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
June 30, 2021
March 31, 2022
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 May 2, 2022,
At July 29, 2021,
16,874,27916,947,627
 
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 PERIODTHREE MONTHS ENDED JUNE 30, 2021
MARCH 31, 2022
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – June 30, 2021March 31, 2022 and December 31, 20202021
4
Consolidated Statements of Income – Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
5
Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
7
Consolidated Statements of Cash Flows – SixThree Months Ended June 30,March 31, 2022 and 2021 and 2020
8
Notes to Consolidated Financial Statements
9
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
2930
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
45
 
 
Item 4.
Controls and Procedures
45
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
45
 
 
Item 1A.
Risk Factors
45
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
45
 
 
Item 3.
Defaults Upon
Senior Securities
45
Item 4.
Mine Safety Disclosure
45
Item 5.
Other Information
45
 
 
Item 6.
Exhibits
46
 
 
Signatures
 
47
3
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform
Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans,
objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject
to change based on various factors, many of
which are beyond our control.
 
The words “may,” “could,” “should,” “would,” “believe,”
 
“would,” “believe,” “anticipate,anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
 
Our actual future results may differ materially from
those set forth in our forward-looking statements.
Our ability to achieve
 
achieve our financial objectives could
 
could be adversely affected by
 
by the factors discussed in detail
 
in detail in Part
I, Item 2.
“Management’s “Management’s
Discussion and Analysis
 
Analysis of Financial Condition
 
Condition and
Results of Operations”
 
and Part II, Item
 
Item 1A. “Risk
Factors” in this
 
this Quarterly Report
on
Form 10-Q and the
 
the following sections
of our Annual
 
Annual Report on Form
 
10-K for the year
 
year ended December
31, 20202021
 
(the “2020“2021 Form 10
 
-K”10-K”):
(a) “Introductory Note”
 
Note” in
Part I,
 
Item 1. “Business”;
 
“Business”; (b) “Risk
“Risk Factors”
 
in Part I,
 
I, Item
1A, as
 
updated in our
 
our subsequent
quarterly reports
filed on Form 10-Q; and (c) “Introduction”
 
“Introduction” in “Management’s
Discussion and
Analysis of Financial
Condition and Results
of Operations,” in
Part II, Item 7, as well as:
●
the magnitude and duration of the ongoing COVID-19 (including the Delta variant) pandemic and its impact
on the global and local
economies and financial market conditions and our business, results of operations and financial condition, including
the impact of our
participation in government programs related to COVID-19;
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
changes in monetary and fiscal policies
of the U.S. Government;
●
inflation, interest rate, market and monetary fluctuations;
●
the effects of security breaches and computer viruses that may affect our computer
systems or fraud related to debit card products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance
for credit losses,
deferred tax asset valuation and pension plan;
●
changes in accounting principles, policies, practices or guidelines;
●
the frequency and magnitude of foreclosure of our loans;
●
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry
concentrations;
●
the strength of the United States economy in general and the strength of the local economies in which we
conduct operations;
 
●
our ability to declare and pay dividends, the payment of which is subject to our capital requirements;
●
changes in the securities and real estate markets;
●
structural changes in the markets for origination, sale and servicing of residential mortgages;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing
rights related to
these loans and related interest rate risk or price risk resulting from retaining mortgage servicing
rights and the potential effects of
higher interest rates on our loan origination volumes;
●
the effect of corporate restructuring, acquisitions or dispositions, including the actual
restructuring and other related charges
and the
failure to achieve the expected gains, revenue growth or expense savings from such corporate restructuring,
acquisitions or dispositions;
●
the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global economy and financial market conditions
and our business;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies,
 
health emergencies, military conflict,
terrorism, civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject, including the laws
for each jurisdiction where
we operate;
●
climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could
significantly impact our business;
●
the willingness of clients to accept third-party products and services rather than our products and
services and vice versa;
●
increased competition and its effect on pricing;
●
technological changes;
●
negative publicity and the impact on our reputation;
●
changes in consumer spending and saving habits;
●
growth and profitability of our noninterest income;
●
the limited trading activity of our common stock;
●
the concentration of ownership of our common stock;
●
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
other risks described from time to time in our filings with the Securities and Exchange Commission; and
●
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in
Item 1A Risk Factors
 
or discussed in this Form 10-Q also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
 
We do not undertake to update
any forward-looking
statement, except as required by applicable law.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(Unaudited)
June 30,March 31,
December 31,
(Dollars in Thousands)Thousands, Except Par Value)
20212022
 
20202021
ASSETS
 
 
Cash and Due From Banks
$
78,89477,963
$
67,91965,313
Federal Funds Sold and Interest Bearing Deposits
 
766,920790,465
 
860,630970,041
Total Cash and Cash
Equivalents
 
845,814868,428
 
928,549
1,035,354
 
 
Investment Securities, Available
 
for Sale, at fair value (amortized cost of $
655,927
and $
660,732
)
 
480,890624,361
 
324,870654,611
Investment Securities, Held to Maturity (fair value of $
329,881501,277
 
and $
175,175339,699
)
 
325,559518,678
 
169,939339,601
Equity Securities
855
861
Total Investment
 
Securities
 
806,4491,143,894
 
494,809995,073
 
Loans Held For Sale, at fair value
80,82150,815
 
114,03952,532
 
Loans Held for Investment
2,008,6621,985,509
 
2,006,4261,931,465
Allowance for Credit Losses
 
(22,175)(20,756)
 
(23,816)(21,606)
Loans Held for Investment, Net
 
1,986,4871,964,753
 
1,982,610
1,909,859
 
 
Premises and Equipment, Net
 
85,74582,518
 
86,79183,412
Goodwill and Other Intangibles
 
93,33393,213
 
89,09593,253
Other Real Estate Owned
1,19217
80817
Other Assets
 
111,618106,407
 
101,37094,349
Total Assets
$
4,011,4594,310,045
$
3,798,071
4,263,849
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,552,8641,704,329
$
1,328,8091,668,912
Interest Bearing Deposits
 
1,894,0572,061,178
 
1,888,7512,043,950
Total Deposits
 
3,446,9213,765,507
 
3,217,560
3,712,862
 
 
Short-Term
 
Borrowings
 
47,20030,865
79,65434,557
Subordinated Notes Payable
 
52,887
52,887
Other Long-Term
 
Borrowings
 
1,720806
3,057884
Other Liabilities
 
105,53477,323
102,07667,735
Total Liabilities
 
3,654,2623,927,388
3,455,2343,868,925
Temporary Equity
21,31710,512
22,000
11,758
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
0
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,874,27916,947,602
 
and
16,790,57316,892,060
 
shares issued and outstanding at June 30, 2021March 31, 2022 and December
31, 2020,2021, respectively
169
168169
Additional Paid-In Capital
 
33,56035,188
32,28334,423
Retained Earnings
 
345,574370,531
332,528364,788
Accumulated Other Comprehensive Loss, net of tax
 
(43,423)(33,743)
(44,142)(16,214)
Total Shareowners’
 
Equity
 
335,880372,145
320,837383,166
Total Liabilities, Temporary
 
Equity, and Shareowners' Equity
$
4,011,4594,310,045
$
3,798,0714,263,849
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June
30, March 31,
(Dollars in Thousands, Except Per Share
 
Data)
2021
20202022
2021
2020
INTEREST INCOME
Loans, including Fees
$
24,58222,133
$
23,687
$
47,932
$
47,28023,350
Investment Securities:
Taxable Securities
2,0362,890
2,708
3,899
5,7041,863
Tax Exempt Securities
186
2920
38
48
Federal Funds Sold
and Interest Bearing Deposits
200409
88
413
845213
Total Interest
Income
26,83625,438
26,512
52,282
53,87725,446
INTEREST EXPENSE
Deposits
208224
218
416
1,157208
Short-Term
 
Borrowings
324192
421
736
553412
Subordinated Notes Payable
308317
374
615
845307
Other Long-Term
 
Borrowings
169
41
37
9121
Total Interest Expense
856742
1,054
1,804
2,646948
NET INTEREST INCOME
25,98024,696
25,458
50,478
51,23124,498
Provision for Credit Losses
(571)0
2,005
(1,553)
6,995(982)
Net Interest Income After Provision For Credit Losses
26,55124,696
23,453
52,031
44,23625,480
NONINTEREST INCOME
Deposit Fees
4,2365,191
3,756
8,507
8,7714,271
Bank Card Fees
3,9983,763
3,142
7,616
6,1933,618
Wealth Management
 
Fees
3,2746,070
2,554
6,364
5,1583,090
Mortgage Banking Revenues
13,2178,946
19,397
30,342
22,65017,125
Other
1,7481,848
1,350
3,470
2,9051,722
Total Noninterest
 
Income
26,47325,818
30,199
56,299
45,67729,826
NONINTEREST EXPENSE
Compensation
25,37824,856
23,658
51,442
43,39426,064
Occupancy, Net
5,9736,093
5,798
11,940
10,7775,967
Other Real Estate Owned, Net
 
(270)25
116
(388)
(682)(118)
Pension Settlement
2,000209
0
2,000
0-
Other
9,0428,050
7,731
17,605
14,7838,563
Total Noninterest
 
Expense
42,12339,233
37,303
82,599
68,27240,476
INCOME BEFORE INCOME TAXES
10,90111,281
16,349
25,731
21,64114,830
Income Tax Expense
2,0592,235
2,950
4,846
4,2322,787
NET INCOME
8,842$
13,3999,046
20,885$
17,40912,043
Pre-Tax Income
Attributable to Noncontrolling Interests
(1,415)(591)
(4,253)
(3,952)
(3,976)(2,537)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
7,4278,455
$
9,146
$
16,933
$
13,4339,506
BASIC NET INCOME PER SHARE
$
0.440.50
$
0.55
$
1.00
$
0.800.56
DILUTED NET INCOME PER SHARE
$
0.440.50
$
0.55
$
1.00
$
0.800.56
Average CommonBasic Shares
 
Basic Outstanding
16,931
16,838
Average Diluted
Shares Outstanding
16,85816,946
16,797
16,848
16,803
Average Common
Diluted Shares Outstanding
16,885
16,839
16,874
16,84416,862
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
 
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
7,4278,455
$
9,146
$
16,933
$
13,4339,506
Other comprehensive (loss) income, before
 
tax:
Investment Securities:
Change in net unrealized gain/loss(loss) gain on securities available for sale
(481)(25,445)
433
(2,434)
3,980(1,952)
Derivative:
Change in net unrealized gain on effective cash flow
 
flow derivative
(919)1,836
(104)
1,206
(104)2,125
Benefit Plans:
Reclassification adjustment for service cost
0
0
24
0
Actuarial gain
0
0
166
0Pension Settlement
Defined benefit plan settlement
2,000
0
2,000209
0
Total Benefit Plans
2,000209
0
2,190
0190
Other comprehensive (loss) income, before
 
tax
600(23,400)
329
962
3,876363
Deferred tax (benefit) expense related to other comprehensive
income
152(5,871)
52
243
95192
Other comprehensive (loss) income, net of tax
448(17,529)
277
719
2,925271
TOTAL COMPREHENSIVE
 
(LOSS) INCOME
$
7,875(9,074)
$
9,423
$
17,652
$
16,3589,777
The accompanying Notes to Consolidated Financial Statements are
 
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, AprilJanuary 1, 20212022
16,851,87816,892,060
$
169
$
32,80434,423
$
335,324364,788
$
(43,871)(16,214)
$
324,426383,166
Net Income Attributable to Common Shareowners
-
0
0
7,4278,455
0
7,427
Reclassification to Temporary
Equity
(1)
-
0
0
5,353
0
5,3538,455
Other Comprehensive Income,Loss, net of tax
-
0
0
0
448(17,529)
448(17,529)
Cash Dividends ($
0.150.1600
00
per share)
-
0
0
(2,530)(2,712)
0
(2,530)(2,712)
Stock Based Compensation
-
0
219245
0
0
219245
Stock Compensation Plan Transactions,
net
22,40155,542
0
537520
0
0
537520
Balance, June 30, 2021March 31, 2022
16,874,27916,947,602
$
169
$
33,56035,188
$
345,574370,531
$
(43,423)(33,743)
$
335,880
Balance, April 1, 2020
16,811,781
$
168
$
32,100
$
321,772
$
(25,533)
$
328,507
Net Income
-
0
0
9,146
0
9,146
Other Comprehensive Income, net of tax
-
0
0
0
277
277
Cash Dividends ($
0.14
00 per share)
-
0
0
(2,348)
0
(2,348)
Repurchase of Common Stock
(43,878)
0
(863)
0
0
(863)
Stock Based Compensation
-
0
77
0
0
77
Stock Compensation Plan Transactions,
net
12,373
0
261
0
0
261
Balance, June 30, 2020
16,780,276
$
168
$
31,575
$
328,570
$
(25,256)
$
335,057372,145
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income Attributable to Common Shareowners
-
0
0
16,9339,506
0
16,9339,506
Reclassification to Temporary
Equity
(1)
-
0
0
1,171(4,182)
0
1,171(4,182)
Other Comprehensive Income, net of tax
-
0
0
0
719271
719271
Cash Dividends ($
0.30.1500
000
per share)
-
0
0
(5,058)(2,528)
0
(5,058)(2,528)
Stock Based Compensation
-
0
438219
0
0
438219
Stock Compensation Plan Transactions,
net
83,70661,305
1
839302
0
0
840303
Balance, June 30,March 31, 2021
16,874,27916,851,878
$
169
$
33,56032,804
$
345,574335,324
$
(43,423)(43,871)
$
335,880
Balance, January 1, 2020
16,771,544
$
168
$
32,092
$
322,937
$
(28,181)
$
327,016
Adoption of ASC 326
-
0
0
(3,095)
0
(3,095)
Net Income
-
0
0
13,433
0
13,433
Other Comprehensive Income, net of tax
-
0
0
0
2,925
2,925
Cash Dividends ($
0.28
00 per share)
-
0
0
(4,705)
0
(4,705)
Repurchase of Common Stock
(76,952)
(1)
(1,570)
0
0
(1,571)
Stock Based Compensation
-
0
368
0
0
368
Stock Compensation Plan Transactions,
net
85,684
1
685
0
0
686
Balance, June 30, 2020
16,780,276
$
168
$
31,575
$
328,570
$
(25,256)
$
335,057324,426
(1)
Adjustment to redemption value for
non-controlling interest
in Capital City Home Loans.
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
 
(Unaudited)
SixThree Months Ended June 30,March 31,
(Dollars in Thousands)
20212022
20202021
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income
Attributable to Common Shareowners
$
16,9338,455
$
13,4339,506
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
(1,553)0
6,995(982)
 
Depreciation
3,7821,907
3,4001,942
 
Amortization of Premiums, Discounts and Fees, net
5,9462,907
3,4142,428
 
Amortization of Intangible Asset
40
0
 
Pension Plan Settlement Charge
2,000209
0
 
Originations of Loans Held-for-Sale
(877,613)(246,887)
(431,775)(470,248)
 
Proceeds From Sales of Loans Held-for-Sale
941,173257,550
385,518519,331
 
Net Gain From Sales of Loans Held-for-SaleMortgage Banking Revenues
(30,342)(8,946)
(20,844)(17,125)
 
Net Additions for Capitalized Mortgage Servicing Rights
(8)227
0119
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
(250)0
0(250)
 
Stock Compensation
438245
368219
 
Net Tax Benefit From Stock-Based
 
Stock-Based Compensation
(4)(19)
(84)(4)
 
Deferred Income Taxes
(469)(6,167)
(695)(378)
 
Net Change in Operating Leases
(81)(27)
498(41)
 
Net Gain on Sales and Write-Downs of
Other Real Estate Owned
(507)0
(915)(202)
 
Net IncreaseDecrease (Increase) in Other Assets
(9,789)1,441
(23,035)(1,370)
 
Net Increase in Other Liabilities
2,4727,036
36,2517,935
Net Cash Provided By (Used In) Operating Activities
52,16817,971
(27,471)50,880
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(201,308)(194,448)
(32,250)(54,382)
 
Payments, Maturities, and Calls
44,23814,441
38,36224,629
Securities Available for
 
for Sale:
 
Purchases
(255,379)(25,139)
(38,364)(133,628)
Proceeds from Sale or Securities
3,365
0
 
Payments, Maturities, and Calls
94,91124,824
102,84649,349
Purchases of Loans Held for Investment
(70,043)(26,713)
(18,359)(23,686)
Net Decrease (Increase)Increase in Loans Held for Investment
64,708(28,405)
(167,587)
Net Cash Paid for Acquisitions
(4,482)
(2,405)(29,437)
Proceeds From Sales of Other Real Estate Owned
1,1210
1,8001,084
Purchases of Premises and Equipment
(3,215)(1,013)
(6,842)(1,592)
Noncontrolling Interest Contributions
3,4641,838
01,259
Net Cash Used In Investing Activities
(325,985)(231,250)
(122,799)(166,404)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
229,36152,645
309,542140,548
Net (Decrease) IncreaseDecrease in Short-Term
 
Borrowings
(32,668)(3,692)
57,460(24,181)
Repayment of Other Long-Term
 
Borrowings
(1,123)(78)
(837)(1,014)
Dividends Paid
(5,058)(2,712)
(4,705)
Payments to Repurchase Common Stock
0
(1,571)(2,528)
Issuance of Common Stock Under Purchase Plans
570190
38633
Net Cash Provided By Financing Activities
191,08246,353
360,275112,858
NET (DECREASE) INCREASEDECREASE IN CASH AND CASH EQUIVALENTS
(82,735)(166,926)
210,005(2,666)
Cash and Cash Equivalents at Beginning of Period
 
928,5491,035,354
378,423928,549
Cash and Cash Equivalents at End of Period
 
$
845,814868,428
$
588,428925,883
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
1,877715
$
2,6551,009
 
Income Taxes Paid
$
9,36920
$
3,6130
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
9980
$
991184
The accompanying Notes to Consolidated Financial Statements are
 
Statements are an integral part of these statements.
9
CAPITAL CITY BANK
 
GROUP,
 
INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
.
 
Capital City Bank Group, Inc. (“CCBG” or the “Company”)
provides a full range of
banking and banking-
related services to individual and corporate clients through its subsidiary,
 
its subsidiary, Capital City Bank,
with banking offices located in Florida,
Georgia, and Alabama.
 
The Company is subject to competition from other financial
institutions, is subject
to regulation by certain
government agencies and undergoes periodic examinations
 
examinations by those regulatory authorities.
Basis of Presentation
.
 
The consolidated financial statements in this Quarterly Report on Form
 
on Form 10-Q include the accounts of CCBG
and its wholly owned subsidiary,
 
Capital City Bank (“CCB” or the “Bank”).
 
All material inter-company transactions and accounts
have
been eliminated.
 
Certain previously reported amounts have been reclassified to conform
to the current year’s presentation.
 
presentation.
The accompanying unaudited consolidated financial statements have
 
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 footnotesnotes required
by generally accepted
accounting principles for complete financial
statements.
 
In the opinion of management, all adjustments (consisting of normal
 
normal recurring accruals) considered necessary for a fair
presentation have been included.
 
The consolidated statementConsolidated Statement of financial conditionFinancial Condition at December
 
December 31, 20202021 has been derived from the audited
consolidated financial
statements at that date, but does not include all of the
information and footnotes notes
required by generally accepted accounting
principles for
for complete financial statements.
 
For further information, refer to the consolidated financial statements and
 
and footnotesnotes thereto
included in the
Company’s annual report
 
annual report on Form 10-K for the year ended December
31, 2020.2021.
Acquisition.
 
On
April 30, 2021
, a newly formed subsidiary of CCBG, Capital City Strategic Wealth,
 
Wealth, LLC (“CCSW”)
acquired
substantially all of the assets of Strategic Wealth
 
Group, LLC and certain related businesses (“SWG”), including
 
advisory,
service,
and insurance carrier agreements, and the assignment
of all related revenues
thereof.
 
Under the terms of the purchase agreement,
SWG principles became officers of CCSW and will continue
 
the operation of their five
5
offices in South Georgia
offering wealth
management services and comprehensive risk management
 
and asset protection services for individuals and businesses.
 
CCSWCCBG paid
$
4.44.5
 
million in cash consideration and recorded goodwill of $
2.8
 
million and a customer relationship intangible asset of $
1.6
 
million.
Accounting Standards Updates
Accounting Standards Update (“ASU”)
 
ASU 2020-04, "Reference Rate Reform2022-02, “Financial Instruments – Credit Losses (Topic
 
(Topic326)
848).
 
In March 2022, the Financial
ASU 2020-04 provides optional expedients and exceptions for applyingAccounting Standards Board ("FASB")
 
GAAP
to loan and lease agreements, derivative contracts, andissued ASU 2022-02, "Financial Instruments – Credit Losses (Topic
 
other transactions affected326), Troubled Debt
Restructurings and Vintage
Disclosures". ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings
("TDRs")
in ASC 310-40, "Receivables - Troubled Debt
Restructurings by Creditors" for entities that have adopted the anticipated transitioncurrent expected credit
loss model introduced by ASU 2016-13, “Financial Instruments –
 
away from LIBOR
toward new interest rate benchmarks. For transactionsCredit Losses (Topic 326):
 
that are modified becauseMeasurement of reference rate reform and that meet certain
scopeCredit Losses on
guidance (i) modifications of loan agreements should
be accounted for by prospectively adjusting the effective
interest rate and the
modification will be considered "minor" so that any existing
unamortized origination fees/costs would carry forward and
continue to
be amortized and (ii) modifications of lease agreements
should be accounted for as a continuation of the existing
agreement with no
reassessments of the lease classification and the discount
rate or re-measurements of lease payments that otherwise would be required
for modifications not accounted for as separate
contracts. ASU 2020-04 also provides numerous optional expedients
for derivative
accounting.Financial Instruments”.
 
ASU 2020-042022-02 also requires that public business entities disclose current
-period gross charge-offs by year of
origination for financing receivables and net investments in leases within the
scope of Subtopic 326-20, "Financial Instruments—
Credit Losses—Measured at Amortized Cost".
ASU 2022-02 is effective March 12, 2020 throughfor the Company for fiscal years beginning
 
after December 31, 2022.
15, 2022, including interim periods within those fiscal years, with early
 
An entity may elect to apply ASU 2020-04 for
contract modifications as of January 1, 2020, or prospectively
from a date within an interim period that includes or is subsequent
to
March 12, 2020, up to the date that the financial statements
are available to be issued.
Once elected for a Topic
or an Industry
Subtopic within the Codification, the amendments in this
ASU must be applied prospectively for all eligible contract
modifications for
that Topic or Industry
Subtopic.
It is anticipated this ASU will simplify any modifications executed
between the selected start date
(yet to be determined) and December 31, 2022 that are
directly related to LIBOR transition by allowing prospective
recognition of the
continuation of the contract, rather than extinguishment of
the old contract resulting in writing off unamortized
fees/costs.
Further,
ASU 2021-01, “Reference Rate Reform
(Topic
848): Scope,”
clarifies that certain optional expedients and exceptions
in ASC 848 for
contract modifications and hedge accounting apply
to derivatives that are affected by the discounting
transition. ASU 2021-01 also
amends the expedients and exceptions in ASC 848 to
capture the incremental consequences of the scope clarification and
to tailor the
existing guidance to derivative instruments.
adoption permitted. The Company is evaluating the impact of this ASU and has noteffect
 
yet determined if thisthat
ASU 2022-02 will have material effects on the Company’s
business operations andits consolidated financial statements.statements and
related disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related
market fair value of investment
securities available-for-sale and securities held-to-maturity
and the corresponding
amounts of gross unrealized gains and
Available for
 
losses.
June 30, 2021
December 31, 2020Sale
Amortized
Unrealized
Unrealized
MarketAllowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
March 31, 2022
U.S. Government Treasury
$
190,049
$
15
$
10,051
$
0
$
180,013
U.S. Government Agency
232,067
547
8,179
0
224,435
States and Political Subdivisions
47,107
11
3,753
(15)
43,350
Mortgage-Backed Securities
(1)
91,169
15
5,121
0
86,063
Corporate Debt Securities
88,208
4
5,018
(21)
83,173
Other Securities
(2)
7,327
0
0
0
7,327
Total
$
655,927
$
592
$
32,122
$
(36)
$
624,361
December 31, 2021
U.S. Government Treasury
$
190,409
$
65
$
2,606
$
0
$
187,868
U.S. Government Agency
238,490
1,229
2,141
0
237,578
States and Political Subdivisions
47,762
44
811
(15)
46,980
Mortgage-Backed Securities
(1)
89,440
27
598
0
88,869
Corporate Debt Securities
87,537
10
1,304
(21)
86,222
Other Securities
(2)
7,094
0
0
0
7,094
Total
$
660,732
$
1,375
$
7,460
$
(36)
$
654,611
Held to Maturity
Amortized
Unrealized
Unrealized
MarketFair
(Dollars in Thousands)
Cost
Gains
Losses
Value
Cost
Gain
Losses
Value
Available for
SaleMarch 31, 2022
U.S. Government Treasury
$
161,247289,237
$
22010
$
5909,355
$
160,877
$
103,547
$
972
$
0
$
104,519
U.S. Government Agency
226,807
2,087
593
228,301
205,972
2,743
184
208,531
States and Political Subdivisions
13,555
60
8
13,607
3,543
89
0
3,632279,892
Mortgage-Backed Securities
56,894
56
0
56,950
456
59
0
515
Corporate Debt Securities
14,357
3
0
14,360
0
0
0
0
Equity Securities
(1)
6,795229,441
0414
08,470
6,795
7,673
0
0
7,673221,385
Total
 
$
479,655518,678
$
2,426424
$
1,19117,825
$
480,890501,277
$
321,191
$
3,863
$
184
$
324,870
Held to MaturityDecember 31, 2021
U.S. Government Treasury
$
110,926
$
59
$
64
$
110,921
$
5,001
$
13115,499
$
0
$
5,0141,622
$
113,877
Mortgage-Backed Securities
214,633(1)
4,579224,102
2522,819
218,9601,099
164,938
5,223
0
170,161225,822
Total
 
$
325,559339,601
$
4,6382,819
$
3162,721
$
329,881
$
169,939
$
5,236
$
0
$
175,175
Total Investment
Securities
$
805,214
$
7,064
$
1,507
$
810,771
$
491,130
$
9,099
$
184
$
500,045339,699
(1)
Comprised of residential mortgage-backed
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank
stock, recorded
at cost of $
2.0
million and $
4.8
million,
respectively,
at June 30, 2021 and includes Federal Home Loan
Bank and Federal Reserve Bank stock, recorded
 
at cost of $
2.92.3
million and $
4.85.1
million,
respectively,
at March 31, 2022 and $
2.0
million and $
5.1
 
million, respectively,
 
at December 31, 2020.2021.
At March 31, 2022, the investment portfolio had $
0.9
 
million in equity securities. These securities do not have a readily determinable
fair value and were not credit impaired.
Securities with an amortized cost of $
348.7453.3
 
million and $
308.2463.8
 
million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively,
 
were
pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank
of Atlanta (“FHLB”), is required
to own capital stock in the FHLB based
generally upon the balances of residential and commercial
real estate loans and FHLB
advances.
 
FHLB stock, which is included in
equityother securities,
is pledged to secure FHLB advances.
 
No ready market exists for this stock, and it has no
quoted marketfair value; however,
however, redemption of this stock
has historically been at par value.
As a member of the Federal Reserve Bank of Atlanta,
the Bank is required to maintain
stock in the Federal Reserve Bank of
Atlanta
based on a specified ratio relative to the Bank’s
 
capital.
 
Federal Reserve Bank stock is carried at cost.
 
Maturity Distribution
.
At June 30, 2021, the Company's investment securities had the
following maturity distribution based on
contractual maturity.
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or
prepay obligations.
Mortgage-backed securities and certain amortizing U.S. government
agency securities are shown separately
because they are not due at a certain maturity date.
Available for
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Market Value
Amortized Cost
Market Value
Due in one year or less
$
52,053
$
52,075
$
0
$
0
Due after one year through five years
170,442
169,879
110,926
110,921
Due after five year through ten years
17,645
17,620
0
0
Mortgage-Backed Securities
56,894
56,950
214,633
218,960
U.S. Government Agency
175,826
177,571
0
0
Equity Securities
6,795
6,795
0
0
Total
$
479,655
$
480,890
$
325,559
$
329,881
11
Unrealized Losses on Investment Securities.
The following table summarizes the available for sale investment
securities with
unrealized losses aggregated by major security type
and length of time in a continuous unrealized loss position:
Less Than
Greater Than
12 Months
12 Months
Total
Market
Unrealized
Market
Unrealized
Market
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
June 30, 2021
Available for
Sale
U.S. Government Treasury
$
114,398
$
590
$
0
$
0
$
114,398
$
590
U.S. Government Agency
84,107
530
8,906
63
93,013
593
States and Political Subdivisions
3,394
8
0
0
3,394
8
Total
201,899
1,128
8,906
63
210,805
1,191
Held to Maturity
U.S. Government Treasury
57,803
64
0
0
57,803
64
Mortgage-Backed Securities
51,208
252
0
0
51,208
252
Total
$
109,011
$
316
$
0
$
0
$
109,011
$
316
December 31, 2020
Available for
Sale
U.S. Government Agency
$
28,266
$
156
$
4,670
$
28
$
32,936
$
184
Total
$
28,266
$
156
$
4,670
$
28
$
32,936
$
184
At June 30, 2021, there were
150
positions (combined AFS and HTM) with unrealized losses totaling
$
1.5
million.
145
of these
positions were U.S. government agency securities issued by
U.S. government sponsored entities.
The remaining
5
were municipal
securities.
Because the declines in the market value of these securities
were attributable to changes in interest rates and not credit
quality, and because
the Company had the ability and intent to hold these investments
until there is a recovery in fair value, which
may be at maturity,
the Company did
0
t record any allowance for credit losses on any investment securities
at June 30, 2021.
Additionally,
0
ne of the securities held by the Company were past due
or in nonaccrual status at June 30, 2021.
Credit Quality Indicators
The Company monitors the credit quality of its investment
securities through various risk management procedures, including
the
monitoring of credit ratings.
A majority of the debt securities in the Company’s
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly
or implicitly guaranteed by the U.S. government.
The Company believes the
long history of no credit losses on these securities indicates that
the expectation of nonpayment of the amortized cost basis is zero,
even if the U.S. government were to technically
default.
Further, certain municipal securities held by
the Company have been pre-
refunded and secured by government guaranteed treasuries.
Therefore, for the aforementioned securities, the Company
does not
assess or record expected credit losses due to the zero
loss assumption.
The Company monitors the credit quality of its municipal
securities portfolio via credit ratings which are updated
on a quarterly basis.
On a quarterly basis, municipal securities in an
unrealized loss position are evaluated to determine if
the loss is attributable to credit related factors and if an allowance
for credit loss
is needed.
12
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
FOR CREDIT LOSSES
Loan Portfolio Composition
.
The composition of the held for investment (“HFI”) loan
portfolio was as follows:
(Dollars in Thousands)
June 30, 2021
December 31, 2020
Commercial, Financial and Agricultural
$
292,953
$
393,930
Real Estate – Construction
149,884
135,831
Real Estate – Commercial Mortgage
707,599
648,393
Real Estate – Residential
(1)
368,457
352,543
Real Estate – Home Equity
190,078
205,479
Consumer
(2)
299,691
270,250
Loans HFI, Net of Unearned Income
$
2,008,662
$
2,006,426
(1)
Includes loans in process with outstanding
balances of $
7.4
million and $
10.9
million at June 30, 2021 and December 31, 2020,
respectively.
(2)
Includes overdraft balances of $
1.2
million and $
0.7
million at June 30, 2021 and December 31, 2020, respectively.
Net deferred loan costs, which include premiums on purchased
loans, included in loans were $
0.5
million at June 30, 2021 and net
deferred loan fees were $
0.1
million at December 31, 2020.
Accrued interest receivable on loans which is excluded
from amortized cost totaled $
6.4
million at June 30, 2021 and $
6.9
million at
December 31, 2020, and is reported separately in Other
Assets.
The Company has pledged a blanket floating lien on all 1-4
family residential mortgage loans, commercial real estate mortgage
loans,
and home equity loans to support available borrowing
capacity at the FHLB of Atlanta and has pledged a blanket
floating lien on all
consumer loans, commercial loans, and construction loans
to support available borrowing capacity at the Federal Reserve Bank
of
Atlanta.
The Company transferred $
9.4
million of home equity loans from HFI to HFS in the
second quarter of 2021.
Loan Purchases
.
The Company will periodically purchase newly originated 1-4
family real estate secured adjustable rate loans from
Capital City Home Loans (“CCHL”), a related party.
Residential loan purchases from CCHL totaled $
51.1
million for the six month
period ended June 30, 2021, and were not credit
impaired.
In addition, during the second quarter of 2021, the Company
acquired a
pool of
10
individual commercial real estate loans from a third party bank
that totaled $
17.4
million and were not credit impaired.
Allowance for Credit Losses
.
The allowance for credit losses is calculated in accordance
with the current expected credit loss model,
ASC 326 (“CECL”),
which was adopted on January 1, 2020.
The allowance has two basic components: first, an asset-specific
component involving loans that do not share risk characteristics
and the measurement of expected credit losses for
such individual
loans; and second, a pooled component for expected credit
losses for pools of loans that share similar risk characteristics.
This
allowance methodology is discussed further in Note 1
– Business and Basis of Presentation/Significant Accounting
Policies in the
Company’s 2020 Form
10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
Investment Sales.
There were sales of investment securities totaling $
3.4
million for the three months ended March 31, 2022. There
were no significant sales of investment securities for the three months ended
December 31, 2021 and March 31, 2021.
Maturity Distribution
.
At March 31, 2022, the Company's investment securities had the following
maturity distribution based on
contractual maturity.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or
prepay obligations.
Mortgage-backed securities and certain amortizing U.S. government
agency securities are shown separately
because they are not due at a certain maturity date.
Available for
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
36,321
$
34,519
$
0
$
0
Due after one year through five years
306,432
290,613
289,237
279,892
Due after five year through ten years
62,103
56,445
0
0
Mortgage-Backed Securities
91,169
86,063
229,441
221,385
U.S. Government Agency
152,575
149,394
0
0
Equity Securities
7,327
7,327
0
0
Total
$
655,927
$
624,361
$
518,678
$
501,277
Unrealized Losses on Investment Securities.
The following table summarizes the available for sale investment securities with
unrealized losses aggregated by major security type and length of time in a continuous
unrealized loss position:
Less Than
Greater Than
12 Months
12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
March 31, 2022
Available for
Sale
U.S. Government Treasury
$
117,369
$
6,723
$
57,638
$
3,328
$
175,007
$
10,051
U.S. Government Agency
122,572
5,952
43,637
2,227
166,209
8,179
States and Political Subdivisions
42,181
3,719
444
34
42,625
3,753
Mortgage-Backed Securities
85,848
5,121
0
0
85,848
5,121
Corporate Debt Securities
79,718
5,018
0
0
79,718
5,018
Total
447,688
26,533
101,719
5,589
549,407
32,122
Held to Maturity
U.S. Government Treasury
261,362
9,355
0
0
261,362
9,355
Mortgage-Backed Securities
166,472
7,633
10,496
837
176,968
8,470
Total
$
427,834
$
16,988
$
10,496
$
837
$
438,330
$
17,825
December 31, 2021
Available for
Sale
U.S. Government Treasury
$
172,206
$
2,606
$
0
$
0
$
172,206
$
2,606
U.S. Government Agency
127,484
1,786
17,986
355
145,470
2,141
States and Political Subdivisions
42,122
811
0
0
42,122
811
Mortgage-Backed Securities
81,832
598
0
0
81,832
598
Corporate Debt Securities
69,354
1,304
0
0
69,354
1,304
Total
$
492,998
$
7,105
$
17,986
$
355
$
510,984
$
7,460
Held to Maturity
U.S. Government Treasury
113,877
1,622
0
0
113,877
1,622
Mortgage-Backed Securities
115,015
1,099
0
0
115,015
1,099
Total
$
228,892
$
2,721
$
0
$
0
$
228,892
$
2,721
12
At March 31, 2022, there were
673
positions (combined Available-for-Sale
and Held-to-Maturity) with unrealized losses totaling
$
49.9
million.
553
of these positions were U.S. government agency securities issued by U.S. government
sponsored entities.
Municipal securities totaled
48
positions.
The remaining
72
positions were corporate debt and asset backed securities.
These
investment securities had allowance for credit losses totaling less than $
0.1
million at March 31, 2022.
The declines in the fair values
of these securities were attributable to changes in interest rates and not credit quality.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
various risk management procedures, including the
monitoring of credit ratings.
A majority of the debt securities in the Company’s
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
by the U.S. government.
The Company believes the
long history of no credit losses on these securities indicates that the expectation
of nonpayment of the amortized cost basis is zero,
even if the U.S. government were to technically default.
Further, certain municipal securities held by the Company
have been pre-
refunded and secured by government guaranteed treasuries.
Therefore, for the aforementioned securities, the Company does not
assess or record expected credit losses due to the zero loss assumption.
The Company monitors the credit quality of its municipal and
corporate securities portfolio via credit ratings
which are updated on a quarterly basis.
On a quarterly basis, municipal and corporate
securities in an unrealized loss position are evaluated to determine if the
loss is attributable to credit
related factors and if an allowance
for credit loss is needed.
 
 
 
 
 
 
 
 
13
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
FOR CREDIT LOSSES
Loan Portfolio Composition
.
The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
March 31, 2022
December 31, 2021
Commercial, Financial and Agricultural
$
230,213
$
223,086
Real Estate – Construction
174,293
174,394
Real Estate – Commercial Mortgage
669,110
663,550
Real Estate – Residential
(1)
374,712
360,021
Real Estate – Home Equity
188,174
187,821
Consumer
(2)
349,007
322,593
Loans Held For Investment, Net of Unearned Income
$
1,985,509
$
1,931,465
(1)
Includes loans in process balances of $
6.7
million and $
13.6
million at March 31, 2022 and December 31, 2021,
respectively.
(2)
Includes overdraft balances of $
1.2
million and $
1.1
million at March 31, 2022 and December 31, 2021,
respectively.
Net deferred loan costs, which include premiums on purchased loans,
included in loans were $
4.4
million at March 31, 2022 and $
3.9
million at December 31, 2021.
Accrued interest receivable on loans which is excluded from amortized
cost totaled $
5.8
million at March 31, 2022 and $
5.3
million at
December 31, 2021, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage
loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of
Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available
borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
.
The Company will periodically purchase newly originated 1-4 family real
estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party.
Residential loan purchases from CCHL totaled $
26.3
million and
$
22.2
million for the three months ended March 31, 2022 and March 31, 2021, respectively,
and were not credit impaired.
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 2021 Form
10-K.
14
The following table details the activity in the allowance
for credit losses by
portfolio segment.
 
Allocation of a portion of the
allowance to one category of loans does not preclude
its availability to
absorb losses in other categories.
 
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months Ended
June 30, 2021March 31, 2022
Beginning Balance
$
1,9572,191
$
2,2543,302
$
6,9565,810
$
5,2044,129
$
2,5752,296
$
3,0803,878
$
22,02621,606
Provision for Credit Losses
(56)(161)
505(714)
587(181)
(1,030)314
(114)(405)
(76)1,068
(184)(79)
Charge-Offs
(32)(73)
0
(266)
0
(65)(33)
(74)(1,402)
(670)
(841)(1,774)
Recoveries
 
103165
08
2629
24427
7058
731716
1,1741,003
Net (Charge-Offs) Recoveries
7192
08
26(237)
17927
(4)25
61(686)
333(771)
Ending Balance
$
1,9722,122
$
2,7592,596
$
7,5695,392
$
4,3534,470
$
2,4571,916
$
3,0654,260
$
22,17520,756
SixThree Months Ended
June 30,March 31, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(370)(314)
280(225)
(131)(718)
(1,335)(305)
(769)(655)
(171)(95)
(2,496)(2,312)
Charge-Offs
(101)(69)
0
0
(71)(6)
(79)(5)
(1,726)(1,056)
(1,977)(1,136)
Recoveries
239136
0
671645
31975
194124
1,409678
2,8321,658
Net (Charge-Offs) Recoveries
13867
0
671645
24869
115119
(317)(378)
855522
Ending Balance
$
1,9721,957
$
2,7592,254
$
7,5696,956
$
4,3535,204
$
2,4572,575
$
3,0653,080
$
22,175
Three Months Ended
June 30, 2020
Beginning Balance
$
2,247
$
1,239
$
5,828
$
6,005
$
2,701
$
3,063
$
21,083
Provision for Credit Losses
333
716
742
(615)
40
399
1,615
Charge-Offs
(186)
0
0
(1)
(52)
(1,175)
(1,414)
Recoveries
74
0
70
51
64
914
1,173
Net Charge-Offs
(112)
0
70
50
12
(261)
(241)
Ending Balance
$
2,468
$
1,955
$
6,640
$
5,440
$
2,753
$
3,201
$
22,457
Six Months Ended
June 30, 2020
Beginning Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
Impact of Adopting ASC 326
488
302
1,458
1,243
374
(596)
3,269
Provision for Credit Losses
739
1,283
1,516
1,089
141
1,837
6,605
Charge-Offs
(548)
0
(11)
(111)
(83)
(2,741)
(3,494)
Recoveries
114
0
261
91
97
1,609
2,172
Net Charge-Offs
(434)
0
250
(20)
14
(1,132)
(1,322)
Ending Balance
$
2,468
$
1,955
$
6,640
$
5,440
$
2,753
$
3,201
$
22,45722,026
For the six month periodthree months ended June 30, 2021,March 31, 2022, the allowance decreased
 
for HFI loans decreased by $
1.60.9
 
million and reflected a negative
provision benefit of $
2.50.1
million
and net loan charge-offs of $
0.8
million. For the three months ended March 31, 2021, the allowance decreased
$
1.8
million which
reflected a provision benefit of $
2.3
 
million and net loan recoveries of $
0.90.5
 
million.
 
The negative provision generallybenefit for the three months ended
March 31, 2022 and March 31, 2021 reflected improving economic
conditions,improvement in the
 
primarily a lower rateforecasted level of unemployment and its potential effect
on rates
of default, and strong net loan recoveries totaling
$0.9 million.default.
 
Three unemployment rate forecast scenarios were utilized to estimate probability
 
probability of default and were weighted based on
management’s estimate
of probability.
The mitigating impact of the unprecedented fiscal stimulus as well as various
government
sponsored loan programs, was also considered.
 
See Note 8 – Commitments and Contingencies for information
on the allowance for
off-
off-balancebalance sheet credit commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1415
Loan Portfolio Aging.
 
A loan is defined as a past due loan when one full payment is past
due or a contractual maturity
is over 30 days
past due (“DPD”).
The following table presents the aging of the amortized cost
basis in accruing
past due loans by class of loans.
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
June 30, 2021March 31, 2022
Commercial, Financial and Agricultural
$
353205
$
779
$
0
$
360284
$
292,565229,898
$
2831
$
292,953230,213
Real Estate – Construction
 
0
8400
0
8400
149,044174,293
0
149,884174,293
Real Estate – Commercial Mortgage
 
309
155502
0
4640
705,614502
1,521668,186
707,599422
669,110
Real Estate – Residential
 
394474
21129
0
605503
365,329373,005
2,5231,204
368,457374,712
Real Estate – Home Equity
 
82
13847
0
2200
188,93047
928187,283
190,078844
188,174
Consumer
 
1,0611,152
195632
0
1,2561,784
298,325346,996
110227
299,691349,007
Total
$
2,1992,380
$
1,546740
$
0
$
3,7453,120
$
1,999,8071,979,661
$
5,1102,728
$
2,008,6621,985,509
December 31, 20202021
Commercial, Financial and Agricultural
$
194100
$
12423
$
0
$
318123
$
393,451222,873
$
16190
$
393,930223,086
Real Estate – Construction
 
0
7170
0
7170
134,935174,394
1790
135,831174,394
Real Estate – Commercial Mortgage
 
293151
0
0
293151
646,688662,795
1,412604
648,393663,550
Real Estate – Residential
 
375365
530151
0
905516
348,508357,408
3,1302,097
352,543360,021
Real Estate – Home Equity
 
325
138210
0
4630
204,321210
695186,292
205,4791,319
187,821
Consumer
 
1,5561,964
342636
0
1,8982,600
268,058319,781
294212
270,250322,593
Total
 
$
2,7432,790
$
1,851810
$
0
$
4,5943,600
$
1,995,9611,923,543
$
5,8714,322
$
2,006,4261,931,465
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
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
 
current or when future payments are reasonably assured.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
nonaccrual status and loans past due over 90 days and
still on accrual
by class of loans.
June 30, 2021March 31, 2022
December 31, 20202021
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With No
90 + Days
With No
With No
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
280
$
31
$
0
$
067
$
161
$
023
$
0
Real Estate – Construction
 
0
 
0
0
1790
0
0
Real Estate – Commercial Mortgage
 
1,0270
 
494422
0
3370
1,075604
0
Real Estate – Residential
 
1,588728
 
935476
0
1,617928
1,5131,169
0
Real Estate – Home Equity
 
9280
 
0844
0
695463
0856
0
Consumer
 
1100
 
227
0
0
294
0212
0
Total Nonaccrual
 
Loans
$
3,681728
$
1,4292,000
$
0
$
3,2831,458
$
2,5882,864
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
16
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
 
June 30, 2021March 31, 2022
December 31, 20202021
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
0
$
0
$
0
$
67
Real Estate – Construction
0
0
0
0
Real Estate – Commercial Mortgage
1,7340
0
3,900455
0
Real Estate – Residential
2,192855
0
3,0221,645
0
Real Estate – Home Equity
 
700601
 
0
 
219649
 
0
Consumer
 
0
 
270
 
0
 
290
Total Collateral Dependent
 
Loans
$
4,6261,456
$
270
$
7,1412,749
$
2967
A loan is collateral dependent when the borrower is experiencing financial
 
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
 
collateralized by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined by
 
by either independent appraisals
or internal evaluations, adjusted for selling costs or other
amounts to be deducted
when estimating expected net sales proceeds.
 
Residential Real Estate Loans In Process
of Foreclosure
.
 
At June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had
$
1.20.9
 
million
and $
1.60.9
 
million, respectively, in 1-4 family
 
family residential real estate loans for which formal foreclosure
proceedings were in process.
Troubled
 
Debt Restructurings (“TDRs”).
 
At June 30, 2021,March 31, 2022, the Company had $
9.97.5
 
million in TDRs, of which $
9.07.3
 
million were
performing in accordance with the modified terms.
 
At December 31, 20202021 the Company had $
14.38.0
 
million in TDRs, of which $
13.9
7.6
million were performing in accordance with modified
terms.
 
For TDRs, the Company estimated $
0.40.3
 
million and $
0.60.3
 
million of
credit loss reserves at June 30,March 31, 2022 and December 31, 2021, and December
31, 2020, respectively.
The modifications made to TDRs involved either an
extension of the loan term, a principal
moratorium, a reduction in the interest
rate,
or a combination thereof.
 
For the three months ended June 30, 2021,March 31, 2022 there waswere
10
 
loan modified with a recorded investment of $
0.1
million.loans modified.
 
For the three months ended June 30, 2020,
March 31, 2021, there were
2
 
loans modified with a recorded investment of $
0.1
million.
For
the six month period ended June 30, 2021, there were
3
loans modified with a recorded investment of $
0.60.4
 
million.
 
For the sixthree months ended March 31,
month period ended June 30, 2020, there were
3
loans modified with a recorded investment of $
0.2
million.
For the three2022 and six month period ended June 30,March 31, 2021,
there were
0
loans classified as TDRs, for which there was a payment
default and the loans were modified within the 12 months
prior to default.
For the three month period ended June 30, 2020, there were
0
 
loans classified as TDRs, for which there was a payment default
and the loans were modified
within the 12 months prior to
default.
For the six month period ended June 30, 2020, there were
2
loans classified as TDRs, for which there was a payment
default and the
loans were modified within the 12 months prior to
default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting standards and
 
standards and loan review
procedures designed to maximize loan income within an acceptable
 
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,
 
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
 
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
 
this category are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or
 
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.
 
 
 
 
 
1617
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
 
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
 
completed project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy
 
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
 
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
 
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
 
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,
 
installment loans, direct and indirect automobile financing, and
overdraft
lines of credit.
 
The majority of the consumer loan portfoliocategory consists of direct and indirect andautomobile
 
direct automobile loans.
 
Lending policy
establishes maximum debt to income ratios, minimum
credit scores, and
includes guidelines for verification of applicants’ income
and
receipt of credit reports.
Credit Quality Indicators
.
 
As part of the ongoing monitoring of the Company’s
 
loan portfolio quality, management
 
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
 
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
 
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
 
currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1718
The following table summarizes gross loans held for investment at
 
investment at June 30, 2021 March 31, 2022
by years of origination and internally
assigned credit
credit risk ratings (refer to Credit Risk Management section
for detail on risk rating
system).
 
Term
 
Loans by Origination Year
Revolving
(Dollars in Thousands)
2022
2021
2020
2019
2018
2017
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
96,16022,526
$
56,46660,369
$
37,28827,910
$
24,61226,368
$
11,52518,565
$
17,65118,863
$
48,60654,707
$
292,308229,308
Special Mention
570
100
187
268
16
24
0
180
32
1
51
0
321595
Substandard
0
11
0
228
22
28
35
324
Total
$
96,217
$
56,477
$
37,468
$
24,872
$
11,548
$
17,730
$
48,641
$
292,953
Real Estate -
Construction:
Pass
$
41,183
$
78,597
$
23,854
$
488
$
134
$
0
$
4,073
$
148,329
Special Mention
715
0
0
0
0
0
0
715
Substandard
0
840
 
0
 
0
 
058
 
0
 
184
68
0
 
840310
Total
$
41,89822,526
$
79,43760,469
$
23,85428,155
$
48826,636
$
13418,765
$
18,955
$
54,707
$
230,213
Real Estate -
Construction:
Pass
$
11,641
$
109,459
$
42,522
$
8,684
$
0
$
4,073129
$
149,8841,858
$
174,293
Total
$
11,641
$
109,459
$
42,522
$
8,684
$
0
$
129
$
1,858
$
174,293
Real Estate -
Commercial Mortgage:
Pass
$
108,24750,302
$
155,143165,574
$
98,591123,213
$
111,32773,444
$
66,38173,824
$
96,834131,407
$
22,35826,092
$
658,881643,856
Special Mention
0
260
4,510410
16,7201,750
4,6012,615
13,3045,761
41,250
39,16511,786
Substandard
1,561
583
3,589
90
1,799
1,931
 
0
 
9,55310,055
405
640
0
2,298
70
13,468
Total
$
109,80850,302
$
155,752175,629
$
106,690124,028
$
128,13775,834
$
72,78176,439
$
112,069139,466
$
22,36227,412
$
707,599669,110
Real Estate - Residential:
Pass
$
83,58646,698
$
76,616117,058
$
50,77955,670
$
34,01034,111
$
31,30723,957
$
71,82781,162
$
7,9066,255
$
356,031364,911
Special Mention
0
139
21
123
170
52961
0
982132
18
60
570
1,348
2,189
Substandard
 
93674
 
1,908576
 
2,7831,007
 
1,7321,085
 
1,113971
 
2,8723,899
 
1000
 
11,4447,612
Total
 
$
84,52246,833
$
78,663117,634
$
53,58356,809
$
35,86535,214
$
32,59024,988
$
75,22885,631
$
8,0067,603
$
368,457374,712
Real Estate - Home
Equity:
Performing
$
1550
$
60146
$
35313
$
179255
$
755130
$
2,0912,191
$
185,557184,595
$
189,150187,330
Nonperforming
 
0
 
0
 
0
 
017
 
0
 
0
 
928827
 
928844
Total
 
$
1550
$
60146
$
35313
$
179272
$
755130
$
2,0912,191
$
186,485185,422
$
190,078188,174
Consumer:
Performing
$
96,87861,883
$
84,462159,135
$
52,43756,232
$
37,37233,402
$
16,46022,026
$
6,65210,370
$
5,3195,731
$
299,580348,779
Nonperforming
0
058
559
34
1422
58
31
0
111228
Total
$
96,87861,883
$
84,462159,193
$
52,44256,291
$
37,40633,424
$
16,47422,084
$
6,71010,401
$
5,3195,731
$
299,691349,007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1819
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities at its subsidiary, Capital City Homes Loans (“CCHL”) include
 
CCHL, include mandatory delivery loan
sales, forward sales contracts
used to manage residential
loan pipeline price risk, utilization of warehouse
lines to fund secondary
market residential loan closings,
and residential mortgage
servicing.
 
For the six month period of 2020, information provided below
reflects CCHL activities for the period March 1, 2020
to June 30, 2020 and CCB legacy residential real estate activities for
the period
January 1, 2020 to March 1, 2020.
All quarterly information subsequent to the quarter ended March 31,
2020 includes CCHL activity.
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and
 
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
 
for 30 to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to
when the closed
loan is sold to an investor.
 
Residential mortgage loan
commitments are subject to both credit and price risk.
 
Credit risk is managed through underwriting policies and
procedures, including
collateral requirements, which are generally accepted
by the secondary
loan markets.
 
Price risk is primarily related to interest rate
fluctuations and is partially managed through forward
sales of residential
mortgage-backed securities (primarily to-be announced
securities, or TBAs) or mandatory delivery commitments
with investors.
 
The unpaid principal balance of residential mortgage loans
held for sale,
notional amounts of derivative contracts
related to residential
mortgage loan commitments and forward contract sales and their related
 
their related fair values are set- forth below.
June 30, 2021March 31, 2022
December 31, 20202021
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
78,11149,991
$
80,82150,815
$
109,83150,733
$
114,03952,532
Residential Mortgage Loan Commitments ("IRLCs")
(1)
107,79799,399
2,5241,117
147,49451,883
4,8251,258
Forward Sales Contracts
(2)
99,00055,000
(90)850
158,50048,000
(907)(7)
$
83,25552,782
$
117,95753,783
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at fair value
at March 31, 2022 and December 31, 2021, respectively
The Company had
0
 
residential mortgage loans held for sale that were 90 days or more
outstanding or on
nonaccrual at June 30, 2021March 31,
2022, and hadloans held for sale that were 30-69 days outstanding totaled $
0.60.2
 
million at December 31, 2020.2021.
 
Mortgage banking revenue was as follows:
Three Months Ended
Six Months Ended
June 30,
June 30, March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Net realized gains on sales of mortgage loans
$
13,5345,136
$
14,580
$
27,958
$
17,98714,424
Net change in unrealized
gain on mortgage loans held for sale
532(975)
1,092
(1,499)
1,830(2,031)
Net change in the fair value of mortgage loan commitments
(IRLCs)
(458)(141)
1,487
(2,301)
3,142(1,843)
Net change in the fair value of forward sales contracts
(1,446)857
1,625
817
2312,263
Pair-Offs on net settlement of forward
sales contracts
(476)2,255
(3,019)
2,835
(4,395)3,310
Mortgage servicing rights additions
453632
2,049
640
2,049187
Net origination fees
1,0781,182
1,583
1,892
1,806815
Total mortgage banking
 
banking revenues
$
13,2178,946
$
19,39717,125
$
30,342
$
22,650
20
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
sold.
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
March 31, 2022
December 31, 2021
Number of residential mortgage loans serviced for others
2,224
2,106
Outstanding principal balance of residential mortgage loans serviced
for others
$
577,297
$
532,967
Weighted average
interest rate
3.62%
3.59%
Remaining contractual term (in months)
317
317
Conforming conventional loans serviced by the Company are sold to FNMA on
a non-recourse basis, whereby foreclosure losses are
generally the responsibility of FNMA and not the Company.
The government loans serviced by the Company are secured through
GNMA, whereby the Company is insured against loss by the Federal Housing
Administration or partially guaranteed against loss by
the Veterans
Administration.
At March 31, 2022, the servicing portfolio balance consisted of the
following loan types: FNMA (
60
%),
GNMA (
8
%), and private investor (
32
%).
FNMA and private investor loans are structured as actual/actual payment remittance.
The Company had $
1.3
million and $
2.0
million in delinquent residential mortgage loans currently in GNMA pools
serviced by the
Company at March 31, 2022 and December 31, 2021, respectively.
The right to repurchase these loans and the corresponding liability
has been recorded in other assets and other liabilities, respectively,
in the Consolidated Statement of Financial Condition.
For the
three months ended March 31, 2022, the Company repurchased $
0.4
million in delinquent residential loans currently in GNMA pools.
For the three months ended March 31, 2021, the Company repurchased
$
1.5
million of GNMA delinquent or defaulted mortgage loans
with the intention to modify their terms and include the loans in new GNMA
pools.
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2022
2021
Beginning balance
$
3,774
$
3,452
Additions due to loans sold with servicing retained
632
187
Deletions and amortization
(405)
(306)
Valuation
allowance reversal
0
250
Ending balance
$
4,001
$
3,583
The Company did
0
t record any permanent impairment losses on mortgage servicing rights for the
three months ended March 31,
2022 and March 31, 2021.
The key unobservable inputs used in determining the fair value of the Company’s
mortgage servicing rights were as follows:
March 31, 2022
December 31, 2021
Minimum
Maximum
Minimum
Maximum
Discount rates
10.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
7.12%
19.55%
11.98%
23.79%
Cost of servicing (per loan)
$
60
$
73
$
60
$
73
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
10.56
% at March 31, 2022 and
15.85
% at December 31, 2021.
21
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
agreements with various financial institutions at
March 31, 2022.
Amounts
(Dollars in Thousands)
Outstanding
$
75
million master repurchase agreement without defined expiration.
Interest is at the Prime rate minus
1.00%
to plus
1.00%
, with a floor rate of
3.25%
.
A cash pledge deposit of $
0.5
million is required by the lender.
6,705
$
75
million warehouse line of credit agreement expiring in
November 2022
.
Interest is at the SOFR plus
2.25%
, to
3.25%
.
19,191
Total Warehouse
Borrowings
$
25,896
Warehouse
line borrowings are classified as short-term borrowings.
At December 31, 2021, warehouse line borrowings totaled $
29.0
million. At March 31, 2022, the Company had residential mortgage
loans held for sale and construction loans held for investment
pledged as collateral under the above warehouse lines of credit and master repurchase
agreements.
The above agreements also contain
covenants which include certain financial requirements, including
maintenance of minimum tangible net worth, minimum liquid
assets, and maximum debt to net worth ratio, as defined in the agreements.
The Company was in compliance with all significant debt
covenants at March 31, 2022.
The Company has extended a $
50
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
Balances and
transactions under this line of credit are eliminated in the Company’s
consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of
Financial Condition.
The balance of this line of credit at
December 31, 2021 and March 31, 2022 was $
14.8
and $
15.3
million, respectively.
NOTE 5 – DERIVATIVES
The Company enters into derivative financial instruments to manage exposures
that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of
which are determined by interest rates.
The Company’s
derivative financial instruments are used to manage differences
in the amount, timing, and duration of the Company’s
known or
expected cash receipts and its known or expected cash payments principally
related to the Company’s subordinated
debt.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
30
million at March 31, 2022 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 LIBOR plus a weighted average margin of
1.83
%.
For derivatives designated and that qualify as cash flow hedges of interest rate
risk, the gain or loss on the derivative is recorded in
accumulated other comprehensive income (“AOCI”) and subsequently
reclassified into interest expense in the same period(s) during
which the hedged transaction affects earnings. Amounts reported
in accumulated other comprehensive income related to derivatives
will be reclassified to interest expense as interest payments are made on the
Company’s variable-rate subordinated
debt.
The following table reflects the cash flow hedges included in the consolidated
statements of financial condition
.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
Maturity (Years)
March 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
3,886
8.3
December 31, 2021
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
2,050
8.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1922
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 summarytable presents the net gains (losses) recorded in AOCI and the
consolidated statements of mortgageincome related to the cash
flow derivative instruments (interest rate swaps related to subordinated
 
servicing rights.debt) for the three months ended March 31, 2022.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
June 30, 2021Category
Decemberin AOCI
from AOCI to Income
Three months ended March 31, 20202022
Number of residential mortgage loans serviced for others
2,008
1,796
Outstanding principal balance of residential mortgage
loans serviced for othersInterest expense
$
498,9841,370
$
456,135(28)
Weighted averageThree months ended March 31, 2021
Interest expense
$
1,587
 
interest rate
3.61%
3.64%
Remaining contractual term (in months)
318
321(33)
The Company estimates there will be approximately $
0.1
Conforming conventional loans serviced by
million reclassified as an increase to interest income within the Company
are sold to FNMA on a non-recourse basis, whereby foreclosure
losses arenext 12
generally the responsibility of FNMA and not the Company.
The government loans serviced by the Company are
secured through
GNMA, whereby the Company is insured against loss by
the Federal Housing Administration or partially guaranteed against loss by
the Veterans
Administration.
At June 30, 2021, the servicing portfolio balance consisted
of the following loan types: FNMA (
62
%),
GNMA (
10
%), and private investor (
28
%).
FNMA and private investor loans are structured as actual/actual
payment remittance.
months.
The Company had a collateral liability of $
2.84.0
 
million and $
4.92.0
 
million in delinquent residential mortgage loans currently
in GNMA pools serviced by the
Company at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating
 
respectively.
Thelease right to repurchase these loansof use (“ROU”) assets and the corresponding liabilityoperating
has been recordedliabilities, included in other assets and other liabilities, respectively,
 
in theon its Consolidated StatementsStatement of Financial Condition.
 
For
The Company’s operating
leases primarily relate to banking offices with remaining lease terms
from
1
to
44
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
threeConsolidated Statement of Financial Condition and six months ended June 30, 2021, the Companyrelated lease expense is recognized on a straight-line basis over the lease term.
 
repurchased
At March 31, 2022, the operating lease ROU assets and liabilities were $
0.711.7
 
million and $
2.212.3
 
million, respectively,respectively. At December
31, 2021, ROU assets and liabilities were $
11.5
 
of GNMAmillion and $
delinquent12.2
million, respectively.
The Company does not have any finance
leases or defaulted mortgage loans with the intentionany significant lessor agreements.
The table below summarizes our lease expense and other information related
 
to modify their terms and include the loans in new GNMA pools.
Company’s operating leases.
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Beginning balanceOperating lease expense
$
3,583384
$
910344
Short-term lease expense
179
140
Total lease expense
$
3,452563
$
910484
Additions due to loans sold with servicing retainedOther information:
453Cash paid for amounts included in the measurement of lease liabilities:
2,049
640
2,074
Deletions and amortization
(326)
(97)
(632)
(122)
Valuation
allowance reversal
0
0
250
0
Ending balanceOperating cash flows from operating leases
$
3,710429
$
2,862385
$Right-of-use assets obtained in exchange for new operating lease liabilities
3,710592
$75
2,862Weighted average
remaining lease term — operating leases (in years)
24.9
25.5
Weighted average
discount rate — operating leases
2.0%
2.1%
The Company didtable below summarizes the maturity of remaining lease liabilities:
0(Dollars in Thousands)
t record any permanent impairment losses on mortgage servicing
rights for the three or six month periods endedMarch 31, 2022
June 30, 2021 and June 30, 2020.
The key unobservable inputs used in determining the
fair value of the Company’s mortgage
servicing rights were as follows:
June 30, 2021
December 31, 2020
Minimum
Maximum
Minimum
Maximum
Discount rates
11.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
13.09%
22.68%
13.08%
23.64%
Cost of servicing (per loan)2022
$
901,581
2023
1,190
2024
1,120
2025
977
2026
875
2027 and thereafter
10,341
Total
$
11016,084
Less: Interest
(3,773)
Present Value
of Lease liability
$
9012,311
$
110
Changes in residential mortgage interest rates directly
affect the prepayment speeds used in valuing the Company’s
mortgage
servicing rights.
A separate third party model is used to estimate prepayment speeds
based on interest rates, housing turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant
factors.
The weighted average annual prepayment speed was
16.52
% at June 30, 2021 and
17.10
% at December 31, 2020.
 
 
 
20
Warehouse
Line Borrowings
The Company has the following warehouse lines of
credit and master repurchase agreements with various financial institutions
at June
30, 2021.
Amounts
(Dollars in Thousands)
Outstanding
$
25
million warehouse line of credit agreement expiring
October 2021
.
Interest is at LIBOR plus
2.25%
, with a
floor rate of
3.50%
.
A cash pledge deposit of $
0.1
million is required by the lender.
$
5,630
$
50
million master repurchase agreement without defined expiration.
Interest is at the LIBOR plus
2.24%
to
3.00%
, with a floor rate of
3.25%
.
A cash pledge deposit of $
0.5
million is required by the lender.
7,772
$
50
million warehouse line of credit agreement expiring in
September 2021
.
Interest is at the LIBOR plus
2.75%
, with a floor rate of
3.25%
.
29,195
Total Warehouse
Borrowings
$
42,597
Warehouse
line borrowings are classified as short-term borrowings.
At June 30, 2021, the Company had 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, maximum debt to net worth ratio and positive net
income, as defined in the agreements.
The Company was in compliance with
all significant debt covenants at June 30, 2021.
The Company intends to renew the warehouse lines of
credit and master repurchase agreements when they mature
.
The Company has extended a $
50
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
Balances and
transactions under this line of credit are eliminated
in the Company’s consolidated
financial statements and thus not
included in the
total short term borrowings noted on the Consolidated
Statement of Financial Condition.
The balance of this line of credit at June 30,
2021 was $
27.7
million.
NOTE 5 – DERIVATIVES
The Company enters into derivative financial instruments to manage
exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash
amounts, the value of which are determined by interest rates.
The Company’s
derivative financial instruments are used to manage differences
in the amount, timing, and duration of the Company’s
known or
expected cash receipts and its known or expected
cash payments principally related to the Company’s
subordinated debt.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling
$
30
million at June 30, 2021 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 LIBOR plus a weighted average margin
of
1.83
%.
For derivatives designated and that qualify as cash
flow hedges of interest rate risk, the gain or loss on the
derivative is recorded in
accumulated other comprehensive income (“AOCI”) and
subsequently
reclassified into interest expense in the same period(s) during
which the hedged transaction affects earnings.
Amounts reported in accumulated other comprehensive income
related to derivatives
will be reclassified to interest expense as interest payments are
made on the Company’s
variable-rate subordinated debt.
The following table reflects the cash flow hedges included
in the consolidated statements of financial condition
.
Notional
Fair
Balance Sheet
Weighted Average
(Dollars in Thousands)
Amount
Value
Location
Maturity (Years)
June 30, 2021
Interest rate swaps related to subordinated debt
$
30,000
$
1,780
Other Assets
9.0
December 31, 2020
Interest rate swaps related to subordinated debt
$
30,000
$
574
Other Assets
9.5
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2123
The following table presentsAt March 31, 2022, the net gains (losses) recordedCompany had four additional operating lease obligations
 
in AOCI andfor banking offices (to be constructed) that have not
yet commenced. Three of the consolidated statements of income related
to the cash
flow derivative instruments (interest rate swaps related to
subordinated debt) for the three and six month periods ended
June 30, 2021
and June 30, 2020.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
in AOCI
Category
from AOCI to Income
Three months ended June 30, 2021
leases have payments totaling $
(686)
Interest Expense
$
(37)
Three months ended June 30, 2020
(108)
Interest Expense
(3)
Six months ended June 30, 2021
$
900
Interest Expense
$
(70)
Six months ended June 30, 2020
(108)
Interest Expense
(3)
The Company estimates there will be approximately
$
0.19.3
 
million reclassified as an increase to interest expense within
based on the next 12initial contract terms of
months.15 years
, and the fourth
The Company had a collateral liability oflease has payments totaling $
1.7
million and $
0.5
million at June 30, 2021 and December 31, 2020, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are
recorded as operating lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively,
on its consolidated statement of financial condition.
The Company’s operating
leases primarily relate to banking offices with remaining
lease terms from
1
to
44
years.
The Company’s
leases are not complex and do not contain residual value
guarantees, variable lease payments, or significant assumptions
or judgments
made in applying the requirements of Topic
842.
Operating leases with an initial term of 12 months or less are not recorded on the
balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.
At June 30, 2021, the operating
lease ROU assets and liabilities were $
11.9
million and $
12.7
million, respectively.
The Company does not have any finance leases or
any significant lessor agreements.
The table below summarizes our lease expense and other
information related to the Company’s
operating leases.
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2021
2020
2021
2020
Operating lease expense
$
362
$
265
$
706
$
422
Short-term lease expense
170
154
310
233
Total
lease expense
$
532
$
419
$
1,016
$
655
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
402
$
263
$
786
$
424
Right-of-use assets obtained in exchange for new operating lease liabilities
440
0
515
5,120
Weighted average
remaining lease term — operating leases (in years)
25.1
15.5
25.1
15.5
Weighted average
discount rate — operating leases
2.0%
2.4%
2.0%
2.4%
22
The table below summarizes the maturity of remaining
lease liabilities:
(Dollars in Thousands)
June 30, 2021
2021
$
816
2022
1,480
2023
1,086
2024
1,033
2025
855
2026 and thereafter
11,165
Total
$
16,435
Less: Interest
(3,780)
Present Value
of Lease liability
$
12,655
At June 30, 2021, the Company had additional operating
lease payments for
2
banking offices that have not yet commenced totaling
$
4.81.4
 
million based on the initial contract term of
1510 years
.
 
Payments for the banking offices are expected
to commence after the
construction period ends,periods end, which isare each expected to occur during the secondfourth quarter of 2022 and the third first
quarter of 2022.2023.
 
A related party is the lessor in an operating lease with
the Company.
 
The Company’s minimum payment
 
payment is $
0.2
 
million annually
through 2024, for an aggregate remaining obligation of
$
0.70.5
 
million at June 30, 2021.March 31, 2022.
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
 
a Supplemental Executive Retirement Plan II (“SERP II”) covering
its
executive officers.
 
The defined benefit plan was amended in December 2019
to remove plan eligibility
for new associates hired after
December 31, 2019.
 
The SERP II was adopted by the Company’s
 
Board on May 21, 2020 and covers certain executive officers
that
were not covered by the SERP.
 
The components of the net periodic benefit cost for
the Company's qualified
benefit pension plan were as follows:
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Service Cost
$
1,7431,572
$
1,457
$
3,486
$
2,9141,743
Interest Cost
1,2211,166
1,400
2,442
2,8111,221
Expected Return on Plan Assets
(2,787)(2,675)
(2,748)
(5,574)
(5,496)(2,787)
Prior Service Cost Amortization
4
4
8
8
Net Loss Amortization
428
1,691
974Pension Settlement
3,382
1,985
Settlement Loss
2,000209
0
2,000
0
Special Termination
Charge
0
0
0
61
Net Periodic Benefit Cost
$
3,872704
$
1,087
$
5,744
$
2,2831,872
Discount Rate Used for Benefit Cost
3.11%
2.88%
3.53%
2.88%
3.53%
Long-term Rate of Return on Assets
6.75%
7.00%
6.75%
7.00%
In the second quarter of 2021, lump sum payments
made under the Company’s defined
benefit pension plan triggered settlement
accounting.
In accordance with the applicable accounting guidance for defined
benefit plans, the Company recorded a settlement loss
of $
2.0
million.
23
The components of the net periodic benefit cost for the Company's
SERP and SERP IIplans were as follows:
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Service Cost
$
98
$
10
$
18
$
109
Interest Cost
6179
83
120
15559
Prior Service Cost Amortization
69
109
88
10919
Net Loss Amortization
243180
71
441
318198
Net Periodic Benefit Cost
$
382336
$
273
$
667
$
592285
Discount Rate Used for Benefit Cost
2.80%
2.38%
3.16%
2.38%
3.16%
The service cost component of net periodic benefit cost is reflected in
 
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 offoff-balance
 
-balance sheet risks in the normal course of business
to meet the financing needs of its clients.
 
These financial instruments consist of commitments to extend
credit and standby
letters of
credit.
 
 
24
The Company’s maximum exposure
 
exposure to credit loss under standby letters of credit and
commitments to extend credit is represented
by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
June 30, 2021March 31, 2022
December 31, 20202021
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
204,549
$
560,909
$
765,458200,236
$
160,372563,634
$
596,572763,870
$
756,944217,531
$
505,897
$
723,428
Standby Letters of Credit
 
6,5875,020
 
0
 
6,5875,020
6,5505,205
 
0
 
6,5505,205
Total
$
211,136205,256
$
560,909563,634
$
772,045768,890
$
166,922222,736
$
596,572505,897
$
763,494728,633
(1)
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet residential
 
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
 
termination clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn
 
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by
 
issued by the Company to guarantee the performance
of a client to a third
party.
 
The credit risk involved in issuing letters of credit is essentially the
same as that involved
in extending loan facilities. In
general, management does not anticipate any material
losses as a result
of participating in these types of transactions.
 
However, any
potential losses arising from such transactions are reserved
for in the same manner
as management reserves for its other
credit
facilities.
For both on-
and off-balance sheet financial instruments, the Company
 
requires collateral to support such instruments when it is
deemed necessary.
 
The Company evaluates each client’s
 
creditworthiness on a case-by-case basis.
 
The amount of collateral
obtained upon extension of credit is based on management’s
 
credit evaluation of the counterparty.
 
Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury
 
securities; other marketable securities; real estate; accounts receivable;
property, plant and
 
equipment; and inventory.
24
The allowance for credit losses for off-balance sheet credit commitments
 
credit commitments that are not unconditionally cance
llablecancellable by the bank is
adjusted as a provision for credit loss expense and is recorded
in other liabilities.
 
The following table shows the activity in the
allowance.
 
 
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Beginning Balance
$
2,974
$
1,0332,897
$
1,644
$
157
Impact of Adoption of ASC 326
0
0
0
876
Provision for Credit Losses
(387)79
391
943
3911,330
Ending Balance
$
2,5872,976
$
1,424
$
2,587
$
1,4242,974
Other Commitments.
In the normal course of business, the Company enters into lease commitments
which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the
Company’s operating lease commitments.
Furthermore,
the Company has an outstanding commitment of up to $
1.0
million in a bank tech venture capital fund focused on finding and funding
technology solutions for community banks. At March 31, 2022 and at December
31, 2021, the Company had contributed $
0.1
million
of the commitment.
Contingencies
.
 
The Company is a party to lawsuits and claims arising out of
the normal course of business.
 
In management's opinion,
there are no known pending claims or litigation, the outco
meoutcome 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.
25
Indemnification Obligation
.
 
The Company is a member of the Visa
U.S.A. network.
 
Visa U.S.A member banks are
 
are required to
indemnify the Visa U.S.A.
 
network for potential future settlement of certain litigation
(the (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
 
Inc. makes subsequent
revisions to the conversion ratio for its Class B shares.
 
Fixed charges included in the swap liability are payable
 
quarterly until the
litigation reserve is fully liquidated
and at which time the aforementioned
aforementioned swap contract will be terminated.
 
Quarterly fixed payments
approximate $
205,0000.2
.
million.
 
Conversion ratio payments and
ongoing fixed quarterly charges
are reflected
in earnings in the period
incurred.
NOTE 9 – FAIR VALUE
 
MEASUREMENTS
The fair value of an asset or liability is the price that would
be received to sell that asset or paid
to transfer that
liability in an orderly
transaction occurring in the principal market (or most advantageous market in
 
market in the absence of a principal market) for such asset or
liability.
 
In estimating fair value, the Company utilizes valuation techniques that are
 
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
 
pricing an asset or liability.
 
ASC Topic 820
 
establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted
prices in active markets
for identical assets or liabilities and the
lowest
priority to unobservable inputs.
 
The fair value hierarchy is as follows:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities
that the reporting
entity has the
ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability,
 
either directly
or indirectly. These might
 
might include quoted prices for similar assets or liabilities in active markets, quoted prices
 
quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other
 
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
 
would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
 
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
 
include dealer quotes, market
spreads, cash flows, the U.S. Treasury yield curve,
 
yield curve, live trading levels, trade execution data, credit information
and the bond’s
terms
and conditions, among other things.
25
In general, the Company does not purchase securities that have
a complicated structure.
 
The Company’s entire portfolio consists
 
consists of
traditional investments, nearly all of which are U.S. TreasuryTreasur
y
 
obligations, federal agency bullet or mortgage pass-through securities,
 
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 comparingcompari
ng them to prices obtained from an independent
third-party
source.
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based
on Level 2 inputs is determined,
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for
the specific attributes of
that loan, which would be used
by other market
participants.
 
The Company has elected the fair value option accounting for its held
for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived
by valuation
models incorporating market pricing for instruments with similar characteristics,
 
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
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Interest Rate Swap.
The Company’s derivative positions
are classified as level 2 within the fair value hierarchy and are valued
using
models generally accepted in the financial services industry and
that use actively quoted or observable market input values from
external market data providers.
The fair value derivatives are determined using discounted cash flow models.
Fair Value
Swap
.
The Company entered into a stand-alone derivative contract with the purchaser of
its Visa Class B shares.
The
valuation represents the amount due and payable to the counterparty based upon
the revised share conversion rate, if any,
during the
period. At March 31, 2022,
0
amount was payable. At December 31, 2021, there was a $
0.1
million payable.
A summary of fair values for assets and liabilities consisted
of the following:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
June 30, 2021March 31, 2022
ASSETS:
Securities Available for
 
for Sale:
U.S. Government Treasury
$
160,877180,013
$
0
$
0
$
160,877180,013
U.S. Government Agency
0
228,301224,435
0
228,301224,435
States and Political Subdivisions
0
13,60743,350
0
13,60743,350
Mortgage-Backed Securities
0
56,95086,063
0
56,95086,063
Corporate Debt Securities
0
14,36083,173
0
14,36083,173
EquityOther Securities
(1)
0
6,7957,327
0
6,7957,327
Loans Held for Sale
0
80,82150,815
0
80,82150,815
Interest Rate Swap Derivative
0
1,7803,886
0
1,7803,886
Mortgage Banking Hedge Derivative
0
850
0
850
Mortgage Banking IRLC Derivative
0
0
2,5241,117
2,5241,117
Mortgage Servicing Rights
0
0
3,9007,177
3,9007,177
December 31, 2021
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
187,868
$
0
$
0
$
187,868
U.S. Government Agency
0
237,578
0
237,578
States and Political Subdivisions
0
46,980
0
46,980
Mortgage-Backed Securities
0
88,869
0
88,869
Corporate Debt Securities
0
86,222
0
86,222
Other Securities
0
7,094
0
7,094
Loans Held for Sale
0
52,532
0
52,532
Interest Rate Swap Derivative
0
2,050
0
2,050
Mortgage Banking IRLC Derivative
0
0
1,258
1,258
Mortgage Servicing Rights
0
0
4,718
4,718
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
907
$
0
$
90
December 31, 2020
ASSETS:
Securities Available
for Sale:
U.S. Government Treasury
$
104,519
$
0
$
0
$
104,519
U.S. Government Agency
0
208,531
0
208,531
States and Political Subdivisions
0
3,632
0
3,632
Mortgage-Backed Securities
0
515
0
515
Equity Securities
(1)
0
7,673
0
7,673
Loans Held for Sale
0
114,039
0
114,039
Interest Rate Swap Derivative
0
574
0
574
Mortgage Banking IRLC Derivative
0
0
4,825
4,825
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
907
$
0
$
907
(1)
Not readily marketable securities - reflected
in other assets.7
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers related to mortgage
 
to mortgage banking activities of $
27.44.3
million
million and $
19.313.6
 
million, respectively, for the
 
for the six month period ending June 30, 2021three months ended March 31, 2022 and $
14.615.4
 
million and $
19.410.5
 
million,
respectively, for the
periodthree months ended March 1, 2020 to June 30, 2020.31, 2021.
 
Issuances are valued based on the change in fair value of the underlying mortgage
 
the underlying
mortgage loan from
inception of the IRLC to the balanceConsolidated Statement of Financial Condition
 
sheet date, adjusted for pull-through rates and costs to originateoriginate.
 
.
IRLCs
IRLCs transferred out of Level 3 represent IRLCs that were funded and moved
 
and moved to mortgage loans held for sale, at fair value.
Assets Measured at Fair ValValue
 
ue on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring
basis (i.e., the
assets are not measured at fair value on an
ongoing basis
but are subject
to fair value adjustments in certain circumstances).
 
An example would be assets exhibiting evidence of impairment.
 
The following is a description of valuation methodologies
used for assets measured
on a non-recurring basis.
 
27
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured
using the fair
value of the collateral less selling
costs.
 
The fair value of collateral is determined by an independent valuation
 
independent valuation or professional appraisal in conformance with banking
regulations.
 
Collateral values are estimated using Level 3 inputs due to the volatility
in the real estate market,
and the judgment and
estimation involved in the real estate appraisal process.
 
Collateral dependent loans are reviewed and evaluated on
at least a quarterly
basis for additional impairment and adjusted accordingly.
 
Valuation
 
techniques are consistent with those techniques applied in
prior
periods.
 
Collateral-dependent loans had a carrying value of $
4.71.5
 
million with a valuation allowance of $
0.60.1
 
million at June 30, 2021March 31, 2022
and $
7.12.8
 
million and $
0.10.2
 
million, respectively,
 
at December 31, 2020.
27
2021.
Other Real Estate Owned
.
 
During the first sixthree months of 2021,
2022, certain foreclosed assets, upon initial recognition,
were measured
and
and reported at fair value through a charge-off
 
to the allowance for credit losses based on the fair value of the foreclosed
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
 
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
 
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 June 30, 2021,March 31, 2022, there was
0
 
valuation allowance for loan servicing rights.rights
compared to $
0.3
 
million valuation allowance at December 31, 2021.
 
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.
A summaryThe carrying amount of estimated fair values of significantcash and short-term investments is used to approximate
 
financial instruments consisted of fair value, given
the following:short time frame to maturity and as such assets do not present unanticipated
credit concerns.
 
Securities Held to Maturity
.
 
June 30, 2021
Carrying
Level 1
Level 2
Level 3
(DollarsSecurities held to maturity are valued in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
78,894
$
78,894
$
0
$
0
Short-Termaccordance with the methodology previously
 
Investmentsnoted in the
766,920caption “Assets and Liabilities Measured at Fair Value
766,920
0
0
Investmenton a Recurring Basis – Securities Available
 
for SaleSale”.
480,890
160,877Loans.
320,013
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
using present value
0techniques based upon projected cash flows and estimated discount
rates.
Pursuant to the adoption of ASU 2016-01,
Investment Securities, HeldRecognition and
Measurement of Financial Assets and Financial
Liabilities
, the values reported reflect the incorporation of a liquidity discount to Maturitymeet
325,559the objective of “exit price” valuation.
110,921Deposits.
218,960
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
Accounts and Savings Accounts are the
0amounts payable on demand at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated using present
Equity Securitiesvalue techniques and rates currently offered for deposits of
similar remaining maturities.
(1)Subordinated Notes Payable.
3,588
The fair value of each note is calculated using present value techniques,
based upon projected cash
0flows and estimated discount rates as well as rates being offered
3,588
0
Loans Held for Sale
80,821
0
80,821
0
Interest Rate Swap Derivative
1,780
0
1,780
0
Mortgage Banking IRLC Derivative
2,524
0
0
2,524
Mortgage Servicing Rights
3,710
0
0
3,900
Loans, Net of Allowance for Credit Losses
$
1,986,487
$
0
$
0
$
1,988,297
LIABILITIES:
Deposits
$
3,446,921
$
0
$
3,350,614
$
0similar obligations.
Short-Term
 
Borrowingsand Long-Term
Borrowings.
47,200
The fair value of each note is calculated using present value techniques,
based upon
0projected cash flows and estimated discount rates as well as rates being offered
47,200
0
Subordinated Notes Payable
52,887
0
42,609
0
Long-Term Borrowings
1,720
0
1,804
0
Mortgage Banking Hedge Derivative
$
90
$
0
$
90
$
0for similar debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
A summary of estimated fair values of significant financial instruments consisted
of the following:
 
DecemberMarch 31, 20202022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
67,91977,963
$
67,91977,963
$
0
$
0
Short-Term
Investments
860,630790,465
860,630790,465
0
0
Investment Securities, Available
 
for Sale
324,870624,361
104,519180,013
220,351444,348
0
Investment Securities, Held to Maturity
169,939518,678
5,014279,892
170,161221,385
0
Equity Securities
(1)
855
0
855
0
Loans Held for Sale
114,03950,815
0
114,03950,815
0
Other Equity Securities
(1)(2)
3,5892,898
0
3,5892,898
0
Interest Rate Swap Derivative
5743,886
0
5743,886
0
Mortgage Banking Hedge Derivative
850
0
850
0
Mortgage Servicing Rights
4,001
0
0
7,177
Mortgage Banking IRLC Derivative
4,8251,117
0
0
4,825
Mortgage Servicing Rights
3,452
0
0
3,4511,117
Loans, Net of Allowance for Credit Losses
1,964,753
0
0
1,934,570
LIABILITIES:
Deposits
$
1,982,6103,765,507
$
0
$
0
$
1,990,740
LIABILITIES:
Deposits
$
3,217,560
$
0
$
3,217,6153,417,626
$
0
Short-Term
 
Borrowings
79,65430,865
0
79,65430,865
0
Subordinated Notes Payable
52,887
0
43,44945,336
0
Long-Term Borrowings
3,057806
0
3,174834
0
December 31, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
65,313
$
65,313
$
0
$
0
Short-Term Investments
970,041
970,041
0
0
Investment Securities, Available
for Sale
654,611
187,868
466,743
0
Investment Securities, Held to Maturity
339,601
113,877
225,822
0
Equity Securities
(1)
861
0
861
0
Loans Held for Sale
52,532
0
52,532
0
Other Equity Securities
(2)
2,848
0
2,848
0
Interest Rate Swap Derivative
2,050
0
2,050
0
Mortgage Servicing Rights
3,774
0
0
4,718
Mortgage Banking IRLC Derivative
1,258
0
0
1,258
Loans, Net of Allowance for Credit Losses
1,909,859
0
0
1,903,640
LIABILITIES:
Deposits
$
3,712,862
$
0
$
3,713,478
$
0
Short-Term
Borrowings
34,557
0
34,557
0
Subordinated Notes Payable
52,887
0
42,609
0
Long-Term Borrowings
884
0
938
0
Mortgage Banking Hedge Derivative
$
9077
0
$
907
$7
0
(1)
(1)
Not readily marketable securities - reflected
 
in other assets.
(2)
Accounted for under the equity method – not readily
marketable securities – reflected in other assets.
All non-financial instruments are excluded from the
above table.
 
The disclosures also do not include goodwill.
 
Accordingly, the
aggregate fair value amounts presented do not represent the underlying
 
the underlying value of the Company.
 
 
29
NOTE 10 – ACCUMULATED
 
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
 
income (loss) are presented in the table below.
 
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
 
for Sale
 
Swap
 
Plans
 
 
Loss(Loss) Income
Balance as of January 1, 2022
$
(4,588)
$
1,530
$
(13,156)
$
(16,214)
Other comprehensive (loss) income during the period
(19,055)
1,370
156
(17,529)
Balance as of March 31, 2022
$
(23,643)
$
2,900
$
(13,000)
$
(33,743)
Balance as of January 1, 2021
$
2,700
 
$
428
 
$
(47,270)
 
$
(44,142)
Other comprehensive (loss) income during the period
 
(1,816)(1,458)
 
9001,587
 
1,635142
 
719271
Balance as of June 30,March 31, 2021
$
8841,242
 
$
1,3282,015
 
$
(45,635)(47,128)
 
$
(43,423)
Balance as of January 1, 2020
$
864
$
0
$
(29,045)
$
(28,181)
Other comprehensive income during the period
3,004
(79)
0
2,925
Balance as of June 30, 2020
$
3,868
$
(79)
$
(29,045)
$
(25,256)(43,871)
2930
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
 
operations and should be read in conjunction with the Consolidated
Financial
Statements and related notes.
 
The following information should provide a better understanding of
 
understanding of the major factors and trends that
affect our earnings performance and financial condition,
 
condition, and how our performance during 20212022 compares with prior
years.
 
Throughout this section, Capital City Bank Group,
Inc., and subsidiaries, collectively,
 
is referred to as "CCBG," "Company,"
 
"we,"
"us," or "our."
CAUTION CONCERNING FORWARD
 
-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains
 
section, contains "forward-looking"forward-looking statements" within the
meaning of the
Private Securities Litigation Reform Act of 1995.
 
These forward-looking statements include, among others, statements about
 
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
 
are beyond our control.
 
The words "may," "could,"
 
"could," "should,should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan," "target,"
 
"plan," "target,vision," "goal," and similar expressions are intended
to identify
identify forward-looking statements.
All forward-looking statements, by their nature, are subject
to risks and uncertainties.
 
Our actual future results may differ materially
from those set forth in our forward-looking statements.
 
Please see the Introductory Note and
Item 1A. Risk Factors
 
of our 20202021
Report on Form 10-K, as updated in our subsequent quarterly
reports filed on Form
10-Q, and in our other filings made
from time to
time with the SEC after the date of this report.
However, other factors besides those
listed in our
Quarterly Report or in our Annual Report also
could adversely affect
our results,
and you should not consider any such list of factors to
be a complete set of all potential risks or
uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the
date they are made.
 
We do not undertake to
 
to update any forward-looking
statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial
 
holding company headquartered in Tallahassee,
 
Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the "Bank" or "CCB").
 
The Bank offers We offer
a broad array of products and
services through a total of 57 full-service offices
offices located in Florida, Georgia,
and Alabama.
 
The Bank offers commercialWe provide a full range of
banking services, including traditional deposit and retail banking services,
as well as trust and assetcredit
management, retail securities brokerage,
and life insurance.
We offer
residentialservices, mortgage banking, asset management, trust, merchant services, through Capital Citybankcards,
securities brokerage services and financial
Home Loans.
advisory services, including life insurance products,
 
risk management and asset protection services.
Our profitability, like
 
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
 
credit losses,operating expenses including income taxes, and noninterest
income such as deposit fees,mortgage banking revenues, wealth management fees, mortgage
 
bankingdeposit fees, and bank card fees, and operating expenses such asfees.
salaries and employee benefits, occupancy,We have included
 
and other operating expenses, including income taxes.
Aa detailed discussion regardingof the economic conditions
in our markets and our long-term strategic
objectives is included as part
of the
the MD&A section of our 20202021 Form 10-K.
Acquisitions
 
On March 1, 2020, CCB completed its acquisition of
a 51% membership interest in Brand Mortgage Group, LLC (“Brand”)
which is
now operated as a Capital City Home Loans (“CCHL”).
CCHL was consolidated into CCBG’s
financial statements effective March
1, 2020.
See Note 1 – Business Combination in the 2020 Form 10-K in the
Consolidated Financial Statements.
On April 30, 2021, a newly formed subsidiary
of CCBG, Capital City Strategic Wealth,
 
Wealth, LLC
(“CCSW”), completed its acquisition of
substantially all of the assets of Strategic Wealth
 
Group, LLC and certain related businesses (“SWG”).
 
CCSW was consolidated into
CCBG’s financial statements effective
 
effective May 1, 2021.
 
See Note 1 – Business and BasisA detailed discussion regarding the acquisition of Presentation.Capital City Strategic Wealth,
LLC is included as part of the MD&A section of our 2021 Form 10-K.
 
NON-GAAP FINANCIAL MEASURES
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
30
RESPONSE TO COVID-19 PANDEMIC
The ongoing global and local responses to the COVID-19
pandemic and the new Delta variant continue to impact
our clients and
associates as they adjust to the changing conditions presented
by the pandemic.
The pandemic has adversely impacted a broad range
of industries in which the Company’s
customers operate and could still impair their ability to fulfill their
financial obligations to the
Company.
In addition, although our associates have generally been
available and working during the pandemic, COVID-19 and the
current Delta variant surge have the potential to
create widespread business continuity issues for the Company.
Congress, the President, and the Federal Reserve have
taken and continue to take actions designed to cushion the economic
fallout.
The Coronavirus Aid, Relief and Economic Security (“CARES”)
Act was signed into law at the end of March 2020
as a $2 trillion
legislative package.
The goal of the CARES Act was to curb the economic downturn
through various measures, including direct
financial aid to American families and economic
stimulus to significantly impacted industry sectors through programs
like the
Paycheck Protection Program ("PPP") and Main Street Lending
Program (“MSLP”).
During December 2020, many provisions of the
CARES Act were extended through the end of 2021.
In addition to the general impact of COVID-19, certain provisions
of the
CARES Act as well as other recent legislative and regulatory
relief efforts have had a material impact on
the Company’s 2020 and2022
2021 operations and could continue to impact operations going
forward.
The Company’s business is dependent
upon the willingness and ability of its associates and clients to
conduct banking and other
financial transactions.
While it appeared that epidemiological and macroeconomic
conditions were trending in a positive direction in
the first quarter of 2021, if the Delta variant continues to
cause case counts to trend higher in our markets, the Company
could
experience further adverse effects on its business, financial
condition, results of operations and cash flows.
While it is not possible to
know the full universe or extent that the impact of COVID-19’s
variants, and any potential resulting measures to curtail their
spread,
will have on the Company’s
future operations, we discuss potential impacts on our financial performance
in more detail throughout
parts of the MD&A section.
To protect
the health of our clients and associates and comply with applicable
government directives, we
have modified our business practices as noted belo
w.
●
We continue
to closely monitor COVID-19 and adjust our operations, as needed,
to the changing case counts and impacts of
COVID-19 in our communities.
●
We have established
a tentative return to work date for all associates, but we
will adjust as necessary depending on changing
conditions.
●
All of our banking offices have returned to
normal banking hours and lobby services; however,
we will adjust such hours and
services as necessary depending on the changing conditions.
●
We are adhering
to national guidelines and local safety ordinances to protect
both clients and associates.
●
We continue
to support clients with the Small Business Administration Payment
Protection Program (“SBA PPP”) by actively
assisting with the Round 1 and 2 forgiveness process.
NON-GAAP FINANCIAL MEASURES
We present a
tangible common equity ratio and a tangible book value per
diluted share that, in each case, reduces shareowners’ equity
and total assets by the amount of goodwill and other
identifiable intangible assets resulting from merger
and acquisition activity.
We
believe these measures are useful to investors because it allows
investors to more easily compare our capital adequacy
to other
companies in the industry,
although the manner in which we calculate non-GAAP financial
measures may differ from that of other
companies reporting non-GAAP measures with similar names
.
The GAAP to non-GAAP reconciliation for each quarter presented
on
page 31 is provided below.
2021
2020
2019
(Dollars in Thousands, except per share data)
Second
First
Fourth
Third
Second
First
Fourth
Third
Shareowners' Equity (GAAP)
$
372,145
$
383,166
$
348,868
$
335,880
$
324,426
$
320,837
$
339,425
$
335,057
$
328,507
$
327,016
$
321,562
Less: Goodwill and Other Intangibles (GAAP)
93,213
93,253
93,293
93,333
89,095
89,095
89,095
89,095
89,275
84,811
84,811
Tangible Shareowners' Equity (non
-GAAP)(non-GAAP)
A
278,932
289,913
255,575
242,547
235,331
231,742
250,330
245,962
239,232
242,205
236,751
Total Assets (GAAP)
4,310,045
4,263,849
4,048,733
4,011,459
3,929,884
3,798,071
3,587,041
3,499,524
3,086,523
3,088,953
2,934,513
Less: Goodwill and Other Intangibles (GAAP)
93,213
93,253
93,293
93,333
89,095
89,095
89,095
89,095
89,275
84,811
84,811
Tangible Assets (non-GAAP)
B
$
4,216,832
$
4,170,596
$
3,955,440
$
3,918,126
$
3,840,789
$
3,708,976
$
3,497,946
$
3,410,429
$
2,997,248
$
3,004,142
$
2,849,702
Tangible Common
Equity Ratio
(non-GAAP)
A/B
6.61%
6.95%
6.46%
6.19%
6.13%
6.25%
7.16%
7.21%
7.98%
8.06%
8.31%
Actual Diluted Shares Outstanding (GAAP)
C
16,962,362
16,935,389
16,911,715
16,901,375
16,875,719
16,844,997
16,800,563
16,821,743
16,845,462
16,855,161
16,797,241
Diluted Tangible Book Value
 
per Diluted Share (non-GAAP)
 
A/C
16.44
17.12
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3132
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
(Dollars in Thousands, Except
20212022
2020
20192021
Per Share Data)
Second
First
Fourth
Third
Second
First
Fourth
Third
Summary of Operations
:
Interest Income
$
25,438
$
25,549
$
28,520
$
26,836
$
25,446
$
26,154
$
26,166
$
26,512
$
27,365
$
28,008
$
28,441
Interest Expense
742
838
848
856
948
1,181
1,044
1,054
1,592
1,754
2,244
Net Interest Income
24,696
24,711
27,672
25,980
24,498
24,973
25,122
25,458
25,773
26,254
26,197
Provision for Credit Losses
-
-
-
(571)
(982)
1,342
1,308
2,005
4,990
(162)
776
Net Interest Income After
 
Provision for Credit Losses
24,696
24,711
27,672
26,551
25,480
23,631
23,814
23,453
20,783
26,416
25,421
Noninterest Income
25,818
24,672
26,574
26,473
29,826
30,523
34,965
30,199
15,478
13,828
13,903
Noninterest Expense
(1)39,233
40,207
39,702
42,123
40,476
41,348
40,342
37,303
30,969
29,142
27,873
Income
 
Before
 
Income Taxes
11,281
9,176
14,544
10,901
14,830
12,806
18,437
16,349
5,292
11,102
11,451
Income Tax Expense
2,235
2,040
2,949
2,059
2,787
2,833
3,165
2,950
1,282
2,537
2,970
(Income) LossIncome Attributable to NCI
(591)
(764)
(1,504)
(1,415)
(2,537)
(2,227)
(4,875)
(4,253)
277
-
-
Net Income Attributable to CCBG
8,455
6,372
10,091
7,427
9,506
7,746
10,397
9,146
4,287
8,565
8,481
Net Interest Income (FTE)
$24,774
24,790
27,750
26,064
$
24,607
$
25,082
$
25,233
$
25,564
$
25,877
$
26,378
$
26,33324,606
 
Per Common Share
:
Net Income Basic
$
0.50
$
0.38
$
0.60
$
0.44
$
0.56
$
0.46
$
0.62
$
0.55
$
0.25
$
0.51
$
0.51
Net Income Diluted
0.50
0.38
0.60
0.44
0.56
0.46
0.62
0.55
0.25
0.51
0.50
Cash Dividends Declared
0.150.16
0.16
0.16
0.15
0.15
0.14
0.14
0.14
0.13
0.13
Diluted Book Value
21.94
22.63
20.63
19.87
19.22
19.05
20.20
19.92
19.50
19.40
19.14
Diluted Tangible Book Value
(2)(1)
16.44
17.12
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
14.09
Market Price:
 
High
28.88
29.00
26.10
27.39
28.98
26.35
21.71
23.99
30.62
30.95
28.00
 
Low
25.96
24.77
22.02
24.55
21.42
18.14
17.55
16.16
15.61
25.75
23.70
 
Close
26.36
26.40
24.74
25.79
26.02
24.58
18.79
20.95
20.12
30.50
27.45
 
Selected Average Balances
:
Loans Held for Investment
$
1,963,578
$
1,948,324
$
1,974,132
$
2,036,781
$
2,044,363
$
1,993,470
$
2,005,178
$
1,982,960
$
1,847,780
$
1,834,085
$
1,824,685
Earning Assets
3,938,824
3,791,313
3,693,123
3,623,910
3,497,929
3,337,409
3,223,838
3,016,772
2,751,880
2,694,700
2,670,081
Total Assets
4,266,775
4,127,937
4,026,613
3,956,349
3,821,521
3,652,436Deposits
3,539,3323,714,062
3,329,2263,549,145
3,038,788
2,982,204
2,959,310
Deposits3,447,688
3,387,352
3,239,508
3,066,136
2,971,277
2,783,453
2,552,690
2,524,951
2,495,755
Shareowners’ Equity
383,956
350,140
341,460
329,040
326,330
343,674
340,073
333,515
331,891
326,904
320,273
Common Equivalent Average Shares:
 
Basic
16,931
16,880
16,875
16,858
16,838
16,763
16,771
16,797
16,808
16,750
16,747
 
Diluted
16,946
16,923
16,909
16,885
16,862
16,817
16,810
16,839
16,842
16,834
16,795
Performance Ratios:
Return on Average Assets
 
0.80
%
0.61
%
0.99
%
0.75
%
1.01
%
0.84
%
1.17
%
1.10
%
0.57
%
1.14
%
1.14
%
Return on Average Equity
8.93
7.22
11.72
9.05
11.81
8.97
12.16
11.03
5.20
10.39
10.51
Net Interest Margin (FTE)
2.55
2.60
2.98
2.89
2.85
3.00
3.12
3.41
3.78
3.89
3.92
Noninterest Income as % of
 
Operating Revenue
51.11
49.96
48.99
50.47
54.90
55.00
58.19
54.26
37.52
34.50
34.67
Efficiency Ratio
77.55
81.29
73.09
80.18
74.36
74.36
67.01
66.90
74.89
72.48
69.27
 
Asset Quality:
Allowance for Credit Losses ("ACL")
$
20,756
$
21,606
 
$
21,500
$
22,175
$
22,026
$
23,816
$
23,137
$
22,457
$
21,083
$
13,905
$
14,319
ACL to Loans HFI
1.05
%
1.12
%
1.11
%
1.10
%
1.07
%
1.19
%
1.16
%
1.11
%
1.13
%
0.75
%
0.78
%
Nonperforming Assets (“NPAs”)
2,745
4,339
3,218
6,302
5,472
6,679
6,732
8,025
6,337
5,425
5,454
NPAs to Total
 
Assets
0.06
0.10
0.08
0.16
0.14
0.18
0.19
0.23
0.21
0.18
0.19
NPAs to Loans HFI plus OREO
0.14
0.22
0.17
0.31
0.27
0.33
0.34
0.40
0.34
0.29
0.30
ACL to Non-Performing Loans
760.83
499.93
710.39
433.93
410.78
405.66
420.30
322.37
432.61
310.99
290.55
Net Charge-Offs to Average
 
Loans HFI
0.16
0.02
0.03
(0.07)
(0.10)
0.09
0.11
0.05
0.23
0.05
0.23
Capital Ratios:
Tier 1 Capital
15.98
%
16.14
%
15.69
%
15.44
%
16.08
%
16.19
%
16.77
%
16.59
%
16.12
%
17.16
%
16.83
%
Total Capital
16.98
17.15
16.70
16.48
17.20
17.30
17.88
17.60
17.19
17.90
17.59
Common Equity Tier 1
13.77
13.86
13.45
13.14
13.63
13.71Leverage
14.208.78
14.018.95
13.55
14.47
14.13
Leverage9.05
8.84
8.97
9.33
9.64
10.12
10.81
11.25
11.09
Tangible Common Equity
(2)(1)
6.61
6.95
6.46
6.19
6.13
6.25
7.16
7.21
7.98
8.06
8.31
(1)
Includes a $2.0 million (pre-tax), or $0.10/share
(after-tax), partial pension settlement charge
for the second quarter of 2021.
(2)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 30.31.
3233
FINANCIAL OVERVIEW
Results of Operations
Performance Summary
Performance Summary..
Net income attributable to common shareowners of $8.5 million, or
$0.50 per diluted share, for the first
quarter of 2022 compared to net income of $6.4 million, or $0.38 per diluted share,
for the fourth quarter of 2021, and $9.5 million, or
$0.56 per diluted share, for the first quarter of 2021.
 
Net income of $7.4 million, or $0.44 per diluted share, forInterest Income
.
 
Tax-equivalent net
interest income for the second first quarter of 2022 totaled $24.8 million, comparable
to the fourth
quarter of 2021, comparedand $24.6 million for the first quarter of 2021.
Compared to netthe fourth quarter of 2021, higher rates on overnight
funds and growth in the investment portfolio was offset
by two less calendar days during the quarter.
Compared to the first quarter of
2021, interest income grew as a result of $9.5our larger investment portfolio,
in addition to a reduction in interest expense, partially offset
by lower loan fees.
Provision and Allowance for Credit
Losses.
We did not
record a provision for credit losses for the first quarter of 2022 or
the fourth
quarter of 2021 and recorded a negative provision of $1.0 million or $0.56 per diluted share, for
 
the first quarter of 2021, and $9.1 million, or $0.55 per2021.
 
diluted share,The lack of provision for the first
second quarter of 2020.2022 reflected continued strong credit quality and slight improvement
 
Forin the first six monthsforecasted level of 2021, net income totaled $16.9 million, or
$1.00 per diluted share, compared to net
income of $13.4 million, or $0.80 per diluted share,
for the same period of 2020.
Net income for the second quarter of 2021 included
a partial pension settlement charge of $2.0
million (pre-tax), or $0.10 per diluted share (after-tax).
Net Interest Income.unemployment.
 
Tax-equivalentNoninterest Income
.
 
net interestNoninterest income for the second quarter of 2021
was $26.1 million compared to $24.6 million
for the first quarter of 2022 totaled $25.8 million, an increase
of $1.1 million, or 4.5%, over
the fourth quarter of 2021 and $25.6a decrease of $4.0 million, or 13.4%, from
the first quarter of 2021.
The increase over the fourth
quarter of 2021 was due to higher wealth management fees, primarily
insurance revenues.
The decline from the first quarter 2021 was
driven by lower mortgage banking revenues (largely
attributable to lower loan refinancing activity and a lower gain on
sale margin)
that were partially offset by higher activity based fees
(deposit and bank card).
Noninterest Expense
.
Noninterest expense for the second
first quarter of 2020.
For the first six months2022 totaled $39.2 million, a decrease of 2021, tax-equivalent net
interest income totaled $50.7 million compared to $51.4$1.0
 
million, or 2.4%, from
the fourth quarter of 2021 and a $1.3 million, or 3.1%, decrease from
the first quarter of 2021.
The decrease from the fourth quarter of
2021 was primarily attributable to a decrease in other miscellaneous expense,
primarily pension expense.
The decrease from the first
quarter of 2021 was driven by lower mortgage banking commissions and
pension expense. These favorable variances were partially
offset by higher insurance commissions, associate benefits,
other real estate and miscellaneous expenses.
Financial Condition
Earning Assets.
Average earning assets totaled
$3.939 billion for the same periodfirst quarter of 2020.2022, an increase of $147.5 million,
 
Loan growthor 3.9%,
over the fourth quarter of 2021, and higher SBA PPP loanan increase of $440.9 million, or
fees drove the improvement12.6%, over the first quarter of 2021.
 
ForThe increase over the six month period, the decrease generally reflected
lower rates
earned on investment securities and variable/adjustable rate
loans partially offset by higher SBA PPP loan fees
and lower interest
expense.
Provision and Allowance for Credit
Losses.
Provision for credit losses was a negative $0.6 million
for the secondfourth quarter of 2021 was primarily attributable to seasonal growth
in our public fund deposits. The increase compared to a negative provision of $1.0 million for the
first quarter of 2021 and provision expense of $2.0 million
for the second
quarter of 2020.
For the first six months of 2021, we recorded a negative provision
of $1.6 million compared
to provision expense of
$7.0 million for the same period of 2020.
The negative provision for the first half of 2021 generally reflected
improving economic
conditions and strong net loan recoveries.
Noninterest Income.
Noninterest income for the second quarter of 2021
totaled $26.5 million compared to $29.8 million for the first
quarter of 2021 and $30.2 million for the second quarter
of 2020.
The aforementioned declines were primarily due to
lower mortgage
banking revenues at CCHL, but were partially offset
by improvements in wealth management fees and bank
card fees.
For the first six
months of 2021, noninterest income totaled $56.3 million
compared to $45.7 million for the same period of 2020 with the increase
driven by the addition of CCHL mortgage banking
revenues late in the first quarter of 2020, and strong growth
in bank card fees and
wealth management fees.
Noninterest Expense.
Noninterest expense for the second quarter of 2021 totaled
$42.1 million compared to $40.5 million for the first
quarter of 2021 and $37.3 million for the second quarter
of 2020.
The $1.6 million increase over the first quarter of 2021 reflected
a
$2.0 million partial pension settlement charge
that was partially offset by lower commission expense at CCHL
and lower legal fees
and other real estate owned (“OREO”) expense at CCB.
Compared to the prior year periods, the increase was primarily
attributable to
the aforementioned partial pension settlement charge
,
lower realized loan cost, higher pension plan expense (driven by
a lower
discount rate for plan liabilities), and performance based
compensation.
Additionally, the increase for
the six month period included
operating expenses of CCHL from March 1, 2020 forward.
Financial Condition
Earning Assets.
Average earning
assets were $3.624 billion for the second quarter of 2021, an
increase of $126.0 million, or 3.6%,
over the first quarter of 2021, and an increase of $286.5
million, or 8.6%
over the fourth quarter of 2020.
The increase over both prior
periods was primarily driven by higher deposit balances,balances.
 
which funded growth in both overnight funds sold and the investment
portfolio.
Deposit balances increased as a result of strong core deposit
growth, in addition to funding retained at the bank from
SBA
PPP loans, and various other stimulus programs.
Loans
.
 
Average loans held for investment
 
for investment (“HFI”) decreased $7.6increased $15.3 million, or 0.4%,
from the first quarter of 2021 and increased $43.3
million, or 2.2%0.8%, over the fourth quarter of 2020.2021
 
and decreased
$80.8 million, or 4.0%, from the first quarter of 2021. Excluding small business
(“SBA PPPPPP”) loans, average core loans grew $54.4HFI increased
$18.8 million compared to the fourth quarter of 2021, and increased $115.9
 
and $90.4 million compared to the first quarter of 2021.
New loan
over both respective periods andproduction strengthened in the latter part of the first quarter of 2022 resulting
in period end loans
grew $74.3 million and $97.7loan growth of $54 million over both respective periods.the fourth
quarter of 2021.
 
Growth in
period end loans was driven primarily in the commercial
mortgage, indirect, and construction categories.
At June 30, 2021, SBA PPP
loan balances totaled $79.9 million and remaining
deferred SBA PPP net loan fees totaled $3.5 million.
Credit Quality
.
 
Overall credit quality is strong and continues to improve.
Nonaccrual loans totaled $5.1$2.7 million (0.25% of HFI loans)
at June 30, 2021 compared to $5.4 million (0.26% of HFI
loans) at March 31, 2022, a
$1.6
million decrease from December 31, 2021 and $5.9a $2.7 million (0.29decrease from March 31, 2021.
 
%At March 31, 2022 and December
31, 2021, nonaccrual loans as a percentage of total loans was 0.13% and 0.21%,
 
of HFI loans) at December 31, 2020.
respectively. Classified loans totaled $19.4 million, $20.6
million, and $17.6 million at the same respective periods.increased
 
$4.4 million
over the fourth quarter of 2021 and reflected one loan relationship that
 
is in the loan workout process and has been reserved for at
March 31, 2022.
 
Deposits
.
 
Average total
 
deposits increased $147.8were $3.714 billion for the first quarter of 2022, an increase of $164.9 million,
or 4.6%, over the
fourth quarter of 2021 and $474.6 million, or 4.6%14.6%, over the first quarter
 
of 2021, and $321.2 million, or 10.5%,2021.
Growth over
the fourth quarter of 2020.2021 was
primarily attributable to an increase in seasonal public fund deposits. Various
 
Overgovernment stimulus programs contributed to the past 12 months, multiple government stimulusyear
over year increase.
 
programs have been implemented, including the
CARES Act and the American Rescue Plan Act, which are
responsible for a portion of this growth.
Capital
.
 
At June 30, 2021,March 31, 2022, we were well-capitalized with a total risk-based capital
 
capital ratio of 16.48%
16.98% and a tangible common equity
ratio (a non-GAAP financial measure) of 6.19%6.61% compared
to 17.20% and 6.13%, respectively,
at March 31, 2021 and 17.30%17.15%
 
and
6.25% 6.95%, respectively,
 
at December 31, 2020.2021 and 17.20% and
6.13%, respectively, at March
31, 2021.
 
At June 30, 2021,March 31, 2022, all of our regulatory capital ratios exceeded
the threshold to be well-
capitalized under the Basel III capital standards.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
34
RESULTS
 
OF OPERATIONS
Net Income
For the first quarter of 2022, we realized net income attributable to common
 
shareowners of $8.5 million, or $0.50 per diluted share,
The following table provides a condensed summarycompared to net income of $6.4 million, or $0.38 per diluted share, for the fourth quarter
of 2021, and $9.5 million, or $0.56 per
diluted share, for the first quarter of 2021.
For the first quarter of 2022, we realized income before income taxes of
 
our results of operations - a discussion of the various components$11.3 million compared to $9.2 million for
 
are discussedthe fourth quarter
in further detail below.
of 2021 and $14.8 million for the first quarter of 2021. Compared to
 
the fourth quarter of 2021, the $2.1 million increase was
attributable to a $1.1
million increase in noninterest income and lower noninterest expense of
$1.0 million. Compared to the first
quarter of 2021, the $3.5 million decrease in income before income taxes
was attributable to a $4.0 million decrease in noninterest
income and a $1.0 million increase in the provision for credit losses that was partially offset
by lower noninterest expense of $1.3
million and higher net interest income of $0.2 million.
A condensed earnings summary of each major component of our financial
performance is provided below:
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands, except per share data)
March 31, 2022
December 31, 2021
March 31, 2021
2020
2021
2020
Interest Income
$
26,83625,438
$
25,549
$
25,446
$
26,512
$
52,282
$
53,877
Taxable Equivalent Adjustments
8478
10979
106
193
210108
Total Interest Income (FTE)
26,92025,516
25,55525,628
26,618
52,475
54,08725,554
Interest Expense
856742
838
948
1,054
1,804
2,646
Net Interest Income (FTE)
26,06424,774
24,60724,790
25,564
50,671
51,44124,606
Provision for Credit Losses
(571)-
-
(982)
2,005
(1,553)
6,995
Taxable Equivalent Adjustments
8478
10979
106
193
210108
Net Interest Income After Provision for Credit Losses
26,55124,696
24,711
25,480
23,453
52,031
44,236
Noninterest Income
26,47325,818
24,672
29,826
30,199
56,299
45,677
Noninterest Expense
42,12339,233
40,207
40,476
37,303
82,599
68,272
Income Before Income Taxes
10,90111,281
9,176
14,830
16,349
25,731
21,641
Income Tax Expense
2,0592,235
2,040
2,787
2,950
4,846
4,232
Pre-Tax Income Attributable to
Noncontrolling InterestInterests
(1,415)(591)
(764)
(2,537)
(4,253)
(3,952)
(3,976)
Net Income Attributable to Common Shareowners
$
7,4278,455
$
6,372
$
9,506
$
9,146
$
16,933
$
13,433
 
Basic Net Income Per Share
$
0.440.50
$
0.38
$
0.56
$
0.55
$
1.00
$
0.80
Diluted Net Income Per Share
$
0.440.50
$
0.38
$
0.56
$
0.55
$
1.00
$
0.80
Net Interest Income
Net interest income represents our single largest
source of earnings
and is equal to interest income and fees
generated by earning
assets less interest expense paid on interest bearing liabilities.
 
This information is provided on a "taxable equivalent" basis to
reflect
the tax-exempt status of income earned on certain loans
and state and
local government debt obligations.
 
We provide an analysis of
our net interest income including average yields and rates in Table
 
in Table I on page 44.
Tax-equivalent net
 
net interest income for the second first quarter of 2022 totaled $24.8 million, comparable to the fourth
quarter of 2021, totaled $26.1and
million compared to $24.6$24.6 million for the first quarter of 2021.
Compared to the fourth quarter of 2021, higher rates on overnight funds and $25.6 million forgrowth
in the second quarter of 2020.
investment portfolio was offset by two less calendar days during
the quarter.
 
Compared to the first quarter of 2021, the increase reflectedinterest income
grew as a result of our larger investment portfolio and a reduction
 
higher SBA
PPP loan fees of $0.7 million, higher loanin interest of
$0.5 million driven by loan growth, and higher investment
securities income of
$0.2 million, which reflected deployment of excess overnight
funds into the investment portfolio.
Compared to the second quarter of
2020, the increase was driven by higher SBA PPP loan fees of
$1.3 millionexpense, partially offset by lower interest earnedloan fees.
 
on investment
securities and variable/adjustable rate loans.
For the first six months of 2021, tax-equivalent net interest income
totaled $50.7 million
compared to $51.4 million for the same period of 2020.
The decrease generally reflected lower rates earned on investment
securities
and variable/adjustable rate loans partially offset
by higher SBA PPP loan fees and lower interest expense.
Our net interest margin for the secondfirst quarter of 2022 was 2.55%, a decrease
 
of 2021 was 2.89%, an increase of threefive basis points over
from the firstfourth quarter of 2021 and a
decrease of 5230 basis points from the secondfirst quarter of
2020. 2021.
 
Compared to both prior periods, the decrease was primarily attributable to
growth in earning assets (driven by deposit inflows), which negatively
impacted our margin percentage. Our net interest margin
for
the first quarter of 2021, the increase was driven
by higher
SBA PPP loan fees.
Compared to the second quarter of 2020, the decrease was primarily
attributable to downward re-pricing of
earning assets and significant growth in overnight
funds (driven by deposit inflows),
which negatively impacts our margin percentage.
For the first six months of 2021, the net interest margin
decreased 72 basis points to 2.87% generally reflective of downward
re-
pricing of our earning assets (variable/adjustable rate
loans and securities portfolio) partially offset by
a lower cost of funds and higher
SBA PPP
loan fees.
Our net interest margin for the second quarter
of 2021,2022, excluding the impact of overnight funds in
 
in excess of
$200 $200 million, was 3.46%3.11%.
 
Due to highly competitive fixed-rate loan pricing in our
markets, we continue
to review our loan pricing and make adjustments
where
we believe
appropriate and prudent.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3435
Provision for Credit Losses
We did not
 
We recorded
record a negative provision for credit losses of $0.6 million for the second
first quarter of 2022 or the fourth quarter of 2021 compared to
and recorded a negative provision
of
$1.0benefit of $1.0 million for the first quarter of 2021 and provision expense2021.
 
of $2.0 million for the second quarter of 2020.
For the first six months
of 2021, we recorded a negative provision of $1.6 million
compared to provision expense of $7.0 million for the same period
of 2020.
The negativelack of provision for the first halfquarter of 2022 reflected continued strong
credit
quality and slight improvement in the forecasted level of unemployment.
The provision benefit for the first quarter of 2021 generally
reflected improving economic conditions and strong net loan recoveriesa lower level of expected
totaling $0.9 million.losses related to COVID-19.
 
We discuss the allowance
 
for
credit losses further below.
 
For more information on charge-offs and recoveries,
see Note 3 – Loans Held for Investment and Allowance for
Credit Losses.
Noninterest Income
Noninterest income for the secondfirst quarter of 2022 totaled $25.8 million compared
to $24.7 million for the fourth quarter of 2021 totaledand
$26.5 million compared to $29.829.8 million for the first quarter of 2022021.
 
1
and
$30.2 million forThe increase over the secondfourth quarter of 2020.2021 was primarily attributable to higher wealth
management fees of $2.1 million that were partially offset by
lower mortgage banking revenues of $0.9 million.
 
The primary reason forincrease in
wealth management fees was attributable to higher insurance commission
revenues. Lower loan production and a slightly lower gain
on sale margin drove the aforementioned declines were primarilydecline in mortgage banking
 
revenues. Compared to the first quarter of 2021, the decline was due to lower
mortgage banking revenues at CCHL, but were partiallyattributable to lower loan production (primarily
 
offset by improvements in wealth management fees and
bank card fees.
The
decline in mortgage banking fees reflected lower production
volume (primarily re-financerefinancing activity) and a lower gain on
sale margin.
 
For the first six monthsNoninterest income represented 51.1% of 2021,operating revenues (net interest
income plus noninterest income
totaled $56.3 million compared to $45.7 millionincome) for the same period
of 2020 with
the increase driven by the addition of CCHL mortgage
banking revenues late in the first quarter of 2020, and higher
bank card fees2022
and wealth management fees which grew $1.4 million
and $1.2 million, respectively.
Noninterest income represented 50.5% of operating revenues
(net interest income plus noninterest income) in the second quarter
of
2021
compared to 50.0% for the fourth quarter of 2021 and 54.9% infor the first quarter of 2021 and 54.3% in the second
quarter of 2020.
For the first six months of 2021,
noninterest income represented 52.7% of operating revenues
compared to 47.1% for the same period of 2020.
2021.
The table below reflects the major components of noninterest income.income to help
 
facilitate a better understanding of the period over period
comparison.
 
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
March 31, 2022
December 31, 2021
March 31, 2021
2020
2021
2020
Deposit Fees
 
$
4,2365,191
$
5,300
 
$
4,271
$
3,756
$
8,507
$
8,771
Bank Card Fees
3,9983,763
3,872
3,618
3,142
7,616
6,193
Wealth Management
 
Fees
3,2746,070
3,922
3,090
2,554
6,364
5,158
Mortgage Banking Revenues
13,2178,946
9,800
17,125
19,397
30,342
22,650
Other
1,7481,848
1,778
1,722
1,350
3,470
2,905
Total
 
Noninterest Income
 
$
26,47325,818
$
24,672
 
$
29,826
$
30,199
$
56,299
$
45,677
Significant components of noninterest income are
discussed in more
detail below.
Deposit Fees
Mortgage Banking Revenues.
Mortgage banking revenues totaled $13.2 million for.
 
the second quarter of 2021 compared to $17.1
millionDeposit fees for the first quarter of 2022 totaled $5.2 million, a decrease of $0.1
million, or 2.1%, from the fourth
quarter of 2021 and $19.4an increase of $0.9 million, or 21.5%, over the first quarter of
 
for2021.
The decline from the secondfourth quarter of 2020.2021
reflects two less days of processing.
 
For the six months of 2021, revenues totaled
$30.3 million compared to $22.7 million for the same period
of 2020.
Lower production volume and gain on sale margin drove
the
decline fromThe increase over the first quarter of 2021 and a lowerreflected higher account
 
gain on sale margin wasmaintenance fees attributable
to the primary reason
for the decline versus the secondthird quarter
of 2020.
The increase over the six month period of 2020 reflected the addition
of CCHL mortgage banking revenues late in the first
quarter of 2020 and overall higher production volume
reflective 2021 conversion of the significant reduction in interest rates.
remaining free checking accounts
 
Deposit Fees
. Deposit fees for the second quarter of 2021 totaled $4.2 million,
a decrease of $0.1 million, or 0.8%, from the first
quarter of 2021, and an
increase of $0.5 million, or 12.8%, over the second
quarter of 2020.
For the first six months of 2021, deposit
fees totaled $8.5 million, a decrease of $0.3 million, or
3.0%, from the same period of 2020.
Compared to all prior periods, the
variances
were driven by the utilization of our overdraft service which has been
volatile during the pandemic given the timing of
various stimulus payments to consumers over the past 12
months and higher monthly service charge fees.
maintenance fee account types.
Bank Card Fees
.
 
Bank card fees for the secondfirst quarter of 20212022 totaled $4.0$3.8 million, a decrease of $0.1
 
million, a $0.4 million, or 10.5%2.8%, increase overfrom the firstfourth
quarter of 2021 and a $0.9an increase of $0.2 million, or 27.2%4.0%, over the first quarter
of 2021.
The decline from the fourth quarter of 2021
reflects two less days of processing.
The increase over the first quarter of 2021 was primarily attributable
to growth in checking
accounts.
Wealth
Management Fees
.
Wealth management fees,
which include both trust fees (i.e., managed accounts and trusts/estates), retail
brokerage fees (i.e., investment,
insurance products, and retirement accounts), and insurance commission
revenues,
totaled $6.1
million for the first quarter of 2022, an increase of $2.1 million or 54.8%, over the
fourth quarter of 2021 and an increase of $3.0
million, or 96.5%, over the first quarter of 2021.
Insurance commission revenues was the primary driver of the increase over
 
both
prior periods.
Higher retail brokerage fees also contributed to the secondincrease over the first quarter of 2020.2021.
 
For the first six months ofAt March 31, 2022, total
assets under management were approximately $2.329 billion compared
to $2.324 billion at December 31, 2021 bank cardand $2.088 billion at
fees totaled $7.6 million, anMarch 31, 2021.
 
increase of $1.4 million,
or 23.0%, over the same period of 2020.
Compared to all prior periods, the
improvement reflected higher card activity driven by increased
consumer spending,
which we believe is reflective of the economic
recovery.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
35
Wealth
Management FeesMortgage Banking Revenues
.
 
Wealth management
fees, which include both trust fees (i.e., managed accounts
and trusts/estates) and
retail brokerage fees (i.e., investment, insurance products,
and retirement accounts)Mortgage banking revenues totaled $3.3$8.9 million for the secondfirst quarter of
2022, a decrease of $0.9 million,
or 8.7%, from the fourth quarter of 2021 and a decrease of $8.2 million, or 47.
8% from the first quarter of 2021.
The decrease from
the fourth quarter of 2021 reflected lower loan production and a slightly lower gain on
sale margin.
Compared to the first quarter of
2021, the decline was due to lower loan production (largely
refinancing activity),
and a lower gain on sale margin.
We provide a
detailed overview of our mortgage banking operation, including
a detailed break-down of mortgage banking revenues, mortgage
servicing activity,
and warehouse funding within Note 4 - Mortgage Banking Activities in the Notes to
Consolidated Financial
Statements.
Production volume totaled $247 million for the first quarter of 2022,
$294 million for the fourth quarter of 2021,
and
$463 million for the first quarter of 2021.
Refinancing activity represented 21% of loan production for the first quarter of 2022,
24%
for the fourth quarter of 2021, and 40% for the first quarter of 2021.
CCHL contributed approximately $0.4 million to CCBG
consolidated earnings in the first quarter of 2022 compared to $0.5 million in the fourth
 
quarter of 2021, and $1.6 million in the first
a $0.2quarter of 2021.
 
million, or 6.0%, increase over
Noninterest Expense
Noninterest expense for the first quarter of 2021 and2022 totaled $39.2 million compared
 
a $0.7to $40.2 million or 28.2%, increase over the second quarter of
2020.
For the first six months of 2021, wealth management
fees totaled $6.4 million, an
increase of $1.2 million,
or 23.4%, over the same
period of 2020.
The favorable variances versus all prior periods reflected
higher assets under management and increased trading
activity by our retail brokerage clients.
At June 30,
2021, total assets under management were approximately
$2.190 billion compared
to $1.979 billion at December 31, 2020 and $1.750 billion
at June 30, 2020.
Other.
Other income for the secondfourth quarter of 2021 totaled $1.7and
$40.5 million for the first quarter of 2021.
 
The decrease from the fourth quarter of 2021 was primarily attributable
to lower other
expense of $1.2 million comparablewhich included a $1.6 million decrease in pension
expense (reflected in miscellaneous expense).
Salary
expense increased $0.1 million and reflected higher variable commission
expense (higher insurance of $0.7 million partially offset by
lower mortgage banking of $0.6 million).
Compared to the first quarter of 2021, and $0.4 million,
or
29.5%, over the second quarter of 2020.
For the first six months of 2021, other income totaled $3.5 million,
an increase of $0.6
million, or 19.4%, over the same period of 2020.
The increase over both prior year periodsdecrease was primarily attributable
 
to loan servicinglower
fees added as partsalary expense of the CCHL acquisition.$1.8 million, primarily lower variable commission expense
 
(lower mortgage banking of $2.6 million partially offset
by higher insurance of $0.8 million).
 
Noninterest Expense
Associate benefits expense increased by $0.6 million and reflected higher
 
insurance expense
Noninterest expense for the second quarterattributable to utilization of 2021 totaledself-insurance reserves in 2021.
 
$42.1Pension expense declined by $1.0 million, compared to $40.5 million for the first quarterbut was substantially offset
 
of 2021 andby
$37.3 millionhigher expenses for the second quarter of 2020.
For the first six months of 2021, noninterest expense totaled
$82.6 million compared to
$68.3 million for the same period of 2020.
The $1.6 million increase over the first quarter of 2021 reflected
a $2.0 million partial
pension settlement charge (due to a high level
of lump sum pay-outs) that was partially offset by lower
commission expense at CCHL
and lower legal fees and other real estate owned (“OREO”)and other miscellaneous.
 
The decrease in pension expense at CCB.
Compared to the prior year periods, the increase wasin 2022 generally reflected a higher
primarily attributable to the aforementioned partial pension
settlement charge,
lower realized loan cost (credit offset to salary
expense), higher pension plan expense (driven by a
lower discount rate used in 2022 for determining plan liabilities),liabilities and performance
 
based compensation.
Additionally, the
increase for the first half of 2021 reflects the inclusion of CCHL expenses
for a full six month period versus only
four monthsstrong asset returns in 2020.
2021.
The table below reflects the major components of noninterest expense to
 
.help facilitate a better understanding of the year over year
comparison.
 
The table below reflects the major components of noninterest expense.
 
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
March 31, 2022
December 31, 2021
March 31, 2021
2020
2021
2020
Salaries
$
21,11720,664
$
20,587
 
$
22,447
$
19,977
$
43,564
$
35,708
Associate Benefits
4,2614,192
4,196
3,617
3,681
7,878
7,686
Total Compensation
 
25,37824,856
24,783
26,064
23,658
51,442
43,394
 
Premises
2,7142,759
2,671
2,759
2,628
5,473
5,011
Equipment
3,2593,334
3,289
3,208
3,170
6,467
5,766
Total Occupancy
5,9736,093
5,960
5,967
5,798
11,940
10,777
 
Legal Fees
321349
280
558
412
879
881
Professional Fees
1,4061,332
1,438
1,330
1,334
2,736
2,455
Processing Services
1,7941,637
1,455
1,545
1,447
3,339
3,004
Advertising
631773
658
749
799
1,381
1,383
Telephone
754728
736
755
829
1,508
1,439
Insurance - Other
545510
541
501
420
1,046
716
Other Real Estate Owned, net
 
(270)25
26
(118)
116
(388)
(682)
Pension Settlement
2,000209
-
-
2,000572
-
Miscellaneous
3,5912,721
3,758
3,125
2,490
6,716
4,905
Total Other
 
10,7728,284
9,464
8,445
7,847
19,217
14,101
Total
 
Noninterest Expense
 
$
42,12339,233
$
40,207
 
$
40,476
$
37,303
$
82,599
$
68,272
36
Significant components of noninterest expense are discussed in
 
discussed in more detail below.
37
Compensation
.
 
Compensation expense totaled $25.4$24.9 million for the secondfirst quarter of 2022, an increase
 
of $0.1 million, or less than
1.0%, over the fourth quarter of 2021 compared to $26.1and a decrease of $1.2 million, for
or 4.6%, from the first quarter of 2021.
Compared to the fourth
quarter of 2021, and $23.7the $0.1 million for the second quarterincrease in salary expense was primarily
 
attributable to higher commission expense of 2020.$0.7 million
related to higher insurance revenues that was partially offset
 
For the first six monthsby lower commission expense of 2021, compensation expense totaled$0.6 million related to lower mortgage
$51.4 million compared to $43.4 million for the same period
of 2020.banking revenues.
 
Compared to the first quarter of 2021, the decrease is due toreflected lower salary expense
of $1.8 million partially offset
by higher associate benefit expense of $0.6 million.
The decline in salary expense reflected lower commission expense at CCHL (lower production volume)
of $0.9 $2.6
million
payroll taxes of $0.4 million (primarily related to
2020 annual bonuses paid in January,
2021), and cash incentive expense of $0.4 million, mortgage banking revenues partially offset
 
by higher
associate commission expense of $0.9 million related to insurance
expense (utilization of self-funded plan reserves in
first quarter of 2021) of $0.6 million and lower realized
loan cost (credit offset to
salaries – primarily related to lower SBA loan production
)
of $0.4 million.
Compared to the second quarter of 2020, the increase was
primarily attributable to lower realized loan cost (credit
offset to salaries – primarily related to lower SBA
loan production) of $0.9
million, and higher pension plan expense (service cost) of
$0.3 million, and base salaries (merit raises) of $0.5 million.revenues.
 
The increase in associate benefits expense was attributable to higher associate insurance expense
–
for the six month period was primarilyfirst quarter of
2021
we did not recognize expense due to the additionutilization of reserves related to our self-insured
 
of CCHL compensation (primarily commission expense)
beginning Marchplan.
1, 2020 as core CCBG compensation expense remained
essentially flat.
Occupancy.
Occupancy
.
 
Occupancy expense (including premises and equipment) totaled $6.0 $6.1
million for the second quarter
of 2021 comparable to the first quarter of 2022, an increase of
$0.1 million or 2.2% over the fourth quarter of 2021 and $5.8an increase
of $0.1 million, foror 2.1%, over the secondfirst quarter of 2020.2021.
 
For the first six months of 2021,The
occupancy expense totaled $12.0 million comparedincrease over both prior periods was primarily related to
 
$10.8
million for the same period of 2020.
The increase for the six month period was primarily due to the
addition of CCHL occupancy
costs beginning March 1, 2020 as well as higher expense at
core CCBG reflective of increased FF&E depreciation
software additions related to increase
technology investment.
certain risk management and strategic initiatives.
 
Other
.
 
Other noninterest expense totaled $10.8$8.3 million for the first quarter of
 
2022, a decrease of $1.2 million, or 12.5%, from the second
fourth quarter of 2021 compared to $8.4and a decrease of $0.2 million, for or 1.9%, from
the first quarter of 2021.
 
The decrease from the fourth quarter of
2021 and $7.8was primarily attributable to lower miscellaneous expense (pension
expense of $1.6 million for the second quarterpartially offset by a higher level of
other loss expense of 2020.
For the first six months of 2021, other noninterest expense totaled $19.2
million
compared to $14.1 million for the same period of 2020.$0.2 million).
 
Compared to the first quarter of 2021, the increasedecrease was primarily driven by lower
 
attributablemiscellaneous
to a $2.0expense (pension expense of $0.9 million partial pension plan settlement chargepartially offset by
 
related to higher lump sum pay-outs which triggered settlementother losses of $0.2 million, higher MSR amortization of $0.1
million, hiring expense of $0.1 million, and a $0.3 million favorable
 
accounting.
Compared toMSR valuation reserve adjustment in the secondfirst quarter of 2020 the increase
was also attributable to the aforementioned pension settlement
charge as well as
higher expense for our current year defined benefit pension
cost of $0.6 million (due to a lower discount rate utilized
for determining
the 2021 plan year expense), and higher processing
fees of $0.3 million (reflective of higher debit card volume).
The increase for the
six month period was primarily due to the addition
of CCHL expenses beginning in March 1, 2020 and to a lesser
extent higher
expenses at core CCBG, including processing fees (higher
debit card volume), legal/professional (related to the
SWG and CCHL
acquisitions), FDIC insurance expense (related to higher
level of assets), and OREO expense (attributable to lower OREO sales gains)2021).
 
The lower level of pension expense in 2022 generally reflected a higher
discount rate in 2022 for determining plan liabilities and
strong asset returns in 2021.
Our operating efficiency ratio (expressed as noninterest
 
as noninterest expense as a percentagepercent of the sum of taxable-equivale
nttaxable-equivalent net interest income plus
plus noninterest income) was 80.18% for the second
quarter of 2021 compared to 74.36%
77.55% for the first quarter of 2022 compared
to 81.29% for the fourth quarter of 2021 and 66.90%74.36% for the
first quarter of 2021.
 
Income Taxes
We realized income
tax expense of $2.2 million (effective rate of 20%) for the first quarter of
2022 compared to $2.0 million
(effective rate of 22%) for the fourth quarter of 2021
and $2.8 million (effective rate of 19%) for the first quarter of 2021.
Tax
expense for the fourth quarter of 2021 was unfavorably impacted by discrete
tax expense of $0.1 million. Absent discrete items, we
expect our annual effective tax rate to approximate 19%
-20% in 2022.
FINANCIAL CONDITION
Average earning
assets totaled $3.939 billion for the first quarter of 2022, an increase of $147.5 million, or
3.9%, over the fourth
quarter of 2021, and an increase of $440.9 million, or 12.6%, over
the first quarter of 2021.
The increase over the fourth quarter of
2021 was primarily attributable to seasonal growth in our public fund deposits. The
increase compared to the first quarter of 2021 was
primarily driven by higher deposit balances (see below
– Deposits).
Investment Securities
Average investment
s
increased $68.1 million, or 6.9%, over the fourth quarter of 2021 and increased $526.5
million, or 98.8%, over
the secondfirst quarter of 2020.2021.
Our investment portfolio represented 26.9% of our average earning assets for the first
quarter of 2022
compared to 26.1% for the fourth quarter of 2021, and 15.2% for the first
quarter of 2021.
During the first quarter of 2022, we
initiated buy programs
to add to our investment portfolio as part of our overall Statement of Financial
Condition management,
which
were completed by the end of the first quarter 2022.
 
For the remainder of 2022, we will continue to monitor our overall liquidity
position and, dependent on market conditions, look for opportunities to
reinvest proceeds and/or purchase additional securities that
align with our overall investment strategy.
The investment portfolio is a significant component of our operations and, as such,
it functions as a key element of liquidity and
asset/liability management.
Two types of classifications are approved
for investment securities which are Available
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
During the first six monthsquarter of 2022, we purchased securities under
both the AFS and HTM designations.
At March 31, 2022, $624.4 million, or 54.6%, of our investment portfolio
was classified as AFS, and $518.7 million, or 45.3%,
classified as HTM.
The average maturity of our total portfolio at March 31, 2022
was 3.63 years compared to 3.63 years and 2.78
years at December 31, 2021 and March 31, 2021, respectively.
38
We determine
the classification of a security at the time of acquisition based on how the purchase will affect
our asset/liability strategy
and future business plans and opportunities.
We consider multiple
factors in determining classification, including regulatory
capital
requirements, volatility in earnings or other comprehensive income,
and liquidity needs.
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with these securities recorded
net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
HTM securities are acquired or owned with the intent of holding
them to
maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maint
ain a trading portfolio.
At March 31, 2022, there were 673 positions (combined AFS and HTM)
with unrealized losses totaling $49.9 million.
Of these 673
positions, 501 of these positions carry the full faith and credit of the U.S.
Government (US Treasuries, SBA securities, and
GNMA
pools) and are 0% risk-weighted assets for regulatory purposes. There were
52 U.S. government agency securities issued by U.S.
government sponsored entities and carry the implicit guarantee of the
U.S. Government. We
believe the long history of no credit
losses on government securities indicates that the expectation of nonpayment
of the amortized cost basis is zero.
The remaining 120
positions (municipal securities, corporate bonds, and asset backed securities)
have a credit component.
At March 31, 2022, all CMO,
MBS, SBA, US Agencies, and Treasury
bonds held were AAA rated. Corporate debt securities had an allowance for
credit losses
totaling $21,000 at March 31, 2022 and municipal securities had an allowance
for credit losses totaling $15,000.
Loans HFI
Average loans
held for investment (“HFI”) increased $15.3 million, or 0.8%, over the fourth quarter of 2021
 
this ratio was 77.22%and decreased $80.8
million, or 4.0%, from the first quarter of 2021. Excluding SBA PPP loans, average
 
loans HFI increased $18.8 million compared to
the fourth quarter of 2021, and increased $115.9
million compared to 70.30%the first quarter of 2021.
Compared to the fourth quarter of
2021, the increase in average loans (excluding SBA PPP loans) reflected
growth in commercial loans (primarily institutional),
residential loans, HELOCs, and consumer loans (indirect auto). Compared
to the first quarter of 2021, we realized growth in
commercial loans, construction loans, residential mortgages, and consumer
loans (indirect auto).
New loan production strengthened in
the latter part of the first quarter of 2022 resulting in period end loan growth of $54 million
over the fourth quarter of 2021. Period-end
increases were realized in most loan categories with the largest growth
in commercial loans (primarily institutional) and consumer
loans (indirect auto).
Without compromising our credit standards
,
changing our underwriting standards, or taking on inordinate interest rate risk,
we
continue to closely monitor our markets and make minor adjustments as necessary.
Credit Quality
Overall credit quality is strong and continues to improve.
Nonperforming assets (nonaccrual loans and other real estate) totaled $2.7
million at March 31, 2022 compared to $4.3 million at December 31, 2021
and $5.5 million at March 31, 2021.
At March 31, 2022,
nonperforming assets as a percentage of total assets totaled 0.06% compared
to 0.10% at December 31, 2021 and 0.14% at March 31,
2021.
Nonaccrual loans totaled $2.7 million at March 31, 2022, a $1.6 million decrease
from December 31, 2021 and a $2.8 million
decrease from March 31, 2021.
The $4.4 million increase in classified loans over the fourth quarter of 2021,
reflects one loan
relationship that is in the loan workout process and has been reserved
for at March 31, 2022.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from
the loans’ amortized cost basis to present the net amount
expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings, and reduced by the charge-off
of loan amounts (net of recoveries).
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed.
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged
-off.
Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision, but recorded
as a separate liability included in other liabilities.
Management estimates the allowance balance using relevant available
information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts.
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
Adjustments to historical loss information incorporate management’s
view of current
conditions and forecasts.
39
At March 31, 2022, the allowance for credit losses for HFI loans totaled $20.8
million compared to $21.6 million at December 31,
2021 and $22.0 million at March 31, 2021.
Activity within the allowance is detailed in Note 3 to the consolidated financial
statements.
At March 31, 2022, the allowance represented 1.05% of HFI
loans and provided coverage of 761% of nonperforming
loans compared to 1.12% and 500%, respectively,
at December 31, 2021, and 1.07% and 411%, respectively,
at March 31, 2021.
At March 31, 2022, the allowance for credit losses for unfunded commitments
totaled $3.0 million compared to $2.9 million at
December 31, 2021 and $3.0 million at March 31, 2021.
The allowance for unfunded commitments is recorded in other liabilities.
Deposits
Average total
deposits were $3.714 billion for the samefirst quarter of 2022, an increase of $164.9 million,
or 4.6%, over the fourth quarter
of 2021 and $474.6 million, or 14.6%, over the first quarter of 2021.
Growth over the fourth quarter of 2021 was primarily
attributable to an increase in seasonal public fund deposits. Compared to the first quarter 2021,
strong growth occurred in our
noninterest bearing deposits, NOW accounts, and savings account balances.
Over the past few years, we have experienced strong core
deposit growth, in addition to growth related to multiple government
stimulus programs in response to the Covid-19 pandemic, such
as those under the CARES Act and the American Rescue Plan Act.
Given these increases, the potential exists for our deposit levels to
be volatile into 2022 due to the uncertain timing of the outflows of the stimulus related
balances, in addition to the frequency and
degree to which the Federal Open Market Committee (FOMC) raises the overnight
funds rate. It is anticipated that current liquidity
levels will remain robust due to our strong overnight funds sold position.
The Bank continues to strategically consider ways to safely
deploy a portion of this liquidity.
We monitor
deposit rates on an ongoing basis and adjust, if necessary,
as a prudent pricing discipline remains the key to managing our
mix of deposits.
MARKET RISK AND INTEREST RATE
SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
Market risk 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 2020.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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Additional detail on CCHL’s
operations and key performance metrics is provided below.
Three Months Ended
Six Months Ended
(Dollars in thousands)
Jun 30, 2021
Mar 31, 2021
Jun 30, 2020
Jun 30, 2021
Jun 30, 2020
Net Interest Income
$
19
$
(153)
$
109
$
(134)
$
125
Mortgage Banking Fees
13,116
16,846
19,156
29,962
21,271
Other
425
426
203
851
299
Total Noninterest
Income
13,541
17,272
19,359
30,813
21,570
Salaries
8,538
10,276
8,381
18,814
10,623
Other Associate Benefits
210
221
204
431
253
Total Compensation
8,748
10,497
8,585
19,245
10,876
Occupancy, Net
854
861
768
1,715
999
Other
1,359
1,101
1,248
2,460
1,705
Total Noninterest
Expense
10,961
12,459
10,601
23,420
13,580
Operating Profit
$
2,599
$
4,660
$
8,867
$
7,259
$
8,115
Key Performance Metrics:
Total Loans Closed
$
406,859
$
463,126
$
407,118
$
869,985
$
510,008
Total Loans Closed
- Mix
Purchase
76%
60%
51%
68%
53%
Refinance
24%
40%
49%
32%
47%
Income Taxes
We realized income
tax expense of $2.1 million (effective rate of 19%)
for the second quarter of 2021 compared to $2.8 million
(effective rate of 19%) for
the first quarter of 2021 and $2.9 million (effective
rate of 18%) for the second quarter of 2020.
For the
first six months of 2021, we realized income tax
expense of $4.8 million (effective rate of 19%) compared
to $4.2 million (effective
rate of 20%) for the same period of 2020.
Absent discrete items, we expect our annual effective tax
rate to approximate 18%-19% for
the remainder of 2021.
FINANCIAL CONDITION
Average earning
assets totaled $3.624 billion for the second quarter of 2021, an
increase of $126.0 million, or 3.6%, over the first
quarter of 2021, and an increase of $286.5 million,
or 8.6%, over the fourth quarter of 2020.
The increase over both prior periods was
primarily driven by higher deposit balances, which funded
growth in both overnight funds sold and the investment
portfolio.
Deposit
balances increased as a result of strong core deposit growth,
in addition to funding retained at the bank from SBA PPP loans,
and
various other stimulus programs.
Investment Securities
In the second quarter of 2021, our average investment
portfolio increased $158.7 million, or 29.8%, over the first quarter
of 2021 and
increased $173.6 million, or 33.5%, over the fourth quarter
of 2020.
Our investment portfolio represented 19.1% of our average
earning assets for the second quarter of 2021 compared
to 15.5% for the fourth quarter of 2020,
and 20.1% for the second quarter of
2020.
During the second quarter of 2021, we initiated a buy program
to add to our investment portfolio as part of our overall balance
sheet management.
For the remainder of 2021, we will continue to monitor our overall
liquidity position and look for opportunities to
purchase additional investment securities that align with
our overall investment strategy.
40
The investment portfoliostatement of financial condition 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 approvedsubject to testing for investment securities which are Available
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
During the second quarter of 2021, we purchased securities under
the AFS designation.
At June 30,
2021,
$480.9 million, or 59.6%, of our investment portfolio was classified as AFS,
and $325.6 million, or 40.4%, classified as HTM.
The average maturity of our total portfolio at June
30, 2021 was 3.34 years compared to 2.78 years and 2.09
years at March 31, 2021
and December 31, 2020, respectively.
38
We determine
the classification of a security at the time of acquisition based
on how the purchase will affect our asset/liability strategy
and future business plans and opportunities.
We consider
multiple factors in determining classification, including
regulatory capital
requirements, volatility in earnings or other comprehensive
income, and liquidity needs.
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with
these securities recorded net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
HTM securities are acquired or owned with the intent
of holding them to
maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore
we do not maintain a trading portfolio.
At June 30,
2021,
there were 150 positions (combined AFS and HTM) with unrealized
losses totaling $1.5
million at June 30,
2021.
Of these 150 positions, 145 are U.S. government agency
securities issued by U.S. government sponsored entities which carry
the full
faith and credit guarantee of the US Government and are
0% risk-weighted assets for regulatory purposes. The remaining
five
positions are municipal bonds with a minimum credit rating
of “A”. None of these positions with unrealized losses are considered
impaired, and all are expected to mature at par.
Further, we believe the long history of
no credit
losses on these securities indicates
that the expectation of nonpayment of the amortized cost
basis is zero.
Loans HFI
Average loans
held for investment (HFI) decreased $7.6 million, or 0.4%, from
the first quarter of 2021 and increased $43.3 million,
or 2.2%, over the fourth quarter of 2020.
Excluding SBA PPP loans, average core loans grew $54.4
million and $90.4 million over
both respective periods and period end loans grew $74.3
million and $97.7 million over both respective periods.
Growth in period end
loans was driven primarily in the commercial mortgage,
indirect, and construction categories.
At June 30, 2021, SBA PPP loan
balances totaled $79.9 million and remaining deferred SBA PPP net
loan fees totaled $3.5 million.
SBA PPP loan forgiveness
applications are expected to remain strong for the remainder
of 2021.
Without compromising our credit standards
,
changing our underwriting standards, or taking on inordinate interest
rate risk, we
continue to closely monitor our markets
and make minor adjustments as necessary.
Credit Quality
Nonperforming assets (nonaccrual loans and OREO, “NPAs”
)
totaled $6.3 million at June 30, 2021, a $0.8 million increase from
March 31, 2021, and a $0.4 million decrease from December
31, 2020.
Nonaccrual loans totaled $5.1 million (0.25% of HFI loans) at
June 30, 2021 compared to $5.4 million (0.26
%
of HFI loans) at March 31, 2021 and $6.8 million (0.
29% of HFI loans) at December
31, 2020.
For additional metrics on NPAs
see the Asset Quality section of the Selected Quarterly
Financial Data table.
For more
information on nonaccrual loans see Note 3 – Loans Held
for Investment and Allowance for Credit Losses.
The balance of OREO
totaled $1.2 million at June 30, 2021, an increase of
$1.1 million over March 31, 2021 and a $0.3 million increase
over December 31,
2020.
A significant portion of the increase in ORE is attributable to an
office property,
which was under contract and moved to ORE
late in the second quarter.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that
is deducted from the loans’ amortized cost basis to present
the net amount
expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision
which is reported in
earnings, and reduced by the charge-off
of loan amounts, net of recoveries.
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance
is confirmed.
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected
to be charged-off.
Expected credit loss inherent in non-cancellable off
-balance sheet credit
exposures is provided through the credit loss provision,
but recorded as a separate liability included in other liabilities.
Management estimates the allowance balance using
relevant available information, from internal and external
sources relating to past
events, current conditions, and reasonable and supportable
forecasts.
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
Adjustments to historical loss information incorporate
management’s view of current
conditions and forecasts.
39
At June 30, 2021, the allowance for credit losses for
loans HFI totaled $22.2 million compared to $22.0 million
at March 31, 2021 and
$23.8 million at December 31, 2020.
Activity within the allowance is detailed in Note 3 to the
consolidated financial statements.
The
$0.2 million net increase in the allowance for the second quarter
of 2021 was primarily attributable to net loan recoveries totaling
$0.3
million.
For the first half of 2021, the $1.6 million net decrease in the
allowance reflected net loan recoveries of $0.9 million and
lower expected losses related to COVID-19, partially
offset by core loan growth (ex-SBA PPP).
At June 30, 2021, the allowance
represented 1.10% of loans HFI and provided coverage
of 434% of nonperforming loans compared to 1.19% and
406%, respectively,
at December 31, 2020.
At June 30, 2021, excluding SBA PPP loans (100% government
guaranteed), the allowance represented 1.15%
of loans HFI compared to 1.30% at December 31, 2020.
At June 30, 2021, the allowance for credit losses for
unfunded commitments totaled $2.6 million compared to $3.0 million
at March
31, 2021 and $1.6 million at December 31, 2020.
The allowance for unfunded commitments is recorded
in other liabilities.
Deposits
Average total
deposits were $3.387 billion for the second quarter of 2021, an
increase of $147.8 million, or 4.6%, over the first quarter
of 2021 and $321.2 million, or 10.5%, over the fourth
quarter of 2020.
The strongest growth over both comparable periods occurred
in our noninterest bearing deposits and savings account
balances.
Average public
deposits in the second quarter 2021 increased
compared to the fourth quarter 2020, but declined compared
to the first quarter 2021 due to the seasonality of these
deposits.
Over the
past 12 months, multiple government stimulus programs
have been implemented, including those under the CARES Act and
the
American Rescue Plan Act, which are responsible for a
large part of the growth in average deposits.
Given these increases, the
potential exists for our deposit levels to be volatile
for the remainder of 2021 due to the uncertain timing of the outflows of
the
stimulus related balances and the economic recovery.
It is anticipated that current liquidity levels will remain robust due
to our strong
overnight funds sold position.
We monitor
deposit rates on an ongoing basis and adjust if necessary,
as a prudent pricing discipline remains the key to managing
our
mix of deposits.
MARKET RISK AND INTEREST RATE
SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
Market risk management arises from changes in interest rates,
exchange rates, commodity prices, and equity prices.
We
have risk management policies to monitor and limit exposure
to interest rate risk and do not participate in activities thatshock
 
give risepossibilities to
significant market risk involving exchange rates, commodity
prices, or equity prices. Our risk management policies are
primarily
designed to minimize structural indicate the inherent interest rate risk.
 
Interest Rate Risk Management.
Our net income is largely dependent on net interest
income.
Net interest income is susceptible to
interest rate risk to the degree that interest-bearing
liabilities mature or re-price on a different basis than interest
-earning assets.
When
interest-bearing liabilities mature or re-price more quickly
than interest-earning assets in a given period, a significant increase
in
market rates of interest could adversely affect
net interest income.
Similarly, when interest-earning
assets mature or re-price more
quickly than interest-bearing liabilities, falling interest rates could
result in a decrease in net interest income.
Net interest income is
also affected by changes in the portion of
interest-earning assets that are funded by interest-bearing liabilities rather
than by other
sources of funds, such as noninterest-bearing deposits and
shareowners’ equity.
We have established
a comprehensive interest rate risk management policy,
which is administered by management’s
Asset/Liability
Management Committee (“ALCO”).
The policy establishes risk limits, which are quantitative measures
of the percentage change in
net interest income (a measure of net interest income at
risk) and the fair value of equity capital (a measure of economic
value of
equity (“EVE”) at risk) resulting from a hypothetical change
in interest rates for maturities from one day to 30 years.
We measure the
potential adverse impacts that changing interest rates may
have on our short-term earnings, long-term value, and
liquidity by
employing simulation analysis through the use of
computer modeling.
The simulation model is designed to capture optionality
factors
such as call features and interest rate caps and floors imbedded
in investment and loan portfolio contracts.
As with any method of
analyzing interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology that
we use.
When
interest rates change, actual movements in different
categories of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may
deviate significantly from the assumptions that we use in our
modeling.
Finally, the methodology
does not measure or reflect the impact that higher rates may
have on variable and adjustable-rate loan
clients’ ability to service their debts, or the impact of rate
changes on demand for loan and deposit products.
We prepare
 
a current base case and several alternative interest rate simulations (-100,+100, +200,
+300, and +400 basis points (bp)), at
least once
per quarter, and presentreport the analysis to
ALCO, with theour Market Risk Oversight Committee (“MROC”), our Enterprise Risk
risk metrics also reported toOversight Committee (“EROC”) and the Board of Directors.
(The -200bp rate scenario was not modeled starting in the second half of
2019 due to the low interest rate environment below 2.00%). We
augment our interest rate shock analysis with alternative interest rate
scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening
or steepening of the yield curve (non-parallel
shift).
 
In addition, more frequent forecasts may be produced when
interest rates are particularly
particularly uncertain or when other business
conditions
so dictate.
40
Our interest rate risk management goal is to maintain expected
changes in our net interest income and capital levels due
to fluctuations
in market interest rates within acceptable limits.
Management attempts to achieve this goal by balancing,
within policy limits, the
volume of variable-rate liabilities with a similar volume
of variable-rate assets, by keeping the average maturity of fixed-rate
asset and
liability contracts reasonably matched, by maintaining
our core deposits as a significant component of our total funding
sources and by
adjusting rates to market conditions on a continuing basis.
We test our balance
sheet using varying interest rate shock scenarios to analyze our interest
rate risk. Average
interest rates are
shocked by plus or minus 100, 200, 300, and 400 basis
points (“bp”), although we may elect not to use particular
scenarios that we
determined are impractical in a current rate environment.
It is management’s goal
to structure the balance sheetstatement 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.
 
We augment
 
our interest rate shock analysis with alternative external
Analysis.
 
interest rate scenarios on a quarterly basis.
These alternative
interest rate scenarios may include non-parallel rate ramps.
Analysis
.
Measures of net interest income at risk produced by simulation analysis are
 
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
necessarily indicate the long-term prospects or economic value
of the institution.
ESTIMATED CHANGES
 
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
June 30, 2021March 31, 2022
33.1%27.0%
24.4%20.1%
15.8%13.2%
7.6%6.4%
-4.7%-7.4%
MarchDecember 31, 2021
40.6%36.6%
30.0%27.2%
19.4%17.8%
9.3%8.7%
-4.0%-6.2%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
June 30, 2021March 31, 2022
46.0%46.8%
32.5%35.3%
19.1%23.9%
6.5%12.8%
-12.4%-9.9%
MarchDecember 31, 2021
53.0%55.0%
37.0%40.5%
21.2%26.1%
6.2%12.2%
-14.2%
-11.1%
The Net Interest Income (“NII”) at Risk position indicates
 
that in the short-term, all rising rate environments will positively impact
 
impact the net
net interest margin of the Company,
 
while a declining rate environment of 100bp will have a
negative impact on the net interest margin.
The 12-month Net Interest Income at Risk positionmargin. These metrics became
less favorable in allrising rate scenarios primarily due to lower PPP fees for
 
the
year-over-year comparison. Compared to the
prior quarter-end, the 24-month Net Interest Income at Risk position
became slightly
more favorable in rates down 100 bps and rates up 100
bps due to investment purchases during the quarter,
and slightly less favorable
in rate scenarios of rates up 200 bps or more as the balance
sheet is less asset sensitive due to these asset purchases. As an intended
result of the $500 million investment strategy during
the quarter, the Bank has become slightly
less asset sensitive, and has slightly
less riskcompared to the rates down scenario.
prior quarter as slightly longer duration assets
All measures of Net Interest Income at Riskwere purchased. The percent change in rising rate
environments are within our prescribed policy limits over the next 12
-month
and 24-month periods. We
are out of complianceNII became less favorable in the down 100bp
rate scenario foras the 24-month
periodNII base increased due to our limited abilityhigher
rates and now has more room to
lower our deposit rates relative to the decline in market rates.
fall. All scenarios are within policy.
 
The measures of equity value at risk indicate our ongoing economic value
 
economic value by considering the effects of changes
in interest rates on all
of our cash flows andby discounting the cash flows to estimate the
present value of
assets and liabilities.
The difference between thethese
aggregated discounted values of the assets and liabilities is the
economic value of equity,
 
which in theory
approximates the fair value
of our net assets.
assets.
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
June 30, 2021March 31, 2022
 
47.9%20.2%
38.4%16.2%
27.5%11.5%
15.2%6.3%
-35.2%-14.7%
June 30, 2021 (Alternate Scenario)
(2)
37.2%
28.4%
18.2%
9.1%
-12.5%
MarchDecember 31, 2021
96.8%31.5%
76.6%24.6%
53.9%16.5%
28.5%8.2%
-55.6%-19.0%
EVE Ratio (policy minimum 5.0%)
18.9%
4118.0%
16.9%
15.9%
12.3%
(1) Down 200, 300, and 400 bp rate scenarios have been
excluded due to the low
current interest rate environment.
(2)
41
 
For the rates down 100 bp scenario,
the high negative percentage change
is due to a negative value assigned to our nonmaturity
deposits.
Since we believe our nonmaturity deposits are
highly valued core franchise deposits, we run
an alternate EVE
calculation which caps the projected
value of our nonmaturity deposits at their book value.
In the alternate EVE scenario where
the value of our nonmaturity deposits are
capped at their book value, both our EVE and our EVE Ratio
are within policy
guidelines.
At June 30, 2021,
March 31, 2022, the economic value of equity results arewas favorable
in all rising
rate environments and are within prescribed toleranceunfavorable in a falling rate
levels.
The EVE Ratio (EVE/EVA)
was 6.4% for the second quarter 2021, which is within policy
limits.
environment. EVE metrics became moreless favorable in a rising rate environment
due to longer duration investments purchased in the
investment portfolio, and became more favorable in the rates down
scenario reflectingas our nonmaturity deposits became more valuable as
rates rose.
EVE is currently in compliance with policy in all rate scenarios.
As the deploymentinterest rate environment and the dynamics of the economy continue to change,
 
additional funds insimulations will be analyzed to
address not only the investment portfolio and utilization ofchanging rate environment, but also the change
 
in mix of our financial assets and aliabilities, measured over
lower cost of acquiring and maintaining deposits, which was incorporated
intomultiple years, to help assess the model inrisk to the second quarter.
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
 
cash generated from operations, our borrowing capacity and our
access to capital resources
are
sufficient to meet our future operating capital
and funding requirements.
 
At June 30,
2021,
March 31, 2022, we had the ability to generate $1.248
$1.477 billion in additional
liquidity through all of our available resources (this
excludes $767$790 million in overnight funds sold).
 
In addition to the primary borrowing outlets mentioned
above, we also have
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
 
Reserve Discount Window and through
brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed a Contingent
 
a Contingent Liquidity Plan, which addresses various
liquidity stress
levels and our response and action based on the level
of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level
increases that certain credit facilities may
no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on
events that could potentially
occur at the Bank and report results to ALCO,
our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At June 30, 2021,
March 31, 2022, we believe the liquidity
liquidity available to us was sufficient to meet our on-going needs
 
needs and execute our business strategy.
 
 
We view our
 
investment portfolio primarily as a source of liquidity and have
the option to pledge the portfolio
as collateral for
borrowings or deposits, and/or sell selected securities.
 
The portfolio primarily consists of debt issued by
the U.S. Treasury,
 
U.S.
governmental and federal agencies, municipal governments,
corporate bonds, and municipal governments.asset-backed securities.
 
The weighted average life
of the portfolio was approximately
3.34
3.63 years at June 30, 2021,
March 31, 2022, and the available
for sale portfolio had a net unrealized pre-tax loss
gain of $1.2$31.5 million.
 
Our average overnight funds position (defined deposits with banks plus
 
plus Fed funds sold less Fed funds purchased) was $818.6
$873.1 million
in the secondfirst quarter of 20212022 compared to an average net overnight funds
 
overnight funds sold position of $789.1 million in the fourth quarter of 2021
and $814.6 million in the first quarter of 2021.
 
2021
and $705.1 million inThe increase over the fourth quarter of 2020.2021 was primarily due to growth in our
seasonal deposits.
 
The increase compared to both prior periodsthe first quarter 2021 was driven
by strong core deposit inflows related to
pandemic related stimulus programs and growth,
 
in our core deposits (seeaddition to pandemic
Deposits
).related stimulus programs.
 
We expect our
 
our capital expenditures will be approximately $7.0$8.0 million over
the next 12 months, which
will primarily consist of office
remodeling, office equipment/furniture, and technology
 
purchases.
 
Management expects that these capital expenditures will be
funded with existing resources without impairing our
ability to meet
our on-going obligations.
Borrowings
At June 30,Average short
 
2021,
average short term borrowings totaled $51.2$32.4 million for the first quarter of 2022 compared to $46.4
 
tomillion for the fourth quarter of
2021 and $67.0 million at March 31, 2021 and $95.3 million
at December 31, 2020.
for the first quarter of 2021. The variance over both prior
periods was primarily attributable to the fluctuation
fluctuation of residential mortgage warehouse
borrowings at CCHL.
 
Additional detail on these borrowings is provided in Note
4 – Mortgage
Banking Activities in the Consolidated
Financial Statements.
 
42
At June 30,
2021,
fixed rate credit advances from the FHLB totaled $1.8 million
in outstanding debt consisting of five notes. During
the first six months of 2021, the Bank made FHLB advance payments
totaling approximately $0.4 million,
which included one
advance that paid off, and another that matured.
We did not obtain
any new FHLB advances during this period. The FHLB notes are
collateralized by a blanket floating lien on all of our 1-4
family residential mortgage loans, commercial real estate mortgage
loans, and
home equity mortgage loans.
We have issued two
 
two junior subordinated deferrable interest notes to our wholly owned
 
wholly owned Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
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
 
II in May 2005.
 
The interest payment for the CCBG Capital Trust
I
borrowing is due quarterly and adjusts quarterly to a
variable rate of three-month
LIBOR plus a margin of
1.90%.
 
This note matures
on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II
borrowing is due
quarterly and adjusts quarterly to a
variable rate of three-month LIBOR plus a margin
of 1.80%.
 
This note matures on June 15, 2035.
 
The proceeds from these
borrowings were used to partially fund acquisitions.
 
Under the terms of each junior subordinated deferrable interest note, in
the event
of default or if we elect to defer interest on the
note, we may not, with
certain exceptions, declare or pay
dividends or make
distributions on our capital stock or purchase or acquire
any of our capital
stock.
 
We continue to evaluate
 
evaluate the impact of the expected
discontinuation of LIBOR on our two junior subordinated deferrable
 
deferrable interest notes.
 
During the second quarter of 2020,
we entered into a derivative cash
flow hedge of our interest rate risk
related to our subordinated
debt.
 
The notional amount of the derivative is $30 million ($10 million of
the CCBG Capital Trust
I borrowing and $20 million
of the
CCBG Capital Trust II borrowing).
 
The interest rate swap agreement requires CCBG to pay fixed
and receive variable (Libor
plus
spread) and has an average all-in fixed rate of 2.50% for
10 years.
 
Additional detail on the interest rate swap agreement is provided
in
Note 5 – Derivatives in the Consolidated Financial Statements.
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
 
Financial Data table on page 31.32.
 
At June 30, 2021,March 31, 2022, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized”
 
under the Basel III capital standards.
Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 32.
At March 31, 2022, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized”
under the Basel III capital standards.
Shareowners’ equity was $335.9 million at June 30,
2021 compared to $324.4$372.1 million at March 31, 2022 compared to $383.2
million at December 31, 2021 and
$320.8 $324.4 million at
DecemberMarch 31, 2020 and.2021.
 
ForDuring the first six monthsquarter of 2021,2022, shareowners’ equity was positively
impacted by net income
of $16.9$8.5 million, a $0.2
million decrease in the accumulated other comprehensive loss for our
pension plan, a $0.9$1.4 million increase in the fair value of the
the interest rate swap related to subordinated debt, net adjustments totaling $0.5 million
 
totaling $1.0 million
related to transactions under our stock
compensation plans,
and stock compensation accretion of $0.4 million, and reclassification
of $1.2
million from temporary equity to decrease the redemption
value of the non-controlling interest in CCHL.
In addition, $1.6 million
was reclassified from accumulated other comprehensive
loss to pension expense in conjunction with partial pension settlement
charge
reflected in earnings, therefore, the charge
had no net effect on equity.$0.2 million.
 
Shareowners’ equity was reduced by common stock dividends
of $5.1$2.7 million ($0.300.16 per share) and a $1.8$19.1 million increase in the
 
decrease in the unrealized gainloss on investment securities.
At June 30, 2021,March 31, 2022, our common stock had a book value of $21.94 per diluted
 
of $19.87 per diluted share compared to $19.22$22.63 at December 31, 2021
and
$19.22 at March 31,
2021 and $19.05
at December 31, 2020. 2021.
 
Book value is impacted by the net after-tax unrealized
gains and losses on AFS investment
securities.
 
At June
30, 2021,March 31, 2022, the net gainloss was $0.9$23.6 million compared to a net loss of $4.5
 
tomillion at December 31, 2021 and a $1.2 million net
gain at March 31, 2021
and a $2.7 million net gain at December
31, 2020.2021.
 
Book value is also impacted by the recording of our unfunded
pension liability through other
comprehensive
income in
accordance with Accounting Standards Codification Topic
 
Topic 715.
 
At June 30, 2021,
March 31, 2022, the net pension liability reflected in other
other comprehensive loss was $45.6$13.0 million compared to $13.2 million
 
$47.1at December 31, 2021 and $47.1 million at March 31, 2021 and $47.2 million at December2021.
 
31, 2020.
This
This liability is re-measured annually on December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant assumptions
assumptions used in calculating the liability are discussed in our 2021 Form
 
2020 Form 10-K “Critical Accounting Policies” and include the
weighted average
discount rate used to measure the present value of the pension
 
the pension liability, the weighted
 
weighted average expected long-term
rate of return on
pension plan assets, and the assumed rate of annual compensation
 
increases, all of which will vary when re-measured.
 
The discount
rate assumption used to calculate the pension liability is subject to
 
long-term corporate bond rates at December 31
st
.
 
The estimated
estimated impact to the pension liability based on a 25-basis point increase
 
increase or decrease in long-term corporate bond rates used to
to discount the
pension obligation would decrease or increase the pension
 
liability by approximately $6.6 $4.6
million (after-tax) using the balances
from
balances from the December 31, 20202021 measurement date.
 
43
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
 
to financial instruments with off-balance sheet risks in the normal
 
normal course of business to meet the financing needs of our
clients.
 
At June 30, 2021,
March 31, 2022, we had $772.0$763.9 million in commitments to extend credit and
 
$6.6and $5.0 million in standby letters of credit.
 
Commitments
Commitments to extend credit are agreements to lend to a client
so long as there is no violation of
any condition established in the
the contract.
 
Commitments generally have fixed expiration dates or other termination
 
other termination clauses and may require payment of a fee.
 
Since
many of the
commitments are expected to expire without being drawn upon,
 
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
 
credit policies in establishing commitments and issuing
letters of credit as we do for on-balanceon-
balance sheet instruments.
instruments.
43
If commitments arising from these financial instruments continue to
 
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
 
believes current liquidity,
advances available from the
FHLB and the
Federal Reserve, and investment security maturities provide a sufficient
 
a sufficient source of funds to meet these commitments.
Certain agreements provide that the commitments are unconditionally
 
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
 
in other liabilities on the consolidated statements of financial condition
and
totaled $2.6$3.0 million at June 30, 2021.
March 31, 2022.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note
1 to the Consolidated
Financial Statements included in our
2020 2021 Form 10-K.
 
The preparation of our Consolidated Financial Statement
sStatements
 
in accordance with GAAP and reporting practices applicable
to the banking
industry requires us to make estimates and assumptions that affect
 
affect the reported amounts of assets, liabilities, revenues
and expenses,
and to disclose contingent assets and liabilities.
 
Actual results could differ from those estimates.
We have identified
 
accounting for (i) the allowance for credit losses, (ii) valuation of goodwill, (iii) pension
 
goodwill and other identifiable intangible assets,
(iii) pension benefits, and (iv) income
taxes as our most
critical accounting policies and estimates in that they are
 
are important to the
portrayal of our financial condition and
results, and they
require our subjective and complex judgment as a result of
 
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
 
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
 
Results of
Operations included in our 20202021 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
TABLE I
AVERAGE
BALANCES & INTEREST RATES
Three Months Ended June 30,
Six Months Ended June 30,
 
March 31, 2022
December 31, 2021
2020
March 31, 2021
2020
 
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
 
77,10143,004
$
 
566397
2.943.75
%
$
 
74,96562,809
$
 
550522
3.413.29
%
$
 
91,591106,242
$
 
1,536970
3.38
%
$
55,181
$
906
3.303.70
%
Loans Held for Investment
(1)(2)
2,036,7811,963,578
24,09521,811
4.744.50
1,982,9601,948,324
23,23522,296
4.704.54
2,040,5512,044,363
46,57822,483
4.71
1,915,370
46,571
4.894.46
Taxable Securities
687,8821,056,736
2,0362,889
1.181.10
601,509987,700
2,7082,493
1.801.00
608,801528,842
3,8991,863
1.28
615,511
5,703
1.861.41
Tax-Exempt Securities
(2)
3,5302,409
2310
2.581.60
5,8653,380
3717
2.512.07
3,6863,844
4825
2.602.61
5,579
62
2.20
Federal Funds Sold and Interest Bearing
818,616Deposits
200873,097
0.10409
351,4730.19
88789,100
0.10300
816,6380.15
414814,638
0.10213
292,922
845
0.580.11
Total Earning Assets
3,623,9103,938,824
26,92025,516
2.982.63
%
3,016,7723,791,313
26,61825,628
3.552.68
%
3,561,2673,497,929
52,47525,554
2.97
%
2,884,563
54,087
3.772.96
%
Cash & Due From Banks
74,07674,253
72,64773,752
71,541
64,80268,978
Allowance For Credit Losses
(22,794)(21,655)
(21,642)(22,127)
(23,457)
(18,015)(24,128)
Other Assets
281,157275,353
261,449284,999
279,956
252,657278,742
TOTAL ASSETS
$
 
3,956,3494,266,775
$
 
3,329,2264,127,937
$
 
3,889,307
$
3,184,0073,821,521
 
Liabilities:
NOW Accounts
$
 
966,6491,079,906
$
 
7486
0.03
%
$
 
789,378963,778
$
 
78
0.04
%
$
976,031
$
15072
0.03
%
$
 
799,094985,517
$
 
80376
0.200.03
%
Money Market Accounts
272,138285,406
33
0.05
222,377289,335
40
0.07
270,990
6634
0.05
217,295269,829
15733
0.150.05
Savings Accounts
529,844599,359
6472
0.05
409,366573,563
5071
0.05
511,152492,252
124
0.05
394,301
9660
0.05
Other Time Deposits
102,99597,054
3733
0.14
101,037
36
0.14
102,089
39
0.15
104,718
50
0.19
102,544
76
0.15
105,130
101
0.19
Total Interest Bearing Deposits
1,871,6262,061,725
224
0.04
1,927,713
213
0.04
1,849,687
208
0.04
1,525,839
218
0.06
1,860,717
416
0.05
1,515,820
1,157
0.15
Short-Term Borrowings
51,15232,353
324192
2.542.40
73,37746,355
421307
2.312.63
59,04967,033
736412
2.51
53,146
553
2.092.49
Subordinated Notes Payable
52,887
308317
2.302.40
52,887
374306
2.802.26
52,887
615307
2.31
52,887
845
3.162.32
Other Long-Term Borrowings
1,762833
169
3.384.49
5,7661,414
4112
2.843.50
2,2462,736
3721
3.26
6,039
91
3.033.18
Total Interest Bearing Liabilities
1,977,4272,147,798
856742
0.170.14
%
1,657,8692,028,369
1,054838
0.260.16
%
1,974,8991,972,343
1,804948
0.18
%
1,627,892
2,646
0.330.19
%
Noninterest Bearing Deposits
1,515,7261,652,337
1,257,6141,621,432
1,453,121
1,152,2511,389,821
Other Liabilities
107,80172,166
72,073114,657
109,417
65,830111,050
TOTAL LIABILITIES
3,600,9543,872,301
2,987,5563,764,458
3,537,437
2,845,9733,473,214
Temporary Equity
26,35510,518
8,15513,339
24,178
5,33121,977
 
TOTAL SHAREOWNERS’ EQUITY
329,040383,956
333,515350,140
327,692
332,703326,330
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
 
3,956,3494,266,775
$
 
3,329,2264,127,937
$
 
3,889,307
$
3,184,0073,821,521
 
Interest Rate Spread
2.812.49
%
3.302.52
%
2.79
%
3.442.77
%
Net Interest Income
$
 
26,06424,774
$
 
25,56424,790
$
 
50,671
$
51,44124,606
Net Interest Margin
(3)
2.892.55
%
3.412.60
%
2.87
%
3.592.85
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loansloan fees of $1.9 $0.2 million, $0.4
million and $0.6$1.2 million for
 
for the three month periods ended June 30, 2021 and 2020,
 
respectively,the three months ended March 31, 2022, December 31,
2021 and $3.1 million and $0.8 million for the six month periods ended June 30,March 31, 2021,
and 2020, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments using
 
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earningearnings assets.
45
Item 3.
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
See “Market Risk and Interest Rate Sensitivity” in Management’s
 
Discussion and Analysis of Financial Condition and
Results of
Operations, above, which is incorporated herein by reference.
 
Management has determined that no additional disclosures
are
necessary to assess changes in information about market
risk that have occurred
since December 31, 2020.
2021.
Item 4. CONTROLS
 
CONTROLS AND PROCEDURES
At June 30, 2021,March 31, 2022, the end of the period covered by this Form 10-Q, our
 
10-Q, our management, including our Chief Executive
Officer and Chief
Chief Financial Officer, evaluated
 
the effectiveness of our disclosure controls and procedures (as defined
 
(as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934).
 
Based upon that evaluation, the Chief Executive Officer
and Chief Financial
Officer concluded
that, as of the end of the period covered by this report these
disclosure controls and procedures
were effective.
Our management, including our Chief Executive Officer
 
and Chief Financial Officer, has reviewed
 
our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
 
Exchange Act of 1934).
 
During the quarter ended on June 30, 2021, otherMarch 31, 2022,
other than the above, there have been no significant changes in our internal
 
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
 
control over financial
reporting.
 
 
PART
 
II. OTHER
 
OTHER INFORMATION
Item 1. Legal
 
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
 
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 20202021 Form 10-K, as updated
in our subsequent
 
quarterly reports. The risks described in our 20202021 Form
10-K and our subsequent quarterly reports are not the only
risks facing us. Additional
risks and uncertainties not currently
known to us
or that we currently deem to be immaterial also may materially adversely affect
 
adversely affect our business, financial condition
and/or operating
results.
Item 2. Unregistered
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
Proceeds
None.
Item 3.
 
Item 3. Defaults
Upon Senior Securities
None.
Item 4. Mine
 
Mine Safety Disclosure
Not Applicable.
 
Item 5. Other
 
Other Information
None.
 
46
Item 6.
Exhibits
(A) Exhibits
 
Exhibits
31.1
31.2
32.1
32.2
101.SCH
 
101.SCH XBRL Taxonomy
 
Extension Schema Document
101.CAL XBRL
 
XBRL Taxonomy
 
Extension Calculation Linkbase Document
101.LAB XBRL
 
XBRL Taxonomy
 
Extension Label Linkbase Document
101.PRE XBRL
 
XBRL Taxonomy
 
Extension Presentation Linkbase Document
101.DEF
 
101.DEF XBRL Taxonomy
 
Extension Definition Linkbase Document
 
104
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
 
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has
duly caused this Report to be signed
on its
behalf by the undersigned Chief Financial Officer hereunto duly
 
hereunto duly authorized.
CAPITAL CITY BANK
 
BANK GROUP,
 
INC.
 
(Registrant)
/s/ J. Kimbrough Davis
 
J. Kimbrough Davis
Executive Vice President
 
and Chief Financial Officer
(Mr. Davis is the Principal Financial
 
Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: July 30,
2021
May 4, 2022