds Sold and Interest Bearing Deposits
2,782
2,782
1,408
1,408
Total Interest Income
45,074
45,205
29,320
29,516
INTEREST EXPENSE
Deposits
4,008
4,008
266
266
Short-Term
Borrowings
451
451
343
343
Subordinated Notes Payable
604
604
370
370
Other Long-Term
Borrowings
5
5
8
8
Total Interest Expense
5,068
5,068
987
987
NET INTEREST INCOME
40,006
40,137
28,333
28,529
Provision for Credit Losses
2,219
2,197
1,542
1,692
Net Interest Income After Provision for Credit Losses
37,787
37,940
26,791
26,837
NONINTEREST INCOME
Deposit Fees
5,326
5,326
5,447
5,447
Bank Card Fees
3,795
3,795
4,034
4,034
Wealth Management
Fees
4,149
4,149
4,403
4,403
Mortgage Banking Revenues
5,837
3,363
9,065
4,857
Other
3,766
3,334
1,954
1,823
Total Noninterest
Income
22,873
19,967
24,903
20,564
NONINTEREST EXPENSE
Compensation
24,884
23,438
25,383
23,222
Occupancy, Net
6,820
6,820
6,075
6,075
Other
10,830
10,027
9,040
8,853
Total Noninterest
Expense
42,534
40,285
40,498
38,150
INCOME BEFORE INCOME TAXES
18,126
17,622
11,196
9,251
Income Tax Expense
3,544
3,417
2,177
1,685
NET INCOME
$
14,582
$
14,205
$
9,019
$
7,566
Loss (Income) Attributable to Noncontrolling Interests
(31)
(31)
(306)
(306)
NET INCOME ATTRIBUTABLE
TO COMMON
SHAREOWNERS
$
14,551
$
14,174
$
8,713
$
7,260
BASIC NET INCOME PER SHARE
$
0.86
$
0.83
$
0.51
$
0.43
DILUTED NET INCOME PER SHARE
$
0.85
$
0.83
$
0.51
$
0.43
Average Basic Shares
Outstanding
17,002
17,002
16,949
16,949
Average Diluted
Shares Outstanding
17,035
17,035
16,971
16,971
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
16
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF INCOME
(Unaudited)
Six Months Ended
Six Months Ended
June 30, 2023
June 30, 2022
(Dollars in Thousands, Except Per Share
Data)
As Previously
Reported
As Restated
As Previously
Reported
As Restated
INTEREST INCOME
Loans, including Fees
$
72,357
$
72,499
$
46,205
$
46,697
Taxable Securities
9,716
9,716
6,723
6,723
Tax Exempt Securities
23
23
13
13
Federal Funds Sold and Interest Bearing Deposits
6,893
6,893
1,817
1,817
Total Interest Income
88,989
89,131
54,758
55,250
INTEREST EXPENSE
Deposits
6,496
6,496
490
490
Short-Term
Borrowings
912
912
535
535
Subordinated Notes Payable
1,175
1,175
687
687
Other Long-Term
Borrowings
11
11
17
17
Total Interest Expense
8,594
8,594
1,729
1,729
NET INTEREST INCOME
80,395
80,537
53,029
53,521
Provision for Credit Losses
5,349
5,296
1,542
1,724
Net Interest Income After Provision for Credit Losses
75,046
75,241
51,487
51,797
NONINTEREST INCOME
Deposit Fees
10,565
10,565
10,638
10,638
Bank Card Fees
7,521
7,521
7,797
7,797
Wealth Management
Fees
8,077
8,077
10,473
10,473
Mortgage Banking Revenues
12,832
6,234
18,011
8,912
Other
6,126
5,328
3,802
3,556
Total Noninterest
Income
45,121
37,725
50,721
41,376
NONINTEREST EXPENSE
Compensation
50,520
46,962
50,239
45,520
Occupancy, Net
13,582
13,582
12,168
12,168
Other
18,887
17,417
17,324
16,985
Total Noninterest
Expense
82,989
77,961
79,731
74,673
INCOME BEFORE INCOME TAXES
37,178
35,005
22,477
18,500
Income Tax Expense
7,677
7,126
4,412
3,405
NET INCOME
$
29,501
27,879
18,065
15,095
Loss (Income) Attributable to Noncontrolling Interests
4
4
(897)
(897)
NET INCOME ATTRIBUTABLE
TO COMMON
SHAREOWNERS
$
29,505
$
27,883
$
17,168
$
14,198
BASIC NET INCOME PER SHARE
$
1.73
$
1.64
$
1.01
$
0.84
DILUTED NET INCOME PER SHARE
$
1.73
$
1.64
$
1.01
$
0.84
Average Basic Shares
Outstanding
17,009
17,009
16,940
16,940
Average Diluted
Shares Outstanding
17,040
17,040
16,958
16,958
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
17
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
Three Months Ended
June 30, 2023
June 30, 2022
(Dollars in Thousands)
As
Previously
Reported
As Restated
As
Previously
Reported
As Restated
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
14,551
$
14,174
$
8,713
$
7,260
Other comprehensive income (loss), before
tax:
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
(2,887)
(2,887)
(10,718)
(10,718)
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
876
876
4
4
Derivative:
Change in net unrealized (loss) gain on effective cash flow
derivative
585
585
1,161
1,161
Benefit Plans:
Pension Settlement
(217)
(217)
169
169
Total Benefit Plans
(217)
(217)
169
169
Other comprehensive income (loss), before
tax
(1,643)
(1,643)
(9,384)
(9,384)
Deferred tax (benefit) expense related to other comprehensive income
(347)
(347)
(2,362)
(2,362)
Other comprehensive income (loss), net of tax
(1,296)
(1,296)
(7,022)
(7,022)
TOTAL COMPREHENSIVE
INCOME (LOSS)
$
13,255
$
12,878
$
1,691
$
238
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
18
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Six Months Ended
Six Months Ended
June 30, 2023
June 30, 2022
(Dollars in Thousands)
As
Previously
Reported
As Restated
As
Previously
Reported
As Restated
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
29,505
$
27,883
$
17,168
$
14,198
Other comprehensive income (loss), before
tax:
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
3,921
3,921
(36,167)
(36,167)
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
1,741
1,741
9
9
Derivative:
Change in net unrealized (loss) gain on effective cash flow
derivative
(217)
(217)
2,997
2,997
Benefit Plans:
Pension Settlement
(217)
(217)
378
378
Total Benefit Plans
(217)
(217)
378
378
Other comprehensive income (loss), before
tax
5,228
5,228
(32,783)
(32,783)
Deferred tax expense (benefit) related to other comprehensive income
1,371
1,371
(8,232)
(8,232)
Other comprehensive income (loss), net of tax
3,857
3,857
(24,551)
(24,551)
TOTAL COMPREHENSIVE
INCOME (LOSS)
$
33,362
$
31,740
$
(7,383)
$
(10,353)
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
19
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Three Months Ended June 30, 2023
(Dollars in thousands, except per share data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
As Previously Reported
Balance, April 1, 2023, as previously reported
17,021,748
$
170
$
37,512
$
405,634
$
(32,076)
$
411,240
Net Income Attributable to Common Shareowners
14,551
14,551
Other Comprehensive Loss, Net of Tax
(1,296)
(1,296)
Cash Dividends ($
0.18
per share)
(3,057)
(3,057)
Repurchase of Common Stock
(40,495)
(1,203)
(1,203)
Stock Based Compensation
228
228
Stock Compensation Plan Transactions, net
10,381
-
316
316
Balance, June 30, 2023, as previously reported
16,991,634
$
170
$
36,853
$
417,128
$
(33,372)
$
420,779
As Restated
Balance, April 1, 2023, as restated
17,021,748
$
170
$
37,512
$
397,654
$
(32,076)
$
403,260
Net Income Attributable to Common Shareowners
14,174
14,174
Other Comprehensive Loss, Net of Tax
(1,296)
(1,296)
Cash Dividends ($
0.18
per share)
(3,057)
(3,057)
Repurchase of Common Stock
(40,495)
(1,203)
(1,203)
Stock Based Compensation
228
228
Stock Compensation Plan Transactions, net
10,381
-
316
316
Balance, June 30, 2023, as restated
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
Three Months Ended June 30, 2022
(Dollars in thousands, except per share data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
As Previously Reported
Balance, April 1, 2022, as previously reported
16,947,602
$
169
$
35,188
$
370,531
$
(33,743)
$
372,145
Net Income Attributable to Common Shareowners
8,713
8,713
Other Comprehensive Loss, Net of Tax
(7,022)
(7,022)
Cash Dividends ($
0.16
per share)
(2,712)
(2,712)
Stock Based Compensation
244
244
Stock Compensation Plan Transactions, net
11,678
1
306
307
Balance, June 30, 2022, as previously reported
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
As Restated
Balance, April 1, 2022, as restated
16,947,602
$
169
$
35,188
$
369,014
$
(33,743)
$
370,628
Net Income Attributable to Common Shareowners
7,260
7,260
Other Comprehensive Loss, Net of Tax
(7,022)
(7,022)
Cash Dividends ($
0.16
per share)
(2,712)
(2,712)
Stock Based Compensation
244
244
Stock Compensation Plan Transactions, net
11,678
1
306
307
Balance, June 30, 2022, as restated
16,959,280
$
170
$
35,738
$
373,562
$
(40,765)
$
368,705
20
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Six Months Ended June 30, 2023
(Dollars in thousands, except per share data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
As Previously Reported
Balance, January 1, 2023, as previously reported
16,986,785
$
170
$
37,331
$
393,744
$
(37,229)
$
394,016
Net Income Attributable to Common Shareowners
29,505
29,505
Other Comprehensive Loss, Net of Tax
3,857
3,857
Cash Dividends ($
0.36
per share)
(6,121)
(6,121)
Repurchase of Common Stock
(65,736)
(2,022)
(2,022)
Stock Based Compensation
764
764
Stock Compensation Plan Transactions, net
70,585
-
780
780
Balance, June 30, 2023, as previously reported
16,991,634
$
170
$
36,853
$
417,128
$
(33,372)
$
420,779
As Restated
Balance, January 1, 2023, as restated
16,986,785
$
170
$
37,331
$
387,009
$
(37,229)
$
387,281
Net Income Attributable to Common Shareowners
27,883
27,883
Other Comprehensive Loss, Net of Tax
3,857
3,857
Cash Dividends ($
0.36
per share)
(6,121)
(6,121)
Repurchase of Common Stock
(65,736)
(2,022)
(2,022)
Stock Based Compensation
764
764
Stock Compensation Plan Transactions, net
70,585
-
780
780
Balance, June 30, 2023, as restated
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
Six Months Ended June 30, 2022
(Dollars in thousands, except per share data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
As Previously Reported
Balance, January 1, 2022, as previously reported
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
17,168
17,168
Other Comprehensive Loss, Net of Tax
(24,551)
(24,551)
Cash Dividends ($
0.32
per share)
(5,424)
(5,424)
Stock Based Compensation
489
489
Stock Compensation Plan Transactions, net
67,220
1
826
827
Balance, June 30, 2022, as previously reported
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
As Restated
Balance, January 1, 2022, as restated
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
14,198
14,198
Other Comprehensive Loss, Net of Tax
(24,551)
(24,551)
Cash Dividends ($
0.32
per share)
(5,424)
(5,424)
Stock Based Compensation
489
489
Stock Compensation Plan Transactions, net
67,220
1
826
827
Balance, June 30, 2022, as restated
16,959,280
$
170
$
35,738
$
373,562
$
(40,765)
$
368,705
21
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS (Unaudited)
Six Months Ended
Six Months Ended
Jun 30, 2023
Jun 30, 2022
(Dollars in Thousands)
As Previously
Reported
As Restated
As Previously
Reported
As Restated
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income Attributable to Common Shareowners
$
29,505
$
27,883
$
17,168
$
14,198
Adjustments to Reconcile Net Income to
Provision for Credit Losses
5,349
5,296
1,542
1,724
Depreciation
3,927
3,927
3,802
3,802
Amortization of Premiums, Discounts, and Fees, net
2,260
2,117
5,545
5,053
Amortization of Intangible Assets
80
80
80
80
Pension Settlement Charge
(291)
(291)
378
378
Originations of Loans Held-for-Sale
(209,775)
(214,364)
(573,239)
(549,018)
Proceeds From Sales of Loans Held-for-Sale
209,334
202,848
595,074
585,476
Mortgage Banking Revenues
(12,832)
(6,234)
(18,011)
(8,912)
Net Additions for Capitalized Mortgage Servicing Rights
(859)
(253)
1,358
360
Stock Compensation
764
764
489
489
Net Tax Benefit From Stock-Based
Compensation
-
-
(19)
(19)
Deferred Income Taxes (Benefit)
(2,298)
(2,849)
(8,879)
(9,887)
Net Change in Operating Leases
(3)
(3)
(72)
(72)
Net (Gain) Loss on Sales and Write-Downs of Other Real Estate Owned
(1,900)
(1,900)
(26)
(26)
Net Decrease (Increase) in Other Assets
4,492
4,593
845
3,516
Net (Decrease) Increase in Other Liabilities
3,815
3,815
22,040
22,040
Net Cash Provided (Used In) By Operating Activities
31,568
25,429
48,075
69,182
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
-
-
(218,548)
(218,548)
Payments, Maturities, and Calls
18,992
18,992
28,111
28,111
Securities Available for
Sale:
Purchases
(4,634)
(4,634)
(37,044)
(37,044)
Proceeds from Sale of Securities
-
-
3,365
3,365
Payments, Maturities, and Calls
32,490
32,490
47,413
47,413
Purchase of loans held for investment
(201,000)
(201,000)
(174,779)
(174,779)
Net Increase in Loans Held for Investment
55,154
61,293
(109,806)
(130,913)
Proceeds From Sales of Other Real Estate Owned
3,772
3,772
30
30
Purchases of Premises and Equipment
(3,851)
(3,851)
(3,322)
(3,322)
Noncontrolling interest contributions received
-
-
2,573
2,573
Net Cash Used In Investing Activities
(99,077)
(92,938)
(462,007)
(483,114)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
(150,451)
(150,451)
73,396
73,396
Net (Decrease) Increase in Other Short-Term
Borrowings
(6,120)
(6,120)
4,784
4,784
Repayment of Other Long-Term
Borrowings
(99)
(99)
(150)
(150)
Dividends Paid
(6,121)
(6,121)
(5,424)
(5,424)
Payments to Repurchase Common Stock
(2,022)
(2,022)
-
-
Issuance of Common Stock Under Compensation Plans
480
480
496
496
Net Cash Provided By Financing Activities
(164,333)
(164,333)
73,102
73,102
NET DECREASE IN CASH AND CASH EQUIVALENTS
(231,842)
(231,842)
(340,830)
(340,830)
Cash and Cash Equivalents at Beginning of Period
600,650
600,650
1,035,354
1,035,354
Cash and Cash Equivalents at End of Period
$
368,808
$
368,808
$
694,524
$
694,524
Supplemental Cash Flow Disclosures:
Interest Paid
$
8,720
$
8,720
$
1,617
$
1,617
Income Taxes Paid
$
3,860
$
3,860
$
3,765
$
3,765
Noncash Investing and Financing Activities:
Loans and Premises Transferred to Other Real Estate Owned
$
1,442
$
1,442
$
77
$
77
22
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF FINANCIAL CONDITION
(Unaudited)
As of June 30, 2023
(Dollars in Thousands, except per share data)
As Previously
Reported
Restatement
Impact
As Restated
ASSETS:
Cash and Due From Banks
$
83,679
$
-
$
83,679
Federal Funds Sold and Interest Bearing Deposits
285,129
-
285,129
Total Cash and Cash Equivalents
368,808
-
368,808
Investment Securities, Available
for Sale, at fair value (amortized cost
of $
424,220
)
386,220
-
386,220
Investment Securities, Held to Maturity (fair value of $
595,219
)
641,398
-
641,398
Other Equity Securities
1,703
-
1,703
Total Investment Securities
1,029,321
-
1,029,321
Loans Held For Sale
67,908
(23,249)
44,659
Loans, Net of Unearned Income
2,667,003
16,509
2,683,512
Allowance for Loan Losses
(27,964)
(279)
(28,243)
Loans, Net
2,639,039
16,230
2,655,269
Premises and Equipment, Net
82,062
-
82,062
Goodwill
93,013
-
93,013
Other Real Estate Owned
1
-
1
Other Assets
119,411
(1,338)
118,073
Total Assets
$
4,399,563
$
(8,357)
$
4,391,206
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
1,520,134
$
-
$
1,520,134
Interest Bearing Deposits
2,268,732
-
2,268,732
Total Deposits
3,788,866
-
3,788,866
Short-Term
Borrowings
50,673
-
50,673
Subordinated Notes Payable
52,887
-
52,887
Other Long-Term
Borrowings
414
-
414
Other Liabilities
77,192
-
77,192
Total Liabilities
3,970,032
-
3,970,032
Temporary Equity
8,752
-
8,752
SHAREOWNERS' EQUITY
Preferred Stock: $
0.01
par value,
3,000,000
shares authorized
no
shares issued and outstanding
-
-
-
Common Stock, $
0.01
par value,
90,000,000
shares authorized
16,991,634
shares issued and outstanding
170
-
170
Additional Paid-In Capital
36,853
-
36,853
Retained Earnings
417,128
(8,357)
408,771
Accumulated Other Comprehensive Loss, Net of Tax
(33,372)
-
(33,372)
Total Shareowners' Equity
420,779
(8,357)
412,422
Total Liabilities, Temporary
Equity, and Shareowners' Equity
$
4,399,563
$
(8,357)
$
4,391,206
23
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF INCOME
(Unaudited)
For Three Months Ended June 30, 2023
(Dollars in thousands, except per share data)
As
Previously
Reported
Restatement
Impact
As Restated
INTEREST INCOME
Loans, Including Fees
$
37,477
$
131
$
37,608
Taxable Securities
4,803
-
4,803
Tax Exempt Securities
12
-
12
Funds Sold
2,782
-
2,782
Total Interest Income
45,074
131
45,205
INTEREST EXPENSE
Deposits
4,008
-
4,008
Short-Term
Borrowings
451
-
451
Subordinated Notes Payable
604
-
604
Other Long-Term
Borrowings
5
-
5
Total Interest Expense
5,068
-
5,068
Net Interest Income
40,006
131
40,137
Provision for Loan Losses
2,219
(22)
2,197
Net Interest Income After Provision For Loan Losses
37,787
153
37,940
NONINTEREST INCOME
Deposit Fees
5,326
-
5,326
Bank Card Fees
3,795
-
3,795
Wealth Management
Fees
4,149
-
4,149
Mortgage Banking Fees
5,837
(2,474)
3,363
Other
3,766
(432)
3,334
Total Noninterest
Income
22,873
(2,906)
19,967
NONINTEREST EXPENSE
Compensation
24,884
(1,446)
23,438
Occupancy, Net
6,820
-
6,820
Other
10,830
(803)
10,027
Total Noninterest
Expense
42,534
(2,249)
40,285
INCOME BEFORE INCOME TAXES
18,126
(504)
17,622
Income Tax Expense
3,544
(127)
3,417
NET INCOME
14,582
(377)
14,205
Pre-Tax Income
Attributable to Noncontrolling Interests
(31)
-
(31)
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
14,551
$
(377)
$
14,174
BASIC NET INCOME PER SHARE
$
0.86
$
(0.03)
$
0.83
DILUTED NET INCOME PER SHARE
$
0.85
$
(0.02)
$
0.83
AVERAGE
SHARES:
Basic
17,002
-
17,002
Diluted
17,035
-
17,035
24
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF INCOME
(Unaudited)
For Six Months Ended June 30, 2023
(Dollars in thousands, except per share data)
As
Previously
Reported
Restatement
Impact
As Restated
INTEREST INCOME
Loans, Including Fees
$
72,357
$
142
$
72,499
Taxable Securities
9,716
-
9,716
Tax Exempt Securities
23
-
23
Funds Sold
6,893
-
6,893
Total Interest Income
88,989
142
89,131
INTEREST EXPENSE
Deposits
6,496
-
6,496
Short-Term
Borrowings
912
-
912
Subordinated Notes Payable
1,175
-
1,175
Other Long-Term
Borrowings
11
-
11
Total Interest Expense
8,594
-
8,594
Net Interest Income
80,395
142
80,537
Provision for Loan Losses
5,349
(53)
5,296
Net Interest Income After Provision For Loan Losses
75,046
195
75,241
NONINTEREST INCOME
Deposit Fees
10,565
-
10,565
Bank Card Fees
7,521
-
7,521
Wealth Management
Fees
8,077
-
8,077
Mortgage Banking Fees
12,832
(6,598)
6,234
Other
6,126
(798)
5,328
Total Noninterest
Income
45,121
(7,396)
37,725
NONINTEREST EXPENSE
Compensation
50,520
(3,558)
46,962
Occupancy, Net
13,582
-
13,582
Other
18,887
(1,470)
17,417
Total Noninterest
Expense
82,989
(5,028)
77,961
INCOME BEFORE INCOME TAXES
37,178
(2,173)
35,005
Income Tax Expense
7,677
(551)
7,126
NET INCOME
29,501
(1,622)
27,879
Pre-Tax Income
Attributable to Noncontrolling Interests
4
-
4
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
29,505
$
(1,622)
$
27,883
BASIC NET INCOME PER SHARE
$
1.73
$
(0.09)
$
1.64
DILUTED NET INCOME PER SHARE
$
1.73
$
(0.09)
$
1.64
AVERAGE
SHARES:
Basic
17,009
-
17,009
Diluted
17,040
-
17,040
25
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For Three Months Ended June 30, 2023
(Dollars in thousands, except per share data)
As
Previously
Reported
Restatement
Impact
As Restated
NET INCOME
$
14,551
$
(377)
$
14,174
Other comprehensive income (loss), before
tax:
Investment Securities:
Change in net unrealized (loss) gain on securities available for sale
(2,887)
-
(2,887)
Amortization of unrealized losses on securities transferred from available
for sale to
held to maturity
876
-
876
Derivative:
Change in net unrealized gain on effective cash flow
derivative
585
-
585
Benefit Plans:
Current year acturial loss
(217)
-
(217)
Total Benefit Plans
(217)
-
(217)
Other comprehensive income (loss), before
tax:
(1,643)
-
(1,643)
Deferred tax (benefit) expense related to other comprehensive income
(347)
-
(347)
Other comprehensive income (loss), net of tax
(1,296)
-
(1,296)
TOTAL COMPREHENSIVE
INCOME
$
13,255
$
(377)
$
12,878
26
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(Unaudited)
For Six Months Ended June 30, 2023
(Dollars in thousands, except per share data)
As
Previously
Reported
Restatement
Impact
As Restated
NET INCOME
$
29,505
$
(1,622)
$
27,883
Other comprehensive income (loss), before
tax:
Investment Securities:
Change in net unrealized (loss) gain on securities available for sale
3,921
-
3,921
Amortization of unrealized losses on securities transferred from available
for sale to
held to maturity
1,741
-
1,741
Derivative:
Change in net unrealized gain on effective cash flow
derivative
(217)
-
(217)
Benefit Plans:
Current year acturial loss
(217)
-
(217)
Total Benefit Plans
(217)
-
(217)
Other comprehensive income (loss), before
tax:
5,228
-
5,228
Deferred tax expense (benefit) related to other comprehensive income
1,371
-
1,371
Other comprehensive income (loss), net of tax
3,857
-
3,857
TOTAL COMPREHENSIVE
INCOME
$
33,362
$
(1,622)
$
31,740
27
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Three Months Ended June 30, 2023
(Dollars in thousands, except per share data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
As Previously Reported
Balance, April 1, 2023, as previously reported
17,021,748
$
170
$
37,512
$
405,634
$
(32,076)
$
411,240
Net Income Attributable to Common Shareowners
14,551
14,551
Other Comprehensive Loss, Net of Tax
(1,296)
(1,296)
Cash Dividends ($
0.18
per share)
(3,057)
(3,057)
Repurchase of Common Stock
(40,495)
(1,203)
(1,203)
Stock Based Compensation
228
228
Stock Compensation Plan Transactions, net
10,381
-
316
316
Balance, June 30, 2023, as previously reported
16,991,634
$
170
$
36,853
$
417,128
$
(33,372)
$
420,779
Restatement Impacts
Balance, April 1, 2023
-
$
-
$
-
$
(7,980)
$
-
$
(7,980)
Net Income Attributable to Common Shareowners
(377)
(377)
Balance, June 30, 2023
-
$
-
$
-
$
(8,357)
$
-
$
(8,357)
As Restated
Balance, April 1, 2023, as restated
17,021,748
$
170
$
37,512
$
397,654
$
(32,076)
$
403,260
Net Income Attributable to Common Shareowners
14,174
14,174
Other Comprehensive Loss, Net of Tax
(1,296)
(1,296)
Cash Dividends ($
0.18
per share)
(3,057)
(3,057)
Repurchase of Common Stock
(40,495)
(1,203)
(1,203)
Stock Based Compensation
228
228
Stock Compensation Plan Transactions, net
10,381
-
316
316
Balance, June 30, 2023, as restated
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
28
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Six Months Ended June 30, 2023
(Dollars in thousands, except per share data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss, Net of
Taxes
Total
As Previously Reported
Balance, January 1, 2023, as previously reported
16,986,785
$
170
$
37,331
$
393,744
$
(37,229)
$
394,016
Net Income Attributable to Common Shareowners
29,505
29,505
Other Comprehensive Loss, Net of Tax
3,857
3,857
Cash Dividends ($
0.36
per share)
(6,121)
(6,121)
Repurchase of Common Stock
(65,736)
(2,022)
(2,022)
Stock Based Compensation
764
764
Stock Compensation Plan Transactions, net
70,585
-
780
780
Balance, June 30, 2023, as previously reported
16,991,634
$
170
$
36,853
$
417,128
$
(33,372)
$
420,779
Restatement Impacts
Balance, January 1, 2023
-
$
-
$
-
$
(6,735)
$
-
$
(6,735)
Net Income Attributable to Common Shareowners
(1,622)
(1,622)
Balance, June 30, 2023
-
$
-
$
-
$
(8,357)
$
-
$
(8,357)
As Restated
Balance, January 1, 2023, as restated
16,986,785
$
170
$
37,331
$
387,009
$
(37,229)
$
387,281
Net Income Attributable to Common Shareowners
27,883
27,883
Other Comprehensive Loss, Net of Tax
3,857
3,857
Cash Dividends ($
0.36
per share)
(6,121)
(6,121)
Repurchase of Common Stock
(65,736)
(2,022)
(2,022)
Stock Based Compensation
764
764
Stock Compensation Plan Transactions, net
70,585
-
780
780
Balance, June 30, 2023, as restated
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
29
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 2023
(Dollars in Thousands)
As Previously
Reported
Restatement
Impact
As Restated
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income Attributable to Common Shareowners
$
29,505
$
(1,622)
$
27,883
Adjustments to Reconcile Net Income to
Provision for Credit Losses
5,349
(53)
5,296
Depreciation
3,927
-
3,927
Amortization of Premiums, Discounts, and Fees, net
2,260
(143)
2,117
Amortization of Intangible Assets
80
-
80
Pension Settlement Charge
(291)
-
(291)
Originations of Loans Held-for-Sale
(209,775)
(4,589)
(214,364)
Proceeds From Sales of Loans Held-for-Sale
209,334
(6,486)
202,848
Mortgage Banking Revenues
(12,832)
6,598
(6,234)
Net Additions for Capitalized Mortgage Servicing Rights
(859)
606
(253)
Stock Compensation
764
-
764
Deferred Income Taxes (Benefit)
(2,298)
(551)
(2,849)
Net Change in Operating Leases
(3)
-
(3)
Net (Gain) Loss on Sales and Write-Downs of Other Real Estate Owned
(1,900)
-
(1,900)
Net Decrease (Increase) in Other Assets
4,492
101
4,593
Net (Decrease) Increase in Other Liabilities
3,815
-
3,815
Net Cash Provided (Used In) By Operating Activities
31,568
(6,139)
25,429
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Payments, Maturities, and Calls
18,992
-
18,992
Securities Available for
Sale:
Purchases
(4,634)
-
(4,634)
Payments, Maturities, and Calls
32,490
-
32,490
Purchase of loans held for investment
(201,000)
-
(201,000)
Net Increase in Loans Held for Investment
55,154
6,139
61,293
Proceeds From Sales of Other Real Estate Owned
3,772
-
3,772
Purchases of Premises and Equipment
(3,851)
-
(3,851)
Net Cash Used In Investing Activities
(99,077)
6,139
(92,938)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
(150,451)
-
(150,451)
Net (Decrease) Increase
in Other Short-Term Borrowings
(6,120)
-
(6,120)
Repayment of Other Long-Term
Borrowings
(99)
-
(99)
Dividends Paid
(6,121)
-
(6,121)
Payments to Repurchase Common Stock
(2,022)
-
(2,022)
Issuance of Common Stock Under Compensation Plans
480
-
480
Net Cash Provided By Financing Activities
(164,333)
-
(164,333)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(231,842)
-
(231,842)
Cash and Cash Equivalents at Beginning of Period
600,650
-
600,650
Cash and Cash Equivalents at End of Period
$
368,808
$
-
$
368,808
Supplemental Cash Flow Disclosures:
Interest Paid
$
8,720
$
-
$
8,720
Income Taxes Paid
$
3,860
$
-
$
3,860
Noncash Investing and Financing Activities:
Loans and Premises Transferred to Other Real Estate Owned
$
1,442
$
-
$
1,442
30
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
June 30, 2023
U.S. Government Treasury
$
22,047
$
-
$
1,797
$
-
$
20,250
U.S. Government Agency
175,515
28
11,303
-
164,240
States and Political Subdivisions
46,842
-
5,958
(5)
40,879
Mortgage-Backed Securities
(1)
77,144
2
11,014
-
66,132
Corporate Debt Securities
95,317
61
7,995
(19)
87,364
Other Securities
(2)
7,355
-
-
-
7,355
Total
$
424,220
$
91
$
38,067
$
(24)
$
386,220
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
June 30, 2023
U.S. Government Treasury
$
457,522
$
-
$
25,365
$
432,157
Mortgage-Backed Securities
(1)
183,876
1
20,815
163,062
Total
$
641,398
$
1
$
46,180
$
595,219
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)
Comprised of residential mortgage-backed
securities
(2)
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded
at cost of $
2.3
million and $
5.1
million,
respectively,
at June 30, 2023 and $
2.1
million and $
5.1
million, respectively,
at December 31, 2022.
At June 30, 2023 and December 31, 2022, the investment portfolio had $
1.7
million and $
0.01
million, respectively in equity
securities. These securities do not have a readily determinable fair value
and were not credit impaired.
Securities with an amortized cost of $
613.7
million and $
656.1
million at June 30, 2023 and December 31, 2022, respectively,
were
pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required
to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans and FHLB
advances.
FHLB stock, which is included in
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.
31
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
securities had an amortized cost basis and fair value of $
168.4
million and $
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 statement of financial condition
at June 30, 2023 totaled $
6.2
million.
This amount
will continue to be 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 or six months
ended June 30, 2023. There were
no significant sales of investment securities for the three months ended
June 30, 2022 and $
3.4
million in sales for the six months
ended June 30, 2022.
Maturity Distribution
.
At June 30, 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
$
41,681
$
41,030
$
-
$
-
Due after one year through five years
153,275
139,764
457,522
432,157
Due after five year through ten years
49,673
41,410
-
-
Mortgage-Backed Securities
77,144
66,132
183,876
163,062
U.S. Government Agency
95,092
90,529
-
-
Other Securities
7,355
7,355
-
-
Total
$
424,220
$
386,220
$
641,398
$
595,219
32
Unrealized Losses on Investment Securities.
The following table summarizes the available for sale investment securities with
unrealized losses aggregated by major security type and length of time in a continuous
unrealized loss position:
Less Than
Greater Than
12 Months
12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
June 30, 2023
Available for
Sale
U.S. Government Treasury
$
-
$
-
$
19,271
$
1,797
$
19,271
$
1,797
U.S. Government Agency
18,020
191
122,553
11,112
140,573
11,303
States and Political Subdivisions
1,559
9
39,325
5,949
40,884
5,958
Mortgage-Backed Securities
24
-
66,016
11,014
66,040
11,014
Corporate Debt Securities
1,967
8
79,768
7,987
81,735
7,995
Total
$
21,570
$
208
$
326,933
$
37,859
$
348,503
$
38,067
Held to Maturity
U.S. Government Treasury
-
-
432,157
25,365
432,157
25,365
Mortgage-Backed Securities
3,265
141
159,566
20,674
162,831
20,815
Total
$
3,265
$
141
$
591,723
$
46,039
$
594,988
$
46,180
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 June 30, 2023, there were
917
positions (combined AFS and HTM) with unrealized losses totaling $
84.2
million.
86
of these
positions are U.S. Treasury bonds and carry
the full faith and credit of the U.S. Government.
705
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
126
positions (municipal
securities and corporate bonds) have a credit component.
At June 30, 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 June 30,
2023, corporate debt securities had an allowance for credit losses of $
19,000
and municipal securities had an allowance of $
5,000
.
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.
33
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:
(As Restated)
(As Restated)
(Dollars in Thousands)
June 30, 2023
December 31, 2022
Commercial, Financial and Agricultural
$
227,219
$
247,362
Real Estate – Construction
226,404
234,519
Real Estate – Commercial Mortgage
831,285
782,557
Real Estate – Residential
(1)
898,809
749,513
Real Estate – Home Equity
203,142
208,217
Consumer
(2)
296,653
325,517
Loans Held For Investment, Net of Unearned Income
$
2,683,512
$
2,547,685
(1)
Includes loans in process balance of $
6.1
million at both June 30, 2023 and December 31, 2022.
(2)
Includes overdraft balances of $
1.0
million and $
1.1
million at June 30, 2023 and December 31, 2022, respectively.
Net deferred loan costs, which include premiums on purchased loans,
included in loans were $
6.2
million at June 30, 2023 and $
5.1
million, as restated, at December 31, 2022.
Accrued interest receivable on loans which is excluded from amortized
cost totaled $
9.2
million at June 30, 2023 and $
8.0
million at
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 $
199.5
million and
$
158.8
million for the six months ended June 30, 2023 and June 30, 2022, respectively,
and were not credit impaired.
For the three
months ended June 30, 2022, the Company also acquired commercial real
estate loans that were not credit impaired from a third-party
bank totaling $
15.0
million.
The Company did
no
t purchase any commercial real estate loans during the three months ended June 30,
2023.
34
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 2022 Form 10-K/A.
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
June 30, 2023, as restated
Beginning Balance
$
1,515
$
3,359
$
4,710
$
11,950
$
1,879
$
3,395
$
26,808
Provision for Credit Losses
(86)
(512)
732
1,306
(188)
670
1,922
Charge-Offs
(54)
-
-
-
(39)
(1,887)
(1,980)
Recoveries
71
1
11
132
131
1,147
1,493
Net (Charge-Offs) Recoveries
17
1
11
132
92
(740)
(487)
Ending Balance
$
1,446
$
2,848
$
5,453
$
13,388
$
1,783
$
3,325
$
28,243
Six Months Ended
June 30, 2023, as restated
Beginning Balance
$
1,506
$
2,654
$
4,815
$
10,741
$
1,864
$
3,488
$
25,068
Provision for Credit Losses
(8)
192
739
2,458
(198)
1,999
5,182
Charge-Offs
(218)
-
(120)
-
(39)
(4,253)
(4,630)
Recoveries
166
2
19
189
156
2,091
2,623
Net (Charge-Offs) Recoveries
(52)
2
(101)
189
117
(2,162)
(2,007)
Ending Balance
$
1,446
$
2,848
$
5,453
$
13,388
$
1,783
$
3,325
$
28,243
Three Months Ended
June 30, 2022, as restated
Beginning Balance
$
2,122
$
2,596
$
5,392
$
4,502
$
1,916
$
4,260
$
20,788
Provision for Credit Losses
564
542
(396)
1,210
(223)
123
1,820
Charge-Offs
(1,104)
-
-
-
-
(1,193)
(2,297)
Recoveries
59
-
56
115
67
855
1,152
Net Charge-Offs
(1,045)
-
56
115
67
(338)
(1,145)
Ending Balance
$
1,641
$
3,138
$
5,052
$
5,827
$
1,760
$
4,045
$
21,463
Six Months Ended
June 30, 2022, as restated
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
403
(172)
(577)
1,556
(628)
1,191
1,773
Charge-Offs
(1,177)
-
(266)
-
(33)
(2,595)
(4,071)
Recoveries
224
8
85
142
125
1,571
2,155
Net Charge-Offs
(953)
8
(181)
142
92
(1,024)
(1,916)
Ending Balance
$
1,641
$
3,138
$
5,052
$
5,827
$
1,760
$
4,045
$
21,463
For the six months ended June 30, 2023, the allowance for HFI loans increased
by $
3.2
million, as restated, and reflected a provision
expense of $
5.2
million and net loan charge-offs of $
2.0
million.
The increase was primarily driven by incremental reserves needed
for loan growth.
For the six months ended June 30, 2022, the allowance decreased by $
0.1
million and reflected a provision expense
of $
1.8
million and net loan charge-offs of $
1.9
million. The lower provision expense for the six months ended June 30, 2022 was
primarily due to the release of reserves held for potential pandemic-related
losses that did not materialize to the extent projected,
partially offset by growth in reserves for strong new loan origination
volume. 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.
35
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
June 30, 2023, as restated
Commercial, Financial and Agricultural
$
196
$
81
$
-
$
277
$
226,933
$
9
$
227,219
Real Estate – Construction
-
218
-
218
225,771
415
226,404
Real Estate – Commercial Mortgage
79
45
-
124
828,740
2,421
831,285
Real Estate – Residential
241
128
-
369
896,739
1,701
898,809
Real Estate – Home Equity
68
-
-
68
202,318
756
203,142
Consumer
2,409
742
-
3,151
292,181
1,321
296,653
Total
$
2,993
$
1,214
$
-
$
4,207
$
2,672,682
$
6,623
$
2,683,512
December 31, 2022, as restated
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
747,899
239
749,513
Real Estate – Home Equity
-
35
-
35
207,411
771
208,217
Consumer
3,666
1,852
-
5,518
319,415
584
325,517
Total
$
5,137
$
2,692
$
-
$
7,829
$
2,537,559
$
2,297
$
2,547,685
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.
June 30, 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
$
-
$
9
$
-
$
-
$
41
$
-
Real Estate – Construction
415
-
-
-
17
-
Real Estate – Commercial Mortgage
2,212
209
-
389
256
-
Real Estate – Residential
1,172
529
-
-
239
-
Real Estate – Home Equity
227
529
-
-
771
-
Consumer
-
1,321
-
-
584
-
Total Nonaccrual
Loans
$
4,026
$
2,597
$
-
$
389
$
1,908
$
-
36
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
loans.
June 30, 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
415
-
-
-
Real Estate – Commercial Mortgage
2,212
-
389
-
Real Estate – Residential
1,098
-
160
-
Real Estate – Home Equity
227
-
130
-
Consumer
-
-
21
-
Total Collateral Dependent
Loans
$
3,952
$
-
$
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 June 30, 2023 and December 31, 2022, the Company had $
0.7
million
and $
0.6
million, respectively, in 1-4 family
residential real estate loans for which formal foreclosure proceedings were in process.
For the six-month period ended June 30, 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.
37
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.
38
The following table summarizes gross loans held for investment at June
30, 2023 and current period gross write-offs for the six
months ended June 30, 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
(As Restated)
Revolving
(As Restated)
(Dollars in Thousands)
2023
2022
2021
2020
2019
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
25,879
$
77,944
$
36,236
$
14,631
$
10,016
$
10,518
$
46,644
$
221,868
Special Mention
1,490
516
986
126
69
149
1,909
5,245
Substandard
6
46
21
17
-
16
-
106
Total
$
27,375
$
78,506
$
37,243
$
14,774
$
10,085
$
10,683
$
48,553
$
227,219
Current-Period Gross
Writeoffs
$
-
$
129
$
40
$
14
$
12
$
10
$
13
$
218
Real Estate -
Construction:
Pass
$
59,976
$
121,631
$
32,667
$
1,807
$
189
$
123
$
7,855
$
224,248
Special Mention
478
-
375
-
-
-
-
853
Substandard
-
-
218
1,085
-
-
-
1,303
Total
$
60,454
$
121,631
$
33,260
$
2,892
$
189
$
123
$
7,855
$
226,404
Real Estate -
Commercial Mortgage:
Pass
$
62,928
$
261,333
$
165,145
$
128,342
$
47,330
$
130,477
$
19,554
$
815,109
Special Mention
4,343
793
948
239
1,483
2,461
439
10,706
Substandard
-
806
831
1,920
628
632
653
5,470
Total
$
67,271
$
262,932
$
166,924
$
130,501
$
49,441
$
133,570
$
20,646
$
831,285
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
120
$
-
$
120
Real Estate - Residential:
Pass
$
173,708
$
473,235
$
89,049
$
41,916
$
26,818
$
75,872
$
8,323
$
888,921
Special Mention
269
92
228
517
-
560
-
1,666
Substandard
70
1,320
1,253
1,571
935
3,073
-
8,222
Total
$
174,047
$
474,647
$
90,530
$
44,004
$
27,753
$
79,505
$
8,323
$
898,809
Real Estate - Home
Equity:
Performing
$
-
$
149
$
129
$
11
$
392
$
1,122
$
200,582
$
202,385
Nonperforming
-
-
-
-
-
-
757
757
Total
$
-
$
149
$
129
$
11
$
392
$
1,122
$
201,339
$
203,142
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
39
Consumer:
Performing
$
39,592
$
109,461
$
88,648
$
28,133
$
14,878
$
8,976
$
5,645
$
295,333
Nonperforming
-
633
418
179
81
7
2
1,320
Total
$
39,592
$
110,094
$
89,066
$
28,312
$
14,959
$
8,983
$
5,647
$
296,653
Current-Period Gross
Writeoffs
$
1,571
$
1,486
$
763
$
138
$
143
$
63
$
89
$
4,253
39
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.
(As Restated)
(As Restated)
June 30, 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
$
45,322
$
44,659
$
26,274
$
26,909
Residential Mortgage Loan Commitments ("IRLCs")
(1)
61,126
1,270
36,535
819
Forward Sales Contracts
(2)
29,000
100
15,500
187
$
46,029
$
27,915
Recorded in other assets at fair value
Recorded in other assets at fair value at June 30,2023
and December 31, 2022, respectively
At June 30, 2023, the Company had
no
residential mortgage loans held for sale 30-89 days past due and $
0.1
million of loans were on
nonaccrual status. At December 31, 2022, the Company had $
0.6
million of residential mortgage loans held for sale 30-89 days past
due and $
0.1
million of loans were on nonaccrual status.
Mortgage banking revenue was as follows:
(As Restated)
(As Restated)
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Net realized gains on sales of mortgage loans
$
2,301
$
2,099
$
3,494
$
4,238
Net change in unrealized gain on mortgage loans held for sale
(934)
503
(476)
(396)
Net change in the fair value of mortgage loan commitments (IRLCs)
(75)
(183)
452
(324)
Net change in the fair value of forward sales contracts
316
(896)
(86)
(38)
Pair-Offs on net settlement of forward sales contracts
96
1,954
95
4,209
Mortgage servicing rights additions
96
320
287
324
Net origination fees
1,563
1,060
2,468
899
Total mortgage banking
revenues
$
3,363
$
4,857
$
6,234
$
8,912
40
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.
(As Restated)
(As Restated)
(Dollars in Thousands)
June 30, 2023
December 31, 2022
Number of residential mortgage loans serviced for others
381
1,769
Outstanding principal balance of residential mortgage loans serviced
for others
$
86,920
$
410,740
Weighted average
interest rate
4.93%
3.62%
Remaining contractual term (in months)
301
298
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
June 30, 2023, the servicing portfolio balance consisted of the following
loan types: FNMA (
38
%), GNMA (
5
%), and private investor
(
58
%).
FNMA and private investor loans are structured as actual/actual payment remittance.
The Company had
no
delinquent residential mortgage loans in GNMA pools serviced by the Company
at June 30, 2023 and $
0.3
at
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 and six months ended June 30,
2023, the Company repurchased $
0.5
million and $
1.5
million, respectively, in
delinquent residential loans that were in GNMA pools.
For the three and six months ended June 30, 2022, the Company repurchased $
0.6
million and $
1.0
million, respectively, in delinquent
residential loans from the GNMA pools. 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:
(As Restated)
(As Restated)
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Beginning balance
$
2,792
$
3,410
$
2,599
$
3,774
Additions due to loans sold with servicing retained
96
320
287
324
Deletions and amortization
(36)
(315)
(34)
(683)
Sale of servicing rights
(1)
(2,287)
-
(2,287)
-
Ending balance
$
565
$
3,415
$
565
$
3,415
The Company sold an MSR portfolio with an unpaid principal balance of $
334
million for a sales price of $
4.0
million,
recognizing a $
1.38
million gain on sale, recorded
in other noninterest income on the Consolidated
Statement of Income.
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the
three months ended June 30, 2023
or 2022.
The key unobservable inputs used in determining the fair value of the Company’s
mortgage servicing rights were as follows:
(As Restated)
(As Restated)
June 30, 2023
December 31, 2022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.51%
12.00%
9.50%
12.00%
Annual prepayment speeds
11.26%
17.07%
12.33%
20.23%
Cost of servicing (per loan)
$
85
$
95
$
85
$
95
41
Changes in residential mortgage interest rates directly affect
the prepayment speeds used in valuing the Company’s
mortgage
servicing rights.
A separate third party model is used to estimate prepayment speeds based on interest rates, housing
turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant factors.
The weighted average annual prepayment speed was
14.80
% at June 30, 2023 and
13.42
% 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 June
30, 2023.
Amounts
(Dollars in Thousands)
Outstanding
$
75
million master repurchase agreement without defined expiration.
Interest is at the SOFR rate plus
2.00%
to
3.00%
, with a floor rate of
3.25%
.
A cash pledge deposit of $
0.5
million is required by the lender.
11,105
$
60
million warehouse line of credit agreement expiring in
December 2023
.
Interest is at the SOFR plus
2.25%
,
to
3.25%
.
16,948
Total Warehouse
Borrowings
$
28,053
Warehouse
line borrowings are classified as short-term borrowings.
At December 31, 2022, warehouse line borrowings totaled $
50.2
million. At June 30, 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 June 30, 2023.
The Company has extended a $
50
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
Balances and
transactions under this line of credit are eliminated in the Company’s
consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of
Financial Condition.
The balance of this line of credit at June 30,
2023 and December 31, 2022 was $
42.8
million and $
22.9
million, respectively.
NOTE 5 – DERIVATIVES
The Company enters into derivative financial instruments to manage exposures
that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of
which are determined by interest rates.
The Company’s
derivative financial instruments are used to manage differences in
the amount, timing, and duration of the Company’s
known or
expected cash receipts and its known or expected cash payments principally
related to the Company’s subordinated
debt.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
30
million at June 30, 2023 were designed as a cash flow hedge for subordinated
debt.
Under the swap arrangement, the Company will pay a fixed interest rate of
2.50
% and receive a variable interest rate based on
three-month CME Term
SOFR (secured overnight financing rate).
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
Maturity (Years)
June 30, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,979
7.0
December 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
6,195
7.5
42
The following table presents the net gains (losses) recorded in AOCI and the
consolidated statements of income related to the cash
flow derivative instruments (interest rate swaps related to subordinated
debt) for the three and six months ended June 30, 2023.
Amount of (Loss)
Amount of Gain
Gain Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended June 30, 2023
Interest expense
$
437
$
332
Three months ended June 30, 2022
Interest expense
867
26
Six months ended June 30, 2023
Interest expense
$
(161)
$
641
Six months ended June 30, 2022
Interest expense
2,237
(2)
The Company estimates there will be approximately $
1.4
million reclassified as a decrease to interest expense within the next 12
months.
The Company had a collateral liability of $
5.9
million and $
5.8
million at June 30, 2023 and December 31, 2022, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating
lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively,
on its Consolidated Statement of Financial Condition.
The Company’s operating
leases primarily relate to banking offices with remaining lease terms
from
1
to
42
years.
The Company’s
leases are not complex and do not contain residual value guarantees, variable
lease payments, or significant assumptions or judgments
made in applying the requirements of Topic
842.
Operating leases with an initial term of 12 months or less are not recorded on the
Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.
At June 30, 2023, the operating lease ROU assets and liabilities were $
24.3
million and $
24.6
million, respectively. At December
31,
2022, ROU assets and liabilities were $
22.3
million and $
22.7
million, respectively.
The Company does not have any finance leases
or any significant lessor agreements.
The table below summarizes our lease expense and other information related
to the Company’s operating leases.
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Operating lease expense
$
705
$
391
$
1,405
$
775
Short-term lease expense
132
159
271
337
Total lease expense
$
837
$
550
$
1,676
$
1,112
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
706
$
435
$
1,411
$
864
Right-of-use assets obtained in exchange for new operating lease liabilities
87
600
2,993
1,192
Weighted average
remaining lease term — operating leases (in years)
18.5
24.5
18.5
24.5
Weighted average
discount rate — operating leases
3.3%
2.2%
3.3%
2.2%
43
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
June 30, 2023
2023
$
1,664
2024
2,697
2025
2,469
2026
2,333
2027
2,245
2028 and thereafter
21,045
Total
$
32,453
Less: Interest
(7,808)
Present Value
of Lease liability
$
24,645
At June 30, 2023, the Company had
no
additional operating lease obligations for banking offices that have
not yet commenced.
A related party is the lessor in an operating lease with the Company.
The Company’s minimum
payment is $
0.1
million annually
through 2052, for an aggregate remaining obligation of $
2.4
million at June 30, 2023.
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 June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Service Cost
$
872
$
1,572
$
1,744
$
3,145
Interest Cost
1,458
1,166
2,916
2,333
Expected Return on Plan Assets
(1,701)
(2,675)
(3,403)
(5,351)
Prior Service Cost Amortization
1
4
3
8
Net Loss Amortization
234
428
467
857
Pension Settlement Charge
-
169
-
378
Net Periodic Benefit Cost
$
864
$
664
$
1,727
$
1,370
Discount Rate
5.63%
3.11%
5.63%
3.11%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
The components of the net periodic benefit cost for the Company’s
SERP and SERP II were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Service Cost
$
4
$
8
$
9
$
16
Interest Cost
130
79
261
158
Prior Service Cost Amortization
38
69
76
138
Net Loss Amortization
(155)
180
(309)
360
Pension Settlement Gain
(291)
-
(291)
-
Net Periodic Benefit Cost
$
(274)
$
336
$
(254)
$
672
Discount Rate
5.45%
2.80%
5.45%
2.80%
44
During the month of June 2023, lump sum payments made under the SERP triggered
settlement accounting and remeasurement of the
plan at June 30, 2023.
In accordance with applicable accounting guidance for retirement benefit plans,
the Company recorded a
settlement gain of $
0.3
million in June 2023.
The service cost component of net periodic benefit cost is reflected in
compensation expense in the accompanying statements of
income.
The other components of net periodic cost are included in “other” within the noninterest
expense category in the statements
of income.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lending Commitments
.
The Company is a party to financial instruments with off-balance
sheet risks in the normal course of business
to meet the financing needs of its clients.
These financial instruments consist of commitments to extend credit and standby
letters of
credit.
The Company’s maximum exposure
to credit loss under standby letters of credit and commitments to extend credit is represented
by
the contractual amount of those instruments.
The Company uses the same credit policies in establishing commitments
and issuing
letters of credit as it does for on-balance sheet instruments.
The amounts associated with the Company’s
off-balance sheet
obligations were as follows:
June 30, 2023
December 31, 2022
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
(1)
$
206,057
$
569,036
$
775,093
$
243,614
$
531,873
$
775,487
Standby Letters of Credit
6,297
-
6,297
5,619
-
5,619
Total
$
212,354
$
569,036
$
781,390
$
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 June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Beginning Balance
$
2,833
$
2,976
$
2,989
$
2,897
Provision for Credit Losses
287
(123)
131
(44)
Ending Balance
$
3,120
$
2,853
$
3,120
$
2,853
45
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 a commitment of up to $
1.0
million in a bank tech venture capital fund focused on finding and funding
technology
solutions for community banks and a commitment of up to $
7.4
million in a solar tax credit equity fund.
For the six months ended
June 30, 2023, the Company had contributed $
0.4
million of the bank tech commitment and $
2.9
million of the solar fund
commitment.
At December 31, 2022, the Company had contributed $
0.2
million of the bank tech commitment and $
1.0
million of the
solar fund 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
known pending claims or litigation, the outcome of which would, individually or in
the aggregate, have a material effect
on the consolidated results of operations, financial position, or cash flows
of the Company.
Indemnification Obligation
.
The Company is a member of the Visa U.S.A. network.
Visa U.S.A member banks are
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 $
0.2
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.
Equity Securities.
Investment securities classified as equity securities are measured at
fair value of the investment with changes in fair
value recorded in earnings.
46
Loans Held for Sale
.
The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
when possible,
using either quoted secondary-market prices or investor commitments.
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of
that loan, which would be used by other market
participants.
The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics,
commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have
unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate
the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy.
The fair value of forward sale commitments is based on
observable market pricing for similar instruments and are therefore
classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions are
classified as Level 2 within the fair value hierarchy and are valued using
models generally accepted in the financial services industry and that
use actively quoted or observable market input values from
external market data providers.
The fair value derivatives are determined using discounted cash flow models.
Fair Value
Swap
.
The Company entered into a stand-alone derivative contract with the purchaser of
its Visa Class B shares.
The
valuation represents the amount due and payable to the counterparty based upon
the revised share conversion rate, if any,
during the
period. At June 30, 2023, there were
no
amounts payable and at December 31, 2022, there was a $
0.1
million payable.
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
June 30, 2023, as restated
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
20,250
$
-
$
-
$
20,250
U.S. Government Agency
-
164,240
-
164,240
States and Political Subdivisions
-
40,879
-
40,879
Mortgage-Backed Securities
-
66,132
-
66,132
Corporate Debt Securities
-
87,364
-
87,364
Equity Securities
-
460
-
460
Loans Held for Sale
-
44,659
-
44,659
Interest Rate Swap Derivative
-
5,979
-
5,979
Mortgage Banking Hedge Derivative
-
100
-
100
Mortgage Banking IRLC Derivative
-
-
1,270
1,270
LIABILITIES:
December 31, 2022, as restated
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
-
26,909
-
26,909
Interest Rate Swap Derivative
-
6,195
-
6,195
Mortgage Banking Hedge Derivative
-
187
-
187
Mortgage Banking IRLC Derivative
-
-
819
819
47
Mortgage Banking Activities
.
The Company had Level 3 issuances and transfers related to mortgage banking
activities of $
7.9
million
and $
11.8
million, respectively, for the
six months ended June 30, 2023, and $
7.7
million and $
16.8
million, respectively, for the
six
months ended June 30, 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.
Collateral Dependent Loans
.
Impairment for collateral dependent loans is measured using the fair
value of the collateral less selling
costs.
The fair value of collateral is determined by an independent valuation
or professional appraisal in conformance with banking
regulations.
Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market,
and the judgment and
estimation involved in the real estate appraisal process.
Collateral dependent loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly.
Valuation
techniques are consistent with those techniques applied in prior
periods.
Collateral-dependent loans had a carrying value of $
4.0
million with
no
valuation allowance at June 30, 2023 and a carrying
value of $
0.7
million and a $
0.1
million valuation allowance at December 31, 2022.
Other Real Estate Owned
.
During the first six 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 June 30, 2023 and December 31, 2022, there was
no
valuation
allowance for loan servicing rights.
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments,
both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation
methodologies used for those assets and liabilities.
Cash and Short-Term
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.
Equity Securities.
Investment securities classified as equity securities that do not have readily determinable
fair values are measured at
cost and remeasured to fair value when impaired or upon observable transaction
prices.
Other Equity Securities.
Investment securities classified as other equity securities that do not have
readily determinable fair values, are
measured at cost, remeasured to fair value when impaired or upon observable
transaction prices and accounted for under the equity
method of accounting and reflected in other assets.
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.
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
using present value
techniques based upon projected cash flows 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.
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated using present
value techniques and rates currently offered for deposits of
similar remaining maturities.
48
Subordinated Notes Payable.
The fair value of each note is calculated using present value techniques,
based upon projected cash
flows and estimated discount rates as well as rates being offered
for similar obligations.
Short-Term
and Long-Term
Borrowings.
The fair value of each note is calculated using present value techniques,
based upon
projected cash flows and estimated discount rates as well as rates being offered
for similar debt.
A summary of estimated fair values of significant financial instruments not
recorded at fair value consisted of the following:
(As Restated)
June 30, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
83,679
$
83,679
$
-
$
-
Short-Term Investments
285,129
285,129
-
-
Investment Securities, Held to Maturity
641,398
432,157
163,062
-
Equity Securities
(1)
1,243
-
1,243
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
565
-
-
1,013
Loans, Net of Allowance for Credit Losses
2,655,269
-
-
2,476,509
LIABILITIES:
Deposits
$
3,788,866
$
-
$
3,289,733
$
-
Short-Term
Borrowings
50,673
-
50,673
-
Subordinated Notes Payable
52,887
-
45,563
-
Long-Term Borrowings
414
-
412
-
(As Restated)
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
2,599
-
-
4,491
Loans, Net of Allowance for Credit Losses
2,522,617
-
-
2,377,229
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.
49
NOTE 10 – ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
(loss) are presented in the table below.
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
for Sale
Swap
Plans
(Loss) Income
Balance as of January 1, 2023
$
(37,349)
$
4,625
$
(4,505)
$
(37,229)
Other comprehensive income (loss) during the period
4,236
(162)
(217)
3,857
Balance as of June 30, 2023
$
(33,113)
$
4,463
$
(4,722)
$
(33,372)
Balance as of January 1, 2022
$
(4,588)
$
1,530
$
(13,156)
$
(16,214)
Other comprehensive (loss) income during the period
(27,071)
2,237
283
(24,551)
Balance as of June 30, 2022
$
(31,659)
$
3,767
$
(12,873)
$
(40,765)
50
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.”
We
have
restated
our
previously
issued
consolidated
financial
statements
contained
in
this
Form
10-Q/A.
For
background
on
the
restatement,
the
fiscal
periods
impacted,
control
considerations
and
other
information,
see
“Explanatory
Note”
preceding
“Part
I
–
Item
1.
Consolidated
Financial
Statement
(Unaudited)”
above.
In
addition,
this MD&A
is being
restated
to
conform
to
the
restated
financial
statements.
For
additional
information
related
to
the
restatements,
see
“Part
I
–
Item
1
Financial
Information
–
Note
1
–
Restatement of Previously Issued Consolidated Financial Statements” above.
CAUTION CONCERNING FORWARD
-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q/A, 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/A
as
well as the Introductory Note and
Item 1A. Risk Factors
of our Form 10-K/A, as updated in our subsequent quarterly reports filed
on
Form 10-Q/A, 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 62 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/A.
51
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.
(As Restated)
(As Restated)
2023
2022
(Dollars in Thousands, except per share data)
Second
First
Fourth
Third
Second
Shareowners' Equity (GAAP)
$
412,422
$
403,260
$
387,281
$
368,485
$
368,705
Less: Goodwill and Other Intangibles (GAAP)
93,013
93,053
93,093
93,133
93,173
Tangible Shareowners' Equity (non-GAAP)
A
319,409
310,207
294,188
275,352
275,532
Total Assets (GAAP)
4,391,206
4,401,762
4,519,223
4,327,991
4,351,327
Less: Goodwill and Other Intangibles (GAAP)
93,013
93,053
93,093
93,133
93,173
Tangible Assets (non-GAAP)
B
$
4,298,193
$
4,308,709
$
4,426,130
$
4,234,858
$
4,258,154
Tangible Common Equity Ratio (non-GAAP)
A/B
7.43%
7.20%
6.65%
6.50%
6.47%
Actual Diluted Shares Outstanding (GAAP)
C
17,025,023
17,049,913
17,039,401
16,998,177
16,981,614
Tangible Book Value
per Diluted Share (non-GAAP)
A/C
18.76
18.19
17.27
16.20
16.23
52
SELECTED QUARTERLY
FINANCIAL DATA
(UNAUDITED)
(As Restated)
(As Restated)
2023
2022
(Dollars in Thousands, Except Per Share Data)
Second
First
Fourth
Third
Second
Summary of Operations
:
Interest Income
$
45,205
$
43,926
$
41,218
$
35,442
$
29,516
Interest Expense
5,068
3,526
3,122
2,037
987
Net Interest Income
40,137
40,400
38,096
33,405
28,529
Provision for Credit Losses
2,197
3,099
3,616
2,154
1,692
Net Interest Income After
Provision for Credit Losses
37,940
37,301
34,480
31,251
26,837
Noninterest Income
19,967
17,758
15,296
18,509
20,564
Noninterest Expense
40,285
37,675
39,262
37,699
38,150
Income Before Income Taxes
17,622
17,384
10,514
12,061
9,251
Income Tax Expense
3,417
3,710
1,900
2,493
1,685
(Income) Loss Attributable to NCI
(31)
35
995
37
(306)
Net Income Attributable to CCBG
14,174
13,709
9,609
9,605
7,260
Net Interest Income (FTE)
(1)
40,224
40,500
38,185
33,488
28,604
Per Common Share
:
Net Income Basic
$
0.83
$
0.81
$
0.56
$
0.57
$
0.43
Net Income Diluted
0.83
0.80
0.56
0.57
0.43
Cash Dividends Declared
0.18
0.18
0.17
0.17
0.16
Diluted Book Value
24.21
23.65
22.73
21.68
21.71
Diluted Tangible Book Value
(2)
18.76
18.19
17.27
16.20
16.23
Market Price:
High
34.16
36.86
36.23
33.93
28.55
Low
28.03
28.18
31.14
27.41
24.43
Close
30.64
29.31
32.50
31.11
27.89
Selected Average Balances
:
Investment Securities
$
1,043,858
$
1,064,212
$
1,081,092
$
1,120,728
$
1,144,757
Loans Held for Investment
2,657,693
2,582,395
2,439,379
2,264,075
2,084,679
Earning Assets
3,974,803
4,062,688
4,032,733
4,009,951
3,974,221
Total Assets
4,320,601
4,411,865
4,381,825
4,357,678
4,321,388
Deposits
3,719,564
3,817,314
3,803,042
3,769,864
3,765,329
Shareowners’ Equity
418,757
404,067
380,570
379,305
373,365
Common Equivalent Average Shares:
Basic
17,002
17,016
16,963
16,960
16,949
Diluted
17,035
17,045
17,016
16,996
16,971
Performance Ratios:
Return on Average Assets (annualized)
1.32
%
1.26
%
0.87
%
0.87
%
0.67
%
Return on Average Equity (annualized)
13.58
13.76
10.02
10.05
7.80
Net Interest Margin (FTE)
4.06
4.04
3.76
3.32
2.89
Noninterest Income as % of Operating Revenue
33.22
30.53
28.65
35.65
41.89
Efficiency Ratio
66.93
64.67
73.41
72.51
77.59
Asset Quality:
Allowance for Credit Losses (“ACL”)
$
28,243
$
26,808
$
25,068
$
22,747
$
21,463
Nonperforming Assets (“NPAs”)
6,624
4,602
2,728
2,422
3,231
ACL to Loans HFI
1.05
%
1.01
%
0.98
%
0.96
%
0.96
%
NPAs to Total
Assets
0.15
0.10
0.06
0.06
0.07
NPAs to Loans HFI plus OREO
0.25
0.17
0.11
0.10
0.14
ACL to Non-Performing Loans
426.44
584.18
1,091.33
944.36
683.35
Net Charge-Offs to Average Loans HFI
0.07
0.24
0.21
0.12
0.22
Capital Ratios:
Tier 1 Capital
14.56
%
14.23
%
14.27
%
14.59
%
14.97
%
Total Capital
15.68
15.29
15.30
15.58
15.95
Common Equity Tier 1
12.73
12.40
12.38
12.62
12.91
Leverage
9.54
9.09
8.91
8.80
8.70
Tangible Common Equity
(2)
7.43
7.20
6.65
6.50
6.47
(1)
Fully Tax Equivalent
(2)
Non-GAAP financial measure.
See non-GAAP reconciliation on page 51.
53
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
Net income attributable to common shareowners of $14.2 million, or $0.83 per diluted
share, for the second
quarter of 2023 compared to $13.7 million, or $0.80 per diluted share, for
the first quarter of 2023, and $7.3 million, or $0.43 per
diluted share, for the second quarter of 2022.
For the first six months of 2023, net income attributable to common shareowners totaled
$27.9 million, or $1.64 per diluted share, compared to net income of $14.2
million, or $0.84 per diluted share, for the same period of
2022.
Net Interest Income.
Tax-equivalent net
interest income for the second quarter of 2023 totaled $40.2 million, compared
to $40.5
million for the first quarter of 2023, and $28.6 million for the second quarter of 2022.
Compared to the first quarter of 2023, the
decrease reflected higher deposit interest expense and a lower level of
interest income from overnight funds, partially offset by higher
loan interest due to loan growth and higher interest rates.
For the first six months of 2023, tax-equivalent net interest income totaled
$80.7
million compared to $53.7 million for the same period of 2022.
The increases over both prior year periods were driven by
strong loan growth and higher interest rates across a majority of our
earning assets.
Provision and Allowance for Credit
Losses.
We recorded
a provision for credit losses of $2.2 million for the second quarter of 2023
compared to $3.1 million for the first quarter of 2023 and $1.7 million
for the second quarter of 2022.
The decrease in the provision
compared to the first quarter of 2023 was primarily attributable to a lower
level of loan growth and a decrease in net loan charge-offs.
For the first six months of 2023, we recorded a provision for credit losses of $5.3 million
compared to $1.7 million for the same period
of 2022.
The release of reserves held for pandemic-related losses favorably impacted
our provision in 2022. At June 30, 2023, the
allowance represented 1.05% of HFI loans compared to 1.01% at March 31,
2023, and 0.98% at December 31, 2022.
Noninterest Income.
Noninterest income for the second quarter of 2023 totaled $20.0 million compared
to $17.8 million for the first
quarter of 2023 and $20.6 million for the second quarter of 2022.
The $2.2 million increase over the first quarter of 2023 reflected an
increase in other income of $1.3 million, mortgage banking revenues of $0.5
million, wealth management fees of $0.2 million, deposit
fees of $0.1 million, and bankcard fees of $0.1 million.
The increase in other income was attributable to a $1.4 million gain from the
sale of mortgage servicing rights.
The decrease in mortgage banking revenues was attributable to a lower gain on sale margin.
For the
first six months of 2023, noninterest income totaled $37.7 million compared
to $41.4 million for the same period of 2022 with the $3.7
million decrease primarily attributable to lower mortgage banking revenues
of $2.7 million and wealth management fees of $2.4
million, partially offset by a $1.8 million increase in other income.
The decrease in mortgage banking revenues was attributable to a
lower gain on sale margin.
The decrease in wealth management fees was driven by a decrease in insurance commissions due
to the
sale of large policies in 2022. The increase in other income reflected
the previously mentioned sale of mortgage servicing rights. We
discuss noninterest income in further detail below.
Noninterest Expense.
Noninterest expense for the second quarter of 2023 totaled $40.3 million compared
to $37.7 million for the first
quarter of 2023 and $38.2 million for the second quarter of 2022.
Compared to the first quarter of 2023, the $2.6 million increase was
primarily due to an increase in other expense of $2.6 million that was partially offset
by a $0.1 million decrease in compensation
expense.
The unfavorable variance in other expense reflected a $1.8 million gain from the sale of a banking
office in the first quarter
of 2023.
Further, the second quarter of 2023 includes a non-routine
consulting expense of $0.8 million related to our core processing
system outsourcing contract negotiation.
For the first six months of 2023, noninterest expense totaled $78.0 million compared
to
$74.7 million for the same period of 2022 with the $3.3 million increase
attributable to an increase in compensation expense of $1.5
million, occupancy expense of $1.4 million, and other expense of $0.4 million.
The increase in compensation expense was primarily
due to an increase in realized loan cost (credit offset to salary expense) driven
by increased loan growth in 2022.
The increase in
occupancy expense reflected the addition of banking offices
since mid/late 2022.
The variance in other expense was primarily due to
the previously mentioned consulting payment and increases in pension
plan expense (non-service-related component) and FDIC
insurance fees, partially offset by the previously mentioned
gain on the sale of a banking office.
We discuss noninterest expense
in
further detail below.
Financial Condition
Earning Assets.
Average earning assets totaled
$3.975 billion for the second quarter of 2023, a decrease of $87.9 million, or 2.2%,
from the first quarter of 2023, and a decrease of $57.9 million, or 1.4%, from
the fourth quarter of 2022.
The decrease from both prior
periods was attributable to lower deposit balances.
The mix of earning assets continues to improve as overnight funds are being
utilized to fund loan growth.
Loans.
Average loans HFI increased
$75.3 million, or 2.9%, over the first quarter of 2023 and $218.3 million, or
9.0%, over the
fourth quarter of 2022.
Period end loans increased $26.4 million, or 1.0%, over the first quarter of 2023
and $135.8 million, or 5.3%,
over the fourth quarter of 2022. Compared to both prior periods, the growth was primarily
in the residential real estate and commercial
real estate categories and was partially offset by lower indirect auto
and home equity loan balances.
54
Credit Quality
.
Credit quality metrics remained strong for the quarter.
Nonperforming assets (nonaccrual loans and other real estate)
totaled $6.6 million at June 30, 2023, compared to $4.6 million at March 31, 2023
and $2.7 million at December 31, 2022.
At June
30, 2023, nonperforming assets as a percent of total assets equaled 0.15%, compared
to 0.10% at March 31, 2023 and 0.06% at
December 31, 2022.
Nonaccrual loans totaled $6.6 million at June 30, 2023, a $2.0 million increase
over March 31, 2023 and a $4.3
million increase over December 31, 2022.
The increase was primarily due to the addition of one large residential loan
($1.1 million)
to nonaccrual status which was adequately secured and reserved for.
Further, classified loans totaled $15.0 million at June
30, 2023, a
$2.8 million increase over March 31, 2023 and a $4.4 million decrease from
December 31, 2022.
Deposits
.
Average total
deposits were $3.720 billion for the second quarter of 2023, a decrease of $97.8 million,
or 2.6%, from the
first quarter of 2023 and a decrease of $83.5 million, or 2.2%, from the fourth quarter
of 2022.
Compared to both prior periods, the
decreases were primarily attributable to lower noninterest bearing and savings
balances, primarily offset by higher money market
balances.
Compared to the first quarter of 2023, the decrease in NOW account balances reflected the
seasonal decline in our public
funds balances.
Compared to the fourth quarter of 2022, the increase in NOW accounts reflected higher
average public funds balances
which began to build in December 2022 and affect the
average comparison.
Capital
.
At June 30, 2023, we were well-capitalized with a total risk-based capital ratio
of 15.68% and a tangible common equity
ratio (a non-GAAP financial measure) of 7.43% compared to 15.29%
and 7.20%, respectively,
at March 31, 2023 and 15.30% and
6.65%, respectively, at December
31, 2022.
At June 30, 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.
(As Restated)
(As Restated)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands, except per share data)
2023
2023
2022
2023
2022
Interest Income
$
45,205
$
43,926
$
29,516
$
89,131
$
55,250
Taxable Equivalent Adjustments
87
100
76
188
155
Total Interest Income (FTE)
45,292
44,026
29,592
89,319
55,405
Interest Expense
5,068
3,526
987
8,594
1,729
Net Interest Income (FTE)
40,224
40,500
28,605
80,725
53,676
Provision for Credit Losses
2,197
3,099
1,692
5,296
1,724
Taxable Equivalent Adjustments
87
100
76
188
155
Net Interest Income After Provision for Credit Losses
37,940
37,301
26,837
75,241
51,797
Noninterest Income
19,967
17,758
20,564
37,725
41,376
Noninterest Expense
40,285
37,675
38,150
77,961
74,673
Income Before Income Taxes
17,622
17,384
9,251
35,005
18,500
Income Tax Expense
3,417
3,710
1,685
7,126
3,405
Pre-Tax (Income) Loss Attributable to Noncontrolling
Interest
(31)
35
(306)
4
(897)
Net Income Attributable to Common Shareowners
$
14,174
$
13,709
$
7,260
$
27,883
$
14,198
Basic Net Income Per Share
$
0.83
$
0.81
$
0.43
$
1.64
$
0.84
Diluted Net Income Per Share
$
0.83
$
0.80
$
0.43
$
1.64
$
0.84
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 65.
55
Tax-equivalent net
interest income for the second quarter of 2023 totaled $40.2 million, compared
to $40.5 million for the first quarter
of 2023, and $28.6
million for the second quarter of 2022.
Compared to the first quarter of 2023, the decrease reflected higher deposit
interest expense and a lower level of interest income from overnight funds, partially
offset by higher loan interest due to loan growth
and higher interest rates.
For the first six months of 2023, tax-equivalent net interest income totaled $80.7 million
compared to $53.7
million for the same period of 2022.
The increases over both prior year periods were driven by strong loan growth
and higher interest
rates across a majority of our earning assets.
Our net interest margin for the second quarter of 2023 was 4.06%,
an increase of two basis points
over the first quarter of 2023 and an
increase of 117 basis points over the second
quarter of 2022.
For the month of June 2023, our net interest margin was 4.10%.
For the
first six months of 2023, our net interest margin was 4.05%, an
increase of 131 basis points over the same period of 2022.
The
increase compared to all prior periods reflected a combination of higher
interest rates and loan growth, partially offset by a higher cost
of deposits.
For the second quarter of 2023, our cost of funds was 51 basis points, an increase of 16
basis points over the first quarter
of 2023 and 41 basis points over the second quarter of 2022.
Our total cost of deposits (including noninterest bearing accounts)
was
43 basis points, 26 basis points, and 3 basis points, respectively,
for the same periods.
Provision for Credit Losses
We recorded
a provision for credit losses of $2.2 million for the second quarter of 2023 compared
to $3.1 million for the first quarter
of 2023 and $1.7 million for the second quarter of 2022.
The decrease in the provision compared to the first quarter of 2023 was
primarily attributable to a lower level of loan growth and a decrease in net loan
charge-offs.
For the first six months of 2023, we
recorded a provision for credit losses of $5.3 million compared to $1.7
million for the same period of 2022.
The release of reserves
held for pandemic-related losses favorably impacted our provision in 2022.
We discuss the allowance
for credit losses further
below. For more information
on charge-offs and recoveries, see Note 3 –
Loans Held for Investment and Allowance for Credit Losses.
Noninterest Income
Noninterest income for the second quarter of 2023 totaled $20.0 million
compared to $17.8 million for the first quarter of 2023 and
$20.6 million for the second quarter of 2022.
The $2.2 million increase over the first quarter of 2023 reflected an increase in
other
income of $1.3 million, mortgage banking revenues of $0.5 million,
wealth management fees of $0.2 million, deposit fees of $0.1
million, and bankcard fees of $0.1 million.
The increase in other income was attributable to a $1.4 million gain from the sale of
mortgage servicing rights.
The increase in mortgage banking revenues was attributable to a higher
gain on sale margin. For the first
six months of 2023, noninterest income totaled $37.7 million compared
to $41.4 million for the same period of 2022 with the $3.7
million decrease primarily attributable to lower mortgage banking revenues
of $2.7 million and wealth management fees of $2.4
million, partially offset by a $1.8 million increase in other income.
The decrease in mortgage banking revenues was attributable to
lower rate lock volume and gain on sale margin.
The decrease in wealth management fees was driven by a decrease in insurance
commissions due to the sale of large policies in 2022. The increase
in other income reflected the previously mentioned sale of
mortgage servicing rights.
Noninterest income represented 33.22% of operating revenues (net interest
income plus noninterest income) in the second quarter of
2023 compared to 30.53% in the first quarter of 2023 and 41.89% in the second
quarter of 2022.
For the first six months of 2023,
noninterest income represented 31.90% of operating revenues compared
to 43.60% for the same period of 2022.
The table below reflects the major components of noninterest income.
(As Restated)
(As Restated)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
2023
2023
2022
2023
2022
Deposit Fees
$
5,326
$
5,239
$
5,447
$
10,565
$
10,638
Bank Card Fees
3,795
3,726
4,034
7,521
7,797
Wealth Management
Fees
4,149
3,928
4,403
8,077
10,473
Mortgage Banking Revenues
3,363
2,871
4,857
6,234
8,912
Other
3,334
1,994
1,823
5,328
3,556
Total
Noninterest Income
$
19,967
$
17,758
$
20,564
$
37,725
$
41,376
56
Significant components of noninterest income are discussed in more
detail below.
Deposit Fees
.
Deposit fees for the second quarter of 2023
totaled $5.3
million, an increase of $0.1 million, or 1.7%, over the first
quarter of 2023, and a decrease of $0.1 million, or 2.2%, from the second quarter
of 2022.
For the first six months of 2023, deposit
fees totaled $10.6 million, a decrease of $0.1 million, or 0.7%, from
the same period of 2022.
Compared to the first quarter of 2023,
the increase reflected higher overdraft fees.
The decrease from both prior year periods was attributable to lower
service charge and
ATM
fees.
Bank Card Fees
.
Bank card fees for the second quarter of 2023 totaled $3.8 million, an increase of $0.1
million, or 1.8%, over the
first quarter of 2023, and a decrease of $0.2 million, or 5.9%, from the
second quarter of 2022.
For the first six months of 2023, bank
card fees totaled $7.5 million, a decrease of $0.3
million, or 3.5%, from the same period of 2022.
Compared to the first quarter of
2023,
the increase reflected one more day of processing. Compared to both prior periods, the decline
reflected lower debit card usage
related to lower consumer spending.
Wealth
Management Fees
.
Wealth management fees
include trust fees through Capital City Trust (i.e., managed
accounts and
trusts/estates), retail brokerage fees through Capital City Investments (i.e.,
investment, insurance products, and retirement accounts),
and financial advisory fees through Capital City Strategic Wealth
(i.e., including the sale of life insurance, risk management and asset
protection services).
Wealth management
fees for the second quarter of 2023 totaled $4.1 million, an increase of $0.
2
million, or
5.6%, over the first quarter of 2023, and a decrease of $0.3 million, or 5.8%,
from the second quarter of 2022.
For the first six months
of 2023, wealth management fees totaled $8.1 million, a decrease of
$2.4 million, or 22.9%, from the same period of 2022.
The
decrease reflected lower insurance commission revenues due to the sale of large
policies in 2022.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $3.4 million for the second quarter
of 2023, compared to $2.9
million for the first quarter of 2023 and $4.9 million for the second quarter
of 2022.
For the first six months of 2023, revenues totaled
$6.2 million compared to $8.9 million for the same period of 2022. The increase compared
to the first quarter of 2023 was attributable
to higher gain on sale margin. The decrease in mortgage banking
revenues compared to the second 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.
Other.
Other income totaled $3.3 million for the second quarter of 2023 compared
to $2.0 million for the first quarter of 2023 and
$1.8 million for the second quarter of 2022.
For the first six months of 2023, other income totaled $5.3 million compared to
$3.6
million for the same period of 2022.
The increase over all prior periods was primarily due to a $1.4 million gain from the sale
of
mortgage servicing rights.
Higher miscellaneous income of $0.4 million also contributed to the increase
for the six-month period.
Noninterest Expense
Noninterest expense for the second quarter of 2023 totaled $40.3 million
compared to $37.7 million for the first quarter of 2023 and
$38.2 million for the second quarter of 2022.
Compared to the first quarter of 2023, the $2.6 million increase was primarily due to
an
increase in other expense of $2.6 million that was partially offset by
a $0.1 million decrease in compensation expense.
The
unfavorable variance in other expense reflected a $1.8 million gain from
the sale of a banking office in the first quarter of 2023.
Further, the second quarter of 2023
included a $0.8 million expense related to a consulting engagement to assist in negotiating a multi-
year contract for the outsourcing of our core processing system, a higher expense
for advertising and travel/entertainment totaling $0.3
million, and a $0.2 million expense related to our VISA (class B shares) swap.
Partially offsetting these increases was a $0.3 million
gain related to our SERP.
The decrease in compensation expense reflected a $0.5 million increase in
salary expense (lower realized
loan cost offset to salary expense) that was partially offset
by lower associate benefit expense of $0.6 million (primarily stock-based
compensation).
Compared to the second quarter of 2022, the $2.1 million increase in noninterest
expense reflected increases in other expense of $1.2
million, occupancy expense of $0.7 million, and compensation
expense of $0.2 million. For the first six months of 2023, noninterest
expense totaled $78.0 million compared to $74.7 million for the same period
of 2022 with the $3.3 million increase attributable to an
increase in compensation expense of $1.5 million, occupancy expense of
$1.4 million, and other expense of $0.4 million. The increase
in compensation expense was primarily due to an increase in realized loan
cost (credit offset to salary expense) driven by increased
loan growth in 2022.
The increase in occupancy expense reflected the addition of banking offices
since mid/late 2022.
The variance
in other expense was primarily due to the previously mentioned consulting
payment and increases in pension plan expense (non-
service-related component) and FDIC insurance fees, partially offset
by the previously mentioned gain on the sale of a banking office
.
57
The table below reflects the major components of noninterest expense.
(As Restated)
(As Restated)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
2023
2023
2022
2023
2022
Salaries
$
20,044
$
19,517
$
19,300
$
39,561
$
37,406
Associate Benefits
3,394
4,007
3,922
7,401
8,114
Total Compensation
23,438
23,524
23,222
46,962
45,520
Premises
3,170
3,245
2,734
6,414
5,493
Equipment
3,650
3,517
3,341
7,168
6,675
Total Occupancy
6,820
6,762
6,075
13,582
12,168
Legal Fees
419
362
316
781
665
Professional Fees
2,039
1,324
1,406
3,363
2,738
Processing Services
1,872
1,742
1,752
3,614
3,389
Advertising
959
874
980
1,833
1,753
Telephone
679
706
703
1,385
1,431
Insurance – Other
872
831
593
1,703
1,103
Other Real Estate Owned, net
(28)
(1,827)
(29)
(1,855)
(4)
Pension - Other
6
7
(761)
13
(1,522)
Pension Settlement (Gain) Charge
(291)
-
169
(291)
378
Miscellaneous
3,500
3,370
3,724
6,871
7,054
Total Other
10,027
7,389
8,853
17,417
16,985
Total
Noninterest Expense
$
40,285
$
37,675
$
38,150
$
77,961
$
74,673
Significant components of noninterest expense are discussed in more detail
below.
Compensation.
Compensation expense totaled $23.4 million for the second quarter of 2023 compared
to $23.5 million for the first
quarter of 2023 and $23.2 million for the second quarter of 2022.
The $0.1 million decrease from the first quarter of 2023 reflected a
$0.5
million increase in salary expense and a $0.6 million decrease in associate benefit expense.
The increase in salary expense was
primarily due to a $0.5 million decrease in realized loan cost (credit offset
to salary expense) that was partially offset by lower income
taxes of $0.3 million.
The decrease in associate benefit expense was attributable to a decrease in stock-based
compensation expense.
Compared to the second quarter of 2022, the $0.2 million increase reflected
a $0.7 million increase in salary expense that was partially
offset by a $0.5 million decrease in associate benefit expense.
The increase in salary expense was primarily due to a $1.0 million
decrease in realized loan cost and higher base salaries of $0.8 million, partially
offset by lower incentives of $1.3 million.
The
decrease in associate benefit expense was due to lower pension plan expense (service
cost) of $0.7 million that was partially offset by
a $0.2
million increase in associate insurance expense.
The decline in pension plan expense (service cost) was generally due to
a
lower benefit obligation which reflected an increased level of retirements
in 2022.
The increase in associate insurance expense
reflected higher premiums at our annual renewal.
For the first six months of 2023, compensation expense totaled $47.0 million
compared to $45.5 million for the same period of 2022 with the $1.5
million increase attributable to an increase in salary expense of
$2.2 million (primarily the addition of staffing in our new markets)
that was partially offset by a $0.7 million decrease in associate
benefit expense, primarily pension plan expense (service cost) due
to an increased level of retirements in 2022.
Occupancy
.
Occupancy expense totaled $6.8
million for the second quarter of 2023 compared to $6.8
million for the first quarter of
2023
and $6.1 million for the second quarter of 2022.
For the first six months of 2023, occupancy expense totaled $13.6 million
compared to $12.2 million for the same period of 2022.
The addition of four new banking offices since mid/late 2022
and higher
property/equipment insurance premiums drove the increase in occupancy
expense for both prior year comparisons.
58
Other.
Other expense totaled $10.0 million for the second quarter of 2023 compared
to $7.4 million for the first quarter of 2023 and
$8.9
million for the second quarter of 2022.
Compared to the first quarter of 2023, the $2.6 million decrease reflected a $1.8 million
gain from the sale of a banking office in the first quarter of 2023.
Further, the second quarter of 2023 included a $0.8 million
expense
related to a consulting engagement to assist in negotiating a multi-year
contract for the outsourcing of our core processing system, a
higher expense for advertising and travel/entertainment totaling $0.3 million,
and a $0.2 million expense related to our VISA (class B
shares) swap.
Partially offsetting these increases was a $0.3 million gain
related to our SERP.
The increase in other expense over
both prior year periods was primarily related to the previously mentioned consulting
payment of $0.8 million made in the second
quarter of 2023 and increases in pension plan expense (non-service-related
component), and FDIC insurance fees. The previously
mentioned gain from the sale of a banking office in the first quarter
of 2023 partially offset these increases for the six-month
period
comparison.
Our operating efficiency ratio (expressed as noninterest
expense as a percentage of the sum of taxable-equivalent net interest income
plus noninterest income) was 66.93%
for the second quarter of 2023 compared to 64.67% for the first quarter of 2023 and 77.59%
for
the second quarter of 2022.
For the first six months of 2023, this ratio was 65.82% compared to 78.56% for the same period
of 2022.
Income Taxes
We realized income
tax expense of $3.4 million (effective rate of 19.39%) for the second quarter
of 2023 compared to $3.7 million
(effective rate of 21.34%) for the first quarter of 2023 and
$1.7 million (effective rate of 18.21%) for the second quarter of
2022.
For
the first six months of 2023, we realized income tax expense of $7.1 million (effective
rate of 20.36%) compared to $3.4 million
(effective rate of 18.41%) for the same period of 2022.
The decrease in our effective tax rate for the second quarter of 2023 reflected
tax benefit accrued from an investment in a solar tax credit equity fund. Absent discrete
items, we expect our annual effective tax rate
to approximate 20-21% for 2023.
FINANCIAL CONDITION
Average earning
assets totaled $3.975 billion for the second quarter of 2023, a decrease of $87.9 million, or
2.2%, from the first
quarter of 2023, and a decrease of $57.9 million, or 1.4%, from the fourth quarter of 2022.
The decrease from both prior periods was
attributable to lower deposit balances (see below –
Deposits
).
The mix of earning assets continues to improve as overnight funds are
being utilized to fund loan growth.
Investment Securities
Average investments
decreased $20.4 million, or 1.9%, from the first quarter of 2023
and decreased $37.2 million, or 3.4%, from the
fourth quarter of 2022.
Our investment portfolio represented 26.3% of our average earning assets for the second
quarter of 2023
compared to 26.2% for the first quarter of 2023 and 26.8% for the fourth
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 June 30, 2023, $386.2 million, or 37.5%, of our investment portfolio was classified
as AFS, and
$641.4 million, or 62.3%, classified as HTM.
The average maturity of our total portfolio at June 30, 2023 was 3.07 years compared
to
3.34 years at March 31, 2023 and 3.57 years at December 31, 2022.
The duration of our investment portfolio at June 30, 2023 was
2.76 years.
Additional information on unrealized gains/losses in the AFS and HTM portfolios is provided
in Note 2 – Investment
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.
At June 30, 2023, there were 917 positions (combined AFS and HTM) with
unrealized losses totaling $84.2 million. 86 of these
positions are U.S. Treasuries and carry the full faith
and credit of the U.S. Government.
705 were U.S. government agency securities
issued by U.S. government sponsored entities. The remaining 126 positions
(municipal securities and corporate bonds) have a credit
component. At June 30, 2023, corporate debt securities had
an allowance for credit losses of $19,000 and municipal securities had an
allowance of $5,000.
At June 30, 2023, all CMO, MBS, SBA, U.S. Agency,
and U.S. Treasury bonds held were AAA rated.
59
Loans HFI
Average loans
HFI increased $75.3 million, or 2.9%, over the first quarter of 2023 and $218.3 million, or 9.0%,
over the fourth quarter
of 2022.
Period end loans increased $26.4 million, or 1.0%, over the first quarter of 2023 and
$135.8 million, or 5.3%, over the fourth
quarter of 2022.
Compared to both prior periods, the growth was primarily in the residential real estate and
commercial real estate
categories and was partially offset by lower indirect auto
and home equity loan balances.
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
Credit quality metrics remained strong for the quarter.
Nonperforming assets (nonaccrual loans and other real estate) totaled $6.6
million at June 30, 2023 compared to $4.6 million at March 31, 2023
and $2.7 million at December 31, 2022.
At June 30, 2023,
nonperforming assets as a percent of total assets equaled 0.15%, compared
to 0.10% at March 31, 2023 and 0.06% at December 31,
2022.
Nonaccrual loans totaled $6.6 million at June 30, 2023, a $2.0 million increase over March 31, 2023
and a $4.3 million increase
over December 31, 2022.
The increase was primarily due to the addition of one large residential loan
($1.1 million) to nonaccrual
status which was adequately secured and reserved for.
Further, classified loans totaled $15.0 million at June 30,
2023, a $2.8 million
increase over March 31, 2023 and a $4.4 million decrease from December 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 June 30, 2023, the allowance for credit losses for HFI loans totaled $28.2
million compared to $26.8 million at March 31, 2023 and
$25.1 million at December 31, 2022.
Activity within the allowance is provided in Note 3 to the consolidated financial statements
.
The increase in the allowance in 2023 has primarily been driven by loan growth.
At June 30, 2023, net charge-offs totaled $0.5
million, a decrease of $1.0 million from the first quarter of 2023, and $0.8 million
from the fourth quarter of 2022.
At June 30, 2023,
the allowance represented 1.05% of HFI loans compared to 1.01% at March 31, 2023,
and 0.98% at December 31, 2022.
At June 30, 2023, the allowance for credit losses for unfunded commitments
totaled $3.1 million compared to $2.8 million at March
31, 2023 and $3.0 million at December 31, 2022. The allowance for unfunded
commitments is recorded in other liabilities.
Deposits
Average total
deposits were $3.720 billion for the second quarter of 2023, a decrease of $97.8 million, or 2.6%,
from the first quarter
of 2023 and a decrease of $83.5 million, or 2.2%, from the fourth quarter
of 2022.
Compared to both prior periods, the decreases were
primarily attributable to lower noninterest bearing and savings balances,
primarily offset by higher money market balances.
Compared to the first quarter of 2023, the decrease in NOW account balances
reflected the seasonal decline in our public funds
balances.
Compared to the fourth quarter of 2022, the increase in NOW accounts reflected higher
average public funds balances
which began to build in December 2022 and affect the
average comparison.
At June 30, 2023, total deposits were $3.789 billion, a decrease of $35.1
million, or 0.9%, from March 31, 2023 and $150.5 million, or
3.8%, from December 31, 2022.
The June 30, 2023 deposit balance included a $103 million short-term deposit (in the NOW
category) made late in June by a municipal client.
Compared to both prior periods, the decreases were primarily attributable
to lower
noninterest bearing balances, savings balances, and NOW balances (primarily
public funds, excluding the previously mentioned large
municipal client deposit), primarily offset by higher money market
balances.
60
For comparison to the prior periods, both the average and period-end
balance variances in noninterest bearing and savings balances
generally reflected annual tax payments made by clients in April, continued
client spend of stimulus savings, the migration (re-mix) of
balances to an interest-bearing product type (primarily money market
accounts), and clients seeking higher yielding investment
products outside of the Bank, including the migration of $13 million in the
second quarter of 2023 and $43 million for the first six
months of 2023 to our wealth management division.
Repurchase agreement balances averaged $17.9 million for the second quarter
of 2023, an increase of $8.5 million over the first
quarter of 2023 and $9.4 million over the fourth quarter of 2022.
At June 30, 2023, repurchase agreement balances were $22.6 million
compared to $4.4 million at March 31, 2023 and $6.6 million at December 31, 2022.
These balances consist of client operating
deposit accounts that we have secured by various securities we own and
are reflected in our balance sheet under short-term
borrowings.
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.
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.
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.
61
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%
June 30, 2023
4.1%
3.0%
1.9%
1.0%
-1.5%
-4.4%
-9.6%
-15.3%
March 31, 2023
7.1%
5.2%
3.4%
1.8%
-3.3%
-8.8%
-15.5%
-21.2%
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%
June 30, 2023
28.4%
23.5%
18.4%
13.9%
3.4%
-4.4%
-15.1%
-25.6%
March 31, 2023
28.0%
22.7%
17.2%
12.2%
-0.5%
-10.9%
-22.5%
-31.2%
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 first quarter of 2023, 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 the 12-month shock is outside of policy in the down 400 bps
scenario, and the percent change
over the 24-month shock is 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%
June 30, 2023
10.7%
9.1%
6.7%
3.9%
-7.1%
-18.0%
-30.2%
-32.6%
March 31, 2023
11.6%
9.6%
7.0%
4.0%
-7.1%
-17.9%
-31.3%
-35.7%
EVE Ratio (policy minimum 5.0%)
18.8%
18.2%
17.4%
16.6%
14.3%
12.4%
10.4%
9.9%
(1) The down 400 bp rate scenario was added in the fourth quarter of 2022.
At June 30, 2023, the economic value of equity was favorable in all rising
rate environments and unfavorable in the falling rate
environments. Compared to the first quarter of 2023, EVE metrics were slightly
more favorable in the rising and declining rate
environments.
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.
62
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 June 30, 2023, we had the ability to generate approximately $1.506 billion
(excludes overnight funds position of $285 million) in
additional liquidity through various sources including various federal funds
purchased lines, Federal Home Loan Bank borrowings, 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 June 30, 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.
Additional information on our investment portfolio is provided within
Note
2 –
Investment Securities
.
The Bank maintained an average net overnight funds (deposits with banks plus
FED funds sold less FED funds purchased) sold
position of $218.9 million in the second quarter of 2023 compared
to $361.0 million in the first quarter of 2023 and $469.4 million in
the fourth quarter of 2022.
The declining overnight funds position reflected growth in average loans and lower
average deposit
balances.
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 $35.7 million for the second quarter of 2023 compared to
$47.1 million for the first quarter of
2023 and $50.8 million for the fourth quarter of 2022.
The variance compared to both prior periods was primarily attributable to an
increase in repurchase agreement balances (discussed under
Deposits
) and fluctuation in warehouse line borrowings that support our
mortgage banking operations.
Additional detail on these warehouse 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
CME Term SOFR (secured overnight
financing rate)
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 interest rate based on three-month
CME Term SOFR plus a margin
of 1.80%.
This
note matures on June 15, 2035.
The proceeds from these borrowings were used to partially fund acquisitions.
Under the terms of each
junior subordinated deferrable interest note, in the event of default or
if we elect to defer interest on the note, we may not, with certain
exceptions, declare or pay dividends or make distributions on our capital
stock or purchase or acquire any of our capital stock.
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 (three-month
CME Term SOFR 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.
63
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 52.
At June 30, 2023, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized”
under the Basel III capital standards.
Shareowners’ equity was $412.4 million at June 30, 2023 compared
to $403.3 million at March 31, 2023 and $387.3 million at
December 31, 2022.
For the first six months of 2023, shareowners’ equity was positively impacted by net income
attributable to
common shareowners of $27.9 million, a $4.2 million decrease in the unrealized
loss on investment securities, the issuance of stock of
$2.1 million, and stock compensation accretion of $0.5 million.
Shareowners’ equity was reduced by common stock dividends of $6.1
million ($0.36 per share), the repurchase of stock of $2.0 million (65,736 shares),
net adjustments totaling $1.3
million related to
transactions under our stock compensation plans, and a $0.2 million decrease
in the fair value of the interest rate swap related to
subordinated debt.
At June 30, 2023, our total risk-based capital ratio was 15.68% compared to 15.29%
at March 31, 2023 and 15.30% at December 31,
2022.
Our common equity tier 1 capital ratio was 12.73%, 12.40%, and 12.38%, respectively,
on these dates.
Our leverage ratio was
9.54%, 9.09%, and 8.91%, respectively,
on these dates.
At June 30, 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 7.43%
at June
30, 2023 compared to 7.20% and 6.65% at March 31, 2023 and December
31, 2022, respectively.
If our unrealized HTM securities
losses of $30.0 million (after-tax) were recognized in accumulated other
comprehensive loss, our adjusted tangible capital ratio would
be 6.73%.
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 June 30, 2023, the net pension liability reflected in other comprehensive loss was $4.7
million
compared to $4.5 million at March 31, 2023 and $4.5 million at December 31,
2022.
This liability is re-measured annually on
December 31
st
based on an actuarial calculation of our pension liability.
Significant assumptions used in calculating the liability
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 and sensitivities are discussed in our 2022 Form 10-K/A “Critical Accounting
Policies and
Estimates”.
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 June 30, 2023, we had $775.1 million in commitments to extend credit
and $6.3 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 $3.1 million at June 30, 2023.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
Financial Statements included in our 2022 Form 10-
K/A.
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.
64
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/A.
65
TABLE I
AVERAGE BALANCES & INTEREST RATES (UNAUDITED)
(As Restated)
(As Restated)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
54,350
$
800
5.90
%
$
52,860
$
711
5.39
%
$
54,728
$
1,445
5.32
%
$
47,959
$
1,108
4.66
%
Loans Held for Investment
(1)(2)
2,657,693
36,890
5.55
2,084,679
23,628
4.55
2,620,252
71,232
5.48
2,024,463
45,737
4.56
Taxable Securities
1,041,202
4,803
1.84
1,142,269
3,834
1.34
1,051,232
9,716
1.85
1,099,739
6,723
1.22
Tax-Exempt Securities
(2)
2,656
17
2.47
2,488
10
1.73
2,747
33
2.41
2,449
20
1.67
Funds Sold
218,902
2,782
5.10
691,925
1,408
0.82
289,543
6,893
4.80
782,011
1,817
0.47
Total Earning Assets
3,974,803
45,292
4.57
%
3,974,221
29,591
2.99
%
4,018,502
89,319
4.48
%
3,956,621
55,405
2.82
%
Cash & Due From Banks
75,854
79,730
75,250
77,007
Allowance For Credit Losses
(27,893)
(20,984)
(26,771)
(21,318)
Other Assets
297,837
288,421
298,999
281,922
TOTAL ASSETS
$
4,320,601
$
4,321,388
$
4,365,980
$
4,294,232
Liabilities:
Noninterest Bearing Deposits
1,539,877
1,722,325
1,570,642
1,687,524
NOW Accounts
$
1,200,400
$
3,038
1.01
%
$
1,033,190
$
120
0.05
%
$
1,214,585
$
5,190
0.86
%
$
1,056,419
$
206
0.04
%
Money Market Accounts
288,466
748
1.04
286,210
36
0.05
278,077
955
0.69
285,810
69
0.05
Savings Accounts
602,848
120
0.08
628,472
77
0.05
616,045
196
0.06
613,996
149
0.05
Other Time Deposits
87,973
103
0.47
95,132
33
0.14
88,819
155
0.35
96,088
66
0.14
Total Interest Bearing Deposits
2,179,687
4,008
0.74
2,043,004
266
0.05
2,197,526
6,496
0.60
2,052,313
490
0.05
Total Deposits
3,719,564
4,008
0.43
3,765,328
266
0.03
3,768,168
6,496
0.35
3,739,837
490
0.03
Repurchase Agreements
17,888
115
2.58
5,064
-
0.03
13,639
124
1.83
6,093
1
0.03
Other Short-Term Borrowings
17,834
336
7.54
26,718
343
5.15
27,745
788
5.73
25,973
534
4.14
Subordinated Notes Payable
52,887
604
4.52
52,887
370
2.76
52,887
1,175
4.42
52,887
687
2.58
Other Long-Term Borrowings
431
5
4.80
722
8
4.54
455
11
4.80
777
17
4.51
Total Interest Bearing Liabilities
2,268,727
5,068
0.90
%
2,128,395
987
0.19
%
2,292,252
8,594
0.76
%
2,138,043
1,729
0.16
%
Other Liabilities
84,305
87,207
82,765
79,728
TOTAL LIABILITIES
3,892,909
3,937,927
3,945,659
3,905,295
Temporary Equity
8,935
10,096
8,869
10,306
TOTAL SHAREOWNERS’ EQUITY
418,757
373,365
411,452
378,631
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
4,320,601
$
4,321,388
$
4,365,980
$
4,294,232
Interest Rate Spread
3.67
%
2.80
%
3.73
%
2.66
%
Net Interest Income
$
40,224
$
28,604
$
80,725
$
53,676
Net Interest Margin
(3)
4.06
%
2.89
%
4.05
%
2.74
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
Interest income includes loans fees of $0.1 million
and $0.4 million for the three month periods ended June 30,
2023 and
2022, respectively, and $0.2 million and $0.3 million for the six month periods ended
June 30, 2023 and 2022, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earning assets.
66
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
Evaluation of Disclosure Controls and Procedures
At June 30, 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, at the time the Original Form 10-Q was filed, our 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. Subsequent to that evaluation, management
conducted a reevaluation, concluding that our disclosure
controls and procedures were ineffective as of June
30, 2023 due to the identification of the material weakness discussed below.
Previously Reported Material Weakness
in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective
internal control over financial reporting, as such term is
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As reported
in our 2022 Form 10-K/A, we did not maintain
effective internal control as of December 31, 2022 as a result of
a material weakness in our internal control over financial reporting
for
the review of certain inter-company mortgage sales and
servicing. A material weakness is a deficiency,
or a combination of
deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the
Company’s annual interim financial
statements will not be prevented or detected on a timely basis. Refer to our 2022
Form 10-K/A for
a description of our material weakness.
Ongoing Remediation Efforts to Address Material Weakness
Our material weakness was not remediated as of the filing of this Form 10-Q/A.
Since identifying the material weakness described
above, management, with oversight from the Audit Committee and input from
the Board of Directors, has devoted substantial
resources to the ongoing implementation of remediation efforts.
These remediation efforts, summarized below,
which either have
already been implemented or are continuing to be implemented, are intended
to address both the identified material weakness and to
enhance the Company’s overall internal
control over financial reporting and disclosure controls and procedures.
Certain internal control and procedural enhancements and remedial
actions are in the process of completion, including:
●
Enhance the precision level for the review of existing accounts subject to elimination
and confirmation of proper elimination
in consolidation;
●
Enhance the procedures for identifying new inter-company
accounts and activities subject to elimination in consolidation;
●
Increase the granularity of general ledger mapping for inter-company
accounts subject to elimination in consolidation; and
●
Enhance financial close checklist and pre-close meeting agenda to ensure proper
and timely identification of inter-company
activities subject to elimination.
Management believes the foregoing effects will effectively
remediate the material weakness described above. As the Company
continues to evaluate and improve its internal control over financial reporting
and disclosure controls and procedures, management
may determine to take additional measures to improve controls and determine
to modify the remediation plan described above. The
Company is working to remediate the material weakness as efficiently
and effectively as possible. Procedures to implement the
remediation plan have required significant amounts of time, allocation of internal
resources and external costs, and remaining
remediation efforts will continue to place significant demands on
financial and operational resources until this plan is completed.
The material weakness described above cannot be considered remediated until
the applicable controls have operated for a sufficient
period of time and management has concluded, through testing, that
these controls are designed and operating effectively.
Accordingly, management
will continue to monitor and evaluate the effectiveness of our internal control over
financial reporting in
the activities affected by the material weakness described above.
67
Changes in Internal Control
Except as identified above with respect to remediation of the material weakness,
during the quarter ended on June 30, 2023, there were
no significant changes in our internal control over financial reporting during
our most recently completed fiscal quarter that 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/A, as updated in our subsequent
quarterly reports. The risks described in our 2022
Form 10-K/A 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
April 1, 2023 to
April 30, 2023
4,000
$30.49
4,000
543,807
May 1, 2023 to
May 31, 2023
36,495
29.70
36,495
507,312
June 1, 2023 to
June 30, 2023
-
-
-
507,312
Total
40,495
$29.78
40,495
507,312
(1)
This amount represents the number of shares that were repurchased during
the second 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
68
(c) Rule 10b5-1 Trading Plans
During the three months ended June 30, 2023, none of our directors or officers
(as defined in Rule 16a-1(f) under the Exchange Act)
adopted or terminated any contract, instruction or written plan for
the purchase or sale of our securities that was intended to satisfy the
affirmative defense conditions of Rule 10b5-1(c) under
the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined
in
Item 408(c) of Regulation S-K.
69
Item 6.
Exhibits
(A)
Exhibits
31.1
Certification of William G Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc.,
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2
Certification of Jeptha E. Larkin, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc.,
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1
Certification of William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc.,
Pursuant to 18 U.S.C. Section 1350.
32.2
Certification of Jeptha E. Larkin, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc.,
Pursuant to 18 U.S.C. Section 1350.
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)
70
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its
behalf by the undersigned Chief Financial Officer hereunto duly
authorized.
CAPITAL CITY
BANK GROUP,
INC.
(Registrant)
/s/ Jeptha E. Larkin
Jeptha E. Larkin
Executive Vice President
and Chief Financial Officer
(Mr. Larkin is the Principal
Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: December 22, 2023