UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
 
D.C.
 
20549
FORM
10-Q
☒
QUARTERLY REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31,September 30, 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'sRegistrant’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,October 28, 2022,
16,947,62716,961,812
 
shares of the Registrant'sRegistrant’s Common Stock, $.01 par value, were outstanding.
2
CAPITAL CITY BANK
 
GROUP,
 
INC.
QUARTERLY
 
REPORT ON FORM 10-Q
FOR THE THREE MONTHSPERIOD ENDED MARCH 31,SEPTEMBER 30, 2022
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
 
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – March 31,September 30, 2022 and December 31, 2021
4
Consolidated Statements of Income – Three and Nine Months Ended March 31,September 30, 2022 and 2021
5
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended March 31,September 30, 2022 and 2021
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended March 31,September 30, 2022 and 2021
7
Consolidated Statements of Cash Flows – ThreeNine Months Ended March 31,September 30, 2022 and 2021
8
Notes to Consolidated Financial Statements
9
 
 
Item 2.
 
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
3031
 
 
Item 3.
 
Quantitative and Qualitative Disclosure About Market Risk
4547
 
 
Item 4.
 
Controls and Procedures
4547
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
4547
 
 
Item 1A.
Risk Factors
4547
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4547
 
 
Item 3.
Defaults Upon Senior Securities
4547
Item 4.
Mine Safety Disclosure
4547
Item 5.
Other Information
4547
 
 
Item 6.
Exhibits
4648
 
 
Signatures
 
4749
3
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of
which are beyond our control.
 
The words “may,” “could,” “should,” “would,” “believe,”
 
“anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
 
Our actual future results may differ materially from
those set forth in our forward-looking statements.
Our ability to
 
achieve our financial objectives
 
could be adversely affected
 
by the factors discussed
 
in detail in Part
 
I, Item 2. “Management’s
Discussion and
 
Analysis of Financial
 
Condition and
 
Results of Operations”
 
and Part II,
 
Item 1A. “Risk
 
Factors” in this
 
Quarterly Report
on
Form 10-Q and
 
the following sections
 
of our Annual
 
Report on Form
 
10-K for the
 
year ended December
 
31, 2021
 
(the “2021 Form
 
10-K”):
(a) “Introductory
 
Note” in
 
Part I,
 
Item 1.
 
“Business”; (b)
 
“Risk Factors”
 
in Part
 
I, Item
 
1A, as
 
updated in
 
our subsequent
 
quarterly reports
filed on Form 10-Q; and (c)
 
“Introduction” in “Management’s
 
Discussion and Analysis of Financial Condition
 
Condition and Results of Operations,” in
Part II, Item 7, as well as:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
the impact of legislative or regulatory changes;changes on our business;
●
changes in monetary and fiscal policies
of the U.S. Government;
●
the impact of inflation, interest rate, market and monetary fluctuations;fluctuations on our loan origination volumes and deposit portfolio;
●
changes in consumer spending and saving habits;
●
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;
 
●
climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could
significantly impact our business;
●
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;rights;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies
 
(including the ongoing
COVID-19 pandemic),
military conflict,
terrorism, civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where
we operate;
●
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;
●
risks from the ongoing COVID-19 pandemic; 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)
March 31,September 30,
December 31,
(Dollars in Thousands, Except Par Value)
2022
 
2021
ASSETS
 
 
Cash and Due From Banks
$
77,96372,686
$
65,313
Federal Funds Sold and Interest Bearing Deposits
 
790,465497,679
 
970,041
Total Cash and Cash Equivalents
 
868,428570,365
 
1,035,354
 
 
Investment Securities, Available
 
for Sale, at fair value (amortized cost of $
655,927461,646
 
and $
660,732
)
 
624,361416,745
 
654,611
Investment Securities, Held to Maturity (fair value of $
501,277623,628
 
and $
339,699
)
 
518,678676,178
 
339,601
Equity Securities
8551,349
 
861
Total Investment
 
Securities
 
1,143,8941,094,272
 
995,073
 
Loans Held For Sale, at fair value
50,81550,304
 
52,532
 
Loans Held for Investment
1,985,5092,346,185
 
1,931,465
Allowance for Credit Losses
 
(20,756)(22,510)
 
(21,606)
Loans Held for Investment, Net
 
1,964,7532,323,675
 
1,909,859
 
 
Premises and Equipment, Net
 
82,51881,736
 
83,412
Goodwill and Other Intangibles
 
93,21393,133
 
93,253
Other Real Estate Owned
1713
17
Other Assets
 
106,407119,173
 
94,349
Total Assets
$
4,310,0454,332,671
$
4,263,849
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,704,3291,737,046
$
1,668,912
Interest Bearing Deposits
 
2,061,1782,022,332
 
2,043,950
Total Deposits
 
3,765,5073,759,378
 
3,712,862
 
 
Short-Term
 
Borrowings
 
30,86552,271
34,557
Subordinated Notes Payable
 
52,887
52,887
Other Long-Term
 
Borrowings
 
806562
884
Other Liabilities
 
77,32384,657
67,735
Total Liabilities
 
3,927,3883,949,755
3,868,925
Temporary Equity
10,5129,751
11,758
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
0no
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,947,60216,961,812
 
and
16,892,060
 
shares issued and outstanding at March 31,September 30, 2022 and December 31, 2021, respectively
169170
169
Additional Paid-In Capital
 
35,18836,234
34,423
Retained Earnings
 
370,531384,964
364,788
Accumulated Other Comprehensive Loss, net of tax
 
(33,743)(48,203)
(16,214)
Total Shareowners’
Equity
 
372,145373,165
383,166
Total Liabilities, Temporary
 
Equity, and Shareowners'Shareowners’ Equity
$
4,310,0454,332,671
4,263,849
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended March 31,
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands, Except Per Share
 
Data)
2022
2021
2022
2021
INTEREST INCOME
Loans, including Fees
$
22,13327,761
$
23,35025,885
$
73,966
$
73,817
Investment Securities:
Taxable Securities
2,8904,360
1,8632,332
11,083
6,231
Tax Exempt Securities
612
2018
Federal 25
56
Funds Sold and Interest Bearing Deposits
4093,231
213285
5,048
698
Total Interest Income
25,43835,364
25,44628,520
90,122
80,802
INTEREST EXPENSE
Deposits
2241,052
208210
1,542
626
Short-Term
 
Borrowings
192536
412317
1,071
1,053
Subordinated Notes Payable
317443
307
1,130
922
Other Long-Term
 
Borrowings
96
2114
23
51
Total Interest Expense
7422,037
948848
3,766
2,652
NET INTEREST INCOME
24,69633,327
24,49827,672
86,356
78,150
Provision for Credit Losses
02,099
(982)-
3,641
(1,553)
Net Interest Income After Provision For Credit Losses
24,69631,228
25,48027,672
82,715
79,703
NONINTEREST INCOME
Deposit Fees
5,1915,947
4,2715,075
16,585
13,582
Bank Card Fees
3,7633,860
3,6183,786
11,657
11,402
Wealth Management
 
Fees
6,0703,937
3,0903,623
14,410
9,987
Mortgage Banking Revenues
8,9467,116
17,12512,283
25,127
42,625
Other
1,8482,074
1,7221,807
5,876
5,277
Total Noninterest
 
Income
25,81822,934
29,82626,574
73,655
82,873
NONINTEREST EXPENSE
Compensation
24,85624,738
26,06425,245
74,977
76,687
Occupancy, Net
6,0936,153
5,9676,032
Other Real Estate Owned, Net
18,321
25
(118)
Pension Settlement
209
-17,972
Other
8,0508,919
8,5638,425
26,243
27,642
Total Noninterest
 
Expense
39,23339,810
40,47639,702
119,541
122,301
INCOME BEFORE INCOME TAXES
11,28114,352
14,83014,544
36,829
40,275
Income Tax Expense
2,2353,074
2,7872,949
7,486
7,795
NET INCOME
$11,278
9,04611,595
$29,343
12,04332,480
IncomeLoss (Income) Attributable to Noncontrolling Interests
(591)37
(2,537)(1,504)
(860)
(5,456)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
8,45511,315
$
9,50610,091
$
28,483
$
27,024
BASIC NET INCOME PER SHARE
$
0.500.67
$
0.560.60
$
1.68
$
1.60
DILUTED NET INCOME PER SHARE
$
0.500.67
$
0.560.60
$
1.68
$
1.60
Average Basic SharesCommon
 
Outstanding
16,931
16,838
Average Diluted
Basic Shares Outstanding
16,94616,960
16,86216,875
16,947
16,857
Average Common
Diluted Shares Outstanding
16,996
16,909
16,973
16,886
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
 
(Unaudited)
Three Months Ended
March 31,Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2022
2021
2022
2021
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
8,45511,315
$
9,50610,091
$
28,483
$
27,024
Other comprehensive (loss) income, before
 
tax:
Investment Securities:
Change in net unrealized (loss) gaingain/loss on securities available for sale
(25,445)(2,618)
(1,952)(1,935)
(38,778)
(4,361)
Unrealized losses on securities transferred from available for sale
to held to maturity
(9,384)
-
(9,384)
-
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
586
-
586
-
Derivative:
Change in net unrealized gain on effective cash flow
 
derivative
1,8361,407
2,125172
4,403
1,378
Benefit Plans:
Reclassification adjustment for service cost
0-
-
-
24
Actuarial gain
0-
-
-
166
Pension SettlementDefined benefit plan settlement
209102
0500
480
2,500
Total Benefit Plans
209102
190500
480
2,690
Other comprehensive (loss) income, before
 
tax
(23,400)(9,907)
363(1,263)
(42,693)
(293)
Deferred tax (benefit) expense related to other comprehensive income
(5,871)(2,469)
9241
(10,704)
292
Other comprehensive (loss) income, net of tax
(17,529)(7,438)
271(1,304)
(31,989)
(585)
TOTAL COMPREHENSIVE
 
INCOME (LOSS) INCOME
$
(9,074)3,877
$
9,7778,787
$
(3,506)
$
26,439
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
CAPITAL CITY BANK
 
GROUP,
 
INC.
 
CONSOLIDATED STATEMENTS
 
OF CHANGES IN SHAREOWNERS'SHAREOWNERS’ EQUITY
(Unaudited)
Accumulated
 
Other
Additional
Comprehensive
 
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, July 1, 2022
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
Net Income Attributable to Common Shareowners
-
-
-
11,315
-
11,315
Other Comprehensive Loss, net of tax
-
-
-
-
(7,438)
(7,438)
Cash Dividends ($
0.1700
per share)
-
-
-
(2,883)
-
(2,883)
Stock Based Compensation
-
-
415
-
-
415
Stock Compensation Plan Transactions, net
2,532
-
81
-
-
81
Balance, September 30, 2022
16,961,812
$
170
$
36,234
$
384,964
$
(48,203)
$
373,165
Balance, July 1, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
Net Income Attributable to Common Shareowners
-
-
-
10,091
-
10,091
Reclassification to Temporary Equity
(1)
-
-
-
6,585
-
6,585
Other Comprehensive Loss, net of tax
-
-
-
-
(1,304)
(1,304)
Cash Dividends ($
0.1600
per share)
-
-
-
(2,700)
-
(2,700)
Stock Based Compensation
-
-
219
-
-
219
Stock Compensation Plan Transactions, net
4,024
-
97
-
-
97
Balance, September 30, 2021
16,878,303
$
169
$
33,876
$
359,550
$
(44,727)
$
348,868
Balance, January 1, 2022
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
0-
0-
8,45528,483
0-
8,45528,483
Other Comprehensive Loss, net of tax
-
0-
0-
0-
(17,529)(31,989)
(17,529)(31,989)
Cash Dividends ($
0.16000.4900
 
per share)
-
0-
0-
(2,712)(8,307)
0-
(2,712)(8,307)
Stock Based Compensation
-
0-
245904
0-
0-
245904
Stock Compensation Plan Transactions, net
55,54269,752
01
520907
0-
0-
520908
Balance, March 31,September 30, 2022
16,947,60216,961,812
$
169170
$
35,18836,234
$
370,531384,964
$
(33,743)(48,203)
$
372,145373,165
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income Attributable to Common Shareowners
-
0-
0-
9,50627,024
0-
9,50627,024
Reclassification to Temporary Equity
(1)
-
0-
0-
(4,182)7,756
0-
(4,182)7,756
Other Comprehensive Income,Loss, net of tax
-
0-
0-
0-
271(585)
271(585)
Cash Dividends ($
0.15000.4600
 
per share)
-
0-
0-
(2,528)(7,758)
0-
(2,528)(7,758)
Stock Based Compensation
-
0-
219657
0-
0-
219657
Stock Compensation Plan Transactions, net
61,30587,730
1
302936
0-
0-
303937
Balance, March 31,September 30, 2021
16,851,87816,878,303
$
169
$
32,80433,876
$
335,324359,550
$
(43,871)(44,727)
$
324,426348,868
(1)
Adjustment to redemption value for non-controlling interest in Capital City Home Loans.
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
 
(Unaudited)
ThreeNine Months Ended March 31,September 30,
(Dollars in Thousands)
2022
2021
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income Attributable to Common Shareowners
$
8,45528,483
$
9,50627,024
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
03,641
(982)(1,553)
 
Depreciation
1,9075,689
1,9425,666
 
Amortization of Premiums, Discounts and Fees, net
2,9077,190
2,42811,401
 
Amortization of Intangible Asset
40120
080
 
Pension Plan Settlement Charge
209480
02,500
 
Originations of Loans Held-for-Sale
(246,887)(799,482)
(470,248)(1,247,119)
 
Proceeds From Sales of Loans Held-for-Sale
257,550826,837
519,3311,326,747
 
Mortgage Banking Revenues
(8,946)(25,127)
(17,125)(42,625)
 
Net Additions for Capitalized Mortgage Servicing Rights
227(1,921)
119138
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
0-
(250)
 
Stock Compensation
245904
219657
 
Net Tax Benefit From Stock-Based
 
Compensation
(19)
(4)
 
Deferred Income Taxes
(6,167)(11,265)
(378)(3,085)
 
Net Change in Operating Leases
(27)(83)
(41)(122)
 
Net Gain on Sales and Write-Downs of Other Real Estate Owned
0(136)
(202)(1,640)
 
Net Decrease (Increase) in Other Assets
1,4413,696
(1,370)70
 
Net Increase in Other Liabilities
7,03612,839
7,9358,283
Net Cash Provided By Operating Activities
17,97151,846
50,88086,168
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(194,448)(219,865)
(54,382)(235,356)
 
Payments, Maturities, and Calls
14,44140,096
24,62961,673
Securities Available for
 
Sale:
 
Purchases
(25,139)(41,880)
(133,628)(478,000)
 
Proceeds from Sale or Securities
3,365
0-
 
Payments, Maturities, and Calls
24,82464,301
49,349148,968
Purchases of Loans Held for Investment
(26,713)(329,481)
(23,686)(92,336)
Net Increase(Increase) Decrease in Loans Held for Investment
(28,405)(90,086)
(29,437)150,590
Net Cash Paid for Acquisitions
-
(4,482)
Proceeds From Sales of Other Real Estate Owned
01,683
1,0843,892
Purchases of Premises and Equipment
(1,013)(4,013)
(1,592)(4,590)
Noncontrolling Interest Contributions
1,8382,867
1,2595,424
Net Cash Used In Investing Activities
(231,250)(573,013)
(166,404)(444,217)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
52,64546,516
140,548248,402
Net DecreaseIncrease (Decrease) in Short-Term
 
Borrowings
(3,692)17,592
(24,181)(28,458)
Repayment of Other Long-Term
 
Borrowings
(78)(200)
(1,014)(1,233)
Dividends Paid
(2,712)(8,307)
(2,528)(7,758)
Issuance of Common Stock Under Purchase Plans
190577
33667
Net Cash Provided By Financing Activities
46,35356,178
112,858211,620
NET DECREASE IN CASH AND CASH EQUIVALENTS
(166,926)(464,989)
(2,666)(146,429)
Cash and Cash Equivalents at Beginning of Period
 
1,035,354
928,549
Cash and Cash Equivalents at End of Period
 
$
868,428570,365
925,883782,120
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
7153,588
1,0092,679
 
Income Taxes Paid
$
206,410
012,759
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
01,543
$
1841,636
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
9
CAPITAL CITY BANK
 
GROUP,
 
INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
.
 
Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of
 
of banking and banking-
related services to individual and corporate clients through its subsidiary,
 
Capital City Bank, with banking offices located in Florida,
Georgia, and Alabama.
 
The Company is subject to competition from other financial institutions,
is subject
to regulation by certain
government agencies and undergoes periodic examinations
 
by those regulatory authorities.
Basis of Presentation
.
 
The consolidated financial statements in this Quarterly Report on Form
 
10-Q include the accounts of CCBG
and its wholly owned subsidiary,
 
Capital City Bank (“CCB” or the “Bank”).
 
All material inter-company transactions and accounts
have been eliminated.
 
Certain previously reported amounts have been reclassified to conform to the current year’s
 
presentation.
The accompanying unaudited consolidated financial statements have
 
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
 
Form 10-Q and Article 10 of Regulation S-X.
 
Accordingly,
they do not include all of the information and notes required by generally accepted
 
accounting principles for complete financial
statements.
 
In the opinion of management, all adjustments (consisting of normal
 
recurring accruals) considered necessary for a fair
presentation have been included.
 
The Consolidated Statement of Financial Condition at December
 
31, 2021 has been derived from the audited consolidated financial
statements at that date, but does not include all of the information and notes
 
required by generally accepted accounting principles for
complete financial statements.
 
For further information, refer to the consolidated financial statements and notes
 
notes thereto included in the
Company’s annual report
 
on Form 10-K for the year ended December 31, 2021.
Acquisition.
 
On
April 30, 2021
, a newly formed subsidiary of CCBG, Capital City Strategic 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
5five
 
offices in South Georgia offering wealth
management services and comprehensive risk management
 
and asset protection services for individuals and businesses.
 
CCBG paid
$
4.5
 
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”)
 
2022-02, “FinancialFinancial Instruments – Credit Losses (Topic
 
326)
.
 
In March 2022, the Financial
Accounting Standards Board ("FASB")
issued ASU 2022-02, "Financial“Financial Instruments
– Credit Losses (Topic 326),
 
326), Troubled Debt Restructurings
Restructurings and Vintage Disclosures".
 
Disclosures". ASU 2022-02 eliminates the accounting guidance for troubled debt restructuringsrestructur
 
("TDRs"ings (“TDRs”) in Accounting
in ASCStandards Codification (“ASC”) 310-40, "Receivables“Receivables - Troubled Debt
 
Debt Restructurings by Creditors" Creditors”
for entities that have adopted the
current expected credit
loss model introduced by ASU 2016-13, “Financial
“Financial Instruments –
Credit Losses (Topic
326):,
 
Measurement of
Credit Losses on
Financial Instruments”.Instruments.”
 
ASU 2022-02 also requires that public business entities disclose currentcurrent-period
 
-period gross
charge-offs by year of
origination for financing
receivables and net investments in leases within the
scope of Subtopic 326-20, "Financial
“Financial Instruments—
Credit Losses—Measured at Amortized Cost"
Cost”.
 
ASU 2022-02 is effective for the Company for fiscal years
beginning
after December
15, 2022, including interim periods within those
fiscal years, with early
adoption permitted. The Company is evaluating the effect
thatUpon adoption,
ASU 2022-02 willis not expected to have a significant impact on itsour consolidated
financial statements and
related disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related fair value of investment
securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”)
and the corresponding
amounts of gross
unrealized gains and losses.
Available for
 
Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
March 31,September 30, 2022
U.S. Government Treasury
$
190,04921,140
$
15-
$
10,0512,082
$
0-
$
180,01319,058
U.S. Government Agency
232,067206,631
54785
8,17913,572
0-
224,435193,144
States and Political Subdivisions
47,10747,249
11-
3,7537,008
(15)(13)
43,35040,228
Mortgage-Backed Securities
(1)
91,16982,879
152
5,12112,583
0-
86,06370,298
Corporate Debt Securities
88,20896,421
428
5,0189,730
(21)(28)
83,17386,691
Other Securities
(2)
7,3277,326
0-
0-
0-
7,3277,326
Total
 
$
655,927461,646
$
592115
$
32,12244,975
$
(36)(41)
$
624,361416,745
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
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
March 31,September 30, 2022
U.S. Government Treasury
$
289,237462,302
$
-
$
27,585
$
434,717
Mortgage-Backed Securities
(1)
213,876
10
24,975
188,911
Total
$
676,178
$
10
$
9,35552,560
$
279,892
Mortgage-Backed Securities
(1)
229,441
414
8,470
221,385
Total
$
518,678
$
424
$
17,825
$
501,277623,628
December 31, 2021
U.S. Government Treasury
$
115,499
$
0-
$
1,622
$
113,877
Mortgage-Backed Securities
(1)
224,102
2,819
1,099
225,822
Total
 
$
339,601
$
2,819
$
2,721
$
339,699
(1)
 
Comprised of residential mortgage-backed
 
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded
 
at cost of $
2.3
 
million and $
5.15.0
 
million,
respectively,
 
at March 31,September 30, 2022 and $
2.0
 
million and $
5.1
 
million, respectively,
 
at December 31, 2021.
At March 31,September 30, 2022, the investment portfolio had $
0.91.3
 
million in equity securities. These securities do not have a readily determinable
determinable fair value and were not credit impaired.
 
Securities with an amortized cost of $
453.3469.2
 
million and $
463.8
 
million at March 31,September 30, 2022 and December 31, 2021, respectively,
were
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
 
FHLB advances.
 
FHLB stock, which is included in
other securities,
 
is pledged to secure FHLB advances.
 
No ready market exists for this stock, and it has no quoted fair value; however,
redemption of this stock has historically been at par value.
11
As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain
 
stock in the Federal Reserve Bank of Atlanta
based on a specified ratio relative to the Bank’s
 
capital.
 
Federal Reserve Bank stock is carried at cost.
 
During the third quarter of 2022, the Company transferred certain securities from
the AFS to HTM classification.
Transfers are made
at fair value on the date of the transfer.
The
33
securities had an amortized cost basis and fair value of $
168.4
million and $
159.0
million, respectively at the time of transfer.
The net unamortized, unrealized loss on the transferred securities included
in accumulated
other comprehensive loss in the accompanying balance sheet at September
30, 2022 totaled $
8.8
million.
This amount will be
amortized out of accumulated other comprehensive loss over the remaining
life of the underlying securities as an adjustment of the
yield on those securities.
Investment Sales.
There were no significant sales of investment securities for the three or nine months
ended September 30, 2022 or
September 30, 2021.
Maturity Distribution
.
At September 30, 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 (“MBS”) and certain amortizing U.S. government
agency securities are shown
separately because they are not due at a certain maturity date.
Available for
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
39,283
$
35,743
$
-
$
-
Due after one year through five years
151,355
138,505
462,302
434,717
Due after five year through ten years
54,076
44,031
-
-
Mortgage-Backed Securities
82,879
70,298
213,876
188,911
U.S. Government Agency
126,727
120,842
-
-
Other Securities
7,326
7,326
-
-
Total
$
461,646
$
416,745
$
676,178
$
623,628
12
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
September 30, 2022
Available for
Sale
U.S. Government Treasury
$
-
$
-
$
19,058
$
2,082
$
19,058
$
2,082
U.S. Government Agency
69,249
3,367
110,295
10,205
179,544
13,572
States and Political Subdivisions
5,831
736
34,410
6,272
40,241
7,008
Mortgage-Backed Securities
25,953
4,076
44,278
8,507
70,231
12,583
Corporate Debt Securities
33,827
1,211
48,927
8,519
82,754
9,730
Total
134,860
9,390
256,968
35,585
391,828
44,975
Held to Maturity
U.S. Government Treasury
205,334
12,813
229,383
14,772
434,717
27,585
Mortgage-Backed Securities
108,405
10,634
79,302
14,341
187,707
24,975
Total
$
313,739
$
23,447
$
308,685
$
29,113
$
622,424
$
52,560
December 31, 2021
Available for
Sale
U.S. Government Treasury
$
172,206
$
2,606
$
-
$
-
$
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
-
-
42,122
811
Mortgage-Backed Securities
81,832
598
-
-
81,832
598
Corporate Debt Securities
69,354
1,304
-
-
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
-
-
113,877
1,622
Mortgage-Backed Securities
115,015
1,099
-
-
115,015
1,099
Total
$
228,892
$
2,721
$
-
$
-
$
228,892
$
2,721
At September 30, 2022, there were
897
positions (combined AFS and HTM) with unrealized losses totaling $
97.5
million.
87
of these
positions are U.S. Treasury bonds and
carry the full faith and credit of the U.S. Government.
682
are U.S. government agency
securities issued by U.S. government sponsored entities.
We believe
the long history of no credit losses on government securities
indicates that the expectation of nonpayment of the amortized cost basis is zero.
The remaining
128
positions (municipal securities
and corporate bonds) have a credit component.
At September 30, 2022, all collateralized mortgage obligation securities
(“CMO”),
MBS, Small Business Administration securities (“SBA”), U.S. Agency,
and U.S. Treasury bonds held were AAA rated.
At September
30, 2022, corporate debt securities had an allowance for credit losses of $
28,000
and municipal securities had an allowance of
$
13,000
.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
various risk management procedures, including the
monitoring of credit ratings.
A majority of the debt securities in the Company’s
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
by the U.S. government.
The Company believes the
long history of no credit losses on these securities indicates that the expectation
of nonpayment of the amortized
cost basis is 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)
September 30, 2022
December 31, 2021
Commercial, Financial and Agricultural
$
246,304
$
223,086
Real Estate – Construction
237,718
174,394
Real Estate – Commercial Mortgage
715,870
663,550
Real Estate – Residential
(1)
594,785
360,021
Real Estate – Home Equity
202,512
187,821
Consumer
(2)
348,996
322,593
Loans Held For Investment, Net of Unearned Income
$
2,346,185
$
1,931,465
(1)
Includes loans in process balances of $
21.7
million and $
13.6
million at September 30, 2022 and December 31, 2021,
respectively.
(2)
Includes overdraft balances of $
1.0
million and $
1.1
million at September 30, 2022 and December 31, 2021, respectively.
Net deferred loan costs, which include premiums on purchased loans,
included in loans were $
8.5
million at September 30, 2022 and
$
3.9
million at December 31, 2021.
Accrued interest receivable on loans which is excluded from amortized
cost totaled $
6.6
million at September 30, 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 $
267.0
million and
$
72.7
million for the nine months ended September 30, 2022 and September 30,
2021, respectively, and
were not credit impaired.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
14
Allowance for Credit Losses
.
 
The methodology for estimating the amount of credit losses reported in the
 
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
March 31,September 30, 2022
Beginning Balance
$
1,641
$
3,138
$
5,052
$
5,645
$
1,760
$
4,045
$
21,281
Provision for Credit Losses
(136)
(22)
(120)
1,333
127
749
1,931
Charge-Offs
(2)
-
(1)
-
-
(1,759)
(1,762)
Recoveries
58
2
8
44
22
926
1,060
Net (Charge-Offs) Recoveries
56
2
7
44
22
(833)
(702)
Ending Balance
$
1,561
$
3,118
$
4,939
$
7,022
$
1,909
$
3,961
$
22,510
Nine Months Ended
September 30, 2022
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
(161)267
(714)(194)
(181)(697)
3142,707
(405)(501)
1,0681,940
(79)3,522
Charge-Offs
(73)(1,179)
0-
(266)(267)
0-
(33)
(1,402)(4,354)
(1,774)(5,833)
Recoveries
165282
810
2993
27186
58147
7162,497
1,0033,215
Net (Charge-Offs) Recoveries
92(897)
810
(237)(174)
27186
25114
(686)(1,857)
(771)(2,618)
Ending Balance
$
2,1221,561
$
2,5963,118
$
5,3924,939
$
4,4707,022
$
1,9161,909
$
4,2603,961
$
20,75622,510
Three Months Ended
March September 30, 2021
Beginning Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,175
Provision for Credit Losses
178
517
(1,588)
(433)
(131)
911
(546)
Charge-Offs
(37)
-
(405)
(17)
(15)
(1,314)
(1,788)
Recoveries
66
10
169
401
46
967
1,659
Net Charge-Offs
29
10
(236)
384
31
(347)
(129)
Ending Balance
$
2,179
$
3,286
$
5,745
$
4,304
$
2,357
$
3,629
$
21,500
Nine Months Ended
September 30, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(314)(192)
(225)797
(718)(1,719)
(305)(1,768)
(655)(900)
(95)740
(2,312)(3,042)
Charge-Offs
(69)(138)
0-
0(405)
(6)(88)
(5)(94)
(1,056)(3,040)
(1,136)(3,765)
Recoveries
136305
010
645840
75720
124240
6782,376
1,6584,491
Net (Charge-Offs) RecoveriesCharge-Offs
67167
010
645435
69632
119146
(378)(664)
522726
Ending Balance
$
1,9572,179
$
2,2543,286
$
6,9565,745
$
5,2044,304
$
2,5752,357
$
3,0803,629
$
22,02621,500
For the threenine months ended March 31,September 30, 2022, the allowance decreasedfor
 
HFI loans increased by $
0.9
million and reflected a provision
expense of $
3.5
million and net loan charge-offs of $
2.6
million.
The increase was driven by incremental reserves needed for loan
growth, and to a lesser extent, a higher projected rate of unemployment and
its potential effect on rates of default.
For the nine months
ended September 30, 2021, the allowance decreased by $
2.3
 
million and reflected a provision benefit of $
0.1
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 $
2.33.0
 
million and net loan
recoveries of $
0.50.7
 
million.
 
The provision benefit for the three months ended
March 31, 2022 and March 31, 2021decrease generally reflected improvement in theimproving economic conditions, primarily
 
forecasted levela lower rate of unemployment
and its potential effect on rates
of default.default, and strong net
 
Three unemployment rateloan recoveries totaling $
0.7
million.
Unemployment forecast scenarios were are
utilized to estimate probability
of default and wereare weighted based on management’s
management’s estimate of probability.
 
See Note 8 –
Commitments and Contingencies for information on the
allowance for
off-
balance off-balance sheet credit commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Loan Portfolio Aging.
 
A loan is defined as a past due loan when one full payment is past due or a contractual maturity
 
is over 30 days
past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing
 
past due loans by class of loans.
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
March 31,September 30, 2022
Commercial, Financial and Agricultural
$
205274
$
68
$
-
$
342
$
245,883
$
79
$
0
$
284
$
229,898
$
31
$
230,213246,304
Real Estate – Construction
 
0-
0-
0-
0-
174,293237,718
0-
174,293237,718
Real Estate – Commercial Mortgage
 
5021,098
0-
0-
5021,098
668,186714,292
422480
669,110715,870
Real Estate – Residential
(1)
 
474114
291,237
0-
5031,351
373,005592,629
1,204805
374,712594,785
Real Estate – Home Equity
 
47564
018
0-
47582
187,283201,134
844796
188,174202,512
Consumer
 
1,1522,151
632739
0-
1,7842,890
346,996345,857
227249
349,007348,996
Total
$
2,3804,201
$
7402,062
$
0-
$
3,1206,263
$
1,979,6612,337,513
$
2,7282,409
$
1,985,5092,346,185
December 31, 2021
Commercial, Financial and Agricultural
$
100
$
23
$
0-
$
123
$
222,873
$
90
$
223,086
Real Estate – Construction
 
0-
0-
0-
0-
174,394
0-
174,394
Real Estate – Commercial Mortgage
 
151
0-
0-
151
662,795
604
663,550
Real Estate – Residential
 
365
151
0-
516
357,408
2,097
360,021
Real Estate – Home Equity
 
210
0-
0-
210
186,292
1,319
187,821
Consumer
 
1,964
636
0-
2,600
319,781
212
322,593
Total
 
$
2,790
$
810
$
0-
$
3,600
$
1,923,543
$
4,322
$
1,931,465
(1)
Includes $0.1 million of Loans Held for Sale in nonaccrual status as of September 30, 2022.
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
become 90 days past due and/or
management deems the collectability of the principal and/or interest to
 
to be doubtful.
 
Loans are returned to accrual status when the
principal and interest amounts contractually due are brought current
 
or when future payments are reasonably assured.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
status and loans past due over 90 days and still on accrual
by class of loans.
March 31,September 30, 2022
December 31, 2021
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
0-
$
3179
$
0-
$
67
$
23
$
0-
Real Estate – Construction
 
0-
 
0-
0-
0-
0-
0-
Real Estate – Commercial Mortgage
 
0-
 
422480
0-
0-
604
0-
Real Estate – Residential
 
728597
 
476208
0-
928
1,169
0-
Real Estate – Home Equity
 
0-
 
844796
0-
463
856
0-
Consumer
 
0-
 
227249
0-
0-
212
0-
Total Nonaccrual
 
Loans
$
728597
$
2,0001,812
$
0-
$
1,458
$
2,864
$
0-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
 
March 31,September 30, 2022
December 31, 2021
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
0-
0-
455
0-
Real Estate – Residential
855570
0-
1,645
0-
Real Estate – Home Equity
 
601596
 
0-
 
649
 
0-
Consumer
 
0-
 
0-
 
0-
 
0-
Total Collateral Dependent
 
Loans
$
1,4561,166
$
0-
$
2,749
$
67
A loan is collateral dependent when the borrower is experiencing financial
 
difficulty and repayment of the loan is dependent on
 
the
sale or operation of the underlying collateral.
 
The Bank’s collateral dependent
 
loan portfolio is comprised primarily of real estate secured loans, collateralized
 
by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined by
 
either independent appraisals
or internal evaluations, adjusted for selling costs or other amounts to be deducted
 
when estimating expected net sales proceeds.
 
Residential Real Estate Loans In Process of Foreclosure
.
 
At March 31,September 30, 2022 and December 31, 2021, the Company had $
0.90.7
million
and $
0.9
 
million, respectively, in
1-4 family
residential real estate loans for which formal foreclosure proceedings were
in
process.
Troubled
 
Debt Restructurings (“TDRs”).
 
At March 31,September 30, 2022, the Company had $
7.56.3
 
million in TDRs, all of which $
7.3
million were
performing in accordance with the modified terms.
 
At December 31, 2021, the Company had $
8.0
 
million in TDRs, of which $
7.6
million were performing in accordance with modified terms.
 
For TDRs, the Company estimated $
0.3
 
million and $
0.3
million of
credit loss reserves at March 31,
September 30, 2022 and December 31, 2021, respectively.2021.
The modifications made to TDRs involved either an extension of the loan term, a principal moratorium,
 
moratorium, a reduction in the interest rate,
or a combination thereof.
 
For the three and nine months ended March 31,September 30, 2022, there were
0no
 
loans modified.
 
For the three and
nine months ended
March 31, September 30, 2021, there were no loans modified
and
2three
 
loans modified with a recorded investment of $
0.40.6
million.million, respectively.
 
For the three monthsnine month periods ended March 31,
September 30, 2022 and March 31,September 30, 2021,
there were
0no
 
loans classified
as TDRs, for which there was a payment default and the loans were modified within
within the 12 months prior to default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting standards and
 
loan review
procedures designed to maximize loan income within an acceptable
 
level of risk.
 
Management and the Board of Directors review and
approve these policies and procedures on a regular basis (at least annually).
 
Reporting systems are used to monitor loan originations, loan quality,
 
concentrations of credit, loan delinquencies and nonperforming
loans and potential problem loans.
 
Management and the Credit Risk Oversight Committee periodically
 
review our lines of business to
monitor asset quality trends and the appropriateness of credit policies.
 
In addition, total borrower exposure limits are established and
concentration risk is monitored.
 
As part of this process, the overall composition of the portfolio is reviewed to gauge
 
diversification
of risk, client concentrations, industry group, loan type, geographic
 
area, or other relevant classifications of loans.
 
Specific segments
of the loan portfolio are monitored and reported to the Board on a quarterly
 
basis and have strategic plans in place to supplement
Board approved credit policies governing exposure limits and underwriting
 
standards.
 
Detailed below are the types of loans within
the Company’s loan portfolio
 
and risk characteristics unique to each.
 
Commercial, Financial, and Agricultural – Loans in this category
 
are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or
 
other guarantees.
 
Lending policy establishes debt service coverage
ratio limits that require a borrower’s cash flow to be sufficient
 
to cover principal and interest payments on all new and existing debt.
 
The majority of these loans are secured by the assets being financed or other business
 
assets such as accounts receivable, inventory,
 
or
equipment.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Loan to value ratios at origination are
governed by established policy guidelines.
 
 
 
 
 
17
Real Estate Construction – Loans in this category consist of short-term
 
construction loans, revolving and non-revolving credit lines
and construction/permanent loans made to individuals and investors to
 
finance the acquisition, development, construction or
rehabilitation of real property.
 
These loans are primarily made based on identified cash flows of the borrower
 
or project and generally
secured by the property being financed, including 1-4 family residential
 
properties and commercial properties that are either owner-
occupied or investment in nature.
 
These properties may include either vacant or improved property.
 
Construction loans are generally
based upon estimates of costs and value associated with the completed
 
project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy
 
guidelines.
 
The disbursement
of funds for construction loans is made in relation to the progress of the project
 
and as such these loans are closely monitored by on-
site inspections.
 
Real Estate Commercial Mortgage – Loans in this category consists of commercial
 
mortgage loans secured by property that is either
owner-occupied or investment in nature.
 
These loans are primarily made based on identified cash flows of the borrower or
 
project
with consideration given to underlying real estate collateral and
 
personal guarantees.
 
Lending policy establishes debt service
coverage ratios and loan to value ratios specific to the property type.
 
Collateral values are determined based upon third party
appraisals and evaluations.
 
Real Estate Residential – Residential mortgage loans held in the Company’s
 
loan portfolio are made to borrowers that demonstrate the
ability to make scheduled payments with full consideration to underwriting
 
factors such as current income, employment status, current
assets, and other financial resources, credit history,
 
and the value of the collateral.
 
Collateral consists of mortgage liens on 1-4 family
residential
properties.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
The Company does not
originate sub-prime loans.
 
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals
 
individuals for legitimate purposes generally secured
by senior or junior mortgage liens on owner-occupied
 
1-4 family homes or vacation homes.
 
Borrower qualifications include
favorable credit history combined
with supportive income and debt ratio
requirements and combined loan to value ratios
within
established policy guidelines.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Consumer Loans – This loan portfolio includes personal installment loans,
 
direct and indirect automobile financing, and overdraft
lines of credit.
 
The majority of the consumer loan category consists of direct and indirect automobile
 
loans.
 
Lending policy
establishes maximum debt to income ratios, minimum credit scores, and
 
includes guidelines for verification of applicants’ income and
receipt of credit reports.
Credit Quality Indicators
.
 
As part of the ongoing monitoring of the Company’s
 
loan portfolio quality, management
 
categorizes loans
into risk categories based on relevant information about the ability of borrowers
 
to service their debt such as: current financial
information, historical payment performance, credit documentation,
 
and current economic and market trends, among other
factors.
 
Risk ratings are assigned to each loan and revised as needed through established monitoring
 
procedures for individual loan
relationships over a predetermined amount and review of smaller balance homogenous
 
loan pools.
 
The Company uses the definitions
noted below for categorizing and managing its criticized loans.
 
Loans categorized as “Pass” do not meet the criteria set forth below
and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but
 
weaknesses are apparent which, if not corrected, could
cause future problems.
 
Loans in this category may not meet required underwriting criteria and
 
have no mitigating factors.
 
More than
the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would
 
typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined
 
weaknesses that affect the repayment capacity of the
borrower.
 
The possibility of loss is much more evident and above average supervision is required
 
for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized
 
as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full, on the basis of
 
currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous
 
loan pools (home equity and consumer) are not individually reviewed,
but are monitored for credit quality via the aging status of the loan and by payment
 
activity.
 
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
 
and deterioration in credit quality.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
The following table summarizes gross loans held for investment at
 
March 31,September 30, 2022
 
by years of origination and internally assigned
credit risk ratings (refer to Credit Risk Management section for detail on risk rating
 
system).
 
Term
 
Loans by Origination Year
Revolving
(Dollars in Thousands)
2022
2021
2020
2019
2018
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
22,52671,112
$
60,36949,357
$
27,91022,681
$
26,36817,018
$
18,56513,343
$
18,86312,893
$
54,70757,623
$
229,308244,027
Special Mention
0-
100-
187-
2688
16-
2423
01,979
5952,010
Substandard
 
0-
 
0-
 
587
 
0-
 
18495
 
68150
 
015
 
310267
Total
$
22,52671,112
$
60,46949,357
$
28,15522,688
$
26,63617,026
$
18,76513,438
$
18,95513,066
$
54,70759,617
$
230,213246,304
Real Estate -
Construction:
Pass
$
11,641101,666
$
109,45992,202
$
42,52237,665
$
8,684809
$
0-
$
129125
$
1,8583,023
$
174,293235,490
Special Mention
44
323
384
786
-
-
-
1,537
Substandard
-
-
691
-
-
-
-
691
Total
$
11,641101,710
$
109,45992,525
$
42,52238,740
$
8,6841,595
$
0-
$
129125
$
1,8583,023
$
174,293237,718
Real Estate -
Commercial Mortgage:
Pass
$
50,302172,531
$
165,574148,101
$
123,213122,782
$
73,44457,497
$
73,82461,869
$
131,407105,875
$
26,09219,567
$
643,856688,222
Special Mention
0219
05,014
410233
1,7501,725
2,615733
5,7616,779
1,2501,578
11,78616,281
Substandard
 
07,415
 
10,0551,789
 
405391
 
640622
 
0-
 
2,2981,021
 
70129
 
13,46811,367
Total
$
50,302180,165
$
175,629154,904
$
124,028123,406
$
75,83459,844
$
76,43962,602
$
139,466113,675
$
27,41221,274
$
669,110715,870
Real Estate - Residential:
Pass
$
46,698310,007
$
117,058100,110
$
55,67047,970
$
34,11130,070
$
23,95720,570
$
81,16267,954
$
6,2558,748
$
364,911585,429
Special Mention
61279
0-
132128
1816
6058
570545
1,348-
2,1891,026
Substandard
 
74679
 
5761,336
 
1,007820
 
1,0851,441
 
971720
 
3,8993,334
 
0-
 
7,6128,330
Total
 
$
46,833310,965
$
117,634101,446
$
56,80948,918
$
35,21431,527
$
24,98821,348
$
85,63171,833
$
7,6038,748
$
374,712594,785
Real Estate - Home
Equity:
Performing
$
032
$
146141
$
1312
$
255403
$
130149
$
2,1911,368
$
184,595199,612
$
187,330201,717
Nonperforming
 
0-
 
0-
 
0-
 
1715
 
0-
 
0-
 
827780
 
844795
Total
 
$
032
$
146141
$
1312
$
272418
$
130149
$
2,1911,368
$
185,422200,392
$
188,174202,512
Consumer:
Performing
$
61,883131,573
$
159,135124,096
$
56,23242,504
$
33,40224,655
$
22,02614,966
$
10,3705,455
$
5,7315,498
$
348,779348,747
Nonperforming
0-
58109
5976
2214
5839
3111
0-
228249
Total
$
61,883131,573
$
159,193124,205
$
56,29142,580
$
33,42424,669
$
22,08415,005
$
10,4015,466
$
5,7315,498
$
349,007348,996
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities at its subsidiary,
CCHL, include mandatory delivery loan sales, forward sales contracts used
used to manage residential
loan pipeline price risk, utilization of warehouse
lines to fund secondary
market residential loan closings,
and residential mortgage
servicing.
 
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and
 
government-sponsored residential mortgage loans.
 
Generally,
conforming fixed rate residential mortgage loans are held for sale in the
 
secondary market and non-conforming and adjustable-rate
residential mortgage loans may be held for investment.
 
The volume of residential mortgage loans originated for sale and secondary
market prices are the primary drivers of origination revenue.
Residential mortgage loan commitments are generally outstanding for 30
 
to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed
 
loan is sold to an investor.
 
Residential mortgage loan
commitments are subject to both credit and price risk.
 
Credit risk is managed through underwriting policies and procedures, including
collateral requirements, which are generally accepted by the secondary
 
loan markets.
 
Price risk is primarily related to interest rate
fluctuations and is partially managed through forward sales of residential
 
mortgage-backed securities (primarily to-be announced
securities, or TBAs) or mandatory delivery commitments with investors.
 
The unpaid principal balance of residential mortgage loans held for sale,
 
notional amounts of derivative contracts related to residential
mortgage loan commitments and forward contract sales and their related
 
fair values are set- forth below.
March 31,
September 30, 2022
December 31, 2021
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
49,99150,358
$
50,81550,304
$
50,733
$
52,532
Residential Mortgage Loan Commitments ("IRLCs")
(1)
99,39965,967
1,1171,373
51,883
1,258
Forward Sales Contracts
(2)
55,00019,000
850609
48,000
(7)
$
52,78252,286
$
53,783
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at fair value
 
at March 31,September 30, 2022 and December 31, 2021, respectively
TheAt September 30, 2022, the Company had
0no
 
residential mortgage loans held for sale that were 9030-89 days or more outstanding or onpast due and $
0.1
 
million of loans
were on nonaccrual at Marchstatus. At December 31,
2022, and loans held for sale that were 30-69 days outstanding totaled 2021, the Company had $
0.2
 
million at December 31, 2021.of residential mortgage loans held for sale 30-89
days past due and
no
loans were on nonaccrual status.
 
Mortgage banking revenue was as follows:
Three Months Ended March 31,
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2022
2021
2022
2021
Net realized gains on sales of mortgage loans
$
5,1363,287
$
14,42412,132
$
13,222
$
40,089
Net change in unrealized gain on mortgage loans held for sale
(975)(958)
(2,031)(165)
(1,853)
(1,663)
Net change in the fair value of mortgage loan commitments (IRLCs)
(141)439
(1,843)(806)
116
(3,108)
Net change in the fair value of forward sales contracts
857655
2,263540
616
1,358
Pair-Offs on net settlement of forward sales contracts
2,255637
3,310(636)
4,846
2,199
Mortgage servicing rights additions
6321,079
187205
3,167
845
Net origination fees
1,1821,977
8151,013
5,013
2,905
Total mortgage banking
 
revenues
$
8,9467,116
$
17,12512,283
$
25,127
$
42,625
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,September 30, 2022
December 31, 2021
Number of residential mortgage loans serviced for others
2,2242,818
2,106
Outstanding principal balance of residential mortgage loans serviced
 
for others
$
577,297801,046
$
532,967
Weighted average
 
interest rate
3.62%3.92%
3.59%
Remaining contractual term (in months)
317343
317
Conforming conventional loans serviced by the Company are sold to FNMA onFederal
 
National Mortgage Association (“FNMA”) on a non-recoursenon-
recourse basis, whereby foreclosure losses are
generally the responsibility
of FNMA and not the Company.
 
The government loans
serviced by the Company are secured through the Government National
GNMA,Mortgage Association (“GNMA”), whereby the Company is
insured against loss by the Federal Housing
Administration or partially
guaranteed against loss by
the Veterans
 
Administration.
 
At March 31,
September 30, 2022, the servicing portfolio balance consisted of the
 
the following loan types: FNMA (
6044
%),
GNMA (
86
%), and private
investor (
3250
%).
 
FNMA and private investor loans are structured as actual/actual payment remittance.
 
The Company had $
1.30.8
 
million and $
2.0
 
million in delinquent residential mortgage loans currently in GNMA pools serviced
 
serviced by the
Company at March 31,
September 30, 2022 and December 31, 2021, respectively.
 
The right to repurchase these loans and the corresponding liability has
has been recorded in other assets and other liabilities, respectively,
 
in the Consolidated Statement of Financial Condition.
 
For the three
threeand nine months ended March 31,September 30, 2022, the Company repurchased
$
0.40.3
million and $
1.3
million in delinquent residential loans
from the GNMA pools.
For the three month period ended September 30, 2021, the Company did
no
t repurchase any delinquent
residential loans currently from the GNMA pools.
For the nine month period ended September 30, 2021, the Company repurchased
$
2.2
 
million in delinquent residential loans currently in GNMA pools.
 
For the three months ended March 31, 2021,When delinquent residential loans are repurchased, the Company repurchased
$has the
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,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2022
2021
2022
2021
Beginning balance
$
5,086
$
3,710
$
3,774
$
3,452
Additions due to loans sold with servicing retained
6321,079
187205
3,167
845
Deletions and amortization
(405)(470)
(306)(351)
(1,246)
(983)
Valuation
 
allowance reversal
0-
-
-
250
Ending balance
$
4,0015,695
$
3,5833,564
$
5,695
$
3,564
The Company did
0no
t record any permanent impairment losses on mortgage servicing rights for the
 
three or nine months ended March 31,
September 30, 2022 and March 31,September 30, 2021.
 
The key unobservable inputs used in determining the fair value of the Company’s
 
mortgage servicing rights were as follows:
March 31,September 30, 2022
December 31, 2021
Minimum
Maximum
Minimum
Maximum
Discount rates
10.00%9.50%
15.00%12.00%
11.00%
15.00%
Annual prepayment speeds
7.12%5.88%
19.55%10.71%
11.98%
23.79%
Cost of servicing (per loan)
$
6085
$
7395
$
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
10.568.08
% at March 31,September 30, 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,September 30, 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.
6,7053,346
$
75
 
million warehouse line of credit agreement expiring in
November 2022
.
 
Interest is at the SOFR plus
2.25%
, to
3.25%
.
19,19141,378
Total Warehouse
 
Borrowings
$
25,89644,724
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At December 31, 2021, warehouse line borrowings totaled $
29.0
million. At March 31,September 30, 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,September 30, 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
September 30, 2022 and December 31, 2021 and March 31, 2022 was $
14.823.3
 
million and $
15.314.8
 
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
 
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,September 30, 2022 were designed as a cash flow hedge for subordinated
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,September 30, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
3,8866,453
8.37.8
December 31, 2021
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
2,050
8.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
The following table presents the net gains (losses) recorded in AOCI and the
 
consolidated statements of income related to the cash
flow derivative instruments (interest rate swaps related to subordinated
 
debt) for the three and nine months ended March 31, 2022.September 30, 2022
and September 30, 2021.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended March 31,September 30, 2022
Interest expense
$
1,3701,050
 
$
(28)113
Three months ended March 31,September 30, 2021
Interest expense
128
(41)
Nine months ended September 30, 2022
Interest expense
$
1,5873,287
 
(33)$
112
Nine months ended September 30, 2021
Interest expense
1,029
(111)
The Company estimates there will be approximately $
0.11.1
 
million reclassified as an increasea decrease to interest incomeexpense within the next 12
months.
The Company had a collateral liability of $
4.06.3
 
million and $
2.0
 
million at March 31,September 30, 2022 and December 31, 2021, 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
4443
 
years.
 
The Company’s
leases are not complex and do not contain residual value guarantees, variable
 
lease payments, or significant assumptions or judgments
made in applying the requirements of Topic
 
842.
 
Operating leases with an initial term of 12 months or less are not recorded on the
Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.
 
At March 31,September 30, 2022, the operating lease ROU assets and liabilities were $
11.714.0
 
million and $
12.314.6
 
million, respectively. At December
December 31, 2021, ROU assets and liabilities were $
11.5
 
million and $
12.2
 
million, respectively.
 
The Company does not have any finance
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
March 31,Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2022
2021
2022
2021
Operating lease expense
$
384427
$
344369
$
1,202
$
1,075
Short-term lease expense
179158
140181
495
490
Total
lease expense
$
563585
$
484550
$
1,697
$
1,565
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
429439
$
385410
$
1,303
$
1,197
Right-of-use assets obtained in exchange for new operating lease liabilities
5922,406
75269
3,598
784
Weighted average
 
remaining lease term — operating leases (in years)
24.922.0
25.525.0
22.0
25.0
Weighted average
 
discount rate — operating leases
2.2%
2.0%
2.1%
2.2%
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
March 31, 2022
2022
$
1,581
2023
1,190
2024
1,120
2025
977
2026
875
2027 and thereafter
10,341
Total
$
16,084
Less: Interest
(3,773)
Present Value
of Lease liability
$
12,3112.0%
 
 
 
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
September 30, 2022
2022
$
625
2023
1,955
2024
1,860
2025
1,445
2026
1,367
2027 and thereafter
13,362
Total
$
20,614
Less: Interest
(6,025)
Present Value
of Lease liability
$
14,589
At March 31,September 30, 2022, the Company had four
five
additional operating lease obligations
for banking offices (to be
constructed) that have not
not yet commenced.
Three
of thethese leases have payments totaling $
9.3
 
million based on the initial contract terms of
15 years
,
years and the fourth
lease hastwo
leases have payments totaling $
1.43.4
 
million based on the initial contract term of
10 years
.
 
years.
Payments for the banking offices are expected
expected to commence after the construction periods end, which are
each expected to occur during the fourth quarter of 2022 and the first
first quarter of 2023.
 
A related party is the lessor in an operating lease with the Company.
 
The Company’s minimum payment
 
is $
0.2
 
million annually
through 2024, for an aggregate remaining obligation of $
0.50.4
 
million at March 31,September 30, 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
 
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 qualifiedCompany’s
 
qualified benefit pension plan were as follows:
Three Months Ended March 31,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2022
2021
2022
2021
Service Cost
$
1,572
$
1,743
$
4,717
$
5,229
Interest Cost
1,166
1,221
3,499
3,664
Expected Return on Plan Assets
(2,675)
(2,787)
(8,026)
(8,361)
Prior Service Cost Amortization
4
4
11
11
Net Loss Amortization
428
1,691
1,285
5,073
Pension Settlement
209102
0500
480
2,500
Net Periodic Benefit Cost
$
704597
$
1,8722,372
$
1,966
$
8,116
Discount Rate Used for Benefit Cost
3.11%
2.88%
3.11%
2.88%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
24
The components of the net periodic benefit cost for the Company's Company’s
SERP plansand SERP II were as follows:
Three Months Ended March 31,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2022
2021
2022
2021
Service Cost
$
8
$
9
$
24
$
27
Interest Cost
79
5961
237
183
Prior Service Cost Amortization
69
1969
207
157
Net Loss Amortization
180
198243
540
683
Net Periodic Benefit Cost
$
336
$
285382
$
1,008
$
1,050
Discount Rate Used for Benefit Cost
2.80%
2.38%
2.80%
2.38%
The service cost component of net periodic benefit cost is reflected in
 
compensation expense in the accompanying statements of
income.
 
The other components of net periodic cost are included in “other” within the noninterest
 
expense category in the statements
of income.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lending Commitments
.
 
The Company is a party to financial instruments with off-balanceoff
 
-balance sheet risks in the normal course of business
to meet the financing needs of its clients.
 
These financial instruments consist of commitments to extend credit and standby
 
letters of
credit.
24
The Company’s maximum exposure
 
to credit loss under standby letters of credit and commitments to extend credit is represented
 
by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
March 31,September 30, 2022
December 31, 2021
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
200,236256,284
$
563,634535,306
$
763,870791,590
$
217,531
$
505,897
$
723,428
Standby Letters of Credit
 
5,0205,460
 
0-
 
5,0205,460
5,205
 
0-
 
5,205
Total
$
205,256261,744
$
563,634535,306
$
768,890797,050
$
222,736
$
505,897
$
728,633
(1)
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet residential
 
loan commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
 
any condition established in the
contract.
 
Commitments generally have fixed expiration dates or other termination
 
clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn
 
upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by
 
the Company to guarantee the performance of a client to a third
party.
 
The credit risk involved in issuing letters of credit is essentially the same as that involved
 
in extending loan facilities. In
general, management does not anticipate any material losses as a result
 
of participating in these types of transactions.
 
However, any
potential losses arising from such transactions are reserved for in the same manner
 
as management reserves for its other credit
facilities.
For both on- and off-balance sheet financial instruments, the Company
 
requires collateral to support such instruments when it is
deemed necessary.
 
The Company evaluates each client’s
 
creditworthiness on a case-by-case basis.
 
The amount of collateral
obtained upon extension of credit is based on management’s
 
credit evaluation of the counterparty.
 
Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury
 
securities; other marketable securities; real estate; accounts receivable;
property, plant and
 
equipment; and inventory.
25
The allowance for credit losses for off-balance sheet credit commitments
 
that are not unconditionally cancellable by the bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities.
 
The following table shows the activity in the
allowance.
 
 
Three Months Ended March 31,September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2022
2021
2022
2021
Beginning Balance
$
2,853
$
2,587
$
2,897
$
1,644
Provision for Credit Losses
79159
1,330530
115
1,473
Ending Balance
$
2,9763,012
$
2,9743,117
$
3,012
$
3,117
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, 2022banks and at Decembera commitment of up to $
7.0
 
million in a solar tax credit equity fund.
At September 30,
2022, the Company had contributed $
0.2
million of the bank tech commitment and $
0.3
million of the solar fund commitment.
At
December 31, 2021, the Company had contributed $
0.1
 
million
of the bank tech commitment.
Contingencies
.
 
The Company is a party to lawsuits and claims arising out of the normal course of business.
 
In management's opinion,
there are
no
known pending claims or litigation, the outcome of which would, individually or
 
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
 
required to
indemnify the Visa U.S.A.
 
network for potential future settlement of certain litigation (the “Covered Litigation”)
 
that relates to several
antitrust lawsuits challenging the practices of Visa
 
and MasterCard International.
 
In 2008, the Company, as a member
 
of the Visa
U.S.A. network, obtained Class B shares of Visa,
 
Inc. upon its initial public offering.
 
Since its initial public offering, Visa,
 
Inc. has
funded a litigation reserve for the Covered Litigation resulting in a reduction
 
in the Class B shares held by the Company.
 
During the
first quarter of 2011, the Company sold its remaining
 
Class B shares.
 
Associated with this sale, the Company entered into a swap
contract with the purchaser of the shares that requires a payment to the
 
counterparty in the event that Visa, Inc. makes
 
subsequent
revisions to the conversion ratio for its Class B shares.
 
Fixed charges included in the swap liability are payable
quarterly until the
litigation reserve is fully liquidated and at which time the aforementioned
swap contract will be terminated.
Quarterly fixed payments
approximate $
0.2
million.
Conversion ratio payments and ongoing fixed quarterly charges
 
are reflected in
earnings in the period incurred.
Fixed charges included in the swap liability are payable quarterly
until the litigation reserve is fully
incurred.liquidated and at which time the aforementioned swap contract will be terminated.
Quarterly fixed payments approximate $
0.2
million.
NOTE 9 – FAIR VALUE
 
MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid
 
to transfer that liability in an orderly
transaction occurring in the principal market (or most advantageous market in
 
the absence of a principal market) for such asset or
liability.
 
In estimating fair value, the Company utilizes valuation techniques that are consistent with
 
consistent with the market approach, the income
approach and/or the cost approach.
 
Such valuation techniques are consistently applied.
 
Inputs to valuation techniques include the
assumptions that market participants would use in pricing
an asset or liability.
 
ASC Topic 820
 
establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets
 
for identical assets or liabilities and the lowest
priority to unobservable inputs.
 
The fair value hierarchy is as follows:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting
 
entity has the
ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
 
either directly
or indirectly. These might
 
include quoted prices for similar assets or liabilities in active markets, quoted prices
 
for identical
or similar assets or liabilities in markets that are not active, inputs other
 
than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.)
 
or inputs that are derived principally from, or
corroborated, by market data by correlation or other means
.
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect an
 
entity'san entity’s own
assumptions about the assumptions that market participants would
 
use in pricing the assets or liabilities.
26
Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis
Securities Available for Sale.
 
U.S. Treasury securities are reported at fair value
 
utilizing Level 1 inputs.
 
Other securities classified as
available for sale are reported at fair value utilizing Level 2 inputs.
 
For these securities, the Company obtains fair value measurements
from an independent pricing service.
 
The fair value measurements consider observable data that may include dealer
 
quotes, market
spreads, cash flows, the U.S. Treasury yield curve,
 
live trading levels, trade execution data, credit information and the bond’s
 
terms
and conditions, among other things.
In general, the Company does not purchase securities that have a complicated structure.
 
The Company’s entire portfolio consists
 
of
traditional investments, nearly all of which are U.S. Treasur
yTreasury
 
obligations, federal agency bullet or mortgage pass-through securities,
 
or
general obligation or revenue-based municipal bonds.
 
Pricing for such instruments is easily obtained.
 
At least annually,
 
the Company
will validate prices supplied by the independent pricing service by compari
 
ng them to prices obtained from an independent third-party
source.
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
 
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of
 
that loan, which would be used by other market
participants.
 
The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics,
 
commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have
 
unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated costs to
 
originate the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy.
 
The fair value of forward sale commitments is based on
observable market pricing for similar instruments and are therefore
 
classified as Level 2 within the fair value hierarchy.
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 September 30, 2022, there was $
0.2
million payable and at December 31, 2021, there was a $
0.1
million payable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2627
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 recorded at fair
value on a recurring basis consisted of the following:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
March 31,September 30, 2022
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
180,01319,058
$
0-
$
0-
$
180,01319,058
U.S. Government Agency
0-
224,435193,144
0-
224,435193,144
States and Political Subdivisions
0-
43,35040,228
0-
43,35040,228
Mortgage-Backed Securities
0-
86,06370,298
0-
86,06370,298
Corporate Debt Securities
0-
83,17386,691
0-
83,173
Other Securities
0
7,327
0
7,32786,691
Loans Held for Sale
0-
50,81550,304
0-
50,81550,304
Interest Rate Swap Derivative
0-
3,8866,453
0-
3,8866,453
Mortgage Banking Hedge Derivative
0-
850609
0-
850609
Mortgage Banking IRLC Derivative
0-
0-
1,1171,373
1,117
Mortgage Servicing Rights
0
0
7,177
7,1771,373
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-
$
7
$
0-
$
7
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers related to mortgage
 
banking activities of $
4.311.4
million
and $
13.623.4
 
million, respectively,
for the
three nine months ended March 31,September 30, 2022 and $
15.426.2
 
million and $
10.538.6
 
million,
respectively, for the
threenine months ended March 31,September 30, 2021.
 
Issuances are valued based on the change in fair value of the underlying
mortgage
loan from
inception of the IRLC to the Consolidated Statement
of Financial Condition
date, adjusted for pull-through rates
and costs to originate.
 
IRLCs transferred out of Level 3 represent IRLCs that were funded and moved
 
to mortgage loans held for sale,
at fair value.
Assets Measured
at Fair Value
 
on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the
 
assets are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances).
 
An example would be assets exhibiting evidence of impairment.
 
The following is a description of valuation methodologies used for assets measured
 
on a non-recurring basis.
 
27
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured using the fair
 
value of the collateral less selling
costs.
 
The fair value of collateral is determined by an independent valuation
 
or professional appraisal in conformance with banking
regulations.
 
Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market,
 
and the judgment and
estimation involved in the real estate appraisal process.
 
Collateral dependent loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly.
 
Valuation
 
techniques are consistent with those
techniques applied in prior
periods.
 
Collateral-dependent loans had a carrying value of $
1.51.2
 
million with a valuation allowance of $
0.1
 
million at March 31, 2022September 30,
2022 and $
2.8
 
million and $
0.2
 
million, respectively,
 
at December 31, 2021.
28
Other Real Estate Owned
.
 
During the first threenine months of 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
 
or professional appraisal in
conformance with banking regulations.
 
On an ongoing basis, we obtain updated appraisals on foreclosed assets and realize valuation
adjustments as necessary.
 
The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment
 
and estimation
involved in the real estate valuation process.
Mortgage Servicing Rights
.
 
Residential mortgage loan servicing rights are evaluated for impairment
 
at each reporting period based
upon the fair value of the rights as compared to the carrying amount.
 
Fair value is determined by a third party valuation model using
estimated prepayment speeds of the underlying mortgage loans serviced and
 
stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest rate).
 
The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and the cost of loan
 
servicing.
 
Further detail on the key inputs utilized are
provided in Note 4 – Mortgage Banking Activities.
 
At Marcheach of September 30, 2022 and December 31, 2022,2021, there was
0no
 
valuation
allowance for loan servicing rights
compared to $
0.3
million valuation allowance at December 31, 2021.rights.
 
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments,
 
both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation
 
methodologies used for those assets and liabilities.
Cash and Short-Term
 
Investments.
 
The carrying amount of cash and short-term investments is used to approximate
 
fair value, given
the short time frame to maturity and as such assets do not present unanticipated
 
credit concerns.
 
Securities Held to Maturity
.
 
Securities held to maturity are valued in accordance with the methodology previously
 
noted in the
caption “Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis – Securities Available
 
for Sale”.Sale.”
 
Loans.
 
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
 
using present value
techniques based upon projected cash flows and estimated discount
 
rates.
 
Pursuant to the adoption of ASU 2016-01,
Recognition and
Measurement of Financial Assets and Financial
 
Liabilities
, the values reported reflect the incorporation of a liquidity discount to meet
the objective of “exit price” valuation.
 
Deposits.
 
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
 
Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of fixed maturity
 
certificates of deposit is estimated using present
value techniques and rates currently offered for deposits of
 
similar remaining maturities.
Subordinated Notes Payable.
 
The fair value of each note is calculated using present value techniques,
 
based upon projected cash
flows and estimated discount rates as well as rates being offered
 
for similar obligations.
Short-Term
 
and Long-Term
 
Borrowings.
 
The fair value of each note is calculated using present value techniques,
 
based upon
projected cash flows and estimated discount rates as well as rates being offered
 
for similar debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2829
A summary of estimated fair values of significant financial instruments consistednot
 
recorded at fair value consisted of the following:
 
 
March 31,September 30, 2022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
77,96372,686
$
77,96372,686
$
0-
$
0-
Short-Term Investments
790,465497,679
790,465497,679
0-
0
Investment Securities, Available
for Sale
624,361
180,013
444,348
0-
Investment Securities, Held to Maturity
518,678676,178
279,892434,717
221,385188,911
0-
Equity Securities
(1)
8551,349
0-
8551,349
0
Loans Held for Sale
50,815
0
50,815
0-
Other Equity Securities
(2)
2,8982,848
0-
2,8982,848
0
Interest Rate Swap Derivative
3,886
0
3,886
0
Mortgage Banking Hedge Derivative
850
0
850
0-
Mortgage Servicing Rights
4,0015,695
0-
0-
7,177
Mortgage Banking IRLC Derivative
1,117
0
0
1,1179,441
Loans, Net of Allowance for Credit Losses
1,964,7532,323,675
0-
0-
1,934,5702,207,464
LIABILITIES:
Deposits
$
3,765,5073,759,378
$
0-
$
3,417,6263,209,190
$
0-
Short-Term
 
Borrowings
30,86552,271
0-
30,86551,821
0-
Subordinated Notes Payable
52,887
0-
45,33646,532
0-
Long-Term Borrowings
806562
0-
834564
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
7
0
7
0-
(1)
Not readily marketable securities - reflected
 
in other assets.
(2)
Accounted for under the equity method – not readily
 
marketable securities – reflected in other assets.
All non-financial instruments are excluded from the above table.
 
The disclosures also do not include goodwill.
 
Accordingly, the
aggregate fair value amounts presented do not represent the underlying
 
value of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2930
NOTE 10 – ACCUMULATED
 
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
 
(loss) are presented in the table below.
 
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
 
for Sale
 
Swap
 
Plans
 
 
(Loss) Income
Balance as of January 1, 2022
$
(4,588)
 
$
1,530
 
$
(13,156)
 
$
(16,214)
Other comprehensive (loss) income during the period
 
(19,055)(35,634)
 
1,3703,287
 
156358
 
(17,529)(31,989)
Balance as of March 31,September 30, 2022
$
(23,643)(40,222)
 
$
2,9004,817
 
$
(13,000)(12,798)
 
$
(33,743)(48,203)
Balance as of January 1, 2021
$
2,700
 
$
428
 
$
(47,270)
 
$
(44,142)
Other comprehensive (loss) income during the period
 
(1,458)(3,249)
 
1,5871,029
 
1421,635
 
271(585)
Balance as of March 31,September 30, 2021
$
1,242(549)
 
$
2,0151,457
 
$
(47,128)(45,635)
 
$
(43,871)(44,727)
3031
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
 
OF FINANCIAL CONDITION AND RESULTS
 
OF
OPERATIONS
Management’s discussion
 
and analysis ("(“MD&A"&A”) provides supplemental information, which sets forth
 
the major factors that have
affected our financial condition and results of operations
 
and should be read in conjunction with the Consolidated Financial
Statements and related notes.
 
The following information should provide a better understanding of
 
the major factors and trends that
affect our earnings performance and financial condition,
 
and how our performance during 2022 compares with prior years.
 
Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively,
 
is referred to as "CCBG," "Company,"“CCBG,” “Company,”
 
"“we,"”
"“us,"” or "our."“our.”
CAUTION CONCERNING FORWARD
 
-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains
 
"“forward-looking statements" 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,"“may,”
 
"should," "would,"“could,” “should,” “would,”
"“believe," "anticipate," "estimate," "expect," "intend," "plan," "target,"” “anticipate,”
 
"“estimate,” “expect,”
“intend,” “plan,”
“target,”
“vision," "goal," ” “goal,”
and similar expressions are intended to
identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
 
Our actual future results may differ materially
from those set forth in our forward-looking statements.
 
Please see the Introductory Note and
Item 1A. Risk Factors
 
of our 2021
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
 
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"“Bank” or "CCB"“CCB”).
 
We offer
 
a broad array of products and services through a total of 57 full-service offices
located in Florida, Georgia, and Alabama.
 
We provide a full range of
 
banking services, including traditional deposit and credit
services, mortgage banking, asset management, trust, merchant services, bankcards,
 
securities brokerage services and financial
advisory services, including life insurance products,
 
risk management and asset protection services.
 
Our profitability, like
 
most financial institutions, is dependent to a large extent upon net
 
interest income, which is the difference
between the interest and fees received on interest earning assets, such as loans and
 
securities, and the interest paid on interest-bearing
liabilities, principally deposits and borrowings.
 
Results of operations are also affected by the provision for credit
losses, operating
expenses such as salaries and employee benefits, occupancy and other
 
operating expenses including income taxes, and noninterest
income such as mortgage banking revenues, wealth management fees,
 
deposit fees, and bank card fees.
We have included
 
a detailed discussion of the economic conditions in our markets and our long-term strategic
 
objectives as part of the
MD&A section of our 2021 Form 10-K.
Acquisitions
 
On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic
 
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 May 1, 2021.
 
A detailed discussion regarding the acquisition of 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3132
2022
2021
(Dollars in Thousands, except per share data)
Third
Second
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
373,165
$
371,675
$
372,145
$
383,166
$
348,868
$Less: Goodwill and Other Intangibles (GAAP)
335,88093,133
$93,173
324,42693,213
93,253
93,293
Tangible Shareowners' Equity (non-GAAP)
A
280,032
278,502
278,932
289,913
255,575
Total Assets (GAAP)
4,332,671
4,354,297
4,310,045
4,263,849
4,048,733
Less: Goodwill and Other Intangibles (GAAP)
93,21393,133
93,253
93,293
93,333
89,095
Tangible Shareowners' Equity (non-GAAP)
A
278,932
289,913
255,575
242,547
235,331
Total Assets (GAAP)
4,310,045
4,263,849
4,048,733
4,011,459
3,929,884
Less: Goodwill and Other Intangibles (GAAP)93,173
93,213
93,253
93,293
93,333
89,095
Tangible Assets (non-GAAP)
B
$
4,239,538
$
4,261,124
$
4,216,832
$
4,170,596
$
3,955,440
$
3,918,126
$
3,840,789
Tangible Common
 
Equity Ratio (non-GAAP)
A/B
6.61%
6.54%
6.61%
6.95%
6.46%
6.19%
6.13%
Actual Diluted Shares Outstanding (GAAP)
C
16,998,177
16,981,614
16,962,362
16,935,389
16,911,715
16,901,375
16,875,719
Tangible Book Value
 
per Diluted Share (non-GAAP)
 
A/C
16.47
16.40
16.44
17.12
15.11
14.35
13.94
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3233
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
(Dollars in Thousands, Except
2022
2021
Per Share Data)
Third
Second
First
Fourth
Third
Second
First
Summary of Operations
:
Interest Income
$
35,364
$
29,320
$
25,438
$
25,549
$
28,520
$
26,836
$
25,446
Interest Expense
2,037
987
742
838
848
856
948
Net Interest Income
33,327
28,333
24,696
24,711
27,672
25,980
24,498
Provision for Credit Losses
-2,099
1,542
-
-
(571)
(982)-
Net Interest Income After
 
Provision for Credit Losses
31,228
26,791
24,696
24,711
27,672
26,551
25,480
Noninterest Income
22,934
24,903
25,818
24,672
26,574
26,473
29,826
Noninterest Expense
39,810
40,498
39,233
40,207
39,702
42,123
40,476
Income
 
Before
 
Income Taxes
14,352
11,196
11,281
9,176
14,544
10,901
14,830
Income Tax Expense
3,074
2,177
2,235
2,040
2,949
2,059
2,787
Income Attributable to NCI
37
(306)
(591)
(764)
(1,504)
(1,415)
(2,537)
Net Income Attributable to CCBG
11,315
8,713
8,455
6,372
10,091
7,427
9,506
Net Interest Income (FTE)
33,410
28,409
24,774
24,790
27,750
26,064
24,606
 
Per Common Share
:
Net Income Basic
$
0.67
$
0.51
$
0.50
$
0.38
$
0.60
$
0.44
$
0.56
Net Income Diluted
0.67
0.51
0.50
0.38
0.60
0.44
0.56
Cash Dividends Declared
0.17
0.16
0.16
0.16
0.15
0.150.16
Diluted Book Value
21.95
21.89
21.94
22.63
20.63
19.87
19.22
Diluted Tangible Book Value
(1)
16.47
16.40
16.44
17.12
15.11
14.35
13.94
Market Price:
 
High
33.93
28.55
28.88
29.00
26.10
27.39
28.98
 
Low
27.41
24.43
25.96
24.77
22.02
24.55
21.42
 
Close
31.11
27.89
26.36
26.40
24.74
25.79
26.02
 
Selected Average Balances
:
Investment Securities
$
1,120,728
$
1,144,757
$
1,059,145
$
991,080
$
909,294
Loans Held for Investment
$2,264,075
2,084,679
1,963,578
$
1,948,324
$
1,974,132
$
2,036,781
$
2,044,363
Earning Assets
4,009,951
3,974,221
3,938,824
3,791,313
3,693,123
3,623,910
3,497,929
Total Assets
4,357,678
4,321,388
4,266,775
4,127,937
4,026,613
3,956,349Deposits
3,821,5213,769,864
Deposits3,765,329
3,714,062
3,549,145
3,447,688
3,387,352
3,239,508
Shareowners’ Equity
379,305
373,365
383,956
350,140
341,460
329,040
326,330
Common Equivalent Average Shares:
 
Basic
16,960
16,949
16,931
16,880
16,875
16,858
16,838
 
Diluted
16,996
16,971
16,946
16,923
16,909
16,885
16,862
Performance Ratios:
Return on Average Assets
 
1.03
%
0.81
%
0.80
%
0.61
%
0.99
%
0.75
%
1.01
Return on Average Equity
11.83
9.36
8.93
7.22
11.72
9.05
11.81
Net Interest Margin (FTE)
3.31
2.87
2.55
2.60
2.98
2.89
2.85
Noninterest Income as % of
 
Operating Revenue
40.76
46.78
51.11
49.96
48.99
50.47
54.90
Efficiency Ratio
70.66
75.96
77.55
81.29
73.09
80.18
74.36
 
Asset Quality:
Allowance for Credit Losses ("ACL"(“ACL”)
$
22,510
$
21,281
$
20,756
$
21,606
$
21,500
$
22,175
$
22,026
ACL to Loans HFI
0.96
%
0.96
%
1.05
%
1.12
%
1.11
%
1.10
%
1.07
Nonperforming Assets (“NPAs”)
2,422
3,231
2,745
4,339
3,218
6,302
5,472
NPAs to Total
 
Assets
0.06
0.07
0.06
0.10
0.08
0.16
0.14
NPAs to Loans HFI plus OREO
0.10
0.15
0.14
0.22
0.17
0.31
0.27
ACL to Non-Performing Loans
934.53
677.57
760.83
499.93
710.39
433.93
410.78
Net Charge-Offs to Average
 
Loans HFI
0.12
0.22
0.16
0.02
0.03
(0.07)
(0.10)
Capital Ratios:
Tier 1 Capital
14.80
%
15.13
%
15.98
%
16.14
%
15.69
%
15.44
%
16.08
Total Capital
15.75
16.07
16.98
17.15
16.70
16.48
17.20
Common Equity Tier 1
12.83
13.07
13.77
13.86
13.45
13.14Leverage
13.638.91
Leverage8.77
8.78
8.95
9.05
8.84
8.97
Tangible Common Equity
(1)
6.61
6.54
6.61
6.95
6.46
6.19
6.13
(1)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 31.32.
3334
FINANCIAL OVERVIEW
Results of Operations
Performance Summary
.Summary.
 
Net income attributable to common shareowners of $8.5 $11.3
million, or
$0.50 $0.67 per diluted share, for the firstthird
quarter of 2022 compared to net income of $6.4 $8.7
million, or $0.38 per diluted share,
for the fourth quarter of 2021, and $9.5 million, or
$0.56$0.51 per diluted share, for the second quarter of 2022, and $10.1
million,
or $0.60 per diluted share, for the third quarter of 2021.
For the first quarternine months of 2022, net income attributable to common
shareowners totaled $28.5 million, or $1.68 per diluted share, compared to net
income of $27.0 million, or $1.60 per diluted share, for
the same period of 2021.
 
Net Interest Income
.Income.
 
Tax-equivalent net
 
interest income for the firstthird quarter of 2022 totaled $24.8$33.4 million, comparablecompared
 
to $28.4 million
for the fourth
second quarter of 2021,2022, and $24.6$27.7 million for the third quarter of 2021.
For the first quarternine months of 2022, tax-equivalent net
interest income totaled $86.6 million compared to $78.4 million for the
same period of 2021.
 
Compared to the fourth quarter of 2021,referenced prior
periods, the increase reflected strong loan growth, higher investment
balances,
and 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 asacross a resultmajority of our larger investment portfolio,
in addition to a reduction in interest expense, partially offset
by lower loan fees.
earning assets.
Provision and Allowance for Credit
 
Losses.
 
We did notrecorded
 
record a provision for credit losses of $2.1 million for the firstthird quarter of 2022 or
compared to $1.5 million in the second quarter of 2022 and no provision
 
for the fourththird quarter of 2021.
For the first nine months of
2022, the provision was an expense of $3.6 million compared to a benefit of $1.6
million for the same period of 2021.
The higher
level of provision compared to all prior periods was primarily attributable
to strong loan growth.
The credit loss provision in 2021
was favorably impacted by strong loan recoveries.
At September 30, 2022, the allowance represented 0.96% of HFI loans compared
to 0.96% at June 30, 2022 and 1.12% at December 31, 2021.
Noninterest Income.
Noninterest income for the third quarter of 2022 totaled $22.9 million compared
to $24.9 million for the second
quarter of 20212022 and recorded a negative provision of $1.0 $26.6
million for
the firstthird quarter of 2021.
 
The lack$2.0 million decrease from the second quarter of provision2022 was
attributable to lower mortgage banking revenues
of $1.9 million.
For the first nine months of 2022, noninterest income totaled $73.7
million compared to $82.9 million for the firstsame period of 2021 and reflected
lower mortgage banking revenues of $17.5 million,
partially offset by higher deposit fees of $3.0 million and wealth management
fees of $4.4
million (insurance revenues of $3.5 million
and retail brokerage fees of $0.9 million).
The decrease in mortgage banking revenues in 2022 has been largely
offset by interest
income from strong adjustable rate residential production being booked
into our loan portfolio.
We discuss noninterest
income in
further detail below.
Noninterest Expense.
Noninterest expense for the third quarter of 2022 totaled $39.8 million compared
to $40.5 million for the second
quarter of 2022 reflected continued strong credit quality and slight improvement
in the forecasted level of unemployment.
Noninterest Income
.
Noninterest income$39.7 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 a decrease of $4.0 million, or 13.4%, from
the firstthird quarter of 2021.
 
The increase over$0.7 million decrease from the fourth
second quarter of 2021 was due to higher wealth management fees, primarily
insurance revenues.
The decline from the first quarter 20212022 was
driven by lower mortgage banking revenues (largely
primarily attributable to lower loan refinancing activitycompensation expense from variable/performance
-based compensation at Capital City Home Loans
(“CCHL”) and a lower gain onCCSW.
 
sale margin)
that were partially offset by higher activity based fees
(deposit and bank card).
Noninterest Expense
.
Noninterest expense forFor the first quarternine months of 2022, noninterest expense totaled $39.2 million, a decrease of $1.0$119.5
 
million or 2.4%, fromcompared to $122.3 million for
the fourth quartersame period of 2021 and a $1.3reflected lower compensation
expense of $1.7 million or 3.1%, decrease from
the first quarterand other expense of 2021.
The decrease from the fourth quarter of$1.4 million, partially offset
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,occupancy expense of $0.3 million.
 
other real estate and miscellaneous expenses.We discuss noninterest
 
expense in further detail below.
 
Financial Condition
Earning Assets.
 
Average earning assets totaled
 
$3.9394.010 billion for the firstthird quarter of 2022, an increase of $147.5$35.7 million, or 0.9%,
 
or 3.9%,over
over the fourthsecond quarter of 2021,2022, and an increase of $440.9$218.6 million, or 5.8%,
 
12.6%, over the firstfourth quarter of 2021.
 
The increase over theboth prior
fourth quarter of 2021 was primarily attributable to seasonal growth
in our public fund deposits. The increase compared to the first
quarter of 2021periods was primarily driven by higher deposit balances.
The mix of earning assets continues to improve driven by strong loan
growth.
 
Loans
.
 
Average loans held for investment
 
(“HFI”) increased $15.3$179.4 million, or 0.8%8.6%, over the second quarter of 2022
and increased
$315.8 million, or 16.2%, over the fourth quarter of 20212021.
 
and decreased
$80.8Period end loans increased $132.5 million, or 4.0%6.0%, fromover the first second
quarter of 2021. Excluding small business
(“SBA PPP”) loans, average loans HFI increased
$18.82022 and $414.7 million, compared toor 21.5%, over the fourth quarter of 2021, and increased $115.9
million compared to the first quarter of 2021.
 
NewThe growth in 2022 has been broad based with
increases realized in all loan
production strengthened in the latter part of the first quarter of 2022 resulting categories, more significantly,
 
in period end loan growth of $54 million over the fourth
quarter of 2021.residential mortgage, residential construction, and commercial real
 
estate.
The slowdown in secondary market residential loan sales has allowed us to
book a steady flow of CCHL’s
adjustable rate production
in our loan portfolio throughout 2022.
Credit Quality
.
 
Overall credit quality is strongremains strong.
Nonperforming assets (nonaccrual loans and continuesother real estate) totaled $2.4
million at September 30, 2022 compared to improve.$3.2 million at June
30, 2022 and $4.3 million at December 31, 2021.
At September 30,
2022, nonperforming assets as a percent of total assets totaled 0.06% compared
to 0.07% at June 30, 2022 and 0.10% at December 31,
2021.
 
Nonaccrual loans totaled $2.7$2.4 million at March 31,September 30, 2022, a $0.
$1.67
 
million decrease from June 30, 2022 and a $1.9 million
decrease from December 31, 2021 and a $2.7 million decrease 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%,
respectively. Classified loans 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 were $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 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. Various
government stimulus programs contributed to the year
over year increase.
Capital
.
At March 31, 2022, we were well-capitalized with a total risk-based capital
ratio of 16.98% and a tangible common equity
ratio (a non-GAAP financial measure) of 6.61% compared to 17.15%
and 6.95%, respectively,
at December 31, 2021 and 17.20% and
6.13%, respectively, at March
31, 2021.
At March 31, 2022, all of our regulatory capital ratios exceeded the threshold to be well-
capitalized under the Basel III capital standards.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
35
Deposits
.
Average total
deposits were $3.770 billion for the third quarter of 2022, an increase of $4.5 million, or
0.1%, over the
second quarter of 2022 and $220.7 million, or 6.2%, over the fourth quarter of 2021.
Growth over the second quarter of 2022 was
primarily attributable
to an increase in noninterest bearing and savings account balances.
Compared to the fourth quarter 2021, we
have had strong growth in our noninterest bearing deposits, NOW accounts,
and savings account balances.
Capital
.
At September 30, 2022, we were well-capitalized with a total risk-based capital ratio
of 15.75% and a tangible common
equity ratio (a non-GAAP financial measure) of 6.61% compared to
16.07% and 6.54%, respectively at June 30, 2022 and 17.15% and
6.95%, respectively, at December
31, 2021.
At September 30, 2022, all of our regulatory capital ratios exceeded
the threshold to be
well-capitalized under the Basel III capital standards.
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,
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.
For the first quarter of 2022, we realized income before income taxes of
$11.3 million compared to $9.2 million for
the fourth quarter
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 toThe following table provides 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 componentour results of our financialoperations
 
performance is provided below:- a discussion of the various components are discussed
in further detail below.
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands, except per share data)
March 31, 2022
December 31, 2022
2021
March 31, 2022
2021
Interest Income
$
25,43835,364
$
25,54929,320
$
25,44628,520
$
90,122
$
80,802
Taxable Equivalent Adjustments
83
76
78
79237
108270
Total Interest Income (FTE)
25,51635,447
25,62829,396
25,55428,598
90,359
81,072
Interest Expense
7422,037
838987
948848
3,766
2,652
Net Interest Income (FTE)
24,77433,410
24,79028,409
24,60627,750
86,593
78,420
Provision for Credit Losses
-2,099
1,542
-
(982)3,641
(1,553)
Taxable Equivalent Adjustments
83
76
78
79237
108270
Net Interest Income After Provision for Credit Losses
24,69631,228
24,71126,791
25,48027,672
82,715
79,703
Noninterest Income
25,81822,934
24,67224,903
29,82626,574
73,655
82,873
Noninterest Expense
39,23339,810
40,20740,498
40,47639,702
119,541
122,301
Income Before Income Taxes
11,28114,352
9,17611,196
14,83014,544
36,829
40,275
Income Tax Expense
2,2353,074
2,0402,177
2,7872,949
7,486
7,795
Pre-Tax Income Attributable to Noncontrolling Interests
Interest
(591)37
(764)(306)
(2,537)(1,504)
(860)
(5,456)
Net Income Attributable to Common Shareowners
$
8,45511,315
$
6,3728,713
$
9,50610,091
$
28,483
$
27,024
 
Basic Net Income Per Share
$
0.500.67
$
0.380.51
$
0.560.60
$
1.68
$
1.60
Diluted Net Income Per Share
$
0.500.67
$
0.380.51
$
0.560.60
$
1.68
$
1.60
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" “taxable equivalent”
basis to reflect
the tax-exempt status of income earned on certain loans and state and local
 
local government debt obligations.
 
We provide an analysis of
our net interest income including average yields and rates in Table
 
I on page 44.46.
Tax-equivalent net
 
interest income for the firstthird quarter of 2022 totaled $24.8$33.4 million, comparable to the fourthcompared
 
quarter of 2021, and
$24.6to $28.4 million for the second
quarter of 2022, and $27.7 million for the third quarter of 2021.
For the first quarternine months of 2022, tax-equivalent net interest income
totaled $86.6 million compared to $78.4 million for the same period of 2021.
 
Compared to the fourth quarter of 2021,referenced prior periods, the increase
reflected strong loan growth and higher rates on overnight funds and growthacross a majority of
 
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 our larger investment portfolio and a reduction
in interest expense, partially offset by lower loan fees.
earning assets.
Our net interest margin for the firstthird quarter of 2022 was 2.55%3.31%, a decreasean increase
 
of five44 basis points fromover the fourthsecond quarter of 2022 and 33
basis points over the third quarter of 2021, both driven by higher interest rates and a
decrease of 30 basis points from the first quarter of 2021.an
 
Compared to both prior periods, the decrease was primarily attributable to
growth inoverall improved earning assets (driven by deposit inflows), which negativelyasset mix.
 
impactedFor the
month of September 2022, our margin percentage. Our net interest margin
 
forwas 3.41%.
the first quarter of 2022, excludingExcluding the impact of overnight funds
in excess of $200 million, our
net interest margin for the third quarter of 2022 was 3.11%3.54%.
 
Compared to the nine month period of 2021, the net interest margin
Due to highly competitive fixed-rate loan pricing in our markets, we continueremained flat at 2.91% as the favorable impact of higher interest rates and
 
to review our loan pricing and make adjustments wherean improved earning asset mix offset the favorable impact
we believe appropriate and prudent.in 2021 from a significant level of SBA Paycheck Protection Program fee income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
36
Provision for Credit Losses
We did notrecorded
 
record a provision for credit losses of $2.1 million for the firstthird quarter of 2022 orcompared
to $1.5 million in the fourthsecond quarter
of 2021
2022 and recorded ano provision
benefit of $1.0 million for the firstthird quarter of 2021.
 
For the first nine months of 2022, the provision was an expense of $3.6 million
compared to a benefit of $1.6 million for the same period of 2021.
The lackhigher level of provision for the first quarter of 2022 reflected continuedcompared to all prior periods was
primarily attributable to strong
credit
quality and slight improvement in the forecasted level of unemployment. loan growth.
 
The credit loss provision benefit for the first quarter ofin 2021 generally
reflected improving economic conditions and a lower level of expected
losses related to COVID-19.was favorably impacted by strong loan recoveries.
 
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 firstthird quarter of 2022 totaled $25.8$22.9 million compared
 
to $24.7$24.9 million for the fourthsecond quarter of 20212022 and
$29.826.6 million for the firstthird quarter of 2021.
 
The increase over$2.0 million decrease from the fourthsecond quarter of 20212022 was primarily
attributable to higher wealth
management fees of $2.1 million that were partially offset by
lower mortgage banking revenues of $0.9$1.9 million.
 
The increase in
wealth management fees was attributable to higher insurance commission
revenues. Lower loan production and a slightly lower gain
on sale margin drove the decline in mortgage banking
revenues. Compared to the firstthird quarter of 2021, the decline$3.6 million decrease was dueattributable to lower
lower mortgage banking revenues attributableof $5.2 million, partially
offset by higher deposit fees of $0.9 million, other income of $0.
3
million,
and wealth management fees of $0.3 million.
For the first nine months of 2022, noninterest income totaled $73.7 million compared
to
$82.9 million for the same period of 2021 and reflected lower mortgage
banking revenues of $17.5 million, partially offset by higher
deposit fees of $3.0 million and wealth management fees of $4.4
million (primarily insurance revenues of $3.5 million and retail
brokerage fees of $0.9 million).
Lower mortgage banking revenues for 2022 reflected a reduction in refinancing
activity and, to lower loan production (primarilya
lesser degree,
 
refinancing activity) and a lower gain on sale margin.purchase mortgage originations primarily driven by higher interest
 
rates.
For 2022, CCHL contributed $0.5
million ($0.03 per diluted share) to earnings versus $3.4 million ($0.21 per
diluted share) in 2021, which has largely been offset
by a
$1.2 million ($0.07 per diluted share) contribution to earnings by CCSW and
improvement in both deposit fees and retail brokerage
fees, which reflects our continued commitment to revenue diversification.
Noninterest income represented 51.1%40.8% of operating revenues (net interest
 
interest income plus noninterest income) forin the firstthird quarter of 2022
compared to 50.0%46.8% in the second quarter of 2022 and 49.0% in the third quarter
of 2021.
For the first nine months of 2022,
noninterest income represented 46.0% of operating revenues compared
to 51.5% for the fourth quartersame period of 2021 and 54.9% for the first quarter of 2021.
The table below reflects the major components of noninterest income to helpincome.
 
facilitate a better understanding of the period over period
comparison.
 
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
March 31, 2022
December 31, 2022
2021
March 31, 2022
2021
Deposit Fees
$
5,1915,947
$
5,3005,447
$
4,2715,075
$
16,585
$
13,582
Bank Card Fees
3,7633,860
3,8724,034
3,6183,786
11,657
11,402
Wealth Management
 
Fees
6,0703,937
3,9224,403
3,0903,623
14,410
9,987
Mortgage Banking Revenues
8,9467,116
9,8009,065
17,12512,283
25,127
42,625
Other
1,8482,074
1,7781,954
1,7221,807
5,876
5,277
Total
 
Noninterest Income
$
25,81822,934
$
24,67224,903
$
29,82626,574
$
73,655
$
82,873
Significant components of noninterest income are discussed in more
 
detail below.
Deposit Fees
.
 
Deposit fees for the firstthird quarter of 2022 totaled $5.2$5.9 million, a decreasean increase of $0.1$0.5
 
million, or 2.1%9.2%, fromover the fourthsecond
quarter of 20212022, and an increase of $0.9 million, or 21.5%17.2%, over
the third quarter of 2021.
For the first nine months of 2022, deposit
fees totaled $16.6 million, an increase of $3.0 million, or 22.1%, over the firstsame period
of 2021.
Compared to second quarter of 2022,
2021.
The decline from the fourth quarter of 2021
reflects two less days of processing.increase reflected higher overdraft fees.
 
The increase over the first quarter of 2021 reflectedboth prior year periods was attributable to higher accountmonthly service
charge fees and overdraft fees.
 
maintenance fees attributable
to the third quarter 2021The conversion of theour remaining free checking accounts to a monthly maintenance
fee account type
drove the increase in service charge fees.
The increase in overdraft fees was driven by higher utilization of our overdraft service
which is closely correlated (inversely) with the consumer savings rate which
has declined noticeably since it substantially increased
during 2020 and 2021 due to the high level of governmental stimulus related
 
to monthly maintenance fee account types.the COVID-19 pandemic.
Bank Card Fees
.
 
Bank card fees for the firstthird quarter of 2022 totaled $3.8$3.9 million, a decrease of $0.1
$0.2 million, or 2.8%4.3%,
decrease from the fourthsecond
quarter of 20212022, and an increase of $0.2a $0.1 million, or 4.0%,2.0% increase over the firstthird quarter
 
of 2021.
 
The decline fromFor the fourth quarterfirst nine months of 20212022, bank card fees
reflects two less daystotaled $11.7 million, an increase of processing.$0.3 million, or
2.2%, over the same period of 2021.
 
The increase over the first quarter of 2021prior year periods was
primarily attributable
to growth in checking accounts.
accounts.
37
Wealth
 
Management Fees
.
 
Wealth management fees
 
which include both trust fees through Capital City Trust (i.e., managed
accounts and
trusts/estates), retail
brokerage fees through Capital City Investments (i.e., investment,
 
investment, insurance products, and retirement accounts),
and insurance commissionfinancial advisory fees through Capital City Strategic Wealth
 
revenues,(i.e., including the sale of life insurance, risk management and asset
protection services).
 
totaled $6.1Wealth management
millionfees for the firstthird quarter of 2022 an increasetotaled $3.9 million, a $0.5 million,
or 10.6%, decrease
from the second quarter of $2.12022, which reflected lower insurance revenues
of $0.5 million or 54.8%, over thedue to a lower level of insurance policy
sales.
 
fourthCompared to the third quarter of 2021, and an increase of $3.0
the $0.3 million, or 96.5%8.7%, over the first quarter of 2021.
 
Insurance commission revenuesincrease was the primary driver of the increase over
both
prior periods.
Higherdue to higher retail brokerage fees also contributed to the increase overof $0.2
million.
For the first quarternine months of 2022, wealth management fees increased $4.4 million, or 44.3%,
primarily due to higher
insurance revenues of $3.5 million and retail brokerage fees of $0.9 million.
The higher level of insurance revenues reflected the
acquisition of Capital City Strategic Wealth
in May 2021.
 
At March 31,September 30, 2022, total
assets under management were approximately $2.329
$2.117 billion compared to $2.201 billion
 
toat June 30, 2022 and $2.324 billion at December 31, 2021.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $7.1 million for the third quarter of
2022 compared to $9.1 million
for the second quarter of 2022 and $12.3 million for the third quarter of 2021.
For the first nine months of 2022, revenues totaled
$25.1 million compared to $42.6 million for the same period of 2021.
Lower mortgage banking revenues for 2022 reflected a
reduction in refinancing activity,
and to a lesser degree lower purchase mortgage originations, primarily driven
by higher interest
rates.
In addition, gain on sale margins have been pressured due to
a lower level of governmental loan originations and mandatory
delivery loan sales (both of which provide a higher gain on sale percentage).
During 2022, strong best efforts origination volume has
allowed us to book a steady flow of adjustable rate residential loans in our portfolio and
has contributed to loan growth and earnings.
In addition, continued stability in our construction/permanent loan program
has partially offset the slowdown in secondary market
originations.
Other
.
Other income totaled $2.1 million for the third quarter of 2022 compared
to $2.0 million for the second quarter of 2022 and
$1.8 million for the third quarter of 2021.
The slight increase over the third quarter of 2021 reflected higher loan servicing
income
and $2.088 billion atmiscellaneous loan fees.
For the first nine months of 2022, other income totaled $5.9 million
compared to $5.3 million for the
March 31, 2021.same period of 2021 with the increase attributable to higher loan servicing income,
VISA debit card incentive income, and
miscellaneous loan fees.
The increase in loan servicing income reflected an increase in CCHL’s
loan servicing portfolio and the
increase
in miscellaneous loan fees was attributable to higher loan volume.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
Mortgage Banking Revenues
.
 
Mortgage banking revenues
38
Noninterest Expense
Noninterest expense for the third quarter of 2022 totaled $8.9$39.8 million
compared to $40.5 million for the firstsecond quarter of
2022 a decrease of $0.9and
$39.7 million
or 8.7%, from for the fourth quarter of 2021 and a decrease of $8.2 million, or 47.
8% from the firstthird quarter of 2021.
 
The $0.7 million decrease from
the fourthsecond quarter of 20212022 was primarily
attributable to
lower compensation expense of $0.6 million which reflected lower loan production and a slightly lower gain on
 
sale margin.variable/performance-based compensation expense at CCHL and
CCSW totaling $1.5 million, partially offset by higher variable/performance
-based compensation of $0.6 million and base salaries
(primarily annual merit raises) of $0.2 million at the Bank.
 
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 fourththird quarter of 2021,
and the $0.1 million increase reflected
$463 million for the first quarterhigher other expense 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 fourthand occupancy expense of $0.1
 
quartermillion, partially offset by lower compensation expense of 2021, and $1.6 million in the first$0.5
quarter of 2021.
Noninterest Expense
Noninterest expense for the first quarter of 2022 totaled $39.2 million compared
to $40.2 million for the fourth quarter of 2021 and
$40.5 million for the first quarter of 2021.million.
 
The decrease from the fourth quarter of 2021increase in other expense was primarily attributable to higher other
 
to lower other
real estate expense of $1.2 million which 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$1.0 million partially offset by
lower mortgage banking of $0.6 million).
Compared to the first quarter of 2021, the decrease was primarily attributable
to lower
salarypension settlement expense of $1.8 million, primarily lower variable commission expense
(lower mortgage banking of $2.6 million partially offset
by higher insurance of $0.8 million).
Associate benefits expense increased by $0.6 million and reflected higher
insurance expense
attributable to utilization of self-insurance reserves in 2021.
Pension expense declined by $1.0 million, but was substantially offset
by
higher expenses for other real estate and other miscellaneous.$0.4 million.
 
The decrease in compensation expense reflected lower variable/performance
-based
compensation at CCHL totaling $1.5
million, partially offset by higher variable/performance-based
compensation of $0.7 million and
base salaries of $0.3
million at the Bank.
For the first nine months of 2022, noninterest expense totaled $119.5
million compared to $122.3 million for the same period of 2021
and reflected lower compensation expense of $1.7 million and other
expense of $1.4 million, partially offset by higher occupancy
expense of $0.3 million.
The reduction in compensation expense was primarily due to lower variable/performance
-based
compensation at CCHL totaling $7.0 million, partially offset
by higher variable/performance-based compensation totaling $2.8
million, base salaries (merit and new market staffing additions)
of $2.0 million, and associate insurance expense (utilized self-
insurance reserves in 2021) of $0.6 million at the Bank.
The net $1.4 million decrease in other expense was primarily attributable to
lower pension settlement expense of $2.0 million and miscellaneous expense
of $1.1 million, partially offset by higher other real estate
expense of $1.4 million and advertising expense of $0.4
million.
A lower level of lump sum retirement payments drove the decrease
in pension settlement expense compared to three and nine month periods
of 2021.
We expect additional pension
settlement expense
for the remainder of 2022 based on our current estimate of lump sum pension
pay-outs to retirees.
We discuss noninterest
expense in 2022 generally reflected
further detail below.
To date, the
impact of inflation and higher prices on our cost structure has not been significant.
While operating in a highervery tight labor
discount rate usedmarket, we have mitigated the impact of salary pressures by not replacing
certain positions that became vacant.
Further, we have
realized higher than historical increases in 2022 for determining plan liabilitiescertain premises and
 
strong asset returns in 2021.
The table below reflects the major componentsprocessing contracts reflective of noninterest expense toinflationary pressures. We
 
help facilitate a better understanding of the year over yearwill
comparison.continue to focus on opportunities to re-negotiate or replace vendors
at periodic renewals.
 
The table below reflects the major components of noninterest expense.
 
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
March 31, 2022
December 31, 2022
2021
March 31, 2022
2021
Salaries
$
20,66420,375
 
$
20,58721,461
 
$
22,44721,060
$
62,500
$
64,625
Associate Benefits
4,1924,363
4,1963,922
3,6174,185
12,477
12,062
Total Compensation
 
24,85624,738
24,78325,383
26,06425,245
74,977
76,687
 
Premises
2,7592,784
2,6712,734
2,7592,736
8,278
8,209
Equipment
3,3343,369
3,2893,341
3,2083,296
10,043
9,763
Total Occupancy
6,0936,153
5,9606,075
5,9676,032
18,321
17,972
 
Legal Fees
349357
280316
558251
1,022
1,130
Professional Fees
1,3321,258
1,4381,406
1,3301,459
3,996
4,195
Processing Services
1,6371,777
1,4551,752
1,5451,775
5,166
5,114
Advertising
773726
658980
749645
2,479
2,025
Telephone
728730
736703
755731
2,162
2,239
Insurance -– Other
510656
541593
501509
1,760
1,555
Other Real Estate Owned, net
 
25(92)
26(29)
(118)(1,126)
(96)
(1,514)
Pension Settlement
209102
572169
-500
480
2,500
Miscellaneous
2,7213,405
3,7583,150
3,1253,681
9,274
10,398
Total Other
 
8,2848,919
9,4649,040
8,4458,425
26,243
27,642
Total
 
Noninterest Expense
 
$
39,23339,810
 
$
40,20740,498
 
$
40,47639,702
$
119,541
$
122,301
39
Significant components of noninterest expense are discussed in more detail
 
more detail below.
37
Compensation
.
 
Compensation expense totaled $24.9$24.7 million for the firstthird quarter of 2022 an increasecompared
 
to $25.4 million for the second
quarter of $0.12022 and $25.2 million or less thanfor the third quarter of 2021.
The $0.7 million decrease from the second quarter of 2022 was
1.0%, overprimarily attributable to lower compensation expense of $0.6 million which
reflected lower variable/performance-based compensation
expense at CCHL and CCSW totaling $1.5 million, partially offset
by higher variable/performance-based compensation of $0.6
million and base salaries (primarily annual merit raises) of $0.2
million at the fourthBank.
Compared to the third quarter of 2021, and athe $0.5
million decrease of $1.2 million,in compensation expense reflected lower variable/performance
 
or 4.6%, from-based compensation at CCHL totaling $1.5 million,
partially offset by higher variable/performance-based compensation
of $0.7 million and base salaries of $0.3 million at the Bank.
For the first nine months of 2022, compensation expense totaled $75.0
million compared to $76.7 million for the same period of 2021
with the $1.7
million decrease attributable to lower variable/performance-based compensation
at CCHL of $7.0 million, partially
offset by higher variable/performance-based
compensation totaling $2.8 million, base salaries (merit and new market staffing
additions) of $2.0 million, and associate insurance expense (utilized self-insurance
reserves in 2021) of $0.6 million at the Bank.
Occupancy
.
Occupancy expense totaled $6.2
million for the third quarter of 2022 compared to $6.1 million for the second quarter
of
2022 and $6.0 million for the third quarter of 2021.
For the first nine months of 2022, occupancy expense totaled $18.3 million
compared to $18.0 million for the same period of 2021.
Compared to the nine month period of 2021, the increase was attributable to
higher software expense and banking office
lease expense.
Other
.
Other expense totaled $8.9 million for the third quarter of 2022 compared
to $9.0
million for the second quarter of 2022 and
$8.4 million for the third quarter of 2021.
 
Compared to the fourthsecond quarter of 2022, the $0.1 million decrease was primarily due
to
lower advertising expense of $0.3 million and professional fees of $0.1
million, partially offset by higher miscellaneous expense
of
$0.2 million (debit card losses).
Compared to the third quarter of 2021, the $0.1$0.5 million increase in salary expense was primarily
 
attributable to higher commission
other real estate expense of $0.7$1.0 million,
related to higher insurance revenues that was partially offset by
 
by lower commissionpension settlement expense of $0.6$0.4 million.
For the first nine months of 2022, other expense totaled $26.2 million related
compared to $27.6 million for the same period of 2021 with the
$1.4 million decrease primarily attributable to lower mortgage
banking revenues.
Compared to the first quarter of 2021, the decrease reflected lower salarypension settlement expense
 
of $1.8$2.0 million, partially offset
by higher associate benefitmiscellaneous expense of $0.6 million.
The decline in salary expense reflected lower commission expense of $2.6$1.1
million, related to mortgage banking revenuesand professional fees of $0.2 million, partially offset
 
by higher commissionexpense for other real estate expense of $0.9$1.4 million, related
advertising of $0.4 million, and insurance–other of $0.2 million.
A lower level of lump sum retirements in 2022 drove the decrease in
pension settlement expense compared to insurancethe three and nine month periods
of 2021.
We expect additional
pension settlement expense
revenues.for the remainder of 2022 based on our current estimate of lump sum pension
pay-outs to retirees.
Lower compliance support costs
drove the decline in professional fees.
The higher level of other real estate expense was attributable to gains from the
sale of two
banking offices
in 2021.
 
The increase in associate benefitsadvertising expense was attributable to higher associate insurance expense
–
for the first quarter of
2021
we did not recognize expense due to the utilization of reservesis related to our self-insurednew market expansion and return
 
plan.of brand advertising to
Occupancy.
pre-pandemic levels.
 
Occupancy expense (including premises and equipment) totaled $6.1
million for the first quarter of 2022,Higher FDIC insurance costs related to an increase of
$0.1 million or 2.2% overin asset size drove the fourth quarter of 2021 and an increase
 
of $0.1 million, or 2.1%, over the first quarter of 2021.in insurance-other.
 
The
increase over both prior periods was primarily related to
software additions related to certain risk management and strategic initiatives.
Other
.
Other noninterestdecrease in miscellaneous expense totaled $8.3 million for the first quarter of
2022, a decrease of $1.2 million, or 12.5%, from the
fourth quarter of 2021 and a decrease of $0.2 million, or 1.9%, from
the first quarter of 2021.
The decrease from the fourth quarter of
2021 was primarily attributable to lower miscellaneous expense (pension
 
expense for our base pension plan service cost of $1.6$3.7 million
that was partially offset by a higher level of
other loss expense of $0.2 million).for travel/entertainment
 
Compared to the first quarter of 2021, the decrease was primarily driven by lower
miscellaneous$0.5 million, mortgage servicing rights (“MSR”) of $0.5 million,
expense (pension expense of $0.9 million partially offset by
higher other losses of $0.6 million, a $0.3
million expense for our VISA share swap agreement,
loan servicing costs of $0.2 million, higher MSR amortization of $0.1credit
million, hiring expensebureau/appraisal fees of $0.1 million, and a $0.3 million favorable
MSR valuation reserve adjustment in the first quartertraining costs of 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.$0.1 million.
 
Our operating efficiency ratio (expressed as noninterest
 
expense as a percentpercentage of the sum of taxable-equivalent net interest income plus
plus noninterest income) was 77.55% 70.66%
for the firstthird quarter of 2022 compared
to 81.29%75.96% for the fourthsecond quarter of 20212022 and 74.36% 73.09%
for the
firstthe third quarter of 2021.
For the first nine months of 2022, this ratio was 74.60% compared to 75.83%
for the same period of 2021.
 
Income Taxes
We realized income
 
tax expense of $2.2$3.1 million (effective rate of 20%21.4%) for the first
third quarter of
2022 compared to $2.0$2.2 million
(effective rate of 22%19.4%) for the fourthsecond quarter of 20212022
 
and $2.8$2.9 million (effective rate of 19%20.3%) for the firstthird quarter of 2021.
 
TaxFor
expense for the fourth quarterfirst nine months of 2021 was unfavorably impacted by discrete
2022, we realized income tax expense of $0.1 million. $7.5
million (effective rate of 20.3%) compared to $7.8 million
(effective rate of 19.4%) for the same period of 2021.
The increase in the effective tax rate in 2022 was primarily attributable to a
lower level of pre-tax income from CCHL as the noncontrolling
interest adjustment for CCHL is accounted for as a permanent tax
adjustment.
Absent discrete items, we
expect our annual effective tax rate to approximate 19%
 
-20%approximate 21% in 2022.
FINANCIAL CONDITION
Average earning
 
earning assets totaled $3.939$4.010 billion for the firstthird quarter of 2022, an increase
of $147.5$35.7 million, or
3.9% 0.9%, over the fourthsecond
quarter of 2021,2022, and an increase of $440.9$218.6 million, or 12.6%5.8%, over
 
the firstfourth 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 2021both prior periods was
primarily driven by higher deposit balances (see below –
Deposits
).
The mix of earning assets continues to improve driven by strong
loan growth.
 
– Deposits).
40
Investment Securities
Average investment
 
s
 
increased $68.1decreased $24.0 million, or 6.9%, over2.1% from the fourthsecond quarter of 20212022 and increased $526.5
 
$129.6 million, or 98.8%13.1%, over
the firstfourth quarter of 2021.
 
Our investment portfolio represented 26.9%27.9% of our average earning
assets for the first
third quarter of 2022
compared to 28.8% for the second quarter of 2022 and 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 a portion of
the proceeds and/or purchaseinto 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 AvailableAvailabl
 
-for-Salee-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
 
During the first quarter ofAt September 30, 2022, we purchased securities under
both the AFS and HTM designations.
At March 31, 2022, $624.4$416.7 million, or 54.6%38.1%, of our investment portfolio
 
was classified as AFS,
and $518.7$676.2 million, or 45.3%61.8%,
classified as HTM.
 
The average maturity of our total portfolio at March 31,September 30, 2022 was 3.51
 
was 3.63 years
compared to 3.51 years at June 30, 2022 and 3.63 years and 2.78
years at December 31, 2021 and March 31, 2021, respectively.2021.
 
During the quarter, to mitigate risk to AOCI due to
higher interest rates, we reclassified 33 U.S. Treasury
obligations totaling $168.4 million with unrealized losses of $9.4 million
38
from
AFS to HTM.
At September 30, 2022, $8.8 million was remaining in unrealized losses relating
to these securities.
We determine
 
the classification of a security at the time of acquisition based on how the purchase will affect
 
our asset/liability strategy
and future business plans and opportunities.
 
We consider multiple
 
factors in determining classification, including regulatory
 
capital
requirements, volatility in earnings or other comprehensive income,
 
and liquidity needs.
 
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with these securities recorded
 
net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
 
HTM securities are acquired or owned with the intent of holding
 
them to
maturity.
 
HTM investments are measured at amortized cost.
 
We do not
 
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maintmaintain
 
ain a trading portfolio.
At March 31,September 30, 2022, there were 673897 positions (combined AFS and HTM)
 
with unrealized losses totaling $49.9 million.$97.5 million (see Note 2
– Investment Securities in the Notes to Consolidated Financial Statements for
 
Of these 673detail by category).
positions, 50187 of these positions are U.S.
Treasury bonds and carry the full faith and
credit of the U.S. Government.
 
Government (US Treasuries, SBA securities, and
GNMA
pools) and682 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 ofentities.
We believe 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
128 positions (municipal(Municipal securities and corporate bonds, and asset backed securities)bonds) have
 
have a
credit component.
 
At March 31,September 30, 2022, all CMO,
MBS, SBA, US Agencies, and Treasury
bonds held were AAA rated. Corporatecorporate debt securities had an allowance for credit losses of
 
credit losses
totaling $21,000 at March 31, 2022$28,000 and municipal
securities had an allowance of $13,000. At September 30, 2022, all CMO, MBS, SBA,
 
for credit losses totaling $15,000.U.S. Agency,
 
and U.S. Treasury bonds held
were AAA rated.
Loans HFI
Average loans
 
held for investment (“HFI”) increased $15.3$179.4 million, or 0.8%8.6%, over the second quarter of
2022 and increased $315.8
million, or 16.2%, over the fourth quarter of 20212021.
 
and decreased $80.8
Period end loans increased $132.5 million, or 4.0%6.0%, fromover the firstsecond quarter of 2021. Excluding SBA PPP loans, average
 
loans HFI increased $18.8of
2022 and $414.7 million, compared to
the fourth quarter of 2021, and increased $115.9
million compared to 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)or 21.5%,
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
The growth in 2022 has been broad based with increases realized
increases were realized in mostall loan categories, with the largest growthmore significantly,
 
residential mortgage, residential construction and commercial
real estate.
The slowdown in
secondary market residential loan sales has allowed us to book a steady flow
of CCHL’s
adjustable rate production in commercial loans (primarily institutional) and consumerour loan
loans (indirect auto).portfolio throughout 2022.
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.remains strong.
 
Nonperforming assets (nonaccrual loans and other real estate) totaled $2.7$2.
4
million at March 31,September
30, 2022 compared to $3.2 million at June 30, 2022 and $4.3 million at December 31, 2021
 
and $5.5 million at March 31, 2021.
 
At March 31,September 30, 2022, nonperforming
nonperforming assets as a percentagepercent of total assets totaledequaled 0.06% compared to 0.07% at June 30, 2022
 
toand 0.10% at December 31, 2021 and 0.14% at March 31,
2021.
 
Nonaccrual
loans totaled $2.7 $2.4
million at March 31,September 30, 2022, a $1.6$0.7 million decrease
from December 31, 2021June 30, 2022 and a $2.8 $1.9
million
decrease from March
December 31, 2021.
 
The $4.4 million increase inFurther, classified loans increased $1.4
million over the fourthsecond quarter of 2021,2022 to $21.0 million.
 
reflects one loan
relationship that is in the loan workout process and has been reserved
for at March 31, 2022.
 
41
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,September 30, 2022, the allowance for credit losses for HFI loans totaled $20.8
 
$22.5 million compared to $21.3 million at June 30, 2022
and $21.6 million at December 31,
2021 and $22.0 million at March 31, 2021.
 
Activity within the allowance is detailedprovided in Note 3 to the consolidated financial statements.
statements.The $1.2 million increase in the allowance for the third quarter was driven
by incremental reserves needed for loan growth and, to a
lesser extent, a higher projected rate of unemployment and its potential
effect on rates of default.
Net charge-offs decreased $0.4
million to $0.7 million for the third quarter of 2022.
 
At March 31,September 30, 2022, the allowance represented 1.05%0.96% of HFI
loans and
provided coverage of 761%935% of nonperforming
loans compared to
0.96% and 678%, respectively, at June
30, 2022, and 1.12% and
500%, respectively,
 
at December 31, 2021, and 1.07% and 411%, respectively,
at March 31, 2021.
 
At March 31,September 30, 2022, the allowance for credit losses for unfunded commitments
 
commitments totaled $3.0 million compared to $2.9 million at June 30,
2022 and $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$3.770 billion for the firstthird quarter of 2022, an increase of $164.9$4.5 million, or 0.1%, over
 
or 4.6%, over the fourthsecond quarter
of 20212022 and $474.6$220.7 million, or 14.6%6.2%, over the first quarter of 2021.
Growth over the fourth quarter of 2021 was primarily2021.
attributable to an increase in seasonal public fund deposits. Compared to the firstsecond quarter 2021,of 2022, the increase reflected
higher noninterest bearing and savings balances.
 
Compared to the fourth quarter of 2021, we have had 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 additiongrowth. We
continue to growth related to multiple governmentclosely monitor our cost of deposits and deposit mix as we manage
 
stimulus programs in response tothrough the Covid-19 pandemic, suchcurrent rising rate
as those under the CARES Act and the American Rescue Plan Act.environment.
 
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 tostrong given our strong overnight funds sold position.current level of
 
The Bank continues to strategically consider ways to safely
deploy a portion of this liquidity.
overnight funds.
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 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.
42
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.
40
The statement of financial condition is subject to testing for interest rate shock
 
possibilities to indicate the inherent interest rate risk.
 
We prepare
 
a current base case and several alternative interest rate simulations (-100,(-300, -200, -100,+100, +200,
 
+300,200, +300, and +400 basis
points (bp)), at
least once per quarter,
and report the analysis to
ALCO, our Market Risk Oversight Committee (“MROC”), our
Enterprise Risk
Oversight Committee (“EROC”) and the Board of Directors.
 
(The -200bp-300bp rate scenario was not modeled startingreintroduced into the
model beginning in the second halfthird quarter of
2019 2022 due to the lowhigher interest rate environment below 2.00%)
environment). We augment
 
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.
Our goal is to structure the statement of financial condition so that net interest earnings at risk over
 
12-month and 24-month periods
and the economic value of equity at risk do not exceed policy guidelines
 
at the various interest rate shock levels. We
 
attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate
 
liabilities with a similar volume of floating-rate assets,
by keeping the average maturity of fixed-rate asset and liability contracts
 
reasonably matched, by managing the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing
 
basis.
 
 
Analysis.
 
Measures
of net interest income at risk produced by simulation analysis are indicators of
 
indicators of an institution’s short-term
performance in alternative rate environments.
 
These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES
 
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
March 31,-10.0%
-12.5%
September 30, 2022
27.0%15.9%
20.1%11.9%
13.2%7.8%
6.4%4.0%
-7.4%-6.8%
December 31, 2021-14.9%
36.6%-22.8%
27.2%June 30,2022
17.8%19.3%
8.7%14.5%
-6.2%9.6%
4.9%
-10.3%
-17.6%
n/a
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
March 31,-12.5%
-15.0%
September 30, 2022
46.8%36.7%
35.3%29.1%
23.9%21.5%
12.8%14.2%
-9.9%-4.4%
December 31, 2021-16.8%
55.0%-28.7%
40.5%June 30,2022
26.1%39.3%
12.2%30.3%
-11.1%21.3%
12.6%
-11.5%
-22.6%
n/a
The Net Interest Income (“NII”) at Risk position indicates
 
that in the short-term, all rising rate environments will positively impact
 
the
net interest margin of the Company,
 
while a declining rate environment of 100bp environments
will have a negative impact on the net interest margin.
margin. TheseCompared to the second quarter of 2022, these metrics became less favorable
in the rising rate scenarios primarily due to loan growth,
which reduced our level of overnight funds and made us slightly less asset sensitive.
 
compared to the prior quarter as slightly longer duration assetsThe converse is true in that metrics became more
were purchased. The percent change in NII became less favorable in the down
rate scenario as the NII base increasedscenarios due to higherloan growth which increased
asset duration and therefore protection against falling rates.
The percent change over both a 12-month and 24-month shock are outside
of policy in a rates down 200 bps and now has more roomdown 300 bps
scenario due to fall. All scenarios are within policy.our limited ability to lower our deposit rates relative to the
decline in market rate.
 
The measures of equity value at risk indicate our ongoing economic value
 
by considering the effects of changes in interest rates on all
of our cash flows by discounting the cash flows to estimate the present value of
 
assets and liabilities. The difference between these
discounted values of the assets and liabilities is the economic value of equity,
 
which in theory approximates the fair value of our net
assets.
43
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
March 31,-20.0%
-25.0%
September 30, 2022
 
20.2%11.9%
16.2%9.6%
11.5%6.8%
6.3%3.9%
-14.7%-8.0%
December 31, 2021-18.7%
31.5%-31.4%
24.6%June 30, 2022
16.5%14.4%
8.2%11.7%
-19.0%8.3%
4.7%
-11.7%
-25.4%
n/a
EVE Ratio (policy minimum 5.0%)
18.9%20.3%
18.0%19.5%
16.9%18.7%
15.9%17.9%
12.3%15.3%
13.3%
11.0%
(1) Down 200, 300, andThe down 400 bp rate scenarios havescenario has been excluded due to the curre
 
currentnt interest rate environment.
41
 
A down 300 bp rate scenario was
added in the third quarter of 2022.
At March 31,September 30, 2022, the economic value of equity was favorable
 
in all rising rate environments and unfavorable in athe falling rate
environment.environments. Compared to the second quarter of 2022, EVE metrics became
less favorable in a rising rate environment primarily due
due to longer duration investments purchased in the
investment portfolio, use of cash to fund loan growth and became more favorable in the rates down
 
down scenario as loan growth extended our nonmaturity deposits became more valuable asasset
rates rose.duration.
 
EVE is currently in compliance with policy in all rate scenarios.scenarios as the EVE ratio in each
rate scenario exceeds 5.0%.
As the interest rate environment and the dynamics of the economy continue to change,
 
additional simulations will be analyzed to
address not only the changing rate environment, but also the change
 
in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
LIQUIDITY AND CAPITAL
 
RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our
 
cash needs.
 
Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase securities or repay deposits and
 
other liabilities in accordance with their
terms, without an adverse impact on our current or future earnings.
 
Our liquidity strategy is guided by policies that are formulated and
monitored by our ALCO and senior management, which take into account
 
the marketability of assets, the sources and stability of
funding and the level of unfunded commitments.
 
We regularly evaluate
 
all of our various funding sources with an emphasis on
accessibility, stability,
 
reliability
 
and cost-effectiveness.
 
Our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily from securities sold under
 
repurchase agreements, federal funds purchased and
FHLB borrowings.
 
We believe that the cash
 
generated from operations, our borrowing capacity and our access to capital resources
 
are
sufficient to meet our future operating capital and funding requirements.
 
At March 31,September 30, 2022, we had the ability to generate $1.479 billion
 
$1.477 billion in additional liquidity through all of our available resources (this
excludes $790$497.7 million in overnight funds sold).
 
In addition to the primary borrowing outlets mentioned above, we also have
 
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
 
Window and through brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed a Contingent
 
Liquidity Plan, which addresses various liquidity stress
levels and our response and action based on the level of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level increases that certain credit facilities may
 
no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on events that could potentially occur
 
occur at the Bank and report results to ALCO, our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At March 31,September 30, 2022, we believe the
liquidity available to us was sufficient to meet our on-going 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 asset-backed securities.
 
The weighted average life
of the portfolio was approximately 3.633.51 years at March 31,September 30, 2022, and
the available
for sale portfolio had a net unrealized pre-tax loss
loss of $31.5$45.0 million.
 
OurWe maintained
an average net overnight funds position (defined(interest deposits with banks plus
Fed FED funds sold less FedFED funds
purchased) was $873.1sold
position of $570.0 million
in the firstthird quarter of 2022 compared to an average net overnight funds$691.9
 
sold positionmillion in the second quarter of 2022 and $789.1 million in
the fourth quarter of 2021
and $814.6 million in the first quarter of 2021.
 
The increase over the fourth quarter of 2021 was primarily due todeclining overnight funds position reflects growth in our
seasonal deposits.
The increase compared to the first quarter 2021 was driven by strong core deposit growth,
in addition to pandemic
related stimulus programs.
average loans.
We expect our
 
capital expenditures will be approximately $8.0 million over the next 12 months, which
 
will primarily consist of
construction of new offices, office remodeling,
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.
44
Borrowings
Average short
 
term borrowings totaled $32.4$46.7 million for the firstthird quarter of 2022 compared to $46.4
 
$31.8 million for the second quarter of
2022 and $46.4 million for the fourth quarter of
2021 and $67.0 million for the first quarter of 2021. The variance overcompared
to both prior
periods was primarily attributable to the fluctuationan
of residential mortgage increase in short-term repurchase agreements and CCHL’s
warehouse borrowings at CCHL.line.
 
Additional detail on these borrowings is provided in Note
4 – Mortgage
Banking Activities in the Consolidated Financial Statements.
42
We have issued two
 
junior subordinated deferrable interest notes to our wholly owned
 
Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
November 2004, of which $10 million was retired in April 2016.
 
The second
note for $32.0 million was issued to CCBG Capital Trust II in
 
May 2005.
 
The interest payment for the CCBG Capital Trust I
borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
 
LIBOR plus a margin of 1.90%.
 
This note matures
on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II borrowing is due
 
quarterly and adjusts quarterly to a
variable rate of three-month LIBOR plus a margin of 1.80%.
 
This note matures on June 15, 2035.
 
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,
 
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
 
the impact of the expected
discontinuation of LIBOR on our two junior subordinated 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
 
table on page 32.33.
 
At March 31,September 30, 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 $372.1$373.2 million at March 31,September 30, 2022
compared to $383.2
$371.7 million at December 31, 2021June 30, 2022 and $324.4$383.2 million at
MarchDecember 31, 2021.
 
DuringFor the first quarternine months of 2022, shareowners’ equity was positively impacted by
net income attributable to
common shareowners of $8.5$28.5 million, a $0.2
million decrease in the accumulated other comprehensive loss for our
pension plan, a $1.4$3.3 million increase in the fair
value of the
interest rate swap related to subordinated debt,
stock compensation accretion of $0.9 million, net adjustments totaling $0.5 million
 
$0.8 million related to transactions under our stock
compensation plans, and stock compensation accretion of $0.2 million.a $0.4 million decrease in the accumulated other
comprehensive loss for our pension plan.
 
Shareowners’
equity was reduced by common stock dividends
of $2.7$8.3 million ($0.160.49 per
share) and a $19.1$35.6 million increase in the
unrealized loss
on investment securities.
At March 31,September 30, 2022, our common stock had a book value of $21.94 $21.95
per diluted
share compared to $22.63$21.89 at December 31, 2021
June 30, 2022 and
$19.2222.63 at MarchDecember 31, 2021.
 
Book value is impacted by the net after-tax unrealized gains and
losses on AFS investment
securities.
 
At
March 31,At September 30, 2022, the net loss was $23.6$40.2 million compared to a net loss of $4.5$31.7
 
million at December 31, 2021June 30, 2022 and a $1.2$4.6 million netat
gain at MarchDecember 31, 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
 
715.
 
At March 31,September 30, 2022, the net pension liability reflected in
in other comprehensive loss was $13.0$12.8 million compared to $13.2$12.9 million
 
at June 30, 2022 and $13.2 million at December 31, 2021 and $47.1 million at March 31, 2021.
This liability is re-measured annually on December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant
assumptions used in calculating the liability are discussed in our 2021 Form
 
10-K “Critical Accounting Policies” and include the
weighted average discount rate used to measure the present value of the pension
 
liability, the weighted average
 
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 impact to the pension liability based on a 25-basis point increase
 
or decrease in long-term corporate bond rates used to
discount the pension obligation would decrease or increase the pension
 
liability by approximately $4.6
 
million (after-tax) using the
balances
from the December 31, 2021 measurement date.
 
45
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
 
to financial instruments with off-balance sheet risks in the normal
 
course of business to meet the financing needs of our
clients.
 
At March 31,September 30, 2022, we had $763.9$791.6 million in commitments to extend credit
 
credit and $5.0$5.5 million in standby letters of credit.
 
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
 
any condition established in the
contract.
 
Commitments generally have fixed expiration dates or other termination
 
clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn upon,
 
the total commitment amounts do not necessarily
represent future cash requirements.
 
Standby letters of credit are conditional commitments issued by us to guarantee
 
the performance
of a client to a third party.
 
We use the same credit
 
policies in establishing commitments and issuing letters of credit as we do for on-
balance sheet instruments.
43
If commitments arising from these financial instruments continue to require
 
require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet our on-going
 
obligations.
 
In the event these commitments
require funding in excess of historical levels, management believes current
 
liquidity, advances available from the
 
the FHLB and the
Federal Reserve, and investment security maturities provide a sufficient
 
source of funds to meet these commitments.
Certain agreements provide that the commitments are unconditionally
 
cancellable by the bank and for those agreements no allowance
for credit losses has been recorded.
 
We have recorded
 
an allowance for credit losses on loan commitments that are not
unconditionally cancellable by the bank, which is included in other
 
liabilities on the consolidated statements of financial condition and
totaled $3.0 million at March 31,September 30, 2022.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
 
Financial Statements included in our 2021 Form 10-K.
 
The preparation of our Consolidated Financial Statements
 
in accordance with GAAP and reporting practices applicable to the banking
industry requires us to make estimates and assumptions that affect
 
the reported amounts of assets, liabilities, revenues and expenses,
and to disclose contingent assets and liabilities.
 
Actual results could differ from those estimates.
We have identified
 
accounting for (i) the allowance for credit losses, (ii) valuation of goodwill, (iii) pension
 
benefits, and (iv) income
taxes as our most critical accounting policies and estimates in that they are important
 
are important to the portrayal of our financial condition and
results, and they require our subjective and complex judgment as a result of
 
the need to make estimates about the effects of matters
that are inherently uncertain.
 
These accounting policies, including the nature of the estimates and types of
 
assumptions used, are
described throughout this Item 2, Management’s
 
Discussion and Analysis of Financial Condition and Results of Operations, and
 
Part
II, Item 7, Management’s
 
Discussion and Analysis of Financial Condition and Results of Operations included
 
in our 2021 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
46
TABLE I
AVERAGE
BALANCES & INTEREST RATES
Three Months Ended September 30,
Nine Months Ended September 30,
 
March 31, 2022
December 31, 2021
March 31, 2022
2021
 
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
$
 
43,00455,164
$
 
397486
3.754.82
%
$
 
62,80967,753
$
 
522497
3.292.91
%
$
 
106,24250,387
$
 
9701,594
3.704.23
%
$
83,558
$
2,033
3.24
%
Loans Held for Investment
(1)(2)
1,963,5782,264,075
21,81127,354
4.504.76
1,948,3241,974,132
22,29625,458
4.545.12
2,044,3632,105,211
22,48372,598
4.464.61
2,018,168
72,036
4.76
Taxable Securities
1,056,7361,117,789
2,8894,359
1.101.55
987,700904,962
2,4932,333
1.001.03
528,8421,105,822
1,86311,082
1.411.34
708,606
6,232
1.17
Tax-Exempt Securities
(2)
2,409
10
1.60
3,3802,939
17
2.072.30
3,8444,332
25
2.612.31
Federal 2,614
37
1.90
3,904
73
2.49
Funds Sold and Interest Bearing
Deposits569,984
873,0973,231
4092.25
0.19741,944
789,100
300285
0.15
814,638710,559
2135,048
0.110.95
791,466
698
0.12
Total Earning Assets
3,938,8244,009,951
25,51635,447
2.633.51
%
3,791,3133,693,123
25,62828,598
2.683.07
%
3,497,9293,974,593
25,55490,359
2.963.04
%
3,605,702
81,072
3.01
%
Cash & Due From Banks
74,25379,527
73,75272,773
68,97877,856
71,956
Allowance For Credit Losses
(21,655)(21,509)
(22,127)(22,817)
(24,128)(21,382)
(23,241)
Other Assets
275,353289,709
284,999283,534
278,742284,546
281,162
TOTAL ASSETS
$
 
4,266,7754,357,678
$
 
4,127,9374,026,613
$
 
3,821,5214,315,613
$
3,935,579
 
Liabilities:
NOW Accounts
$
 
1,079,9061,016,475
$
 
86868
0.030.34
%
$
 
963,778945,788
$
 
72
0.03
%
$
 
985,5171,042,958
$
 
761,074
0.14
%
$
965,839
$
222
0.03
%
Money Market Accounts
285,406288,758
3371
0.050.10
289,335282,860
34
0.05
269,829286,804
33140
0.07
274,990
100
0.05
Savings Accounts
599,359643,640
7280
0.05
573,563551,383
7168
0.05
492,252623,986
60229
0.05
524,710
192
0.05
Other Time Deposits
97,05494,073
33
0.14
101,037102,765
36
0.14
102,08995,408
3999
0.14
102,619
112
0.15
Total Interest Bearing Deposits
2,061,7252,042,946
2241,052
0.20
%
1,882,796
210
0.04
1,927,713%
2132,049,156
1,542
0.10
%
1,868,158
626
0.04
1,849,687
208
0.05%
Short-Term Borrowings
32,35346,679
192536
2.404.56
46,35549,773
307317
2.632.53
67,03336,991
4121,071
2.493.87
55,923
1,053
2.52
Subordinated Notes Payable
52,887
317443
2.40
52,887
306
2.263.28
52,887
307
2.322.27
52,887
1,130
2.82
52,887
922
2.30
Other Long-Term Borrowings
833580
96
4.494.74
1,4141,652
1214
3.503.37
2,736710
2123
3.184.58
2,046
51
3.29
Total Interest Bearing Liabilities
2,147,7982,143,092
7422,037
0.140.38
%
2,028,3691,987,108
838848
0.160.17
%
1,972,3432,139,744
9483,766
0.190.24
%
1,979,014
2,652
0.18
%
Noninterest Bearing Deposits
1,652,3371,726,918
1,621,4321,564,892
1,389,8211,700,800
1,490,787
Other Liabilities
72,16698,501
114,657112,707
111,05086,055
110,526
TOTAL LIABILITIES
3,872,3013,968,511
3,764,4583,664,707
3,473,2143,926,599
3,580,327
Temporary Equity
10,5189,862
13,33920,446
21,97710,156
22,920
 
TOTAL SHAREOWNERS’ EQUITY
383,956379,305
350,140341,460
326,330378,858
332,332
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
 
4,266,7754,357,678
$
 
4,127,9374,026,613
$
 
3,821,5214,315,613
$
3,935,579
 
Interest Rate Spread
2.493.13
%
2.522.91
%
2.772.80
%
2.83
%
Net Interest Income
$
24,77433,410
$
24,79027,750
$
24,60686,593
$
78,420
Net Interest Margin
(3)
2.553.31
%
2.602.98
%
2.852.91
%
2.91
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loanloans fees of $0.2$0.3 million $0.4
 
million and $1.2$3.2 million for the three month periods ended September
 
30, 2022 and
 
2021, respectively, and $0.8 million and $6.3 million for the three monthsnine month periods ended March 31, 2022, December 31,September
 
202130, 2022 and March 31, 2021, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments
 
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earningsearning assets.
4547
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, 2021.
Item 4.
 
CONTROLS AND PROCEDURES
At March 31,September 30, 2022, the end of the period covered by this Form 10-Q, our management,
 
management, including our Chief Executive Officer and
Chief Financial Officer, evaluated
 
the effectiveness of our disclosure controls and procedures (as defined
 
in Rule 13a-15(e) under the
Securities Exchange Act of 1934).
 
Based upon that evaluation, the Chief Executive Officer and Chief Financial
 
Officer concluded
that, as of the end of the period covered by this report these disclosure controls and procedures
 
were effective.
Our management, including our Chief Executive Officer
 
and Chief Financial Officer, has reviewed
 
our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
 
Act of 1934).
 
During the quarter ended on March 31,September 30, 2022,
other than the above, there have been no significant changes in our internal control over
 
control over financial reporting during our most recently
completed fiscal
quarter that have materially affected,
or are reasonably likely to
materially affect, our internal control over
financial
reporting.
 
 
PART
 
II.
 
OTHER INFORMATION
Item 1.
 
Legal Proceedings
We are party
 
to lawsuits arising out of the normal course of business.
 
In management's opinion, there is no known pending litigation,
the outcome of which would, individually or in the aggregate, have a material effect
 
on our consolidated results of operations,
financial position, or cash flows.
Item 1A.
 
Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider
 
carefully consider the factors discussed in Part I,
Item 1A. “Risk Factors” in our 2021 Form 10-K, as updated in our subsequent
 
quarterly reports. The risks described in our 2021 Form
10-K and our subsequent quarterly reports are not the only risks facing us. Additional risks
 
risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
 
affect our business, financial condition and/or operating
results.
Item 2.
 
Unregistered Sales of Equity Securities and Use of
 
Proceeds
None.
Item 3.
 
Defaults Upon Senior Securities
None.
Item 4.
 
Mine Safety Disclosure
Not Applicable.
 
Item 5.
 
Other Information
None.
 
 
4749
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
 
has duly caused this Report to be signed on its
behalf by the undersigned Chief Financial Officer hereunto duly
 
authorized.
CAPITAL CITY
 
BANK GROUP,
 
INC.
 
(Registrant)
/s/ J. Kimbrough Davis
 
J. Kimbrough Davis
Executive Vice President
 
and Chief Financial Officer
(Mr. Davis is the Principal Financial
 
Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: May 4,October 31, 2022