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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-Q
☒
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-13358
Capital City Bank Group, Inc.
(Exact name of Registrant as specified in its charter)
Florida
59-2273542
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
32301
(Address of principal executive office)
(Zip Code)
(
850
)
402-7821
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par value $0.01
CCBG
Nasdaq Stock Market
, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X] No [
]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Yes [
X
] No [
]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or
an emerging growth company.
See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [
]
No
[X]
At October 30, 2024,
16,944,467
shares of the Registrant’s Common Stock, $.01 par value, were outstanding.
2
CAPITAL CITY BANK
GROUP,
INC.
QUARTERLY
REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
PART I –
Financial Information
Page
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – September 30, 2024 and December 31, 2023
4
Consolidated Statements of Income – Three and Nine Months Ended September 30, 2024 and 2023
5
Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2024 and 2023
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30, 2024 and 2023
7
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023
8
Notes to Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
49
Item 4.
Controls and Procedures
49
PART II –
Other Information
Item 1.
Legal Proceedings
50
Item 1A.
Risk Factors
50
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
50
Item 3.
Defaults Upon Senior Securities
50
Item 4.
Mine Safety Disclosure
50
Item 5.
Other Information
50
Item 6.
Exhibits
51
Signatures
52
3
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of
which are beyond our control.
The words “may,” “could,” “should,” “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “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.
Our
ability
to
achieve
our
financial
objectives
could
be
adversely
affected
by
the
factors
discussed
in
detail
in
Part
II,
Item
1A.
“Risk
Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in our Annual Report on
Form 10-K for the year ended
December 31,
2023,
as
amended (the
“2023 Form
10-K”), as
updated
in our
subsequent quarterly
reports
filed
on Form
10-Q,
as
well as,
among other factors:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
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;
●
legislative or regulatory changes;
●
adverse developments in the financial services industry generally;
●
inflation, interest rate, market and monetary fluctuations;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to these
loans;
●
interest rate risk and price risk resulting from retaining mortgage servicing rights and the effects of higher interest rates on our loan
origination volumes;
●
changes in monetary and fiscal policies of the U.S. Government;
●
the cost and effects of cybersecurity incidents or other failures, interruptions, or security breaches of our systems or those of our customers
or third-party providers;
●
the effects of fraud related to debit card products;
●
the accuracy of our financial statement estimates and assumptions;
●
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;
●
the strength of the local economies in which we operate;
●
our ability to declare and pay dividends;
●
structural changes in the markets for origination, sale and servicing of residential mortgages;
●
our ability to retain key personnel;
●
the effects of natural disasters (including hurricanes), widespread health emergencies (including pandemics), military conflict, terrorism,
civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject;
●
the impact of the restatement of our previously issued consolidated statements of cash flows;
●
any deficiencies in the processes undertaken to effect these restatements and to identify and correct all errors in our historical financial
statements that may require restatement;
●
any inability to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to
remediate our existing material weaknesses in our internal controls deemed ineffective;
●
the willingness of clients to accept third-party products and services rather than our products and services;
●
technological changes;
●
the outcomes of litigation or regulatory proceedings;
●
negative publicity and the impact on our reputation;
●
changes in consumer spending and saving habits;
●
growth and profitability of our noninterest income;
●
the limited trading activity of our common stock;
●
the concentration of ownership of our common stock;
●
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
other risks described from time to time in our filings with the Securities and Exchange Commission; and
●
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in
Item 1A Risk Factors
or discussed in this Form 10-Q also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
We do not undertake to update any forward-looking
statement, except as required by applicable law.
4
PART
I.
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(Unaudited)
September 30,
December 31,
(Dollars in Thousands, Except Par Value)
2024
2023
ASSETS
Cash and Due From Banks
$
83,431
$
83,118
Federal Funds Sold and Interest Bearing Deposits
261,779
228,949
Total Cash and Cash Equivalents
345,210
312,067
Investment Securities, Available
for Sale, at fair value (amortized cost of $
356,994
and $
367,747
)
336,187
337,902
Investment Securities, Held to Maturity (fair value of $
542,328
and $
591,751
)
561,480
625,022
Equity Securities
6,976
3,450
Total Investment
Securities
904,643
966,374
Loans Held For Sale, at fair value
31,251
28,211
Loans Held for Investment
2,683,096
2,733,918
Allowance for Credit Losses
(29,836)
(29,941)
Loans Held for Investment, Net
2,653,260
2,703,977
Premises and Equipment, Net
81,876
81,266
Goodwill and Other Intangibles
92,813
92,933
Other Real Estate Owned
650
1
Other Assets
115,613
119,648
Total Assets
$
4,225,316
$
4,304,477
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
1,330,715
$
1,377,934
Interest Bearing Deposits
2,248,362
2,323,888
Total Deposits
3,579,077
3,701,822
Short-Term
Borrowings
37,268
35,341
Subordinated Notes Payable
52,887
52,887
Other Long-Term
Borrowings
794
315
Other Liabilities
71,974
66,080
Total Liabilities
3,742,000
3,856,445
Temporary Equity
6,817
7,407
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;
16,944,370
and
16,950,222
shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
169
170
Additional Paid-In Capital
36,070
36,326
Retained Earnings
454,342
426,275
Accumulated Other Comprehensive Loss, net of tax
(14,082)
(22,146)
Total Shareowners’
Equity
476,499
440,625
Total Liabilities, Temporary
Equity, and Shareowners’ Equity
$
4,225,316
$
4,304,477
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
5
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF INCOME
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands, Except Per Share
Data)
2024
2023
2024
2023
INTEREST INCOME
Loans, including Fees
$
41,659
$
39,344
$
123,480
$
111,845
Investment Securities:
Taxable
4,149
4,550
12,385
14,265
Tax Exempt
6
11
18
35
Funds Sold and Interest Bearing Deposits
3,514
1,848
9,031
8,741
Total Interest Income
49,328
45,753
144,914
134,886
INTEREST EXPENSE
Deposits
8,223
5,214
24,396
11,710
Short-Term
Borrowings
273
630
798
1,542
Subordinated Notes Payable
610
625
1,868
1,800
Other Long-Term
Borrowings
11
4
17
15
Total Interest Expense
9,117
6,473
27,079
15,067
NET INTEREST INCOME
40,211
39,280
117,835
119,819
Provision for Credit Losses
1,206
2,393
3,330
7,689
Net Interest Income After Provision For Credit Losses
39,005
36,887
114,505
112,130
NONINTEREST INCOME
Deposit Fees
5,512
5,456
16,139
16,021
Bank Card Fees
3,624
3,684
11,010
11,205
Wealth Management
Fees
4,770
3,984
13,891
12,061
Mortgage Banking Revenues
3,966
1,839
11,225
8,072
Other
1,641
1,765
4,951
7,093
Total Noninterest
Income
19,513
16,728
57,216
54,452
NONINTEREST EXPENSE
Compensation
25,800
23,003
74,613
69,965
Occupancy, Net
7,098
6,980
21,089
20,562
Other
10,023
9,122
27,831
26,539
Total Noninterest
Expense
42,921
39,105
123,533
117,066
INCOME BEFORE INCOME TAXES
15,597
14,510
48,188
49,516
Income Tax Expense
2,980
3,004
9,705
10,130
NET INCOME
12,617
11,506
38,483
39,386
Loss Attributable to Noncontrolling Interests
501
1,149
1,342
1,153
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
13,118
$
12,655
$
39,825
$
40,539
BASIC NET INCOME PER SHARE
$
0.77
$
0.75
$
2.35
$
2.38
DILUTED NET INCOME PER SHARE
$
0.77
$
0.74
$
2.35
$
2.38
Average Common
Basic Shares Outstanding
16,943
16,985
16,942
17,001
Average Common
Diluted Shares Outstanding
16,979
17,025
16,966
17,031
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
6
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2024
2023
2024
2023
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
13,118
$
12,655
$
39,825
$
40,539
Other comprehensive income (loss), before
tax:
Investment Securities:
Change in net unrealized loss on securities available for sale
9,505
(3,405)
9,099
516
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
785
887
2,521
2,628
Derivative:
Change in net unrealized gain on effective cash flow
derivative
(1,261)
770
(873)
553
Benefit Plans:
Pension plan settlement
-
-
-
(217)
Total Benefit Plans
-
-
-
(217)
Other comprehensive income (loss), before
tax
9,029
(1,748)
10,747
3,480
Deferred tax expense (benefit) related to other comprehensive income
2,435
(444)
2,683
927
Other comprehensive income (loss), net of tax
6,594
(1,304)
8,064
2,553
TOTAL COMPREHENSIVE
INCOME
$
19,712
$
11,351
$
47,889
$
43,092
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
7
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS’ EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, July 1, 2024
16,941,553
$
169
$
35,547
$
445,959
$
(20,676)
$
460,999
Net Income Attributable to Common Shareowners
-
-
-
13,118
-
13,118
Reclassification to Temporary Equity
(1)
-
-
-
(838)
-
(838)
Other Comprehensive Income, net of tax
-
-
-
-
6,594
6,594
Cash Dividends ($
0.2300
per share)
-
-
-
(3,897)
-
(3,897)
Stock Based Compensation
-
-
425
-
-
425
Stock Compensation Plan Transactions, net
2,817
-
98
-
-
98
Balance, September 30, 2024
16,944,370
$
169
$
36,070
$
454,342
$
(14,082)
$
476,499
Balance, July 1, 2023
16,991,634
$
170
$
36,853
$
408,771
$
(33,372)
$
412,422
Net Income Attributable to Common Shareowners
-
-
-
12,655
-
12,655
Other Comprehensive Loss, net of tax
-
-
-
-
(1,304)
(1,304)
Cash Dividends ($
0.1800
per share)
-
-
-
(3,396)
-
(3,396)
Repurchase of Common Stock
(36,411)
-
(1,099)
-
-
(1,099)
Stock Based Compensation
-
-
346
-
-
346
Stock Compensation Plan Transactions, net
2,530
-
82
-
-
82
Balance, September 30, 2023
16,957,753
$
170
$
36,182
$
418,030
$
(34,676)
$
419,706
Balance, January 1, 2024
16,950,222
$
170
$
36,326
$
426,275
$
(22,146)
$
440,625
Net Income Attributable to Common Shareowners
-
-
-
39,825
-
39,825
Reclassification to Temporary Equity
(1)
-
-
-
(751)
-
(751)
Other Comprehensive Income, net of tax
-
-
-
-
8,064
8,064
Cash Dividends ($
0.6500
per share)
-
-
-
(11,007)
-
(11,007)
Repurchase of Common Stock
(82,540)
-
(2,330)
-
-
(2,330)
Stock Based Compensation
-
-
1,139
-
-
1,139
Stock Compensation Plan Transactions, net
76,688
(1)
935
-
-
934
Balance, September 30, 2024
16,944,370
$
169
$
36,070
$
454,342
$
(14,082)
$
476,499
Balance, January 1, 2023
16,986,785
$
170
$
37,331
$
387,009
$
(37,229)
$
387,281
Net Income Attributable to Common Shareowners
-
-
-
40,539
-
40,539
Other Comprehensive Income, net of tax
-
-
-
-
2,553
2,553
Cash Dividends ($
0.3600
per share)
-
-
-
(9,518)
-
(9,518)
Repurchase of Common Stock
(102,147)
-
(3,121)
-
-
(3,121)
Stock Based Compensation
-
-
1,110
-
-
1,110
Stock Compensation Plan Transactions, net
73,115
-
862
-
-
862
Balance, September 30, 2023
16,957,753
$
170
$
36,182
$
418,030
$
(34,676)
$
419,706
(1)
Adjustments to redemption value for non-controlling
interest in Capital City Home Loans, LLC ("CCHL")
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
8
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
(Dollars in Thousands)
2024
2023
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income Attributable to Common Shareowners
$
39,825
$
40,539
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Credit Losses
3,330
7,689
Depreciation
5,798
5,920
Amortization of Premiums, Discounts and Fees, net
3,130
3,216
Amortization of Intangible Asset
120
120
Pension Plan Settlement Gain
-
(291)
Originations of Loans Held-for-Sale
(366,700)
(308,263)
Proceeds From Sales of Loans Held-for-Sale
369,063
303,731
Mortgage Banking Revenues
(11,225)
(8,072)
Net Additions for Capitalized Mortgage Servicing Rights
(138)
(392)
Stock Compensation
1,139
1,110
Deferred Income Taxes (Benefit)
1,400
(2,464)
Net Change in Operating Leases
208
(12)
Net Loss (Gain) on Sales and Write-Downs of Other Real Estate
Owned
1
(1,915)
Net Decrease in Other Assets
1,738
8,207
Net Increase in Other Liabilities
4,645
1,069
Net Cash Provided By Operating Activities
52,334
50,192
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
(20,287)
-
Proceeds from Payments, Maturities, and Calls
83,657
28,159
Securities Available for
Sale:
Purchases
(49,436)
(9,399)
Proceeds from Sale of Securities
-
30,420
Proceeds from Payments, Maturities, and Calls
55,229
53,045
Equity Securities:
Net Decrease in Equity Securities
158
-
Purchases of Loans Held for Investment
(302)
(2,249)
Proceeds from Sales of Loans
31,462
39,125
Net Decrease (Increase) in Loans Held for Investment
19,779
(194,631)
Proceeds From Sales of Other Real Estate Owned
33
3,840
Purchases of Premises and Equipment
(6,442)
(5,459)
Net Cash Provided by (Used In) Investing Activities
113,851
(57,149)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits
(122,745)
(398,872)
Net Increase (Decrease) in Short-Term
Borrowings
1,729
(15,097)
Net Increase (Decrease) in Other Long-Term
Borrowings
677
(149)
Dividends Paid
(11,007)
(9,518)
Payments to Repurchase Common Stock
(2,330)
(3,121)
Proceeds from Issuance of Common Stock Under Purchase Plans
634
562
Net Cash Used In by Financing Activities
(133,042)
(426,195)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
33,143
(433,152)
Cash and Cash Equivalents at Beginning of Period
312,067
600,650
Cash and Cash Equivalents at End of Period
$
345,210
167,498
Supplemental Cash Flow Disclosures:
Interest Paid
$
26,143
$
15,026
Income Taxes Paid
$
5,741
$
7,395
Noncash Investing Activities:
Loans and Premises Transferred to Other Real Estate Owned
$
683
$
1,495
Loans Transferred from Held for Investment
to Held for Sale, net
$
25,640
$
33,625
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
9
CAPITAL CITY BANK
GROUP,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
.
Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of
banking and banking-
related services to individual and corporate clients through its wholly owned
subsidiary, Capital City Bank (“CCB” or the
“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 CCB.
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, 2023 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 2023 Form
10-K, as amended.
Accounting Standards Updates
Proposed Accounting Standards
,
ASU 2023-01, “Leases (Topic
842)
:
Common Control Arrangements.” Accounting Standards
Update (“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. The standard is effective
for the Company on January 1, 2024. As the Company does not have any such
common control leases, adoption of this standard did not have any immediate
impact on its consolidated financial statements and
related disclosures.
ASU 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. The standard was effective for the
Company on January 1, 2024. As the Company does not have any such investments
in tax credit structures that are accounted for
using the proportional amortization method, adoption of this standard did not have
any immediate impact on its consolidated financial
statements or disclosures.
ASU 2023-06, “Disclosure Improvements:
Codification Amendments in Response to the SEC’s
Disclosure Update and Simplification
Initiative.”
ASU 2023-06 is intended to clarify or improve disclosure and presentation
requirements of a variety of topics, which will
allow users to more easily compare entities subject to the SEC's existing disclosures
with those entities that were not previously
subject to the requirements and align the requirements in the FASB
accounting standard codification with the SEC's regulations. The
Company is currently evaluating the provisions of the amendments and
the impact on its future consolidated statements.
ASU 2023-07, “Improvements to Reportable
Segment Disclosures.”
ASU 2023-07 requires disclosure of significant segment expenses
and other segment items on an interim and annual basis. The standard is effective
for fiscal years beginning after December 15, 2023,
and for interim periods beginning after December 15, 2024. The Company
is currently evaluating the provisions of the amendments
and the impact on its future consolidated statements.
ASU 2023-09, ”Income Taxes
(Topic
740) – Improvements to Income Tax
Disclosures.”
ASU 2023-09 is intended to increase
transparency about income tax information by requiring consistent categories
and greater disaggregation of information in the rate
reconciliation and income taxes paid, disaggregated by jurisdiction. This
guidance will be effective for annual periods beginning after
December 15, 2024. The Company is currently evaluating the provisions
of the amendments and the impact on its future consolidated
statements.
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related fair value of investment
securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”)
and the corresponding amounts of gross
unrealized gains and losses.
Available for
Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
September 30, 2024
U.S. Government Treasury
$
51,082
$
222
$
658
$
-
$
50,646
U.S. Government Agency
130,176
63
4,909
-
125,330
States and Political Subdivisions
43,258
2
3,239
(4)
40,017
Mortgage-Backed Securities
(1)
68,054
1
8,274
-
59,781
Corporate Debt Securities
56,328
-
3,932
(79)
52,317
Other Securities
(2)
8,096
-
-
-
8,096
Total
$
356,994
$
288
$
21,012
$
(83)
$
336,187
December 31, 2023
U.S. Government Treasury
$
25,947
$
1
$
1,269
$
-
$
24,679
U.S. Government Agency
152,983
104
8,053
-
145,034
States and Political Subdivisions
43,951
1
4,861
(8)
39,083
Mortgage-Backed Securities
(1)
73,015
2
9,714
-
63,303
Corporate Debt Securities
63,600
-
6,031
(17)
57,552
Other Securities
(2)
8,251
-
-
-
8,251
Total
$
367,747
$
108
$
29,928
$
(25)
$
337,902
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
September 30, 2024
U.S. Government Treasury
$
397,977
$
-
$
7,424
$
390,553
Mortgage-Backed Securities
(1)
163,503
156
11,884
151,775
Total
$
561,480
$
156
$
19,308
$
542,328
December 31, 2023
U.S. Government Treasury
$
457,681
$
-
$
16,492
$
441,189
Mortgage-Backed Securities
(1)
167,341
13
16,792
150,562
Total
$
625,022
$
13
$
33,284
$
591,751
(1)
Comprised of residential mortgage-backed
securities.
(2)
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded
at cost of $
3.0
million and $
5.1
million,
respectively,
at September 30, 2024 and $
3.2
million and $
5.1
million, respectively,
at December 31, 2023.
At September 30, 2024 and December 31, 2023, the investment portfolio
had $
7.0
million and $
3.5
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 $
413.6
million and $
578.5
million at September 30, 2024 and December 31, 2023, 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.
The Bank’s investment in FHLB
stock is a restricted investment carried at par value ($
100
per share), which approximates its fair value.
No ready market exists for the
FHLB stock, and it has no quoted market value; however,
the Bank may request redemption at par value of any stock in excess of the
amount the Bank is required to hold.
Stock redemptions are made at the discretion of the FHLB.
11
Investment Sales.
There were
no
sales of investment securities for the three and nine months ended September 30,
2024 and $
30.4
million in sales for the three and nine months ended September 30, 2023.
Maturity Distribution
.
At September 30, 2024, 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
$
32,570
$
31,822
$
227,491
$
224,457
Due after one year through five years
152,256
145,849
170,486
166,096
Due after five year through ten years
26,898
23,813
-
-
Mortgage-Backed Securities
68,054
59,781
163,503
151,775
U.S. Government Agency
69,120
66,826
-
-
Other Securities
8,096
8,096
-
-
Total
$
356,994
$
336,187
$
561,480
$
542,328
12
Unrealized Losses on Investment Securities.
The following table summarizes the available for sale and held to maturity 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
September 30, 2024
Available for
Sale
U.S. Government Treasury
$
-
$
-
$
17,490
$
658
$
17,490
$
658
U.S. Government Agency
10,677
32
106,912
4,877
117,589
4,909
States and Political Subdivisions
1,904
140
37,262
3,099
39,166
3,239
Mortgage-Backed Securities
-
-
59,709
8,274
59,709
8,274
Corporate Debt Securities
979
112
51,417
3,820
52,396
3,932
Total
$
13,560
$
284
$
272,790
$
20,728
$
286,350
$
21,012
Held to Maturity
U.S. Government Treasury
117,561
1,063
272,992
6,361
390,553
7,424
Mortgage-Backed Securities
2,954
4
130,035
11,880
132,989
11,884
Total
$
120,515
$
1,067
$
403,027
$
18,241
$
523,542
$
19,308
December 31, 2023
Available for
Sale
U.S. Government Treasury
$
-
$
-
$
19,751
$
1,269
$
19,751
$
1,269
U.S. Government Agency
12,890
74
121,220
7,979
134,110
8,053
States and Political Subdivisions
1,149
31
37,785
4,830
38,934
4,861
Mortgage-Backed Securities
23
-
63,195
9,714
63,218
9,714
Corporate Debt Securities
-
-
57,568
6,031
57,568
6,031
Total
$
14,062
$
105
$
299,519
$
29,823
$
313,581
$
29,928
Held to Maturity
U.S. Government Treasury
153,880
3,178
287,310
13,314
441,190
16,492
Mortgage-Backed Securities
786
14
148,282
16,778
149,068
16,792
Total
$
154,666
$
3,192
$
435,592
$
30,092
$
590,258
$
33,284
At September 30, 2024, there were
818
positions (combined AFS and HTM) with unrealized losses totaling $
40.3
million.
73
of these
positions are U.S. Treasury bonds and
carry the full faith and credit of the U.S. Government.
651
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.
At September 30, 2024, all collateralized
mortgage obligation securities, mortgage-backed securities, Small Business
Administration securities, U.S. Agency,
and U.S. Treasury
bonds held were AAA rated.
The remaining
94
positions (municipal securities and corporate bonds) have a credit component.
At
September 30, 2024, corporate debt securities had an allowance for credit
losses of $
79,000
and municipal securities had an allowance
of $
4,000
.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
various risk management procedures, including the
monitoring of credit ratings.
A majority of the debt securities in the Company’s
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
by the U.S. government.
The Company believes the
long history of no credit losses on these securities indicates that the expectation
of nonpayment of the amortized cost basis is
effectively zero, even if the U.S. government were
to technically default.
Further, certain municipal securities held by the Company
have been pre-refunded and secured by government guaranteed
treasuries.
Therefore, for the aforementioned securities, the Company
does
no
t assess or record expected credit losses due to the zero loss assumption.
The Company monitors the credit quality of its
municipal and corporate securities portfolio via credit ratings
which are updated on a quarterly basis.
On a quarterly basis, municipal
and corporate securities in an unrealized loss position are evaluated to determine
if the loss is attributable to credit related factors and
if an allowance for credit loss is needed.
13
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
FOR CREDIT LOSSES
Loan Portfolio Composition
.
The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
September 30, 2024
December 31, 2023
Commercial, Financial and Agricultural
$
194,625
$
225,190
Real Estate – Construction
218,899
196,091
Real Estate – Commercial Mortgage
819,955
825,456
Real Estate – Residential
(1)
1,023,946
1,004,219
Real Estate – Home Equity
210,988
210,920
Consumer
(2)
214,683
272,042
Loans Held For Investment, Net of Unearned Income
$
2,683,096
$
2,733,918
(1)
Includes loans in process balances of $
2.7
million and $
3.2
million at September 30, 2024 and December 31, 2023, respectively.
(2)
Includes overdraft balances of $
1.4
million and $
1.0
million at September 30, 2024 and December 31, 2023, respectively.
Net deferred loan costs, which include premiums on purchased loans,
included in loans were $
7.9
million at September 30, 2024 and
$
7.8
million at December 31, 2023.
Accrued interest receivable on loans which is excluded from amortized
cost totaled $
10.6
million at September 30, 2024 and $
10.1
million at December 31, 2023, 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 CCHL, a related party.
Residential loan purchases from CCHL totaled $
111.1
million and $
293.1
million for the nine
months ended September 30, 2024 and September 30, 2023, respectively,
and were not credit impaired.
14
Allowance for Credit Losses
.
The methodology for estimating the amount of credit losses reported in the
allowance for credit losses
(“ACL”) has two basic components: first, an asset-specific component
involving loans that do not share risk characteristics and the
measurement of expected credit losses for such individual loans; and second,
a pooled component for expected credit losses for pools
of loans that share similar risk characteristics.
This allowance methodology is discussed further in Note 1 – Significant
Accounting
Policies in the Company’s 2023 Form
10-K, as amended.
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
September 30, 2024
Beginning Balance
$
1,575
$
1,751
$
6,076
$
14,788
$
1,865
$
3,164
$
29,219
Provision for Credit Losses
134
442
547
(240)
(49)
1,045
1,879
Charge-Offs
(331)
-
(3)
-
(23)
(1,926)
(2,283)
Recoveries
176
-
5
88
59
693
1,021
Net (Charge-Offs) Recoveries
(155)
-
2
88
36
(1,233)
(1,262)
Ending Balance
$
1,554
$
2,193
$
6,625
$
14,636
$
1,852
$
2,976
$
29,836
Nine Months Ended
September 30, 2024
Beginning Balance
$
1,482
$
2,502
$
5,782
$
15,056
$
1,818
$
3,301
$
29,941
Provision for Credit Losses
809
(309)
618
(551)
13
3,310
3,890
Charge-Offs
(1,013)
-
(3)
(17)
(99)
(5,746)
(6,878)
Recoveries
276
-
228
148
120
2,111
2,883
Net (Charge-Offs) Recoveries
(737)
-
225
131
21
(3,635)
(3,995)
Ending Balance
$
1,554
$
2,193
$
6,625
$
14,636
$
1,852
$
2,976
$
29,836
Three Months Ended
September 30, 2023
Beginning Balance
$
1,446
$
2,848
$
5,453
$
13,388
$
1,783
$
3,325
$
28,243
Provision for Credit Losses
(59)
(536)
84
1,356
(71)
1,219
1,993
Charge-Offs
(76)
-
-
-
-
(1,999)
(2,075)
Recoveries
28
-
17
30
53
794
922
Net Charge-Offs
(48)
-
17
30
53
(1,205)
(1,153)
Ending Balance
$
1,339
$
2,312
$
5,554
$
14,774
$
1,765
$
3,339
$
29,083
Nine Months Ended
September 30, 2023
Beginning Balance
$
1,506
$
2,654
$
4,815
$
10,741
$
1,864
$
3,488
$
25,068
Provision for Credit Losses
(67)
(344)
823
3,814
(269)
3,218
7,175
Charge-Offs
(294)
-
(120)
-
(39)
(6,252)
(6,705)
Recoveries
194
2
36
219
209
2,885
3,545
Net Charge-Offs
(100)
2
(84)
219
170
(3,367)
(3,160)
Ending Balance
$
1,339
$
2,312
$
5,554
$
14,774
$
1,765
$
3,339
$
29,083
For the nine months ended September 30, 2024, the allowance for
loans HFI decreased by $
0.1
million and reflected a provision
expense of $
3.9
million and net loan charge-offs of $
4.0
million.
The decrease in the allowance was primarily due to lower loan
balances offset by higher loss rates and loan grade migration
.
For the nine months ended September 30, 2023, the allowance for loans
HFI increased by $
4.0
million and reflected a provision expense of $
7.2
million and net loan charge-offs of $
3.2
million.
The increase
was primarily driven by incremental reserves needed for loan growth and
a higher loss rate for the residential real estate portfolio due
to slower prepayment speeds.
Unemployment forecast scenarios were utilized to estimate probability
of default and are weighted
based on management’s estimate
of probability.
See Note 8 – Commitments and Contingencies for information on the allowance for
off-balance sheet credit commitments.
15
Loan Portfolio Aging.
A loan is defined as a past due loan when one full payment is past due or a contractual maturity
is over 30 days
past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing
past due loans by class of loans.
30-59
60-89
90 +
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
September 30, 2024
Commercial, Financial and Agricultural
$
669
$
10
$
-
$
679
$
193,816
$
130
$
194,625
Real Estate – Construction
2,025
-
-
2,025
216,552
322
218,899
Real Estate – Commercial Mortgage
703
-
-
703
818,870
382
819,955
Real Estate – Residential
1,070
389
-
1,459
1,018,892
3,595
1,023,946
Real Estate – Home Equity
629
-
-
629
209,478
881
210,988
Consumer
3,697
196
-
3,893
209,508
1,282
214,683
Total
$
8,793
$
595
$
-
$
9,388
$
2,667,116
$
6,592
$
2,683,096
December 31, 2023
Commercial, Financial and Agricultural
$
311
$
105
$
-
$
416
$
224,463
$
311
$
225,190
Real Estate – Construction
206
-
-
206
195,563
322
196,091
Real Estate – Commercial Mortgage
794
-
-
794
823,753
909
825,456
Real Estate – Residential
670
34
-
704
1,000,525
2,990
1,004,219
Real Estate – Home Equity
268
-
-
268
209,653
999
210,920
Consumer
3,693
774
-
4,467
266,864
711
272,042
Total
$
5,942
$
913
$
-
$
6,855
$
2,720,821
$
6,242
$
2,733,918
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.
September 30, 2024
December 31, 2023
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
$
-
$
130
$
-
$
-
$
311
$
-
Real Estate – Construction
275
47
-
-
322
-
Real Estate – Commercial Mortgage
229
153
-
781
128
-
Real Estate – Residential
2,293
1,302
-
1,705
1,285
-
Real Estate – Home Equity
-
881
-
-
999
-
Consumer
-
1,282
-
-
711
-
Total Nonaccrual
Loans
$
2,797
$
3,795
$
-
$
2,486
$
3,756
$
-
16
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
loans.
September 30, 2024
December 31, 2023
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
-
$
101
$
-
$
30
Real Estate – Construction
275
-
275
-
Real Estate – Commercial Mortgage
229
-
1,296
-
Real Estate – Residential
2,999
-
1,706
-
Real Estate – Home Equity
-
-
-
-
Consumer
-
-
-
-
Total Collateral Dependent
Loans
$
3,503
$
101
$
3,277
$
30
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 September 30, 2024 and December 31, 2023, the Company had $
0.7
million and $
0.5
million, respectively, in
1-4 family residential real estate loans for which formal foreclosure proceedings were
in
process.
Modifications to Borrowers Experiencing
Financial Difficulty.
Occasionally, the Company may
modify loans to borrowers who are
experiencing financial difficulty.
Loan modifications to borrowers in financial difficulty are loans in
which the Company has granted
an economic concession to the borrower that it would not otherwise consider.
In these instances, as part of a work-out alternative, the
Company will make concessions including the extension of the loan
term, a principal moratorium, a reduction in the interest rate, or a
combination thereof.
The impact of the modifications and defaults are factored into the allowance for credit
losses on a loan-by-loan
basis.
Thus, specific reserves are established based upon the results of either a
discounted cash flow analysis or the underlying
collateral value, if the loan is deemed to be collateral dependent.
A modified loan classification can be removed if the borrower’s
financial condition improves such that the borrower is no longer in financial difficulty,
the loan has not had any forgiveness of
principal or interest, and the loan is subsequently refinanced or restructured
at market terms and qualifies as a new loan.
At September 30, 2024, and December 31, 2023, the Company did
no
t have any modified loans made to borrowers due to the
borrower 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.
17
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.
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.
The following tables summarize gross loans held for investment at September
30, 2024 and December 31, 2023 and current period
gross write-offs for the nine months ended September 30, 2024
and twelve months ended December 31, 2023 by years of origination
and internally assigned credit risk ratings (refer to Credit Risk Management
section for detail on risk rating system).
18
(Dollars in Thousands)
Term
Loans by Origination Year
Revolving
As of September 30, 2024
2024
2023
2022
2021
2020
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
28,841
$
45,675
$
41,999
$
20,867
$
6,012
$
10,488
$
39,124
$
193,006
Special Mention
200
309
393
18
2
-
79
1,001
Substandard
-
25
221
88
100
86
98
618
Total
$
29,041
$
46,009
$
42,613
$
20,973
$
6,114
$
10,574
$
39,301
$
194,625
Current-Period Gross
Writeoffs
$
8
$
248
$
392
$
86
$
124
$
-
$
155
$
1,013
Real Estate - Construction:
Pass
$
72,961
$
101,277
$
34,631
$
4,129
$
-
$
185
$
667
$
213,850
Special Mention
3,472
-
1,255
-
-
-
-
4,727
Substandard
-
-
47
275
-
-
-
322
Total
$
76,433
$
101,277
$
35,933
$
4,404
$
-
$
185
$
667
$
218,899
Real Estate - Commercial
Mortgage:
Pass
$
60,755
$
117,689
$
234,557
$
124,203
$
90,813
$
128,123
$
23,897
$
780,037
Special Mention
173
2,947
14,385
-
518
5,349
647
24,019
Substandard
5,162
2,330
3,477
755
2,526
1,649
-
15,899
Total
$
66,090
$
122,966
$
252,419
$
124,958
$
93,857
$
135,121
$
24,544
$
819,955
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
3
$
3
Real Estate - Residential:
Pass
$
117,374
$
330,178
$
367,873
$
72,716
$
31,994
$
80,541
$
11,118
$
1,011,794
Special Mention
-
266
-
1,176
611
554
-
2,607
Substandard
-
117
2,091
2,568
1,173
3,596
-
9,545
Total
$
117,374
$
330,561
$
369,964
$
76,460
$
33,778
$
84,691
$
11,118
$
1,023,946
Current-Period Gross
Writeoffs
$
-
$
13
$
-
$
-
$
-
$
4
$
-
$
17
Real Estate - Home Equity:
Performing
$
493
$
527
$
41
$
123
$
10
$
840
$
208,073
$
210,107
Nonperforming
-
-
-
-
-
-
881
881
Total
$
493
$
527
$
41
$
123
$
10
$
840
$
208,954
$
210,988
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
99
$
99
Consumer:
Performing
$
24,067
$
49,898
$
63,085
$
48,338
$
13,116
$
5,851
$
9,045
$
213,400
Nonperforming
180
376
351
241
110
12
13
1,283
Total
$
24,247
$
50,274
$
63,436
$
48,579
$
13,226
$
5,863
$
9,058
$
214,683
Current-Period Gross
Writeoffs
$
1,871
$
1,142
$
1,690
$
684
$
144
$
72
$
143
$
5,746
19
(Dollars in Thousands)
Term
Loans by Origination Year
Revolving
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
57,320
$
66,671
$
28,933
$
10,610
$
7,758
$
7,502
$
44,350
$
223,144
Special Mention
168
608
356
10
9
-
76
1,227
Substandard
164
177
98
77
20
122
161
819
Total
$
57,652
$
67,456
$
29,387
$
10,697
$
7,787
$
7,624
$
44,587
$
225,190
Current-Period Gross
Writeoffs
$
6
$
252
$
65
$
31
$
41
$
19
$
97
$
511
Real Estate - Construction:
Pass
$
101,684
$
68,265
$
18,181
$
-
$
188
$
-
$
4,617
$
192,935
Special Mention
631
500
539
212
-
-
-
1,882
Substandard
-
47
576
651
-
-
-
1,274
Total
$
102,315
$
68,812
$
19,296
$
863
$
188
$
-
$
4,617
$
196,091
Real Estate - Commercial
Mortgage:
Pass
$
117,840
$
275,079
$
135,663
$
101,210
$
43,878
$
109,878
$
18,367
$
801,915
Special Mention
3,266
5,684
-
229
1,358
573
-
11,110
Substandard
-
1,226
6,695
1,637
605
1,574
694
12,431
Total
$
121,106
$
281,989
$
142,358
$
103,076
$
45,841
$
112,025
$
19,061
$
825,456
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
120
$
-
$
120
Real Estate - Residential:
Pass
$
372,394
$
400,437
$
83,108
$
35,879
$
24,848
$
68,685
$
8,252
$
993,603
Special Mention
268
89
83
502
-
313
-
1,255
Substandard
570
1,110
1,906
1,626
1,007
3,142
-
9,361
Total
$
373,232
$
401,636
$
85,097
$
38,007
$
25,855
$
72,140
$
8,252
$
1,004,219
Current-Period Gross
Writeoffs
$
-
$
-
$
79
$
-
$
-
$
-
$
-
$
79
Real Estate - Home Equity:
Performing
$
890
$
48
$
127
$
11
$
386
$
950
$
207,509
$
209,921
Nonperforming
-
-
-
-
-
-
999
999
Total
$
890
$
48
$
127
$
11
$
386
$
950
$
208,508
$
210,920
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
39
Consumer:
Performing
$
68,496
$
90,031
$
70,882
$
21,314
$
10,210
$
4,258
$
5,431
$
270,622
Nonperforming
293
355
58
4
-
-
710
1,420
Total
$
68,789
$
90,386
$
70,940
$
21,318
$
10,210
$
4,258
$
6,141
$
272,042
Current-Period Gross
Writeoffs
$
3,137
$
3,224
$
1,362
$
329
$
230
$
99
$
162
$
8,543
20
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,
such as interest rate lock commitments (“IRLC’s”)
and forward contract sales and their related fair
values are set- forth below.
September 30, 2024
December 31, 2023
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
30,186
$
31,251
$
27,944
$
28,211
Residential Mortgage Loan Commitments ("IRLCs")
(1)
29,734
556
23,545
523
Forward Sales Contracts
(2)
31,500
3
24,500
209
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at
fair value, respectively
At September 30, 2024, the Company had
no
residential mortgage loans held for sale 30-89 days past due and $
0.7
million of loans
were on nonaccrual status. At December 31, 2023, the Company had
no
residential mortgage loans held for sale 30-89 days past due
and $
0.7
million of loans were on nonaccrual status.
Mortgage banking revenue was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2024
2023
2024
2023
Net realized gains on sales of mortgage loans
$
3,664
$
1,350
$
8,499
$
4,843
Net change in unrealized gain on mortgage loans held for sale
143
(1,223)
312
(1,700)
Net change in the fair value of IRLC's
(135)
(412)
32
39
Net change in the fair value of forward sales contracts
(52)
80
212
(5)
Pair-Offs on net settlement of forward sales contracts
(383)
359
(173)
454
Mortgage servicing rights additions
50
184
292
471
Net origination fees
679
1,501
2,051
3,970
Total mortgage banking
revenues
$
3,966
$
1,839
$
11,225
$
8,072
21
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
sold.
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
September 30, 2024
December 31, 2023
Number of residential mortgage loans serviced for others
483
450
Outstanding principal balance of residential mortgage loans serviced
for others
$
130,292
$
108,897
Weighted average
interest rate
5.74%
5.37%
Remaining contractual term (in months)
350
309
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
September 30, 2024, the servicing portfolio balance consisted of
the following loan types: FNMA (
57
%), GNMA (
4
%), and private
investor (
39
%).
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 September 30, 2024 and
December 31, 2023, respectively.
The Company had
no
repurchases for the three and nine months ended September 30, 2024, and
$
0.8
million and $
2.2
million for the three and nine months ended September 30, 2023, 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:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2024
2023
2024
2023
Beginning balance
$
965
$
565
$
831
$
2,599
Additions due to loans sold with servicing retained
50
184
292
471
Deletions and amortization
(46)
(45)
(154)
(79)
Sale of servicing rights
-
-
-
(2,287)
Ending balance
$
969
$
704
$
969
$
704
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the
three months ended September 30,
2024 or 2023.
The key unobservable inputs used in determining the fair value of the Company’s
mortgage servicing rights were as follows:
September 30, 2024
December 31, 2023
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
Annual prepayment speeds
9.79%
20.51%
11.23%
17.79%
Cost of servicing (per loan)
$
85
$
95
$
85
$
95
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
14.16
% at September 30, 2024 and
14.22
% at December 31, 2023.
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
agreements with various financial institutions at
September 30, 2024.
22
Amounts
(Dollars in Thousands)
Outstanding
$
25
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%
to
4.25%
.
A cash pledge deposit of $
0.1
million is required by the lender.
$
1,954
$
25
million warehouse line of credit agreement expiring in
December 2024
.
Interest is at the SOFR plus
2.75%
,
to
3.25%
.
5,810
Total Warehouse
Borrowings
$
7,764
Warehouse
line borrowings are classified as short-term borrowings.
At December 31, 2023, warehouse line borrowings totaled $
8.4
million. At September 30, 2024, the Company had residential mortgage
loans held for sale 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 September 30,
2024.
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 was $
35.9
million and $
31.4
million at September 30, 2024 and December 31, 2023, 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 September 30, 2024 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)
September 30, 2024
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
4,444
5.8
December 31, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,317
6.5
23
The following table presents the change in 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 nine months ended September
30, 2024.
Change in Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended September 30, 2024
Interest expense
$
(941)
$
377
Three months ended September 30, 2023
Interest expense
574
375
Nine months ended September 30, 2024
Interest expense
$
(652)
$
1,128
Nine months ended September 30, 2023
Interest expense
413
1,016
The Company estimates there will be approximately $
1.0
million reclassified as a decrease to interest expense within the next 12
months.
The Company had a collateral liability of $
4.4
million and $
5.5
million at September 30, 2024 and December 31, 2023, 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 one to
41
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 September 30, 2024, the operating lease ROU assets and liabilities were $
25.2
million and $
25.8
million, respectively. At
December 31, 2023, ROU assets and liabilities were $
27.0
million and $
27.4
million, respectively.
The Company does not have any
finance leases and has recognized $
0.5
million of income for a short-term operating lease agreement in which the
Company is a lessor.
The table below summarizes our lease expense and other information related
to the Company’s operating leases.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2024
2023
2024
2023
Operating lease expense
$
841
$
710
$
2,509
$
2,114
Short-term lease expense
229
167
618
438
Total lease expense
$
1,070
$
877
$
3,127
$
2,552
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
1,095
$
720
$
2,315
$
2,131
Right-of-use assets obtained in exchange for new operating lease liabilities
29
55
69
3,048
Weighted average
remaining lease term — operating leases (in years)
16.7
18.4
16.7
18.4
Weighted average
discount rate — operating leases
3.5%
3.3%
3.5%
3.3%
24
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
September 30, 2024
2024
$
1,098
2025
3,093
2026
2,957
2027
2,888
2028
2,633
2029 and thereafter
20,690
Total
$
33,359
Less: Interest
(7,541)
Present Value
of Lease liability
$
25,818
At September 30, 2024, the Company had
one
additional operating lease obligation for a banking office (to be constructed)
that has
not yet commenced.
The lease has payments totaling $
3.8
million based on an initial contract term of
15
years.
Payments for the
banking office are expected to commence after the construction
period ends, which is expected to occur during the fourth quarter of
2024.
A related party is the lessor in a land lease with the Company.
The payments under the lease agreement provide for annual lease
payments of approximately $
0.1
million annually through December 2033, and thereafter,
increase by
5
% every
10
years until 2053 at
which time the rent amount will adjust based on reappraisal of the parcel rental
value.
The Company then has
four
successive options
to extend the lease for
five years
each with rental increases of 5% at each extension.
The aggregate remaining obligation of the lease
totaled $
2.2
million at September 30, 2024.
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 September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2024
2023
2024
2023
Service Cost
$
929
$
872
$
2,786
$
2,616
Interest Cost
1,524
1,458
4,572
4,374
Expected Return on Plan Assets
(2,029)
(1,701)
(6,087)
(5,104)
Prior Service Cost Amortization
-
1
-
4
Net Loss Amortization
41
234
123
701
Net Periodic Benefit Cost
$
465
$
864
$
1,394
$
2,591
Discount Rate
5.29%
5.63%
5.29%
5.63%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
25
The components of the net periodic benefit cost for the Company’s
SERP and SERP II were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2024
2023
2024
2023
Service Cost
$
9
$
4
$
27
$
13
Interest Cost
114
120
341
381
Prior Service Cost Amortization
-
38
-
114
Net Loss Amortization
(71)
(111)
(210)
(420)
Pension Settlement Gain
-
-
-
(291)
Net Periodic Benefit Cost
$
52
$
51
$
158
$
(203)
Discount Rate
5.11%
5.33%
5.11%
5.41%
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:
September 30, 2024
December 31, 2023
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
(1)
$
214,353
$
499,853
$
714,206
$
207,605
$
534,745
$
742,350
Standby Letters of Credit
6,126
-
6,126
6,094
-
6,094
Total
$
220,479
$
499,853
$
720,332
$
213,699
$
534,745
$
748,444
(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.
26
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 September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2024
2023
2024
2023
Beginning Balance
$
3,139
$
3,120
$
3,191
$
2,989
Provision for Credit Losses
(617)
382
(669)
513
Ending Balance
$
2,522
$
3,502
$
2,522
$
3,502
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.
The Company has an outstanding 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 commitments
of up to $
8.9
million for a solar tax credit equity fund
investment.
At September 30, 2024, the amount remaining to be funded for the bank tech venture
capital and solar tax credit equity
investment fund commitments was $
0.4
million and $
1.2
million, respectively.
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.
There was a $
0.5
million counterparty payment accrued and payable at September 30, 2024
due to a revision to the share
conversion rate related to additional funding by VISA of the merchant
litigation reserve.
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.
Accounting Standards Codification 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.
27
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 carried at cost and
the share of earnings or losses is reported
through net income as an adjustment to the investment balance. These securities are not
readily marketable and therefore are classified
as a Level 3 input within the fair value hierarchy.
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. There was $
0.5
million counterparty payment accrued and payable at September 30, 2024,
and
no
amounts payable at
December 31, 2023.
28
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
September 30, 2024
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
50,646
$
-
$
-
$
50,646
U.S. Government Agency
-
125,330
-
125,330
States and Political Subdivisions
-
40,017
-
40,017
Mortgage-Backed Securities
-
59,781
-
59,781
Corporate Debt Securities
-
52,317
-
52,317
Equity Securities
-
-
6,976
6,976
Loans Held for Sale
-
31,251
-
31,251
Residential Mortgage Loan Commitments ("IRLCs")
-
-
556
556
Interest Rate Swap Derivative
-
4,444
-
4,444
Forward Sales Contracts
-
3
-
3
LIABILITIES:
Fair Value
Swap
-
-
548
548
December 31, 2023
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
24,679
$
-
$
-
$
24,679
U.S. Government Agency
-
145,034
-
145,034
States and Political Subdivisions
-
39,083
-
39,083
Mortgage-Backed Securities
-
63,303
-
63,303
Corporate Debt Securities
-
57,552
-
57,552
Equity Securities
-
-
3,450
3,450
Loans Held for Sale
-
28,211
-
28,211
Residential Mortgage Loan Commitments ("IRLCs")
-
-
523
523
Interest Rate Swap Derivative
-
5,317
-
5,317
LIABILITIES:
Forward Sales Contracts
-
209
-
209
Mortgage Banking Activities
.
The Company had Level 3 issuances and transfers related to mortgage banking
activities of $
5.9
million
and $
11.0
million, respectively, for the
nine months ended September 30, 2024, and $
11.1
million and $
16.3
million, respectively,
for
the nine months ended September 30, 2023.
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 $
3.6
million with a valuation allowance of $
0.1
million at September 30,
2024 and a carrying value of $
3.3
million and a $
0.1
million valuation allowance at December 31, 2023.
29
Other Real Estate Owned
.
During the first nine months of 2024, 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 September 30, 2024 and December 31, 2023, 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.
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.”
Other Equity Securities.
Other equity securities are accounted for under the equity method (Topic
323) and recorded at cost.
These
securities are not readily marketable securities and are reflected in Other
Assets on the Statement of Financial Condition.
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.
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.
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.
30
A summary of estimated fair values of significant financial instruments not
recorded at fair value consisted of the following:
September 30, 2024
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
83,431
$
83,431
$
-
$
-
Fed Funds Sold and Interest Bearing Deposits
261,779
261,779
-
-
Investment Securities, Held to Maturity
561,480
390,553
151,775
-
Other Equity Securities
2,848
-
2,848
-
Mortgage Servicing Rights
969
-
-
1,484
Loans, Net of Allowance for Credit Losses
2,653,260
-
-
2,529,755
LIABILITIES:
Deposits
$
3,579,077
$
-
$
3,140,058
$
-
Short-Term
Borrowings
37,268
-
37,268
-
Subordinated Notes Payable
52,887
-
42,259
-
Long-Term Borrowings
794
-
794
-
December 31, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
83,118
$
83,118
$
-
$
-
Fed Funds Sold and Interest Bearing Deposits
228,949
228,949
-
-
Investment Securities, Held to Maturity
625,022
441,189
150,562
-
Other Equity Securities
2,848
-
2,848
-
Mortgage Servicing Rights
831
-
-
1,280
Loans, Net of Allowance for Credit Losses
2,703,977
-
-
2,510,529
LIABILITIES:
Deposits
$
3,701,822
$
-
$
3,243,896
$
-
Short-Term
Borrowings
35,341
-
35,341
-
Subordinated Notes Payable
52,887
-
44,323
-
Long-Term Borrowings
315
-
315
-
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.
31
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, 2024
$
(25,691)
$
3,970
$
(425)
$
(22,146)
Other comprehensive income (loss) during the period
8,716
(652)
-
8,064
Balance as of September 30, 2024
$
(16,975)
$
3,318
$
(425)
$
(14,082)
Balance as of January 1, 2023
$
(37,349)
$
4,625
$
(4,505)
$
(37,229)
Other comprehensive income (loss) during the period
2,357
413
(217)
2,553
Balance as of September 30, 2023
$
(34,992)
$
5,038
$
(4,722)
$
(34,676)
32
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 the third quarter of 2024 compares with
prior periods.
Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively,
is referred to as “CCBG,”
“Company,”
“we,” “us,” or “our.”
CAUTION CONCERNING FORWARD
-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains
“forward-looking statements”
within the meaning of the
Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, among others, statements about
our
beliefs, plans, objectives, goals, expectations, estimates and intentions that are
subject to significant risks and uncertainties and are
subject to change based on various factors, many of which are beyond
our control.
The words “may,”
“could,” “should,” “would,”
“believe,” “anticipate,”
“estimate,” “expect,”
“intend,” “plan,”
“target,”
“vision,” “goal,”
and similar expressions are intended to
identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
Our actual future results may differ materially
from those set forth in our forward-looking statements.
Please see the Introductory Note of this quarterly report on Form 10-Q
as well
as the Introductory Note and
Item 1A. Risk Factors
of our 2023 Form 10-K, as amended, as updated in our subsequent quarterly
reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after
the date of this report.
However, other factors besides those listed in our
Quarterly Report or in our Annual Report also could adversely affect our
results,
and you should not consider any such list of factors to be a complete set of all potential risks or
uncertainties.
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
We do not undertake to
update any forward-looking
statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial
holding company headquartered in Tallahassee,
Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the “Bank” or “CCB”).
We offer
a broad array of products and services through a total of 63 full-service offices
and 105 ATMs/ITMs
located in Florida, Georgia, and Alabama.
Through Capital City Home Loans, LLC (“CCHL”), we have 29
additional offices in the Southeast for our mortgage banking business.
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 our long-term strategic objectives as part of the MD&A section
of our 2023 Form 10-K, as
amended.
33
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.
2024
2023
(Dollars in Thousands, except per share data)
Third
Second
First
Fourth
Third
Shareowners' Equity (GAAP)
$
476,499
$
460,999
$
448,314
$
440,625
$
419,706
Less: Goodwill and Other Intangibles (GAAP)
92,813
92,853
92,893
92,933
92,973
Tangible Shareowners' Equity (non-GAAP)
A
383,686
368,146
355,421
347,692
326,733
Total Assets (GAAP)
4,225,316
4,225,695
4,259,922
4,304,477
4,138,287
Less: Goodwill and Other Intangibles (GAAP)
92,813
92,853
92,893
92,933
92,973
Tangible Assets (non-GAAP)
B
$
4,132,503
$
4,132,842
$
4,167,029
$
4,211,544
$
4,045,314
Tangible Common Equity Ratio (non-GAAP)
A/B
9.28%
8.91%
8.53%
8.26%
8.08%
Actual Diluted Shares Outstanding (GAAP)
C
16,980,686
16,970,228
16,947,204
17,000,758
16,997,886
Tangible Book Value
per Diluted Share (non-GAAP)
A/C
22.60
21.69
20.97
20.45
19.22
34
SELECTED QUARTERLY
FINANCIAL DATA
(UNAUDITED)
2024
2023
(Dollars in Thousands, Except Per Share Data)
Third
Second
First
Fourth
Third
Summary of Operations
:
Interest Income
$
49,328
$
48,766
$
46,820
$
46,184
$
45,753
Interest Expense
9,117
9,497
8,465
7,013
6,473
Net Interest Income
40,211
39,269
38,355
39,171
39,280
Provision for Credit Losses
1,206
1,204
920
2,025
2,393
Net Interest Income After
Provision for Credit Losses
39,005
38,065
37,435
37,146
36,887
Noninterest Income
19,513
19,606
18,097
17,157
16,728
Noninterest Expense
42,921
40,441
40,171
39,958
39,105
Income Before Income Taxes
15,597
17,230
15,361
14,345
14,510
Income Tax Expense
2,980
3,189
3,536
2,909
3,004
Loss Attributable to NCI
501
109
732
284
1,149
Net Income Attributable to CCBG
13,118
14,150
12,557
11,720
12,655
Net Interest Income (FTE)
(1)
40,260
39,334
38,435
39,264
39,367
Per Common Share
:
Net Income Basic
$
0.77
$
0.84
$
0.74
$
0.69
$
0.75
Net Income Diluted
0.77
0.83
0.74
0.70
0.74
Cash Dividends Declared
0.23
0.21
0.21
0.20
0.20
Diluted Book Value
28.06
27.17
26.45
25.92
24.69
Diluted Tangible Book Value
(2)
22.60
21.69
20.97
20.45
19.22
Market Price:
High
36.67
28.58
31.34
32.56
33.44
Low
26.72
25.45
26.59
26.12
28.64
Close
35.29
28.44
27.70
29.43
29.83
Selected Average Balances
:
Investment Securities
$
908,456
$
919,832
$
953,184
$
963,184
$
1,005,003
Loans Held for Investment
2,693,533
2,726,748
2,728,629
2,711,243
2,672,653
Earning Assets
3,883,414
3,935,280
3,849,615
3,823,980
3,876,980
Total Assets
4,215,862
4,272,188
4,190,623
4,166,777
4,218,855
Deposits
3,572,034
3,641,028
3,576,513
3,548,506
3,596,816
Shareowners’ Equity
480,137
465,297
456,014
435,116
427,580
Common Equivalent Average Shares:
Basic
16,943
16,931
16,951
16,947
16,985
Diluted
16,979
16,960
16,969
16,997
17,025
Performance Ratios:
Return on Average Assets (annualized)
1.24
%
1.33
%
1.21
%
1.12
%
1.19
%
Return on Average Equity (annualized)
10.87
12.23
11.07
10.69
11.74
Net Interest Margin (FTE)
4.12
4.02
4.01
4.07
4.03
Noninterest Income as % of Operating Revenue
32.67
33.30
32.06
30.46
29.87
Efficiency Ratio
71.81
68.61
71.06
70.82
69.88
Asset Quality:
Allowance for Credit Losses (“ACL”)
$
29,836
$
29,219
$
29,329
$
29,941
$
29,083
Nonperforming Assets (“NPAs”)
7,242
6,165
6,799
6,243
4,695
ACL to Loans HFI
1.11
%
1.09
%
1.07
%
1.10
%
1.08
%
NPAs to Total
Assets
0.17
0.15
0.16
0.15
0.11
NPAs to Loans HFI plus OREO
0.27
0.23
0.25
0.23
0.17
ACL to Non-Performing Loans
452.64
529.79
431.46
479.70
619.58
Net Charge-Offs to Average Loans HFI
0.19
0.18
0.22
0.23
0.17
Capital Ratios:
Tier 1 Capital
16.77
%
16.31
%
15.67
%
15.37
%
15.11
%
Total Capital
17.97
17.50
16.84
16.57
16.30
Common Equity Tier 1
14.88
14.44
13.82
13.52
13.26
Leverage
10.89
10.51
10.45
10.30
9.98
Tangible Common Equity
(2)
9.28
8.91
8.53
8.26
8.08
(1)
Fully Tax Equivalent
(2)
Non-GAAP financial measure.
See non-GAAP reconciliation on page 33.
35
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
Net income attributable to common shareowners totaled $13.1
million, or $0.77 per diluted share, for the
third quarter of 2024 compared to $14.2 million, or $0.83 per diluted
share, for the second quarter of 2024, and $12.7 million, or $0.74
per diluted share, for the third quarter of 2023.
For the first nine months of 2024, net income attributable to common shareowners
totaled $39.8 million, or $2.35 per diluted share, compared to net income of $40.5
million, or $2.38 per diluted share, for the same
period of 2023.
Net Interest Income.
Tax-equivalent net
interest income for the third quarter of 2024 totaled $40.2 million, compared
to $39.3 million
for the second quarter of 2024, and $39.4 million for the third quarter of 2023.
Compared to the second quarter of 2024, the increase
was primarily due to increases in loan and investment interest income
and a decrease in deposit interest expense, partially offset by
a
decrease in overnight funds interest income.
One additional calendar day also contributed to the increase.
Favorable repricing of
existing adjustable/fixed rate loans at higher rates drove the increase in loan
interest income.
Compared to the third quarter of 2023,
the $0.9 million increase was primarily driven by an increase in loan interest income
and to a lesser extent overnight funds interest
income, partially offset by an increase in deposit interest expense.
For the first nine months of 2024, tax-equivalent net interest
income totaled $118.0 million compared
to $120.1 million for the same period of 2023 with the decrease primarily attributable
to an
increase in deposit interest expense and a decrease in investment interest income,
partially offset by an increase in loan interest
income.
Our net interest margin for the third quarter of 2024 was 4.12%, an increase of 10 basis points
over the second quarter of
2024 and an increase of nine basis points over the third quarter of 2023.
Provision and Allowance for Credit
Losses.
We recorded
a provision expense for credit losses of $1.2 million for the third quarter of
2024, comparable to the second quarter of 2024 and a $1.2 million decrease
from the third quarter of 2023.
Compared to the second
quarter of 2024, the provision reflected a $0.7 million increase in the provision
expense for loans held for investment (“HFI”), a $0.6
million provision benefit for unfunded loan commitments, and a $0.1
million provision benefit for debt securities.
For the first nine
months of 2024, we recorded a provision expense for credit losses of $3.3
million compared to $7.7 million for the same period of
2023. The decrease reflected a $3.2 million decrease in the provision
expense for loans HFI and a $1.2 million decrease in the
provision for unfunded loan commitments. The decrease in the provision
for loans HFI was primarily due to lower new loan volume in
2024 and lower loan balances.
The decrease in the provision for unfunded loan commitments reflected a lower
level of loan
commitments.
At September 30, 2024, the allowance represented 1.11%
of loans HFI compared to 1.09% at June 30, 2024, and
1.10%
at December 31, 2023.
Noninterest Income
.
Noninterest income for the third quarter of 2024 totaled $19.5 million compared
to $19.6 million for the second
quarter of 2024 and $16.7 million for the third quarter of 2023.
The slight decrease from the second quarter of 2024 reflected a $0.4
million decrease in mortgage banking revenues partially offset by
a $0.3 million increase in wealth management fees.
Compared to
the third quarter of 2023, the $2.8 million increase was primarily attributable
to a $2.1 million increase in mortgage banking revenues
driven by a higher gain on sale margin, and a $0.8 million
increase in wealth management fees.
For the first nine months of 2024,
noninterest income totaled $57.2 million compared to $54.5 million for the same
period of 2023, primarily attributable to a $3.2
million increase in mortgage banking revenues and a $1.8 million increase in
wealth management fees, partially offset by a $2.1
million decrease in other income.
Noninterest Expense.
Noninterest expense for the third quarter of 2024 totaled $42.9 million compared
to $40.4 million for the second
quarter of 2024 and $39.1 million for the third quarter of 2023.
The $2.5 million increase over the second quarter of 2024 was
primarily due to a $1.4 million increase in compensation and a $1.0 million increase
in other expense.
Compared to the third quarter
of 2023, the $3.8 million increase was primarily attributable to a $2.8 million
increase in compensation expense and a $0.9 million
increase in other expense.
For the first nine months of 2024, noninterest expense totaled $123.5 million
compared to $117.1 million
for the same period of 2023 with the $6.4 million increase primarily attributable
to increases in compensation expense of $4.6 million,
occupancy expense of $0.5 million, and other expense of $1.3 million.
Financial Condition
Earning Assets.
Average earning
assets totaled $3.883 billion for the third quarter of 2024, a decrease of $51.9 million, or 1.3%,
from
the second quarter of 2024, and an increase of $59.4 million, or 1.6%, over the
fourth quarter of 2023.
The change for both prior
periods was driven by variances in deposit balances.
Compared to the second quarter of 2024, the change in the earning asset mix
reflected a $33.2 million decrease in loans HFI, a $11.4
million decline in investment securities, and a $5.6 million decrease in
overnight funds sold.
Compared to the fourth quarter of 2023, the change in the earning asset mix reflected a $157.1 million
increase
in overnight funds that was partially offset by a $17.7 million decrease
in loans HFI, a $54.7 million decrease in investment securities
and a $25.2 million decline in loans held for sale.
Loans.
Average loans HFI decreased
$33.2 million, or 1.2%, from the second quarter of 2024 and decreased $17.7
million, or 0.7%,
from the fourth quarter of 2023.
Period end loans HFI decreased $7.1 million, or 0.3%, from the second quarter of 2024
and
decreased $50.8 million, or 1.9%, from the fourth quarter of 2023.
36
Credit Quality
.
Nonperforming assets (nonaccrual loans and other real estate) totaled $7.2 million
at September 30, 2024 compared to
$6.2 million at June 30, 2024 and $6.2 million at December 31, 2023.
At September 30, 2024, nonperforming assets as a percent of
total assets equaled 0.17%, compared to 0.15% at June 30, 2024 and 0.15%
at December 31, 2023.
Nonaccrual loans totaled $6.6
million at September 30, 2024, a $1.1 million increase over June 30, 2024
and a $0.3 million increase over December 31, 2023.
Further, classified loans totaled $25.5 million at September
30, 2024, a $0.1 million decrease from June 30, 2024 and a $3.3
million
increase over December 31, 2023.
Deposits
.
Average total
deposits were $3.572 billion for the third quarter of 2024, a decrease of $69.0 million, or 1.9%,
from the
second quarter of 2024 and an increase of $23.5 million, or 0.7%, over the
fourth quarter of 2023.
At September 30, 2024, total
deposits were $3.579 billion, a decrease of $29.5 million, or 0.8%, from
June 30, 2024, and a decrease of $122.7 million, or 3.3%,
from December 31, 2023.
Capital
.
At September 30, 2024, we were “well-capitalized”
with a total risk-based capital ratio of 17.97% and a tangible common
equity ratio (a non-GAAP financial measure) of 9.28% compared to
17.50% and 8.91%, respectively,
at June 30, 2024 and 16.57%
and 8.26%, respectively,
at December 31, 2023.
At September 30, 2024, all of our regulatory capital ratios exceeded the threshold
to
be “well-capitalized”
under the Basel III capital standards.
RESULTS
OF OPERATIONS
The following table provides a condensed summary of our results of operations
- a discussion of the various components are discussed
in further detail below.
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands, except per share data)
2024
2024
2023
2024
2023
Interest Income
$
49,328
$
48,766
$
45,753
$
144,914
$
134,886
Taxable Equivalent Adjustments
49
65
87
194
274
Total Interest Income (FTE)
49,377
48,831
45,840
145,108
135,160
Interest Expense
9,117
9,497
6,473
27,079
15,067
Net Interest Income (FTE)
40,260
39,334
39,367
118,029
120,093
Provision for Credit Losses
1,206
1,204
2,393
3,330
7,689
Taxable Equivalent Adjustments
49
65
87
194
274
Net Interest Income After Provision for Credit Losses
39,005
38,065
36,887
114,505
112,130
Noninterest Income
19,513
19,606
16,728
57,216
54,452
Noninterest Expense
42,921
40,441
39,105
123,533
117,066
Income Before Income Taxes
15,597
17,230
14,510
48,188
49,516
Income Tax Expense
2,980
3,189
3,004
9,705
10,130
Pre-Tax Loss Attributable to Noncontrolling Interest
501
109
1,149
1,342
1,153
Net Income Attributable to Common Shareowners
$
13,118
$
14,150
$
12,655
$
39,825
$
40,539
Basic Net Income Per Share
$
0.77
$
0.84
$
0.75
$
2.35
$
2.38
Diluted Net Income Per Share
$
0.77
$
0.83
$
0.74
$
2.35
$
2.38
37
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, “Average Balances &
Interest Rates,” on page 48.
Tax-equivalent net
interest income for the third quarter of 2024 totaled $40.2 million, compared to $39.3
million for the second quarter
of 2024, and $39.4
million for the third quarter of 2023.
Compared to the second quarter of 2024, the increase was primarily due to
increases in loan and investment interest income and a decrease in deposit interest expense,
partially offset by a decrease in overnight
funds interest income.
One additional calendar day also contributed to the increase.
Favorable repricing of existing adjustable/fixed
rate loans at higher rates drove the increase in loan interest income.
The increase in investment interest income was due to the
reinvestment of maturing securities at higher rates.
The decrease in deposit interest expense was attributable to lower average
NOW
account balances and average rate, in addition to lower rates on promotional
deposit products.
Compared to the third quarter of 2023, the $0.9 million increase was primarily driven
by an increase in loan interest income and to a
lesser extent overnight funds interest income, partially offset by an
increase in deposit interest expense.
For the first nine months of
2024, tax-equivalent net interest income totaled $118.0
million compared to $120.1 million for the same period of 2023 with the
decrease primarily attributable to an increase in deposit interest expense and
a decrease in investment interest income, partially offset
by an increase in loan interest income.
Our net interest margin for the third quarter of 2024 was 4.12%, an increase
of 10 basis points over the second quarter of 2024 and an
increase of nine basis points over the third quarter of 2023.
For the month of September 2024, our net interest margin was 4.16%.
For
the first nine months of 2024, our net interest margin was 4.05%
compared to 4.04% for the same period of 2023.
The increase over
the second quarter of 2024 reflected favorable loan and investment repricing,
partially offset by a lower overnight funds rate.
The
increase over both prior year periods reflected higher loan rates partially
offset by a higher cost of deposits.
For the third quarter of
2024, our cost of funds was 93 basis points, a decrease of four basis points from
the second quarter of 2024 and an increase of 27 basis
points over the third quarter of 2023.
Our cost of deposits (including noninterest bearing accounts) was 92 basis points, 95
basis
points, and 58 basis points, respectively,
for the same periods.
Provision for Credit Losses
We recorded
a provision expense for credit losses of $1.2 million for the third quarter of 2024, comparable
to the second quarter of
2024 and a $1.2 million decrease from the third quarter of 2023.
Compared to the second quarter of 2024, the provision reflected a
$0.7 million increase in the provision expense for loans HFI, a $0.6
million provision benefit for unfunded loan commitments, and a
$0.1 million provision benefit for debt securities. The increase in the provision
for loans HFI was primarily due to loan grade
migration and slightly higher loss rates partially offset by
lower loan balances. A lower level of commitments drove the provision
benefit for unfunded loan commitments. For the first nine months of 2024,
we recorded a provision expense for credit losses of $3.3
million compared to $7.7 million for the same period of 2023. The decrease
reflected a $3.2 million decrease in the provision expense
for loans HFI and a $1.2 million decrease in the provision for unfunded
loan commitments. The decrease in the provision for loans
HFI was primarily due to lower new loan volume in 2024 and lower loan balance
s. The decrease in the provision for unfunded loan
commitments reflected a lower level of loan commitments. We
discuss the allowance for credit losses further below.
38
Noninterest Income
Noninterest income for the third quarter of 2024 totaled $19.5 million compared
to $19.6 million for the second quarter of 2024 and
$16.7 million for the third quarter of 2023.
The slight decrease from the second quarter of 2024 reflected a $0.4 million decrease in
mortgage banking revenues partially offset by
a $0.3 million increase in wealth management fees.
Compared to the third quarter of
2023, the $2.8 million increase was primarily attributable to a $2.1 million increase
in mortgage banking revenues driven by a higher
gain on sale margin, and a $0.8 million increase in wealth management
fees.
For the first nine months of 2024, noninterest income totaled $57.2 million
compared to $54.5 million for the same period of 2023,
primarily attributable to a $3.2 million increase in mortgage banking revenues
and a $1.8 million increase in wealth management fees,
partially offset by a $2.1 million decrease in other income.
The increase in mortgage banking revenues was due to a higher gain
on
sale margin.
The increase in wealth management fees was primarily driven by higher retail brokerage
fees and to a lesser extent trust
fees, primarily attributable to both new account growth and higher
account values driven by higher market returns.
The decrease in
other income was primarily attributable to a $1.4 million gain from the
sale of mortgage servicing rights in the second quarter of 2023,
and to a lesser extent a decrease in vendor bonus income and miscellaneous income.
Noninterest income represented 32.7% of operating revenues (net
interest income plus noninterest income) in the third quarter of 2024
compared to 33.3% in the second quarter of 2024 and 29.9% in the third quarter
of 2023.
For the first nine months of 2024,
noninterest income represented 32.7% of operating revenues compared
to 31.2% for the same period of 2023.
The table below reflects the major components of noninterest income.
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
2024
2024
2023
2024
2023
Deposit Fees
$
5,512
$
5,377
$
5,456
$
16,139
$
16,021
Bank Card Fees
3,624
3,766
3,684
11,010
11,205
Wealth Management
Fees
4,770
4,439
3,984
13,891
12,061
Mortgage Banking Revenues
3,966
4,381
1,839
11,225
8,072
Other
1,641
1,643
1,765
4,951
7,093
Total
Noninterest Income
$
19,513
$
19,606
$
16,728
$
57,216
$
54,452
Significant components of noninterest income are discussed in more
detail below.
Deposit Fees
.
Deposit fees for the third quarter of 2024
totaled $5.5
million, an increase of $0.1
million, or 2.5%, over the second
quarter of 2024, and an increase of $0.1
million, or 1.0%, over the third quarter of 2023.
For the first nine months of 2024, deposit
fees totaled $16.1 million, an increase an increase of $0.1 million, or 0.7%,
over the same period of 2023.
Compared to the second
quarter of 2024, the increase was driven by higher overdraft fees.
The increase over both prior year periods was primarily due to
higher commercial account analysis fee income.
Bank Card Fees
.
Bank card fees for the third quarter of 2024 totaled $3.6 million, a decrease of $0.1 million, or
3.8%, from the
second quarter of 2024, and a decrease of $0.1 million, or 1.6% from
the third quarter of 2023.
For the first nine months of 2024,
bank card fees totaled $11.0 million, a decrease
of $0.2
million, or 1.7%, from the same period of 2023.
The slight change in fees
between all periods reflected variance in debit card utilization as consumer
spending patterns normalize.
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 third quarter of 2024 totaled $4.8 million, an increase
of $0.3 million, or 7.5%,
over the second quarter of 2024, and an increase of $0.8 million,
or 19.7%, over the third quarter of 2023.
For the first nine months of
2024, wealth management fees totaled $13.9 million, an increase of $1.8
million, or 15.2%, over the same period of 2023, and
reflected an $1.4 million increase in retail brokerage fees and a $0.
6
million increase in trust fees that was partially offset by a $0.2
million decrease in insurance commission revenue.
The increase in retail brokerage assets was driven by increased fixed income and
annuity product sales and the increase in trust fees reflected both
new account growth and higher account values/returns reflective of
the improved market returns.
At September 30, 2024, total assets under management were approximately
$2.950 billion compared to
$2.770 billion at June 30, 2024 and $2.588 billion at December 31, 2023.
39
Mortgage Banking Revenues.
Mortgage banking revenues totaled $4.0 million for the third quarter of
2024, a decrease of $0.4 million,
or 9.5%, from the second quarter of 2024 and an increase of $2.1 million, or 115
.7%, over the third quarter of 2023.
For the first nine
months of 2024, mortgage banking revenues totaled $11.2
million compared to $8.1 million for the same period of 2023.
The
decrease compared to the second quarter of 2024 was attributable to slightly
lower loan sale volume. Compared to the prior year
periods, the increase was attributable to a higher gain on sale margin
which reflected a higher percentage of secondary
market/mandatory delivery loan sales.
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 $1.6 million for the third quarter of 2024, comparable
to the second quarter of 2024 and a decrease of
$0.1 million, or 7.0%, from the third quarter of 2023.
For the first nine months of 2024, other income totaled $5.0 million compared
to $7.1 million for the same period of 2023.
The decrease from 2023 was primarily attributable to a $1.4 million gain from the
sale of
mortgage servicing rights realized in the second quarter of 2023,
and to a lesser extent a decrease in vendor bonus income and
miscellaneous income.
Noninterest Expense
Noninterest expense for the third quarter of 2024 totaled $42.9 million compared
to $40.4 million for the second quarter of 2024 and
$39.1 million for the third quarter of 2023.
The $2.5 million increase over the second quarter of 2024 was primarily due to
a $1.4
million increase in compensation and a $1.0 million increase in other expense.
The increase in compensation reflected a $0.9 million
increase in salary expense and a $0.5 million increase in associate benefit
expense.
The increase in salary expense was driven by
annual merit adjustments, and the increase in other associate benefit
expense was primarily attributable to higher health insurance cost,
and to a lesser extent higher stock-based compensation expense.
The increase in other expense was primarily due to a $0.5 million
increase in professional fees, a $0.3 million increase in processing fees, and
higher miscellaneous expense, which included a $0.5
million payment to the counterparty for our VISA Class B share swap due to revision
to the share conversion rate related to additional
funding by VISA of the merchant litigation reserve.
Compared to the third quarter of 2023, the $3.8 million increase was primarily
attributable to a $2.8 million increase in compensation expense and a $0.9 million
increase in other expense.
The unfavorable
variance in compensation expense reflected a $2.2 million increase in salary expense
and a $0.6 million increase in associate benefit
expense, with the salary variance driven by merit adjustments and the associate
benefit expense variance reflective of higher health
insurance cost.
Further, salary expense was unfavorably impacted
by a $1.0 million decrease in realized loan cost (credit offset to
salary expense) which reflected lower loan volume in 2024.
The increase in other expense was attributable to a $0.6 million increase
in professional fees and higher miscellaneous expense due to the aforementioned
$0.5 million share swap payment in the third quarter
of 2024.
For the first nine months of 2024, noninterest expense totaled $123.5
million compared to $117.1 million for the same period
of 2023
with the $6.4 million increase primarily attributable to increases in compensation
expense of $4.6 million, occupancy expense of $0.5
million, and other expense of $1.3 million.
The increase in compensation expense reflected a $3.9 million increase in salary
expense
and a $0.7 million increase in associate benefit expense.
The increase in salary expense was primarily due to a $2.9 million decrease
in realized loan cost (credit offset to salary expense and lower new loan
volume) and a $1.9 million increase in base salary expense
(primarily annual merit raises), partially offset by a decrease in commission
expense of $1.3 million (lower residential mortgage
volume).
The increase in occupancy was primarily attributable to an increase in maintenance
agreement expense (security upgrades
and addition of interactive teller machines).
The increase in other expense was primarily due to a $1.8 million gain from the sale of
a
banking office in the first quarter of 2023 and higher miscellaneous
expense due to the aforementioned $0.5 million share swap
payment in 2024, which was partially offset by a $1.0 million decrease
in pension plan expense (service cost).
40
The table below reflects the major components of noninterest expense.
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
2024
2024
2023
2024
2023
Salaries
$
21,637
$
20,754
$
19,459
$
62,995
$
59,020
Associate Benefits
4,163
3,652
3,544
11,618
10,945
Total Compensation
25,800
24,406
23,003
74,613
69,965
Premises
3,245
3,043
3,217
9,461
9,632
Equipment
3,853
3,954
3,763
11,628
10,930
Total Occupancy
7,098
6,997
6,980
21,089
20,562
Legal Fees
407
430
366
1,272
1,147
Professional Fees
1,869
1,340
1,254
4,467
4,617
Processing Services
2,260
1,938
1,874
6,030
5,488
Advertising
654
851
756
2,320
2,590
Telephone
692
718
658
2,119
2,044
Insurance – Other
737
749
703
2,401
2,406
Other Real Estate Owned, net
46
19
9
83
(1,846)
Pension - Other
(419)
(419)
32
(1,256)
45
Pension Settlement Gain
-
-
-
-
(291)
Miscellaneous
3,777
3,412
3,470
10,395
10,339
Total Other
10,023
9,038
9,122
27,831
26,539
Total
Noninterest Expense
$
42,921
$
40,441
$
39,105
$
123,533
$
117,066
Significant components of noninterest expense are discussed in more detail
below.
Compensation.
Compensation expense totaled $25.8 million for the third quarter of 2024, a $1.4 million,
or 5.7%, increase over the
second quarter of 2024 and a $2.8 million, or 12.2%, increase over the third
quarter of 2023.
The increase over the second quarter of
2024 reflected a $0.9 million increase in salary expense and a $0.5 million
increase in associate benefit expense.
The increase in
salary expense was driven by annual merit adjustments, and the increase in
other associate benefit expense was primarily attributable
to higher health insurance cost, and to a lesser extent higher stock-based compensation
expense.
Compared to the third quarter of
2023, the unfavorable variance was attributable to a $2.2 million increase in
salary expense and a $0.6 million increase in associate
benefit expense, with the salary variance driven by merit adjustments and the
associate benefit expense variance reflective of higher
health insurance cost.
Further, salary expense was unfavorably impacted
by a $1.0 decrease in realized loan cost (credit offset to
salary expense) which reflected lower loan volume in 2024.
For the first nine months of 2024, compensation expense totaled $74.6
million compared to $70.0 million for the same period of 2023 with the $4.6
million increase attributable to a $3.9 million increase in
salary expense and a $0.7 million increase in associate benefit expense.
The increase in salary expense was primarily due to a $2.9
million decrease in realized loan cost (credit offset to salary expense)
(lower new loan volume) and a $1.9 million increase in base
salary expense (primarily annual merit raises), partially offset by
a $1.3 million decrease in commission expense (lower residential
mortgage volume).
Higher health care cost drove the increase in associate benefit expense.
Occupancy
.
Occupancy expense totaled $7.1 million for the third quarter of 2024, a $0.1 million
increase over both the second
quarter of 2024 and the third quarter of 2023.
For the first nine months of 2024, occupancy expense totaled $21.1 million compared
to
$20.6 million for the same period of 2023.
Compared to both prior year periods,
the increase in occupancy expense was primarily due
to higher expense for maintenance agreements (security upgrades and
interactive teller machines).
41
Other
.
Other expense totaled $10.0 million for the third quarter of 2024 compared
to $9.0 million for the second quarter of 2024 and
$9.1 million for the third quarter of 2023.
For the first nine months of 2024, other expense totaled $27.8 million compared
to $26.5
million for the same period of 2023.
Compared to the second quarter of 2024, the $1.0 million increase was primarily due to
a $0.5
million increase in professional fees, a $0.3 million increase in processing
fees, and higher miscellaneous expense, which included a
$0.5 million payment to the counterparty for our VISA Class B share swap due to
revision to the share conversion rate related to
additional funding by VISA of the merchant litigation reserve.
The $0.9 million increase over the third quarter of 2023 was driven
by
a $0.6 million increase in professional fees and higher miscellaneous expense
due to the aforementioned $0.5 million share swap
payment in the third quarter of 2024.
For the nine-month period, the $1.3 million increase was primarily due to a $1.8
million gain
from the sale of a banking office in the first quarter of 2023 and
higher miscellaneous expense in 2024 due to the aforementioned $0.5
million share swap payment, which was partially offset by a $1.0
million decrease in pension plan expense (service cost).
Our operating efficiency ratio (expressed as noninterest
expense as a percentage of the sum of taxable-equivalent net interest income
plus noninterest income) was 71.81% for the third quarter of 2024 compared
to 68.61% for the second quarter of 2024
and 69.88% for
the third quarter of 2023.
For the first nine months of 2024, this ratio was 70.49% compared to 67.07%
for the same period of 2023.
Income Taxes
We realized income
tax expense of $3.0 million (effective rate of 19.1%) for the third quarter of
2024 compared to $3.2 million
(effective rate of 18.5%) for the second quarter of 2024
and $3.0 million (effective rate of 20.7%) for the third quarter of 2023.
For
the first nine months of 2024, we realized income tax expense of $9.7
million (effective rate of 20.1%) compared to $10.1 million
(effective rate of 20.5%) for the same period of 2023.
The decrease in our effective tax rate from both prior year periods was
primarily due to a higher level of tax benefit accrued from investments in solar tax
credit equity funds.
Absent discrete items, we
expect our annual effective tax rate to approximate 20-21%
for 2024.
FINANCIAL CONDITION
Average earning
assets totaled $3.883 billion for the third quarter of 2024, a decrease of $51.9 million, or
1.3%, from the second
quarter of 2024, and an increase of $59.4 million, or 1.6%, over the
fourth quarter of 2023.
The change for both prior periods was
driven by variances in deposit balances (see below –
Deposits
).
Compared to the second quarter of 2024, the change in the earning
asset mix reflected a $33.2 million decrease in loans HFI, a $11.4
million decline in investment securities, and a $5.6 million decrease
in overnight funds sold.
Compared to the fourth quarter of 2023, the change in the earning asset mix reflected a
$157.1 million
increase in overnight funds that was partially offset by
a $17.7 million decrease in loans HFI, a $54.7 million decrease in investment
securities and a $25.2 million decline in loans held for sale.
Investment Securities
Average investments
decreased $11.4 million, or 1.2%, from the second
quarter of 2024
and $54.7 million, or 5.7%, from the fourth
quarter of 2023. Our investment portfolio represented 23.4% of our average
earning assets for each of the second and the third
quarters
of 2024 compared to 25.2% for the fourth quarter of 2023.
For the remainder of 2024, we will continue to monitor our
overall liquidity position and market conditions to determine if cash flow
from the investment portfolio should be reinvested or
allowed to run-off into 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 September 30, 2024, $561.5 million, or 62.5%, of the investment portfolio was classified
as HTM
and $336.2 million, or 37.5%, was classified as AFS. The average
maturity of our total portfolio at September 30, 2024 was 2.51
compared to 2.67 years at June 30, 2024 and 2.91 years at December 31, 2023.
The duration of our investment portfolio at September
30, 2024 was 2.17 years compared to 2.16 years at June 30, 2024 and 2.91
years at December 31, 2023.
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.
42
At September 30, 2024, there were 818 positions (combined AFS and HTM)
with unrealized losses totaling $40.3 million. 73 of these
positions are U.S. Treasuries and carry the full faith
and credit of the U.S. Government.
651 were U.S. government agency securities
issued by U.S. government sponsored entities. The remaining 94 positions
(municipal securities and corporate bonds) have a credit
component.
At September 30, 2024, corporate debt securities had an allowance for credit losses of $79,000
and municipal securities
had an allowance of $4,000.
At September 30, 2024, all collateralized mortgage obligation securities,
mortgage-backed securities,
Small Business Administration securities,
U.S. Agency, and U.S. Treasury
bonds held were AAA rated.
Loans HFI
Average loans
HFI decreased $33.2 million, or 1.2%, from the second quarter of 2024 and decreased
$17.7 million, or 0.7%, from the
fourth quarter of 2023.
Compared to the second quarter of 2024, the decrease was driven by a $19.4
million decrease in consumer
loans (primarily indirect auto), a $13.2 million decrease in commercial
loans, and a $7.7 million decrease in commercial real estate
loans, partially offset by a $7.4 million increase in residential
real estate loans.
Compared to the fourth quarter of 2023, the decrease
was primarily attributable to a $54.5 million decrease in consumer loans (primarily
indirect auto) and a $24.2 million decrease in
commercial loans (primarily tax-exempt loans) that were partially offset
by a $59.2 million increase in residential real estate loans.
Period end loans HFI decreased $7.1 million, or 0.3%, from the second quarter of
2024 and decreased $50.8 million, or 1.9%, from the
fourth quarter of 2023.
Compared to the second quarter of 2024, the decline reflected a $20.9 million decrease
in consumer loans
(primarily indirect auto), a $10.4 million decrease in commercial loans, and
a $3.2 million decline in commercial real estate loans,
partially offset by a $10.9 million increase in residential real estate loans and
a $18.1 million increase in construction loans.
The
decrease from the fourth quarter of 2023 was primarily attributable to
a $57.7 million decrease in consumer loans (primarily indirect
auto), a $30.6 million decline in commercial loans, and a $5.5 million
decrease in commercial real estate loans, partially offset by
a
$22.2 million increase in residential real estate loans and a $22.8 million increase
in construction real estate loans.
Without compromising our credit standards
,
changing our underwriting standards, or taking on inordinate interest rate risk,
we
continue to closely monitor our markets and make minor adjustments as necessary.
Credit Quality
Nonperforming assets (nonaccrual loans and other real estate) totaled $7.2
million at September 30, 2024 compared to $6.2 million at
June 30, 2024 and $6.2 million at December 31, 2023.
At September 30, 2024, nonperforming assets as a percent of total assets
equaled 0.17%, compared to 0.15% at June 30, 2024 and 0.15% at December
31, 2023.
Nonaccrual loans totaled $6.6 million at
September 30, 2024, a $1.1 million increase over June 30, 2024 and a $0.3 million increase over
December 31, 2023.
Further,
classified loans totaled $25.5 million at September 30, 2024, a $0.1 million
decrease from June 30, 2024 and a $3.3 million increase
over December 31, 2023.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from
the loans’ amortized cost basis to present the net amount
expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings and reduced by the charge-off
of loan amounts (net of recoveries).
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed.
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged
-off.
Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision but recorded
as a separate liability included in other liabilities.
Management estimates the allowance balance using relevant available
information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts.
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
Adjustments to historical loss information incorporate management’s
view of current
conditions and forecasts.
At September 30, 2024, the allowance for credit losses for loans HFI totaled
$29.8 million compared to $29.2 million at June 30, 2024
and $29.9 million at December 31, 2023. Activity within the allowance
is provided in Note 3 – Loans Held for Investment and
Allowance for Credit Losses in the Notes to Consolidated Financial Statements.
The increase in the allowance over June 30, 2024 was
primarily attributable to a slightly higher credit loss provision driven by a higher
forecasted unemployment rate utilized in calculating
loan loss rates and loan grade migration (see above – Provision for Credit Losses).
The change in the allowance from December 31,
2023 reflected lower loan balances offset by higher
loss rates and loan grade migration.
At September 30, 2024, the allowance
represented 1.11% of loans HFI compared to
1.09% at June 30, 2024, and 1.10% at December 31, 2023.
43
At September 30, 2024, the allowance for credit losses for unfunded
commitments totaled $2.5 million compared to $3.1
million and
$3.2
million at June 30, 2024 and December 31, 2023, respectively.
The decline in the allowance from June 30, 2024 and December
31, 2023 reflected a lower level of unfunded loan commitments. The
allowance for unfunded commitments is recorded in other
liabilities.
Deposits
Average total
deposits were $3.572 billion for the third quarter of 2024, a decrease of $69.0 million,
or 1.9%, from the second quarter
of 2024 and an increase of $23.5 million, or 0.7%, over the fourth quarter
of 2023.
Compared to the second quarter of 2024, the
decrease was primarily attributable to lower NOW account balances primarily
due to the seasonal decline in our public fund balances.
The increase over the fourth quarter of 2023 reflected growth in both money
market and certificate of deposit balances which,
reflected a combination of balances migrating from savings and noninterest
bearing accounts, in addition to receiving new deposits
from existing and new clients via various deposit strategies.
At September 30, 2024, total deposits were $3.579 billion, a decrease of $29.5
million, or 0.8%, from June 30, 2024, and a decrease of
$122.7 million, or 3.3%, from December 31, 2023.
The decrease from June 30, 2024 was primarily due to lower noninterest bearing,
money market, and savings account balances.
The decrease from December 31, 2023 was primarily due to lower NOW account
balances, primarily due to the seasonal decline in our public funds, partially
offset by higher money market and certificate of deposit
balances from both new and existing clients.
Total public funds balances
were $516.2 million at September 30, 2024, $575.0 million
at June 30, 2024, and $709.8 million at December 31, 2023.
Business deposit transaction accounts classified as repurchase agreements
averaged $27.1 million for the third quarter of 2024, an
increase of $0.1 million over the second quarter of 2024 and an increase of $0.3
million over the fourth quarter of 2023. At September
30, 2024, repurchase agreement balances were $29.3 million compared
to $22.5 million at June 30, 2024 and $27.0 million at
December 31, 2023.
We continue
to closely monitor our cost of deposits and deposit mix as we manage through the current 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.
44
The statement of financial condition is subject to testing for interest rate shock
possibilities to indicate the inherent interest rate risk.
We apply instantaneous,
parallel rate shocks to the base case in 100 basis point (bp) increments ranging from down
400bp to up
400bps at least once per quarter, with the
analysis reported 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,
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.
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%
September 30, 2024
13.8%
10.3%
6.8%
3.5%
-3.8%
-8.2%
-12.9%
-18.0%
June 30, 2024
15.0%
11.2%
7.3%
3.8%
-4.1%
-8.5%
-13.4%
-18.3%
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%
September 30, 2024
40.9%
33.1%
25.2%
17.8%
1.3%
-8.4%
-19.1%
-29.2%
June 30, 2024
41.8%
33.9%
26.0%
18.6%
2.2%
-7.4%
-18.1%
-28.6%
The Net Interest Income (“NII”) at Risk position of an instantaneous,
parallel rate shock indicates that in the short-term (over the next
12 months), 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 second quarter of 2024, these metrics generally
became less favorable in the rising rate scenarios and more favorable
in the falling rate scenarios.
This was attributable to slightly
lower new volume asset rates, in addition to $50 million in investment purchases which
provide a benefit in a falling rate environment,
with a negative effect in rising rate scenarios.
The instantaneous,
parallel rate shock results over the next 12-month and 24-month
periods are outside of policy in the rates down 300 bps and 400 bps scenario
largely due to the limited ability to decrease deposit rates
the full extent of this rate change.
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%
September 30, 2024
30.6%
24.5%
17.4%
9.6%
-11.4%
-21.7%
-31.3%
-31.7%
June 30, 2024
20.2%
16.5%
11.7%
6.1%
-9.5%
-19.0%
-26.1%
-28.8%
EVE Ratio (policy minimum 5.0%)
25.2%
23.6%
21.9%
20.1%
15.7%
13.6%
11.8%
11.7%
45
At September 30, 2024, the economic value of equity was favorable
in all rising rate environments and unfavorable in the falling rate
environments. Compared to the second quarter of 2024, EVE metrics were
more favorable in the rising rate environment and less
favorable in falling rate environments as slower decay rates were assumed for
our nonmaturity deposit portfolio, resulting in longer
assumed average lives. EVE is currently in compliance with policy in
all rate scenarios as the EVE ratio exceeds the policy minimum
of 5.0% in each shock scenario.
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.
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 September 30, 2024, we had the ability to generate approximately $1.522
billion (excludes overnight funds position of $262
million) in additional liquidity through various sources including
various federal funds purchased lines, Federal Home Loan Bank
borrowings, the Federal Reserve Discount Window,
and 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
our ALCO, MROC,
EROC, and Board of Directors.
We
believe the liquidity available to us at September 30, 2024 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 (i.e., deposits with banks plus
FED funds sold less FED funds purchased) sold
position of $256.9 million in the third quarter of 2024 compared to $262.4
million in the second quarter of 2024 and $99.8 million in
the fourth quarter of 2023.
Compared to the second quarter of 2024, the decrease reflected lower average deposits (primarily
seasonal
public funds) that was substantially offset by a decline in average loans.
Compared to the fourth quarter of 2023, the increase was
primarily driven by higher average deposits and lower average investments.
We expect our
capital expenditures will be approximately $12.0 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 $29.8 million for the third quarter of 2024 compared to
$33.6 million for the second quarter of
2024
and $43.8 million for the fourth quarter of 2023.
The decrease from both prior periods reflected a lower balance maintained on
CCHL’s
warehouse line. Additional detail on warehouse borrowings
is provided in Note 4 – Mortgage Banking Activities in the
Consolidated Financial Statements.
46
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.
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 34.
At September 30, 2024, our regulatory
capital ratios exceeded the threshold to be designated as “well-capitalized”
under the Basel III capital standards.
Shareowners’ equity was $476.5 million at September 30, 2024
compared to $461.0 million at June 30, 2024 and $440.6 million at
December 31, 2023.
For the first nine months of 2024, shareowners’ equity was positively impacted by net
income attributable to
shareowners of $39.8 million, a $8.7 million decrease in the net unrealized
loss on available for sale securities, net adjustments
totaling $0.9 million related to transactions under our stock compensation
plans, and stock compensation accretion of $1.1 million.
Shareowners’ equity was reduced by a common stock dividend
of $11.0 million ($0.65 per share), the repurchase of
common stock of
$2.3 million (82,540 shares), a $0.6 million increase in the fair value of the interest
rate swap related to subordinated debt, and a $0.7
million reclassification to temporary equity.
At September 30, 2024, our total risk-based capital ratio was 17.97% compared
to 17.50% at June 30, 2024 and 16.57% at December
31, 2023.
Our common equity tier 1 capital ratio was 14.88%, 14.44%, and 13.52%, respectively,
on these dates.
Our leverage ratio
was 10.89%, 10.51%, and 10.30%, respectively,
on these dates.
At September 30, 2024, all our regulatory capital ratios exceeded
the
thresholds to be designated as “well-capitalized” under the Basel III capital
standards.
Further, our tangible common equity ratio
(non-GAAP financial measure) was 9.28% at September 30, 2024 compared to 8.91%
and 8.26% at June 30, 2024 and December 31,
2023, respectively.
If our unrealized held-to-maturity securities losses of $12.9 million (after-tax)
were recognized in accumulated
other comprehensive loss, our adjusted tangible capital ratio would be 9.00%.
Our tangible capital ratio is also impacted by the recording of our unfunded pension
liability through other comprehensive income in
accordance with Accounting Standards Codification
Topic 715. At September 30, 2024,
the net pension liability reflected in other
comprehensive loss was $0.4 million compared to $0.4 million
at June 30, 2024 and December 31, 2023. 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 the section entitled “Critical Accounting
Policies and
Estimates” in Part II, Item7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, of
our 2023
Form 10-K, as amended.
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 September 30, 2024, we had $714.2 million in commitments to extend
credit and $6.1 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.
47
If commitments arising from these financial instruments continue to require
funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet our on-going
obligations.
In the event these commitments
require funding in excess of historical levels, management believes current
liquidity, advances available from the
FHLB and the
Federal Reserve, and investment security maturities provide a sufficient
source of funds to meet these commitments.
Certain agreements provide that the commitments are unconditionally
cancellable by the bank and for those agreements no allowance
for credit losses has been recorded.
We
have recorded an allowance for credit losses on loan commitments that are not
unconditionally cancellable by the Bank, which is included in other
liabilities on the Consolidated Statements of Financial Condition
and totaled $2.5 million at September 30, 2024.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
Financial Statements included in our 2023 Form 10-K,
as amended.
The preparation of our Consolidated Financial Statements
in accordance with GAAP and reporting practices applicable
to the banking industry requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues
and expenses, and to disclose contingent assets and liabilities.
Actual results could differ from those estimates.
We have identified
accounting for (i) the allowance for credit losses, (ii) goodwill,
(iii) pension assumptions, and (iv) income taxes as
our most critical accounting policies and estimates in that they are important
to the portrayal of our financial condition and results, and
they require our subjective and complex judgment as a result of the need to make estimates about
the effects of matters that are
inherently uncertain.
These accounting policies, including the nature of the estimates and types of assumptions
used, are described
throughout this Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, and
Part II, Item 7,
Management’s Discussion and Analysis
of Financial Condition and Results of Operations included
in our 2023 Form 10-K, as
amended.
48
TABLE I
AVERAGE BALANCES & INTEREST RATES (UNAUDITED)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
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
$
24,570
$
720
7.49
%
$
62,768
$
971
6.14
%
$
26,050
$
1,800
6.22
%
$
57,438
$
2,416
5.62
%
Loans Held for Investment
(1)(2)
2,693,533
40,985
6.09
2,672,653
38,455
5.71
2,716,220
121,864
6.02
2,637,911
109,688
5.56
Taxable Securities
907,610
4,148
1.82
1,002,547
4,549
1.80
926,241
12,385
1.78
1,034,825
14,265
1.84
Tax-Exempt Securities
(2)
846
10
4.33
2,456
17
2.66
848
28
4.34
2,649
50
2.49
Federal Funds Sold and Interest Bearing
Deposits
256,855
3,514
5.44
136,556
1,848
5.37
220,056
9,031
5.48
237,987
8,741
4.91
Total Earning Assets
3,883,414
49,377
5.06
%
3,876,980
45,840
4.69
%
3,889,415
145,108
4.98
%
3,970,810
135,160
4.55
%
Cash & Due From Banks
70,994
75,941
73,843
75,483
Allowance For Credit Losses
(29,905)
(29,172)
(29,833)
(27,581)
Other Assets
291,359
295,106
292,762
297,688
TOTAL ASSETS
$
4,215,862
$
4,218,855
$
4,226,187
$
4,316,400
Liabilities:
Noninterest Bearing Deposits
1,332,305
1,474,574
1,340,981
1,538,268
NOW Accounts
$
1,145,544
$
4,087
1.42
%
$
1,125,171
$
3,489
1.23
%
$
1,184,596
$
13,009
1.47
%
$
1,184,453
$
8,679
0.98
%
Money Market Accounts
418,625
2,694
2.56
322,623
1,294
1.59
393,294
7,431
2.52
293,089
2,249
1.03
Savings Accounts
512,098
180
0.14
579,245
200
0.14
523,573
544
0.14
603,643
396
0.09
Other Time Deposits
163,462
1,262
3.07
95,203
231
0.96
153,991
3,412
2.96
90,970
386
0.57
Total Interest Bearing Deposits
2,239,729
8,223
1.46
2,122,242
5,214
0.97
2,255,454
24,396
1.44
2,172,155
11,710
0.72
Total Deposits
3,572,034
8,223
0.92
3,596,816
5,214
0.58
3,596,435
24,396
0.91
3,710,423
11,710
0.42
Repurchase Agreements
27,126
221
3.24
25,356
190
2.98
26,619
639
3.21
17,588
314
2.39
Other Short-Term Borrowings
2,673
52
7.63
24,306
440
7.17
4,334
159
4.88
26,586
1,228
6.17
Subordinated Notes Payable
52,887
610
4.52
52,887
625
4.62
52,887
1,868
4.64
52,887
1,800
4.49
Other Long-Term Borrowings
795
11
5.55
387
4
4.73
447
17
5.16
433
15
4.78
Total Interest Bearing Liabilities
2,323,210
9,117
1.56
%
2,225,178
6,473
1.15
%
2,339,741
27,079
1.55
%
2,269,649
15,067
0.89
%
Other Liabilities
73,767
83,099
71,574
82,877
TOTAL LIABILITIES
3,729,282
3,782,851
3,752,296
3,890,794
Temporary Equity
6,443
8,424
6,694
8,719
TOTAL SHAREOWNERS’ EQUITY
480,137
427,580
467,197
416,887
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
4,215,862
$
4,218,855
$
4,226,187
$
4,316,400
Interest Rate Spread
3.49
%
3.54
%
3.43
%
3.66
%
Net Interest Income
$
40,260
$
39,367
$
118,029
$
120,093
Net Interest Margin
(3)
4.12
%
4.03
%
4.05
%
4.04
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
Interest income includes loan costs of $0.2 million
and $0.5 million for the three and nine months ended September
30, 2024,
and net loan fees of $0.1 million for the three and nine
month periods ended September 30, 2023.
(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.
49
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, 2023.
Item 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At September 30, 2024, 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, our Chief Executive Officer and Chief
Financial Officer concluded
that, as of the end of the period covered by this report our disclosure controls and procedures
were ineffective due to the identification
of the material weakness discussed below.
Previously Reported Material Weakness
in Internal Control Over Financial Reporting
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.
As reported in our 2023 Form 10-K, as amended, we did not maintain effective
internal control over
financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934) as of December 31, 2023 as
a result of a material weakness in our internal control over financial reporting
for the review of significant inter-company mortgage
loan sales and servicing transactions was not designed effectively.
Specifically, management’s
review control over the completeness
and accuracy of elimination entries in the consolidation process was not designed
effectively, as the
review was not sufficiently
precise to identify all the necessary elimination entries between CCB and its subsidiary,
CCHL. The Company determined inter-
company transactions related to the sale of residential mortgage loans were
not properly eliminated and net loan fees were not
properly recorded. Further, financial information
obtained from CCHL for certain construction/permanent loan activity was not in
sufficient detail to appropriately classify this activity within the
Statement of Cash Flows.
Specifically, management’s
review control
over the completeness, accuracy and review of financial information provided
from CCHL related to the Statement of Cash Flows was
not designed effectively as the review was not sufficiently
precise to identify all errors in financial reporting. Refer to our 2023 Form
10-K, as amended, for further information on the material weakness.
Remediation Plan
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 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.
Based on additional procedures and post-closing review,
management concluded that the consolidated financial statements
included in this report present fairly,
in all material respects, our
financial position, results of operations, and cash flows for the periods presented,
in conformity with GAAP.
The internal control and procedural enhancements and remedial actions that
have been implemented include:
1.
Enhance the precision level review of activity within existing accounts that are
subject to elimination during consolidation, to
ensure appropriate elimination;
2.
Enhance review procedures to identify new inter-company
accounts and activities subject to elimination during
consolidation;
3.
Increase the granularity of general ledger mapping for inter-company
accounts subject to elimination during consolidation;
4.
Enhance financial close checklist and pre-close meeting agenda to assist the reviewer
identifying and assessing inter-
company activities that are subject to elimination in a timely manner; and
5.
Enhance the detail of review procedures of financial information obtained
from a subsidiary
to identify, assess and validate
appropriate classification when preparing the consolidated financial statements,
including when reviewing items in the
operating, investing or financing activity sections within the Statement of
Cash Flow.
To remediate
the material weakness, the Company implemented the internal control and procedural enhancements
noted above in
items 1-4 during the fourth quarter of 2023 and implemented the enhancement
noted above in item 5 during the first quarter of 2024.
The material weakness 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 and the disclosure controls and
procedures.
50
Change in Internal Control
Except as identified above with respect to remediation of the material weakness
,
there have been no significant changes in our internal
control over financial reporting during our most recently completed fiscal
quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART
II.
OTHER INFORMATION
Item 1.
Legal Proceedings
We are party
to lawsuits arising out of the normal course of business.
In management's opinion, there is no known pending litigation,
the outcome of which would, individually or in the aggregate, have a material effect
on our consolidated results of operations,
financial position, or cash flows.
Item 1A.
Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider
the factors discussed in Part I,
Item 1A. “Risk Factors” in our 2023 Form 10-K, as amended,
as updated in our subsequent quarterly reports. The risks described in
our 2023 Form 10-K, as amended, and our subsequent quarterly reports
are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business,
financial condition and/or operating results.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosure
Not Applicable.
Item 5.
Other Information
(c) Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, 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.
51
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)
52
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: November 4, 2024